MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
TO: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP
FROM: Pamela Cross, Responsible Partner, Calderwood & Harkness LLP, Funds & Asset Management Group Theresa Kim, Lead Associate, Calderwood & Harkness LLP, Funds & Asset Management Group
DATE: January 8, 2023
RE: Analysis of Material Impediment Event Declaration by Meridian Infrastructure GP IV LLC — Compliance with Limited Partnership Agreement §7.04
MATTER NO.: 1023-00001
I. Executive Summary
On January 9, 2023 (anticipated), Meridian Infrastructure GP IV LLC (the "GP"), in its capacity as general partner of ICM Cascadia Co-Invest, LP (the "Vehicle" or "Co-Invest"), intends to issue a formal notice declaring a Material Impediment Event under Section 7.04 of the Amended and Restated Agreement of Limited Partnership dated July 29, 2022 (the "LP Agreement"), thereby suspending all further capital calls and investment activity with respect to the Vehicle. This memorandum sets forth our analysis of the proposed declaration and its implications for Ironside Capital Management LP ("Ironside" or the "LP").
Calderwood & Harkness LLP ("C&H") has been provided a draft of the Capital Call Suspension Notice prepared by the GP, with the involvement of its counsel, Breckenridge Sloane & Pratt LLP ("BSP"), and has been requested by Ironside to analyze whether the GP's declaration satisfies the substantive and procedural requirements of Section 7.04 of the LP Agreement. We have undertaken this analysis in light of the relevant transaction documents, the factual record, and applicable Delaware law.
The factual basis cited by the GP for the declaration is twofold: (a) the renegotiation of the Bull Run Filtration Project concession by the Portland Metropolitan Water District (the "District"), first notified to Cascadia Renewables Holdings, Inc. ("Cascadia" or the "Target") on October 28, 2022; and (b) the expected failure of certain closing conditions under the Equity Purchase Agreement dated September 15, 2022 (as amended by the First Amendment to the Equity Purchase Agreement dated November 22, 2022, the "EPA"), including, most significantly, the "no Material Adverse Effect" condition to closing.
Conclusion: Based on our analysis, the GP's declaration appears to satisfy both the substantive and procedural requirements of Section 7.04 of the LP Agreement. The factual basis articulated by the GP — specifically, the expected failure of the no-MAE closing condition arising from the unresolved concession renegotiation — provides a sound foundation for the declaration under Prong (a) of the Material Impediment Event definition set forth in Section 7.04(a). The procedural requirements of Section 7.04(b) are substantially met by the draft Capital Call Suspension Notice. However, Ironside should be aware of several important rights and implications triggered by the declaration, including the 18-month wind-down election right under Section 7.04(c), which would ripen on July 9, 2024, and the critical need to actively monitor the status of the EPA outside date, the regulatory approvals, and the debt financing commitments during the resulting dormancy period.
Our detailed analysis, together with our observations and recommendations, is set forth below.
II. Scope and Purpose
This memorandum analyzes whether the GP's anticipated declaration of a Material Impediment Event on January 9, 2023 complies with the substantive and procedural requirements of the LP Agreement. Specifically, C&H examines the following:
1. The definition of "Material Impediment Event" under Section 7.04(a) of the LP Agreement, including its two alternative prongs;
2. Whether the factual circumstances underlying the GP's proposed declaration — principally, the concession renegotiation and the expected failure of closing conditions — satisfy that definition;
3. The procedural requirements for a valid declaration under Section 7.04(b), including notice content, delivery, and timing;
4. The immediate legal consequences of the declaration, including the suspension of capital calls and investment activity, the GP's reporting obligations, and the impact on ancillary agreements and regulatory approvals; and
5. Ironside's rights, obligations, and strategic considerations during the resulting dormancy period, including the wind-down election right under Section 7.04(c), information rights, consent rights, and the advisability of a formal reservation-of-rights letter.
This memorandum does not address the merits of the underlying concession renegotiation as it affects the definition of "Material Adverse Effect" under the EPA, which was previously analyzed in detail in C&H's memorandum dated November 14, 2022 (Analysis of Concession Renegotiation — Impact on Material Adverse Effect Definition Under EPA). That memorandum, which addressed the interplay between the concession renegotiation and the MAE carve-outs in the EPA (including the regulatory-change exception and the industry-wide developments exception), remains current and should be read in conjunction with this memorandum. Similarly, this memorandum does not address Ironside's broader rights and remedies arising from the transaction, including potential claims against the GP or the selling shareholders; those matters will be addressed in a separate forthcoming memorandum that C&H is currently preparing.
For purposes of this memorandum, we have reviewed the following documents and materials, among others: (i) the LP Agreement; (ii) the Side Letter between the GP and Ironside dated July 29, 2022 (the "Side Letter"); (iii) the EPA and the First Amendment thereto; (iv) the draft Capital Call Suspension Notice dated January 9, 2023; (v) correspondence between the GP, BSP, and Ironside regarding the concession renegotiation; (vi) the FERC order in Docket No. EC22-143-000; (vii) the OPUC docket filings in Docket No. UM-2287; and (viii) the debt commitment letter among Atlas National Bank, N.A., Pinnacle Credit Partners LLC, and Cascadia Acquisition Corp. dated August 30, 2022.
III. Background and Factual Context
A. The Co-Investment Vehicle
ICM Cascadia Co-Invest, LP was formed on July 22, 2022, as a Delaware limited partnership, with its Certificate of Limited Partnership filed with the Office of the Delaware Secretary of State (DE SOS File No. 7439218; Employer Identification Number 88-3921457). The Vehicle's registered agent is Cascade Systems, located at 160 Greentree Drive, Suite 101, Dover, Delaware 19904.
The Vehicle has two partners: (i) the GP, Meridian Infrastructure GP IV LLC, a Delaware limited liability company, which holds a 0.01% general partner interest and has made a capital commitment of $30,000; and (ii) Ironside Capital Management LP, a Delaware limited partnership, which holds a 99.99% limited partner interest and has made a capital commitment of $299,970,000. The total committed capital of the Vehicle is $300,000,000.
The Vehicle was formed for the specific purpose of co-investing alongside Meridian Infrastructure Partners Fund IV, LP ("Fund IV") in the acquisition of 100% of the equity of Cascadia Renewables Holdings, Inc. through Cascadia Acquisition Corp., a newly formed Delaware corporation serving as the acquisition vehicle (the "Acquisition"). The LP Agreement, executed on July 29, 2022, governs the rights, obligations, and relationships of the partners. The LP Agreement is governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict-of-laws principles.
Since formation, a single capital call has been made. On August 15, 2022, the GP issued Capital Call Notice No. 1 for an aggregate amount of $22,500,000, representing 7.5% of the total committed capital. This capital call was timely funded by Ironside and the GP in accordance with their respective commitment percentages. The proceeds of the capital call were applied as follows:
As of the date of this memorandum, the Vehicle's unfunded commitment is $277,500,000. No additional capital calls have been made or are currently pending.
B. The Underlying Acquisition
The transaction contemplated by the EPA involves the acquisition of 100% of the outstanding equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204. Cascadia is a diversified infrastructure services company with operations primarily in the Pacific Northwest, including water treatment, renewable energy generation, and related environmental infrastructure services.
The Acquisition was agreed upon at an enterprise value of $1,950,000,000, which implies an EV/EBITDA multiple of approximately 14.1x based on Cascadia's fiscal year 2021 EBITDA of approximately $138,000,000. The capital structure for the Acquisition was designed as follows:
Equity Capitalization: $1,050,000,000
• Fund IV: $750,000,000 (71.43% of total equity)
• ICM Cascadia Co-Invest, LP (the Vehicle): $300,000,000 (28.57% of total equity)
Debt Financing: $1,125,000,000
• Senior secured term loan: $975,000,000 — Atlas National Bank, N.A., as lead arranger and administrative agent, with Pinnacle Credit Partners LLC as co-lender
• Revolving credit facility: $150,000,000 (undrawn at close) — Atlas National Bank, N.A., as administrative agent
• Debt commitment letter executed August 30, 2022
The EPA was executed on September 15, 2022, among the following parties: (i) the Selling Shareholders, consisting of Timberline Growth Equity Fund III, LP (holding approximately 62% of Cascadia's outstanding equity), the Weir Family Trust (holding approximately 18%), and the Management Rollover Pool (holding approximately 20%); (ii) Cascadia Renewables Holdings, Inc., as the Target; and (iii) Cascadia Acquisition Corp., as the Buyer. The EPA is governed by Delaware law.
The EPA originally provided for an outside date of December 31, 2022, after which either party could terminate the agreement if the closing had not occurred and the failure to close was not attributable to a breach by the terminating party. By the First Amendment to the EPA, executed on November 22, 2022, the parties extended the outside date to March 31, 2023, principally to accommodate the then-pending regulatory approvals and the uncertainty introduced by the concession renegotiation. All other material terms of the EPA remained unchanged by the First Amendment.
C. The Concession Renegotiation
On October 28, 2022, the Portland Metropolitan Water District formally notified Cascadia of its intent to renegotiate the terms of the 40-year water-treatment concession for the Bull Run Filtration Project (the "Bull Run Concession"), which was originally executed in approximately 2018. The Bull Run Concession is one of Cascadia's flagship contracts and is central to its water-treatment infrastructure business line.
The District's decision to initiate the renegotiation was prompted by changed regulatory requirements under Oregon Senate Bill 1567, enacted in the 2022 legislative session ("Oregon SB 1567"). Among other things, Oregon SB 1567 imposed new water-quality standards and revised the regulatory framework governing long-term public-private concession agreements in the water-treatment sector, including requirements related to rate-setting methodologies, performance benchmarks, and public reporting obligations. The District took the position that the Bull Run Concession, as originally structured, did not conform to certain of the new requirements imposed by Oregon SB 1567 and that renegotiation was therefore necessary.
The financial significance of the Bull Run Concession to Cascadia is substantial. The concession generates approximately $64,000,000 in annual revenue, representing approximately 13.1% of Cascadia's fiscal year 2021 total revenue of $487,000,000. Any material modification to the economic terms of the concession — including changes to the rate structure, performance-based adjustments, or the concession's duration — could have a meaningful impact on Cascadia's projected revenue and EBITDA, and consequently on the valuation underpinning the Acquisition.
On November 10, 2022, Meridian Infrastructure Partners (through its Managing Director, David R. Hargreaves) notified Ironside of this material adverse development. The notification was transmitted by email from Mr. Hargreaves to Marcus Calloway and Renata Obasi. C&H forwarded and summarized this notification to Renata Obasi by email from Theresa Kim on the same date (November 10, 2022), together with a preliminary assessment of the potential implications for the EPA and the Vehicle.
As of the date of this memorandum, the concession renegotiation remains unresolved. Formal renegotiation sessions between the District and Cascadia commenced in November 2022 and have continued on an intermittent basis through the end of December 2022. We understand from BSP that the parties remain far apart on key economic terms, including the proposed modification of the rate-escalation mechanism and the allocation of costs associated with compliance with the new Oregon SB 1567 requirements. No interim agreement, memorandum of understanding, or other binding or non-binding framework has been reached.
D. Regulatory Status
The Acquisition required several regulatory approvals, the status of which is summarized as follows:
Federal Energy Regulatory Commission (FERC): Approval under Section 203 of the Federal Power Act was received on December 15, 2022, pursuant to FERC's order in Docket No. EC22-143-000. The approval was conditioned on the filing of certain license-transfer documents following the closing of the Acquisition. Importantly, the FERC approval contains an 18-month lapse provision: if the Acquisition does not close within 18 months of the date of the order (i.e., by approximately June 15, 2024), the approval will lapse and a new application will be required. This timeline is a significant consideration during the dormancy period.
Oregon Public Utility Commission (OPUC): An application for approval was filed on October 14, 2022, and assigned Docket No. UM-2287. As of the date of this memorandum, the application remains pending. No order or interim ruling has been issued. The concession renegotiation has introduced additional complexity into the OPUC review process, and we understand from BSP that informal discussions with OPUC staff have suggested that the commission may defer substantive review until the outcome of the renegotiation is known. The parties have not yet formally requested a stay of the OPUC proceedings, although such a request may be advisable during the dormancy period.
Committee on Foreign Investment in the United States (CFIUS): A voluntary notice was filed with CFIUS, and acknowledgment of receipt was provided on September 20, 2022. CFIUS completed its review without requiring further action, and no additional conditions or restrictions were imposed. The CFIUS clearance is effectively final and does not require further monitoring.
E. Current Posture
As of the date of this memorandum, the concession renegotiation between the District and Cascadia remains unresolved, with no clear timetable for resolution. The GP has determined that the Acquisition cannot close under the current circumstances, principally because (i) the no-MAE closing condition under the EPA is at substantial risk of not being satisfied in light of the concession renegotiation, (ii) the OPUC approval remains outstanding, and (iii) the uncertainty surrounding the economic terms of the renegotiated concession makes it imprudent to proceed with the investment on the originally underwritten basis.
Accordingly, the GP proposes to issue a formal declaration of a Material Impediment Event under Section 7.04 of the LP Agreement, effective January 9, 2023, and to suspend all further capital calls and investment activity with respect to the Vehicle until further notice. The extended outside date under the EPA remains March 31, 2023.
IV. Analysis of Section 7.04 — Material Impediment Event
A. Text and Structure of Section 7.04
Section 7.04 of the LP Agreement is the principal provision governing the GP's authority to declare a Material Impediment Event, the consequences of such a declaration, and the rights of the LP during and following a period of dormancy resulting from such a declaration. This provision is a negotiated mechanism designed to address situations in which the underlying investment transaction encounters significant obstacles that prevent or are reasonably expected to prevent closing, while preserving the rights of both partners and providing a structured framework for resolving or winding down the Vehicle's affairs.
Section 7.04 consists of three primary subsections:
Section 7.04(a) — Definition of "Material Impediment Event." This subsection defines the circumstances under which the GP may declare a Material Impediment Event. The definition provides two alternative bases (referred to herein as "Prong (a)" and "Prong (b)"), either of which, if satisfied, is independently sufficient to support a declaration.
Section 7.04(b) — Procedural Requirements for Declaration. This subsection sets forth the requirements that must be met for a valid declaration, including the form, content, and delivery of the notice to the LP. It also specifies the immediate consequences of the declaration, including the suspension of capital calls and investment activity.
Section 7.04(c) — Consequences of Declaration; LP Rights. This subsection addresses the rights and obligations of the parties during the dormancy period, including the LP's wind-down election right, which arises after 18 months of dormancy, and the GP's ongoing reporting obligations.
We analyze each of these subsections in turn below.
B. Definition of Material Impediment Event — Section 7.04(a)
Under Section 7.04(a) of the LP Agreement, a "Material Impediment Event" means the occurrence of either of the following:
(a) the failure, or expected failure, of a condition precedent to the closing of the Target Acquisition (as defined in the LP Agreement) that is not reasonably likely to be cured or satisfied within ninety (90) days following the date of the GP's determination (herein, "Prong (a)"); or
(b) the occurrence of a "Material Adverse Effect" (as such term is defined in the Equity Purchase Agreement) with respect to the Target (herein, "Prong (b)").
The definition is disjunctive: satisfaction of either prong is independently sufficient to support a declaration. We analyze each prong in light of the present factual circumstances.
1. Prong (a): Expected Failure of a Condition Precedent Not Reasonably Likely to Be Cured Within 90 Days
Prong (a) focuses on the closing conditions of the underlying acquisition. To invoke this prong, the GP must determine that a condition precedent to closing has failed or is expected to fail, and that such failure is not reasonably likely to be cured or satisfied within 90 days of the GP's determination.
Identification of the Relevant Closing Condition. The EPA contains a number of conditions to the obligation of the Buyer (Cascadia Acquisition Corp.) to consummate the Acquisition at closing. Among the most significant of these is the representation bring-down condition, which requires that the representations and warranties of the Selling Shareholders and the Target set forth in the EPA shall be true and correct in all material respects as of the closing date. In particular, Article VII, Section 7.02(a) of the EPA includes a condition that, since the date of the EPA, no Material Adverse Effect shall have occurred with respect to Cascadia (the "no-MAE closing condition"). The satisfaction of this condition is a prerequisite to the Buyer's obligation to close.
Expected Failure of the No-MAE Closing Condition. The concession renegotiation raises a significant question as to whether a Material Adverse Effect has occurred or is reasonably expected to occur with respect to Cascadia. As discussed in Section III.C above, the Bull Run Concession represents approximately $64 million in annual revenue, or approximately 13.1% of Cascadia's total revenue. The renegotiation was initiated unilaterally by the District in response to Oregon SB 1567, and the economic terms remain deeply uncertain. If the renegotiation results in a material reduction in revenue, an alteration to the rate-escalation mechanism, or other adverse modifications to the concession, Cascadia's financial performance and projected cash flows could be materially impaired.
While C&H's prior memorandum dated November 14, 2022 analyzed this question in detail and concluded that certain carve-outs in the EPA's MAE definition — including, in particular, the regulatory-change exception in clause (iv) of the MAE carve-outs and the industry-wide developments exception in clause (ii) — may apply to shield the concession renegotiation from constituting a MAE, the application of those carve-outs is fact-intensive and subject to reasonable disagreement. The GP may reasonably take the position that the concession renegotiation constitutes, or is reasonably expected to result in, a Material Adverse Effect, and that accordingly the no-MAE closing condition is expected to fail.
We note that the GP need not establish with certainty that the no-MAE closing condition will fail — Prong (a) requires only the "expected failure" of the condition, a standard that contemplates a reasonable assessment of future events rather than a definitive determination. Under Delaware law, the GP's determination is subject to a reasonableness standard, and the GP is afforded a degree of discretion in making this assessment so long as it acts in good faith and on a reasonable basis. Given the magnitude of the Bull Run Concession to Cascadia's revenue, the uncertainty surrounding the renegotiation outcome, and the substantive arguments on both sides of the MAE carve-out analysis, the GP's determination that the no-MAE closing condition is "expected" to fail is within the range of reasonable determinations.
Pending OPUC Approval. In addition to the no-MAE closing condition, the EPA contains a regulatory-approval closing condition requiring, among other things, the receipt of approval from the Oregon Public Utility Commission. As noted in Section III.D above, the OPUC application (Docket No. UM-2287) was filed on October 14, 2022 and remains pending. No order or interim ruling has been issued. Whether the absence of OPUC approval independently constitutes a failure of a closing condition is arguable — the condition has not technically "failed" but rather remains unsatisfied — but the concession renegotiation has effectively stalled the regulatory process, and there is no basis for confidence that OPUC approval will be obtained within any particular timeframe. The pending OPUC application provides additional support for the GP's position that closing conditions are at risk of not being satisfied.
Cure Within 90 Days Is Not Reasonably Likely. Prong (a) requires not only that a condition precedent has failed or is expected to fail, but also that such failure "is not reasonably likely to be cured within ninety (90) days." As of January 8, 2023, the concession renegotiation opened in November 2022 and remains unresolved, with the parties far apart on key economic terms. A 90-day cure period from the anticipated declaration date of January 9, 2023 would extend to approximately April 9, 2023. Based on the complexity of the negotiations, the overlay of Oregon SB 1567's regulatory requirements, and the absence of any interim framework or progress reports suggesting imminent resolution, cure within 90 days is not reasonably likely. This assessment is consistent with BSP's own representations to C&H (communicated in a telephone conference on January 5, 2023) that the GP does not anticipate resolution of the renegotiation within the first half of 2023.
Conclusion on Prong (a): The GP has a reasonable basis to conclude that the expected failure of the no-MAE closing condition satisfies Prong (a) of the Material Impediment Event definition. The concession renegotiation and its uncertain outcome make the no-MAE condition unlikely to be satisfied, the pending OPUC approval provides further support, and cure within 90 days is not reasonably likely given the complexity and current trajectory of the negotiations. We are satisfied that the GP's reliance on Prong (a) is substantively sound.
2. Prong (b): Occurrence of a Material Adverse Effect
Prong (b) provides an alternative basis for a Material Impediment Event declaration: the occurrence of a "Material Adverse Effect" as defined in the EPA with respect to the Target.
This prong requires an actual occurrence of a Material Adverse Effect, as distinguished from the expected failure of a closing condition under Prong (a). The standard is therefore more demanding: the GP must be in a position to assert that a MAE has in fact occurred, not merely that one may be expected.
As analyzed in C&H's prior memorandum dated November 14, 2022, whether the concession renegotiation constitutes a Material Adverse Effect under the EPA involves a multi-factor analysis that considers, among other things:
(i) the quantitative materiality of the affected revenue stream relative to Cascadia's overall business ($64 million in annual revenue, or approximately 13.1% of Cascadia's $487 million total revenue);
(ii) the nature of the adverse development — i.e., whether a renegotiation (as opposed to a termination or permanent revenue reduction) is sufficiently adverse to constitute a MAE;
(iii) the temporal dimension — whether the impact is expected to be durable or transitory;
(iv) the applicability of the MAE carve-outs, including clause (iv) (changes in law or regulation, including Oregon SB 1567) and clause (ii) (industry-wide developments affecting the water-treatment infrastructure sector); and
(v) the "disproportionate impact" qualifier that applies to certain carve-outs — i.e., whether the change disproportionately affects Cascadia relative to comparable companies in the same industry.
Our November 14, 2022 memorandum concluded that the applicability of the carve-outs — particularly the regulatory-change exception — introduces significant uncertainty into the Prong (b) analysis. The renegotiation was directly prompted by Oregon SB 1567, a change in law that facially falls within the regulatory-change carve-out. If that carve-out applies, then the renegotiation would be excluded from the MAE definition notwithstanding its financial magnitude. At the same time, we noted that the "disproportionate impact" qualifier could operate to negate the carve-out if the concession renegotiation disproportionately affects Cascadia relative to its peers — a factual question that depends on the specific terms of the renegotiation and the extent to which other water-treatment concessionaires in Oregon are similarly affected by Oregon SB 1567.
Moreover, the concession renegotiation remains ongoing. No modified terms have been agreed upon, and the actual financial impact on Cascadia is not yet quantifiable with precision. While the threat of adverse modification is real, the absence of a definitive outcome makes it difficult to assert categorically that a Material Adverse Effect has occurred as of the date of the declaration.
The GP need not rely exclusively on Prong (b) if Prong (a) is satisfied. However, the factual basis for the declaration is strengthened by the interconnection between the two prongs: the same set of circumstances (the concession renegotiation) gives rise to both the expected failure of the no-MAE closing condition under Prong (a) and the potential occurrence of a Material Adverse Effect under Prong (b).
Conclusion on Prong (b): There is a colorable but less certain basis for the GP's declaration under Prong (b). The stronger basis for the declaration rests on Prong (a), which requires only the "expected failure" of a closing condition rather than the actual occurrence of a MAE. We note, however, that the GP's draft Capital Call Suspension Notice cites only Prong (a) as the basis for the declaration, which is the more defensible approach.
C. Overall Substantive Conclusion
Based on the foregoing analysis, the GP's anticipated declaration of a Material Impediment Event has a sound substantive basis under Section 7.04(a) of the LP Agreement. The declaration is primarily grounded in Prong (a) — the expected failure of the no-MAE closing condition, which is not reasonably likely to be cured within 90 days — and this basis is well-supported by the factual record. The concession renegotiation, its uncertain outcome, the pending OPUC approval, and the impracticability of resolution within the 90-day period collectively provide a reasonable foundation for the GP's determination.
While Prong (b) provides additional contextual support, the GP has prudently elected to rest its declaration on Prong (a), which is the stronger of the two bases given the current state of the factual record. We concur with this approach.
V. Procedural Requirements — Section 7.04(b)
A. Notice Requirements
Section 7.04(b) of the LP Agreement prescribes the procedural requirements that must be satisfied for a valid declaration of a Material Impediment Event. Specifically, Section 7.04(b) requires the GP to deliver written notice to the LP (Ironside) declaring the Material Impediment Event. The notice must satisfy the following requirements:
(i) it must be in writing;
(ii) it must identify the specific subsection of Section 7.04(a) on which the declaration is based — i.e., whether the GP is invoking Prong (a) (expected failure of a condition precedent), Prong (b) (occurrence of a Material Adverse Effect), or both;
(iii) it must describe in reasonable detail the factual basis for the declaration, including the nature of the impediment, the relevant closing condition(s) or Material Adverse Effect, and the basis for the GP's determination that the condition is not reasonably likely to be cured within 90 days (if Prong (a) is invoked); and
(iv) it must be delivered in accordance with the notice provisions of Section 12.01 of the LP Agreement, which require delivery by (A) personal delivery, (B) nationally recognized overnight courier, or (C) registered or certified mail, return receipt requested, in each case to the address of the LP as set forth in the LP Agreement or as otherwise specified by the LP in writing.
We note that Section 12.01 provides that notices shall be deemed received (A) on the date of personal delivery, (B) on the next business day following deposit with a nationally recognized overnight courier, or (C) three business days after mailing by registered or certified mail. Electronic delivery (including email) does not constitute valid notice under Section 12.01 unless the parties have agreed otherwise in writing.
B. Review of Draft Capital Call Suspension Notice
C&H has reviewed the draft Capital Call Suspension Notice dated January 9, 2023, as prepared by the GP with the involvement of BSP (led by Charles A. Delacroix, partner). Our assessment of the draft notice against the procedural requirements of Section 7.04(b) is as follows:
(i) Writing Requirement. The draft notice is in written form, presented on the letterhead of Meridian Infrastructure GP IV LLC, and is signed by David R. Hargreaves in his capacity as Managing Director and authorized signatory of the GP. This requirement is satisfied.
(ii) Identification of Subsection. The draft notice expressly cites Section 7.04(a)(a) — i.e., Prong (a) of the Material Impediment Event definition (expected failure of a condition precedent not reasonably likely to be cured within 90 days) — as the basis for the declaration. The notice does not invoke Prong (b), which is consistent with our analysis and recommendation. This requirement is satisfied.
(iii) Factual Description. The draft notice describes in reasonable detail (a) the Portland Metropolitan Water District's notification of its intent to renegotiate the Bull Run Concession, (b) the promulgation of Oregon SB 1567 and its impact on the concession, (c) the expected failure of the no-MAE closing condition under the EPA as a result of the concession renegotiation, (d) the absence of OPUC approval (Docket No. UM-2287) as an additional factor, and (e) the GP's determination that cure within 90 days is not reasonably likely. The description is sufficiently detailed to provide the LP with a clear understanding of the basis for the declaration. This requirement is satisfied.
(iv) Delivery. The draft notice is addressed to Ironside Capital Management LP, Attention: Marcus J. Calloway, Founder & Chief Investment Officer, at 590 Madison Avenue, 38th Floor, New York, New York 10022, which is the address specified in Section 12.01 of the LP Agreement. However, the draft notice does not specify the method of delivery. As noted above, Section 12.01 requires delivery by personal delivery, nationally recognized overnight courier, or registered/certified mail.
Assessment: The draft Capital Call Suspension Notice substantially complies with the procedural requirements of Section 7.04(b). C&H recommends that Ironside confirm with BSP the intended method of delivery to ensure compliance with Section 12.01. Specifically, delivery by nationally recognized overnight courier (such as Severin Partners LLC or Halcyon Partners LLC) with tracking and signature confirmation is the most practical method and would provide clear evidence of delivery and the date thereof. Ironside should also retain a copy of the executed notice — including any accompanying cover letter and proof of delivery — for its permanent records.
C. Timing
Section 7.04(b) does not impose a specific timing requirement on the GP's declaration of a Material Impediment Event, other than the implicit requirement that the declaration must follow (and not precede) the occurrence or expected occurrence of the underlying event that constitutes the Material Impediment Event. There is no "prompt" notice requirement, no specified number of days within which the GP must act, and no provision that would render a declaration untimely absent bad faith or unreasonable delay.
Here, the concession renegotiation notice was received by Cascadia on October 28, 2022, and communicated to Ironside on November 10, 2022. The GP has been monitoring the situation since that time and, based on the lack of progress in the renegotiation and the increasing risk to the closing conditions, has determined to declare a Material Impediment Event effective January 9, 2023 — approximately 73 days after the initial notice of the renegotiation and 60 days after the GP's notification to Ironside. This timeline is well within reasonable bounds, particularly given that the GP was justified in monitoring the situation before making a formal declaration and that the intervening period included the negotiation and execution of the First Amendment to the EPA (extending the outside date to March 31, 2023).
We note, importantly, that the GP was not required to declare a Material Impediment Event. The declaration is within the GP's discretion under Section 7.04 — it is an authority conferred upon the GP, not an obligation imposed upon it. The GP could have chosen not to declare a Material Impediment Event and instead continued to pursue the Acquisition, make capital calls, and attempt to resolve the concession renegotiation. However, once the declaration is made, it triggers mandatory consequences under Sections 7.04(b) and 7.04(c), including the suspension of capital calls and investment activity and the commencement of the 18-month dormancy period for purposes of the LP's wind-down election right. These consequences are automatic and cannot be unilaterally modified by the GP following the declaration.
VI. Immediate Legal Consequences of Declaration
The declaration of a Material Impediment Event under Section 7.04 triggers a number of immediate legal consequences, which we summarize below.
A. Suspension of Capital Calls
Upon declaration of a Material Impediment Event, Section 7.04(b) provides that all further capital calls shall be suspended until either (i) the GP determines that the Material Impediment Event has been cured or no longer exists and delivers written notice thereof to the LP (a "Reactivation Notice"), or (ii) the LP exercises its wind-down election right under Section 7.04(c).
The practical effect of this provision is that, as of the declaration date, Ironside's unfunded commitment of $277,500,000 will not be subject to drawdown by the GP. The GP may not issue Capital Call Notice No. 2 or any subsequent capital call notice during the dormancy period. Ironside's obligation to fund capital calls is suspended — not terminated — for the duration of the dormancy period. If the GP subsequently issues a Reactivation Notice, Ironside's funding obligation would resume in accordance with the terms of the LP Agreement.
The $22,500,000 already called and funded remains in the Vehicle's accounts and is not subject to return upon the declaration. These funds will be used to cover the Vehicle's ongoing administrative and operating expenses during the dormancy period, as discussed in Section VI.B below.
B. Suspension of Investment Activity
During the dormancy period, no new investments or commitments may be made by the Vehicle. The Vehicle may not acquire any assets, enter into any investment agreements, or otherwise deploy capital in furtherance of the Acquisition or any other investment objective. The Vehicle's sole activity during the dormancy period will be limited to administrative and maintenance functions necessary to preserve its existence and comply with its legal and contractual obligations.
We have estimated, based on the Vehicle's current service-provider arrangements and statutory obligations, that the annualized operating expenses during the dormancy period will be approximately $185,000. This estimate comprises the following:
These expenses will be funded from the working-capital reserve of $3,500,000 established from the initial capital call. At the estimated annual run rate of $185,000, the working-capital reserve is sufficient to cover approximately 18.9 years of dormancy operating expenses, providing substantial cushion even in the event of an extended dormancy period.
C. GP Reporting Obligations
Under both the LP Agreement (Section 8.02) and the Side Letter (Paragraph 4), the GP is required to provide quarterly status reports to the LP during any period of dormancy resulting from a Material Impediment Event declaration. These quarterly reports must address, at a minimum:
(i) the current status of the Material Impediment Event, including any developments regarding the underlying factual circumstances;
(ii) any developments regarding the underlying Acquisition, including the status of the EPA, the regulatory approvals, and the debt financing commitments;
(iii) the regulatory status of all pending approvals, including any orders, rulings, or communications from FERC, OPUC, or CFIUS;
(iv) the financial position of the Vehicle, including a summary of cash balances, expenses incurred, and remaining working-capital reserves; and
(v) the GP's assessment of reactivation prospects, including any anticipated timeline for resolution of the Material Impediment Event.
The first quarterly report is expected for Q1 2023, covering the period from January through March 2023. Pursuant to the Side Letter, quarterly reports are due within 30 days following the end of each calendar quarter. Accordingly, the first quarterly report should be delivered by April 30, 2023.
C&H recommends that Ironside establish an internal protocol for reviewing and analyzing each quarterly report upon receipt, including circulation to the relevant members of Ironside's infrastructure investment team and C&H for legal review. Any deficiencies, omissions, or concerns arising from the quarterly reports should be promptly communicated to BSP in writing.
D. Preservation of Existing Commitments and Agreements
The declaration of a Material Impediment Event does not, by itself, terminate any existing contractual arrangements to which the Vehicle, the GP, or Cascadia Acquisition Corp. is a party. However, the dormancy period introduces timing risks with respect to several key agreements and approvals, each of which will require active monitoring and, in some cases, affirmative action to preserve. We summarize the key items below:
Equity Purchase Agreement. The outside date under the EPA, as extended by the First Amendment, is March 31, 2023. This date falls squarely within the anticipated dormancy period. If the Acquisition has not closed by March 31, 2023, either party to the EPA may terminate the agreement (subject to the condition that the terminating party's breach was not the cause of the failure to close). The GP and BSP will need to assess whether further extension of the outside date is appropriate and feasible, and to negotiate with sellers' counsel (we understand that the Selling Shareholders are represented by Kirkdale & Mercer LLP) for any such extension. Ironside should be informed of and consulted on any proposed extension, as it would have implications for the duration of the dormancy period and the viability of the Acquisition.
Debt Commitment Letter. The debt commitment letter from Atlas National Bank, N.A. and Pinnacle Credit Partners LLC, executed on August 30, 2022, provides for $975 million in senior secured term loan financing and a $150 million revolving credit facility. The commitment letter contains its own conditions, representations, and expiration provisions. The parties will need to assess whether the commitment remains in effect during the dormancy period and whether any extension or amendment is required. C&H understands from BSP that discussions with Atlas National Bank regarding the status of the commitment are expected to occur in late January 2023. Any lapse or termination of the debt commitment would have a material impact on the feasibility of the Acquisition if reactivated.
Representations and Warranties Insurance Policy. Northgate Specialty Insurance Co. issued a representations and warranties insurance policy (Policy No. NSW-RI-2022-09814) with a coverage limit of $195,000,000 and a deposit premium of $4,875,000, which was paid on September 2, 2022. The R&W insurance policy contains conditions regarding the timing of the closing and the commencement of coverage. C&H is currently preparing a tolling side letter to Northgate Specialty to suspend the coverage period during the dormancy period and to preserve Ironside's and the Vehicle's rights under the policy. This tolling side letter will be addressed separately, and a draft will be circulated to Ironside for review.
FERC Approval. The FERC approval received on December 15, 2022 (Docket No. EC22-143-000) contains an 18-month lapse provision. If the Acquisition does not close within 18 months of the date of the order, the approval will lapse and a new Section 203 application will be required. The approximate lapse date is June 15, 2024. This date falls just prior to the 18-month wind-down election trigger date of July 9, 2024, creating a narrow window in which the FERC approval would lapse and the wind-down election right would ripen nearly simultaneously. This convergence should be factored into Ironside's strategic planning.
OPUC Application. The OPUC application (Docket No. UM-2287) remains pending. During the dormancy period, the parties may consider requesting a formal stay of proceedings before the OPUC, which would toll any applicable deadlines and preserve the application for resumption if the Acquisition is reactivated. C&H will coordinate with BSP regarding the advisability and timing of any such request.
CFIUS. As noted above, CFIUS clearance was effectively received on September 20, 2022, and no further action is required. The CFIUS clearance does not contain a lapse provision and is not at risk during the dormancy period.
VII. Ironside's Rights During Dormancy
A. Information Rights
Ironside retains all information rights under the LP Agreement and the Side Letter throughout the dormancy period. These include, without limitation: (i) the right to receive quarterly status reports as described in Section VI.C above; (ii) the right to access the books and records of the Vehicle, upon reasonable notice and during normal business hours, at the Vehicle's principal office or at the offices of its fund administrator; and (iii) the right to receive copies of all material correspondence, notices, and agreements to which the Vehicle or the GP is a party, including any amendments to the EPA, extensions of the debt commitment letter, or communications with regulatory authorities.
We recommend that Ironside actively exercise these information rights during the dormancy period. Specifically, Ironside should promptly review each quarterly report upon receipt, assess the GP's characterization of the status of the Material Impediment Event and the reactivation prospects, and communicate any concerns or requests for additional information to C&H for assessment and, if appropriate, transmittal to BSP. A passive posture during the dormancy period could undermine Ironside's ability to respond effectively to developments and could, in certain circumstances, be characterized as acquiescence to the GP's actions or inactions.
B. Wind-Down Election Right — Section 7.04(c)
Under Section 7.04(c) of the LP Agreement, if the dormancy period resulting from a Material Impediment Event declaration exceeds 18 months from the date of the declaration, the LP has the right to elect a wind-down of the Vehicle. This is a significant right that provides Ironside with a unilateral exit mechanism in the event that the Acquisition cannot be consummated within a reasonable timeframe.
Trigger Date. If the declaration is issued on January 9, 2023, as currently anticipated, the 18-month mark will fall on July 9, 2024. On or after that date, Ironside may deliver written notice to the GP electing to wind down the Vehicle.
Consequences of Wind-Down Election. A wind-down election by Ironside would trigger the following:
(i) Release of Unfunded Commitment. Ironside's unfunded commitment of $277,500,000 would be released, and Ironside would have no further obligation to fund capital calls in respect of the Vehicle.
(ii) Distribution of Remaining Assets. The GP would be required to distribute the remaining assets of the Vehicle to the partners, net of all expenses, obligations, and reserves. This would include the return of any remaining working-capital reserve funds, together with any other assets held by the Vehicle.
(iii) Orderly Dissolution. The Vehicle would be dissolved in an orderly manner in accordance with the dissolution provisions of the LP Agreement (Article XI) and applicable Delaware law, including the filing of a Certificate of Cancellation with the Delaware Secretary of State.
Elective Nature. The wind-down election right is elective — Ironside is not required to exercise it and may choose to permit the dormancy to continue beyond the 18-month mark if, at that time, reactivation prospects appear favorable. This decision will involve a careful assessment of the status of the concession renegotiation, the viability of the Acquisition, the status of the EPA, the regulatory approvals, and the debt financing commitments, among other factors.
C&H will prepare a separate memorandum closer to the 18-month trigger date analyzing the considerations for and against exercising the wind-down election right. That memorandum will address the financial implications of wind-down versus continued dormancy, the status of the FERC lapse provision (which, as noted, is expected to lapse on approximately June 15, 2024, shortly before the wind-down trigger date), and the strategic options available to Ironside at that juncture.
C. Consent Rights
Ironside retains its consent rights under the LP Agreement during the dormancy period. Specifically, the LP Agreement provides that the GP may not, without the prior written consent of the LP, take any of the following actions:
(i) amend, modify, or waive any provision of the LP Agreement or the Side Letter;
(ii) issue any new capital call or reinstate capital call obligations following a Material Impediment Event declaration (other than pursuant to a Reactivation Notice);
(iii) make any commitment of Vehicle assets or enter into any investment or disposition transaction;
(iv) modify the terms of the co-investment arrangement in any manner that would affect Ironside's economic interests (including its share of distributions, carried interest, or fee arrangements) or governance rights; or
(v) take any action that would materially change the purpose, investment objective, or risk profile of the Vehicle.
These consent rights are a critical safeguard during the dormancy period, as they ensure that the GP cannot unilaterally alter the terms of the arrangement or take actions that would be adverse to Ironside's interests without Ironside's express approval.
D. Reservation of Rights
C&H recommends that, promptly following receipt of the Capital Call Suspension Notice, Ironside deliver a formal reservation-of-rights letter to BSP (as counsel to the GP), confirming that Ironside:
(i) acknowledges receipt of the Capital Call Suspension Notice and the declaration of a Material Impediment Event under Section 7.04;
(ii) reserves all rights, remedies, and privileges under the LP Agreement, the Side Letter, and applicable law, including without limitation the wind-down election right under Section 7.04(c);
(iii) does not waive, and expressly preserves, any claims, defenses, or objections that it may have with respect to the GP's management of the Vehicle, the Acquisition, or the concession renegotiation; and
(iv) requests strict compliance by the GP with all reporting obligations under the LP Agreement and the Side Letter during the dormancy period.
A draft of this reservation-of-rights letter will be prepared by C&H and circulated separately to Ironside for review and approval. We anticipate circulating the draft by January 13, 2023, with a target delivery date of January 15, 2023.
VIII. Observations and Recommendations
A. The Declaration Is Properly Grounded
Based on our analysis, the GP's anticipated declaration of a Material Impediment Event on January 9, 2023 appears to satisfy the substantive requirements of Section 7.04(a) of the LP Agreement, primarily under Prong (a) (expected failure of the no-MAE closing condition, not reasonably likely to be cured within 90 days). The factual basis for the declaration — the unresolved concession renegotiation, the pending OPUC approval, and the uncertainty surrounding the economic terms of the Bull Run Concession — is reasonable and well-documented. The procedural requirements of Section 7.04(b) are substantially met by the draft Capital Call Suspension Notice, subject to confirmation of delivery method. We have no basis to challenge the validity of the declaration at this time.
B. Ironside Should Acknowledge Receipt but Expressly Reserve Rights
C&H recommends that Ironside acknowledge receipt of the Capital Call Suspension Notice upon delivery, but that the acknowledgment be accompanied by a clear and express reservation of all rights under the LP Agreement and the Side Letter, including without limitation the wind-down election right under Section 7.04(c). The acknowledgment should also include a request that the GP comply strictly with all quarterly reporting obligations and that the GP promptly inform Ironside of any material developments regarding the concession renegotiation, the EPA, the regulatory approvals, or the debt financing commitments.
Ironside should not make any statements in the acknowledgment that could be construed as a waiver of rights, an acquiescence to the GP's position on the concession renegotiation, or an endorsement of any particular course of action with respect to the Acquisition. The acknowledgment should be factual, measured, and protective of Ironside's interests.
C. Key Watch Items During Dormancy
Throughout the dormancy period, Ironside and C&H will need to actively monitor the following items, which we have identified as the most critical to Ironside's interests:
1. Concession Renegotiation Status. The resolution of the renegotiation between the Portland Metropolitan Water District and Cascadia is the central factual predicate of the Material Impediment Event declaration. Any developments in the renegotiation — whether favorable (e.g., agreement on revised economic terms that preserve the concession's value) or unfavorable (e.g., further deterioration, potential termination) — will have a direct impact on the prospects for reactivation and on Ironside's strategic position. C&H recommends that Ironside request, as part of the quarterly reporting protocol, that the GP provide detailed updates on the renegotiation, including copies of any correspondence between the District and Cascadia.
2. EPA Outside Date. The current outside date of the EPA, as extended by the First Amendment, is March 31, 2023. This date will arrive during the dormancy period — approximately 81 days after the anticipated declaration. If the EPA is not further extended, either party may terminate the agreement after March 31, 2023, effectively ending the Acquisition. Ironside should insist on being consulted regarding any proposed extension of the outside date and should evaluate the terms of any such extension (including any changes to the purchase price, closing conditions, or termination provisions) in consultation with C&H.
3. Debt Commitment Letter. The debt commitment letter from Atlas National Bank, N.A. and Pinnacle Credit Partners LLC is a critical component of the Acquisition's financing structure. Any lapse, termination, or adverse modification of the commitment would materially affect the feasibility of the Acquisition if reactivated. Ironside should monitor the status of discussions between Meridian/BSP and Atlas National Bank, and should request prompt notification of any developments.
4. FERC Approval Lapse Provision. The FERC approval (Docket No. EC22-143-000) contains an 18-month lapse provision, with an approximate lapse date of June 15, 2024. If the Acquisition has not closed by that date, the FERC approval will lapse and a new Section 203 application will be required. This lapse date falls shortly before the 18-month wind-down election trigger date of July 9, 2024, creating a meaningful inflection point at which Ironside will need to assess whether the Acquisition remains viable.
5. OPUC Proceedings. The OPUC application (Docket No. UM-2287) remains pending and should be monitored for any developments, including any order, ruling, or communication from the commission. If the parties decide to request a stay of proceedings, Ironside should be informed and should have the opportunity to review and comment on the stay request before it is filed.
6. R&W Insurance Tolling. C&H is preparing a tolling side letter to Northgate Specialty Insurance Co. to suspend the coverage period under the R&W insurance policy during the dormancy period. This is an important step to ensure that the policy remains in effect and available if the Acquisition is reactivated. Ironside should review and approve the tolling side letter before execution.
7. Vehicle Operating Expenses. While the estimated annualized dormancy operating expenses of approximately $185,000 are modest relative to the available working-capital reserve of $3,500,000, Ironside should ensure that actual expenses are tracked and reported as part of the quarterly reporting protocol. Any deviation from the estimated run rate, or any unexpected expenses, should be flagged and investigated.
D. Next Steps
C&H recommends the following next steps, together with target completion dates:
1. Reservation-of-Rights Letter. Finalize and circulate draft reservation-of-rights letter to BSP for Ironside's review and approval. Target: January 13, 2023. Deliver executed letter to BSP. Target: January 15, 2023.
2. R&W Insurance Tolling Side Letter. Finalize tolling side letter with Northgate Specialty Insurance Co. and circulate to Ironside for review. Target: January 20, 2023.
3. Dormancy Governance Framework. Prepare comprehensive dormancy governance framework memorandum for Ironside, setting forth protocols for quarterly report review, communication with BSP, escalation procedures, and decision-making frameworks for key dormancy-period events (e.g., EPA extensions, debt commitment discussions, regulatory developments). Target: February 2023 (forthcoming).
4. Calendar Key Dates. Calendar the following critical dates and establish monitoring protocols:
• 18-month wind-down election trigger date: July 9, 2024
• EPA outside date: March 31, 2023
• FERC approval lapse date: approximately June 15, 2024
• Quarterly report due dates: April 30, July 31, October 31, January 31 (30 days after end of each calendar quarter)
5. Quarterly Report Review Protocol. Establish a standing review protocol with Ironside's infrastructure team (Renata Obasi) for the receipt and analysis of each quarterly report, including circulation to C&H for legal review within five business days of receipt.
IX. Conclusion
Based on our analysis, the GP's anticipated declaration of a Material Impediment Event on January 9, 2023 is substantively and procedurally compliant with Section 7.04 of the LP Agreement. The factual basis for the declaration — the unresolved Portland Metropolitan Water District concession renegotiation affecting the Bull Run Filtration Project and the expected failure of closing conditions under the EPA — is reasonable and well-supported. The GP has identified a sound legal basis under Prong (a) of the Material Impediment Event definition, and the draft Capital Call Suspension Notice substantially satisfies the procedural requirements of Section 7.04(b).
Ironside should acknowledge the declaration upon receipt, deliver a formal reservation-of-rights letter to the GP's counsel, and maintain active oversight during the resulting dormancy period. The dormancy period will require careful monitoring of the concession renegotiation, the EPA outside date, the regulatory approvals, the debt financing commitments, and the R&W insurance policy, among other items. C&H will continue to advise Ironside on these matters on an ongoing basis and will prepare a separate memorandum addressing the wind-down election right as the 18-month trigger date approaches.
We remain available to discuss this memorandum and its conclusions at your convenience.
CALDERWOOD & HARKNESS LLP
Pamela Cross, Partner Funds & Asset Management Group 125 Broad Street, 44th Floor New York, New York 10004 Tel: (212) 558-4000
Email: pcross@calderwoodharkness.com