CALDERWOOD & HARKNESS LLP 125 Broad Street, 44th Floor New York, New York 10004
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MEMORANDUM
I. Executive Summary
This memorandum analyzes the contractual right of Ironside Capital Management LP ("Ironside" or the "LP") under Section 7.04(c) of the Amended and Restated Limited Partnership Agreement, dated July 29, 2022 (the "LP Agreement"), of ICM Cascadia Co-Invest, LP (the "Vehicle"), to elect a wind-down of the Vehicle following eighteen (18) continuous months of dormancy. The LP Agreement governs the rights and obligations of the Vehicle's two partners: Meridian Infrastructure GP IV LLC (the "GP"), serving as general partner, and Ironside, serving as the sole limited partner.
Our principal conclusion is that the 18-month dormancy trigger under §7.04(c) ripens on July 9, 2024 — precisely eighteen calendar months from the January 9, 2023 Capital Call Suspension Notice and Material Impediment Event declaration issued by the GP. Upon ripening, Ironside holds the unilateral right to deliver written notice to the GP electing an orderly wind-down of the Vehicle, without the need for GP consent or approval from any other party. This right persists for so long as the Vehicle remains in dormancy; there is no sunset clause or expiration date applicable to the ripened election right.
This memorandum addresses the following topics in detail:
(a) the textual basis of the wind-down election right under §7.04(c) and its relationship to the broader Material Impediment Event framework of §7.04;
(b) the calculation of the 18-month trigger date, including the applicable interpretive provisions of the LP Agreement governing computation of time periods;
(c) the procedural requirements and notice mechanics for delivery of a valid wind-down election notice, including form, content, and delivery specifications under §12.02 of the LP Agreement;
(d) the consequences of exercising the wind-down election, including wind-down procedures under §7.05, distribution waterfall mechanics, release of unfunded commitments, impacts on underlying transaction documents, tax consequences, and entity dissolution;
(e) the consequences of not exercising (or deferring) the wind-down election, including preservation of optionality in light of recent developments regarding the underlying transaction; and
(f) the interaction of the wind-down election right with the Side Letter dated July 29, 2022, the Co-Investment Allocation Agreement, the Mutual Standstill and Preservation Agreement dated February 15, 2024, and other relevant contractual arrangements, including the representations and warranties insurance policy maintained by the Vehicle.
We note that while the wind-down election right is evergreen once triggered — meaning that there is no contractual deadline or "use it or lose it" limitation on Ironside's exercise — significant strategic considerations bear on the timing of any exercise. In particular, the tentative concession framework reached on June 30, 2024 between the Portland Metropolitan Water District and Cascadia Renewables Holdings, Inc. may affect Ironside's assessment of the desirability of continued participation in the co-investment structure. These strategic considerations are discussed in Section VII of this memorandum and may warrant further treatment in a separate advisory memorandum, should Ironside so instruct.
Calderwood & Harkness LLP stands ready to prepare a draft wind-down election notice for Ironside's review and execution upon instruction. We recommend that Ironside reach a timing decision promptly in light of the July 9, 2024 ripening date.
II. Background and Factual Context
A. The Co-Investment Vehicle
ICM Cascadia Co-Invest, LP (the "Vehicle") is a Delaware limited partnership formed on July 22, 2022 pursuant to a Certificate of Limited Partnership filed with the Delaware Secretary of State (DE SOS File No. 7439218). The Vehicle bears Employer Identification Number 88-3921457 for federal tax reporting purposes.
The Vehicle was formed as a single-asset co-investment vehicle to invest alongside Meridian Infrastructure Partners Fund IV, LP ("Fund IV"), a $6.2 billion infrastructure-focused private equity fund (vintage 2021) managed by Meridian Infrastructure Partners LLC and its affiliates. The Vehicle was structured to participate on a pari passu basis with Fund IV in the acquisition of 100% of the equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation operating a diversified portfolio of renewable energy and water infrastructure assets (the "Target" or "Cascadia"). The acquisition was to be effected through Cascadia Acquisition Corp., a newly formed Delaware corporation organized as the acquisition vehicle (the "Buyer").
The agreed enterprise value of the Target under the Equity Purchase Agreement (discussed in Section II.C below) was $1.95 billion. Total equity required for the acquisition was $1,050,000,000, structured as follows:
The Vehicle has two partners:
General Partner: Meridian Infrastructure GP IV LLC, a Delaware limited liability company, holding a 0.01% partnership interest with a capital commitment of $30,000. The GP is managed by three managers: David R. Hargreaves (Managing Partner, Meridian Infrastructure Partners LLC), Lillian Fong (Partner and General Counsel, Meridian Infrastructure Partners LLC), and Graham Whitfield (Partner and Chief Financial Officer, Meridian Infrastructure Partners LLC).
Limited Partner: Ironside Capital Management LP, a Delaware limited partnership, holding a 99.99% partnership interest with a capital commitment of $299,970,000.
The total committed capital of the Vehicle is $300,000,000.
The Amended and Restated Limited Partnership Agreement was executed on July 29, 2022 and is governed by the laws of the State of Delaware, without regard to conflicts-of-law principles that would require the application of the laws of any other jurisdiction.
B. Capital Activity
A single capital call has been issued during the life of the Vehicle. Capital Call No. 1, dated August 15, 2022, drew $22,500,000 from the partners, representing 7.5% of total committed capital. The proceeds were applied as follows:
Following the draw, the unfunded commitment of the Vehicle stood at $277,500,000 ($300,000,000 less $22,500,000 drawn). No subsequent capital calls have been issued, and no distributions have been made to the partners at any time since formation.
Pursuant to the Side Letter dated July 29, 2022, executed between the GP and Ironside (the "Side Letter"), no management fee is charged on the co-investment. Carried interest is set at 10% of profits above an 8% preferred return, compounded quarterly, in accordance with the distribution waterfall set forth in Section 5.01 of the LP Agreement.
C. The Underlying Transaction and Its Disruption
The Equity Purchase Agreement (the "EPA") was executed on September 15, 2022, among the following parties: (i) the Selling Shareholders — Timberline Growth Equity Fund III, LP (holding 62% of the Target's equity), the Weir Family Trust (holding 18%), and the Management Rollover Pool (holding 20%, subject to rollover arrangements); (ii) Cascadia Renewables Holdings, Inc., as the Target; and (iii) Cascadia Acquisition Corp., as the Buyer. The EPA is governed by Delaware law.
The debt financing for the acquisition was arranged pursuant to a commitment letter executed on August 30, 2022, with Atlas National Bank, N.A. serving as lead arranger and administrative agent. The debt package consisted of a $975,000,000 senior secured term loan (with Atlas National Bank committing $650,000,000 and Pinnacle Credit Partners LLC committing $325,000,000) and a $150,000,000 revolving credit facility (undrawn). The commitment letter was governed by New York law.
The acquisition was materially disrupted by a regulatory development affecting one of Cascadia's principal revenue-generating assets. On October 28, 2022, the Portland Metropolitan Water District (the "Water District") notified Cascadia of its intent to renegotiate the 40-year Bull Run Filtration Project water-treatment concession agreement. The concession, which was originally executed in approximately 2018, generated annual revenue of approximately $64 million and constituted a significant portion of Cascadia's recurring cash flows. The Water District's renegotiation demand was predicated on Oregon Senate Bill 1567 (2022), which amended the statutory framework governing public-private water infrastructure concessions in Oregon. The renegotiation demand introduced substantial uncertainty regarding the commercial and regulatory viability of the concession and, by extension, the Target's financial profile and the satisfaction of closing conditions under the EPA.
On November 10, 2022, Meridian notified Ironside of this material adverse development, consistent with its reporting obligations under the LP Agreement and Side Letter.
Following the notification, the parties to the EPA entered into three successive amendments to extend the outside date for consummation of the transaction:
First Amendment (November 22, 2022): Extended the outside date from the original closing deadline to March 31, 2023.
Second Amendment (March 15, 2023): Extended the outside date from March 31, 2023 to June 30, 2023.
Third Amendment (June 28, 2023): Extended the outside date from June 30, 2023 to December 31, 2023.
The debt commitment under the Atlas/Pinnacle commitment letter was extended once, to October 31, 2023, in exchange for an extension fee of $2,437,500 (representing 0.25% of the $975,000,000 term loan commitment). The extension fee was paid by Fund IV. The debt commitment expired on November 1, 2023 without further extension or renewal.
The EPA outside date expired on December 31, 2023. No party to the EPA exercised its termination rights under the agreement. Instead, the EPA parties entered into a Mutual Standstill and Preservation Agreement on February 15, 2024 (the "Standstill Agreement"), pursuant to which the parties agreed to refrain from exercising termination rights and to preserve the contractual framework of the EPA for a defined period, subject to the terms of the Standstill Agreement. The terms of the Standstill Agreement are discussed further in Section VIII.C below.
D. Dormancy of the Vehicle
On January 9, 2023, Meridian Infrastructure GP IV LLC, acting in its capacity as general partner of the Vehicle, issued a Capital Call Suspension Notice to Ironside, declaring a "Material Impediment Event" under Section 7.04 of the LP Agreement. The GP's declaration was based on two grounds:
(a) the expected failure of closing conditions under the EPA, arising from the Portland Metropolitan Water District's demand for renegotiation of the Bull Run Filtration Project concession, which undermined the regulatory and commercial prerequisites to closing; and
(b) the occurrence of a condition that could constitute a Material Adverse Effect (as defined in the EPA) with respect to the Target, given the magnitude of the concession's contribution to Cascadia's revenue, EBITDA, and enterprise value.
The procedural compliance of the GP's declaration was analyzed and confirmed in a prior Calderwood & Harkness memorandum dated January 8, 2023, which was prepared in anticipation of the GP's notice and verified that the factual predicate and procedural requirements of §7.04(a) were satisfied.
Since January 9, 2023, the Vehicle has been continuously dormant. During the dormancy period, no capital calls have been issued, no distributions have been made, and no investment activity has been undertaken by or on behalf of the Vehicle. The sole activities of the Vehicle during dormancy have been the maintenance of its organizational existence and compliance with its ongoing reporting and filing obligations.
Annualized dormancy operating expenses are estimated at approximately $185,000, consisting of fund administration fees payable to Kendrick Thorne & Associates LLP, registered agent fees payable to Cascade Systems (Dover, Delaware), Delaware franchise tax, annual audit fees, and K-1 preparation costs.
The GP has delivered six quarterly status reports to Ironside during the dormancy period, covering the first quarter of 2023 through the second quarter of 2024, inclusive. These reports have been delivered in accordance with the GP's obligations under the LP Agreement and the enhanced reporting provisions of the Side Letter. Each report has confirmed the continuation of the Material Impediment Event and the absence of any basis for rescission of the Capital Call Suspension Notice.
The representations and warranties insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814; coverage limit $195,000,000) remains in effect, with the coverage period tolled pursuant to a side letter agreement dated January 20, 2023, between Northgate Specialty and the Vehicle. The tolling side letter was executed to preserve the R&W insurance coverage pending resolution of the Material Impediment Event, without the Vehicle being required to make additional premium payments during the tolling period.
E. Regulatory Status at Present
The acquisition of Cascadia required approval from several regulatory authorities. The current status of each proceeding is summarized below:
FERC §203 Approval (Docket No. EC22-143-000): The Federal Energy Regulatory Commission issued its order approving the change in control of the Target's jurisdictional assets on December 15, 2022. The approval was conditional on the timely filing of license-transfer applications with respect to certain FERC-jurisdictional hydroelectric licenses. The FERC approval was subject to an 18-month expiration period, as extended by a FERC staff letter. The approval lapsed on June 15, 2024. Any reactivation of the transaction would require a new §203 filing and approval.
OPUC (Docket No. UM-2287): An application for approval of the change in control was filed with the Oregon Public Utility Commission on October 14, 2022. At the joint request of the applicants and interested parties, proceedings have been stayed since February 2023, and no ruling has been issued.
CFIUS: A voluntary notice was filed with the Committee on Foreign Investment in the United States and was acknowledged on September 20, 2022. No further action was required, and the transaction was effectively cleared from a CFIUS perspective.
F. Recent Developments
Two recent developments are relevant to Ironside's consideration of the wind-down election:
Tentative Concession Framework (June 30, 2024). On June 30, 2024, the Portland Metropolitan Water District and Cascadia Renewables Holdings, Inc. reached a tentative framework on revised concession terms for the Bull Run Filtration Project. The specific terms of the tentative framework are not yet publicly available, but the existence of the framework has been communicated to Meridian and, through Meridian, to Ironside. The tentative framework, if finalized, could address the principal regulatory and commercial impediment that gave rise to the Material Impediment Event declaration in January 2023. However, the terms of the revised concession would need to be evaluated carefully to determine their effect on Cascadia's revenue, EBITDA, and enterprise value, and whether they are sufficient to support the transaction economics contemplated by the (now-expired) EPA.
18-Month Dormancy Mark (July 9, 2024). July 9, 2024 marks the expiration of eighteen consecutive calendar months from the January 9, 2023 Capital Call Suspension Notice. On this date, Ironside's wind-down election right under §7.04(c) of the LP Agreement ripens and becomes exercisable.
III. Textual Analysis of LP Agreement §7.04 — Material Impediment Events and Dormancy
Section 7.04 of the LP Agreement establishes a comprehensive framework governing the GP's authority to declare a Material Impediment Event, the consequences of such a declaration for the operation of the Vehicle, and the LP's contractual remedies in the event of prolonged dormancy. This Section of the memorandum analyzes each relevant subsection of §7.04 in turn.
A. §7.04(a) — Declaration of Material Impediment Event
Section 7.04(a) of the LP Agreement defines a "Material Impediment Event" as the occurrence of any of the following circumstances:
(a) the failure, or the reasonably expected failure, of a condition precedent to the closing of the transaction contemplated by the LP Agreement (i.e., the acquisition of the Target), where such failure is not reasonably likely to be cured within ninety (90) days of the date on which the GP determines that such failure has occurred or is reasonably expected to occur; or
(b) the occurrence of a "Material Adverse Effect" (as that term is defined in the Equity Purchase Agreement) with respect to the Target.
Upon determining that a Material Impediment Event has occurred, the GP is authorized — but not required — to issue a Capital Call Suspension Notice to the LP and to suspend all capital-call and investment activity of the Vehicle. The declaration triggers the dormancy regime established under §7.04(b), (c), and (d).
In the case of the Vehicle, the GP's January 9, 2023 declaration identified both of the foregoing grounds: (i) the expected failure of closing conditions arising from the Portland Metropolitan Water District's demand for renegotiation of the Bull Run Filtration Project concession, which undermined the regulatory and commercial prerequisites necessary for the Buyer to satisfy the EPA's closing conditions; and (ii) the occurrence of a condition that could constitute a Material Adverse Effect under the EPA with respect to the Target, given the magnitude of the concession's contribution to Cascadia's financial performance (approximately $64 million in annual revenue, representing a material portion of the Target's approximately $138 million in EBITDA for fiscal year 2021). The procedural validity of the GP's declaration was confirmed in our prior memorandum of January 8, 2023.
B. §7.04(b) — GP Obligations During Dormancy
Upon the issuance of a Capital Call Suspension Notice and the declaration of a Material Impediment Event, the Vehicle enters a state of dormancy, during which the GP is subject to the following obligations under §7.04(b):
(i) Quarterly Reporting. The GP must provide quarterly status reports to the LP regarding the status of the Material Impediment Event, any developments affecting the underlying transaction, and the GP's assessment of the prospects for resolution or rescission of the Material Impediment Event.
(ii) Monitoring Obligation. The GP must use commercially reasonable efforts to monitor the Material Impediment Event and to inform the LP promptly of any material developments.
(iii) Good Standing and Compliance. The GP must maintain the Vehicle in good standing under Delaware law, including the timely filing of required reports with the Delaware Secretary of State, the maintenance of a registered agent in Delaware, and compliance with applicable tax filing and payment obligations (including Delaware franchise tax).
(iv) Limitation on Capital Calls. During dormancy, the GP may not issue capital calls to the LP except for entity-maintenance expenses (i.e., the ongoing costs of maintaining the Vehicle's organizational existence and compliance), and any such maintenance capital call must be preceded by prior written notice to the LP specifying the purpose and amount of the call.
The GP has complied with these obligations during the current dormancy period. As noted in Section II.D above, six quarterly status reports have been delivered, and the Vehicle has been maintained in good standing. No capital calls have been issued during dormancy; the annualized operating expenses of approximately $185,000 have been funded from the working-capital reserve established at the time of Capital Call No. 1.
C. §7.04(c) — LP Wind-Down Election Right
Section 7.04(c) is the central provision at issue in this memorandum. It establishes the LP's right to elect a wind-down of the Vehicle in the event of prolonged dormancy. The key elements of the provision are as follows:
Trigger. The wind-down election right arises if dormancy continues for eighteen (18) or more consecutive months following the date of the Capital Call Suspension Notice issued by the GP under §7.04(a). The Capital Call Suspension Notice was issued on January 9, 2023. Eighteen calendar months from January 9, 2023 is July 9, 2024, as calculated in accordance with the general interpretive provisions of the LP Agreement (discussed in Section IV below). Accordingly, the trigger is satisfied on July 9, 2024.
Right Holder. The election right is held by the LP — that is, Ironside Capital Management LP, as the sole limited partner of the Vehicle, holding 99.99% of the partnership interests. There is no threshold or minimum interest requirement for the exercise of the right; the LP need only be a limited partner of the Vehicle at the time of exercise.
Nature of the Right. The wind-down election right is a unilateral right of the LP. Exercise does not require the consent, approval, or concurrence of the GP. The GP has no veto or blocking right with respect to the LP's election. Nor is the exercise of the right subject to the approval of any advisory committee, investor committee, or other governance body of the Vehicle or of Fund IV. The right is, in plain terms, a "put" option held by the LP that, upon exercise, obligates the GP to commence an orderly wind-down of the Vehicle in accordance with §7.05.
Mechanics. Exercise of the wind-down election right requires the LP to deliver written notice of its election to the GP. The form, content, and delivery requirements for such notice are governed by the general notice provisions of §12.02 of the LP Agreement, as discussed in detail in Section V below.
No Expiration or Sunset. Section 7.04(c) does not contain an expiration date, sunset clause, or time limit on the exercise of the wind-down election right after the 18-month trigger has been satisfied. The right is, in effect, evergreen: it persists for so long as the Vehicle remains dormant following the satisfaction of the 18-month trigger. We have reviewed the entirety of the LP Agreement and Side Letter and have identified no provision that would impose a deadline on the exercise of the right.
Termination of the Right. Although the right does not expire by its terms, it would be extinguished if the GP lifts dormancy — that is, if the GP formally rescinds the Material Impediment Event declaration and resumes investment activity — prior to the LP's exercise of the election. In such circumstances, the Vehicle would exit dormancy, and the 18-month clock under §7.04(c) would reset with respect to any future dormancy period. The implications of reactivation for the wind-down election right are discussed further in Section III.D and Section VII below.
We note that the unilateral character of the wind-down election right is consistent with the overall governance architecture of the Vehicle, which was negotiated to provide Ironside with substantial protective rights as the sole outside investor in a single-asset co-investment structure. The LP Agreement was drafted against the backdrop of a bespoke co-investment opportunity in which Ironside was committing $300 million of capital to a vehicle controlled by a third-party general partner; the wind-down election right serves as a fundamental protection against indefinite capital lock-up in the event that the underlying transaction fails to close.
D. Interaction with Other §7.04 Provisions
§7.04(d) — GP's Right to Cure or Rescind. Section 7.04(d) of the LP Agreement provides that the GP may, at any time, rescind the Material Impediment Event declaration by delivering written notice to the LP. Upon rescission, dormancy is lifted, capital-call and investment activity may resume, and the 18-month clock under §7.04(c) resets. Critically, if the GP rescinds the Material Impediment Event declaration before the LP exercises its wind-down election, the election right terminates with respect to the dormancy period in question. This creates a structural dynamic in which the GP possesses the ability to preempt the LP's exercise of the wind-down election by reactivating the Vehicle.
We have analyzed whether any communication from Meridian during the dormancy period could be construed as a rescission of the Material Impediment Event. Of particular relevance, we understand that Meridian has been preparing a reactivation feasibility memorandum, which was expected to be circulated on or about September 1, 2024. We note that as of the date of this memorandum, July 5, 2024, no such memorandum has been received, and no formal written rescission of the Material Impediment Event has been delivered by the GP. We have reviewed each of the six quarterly status reports delivered by the GP during dormancy, and each report has confirmed the continuation of the Material Impediment Event and the absence of any basis for rescission. Accordingly, we conclude that dormancy remains in full force and effect as of the date hereof, and the 18-month trigger under §7.04(c) will be satisfied on July 9, 2024 without interruption.
We further note that even if Meridian were to deliver a reactivation feasibility memorandum, such a document would not, standing alone, constitute a formal rescission of the Material Impediment Event under §7.04(d). A rescission requires a formal written notice to the LP expressly rescinding the declaration, not merely an internal assessment of reactivation feasibility. Unless and until such formal rescission is delivered, dormancy continues and the wind-down election right remains intact.
IV. Calculation of the 18-Month Trigger Date
The calculation of the 18-month trigger date is straightforward but warrants explicit confirmation to avoid any ambiguity.
Starting Date. The Capital Call Suspension Notice was issued by the GP on January 9, 2023. This is the date from which the 18-month dormancy period is measured under §7.04(c).
Method of Calculation. Section 12.01 of the LP Agreement contains general interpretive provisions governing the construction of the LP Agreement. Among these provisions, §12.01 specifies that references to months are to calendar months, and that periods measured in months from a particular date are computed by reference to the corresponding date in the applicable month. That is, 18 calendar months from January 9, 2023 is determined by advancing the calendar by 18 months to the corresponding date: July 9, 2024.
Confirmation of Continuous Dormancy. We have confirmed that no interim rescission of the Material Impediment Event or lifting of dormancy has occurred at any time between January 9, 2023 and the date of this memorandum (July 5, 2024). The Vehicle has been in continuous dormancy for the entirety of that period, with no capital calls issued, no distributions made, and no investment activity undertaken.
Conclusion. The 18-month dormancy trigger under §7.04(c) is satisfied on July 9, 2024. The wind-down election right of the LP ripens on that date — four calendar days from the date of this memorandum.
V. Procedural Requirements and Notice Mechanics
A. Form of Notice
Section 7.04(c) requires that the LP deliver "written notice" of its wind-down election to the GP. The general notice provisions of the LP Agreement, set forth in Section 12.02, specify the permissible methods and addresses for delivery of notices under the LP Agreement. Section 12.02 provides that all notices required or permitted under the LP Agreement must be in writing and must be delivered by one of the following methods:
(i) personal delivery;
(ii) nationally recognized overnight courier service (e.g., Severin Partners LLC, Halcyon Partners LLC Next Day Air, or Granite Harbor Enterprises); or
(iii) certified mail, return receipt requested, postage prepaid, through the United States Postal Service.
Notices are to be directed to the addresses specified in Schedule A of the LP Agreement. The relevant addresses are:
General Partner: Meridian Infrastructure GP IV LLC 200 Clarendon Street, Suite 4200 Boston, Massachusetts 02116
Attention: David R. Hargreaves
With a copy to GP's counsel: Breckenridge Sloane & Pratt LLP One Federal Street, Suite 3600 Boston, Massachusetts 02110
Attention: Charles A. Delacroix
Under §12.02, a notice delivered by personal delivery is effective upon receipt. A notice deposited with a nationally recognized overnight courier service is effective on the business day following deposit. A notice sent by certified mail is effective on the third business day following deposit with the U.S. Postal Service.
We recommend delivery by overnight courier service to both the GP and GP's counsel simultaneously, with confirmation of delivery obtained through tracking. This method provides a clear record of delivery and a readily ascertainable effective date.
B. Content of Notice
Although §7.04(c) does not specify mandatory content elements for the wind-down election notice beyond the requirement that it be in writing, Calderwood & Harkness recommends that the notice include the following elements to ensure clarity, enforceability, and protection of Ironside's rights:
(i) identification of the LP Agreement by its full title, date, and the names of the parties thereto;
(ii) a specific citation to §7.04(c) of the LP Agreement and the 18-month dormancy trigger;
(iii) a factual statement that dormancy has continued for eighteen (18) or more consecutive months from the date of the Capital Call Suspension Notice issued on January 9, 2023;
(iv) an unequivocal statement that Ironside Capital Management LP, as the sole limited partner of the Vehicle, hereby elects to wind down the Vehicle pursuant to §7.04(c) of the LP Agreement;
(v) a request that the GP commence wind-down proceedings promptly in accordance with the wind-down and dissolution provisions of §7.05 of the LP Agreement; and
(vi) a reservation of all other rights and remedies of Ironside under the LP Agreement, the Side Letter, and applicable law, including the right to seek damages for any breach by the GP of its obligations in connection with the wind-down.
Calderwood & Harkness will prepare a draft notice incorporating each of these elements for Ironside's review and execution upon instruction from Ironside. The notice will be prepared in a form suitable for delivery by overnight courier.
C. Timing Considerations
The wind-down election notice may be delivered at any time on or after July 9, 2024, the date on which the 18-month trigger is satisfied. There is no requirement that the notice be delivered on the trigger date itself; the LP may defer exercise of the right to any later date, so long as the Vehicle remains in dormancy. As discussed in Section III.C above, the wind-down election right is not a "use it or lose it" right — it persists indefinitely for so long as dormancy continues.
Notwithstanding the absence of a contractual deadline, strategic considerations may favor either prompt exercise or deferral. These considerations are addressed in Section VII of this memorandum.
If Ironside determines to exercise the wind-down election promptly, we recommend preparation and delivery of the notice no earlier than July 9, 2024, to ensure that the full 18-month period has elapsed and the trigger has been satisfied. Delivery on July 9 or 10, 2024 (Tuesday or Wednesday, both business days) would be effective on the business day following deposit, i.e., July 10 or 11, 2024, if delivered by overnight courier.
VI. Consequences of Exercising the Wind-Down Election
A. Wind-Down Procedures Under §7.05
Section 7.05 of the LP Agreement governs the orderly wind-down and dissolution of the Vehicle. Upon receipt of the LP's wind-down election notice delivered pursuant to §7.04(c), the GP is obligated to commence an orderly wind-down of the Vehicle. The wind-down process under §7.05 includes the following steps:
(i) Cessation of Investment Activity. All investment activity of the Vehicle must cease. In the present case, this step is effectively already accomplished, as the Vehicle has been dormant since January 9, 2023 and has not engaged in any investment activity during the dormancy period.
(ii) Liquidation or Disposition of Vehicle Assets. The GP must liquidate, dispose of, or otherwise realize the value of all assets held by the Vehicle. In the present case, the Vehicle's assets consist principally of cash and cash equivalents (the working-capital reserve), the R&W insurance premium deposit, and various due-diligence deposits and refund claims. The GP must take such steps as are necessary to collect, recover, or otherwise realize the value of these assets, subject to the terms of the applicable agreements governing each asset.
(iii) Payment of Liabilities and Obligations. The GP must pay, satisfy, or make adequate provision for all debts, liabilities, and obligations of the Vehicle, including accrued but unpaid operating expenses, any wind-down costs (including legal, accounting, and administrative fees incurred in connection with the dissolution process), and any other obligations.
(iv) Distribution to Partners. Following the payment or provision for all liabilities, the GP must distribute the remaining assets of the Vehicle to the partners in accordance with the distribution waterfall set forth in Section 5.01 of the LP Agreement.
(v) Filing of Certificate of Cancellation. Upon the completion of the wind-down and the distribution of all remaining assets, the GP must file a Certificate of Cancellation with the Delaware Secretary of State, formally terminating the Vehicle's existence as a Delaware limited partnership.
The GP retains discretion over the manner and timing of the orderly wind-down, but must act in good faith, with reasonable diligence, and in accordance with its fiduciary duties to the LP under Delaware law. The LP Agreement does not specify a fixed timeline for completion of the wind-down; however, a wind-down of a dormant, single-asset co-investment vehicle with no portfolio company investments should be achievable within a reasonable period — we would estimate three to six months, depending on the complexity of asset recovery and liability settlement.
B. Return of Capital and Distribution Waterfall
As noted in Section II.B above, total capital of $22,500,000 was called from the partners pursuant to Capital Call No. 1 and applied to the enumerated expense categories. The recoverability of these amounts in a wind-down scenario varies by category:
Working-Capital Reserve ($3,500,000). The working-capital reserve has been partially depleted during dormancy to fund ongoing operating expenses (approximately $185,000 per year for approximately 18 months, or approximately $277,500). The remaining balance of the reserve — estimated at approximately $3,222,500 — is potentially distributable to the partners in the wind-down, after deduction of any outstanding or accrued operating expenses and wind-down costs.
R&W Insurance Deposit ($4,875,000). The premium deposit paid to Northgate Specialty Insurance Co. represents the prepaid premium for the representations and warranties insurance policy. Recovery of any portion of this deposit in a wind-down depends on the cancellation provisions of the insurance policy and the tolling side letter. Many R&W insurance policies in the private equity context provide for partial premium refunds upon cancellation under specified circumstances, but retention of a significant portion of the premium (or the entirety thereof) is also common. We recommend a detailed review of the Northgate Specialty policy terms and the tolling side letter to determine the Vehicle's rights upon cancellation, including any refund entitlement, retention provisions, and minimum-earned-premium clauses. This analysis is identified as a next step in Section IX below.
Due-Diligence Costs and Deposits ($12,790,000). This category encompasses payments made to third-party advisors, consultants, and counterparties in connection with due diligence on the Target. Some of these payments may represent refundable deposits — for example, escrow deposits held by third parties pending closing — while others may represent fees for services already rendered, which would be non-recoverable. A detailed investigation of the specific agreements governing each deposit and payment is necessary to determine the aggregate recoverable amount. This analysis is also identified as a next step in Section IX below.
Organizational Expenses ($285,000). These amounts were expended on the formation and organization of the Vehicle and are sunk costs that are not recoverable.
Placement-Agent Fee ($1,050,000). The placement-agent fee paid to Rivermark Capital Markets Inc. is a sunk cost and is not recoverable.
The distribution waterfall under Section 5.01 of the LP Agreement establishes the following priority of distributions upon wind-down:
(i) first, to the payment of all debts, liabilities, and obligations of the Vehicle, including wind-down expenses;
(ii) second, to the establishment of reserves for contingent liabilities, in such amounts as the GP determines in good faith to be reasonably necessary;
(iii) third, to the return of capital contributions to the partners, pro rata in proportion to their respective capital contributions; and
(iv) fourth, any remaining amounts distributed in accordance with the carried-interest waterfall — that is, 90% to the LP and 10% to the GP as carried interest, subject to the 8% preferred return threshold (compounded quarterly).
Given the dormant status of the Vehicle and the nature of its assets, distributions to the partners upon wind-down are unlikely to exceed the residual of the called capital after deduction of sunk costs, non-recoverable expenses, and wind-down costs. There would be no carried interest payable under the fourth tier of the waterfall, because the Vehicle has not generated investment returns exceeding the 8% preferred-return threshold. In practical terms, the wind-down distribution will consist of whatever cash remains in the Vehicle after payment of liabilities and wind-down costs, plus any amounts recovered from the R&W insurance deposit, due-diligence deposits, and working-capital reserve.
C. Release of Unfunded Commitment
A critical financial consequence of the wind-down election is the release of Ironside's unfunded capital commitment. As noted above, Ironside's unfunded commitment stands at $277,500,000 ($299,970,000 total commitment less its pro rata share of the $22,500,000 capital call). Upon exercise of the wind-down election and commencement of the wind-down process, Ironside's obligation to fund additional capital calls is terminated. The $277,500,000 unfunded commitment is extinguished, and Ironside has no further obligation to contribute capital to the Vehicle.
This release is of substantial financial significance. The unfunded commitment represents a contingent obligation on Ironside's balance sheet. Its extinguishment will affect Ironside's capital management, liquidity planning, and regulatory capital calculations (to the extent applicable to Ironside's regulated activities or fund-level reporting). The release also frees capital that Ironside may deploy to other investment opportunities.
D. Impact on Underlying Transaction Documents
Equity Purchase Agreement and Standstill Agreement. The EPA has expired (outside date December 31, 2023), and the EPA parties are currently subject to the Mutual Standstill and Preservation Agreement dated February 15, 2024. The wind-down of the co-investment vehicle does not, by itself, terminate the Standstill Agreement, because the Vehicle is not a direct signatory to the Standstill — the Standstill binds the EPA parties (the Selling Shareholders, the Target, and the Buyer). However, the wind-down would remove the equity source for Ironside's portion of the transaction funding. Fund IV (Meridian), as the majority equity contributor, would be required to determine whether to proceed without Ironside's co-investment participation (by seeking replacement capital or increasing its own commitment), to renegotiate the transaction economics, or to wind down its own participation in the transaction.
We note that the Standstill Agreement may contain provisions requiring notice to the Standstill parties of material developments affecting the equity financing of the transaction. The wind-down of the Vehicle — which eliminates $300 million, or 28.57%, of the total equity commitment — could reasonably be characterized as such a development. Calderwood & Harkness recommends coordinating with Breckenridge Sloane & Pratt LLP (Charles A. Delacroix, counsel to Meridian) regarding any notice or consultation obligations under the Standstill Agreement before delivering the wind-down election notice. This recommendation is reflected in Section IX below.
Representations and Warranties Insurance Policy. The R&W insurance policy issued by Northgate Specialty Insurance Co. (Policy No. NSW-RI-2022-09814) provides $195,000,000 in coverage for breaches of representations and warranties by the Selling Shareholders under the EPA. The policy's coverage period has been tolled pursuant to the Northgate Specialty tolling side letter dated January 20, 2023. Wind-down of the Vehicle would likely trigger cancellation or expiry of the R&W insurance policy, as the insured transaction would no longer be capable of closing. Upon cancellation, the tolling side letter would cease to apply. As noted above, the recoverability of the premium deposit ($4,875,000) upon cancellation is subject to the terms of the policy and should be separately analyzed.
Debt Commitment. The Atlas/Pinnacle debt commitment expired on November 1, 2023 and is no longer in force. Wind-down of the Vehicle has no direct impact on the expired debt commitment.
E. Tax Consequences of Wind-Down
The tax consequences of a wind-down and dissolution of the Vehicle should be carefully analyzed before Ironside makes a final decision to exercise the wind-down election. We provide a preliminary summary of the principal tax considerations below, subject to a more detailed analysis to be prepared by Sylvia Hartwell of Calderwood & Harkness's Tax Practice, in coordination with Kendrick Thorne & Associates LLP (the Vehicle's fund administrator and tax preparer).
Federal Tax Treatment. The Vehicle is a Delaware limited partnership that is treated as a partnership for federal income tax purposes. Upon dissolution and liquidation, distributions of cash to the LP in liquidation of its partnership interest are governed by Section 731 of the Internal Revenue Code. Under IRC §731(a)(2), a loss is recognized by a partner upon the liquidation of its partnership interest only to the extent that the partner's adjusted basis in its partnership interest exceeds the amount of cash distributed to the partner in liquidation. Conversely, gain is recognized only to the extent that the cash distributed exceeds the partner's adjusted basis.
Ironside's adjusted basis in its partnership interest is approximately equal to its capital contribution of approximately $22.5 million (its pro rata share of the $22,500,000 capital call), adjusted for its distributive share of partnership income, loss, and deductions during the TY 2022 and TY 2023 tax years (and through the date of dissolution). The precise adjusted basis should be confirmed with Kendrick Thorne & Associates LLP based on the Vehicle's partnership tax returns (Form 1065) and Ironside's Schedule K-1s for TY 2022 and TY 2023.
If the cash distributed to Ironside in liquidation is less than its adjusted basis, Ironside would recognize a capital loss equal to the difference. The character of the loss (ordinary or capital), the timing of its recognition, and the availability of the loss for offset against other gains in Ironside's broader portfolio should be evaluated in the context of Ironside's overall tax position.
State Tax Considerations. The wind-down may implicate state tax filing obligations in the following jurisdictions:
• Delaware: The Vehicle's state of formation. Final franchise tax returns and any final state partnership returns must be filed.
• Oregon: The state in which the Target operates. If the Vehicle has nexus with Oregon by reason of its investment activity (or the proposed acquisition of Oregon-based assets), final Oregon state tax filings may be required.
• New York: The state of Ironside's domicile. Ironside's pro rata share of partnership income, loss, and deductions flows through to its New York state tax returns.
Prior Tax Analysis. We note that Sylvia Hartwell prepared a tax structuring analysis dated July 20, 2022 in connection with the formation of the Vehicle and Ironside's investment. That analysis addressed the tax treatment of the co-investment structure, including the allocation of income and loss, the distribution waterfall, and the carried interest arrangements. In addition, K-1 reviews were conducted for TY 2022 and TY 2023. We recommend that Sylvia Hartwell update her analysis to address the specific consequences of wind-down and dissolution, including loss recognition, basis calculations, and state filing obligations.
F. Entity Dissolution
Upon completion of the wind-down process and distribution of all remaining assets, the GP will file a Certificate of Cancellation with the Delaware Secretary of State, terminating the Vehicle's existence as a Delaware limited partnership. In connection with the dissolution, the following administrative steps will be required:
• Filing of final federal and state partnership tax returns by Kendrick Thorne & Associates LLP.
• Completion of a final audit or accounting, if required under the LP Agreement or if requested by the partners.
• Termination of the registered agent relationship with Cascade Systems (Dover, Delaware).
• Cancellation or deactivation of the Vehicle's EIN (88-3921457) with the Internal Revenue Service.
• Termination of the fund administration agreement with Kendrick Thorne & Associates LLP.
• Cancellation or expiry of the R&W insurance policy and any related agreements.
VII. Consequences of Not Exercising (or Deferring) the Wind-Down Election
Ironside is not obligated to exercise the wind-down election on or promptly after July 9, 2024. Deferral of the election is a permissible course of action, and Ironside may wish to consider the relative advantages and disadvantages of prompt exercise versus deferral in light of the current factual circumstances.
A. Continued Dormancy
If Ironside does not exercise the wind-down election, the Vehicle will remain in dormancy under the existing Material Impediment Event framework. The practical consequences of continued dormancy include:
• Annualized operating expenses of approximately $185,000, funded from the remaining working-capital reserve (which will eventually be exhausted, potentially requiring a maintenance capital call by the GP under §7.04(b)).
• Ironside's unfunded commitment of $277,500,000 remains outstanding and callable by the GP, subject to the ongoing Capital Call Suspension. Although the GP cannot issue capital calls during dormancy except for entity-maintenance expenses, the unfunded commitment remains a contingent obligation until the Vehicle is wound down or the commitment is otherwise released.
• The GP continues to deliver quarterly status reports to Ironside, providing updates on the Material Impediment Event and the status of the underlying transaction.
• The R&W insurance policy coverage period remains tolled under the Northgate Specialty tolling side letter.
B. Preservation of Optionality
The principal advantage of deferral is the preservation of Ironside's option to participate in the acquisition of Cascadia if the transaction is reactivated. Two recent developments bear on this consideration:
Tentative Concession Framework. The June 30, 2024 tentative framework between the Portland Metropolitan Water District and Cascadia regarding revised concession terms for the Bull Run Filtration Project represents the most significant positive development since the Material Impediment Event was declared. If the revised concession terms preserve a substantial portion of the original revenue stream (approximately $64 million annually) and are commercially acceptable to the acquisition parties, the principal impediment to the transaction may be resolved.
Meridian Reactivation Assessment. We understand that Meridian has been preparing a reactivation feasibility memorandum, which is expected to be circulated on or about September 1, 2024. This memorandum would presumably address the economic, regulatory, and operational prerequisites for reactivating the transaction, including revised valuations, re-filing of regulatory approvals, re-engagement of debt financing, and updated diligence. Deferral of the wind-down election would allow Ironside to evaluate this assessment before making a final determination.
C. Reactivation Considerations
Even if the underlying transaction becomes commercially viable again, reactivation would require the parties to undertake significant steps, each of which would involve material cost, time, and risk:
(i) New FERC §203 Filing. The prior FERC §203 approval (Docket No. EC22-143-000) lapsed on June 15, 2024. A new application would need to be filed and approved, a process that typically takes six to twelve months.
(ii) OPUC Proceedings. The OPUC proceedings (Docket No. UM-2287) have been stayed since February 2023. Reactivation would require the stay to be lifted and the application to be prosecuted to a conclusion.
(iii) New Debt Commitment. The Atlas/Pinnacle debt commitment expired on November 1, 2023. A new debt commitment would need to be obtained, likely at revised terms reflecting current market conditions (which may include higher interest rates, tighter covenants, or lower advance rates compared to the original commitment).
(iv) EPA Reinstatement or New Definitive Agreement. The original EPA expired on December 31, 2023 and is currently subject to the Standstill Agreement. The parties would need either to reinstate the EPA (through a further amendment or waiver) or to negotiate a new definitive agreement, potentially at revised valuation and terms.
(v) R&W Insurance Reactivation. The R&W insurance policy would need to be taken off tolling and reactivated, or a new policy would need to be obtained, potentially at revised premium levels.
(vi) Updated Diligence. Comprehensive updated due diligence on the Target would be required, including a reassessment of the revised concession terms, financial performance during the dormancy period, any material changes in the Target's operations, and updated environmental, regulatory, and legal reviews.
Ironside would also need to evaluate revised transaction economics, including the impact of any changes to the Bull Run Filtration Project concession terms on Cascadia's revenue (approximately $64 million annually at risk), EBITDA ($138 million in FY 2021 under the original concession), and enterprise value ($1.95 billion agreed valuation under the expired EPA). The costs and timeline of reactivation would be material, and there can be no assurance that a reactivated transaction would be consummated.
D. No Prejudice from Deferral
As discussed in Section III.C above, the wind-down election right, once ripened, does not expire so long as dormancy continues. Ironside suffers no legal prejudice from deferring the exercise of the right. The only ongoing costs of deferral are: (i) the continued accrual of operating expenses (approximately $185,000 per year), which are funded from the working-capital reserve and will eventually require a maintenance capital call if the reserve is exhausted; and (ii) the continued exposure to the $277,500,000 unfunded commitment, which, although not presently callable, remains a contingent obligation.
There is, however, one risk associated with deferral that merits careful attention: if the GP formally rescinds the Material Impediment Event declaration and lifts dormancy under §7.04(d) — for example, in connection with a determination that the transaction should be reactivated — the ripened wind-down election right would terminate. In that scenario, Ironside would be required to fund capital calls if and when issued by the GP, or to negotiate alternative arrangements (such as a transfer of its limited partnership interest or a consent-based withdrawal). Ironside should therefore monitor closely for any indication that the GP intends to rescind the Material Impediment Event, and should be prepared to deliver the wind-down election notice promptly if it determines that deferral is no longer in its interest and a rescission appears imminent.
VIII. Interaction with Side Letter and Other Agreements
A. Side Letter (July 29, 2022)
The Side Letter executed between the GP and Ironside on July 29, 2022 supplements the LP Agreement with respect to certain terms applicable to Ironside's investment in the Vehicle. The Side Letter confirms, among other things, that no management fee is charged on the co-investment and that Ironside is entitled to enhanced reporting, including more detailed quarterly and annual reports than those required under the LP Agreement alone.
Importantly, the Side Letter expressly references the wind-down election right under §7.04(c) of the LP Agreement. The reference is confirmatory in nature — the Side Letter acknowledges the existence of the right and its terms but does not modify, expand, or restrict it. The Side Letter does not impose any additional conditions or prerequisites for the exercise of the wind-down election beyond those set forth in §7.04(c).
The Side Letter also contains a most-favored-nation ("MFN") provision, pursuant to which Ironside is entitled to receive the benefit of any more favorable terms granted by Meridian or the GP to any other co-investor in a similar co-investment vehicle in respect of the same or a similar transaction. If Meridian has granted more favorable wind-down terms — for example, a shorter dormancy trigger period or automatic wind-down upon certain events — to any other co-investor, Ironside would be entitled to elect to receive those equivalent terms. We are not presently aware of any other co-investment vehicles established by Meridian in connection with the Cascadia transaction, but we recommend confirming this with Meridian in due course.
The wind-down election under the Side Letter is fully consistent with, and in no way restricted by, the terms of the Side Letter. Ironside may exercise the election solely in accordance with the procedures set forth in §7.04(c) of the LP Agreement and the notice provisions of §12.02.
B. Co-Investment Allocation Agreement (July 29, 2022)
The Co-Investment Allocation Agreement, also dated July 29, 2022, governs the allocation of economics, governance, and investment activity between Fund IV and the Vehicle. The Allocation Agreement establishes, among other things, the respective equity commitments of Fund IV ($750 million) and the Vehicle ($300 million), the pari passu investment terms, and the coordination mechanisms between the two vehicles with respect to the underlying transaction.
Wind-down of the Vehicle would require coordination with Meridian regarding the Allocation Agreement. Specifically, the wind-down would eliminate the Vehicle's $300 million equity contribution, leaving Fund IV as the sole equity source for the transaction. Meridian would need to determine whether to: (i) increase Fund IV's commitment to absorb the Vehicle's equity tranche, (ii) seek replacement co-investment capital from another investor, or (iii) reduce the total equity commitment and renegotiate the transaction structure accordingly. These are Meridian's decisions to make, and the Allocation Agreement does not restrict or condition the LP's exercise of the wind-down election right under the LP Agreement.