memo-status-and-path-forward.docx

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MEMORANDUM

FROM: Oliver Mackenzie, Responsible Partner, and Tiffany Rosenthal, Lead Associate Calderwood & Harkness LLP 901 Fifth Avenue, Suite 3200 Seattle, WA 98164

TO: Margaret Ellsworth, Executive Director David Tanaka, General Counsel Patricia Huang, Deputy Director, Capital Projects Cascadia State Infrastructure Authority 1100 Jefferson Street SE, Suite 400 Olympia, WA 98501

DATE: January 15, 2024

RE: Columbia Basin Water Treatment Partners, LLC — Status of Dormant Joint Venture and Recommended Path Forward

Matter No.: 47291.00001

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I. Executive Summary

The purpose of this memorandum is to provide the Cascadia State Infrastructure Authority ("CSIA") with a comprehensive status update on the dormant public-private joint venture between CSIA and Pinnacle Water Solutions, LLC ("Pinnacle"), conducted through the joint venture entity Columbia Basin Water Treatment Partners, LLC ("CBWTP"), and to recommend a course of action to resolve the current impasse and protect CSIA's legal, financial, and public-interest objectives.

CBWTP was formed on November 2, 2021, pursuant to an Amended and Restated Limited Liability Company Agreement of that same date (the "JV Agreement"), for the purpose of designing, constructing, and operating the Thurston County Advanced Water Treatment Facility (the "Facility"), a 12-million-gallon-per-day ("MGD") advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501. The total project cost was budgeted at $45,000,000, to be funded through a combination of $18,000,000 in member equity and $27,000,000 in project finance debt.

The joint venture has been effectively dormant since mid-2022, and the Facility has not advanced beyond preliminary environmental assessment. The dormancy is attributable to three converging factors: (1) the stalling of environmental permitting at the Thurston County Department of Environmental Health, which paused its Phase II Environmental Impact Determination review in July 2022 pending receipt of supplemental data that has never been submitted; (2) Pinnacle's failure to fund its Second Tranche capital contribution of $4,050,000, which constitutes an uncured default under §8.2 of the JV Agreement since June 13, 2023; and (3) the expiration, on August 15, 2023, of Pacific Cascade Bank, N.A.'s ("PCB") $27,000,000 project finance commitment letter, which lapsed without any draw having been made.

CSIA has fully funded its equity commitment of $9,900,000, representing both its First Tranche ($4,950,000) and Second Tranche ($4,950,000) capital contributions. Pinnacle has funded only $4,050,000 of its $8,100,000 total commitment, having made its First Tranche contribution at formation but failing to fund its Second Tranche when called. Total funded equity in CBWTP stands at $13,950,000, with $4,050,000 remaining unfunded — all attributable to Pinnacle.

This memorandum evaluates three strategic paths forward for CSIA:

(A) Reactivation and Restructuring: Attempting to revive the dormant project by resolving the permitting impasse, curing or restructuring Pinnacle's participation, and securing replacement or renewed project financing.

(B) Exercise of Default and/or Buy-Sell Remedies: Exercising CSIA's contractual remedies under §8.2 of the JV Agreement (default buyout, dilution, or dissolution election) and/or the now-exercisable buy-sell provision under §9.1 to acquire Pinnacle's 45% interest and gain full control of the JV entity.

(C) Voluntary Dissolution and Wind-Down: Negotiating a consensual dissolution of CBWTP, distributing remaining assets in accordance with capital accounts, reverting the ground lease to CSIA, and allowing CSIA to pursue the Facility through a new procurement process.

Our recommendation is that CSIA initiate structured negotiations with Pinnacle — and, where appropriate, with Pinnacle's majority equity holder, Ridgeline Capital Partners, LP — aimed at securing either a buyout of Pinnacle's 45% interest at 75% of fair market value pursuant to §8.2(ii) or a consensual voluntary dissolution with agreed asset distribution, mutual releases, and settlement of the $4,050,000 unfunded capital call dispute. CSIA should establish a defined negotiation timeline of approximately 90 days, after which CSIA should escalate to formal dispute resolution. Calderwood & Harkness has prepared a draft demand for arbitration with the Pacific Northwest Arbitration Association ("PNAA"), seated in Seattle, Washington, to be held in reserve as a credible fallback enforcement mechanism.

CSIA holds the stronger position in any negotiation or arbitration: it has fully funded its equity commitment, holds the underlying 14.7-acre site through a reversionary ground lease, controls three of five Governing Board seats, and possesses a well-documented, uncured funding default by Pinnacle that entitles CSIA to punitive contractual remedies. We believe this leverage, if deployed judiciously, will produce a favorable resolution.

II. Background and Formation of the Joint Venture

A. The Parties

Cascadia State Infrastructure Authority ("CSIA"). CSIA is a Washington state governmental authority created pursuant to Chapter 43.155A of the Revised Code of Washington. It is headquartered at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501. CSIA's annual operating budget is approximately $380 million, and it currently manages in excess of 60 active infrastructure projects across the State of Washington, spanning water and wastewater systems, transportation corridors, broadband deployment, and public facilities. CSIA is governed by an appointed board of directors and is led by Executive Director Margaret Ellsworth, a 22-year veteran of Washington state government who has served as Executive Director since 2017. David Tanaka serves as General Counsel, overseeing all legal matters for the Authority. Patricia Huang serves as Deputy Director, Capital Projects, and has had direct operational responsibility for the CBWTP project since its inception.

Pinnacle Water Solutions, LLC ("Pinnacle"). Pinnacle is a Delaware limited liability company headquartered at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205. It was founded in 2014 by Richard Prumvane, who serves as Chief Executive Officer and Managing Member, and Cynthia Voss, who serves as Chief Operating Officer. Pinnacle specializes in the design, construction, and operation of water and wastewater treatment facilities, and it has completed in excess of $600 million in projects across the Pacific Northwest and Northern California over the past decade. According to its most recently available audited financial statements (fiscal year 2021), Pinnacle reported revenue of approximately $187 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $29 million. No updated financial information has been provided to CSIA or CBWTP since 2021, and Pinnacle's current financial condition is not known to us with certainty.

Ridgeline Capital Partners, LP ("Ridgeline"). Ridgeline is a Portland-based private equity fund managed by Jonathan Kreider, Managing Partner, with offices at 1120 NW Couch Street, Suite 700, Portland, Oregon 97209. In 2019, Ridgeline acquired a 62% equity interest in Pinnacle for approximately $95 million, making Ridgeline the controlling equity holder of Pinnacle. The terms of Ridgeline's investment in Pinnacle, and any governance rights or consent requirements applicable to Pinnacle's participation in the CBWTP joint venture, are not known to us. However, Ridgeline's investment thesis, fund-life considerations, and internal return targets may materially influence Pinnacle's willingness and capacity to negotiate a resolution of the current impasse, as discussed further in Section VI.A below.

Pinnacle's Outside Counsel. Pinnacle is represented in connection with the CBWTP joint venture by Whitfield, Aarons & Greer LLP ("WAG"), located at 1455 SW Broadway, Suite 2100, Portland, Oregon 97201. The lead partner at WAG is Elaine Prescott, with Marcus Delvecchio serving as the senior associate on the matter. All formal communications regarding the JV have been directed to and received from Ms. Prescott.

B. Formation and Structure

CBWTP was formed as a Washington limited liability company on November 2, 2021, pursuant to the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC, also dated November 2, 2021 (the "JV Agreement"). The entity was filed with the Washington Secretary of State on November 2, 2021, and assigned UBI Number 604-892-315. CBWTP's Employer Identification Number is 88-3421076. Its registered office is located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, care of CSIA.

The key structural features of the JV, as established by the JV Agreement, are as follows:

Ownership. CSIA holds a 55% membership interest in CBWTP, and Pinnacle holds a 45% membership interest.

Governing Board. The JV is governed by a five-member Governing Board. CSIA is entitled to appoint three members, and Pinnacle is entitled to appoint two members. As of the date of formation, CSIA's appointed members are Margaret Ellsworth, David Tanaka, and Patricia Huang. Pinnacle's appointed members are Richard Prumvane and Cynthia Voss. A quorum of the Governing Board requires the presence of at least three members.

Major Decision Threshold. Certain enumerated "Major Decisions" require a supermajority vote of four of five Governing Board members. These Major Decisions include, among other things: (a) commencement of construction; (b) incurrence of indebtedness in excess of $500,000; (c) admission of new members; (d) voluntary dissolution of CBWTP; and (e) sale of all or substantially all of CBWTP's assets. The practical consequence of this supermajority requirement is that CSIA's three board members cannot unilaterally authorize any Major Decision — at least one Pinnacle-appointed member must concur.

Manager. The JV Agreement designates Pinnacle as the "Manager" of CBWTP, responsible for day-to-day operations, project management, and advancement of all pre-construction activities, including environmental permitting and contractor procurement, subject to the oversight and direction of the Governing Board.

Management Fee. In consideration for its services as Manager, Pinnacle is entitled to a management fee equal to 3% of total construction costs. Based on the $45,000,000 total project cost, this fee would equal $1,350,000. No management fees have been earned or paid to date, as construction has not commenced.

Ground Lease. CSIA, as owner of the 14.7-acre project site at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501, entered into a 99-year ground lease with CBWTP as tenant, effective November 2, 2021. The annual rent under the ground lease is $1.00. The ground lease was recorded with the Thurston County Auditor as Recording Number 2021-1102-004788. Critically, the ground lease provides that upon termination of the JV for any reason, the leasehold interest reverts to CSIA, and the 14.7-acre parcel returns to CSIA's full control. This reversionary interest is a significant structural advantage for CSIA in any negotiation or dispute resolution.

Term. The JV has a term of 30 years from the date the Facility achieves commercial operation, with two successive 10-year renewal options exercisable by mutual agreement of the members. Because the Facility has never been constructed, the 30-year operating term has not commenced.

Governing Law. The JV Agreement is governed by the laws of the State of Washington.

C. Capital Structure

The total project cost for the Thurston County Advanced Water Treatment Facility was established at $45,000,000, to be funded through a combination of member equity contributions and project finance debt as follows:

Total Equity Commitment: $18,000,000.

• CSIA (55%): $18,000,000 × 55% = $9,900,000

• Pinnacle (45%): $18,000,000 × 45% = $8,100,000

Project Finance Debt: $27,000,000.

Pacific Cascade Bank, N.A. ("PCB") issued a commitment letter on February 15, 2022 (reference number PCB-PF-2022-0417), committing to provide a $27,000,000 project finance credit facility to CBWTP. The commitment letter was addressed to CBWTP, care of both CSIA and Pinnacle. The lead banker at PCB for this transaction was Thomas Rennick, Senior Vice President, Public Finance Division, located at PCB's offices at 600 University Street, Suite 800, Seattle, Washington 98101. The commitment letter had an 18-month tenor, expiring on August 15, 2023.

Total Sources Reconciliation:

Two-Tranche Funding Structure. The JV Agreement provided for a two-tranche equity funding structure. Each member was required to fund 50% of its total equity commitment at formation (the "First Tranche"), with the remaining 50% (the "Second Tranche") callable by the Governing Board upon 30 days' written notice when the Board determined that additional capital was required to advance the project. Specifically:

• CSIA First Tranche: $4,950,000 (50% of $9,900,000)

• CSIA Second Tranche: $4,950,000 (50% of $9,900,000)

• Pinnacle First Tranche: $4,050,000 (50% of $8,100,000)

• Pinnacle Second Tranche: $4,050,000 (50% of $8,100,000)

D. Project Timeline and Key Events

The following chronological timeline sets forth the key events in the history of the CBWTP joint venture from formation through the present date:

November 2, 2021: The JV Agreement was executed by CSIA and Pinnacle. CBWTP was formed as a Washington limited liability company and filed with the Washington Secretary of State. The ground lease between CSIA (as lessor) and CBWTP (as lessee) was executed and recorded with the Thurston County Auditor as Recording Number 2021-1102-004788.

November 15, 2021: First Tranche capital contributions were funded by both members. CSIA contributed $4,950,000, and Pinnacle contributed $4,050,000, for a total initial capitalization of $9,000,000. The funds were deposited into CBWTP's operating account at Pacific Cascade Bank, N.A.

January 10, 2022: CBWTP, acting through Pinnacle as Manager, retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare Phase I and Phase II environmental site assessments for the Facility site. Westmark is located at 3310 Pacific Avenue, Suite 210, Tacoma, Washington 98418, and the engagement was led by Dr. Anita Farooq, Principal Consultant.

February 15, 2022: Pacific Cascade Bank, N.A. issued its $27,000,000 project finance commitment letter (reference PCB-PF-2022-0417), with an 18-month tenor expiring August 15, 2023. The commitment was subject to customary conditions precedent, including completion of environmental permitting, execution of definitive loan documentation, and satisfaction of borrowing base requirements.

April 22, 2022: Westmark completed the Phase I Environmental Site Assessment for the Facility site. The Phase I ESA concluded that no recognized environmental conditions were identified at the property. This was a favorable result and cleared the path for advancement to the Phase II Environmental Impact Determination review process administered by Thurston County.

July 8, 2022: The Thurston County Department of Environmental Health, acting through Karen Lindstrom, Environmental Review Division Manager, issued a request for supplemental environmental data in connection with the Phase II Environmental Impact Determination ("EID") review. The Phase II EID process was paused pending receipt of the supplemental data. The specific data requested related to groundwater hydrology and potential effects on the adjacent Deschutes River watershed.

September 14, 2022: Pinnacle notified CSIA, through a letter from Richard Prumvane to Margaret Ellsworth, that Pinnacle intended to "defer further project expenditures" pending resolution of the environmental permitting issues at Thurston County. No formal legal notice was provided; the letter was characterized as an operational update. As a practical matter, this notification signaled the cessation of Pinnacle's activities as Manager, including its obligation to prepare and submit the supplemental environmental data requested by Thurston County.

November 30, 2022: A regularly scheduled meeting of the CBWTP Governing Board failed to achieve a quorum. Neither Richard Prumvane nor Cynthia Voss, Pinnacle's two appointed board members, attended the meeting. CSIA's three appointed members — Ms. Ellsworth, Mr. Tanaka, and Ms. Huang — were present but were unable to conduct business without a quorum of three members. While CSIA's three members technically constituted a quorum under certain interpretations of the JV Agreement's quorum provisions, the meeting was adjourned without action out of an abundance of caution and a desire to avoid a governance dispute.

March 1, 2023: The CBWTP Governing Board, acting by vote of the three CSIA-appointed members (who, in our view, constitute a quorum under the JV Agreement), issued a Second Tranche capital call to both members. The capital call notice required each member to fund the remaining 50% of its total equity commitment within 30 calendar days — i.e., by March 31, 2023. For CSIA, this represented $4,950,000; for Pinnacle, this represented $4,050,000.

March 28, 2023: CSIA funded its Second Tranche capital contribution of $4,950,000, completing CSIA's full equity commitment of $9,900,000. The funds were deposited into CBWTP's operating account at Pacific Cascade Bank.

March 31, 2023: The 30-day payment deadline for the Second Tranche capital call expired. Pinnacle did not fund its Second Tranche of $4,050,000. Pinnacle provided no formal communication regarding its failure to fund.

April 14, 2023: Calderwood & Harkness LLP, on behalf of CSIA, transmitted a formal default notice to Pinnacle and to Whitfield, Aarons & Greer LLP (Elaine Prescott), notifying Pinnacle of its failure to fund the Second Tranche capital contribution of $4,050,000 and declaring Pinnacle in default under §8.2 of the JV Agreement. The default notice provided Pinnacle with a 60-day cure period, as required by §8.2, commencing on the date of the notice and expiring on June 13, 2023.

April 28, 2023: WAG (Elaine Prescott), on behalf of Pinnacle, transmitted a letter to Calderwood & Harkness asserting that Pinnacle's failure to fund the Second Tranche was excused by the force majeure provision of §11.4 of the JV Agreement, on the ground that the Thurston County environmental permitting delay constituted a "regulatory delay beyond Pinnacle's control." The letter requested that the default notice be withdrawn and the cure period tolled.

May 12, 2023: Calderwood & Harkness, on behalf of CSIA, transmitted a detailed response to WAG formally rejecting Pinnacle's force majeure defense. Our response demonstrated that §11.4 of the JV Agreement expressly excludes "delays in obtaining governmental approvals" from the definition of Force Majeure Events. We further noted that Pinnacle, as the designated Manager of CBWTP, bore responsibility under §4.3 of the JV Agreement for advancing the permitting process, and that Pinnacle's own decision to defer project expenditures on September 14, 2022 — which caused the supplemental environmental data to go unprepared — could not serve as a basis for excusing its independent obligation to fund a duly issued capital call. A comprehensive analysis of Pinnacle's force majeure defense was set forth in our May 8, 2023 memorandum to CSIA, which is enclosed with this memorandum.

June 13, 2023: The 60-day cure period expired without cure. Pinnacle did not fund the $4,050,000 Second Tranche, nor did it take any steps to cure the default. As of this date, CSIA's default remedies under §8.2 of the JV Agreement — including pro rata dilution, purchase at 75% of fair market value, and dissolution — became fully exercisable.

August 15, 2023: The PCB $27,000,000 project finance commitment letter expired by its terms, without any draw having been made against the facility. No request for extension or renewal was made by either CBWTP or its members.

November 2, 2023: The second anniversary of the formation of CBWTP. Under §9.1 of the JV Agreement, the buy-sell (shotgun) provision became exercisable by either member on or after this date.

October 2023 – Present: The matter has remained dormant. Periodic informal status inquiries have been exchanged between Calderwood & Harkness and WAG, but no substantive negotiations or settlement discussions have occurred. No further capital contributions have been made, no construction activity has been undertaken, and no environmental permitting progress has been achieved.

III. Current Status of Key Issues

A. Pinnacle's Funding Default

Pinnacle is in uncured default under the JV Agreement for its failure to fund the Second Tranche capital contribution of $4,050,000. The relevant chronology is as follows:

• The capital call notice was issued by the Governing Board on March 1, 2023.

• Payment was due within 30 calendar days — i.e., by March 31, 2023.

• Pinnacle failed to make the required payment by the due date.

• Calderwood & Harkness transmitted a formal default notice on April 14, 2023, commencing a 60-day cure period under §8.2 of the JV Agreement.

• The 60-day cure period expired on June 13, 2023, without cure.

The current capital position of the JV is as follows:

Pinnacle's force majeure defense under §11.4, asserted in WAG's April 28, 2023 letter, was formally rejected by our May 12, 2023 response. As we explained in detail in our May 8, 2023 memorandum analyzing that defense, the JV Agreement's force majeure clause expressly excludes delays in obtaining governmental approvals from the definition of Force Majeure Events. This exclusion is unambiguous on its face and is consistent with the general approach taken by Washington courts in construing force majeure clauses in public-private contracts. See, e.g., Calderon Industries v. Pacific Enterprises, Ltd., 190 Wn. App. 112, 127-28 (2015) (holding that a force majeure clause that excludes regulatory delays from its scope cannot be invoked to excuse performance delayed by permitting obstacles); WA Dep't of Transp. v. Columbia Infrastructure Group, 165 Wn.2d 460, 473 (2009) (emphasizing the importance of giving effect to express exclusions in force majeure provisions in public infrastructure contracts).

Moreover, Pinnacle's position is further undermined by its own role in creating the permitting delay. As the designated Manager of CBWTP under §4.3 of the JV Agreement, Pinnacle bore responsibility for advancing all pre-construction activities, including the preparation and submission of environmental permitting materials. It was Pinnacle that unilaterally decided on September 14, 2022 to "defer further project expenditures," thereby halting the preparation of the supplemental environmental data that Thurston County had requested on July 8, 2022. Pinnacle cannot invoke a delay that it caused — or, at minimum, failed to mitigate — as a basis for excusing its independent obligation to fund a duly authorized capital call.

No further substantive communications have been received from Pinnacle or WAG since our May 12, 2023 rejection letter. We have received periodic informal status inquiries from Marcus Delvecchio at WAG, but these have been limited to procedural matters and have not addressed the substance of the default or any proposed cure.

B. Lapsed Project Finance Commitment

The $27,000,000 project finance credit facility commitment from Pacific Cascade Bank, N.A. (reference PCB-PF-2022-0417) expired on August 15, 2023, by its terms. The commitment letter was issued on February 15, 2022, with an 18-month tenor. No draws were made against the facility during its term, and no request for extension or renewal was submitted by CBWTP or either member.

The loss of the PCB commitment is a significant consequence of the project's dormancy. The $27,000,000 in committed debt represented 60% of the total $45,000,000 project cost and was essential to the project's financial viability. Without this or a replacement commitment, the project cannot proceed as currently structured.

Thomas Rennick, Senior Vice President of PCB's Public Finance Division, has informally indicated in conversations with our firm that any future commitment from PCB would require an entirely new underwriting process, including updated environmental documentation, revised project budgets and construction schedules, and a reassessment of CBWTP's creditworthiness and governance. Mr. Rennick has not provided any indication of whether PCB would be favorably or unfavorably disposed toward a new commitment, nor has he quoted updated terms. It is likely that the interest rate environment and market conditions for project finance debt have changed materially since February 2022.

C. Stalled Environmental Permitting

The Phase II Environmental Impact Determination ("EID") process administered by the Thurston County Department of Environmental Health has been effectively paused since July 8, 2022, when Karen Lindstrom, Environmental Review Division Manager, requested supplemental environmental data from CBWTP. The specific data requested related to groundwater hydrology and potential effects on the adjacent Deschutes River watershed.

The Phase I Environmental Site Assessment, completed by Westmark Environmental Consulting, Inc. (Dr. Anita Farooq, Principal Consultant) on April 22, 2022, concluded that no recognized environmental conditions were identified at the 14.7-acre Facility site. This was a favorable result and is not in dispute. The Phase II EID, however, requires a more comprehensive review of environmental impacts associated with the construction and operation of the 12-MGD treatment facility, and it is this review that has stalled.

The supplemental data requested by Thurston County has never been prepared or submitted. Pinnacle, as Manager of CBWTP, was responsible for advancing the permitting process, and its September 14, 2022 decision to defer further project expenditures effectively halted all work on the supplemental data. No alternative arrangement for the preparation and submission of the data has been made.

Ms. Lindstrom has indicated informally that CBWTP's application remains open with the Department but has been classified as "administratively inactive." No statutory deadline has been triggered that would result in either a deemed approval or a deemed denial of the application. The Phase II EID process thus remains in limbo — the application has not been abandoned, but it cannot advance without the submission of the requested supplemental data.

If the project were to be reactivated, it would be necessary to re-engage Westmark (or retain a replacement environmental consultant) to prepare and submit the supplemental data, and then to work through the remainder of the Phase II EID review process with Thurston County. The timeline for this process is uncertain but could reasonably be expected to take six to twelve months from the date of re-engagement, depending on the scope of the supplemental work required and the County's review schedule.

D. CBWTP Financial Position

The most recent financial statements for CBWTP were prepared as of June 30, 2023, by Hargrove & Tillman, CPAs (engagement partner Laura Svensson, CPA), located at 415 Capitol Way N, Suite 300, Olympia, Washington 98501. The following summary reflects the entity's financial position as of that date:

Balance Sheet Summary (as of June 30, 2023):

Cross-check: $9,847,000 (total assets) − $214,000 (total liabilities) = $9,633,000 (net equity). Confirmed.

Several observations warrant note:

First, CBWTP holds $8,412,000 in cash in its operating account at Pacific Cascade Bank. This is a substantial balance that continues to sit in a single depository institution. We recommend that CSIA and CBWTP review this balance in light of FDIC insurance coverage limits (currently $250,000 per depositor per institution for government deposits, subject to certain enhanced coverage provisions) and CSIA's investment policy. It may be advisable to distribute the cash across multiple institutions or invest a portion in permitted short-term instruments to ensure adequate protection and compliance with applicable investment policies.

Second, CBWTP has not conducted any construction activity. All expenses incurred to date — totaling $4,317,000 — relate to organizational costs, legal fees, environmental assessment fees, and other pre-development expenditures.

Third, ongoing carrying costs for CBWTP are minimal but not zero. They include periodic accounting fees payable to Hargrove & Tillman, registered agent maintenance fees, and Washington annual report filing fees. These costs, while modest, will continue to accrue as long as the entity remains in existence.

Fourth, the cumulative expenses of $4,317,000 have been allocated between the members' capital accounts in accordance with the JV Agreement's expense allocation provisions. We recommend requesting an updated allocation schedule from Hargrove & Tillman to confirm the precise allocation between CSIA's and Pinnacle's accounts.

E. Governing Board Dysfunction

The CBWTP Governing Board has been functionally impaired since at least November 30, 2022, when both Pinnacle-appointed members — Richard Prumvane and Cynthia Voss — failed to attend a regularly scheduled Board meeting. Since that date, neither Prumvane nor Voss has participated in any Board meeting or, to our knowledge, engaged in any governance activity on behalf of CBWTP.

This dysfunction has critical operational and legal consequences. Under the JV Agreement, Major Decisions require a supermajority vote of four of five Governing Board members. CSIA controls three Board seats, but three votes alone cannot satisfy the four-vote threshold. This means that, as a practical matter, CSIA cannot unilaterally authorize any Major Decision, including:

• Commencement of construction;

• Incurrence of indebtedness in excess of $500,000 (including any replacement project finance facility);

• Admission of a new member;

• Voluntary dissolution of CBWTP; or

• Sale of all or substantially all of CBWTP's assets.

The JV Agreement does not contain a deadlock-breaking mechanism — such as a swing vote, a casting vote for the Chair, or a forced buyout trigger upon deadlock — beyond the general dispute resolution process set forth in §12.1, which requires mandatory mediation followed by binding arbitration at the PNAA. Absent Pinnacle's voluntary re-engagement or a formal dispute resolution proceeding, CSIA is effectively unable to advance the project or restructure the JV through the Governing Board.

IV. Key JV Agreement Provisions Relevant to Path Forward

This Section summarizes the JV Agreement provisions most relevant to CSIA's evaluation of strategic options. The full JV Agreement is enclosed with this memorandum; the summaries below are provided for convenience and should be read in conjunction with the Agreement's complete text.

A. Default Remedies — §8.2

Section 8.2 of the JV Agreement establishes the remedial framework applicable upon a member's failure to fund a duly authorized capital call. The provision operates as follows:

Upon a member's failure to fund a capital call within 30 calendar days of written notice, the non-defaulting member may deliver a default notice to the defaulting member. The defaulting member then has 60 days from receipt of the default notice to cure the default by funding the outstanding capital contribution in full. If the default is not cured within the 60-day cure period, the non-defaulting member may, in its sole discretion, elect one of the following three remedies:

(i) Pro Rata Dilution. The non-defaulting member may dilute the defaulting member's membership interest in proportion to the ratio of the unfunded capital contribution to the total committed equity. In Pinnacle's case, the $4,050,000 unfunded Second Tranche represents 22.5% of the $18,000,000 total committed equity. The precise mechanics of the dilution calculation — including whether it is based on committed, funded, or adjusted capital — require careful analysis under the Agreement's formula, which is addressed in our June 20, 2023 memorandum.

(ii) Purchase at 75% of Fair Market Value. The non-defaulting member may elect to purchase the defaulting member's entire membership interest at a price equal to 75% of the fair market value ("FMV") of such interest. The 25% discount from FMV serves as a contractual penalty for the default and is intended to compensate the non-defaulting member for the disruption and expense caused by the defaulting member's failure to perform. FMV is to be determined by an independent appraiser selected in accordance with the procedures set forth in §8.2(ii)(c) of the JV Agreement, which provides for each member to designate an appraiser, with a third appraiser selected by the two designated appraisers if the parties cannot agree on a single appraiser.

(iii) Dissolution. The non-defaulting member may elect dissolution of the JV Entity. Importantly, the language of §8.2(iii) states that the non-defaulting member may "elect dissolution of the Company," which may be construed as an independent grant of authority to dissolve — potentially overriding the supermajority board vote requirement that would otherwise apply to a voluntary dissolution under the Major Decisions provisions. This is an important legal question that may arise if Pinnacle resists dissolution; we believe the better reading of the Agreement supports CSIA's ability to elect dissolution unilaterally under §8.2(iii), but the issue is not free from doubt and could be the subject of arbitration.

All three remedies are currently available to CSIA. The 60-day cure period expired on June 13, 2023, and Pinnacle has not cured. CSIA has not yet formally elected a remedy, and no election is required within a specified timeframe under the Agreement — CSIA's remedies remain available until exercised or waived. We recommend, however, that CSIA not delay indefinitely, as prolonged inaction could arguably give rise to waiver arguments (although Washington law generally disfavors implied waiver of contractual rights absent clear and unequivocal conduct, see Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 52 (1991)).

A detailed analysis of each remedy option under §8.2 was provided in our June 20, 2023 memorandum, which is enclosed.

B. Buy-Sell (Shotgun) Provision — §9.1

Section 9.1 of the JV Agreement establishes a buy-sell mechanism — commonly referred to as a "shotgun" or "Russian roulette" provision — that permits either member to initiate a compulsory buy-sell process after the second anniversary of the formation of CBWTP. Since CBWTP was formed on November 2, 2021, the buy-sell provision became exercisable on November 2, 2023, and remains exercisable as of the date of this memorandum.

The mechanics of the buy-sell provision operate as follows:

1. The triggering member delivers a written offer to the other member, specifying a price at which the triggering member is willing to purchase the other member's entire membership interest (the "Offer Price").

2. The receiving member then has 60 days to elect one of two options: (a) accept the offer and sell its membership interest at the Offer Price; or (b) reverse the transaction and instead purchase the triggering member's membership interest at the same Offer Price (adjusted proportionally for the relative size of the membership interests, as set forth in the Agreement).

3. If the receiving member fails to respond within 60 days, it is deemed to have accepted the offer, and the sale proceeds at the Offer Price.

The buy-sell provision is a powerful mechanism for breaking deadlock, but it carries significant strategic risk for the triggering party. If CSIA triggers the buy-sell by naming an Offer Price for Pinnacle's 45% interest, Pinnacle has the option to reverse the transaction and purchase CSIA's 55% interest at the equivalent per-unit price. This creates a "price discovery" dynamic that can produce efficient outcomes but also exposes the triggering party to the risk of losing its position in the venture.

A critical strategic question arises from the interplay between §9.1 (buy-sell) and §8.2 (default remedies). Specifically, CSIA may wish to exercise the default buyout at 75% of FMV under §8.2(ii), which is punitive to the defaulting party, while preserving the buy-sell provision as an alternative or fallback mechanism. The question is whether the JV Agreement permits CSIA to exercise both remedies in the alternative, or whether the election of one precludes the other. Our analysis of this question was set forth in our October 16, 2023 memorandum, which is enclosed. In summary, we believe CSIA may pursue the §8.2(ii) default buyout as its primary remedy and invoke the §9.1 buy-sell provision in the alternative, provided that CSIA does not formally elect the buy-sell in a manner that could be construed as a waiver of its default remedies. However, the sequencing and interplay of these provisions should be carefully managed.

An additional consideration mitigating the risk of the buy-sell provision is the ground lease. If Pinnacle were to attempt to purchase CSIA's 55% interest under the buy-sell reversal mechanism, Pinnacle would acquire a 100% ownership of CBWTP — an entity whose sole significant physical asset is a leasehold interest in land owned by CSIA. Because the ground lease reverts to CSIA upon termination of the JV, and because the lease's below-market terms ($1.00 annual rent) were negotiated in the context of a public-private partnership, CSIA would retain substantial leverage even in the unlikely scenario that Pinnacle attempted a reversal purchase.

C. Force Majeure — §11.4

Section 11.4 of the JV Agreement defines "Force Majeure Events" and provides limited excuse for non-performance attributable to such events. The definition includes acts of God, war, terrorism, epidemics, government-imposed embargoes or sanctions, and similar extraordinary events. Critically, the definition expressly excludes "delays in obtaining governmental approvals, licenses, or permits" from the scope of Force Majeure Events.

This exclusion is determinative of Pinnacle's force majeure defense. Pinnacle's sole basis for its claimed force majeure was the delay in the Thurston County Phase II EID review — which is, by definition, a delay in obtaining a governmental approval. The contractual language is clear and unambiguous, and we are confident that any arbitral tribunal applying Washington law would reject the defense. As noted above, our detailed analysis was set forth in our May 8, 2023 memorandum, and we consider the matter closed absent some new factual development or legal argument not yet raised by Pinnacle.

D. Non-Compete — §10.3

Section 10.3 of the JV Agreement imposes a non-competition restriction on Pinnacle (and its affiliates) with respect to water treatment projects within a 75-mile radius of the Facility site for a period of five years from the date of the JV Agreement. The restriction period thus runs from November 2, 2021, through November 2, 2026.

Importantly, §10.3 provides that the non-compete obligation survives the dissolution or termination of the JV Agreement. This is a significant consideration in the context of any negotiation toward dissolution or buyout, for several reasons:

• If CBWTP is dissolved and CSIA pursues the Facility through a new procurement process, the surviving non-compete prevents Pinnacle from competing for the new project or pursuing a rival water treatment project in the Thurston County area through November 2, 2026.

• In any buyout negotiation, the surviving non-compete may affect the valuation of Pinnacle's interest, as it constrains Pinnacle's ability to redeploy its capabilities and relationships in the Pacific Northwest water treatment market following exit from the JV.

• Pinnacle may seek to negotiate a release or modification of the non-compete as part of a settlement, and CSIA should evaluate whether preservation of the non-compete serves CSIA's interests (e.g., by limiting potential competitors in a future procurement) or whether a release could be offered as a concession in exchange for other favorable terms.

E. Dispute Resolution — §12.1

Section 12.1 of the JV Agreement establishes a mandatory two-step dispute resolution process for all disputes arising under or relating to the Agreement:

Step 1: Mandatory Mediation. The parties must first submit any dispute to non-binding mediation before a mediator mutually selected by the parties. If the parties cannot agree on a mediator within 15 business days, either party may request that the PNAA appoint a mediator from its roster.

Step 2: Binding Arbitration. If mediation does not resolve the dispute within 60 days of the mediator's appointment, either party may submit the dispute to binding arbitration administered by the Pacific Northwest Arbitration Association ("PNAA"), seated in Seattle, Washington. The arbitration is to be conducted in accordance with the PNAA's Commercial Arbitration Rules, before a panel of three arbitrators (one selected by each party, and a third selected by the two party-appointed arbitrators). The arbitrators' decision is final and binding, and judgment on the award may be entered in any court of competent jurisdiction.

Importantly, §12.1 contains a broad forum-selection clause providing that no litigation in any court is permitted for disputes arising under or relating to the JV Agreement. All such disputes must be resolved exclusively through the mediation-arbitration process. This means that CSIA cannot bring suit against Pinnacle in Washington state court or federal court for breach of the JV Agreement; it must proceed through the PNAA.

Calderwood & Harkness has prepared a draft demand for arbitration, asserting CSIA's claims against Pinnacle for breach of the funding obligation and seeking the remedies described in Section VII.B below. The draft demand is enclosed and is ready for finalization upon CSIA's instruction. We note, however, that before filing the demand, CSIA must satisfy the mandatory mediation prerequisite by initiating and engaging in a good-faith mediation effort.

F. Ground Lease Reversion

As described in Section II.B above, CSIA entered into a 99-year ground lease with CBWTP for the 14.7-acre Facility site at 2480 Capitol Boulevard SE, Tumwater, Washington 98501. The ground lease was recorded with the Thurston County Auditor as Recording Number 2021-1102-004788.

The ground lease contains a reversion clause providing that upon termination of the JV for any reason — including dissolution, expiration, or termination for default — the leasehold interest automatically reverts to CSIA, and CBWTP's (and any successor's) interest in the property ceases. This reversion is unconditional and is not subject to any payment or compensation obligation.

This provision provides CSIA with a significant structural advantage in any negotiation or dispute. Regardless of the outcome — whether the JV is reactivated, Pinnacle's interest is purchased, or the JV is dissolved — CSIA retains ownership and control of the underlying 14.7-acre site. Pinnacle cannot retain or acquire the land. This means that in any scenario in which Pinnacle exits the JV, it walks away from the project site entirely. Conversely, in any scenario in which CSIA exits the JV (e.g., if Pinnacle were to exercise a buy-sell reversal under §9.1), the ground lease would revert upon the termination of the JV, and Pinnacle would hold a 100% interest in an entity with no site on which to build. This dynamic effectively neutralizes the strategic risk of a buy-sell reversal and strengthens CSIA's hand in negotiation.

V. Evaluation of Strategic Paths Forward

We have identified three principal strategic paths available to CSIA, each with distinct advantages, risks, and practical requirements. We evaluate each path below.

A. Path 1: Reactivation and Restructuring of the JV

Description. Under this path, CSIA would attempt to revive the dormant project by resolving the environmental permitting impasse, curing Pinnacle's default (or restructuring Pinnacle's participation in the JV), and securing replacement or renewed project finance debt. The goal would be to restore the JV to an operational state and advance toward construction and commercial operation of the Thurston County Advanced Water Treatment Facility.

Key Steps Required. Reactivation would require the completion of each of the following steps, all of which present significant execution risk:

1. Resolution of Pinnacle's Funding Default. Pinnacle would need to fund its outstanding Second Tranche capital contribution of $4,050,000, or CSIA and Pinnacle would need to negotiate a restructuring of Pinnacle's capital commitment (e.g., a reduced commitment with proportional dilution, a deferred payment schedule, or a contribution of services or assets in lieu of cash).

2. Restart of Environmental Permitting. The supplemental environmental data requested by Thurston County on July 8, 2022 would need to be prepared and submitted to restart the Phase II EID process. This would require re-engagement of Westmark Environmental Consulting, Inc., or retention of a replacement environmental consultant. Based on the scope of the supplemental data request, we estimate that preparation and submission would take three to six months, followed by an additional three to six months for Thurston County's review and decision.

3. Replacement or Renewal of Project Finance Commitment. The lapsed PCB commitment for $27,000,000 would need to be renegotiated or replaced with a new commitment from PCB or another lender. As noted above, PCB has indicated that a new underwriting process would be required, and market conditions have changed materially since February 2022. Obtaining a replacement commitment would likely require updated environmental documentation, revised project budgets, and a restructured borrower profile.

4. Restoration of Governance Functionality. Pinnacle's board members (Prumvane and Voss) would need to re-engage in the Governing Board process to enable the supermajority votes required for construction commencement, debt incurrence, and other Major Decisions.

Alternative Sub-Option: Replacement of Pinnacle with a New Private Partner. CSIA could alternatively seek to replace Pinnacle with a new private-sector partner, while retaining the existing CBWTP entity structure. This approach, however, would require: (a) Pinnacle's consent to exit or the forced removal of Pinnacle through the §8.2 default remedies; (b) admission of a new member, which constitutes a Major Decision requiring a supermajority board vote of four of five — creating a structural obstacle given Pinnacle's two board seats and potential blocking position; and (c) identification, vetting, and negotiation with a qualified replacement partner, which could take six to twelve months or more. This sub-option is theoretically available but faces formidable practical and contractual barriers.

Advantages. Reactivation preserves the public infrastructure objective of delivering advanced water treatment capacity to Thurston County. The 12-MGD Facility would serve a demonstrated community need for modern water treatment infrastructure. Reactivation would also preserve the existing JV structure, ground lease, and any residual value in the pre-development work completed to date (including the Phase I ESA and organizational infrastructure).

Disadvantages. Reactivation requires Pinnacle's active cooperation, which has not been forthcoming at any point since September 2022 — over 15 months. The time and cost required to restart environmental permitting and secure replacement financing are substantial, and the outcome is uncertain. There is no assurance that Pinnacle or Ridgeline Capital Partners has the financial capacity or strategic willingness to re-engage, particularly given the passage of time and the likely deterioration of Pinnacle's interest in the project. Pinnacle's 2021 EBITDA of approximately $29 million may have changed materially since then, and Pinnacle's current financial condition is unknown to us. Finally, reactivation would require resolution of the default dispute as a precondition, which may itself require formal dispute resolution proceedings.

Assessment. We assess the probability of successful reactivation as low without Pinnacle's active and willing cooperation. Reactivation is not our recommended path but could be revisited if circumstances change materially — for example, if Pinnacle or Ridgeline proactively expresses willingness to re-engage, or if CSIA identifies a replacement private partner willing to step into Pinnacle's shoes.

B. Path 2: Exercise of Default and/or Buy-Sell Remedies to Acquire Pinnacle's Interest

Description. Under this path, CSIA would exercise its contractual remedies to acquire Pinnacle's 45% membership interest in CBWTP, becoming the sole member of the entity, and would then either pursue the project independently or with a new private partner selected through a fresh procurement process. This is the most legally robust path and the one most directly supported by CSIA's contractual rights under the JV Agreement.

We evaluate each of the three available sub-options below.

Sub-Option B1: Default Remedy — Pro Rata Dilution (§8.2(i))

Under this sub-option, CSIA would exercise its right under §8.2(i) to dilute Pinnacle's membership interest on a pro rata basis in proportion to Pinnacle's unfunded capital contribution.

The precise mechanics of the dilution calculation depend on the formula set forth in §8.2(i), which we analyzed in detail in our June 20, 2023 memorandum. In summary, Pinnacle's $4,050,000 unfunded Second Tranche, when measured against the $18,000,000 total committed equity, would result in a material reduction of Pinnacle's 45% membership interest. The exact post-dilution ownership percentages depend on whether the dilution is calculated on the basis of committed capital, funded capital, or a hybrid approach. Under the most favorable reading for CSIA, Pinnacle's interest could be diluted to approximately 23% to 29%, with CSIA's interest increasing correspondingly to approximately 71% to 77%.

Advantages: Dilution does not require CSIA to make any additional capital outlay or payment to Pinnacle. It can be exercised unilaterally by CSIA upon written notice to Pinnacle and does not require Pinnacle's consent.

Disadvantages: Dilution does not fully remove Pinnacle from the JV. Even after dilution, Pinnacle would retain a reduced — but still present — membership interest, and under the JV Agreement's governance provisions, Pinnacle would likely retain its two Governing Board seats and its blocking position on Major Decisions. The supermajority requirement of four of five board votes would continue to apply, meaning that dilution would not solve the governance dysfunction. Dilution would reduce Pinnacle's economic interest but would not eliminate the fundamental problem of a non-cooperating partner with blocking rights.

Assessment: Dilution alone is an incomplete remedy. While it could be exercised as a preliminary step to establish CSIA's contractual posture and reduce Pinnacle's economic interest, it does not provide the clean resolution that CSIA needs. We do not recommend dilution as a standalone path.

Sub-Option B2: Default Remedy — Purchase at 75% of FMV (§8.2(ii))

Under this sub-option, CSIA would exercise its right under §8.2(ii) to purchase Pinnacle's entire 45% membership interest at a price equal to 75% of the fair market value of that interest. This is the default buyout remedy specifically designed to penalize a defaulting member and provide the non-defaulting member with a clean exit mechanism.

FMV Determination. The JV Agreement requires that FMV be determined by an independent appraiser or appraisers in accordance with the procedures set forth in §8.2(ii)(c). The determination of FMV is the most significant variable in this analysis. We offer the following preliminary framework:

Book value approach: CBWTP's net equity as of June 30, 2023 was approximately $9,633,000. Pinnacle's 45% pro rata share of net equity would be approximately $4,334,850. At a 75% discount, the purchase price under this approach would be approximately $3,251,138.

Adjusted book value approach: An appraiser may adjust book value to reflect the current fair market value of CBWTP's assets, which consist primarily of cash ($8,412,000), prepaid fees ($385,000), and capitalized organizational costs ($1,050,000). Given that the project has not advanced and the entity's primary assets are cash and prepaid expenses, the adjusted book value is unlikely to differ materially from book value. However, an appraiser might argue that CBWTP has "project option value" — i.e., the value of the permits, the ground lease, and the development opportunity, even in their current incomplete state — which could increase the FMV above book value.

Going-concern / project value approach: If the Facility were viewed as a viable going-concern project, an appraiser might assign a value based on discounted cash flow analysis of the projected operating revenues of the completed 12-MGD plant. This approach would produce a significantly higher FMV, potentially in the range of $15 million to $25 million for the full entity (and proportionally for Pinnacle's 45% share). However, we believe this approach is inappropriate given the current dormancy of the project, the absence of environmental permits, the lapse of the financing commitment, and the fundamental uncertainty of whether the project will ever be built. The JV Agreement's appraisal provisions do not specify which valuation methodology to employ, and we would advocate strongly for a book value or adjusted book value approach.

For preliminary planning purposes, we estimate that the purchase price under §8.2(ii) would fall in the range of approximately $2,500,000 to $4,000,000, depending on the valuation methodology applied and the appraiser's assessment of project option value.

Advantages: The default buyout at 75% of FMV provides the cleanest resolution available to CSIA. It removes Pinnacle from the JV entirely, eliminates the governance dysfunction, gives CSIA 100% control of CBWTP, and imposes a contractual penalty on Pinnacle for its default. It is the remedy most directly supported by the JV Agreement's default provisions and is precisely the outcome that §8.2(ii) was designed to produce.

Disadvantages: CSIA would need to make an additional capital outlay to fund the purchase price, at a time when it has already invested $9,900,000 in equity and the project remains unbuilt. Pinnacle may dispute the FMV determination, potentially leading to a contested appraisal process and, if no agreement can be reached, arbitration before the PNAA. The valuation dispute could add time and expense to the process. Additionally, even after acquiring 100% of CBWTP, CSIA would still need to resolve the environmental permitting and financing challenges to advance the project.

Assessment: This is the preferred sub-option and is the remedy we recommend CSIA pursue as its primary objective in negotiations with Pinnacle. The 75% of FMV purchase price is contractually supported, penalizes the defaulting party, and provides CSIA with full control. While Pinnacle may resist and dispute FMV, the arbitral framework provides a mechanism for resolution.

Sub-Option B3: Buy-Sell / Shotgun Provision (§9.1)

Under this sub-option, CSIA would trigger the buy-sell (shotgun) provision under §9.1, which became exercisable on November 2, 2023. If CSIA triggers the buy-sell, CSIA would name a price at which it is willing to purchase Pinnacle's 45% interest, and Pinnacle would have the option to either sell at that price or reverse the transaction and purchase CSIA's 55% interest at the equivalent per-unit price.

Strategic Analysis. The buy-sell provision is a blunt but effective mechanism for breaking deadlock. Its primary virtue is that it forces a market-clearing outcome — one party will buy, and the other will sell, at a price determined by the triggering party. Its primary risk is that the triggering party may lose its position in the venture if the receiving party elects to reverse.

In the specific context of CBWTP, the risk of reversal is mitigated by several factors:

1. Ground Lease Reversion. If Pinnacle were to purchase CSIA's interest, the JV would continue to exist, but CSIA would retain ownership of the underlying 14.7-acre site through the reversionary ground lease. Pinnacle would hold 100% of an entity whose only significant physical asset is a leasehold interest in CSIA-owned land, on terms ($1.00/year rent) that were predicated on a public-private partnership structure. CSIA could, in theory, exercise its rights under the ground lease to impose conditions or restrictions on any future use of the site.

2. Pinnacle's Default Status. Pinnacle is in uncured default under the JV Agreement. While the buy-sell provision does not expressly condition its exercise on the absence of a default, Pinnacle's default status may create practical constraints on its ability to reverse. An arbitral tribunal might question whether a defaulting member that has failed to meet its own funding obligations should be permitted to acquire additional interests through a buy-sell reversal.

3. Financial Capacity. A reversal by Pinnacle would require Pinnacle to fund the purchase of CSIA's 55% interest at the stated price. If CSIA sets the price at a level that reflects the full value of CSIA's $9,900,000 in funded equity (plus a premium for CSIA's controlling interest and the ground lease reversion), the total purchase price for CSIA's 55% interest could be substantial. It is uncertain whether Pinnacle, or Ridgeline, has the financial capacity or willingness to make such a purchase, particularly given Pinnacle's recent history of financial retrenchment.

Interplay with §8.2. A critical question is whether CSIA can exercise the §8.2(ii) default buyout at 75% of FMV — which is punitive to the defaulting party — and separately or alternatively trigger the §9.1 buy-sell provision. Our October 16, 2023 memorandum analyzed this question in detail and concluded that the two provisions are independent remedies that may be pursued in the alternative, provided that CSIA does not formally elect both simultaneously in a manner that creates inconsistency. We recommend that CSIA prioritize the §8.2(ii) default buyout and reserve the §9.1 buy-sell as a secondary mechanism to be deployed only if the default buyout is frustrated.

Advantages: Creates a market-clearing mechanism that forces a resolution. May produce a rapid outcome if Pinnacle elects to sell.

Disadvantages: Risk of Pinnacle reversing and purchasing CSIA's interest, though this risk is substantially mitigated by the ground lease reversion and Pinnacle's default status. Requires CSIA to name a price, which involves strategic judgment and valuation uncertainty.

Assessment: The buy-sell is a viable but secondary mechanism. We recommend holding it in reserve as an alternative to the §8.2(ii) default buyout rather than deploying it as the primary r

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified herein. Any disclosure, reproduction, or distribution to third parties without the prior written consent of Calderwood & Harkness LLP is strictly prohibited.
MEMORANDUM
FROM: Oliver Mackenzie, Responsible Partner, and Tiffany Rosenthal, Lead Associate Calderwood & Harkness LLP 901 Fifth Avenue, Suite 3200 Seattle, WA 98164
TO: Margaret Ellsworth, Executive Director David Tanaka, General Counsel Patricia Huang, Deputy Director, Capital Projects Cascadia State Infrastructure Authority 1100 Jefferson Street SE, Suite 400 Olympia, WA 98501
DATE: January 15, 2024
RE: Columbia Basin Water Treatment Partners, LLC — Status of Dormant Joint Venture and Recommended Path Forward
Matter No.: 47291.00001
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I. Executive Summary
The purpose of this memorandum is to provide the Cascadia State Infrastructure Authority ("CSIA") with a comprehensive status update on the dormant public-private joint venture between CSIA and Pinnacle Water Solutions, LLC ("Pinnacle"), conducted through the joint venture entity Columbia Basin Water Treatment Partners, LLC ("CBWTP"), and to recommend a course of action to resolve the current impasse and protect CSIA's legal, financial, and public-interest objectives.
CBWTP was formed on November 2, 2021, pursuant to an Amended and Restated Limited Liability Company Agreement of that same date (the "JV Agreement"), for the purpose of designing, constructing, and operating the Thurston County Advanced Water Treatment Facility (the "Facility"), a 12-million-gallon-per-day ("MGD") advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501. The total project cost was budgeted at $45,000,000, to be funded through a combination of $18,000,000 in member equity and $27,000,000 in project finance debt.
The joint venture has been effectively dormant since mid-2022, and the Facility has not advanced beyond preliminary environmental assessment. The dormancy is attributable to three converging factors: (1) the stalling of environmental permitting at the Thurston County Department of Environmental Health, which paused its Phase II Environmental Impact Determination review in July 2022 pending receipt of supplemental data that has never been submitted; (2) Pinnacle's failure to fund its Second Tranche capital contribution of $4,050,000, which constitutes an uncured default under §8.2 of the JV Agreement since June 13, 2023; and (3) the expiration, on August 15, 2023, of Pacific Cascade Bank, N.A.'s ("PCB") $27,000,000 project finance commitment letter, which lapsed without any draw having been made.
CSIA has fully funded its equity commitment of $9,900,000, representing both its First Tranche ($4,950,000) and Second Tranche ($4,950,000) capital contributions. Pinnacle has funded only $4,050,000 of its $8,100,000 total commitment, having made its First Tranche contribution at formation but failing to fund its Second Tranche when called. Total funded equity in CBWTP stands at $13,950,000, with $4,050,000 remaining unfunded — all attributable to Pinnacle.
This memorandum evaluates three strategic paths forward for CSIA:
(A) Reactivation and Restructuring: Attempting to revive the dormant project by resolving the permitting impasse, curing or restructuring Pinnacle's participation, and securing replacement or renewed project financing.
(B) Exercise of Default and/or Buy-Sell Remedies: Exercising CSIA's contractual remedies under §8.2 of the JV Agreement (default buyout, dilution, or dissolution election) and/or the now-exercisable buy-sell provision under §9.1 to acquire Pinnacle's 45% interest and gain full control of the JV entity.
(C) Voluntary Dissolution and Wind-Down: Negotiating a consensual dissolution of CBWTP, distributing remaining assets in accordance with capital accounts, reverting the ground lease to CSIA, and allowing CSIA to pursue the Facility through a new procurement process.
Our recommendation is that CSIA initiate structured negotiations with Pinnacle — and, where appropriate, with Pinnacle's majority equity holder, Ridgeline Capital Partners, LP — aimed at securing either a buyout of Pinnacle's 45% interest at 75% of fair market value pursuant to §8.2(ii) or a consensual voluntary dissolution with agreed asset distribution, mutual releases, and settlement of the $4,050,000 unfunded capital call dispute. CSIA should establish a defined negotiation timeline of approximately 90 days, after which CSIA should escalate to formal dispute resolution. Calderwood & Harkness has prepared a draft demand for arbitration with the Pacific Northwest Arbitration Association ("PNAA"), seated in Seattle, Washington, to be held in reserve as a credible fallback enforcement mechanism.
CSIA holds the stronger position in any negotiation or arbitration: it has fully funded its equity commitment, holds the underlying 14.7-acre site through a reversionary ground lease, controls three of five Governing Board seats, and possesses a well-documented, uncured funding default by Pinnacle that entitles CSIA to punitive contractual remedies. We believe this leverage, if deployed judiciously, will produce a favorable resolution.
II. Background and Formation of the Joint Venture
A. The Parties
Cascadia State Infrastructure Authority ("CSIA"). CSIA is a Washington state governmental authority created pursuant to Chapter 43.155A of the Revised Code of Washington. It is headquartered at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501. CSIA's annual operating budget is approximately $380 million, and it currently manages in excess of 60 active infrastructure projects across the State of Washington, spanning water and wastewater systems, transportation corridors, broadband deployment, and public facilities. CSIA is governed by an appointed board of directors and is led by Executive Director Margaret Ellsworth, a 22-year veteran of Washington state government who has served as Executive Director since 2017. David Tanaka serves as General Counsel, overseeing all legal matters for the Authority. Patricia Huang serves as Deputy Director, Capital Projects, and has had direct operational responsibility for the CBWTP project since its inception.
Pinnacle Water Solutions, LLC ("Pinnacle"). Pinnacle is a Delaware limited liability company headquartered at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205. It was founded in 2014 by Richard Prumvane, who serves as Chief Executive Officer and Managing Member, and Cynthia Voss, who serves as Chief Operating Officer. Pinnacle specializes in the design, construction, and operation of water and wastewater treatment facilities, and it has completed in excess of $600 million in projects across the Pacific Northwest and Northern California over the past decade. According to its most recently available audited financial statements (fiscal year 2021), Pinnacle reported revenue of approximately $187 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $29 million. No updated financial information has been provided to CSIA or CBWTP since 2021, and Pinnacle's current financial condition is not known to us with certainty.
Ridgeline Capital Partners, LP ("Ridgeline"). Ridgeline is a Portland-based private equity fund managed by Jonathan Kreider, Managing Partner, with offices at 1120 NW Couch Street, Suite 700, Portland, Oregon 97209. In 2019, Ridgeline acquired a 62% equity interest in Pinnacle for approximately $95 million, making Ridgeline the controlling equity holder of Pinnacle. The terms of Ridgeline's investment in Pinnacle, and any governance rights or consent requirements applicable to Pinnacle's participation in the CBWTP joint venture, are not known to us. However, Ridgeline's investment thesis, fund-life considerations, and internal return targets may materially influence Pinnacle's willingness and capacity to negotiate a resolution of the current impasse, as discussed further in Section VI.A below.
Pinnacle's Outside Counsel. Pinnacle is represented in connection with the CBWTP joint venture by Whitfield, Aarons & Greer LLP ("WAG"), located at 1455 SW Broadway, Suite 2100, Portland, Oregon 97201. The lead partner at WAG is Elaine Prescott, with Marcus Delvecchio serving as the senior associate on the matter. All formal communications regarding the JV have been directed to and received from Ms. Prescott.
B. Formation and Structure
CBWTP was formed as a Washington limited liability company on November 2, 2021, pursuant to the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC, also dated November 2, 2021 (the "JV Agreement"). The entity was filed with the Washington Secretary of State on November 2, 2021, and assigned UBI Number 604-892-315. CBWTP's Employer Identification Number is 88-3421076. Its registered office is located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, care of CSIA.
The key structural features of the JV, as established by the JV Agreement, are as follows:
Ownership. CSIA holds a 55% membership interest in CBWTP, and Pinnacle holds a 45% membership interest.
Governing Board. The JV is governed by a five-member Governing Board. CSIA is entitled to appoint three members, and Pinnacle is entitled to appoint two members. As of the date of formation, CSIA's appointed members are Margaret Ellsworth, David Tanaka, and Patricia Huang. Pinnacle's appointed members are Richard Prumvane and Cynthia Voss. A quorum of the Governing Board requires the presence of at least three members.
Major Decision Threshold. Certain enumerated "Major Decisions" require a supermajority vote of four of five Governing Board members. These Major Decisions include, among other things: (a) commencement of construction; (b) incurrence of indebtedness in excess of $500,000; (c) admission of new members; (d) voluntary dissolution of CBWTP; and (e) sale of all or substantially all of CBWTP's assets. The practical consequence of this supermajority requirement is that CSIA's three board members cannot unilaterally authorize any Major Decision — at least one Pinnacle-appointed member must concur.
Manager. The JV Agreement designates Pinnacle as the "Manager" of CBWTP, responsible for day-to-day operations, project management, and advancement of all pre-construction activities, including environmental permitting and contractor procurement, subject to the oversight and direction of the Governing Board.
Management Fee. In consideration for its services as Manager, Pinnacle is entitled to a management fee equal to 3% of total construction costs. Based on the $45,000,000 total project cost, this fee would equal $1,350,000. No management fees have been earned or paid to date, as construction has not commenced.
Ground Lease. CSIA, as owner of the 14.7-acre project site at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501, entered into a 99-year ground lease with CBWTP as tenant, effective November 2, 2021. The annual rent under the ground lease is $1.00. The ground lease was recorded with the Thurston County Auditor as Recording Number 2021-1102-004788. Critically, the ground lease provides that upon termination of the JV for any reason, the leasehold interest reverts to CSIA, and the 14.7-acre parcel returns to CSIA's full control. This reversionary interest is a significant structural advantage for CSIA in any negotiation or dispute resolution.
Term. The JV has a term of 30 years from the date the Facility achieves commercial operation, with two successive 10-year renewal options exercisable by mutual agreement of the members. Because the Facility has never been constructed, the 30-year operating term has not commenced.
Governing Law. The JV Agreement is governed by the laws of the State of Washington.
C. Capital Structure
The total project cost for the Thurston County Advanced Water Treatment Facility was established at $45,000,000, to be funded through a combination of member equity contributions and project finance debt as follows:
Total Equity Commitment: $18,000,000.
• CSIA (55%): $18,000,000 × 55% = $9,900,000
• Pinnacle (45%): $18,000,000 × 45% = $8,100,000
Project Finance Debt: $27,000,000.
Pacific Cascade Bank, N.A. ("PCB") issued a commitment letter on February 15, 2022 (reference number PCB-PF-2022-0417), committing to provide a $27,000,000 project finance credit facility to CBWTP. The commitment letter was addressed to CBWTP, care of both CSIA and Pinnacle. The lead banker at PCB for this transaction was Thomas Rennick, Senior Vice President, Public Finance Division, located at PCB's offices at 600 University Street, Suite 800, Seattle, Washington 98101. The commitment letter had an 18-month tenor, expiring on August 15, 2023.
Total Sources Reconciliation:
Two-Tranche Funding Structure. The JV Agreement provided for a two-tranche equity funding structure. Each member was required to fund 50% of its total equity commitment at formation (the "First Tranche"), with the remaining 50% (the "Second Tranche") callable by the Governing Board upon 30 days' written notice when the Board determined that additional capital was required to advance the project. Specifically:
• CSIA First Tranche: $4,950,000 (50% of $9,900,000)
• CSIA Second Tranche: $4,950,000 (50% of $9,900,000)
• Pinnacle First Tranche: $4,050,000 (50% of $8,100,000)
• Pinnacle Second Tranche: $4,050,000 (50% of $8,100,000)
D. Project Timeline and Key Events
The following chronological timeline sets forth the key events in the history of the CBWTP joint venture from formation through the present date:
November 2, 2021: The JV Agreement was executed by CSIA and Pinnacle. CBWTP was formed as a Washington limited liability company and filed with the Washington Secretary of State. The ground lease between CSIA (as lessor) and CBWTP (as lessee) was executed and recorded with the Thurston County Auditor as Recording Number 2021-1102-004788.
November 15, 2021: First Tranche capital contributions were funded by both members. CSIA contributed $4,950,000, and Pinnacle contributed $4,050,000, for a total initial capitalization of $9,000,000. The funds were deposited into CBWTP's operating account at Pacific Cascade Bank, N.A.
January 10, 2022: CBWTP, acting through Pinnacle as Manager, retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare Phase I and Phase II environmental site assessments for the Facility site. Westmark is located at 3310 Pacific Avenue, Suite 210, Tacoma, Washington 98418, and the engagement was led by Dr. Anita Farooq, Principal Consultant.
February 15, 2022: Pacific Cascade Bank, N.A. issued its $27,000,000 project finance commitment letter (reference PCB-PF-2022-0417), with an 18-month tenor expiring August 15, 2023. The commitment was subject to customary conditions precedent, including completion of environmental permitting, execution of definitive loan documentation, and satisfaction of borrowing base requirements.
April 22, 2022: Westmark completed the Phase I Environmental Site Assessment for the Facility site. The Phase I ESA concluded that no recognized environmental conditions were identified at the property. This was a favorable result and cleared the path for advancement to the Phase II Environmental Impact Determination review process administered by Thurston County.
July 8, 2022: The Thurston County Department of Environmental Health, acting through Karen Lindstrom, Environmental Review Division Manager, issued a request for supplemental environmental data in connection with the Phase II Environmental Impact Determination ("EID") review. The Phase II EID process was paused pending receipt of the supplemental data. The specific data requested related to groundwater hydrology and potential effects on the adjacent Deschutes River watershed.
September 14, 2022: Pinnacle notified CSIA, through a letter from Richard Prumvane to Margaret Ellsworth, that Pinnacle intended to "defer further project expenditures" pending resolution of the environmental permitting issues at Thurston County. No formal legal notice was provided; the letter was characterized as an operational update. As a practical matter, this notification signaled the cessation of Pinnacle's activities as Manager, including its obligation to prepare and submit the supplemental environmental data requested by Thurston County.
November 30, 2022: A regularly scheduled meeting of the CBWTP Governing Board failed to achieve a quorum. Neither Richard Prumvane nor Cynthia Voss, Pinnacle's two appointed board members, attended the meeting. CSIA's three appointed members — Ms. Ellsworth, Mr. Tanaka, and Ms. Huang — were present but were unable to conduct business without a quorum of three members. While CSIA's three members technically constituted a quorum under certain interpretations of the JV Agreement's quorum provisions, the meeting was adjourned without action out of an abundance of caution and a desire to avoid a governance dispute.
March 1, 2023: The CBWTP Governing Board, acting by vote of the three CSIA-appointed members (who, in our view, constitute a quorum under the JV Agreement), issued a Second Tranche capital call to both members. The capital call notice required each member to fund the remaining 50% of its total equity commitment within 30 calendar days — i.e., by March 31, 2023. For CSIA, this represented $4,950,000; for Pinnacle, this represented $4,050,000.
March 28, 2023: CSIA funded its Second Tranche capital contribution of $4,950,000, completing CSIA's full equity commitment of $9,900,000. The funds were deposited into CBWTP's operating account at Pacific Cascade Bank.
March 31, 2023: The 30-day payment deadline for the Second Tranche capital call expired. Pinnacle did not fund its Second Tranche of $4,050,000. Pinnacle provided no formal communication regarding its failure to fund.
April 14, 2023: Calderwood & Harkness LLP, on behalf of CSIA, transmitted a formal default notice to Pinnacle and to Whitfield, Aarons & Greer LLP (Elaine Prescott), notifying Pinnacle of its failure to fund the Second Tranche capital contribution of $4,050,000 and declaring Pinnacle in default under §8.2 of the JV Agreement. The default notice provided Pinnacle with a 60-day cure period, as required by §8.2, commencing on the date of the notice and expiring on June 13, 2023.
April 28, 2023: WAG (Elaine Prescott), on behalf of Pinnacle, transmitted a letter to Calderwood & Harkness asserting that Pinnacle's failure to fund the Second Tranche was excused by the force majeure provision of §11.4 of the JV Agreement, on the ground that the Thurston County environmental permitting delay constituted a "regulatory delay beyond Pinnacle's control." The letter requested that the default notice be withdrawn and the cure period tolled.
May 12, 2023: Calderwood & Harkness, on behalf of CSIA, transmitted a detailed response to WAG formally rejecting Pinnacle's force majeure defense. Our response demonstrated that §11.4 of the JV Agreement expressly excludes "delays in obtaining governmental approvals" from the definition of Force Majeure Events. We further noted that Pinnacle, as the designated Manager of CBWTP, bore responsibility under §4.3 of the JV Agreement for advancing the permitting process, and that Pinnacle's own decision to defer project expenditures on September 14, 2022 — which caused the supplemental environmental data to go unprepared — could not serve as a basis for excusing its independent obligation to fund a duly issued capital call. A comprehensive analysis of Pinnacle's force majeure defense was set forth in our May 8, 2023 memorandum to CSIA, which is enclosed with this memorandum.
June 13, 2023: The 60-day cure period expired without cure. Pinnacle did not fund the $4,050,000 Second Tranche, nor did it take any steps to cure the default. As of this date, CSIA's default remedies under §8.2 of the JV Agreement — including pro rata dilution, purchase at 75% of fair market value, and dissolution — became fully exercisable.
August 15, 2023: The PCB $27,000,000 project finance commitment letter expired by its terms, without any draw having been made against the facility. No request for extension or renewal was made by either CBWTP or its members.
November 2, 2023: The second anniversary of the formation of CBWTP. Under §9.1 of the JV Agreement, the buy-sell (shotgun) provision became exercisable by either member on or after this date.
October 2023 – Present: The matter has remained dormant. Periodic informal status inquiries have been exchanged between Calderwood & Harkness and WAG, but no substantive negotiations or settlement discussions have occurred. No further capital contributions have been made, no construction activity has been undertaken, and no environmental permitting progress has been achieved.
III. Current Status of Key Issues
A. Pinnacle's Funding Default
Pinnacle is in uncured default under the JV Agreement for its failure to fund the Second Tranche capital contribution of $4,050,000. The relevant chronology is as follows:
• The capital call notice was issued by the Governing Board on March 1, 2023.
• Payment was due within 30 calendar days — i.e., by March 31, 2023.
• Pinnacle failed to make the required payment by the due date.
• Calderwood & Harkness transmitted a formal default notice on April 14, 2023, commencing a 60-day cure period under §8.2 of the JV Agreement.
• The 60-day cure period expired on June 13, 2023, without cure.
The current capital position of the JV is as follows:
Pinnacle's force majeure defense under §11.4, asserted in WAG's April 28, 2023 letter, was formally rejected by our May 12, 2023 response. As we explained in detail in our May 8, 2023 memorandum analyzing that defense, the JV Agreement's force majeure clause expressly excludes delays in obtaining governmental approvals from the definition of Force Majeure Events. This exclusion is unambiguous on its face and is consistent with the general approach taken by Washington courts in construing force majeure clauses in public-private contracts. See, e.g., Calderon Industries v. Pacific Enterprises, Ltd., 190 Wn. App. 112, 127-28 (2015) (holding that a force majeure clause that excludes regulatory delays from its scope cannot be invoked to excuse performance delayed by permitting obstacles); WA Dep't of Transp. v. Columbia Infrastructure Group, 165 Wn.2d 460, 473 (2009) (emphasizing the importance of giving effect to express exclusions in force majeure provisions in public infrastructure contracts).
Moreover, Pinnacle's position is further undermined by its own role in creating the permitting delay. As the designated Manager of CBWTP under §4.3 of the JV Agreement, Pinnacle bore responsibility for advancing all pre-construction activities, including the preparation and submission of environmental permitting materials. It was Pinnacle that unilaterally decided on September 14, 2022 to "defer further project expenditures," thereby halting the preparation of the supplemental environmental data that Thurston County had requested on July 8, 2022. Pinnacle cannot invoke a delay that it caused — or, at minimum, failed to mitigate — as a basis for excusing its independent obligation to fund a duly authorized capital call.
No further substantive communications have been received from Pinnacle or WAG since our May 12, 2023 rejection letter. We have received periodic informal status inquiries from Marcus Delvecchio at WAG, but these have been limited to procedural matters and have not addressed the substance of the default or any proposed cure.
B. Lapsed Project Finance Commitment
The $27,000,000 project finance credit facility commitment from Pacific Cascade Bank, N.A. (reference PCB-PF-2022-0417) expired on August 15, 2023, by its terms. The commitment letter was issued on February 15, 2022, with an 18-month tenor. No draws were made against the facility during its term, and no request for extension or renewal was submitted by CBWTP or either member.
The loss of the PCB commitment is a significant consequence of the project's dormancy. The $27,000,000 in committed debt represented 60% of the total $45,000,000 project cost and was essential to the project's financial viability. Without this or a replacement commitment, the project cannot proceed as currently structured.
Thomas Rennick, Senior Vice President of PCB's Public Finance Division, has informally indicated in conversations with our firm that any future commitment from PCB would require an entirely new underwriting process, including updated environmental documentation, revised project budgets and construction schedules, and a reassessment of CBWTP's creditworthiness and governance. Mr. Rennick has not provided any indication of whether PCB would be favorably or unfavorably disposed toward a new commitment, nor has he quoted updated terms. It is likely that the interest rate environment and market conditions for project finance debt have changed materially since February 2022.
C. Stalled Environmental Permitting
The Phase II Environmental Impact Determination ("EID") process administered by the Thurston County Department of Environmental Health has been effectively paused since July 8, 2022, when Karen Lindstrom, Environmental Review Division Manager, requested supplemental environmental data from CBWTP. The specific data requested related to groundwater hydrology and potential effects on the adjacent Deschutes River watershed.
The Phase I Environmental Site Assessment, completed by Westmark Environmental Consulting, Inc. (Dr. Anita Farooq, Principal Consultant) on April 22, 2022, concluded that no recognized environmental conditions were identified at the 14.7-acre Facility site. This was a favorable result and is not in dispute. The Phase II EID, however, requires a more comprehensive review of environmental impacts associated with the construction and operation of the 12-MGD treatment facility, and it is this review that has stalled.
The supplemental data requested by Thurston County has never been prepared or submitted. Pinnacle, as Manager of CBWTP, was responsible for advancing the permitting process, and its September 14, 2022 decision to defer further project expenditures effectively halted all work on the supplemental data. No alternative arrangement for the preparation and submission of the data has been made.
Ms. Lindstrom has indicated informally that CBWTP's application remains open with the Department but has been classified as "administratively inactive." No statutory deadline has been triggered that would result in either a deemed approval or a deemed denial of the application. The Phase II EID process thus remains in limbo — the application has not been abandoned, but it cannot advance without the submission of the requested supplemental data.
If the project were to be reactivated, it would be necessary to re-engage Westmark (or retain a replacement environmental consultant) to prepare and submit the supplemental data, and then to work through the remainder of the Phase II EID review process with Thurston County. The timeline for this process is uncertain but could reasonably be expected to take six to twelve months from the date of re-engagement, depending on the scope of the supplemental work required and the County's review schedule.
D. CBWTP Financial Position
The most recent financial statements for CBWTP were prepared as of June 30, 2023, by Hargrove & Tillman, CPAs (engagement partner Laura Svensson, CPA), located at 415 Capitol Way N, Suite 300, Olympia, Washington 98501. The following summary reflects the entity's financial position as of that date:
Balance Sheet Summary (as of June 30, 2023):
Cross-check: $9,847,000 (total assets) − $214,000 (total liabilities) = $9,633,000 (net equity). Confirmed.
Several observations warrant note:
First, CBWTP holds $8,412,000 in cash in its operating account at Pacific Cascade Bank. This is a substantial balance that continues to sit in a single depository institution. We recommend that CSIA and CBWTP review this balance in light of FDIC insurance coverage limits (currently $250,000 per depositor per institution for government deposits, subject to certain enhanced coverage provisions) and CSIA's investment policy. It may be advisable to distribute the cash across multiple institutions or invest a portion in permitted short-term instruments to ensure adequate protection and compliance with applicable investment policies.
Second, CBWTP has not conducted any construction activity. All expenses incurred to date — totaling $4,317,000 — relate to organizational costs, legal fees, environmental assessment fees, and other pre-development expenditures.
Third, ongoing carrying costs for CBWTP are minimal but not zero. They include periodic accounting fees payable to Hargrove & Tillman, registered agent maintenance fees, and Washington annual report filing fees. These costs, while modest, will continue to accrue as long as the entity remains in existence.
Fourth, the cumulative expenses of $4,317,000 have been allocated between the members' capital accounts in accordance with the JV Agreement's expense allocation provisions. We recommend requesting an updated allocation schedule from Hargrove & Tillman to confirm the precise allocation between CSIA's and Pinnacle's accounts.
E. Governing Board Dysfunction
The CBWTP Governing Board has been functionally impaired since at least November 30, 2022, when both Pinnacle-appointed members — Richard Prumvane and Cynthia Voss — failed to attend a regularly scheduled Board meeting. Since that date, neither Prumvane nor Voss has participated in any Board meeting or, to our knowledge, engaged in any governance activity on behalf of CBWTP.
This dysfunction has critical operational and legal consequences. Under the JV Agreement, Major Decisions require a supermajority vote of four of five Governing Board members. CSIA controls three Board seats, but three votes alone cannot satisfy the four-vote threshold. This means that, as a practical matter, CSIA cannot unilaterally authorize any Major Decision, including:
• Commencement of construction;
• Incurrence of indebtedness in excess of $500,000 (including any replacement project finance facility);
• Admission of a new member;
• Voluntary dissolution of CBWTP; or
• Sale of all or substantially all of CBWTP's assets.
The JV Agreement does not contain a deadlock-breaking mechanism — such as a swing vote, a casting vote for the Chair, or a forced buyout trigger upon deadlock — beyond the general dispute resolution process set forth in §12.1, which requires mandatory mediation followed by binding arbitration at the PNAA. Absent Pinnacle's voluntary re-engagement or a formal dispute resolution proceeding, CSIA is effectively unable to advance the project or restructure the JV through the Governing Board.
IV. Key JV Agreement Provisions Relevant to Path Forward
This Section summarizes the JV Agreement provisions most relevant to CSIA's evaluation of strategic options. The full JV Agreement is enclosed with this memorandum; the summaries below are provided for convenience and should be read in conjunction with the Agreement's complete text.
A. Default Remedies — §8.2
Section 8.2 of the JV Agreement establishes the remedial framework applicable upon a member's failure to fund a duly authorized capital call. The provision operates as follows:
Upon a member's failure to fund a capital call within 30 calendar days of written notice, the non-defaulting member may deliver a default notice to the defaulting member. The defaulting member then has 60 days from receipt of the default notice to cure the default by funding the outstanding capital contribution in full. If the default is not cured within the 60-day cure period, the non-defaulting member may, in its sole discretion, elect one of the following three remedies:
(i) Pro Rata Dilution. The non-defaulting member may dilute the defaulting member's membership interest in proportion to the ratio of the unfunded capital contribution to the total committed equity. In Pinnacle's case, the $4,050,000 unfunded Second Tranche represents 22.5% of the $18,000,000 total committed equity. The precise mechanics of the dilution calculation — including whether it is based on committed, funded, or adjusted capital — require careful analysis under the Agreement's formula, which is addressed in our June 20, 2023 memorandum.
(ii) Purchase at 75% of Fair Market Value. The non-defaulting member may elect to purchase the defaulting member's entire membership interest at a price equal to 75% of the fair market value ("FMV") of such interest. The 25% discount from FMV serves as a contractual penalty for the default and is intended to compensate the non-defaulting member for the disruption and expense caused by the defaulting member's failure to perform. FMV is to be determined by an independent appraiser selected in accordance with the procedures set forth in §8.2(ii)(c) of the JV Agreement, which provides for each member to designate an appraiser, with a third appraiser selected by the two designated appraisers if the parties cannot agree on a single appraiser.
(iii) Dissolution. The non-defaulting member may elect dissolution of the JV Entity. Importantly, the language of §8.2(iii) states that the non-defaulting member may "elect dissolution of the Company," which may be construed as an independent grant of authority to dissolve — potentially overriding the supermajority board vote requirement that would otherwise apply to a voluntary dissolution under the Major Decisions provisions. This is an important legal question that may arise if Pinnacle resists dissolution; we believe the better reading of the Agreement supports CSIA's ability to elect dissolution unilaterally under §8.2(iii), but the issue is not free from doubt and could be the subject of arbitration.
All three remedies are currently available to CSIA. The 60-day cure period expired on June 13, 2023, and Pinnacle has not cured. CSIA has not yet formally elected a remedy, and no election is required within a specified timeframe under the Agreement — CSIA's remedies remain available until exercised or waived. We recommend, however, that CSIA not delay indefinitely, as prolonged inaction could arguably give rise to waiver arguments (although Washington law generally disfavors implied waiver of contractual rights absent clear and unequivocal conduct, see Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 52 (1991)).
A detailed analysis of each remedy option under §8.2 was provided in our June 20, 2023 memorandum, which is enclosed.
B. Buy-Sell (Shotgun) Provision — §9.1
Section 9.1 of the JV Agreement establishes a buy-sell mechanism — commonly referred to as a "shotgun" or "Russian roulette" provision — that permits either member to initiate a compulsory buy-sell process after the second anniversary of the formation of CBWTP. Since CBWTP was formed on November 2, 2021, the buy-sell provision became exercisable on November 2, 2023, and remains exercisable as of the date of this memorandum.
The mechanics of the buy-sell provision operate as follows:
1. The triggering member delivers a written offer to the other member, specifying a price at which the triggering member is willing to purchase the other member's entire membership interest (the "Offer Price").
2. The receiving member then has 60 days to elect one of two options: (a) accept the offer and sell its membership interest at the Offer Price; or (b) reverse the transaction and instead purchase the triggering member's membership interest at the same Offer Price (adjusted proportionally for the relative size of the membership interests, as set forth in the Agreement).
3. If the receiving member fails to respond within 60 days, it is deemed to have accepted the offer, and the sale proceeds at the Offer Price.
The buy-sell provision is a powerful mechanism for breaking deadlock, but it carries significant strategic risk for the triggering party. If CSIA triggers the buy-sell by naming an Offer Price for Pinnacle's 45% interest, Pinnacle has the option to reverse the transaction and purchase CSIA's 55% interest at the equivalent per-unit price. This creates a "price discovery" dynamic that can produce efficient outcomes but also exposes the triggering party to the risk of losing its position in the venture.
A critical strategic question arises from the interplay between §9.1 (buy-sell) and §8.2 (default remedies). Specifically, CSIA may wish to exercise the default buyout at 75% of FMV under §8.2(ii), which is punitive to the defaulting party, while preserving the buy-sell provision as an alternative or fallback mechanism. The question is whether the JV Agreement permits CSIA to exercise both remedies in the alternative, or whether the election of one precludes the other. Our analysis of this question was set forth in our October 16, 2023 memorandum, which is enclosed. In summary, we believe CSIA may pursue the §8.2(ii) default buyout as its primary remedy and invoke the §9.1 buy-sell provision in the alternative, provided that CSIA does not formally elect the buy-sell in a manner that could be construed as a waiver of its default remedies. However, the sequencing and interplay of these provisions should be carefully managed.
An additional consideration mitigating the risk of the buy-sell provision is the ground lease. If Pinnacle were to attempt to purchase CSIA's 55% interest under the buy-sell reversal mechanism, Pinnacle would acquire a 100% ownership of CBWTP — an entity whose sole significant physical asset is a leasehold interest in land owned by CSIA. Because the ground lease reverts to CSIA upon termination of the JV, and because the lease's below-market terms ($1.00 annual rent) were negotiated in the context of a public-private partnership, CSIA would retain substantial leverage even in the unlikely scenario that Pinnacle attempted a reversal purchase.
C. Force Majeure — §11.4
Section 11.4 of the JV Agreement defines "Force Majeure Events" and provides limited excuse for non-performance attributable to such events. The definition includes acts of God, war, terrorism, epidemics, government-imposed embargoes or sanctions, and similar extraordinary events. Critically, the definition expressly excludes "delays in obtaining governmental approvals, licenses, or permits" from the scope of Force Majeure Events.
This exclusion is determinative of Pinnacle's force majeure defense. Pinnacle's sole basis for its claimed force majeure was the delay in the Thurston County Phase II EID review — which is, by definition, a delay in obtaining a governmental approval. The contractual language is clear and unambiguous, and we are confident that any arbitral tribunal applying Washington law would reject the defense. As noted above, our detailed analysis was set forth in our May 8, 2023 memorandum, and we consider the matter closed absent some new factual development or legal argument not yet raised by Pinnacle.
D. Non-Compete — §10.3
Section 10.3 of the JV Agreement imposes a non-competition restriction on Pinnacle (and its affiliates) with respect to water treatment projects within a 75-mile radius of the Facility site for a period of five years from the date of the JV Agreement. The restriction period thus runs from November 2, 2021, through November 2, 2026.
Importantly, §10.3 provides that the non-compete obligation survives the dissolution or termination of the JV Agreement. This is a significant consideration in the context of any negotiation toward dissolution or buyout, for several reasons:
• If CBWTP is dissolved and CSIA pursues the Facility through a new procurement process, the surviving non-compete prevents Pinnacle from competing for the new project or pursuing a rival water treatment project in the Thurston County area through November 2, 2026.
• In any buyout negotiation, the surviving non-compete may affect the valuation of Pinnacle's interest, as it constrains Pinnacle's ability to redeploy its capabilities and relationships in the Pacific Northwest water treatment market following exit from the JV.
• Pinnacle may seek to negotiate a release or modification of the non-compete as part of a settlement, and CSIA should evaluate whether preservation of the non-compete serves CSIA's interests (e.g., by limiting potential competitors in a future procurement) or whether a release could be offered as a concession in exchange for other favorable terms.
E. Dispute Resolution — §12.1
Section 12.1 of the JV Agreement establishes a mandatory two-step dispute resolution process for all disputes arising under or relating to the Agreement:
Step 1: Mandatory Mediation. The parties must first submit any dispute to non-binding mediation before a mediator mutually selected by the parties. If the parties cannot agree on a mediator within 15 business days, either party may request that the PNAA appoint a mediator from its roster.
Step 2: Binding Arbitration. If mediation does not resolve the dispute within 60 days of the mediator's appointment, either party may submit the dispute to binding arbitration administered by the Pacific Northwest Arbitration Association ("PNAA"), seated in Seattle, Washington. The arbitration is to be conducted in accordance with the PNAA's Commercial Arbitration Rules, before a panel of three arbitrators (one selected by each party, and a third selected by the two party-appointed arbitrators). The arbitrators' decision is final and binding, and judgment on the award may be entered in any court of competent jurisdiction.
Importantly, §12.1 contains a broad forum-selection clause providing that no litigation in any court is permitted for disputes arising under or relating to the JV Agreement. All such disputes must be resolved exclusively through the mediation-arbitration process. This means that CSIA cannot bring suit against Pinnacle in Washington state court or federal court for breach of the JV Agreement; it must proceed through the PNAA.
Calderwood & Harkness has prepared a draft demand for arbitration, asserting CSIA's claims against Pinnacle for breach of the funding obligation and seeking the remedies described in Section VII.B below. The draft demand is enclosed and is ready for finalization upon CSIA's instruction. We note, however, that before filing the demand, CSIA must satisfy the mandatory mediation prerequisite by initiating and engaging in a good-faith mediation effort.
F. Ground Lease Reversion
As described in Section II.B above, CSIA entered into a 99-year ground lease with CBWTP for the 14.7-acre Facility site at 2480 Capitol Boulevard SE, Tumwater, Washington 98501. The ground lease was recorded with the Thurston County Auditor as Recording Number 2021-1102-004788.
The ground lease contains a reversion clause providing that upon termination of the JV for any reason — including dissolution, expiration, or termination for default — the leasehold interest automatically reverts to CSIA, and CBWTP's (and any successor's) interest in the property ceases. This reversion is unconditional and is not subject to any payment or compensation obligation.
This provision provides CSIA with a significant structural advantage in any negotiation or dispute. Regardless of the outcome — whether the JV is reactivated, Pinnacle's interest is purchased, or the JV is dissolved — CSIA retains ownership and control of the underlying 14.7-acre site. Pinnacle cannot retain or acquire the land. This means that in any scenario in which Pinnacle exits the JV, it walks away from the project site entirely. Conversely, in any scenario in which CSIA exits the JV (e.g., if Pinnacle were to exercise a buy-sell reversal under §9.1), the ground lease would revert upon the termination of the JV, and Pinnacle would hold a 100% interest in an entity with no site on which to build. This dynamic effectively neutralizes the strategic risk of a buy-sell reversal and strengthens CSIA's hand in negotiation.
V. Evaluation of Strategic Paths Forward
We have identified three principal strategic paths available to CSIA, each with distinct advantages, risks, and practical requirements. We evaluate each path below.
A. Path 1: Reactivation and Restructuring of the JV
Description. Under this path, CSIA would attempt to revive the dormant project by resolving the environmental permitting impasse, curing Pinnacle's default (or restructuring Pinnacle's participation in the JV), and securing replacement or renewed project finance debt. The goal would be to restore the JV to an operational state and advance toward construction and commercial operation of the Thurston County Advanced Water Treatment Facility.
Key Steps Required. Reactivation would require the completion of each of the following steps, all of which present significant execution risk:
1. Resolution of Pinnacle's Funding Default. Pinnacle would need to fund its outstanding Second Tranche capital contribution of $4,050,000, or CSIA and Pinnacle would need to negotiate a restructuring of Pinnacle's capital commitment (e.g., a reduced commitment with proportional dilution, a deferred payment schedule, or a contribution of services or assets in lieu of cash).
2. Restart of Environmental Permitting. The supplemental environmental data requested by Thurston County on July 8, 2022 would need to be prepared and submitted to restart the Phase II EID process. This would require re-engagement of Westmark Environmental Consulting, Inc., or retention of a replacement environmental consultant. Based on the scope of the supplemental data request, we estimate that preparation and submission would take three to six months, followed by an additional three to six months for Thurston County's review and decision.
3. Replacement or Renewal of Project Finance Commitment. The lapsed PCB commitment for $27,000,000 would need to be renegotiated or replaced with a new commitment from PCB or another lender. As noted above, PCB has indicated that a new underwriting process would be required, and market conditions have changed materially since February 2022. Obtaining a replacement commitment would likely require updated environmental documentation, revised project budgets, and a restructured borrower profile.
4. Restoration of Governance Functionality. Pinnacle's board members (Prumvane and Voss) would need to re-engage in the Governing Board process to enable the supermajority votes required for construction commencement, debt incurrence, and other Major Decisions.
Alternative Sub-Option: Replacement of Pinnacle with a New Private Partner. CSIA could alternatively seek to replace Pinnacle with a new private-sector partner, while retaining the existing CBWTP entity structure. This approach, however, would require: (a) Pinnacle's consent to exit or the forced removal of Pinnacle through the §8.2 default remedies; (b) admission of a new member, which constitutes a Major Decision requiring a supermajority board vote of four of five — creating a structural obstacle given Pinnacle's two board seats and potential blocking position; and (c) identification, vetting, and negotiation with a qualified replacement partner, which could take six to twelve months or more. This sub-option is theoretically available but faces formidable practical and contractual barriers.
Advantages. Reactivation preserves the public infrastructure objective of delivering advanced water treatment capacity to Thurston County. The 12-MGD Facility would serve a demonstrated community need for modern water treatment infrastructure. Reactivation would also preserve the existing JV structure, ground lease, and any residual value in the pre-development work completed to date (including the Phase I ESA and organizational infrastructure).
Disadvantages. Reactivation requires Pinnacle's active cooperation, which has not been forthcoming at any point since September 2022 — over 15 months. The time and cost required to restart environmental permitting and secure replacement financing are substantial, and the outcome is uncertain. There is no assurance that Pinnacle or Ridgeline Capital Partners has the financial capacity or strategic willingness to re-engage, particularly given the passage of time and the likely deterioration of Pinnacle's interest in the project. Pinnacle's 2021 EBITDA of approximately $29 million may have changed materially since then, and Pinnacle's current financial condition is unknown to us. Finally, reactivation would require resolution of the default dispute as a precondition, which may itself require formal dispute resolution proceedings.
Assessment. We assess the probability of successful reactivation as low without Pinnacle's active and willing cooperation. Reactivation is not our recommended path but could be revisited if circumstances change materially — for example, if Pinnacle or Ridgeline proactively expresses willingness to re-engage, or if CSIA identifies a replacement private partner willing to step into Pinnacle's shoes.
B. Path 2: Exercise of Default and/or Buy-Sell Remedies to Acquire Pinnacle's Interest
Description. Under this path, CSIA would exercise its contractual remedies to acquire Pinnacle's 45% membership interest in CBWTP, becoming the sole member of the entity, and would then either pursue the project independently or with a new private partner selected through a fresh procurement process. This is the most legally robust path and the one most directly supported by CSIA's contractual rights under the JV Agreement.
We evaluate each of the three available sub-options below.
Sub-Option B1: Default Remedy — Pro Rata Dilution (§8.2(i))
Under this sub-option, CSIA would exercise its right under §8.2(i) to dilute Pinnacle's membership interest on a pro rata basis in proportion to Pinnacle's unfunded capital contribution.
The precise mechanics of the dilution calculation depend on the formula set forth in §8.2(i), which we analyzed in detail in our June 20, 2023 memorandum. In summary, Pinnacle's $4,050,000 unfunded Second Tranche, when measured against the $18,000,000 total committed equity, would result in a material reduction of Pinnacle's 45% membership interest. The exact post-dilution ownership percentages depend on whether the dilution is calculated on the basis of committed capital, funded capital, or a hybrid approach. Under the most favorable reading for CSIA, Pinnacle's interest could be diluted to approximately 23% to 29%, with CSIA's interest increasing correspondingly to approximately 71% to 77%.
Advantages: Dilution does not require CSIA to make any additional capital outlay or payment to Pinnacle. It can be exercised unilaterally by CSIA upon written notice to Pinnacle and does not require Pinnacle's consent.
Disadvantages: Dilution does not fully remove Pinnacle from the JV. Even after dilution, Pinnacle would retain a reduced — but still present — membership interest, and under the JV Agreement's governance provisions, Pinnacle would likely retain its two Governing Board seats and its blocking position on Major Decisions. The supermajority requirement of four of five board votes would continue to apply, meaning that dilution would not solve the governance dysfunction. Dilution would reduce Pinnacle's economic interest but would not eliminate the fundamental problem of a non-cooperating partner with blocking rights.
Assessment: Dilution alone is an incomplete remedy. While it could be exercised as a preliminary step to establish CSIA's contractual posture and reduce Pinnacle's economic interest, it does not provide the clean resolution that CSIA needs. We do not recommend dilution as a standalone path.
Sub-Option B2: Default Remedy — Purchase at 75% of FMV (§8.2(ii))
Under this sub-option, CSIA would exercise its right under §8.2(ii) to purchase Pinnacle's entire 45% membership interest at a price equal to 75% of the fair market value of that interest. This is the default buyout remedy specifically designed to penalize a defaulting member and provide the non-defaulting member with a clean exit mechanism.
FMV Determination. The JV Agreement requires that FMV be determined by an independent appraiser or appraisers in accordance with the procedures set forth in §8.2(ii)(c). The determination of FMV is the most significant variable in this analysis. We offer the following preliminary framework:
Book value approach: CBWTP's net equity as of June 30, 2023 was approximately $9,633,000. Pinnacle's 45% pro rata share of net equity would be approximately $4,334,850. At a 75% discount, the purchase price under this approach would be approximately $3,251,138.
Adjusted book value approach: An appraiser may adjust book value to reflect the current fair market value of CBWTP's assets, which consist primarily of cash ($8,412,000), prepaid fees ($385,000), and capitalized organizational costs ($1,050,000). Given that the project has not advanced and the entity's primary assets are cash and prepaid expenses, the adjusted book value is unlikely to differ materially from book value. However, an appraiser might argue that CBWTP has "project option value" — i.e., the value of the permits, the ground lease, and the development opportunity, even in their current incomplete state — which could increase the FMV above book value.
Going-concern / project value approach: If the Facility were viewed as a viable going-concern project, an appraiser might assign a value based on discounted cash flow analysis of the projected operating revenues of the completed 12-MGD plant. This approach would produce a significantly higher FMV, potentially in the range of $15 million to $25 million for the full entity (and proportionally for Pinnacle's 45% share). However, we believe this approach is inappropriate given the current dormancy of the project, the absence of environmental permits, the lapse of the financing commitment, and the fundamental uncertainty of whether the project will ever be built. The JV Agreement's appraisal provisions do not specify which valuation methodology to employ, and we would advocate strongly for a book value or adjusted book value approach.
For preliminary planning purposes, we estimate that the purchase price under §8.2(ii) would fall in the range of approximately $2,500,000 to $4,000,000, depending on the valuation methodology applied and the appraiser's assessment of project option value.
Advantages: The default buyout at 75% of FMV provides the cleanest resolution available to CSIA. It removes Pinnacle from the JV entirely, eliminates the governance dysfunction, gives CSIA 100% control of CBWTP, and imposes a contractual penalty on Pinnacle for its default. It is the remedy most directly supported by the JV Agreement's default provisions and is precisely the outcome that §8.2(ii) was designed to produce.
Disadvantages: CSIA would need to make an additional capital outlay to fund the purchase price, at a time when it has already invested $9,900,000 in equity and the project remains unbuilt. Pinnacle may dispute the FMV determination, potentially leading to a contested appraisal process and, if no agreement can be reached, arbitration before the PNAA. The valuation dispute could add time and expense to the process. Additionally, even after acquiring 100% of CBWTP, CSIA would still need to resolve the environmental permitting and financing challenges to advance the project.
Assessment: This is the preferred sub-option and is the remedy we recommend CSIA pursue as its primary objective in negotiations with Pinnacle. The 75% of FMV purchase price is contractually supported, penalizes the defaulting party, and provides CSIA with full control. While Pinnacle may resist and dispute FMV, the arbitral framework provides a mechanism for resolution.
Sub-Option B3: Buy-Sell / Shotgun Provision (§9.1)
Under this sub-option, CSIA would trigger the buy-sell (shotgun) provision under §9.1, which became exercisable on November 2, 2023. If CSIA triggers the buy-sell, CSIA would name a price at which it is willing to purchase Pinnacle's 45% interest, and Pinnacle would have the option to either sell at that price or reverse the transaction and purchase CSIA's 55% interest at the equivalent per-unit price.
Strategic Analysis. The buy-sell provision is a blunt but effective mechanism for breaking deadlock. Its primary virtue is that it forces a market-clearing outcome — one party will buy, and the other will sell, at a price determined by the triggering party. Its primary risk is that the triggering party may lose its position in the venture if the receiving party elects to reverse.
In the specific context of CBWTP, the risk of reversal is mitigated by several factors:
1. Ground Lease Reversion. If Pinnacle were to purchase CSIA's interest, the JV would continue to exist, but CSIA would retain ownership of the underlying 14.7-acre site through the reversionary ground lease. Pinnacle would hold 100% of an entity whose only significant physical asset is a leasehold interest in CSIA-owned land, on terms ($1.00/year rent) that were predicated on a public-private partnership structure. CSIA could, in theory, exercise its rights under the ground lease to impose conditions or restrictions on any future use of the site.
2. Pinnacle's Default Status. Pinnacle is in uncured default under the JV Agreement. While the buy-sell provision does not expressly condition its exercise on the absence of a default, Pinnacle's default status may create practical constraints on its ability to reverse. An arbitral tribunal might question whether a defaulting member that has failed to meet its own funding obligations should be permitted to acquire additional interests through a buy-sell reversal.
3. Financial Capacity. A reversal by Pinnacle would require Pinnacle to fund the purchase of CSIA's 55% interest at the stated price. If CSIA sets the price at a level that reflects the full value of CSIA's $9,900,000 in funded equity (plus a premium for CSIA's controlling interest and the ground lease reversion), the total purchase price for CSIA's 55% interest could be substantial. It is uncertain whether Pinnacle, or Ridgeline, has the financial capacity or willingness to make such a purchase, particularly given Pinnacle's recent history of financial retrenchment.
Interplay with §8.2. A critical question is whether CSIA can exercise the §8.2(ii) default buyout at 75% of FMV — which is punitive to the defaulting party — and separately or alternatively trigger the §9.1 buy-sell provision. Our October 16, 2023 memorandum analyzed this question in detail and concluded that the two provisions are independent remedies that may be pursued in the alternative, provided that CSIA does not formally elect both simultaneously in a manner that creates inconsistency. We recommend that CSIA prioritize the §8.2(ii) default buyout and reserve the §9.1 buy-sell as a secondary mechanism to be deployed only if the default buyout is frustrated.
Advantages: Creates a market-clearing mechanism that forces a resolution. May produce a rapid outcome if Pinnacle elects to sell.
Disadvantages: Risk of Pinnacle reversing and purchasing CSIA's interest, though this risk is substantially mitigated by the ground lease reversion and Pinnacle's default status. Requires CSIA to name a price, which involves strategic judgment and valuation uncertainty.
Assessment: The buy-sell is a viable but secondary mechanism. We recommend holding it in reserve as an alternative to the §8.2(ii) default buyout rather than deploying it as the primary r

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