AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
COLUMBIA BASIN WATER TREATMENT PARTNERS, LLC
A Washington Limited Liability Company
EXECUTION VERSION
Dated as of November 2, 2021
By and Among
CASCADIA STATE INFRASTRUCTURE AUTHORITY
and
PINNACLE WATER SOLUTIONS, LLC
THIS AGREEMENT AND THE MEMBERSHIP INTERESTS DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THE MEMBERSHIP INTERESTS MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT AND ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF COLUMBIA BASIN WATER TREATMENT PARTNERS, LLC
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Columbia Basin Water Treatment Partners, LLC, a Washington limited liability company (the "Company" or "CBWTP"), is entered into and effective as of November 2, 2021 (the "Effective Date"), by and among:
CASCADIA STATE INFRASTRUCTURE AUTHORITY, a Washington state governmental authority created by and existing pursuant to Chapter 43.155A of the Revised Code of Washington ("RCW"), with its principal office located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501 ("CSIA" or the "Public Member");
and
PINNACLE WATER SOLUTIONS, LLC, a Delaware limited liability company duly organized and validly existing under the laws of the State of Delaware and registered to transact business in the States of Washington and Oregon, with its principal office located at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205 ("Pinnacle" or the "Private Member," and together with CSIA, collectively the "Members" and each individually a "Member").
RECITALS
A. CSIA is a Washington state governmental instrumentality created pursuant to Chapter 43.155A RCW, charged with the mission of financing, developing, and overseeing critical public infrastructure across the State of Washington. CSIA maintains an annual budget of approximately Three Hundred Eighty Million Dollars ($380,000,000) and currently administers a portfolio of over sixty (60) active infrastructure projects spanning water, wastewater, transportation, and energy sectors throughout the State. CSIA possesses the statutory authority and institutional capacity to enter into public-private partnerships for the development of essential infrastructure serving the residents and communities of Washington State.
B. Pinnacle is a Delaware limited liability company specializing in water and wastewater treatment engineering, construction, and operations. Since its founding in 2014, Pinnacle has successfully completed over Six Hundred Million Dollars ($600,000,000) in water infrastructure projects across the Pacific Northwest and Northern California, establishing itself as a recognized leader in advanced water treatment technology and project delivery. Pinnacle's 2021 audited revenue was approximately One Hundred Eighty-Seven Million Dollars ($187,000,000), with earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately Twenty-Nine Million Dollars ($29,000,000).
C. The Members desire to form a public-private joint venture to design, construct, own, and operate the Thurston County Advanced Water Treatment Facility (the "Facility"), a twelve (12) million gallon-per-day ("MGD") advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501 (the "Facility Site"), a fourteen and seven-tenths (14.7)-acre parcel, serving Thurston County and adjacent municipal water systems with high-quality treated water meeting or exceeding all applicable federal and state water quality standards.
D. The total project cost for the design, construction, and commissioning of the Facility is Forty-Five Million Dollars ($45,000,000) (the "Project Cost"), to be funded through a combination of Eighteen Million Dollars ($18,000,000) in equity capital contributions by the Members and Twenty-Seven Million Dollars ($27,000,000) in project finance debt to be obtained through a senior secured credit facility.
E. CSIA has agreed to make available the Facility Site to the Company pursuant to a ninety-nine (99)-year ground lease (the "Ground Lease"), dated as of the date hereof, between CSIA, as landlord, and the Company, as tenant, recorded with the Thurston County Auditor as Recording No. 2021-1102-004788, on the terms and conditions set forth therein.
F. The Members have caused the Company to be formed as a Washington limited liability company under the Washington Limited Liability Company Act (RCW Title 25, Chapter 25.15) (the "Washington LLC Act") by the filing of a Certificate of Formation with the Washington Secretary of State on November 2, 2021, and the Company has been assigned Washington Unified Business Identifier ("UBI") Number 604-892-315 and Employer Identification Number ("EIN") 88-3421076. The Members now desire to enter into this Agreement to govern the affairs of the Company, the conduct of its business, and the respective rights, duties, and obligations of the Members.
G. This Agreement amends and restates in its entirety the original Limited Liability Company Agreement of the Company, dated as of November 2, 2021, which was entered into by the Members in connection with the formation of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:
ARTICLE I — DEFINITIONS AND CONSTRUCTION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, Pinnacle is sixty-two percent (62%) owned by Ridgeline Capital Partners, LP (whose Managing Partner is Jonathan Kreider), and Ridgeline Capital Partners, LP and its subsidiaries and portfolio companies are Affiliates of Pinnacle for purposes of this Agreement.
"Agreement" means this Amended and Restated Limited Liability Company Agreement, as the same may be amended, modified, supplemented, or restated from time to time in accordance with Section 14.3 hereof.
"Annual Budget" means the annual operating and capital budget of the Company for each Fiscal Year, as proposed by the Manager and approved by Supermajority Vote of the Governing Board pursuant to Section 5.4(f).
"Arbitration Rules" means the then-current rules of the Pacific Northwest Arbitration Association ("PNAA") governing commercial arbitration proceedings.
"Board" or "Governing Board" means the five (5)-member governing body of the Company established pursuant to Article V of this Agreement.
"Board Member" means a member of the Governing Board appointed in accordance with Section 5.1.
"Business Day" means any day that is not a Saturday, Sunday, or a day on which commercial banks in Olympia, Washington or Portland, Oregon are authorized or required by law or other governmental action to close.
"Capital Account" means, with respect to each Member, the capital account maintained for such Member in accordance with Section 4.4 and the Treasury Regulations promulgated under Section 704(b) of the Code.
"Capital Call" means a call for Capital Contributions issued by the Governing Board pursuant to Section 4.2 of this Agreement.
"Capital Contribution" means, with respect to each Member, the aggregate amount of cash and the agreed fair market value of any property (net of liabilities secured thereby that the Company is considered to assume or take subject to under Section 752 of the Code) contributed to the Company by such Member.
"Certificate of Formation" means the Certificate of Formation of the Company filed with the Washington Secretary of State on November 2, 2021, as the same may be amended, restated, or supplemented from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of any succeeding law). References to a Section of the Code shall include the Section and any comparable provision of any future legislation that amends, supplements, or supersedes such Section.
"Commercial Operation Date" means the date on which the Facility has achieved substantial completion in accordance with the applicable construction contracts and commences commercial operations, as certified by the Manager and confirmed by the Governing Board.
"Company" means Columbia Basin Water Treatment Partners, LLC, a Washington limited liability company.
"Cure Period" means the sixty (60) calendar day period following delivery of a Default Notice to a Defaulting Member, during which the Defaulting Member may cure the applicable Default, as provided in Section 8.2(a).
"Default" means a failure by a Member to perform any of its material obligations under this Agreement, as more fully described in Section 8.1.
"Default Notice" means a written notice of Default delivered by a non-defaulting Member to a Defaulting Member pursuant to Section 8.1.
"Defaulting Member" means a Member that has committed a Default that has not been cured within the applicable Cure Period.
"EIN" means the Employer Identification Number assigned to the Company by the Internal Revenue Service, which is 88-3421076.
"Facility" means the Thurston County Advanced Water Treatment Facility, a twelve (12) million gallon-per-day advanced water treatment plant to be designed, constructed, owned, operated, and maintained by the Company at the Facility Site, as more fully described in Exhibit D attached hereto.
"Facility Site" means the fourteen and seven-tenths (14.7)-acre parcel of real property located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501, as more particularly described in Exhibit C attached hereto, which is the subject of the Ground Lease.
"Fair Market Value" or "FMV" means, with respect to a Member's Interest, the fair market value of such Interest as determined pursuant to Section 8.2(b) or Section 9.1 of this Agreement, as applicable, in each case by an independent appraiser in accordance with the appraisal procedures set forth herein.
"First Tranche" means the initial Capital Contribution due from each Member under Section 4.2(a) of this Agreement.
"Fiscal Year" means the calendar year, or such portion thereof during which the Company is in existence.
"Force Majeure Event" has the meaning set forth in Section 11.4 of this Agreement.
"Ground Lease" means that certain Ground Lease, dated as of November 2, 2021, by and between CSIA, as landlord, and the Company, as tenant, with a term of ninety-nine (99) years, recorded with the Thurston County Auditor as Recording No. 2021-1102-004788, as the same may be amended, modified, or supplemented from time to time.
"Interest" or "Membership Interest" means a Member's entire ownership interest in the Company, including such Member's right to receive allocations of profits and losses and distributions of the Company's assets, together with all rights and obligations of such Member under this Agreement and the Washington LLC Act.
"JV Agreement" means this Agreement.
"Major Decision" has the meaning set forth in Section 5.4 of this Agreement.
"Management Fee" means the fee payable to the Manager by the Company pursuant to Section 6.3 of this Agreement.
"Manager" means the Member designated to manage the day-to-day operations of the Company under Article VI of this Agreement, which shall initially be Pinnacle Water Solutions, LLC.
"PNAA" means the Pacific Northwest Arbitration Association, or any successor organization.
"Percentage Interest" means, with respect to each Member, the percentage interest of such Member in the Company as set forth in Section 3.1, as the same may be adjusted from time to time in accordance with this Agreement. As of the Effective Date, the Percentage Interests are: CSIA — fifty-five percent (55%); Pinnacle — forty-five percent (45%).
"Permitted Transfer" means a Transfer of all or any portion of a Member's Interest to a wholly-owned Affiliate of such Member in accordance with Section 10.2 of this Agreement.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity of any kind.
"Private Member" means Pinnacle Water Solutions, LLC, a Delaware limited liability company.
"Project Cost" means the total estimated cost for the design, construction, and commissioning of the Facility, which as of the Effective Date is Forty-Five Million Dollars ($45,000,000).
"Project Finance Facility" means the senior secured project finance credit facility contemplated by Section 4.6 of this Agreement, in an aggregate principal amount not to exceed Twenty-Seven Million Dollars ($27,000,000), to be obtained by the Company to fund the construction of the Facility.
"Public Member" means Cascadia State Infrastructure Authority, a Washington state governmental authority.
"Second Tranche" means the second Capital Contribution due from each Member under Section 4.2(b) of this Agreement.
"Supermajority Vote" means the affirmative vote of at least four (4) of five (5) Board Members at a duly constituted meeting at which a quorum is present, or a unanimous written consent executed by at least four (4) of five (5) Board Members in accordance with Section 5.3.
"Term" has the meaning set forth in Section 2.5 of this Agreement.
"Total Equity Commitment" means Eighteen Million Dollars ($18,000,000), representing the aggregate equity capital to be contributed to the Company by the Members in accordance with Article IV.
"Transfer" means, with respect to any Membership Interest, any direct or indirect sale, assignment, gift, pledge, hypothecation, mortgage, encumbrance, exchange, or other transfer or disposition of such Membership Interest or any portion thereof, whether voluntary or involuntary, by operation of law or otherwise, including any transfer by merger, consolidation, or reorganization.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time (including corresponding provisions of successor regulations).
"UBI Number" means the Washington Unified Business Identifier Number assigned to the Company, which is 604-892-315.
"Washington LLC Act" means the Washington Limited Liability Company Act, RCW Title 25, Chapter 25.15, as amended from time to time.
Section 1.2 — Rules of Construction
The following rules of construction shall apply to this Agreement:
(a) The headings and captions used in this Agreement are inserted for convenience of reference only and shall not affect the interpretation or construction of this Agreement.
(b) Whenever the context so requires, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.
(c) The words "herein," "hereof," "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular Section, Article, Exhibit, or Schedule.
(d) The word "including" (and with correlative meaning, "include" and "includes") means "including, without limitation."
(e) References to any Section, Article, Exhibit, or Schedule shall mean such Section, Article, Exhibit, or Schedule of or to this Agreement unless the context expressly requires otherwise.
(f) References to any statute, law, rule, or regulation shall mean such statute, law, rule, or regulation as amended, modified, supplemented, or replaced from time to time, together with all rules and regulations promulgated thereunder.
(g) References to "days" shall mean calendar days unless otherwise specified as "Business Days."
(h) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
(i) The recitals set forth above are hereby incorporated into and made a part of this Agreement.
Section 1.3 — Exhibits and Schedules
The following Exhibits and Schedules are attached hereto and incorporated herein by reference as if set forth in full:
•  Exhibit A — Members Schedule
•  Exhibit B — Initial Governing Board Members
•  Exhibit C — Description of Facility Site
•  Exhibit D — Description of the Facility
•  Schedule 4.2 — Capital Contribution Schedule
•  Schedule 6.3 — Management Fee Payment Schedule
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company was formed as a Washington limited liability company pursuant to the Washington LLC Act by the filing of its Certificate of Formation with the Office of the Washington Secretary of State on November 2, 2021. The Company has been assigned Washington Unified Business Identifier ("UBI") Number 604-892-315, and the Internal Revenue Service has assigned to the Company Employer Identification Number ("EIN") 88-3421076. The name of the Company is "Columbia Basin Water Treatment Partners, LLC." The rights and obligations of the Members and the administration and termination of the Company shall be governed by this Agreement and, to the extent not inconsistent herewith, by the Washington LLC Act. To the extent any provision of this Agreement is inconsistent with any non-mandatory provision of the Washington LLC Act, this Agreement shall control.
Section 2.2 — Principal Office and Registered Office
(a) The registered office of the Company in the State of Washington shall be located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, in the care of Cascadia State Infrastructure Authority, or at such other location as may be designated from time to time by the Governing Board.
(b) The principal place of business of the Company shall be located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, or at such other location as may be designated from time to time by the Governing Board.
(c) The Company shall maintain a registered agent for service of process in the State of Washington as required by the Washington LLC Act. The initial registered agent shall be David Tanaka, General Counsel, Cascadia State Infrastructure Authority, at the registered office address set forth above. The Governing Board may change the registered agent from time to time by filing the appropriate documentation with the Washington Secretary of State.
Section 2.3 — Purpose
The purpose of the Company is to:
(a) Design, construct, own, operate, maintain, and manage the Thurston County Advanced Water Treatment Facility, a twelve (12) million gallon-per-day advanced water treatment plant at the Facility Site, serving Thurston County and adjacent municipal water systems;
(b) Enter into and perform the Ground Lease with CSIA for the use of the Facility Site;
(c) Obtain and administer the Project Finance Facility and any other financing necessary or advisable for the development and operation of the Facility;
(d) Enter into all contracts, agreements, and arrangements necessary or incidental to the design, construction, commissioning, operation, maintenance, repair, and improvement of the Facility, including engineering contracts, construction contracts, equipment procurement agreements, water supply and treatment agreements, interconnection agreements with municipal water systems, and all related instruments;
(e) Obtain and maintain all governmental permits, licenses, authorizations, and approvals necessary or advisable for the development, construction, and operation of the Facility;
(f) Engage in any and all other lawful activities related to or in furtherance of the foregoing purposes.
Section 2.4 — Authority
(a) CSIA is a Washington state governmental authority duly created and validly existing pursuant to Chapter 43.155A RCW. CSIA has the statutory authority and power under Chapter 43.155A RCW to enter into this Agreement, to make the Capital Contributions contemplated herein, to execute and deliver the Ground Lease, and to perform all of its obligations hereunder. The execution, delivery, and performance of this Agreement by CSIA have been duly authorized by all necessary governmental action.
(b) Pinnacle is a Delaware limited liability company duly organized and validly existing under the laws of the State of Delaware and is duly registered and authorized to transact business in the States of Washington and Oregon. Pinnacle has the limited liability company power and authority to enter into this Agreement, to make the Capital Contributions contemplated herein, to serve as Manager of the Company, and to perform all of its obligations hereunder. The execution, delivery, and performance of this Agreement by Pinnacle have been duly authorized by all necessary limited liability company action.
(c) Each Member represents and warrants that the execution, delivery, and performance of this Agreement do not and will not (i) violate any law, rule, regulation, order, judgment, or decree applicable to such Member, (ii) conflict with or result in a breach or default under any agreement, instrument, or arrangement to which such Member is a party or by which it is bound, or (iii) require any consent, approval, or authorization that has not been obtained as of the Effective Date.
Section 2.5 — Term
(a) The term of the Company (the "Term") shall commence on the Effective Date and shall continue for a period of thirty (30) years from the Commercial Operation Date, unless earlier dissolved in accordance with Article XII.
(b) The Term may be extended for two (2) successive ten (10)-year renewal periods upon Supermajority Vote of the Governing Board, which vote shall be taken not less than twelve (12) months and not more than twenty-four (24) months prior to the expiration of the then-current term. Each such renewal shall be a Major Decision under Section 5.4(k).
(c) If the Commercial Operation Date has not occurred, the Company shall continue in existence until dissolved in accordance with the provisions of Article XII.
Section 2.6 — Title to Property
All property of the Company, whether real, personal, or mixed, and whether tangible or intangible, shall be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company property. Each Member's Interest in the Company shall constitute personal property of such Member. The Company's interest in the Facility Site shall be held as a leasehold interest pursuant to the Ground Lease.
ARTICLE III — MEMBERS; MEMBERSHIP INTERESTS
Section 3.1 — Members
The Members of the Company, together with their respective Percentage Interests, are as follows:
The addresses and other information with respect to each Member are set forth on Exhibit A attached hereto.
Section 3.2 — Membership Interests
Each Member's Membership Interest in the Company shall be expressed as a Percentage Interest, as set forth in Section 3.1 above and on Exhibit A. As of the Effective Date, CSIA holds a fifty-five percent (55%) Percentage Interest and Pinnacle holds a forty-five percent (45%) Percentage Interest. Each Member's Percentage Interest shall entitle such Member to receive allocations of the Company's profits and losses and distributions of the Company's assets in the manner and to the extent provided in Article VII and Article XII, and shall entitle such Member to exercise voting rights in accordance with Article V. The Percentage Interests are subject to adjustment in accordance with Section 8.2 (default dilution) and Section 4.2(b) (additional Capital Calls).
Section 3.3 — Representations and Warranties of Members
Each Member hereby represents and warrants to the other Member and to the Company as of the Effective Date as follows:
(a) Due Organization. Such Member is duly organized, validly existing, and in good standing (or, in the case of CSIA, duly created and validly existing) under the laws of its state of formation or creation, and has the power and authority to own its properties and to carry on its business as now conducted.
(b) Authority; Enforceability. Such Member has the full power and authority to execute, deliver, and perform this Agreement and all other agreements and instruments contemplated hereby to which it is or will be a party. This Agreement has been duly authorized, executed, and delivered by such Member and constitutes the legal, valid, and binding obligation of such Member, enforceable against such Member in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
(c) No Conflicts. The execution, delivery, and performance of this Agreement by such Member does not and will not (i) violate any provision of such Member's organizational or governing documents, (ii) violate any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award applicable to such Member, or (iii) conflict with, result in a breach of, or constitute a default under any agreement, indenture, mortgage, or other instrument to which such Member is a party or by which it or its properties are bound.
(d) Governmental Approvals. All governmental approvals, authorizations, consents, orders, licenses, and registrations required for the execution, delivery, and performance of this Agreement by such Member have been obtained and are in full force and effect. In the case of CSIA, the foregoing includes all approvals required under Chapter 43.155A RCW and any other applicable Washington State laws and regulations.
(e) Financial Capacity. Such Member has the financial capacity to fulfill all of its Capital Contribution obligations under Article IV and all other financial obligations under this Agreement.
(f) No Litigation. There is no action, suit, proceeding, investigation, or claim pending or, to the knowledge of such Member, threatened against such Member that would reasonably be expected to have a material adverse effect on such Member's ability to perform its obligations under this Agreement.
(g) Compliance with Law. Such Member is in material compliance with all applicable laws, rules, regulations, orders, judgments, and decrees.
Section 3.4 — Admission of Additional Members
No additional Members shall be admitted to the Company without the prior approval of the Governing Board by Supermajority Vote. The admission of additional Members shall constitute a Major Decision under Section 5.4(c). Any additional Member admitted to the Company shall execute a joinder agreement in form and substance reasonably satisfactory to the existing Members, agreeing to be bound by the terms and conditions of this Agreement.
Section 3.5 — No Withdrawal
No Member may voluntarily withdraw from the Company except as expressly provided in this Agreement, including pursuant to the buy-sell provisions of Article IX or upon the dissolution and winding up of the Company under Article XII. Any Member that attempts to withdraw from the Company in violation of this Section 3.5 shall remain liable for all of its obligations under this Agreement and shall not be entitled to receive any distribution or payment from the Company or the other Member with respect to such attempted withdrawal.
ARTICLE IV — CAPITAL CONTRIBUTIONS
Section 4.1 — Total Equity Commitment
The total equity capital to be contributed to the Company by the Members (the "Total Equity Commitment") shall be Eighteen Million Dollars ($18,000,000), allocated between the Members in proportion to their respective Percentage Interests as follows:
The remainder of the Forty-Five Million Dollar ($45,000,000) Project Cost, equal to Twenty-Seven Million Dollars ($27,000,000), shall be funded through the Project Finance Facility described in Section 4.6.
Section 4.2 — Capital Calls; Tranches
Section 4.2(a) — First Tranche
Each Member shall contribute fifty percent (50%) of its Total Equity Commitment to the Company as its initial Capital Contribution (the "First Tranche") within fifteen (15) calendar days following the Effective Date. Accordingly, the First Tranche contributions shall be due on or before November 15, 2021, as follows:
(i) CSIA First Tranche: 50% × $9,900,000 = $4,950,000
(ii) Pinnacle First Tranche: 50% × $8,100,000 = $4,050,000
(iii) Total First Tranche: $9,000,000
All Capital Contributions shall be made in cash, in immediately available funds, by wire transfer to the Company's designated depository account, as specified in writing by the Manager. The Capital Contribution Schedule is set forth on Schedule 4.2 attached hereto.
Section 4.2(b) — Second Tranche and Subsequent Capital Calls
The remaining fifty percent (50%) of each Member's Total Equity Commitment (the "Second Tranche") shall be contributed to the Company upon a Capital Call issued by the Governing Board, as follows:
(i) CSIA Second Tranche: $4,950,000
(ii) Pinnacle Second Tranche: $4,050,000
(iii) Total Second Tranche: $9,000,000
Each Member shall fund its Second Tranche Capital Contribution within thirty (30) calendar days following delivery of written notice of the Capital Call to the Members. The Capital Call notice shall specify the amount of the Capital Contribution required from each Member, the purpose for which the funds are to be used, and the date by which the contribution is due.
Any Capital Calls in excess of the Total Equity Commitment shall constitute a Major Decision under Section 5.4(j) and shall require a Supermajority Vote of the Governing Board. In the event of any such additional Capital Call, each Member shall have the obligation to fund its proportionate share (based on its then-current Percentage Interest) of such additional Capital Call within thirty (30) calendar days following delivery of written notice thereof.
Section 4.3 — Permitting and Development Responsibilities
(a) The Company (and not any individual Member acting in its individual capacity) shall be responsible for obtaining all governmental permits, licenses, approvals, environmental determinations, and other authorizations necessary for the development, construction, commissioning, and operation of the Facility, including without limitation all permits required under the Washington State Environmental Policy Act (Chapter 43.21C RCW), the Clean Water Act, the Safe Drinking Water Act, and all other applicable federal, state, and local environmental and land use laws and regulations.
(b) The Manager (Pinnacle) shall oversee and direct the permitting process on behalf of the Company, subject to the oversight and authority of the Governing Board. The Manager shall keep the Governing Board regularly informed of the status of all permitting activities and shall promptly report any material developments, delays, or challenges encountered in the permitting process.
(c) The Company shall engage qualified environmental consultants, engineers, and other professionals as needed to prepare permit applications, environmental impact assessments, and other documentation required in connection with the permitting process. The costs of all such consultants and professionals shall be borne by the Company.
(d) Each Member shall cooperate in good faith in providing information, documentation, and support to the permitting process as reasonably requested by the Manager, including without limitation any information within the control of CSIA relating to the Facility Site or CSIA's infrastructure programs. Notwithstanding the foregoing, the primary responsibility for obtaining all permits and governmental approvals is allocated to the Company, acting through the Manager.
Section 4.4 — Capital Accounts
A Capital Account shall be established and maintained for each Member in accordance with Treasury Regulation § 1.704-1(b)(2)(iv). Each Member's Capital Account shall have an initial balance equal to such Member's initial Capital Contribution. Thereafter, each Member's Capital Account shall be:
(a) increased by (i) any additional Capital Contributions made by such Member, and (ii) such Member's allocable share of the Company's net profits and items of income and gain allocated to such Member;
(b) decreased by (i) the amount of cash and the fair market value of property distributed to such Member, and (ii) such Member's allocable share of the Company's net losses and items of loss and deduction allocated to such Member.
The Capital Accounts shall be adjusted as required by the Treasury Regulations, including Treasury Regulation § 1.704-1(b)(2)(iv)(f) (revaluation of Company property) and Treasury Regulation § 1.704-1(b)(2)(iv)(g) (adjustments for liabilities).
Section 4.5 — No Interest on Capital Contributions
No Member shall be entitled to receive interest on its Capital Contributions or on the balance of its Capital Account. The obligation of the Company to make distributions to the Members shall be governed solely by Article VII and Article XII of this Agreement.
Section 4.6 — Project Finance Facility
(a) The Company is authorized to obtain a senior secured project finance credit facility in an aggregate principal amount not to exceed Twenty-Seven Million Dollars ($27,000,000) (the "Project Finance Facility") to fund the design, construction, and commissioning of the Facility. The incurrence of the Project Finance Facility shall constitute a Major Decision under Section 5.4(b), requiring a Supermajority Vote of the Governing Board.
(b) The Members acknowledge that Pacific Cascade Bank, N.A. has delivered a commitment letter to the Company dated February 15, 2022 (reference number PCB-PF-2022-0417), committing to provide a senior secured construction loan in the aggregate principal amount of Twenty-Seven Million Dollars ($27,000,000), with an eighteen (18)-month construction-period tenor, subject to customary conditions precedent and documentation requirements. The final terms and conditions of the Project Finance Facility, including pricing, security arrangements, financial covenants, and drawdown conditions, shall be subject to approval by the Governing Board by Supermajority Vote.
(c) The Manager shall be responsible for negotiating and managing the Project Finance Facility on behalf of the Company, subject to the approval and oversight of the Governing Board. Neither Member shall be required to provide a personal guaranty of the Company's obligations under the Project Finance Facility, except to the extent approved by such Member in its sole discretion.
Section 4.7 — No Right to Return of Capital
Except as provided in Article VII (Allocations and Distributions), Article X (Transfers of Interests), and Article XII (Dissolution and Winding Up) of this Agreement, no Member shall have the right to demand or receive the return of all or any portion of its Capital Contribution. No Member shall be personally liable for the return of any Capital Contribution of any other Member. Under circumstances requiring a return of any Capital Contribution, no Member shall have the right to receive property other than cash, except as may be specifically provided herein.
ARTICLE V — GOVERNANCE; GOVERNING BOARD
Section 5.1 — Governing Board
The Company shall be governed by a Governing Board consisting of five (5) members (each, a "Board Member" and collectively, the "Board Members"). The Board Members shall be appointed by the Members as follows:
(a) CSIA shall have the right to appoint three (3) Board Members.
(b) Pinnacle shall have the right to appoint two (2) Board Members.
The Governing Board shall have the authority to oversee and direct the management and affairs of the Company, subject to the provisions of this Agreement. All powers of the Company not expressly delegated to the Manager under Article VI or reserved to the Members under this Agreement shall be vested in the Governing Board. The Governing Board shall have the power to establish policies and procedures for the governance and operation of the Company, to approve or reject Major Decisions, and to exercise general supervisory authority over the Manager.
Section 5.2 — Initial Board Members
The initial Board Members of the Company, as of the Effective Date, are set forth on Exhibit B attached hereto and are as follows:
CSIA-Appointed Board Members:
(a) Margaret Ellsworth, Executive Director of CSIA
(b) David Tanaka, General Counsel of CSIA
(c) Patricia Huang, Deputy Director, Capital Projects of CSIA
Pinnacle-Appointed Board Members:
(a) Richard Prumvane, CEO and Managing Member of Pinnacle
(b) Cynthia Voss, COO of Pinnacle
Each initial Board Member shall serve until removed or replaced by the appointing Member in accordance with Section 5.5.
Section 5.3 — Meetings; Quorum; Voting
(a) Regular Meetings. The Governing Board shall hold regular meetings at least quarterly, at such times and places as may be determined by the Board. The Board shall adopt a schedule of regular quarterly meetings at its first organizational meeting and may amend such schedule from time to time by majority vote.
(b) Special Meetings. Special meetings of the Governing Board may be called at any time by any two (2) Board Members upon not less than five (5) Business Days' prior written notice to all Board Members, specifying the purpose and agenda for the special meeting. Notice of special meetings may be waived in writing by any Board Member either before or after the meeting.
(c) Quorum. Four (4) of five (5) Board Members, present in person or participating by teleconference or video conference, shall constitute a quorum for the transaction of business at any meeting of the Governing Board. No business may be transacted at any meeting at which a quorum is not present; provided, however, that a meeting at which a quorum is not present may be adjourned to a later date upon the affirmative vote of a majority of the Board Members present.
(d) Voting on Ordinary Decisions. Except as otherwise expressly provided in this Agreement with respect to Major Decisions requiring a Supermajority Vote, all actions and decisions of the Governing Board shall be taken by the affirmative vote of a majority of the Board Members present at a duly convened meeting at which a quorum is present. Each Board Member shall have one (1) vote on all matters submitted to the Governing Board.
(e) Actions by Written Consent. Any action that may be taken at a meeting of the Governing Board may be taken without a meeting if a written consent setting forth the action to be taken is executed by all five (5) Board Members. Such written consent shall have the same force and effect as a unanimous vote at a duly convened meeting. For the avoidance of doubt, actions by written consent in lieu of a meeting require the unanimous consent of all Board Members, notwithstanding the lower voting thresholds applicable to actions taken at a duly convened meeting.
(f) Participation by Electronic Means. Board Members may participate in any meeting of the Governing Board by means of teleconference, video conference, or other electronic communication technology that permits all participants to hear and communicate with each other simultaneously. Participation by such means shall constitute presence in person at the meeting.
Section 5.4 — Major Decisions; Supermajority Vote
Notwithstanding any other provision of this Agreement, the following actions shall require a Supermajority Vote of at least four (4) of five (5) Board Members (each, a "Major Decision"):
(a) Commencement of construction of the Facility, including the authorization to issue a notice to proceed to the general contractor or construction manager;
(b) Incurrence by the Company of any indebtedness in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate, including the Project Finance Facility;
(c) Admission of new Members to the Company;
(d) Dissolution of the Company, except as otherwise provided in Section 8.2(d);
(e) Sale, transfer, assignment, or other disposition of all or substantially all of the assets of the Company;
(f) Approval of the Annual Budget, including any material amendments thereto;
(g) Amendment, modification, or restatement of this Agreement;
(h) Filing of a voluntary petition for bankruptcy, reorganization, or similar relief under any bankruptcy or insolvency law, or consent to the filing of an involuntary petition against the Company;
(i) Entry into any contract, agreement, or transaction with any Affiliate of any Member, including any amendment, modification, or termination thereof;
(j) Capital Calls in excess of the Total Equity Commitment;
(k) Exercise of renewal options under Section 2.5(b) to extend the Term of the Company.
The Manager shall not take or authorize any Major Decision without first obtaining a Supermajority Vote of the Governing Board. Any Major Decision taken without the requisite Supermajority Vote shall be void and of no effect.
Section 5.5 — Removal and Replacement of Board Members
(a) Each Member shall have the right, at any time and in its sole discretion, to remove any or all of its appointed Board Members by delivering written notice of such removal to the other Member and to the Company. Such removal shall be effective immediately upon delivery of the notice.
(b) Each Member shall have the right, at any time, to appoint replacement Board Members to fill any vacancy among its appointed Board Members, whether arising from removal, resignation, death, disability, or any other cause.
(c) If a Board Member ceases to be an officer, director, employee, or authorized representative of the Member that appointed such Board Member, such appointing Member shall promptly (and in any event within thirty (30) days) appoint a replacement Board Member by written notice to the other Member and the Company.
Section 5.6 — Compensation of Board Members
Board Members shall not receive compensation from the Company for their service on the Governing Board. Board Members shall be entitled to reimbursement by the Company for reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Governing Board and the performance of their duties as Board Members, including travel, lodging, and meal expenses, upon submission of appropriate documentation.
Section 5.7 — Committees
The Governing Board may, by majority vote, establish one or more committees of the Board and delegate to such committees such authority and responsibilities as the Board deems appropriate; provided, however, that no committee shall have the authority to act on any Major Decision, which authority shall be retained exclusively by the full Governing Board. Each committee shall consist of at least two (2) Board Members, including at least one (1) Board Member appointed by each Member. The Board may dissolve any committee or modify the authority or composition of any committee at any time.
ARTICLE VI — MANAGEMENT
Section 6.1 — Designation of Manager
Pinnacle Water Solutions, LLC is hereby designated as the Manager of the Company. The Manager shall manage the day-to-day operations and affairs of the Company, subject at all times to the oversight and authority of the Governing Board and the limitations set forth in this Agreement. The designation of Pinnacle as Manager reflects the Members' recognition of Pinnacle's expertise and experience in water treatment facility design, construction, and operations, and Pinnacle's commitment to devote the resources, personnel, and expertise necessary to successfully develop and operate the Facility.
Section 6.2 — Powers and Duties of the Manager
The Manager shall have the following powers and duties:
(a) Design, Engineering, and Construction. The Manager shall direct the design, engineering, procurement, construction, and commissioning of the Facility, including the selection and engagement (subject to Governing Board approval where required) of architects, engineers, contractors, subcontractors, equipment vendors, and other service providers necessary for the successful completion of the Facility.
(b) Permitting. The Manager shall oversee and manage the permitting process for the Facility on behalf of the Company, as set forth in Section 4.3, including the preparation and filing of all permit applications, environmental assessments, and related submissions with applicable governmental authorities.
(c) Contractors and Vendors. The Manager shall engage, supervise, and manage all contractors, consultants, and vendors retained by the Company in connection with the development, construction, and operation of the Facility. The Manager shall implement appropriate procurement procedures and quality assurance and quality control protocols.
(d) Annual Budgets. The Manager shall prepare and submit proposed Annual Budgets to the Governing Board for approval by Supermajority Vote in accordance with Section 5.4(f). The proposed Annual Budget shall be submitted to the Governing Board no later than sixty (60) days prior to the commencement of each Fiscal Year.
(e) Books and Records. The Manager shall maintain complete and accurate books and records of the Company in accordance with generally accepted accounting principles ("GAAP") consistently applied, as further provided in Section 11.5.
(f) Reporting. The Manager shall prepare and deliver periodic reports to the Governing Board, including quarterly financial and operational reports, in accordance with Section 11.6.
(g) Implementation of Board Decisions. The Manager shall promptly and faithfully implement all decisions and directives of the Governing Board.
(h) Contracts and Agreements. The Manager shall have the authority to execute contracts and agreements on behalf of the Company within the scope of approved budgets and authorizations granted by the Governing Board; provided, however, that the Manager shall not enter into any contract or agreement that constitutes a Major Decision without first obtaining a Supermajority Vote of the Governing Board.
(i) Operations and Maintenance. Following the Commercial Operation Date, the Manager shall manage the ongoing operations and maintenance of the Facility, including compliance with all applicable regulatory requirements, water quality standards, and environmental laws.
(j) Other Duties. The Manager shall perform such other duties as may be reasonably assigned to it by the Governing Board from time to time.
Notwithstanding the foregoing, the Manager shall not take or authorize any action that constitutes a Major Decision under Section 5.4 without first obtaining the requisite Supermajority Vote of the Governing Board.
Section 6.3 — Management Fee
(a) In consideration for its services as Manager, the Company shall pay the Manager a management fee (the "Management Fee") equal to three percent (3%) of the total construction costs of the Facility. Based on the Total Project Cost of Forty-Five Million Dollars ($45,000,000), the Management Fee shall be One Million Three Hundred Fifty Thousand Dollars ($1,350,000).
(b) The Management Fee shall be payable in installments as construction milestones are achieved, in accordance with the payment schedule set forth on Schedule 6.3 attached hereto. The specific construction milestones and corresponding installment amounts shall be determined and approved by the Governing Board prior to the commencement of construction.
(c) No portion of the Management Fee shall be earned or payable prior to the commencement of construction of the Facility. For the avoidance of doubt, the Management Fee is compensation for the Manager's services in managing the construction of the Facility and is in addition to any distributions to which Pinnacle may be entitled under Article VII in its capacity as a Member.
(d) In the event the actual total construction costs of the Facility differ from the estimated Project Cost, the Management Fee shall be adjusted proportionately, subject to approval by the Governing Board.
Section 6.4 — Removal of Manager
(a) The Manager may be removed for Cause by Supermajority Vote of the Governing Board. Upon such removal, the Governing Board shall promptly appoint a replacement Manager to manage the day-to-day operations and affairs of the Company.
(b) For purposes of this Section 6.4, "Cause" means any of the following: (i) a material breach by the Manager of this Agreement or of the Manager's duties and obligations under this Agreement, which breach remains uncured for thirty (30) days after written notice thereof from the Governing Board; (ii) fraud, embezzlement, or misappropriation of Company funds or property by the Manager or its officers, directors, or employees; (iii) willful misconduct by the Manager in the performance of its duties hereunder; (iv) gross negligence by the Manager in the performance of its duties hereunder; or (v) the conviction (or plea of guilty or no contest) of the Manager or any of its principals of a felony or any crime involving moral turpitude.
(c) The removal of Pinnacle as Manager shall not affect Pinnacle's rights and obligations as a Member of the Company, including Pinnacle's Percentage Interest, Capital Account, and rights to allocations and distributions under Article VII.
Section 6.5 — Officers
The Manager may appoint officers of the Company as reasonably necessary for the conduct of the Company's business, including a project director, chief financial officer, and secretary. Such officers shall serve at the pleasure of the Manager and shall have such powers and duties as the Manager may delegate to them, subject to the oversight and authority of the Governing Board. The salaries and compensation of all officers shall be included in the Annual Budget and shall be subject to approval by the Governing Board.
Section 6.6 — Standard of Care; Exculpation
(a) The Manager shall perform its duties in good faith, with the care that an ordinarily prudent person in a similar position would exercise under similar circumstances, and in a manner it reasonably believes to be in the best interests of the Company.
(b) The Manager shall not be liable to the Company or to any Member for any act or omission performed or omitted by the Manager in the performance of its duties under this Agreement, except where such act or omission constitutes fraud, willful misconduct, or gross negligence. The Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Manager and its officers, directors, employees, and agents from and against any and all claims, demands, liabilities, costs, damages, losses, and expenses (including reasonable attorneys' fees) arising out of or related to the Manager's performance of its duties under this Agreement, except to the extent resulting from the Manager's fraud, willful misconduct, or gross negligence.
ARTICLE VII — ALLOCATIONS AND DISTRIBUTIONS
Section 7.1 — Allocation of Profits and Losses
(a) Except as otherwise provided in this Article VII, the net profits and net losses of the Company for each Fiscal Year (or portion thereof) shall be allocated among the Members in proportion to their respective Percentage Interests. Accordingly, as of the Effective Date, fifty-five percent (55%) of net profits and net losses shall be allocated to CSIA and forty-five percent (45%) of net profits and net losses shall be allocated to Pinnacle.
(b) The allocations set forth in Section 7.1(a) are subject to the following special allocation rules, which shall be applied in the order set forth below to the extent required by Section 704(b) of the Code and the Treasury Regulations promulgated thereunder:
(i) Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation §§ 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by such Treasury Regulations, the adjusted capital account deficit of such Member as quickly as possible.
(ii) Minimum Gain Chargeback. If there is a net decrease in Company minimum gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company minimum gain, determined in accordance with Treasury Regulation § 1.704-2(g).
(iii) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a net decrease in Member nonrecourse debt minimum gain attributable to a Member nonrecourse debt during any Fiscal Year, each Member who has a share of the Member nonrecourse debt minimum gain attributable to such Member nonrecourse debt shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Member nonrecourse debt minimum gain, determined in accordance with Treasury Regulation § 1.704-2(i)(4).
(iv) Nonrecourse Deductions. Nonrecourse deductions for any Fiscal Year shall be allocated among the Members in proportion to their respective Percentage Interests.
(v) Member Nonrecourse Deductions. Any Member nonrecourse deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member nonrecourse debt to which such Member nonrecourse deductions are attributable, in accordance with Treasury Regulation § 1.704-2(i)(1).
(c) The foregoing special allocations are intended to comply with certain requirements of Treasury Regulation §§ 1.704-1(b) and 1.704-2. The Members agree that the allocations set forth in this Article VII, taken as a whole, are intended to have substantial economic effect within the meaning of Treasury Regulation § 1.704-1(b)(2) and shall be interpreted consistently therewith.
Section 7.2 — Tax Allocations
(a) Except as otherwise provided in this Section 7.2, for federal, state, and local income tax purposes, each item of income, gain, loss, deduction, and credit shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss, deduction, or credit is allocated pursuant to Section 7.1.
(b) In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and the fair market value of such property at the time of contribution. The Company shall use the "traditional method" described in Treasury Regulation § 1.704-3(b) for making allocations under Section 704(c) of the Code, unless the Governing Board determines otherwise by Supermajority Vote.
(c) CSIA shall serve as the "partnership representative" (as defined in Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015) and shall exercise all rights and responsibilities of the partnership representative under the centralized partnership audit rules of Subchapter C of Chapter 63 of the Code. CSIA, in its capacity as partnership representative, shall consult with Pinnacle and keep Pinnacle reasonably informed of all material actions taken or proposed to be taken in connection with any audit, examination, or administrative proceeding relating to the Company.
Section 7.3 — Distributions
(a) Subject to the provisions of this Agreement and applicable law, the Governing Board shall determine, in its discretion, the amount and timing of distributions to the Members. Distributions shall be made only to the extent of available cash of the Company, after setting aside reasonable reserves for operations, debt service (including all amounts due under the Project Finance Facility), capital expenditures, contingencies, and other obligations of the Company.
(b) All distributions shall be made to the Members in proportion to their respective Percentage Interests; provided, however, that distributions to a Defaulting Member shall be subject to the adjustments and offsets set forth in Section 8.2.
(c) No distribution shall be made if, after giving effect thereto, the Company would be unable to pay its debts as they become due in the ordinary course of business or the Company's total assets would be less than the sum of its total liabilities (including contingent, conditional, or matured obligations).
Section 7.4 — Tax Distributions
Notwithstanding Section 7.3, the Governing Board shall cause the Company to make quarterly tax distributions to each Member in an amount not less than such Member's estimated federal, state, and local income tax liability attributable to such Member's allocable share of the Company's taxable income for the applicable quarter, calculated at the highest combined marginal rate applicable to individuals or entities, as applicable, resident in the State of Washington (or, in the case of Pinnacle, the State of Oregon). Such tax distributions shall be treated as advances against, and shall reduce, subsequent distributions to which such Member would otherwise be entitled under Section 7.3. Tax distributions shall be made within fifteen (15) days following the end of each fiscal quarter.
Section 7.5 — Withholding
The Company is authorized to withhold from distributions to any Member, and to pay to any federal, state, or local governmental authority, any amounts required to be withheld pursuant to any applicable tax law. Any amounts so withheld shall be treated as distributions to such Member for all purposes of this Agreement. If the Company is required to withhold or pay any amount with respect to the tax liability of a Member and the Company does not then have a sufficient amount available for distribution to such Member to satisfy such withholding obligation, the amount so withheld or paid shall constitute a loan from the Company to such Member, which loan shall be repayable upon demand and shall bear interest at the rate applicable under Section 8.3.
ARTICLE VIII — DEFAULT; REMEDIES
Section 8.1 — Events of Default
The occurrence of any of the following events or circumstances shall constitute a "Default" under this Agreement:
(a) Failure to Fund Capital Contributions. The failure of a Member to fund any Capital Contribution within thirty (30) calendar days after delivery of written notice of a Capital Call in accordance with Section 4.2;
(b) Material Breach. A material breach by a Member of any representation, warranty, covenant, or obligation under this Agreement, which breach is not cured within the applicable Cure Period following delivery of a Default Notice;
(c) Bankruptcy. The filing by a Member of a voluntary petition for bankruptcy, reorganization, or similar relief under Title 11 of the United States Code or any comparable federal or state law, or the entry of an orde