Contract analysis

I. Executive Summary This memorandum analyzes the risk of Investment Tax Credit ("ITC") recapture under Internal Revenue Code ("IRC" or "Code") § 50(a) for the seven utility-scale solar photovoltaic ("PV") projects comprising the Solstice Portfolio (420 MW(dc) aggregate capacity), developed by Calloway-Briggs Renewables Inc. ("CBR"). The analysis is prepared in connection with the anticipated closing of the tax-equit

II. Legal Framework: Section 50(a) Recapture Rules A. Statutory Overview IRC § 50(a)(1) provides the governing framework for recapture of investment tax credits, including the ITC under § 48. Under this provision, if during any taxable year investment credit property is disposed of, or otherwise ceases to be investment credit property with respect to the taxpayer, before the close of the "recapture period," a portion

III. Recapture Trigger Events This section identifies and analyzes the principal events that could trigger ITC recapture under § 50(a) in the context of the Solstice Portfolio's ownership and financing structure. A. Disposition of Energy Property A "disposition" under § 50(a) includes any sale, exchange, or other transfer of the solar energy property, whether voluntary or involuntary. The scope of the term "dispositi

IV. Recapture Analysis: Partnership-Flip Structure (Ridgeline) A. Allocation of Recapture Liability Under § 50(a) and Treasury Regulation § 1.47-6, the recapture of ITCs allocated to a partner in a partnership is the liability of that partner if the partnership disposes of the energy property or the property ceases to be investment credit property during the recapture period. The recapture liability follows the origi

V. Recapture Analysis: Section 6418 Transferred Credits (Pinehurst) A. Statutory Framework for Transferee Recapture IRA Section 6418, enacted as part of the Inflation Reduction Act of 2022, permits eligible taxpayers to transfer certain tax credits, including the ITC under § 48, to unrelated transferee taxpayers in exchange for cash consideration. The transfer is treated as a tax-free payment for both the transferor

Section 6418(g)(2) addresses the application of the recapture rules to transferred credits. Under this provision, in the case of transferred credits, the recapture rules of § 50(a) apply to the transferee taxpayer as if the transferee had originally claimed the credit. This means that if a recapture event occurs with respect to the underlying energy property during the five-year recapture period, the transferee — not

VI. Tax Indemnity Agreement Analysis A. Structure and Scope The Tax Indemnity Agreement, dated September 21, 2023, is an agreement by CBR in favor of Pinehurst pursuant to which CBR assumes responsibility for certain tax-related losses incurred by Pinehurst in connection with the transferred credits. The agreement covers two primary categories of risk: (i) ITC Recapture under § 50(a). If any recapture event occurs du

VII. Specific Recapture Risk Scenarios This section analyzes five specific scenarios that represent the most material recapture risks for the Solstice Portfolio. For each scenario, we describe the factual predicate, quantify the potential recapture exposure, identify the applicable mitigants, and assess the residual risk. A. Scenario 1: Single Project Casualty Loss (Illustrative) Hypothetical: Amistad Solar, LLC (45

VIII. Interaction with Depreciable Basis Under IRC § 50(c), the depreciable basis of investment credit property is reduced by 50% of the ITC claimed with respect to that property. For the Solstice Portfolio, this basis reduction is calculated as follows: Total Eligible Basis (EPC Cost): $384,600,000 Less: Basis Reduction (50% × $153,840,000 ITC): ($76,920,000) Depreciable Basis (5-Year MACRS): $307,680,000 The $307,6

IX. Structural Protections and Mitigants Summary A. Contractual Protections The transaction documents include a comprehensive set of contractual protections designed to minimize recapture risk and allocate recapture-related economic exposure to the appropriate parties:

1. LLCA Covenants. The Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC imposes affirmative and negative covenants on CBR Manager requiring it to: (a) maintain the energy property status o