Contract analysis

I. Executive Summary This memorandum has been prepared at the request of Calloway-Briggs Renewables Inc. ("CBR") to analyze the partnership tax allocations set forth in the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC (the "LLCA") for compliance with the substantial economic effect requirements of Section 704(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and t

II. Background and Transaction Overview A. The Solstice Portfolio The Solstice Portfolio comprises seven utility-scale solar photovoltaic ("PV") projects with an aggregate nameplate capacity of 420 megawatts direct current ("MW(dc)"), located across West Texas and New Mexico. Each of the seven projects is held by a separate Delaware limited liability company, each of which is a disregarded entity for federal income t

III. Legal Framework — Section 704(b) and the Substantial Economic Effect Doctrine A. General Rule Under Section 704(b)

Section 704(a) of the Code provides the general rule that a partner's distributive share of any item of income, gain, loss, deduction, or credit shall be determined by the partnership agreement. However, Section 704(b) imposes a critical limitation on this general rule: if the partnership agreement's allocation of any such item does not have "substantial economic effect," the item must instead be allocated in accorda

IV. Analysis of LLCA Allocation Provisions A. Capital Account Maintenance (Article V of LLCA)

Article V, Section 5.1 of the LLCA expressly requires that the Partnership maintain a separate capital account for each member in accordance with the rules set forth in Treasury Regulation Section 1.704-1(b)(2)(iv). The LLCA provides that each member's capital account shall be: (a) Credited with (i) the amount of cash contributed by such member to the Partnership, (ii) the fair market value (net of liabilities assume

Article XII, Section 12.3 of the LLCA provides that upon dissolution and winding up of the Partnership, after payment of all debts and liabilities owed to creditors (including any member in its capacity as a creditor), establishment of reasonable reserves for contingent or unforeseen liabilities, and payment of any liquidation expenses, the remaining assets of the Partnership shall be distributed to the members in ac

Article V, Section 5.8 of the LLCA includes a minimum gain chargeback provision that tracks the mandatory requirements of Treasury Regulation Section 1.704-2(f). This provision provides that, notwithstanding any other provision of the LLCA to the contrary, if there is a net decrease in partnership minimum gain during any taxable year, each member who would otherwise be allocated a share of such net decrease must be a

Article V, Section 5.10 of the LLCA addresses the allocation of nonrecourse deductions and partner nonrecourse deductions: Nonrecourse Deductions. Nonrecourse deductions, as determined under Treasury Regulation Section 1.704-2(b)(1), are allocated among the members in accordance with their respective percentage interests during the applicable allocation period — 99% to Ridgeline and 1% to CBR Manager during the Pre-F

V. Analysis of the Pre-Flip / Post-Flip Allocation Shift A. Pre-Flip Allocations (Projected Years 1–5) During the Pre-Flip Period, which is projected to span from the closing on December 8, 2023 through the Flip Date in Q4 2028 (approximately five years), the LLCA allocates tax items and cash distributions as follows: Tax Items: 99% to Ridgeline / 1% to CBR Manager Cash Distributions: 30% to Ridgeline / 70% to CBR Ma

VI. Rev. Proc. 2007-65 Safe Harbor Compliance A. Overview of Safe Harbor Revenue Procedure 2007-65, 2007-2 C.B. 967, provides a safe harbor under which the Internal Revenue Service will not challenge: (i) the status of a wind energy project as a partnership for federal income tax purposes; (ii) the allocation of partnership items; or (iii) the treatment of the members as partners (rather than as, e.g., lender-borrowe

Article XIV, Section 14.2 of the LLCA grants CBR Manager a call option to purchase Ridgeline's residual 5% post-flip interest, exercisable within a 180-day window following the Flip Date. The purchase price is the fair market value of Ridgeline's interest at the time of exercise, subject to a floor of $1.00. The LLCA does not include any fixed-price component, cap, or other mechanism that could reduce the purchase pr

VII. MACRS Depreciation Allocation Analysis A. Depreciable Basis Computation The determination of the depreciable basis for the Solstice Portfolio requires careful application of the basis reduction rules applicable to property for which an investment tax credit is claimed. Under Section 50(c)(1) of the Code, the basis of any property eligible for the energy credit under Section 48 is reduced by 50% of the amount of