Contract analysis

I. Executive Summary This memorandum analyzes whether the distribution by the Legacy Offshore Vehicles (as defined in Section II.B below) of their respective limited partnership interests in Solara Consolidated Master Fund LP ("Consolidated Master Fund" or "Master Fund") to their existing limited partners in Step 5 of the proposed cross-border fund-platform reorganization (target effective date: December 1, 2025) tri

II. Statement of Facts A. Overview of the Reorganization Solara Digital Infrastructure LP ("Solara" or the "Sponsor") is a Delaware limited partnership that serves as the sponsor and investment manager of a family of private equity funds focused on digital infrastructure and enterprise software-as-a-service ("SaaS") investments. As of March 31, 2025, Solara manages approximately $14.7 billion in assets under manageme

1. Solara Digital Partners Fund IV-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership formed under the Cayman Islands Exempted Limited Partnership Act (as revised). The fund has a total fund size of $1.85 billion in committed capital. The general partner is Solara Offshore GP Ltd., a Cayman Islands exempted company. The registered office is Harborstone Corporate Services Ltd., P.O. Box 2714,

2. Solara Digital Partners Fund IV-B (Luxembourg) SCSp. This entity is a Luxembourg société en commandite spéciale (special limited partnership) formed under the Luxembourg Law of 10 August 1915, as amended, and the Luxembourg Law of 12 July 2013. The fund has a total fund size of €1.15 billion (approximately $1.24 billion at a 1.08 EUR/USD exchange rate). The general partner is Solara Luxembourg Management S.à r.l.

3. Solara Digital Partners Fund V-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership with a total fund size of $2.45 billion in committed capital. It holds CIMA registration number MF-89103 and has been assigned EIN 98-7891234 for U.S. federal income tax purposes. Fund V-A (Cayman) is classified as a partnership for U.S. federal income tax purposes. The general partner is Solara Offshore GP L

4. Solara Digital Partners Fund V-B (Luxembourg) SCSp. This entity is a Luxembourg SCSp with a total fund size of €1.38 billion (approximately $1.49 billion at a 1.08 EUR/USD exchange rate). It is registered with the Luxembourg Registre de Commerce et des Sociétés under RCS B 271056 and has been assigned EIN 98-7891267 for U.S. federal income tax purposes. Fund V-B (Luxembourg) SCSp is classified as a partnership for

1. Solara Consolidated Master Fund LP. This entity will be a Delaware limited partnership formed under the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17-101 et seq.). Formation is targeted for September 15, 2025. Solara intends to file a Form 8832 (Entity Classification Election) under Treas. Reg. § 301.7701-3 to elect partnership classification for U.S. federal income tax purposes. The Consolidate

2. Solara Consolidated Master Fund GP LLC. This entity will be a Delaware limited liability company formed to serve as the sole general partner of the Consolidated Master Fund LP. It will be wholly owned by Solara Digital Infrastructure LP (or its designated affiliate) and will be classified as a disregarded entity for U.S. federal income tax purposes.

3. Solara International Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for non-U.S. investors in the master-feeder structure. Solara intends to file a Form 8832 to elect partnership classification for U.S. federal income tax purposes. The International Feeder will invest as a limited partner in the Consolidated Master Fund LP.

4. Solara Tax-Exempt Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for U.S. tax-exempt investors (including public pension funds, university endowments, and charitable foundations) in order to mitigate concerns regarding UBTI from debt-financed income and trade or business activities. Solara intends to file a Form 8832 to elect partnership

1. Nordhaven Sovereign Wealth Fund. The Nordhaven SWF is a non-U.S. sovereign wealth fund established under the laws of the Kingdom of Nordhaven. The Nordhaven SWF has committed capital of $380 million in Fund IV-A (Cayman) and $500 million in Fund V-A (Cayman), for an aggregate commitment of $880 million across the fund platform. The primary contact for the Nordhaven SWF is Anders Bjørkman, Head of Alternative Inves

2. Kestrel Pacific Insurance Group. Kestrel Pacific is a non-U.S. insurance company domiciled in Singapore. Kestrel Pacific has committed capital of €200 million in Fund IV-B (Luxembourg) SCSp and €275 million in Fund V-B (Luxembourg) SCSp, for an aggregate commitment of €475 million (approximately $513 million at 1.08 EUR/USD). The primary contact for Kestrel Pacific is Christine Leung, Senior Portfolio Manager. Fol

3. Pinnacle State Employees' Retirement System. Pinnacle SERS is a U.S. public pension fund. Pinnacle SERS has committed capital of $275 million in Fund IV and $340 million in Fund V, for an aggregate commitment of $615 million. To the extent Pinnacle SERS invested through the offshore parallel vehicles, it will receive Consolidated Master Fund LP interests in Step 5 and subsequently contribute those interests to the

4. Grandview University Endowment. The Grandview Endowment is a U.S. tax-exempt endowment organized under the laws of the Commonwealth of Massachusetts. The Grandview Endowment has committed capital of $120 million in Fund IV and $185 million in Fund V, for an aggregate commitment of $305 million. To the extent the Grandview Endowment invested through the offshore parallel vehicles, it will receive Consolidated Maste

1. NovaBright Data Systems Inc. NovaBright is a Delaware corporation that operates a portfolio of hyperscale data center facilities across the United States and Western Europe. NovaBright's current fair market value is approximately $890 million, with an adjusted tax basis of $520 million and built-in gain of $370 million. NovaBright is held 60% by Fund IV-A (Cayman) and 40% by Solara Digital Partners Fund IV LP (the

2. Crestline Cloud Solutions LLC. Crestline is a Delaware limited liability company classified as a disregarded entity for U.S. federal income tax purposes. Crestline operates a SaaS platform providing cloud-based infrastructure management solutions to enterprise customers. Crestline's current fair market value is approximately €340 million ($367 million at 1.08 EUR/USD), with an adjusted tax basis of €195 million ($

3. Veridian Edge Computing Corp. Veridian is a Delaware corporation that designs, deploys, and operates edge computing infrastructure for telecommunications providers and cloud service platforms. Veridian's current fair market value is approximately $1.12 billion, with an adjusted tax basis of $780 million and built-in gain of $340 million. Veridian is held 55% by Fund V-A (Cayman) and 45% by Solara Digital Partners

4. Thorngate Fiber Networks LP. Thorngate is a Delaware limited partnership that owns and operates fiber-optic network infrastructure in the mid-Atlantic and southeastern United States. Thorngate's current fair market value is approximately $670 million, with an adjusted tax basis of $490 million and built-in gain of $180 million. Thorngate is held 100% by Fund IV-A (Cayman). Thorngate is a private limited partnershi

5. Helix SaaS Holdings Ltd. Helix is a Cayman Islands exempted company that serves as a holding company for a portfolio of enterprise SaaS businesses. Helix's current fair market value is approximately $445 million, with an adjusted tax basis of $310 million and built-in gain of $135 million. Helix is held 100% by Fund V-A (Cayman). Helix is a private exempted company; its shares are not listed or traded on any secur

III. Issue Presented Whether the limited partnership interests in Solara Consolidated Master Fund LP that will be distributed by the Legacy Offshore Vehicles to their respective limited partners in Step 5 of the proposed Reorganization constitute "marketable securities" within the meaning of IRC § 731(c)(2), such that the fair market value of such interests would be treated as "money" under § 731(c)(1) for purposes o

IV. Short Answer No. The limited partnership interests in the Consolidated Master Fund LP do not constitute "marketable securities" under any prong of IRC § 731(c)(2). The interests are privately issued, non-transferable limited partnership interests in a closed-end private equity master fund vehicle. They are subject to extensive transfer restrictions under the draft limited partnership agreement, including a requir

V. Applicable Law A. IRC § 731(a) — General Rule on Partnership Distributions

Section 731(a) sets forth the general rule governing the tax treatment of distributions from a partnership to a partner. Under § 731(a)(1), gain is recognized to a partner on a distribution from a partnership only to the extent that any money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. This nonrecognition rule reflects the fundamental princi

Section 731(a)(2) provides the corresponding loss rule: no loss is recognized to a partner on a distribution from a partnership other than in complete liquidation of the partner's interest, and even then, loss is recognized only if the partner receives money, unrealized receivables (as defined in § 751(c)), and inventory items (as defined in § 751(d)), and no other property. Absent the application of § 731(c) — which

Section 731(c) was enacted by the Taxpayer Relief Act of 1997 (P.L. 105-34, § 1062(a)), effective for distributions made after the date of enactment (August 5, 1997). Section 731(c)(1)(A) provides, in relevant part: "For purposes of subsections (a)(1) and (b), and for purposes of section 737— (A) the term 'money' includes the fair market value of any marketable security, and (B) such value shall be determined as of t

Section 731(c)(2) provides a multi-part definition of "marketable securities." Each subparagraph of § 731(c)(2) is analyzed in turn:

Section 731(c)(2)(A): Actively Traded Financial Instruments. Under § 731(c)(2)(A), the term "marketable securities" means "financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (as defined in section 1092(d)(1))." This subparagraph cross-references the definition of "actively traded" in § 1092(d)(1), which is discussed in Section V.F below. The term "financial ins

Section 731(c)(2)(B): Instruments Readily Convertible into Money or Marketable Securities. Under § 731(c)(2)(B), the term "marketable securities" also includes "any financial instrument which, pursuant to its terms or any other arrangement, is readily convertible into, or exchangeable for, money or marketable securities." This subparagraph extends the definition to instruments that, while not themselves actively trad

Section 731(c)(2)(C): Interests in Certain Entities. Under § 731(c)(2)(C), the term "financial instrument" (and therefore "marketable securities," when actively traded) includes "any interest in—(i) a common trust fund, (ii) a mutual fund, (iii) a money market fund, (iv) any other pooled investment vehicle," and "any interest in an entity if, as of the date of the distribution, the entity is described in section 1092

Section 731(c)(2)(D): Interests in Entities. Under § 731(c)(2)(D), the interest described in subparagraph (C) includes "any interest in the entity which is described in such subparagraph, and any financial instrument issued by or interest in such entity." This subparagraph makes clear that the focus is on the tradability of the entity's interests; if the entity's interests are readily tradable, then both the interest

Section 731(c)(3) provides several exceptions to the general rule of § 731(c)(1):

Section 731(c)(3)(A): Investment Partnership Exception. Under § 731(c)(3)(A), § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." This exception recognizes that investment partnerships — entities whose business consists of investing in financial instruments — routinely distribute marketable securities to their partners, and that the application

Section 731(c)(3)(C)(i) defines an "investment partnership" as a partnership that (I) has never been engaged in a trade or business, and (II) substantially all of the assets of which (by value) have always consisted of money, stock in a corporation, notes, bonds, debentures, or other evidences of indebtedness, interest rate, currency, or equity notional principal contracts, foreign currencies, interests in or derivat

Section 731(c)(3)(C)(ii) defines an "eligible partner" as a partner who, before the date of the distribution, did not contribute to the partnership any property other than the types of assets described in § 731(c)(3)(C)(i). Of critical importance to the present analysis, the definition of "investment partnership" is narrow and limited to entities whose assets have always consisted of passive investment assets. Partne

Section 731(c)(3)(B): Securities Contributed by the Distributee Partner. Under § 731(c)(3)(B), § 731(c) does not apply to the distribution to a partner of marketable securities to the extent that such partner contributed marketable securities to the partnership. The rationale for this exception is that a partner who contributed marketable securities to the partnership and receives marketable securities in return is i

Section 731(c)(3)(A)(iii): Anti-Avoidance Rule. Under § 731(c)(3)(A)(iii), the investment partnership exception does not apply if the distribution is part of a larger transaction the principal purpose of which is the avoidance of the purposes of § 731(c). This anti-avoidance rule ensures that taxpayers cannot deliberately structure transactions to qualify for the investment partnership exception when the underlying t

Section 1092(d)(1) provides the definition of "actively traded" that is incorporated by reference into § 731(c)(2)(A). Under § 1092(d)(1), the term "actively traded" applies to personal property (as defined in § 1092(d)(2)) that is "traded on (or subject to the rules of)—(A) a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, (B) a board of trade designated as a

VI. Analysis A. The Consolidated Master Fund LP Interests Are Not "Actively Traded" Under § 731(c)(2)(A) and § 1092(d)(1) The threshold inquiry under § 731(c)(2)(A) is whether the Consolidated Master Fund LP interests are "actively traded" within the meaning of § 1092(d)(1). For the reasons set forth below, they are not. The Consolidated Master Fund LP will be a Delaware limited partnership classified as a partnershi

Section 731(c)(2)(C) extends the definition of "marketable securities" to include interests in entities that are "readily tradable on an established securities market, or readily tradable on a secondary market (or the substantial equivalent thereof)." The analysis under this subparagraph requires a determination of whether a secondary market — or the substantial equivalent thereof — exists for the Consolidated Master

Section 731(c)(2)(B) extends the definition of "marketable securities" to financial instruments that, "pursuant to [their] terms or any other arrangement," are "readily convertible into, or exchangeable for, money or marketable securities." This subparagraph targets instruments with embedded liquidity features — such as put rights, conversion rights, exchange rights, or mandatory repurchase obligations — that would a

1. Investment Partnership Exception — § 731(c)(3)(A). Section 731(c)(3)(A) provides that § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." The distributing entities in Step 5 are the four Legacy Offshore Vehicles: Fund IV-A (Cayman), Fund IV-B (Luxembourg) SCSp, Fund V-A (Cayman), and Fund V-B (Luxembourg) SCSp. The question is whether the Le