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PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT WORK PRODUCT

CALDERWOOD & HARKNESS LLP 1221 Avenue of the Americas, 44th Floor New York, New York 10020

April 25, 2022

MEMORANDUM

FROM: Leonard Cross, Specialist Partner, Tax

TO: Jennifer Kwon, Responsible Partner, Capital Markets

CC: Brendan Walsh, Lead Associate; Natasha Forbes, Working Associate

RE: Calloway-Briggs Renewables Inc. — Proposed IPO — Tax-Equity Partnership-Flip Structure: Solaris West Solar LLC / Veltara Basin Financial LLC — Compliance Analysis

C&H MATTER NO.: 1015-00001

This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is not intended for distribution to, or reliance by, any third party without the prior written approval of Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP.

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I. Executive Summary

The purpose of this memorandum is to analyze the partnership-flip tax-equity structure governing the Solaris West solar photovoltaic project (the "Solaris West Project" or the "Project") for compliance with applicable Internal Revenue Service ("IRS") guidance, to assess Investment Tax Credit ("ITC") recapture risk in connection with the proposed initial public offering (the "IPO" or the "Proposed Offering") of common stock of Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), to evaluate the impact of the partnership-flip structure on disclosures to be included in the Company's Registration Statement on Form S-1 (the "S-1" or "Registration Statement"), and to identify any consent, notice, or other requirements arising under the Amended and Restated Operating Agreement of Solaris West Solar LLC (the "Partnership Agreement") with the tax-equity investor, Veltara Basin Financial LLC ("Veltara Basin" or the "Tax-Equity Investor").

Key Conclusions. Based on our review of the Partnership Agreement, the relevant provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder, Revenue Procedure 2007-65, and other applicable authorities, and upon consultation with Kessler McBride & Associates LLP, the Company's external tax advisors, we have reached the following principal conclusions:

1. No ITC Recapture Triggered by the IPO. The Proposed Offering does not constitute a "recapture event" or a disqualifying disposition that would trigger recapture of the Investment Tax Credit under Section 50(a) of the Code. This conclusion rests on the fact that the partnership-flip structure will remain intact at the project-entity level, with Solaris West Solar LLC (the "Project SPV" or the "Partnership") continuing to be held one hundred percent (100%) by Calloway-Briggs Operating Company LLC (through CBR Holdings LLC), and no change in ownership occurring at or below the level of the Partnership. The IPO involves the issuance and sale of common stock of CBR, the ultimate parent holding company, which is several corporate layers above the Partnership. Under Treasury Regulation § 1.47-6 and applicable authorities, a change in the stockholders of a corporation that owns (directly or indirectly) a partnership interest does not constitute a "disposition" of the partnership interest or the underlying Section 38 property for recapture purposes, provided the entity structure remains intact.

2. Revenue Procedure 2007-65 Safe-Harbor Compliance. The Solaris West partnership-flip structure complies with the safe-harbor requirements of Revenue Procedure 2007-65, 2007-2 C.B. 967, as extended by analogy and IRS guidance to solar energy projects. Each of the six principal requirements of the safe harbor — bona fide partnership, minimum unconditional investment, reasonably anticipated profit motive, absence of impermissible put or call options, minimum residual interest of the tax-equity investor post-flip, and substantial economic effect of allocations — is satisfied by the terms of the Partnership Agreement. Kessler McBride & Associates LLP concurs with this conclusion.

3. Expected Flip Date. The flip under the Solaris West partnership is expected to occur in 2028, at which point CBR (through its subsidiary chain) will acquire substantially all economic interest in the Solaris West Partnership, with Veltara Basin retaining a nominal five percent (5%) residual interest. After the flip, CBR will hold a call option to acquire Veltara Basin's residual interest at fair market value.

4. Consent and Notice Requirements. The IPO is likely to constitute a "Change of Control" under Section 8.04 of the Partnership Agreement, triggering notice and consent requirements with respect to Veltara Basin. Written consent from Veltara Basin is advisable and likely required before the IPO is consummated. A draft consent request letter has been prepared separately and is referenced as Document 114 in the C&H document index. Delivery of the consent request is recommended promptly following completion of the S-1 amendment process and before any public filing of the Registration Statement.

5. S-1 Disclosure. Appropriate risk factor disclosures, Description of Indebtedness disclosures, MD&A discussion, and financial statement note disclosures regarding the Solaris West tax-equity structure, the Hypothetical-Liquidation-at-Book-Value ("HLBV") accounting methodology, and ITC recapture risk should be included in the S-1. Coordination with Ashford & Pemberton LLP (the Company's independent registered public accounting firm, "A&P") and Kessler McBride & Associates LLP (external tax advisors, "Kessler McBride") is ongoing, and has been responsive to two rounds of comments from the staff of the Securities and Exchange Commission (the "SEC Staff").

This memorandum sets forth our detailed analysis supporting each of these conclusions. It should be read in conjunction with the related memoranda and work product documents listed in Section XII (Attachments / Cross-References) below.

II. Background

A. Calloway-Briggs Renewables Inc. — Overview

Calloway-Briggs Renewables Inc. is a Delaware C-corporation headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746 (Employer Identification Number 83-4027615). CBR was founded in 2014 by Garrett Calloway and Elaine Briggs and has grown to become a significant independent developer and operator of utility-scale solar photovoltaic, onshore wind, and battery energy storage systems across the southwestern United States and adjacent regions.

As of the date of this memorandum, CBR's operating portfolio comprises approximately 3.8 gigawatts ("GW") of renewable energy generating capacity across twenty-two (22) operating projects located in Texas, New Mexico, Arizona, California, and Oklahoma. An additional 1.4 GW of capacity is currently under construction across multiple sites, and the Company maintains an active development pipeline of approximately 6.2 GW of additional projects at various stages of development, permitting, and interconnection.

The Company's pre-IPO ownership structure is as follows: approximately sixty-two percent (62%) of CBR's outstanding equity is held by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), a growth-equity fund that led the Company's Series C and Series D financing rounds; approximately twenty-four percent (24%) is held by the co-founders and senior management; and the remaining approximately fourteen percent (14%) is held by earlier-stage investors and employees pursuant to equity incentive plans.

CBR's financial performance for its most recently completed fiscal year is summarized below:

The Proposed Offering contemplates an aggregate offering of approximately $600,000,000 of common stock on the New York Stock Exchange under the ticker symbol "CBRI." The assumed midpoint price per share is $22.00, with 100,000,000 shares of common stock outstanding on a pre-IPO basis. The offering will consist of a combination of primary shares issued by the Company and secondary shares sold by Pinnacle Vista (approximately 6,818,182 shares, representing approximately $150,000,000 at the assumed midpoint price), reducing Pinnacle Vista's ownership stake from approximately sixty-two percent (62%) to a lower, post-offering percentage.

B. Corporate and Subsidiary Structure Relevant to Tax-Equity Analysis

The ownership chain through which CBR holds the Solaris West Project is critical to the ITC recapture analysis presented in Section V below. The relevant corporate and subsidiary structure is as follows:

Calloway-Briggs Renewables Inc. (Delaware corporation; the IPO issuer)

↓ 100% ownership

CBR Holdings LLC (Delaware limited liability company)

↓ 100% ownership

Calloway-Briggs Operating Company LLC (Texas limited liability company)

↓ Membership interest in Solaris West Solar LLC (as managing member)

Solaris West Solar LLC (Texas limited liability company; the Project SPV)

The tax-equity partnership is structured at the Solaris West Solar LLC level. Solaris West Solar LLC is a Texas limited liability company that was formed for the purpose of owning and operating the Solaris West solar PV project. It has elected to be classified as a partnership for U.S. federal income tax purposes. Its two members are Calloway-Briggs Operating Company LLC (the "Sponsor Member" or the "Managing Member") and Veltara Basin Financial LLC (the "Tax-Equity Investor" or the "Investor Member").

It is important to note that the IPO involves the issuance and sale of common stock of Calloway-Briggs Renewables Inc. — the entity at the top of this ownership chain, which is four organizational levels above Solaris West Solar LLC. No membership interests in Solaris West Solar LLC, Calloway-Briggs Operating Company LLC, or CBR Holdings LLC are being sold, transferred, or otherwise affected by the IPO. This structural separation is central to our conclusion that the IPO does not trigger ITC recapture.

C. The Solaris West Project

The Solaris West solar photovoltaic project is summarized as follows:

The Project achieved commercial operation in the third quarter of 2020, more than one year before the anticipated filing of the S-1. As discussed in Section V below, the timing of the COD relative to the IPO timeline is significant because the five-year ITC recapture period under Section 50(a)(1) of the Code runs from the date the Solaris West Project was placed in service (Q3 2020) through Q3 2025. The Project has operated continuously since achieving COD and remains in full compliance with its power purchase agreement, interconnection agreement, and applicable permits.

D. The Tax-Equity Investment by Veltara Basin Financial LLC

Veltara Basin Financial LLC is a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. Veltara Basin is a dedicated tax-equity investment platform affiliated with a major financial institution and specializes in renewable energy tax-equity investments, including partnership-flip and sale-leaseback structures. The primary contact at Veltara Basin for purposes of this transaction is Karen Fujimoto, Partner, Tax Equity Investments.

Veltara Basin invested an aggregate of $280,000,000 in Solaris West Solar LLC in connection with the development and construction of the Solaris West Project. The investment was structured as a partnership-flip transaction, which is described in detail in Section III below. Veltara Basin holds a membership interest in Solaris West Solar LLC, and the allocation of tax benefits (including the Investment Tax Credit under Section 48 of the Code) flows predominantly to Veltara Basin during the pre-flip period.

The flip — the event at which the allocation of tax and economic items shifts from the Tax-Equity Investor to the Sponsor Member — is expected to occur in 2028 based on current projections of the Tax-Equity Investor's after-tax internal rate of return. At that time, CBR (through Calloway-Briggs Operating Company LLC) will acquire substantially all of the economic interest in the Solaris West Partnership, and Veltara Basin will retain only a nominal residual interest.

The Veltara Basin investment is a significant financing arrangement for the Solaris West Project and is the only tax-equity partnership-flip structure currently in CBR's operating portfolio, as discussed further in Section IX below.

III. Partnership-Flip Structure — Mechanics

A. Overview of Partnership-Flip Model

Partnership-flip transactions are the predominant tax-equity structure for utility-scale solar and wind energy projects in the United States. The structure has been widely utilized since the publication of Revenue Procedure 2007-65 in 2007 and has been recognized by the IRS, the renewable energy industry, tax practitioners, and the financial community as an efficient and well-understood mechanism for monetizing federal income tax credits (the ITC or the Production Tax Credit ("PTC")) and accelerated depreciation benefits (including five-year MACRS depreciation for qualifying renewable energy property) in favor of tax-equity investors that have sufficient federal income tax liability to absorb such benefits.

The basic mechanics of a partnership-flip transaction are as follows:

1. Formation of Project Partnership. A project partnership (here, Solaris West Solar LLC) is formed with two classes of members: (a) the "tax-equity investor" (here, Veltara Basin Financial LLC), which makes a substantial capital contribution in exchange for a membership interest carrying a disproportionately large share of the tax benefits; and (b) the "sponsor" or "managing member" (here, Calloway-Briggs Operating Company LLC), which typically contributes the project assets (or the development rights) and retains operational control.

2. Pre-Flip Period Allocations. During the pre-flip period, the tax-equity investor receives substantially all — typically ninety-nine percent (99%) — of the tax benefits generated by the project, including the ITC (or PTC, as applicable), depreciation deductions, and allocations of taxable income and loss. The tax-equity investor also receives a preferred return on its investment in the form of cash distributions, typically representing a significant majority (e.g., ninety percent (90%)) of distributable cash flow. The sponsor member receives a correspondingly small share of tax items (typically one percent (1%)) but retains one hundred percent (100%) of management authority and operational control over the project.

3. Flip Trigger. After the tax-equity investor achieves a target internal rate of return (the "Target IRR") — or, alternatively, upon the occurrence of a date-certain backstop — the allocation ratios "flip." The Target IRR is an after-tax return computed based on the value of the tax benefits received (ITC, depreciation, tax losses) and the cash distributions received by the tax-equity investor, less the tax-equity investor's capital contribution. The flip trigger thus ensures that the tax-equity investor receives its negotiated economic return before the allocation ratios shift.

4. Post-Flip Period Allocations. After the flip, the allocation ratios reverse: the sponsor member receives the vast majority (typically ninety-five percent (95%) to ninety-nine percent (99%)) of all tax and economic allocations, while the tax-equity investor retains only a nominal residual interest (typically five percent (5%) or less). This shift reflects the fact that, after the flip, the tax benefits have been largely exhausted (the ITC has been claimed, MACRS depreciation is substantially complete), and the remaining economic value of the project accrues to the sponsor.

5. Purchase Option. The sponsor member typically holds a call option (purchase option) to acquire the tax-equity investor's residual post-flip interest at fair market value, as determined by independent appraisal. This option provides a pathway for the sponsor to achieve one hundred percent (100%) ownership of the project partnership after the tax-equity investor has received its negotiated return.

The partnership-flip model is attractive to both parties: the tax-equity investor (typically a large financial institution, insurance company, or other entity with substantial taxable income) monetizes the tax credits and depreciation benefits at a premium to their face value, while the sponsor developer obtains a significant source of non-recourse project financing that does not require debt service and does not dilute the sponsor's management control or long-term economic ownership of the project.

B. Solaris West Solar LLC — Specific Terms

The specific terms of the partnership-flip structure in the Solaris West Solar LLC Partnership Agreement are summarized in the following table and discussed in the text below:

Pre-Flip Allocations. During the pre-flip period, Veltara Basin receives ninety-nine percent (99%) of all tax items, including the ITC, MACRS depreciation deductions, and allocations of taxable income and losses generated by the Solaris West Project. This allocation is designed to ensure that Veltara Basin captures the economic value of the tax benefits as part of its overall return on investment. On the economic side, Veltara Basin receives ninety percent (90%) of distributable cash flow generated by the Project until the Target IRR is achieved.

Calloway-Briggs Operating Company LLC, as the managing member, receives one percent (1%) of all tax items and ten percent (10%) of distributable cash flow during the pre-flip period. However, critically, the managing member retains one hundred percent (100%) of all management authority and operational control over the Project, including responsibility for compliance with the power purchase agreement, the interconnection agreement, all governmental permits and approvals, and the operations and maintenance arrangements.

Flip Trigger. The flip is triggered upon the earlier of: (i) the date on which Veltara Basin achieves its Target IRR, which is an after-tax internal rate of return computed based on the cumulative value of tax benefits received and cash distributions received, less Veltara Basin's capital contribution; and (ii) a date-certain backstop of December 31, 2030. Based on current financial modeling provided by Priya Anand, SVP Finance & Treasurer of CBR, the flip is projected to occur in 2028 under the base-case scenario.

Post-Flip Allocations. Following the flip, the allocation ratios shift dramatically: Calloway-Briggs Operating Company LLC receives ninety-five percent (95%) of all allocations (tax items and distributable cash flow), while Veltara Basin retains a five percent (5%) residual interest. This residual interest satisfies the minimum post-flip interest requirement of Revenue Procedure 2007-65, as discussed in Section IV below.

Purchase Option. Calloway-Briggs Operating Company LLC holds a call option exercisable at any time after the flip. The exercise price is fair market value as of the exercise date, determined by an independent appraisal conducted by a qualified, nationally recognized appraisal firm selected by the managing member and approved by Veltara Basin (such approval not to be unreasonably withheld). Veltara Basin does not hold a put option. The absence of a put option is significant for purposes of the Revenue Procedure 2007-65 safe-harbor analysis, as discussed below.

C. ITC Allocation

The Solaris West Project claimed the Investment Tax Credit under Section 48 of the Code at a rate of thirty percent (30%), which was the applicable ITC rate for solar energy property placed in service in 2020 under the pre-Inflation Reduction Act statutory framework. The total eligible basis for purposes of computing the ITC was determined in accordance with Section 48(a) and applicable Treasury Regulations.

The ITC was allocated ninety-nine percent (99%) to Veltara Basin Financial LLC and one percent (1%) to Calloway-Briggs Operating Company LLC in the tax year in which the Solaris West Project was placed in service (tax year 2020), consistent with the pre-flip allocation percentages specified in the Partnership Agreement.

Under Section 50(a)(1) of the Code, the ITC claimed by a taxpayer with respect to Section 38 property is subject to recapture if the property ceases to be investment credit property within a five-year recapture period. The recapture period for the Solaris West ITC commenced in Q3 2020 (the date the Project was placed in service) and expires in Q3 2025. The significance of this timeline in the context of the Proposed Offering is analyzed in detail in Section V below.

IV. Revenue Procedure 2007-65 Safe-Harbor Compliance Analysis

A. Overview of Rev. Proc. 2007-65

Revenue Procedure 2007-65, 2007-2 C.B. 967, was issued by the IRS on October 15, 2007, and provides a "safe harbor" under which the IRS will respect the allocation of federal income tax benefits — including the Production Tax Credit under Section 45 of the Code — in partnership-flip transactions involving wind energy facilities. Although Rev. Proc. 2007-65 was promulgated specifically in the context of wind energy projects, it has been widely applied by analogy to solar energy projects and other types of renewable energy facilities, and the IRS has subsequently confirmed, through informal guidance and audit practice, that the principles of the safe harbor are generally applicable to partnership-flip transactions involving solar energy property eligible for the ITC under Section 48. This extension has been recognized by the tax-equity investment community, major law firms, and external tax advisors, including Kessler McBride & Associates LLP, with whom we have coordinated this analysis.

The practical significance of satisfying the safe harbor is substantial: if the requirements of Rev. Proc. 2007-65 are met, the IRS will not challenge the validity of the partnership for federal income tax purposes, the allocation of tax credits to the tax-equity investor, or the characterization of the transaction as a genuine equity investment (as opposed to disguised debt or a sham partnership). Failure to satisfy the safe harbor does not necessarily mean that the partnership or the allocations would be disregarded, but it would expose the structure to a heightened risk of IRS challenge and potential recharacterization.

The key requirements of the safe harbor, each of which is analyzed below in the context of the Solaris West/Veltara Basin transaction, are as follows: (1) the arrangement must constitute a bona fide partnership; (2) the tax-equity investor must make a minimum unconditional equity investment; (3) the tax-equity investor must have a reasonably anticipated pre-tax profit; (4) the structure must not include impermissible put or call options; (5) the tax-equity investor must retain a minimum residual interest after the flip; and (6) the allocations must have substantial economic effect under Section 704(b) of the Code and the Treasury Regulations thereunder.

B. Requirement-by-Requirement Analysis

1. Bona Fide Partnership

The first requirement of the Rev. Proc. 2007-65 safe harbor is that the arrangement must constitute a bona fide partnership for federal income tax purposes. A bona fide partnership exists where two or more persons join together with the intent to carry on a business for profit, each contributing something of value (capital, services, or property) and each sharing in the profits and losses of the enterprise.

Solaris West Solar LLC was formed as a Texas limited liability company and has elected partnership tax treatment for U.S. federal income tax purposes by filing the appropriate Form 8832 (Entity Classification Election) with the IRS. The entity has two members: Calloway-Briggs Operating Company LLC, which contributed the developed project assets and serves as the managing member, and Veltara Basin Financial LLC, which contributed $280,000,000 in cash as a capital contribution. Each member has a genuine economic stake in the partnership: both share in the risk of loss (including the risk that the Project could underperform and reduce distributions below projected levels), and both have rights to distributions of cash flow generated by the Project. Veltara Basin's $280,000,000 investment is a genuine equity contribution, not disguised debt — it is not guaranteed, it is not entitled to a fixed return regardless of project performance, and it is subordinate to all creditor claims. The members have a genuine intent to carry on a business for profit through the ownership and operation of the Solaris West solar PV facility.

Conclusion: The bona fide partnership requirement of the safe harbor is satisfied.

2. Minimum Unconditional Investment by Tax-Equity Investor

The safe harbor requires that the tax-equity investor make a minimum unconditional equity contribution of at least twenty percent (20%) of the total partnership capital. This requirement is designed to ensure that the tax-equity investor has a genuine economic stake in the venture and has not merely made a nominal or contingent investment designed solely to access the tax benefits.

Veltara Basin's capital contribution of $280,000,000 represents a substantial portion of the total capital of Solaris West Solar LLC. Based on our review of the Partnership Agreement and the closing documents, the $280,000,000 contribution was fully funded at the closing of the tax-equity investment and was unconditional — it was not subject to any conditions subsequent, clawback provisions, or refund mechanisms that would reduce the effective investment below the minimum threshold. We have confirmed with Priya Anand that the contribution was received in full and is reflected in the capital accounts of the partnership.

Conclusion: The minimum unconditional investment requirement of the safe harbor is satisfied.

3. Reasonably Anticipated Profit Motive

The safe harbor requires that the tax-equity investor have a reasonably anticipated pre-tax profit from its investment, independent of the tax benefits. This requirement — which is grounded in the longstanding judicial doctrine that a partnership must be entered into with a profit motive (as distinguished from a transaction entered into solely for tax avoidance purposes) — ensures that the tax-equity investor's return is not solely dependent on the ITC, depreciation, and other tax attributes, but also includes a component of pre-tax economic return from the project's cash-generating activities.

We have reviewed the cash-flow projections for the Solaris West Project prepared by the Company's finance team (Priya Anand, SVP Finance & Treasurer) and provided to Calderwood & Harkness in the due diligence process. Based on these projections, Veltara Basin is projected to receive cumulative cash distributions over the life of its investment that exceed its $280,000,000 capital contribution, even without taking into account the value of the ITC or depreciation deductions. The pre-tax return is modest but positive, reflecting the contractual revenue stream generated by the Project's long-term power purchase agreement and the priority distribution waterfall in favor of Veltara Basin during the pre-flip period.

We note that the profit-motive analysis is inherently forward-looking and is based on reasonable projections as of the date the investment was made. Subsequent changes in electricity prices, project performance, or other factors could affect actual returns, but the safe harbor requires only a reasonable expectation of profit at the time of investment. The projections reviewed are consistent with industry-standard assumptions for utility-scale solar projects of comparable size and vintage.

Conclusion: The reasonably anticipated profit-motive requirement of the safe harbor is satisfied.

4. No Impermissible Put or Call Options

The safe harbor prohibits the tax-equity investor from holding a put option that would guarantee a minimum return on its investment or would enable the tax-equity investor to exit the partnership at a price above fair market value. Such a put option would be inconsistent with the genuine equity character of the investment and could result in recharacterization of the arrangement as disguised debt.

Veltara Basin does not hold a put option of any kind. It has no right to require Calloway-Briggs Operating Company LLC or any other party to repurchase its membership interest at any price, at any time, under any circumstances. This is confirmed by our review of the Partnership Agreement, which contains no put right or similar exit mechanism in favor of the Tax-Equity Investor.

Calloway-Briggs Operating Company LLC holds a call option (purchase option) exercisable at any time after the flip occurs. The call option entitles the managing member to acquire Veltara Basin's residual post-flip interest (which, after the flip, will represent a five percent (5%) interest in the partnership) at fair market value as of the exercise date, as determined by an independent appraisal conducted by a nationally recognized appraisal firm. This type of call option — exercisable only after the flip, at fair market value, and without any guarantee of a minimum price — is expressly permitted under Revenue Procedure 2007-65 and does not violate the safe harbor.

Conclusion: The put/call option requirement of the safe harbor is satisfied. Veltara Basin holds no put right, and the managing member's call option is a permissible post-flip fair-market-value call option.

5. Minimum Residual Interest of Tax-Equity Investor Post-Flip

The safe harbor requires that the tax-equity investor retain a minimum ongoing interest in the partnership after the flip. The purpose of this requirement is to ensure that the tax-equity investor maintains a genuine, continuing economic interest in the partnership even after the allocation ratios shift, thereby reinforcing the characterization of the arrangement as a bona fide partnership (rather than a transaction in which the tax-equity investor exits entirely after claiming the tax benefits). In practice, the minimum post-flip residual interest is typically at least five percent (5%) of all partnership items.

Under the terms of the Solaris West Solar LLC Partnership Agreement, Veltara Basin retains a five percent (5%) interest in all allocations (including allocations of taxable income, loss, and distributable cash flow) following the flip. This allocation percentage meets the minimum threshold established by the safe harbor. We note that some practitioners and certain IRS guidance suggest that a residual interest of less than five percent (5%) could be acceptable in certain circumstances, but the five percent (5%) level is the widely accepted market standard and is consistent with the terms observed in substantially all comparable partnership-flip transactions of which we are aware.

Conclusion: The minimum residual interest requirement of the safe harbor is satisfied. Veltara Basin will retain a five percent (5%) interest in all partnership items following the flip.

6. Allocations Must Have Substantial Economic Effect

The safe harbor requires that the allocations of partnership items have "substantial economic effect" within the meaning of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. Under Treasury Regulation § 1.704-1(b)(2), an allocation has economic effect if, and only if, throughout the full term of the partnership, the allocation is consistent with the members' underlying economic arrangement — that is, the member to whom an item is allocated must bear the economic benefit or burden of that item.

We have reviewed the capital account maintenance provisions, deficit restoration obligation provisions, qualified income offset provisions, and liquidation provisions of the Solaris West Solar LLC Partnership Agreement and have confirmed that they are designed to satisfy the requirements for substantial economic effect under Treasury Regulation § 1.704-1(b)(2). Specifically:

(a) Capital Account Maintenance. The Partnership Agreement requires the maintenance of capital accounts for each member in accordance with Treasury Regulation § 1.704-1(b)(2)(iv), reflecting contributions, distributions, and allocations of income, gain, loss, and deduction.

(b) Deficit Restoration Obligations. The Partnership Agreement includes deficit restoration obligations requiring each member to restore any deficit balance in its capital account upon liquidation of the partnership or the member's interest therein.

(c) Qualified Income Offset. The Partnership Agreement includes a qualified income offset provision, ensuring that any member who unexpectedly receives a distribution or allocation that creates or increases a deficit in its capital account will be allocated items of income and gain sufficient to eliminate the deficit as quickly as possible.

(d) Liquidation in Accordance with Capital Accounts. The Partnership Agreement requires that, upon liquidation of the partnership, distributions be made in accordance with positive capital account balances, ensuring that the economic effect of the allocations is realized through the distribution waterfall.

The HLBV (Hypothetical-Liquidation-at-Book-Value) methodology is used for financial reporting purposes to account for the allocation of income and loss among the members of the partnership. The HLBV methodology is the standard approach for financial reporting of tax-equity partnerships and is distinct from the tax-allocation methodology, although both are designed to reflect the economic arrangement among the members. A detailed analysis of the HLBV methodology as applied to the Solaris West tax-equity partnership is set forth in the HLBV Methodology Review Memorandum (Document 104, prepared by Leonard Cross and Natasha Forbes), which should be reviewed in conjunction with this memorandum.

Conclusion: The substantial economic effect requirement of the safe harbor is satisfied.

C. Overall Safe-Harbor Conclusion

Based on the foregoing analysis, we conclude that the Solaris West/Veltara Basin partnership-flip structure satisfies all material requirements of the Revenue Procedure 2007-65 safe harbor. The partnership is a bona fide partnership for federal income tax purposes; the tax-equity investor has made a minimum unconditional investment; the tax-equity investor has a reasonably anticipated pre-tax profit; the structure does not include impermissible put or call options; the tax-equity investor will retain a minimum residual interest after the flip; and the allocations have substantial economic effect.

This analysis has been coordinated with Kessler McBride & Associates LLP (Alan Kessler, Managing Partner, and Linda McBride, Partner, Tax Structures), the Company's external tax advisors. Kessler McBride has reviewed this memorandum in draft form and concurs with the conclusions set forth herein regarding safe-harbor compliance.

Recommendation: We recommend that CBR continue to maintain compliance monitoring with respect to the Solaris West partnership-flip structure, with particular attention to any changes in ownership, operational status, or contractual terms during the remaining ITC recapture period (through Q3 2025). Any proposed amendments to the Partnership Agreement, changes in the membership structure of Solaris West Solar LLC, or modifications to the allocation percentages should be reviewed by Calderwood & Harkness and Kessler McBride before implementation to ensure continued compliance with the safe harbor.

V. ITC Recapture Risk Analysis in Connection with the Proposed IPO

A. Section 50(a) Recapture Rules — Overview

Under Section 50(a)(1) of the Code, if "Section 38 property" — which includes property generating the Investment Tax Credit under Section 48 — ceases to be "investment credit property" before the close of the "recapture period," the taxpayer must recapture a proportionate share of the ITC that was previously claimed. The recapture period for ITC property is five years, measured from the date the property was placed in service. The amount of the recapture decreases by twenty percent (20%) for each full year of the recapture period that has elapsed. Thus, in the first year of the recapture period, one hundred percent (100%) of the ITC is subject to recapture; in the second year, eighty percent (80%); in the third year, sixty percent (60%); in the fourth year, forty percent (40%); and in the fifth year, twenty percent (20%). After the close of the fifth year, no further recapture is possible.

Recapture can be triggered by, among other things:

(i) a disposition of the Section 38 property (i.e., a sale, exchange, or other transfer of the property itself);

(ii) a cessation of use of the property in a qualifying manner (e.g., the property is taken out of service, removed from the United States, or converted to a non-qualifying use); or

(iii) a change in ownership of the entity that claims the credit — specifically, at the partnership level, a disposition of a partner's partnership interest (or a deemed disposition resulting from a change in the underlying ownership of a partner entity) that results in a partner no longer being treated as a partner with respect to the Section 38 property.

The recapture rules are designed to ensure that the tax benefits associated with the ITC are earned over a meaningful period of qualifying use of the property and are not claimed in connection with a short-term investment or a transaction designed solely to generate the credit.

B. Does the IPO Constitute a "Disposition" Triggering Recapture?

The central question for purposes of this analysis is whether the Proposed Offering — the issuance and sale of common stock of Calloway-Briggs Renewables Inc., the ultimate parent corporation — constitutes a "disposition" of the partnership interest or the underlying Section 38 property that would trigger recapture of the ITC claimed by Veltara Basin Financial LLC.

We conclude that it does not, for the following reasons:

1. No Disposition at the Partnership or Property Level. The IPO involves the issuance and sale of common stock of CBR, the Delaware C-corporation at the top of the subsidiary chain. It does not involve any transfer, sale, exchange, assignment, or other disposition of:

(a) the Solaris West solar PV facility itself (the underlying Section 38 property);

(b) any membership interest in Solaris West Solar LLC (the project partnership in which the ITC resides);

(d) any membership interest in CBR Holdings LLC (the intermediate holding company); or

(e) any other asset at or below the level of Calloway-Briggs Renewables Inc. in the corporate chain.

Before and after the IPO, the ownership chain is identical at every level below CBR: CBR Holdings LLC remains one hundred percent (100%) owned by CBR; Calloway-Briggs Operating Company LLC remains one hundred percent (100%) owned by CBR Holdings LLC; and Calloway-Briggs Operating Company LLC retains its same membership interest in Solaris West Solar LLC. No entity is dissolved, merged, converted, or otherwise reorganized.

2. Change in Stockholders of a Corporation Does Not Constitute a "Disposition." Under Treasury Regulation § 1.47-6, a change in the stockholders of a corporation does not, by itself, constitute a "disposition" of investment credit property held directly or indirectly by the corporation. This regulation specifically addresses the situation where the ownership of a corporation changes (whether through an IPO, a secondary sale, a merger of the corporation's parent, or otherwise) but the corporation's direct or indirect ownership of the investment credit property remains unchanged. The regulation reflects the longstanding principle that a corporation is a separate legal entity from its stockholders, and a change in the identity of the stockholders does not affect the corporation's ownership of its assets — including its direct or indirect interest in a partnership that holds Section 38 property.

This principle applies with equal force here: the Proposed Offering will change the identity and proportional ownership of the stockholders of CBR (primarily by diluting the existing stockholders through the issuance of new primary shares and by transferring secondary shares from Pinnacle Vista to new public stockholders), but it will not change CBR's direct or indirect ownership of Solaris West Solar LLC or the underlying Project. CBR will continue to own one hundred percent (100%) of CBR Holdings LLC, which will continue to own one hundred percent (100%) of Calloway-Briggs Operating Company LLC, which will continue to hold its membership interest in Solaris West Solar LLC.

3. Secondary Sale by Pinnacle Vista Does Not Trigger Recapture. Pinnacle Vista Capital Partners III, LP is selling approximately 6,818,182 secondary shares of CBR common stock (representing approximately $150,000,000 at the assumed midpoint price of $22.00 per share) in the IPO. This sale reduces Pinnacle Vista's percentage ownership of CBR's outstanding common stock. However, this is a sale of shares of stock in CBR — the ultimate parent corporation — and not a transfer of any interest in the Solaris West partnership, the managing member entity, or the Project itself. Pinnacle Vista does not hold a direct or indirect membership interest in Solaris West Solar LLC (its only ownership interest is in CBR common stock), and the sale of its CBR shares does not constitute a disposition of Section 38 property or a partnership interest at the Project level.

4. Entity Structure Remains Intact. As noted above, the entity structure through which CBR holds the Solaris West Project will remain wholly intact before and after the IPO. There is no reorganization, restructuring, or simplification of the subsidiary chain contemplated in connection with the Offering. The only structural change associated with the IPO is the conversion of CBR's capital structure from a private, closely held company to a publicly traded company — a change that occurs at the very top of the organizational chart and has no impact on the Project-level ownership or operations.

C. Recapture Period Timeline

The timeline of the five-year ITC recapture period, in relation to the IPO process, is as follows:

Several observations are noteworthy:

(a) The DRS-1 was filed on April 11, 2022, which falls within the five-year recapture period. However, the filing of a draft registration statement is not a disposition or a recapture-triggering event.

(b) If the IPO had priced and closed in June or July 2022 (as originally anticipated before the offering was placed in dormant status on June 17, 2022), the closing would have occurred within the recapture period. Nevertheless, as analyzed above, the IPO would not have triggered recapture because it does not involve a disposition at the partnership or property level.

(c) If the offering is reactivated and ultimately closes after Q3 2025, the five-year recapture period will have expired entirely, rendering the ITC recapture analysis moot for the Solaris West Project. In that scenario, the risk factor disclosure in the S-1 can be updated to note the expiration of the recapture period.

(d) Regardless of the timing of the IPO closing, the analysis remains the same: the IPO does not trigger recapture because it is a stockholder-level transaction at the ultimate parent corporation and does not involve a disposition of the Section 38 property, the partnership interest, or any intermediate entity interest.

D. Conclusion on ITC Recapture

Based on the foregoing analysis, we conclude as follows:

1. The Proposed Offering of Calloway-Briggs Renewables Inc. common stock does not constitute a recapture event under Section 50(a) of the Code with respect to the Investment Tax Credit claimed by Veltara Basin Financial LLC in the Solaris West partnership.

2. The five-year recapture period for the Solaris West ITC commenced in Q3 2020 and is expected to expire in Q3 2025. The recapture period is currently running as of the date of this memorandum.

3. No affirmative action is required in connection with the IPO itself to avoid triggering ITC recapture.

4. However, we recommend that CBR management exercise caution and consult with Calderwood & Harkness and Kessler McBride before undertaking any post-IPO restructuring transactions that might involve a transfer, assignment, or other disposition of membership interests at the Solaris West Solar LLC or Calloway-Briggs Operating Company LLC level during the remaining recapture period (through Q3 2025). Such transactions — including, without limitation, any sale of Solaris West Solar LLC membership interests, any merger or conversion of Calloway-Briggs Operating Company LLC or CBR Holdings LLC, or any transfer of the Solaris West solar PV facility itself — could potentially trigger recapture and should be carefully analyzed before implementation.

5. Kessler McBride & Associates LLP has reviewed this analysis and concurs with our conclusions.

VI. Consent and Notice Requirements Under the Partnership Agreement

A. Relevant Provisions

The Solaris West Solar LLC Amended and Restated Operating Agreement contains several provisions that are relevant to the Proposed Offering. We have reviewed the operative sections and summarize the key provisions below.

Section 8.04 — Notice of Change of Control. Section 8.04 of the Partnership Agreement requires the managing member (Calloway-Briggs Operating Company LLC) to provide written notice to the Tax-Equity Investor (Veltara Basin Financial LLC) of any "Change of Control" of the managing member or any direct or indirect parent entity of the managing member. The notice must be delivered promptly upon the managing member becoming aware that a Change of Control is proposed or is reasonably anticipated to occur.

Definition of "Change of Control." The Partnership Agreement defines "Change of Control" broadly to include, among other events, an initial public offering of the equity securities (including common stock) of any direct or indirect parent of the managing member. Because Calloway-Briggs Renewables Inc. is an indirect parent of Calloway-Briggs Operating Company LLC (through CBR Holdings LLC), the Proposed Offering constitutes a "Change of Control" as defined in the Partnership Agreement.

Section 8.05 — Consent Requirement. Section 8.05 of the Partnership Agreement provides that the prior written consent of the Tax-Equity Investor must be obtained before any Change of Control is "consummated." The consent provision specifies that such consent "shall not be unreasonably withheld, conditioned, or delayed." This formulation imposes an obligation of reasonableness on Veltara Basin, meaning that Veltara Basin cannot refuse consent absent a legitimate, objectively reasonable basis for doing so. Given that the IPO does not trigger ITC recapture, does not alter the partnership structure or the allocation of tax benefits, and does not adversely affect Veltara Basin's economic or tax position, we believe that any refusal of consent would be unreasonable and that consent should be forthcoming.

Section 8.06 — Officer's Certificate. Section 8.06 of the Partnership Agreement requires the managing member to deliver an officer's certificate to the Tax-Equity Investor confirming that the Change of Control does not constitute a "Disqualifying Event." The Partnership Agreement defines "Disqualifying Event" to include, among other things, any event that constitutes or triggers an ITC recapture event under Section 50(a) of the Code. Because we have concluded that the IPO does not trigger ITC recapture, the officer's certificate can be executed and delivered in connection with the consent request.

B. Recommended Actions

Based on our review of the foregoing provisions, we recommend the following actions:

1. Delivery of Written Notice. CBR (through Calloway-Briggs Operating Company LLC, as managing member of Solaris West Solar LLC) should deliver written notice to Veltara Basin Financial LLC of the Proposed Offering, in compliance with Section 8.04 of the Partnership Agreement. The notice should describe the material terms of the IPO, including the identity of the issuer, the expected aggregate offering size, the proposed listing exchange, and the fact that no membership interests in Solaris West Solar LLC or Calloway-Briggs Operating Company LLC will be transferred or otherwise affected.

2. Consent Request. Concurrently with the notice, CBR should formally request the prior written consent of Veltara Basin Financial LLC under Section 8.05 of the Partnership Agreement. A draft consent request letter has been prepared by Calderwood & Harkness and is referenced as Document 114 in the C&H document index. The letter is addressed to Karen Fujimoto, Partner, Tax Equity Investments, at Veltara Basin Financial LLC.

3. Representations in Consent Request. The consent request letter should include a representation that the Proposed Offering does not constitute a Disqualifying Event under the Partnership Agreement and, specifically, does not trigger ITC recapture under Section 50(a) of the Code. The letter should briefly summarize the basis for this conclusion (i.e., no disposition at the partnership or property level; entity structure remains intact; change in stockholders of the ultimate parent does not constitute a disposition under Treasury Regulation § 1.47-6).

4. Officer's Certificate. CBR should prepare and deliver the officer's certificate required by Section 8.06 of the Partnership Agreement, to be executed by Priya Anand (SVP Finance & Treasurer) or Marcus Yoon (General Counsel) on behalf of Calloway-Briggs Operating Company LLC. The certificate should confirm that the Change of Control represented by the IPO does not constitute a Disqualifying Event under the Partnership Agreement.

5. Timing. As of the date of this memorandum, the consent request has been drafted but not yet delivered to Veltara Basin. We recommend that delivery occur promptly following completion of the S-1 amendment process and before any public filing of the Registration Statement with the SEC. Public filing of the S-1 could itself be viewed as a material step toward consummation of the Change of Control, and it would be prudent to have obtained (or at least formally requested) Veltara Basin's consent before that filing occurs.

6. Coordination. Brendan Walsh (Lead Associate, Corporate) should coordinate with Veltara Basin's relationship counsel (if any) to facilitate the consent process. We note that Whitfield Archer & Doss LLP ("WA&D") represents Pinnacle Vista Capital Partners III, LP in connection with the IPO but does not separately represent Veltara Basin Financial LLC. If Veltara Basin engages separate counsel to review the consent request, we should be prepared to respond to any diligence inquiries from such counsel.

Status. As of the date hereof, the consent request has been drafted and is under internal review. Delivery is pending the completion of the current S-1 amendment cycle and coordination with the IPO timetable. Given that the offering was placed in dormant status on June 17, 2022, the consent request should be refreshed and redelivered (or confirmed as still valid) at the time of any reactivation of the offering.

VII. Impact on S-1 Registration Statement Disclosures

The Solaris West tax-equity partnership and the associated ITC recapture risk have significant implications for the disclosures to be included in the S-1 Registration Statement. We address each category of disclosure below.

A. Risk Factors

We recommend the inclusion of the following risk factors in the S-1:

1. ITC Recapture Risk — Solaris West. A specific risk factor should be included addressing the ITC recapture risk associated with the Solaris West tax-equity structure. This risk factor should address the following points:

(a) The Solaris West Project claimed the Investment Tax Credit under Section 48 of the Code, which is subject to a five-year recapture period under Section 50(a) that expires in Q3 2025.

(b) Although the IPO itself does not trigger ITC recapture, certain future transactions at the partnership or property level — including a disposition of the Solaris West solar PV facility, a disposition of CBR's membership interest in the Solaris West partnership, or a cessation of qualifying use of the Project — could trigger recapture during the remaining recapture period.

(c) The potential magnitude of the recapture exposure should be disclosed. The ITC recapture amount declines by twenty percent (20%) per year over the five-year recapture period. As of Q3 2022 (approximately two years after placed-in-service), the maximum recapture exposure is sixty percent (60%) of the original ITC amount, declining to forty percent (40%) in Q3 2023, twenty percent (20%) in Q3 2024, and zero after Q3 2025.

(d) The risk factor should note the potential impact of future legislative changes on ITC eligibility and recapture rules, including the possibility that pending legislation (such as the Build Back Better Act or successor proposals) could modify the recapture provisions or the ITC rates applicable to solar energy property.

2. General Tax-Equity Structure Risk. A broader risk factor should be included addressing CBR's reliance on tax-equity financing structures for the development and financing of its renewable energy projects and the risk that the IRS could challenge the allocation of tax benefits under partnership-flip structures generally. This risk factor should note that:

(a) The IRS has not issued formal guidance confirming that the Rev. Proc. 2007-65 safe harbor applies to solar energy projects (as opposed to wind projects), and there is a risk that the IRS could take a contrary position in the future.

(b) If the IRS were to successfully challenge the validity of the partnership or the allocation of tax credits to the Tax-Equity Investor, the consequences could include recharacterization of the arrangement as debt, denial of the ITC to Veltara Basin, and potential indemnification obligations of the Company under the Partnership Agreement.

(c) Future tax-equity transactions may be subject to changing IRS interpretation, legislative amendments, or judicial decisions that could affect the availability or allocation of tax credits.

B. Business Section / Description of Indebtedness

The S-1 should include a description of the Solaris West tax-equity partnership in the "Description of Indebtedness" section (or a comparable section describing the Company's material financing arrangements). The description should cover:

(a) The identity of the Tax-Equity Investor: Veltara Basin Financial LLC.

(b) The amount invested: $280,000,000.

(d) The expected flip date: 2028 (or the date-certain backstop of December 31, 2030).

(e) The allocation percentages: 99%/1% pre-flip (tax items) and 90%/10% pre-flip (cash); 5%/95% post-flip (all items).

(f) The post-flip purchase option mechanics: Calloway-Briggs Operating Company LLC holds a call option to acquire Veltara Basin's residual interest at fair market value.

(g) Change-of-control consent requirements: the Partnership Agreement requires notice to and prior consent from Veltara Basin in connection with a Change of Control, including the IPO.

The description should be sufficiently detailed to enable an investor to understand the material terms of the arrangement, the allocation of tax benefits to the Tax-Equity Investor, and the expected timeline for the flip and the potential acquisition of Veltara Basin's residual interest.

C. MD&A and Financial Statements

MD&A. The Management's Discussion and Analysis of Financial Condition and Results of Operations section of the S-1 should include a discussion of the HLBV (Hypothetical-Liquidation-at-Book-Value) methodology used to account for the Solaris West tax-equity partnership in CBR's consolidated financial statements. The HLBV methodology is the standard approach for financial reporting of income and loss allocations in tax-equity partnerships and is required by ASC 810 (Consolidation) and the related guidance. The MD&A discussion should explain, in plain language, how the HLBV methodology affects the Company's reported net income, the allocation of income and loss between the Company and the Tax-Equity Investor, and the presentation of the Tax-Equity Investor's interest in the consolidated financial statements. A separate and more detailed analysis of the HLBV methodology is set forth in the HLBV Methodology Review Memorandum (Document 104), which should be referenced in connection with any revisions to the MD&A disclosure.

Financial Statement Notes. The notes to the Company's audited consolidated financial statements (prepared by Ashford & Pemberton LLP, with Gregory Sondheim serving as the lead engagement partner and Irene Valdez as audit manager) should include disclosure of the tax-equity arrangement, including the allocation percentages, the expected flip date, the accounting methodology (HLBV), and the Company's consolidation treatment of Solaris West Solar LLC.

SEC Comment Letters. The SEC Staff has specifically inquired about the adequacy of the Company's HLBV methodology disclosure in its comments on the S-1. The first-round comment letter, received on May 6, 2022, contained eighteen (18) comments, several of which related to the HLBV methodology and the tax-equity partnership disclosure. Amendment No. 1 to the S-1, filed on May 20, 2022, included enhanced disclosure in response to these comments. The second-round comment letter, received on June 3, 2022, contained seven (7) comments, including further follow-up questions on the HLBV methodology and the presentation of the Tax-Equity Investor's interest. Amendment No. 2 to the S-1, filed on June 10, 2022, included further enhanced disclosure responsive to the SEC Staff's comments. We recommend continued monitoring of any additional SEC comments on these topics in connection with any reactivation of the offering.

D. Material U.S. Federal Income Tax Consequences

The tax-consequences section of the prospectus, which addresses the material U.S. federal income tax consequences of the purchase, ownership, and disposition of CBR common stock by U.S. and non-U.S. holders, should note that CBR's effective tax rate may be affected by the tax-equity partnership allocations and the eventual flip. Specifically, during the pre-flip period, ninety-nine percent (99%) of the tax items generated by the Solaris West Project (including depreciation deductions and taxable income or loss) are allocated to Veltara Basin rather than to CBR, which affects CBR's consolidated taxable income and effective tax rate. After the flip, CBR will receive ninety-five percent (95%) of all allocations, which will increase its share of the Project's taxable income and may affect the effective rate.

The draft tax opinion prepared by Leonard Cross (Document 106) addresses the material U.S. federal income tax consequences to stockholders of the purchase, ownership, and disposition of CBR common stock, but it does not specifically address the tax-equity structure or the ITC recapture analysis. No opinion on the tax-equity structure itself is being filed as an exhibit to the S-1. The tax-equity structure is addressed through disclosure in the risk factors, Description of Indebtedness, MD&A, and financial statement notes, as described above. This approach is consistent with market practice for IPOs of renewable energy companies with tax-equity partnerships.

VIII. Coordination with External Advisors

A. Kessler McBride & Associate

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT WORK PRODUCT
CALDERWOOD & HARKNESS LLP 1221 Avenue of the Americas, 44th Floor New York, New York 10020
April 25, 2022
MEMORANDUM
FROM: Leonard Cross, Specialist Partner, Tax
TO: Jennifer Kwon, Responsible Partner, Capital Markets
CC: Brendan Walsh, Lead Associate; Natasha Forbes, Working Associate
RE: Calloway-Briggs Renewables Inc. — Proposed IPO — Tax-Equity Partnership-Flip Structure: Solaris West Solar LLC / Veltara Basin Financial LLC — Compliance Analysis
C&H MATTER NO.: 1015-00001
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is not intended for distribution to, or reliance by, any third party without the prior written approval of Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP.
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I. Executive Summary
The purpose of this memorandum is to analyze the partnership-flip tax-equity structure governing the Solaris West solar photovoltaic project (the "Solaris West Project" or the "Project") for compliance with applicable Internal Revenue Service ("IRS") guidance, to assess Investment Tax Credit ("ITC") recapture risk in connection with the proposed initial public offering (the "IPO" or the "Proposed Offering") of common stock of Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), to evaluate the impact of the partnership-flip structure on disclosures to be included in the Company's Registration Statement on Form S-1 (the "S-1" or "Registration Statement"), and to identify any consent, notice, or other requirements arising under the Amended and Restated Operating Agreement of Solaris West Solar LLC (the "Partnership Agreement") with the tax-equity investor, Veltara Basin Financial LLC ("Veltara Basin" or the "Tax-Equity Investor").
Key Conclusions. Based on our review of the Partnership Agreement, the relevant provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder, Revenue Procedure 2007-65, and other applicable authorities, and upon consultation with Kessler McBride & Associates LLP, the Company's external tax advisors, we have reached the following principal conclusions:
1. No ITC Recapture Triggered by the IPO. The Proposed Offering does not constitute a "recapture event" or a disqualifying disposition that would trigger recapture of the Investment Tax Credit under Section 50(a) of the Code. This conclusion rests on the fact that the partnership-flip structure will remain intact at the project-entity level, with Solaris West Solar LLC (the "Project SPV" or the "Partnership") continuing to be held one hundred percent (100%) by Calloway-Briggs Operating Company LLC (through CBR Holdings LLC), and no change in ownership occurring at or below the level of the Partnership. The IPO involves the issuance and sale of common stock of CBR, the ultimate parent holding company, which is several corporate layers above the Partnership. Under Treasury Regulation § 1.47-6 and applicable authorities, a change in the stockholders of a corporation that owns (directly or indirectly) a partnership interest does not constitute a "disposition" of the partnership interest or the underlying Section 38 property for recapture purposes, provided the entity structure remains intact.
2. Revenue Procedure 2007-65 Safe-Harbor Compliance. The Solaris West partnership-flip structure complies with the safe-harbor requirements of Revenue Procedure 2007-65, 2007-2 C.B. 967, as extended by analogy and IRS guidance to solar energy projects. Each of the six principal requirements of the safe harbor — bona fide partnership, minimum unconditional investment, reasonably anticipated profit motive, absence of impermissible put or call options, minimum residual interest of the tax-equity investor post-flip, and substantial economic effect of allocations — is satisfied by the terms of the Partnership Agreement. Kessler McBride & Associates LLP concurs with this conclusion.
3. Expected Flip Date. The flip under the Solaris West partnership is expected to occur in 2028, at which point CBR (through its subsidiary chain) will acquire substantially all economic interest in the Solaris West Partnership, with Veltara Basin retaining a nominal five percent (5%) residual interest. After the flip, CBR will hold a call option to acquire Veltara Basin's residual interest at fair market value.
4. Consent and Notice Requirements. The IPO is likely to constitute a "Change of Control" under Section 8.04 of the Partnership Agreement, triggering notice and consent requirements with respect to Veltara Basin. Written consent from Veltara Basin is advisable and likely required before the IPO is consummated. A draft consent request letter has been prepared separately and is referenced as Document 114 in the C&H document index. Delivery of the consent request is recommended promptly following completion of the S-1 amendment process and before any public filing of the Registration Statement.
5. S-1 Disclosure. Appropriate risk factor disclosures, Description of Indebtedness disclosures, MD&A discussion, and financial statement note disclosures regarding the Solaris West tax-equity structure, the Hypothetical-Liquidation-at-Book-Value ("HLBV") accounting methodology, and ITC recapture risk should be included in the S-1. Coordination with Ashford & Pemberton LLP (the Company's independent registered public accounting firm, "A&P") and Kessler McBride & Associates LLP (external tax advisors, "Kessler McBride") is ongoing, and has been responsive to two rounds of comments from the staff of the Securities and Exchange Commission (the "SEC Staff").
This memorandum sets forth our detailed analysis supporting each of these conclusions. It should be read in conjunction with the related memoranda and work product documents listed in Section XII (Attachments / Cross-References) below.
II. Background
A. Calloway-Briggs Renewables Inc. — Overview
Calloway-Briggs Renewables Inc. is a Delaware C-corporation headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746 (Employer Identification Number 83-4027615). CBR was founded in 2014 by Garrett Calloway and Elaine Briggs and has grown to become a significant independent developer and operator of utility-scale solar photovoltaic, onshore wind, and battery energy storage systems across the southwestern United States and adjacent regions.
As of the date of this memorandum, CBR's operating portfolio comprises approximately 3.8 gigawatts ("GW") of renewable energy generating capacity across twenty-two (22) operating projects located in Texas, New Mexico, Arizona, California, and Oklahoma. An additional 1.4 GW of capacity is currently under construction across multiple sites, and the Company maintains an active development pipeline of approximately 6.2 GW of additional projects at various stages of development, permitting, and interconnection.
The Company's pre-IPO ownership structure is as follows: approximately sixty-two percent (62%) of CBR's outstanding equity is held by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), a growth-equity fund that led the Company's Series C and Series D financing rounds; approximately twenty-four percent (24%) is held by the co-founders and senior management; and the remaining approximately fourteen percent (14%) is held by earlier-stage investors and employees pursuant to equity incentive plans.
CBR's financial performance for its most recently completed fiscal year is summarized below:
The Proposed Offering contemplates an aggregate offering of approximately $600,000,000 of common stock on the New York Stock Exchange under the ticker symbol "CBRI." The assumed midpoint price per share is $22.00, with 100,000,000 shares of common stock outstanding on a pre-IPO basis. The offering will consist of a combination of primary shares issued by the Company and secondary shares sold by Pinnacle Vista (approximately 6,818,182 shares, representing approximately $150,000,000 at the assumed midpoint price), reducing Pinnacle Vista's ownership stake from approximately sixty-two percent (62%) to a lower, post-offering percentage.
B. Corporate and Subsidiary Structure Relevant to Tax-Equity Analysis
The ownership chain through which CBR holds the Solaris West Project is critical to the ITC recapture analysis presented in Section V below. The relevant corporate and subsidiary structure is as follows:
Calloway-Briggs Renewables Inc. (Delaware corporation; the IPO issuer)
↓ 100% ownership
CBR Holdings LLC (Delaware limited liability company)
↓ 100% ownership
Calloway-Briggs Operating Company LLC (Texas limited liability company)
↓ Membership interest in Solaris West Solar LLC (as managing member)
Solaris West Solar LLC (Texas limited liability company; the Project SPV)
The tax-equity partnership is structured at the Solaris West Solar LLC level. Solaris West Solar LLC is a Texas limited liability company that was formed for the purpose of owning and operating the Solaris West solar PV project. It has elected to be classified as a partnership for U.S. federal income tax purposes. Its two members are Calloway-Briggs Operating Company LLC (the "Sponsor Member" or the "Managing Member") and Veltara Basin Financial LLC (the "Tax-Equity Investor" or the "Investor Member").
It is important to note that the IPO involves the issuance and sale of common stock of Calloway-Briggs Renewables Inc. — the entity at the top of this ownership chain, which is four organizational levels above Solaris West Solar LLC. No membership interests in Solaris West Solar LLC, Calloway-Briggs Operating Company LLC, or CBR Holdings LLC are being sold, transferred, or otherwise affected by the IPO. This structural separation is central to our conclusion that the IPO does not trigger ITC recapture.
C. The Solaris West Project
The Solaris West solar photovoltaic project is summarized as follows:
The Project achieved commercial operation in the third quarter of 2020, more than one year before the anticipated filing of the S-1. As discussed in Section V below, the timing of the COD relative to the IPO timeline is significant because the five-year ITC recapture period under Section 50(a)(1) of the Code runs from the date the Solaris West Project was placed in service (Q3 2020) through Q3 2025. The Project has operated continuously since achieving COD and remains in full compliance with its power purchase agreement, interconnection agreement, and applicable permits.
D. The Tax-Equity Investment by Veltara Basin Financial LLC
Veltara Basin Financial LLC is a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. Veltara Basin is a dedicated tax-equity investment platform affiliated with a major financial institution and specializes in renewable energy tax-equity investments, including partnership-flip and sale-leaseback structures. The primary contact at Veltara Basin for purposes of this transaction is Karen Fujimoto, Partner, Tax Equity Investments.
Veltara Basin invested an aggregate of $280,000,000 in Solaris West Solar LLC in connection with the development and construction of the Solaris West Project. The investment was structured as a partnership-flip transaction, which is described in detail in Section III below. Veltara Basin holds a membership interest in Solaris West Solar LLC, and the allocation of tax benefits (including the Investment Tax Credit under Section 48 of the Code) flows predominantly to Veltara Basin during the pre-flip period.
The flip — the event at which the allocation of tax and economic items shifts from the Tax-Equity Investor to the Sponsor Member — is expected to occur in 2028 based on current projections of the Tax-Equity Investor's after-tax internal rate of return. At that time, CBR (through Calloway-Briggs Operating Company LLC) will acquire substantially all of the economic interest in the Solaris West Partnership, and Veltara Basin will retain only a nominal residual interest.
The Veltara Basin investment is a significant financing arrangement for the Solaris West Project and is the only tax-equity partnership-flip structure currently in CBR's operating portfolio, as discussed further in Section IX below.
III. Partnership-Flip Structure — Mechanics
A. Overview of Partnership-Flip Model
Partnership-flip transactions are the predominant tax-equity structure for utility-scale solar and wind energy projects in the United States. The structure has been widely utilized since the publication of Revenue Procedure 2007-65 in 2007 and has been recognized by the IRS, the renewable energy industry, tax practitioners, and the financial community as an efficient and well-understood mechanism for monetizing federal income tax credits (the ITC or the Production Tax Credit ("PTC")) and accelerated depreciation benefits (including five-year MACRS depreciation for qualifying renewable energy property) in favor of tax-equity investors that have sufficient federal income tax liability to absorb such benefits.
The basic mechanics of a partnership-flip transaction are as follows:
1. Formation of Project Partnership. A project partnership (here, Solaris West Solar LLC) is formed with two classes of members: (a) the "tax-equity investor" (here, Veltara Basin Financial LLC), which makes a substantial capital contribution in exchange for a membership interest carrying a disproportionately large share of the tax benefits; and (b) the "sponsor" or "managing member" (here, Calloway-Briggs Operating Company LLC), which typically contributes the project assets (or the development rights) and retains operational control.
2. Pre-Flip Period Allocations. During the pre-flip period, the tax-equity investor receives substantially all — typically ninety-nine percent (99%) — of the tax benefits generated by the project, including the ITC (or PTC, as applicable), depreciation deductions, and allocations of taxable income and loss. The tax-equity investor also receives a preferred return on its investment in the form of cash distributions, typically representing a significant majority (e.g., ninety percent (90%)) of distributable cash flow. The sponsor member receives a correspondingly small share of tax items (typically one percent (1%)) but retains one hundred percent (100%) of management authority and operational control over the project.
3. Flip Trigger. After the tax-equity investor achieves a target internal rate of return (the "Target IRR") — or, alternatively, upon the occurrence of a date-certain backstop — the allocation ratios "flip." The Target IRR is an after-tax return computed based on the value of the tax benefits received (ITC, depreciation, tax losses) and the cash distributions received by the tax-equity investor, less the tax-equity investor's capital contribution. The flip trigger thus ensures that the tax-equity investor receives its negotiated economic return before the allocation ratios shift.
4. Post-Flip Period Allocations. After the flip, the allocation ratios reverse: the sponsor member receives the vast majority (typically ninety-five percent (95%) to ninety-nine percent (99%)) of all tax and economic allocations, while the tax-equity investor retains only a nominal residual interest (typically five percent (5%) or less). This shift reflects the fact that, after the flip, the tax benefits have been largely exhausted (the ITC has been claimed, MACRS depreciation is substantially complete), and the remaining economic value of the project accrues to the sponsor.
5. Purchase Option. The sponsor member typically holds a call option (purchase option) to acquire the tax-equity investor's residual post-flip interest at fair market value, as determined by independent appraisal. This option provides a pathway for the sponsor to achieve one hundred percent (100%) ownership of the project partnership after the tax-equity investor has received its negotiated return.
The partnership-flip model is attractive to both parties: the tax-equity investor (typically a large financial institution, insurance company, or other entity with substantial taxable income) monetizes the tax credits and depreciation benefits at a premium to their face value, while the sponsor developer obtains a significant source of non-recourse project financing that does not require debt service and does not dilute the sponsor's management control or long-term economic ownership of the project.
B. Solaris West Solar LLC — Specific Terms
The specific terms of the partnership-flip structure in the Solaris West Solar LLC Partnership Agreement are summarized in the following table and discussed in the text below:
Pre-Flip Allocations. During the pre-flip period, Veltara Basin receives ninety-nine percent (99%) of all tax items, including the ITC, MACRS depreciation deductions, and allocations of taxable income and losses generated by the Solaris West Project. This allocation is designed to ensure that Veltara Basin captures the economic value of the tax benefits as part of its overall return on investment. On the economic side, Veltara Basin receives ninety percent (90%) of distributable cash flow generated by the Project until the Target IRR is achieved.
Calloway-Briggs Operating Company LLC, as the managing member, receives one percent (1%) of all tax items and ten percent (10%) of distributable cash flow during the pre-flip period. However, critically, the managing member retains one hundred percent (100%) of all management authority and operational control over the Project, including responsibility for compliance with the power purchase agreement, the interconnection agreement, all governmental permits and approvals, and the operations and maintenance arrangements.
Flip Trigger. The flip is triggered upon the earlier of: (i) the date on which Veltara Basin achieves its Target IRR, which is an after-tax internal rate of return computed based on the cumulative value of tax benefits received and cash distributions received, less Veltara Basin's capital contribution; and (ii) a date-certain backstop of December 31, 2030. Based on current financial modeling provided by Priya Anand, SVP Finance & Treasurer of CBR, the flip is projected to occur in 2028 under the base-case scenario.
Post-Flip Allocations. Following the flip, the allocation ratios shift dramatically: Calloway-Briggs Operating Company LLC receives ninety-five percent (95%) of all allocations (tax items and distributable cash flow), while Veltara Basin retains a five percent (5%) residual interest. This residual interest satisfies the minimum post-flip interest requirement of Revenue Procedure 2007-65, as discussed in Section IV below.
Purchase Option. Calloway-Briggs Operating Company LLC holds a call option exercisable at any time after the flip. The exercise price is fair market value as of the exercise date, determined by an independent appraisal conducted by a qualified, nationally recognized appraisal firm selected by the managing member and approved by Veltara Basin (such approval not to be unreasonably withheld). Veltara Basin does not hold a put option. The absence of a put option is significant for purposes of the Revenue Procedure 2007-65 safe-harbor analysis, as discussed below.
C. ITC Allocation
The Solaris West Project claimed the Investment Tax Credit under Section 48 of the Code at a rate of thirty percent (30%), which was the applicable ITC rate for solar energy property placed in service in 2020 under the pre-Inflation Reduction Act statutory framework. The total eligible basis for purposes of computing the ITC was determined in accordance with Section 48(a) and applicable Treasury Regulations.
The ITC was allocated ninety-nine percent (99%) to Veltara Basin Financial LLC and one percent (1%) to Calloway-Briggs Operating Company LLC in the tax year in which the Solaris West Project was placed in service (tax year 2020), consistent with the pre-flip allocation percentages specified in the Partnership Agreement.
Under Section 50(a)(1) of the Code, the ITC claimed by a taxpayer with respect to Section 38 property is subject to recapture if the property ceases to be investment credit property within a five-year recapture period. The recapture period for the Solaris West ITC commenced in Q3 2020 (the date the Project was placed in service) and expires in Q3 2025. The significance of this timeline in the context of the Proposed Offering is analyzed in detail in Section V below.
IV. Revenue Procedure 2007-65 Safe-Harbor Compliance Analysis
A. Overview of Rev. Proc. 2007-65
Revenue Procedure 2007-65, 2007-2 C.B. 967, was issued by the IRS on October 15, 2007, and provides a "safe harbor" under which the IRS will respect the allocation of federal income tax benefits — including the Production Tax Credit under Section 45 of the Code — in partnership-flip transactions involving wind energy facilities. Although Rev. Proc. 2007-65 was promulgated specifically in the context of wind energy projects, it has been widely applied by analogy to solar energy projects and other types of renewable energy facilities, and the IRS has subsequently confirmed, through informal guidance and audit practice, that the principles of the safe harbor are generally applicable to partnership-flip transactions involving solar energy property eligible for the ITC under Section 48. This extension has been recognized by the tax-equity investment community, major law firms, and external tax advisors, including Kessler McBride & Associates LLP, with whom we have coordinated this analysis.
The practical significance of satisfying the safe harbor is substantial: if the requirements of Rev. Proc. 2007-65 are met, the IRS will not challenge the validity of the partnership for federal income tax purposes, the allocation of tax credits to the tax-equity investor, or the characterization of the transaction as a genuine equity investment (as opposed to disguised debt or a sham partnership). Failure to satisfy the safe harbor does not necessarily mean that the partnership or the allocations would be disregarded, but it would expose the structure to a heightened risk of IRS challenge and potential recharacterization.
The key requirements of the safe harbor, each of which is analyzed below in the context of the Solaris West/Veltara Basin transaction, are as follows: (1) the arrangement must constitute a bona fide partnership; (2) the tax-equity investor must make a minimum unconditional equity investment; (3) the tax-equity investor must have a reasonably anticipated pre-tax profit; (4) the structure must not include impermissible put or call options; (5) the tax-equity investor must retain a minimum residual interest after the flip; and (6) the allocations must have substantial economic effect under Section 704(b) of the Code and the Treasury Regulations thereunder.
B. Requirement-by-Requirement Analysis
1. Bona Fide Partnership
The first requirement of the Rev. Proc. 2007-65 safe harbor is that the arrangement must constitute a bona fide partnership for federal income tax purposes. A bona fide partnership exists where two or more persons join together with the intent to carry on a business for profit, each contributing something of value (capital, services, or property) and each sharing in the profits and losses of the enterprise.
Solaris West Solar LLC was formed as a Texas limited liability company and has elected partnership tax treatment for U.S. federal income tax purposes by filing the appropriate Form 8832 (Entity Classification Election) with the IRS. The entity has two members: Calloway-Briggs Operating Company LLC, which contributed the developed project assets and serves as the managing member, and Veltara Basin Financial LLC, which contributed $280,000,000 in cash as a capital contribution. Each member has a genuine economic stake in the partnership: both share in the risk of loss (including the risk that the Project could underperform and reduce distributions below projected levels), and both have rights to distributions of cash flow generated by the Project. Veltara Basin's $280,000,000 investment is a genuine equity contribution, not disguised debt — it is not guaranteed, it is not entitled to a fixed return regardless of project performance, and it is subordinate to all creditor claims. The members have a genuine intent to carry on a business for profit through the ownership and operation of the Solaris West solar PV facility.
Conclusion: The bona fide partnership requirement of the safe harbor is satisfied.
2. Minimum Unconditional Investment by Tax-Equity Investor
The safe harbor requires that the tax-equity investor make a minimum unconditional equity contribution of at least twenty percent (20%) of the total partnership capital. This requirement is designed to ensure that the tax-equity investor has a genuine economic stake in the venture and has not merely made a nominal or contingent investment designed solely to access the tax benefits.
Veltara Basin's capital contribution of $280,000,000 represents a substantial portion of the total capital of Solaris West Solar LLC. Based on our review of the Partnership Agreement and the closing documents, the $280,000,000 contribution was fully funded at the closing of the tax-equity investment and was unconditional — it was not subject to any conditions subsequent, clawback provisions, or refund mechanisms that would reduce the effective investment below the minimum threshold. We have confirmed with Priya Anand that the contribution was received in full and is reflected in the capital accounts of the partnership.
Conclusion: The minimum unconditional investment requirement of the safe harbor is satisfied.
3. Reasonably Anticipated Profit Motive
The safe harbor requires that the tax-equity investor have a reasonably anticipated pre-tax profit from its investment, independent of the tax benefits. This requirement — which is grounded in the longstanding judicial doctrine that a partnership must be entered into with a profit motive (as distinguished from a transaction entered into solely for tax avoidance purposes) — ensures that the tax-equity investor's return is not solely dependent on the ITC, depreciation, and other tax attributes, but also includes a component of pre-tax economic return from the project's cash-generating activities.
We have reviewed the cash-flow projections for the Solaris West Project prepared by the Company's finance team (Priya Anand, SVP Finance & Treasurer) and provided to Calderwood & Harkness in the due diligence process. Based on these projections, Veltara Basin is projected to receive cumulative cash distributions over the life of its investment that exceed its $280,000,000 capital contribution, even without taking into account the value of the ITC or depreciation deductions. The pre-tax return is modest but positive, reflecting the contractual revenue stream generated by the Project's long-term power purchase agreement and the priority distribution waterfall in favor of Veltara Basin during the pre-flip period.
We note that the profit-motive analysis is inherently forward-looking and is based on reasonable projections as of the date the investment was made. Subsequent changes in electricity prices, project performance, or other factors could affect actual returns, but the safe harbor requires only a reasonable expectation of profit at the time of investment. The projections reviewed are consistent with industry-standard assumptions for utility-scale solar projects of comparable size and vintage.
Conclusion: The reasonably anticipated profit-motive requirement of the safe harbor is satisfied.
4. No Impermissible Put or Call Options
The safe harbor prohibits the tax-equity investor from holding a put option that would guarantee a minimum return on its investment or would enable the tax-equity investor to exit the partnership at a price above fair market value. Such a put option would be inconsistent with the genuine equity character of the investment and could result in recharacterization of the arrangement as disguised debt.
Veltara Basin does not hold a put option of any kind. It has no right to require Calloway-Briggs Operating Company LLC or any other party to repurchase its membership interest at any price, at any time, under any circumstances. This is confirmed by our review of the Partnership Agreement, which contains no put right or similar exit mechanism in favor of the Tax-Equity Investor.
Calloway-Briggs Operating Company LLC holds a call option (purchase option) exercisable at any time after the flip occurs. The call option entitles the managing member to acquire Veltara Basin's residual post-flip interest (which, after the flip, will represent a five percent (5%) interest in the partnership) at fair market value as of the exercise date, as determined by an independent appraisal conducted by a nationally recognized appraisal firm. This type of call option — exercisable only after the flip, at fair market value, and without any guarantee of a minimum price — is expressly permitted under Revenue Procedure 2007-65 and does not violate the safe harbor.
Conclusion: The put/call option requirement of the safe harbor is satisfied. Veltara Basin holds no put right, and the managing member's call option is a permissible post-flip fair-market-value call option.
5. Minimum Residual Interest of Tax-Equity Investor Post-Flip
The safe harbor requires that the tax-equity investor retain a minimum ongoing interest in the partnership after the flip. The purpose of this requirement is to ensure that the tax-equity investor maintains a genuine, continuing economic interest in the partnership even after the allocation ratios shift, thereby reinforcing the characterization of the arrangement as a bona fide partnership (rather than a transaction in which the tax-equity investor exits entirely after claiming the tax benefits). In practice, the minimum post-flip residual interest is typically at least five percent (5%) of all partnership items.
Under the terms of the Solaris West Solar LLC Partnership Agreement, Veltara Basin retains a five percent (5%) interest in all allocations (including allocations of taxable income, loss, and distributable cash flow) following the flip. This allocation percentage meets the minimum threshold established by the safe harbor. We note that some practitioners and certain IRS guidance suggest that a residual interest of less than five percent (5%) could be acceptable in certain circumstances, but the five percent (5%) level is the widely accepted market standard and is consistent with the terms observed in substantially all comparable partnership-flip transactions of which we are aware.
Conclusion: The minimum residual interest requirement of the safe harbor is satisfied. Veltara Basin will retain a five percent (5%) interest in all partnership items following the flip.
6. Allocations Must Have Substantial Economic Effect
The safe harbor requires that the allocations of partnership items have "substantial economic effect" within the meaning of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. Under Treasury Regulation § 1.704-1(b)(2), an allocation has economic effect if, and only if, throughout the full term of the partnership, the allocation is consistent with the members' underlying economic arrangement — that is, the member to whom an item is allocated must bear the economic benefit or burden of that item.
We have reviewed the capital account maintenance provisions, deficit restoration obligation provisions, qualified income offset provisions, and liquidation provisions of the Solaris West Solar LLC Partnership Agreement and have confirmed that they are designed to satisfy the requirements for substantial economic effect under Treasury Regulation § 1.704-1(b)(2). Specifically:
(a) Capital Account Maintenance. The Partnership Agreement requires the maintenance of capital accounts for each member in accordance with Treasury Regulation § 1.704-1(b)(2)(iv), reflecting contributions, distributions, and allocations of income, gain, loss, and deduction.
(b) Deficit Restoration Obligations. The Partnership Agreement includes deficit restoration obligations requiring each member to restore any deficit balance in its capital account upon liquidation of the partnership or the member's interest therein.
(c) Qualified Income Offset. The Partnership Agreement includes a qualified income offset provision, ensuring that any member who unexpectedly receives a distribution or allocation that creates or increases a deficit in its capital account will be allocated items of income and gain sufficient to eliminate the deficit as quickly as possible.
(d) Liquidation in Accordance with Capital Accounts. The Partnership Agreement requires that, upon liquidation of the partnership, distributions be made in accordance with positive capital account balances, ensuring that the economic effect of the allocations is realized through the distribution waterfall.
The HLBV (Hypothetical-Liquidation-at-Book-Value) methodology is used for financial reporting purposes to account for the allocation of income and loss among the members of the partnership. The HLBV methodology is the standard approach for financial reporting of tax-equity partnerships and is distinct from the tax-allocation methodology, although both are designed to reflect the economic arrangement among the members. A detailed analysis of the HLBV methodology as applied to the Solaris West tax-equity partnership is set forth in the HLBV Methodology Review Memorandum (Document 104, prepared by Leonard Cross and Natasha Forbes), which should be reviewed in conjunction with this memorandum.
Conclusion: The substantial economic effect requirement of the safe harbor is satisfied.
C. Overall Safe-Harbor Conclusion
Based on the foregoing analysis, we conclude that the Solaris West/Veltara Basin partnership-flip structure satisfies all material requirements of the Revenue Procedure 2007-65 safe harbor. The partnership is a bona fide partnership for federal income tax purposes; the tax-equity investor has made a minimum unconditional investment; the tax-equity investor has a reasonably anticipated pre-tax profit; the structure does not include impermissible put or call options; the tax-equity investor will retain a minimum residual interest after the flip; and the allocations have substantial economic effect.
This analysis has been coordinated with Kessler McBride & Associates LLP (Alan Kessler, Managing Partner, and Linda McBride, Partner, Tax Structures), the Company's external tax advisors. Kessler McBride has reviewed this memorandum in draft form and concurs with the conclusions set forth herein regarding safe-harbor compliance.
Recommendation: We recommend that CBR continue to maintain compliance monitoring with respect to the Solaris West partnership-flip structure, with particular attention to any changes in ownership, operational status, or contractual terms during the remaining ITC recapture period (through Q3 2025). Any proposed amendments to the Partnership Agreement, changes in the membership structure of Solaris West Solar LLC, or modifications to the allocation percentages should be reviewed by Calderwood & Harkness and Kessler McBride before implementation to ensure continued compliance with the safe harbor.
V. ITC Recapture Risk Analysis in Connection with the Proposed IPO
A. Section 50(a) Recapture Rules — Overview
Under Section 50(a)(1) of the Code, if "Section 38 property" — which includes property generating the Investment Tax Credit under Section 48 — ceases to be "investment credit property" before the close of the "recapture period," the taxpayer must recapture a proportionate share of the ITC that was previously claimed. The recapture period for ITC property is five years, measured from the date the property was placed in service. The amount of the recapture decreases by twenty percent (20%) for each full year of the recapture period that has elapsed. Thus, in the first year of the recapture period, one hundred percent (100%) of the ITC is subject to recapture; in the second year, eighty percent (80%); in the third year, sixty percent (60%); in the fourth year, forty percent (40%); and in the fifth year, twenty percent (20%). After the close of the fifth year, no further recapture is possible.
Recapture can be triggered by, among other things:
(i) a disposition of the Section 38 property (i.e., a sale, exchange, or other transfer of the property itself);
(ii) a cessation of use of the property in a qualifying manner (e.g., the property is taken out of service, removed from the United States, or converted to a non-qualifying use); or
(iii) a change in ownership of the entity that claims the credit — specifically, at the partnership level, a disposition of a partner's partnership interest (or a deemed disposition resulting from a change in the underlying ownership of a partner entity) that results in a partner no longer being treated as a partner with respect to the Section 38 property.
The recapture rules are designed to ensure that the tax benefits associated with the ITC are earned over a meaningful period of qualifying use of the property and are not claimed in connection with a short-term investment or a transaction designed solely to generate the credit.
B. Does the IPO Constitute a "Disposition" Triggering Recapture?
The central question for purposes of this analysis is whether the Proposed Offering — the issuance and sale of common stock of Calloway-Briggs Renewables Inc., the ultimate parent corporation — constitutes a "disposition" of the partnership interest or the underlying Section 38 property that would trigger recapture of the ITC claimed by Veltara Basin Financial LLC.
We conclude that it does not, for the following reasons:
1. No Disposition at the Partnership or Property Level. The IPO involves the issuance and sale of common stock of CBR, the Delaware C-corporation at the top of the subsidiary chain. It does not involve any transfer, sale, exchange, assignment, or other disposition of:
(a) the Solaris West solar PV facility itself (the underlying Section 38 property);
(b) any membership interest in Solaris West Solar LLC (the project partnership in which the ITC resides);
(c) any membership interest in Calloway-Briggs Operating Company LLC (the managing member of the partnership);
(d) any membership interest in CBR Holdings LLC (the intermediate holding company); or
(e) any other asset at or below the level of Calloway-Briggs Renewables Inc. in the corporate chain.
Before and after the IPO, the ownership chain is identical at every level below CBR: CBR Holdings LLC remains one hundred percent (100%) owned by CBR; Calloway-Briggs Operating Company LLC remains one hundred percent (100%) owned by CBR Holdings LLC; and Calloway-Briggs Operating Company LLC retains its same membership interest in Solaris West Solar LLC. No entity is dissolved, merged, converted, or otherwise reorganized.
2. Change in Stockholders of a Corporation Does Not Constitute a "Disposition." Under Treasury Regulation § 1.47-6, a change in the stockholders of a corporation does not, by itself, constitute a "disposition" of investment credit property held directly or indirectly by the corporation. This regulation specifically addresses the situation where the ownership of a corporation changes (whether through an IPO, a secondary sale, a merger of the corporation's parent, or otherwise) but the corporation's direct or indirect ownership of the investment credit property remains unchanged. The regulation reflects the longstanding principle that a corporation is a separate legal entity from its stockholders, and a change in the identity of the stockholders does not affect the corporation's ownership of its assets — including its direct or indirect interest in a partnership that holds Section 38 property.
This principle applies with equal force here: the Proposed Offering will change the identity and proportional ownership of the stockholders of CBR (primarily by diluting the existing stockholders through the issuance of new primary shares and by transferring secondary shares from Pinnacle Vista to new public stockholders), but it will not change CBR's direct or indirect ownership of Solaris West Solar LLC or the underlying Project. CBR will continue to own one hundred percent (100%) of CBR Holdings LLC, which will continue to own one hundred percent (100%) of Calloway-Briggs Operating Company LLC, which will continue to hold its membership interest in Solaris West Solar LLC.
3. Secondary Sale by Pinnacle Vista Does Not Trigger Recapture. Pinnacle Vista Capital Partners III, LP is selling approximately 6,818,182 secondary shares of CBR common stock (representing approximately $150,000,000 at the assumed midpoint price of $22.00 per share) in the IPO. This sale reduces Pinnacle Vista's percentage ownership of CBR's outstanding common stock. However, this is a sale of shares of stock in CBR — the ultimate parent corporation — and not a transfer of any interest in the Solaris West partnership, the managing member entity, or the Project itself. Pinnacle Vista does not hold a direct or indirect membership interest in Solaris West Solar LLC (its only ownership interest is in CBR common stock), and the sale of its CBR shares does not constitute a disposition of Section 38 property or a partnership interest at the Project level.
4. Entity Structure Remains Intact. As noted above, the entity structure through which CBR holds the Solaris West Project will remain wholly intact before and after the IPO. There is no reorganization, restructuring, or simplification of the subsidiary chain contemplated in connection with the Offering. The only structural change associated with the IPO is the conversion of CBR's capital structure from a private, closely held company to a publicly traded company — a change that occurs at the very top of the organizational chart and has no impact on the Project-level ownership or operations.
C. Recapture Period Timeline
The timeline of the five-year ITC recapture period, in relation to the IPO process, is as follows:
Several observations are noteworthy:
(a) The DRS-1 was filed on April 11, 2022, which falls within the five-year recapture period. However, the filing of a draft registration statement is not a disposition or a recapture-triggering event.
(b) If the IPO had priced and closed in June or July 2022 (as originally anticipated before the offering was placed in dormant status on June 17, 2022), the closing would have occurred within the recapture period. Nevertheless, as analyzed above, the IPO would not have triggered recapture because it does not involve a disposition at the partnership or property level.
(c) If the offering is reactivated and ultimately closes after Q3 2025, the five-year recapture period will have expired entirely, rendering the ITC recapture analysis moot for the Solaris West Project. In that scenario, the risk factor disclosure in the S-1 can be updated to note the expiration of the recapture period.
(d) Regardless of the timing of the IPO closing, the analysis remains the same: the IPO does not trigger recapture because it is a stockholder-level transaction at the ultimate parent corporation and does not involve a disposition of the Section 38 property, the partnership interest, or any intermediate entity interest.
D. Conclusion on ITC Recapture
Based on the foregoing analysis, we conclude as follows:
1. The Proposed Offering of Calloway-Briggs Renewables Inc. common stock does not constitute a recapture event under Section 50(a) of the Code with respect to the Investment Tax Credit claimed by Veltara Basin Financial LLC in the Solaris West partnership.
2. The five-year recapture period for the Solaris West ITC commenced in Q3 2020 and is expected to expire in Q3 2025. The recapture period is currently running as of the date of this memorandum.
3. No affirmative action is required in connection with the IPO itself to avoid triggering ITC recapture.
4. However, we recommend that CBR management exercise caution and consult with Calderwood & Harkness and Kessler McBride before undertaking any post-IPO restructuring transactions that might involve a transfer, assignment, or other disposition of membership interests at the Solaris West Solar LLC or Calloway-Briggs Operating Company LLC level during the remaining recapture period (through Q3 2025). Such transactions — including, without limitation, any sale of Solaris West Solar LLC membership interests, any merger or conversion of Calloway-Briggs Operating Company LLC or CBR Holdings LLC, or any transfer of the Solaris West solar PV facility itself — could potentially trigger recapture and should be carefully analyzed before implementation.
5. Kessler McBride & Associates LLP has reviewed this analysis and concurs with our conclusions.
VI. Consent and Notice Requirements Under the Partnership Agreement
A. Relevant Provisions
The Solaris West Solar LLC Amended and Restated Operating Agreement contains several provisions that are relevant to the Proposed Offering. We have reviewed the operative sections and summarize the key provisions below.
Section 8.04 — Notice of Change of Control. Section 8.04 of the Partnership Agreement requires the managing member (Calloway-Briggs Operating Company LLC) to provide written notice to the Tax-Equity Investor (Veltara Basin Financial LLC) of any "Change of Control" of the managing member or any direct or indirect parent entity of the managing member. The notice must be delivered promptly upon the managing member becoming aware that a Change of Control is proposed or is reasonably anticipated to occur.
Definition of "Change of Control." The Partnership Agreement defines "Change of Control" broadly to include, among other events, an initial public offering of the equity securities (including common stock) of any direct or indirect parent of the managing member. Because Calloway-Briggs Renewables Inc. is an indirect parent of Calloway-Briggs Operating Company LLC (through CBR Holdings LLC), the Proposed Offering constitutes a "Change of Control" as defined in the Partnership Agreement.
Section 8.05 — Consent Requirement. Section 8.05 of the Partnership Agreement provides that the prior written consent of the Tax-Equity Investor must be obtained before any Change of Control is "consummated." The consent provision specifies that such consent "shall not be unreasonably withheld, conditioned, or delayed." This formulation imposes an obligation of reasonableness on Veltara Basin, meaning that Veltara Basin cannot refuse consent absent a legitimate, objectively reasonable basis for doing so. Given that the IPO does not trigger ITC recapture, does not alter the partnership structure or the allocation of tax benefits, and does not adversely affect Veltara Basin's economic or tax position, we believe that any refusal of consent would be unreasonable and that consent should be forthcoming.
Section 8.06 — Officer's Certificate. Section 8.06 of the Partnership Agreement requires the managing member to deliver an officer's certificate to the Tax-Equity Investor confirming that the Change of Control does not constitute a "Disqualifying Event." The Partnership Agreement defines "Disqualifying Event" to include, among other things, any event that constitutes or triggers an ITC recapture event under Section 50(a) of the Code. Because we have concluded that the IPO does not trigger ITC recapture, the officer's certificate can be executed and delivered in connection with the consent request.
B. Recommended Actions
Based on our review of the foregoing provisions, we recommend the following actions:
1. Delivery of Written Notice. CBR (through Calloway-Briggs Operating Company LLC, as managing member of Solaris West Solar LLC) should deliver written notice to Veltara Basin Financial LLC of the Proposed Offering, in compliance with Section 8.04 of the Partnership Agreement. The notice should describe the material terms of the IPO, including the identity of the issuer, the expected aggregate offering size, the proposed listing exchange, and the fact that no membership interests in Solaris West Solar LLC or Calloway-Briggs Operating Company LLC will be transferred or otherwise affected.
2. Consent Request. Concurrently with the notice, CBR should formally request the prior written consent of Veltara Basin Financial LLC under Section 8.05 of the Partnership Agreement. A draft consent request letter has been prepared by Calderwood & Harkness and is referenced as Document 114 in the C&H document index. The letter is addressed to Karen Fujimoto, Partner, Tax Equity Investments, at Veltara Basin Financial LLC.
3. Representations in Consent Request. The consent request letter should include a representation that the Proposed Offering does not constitute a Disqualifying Event under the Partnership Agreement and, specifically, does not trigger ITC recapture under Section 50(a) of the Code. The letter should briefly summarize the basis for this conclusion (i.e., no disposition at the partnership or property level; entity structure remains intact; change in stockholders of the ultimate parent does not constitute a disposition under Treasury Regulation § 1.47-6).
4. Officer's Certificate. CBR should prepare and deliver the officer's certificate required by Section 8.06 of the Partnership Agreement, to be executed by Priya Anand (SVP Finance & Treasurer) or Marcus Yoon (General Counsel) on behalf of Calloway-Briggs Operating Company LLC. The certificate should confirm that the Change of Control represented by the IPO does not constitute a Disqualifying Event under the Partnership Agreement.
5. Timing. As of the date of this memorandum, the consent request has been drafted but not yet delivered to Veltara Basin. We recommend that delivery occur promptly following completion of the S-1 amendment process and before any public filing of the Registration Statement with the SEC. Public filing of the S-1 could itself be viewed as a material step toward consummation of the Change of Control, and it would be prudent to have obtained (or at least formally requested) Veltara Basin's consent before that filing occurs.
6. Coordination. Brendan Walsh (Lead Associate, Corporate) should coordinate with Veltara Basin's relationship counsel (if any) to facilitate the consent process. We note that Whitfield Archer & Doss LLP ("WA&D") represents Pinnacle Vista Capital Partners III, LP in connection with the IPO but does not separately represent Veltara Basin Financial LLC. If Veltara Basin engages separate counsel to review the consent request, we should be prepared to respond to any diligence inquiries from such counsel.
Status. As of the date hereof, the consent request has been drafted and is under internal review. Delivery is pending the completion of the current S-1 amendment cycle and coordination with the IPO timetable. Given that the offering was placed in dormant status on June 17, 2022, the consent request should be refreshed and redelivered (or confirmed as still valid) at the time of any reactivation of the offering.
VII. Impact on S-1 Registration Statement Disclosures
The Solaris West tax-equity partnership and the associated ITC recapture risk have significant implications for the disclosures to be included in the S-1 Registration Statement. We address each category of disclosure below.
A. Risk Factors
We recommend the inclusion of the following risk factors in the S-1:
1. ITC Recapture Risk — Solaris West. A specific risk factor should be included addressing the ITC recapture risk associated with the Solaris West tax-equity structure. This risk factor should address the following points:
(a) The Solaris West Project claimed the Investment Tax Credit under Section 48 of the Code, which is subject to a five-year recapture period under Section 50(a) that expires in Q3 2025.
(b) Although the IPO itself does not trigger ITC recapture, certain future transactions at the partnership or property level — including a disposition of the Solaris West solar PV facility, a disposition of CBR's membership interest in the Solaris West partnership, or a cessation of qualifying use of the Project — could trigger recapture during the remaining recapture period.
(c) The potential magnitude of the recapture exposure should be disclosed. The ITC recapture amount declines by twenty percent (20%) per year over the five-year recapture period. As of Q3 2022 (approximately two years after placed-in-service), the maximum recapture exposure is sixty percent (60%) of the original ITC amount, declining to forty percent (40%) in Q3 2023, twenty percent (20%) in Q3 2024, and zero after Q3 2025.
(d) The risk factor should note the potential impact of future legislative changes on ITC eligibility and recapture rules, including the possibility that pending legislation (such as the Build Back Better Act or successor proposals) could modify the recapture provisions or the ITC rates applicable to solar energy property.
2. General Tax-Equity Structure Risk. A broader risk factor should be included addressing CBR's reliance on tax-equity financing structures for the development and financing of its renewable energy projects and the risk that the IRS could challenge the allocation of tax benefits under partnership-flip structures generally. This risk factor should note that:
(a) The IRS has not issued formal guidance confirming that the Rev. Proc. 2007-65 safe harbor applies to solar energy projects (as opposed to wind projects), and there is a risk that the IRS could take a contrary position in the future.
(b) If the IRS were to successfully challenge the validity of the partnership or the allocation of tax credits to the Tax-Equity Investor, the consequences could include recharacterization of the arrangement as debt, denial of the ITC to Veltara Basin, and potential indemnification obligations of the Company under the Partnership Agreement.
(c) Future tax-equity transactions may be subject to changing IRS interpretation, legislative amendments, or judicial decisions that could affect the availability or allocation of tax credits.
B. Business Section / Description of Indebtedness
The S-1 should include a description of the Solaris West tax-equity partnership in the "Description of Indebtedness" section (or a comparable section describing the Company's material financing arrangements). The description should cover:
(a) The identity of the Tax-Equity Investor: Veltara Basin Financial LLC.
(b) The amount invested: $280,000,000.
(c) The structure of the arrangement: a partnership-flip transaction at the Solaris West Solar LLC level.
(d) The expected flip date: 2028 (or the date-certain backstop of December 31, 2030).
(e) The allocation percentages: 99%/1% pre-flip (tax items) and 90%/10% pre-flip (cash); 5%/95% post-flip (all items).
(f) The post-flip purchase option mechanics: Calloway-Briggs Operating Company LLC holds a call option to acquire Veltara Basin's residual interest at fair market value.
(g) Change-of-control consent requirements: the Partnership Agreement requires notice to and prior consent from Veltara Basin in connection with a Change of Control, including the IPO.
The description should be sufficiently detailed to enable an investor to understand the material terms of the arrangement, the allocation of tax benefits to the Tax-Equity Investor, and the expected timeline for the flip and the potential acquisition of Veltara Basin's residual interest.
C. MD&A and Financial Statements
MD&A. The Management's Discussion and Analysis of Financial Condition and Results of Operations section of the S-1 should include a discussion of the HLBV (Hypothetical-Liquidation-at-Book-Value) methodology used to account for the Solaris West tax-equity partnership in CBR's consolidated financial statements. The HLBV methodology is the standard approach for financial reporting of income and loss allocations in tax-equity partnerships and is required by ASC 810 (Consolidation) and the related guidance. The MD&A discussion should explain, in plain language, how the HLBV methodology affects the Company's reported net income, the allocation of income and loss between the Company and the Tax-Equity Investor, and the presentation of the Tax-Equity Investor's interest in the consolidated financial statements. A separate and more detailed analysis of the HLBV methodology is set forth in the HLBV Methodology Review Memorandum (Document 104), which should be referenced in connection with any revisions to the MD&A disclosure.
Financial Statement Notes. The notes to the Company's audited consolidated financial statements (prepared by Ashford & Pemberton LLP, with Gregory Sondheim serving as the lead engagement partner and Irene Valdez as audit manager) should include disclosure of the tax-equity arrangement, including the allocation percentages, the expected flip date, the accounting methodology (HLBV), and the Company's consolidation treatment of Solaris West Solar LLC.
SEC Comment Letters. The SEC Staff has specifically inquired about the adequacy of the Company's HLBV methodology disclosure in its comments on the S-1. The first-round comment letter, received on May 6, 2022, contained eighteen (18) comments, several of which related to the HLBV methodology and the tax-equity partnership disclosure. Amendment No. 1 to the S-1, filed on May 20, 2022, included enhanced disclosure in response to these comments. The second-round comment letter, received on June 3, 2022, contained seven (7) comments, including further follow-up questions on the HLBV methodology and the presentation of the Tax-Equity Investor's interest. Amendment No. 2 to the S-1, filed on June 10, 2022, included further enhanced disclosure responsive to the SEC Staff's comments. We recommend continued monitoring of any additional SEC comments on these topics in connection with any reactivation of the offering.
D. Material U.S. Federal Income Tax Consequences
The tax-consequences section of the prospectus, which addresses the material U.S. federal income tax consequences of the purchase, ownership, and disposition of CBR common stock by U.S. and non-U.S. holders, should note that CBR's effective tax rate may be affected by the tax-equity partnership allocations and the eventual flip. Specifically, during the pre-flip period, ninety-nine percent (99%) of the tax items generated by the Solaris West Project (including depreciation deductions and taxable income or loss) are allocated to Veltara Basin rather than to CBR, which affects CBR's consolidated taxable income and effective tax rate. After the flip, CBR will receive ninety-five percent (95%) of all allocations, which will increase its share of the Project's taxable income and may affect the effective rate.
The draft tax opinion prepared by Leonard Cross (Document 106) addresses the material U.S. federal income tax consequences to stockholders of the purchase, ownership, and disposition of CBR common stock, but it does not specifically address the tax-equity structure or the ITC recapture analysis. No opinion on the tax-equity structure itself is being filed as an exhibit to the S-1. The tax-equity structure is addressed through disclosure in the risk factors, Description of Indebtedness, MD&A, and financial statement notes, as described above. This approach is consistent with market practice for IPOs of renewable energy companies with tax-equity partnerships.
VIII. Coordination with External Advisors
A. Kessler McBride & Associate

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT WORK PRODUCT

MEMORANDUM

C&H MATTER NO.: 1015-00001

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