CALDERWOOD & HARKNESS LLP 1000 Louisiana Street, Suite 5500 Houston, TX 77002
CONFIDENTIAL — ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT PRIVILEGED
MEMORANDUM
TO: File — Matter No. 1015-00003
FROM: David Stanton, Lead Associate Michelle Tsao, Working Associate
REVIEWED BY: George Trujillo, Responsible Partner
DATE: February 17, 2023
RE: Closing Memorandum — Lone Star Battery Storage Project (Calloway-Briggs Renewables Inc.)
This memorandum is prepared for the internal files of Calderwood & Harkness LLP and is protected by the attorney-client privilege and the work product doctrine. This memorandum reflects the mental impressions, conclusions, and legal analysis of the attorneys involved in this engagement. It should not be disclosed to any person or entity outside of Calderwood & Harkness LLP without the prior written approval of the Responsible Partner.
I. PURPOSE AND SUMMARY
This memorandum summarizes the completed transaction relating to the development, construction financing, and principal agreements for the Lone Star Battery Storage Project (the "Project") for the firm's internal files. It is intended to provide a comprehensive record of the transaction, the parties involved, the material terms of all principal agreements, the conditions precedent to financial close and their satisfaction, and the status of post-closing obligations and upcoming milestones.
Calderwood & Harkness LLP ("C&H" or the "Firm") represented Calloway-Briggs Renewables Inc. ("CBR") and its wholly owned project subsidiary, Lone Star Storage I, LLC ("Lone Star Storage" or the "Project Company"), in the negotiation, drafting, and closing of all principal development agreements and the construction financing for the Project. The scope of the Firm's engagement encompassed the full range of transactional work required to bring the Project from an early-stage development opportunity through executed definitive agreements and financial close, including the negotiation of the engineering, procurement, and construction agreement, the equipment supply agreement, the ground lease, the interconnection agreement, the construction loan credit agreement, and all ancillary financing documents, as well as the delivery of a legal opinion at financial close.
The engagement opened on September 6, 2022, following the execution of an engagement letter between C&H and CBR. Principal agreements — comprising the EPC Agreement, Equipment Supply Agreement, Ground Lease, Interconnection Agreement, Credit Agreement, Collateral Assignment of Project Contracts, Pledge Agreement, and Completion Guarantee — were executed on December 1, 2022 (the "Signing Date"). Financial Close, defined as the date on which all conditions precedent to the initial advance under the Credit Agreement were satisfied and the first draw was funded, occurred on February 10, 2023. All closing confirmations, including receipt and confirmation of final recorded filings and post-signing deliverables, were received on February 17, 2023. The matter is now closed and completed.
The principal members of the C&H engagement team are as follows:
• Billing Partner: Patricia Dunmore
• Responsible Partner: George Trujillo
• Lead Associate: David Stanton
• Working Associate: Michelle Tsao
This memorandum should be read in conjunction with the comprehensive Closing Checklist, which is maintained separately and catalogs all executed documents by category.
II. TRANSACTION OVERVIEW
A. Project Description
The following summarizes the material characteristics and specifications of the Project:
• Project Name: Lone Star Battery Storage Project
• Technology: Lithium Iron Phosphate (LFP) Battery Energy Storage System ("BESS"). The Project utilizes LFP chemistry, which offers enhanced thermal stability, longer cycle life, and improved safety characteristics relative to other lithium-ion chemistries commonly deployed in utility-scale storage applications.
• Capacity: 50 MW / 200 MWh, providing a four-hour duration at full rated power output. The system is designed to charge and discharge on a daily basis, participating in energy arbitrage, ancillary services, and capacity markets within the ERCOT wholesale electricity market.
• Location: The Project is situated on an approximately 15-acre parcel located at 4800 West University Boulevard, Odessa, Texas 79764, within Ector County, Texas. The approximate geographic coordinates of the Project site are 31.85° N latitude, 102.40° W longitude. The site is located within the western portion of the Permian Basin, in proximity to existing transmission infrastructure.
• Legal Description of Site: A portion of Survey No. 42, Block 42, T-1-S, T&P RR Co. Survey, Ector County, Texas. The full metes and bounds description of the leased premises is set forth in Exhibit A to the Ground Lease.
• Total Project Development Value: $40,000,000, inclusive of all development, engineering, procurement, construction, interconnection, financing, and soft costs.
• ERCOT Resource ID (pending): LSBESS_01. The formal ERCOT Resource ID will be assigned upon completion of interconnection and registration of the resource with ERCOT as a generation resource.
• Interconnection Point: Aldermere & Co. ("Oncor"), Western Permian 138 kV Substation, Ector County, Texas. The Project will interconnect to the ERCOT transmission grid via an approximately 1.2-mile, 138 kV overhead gen-tie line extending from the Project site to the Western Permian substation.
• ERCOT Interconnection Queue Number: INR-22-03347. The interconnection application was filed in March 2022, and the Full Interconnection Study was completed in August 2022.
• Expected Commercial Operation Date: August 15, 2023, based on the current construction schedule and equipment delivery timeline.
• Guaranteed COD under EPC Agreement: September 1, 2023, with a 15-day cure period for the EPC Contractor to achieve Substantial Completion before delay liquidated damages begin to accrue. This date was negotiated to provide a reasonable buffer beyond the expected Commercial Operation Date, accommodating potential minor schedule variances while preserving the Project Company's rights under the delay liquidated damages regime.
B. Client Background
CBR is a Texas corporation (privately held), headquartered at 2200 West Commerce Street, Suite 1400, Houston, Texas 77002, Employer Identification Number 82-3047591. CBR was founded in 2014 by Raymond T. Calloway and Sandra M. Briggs and has grown to become a significant participant in the ERCOT renewable energy and energy storage market.
CBR develops, owns, and operates utility-scale renewable energy and energy storage assets across the ERCOT market footprint. As of the date of this memorandum, CBR has approximately 1.2 GW of solar generation capacity and 400 MW of battery energy storage capacity in various stages of development, construction, and commercial operation. CBR reported annual revenues of approximately $185 million for its fiscal year ending December 31, 2021, derived primarily from energy sales, ancillary services revenues, and capacity payments generated by its operating portfolio.
The principal officers of CBR are:
• Raymond T. Calloway — Chairman and Chief Executive Officer
• Sandra M. Briggs — President and Chief Operating Officer
CBR is majority-owned by its founders, Raymond T. Calloway and Sandra M. Briggs, and their respective family trusts. A 35% minority equity stake in CBR is held by Ridgepoint Capital Partners, LP, an infrastructure-focused private equity fund based in Dallas, Texas. Ridgepoint's investment in CBR was made in connection with a 2019 growth equity transaction that is not the subject of this memorandum.
C. Project Company
Lone Star Storage I, LLC is a Texas limited liability company, Employer Identification Number 88-1623504, wholly owned and managed by CBR. The Project Company's registered agent is CT Agents of Texas, LLC, 1999 Bryan Street, Suite 900, Dallas, Texas 75201.
Lone Star Storage I, LLC was formed as a single-purpose project company for the sole purpose of holding all Project assets, contracts, permits, and related rights. The formation of a bankruptcy-remote, single-purpose entity is consistent with standard project finance structuring conventions and was required by the construction lender, Brazos River National Bank, N.A. ("BRNB"), as a condition of the construction loan facility. The Project Company's operating agreement contains customary single-purpose entity provisions, including restrictions on incurring additional indebtedness, engaging in business other than the Project, and merging or consolidating with any other entity.
III. PARTIES TO THE TRANSACTION
Set forth below is a description of each of the principal parties to the transaction, together with their respective roles, contact information, and legal representation.
A. Client / Project Developer
Calloway-Briggs Renewables Inc. ("CBR") Texas corporation 2200 West Commerce Street, Suite 1400 Houston, TX 77002 EIN: 82-3047591
Role: Project developer; parent company and sole member of the Project Company; guarantor under the Completion Guarantee delivered to BRNB; equity co-investor (contributing 65% of total project equity, or $9,100,000).
Principal Officers:
• Raymond T. Calloway, Chairman & CEO
• Sandra M. Briggs, President & COO
Legal Counsel: Calderwood & Harkness LLP
B. Project Company / SPV
Lone Star Storage I, LLC Texas limited liability company c/o Calloway-Briggs Renewables Inc. 2200 West Commerce Street, Suite 1400 Houston, TX 77002 EIN: 88-1623504
Role: Owner of all Project assets, contracts, and permits; borrower under the Credit Agreement; lessee under the Ground Lease; owner/counterparty under the EPC Agreement; counterparty to the Equipment Supply Agreement; interconnection customer under the Interconnection Agreement; named insured under the builder's risk and general liability insurance policies.
Legal Counsel: Calderwood & Harkness LLP
C. Equity Co-Investor
Ridgepoint Capital Partners, LP Delaware limited partnership 3000 McKinney Avenue, Suite 2500 Dallas, TX 75204
Managing Partner: Lawrence K. Denham
Role: Ridgepoint Capital Partners, LP ("Ridgepoint") is an infrastructure-focused private equity fund with approximately $2.8 billion in assets under management. Ridgepoint holds a 35% equity interest in CBR and has committed a $4,900,000 equity contribution to the Project, representing 35% of the total $14,000,000 equity requirement. Ridgepoint's equity contribution is made through its existing ownership interest in CBR, and Ridgepoint does not hold a direct membership interest in the Project Company. Ridgepoint's participation in the Project was governed by the terms of its existing equity documents with CBR and was not separately documented as part of this engagement.
D. EPC Contractor
Meridian Power Construction, Inc. Texas corporation 8700 Shoal Creek Boulevard, Suite 300 Austin, TX 78757
CEO: Thomas R. Overstreet
Role: Engineering, procurement, and construction contractor for the Project. Meridian Power Construction, Inc. ("Meridian" or the "EPC Contractor") is a specialty contractor focused on renewable energy and energy storage installations in the ERCOT market. Meridian has completed over 2 GW of renewable energy installations across Texas and maintains a bonding capacity of approximately $500 million, supported by its relationship with Ironclad Surety Corporation. Meridian is the counterparty to the EPC Agreement and is responsible for the design, engineering, procurement, construction, testing, and commissioning of the 50 MW / 200 MWh BESS in accordance with the terms of the EPC Agreement.
Legal Counsel: Whitford, Garrety & Neale LLP Lead Partner: Jessica A. Whitford Lead Associate: Brian M. Kennard 100 Congress Avenue, Suite 3200 Austin, TX 78701
E. Battery Equipment Supplier
Harmon-Dietrich Energy Solutions, LLC Delaware limited liability company 450 Technology Way San Jose, CA 95110
CEO: Ingrid N. Harmon
Role: Manufacturer and integrator of LFP battery modules and power conversion systems for the Project. Harmon-Dietrich Energy Solutions, LLC ("HDES" or the "Equipment Supplier") is a leading North American manufacturer and systems integrator of lithium iron phosphate battery energy storage solutions for utility-scale applications. HDES maintains a North American manufacturing and assembly facility in Pflugerville, Texas, from which the battery modules and power conversion systems for the Project will be sourced. HDES is the counterparty to the Equipment Supply Agreement and is responsible for the manufacture, testing, delivery, and warranty of all battery modules, power conversion system inverters, battery management systems, thermal management systems, and container enclosures specified in the Equipment Supply Agreement.
F. Site Lessor
Permian Basin Land Holdings, LP Texas limited partnership 1100 North Grant Avenue Odessa, TX 79761
General Partner: Marcus W. Eskridge
Role: Lessor under the Ground Lease. Permian Basin Land Holdings, LP ("PBLH") is a family-owned ranching and mineral-rights entity that owns approximately 12,000 acres of land in Ector County, Texas. PBLH leases the approximately 15-acre Project site to the Project Company under the Ground Lease. PBLH's general partner, Marcus W. Eskridge, executed the Ground Lease and the subordination, non-disturbance, and attornment agreement ("SNDA") on behalf of PBLH at closing.
Legal Counsel: Dunlap & Richter, PLLC Lead Attorney: Howard F. Dunlap 201 East 5th Street, Suite 800 Odessa, TX 79761
G. Construction Lender
Brazos River National Bank, N.A. ("BRNB") National banking association 600 Main Street Fort Worth, TX 76102
Relationship Manager: Angela P. Montrose, Senior Vice President, Energy Finance
Role: Administrative Agent and sole Lender under the Credit Agreement. BRNB is a regional bank with approximately $18 billion in total assets and is an active lender in the Texas energy and infrastructure sectors. BRNB is providing a $26,000,000 construction-to-term loan facility to the Project Company, representing 65% of the total Project development value.
Legal Counsel: Archibald, Fenn & Shaw LLP Lead Partner: Robert C. Fenn 1700 Pacific Avenue, Suite 4000 Dallas, TX 75201
H. Independent Engineer
Norgate Technical Advisors, Inc. Texas corporation 700 Louisiana Street, Suite 2100 Houston, TX 77002
Lead Engineer: Dr. Phillip S. Reardon, P.E.
Role: Retained by BRNB for independent technical review and certification of the Project. Norgate Technical Advisors, Inc. ("Norgate") delivered its Independent Engineer's Report in connection with the satisfaction of the conditions precedent to Financial Close, certifying the technical feasibility and adequacy of the Project design and the EPC scope. Norgate will also serve as the Independent Engineer during the construction period, reviewing and certifying draw requests submitted by the Project Company under the Credit Agreement and confirming the achievement of construction milestones.
I. Insurance Broker and Carriers
Insurance Broker: Kensington Risk Advisors, LLC 900 Smith Street, Suite 500 Houston, TX 77002 Lead Broker: Dana J. Carwell
Role: Insurance broker retained by CBR and the Project Company to procure the Project insurance program, including builder's risk and general liability coverage.
Builder's Risk Carrier: Commonwealth Specialty Insurance Company Policy Limit: $42,000,000
Role: Issuer of the builder's risk insurance policy for the Project, providing all-risk coverage for the full replacement value of the Project during the construction period. The policy limit of $42,000,000 exceeds the total Project development value of $40,000,000, providing an additional cushion for potential cost overruns and escalation.
General Liability Carrier: Pinnacle Mutual Assurance Corp.
Role: Issuer of the general liability insurance policy for the Project, providing commercial general liability coverage for the Project Company and the Project during the construction period and initial operating period.
J. Surety
Ironclad Surety Corporation Illinois corporation
Role: Issued a performance bond in the amount of $31,200,000 and a payment bond in the amount of $31,200,000, each representing 100% of the EPC Contract Price, on behalf of Meridian Power Construction, Inc. in favor of the Project Company. The surety bonds were required under both the EPC Agreement and the Credit Agreement as conditions precedent to the commencement of construction and to Financial Close, respectively.
K. Title Company
Lone Star Abstract & Title Co. 312 North Texas Avenue Odessa, TX 79761
Role: Provided title searches, issued the leasehold title insurance policy (in the amount of $26,000,000, matching the loan amount under the Credit Agreement), and coordinated the ALTA/NSPS land title survey for the Project site. The leasehold title insurance policy was issued in favor of the Project Company as the named insured, with BRNB named as the insured lender under a lender's endorsement.
L. Environmental Consultant
Terranova Environmental Group, Inc. 4500 Greenville Avenue, Suite 220 Dallas, TX 75206
Lead Consultant: Karen V. Albrecht
Role: Prepared the Phase I Environmental Site Assessment (the "Phase I ESA") for the Project site in accordance with ASTM Standard E1527-21. The Phase I ESA was completed and delivered in connection with the satisfaction of the conditions precedent to Financial Close. The report concluded that no recognized environmental conditions ("RECs"), controlled recognized environmental conditions, or historical recognized environmental conditions were identified at the Project site. No Phase II investigation was recommended or required.
IV. CAPITAL STRUCTURE
A. Summary Table
The following table summarizes the capital structure of the Project:
The capital structure reflects a 65/35 debt-to-equity ratio, which is consistent with market standards for construction-phase financing of utility-scale battery energy storage projects in the ERCOT market. The leverage level was the product of negotiation between CBR and BRNB, informed by the Independent Engineer's financial model and BRNB's credit committee parameters for energy storage assets.
B. Equity Breakdown
The total equity commitment of $14,000,000 is allocated between CBR and Ridgepoint Capital Partners in proportion to Ridgepoint's 35% equity interest in CBR, as follows:
• CBR equity share (65% of $14,000,000): $9,100,000
• Ridgepoint Capital Partners equity share (35% of $14,000,000): $4,900,000
Ridgepoint's equity contribution is made through its existing ownership interest in CBR. Ridgepoint does not hold a direct interest in the Project Company, and its equity commitment to the Project is governed by the terms of its existing equity arrangements with CBR. Equity contributions are required to be made pro rata with debt draws under the Credit Agreement, pursuant to the equity contribution schedule agreed between CBR and BRNB.
C. Debt
The construction loan facility provided by BRNB is a $26,000,000 construction-to-term loan, representing 65% of the total Project development value. The material financial terms of the facility are as follows:
• Facility Amount: $26,000,000
• Interest Rate: Secured Overnight Financing Rate ("SOFR") plus 275 basis points (2.75%), calculated on the actual outstanding principal balance. The Credit Agreement includes a SOFR floor of 0.50%, ensuring that the applicable SOFR rate used for interest calculations will not fall below 50 basis points regardless of prevailing market rates.
• Unused Commitment Fee: 0.50% per annum on undrawn and uncanceled commitments under the facility, accruing daily and payable quarterly in arrears.
• Maturity Date: February 10, 2030, which is seven years from the date of Financial Close (February 10, 2023). The maturity date applies to both the construction phase and the term loan phase of the facility.
• Amortization: The construction-to-term loan converts from a revolving construction facility to an amortizing term loan upon the achievement of Commercial Operation. Amortization during the term loan period is sculpted based on the projected contracted cash flows of the Project, targeting a minimum debt service coverage ratio ("DSCR") of 1.40x throughout the term.
The debt terms are discussed in further detail in connection with the Credit Agreement in Section V.E below.
V. KEY AGREEMENTS — SUMMARY OF TERMS
Set forth below is a summary of the material terms of each of the principal agreements negotiated, drafted, and/or reviewed by C&H in connection with the Project. This summary is provided for reference purposes and does not purport to be a complete description of any agreement. The full terms and conditions of each agreement are set forth in the executed versions maintained in the firm's closing binder.
A. EPC Agreement
• Parties: Lone Star Storage I, LLC ("Owner") and Meridian Power Construction, Inc. ("Contractor")
• Date: December 1, 2022
• Contract Price: $31,200,000 (fixed, lump-sum)
Scope of Work. The EPC Agreement provides for the design, engineering, procurement, construction, testing, and commissioning of the 50 MW / 200 MWh LFP Battery Energy Storage System on a full-wrap, turnkey, fixed-price basis. The Contractor's scope encompasses all work necessary to deliver a fully operational and grid-connected BESS to the Owner, including civil and structural work, electrical installation, equipment procurement and installation, system integration, performance testing, and commissioning. The EPC Contractor is responsible for all subcontractor management and coordination, and the Owner's sole contractual counterparty for construction-related matters is the EPC Contractor.
Performance Guarantees. The EPC Agreement includes the following performance guarantees, each of which must be demonstrated during the performance testing protocol conducted prior to Substantial Completion:
• Minimum Round-Trip Efficiency: 87%. The BESS must demonstrate a round-trip efficiency (the ratio of energy discharged to energy charged, measured at the point of interconnection) of at least 87% during the performance test.
• Guaranteed Capacity at COD: 50 MW / 200 MWh (±2%). The BESS must demonstrate the ability to charge and discharge at the rated power and energy capacity within a tolerance band of plus or minus 2% of nameplate values.
• Availability Guarantee (Year 1): 97%. The BESS must achieve an availability factor of at least 97% during the first year of commercial operation, as measured in accordance with the availability calculation methodology set forth in the EPC Agreement.
Guaranteed Commercial Operation Date. The Guaranteed COD under the EPC Agreement is September 1, 2023. The Contractor is entitled to a 15-day cure period following the Guaranteed COD to achieve Substantial Completion before delay liquidated damages begin to accrue. Substantial Completion is defined in the EPC Agreement to require, among other things, successful completion of performance testing, receipt of all required governmental approvals for commercial operation, and delivery of all required close-out documentation.
Delay Liquidated Damages. If the Contractor fails to achieve Substantial Completion by the Guaranteed COD (as extended by the 15-day cure period), delay liquidated damages accrue at the rate of $25,000 per day of delay beyond the cure period. Delay liquidated damages are capped at $1,560,000, which represents 5% of the Contract Price. The delay liquidated damages were negotiated to reflect the Owner's estimated loss of revenue and increased carrying costs for each day of delay beyond the Guaranteed COD.
Performance Liquidated Damages (Capacity Shortfall). If the BESS fails to achieve the guaranteed energy capacity of 200 MWh at Substantial Completion, the Contractor is obligated to pay performance liquidated damages calculated at $4,000 per MWh for each MWh by which the demonstrated capacity falls below the guaranteed 200 MWh. Performance liquidated damages for capacity shortfall are capped at $1,560,000, which represents 5% of the Contract Price.
Aggregate Liquidated Damages Cap. The aggregate cap on all liquidated damages under the EPC Agreement — including both delay liquidated damages and performance liquidated damages — is $3,120,000, which represents 10% of the Contract Price. This aggregate cap was a significant point of negotiation, with the Owner initially seeking a 15% aggregate cap and the Contractor proposing a 7.5% cap. The 10% level ultimately agreed upon is consistent with market norms for utility-scale energy storage EPC contracts in the ERCOT market.
Retainage. The Owner retains 10% of each progress payment due to the Contractor under the EPC Agreement. Fifty percent (50%) of the accumulated retainage is released upon the achievement of Substantial Completion, and the remaining 50% is released upon the achievement of Final Completion. Final Completion requires, among other things, delivery of all as-built drawings, completion of all punch list items, delivery of all warranties and guarantees, and expiration of all applicable lien filing periods.
Warranty Period. The Contractor provides a general construction warranty for a period of two (2) years from the date of Substantial Completion. During the warranty period, the Contractor is obligated to repair or replace, at its sole cost and expense, any defective work, materials, or equipment (other than equipment covered by the Equipment Supplier's separate product warranty under the Equipment Supply Agreement).
Bonding. The Contractor is required to provide, and has provided, a performance bond and a payment bond, each in the amount of 100% of the Contract Price ($31,200,000), issued by Ironclad Surety Corporation. The performance bond guarantees the Contractor's faithful performance of all obligations under the EPC Agreement, and the payment bond guarantees payment of all subcontractors and material suppliers.
Governing Law. The EPC Agreement is governed by the laws of the State of Texas. Disputes are subject to binding arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, with the seat of arbitration in Houston, Texas.
Contractor's Counsel. Whitford, Garrety & Neale LLP (lead partner: Jessica A. Whitford; lead associate: Brian M. Kennard).
B. Equipment Supply Agreement
• Parties: Lone Star Storage I, LLC and Harmon-Dietrich Energy Solutions, LLC
• Date: December 1, 2022
• Contract Value: $18,400,000
Relationship to EPC Agreement. The Equipment Supply Agreement ("ESA") is structured as a direct agreement between the Project Company and the Equipment Supplier. The contract value of $18,400,000 is included within the EPC Contract Price of $31,200,000 as a pass-through cost; however, the direct agreement was established to provide the Project Company with direct warranty privity with the Equipment Supplier for the long-term product warranties, which extend well beyond the EPC Contractor's two-year construction warranty period. The ESA was also required by BRNB to enable the Lender to exercise step-in rights directly against the Equipment Supplier in the event of a default under the Credit Agreement.
Equipment Scope. The ESA covers the manufacture, factory testing, delivery, and on-site commissioning support for the following equipment:
• 50 MW / 200 MWh LFP battery modules (Model: HD-LFP-200E), configured in modular containerized units
• Ten (10) × 5 MW power conversion system ("PCS") inverters
• Battery management system ("BMS") for all battery modules
• Thermal management system (HVAC) for all battery containers
• Container enclosures for all battery modules and power conversion systems
Delivery Schedule. All equipment is to be delivered FOB Project site, in four (4) shipments scheduled between March 15, 2023 and June 1, 2023. The delivery schedule was coordinated with the EPC Contractor's construction schedule to align equipment arrivals with the planned installation sequence.
Delay Liquidated Damages. If the Equipment Supplier fails to deliver any shipment by the scheduled delivery date, delay liquidated damages accrue at the rate of $15,000 per day per shipment. The aggregate delay liquidated damages under the ESA are capped at $920,000, which represents 5% of the ESA contract value.
Product Warranty. The Equipment Supplier provides the following warranties under the ESA:
• Capacity Warranty (10 years): The Equipment Supplier warrants that the BESS will retain a minimum of 80% of its nameplate energy storage capacity at the end of the tenth year of commercial operation, subject to the performance degradation curve and testing protocols specified in the ESA. If the system falls below the warranted capacity threshold, the Equipment Supplier is obligated to provide replacement or supplemental battery modules at no additional cost to the Project Company.
• Defect Warranty (5 years): The Equipment Supplier warrants all equipment against defects in materials and workmanship for a period of five (5) years from the date of Substantial Completion of the Project under the EPC Agreement. This warranty covers the repair or replacement of any defective components, including labor and shipping costs.
Governing Law. The ESA is governed by the laws of the State of Texas.
C. Ground Lease
• Parties: Permian Basin Land Holdings, LP ("Lessor") and Lone Star Storage I, LLC ("Lessee")
• Date: December 1, 2022
Premises. The Ground Lease covers approximately 15.0 acres, being a portion of Survey No. 42, Block 42, T-1-S, T&P RR Co. Survey, Ector County, Texas. The leased premises are described by metes and bounds in Exhibit A to the Ground Lease and depicted on the survey plat attached as Exhibit B.
Term. The initial term of the Ground Lease is 25 years, commencing on December 1, 2022 and expiring on December 1, 2047. The Lessee has the right to extend the term for two (2) successive 5-year renewal periods, exercisable by written notice to the Lessor not less than 12 months prior to the expiration of the then-current term. If both renewal options are exercised, the maximum total term of the Ground Lease is 35 years, expiring on December 1, 2057.
Rent. Base rent under the Ground Lease is structured in two phases:
• Development Period (Year 1): $1,200 per acre per year × 15 acres = $18,000 per year, payable in advance in equal monthly installments of $1,500. The Development Period rent applies during the first year of the lease term, corresponding to the construction phase of the Project.
• Operating Period (Years 2–25): $1,800 per acre per year × 15 acres = $27,000 per year, escalating at a rate of 2% per annum on each anniversary of the commencement date. The Operating Period rent applies beginning on the first anniversary of the commencement date and continuing throughout the remainder of the initial term and any renewal periods. Rent during the Operating Period is payable in advance in equal monthly installments.
One-Time Lease Signing Payment. In addition to the recurring base rent, the Lessee paid a one-time lease signing payment of $50,000 to the Lessor upon execution of the Ground Lease on December 1, 2022. The signing payment is non-refundable and was negotiated as consideration for the Lessor's agreement to the below-market Development Period rent and certain lender-favorable provisions in the Ground Lease.
Subordination, Non-Disturbance, and Attornment Agreement (SNDA). As required by BRNB under the Credit Agreement, the Lessor delivered a subordination, non-disturbance, and attornment agreement concurrently with the execution of the Ground Lease. The SNDA provides that (i) the Lessor's interest under the Ground Lease is subordinate to BRNB's security interests in the Project, (ii) BRNB will not disturb the Lessee's leasehold interest so long as the Lessee is not in default under the Ground Lease, and (iii) in the event of a foreclosure or exercise of remedies by BRNB, the Lessee will attorn to BRNB or any successor owner. The SNDA also contains a Lessor lien waiver, pursuant to which the Lessor waives any statutory or contractual lien on the Lessee's personal property located on the leased premises.
Governing Law. The Ground Lease is governed by the laws of the State of Texas.
Lessor's Counsel. Dunlap & Richter, PLLC (lead attorney: Howard F. Dunlap).
D. Interconnection Agreement
• Parties: Lone Star Storage I, LLC and Aldermere & Co. ("Oncor")
• Effective Date: December 1, 2022
ERCOT Queue Number. The interconnection application was filed with ERCOT in March 2022 under Queue No. INR-22-03347. The Full Interconnection Study was completed in August 2022 and identified the requirements for interconnection of the Project to the ERCOT transmission grid, including the scope and estimated cost of necessary network upgrades.
Point of Interconnection. The Project will interconnect at the Western Permian 138 kV Substation in Ector County, Texas. The substation is owned and operated by Oncor as part of the ERCOT transmission grid.
Interconnection Voltage. The interconnection voltage is 138 kV. The Project includes an on-site step-up transformer that steps up the BESS output voltage from 34.5 kV (the medium-voltage collection system voltage) to 138 kV (the transmission interconnection voltage).
Gen-Tie Line. The Project will be connected to the Western Permian substation via an approximately 1.2-mile, 138 kV overhead transmission line (the "gen-tie line") extending from the Project site to the point of interconnection. The gen-tie line will be constructed by the EPC Contractor as part of the EPC scope and will be owned by the Project Company.
Network Upgrade Costs. The Full Interconnection Study identified the need for certain network upgrades at the Western Permian substation and on the existing transmission system to accommodate the Project's interconnection. The estimated cost of the network upgrades is $2,800,000, which is payable by the Project Company in accordance with the payment schedule set forth in the Interconnection Agreement. The network upgrade costs are included in the total Project development value of $40,000,000.
Expected Energization Date. The expected date for energization of the gen-tie line and the Project's interconnection facilities is July 15, 2023. Energization requires the completion of the network upgrades and the gen-tie line, as well as the completion of Oncor's interconnection testing and inspection protocols.
Governing Law. The Interconnection Agreement is governed by the laws of the State of Texas and is subject to the jurisdiction and applicable rules of ERCOT and the Public Utility Commission of Texas ("PUCT").
E. Credit Agreement
• Parties: Lone Star Storage I, LLC ("Borrower"), Calloway-Briggs Renewables Inc. ("Guarantor"), and Brazos River National Bank, N.A. ("Administrative Agent" and sole "Lender")
• Date: December 1, 2022 (execution); February 10, 2023 (Financial Close and first draw)
Facility. The Credit Agreement provides for a $26,000,000 construction-to-term loan facility. During the construction phase, the facility functions as a revolving construction loan, with draws available upon satisfaction of draw conditions (including certification by the Independent Engineer). Upon the achievement of Commercial Operation (as defined in the Credit Agreement), the facility converts to a fully amortizing term loan.
Interest Rate. The applicable interest rate is SOFR plus 275 basis points (2.75%), calculated on the outstanding principal balance. The Credit Agreement includes a SOFR floor of 0.50%, providing a minimum reference rate for interest calculations. Interest is calculated on an actual/360-day basis and is payable monthly in arrears.
Unused Commitment Fee. The Borrower pays an unused commitment fee of 0.50% per annum on the average daily undrawn and uncanceled commitment amount under the facility. The unused commitment fee accrues from the date of Financial Close and is payable quarterly in arrears.
Maturity Date. The facility matures on February 10, 2030, which is seven (7) years from the date of Financial Close. All outstanding principal, accrued interest, fees, and other amounts under the Credit Agreement are due and payable on the maturity date.
Amortization. Following the conversion from the construction loan phase to the term loan phase, the outstanding principal balance is amortized on a sculpted basis designed to match the projected contracted cash flows of the Project and to maintain a minimum DSCR of 1.40x throughout the term. The amortization schedule is set forth in Schedule 2.4 to the Credit Agreement and was developed by the Lender's financial model, with input from the Independent Engineer.
Security Package. The obligations of the Borrower under the Credit Agreement are secured by a comprehensive security package, consisting of the following:
(a) A first-priority lien on all assets of the Project Company, including all real and personal property, equipment, inventory, accounts, contract rights, intellectual property, and general intangibles, pursuant to a Security Agreement dated December 1, 2022.
(b) A collateral assignment of all Project contracts, including the EPC Agreement, the Equipment Supply Agreement, the Ground Lease, the Interconnection Agreement, and all insurance policies, pursuant to the Collateral Assignment of Project Contracts dated December 1, 2022. Each counterparty to the assigned contracts has delivered a consent to assignment acknowledging BRNB's security interest and agreeing to provide cure rights and direct agreement protections in favor of BRNB.
(c) A pledge of 100% of the membership interests in Lone Star Storage I, LLC held by CBR, pursuant to the Pledge Agreement dated December 1, 2022.
(d) A limited recourse Completion Guarantee from CBR, pursuant to which CBR guarantees the completion of construction of the Project and the achievement of Commercial Operation in accordance with the EPC Agreement and the Credit Agreement. The Completion Guarantee terminates upon the achievement of Commercial Operation and the satisfaction of certain post-completion conditions specified in the Credit Agreement.
Lender's Counsel. Archibald, Fenn & Shaw LLP (lead partner: Robert C. Fenn).
F. Ancillary Financing Documents
In addition to the Credit Agreement, the following ancillary financing documents were executed in connection with the construction loan facility:
Collateral Assignment of Project Contracts. Dated December 1, 2022, executed by Lone Star Storage I, LLC in favor of BRNB. The Collateral Assignment covers the EPC Agreement, the Equipment Supply Agreement, the Ground Lease, and the Interconnection Agreement, and includes consents to assignment from each counterparty (Meridian Power Construction, Inc., Harmon-Dietrich Energy Solutions, LLC, Permian Basin Land Holdings, LP, and Aldermere & Co., respectively). The consents provide BRNB with customary step-in rights, cure rights, and direct agreement protections in the event of a default by the Project Company.
Pledge Agreement. Dated December 1, 2022, executed by CBR in favor of BRNB, pledging 100% of CBR's membership interests in Lone Star Storage I, LLC as collateral for the obligations under the Credit Agreement. The pledge creates a first-priority security interest in the membership interests, perfected by the delivery of an executed blank transfer instrument and the registration of the pledge on the books of the Project Company.
Completion Guarantee. Dated December 1, 2022, executed by CBR in favor of BRNB. The Completion Guarantee is a limited recourse guarantee pursuant to which CBR guarantees the completion of construction of the Project in accordance with the EPC Agreement and the terms of the Credit Agreement, including the achievement of Commercial Operation by the date specified in the Credit Agreement. The Completion Guarantee is not a full payment guarantee and does not cover the repayment of the loan principal or interest, which remain non-recourse obligations of the Project Company. The Completion Guarantee terminates upon the achievement of Commercial Operation and the satisfaction of certain post-completion conditions, including the conversion of the construction loan to a term loan and the delivery of a certificate from the Independent Engineer confirming that the Project has achieved Commercial Operation in accordance with the EPC Agreement.
Legal Opinions. Legal opinions were delivered at Financial Close on February 10, 2023 by both Calderwood & Harkness LLP (as Borrower's counsel) and Archibald, Fenn & Shaw LLP (as Lender's counsel). The C&H opinion letter, signed by George Trujillo, was addressed to BRNB and covered the following matters: (i) due organization and good standing of CBR and Lone Star Storage I, LLC under the laws of the State of Texas; (ii) due authorization of the Credit Agreement, the ancillary financing documents, and the transactions contemplated thereby; (iii) enforceability of the Credit Agreement and the ancillary financing documents against the Borrower and the Guarantor in accordance with their respective terms, subject to customary enforceability qualifications; (iv) no conflicts with organizational documents, applicable law, or existing contractual obligations; (v) no governmental approvals required in connection with the execution and delivery of the financing documents other than those already obtained; and (vi) perfection of the security interests created by the Security Agreement, the Collateral Assignment, and the Pledge Agreement. The Archibald, Fenn & Shaw LLP opinion addressed such matters as were customary for lender's counsel in a project finance transaction of this nature.
VI. CONDITIONS PRECEDENT — SATISFACTION AND FINANCIAL CLOSE
A. Conditions Precedent to Initial Advance
All conditions precedent to the first draw under the Credit Agreement were satisfied as of February 10, 2023, the date of Financial Close. The following is a summary of each condition precedent and the manner and date of its satisfaction:
1. Executed EPC Agreement. The EPC Agreement between Lone Star Storage I, LLC and Meridian Power Construction, Inc. was fully executed on December 1, 2022. A certified copy of the fully executed EPC Agreement was delivered to BRNB on December 2, 2022. BRNB and its counsel confirmed the acceptability of the EPC Agreement.