PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
TO:
Margaret "Meg" Calloway, Chairwoman & CEO, Calloway-Briggs Renewables Inc. Thomas R. Briggs, Co-Founder & President, Calloway-Briggs Renewables Inc. Priya Narayanan, Chief Financial Officer, Calloway-Briggs Renewables Inc. Daniel Estrada, SVP — Corporate Development, Calloway-Briggs Renewables Inc. Rebecca Whitfield, General Counsel, Calloway-Briggs Renewables Inc.
FROM:
Megan Chu, Lead Associate, Calderwood & Harkness LLP Derek Okonkwo, Working Associate, Calderwood & Harkness LLP
CC:
James Prentice, Responsible Partner, Calderwood & Harkness LLP Sandra Tung, Billing Partner, Calderwood & Harkness LLP Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: November 1, 2023
RE: Legal Due Diligence Summary — Project Portfolio of Calloway-Briggs Renewables Inc. (Eight Utility-Scale Solar Development Projects) — Proposed Joint Venture with Lumen Ridge Infrastructure Partners LLC
MATTER NO.: 48172.001
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I. Executive Summary
This memorandum summarizes the principal findings of Calderwood & Harkness LLP's comprehensive legal due diligence review of the eight utility-scale solar development projects (collectively, the "Project Portfolio") that Calloway-Briggs Renewables Inc. ("CBR" or the "Company") proposes to contribute to Solstice Plateau Energy Holdings LLC (the "JV Entity"), a Delaware limited liability company to be formed as a joint venture between CBR and Lumen Ridge Infrastructure Partners LLC ("Lumen Ridge"). The JV Entity is to be structured as a 50/50 joint venture, with CBR contributing the Project Portfolio as its in-kind capital contribution and Lumen Ridge contributing cash in an amount equal to the agreed-upon fair market value of the Project Portfolio.
The agreed-upon contribution value for the Project Portfolio is $90,000,000, based on preliminary indications from the fairness analysis being prepared by Ridgeline Barrow & Co. (Marcus Delgado, Managing Director), which is expected to be finalized by November 15, 2023. While the fairness analysis remains pending as of the date of this memorandum, preliminary indications support a valuation range of $87,000,000 to $96,000,000. The parties have agreed on the midpoint of $90,000,000. We note that the final fairness opinion has not been delivered and we will update this memorandum accordingly upon receipt.
The Project Portfolio comprises eight utility-scale solar development projects with an aggregate nameplate capacity of approximately 1,200 MW DC and a total land footprint of approximately 14,340 acres across three states. Five of the eight projects are located in Texas (in Pecos, Crockett, Webb, and Wharton counties, representing approximately 780 MW DC), two projects are located in New Mexico (in Doña Ana County, representing approximately 260 MW DC), and one project is located in Arizona (in Pinal County, representing approximately 160 MW DC). All eight projects are at the "permitted-but-unbuilt" stage of development — that is, they have secured substantially all required development entitlements but have not commenced physical construction activities.
Calderwood & Harkness's due diligence review commenced on October 2, 2023, the same date on which CBR's electronic data room was opened and made available to our review team. The review is ongoing as of the date of this memorandum, and supplemental documents continue to be uploaded to the data room. We will supplement our findings as additional materials become available.
Overall Assessment. Based on our review of the materials described herein, it is our assessment that the Project Portfolio is in materially sound condition for contribution to the JV Entity. Seven of the eight projects are fully permitted for development. The sole material outstanding item is the Brazos Point project (120 MW DC, Wharton County, Texas), for which a county-level Conditional Use Permit application has been filed and is pending before the Wharton County Commissioners Court. CBR management expects the Brazos Point permit to be received by January 2024 at the latest. We recommend that receipt of the Brazos Point permit be made a condition precedent to closing of the JV transaction.
Our due diligence review covered the following principal categories:
• Land leases and real property rights
• Title commitments and surveys
• Environmental site assessments and compliance
• Development, environmental, and construction permits
• Regulatory approvals (including FERC, state PUC, HSR, and CFIUS analysis)
• Interconnection agreements with applicable transmission operators
• Power purchase agreements with offtake counterparties
• Material contracts (EPC, equipment supply, O&M, and other)
• Federal and state tax matters
• Insurance
• Litigation and claims
We identified no material pending or threatened litigation, no recognized environmental conditions, and no title defects that would impair development of any project in the Portfolio. The principal items requiring attention prior to or at closing — the Brazos Point permit, certain lease and PPA assignment consents, cross-default provisions in the Red Mesa Solar I and II leases and PPAs, and the mineral rights arrangement at Lone Star Prairie — are addressed in detail in Section XIII of this memorandum and are, in our assessment, manageable items that can be satisfactorily resolved through appropriate representations, covenants, and conditions in the Contribution Agreement.
This memorandum should be read in conjunction with the following companion memoranda prepared in connection with this engagement:
1. Title and Real Property Due Diligence Memorandum, prepared by Derek Okonkwo, dated October 25, 2023;
2. Environmental Due Diligence Summary Memorandum, prepared by Derek Okonkwo, dated October 28, 2023; and
3. Tax Structuring Memorandum, prepared by Leonard Cross, Specialist Partner, Tax, dated October 10, 2023.
II. Scope and Methodology
II.A. Scope of Review
Calderwood & Harkness's due diligence review encompassed a comprehensive examination of documents and materials made available in CBR's electronic data room, which was established and opened for review on October 2, 2023 (the "Data Room"). The Data Room is hosted on the Thackeray Solutions platform and was organized by CBR's internal legal team, under the supervision of Rebecca Whitfield, General Counsel, into folders corresponding to each of the eight projects, as well as portfolio-wide materials. As of the date of this memorandum, the Data Room contains approximately 1,840 individual documents.
The categories of documents and materials reviewed include, without limitation, the following:
• Organizational documents for each project subsidiary, including certificates of formation, operating agreements, certificates of good standing, and secretary's certificates;
• Land leases, ground leases, and rights-of-way grants, together with all amendments, supplements, estoppel certificates, subordination and non-disturbance agreements, and landlord consents;
• Title commitments, title exception documents, and ALTA surveys provided by Meridian Land Title Company (Dallas, Texas), the Company's title agent, for each of the eight project sites;
• Phase I Environmental Site Assessments prepared by TerraNova Environmental Sciences Inc. (Dr. Sharon Kessler, Senior Project Manager, Austin, Texas) for all eight project sites, together with Phase II Environmental Site Assessments prepared for selected sites where Phase I assessments identified areas requiring further inquiry;
• Development permits and conditional use permits, including all applications, staff reports, public hearing transcripts (where available), and final approvals;
• Environmental permits, including stormwater permits, water use authorizations, and air quality permits issued by the applicable state environmental agencies (TCEQ, NMED, and ADEQ);
• NEPA documentation, including categorical exclusion letters, environmental assessments, and Findings of No Significant Impact (FONSIs) issued by the Bureau of Land Management or other applicable federal agencies;
• Interconnection agreements, including Large Generator Interconnection Agreements (LGIAs), interconnection study reports, and correspondence with transmission operators and ERCOT;
• Power purchase agreements and related term sheets, together with all amendments and ancillary agreements;
• EPC contracts and preliminary construction bids obtained by CBR from prospective engineering, procurement, and construction contractors;
• Equipment supply agreements and letters of intent for solar panels, inverters, and balance-of-system components;
• Insurance coverage summaries and certificates for existing development-stage policies;
• Tax records, depreciation schedules, and cost basis documentation for each project subsidiary; and
• Litigation and claims files, including docket searches, correspondence with regulatory agencies, and internal records of any disputes, claims, or potential claims relating to the Project Portfolio.
In addition to reviewing the Data Room materials, Calderwood & Harkness coordinated with the following third-party advisors engaged by CBR or by Lumen Ridge in connection with the proposed transaction:
• Ridgeline Barrow & Co. (Marcus Delgado, Managing Director, New York), the financial advisor engaged by CBR to prepare the fairness analysis of the Project Portfolio valuation. We coordinated with Mr. Delgado's team regarding the financial and valuation diligence work streams to ensure that our legal diligence findings were appropriately reflected in the valuation analysis and vice versa.
• Pennington Clarke LLP (Harold Yeung, CPA, Engagement Partner, Dallas), the accounting firm engaged to serve as the tax-return preparer for the JV Entity. While the formal engagement of Pennington Clarke was not executed until January 8, 2024, preliminary discussions with Mr. Yeung's team commenced in advance of the date of this memorandum and informed our analysis of tax basis documentation and related matters.
II.B. Limitations and Qualifications
This memorandum and the due diligence review summarized herein are subject to the following limitations and qualifications:
Document Availability. Our review is limited to documents and materials provided in the Data Room and supplemental materials provided directly by CBR management and in-house counsel. We have not conducted independent field verification of any representations or statements made in the documents reviewed. Where documents were referenced in other materials but not themselves included in the Data Room, we have noted the absence and, where material, requested supplemental production.
Environmental Assessments. The Phase I and Phase II Environmental Site Assessments were prepared by TerraNova Environmental Sciences Inc. under the direction of Dr. Sharon Kessler. Calderwood & Harkness is not an environmental consulting firm and has relied on TerraNova's professional conclusions in rendering our assessment of environmental matters. Our review of the ESAs was limited to confirming their completeness, identifying material findings, and assessing legal implications; we did not independently evaluate TerraNova's sampling methodologies, laboratory results, or technical conclusions.
Title Matters. Our assessment of title is based on the title commitments and ALTA surveys provided by Meridian Land Title Company (Dallas, Texas). We did not conduct an independent title examination or review underlying title documents. The companion Title and Real Property Due Diligence Memorandum (Derek Okonkwo, October 25, 2023) provides a more detailed analysis of title matters.
Valuation. This memorandum does not constitute, and should not be construed as, an opinion on the fair market value of the Project Portfolio or any individual project. Valuation is within the scope of Ridgeline Barrow & Co.'s engagement. Our analysis of financial terms in the material contracts reviewed herein is limited to identifying legal risks and contractual provisions that may affect value, not to assessing value itself.
Temporal Limitation. This memorandum reflects the status of the due diligence review as of November 1, 2023. Certain items remain outstanding as of this date, including the Brazos Point Conditional Use Permit (expected January 2024) and the Ridgeline Barrow & Co. final fairness analysis (expected November 15, 2023). We will supplement this memorandum upon receipt of these and other outstanding items.
Jurisdictional Limitation. Our review has been conducted under the laws of the State of Delaware (with respect to the JV Entity), the State of Texas (with respect to the five Texas projects), the State of New Mexico (with respect to the two New Mexico projects), the State of Arizona (with respect to the Arizona project), and applicable federal law. We have not reviewed the laws of any other jurisdiction.
III. Project Portfolio Overview
The Project Portfolio consists of eight utility-scale solar photovoltaic development projects at various stages of development readiness, all of which are in the "permitted-but-unbuilt" (pre-construction) stage. The following table provides a summary overview of each project:
Project Ownership Structure. CBR holds 100% of the development rights and economic interests in each project through wholly owned, single-purpose project subsidiaries organized under the laws of the states in which the respective projects are located. Each project subsidiary is a limited liability company for which CBR serves as sole member and manager. The organizational documents for each subsidiary were reviewed and found to be in order, with current certificates of good standing on file.
Development Stage. All eight projects are in the pre-construction development stage. Development activities completed to date include site selection and control, environmental and biological assessments, permitting and entitlement work, interconnection study and agreement execution, and power purchase agreement negotiation and (in seven of eight cases) execution. No physical construction has commenced at any project site, and no EPC contract has been fully executed for any project.
Tax Attributes. Upon commencement of construction, the projects are expected to be eligible for the following federal tax incentives, as further described in Section X:
• MACRS 5-year accelerated depreciation under Internal Revenue Code Section 168, permitting recovery of the cost of solar energy property over a five-year period using the 200% declining balance method;
• Bonus depreciation under Internal Revenue Code Section 168(k), permitting 80% first-year bonus depreciation for property placed in service during calendar year 2024 (decreasing by 20% annually thereafter through 2027);
• Investment Tax Credits under Internal Revenue Code Section 48, at a base rate of 30% of eligible project costs (or 40% with the domestic-content bonus credit established under the Inflation Reduction Act of 2022, subject to satisfaction of domestic content requirements).
These tax attributes are significant drivers of the project economics and the JV structure. The allocation of tax benefits between CBR and Lumen Ridge is governed by the JV Entity's operating agreement and is further analyzed in the companion Tax Structuring Memorandum (Leonard Cross, October 10, 2023).
IV. Land Leases and Real Property
IV.A. Overview of Land Control
The Project Portfolio encompasses eight separate land control arrangements across six counties in three states, comprising a total of approximately 14,340 acres. Land control for the six private-land projects (five in Texas and one in Arizona) is secured through long-term ground leases. Land control for the two federal-land projects in New Mexico is secured through rights-of-way grants issued by the Bureau of Land Management.
The geographic and ownership distribution of the land control arrangements is as follows:
• Texas (five projects, private land): Pecos County (Red Mesa Solar I, 2,400 acres; Red Mesa Solar II, 2,100 acres), Crockett County (Cimarron Flats, 1,800 acres), Webb County (Lone Star Prairie, 1,560 acres), Wharton County (Brazos Point, 1,440 acres). Total: 9,300 acres across four counties.
• New Mexico (two projects, federal BLM land): Doña Ana County (Sangre del Sol I, 1,800 acres; Sangre del Sol II, 1,320 acres). Total: 3,120 acres.
• Arizona (one project, private land): Pinal County (Sonoran Ridge, 1,920 acres). Total: 1,920 acres.
All eight leases and rights-of-way were reviewed for the following key attributes:
• Term adequacy: Each lease or right-of-way has an initial term of at least 25 years, with renewal or extension options, providing sufficient duration to support the expected 30+ year useful life of the projects and the requirements of the PPAs and interconnection agreements.
• Assignment provisions: Each lease or right-of-way was reviewed to confirm that it is assignable (whether freely or with landlord/agency consent) to the JV Entity, Solstice Plateau Energy Holdings LLC. This is a threshold requirement for the contribution transaction.
• Rental escalation terms: Rent escalation provisions were reviewed for consistency with project financial models and the Ridgeline Barrow valuation assumptions.
• Development and construction milestones: Certain leases contain milestones requiring commencement of construction within specified timeframes. Compliance with these milestones under the JV's anticipated development schedule was confirmed.
IV.B. Texas Projects — Land Leases
Red Mesa Solar I (Pecos County, Texas). CBR's wholly owned subsidiary, Red Mesa Solar I LLC, holds a ground lease for approximately 2,400 acres in unincorporated Pecos County, Texas. The lease has an initial term of 30 years, commencing on the effective date of January 15, 2021, with two successive 10-year renewal options exercisable at the tenant's election. Total potential term is 50 years. The lease is with the Hargrove Family Trust, a private landowner. Rental payments consist of fixed annual rent plus a per-megawatt-hour production royalty commencing upon commercial operation, with fixed rent subject to 2.0% annual escalation. The lease is assignable to CBR affiliates and successors with 30 days' prior written notice to the landlord; no landlord consent is required. Our review of the title commitment for the Red Mesa Solar I site revealed no encumbrances material to the proposed development, and the lease is in good standing with all rental obligations current. We did not identify any events of default or circumstances that would give rise to termination rights.
Red Mesa Solar II (Pecos County, Texas). CBR's wholly owned subsidiary, Red Mesa Solar II LLC, holds a ground lease for approximately 2,100 acres in Pecos County, Texas, adjacent to the Red Mesa Solar I site. The lease is with the same landowner family — the Hargrove Family Trust — and was executed under substantially similar terms to the Red Mesa Solar I lease, with a 30-year initial term, two 10-year extensions, identical escalation provisions, and the same assignment-by-notice mechanism. Notably, the Red Mesa Solar II lease contains a cross-default provision referencing the Red Mesa Solar I lease: a default under the Red Mesa Solar I lease constitutes an event of default under the Red Mesa Solar II lease, and vice versa. This cross-default creates a risk that a breach affecting one project could jeopardize both leases simultaneously. We recommend that this cross-default provision be addressed in the Contribution Agreement, either through a negotiated waiver or amendment from the Hargrove Family Trust, or through appropriate representations and covenants from CBR obligating the Company to cure any defaults promptly and maintain both leases in good standing. See Section XIII.C for further discussion.
Cimarron Flats (Crockett County, Texas). CBR's wholly owned subsidiary, Cimarron Flats Solar LLC, holds a ground lease for approximately 1,800 acres in Crockett County, Texas. The lease has an initial term of 25 years, commencing February 1, 2022, with two successive 10-year renewal options. Total potential term is 45 years. The landowner is the Dawson Ranch LP, a private landholding entity. The lease is assignable with 30 days' prior written notice to the landlord; no consent is required. Rental terms are consistent with market norms for solar ground leases in the Permian Basin region. The lease is in good standing with no identified defaults, liens, or encumbrances that would impair development.
Lone Star Prairie (Webb County, Texas). CBR's wholly owned subsidiary, Lone Star Prairie Solar LLC, holds a ground lease for approximately 1,560 acres in Webb County, Texas. The lease has an initial term of 30 years, commencing April 1, 2022, with one 10-year renewal option. The landowner is Rancho Esperanza LLC, a family-owned limited liability company. A notable feature of this lease is the separation of surface and mineral rights: the landowner conveyed the surface lease to CBR but retained the mineral estate underlying the leased premises. This is a common arrangement in Texas, where mineral rights are frequently severed from surface rights. The lease incorporates a standard solar lease carve-out for mineral estate access, providing that the mineral estate owner (the landowner) retains the right to access the property for mineral exploration and extraction, subject to reasonable notice requirements and an obligation not to unreasonably interfere with solar operations. A companion Surface Use Agreement between the landowner and CBR further delineates the respective rights and obligations of the surface and mineral estate holders. We have reviewed the Surface Use Agreement and find it to be adequate to protect the project's development interests, though we note that this agreement should be assigned to the JV Entity at closing. See Section XIII.D for further discussion.
Brazos Point (Wharton County, Texas). CBR's wholly owned subsidiary, Brazos Point Solar LLC, holds a ground lease for approximately 1,440 acres in Wharton County, Texas. The lease has an initial term of 25 years, commencing September 1, 2022, with two successive 10-year renewal options. Total potential term is 45 years. The landowner is the Koenig Agricultural Holdings LP. The lease is assignable with landlord notice and, in the case of assignment to a non-affiliate, landlord consent (not to be unreasonably withheld). The contribution of the project to the JV Entity should qualify as an affiliate assignment given CBR's 50% ownership of the JV Entity, though we recommend confirming this interpretation with the landowner. The lease includes a construction commencement milestone requiring the tenant to commence physical construction activities on the leased premises within 36 months of the lease effective date (i.e., by September 1, 2025). Based on the anticipated JV development timeline, which contemplates construction commencement for the Brazos Point project in the first half of 2025, CBR is expected to comply with this milestone with adequate margin. We note that this lease is otherwise in good standing with all rent current and no identified defaults.
IV.C. New Mexico Projects — BLM Leases
Sangre del Sol I (Doña Ana County, New Mexico). CBR's wholly owned subsidiary, Sangre del Sol I LLC, holds a right-of-way grant from the United States Bureau of Land Management for approximately 1,800 acres of federal land in Doña Ana County, New Mexico. The right-of-way was issued under Section 501 of the Federal Land Policy and Management Act (FLPMA), 43 U.S.C. § 1761, and the BLM's Solar Energy Program regulations, for a term of 30 years. The right-of-way is subject to BLM standard terms and conditions, including the payment of fair market value rent, compliance with all applicable environmental mitigation measures identified in the NEPA environmental assessment, and adherence to BLM's reporting and monitoring requirements. The right-of-way is transferable, but transfer requires prior written approval by the BLM Las Cruces District Office, pursuant to 43 C.F.R. § 2807.21. The transfer application process typically requires 60–90 days for processing. We recommend initiating the BLM transfer application for this right-of-way promptly after signing of the JV formation documents.
Sangre del Sol II (Doña Ana County, New Mexico). CBR's wholly owned subsidiary, Sangre del Sol II LLC, holds a separate right-of-way grant from the BLM for approximately 1,320 acres of federal land in Doña Ana County, New Mexico, adjacent to the Sangre del Sol I site. The terms are substantially similar to the Sangre del Sol I right-of-way, including the 30-year term, BLM standard conditions, and the requirement for BLM consent to transfer. As with Sangre del Sol I, we recommend that the transfer application for this right-of-way be initiated promptly post-signing to avoid delays at closing. See Section XIII.B for further discussion.
IV.D. Arizona Project — Land Lease
Sonoran Ridge (Pinal County, Arizona). CBR's wholly owned subsidiary, Sonoran Ridge Solar LLC, holds a ground lease for approximately 1,920 acres in Pinal County, Arizona. The lease has an initial term of 35 years, commencing June 1, 2021, with one 10-year renewal option. Total potential term is 45 years. The landowner is Pinal Valley Land Company, LLC. The lease is freely assignable to affiliates of the tenant without landlord consent. The JV Entity should qualify as a CBR affiliate at the time of contribution, given CBR's 50% ownership interest in the JV Entity; however, this characterization should be confirmed under the specific language of the affiliate definition in the lease. No material encumbrances, liens, or title defects were identified with respect to the leased premises, and the lease is in good standing with all rental obligations current.
IV.E. Title Review Summary
A detailed analysis of title matters for all eight project sites is set forth in the companion Title and Real Property Due Diligence Memorandum prepared by Derek Okonkwo, dated October 25, 2023. The following is a summary of the principal findings.
Title commitments and ALTA/NSPS land title surveys were obtained from Meridian Land Title Company (Dallas, Texas) for all eight project sites. The title commitments were issued during the period of August through October 2023 and reflect the state of title as of their respective effective dates. All ALTA surveys were prepared by licensed surveyors engaged by Meridian Land Title Company and comply with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys.
Summary Finding: No material title defects were identified at any of the eight project sites. Standard exceptions appearing in the title commitments include mineral reservations, utility easements, and ad valorem tax liens — all of which are current and not in default. These standard exceptions are typical for properties of this nature in the relevant jurisdictions and do not, in our assessment, impair the developability of any project site.
Specific Notes:
• Lone Star Prairie (Webb County, TX): The mineral rights exception was noted in the title commitment, consistent with the severed mineral estate discussed in Section IV.B above. The Surface Use Agreement adequately addresses the interface between the solar project and mineral access rights, and the title company has confirmed that it will provide title insurance subject to the mineral rights exception.
• Sangre del Sol I and II (Doña Ana County, NM): Fee title to the underlying land is vested in the United States of America. CBR's project subsidiaries hold rights-of-way grants, not fee simple title. Title insurance is not typically available for BLM rights-of-way, and the projects' land control is secured through the federal right-of-way instruments. We have confirmed that the rights-of-way are in good standing with the BLM and that all required rental payments are current.
We recommend obtaining owner's title insurance policies through Meridian Land Title Company for all six private-land projects at or prior to closing of the contribution to the JV Entity. See Section XIII.E for further discussion.
V. Environmental
V.A. Phase I and Phase II Environmental Site Assessments
Phase I Environmental Site Assessments ("Phase I ESAs") were completed by TerraNova Environmental Sciences Inc. under the direction of Dr. Sharon Kessler, Senior Project Manager (Austin, Texas), for all eight project sites. The Phase I ESAs were conducted in accordance with ASTM Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, and were completed during the period of June through September 2023. Each Phase I ESA included a review of historical records, regulatory database searches, site reconnaissance, and interviews with current and former property owners or operators.
Phase II Environmental Site Assessments ("Phase II ESAs") were completed for two project sites where the Phase I ESAs identified areas warranting further inquiry:
• Red Mesa Solar I (Pecos County, TX): The Phase I ESA identified a former agricultural chemical storage area on the northeastern portion of the property, consisting of a dilapidated metal storage shed and surrounding ground staining. The Phase II ESA, conducted in August 2023, included soil sampling (12 borings) and shallow groundwater monitoring well installation (2 wells). Laboratory results confirmed that concentrations of organochlorine pesticides and herbicides in soil and groundwater were below the applicable Texas Commission on Environmental Quality (TCEQ) Tier 1 Protective Concentration Levels (PCLs) for all analytes tested. TerraNova concluded that no further investigation or remediation is warranted.
• Cimarron Flats (Crockett County, TX): The Phase I ESA identified historical oil and gas exploration activity in the vicinity of the project site, including two plugged and abandoned well bores located approximately 0.3 miles from the site boundary. The Phase II ESA, conducted in September 2023, included soil gas sampling (8 stations) and limited soil sampling (6 borings) to evaluate potential petroleum hydrocarbon impacts. Laboratory results confirmed that total petroleum hydrocarbon (TPH) concentrations and volatile organic compound (VOC) concentrations were below applicable TCEQ regulatory thresholds at all sampling locations. TerraNova concluded that the historical oil and gas activity in the vicinity has not resulted in environmental contamination at the Cimarron Flats site.
Conclusion: No material recognized environmental conditions ("RECs"), as that term is defined in ASTM E1527-21, were identified at any of the eight project sites. Phase II testing at Red Mesa Solar I and Cimarron Flats confirmed the absence of soil or groundwater contamination above applicable regulatory thresholds, and TerraNova's professional opinion is that no further investigation, monitoring, or remediation is required at either site. A detailed discussion of the environmental findings is contained in the companion Environmental Due Diligence Summary Memorandum prepared by Derek Okonkwo, dated October 28, 2023.
V.B. NEPA Compliance
The National Environmental Policy Act of 1969 ("NEPA"), 42 U.S.C. §§ 4321–4370m-12, requires federal agencies to assess the environmental impacts of proposed major federal actions significantly affecting the quality of the human environment. The applicability of NEPA to the projects in the Portfolio varies by project, depending on the presence or absence of a federal nexus.
Texas Projects (Red Mesa Solar I, Red Mesa Solar II, Cimarron Flats, Lone Star Prairie, Brazos Point). The five Texas projects are situated on private land and do not involve federal funding, federal land, or the need for a federal permit that would ordinarily trigger full NEPA review. However, interconnection with the ERCOT-managed transmission grid may, in certain circumstances, involve limited federal review, particularly where the interconnection facilities cross federal land or require federal permits. We have confirmed that categorical exclusions under applicable federal agency regulations apply for all five Texas projects, meaning that full environmental assessments or environmental impact statements are not required.
New Mexico Projects (Sangre del Sol I and Sangre del Sol II). Both New Mexico projects are located on federal BLM land, and the issuance of the BLM right-of-way grants constituted major federal actions requiring NEPA compliance. For both projects, the BLM Las Cruces District Office prepared Environmental Assessments ("EAs") pursuant to NEPA and the BLM's implementing regulations at 40 C.F.R. Parts 1500–1508 and 43 C.F.R. Part 46. Following completion of the EAs and public comment periods, the BLM issued Findings of No Significant Impact ("FONSIs") for both projects, concluding that the proposed solar development activities would not have significant adverse effects on the human environment and that preparation of Environmental Impact Statements was not required. The FONSIs are final and not subject to pending administrative appeals. Copies of both FONSIs are included in the Data Room.
Arizona Project (Sonoran Ridge). The Sonoran Ridge project is situated on private land, and no federal land or federal funding is involved. A NEPA categorical exclusion was obtained in connection with the project's interconnection application, which involves a limited federal nexus. The categorical exclusion is documented and included in the Data Room.
V.C. State Environmental Permits
All applicable state-level environmental permits — including construction stormwater permits, water use authorizations, and air quality permits — have been obtained for seven of the eight projects, with the Brazos Point stormwater permit pending in connection with the overall Brazos Point development permit process.
Texas (TCEQ). The Texas Commission on Environmental Quality (TCEQ) administers the Texas Pollutant Discharge Elimination System (TPDES) program, which requires construction stormwater general permits for projects disturbing one or more acres. TCEQ Construction General Permits (TXR150000) have been obtained for Red Mesa Solar I, Red Mesa Solar II, Cimarron Flats, and Lone Star Prairie. The Brazos Point stormwater permit application has been filed with TCEQ but is pending issuance, as the permit is tied to the overall county-level development permit discussed in Section VII.A below.
New Mexico (NMED). The New Mexico Environment Department (NMED) general permits for construction stormwater (NPDES General Permit NMR100000) have been obtained for both Sangre del Sol I and Sangre del Sol II.
Arizona (ADEQ). The Arizona Department of Environmental Quality (ADEQ) construction stormwater general permit (AZG2016-002) has been obtained for the Sonoran Ridge project.
No impediments to the issuance of any pending environmental permits were identified during our review.
V.D. Endangered Species / Wildlife
TerraNova Environmental Sciences Inc. conducted biological surveys and habitat assessments for each project site as part of the Phase I ESA process, specifically to evaluate the potential presence of species listed as threatened or endangered under the federal Endangered Species Act of 1973, 16 U.S.C. §§ 1531–1544, as well as state-listed species and designated critical habitat.
Conclusion: No threatened or endangered species or designated critical habitat was identified at any of the eight project sites. The biological surveys did not detect the presence of listed species, and the project sites do not overlap with any designated critical habitat boundaries.
Sonoran Ridge (Pinal County, AZ) — Special Note. TerraNova's biological assessment noted the proximity of the Sonoran Ridge project site to known habitat for the lesser long-nosed bat (*Leptonycteris yerbabuenae*), which was listed as endangered under the ESA from 1988 until its delisting in 2018. Although the species is no longer listed, it remains a species of concern under Arizona state wildlife management protocols. TerraNova identified potential foraging habitat for the lesser long-nosed bat within the broader landscape, though not within the project site boundary itself. As a precautionary measure, CBR incorporated avoidance and minimization measures into the Sonoran Ridge project design, consistent with guidance from the U.S. Fish and Wildlife Service, including limitations on nighttime lighting and the preservation of a buffer zone along the project's southern perimeter adjacent to a known bat flyway corridor. No formal Section 7 consultation with USFWS was required, and no biological opinion was issued.
VI. Interconnection Agreements
VI.A. Overview
Interconnection to the electrical transmission grid is a critical prerequisite for utility-scale solar development, and the status of interconnection agreements is a significant indicator of project maturity and readiness to proceed to construction. All eight projects in the Portfolio have either executed interconnection agreements with the applicable transmission operators or hold secured positions in the relevant interconnection queues.
The interconnection landscape varies by jurisdiction:
Texas Projects (five projects). The five Texas projects are located within the Electric Reliability Council of Texas ("ERCOT") interconnection region. Each of the five projects has completed the ERCOT interconnection study process, including screening studies and full interconnection studies, and holds an executed interconnection agreement with the applicable ERCOT-managed transmission service provider. Assigned points of interconnection ("POIs") have been designated for each project, and the necessary network upgrade scope has been identified and costed.
New Mexico Projects (two projects). Sangre del Sol I and Sangre del Sol II are situated within the service territory covered by the applicable regional transmission organization. Both projects have completed the interconnection study process and hold executed Large Generator Interconnection Agreements ("LGIAs") with the applicable transmission owner and operator. The LGIAs were executed in accordance with the transmission provider's Open Access Transmission Tariff and FERC-approved interconnection procedures.
Arizona Project (one project). The Sonoran Ridge project has completed the interconnection study process and holds an executed LGIA with the applicable Arizona electric utility that owns and operates the transmission facilities to which the project will interconnect.
VI.B. Key Terms and Status
We reviewed the interconnection agreements for all eight projects with particular attention to the following elements: interconnection cost estimates, security deposit requirements, network upgrade cost allocation, milestone schedules, force majeure provisions, assignment provisions, and termination triggers.
Deposits. All required interconnection study deposits and security deposits are current as of the date of this memorandum. No project has received notice of default or threatened termination from any transmission operator.
Network Upgrade Costs. A significant element of the interconnection agreements is the allocation of costs for network upgrades required to accommodate each project's interconnection. Network upgrades may include transmission line extensions, substation modifications, and other system improvements necessitated by the addition of generating capacity to the grid. Our review indicates that the estimated aggregate network upgrade costs across the entire Portfolio are approximately $38,000,000, distributed across the eight projects in varying amounts depending on the scope of upgrades required at each POI. These costs are the responsibility of the individual project entities under their respective interconnection agreements and have been factored into the Ridgeline Barrow & Co. valuation analysis. The network upgrade costs are not expected to be payable in full until construction commences and, in some cases, are subject to true-up based on actual construction costs.
Milestone Schedules. Each interconnection agreement contains milestone schedules specifying deadlines for the completion of certain development and construction activities. We reviewed the milestone schedules against the JV's anticipated development timeline and confirmed that all projects are on track to meet their respective interconnection milestones within the required timeframes.
Assignment. The interconnection agreements are generally assignable to the JV Entity with customary notice to the transmission operator and, in some cases, the prior written consent of the transmission operator (not to be unreasonably withheld). We do not anticipate material impediments to obtaining any required consents, as the JV Entity (Solstice Plateau Energy Holdings LLC) will be a creditworthy entity backed by both CBR and Lumen Ridge.
Risk Assessment. No material risks were identified with respect to the interconnection agreements. All agreements are in good standing, all deposits are current, and the projects' positions in the respective interconnection queues are secure.
VII. Permitting and Regulatory
VII.A. Development Permits — Status Summary
Development permits — including conditional use permits, special use permits, and site plan approvals — are required at the county or municipal level for each of the eight projects. These permits authorize the construction and operation of utility-scale solar generating facilities on the respective project sites, subject to compliance with applicable zoning ordinances, land use regulations, setback requirements, height restrictions, and other locally imposed conditions.
Seven of the eight projects are fully permitted for development as of the date of this memorandum. The permit status for each project is summarized in the table in Section III and in greater detail in the Permit Status Tracker attached as Exhibit C.
Brazos Point (Wharton County, Texas) — Permit Pending. The Brazos Point project is the sole project in the Portfolio for which a development permit has not yet been issued. CBR's wholly owned subsidiary, Brazos Point Solar LLC, filed its Conditional Use Permit ("CUP") application with the Wharton County Commissioners Court in August 2023. The application was prepared by CBR's in-house development team in coordination with the Wharton County Planning Department and is supported by a site plan, traffic impact analysis, visual impact assessment, drainage study, and decommissioning plan. The application has been reviewed by the county planning staff, who have issued a favorable staff recommendation for approval, subject to standard conditions of approval.
A public hearing on the CUP application is scheduled for December 2023 before the Wharton County Commissioners Court. Based on the favorable staff recommendation and the absence of organized opposition (CBR has conducted community outreach and reports no material objections from adjacent landowners), CBR management expects the CUP to be issued by January 2024 at the latest.
This is the sole material outstanding permitting item for the Project Portfolio. We recommend that receipt of the Brazos Point CUP be made a condition precedent to the closing of the JV transaction. In the event that the CUP is denied or is issued subject to conditions that materially impair the project's developability, we further recommend that the Contribution Agreement include a provision permitting the carve-out of the Brazos Point project from the contributed Portfolio, with a corresponding reduction in the agreed-upon Portfolio valuation.
We note that, subsequent to the date of this memorandum, CBR management has informally advised us that the Brazos Point CUP was received on January 10, 2024. This will be confirmed and documented in an updated memorandum.
VII.B. FERC
The Federal Energy Regulatory Commission ("FERC") has broad jurisdiction over the sale of electric energy at wholesale in interstate commerce and the transmission of electric energy in interstate commerce. We analyzed whether any of the eight projects require FERC approval or authorization.
Finding: No FERC approval is required for any of the eight projects. All projects are expected to qualify as "qualifying facilities" ("QFs") under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), 16 U.S.C. §§ 2601–2645, and the FERC's implementing regulations at 18 C.F.R. Part 292. As QFs, the projects are exempt from certain FERC requirements, including the requirement to obtain FERC authorization as a public utility under the Federal Power Act. QF certifications will be filed with FERC prior to commercial operation.
VII.C. State Public Utility Commission Approvals
We analyzed whether any of the eight projects require approval from the applicable state public utility commissions (the Public Utility Commission of Texas, the New Mexico Public Regulation Commission, or the Arizona Corporation Commission).
Finding: No state PUC approvals are required. The projects will sell their electrical output under negotiated power purchase agreements with wholesale purchasers, not through regulated retail sales to end-use customers. Accordingly, the projects do not engage in the retail sale of electricity that would trigger state PUC jurisdiction or require a certificate of public convenience and necessity.
VII.D. Hart-Scott-Rodino Antitrust Improvements Act
The formation of the JV Entity and the contribution of the Project Portfolio constitute a transaction reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), 15 U.S.C. § 18a, and the implementing regulations of the Federal Trade Commission and the Department of Justice at 16 C.F.R. Parts 801–803. The applicable size-of-transaction and size-of-person thresholds were met.
CBR and Lumen Ridge jointly submitted the required HSR notification and report forms on October 18, 2023 (HSR Transaction Number 20231018-CBR-LRI). The mandatory 30-day waiting period commenced upon filing. On November 8, 2023 — 21 days after filing — the Federal Trade Commission granted early termination of the HSR waiting period, indicating that neither the FTC nor the Department of Justice intended to take further action with respect to the transaction.
HSR clearance has been obtained. No further antitrust review is required. A more detailed analysis of the HSR filing and the antitrust implications of the JV formation is set forth in the companion HSR Filing Analysis Memorandum prepared by Derek Okonkwo, dated October 5, 2023.
VII.E. CFIUS
We analyzed whether the proposed transaction is subject to review by the Committee on Foreign Investment in the United States ("CFIUS") under Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA").
Finding: CFIUS review is not applicable. No "foreign person," as defined in the CFIUS regulations at 31 C.F.R. Part 800, is a party to or investor in the proposed transaction. Both CBR and Lumen Ridge are domestic entities organized under the laws of United States jurisdictions, and neither entity has foreign ownership, control, or influence that would trigger CFIUS jurisdiction. Accordingly, no CFIUS filing (whether voluntary or mandatory) is required.
VII.F. Local and County Permits
In addition to the development permits (CUPs) discussed in Section VII.A, the projects will require various construction-stage permits at the local and county level, including building permits, grading permits, road access and encroachment permits, and electrical permits. These permits are typically obtained during the construction phase and are not prerequisites to closing of the JV transaction. Based on our review of the current zoning designations, land use approvals, and development permit conditions for each project, no impediments to the issuance of construction-stage permits were identified.
VIII. Power Purchase Agreements (PPAs)
VIII.A. Overview
Long-term power purchase agreements are the cornerstone of project revenue and the primary basis for project finance and equity valuation. CBR has executed or is in advanced negotiation of long-term PPAs for each of the eight projects in the Portfolio. The PPA counterparties include investment-grade electric utilities, municipal electric authorities, and creditworthy corporate offtakers, providing a diversified and creditworthy offtake profile for the Portfolio.
Each PPA was reviewed by Calderwood & Harkness for the following key provisions:
• Tenor: PPA terms range from 15 to 25 years, providing long-term revenue certainty consistent with the expected useful life of the projects and the requirements of debt and equity investors.
• Pricing: All PPAs feature either fixed pricing or fixed pricing with annual escalation provisions. No PPAs in the Portfolio have floating or merchant-price components.
• Curtailment provisions: All PPAs include standard curtailment provisions, including economic curtailment rights (in some cases, with compensation to the seller for curtailed energy) and emergency curtailment provisions.
• Force majeure: All PPAs include customary force majeure provisions, with defined force majeure events and consequences including excused performance and, in the case of extended force majeure, termination rights.
• Assignment provisions: All PPAs were reviewed for assignability to the JV Entity, as discussed further in Section VIII.C.
• Credit support: Certain PPAs require the seller to post letters of credit or other forms of credit support. All credit support obligations are current and within the capacity of the project entities.
• Termination triggers: Termination events, including events of default, prolonged force majeure, and buyer termination rights, were reviewed for each PPA. No unusual or unduly broad termination triggers were identified.
VIII.B. Project-by-Project PPA Summary
Red Mesa Solar I. CBR has executed a 20-year PPA with a fixed price escalator of 1.5% per annum, with an investment-grade electric utility counterparty. The PPA is in full force and effect, with all pre-COD milestones on track. The PPA is assignable to the JV Entity with the prior written consent of the utility counterparty, which consent shall not be unreasonably withheld, conditioned, or delayed. The credit rating of the counterparty is Baa1/BBB+ (Moody's/S&P).
Red Mesa Solar II. CBR has executed a 20-year PPA with the same utility counterparty as Red Mesa Solar I, under substantially similar terms, including the same fixed price escalator and assignment provisions. As with the land leases, the Red Mesa Solar I and Red Mesa Solar II PPAs contain a cross-default provision: a default under one PPA constitutes an event of default under the other. This cross-default presents the same concentration risk noted with respect to the land leases in Section IV.B and is further addressed in Section XIII.C.
Cimarron Flats. CBR has executed a 15-year PPA with a corporate offtaker that has an investment-grade credit rating. The shorter PPA tenor (15 years versus 20 or more for other projects) reflects the offtaker's procurement cycle but remains within the range of commercially acceptable terms for utility-scale solar projects. The PPA is assignable with 30 days' written notice to the offtaker; no consent is required.
Lone Star Prairie. CBR has executed a 20-year PPA with a municipal electric authority. The PPA is assignable, but assignment requires the prior written consent of the municipal authority. Municipal authority counterparties may require additional internal approvals for consent to assignment; however, we do not anticipate this presenting a material impediment given the creditworthiness of the JV Entity and its sponsors.
Brazos Point. The Brazos Point project does not yet have a fully executed PPA. CBR has executed a binding term sheet with a utility counterparty establishing the principal commercial terms of a 20-year PPA, with full execution of the definitive PPA contingent upon receipt of the Wharton County CUP. CBR management expects the PPA to be fully executed promptly following issuance of the CUP. The term sheet contains standard exclusivity and standstill provisions preventing either party from negotiating with third parties during the pendency of the term sheet.
Sangre del Sol I. CBR has executed a 25-year PPA with a regional electric utility in the Southwest. The 25-year tenor is the longest in the Portfolio and reflects the utility's long-term renewable procurement strategy. The PPA is with an investment-grade counterparty and is freely assignable to affiliates of the seller, including the JV Entity.
Sangre del Sol II. CBR has executed a 20-year PPA with the same regional utility counterparty as Sangre del Sol I. The PPA is assignable with 60 days' prior written notice to the utility; no consent is required. The PPA contains standard commercial terms consistent with those of the Sangre del Sol I PPA.
Sonoran Ridge. CBR has executed a 20-year PPA with an Arizona electric utility that has an investment-grade credit rating. The PPA is assignable with the prior written consent of the utility, which consent shall not be unreasonably withheld.
VIII.C. Assignment and Consent Considerations
A critical component of the contribution of the Project Portfolio to the JV Entity is the assignment of the PPAs from the CBR project subsidiaries to the JV Entity (or, as applicable, the retention of the PPAs by the project subsidiaries, which themselves will be contributed to the JV). Our review indicates that the majority of the PPAs require either prior written consent or advance written notice for assignment. The specific assignment requirements are summarized below:
We recommend that CBR initiate the consent solicitation process for all PPAs requiring counterparty consent promptly upon signing of the JV formation documents. Based on our review of the assignment provisions and the creditworthiness of the JV Entity and its sponsors, we do not expect the consent process to present material impediments. However, as a timing matter, it is advisable to commence the process early to avoid potential delays at closing.
IX. Material Contracts
IX.A. EPC Contracts
No fully executed engineering, procurement, and construction ("EPC") contracts are currently in place for any of the eight projects, which is consistent with the projects' pre-construction development status. EPC contracts will be procured during the construction phase of development, following closing of the JV transaction and the securing of construction financing.
CBR has, however, obtained preliminary construction bids from three qualified EPC contractors for portfolio-wide construction of the eight projects. The three contractors have been vetted by CBR's development team for technical capability, financial capacity, experience with utility-scale solar construction in the ERCOT, Southwest, and Western regions, and availability within the JV's anticipated construction timeline. The preliminary bids indicate estimated total hard construction costs of approximately $720,000,000 across the full Portfolio, or approximately $600 per kW DC on a blended basis.
Under the Development and Construction Management Agreement to be executed between the JV Entity and CBR at the formation of the JV, CBR will serve as the development and construction manager for the Portfolio. In this capacity, CBR will oversee all aspects of project development, EPC contract procurement and administration, permitting, and owner's engineer services. As compensation, CBR will receive a construction management fee of 3.0% of hard construction costs, payable during the construction period. Based on the estimated $720,000,000 in hard construction costs, the potential aggregate construction management fee is approximately $21,600,000.
We have reviewed the preliminary terms of the Development and Construction Management Agreement and find them to be within market norms for comparable arrangements. The agreement includes standard provisions regarding CBR's duties and standard of care, reporting obligations, budgeting and cost control, change order approval processes, and termination rights. A detailed review of the definitive Development and Construction Management Agreement will be provided upon execution.
IX.B. Equipment Supply Agreements
CBR has entered into preliminary equipment supply agreements or letters of intent ("LOIs") with solar panel and inverter manufacturers for certain projects in the Portfolio. These agreements establish pricing, quantities, and delivery schedules for the principal equipment components — specifically, photovoltaic modules and string or central inverters — required for the projects' construction. Our review of the available LOIs and supply agreements confirms that they contain standard commercial terms, including customary warranties, delivery schedules, liquidated damages for late delivery, and quality assurance provisions. The equipment supply agreements are assignable to the JV Entity, either by their terms or through the contribution of the project subsidiaries that are parties to the agreements.
We note that the domestic content requirements for the 40% ITC bonus credit (discussed in Section X) will need to be carefully coordinated with the equipment supply agreements to ensure compliance with the applicable domestic content thresholds established under the Inflation Reduction Act and IRS guidance.
IX.C. O&M Agreements
No operations and maintenance ("O&M") agreements are currently in place for any of the eight projects. This is consistent with the pre-construction development stage of the Portfolio. O&M agreements will be procured during the construction phase or shortly before commercial operation. CBR's development team has identified several qualified O&M service providers and anticipates soliciting competitive proposals during the construction period.
IX.D. Other Material Contracts
Calderwood & Harkness reviewed miscellaneous contracts relating to the development of the Project Portfolio, including agreements for land surveying services, geotechnical investigations, civil engineering and site design, environmental consulting, biological surveys, interconnection consulting, and permitting consulting. These agreements are generally short-term, fixed-fee arrangements that will either be completed prior to the JV closing or can be assigned to the JV Entity. No unusual or problematic provisions were identified in any of these contracts. None of the contracts contain change-of-control or anti-assignment provisions that would be triggered by the contribution of the projects to the JV Entity.
X. Tax Matters