CONFIDENTIAL — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL
LIMITED LIABILITY COMPANY AGREEMENT
OF
SOLSTICE PLATEAU ENERGY HOLDINGS LLC
A Delaware Limited Liability Company
INITIAL DRAFT — FOR DISCUSSION PURPOSES ONLY
October 20, 2023
Prepared by:
Calderwood & Harkness LLP 1000 Louisiana Street, Suite 5500 Houston, TX 77002
Matter Number: 48172.001
LIMITED LIABILITY COMPANY AGREEMENT
OF
SOLSTICE PLATEAU ENERGY HOLDINGS LLC
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LIMITED LIABILITY COMPANY AGREEMENT
OF
SOLSTICE PLATEAU ENERGY HOLDINGS LLC
This Limited Liability Company Agreement (this "Agreement") of Solstice Plateau Energy Holdings LLC, a Delaware limited liability company (the "Company"), is entered into as of [●], 2023, by and between:
CALLOWAY-BRIGGS RENEWABLES INC., a Texas corporation ("CBR"), with its principal offices located at 2300 Travis Street, Suite 4200, Houston, TX 77006; and
LUMEN RIDGE INFRASTRUCTURE PARTNERS LLC, a Delaware limited liability company ("Lumen Ridge"), with its principal offices located at 301 Tresser Boulevard, Suite 1400, Stamford, CT 06901.
CBR and Lumen Ridge are each referred to herein individually as a "Member" and collectively as the "Members."
RECITALS
WHEREAS, the Members desire to form a Delaware limited liability company for the purpose of developing, constructing, financing, owning, and operating a portfolio of utility-scale solar energy generation projects located in Texas, New Mexico, and Arizona;
WHEREAS, CBR is a Texas-based privately held renewable energy and utilities company with approximately 3.8 GW of solar projects in various stages of development and operation across the United States, and possesses significant expertise in the development, permitting, and construction management of utility-scale solar generation facilities;
WHEREAS, Lumen Ridge is a Delaware-based renewable-energy infrastructure investment platform with approximately $4.2 billion in assets under management across multiple investment vehicles, and possesses significant expertise in the structuring, financing, and capital management of renewable energy infrastructure assets;
WHEREAS, CBR will contribute to the Company a portfolio of eight utility-scale solar development projects with aggregate nameplate DC capacity of approximately 1,200 MW (the "Project Portfolio"), together with cash, as more particularly described herein and in the Contribution Agreement;
WHEREAS, Lumen Ridge will contribute cash to the Company, in each case as more particularly described herein;
WHEREAS, the Members desire to set forth the terms and conditions governing the Company, including, without limitation, the governance structure, capital contributions and capital accounts, allocations of income and loss, distributions, transfers of membership interests, and dissolution and winding up of the Company;
WHEREAS, the Company will be formed as a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act (6 Del. C. § 18-101 et seq.) (the "Act"); and
WHEREAS, the Members intend for the Company to be classified and treated as a partnership for U.S. federal income tax purposes and do not intend for the Company to be treated as a corporation or an association taxable as a corporation.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time.
"Additional Capital Contribution" means any Capital Contribution made by a Member to the Company after such Member's Initial Capital Contribution, including any Capital Contribution made in response to a Capital Call issued pursuant to Section 4.3.
"Adjusted Capital Account" means, with respect to any Member, the balance in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the adjustments described in Section 5.3, including (i) any adjustments required under Treasury Regulation § 1.704-1(b)(2)(ii)(d) (relating to increases for certain obligations to restore deficit account balances), and (ii) any adjustments required under Treasury Regulation § 1.704-2 (relating to minimum gain chargebacks).
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. For the avoidance of doubt, (a) with respect to CBR, Cascadia Growth Equity Fund III, L.P. and its general partner shall be deemed Affiliates, and (b) with respect to Lumen Ridge, any investment fund, separate account, or co-investment vehicle managed by Lumen Ridge or any of its Affiliates shall be deemed an Affiliate.
"Agreement" means this Limited Liability Company Agreement of the Company, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Approved Annual Budget" means the annual budget for the Company approved by Supermajority Vote of the Management Committee in accordance with Section 7.4 and Section 8.4.
"Available Cash" means, as of the date of any determination, the excess, if any, of (a) the aggregate cash balances of the Company from all sources (including Capital Contributions, operating revenues, and financing proceeds), over (b) the sum of (i) all amounts required to be paid or reserved for payment of Company expenses, debt service obligations (including amounts due under the Trident Credit Facility), taxes, and other liabilities, (ii) such reserves as the Management Committee determines are reasonably necessary for the proper operation of the Company's business, and (iii) any amounts required to be set aside or restricted under the terms of any financing agreement to which the Company is a party.
"Bankruptcy" means, with respect to any Person, (a) the filing of a voluntary petition in bankruptcy or the commencement of any proceeding under any federal or state bankruptcy, insolvency, reorganization, or similar law for the relief of debtors by such Person, (b) the filing of an involuntary petition in bankruptcy or the commencement of any such proceeding against such Person which is not dismissed within ninety (90) days after the filing or commencement thereof, (c) the appointment of a receiver, trustee, custodian, or liquidator of such Person or of all or any substantial part of such Person's assets, (d) the making by such Person of a general assignment for the benefit of creditors, (e) the admission in writing by such Person of its inability to pay its debts as they become due, or (f) such Person becoming "insolvent" as defined in Section 18-304 of the Act.
"Book Value" means, with respect to any property contributed to the Company, the fair market value of such property at the time of contribution, as agreed by the Members, adjusted thereafter as provided in Treasury Regulation § 1.704-1(b)(2)(iv). For the avoidance of doubt, the agreed Book Value of the Project Portfolio as of the date of its contribution is Ninety Million Dollars ($90,000,000), which was determined based on the independent fairness analysis prepared by Ridgeline Barrow & Co. dated November 15, 2023.
"Built-In Gain" means, with respect to any Contributed Property, the excess, if any, of the Book Value of such property over the Tax Basis of such property at the time of contribution. The Built-In Gain with respect to the Project Portfolio is Fifty-Five Million Eight Hundred Thousand Dollars ($55,800,000), representing the difference between the Book Value of $90,000,000 and the Tax Basis of approximately $34,200,000.
"Business Day" means any day other than a Saturday, Sunday, or a day on which commercial banks in Houston, Texas, New York, New York, or Wilmington, Delaware are authorized or required by law to close.
"Buy-Sell Notice" has the meaning set forth in Section 10.5.
"Capital Account" has the meaning set forth in Section 5.2.
"Capital Call" means a written request by the Management Committee to the Members for Additional Capital Contributions in accordance with Section 4.3.
"Capital Contribution" means, with respect to any Member, the total amount of cash and the agreed Book Value of any property (other than cash) contributed by such Member to the Company, including such Member's Initial Capital Contribution and any Additional Capital Contributions.
"CBR" means Calloway-Briggs Renewables Inc., a Texas corporation.
"Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware pursuant to Section 18-201 of the Act, as it may be amended, restated, or supplemented from time to time.
"Chairperson" means the chairperson of the Management Committee, which position shall rotate annually between a CBR designee and a Lumen Ridge designee, as further described in Section 7.3. CBR shall designate the Chairperson for Year 1 (the first twelve-month period following the Closing Date).
"Closing" means the consummation of the transactions contemplated by this Agreement, including the funding of the Initial Capital Contributions and the contribution of the Project Portfolio, upon satisfaction or waiver of the conditions precedent set forth in Article XII.
"Closing Date" means the date on which the Closing occurs in accordance with Section 12.4.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a specific section of the Code shall include any successor provision thereto.
"Company" means Solstice Plateau Energy Holdings LLC, a Delaware limited liability company.
"Contribution Agreement" means the Contribution Agreement to be entered into by and between CBR and the Company, pursuant to which CBR will contribute the Project Portfolio to the Company, in substantially the form attached hereto or as otherwise agreed by the Members.
"Contributed Property" means any property (other than cash) contributed by a Member to the Company, including the Project Portfolio contributed by CBR.
"Deadlock" has the meaning set forth in Section 7.7.
"Development Management Agreement" means the Development and Construction Management Agreement to be entered into by and between the Company and CBR, pursuant to which CBR will provide development and construction management services to the Company with respect to the Projects, as more particularly described in Section 11.2.
"Disposition" means any sale, transfer, assignment, exchange, pledge, hypothecation, encumbrance, or other disposition (whether voluntary or involuntary, by operation of law or otherwise) of all or any portion of a Member's Membership Interest or any direct or indirect interest therein.
"Distribution" means any distribution of cash or property by the Company to a Member in respect of such Member's Membership Interest, whether pursuant to Section 6.2 (distributions of Available Cash), Section 6.3 (tax distributions), or Article XIII (distributions upon liquidation).
"Drag-Along" has the meaning set forth in Section 10.7.
"EPC Costs" or "Hard Construction Costs" means the total engineering, procurement, and construction costs associated with the construction and commissioning of the Projects, estimated in the aggregate at approximately Seven Hundred Twenty Million Dollars ($720,000,000) as of the date of this Agreement, as more particularly set forth in the Approved Annual Budget and the applicable EPC contract for each Project.
"Escrow Agent" means Continental Fiduciary Trust Company, acting in its capacity as escrow agent under the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement to be entered into among the Members and the Escrow Agent, pursuant to which the cash portions of the Initial Capital Contributions will be deposited into escrow (account reference CFT-2024-00847) pending satisfaction of the conditions precedent to Closing set forth in Article XII.
"Fair Market Value" means, with respect to any Membership Interest or any asset of the Company, the fair market value thereof as determined by an independent appraiser in accordance with the procedures set forth in Section 10.4.
"FERC" means the Federal Energy Regulatory Commission, or any successor agency.
"Fiscal Year" means the calendar year, or, in the case of the first and last Fiscal Years, the portion thereof commencing on the Closing Date or ending on the date of final liquidating distribution, respectively.
"GAAP" means United States generally accepted accounting principles, as in effect from time to time, consistently applied.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"ICC Rules" means the Rules of Arbitration of the International Chamber of Commerce, as in effect from time to time.
"Indebtedness" means, with respect to the Company, (a) all indebtedness for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or similar instruments, (c) all obligations under capital leases, (d) all guarantees of any of the foregoing, and (e) all other obligations that would be classified as indebtedness under GAAP.
"Initial Capital Contribution" has the meaning set forth in Section 4.1.
"Investment Tax Credit" or "ITC" means the energy investment tax credit available under Section 48 of the Code with respect to eligible energy property, at a rate of thirty percent (30%) (base credit) or forty percent (40%) (with domestic content bonus under Section 45(b)(9) of the Code and applicable guidance), as applicable to the Projects.
"IRR" means internal rate of return, calculated in accordance with the methodology set forth in Exhibit C.
"Lock-Up Period" means the period commencing on the Closing Date and ending on the third (3rd) anniversary of the Closing Date.
"Lumen Ridge" means Lumen Ridge Infrastructure Partners LLC, a Delaware limited liability company.
"Management Committee" has the meaning set forth in Section 7.1.
"Member" means each of CBR and Lumen Ridge, and any Person admitted as an additional or substitute Member of the Company in accordance with this Agreement, in each case for so long as such Person holds a Membership Interest. "Members" means all Persons who are Members of the Company.
"Membership Interest" means, with respect to any Member, such Member's entire interest in the Company, including (a) such Member's economic interest (i.e., such Member's right to receive allocations of Net Income, Net Loss, and other items and distributions from the Company), (b) such Member's governance rights (including the right to appoint designees to the Management Committee), and (c) all other rights, benefits, and privileges enjoyed by such Member under this Agreement and the Act.
"Net Income" and "Net Loss" mean, for each Fiscal Year (or portion thereof), the taxable income or loss of the Company for such period as determined for federal income tax purposes, with such adjustments as are necessary to comply with Treasury Regulation § 1.704-1(b)(2)(iv), including (a) any income of the Company that is exempt from federal income tax shall be included, (b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code (or treated as such under Treasury Regulation § 1.704-1(b)(2)(iv)(i)) shall be taken into account, and (c) in lieu of depreciation, amortization, or other cost recovery deductions, there shall be taken into account Book Depreciation as determined in accordance with Treasury Regulation § 1.704-1(b)(2)(iv)(g).
"Non-Transferring Member" has the meaning set forth in Section 10.4.
"Officer" means each Person appointed as an officer of the Company by the Management Committee pursuant to Section 7.6, including the CEO and CFO.
"Outside Date" means [●], 2024, as such date may be extended by mutual written agreement of the Members.
"Partnership Representative" has the meaning set forth in Section 9.2.
"Percentage Interest" means, with respect to each Member, such Member's percentage interest in the Company as set forth on Exhibit A, as such percentage may be adjusted from time to time in accordance with this Agreement. The initial Percentage Interests are as follows: CBR — fifty percent (50%); Lumen Ridge — fifty percent (50%).
"Permitted Liens" means (a) liens for taxes not yet due and payable or being contested in good faith by appropriate proceedings, (b) mechanics', materialmen's, and similar liens arising in the ordinary course of business, (c) easements, rights-of-way, restrictions, and other similar encumbrances that do not materially interfere with the use of the applicable Project, and (d) liens arising under the Trident Credit Facility and any other project-level financing approved by the Management Committee.
"Permitted Transfer" has the meaning set forth in Section 10.2.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity.
"Project" means each of the eight utility-scale solar energy development projects included in the Project Portfolio, as described on Exhibit B, and any future utility-scale solar energy generation project acquired by or on behalf of the Company with the approval of the Management Committee.
"Project Portfolio" means the eight utility-scale solar development projects contributed by CBR to the Company pursuant to the Contribution Agreement, having aggregate nameplate DC capacity of approximately 1,200 MW DC, as more particularly described on Exhibit B.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended, and the rules and regulations promulgated thereunder.
"Regulations" means the Treasury Regulations promulgated under the Code, as amended from time to time, including temporary and proposed regulations. Any reference herein to a specific section of the Regulations shall include any successor provision thereto.
"Related Party Transaction" means any transaction or arrangement between the Company, on the one hand, and a Member or an Affiliate of a Member, on the other hand, including the provision of goods, services, loans, or guarantees.
"Remedial Allocation Method" means the remedial allocation method under Treasury Regulation § 1.704-3(d) for allocating items of income, gain, loss, and deduction with respect to Contributed Property.
"Reserved Matters" means those matters requiring a Supermajority Vote as set forth in Section 7.4.
"ROFO" means the right of first offer set forth in Section 10.4.
"ROFO Exercise Period" means the sixty (60) day period during which the Non-Transferring Member may elect to purchase the Transferring Member's Membership Interest pursuant to Section 10.4.
"Signing Date" means the date of execution of this Agreement by both Members.
"SOFR" means the Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York (or any successor administrator), as of the applicable date of determination.
"Supermajority Vote" means the affirmative vote of at least five (5) of the six (6) members of the Management Committee.
"Tag-Along" has the meaning set forth in Section 10.6.
"Tax Basis" means, with respect to any asset of the Company, the adjusted tax basis of such asset for federal income tax purposes. As of the date of contribution of the Project Portfolio, the aggregate Tax Basis of the Project Portfolio is approximately Thirty-Four Million Two Hundred Thousand Dollars ($34,200,000).
"Tax Matters Partner" means the "tax matters partner" of the Company within the meaning of Section 6231(a)(7) of the Code (as in effect prior to the amendments made by the Bipartisan Budget Act of 2015), to the extent applicable.
"Tax Protection Agreement" means the Tax Protection Agreement to be entered into by and between the Company and CBR, providing certain protections to CBR with respect to the Built-In Gain on the Contributed Property, as further described in Section 9.4.
"Transfer" has the meaning set forth in Section 10.1.
"Transferring Member" has the meaning set forth in Section 10.4.
"Trident Credit Facility" means the project-level credit facility to be established with Trident National Bank, N.A. (facility reference TNB-EIF-2024-0193), providing for up to Four Hundred Eighty Million Dollars ($480,000,000) in a combination of term loans and revolving construction facilities at an interest rate of SOFR + 175 basis points, on a non-recourse basis to the Members, as further described in Section 11.4.
Section 1.2 — Interpretation
For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) The words "herein," "hereof," "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, or other subdivision.
(b) The headings of the Articles, Sections, and other subdivisions of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.
(c) Words importing the singular number shall include the plural number and vice versa, and words importing the masculine gender shall include the feminine and neuter genders.
(d) The word "including" (and correlative words such as "include" and "includes") means including without limitation.
(e) References to any statute, rule, or regulation include any amendments thereto and any successor statutes, rules, or regulations.
(f) References to "days" shall mean calendar days unless "Business Days" is specifically stated.
(g) References to "Dollars" or "$" shall mean lawful money of the United States of America.
(h) Each exhibit and schedule attached hereto is incorporated herein by reference and made a part of this Agreement.
(i) Accounting terms not otherwise defined herein shall have the meanings ascribed to them under GAAP.
(j) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding."
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company has been or shall be formed as a Delaware limited liability company pursuant to the Act by the filing of the Certificate of Formation with the office of the Secretary of State of the State of Delaware. The rights, powers, duties, obligations, and liabilities of the Members shall be as provided in the Act, except as otherwise provided in this Agreement. To the extent that any provision of this Agreement is inconsistent with any non-mandatory provision of the Act, this Agreement shall control.
Section 2.2 — Name
The name of the Company is "Solstice Plateau Energy Holdings LLC." The business of the Company shall be conducted under such name or under any other name or names as the Management Committee may approve from time to time. The Management Committee shall promptly file or cause to be filed any fictitious business name certificates and similar filings as may be required by applicable law in connection with the Company's use of any such name.
Section 2.3 — Purpose
The Company is formed for the exclusive purpose of (a) developing, constructing, financing, owning, operating, maintaining, and eventually disposing of the Project Portfolio and any additional utility-scale solar energy generation projects approved by the Management Committee, including projects located in the States of Texas, New Mexico, and Arizona and such other jurisdictions as the Management Committee may approve, (b) entering into and performing its obligations under any agreements, contracts, and instruments necessary or incidental to the foregoing, including power purchase agreements, interconnection agreements, EPC contracts, equipment supply agreements, land leases, financing agreements, tax equity transactions, and governmental permits and approvals, and (c) engaging in all activities incidental, ancillary, or related to the foregoing purposes. The aggregate nameplate DC capacity of the initial Project Portfolio is approximately 1,200 MW across the States of Texas, New Mexico, and Arizona, as more particularly described on Exhibit B.
Section 2.4 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware shall be located at c/o Peachtree Corporate Services, Inc., 1209 Orange Street, Suite 300, Wilmington, Delaware 19801, and the name and address of the Company's registered agent for service of process in the State of Delaware shall be Peachtree Corporate Services, Inc., at such address. The Management Committee may change the registered office and registered agent of the Company from time to time in accordance with the Act.
Section 2.5 — Principal Office
The principal business office of the Company shall be located at 2300 Travis Street, Suite 4210, Houston, Texas 77006. The Management Committee may change the principal office of the Company from time to time by resolution adopted in accordance with this Agreement, and shall provide prompt notice of any such change to each Member.
Section 2.6 — Term
The Company shall have a perpetual existence and shall continue in full force and effect until dissolved in accordance with the provisions of Article XIII. No Member shall have the right to dissolve or terminate the Company except as expressly provided in Article XIII.
Section 2.7 — Fiscal Year
The Fiscal Year of the Company shall be the calendar year, commencing on January 1 and ending on December 31 of each year; provided, that the first Fiscal Year shall commence on the Closing Date and end on December 31 of the calendar year in which the Closing Date occurs, and the last Fiscal Year shall commence on January 1 of the calendar year in which the final liquidating distribution is made and end on the date of such final distribution.
Section 2.8 — Qualification in Other Jurisdictions
The Management Committee shall cause the Company to qualify to do business as a foreign limited liability company in the State of Texas, the State of New Mexico, the State of Arizona, and any other jurisdiction in which the nature of the Company's business or the ownership or leasing of its properties requires such qualification. Each Member shall execute, acknowledge, and deliver such documents and certificates as may be necessary to effectuate such qualifications.
ARTICLE III — MEMBERS
Section 3.1 — Members
The Members of the Company and their respective Percentage Interests are as follows:
The address of each Member for purposes of notices and communications under this Agreement is as set forth in Section 18.1.
Section 3.2 — Admission of Additional Members
No additional Members shall be admitted to the Company without the prior approval of a Supermajority Vote (at least five (5) of six (6) members) of the Management Committee. As a condition to admission, any additional Member shall be required to (a) execute a joinder to this Agreement in substantially the form attached hereto as Exhibit E, agreeing to be bound by all of the terms and conditions hereof, (b) make such Capital Contributions as the Management Committee shall require, and (c) deliver such other documents and instruments as the Management Committee may reasonably request. Upon admission, the Percentage Interests of the existing Members shall be adjusted as determined by the Management Committee to reflect the Capital Contribution of the additional Member.
Section 3.3 — Liability of Members
No Member shall be personally liable for any debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Member of the Company. The Members intend that the Company shall be operated in a manner consistent with the non-recourse structure of the Trident Credit Facility and any other project-level financing, such that no Member shall have personal recourse liability with respect to Company indebtedness. Each Member's liability shall be limited to the amount of such Member's Capital Contributions, as provided in the Act. Nothing in this Section 3.3 shall be construed to limit any Member's obligations under this Agreement, including the obligation to make Capital Contributions when due.
Section 3.4 — No Authority to Bind
No Member, acting solely in its capacity as a Member (and not as an Officer or in any other capacity expressly authorized by this Agreement or the Management Committee), shall have any authority to bind the Company, to execute any instrument on behalf of the Company, or to transact any business in the name of the Company. Any unauthorized act by a Member shall not bind the Company, and the acting Member shall be solely responsible for any liabilities arising from such unauthorized act.
ARTICLE IV — CAPITAL CONTRIBUTIONS
Section 4.1 — Initial Capital Contributions
(a) CBR's Initial Capital Contribution. On the Closing Date, CBR shall make an Initial Capital Contribution to the Company in an aggregate amount of One Hundred Fifty Million Dollars ($150,000,000), consisting of:
(i) Cash in the amount of Sixty Million Dollars ($60,000,000); and
(ii) The Project Portfolio, contributed in-kind pursuant to the Contribution Agreement, with an agreed Book Value of Ninety Million Dollars ($90,000,000), such valuation being based on the independent fairness analysis prepared by Ridgeline Barrow & Co. dated November 15, 2023, which established a fair market value range of $87,000,000 to $96,000,000 for the Project Portfolio, and the Members have agreed upon the midpoint of such range as the Book Value for purposes of this Agreement.
(b) Lumen Ridge's Initial Capital Contribution. On the Closing Date, Lumen Ridge shall make an Initial Capital Contribution to the Company of One Hundred Fifty Million Dollars ($150,000,000) in cash.
(c) Aggregate Initial Capital Contributions. The aggregate Initial Capital Contributions of the Members shall equal Three Hundred Million Dollars ($300,000,000).
(d) Funding Mechanics. The cash portions of the Initial Capital Contributions shall be deposited by the Members into an escrow account maintained by Continental Fiduciary Trust Company (escrow account reference CFT-2024-00847) pursuant to the Escrow Agreement, and such amounts shall be released to the Company upon satisfaction or waiver of all conditions precedent to Closing set forth in Article XII. The in-kind contribution of the Project Portfolio by CBR shall be effectuated pursuant to the terms and conditions of the Contribution Agreement, to be executed contemporaneously herewith.
Section 4.2 — Project Portfolio Contribution
(a) Description of Projects. CBR shall contribute to the Company the Project Portfolio, consisting of the following eight utility-scale solar development projects:
(b) Valuation. The agreed Book Value of the Project Portfolio is Ninety Million Dollars ($90,000,000). The aggregate Tax Basis of the Project Portfolio is approximately Thirty-Four Million Two Hundred Thousand Dollars ($34,200,000). The Built-In Gain with respect to the Project Portfolio is Fifty-Five Million Eight Hundred Thousand Dollars ($55,800,000), representing the difference between the Book Value and the Tax Basis.
(c) Contribution Agreement. The contribution of the Project Portfolio shall be governed by the Contribution Agreement, to be executed by CBR and the Company contemporaneously with the execution of this Agreement. The Contribution Agreement shall contain customary representations, warranties, covenants, and indemnification provisions relating to the condition of the Projects, title to the Projects, environmental compliance, and related matters. Further description of the Projects, including permitting status and other development details, is set forth on Exhibit B.
Section 4.3 — Additional Capital Contributions
(a) Capital Calls. From time to time after the Closing Date, the Management Committee may approve Additional Capital Calls requiring the Members to make Additional Capital Contributions to the Company on a pro rata basis in accordance with their respective Percentage Interests (i.e., fifty percent (50%) each). All Capital Calls shall be made in writing to each Member and shall specify (i) the aggregate amount of the Capital Call, (ii) each Member's pro rata share thereof, (iii) the purpose for which the funds are required, and (iv) the date by which the Additional Capital Contribution is due (which shall be not less than twenty (20) Business Days after the date of the Capital Call notice).
(b) Maximum Additional Capital Contributions. The maximum aggregate Additional Capital Contributions that may be required from each Member shall not exceed Two Hundred Million Dollars ($200,000,000), such that the maximum aggregate Additional Capital Contributions from both Members shall not exceed Four Hundred Million Dollars ($400,000,000). Accordingly, the total potential equity capitalization of the Company is Seven Hundred Million Dollars ($700,000,000), consisting of $300,000,000 in Initial Capital Contributions and up to $400,000,000 in Additional Capital Contributions.
(c) Approval Requirement. Any Capital Call in an amount exceeding Twenty-Five Million Dollars ($25,000,000) in the aggregate shall require a Supermajority Vote (at least five (5) of six (6) members) of the Management Committee. Capital Calls of $25,000,000 or less may be approved by ordinary majority vote of the Management Committee.
(d) Form of Capital Call Notice. Each Capital Call notice shall be substantially in the form set forth in Exhibit D.
Section 4.4 — Failure to Fund Capital Calls
(a) Default. If a Member (the "Defaulting Member") fails to fund all or any portion of its pro rata share of a Capital Call within thirty (30) Business Days after the date specified in the Capital Call notice (the "Funding Deadline"), such failure shall constitute a default under this Agreement.
(b) Non-Defaulting Member Loan. Upon the occurrence of a default under this Section 4.4, the other Member (the "Non-Defaulting Member") may, but shall not be obligated to, fund the Defaulting Member's unfunded Capital Contribution on behalf of the Defaulting Member. Any such amount funded by the Non-Defaulting Member shall constitute a loan from the Non-Defaulting Member to the Defaulting Member, bearing interest at a rate per annum equal to SOFR (as determined on the Business Day immediately preceding the date of such funding) plus five hundred (500) basis points, compounded quarterly.
(c) Conversion Right. If the Defaulting Member fails to repay such loan in full (including accrued interest) within sixty (60) days after the date on which the Non-Defaulting Member funded the Defaulting Member's shortfall, the Non-Defaulting Member may elect, by written notice to the Defaulting Member, to convert such loan (including accrued interest) into an additional Capital Contribution by the Non-Defaulting Member. Upon such conversion, the Percentage Interests of the Members shall be adjusted to reflect the relative Capital Contributions of the Members, based on the Fair Market Value of the Company determined as of the date of the default.
(d) Dilution Calculation. For purposes of calculating the dilution of the Defaulting Member's Percentage Interest under this Section 4.4, the Fair Market Value of the Company shall be determined by an independent appraiser mutually agreed upon by the Members (or, if the Members cannot agree, selected in accordance with the procedures set forth in Section 10.4 mutatis mutandis).
Section 4.5 — No Return of Capital Contributions
Except as provided in Article VI (Distributions) and Article XIII (Dissolution and Winding Up), no Member shall have the right to demand or receive the return of any Capital Contribution or any part thereof. No Member shall have priority over any other Member with respect to the return of Capital Contributions, except as expressly set forth in Article VI or Article XIII.
Section 4.6 — No Interest on Capital Contributions
No Member shall be entitled to receive interest on any Capital Contribution made to the Company, except as expressly set forth in Section 4.4(b) with respect to loans made by a Non-Defaulting Member.
Section 4.7 — Capital Accounts
Capital Accounts shall be established and maintained for each Member in accordance with Section 5.2.
ARTICLE V — ALLOCATIONS
Section 5.1 — Allocation of Net Income and Net Loss
(a) Net Income. Subject to the special allocations set forth in Section 5.3 and the Section 704(c) allocations set forth in Section 5.4, Net Income of the Company for each Fiscal Year (or portion thereof) shall be allocated to the Members in accordance with their respective Percentage Interests (i.e., fifty percent (50%) to CBR and fifty percent (50%) to Lumen Ridge).
(b) Net Loss. Subject to the special allocations set forth in Section 5.3 and the Section 704(c) allocations set forth in Section 5.4, Net Loss of the Company for each Fiscal Year (or portion thereof) shall be allocated to the Members in accordance with their respective Percentage Interests (i.e., fifty percent (50%) to CBR and fifty percent (50%) to Lumen Ridge); provided, that no allocation of Net Loss shall be made to a Member to the extent that such allocation would cause or increase a deficit in such Member's Adjusted Capital Account.
Section 5.2 — Capital Accounts
(a) Establishment. A Capital Account shall be established and maintained for each Member in accordance with the rules of Treasury Regulation § 1.704-1(b)(2)(iv). Each Member's Capital Account shall initially equal such Member's Initial Capital Contribution (valued at the agreed Book Value in the case of in-kind contributions).
(b) Adjustments. Each Member's Capital Account shall be:
(i) increased by (A) the amount of cash contributed by such Member to the Company, (B) the Book Value of any property contributed by such Member to the Company (net of any liabilities secured by such property that the Company is considered to assume or take subject to), (C) allocations of Net Income and items of income and gain allocated to such Member, and (D) any other increases required under Treasury Regulation § 1.704-1(b)(2)(iv);
(ii) decreased by (A) the amount of cash distributed to such Member by the Company, (B) the Book Value of any property distributed to such Member by the Company (net of any liabilities secured by such property that such Member is considered to assume or take subject to), (C) allocations of Net Loss and items of loss and deduction allocated to such Member, (D) allocations of expenditures described in Section 705(a)(2)(B) of the Code, and (E) any other decreases required under Treasury Regulation § 1.704-1(b)(2)(iv).
(c) Compliance. The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulation § 1.704-1(b) and shall be interpreted and applied in a manner consistent therewith. The Management Committee shall make such adjustments to Capital Accounts as are necessary to maintain compliance with such Regulations.
Section 5.3 — Special Allocations
Notwithstanding Section 5.1, the following special allocations shall be made in the following order of priority:
(a) Minimum Gain Chargeback. Notwithstanding any other provision of this Article V, if there is a net decrease in Company Minimum Gain (as determined under Treasury Regulation § 1.704-2(d)) during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulation § 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulation § 1.704-2(f)(6) and (j)(2). This Section 5.3(a) is intended to comply with the minimum gain chargeback requirement in Treasury Regulation § 1.704-2(f) and shall be interpreted consistently therewith.
(b) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other provision of this Article V (except Section 5.3(a)), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain (as defined in Treasury Regulation § 1.704-2(i)(2)) attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Treasury Regulation § 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt. Allocations pursuant to this Section 5.3(b) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. This Section 5.3(b) is intended to comply with the minimum gain chargeback requirement in Treasury Regulation § 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation § 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the deficit balance, if any, in such Member's Adjusted Capital Account created by such adjustments, allocations, or distributions as quickly as possible. This Section 5.3(c) is intended to comply with the qualified income offset requirement in Treasury Regulation § 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) Gross Income Allocation. In the event any Member has a deficit Capital Account balance at the end of any Fiscal Year that is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations § 1.704-2(g)(1) and § 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account balance in excess of such sum after all other allocations provided for in this Article V have been tentatively made as if this Section 5.3(d) were not in this Agreement.
(e) Curative Allocations. The allocations set forth in Sections 5.3(a), 5.3(b), 5.3(c), and 5.3(d) (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.3(e). Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Management Committee shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines is appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement.
(f) Economic Effect Safe Harbor. The allocations set forth in this Article V are intended to comply with the economic effect safe harbor of Treasury Regulation § 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in a manner consistent therewith. Each Member agrees that the allocations under this Agreement, together with the provisions relating to Capital Accounts, distributions, and liquidation, satisfy the "alternate test for economic effect" under Treasury Regulation § 1.704-1(b)(2)(ii)(d).
Section 5.4 — Section 704(c) Allocations
(a) General. In accordance with Section 704(c) of the Code and the Regulations thereunder, income, gain, loss, and deduction with respect to Contributed Property (including the Project Portfolio) shall, solely for federal income tax purposes, be allocated among the Members so as to take account of the difference between the Book Value and the Tax Basis of such Contributed Property at the time of contribution.
(b) Remedial Allocation Method. The Company shall use the remedial allocation method described in Treasury Regulation § 1.704-3(d) to make allocations under Section 704(c) of the Code with respect to Contributed Property. For the avoidance of doubt, the Contributed Property consists of the Project Portfolio, which has a Book Value of Ninety Million Dollars ($90,000,000) and a Tax Basis of approximately Thirty-Four Million Two Hundred Thousand Dollars ($34,200,000), resulting in a Built-In Gain of Fifty-Five Million Eight Hundred Thousand Dollars ($55,800,000). Accordingly, depreciation, amortization, gain, loss, and other tax items with respect to the Contributed Property shall be allocated to the Members in a manner that accounts for the Built-In Gain, including through the creation of remedial allocations of income and deduction as required under Treasury Regulation § 1.704-3(d).
(c) Revaluation. In the event that the Book Value of any Company asset is adjusted pursuant to Treasury Regulation § 1.704-1(b)(2)(iv)(f) (for example, upon the admission of a new Member or a distribution in liquidation of a Member's interest), subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted Book Value and the Tax Basis of such asset in the same manner as under Section 704(c) of the Code and the applicable Regulations.
Section 5.5 — Tax Allocations
(a) General. Except as otherwise provided in this Section 5.5 and Section 5.4, each item of income, gain, loss, deduction, and credit of the Company for federal, state, and local income tax purposes shall be allocated among the Members in the same manner as the corresponding item of income, gain, loss, and deduction is allocated under Sections 5.1, 5.3, and 5.4.