BACK-LEVERAGE INTERCREDITOR AND CONSENT AGREEMENT
Dated as of December 8, 2023
among
OSPREY NATIONAL BANK, N.A. as Lender
RIDGELINE CAPITAL PARTNERS, LLC as Tax-Equity Investor
CALLOWAY-BRIGGS RENEWABLES INC. as Sponsor
and
CBR SOLSTICE MANAGER, LLC as Managing Member (joined solely for purposes of acknowledgment)
CONFIDENTIAL — This document and the information contained herein are strictly confidential and are provided solely for the use of the parties hereto and their respective legal, tax, and financial advisors. Any unauthorized reproduction, distribution, or disclosure of this document or its contents is strictly prohibited.
TABLE OF CONTENTS
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This BACK-LEVERAGE INTERCREDITOR AND CONSENT AGREEMENT (this "Agreement") is entered into as of December 8, 2023 (the "Effective Date"), by and among:
(1) OSPREY NATIONAL BANK, N.A., a national banking association organized under the laws of the United States, with its principal office at 300 Madison Avenue, New York, NY 10017 (the "Lender" or "Osprey");
(2) RIDGELINE CAPITAL PARTNERS, LLC, a Delaware limited liability company, with its principal office at 390 Park Avenue, 22nd Floor, New York, NY 10022 (the "Tax-Equity Investor" or "Ridgeline");
(3) CALLOWAY-BRIGGS RENEWABLES INC., a Texas corporation, with its principal office at 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056 (the "Sponsor" or "CBR"); and
(4) CBR SOLSTICE MANAGER, LLC, a Delaware limited liability company and wholly owned subsidiary of CBR, joined solely for purposes of acknowledging and agreeing to the terms hereof, with its principal office c/o Calloway-Briggs Renewables Inc. at 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056 (the "Managing Member" or "CBR Manager").
Each of the foregoing is referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS:
A. The Partnership. Solstice Holdings, LLC, a Delaware limited liability company (EIN: 88-4071523) (the "Partnership"), was duly formed under the Delaware Limited Liability Company Act on August 14, 2023, and is governed by that certain Amended and Restated Limited Liability Company Agreement dated as of September 21, 2023 (as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and this Agreement, the "LLCA"), entered into among CBR Solstice Manager, LLC, in its capacity as Managing Member, and Ridgeline Capital Partners, LLC, in its capacity as Tax-Equity Member. The Partnership was formed for the purpose of owning, operating, and managing a portfolio of utility-scale solar photovoltaic generating facilities located in the States of Texas and New Mexico.
B. The Solstice Portfolio. The Partnership holds one hundred percent (100%) of the membership interests in seven project companies (collectively, the "Project Companies"), each of which is organized as a Delaware limited liability company and treated as a disregarded entity for federal income tax purposes, as more particularly described on Schedule A attached hereto. The Project Companies own and operate the following solar generation facilities (collectively, the "Solstice Portfolio"):
(i) Pecos Sun Solar, LLC — an 85 MW(dc) solar photovoltaic generating facility located in Reeves County, Texas;
(ii) Red Mesa Solar, LLC — a 70 MW(dc) solar photovoltaic generating facility located in Pecos County, Texas;
(iii) Coyote Flats Solar, LLC — a 65 MW(dc) solar photovoltaic generating facility located in Ward County, Texas;
(iv) Llano Verde Solar, LLC — a 55 MW(dc) solar photovoltaic generating facility located in Hudspeth County, Texas;
(v) Cimarron Solar, LLC — a 50 MW(dc) solar photovoltaic generating facility located in Lea County, New Mexico;
(vi) Sandoval Ridge Solar, LLC — a 50 MW(dc) solar photovoltaic generating facility located in Sandoval County, New Mexico; and
(vii) Amistad Solar, LLC — a 45 MW(dc) solar photovoltaic generating facility located in Val Verde County, Texas.
The Solstice Portfolio has an aggregate nameplate capacity of 420 MW(dc) and an aggregate engineering, procurement, and construction ("EPC") cost of Three Hundred Eighty-Four Million Six Hundred Thousand Dollars ($384,600,000).
C. The Tax-Equity Investment. Ridgeline has committed to make capital contributions to the Partnership in an aggregate amount of One Hundred Twenty Million Dollars ($120,000,000) pursuant to the LLCA and that certain Capital Contribution Agreement dated as of September 21, 2023 (the "Capital Contribution Agreement"), among CBR Manager, Ridgeline, and the Partnership. Ridgeline's capital contributions are payable in two tranches: (a) Ninety-Six Million Dollars ($96,000,000) at the closing of the tax-equity investment on December 8, 2023, and (b) Twenty-Four Million Dollars ($24,000,000) within sixty (60) days following the achievement of the final commercial operation date for all Project Companies in the Solstice Portfolio, which final tranche is due on or before February 6, 2024. CBR Manager has committed to make capital contributions to the Partnership in the aggregate amount of Two Million Four Hundred Thousand Dollars ($2,400,000). Pursuant to the LLCA, during the period commencing on the closing date and ending on the Flip Date (as defined herein), ninety-nine percent (99%) of all tax items (including Investment Tax Credits, Modified Accelerated Cost Recovery System depreciation, and allocations of taxable income and loss) and thirty percent (30%) of cash distributions are allocable to Ridgeline (as Tax-Equity Member), and one percent (1%) of all tax items and seventy percent (70%) of cash distributions are allocable to CBR Manager (as Managing Member). Upon Ridgeline's achievement of its target after-tax yield of 7.25% (internal rate of return), projected to occur in the fourth quarter of 2028 (the "Flip Date"), allocations of all items shall flip to five percent (5%) to Ridgeline and ninety-five percent (95%) to CBR Manager.
D. The Construction Facility. Osprey previously provided a Two Hundred Forty-Five Million Dollar ($245,000,000) construction-to-term loan facility to CBR and the Project Companies pursuant to that certain Credit Agreement dated as of March 15, 2022, bearing reference number ONB-PF-2022-0341, among CBR, as borrower, the Project Companies, as co-borrowers, and Osprey, as administrative agent and lender (as amended, restated, supplemented, or otherwise modified from time to time, the "Construction Facility"). Portions of the outstanding borrowings under the Construction Facility will be repaid with proceeds of the tax-equity investment and the transferable credit sale described in Recital F below.
E. The Back-Leverage Facility. Osprey is providing a Sixty-Eight Million Dollar ($68,000,000) back-leverage term loan to CBR Manager (and guaranteed by CBR) pursuant to that certain Back-Leverage Term Loan Agreement of even date herewith, bearing reference number ONB-PF-2023-0587, among CBR Manager, as borrower, CBR, as guarantor, and Osprey, as lender (as amended, restated, supplemented, or otherwise modified from time to time, the "Back-Leverage Facility"), which Back-Leverage Facility is secured by CBR Manager's managing member interest in the Partnership pursuant to a Pledge Agreement of even date herewith among CBR Manager, as pledgor, and Osprey, as pledgee (the "Pledge Agreement").
F. The Transferable Credit Sale. CBR has entered into that certain Tax Credit Purchase Agreement dated as of September 21, 2023 (the "TCPA"), with Pinehurst Insurance Group, Inc., a North Carolina corporation ("Pinehurst"), for the sale of Sixty Million Dollars ($60,000,000) in face-value Investment Tax Credits under Section 6418 of the Internal Revenue Code of 1986, as amended (the "Code"), at a purchase price of $0.92 per dollar of credit, for aggregate cash proceeds of Fifty-Five Million Two Hundred Thousand Dollars ($55,200,000). CBR retains Four Million Eight Hundred Thousand Dollars ($4,800,000) in face-value Investment Tax Credits that are not subject to the TCPA.
G. Purpose. The Parties desire to enter into this Agreement in order to (i) set forth the Lender's consent to the tax-equity structure established by the LLCA and the related transaction documents, (ii) establish intercreditor arrangements governing the priority and application of distributions from the Partnership, (iii) define standstill periods and related forbearance obligations applicable upon the occurrence of an Event of Default under the Back-Leverage Facility, and (iv) address the Lender's step-in rights with respect to CBR Manager's membership interest in the Partnership, in each case to facilitate the coexistence of the Back-Leverage Facility and the tax-equity investment in a manner that protects the legitimate interests of each Party.
H. Defined Terms. Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the LLCA, the Back-Leverage Facility, or the Construction Facility, as applicable. In the event of any conflict among such definitions, the definitions set forth in this Agreement shall control for purposes of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.01 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Back-Leverage Collateral" means CBR Manager's membership interest in the Partnership, together with all related rights, including all rights to receive distributions, allocations, and other payments from the Partnership, in each case as pledged under the Pledge Agreement. For the avoidance of doubt, the Back-Leverage Collateral does not include Ridgeline's membership interest in the Partnership or any tax benefits allocated to Ridgeline thereunder.
"Back-Leverage Default" means an Event of Default (as defined in the Back-Leverage Facility) under the Back-Leverage Facility, including any payment default, covenant default, cross-default, or bankruptcy-related default specified therein.
"Back-Leverage Facility" has the meaning set forth in Recital E, and refers to the $68,000,000 term loan facility documented pursuant to the Back-Leverage Term Loan Agreement bearing reference number ONB-PF-2023-0587.
"Business Day" means any day that is not a Saturday, Sunday, or other day on which commercial banks in the City of New York are authorized or required by law to remain closed.
"Capital Contribution Agreement" means that certain Capital Contribution Agreement dated as of September 21, 2023, among CBR Manager, Ridgeline, and the Partnership, governing Ridgeline's aggregate capital contributions of $120,000,000 to the Partnership.
"CBR" or "Sponsor" means Calloway-Briggs Renewables Inc., a Texas corporation (EIN: 84-3291076; Texas Secretary of State File No. 803762114).
"CBR Manager" or "Managing Member" means CBR Solstice Manager, LLC, a Delaware limited liability company (EIN: 88-4071597), the sole member of which is CBR.
"Clearwater Escrow" means Clearwater Escrow Services, Inc., in its capacity as escrow agent under the Escrow Agreement, holding funds in escrow account number CES-2023-80114.
"Closing Date" means December 8, 2023, the date of the closing of the tax-equity investment, the transferable credit sale, and the Back-Leverage Facility.
"COD" or "Commercial Operation Date" means, with respect to each Project Company, the date on which the applicable solar generating facility achieves commercial operation in accordance with the requirements of the applicable power purchase agreement and the LLCA. The final COD for the Solstice Portfolio is November 18, 2023, being the COD of the Amistad Solar facility.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, together with all regulations, rulings, and guidance issued thereunder.
"Construction Facility" has the meaning set forth in Recital D, and refers to the $245,000,000 construction-to-term loan facility documented pursuant to the Credit Agreement bearing reference number ONB-PF-2022-0341.
"Controlled Deposit Account" means the deposit account maintained by CBR Manager at Osprey, subject to an Account Control Agreement of even date herewith, into which all Managing Member Distributions shall be deposited.
"Distribution Waterfall" means the priority of distributions from the Partnership as set forth in Article VI of the LLCA, as summarized on Schedule B attached hereto.
"Effective Date" has the meaning set forth in the preamble to this Agreement.
"EPC Contractor" means Vasquez Brothers Construction, Inc. (EIN: 75-2648103), the engineering, procurement, and construction contractor for all seven Project Companies in the Solstice Portfolio.
"Escrow Agreement" means that certain Escrow Agreement dated as of September 21, 2023, among CBR, Ridgeline, and Clearwater Escrow Services, Inc., governing the escrow of certain closing funds and post-closing adjustments.
"Event of Default" means, when used with respect to this Agreement, any event described in Section 8.01 hereof.
"Flip Date" means the date on which Ridgeline achieves its target after-tax internal rate of return of 7.25% on its capital contributions to the Partnership, as determined in accordance with the methodology set forth in Exhibit C to the LLCA, which date is projected to occur in the fourth quarter of 2028.
"ITC" means the Investment Tax Credit under Section 48 of the Code, including the base credit rate of thirty percent (30%) applicable to solar energy property placed in service after December 31, 2021, that satisfies the prevailing wage and apprenticeship requirements of Section 48(a)(10) of the Code, together with any bonus credit amounts for domestic content under Section 45(b)(10) of the Code.
"ITC Recapture Event" means any event that results in the recapture of all or any portion of the ITCs claimed with respect to the Solstice Portfolio under Section 50(a) of the Code, including (a) a disposition of the solar energy property during the five-year recapture period, (b) a change in the use of such property such that it ceases to be investment credit property, or (c) a change in ownership of the Partnership that is treated as a disposition for purposes of Section 50(a).
"LLCA" has the meaning set forth in Recital A, and refers to the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC, dated as of September 21, 2023.
"Managing Member Distributions" means all distributions payable to CBR Manager under the LLCA in its capacity as Managing Member of the Partnership, including seventy percent (70%) of available cash during the pre-flip period and ninety-five percent (95%) of available cash during the post-flip period, as more particularly set forth in the Distribution Waterfall.
"Material Adverse Effect" means any event, occurrence, condition, or change that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, operations, financial condition, or prospects of CBR, CBR Manager, the Partnership, or any Project Company, (b) the ability of CBR, CBR Manager, or the Partnership to perform its obligations under this Agreement or any related transaction document, (c) the value of the Back-Leverage Collateral, or (d) the validity or enforceability of this Agreement, the Pledge Agreement, or any related transaction document.
"Notice of Default" means a written notice delivered by Osprey to CBR, CBR Manager, and Ridgeline in substantially the form attached hereto as Exhibit A, specifying the nature of the Back-Leverage Default, the applicable cure period, and the commencement of the Standstill Period.
"Partnership" means Solstice Holdings, LLC, a Delaware limited liability company (EIN: 88-4071523).
"Permitted Distributions" means those distributions from the Partnership to CBR Manager that may be made without Osprey's prior consent and free of the lien of the Pledge Agreement, consisting of: (a) amounts required for CBR Manager's federal, state, and local tax obligations arising from its membership interest in the Partnership, as determined in accordance with Section 6.05 of the LLCA (the "Tax Distributions"); (b) reimbursement of actual, documented operating expenses incurred by CBR Manager in its capacity as Managing Member of the Partnership and approved by the Advisory Committee under the LLCA, in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) per fiscal year (the "Operating Expense Reimbursements"); and (c) any other distributions expressly required under the LLCA to maintain the economic bargain between CBR Manager and Ridgeline, as reasonably determined by CBR Manager with Ridgeline's written consent.
"Permitted Liens" means (a) liens created under the Pledge Agreement in favor of Osprey, (b) liens, if any, in favor of Ridgeline arising under the LLCA, (c) statutory liens for taxes not yet due and payable, and (d) other liens expressly permitted under the Back-Leverage Facility.
"Person" means any natural person, corporation, limited liability company, partnership, joint venture, trust, estate, unincorporated organization, association, governmental authority, or other entity.
"Pledge Agreement" has the meaning set forth in Recital E, and refers to the pledge agreement dated as of December 8, 2023, between CBR Manager, as pledgor, and Osprey, as pledgee, pledging CBR Manager's membership interest in the Partnership as security for the obligations under the Back-Leverage Facility.
"PPA" means each of the power purchase agreements entered into by the Project Companies for the sale of electric energy, capacity, and renewable energy credits generated by the Solstice Portfolio, including those entered into with Lone Star Grid Solutions, LLC (with respect to the Texas projects) and Enchantment Power Cooperative (with respect to the New Mexico projects).
"Project Companies" has the meaning set forth in Recital B, and refers collectively to the seven Delaware limited liability companies listed on Schedule A hereto.
"Purchase Option" means CBR Manager's option to purchase Ridgeline's post-flip five percent (5%) membership interest in the Partnership at fair market value, exercisable during a one-hundred-eighty (180) day window commencing on the Flip Date, pursuant to that certain Purchase Option Agreement dated as of September 21, 2023, among CBR Manager and Ridgeline.
"Purchase Option Agreement" means that certain Purchase Option Agreement dated as of September 21, 2023, among CBR Manager and Ridgeline, granting CBR Manager the Purchase Option.
"Solstice Portfolio" means, collectively, the seven solar photovoltaic generating facilities described in Recital B and listed on Schedule A hereto.
"Sponsor" has the meaning set forth in the preamble and refers to Calloway-Briggs Renewables Inc. (EIN: 84-3291076; Texas Secretary of State File No. 803762114).
"Standstill Period" means the period commencing upon delivery of a Notice of Default by Osprey in accordance with Section 4.01 and terminating in accordance with Section 4.04, during which Osprey shall refrain from exercising certain remedies as set forth in Article IV hereof.
"Step-In Notice" means a written notice delivered by Osprey to CBR Manager and Ridgeline in substantially the form attached hereto as Exhibit B, notifying CBR Manager and Ridgeline of Osprey's intention to exercise step-in rights under Section 5.01 and proposing a substitute Managing Member for Ridgeline's approval under Section 5.02.
"Tax-Equity Member Distributions" means all distributions payable to Ridgeline under the LLCA in its capacity as Tax-Equity Member of the Partnership, including thirty percent (30%) of available cash during the pre-flip period and five percent (5%) of available cash during the post-flip period, as more particularly set forth in the Distribution Waterfall.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement dated as of September 21, 2023, among CBR, CBR Manager, and Ridgeline, pursuant to which CBR and CBR Manager have agreed to indemnify Ridgeline against certain tax losses, including ITC Recapture Events and ITC disallowances.
"TCPA" has the meaning set forth in Recital F, and refers to that certain Tax Credit Purchase Agreement dated as of September 21, 2023, between CBR and Pinehurst Insurance Group, Inc.
"UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York, or, when the context requires, in any other applicable jurisdiction.
Section 1.02 — Rules of Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) Headings and captions are included for convenience of reference only and shall not affect the construction or interpretation of this Agreement.
(b) The words "hereof," "herein," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision.
(c) References to "Articles," "Sections," "Schedules," and "Exhibits" are to articles, sections, schedules, and exhibits of this Agreement, unless otherwise specified.
(d) The word "including" (and its grammatical variants) means "including, without limitation" and shall not be construed to limit any general statement to the specific items or matters immediately following it.
(e) Words in the singular include the plural and vice versa; words importing a gender include all genders.
(f) References to any agreement, document, or instrument mean such agreement, document, or instrument as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms, unless expressly provided otherwise.
(g) References to any statute or regulation mean such statute or regulation as amended, re-enacted, or replaced from time to time, including any successor statute or regulation and all rules and regulations promulgated thereunder.
(h) References to "days" mean calendar days unless "Business Days" is expressly specified. Any period of time determined by reference to a number of days shall be calculated by excluding the first day and including the last day of such period; provided that if the last day of such period falls on a day that is not a Business Day, such period shall be extended to the next succeeding Business Day.
(i) The Parties acknowledge that each Party and its counsel have reviewed this Agreement and that the rule of construction to the effect that ambiguities are resolved against the drafting party shall not apply in the interpretation of this Agreement.
(j) References to "$" or "Dollars" mean lawful money of the United States of America.
Section 1.03 — Annexes and Schedules
The following schedules and exhibits are attached hereto and incorporated herein by reference:
(a) Schedule A — Project Companies
(b) Schedule B — Distribution Waterfall Summary
(c) Exhibit A — Form of Notice of Default
(d) Exhibit B — Form of Lender Step-In Notice
In the event of any conflict between the body of this Agreement and any schedule or exhibit, the body of this Agreement shall control.
ARTICLE II — CONSENT TO TAX-EQUITY STRUCTURE
Section 2.01 — Lender's Consent
Osprey hereby irrevocably consents to the following:
(a) the admission of Ridgeline as the Tax-Equity Member of the Partnership under the LLCA, and the execution and delivery by the Partnership, CBR Manager, and Ridgeline of the LLCA and all related transaction documents;
(b) CBR's contribution of one hundred percent (100%) of the membership interests in each of the seven Project Companies to the Partnership, and the treatment of each Project Company as a disregarded entity for federal income tax purposes;
(c) the capital contribution structure set forth in the Capital Contribution Agreement, including Ridgeline's commitment to contribute $120,000,000 to the Partnership in two tranches ($96,000,000 at closing and $24,000,000 within sixty (60) days of final COD) and CBR Manager's commitment to contribute $2,400,000 to the Partnership;
(d) the partnership-flip allocation mechanics set forth in the LLCA, including (i) the pre-flip allocation of 99% of tax items and 30% of cash distributions to Ridgeline and 1% of tax items and 70% of cash distributions to CBR Manager, (ii) the target after-tax yield of 7.25% (IRR) for purposes of determining the Flip Date, and (iii) the post-flip allocation of 5% of all items to Ridgeline and 95% of all items to CBR Manager; and
(e) the grant of the Purchase Option to CBR Manager pursuant to the Purchase Option Agreement, permitting CBR Manager to purchase Ridgeline's post-flip 5% membership interest in the Partnership at fair market value during a 180-day window following the Flip Date.
The foregoing consent is irrevocable but is conditioned upon the continued compliance by CBR and CBR Manager with the covenants set forth in the Back-Leverage Facility and this Agreement. Nothing in this Section 2.01 shall be construed as a waiver of any right or remedy of Osprey arising from a breach of any such covenant.
Section 2.02 — Consent to Transferable Credit Sale
Osprey hereby consents to the sale of transferable tax credits under Section 6418 of the Code by CBR to Pinehurst Insurance Group, Inc. pursuant to the TCPA, including the sale of $60,000,000 in face-value Investment Tax Credits at a purchase price of $0.92 per dollar of credit, for aggregate cash proceeds of $55,200,000. Osprey acknowledges that CBR retains $4,800,000 in face-value Investment Tax Credits that are not subject to the TCPA. The consent granted hereunder extends to the execution, delivery, and performance of the TCPA and all ancillary documentation required thereunder, including any registration statements, transfer elections, or pre-filing agreements with the Internal Revenue Service.
Section 2.03 — Acknowledgment of LLCA Provisions
Osprey acknowledges and agrees as follows:
(a) Osprey has received and reviewed a complete copy of the LLCA (execution version, dated September 21, 2023), together with all exhibits, schedules, and annexes thereto.
(b) Ridgeline's rights under the LLCA, including its right to receive ninety-nine percent (99%) of all tax items during the pre-flip period, its right to receive Tax-Equity Member Distributions in accordance with the Distribution Waterfall, and its rights upon the occurrence of a Managing Member default under the LLCA (including the right to remove the Managing Member for cause), are senior to and take priority over Osprey's security interest in the Back-Leverage Collateral.
(c) The Distribution Waterfall set forth in the LLCA constitutes the agreed economic arrangement among CBR Manager and Ridgeline, and Osprey shall not take any action that would alter, impair, or circumvent such Distribution Waterfall, except to the extent expressly provided in this Agreement.
(d) The LLCA contains restrictions on the transfer of membership interests in the Partnership, including the requirement that any transferee of a membership interest must be approved by the non-transferring member, and Osprey agrees to comply with such transfer restrictions to the extent applicable.
Section 2.04 — No Modification Without Consent
CBR and CBR Manager hereby covenant and agree that they shall not amend, modify, restate, supplement, terminate, or waive any material provision of the LLCA, the Capital Contribution Agreement, the Purchase Option Agreement, or the TCPA without the prior written consent of both Osprey and Ridgeline. For purposes of this Section 2.04, a "material provision" shall include any provision that (a) affects the Distribution Waterfall or the allocation of tax items among the members, (b) modifies the definition or calculation of the Flip Date or target after-tax yield, (c) changes the Purchase Option exercise price, timing, or conditions, (d) alters the governance or decision-making authority of the Managing Member or the Advisory Committee, (e) modifies the removal, substitution, or replacement provisions applicable to the Managing Member, or (f) would otherwise have, or could reasonably be expected to have, an adverse effect on Osprey's rights hereunder or the value of the Back-Leverage Collateral. Notwithstanding the foregoing, CBR and CBR Manager may effect amendments to the LLCA or any related agreement that are administrative or ministerial in nature and that do not adversely affect Osprey's rights or the Back-Leverage Collateral, without obtaining Osprey's consent, provided that CBR Manager shall deliver a copy of any such amendment to Osprey within ten (10) Business Days of its execution.
Section 2.05 — Lender's Non-Reliance
Osprey hereby acknowledges that:
(a) Its consent to the tax-equity structure set forth in this Article II does not constitute an assumption by Osprey of any risk related to the tax-equity economics of the Partnership, including any risk relating to the eligibility, availability, or amount of ITCs, the qualification of the Solstice Portfolio for the prevailing wage and apprenticeship bonus credit rate, the domestic content bonus adder, or the transferability of tax credits under Section 6418 of the Code.
(b) Osprey's credit exposure is limited solely to its rights as lender under the Back-Leverage Facility and as pledgee under the Pledge Agreement, and Osprey has no right, interest, or entitlement in or to any tax benefits allocated to Ridgeline under the LLCA or any proceeds of the transferable credit sale under the TCPA.
(c) Osprey has conducted its own independent analysis and due diligence with respect to the tax-equity structure, the Solstice Portfolio, and the creditworthiness of CBR and CBR Manager, and has not relied on any representation or warranty of Ridgeline in making its decision to provide the Back-Leverage Facility.
(d) Osprey acknowledges that the consent granted hereunder does not give rise to any fiduciary duty or other obligation of Osprey to Ridgeline, and that the relationship between Osprey and Ridgeline is solely a contractual relationship governed by the terms of this Agreement.
ARTICLE III — INTERCREDITOR ARRANGEMENTS
Section 3.01 — Priority of Interests
(a) Ridgeline's Priority. The Parties acknowledge and agree that Ridgeline's rights under the LLCA to receive tax allocations (including allocations of ITCs, MACRS depreciation, and taxable income or loss) and Tax-Equity Member Distributions are senior in right of payment and priority to Osprey's security interest in CBR Manager's membership interest in the Partnership. Osprey shall not assert, and hereby waives, any lien, claim, security interest, or other encumbrance in, to, or on Ridgeline's membership interest in the Partnership, any tax benefits or tax items allocated to Ridgeline, or any Tax-Equity Member Distributions payable to Ridgeline, whether arising under the Pledge Agreement, the Back-Leverage Facility, the UCC, applicable law, or otherwise.
(b) Scope of Osprey's Security Interest. Osprey's security interest under the Pledge Agreement extends solely to CBR Manager's membership interest in the Partnership—that is, to the Managing Member Distributions and all residual economic and governance rights attributable to CBR Manager's position as Managing Member under the LLCA—and does not extend to Ridgeline's membership interest, any tax allocations made to Ridgeline, or any Tax-Equity Member Distributions payable to Ridgeline.
(c) No Assertion Against Ridgeline. Osprey shall not, at any time, assert any lien, claim, setoff right, or interest in or against Ridgeline's membership interest in the Partnership or the tax benefits allocated thereto, whether in connection with a foreclosure, bankruptcy proceeding, or otherwise. Osprey further agrees that it will not, directly or indirectly, contest the validity, priority, or enforceability of Ridgeline's rights under the LLCA.
Section 3.02 — Distribution Waterfall; Application of Partnership Distributions
(a) Distribution Waterfall. The Partnership shall make distributions to its members in accordance with the Distribution Waterfall set forth in Article VI of the LLCA, as summarized on Schedule B hereto. During the pre-flip period (from the commencement of Partnership operations through the Flip Date), thirty percent (30%) of available cash shall be distributed to Ridgeline (as Tax-Equity Member) and seventy percent (70%) of available cash shall be distributed to CBR Manager (as Managing Member). During the post-flip period (from and after the Flip Date), five percent (5%) of available cash shall be distributed to Ridgeline and ninety-five percent (95%) of available cash shall be distributed to CBR Manager.
(b) Subordination of Osprey's Security Interest. Osprey's security interest in the Managing Member Distributions is, and shall at all times remain, subordinate to the Partnership's obligation to make Tax-Equity Member Distributions to Ridgeline in accordance with the LLCA. The Partnership shall not be required to obtain Osprey's consent prior to making any Tax-Equity Member Distribution, and Osprey shall have no right to redirect, intercept, or otherwise interfere with any Tax-Equity Member Distribution. Any failure by the Partnership to make a Tax-Equity Member Distribution when due shall not be attributed to or caused by Osprey's exercise of its rights under the Pledge Agreement or the Back-Leverage Facility.
(c) Lien on Managing Member Distributions. Subject to the priority of Tax-Equity Member Distributions as set forth in Section 3.02(b), CBR Manager's right to receive Managing Member Distributions shall be subject to the lien of the Pledge Agreement. The Partnership shall first make all required Tax-Equity Member Distributions to Ridgeline before distributing any Managing Member Distributions to CBR Manager (or to the Controlled Deposit Account on behalf of CBR Manager). Osprey acknowledges that the sequencing requirement set forth in this Section 3.02(c) is a condition to the enforceability of its lien on the Managing Member Distributions and agrees that it will not seek to alter such sequencing through court order, contractual amendment, or otherwise.
(d) Permitted Distributions. Notwithstanding the lien of the Pledge Agreement, certain distributions to CBR Manager shall be permitted to be made without Osprey's consent and free of such lien, as follows:
(i) Tax Distributions. Amounts required for CBR Manager's federal, state, and local tax obligations arising from its membership interest in the Partnership, as determined in accordance with Section 6.05 of the LLCA, calculated at the highest applicable combined marginal rate, and distributed in accordance with the timing provisions of the LLCA.
(ii) Operating Expense Reimbursements. Reimbursement of actual, documented operating expenses incurred by CBR Manager in its capacity as Managing Member of the Partnership and approved by the Advisory Committee under the LLCA, in an aggregate amount not to exceed $500,000 per fiscal year.
(iii) LLCA-Required Distributions. Any other distributions expressly required under the LLCA to maintain the economic bargain between CBR Manager and Ridgeline, including minimum quarterly distributions necessary to service CBR Manager's operating obligations, as reasonably determined by CBR Manager with Ridgeline's prior written consent.
All other Managing Member Distributions shall be deposited into the Controlled Deposit Account and applied in accordance with Section 3.03.
Section 3.03 — Cash Management
(a) Controlled Deposit Account. All Managing Member Distributions (other than Permitted Distributions) shall be deposited directly by the Partnership into the Controlled Deposit Account maintained by CBR Manager at Osprey, bearing account number [to be assigned]. The Controlled Deposit Account shall be subject to an Account Control Agreement of even date herewith among CBR Manager, Osprey, and the Partnership, pursuant to which Osprey shall have "control" (within the meaning of Section 9-104 of the UCC) over such account.
(b) Application of Funds. Net proceeds deposited in the Controlled Deposit Account, after deduction of Permitted Distributions, shall be applied on each distribution date first to accrued and unpaid interest under the Back-Leverage Facility, second to scheduled principal amortization under the Back-Leverage Facility, and third, if no Back-Leverage Default then exists and is continuing, to any remaining balance which may be released to CBR Manager for its general corporate purposes. If a Back-Leverage Default exists and is continuing, Osprey may, subject to the Standstill Period provisions of Article IV, apply all amounts in the Controlled Deposit Account to the outstanding obligations under the Back-Leverage Facility in such order and manner as Osprey may determine.
(c) Reporting. Osprey shall provide CBR Manager and Ridgeline with monthly statements of all deposits to and withdrawals from the Controlled Deposit Account, and shall make such account records available for inspection upon reasonable request during normal business hours.
Section 3.04 — No Impairment of Tax-Equity Economics
Osprey hereby covenants and agrees that it shall not, at any time, take any action, or direct, instruct, or cause CBR Manager to take any action in its capacity as Managing Member of the Partnership, that would:
(a) impair, diminish, or jeopardize Ridgeline's receipt of its target after-tax internal rate of return of 7.25% on its capital contributions to the Partnership, whether through interference with cash distributions, tax allocations, or otherwise;
(b) cause or contribute to an ITC Recapture Event with respect to any Project Company in the Solstice Portfolio during the applicable five-year recapture period under Section 50(a) of the Code, including by causing a disposition of solar energy property, a cessation of use of such property as investment credit property, or a change of ownership that is treated as a disposition;
(c) jeopardize, undermine, or adversely affect the qualification of the Partnership as a "partnership" for federal income tax purposes under Section 761 of the Code and the regulations promulgated thereunder, or cause the Partnership to be classified as a corporation, publicly traded partnership, or other entity for federal income tax purposes; or
(d) breach or violate any covenant, obligation, or restriction in the LLCA for which Ridgeline would have a right to remove the Managing Member, withhold distributions, or exercise other remedies against the Managing Member, including any covenant relating to the maintenance of insurance, compliance with prevailing wage and apprenticeship requirements, or reporting obligations.
The covenants set forth in this Section 3.04 shall be binding upon Osprey regardless of whether Osprey holds the Back-Leverage Collateral directly, has foreclosed on the Pledge Agreement, or has otherwise acquired CBR Manager's membership interest in the Partnership.
Section 3.05 — Relationship to Construction Facility
(a) Partial Repayment. The Parties acknowledge that upon the closing of the tax-equity investment and the transferable credit sale on the Closing Date, a portion of the capital contributions received by the Partnership from Ridgeline and a portion of the proceeds of the transferable credit sale received by CBR under the TCPA shall be used to partially repay outstanding construction draws under the Construction Facility (ONB-PF-2022-0341). The aggregate amount of such repayment shall be determined in accordance with the flow of funds memorandum delivered to Clearwater Escrow in connection with the closing.
(b) Release of Liens. Osprey acknowledges that, to the extent required for the establishment and consummation of the tax-equity structure, the liens granted by the Project Companies and CBR under the Construction Facility have been released or subordinated in accordance with the terms of the Construction Facility and the intercreditor arrangements contemplated by this Agreement. Any residual liens of Osprey under the Construction Facility on the assets of the Project Companies shall be subject to the terms and conditions of this Agreement and the LLCA.
(c) Surviving Facility. Following the closing of the tax-equity investment, the Back-Leverage Facility shall be the surviving Osprey credit facility at the CBR Manager level. The Construction Facility shall convert to a term loan or be refinanced in accordance with its terms, and the interrelationship between the Construction Facility (to the extent it remains outstanding) and the Back-Leverage Facility shall be governed by the terms of the respective credit agreements and this Agreement. In the event of any conflict between the Construction Facility and this Agreement with respect to the treatment of CBR Manager's membership interest in the Partnership, this Agreement shall control.
ARTICLE IV — STANDSTILL PROVISIONS
Section 4.01 — Standstill Period
(a) Notice Requirement. Upon the occurrence of a Back-Leverage Default, Osprey shall promptly (and in any event within five (5) Business Days) deliver a Notice of Default in substantially the form attached hereto as Exhibit A to each of CBR, CBR Manager, and Ridgeline, specifying in reasonable detail the nature of the Back-Leverage Default, the applicable cure period (if any) under the Back-Leverage Facility, and the date of commencement of the Standstill Period. Failure by Osprey to deliver a Notice of Default to Ridgeline shall not constitute a waiver of any Back-Leverage Default but shall toll the commencement of the Standstill Period until such notice is delivered.
(b) Initial Standstill Period. Following delivery of a Notice of Default to all of CBR, CBR Manager, and Ridgeline, a standstill period of ninety (90) calendar days shall commence (the "Initial Standstill Period"), during which Osprey shall not exercise any remedies under the Pledge Agreement (including, without limitation, foreclosure on CBR Manager's membership interest in the Partnership), the Back-Leverage Facility, or applicable law, and shall not seek to remove, replace, or substitute the Managing Member. The Initial Standstill Period shall commence on the date on which the Notice of Default is delivered to Ridgeline (or, if delivered to CBR, CBR Manager, and Ridgeline on different dates, the latest of such delivery dates).
(c) Extension of Standstill Period. The Initial Standstill Period shall be automatically extended by an additional sixty (60) calendar days (for a total standstill period of one hundred fifty (150) calendar days) (the "Extended Standstill Period") if, at the expiration of the Initial Standstill Period, (i) CBR, CBR Manager, or Ridgeline is diligently and in good faith pursuing a cure of the Back-Leverage Default (as reasonably evidenced by written documentation delivered to Osprey), and (ii) Ridgeline has not delivered written notice to Osprey objecting to such extension. The extension contemplated by this Section 4.01(c) may be granted only once with respect to any particular Back-Leverage Default.
Section 4.02 — Ridgeline Cure Right
(a) Right to Cure. During the Standstill Period (whether the Initial Standstill Period or the Extended Standstill Period, as applicable), Ridgeline shall have the right, but not the obligation, to cure any Back-Leverage Default on behalf of CBR Manager, including by making payment of any amounts then due and payable under the Back-Leverage Facility. Osprey shall accept any such cure payment tendered by Ridgeline in satisfaction of the corresponding obligation under the Back-Leverage Facility, and such cure payment shall have the same effect as if made by CBR Manager.
(b) Treatment of Cure Payments. Any amounts advanced by Ridgeline to cure a Back-Leverage Default shall, at Ridgeline's election, be treated as additional capital contributions by Ridgeline to the Partnership and shall be credited to Ridgeline's capital account in the Partnership. In connection with any such additional capital contribution, the Distribution Waterfall shall be adjusted in accordance with the provisions of the LLCA governing additional capital contributions by the Tax-Equity Member, including any ratable dilution of CBR Manager's economic interest and any corresponding adjustment to the target after-tax yield calculation.
(c) No Assumption; No Waiver. Ridgeline's cure of a Back-Leverage Default in accordance with this Section 4.02 shall not constitute (i) an assumption by Ridgeline of any obligation under the Back-Leverage Facility, (ii) an agreement by Ridgeline to guaranty the Back-Leverage Facility, (iii) a waiver by Ridgeline of any rights or remedies under the LLCA or this Agreement, or (iv) a subordination of Ridgeline's rights under the LLCA to Osprey's rights under the Back-Leverage Facility. Ridgeline shall retain all rights and remedies available to it under the LLCA and applicable law, including the right to seek contribution or reimbursement from CBR Manager or CBR for any amounts advanced to cure a Back-Leverage Default.
Section 4.03 — Permitted Actions During Standstill
(a) Actions Permitted. During the Standstill Period, Osprey may continue to:
(i) accrue interest and fees under the Back-Leverage Facility at the applicable rates;
(ii) receive Managing Member Distributions that are deposited into the Controlled Deposit Account and apply such distributions to debt service on the Back-Leverage Facility in accordance with Section 3.03;
(iii) exercise setoff rights against amounts on deposit in the Controlled Deposit Account in accordance with the Account Control Agreement and applicable law; and
(iv) deliver additional Notices of Default with respect to any new or additional Back-Leverage Defaults that may arise during the Standstill Period.
(b) Actions Prohibited. During the Standstill Period, Osprey shall not:
(i) accelerate the maturity of any obligations under the Back-Leverage Facility;
(ii) foreclose on, sell, dispose of, or otherwise exercise remedies with respect to the Back-Leverage Collateral under the Pledge Agreement, the UCC, or applicable law;
(iii) file, join in, or support any involuntary petition for bankruptcy, reorganization, or similar proceedings against CBR Manager, the Partnership, or any Project Company;
(iv) interfere with, obstruct, or attempt to direct the day-to-day operations of the Partnership or any Project Company, including by purporting to exercise any governance or management rights of the Managing Member; or
(v) take any action that would cause or contribute to an ITC Recapture Event or jeopardize the Partnership's status as a partnership for federal income tax purposes.
Section 4.04 — Termination of Standstill
The Standstill Period shall terminate upon the earliest to occur of the following events:
(a) the expiration of the applicable standstill period (ninety (90) calendar days in the case of the Initial Standstill Period, or one hundred fifty (150) calendar days in the case of the Extended Standstill Period, as the case may be) without the cure of all outstanding Back-Leverage Defaults;
(b) written notice from Ridgeline to Osprey that Ridgeline does not intend to exercise its cure right under Section 4.02;
(c) the filing by CBR Manager, the Partnership, or CBR of a voluntary petition for relief under the United States Bankruptcy Code (Title 11 of the United States Code), or the entry of an order for relief against any of them in an involuntary bankruptcy case;
(d) the completion by Ridgeline of its cure of all outstanding Back-Leverage Defaults in accordance with Section 4.02, as confirmed in writing by Osprey (such confirmation not to be unreasonably withheld or delayed); or
(e) the written agreement of Osprey and Ridgeline to terminate the Standstill Period.
Upon termination of the Standstill Period under clause (a), (b), or (c) above, Osprey shall be free to exercise any and all remedies available to it under the Pledge Agreement, the Back-Leverage Facility, this Agreement, and applicable law, subject to the limitations set forth in Article V. Upon termination of the Standstill Period under clause (d) above, Osprey's right to exercise remedies with respect to the cured Back-Leverage Default shall cease, without prejudice to Osprey's rights with respect to any subsequent Back-Leverage Default.
ARTICLE V — LENDER STEP-IN RIGHTS
Section 5.01 — Foreclosure and Transfer
(a) Exercise of Remedies. Following the expiration or termination of the Standstill Period without the cure of all outstanding Back-Leverage Defaults, Osprey may, at its option and in its sole discretion, exercise any or all remedies available under the Pledge Agreement, including the foreclosure on CBR Manager's membership interest in the Partnership in accordance with applicable provisions of the Delaware Limited Liability Company Act (6 Del. C. § 18-101 et seq.) and Article 9 of the UCC, as in effect in the State of New York and the State of Delaware. Such remedies may include, without limitation, (i) acceptance of the Back-Leverage Collateral in full or partial satisfaction of the obligations under the Back-Leverage Facility (strict foreclosure) under UCC § 9-620, (ii) public or private disposition of the Back-Leverage Collateral under UCC § 9-610, or (iii) any other remedy available under the UCC or applicable law. Osprey shall deliver a Step-In Notice in substantially the form attached hereto as Exhibit B to CBR Manager and Ridgeline at least fifteen (15) Business Days prior to any foreclosure sale or acceptance of the Back-Leverage Collateral.
(b) Binding Effect. Any transferee of CBR Manager's membership interest in the Partnership, whether such transferee is Osprey itself, an affiliate of Osprey, or a third-party purchaser at a UCC sale, shall be bound by and subject to all of the terms and conditions of the LLCA, this Agreement, and all other transaction documents to which CBR Manager is a party, as if such transferee were an original party thereto. Without limiting the generality of the foregoing, any such transferee shall assume all obligations of the Managing Member under the LLCA, including fiduciary duties, reporting obligations, prevailing wage and apprenticeship compliance obligations, and indemnification obligations. Osprey shall cause any such transferee to execute and deliver a joinder or assumption agreement in form and substance reasonably satisfactory to Ridgeline, confirming such transferee's assumption of all Managing Member obligations under the LLCA and this Agreement.
Section 5.02 — Substitution of Managing Member
(a) Designation of Substitute. If Osprey or its transferee acquires CBR Manager's membership interest in the Partnership through the exercise of remedies under the Pledge Agreement, Osprey or such transferee may designate a substitute Managing Member of the Partnership (a "Substitute Managing Member"), subject to Ridgeline's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. Osprey shall provide Ridgeline with the identity, qualifications, and relevant experience of the proposed Substitute Managing Member at least thirty (30) Business Days prior to the proposed effective date of the substitution. Ridgeline shall have twenty (20) Business Days following receipt of such information to approve or reject the proposed Substitute Managing Member, and Ridgeline's failure to respond within such period shall be deemed to constitute approval.
(b) Qualifications. The Substitute Managing Member must meet the following minimum qualifications, as set forth in Section 12.03 of the LLCA:
(i) a minimum of five (5) years of experience in the management and operation of utility-scale solar photovoltaic generating facilities with an aggregate capacity of at least 200 MW(dc);
(ii) a demonstrated track record of compliance with prevailing wage and apprenticeship requirements under Section 48(a)(10) of the Code and any applicable state prevailing wage laws;
(iii) no pending or threatened material litigation, arbitration, or regulatory proceeding that could reasonably be expected to impair such Person's ability to perform the obligations of the Managing Member under the LLCA;
(iv) financial resources and creditworthiness adequate to discharge the obligations of the Managing Member, including any indemnification obligations under the Tax Indemnity Agreement; and
(v) such other qualifications as may be reasonably required by Ridgeline and specified in its consent request.
(c) No Effect on Tax-Equity Rights. The substitution of a Substitute Managing Member shall not affect, impair, or alter Ridgeline's tax allocations, Distribution Waterfall priority, target after-tax yield, or any other economic or governance right under the LLCA. The Substitute Managing Member shall succeed to all rights and obligations of the Managing Member under the LLCA, and Ridgeline's consent to such substitution shall not constitute a waiver of any existing claim or right of Ridgeline against CBR Manager, CBR, or any other Person.
Section 5.03 — Limitations on Step-In
(a) No ITC Recapture. Osprey shall not exercise, and shall not permit any transferee or Substitute Managing Member to exercise, step-in rights in a manner that would cause or contribute to an ITC Recapture Event under Section 50(a) of the Code during the five-year recapture period commencing on the placed-in-service date of each Project Company's solar energy property. Without limiting the foregoing, Osprey shall not cause or permit any disposition of solar energy property, change in the use of such property, or change in ownership of the Partnership or any Project Company that would trigger recapture of all or any portion of the ITCs claimed with respect to the Solstice Portfolio.
(b) Partnership Status. Osprey shall not operate or direct the operations of the Partnership or any Project Company in a manner that would jeopardize the Partnership's status as a "partnership" for federal income tax purposes under Section 761 of the Code. Without limiting the foregoing, Osprey shall not take any action that would cause the Partnership to be treated as a corporation, publicly traded partnership, or other entity for federal income tax purposes, and shall not permit any transferee or Substitute Managing Member to take any such action.
(c) No Rights to Tax Benefits. Osprey acknowledges and agrees that the exercise of step-in rights under this Article V does not confer upon Osprey any right to, interest in, or entitlement to the tax benefits allocated to Ridgeline under the LLCA, including ITCs, MACRS depreciation deductions, and allocations of taxable income and loss. All such tax benefits shall continue to be allocated to Ridgeline in accordance with the LLCA and the Code.