CAPITAL CONTRIBUTION AGREEMENT
by and among
RIDGELINE CAPITAL PARTNERS, LLC
as Tax-Equity Investor,
SOLSTICE HOLDINGS, LLC
as the Partnership,
and
CBR SOLSTICE MANAGER, LLC
as Managing Member
Dated as of September 21, 2023
Solstice Portfolio — 420 MW(dc) Solar Photovoltaic Projects
TABLE OF CONTENTS
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RECITALS
WHEREAS, Solstice Holdings, LLC, a Delaware limited liability company formed on August 14, 2023, bearing Employer Identification Number 88-4071523, with its registered agent at Cascade Systems, 160 Greentree Drive, Suite 101, Dover, DE 19904 (the "Partnership"), is treated as a partnership for federal income tax purposes and was organized for the purpose of acquiring, owning, and operating a portfolio of seven utility-scale solar photovoltaic generation facilities located in the States of Texas and New Mexico, as more particularly described herein;
WHEREAS, the Partnership has two members: (a) CBR Solstice Manager, LLC, a Delaware limited liability company and disregarded entity wholly owned by Calloway-Briggs Renewables Inc., bearing Employer Identification Number 88-4071597, formed on August 14, 2023 (the "Managing Member" or "CBR Manager"), which serves as the Managing Member of the Partnership, and (b) Ridgeline Capital Partners, LLC, a Delaware limited liability company, bearing Employer Identification Number 13-4827651, with its principal office at 390 Park Avenue, 22nd Floor, New York, NY 10022 ("Ridgeline" or "Tax-Equity Investor"), which serves as the Tax-Equity Member of the Partnership;
WHEREAS, the parties hereto have entered into that certain Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC, dated as of September 21, 2023 (the "LLCA"), which governs the operations, economics, allocation of tax items, and distribution mechanics of the Partnership, including the partnership-flip structure pursuant to which tax benefits and economic returns are allocated among the Members;
WHEREAS, this Agreement sets forth the terms and conditions upon which Ridgeline shall make capital contributions to the Partnership in an aggregate amount of One Hundred Twenty Million Dollars ($120,000,000) (the "Ridgeline Contribution Amount"), and upon which CBR Manager shall make a capital contribution to the Partnership in an aggregate amount of Two Million Four Hundred Thousand Dollars ($2,400,000) (the "CBR Manager Contribution Amount"), in each case in connection with the tax-equity financing of the Solstice Portfolio;
WHEREAS, the Solstice Portfolio consists of seven utility-scale solar photovoltaic projects totaling approximately 420 MW(dc) of nameplate direct current capacity located in the States of Texas and New Mexico, held through seven project companies, each of which is a Delaware limited liability company and is wholly owned by the Partnership:
(i) Pecos Sun Solar, LLC — 85 MW(dc), Reeves County, Texas;
(ii) Red Mesa Solar, LLC — 70 MW(dc), Pecos County, Texas;
(iii) Coyote Flats Solar, LLC — 65 MW(dc), Ward County, Texas;
(iv) Llano Verde Solar, LLC — 55 MW(dc), Hudspeth County, Texas;
(v) Cimarron Solar, LLC — 50 MW(dc), Lea County, New Mexico;
(vi) Sandoval Ridge Solar, LLC — 50 MW(dc), Sandoval County, New Mexico; and
(vii) Amistad Solar, LLC — 45 MW(dc), Val Verde County, Texas
(collectively, the "Solstice Portfolio" or the "Projects");
WHEREAS, the aggregate engineering, procurement, and construction cost of the Solstice Portfolio is Three Hundred Eighty-Four Million Six Hundred Thousand Dollars ($384,600,000) under the Master Engineering, Procurement, and Construction Agreement dated as of March 15, 2023 (as amended from time to time, the "Master EPC Agreement") between the Project Companies and Vasquez Brothers Construction, Inc. (the "EPC Contractor");
WHEREAS, concurrently with the execution of this Agreement, Calloway-Briggs Renewables Inc. ("CBR") and Pinehurst Insurance Group, Inc. ("Pinehurst") have entered into that certain Tax Credit Purchase Agreement dated as of September 21, 2023 (the "TCPA"), pursuant to which CBR will sell and transfer to Pinehurst Sixty Million Dollars ($60,000,000) in face-value investment tax credits under Section 6418 of the Internal Revenue Code, as enacted by the Inflation Reduction Act of 2022, for an aggregate purchase price of Fifty-Five Million Two Hundred Thousand Dollars ($55,200,000), representing a price of $0.92 per $1.00 of investment tax credit;
WHEREAS, in connection with the transactions contemplated hereby, the parties hereto have entered into that certain Escrow Agreement dated as of September 21, 2023 (the "Escrow Agreement"), among Ridgeline, the Partnership, CBR Manager, and Clearwater Escrow Services, Inc. (the "Escrow Agent"), pursuant to which an escrow account has been established bearing Account No. CES-2023-80114 (the "Escrow Account") to facilitate the orderly funding and disbursement of capital contributions and credit purchase proceeds at Closing; and
WHEREAS, the parties desire to set forth their respective rights and obligations with respect to the capital contributions to the Partnership and the related conditions, covenants, representations, warranties, and indemnification obligations, all as more fully described herein.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"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. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if such Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of such other Person.
"Agreement" means this Capital Contribution Agreement, dated as of September 21, 2023, by and among Ridgeline, the Partnership, and CBR Manager, together with all exhibits and schedules hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Amistad Solar" means Amistad Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Back-Leverage Facility" means the Sixty-Eight Million Dollar ($68,000,000) term loan facility from Osprey National Bank, N.A. to the Partnership under that certain Credit Agreement bearing Agreement No. ONB-PF-2023-0587, dated as of the date hereof, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Business Day" means any day other than a Saturday, Sunday, or a day on which commercial banks in either the City of New York, New York or the City of Houston, Texas are authorized or required by law to close, including any day that is a state holiday in the State of New York or the State of Texas.
"CBR" means Calloway-Briggs Renewables Inc., a Texas corporation, bearing Employer Identification Number 84-3291076, headquartered at 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056, and the sole member of CBR Solstice Manager, LLC.
"CBR Manager" or "Managing Member" means CBR Solstice Manager, LLC, a Delaware limited liability company, bearing Employer Identification Number 88-4071597, formed on August 14, 2023, and a disregarded entity wholly owned by CBR, serving as the Managing Member of the Partnership under the LLCA.
"CBR Manager Contribution Amount" means the aggregate sum of Two Million Four Hundred Thousand Dollars ($2,400,000), representing two percent (2%) of the Ridgeline Contribution Amount, consistent with the minimum unconditional investment requirements under Revenue Procedure 2007-65.
"Cimarron Solar" means Cimarron Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Closing" means the closing of the transactions contemplated by this Agreement and the other Transaction Documents, occurring on the Closing Date.
"Closing Date" means December 8, 2023 (originally scheduled for November 30, 2023, but extended by eight (8) calendar days by mutual agreement of the parties to permit final interconnection confirmation for Amistad Solar).
"COD" or "Commercial Operation Date" means, with respect to each Project, the date on which such Project has achieved commercial operation, as defined in the applicable PPA and as confirmed by the Independent Engineer in accordance with the procedures set forth in the applicable PPA and the Master EPC Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto.
"Construction Facility" means the Two Hundred Forty-Five Million Dollar ($245,000,000) construction-to-term loan facility from Osprey National Bank, N.A. to the Project Companies under that certain Credit Agreement bearing Agreement No. ONB-PF-2022-0341, dated as of December 12, 2022, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Coyote Flats Solar" means Coyote Flats Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Escrow Agent" means Clearwater Escrow Services, Inc., a Delaware corporation, in its capacity as escrow agent under the Escrow Agreement.
"Escrow Agreement" means that certain Escrow Agreement, dated as of September 21, 2023, among Ridgeline, the Partnership, CBR Manager, and the Escrow Agent, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Escrow Account" means the escrow account established by the Escrow Agent pursuant to the Escrow Agreement, bearing Account No. CES-2023-80114.
"EPC Contractor" means Vasquez Brothers Construction, Inc., a Texas corporation, in its capacity as contractor under the Master EPC Agreement.
"ERCOT" means the Electric Reliability Council of Texas, Inc.
"Final COD" means the date on which the last Project to achieve Commercial Operation Date does so; as of the date hereof, the Final COD is expected to be November 18, 2023, corresponding to the anticipated COD of Amistad Solar.
"First Tranche" means the initial installment of the Ridgeline Contribution Amount in an amount equal to Ninety-Six Million Dollars ($96,000,000), representing eighty percent (80%) of the Ridgeline Contribution Amount.
"First Tranche Funding Date" means the Closing Date (December 8, 2023).
"FMV Appraisal" means the independent fair market value appraisal of the Solstice Portfolio prepared by Greystone Worthington, LLC and delivered to Ridgeline in connection with the transactions contemplated hereby.
"GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied.
"Governmental Authority" means any federal, state, local, municipal, foreign, or other government, any governmental, regulatory, or administrative authority, agency, or commission, or any court, tribunal, or judicial or arbitral body of competent jurisdiction.
"Independent Engineer" means Meridian Technical Advisors, LLC, in its capacity as the independent technical advisor engaged by the parties in connection with the Solstice Portfolio.
"Intercreditor Agreement" means the Back-Leverage Intercreditor and Consent Agreement, dated as of the date hereof, among Osprey, Ridgeline, and CBR, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"IRA" means the Inflation Reduction Act of 2022, Public Law 117-169.
"ITC" means the investment tax credit under Section 48 of the Code.
"LLCA" means the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC, dated as of September 21, 2023, by and between Ridgeline and CBR Manager, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Llano Verde Solar" means Llano Verde Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Lien" means any mortgage, pledge, hypothecation, security interest, encumbrance, lien (statutory or otherwise), charge, or other similar restriction or interest, including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof.
"MACRS" means the Modified Accelerated Cost Recovery System under Sections 167 and 168 of the Code.
"Material Adverse Effect" means any event, circumstance, condition, development, or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a materially adverse effect on (a) the business, operations, assets, properties, or financial condition of the Projects, the Project Companies, or the Partnership, taken as a whole, (b) the ability of any party hereto to perform its material obligations under this Agreement or any other Transaction Document, or (c) the validity or enforceability of this Agreement or any other Transaction Document; provided, however, that none of the following shall constitute or be taken into account in determining whether a Material Adverse Effect has occurred: (i) changes in general economic, financial, or market conditions affecting the renewable energy industry generally, (ii) changes in applicable law or GAAP after the date hereof, (iii) natural disasters, acts of God, pandemics, epidemics, or acts of terrorism or war, or (iv) the announcement or pendency of the transactions contemplated hereby, in each case of clauses (i) through (iv), except to the extent such changes disproportionately affect the Projects, the Project Companies, or the Partnership relative to other participants in the renewable energy industry.
"Member" means each of Ridgeline and CBR Manager, and "Members" means both of them collectively.
"Osprey" means Osprey National Bank, N.A., a national banking association, in its capacity as lender under the Construction Facility and the Back-Leverage Facility.
"Outside Date" means December 31, 2023.
"Partnership" means Solstice Holdings, LLC, a Delaware limited liability company.
"Partnership Representative" means CBR Solstice Manager, LLC, acting through Theo Vasquez as the designated individual under Section 6223 of the Code, in its capacity as the partnership representative of the Partnership for purposes of Subchapter C of Chapter 63 of the Code.
"Pecos Sun Solar" means Pecos Sun Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Permitted Liens" means the Liens described on Schedule 2 hereto.
"Person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or any other entity.
"Pinehurst" means Pinehurst Insurance Group, Inc., a Delaware corporation.
"Pledge Agreement" means the Pledge and Security Agreement, dated as of the date hereof, from CBR Manager in favor of Osprey, pursuant to which CBR Manager has pledged its membership interest in the Partnership to Osprey as security for the Back-Leverage Facility.
"Northgate Corporation" means Ostrander Partners LLC.
"PPA" means each power purchase agreement entered into by a Project Company with respect to the sale of electrical energy generated by the applicable Project.
"Projects" means the seven solar photovoltaic generation projects comprising the Solstice Portfolio, as more particularly described in the Recitals and Exhibit A.
"Project Companies" means, collectively, Pecos Sun Solar, Red Mesa Solar, Coyote Flats Solar, Llano Verde Solar, Cimarron Solar, Sandoval Ridge Solar, and Amistad Solar, each a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Purchase Option Agreement" means the Purchase Option Agreement, dated as of the date hereof, between Ridgeline and CBR Manager, granting CBR Manager the option to purchase Ridgeline's post-flip interest in the Partnership at fair market value, as determined in accordance with the procedures set forth therein.
"Red Mesa Solar" means Red Mesa Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Ridgeline" or "Tax-Equity Investor" means Ridgeline Capital Partners, LLC, a Delaware limited liability company.
"Ridgeline Contribution Amount" means the aggregate sum of One Hundred Twenty Million Dollars ($120,000,000).
"Sandoval Ridge Solar" means Sandoval Ridge Solar, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership.
"Second Tranche" means the second installment of the Ridgeline Contribution Amount in an amount equal to Twenty-Four Million Dollars ($24,000,000), representing twenty percent (20%) of the Ridgeline Contribution Amount.
"Second Tranche Funding Date" means the date that is sixty (60) calendar days after the Final COD, as extended by mutual agreement of the parties from the original date of January 17, 2024 to February 6, 2024.
"Securities Act" means the Securities Act of 1933, as amended.
"SOFR" means the Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York (or any successor administrator) on its website.
"Solstice Portfolio" means the seven Projects, collectively.
"Target Yield" means a 7.25% after-tax internal rate of return for Ridgeline, calculated in accordance with the methodology set forth in Exhibit G to the LLCA.
"Tax Credit Purchase Agreement" or "TCPA" means that certain Tax Credit Purchase Agreement, dated as of September 21, 2023, between CBR and Pinehurst, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement, dated as of the date hereof, from CBR in favor of Pinehurst, providing certain indemnification obligations with respect to the transferred ITCs under the TCPA.
"Transaction Documents" means, collectively, the LLCA, this Agreement, the TCPA, the Tax Indemnity Agreement, the Purchase Option Agreement, the Escrow Agreement, the Intercreditor Agreement, the Pledge Agreement, and all other agreements, instruments, certificates, and documents executed and delivered in connection with the transactions contemplated hereby.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury.
"VBC" means Vasquez Brothers Construction, Inc.
"WECC" means the Western Electricity Coordinating Council.
"Weighted-Average COD" means October 25, 2023, calculated by weighting each Project's COD by its respective nameplate capacity.
Section 1.2 — Rules of Interpretation
Unless the context otherwise requires, the following rules of interpretation shall apply to this Agreement:
(a) The table of contents and headings of Articles, Sections, subsections, and paragraphs are inserted for convenience of reference only and shall not affect the interpretation or construction of this Agreement.
(b) The term "including" (and with correlative meaning, "include" and "includes") means "including, without limitation."
(c) References to any statute, rule, or regulation shall include all amendments thereto and all successor statutes, rules, and regulations, as well as all rules and regulations promulgated thereunder, unless otherwise expressly provided.
(d) Words in the singular shall include the plural and vice versa, and words in one gender shall include each other gender, as the context requires.
(e) All references to "$" or "dollars" mean the lawful currency of the United States of America.
(f) Unless otherwise specified, references to "days" mean calendar days. Where any action is required to be taken or any period is to expire on a day that is not a Business Day, such action shall be taken, or such period shall expire, on the next succeeding Business Day.
(g) References to "Articles," "Sections," "Exhibits," and "Schedules" refer to the Articles, Sections, Exhibits, and Schedules of this Agreement unless otherwise stated.
(h) The words "herein," "hereof," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision hereof.
(i) Each representation, warranty, covenant, and agreement contained herein shall have independent significance, and the fact that any conduct or state of facts may be within the scope of two or more provisions shall not limit the applicability of any such provision.
Section 1.3 — Accounting Terms
All accounting terms used in this Agreement but not specifically defined herein shall be construed in accordance with GAAP as applied in the preparation of CBR's audited consolidated financial statements for the fiscal year ended December 31, 2022, as prepared by Larchmont & Associates, PLLC. In the event of any conflict between the accounting principles used in such financial statements and GAAP as in effect at the time of application, the principles used in such financial statements shall control for purposes of this Agreement unless the parties agree otherwise in writing.
ARTICLE II — CAPITAL CONTRIBUTIONS
Section 2.1 — Ridgeline Capital Contribution
(a) Aggregate Amount. Subject to the terms and conditions of this Agreement, including the satisfaction or waiver of the conditions precedent set forth in Article IV, Ridgeline shall contribute to the Partnership an aggregate amount equal to One Hundred Twenty Million Dollars ($120,000,000) (the "Ridgeline Contribution Amount"), payable in two tranches as described in subsections (b) and (c) below.
(b) First Tranche. Ridgeline shall fund the First Tranche in the amount of Ninety-Six Million Dollars ($96,000,000) (representing eighty percent (80%) of the Ridgeline Contribution Amount) on the First Tranche Funding Date (the Closing Date, December 8, 2023). The First Tranche shall be funded in accordance with the following mechanism:
(i) Not later than five (5) Business Days prior to the anticipated Closing Date, Ridgeline shall deposit the First Tranche by wire transfer of immediately available funds into the Escrow Account at Clearwater Escrow Services, Inc. (Account No. CES-2023-80114) in accordance with the wire instructions set forth on Schedule 1 hereto.
(ii) Upon satisfaction or waiver of all conditions precedent set forth in Section 4.1 and Section 4.3, and upon delivery by each party of a written confirmation of closing to the Escrow Agent in accordance with Section 3.2 of the Escrow Agreement, the Escrow Agent shall release the First Tranche from the Escrow Account to the Partnership's operating account at Osprey National Bank, N.A. in accordance with the Funds Flow Memorandum attached hereto as Exhibit B.
(iii) In the event the Closing does not occur by the Outside Date and this Agreement is terminated in accordance with Article VIII, the Escrow Agent shall return the First Tranche to Ridgeline in accordance with Section 4.1 of the Escrow Agreement, together with any interest or earnings accrued thereon in the Escrow Account.
(c) Second Tranche. Ridgeline shall fund the Second Tranche in the amount of Twenty-Four Million Dollars ($24,000,000) (representing twenty percent (20%) of the Ridgeline Contribution Amount) on the Second Tranche Funding Date.
(i) The Second Tranche was originally due and payable on the date that is sixty (60) calendar days following the Final COD (i.e., November 18, 2023 plus sixty (60) calendar days, which would have been January 17, 2024). By mutual written agreement of the parties dated December 15, 2023, the Second Tranche Funding Date has been extended to February 6, 2024, to permit completion of certain administrative matters relating to the Amistad Solar interconnection.
(ii) The Second Tranche shall be funded by Ridgeline by direct wire transfer of immediately available funds to the Partnership's operating account at Osprey National Bank, N.A. in accordance with the wire instructions provided by the Managing Member to Ridgeline no later than ten (10) Business Days prior to the Second Tranche Funding Date, and in accordance with the wire instructions set forth on Schedule 1 hereto (as such instructions may be updated by the Managing Member from time to time by written notice to Ridgeline).
(iii) The obligation of Ridgeline to fund the Second Tranche is subject to the satisfaction or waiver of the conditions precedent set forth in Section 4.2 and Section 4.3.
Section 2.2 — CBR Manager Capital Contribution
(a) Aggregate Amount. Subject to the terms and conditions of this Agreement, CBR Manager shall contribute to the Partnership an aggregate amount equal to Two Million Four Hundred Thousand Dollars ($2,400,000) (the "CBR Manager Contribution Amount"), representing two percent (2%) of the Ridgeline Contribution Amount. The CBR Manager Contribution Amount is intended to satisfy the minimum unconditional investment requirements applicable to a managing member in a partnership-flip transaction, as described in Revenue Procedure 2007-65, Section 4.04.
(b) Timing. The CBR Manager Contribution Amount shall be funded on or prior to the Closing Date (December 8, 2023). CBR Manager's funding of the CBR Manager Contribution Amount is a condition precedent to Ridgeline's obligation to fund the First Tranche, as set forth in Section 4.1(l).
(c) Funding Mechanism. CBR Manager shall fund the CBR Manager Contribution Amount by direct wire transfer of immediately available funds to the Partnership's operating account at Osprey National Bank, N.A. in accordance with the Funds Flow Memorandum attached hereto as Exhibit B and the wire instructions set forth on Schedule 1 hereto.
Section 2.3 — Use of Contributed Capital
(a) First Tranche and CBR Manager Contribution. The proceeds of the First Tranche and the CBR Manager Contribution Amount shall be applied by the Partnership in the following order of priority, as more particularly described in the Funds Flow Memorandum:
(i) partial repayment of outstanding draws under the Osprey Construction Facility (Agreement No. ONB-PF-2022-0341), in an amount and manner consistent with the terms of the Construction Facility and the Intercreditor Agreement;
(ii) payment of transaction costs and expenses incurred by the Partnership in connection with the Closing, including legal fees, accounting fees, independent engineer fees, appraisal fees, escrow fees, and filing fees;
(iii) funding of reserves required under the LLCA, including the Major Maintenance Reserve, the Debt Service Reserve, and the Operating Reserve, in the amounts specified in Section 7.3 of the LLCA; and
(iv) general working capital of the Partnership and the Project Companies for the conduct of their respective businesses.
(b) Second Tranche. The proceeds of the Second Tranche shall be applied by the Partnership as follows:
(i) additional repayment of outstanding draws under the Osprey Construction Facility (Agreement No. ONB-PF-2022-0341), to the extent any amounts remain outstanding following application of the First Tranche proceeds;
(ii) funding of any remaining reserve accounts required under the LLCA that were not fully funded at Closing; and
(iii) general working capital of the Partnership and the Project Companies.
(c) Restrictions on Use. No portion of the capital contributions made hereunder shall be used for any purpose other than as described in this Section 2.3 without the prior written consent of Ridgeline.
Section 2.4 — Capital Accounts
(a) All capital contributions made pursuant to this Article II shall be credited to the contributing Member's capital account maintained in accordance with the capital account maintenance provisions of Article V of the LLCA and Treasury Regulation § 1.704-1(b)(2)(iv). The initial capital account balance of each Member shall equal the aggregate capital contributions made by such Member on the Closing Date.
(b) The parties acknowledge and agree that, under the pre-flip allocation structure set forth in the LLCA, Ridgeline shall receive ninety-nine percent (99%) of all tax items of the Partnership (including ITCs and MACRS depreciation) and thirty percent (30%) of all cash distributions from the Partnership, and CBR Manager shall receive one percent (1%) of all tax items and seventy percent (70%) of all cash distributions, in each case until the occurrence of the flip point (projected to occur in the fourth quarter of 2028, based on the financial model attached to the LLCA as Exhibit F thereto). Following the flip point, Ridgeline's allocable share of tax items and cash distributions shall be reduced to five percent (5%), and CBR Manager's allocable share shall increase to ninety-five percent (95%), in each case as more particularly described in Article VI of the LLCA.
(c) The capital account maintenance and allocation provisions of this Agreement are intended to comply with Treasury Regulation §§ 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent therewith.
Section 2.5 — No Additional Capital Contributions
No Member shall be required to make any additional capital contribution to the Partnership beyond those specified in this Article II, except as may be unanimously agreed in writing by both Members. Without limiting the generality of the foregoing, if the Partnership requires additional funds to meet its obligations, neither Member shall be required to contribute additional capital unless both Members have agreed in writing to make such additional contributions and to the terms and conditions thereof. This Section 2.5 shall be read in conjunction with Section 4.2 of the LLCA regarding additional capital contributions, and to the extent of any conflict between this Section 2.5 and the corresponding provision of the LLCA, the LLCA shall control.
Section 2.6 — Return of Capital Contributions
Capital contributions made pursuant to this Article II shall not be returned to the contributing Member except through distributions made in accordance with Article VII of the LLCA. No Member shall have the right to demand or receive the return of all or any portion of its capital contribution, except as expressly provided in the LLCA. No interest shall accrue on, or be payable with respect to, any capital contribution made hereunder. Distributions shall be made in accordance with the waterfall provisions of the LLCA, and no Member shall have priority over any other Member with respect to the return of its capital contribution except as set forth in the LLCA.
ARTICLE III — REPRESENTATIONS AND WARRANTIES
Section 3.1 — Representations and Warranties of Ridgeline
Ridgeline hereby represents and warrants to the Partnership and CBR Manager as of the date hereof and as of the Closing Date (and, with respect to Section 4.2(b), as of the Second Tranche Funding Date) as follows:
(a) Organization and Good Standing. Ridgeline is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. Ridgeline has the requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as presently conducted and as proposed to be conducted in connection with this Agreement. Ridgeline is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on Ridgeline's ability to perform its obligations hereunder.
(b) Authority. Ridgeline has all requisite limited liability company power and authority to execute, deliver, and perform this Agreement and each of the other Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by Ridgeline of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary limited liability company action on the part of Ridgeline, including approval by Ridgeline's investment committee and board of managers. No further action on the part of Ridgeline or its members is required in connection therewith.
(c) No Conflicts. The execution, delivery, and performance by Ridgeline of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) violate or conflict with Ridgeline's certificate of formation or operating agreement, (ii) violate any applicable law, rule, regulation, judgment, order, injunction, decree, or arbitral award applicable to Ridgeline or its properties, or (iii) constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation, or acceleration under, any material agreement, contract, or instrument to which Ridgeline is a party or by which Ridgeline or its properties may be bound.
(d) Consents and Approvals. All consents, approvals, authorizations, and registrations required for Ridgeline's execution, delivery, and performance of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, have been obtained and are in full force and effect, and no further consent, approval, or authorization of, or filing with, any Governmental Authority or any other Person is required in connection therewith.
(e) Enforceability. This Agreement has been duly executed and delivered by Ridgeline and constitutes a legal, valid, and binding obligation of Ridgeline, enforceable against Ridgeline in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws of general applicability relating to or affecting creditors' rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law).
(f) Investment Intent. Ridgeline is acquiring its membership interest in the Partnership for its own account for investment purposes only and not with a view to distribution or resale in violation of the Securities Act of 1933, as amended. Ridgeline understands that the membership interests in the Partnership have not been registered under the Securities Act or any state securities laws, and that such interests may not be transferred except in compliance therewith. Ridgeline is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act.
(g) Tax Status. Ridgeline is not a tax-exempt entity within the meaning of Section 501(a) of the Code, a governmental entity described in Section 168(h)(2)(A) of the Code, or a "foreign person" within the meaning of Section 168(h)(2)(B) of the Code. Ridgeline is a United States person within the meaning of Section 7701(a)(30) of the Code. Ridgeline has, and reasonably expects to continue to have, sufficient federal income tax liability to utilize the tax benefits allocated to it under the LLCA, including the ITCs and MACRS depreciation deductions, in the taxable years in which such benefits are expected to be generated and utilized.
(h) Sophistication. Ridgeline is a sophisticated investor experienced in tax-equity investments in renewable energy projects. Ridgeline has conducted its own independent investigation and due diligence with respect to the Partnership, the Projects, the Project Companies, and the tax benefits expected to be generated thereby, and has relied upon its own investigation and the advice of its own legal, tax, and financial advisors in making its decision to enter into this Agreement and the other Transaction Documents. Ridgeline acknowledges that neither CBR, CBR Manager, the Partnership, nor any of their respective Affiliates, officers, directors, employees, agents, or advisors has made any representation or warranty to Ridgeline except as expressly set forth in this Agreement.
(i) No Litigation. No litigation, arbitration, mediation, investigation, or governmental proceeding is pending or, to the knowledge of Ridgeline, threatened against Ridgeline or any of its Affiliates that could reasonably be expected to materially impair Ridgeline's ability to perform its obligations under this Agreement or any other Transaction Document or to consummate the transactions contemplated hereby.
(j) Availability of Funds. Ridgeline has, and on each funding date contemplated by this Agreement will have, immediately available funds in amounts sufficient to fund its capital contributions as and when required hereunder. Ridgeline's obligation to fund the Ridgeline Contribution Amount is not subject to any condition regarding the availability of financing.
(k) No Broker. No broker, finder, investment banker, or other intermediary (other than as has been disclosed in writing to CBR Manager) has been retained by or is authorized to act on behalf of Ridgeline in connection with the transactions contemplated by this Agreement, and no such Person is entitled to any fee, commission, or other compensation from the Partnership, CBR Manager, or CBR in connection herewith.
Section 3.2 — Representations and Warranties of the Partnership
The Partnership, acting through its Managing Member, hereby represents and warrants to Ridgeline as of the date hereof and as of the Closing Date (and, with respect to Section 4.2(b), as of the Second Tranche Funding Date) as follows:
(a) Organization and Good Standing. The Partnership is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, formed on August 14, 2023, and bearing Employer Identification Number 88-4071523. The Partnership is treated as a partnership for federal income tax purposes and has not elected to be treated as a corporation or an association taxable as a corporation for such purposes. The Partnership has the requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as presently conducted and as proposed to be conducted.
(b) Authority. The Partnership, acting through its Managing Member, has all requisite limited liability company power and authority to execute, deliver, and perform this Agreement and each of the other Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by the Partnership of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary limited liability company action on the part of the Partnership, including the authorization of the Managing Member and, to the extent required, the consent of CBR.
(c) No Conflicts. The execution, delivery, and performance by the Partnership of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) violate or conflict with the Partnership's certificate of formation or the LLCA, (ii) violate any applicable law, rule, regulation, judgment, order, injunction, decree, or arbitral award applicable to the Partnership, any Project Company, or their respective properties, or (iii) constitute a default under, or give rise to any right of termination, cancellation, or acceleration under, any material agreement, contract, or instrument to which the Partnership or any Project Company is a party or by which any of them or their properties may be bound, including the Construction Facility, any PPA, or the Master EPC Agreement.
(d) Ownership of Project Companies. The Partnership holds one hundred percent (100%) of the issued and outstanding membership interests in each of the seven Project Companies, free and clear of all Liens other than Permitted Liens (including Liens under the Osprey Construction Facility, as reflected in UCC-1 financing statements filed by Osprey). Each Project Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in the State of Texas or the State of New Mexico, as applicable. No membership interests in any Project Company have been issued to any Person other than the Partnership, and no Person has any right, option, warrant, or other entitlement to acquire any membership interest in any Project Company.
(e) Project Status. Each Project is being constructed or has achieved COD in accordance with the construction schedule set forth in the Master EPC Agreement with Vasquez Brothers Construction, Inc. The anticipated COD schedule for the Projects is as follows:
As of the date hereof, the EPC Contractor has confirmed that each Project is on track to achieve COD on or before its respective target COD. The Weighted-Average COD, calculated by weighting each Project's target COD by its respective nameplate capacity, is October 25, 2023.
(f) ITC Eligibility. The Projects constitute "energy property" within the meaning of Section 48(a) of the Code, and each Project is eligible for the investment tax credit under Section 48 of the Code. The aggregate eligible basis of the Projects for purposes of calculating the ITC is Three Hundred Eighty-Four Million Six Hundred Thousand Dollars ($384,600,000). The Projects qualify for the thirty percent (30%) base ITC rate, as the prevailing wage and apprenticeship requirements set forth in Section 48(a)(10) of the Code (as added by the IRA) have been satisfied and will continue to be satisfied by VBC for the duration of the construction period. In addition, the Projects qualify for the ten percent (10%) domestic content bonus credit adder under Section 48(a)(12) of the Code, for a total ITC rate of forty percent (40%). The aggregate ITCs generated by the Projects are expected to be One Hundred Fifty-Three Million Eight Hundred Forty Thousand Dollars ($153,840,000), calculated as forty percent (40%) of Three Hundred Eighty-Four Million Six Hundred Thousand Dollars ($384,600,000).
(g) PPAs. The five Texas Projects (Pecos Sun Solar, Red Mesa Solar, Coyote Flats Solar, Llano Verde Solar, and Amistad Solar) are each subject to a fifteen (15)-year Power Purchase Agreement with Lone Star Grid Solutions, LLC at a weighted-average contract price of $32.50 per MWh, with an annual price escalator of 1.5% per year. The two New Mexico Projects (Cimarron Solar and Sandoval Ridge Solar) are each subject to a twenty (20)-year Power Purchase Agreement with Enchantment Power Cooperative at a weighted-average contract price of $29.75 per MWh, with an annual price escalator of 2.0% per year. True, complete, and correct copies of all PPAs have been delivered to Ridgeline and its counsel. Each PPA is in full force and effect, no party thereto is in default thereunder, and no event has occurred that, with notice or lapse of time or both, would constitute a default thereunder.
(h) Insurance. The Projects are insured pursuant to insurance policies placed by Sentinel Underwriters, Inc. with Fortis Indemnity Company (for property and casualty insurance) and performance bonds have been issued by Ironclad Surety Corp., in each case meeting the minimum insurance requirements set forth in Article IX of the LLCA. All premiums with respect to such policies and bonds that are currently due and payable have been paid in full. The Partnership and the Project Companies have not received any notice of cancellation, non-renewal, or material adverse modification with respect to any such policy or bond. True, complete, and correct copies of all insurance policies and performance bonds have been delivered to Ridgeline and its counsel.
(i) Environmental Compliance. All environmental permits, approvals, licenses, and authorizations required under applicable federal, state, and local environmental laws and regulations for the construction and operation of the Projects have been obtained or are expected to be obtained prior to the applicable COD. The Projects are being constructed in compliance in all material respects with all applicable environmental laws and regulations, including the National Environmental Policy Act, the Endangered Species Act, the Clean Water Act, and applicable state environmental protection statutes of the States of Texas and New Mexico. There are no pending or, to the knowledge of the Partnership, threatened environmental claims, actions, suits, or proceedings with respect to any Project.
(j) No Material Adverse Effect. Since the date of the LLCA (September 21, 2023), no Material Adverse Effect has occurred with respect to the Projects, the Project Companies, or the Partnership.
(k) Independent Engineer Report. The Independent Engineer (Meridian Technical Advisors, LLC; Dr. Rajan Mehta, Principal Engineer) has delivered to Ridgeline energy-yield assessments and construction monitoring reports for each Project confirming expected performance consistent with the financial model. The Independent Engineer has not identified any material deficiencies in the design, engineering, procurement, or construction of any Project that would reasonably be expected to adversely affect the expected energy production or the useful life of any Project.
(l) FMV Appraisal. The independent fair market value appraisal of the Solstice Portfolio has been prepared by Greystone Worthington, LLC (Helen Farber, Managing Director) and delivered to Ridgeline. The FMV Appraisal was prepared in accordance with the Uniform Standards of Professional Appraisal Practice and reflects the fair market value of each Project as of its respective COD.
Section 3.3 — Representations and Warranties of CBR Manager
CBR Manager hereby represents and warrants to Ridgeline as of the date hereof and as of the Closing Date (and, with respect to Section 4.2(b), as of the Second Tranche Funding Date) as follows:
(a) Organization and Good Standing. CBR Manager is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, bearing Employer Identification Number 88-4071597, formed on August 14, 2023. CBR Manager has the requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as presently conducted and as proposed to be conducted in connection with this Agreement.
(b) Sole Member. CBR Manager's sole member is Calloway-Briggs Renewables Inc. ("CBR"), a Texas C-corporation, Texas Secretary of State File No. 803762114, bearing Employer Identification Number 84-3291076, with its principal office at 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056. CBR Manager is treated as a disregarded entity for federal income tax purposes.
(c) Authority. CBR Manager has all requisite limited liability company power and authority to execute, deliver, and perform this Agreement and each of the other Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby. The board of directors of CBR has adopted resolutions duly authorizing the execution, delivery, and performance of this Agreement and each other Transaction Document by CBR Manager and, to the extent applicable, by CBR. No further action on the part of CBR Manager or CBR is required in connection therewith.
(d) Authorized Officers. Marcus Calloway (Chairman & CEO), Diana Briggs (President & COO), and Theo Vasquez (CFO) are each duly authorized officers of CBR and are authorized signatories with respect to this Agreement and each other Transaction Document on behalf of CBR Manager and CBR.
(e) No Conflicts. The execution, delivery, and performance by CBR Manager of this Agreement and each other Transaction Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) violate or conflict with CBR Manager's certificate of formation or operating agreement, or the certificate of formation, bylaws, or other organizational documents of CBR, (ii) violate any applicable law, rule, regulation, judgment, order, injunction, decree, or arbitral award applicable to CBR Manager or CBR, or (iii) constitute a default under, or give rise to any right of termination, cancellation, or acceleration under, any material agreement, contract, or instrument to which CBR Manager or CBR is a party or by which any of them or their properties may be bound.
(f) Financial Condition of CBR. CBR has reported revenues of Sixty-Seven Million Four Hundred Thousand Dollars ($67,400,000) for the fiscal year ended December 31, 2022, and total assets of Four Hundred Twelve Million Dollars ($412,000,000) as of such date, in each case as reflected in CBR's audited consolidated financial statements for such fiscal year prepared by Larchmont & Associates, PLLC. CBR currently operates approximately 780 MW of renewable energy projects across five states. CBR is financially capable of performing all of its obligations under this Agreement and the other Transaction Documents, and there is no pending or, to the knowledge of CBR Manager, threatened bankruptcy, insolvency, reorganization, or similar proceeding with respect to CBR or CBR Manager.
(g) Compliance with Rev. Proc. 2007-65. The CBR Manager Contribution Amount of Two Million Four Hundred Thousand Dollars ($2,400,000) satisfies the minimum unconditional investment requirement applicable to the managing member of a partnership-flip transaction, as described in Section 4.04 of Revenue Procedure 2007-65. The contribution by CBR Manager of the CBR Manager Contribution Amount represents a meaningful equity participation in the Partnership and is not contingent, reimbursable, or subject to any put or buy-sell arrangement that would reduce CBR Manager's at-risk investment below the required minimum.
(h) Tax Credit Allocation. Of the total One Hundred Fifty-Three Million Eight Hundred Forty Thousand Dollars ($153,840,000) in ITCs expected to be generated by the Projects, (i) Eighty-Nine Million Forty Thousand Dollars ($89,040,000) will be allocated within the partnership-flip structure and passed through to the Members in accordance with the allocation provisions of the LLCA, and (ii) Sixty-Four Million Eight Hundred Thousand Dollars ($64,800,000) will be subject to transfer elections under Section 6418 of the Code, of which Sixty Million Dollars ($60,000,000) in face-value ITCs will be sold and transferred to Pinehurst pursuant to the TCPA and Four Million Eight Hundred Thousand Dollars ($4,800,000) in face-value ITCs will be retained by CBR.
(i) Prevailing Wage and Apprenticeship. CBR Manager represents and warrants that VBC has satisfied and will continue to satisfy all prevailing wage and apprenticeship requirements under Section 48(a)(10) of the Code (as added by the IRA) with respect to all seven Projects. VBC has maintained and will continue to maintain records sufficient to demonstrate compliance with such requirements, and CBR Manager has obtained and will deliver to Ridgeline at Closing a certificate of compliance from VBC with respect to each Project.
ARTICLE IV — CONDITIONS PRECEDENT TO FUNDING
Section 4.1 — Conditions Precedent to Ridgeline's First Tranche Funding
The obligation of Ridgeline to fund the First Tranche on the First Tranche Funding Date is subject to the satisfaction (or waiver by Ridgeline in its sole discretion) of each of the following conditions precedent:
(a) Transaction Documents. Each of the LLCA, the TCPA, the Tax Indemnity Agreement, the Purchase Option Agreement, the Escrow Agreement, the Intercreditor Agreement, the Pledge Agreement, and all other Transaction Documents shall have been duly executed and delivered by all parties thereto, and each such document shall be in full force and effect.
(b) Secretary's Certificates. The Partnership and CBR Manager shall have delivered to Ridgeline executed Secretary's Certificates of CBR and CBR Solstice Manager, LLC, each in form and substance satisfactory to Ridgeline and its counsel, including (i) certified copies of the resolutions of the board of directors of CBR authorizing the execution, delivery, and performance of this Agreement and each other Transaction Document, (ii) incumbency certificates for each authorized signatory, and (iii) certificates of good standing from the Texas Secretary of State (with respect to CBR) and the Delaware Secretary of State (with respect to CBR Manager and the Partnership), each dated not more than five (5) Business Days prior to the Closing Date.
(c) Officer's Closing Certificate. CBR shall have delivered to Ridgeline an Officer's Closing Certificate, substantially in the form attached hereto as Exhibit C, executed by Theo Vasquez, CFO of CBR, certifying as to the truth and correctness in all material respects of the representations and warranties of the Partnership and CBR Manager contained in this Agreement as of the Closing Date.
(d) COD Achievement. At least five (5) of the seven (7) Projects shall have achieved COD on or before the Closing Date, with confirmation of such achievement delivered by the Independent Engineer (Meridian Technical Advisors, LLC) to Ridgeline in the form of a COD confirmation letter for each such Project.
(e) Tax Opinion Letter. Ridgeline shall have received a Tax Opinion Letter from Calderwood & Harkness LLP, dated as of the Closing Date and addressed to Ridgeline, opining (at a "should" level or higher) as to (i) the availability of the ITCs with respect to each Project, (ii) the applicability of the forty percent (40%) ITC rate (including the thirty percent (30%) base rate and the ten percent (10%) domestic content bonus adder), (iii) the validity of the partnership allocations under Section 704(b) of the Code, including the allocation of ITCs and MACRS depreciation to Ridgeline, (iv) the consistency of the partnership-flip mechanics with the safe harbor described in Revenue Procedure 2007-65, and (v) the validity of the Section 6418 transfer elections with respect to the ITCs transferred to Pinehurst under the TCPA.
(f) Legal Opinion Letter. Ridgeline shall have received a Legal Opinion Letter from Calderwood & Harkness LLP, dated as of the Closing Date and addressed to Ridgeline, opining as to (i) the due organization and valid existence of the Partnership, CBR Manager, and each Project Company, (ii) the authority of the Partnership and CBR Manager to enter into and perform this Agreement and each other Transaction Document, (iii) the enforceability of this Agreement and each other Transaction Document against the Partnership and CBR Manager, and (iv) the absence of conflicts with applicable law and material agreements.
(g) FMV Appraisal. Ridgeline shall have received the FMV Appraisal from Greystone Worthington, LLC, confirming the fair market value of the Solstice Portfolio, in form and substance satisfactory to Ridgeline.
(h) Independent Engineer Report. Ridgeline shall have received the Independent Engineer Report from Meridian Technical Advisors, LLC (Dr. Rajan Mehta, Principal Engineer), including energy-yield assessments, construction monitoring reports, and a technology assessment for each Project, in form and substance satisfactory to Ridgeline.