TAX CREDIT PURCHASE AGREEMENT
Execution Version
September 21, 2023
by and between
CALLOWAY-BRIGGS RENEWABLES INC.
as Seller
and
PINEHURST INSURANCE GROUP, INC.
as Buyer
Relating to the Transfer of $60,000,000 in Federal Investment Tax Credits under Section 6418 of the Internal Revenue Code of 1986, as amended, Generated by the Solstice Portfolio (420 MW(dc) Utility-Scale Solar Photovoltaic Projects)
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TAX CREDIT PURCHASE AGREEMENT
This TAX CREDIT PURCHASE AGREEMENT (this "Agreement") is entered into as of September 21, 2023 (the "Signing Date"), by and between:
CALLOWAY-BRIGGS RENEWABLES INC., a Texas corporation ("Seller"), with its principal office at 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056, Employer Identification Number 84-3291076;
and
PINEHURST INSURANCE GROUP, INC., a Connecticut corporation ("Buyer"), with its principal office at 175 Constitution Plaza, Hartford, CT 06103, Employer Identification Number 06-1938274.
Seller and Buyer are referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Seller is the indirect owner, through Solstice Holdings, LLC, a Delaware limited liability company (Employer Identification Number 88-4071523) (the "Partnership"), of seven project companies, each of which is a Delaware limited liability company that is treated as a disregarded entity for federal income tax purposes, that own and operate, or upon the achievement of commercial operation will own and operate, utility-scale solar photovoltaic generating facilities with aggregate nameplate capacity of approximately 420 MW(dc) located in the States of Texas and New Mexico (collectively, the "Solstice Portfolio" or the "Projects");
WHEREAS, the Projects consist of the following solar photovoltaic generating facilities:
(i) Pecos Sun Solar, LLC — approximately 85 MW(dc), located in Reeves County, Texas;
(ii) Red Mesa Solar, LLC — approximately 70 MW(dc), located in Pecos County, Texas;
(iii) Coyote Flats Solar, LLC — approximately 65 MW(dc), located in Ward County, Texas;
(iv) Llano Verde Solar, LLC — approximately 55 MW(dc), located in Hudspeth County, Texas;
(v) Cimarron Solar, LLC — approximately 50 MW(dc), located in Lea County, New Mexico;
(vi) Sandoval Ridge Solar, LLC — approximately 50 MW(dc), located in Sandoval County, New Mexico; and
(vii) Amistad Solar, LLC — approximately 45 MW(dc), located in Val Verde County, Texas
(each, a "Project Company" and collectively, the "Project Companies");
WHEREAS, each Project Company is treated as a disregarded entity for federal income tax purposes, the regarded owner of which is Solstice Holdings, LLC, which in turn is treated as a partnership for federal income tax purposes;
WHEREAS, the Projects constitute "energy property" within the meaning of Section 48 of the Internal Revenue Code of 1986, as amended (the "Code"), and are eligible for investment tax credits ("ITCs") under Section 48 of the Code, as modified by the Inflation Reduction Act of 2022 (Public Law 117-169) (the "IRA");
WHEREAS, the aggregate eligible basis of the Projects is Three Hundred Eighty-Four Million Six Hundred Thousand Dollars ($384,600,000), and the applicable ITC rate is forty percent (40%), consisting of a thirty percent (30%) base rate under Section 48(a) of the Code (reflecting satisfaction of the prevailing wage and apprenticeship requirements under Sections 45(b)(7) and 45(b)(8) of the Code, as applied to Section 48), plus a ten percent (10%) bonus for domestic content under Section 48(a)(12) of the Code, resulting in total ITCs of One Hundred Fifty-Three Million Eight Hundred Forty Thousand Dollars ($153,840,000);
WHEREAS, Seller desires to make transfer elections under Section 6418 of the Code (each, a "Transfer Election") with respect to Sixty-Four Million Eight Hundred Thousand Dollars ($64,800,000) of such ITCs, of which Sixty Million Dollars ($60,000,000) in face value are to be transferred to Buyer and Four Million Eight Hundred Thousand Dollars ($4,800,000) in face value are to be retained by Seller for its own use;
WHEREAS, Buyer desires to purchase Sixty Million Dollars ($60,000,000) in face-value ITCs (the "Transferred Credits") from Seller at a price of $0.92 per $1.00 of credit, for an aggregate purchase price of Fifty-Five Million Two Hundred Thousand Dollars ($55,200,000);
WHEREAS, Seller and Buyer have entered into that certain Letter of Intent dated July 18, 2023 (the "LOI"), setting forth the principal terms of the credit purchase contemplated hereby;
WHEREAS, the remaining Eighty-Nine Million Forty Thousand Dollars ($89,040,000) in ITCs generated by the Projects are being allocated within the partnership-flip tax-equity structure of Solstice Holdings, LLC involving Ridgeline Capital Partners, LLC as tax-equity investor, and are not the subject of this Agreement; and
WHEREAS, Seller and Buyer desire to set forth the terms and conditions upon which Seller shall transfer, and Buyer shall purchase, the Transferred Credits.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Additional Insured Endorsement" means an endorsement to the insurance policies maintained with respect to the Projects naming Buyer as an additional insured thereunder.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" 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 fifty percent (50%) or more of the voting securities or other equity interests, by contract, or otherwise.
"Aggregate Purchase Price" has the meaning set forth in Section 2.2, and equals Fifty-Five Million Two Hundred Thousand Dollars ($55,200,000), calculated as Sixty Million Dollars ($60,000,000) multiplied by the Purchase Price Per Dollar of Credit ($0.92).
"Applicable Law" means all applicable federal, state, and local laws, statutes, regulations, rules, ordinances, codes, executive orders, and judicial or administrative interpretations, including the Code, the IRA, the Treasury Regulations, and all IRS guidance (including revenue procedures, revenue rulings, notices, and announcements).
"Apprenticeship Requirements" means the requirements set forth in Section 45(b)(8) of the Code, as applied to Section 48 of the Code by Section 48(a)(10) of the Code, relating to the utilization of qualified apprentices in the construction of energy property.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banks in the City of New York, New York are authorized or required by Applicable Law to be closed.
"Buyer" means Pinehurst Insurance Group, Inc., a Connecticut corporation, together with its successors and permitted assigns.
"Buyer's Counsel" means Thornberry Mack LLP, with offices at 280 Trumbull Street, Suite 1200, Hartford, CT 06103.
"CBR Manager" means CBR Solstice Manager, LLC, a Delaware limited liability company, Employer Identification Number 88-4071597, which serves as the managing member of the Partnership and is a disregarded entity for federal income tax purposes that is wholly owned by Seller.
"Closing" means the consummation of the transactions contemplated by this Agreement, including the release of the Aggregate Purchase Price from the Escrow Account to Seller and the delivery of all closing deliverables required under Article VIII.
"Closing Date" means the date on which all Conditions to Closing set forth in Article VII are satisfied or waived by the applicable Party and the Closing occurs. The Closing Date was originally scheduled for November 30, 2023; the actual Closing Date was December 8, 2023.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"COD" or "Commercial Operation Date" means, with respect to any Project, the date on which such Project achieves commercial operation, as defined in the applicable EPC Contract, including satisfaction of all conditions precedent to commercial operation specified therein, including completion of all performance tests, receipt of permission to operate from the applicable transmission provider, and commencement of energy deliveries under the applicable PPA.
"Credit Amount" means Sixty Million Dollars ($60,000,000), being the aggregate face value of the Transferred Credits.
"Domestic Content Requirements" means the requirements set forth in Section 48(a)(12) of the Code for the ten percent (10%) bonus credit amount, relating to the use of steel, iron, and manufactured products that are produced in the United States.
"EPC Contract" means that certain Master Engineering, Procurement, and Construction Agreement, dated as of March 15, 2022 (as amended, restated, supplemented, or otherwise modified from time to time), by and between Seller (on behalf of the Project Companies) and Vasquez Brothers Construction, Inc. (Employer Identification Number 75-2648103), pursuant to which the EPC Contractor has agreed to design, engineer, procure, construct, test, and commission the Projects.
"EPC Contractor" means Vasquez Brothers Construction, Inc., a Texas corporation, Employer Identification Number 75-2648103.
"Escrow Account" means the escrow account numbered CES-2023-80114 established and maintained at Clearwater Escrow Services, Inc. in accordance with the Escrow Agreement.
"Escrow Agent" means Clearwater Escrow Services, Inc., with offices at 100 Wall Street, Suite 600, New York, NY 10005.
"Escrow Agreement" means the Escrow Agreement, dated as of the date hereof, by and among Seller, Buyer, Ridgeline Capital Partners, LLC, and Escrow Agent, governing the deposit, investment, and release of the Aggregate Purchase Price.
"Final COD" means the date on which the last Project achieves COD. As of the Closing Date, Final COD occurred on November 18, 2023 with the achievement of COD by Amistad Solar, LLC.
"Good Faith Standard" means the standard set forth in Section 6418(g) of the Code, pursuant to which a transferee taxpayer that purchases tax credits in good faith is generally treated as the taxpayer that generated such credits for purposes of any subsequently disallowed portion of such credits.
"Governmental Authority" means any federal, state, local, municipal, or foreign government or governmental authority, including the IRS, the United States Securities and Exchange Commission, the Federal Energy Regulatory Commission, the Public Utility Commission of Texas, the New Mexico Public Regulation Commission, any state public utility commission, any state tax authority, and any court, tribunal, agency, department, commission, board, bureau, or instrumentality of any of the foregoing.
"Gross-Up Amount" means the additional amount necessary to make Buyer whole on an after-tax basis for any Indemnified Tax Loss, taking into account the federal, state, and local income taxes imposed on or resulting from any indemnification payment received by Buyer, such that after payment of all such taxes, Buyer retains an amount equal to the Indemnified Tax Loss.
"Indemnified Tax Loss" means any loss, liability, cost, damage, penalty, interest, or expense (including reasonable attorneys' fees and expenses of tax advisors) arising from or relating to (a) any recapture of all or any portion of the Transferred Credits under Section 50(a) of the Code, (b) any disallowance, reduction, or denial of all or any portion of the Transferred Credits by the IRS, (c) any failure of any Transfer Election to be valid or effective under Section 6418 of the Code, (d) any breach of Seller's representations and warranties under Article IV, or (e) any breach of Seller's covenants under Article VI.
"Independent Engineer" means Meridian Technical Advisors, LLC, a nationally recognized independent engineering firm retained by Seller (with Buyer's consent) to prepare the independent engineer's report with respect to the Projects.
"Independent Tax Advisor" means Greystone Worthington, LLC, a nationally recognized independent tax advisory firm retained by Seller (with Buyer's consent) to prepare the independent appraisal of the eligible basis and ITC amount for each Project.
"Insurance Broker" means Sentinel Underwriters, Inc., the insurance broker engaged by Seller to procure and maintain insurance for the Projects.
"IRA" means the Inflation Reduction Act of 2022 (Public Law 117-169), signed into law on August 16, 2022.
"IRS" means the Internal Revenue Service of the United States Department of the Treasury.
"ITC" means an investment tax credit under Section 48 of the Code.
"ITC Rate" means forty percent (40%), consisting of the thirty percent (30%) base rate under Section 48(a) of the Code (reflecting satisfaction of the Prevailing Wage Requirements and Apprenticeship Requirements) plus the ten percent (10%) domestic content bonus adder under Section 48(a)(12) of the Code.
"Knowledge" means the actual knowledge of Marcus Calloway (Chairman and Chief Executive Officer of Seller), Diana Briggs (President and Chief Operating Officer of Seller), Theo Vasquez (Chief Financial Officer of Seller), and Priya Anand (Vice President, Tax, of Seller), after reasonable inquiry of those individuals within their respective organizations who would reasonably be expected to have knowledge of the relevant matter.
"Lender" means Osprey National Bank, N.A., the administrative agent and sole initial lender under the construction credit facility (loan number ONB-PF-2022-0341) provided to the Partnership and the Project Companies.
"Material Adverse Effect" means any event, change, condition, occurrence, development, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the Projects or any material portion thereof, (b) the ability of Seller to perform its obligations under this Agreement, or (c) the eligibility, availability, or amount of the Transferred Credits; provided, however, that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) general changes in economic, regulatory, or political conditions, (ii) changes in financial, credit, or capital markets generally, (iii) changes in Applicable Law of general applicability, (iv) changes in accounting standards, (v) acts of war, terrorism, or natural disasters, or (vi) pandemics or epidemics, in each case except to the extent such changes disproportionately affect the Projects or the Transferred Credits relative to other comparable renewable energy projects.
"NM Projects" means Cimarron Solar, LLC and Sandoval Ridge Solar, LLC.
"NM PPAs" means the power purchase agreements between the NM Projects and Enchantment Power Cooperative, each having a term of twenty (20) years from the applicable COD, with a weighted-average initial contract price of $29.75 per MWh, escalating at two percent (2.0%) per annum.
"Outside Closing Date" means December 31, 2023.
"Partnership" means Solstice Holdings, LLC, a Delaware limited liability company, Employer Identification Number 88-4071523, which is treated as a partnership for federal income tax purposes.
"Partnership Agreement" or "LLCA" means that certain Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC, dated as of the date hereof, by and among CBR Solstice Manager, LLC, as Managing Member, and Ridgeline Capital Partners, LLC, as Tax-Equity Member, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Permitted Liens" means (a) liens granted in favor of Osprey National Bank, N.A. under the construction credit facility (loan number ONB-PF-2022-0341), (b) customary utility easements, rights-of-way, and similar encumbrances that do not materially impair the use or operation of the applicable Project, and (c) permitted encumbrances as defined in and contemplated by the LLCA.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, Governmental Authority, or other entity.
"PPA" means a power purchase agreement.
"Pre-Filing Registration" means the registration with the IRS required under Section 6418 of the Code and applicable IRS guidance (including IRS Notice 2023-44 and any successor guidance) to be completed by the eligible taxpayer and the transferee taxpayer prior to making a Transfer Election.
"Prevailing Wage Requirements" means the requirements set forth in Section 45(b)(7) of the Code, as applied to Section 48 of the Code by Section 48(a)(10) of the Code, relating to the payment of prevailing wages to laborers and mechanics employed in the construction, alteration, or repair of energy property.
"Project Companies" means, collectively, Pecos Sun Solar, LLC; Red Mesa Solar, LLC; Coyote Flats Solar, LLC; Llano Verde Solar, LLC; Cimarron Solar, LLC; Sandoval Ridge Solar, LLC; and Amistad Solar, LLC, each a Delaware limited liability company that is a disregarded entity for federal income tax purposes.
"Projects" means the seven utility-scale solar photovoltaic generating facilities owned and operated by the Project Companies, as more particularly described in the Recitals.
"Purchase Price Per Dollar of Credit" means $0.92 per $1.00 of Transferred Credit face value.
"Recapture Event" means an event described in Section 50(a) of the Code that would result in the recapture of all or any portion of the ITCs claimed with respect to the Projects, including (a) the disposition of any Project or any interest therein, (b) the cessation of the use of any Project (or any portion thereof) as energy property within the meaning of Section 48 of the Code, or (c) any change in the use or ownership of any Project that causes such Project to cease to qualify as energy property.
"Recapture Period" means, with respect to each Project, the five (5)-year period beginning on the date on which such Project is placed in service within the meaning of Section 50(a) of the Code and Treasury Regulation § 1.46-3(d).
"Retained Credits" means Four Million Eight Hundred Thousand Dollars ($4,800,000) in face-value ITCs, constituting the difference between the total ITCs subject to Transfer Elections under Section 6418 of the Code ($64,800,000) and the Transferred Credits ($60,000,000), which Retained Credits are being retained by Seller for its own use.
"Seller" means Calloway-Briggs Renewables Inc., a Texas corporation, together with its successors and permitted assigns.
"Seller's Counsel" means Calderwood & Harkness LLP, with offices at 600 Lexington Avenue, New York, NY 10022.
"Signing Date" means September 21, 2023, the date first written above.
"Tax-Equity Investor" means Ridgeline Capital Partners, LLC, a Delaware limited liability company, Employer Identification Number 13-4827651, the Tax-Equity Member under the LLCA.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement, dated as of the date hereof, by and between Seller and Buyer, setting forth additional detailed indemnification obligations of Seller with respect to the Transferred Credits.
"Tax Opinion" means the tax opinion letter delivered by Calderwood & Harkness LLP to Buyer at Closing, opining as to the validity and effectiveness of the Transfer Elections under Section 6418 of the Code and the availability of the Transferred Credits to Buyer.
"Total ITCs" means One Hundred Fifty-Three Million Eight Hundred Forty Thousand Dollars ($153,840,000), calculated as the aggregate eligible basis of the Projects ($384,600,000) multiplied by the ITC Rate (40%).
"Transfer Election" means an election made under Section 6418 of the Code by an eligible taxpayer to transfer all or a portion of an eligible credit to a transferee taxpayer.
"Transfer Election Statement" means the statement required to be filed with the IRS by each Project Company (or its regarded owner for federal income tax purposes, as applicable) and Buyer (as the transferee taxpayer) to effectuate a Transfer Election with respect to the Transferred Credits, in the form attached hereto as Exhibit A.
"Transferred Credits" means Sixty Million Dollars ($60,000,000) in aggregate face value of ITCs generated by the Projects under Section 48 of the Code that are to be transferred from Seller to Buyer pursuant to Transfer Elections under Section 6418 of the Code, as allocated among the Project Companies in accordance with Schedule 2.1.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as amended from time to time (including any corresponding provisions of succeeding regulations).
"TX Projects" means Pecos Sun Solar, LLC; Red Mesa Solar, LLC; Coyote Flats Solar, LLC; Llano Verde Solar, LLC; and Amistad Solar, LLC.
"TX PPAs" means the power purchase agreements between the TX Projects and Lone Star Grid Solutions, LLC, each having a term of fifteen (15) years from the applicable COD, with a weighted-average initial contract price of $32.50 per MWh, escalating at one and one-half percent (1.5%) per annum.
"Weighted-Average COD" means October 25, 2023, being the capacity-weighted average of the Commercial Operation Dates of all Projects.
Section 1.2 — Rules of Construction
(a) Unless the context otherwise requires, references in this Agreement to "Articles," "Sections," "Exhibits," and "Schedules" are references to the Articles, Sections, Exhibits, and Schedules of and to this Agreement. All Exhibits and Schedules attached hereto are incorporated herein by reference and made a part of this Agreement.
(b) The headings and captions contained in this Agreement are included for convenience of reference only and shall not be given any substantive effect in the construction or interpretation of this Agreement.
(c) The word "including" (and correlative words such as "include" and "includes") means "including without limitation."
(d) References to "$" or "dollars" mean the lawful currency of the United States of America.
(e) Words in the singular shall include the plural, and words in the plural shall include the singular, unless the context otherwise requires. References to the masculine gender shall include the feminine and neuter genders, and vice versa.
(f) References to any statute, law, or regulation shall include all rules, regulations, and guidance promulgated thereunder, and all amendments, modifications, supplements, and successors thereto.
(g) References to any Person shall include such Person's successors and permitted assigns.
(h) The words "hereof," "herein," "hereunder," and similar words refer to this Agreement as a whole and not to any particular Section or provision of this Agreement.
(i) Any reference to "days" shall mean calendar days, unless specifically designated as "Business Days."
ARTICLE II — SALE AND PURCHASE OF TRANSFERRED CREDITS
Section 2.1 — Agreement to Transfer and Purchase
Subject to the terms and conditions of this Agreement, Seller agrees to transfer to Buyer, and Buyer agrees to purchase from Seller, Sixty Million Dollars ($60,000,000) in aggregate face value of ITCs generated by the Projects under Section 48 of the Code (the "Transferred Credits"). The transfer of the Transferred Credits shall be effected through Transfer Elections made by the applicable eligible taxpayer (i.e., the regarded owner of each Project Company for federal income tax purposes) in favor of Buyer as the transferee taxpayer, in each case pursuant to Section 6418 of the Code and the Treasury Regulations and IRS guidance promulgated thereunder. The Transferred Credits shall be allocated among the Project Companies as set forth in Schedule 2.1 attached hereto, which allocation reflects each Project Company's pro rata share of the Transferred Credits based on its eligible basis relative to the aggregate eligible basis of all Projects. For the avoidance of doubt, the Retained Credits ($4,800,000 in face value) are not the subject of this Agreement and shall be retained by Seller for its own use.
Section 2.2 — Purchase Price
(a) Aggregate Purchase Price. The aggregate purchase price payable by Buyer to Seller for the Transferred Credits shall be Fifty-Five Million Two Hundred Thousand Dollars ($55,200,000) (the "Aggregate Purchase Price"), calculated as the Credit Amount ($60,000,000) multiplied by the Purchase Price Per Dollar of Credit ($0.92).
(b) Allocation Among Project Companies. The Aggregate Purchase Price shall be allocated among the Project Companies in proportion to each Project Company's share of the Transferred Credits, as set forth in Schedule 2.2 attached hereto. Such allocation shall be used by the Parties for all tax reporting purposes, and each Party shall file all tax returns consistent therewith.
(c) No Adjustment. The Aggregate Purchase Price shall not be subject to adjustment, except as expressly provided in this Agreement or the Tax Indemnity Agreement.
Section 2.3 — Escrow Deposit and Payment Mechanics
(a) Escrow Deposit. No later than five (5) Business Days prior to the anticipated Closing Date, Buyer shall deposit the full amount of the Aggregate Purchase Price ($55,200,000) by wire transfer of immediately available funds into the Escrow Account (account number CES-2023-80114) at Clearwater Escrow Services, Inc. in accordance with the wire instructions set forth in Exhibit D hereto. The Escrow Agent shall hold, invest, and disburse the escrowed funds in accordance with the terms and conditions of the Escrow Agreement.
(b) Release of Escrowed Funds. Upon the satisfaction (or waiver by the applicable Party) of all Conditions to Closing set forth in Article VII, Seller and Buyer shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release the Aggregate Purchase Price (together with any investment earnings thereon, net of applicable fees payable to the Escrow Agent) to Seller by wire transfer of immediately available funds to the account designated by Seller in the joint release instructions. Such release shall be conditioned upon the prior delivery by Seller to Buyer (with copies to the Escrow Agent) of the following: (i) executed Transfer Election Statements for each of the seven Project Companies, in the form attached as Exhibit A, (ii) the Officer's Closing Certificate in the form attached as Exhibit B, executed by Theo Vasquez, Chief Financial Officer of Seller, and (iii) all other closing deliverables required to be delivered by Seller under Section 8.1.
(c) Failure to Close. If the Closing does not occur on or before the Outside Closing Date (December 31, 2023) for any reason (including termination of this Agreement pursuant to Article X), the Escrow Agent shall, upon receipt of written notice from either Party (with a copy to the other Party), promptly return the escrowed funds (together with any investment earnings thereon, net of any fees owed to the Escrow Agent under the Escrow Agreement) to Buyer by wire transfer of immediately available funds to the account designated by Buyer in the Escrow Agreement or as otherwise set forth in Exhibit D.
(d) Interest on Escrowed Funds. All investment earnings on the escrowed funds during the period they are held in the Escrow Account shall accrue for the benefit of Buyer until such time as the escrowed funds are released to Seller in connection with the Closing, at which point any investment earnings shall be released to Seller together with the Aggregate Purchase Price. In the event of a return of escrowed funds to Buyer, all investment earnings shall be returned to Buyer.
Section 2.4 — Tax Treatment of the Purchase Price
(a) The Parties agree that, in accordance with Section 6418(b) of the Code, the Aggregate Purchase Price paid by Buyer for the Transferred Credits shall not be included in the gross income of Seller. For the avoidance of doubt, such exclusion applies to the full amount of the Aggregate Purchase Price, regardless of whether such amount is less than, equal to, or greater than the face value of the Transferred Credits.
(b) The Aggregate Purchase Price paid by Buyer shall not be deductible by Buyer for federal income tax purposes.
(c) The Transferred Credits shall be treated as tax credits allowed to Buyer under the applicable provisions of the Code for Buyer's taxable year that includes the date of the applicable Transfer Election, as if Buyer were the taxpayer that originally determined such credits.
(d) Each Party shall file all federal, state, and local income tax returns and information returns consistent with the treatment set forth in this Section 2.4 and shall not take any position on any tax return that is inconsistent with the foregoing unless required to do so by a final determination (as defined in Section 1313(a) of the Code) or a change in Applicable Law.
ARTICLE III — TRANSFER ELECTIONS
Section 3.1 — Pre-Filing Registration
(a) Seller shall cause each Project Company (or its regarded owner for federal income tax purposes, as applicable) to complete pre-filing registration with the IRS in accordance with Section 6418 of the Code and applicable proposed Treasury Regulations and IRS guidance (including IRS Notice 2023-44 and any successor notices, proposed regulations under Section 6418, and applicable revenue procedures), in each case as promptly as practicable and in no event later than thirty (30) days prior to the anticipated Closing Date.
(b) Seller shall provide Buyer with copies of all registration confirmations, registration numbers, and any other documentation received from the IRS in connection with the Pre-Filing Registration promptly (and in no event later than five (5) Business Days) upon receipt thereof.
(c) Seller shall cooperate with Buyer, and shall provide Buyer with all information reasonably requested by Buyer, in connection with Buyer's own registration as a transferee taxpayer under Section 6418 of the Code and applicable IRS guidance. Such cooperation shall include, without limitation, the provision of Project Company names, Employer Identification Numbers, credit types, credit amounts, and such other information as may be required for Buyer to complete its transferee registration.
Section 3.2 — Transfer Election Statements
(a) Seller shall cause each Project Company (or its regarded owner for federal income tax purposes, as applicable) to prepare and timely file with the IRS a Transfer Election Statement with respect to the Transferred Credits allocated to such Project Company, in the form attached hereto as Exhibit A (Form of Transfer Election Statement), or in such other form as may be prescribed by the IRS. Each Transfer Election Statement shall be filed with the federal income tax return of the eligible taxpayer for the taxable year in which the Transferred Credits are determined (i.e., the taxable year in which the applicable Project is placed in service).
(b) Each Transfer Election Statement shall include the following information: (i) the name and Employer Identification Number of the Project Company (or its regarded owner, as applicable); (ii) the name and Employer Identification Number of Buyer (Pinehurst Insurance Group, Inc., EIN 06-1938274); (iii) the type of credit being transferred (Section 48 ITC); (iv) the dollar amount of the credit allocated to such Project Company that is being transferred to Buyer; (v) the transfer price allocated to such Project Company; and (vi) the applicable taxable year in which the credits are determined.
(c) Seller shall provide Buyer with executed copies of each Transfer Election Statement not later than fifteen (15) Business Days prior to the filing of the federal income tax return to which such Transfer Election Statement relates. Buyer shall have the right to review and comment on each Transfer Election Statement prior to filing, and Seller shall incorporate Buyer's reasonable comments.
(d) Seller shall not amend, modify, revoke, or withdraw any Transfer Election Statement without Buyer's prior written consent.
Section 3.3 — Cooperation
(a) Each Party shall cooperate fully and in good faith with the other Party in connection with the preparation, execution, filing, and administration of the Transfer Election Statements and any related IRS filings, forms, or documentation.
(b) Seller shall promptly notify Buyer in writing of any IRS examination, audit, inquiry, notice, or correspondence relating to the Transferred Credits, the Transfer Elections, or the ITCs claimed by the Project Companies or the Partnership. Such notice shall be provided within ten (10) Business Days of Seller's receipt or knowledge of such examination, audit, inquiry, notice, or correspondence.
(c) Each Party shall provide the other Party with such additional information, certifications, and documentation as may be reasonably requested from time to time in connection with the Transfer Elections or the Transferred Credits.
(d) The obligations of the Parties under this Section 3.3 shall survive the Closing and shall continue for the full survival period set forth in Section 9.5.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, as of the Signing Date and as of the Closing Date (except where a representation or warranty speaks as of a specific date, in which case as of such date), as follows:
Section 4.1 — Organization and Good Standing
(a) Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas. Seller's file number with the Texas Secretary of State is 803762114. Seller has the corporate power and authority to own, lease, and operate its properties and assets and to carry on its business as presently conducted and as contemplated by this Agreement.
(b) Each Project Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. Each Project Company is duly qualified or registered to do business and is in good standing in each state in which its Project is located (Texas, in the case of the TX Projects, and New Mexico, in the case of the NM Projects), and in each other jurisdiction where the nature of its business or the ownership of its properties requires such qualification or registration.
(c) The Partnership is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. CBR Solstice Manager, LLC is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware.
Section 4.2 — Authority; No Conflicts
(a) Seller has full corporate power and authority to execute and deliver this Agreement, the Tax Indemnity Agreement, and each other document to be executed and delivered by Seller in connection with the transactions contemplated hereby (collectively, the "Seller Transaction Documents"), and to perform its obligations hereunder and thereunder.
(b) The execution, delivery, and performance of the Seller Transaction Documents by Seller have been duly authorized by all necessary corporate action on the part of Seller, including approval by the board of directors of Seller. No other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery, and performance of the Seller Transaction Documents.
(c) No consent, approval, authorization, order, filing, registration, or qualification of or with any Governmental Authority or other Person is required for the execution, delivery, and performance by Seller of the Seller Transaction Documents or the consummation of the transactions contemplated hereby, except for (i) the Pre-Filing Registration with the IRS, (ii) the filing of Transfer Election Statements with the IRS, and (iii) such consents, approvals, and authorizations as have been obtained prior to the Signing Date, including the consent of Osprey National Bank, N.A. under the construction credit facility (ONB-PF-2022-0341) and the consent of Ridgeline Capital Partners, LLC under the LLCA.
(d) The execution, delivery, and performance by Seller of the Seller Transaction Documents, and the consummation of the transactions contemplated hereby, do not and will not (i) conflict with or violate the certificate of formation, articles of incorporation, bylaws, or other organizational documents of Seller, the Partnership, CBR Solstice Manager, LLC, or any Project Company, (ii) conflict with or violate any Applicable Law, (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, or cancel, or require any notice under, any material agreement, contract, lease, license, instrument, or other arrangement to which Seller, the Partnership, or any Project Company is a party or by which any of them or their respective properties or assets are bound, including the LLCA, the EPC Contract, the PPAs, and the construction credit facility with Osprey National Bank, N.A., or (iv) result in the creation or imposition of any lien, charge, pledge, security interest, or other encumbrance upon any of the properties or assets of Seller, the Partnership, or any Project Company (other than Permitted Liens).
Section 4.3 — Enforceability
This Agreement constitutes, and each other Seller Transaction Document when executed and delivered will constitute, a legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship, and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity (whether considered in a proceeding in equity or at law).
Section 4.4 — Project Companies; Ownership
(a) Each Project Company is a Delaware limited liability company that has elected (or is treated by default) as a disregarded entity for federal income tax purposes. No Project Company has made an election, or has been treated, as an association taxable as a corporation for federal income tax purposes.
(b) One hundred percent (100%) of the membership interests in each Project Company are owned, directly and beneficially, by Solstice Holdings, LLC (the Partnership), free and clear of all liens, claims, and encumbrances, other than Permitted Liens.
(c) Solstice Holdings, LLC is treated as a partnership for federal income tax purposes. Its members are CBR Solstice Manager, LLC (Employer Identification Number 88-4071597), as Managing Member, and Ridgeline Capital Partners, LLC (Employer Identification Number 13-4827651), as Tax-Equity Member. CBR Solstice Manager, LLC is a disregarded entity for federal income tax purposes that is wholly owned by Seller.
(d) No Person other than the Partnership owns any membership interest, equity interest, or economic interest in any Project Company. No Person other than the Managing Member and the Tax-Equity Member owns any membership interest, equity interest, or economic interest in the Partnership.
Section 4.5 — Eligibility as Energy Property
(a) The solar energy property comprising each Project constitutes "energy property" within the meaning of Section 48(a)(3) of the Code and satisfies all requirements for eligibility for the ITC under Section 48 of the Code.
(b) Each Project is a qualified solar electric generation facility that uses solar energy to generate electricity for sale or use by the applicable PPA offtaker.
(c) The eligible basis for each Project is as set forth in Schedule 4.5 and summarized below:
(d) The eligible basis for each Project has been determined in accordance with Section 48(a) of the Code and the Treasury Regulations thereunder, and includes all costs properly includible in the basis of energy property, including the costs of solar modules, inverters, racking and tracking systems, electrical infrastructure, and site preparation, net of any amounts excluded under applicable provisions of the Code.
(e) The independent appraisal prepared by Greystone Worthington, LLC confirms the eligible basis set forth above, and Seller has no Knowledge of any facts or circumstances that would cause the eligible basis of any Project to be materially different from the amounts set forth in Schedule 4.5.
Section 4.6 — ITC Rate; Bonus Adders
(a) The base ITC rate applicable to each Project is thirty percent (30%), reflecting the six percent (6%) statutory base rate under Section 48(a)(2) of the Code multiplied by five (5) due to satisfaction of the Prevailing Wage Requirements and Apprenticeship Requirements under Sections 45(b)(7) and 45(b)(8) of the Code, as applied to Section 48 by Section 48(a)(10) of the Code.
(b) Each Project qualifies for the ten percent (10%) domestic content bonus credit amount under Section 48(a)(12) of the Code.
(c) No Project qualifies for, and Seller has not claimed, the energy community bonus credit amount under Section 48(a)(14) of the Code. The ITC Rate does not include any energy community bonus adder.
(d) The total applicable ITC Rate for each Project is forty percent (40%), consisting of the thirty percent (30%) base rate plus the ten percent (10%) domestic content bonus adder.
(e) The Total ITCs generated by the Projects are One Hundred Fifty-Three Million Eight Hundred Forty Thousand Dollars ($153,840,000), calculated as the aggregate eligible basis of $384,600,000 multiplied by the ITC Rate of 40%.
Section 4.7 — Prevailing Wage Compliance
(a) Construction of each Project has been and will be performed in compliance with the prevailing wage requirements of Section 45(b)(7) of the Code, as applied to Section 48 of the Code. All laborers and mechanics employed by the EPC Contractor and its subcontractors in the construction, alteration, or repair of each Project have been and will be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such Project is located, as most recently determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code.
(b) The EPC Contractor (Vasquez Brothers Construction, Inc.) has certified in writing to Seller its compliance with the Prevailing Wage Requirements with respect to each Project, and Seller has obtained and will maintain certified payroll records, Davis-Bacon Act compliance documentation, and such other documentation as is sufficient to substantiate compliance with the Prevailing Wage Requirements.
(c) Seller shall maintain, and shall cause the EPC Contractor to maintain, all prevailing wage compliance records for a period of not less than the longer of (i) the period required by the Code and Treasury Regulations and (ii) seven (7) years following the later of (x) the date the applicable federal income tax return is filed and (y) the expiration of the Recapture Period for the applicable Project.
Section 4.8 — Apprenticeship Compliance
(a) Construction of each Project has been and will be performed in compliance with the apprenticeship requirements of Section 45(b)(8) of the Code, as applied to Section 48 of the Code. The applicable percentage of total labor hours for the construction of each Project has been performed by qualified apprentices, as required by Section 45(b)(8) of the Code.
(b) Documentation of qualified apprenticeship ratios, including records of apprenticeship program registrations, apprentice hours worked, and journeyworker-to-apprentice ratios, has been maintained by the EPC Contractor and provided to Seller. Seller has reviewed such documentation and has no Knowledge of any failure to comply with the Apprenticeship Requirements.
(c) To the extent the Apprenticeship Requirements include a good-faith effort exception under Section 45(b)(8)(D) of the Code, Seller has complied with the requirements of such exception for any Project or trade for which the applicable apprenticeship ratio has not been fully satisfied.
Section 4.9 — Domestic Content Compliance
(a) The steel, iron, and manufactured products used in each Project satisfy the domestic content requirements of Section 48(a)(12) of the Code for the ten percent (10%) bonus credit amount. All steel and iron used in each Project was produced in the United States (including melting and pouring in the United States), and the adjusted percentage (as determined under applicable IRS guidance) of the total cost of manufactured products that are components of each Project and that were mined, produced, or manufactured in the United States satisfies the applicable threshold.
(b) Seller has obtained and will maintain certifications, affidavits, and supporting documentation from the EPC Contractor and relevant manufacturers and suppliers sufficient to substantiate compliance with the Domestic Content Requirements, including certifications regarding country of origin, domestic manufacturing processes, and cost analyses.
(c) Seller has delivered copies of such domestic content certifications to Buyer and to the Independent Tax Advisor (Greystone Worthington, LLC) for their review.
Section 4.10 — Placed-in-Service Status
(a) Each Project has been or is expected to be placed in service within the meaning of Treasury Regulation § 1.46-3(d) on or before the date specified in Schedule 4.10. As of the Signing Date, the expected placed-in-service dates for each Project are as follows:
The Weighted-Average COD of the Projects is October 25, 2023.
(b) For purposes of this Agreement, a Project shall be treated as "placed in service" on the date on which such Project is in a condition or state of readiness and availability for a specifically assigned function, consistent with Treasury Regulation § 1.46-3(d). Such date is expected to coincide with or closely follow the COD of such Project as determined under the EPC Contract.
(c) All Projects are expected to achieve COD and be placed in service prior to the Outside Closing Date, and Seller has no Knowledge of any facts or circumstances that would cause any Project to fail to achieve COD and be placed in service prior to the Outside Closing Date.
Section 4.11 — No Prior Transfer
(a) No Transfer Election has been previously made with respect to the Transferred Credits or any portion thereof. The Transferred Credits have not been previously sold, assigned, pledged, hypothecated, or otherwise transferred or encumbered to any Person.
(b) No Transfer Election has been previously made with respect to the Retained Credits or any other ITCs generated by the Projects. The Retained Credits are being retained by Seller for its own use and are not the subject of any transfer arrangement other than this Agreement.
Section 4.12 — Eligible Taxpayer Status
Each Project Company (or, to the extent such Project Company is treated as a disregarded entity for federal income tax purposes, its regarded owner) qualifies as an "eligible taxpayer" within the meaning of Section 6418(a) of the Code. No Project Company, and no regarded owner of a Project Company, is an entity described in Section 6418(a)(2) of the Code (i.e., a tax-exempt entity or governmental entity).
Section 4.13 — No Recapture Events