1043-00001 · Ironhaven Holdings · Tax

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 125 Broad Street New York, New York 10004

Matter Number: 1043-00001 Billing Code: IHDC-TLB-2024

MEMORANDUM

April 28, 2024

TO: Jonathan Pryce-Williams, General Counsel & Secretary, Ironhaven Data Centers LLC Natasha Greenfeld, Vice President, Treasury & Capital Markets, Ironhaven Data Centers LLC Rebecca Sung, Chief Financial Officer, Ironhaven Data Centers LLC

CC: Stephanie Okafor, Responsible Partner, Calderwood & Harkness LLP Daniel Obi, Lead Associate, Calderwood & Harkness LLP

FROM: Sylvia Hartwell, Partner, Tax, Calderwood & Harkness LLP Lisa Morrow, Associate, Banking & Finance, Calderwood & Harkness LLP

RE: Ironhaven Data Centers LLC — $950,000,000 Senior Secured Term Loan B Credit Agreement — Analysis of Tax Gross-Up, Tax Indemnity, and FATCA Provisions

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I. Executive Summary

This memorandum analyzes the tax gross-up and indemnity provisions contained in the Credit Agreement dated as of May 15, 2024 (the "Credit Agreement"), among Ironhaven Data Centers LLC, a Delaware limited liability company (the "Borrower" or "IHDC"), Ironhaven Frankfurt GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung) (the "Co-Borrower" or "IHDC Frankfurt"), Ironhaven Holdings Inc., a Delaware corporation (the "Parent Guarantor" or "Holdings"), Crescent Harbor Bank, N.A., as administrative agent (the "Administrative Agent"), Pinnacle Trust Company, N.A., as collateral agent (the "Collateral Agent"), and the several financial institutions and other persons from time to time party thereto as lenders (collectively, the "Lenders"). The Credit Agreement is governed by New York law and provides for a senior secured Term Loan B facility in the aggregate amount of $950,000,000, consisting of a U.S. Dollar-denominated tranche and a Euro-denominated sub-tranche. The purpose of this memorandum is to provide the Borrower's management team with a comprehensive analysis of the provisions governing the Borrower's tax gross-up obligations, the tax indemnity undertakings, the treatment of FATCA withholding, and the interaction of these provisions with the tax profiles of each of the seven Lenders in the syndicate.

Our principal conclusions and observations are as follows:

Tax Gross-Up Obligation. The Credit Agreement requires the Borrower (and Co-Borrower, with respect to Euro sub-tranche payments) to make additional payments to each Lender so that each Lender receives the full amount it would have received absent any deduction or withholding for "Indemnified Taxes." This obligation is iterative in nature — that is, the additional amounts themselves are subject to the gross-up formula, ensuring the Lender is made completely whole on an after-tax basis. This provision is broadly consistent with market practice for cross-border Term Loan B credit facilities.

Excluded Taxes Carve-Outs. The "Excluded Taxes" definition appropriately protects the Borrower from bearing the economic cost of grossing up on withholding taxes that are attributable to a Lender's own status, conduct, or failures. These carve-outs include, among others, (i) taxes imposed by reason of a Lender's connection with the taxing jurisdiction other than solely through the Loan Documents, (ii) taxes resulting from a Lender's failure to deliver required IRS tax documentation (including Forms W-8BEN-E, W-8ECI, W-8IMY, or W-9), (iii) U.S. branch profits taxes under IRC § 884, (iv) FATCA withholding under IRC §§ 1471–1474, and (v) taxes that would not have been imposed but for an assignment or participation by a Lender (unless such assignment was at the Borrower's request).

FATCA Provisions. The Credit Agreement creates a separate regime for withholding under FATCA (IRC §§ 1471–1474) that operates alongside the general gross-up mechanism but classifies FATCA withholding as an "Excluded Tax." This treatment is market-standard and appropriate, as FATCA compliance is within each Lender's control. As a result, the Borrower has no gross-up obligation for FATCA-related withholding, and any such withholding is borne entirely by the non-compliant Lender.

Lender-Specific Analysis. Of the seven Lenders in the syndicate, two are non-U.S. persons for U.S. federal income tax purposes: NordBrücke AG (a German Aktiengesellschaft regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht ("BaFin"), with a commitment of $150,000,000 allocated to the EUR sub-tranche) and Osprey Insurance Capital, Ltd. (a Bermuda exempted company, with a commitment of $75,000,000). Additionally, Pacific Rim Institutional Lending Corp. (a Delaware corporation that is a subsidiary of a Cayman Islands-domiciled CLO vehicle, with a commitment of $75,000,000) presents certain ancillary FATCA considerations by virtue of its upstream Cayman parent entity. The remaining four Lenders are U.S. persons with no material withholding tax exposure.

With respect to NordBrücke AG, the U.S.-Germany Income Tax Treaty (the "Treaty") provides for a 0% withholding rate on interest under Article 11, provided that NordBrücke AG qualifies as the beneficial owner of such interest, delivers a valid IRS Form W-8BEN-E claiming Treaty benefits, and satisfies the limitation-on-benefits ("LOB") provisions of Article 28 of the Treaty. We expect NordBrücke AG to qualify for Treaty benefits. With respect to Osprey Insurance Capital, Ltd., Bermuda does not have an income tax treaty with the United States. However, Osprey should be eligible for the portfolio interest exemption under IRC § 881(c), provided that the applicable conditions are met and a valid W-8BEN-E is delivered with the required certification. We recommend that the Borrower obtain and maintain current documentation from both non-U.S. Lenders.

Recommendations. This memorandum identifies five areas in which borrower-protective language refinements should be incorporated into the Credit Agreement before the final draft is circulated on May 1, 2024, as further detailed in Section XII below.

II. Transaction Overview and Relevant Parties

A. Facility Structure

The Credit Agreement provides for a senior secured Term Loan B credit facility in an aggregate principal amount of $950,000,000. The facility is structured as follows:

USD Tranche. The U.S. Dollar-denominated tranche has aggregate commitments of $675,000,000 and bears interest at a rate of Adjusted Term SOFR (as defined in the Credit Agreement) plus 425 basis points per annum, with a SOFR floor of 0.50%. Interest on the USD Tranche is payable quarterly in arrears.

EUR Sub-Tranche. The Euro-denominated sub-tranche has aggregate commitments of €253,571,429 (approximately $275,000,000 at a EUR/USD exchange rate of 1.0846 as of the date hereof) and bears interest at a rate of EURIBOR plus 425 basis points per annum, with a EURIBOR floor of 0.00%. Interest on the EUR Sub-Tranche is payable quarterly in arrears. The EUR Sub-Tranche is drawn by IHDC Frankfurt as Co-Borrower under the Credit Agreement.

Maturity. The maturity date of the facility is June 3, 2031, which is seven years from the anticipated Closing Date of June 3, 2024.

Original Issue discount. The Term Loans are being issued at an original issue discount of 99.50 (50 basis points), resulting in estimated net proceeds to the Borrower of approximately $945,250,000 (before giving effect to transaction fees and expenses).

Amortization. The facility amortizes at a rate of 1.00% per annum of the original aggregate principal amount, payable quarterly, resulting in quarterly amortization payments of approximately $2,375,000 in the aggregate.

CUSIP. The CUSIP assigned to the facility is 46283LAA5.

The facility is secured by a first-priority lien on substantially all of the assets of the Borrower and the Guarantors, including real property interests in Loudoun County, Virginia, intellectual property, and equity interests in the Borrower's domestic and foreign subsidiaries (subject to customary limitations on pledges of foreign subsidiary stock). The security package is further described in the separate Collateral Analysis Memorandum prepared by Daniel Obi.

B. Lender Syndicate and Tax Status

The syndicate consists of seven Lenders. The following table sets forth each Lender's commitment amount, entity type, jurisdiction of organization, and our preliminary determination of its U.S. federal income tax classification for purposes of the withholding tax analysis:

As a preliminary observation, four of the seven Lenders (Crescent Harbor Bank, Ridgeline National Bank, Marlowe Asset Management Meridian Capital, and Atlas Peak Credit Partners) are U.S. persons (or, in the case of Atlas Peak, a U.S. partnership with assumed U.S. partners) and therefore present no U.S. federal withholding tax exposure on interest payments under the Credit Agreement. The primary withholding tax analysis is directed at NordBrücke AG and Osprey Insurance Capital, Ltd. Pacific Rim Institutional Lending Corp. requires a separate, more limited analysis focused on FATCA implications arising from its Cayman Islands CLO parent structure.

We note that Marlowe Asset Management Meridian Capital, LLC and Atlas Peak Credit Partners, LP are both credit fund vehicles. Our analysis assumes that Marlowe Asset Management Meridian Capital has elected to be treated as a corporation for U.S. federal income tax purposes (or is otherwise not treated as a fiscally transparent entity with non-U.S. beneficial owners). If Marlowe Asset Management Meridian Capital is treated as a partnership with non-U.S. partners, withholding obligations would apply at the partner level, and additional analysis would be required. We understand from Crescent Harbor Bank's syndication desk that all equity investors in Marlowe Asset Management Meridian Capital are domestic U.S. institutional investors, but we recommend that the Borrower confirm this representation.

C. German Tax Considerations (Co-Borrower)

IHDC Frankfurt GmbH (Steuernummer 045/127/98321; USt-IdNr. DE347891205), which serves as the Co-Borrower under the EUR Sub-Tranche, is organized as a German Gesellschaft mit beschränkter Haftung (limited liability company) with its registered office in Frankfurt am Main, Germany. As the obligor on the EUR Sub-Tranche, IHDC Frankfurt will make interest and principal payments directly to the Lenders participating in that tranche (principally NordBrücke AG, which has been allocated the entire €253,571,429 EUR Sub-Tranche commitment).

Under German domestic tax law, interest on ordinary loan obligations paid by a German corporate borrower to unrelated third-party lenders is generally not subject to German withholding tax (Kapitalertragsteuer). Germany does not impose withholding tax on arm's-length interest payments on standard debt instruments, in contrast to many other jurisdictions. This favorable treatment extends to payments made to both German-resident and non-German-resident Lenders.

There are limited exceptions to this general rule. First, interest paid on convertible bonds, profit-participating loans (Gewinnschuldverschreibungen), and similar instruments may be subject to German withholding tax at a rate of 25% (plus 5.5% solidarity surcharge thereon, for an effective rate of approximately 26.375%). However, the Term Loan is a straight, non-convertible debt instrument bearing a fixed-margin interest rate and is not profit-participating in any respect. Therefore, this exception is not applicable. Second, so-called "over-the-counter" (Tafelgeschäfte) interest — interest paid on bearer instruments presented anonymously at a paying agent — is subject to withholding, but this exception is likewise inapplicable given the registered form of the Term Loan and the institutional nature of the syndicate.

We note for completeness that the German trade tax (Gewerbesteuer) treatment of interest expense is relevant to IHDC Frankfurt's overall tax burden. Under § 8 Nr. 1 lit. a of the German Trade Tax Act (Gewerbesteuergesetz or "GewStG"), 25% of interest expense on long-term debt is added back to the trade tax base. While this provision increases the effective cost of borrowing for IHDC Frankfurt, it is not a withholding tax and does not implicate the gross-up or indemnity provisions of the Credit Agreement. We address this matter in greater detail in the Transfer Pricing / Intercompany Loan Memorandum, which analyzes the arm's-length terms of any on-lending arrangement between IHDC (as Borrower under the USD Tranche) and IHDC Frankfurt (as Co-Borrower under the EUR Sub-Tranche and as a wholly-owned subsidiary of IHDC).

III. Analysis of "Indemnified Taxes" Definition

A. Scope of Indemnified Taxes

The Credit Agreement defines "Indemnified Taxes" as follows:

"Indemnified Taxes" means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document, and (b) to the extent not otherwise described in clause (a), Other Taxes.

This definition is the linchpin of the Borrower's gross-up and indemnity obligations under the Credit Agreement. It establishes the universe of taxes for which the Borrower (and the Co-Borrower, Holdings, and any other Loan Party) bears economic responsibility vis-à-vis the Lenders. Its scope is intentionally broad: it captures all taxes imposed on or with respect to payments under the Loan Documents, subject only to the specifically enumerated carve-outs in the "Excluded Taxes" definition (analyzed in Section IV below).

The practical effect of this definition is to encompass:

• U.S. federal withholding taxes imposed under IRC §§ 871(a) and 881(a) on payments of interest (and certain other amounts) to non-U.S. Lenders, as collected through the withholding mechanisms of IRC §§ 1441 and 1442. The statutory withholding rate is 30%, subject to reduction under an applicable income tax treaty or the portfolio interest exemption.

• German withholding taxes, to the extent any are imposed on payments by IHDC Frankfurt under the EUR Sub-Tranche. As discussed in Section II.C above, no German withholding tax is currently applicable to ordinary loan interest paid by a German corporate borrower, but the definition would capture any such tax that may be imposed in the future (e.g., through a change in German law).

• Other Taxes, which the Credit Agreement separately defines to include all present or future stamp, court, documentary, intangible, recording, filing, and similar taxes that arise from the execution, delivery, performance, enforcement, or registration of any Loan Document. This sub-category is addressed in Section X below.

• State and local income taxes, to the extent imposed on payments under the Loan Documents (though we note that state-level withholding on loan interest is uncommon and would generally constitute an "Excluded Tax" if arising from the Lender's own nexus with the taxing state).

The definition is structured in the negative — it captures all "Taxes" other than "Excluded Taxes." The defined term "Taxes" itself is defined broadly in the Credit Agreement to include "all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto." This layered definitional structure is standard in Loan Syndications and Trading Association ("LSTA") model credit agreements for leveraged loan transactions.

B. Practical Impact on Borrower

The Indemnified Taxes definition creates a direct economic exposure for the Borrower in circumstances where withholding is required on payments to Lenders under the Credit Agreement. The practical significance of this exposure is best illustrated by reference to the two non-U.S. Lenders in the syndicate.

If withholding is required on interest payments to NordBrücke AG or Osprey Insurance Capital, Ltd., and the relevant tax constitutes an "Indemnified Tax" (i.e., it is not excluded as an "Excluded Tax"), the Borrower must pay additional amounts to ensure that the relevant Lender receives the full contractual interest payment net of all deductions and withholdings. The financial impact can be substantial.

Illustrative Calculation. Assume that the applicable rate of U.S. federal withholding tax is 30% (the statutory rate under IRC § 881(a)) and that the Borrower is required to make a quarterly interest payment of $X to a non-U.S. Lender. In order to ensure that the Lender receives $X after withholding, the Borrower must pay a grossed-up amount of $X / (1 – 0.30), or approximately $1.4286 × $X. This represents a 42.86% increase in the Borrower's payment obligation as compared to the scenario in which no withholding applies. The additional amount is itself subject to withholding, which is why the formula uses the reciprocal (1 / (1 – rate)) rather than a simple additive calculation.

However, this worst-case scenario is substantially mitigated in practice. With respect to NordBrücke AG, Treaty benefits under the U.S.-Germany Income Tax Treaty should reduce the applicable withholding rate to 0%, provided that NordBrücke AG delivers valid Treaty documentation and satisfies the LOB requirements. With respect to Osprey Insurance Capital, Ltd., the portfolio interest exemption under IRC § 881(c) should similarly eliminate withholding, provided the applicable conditions are met. These exemptions and their conditions are analyzed in detail in Section VI below.

In each case, the availability of the reduced rate or exemption is conditioned on the Lender's delivery of proper tax documentation (principally, IRS Form W-8BEN-E). If a Lender fails to deliver such documentation, any resulting withholding tax is classified as an "Excluded Tax" under the Credit Agreement, and the Borrower has no gross-up obligation. This documentation requirement is the Borrower's principal backstop against unanticipated withholding exposure and underscores the importance of maintaining a robust documentation compliance program, as discussed further in Section XIII below.

IV. Analysis of "Excluded Taxes" Definition

A. Categories of Excluded Taxes

The "Excluded Taxes" definition in the Credit Agreement establishes the specific categories of taxes for which the Borrower bears no gross-up or indemnity obligation. Each carve-out is designed to address a circumstance in which the imposition of tax is attributable to the Lender's own status, conduct, or failure, rather than to the Borrower's payment obligations. The following is a detailed analysis of each category:

1. Connection-Based Taxes. The first category excludes taxes imposed on or measured by the net income (however denominated), franchise taxes, and branch profits taxes of a Lender, in each case, (i) imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such tax (other than connections arising solely from such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced any Loan Document), or (ii) that are Other Connection Taxes.

The rationale for this exclusion is straightforward: if a Lender is subject to taxation in a particular jurisdiction because of its own business activities, branch presence, or other connections with that jurisdiction (independent of its participation as a Lender under the Credit Agreement), the Borrower should not bear the economic cost of such taxes. For example, if NordBrücke AG were to establish a U.S. branch office through which it conducted its lending activities under the Credit Agreement, any U.S. federal income tax or branch profits tax imposed on NordBrücke AG by reason of that branch would be an Excluded Tax. The mere fact that NordBrücke AG is a party to the Credit Agreement does not, by itself, create a taxable "connection" that would trigger this exclusion.

2. Branch Profits Taxes and Equivalents. The second category specifically identifies the U.S. federal branch profits tax under IRC § 884 and any similar tax imposed by any other jurisdiction. IRC § 884 imposes a 30% tax (subject to treaty reduction) on the "dividend equivalent amount" of a foreign corporation's effectively connected earnings and profits attributable to a U.S. branch. This is a second level of tax, analogous to the dividend withholding tax that would apply if the foreign corporation conducted its U.S. business through a U.S. subsidiary. Because the branch profits tax is attributable to the Lender's decision to operate through a U.S. branch (rather than to the Borrower's payment obligations), it is appropriately classified as an Excluded Tax.

We note that NordBrücke AG's commitment is allocated entirely to the EUR Sub-Tranche funded by IHDC Frankfurt, which may limit the extent to which interest received by NordBrücke AG constitutes U.S.-source income effectively connected with a U.S. trade or business. Nevertheless, the branch profits tax exclusion provides a useful belt-and-suspenders protection for the Borrower.

3. Taxes Attributable to Lender's Failure to Comply with Documentation Requirements. The third category — and, from the Borrower's perspective, perhaps the most important — excludes any tax that would not have been imposed but for the failure of a Lender to comply with the documentation requirements set forth in the Credit Agreement (specifically, the provisions requiring delivery of IRS Forms W-8BEN-E, W-8ECI, W-8IMY, or W-9, as applicable). The Credit Agreement requires each Lender to deliver such documentation at closing, upon a change in circumstances that renders previously delivered documentation materially inaccurate, and upon the reasonable request of the Borrower or the Administrative Agent.

The practical effect of this exclusion is significant. If, for example, NordBrücke AG fails to deliver a valid Form W-8BEN-E claiming Treaty benefits, the Borrower (or the Administrative Agent, as withholding agent) would be required to withhold at the 30% statutory rate on interest payments to NordBrücke AG. However, because this withholding would not have been required but for NordBrücke AG's documentation failure, the resulting tax would be classified as an Excluded Tax, and the Borrower would have no gross-up obligation. The same analysis applies to Osprey Insurance Capital, Ltd., which must deliver a valid Form W-8BEN-E to claim the portfolio interest exemption.

4. FATCA Withholding. The fourth category excludes any U.S. federal withholding taxes imposed under FATCA — specifically, IRC §§ 1471 through 1474, as in effect as of the date of the Credit Agreement (or any amended or successor version that is substantively comparable), any current or future regulations or official interpretations thereof, and any agreement entered into pursuant to IRC § 1471(b)(1). This exclusion is analyzed in detail in Section VII below.

5. Taxes Imposed on Assignees and Participants. The fifth category excludes taxes that would not have been imposed but for an assignment of, or participation in, a Lender's commitment or loans — unless such assignment or participation was made at the request of the Borrower. This exclusion is critical in the secondary market context and is analyzed in Section XI below.

B. Borrower-Protective Function

Taken together, the Excluded Taxes carve-outs serve an essential borrower-protective function: they ensure that the Borrower's gross-up and indemnity obligations are limited to taxes that arise from the Borrower's own payment obligations and are not attributable to circumstances within the Lender's control. This allocation of risk reflects the fundamental principle that the gross-up mechanism is designed to protect Lenders from expropriation by taxing authorities, but only in circumstances where the Lender has done everything within its power to mitigate the withholding.

The documentation-failure exclusion is of particular practical importance. NordBrücke AG and Osprey Insurance Capital, Ltd. are each required to deliver valid Forms W-8BEN-E at closing and to update such forms as required by law and by the Credit Agreement. If either Lender fails to do so, the economic consequence of withholding falls squarely on that Lender, not on the Borrower. This creates a powerful incentive for each non-U.S. Lender to maintain current and accurate tax documentation.

We note one area warranting additional attention: the Credit Agreement should be reviewed to confirm that the "assignment" carve-out in clause (5) above encompasses all secondary market transfers, including transfers executed through the LSTA standard form assignment and assumption agreement, sub-participations, and assignments made in connection with a CLO collateral manager's exercise of discretion. If a U.S. Lender assigns its position to a non-U.S. assignee, the Borrower should not bear the incremental withholding cost attributable to that assignment. This issue is addressed further in Section XI.

V. Tax Gross-Up Mechanics

A. Obligation to Gross Up

The gross-up provision of the Credit Agreement provides, in relevant part, as follows:

If any Loan Party shall be required by applicable law to deduct or withhold any Indemnified Tax from any payment made by such Loan Party under any Loan Document, then (i) such Loan Party shall make such deductions or withholdings, (ii) such Loan Party shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law, and (iii) the sum payable by such Loan Party shall be increased as necessary so that after all required deductions and withholdings have been made (including deductions and withholdings applicable to additional sums payable under this Section), the applicable Recipient receives an amount equal to the sum it would have received had no such deductions or withholdings been made.

This provision imposes three distinct obligations on the Borrower (and any other Loan Party making payments under the Loan Documents). First, the Borrower must make the required deduction or withholding. Second, the Borrower must remit the withheld amount to the appropriate governmental authority. Third, the Borrower must pay an additional amount (the "gross-up") sufficient to ensure that the Lender receives, net of all deductions and withholdings, the full amount it would have received had no deduction or withholding been required. The obligation applies to both IHDC (with respect to USD Tranche payments) and IHDC Frankfurt (with respect to EUR Sub-Tranche payments).

It is important to note that the gross-up obligation is iterative. The parenthetical clause — "including deductions and withholdings applicable to additional sums payable under this Section" — makes clear that the gross-up amount itself is subject to the gross-up formula. In other words, if the additional payment is itself subject to withholding, the Borrower must pay a further additional amount to ensure the Lender receives the full contractual entitlement. This iterative structure results in the mathematical formula described below.

B. Payment and Reporting Mechanics

The Credit Agreement establishes specific procedural requirements for the payment and reporting of withheld taxes:

Timely Remittance. The Borrower must remit all withheld amounts to the relevant governmental authority — in the case of U.S. federal withholding taxes, the Internal Revenue Service; in the case of German taxes, the Bundeszentralamt für Steuern or other applicable German fiscal authority — in accordance with the time periods prescribed by applicable law. For U.S. federal withholding taxes, the withheld amounts must generally be deposited with the IRS by the 15th day of the month following the month in which the withholding occurred, using IRS Form 1042 and accompanying schedules.

Evidence of Payment. Within 30 days after the date of any payment of Indemnified Taxes, the Borrower must deliver to the Administrative Agent (Crescent Harbor Bank, N.A., Attention: Thomas Beckett, Assistant Vice President, Agency Services) evidence reasonably satisfactory to the Administrative Agent that such taxes have been paid. Such evidence typically consists of a certified copy of the tax receipt issued by the relevant governmental authority, the return reporting such payment (e.g., IRS Form 1042-S), or other documentation reasonably requested by the Administrative Agent.

Distribution to Affected Lenders. The Administrative Agent is responsible for distributing copies of tax receipts and payment evidence to the affected Lenders. This distribution is important for the Lenders' own tax compliance and record-keeping purposes, as Lenders may be entitled to claim a foreign tax credit or deduction for the withheld taxes in their home jurisdictions.

C. Interaction with Interest Rate

The gross-up obligation operates on top of the contractual interest rate. The Lenders are entitled to receive SOFR + 425 basis points per annum (on the USD Tranche) or EURIBOR + 425 basis points per annum (on the EUR Sub-Tranche) free and clear of all Indemnified Taxes. The gross-up could significantly increase the Borrower's effective interest cost if Treaty benefits are unavailable or documentation lapses.

The following worked example illustrates the potential magnitude of the gross-up obligation in a scenario where the 30% statutory withholding rate applies:

Worked Example: Osprey Insurance Capital, Ltd.

• Commitment: $75,000,000

• Entity Type: Bermuda exempted company (non-U.S. person; no U.S. income tax treaty)

• Assumed SOFR Rate: 5.33%

• Applicable Margin: 4.25% (425 basis points)

• All-in Interest Rate: 9.58% per annum

• Quarterly Interest Payment (before withholding): $75,000,000 × 9.58% / 4 = $1,795,500

• Assumed U.S. Federal Withholding Rate: 30%

• Withholding Amount: $1,795,500 × 30% = $538,650

• Required Gross-Up Additional Payment (iterative): $1,795,500 / (1 – 0.30) = $2,565,000 (total payment including gross-up); Additional amount = $2,565,000 – $1,795,500 = $769,500

• Verification: Withholding on $2,565,000 = $2,565,000 × 30% = $769,500; Net to Osprey = $2,565,000 – $769,500 = $1,795,500

• Total Quarterly Cost to Borrower: $2,565,000 vs. $1,795,500 without gross-up

• Incremental Cost: $769,500 per quarter ($3,078,000 annualized)

• Percentage Increase: approximately 42.86%

This scenario assumes, conservatively, that Osprey Insurance Capital, Ltd. cannot claim the portfolio interest exemption under IRC § 881(c). As discussed in Section VI.C below, Osprey should be eligible for the portfolio interest exemption, which would reduce the applicable withholding rate to 0% and eliminate the gross-up obligation entirely. Nevertheless, the worked example illustrates the magnitude of the potential exposure if the exemption is unavailable or if Osprey fails to deliver the required documentation.

We note that the effective cost increase calculated above (42.86%) is mathematically equivalent to the formula 0.30 / (1 – 0.30) = 42.86%. This formula reflects the iterative nature of the gross-up: the additional payment is itself subject to withholding, which generates a further additional payment, and so on. The algebraic resolution of this infinite series produces the formula $X / (1 – t), where $X is the original payment and t is the withholding rate.

VI. Portfolio Interest Exemption Analysis

A. Statutory Framework — IRC § 881(c)

IRC § 881(c) provides an exemption from the 30% withholding tax imposed by IRC § 881(a) on certain interest income received by foreign persons from sources within the United States. To qualify for the exemption, the interest must be paid on an obligation that constitutes a "portfolio debt obligation" within the meaning of IRC § 871(h)(2). A portfolio debt obligation is generally defined as any obligation (i) that is in "registered form" (as defined in IRC § 163(f)) and (ii) with respect to which the beneficial owner of the interest has provided the withholding agent with a statement certifying that the beneficial owner is not a United States person.

Several important exclusions apply:

(a) 10% Shareholder Exclusion. The portfolio interest exemption does not apply to interest received by a person who owns (directly, indirectly, or by attribution) 10% or more of the total combined voting power of all classes of stock of the borrower entitled to vote.

(b) Controlled Foreign Corporation Exclusion. The exemption does not apply to interest received by a controlled foreign corporation that is related to the borrower within the meaning of IRC § 864(d)(4).

(c) Bank Exclusion. Under IRC § 881(c)(3)(A), the exemption does not apply to interest received by a bank on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business.

(d) Contingent Interest Exclusion. The exemption does not apply to "contingent interest" described in IRC § 871(h)(4).

The Term Loan under the Credit Agreement is maintained in registered form, as evidenced by the register maintained by the Administrative Agent (Crescent Harbor Bank, N.A.) in its capacity as registrar. The interest is not contingent — it is calculated at a fixed margin over a referenced benchmark rate (SOFR or EURIBOR) and does not depend on the Borrower's income, cash flows, or other variable measures. Accordingly, the registered-form and non-contingent interest requirements are satisfied for all Lenders.

B. Application to NordBrücke AG

NordBrücke AG is a German licensed credit institution (Kreditinstitut) regulated by BaFin and subject to the German Banking Act (Kreditwesengesetz or "KWG"). As a regulated banking institution, NordBrücke AG falls squarely within the "bank exclusion" of IRC § 881(c)(3)(A), which provides that the portfolio interest exemption does not apply to interest received by a "bank" on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of the bank's trade or business. The IRS and courts have interpreted the term "bank" broadly in this context, and it extends to foreign banks that would be treated as banks if organized in the United States. There is no serious question that NordBrücke AG, as a BaFin-regulated Aktiengesellschaft engaged in commercial lending, qualifies as a "bank" for this purpose.

Therefore, NordBrücke AG cannot rely on the portfolio interest exemption to reduce or eliminate U.S. federal withholding tax on interest received under the Credit Agreement. NordBrücke AG must instead rely on the U.S.-Germany Income Tax Treaty (the "Treaty") for relief from withholding.

Under Article 11 of the Treaty, interest arising in the United States and paid to a resident of Germany is generally exempt from U.S. withholding tax (i.e., the Treaty rate is 0%), provided that:

(i) the recipient is the beneficial owner of the interest;

(ii) the recipient is a resident of Germany within the meaning of the Treaty (Article 4);

(iii) the recipient satisfies the limitation-on-benefits ("LOB") provisions of Article 28 of the Treaty; and

(iv) the recipient provides a valid IRS Form W-8BEN-E to the withholding agent, claiming the Treaty benefit with respect to the interest income and certifying its LOB qualification.

We expect NordBrücke AG to satisfy all of these conditions. As a publicly traded German Aktiengesellschaft regulated by BaFin and domiciled in Frankfurt am Main, NordBrücke AG should have no difficulty qualifying as a "resident" of Germany for Treaty purposes and satisfying the LOB requirements under Article 28 (likely qualifying under the "publicly traded company" or "active trade or business" test, and almost certainly under the "derivative benefits" test available to companies owned by Treaty-country residents). We recommend that NordBrücke AG's W-8BEN-E be reviewed to confirm that it includes the appropriate Treaty claim and LOB certification.

If the Treaty benefit applies, the applicable withholding rate on interest paid to NordBrücke AG is 0%, and no gross-up obligation is triggered. If NordBrücke AG fails to deliver a valid Form W-8BEN-E or the Treaty benefit is otherwise unavailable, the 30% statutory withholding rate would apply. However, in the latter case, the resulting withholding tax would constitute an Excluded Tax under the Credit Agreement (as a tax attributable to the Lender's failure to comply with documentation requirements), and the Borrower would not be required to gross up. In either scenario, the Borrower bears no economic exposure with respect to NordBrücke AG, provided the Credit Agreement's Excluded Taxes definition is properly drafted.

C. Application to Osprey Insurance Capital, Ltd.

Osprey Insurance Capital, Ltd. is a Bermuda exempted company. There is no income tax treaty between the United States and Bermuda (Bermuda does not impose income tax and therefore has no treaty network for income tax purposes). Accordingly, Osprey cannot rely on a treaty to reduce U.S. federal withholding tax on interest received under the Credit Agreement. The portfolio interest exemption under IRC § 881(c) is Osprey's sole potential avenue for relief.

We analyze each of the conditions for the portfolio interest exemption as applied to Osprey:

(i) 10% Shareholder Test. Osprey Insurance Capital, Ltd. is a Lender only and does not hold any equity interest in IHDC, Holdings, or any of their affiliates. Osprey is not a 10% shareholder within the meaning of IRC § 871(h)(3) / § 881(c)(3)(B). This condition is satisfied.

(ii) Controlled Foreign Corporation Test. Osprey is not a controlled foreign corporation related to IHDC within the meaning of IRC § 864(d)(4). This condition is satisfied.

(iii) Registered Form Test. The Term Loan is in registered form, as evidenced by the register maintained by the Administrative Agent. This condition is satisfied.

(iv) Statement/Certification Requirement. Osprey must provide to the withholding agent (the Borrower or the Administrative Agent, as applicable) an IRS Form W-8BEN-E that includes the required statement under IRC § 871(h)(5) and Treasury Regulation § 1.871-14(c), certifying under penalties of perjury that the beneficial owner of the interest is not a United States person. This condition is within Osprey's control and should be satisfied at closing.

(v) Bank Exclusion. IRC § 881(c)(3)(A) excludes from the portfolio interest exemption interest received by a "bank" on an extension of credit made in the ordinary course of the bank's trade or business. Osprey Insurance Capital, Ltd. is a Bermuda exempted company that we understand operates as an insurance capital and credit investment vehicle. It is not, based on the information available to us, a deposit-taking institution, a bank, or a banking institution within the meaning of IRC § 881(c)(3)(A) or applicable Treasury Regulations. We note that the IRS has applied the "bank" exclusion to foreign financial institutions engaged in banking activities (including accepting deposits and making loans in the ordinary course of business), but the exclusion does not extend to non-bank financial entities such as insurance companies, hedge funds, or credit funds that make loans as part of an investment strategy rather than a banking business. Accordingly, we believe that Osprey should not be treated as a "bank" for this purpose, though this conclusion depends on the factual characterization of Osprey's business activities. We recommend obtaining a factual representation from Osprey confirming that it is not engaged in a banking trade or business.

If the portfolio interest exemption applies, the applicable withholding rate on interest paid to Osprey is 0%, and no gross-up obligation is triggered. If the exemption is unavailable (e.g., because Osprey is determined to be a "bank," or because Osprey fails to deliver the required certification), the full 30% statutory withholding rate would apply. In the case of a documentation failure, the resulting tax would be an Excluded Tax and the Borrower would bear no gross-up obligation. However, if the exemption were unavailable for a substantive reason (e.g., Osprey is a "bank"), the resulting withholding would constitute an Indemnified Tax, and the Borrower would be required to gross up — an exposure of approximately $3,078,000 per year on Osprey's $75,000,000 commitment, as illustrated in the worked example in Section V.C above.

Recommendation. We recommend that the Borrower (i) obtain and maintain a current IRS Form W-8BEN-E from Osprey Insurance Capital, Ltd. claiming the portfolio interest exemption, (ii) obtain a factual representation from Osprey confirming that it does not conduct a banking trade or business within the meaning of IRC § 881(c)(3)(A), and (iii) include in the Credit Agreement an explicit representation by Osprey that it qualifies for the portfolio interest exemption.

D. Application to Pacific Rim Institutional Lending Corp.

Pacific Rim Institutional Lending Corp. is a Delaware corporation and is therefore treated as a U.S. person for U.S. federal income tax purposes. No withholding tax applies to payments of interest by the Borrower to a U.S. person. Accordingly, there is no gross-up exposure on interest payments made directly to Pacific Rim.

However, we note that Pacific Rim is a wholly-owned subsidiary of a Cayman Islands-domiciled CLO vehicle. While this upstream ownership structure does not affect the withholding analysis for payments made directly to Pacific Rim (which, as a domestic corporation, provides a Form W-9), it does give rise to certain FATCA considerations, which are analyzed in Section VII.C below.

No portfolio interest exemption analysis is required for Pacific Rim, as it is a U.S. person.

VII. FATCA Provisions — IRC §§ 1471–1474

A. Overview of FATCA Withholding Regime

The Foreign Account Tax Compliance Act ("FATCA"), codified at IRC §§ 1471 through 1474 and effective in phases since 2014, imposes a 30% withholding tax on certain "withholdable payments" made to foreign financial institutions ("FFIs") and non-financial foreign entities ("NFFEs") that do not comply with FATCA's information reporting and agreement requirements. "Withholdable payments" include U.S.-source interest income, which encompasses interest paid under the Credit Agreement.

FATCA operates through a dual compliance framework. First, FFIs must enter into an agreement with the IRS (an "FFI Agreement") under which they agree to identify and report certain information about U.S. accounts held by U.S. persons (or entities with substantial U.S. owners). Second, the United States has entered into intergovernmental agreements ("IGAs") with numerous foreign jurisdictions, under which foreign financial institutions in those jurisdictions comply with FATCA through their home-country tax authorities, rather than entering into individual FFI Agreements with the IRS. There are two models of IGAs: Model 1 IGAs (under which the foreign jurisdiction agrees to collect FATCA information and exchange it with the IRS) and Model 2 IGAs (under which FFIs in the foreign jurisdiction agree to report directly to the IRS, with the foreign jurisdiction facilitating the process).

If an FFI or NFFE fails to comply with FATCA — for example, by failing to enter into an FFI Agreement, failing to register as a FATCA-compliant entity, or failing to provide the required documentation — withholding agents (including the Borrower and the Administrative Agent) are required to withhold 30% of any withholdable payment made to such entity.

B. Credit Agreement Treatment of FATCA

The Credit Agreement classifies FATCA withholding as an Excluded Tax. As a consequence, the Borrower has no gross-up obligation for any FATCA-related withholding tax. This treatment is consistent with prevailing market practice in leveraged loan transactions and is, in our view, appropriate. FATCA compliance is within each Lender's control — each Lender can avoid FATCA withholding by entering into the requisite agreements, registering on the IRS FATCA registration portal, and providing the required documentation to the withholding agent. There is no basis for requiring the Borrower to bear the economic cost of a Lender's failure to satisfy these requirements.

The relevant Credit Agreement language provides:

"For purposes of this Agreement, 'Excluded Taxes' include … any U.S. federal withholding Taxes imposed under Sections 1471 through 1474 of the Code (or any amended or successor version thereof that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code."

This language is comprehensive and, notably, extends to any "amended or successor version" of FATCA that is "substantively comparable and not materially more onerous to comply with." This future-proofing language protects the Borrower against the risk that a technical amendment to FATCA could remove it from the Excluded Tax definition.

C. FATCA Analysis for Specific Lenders

1. NordBrücke AG (German FFI). Germany has entered into a Model 1 IGA with the United States. Under the Model 1 IGA, German financial institutions such as NordBrücke AG comply with FATCA by reporting through the German Federal Central Tax Office (Bundeszentralamt für Steuern or "BZSt") rather than directly to the IRS. NordBrücke AG, as a major BaFin-regulated credit institution, is expected to be fully FATCA-compliant under the German IGA framework. NordBrücke AG's IRS Form W-8BEN-E should include its FATCA status certification, indicating that it is a "Reporting Model 1 FFI" and providing its GIIN (Global Intermediary Identification Number). Provided that NordBrücke AG maintains its FATCA-compliant status (which, for a major German bank, is effectively a certainty), no FATCA withholding will apply to payments under the Credit Agreement.

2. Osprey Insurance Capital, Ltd. (Bermuda Entity). Bermuda has entered into a Model 2 IGA with the United States. Under the Model 2 IGA, financial institutions in Bermuda are required to register as "participating FFIs" or to establish an applicable FATCA-exempt status. Osprey Insurance Capital, Ltd. must either (a) register with the IRS as a participating FFI and obtain a GIIN, (b) qualify as a "deemed-compliant FFI" under the Treasury Regulations (e.g., as a qualified collective investment vehicle, restricted fund, or similar category), or (c) qualify as an NFFE and provide the required NFFE certification on its Form W-8BEN-E.

Osprey's FATCA status depends on the nature of its business and its classification under the Bermuda IGA and applicable Treasury Regulations. If Osprey is classified as an FFI (which is likely if it is in the business of investing in financial assets), it must be a participating or registered-deemed-compliant FFI. If Osprey fails to comply with FATCA — for example, by failing to register as a participating FFI or failing to provide a valid GIIN — 30% FATCA withholding would apply to interest payments made to Osprey. However, as noted above, any such FATCA withholding would be classified as an Excluded Tax under the Credit Agreement, and the Borrower would have no gross-up obligation. The economic loss would fall entirely on Osprey.

3. Pacific Rim Institutional Lending Corp. (U.S. Corporation with Cayman CLO Parent). Pacific Rim is a Delaware corporation and is treated as a U.S. person for all purposes, including FATCA. Payments of interest by the Borrower (or the Administrative Agent, on behalf of the Borrower) to Pacific Rim are not "withholdable payments" for FATCA purposes, because withholdable payments include only payments to non-U.S. persons (specifically, FFIs and NFFEs). Pacific Rim should provide a Form W-9, certifying its status as a U.S. person, and no FATCA withholding analysis is required at the Pacific Rim level.

We note, however, that the upstream Cayman CLO vehicle that owns Pacific Rim is a foreign entity organized in the Cayman Islands. The Cayman Islands have entered into a Model 1 IGA with the United States. If the Cayman CLO vehicle receives payments from Pacific Rim (e.g., dividends, interest on intercompany debt, or other distributions), those payments could be subject to FATCA withholding at the Cayman CLO level if the CLO vehicle is not FATCA-compliant. However, this upstream FATCA exposure does not directly affect the Borrower's obligations under the Credit Agreement, because the Borrower's payments are made directly to Pacific Rim (a U.S. person), not to the Cayman CLO vehicle. To the extent there is any risk that the Administrative Agent might be directed to make payments through or to the Cayman parent, or that Pacific Rim could be disregarded for FATCA purposes, the Borrower should obtain confirmation from Pacific Rim that it is not a disregarded entity for any purposes and that all payments under the Credit Agreement will be made directly to Pacific Rim's U.S. bank account.

4. U.S. Lenders (Crescent Harbor Bank, N.A.; Ridgeline National Bank; Marlowe Asset Management Meridian Capital, LLC; Atlas Peak Credit Partners, LP). All four of these Lenders are U.S. persons. FATCA withholding does not apply to payments to U.S. persons. Each of these Lenders is required to deliver an IRS Form W-9 to the Administrative Agent at closing, certifying its U.S. taxpayer identification number and its exemption from backup withholding. No FATCA exposure exists with respect to these Lenders.

D. Recommended Borrower Protections Regarding FATCA

While the Credit Agreement's classification of FATCA withholding as an Excluded Tax is appropriate and sufficient in most scenarios, we recommend the following additional borrower protections:

First, the Borrower should confirm that the Credit Agreement requires each Lender to deliver all FATCA-related documentation (including, as applicable, a valid Form W-8BEN-E with FATCA status certification and GIIN) at closing and upon the reasonable request of the Borrower or the Administrative Agent. The documentation obligation should be annual or at such more frequent intervals as may be required by applicable law or Treasury Regulations.

Second, the Borrower should confirm that the Excluded Tax treatment of FATCA withholding is unconditional and survives any assignment of a Lender's commitment or loans. There should be no circumstance in which an assignment transforms FATCA withholding from an Excluded Tax into an Indemnified Tax.

Third, we recommend adding explicit language providing that no Lender may assign its commitment or loans to an assignee that is not FATCA-compliant at the time of assignment, or, if it does, the assigning Lender remains responsible for any FATCA withholding until the assignee achieves FATCA-compliant status. This language would prevent the externalization of FATCA withholding risk onto the Borrower through secondary market transactions to non-compliant assignees. This recommendation is discussed further in Recommendation 4 in Section XII.D below.

VIII. Tax Indemnity Provisions

A. Scope of Tax Indemnity

The Credit Agreement contains a tax indemnity provision that is separate from, and in addition to, the gross-up obligation described in Section V above. Under this provision, each Loan Party (including the Borrower, the Co-Borrower, and the Parent Guarantor) agrees to indemnify each Lender, the Administrative Agent, and the Collateral Agent for the full amount of any Indemnified Taxes (including Other Taxes) paid by such party, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. The indemnity obligation arises within 10 business days after written demand therefor is delivered by the indemnified party.

The tax indemnity provision serves a complementary function to the gross-up. While the gross-up addresses withholding taxes deducted at the time of payment, the indemnity covers situations in which:

(a) Indemnified Taxes are assessed or imposed after the payment has been made (e.g., a tax authority asserts that withholding should have been made on a prior payment, and the Lender is required to pay the tax directly);

(b) The gross-up was insufficient to make the Lender whole (e.g., due to a miscalculation or a change in tax rates between the time of payment and the time of assessment);

(c) Other Taxes (stamp, documentary, intangible, recording, or similar taxes) are imposed on or with respect to the Loan Documents, which are not subject to the gross-up mechanism (as they are not withholding taxes) but are nonetheless Indemnified Taxes under the Credit Agreement.

B. Limitations and Protections

The tax indemnity is subject to several important limitations that protect the Borrower from unbounded exposure:

Indemnified Taxes Only. The indemnity is limited to Indemnified Taxes and does not extend to Excluded Taxes. Accordingly, all of the carve-outs described in Section IV above apply equally to the indemnity obligation. If a tax is classified as an Excluded Tax (e.g., FATCA withholding, documentation-failure-related withholding, connection-based taxes), the Borrower has no indemnity obligation with respect to such tax.

Statute of Limitations / Stale Claim Defense. We recommend that the Credit Agreement include a provision requiring any Lender seeking indemnification under the tax indemnity clause to submit its written demand within 180 days of becoming aware of the tax liability giving rise to the claim. If such a provision is not included in the current draft, we strongly recommend that it be added. This limitation protects the Borrower from stale, retroactive claims that may be asserted months or years after the underlying tax event, at which point the Borrower may have limited ability to investigate or contest the claim. We have reviewed the April 18, 2024 counter-draft from Blackthorn & Sundial Software and note that this provision was included in our borrower draft (April 5, 2024) but was deleted in the agent's counter-draft. We recommend that the Borrower insist on its reinstatement.

"Correctly or Legally Imposed" Language. The Credit Agreement provides that the indemnity applies "whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority." This is a standard market provision in LSTA-form credit agreements, and its effect is to prevent the Borrower from raising the validity or correctness of the underlying tax assessment as a defense to the indemnity obligation. While this provision shifts risk to the Borrower, it is balanced by the Excluded Taxes definition, which ensures that the Borrower is only indemnifying taxes that arise from the Borrower's payment obligations (not from the Lender's own conduct or status). As a practical matter, this provision eliminates the need for the Borrower to engage in costly and time-consuming disputes with foreign taxing authorities regarding the validity of tax assessments.

C. Refund and Credit Provisions

The Credit Agreement includes a refund provision that operates as a claw-back mechanism in favor of the Borrower. If a Lender determines, in its sole discretion exercised in good faith, that it has received a refund (including a credit against any tax liability) attributable to an Indemnified Tax for which the Borrower has previously made a gross-up payment or indemnity payment, the Lender shall repay the amount of such refund (net of the Lender's reasonable out-of-pocket costs of obtaining such refund) to the Borrower. The repayment obligation arises within a reasonable period after the Lender's receipt of the refund.

This provision is an important borrower protection. It ensures that Lenders do not obtain an economic windfall from the gross-up mechanism — for example, if a Lender receives a gross-up payment from the Borrower and subsequently claims a foreign tax credit in its home jurisdiction for the underlying withheld tax, the Lender would be compensated twice for the same economic loss absent the refund provision. The refund provision requires the Lender to share the benefit of any such recovery with the Borrower.

We have two recommendations regarding the refund provision:

(i) Commercially Reasonable Efforts. We recommend that the Credit Agreement require each Lender to use "commercially reasonable efforts" to claim any available refund or credit attributable to Indemnified Taxes for which the Borrower has made a gross-up or indemnity payment. The current draft language provides that the Lender shall repay a refund "if" it determines that it has received one, but does not affirmatively obligate the Lender to seek such refund. This gap could permit a Lender to forego a refund claim (for reasons of administrative convenience or otherwise) while retaining the full benefit of the Borrower's gross-up payment.

(ii) Prompt Repayment. We recommend that the Credit Agreement require repayment of refund amounts within 30 days of the Lender's receipt of the refund, rather than "within a reasonable period." A specific timeframe provides greater certainty and discipline.

IX. Withholding Tax on Payments by IHDC Frankfurt (German Source Payments)

A. German Domestic Law

Under German domestic tax law, interest paid by a German corporate borrower (Kapitalgesellschaft) to unrelated third-party lenders on ordinary loan obligations is generally not subject to German withholding tax. This is a well-established principle of German tax law and stands in contrast to the withholding regimes applicable in many other jurisdictions. Germany's tax system generally imposes withholding tax (Kapitalertragsteuer) only on dividend distributions by German corporations and on certain specific categories of interest income, but not on arm's-length interest paid on standard bank loans or syndicated credit facilities.

The principal exceptions to this general rule are as follows:

Convertible Bonds and Profit-Participating Loans (*Gewinnschuldverschreibungen*). Under § 43 Abs. 1 Satz 1 Nr. 2 of the German Income Tax Act (Einkommensteuergesetz or "EStG"), interest paid on convertible bonds and profit-participating loans is subject to German withholding tax at a rate of 25% (plus 5.5% solidarity surcharge thereon, for an effective rate of approximately 26.375%). This exception applies to instruments where the return to the lender is linked to the borrower's profits or where the instrument contains a conversion feature into equity. The Term Loan under the Credit Agreement is a straight, non-convertible, non-profit-participating debt instrument bearing a fixed margin over a referenced benchmark rate (EURIBOR), and it contains no profit-participation feature or equity conversion right. Accordingly, this exception is not applicable.

Over-the-Counter Interest (*Tafelgeschäfte*). Interest paid on bearer instruments that are presented anonymously at a paying agent (Tafelgeschäft) is subject to withholding tax. This exception is directed at anonymous, unregistered bearer instruments and has no application to a registered syndicated loan facility in which the identity of each Lender is known and recorded by the Administrative Agent.

Based on the foregoing analysis, we conclude that no German withholding tax applies to interest payments made by IHDC Frankfurt under the EUR Sub-Tranche under current German law. This conclusion applies regardless of whether the recipient is a German-resident Lender (such as NordBrücke AG), a Lender resident in another EU member state, or a non-EU Lender.

B. EU Interest and Royalties Directive

The EU Interest and Royalties Directive (Council Directive 200

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 125 Broad Street New York, New York 10004
Matter Number: 1043-00001 Billing Code: IHDC-TLB-2024
MEMORANDUM
April 28, 2024
TO: Jonathan Pryce-Williams, General Counsel & Secretary, Ironhaven Data Centers LLC Natasha Greenfeld, Vice President, Treasury & Capital Markets, Ironhaven Data Centers LLC Rebecca Sung, Chief Financial Officer, Ironhaven Data Centers LLC
CC: Stephanie Okafor, Responsible Partner, Calderwood & Harkness LLP Daniel Obi, Lead Associate, Calderwood & Harkness LLP
FROM: Sylvia Hartwell, Partner, Tax, Calderwood & Harkness LLP Lisa Morrow, Associate, Banking & Finance, Calderwood & Harkness LLP
RE: Ironhaven Data Centers LLC — $950,000,000 Senior Secured Term Loan B Credit Agreement — Analysis of Tax Gross-Up, Tax Indemnity, and FATCA Provisions
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I. Executive Summary
This memorandum analyzes the tax gross-up and indemnity provisions contained in the Credit Agreement dated as of May 15, 2024 (the "Credit Agreement"), among Ironhaven Data Centers LLC, a Delaware limited liability company (the "Borrower" or "IHDC"), Ironhaven Frankfurt GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung) (the "Co-Borrower" or "IHDC Frankfurt"), Ironhaven Holdings Inc., a Delaware corporation (the "Parent Guarantor" or "Holdings"), Crescent Harbor Bank, N.A., as administrative agent (the "Administrative Agent"), Pinnacle Trust Company, N.A., as collateral agent (the "Collateral Agent"), and the several financial institutions and other persons from time to time party thereto as lenders (collectively, the "Lenders"). The Credit Agreement is governed by New York law and provides for a senior secured Term Loan B facility in the aggregate amount of $950,000,000, consisting of a U.S. Dollar-denominated tranche and a Euro-denominated sub-tranche. The purpose of this memorandum is to provide the Borrower's management team with a comprehensive analysis of the provisions governing the Borrower's tax gross-up obligations, the tax indemnity undertakings, the treatment of FATCA withholding, and the interaction of these provisions with the tax profiles of each of the seven Lenders in the syndicate.
Our principal conclusions and observations are as follows:
Tax Gross-Up Obligation. The Credit Agreement requires the Borrower (and Co-Borrower, with respect to Euro sub-tranche payments) to make additional payments to each Lender so that each Lender receives the full amount it would have received absent any deduction or withholding for "Indemnified Taxes." This obligation is iterative in nature — that is, the additional amounts themselves are subject to the gross-up formula, ensuring the Lender is made completely whole on an after-tax basis. This provision is broadly consistent with market practice for cross-border Term Loan B credit facilities.
Excluded Taxes Carve-Outs. The "Excluded Taxes" definition appropriately protects the Borrower from bearing the economic cost of grossing up on withholding taxes that are attributable to a Lender's own status, conduct, or failures. These carve-outs include, among others, (i) taxes imposed by reason of a Lender's connection with the taxing jurisdiction other than solely through the Loan Documents, (ii) taxes resulting from a Lender's failure to deliver required IRS tax documentation (including Forms W-8BEN-E, W-8ECI, W-8IMY, or W-9), (iii) U.S. branch profits taxes under IRC § 884, (iv) FATCA withholding under IRC §§ 1471–1474, and (v) taxes that would not have been imposed but for an assignment or participation by a Lender (unless such assignment was at the Borrower's request).
FATCA Provisions. The Credit Agreement creates a separate regime for withholding under FATCA (IRC §§ 1471–1474) that operates alongside the general gross-up mechanism but classifies FATCA withholding as an "Excluded Tax." This treatment is market-standard and appropriate, as FATCA compliance is within each Lender's control. As a result, the Borrower has no gross-up obligation for FATCA-related withholding, and any such withholding is borne entirely by the non-compliant Lender.
Lender-Specific Analysis. Of the seven Lenders in the syndicate, two are non-U.S. persons for U.S. federal income tax purposes: NordBrücke AG (a German Aktiengesellschaft regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht ("BaFin"), with a commitment of $150,000,000 allocated to the EUR sub-tranche) and Osprey Insurance Capital, Ltd. (a Bermuda exempted company, with a commitment of $75,000,000). Additionally, Pacific Rim Institutional Lending Corp. (a Delaware corporation that is a subsidiary of a Cayman Islands-domiciled CLO vehicle, with a commitment of $75,000,000) presents certain ancillary FATCA considerations by virtue of its upstream Cayman parent entity. The remaining four Lenders are U.S. persons with no material withholding tax exposure.
With respect to NordBrücke AG, the U.S.-Germany Income Tax Treaty (the "Treaty") provides for a 0% withholding rate on interest under Article 11, provided that NordBrücke AG qualifies as the beneficial owner of such interest, delivers a valid IRS Form W-8BEN-E claiming Treaty benefits, and satisfies the limitation-on-benefits ("LOB") provisions of Article 28 of the Treaty. We expect NordBrücke AG to qualify for Treaty benefits. With respect to Osprey Insurance Capital, Ltd., Bermuda does not have an income tax treaty with the United States. However, Osprey should be eligible for the portfolio interest exemption under IRC § 881(c), provided that the applicable conditions are met and a valid W-8BEN-E is delivered with the required certification. We recommend that the Borrower obtain and maintain current documentation from both non-U.S. Lenders.
Recommendations. This memorandum identifies five areas in which borrower-protective language refinements should be incorporated into the Credit Agreement before the final draft is circulated on May 1, 2024, as further detailed in Section XII below.
II. Transaction Overview and Relevant Parties
A. Facility Structure
The Credit Agreement provides for a senior secured Term Loan B credit facility in an aggregate principal amount of $950,000,000. The facility is structured as follows:
USD Tranche. The U.S. Dollar-denominated tranche has aggregate commitments of $675,000,000 and bears interest at a rate of Adjusted Term SOFR (as defined in the Credit Agreement) plus 425 basis points per annum, with a SOFR floor of 0.50%. Interest on the USD Tranche is payable quarterly in arrears.
EUR Sub-Tranche. The Euro-denominated sub-tranche has aggregate commitments of €253,571,429 (approximately $275,000,000 at a EUR/USD exchange rate of 1.0846 as of the date hereof) and bears interest at a rate of EURIBOR plus 425 basis points per annum, with a EURIBOR floor of 0.00%. Interest on the EUR Sub-Tranche is payable quarterly in arrears. The EUR Sub-Tranche is drawn by IHDC Frankfurt as Co-Borrower under the Credit Agreement.
Maturity. The maturity date of the facility is June 3, 2031, which is seven years from the anticipated Closing Date of June 3, 2024.
Original Issue discount. The Term Loans are being issued at an original issue discount of 99.50 (50 basis points), resulting in estimated net proceeds to the Borrower of approximately $945,250,000 (before giving effect to transaction fees and expenses).
Amortization. The facility amortizes at a rate of 1.00% per annum of the original aggregate principal amount, payable quarterly, resulting in quarterly amortization payments of approximately $2,375,000 in the aggregate.
CUSIP. The CUSIP assigned to the facility is 46283LAA5.
The facility is secured by a first-priority lien on substantially all of the assets of the Borrower and the Guarantors, including real property interests in Loudoun County, Virginia, intellectual property, and equity interests in the Borrower's domestic and foreign subsidiaries (subject to customary limitations on pledges of foreign subsidiary stock). The security package is further described in the separate Collateral Analysis Memorandum prepared by Daniel Obi.
B. Lender Syndicate and Tax Status
The syndicate consists of seven Lenders. The following table sets forth each Lender's commitment amount, entity type, jurisdiction of organization, and our preliminary determination of its U.S. federal income tax classification for purposes of the withholding tax analysis:
As a preliminary observation, four of the seven Lenders (Crescent Harbor Bank, Ridgeline National Bank, Marlowe Asset Management Meridian Capital, and Atlas Peak Credit Partners) are U.S. persons (or, in the case of Atlas Peak, a U.S. partnership with assumed U.S. partners) and therefore present no U.S. federal withholding tax exposure on interest payments under the Credit Agreement. The primary withholding tax analysis is directed at NordBrücke AG and Osprey Insurance Capital, Ltd. Pacific Rim Institutional Lending Corp. requires a separate, more limited analysis focused on FATCA implications arising from its Cayman Islands CLO parent structure.
We note that Marlowe Asset Management Meridian Capital, LLC and Atlas Peak Credit Partners, LP are both credit fund vehicles. Our analysis assumes that Marlowe Asset Management Meridian Capital has elected to be treated as a corporation for U.S. federal income tax purposes (or is otherwise not treated as a fiscally transparent entity with non-U.S. beneficial owners). If Marlowe Asset Management Meridian Capital is treated as a partnership with non-U.S. partners, withholding obligations would apply at the partner level, and additional analysis would be required. We understand from Crescent Harbor Bank's syndication desk that all equity investors in Marlowe Asset Management Meridian Capital are domestic U.S. institutional investors, but we recommend that the Borrower confirm this representation.
C. German Tax Considerations (Co-Borrower)
IHDC Frankfurt GmbH (Steuernummer 045/127/98321; USt-IdNr. DE347891205), which serves as the Co-Borrower under the EUR Sub-Tranche, is organized as a German Gesellschaft mit beschränkter Haftung (limited liability company) with its registered office in Frankfurt am Main, Germany. As the obligor on the EUR Sub-Tranche, IHDC Frankfurt will make interest and principal payments directly to the Lenders participating in that tranche (principally NordBrücke AG, which has been allocated the entire €253,571,429 EUR Sub-Tranche commitment).
Under German domestic tax law, interest on ordinary loan obligations paid by a German corporate borrower to unrelated third-party lenders is generally not subject to German withholding tax (Kapitalertragsteuer). Germany does not impose withholding tax on arm's-length interest payments on standard debt instruments, in contrast to many other jurisdictions. This favorable treatment extends to payments made to both German-resident and non-German-resident Lenders.
There are limited exceptions to this general rule. First, interest paid on convertible bonds, profit-participating loans (Gewinnschuldverschreibungen), and similar instruments may be subject to German withholding tax at a rate of 25% (plus 5.5% solidarity surcharge thereon, for an effective rate of approximately 26.375%). However, the Term Loan is a straight, non-convertible debt instrument bearing a fixed-margin interest rate and is not profit-participating in any respect. Therefore, this exception is not applicable. Second, so-called "over-the-counter" (Tafelgeschäfte) interest — interest paid on bearer instruments presented anonymously at a paying agent — is subject to withholding, but this exception is likewise inapplicable given the registered form of the Term Loan and the institutional nature of the syndicate.
We note for completeness that the German trade tax (Gewerbesteuer) treatment of interest expense is relevant to IHDC Frankfurt's overall tax burden. Under § 8 Nr. 1 lit. a of the German Trade Tax Act (Gewerbesteuergesetz or "GewStG"), 25% of interest expense on long-term debt is added back to the trade tax base. While this provision increases the effective cost of borrowing for IHDC Frankfurt, it is not a withholding tax and does not implicate the gross-up or indemnity provisions of the Credit Agreement. We address this matter in greater detail in the Transfer Pricing / Intercompany Loan Memorandum, which analyzes the arm's-length terms of any on-lending arrangement between IHDC (as Borrower under the USD Tranche) and IHDC Frankfurt (as Co-Borrower under the EUR Sub-Tranche and as a wholly-owned subsidiary of IHDC).
III. Analysis of "Indemnified Taxes" Definition
A. Scope of Indemnified Taxes
The Credit Agreement defines "Indemnified Taxes" as follows:
"Indemnified Taxes" means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document, and (b) to the extent not otherwise described in clause (a), Other Taxes.
This definition is the linchpin of the Borrower's gross-up and indemnity obligations under the Credit Agreement. It establishes the universe of taxes for which the Borrower (and the Co-Borrower, Holdings, and any other Loan Party) bears economic responsibility vis-à-vis the Lenders. Its scope is intentionally broad: it captures all taxes imposed on or with respect to payments under the Loan Documents, subject only to the specifically enumerated carve-outs in the "Excluded Taxes" definition (analyzed in Section IV below).
The practical effect of this definition is to encompass:
• U.S. federal withholding taxes imposed under IRC §§ 871(a) and 881(a) on payments of interest (and certain other amounts) to non-U.S. Lenders, as collected through the withholding mechanisms of IRC §§ 1441 and 1442. The statutory withholding rate is 30%, subject to reduction under an applicable income tax treaty or the portfolio interest exemption.
• German withholding taxes, to the extent any are imposed on payments by IHDC Frankfurt under the EUR Sub-Tranche. As discussed in Section II.C above, no German withholding tax is currently applicable to ordinary loan interest paid by a German corporate borrower, but the definition would capture any such tax that may be imposed in the future (e.g., through a change in German law).
• Other Taxes, which the Credit Agreement separately defines to include all present or future stamp, court, documentary, intangible, recording, filing, and similar taxes that arise from the execution, delivery, performance, enforcement, or registration of any Loan Document. This sub-category is addressed in Section X below.
• State and local income taxes, to the extent imposed on payments under the Loan Documents (though we note that state-level withholding on loan interest is uncommon and would generally constitute an "Excluded Tax" if arising from the Lender's own nexus with the taxing state).
The definition is structured in the negative — it captures all "Taxes" other than "Excluded Taxes." The defined term "Taxes" itself is defined broadly in the Credit Agreement to include "all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto." This layered definitional structure is standard in Loan Syndications and Trading Association ("LSTA") model credit agreements for leveraged loan transactions.
B. Practical Impact on Borrower
The Indemnified Taxes definition creates a direct economic exposure for the Borrower in circumstances where withholding is required on payments to Lenders under the Credit Agreement. The practical significance of this exposure is best illustrated by reference to the two non-U.S. Lenders in the syndicate.
If withholding is required on interest payments to NordBrücke AG or Osprey Insurance Capital, Ltd., and the relevant tax constitutes an "Indemnified Tax" (i.e., it is not excluded as an "Excluded Tax"), the Borrower must pay additional amounts to ensure that the relevant Lender receives the full contractual interest payment net of all deductions and withholdings. The financial impact can be substantial.
Illustrative Calculation. Assume that the applicable rate of U.S. federal withholding tax is 30% (the statutory rate under IRC § 881(a)) and that the Borrower is required to make a quarterly interest payment of $X to a non-U.S. Lender. In order to ensure that the Lender receives $X after withholding, the Borrower must pay a grossed-up amount of $X / (1 – 0.30), or approximately $1.4286 × $X. This represents a 42.86% increase in the Borrower's payment obligation as compared to the scenario in which no withholding applies. The additional amount is itself subject to withholding, which is why the formula uses the reciprocal (1 / (1 – rate)) rather than a simple additive calculation.
However, this worst-case scenario is substantially mitigated in practice. With respect to NordBrücke AG, Treaty benefits under the U.S.-Germany Income Tax Treaty should reduce the applicable withholding rate to 0%, provided that NordBrücke AG delivers valid Treaty documentation and satisfies the LOB requirements. With respect to Osprey Insurance Capital, Ltd., the portfolio interest exemption under IRC § 881(c) should similarly eliminate withholding, provided the applicable conditions are met. These exemptions and their conditions are analyzed in detail in Section VI below.
In each case, the availability of the reduced rate or exemption is conditioned on the Lender's delivery of proper tax documentation (principally, IRS Form W-8BEN-E). If a Lender fails to deliver such documentation, any resulting withholding tax is classified as an "Excluded Tax" under the Credit Agreement, and the Borrower has no gross-up obligation. This documentation requirement is the Borrower's principal backstop against unanticipated withholding exposure and underscores the importance of maintaining a robust documentation compliance program, as discussed further in Section XIII below.
IV. Analysis of "Excluded Taxes" Definition
A. Categories of Excluded Taxes
The "Excluded Taxes" definition in the Credit Agreement establishes the specific categories of taxes for which the Borrower bears no gross-up or indemnity obligation. Each carve-out is designed to address a circumstance in which the imposition of tax is attributable to the Lender's own status, conduct, or failure, rather than to the Borrower's payment obligations. The following is a detailed analysis of each category:
1. Connection-Based Taxes. The first category excludes taxes imposed on or measured by the net income (however denominated), franchise taxes, and branch profits taxes of a Lender, in each case, (i) imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such tax (other than connections arising solely from such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced any Loan Document), or (ii) that are Other Connection Taxes.
The rationale for this exclusion is straightforward: if a Lender is subject to taxation in a particular jurisdiction because of its own business activities, branch presence, or other connections with that jurisdiction (independent of its participation as a Lender under the Credit Agreement), the Borrower should not bear the economic cost of such taxes. For example, if NordBrücke AG were to establish a U.S. branch office through which it conducted its lending activities under the Credit Agreement, any U.S. federal income tax or branch profits tax imposed on NordBrücke AG by reason of that branch would be an Excluded Tax. The mere fact that NordBrücke AG is a party to the Credit Agreement does not, by itself, create a taxable "connection" that would trigger this exclusion.
2. Branch Profits Taxes and Equivalents. The second category specifically identifies the U.S. federal branch profits tax under IRC § 884 and any similar tax imposed by any other jurisdiction. IRC § 884 imposes a 30% tax (subject to treaty reduction) on the "dividend equivalent amount" of a foreign corporation's effectively connected earnings and profits attributable to a U.S. branch. This is a second level of tax, analogous to the dividend withholding tax that would apply if the foreign corporation conducted its U.S. business through a U.S. subsidiary. Because the branch profits tax is attributable to the Lender's decision to operate through a U.S. branch (rather than to the Borrower's payment obligations), it is appropriately classified as an Excluded Tax.
We note that NordBrücke AG's commitment is allocated entirely to the EUR Sub-Tranche funded by IHDC Frankfurt, which may limit the extent to which interest received by NordBrücke AG constitutes U.S.-source income effectively connected with a U.S. trade or business. Nevertheless, the branch profits tax exclusion provides a useful belt-and-suspenders protection for the Borrower.
3. Taxes Attributable to Lender's Failure to Comply with Documentation Requirements. The third category — and, from the Borrower's perspective, perhaps the most important — excludes any tax that would not have been imposed but for the failure of a Lender to comply with the documentation requirements set forth in the Credit Agreement (specifically, the provisions requiring delivery of IRS Forms W-8BEN-E, W-8ECI, W-8IMY, or W-9, as applicable). The Credit Agreement requires each Lender to deliver such documentation at closing, upon a change in circumstances that renders previously delivered documentation materially inaccurate, and upon the reasonable request of the Borrower or the Administrative Agent.
The practical effect of this exclusion is significant. If, for example, NordBrücke AG fails to deliver a valid Form W-8BEN-E claiming Treaty benefits, the Borrower (or the Administrative Agent, as withholding agent) would be required to withhold at the 30% statutory rate on interest payments to NordBrücke AG. However, because this withholding would not have been required but for NordBrücke AG's documentation failure, the resulting tax would be classified as an Excluded Tax, and the Borrower would have no gross-up obligation. The same analysis applies to Osprey Insurance Capital, Ltd., which must deliver a valid Form W-8BEN-E to claim the portfolio interest exemption.
4. FATCA Withholding. The fourth category excludes any U.S. federal withholding taxes imposed under FATCA — specifically, IRC §§ 1471 through 1474, as in effect as of the date of the Credit Agreement (or any amended or successor version that is substantively comparable), any current or future regulations or official interpretations thereof, and any agreement entered into pursuant to IRC § 1471(b)(1). This exclusion is analyzed in detail in Section VII below.
5. Taxes Imposed on Assignees and Participants. The fifth category excludes taxes that would not have been imposed but for an assignment of, or participation in, a Lender's commitment or loans — unless such assignment or participation was made at the request of the Borrower. This exclusion is critical in the secondary market context and is analyzed in Section XI below.
B. Borrower-Protective Function
Taken together, the Excluded Taxes carve-outs serve an essential borrower-protective function: they ensure that the Borrower's gross-up and indemnity obligations are limited to taxes that arise from the Borrower's own payment obligations and are not attributable to circumstances within the Lender's control. This allocation of risk reflects the fundamental principle that the gross-up mechanism is designed to protect Lenders from expropriation by taxing authorities, but only in circumstances where the Lender has done everything within its power to mitigate the withholding.
The documentation-failure exclusion is of particular practical importance. NordBrücke AG and Osprey Insurance Capital, Ltd. are each required to deliver valid Forms W-8BEN-E at closing and to update such forms as required by law and by the Credit Agreement. If either Lender fails to do so, the economic consequence of withholding falls squarely on that Lender, not on the Borrower. This creates a powerful incentive for each non-U.S. Lender to maintain current and accurate tax documentation.
We note one area warranting additional attention: the Credit Agreement should be reviewed to confirm that the "assignment" carve-out in clause (5) above encompasses all secondary market transfers, including transfers executed through the LSTA standard form assignment and assumption agreement, sub-participations, and assignments made in connection with a CLO collateral manager's exercise of discretion. If a U.S. Lender assigns its position to a non-U.S. assignee, the Borrower should not bear the incremental withholding cost attributable to that assignment. This issue is addressed further in Section XI.
V. Tax Gross-Up Mechanics
A. Obligation to Gross Up
The gross-up provision of the Credit Agreement provides, in relevant part, as follows:
If any Loan Party shall be required by applicable law to deduct or withhold any Indemnified Tax from any payment made by such Loan Party under any Loan Document, then (i) such Loan Party shall make such deductions or withholdings, (ii) such Loan Party shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law, and (iii) the sum payable by such Loan Party shall be increased as necessary so that after all required deductions and withholdings have been made (including deductions and withholdings applicable to additional sums payable under this Section), the applicable Recipient receives an amount equal to the sum it would have received had no such deductions or withholdings been made.
This provision imposes three distinct obligations on the Borrower (and any other Loan Party making payments under the Loan Documents). First, the Borrower must make the required deduction or withholding. Second, the Borrower must remit the withheld amount to the appropriate governmental authority. Third, the Borrower must pay an additional amount (the "gross-up") sufficient to ensure that the Lender receives, net of all deductions and withholdings, the full amount it would have received had no deduction or withholding been required. The obligation applies to both IHDC (with respect to USD Tranche payments) and IHDC Frankfurt (with respect to EUR Sub-Tranche payments).
It is important to note that the gross-up obligation is iterative. The parenthetical clause — "including deductions and withholdings applicable to additional sums payable under this Section" — makes clear that the gross-up amount itself is subject to the gross-up formula. In other words, if the additional payment is itself subject to withholding, the Borrower must pay a further additional amount to ensure the Lender receives the full contractual entitlement. This iterative structure results in the mathematical formula described below.
B. Payment and Reporting Mechanics
The Credit Agreement establishes specific procedural requirements for the payment and reporting of withheld taxes:
Timely Remittance. The Borrower must remit all withheld amounts to the relevant governmental authority — in the case of U.S. federal withholding taxes, the Internal Revenue Service; in the case of German taxes, the Bundeszentralamt für Steuern or other applicable German fiscal authority — in accordance with the time periods prescribed by applicable law. For U.S. federal withholding taxes, the withheld amounts must generally be deposited with the IRS by the 15th day of the month following the month in which the withholding occurred, using IRS Form 1042 and accompanying schedules.
Evidence of Payment. Within 30 days after the date of any payment of Indemnified Taxes, the Borrower must deliver to the Administrative Agent (Crescent Harbor Bank, N.A., Attention: Thomas Beckett, Assistant Vice President, Agency Services) evidence reasonably satisfactory to the Administrative Agent that such taxes have been paid. Such evidence typically consists of a certified copy of the tax receipt issued by the relevant governmental authority, the return reporting such payment (e.g., IRS Form 1042-S), or other documentation reasonably requested by the Administrative Agent.
Distribution to Affected Lenders. The Administrative Agent is responsible for distributing copies of tax receipts and payment evidence to the affected Lenders. This distribution is important for the Lenders' own tax compliance and record-keeping purposes, as Lenders may be entitled to claim a foreign tax credit or deduction for the withheld taxes in their home jurisdictions.
C. Interaction with Interest Rate
The gross-up obligation operates on top of the contractual interest rate. The Lenders are entitled to receive SOFR + 425 basis points per annum (on the USD Tranche) or EURIBOR + 425 basis points per annum (on the EUR Sub-Tranche) free and clear of all Indemnified Taxes. The gross-up could significantly increase the Borrower's effective interest cost if Treaty benefits are unavailable or documentation lapses.
The following worked example illustrates the potential magnitude of the gross-up obligation in a scenario where the 30% statutory withholding rate applies:
Worked Example: Osprey Insurance Capital, Ltd.
• Commitment: $75,000,000
• Entity Type: Bermuda exempted company (non-U.S. person; no U.S. income tax treaty)
• Assumed SOFR Rate: 5.33%
• Applicable Margin: 4.25% (425 basis points)
• All-in Interest Rate: 9.58% per annum
• Quarterly Interest Payment (before withholding): $75,000,000 × 9.58% / 4 = $1,795,500
• Assumed U.S. Federal Withholding Rate: 30%
• Withholding Amount: $1,795,500 × 30% = $538,650
• Required Gross-Up Additional Payment (iterative): $1,795,500 / (1 – 0.30) = $2,565,000 (total payment including gross-up); Additional amount = $2,565,000 – $1,795,500 = $769,500
• Verification: Withholding on $2,565,000 = $2,565,000 × 30% = $769,500; Net to Osprey = $2,565,000 – $769,500 = $1,795,500
• Total Quarterly Cost to Borrower: $2,565,000 vs. $1,795,500 without gross-up
• Incremental Cost: $769,500 per quarter ($3,078,000 annualized)
• Percentage Increase: approximately 42.86%
This scenario assumes, conservatively, that Osprey Insurance Capital, Ltd. cannot claim the portfolio interest exemption under IRC § 881(c). As discussed in Section VI.C below, Osprey should be eligible for the portfolio interest exemption, which would reduce the applicable withholding rate to 0% and eliminate the gross-up obligation entirely. Nevertheless, the worked example illustrates the magnitude of the potential exposure if the exemption is unavailable or if Osprey fails to deliver the required documentation.
We note that the effective cost increase calculated above (42.86%) is mathematically equivalent to the formula 0.30 / (1 – 0.30) = 42.86%. This formula reflects the iterative nature of the gross-up: the additional payment is itself subject to withholding, which generates a further additional payment, and so on. The algebraic resolution of this infinite series produces the formula $X / (1 – t), where $X is the original payment and t is the withholding rate.
VI. Portfolio Interest Exemption Analysis
A. Statutory Framework — IRC § 881(c)
IRC § 881(c) provides an exemption from the 30% withholding tax imposed by IRC § 881(a) on certain interest income received by foreign persons from sources within the United States. To qualify for the exemption, the interest must be paid on an obligation that constitutes a "portfolio debt obligation" within the meaning of IRC § 871(h)(2). A portfolio debt obligation is generally defined as any obligation (i) that is in "registered form" (as defined in IRC § 163(f)) and (ii) with respect to which the beneficial owner of the interest has provided the withholding agent with a statement certifying that the beneficial owner is not a United States person.
Several important exclusions apply:
(a) 10% Shareholder Exclusion. The portfolio interest exemption does not apply to interest received by a person who owns (directly, indirectly, or by attribution) 10% or more of the total combined voting power of all classes of stock of the borrower entitled to vote.
(b) Controlled Foreign Corporation Exclusion. The exemption does not apply to interest received by a controlled foreign corporation that is related to the borrower within the meaning of IRC § 864(d)(4).
(c) Bank Exclusion. Under IRC § 881(c)(3)(A), the exemption does not apply to interest received by a bank on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business.
(d) Contingent Interest Exclusion. The exemption does not apply to "contingent interest" described in IRC § 871(h)(4).
The Term Loan under the Credit Agreement is maintained in registered form, as evidenced by the register maintained by the Administrative Agent (Crescent Harbor Bank, N.A.) in its capacity as registrar. The interest is not contingent — it is calculated at a fixed margin over a referenced benchmark rate (SOFR or EURIBOR) and does not depend on the Borrower's income, cash flows, or other variable measures. Accordingly, the registered-form and non-contingent interest requirements are satisfied for all Lenders.
B. Application to NordBrücke AG
NordBrücke AG is a German licensed credit institution (Kreditinstitut) regulated by BaFin and subject to the German Banking Act (Kreditwesengesetz or "KWG"). As a regulated banking institution, NordBrücke AG falls squarely within the "bank exclusion" of IRC § 881(c)(3)(A), which provides that the portfolio interest exemption does not apply to interest received by a "bank" on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of the bank's trade or business. The IRS and courts have interpreted the term "bank" broadly in this context, and it extends to foreign banks that would be treated as banks if organized in the United States. There is no serious question that NordBrücke AG, as a BaFin-regulated Aktiengesellschaft engaged in commercial lending, qualifies as a "bank" for this purpose.
Therefore, NordBrücke AG cannot rely on the portfolio interest exemption to reduce or eliminate U.S. federal withholding tax on interest received under the Credit Agreement. NordBrücke AG must instead rely on the U.S.-Germany Income Tax Treaty (the "Treaty") for relief from withholding.
Under Article 11 of the Treaty, interest arising in the United States and paid to a resident of Germany is generally exempt from U.S. withholding tax (i.e., the Treaty rate is 0%), provided that:
(i) the recipient is the beneficial owner of the interest;
(ii) the recipient is a resident of Germany within the meaning of the Treaty (Article 4);
(iii) the recipient satisfies the limitation-on-benefits ("LOB") provisions of Article 28 of the Treaty; and
(iv) the recipient provides a valid IRS Form W-8BEN-E to the withholding agent, claiming the Treaty benefit with respect to the interest income and certifying its LOB qualification.
We expect NordBrücke AG to satisfy all of these conditions. As a publicly traded German Aktiengesellschaft regulated by BaFin and domiciled in Frankfurt am Main, NordBrücke AG should have no difficulty qualifying as a "resident" of Germany for Treaty purposes and satisfying the LOB requirements under Article 28 (likely qualifying under the "publicly traded company" or "active trade or business" test, and almost certainly under the "derivative benefits" test available to companies owned by Treaty-country residents). We recommend that NordBrücke AG's W-8BEN-E be reviewed to confirm that it includes the appropriate Treaty claim and LOB certification.
If the Treaty benefit applies, the applicable withholding rate on interest paid to NordBrücke AG is 0%, and no gross-up obligation is triggered. If NordBrücke AG fails to deliver a valid Form W-8BEN-E or the Treaty benefit is otherwise unavailable, the 30% statutory withholding rate would apply. However, in the latter case, the resulting withholding tax would constitute an Excluded Tax under the Credit Agreement (as a tax attributable to the Lender's failure to comply with documentation requirements), and the Borrower would not be required to gross up. In either scenario, the Borrower bears no economic exposure with respect to NordBrücke AG, provided the Credit Agreement's Excluded Taxes definition is properly drafted.
C. Application to Osprey Insurance Capital, Ltd.
Osprey Insurance Capital, Ltd. is a Bermuda exempted company. There is no income tax treaty between the United States and Bermuda (Bermuda does not impose income tax and therefore has no treaty network for income tax purposes). Accordingly, Osprey cannot rely on a treaty to reduce U.S. federal withholding tax on interest received under the Credit Agreement. The portfolio interest exemption under IRC § 881(c) is Osprey's sole potential avenue for relief.
We analyze each of the conditions for the portfolio interest exemption as applied to Osprey:
(i) 10% Shareholder Test. Osprey Insurance Capital, Ltd. is a Lender only and does not hold any equity interest in IHDC, Holdings, or any of their affiliates. Osprey is not a 10% shareholder within the meaning of IRC § 871(h)(3) / § 881(c)(3)(B). This condition is satisfied.
(ii) Controlled Foreign Corporation Test. Osprey is not a controlled foreign corporation related to IHDC within the meaning of IRC § 864(d)(4). This condition is satisfied.
(iii) Registered Form Test. The Term Loan is in registered form, as evidenced by the register maintained by the Administrative Agent. This condition is satisfied.
(iv) Statement/Certification Requirement. Osprey must provide to the withholding agent (the Borrower or the Administrative Agent, as applicable) an IRS Form W-8BEN-E that includes the required statement under IRC § 871(h)(5) and Treasury Regulation § 1.871-14(c), certifying under penalties of perjury that the beneficial owner of the interest is not a United States person. This condition is within Osprey's control and should be satisfied at closing.
(v) Bank Exclusion. IRC § 881(c)(3)(A) excludes from the portfolio interest exemption interest received by a "bank" on an extension of credit made in the ordinary course of the bank's trade or business. Osprey Insurance Capital, Ltd. is a Bermuda exempted company that we understand operates as an insurance capital and credit investment vehicle. It is not, based on the information available to us, a deposit-taking institution, a bank, or a banking institution within the meaning of IRC § 881(c)(3)(A) or applicable Treasury Regulations. We note that the IRS has applied the "bank" exclusion to foreign financial institutions engaged in banking activities (including accepting deposits and making loans in the ordinary course of business), but the exclusion does not extend to non-bank financial entities such as insurance companies, hedge funds, or credit funds that make loans as part of an investment strategy rather than a banking business. Accordingly, we believe that Osprey should not be treated as a "bank" for this purpose, though this conclusion depends on the factual characterization of Osprey's business activities. We recommend obtaining a factual representation from Osprey confirming that it is not engaged in a banking trade or business.
If the portfolio interest exemption applies, the applicable withholding rate on interest paid to Osprey is 0%, and no gross-up obligation is triggered. If the exemption is unavailable (e.g., because Osprey is determined to be a "bank," or because Osprey fails to deliver the required certification), the full 30% statutory withholding rate would apply. In the case of a documentation failure, the resulting tax would be an Excluded Tax and the Borrower would bear no gross-up obligation. However, if the exemption were unavailable for a substantive reason (e.g., Osprey is a "bank"), the resulting withholding would constitute an Indemnified Tax, and the Borrower would be required to gross up — an exposure of approximately $3,078,000 per year on Osprey's $75,000,000 commitment, as illustrated in the worked example in Section V.C above.
Recommendation. We recommend that the Borrower (i) obtain and maintain a current IRS Form W-8BEN-E from Osprey Insurance Capital, Ltd. claiming the portfolio interest exemption, (ii) obtain a factual representation from Osprey confirming that it does not conduct a banking trade or business within the meaning of IRC § 881(c)(3)(A), and (iii) include in the Credit Agreement an explicit representation by Osprey that it qualifies for the portfolio interest exemption.
D. Application to Pacific Rim Institutional Lending Corp.
Pacific Rim Institutional Lending Corp. is a Delaware corporation and is therefore treated as a U.S. person for U.S. federal income tax purposes. No withholding tax applies to payments of interest by the Borrower to a U.S. person. Accordingly, there is no gross-up exposure on interest payments made directly to Pacific Rim.
However, we note that Pacific Rim is a wholly-owned subsidiary of a Cayman Islands-domiciled CLO vehicle. While this upstream ownership structure does not affect the withholding analysis for payments made directly to Pacific Rim (which, as a domestic corporation, provides a Form W-9), it does give rise to certain FATCA considerations, which are analyzed in Section VII.C below.
No portfolio interest exemption analysis is required for Pacific Rim, as it is a U.S. person.
VII. FATCA Provisions — IRC §§ 1471–1474
A. Overview of FATCA Withholding Regime
The Foreign Account Tax Compliance Act ("FATCA"), codified at IRC §§ 1471 through 1474 and effective in phases since 2014, imposes a 30% withholding tax on certain "withholdable payments" made to foreign financial institutions ("FFIs") and non-financial foreign entities ("NFFEs") that do not comply with FATCA's information reporting and agreement requirements. "Withholdable payments" include U.S.-source interest income, which encompasses interest paid under the Credit Agreement.
FATCA operates through a dual compliance framework. First, FFIs must enter into an agreement with the IRS (an "FFI Agreement") under which they agree to identify and report certain information about U.S. accounts held by U.S. persons (or entities with substantial U.S. owners). Second, the United States has entered into intergovernmental agreements ("IGAs") with numerous foreign jurisdictions, under which foreign financial institutions in those jurisdictions comply with FATCA through their home-country tax authorities, rather than entering into individual FFI Agreements with the IRS. There are two models of IGAs: Model 1 IGAs (under which the foreign jurisdiction agrees to collect FATCA information and exchange it with the IRS) and Model 2 IGAs (under which FFIs in the foreign jurisdiction agree to report directly to the IRS, with the foreign jurisdiction facilitating the process).
If an FFI or NFFE fails to comply with FATCA — for example, by failing to enter into an FFI Agreement, failing to register as a FATCA-compliant entity, or failing to provide the required documentation — withholding agents (including the Borrower and the Administrative Agent) are required to withhold 30% of any withholdable payment made to such entity.
B. Credit Agreement Treatment of FATCA
The Credit Agreement classifies FATCA withholding as an Excluded Tax. As a consequence, the Borrower has no gross-up obligation for any FATCA-related withholding tax. This treatment is consistent with prevailing market practice in leveraged loan transactions and is, in our view, appropriate. FATCA compliance is within each Lender's control — each Lender can avoid FATCA withholding by entering into the requisite agreements, registering on the IRS FATCA registration portal, and providing the required documentation to the withholding agent. There is no basis for requiring the Borrower to bear the economic cost of a Lender's failure to satisfy these requirements.
The relevant Credit Agreement language provides:
"For purposes of this Agreement, 'Excluded Taxes' include … any U.S. federal withholding Taxes imposed under Sections 1471 through 1474 of the Code (or any amended or successor version thereof that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code."
This language is comprehensive and, notably, extends to any "amended or successor version" of FATCA that is "substantively comparable and not materially more onerous to comply with." This future-proofing language protects the Borrower against the risk that a technical amendment to FATCA could remove it from the Excluded Tax definition.
C. FATCA Analysis for Specific Lenders
1. NordBrücke AG (German FFI). Germany has entered into a Model 1 IGA with the United States. Under the Model 1 IGA, German financial institutions such as NordBrücke AG comply with FATCA by reporting through the German Federal Central Tax Office (Bundeszentralamt für Steuern or "BZSt") rather than directly to the IRS. NordBrücke AG, as a major BaFin-regulated credit institution, is expected to be fully FATCA-compliant under the German IGA framework. NordBrücke AG's IRS Form W-8BEN-E should include its FATCA status certification, indicating that it is a "Reporting Model 1 FFI" and providing its GIIN (Global Intermediary Identification Number). Provided that NordBrücke AG maintains its FATCA-compliant status (which, for a major German bank, is effectively a certainty), no FATCA withholding will apply to payments under the Credit Agreement.
2. Osprey Insurance Capital, Ltd. (Bermuda Entity). Bermuda has entered into a Model 2 IGA with the United States. Under the Model 2 IGA, financial institutions in Bermuda are required to register as "participating FFIs" or to establish an applicable FATCA-exempt status. Osprey Insurance Capital, Ltd. must either (a) register with the IRS as a participating FFI and obtain a GIIN, (b) qualify as a "deemed-compliant FFI" under the Treasury Regulations (e.g., as a qualified collective investment vehicle, restricted fund, or similar category), or (c) qualify as an NFFE and provide the required NFFE certification on its Form W-8BEN-E.
Osprey's FATCA status depends on the nature of its business and its classification under the Bermuda IGA and applicable Treasury Regulations. If Osprey is classified as an FFI (which is likely if it is in the business of investing in financial assets), it must be a participating or registered-deemed-compliant FFI. If Osprey fails to comply with FATCA — for example, by failing to register as a participating FFI or failing to provide a valid GIIN — 30% FATCA withholding would apply to interest payments made to Osprey. However, as noted above, any such FATCA withholding would be classified as an Excluded Tax under the Credit Agreement, and the Borrower would have no gross-up obligation. The economic loss would fall entirely on Osprey.
3. Pacific Rim Institutional Lending Corp. (U.S. Corporation with Cayman CLO Parent). Pacific Rim is a Delaware corporation and is treated as a U.S. person for all purposes, including FATCA. Payments of interest by the Borrower (or the Administrative Agent, on behalf of the Borrower) to Pacific Rim are not "withholdable payments" for FATCA purposes, because withholdable payments include only payments to non-U.S. persons (specifically, FFIs and NFFEs). Pacific Rim should provide a Form W-9, certifying its status as a U.S. person, and no FATCA withholding analysis is required at the Pacific Rim level.
We note, however, that the upstream Cayman CLO vehicle that owns Pacific Rim is a foreign entity organized in the Cayman Islands. The Cayman Islands have entered into a Model 1 IGA with the United States. If the Cayman CLO vehicle receives payments from Pacific Rim (e.g., dividends, interest on intercompany debt, or other distributions), those payments could be subject to FATCA withholding at the Cayman CLO level if the CLO vehicle is not FATCA-compliant. However, this upstream FATCA exposure does not directly affect the Borrower's obligations under the Credit Agreement, because the Borrower's payments are made directly to Pacific Rim (a U.S. person), not to the Cayman CLO vehicle. To the extent there is any risk that the Administrative Agent might be directed to make payments through or to the Cayman parent, or that Pacific Rim could be disregarded for FATCA purposes, the Borrower should obtain confirmation from Pacific Rim that it is not a disregarded entity for any purposes and that all payments under the Credit Agreement will be made directly to Pacific Rim's U.S. bank account.
4. U.S. Lenders (Crescent Harbor Bank, N.A.; Ridgeline National Bank; Marlowe Asset Management Meridian Capital, LLC; Atlas Peak Credit Partners, LP). All four of these Lenders are U.S. persons. FATCA withholding does not apply to payments to U.S. persons. Each of these Lenders is required to deliver an IRS Form W-9 to the Administrative Agent at closing, certifying its U.S. taxpayer identification number and its exemption from backup withholding. No FATCA exposure exists with respect to these Lenders.
D. Recommended Borrower Protections Regarding FATCA
While the Credit Agreement's classification of FATCA withholding as an Excluded Tax is appropriate and sufficient in most scenarios, we recommend the following additional borrower protections:
First, the Borrower should confirm that the Credit Agreement requires each Lender to deliver all FATCA-related documentation (including, as applicable, a valid Form W-8BEN-E with FATCA status certification and GIIN) at closing and upon the reasonable request of the Borrower or the Administrative Agent. The documentation obligation should be annual or at such more frequent intervals as may be required by applicable law or Treasury Regulations.
Second, the Borrower should confirm that the Excluded Tax treatment of FATCA withholding is unconditional and survives any assignment of a Lender's commitment or loans. There should be no circumstance in which an assignment transforms FATCA withholding from an Excluded Tax into an Indemnified Tax.
Third, we recommend adding explicit language providing that no Lender may assign its commitment or loans to an assignee that is not FATCA-compliant at the time of assignment, or, if it does, the assigning Lender remains responsible for any FATCA withholding until the assignee achieves FATCA-compliant status. This language would prevent the externalization of FATCA withholding risk onto the Borrower through secondary market transactions to non-compliant assignees. This recommendation is discussed further in Recommendation 4 in Section XII.D below.
VIII. Tax Indemnity Provisions
A. Scope of Tax Indemnity
The Credit Agreement contains a tax indemnity provision that is separate from, and in addition to, the gross-up obligation described in Section V above. Under this provision, each Loan Party (including the Borrower, the Co-Borrower, and the Parent Guarantor) agrees to indemnify each Lender, the Administrative Agent, and the Collateral Agent for the full amount of any Indemnified Taxes (including Other Taxes) paid by such party, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority. The indemnity obligation arises within 10 business days after written demand therefor is delivered by the indemnified party.
The tax indemnity provision serves a complementary function to the gross-up. While the gross-up addresses withholding taxes deducted at the time of payment, the indemnity covers situations in which:
(a) Indemnified Taxes are assessed or imposed after the payment has been made (e.g., a tax authority asserts that withholding should have been made on a prior payment, and the Lender is required to pay the tax directly);
(b) The gross-up was insufficient to make the Lender whole (e.g., due to a miscalculation or a change in tax rates between the time of payment and the time of assessment);
(c) Other Taxes (stamp, documentary, intangible, recording, or similar taxes) are imposed on or with respect to the Loan Documents, which are not subject to the gross-up mechanism (as they are not withholding taxes) but are nonetheless Indemnified Taxes under the Credit Agreement.
B. Limitations and Protections
The tax indemnity is subject to several important limitations that protect the Borrower from unbounded exposure:
Indemnified Taxes Only. The indemnity is limited to Indemnified Taxes and does not extend to Excluded Taxes. Accordingly, all of the carve-outs described in Section IV above apply equally to the indemnity obligation. If a tax is classified as an Excluded Tax (e.g., FATCA withholding, documentation-failure-related withholding, connection-based taxes), the Borrower has no indemnity obligation with respect to such tax.
Statute of Limitations / Stale Claim Defense. We recommend that the Credit Agreement include a provision requiring any Lender seeking indemnification under the tax indemnity clause to submit its written demand within 180 days of becoming aware of the tax liability giving rise to the claim. If such a provision is not included in the current draft, we strongly recommend that it be added. This limitation protects the Borrower from stale, retroactive claims that may be asserted months or years after the underlying tax event, at which point the Borrower may have limited ability to investigate or contest the claim. We have reviewed the April 18, 2024 counter-draft from Blackthorn & Sundial Software and note that this provision was included in our borrower draft (April 5, 2024) but was deleted in the agent's counter-draft. We recommend that the Borrower insist on its reinstatement.
"Correctly or Legally Imposed" Language. The Credit Agreement provides that the indemnity applies "whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority." This is a standard market provision in LSTA-form credit agreements, and its effect is to prevent the Borrower from raising the validity or correctness of the underlying tax assessment as a defense to the indemnity obligation. While this provision shifts risk to the Borrower, it is balanced by the Excluded Taxes definition, which ensures that the Borrower is only indemnifying taxes that arise from the Borrower's payment obligations (not from the Lender's own conduct or status). As a practical matter, this provision eliminates the need for the Borrower to engage in costly and time-consuming disputes with foreign taxing authorities regarding the validity of tax assessments.
C. Refund and Credit Provisions
The Credit Agreement includes a refund provision that operates as a claw-back mechanism in favor of the Borrower. If a Lender determines, in its sole discretion exercised in good faith, that it has received a refund (including a credit against any tax liability) attributable to an Indemnified Tax for which the Borrower has previously made a gross-up payment or indemnity payment, the Lender shall repay the amount of such refund (net of the Lender's reasonable out-of-pocket costs of obtaining such refund) to the Borrower. The repayment obligation arises within a reasonable period after the Lender's receipt of the refund.
This provision is an important borrower protection. It ensures that Lenders do not obtain an economic windfall from the gross-up mechanism — for example, if a Lender receives a gross-up payment from the Borrower and subsequently claims a foreign tax credit in its home jurisdiction for the underlying withheld tax, the Lender would be compensated twice for the same economic loss absent the refund provision. The refund provision requires the Lender to share the benefit of any such recovery with the Borrower.
We have two recommendations regarding the refund provision:
(i) Commercially Reasonable Efforts. We recommend that the Credit Agreement require each Lender to use "commercially reasonable efforts" to claim any available refund or credit attributable to Indemnified Taxes for which the Borrower has made a gross-up or indemnity payment. The current draft language provides that the Lender shall repay a refund "if" it determines that it has received one, but does not affirmatively obligate the Lender to seek such refund. This gap could permit a Lender to forego a refund claim (for reasons of administrative convenience or otherwise) while retaining the full benefit of the Borrower's gross-up payment.
(ii) Prompt Repayment. We recommend that the Credit Agreement require repayment of refund amounts within 30 days of the Lender's receipt of the refund, rather than "within a reasonable period." A specific timeframe provides greater certainty and discipline.
IX. Withholding Tax on Payments by IHDC Frankfurt (German Source Payments)
A. German Domestic Law
Under German domestic tax law, interest paid by a German corporate borrower (Kapitalgesellschaft) to unrelated third-party lenders on ordinary loan obligations is generally not subject to German withholding tax. This is a well-established principle of German tax law and stands in contrast to the withholding regimes applicable in many other jurisdictions. Germany's tax system generally imposes withholding tax (Kapitalertragsteuer) only on dividend distributions by German corporations and on certain specific categories of interest income, but not on arm's-length interest paid on standard bank loans or syndicated credit facilities.
The principal exceptions to this general rule are as follows:
Convertible Bonds and Profit-Participating Loans (*Gewinnschuldverschreibungen*). Under § 43 Abs. 1 Satz 1 Nr. 2 of the German Income Tax Act (Einkommensteuergesetz or "EStG"), interest paid on convertible bonds and profit-participating loans is subject to German withholding tax at a rate of 25% (plus 5.5% solidarity surcharge thereon, for an effective rate of approximately 26.375%). This exception applies to instruments where the return to the lender is linked to the borrower's profits or where the instrument contains a conversion feature into equity. The Term Loan under the Credit Agreement is a straight, non-convertible, non-profit-participating debt instrument bearing a fixed margin over a referenced benchmark rate (EURIBOR), and it contains no profit-participation feature or equity conversion right. Accordingly, this exception is not applicable.
Over-the-Counter Interest (*Tafelgeschäfte*). Interest paid on bearer instruments that are presented anonymously at a paying agent (Tafelgeschäft) is subject to withholding tax. This exception is directed at anonymous, unregistered bearer instruments and has no application to a registered syndicated loan facility in which the identity of each Lender is known and recorded by the Administrative Agent.
Based on the foregoing analysis, we conclude that no German withholding tax applies to interest payments made by IHDC Frankfurt under the EUR Sub-Tranche under current German law. This conclusion applies regardless of whether the recipient is a German-resident Lender (such as NordBrücke AG), a Lender resident in another EU member state, or a non-EU Lender.
B. EU Interest and Royalties Directive
The EU Interest and Royalties Directive (Council Directive 200

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