1015-00001 · Graymont Brothers Inc · Debt & Lender Consents

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, NY 10022

C&H Matter No. 1015-00001

INTERNAL MEMORANDUM

May 10, 2022

TO: Jennifer Kwon, Responsible Partner, Capital Markets

FROM: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets

RE: Lender Consent Analysis — Veltrano National Bank Corporate Credit Facility in Connection with Proposed Initial Public Offering of Calloway-Briggs Renewables Inc.

COPIES: Leonard Cross, Specialist Partner, Tax Sandra Haverford, General Counsel & Corporate Secretary, CBR Priya Anand, SVP, Finance & Treasurer, CBR

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I. Executive Summary

This memorandum sets forth our analysis of the Credit Agreement dated as of January 15, 2021 (as amended by the First Amendment dated July 22, 2021, the "Credit Agreement"), among Calloway-Briggs Operating Company LLC, as Borrower, Calloway-Briggs Renewables Inc. ("CBR" or the "Company") and CBR Holdings LLC, as Guarantors, the Lenders party thereto, and Veltrano National Bank, as Administrative Agent, Collateral Agent, Swingline Lender, and L/C Issuer ("Veltrano" or the "Administrative Agent"). The purpose of this memorandum is to identify all provisions of the Credit Agreement that are triggered by, or otherwise implicated by, the proposed initial public offering (the "IPO") of shares of common stock of CBR, par value $0.01 per share, on the New York Stock Exchange (the "NYSE"), with an aggregate anticipated offering size of approximately $600,000,000 (including greenshoe).

The Credit Agreement governs two principal credit facilities extended to the Borrower: (1) a Corporate Revolving Credit Facility (the "Revolver") with aggregate commitments of $400,000,000, maturing January 2027; and (2) a Corporate Term Loan B (the "Term Loan B") with an original aggregate principal amount of $650,000,000, of which $612,500,000 is currently outstanding, maturing January 2029. Both facilities are administered by Veltrano National Bank in its capacity as Administrative Agent. The key contact at Veltrano for purposes of the consent process is Thomas Raines, Managing Director, Energy Lending, located at 1401 McKinney Street, Houston, Texas 77010.

Our principal conclusions are as follows:

(a) The IPO will implicate the change-of-control provision set forth in the Credit Agreement and, although our technical analysis suggests that the definition of "Change of Control" should not be triggered given that the Permitted Holders will retain majority voting control following the IPO in both the base and full overallotment scenarios, the prudent course of action is to obtain an affirmative consent or waiver from Veltrano (acting at the direction of the Required Lenders) prior to the consummation of the IPO. This approach eliminates any ambiguity, particularly with respect to the "group" concept and the interpretation of "beneficial ownership" under the Credit Agreement.

(b) The proposed $200,000,000 voluntary prepayment of the Term Loan B from IPO proceeds requires compliance with the voluntary prepayment mechanics set forth in the Credit Agreement, including the delivery of three business days' prior written notice to the Administrative Agent and the payment of a 1.00% prepayment premium applicable to prepayments made during the first two years following the January 15, 2021 closing date. The prepayment premium on a $200,000,000 prepayment would be $2,000,000, for a total prepayment amount of $202,000,000.

(c) Certain restricted payment covenants, reporting and notice covenants, affiliate transaction covenants, and additional debt limitations in the Credit Agreement are implicated by the IPO and related transactions and require careful analysis, as set forth in detail in Sections IV through VIII of this memorandum. In particular, we recommend confirming whether the Credit Agreement contains an equity issuance sweep provision that could mandate the application of a portion of net equity issuance proceeds to reduce the Term Loan B in excess of the contemplated voluntary $200,000,000 prepayment.

(d) Provided the consent is obtained in advance and the prepayment mechanics are properly followed, no Event of Default should result from the IPO itself.

Recommendation. We recommend that the Company promptly engage Thomas Raines at Veltrano National Bank to request consent to the IPO and a waiver of the change-of-control provision. A draft consent request letter and a draft form of consent have been prepared as companion documents to this memorandum and are available for review by Sandra Haverford and Priya Anand. We further recommend that the consent solicitation process be initiated as soon as a decision is made to reactivate the IPO, as the process typically requires 10 to 15 business days to complete.

II. Background

A. The Credit Agreement

The relevant credit facility is governed by that certain Credit Agreement dated as of January 15, 2021 (the "Original Credit Agreement"), among Calloway-Briggs Operating Company LLC, a Texas limited liability company, as Borrower (the "Borrower"), Calloway-Briggs Renewables Inc., a Delaware corporation ("CBR"), and CBR Holdings LLC, a Delaware limited liability company ("CBR Holdings"), each as a Guarantor, the Lenders from time to time party thereto (the "Lenders"), and Veltrano National Bank, a national banking association, as Administrative Agent, Collateral Agent, Swingline Lender, and L/C Issuer (in such capacity, the "Administrative Agent").

The Original Credit Agreement was amended by the First Amendment to Credit Agreement dated as of July 22, 2021 (the "First Amendment" and, together with the Original Credit Agreement, the "Credit Agreement"). The First Amendment effected two principal modifications: (i) an increase in the aggregate Revolver commitments from $350,000,000 to $400,000,000, and (ii) the addition of incremental Term Loan B commitments, which brought the total Term Loan B principal to its current funded amount. All references herein to the "Credit Agreement" are to the Original Credit Agreement as amended by the First Amendment, unless otherwise noted.

The Credit Agreement is governed by the laws of the State of New York, without regard to conflicts-of-law principles (other than Section 5-1401 of the New York General Obligations Law).

Borrower. The Borrower under the Credit Agreement is Calloway-Briggs Operating Company LLC, a Texas limited liability company. The Borrower is a wholly owned subsidiary of CBR Holdings LLC, which is in turn wholly owned by CBR. The Borrower is the principal operating subsidiary of the CBR group and holds, directly and indirectly, the Company's operating assets (other than certain project-level assets held by special purpose vehicles).

Guarantors. CBR, as the ultimate parent company, and CBR Holdings LLC, as the intermediate holding company, each serve as Guarantors under the Credit Agreement. Their guaranty obligations are joint and several and extend to all obligations of the Borrower under the Credit Agreement and related loan documents.

Security. The obligations under the Credit Agreement are secured by a first-priority lien on substantially all assets of the Borrower and the Guarantors, subject to certain customary exclusions. Importantly, the security package excludes project-level assets pledged under separate project-finance facilities maintained by the Company's special purpose vehicle subsidiaries. The security package includes a pledge of 100% of the equity interests in CBR Holdings LLC (held by CBR) and 100% of the equity interests in Calloway-Briggs Operating Company LLC (held by CBR Holdings LLC).

B. The Proposed IPO

CBR proposes to conduct an initial public offering of shares of its common stock, par value $0.01 per share, on the NYSE under the proposed ticker symbol "CBRI." The aggregate anticipated offering size is approximately $600,000,000, inclusive of shares subject to the underwriters' option to purchase additional shares (the "greenshoe" or "overallotment option"). The assumed midpoint offering price is $22.00 per share.

The offering consists of both a primary component and a secondary component. The primary offering will generate approximately $371,700,000 in net proceeds to the Company (at the base offering, before overallotment exercise and after deducting underwriting discounts, commissions, and estimated offering expenses). The secondary offering component involves the sale of approximately 6,818,182 shares by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), the Company's controlling stockholder, generating approximately $150,000,000 in gross proceeds to Pinnacle Vista. The Company will not receive any proceeds from the sale of shares by Pinnacle Vista in the secondary offering.

Pre-IPO and Post-IPO Capitalization. Immediately prior to the IPO, CBR has 100,000,000 shares of common stock outstanding. Following the base offering (assuming no exercise of the overallotment option), CBR will have approximately 123,713,636 shares outstanding. If the underwriters exercise the overallotment option in full, CBR will have approximately 127,272,727 shares outstanding.

Pre-IPO Ownership. Prior to the IPO, the ownership of CBR common stock is as follows:

Intended Use of Proceeds. The Company intends to use the primary net proceeds from the IPO as follows: (i) approximately $200,000,000 to repay a portion of the outstanding Term Loan B principal; (ii) approximately $100,000,000 to fund a portion of the construction costs of the Cimarron Solar project; and (iii) approximately $71,700,000 for general corporate purposes, including working capital.

Current Status. We note that the IPO was placed in dormant status on June 17, 2022 due to adverse market conditions. This analysis has been prepared in anticipation of a potential reactivation of the offering when market conditions improve. All action items and deliverables identified herein will need to be refreshed and confirmed upon a decision to recommence the IPO process.

C. Existing Debt Structure Overview

The following table summarizes the Company's principal outstanding indebtedness as of the date of this memorandum:

This memorandum addresses only the Corporate Credit Facility governed by the Credit Agreement (i.e., the Revolver and the Term Loan B). The project-finance facilities with Prairie Commercial Bank, N.A. and the tax-equity partnership arrangement with Veltara Basin Financial LLC are the subject of separate memoranda referenced in Section XIII below.

III. Change-of-Control Provision — Detailed Analysis

A. Definition of "Change of Control"

The Credit Agreement defines "Change of Control" as the occurrence of any of the following events:

(i) any "person" or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Permitted Holders shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 35% of the outstanding Voting Equity Interests of CBR (the parent guarantor);

(ii) the Permitted Holders shall cease to hold, directly or indirectly, at least a majority (greater than 50%) of the outstanding Voting Equity Interests of CBR;

(iii) CBR shall cease to own, directly or indirectly, 100% of the Equity Interests in CBR Holdings LLC or 100% of the Equity Interests in Calloway-Briggs Operating Company LLC; or

(iv) during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of CBR shall be occupied by persons who were neither (A) nominated by, or appointed with the approval of, a majority of the directors of CBR at the beginning of such period nor (B) nominated by, or appointed with the approval of, directors so nominated or approved.

Each of these prongs is analyzed below in the context of the proposed IPO.

The Credit Agreement defines "Permitted Holders" as follows:

"Permitted Holders" means (a) Pinnacle Vista Capital Partners III, LP and its Affiliates (including Pinnacle Vista Capital Management LLC and any successor fund vehicles managed or advised by Pinnacle Vista Capital Management LLC or its Affiliates), (b) the Founders (defined as Garrett Calloway and Elaine Briggs) and their respective Immediate Family Members (as defined in Rule 16a-1 under the Exchange Act) and any trusts, partnerships, limited liability companies, or other entities for the benefit of, or the ownership interests of which are owned by, any of the foregoing, and (c) any "group" (within the meaning of Section 13(d)(3) of the Exchange Act) the members of which include any of the Persons described in clauses (a) and (b) above, so long as such Persons described in clauses (a) and (b) above, collectively, beneficially own Voting Equity Interests representing more than 50% of the total Voting Equity Interests beneficially owned by such group.

The inclusion of clause (c) in the Permitted Holders definition is significant because it provides that any group that includes Pinnacle Vista and/or the Founders will be treated as a Permitted Holder so long as they collectively control more than 50% of the voting power held by such group. This provision is designed to accommodate typical post-IPO scenarios where a sponsor and founder group may be deemed to constitute a "group" with other stockholders.

B. Impact of the IPO on the Change-of-Control Definition

We analyze each prong of the Change of Control definition below in the context of the proposed IPO.

Prong (i) — Acquisition of More Than 35% by a Non-Permitted Holder. The IPO involves the issuance of new shares of CBR common stock to public investors and the sale of existing shares by Pinnacle Vista in the secondary offering. Following the IPO, public stockholders will hold a significant block of CBR's outstanding shares. However, dispersed public stockholders who acquire shares in a public offering do not, absent an express agreement among them to act in concert, constitute a "person" or "group" within the meaning of Section 13(d)(3) of the Exchange Act. This is well-established under both SEC interpretive guidance and judicial precedent. See, e.g., Ostrander & Co., 286 F.3d 613 (2d Cir. 2002) (holding that a "group" requires an agreement among members to act together for the purpose of acquiring, holding, voting, or disposing of equity securities).

Accordingly, the mere fact that public stockholders in the aggregate will hold more than 35% of CBR's outstanding shares following the IPO should not trigger prong (i) of the Change of Control definition. No single non-Permitted Holder investor, acting alone, is expected to acquire more than 35% of CBR's outstanding Voting Equity Interests in the IPO. We note, however, that this analysis assumes that the underwriters' customary lock-up agreements will be in effect and that no single investor or fund complex will receive an allocation in excess of 35% of CBR's post-IPO shares.

Notwithstanding this conclusion, we flag that the Credit Agreement's reference to "beneficial ownership" is stated to have the meaning set forth in Rule 13d-3 under the Exchange Act, which is a relatively expansive definition. To the extent that any anchor investor or cornerstone investor receives a significant allocation in the IPO, the beneficial ownership analysis should be revisited. Based on current underwriting plans as described in the S-1 drafts, no single non-Permitted Holder investor is expected to hold more than 5% of the post-IPO shares, and this prong should not be implicated.

Prong (ii) — Permitted Holders Ceasing to Hold Majority Voting Equity. This prong is the focus of our quantitative analysis. We set forth below the post-IPO ownership of the Permitted Holders under both the base offering scenario and the full overallotment exercise scenario.

Base Offering (No Overallotment Exercise):

• Pre-IPO Pinnacle Vista shares: ~62,000,000

• Less: Pinnacle Vista secondary offering shares: (6,818,182)

• Post-IPO Pinnacle Vista shares: ~55,181,818

• Post-IPO total shares outstanding: 123,713,636

• Pinnacle Vista post-IPO ownership: 55,181,818 ÷ 123,713,636 = ~44.6%

• Post-IPO Founders and Management shares: ~24,000,000

• Combined Permitted Holders (Pinnacle Vista + Founders): 55,181,818 + 24,000,000 = ~79,181,818

• Combined Permitted Holders post-IPO ownership: 79,181,818 ÷ 123,713,636 = ~64.0%

Full Overallotment Exercise:

• Post-IPO Pinnacle Vista shares: ~55,181,818 (unchanged; overallotment shares are primary)

• Post-IPO total shares outstanding: 127,272,727

• Pinnacle Vista post-IPO ownership: 55,181,818 ÷ 127,272,727 = ~43.4%

• Combined Permitted Holders: ~79,181,818

• Combined Permitted Holders post-IPO ownership: 79,181,818 ÷ 127,272,727 = ~62.2%

Conclusion on Prong (ii): In both the base offering and full overallotment exercise scenarios, the Permitted Holders (Pinnacle Vista and the Founders, collectively) will continue to hold in excess of 50% of the outstanding Voting Equity Interests of CBR following the IPO. Accordingly, prong (ii) of the Change of Control definition should not be triggered by the IPO. However, we note that this analysis is dependent on the final pricing, offering size, and secondary sale volume. If the offering size were to be materially increased or if Pinnacle Vista were to increase the number of secondary shares sold, this analysis would need to be updated. Additionally, to the extent any Founders sell shares in the IPO (which is not currently contemplated), the combined Permitted Holder percentage would decrease and should be recalculated.

We further note that Pinnacle Vista's ownership percentage, standing alone, will fall below 50% after the IPO (to approximately 44.6% in the base scenario). While the Change of Control definition looks to the Permitted Holders collectively (not Pinnacle Vista alone), the decline in Pinnacle Vista's individual ownership below 50% is relevant for purposes of the Amended and Restated Stockholders' Agreement, which contains board designation right step-downs linked to Pinnacle Vista's individual ownership levels. This dynamic is discussed further in the board composition analysis below.

Prong (iii) — Ownership of Subsidiary Equity Interests. The IPO involves the issuance and sale of shares of CBR common stock at the parent company level. It does not involve any transfer, sale, or other disposition of the equity interests in CBR Holdings LLC or Calloway-Briggs Operating Company LLC. Following the IPO, CBR will continue to own, directly, 100% of the equity interests in CBR Holdings LLC, and CBR Holdings LLC will continue to own, directly, 100% of the equity interests in Calloway-Briggs Operating Company LLC. This prong of the Change of Control definition is clearly not triggered.

Additionally, the sale of secondary shares by Pinnacle Vista in the IPO represents a transfer of CBR-level equity (common stock of the publicly traded parent company), not a transfer of subsidiary-level equity interests. This distinction is important and ensures that the secondary offering does not implicate prong (iii).

Prong (iv) — Board Composition. The Amended and Restated Stockholders' Agreement between CBR, Pinnacle Vista, and certain other stockholders provides Pinnacle Vista with the right to designate members of CBR's Board of Directors, subject to a step-down schedule tied to Pinnacle Vista's ownership percentage. The current Board of Directors consists of seven (7) members:

Following the IPO, the Board is expected to expand to nine (9) members with the addition of two independent directors to satisfy NYSE listing standards and SEC audit committee requirements. All current directors will remain in place. Accordingly, there will be no change in a majority of the Board seats, and prong (iv) of the Change of Control definition is not triggered.

We note that the three existing independent directors (Dr. Okoro, Mr. Liang, and Ms. Estavez) were originally nominated and appointed by the Board with the approval of a majority of the then-existing directors (including the Pinnacle Vista designees and the Founders). Accordingly, even if one were to argue that the post-IPO board composition reflects a shift from sponsor-controlled to independent-majority governance, the continuity-of-approval chain under prong (iv) is maintained because each independent director was nominated or approved by existing directors.

Analysis of Other Potential Triggering Events. We have also considered whether the IPO could constitute a "Fundamental Change," "Disposition," or other triggering event under the Credit Agreement beyond the Change of Control definition. The Credit Agreement defines "Disposition" (or "Dispose") to mean any sale, transfer, assignment, or other disposition of assets or equity interests. The issuance of new shares by CBR is not a "Disposition" — it is the creation and sale of new equity interests by the issuer, not the transfer of existing assets. Similarly, the secondary sale by Pinnacle Vista is a sale of CBR parent-level equity by a stockholder, not a disposition of assets by the Borrower or any Guarantor.

The Credit Agreement does not contain a separate definition of "Fundamental Change" (which is more commonly found in convertible note indentures). Accordingly, we conclude that the IPO does not constitute a Disposition or other triggering event independent of the Change of Control analysis.

C. Consequences of a Change of Control

If a Change of Control were to occur without the prior consent of the Required Lenders (or, if the change-of-control provision is a "sacred right" under the Credit Agreement, without the consent of each Lender), the consequences would be severe:

(i) Event of Default. The occurrence of a Change of Control constitutes an immediate Event of Default under the Credit Agreement. Unlike certain indenture-style "put right" constructs where a change of control merely triggers a repurchase offer, the Credit Agreement treats a Change of Control as a hard Event of Default.

(ii) Acceleration. Upon the occurrence of an Event of Default, the Administrative Agent (at the direction of the Required Lenders) may declare all outstanding obligations immediately due and payable. As of the date of this memorandum, the outstanding Term Loan B principal is $612,500,000. Any amounts drawn under the Revolver (current balance to be confirmed with Priya Anand) would also be subject to acceleration. Accrued and unpaid interest, fees, and other obligations would become immediately due.

(iii) Termination of Commitments. The Administrative Agent may terminate the unused Revolver commitments, eliminating the Company's access to the $400,000,000 revolving credit facility.

(iv) Enforcement Against Collateral. The Collateral Agent (Veltrano, in its capacity as Collateral Agent) may exercise remedies against the pledged collateral, including the pledge of equity interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC, as well as the security interest in substantially all assets of the Borrower and the Guarantors. Foreclosure on the pledged equity interests could result in a loss of control over the Borrower and the entire operating subsidiary structure.

(v) Mandatory Prepayment. We note that certain credit agreements, particularly term loan B facilities arranged for sponsor-backed companies, include a mandatory prepayment obligation upon a Change of Control at par plus accrued interest (sometimes with a "put" right at 101% of par). We are reviewing the Credit Agreement to confirm whether such a mandatory prepayment provision exists in addition to the Event of Default remedy. If the Credit Agreement provides for a Change of Control mandatory prepayment at 101%, this would represent an additional obligation of approximately $6,186,250 (1% of $618,625,000, including accrued interest) in addition to the full repayment of outstanding principal and accrued amounts.

Cross-Default Implications. An Event of Default under the Corporate Credit Facility could trigger cross-default provisions under the Company's other debt instruments. Specifically:

• The Mesquite Wind project-finance facility ($165,000,000) with Prairie Commercial Bank, N.A. contains a cross-default provision that is triggered upon the occurrence of a payment default or acceleration event under any Material Indebtedness of the Borrower, any Guarantor, or any Affiliate of the Borrower exceeding a threshold amount (typically $25,000,000 to $50,000,000). The Corporate Credit Facility exceeds any reasonable threshold amount, and an acceleration thereunder would almost certainly constitute a cross-default under the Mesquite Wind facility.

• The Cimarron Solar project-finance facility ($143,000,000) with Prairie Commercial Bank, N.A. contains a substantially similar cross-default provision.

• The Solaris West tax-equity partnership ($280,000,000) with Veltara Basin Financial LLC may contain cross-default or cross-acceleration provisions, which are addressed in a separate memorandum.

The cascading cross-default risk underscores the critical importance of obtaining the Veltrano consent prior to the IPO. A failure to do so could jeopardize not only the Corporate Credit Facility but also the Company's project-level financing arrangements, with potential aggregate exposure in excess of $1.7 billion.

D. Recommendation. Even though our technical analysis suggests that the Permitted Holders will retain majority voting control of CBR following the IPO in both the base and full overallotment scenarios, and that no prong of the Change of Control definition should be technically triggered, we strongly recommend that the Company obtain an affirmative written consent from Veltrano National Bank (as Administrative Agent, acting at the direction of the Required Lenders) prior to the consummation of the IPO. This recommendation is based on the following considerations:

First, the "group" concept under Section 13(d)(3) of the Exchange Act has been the subject of evolving SEC interpretive guidance and judicial interpretation. While dispersed public stockholders are generally not considered a "group," the Credit Agreement's incorporation of this concept introduces a degree of interpretive risk that is best addressed through an affirmative consent rather than reliance on a legal conclusion that could be challenged.

Second, the Credit Agreement's definition of "beneficial ownership" (incorporated by reference to Rule 13d-3 under the Exchange Act) is broader than the concept of record ownership and includes shares as to which a person has voting power or investment power, whether direct or indirect. To the extent that any institutional investor receiving an IPO allocation has other holdings or relationships that could be aggregated under Rule 13d-3, an inadvertent triggering of prong (i) is theoretically possible.

Third, the consequences of a Change of Control under the Credit Agreement are extraordinarily severe — Event of Default, acceleration, commitment termination, and collateral enforcement — and the cross-default risk amplifies the potential damage exponentially. The cost of obtaining a consent (Administrative Agent fee of $25,000 to $50,000 and internal transaction costs) is de minimis relative to the risk being mitigated.

Fourth, the consent process provides an opportunity to address other IPO-related matters with Veltrano simultaneously, including the organizational document amendments, the notice requirements, and any equity issuance sweep provisions. A single, comprehensive consent package is more efficient and creates a cleaner record than piecemeal notices and waivers.

Draft consent request letter and consent form have been prepared as companion documents. See Section XIII (Cross-Reference to Related Memoranda and Documents).

IV. Restricted Payment Covenants

A. Overview of Restricted Payment Basket

The Credit Agreement contains a negative covenant restricting the Borrower and the Guarantors from making "Restricted Payments," which are defined to include:

(a) the declaration or payment of any dividend or the making of any other distribution (whether in cash, property, or obligations) on account of any Equity Interest in the Borrower or any Guarantor (other than dividends or distributions payable in additional Equity Interests of the same class);

(b) the purchase, redemption, retirement, defeasance, or other acquisition for value of any Equity Interest in the Borrower or any Guarantor;

(c) any voluntary payment, prepayment, purchase, redemption, defeasance, or other acquisition for value of any Subordinated Indebtedness (as defined in the Credit Agreement); and

(d) any Investment (as defined in the Credit Agreement) other than a Permitted Investment.

The Restricted Payments covenant is subject to a general prohibition with enumerated exceptions (a "basket" structure). The specific permitted exceptions and the builder basket mechanics are discussed below as relevant to the IPO.

Application to the IPO. The IPO itself — i.e., the issuance and sale of new shares of CBR common stock by CBR in exchange for cash — is not a Restricted Payment. It is a capital-raising transaction at the parent guarantor level that results in an increase in CBR's equity capitalization and cash resources. The issuance of new equity interests for cash is the opposite of a Restricted Payment; it is an equity contribution to the corporate enterprise. Accordingly, the IPO does not require analysis under the Restricted Payments covenant.

However, several transactions related to the IPO or occurring in connection with the IPO do require analysis under the Restricted Payments covenant, as discussed in the following subsections.

B. Use of Proceeds — Term Loan B Prepayment ($200,000,000)

The Company's intended use of approximately $200,000,000 of primary IPO proceeds to prepay a portion of the outstanding Term Loan B principal is not a Restricted Payment. A voluntary prepayment of indebtedness owed to the Lenders under the Credit Agreement is a payment to the lenders themselves and is affirmatively beneficial to the credit profile of the Borrower and the Guarantors. It reduces outstanding indebtedness, lowers interest expense, and improves leverage ratios. The voluntary prepayment is governed by the prepayment provisions of the Credit Agreement (not the Restricted Payments covenant), which are summarized below.

Voluntary Prepayment Mechanics. Section 2.05(a) of the Credit Agreement governs voluntary prepayments of Term Loans. The key provisions are as follows:

Minimum Prepayment Amount. Voluntary prepayments of Term Loans must be in a minimum principal amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof (or, if less, the entire remaining principal balance). The proposed $200,000,000 prepayment satisfies this requirement.

Notice Period. The Borrower must provide the Administrative Agent with irrevocable written notice of a voluntary prepayment at least three (3) Business Days prior to the proposed prepayment date (or one (1) Business Day in the case of Base Rate Loans). The notice must specify the prepayment date, the principal amount to be prepaid, and whether the prepayment applies to Eurodollar Rate Loans (now SOFR Loans, as applicable) or Base Rate Loans. Given the size of the prepayment and the likelihood that a significant portion of the Term Loan B outstanding balance bears interest at the SOFR rate, the three-Business Day notice period will apply.

Prepayment Premium. The Credit Agreement provides for a prepayment premium (sometimes referred to as a "call protection" or "soft call" premium) applicable to voluntary prepayments of the Term Loan B made during the first two (2) years following the Closing Date. The Closing Date is January 15, 2021. Accordingly, the prepayment premium window runs through January 15, 2023. Assuming the IPO pricing occurs prior to January 15, 2023 (which was the expectation prior to the dormancy decision), the 1.00% prepayment premium would be applicable. The prepayment premium calculation is straightforward:

$200,000,000 × 1.00% = $2,000,000

The total amount payable in connection with the voluntary prepayment would therefore be $202,000,000 (principal of $200,000,000 plus prepayment premium of $2,000,000), plus any accrued and unpaid interest on the prepaid principal through the prepayment date and any applicable breakage costs if the prepayment does not occur on the last day of an Interest Period for SOFR Loans.

Application of Prepayment. The Credit Agreement provides that voluntary prepayments of the Term Loan B shall be applied to the remaining scheduled amortization payments in direct order of maturity (i.e., applied first to the next scheduled amortization installment and then sequentially to each subsequent installment). Some credit agreements permit the Borrower to direct the application of voluntary prepayments on a pro rata basis across remaining installments or in inverse order of maturity. We are confirming whether the Credit Agreement affords the Borrower any discretion in directing the application of the $200,000,000 prepayment across the remaining amortization schedule.

We note that if the IPO is reactivated after January 15, 2023, the prepayment premium would no longer be applicable, and the voluntary prepayment would be at par plus accrued interest only. This represents a potential saving of $2,000,000 and should be considered in the timing analysis for reactivation.

C. Dividend Policy — Post-IPO Restrictions

The Company's draft Registration Statement on Form S-1 discloses that CBR does not anticipate paying any cash dividends on its common stock for the foreseeable future following the IPO. This disclosure is consistent with the Restricted Payment covenant in the Credit Agreement, which significantly limits the Company's ability to make cash distributions on its equity interests.

Under the Credit Agreement, dividends and other distributions on the Equity Interests of the Borrower or any Guarantor are permitted only if each of the following conditions is satisfied:

(i) no Default or Event of Default exists at the time of such Restricted Payment or would result therefrom;

(ii) the Total Net Leverage Ratio, calculated on a pro forma basis after giving effect to such Restricted Payment, does not exceed the applicable maximum ratio set forth in the financial covenants section of the Credit Agreement (the specific ratio threshold is set forth in Section XI below); and

(iii) the aggregate amount of all Restricted Payments made in any fiscal year does not exceed the "Available Amount," which is a builder basket based on cumulative Excess Cash Flow (as defined in the Credit Agreement) from and after the Closing Date, plus the net proceeds of equity issuances and capital contributions received after the Closing Date, minus Restricted Payments previously made in reliance on the Available Amount.

Since CBR does not intend to pay dividends in the near term, these limitations are not expected to present an immediate issue. However, if the Company contemplates initiating a dividend program in the future (e.g., as part of a capital return strategy following deleveraging), compliance with the Restricted Payment covenant will need to be carefully monitored.

Pinnacle Vista Management-Services Agreement. We note that the Company has a management-services agreement with Pinnacle Vista Capital Management LLC pursuant to which the Company pays an annual management fee of $2,400,000. This fee is expected to terminate upon the closing of the IPO, as is customary for sponsor management-services agreements in connection with an IPO. We understand that the management fee has been characterized as a Permitted Payment under the Credit Agreement (likely as an Affiliate transaction within the permitted basket or as an operating expense rather than a Restricted Payment). The termination of this agreement upon the IPO closing should not raise any issues under the Credit Agreement, but we recommend confirming with Sandra Haverford and Priya Anand that the termination does not trigger any termination payment or accelerated fee obligation that could itself constitute a Restricted Payment.

D. Equity Issuance Sweep / Mandatory Prepayment from Equity Proceeds

A critical open item in our analysis is whether the Credit Agreement contains a mandatory prepayment provision requiring the application of net proceeds from equity issuances to reduce the outstanding Term Loan B balance. Such provisions, commonly referred to as "equity issuance sweeps" or "equity clawbacks," are found in a significant number of leveraged credit agreements, particularly those with Term Loan B tranches.

A typical equity issuance sweep requires the Borrower to apply 50% (or, in some cases, 75% or 100%) of the net cash proceeds from any issuance of Equity Interests (other than proceeds from employee equity incentive plans, equity cures, and certain other customary exceptions) to the mandatory prepayment of the Term Loans. If the Credit Agreement contains such a provision, the implications for the IPO would be significant:

• Assuming net primary proceeds of approximately $371,700,000 (after underwriting discounts, commissions, and estimated offering expenses), a 50% equity issuance sweep would require a mandatory prepayment of approximately $185,850,000.

• If the mandatory prepayment amount exceeds $200,000,000 (which could occur at higher sweep percentages or if net proceeds are higher than estimated), the Company would be required to apply additional IPO proceeds to debt reduction beyond the voluntary $200,000,000 prepayment.

• Conversely, if the mandatory prepayment amount is less than $200,000,000 (as in the 50% sweep scenario), the voluntary $200,000,000 prepayment would satisfy the mandatory prepayment obligation and then some, as voluntary prepayments are typically credited against mandatory prepayment obligations.

If no equity issuance sweep exists in the Credit Agreement, the $200,000,000 voluntary prepayment is purely discretionary and satisfies the Company's intended use of proceeds as disclosed in the S-1. The remaining primary proceeds ($171,700,000) would be available for the Cimarron Solar construction funding ($100,000,000) and general corporate purposes ($71,700,000) without any mandatory debt reduction obligation.

Recommendation. We are in the process of completing our review of the mandatory prepayment provisions of the Credit Agreement to confirm the presence or absence of an equity issuance sweep. This is identified as a high-priority open item in Section XIV below. If an equity issuance sweep is present, we will calculate the mandatory prepayment amount and advise on whether a waiver should be sought in the event the Company does not wish to apply additional proceeds beyond $200,000,000 to debt reduction.

V. Reporting and Notice Covenants

A. Notice of Material Events

The Credit Agreement contains an affirmative covenant requiring the Borrower to provide the Administrative Agent with prompt written notice (within five (5) Business Days after a Responsible Officer of the Borrower becomes aware thereof) of the occurrence of any of the following:

(a) any Default or Event of Default;

(b) any event, development, or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect;

(c) the filing of any suit, action, or proceeding against the Borrower or any Subsidiary involving a potential liability in excess of $10,000,000 (or such other threshold as specified in the Credit Agreement);

(d) any material change in accounting policies or financial reporting practices; and

(e) any other event or development that is material to the business, financial condition, operations, or prospects of the Borrower and its Subsidiaries, taken as a whole.

The filing of a registration statement with the SEC and the public offering of equity securities by CBR, the parent guarantor, is a material event affecting the Company's capital structure, ownership, and public reporting obligations. While the IPO is not, in itself, an adverse event (and is in fact beneficial to the credit), it clearly falls within the scope of the "material event" notice requirement. Moreover, the significant deleveraging transaction (the $200,000,000 Term Loan B prepayment), the change in ownership structure, and the transition to public-company status all constitute material developments.

Recommendation. We recommend that the Company provide written notice to Veltrano National Bank of the proposed IPO at least ten (10) Business Days prior to the public filing of the Registration Statement on Form S-1 (or, if the S-1 has been confidentially submitted pursuant to the JOBS Act, at least ten (10) Business Days prior to the expected pricing date). This notice should be comprehensive and should include a summary of the key terms of the IPO, the anticipated offering size, the proposed use of proceeds, and the expected post-IPO ownership structure. This notice can be combined with, or accompany, the consent request letter discussed in Section III.D above.

B. Financial Reporting Requirements

The Credit Agreement requires the Borrower to deliver to the Administrative Agent the following financial statements and reports:

(i) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements of CBR and its Subsidiaries, prepared in accordance with GAAP, audited by a nationally recognized independent accounting firm (currently Severin Beck CPAs LLP);

(ii) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year, unaudited consolidated financial statements of CBR and its Subsidiaries, prepared in accordance with GAAP (subject to normal year-end adjustments and the absence of footnotes); and

(iii) concurrently with the delivery of each set of annual and quarterly financial statements, a Compliance Certificate executed by a Responsible Officer of the Borrower, certifying (A) the accuracy and completeness of the financial statements, (B) whether any Default or Event of Default exists, and (C) setting forth in reasonable detail the calculations demonstrating compliance with each financial covenant.

These financial reporting obligations will continue unaffected by the IPO. However, following the IPO, CBR will become a reporting company under the Exchange Act and will be required to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K with the SEC. Many credit agreements include a "public company" reporting accommodation that deems the timely filing of these SEC reports with the Administrative Agent (or the posting of such reports on the SEC's EDGAR system) as satisfying the Borrower's financial reporting obligations under the credit agreement.

We are reviewing the Credit Agreement to confirm whether it contains such a public-company reporting accommodation. If it does, the post-IPO reporting burden under the Credit Agreement will be largely duplicative of the Company's SEC reporting obligations, and the administrative burden will be minimal. If the Credit Agreement does not contain such an accommodation, we recommend requesting that the consent include an amendment adding a public-company reporting carve-out. This is a standard, borrower-friendly amendment that is unlikely to encounter lender resistance.

Regardless of whether the public-company reporting accommodation exists, the obligation to deliver Compliance Certificates (with financial covenant calculations) will continue as a separate requirement that is not satisfied by SEC filings alone.

C. Notification of Change in Organizational Documents

In connection with the IPO, CBR will adopt an Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, each of which will become effective upon the closing of the IPO. These documents will replace CBR's existing certificate of incorporation and bylaws and will reflect customary provisions for a publicly traded Delaware corporation, including classified board provisions, advance notice procedures for stockholder nominations and proposals, and various anti-takeover protections.

The Credit Agreement contains an affirmative covenant requiring the Borrower and each Guarantor to provide the Administrative Agent with prompt notice of any material amendment, restatement, or modification of its organizational documents (including certificates of formation, limited liability company agreements, certificates of incorporation, and bylaws). The adoption of entirely new charter and bylaws documents in connection with the IPO clearly constitutes a material amendment or restatement that triggers this notice requirement.

Recommendation. We recommend that the proposed Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws be included in the consent request package provided to Veltrano. The consent form should include an explicit acknowledgment and consent by the Lenders to the adoption of these organizational document amendments. Including these items in the consent package avoids any argument that the Company failed to provide adequate notice or obtain required consent for material changes to the organizational documents of a Guarantor.

VI. Additional Debt and Lien Covenants

A. Incurrence of Additional Indebtedness

The Credit Agreement contains a negative covenant restricting the Borrower and its Subsidiaries from incurring, creating, assuming, or permitting to exist any Indebtedness, except for Permitted Indebtedness (which includes enumerated exceptions such as the obligations under the Credit Agreement itself, purchase money indebtedness, capital leases within specified limits, intercompany indebtedness, and other customary carve-outs).

The IPO is an equity issuance, not a debt incurrence. The issuance of shares of common stock for cash does not create any Indebtedness as defined in the Credit Agreement. Accordingly, the IPO does not implicate the negative covenant on additional Indebtedness, and no consent or exception is required under this covenant.

We note for completeness that the following post-IPO matters should be monitored for compliance with the Indebtedness covenant:

• Public-Company Operating Expenses. CBR will incur incremental costs as a public company, including directors' and officers' insurance premiums, SEC reporting and compliance costs, stock exchange listing fees, investor relations expenses, and Sarbanes-Oxley compliance costs. These are operating expenses, not Indebtedness, and do not implicate the negative covenant.

• 2022 Omnibus Equity Incentive Plan. The Company proposes to adopt a 2022 Omnibus Equity Incentive Plan with a share reserve of 12,727,273 shares. Awards under the plan (stock options, restricted stock units, performance share units, etc.) are equity-based compensation, not Indebtedness. The plan does not implicate the negative covenant.

• 2022 Employee Stock Purchase Plan. The Company proposes to adopt a 2022 Employee Stock Purchase Plan with a share reserve of 2,545,455 shares. This is similarly an equity matter and does not constitute Indebtedness.

• Future Financings. If CBR or any Subsidiary seeks to incur additional Indebtedness after the IPO (e.g., a public bond offering, additional term loan, or revolving credit facility increase), such incurrence will need to comply with the Permitted Indebtedness exceptions or require an amendment to the Credit Agreement.

B. Liens. The Credit Agreement contains a negative pledge covenant restricting the Borrower and its Subsidiaries from creating, incurring, assuming, or permitting to exist any Lien on any property or asset, except for Permitted Liens (which include the Liens securing the obligations under the Credit Agreement, tax and other statutory Liens, purchase money Liens, and other customary carve-outs).

The IPO itself does not create any new Liens. No assets of the Borrower or any Subsidiary are being encumbered in connection with the offering.

One discrete issue merits attention: the underwriting agreement and the lock-up agreements entered into in connection with the IPO will contain customary restrictions on the transfer and hedging of CBR common stock by officers, directors, and significant stockholders during a 180-day lock-up period. Certain lock-up agreements include a carve-out permitting the pledge of shares to lenders as collateral for bona fide loans. We recommend confirming that any such lock-up pledge carve-out does not create any issue under the Credit Agreement's negative pledge covenant. Because the shares subject to the lock-up are CBR parent-level equity (not the pledged subsidiary equity interests), and because the negative pledge covenant in the Credit Agreement generally applies to assets of the "Borrower and its Subsidiaries" (not the parent guarantor's stockholders), this should not present a concern. However, to the extent CBR itself has pledged its equity interests in CBR Holdings LLC as collateral under the Credit Agreement, any additional pledge of those same equity interests by CBR as collateral for other obligations would be restricted absent a Permitted Liens exception.

VII. Affiliate Transaction Covenants

The Credit Agreement contains a covenant restricting the Borrower and its Subsidiaries from entering into any transaction with an Affiliate (other than transactions among the Borrower and its wholly owned Subsidiaries) unless such transaction is on terms no less favorable to the Borrower or the relevant Subsidiary than those that would be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate. Transactions exceeding a specified dollar threshold (typically $5,000,000 to $10,000,000) require delivery to the Administrative Agent of either (i) a resolution of the Board of Directors of CBR (or an authorized committee thereof) certifying that such transaction satisfies the arm's-length standard, or (ii) a fairness opinion from an independent financial advisor.

Following the IPO, Pinnacle Vista Capital Partners III, LP will remain an Affiliate of CBR for purposes of the Credit Agreement. Pinnacle Vista will continue to hold in excess of 10% of the outstanding Voting Equity Interests of CBR and will continue to have board designation rights under the Amended and Restated Stockholders' Agreement. Accordingly, transactions between the Company and Pinnacle Vista or its affiliated entities will continue to be subject to the Affiliate transaction covenant.

The following IPO-related transactions with Pinnacle Vista and other Affiliates are relevant:

Termination of Pinnacle Vista Management-Services Agreement. As noted in Section IV.C above, the management-services agreement between CBR and Pinnacle Vista Capital Management LLC (pursuant to which the Company pays an annual management fee of $2,400,000) will terminate upon the closing of the IPO. The termination of this agreement eliminates an ongoing Affiliate transaction and is affirmatively beneficial to the Company and the Lenders. The termination should not raise any issues under the Affiliate transaction covenant. We recommend confirming that no termination fee or accelerated payment is owed to Pinnacle Vista upon such termination.

Amended and Restated Stockholders' Agreement. In connection with the IPO, CBR, Pinnacle Vista, and the Founders will enter into an Amended and Restated Stockholders' Agreement providing for, among other things, (i) Pinnacle Vista's board designation rights (subject to ownership-based step-downs), (ii) transfer restrictions during the lock-up period, (iii) standstill provisions, and (iv) tag-along and drag-along rights (the latter applicable only while Pinnacle Vista holds a majority of the outstanding shares). This agreement is a customary post-IPO sponsor arrangement and should fall within the Affiliate transaction covenant's exception for transactions approved by a majority of the disinterested members of the Board of Directors.

Registration Rights Agreement. CBR and Pinnacle Vista (and potentially other stockholders) will enter into a Registration Rights Agreement providing for (i) demand registration rights, (ii) piggyback registration rights, and (iii) shelf registration rights on Form S-3 (once available). The registration rights agreement is a standard post-IPO sponsor arrangement and imposes no financial obligation on the Company other than the customary obligation to bear the expenses of registration (excluding underwriting discounts and selling commissions). Registration rights agreements are universally viewed as arm's-length transactions in the context of sponsor-backed IPOs and should not implicate the Affiliate transaction covenant.

Founder Employment Agreements. The employment agreements with Garrett Calloway (CEO) and Elaine Briggs (COO) are ordinary-course compensation arrangements. To the extent they have been previously disclosed to and approved by the Board of Directors, they should fall within the Affiliate transaction covenant's exception for ordinary-course employment and compensation arrangements.

Director and Officer Indemnification Agreements. CBR will enter into indemnification agreements with each of its directors and officers in connection with the IPO. These are customary governance arrangements required for public company directors and officers and are ordinary-course transactions that should not implicate the Affiliate transaction covenant.

We do not anticipate that any of the foregoing transactions will require additional consent from the Lenders under the Affiliate transaction covenant. However, we recommend disclosing these arrangements in the consent request package to ensure full transparency with Veltrano.

VIII. Anti-Assignment and Transfer Restrictions on Equity

The Credit Agreement contains restrictions on the transfer, sale, assignment, or other disposition of the Equity Interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC, which are pledged as collateral securing the obligations under the Credit Agreement. These restrictions are designed to ensure that the Lenders' security interest in the subsidiary equity remains intact and that the ownership chain from CBR through CBR Holdings to the Borrower is preserved.

The IPO involves two categories of equity transactions, neither of which should implicate the transfer restrictions on pledged subsidiary equity:

Primary Offering (Issuance of New CBR Shares). The primary offering involves the issuance and sale by CBR of new shares of CBR common stock. These are parent-level equity interests that are not pledged under the Credit Agreement. The issuance of new CBR shares does not involve the transfer of any equity interests in CBR Holdings LLC or Calloway-Briggs Operating Company LLC. The ownership of the pledged subsidiary equity remains undisturbed: following the IPO, CBR will continue to own 100% of CBR Holdings LLC, and CBR Holdings LLC will continue to own 100% of Calloway-Briggs Operating Company LLC.

Secondary Offering (Sale of CBR Shares by Pinnacle Vista). The secondary offering involves the sale by Pinnacle Vista of approximately 6,818,182 existing shares of CBR common stock. These are parent-level equity interests held by Pinnacle Vista, not subsidiary-level equity interests that are pledged under the Credit Agreement. The sale of CBR parent-level shares by a stockholder does not implicate the transfer restrictions on the pledged equity interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC.

We confirm that the pledge of equity interests in CBR Holdings LLC (held by CBR) and the pledge of equity interests in Calloway-Briggs Operating Company LLC (held by CBR Holdings LLC) will remain fully in effect and undisturbed following the IPO. No release, modification, or amendment of the pledge agreements is required in connection with the IPO.

We further confirm that the post-IPO organizational structure — CBR (publicly traded parent) → CBR Holdings LLC (intermediate holding company) → Calloway-Briggs Operating Company LLC (operating subsidiary / Borrower) — is unchanged by the IPO, and the guarantor and security structure established under the Credit Agreement remains intact.

IX. Representation and Warranty Bring-Down Considerations

It is customary for a lender consent of the type contemplated herein to condition the effectiveness of the consent upon the Borrower's delivery of a certificate confirming that certain representations and warranties made by the Borrower and the Guarantors in the Credit Agreement are true and correct in all material respects as of the date of the consent (or, in the case of representations and warranties that are already qualified by materiality or Material Adverse Effect qualifiers, true and correct in all respects). The representations and warranties that are most commonly subject to a bring-down requirement in this context include:

(a) No Default or Event of Default. The Borrower must represent that no Default or Event of Default has occurred and is continuing as of the consent date. This is a threshold condition and must be confirmed with the Company's finance team prior to delivery of the consent.

(b) Accuracy of Financial Statements. The Borrower must represent that the most recently delivered financial statements (which, as of May 2022, would be the fiscal year 2021 audited financial statements and any subsequently delivered quarterly financial statements) fairly present in all material respects the consolidated financial position, results of operations, and cash flows of CBR and its Subsidiaries as of the dates and for the periods covered thereby, in accordance with GAAP.

(c) No Material Adverse Effect. The Borrower must represent that no event, development, or circumstance has occurred since December 31, 2021 (the fiscal year-end date used as the reference date in the most recently delivered annual financial statements) that has had, or could reasonably be expected to have, a Material Adverse Effect on the business, financial condition, operations, or prospects of the Borrower and its Subsidiaries, taken as a whole. This representation requires careful consideration in light of macroeconomic conditions, commodity price movements, supply chain disruptions, and any project-specific developments since fiscal year-end.

(d) Solvency. Some consent forms require a representation that the Borrower and each Guarantor is Solvent (as defined in the Credit Agreement) as of the consent date and will remain Solvent immediately after giving effect to the transactions contemplated by the consent (including the IPO and the $200,000,000 prepayment). The solvency representation typically requires that (i) the fair value of the assets of the relevant entity exceeds its total liabilities, (ii) the entity is able to pay its debts as they become due, and (iii) the entity does not have unreasonably small capital for the conduct of its business.

Recommendation. We recommend that Brendan Walsh and Natasha Forbes coordinate with Marcus Yoon (CFO) and Priya Anand (SVP, Finance & Treasurer) to confirm the Company's ability to deliver each of the foregoing representations at the time the consent is executed. This coordination should occur promptly upon the decision to reactivate the IPO. In particular, the no-Material-Adverse-Effect representation requires an assessment of developments since December 31, 2021, and the solvency representation requires a current assessment of the Company's balance sheet and cash flow position. If there are any concerns regarding the ability to deliver any of these representations, we should discuss potential qualifications or carve-outs to be negotiated into the

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, NY 10022
C&H Matter No. 1015-00001
INTERNAL MEMORANDUM
May 10, 2022
TO: Jennifer Kwon, Responsible Partner, Capital Markets
FROM: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets
RE: Lender Consent Analysis — Veltrano National Bank Corporate Credit Facility in Connection with Proposed Initial Public Offering of Calloway-Briggs Renewables Inc.
COPIES: Leonard Cross, Specialist Partner, Tax Sandra Haverford, General Counsel & Corporate Secretary, CBR Priya Anand, SVP, Finance & Treasurer, CBR
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I. Executive Summary
This memorandum sets forth our analysis of the Credit Agreement dated as of January 15, 2021 (as amended by the First Amendment dated July 22, 2021, the "Credit Agreement"), among Calloway-Briggs Operating Company LLC, as Borrower, Calloway-Briggs Renewables Inc. ("CBR" or the "Company") and CBR Holdings LLC, as Guarantors, the Lenders party thereto, and Veltrano National Bank, as Administrative Agent, Collateral Agent, Swingline Lender, and L/C Issuer ("Veltrano" or the "Administrative Agent"). The purpose of this memorandum is to identify all provisions of the Credit Agreement that are triggered by, or otherwise implicated by, the proposed initial public offering (the "IPO") of shares of common stock of CBR, par value $0.01 per share, on the New York Stock Exchange (the "NYSE"), with an aggregate anticipated offering size of approximately $600,000,000 (including greenshoe).
The Credit Agreement governs two principal credit facilities extended to the Borrower: (1) a Corporate Revolving Credit Facility (the "Revolver") with aggregate commitments of $400,000,000, maturing January 2027; and (2) a Corporate Term Loan B (the "Term Loan B") with an original aggregate principal amount of $650,000,000, of which $612,500,000 is currently outstanding, maturing January 2029. Both facilities are administered by Veltrano National Bank in its capacity as Administrative Agent. The key contact at Veltrano for purposes of the consent process is Thomas Raines, Managing Director, Energy Lending, located at 1401 McKinney Street, Houston, Texas 77010.
Our principal conclusions are as follows:
(a) The IPO will implicate the change-of-control provision set forth in the Credit Agreement and, although our technical analysis suggests that the definition of "Change of Control" should not be triggered given that the Permitted Holders will retain majority voting control following the IPO in both the base and full overallotment scenarios, the prudent course of action is to obtain an affirmative consent or waiver from Veltrano (acting at the direction of the Required Lenders) prior to the consummation of the IPO. This approach eliminates any ambiguity, particularly with respect to the "group" concept and the interpretation of "beneficial ownership" under the Credit Agreement.
(b) The proposed $200,000,000 voluntary prepayment of the Term Loan B from IPO proceeds requires compliance with the voluntary prepayment mechanics set forth in the Credit Agreement, including the delivery of three business days' prior written notice to the Administrative Agent and the payment of a 1.00% prepayment premium applicable to prepayments made during the first two years following the January 15, 2021 closing date. The prepayment premium on a $200,000,000 prepayment would be $2,000,000, for a total prepayment amount of $202,000,000.
(c) Certain restricted payment covenants, reporting and notice covenants, affiliate transaction covenants, and additional debt limitations in the Credit Agreement are implicated by the IPO and related transactions and require careful analysis, as set forth in detail in Sections IV through VIII of this memorandum. In particular, we recommend confirming whether the Credit Agreement contains an equity issuance sweep provision that could mandate the application of a portion of net equity issuance proceeds to reduce the Term Loan B in excess of the contemplated voluntary $200,000,000 prepayment.
(d) Provided the consent is obtained in advance and the prepayment mechanics are properly followed, no Event of Default should result from the IPO itself.
Recommendation. We recommend that the Company promptly engage Thomas Raines at Veltrano National Bank to request consent to the IPO and a waiver of the change-of-control provision. A draft consent request letter and a draft form of consent have been prepared as companion documents to this memorandum and are available for review by Sandra Haverford and Priya Anand. We further recommend that the consent solicitation process be initiated as soon as a decision is made to reactivate the IPO, as the process typically requires 10 to 15 business days to complete.
II. Background
A. The Credit Agreement
The relevant credit facility is governed by that certain Credit Agreement dated as of January 15, 2021 (the "Original Credit Agreement"), among Calloway-Briggs Operating Company LLC, a Texas limited liability company, as Borrower (the "Borrower"), Calloway-Briggs Renewables Inc., a Delaware corporation ("CBR"), and CBR Holdings LLC, a Delaware limited liability company ("CBR Holdings"), each as a Guarantor, the Lenders from time to time party thereto (the "Lenders"), and Veltrano National Bank, a national banking association, as Administrative Agent, Collateral Agent, Swingline Lender, and L/C Issuer (in such capacity, the "Administrative Agent").
The Original Credit Agreement was amended by the First Amendment to Credit Agreement dated as of July 22, 2021 (the "First Amendment" and, together with the Original Credit Agreement, the "Credit Agreement"). The First Amendment effected two principal modifications: (i) an increase in the aggregate Revolver commitments from $350,000,000 to $400,000,000, and (ii) the addition of incremental Term Loan B commitments, which brought the total Term Loan B principal to its current funded amount. All references herein to the "Credit Agreement" are to the Original Credit Agreement as amended by the First Amendment, unless otherwise noted.
The Credit Agreement is governed by the laws of the State of New York, without regard to conflicts-of-law principles (other than Section 5-1401 of the New York General Obligations Law).
Borrower. The Borrower under the Credit Agreement is Calloway-Briggs Operating Company LLC, a Texas limited liability company. The Borrower is a wholly owned subsidiary of CBR Holdings LLC, which is in turn wholly owned by CBR. The Borrower is the principal operating subsidiary of the CBR group and holds, directly and indirectly, the Company's operating assets (other than certain project-level assets held by special purpose vehicles).
Guarantors. CBR, as the ultimate parent company, and CBR Holdings LLC, as the intermediate holding company, each serve as Guarantors under the Credit Agreement. Their guaranty obligations are joint and several and extend to all obligations of the Borrower under the Credit Agreement and related loan documents.
Security. The obligations under the Credit Agreement are secured by a first-priority lien on substantially all assets of the Borrower and the Guarantors, subject to certain customary exclusions. Importantly, the security package excludes project-level assets pledged under separate project-finance facilities maintained by the Company's special purpose vehicle subsidiaries. The security package includes a pledge of 100% of the equity interests in CBR Holdings LLC (held by CBR) and 100% of the equity interests in Calloway-Briggs Operating Company LLC (held by CBR Holdings LLC).
B. The Proposed IPO
CBR proposes to conduct an initial public offering of shares of its common stock, par value $0.01 per share, on the NYSE under the proposed ticker symbol "CBRI." The aggregate anticipated offering size is approximately $600,000,000, inclusive of shares subject to the underwriters' option to purchase additional shares (the "greenshoe" or "overallotment option"). The assumed midpoint offering price is $22.00 per share.
The offering consists of both a primary component and a secondary component. The primary offering will generate approximately $371,700,000 in net proceeds to the Company (at the base offering, before overallotment exercise and after deducting underwriting discounts, commissions, and estimated offering expenses). The secondary offering component involves the sale of approximately 6,818,182 shares by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), the Company's controlling stockholder, generating approximately $150,000,000 in gross proceeds to Pinnacle Vista. The Company will not receive any proceeds from the sale of shares by Pinnacle Vista in the secondary offering.
Pre-IPO and Post-IPO Capitalization. Immediately prior to the IPO, CBR has 100,000,000 shares of common stock outstanding. Following the base offering (assuming no exercise of the overallotment option), CBR will have approximately 123,713,636 shares outstanding. If the underwriters exercise the overallotment option in full, CBR will have approximately 127,272,727 shares outstanding.
Pre-IPO Ownership. Prior to the IPO, the ownership of CBR common stock is as follows:
Intended Use of Proceeds. The Company intends to use the primary net proceeds from the IPO as follows: (i) approximately $200,000,000 to repay a portion of the outstanding Term Loan B principal; (ii) approximately $100,000,000 to fund a portion of the construction costs of the Cimarron Solar project; and (iii) approximately $71,700,000 for general corporate purposes, including working capital.
Current Status. We note that the IPO was placed in dormant status on June 17, 2022 due to adverse market conditions. This analysis has been prepared in anticipation of a potential reactivation of the offering when market conditions improve. All action items and deliverables identified herein will need to be refreshed and confirmed upon a decision to recommence the IPO process.
C. Existing Debt Structure Overview
The following table summarizes the Company's principal outstanding indebtedness as of the date of this memorandum:
This memorandum addresses only the Corporate Credit Facility governed by the Credit Agreement (i.e., the Revolver and the Term Loan B). The project-finance facilities with Prairie Commercial Bank, N.A. and the tax-equity partnership arrangement with Veltara Basin Financial LLC are the subject of separate memoranda referenced in Section XIII below.
III. Change-of-Control Provision — Detailed Analysis
A. Definition of "Change of Control"
The Credit Agreement defines "Change of Control" as the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Permitted Holders shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 35% of the outstanding Voting Equity Interests of CBR (the parent guarantor);
(ii) the Permitted Holders shall cease to hold, directly or indirectly, at least a majority (greater than 50%) of the outstanding Voting Equity Interests of CBR;
(iii) CBR shall cease to own, directly or indirectly, 100% of the Equity Interests in CBR Holdings LLC or 100% of the Equity Interests in Calloway-Briggs Operating Company LLC; or
(iv) during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of CBR shall be occupied by persons who were neither (A) nominated by, or appointed with the approval of, a majority of the directors of CBR at the beginning of such period nor (B) nominated by, or appointed with the approval of, directors so nominated or approved.
Each of these prongs is analyzed below in the context of the proposed IPO.
The Credit Agreement defines "Permitted Holders" as follows:
"Permitted Holders" means (a) Pinnacle Vista Capital Partners III, LP and its Affiliates (including Pinnacle Vista Capital Management LLC and any successor fund vehicles managed or advised by Pinnacle Vista Capital Management LLC or its Affiliates), (b) the Founders (defined as Garrett Calloway and Elaine Briggs) and their respective Immediate Family Members (as defined in Rule 16a-1 under the Exchange Act) and any trusts, partnerships, limited liability companies, or other entities for the benefit of, or the ownership interests of which are owned by, any of the foregoing, and (c) any "group" (within the meaning of Section 13(d)(3) of the Exchange Act) the members of which include any of the Persons described in clauses (a) and (b) above, so long as such Persons described in clauses (a) and (b) above, collectively, beneficially own Voting Equity Interests representing more than 50% of the total Voting Equity Interests beneficially owned by such group.
The inclusion of clause (c) in the Permitted Holders definition is significant because it provides that any group that includes Pinnacle Vista and/or the Founders will be treated as a Permitted Holder so long as they collectively control more than 50% of the voting power held by such group. This provision is designed to accommodate typical post-IPO scenarios where a sponsor and founder group may be deemed to constitute a "group" with other stockholders.
B. Impact of the IPO on the Change-of-Control Definition
We analyze each prong of the Change of Control definition below in the context of the proposed IPO.
Prong (i) — Acquisition of More Than 35% by a Non-Permitted Holder. The IPO involves the issuance of new shares of CBR common stock to public investors and the sale of existing shares by Pinnacle Vista in the secondary offering. Following the IPO, public stockholders will hold a significant block of CBR's outstanding shares. However, dispersed public stockholders who acquire shares in a public offering do not, absent an express agreement among them to act in concert, constitute a "person" or "group" within the meaning of Section 13(d)(3) of the Exchange Act. This is well-established under both SEC interpretive guidance and judicial precedent. See, e.g., Ostrander & Co., 286 F.3d 613 (2d Cir. 2002) (holding that a "group" requires an agreement among members to act together for the purpose of acquiring, holding, voting, or disposing of equity securities).
Accordingly, the mere fact that public stockholders in the aggregate will hold more than 35% of CBR's outstanding shares following the IPO should not trigger prong (i) of the Change of Control definition. No single non-Permitted Holder investor, acting alone, is expected to acquire more than 35% of CBR's outstanding Voting Equity Interests in the IPO. We note, however, that this analysis assumes that the underwriters' customary lock-up agreements will be in effect and that no single investor or fund complex will receive an allocation in excess of 35% of CBR's post-IPO shares.
Notwithstanding this conclusion, we flag that the Credit Agreement's reference to "beneficial ownership" is stated to have the meaning set forth in Rule 13d-3 under the Exchange Act, which is a relatively expansive definition. To the extent that any anchor investor or cornerstone investor receives a significant allocation in the IPO, the beneficial ownership analysis should be revisited. Based on current underwriting plans as described in the S-1 drafts, no single non-Permitted Holder investor is expected to hold more than 5% of the post-IPO shares, and this prong should not be implicated.
Prong (ii) — Permitted Holders Ceasing to Hold Majority Voting Equity. This prong is the focus of our quantitative analysis. We set forth below the post-IPO ownership of the Permitted Holders under both the base offering scenario and the full overallotment exercise scenario.
Base Offering (No Overallotment Exercise):
• Pre-IPO Pinnacle Vista shares: ~62,000,000
• Less: Pinnacle Vista secondary offering shares: (6,818,182)
• Post-IPO Pinnacle Vista shares: ~55,181,818
• Post-IPO total shares outstanding: 123,713,636
• Pinnacle Vista post-IPO ownership: 55,181,818 ÷ 123,713,636 = ~44.6%
• Post-IPO Founders and Management shares: ~24,000,000
• Combined Permitted Holders (Pinnacle Vista + Founders): 55,181,818 + 24,000,000 = ~79,181,818
• Combined Permitted Holders post-IPO ownership: 79,181,818 ÷ 123,713,636 = ~64.0%
Full Overallotment Exercise:
• Post-IPO Pinnacle Vista shares: ~55,181,818 (unchanged; overallotment shares are primary)
• Post-IPO total shares outstanding: 127,272,727
• Pinnacle Vista post-IPO ownership: 55,181,818 ÷ 127,272,727 = ~43.4%
• Combined Permitted Holders: ~79,181,818
• Combined Permitted Holders post-IPO ownership: 79,181,818 ÷ 127,272,727 = ~62.2%
Conclusion on Prong (ii): In both the base offering and full overallotment exercise scenarios, the Permitted Holders (Pinnacle Vista and the Founders, collectively) will continue to hold in excess of 50% of the outstanding Voting Equity Interests of CBR following the IPO. Accordingly, prong (ii) of the Change of Control definition should not be triggered by the IPO. However, we note that this analysis is dependent on the final pricing, offering size, and secondary sale volume. If the offering size were to be materially increased or if Pinnacle Vista were to increase the number of secondary shares sold, this analysis would need to be updated. Additionally, to the extent any Founders sell shares in the IPO (which is not currently contemplated), the combined Permitted Holder percentage would decrease and should be recalculated.
We further note that Pinnacle Vista's ownership percentage, standing alone, will fall below 50% after the IPO (to approximately 44.6% in the base scenario). While the Change of Control definition looks to the Permitted Holders collectively (not Pinnacle Vista alone), the decline in Pinnacle Vista's individual ownership below 50% is relevant for purposes of the Amended and Restated Stockholders' Agreement, which contains board designation right step-downs linked to Pinnacle Vista's individual ownership levels. This dynamic is discussed further in the board composition analysis below.
Prong (iii) — Ownership of Subsidiary Equity Interests. The IPO involves the issuance and sale of shares of CBR common stock at the parent company level. It does not involve any transfer, sale, or other disposition of the equity interests in CBR Holdings LLC or Calloway-Briggs Operating Company LLC. Following the IPO, CBR will continue to own, directly, 100% of the equity interests in CBR Holdings LLC, and CBR Holdings LLC will continue to own, directly, 100% of the equity interests in Calloway-Briggs Operating Company LLC. This prong of the Change of Control definition is clearly not triggered.
Additionally, the sale of secondary shares by Pinnacle Vista in the IPO represents a transfer of CBR-level equity (common stock of the publicly traded parent company), not a transfer of subsidiary-level equity interests. This distinction is important and ensures that the secondary offering does not implicate prong (iii).
Prong (iv) — Board Composition. The Amended and Restated Stockholders' Agreement between CBR, Pinnacle Vista, and certain other stockholders provides Pinnacle Vista with the right to designate members of CBR's Board of Directors, subject to a step-down schedule tied to Pinnacle Vista's ownership percentage. The current Board of Directors consists of seven (7) members:
Following the IPO, the Board is expected to expand to nine (9) members with the addition of two independent directors to satisfy NYSE listing standards and SEC audit committee requirements. All current directors will remain in place. Accordingly, there will be no change in a majority of the Board seats, and prong (iv) of the Change of Control definition is not triggered.
We note that the three existing independent directors (Dr. Okoro, Mr. Liang, and Ms. Estavez) were originally nominated and appointed by the Board with the approval of a majority of the then-existing directors (including the Pinnacle Vista designees and the Founders). Accordingly, even if one were to argue that the post-IPO board composition reflects a shift from sponsor-controlled to independent-majority governance, the continuity-of-approval chain under prong (iv) is maintained because each independent director was nominated or approved by existing directors.
Analysis of Other Potential Triggering Events. We have also considered whether the IPO could constitute a "Fundamental Change," "Disposition," or other triggering event under the Credit Agreement beyond the Change of Control definition. The Credit Agreement defines "Disposition" (or "Dispose") to mean any sale, transfer, assignment, or other disposition of assets or equity interests. The issuance of new shares by CBR is not a "Disposition" — it is the creation and sale of new equity interests by the issuer, not the transfer of existing assets. Similarly, the secondary sale by Pinnacle Vista is a sale of CBR parent-level equity by a stockholder, not a disposition of assets by the Borrower or any Guarantor.
The Credit Agreement does not contain a separate definition of "Fundamental Change" (which is more commonly found in convertible note indentures). Accordingly, we conclude that the IPO does not constitute a Disposition or other triggering event independent of the Change of Control analysis.
C. Consequences of a Change of Control
If a Change of Control were to occur without the prior consent of the Required Lenders (or, if the change-of-control provision is a "sacred right" under the Credit Agreement, without the consent of each Lender), the consequences would be severe:
(i) Event of Default. The occurrence of a Change of Control constitutes an immediate Event of Default under the Credit Agreement. Unlike certain indenture-style "put right" constructs where a change of control merely triggers a repurchase offer, the Credit Agreement treats a Change of Control as a hard Event of Default.
(ii) Acceleration. Upon the occurrence of an Event of Default, the Administrative Agent (at the direction of the Required Lenders) may declare all outstanding obligations immediately due and payable. As of the date of this memorandum, the outstanding Term Loan B principal is $612,500,000. Any amounts drawn under the Revolver (current balance to be confirmed with Priya Anand) would also be subject to acceleration. Accrued and unpaid interest, fees, and other obligations would become immediately due.
(iii) Termination of Commitments. The Administrative Agent may terminate the unused Revolver commitments, eliminating the Company's access to the $400,000,000 revolving credit facility.
(iv) Enforcement Against Collateral. The Collateral Agent (Veltrano, in its capacity as Collateral Agent) may exercise remedies against the pledged collateral, including the pledge of equity interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC, as well as the security interest in substantially all assets of the Borrower and the Guarantors. Foreclosure on the pledged equity interests could result in a loss of control over the Borrower and the entire operating subsidiary structure.
(v) Mandatory Prepayment. We note that certain credit agreements, particularly term loan B facilities arranged for sponsor-backed companies, include a mandatory prepayment obligation upon a Change of Control at par plus accrued interest (sometimes with a "put" right at 101% of par). We are reviewing the Credit Agreement to confirm whether such a mandatory prepayment provision exists in addition to the Event of Default remedy. If the Credit Agreement provides for a Change of Control mandatory prepayment at 101%, this would represent an additional obligation of approximately $6,186,250 (1% of $618,625,000, including accrued interest) in addition to the full repayment of outstanding principal and accrued amounts.
Cross-Default Implications. An Event of Default under the Corporate Credit Facility could trigger cross-default provisions under the Company's other debt instruments. Specifically:
• The Mesquite Wind project-finance facility ($165,000,000) with Prairie Commercial Bank, N.A. contains a cross-default provision that is triggered upon the occurrence of a payment default or acceleration event under any Material Indebtedness of the Borrower, any Guarantor, or any Affiliate of the Borrower exceeding a threshold amount (typically $25,000,000 to $50,000,000). The Corporate Credit Facility exceeds any reasonable threshold amount, and an acceleration thereunder would almost certainly constitute a cross-default under the Mesquite Wind facility.
• The Cimarron Solar project-finance facility ($143,000,000) with Prairie Commercial Bank, N.A. contains a substantially similar cross-default provision.
• The Solaris West tax-equity partnership ($280,000,000) with Veltara Basin Financial LLC may contain cross-default or cross-acceleration provisions, which are addressed in a separate memorandum.
The cascading cross-default risk underscores the critical importance of obtaining the Veltrano consent prior to the IPO. A failure to do so could jeopardize not only the Corporate Credit Facility but also the Company's project-level financing arrangements, with potential aggregate exposure in excess of $1.7 billion.
D. Recommendation. Even though our technical analysis suggests that the Permitted Holders will retain majority voting control of CBR following the IPO in both the base and full overallotment scenarios, and that no prong of the Change of Control definition should be technically triggered, we strongly recommend that the Company obtain an affirmative written consent from Veltrano National Bank (as Administrative Agent, acting at the direction of the Required Lenders) prior to the consummation of the IPO. This recommendation is based on the following considerations:
First, the "group" concept under Section 13(d)(3) of the Exchange Act has been the subject of evolving SEC interpretive guidance and judicial interpretation. While dispersed public stockholders are generally not considered a "group," the Credit Agreement's incorporation of this concept introduces a degree of interpretive risk that is best addressed through an affirmative consent rather than reliance on a legal conclusion that could be challenged.
Second, the Credit Agreement's definition of "beneficial ownership" (incorporated by reference to Rule 13d-3 under the Exchange Act) is broader than the concept of record ownership and includes shares as to which a person has voting power or investment power, whether direct or indirect. To the extent that any institutional investor receiving an IPO allocation has other holdings or relationships that could be aggregated under Rule 13d-3, an inadvertent triggering of prong (i) is theoretically possible.
Third, the consequences of a Change of Control under the Credit Agreement are extraordinarily severe — Event of Default, acceleration, commitment termination, and collateral enforcement — and the cross-default risk amplifies the potential damage exponentially. The cost of obtaining a consent (Administrative Agent fee of $25,000 to $50,000 and internal transaction costs) is de minimis relative to the risk being mitigated.
Fourth, the consent process provides an opportunity to address other IPO-related matters with Veltrano simultaneously, including the organizational document amendments, the notice requirements, and any equity issuance sweep provisions. A single, comprehensive consent package is more efficient and creates a cleaner record than piecemeal notices and waivers.
Draft consent request letter and consent form have been prepared as companion documents. See Section XIII (Cross-Reference to Related Memoranda and Documents).
IV. Restricted Payment Covenants
A. Overview of Restricted Payment Basket
The Credit Agreement contains a negative covenant restricting the Borrower and the Guarantors from making "Restricted Payments," which are defined to include:
(a) the declaration or payment of any dividend or the making of any other distribution (whether in cash, property, or obligations) on account of any Equity Interest in the Borrower or any Guarantor (other than dividends or distributions payable in additional Equity Interests of the same class);
(b) the purchase, redemption, retirement, defeasance, or other acquisition for value of any Equity Interest in the Borrower or any Guarantor;
(c) any voluntary payment, prepayment, purchase, redemption, defeasance, or other acquisition for value of any Subordinated Indebtedness (as defined in the Credit Agreement); and
(d) any Investment (as defined in the Credit Agreement) other than a Permitted Investment.
The Restricted Payments covenant is subject to a general prohibition with enumerated exceptions (a "basket" structure). The specific permitted exceptions and the builder basket mechanics are discussed below as relevant to the IPO.
Application to the IPO. The IPO itself — i.e., the issuance and sale of new shares of CBR common stock by CBR in exchange for cash — is not a Restricted Payment. It is a capital-raising transaction at the parent guarantor level that results in an increase in CBR's equity capitalization and cash resources. The issuance of new equity interests for cash is the opposite of a Restricted Payment; it is an equity contribution to the corporate enterprise. Accordingly, the IPO does not require analysis under the Restricted Payments covenant.
However, several transactions related to the IPO or occurring in connection with the IPO do require analysis under the Restricted Payments covenant, as discussed in the following subsections.
B. Use of Proceeds — Term Loan B Prepayment ($200,000,000)
The Company's intended use of approximately $200,000,000 of primary IPO proceeds to prepay a portion of the outstanding Term Loan B principal is not a Restricted Payment. A voluntary prepayment of indebtedness owed to the Lenders under the Credit Agreement is a payment to the lenders themselves and is affirmatively beneficial to the credit profile of the Borrower and the Guarantors. It reduces outstanding indebtedness, lowers interest expense, and improves leverage ratios. The voluntary prepayment is governed by the prepayment provisions of the Credit Agreement (not the Restricted Payments covenant), which are summarized below.
Voluntary Prepayment Mechanics. Section 2.05(a) of the Credit Agreement governs voluntary prepayments of Term Loans. The key provisions are as follows:
Minimum Prepayment Amount. Voluntary prepayments of Term Loans must be in a minimum principal amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof (or, if less, the entire remaining principal balance). The proposed $200,000,000 prepayment satisfies this requirement.
Notice Period. The Borrower must provide the Administrative Agent with irrevocable written notice of a voluntary prepayment at least three (3) Business Days prior to the proposed prepayment date (or one (1) Business Day in the case of Base Rate Loans). The notice must specify the prepayment date, the principal amount to be prepaid, and whether the prepayment applies to Eurodollar Rate Loans (now SOFR Loans, as applicable) or Base Rate Loans. Given the size of the prepayment and the likelihood that a significant portion of the Term Loan B outstanding balance bears interest at the SOFR rate, the three-Business Day notice period will apply.
Prepayment Premium. The Credit Agreement provides for a prepayment premium (sometimes referred to as a "call protection" or "soft call" premium) applicable to voluntary prepayments of the Term Loan B made during the first two (2) years following the Closing Date. The Closing Date is January 15, 2021. Accordingly, the prepayment premium window runs through January 15, 2023. Assuming the IPO pricing occurs prior to January 15, 2023 (which was the expectation prior to the dormancy decision), the 1.00% prepayment premium would be applicable. The prepayment premium calculation is straightforward:
$200,000,000 × 1.00% = $2,000,000
The total amount payable in connection with the voluntary prepayment would therefore be $202,000,000 (principal of $200,000,000 plus prepayment premium of $2,000,000), plus any accrued and unpaid interest on the prepaid principal through the prepayment date and any applicable breakage costs if the prepayment does not occur on the last day of an Interest Period for SOFR Loans.
Application of Prepayment. The Credit Agreement provides that voluntary prepayments of the Term Loan B shall be applied to the remaining scheduled amortization payments in direct order of maturity (i.e., applied first to the next scheduled amortization installment and then sequentially to each subsequent installment). Some credit agreements permit the Borrower to direct the application of voluntary prepayments on a pro rata basis across remaining installments or in inverse order of maturity. We are confirming whether the Credit Agreement affords the Borrower any discretion in directing the application of the $200,000,000 prepayment across the remaining amortization schedule.
We note that if the IPO is reactivated after January 15, 2023, the prepayment premium would no longer be applicable, and the voluntary prepayment would be at par plus accrued interest only. This represents a potential saving of $2,000,000 and should be considered in the timing analysis for reactivation.
C. Dividend Policy — Post-IPO Restrictions
The Company's draft Registration Statement on Form S-1 discloses that CBR does not anticipate paying any cash dividends on its common stock for the foreseeable future following the IPO. This disclosure is consistent with the Restricted Payment covenant in the Credit Agreement, which significantly limits the Company's ability to make cash distributions on its equity interests.
Under the Credit Agreement, dividends and other distributions on the Equity Interests of the Borrower or any Guarantor are permitted only if each of the following conditions is satisfied:
(i) no Default or Event of Default exists at the time of such Restricted Payment or would result therefrom;
(ii) the Total Net Leverage Ratio, calculated on a pro forma basis after giving effect to such Restricted Payment, does not exceed the applicable maximum ratio set forth in the financial covenants section of the Credit Agreement (the specific ratio threshold is set forth in Section XI below); and
(iii) the aggregate amount of all Restricted Payments made in any fiscal year does not exceed the "Available Amount," which is a builder basket based on cumulative Excess Cash Flow (as defined in the Credit Agreement) from and after the Closing Date, plus the net proceeds of equity issuances and capital contributions received after the Closing Date, minus Restricted Payments previously made in reliance on the Available Amount.
Since CBR does not intend to pay dividends in the near term, these limitations are not expected to present an immediate issue. However, if the Company contemplates initiating a dividend program in the future (e.g., as part of a capital return strategy following deleveraging), compliance with the Restricted Payment covenant will need to be carefully monitored.
Pinnacle Vista Management-Services Agreement. We note that the Company has a management-services agreement with Pinnacle Vista Capital Management LLC pursuant to which the Company pays an annual management fee of $2,400,000. This fee is expected to terminate upon the closing of the IPO, as is customary for sponsor management-services agreements in connection with an IPO. We understand that the management fee has been characterized as a Permitted Payment under the Credit Agreement (likely as an Affiliate transaction within the permitted basket or as an operating expense rather than a Restricted Payment). The termination of this agreement upon the IPO closing should not raise any issues under the Credit Agreement, but we recommend confirming with Sandra Haverford and Priya Anand that the termination does not trigger any termination payment or accelerated fee obligation that could itself constitute a Restricted Payment.
D. Equity Issuance Sweep / Mandatory Prepayment from Equity Proceeds
A critical open item in our analysis is whether the Credit Agreement contains a mandatory prepayment provision requiring the application of net proceeds from equity issuances to reduce the outstanding Term Loan B balance. Such provisions, commonly referred to as "equity issuance sweeps" or "equity clawbacks," are found in a significant number of leveraged credit agreements, particularly those with Term Loan B tranches.
A typical equity issuance sweep requires the Borrower to apply 50% (or, in some cases, 75% or 100%) of the net cash proceeds from any issuance of Equity Interests (other than proceeds from employee equity incentive plans, equity cures, and certain other customary exceptions) to the mandatory prepayment of the Term Loans. If the Credit Agreement contains such a provision, the implications for the IPO would be significant:
• Assuming net primary proceeds of approximately $371,700,000 (after underwriting discounts, commissions, and estimated offering expenses), a 50% equity issuance sweep would require a mandatory prepayment of approximately $185,850,000.
• If the mandatory prepayment amount exceeds $200,000,000 (which could occur at higher sweep percentages or if net proceeds are higher than estimated), the Company would be required to apply additional IPO proceeds to debt reduction beyond the voluntary $200,000,000 prepayment.
• Conversely, if the mandatory prepayment amount is less than $200,000,000 (as in the 50% sweep scenario), the voluntary $200,000,000 prepayment would satisfy the mandatory prepayment obligation and then some, as voluntary prepayments are typically credited against mandatory prepayment obligations.
If no equity issuance sweep exists in the Credit Agreement, the $200,000,000 voluntary prepayment is purely discretionary and satisfies the Company's intended use of proceeds as disclosed in the S-1. The remaining primary proceeds ($171,700,000) would be available for the Cimarron Solar construction funding ($100,000,000) and general corporate purposes ($71,700,000) without any mandatory debt reduction obligation.
Recommendation. We are in the process of completing our review of the mandatory prepayment provisions of the Credit Agreement to confirm the presence or absence of an equity issuance sweep. This is identified as a high-priority open item in Section XIV below. If an equity issuance sweep is present, we will calculate the mandatory prepayment amount and advise on whether a waiver should be sought in the event the Company does not wish to apply additional proceeds beyond $200,000,000 to debt reduction.
V. Reporting and Notice Covenants
A. Notice of Material Events
The Credit Agreement contains an affirmative covenant requiring the Borrower to provide the Administrative Agent with prompt written notice (within five (5) Business Days after a Responsible Officer of the Borrower becomes aware thereof) of the occurrence of any of the following:
(a) any Default or Event of Default;
(b) any event, development, or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect;
(c) the filing of any suit, action, or proceeding against the Borrower or any Subsidiary involving a potential liability in excess of $10,000,000 (or such other threshold as specified in the Credit Agreement);
(d) any material change in accounting policies or financial reporting practices; and
(e) any other event or development that is material to the business, financial condition, operations, or prospects of the Borrower and its Subsidiaries, taken as a whole.
The filing of a registration statement with the SEC and the public offering of equity securities by CBR, the parent guarantor, is a material event affecting the Company's capital structure, ownership, and public reporting obligations. While the IPO is not, in itself, an adverse event (and is in fact beneficial to the credit), it clearly falls within the scope of the "material event" notice requirement. Moreover, the significant deleveraging transaction (the $200,000,000 Term Loan B prepayment), the change in ownership structure, and the transition to public-company status all constitute material developments.
Recommendation. We recommend that the Company provide written notice to Veltrano National Bank of the proposed IPO at least ten (10) Business Days prior to the public filing of the Registration Statement on Form S-1 (or, if the S-1 has been confidentially submitted pursuant to the JOBS Act, at least ten (10) Business Days prior to the expected pricing date). This notice should be comprehensive and should include a summary of the key terms of the IPO, the anticipated offering size, the proposed use of proceeds, and the expected post-IPO ownership structure. This notice can be combined with, or accompany, the consent request letter discussed in Section III.D above.
B. Financial Reporting Requirements
The Credit Agreement requires the Borrower to deliver to the Administrative Agent the following financial statements and reports:
(i) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements of CBR and its Subsidiaries, prepared in accordance with GAAP, audited by a nationally recognized independent accounting firm (currently Severin Beck CPAs LLP);
(ii) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year, unaudited consolidated financial statements of CBR and its Subsidiaries, prepared in accordance with GAAP (subject to normal year-end adjustments and the absence of footnotes); and
(iii) concurrently with the delivery of each set of annual and quarterly financial statements, a Compliance Certificate executed by a Responsible Officer of the Borrower, certifying (A) the accuracy and completeness of the financial statements, (B) whether any Default or Event of Default exists, and (C) setting forth in reasonable detail the calculations demonstrating compliance with each financial covenant.
These financial reporting obligations will continue unaffected by the IPO. However, following the IPO, CBR will become a reporting company under the Exchange Act and will be required to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K with the SEC. Many credit agreements include a "public company" reporting accommodation that deems the timely filing of these SEC reports with the Administrative Agent (or the posting of such reports on the SEC's EDGAR system) as satisfying the Borrower's financial reporting obligations under the credit agreement.
We are reviewing the Credit Agreement to confirm whether it contains such a public-company reporting accommodation. If it does, the post-IPO reporting burden under the Credit Agreement will be largely duplicative of the Company's SEC reporting obligations, and the administrative burden will be minimal. If the Credit Agreement does not contain such an accommodation, we recommend requesting that the consent include an amendment adding a public-company reporting carve-out. This is a standard, borrower-friendly amendment that is unlikely to encounter lender resistance.
Regardless of whether the public-company reporting accommodation exists, the obligation to deliver Compliance Certificates (with financial covenant calculations) will continue as a separate requirement that is not satisfied by SEC filings alone.
C. Notification of Change in Organizational Documents
In connection with the IPO, CBR will adopt an Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, each of which will become effective upon the closing of the IPO. These documents will replace CBR's existing certificate of incorporation and bylaws and will reflect customary provisions for a publicly traded Delaware corporation, including classified board provisions, advance notice procedures for stockholder nominations and proposals, and various anti-takeover protections.
The Credit Agreement contains an affirmative covenant requiring the Borrower and each Guarantor to provide the Administrative Agent with prompt notice of any material amendment, restatement, or modification of its organizational documents (including certificates of formation, limited liability company agreements, certificates of incorporation, and bylaws). The adoption of entirely new charter and bylaws documents in connection with the IPO clearly constitutes a material amendment or restatement that triggers this notice requirement.
Recommendation. We recommend that the proposed Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws be included in the consent request package provided to Veltrano. The consent form should include an explicit acknowledgment and consent by the Lenders to the adoption of these organizational document amendments. Including these items in the consent package avoids any argument that the Company failed to provide adequate notice or obtain required consent for material changes to the organizational documents of a Guarantor.
VI. Additional Debt and Lien Covenants
A. Incurrence of Additional Indebtedness
The Credit Agreement contains a negative covenant restricting the Borrower and its Subsidiaries from incurring, creating, assuming, or permitting to exist any Indebtedness, except for Permitted Indebtedness (which includes enumerated exceptions such as the obligations under the Credit Agreement itself, purchase money indebtedness, capital leases within specified limits, intercompany indebtedness, and other customary carve-outs).
The IPO is an equity issuance, not a debt incurrence. The issuance of shares of common stock for cash does not create any Indebtedness as defined in the Credit Agreement. Accordingly, the IPO does not implicate the negative covenant on additional Indebtedness, and no consent or exception is required under this covenant.
We note for completeness that the following post-IPO matters should be monitored for compliance with the Indebtedness covenant:
• Public-Company Operating Expenses. CBR will incur incremental costs as a public company, including directors' and officers' insurance premiums, SEC reporting and compliance costs, stock exchange listing fees, investor relations expenses, and Sarbanes-Oxley compliance costs. These are operating expenses, not Indebtedness, and do not implicate the negative covenant.
• 2022 Omnibus Equity Incentive Plan. The Company proposes to adopt a 2022 Omnibus Equity Incentive Plan with a share reserve of 12,727,273 shares. Awards under the plan (stock options, restricted stock units, performance share units, etc.) are equity-based compensation, not Indebtedness. The plan does not implicate the negative covenant.
• 2022 Employee Stock Purchase Plan. The Company proposes to adopt a 2022 Employee Stock Purchase Plan with a share reserve of 2,545,455 shares. This is similarly an equity matter and does not constitute Indebtedness.
• Future Financings. If CBR or any Subsidiary seeks to incur additional Indebtedness after the IPO (e.g., a public bond offering, additional term loan, or revolving credit facility increase), such incurrence will need to comply with the Permitted Indebtedness exceptions or require an amendment to the Credit Agreement.
B. Liens. The Credit Agreement contains a negative pledge covenant restricting the Borrower and its Subsidiaries from creating, incurring, assuming, or permitting to exist any Lien on any property or asset, except for Permitted Liens (which include the Liens securing the obligations under the Credit Agreement, tax and other statutory Liens, purchase money Liens, and other customary carve-outs).
The IPO itself does not create any new Liens. No assets of the Borrower or any Subsidiary are being encumbered in connection with the offering.
One discrete issue merits attention: the underwriting agreement and the lock-up agreements entered into in connection with the IPO will contain customary restrictions on the transfer and hedging of CBR common stock by officers, directors, and significant stockholders during a 180-day lock-up period. Certain lock-up agreements include a carve-out permitting the pledge of shares to lenders as collateral for bona fide loans. We recommend confirming that any such lock-up pledge carve-out does not create any issue under the Credit Agreement's negative pledge covenant. Because the shares subject to the lock-up are CBR parent-level equity (not the pledged subsidiary equity interests), and because the negative pledge covenant in the Credit Agreement generally applies to assets of the "Borrower and its Subsidiaries" (not the parent guarantor's stockholders), this should not present a concern. However, to the extent CBR itself has pledged its equity interests in CBR Holdings LLC as collateral under the Credit Agreement, any additional pledge of those same equity interests by CBR as collateral for other obligations would be restricted absent a Permitted Liens exception.
VII. Affiliate Transaction Covenants
The Credit Agreement contains a covenant restricting the Borrower and its Subsidiaries from entering into any transaction with an Affiliate (other than transactions among the Borrower and its wholly owned Subsidiaries) unless such transaction is on terms no less favorable to the Borrower or the relevant Subsidiary than those that would be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate. Transactions exceeding a specified dollar threshold (typically $5,000,000 to $10,000,000) require delivery to the Administrative Agent of either (i) a resolution of the Board of Directors of CBR (or an authorized committee thereof) certifying that such transaction satisfies the arm's-length standard, or (ii) a fairness opinion from an independent financial advisor.
Following the IPO, Pinnacle Vista Capital Partners III, LP will remain an Affiliate of CBR for purposes of the Credit Agreement. Pinnacle Vista will continue to hold in excess of 10% of the outstanding Voting Equity Interests of CBR and will continue to have board designation rights under the Amended and Restated Stockholders' Agreement. Accordingly, transactions between the Company and Pinnacle Vista or its affiliated entities will continue to be subject to the Affiliate transaction covenant.
The following IPO-related transactions with Pinnacle Vista and other Affiliates are relevant:
Termination of Pinnacle Vista Management-Services Agreement. As noted in Section IV.C above, the management-services agreement between CBR and Pinnacle Vista Capital Management LLC (pursuant to which the Company pays an annual management fee of $2,400,000) will terminate upon the closing of the IPO. The termination of this agreement eliminates an ongoing Affiliate transaction and is affirmatively beneficial to the Company and the Lenders. The termination should not raise any issues under the Affiliate transaction covenant. We recommend confirming that no termination fee or accelerated payment is owed to Pinnacle Vista upon such termination.
Amended and Restated Stockholders' Agreement. In connection with the IPO, CBR, Pinnacle Vista, and the Founders will enter into an Amended and Restated Stockholders' Agreement providing for, among other things, (i) Pinnacle Vista's board designation rights (subject to ownership-based step-downs), (ii) transfer restrictions during the lock-up period, (iii) standstill provisions, and (iv) tag-along and drag-along rights (the latter applicable only while Pinnacle Vista holds a majority of the outstanding shares). This agreement is a customary post-IPO sponsor arrangement and should fall within the Affiliate transaction covenant's exception for transactions approved by a majority of the disinterested members of the Board of Directors.
Registration Rights Agreement. CBR and Pinnacle Vista (and potentially other stockholders) will enter into a Registration Rights Agreement providing for (i) demand registration rights, (ii) piggyback registration rights, and (iii) shelf registration rights on Form S-3 (once available). The registration rights agreement is a standard post-IPO sponsor arrangement and imposes no financial obligation on the Company other than the customary obligation to bear the expenses of registration (excluding underwriting discounts and selling commissions). Registration rights agreements are universally viewed as arm's-length transactions in the context of sponsor-backed IPOs and should not implicate the Affiliate transaction covenant.
Founder Employment Agreements. The employment agreements with Garrett Calloway (CEO) and Elaine Briggs (COO) are ordinary-course compensation arrangements. To the extent they have been previously disclosed to and approved by the Board of Directors, they should fall within the Affiliate transaction covenant's exception for ordinary-course employment and compensation arrangements.
Director and Officer Indemnification Agreements. CBR will enter into indemnification agreements with each of its directors and officers in connection with the IPO. These are customary governance arrangements required for public company directors and officers and are ordinary-course transactions that should not implicate the Affiliate transaction covenant.
We do not anticipate that any of the foregoing transactions will require additional consent from the Lenders under the Affiliate transaction covenant. However, we recommend disclosing these arrangements in the consent request package to ensure full transparency with Veltrano.
VIII. Anti-Assignment and Transfer Restrictions on Equity
The Credit Agreement contains restrictions on the transfer, sale, assignment, or other disposition of the Equity Interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC, which are pledged as collateral securing the obligations under the Credit Agreement. These restrictions are designed to ensure that the Lenders' security interest in the subsidiary equity remains intact and that the ownership chain from CBR through CBR Holdings to the Borrower is preserved.
The IPO involves two categories of equity transactions, neither of which should implicate the transfer restrictions on pledged subsidiary equity:
Primary Offering (Issuance of New CBR Shares). The primary offering involves the issuance and sale by CBR of new shares of CBR common stock. These are parent-level equity interests that are not pledged under the Credit Agreement. The issuance of new CBR shares does not involve the transfer of any equity interests in CBR Holdings LLC or Calloway-Briggs Operating Company LLC. The ownership of the pledged subsidiary equity remains undisturbed: following the IPO, CBR will continue to own 100% of CBR Holdings LLC, and CBR Holdings LLC will continue to own 100% of Calloway-Briggs Operating Company LLC.
Secondary Offering (Sale of CBR Shares by Pinnacle Vista). The secondary offering involves the sale by Pinnacle Vista of approximately 6,818,182 existing shares of CBR common stock. These are parent-level equity interests held by Pinnacle Vista, not subsidiary-level equity interests that are pledged under the Credit Agreement. The sale of CBR parent-level shares by a stockholder does not implicate the transfer restrictions on the pledged equity interests in CBR Holdings LLC and Calloway-Briggs Operating Company LLC.
We confirm that the pledge of equity interests in CBR Holdings LLC (held by CBR) and the pledge of equity interests in Calloway-Briggs Operating Company LLC (held by CBR Holdings LLC) will remain fully in effect and undisturbed following the IPO. No release, modification, or amendment of the pledge agreements is required in connection with the IPO.
We further confirm that the post-IPO organizational structure — CBR (publicly traded parent) → CBR Holdings LLC (intermediate holding company) → Calloway-Briggs Operating Company LLC (operating subsidiary / Borrower) — is unchanged by the IPO, and the guarantor and security structure established under the Credit Agreement remains intact.
IX. Representation and Warranty Bring-Down Considerations
It is customary for a lender consent of the type contemplated herein to condition the effectiveness of the consent upon the Borrower's delivery of a certificate confirming that certain representations and warranties made by the Borrower and the Guarantors in the Credit Agreement are true and correct in all material respects as of the date of the consent (or, in the case of representations and warranties that are already qualified by materiality or Material Adverse Effect qualifiers, true and correct in all respects). The representations and warranties that are most commonly subject to a bring-down requirement in this context include:
(a) No Default or Event of Default. The Borrower must represent that no Default or Event of Default has occurred and is continuing as of the consent date. This is a threshold condition and must be confirmed with the Company's finance team prior to delivery of the consent.
(b) Accuracy of Financial Statements. The Borrower must represent that the most recently delivered financial statements (which, as of May 2022, would be the fiscal year 2021 audited financial statements and any subsequently delivered quarterly financial statements) fairly present in all material respects the consolidated financial position, results of operations, and cash flows of CBR and its Subsidiaries as of the dates and for the periods covered thereby, in accordance with GAAP.
(c) No Material Adverse Effect. The Borrower must represent that no event, development, or circumstance has occurred since December 31, 2021 (the fiscal year-end date used as the reference date in the most recently delivered annual financial statements) that has had, or could reasonably be expected to have, a Material Adverse Effect on the business, financial condition, operations, or prospects of the Borrower and its Subsidiaries, taken as a whole. This representation requires careful consideration in light of macroeconomic conditions, commodity price movements, supply chain disruptions, and any project-specific developments since fiscal year-end.
(d) Solvency. Some consent forms require a representation that the Borrower and each Guarantor is Solvent (as defined in the Credit Agreement) as of the consent date and will remain Solvent immediately after giving effect to the transactions contemplated by the consent (including the IPO and the $200,000,000 prepayment). The solvency representation typically requires that (i) the fair value of the assets of the relevant entity exceeds its total liabilities, (ii) the entity is able to pay its debts as they become due, and (iii) the entity does not have unreasonably small capital for the conduct of its business.
Recommendation. We recommend that Brendan Walsh and Natasha Forbes coordinate with Marcus Yoon (CFO) and Priya Anand (SVP, Finance & Treasurer) to confirm the Company's ability to deliver each of the foregoing representations at the time the consent is executed. This coordination should occur promptly upon the decision to reactivate the IPO. In particular, the no-Material-Adverse-Effect representation requires an assessment of developments since December 31, 2021, and the solvency representation requires a current assessment of the Company's balance sheet and cash flow position. If there are any concerns regarding the ability to deliver any of these representations, we should discuss potential qualifications or carve-outs to be negotiated into the

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