PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, NY 10022
MEMORANDUM
To: Jennifer Kwon, Responsible Partner, Capital Markets
From: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets
Date: April 25, 2022
Re: Due Diligence Memorandum — Corporate Organization and Authority — Calloway-Briggs Renewables Inc. (Proposed IPO)
Matter No.: 1015-00001
Classification: Privileged and Confidential — Attorney Work Product
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I. Executive Summary
This memorandum summarizes the results of our due diligence review of the corporate organization, governance documents, capitalization, and corporate authority of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") and its direct and indirect subsidiaries in connection with the proposed initial public offering (the "IPO" or the "Offering") of approximately $600,000,000 of shares of common stock, par value $0.01 per share (the "Common Stock"), of the Company on the New York Stock Exchange (proposed ticker symbol: CBRI). The IPO will consist of a combination of primary shares issued by the Company and secondary shares sold by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), the Company's majority stockholder. The offering is being conducted pursuant to a registration statement on Form S-1 to be filed with the Securities and Exchange Commission (the "SEC").
Scope of Review. In preparing this memorandum, we have reviewed the following categories of corporate records and organizational documents:
• Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware, together with all amendments thereto;
• Bylaws of the Company, as currently in effect;
• Minutes of all meetings of the board of directors (the "Board") of the Company from 2019 through April 2022, including all resolutions adopted by unanimous written consent of the Board;
• Minutes and written consents of the stockholders of the Company from formation through the current date;
• The Company's stock ledger and capitalization records, as maintained by the Corporate Secretary;
• Certificates of formation, limited liability company agreements, and other organizational documents for each of the Company's material subsidiaries;
• Good-standing certificates from the Delaware Secretary of State, the Texas Secretary of State, and the applicable Secretaries of State (or equivalent authorities) in each other jurisdiction in which the Company or its subsidiaries are organized or qualified to do business;
• Registered agent records for the Company and its subsidiaries;
• The Company's organizational chart reflecting the corporate structure of all material entities; and
• Such other documents and records as we deemed relevant, as more fully described in Section XII (Documents Reviewed) below.
Overall Conclusion. Based on our review of the foregoing documents and records, we have reached the following overall conclusions:
(a) CBR and each of its direct and indirect subsidiaries are duly organized, validly existing, and in good standing under the laws of their respective jurisdictions of formation.
(b) The Company is duly qualified to transact business as a foreign corporation in each jurisdiction where the nature of its business or ownership of its properties requires such qualification, and is in good standing in each such jurisdiction.
(c) The corporate records of the Company and its subsidiaries are generally well-maintained, and the minute books, stock ledger, and capitalization records are complete and current in all material respects, subject to certain discrete observations noted herein.
(d) The corporate authorizations sufficient for the consummation of the proposed IPO will require, among other things, the adoption of an Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and the approval of new equity incentive plans, in each case by the Board and, where required under the Delaware General Corporation Law (the "DGCL"), by the stockholders of the Company.
(e) Certain lender consents, tax-equity investor consents, and regulatory filings remain outstanding as of the date of this memorandum and must be obtained or completed prior to the closing of the IPO. These items are identified in Section XI (Key Observations and Recommendations) below.
This memorandum should be read in conjunction with the other due diligence memoranda prepared by this firm in connection with the Offering, as identified in Section XI.C below.
II. Corporate Formation and Status of the Issuer
A. Calloway-Briggs Renewables Inc.
The Company was incorporated under the DGCL on March 14, 2014, under the full legal name "Calloway-Briggs Renewables Inc." The Company was founded by Garrett Calloway and Elaine Briggs, who at the time of incorporation served as the Company's initial directors and officers. The Company is organized as a C-corporation for federal income tax purposes and has been so treated since formation.
The principal identifying information for the Company is as follows:
We have confirmed that the Company is in good standing with the Secretary of State of the State of Delaware as of the date of this review. A Certificate of Good Standing dated April 18, 2022, was obtained from the Delaware Division of Corporations and is included in the document index at Doc. 133. We have also confirmed that the Company is qualified to do business and is in good standing in the State of Texas, where the Company maintains its principal executive offices and conducts significant operations. A Certificate of Good Standing from the Texas Secretary of State, dated April 20, 2022, is on file at Doc. 134.
Since its founding, the Company has grown into a leading independent power producer focused on renewable energy infrastructure, with an operating portfolio of approximately 2,280 MW of utility-scale solar photovoltaic and onshore wind generation capacity, together with 200 MW / 800 MWh of lithium-ion battery energy storage capacity. The Company also has approximately 770 MW of generation and storage capacity currently under construction and a development pipeline of approximately 6.2 GW.
B. Certificate of Incorporation — Current (Pre-IPO)
The original Certificate of Incorporation of the Company was filed with the Secretary of State of the State of Delaware on March 14, 2014 (the "Original Certificate"). The Original Certificate has been subsequently amended on the following occasions, as reflected in filings with the Delaware Secretary of State and as documented in the Board and stockholder minutes reviewed in connection with this memorandum:
(i) Certificate of Amendment filed August 22, 2017 — This amendment was adopted in connection with the initial investment by Pinnacle Vista and effected (a) an increase in the authorized shares of Common Stock to accommodate the issuance of shares to Pinnacle Vista, (b) the authorization of a new series of Series A Preferred Stock, and (c) certain modifications to the governance provisions, including the addition of protective provisions in favor of the holders of Series A Preferred Stock.
(ii) Certificate of Amendment filed November 8, 2019 — This amendment was adopted in connection with the follow-on investment by Pinnacle Vista and effected (a) a further increase in authorized shares, (b) the authorization of an additional tranche of Series A-1 Preferred Stock, and (c) the addition of certain anti-dilution provisions.
(iii) Certificate of Amendment filed January 15, 2021 — This amendment effected certain technical corrections to the provisions governing the calculation of the conversion ratio for the Series A Preferred Stock and Series A-1 Preferred Stock and updated the indemnification provisions to reflect then-current Delaware law.
As currently in effect (giving effect to all amendments through the date hereof), the Company's Certificate of Incorporation (the "Current Certificate") provides for the following key terms and provisions:
Authorized Capital Stock. The Company is authorized to issue up to 200,000,000 shares of capital stock, consisting of (a) 130,000,000 shares of Common Stock, par value $0.01 per share, and (b) 70,000,000 shares of Preferred Stock, par value $0.01 per share, of which (i) 50,000,000 shares are designated as Series A Preferred Stock and (ii) 20,000,000 shares are designated as Series A-1 Preferred Stock. As discussed further in Section IV below, all outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock will be converted into shares of Common Stock and all classes will be reclassified in connection with the IPO.
Board Size and Composition. The Current Certificate provides that the number of directors constituting the Board shall not be fewer than five (5) nor greater than nine (9), with the exact number to be fixed from time to time exclusively by resolution of the Board. The Current Certificate also includes provisions reflecting the contractual board designation rights of Pinnacle Vista as set forth in the existing Stockholders' Agreement, including the right of Pinnacle Vista to designate up to two (2) directors so long as Pinnacle Vista maintains specified ownership thresholds.
Indemnification. The Current Certificate includes broad indemnification provisions for directors and officers of the Company to the fullest extent permitted by the DGCL, including provisions eliminating the personal liability of directors for monetary damages for breach of fiduciary duty, subject to the exceptions required by Section 102(b)(7) of the DGCL.
Note: The Current Certificate will be superseded in its entirety by the Amended and Restated Certificate of Incorporation to be adopted by the Board and the stockholders and filed with the Delaware Secretary of State in connection with the closing of the IPO (the "IPO Charter"). A draft of the IPO Charter is on file as Doc. 77 in the matter index. The IPO Charter will, among other things, (a) reclassify all outstanding shares of Preferred Stock into Common Stock, (b) authorize a new class of undesignated preferred stock ("blank check" preferred), (c) implement a classified board structure with staggered three-year terms, (d) include provisions opting out of Section 203 of the DGCL (subject to a customary standstill exception), and (e) designate the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder disputes. The terms of the IPO Charter are addressed in a separate review memorandum and are not further analyzed herein.
C. Bylaws — Current (Pre-IPO)
The Bylaws of the Company (the "Current Bylaws") were originally adopted by the Board on March 14, 2014, concurrent with the Company's incorporation, and have been amended from time to time thereafter. We have reviewed the Current Bylaws in their entirety and confirm that they are complete and on file with the corporate records of the Company.
The Current Bylaws include the following principal provisions:
• Board Meetings. Regular and special meetings of the Board may be called by the Chairman of the Board, the Chief Executive Officer, or any two directors. Notice of special meetings must be delivered at least forty-eight (48) hours prior to the meeting, unless waived. Meetings may be held by means of telephone conference or other communications equipment.
• Quorum. A majority of the total number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board.
• Committees. The Board may designate one or more committees, each consisting of one or more directors. The Current Bylaws authorize the Board to delegate to any such committee any of the powers and authority of the Board in the management of the business and affairs of the Company, except as limited by the DGCL.
• Officer Appointments. The officers of the Company shall be appointed by the Board and shall serve at the pleasure of the Board. The Current Bylaws provide for a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer, a Secretary, a Treasurer, and such other officers as the Board may from time to time determine.
• Stockholder Meetings. Annual meetings of stockholders are to be held at such date, time, and place as the Board may designate. Special meetings of stockholders may be called by the Board, the Chairman of the Board, or the Chief Executive Officer. The Current Bylaws set forth notice requirements for stockholder meetings and provide that holders of a majority of the voting power of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum.
• Indemnification. The Current Bylaws include indemnification and advancement-of-expenses provisions for directors and officers that are consistent with and supplement the indemnification provisions in the Current Certificate.
Note: The Current Bylaws will be superseded in their entirety by the Amended and Restated Bylaws to be adopted by the Board in connection with the closing of the IPO (the "IPO Bylaws"). A draft of the IPO Bylaws is on file as Doc. 78 in the matter index. The IPO Bylaws will include, among other customary provisions for a newly public company, advance notice requirements for stockholder proposals and director nominations, proxy access provisions, enhanced procedural requirements for special meetings, and provisions regarding the exclusive forum for certain disputes. The terms of the IPO Bylaws are addressed in a separate review memorandum and are not further analyzed herein.
D. Foreign Qualifications
In addition to its state of incorporation (Delaware), the Company is qualified to transact business as a foreign corporation in each of the following states, in which the Company maintains offices, employees, or operations requiring such qualification:
Good-standing certificates for each of the foregoing states have been obtained or are in process and are reflected in the document index at Docs. 133 through 135. We have confirmed that, based on our review of the Company's operations, property holdings, and employee locations, the Company is qualified to do business in each state where such qualification is required by the nature of its business or the ownership of its properties. We note that the Company does not currently maintain foreign qualifications in any state other than those listed above. Based on our discussions with the Company's General Counsel, Sandra Haverford, and our review of the Company's project locations and employee footprint, we do not believe that additional foreign qualifications are required at this time, though this determination should be revisited as the Company's development pipeline advances.
III. Subsidiary Structure and Organization
A. Organizational Chart Overview
The Company operates through a multi-tiered subsidiary structure organized to segregate project-level assets, liabilities, and cash flows from the parent entity and to facilitate project-level financing, tax-equity partnerships, and other transactions customary in the renewable energy industry. The organizational chart of the Company and its material subsidiaries, as provided by management and reviewed by us, is summarized below:
Calloway-Briggs Renewables Inc. (Delaware corporation — ultimate parent; the issuer in the IPO)
↓ 100% ownership
CBR Holdings LLC (Delaware limited liability company — intermediate holding company)
↓ 100% ownership
Calloway-Briggs Operating Company LLC ("CB Operating") (Texas limited liability company — principal operating entity)
↓ 100% ownership of each of the following project-level SPVs and the development entity:
• Solaris West Solar LLC (Texas)
• Red Mesa Wind Energy LLC (Oklahoma)
• Painted Rock Solar LLC (Arizona)
• Pronghorn Wind LLC (Texas)
• Brazos Energy Storage LLC (Texas)
• Mesquite Wind Holdings LLC (Texas)
• Cimarron Solar Development LLC (New Mexico)
• CBR Development Co. LLC (Texas)
All subsidiaries are wholly owned (100%) by their immediate parent entity. The Company is the indirect owner of 100% of the equity interests in each subsidiary through the chain of ownership described above. There are no joint venture interests, minority holdings, or co-investment arrangements at any level of the corporate structure, other than the tax-equity partnership arrangement described in Section III.D below, which does not involve an equity interest in any subsidiary entity.
B. Material Subsidiaries — Detail
The following table sets forth each of the Company's material subsidiaries, together with their jurisdictions of formation, immediate parent entities, ownership percentages, and the nature of their respective operations:
The Company's total operating capacity across its commercial operating date ("COD") projects is approximately 2,060 MW of solar and wind generation capacity and 200 MW / 800 MWh of battery energy storage capacity. The Mesquite Wind and Cimarron Solar projects, representing an additional 770 MW of generation capacity, are currently under construction and are expected to achieve COD in Q3 2022 and Q1 2023, respectively. The CBR Development Co. LLC entity houses the Company's broader development pipeline, which management represents consists of approximately 6.2 GW of solar, wind, and storage projects at various stages of development across the southwestern United States.
C. Subsidiary Organizational Documents Reviewed
For each of the ten material subsidiaries listed above, we have reviewed the following categories of organizational documents:
(a) Certificate of Formation. We have reviewed the certificate of formation (or, in the case of entities formed in jurisdictions that use different nomenclature, the certificate of organization) for each subsidiary, as filed with the applicable Secretary of State. We have confirmed that each subsidiary was validly formed under the laws of its respective jurisdiction of formation.
(b) Limited Liability Company Agreement / Operating Agreement. We have reviewed the limited liability company agreement (or operating agreement, as applicable) for each subsidiary. Each LLC is organized as a single-member limited liability company that is manager-managed. In the case of CBR Holdings LLC, the Company (CBR) serves as the sole managing member. In the case of CB Operating and all project-level SPVs and CBR Development Co. LLC, CB Operating (or, in the case of CB Operating itself, CBR Holdings LLC) serves as the sole managing member. The LLC agreements are current and do not contain any unusual or non-standard provisions that would impede the consummation of the IPO.
(c) Amendments. We have reviewed all amendments to the certificates of formation and LLC agreements for each subsidiary. The amendments are administrative in nature and relate principally to changes in registered agent designations, updates to manager designations, and technical corrections. No amendments were identified that would raise concerns regarding the organizational status or governance of any subsidiary.
(d) Registered Agent Designations. Each subsidiary has a current registered agent designation on file with the applicable Secretary of State. The registered agents for the subsidiaries are Capitol Statutory Services, Inc. (for Delaware entities) and Ashgrove Services Inc. (for entities formed in Texas, Oklahoma, Arizona, and New Mexico).
(e) Good-Standing Certificates. Good-standing certificates (or certificates of existence, as applicable) have been obtained or are in process for each subsidiary. Based on our review, each subsidiary is validly existing and in good standing under the laws of its jurisdiction of formation. Updated good-standing certificates will be obtained for all ten material subsidiaries at or immediately prior to the closing of the IPO, as reflected on the composite bring-down and closing request list at Doc. 135.
No subsidiary has any outstanding equity interests other than those held by its immediate parent entity. There are no outstanding options, warrants, conversion rights, or other rights to acquire equity interests in any subsidiary. No subsidiary has issued any debt securities or other instruments that are convertible into or exchangeable for equity interests. Each subsidiary's capitalization is clean and fully consistent with the organizational chart and the Company's representations to us.
D. Special Observations — Solaris West Solar LLC
We note one significant structural matter relating to Solaris West Solar LLC that merits particular attention in the context of the IPO disclosure and risk factors.
Solaris West Solar LLC is party to a tax-equity partnership arrangement (the "Solaris West Tax-Equity Arrangement") with Veltara Basin Financial LLC ("Veltara Basin"), a subsidiary of a major financial institution. Veltara Basin has invested approximately $280,000,000 in the Solaris West project through a partnership-flip structure, pursuant to which Veltara Basin receives a priority allocation of tax benefits (including investment tax credits and accelerated depreciation deductions) during the initial compliance period. The partnership flip is expected to occur in 2028, at which point Veltara Basin's economic and tax allocation percentages will be substantially reduced and the Company (through Solaris West Solar LLC) will resume receiving substantially all of the economic benefits of the project.
It is important to note that Veltara Basin does not hold any equity interests in Solaris West Solar LLC itself. Rather, the tax-equity arrangement is structured as a contractual partnership within a separate partnership entity (Solaris West Tax Equity Partnership, LP). However, the partnership agreement governing the Solaris West Tax-Equity Arrangement creates certain governance and consent rights in favor of Veltara Basin that affect the operations of the Solaris West Solar LLC project. These consent rights include, without limitation, restrictions on the incurrence of additional indebtedness, the sale or transfer of project assets, material modifications to the power purchase agreement, and certain capital expenditures above specified thresholds.
The tax-equity partnership structure and consent rights are analyzed in detail in the Tax-Equity Structure Memorandum (Doc. 102) and the Tax-Equity Investor Consent Analysis (Doc. 113), to which the reader is referred. As discussed in Section VIII.C below, the consent of Veltara Basin to the IPO is required under certain provisions of the partnership agreement, and the status of such consent is being tracked as a closing condition.
IV. Capitalization
A. Pre-IPO Capitalization
As of the date of this memorandum, and giving effect to the conversion of all outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock into shares of Common Stock and the reclassification of all classes of capital stock into a single class of Common Stock (which conversion and reclassification will occur automatically upon the effectiveness of the IPO Charter), the Company has 100,000,000 shares of Common Stock outstanding on a fully diluted basis, with a par value of $0.01 per share.
The ownership of the Company's outstanding Common Stock (on a fully diluted, as-converted basis) is as follows:
The co-founders, Garrett Calloway and Elaine Briggs, together hold approximately 24,000,000 shares (24.0% of fully diluted Common Stock) in the aggregate. Other management holders and earlier-stage investors and employee holders collectively hold approximately 14,000,000 shares (14.0% of fully diluted Common Stock). Together with Pinnacle Vista, these stockholders represent the entire outstanding capitalization of the Company. We note that all figures in this section are presented on an as-converted, fully diluted basis, reflecting the conversion of all preferred stock into Common Stock.
B. Pinnacle Vista Capital Partners III, LP — Investment History
Pinnacle Vista Capital Partners III, LP is a Delaware limited partnership formed for the purpose of making private equity investments. The general partner of Pinnacle Vista Capital Partners III, LP is Pinnacle Vista Capital Management LLC, a Delaware limited liability company. The fund is a Series III vintage year 2016 fund with total capital commitments of approximately $4.8 billion, managed by the Pinnacle Vista Capital Management team.
Pinnacle Vista made its initial investment in the Company in 2017, investing $385,000,000 in exchange for shares of Series A Preferred Stock. This investment was made at a time when the Company had achieved commercial operation on its first major project (Red Mesa Wind) and was preparing to commence construction on the Solaris West Solar and Painted Rock Solar projects. The terms of the initial investment were negotiated at arm's length and are documented in the Series A Preferred Stock Purchase Agreement dated June 9, 2017, which was reviewed in connection with this memorandum and is on file at Doc. 10.
In 2019, Pinnacle Vista made a follow-on investment of $120,000,000 in exchange for shares of Series A-1 Preferred Stock, which investment was principally intended to fund the development and construction of the Pronghorn Wind project and the Brazos Energy Storage project, as well as to provide working capital for the expansion of the Company's development pipeline. The terms of the follow-on investment are documented in the Series A-1 Preferred Stock Purchase Agreement dated November 1, 2019, which is on file at Doc. 11.
In total, Pinnacle Vista has invested $505,000,000 in the Company. On a fully diluted, as-converted basis, Pinnacle Vista currently holds approximately 62,000,000 shares of Common Stock, representing approximately 62.0% of the Company's outstanding Common Stock.
The following individuals associated with Pinnacle Vista serve on the Company's Board of Directors as investor-designee directors:
• Hugh Pemberton, Co-Founder and Managing Partner, Pinnacle Vista Capital Partners
• Diane Kovac, Co-Founder and Managing Partner, Pinnacle Vista Capital Partners
Pinnacle Vista has retained Whitfield Archer & Doss LLP as its independent counsel in connection with the IPO. The Whitfield Archer & Doss team is led by Philip Archer (Partner, PE/M&A), Christine Navarro (Partner, Capital Markets), and Derek Fong (Senior Associate). We have been coordinating with the Whitfield Archer & Doss team on matters relating to the secondary offering component, lock-up agreements, the Registration Rights Agreement, and the Amended and Restated Stockholders' Agreement.
C. Stock Ledger and Transfer Records
We have reviewed the stock ledger of the Company, which is maintained by Sandra Haverford, the Company's General Counsel and Corporate Secretary. The stock ledger reflects all issuances, transfers, conversions, and cancellations of shares of capital stock from the Company's formation through the date of this memorandum. The stock ledger is maintained in electronic format using Larkspur Software equity management software.
Based on our review, all outstanding shares of capital stock are properly reflected on the stock ledger. We have reconciled the stock ledger against the capitalization table included in the draft registration statement on Form S-1 (the "Draft S-1") and have identified no discrepancies between the two. Each issuance of shares reflected on the stock ledger corresponds to an authorized board or stockholder action documented in the minute book. We have also reviewed certificates of representation provided by the Company's management confirming the accuracy and completeness of the stock ledger as of the date hereof.
The Company has designated Continental Shareowner Services, Inc. ("Continental") as the transfer agent and registrar for shares of Common Stock following the IPO. The principal contact at Continental is Maria Costello, Vice President, Corporate Actions, located at 1 Ashbury Asset Advisors Plaza, 30th Floor, New York, NY 10004. The transfer agent agreement between the Company and Continental is being negotiated and is expected to be executed prior to the IPO closing. The Company has also initiated the process of obtaining DTC (Depository Trust Company) eligibility for the shares of Common Stock to facilitate book-entry settlement of shares traded on the NYSE. Confirmation of DTC eligibility is tracked on the closing checklist at Doc. 140.
D. Outstanding Options, Warrants, and Convertible Securities
As of the date of this memorandum, the Company has the following equity-linked instruments outstanding:
Stock Options. The Company has outstanding stock options to purchase an aggregate of approximately 4,500,000 shares of Common Stock (on an as-converted basis), with a weighted-average exercise price of approximately $5.82 per share and a weighted-average remaining contractual term of approximately 6.3 years. These options were granted to employees, officers, and consultants of the Company under the Company's 2014 Equity Incentive Plan, as amended (the "2014 Plan"). All outstanding options are fully vested or vest in accordance with their original vesting schedules, which generally provide for four-year ratable vesting with a one-year cliff. For purposes of the fully diluted share count set forth in Section IV.A above, all outstanding options have been included on a treasury-stock-method basis.
Preferred Stock. As described above, all outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock will be automatically converted into shares of Common Stock upon the effectiveness of the IPO Charter. The conversion ratio is one-for-one, subject to certain anti-dilution adjustments that are not applicable as of the date hereof. No additional consideration will be payable by the holders of Preferred Stock in connection with the conversion.
Warrants and Other Convertible Securities. The Company has no outstanding warrants, convertible notes, or other convertible or exchangeable securities.
We have cross-referenced the Company's outstanding equity awards and option grants against the Section 409A Valuation Review Memorandum (Doc. 105), which analyzes the fair market value determinations underlying prior option grants and confirms that such grants were made at or above fair market value as determined by an independent third-party appraiser in accordance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
E. Post-IPO Capitalization (Pro Forma)
The following table sets forth the pro forma capitalization of the Company following the IPO, assuming an offering at the assumed midpoint IPO price of $22.00 per share, and reflecting both the base offering and the full exercise of the underwriters' overallotment option:
Note on Share Counts: The base offering of 23,713,636 shares consists of 16,895,455 primary shares issued by the Company (generating gross proceeds to the Company of $371,700,000) and 6,818,182 secondary shares sold by Pinnacle Vista (generating gross proceeds to Pinnacle Vista of $150,000,000, before underwriting discounts). If the underwriters exercise their overallotment option in full, an additional 3,559,091 primary shares will be issued by the Company, bringing the total offering size to 27,272,727 shares and the total gross proceeds to $600,000,000 ($450,000,000 to the Company and $150,000,000 to Pinnacle Vista, in each case before underwriting discounts and commissions).
Following the IPO, on a base-offering basis (assuming no exercise of the overallotment option), Pinnacle Vista will hold approximately 55,181,818 shares of Common Stock (62,000,000 shares pre-IPO minus 6,818,182 secondary shares sold), representing approximately 47.2% of the post-IPO outstanding shares. On a full-overallotment basis, Pinnacle Vista will hold approximately 55,181,818 shares, representing approximately 45.8% of the post-IPO outstanding shares.
F. Equity Incentive Plans (Proposed)
In connection with the IPO, the Company proposes to adopt two new equity incentive plans:
2022 Omnibus Equity Incentive Plan. The Company proposes to adopt the 2022 Omnibus Equity Incentive Plan (the "Omnibus Plan"), which will provide for the grant of stock options (both incentive stock options and non-qualified stock options), restricted stock units ("RSUs"), performance stock units ("PSUs"), restricted stock awards, stock appreciation rights, and other stock-based and cash-based awards to employees, officers, directors, and consultants of the Company and its subsidiaries. The initial share reserve under the Omnibus Plan will be 12,727,273 shares of Common Stock, which represents approximately 10% of the fully diluted post-IPO shares outstanding (calculated on the basis of 127,272,727 fully diluted shares, assuming full exercise of the overallotment option and the full share reserves under the equity plans). The Omnibus Plan will include an "evergreen" provision pursuant to which the share reserve will automatically increase on the first day of each fiscal year by a number of shares equal to the lesser of (x) 2% of the total outstanding shares on the last day of the immediately preceding fiscal year, or (y) such lesser number of shares as determined by the Board or the Compensation Committee.
2022 Employee Stock Purchase Plan. The Company also proposes to adopt the 2022 Employee Stock Purchase Plan (the "ESPP"), which will be intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The initial share reserve under the ESPP will be 2,545,455 shares of Common Stock, representing approximately 2% of the fully diluted post-IPO shares outstanding. The ESPP will permit eligible employees to purchase shares of Common Stock at a 15% discount to the lower of the fair market value of the Common Stock at the beginning and end of each six-month offering period.
Both the Omnibus Plan and the ESPP require approval by the Board and adoption by the stockholders of the Company. Draft resolutions of the Board approving the Omnibus Plan and the ESPP are on file at Docs. 84 and 85, respectively. The written consent of stockholders adopting the Omnibus Plan and the ESPP is being prepared in the form of the stockholder written consent at Doc. 89.
V. Board of Directors
A. Current Composition
The Board of Directors of the Company currently consists of seven (7) members. The following table sets forth the name, affiliation, and independence status of each current director:
Of the seven current directors, three (3) are independent under the listing standards of the New York Stock Exchange (Section 303A of the NYSE Listed Company Manual): Warren Okoro, Catherine Liang, and Richard Estavez. Two (2) directors are members of the Company's management (Garrett Calloway and Elaine Briggs) and are therefore not independent. Two (2) directors are designees of Pinnacle Vista Capital Partners (Hugh Pemberton and Diane Kovac) and are not independent by reason of their affiliation with the Company's controlling stockholder.
We have conducted a preliminary independence analysis for each director under the NYSE listing standards, including the heightened independence requirements for audit committee and compensation committee membership. Our analysis indicates that each of Okoro, Liang, and Estavez satisfies the general independence requirements of Section 303A.02 of the NYSE Listed Company Manual. We have also confirmed that each of these directors satisfies the additional independence requirements for audit committee membership under Rule 10A-3 of the Securities Exchange Act of 1934, as amended.
Controlled-Company Exemption. Following the completion of the IPO, Pinnacle Vista's voting power in the Company is expected to be approximately 47.2% on a base-offering basis (or approximately 45.8% on a full-overallotment basis). However, when combined with the shares held by the co-founders (Garrett Calloway and Elaine Briggs) and the provisions of the Amended and Restated Stockholders' Agreement (Doc. 90), which includes provisions relating to board composition and voting arrangements, it is possible that Pinnacle Vista may be deemed to "control" the Company within the meaning of the NYSE Listed Company Manual. If so, the Company would qualify as a "controlled company" under Section 303A.00 of the NYSE Listed Company Manual and would be eligible for certain exemptions from the NYSE corporate governance listing standards, including the requirements that (a) a majority of the Board consist of independent directors, (b) the compensation committee be composed entirely of independent directors, and (c) the nominating/corporate governance committee be composed entirely of independent directors. The Company's eligibility for and potential reliance on the controlled-company exemption is analyzed in detail in the Controlled-Company Exemption Memorandum (Doc. 147), to which the reader is referred.
B. Board Committees (Proposed for IPO)
In connection with the IPO, the Board will establish three standing committees, each of which will operate pursuant to a written charter to be adopted by the Board:
Audit Committee. The Audit Committee will be responsible for, among other things, the appointment, compensation, retention, and oversight of the Company's independent registered public accounting firm, the review and approval of the Company's financial statements and internal controls over financial reporting, the oversight of the Company's compliance program, and the review and approval of related-party transactions. Warren Okoro has been designated as the "audit committee financial expert" within the meaning of Item 407(d)(5)(ii) of Regulation S-K. The remaining members of the Audit Committee are expected to be confirmed by the Board prior to the IPO; the draft Board resolutions establishing the Audit Committee are on file at Doc. 86.
Compensation Committee. The Compensation Committee will be responsible for, among other things, establishing the compensation of the Company's executive officers, overseeing the Company's equity incentive plans and other employee benefit programs, and reviewing the Company's compensation discussion and analysis for inclusion in the Company's annual proxy statement. The proposed members of the Compensation Committee are Catherine Liang (Chair), Richard Estavez, and Warren Okoro, each of whom is independent under the NYSE listing standards and qualifies as a "non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934. The draft Board resolutions establishing the Compensation Committee are on file at Doc. 87.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will be responsible for, among other things, identifying and recommending candidates for election to the Board, developing and recommending corporate governance guidelines to the Board, and overseeing the evaluation of the Board and its committees. The proposed members of the Nominating and Corporate Governance Committee are Richard Estavez (Chair), Catherine Liang, and Hugh Pemberton. We note that Pemberton is not independent under the NYSE listing standards by reason of his affiliation with Pinnacle Vista; however, if the Company qualifies as a "controlled company" under the NYSE rules, the Company would be exempt from the requirement that the nominating/corporate governance committee be composed entirely of independent directors. The draft Board resolutions establishing the Nominating and Corporate Governance Committee are on file at Doc. 88.
Committee charters for each of the three standing committees are being prepared in connection with the IPO and will be adopted by the Board prior to the effectiveness of the registration statement. The status of the committee charters and other IPO-readiness corporate governance items is tracked in the IPO Readiness Assessment Memorandum (Doc. 144).
C. Board Designation Rights
Pre-IPO. Under the existing Stockholders' Agreement (the "Existing Stockholders' Agreement"), Pinnacle Vista has the contractual right to designate a number of directors to the Board that is proportional to its percentage ownership of the Company's outstanding capital stock, subject to a minimum of two (2) directors so long as Pinnacle Vista holds at least 25% of the outstanding shares. Pinnacle Vista currently exercises this right through its designation of Hugh Pemberton and Diane Kovac. The co-founders, Garrett Calloway and Elaine Briggs, also have the right under the Existing Stockholders' Agreement to serve as directors of the Company so long as they remain employed by the Company in their current executive capacities.
Post-IPO. Upon the closing of the IPO, the Existing Stockholders' Agreement will be terminated and replaced by the Amended and Restated Stockholders' Agreement (the "A&R Stockholders' Agreement"), a draft of which is on file at Doc. 90. The A&R Stockholders' Agreement will provide for a step-down schedule for Pinnacle Vista's board designation rights, tied to specified ownership thresholds, as follows:
• So long as Pinnacle Vista holds 30% or more of the outstanding Common Stock: Pinnacle Vista will have the right to designate two (2) directors.
• So long as Pinnacle Vista holds 15% or more (but less than 30%) of the outstanding Common Stock: Pinnacle Vista will have the right to designate one (1) director.
• If Pinnacle Vista's ownership falls below 15% of the outstanding Common Stock: Pinnacle Vista will have no board designation rights.
Based on the post-IPO ownership levels described in Section IV.E above, Pinnacle Vista will initially hold between approximately 45.8% and 47.2% of the outstanding Common Stock (depending on whether the overallotment option is exercised), and will therefore be entitled to designate two (2) directors (currently, Hugh Pemberton and Diane Kovac) under the A&R Stockholders' Agreement.
VI. Officers
A. Current Executive Officers
The following individuals currently serve as executive officers of the Company:
Each of the foregoing officers has been identified as a "named executive officer" or an "executive officer" for purposes of the Draft S-1 and the Company's SEC filings. Mr. Calloway, Ms. Briggs, Mr. Yoon, and Mr. Renfroe are expected to be identified as "named executive officers" in the compensation discussion and analysis section of the Draft S-1, with Ms. Haverford, Ms. Anand, Mr. Quintero, and Ms. Whitmore identified as additional executive officers.
B. Officer Appointments
We have reviewed the Board minutes and resolutions pertaining to the appointment of each current officer. All officers have been duly elected or appointed by the Board of Directors in accordance with the Company's Bylaws and applicable provisions of the DGCL. The appointments of each officer are documented in the Board minutes as follows:
• Garrett Calloway and Elaine Briggs have served as officers of the Company since its formation in March 2014 and were appointed to their current titles by the Board.
• Marcus Yoon was appointed as Chief Financial Officer by the Board effective September 1, 2018.
• Sandra Haverford was appointed as General Counsel and Corporate Secretary by the Board effective February 15, 2017.
• Dale Renfroe was appointed as Chief Operating Officer by the Board effective April 1, 2020.
• Priya Anand was appointed as Senior Vice President, Finance & Treasurer by the Board effective June 1, 2019.
• Tomás Quintero was appointed as Senior Vice President, Project Development by the Board effective January 15, 2021.
• Rachel Whitmore was appointed as Chief People Officer by the Board effective March 1, 2021.
Employment agreements for the named executive officers (Calloway, Briggs, Yoon, and Renfroe) and certain other executive officers have been reviewed. The terms of these agreements, including compensation arrangements, severance provisions, change-of-control protections, and restrictive covenants, are analyzed in the Due Diligence Memorandum — Employment and Benefit Plans (Doc. 24), to which the reader is referred.
Indemnification agreements providing for indemnification and advancement of expenses to the fullest extent permitted by the DGCL have been executed (or are in the process of being executed) with each director and officer. The forms of the director and officer indemnification agreements are on file at Docs. 96 and 97, respectively. It is expected that all indemnification agreements will be fully executed prior to the closing of the IPO.
VII. Review of Board and Stockholder Minutes
A. Board Minutes
We have reviewed the minutes of all meetings of the Board of Directors (including regular meetings, special meetings, and actions taken by unanimous written consent of the Board) from January 2019 through April 2022. The minutes are consecutively numbered, appear to be complete, and reflect all material corporate actions taken by the Board during the review period. The minutes were maintained by Sandra Haverford in her capacity as Corporate Secretary.
The following is a summary of the key actions authorized by the Board during the review period:
Annual Corporate Actions.
• Annual election and re-election of officers of the Company.
• Approval of the Company's annual operating budgets and business plans for fiscal years 2019, 2020, 2021, and 2022.
• Approval of the Company's audited financial statements for fiscal years 2018, 2019, 2020, and 2021.
Project-Level Financing Authorizations.
• Authorization of the construction financing facility for the Mesquite Wind project (420 MW Onshore Wind, Oldham County, TX) with Prairie Commercial Bank, in the aggregate principal amount of $165,000,000 (Board meeting of January 22, 2022).
• Authorization of the construction financing facility for the Cimarron Solar project (350 MW Solar PV, Doña Ana County, NM) with Prairie Commercial Bank, in the aggregate principal amount of $143,000,000 (Board meeting of October 14, 2021).
Corporate Credit Facility.
• Authorization of the refinancing of the Company's corporate credit facilities with Veltrano National Bank, consisting of a $400,000,000 Revolving Credit Facility and a $650,000,000 Term Loan B (Board meeting of August 12, 2021).
Tax-Equity Transactions.
• Approval of the tax-equity partnership arrangement with Veltara Basin Financial LLC for the Solaris West Solar project, involving a $280,000,000 investment by Veltara Basin in a partnership-flip structure (Board meeting of March 18, 2020).
IPO Authorization.
• Authorization of the proposed initial public offering of shares of Common Stock on the New York Stock Exchange, including authorization for the officers of the Company to take all actions necessary or advisable in connection therewith, including the preparation and filing of a registration statement on Form S-1 with the SEC, the engagement of underwriters and other advisors, and the negotiation and execution of the underwriting agreement and related agreements (Board meeting of March 4, 2022, as documented in Board Resolutions Doc. 81).
Based on our review, the Board minutes are complete and do not contain any gaps, irregularities, or unexplained lapses in the record of proceedings. All minutes are signed or attested by the Corporate Secretary. We identified no actions taken by the Board without proper notice, quorum, or authorization, and no instances in which the Board acted outside the scope of its authority under the Certificate of Incorporation, Bylaws, or applicable law.
B. Stockholder Minutes and Consents
We have reviewed all minutes of meetings of the stockholders of the Company and all written consents of stockholders from the Company's formation in March 2014 through the date of this memorandum. The stockholder records are complete and reflect all material actions taken by the stockholders during the review period.
The following is a summary of the key stockholder actions identified during our review:
• Formation. Adoption of the Original Certificate of Incorporation and election of the initial Board of Directors (March 2014).
• Amendments to Certificate of Incorporation. Adoption of amendments to the Certificate of Incorporation in connection with the Pinnacle Vista initial investment (August 2017), the Pinnacle Vista follow-on investment (November 2019), and technical corrections (January 2021), in each case by the requisite vote of the stockholders.
• Election of Directors. Annual election of directors in accordance with the Certificate of Incorporation and Bylaws.
• Pinnacle Vista Investment Transactions. Approval of the issuance of shares of Series A Preferred Stock to Pinnacle Vista in connection with the initial $385,000,000 investment (2017) and the issuance of shares of Series A-1 Preferred Stock to Pinnacle Vista in connection with the follow-on $120,000,000 investment (2019), in each case by the requisite vote or written consent of the stockholders.
• Upcoming — IPO Consent. The written consent of stockholders adopting the Amended and Restated Certificate of Incorporation (IPO Charter), the 2022 Omnibus Equity Incentive Plan, and the 2022 Employee Stock Purchase Plan (Doc. 89) has been prepared in draft form and is expected to be executed by Pinnacle Vista Capital Partners III, LP, Garrett Calloway, and Elaine Briggs, who collectively represent in excess of 90% of the voting power of the Company's outstanding capital stock and are therefore sufficient to adopt each of the foregoing actions by written consent without a meeting, in accordance with Section 228 of the DGCL.
We note that all prior stockholder actions were taken by the requisite vote or consent of the stockholders as required by the DGCL and the Company's Certificate of Incorporation, and that all written consents are properly executed and on file with the corporate records.
VIII. Authorization for the IPO
A. Board Authorizations Required
In order to consummate the proposed IPO, the Board of Directors has adopted (or is expected to adopt prior to the closing of the IPO) resolutions authorizing the following actions:
1. Filing of Registration Statement. Authorization for the filing of a registration statement on Form S-1 (and any amendments thereto) with the SEC, including the confidential submission of a draft registration statement, the public filing of the registration statement, and the filing of any post-effective amendments or supplements thereto. (Doc. 81)
2. Engagement of Underwriters. Authorization for the engagement of the following underwriters for the Offering: Hargrove Keating & Co. (as lead-left book-runner), Linden Pratt Securities LLC and Graymont Brothers Inc. (as joint book-runners), and Barfield Stuart & Co. and Crane Whitley Capital LLC (as co-managers), and for the negotiation and execution of the underwriting agreement with such underwriters. (Doc. 81)
3. Amended and Restated Certificate of Incorporation. Approval of the Amended and Restated Certificate of Incorporation (IPO Charter, Doc. 77), subject to adoption by the stockholders and filing with the Delaware Secretary of State. (Doc. 82)
4. Amended and Restated Bylaws. Adoption of the Amended and Restated Bylaws (IPO Bylaws, Doc. 78), to be effective upon the closing of the IPO. (Doc. 83)
5. 2022 Omnibus Equity Incentive Plan. Approval of the 2022 Omnibus Equity Incentive Plan, with an initial share reserve of 12,727,273 shares of Common Stock, subject to adoption by the stockholders. (Doc. 84)
6. 2022 Employee Stock Purchase Plan. Approval of the 2022 Employee Stock Purchase Plan, with an initial share reserve of 2,545,455 shares of Common Stock, subject to adoption by the stockholders. (Doc. 85)
7. Board Committees. Appointment of the Audit Committee (Doc. 86), Compensation Committee (Doc. 87), and Nominating and Corporate Governance Committee (Doc. 88), together with the adoption of written charters for each committee.
8. Offering Documents and Agreements. Authorization for the officers of the Company to negotiate, execute, and deliver the underwriting agreement, lock-up agreements, the Amended and Restated Stockholders' Agreement (Doc. 90), and the Registration Rights Agreement (Doc. 91), and to take all other actions necessary or advisable in connection with the Offering.
9. D&O Insurance and Indemnification Agreements. Authorization for the placement of directors' and officers' liability insurance and the execution of individual indemnification agreements with each director and officer of the Company (Docs. 96, 97).
As of the date of this memorandum, the Board has adopted resolutions authorizing items (1) and (2) above (Doc. 81). Draft resolutions for items (3) through (9) are in various stages of preparation and review. We expect all necessary Board resolutions to be adopted at a Board meeting to be held prior to the anticipated launch of the Offering.