PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALLOWAY-BRIGGS RENEWABLES INC.
Organizational Meeting Minutes and Action Items
Proposed Initial Public Offering of Common Stock
Meeting Minutes and Action Items Summary
Calderwood & Harkness LLP Matter No. 1015-00001
Meeting Dates: March 14–18, 2022
Prepared by: Natasha Forbes, Associate Calderwood & Harkness LLP
Date of Memorandum: March 21, 2022
Meeting Location: Offices of Calloway-Briggs Renewables Inc. 4200 Ridgeline Parkway, Suite 1100 Austin, TX 78746
This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is being circulated solely to members of the working group identified herein in connection with the proposed initial public offering of common stock of Calloway-Briggs Renewables Inc. This memorandum is not intended for distribution to, or reliance upon by, any other person or entity. Any unauthorized disclosure, copying, or distribution is strictly prohibited.
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I. ATTENDEES
The following persons attended one or more sessions of the organizational meeting held from March 14 through March 18, 2022 at the offices of Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746. Unless otherwise indicated below, each attendee was present in person for all five days of sessions. Attendees who participated remotely or for limited sessions are noted accordingly.
A. Calloway-Briggs Renewables Inc. (the "Issuer" or "CBR")
• Garrett Calloway, Co-Founder, Chairman of the Board of Directors and Chief Executive Officer
• Elaine Briggs, Co-Founder and President, Development
• Marcus Yoon, Chief Financial Officer
• Sandra Haverford, General Counsel and Corporate Secretary
• Priya Anand, Senior Vice President, Finance and Treasurer
B. Pinnacle Vista Capital Partners (Pre-IPO Majority Stockholder)
• Hugh Pemberton, Co-Founder and Managing Partner, Pinnacle Vista Capital Management LLC
• Diane Kovac, Co-Founder and Managing Partner, Pinnacle Vista Capital Management LLC (attended via videoconference on March 14 and March 15 sessions only)
C. Calderwood & Harkness LLP (Issuer's Counsel)
• Jennifer Kwon, Responsible Partner, Capital Markets
• Brendan Walsh, Lead Associate, Capital Markets
• Natasha Forbes, Working Associate, Capital Markets
• Leonard Cross, Specialist Partner, Tax (attended March 15 session on tax structure)
D. Hargrove Keating & Co. (Lead-Left Book-Running Manager)
• Oliver Marchetti, Managing Director, Equity Capital Markets
• Sonia Tran, Director, Power & Renewables Investment Banking
• Daniel Furman, Vice President, ECM Syndicate (attended March 14 and March 16 sessions)
E. Linden Pratt Securities LLC (Joint Book-Runner)
• Rebecca Innes, Managing Director, Equity Capital Markets
F. Graymont Brothers Inc. (Joint Book-Runner)
• Kenneth Sato, Managing Director, Equity Capital Markets
G. Prescott, Danforth & Yee LLP (Underwriters' Counsel)
• Margaret Yee, Partner, Capital Markets
• Scott Halverson, Counsel, Capital Markets
H. Whitfield Archer & Doss LLP (Pinnacle Vista's Counsel)
• Christine Navarro, Partner, Capital Markets
• Derek Fong, Senior Associate (attended via videoconference)
I. Ashford & Pemberton LLP (Independent Auditor)
• Gregory Sondheim, Lead Engagement Partner, CPA
• Irene Valdez, Audit Manager, CPA (attended March 15 and March 16 financial sessions)
J. Broadmark Strategic Communications Inc. (Investor Relations Advisor)
• Jason Eklund, Managing Director (attended March 17 communications and roadshow strategy session)
K. Other Attendees — Partial Attendance
• Alan Kessler, Managing Partner, Kessler McBride & Associates LLP (Tax Advisor) — (attended via videoconference on March 15 for tax structure discussion)
• Patricia Voss, Senior Managing Director, Clarendon Rowe Advisory Group LLC (Compensation Consultant) — (attended via videoconference on March 16 for executive compensation discussion)
II. OVERVIEW OF MEETING SESSIONS
The organizational meeting for the proposed initial public offering of common stock of Calloway-Briggs Renewables Inc. spanned five business days, from Monday, March 14 through Friday, March 18, 2022. The meeting was hosted at the Company's principal offices in Austin, Texas, with certain participants joining by videoconference as noted above. The sessions were structured to address each major workstream and decision point in the IPO process in a comprehensive and organized manner, with the goal of aligning all working-group members on the transaction structure, key decisions, drafting responsibilities, regulatory filings, and the overall project timeline. The meeting sessions were organized as follows:
March 14, 2022 (Monday) — Kick-Off; Deal Overview and Structure; Underwriting Economics; Timeline. The first day began with introductory remarks from Jennifer Kwon (Calderwood & Harkness) and Garrett Calloway (CBR), followed by a high-level overview of the proposed offering structure, the anticipated deal size and pricing assumptions, the composition of the underwriting syndicate, the allocation of underwriting economics, the proposed use of proceeds, and a preliminary discussion of the project timeline from organizational meeting through closing. Oliver Marchetti and Sonia Tran of Hargrove Keating & Co. presented the underwriting syndicate composition, the proposed gross spread, and the allocation methodology. Daniel Furman participated in the afternoon session addressing syndicate logistics and overallotment mechanics.
March 15, 2022 (Tuesday) — Tax Structure; Financial Statements and Audit Scope; Comfort Letter Procedures. The second day focused on the tax structure of the offering. Leonard Cross (Calderwood & Harkness) and Alan Kessler (Kessler McBride & Associates) presented a comparative analysis of the C-corporation structure versus an Up-C structure, leading to the working group's confirmation of the C-corp approach. The session continued with a detailed discussion of the financial statements to be included in the registration statement, the scope and timing of the independent auditor's work, and the procedures for issuance of the comfort letter. Gregory Sondheim and Irene Valdez of Ashford & Pemberton LLP participated in the financial sessions, confirming the availability and scope of audited financial statements and outlining the interim review process for Q1 2022 financial data. Diane Kovac of Pinnacle Vista attended the morning session by videoconference.
March 16, 2022 (Wednesday) — Due Diligence Plan; S-1 Drafting Assignments; Executive Compensation and Equity Plan Design. The third day addressed the due diligence plan in detail, including the assignment of workstreams among counsel and the Company's management, the preparation and distribution of due diligence request lists, and the establishment of the virtual data room. The group then turned to the S-1 drafting assignments, identifying the primary drafter, the CBR contact person, and the source of underwriter input for each section of the registration statement. The afternoon session was devoted to executive compensation matters, including the design of the proposed 2022 Omnibus Equity Incentive Plan, the 2022 Employee Stock Purchase Plan, and initial IPO equity grant recommendations. Patricia Voss of Clarendon Rowe Advisory Group participated by videoconference to discuss compensation benchmarking methodology and plan design considerations. Daniel Furman of Hargrove Keating also attended portions of the day's sessions.
March 17, 2022 (Thursday) — Corporate Governance; Listing Requirements; Communications and Roadshow Strategy. The fourth day addressed post-IPO corporate governance matters, including the proposed Amended and Restated Certificate of Incorporation and Bylaws, board committee composition and independence requirements, controlled-company status under NYSE rules, and emerging growth company status under the JOBS Act. The working group discussed the Amended and Restated Stockholders' Agreement and the Registration Rights Agreement that would become effective upon IPO closing. The afternoon session covered the NYSE listing application process and applicable quantitative and qualitative listing standards, as well as the IPO communications strategy and roadshow planning. Jason Eklund of Broadmark Strategic Communications participated in the communications and roadshow session.
March 18, 2022 (Friday) — Administrative Matters; Service Provider Selections; Action Items and Next Steps. The final day addressed administrative matters, including confirmation of service provider selections (transfer agent, financial printer, D&O insurance broker, investor relations advisor, compensation consultant, and environmental consultant), as well as D&O insurance tower adequacy, existing debt consent and notice requirements, the selling stockholder documentation process, and FINRA and blue-sky considerations. The session concluded with a comprehensive review of all action items, assignment of responsibilities, and confirmation of deadlines and the next steps for the working group.
III. SUMMARY OF KEY DECISIONS
The following is a summary of the key decisions reached and matters discussed during the organizational meeting sessions. These decisions are subject to refinement and further negotiation as the registration process proceeds, and certain matters described below remain subject to the approval of the Company's Board of Directors, the underwriters, and applicable regulatory authorities.
A. Offering Structure and Terms
The working group discussed and reached preliminary agreement on the following principal terms of the proposed offering:
1. Security. Common Stock, par value $0.01 per share, of Calloway-Briggs Renewables Inc., a corporation organized under the laws of the State of Delaware.
2. Proposed Aggregate Offering Size. The total proposed aggregate offering size, inclusive of full exercise of the overallotment option, is approximately $600,000,000. The base offering is expected to be approximately $521,700,000 in gross proceeds, with the overallotment option (a standard 15% greenshoe) providing approximately $78,300,000 in additional gross proceeds upon full exercise. The working group acknowledged that these figures are preliminary and will be refined in connection with the establishment of the filing range and final pricing.
3. Assumed Mid-Range IPO Price. For purposes of all initial drafting, filing, and internal modeling, the working group agreed to use an assumed mid-range IPO price of $22.00 per share. On this basis, the number of shares to be offered was estimated as follows:
• Base shares: approximately 23,713,636 shares
• Overallotment shares: approximately 3,559,091 shares
• Total shares (assuming full exercise of overallotment option): approximately 27,272,727 shares
4. Pre-IPO Shares Outstanding. There are currently 100,000,000 shares of common stock outstanding on a fully diluted basis, after giving effect to the conversion of all outstanding shares of preferred stock and the reclassification of the Company's capitalization structure in connection with the IPO.
5. Post-IPO Shares Outstanding. The number of shares outstanding immediately following the IPO is estimated as follows:
• Base offering (no overallotment exercise): 123,713,636 shares
• Full overallotment exercise: 127,272,727 shares
6. Primary and Secondary Split. The offering will include both primary shares (newly issued by the Company) and secondary shares (sold by Pinnacle Vista Capital Partners III, LP). The allocation is as follows:
• Company (primary shares): approximately $371,700,000 in gross proceeds (approximately 16,895,455 shares at the assumed mid-range price of $22.00 per share)
• Pinnacle Vista Capital Partners III, LP (secondary shares): approximately $150,000,000 in gross proceeds (approximately 6,818,182 shares at the assumed mid-range price of $22.00 per share)
7. Use of Proceeds (Primary Portion). The Company intends to use the net proceeds from the sale of primary shares as follows:
• Approximately $200,000,000 to repay a portion of the outstanding balance under the Term Loan B facility with Veltrano National Bank, as administrative agent, which has an outstanding principal balance of approximately $612,500,000 as of the date hereof;
• Approximately $100,000,000 to fund the construction of the Cimarron Solar project, a 350 MW(dc) utility-scale solar photovoltaic facility currently under development in Pecos County, Texas; and
• Approximately $71,700,000 for general corporate purposes, including working capital, potential acquisitions of development-stage renewable-energy projects, and other capital expenditures.
The Company will not receive any proceeds from the sale of secondary shares by Pinnacle Vista Capital Partners III, LP. All net proceeds from the secondary sale will be received by the selling stockholder.
8. Listing. The Company intends to apply to list the common stock on the New York Stock Exchange under the proposed ticker symbol "CBRI." The NYSE listing application is expected to be submitted contemporaneously with the confidential submission of the draft registration statement on Form S-1.
B. Underwriting Economics
The working group discussed and confirmed the following underwriting economics for the proposed offering:
1. Gross Spread. The gross underwriting discount will be 5.50% of the public offering price per share. Based on the assumed aggregate offering size of $600,000,000 (inclusive of full exercise of the overallotment option), the total underwriting discount is estimated at $33,000,000. The gross spread is consistent with market practice for IPOs of this size in the renewable-energy sector.
2. Allocation of Gross Spread. The gross spread will be allocated among the components of the underwriting compensation as follows:
• Management fee: 20% of gross spread ($6,600,000)
• Underwriting fee: 20% of gross spread ($6,600,000)
• Selling concession: 60% of gross spread ($19,800,000)
3. Underwriter Share Allocation (Base Offering). The shares in the base offering will be allocated among the underwriters as follows:
4. Underwriter Expense Reimbursement Cap. The Company agreed to reimburse the underwriters for reasonable, documented out-of-pocket expenses, subject to a cap of $350,000, which amount is inclusive of FINRA-related fees and expenses. This cap will be referenced in the FINRA corporate financing application.
5. Oliver Marchetti of Hargrove Keating & Co. confirmed the composition of the underwriting syndicate, noting that the two co-managers, Barfield Stuart & Co. and Crane Whitley Capital LLC, were selected on the basis of their sector coverage capabilities in the renewable-energy and clean-technology verticals and their established institutional distribution platforms. Mr. Marchetti further noted that the allocation percentages reflect customary market practice and had been agreed to by all members of the syndicate in preliminary discussions.
C. Lock-Up Provisions
The working group discussed the lock-up provisions applicable to the offering, and reached preliminary agreement on the following terms:
1. Lock-Up Period. Each lock-up party will agree to a lock-up period of 180 days following the date of the final prospectus relating to the offering.
2. Lock-Up Parties. The lock-up agreements will be executed by all directors of the Company (including designated board observers, if any), all executive officers of the Company (as defined under Rule 3b-7 of the Securities Exchange Act of 1934, as amended), Pinnacle Vista Capital Partners III, LP (and its affiliated entities), and all holders of 1% or more of the outstanding shares of common stock of the Company immediately prior to the IPO. The working group estimated that approximately 18 persons and entities will be required to execute lock-up agreements.
3. Lock-Up Release. The lock-up restrictions may be released prior to the expiration of the 180-day period upon (a) the prior written consent of Hargrove Keating & Co. (which consent may be granted or withheld in its sole discretion) or (b) the occurrence of a Change of Control (as such term will be defined in the lock-up agreement).
4. Issuer Lock-Up. The Company itself will agree not to issue, sell, offer to sell, grant any option or contract to sell, or otherwise dispose of or register any shares of common stock (or any security convertible into or exchangeable for common stock) for a period of 180 days following the date of the final prospectus, subject to customary exceptions, including (i) the issuance of shares pursuant to the Company's employee equity incentive plans, (ii) the issuance of shares in connection with bona fide acquisitions or strategic transactions (subject to a lock-up on the shares received by the counterparty), and (iii) the filing of one or more registration statements on Form S-8 relating to the Company's equity incentive plans.
5. Carve-Outs. The lock-up agreements will contain customary carve-outs permitting: (i) transfers to affiliates of the lock-up party (provided that the transferee agrees to be bound by the lock-up), (ii) bona fide estate-planning transfers (provided that the transferee agrees to be bound by the lock-up), (iii) the adoption (but not the execution of trades under) a Rule 10b5-1 trading plan during the lock-up period, and (iv) pledges of shares to bona fide lending institutions as collateral for indebtedness.
6. Margaret Yee of Prescott, Danforth & Yee LLP noted that her firm, acting as underwriters' counsel, would prepare and circulate the initial draft of the form of lock-up agreement to the working group, and that Calderwood & Harkness would have the opportunity to review and provide comments on behalf of the Company and its directors and officers. Ms. Yee indicated that the initial draft would be circulated by April 1, 2022.
D. Tax Structure
The working group discussed the tax structure of the proposed offering in a dedicated session on March 15, 2022, with participation from Leonard Cross of Calderwood & Harkness and Alan Kessler of Kessler McBride & Associates LLP.
1. C-Corporation Structure Confirmed. After a thorough presentation and discussion of the relative merits of a traditional C-corporation IPO structure versus an "Up-C" structure involving a tax receivable agreement ("TRA"), the working group confirmed the decision to proceed with a straightforward C-corporation structure. Leonard Cross and Alan Kessler presented a comparative analysis addressing the key considerations, including the following: (a) CBR's existing corporate structure is organized as a Delaware corporation with a single class of common stock (after giving effect to the reclassification), and the conversion to an Up-C structure would require a reorganization that the working group determined was unnecessary and would add complexity and cost to the transaction; (b) Pinnacle Vista Capital Partners III, LP's anticipated exit horizon is such that the incremental benefits of a TRA would be outweighed by the governance and financial-reporting complexity associated with such an arrangement; and (c) the working group concluded that the absence of a TRA would simplify the Company's financial reporting and eliminate a potential source of investor concern during the IPO marketing process.
2. C-Corp vs. Up-C Memorandum. Leonard Cross agreed to prepare a detailed memorandum setting forth the analysis of the C-corporation structure versus the Up-C alternative, including a discussion of the tax consequences to Pinnacle Vista and the Company, the impact on financial reporting, and the rationale for the decision to proceed with the C-corporation structure. This memorandum is targeted for delivery by March 25, 2022.
3. Tax-Equity Partnership-Flip Compliance Review. The working group identified the tax-equity partnership involving Solaris West Solar LLC and Veltara Basin Financial LLC (an aggregate investment of approximately $280,000,000) as requiring particular attention during the due diligence process. Calderwood & Harkness, in coordination with Kessler McBride, will conduct a compliance review of the partnership-flip structure, including an assessment of the risk of investment tax credit ("ITC") recapture in connection with the IPO and an evaluation of the adequacy of the hypothetical liquidation at book value ("HLBV") methodology used by the Company for financial reporting purposes. The results of this review will inform the S-1 disclosure relating to the Company's tax-equity arrangements.
4. Section 409A Valuation Review. The working group agreed that Calderwood & Harkness, in coordination with CBR's finance team and Kessler McBride, will conduct a review of all equity grants made by the Company from 2019 through Q1 2022 to confirm compliance with Section 409A of the Internal Revenue Code. This review will assess the valuation methodologies used in connection with the determination of the exercise prices of stock options and the fair market values used for restricted stock unit grants, and will evaluate the adequacy of the supporting contemporaneous valuation reports.
E. Financial Statements and Comfort Letter
The working group discussed the scope of the financial statements to be included in the registration statement, the timing of the interim review, and the comfort letter procedures.
1. Audited Financial Statements. Gregory Sondheim of Ashford & Pemberton LLP confirmed that audited consolidated financial statements of the Company for the fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021 are complete and available for inclusion in the registration statement on Form S-1. Mr. Sondheim noted that the audit opinions for each of the three fiscal years are unqualified and that there are no material uncorrected misstatements or unresolved audit differences. The audited financial statements include the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income (loss), consolidated statements of stockholders' equity, and consolidated statements of cash flows, together with the related notes.
2. Interim Financial Data. Unaudited interim financial data for the first quarter of 2022 (i.e., for the quarter ended March 31, 2022) will be prepared by the Company's finance team under the supervision of Marcus Yoon and Priya Anand and will be subject to review (but not audit) by Ashford & Pemberton LLP in accordance with SAS 100 (AU-C 930). The interim financial data is expected to be included in the registration statement as filed or in an amendment thereto, depending on the timing of preparation and review.
3. Comfort Letter Procedures. The working group discussed the procedures for issuance of the comfort letter by Ashford & Pemberton LLP. Three circle-ups are planned in connection with the offering: (a) an initial comfort letter to be delivered at the time of the pricing of the offering, (b) a bring-down comfort letter to be delivered at pricing (if pricing occurs on a date different from the initial delivery date), and (c) a bring-down comfort letter to be delivered at the closing of the offering. All comfort letters will be prepared in accordance with the standards set forth in SAS 72 (AU-C 920) and will cover, among other things, the financial statements and financial data included in the registration statement, the selected financial data, and the procedures performed on certain non-financial data.
4. Comfort Letter Request. The comfort letter request letter will be drafted by the lead-left book-running manager, Hargrove Keating & Co. (Oliver Marchetti and Daniel Furman), and will be reviewed and commented upon by Calderwood & Harkness (on behalf of the Company) and Prescott, Danforth & Yee LLP (on behalf of the underwriters) prior to submission to Ashford & Pemberton. The comfort letter request is expected to be finalized and transmitted to Ashford & Pemberton by April 1, 2022.
5. Change-Period and Tick-and-Tie Procedures. The change-period coverage and tick-and-tie procedures will be coordinated between Ashford & Pemberton (Irene Valdez) and the Company's finance team (Marcus Yoon and Priya Anand). The procedures will cover the period from the most recent audited balance sheet date through a date not more than five business days prior to the date of the initial comfort letter, and a subsequent change-period update will be provided through a date not more than five business days prior to closing. Tick-and-tie procedures will cover all financial data appearing in the registration statement that is derived from the Company's accounting records.
F. Corporate Governance Decisions
The working group discussed the post-IPO corporate governance structure of the Company at length during the March 17 session. The following decisions were reached:
1. Amended and Restated Certificate of Incorporation. The Company will adopt an Amended and Restated Certificate of Incorporation, to become effective upon the closing of the IPO. Calderwood & Harkness will prepare the initial draft. The Amended and Restated Certificate of Incorporation is expected to include the following key provisions:
(a) A classified board of directors structure, with directors divided into three classes, with each class serving staggered three-year terms;
(b) An opt-in to Section 203 of the Delaware General Corporation Law, providing anti-takeover protections that restrict business combinations with interested stockholders;
(c) An exclusive forum clause designating the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware or, if such court also does not have jurisdiction, the United States District Court for the District of Delaware) as the exclusive forum for certain stockholder actions, including derivative actions, breach-of-fiduciary-duty claims, and claims under the DGCL;
(d) Authorization of shares of common stock and preferred stock, each with a par value of $0.01 per share, with the number of authorized shares to be determined in connection with the finalization of the registration statement; and
(e) Such other customary provisions as are appropriate for a publicly traded Delaware corporation.
2. Amended and Restated Bylaws. The Company will adopt Amended and Restated Bylaws, also to become effective upon the closing of the IPO. The Amended and Restated Bylaws will include, among other provisions, advance-notice requirements for stockholder nominations and stockholder proposals and a forum-selection clause consistent with the exclusive forum provision in the Amended and Restated Certificate of Incorporation.
3. Board Committees (Post-IPO). The following standing committees of the Board of Directors will be constituted upon the closing of the IPO, with the following proposed composition:
(a) Audit Committee: Warren Okoro (Chair and designated audit committee financial expert under SEC rules), Catherine Liang, and Richard Estavez. Each member is expected to satisfy the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934 and the applicable NYSE listing standards.
(b) Compensation Committee: Catherine Liang (Chair), Richard Estavez, and Warren Okoro. Each member is expected to satisfy the independence requirements of the applicable NYSE listing standards and to qualify as a "non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934.
(c) Nominating and Corporate Governance Committee: Richard Estavez (Chair), Catherine Liang, and Hugh Pemberton. The working group acknowledged that the inclusion of Hugh Pemberton (a non-independent director due to his affiliation with Pinnacle Vista) on the Nominating and Corporate Governance Committee will be evaluated in connection with the controlled-company exemption analysis described below.
4. Controlled-Company Status. The working group discussed the potential application of the NYSE's "controlled-company" exemption under Section 303A.00 of the NYSE Listed Company Manual. Based on the proposed offering structure, Pinnacle Vista Capital Partners III, LP is expected to hold approximately 49% of the post-IPO voting power of the Company (calculated on the basis of the base offering without exercise of the overallotment option). When combined with the shares held by the Founders (Garrett Calloway and Elaine Briggs) and the voting arrangements under the Amended and Restated Stockholders' Agreement, the combined group may have the ability to control the composition of the Board of Directors, which would cause the Company to qualify as a "controlled company" for purposes of the NYSE listing standards. The controlled-company exemption, if applicable, would permit the Company to rely on certain phase-in provisions with respect to the independence requirements for the Compensation Committee and the Nominating and Corporate Governance Committee. Calderwood & Harkness will prepare a memorandum analyzing the controlled-company exemption and the applicable independent-director phase-in schedule, which memorandum is targeted for delivery by March 28, 2022.
5. Emerging Growth Company Status. The working group confirmed that CBR qualifies as an "emerging growth company" ("EGC") as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, as added by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The Company's total annual gross revenue for the fiscal year ended December 31, 2021 was $487,300,000, which is below the $1.235 billion threshold applicable for fiscal years ending after December 31, 2021 (as adjusted for inflation). As an EGC, the Company is entitled to certain scaled disclosure accommodations, including:
(a) The ability to submit the initial registration statement on Form S-1 (and amendments thereto) to the SEC on a confidential basis, with public filing required not later than 15 days prior to the commencement of the roadshow;
(b) Reduced executive compensation disclosure (only three named executive officers, no CD&A, no pension or non-qualified deferred compensation tables);
(c) Exemption from the requirement to obtain an auditor attestation report on the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002;
(d) The ability to include only two years of audited financial statements (rather than three) in the registration statement, although the Company has elected to include three years; and
(e) Certain other accommodations relating to auditor rotation, extended transition period for new or revised accounting standards, and say-on-pay voting requirements.
Calderwood & Harkness will prepare a memorandum addressing the Company's EGC status and the specific accommodations available, targeted for delivery by March 25, 2022.
6. Stockholders' Agreement. The working group discussed the proposed Amended and Restated Stockholders' Agreement, which will replace the existing pre-IPO stockholders' agreement and will become effective upon the closing of the IPO. The Amended and Restated Stockholders' Agreement is expected to include the following key provisions:
(a) Board Designation Rights for Pinnacle Vista: Pinnacle Vista Capital Management LLC (on behalf of Pinnacle Vista Capital Partners III, LP) will have the right to designate a specified number of directors to the Board of Directors, with the number of designees stepping down as Pinnacle Vista's ownership percentage decreases below specified thresholds (e.g., the right to designate three directors at or above 30% ownership, two directors at or above 20% ownership, one director at or above 10% ownership, and no directors below 10% ownership);
(b) Transfer Restrictions: Restrictions on the transfer of shares by the parties to the agreement, including tag-along and drag-along rights, first-refusal rights, and minimum-holding-period requirements, in each case subject to the lock-up restrictions described in Section III.C above; and
(c) Standstill Provisions: Standstill provisions restricting Pinnacle Vista from acquiring additional shares of the Company or seeking to influence the management or policies of the Company in excess of specified thresholds.
7. Registration Rights Agreement. The working group discussed the proposed Registration Rights Agreement, which will also become effective upon the closing of the IPO. The Registration Rights Agreement is expected to include the following key provisions:
(a) Demand Registration Rights: Pinnacle Vista Capital Partners III, LP will have the right to require the Company to file a registration statement under the Securities Act covering the resale of shares held by Pinnacle Vista, subject to customary limitations on the number of demands and minimum offering-size requirements;
(b) Piggyback Registration Rights: Pinnacle Vista (and, potentially, the Founders) will have the right to include their shares in any registration statement filed by the Company covering the offer and sale of shares of common stock, subject to customary cut-back provisions;
(c) S-3 Shelf Registration Rights: Following the Company's eligibility to use Form S-3, Pinnacle Vista will have the right to require the Company to file a shelf registration statement on Form S-3 covering the resale of shares held by Pinnacle Vista; and
(d) Cut-Back Provisions: In the event that the managing underwriter of a registered offering determines that the number of shares to be included in the offering exceeds the number that can be sold without materially and adversely affecting the price or distribution of the shares, the shares to be included will be subject to a priority cut-back in accordance with customary waterfall provisions.
8. Indemnification Agreements. The Company will enter into individual indemnification agreements with each of its directors and executive officers, in a form to be prepared by Calderwood & Harkness and approved by the Board of Directors. The indemnification agreements will provide for indemnification and advancement of expenses to the fullest extent permitted by the DGCL and will supplement the indemnification provisions contained in the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
G. Equity Incentive Plans
The working group discussed the equity incentive plans to be adopted in connection with the IPO during the March 16 session, with input from Patricia Voss of Clarendon Rowe Advisory Group LLC.
1. 2022 Omnibus Equity Incentive Plan. The Company will adopt the Calloway-Briggs Renewables Inc. 2022 Omnibus Equity Incentive Plan (the "Equity Plan"), with the following key terms:
• Share Reserve: 12,727,273 shares of common stock, representing 10% of the total number of shares outstanding on a fully-exercised basis (127,272,727 shares).
• Award Types: The Equity Plan will provide for the grant of incentive stock options (ISOs), non-qualified stock options (NQSOs), stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), performance stock units (PSUs), dividend equivalents, and other equity-based or cash-based awards.
• Evergreen Provision: The Equity Plan will include an "evergreen" provision providing for an automatic annual increase in the share reserve on January 1 of each calendar year, beginning January 1, 2023, equal to the lesser of (a) 2% of the total number of shares of common stock outstanding on the immediately preceding December 31 or (b) such lesser number of shares as determined by the Board of Directors or the Compensation Committee.
• Administration: The Equity Plan will be administered by the Compensation Committee of the Board of Directors (or, with respect to grants to non-employee directors, the full Board).
2. 2022 Employee Stock Purchase Plan. The Company will adopt the Calloway-Briggs Renewables Inc. 2022 Employee Stock Purchase Plan (the "ESPP"), with the following key terms:
• Share Reserve: 2,545,455 shares of common stock, representing 2% of the total number of shares outstanding on a fully-exercised basis.
• Purchase Price discount: Participating employees will be able to purchase shares at a price equal to 85% (i.e., a 15% discount from) the lower of the fair market value of a share of common stock on the first trading day of the offering period or the fair market value on the last trading day of the offering period (i.e., the purchase date).
• Offering Periods: Six-month offering periods.
• Section 423 Qualification: The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code.
3. IPO Equity Grants (Proposed). The working group discussed proposed initial IPO equity grants to the Company's named executive officers, subject to final sizing and benchmarking by Clarendon Rowe Advisory Group LLC. The preliminary grant recommendations are as follows:
• Garrett Calloway (Chairman and Chief Executive Officer): 500,000 RSUs
• Elaine Briggs (President, Development): 400,000 RSUs
• Marcus Yoon (Chief Financial Officer): 300,000 RSUs
• Other named executive officers: 150,000 to 200,000 RSUs each
All IPO equity grants are proposed to vest ratably over four years (25% per year), subject to the grantee's continued employment with the Company on each applicable vesting date. Patricia Voss of Clarendon Rowe confirmed that her firm would deliver an executive compensation benchmarking report and equity plan design recommendations by March 28, 2022, which report will inform the final sizing of the IPO equity grants.
4. Board and Stockholder Approval. Both the Equity Plan and the ESPP will require approval by the Board of Directors and adoption by the stockholders of the Company. Given that Pinnacle Vista Capital Partners III, LP and the Founders (Garrett Calloway and Elaine Briggs) collectively hold in excess of 90% of the voting power of the Company, the stockholder approval is expected to be obtained by written consent in lieu of a meeting, without the need for a special stockholders' meeting.
H. Service Provider Selections
The working group confirmed the following service provider selections for the IPO:
1. Transfer Agent and Registrar. Continental Shareowner Services, Inc. (contact: Maria Costello, Vice President, Corporate Actions), 1 Ashbury Asset Advisors Plaza, 30th Floor, New York, New York 10004. Sandra Haverford confirmed that Continental Shareowner Services was selected following a competitive bid process that included proposals from three transfer agents. Continental Shareowner Services was selected on the basis of its experience with IPOs, competitive pricing, and technology platform capabilities. The engagement letter is expected to be finalized by the week of March 28, 2022.
2. Financial Printer. Ridgeway Financial Printing Corp. (contact: Alan Greenidge, Account Director), 79 Madison Avenue, New York, New York 10016. Ridgeway Financial Printing was selected on the basis of its EDGAR filing capabilities, including its proprietary XBRL-tagging technology, as well as its prior experience with renewables-sector IPOs and its familiarity with Calderwood & Harkness's formatting specifications. The engagement letter is expected to be finalized by the week of March 28, 2022.
3. D&O Insurance Broker. Dravello Place Insurance Advisors LLC (contact: Nina Radcliffe), 250 Greenwich Street, Suite 3700, New York, New York 10007. Fenwick Place is the Company's existing D&O insurance broker and will be retained to procure an IPO-level D&O insurance tower, as discussed further in Section III.I below.
4. Investor Relations Advisor. Broadmark Strategic Communications Inc. (contact: Jason Eklund, Managing Director), 640 Fifth Avenue, Suite 1205, New York, New York 10019. Broadmark has been engaged to provide IPO communications strategy, roadshow preparation (including investor presentation design and logistics coordination), and post-IPO analyst-day coordination. Mr. Eklund participated in the March 17 session and presented an initial IPO communications plan.
5. Compensation Consultant (Board-Retained). Clarendon Rowe Advisory Group LLC (contact: Patricia Voss, Senior Managing Director), 300 Atlantic Street, Suite 800, Stamford, Connecticut 06901. Clarendon Rowe has been retained by the Board of Directors (through the Compensation Committee) to provide executive compensation benchmarking and equity plan design recommendations in connection with the IPO. Ms. Voss participated in the March 16 session by videoconference.
6. Environmental/Technical Consultant. Greenridge Environmental Sciences LLC (contact: Dr. Nadine Torres), 8400 Shoal Creek Blvd., Suite 200, Austin, Texas 78757. Greenridge Environmental Sciences has an existing engagement with the Company for Phase I and Phase II environmental site assessments at the Company's project sites. In connection with the IPO, Greenridge will provide updated summaries of its assessments for inclusion or reference in the due diligence record, and consent for reference to Greenridge in the S-1 registration statement will be obtained.
I. D&O Insurance
The working group discussed the Company's existing directors' and officers' liability insurance program and its adequacy in light of the transition to public-company status.
1. Existing D&O Tower. The Company's existing D&O insurance tower provides aggregate coverage of $50,000,000 and is structured as follows:
• Primary Layer: Meridian National Assurance Company (Policy No. DNO-22-048871)
• Excess Layer 1: Stonebridge Indemnity Corp.
• Excess Layer 2: Commonwealth Omnivrel Insurance Ltd.
• Annual Premium: $1,870,000
The existing tower is to be reviewed for adequacy in light of the Company's anticipated status as a publicly traded company following the IPO.
2. Refreshed Quotes and Side A DIC Coverage. Dravello Place Insurance Advisors LLC (Nina Radcliffe) will be instructed to obtain refreshed quotes from the current carriers and from additional prospective carriers to confirm that the coverage limits, retentions, and terms are appropriate for a publicly traded renewables company of CBR's size and risk profile. In particular, Fenwick Place will confirm that the Side A difference-in-conditions ("DIC") coverage included in the tower is non-rescindable, which is a critical requirement for the protection of individual directors and officers in the event of a coverage dispute with the primary or excess carriers.
3. D&O Coverage Memorandum. Calderwood & Harkness will prepare a memorandum assessing the public-company readiness of the existing D&O insurance tower, including an analysis of coverage adequacy, policy terms and conditions, and recommendations for any enhancements or supplements that may be advisable in connection with the IPO. This memorandum is targeted for delivery in conjunction with the D&O placement request letter to be sent to Fenwick Place by April 5, 2022.
J. Existing Debt — Consent and Notice Requirements
The working group discussed the Company's existing debt facilities and the consent and notice requirements that may be triggered by the IPO.
1. Corporate Credit Facility (Veltrano National Bank, Administrative Agent). The Company is party to a credit agreement with Veltrano National Bank, N.A., as administrative agent, providing for a $400,000,000 revolving credit facility (maturity: January 2027) and a $650,000,000 Term Loan B facility ($612,500,000 currently outstanding; maturity: January 2029). The IPO is expected to trigger certain change-of-control notice and/or consent provisions under the credit agreement. Calderwood & Harkness will analyze the relevant provisions of the credit agreement and prepare a consent request letter for submission to Veltrano National Bank and the applicable lenders. A memorandum analyzing the lender consent requirements is targeted for delivery by April 8, 2022.
2. Project-Finance Facilities (Prairie Commercial Bank, N.A.). The Company's subsidiaries are party to project-finance facilities with Prairie Commercial Bank, N.A., as administrative agent, including (a) the Mesquite Wind construction-to-term facility ($165,000,000; conversion to term facility expected December 2024) and (b) the Cimarron Solar construction-to-term facility ($143,000,000; conversion to term facility expected March 2025). Both credit agreements contain notice provisions that are expected to be triggered by the IPO. Calderwood & Harkness will prepare notice letters under each credit agreement.
3. Tax-Equity Partnership (Veltara Basin Financial LLC). The Company's subsidiary, Solaris West Solar LLC, is party to a tax-equity partnership-flip arrangement with Veltara Basin Financial LLC, with approximately $280,000,000 invested by the tax-equity investor. The partnership flip is currently expected to occur in 2028. Calderwood & Harkness will review the partnership agreement and related documentation to confirm that the IPO does not constitute an ITC recapture event or otherwise trigger adverse tax consequences under the arrangement, and will confirm the consent and notice requirements applicable to the IPO.
4. Use of Proceeds / Debt Repayment. As noted in Section III.A.7 above, the Company intends to use approximately $200,000,000 of the net proceeds from the primary offering to prepay a portion of the outstanding balance under the Term Loan B facility with Veltrano National Bank. The prepayment will be subject to a prepayment premium of 1.00% of the amount prepaid, resulting in a premium of $2,000,000, which amount will be factored into the use-of-proceeds disclosure in the registration statement.
K. Valuation Context
The working group discussed the valuation context for the proposed offering, with presentations by Oliver Marchetti and Sonia Tran of Hargrove Keating & Co.
1. Pre-Money Equity Valuation. Based on the assumed mid-range IPO price of $22.00 per share and 100,000,000 pre-IPO shares outstanding, the implied pre-money equity valuation of the Company is $2,200,000,000.
2. Post-Money Equity Valuation (Base Offering). Based on the assumed mid-range IPO price of $22.00 per share and 123,713,636 shares outstanding following the base offering (without exercise of the overallotment option), the implied post-money equity valuation of the Company is approximately $2,721,700,000.
3. Enterprise Value (FY 2021). The working group estimated the enterprise value of the Company as approximately $4,246,700,000, calculated as the sum of the post-money equity value ($2,721,700,000) and total debt ($1,710,000,000, comprising the revolving credit facility, the Term Loan B, and the project-finance facilities), less estimated cash on hand of approximately $185,000,000.
4. EV/EBITDA Multiple (FY 2021). Based on the estimated enterprise value of approximately $4,246,700,000 and the Company's reported Adjusted EBITDA for the fiscal year ended December 31, 2021 of $218,600,000, the implied EV/EBITDA multiple is approximately 19.4x.
5. Comparable-Company and Precedent-Transaction Analysis. Oliver Marchetti and Sonia Tran presented a detailed comparable-company and precedent-transaction analysis supporting the proposed valuation range. The comparable-company analysis included publicly traded independent renewable-energy companies, diversified clean-energy platforms, and yieldcos, with a focus on companies with similar asset profiles (utility-scale solar and wind) and growth-stage development pipelines. The precedent-transaction analysis included recent renewables-sector IPOs and selected M&A transactions. Mr. Marchetti and Ms. Tran discussed current market conditions, including recent sector-specific trading multiples, investor appetite for renewable-energy equities, and the impact of recent policy developments (including the potential for additional federal clean-energy incentives) on the valuation of IPO candidates in the sector. The working group acknowledged that the final pricing range will be refined based on market conditions and updated comparable-company data closer to the filing date.
L. Selling Stockholder Matters
The working group discussed the matters relating to the sale of secondary shares by Pinnacle Vista Capital Partners III, LP.
1. Secondary Offering. Pinnacle Vista Capital Partners III, LP will sell approximately $150,000,000 of secondary shares in the offering, representing approximately 6,818,182 shares at the assumed mid-range IPO price of $22.00 per share. The Company will not receive any net proceeds from the sale of secondary shares.
2. Selling Stockholder Questionnaire and Representation Letter. Calderwood & Harkness will prepare a selling stockholder questionnaire and representation letter (covering, among other matters, beneficial ownership, material relationships with the Company, and absence of material non-public information) and will transmit such documents to Whitfield Archer & Doss LLP for completion by Pinnacle Vista Capital Partners III, LP.
3. Custody Agreement. A custody agreement for the secondary shares will be entered into with Hargrove Keating & Co., pursuant to which the secondary shares will be held in custody during the offering period for delivery against payment at closing.
4. Power of Attorney. A power of attorney will be prepared authorizing a designated representative of Pinnacle Vista to execute the underwriting agreement and the pricing agreement on behalf of Pinnacle Vista Capital Partners III, LP.
5. Christine Navarro of Whitfield Archer & Doss LLP confirmed that Pinnacle Vista was prepared to complete all selling stockholder documentation promptly upon receipt from Calderwood & Harkness.