MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Jennifer Kwon, Responsible Partner, Capital Markets
FROM: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets
DATE: March 28, 2022
RE: Anti-Takeover Provisions Analysis — Calloway-Briggs Renewables Inc. Proposed IPO
MATTER NO.: 1015-00001
CLIENT: Calloway-Briggs Renewables Inc. ("CBR" or the "Company")
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I. Executive Summary
The purpose of this memorandum is to analyze and recommend anti-takeover provisions for inclusion in the Amended and Restated Certificate of Incorporation (the "Restated Charter") and Amended and Restated Bylaws (the "Restated Bylaws") of Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), each of which will become effective upon the closing of the Company's proposed initial public offering (the "IPO") of approximately $600,000,000 of shares of its common stock on the New York Stock Exchange (proposed ticker symbol: CBRI).
Company Overview. CBR is a Delaware corporation headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746 (EIN: 83-4027615). The Company is a developer and operator of utility-scale solar, wind, and battery-storage projects. As of the date of this memorandum, CBR has an operating capacity of approximately 3.8 gigawatts ("GW") across 22 projects located in Texas, New Mexico, Arizona, California, and Oklahoma. The Company's growth trajectory and position in the renewable energy sector make it an attractive candidate for a public offering, but also potentially subject to unsolicited acquisition activity in an industry characterized by significant consolidation.
Pre-IPO Ownership. The Company's current capitalization is concentrated among three principal constituencies: (i) Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), which holds approximately 62% of the Company's fully diluted common stock; (ii) the Company's co-founders, Garrett Calloway (Chief Executive Officer and Chairman of the Board) and Elaine Briggs (President and Chief Operating Officer), together with other members of management, who collectively hold approximately 24% of the fully diluted common stock; and (iii) other holders (including former employees, early-stage investors, and certain advisors), who collectively hold approximately 14% of the fully diluted common stock.
Post-IPO Ownership Dynamics. At the assumed midpoint offering price of $22.00 per share, the base offering contemplates the sale of approximately 23,713,636 shares of common stock (consisting of both primary and secondary shares). When combined with the approximately 100,000,000 shares of common stock outstanding prior to the IPO, the Company will have approximately 123,713,636 shares of common stock outstanding following the closing of the base offering (before giving effect to the exercise of the underwriters' over-allotment option). Pinnacle Vista will retain significant voting power following the IPO, as discussed in greater detail in Section II.C below, and will likely qualify as a controlling stockholder under applicable New York Stock Exchange listing standards in the immediate post-IPO period. However, as Pinnacle Vista monetizes its investment over time through secondary sales and distributions to its limited partners, its ownership percentage will decline, and the structural anti-takeover provisions embedded in the Company's governing documents will become the primary defense against hostile acquisition activity.
Board Composition. The Company's board of directors (the "Board") will consist of seven directors at the time of the IPO: two members of management (Garrett Calloway and Elaine Briggs); two designees of Pinnacle Vista (Hugh Pemberton and Diane Kovac); and three independent directors (Warren Okoro, Catherine Liang, and Richard Estavez). The composition of the Board reflects the negotiated balance between the controlling stockholder, the co-founders, and the independent governance expectations of the public markets.
Summary of Recommendations. After a comprehensive review of the applicable provisions of the Delaware General Corporation Law (the "DGCL"), prevailing market practice in recent renewables-sector and energy-infrastructure IPOs, and the specific ownership dynamics and governance objectives of the Company and its principal stockholders, we recommend the adoption of the following anti-takeover provisions in connection with the IPO:
(i) Classified Board. A classified (staggered) board of directors with three classes, each serving staggered three-year terms, with directors removable only for cause by a supermajority vote.
(ii) Delaware Section 203 Opt-In. The Company should affirmatively opt in to the protections of Section 203 of the DGCL (the business combination statute), with a carve-out exempting Pinnacle Vista and its affiliates and permitted transferees from the definition of "interested stockholder."
(iii) No Shareholder Rights Plan at This Time. We do not recommend the adoption of a shareholder rights plan (commonly known as a "poison pill") at the time of the IPO; however, we recommend that a "shelf" rights plan be prepared and maintained in a state of readiness for rapid deployment by the Board should circumstances warrant.
(iv) Advance-Notice Bylaws. The Restated Bylaws should include advance-notice provisions requiring stockholders to provide timely prior notice of director nominations and business proposals to be brought before annual or special meetings.
(v) Exclusive Forum Provision. The Restated Charter should designate the Delaware Court of Chancery (or, if the Court of Chancery lacks subject matter jurisdiction, the federal district court for the District of Delaware) as the exclusive forum for certain internal corporate claims, and should designate the federal district courts of the United States as the exclusive forum for claims arising under the Securities Act of 1933, as amended (the "Securities Act").
(vi) Supermajority Voting Requirements. The Restated Charter and Restated Bylaws should require the affirmative vote of holders of at least 66⅔% of the outstanding voting power to amend, alter, or repeal certain protective provisions of the charter and bylaws.
(vii) Elimination of Stockholder Action by Written Consent (Post-Decontrol). Following the date on which Pinnacle Vista and its affiliates cease to beneficially own at least 50% of the outstanding voting power, stockholder action should be permitted only at a duly called annual or special meeting of stockholders and not by written consent.
(viii) No Cumulative Voting. The Restated Charter should expressly disclaim cumulative voting in the election of directors.
(ix) Blank-Check Preferred Stock Authorization. The Restated Charter should authorize a class of blank-check preferred stock, empowering the Board to issue preferred stock in one or more series with such rights, preferences, and qualifications as the Board may determine, without further stockholder approval.
Cross-Reference. This memorandum should be read in conjunction with the separate Controlled-Company Exemption Memorandum (Matter No. 1015-00001) and the current drafts of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (IPO Forms), each of which is being prepared concurrently and is referenced herein where relevant.
II. Background — Current Corporate Governance Structure
A. Existing Certificate of Incorporation
Calloway-Briggs Renewables Inc. was incorporated in the State of Delaware in 2014 by its co-founders, Garrett Calloway and Elaine Briggs, for the purpose of developing and operating utility-scale renewable energy projects. Since its inception, the Company has operated as a privately held corporation, and its existing Certificate of Incorporation (as amended from time to time, the "Existing Charter") reflects governance provisions typical of a private-company structure: a single class of common stock; simple majority voting for the election of directors and other matters; no classified board; and no anti-takeover provisions of the type customarily included in the governing documents of a publicly traded company.
In connection with the IPO, the Company's authorized capital stock will be reclassified and restated. The Restated Charter will authorize two classes of capital stock: (i) common stock, par value $0.01 per share, in an amount to be finalized in coordination with the Company's management and financial advisors (we currently anticipate authorization of 750,000,000 shares of common stock), and (ii) blank-check preferred stock, par value $0.01 per share, in an amount to be determined (as discussed in Section IX below, we suggest 50,000,000 shares). The reclassification will not alter the rights of existing holders of common stock, each of whom will continue to hold one share of common stock for each share held prior to the filing of the Restated Charter.
The Company's registered agent in the State of Delaware is Capitol Statutory Services, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. The Company is in good standing in Delaware, and we have confirmed the Company's good standing as of the date of this memorandum through the Delaware Secretary of State's online filing system.
B. Existing Stockholders' Agreement
The Company's governance is currently governed, in part, by the Stockholders' Agreement, dated as of September 12, 2016, by and among CBR, Pinnacle Vista Capital Partners III, LP, Garrett Calloway, and Elaine Briggs (the "Existing Stockholders' Agreement"). The Existing Stockholders' Agreement contains provisions governing board composition (including the right of Pinnacle Vista to designate a majority of the Board), transfer restrictions on shares of common stock held by the parties, drag-along rights in favor of Pinnacle Vista, and tag-along rights in favor of the co-founders and management holders.
In connection with the IPO, the Existing Stockholders' Agreement will be terminated and replaced by an Amended and Restated Stockholders' Agreement (the "Restated Stockholders' Agreement"), which will become effective upon the closing of the IPO. The Restated Stockholders' Agreement will provide step-down board designation rights for Pinnacle Vista, tied to specified ownership thresholds as described in Section X.A below. The transfer restrictions and drag-along/tag-along provisions of the Existing Stockholders' Agreement will be superseded by the lock-up arrangements agreed to in connection with the IPO and the registration rights described below.
Additionally, the Company and Pinnacle Vista will enter into a Registration Rights Agreement (the "Registration Rights Agreement") effective upon the closing of the IPO. The Registration Rights Agreement will provide Pinnacle Vista with customary demand registration rights, piggyback registration rights, and S-3 shelf registration rights, facilitating Pinnacle Vista's ability to monetize its investment in the Company following the expiration of the lock-up period. The terms of the Registration Rights Agreement are being negotiated and documented separately by the Capital Markets team.
C. Post-IPO Ownership and Controlled-Company Status
A critical consideration in structuring the Company's post-IPO anti-takeover framework is the expected ownership position of Pinnacle Vista following the closing of the base offering. The relevant calculations are as follows:
Pinnacle Vista currently holds approximately 62,000,000 shares of common stock, representing approximately 62% of the Company's fully diluted common stock. In connection with the IPO, Pinnacle Vista intends to sell approximately 6,818,182 shares (representing approximately $150,000,000 of the secondary component of the base offering at the assumed midpoint price of $22.00 per share). Following the closing of the base offering (and prior to any exercise of the underwriters' over-allotment option), Pinnacle Vista will retain approximately 55,181,818 shares of common stock.
On a base post-IPO basis, the Company will have approximately 123,713,636 shares of common stock outstanding. Accordingly, Pinnacle Vista's post-IPO ownership will be approximately 44.6% of the outstanding shares on a base offering basis. When combined with the shares held by the co-founders and other management holders who are party to the Restated Stockholders' Agreement, and taking into account the voting provisions of the Restated Stockholders' Agreement (which may provide Pinnacle Vista with the right to direct the voting of certain shares held by the co-founders on specified matters), Pinnacle Vista may effectively control the Company post-IPO for purposes of the NYSE's controlled-company exemption, which generally requires that more than 50% of the voting power be held by an individual, a group, or another company.
The relevance of the controlled-company analysis to this memorandum is twofold. First, if the Company qualifies for and elects to rely on the controlled-company exemption under NYSE Listed Company Manual Section 303A, it may be exempt from certain corporate governance requirements, including the requirements to maintain a majority independent board and fully independent nominating/corporate governance and compensation committees. This may reduce the near-term practical significance of certain anti-takeover provisions (e.g., advance-notice bylaws) during the period of Pinnacle Vista's control. Second, however, as Pinnacle Vista's ownership decreases over time—whether through secondary sales, distributions to limited partners, or otherwise—the Company will lose controlled-company status, and the anti-takeover provisions embedded in the Restated Charter and Restated Bylaws will become the primary structural defenses against hostile acquisition activity. For this reason, it is essential that these provisions be included in the Company's governing documents from the outset, at the time of the IPO, rather than attempting to adopt them after the Company is already publicly traded, when stockholder approval for charter amendments may be difficult to obtain.
A full analysis of the controlled-company exemption and the schedule for phasing in independent-director requirements as Pinnacle Vista's ownership declines is addressed in the separate Controlled-Company Exemption Memorandum.
III. Classified Board Structure
A. Recommendation. We recommend implementing a classified board of directors (also referred to as a "staggered board") with three classes of directors, each serving staggered three-year terms, effective upon the closing of the IPO. The classified board structure should be established in the Restated Charter and is one of the most significant anti-takeover protections available to a Delaware corporation.
B. Analysis. Statutory Authority. Section 141(d) of the DGCL expressly permits a Delaware corporation to provide in its certificate of incorporation for a classified board of directors. Where the board is classified into three classes, the members of each class serve staggered three-year terms, with approximately one-third of the directors standing for election at each annual meeting of stockholders. This structure is self-executing once established in the certificate of incorporation and does not require annual board action to maintain.
Anti-Takeover Effect. The classification of the Board is among the most effective structural defenses against hostile takeovers. Because only approximately one-third of the Board stands for election at any given annual meeting, a hostile acquiror or activist stockholder cannot obtain majority control of the Board through a single proxy contest. Instead, an insurgent would need to prevail in at least two successive annual election cycles to seat a majority of directors—a process that typically takes a minimum of approximately 14 months and can take as long as two full years, depending on the timing of the first annual meeting. This extended timeline provides the Board and management with significant additional time to evaluate unsolicited offers, explore strategic alternatives, and negotiate from a position of relative strength. The defensive effect of a classified board is substantially enhanced when combined with other anti-takeover provisions, particularly the removal-only-for-cause provision (discussed below) and the prohibition on stockholder action by written consent.
Proposed Classification of the Board. We propose the following classification of CBR's seven-member Board at the time of the IPO:
• Class I (initial term expiring at the first annual meeting of stockholders following the IPO): Warren Okoro, Diane Kovac, and Richard Estavez.
• Class II (initial term expiring at the second annual meeting of stockholders following the IPO): Elaine Briggs and Catherine Liang.
• Class III (initial term expiring at the third annual meeting of stockholders following the IPO): Garrett Calloway and Hugh Pemberton.
This classification has been structured to ensure a balance of management, Pinnacle Vista designee, and independent representation across all three classes. Notably, the co-founders (Calloway and Briggs) have been placed in separate classes to avoid a scenario in which both management directors are simultaneously up for election, which could create vulnerability to a proxy contest targeting management representation.
Director Removal Only for Cause. Consistent with the requirements of Section 141(k)(1) of the DGCL, which provides that directors of a corporation with a classified board may be removed only for cause (unless the certificate of incorporation otherwise provides), we recommend that the Restated Charter provide that directors may be removed only for cause and only upon the affirmative vote of holders of at least 66⅔% of the total voting power of all then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. The "for cause" removal standard, combined with the supermajority voting threshold, makes it extremely difficult for a hostile party to remove incumbent directors between annual meetings.
Board-Only Vacancy Filling. We further recommend that the Restated Charter and Restated Bylaws provide that any vacancies on the Board (whether created by removal, resignation, death, or an increase in the number of directors) may be filled only by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum, and not by the stockholders. This vacancy-filling provision works in tandem with the classified board to prevent a hostile acquiror from creating vacancies (e.g., through a successful removal vote) and then filling those vacancies with its own nominees at a special meeting of stockholders.
C. Market Practice
Classified boards remain common among newly public companies in the renewables sector and the broader energy-infrastructure industry. Our review of anti-takeover provisions adopted in connection with recent IPOs of comparable companies (see Appendix E) indicates that a significant majority of renewables and energy-infrastructure companies that completed IPOs in 2020 and 2021 adopted classified board structures in their governing documents. This is consistent with broader market trends: while there has been a gradual decline in classified boards among S&P 500 companies in recent decades (driven in large part by institutional investor pressure and proxy advisory firm recommendations), newly public companies—particularly those with significant sponsor ownership—continue to adopt classified boards at a high rate.
We note that the Cobalt Ridge Solutions ("ISS") and Westmark Solutions ("Tarrant Partners LLC"), the two leading proxy advisory firms, generally recommend that their clients vote against classified board proposals and in favor of proposals to declassify existing boards. This policy stance may affect institutional investor sentiment regarding CBR's governance profile. However, given Pinnacle Vista's continued controlling position in the immediate post-IPO period, ISS and Tarrant Partners LLC recommendations are unlikely to have a material impact on the outcome of director elections or governance proposals in the near term. As Pinnacle Vista's ownership declines and the Company transitions to a widely held ownership structure, the Board may wish to reconsider the classified board structure in light of evolving market expectations.
Potential Sunset Provision. Some recent IPOs have included sunset provisions that automatically declassify the board after a specified period (e.g., five to seven years following the IPO) or upon the occurrence of a triggering event (e.g., the principal stockholder's ownership declining below a specified threshold, such as 20% or 10%). A sunset provision may be viewed favorably by institutional investors and proxy advisory firms, as it signals a commitment to eventual adoption of annual elections while maintaining the defensive benefits of the classified board during the period of greatest vulnerability to hostile activity. We recommend that this issue be discussed with CBR management and the co-founders, as well as with Pinnacle Vista, to determine whether a sunset is desired and, if so, what the appropriate trigger should be.
D. Charter Provision
The classified board provisions, including the three-class structure, staggered three-year terms, director removal only for cause by a 66⅔% supermajority vote, and board-only vacancy filling, will be set forth in the applicable article of the Restated Charter. We are preparing the specific charter language in connection with the broader drafting of the IPO Forms. A blackline comparison showing the addition of the classified board provisions to the Existing Charter will be included in the Certificate of Incorporation — Blackline (Existing vs. IPO Form) referenced in Appendix C.
IV. Delaware Section 203 — Business Combination Statute
A. Overview of Section 203
Section 203 of the DGCL is Delaware's anti-takeover business combination statute. It provides significant protection against coercive two-step takeover transactions by prohibiting a Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date on which such person became an interested stockholder, subject to certain exceptions.
For purposes of Section 203:
• A "business combination" is broadly defined to include mergers, consolidations, sales or other dispositions of assets having an aggregate market value equal to 10% or more of the aggregate market value of the corporation's consolidated assets or outstanding stock, certain transactions resulting in the issuance or transfer of stock of the corporation, and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges, or other financial benefits provided by or through the corporation.
• An "interested stockholder" is generally defined as any person that (i) is the owner of 15% or more of the outstanding voting stock of the corporation, or (ii) is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder.
The three-year moratorium on business combinations with interested stockholders is subject to three statutory exceptions. A business combination is not prohibited if:
(i) Prior to the date on which such stockholder became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
(ii) Upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the voting stock owned by the interested stockholder) those shares owned by (a) persons who are directors and also officers of the corporation and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(iii) On or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders (not by written consent) by the affirmative vote of at least 66⅔% of the outstanding voting stock not owned by the interested stockholder.
Section 203 applies by default to Delaware corporations that have a class of voting stock listed on a national securities exchange (such as the NYSE) or held of record by more than 2,000 stockholders, unless the corporation affirmatively opts out in its certificate of incorporation or bylaws. A corporation may also opt out by amending its certificate of incorporation by the affirmative vote of a majority of the outstanding shares entitled to vote, but such amendment does not become effective until 12 months after its adoption and does not apply to any business combination between the corporation and any person who became an interested stockholder prior to such amendment.
B. Opt-In vs. Opt-Out Analysis
Recommendation: Opt In. We recommend that CBR affirmatively opt in to the protections of Section 203 in the Restated Charter, with a carve-out exempting Pinnacle Vista Capital Partners III, LP (and its affiliates and permitted transferees) from the definition of "interested stockholder."
Rationale for Opting In. Section 203 provides a powerful structural defense against the accumulation of a 15% or greater stake by a hostile party followed by a coercive business combination intended to squeeze out minority stockholders on unfavorable terms. By opting in to Section 203, the Company ensures that any person who acquires 15% or more of the Company's voting stock without prior Board approval will be subject to the three-year moratorium on business combinations, thereby protecting the Company's minority stockholders and providing the Board with time and leverage to evaluate any unsolicited proposal. In the context of an IPO, where a significant portion of the Company's shares will be entering the public float for the first time, Section 203 provides an important safeguard against accumulation strategies by hostile parties.
Rationale for Pinnacle Vista Carve-Out. Pinnacle Vista currently holds approximately 62% of the Company's outstanding voting stock and will hold approximately 44.6% following the base offering. Pinnacle Vista was an approved stockholder of the Company well prior to the IPO, having acquired its stake in 2016 in a transaction that was approved by the Board. Without a carve-out, Pinnacle Vista would be classified as an "interested stockholder" by virtue of its ownership exceeding 15%, and any future business combination between the Company and Pinnacle Vista—or any sale of Pinnacle Vista's shares to a third party that results in the third party becoming an interested stockholder—could be subject to the three-year moratorium under Section 203, creating unnecessary complications.
The carve-out is particularly important in light of Pinnacle Vista's anticipated exit strategy. Pinnacle Vista Capital Partners III, LP is a Series III private equity fund with a 2016 vintage year and total committed capital of approximately $4.8 billion. As is typical for a fund of this vintage, Pinnacle Vista will seek to monetize its investment in CBR over a period of several years following the IPO, through a combination of registered secondary offerings, block trades, and potential distributions of shares to its limited partners. The Section 203 carve-out preserves Pinnacle Vista's flexibility to engage in these transactions without triggering the business combination moratorium.
Scope of the Carve-Out. The carve-out should apply to the following persons and entities:
• Pinnacle Vista Capital Management LLC, in its capacity as the general partner of Pinnacle Vista Capital Partners III, LP;
• Pinnacle Vista Capital Partners III, LP;
• Any direct or indirect affiliates of Pinnacle Vista Capital Management LLC or Pinnacle Vista Capital Partners III, LP (including, without limitation, any parallel funds, co-investment vehicles, or successor funds);
• Any transferee that receives shares of the Company's common stock from any of the foregoing persons pursuant to the Restated Stockholders' Agreement, the Registration Rights Agreement, or in connection with a distribution by Pinnacle Vista Capital Partners III, LP to its limited partners; and
• Any group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of which any of the foregoing persons is a member, solely to the extent of the ownership of such foregoing persons.
The carve-out language should be carefully drafted to ensure that the exemption runs with shares that are transferred by Pinnacle Vista to permitted transferees (i.e., the carve-out applies not only to Pinnacle Vista itself but also to any transferee that receives shares directly from Pinnacle Vista in the ordinary course), but does not inadvertently exempt third-party acquirors who purchase Pinnacle Vista's shares on the open market or in privately negotiated transactions with persons other than Pinnacle Vista or its affiliates.
C. Charter Drafting
The Section 203 opt-in, together with the Pinnacle Vista carve-out, will be set forth in the applicable article of the Restated Charter. We will coordinate with the drafting team to ensure that the carve-out language is consistent with the definitions and transfer provisions of the Restated Stockholders' Agreement and the Registration Rights Agreement. A blackline showing the addition of this provision to the Existing Charter will be included in the Certificate of Incorporation — Blackline (Existing vs. IPO Form) referenced in Appendix C.
V. Shareholder Rights Plan (Poison Pill) Considerations
A. Recommendation. We do not recommend the adoption of a shareholder rights plan (commonly referred to as a "poison pill") at the time of the IPO. Instead, we recommend that the Board authorize the preparation and maintenance of a "shelf" rights plan—a fully documented rights plan that is ready for rapid deployment by the Board, without further stockholder approval, should circumstances warrant (e.g., an unsolicited hostile approach, the emergence of an activist stockholder, or rapid accumulation of shares by a third party).
B. Analysis. The decision not to adopt a rights plan at the time of the IPO is based on several considerations:
Robust Existing Protections. The suite of anti-takeover provisions recommended in this memorandum—including the classified board, Section 203, supermajority voting requirements, advance-notice bylaws, the elimination of stockholder written consent (post-decontrol), and the blank-check preferred stock authorization—provides a comprehensive and robust structural defense against hostile takeover activity. Taken together, these provisions create multiple layers of protection that make it significantly more difficult and time-consuming for a hostile party to acquire control of the Company without Board approval.
Pinnacle Vista's blocking Position. Pinnacle Vista's significant post-IPO ownership position (approximately 44.6% on a base offering basis, and potentially higher when combined with shares held by the co-founders and other management stockholders subject to the Restated Stockholders' Agreement) provides a practical blocking position against hostile takeovers in the near term. No hostile acquiror can obtain majority voting control of the Company while Pinnacle Vista retains this level of ownership, rendering a rights plan largely unnecessary during the initial post-IPO period.
Market and Institutional Investor Considerations. The adoption of a rights plan at the time of an IPO is viewed negatively by institutional investors, proxy advisory firms (including ISS and Tarrant Partners LLC), and the market generally. ISS, in particular, has a well-established policy of recommending votes against directors who adopt or maintain rights plans without stockholder ratification. The adoption of a rights plan in the IPO context—where stockholders are purchasing shares for the first time and have no ability to vote on the plan—would likely attract criticism from governance-focused investors and could adversely affect the pricing and marketing of the offering. Pre-IPO adoption without stockholder ratification is particularly disfavored.
Blank-Check Preferred Stock as an Enabling Mechanism. As discussed in Section IX below, the Restated Charter will authorize a class of blank-check preferred stock, which provides the Board with the legal mechanism to implement a rights plan quickly if needed. A rights plan typically involves the declaration of a dividend of preferred stock purchase rights that are triggered if a hostile party acquires beneficial ownership in excess of a specified threshold. The Board's authority to issue preferred stock with specified rights, preferences, and designations—without further stockholder approval—is sufficient to enable the deployment of a shelf rights plan on short notice.
C. Shelf Plan Parameters
We recommend that the shelf rights plan be prepared and maintained in a state of readiness, with all necessary documentation (including the form of Rights Agreement, Certificate of Designation for the preferred stock to be issued, and Board resolutions) substantially complete and ready for execution. If deployed, the shelf rights plan should include the following customary features:
• Trigger Threshold: 15% beneficial ownership (or, alternatively, 20%, depending on the Board's preference and prevailing market practice at the time of adoption); any person acquiring beneficial ownership in excess of the trigger threshold (without prior Board approval) would become an "acquiring person" under the plan.
• Flip-In Provision: Upon the occurrence of a triggering event, each holder of rights (other than the acquiring person) would be entitled to purchase additional shares of common stock at a substantial discount (typically 50%) to the market price, resulting in significant dilution to the acquiring person.
• Flip-Over Provision: If the Company is acquired in a merger or similar transaction following a triggering event, each holder of rights (other than the acquiring person) would be entitled to purchase shares of the acquiring entity's common stock at a substantial discount to market price.
• Board Redemption Right: The Board would retain the right to redeem the rights at a nominal price (typically $0.001 per right) at any time prior to the occurrence of a triggering event, preserving the Board's ability to approve a negotiated transaction or to terminate the plan if circumstances change.
• Pinnacle Vista Exemption: Consistent with the Section 203 carve-out described in Section IV.B above, the rights plan should include an exemption for Pinnacle Vista and its affiliates, ensuring that Pinnacle Vista's existing ownership and any transfers in the ordinary course of its exit strategy do not trigger the plan.
• Sunset Provision: The plan should include a sunset of one to three years, after which it would expire unless ratified by the stockholders. This feature is consistent with ISS guidelines, which generally oppose rights plans with terms in excess of one year that have not been ratified by stockholders.
We recommend that the preparation of the shelf rights plan documents be coordinated with Sandra Haverford, the Company's General Counsel and Corporate Secretary, and that the Board be briefed on the availability and terms of the shelf plan at or around the time of the IPO closing.
VI. Advance-Notice Bylaw Provisions
A. Recommendation. We recommend adopting advance-notice provisions in the Restated Bylaws requiring stockholders to provide timely prior notice to the Company in connection with (i) nominations of persons for election to the Board and (ii) proposals for other business to be brought before an annual meeting or, where applicable, a special meeting of stockholders. Advance-notice bylaws are a fundamental component of a well-structured corporate governance framework for a publicly traded company and serve important procedural and defensive functions.
B. Key Terms
The advance-notice provisions should include the following key terms:
Notice Window for Annual Meetings. For nominations and business proposals to be properly brought before an annual meeting, stockholder notice must be delivered to the Secretary of the Company at the Company's principal executive offices not earlier than the close of business on the 120th day and not later than the close of business on the 90th day before the first anniversary of the preceding year's annual meeting. In the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 70 days from the first anniversary date of the preceding year's annual meeting, notice must be delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (x) the 90th day prior to such annual meeting and (y) the 10th day following the day on which public disclosure of the date of such meeting is first made by the Company.
For the first annual meeting of stockholders following the IPO, the advance-notice provisions should specify appropriate alternative deadlines, since there will be no prior annual meeting from which to measure the notice window.
Disclosure Requirements for Director Nominations. Any stockholder who intends to nominate a person for election to the Board must provide the following information in its notice to the Company:
• As to the nominating stockholder and any beneficial owner on whose behalf the nomination is being made: (a) the name and address of such stockholder and beneficial owner; (b) the class, series, and number of shares of the Company that are, directly or indirectly, owned beneficially and of record by such stockholder and beneficial owner; (c) a description of any derivative positions (including options, warrants, convertible securities, stock appreciation rights, and similar instruments) held by such stockholder or beneficial owner with respect to shares of the Company; (d) a description of any hedging arrangements, short positions, or similar transactions that have been entered into by or on behalf of such stockholder or beneficial owner with respect to shares of the Company; (e) a description of any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or beneficial owner has a right to vote any shares of the Company; and (f) any other information relating to such stockholder or beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors in a contested election pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
• As to the nominee: (a) the name, age, business address, and residence address of the nominee; (b) the nominee's biographical information, principal occupation, and employment history for the prior ten years; (c) a description of the nominee's qualifications to serve as a director of the Company; (d) the nominee's written consent to being named as a nominee and to serving as a director if elected; (e) a completed director questionnaire in the form provided by the Company; (f) a written representation that the nominee is not and will not become a party to any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such nominee, if elected as a director, will act or vote on any issue or question (a "voting commitment") that has not been disclosed to the Company; and (g) a written representation that the nominee is not and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement, or indemnification in connection with service or action as a director that has not been disclosed to the Company.
• As to the relationship between the nominating stockholder and the nominee: a description of all arrangements or understandings between the stockholder (and any beneficial owner on whose behalf the nomination is being made) and the nominee and any other person or persons (including their names) pursuant to which the nomination is being made.
• A representation by the nominating stockholder as to whether such stockholder or beneficial owner intends, or is part of a group that intends, to (a) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company's outstanding capital stock required to elect the nominee, or (b) otherwise solicit proxies or votes from stockholders in support of such nomination.
Disclosure Requirements for Business Proposals. Any stockholder who intends to bring a proposal for other business before an annual meeting must provide the following information in its notice:
• A brief description of the business desired to be brought before the meeting, the text of the proposal (including the text of any resolutions proposed for consideration), and the reasons for conducting such business at the meeting.
• As to the proposing stockholder and any beneficial owner on whose behalf the proposal is being made: the same information described above with respect to nominating stockholders (i.e., ownership position, derivative positions, hedging arrangements, proxy arrangements, and other information required under Exchange Act proxy rules).
• Any material interest of such stockholder or beneficial owner in such business.
• A description of all agreements, arrangements, and understandings between such stockholder and any beneficial owner and any other person or persons (including their names) in connection with the proposal of such business.
Special Meetings. Business conducted at special meetings of stockholders should be limited to the matters specified in the notice of such special meeting. No stockholder proposals or director nominations should be permitted at special meetings unless the special meeting was called for the purpose of electing directors (which, as discussed in Section VIII.D below, may occur only upon the call of the Board, the Chairman of the Board, or the CEO, not by stockholders). This limitation ensures that special meetings are not used as a vehicle for hostile stockholder activity.
C. Purpose. The advance-notice provisions serve several important functions. First, they prevent "ambush" nominations and proposals at annual meetings by requiring stockholders to provide advance notice and detailed information about their nominees and proposals. Without such provisions, a hostile party could appear at an annual meeting and nominate alternative director candidates or propose business without prior warning, placing the Board and management at a significant procedural disadvantage. Second, the provisions ensure that the Board and management have adequate time to evaluate stockholder proposals and nominees, to prepare appropriate responses, and to provide information to other stockholders in advance of the meeting. Third, the disclosure requirements provide transparency regarding the identity, holdings, and motivations of nominating and proposing stockholders, enabling the Company and its other stockholders to make informed decisions. Fourth, the advance-notice provisions provide an orderly and predictable process for the submission and consideration of stockholder nominations and proposals, consistent with good corporate governance principles. Importantly, the advance-notice provisions do not preclude stockholder action; they simply require advance planning and disclosure, ensuring that all stockholders have the benefit of timely and complete information.
D. Bylaw Drafting
The advance-notice provisions will be set forth in the applicable article of the Restated Bylaws. A blackline comparison showing the addition of the advance-notice provisions to the existing bylaws will be included in the Bylaws — Blackline (Existing vs. IPO Form) referenced in Appendix D. We will coordinate with the drafting team to ensure that the advance-notice provisions are consistent with the most current market practice and reflect any company-specific requirements identified by CBR management or the Board.
VII. Exclusive Forum Provision
A. Recommendation. We recommend including an exclusive forum provision in the Restated Charter designating the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have subject matter jurisdiction, the federal district court for the District of Delaware) as the exclusive forum for the following categories of claims:
(i) Any derivative action or proceeding brought on behalf of the Company;
(ii) Any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee of the Company to the Company or its stockholders;
(iii) Any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation, or the bylaws of the Company (as either may be amended from time to time);
(iv) Any action to interpret, apply, enforce, or determine the validity of the certificate of incorporation or the bylaws of the Company; and
(v) Any action asserting a claim governed by the internal affairs doctrine.
The exclusive forum provision serves to channel litigation relating to the Company's internal affairs into the Delaware Court of Chancery, which is widely regarded as the most experienced and efficient forum for the resolution of corporate governance disputes. Delaware's Court of Chancery offers several advantages, including a highly specialized judiciary, a well-developed body of corporate law precedent, expedited proceedings, and the absence of jury trials—all of which contribute to more predictable and efficient resolution of corporate governance disputes.
B. Federal Forum Provision
In addition to the Delaware Court of Chancery exclusive forum provision, we recommend including a provision in the Restated Charter designating the federal district courts of the United States as the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the "Securities Act"). This provision is commonly referred to as a "federal forum provision" and is intended to prevent the assertion of Securities Act claims in state courts.
The legal basis for this recommendation is well established. In Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), the U.S. Supreme Court held that state courts have concurrent jurisdiction over claims brought under Section 11 of the Securities Act. This holding created the risk that Securities Act class actions could be brought simultaneously in both federal and state courts, resulting in duplicative litigation and inconsistent outcomes. In response, many Delaware corporations began including federal forum provisions in their certificates of incorporation. The enforceability of such provisions was confirmed by the Delaware Supreme Court in Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020), which held that a certificate of incorporation provision requiring Securities Act claims to be brought exclusively in federal court is facially valid under the DGCL.
By including a federal forum provision, the Company channels Securities Act claims into the federal courts, where such claims are subject to the procedural protections of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), including heightened pleading standards and the mandatory stay of discovery pending resolution of any motion to dismiss. This is particularly important in the IPO context, where the Company and its directors and officers may be exposed to Securities Act liability in connection with the registration statement.
We note that claims under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are already subject to exclusive federal jurisdiction under Section 27 of the Exchange Act and do not require a charter provision.
C. Enforceability. The enforceability of exclusive forum provisions in certificates of incorporation of Delaware corporations is well established. In Ashford Group, 73 A.3d 934 (Del. Ch. 2013), the Delaware Court of Chancery upheld the validity of exclusive forum bylaws adopted by the boards of Vireo Enterprises and Westvale Holdings, holding that such provisions were facially valid and that the reasonableness of their application would be evaluated on a case-by-case basis. Although Boilermakers involved bylaws rather than charter provisions, the case confirmed the broad principle that forum-selection provisions in a corporation's governing documents are enforceable. The Salzberg decision, discussed above, specifically extended this principle to certificate of incorporation provisions designating federal courts as the exclusive forum for Securities Act claims.
To enhance enforceability, the exclusive forum provision should include a consent mechanism providing that any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company's capital stock shall be deemed to have notice of and to have consented to the forum provision. This language creates an argument that stockholders have contractually agreed to the forum limitation, reducing the risk that a court in another jurisdiction would decline to enforce the provision.
D. Charter Drafting
The exclusive forum provision, including both the Delaware Court of Chancery designation for internal corporate claims and the federal forum designation for Securities Act claims, will be set forth in the applicable article of the Restated Charter. The specific language is being prepared as part of the broader drafting of the IPO Forms.
VIII. Supermajority Voting Requirements and Other Structural Provisions
A. Supermajority Voting for Charter Amendments
We recommend that the Restated Charter require the affirmative vote of holders of at least 66⅔% of the total voting power of all then-outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, to amend, alter, or repeal (or adopt any provision inconsistent with) the following protective provisions of the Restated Charter:
• The classified board provisions (including the three-class structure, staggered terms, and related provisions regarding the number of directors and board vacancies);
• The director removal provisions (including the "for cause" standard and the supermajority vote requirement);
• The Section 203 opt-in provision and the Pinnacle Vista exemption from the definition of "interested stockholder";
• The exclusive forum provision (including both the Delaware Court of Chancery designation and the federal forum provision);
• The supermajority voting provisions themselves (creating a self-referencing protection that prevents a simple majority of stockholders from stripping the supermajority requirement);
• The provisions regarding the elimination of stockholder action by written consent (as described in Section VIII.C below);
• The provisions regarding the calling of special meetings of stockholders (as described in Section VIII.D below); and
• The provisions regarding blank-check preferred stock, to the extent such provisions affect voting rights or governance protections.
The supermajority voting requirement for charter amendments is a critical complement to the other anti-takeover provisions described in this memorandum. Without a supermajority requirement, a hostile party that acquires a simple majority of the Company's outstanding shares could amend or repeal the classified board, the Section 203 opt-in, the exclusive forum provision, or other protective charter provisions, effectively dismantling the Company's takeover defenses. The 66⅔% threshold ensures that no single stockholder or small group of stockholders can unilaterally alter the Company's governance framework without the support of a substantial supermajority of the stockholder base.
We note that under Section 242(b) of the DGCL, an amendment to the certificate of incorporation generally requires the approval of the board of directors and the affirmative vote of a majority of the outstanding shares entitled to vote on the amendment. The DGCL expressly permits the certificate of incorporation to require a greater vote than the statutory default, and the 66⅔% threshold is the most commonly used supermajority standard in this context.
B. Supermajority Voting for Bylaw Amendments by Stockholders
We recommend that the Restated Charter and/or the Restated Bylaws require the affirmative vote of holders of at least 66⅔% of the total voting power of all then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to amend, alter, or repeal the bylaws (or any provision thereof) by stockholder action. At the same time, the Board should retain the right to amend the bylaws by a simple majority vote of the directors then in office.
This asymmetry between the stockholder vote requirement and the board vote requirement is intentional and serves an important defensive function. By requiring a supermajority stockholder vote to amend the bylaws, the Company ensures that hostile stockholders cannot easily amend or repeal the advance-notice provisions, the special meeting calling provisions, or other protective bylaw provisions without the support of at least 66⅔% of the outstanding voting power. At the same time, the Board retains the flexibility to amend the bylaws by a simple majority vote, enabling the Board to respond quickly to changing circumstances, adopt amendments necessary for the Company's operations, and update the bylaws as needed to reflect evolving governance best practices.
The DGCL permits this asymmetric structure. Section 109(a) of the DGCL provides that the power to adopt, amend, or repeal bylaws shall be vested in the stockholders entitled to vote, but that the certificate of incorporation may also confer this power on the board of directors. Section 109(a) does not require that the same vote be required for stockholder and board action on bylaws, and it is well established that the certificate of incorporation may impose a supermajority vote requirement for stockholder amendments while preserving the board's ability to act by simple majority.
C. Elimination of Stockholder Action by Written Consent
We recommend that the Restated Charter provide that, following the date on which Pinnacle Vista Capital Partners III, LP and its affiliates cease to beneficially own at least 50% of the total voting power of all then-outstanding shares of capital stock entitled to vote generally in the election of directors (the "Decontrol Date"), stockholder action may be taken only at a duly called annual or special meeting of stockholders and not by written consent in lieu of a meeting.
The phased approach to the elimination of written consent is designed to accommodate two competing considerations:
Prior to the Decontrol Date: While Pinnacle Vista holds 50% or more of the outstanding voting power, written consent remains available as a mechanism for stockholder action. This is a practical necessity for Pinnacle Vista's governance of the Company as the controlling stockholder. Written consent allows Pinnacle Vista to approve matters efficiently without the formality and expense of convening a stockholder meeting. Notably, written consent by stockholders holding more than 90% of the outstanding voting power has been used to adopt the IPO charter, the equity incentive plan, and the employee stock purchase plan; this mechanism must remain available so long as Pinnacle Vista retains majority control.
After the Decontrol Date: Once Pinnacle Vista's ownership falls below 50% and the Company transitions from a controlled to a widely held company, the elimination of written consent becomes an important anti-takeover defense. Without this provision, a hostile stockholder or group of stockholders that accumulates a majority of the voting power could act by written consent between annual meetings—without notice to the Company, the Board, or the minority stockholders—to remove directors, amend the bylaws, or take other corporate action. The elimination of written consent forces all stockholder action into the annual or special meeting context, where advance notice, quorum requirements, record dates, and other procedural protections apply, and where the Board and all stockholders have the opportunity to participate in and respond to any proposed action.
D. Special Meeting Calling Rights
We recommend that the Restated Charter and Restated Bylaws provide that special meetings of stockholders may be called only by the Board of Directors (by a majority vote of the whole Board), the Chairman of the Board (currently Garrett Calloway), or the Chief Executive Officer. Stockholders should not have the right to call special meetings of stockholders, except as may be required by applicable law.
This limitation on the calling of special meetings is a significant anti-takeover provision. If stockholders had the right to call special meetings, a hostile party could force an off-cycle meeting at which it could propose the removal of directors, the amendment of bylaws, or other actions designed to facilitate a takeover. By limiting the calling right to the Board, the Chairman, and the CEO, the Company ensures that special meetings are convened only when the Board determines that a meeting is warranted and appropriate.
We note that the DGCL does not require that stockholders have the right to call special meetings. Section 211(d) of the DGCL provides that special meetings may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or the bylaws. There is no statutory right of stockholders to call a special meeting unless the certificate of incorporation or bylaws so provide.
E. No Cumulative Voting
We recommend that the Restated Charter expressly disclaim cumulative voting in the election of directors.
Cumulative voting is a method of voting in director elections that allows each stockholder to aggregate all of its votes (i.e., the number of shares held multiplied by the number of directors being elected) and cast all such votes for a single candidate or distribute them among candidates in any proportion. Cumulative voting can enable minority stockholders to concentrate their votes on a smaller number of director candidates, potentially obtaining board representation that they could not achieve under a plurality or majority voting standard. In the anti-takeover context, cumulative voting could allow a hostile party holding a relatively small percentage of the outstanding shares to obtain one or more board seats, undermining the effectiveness of the classified board and the other anti-takeover provisions described in this memorandu