MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
FROM: Brendan Walsh, Calderwood & Harkness LLP Natasha Forbes, Calderwood & Harkness LLP
TO: Jennifer Kwon, Calderwood & Harkness LLP
DATE: May 9, 2022
RE: Calloway-Briggs Renewables Inc. — IPO Equity Grant Analysis
MATTER NO.: C&H Matter No. 1015-00001
CC: Theodore Langston, Leonard Cross
This memorandum is a confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the sole use of the addressee and the individuals listed on the distribution. This memorandum contains legal advice, analysis, and mental impressions of counsel. It is not intended for distribution to, or use by, any person or entity other than the individuals identified above without the prior written consent of Calderwood & Harkness LLP. Unauthorized disclosure may result in a waiver of applicable privileges.
I. Executive Summary and Purpose
The purpose of this memorandum is to analyze and recommend the structure, size, and terms of equity-based compensation awards to be granted to the named executive officers ("NEOs") of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") in connection with the proposed initial public offering (the "IPO") of approximately $600,000,000 of shares of common stock on the New York Stock Exchange (proposed ticker symbol: CBRI). This memorandum is intended to serve as the primary working document for the Calderwood & Harkness capital markets and executive compensation teams in coordinating with the Company, its Board of Directors (the "Board"), the Compensation Committee of the Board, and the Company's compensation consultant in finalizing the IPO equity grant program.
All equity awards discussed in this memorandum are proposed to be granted under the Calloway-Briggs Renewables Inc. 2022 Omnibus Equity Incentive Plan (the "2022 Plan"), which the Board approved in connection with the corporate reorganization and IPO preparation process. The 2022 Plan reserves 12,727,273 shares of common stock for issuance, representing 10% of the Company's post-IPO shares outstanding on a fully-exercised basis of 127,272,727 shares. As discussed further in Section III below, the share reserve is consistent with prevailing market practice among comparable IPOs in the renewable energy sector.
This memorandum coordinates closely with the independent benchmarking data and compensation recommendations provided by Clarendon Rowe Advisory Group LLC ("Clarendon Rowe"), the Board-retained independent compensation consultant. The primary contact at Clarendon Rowe is Patricia Voss, Senior Managing Director, whose offices are located at 300 Atlantic Street, Suite 800, Stamford, Connecticut 06901. Clarendon Rowe delivered its final peer-group benchmarking report to the Compensation Committee in April 2022, and the findings summarized in this memorandum are drawn from that report and from supplemental discussions between Calderwood & Harkness, Clarendon Rowe, and Company management.
The equity grants recommended herein will be disclosed in the Executive Compensation section of the Company's Registration Statement on Form S-1 (the "S-1"), including within the Compensation Discussion and Analysis narrative (the "CD&A"), the Summary Compensation Table, and the Grants of Plan-Based Awards Table. The grants will also be reflected, to the extent applicable, in the Principal and Selling Stockholders Table. Accordingly, the recommendations in this memorandum have been developed with a view toward both compensation design objectives and the disclosure requirements of the Securities Act of 1933, as amended, Regulation S-K, and SEC Staff guidance.
For purposes of all valuations and analyses in this memorandum, we have used an assumed midpoint IPO price of $22.00 per share, consistent with the preliminary range of $20.00–$24.00 per share discussed with the lead bookrunners (Hargrove Securities LLC and Whitfield, Archer & Doss LLP). The key capitalization assumptions used throughout are as follows:
• Pre-IPO shares outstanding: 100,000,000 shares (fully diluted, post-reclassification of all pre-IPO equity interests into shares of common stock, par value $0.01 per share)
• Post-IPO shares outstanding (base offering, no overallotment): 123,713,636 shares
• Post-IPO shares outstanding (full overallotment exercise): 127,272,727 shares
The recommendations in this memorandum are subject to Compensation Committee review and approval and may require adjustment based on the actual IPO pricing and any changes to the peer-group benchmarking data between the date hereof and the pricing date.
II. Background on CBR's Pre-IPO Equity Compensation
A. Current Ownership Structure
Prior to the IPO, the ownership of CBR (through its predecessor limited liability company structure) is concentrated among three principal constituencies. Approximately 62% of the pre-IPO equity is held by Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista"), the Company's lead private equity sponsor. Pinnacle Vista is a growth equity fund managed by Pinnacle Vista Capital Partners, LLC and is a 2016 vintage fund with a typical investment hold period of five to seven years, plus available extensions. Pinnacle Vista's investment thesis for CBR centers on the Company's position as a leading developer and operator of utility-scale renewable energy projects in the southwestern and western United States.
Approximately 24% of the pre-IPO equity is held by the Company's co-founders and senior management team. The two co-founders, Garrett Calloway (Chairman and Chief Executive Officer) and Elaine Briggs (President, Development), hold meaningful equity stakes within this tranche, having retained significant ownership interests from the founding of the Company in 2014. Other members of senior management hold smaller equity positions within this block, reflecting grants of profits interests and phantom equity made at various points during the Company's growth.
The remaining approximately 14% of the pre-IPO equity is held by earlier-stage investors and current and former employees who received equity grants prior to the Pinnacle Vista investment.
As of the date of this memorandum, the Company has approximately 1,240 employees across its corporate headquarters in Austin, Texas, its regional offices, and its operating project sites across Texas, New Mexico, Arizona, California, and Oklahoma.
B. Existing Equity Arrangements
The Company's existing equity compensation program was designed within the framework of its pre-IPO limited liability company structure. Equity-based compensation to date has consisted primarily of profits interests (structured as interests in the predecessor LLC that participate in value above a specified threshold) and phantom equity grants (cash-settled awards that track the value of the LLC interests). These arrangements were negotiated and documented under the Company's Third Amended and Restated Limited Liability Company Agreement and various individual award agreements.
In connection with the corporate reorganization undertaken in preparation for the IPO, all pre-IPO equity interests have been, or will be prior to the effective date of the S-1, reclassified into shares of common stock of Calloway-Briggs Renewables Inc., a newly formed Delaware corporation, with a par value of $0.01 per share. The reclassification is being effected through a series of conversion and exchange transactions designed to be tax-free to the extent possible. The capitalization mechanics and tax treatment of the corporate reorganization are addressed in a separate memorandum (C&H Matter No. 1015-00001, Document 112).
We note that the Section 409A valuation history for the Company's pre-IPO equity interests has been reviewed in a separate memorandum prepared by Leonard Cross of our Tax Group (C&H Matter No. 1015-00001, Document 105). Based on that analysis, the common stock valuations obtained by the Company at various points during the pre-IPO period support the conclusion that there is no cheap-stock issue with respect to prior grants. This is an important conclusion for purposes of the S-1 disclosure, as the SEC Staff has in recent years scrutinized the pricing of equity awards made in the period leading up to an IPO filing.
C. The 2022 Omnibus Equity Incentive Plan
The 2022 Omnibus Equity Incentive Plan (the "2022 Plan") was approved by the Board on March 28, 2022, and adopted by written consent of the stockholders on April 5, 2022. The stockholder consent was executed by Pinnacle Vista Capital Partners III, LP and by Garrett Calloway and Elaine Briggs in their capacities as stockholders, collectively representing in excess of 90% of the total voting power of the Company's outstanding capital stock. Accordingly, no additional stockholder meeting or vote is required for adoption of the 2022 Plan.
The key features of the 2022 Plan relevant to this memorandum are as follows:
• Share Reserve: 12,727,273 shares of common stock, representing 10% of the Company's post-IPO shares outstanding on a fully-exercised basis (127,272,727 shares). The share reserve was set at this level following discussions with Clarendon Rowe, which advised that a 10% initial reserve is consistent with prevailing market practice among comparable renewable energy IPOs and generally falls within the range of acceptability for proxy advisory firms such as Thackeray Health IT ("ISS") and Tarrant Partners LLC.
• Available Award Types: The 2022 Plan provides the Compensation Committee with broad flexibility to grant the following types of equity-based awards: (i) incentive stock options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code, (ii) nonqualified stock options ("NQSOs"), (iii) restricted stock units ("RSUs"), (iv) performance stock units ("PSUs"), (v) restricted stock, (vi) stock appreciation rights ("SARs"), and (vii) other equity-based or equity-linked awards as the Compensation Committee may determine from time to time.
• Evergreen Provision: The 2022 Plan includes an evergreen provision that automatically replenishes the share reserve on an annual basis. On January 1 of each calendar year during the term of the 2022 Plan (beginning January 1, 2023), the share reserve will automatically increase by a number of shares equal to the lesser of (a) 2% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, and (b) such lesser number of shares as the Board or the Compensation Committee may determine. The inclusion of an evergreen provision is standard for newly public companies and provides a mechanism to fund annual grant cycles and new-hire grants without requiring stockholder approval for individual share-reserve increases.
• Separate ESPP: The 2022 Plan is separate from and in addition to the Company's 2022 Employee Stock Purchase Plan (the "ESPP"), which has its own share reserve of 2,545,455 shares (approximately 2.0% of post-IPO fully-exercised shares outstanding). The ESPP is designed to qualify under Section 423 of the Internal Revenue Code and will be made available to substantially all of the Company's U.S.-based employees following the IPO. The ESPP is not further addressed in this memorandum.
The Form of Award Agreement for the IPO RSU grants is being drafted separately (C&H Matter No. 1015-00001, Document 94) and is cross-referenced in Section V below.
III. Clarendon Rowe Benchmarking Data — Summary
A. Peer Group Composition
Clarendon Rowe Advisory Group LLC, the independent compensation consultant retained by the Compensation Committee, selected a peer group of 15 to 18 publicly traded companies in the renewable energy, independent power producer, and clean energy technology sectors for purposes of benchmarking CBR's executive compensation program. The peer group was selected in consultation with the Compensation Committee and the Company's management team, with input from Calderwood & Harkness regarding disclosure considerations and peer-group selection methodologies that are likely to withstand SEC Staff scrutiny.
The peer group was constructed based on the following criteria:
• Revenue range: $300 million to $800 million in trailing twelve-month revenue, positioning CBR (which reported revenue of $487.3 million for fiscal year 2021) near the median of the group.
• Enterprise value range: $2 billion to $8 billion, reflecting the range of market capitalizations and capital structures among publicly traded renewable energy companies of comparable scale.
• Workforce size: Companies with employee counts broadly comparable to CBR's approximately 1,240 employees, though the committee recognized that workforce size varies significantly in the renewable energy sector depending on the extent to which companies rely on third-party contractors for project construction and operations and maintenance activities.
• Operational profile: Companies engaged in utility-scale solar, wind, and battery storage development, construction, and operation, which most closely resemble CBR's business model and growth trajectory.
The specific companies included in the peer group are identified in the Clarendon Rowe benchmarking report attached hereto as Exhibit A. We note that the peer group includes a mix of companies that completed their own IPOs within the preceding three years and companies with longer public-market histories, providing a range of data points for both IPO-specific grants and ongoing annual equity compensation practices.
The final benchmarking report was delivered by Clarendon Rowe to the Compensation Committee in April 2022. The Compensation Committee members who received and reviewed the report are Catherine Liang (Chair of the Compensation Committee), Richard Estavez, and Warren Okoro. All three Compensation Committee members are independent directors under the NYSE listing standards and the heightened independence requirements applicable to compensation committee members under Rule 10C-1 of the Securities Exchange Act of 1934.
B. Key Benchmarking Findings
The Clarendon Rowe benchmarking analysis yielded the following key findings with respect to IPO-stage executive compensation among the peer group:
CEO Compensation:
• The median CEO total direct compensation (comprising base salary, annual bonus, and long-term incentive awards) among the peer group at the time of IPO was approximately $5.5 million to $7.0 million on an annualized basis. This range reflects the considerable variation in compensation philosophies among the peer companies, with some companies positioning their CEO compensation at or below the median and others (particularly those with founder-CEOs who hold minimal pre-IPO equity) positioning compensation more aggressively.
• The median CEO IPO equity grant value (reflecting the one-time equity grant made at or in connection with the IPO) was approximately $8.0 million to $12.0 million. This figure represents the grant-date fair value of equity awards made to the CEO in the IPO year, as reported in SEC filings under ASC 718. The range reflects variation in grant sizes driven by differences in pre-existing CEO equity ownership, company size, and sector-specific practices.
CFO Compensation:
• The median CFO IPO equity grant value was approximately $4.0 million to $7.0 million, reflecting the critical role of the CFO in the IPO process and in establishing the Company's public-company financial reporting and investor relations functions.
Other NEO Compensation:
• The median other NEO IPO equity grant value (for executive officers other than the CEO and CFO) was approximately $2.5 million to $5.0 million, with variation driven by title, scope of responsibilities, and the extent to which the officer already held meaningful pre-IPO equity.
Vehicle Mix:
• The predominant equity vehicle used by peer companies for IPO grants was restricted stock units (RSUs), which were utilized by approximately 75% of the peer group as the primary or sole equity vehicle for IPO grants. The remaining peer companies used a combination of RSUs and stock options, or in a smaller number of cases, a mix of RSUs and performance stock units (PSUs). The prevalence of RSUs at the IPO stage reflects the practical reality that newly public companies often lack the historical public-market performance data necessary to set meaningful performance targets for PSUs, and stock options carry additional dilution and accounting complexity without providing meaningfully different incentive alignment at the IPO stage.
Vesting Terms:
• Four-year ratable vesting (with 25% of the award vesting on each anniversary of the grant date) was the most common vesting schedule among the peer group, used by approximately 65% of the companies. Three-year ratable vesting (one-third per year) was the second most common schedule, used by approximately 25% of the companies. The remaining companies used a mix of cliff vesting, back-loaded vesting, or performance-based vesting, though these approaches were less common for IPO grants.
Allocation of Plan Reserve at IPO:
• Among the peer group, the total equity awards granted at IPO across all NEOs and other employees typically represented 15% to 30% of the initial equity plan reserve. This range provides a useful benchmark for assessing whether CBR's proposed allocation of IPO grants is within the range of market practice.
C. Clarendon Rowe Recommendation
Based on the benchmarking analysis, Patricia Voss of Clarendon Rowe recommended the following framework for CBR's IPO equity grants:
• Positioning: IPO equity grants to the CEO and President should be positioned at the 50th to 60th percentile of the peer group, reflecting the co-founders' critical roles in the Company's founding and growth, the significance of the development pipeline as a driver of the Company's equity story, and the need to provide a meaningful retention incentive given the typical private equity hold period and eventual sponsor exit. IPO equity grants to other NEOs should be positioned at approximately the 50th percentile of the peer group, consistent with a philosophy of providing competitive compensation that attracts and retains high-caliber executives without exceeding market norms.
• Vehicle: Clarendon Rowe recommended that the IPO grants consist exclusively of RSUs, with PSUs reserved for the first post-IPO annual grant cycle (anticipated to occur in Q1 2023). The rationale for deferring PSU usage is that meaningful performance metrics—such as total shareholder return ("TSR"), EBITDA growth, or capacity additions—require a baseline of public-company operating performance data that will not be available until the Company has completed at least one full fiscal year as a public company.
• Vesting: Clarendon Rowe recommended four-year ratable vesting (25% per year on each anniversary of the grant date), consistent with the prevailing market practice identified in the benchmarking analysis and aligned with Pinnacle Vista's expected post-IPO hold period.
IV. Recommended IPO Equity Grants — Named Executive Officers
A. Summary Table of Proposed Grants
The following table sets forth the proposed IPO equity grants to each of the Company's named executive officers. All grants are in the form of restricted stock units to be awarded under the 2022 Plan, with a grant-date value calculated using the assumed midpoint IPO price of $22.00 per share.
The aggregate grant-date value of the proposed NEO grants is $45,100,000, and the total number of RSUs to be granted to NEOs is 2,050,000, representing 16.11% of the total 2022 Plan share reserve of 12,727,273 shares. As discussed in Section III above, the allocation of 15%–30% of the initial plan reserve to IPO grants (including both NEO and non-NEO grants) is consistent with peer-group practice.
B. Remaining Plan Reserve After NEO Grants
The following summarizes the disposition of the 2022 Plan share reserve following the proposed NEO IPO grants:
• Total 2022 Plan share reserve: 12,727,273 shares
• NEO IPO grants: 2,050,000 shares (16.11%)
• Remaining reserve for non-NEO employees and future grants: 10,677,273 shares (83.89%)
Within the remaining reserve, we recommend that the Company allocate approximately 3,000,000 to 4,000,000 shares for initial broad-based employee grants to be made at or shortly after the IPO. These grants would be made to non-executive employees, including key technical, operational, and development personnel, as a means of aligning the broader workforce with the interests of public shareholders and providing a retention incentive during the transition to public-company operations. Clarendon Rowe has advised that broad-based employee grants at IPO are common among peer companies and are positively received by proxy advisory firms and institutional investors as an indication of equitable compensation practices.
After the proposed NEO grants and the recommended initial broad-based employee grants, approximately 6,700,000 to 7,700,000 shares would remain available under the 2022 Plan for future annual grant cycles, new-hire grants, promotion-related grants, and special retention grants. Together with the annual evergreen replenishment provision (up to 2% of total shares outstanding per year), this remaining reserve is expected to be sufficient to fund the Company's equity compensation needs for at least the first three to four years following the IPO, based on Clarendon Rowe's modeling of anticipated annual run-rate equity usage.
C. Individual Grant Analysis
1. Garrett Calloway — Co-Founder, Chairman & Chief Executive Officer
Proposed Grant: 500,000 RSUs, with a grant-date value of $11,000,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Mr. Calloway at approximately the 55th percentile of CEO IPO equity grants among the Clarendon Rowe peer group. This positioning is slightly above the median but within the 50th–60th percentile range recommended by Clarendon Rowe and reflects the Compensation Committee's recognition of Mr. Calloway's foundational role in the Company's growth and the importance of retaining his leadership through the transition to public-company status and beyond.
Rationale: Garrett Calloway co-founded CBR in 2014 and has served as its Chief Executive Officer since inception. Under his leadership, the Company has grown from a pre-revenue startup to a leading independent renewable energy developer and operator with 3.8 GW of operating capacity across 22 projects in five states. Mr. Calloway has been instrumental in establishing the Company's relationships with key off-takers, project-finance lenders, and equipment suppliers, and he has overseen the expansion of the Company's development pipeline to its current level of approximately 6.2 GW.
Mr. Calloway already holds a meaningful equity stake in the Company as part of the approximately 24% founder/management pre-IPO block. The IPO equity grant is not intended to replace or supplement his existing ownership stake, but rather to serve two distinct purposes: (i) to align his interests with those of public shareholders by providing a significant tranche of equity with forward-looking vesting that ties a portion of his compensation to future stock-price performance, and (ii) to provide a retention incentive that encourages his continued service through the full four-year vesting period, which coincides with the period during which the Company will be executing on its growth strategy and Pinnacle Vista will be evaluating its exit opportunities.
Vesting: Four-year ratable vesting, with 25% of the RSUs vesting on each anniversary of the grant date.
Dilution Impact: The 500,000-share grant represents approximately 0.39% of post-IPO shares outstanding on a base offering basis (123,713,636 shares), and approximately 0.39% on a fully-exercised basis (127,272,727 shares). This level of individual dilution is modest and within the range observed among peer-group CEO grants.
2. Elaine Briggs — Co-Founder & President, Development
Proposed Grant: 400,000 RSUs, with a grant-date value of $8,800,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Ms. Briggs at approximately the 55th percentile of President/COO IPO equity grants among the peer group. This positioning reflects her role as a co-founder and her operational significance to the Company's growth strategy.
Rationale: Elaine Briggs co-founded CBR with Mr. Calloway in 2014 and serves as President, Development. In this capacity, she leads the Company's development function, which is responsible for the identification, permitting, interconnection, and advancement of the Company's renewable energy development pipeline. As of the date of this memorandum, the Company's development pipeline consists of approximately 6.2 GW of solar, wind, and battery storage projects in various stages of development, including approximately 1.4 GW currently under construction (comprising the Mesquite Wind project and the Cimarron Solar project). The development pipeline is a central component of the Company's equity story and a key driver of the Company's premium valuation relative to peers with smaller or less advanced pipelines.
Ms. Briggs is a critical retention target for the Company. Her deep relationships with landowners, state and local permitting authorities, utility off-takers, and regional transmission organizations are difficult to replicate and represent significant institutional knowledge. The loss of Ms. Briggs during the critical post-IPO period would create material execution risk for the development pipeline and could negatively impact the Company's ability to deliver on the growth targets articulated in the S-1.
Vesting: Four-year ratable vesting.
Dilution Impact: The 400,000-share grant represents approximately 0.32% of post-IPO shares outstanding on a base offering basis.
3. Marcus Yoon — Chief Financial Officer
Proposed Grant: 300,000 RSUs, with a grant-date value of $6,600,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Mr. Yoon at approximately the 50th percentile of CFO IPO equity grants among the peer group, consistent with Clarendon Rowe's recommendation for non-founder NEOs.
Rationale: Mr. Yoon joined CBR in 2019 and has served as Chief Financial Officer since that time. He played a central role in the Company's pre-IPO financial preparation, including the remediation of material weaknesses in internal controls identified in 2020, the engagement of Penrose Firth CPAs LLP as the Company's independent registered public accounting firm, and the preparation of the audited financial statements included in the S-1. Mr. Yoon will be a key signatory on SEC filings following the IPO, including certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The officer's certificate to be delivered at the closing of the IPO requires a bring-down of representations by both the CEO and CFO, placing significant personal liability on Mr. Yoon in connection with the offering.
Following the IPO, Mr. Yoon will serve as the primary interface with equity research analysts and the institutional investor community, participating in quarterly earnings calls, non-deal roadshows, and investor conferences. His effectiveness in this role will be a significant determinant of the Company's ability to maintain analyst coverage and institutional investor support, which are critical to trading liquidity and stock-price stability in the post-IPO period. Mr. Yoon will also bear responsibility for the Company's compliance with the financial reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act, including the establishment and maintenance of internal controls over financial reporting and disclosure controls and procedures.
Vesting: Four-year ratable vesting.
Dilution Impact: The 300,000-share grant represents approximately 0.24% of post-IPO shares outstanding on a base offering basis.
4. Dale Renfroe — Chief Operating Officer
Proposed Grant: 200,000 RSUs, with a grant-date value of $4,400,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Mr. Renfroe at approximately the 50th percentile of COO IPO equity grants among the peer group.
Rationale: Mr. Renfroe joined CBR in 2017 and serves as Chief Operating Officer. He oversees all aspects of the Company's operations across its 3.8 GW of operating capacity, encompassing 22 projects in Texas, New Mexico, Arizona, California, and Oklahoma. Mr. Renfroe's responsibilities include asset management, operations and maintenance, performance optimization, and environmental compliance for the Company's operating fleet.
Operational performance under Mr. Renfroe's leadership has been a key driver of the Company's financial results. For fiscal year 2021, the Company reported revenue of $487.3 million and Adjusted EBITDA of $218.6 million, representing an Adjusted EBITDA margin of approximately 44.9%. The continued achievement of these performance levels is essential to the Company's ability to service its project-finance debt obligations, fund development activities, and deliver the financial results projected in the S-1.
Vesting: Four-year ratable vesting.
Dilution Impact: The 200,000-share grant represents approximately 0.16% of post-IPO shares outstanding on a base offering basis.
5. Sandra Haverford — General Counsel & Corporate Secretary
Proposed Grant: 175,000 RSUs, with a grant-date value of $3,850,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Ms. Haverford at approximately the 50th percentile of General Counsel IPO equity grants among the peer group.
Rationale: Ms. Haverford joined CBR in 2018 and serves as General Counsel and Corporate Secretary. Following the IPO, she will bear significant public-company legal and compliance responsibilities, including oversight of the Company's SEC reporting obligations, compliance with NYSE listing standards, implementation and monitoring of the Company's corporate governance framework, and management of the Company's insider-trading policy and related compliance procedures. As Corporate Secretary, Ms. Haverford will be responsible for the administration of Board and committee meetings, maintenance of corporate records, and coordination with transfer agents and proxy solicitors.
Ms. Haverford also manages the Company's regulatory and litigation risk, including environmental permitting matters, interconnection disputes, and contract negotiations with off-takers and counterparties. The renewable energy sector is subject to an increasingly complex regulatory environment, and Ms. Haverford's expertise in navigating this landscape is essential to the Company's continued growth.
Vesting: Four-year ratable vesting.
Dilution Impact: The 175,000-share grant represents approximately 0.14% of post-IPO shares outstanding on a base offering basis.
6. Priya Anand — SVP, Finance & Treasurer
Proposed Grant: 175,000 RSUs, with a grant-date value of $3,850,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Ms. Anand between the 45th and 50th percentile for SVP-level finance officers among the peer group, reflecting her senior but non-C-suite title.
Rationale: Ms. Anand joined CBR in 2020 and serves as Senior Vice President, Finance and Treasurer. She manages the Company's treasury operations, including cash management, debt service, and liquidity planning. Ms. Anand is also the Company's principal relationship manager with its project-finance lenders, including Veltrano National Bank, Prairie Commercial Bank, and Veltara Basin Financial, which collectively provide approximately $1.8 billion in project-finance facilities to the Company and its subsidiaries.
Following the IPO, Ms. Anand will be integral to the execution of the Company's use-of-proceeds strategy, which contemplates the application of approximately $200 million of IPO proceeds to the repayment of the Company's existing Term Loan B facility and approximately $100 million to fund the Cimarron Solar project. Ms. Anand will also coordinate with Mr. Yoon on the Company's capital allocation strategy, including the refinancing of near-term project-finance maturities and the establishment of a revolving credit facility to support working capital needs.
Vesting: Four-year ratable vesting.
Dilution Impact: The 175,000-share grant represents approximately 0.14% of post-IPO shares outstanding on a base offering basis.
7. Tomás Quintero — SVP, Project Development
Proposed Grant: 150,000 RSUs, with a grant-date value of $3,300,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Mr. Quintero at approximately the 45th percentile for SVP-level development officers among the peer group.
Rationale: Mr. Quintero joined CBR in 2016 and serves as Senior Vice President, Project Development. He reports to Ms. Briggs and is responsible for the day-to-day management and advancement of the Company's 6.2 GW development pipeline, including site selection, permitting, interconnection applications, environmental studies, and commercial negotiations. Mr. Quintero is currently leading the execution of two of the Company's most significant near-term development projects:
• Silverleaf Wind — a 600 MW wind project located in Irion County, Texas, with an expected commercial operation date in Q4 2024; and
• Copper Basin Solar + Storage — a 750 MW solar project with 300 MW / 1,200 MWh of co-located battery energy storage, located in Riverside County, California, with an expected commercial operation date in Q2 2025.
The successful advancement and completion of these projects is a critical element of the Company's growth story as articulated in the S-1, and Mr. Quintero's retention is essential to the Company's ability to execute on its development pipeline. His departure would create significant execution risk and could delay or jeopardize the achievement of key project milestones.
Vesting: Four-year ratable vesting.
Dilution Impact: The 150,000-share grant represents approximately 0.12% of post-IPO shares outstanding on a base offering basis.
8. Rachel Whitmore — Chief People Officer
Proposed Grant: 150,000 RSUs, with a grant-date value of $3,300,000 at the assumed midpoint IPO price of $22.00 per share.
Positioning: The proposed grant positions Ms. Whitmore at approximately the 45th percentile for CHRO-level officers at peer companies, reflecting the growing importance of the chief human resources officer role in publicly traded companies.
Rationale: Ms. Whitmore joined CBR in 2019 and serves as Chief People Officer. She manages the Company's talent strategy for its approximately 1,240 employees, including recruiting, performance management, compensation administration, and employee relations. Ms. Whitmore is also responsible for the Company's human-capital disclosures in the S-1, which have become an area of increasing focus for the SEC Staff and institutional investors. The S-1 includes narrative disclosure regarding the Company's workforce composition, diversity and inclusion initiatives, employee safety programs, and talent development practices, all of which fall under Ms. Whitmore's purview.
Looking ahead, Ms. Whitmore will play a critical role in workforce scaling as the Company's development pipeline projects advance toward construction and commercial operation. Each utility-scale project requires significant hiring during the construction phase, and the Company's workforce is expected to grow substantially over the next three to five years as the pipeline is converted into operating capacity. Ms. Whitmore's ability to attract and retain qualified technical, engineering, and operational talent will be a key determinant of the Company's execution capabilities.
Vesting: Four-year ratable vesting.
Dilution Impact: The 150,000-share grant represents approximately 0.12% of post-IPO shares outstanding on a base offering basis.
V. Vesting Terms and Conditions
A. Vesting Schedule
All IPO RSU grants to the named executive officers will be subject to four-year ratable vesting, with 25% of the RSUs vesting on each anniversary of the grant date. This vesting schedule is consistent with the predominant market practice identified in the Clarendon Rowe benchmarking analysis, as discussed in Section III above.
The grant date for the IPO RSU grants will be the date of the closing of the IPO, unless the Board or the Compensation Committee determines that the date of pricing (which typically occurs one business day prior to closing) is the more appropriate grant date. We recommend that the Compensation Committee specify the grant date in its approving resolutions and that the grant date be coordinated with the Company's transfer agent to ensure accurate recordkeeping. If the Board prefers the date of pricing as the grant date, the grant-date fair value will be based on the actual IPO price per share rather than the closing price on the date of the grant, which may differ if the stock trades on its first day of listing.
All RSUs will be granted under, and governed by, the terms and conditions of the 2022 Omnibus Equity Incentive Plan and the Form of Restricted Stock Unit Agreement (C&H Matter No. 1015-00001, Document 94). The Form of Restricted Stock Unit Agreement is currently being drafted and will incorporate the vesting, settlement, termination, change of control, and clawback provisions discussed in this Section V.
B. Settlement
Each RSU represents the right to receive one share of common stock upon vesting. RSUs will settle in shares of common stock as promptly as practicable following each vesting date, and in no event later than 30 days after the applicable vesting date (subject to administrative delays that do not affect the "short-term deferral" characterization under Section 409A, as discussed in Section VI below).
Consistent with the Company's current no-dividend policy, no dividend equivalents will accrue on the RSUs during the vesting period. This approach is standard for pre-profit or early-stage public companies that do not pay cash dividends and simplifies the administration of the awards. If the Company adopts a dividend policy in the future, the Compensation Committee may consider including dividend equivalent rights in subsequent annual grant cycles, though we note that the exclusion of dividend equivalents from unvested RSUs is viewed favorably by proxy advisory firms as a shareholder-friendly governance practice.
C. Termination of Employment Provisions
The Form of Restricted Stock Unit Agreement will include the following provisions governing the treatment of RSUs upon various termination-of-employment events:
Voluntary Resignation or Termination for Cause: In the event that a grantee voluntarily resigns from the Company or is terminated by the Company for "Cause" (as defined in the 2022 Plan), all unvested RSUs will be forfeited immediately upon the effective date of such termination. No pro-rata vesting will apply, and the grantee will have no further rights with respect to the forfeited RSUs.
Termination Without Cause: In the event that a grantee is terminated by the Company without Cause (other than in connection with a Change of Control, which is addressed separately below), the grantee will be entitled to pro-rata acceleration for the tranche of RSUs that would have vested in the calendar year (or, if the Compensation Committee prefers, the 12-month period) in which the termination occurs, determined based on the number of days elapsed since the most recent vesting date (or, for the first tranche, the grant date) through the date of termination, divided by 365. All remaining unvested RSUs will be forfeited. The pro-rata acceleration is contingent upon the grantee's execution and non-revocation of a general release of claims in a form satisfactory to the Company within the time period specified in the release agreement (typically 45 or 60 days following the termination date).
Death or Disability: In the event of a grantee's death or "Disability" (as defined in the 2022 Plan, which incorporates the definition under Section 409A of the Internal Revenue Code), all unvested RSUs will accelerate in full and settle as promptly as practicable following the date of death or the determination of Disability. This provision is standard market practice and reflects the humanitarian and practical considerations associated with these events.
Change of Control (Double Trigger): The IPO RSU grants will include a double-trigger change of control acceleration provision. Specifically, if a "Change of Control" (as defined in the 2022 Plan) occurs and, within 12 months following the effective date of the Change of Control, the grantee is either (i) terminated by the Company (or its successor) without Cause or (ii) resigns for "Good Reason" (as defined in the Form of Restricted Stock Unit Agreement), then all unvested RSUs will accelerate in full and settle as promptly as practicable following the date of such termination or resignation. A double-trigger structure is strongly favored by proxy advisory firms and institutional investors over single-trigger acceleration, which would provide windfall acceleration simply upon the occurrence of a change of control regardless of whether the executive's employment is affected. The double-trigger structure balances the need to protect executives against involuntary job loss in the wake of an acquisition with the expectation of investors that equity awards should vest over time based on continued service.
Retirement: The initial IPO RSU grants will not include a retirement vesting provision. Given that CBR is a relatively young company and its NEOs are generally in mid-career, retirement vesting is not a significant near-term consideration. Clarendon Rowe has advised that retirement vesting provisions are more commonly introduced in the context of post-IPO annual grant programs, after the Company has established a formal retirement policy and the demographics of its executive team have been more fully assessed. We recommend that the Compensation Committee address retirement vesting in connection with the first post-IPO annual grant cycle, anticipated for Q1 2023.
D. Clawback
All IPO RSU grants will be subject to the Company's executive compensation clawback policy, which is to be adopted by the Board prior to the IPO in accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, SEC implementing rules, and NYSE listing standards. The clawback policy is currently being drafted by Calderwood & Harkness (C&H Matter No. 1015-00001, Document 98) and will provide for the recovery of erroneously awarded incentive-based compensation in the event of a required accounting restatement.
In addition to the Dodd-Frank clawback, the Form of Restricted Stock Unit Agreement will include a supplemental clawback provision that permits the Company to recover or cancel RSUs (and any shares delivered upon settlement of RSUs) in the event of a financial restatement attributable to the grantee's fraud or intentional misconduct, or in the event of other material misconduct by the grantee (such as a material breach of the Company's code of conduct or a violation of restrictive covenants). This supplemental provision is broader than the Dodd-Frank minimum requirements and is intended to provide the Company with additional flexibility to address compensation recovery in circumstances that may not be captured by the mandatory clawback rule.
VI. Tax Considerations
A. Section 409A Compliance
The IPO RSU grants have been structured as "short-term deferral" arrangements within the meaning of Treasury Regulation § 1.409A-1(b)(4). Under this exemption, compensation is exempt from the deferred compensation rules of Section 409A of the Internal Revenue Code if it is paid (or settled, in the case of RSUs) no later than the 15th day of the third month following the later of (i) the end of the grantee's taxable year in which the RSUs vest, or (ii) the end of the Company's taxable year in which the RSUs vest. Because the RSUs will settle in shares of common stock as promptly as practicable following each vesting date—and in no event later than 30 days after the applicable vesting date—the settlement timing falls well within the short-term deferral window. Accordingly, the IPO RSU grants should not constitute "deferred compensation" for purposes of Section 409A, and no Section 409A deferred compensation issues are anticipated.
The RSUs will be granted at fair market value based on the IPO price of $22.00 per share (or the actual IPO price, if different from the assumed midpoint). Because the grant price reflects the price at which shares are sold to the public in the IPO, there is no cheap-stock concern associated with the IPO grants. The Section 409A valuation history for the Company's pre-IPO equity interests, which has been separately analyzed in the Section 409A Valuation Review Memorandum prepared by Leonard Cross (C&H Matter No. 1015-00001, Document 105), confirms that the Company's historical valuations support the pricing of all equity awards, including those made during the pre-IPO period.
B. Section 162(m) Considerations
Section 162(m) of the Internal Revenue Code limits the federal income tax deduction that a publicly traded company may claim for compensation paid to "covered employees" to $1,000,000 per covered employee per taxable year. Following the amendments enacted by the Tax Cuts and Jobs Act of 2017 (the "TCJA"), covered employees include the CEO, the CFO, and the three other most highly compensated officers whose compensation is required to be reported in the proxy statement. Importantly, the TCJA eliminated the previously available exception for "qualified performance-based compensation," meaning that all forms of compensation—including equity-based awards such as RSUs—are subject to the $1,000,000 deduction limitation for grants made after November 2, 2017 (with limited transition relief for pre-existing binding arrangements, which is not applicable here).
The IPO RSU grants will likely result in non-deductible compensation for some or all of the Company's covered employees. For example, Mr. Calloway's IPO grant alone has a value of $11,000,000, which, when combined with his base salary and annual bonus (collectively expected to exceed $1,000,000 in the year of the IPO), will result in total compensation substantially in excess of the $1,000,000 deduction cap. Similar limitations will apply to the compensation of Ms. Briggs, Mr. Yoon, and potentially other NEOs depending on the aggregate of their cash and equity compensation in each taxable year.
Because the TCJA's elimination of the performance-based compensation exception applies to all new grants, there is no grandfathered performance-based exception available for the IPO RSU grants or for any future equity-based awards. Accordingly, the Company should expect to lose the benefit of federal tax deductions on compensation exceeding $1,000,000 per covered employee for the foreseeable future.
The Compensation Committee has been advised of the Section 162(m) implications, and the CD&A section of the S-1 will include disclosure to the effect that the Company may pay compensation that is not deductible under Section 162(m) when the Compensation Committee believes such compensation is in the best interests of the Company and its stockholders, taking into account the need to attract, retain, and motivate key executives. This language is standard in CD&A disclosures and reflects the prevailing view among public companies that the loss of tax deductibility is an acceptable cost of maintaining a competitive compensation program.
C. Tax Withholding
Upon the settlement of RSUs (i.e., the delivery of shares of common stock upon vesting), the Company will be required to withhold applicable federal, state, and local income taxes and employment taxes. The Company intends to satisfy its withholding obligation through net share settlement, under which the Company will withhold from the shares otherwise deliverable upon settlement a number of shares having a fair market value equal to the minimum statutory withholding amount. The remaining shares will be delivered to the grantee.
Grantees who wish to satisfy tax obligations in excess of the minimum statutory withholding amount may elect to sell additional shares on the open market to fund supplemental tax payments. Any such sales will be subject to the Company's insider-trading policy (including pre-clearance requirements and trading-window restrictions) and applicable securities laws. We recommend that the Company's insider-trading policy include specific guidance regarding the timing and procedures for share sales made for tax purposes in connection with RSU settlements.
We note that the settlement of RSUs within the 180-day lock-up period is permissible under the lock-up agreements that the NEOs will execute in connection with the IPO. The lock-up agreements include a standard carve-out for equity plan settlements, recognizing that RSU vesting and settlement are administrative events that do not involve voluntary market sales. However, shares received upon settlement of RSUs during the lock-up period may not be sold during the lock-up unless a specific exception applies (such as a sale to satisfy tax withholding obligations that is pre-approved by the lead bookrunners). As a practical matter, the first vesting date for the IPO RSU grants (which is one year after the grant date) will fall well after the expiration of the 180-day lock-up period, and this issue is therefore unlikely to arise with respect to the IPO grants. However, if the Company makes broad-based employee grants with shorter vesting periods (e.g., quarterly vesting), the lock-up interaction should be carefully reviewed.
VII. Dilution and Overhang Analysis
A. IPO Grant Dilution
The total number of RSUs to be granted to the Company's NEOs in connection with the IPO is 2,050,000 shares. The dilutive impact of these grants on existing and new stockholders is as follows:
• As a percentage of post-IPO shares outstanding (base offering, no overallotment): 2,050,000 ÷ 123,713,636 = approximately 1.66%
• As a percentage of post-IPO shares outstanding (full overallotment exercise): 2,050,000 ÷ 127,272,727 = approximately 1.61%
This level of dilution is modest and falls within the range observed among peer-group IPOs, where total NEO grant dilution typically represents 1.5% to 2.5% of post-IPO shares outstanding. The individual dilution attributable to each NEO grant is summarized in the individual grant analyses in Section IV.C above.
B. Total Equity Plan Overhang
The Company's total equity compensation plan overhang following the IPO is summarized below:
The combined equity plan overhang of 12.0% of post-IPO fully-exercised shares outstanding represents the maximum potential dilution from all equity-based awards granted or available for grant under the Company's two equity plans. This figure overstates actual expected dilution because (i) it assumes the full utilization of both plan reserves, which is unlikely to occur in the near term, and (ii) it does not account for shares that may be forfeited due to employee terminations (which are recycled back into the plan reserve under the 2022 Plan's share recycling provisions).
Clarendon Rowe's benchmarking analysis indicates that the median total equity plan overhang among peer-group IPOs is 12% to 15% of post-IPO fully diluted shares outstanding. CBR's proposed overhang of 12.0% is at the lower end of the peer range, which should be viewed favorably by institutional investors and proxy advisory firms. ISS and Tarrant Partners LLC generally evaluate equity plan overhang as part of their assessment of a company's equity compensation practices and may issue adverse recommendations if overhang levels significantly exceed industry norms.
C. Impact on Pinnacle Vista Ownership
The following analysis summarizes the impact of the IPO (including the primary offering, the secondary sale by Pinnacle Vista, and the equity plan overhang) on Pinnacle Vista's ownership position:
Pre-IPO: Pinnacle Vista holds approximately 62% of 100,000,000 pre-IPO shares outstanding, or approximately 62,000,000 shares.
Post-IPO (base offering, before secondary sale): Assuming the sale of approximately 23,713,636 primary shares by the Company in the base offering at $22.00 per share (generating approximately $521.7 million in gross proceeds, before underwriting discounts and offering expenses), Pinnacle Vista's ownership would be:
62,000,000 ÷ 123,713,636 = approximately 50.1%
Post-IPO (base offering, after secondary sale): Pinnacle Vista is expected to sell approximately 6,818,182 shares in the secondary component of the offering, generating approximately $150,000,000 in gross proceeds at $22.00 per share (before underwriting discounts). Following the secondary sale, Pinnacle Vista's ownership would be:
(62,000,000 − 6,818,182) ÷ 123,713,636 = 55,181,818 ÷ 123,713,636 = approximately 44.6%
Pinnacle Vista has reviewed and concurs with the proposed IPO grant levels. Calderwood & Harkness has confirmed this concurrence through discussions with Christine Navarro of Whitfield Archer & Doss LLP, outside counsel to Pinnacle Vista Capital Partners, LLC. Pinnacle Vista's concurrence is significant because, as the Company's controlling stockholder (both pre- and post-IPO), Pinnacle Vista's views on the size and structure of the equity compensation program will be relevant to the Compensation Committee's deliberations and to the disclosure in the S-1 regarding the compensation-setting process.
VIII. S-1 Disclosure Considerations
A. Compensation Discussion and Analysis (CD&A)
The IPO RSU grants must be described in the Compensation Discussion and Analysis section of the S-1 registration statement, which is the primary narrative disclosure regarding the Company's executive compensation philosophy, objectives, and decisions. The CD&A disclosure should address the following topics in connection with the IPO grants:
• The Compensation Committee's philosophy and objectives in making IPO equity grants, including alignment of executive interests with those of public stockholders, retention of key executives through the post-IPO transition, and competitiveness with peer-company compensation practices.
• The role of Clarendon Rowe Advisory Group LLC as the Compensation Committee's independent compensation consultant, including a description of the peer-group benchmarking process and the benchmarking findings that informed the grant-sizing decisions.
• The grant-date fair value per share ($22.00 at the assumed midpoint) to be reported under ASC 718 in the Summary Compensation Table and the Grants of Plan-Based Awards Table. If the actual IPO price differs from the assumed midpoint, the reported values will be adjusted accordingly.
• The vesting schedule (four-year ratable), the termination-of-employment provisions, and the Change of Control (double-trigger) acceleration features described in Section V above.
• The Compensation Committee's rationale for selecting RSUs over stock options as the equity vehicle for the IPO grants. This rationale should be articulated clearly and persuasively, as proxy advisory firms and institutional investors generally expect companies to explain their vehicle selection decisions. Key points to include are: (i) the simplicity of RSUs relative to stock options, which facilitates employee understanding and reduces administrative complexity; (ii) the alignment benefits of RSUs, which provide value to executives only to the extent that the stock price is positive and thus align executive interests with shareholder interests across a broader range of stock-price outcomes than options (which are worthless if the stock price falls below the exercise price); and (iii) the reduced dilution associated with RSUs relative to stock options, because fewer shares are needed to deliver the same dollar value of compensation (a stock option typically requires three to four times as many shares as an RSU grant to deliver the same economic value).
• The decision to reserve PSUs for the first post-IPO annual grant cycle, when public-company performance metrics can be calibrated based on actual operating results and relative total shareholder return data.
B. Principal and Selling Stockholders Table
The S-1 must include a Principal and Selling Stockholders Table disclosing the beneficial ownership of each director, named executive officer, 5% stockholder, and selling stockholder, both before and after the offering. In connection with the IPO RSU grants, the following disclosure considerations apply:
Under SEC beneficial ownership rules (Rule 13d-3 under the Securities Exchange Act of 1934), shares subject to RSUs are generally included in a person's beneficial ownership only if the RSUs are vesting within 60 days of the determination date. Because the IPO RSU grants are subject to four-year ratable vesting with the first tranche vesting one year after the grant date, no shares subject to the IPO RSU grants would be included in beneficial ownership as of the IPO date (since the first vesting event would not occur within 60 days of the grant date). However, a footnote to the beneficial ownership table should disclose the number of RSUs held by each NEO and the vesting schedule, so that readers can understand the full scope of each executive's economic interest in the Company.
C. Related-Party Considerations
We have reviewed the proposed IPO equity grants for potential related-party disclosure issues under Item 404 of Regulation S-K and have identified no related-party concerns arising from the equity grants themselves. Specifically: