PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, New York 10022
March 21, 2022
MEMORANDUM
TO: Jennifer Kwon, Responsible Partner, Capital Markets
FROM: Brendan Walsh, Lead Associate, Capital Markets Natasha Forbes, Working Associate, Capital Markets
CC: Theodore Langston, Billing Partner Leonard Cross, Specialist Partner, Tax
RE: IPO Readiness Assessment — Calloway-Briggs Renewables Inc. C&H Matter No. 1015-00001
CLASSIFICATION: Privileged and Confidential — Prepared in anticipation of the proposed initial public offering of common stock of Calloway-Briggs Renewables Inc. on the New York Stock Exchange. This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
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I. Executive Summary and Purpose
A. Purpose of This Memorandum
The purpose of this memorandum is to assess the readiness of Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), a Delaware corporation headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746, to undertake a proposed initial public offering (the "IPO") of approximately $600,000,000 of its common stock, par value $0.001 per share (the "Common Stock"), on the New York Stock Exchange (the "NYSE") under the proposed ticker symbol "CBRI." This memorandum identifies the principal governance, legal, regulatory, and operational readiness gaps that must be addressed before and after the Company's registration statement on Form S-1 is filed with the U.S. Securities and Exchange Commission (the "SEC"), and it establishes a detailed work plan and timeline for remediation.
B. Organizational Meeting and Working-Group Participants
This memorandum follows the organizational meeting held March 14–18, 2022 at CBR's Austin, Texas offices. That five-day meeting was attended by representatives of the following working-group members:
•  Calloway-Briggs Renewables Inc. — the issuer;
•  Calderwood & Harkness LLP — issuer's counsel;
•  Hargrove Keating & Co. — lead-left book-running manager;
•  Prescott, Danforth & Yee LLP — underwriters' counsel;
•  Whitfield Archer & Doss LLP — counsel to Pinnacle Vista Capital Partners III, LP (the "Sponsor"), the selling stockholder;
•  Ashford & Pemberton LLP — independent auditor; and
•  Other working-group members, including CBR management, CBR's compensation consultant, and CBR's investor relations advisor.
Over the course of the organizational meeting, the working group reviewed a comprehensive due diligence request list, discussed S-1 drafting responsibilities and timeline, and identified the principal readiness issues that are the subject of this memorandum. This memorandum reflects our legal analysis and recommendations based on materials reviewed and discussions conducted through the date hereof.
C. Overall Assessment
CBR is a substantial, operationally mature utility-scale renewables platform with a compelling growth profile. The Company operates 3.8 gigawatts ("GW") of operating capacity across 22 projects located in Texas, New Mexico, Arizona, California, and Oklahoma, with an additional 1.4 GW under construction and a 6.2 GW development pipeline. For the fiscal year ended December 31, 2021, CBR generated revenue of $487.3 million and Adjusted EBITDA of $218.6 million, representing significant year-over-year growth from $401.5 million in revenue and correspondingly higher EBITDA in fiscal year 2020.
Notwithstanding the Company's operational maturity, CBR requires focused work across several dimensions to meet public-company standards prior to an anticipated confidential submission of its draft registration statement on Form S-1 (the "DRS-1"), which is targeted for mid-April 2022. As a privately held company, CBR's governance infrastructure, disclosure practices, and internal control environment reflect private-company norms and conventions rather than the requirements imposed by the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act of 2002 ("SOX"), and the NYSE Listed Company Manual.
D. Company Background
CBR was founded in 2014 by Garrett Calloway and Elaine Briggs (together, the "Founders"), who together developed the Company's initial portfolio of wind and solar projects in the Texas market. In 2017, Pinnacle Vista Capital Partners III, LP (the "Sponsor" or "Pinnacle Vista"), a Series III fund with a 2016 vintage managed by Pinnacle Vista Capital Management LLC, made an initial equity investment of $385 million in the Company, followed by a $120 million follow-on investment in 2019 to support the Company's expansion into the Arizona and New Mexico markets.
As of the date hereof, the Company's pre-IPO ownership is approximately as follows:
The Company's pre-IPO shares outstanding, calculated on a fully diluted basis following the reclassification of all outstanding shares of preferred stock into Common Stock in connection with the IPO, total 100,000,000. Based on an assumed midpoint IPO price of $22.00 per share, the Company's implied pre-money equity valuation is approximately $2.2 billion.
E. Proposed Offering Structure
The proposed offering contemplates both a primary component (new shares issued by the Company) and a secondary component (existing shares sold by the Sponsor). The total offering size is approximately $600 million, of which approximately $450 million is expected to represent primary proceeds to the Company and approximately $150 million is expected to represent secondary proceeds to the Sponsor. Based on the assumed midpoint IPO price of $22.00 per share, the primary offering would consist of approximately 20,454,545 newly issued shares, and the secondary offering would consist of approximately 6,818,182 existing shares sold by the Sponsor, for a total offering of approximately 27,272,727 shares (before exercise of the underwriters' option to purchase additional shares).
Following the offering, the Company's total shares outstanding on a fully diluted basis would be approximately 120,454,545 (assuming no exercise of the underwriters' option), and approximately 123,713,636 shares assuming full exercise of a 15% greenshoe option.
F. Key Readiness Gaps — Overview
Based on our organizational-meeting review and preliminary due diligence, we have organized the principal readiness gaps into the following ten workstreams, each of which is addressed in detail in the body of this memorandum:
1.  Corporate Governance and Board Composition
2.  Board Committee Structure and Charters
3.  Financial Reporting and Internal Controls (SOX)
4.  Disclosure Controls and Procedures
5.  Insider Trading Policy
6.  Code of Conduct and Ethics
7.  Executive Compensation and Equity Plans
8.  Regulatory and Exchange Compliance
9.  Related-Party Transactions Remediation
10.  Other Public-Company Infrastructure
The balance of this memorandum addresses each workstream in turn, identifies applicable legal requirements, assesses the Company's current state of readiness, provides our recommendations, and establishes a specific timeline and set of action items for remediation.
II. Company Overview and Current Organizational Structure
A. Entity Structure
CBR is organized as a Delaware C-corporation (EIN: 83-4027615). The Company's registered agent is Capitol Statutory Services, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. The Company's corporate structure is organized in a multi-tiered holding-company format that is typical for utility-scale renewable energy platforms, with project-level special purpose vehicles ("SPVs") held beneath an intermediate holding company and an operating company.
The Company's entity structure is as follows:
Parent Entity:
•  Calloway-Briggs Renewables Inc. — Delaware C-corporation; the entity that will be the issuer of the Common Stock in the IPO.
Intermediate Holding Company:
•  CBR Holdings LLC — Delaware limited liability company; a wholly owned subsidiary of Calloway-Briggs Renewables Inc. that serves as the intermediate holding company for the operating platform.
Operating Entity:
•  Calloway-Briggs Operating Company LLC — Texas limited liability company; the principal operating subsidiary, which employs the substantial majority of the Company's workforce and holds the Company's operating assets and project-level interests.
Project-Level SPVs:
All of the following project-level SPVs are 100% owned, directly or indirectly, by Calloway-Briggs Operating Company LLC:
We note that the Solaris West Solar LLC entity is the subject of a tax-equity partnership arrangement with Veltara Basin Financial LLC, which is discussed in greater detail in Section II.E and Section V.A.3 below.
As part of the IPO process, we will conduct a comprehensive review of the governing documents of each entity in the corporate structure, including the operating agreements of each limited liability company, to confirm that the equity ownership chain is clean, that there are no outstanding options, warrants, or other equity rights at the subsidiary level that could present complications, and that all necessary consents and approvals for the IPO have been obtained or are obtainable.
B. Key Officers
The Company's executive management team consists of the following individuals:
The Company currently employs approximately 1,240 individuals, the substantial majority of whom are based in Texas and are employed by Calloway-Briggs Operating Company LLC. As discussed in Section V below, the finance team led by Mr. Yoon and Ms. Anand will need to be assessed and potentially augmented to support the accelerated reporting cadence required of a public company.
C. Current Board of Directors (Pre-IPO)
The Company's Board of Directors (the "Board") currently consists of seven members:
The current governance structure reflects private-company norms. The Board operates without standing committees; there are no formal charters for an audit committee, compensation committee, or nominating and corporate governance committee. All significant decisions are made by the full Board or, in certain cases, by written consent. The absence of independent committee structures is a principal readiness gap that must be addressed prior to the IPO, as discussed in detail in Section IV below.
D. Financial Profile
The Company's financial profile demonstrates a track record of strong revenue growth and meaningful profitability:
Income Statement Data:
Balance Sheet Data (as of December 31, 2021):
Q1 2022 (Unaudited, Preliminary):
Operational Data:
The Company's consolidated financial statements for the fiscal years ended December 31, 2019, 2020, and 2021 have been audited by Ashford & Pemberton LLP, the Company's independent registered public accounting firm. The lead engagement partner is Gregory Sondheim, and the audit manager is Irene Valdez. The audited financial statements will be included in the S-1 registration statement.
E. Existing Debt Structure
The Company's existing indebtedness is summarized below. Each of these facilities will need to be reviewed in the due diligence process to identify any consent requirements, change-of-control provisions, or restrictive covenants that could be triggered by the IPO.
The Corporate Revolving Credit Facility and Corporate Term Loan B are the Company's principal corporate-level debt instruments. Both are administered by Veltrano National Bank and are secured by a pledge of substantially all of the assets of CBR Holdings LLC and Calloway-Briggs Operating Company LLC, as well as a pledge of the equity interests in certain project-level subsidiaries. We will review the credit agreements governing these facilities in detail as part of the S-1 drafting process, with particular attention to change-of-control definitions, consent requirements, and any limitations on the use of IPO proceeds.
The tax-equity partnership with Veltara Basin Financial LLC in connection with the Solaris West Solar project involves a complex HLBV (hypothetical liquidation at book value) accounting methodology that presents particular challenges for both financial statement preparation and internal controls. This matter is discussed further in Section V.A.3 below.
The construction-to-term facilities for Mesquite Wind and Cimarron Solar are project-level financings with Prairie Commercial Bank, N.A. that will convert to term-loan structures upon satisfaction of conversion conditions, including mechanical completion, interconnection, and achievement of commercial operations. These facilities contain project-level covenants and collateral packages that are ring-fenced from the corporate-level credit facilities.
III. Corporate Governance — Board Composition and Independence
A. NYSE Listing Standards — Independent Director Requirements
Section 303A of the NYSE Listed Company Manual requires that listed companies maintain a majority of independent directors on their boards. Under the NYSE rules, a director qualifies as "independent" only if the board affirmatively determines that the director has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of an organization that has a relationship with the company. The NYSE rules enumerate specific bright-line disqualifying relationships, including employment by the company within the preceding three years, receipt of more than $120,000 in direct compensation from the company during any twelve-month period within the preceding three years (excluding director and committee fees and certain other payments), and affiliation with or employment by the company's present or former internal or external auditor within the preceding three years.
As currently constituted, the Board has three independent directors out of seven total — Warren Okoro, Catherine Liang, and Richard Estavez. This represents a minority (approximately 43%) of the Board. The four non-independent directors are Garrett Calloway and Elaine Briggs (each of whom is non-independent by virtue of their management positions as CEO and President, respectively) and Hugh Pemberton and Diane Kovac (each of whom is non-independent by virtue of their affiliation with Pinnacle Vista Capital Partners III, LP, which is a controlling stockholder and not independent from the Company).
The Company's current board composition does not satisfy the NYSE majority-independence requirement. However, as discussed below, the Company may be able to rely on the controlled-company exemption to avoid certain independence requirements.
B. Controlled-Company Exemption Analysis
Under Section 303A of the NYSE Listed Company Manual, a "controlled company" — defined as a company of which more than 50% of the voting power for the election of directors is held by an individual, group, or another company — is exempt from the requirements for (i) a majority-independent board, (ii) a fully independent compensation committee, and (iii) a fully independent nominating and corporate governance committee. Importantly, the controlled-company exemption does not extend to the audit committee independence requirements under SEC Rule 10A-3 and NYSE rules, which apply regardless of controlled-company status.
Post-IPO Voting-Power Analysis:
Immediately following the IPO, Pinnacle Vista will hold approximately 55,181,818 shares of Common Stock, calculated as its pre-IPO ownership of 62,000,000 shares less the approximately 6,818,182 shares to be sold by the Sponsor in the secondary offering (representing approximately $150 million of the total offering at the $22.00 assumed midpoint price).
Post-IPO, the Company will have approximately 123,713,636 shares outstanding on a fully diluted basis (assuming full exercise of the underwriters' option to purchase additional shares). Pinnacle Vista's post-IPO voting power would therefore be approximately 44.6% (55,181,818 ÷ 123,713,636), which is below the 50% threshold required for the controlled-company exemption on a standalone basis.
However, the determination of whether the Company qualifies as a "controlled company" depends on whether Pinnacle Vista and the Founders together constitute a "group" for purposes of the controlled-company analysis. Under the existing Stockholders' Agreement, the Founders and Pinnacle Vista have agreed to certain arrangements regarding board composition and the election of directors, including Pinnacle Vista's right to designate two directors. If these arrangements are continued in the Amended and Restated Stockholders' Agreement that will be entered into in connection with the IPO, there is a reasonable basis for the position that Pinnacle Vista and the Founders together constitute a "group" that controls more than 50% of the voting power for the election of directors.
Combined, Pinnacle Vista (approximately 44.6%) and the Founders (who will retain a significant portion of their pre-IPO holdings, estimated at approximately 17–19% on a post-IPO basis) would hold well in excess of 50% of the voting power, potentially qualifying the Company as a controlled company.
Additional Analysis Required: We recommend that a detailed legal analysis be conducted to determine whether the terms of the Amended and Restated Stockholders' Agreement, including the board designation rights, voting agreements, and any director nomination or election commitments, are sufficient to establish the existence of a "group" for controlled-company purposes. This analysis should consider relevant SEC staff guidance and NYSE interpretive positions on the definition of "group" in this context.
Recommendation Regarding the Controlled-Company Exemption:
Even if the controlled-company exemption is available and the Company elects to rely upon it, we recommend that the Company:
(a) Adopt a phase-in compliance schedule for independent-director majority and committee independence, with a target of achieving full compliance within a reasonable period following the IPO;
(b) Disclose reliance on the controlled-company exemption prominently in the S-1 registration statement, including in the "Risk Factors" section and the "Corporate Governance" section of the prospectus; and
(c) Articulate a clear and credible corporate governance roadmap in the prospectus that demonstrates the Company's commitment to achieving best-practices governance over time.
Investors, proxy advisory firms, and institutional stockholders increasingly view reliance on the controlled-company exemption unfavorably, and voluntary adoption of best-practices governance — even where not legally required — can be an important signaling mechanism in the IPO marketing process.
Phase-In Schedule (If Controlled-Company Exemption Is Not Available):
To the extent that the controlled-company exemption is determined not to be available, the NYSE provides a phase-in schedule for newly listed companies with respect to committee independence requirements:
(a) At least one independent member on each committee at the time of listing;
(b) A majority of independent members on each committee within 90 days of listing; and
(c) Fully independent committees within one year of listing.
However, as discussed in Section IV.A below, the Company currently has three independent directors who are qualified to serve on all three required committees, and we recommend that the Company seek to comply fully with committee independence requirements at the time of listing.
C. Existing Stockholders' Agreement and Board Designation Rights
The Company's current Stockholders' Agreement, dated as of March 15, 2017 (as amended), provides Pinnacle Vista with the right to designate two members of the Board for so long as Pinnacle Vista holds at least a specified percentage of the Company's outstanding equity. This designation right was exercised in the appointment of Hugh Pemberton and Diane Kovac. The Founders have separate designation rights to serve on the Board, which are inherent in their positions as management directors.
In connection with the IPO, the existing Stockholders' Agreement will be terminated and replaced by an Amended and Restated Stockholders' Agreement (the "IPO Stockholders' Agreement"), which will contain revised board designation rights with a step-down schedule tied to Pinnacle Vista's ownership thresholds. The typical structure for such step-down provisions provides as follows:
•  At or above a specified ownership threshold (e.g., 30%), Pinnacle Vista retains the right to designate two directors;
•  Between a lower threshold (e.g., 15%) and 30%, Pinnacle Vista retains the right to designate one director; and
•  Below the lower threshold, Pinnacle Vista's designation rights terminate.
The specific ownership thresholds and other terms of the IPO Stockholders' Agreement remain subject to negotiation among CBR, Pinnacle Vista, and the Founders. Calderwood & Harkness will draft the IPO Stockholders' Agreement in coordination with Whitfield Archer & Doss LLP, counsel to Pinnacle Vista.
The Founders' board designation rights will also be addressed in the IPO Stockholders' Agreement or, alternatively, through their employment agreements with the Company.
D. Recommendations
Based on the foregoing analysis, we make the following recommendations with respect to board composition and corporate governance:
1.  Confirm Board Composition. The Company should confirm the composition of the Board at the time of listing. If the controlled-company exemption is available and the Company elects to rely upon it, no additional independent director appointments are required. However, we recommend that the Company consider voluntarily expanding the Board by one or two additional independent directors to strengthen governance optics and provide deeper bench strength for committee service.
2.  Prepare IPO Charter and Bylaws. Calderwood & Harkness will prepare an Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (collectively, the "IPO Charter Documents") for adoption in connection with the IPO. The IPO Charter Documents should include the following governance provisions:
(a) A classified board structure with three classes of directors, each serving staggered three-year terms;
(b) Advance-notice provisions for stockholder nominations and proposals;
(c) An exclusive forum-selection clause designating the Delaware Court of Chancery as the sole and exclusive forum for certain specified categories of corporate litigation, including derivative actions, actions asserting claims of breach of fiduciary duty, actions arising under the DGCL, and actions governed by the internal affairs doctrine;
(d) A federal-forum provision designating the federal district courts of the United States as the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act;
(e) Provisions opting in to the protections of Section 203 of the DGCL (the Delaware anti-takeover statute); and
(f) Customary provisions regarding authorized capital stock, elimination of cumulative voting, limitation on stockholder action by written consent (to be limited to stockholder action at a duly called meeting once the Company is no longer a "controlled company"), and supermajority voting requirements for amendment of certain charter and bylaws provisions.
3.  Timeline. Board composition should be finalized before the S-1 filing. Drafts of the IPO Charter Documents are to be circulated by March 28, 2022.
IV. Board Committee Structure and Charter Requirements
A. Audit Committee
1. Applicable Requirements
Both the NYSE Listed Company Manual (Section 303A.07) and SEC Rule 10A-3 under the Exchange Act require that listed companies maintain an audit committee composed entirely of independent directors. The audit committee must have at least three members, each of whom must be "financially literate" (as determined by the board in its business judgment), and at least one member must qualify as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K. The audit committee financial expert designation requires that the individual have, through education and experience, the following attributes:
(a) An understanding of generally accepted accounting principles and financial statements;
(b) The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
(c) Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised by the company's financial statements, or experience actively supervising one or more persons engaged in such activities;
(d) An understanding of internal controls and procedures for financial reporting; and
(e) An understanding of audit committee functions.
As noted in Section III.B above, the audit committee independence requirements apply regardless of whether the Company qualifies for the controlled-company exemption. There is no controlled-company exception to audit committee independence.
2. Proposed Composition
We propose the following composition for the Audit Committee:
All three proposed members are independent under both the NYSE independence standards and the heightened independence standards applicable to audit committee members under SEC Rule 10A-3. Based on our review of Mr. Okoro's background — which includes over 20 years of experience in financial services, including service as Chief Financial Officer of a publicly traded energy company — we believe he is well qualified to serve as the designated "audit committee financial expert."
Although the NYSE phase-in rules would permit the Company to have only one independent audit committee member at listing (with a majority within 90 days and full independence within one year), the Company has three qualified independent directors available for immediate service. Accordingly, we recommend that the Company comply fully with audit committee independence requirements at the time of listing, which will be viewed favorably by investors and the SEC staff.
3. Audit Committee Charter
Calderwood & Harkness will draft the Audit Committee Charter, which must address the following areas at a minimum:
(a) The committee's purpose and authority, including its role as the sole body responsible for the appointment, compensation, retention, and oversight of the work of the Company's independent registered public accounting firm (Ashford & Pemberton LLP);
(b) Oversight of the Company's financial reporting process and internal financial controls;
(c) Procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, including confidential and anonymous submissions by employees (the whistleblower hotline requirement under SOX Section 301);
(d) Authority to engage independent counsel and other advisers as the committee determines necessary to carry out its duties, at the Company's expense;
(e) Pre-approval of all audit and permitted non-audit services performed by the independent auditor;
(f) Review and oversight of related-party transactions (in coordination with the Related-Party Transaction Policy discussed in Section X);
(g) Review and discussion with management and the independent auditor of the Company's annual audited financial statements and quarterly unaudited financial statements prior to filing with the SEC;
(h) Discussion with management regarding the Company's risk management framework and significant financial risk exposures;
(i) Oversight of the Company's internal audit function (once established); and
(j) Annual self-evaluation of the committee's performance.
4. Required Board Action
A resolution of the Board of Directors is required to formally establish the Audit Committee, adopt its charter, and designate Warren Okoro as the audit committee financial expert. This resolution should be adopted prior to the filing of the S-1 registration statement.
B. Compensation Committee
1. Applicable Requirements
Section 303A.05 of the NYSE Listed Company Manual requires that listed companies maintain a compensation committee composed entirely of independent directors. As noted above, this requirement is subject to the controlled-company exemption. If the Company relies on the controlled-company exemption, the compensation committee need not be fully independent, although the phase-in rules described in Section III.B above would apply.
In addition, SEC Rule 10C-1 imposes certain independence requirements on compensation committee members, including consideration of whether a director has any consulting, advisory, or compensatory relationship with the company and whether the director is an affiliate of the company. These requirements are incorporated into the NYSE listing standards.
2. Proposed Composition
We propose the following composition for the Compensation Committee:
All three proposed members satisfy the independence requirements under both the NYSE listing standards and SEC Rule 10C-1. We recommend that the Company comply fully with compensation committee independence requirements at the time of listing, regardless of whether the controlled-company exemption is available.
3. Compensation Committee Charter
Calderwood & Harkness will draft the Compensation Committee Charter, which must address the following areas:
(a) The committee's purpose and authority with respect to establishing the Company's executive compensation philosophy and determining the compensation of the Company's executive officers;
(b) Administration of the Company's equity compensation plans, including the 2022 Omnibus Equity Incentive Plan and the 2022 Employee Stock Purchase Plan (each discussed in Section IX);
(c) Authority to retain and terminate any compensation consultant, outside counsel, or other adviser to the committee, at the Company's expense, including the engagement of Clarendon Rowe Advisory Group LLC (Patricia Voss, Senior Managing Director);
(d) Independence assessment of compensation advisers;
(e) Review and recommendation to the Board regarding director compensation;
(f) Establishment of performance goals and targets for performance-based compensation;
(g) Oversight of the Company's clawback policy (once adopted);
(h) Review of the Compensation Discussion and Analysis, if applicable, or other executive compensation disclosures for inclusion in the Company's proxy statement or annual report; and
(i) Annual self-evaluation of the committee's performance.
4. Required Board Action
A resolution of the Board of Directors is required to formally establish the Compensation Committee and adopt its charter. This resolution should be adopted prior to the filing of the S-1 registration statement.
C. Nominating and Corporate Governance Committee
1. Applicable Requirements
Section 303A.04 of the NYSE Listed Company Manual requires that listed companies maintain a nominating and corporate governance committee composed entirely of independent directors. Like the compensation committee independence requirement, this requirement is subject to the controlled-company exemption.
2. Proposed Composition
We propose the following composition for the Nominating and Corporate Governance Committee:
We note that Hugh Pemberton is not independent for purposes of the NYSE listing standards, as he is affiliated with Pinnacle Vista Capital Partners III, LP. If the Company relies on the controlled-company exemption, Mr. Pemberton's service on the Nominating and Corporate Governance Committee is permissible. However, if the controlled-company exemption is not available or if the Company determines not to rely upon it, Mr. Pemberton must be replaced with an independent director. In that circumstance, Warren Okoro could serve as the third member, though this would result in all three independent directors serving on all three committees, which may present workload and scheduling concerns.
3. Nominating and Corporate Governance Committee Charter
Calderwood & Harkness will draft the Nominating and Corporate Governance Committee Charter, which must address the following areas:
(a) The committee's purpose and authority with respect to identifying and evaluating individuals qualified to become Board members;
(b) Development and recommendation to the Board of corporate governance policies and guidelines;
(c) Oversight of the Board's annual self-evaluation process;
(d) Review of director independence determinations;
(e) Succession planning for the Chief Executive Officer and other senior management positions;
(f) Oversight of the Company's environmental, social, and governance ("ESG") practices and disclosures, to the extent the Board determines to assign this responsibility to the committee; and
(g) Annual self-evaluation of the committee's performance.
4. Required Board Action
A resolution of the Board of Directors is required to formally establish the Nominating and Corporate Governance Committee and adopt its charter. This resolution should be adopted prior to the filing of the S-1 registration statement.
D. Timeline and Action Items
Committee charters will be filed as exhibits to the S-1 registration statement or, if permitted, incorporated by reference and posted on the Company's investor relations website promptly upon effectiveness of the registration statement.
V. Financial Reporting and Internal Controls — Sarbanes-Oxley Compliance
A. SOX Section 404 — Internal Control over Financial Reporting
1. Current State Assessment
SOX Section 404 requires public companies to include in their annual reports (a) a management assessment of the effectiveness of the company's internal control over financial reporting (Section 404(a)) and (b) an attestation report from the company's independent registered public accounting firm on the effectiveness of internal control over financial reporting (Section 404(b)).
CBR currently maintains internal controls that are appropriate for a privately held company, including month-end close procedures, reconciliation processes, and financial reporting protocols. However, the Company has not undergone a formal SOX 404 assessment, and its internal control environment has not been documented or evaluated under the framework established by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in its 2013 Internal Control — Integrated Framework (the "COSO 2013 Framework").
Specifically, CBR lacks formal documentation of the five components of internal control under the COSO 2013 Framework:
(a) Control Environment — The organizational structure, assignment of authority and responsibility, and tone at the top regarding the importance of internal control;
(b) Risk Assessment — The processes for identifying and analyzing risks to the achievement of financial reporting objectives;
(c) Control Activities — The policies and procedures that help ensure that management directives are carried out;
(d) Information and Communication — The systems and processes that support the identification, capture, and exchange of information in a form and timeframe that enables people to carry out their responsibilities; and
(e) Monitoring Activities — The processes for assessing the quality of internal control performance over time.
The Company's finance team is currently led by Marcus Yoon (CFO) and Priya Anand (SVP, Finance and Treasurer). While both individuals are experienced and capable, the finance team will likely need augmentation — both in terms of headcount and specialized expertise — to meet the reporting cadence, control documentation, and compliance requirements of a public company. We recommend that the Company assess its current finance and accounting staffing levels and identify specific hiring needs in the areas of SEC reporting, technical accounting, internal audit, and SOX compliance.
2. Emerging Growth Company Status and SOX Exemptions
CBR qualifies as an "emerging growth company" ("EGC") under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act defines an EGC as a company with total annual gross revenue of less than $1.235 billion during its most recently completed fiscal year. CBR's fiscal year 2021 revenue of $487.3 million is well below this threshold.
As an EGC, the Company is entitled to a number of significant accommodations, including the following exemptions relevant to SOX compliance:
(a) SOX 404(b) Exemption. The Company is exempt from the requirement to obtain an attestation report from its independent registered public accounting firm on the effectiveness of internal control over financial reporting. This exemption is available for up to five fiscal years following the IPO (or until the Company ceases to qualify as an EGC, whichever occurs first).
(b) Management Assessment Timing. The Company's obligation to include management's assessment of internal controls under SOX 404(a) will begin with the Company's second annual report filed with the SEC. If the IPO closes during calendar year 2022, the Company's first annual report on Form 10-K will be for the fiscal year ending December 31, 2022, and management's first SOX 404(a) assessment will be required in the annual report for the fiscal year ending December 31, 2023.
The EGC exemptions provide the Company with a meaningful runway to build out its internal control infrastructure. However, we strongly recommend that the Company begin its SOX 404 readiness project immediately, rather than deferring the work until the statutory compliance deadline. Early engagement will allow the Company to identify and remediate control deficiencies proactively, avoid the risk of material weaknesses being identified in a compressed timeframe, and build organizational competency in SOX compliance that will serve the Company well over the long term.
3. Key Risk Areas for Internal Controls
Based on our review of the Company's financial statements, business model, and organizational structure, we have identified the following areas as presenting heightened risk for purposes of internal controls over financial reporting:
Revenue Recognition. The Company's revenue streams derive principally from power purchase agreements ("PPAs"), which involve variable considerations, curtailment adjustments, and capacity payments. The accounting for these revenue streams under ASC 606 (Revenue from Contracts with Customers) is complex and requires judgment-intensive determinations regarding performance obligations, transaction prices, variable consideration estimates, and the timing of revenue recognition. Robust controls must be in place to ensure that revenue is properly recognized, measured, and disclosed in accordance with GAAP.
Tax-Equity Accounting. The Company's tax-equity partnership with Veltara Basin Financial LLC in connection with the Solaris West Solar project involves the use of the hypothetical liquidation at book value ("HLBV") methodology for allocating income, loss, and equity to the tax-equity investor. HLBV accounting is inherently complex and requires specialized knowledge of partnership accounting, tax law, and the specific terms of the tax-equity partnership agreement. The HLBV calculations are highly sensitive to assumptions regarding the timing and amount of tax benefits, the flip date (expected 2028), and the fair value of the underlying project assets. The Company must implement specialized controls and detailed documentation to ensure the accuracy of HLBV calculations, and the finance team must include or have access to personnel with expertise in tax-equity accounting.
Project-Finance Accounting. The Company's multi-layered debt structure, including corporate-level facilities and project-level construction-to-term financings, creates complexity in accounting for debt issuance costs, interest expense allocation, covenant compliance, and intercompany eliminations in the consolidated financial statements. Each SPV-level borrowing has its own distinct covenant package, reporting requirements, and accounting treatment. Controls must be in place to ensure accurate consolidation, proper elimination of intercompany balances and transactions, and correct classification of debt (current vs. non-current) in the consolidated balance sheet.
Capitalization of Project Development Costs. The Company's business model involves significant expenditures on project development activities, including site acquisition, permitting, environmental studies, interconnection, and engineering and design. The determination of whether and when to capitalize or expense project development costs is judgment-intensive and depends on the stage of development, the probability of successful completion, and the Company's accounting policies. Inconsistent or inadequately controlled capitalize-versus-expense determinations could result in material misstatements of the Company's financial position and results of operations.
Non-GAAP Financial Measures. The Company intends to present Adjusted EBITDA and potentially other non-GAAP financial measures in its SEC filings, earnings releases, and investor presentations. SEC Regulation G and Item 10(e) of Regulation S-K impose specific requirements on the presentation of non-GAAP measures, including the requirement to provide a reconciliation to the most directly comparable GAAP measure, the prohibition on presenting non-GAAP measures with greater prominence than GAAP measures, and restrictions on certain adjustments (particularly the exclusion of charges or liabilities that require cash settlement). The Company must implement controls to ensure that its Adjusted EBITDA reconciliation is prepared consistently and in compliance with SEC guidance, and that any changes to the calculation methodology from period to period are appropriately disclosed and explained.
4. Recommended SOX 404 Timeline
We recommend the following phased approach to SOX 404 readiness:
We recommend that the Company engage a qualified third-party consultant to assist with the SOX 404 readiness project, particularly during Phases 1 and 2, and that the Company establish an internal audit function (either through dedicated internal hires or an outsourced or co-sourced arrangement) to support ongoing testing and monitoring.
B. SOX Section 302 — CEO/CFO Certifications
Section 302 of the Sarbanes-Oxley Act requires the Chief Executive Officer and Chief Financial Officer of a public company to provide personal certifications in each quarterly report on Form 10-Q and annual report on Form 10-K. These certifications require each certifying officer to state, among other things, that:
(a) He or she has reviewed the report;
(b) Based on his or her knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading;
(c) Based on his or her knowledge, the financial statements and other financial information included in the report fairly present in all material respects the financial condition, results of operations, and cash flows of the company as of, and for, the periods presented in the report;
(d) The certifying officers are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the company;
(e) The certifying officers have designed or caused to be designed disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the report is being prepared;
(f) The certifying officers have evaluated the effectiveness of the company's disclosure controls and procedures within 90 days prior to the filing date of the report; and
(g) The certifying officers have disclosed to the auditors and the audit committee any significant deficiencies and material weaknesses in internal controls and any fraud involving management or other employees who have a significant role in internal controls.
Garrett Calloway (CEO) and Marcus Yoon (CFO) will be the certifying officers for the Company. We strongly recommend that a formal training session be conducted for both Mr. Calloway and Mr. Yoon regarding their certification responsibilities, the potential for personal civil and criminal liability associated with false certifications, and the practical steps they should take to ensure an adequate basis for providing the certifications. This training should be conducted before the first quarterly report is filed following the IPO.
In addition, we recommend the implementation of a sub-certification process pursuant to which business-unit leaders and functional-area heads provide quarterly certifications to the CEO and CFO regarding matters within their respective areas of responsibility. These sub-certifications serve as a foundation for the CEO's and CFO's Section 302 certifications and help ensure that material information from all areas of the business is surfaced and communicated to the certifying officers.
C. SOX Section 906 — Criminal Certifications
Separately from the Section 302 certifications, Section 906 of the Sarbanes-Oxley Act (codified at 18 U.S.C. § 1350) requires the CEO and CFO to provide a separate certification that the periodic report containing financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the company. Unlike the Section 302 certifications, which are subject to civil liability under the Exchange Act, the Section 906 certifications carry potential criminal penalties: a fine of not more than $1,000,000 and/or imprisonment of not more than 10 years for a knowing violation, and a fine of not more than $5,000,000 and/or imprisonment of not more than 20 years for a willful violation.
Mr. Calloway and Mr. Yoon should be briefed on the requirements and personal exposure associated with the Section 906 certification, and this briefing should be included in the training session referenced in Section V.B above.
D. Financial Statement Reporting cadence
Following the IPO, the Company will be subject to the periodic reporting requirements of the Exchange Act, which impose the following filing deadlines:
The Company's filer status will be determined based on its public float as of the last business day of its most recently completed second fiscal quarter. At the assumed IPO valuation, the Company is likely to qualify as either an accelerated filer or a large accelerated filer relatively quickly following the IPO, which will subject it to the most compressed reporting deadlines.
The Company's current finance team should be assessed for capacity to meet these accelerated reporting deadlines. In a private-company environment, the annual audit process may take several months after fiscal year-end, and quarterly financial reporting may follow an extended timeline. In the public-company environment, the finance team must be able to close its books, prepare financial statements, draft SEC filings, and coordinate with the independent auditor on a significantly compressed timeline.
We recommend that the Company coordinate with Ashford & Pemberton LLP (Gregory Sondheim, Lead Engagement Partner; Irene Valdez, Audit Manager) on the timing and logistics of quarterly review engagements and annual audit engagements, with the goal of establishing a reporting calendar that provides adequate time for preparation, review, and filing. The first quarterly report filed by the Company after the IPO will set the precedent for the Company's reporting rhythm, and it is essential that the process run smoothly.
VI. Disclosure Controls and Procedures
A. Requirement
Rule 13a-15(a) under the Exchange Act requires that every issuer that has a class of securities registered under Section 12 of the Exchange Act maintain "disclosure controls and procedures" (as defined in Rule 13a-15(e)) designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is:
(a) Recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms; and
(b) Accumulated and communicated to the issuer's management, including the issuer's principal executive officer and principal financial officer (or persons performing similar functions), as appropriate to allow timely decisions regarding required disclosure.
The CEO and CFO must evaluate the effectiveness of the Company's disclosure controls and procedures as of the end of each fiscal quarter and each fiscal year, and the Company must disclose the conclusions reached regarding such effectiveness in each quarterly report on Form 10-Q and annual report on Form 10-K.
B. Current State
CBR does not currently maintain formal disclosure controls and procedures. As a private company, the Company has had no obligation to file periodic reports with the SEC, and consequently has no established infrastructure for the systematic identification, evaluation, and reporting of information required to be disclosed in Exchange Act reports. The Company does not currently have a Disclosure Committee, formalized information-gathering procedures, sub-certification protocols, or established processes for determining the materiality of events and the need for Form 8-K filings.
This represents a significant infrastructure gap that must be addressed before the Company begins filing Exchange Act reports following the IPO.
C. Recommendations
1. Establish a Disclosure Committee
We recommend that the Company establish a Disclosure Committee (the "Disclosure Committee") to serve as the principal internal body responsible for assisting the CEO and CFO in fulfilling their obligations under the disclosure controls and procedures requirements. The Disclosure Committee should be composed of senior executives and functional-area leaders who collectively have visibility into all material aspects of the Company's business and operations.
We recommend the following membership:
The Disclosure Committee should meet at least quarterly, in advance of each Form 10-Q and Form 10-K filing, to review and discuss the Company's periodic reports and evaluate the adequacy and effectiveness of the Company's disclosure controls and procedures. The Disclosure Committee should also meet on an ad hoc basis as needed in connection with material events that may require the filing of a Current Report on Form 8-K or other public disclosure.
2. Disclosure Committee Charter
Calderwood & Harkness will draft a Disclosure Committee Charter defining the scope of the committee's responsibilities, its membership, meeting cadence, and reporting protocols. The charter should address, at a minimum, the following matters:
(a) The committee's role in assisting the CEO and CFO with their Section 302 certification obligations;
(b) Procedures for the systematic identification, evaluation, and escalation of potentially material information from all areas of the business;
(c) Regulation FD compliance procedures, including protocols for reviewing all proposed communications with analysts, institutional investors, and other market participants to ensure that no selective disclosure of material nonpublic information occurs;
(d) Materiality determination framework, including guidelines for evaluating the materiality of events and determining whether a Form 8-K filing is required;
(e) Form 8-K filing triggers and response protocols; and
(f) Coordination with the Audit Committee on matters within the Audit Committee's oversight responsibility.
3. Sub-Certification Protocols
We recommend the implementation of a quarterly sub-certification process pursuant to which business-unit and functional-area leaders complete questionnaires designed to surface potentially material information from their respective areas of responsibility. These questionnaires should be designed to elicit information regarding, among other things:
(a) Material changes in the business, operations, or financial condition of the unit;
(b) Pending or threatened litigation, investigations, or regulatory actions;
(c) Changes in key contracts, customers, or suppliers;
(d) Environmental, health, and safety matters;
(e) Related-party transactions;
(f) Changes in accounting estimates or the discovery of errors; and
(g) Any other matters that could be material to the Company's financial statements or required SEC disclosures.
The completed questionnaires should be reviewed by the Disclosure Committee and discussed at the quarterly Disclosure Committee meeting prior to finalization of the Company's periodic reports.
4. Coordination with Investor Relations Advisors
The Company should coordinate closely with Broadmark Strategic Communications Inc. (Jason Eklund, Managing Director) on all investor relations communications, including press releases, earnings releases, investor presentations, and analyst-day events. Broadmark should be integrated into the Disclosure Committee's processes and should receive Regulation FD training to ensure that all external communications are reviewed for compliance before dissemination.
5. Earnings Release and Quiet-Period Protocols
We recommend that the Company establish a pre-announcement quiet period during which the Company's directors, officers, and other authorized spokespersons refrain from participating in investor conferences, one-on-one meetings with analysts or investors, and other communications that could involve the discussion of the Company's financial results or outlook. Our recommendation is that the quiet period begin two weeks before the end of each fiscal quarter and continue through the date of the Company's earnings release for that quarter.
The timing and format of the Company's quarterly earnings releases should be coordinated with Hargrove Keating & Co. (Oliver Marchetti, lead-left book-runner) and Broadmark. The Company should also establish protocols for the conduct of quarterly earnings calls, including the preparation of a script, the designation of authorized spokespersons, and the procedures for handling questions from analysts and investors.
6. Timeline.  
VII. Insider Trading Policy and Section 16 Compliance
A. Insider Trading Policy
1. Current State
CBR currently has no insider trading policy. As a private company, the Company has not been subject to the public-market insider trading prohibitions that apply to reporting companies and their insiders. However, upon the IPO, all directors, officers, employees, and consultants of the Company will be subject to the prohibitions on insider trading under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as the misappropriation theory of insider trading liability. Accordingly, the Company must adopt a comprehensive insider trading policy before the IPO.
2. Key Policy Elements
The insider trading policy must address the following matters:
Prohibition on Trading on Material Nonpublic Information (MNPI). The policy must clearly prohibit all directors, officers, employees, and consultants from purchasing or selling the Company's securities, or tipping others, while in possession of material nonpublic information about the Company or its business, operations, or prospects. The policy should define "material nonpublic information" with reference to applicable SEC guidance and case law and provide practical examples of the types of information that may be considered material.
Pre-Clearance Procedures. The policy must establish mandatory pre-clearance procedures for all Section 16 insiders (i.e., directors, executive officers, and beneficial owners of more than 10% of the Company's Common Stock). Under these procedures, no Section 16 insider may engage in any transaction in the Company's securities without first obtaining written pre-clearance from the Company's compliance officer (which role we recommend be assigned to Sandra Haverford, the General Counsel).
Blackout Periods. The policy must establish regular blackout periods during which all insiders are prohibited from trading in the Company's securities. We recommend quarterly trading windows that open on the second trading day following the Company's public release of quarterly earnings and close at the beginning of the pre-announcement quiet period for the following quarter. The policy should also provide for event-specific blackouts that may be imposed at any time when the Company determines that directors, officers, or employees may be in possession of material nonpublic information (for example, during a significant corporate transaction or pending regulatory action).
Rule 10b5-1 Trading Plans. The policy must address the adoption, modification, and termination of trading plans under SEC Rule 10b5-1, which provide an affirmative defense to insider trading liability when trades are executed pursuant to a pre-established plan that was adopted in good faith at a time when the insider was not aware of material nonpublic information. The policy should establish the following requirements for Rule 10b5-1 plans:
(a) Plans may only be adopted during an open trading window and when the insider is not in possession of MNPI;
(b) Plans must be submitted to the compliance officer for review and approval before adoption;
(c) Plans must include a cooling-off period of at least 30 days (and preferably 90 days, consistent with anticipated SEC rulemaking) between adoption and the first trade;
(d) Modifications to existing plans are subject to the same requirements as new plan adoptions; and
(e) Insiders may not have more than one active Rule 10b5-1 plan at any time.
Hedging and Pledging Restrictions. The policy must address whether directors, officers, and employees are permitted to engage in hedging transactions (such as zero-cost collars, prepaid variable forward contracts, and equity swaps) and pledging transactions (such as holding Company securities in a margin account or pledging Company securities as collateral for a loan). We recommend that the policy prohibit hedging transactions by all insiders and prohibit pledging transactions, subject to limited exceptions. We note that the lock-up agreements to be entered into with Hargrove Keating & Co. in connection with the IPO will include a carve-out permitting pledges to lenders, and the insider trading policy should be coordinated with this carve-out.
3. Timeline.  A draft of the insider trading policy will be circulated by April 1, 2022. The policy should be adopted by the Board of Directors before the S-1 filing.
B. Section 16 Compliance
1. Section 16 Reporting Requirements
Section 16(a) of the Exchange Act requires every director, officer (as defined in SEC Rule 16a-1(f)), and beneficial owner of more than 10% of a class of equity securities registered under Section 12 of the Exchange Act to file reports with the SEC disclosing their beneficial ownership of, and transactions in, the company's equity securities. The required reports are:
(a) Form 3 (Initial Statement of Beneficial Ownership) — must be filed at or before the effectiveness of the registration statement for the class of securities;
(b) Form 4 (Statement of Changes in Beneficial Ownership) — must be filed within two business days after any change in beneficial ownership; and
(c) Form 5 (Annual Statement of Beneficial Ownership) — must be filed within 45 days after the end of each fiscal year, reporting transactions not