PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, New York 10022
MEMORANDUM
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I. Executive Summary
The purpose of this memorandum is to analyze whether Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), a Delaware corporation headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746, satisfies the quantitative and qualitative listing standards of the New York Stock Exchange (the "NYSE") in connection with the Company's proposed initial public offering (the "IPO") of approximately $600,000,000 of common stock, par value $0.01 per share (the "Common Stock"), under the proposed ticker symbol "CBRI." This analysis is being conducted at the request of Jennifer Kwon, Partner, in connection with Calderwood & Harkness LLP's engagement as issuer's counsel in the IPO.
Conclusion. Based on the analysis set forth in this memorandum, CBR satisfies all quantitative listing standards for an initial listing under Section 102.01 of the NYSE Listed Company Manual (the "Manual"). The Company is expected to qualify for listing under the Valuation/Revenue with Cash Flow Test (Section 102.01B.2) and, alternatively, under the Pure Valuation/Revenue Test (Section 102.01B.3). With respect to qualitative listing standards, CBR will rely on the controlled-company exemption under Section 303A.00 of the Manual for certain corporate governance requirements during a transitional phase-in period, specifically the majority-independent-board requirement under Section 303A.01 and the fully independent nominating/corporate governance committee requirement under Section 303A.04. With certain governance actions already taken or to be taken effective upon IPO closing — including the adoption of corporate governance guidelines, a code of business conduct and ethics, board committee charters, and a related-party transaction policy — CBR will be in compliance with all applicable qualitative listing standards.
NYSE Listing Application No. NYSE-2022-04218 was submitted on April 11, 2022, contemporaneously with the confidential submission of the Company's draft Registration Statement on Form S-1 (DRS-1) to the U.S. Securities and Exchange Commission (the "SEC"). The Application was transmitted under cover letter from Calderwood & Harkness LLP and includes the requisite corporate governance certifications, share distribution projections, financial qualification data, and a description of the proposed offering.
This memorandum should be read in conjunction with the separate Controlled-Company Exemption Memorandum prepared by this firm, which addresses in greater detail the legal basis for and limitations of the controlled-company exemption as it applies to CBR's specific ownership and governance arrangements.
II. Background
A. The Issuer
Calloway-Briggs Renewables Inc. is a Delaware corporation (C-corporation) with the following organizational details:
• Full Legal Name: Calloway-Briggs Renewables Inc.
• State of Incorporation: Delaware
• Employer Identification Number (EIN): 83-4027615
• Registered Agent (Delaware): Capitol Statutory Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801
• Principal Executive Offices: 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746
• Year Founded: 2014
• Founders: Garrett Calloway and Elaine Briggs
The Company is engaged in the development, construction, ownership, and operation of utility-scale solar photovoltaic projects, onshore wind energy projects, and battery energy storage systems. As of the date of this memorandum, CBR has approximately 3.8 gigawatts ("GW") of operating renewable-energy capacity across 22 projects located in Texas, New Mexico, Arizona, California, and Oklahoma. An additional 1.4 GW of capacity is currently under construction, and the Company maintains a development pipeline of approximately 6.2 GW. The Company employs approximately 1,240 individuals across its corporate headquarters, regional offices, and project sites.
B. Pre-IPO Ownership Structure
The Company's capitalization prior to the IPO, after giving effect to the conversion of all outstanding shares of preferred stock into Common Stock and the reclassification of the Company's capital stock in connection with the IPO, is expected to consist of 100,000,000 shares of Common Stock on a fully diluted basis. The pre-IPO ownership structure is as follows:
Pinnacle Vista Capital Partners III, LP is a Delaware limited partnership whose general partner is Pinnacle Vista Capital Management LLC, a Delaware limited liability company. PVCP III acquired its interest in CBR through a series of equity investments beginning in 2017 and holds the largest single block of voting securities. The co-founders, Garrett Calloway and Elaine Briggs, together with members of the Company's management team, hold the second-largest block. Earlier-stage institutional investors and current and former employees holding vested equity interests account for the remaining approximately 14%.
C. Proposed Offering Structure
The Company proposes to offer Common Stock in an initial public offering with the following characteristics:
• Security: Common Stock, par value $0.01 per share
• Proposed Aggregate Offering Size: Approximately $600,000,000, inclusive of full exercise of the 15% overallotment option
• Base Offering: Approximately $521,700,000, consisting of approximately 23,713,636 shares at an assumed midpoint offering price of $22.00 per share
• Overallotment Option (15%): Approximately $78,300,000, consisting of approximately 3,559,091 additional shares at $22.00 per share
• Primary Offering (Company Shares): Approximately $371,700,000, or approximately 16,895,455 shares of newly issued Common Stock, the net proceeds of which will be received by the Company
• Secondary Offering (Pinnacle Vista Shares): Approximately $150,000,000, or approximately 6,818,182 shares of Common Stock to be sold by Pinnacle Vista, the net proceeds of which will be received by Pinnacle Vista (less applicable underwriting discounts and commissions)
The following table sets forth the post-IPO shares outstanding under the base offering and full overallotment scenarios:
Note that the secondary offering by Pinnacle Vista does not increase the total shares outstanding; it merely transfers existing shares from Pinnacle Vista to new public investors.
D. Post-IPO Ownership
Following the completion of the IPO, the ownership structure of the Company will be materially altered by the issuance of new shares in the primary offering and the sale of existing shares by Pinnacle Vista in the secondary offering. The post-IPO ownership is estimated as follows:
Under the base offering scenario (no exercise of the overallotment option):
• Pinnacle Vista: 62,000,000 pre-IPO shares minus 6,818,182 secondary shares sold = approximately 55,181,818 shares, representing approximately 44.6% of 123,713,636 post-IPO shares outstanding.
• Co-Founders and Management: Approximately 24,000,000 shares (assuming no shares are sold by the founders or management in the IPO), representing approximately 19.4% of post-IPO shares outstanding.
• Combined Pinnacle Vista and Founders: Approximately 79,181,818 shares, representing approximately 64.0% of post-IPO shares outstanding.
Under the full overallotment scenario:
• Pinnacle Vista: Approximately 55,181,818 shares out of 127,272,727 post-IPO shares = approximately 43.3%.
• Co-Founders and Management: Approximately 24,000,000 shares out of 127,272,727 post-IPO shares = approximately 18.9%.
• Combined Pinnacle Vista and Founders: Approximately 79,181,818 shares, representing approximately 62.2% of post-IPO shares outstanding.
As discussed in greater detail in Section VI below, the combined voting power of Pinnacle Vista and the Founders, together with the governance arrangements set forth in the Amended and Restated Stockholders' Agreement (to be effective upon IPO closing), is expected to exceed 50% of the total voting power for the election of directors. Under the base offering scenario, Pinnacle Vista alone holds approximately 44.6% of post-IPO voting power, and under the full overallotment scenario, approximately 43.3%. Standing alone, these percentages do not exceed the 50% threshold. However, when combined with the Founders' approximately 19.4% (base) or 18.9% (full overallotment), and taking into account the voting and governance arrangements under the Stockholders' Agreement, the combined block exceeds 50%, which may qualify CBR as a "controlled company" under NYSE rules.
This level of post-IPO ownership concentration has significant implications for the corporate governance requirements applicable to CBR, as discussed in Sections IV through VI of this memorandum.
III. Quantitative Listing Standards — Section 102.01 of the NYSE Listed Company Manual
A. Applicable Standard
CBR will apply for listing under the Domestic Company Initial Listing Standards set forth in Section 102.01 of the Manual. These standards establish minimum thresholds relating to the distribution of the company's shares (Section 102.01A) and the company's financial condition (Section 102.01B). As a U.S.-incorporated company with its principal executive offices in the United States, CBR is properly classified as a domestic company for NYSE listing purposes and is not eligible for listing under the alternative standards applicable to non-U.S. companies set forth in Section 103.01.
With respect to the financial standards under Section 102.01B, the Manual provides three alternative tests by which a domestic company may qualify for initial listing:
(1) Earnings Test (Section 102.01B.1): Requires aggregate pre-tax earnings of at least $10,000,000 over the three most recent fiscal years, with a minimum of $2,000,000 in each of the two most recent fiscal years and positive amounts in all three years;
(2) Valuation/Revenue with Cash Flow Test (Section 102.01B.2): Requires (a) a global market capitalization of at least $500,000,000, (b) revenues of at least $100,000,000 in the most recent 12-month period, and (c) aggregate adjusted cash flow of at least $25,000,000 over the three most recent fiscal years, with each year being positive;
(3) Pure Valuation/Revenue Test (Section 102.01B.3): Requires (a) a global market capitalization of at least $750,000,000 and (b) revenues of at least $75,000,000 in the most recent fiscal year; and
(4) Affiliated Company Test (Section 102.01B.4): Available to affiliates of already-listed companies meeting specified market capitalization and operating history requirements (not applicable to CBR).
A company need satisfy only one of the foregoing alternative financial tests. As discussed below, CBR is expected to qualify under the Valuation/Revenue with Cash Flow Test and, alternatively, under the Pure Valuation/Revenue Test.
B. Distribution Standards (Section 102.01A)
Section 102.01A of the Manual establishes the following distribution standards for initial listing, each of which must be satisfied:
Round-Lot Holders. The NYSE requires a minimum of 400 holders of 100 or more shares (i.e., "round-lot" holders). CBR expects to satisfy this requirement through the IPO distribution process. In the base offering, approximately 23,713,636 shares will be distributed to investors through the bookbuilding process conducted by the underwriting syndicate led by Hargrove Keating & Co. as lead book-running manager. At the assumed midpoint offering price of $22.00 per share, a round lot of 100 shares represents an investment of approximately $2,200. Given the size of the offering and the allocation structure across five underwriters — Hargrove Keating & Co. (40%), Linden Pratt (25%), Graymont Brothers (20%), Barfield Stuart (10%), and Crane Whitley (5%) — it is expected that the IPO distribution will result in well in excess of 400 round-lot holders. The Company's management and the lead underwriter should confirm the anticipated round-lot holder count prior to submission of the final listing application materials to the NYSE.
Publicly Held Shares. The NYSE requires a minimum of 1,100,000 publicly held shares outstanding at the time of initial listing. "Publicly held shares" are defined as total shares outstanding minus shares held by directors, officers, and any person who is the beneficial owner of more than 10% of the total shares outstanding. In the base offering, the Company will issue approximately 23,713,636 new shares, all of which (except to the extent purchased by insiders) will be publicly held. Even excluding any shares held by directors, officers, and 10%-or-greater holders (principally Pinnacle Vista and the Founders), the number of publicly held shares will far exceed the 1,100,000 minimum.
Market Value of Publicly Held Shares. The NYSE requires that the aggregate market value of publicly held shares be at least $40,000,000 at the time of initial listing. For initial public offerings, the NYSE applies a practical threshold of $100,000,000. At the assumed midpoint offering price of $22.00 per share, and assuming at least 23,713,636 shares are distributed to public investors in the base offering, the aggregate market value of publicly held shares is expected to be approximately $521,700,000, which substantially exceeds both the formal $40,000,000 minimum and the practical $100,000,000 IPO threshold.
Share Price. The NYSE requires that the per-share price be at least $4.00 at the time of initial listing. The proposed midpoint offering price of $22.00 per share exceeds this threshold by a significant margin.
Conclusion. Based on the foregoing analysis, CBR is expected to satisfy all distribution standards under Section 102.01A of the Manual. The round-lot holder count should be confirmed through the bookbuilding process, but there is no reason to expect that this requirement will not be met given the size and breadth of the anticipated offering distribution.
C. Financial Standards (Section 102.01B)
1. Earnings Test (Section 102.01B.1)
The Earnings Test requires aggregate pre-tax earnings of at least $10,000,000 over the three most recent fiscal years, with a minimum of $2,000,000 in pre-tax earnings in each of the two most recent fiscal years, and with all three fiscal years reflecting positive pre-tax earnings. The relevant fiscal years for CBR are FY 2019, FY 2020, and FY 2021.
The Company's reported net income for the three most recent fiscal years is as follows:
Because FY 2019 reflected a net loss of $22.4 million, the pre-tax income for FY 2019 would also be expected to be negative (and in fact would likely be a larger negative figure than net income due to the addition of any tax benefit). As a result, CBR does not satisfy the requirement that all three fiscal years reflect positive pre-tax earnings, and the Earnings Test cannot be relied upon as the basis for financial qualification.
Even if only the aggregate three-year figure were considered — and assuming pre-tax income in FY 2020 and FY 2021 exceeded net income by a sufficient margin — the aggregate might be positive (e.g., if aggregate pre-tax income were approximately $33.4 million or greater). However, because the Earnings Test also requires positive pre-tax earnings in each of the three fiscal years, the FY 2019 loss renders this test unavailable regardless of the aggregate figure.
Conclusion. The Earnings Test under Section 102.01B.1 is not satisfied. We recommend that CBR rely on the alternative financial tests described below.
2. Valuation/Revenue with Cash Flow Test (Section 102.01B.2)
The Valuation/Revenue with Cash Flow Test requires satisfaction of three criteria: (a) a global market capitalization of at least $500,000,000; (b) revenues of at least $100,000,000 in the most recent 12-month period; and (c) aggregate adjusted cash flow of at least $25,000,000 over the three most recent fiscal years, with each year's adjusted cash flow being positive.
Market Capitalization. The Company's post-money equity valuation, calculated as the product of the total post-IPO shares outstanding and the assumed midpoint offering price, is as follows:
• Base offering: 123,713,636 shares × $22.00 = approximately $2,721,700,000
• Full overallotment: 127,272,727 shares × $22.00 = approximately $2,800,000,000
Under either scenario, the Company's global market capitalization far exceeds the $500,000,000 threshold.
Revenue. The Company reported revenues of $487,300,000 for FY 2021, which substantially exceeds the $100,000,000 minimum threshold. Revenue figures are based on the Company's audited consolidated financial statements.
Cash Flow. The aggregate adjusted cash flow for the three most recent fiscal years must be at least $25,000,000, with each fiscal year reflecting positive adjusted cash flow. While the precise adjusted cash flow figures must be confirmed with the Company's independent auditors at Ashford & Pemberton LLP (Gregory Sondheim and Irene Valdez) based on the audited statements of cash flows for FY 2019, FY 2020, and FY 2021, the Company's Adjusted EBITDA figures provide a strong indication that this test will be satisfied:
While Adjusted EBITDA is not identical to the "adjusted cash flow" measure used by the NYSE (which generally refers to net cash provided by operating activities, with certain adjustments), the magnitude of these Adjusted EBITDA figures strongly suggests that operating cash flows are positive in all three years and that the aggregate adjusted cash flow substantially exceeds $25,000,000. We are coordinating with Ashford & Pemberton LLP and the Company's Chief Financial Officer, Marcus Yoon, to confirm the specific adjusted cash flow calculations.
Conclusion. CBR is expected to satisfy the Valuation/Revenue with Cash Flow Test under Section 102.01B.2. We recommend that this test be used as the primary basis for financial qualification in the NYSE listing application and related disclosures. Final confirmation of the cash flow component is pending and is identified as an action item below.
3. Pure Valuation/Revenue Test (Section 102.01B.3)
The Pure Valuation/Revenue Test requires (a) a global market capitalization of at least $750,000,000 and (b) revenues of at least $75,000,000 in the most recent fiscal year. This test does not require any earnings or cash flow showing.
Market Capitalization. As noted above, CBR's post-money equity valuation is approximately $2,721,700,000 (base offering) or $2,800,000,000 (full overallotment), both of which substantially exceed the $750,000,000 threshold.
Revenue. CBR's FY 2021 revenues of $487,300,000 substantially exceed the $75,000,000 threshold.
Conclusion. CBR also satisfies the Pure Valuation/Revenue Test under Section 102.01B.3. This test is available as a fallback basis for financial qualification in the event that the cash flow component of the Valuation/Revenue with Cash Flow Test cannot be confirmed. Given that the Pure Valuation/Revenue Test does not require a cash flow showing, it provides an alternative pathway to listing qualification.
D. Summary of Quantitative Compliance
The following table summarizes CBR's compliance with each of the quantitative listing standards under Section 102.01 of the Manual:
Based on the foregoing, CBR satisfies all distribution and financial standards under the NYSE Listed Company Manual for purposes of initial listing. The primary basis for financial qualification is the Valuation/Revenue with Cash Flow Test (Section 102.01B.2), with the Pure Valuation/Revenue Test (Section 102.01B.3) available as a fallback.
IV. Qualitative Listing Standards — Corporate Governance (Section 303A)
A. Overview
In addition to the quantitative listing standards discussed in Section III above, the NYSE imposes a comprehensive set of corporate governance requirements on all listed companies. These requirements are set forth in Section 303A of the Manual and address board composition, board committee structure and independence, corporate governance guidelines, codes of conduct and ethics, and related matters.
Certain of these requirements are subject to transitional phase-in periods for companies that are listing their securities on the NYSE in connection with an initial public offering. Additionally, certain requirements are exempted for "controlled companies," as defined in Section 303A.00 of the Manual (discussed in Section VI below). CBR intends to rely on the controlled-company exemption for specific requirements, as detailed in the analysis that follows.
The principal corporate governance requirements addressed in this Section and Section V include: (i) board independence requirements; (ii) audit committee composition, independence, and charter requirements; (iii) compensation committee composition, independence, and charter requirements; (iv) nominating/corporate governance committee composition, independence, and charter requirements; (v) corporate governance guidelines; (vi) code of business conduct and ethics; and (vii) related-party transaction policies.
B. Board of Directors Composition
CBR's proposed board of directors at the time of IPO closing will consist of seven (7) directors, as follows:
Of the seven directors, three (42.9%) have been determined to be independent under NYSE standards. Four directors (57.1%) are not independent due to their employment by the Company (Calloway and Briggs) or their affiliation with the controlling stockholder, Pinnacle Vista (Pemberton and Kovac).
Section 303A.01 of the Manual requires that a majority of the board of directors of a listed company be composed of independent directors. With only three of seven directors being independent, CBR does not satisfy this majority-independent-board requirement on a standalone basis.
However, this requirement is subject to the controlled-company exemption under Section 303A.00. As discussed in Section VI below, CBR is expected to qualify as a "controlled company" by virtue of the combined voting power of Pinnacle Vista and the Founders under the Stockholders' Agreement, which exceeds 50% of the total voting power for the election of directors. If CBR qualifies as a controlled company and elects to rely on the exemption, the majority-independent-board requirement does not apply.
In the alternative, if CBR does not rely on the controlled-company exemption, or if the exemption becomes unavailable at any point following the IPO, the phase-in rule under Section 303A.00 for newly listed companies provides that CBR must have a majority of independent directors within one year of the listing date. Given the current board composition of three independent directors out of seven, achieving a majority would require either (i) adding one or more independent directors to the board, or (ii) reducing the number of non-independent directors, such that independent directors constitute at least four of the total number of board members.
C. Independence Analysis for Each Director
The determination of director independence is made in accordance with Section 303A.02 of the Manual, which sets forth both a general standard (no director qualifies as independent unless the board affirmatively determines that the director has no material relationship with the listed company) and specific disqualifying criteria (including employment relationships, compensation relationships, auditor affiliations, interlocking directorships, and significant business relationships).
Set forth below is the independence analysis for each of the seven proposed directors:
Warren Okoro. Mr. Okoro satisfies the NYSE independence criteria under Section 303A.02. He has no current or recent employment relationship with CBR or any of its subsidiaries or affiliates. He has not received, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company other than in his capacity as a director and committee member. He has no affiliation with Pinnacle Vista Capital Management LLC, PVCP III, or any of their affiliates. He has no immediate family members who are employed by the Company or any of its affiliates in an executive capacity. He has no business relationship with the Company that would constitute a material relationship under the NYSE's categorical standards. The board has affirmatively determined that Mr. Okoro is independent. Mr. Okoro has been designated as an audit committee financial expert under SEC Rule 10A-3 and the applicable NYSE rules, based on his qualifications and experience.
Catherine Liang. Ms. Liang satisfies the NYSE independence criteria under Section 303A.02. She has no current or recent employment relationship with CBR or any of its subsidiaries or affiliates. She has not received, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company other than in her capacity as a director and committee member. She has no affiliation with Pinnacle Vista or any of its affiliates. She has no immediate family members who are employed by the Company or any of its affiliates in an executive capacity, and she has no business relationship with the Company that would constitute a material relationship. The board has affirmatively determined that Ms. Liang is independent.
Richard Estavez. Mr. Estavez satisfies the NYSE independence criteria under Section 303A.02. He has no current or recent employment relationship with CBR or any of its subsidiaries or affiliates. He has not received, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company other than in his capacity as a director and committee member. He has no affiliation with Pinnacle Vista or any of its affiliates. He has no immediate family members who are employed by the Company or any of its affiliates in an executive capacity, and he has no business relationship with the Company that would constitute a material relationship. The board has affirmatively determined that Mr. Estavez is independent.
Garrett Calloway. Mr. Calloway is not independent. He serves as the Company's Chairman and Chief Executive Officer. His current employment with the Company, in an executive capacity, disqualifies him from being considered independent under Section 303A.02(b)(i) of the Manual.
Elaine Briggs. Ms. Briggs is not independent. She serves as the Company's President, Development. Her current employment with the Company, in an executive capacity, disqualifies her from being considered independent under Section 303A.02(b)(i) of the Manual.
Hugh Pemberton. Mr. Pemberton is not independent. He is a co-founder and managing partner of Pinnacle Vista Capital Management LLC, which is the general partner of PVCP III. PVCP III is the controlling stockholder of CBR, holding approximately 62% of the pre-IPO common stock and expected to hold approximately 44.6% of the post-IPO common stock (base offering). Mr. Pemberton serves on the CBR board as a designee of Pinnacle Vista pursuant to the Stockholders' Agreement. Given the significant economic and governance relationship between Pinnacle Vista and CBR, the board has determined that Mr. Pemberton has a material relationship with the Company that precludes a finding of independence.
Diane Kovac. Ms. Kovac is not independent. She is a co-founder and managing partner of Pinnacle Vista Capital Management LLC and serves on the CBR board as a designee of Pinnacle Vista pursuant to the Stockholders' Agreement. For the same reasons as Mr. Pemberton, the board has determined that Ms. Kovac has a material relationship with the Company that precludes a finding of independence.
V. Board Committee Requirements
A. Audit Committee (Section 303A.07)
Section 303A.07 of the Manual requires every listed company to maintain an audit committee that satisfies the requirements of SEC Rule 10A-3 and the additional requirements set forth in the Manual. Critically, the audit committee requirement applies to all listed companies, including controlled companies — there is no controlled-company exemption for the audit committee. The audit committee must be composed of at least three members, all of whom must be independent directors.
Composition. CBR's Audit Committee, as approved by a resolution of the board of directors, will consist of the following three members:
• Warren Okoro (Chair)
• Catherine Liang
• Richard Estavez
All three members have been determined to be independent under both the NYSE's general independence standards (Section 303A.02) and the heightened independence requirements applicable to audit committee members under SEC Rule 10A-3 (which, among other things, prohibits audit committee members from accepting, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company or any of its subsidiaries, other than in their capacity as members of the board or board committees).
Audit Committee Financial Expert. Warren Okoro has been designated by the board as the audit committee financial expert within the meaning of Item 407(d)(5) of Regulation S-K and the applicable NYSE rules. Mr. Okoro's qualifications include his extensive experience in financial management, accounting oversight, and capital markets transactions in the renewable energy sector. His designation will be disclosed in the Company's Registration Statement on Form S-1 and in subsequent annual reports.
Phase-In Provisions. SEC Rule 10A-3(b)(1)(iv)(A) provides that a company listing in connection with an IPO may have one member of the audit committee who is not independent, provided that the board determines that such member's membership on the audit committee is required by the best interests of the company and its shareholders, and provided further that such non-independent member is replaced by an independent member within one year of the effective date of the registration statement. Because CBR's Audit Committee is already fully composed of independent directors, no phase-in accommodation is necessary.
Audit Committee Charter. Section 303A.07(b) of the Manual requires the audit committee to adopt a written charter that addresses the committee's purpose and responsibilities, including, at a minimum: (i) the committee's authority to select, evaluate, and, where appropriate, replace the independent auditor (currently Ashford & Pemberton LLP); (ii) the committee's oversight of the Company's financial reporting process and internal controls; (iii) the committee's authority and responsibility to discuss with management and the independent auditor the Company's annual audited financial statements and quarterly financial statements; (iv) the committee's responsibility to discuss earnings press releases as well as financial information and earnings guidance provided to analysts and rating agencies; and (v) the committee's responsibility to discuss policies with respect to risk assessment and risk management. The Audit Committee Charter is in the process of being drafted by Calderwood & Harkness LLP and will be adopted by the board effective upon IPO closing.
Financial Literacy. The NYSE requires that all audit committee members be financially literate, as determined by the board in its business judgment. Additionally, at least one member must have accounting or related financial management expertise. Based on a review of the qualifications and experience of each proposed committee member, the board is expected to determine that all three members are financially literate and that Warren Okoro possesses accounting or related financial management expertise.
Conclusion. CBR's Audit Committee is fully compliant with the requirements of Section 303A.07 of the Manual and SEC Rule 10A-3. No phase-in accommodation is required.
B. Compensation Committee (Section 303A.05)
Section 303A.05 of the Manual requires listed companies to have a compensation committee composed entirely of independent directors. This requirement is subject to the controlled-company exemption under Section 303A.00 — that is, if CBR qualifies as a controlled company, it is not required to have an independent compensation committee. However, as discussed below, CBR's Compensation Committee is already fully independent.
Composition. CBR's Compensation Committee, as approved by a resolution of the board of directors, will consist of the following three members:
• Catherine Liang (Chair)
• Richard Estavez
• Warren Okoro
All three members have been determined to be independent under Section 303A.02 of the Manual. Accordingly, even though CBR could rely on the controlled-company exemption to excuse compliance with the independent compensation committee requirement, the committee as constituted satisfies the fully independent standard without the need for any exemption or phase-in accommodation.
Phase-In Provisions (Absent Controlled-Company Exemption). For companies listing in connection with an IPO that do not qualify as controlled companies, Section 303A.05 provides the following phase-in schedule: (i) at least one independent member at the listing date; (ii) a majority of independent members within 90 days of the listing date; and (iii) a fully independent committee within one year of the listing date. Because CBR's Compensation Committee is already fully independent, these phase-in provisions are not relevant, but they would provide a cushion in the event the controlled-company exemption were to become unavailable during the first year following the IPO.
Compensation Committee Charter and Advisor Requirements. Section 303A.05 requires the compensation committee to adopt a written charter specifying the committee's purpose and responsibilities. The charter must, at a minimum, provide the committee with the authority to retain and terminate any compensation consultant, independent legal counsel, or other adviser, and must require the committee to assess the independence of any compensation adviser before engaging the adviser. CBR has engaged Clarendon Rowe Advisory Group LLC (Patricia Voss, Senior Managing Director) as its compensation consultant. Prior to the committee's engagement of Clarendon Rowe, the committee will be required to assess the consultant's independence under the factors set forth in Section 303A.05(c)(iv) of the Manual. The Compensation Committee Charter is in the process of being drafted by Calderwood & Harkness LLP and will be adopted by the board effective upon IPO closing.
Conclusion. CBR's Compensation Committee is fully compliant with Section 303A.05 of the Manual. No phase-in accommodation or controlled-company exemption is required for this committee.
C. Nominating/Corporate Governance Committee (Section 303A.04)
Section 303A.04 of the Manual requires listed companies to have a nominating/corporate governance committee composed entirely of independent directors. Like the compensation committee requirement, this requirement is subject to the controlled-company exemption under Section 303A.00.
Composition. CBR's Nominating and Corporate Governance Committee, as approved by a resolution of the board of directors, will consist of the following three members:
• Richard Estavez (Chair)
• Catherine Liang
• Hugh Pemberton
Of these three members, Richard Estavez and Catherine Liang are independent, but Hugh Pemberton is not independent due to his role as a co-founder and managing partner of Pinnacle Vista Capital Management LLC, the general partner of CBR's controlling stockholder. Accordingly, this committee is not fully composed of independent directors, and CBR cannot comply with Section 303A.04 on a standalone basis.
Reliance on Controlled-Company Exemption. If CBR qualifies as a controlled company under Section 303A.00 — as is expected based on the combined voting power of Pinnacle Vista and the Founders under the Stockholders' Agreement — the requirement that the nominating/corporate governance committee be composed entirely of independent directors is exempted. In that case, the presence of Hugh Pemberton on the committee is permissible.
If the controlled-company exemption is unavailable or is subsequently discontinued (for example, because the combined voting power of Pinnacle Vista and the Founders falls below 50%), CBR would need to reconstitute the Nominating and Corporate Governance Committee to consist entirely of independent directors, subject to the applicable phase-in period.
Phase-In Provisions (Absent Controlled-Company Exemption). For IPO companies that do not qualify as controlled companies, the phase-in rules provide: (i) at least one independent member at the listing date (CBR currently has two independent members, so this is satisfied); (ii) a majority of independent members within 90 days (CBR currently has two of three independent members, which constitutes a majority — satisfied); and (iii) a fully independent committee within one year of the listing date. Thus, even if the controlled-company exemption were not available, CBR would be in compliance during the first year following the IPO under the phase-in provisions, but would need to replace Hugh Pemberton with an independent director (or add an additional independent member and remove Pemberton) within one year.
Nominating and Corporate Governance Committee Charter. Section 303A.04 requires the committee to adopt a written charter that specifies the committee's purpose and responsibilities, including its responsibility for identifying and recommending qualified candidates for board membership and for developing and recommending corporate governance principles. The charter is being drafted by Calderwood & Harkness LLP and will be adopted by the board effective upon IPO closing.
Conclusion. The Nominating and Corporate Governance Committee is compliant only if the controlled-company exemption under Section 303A.00 is relied upon. If the exemption is unavailable, the committee would be compliant during the phase-in period (the first year following listing) but would need to be reconstituted to be fully independent within one year. CBR should plan for this contingency.
VI. Controlled-Company Exemption Analysis (Section 303A.00)
A. Definition of "Controlled Company"
Section 303A.00 of the Manual defines a "controlled company" as a listed company of which more than 50% of the voting power for the election of directors is held by an individual, a group, or another company. A listed company that qualifies as a controlled company is exempt from certain corporate governance requirements, as described in subsection C below.
The determination of whether a company qualifies as a "controlled company" is made based on actual voting power — not merely economic ownership — and takes into account any arrangements, agreements, or understandings by which stockholders may coordinate or combine their voting power for the election of directors.
B. Post-IPO Voting Power Analysis
The central question in the controlled-company analysis is whether any individual, group, or other company holds more than 50% of the voting power for the election of CBR's directors following the completion of the IPO.
Pinnacle Vista Standing Alone. After giving effect to the secondary offering in which Pinnacle Vista will sell approximately 6,818,182 shares, Pinnacle Vista's post-IPO shareholding will be as follows:
• Base offering (no overallotment): Approximately 55,181,818 shares out of 123,713,636 total shares = approximately 44.6% of voting power.
• Full overallotment exercise: Approximately 55,181,818 shares out of 127,272,727 total shares = approximately 43.3% of voting power.
Standing alone, Pinnacle Vista does not hold more than 50% of the voting power for the election of directors under either offering scenario. Accordingly, CBR would not qualify as a controlled company based solely on Pinnacle Vista's post-IPO ownership.
Combined Pinnacle Vista and Founders Voting Block. However, the analysis must also consider whether Pinnacle Vista and the Founders (Garrett Calloway and Elaine Briggs) constitute a "group" for purposes of the controlled-company definition. Under the Amended and Restated Stockholders' Agreement, to be effective upon IPO closing, Pinnacle Vista holds board designation rights (including the right to designate at least two directors so long as it holds a specified minimum percentage of the Company's outstanding stock), and the agreement contains provisions relating to the voting of shares for the election of directors.
The combined post-IPO voting power of Pinnacle Vista and the Founders (assuming no founder shares are sold in the IPO) is as follows:
• Base offering (no overallotment):
• Pinnacle Vista: ~55,181,818 shares (44.6%)
• Founders: ~24,000,000 shares (19.4%)
• Combined: ~79,181,818 shares (64.0%)
• Full overallotment exercise:
• Pinnacle Vista: ~55,181,818 shares (43.3%)
• Founders: ~24,000,000 shares (18.9%)
• Combined: ~79,181,818 shares (62.2%)
Under both scenarios, the combined voting power of Pinnacle Vista and the Founders exceeds 50% of the total voting power for the election of directors.
"Group" Analysis. Whether the combined Pinnacle Vista–Founder voting constitutes a "group" for purposes of the NYSE controlled-company definition depends on the specific terms of the Stockholders' Agreement and any other voting arrangements between Pinnacle Vista and the Founders. The NYSE has interpreted the concept of a "group" broadly, consistent with its purpose of identifying companies in which a small number of stockholders effectively control the election of the board. The existence of a stockholders' agreement containing board designation rights, voting commitments, or other governance arrangements that effectively coordinate the voting power of multiple stockholders is generally sufficient to establish a "group" for this purpose.
Based on our preliminary review of the Stockholders' Agreement, which contains board designation rights for Pinnacle Vista and provisions that may involve coordinated voting arrangements with the Founders, we expect that Pinnacle Vista and the Founders will be deemed a "group" holding more than 50% of the voting power for the election of directors. This is the expected basis for CBR's reliance on the controlled-company exemption. However, the specific terms of the Stockholders' Agreement should be finalized and analyzed in detail to confirm this conclusion, and we recommend coordinating with Whitfield Archer & Doss LLP (Christine Navarro), counsel to Pinnacle Vista, on Pinnacle Vista's position regarding the characterization of the voting arrangements.
Conclusion. CBR is expected to qualify as a "controlled company" under Section 303A.00 of the NYSE Manual, based on the combined voting power of Pinnacle Vista and the Founders, acting as a group under the Stockholders' Agreement, which exceeds 50% of the total voting power for the election of directors in both the base offering and full overallotment scenarios.
C. Exemptions Available to Controlled Companies
A company that qualifies as a controlled company under Section 303A.00 is exempt from the following corporate governance requirements:
1. Majority Independent Board (Section 303A.01). Controlled companies are not required to have a majority of independent directors on the board. CBR's board will consist of three independent directors out of seven total directors (42.9%), which does not constitute a majority but is permissible under the controlled-company exemption.
2. Fully Independent Compensation Committee (Section 303A.05). Controlled companies are not required to have a compensation committee composed entirely of independent directors. As noted above, CBR's Compensation Committee is nevertheless fully independent, so this exemption is available but not currently needed.
3. Fully Independent Nominating/Corporate Governance Committee (Section 303A.04). Controlled companies are not required to have a nominating/corporate governance committee composed entirely of independent directors. This exemption is critical for CBR, as the Nominating and Corporate Governance Committee includes Hugh Pemberton, a non-independent Pinnacle Vista designee.
Controlled companies are not exempt from the following requirements, each of which applies with full force:
• Audit committee requirements, including the requirement that the audit committee be composed of at least three independent directors (Section 303A.07)
• Corporate governance guidelines (Section 303A.09)
• Code of business conduct and ethics (Section 303A.10)
• CEO certification requirements (Section 303A.12)
• Equity compensation plan stockholder approval requirements (Section 303A.08)
D. Disclosure Requirements
A controlled company that relies on the controlled-company exemption must make the following disclosures:
(i) The company must disclose its controlled-company status in its annual proxy statement (or, for the first year, in the Registration Statement on Form S-1);
(ii) The company must disclose the basis for the determination that it is a controlled company, including the identity of the controlling person, group, or company and the nature of the voting arrangements that give rise to controlled-company status;
(iii) The company must disclose which NYSE corporate governance standards are not being complied with, and the basis for reliance on the controlled-company exemption.
For CBR, the relevant disclosures will include: (a) identification of the Pinnacle Vista–Founder voting group and the Stockholders' Agreement as the basis for controlled-company status; (b) disclosure that the Company is not complying with the majority-independent-board requirement of Section 303A.01 and the fully independent nominating/corporate governance committee requirement of Section 303A.04; and (c) the basis for reliance on the controlled-company exemption for each non-compliant standard. These disclosures should appear in the "Management and Board of Directors" section and the "Risk Factors" section of the Registration Statement, and in subsequent annual proxy statements.
E. Phase-In Schedule If Controlled-Company Status Is Lost
The Stockholders' Agreement contains step-down provisions that reduce Pinnacle Vista's board designation rights as its ownership of the Company's outstanding stock decreases below specified thresholds. Over time, as Pinnacle Vista monetizes its investment in CBR through secondary offerings, open-market sales, or other transactions, its ownership percentage (and the combined Pinnacle Vista–Founder voting block) may decline below the 50% threshold that is necessary for controlled-company status.
If Pinnacle Vista and the Founders' combined voting power for the election of directors falls below 50%, CBR will cease to qualify as a controlled company and will be required to comply with all NYSE corporate governance requirements, subject to the following phase-in periods:
• Majority Independent Board (Section 303A.01): CBR must have a majority of independent directors within the transition period prescribed by NYSE rules, which is one year from the date the company ceases to be a controlled company.
• Independent Compensation Committee (Section 303A.05): The compensation committee must be fully composed of independent directors within the applicable phase-in period following loss of controlled-company status. As CBR's Compensation Committee is already fully independent, no action would be required.
• Independent Nominating/Corporate Governance Committee (Section 303A.04): The nominating/corporate governance committee must be fully composed of independent directors within the applicable phase-in period following loss of controlled-company status. This would require the removal or replacement of Hugh Pemberton (or any other non-independent member then serving) with an independent director.
Monitoring. Calderwood & Harkness LLP and CBR's General Counsel, Sandra Haverford, should establish an ongoing monitoring protocol to track Pinnacle Vista's ownership levels and the combined Pinnacle Vista–Founder voting power. Any significant disposition of shares by Pinnacle Vista (including through secondary offerings, Rule 144 sales, or distributions to limited partners) should prompt a prompt evaluation of whether CBR continues to qualify as a controlled company and, if not, a review of the compliance requirements and phase-in timelines.
VII. Additional Qualitative Requirements
A. Corporate Governance Guidelines (Section 303A.09)
Section 303A.09 of the Manual requires all listed companies, including controlled companies, to adopt and publicly disclose corporate governance guidelines. These guidelines must address the following subjects:
(a) Director qualification standards, including the definition of independence and policies regarding the consideration of candidates recommended by stockholders;
(b) Director responsibilities, including attendance at board and committee meetings and advance review of meeting materials;
(c) Director access to management and, as necessary, independent advisors;
(d) Director compensation, including general policies regarding the form and amount of director compensation and the board's role in determining director compensation;
(e) Director orientation and continuing education;
(f) Management succession, including policies and principles for CEO selection and succession planning;
(g) Annual performance evaluation of the board, including the process by which the board and its committees conduct self-evaluations.