PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, New York 10022
MEMORANDUM
Issuer Lock-Up Provisions: Analysis and Negotiation Commentary
This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP and is protected by the attorney-client privilege and the attorney work product doctrine. This memorandum is intended solely for the use of the addressee identified above and other members of the Calderwood & Harkness deal team working on Matter No. 1015-00001. Any distribution, copying, or use of this memorandum by any person other than the intended recipients is strictly prohibited without the prior written consent of Calderwood & Harkness LLP.
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I. Executive Summary
The purpose of this memorandum is to analyze in detail the issuer lock-up provisions contained in Section 5(k) of the near-final draft underwriting agreement (the "Underwriting Agreement") among Calloway-Briggs Renewables Inc. ("CBR" or the "Company"), Pinnacle Vista Capital Partners III, LP (the "Selling Stockholder" or "Pinnacle Vista"), and the several underwriters named therein, with Hargrove Keating & Co. acting as representative of the underwriters (the "Representative"). This memorandum is prepared for the review and consideration of Jennifer Kwon, Responsible Partner, in advance of the anticipated finalization and execution of the Underwriting Agreement in connection with CBR's proposed initial public offering (the "IPO" or the "Offering").
The issuer lock-up restricts CBR from issuing, selling, or registering additional shares of its common stock, par value $0.01 per share (the "Common Stock"), for a period of 180 days following the date of the final prospectus relating to the Offering (the "Lock-Up Period"). The lock-up is designed to provide post-IPO market stability by preventing dilutive issuances or an overhang of additional shares during the critical post-IPO trading period. The restrictions are broadly consistent with market practice for IPOs of this size and profile.
It is important to note at the outset that the issuer lock-up is distinct from, and operates independently of, the individual lock-up agreements to be executed by the Company's directors, executive officers, and holders of one percent (1%) or more of pre-IPO Common Stock (collectively, the "Individual Lock-Ups"). Approximately eighteen (18) persons and entities are expected to execute Individual Lock-Ups in the form attached to the Underwriting Agreement as Exhibit A (the "Form of Lock-Up Agreement"). The Individual Lock-Ups are covered by separate analysis and are not the primary focus of this memorandum, although key differences between the issuer lock-up and the Individual Lock-Ups are discussed in Section V below.
This memorandum (a) analyzes the key provisions of the issuer lock-up as reflected in the near-final draft of the Underwriting Agreement, (b) identifies and discusses the negotiation points raised by Calderwood & Harkness LLP ("C&H") on behalf of CBR, as reflected in the C&H Comment Letter dated April 22, 2022 (the "First C&H Comment Letter") and the Second C&H Comment Letter dated May 16, 2022 (the "Second C&H Comment Letter"), (c) summarizes the responses received from Prescott, Danforth & Yee LLP ("PD&Y"), counsel to the underwriters (lead partner Margaret Yee; counsel Scott Halverson), as set forth in the PD&Y Response Letter dated May 2, 2022 (the "PD&Y Response Letter"), and (d) compares the negotiated provisions against recent market precedents drawn from renewables and clean-energy sector IPOs completed between 2020 and 2022.
Recommendation: Based on our analysis, the near-final issuer lock-up provisions are broadly market-consistent and commercially reasonable. Certain remaining open points are identified in Section IX below for Jennifer Kwon's consideration prior to finalization of the Underwriting Agreement. No further substantive renegotiation is recommended at this time, subject to resolution of the discrete open points identified herein.
II. Background and Context
A. Offering Overview
CBR is a Delaware corporation engaged in the development, construction, ownership, and operation of utility-scale renewable energy projects, including wind, solar photovoltaic, and battery energy storage systems across North America. The Company's current development pipeline encompasses approximately 6.2 gigawatts (GW) of renewable energy capacity across various stages of development. Pinnacle Vista, a private equity fund managed by Pinnacle Vista Capital Management LLC, is the Company's controlling stockholder and holds approximately 62% of the pre-IPO Common Stock on a fully diluted basis.
The key parameters of the proposed Offering are as follows:
• Proposed Aggregate Offering Size: Approximately $600,000,000 of Common Stock, inclusive of full exercise of the 15% overallotment option.
• Base Offering: Approximately $521,700,000, representing approximately 23,713,636 shares of Common Stock at the assumed midpoint IPO price of $22.00 per share (the midpoint of the anticipated price range of $20.00 to $24.00 per share).
• Overallotment Option (Greenshoe): Approximately $78,300,000, representing approximately 3,559,091 additional shares of Common Stock.
• Offering Composition: The Offering consists of a combination of primary and secondary components. The primary offering, in which the Company is selling newly issued shares, is expected to raise approximately $371,700,000 (approximately 16,895,455 shares). The secondary offering, in which Pinnacle Vista is selling existing shares, is expected to raise approximately $150,000,000 (approximately 6,818,182 shares). The overallotment option relates to additional shares to be sold by the Company.
• Pre-IPO Shares Outstanding: 100,000,000 shares of Common Stock on a fully diluted basis, following the reclassification of the Company's capital stock to be effected in connection with the IPO.
• Post-IPO Shares Outstanding: On a base-offering basis (excluding exercise of the overallotment option), approximately 123,713,636 shares. On a full-overallotment basis (assuming full exercise of the overallotment option), approximately 127,272,727 shares.
• Proposed Listing: The New York Stock Exchange (the "NYSE"), under the ticker symbol "CBRI."
B. Underwriting Syndicate
The underwriting syndicate for the Offering is structured as follows:
• Lead-Left Book-Running Manager / Coordinating Underwriter: Hargrove Keating & Co. The Hargrove Keating deal team includes Oliver Marchetti, Managing Director, Equity Capital Markets; Sonia Tran, Director, Equity Capital Markets; and Daniel Furman, Vice President, Equity Capital Markets. As lead-left book-running manager, Hargrove Keating serves as the Representative of the underwriters and holds the consent authority under the issuer lock-up and the Individual Lock-Ups.
• Joint Book-Runners: Linden Pratt Securities LLC (Rebecca Innes, Managing Director) and Graymont Brothers Inc. (Kenneth Sato, Managing Director).
• Co-Managers: Barfield Stuart & Co. and Crane Whitley Capital LLC.
• Gross Spread: The underwriting discount is 5.50% of the public offering price, which is within the customary range for an IPO of this size in the renewables sector.
• Underwriters' Counsel: Prescott, Danforth & Yee LLP, with Margaret Yee serving as lead partner and Scott Halverson as counsel on the engagement.
C. Negotiation History
The negotiation of the Underwriting Agreement, including the issuer lock-up provisions that are the subject of this memorandum, has proceeded as follows:
• April 18, 2022: PD&Y circulated the initial draft of the Underwriting Agreement on behalf of the underwriters. The initial draft contained the issuer lock-up provisions in Section 5(k), reflecting the underwriters' opening position on the scope, duration, and carve-outs applicable to the issuer lock-up.
• April 22, 2022: C&H delivered the First C&H Comment Letter to PD&Y, setting forth the Company's comments on the Underwriting Agreement. The First C&H Comment Letter included approximately twelve (12) substantive comments on the issuer lock-up provisions, addressing the scope of covered securities, the breadth and specificity of the carve-outs, and the addition of certain carve-outs not included in PD&Y's initial draft (most notably, the acquisition carve-out and the pledge carve-out).
• May 2, 2022: PD&Y delivered the PD&Y Response Letter, responding to each of C&H's comments on the issuer lock-up provisions and other provisions of the Underwriting Agreement. The PD&Y Response Letter reflected agreement on a number of C&H's proposals, counterproposals on certain others (including a proposed 3% cap on the acquisition carve-out), and a rejection of one request (automatic Change of Control release for the issuer lock-up).
• May 16, 2022: C&H delivered the Second C&H Comment Letter to PD&Y, addressing the remaining open points, including a compromise proposal on the acquisition carve-out cap (5% with enhanced notice) and acceptance of PD&Y's position on the Change of Control issue.
• On or about May 20, 2022: The parties reached agreement in principle on substantially all provisions of the Underwriting Agreement, including the issuer lock-up provisions. The resulting "near-final" draft is the version analyzed in this memorandum.
• June 17, 2022: The Offering was placed in dormant status due to market conditions. As of the date of this memorandum, the Underwriting Agreement has not been executed. The near-final draft remains the most current version and will serve as the basis for finalization if and when the Offering is reactivated.
III. Summary of Issuer Lock-Up Provisions (Near-Final Draft)
This Section provides a detailed summary of the issuer lock-up provisions as they appear in Section 5(k) of the near-final draft of the Underwriting Agreement. The summary is organized by the core restriction, the carve-outs (permitted activities during the Lock-Up Period), the release mechanism, and the notification requirement.
A. Core Restriction
The near-final draft provides that CBR agrees that, without the prior written consent of Hargrove Keating & Co. (acting in its capacity as Representative of the underwriters), it will not, directly or indirectly, for a period of 180 days after the date of the final prospectus relating to the Offering (the "Restricted Period"):
(i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, shares of Common Stock which may be deemed to be beneficially owned by the Company in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant);
(ii) file or cause to be filed any registration statement with the Securities and Exchange Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock; or
(iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock;
whether any such transaction described in clause (i), (ii), or (iii) above is to be settled by delivery of Common Stock or such other securities, in cash, or otherwise.
The restriction is intentionally broad in scope, capturing not only direct sales of Common Stock but also derivative transactions, hedging arrangements, and the filing of registration statements that could signal to the market an intention to sell additional shares. The breadth of the restriction is consistent with the standard formulation used in underwriting agreements for IPOs of this size and nature, and mirrors the language recommended by the Securities Industry and Financial Markets Association (SIFMA) model forms.
As discussed in Section IV.B below, following C&H's comments, the near-final draft includes clarifying language confirming that the restriction applies solely to Common Stock and securities convertible into, exercisable for, or exchangeable for Common Stock, and does not extend to (a) non-convertible debt securities or (b) preferred stock that is not convertible into Common Stock.
B. Carve-Outs (Permitted Activities During Lock-Up)
The near-final draft includes the following carve-outs from the issuer lock-up, each of which permits the Company to take specified actions during the Restricted Period notwithstanding the core restriction described above:
1. Shares Sold in the Offering. The Company may issue and sell shares of Common Stock (including shares subject to the overallotment option) pursuant to the Underwriting Agreement. This carve-out is fundamental to the mechanics of the Offering itself, as the Underwriting Agreement simultaneously creates the lock-up obligation and the obligation to deliver shares to the underwriters. Without this carve-out, the issuance of shares in the Offering would technically violate the lock-up restriction.
2. Employee Equity Plan Grants. The Company may issue shares of Common Stock or grant equity awards, including stock options, restricted stock units ("RSUs"), and performance stock units ("PSUs"), pursuant to the 2022 Omnibus Equity Incentive Plan. The 2022 Omnibus Equity Incentive Plan has a share reserve of 12,727,273 shares, which represents approximately 10% of the post-IPO shares outstanding on a fully-exercised basis (based on 127,272,727 shares on a full-overallotment basis). This carve-out expressly covers both the grant of equity awards and the issuance of shares upon the exercise or settlement of such awards during the Lock-Up Period.
3. ESPP Issuances. The Company may issue shares of Common Stock pursuant to the 2022 Employee Stock Purchase Plan (the "ESPP"). The ESPP has a share reserve of 2,545,455 shares, which represents approximately 2% of the post-IPO shares outstanding on a fully-exercised basis. The ESPP is designed to comply with Section 423 of the Internal Revenue Code and will permit eligible employees to purchase shares of Common Stock at a discount through payroll deductions during specified offering periods.
4. Conversion or Exchange of Existing Securities. The Company may issue shares of Common Stock upon the exercise of options, warrants, or rights, or upon the conversion or exchange of convertible or exchangeable securities, in each case that are outstanding as of the date of the final prospectus and are described in the registration statement on Form S-1 (the "Registration Statement"). This carve-out ensures that the Company can honor its existing obligations under pre-IPO equity instruments without violating the lock-up.
5. Acquisition Consideration. The Company may issue shares of Common Stock as full or partial consideration in connection with bona fide acquisitions or strategic transactions, subject to the following conditions:
(a) The aggregate number of shares of Common Stock so issued during the Restricted Period shall not exceed five percent (5%) of the shares of Common Stock outstanding immediately following the closing of the Offering (the "5% Cap"). Based on the base offering (123,713,636 shares), the 5% Cap equals approximately 6,185,682 shares; based on the full overallotment (127,272,727 shares), the 5% Cap equals approximately 6,363,636 shares. As discussed in Section IX.A below, the near-final draft does not specify whether the calculation is on a base-offering or full-overallotment basis, which remains an open point.
(b) Each recipient of shares issued pursuant to this carve-out shall agree in writing to be bound by restrictions on the transfer or disposition of such shares for the remainder of the Restricted Period, on terms substantially similar to those set forth in the Form of Lock-Up Agreement attached to the Underwriting Agreement.
(c) The Company shall provide Hargrove Keating & Co. with at least five (5) business days' prior written notice before any issuance of shares pursuant to this carve-out (enhanced from the standard three (3) business days applicable to the other carve-outs).
6. Filing of Registration Statements on Form S-8. The Company may file one or more registration statements on Form S-8 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock issuable under the 2022 Omnibus Equity Incentive Plan and the ESPP. Form S-8 is the short-form registration statement available for the registration of securities offered under employee benefit plans, and the filing of a Form S-8 promptly following the closing of an IPO is standard practice to enable the resale of shares acquired by employees, directors, and consultants under the Company's equity compensation programs.
7. Facilitation of Pledges. The Company may issue shares or otherwise facilitate the pledge of shares of Common Stock by stockholders, directors, or officers to bona fide lending institutions in connection with bona fide lending arrangements, provided that (a) the pledgee agrees in writing to be bound by the issuer lock-up terms for the duration of the Restricted Period, and (b) such pledge does not result in a disposition of shares during the Restricted Period unless in connection with a foreclosure or similar realization event. This carve-out was added at the request of C&H to align with the parallel carve-out in the Individual Lock-Ups and to accommodate the lending arrangements of significant stockholders, including Pinnacle Vista.
C. Release Mechanism
The near-final draft provides that Hargrove Keating & Co. has sole discretion to release the Company from the issuer lock-up, in whole or in part, at any time during the Restricted Period, with or without conditions. The consent mechanism is structured as follows:
• Sole Discretion: Hargrove Keating & Co., acting as Representative of the underwriters, has the sole and absolute discretion to grant or withhold consent to any release or waiver of the issuer lock-up. There is no obligation for Hargrove Keating to consult with the joint book-runners (Linden Pratt Securities LLC and Graymont Brothers Inc.) or the co-managers (Barfield Stuart & Co. and Crane Whitley Capital LLC) before granting or withholding consent, although as a practical matter Hargrove Keating may choose to do so as a matter of syndicate protocol.
• No Automatic Early Termination Upon Change of Control: Unlike the Individual Lock-Ups, the issuer lock-up does not include an automatic early termination or release upon the occurrence of a "Change of Control" (as defined in the Form of Lock-Up Agreement). The rationale for this distinction is discussed in Section IV.H below.
• FINRA Disclosure Requirements: Any release or waiver granted by Hargrove Keating & Co. is subject to contemporaneous public disclosure to the extent required by applicable FINRA rules and interpretive guidance. Under FINRA Rule 5131(d)(2), if the Representative agrees to release or waive any lock-up restriction applicable to a company's securities in connection with an IPO, the Representative must provide the issuer and affected parties with notice at least two (2) business days before the effective date of the release or waiver, and the issuer must announce the impending release or waiver through a major news service.
D. Notification Requirement
The near-final draft requires that CBR provide Hargrove Keating & Co. with at least three (3) business days' prior written notice before taking any action that would otherwise be prohibited by the issuer lock-up but is permitted under one of the carve-outs described above, except as follows:
• For issuances pursuant to the acquisition carve-out (Section III.B.5 above), the Company must provide at least five (5) business days' prior written notice.
• For the issuance and sale of shares in the Offering itself (Section III.B.1 above), no separate prior notice is required, as the underwriters are party to the Underwriting Agreement and are directly aware of the transaction.
The notification requirement is designed to ensure that the Representative has adequate advance awareness of issuances that, while permitted, could affect the trading market for the Common Stock during the Lock-Up Period. The enhanced five (5) business day notice period for acquisition-related issuances reflects the potentially more material and market-impactful nature of such transactions.
IV. Analysis of Key Negotiation Points
This Section provides a detailed analysis of each key negotiation point addressed in the course of the C&H / PD&Y negotiations on the issuer lock-up provisions, including the positions taken by each side, the resolution reached, and our assessment of the outcome.
A. Length of Lock-Up Period: 180 Days
PD&Y's initial draft of the Underwriting Agreement proposed a lock-up period of 180 days following the date of the final prospectus. C&H did not seek to reduce the lock-up period, and no negotiation on this point was necessary.
A 180-day lock-up period is the market-standard period for initial public offerings in the United States. This standard has been consistently applied across sectors, including in the renewables and clean-energy sector, as confirmed by our review of eight (8) recent precedent IPOs in the sector (discussed in Section VI below), all of which employed a 180-day lock-up period. There is no basis for seeking a shorter period, and a longer period would be unusual in the context of a U.S. IPO of this size and profile.
Recommendation: No change warranted. The 180-day lock-up period is accepted and is market-consistent.
B. Scope of "Securities" Covered
PD&Y's initial draft employed broad language defining the securities subject to the issuer lock-up, covering "shares of Common Stock" and "any securities convertible into or exercisable or exchangeable for" Common Stock. While this language is standard, C&H identified a potential ambiguity that warranted clarification.
• C&H Comment (April 22, 2022): In the First C&H Comment Letter, C&H requested clarification that the issuer lock-up restriction does not extend to (a) non-convertible debt securities (such as senior notes, term loans, or revolving credit borrowings) or (b) preferred stock that is not convertible into Common Stock. The concern was that the broad language of the restriction, if read literally, could arguably encompass the issuance of any security by the Company, including debt instruments that have no equity-linked component. While such a reading would be commercially unreasonable, C&H recommended express clarification to avoid any ambiguity.
• PD&Y Response (May 2, 2022): PD&Y agreed to add clarifying language confirming that the restriction applies only to Common Stock and securities convertible into, exercisable for, or exchangeable for Common Stock. PD&Y acknowledged that the restriction was not intended to apply to non-convertible debt or non-convertible preferred stock and agreed that explicit language to this effect was appropriate.
• Current Status in Near-Final Draft: The clarifying language has been incorporated into Section 5(k) of the near-final draft. The issuer lock-up now expressly states that the restriction does not apply to the issuance of non-convertible debt securities or preferred stock that is not convertible into, exercisable for, or exchangeable for Common Stock.
Assessment: This clarification is a helpful housekeeping improvement that eliminates a potential source of ambiguity without altering the substance of the lock-up. The resolution is commercially reasonable and consistent with market practice.
C. Employee Equity Plan Carve-Out
The employee equity plan carve-out is one of the most commercially significant carve-outs in the issuer lock-up, as it ensures that the Company can continue to grant equity compensation awards and issue shares under its equity plans during the Lock-Up Period without obtaining the Representative's consent.
• C&H Comment (April 22, 2022): C&H requested that the carve-out expressly reference both the 2022 Omnibus Equity Incentive Plan (with its 12,727,273-share reserve) and the 2022 Employee Stock Purchase Plan (with its 2,545,455-share reserve) by name, rather than using a generic reference to "employee benefit plans." C&H further requested that the carve-out be drafted to encompass not only the issuance of shares upon the exercise or settlement of equity awards, but also the grant of equity awards (including stock options, RSUs, and PSUs) during the Lock-Up Period. The distinction is important because a grant of RSUs, for example, creates an obligation to issue shares in the future upon vesting, even though no shares are issued at the time of grant. Without express coverage of grants, the Company could arguably be prohibited from making new equity grants during the Lock-Up Period.
• PD&Y Response (May 2, 2022): PD&Y agreed to both requests. The carve-out in the near-final draft now references both plans by name and expressly covers both the grant of equity awards (including stock options, RSUs, and PSUs) and the issuance of shares upon exercise or settlement of such awards.
• C&H Comment (May 16, 2022): In the Second C&H Comment Letter, C&H confirmed that the revised language is acceptable and identified no further issues with the employee equity plan carve-out.
• Contextual Note on IPO Equity Grants: As reflected in the Executive Compensation — IPO Equity Grant Analysis Memorandum (Document 149), the Company's proposed IPO equity grant program includes the following awards to named executive officers, all of which are expected to be granted under the 2022 Omnibus Equity Incentive Plan and are therefore covered by this carve-out:
• Garrett Calloway, Chief Executive Officer: 500,000 RSUs
• Elaine Briggs, President: 400,000 RSUs
• Marcus Yoon, Chief Financial Officer: 300,000 RSUs
• Other Named Executive Officers: 150,000 to 200,000 RSUs each
• All IPO grants are subject to four-year ratable vesting (25% per year)
These grants will be made contemporaneously with or promptly following the closing of the Offering and must be covered by the carve-out. Additional grants to employees below the named executive officer level are also anticipated during the Lock-Up Period as part of the Company's ongoing compensation program.
Assessment: The resolution of this negotiation point is favorable to the Company and ensures operational flexibility with respect to equity compensation. The specificity of the carve-out (naming both plans and covering both grants and issuances) is a best practice that minimizes the risk of future disputes about the scope of the exception.
D. Acquisition Carve-Out
The acquisition carve-out was the most substantively negotiated provision of the issuer lock-up and represents the most significant departure from PD&Y's initial draft.
• PD&Y Initial Draft (April 18, 2022): PD&Y's initial draft of the Underwriting Agreement did not include any carve-out permitting the Company to issue shares as acquisition consideration during the Lock-Up Period. Under the initial draft, any acquisition involving the issuance of Common Stock as consideration during the 180-day period would require the prior written consent of Hargrove Keating & Co.
• C&H Comment (April 22, 2022): In the First C&H Comment Letter, C&H requested the addition of a carve-out permitting the Company to issue shares of Common Stock as consideration for bona fide acquisitions or strategic transactions, subject to two conditions: (a) the aggregate number of shares so issued during the Restricted Period would not exceed five percent (5%) of the post-IPO shares outstanding (calculated on a base-offering basis), and (b) each recipient of such shares would be required to execute a lock-up agreement for the remainder of the Restricted Period on terms substantially similar to the Form of Lock-Up Agreement. C&H's rationale for this request was grounded in the Company's growth strategy, which includes opportunistic mergers and acquisitions in the renewables sector. CBR's 6.2 GW development pipeline may include tuck-in acquisitions of development-stage wind, solar, and battery storage projects where stock consideration is an efficient and tax-advantaged form of payment.
• PD&Y Response (May 2, 2022): PD&Y accepted the concept of an acquisition carve-out in principle but countered with a lower cap of three percent (3%) of post-IPO shares outstanding. PD&Y's position was that a 5% cap could result in meaningful dilution and potential selling pressure (if the lock-up on acquisition recipients expired or was waived), which could undermine the price stability objectives of the lock-up. PD&Y also noted that the underwriters' diligence on the Company's M&A pipeline had not identified any imminent acquisition targets that would require a 5% allocation.
• C&H Comment (May 16, 2022): In the Second C&H Comment Letter, C&H proposed a compromise: maintain the 5% cap requested by the Company, but add the condition that the Company would provide Hargrove Keating & Co. with at least five (5) business days' prior written notice (rather than the standard three (3) business days applicable to the other carve-outs) before any acquisition-related issuance. The enhanced notice period was intended to address PD&Y's concern about potential market impact by giving the Representative additional time to evaluate the proposed transaction and, if necessary, to coordinate with the syndicate regarding any potential market implications.
• Current Status in Near-Final Draft: The 5% cap has been accepted by PD&Y, together with the five (5) business day prior notice requirement. Recipients of shares issued pursuant to the acquisition carve-out must execute lock-up agreements substantially in the form of the Form of Lock-Up Agreement for the remainder of the Restricted Period. The carve-out is limited to "bona fide" acquisitions or strategic transactions, although the term "bona fide" is not separately defined.
• Quantitative Impact of the 5% Cap:
• At base offering (123,713,636 shares outstanding): The 5% Cap equals approximately 6,185,682 shares.
• At full overallotment (127,272,727 shares outstanding): The 5% Cap equals approximately 6,363,636 shares.
• At the assumed midpoint IPO price of $22.00 per share, the 5% Cap represents approximately $136.1 million to $140.0 million of acquisition consideration in Common Stock.
• Strategic Rationale: The acquisition carve-out is important to CBR's business strategy. The renewables sector is characterized by active consolidation, with development-stage projects frequently changing hands as developers seek to monetize pipeline positions and acquirers seek to expand their portfolios. CBR has indicated that stock consideration is a preferred form of payment for certain tuck-in acquisitions because it aligns the seller's interests with the post-IPO performance of the combined company and avoids the need to draw on the Company's credit facilities (which are subject to their own covenant limitations). A lock-up period that categorically prohibits acquisition-related issuances could place CBR at a competitive disadvantage relative to other potential acquirers.
Assessment: The 5% cap with enhanced notice is a commercially balanced outcome that appropriately balances the Company's need for acquisition flexibility against the underwriters' interest in post-IPO price stability. As discussed in Section VI below, the 5% cap is within the market range (3% to 10%) observed in precedent renewables-sector IPOs and is slightly below the median of approximately 6%.
E. Form S-8 Filing Carve-Out
• C&H Comment (April 22, 2022): C&H requested an express carve-out permitting the Company to file registration statements on Form S-8 under the Securities Act with respect to the shares of Common Stock issuable under the 2022 Omnibus Equity Incentive Plan and the ESPP. Although the employee equity plan carve-out (Section IV.C above) permits the grant and issuance of equity awards, the core lock-up restriction separately prohibits the filing of registration statements with the SEC. Without a specific Form S-8 carve-out, the Company could be prohibited from registering the shares underlying its equity plans, which would limit the liquidity available to plan participants upon vesting and exercise.
• PD&Y Response (May 2, 2022): PD&Y agreed to include the Form S-8 filing carve-out without modification. PD&Y acknowledged that the filing of Form S-8 is a routine post-IPO administrative step and does not raise the price stability concerns that underlie the lock-up restriction on other types of registration statements.
• Current Status: The Form S-8 filing carve-out has been incorporated into the near-final draft without further negotiation. The carve-out references both the 2022 Omnibus Equity Incentive Plan and the ESPP by name.
Assessment: This is a standard carve-out that is present in all eight of the precedent transactions reviewed. No further action is required.
F. Pledge Carve-Out
• C&H Comment (April 22, 2022): C&H noted that the Individual Lock-Ups include a carve-out permitting individual lock-up holders to pledge shares of Common Stock to bona fide lending institutions in connection with lending arrangements, provided that the pledgee agrees to be bound by the lock-up terms. C&H requested a parallel carve-out at the issuer level, which would permit the Company to facilitate such pledges — for example, by not opposing a transfer of shares on its stock transfer books in connection with a pledge by a director, officer, or significant stockholder. The rationale for this request is that Pinnacle Vista, as the holder of approximately 62% of the pre-IPO Common Stock, may have existing or contemplated margin loan arrangements that require the pledge of shares as collateral. Without a carve-out at the issuer level, the Company's cooperation with such pledges could technically violate the lock-up.
• PD&Y Response (May 2, 2022): PD&Y agreed to include a pledge carve-out in the issuer lock-up, subject to two conditions: (a) the pledgee must agree in writing to be bound by the lock-up terms for the duration of the Restricted Period, and (b) the pledge must not result in a disposition of shares during the Restricted Period, except in the event of a foreclosure or similar realization event. PD&Y's position was that the risk to post-IPO price stability from pledges is minimal so long as the pledgee is bound by the lock-up and does not sell the pledged shares during the Lock-Up Period.
• Current Status: The pledge carve-out has been incorporated into the near-final draft on the terms described above. The carve-out is limited to pledges to "bona fide lending institutions" in connection with "bona fide lending arrangements," although neither term is separately defined.
Assessment: The pledge carve-out is present in three of the eight precedent transactions reviewed (see Section VI below), reflecting a trend toward increasing acceptance of this carve-out, particularly in IPOs involving PE-backed issuers with significant individual stockholders who may maintain margin loan facilities. The conditions imposed by PD&Y (pledgee bound by lock-up; no disposition except upon foreclosure) are reasonable and consistent with the conditions in the precedent transactions that included this carve-out.
G. Registration Rights Interaction
The interaction between the issuer lock-up and the Company's registration rights obligations is an important practical consideration that was addressed during the negotiation process.
• Background: CBR and Pinnacle Vista (and its permitted transferees) are parties to a Registration Rights Agreement that grants Pinnacle Vista demand registration rights, piggyback registration rights, and S-3 shelf registration rights. Under the demand registration rights, Pinnacle Vista may require the Company to file a registration statement covering the resale of its shares of Common Stock. The Registration Rights Agreement is a standard feature of PE-backed IPOs and is designed to provide Pinnacle Vista with a path to liquidity for its remaining shares following the IPO.
• C&H Comment (April 22, 2022): C&H sought clarification that the issuer lock-up restriction on filing registration statements does not prohibit the preparation of registration statements during the Lock-Up Period. The practical concern is that the Company may wish to begin preparing a shelf registration statement on Form S-3 during the Lock-Up Period so that it is ready for filing promptly upon expiration of the 180-day period. If the lock-up were read to prohibit even the preparation of registration statements (as opposed to their filing with the SEC), the Company would face an unnecessary delay in establishing its shelf registration program.
• PD&Y Response (May 2, 2022): PD&Y agreed that the restriction is on the filing of registration statements with the SEC, and not on the preparation, drafting, or internal review of such statements. The near-final draft confirms this distinction, using the operative language "file or cause to be filed any registration statement with the Securities and Exchange Commission" rather than broader language that could encompass preparatory activities.
• Exception for Form S-8: As discussed in Section IV.E above, the filing of registration statements on Form S-8 is expressly permitted during the Lock-Up Period. This exception is narrow and applies only to Form S-8 filings relating to the 2022 Omnibus Equity Incentive Plan and the ESPP.
Assessment: The clarification that the lock-up restricts filing but not preparation of registration statements is an important practical point that ensures the Company can be prepared to move quickly once the Lock-Up Period expires. This is particularly relevant given Pinnacle Vista's likely interest in filing a resale shelf registration statement promptly following the expiration of the lock-up.
H. Change of Control — No Automatic Release for Issuer
The treatment of a Change of Control event during the Lock-Up Period is one area in which the issuer lock-up departs from the Individual Lock-Ups.
• Background: The Individual Lock-Ups (in the Form of Lock-Up Agreement) include a provision providing for automatic early release of the lock-up upon the occurrence of a "Change of Control" of the Company. Under this provision, if a Change of Control occurs during the Lock-Up Period, the individual lock-up holders are automatically released from their lock-up obligations, enabling them to tender their shares or otherwise participate in the transaction. This is a common feature of Individual Lock-Ups that ensures stockholders are not disadvantaged in a Change of Control scenario.
• C&H Comment (May 16, 2022): In the Second C&H Comment Letter, C&H raised the question of whether a parallel automatic release should apply to the issuer lock-up in the event of a Change of Control. C&H noted the inconsistency between the Individual Lock-Ups (which include the automatic release) and the issuer lock-up (which does not), and queried whether PD&Y would agree to a corresponding provision in the Underwriting Agreement.
• PD&Y Response: PD&Y declined to include an automatic Change of Control release in the issuer lock-up. PD&Y's position was based on two considerations: (a) in a Change of Control transaction, the indemnification, contribution, and other provisions of the Underwriting Agreement remain operative and are important protections for the underwriters, and a blanket release of the issuer lock-up could complicate the operation of these provisions; and (b) the Representative's consent mechanism provides adequate flexibility to address a Change of Control scenario on a case-by-case basis, and any necessary releases can be obtained through negotiation with Hargrove Keating at the time of the transaction.
• C&H Position: C&H did not press further on this point. In practical terms, any Change of Control transaction occurring during the Lock-Up Period would involve extensive negotiation among all parties, including the underwriters, and the Company would have the ability to request a release from Hargrove Keating as part of that process. The absence of an automatic release does not prevent the Company from issuing shares in a Change of Control transaction; it simply requires the Company to obtain consent.
Recommendation: The absence of an automatic Change of Control release in the issuer lock-up is acceptable. In practice, a Change of Control during the 180-day post-IPO period would be unusual and would likely involve comprehensive negotiations with the underwriters in any event. The risk that Hargrove Keating would unreasonably withhold consent in a Change of Control scenario is low, and the consent mechanism provides a sufficient safeguard.
I. Consent Mechanism — Hargrove Keating Sole Discretion
The near-final draft provides that Hargrove Keating & Co. has sole discretion to release the Company from the issuer lock-up, in whole or in part, at any time during the Restricted Period, with or without conditions.
• Sole Discretion Standard: The sole discretion standard vests the release authority exclusively in Hargrove Keating as lead-left book-running manager and Representative of the underwriters. There is no requirement that Hargrove Keating consult with, or obtain the approval of, the other book-runners (Linden Pratt Securities LLC and Graymont Brothers Inc.) or the co-managers (Barfield Stuart & Co. and Crane Whitley Capital LLC) before granting or withholding consent. This formulation reflects the Representative's role as the primary point of contact between the syndicate and the Company and is consistent with the standard allocation of authority in book-run IPOs.
• Market Practice: Seven of the eight precedent transactions reviewed employed a sole-discretion consent mechanism vested in the lead-left book-running manager or representative. One precedent required the consent of a majority of the book-running managers. The sole-discretion standard is the predominant market practice.
• FINRA Disclosure: Any waiver or release granted by Hargrove Keating is subject to the public disclosure requirements of FINRA Rule 5131(d)(2), which requires the representative to provide notice to the issuer at least two business days before the effective date of the release or waiver, and the issuer to announce the impending release or waiver through a major news service. These requirements are designed to prevent selective or undisclosed releases that could disadvantage public investors.
• C&H Position: C&H did not object to the sole-discretion consent mechanism in either the First or Second C&H Comment Letter. The mechanism is market-standard, and the Company's practical interests are adequately protected by the carve-outs (which do not require consent) and by the commercial relationship between the Company and Hargrove Keating.
Assessment: The consent mechanism is market-consistent and does not warrant further negotiation.
V. Relationship to Individual Lock-Up Agreements
A. Summary of Individual Lock-Ups
The Individual Lock-Ups impose restrictions on the transfer, sale, hedging, and other disposition of shares of Common Stock by the Company's directors, executive officers, and holders of one percent (1%) or more of the pre-IPO Common Stock. The lock-up period for the Individual Lock-Ups is 180 days following the date of the final prospectus, which is coterminous with the issuer lock-up.
The following persons and entities are expected to execute Individual Lock-Ups:
Directors:
• Garrett Calloway (Chairman and Chief Executive Officer)
• Elaine Briggs (President and Director)
• Hugh Pemberton (Director)
• Diane Kovac (Director)
• Warren Okoro (Director)
• Catherine Liang (Director)
• Richard Estavez (Director)
Executive Officers:
• Marcus Yoon (Chief Financial Officer)
• Sandra Haverford (Chief Operating Officer)
• Dale Renfroe (General Counsel and Corporate Secretary)
• Priya Anand (Chief Technology Officer)
• Tomás Quintero (Senior Vice President, Project Development)
• Rachel Whitmore (Senior Vice President, Commercial Operations)
Significant Stockholders:
• Pinnacle Vista Capital Partners III, LP
• Other holders of ≥1% of pre-IPO Common Stock (identities set forth in Document 69)
In total, approximately eighteen (18) persons and entities are expected to execute Individual Lock-Ups. As of June 17, 2022 (the date on which the Offering was placed in dormant status), fifteen (15) of the eighteen (18) Individual Lock-Ups had been executed, with three (3) remaining outstanding. Full execution will be required prior to closing of the Offering.
B. Key Differences Between Issuer Lock-Up and Individual Lock-Ups
While the issuer lock-up and the Individual Lock-Ups share a common purpose (post-IPO price stability) and a common duration (180 days), they differ in several important respects:
1. Change of Control Trigger. The Individual Lock-Ups include a provision for automatic early release upon the occurrence of a "Change of Control" (as defined in the Form of Lock-Up Agreement). As discussed in Section IV.H above, the issuer lock-up does not include a corresponding automatic release.
2. Rule 10b5-1 Plan Adoption. The Individual Lock-Ups permit lock-up holders to adopt Rule 10b5-1 trading plans during the Lock-Up Period, provided that no sales or other transfers of shares may be effected under such plans until after the expiration of the Lock-Up Period. This provision allows individuals to establish pre-planned trading programs during the lock-up while deferring actual sales until the lock-up expires. This provision is not applicable to the issuer lock-up, as Rule 10b5-1 trading plans are used by individuals (and, in some cases, by issuers under share repurchase programs), not for new issuances of securities.
3. Estate-Planning Transfers. The Individual Lock-Ups permit transfers of shares for estate-planning purposes, including transfers to trusts for the benefit of the lock-up holder or the holder's immediate family members, provided that the transferee agrees in writing to be bound by the lock-up terms for the remainder of the Restricted Period. This carve-out is not applicable to the issuer lock-up, as the Company does not engage in estate-planning transfers.
4. Affiliate Transfers. The Individual Lock-Ups permit transfers to affiliates of the lock-up holder (e.g., a general partner, limited partner, or member of a lock-up holder that is a fund or other entity), provided that the transferee agrees to be bound by the lock-up terms. The issuer lock-up does not address affiliate transfers, as this concept is not relevant to issuer-level restrictions on the issuance of securities.
C. Coordination
The mechanics for evaluating early release requests under both the issuer lock-up and the Individual Lock-Ups are addressed in the Lock-Up Release Procedures Memorandum (Document 142), which is a separate document prepared by C&H. That memorandum covers, among other things, the process for submitting release requests to Hargrove Keating & Co., the factors that Hargrove Keating is likely to consider in evaluating such requests, the FINRA notification and public disclosure requirements applicable to releases or waivers, and the internal C&H procedures for coordinating with CBR and PD&Y on release requests.
VI. Market Precedent Comparison
A. Methodology
To benchmark the issuer lock-up provisions in the near-final draft of the Underwriting Agreement, C&H reviewed the issuer lock-up provisions in the underwriting agreements for eight (8) recent initial public offerings of companies in the renewables and clean-energy sector. The precedent transactions were selected based on the following criteria: (a) the issuer's primary business was in the renewable energy, clean energy, or related sectors (including solar, wind, battery storage, and energy technology); (b) the IPO was completed between January 2020 and December 2022; (c) the issuer's securities were listed on the NYSE or Nasdaq; and (d) the underwriting agreement (including the issuer lock-up provisions) was publicly available as an exhibit to the registration statement filed with the SEC.
The comparison was conducted across six dimensions: (i) lock-up period duration, (ii) scope and nature of carve-outs, (iii) presence and terms of an acquisition exception, (iv) cap on acquisition-related issuances, (v) presence of a Change of Control automatic release for the issuer, and (vi) structure of the consent mechanism.
B. Summary of Precedent Analysis
The following table summarizes the key findings of our precedent analysis, comparing the CBR near-final draft provisions against the market range observed in the eight precedent transactions:
C. Notable Precedent Observations
Several observations from the precedent analysis merit specific discussion:
1. Acquisition Carve-Out. The 5% acquisition carve-out with 5-business-day notice represents a commercially balanced outcome that falls within the observed market range. Two of the eight precedent transactions had no acquisition carve-out at all (requiring Representative consent for any acquisition-related issuance during the lock-up), while the most issuer-friendly precedent allowed issuances of up to 10% of post-IPO shares outstanding for acquisition purposes without prior notice to the Representative. The median cap among the five precedents that included an acquisition carve-out was approximately 6%. CBR's 5% cap is slightly below this median but is within the mainstream of market practice. The enhanced 5-business-day notice requirement is a feature that provides the underwriters with additional comfort and may have been a factor in PD&Y's decision to accept the 5% cap.
2. Pledge Carve-Out. The pledge carve-out is present in three of the eight precedent transactions, reflecting a trend toward increasing acceptance of this provision in IPOs involving PE-backed issuers. The carve-out is particularly relevant for CBR given Pinnacle Vista's position as the holder of approximately 62% of the pre-IPO Common Stock. As a significant stockholder, Pinnacle Vista may maintain margin loan or other financing arrangements secured by its shares, and the pledge carve-out ensures that the Company can facilitate such arrangements without violating the issuer lock-up. The conditions imposed in the CBR near-final draft (pledgee bound by lock-up terms; no disposition except upon foreclosure) are consistent with the conditions in the precedent transactions that included this carve-out.
3. Lock-Up Period Duration. None of the eight precedent companies reviewed had a lock-up period shorter than 180 days. The renewables sector appears to track the 180-day standard without variation, which is consistent with the broader U.S. IPO market. While there has been some discussion in the market of shorter lock-up periods (particularly for direct listings and SPAC de-SPAC transactions), the 180-day standard remains firmly established for traditional underwritten IPOs.
4. Change of Control. Only one of the eight precedent transactions included an automatic Change of Control release in the issuer lock-up. This confirms that the absence of such a provision in the CBR near-final draft is consistent with majority market practice.
A detailed precedent comparison table, including the names of the eight precedent companies and the specific terms of their issuer lock-up provisions, is attached hereto as Attachment B.
VII. Interaction with Existing Debt and Consent Requirements
The Company's existing debt instruments contain certain negative covenants that restrict the issuance of equity securities in specified circumstances. C&H has reviewed the relevant debt instruments to confirm that the issuer lock-up carve-outs do not conflict with the Company's obligations under these instruments.
Veltrano National Bank Corporate Credit Agreement. The corporate credit agreement with Veltrano National Bank, dated as of March 15, 2021, as amended (the "Veltrano Credit Agreement"), provides for a $400,000,000 revolving credit facility and a $650,000,000 Term Loan B. The Veltrano Credit Agreement contains negative covenants restricting the issuance of equity securities by the Company in certain circumstances, including restrictions on issuances that would result in a change of control (as defined in the Veltrano Credit Agreement) or that would violate the anti-dilution provisions applicable to certain warrants held by lenders. The Lender Consent Analysis Memorandum (Document 108) addresses the interplay between the IPO issuance and these covenants in detail. A draft consent letter from Veltrano National Bank (under review by Thomas Raines, Managing Director, Energy Lending) is expected to cover the issuance and sale of shares in the Offering as well as issuances under the 2022 Omnibus Equity Incentive Plan and the ESPP. The issuer lock-up carve-outs are not expected to conflict with the lender consent mechanics, as the consent is drafted broadly to encompass the equity issuances contemplated by the Offering and the Company's post-IPO equity compensation programs.
Prairie Commercial Bank, N.A. Construction-to-Term Facilities. CBR's project-level subsidiaries are parties to construction-to-term loan facilities with Prairie Commercial Bank, N.A. for two of the Company's operating projects: the Mesquite Wind project ($165,000,000 facility) and the Cimarron Solar project ($143,000,000 facility). C&H has reviewed the relevant loan agreements for any restrictions on parent-level equity issuances. The Prairie Commercial Bank facilities are non-recourse to the parent company and contain change-of-control and equity-issuance covenants that apply at the project subsidiary level rather than the parent level. Accordingly, no additional consents from Prairie Commercial Bank are required for the transactions contemplated by the issuer lock-up carve-outs.
Veltara Basin Financial LLC Tax-Equity Partnership. CBR's Solaris West project is financed in part through a tax-equity partnership structure with Veltara Basin Financial LLC ($280,000,000 invested). The tax-equity partnership agreement contains restrictions on transfers of partnership interests and certain change-of-control triggers at the partnership and project levels, but does not impose restrictions on parent-level equity issuances. Accordingly, no additional consents from Veltara Basin Financial LLC are required for the transactions contemplated by the issuer lock-up carve-outs.
In summary, based on our review, the issuer lock-up carve-outs are not expected to conflict with the Company's existing debt and financing arrangements, subject to the receipt of the Veltrano National Bank consent, which is on track for delivery prior to the closing of the Offering.
VIII. Disclosure Considerations
The issuer lock-up provisions (together with the Individual Lock-Ups) are described in several sections of the prospectus included in the Registration Statement and are subject to regulatory review by the SEC and FINRA.
Underwriting Section of Prospectus. The lock-up provisions (both issuer-level and individual-level) are described in the "Underwriting" section of the prospectus. The description includes the duration of the lock-up, the scope of the restrictions, the identity of the parties subject to lock-up, the carve-outs, and the consent mechanism. The drafting of the "Underwriting" section is addressed in a separate drafting file maintained by C&H.
Shares Eligible for Future Sale. The prospectus includes a section titled "Shares Eligible for Future Sale," which describes the lock-up restrictions, the number of shares subject to lock-up, the carve-outs from the lock-up, the impact of Rule 144 under the Securities Act on the resale of restricted shares, and the potential impact of the lock-up on the market for CBR Common Stock following the IPO. This section is designed to provide investors with a clear understanding of the potential supply of shares that may become available for sale at various points following the Offering, including upon expiration of the Lock-Up Period.
SEC Comment Letter. The SEC's second-round comment letter on the Registration Statement (received June 3, 2022; seven (7) comments total) included a comment requesting enhanced disclosure of the lock-up carve-outs, with particular attention to the acquisition exception. The SEC staff requested that the Company "revise the disclosure to describe the conditions under which the company may issue shares during the lock-up period, including any cap on the number of shares that may be issued as acquisition consideration and any requirement that recipients of such shares agree to be bound by a lock-up." This comment was addressed in Amendment No. 2 to the Draft Registration Statement (the "DRS"), filed with the SEC on June 10, 2022 (EDGAR Accession No. 0001948372-22-000003). The revised disclosure in Amendment No. 2 includes a description of the 5% cap, the lock-up requirement for acquisition recipients, and the enhanced notice period.
FINRA Corporate Financing Application. The FINRA corporate financing application (Filing No. 20221129-01) includes disclosure of the lock-up terms as part of the analysis of underwriting compensation and arrangements. Under FINRA Rule 5110, the lock-up provisions are reviewed to ensure that they do not constitute unfair underwriting compensation or create arrangements that are inconsistent with fair dealing principles. The FINRA Rule 5110 Compliance Analysis Memorandum (Document 126) addresses the FINRA review process and the disclosure of the lock-up terms in the corporate financing application in greater detail.
IX. Open Points and Recommendations
A. Remaining Open Points
Based on our review of the near-final draft, we have identified three (3) discrete open points that should be resolved at or prior to the pricing stage of the Offering:
1. Definition of "Outstanding" for Purposes of the 5% Acquisition Cap. The near-final draft of the issuer lock-up references "shares outstanding immediately after giving effect to the offering" for purposes of calculating the 5% cap on acquisition-related issuances, but does not specify whether this calculation is made on a base-offering basis (i.e., 123,713,636 shares) or on a full-overallotment basis (i.e., 127,272,727 shares). The distinction is not immaterial: on a base-offering basis, the 5% cap equals approximately 6,185,682 shares; on a full-overallotment basis, the cap equals approximately 6,363,636 shares — a difference of approximately 177,954 shares (approximately $3.9 million at the assumed midpoint IPO price of $22.00 per share).
C&H recommends clarifying that the calculation is made on a base-offering basis (123,713,636 shares), which would provide the Company with certainty at the time of pricing regardless of whether the overallotment option is ultimately exercised. PD&Y has indicated flexibility on this point in informal discussions, and we suggest addressing it in the final pricing call or in the confirmation of terms at pricing.