PRESCOTT, DANFORTH & YEE LLP Attorneys at Law 1271 Avenue of the Americas New York, NY 10020 Telephone: (212) 559-7000 Facsimile: (212) 559-7001 www.pdylaw.com
May 2, 2022
Via Email and Hand Delivery
Brendan Walsh, Esq. Calderwood & Harkness LLP 599 Lexington Avenue New York, NY 10022
Re: Proposed Initial Public Offering of Common Stock — Calloway-Briggs Renewables Inc. — Response to Issuer's Counsel Comments on Draft Underwriting Agreement
Dear Brendan:
I. Introduction
We write in response to Calderwood & Harkness LLP's comment letter dated April 22, 2022 (the "C&H Comment Letter"), which provided your issuer-side markup of, and commentary on, the initial draft Underwriting Agreement (the "UA" or the "Agreement") circulated by Prescott, Danforth & Yee LLP ("PD&Y") on April 11, 2022, on behalf of the underwriters. As you know, PD&Y represents Hargrove Keating & Co. ("Hargrove Keating"), acting as representative of the several underwriters (together with Linden Pratt Securities LLC, Graymont Brothers Inc., Barfield Stuart & Co., and Crane Whitley Capital LLC, collectively, the "Underwriters"), in connection with the proposed initial public offering (the "Offering" or the "IPO") of shares of common stock, par value $0.01 per share (the "Common Stock"), of Calloway-Briggs Renewables Inc. (the "Company" or the "Issuer").
We have reviewed the C&H Comment Letter in detail with Oliver Marchetti, Managing Director, Equity Capital Markets, and Sonia Tran, Director, Power & Renewables Investment Banking, each at Hargrove Keating & Co., as well as with representatives of the other book-running managers participating in the syndicate, including Rebecca Innes at Linden Pratt Securities LLC and Kenneth Sato at Graymont Brothers Inc. We have also conferred with our colleagues Margaret Yee and Anita Desmond here at PD&Y regarding certain of the more technical legal points raised in your letter.
This letter addresses Calderwood & Harkness's comments in the order presented in the C&H Comment Letter, identifying for each comment whether the Underwriters (a) accept the proposed change, (b) accept the proposed change with modifications, or (c) decline the proposed change, together with the reasoning underlying each position and, where appropriate, proposed compromise language. We have endeavored to be as specific as possible in our responses to facilitate an efficient path toward a mutually agreed form of the Agreement.
A revised draft of the Underwriting Agreement reflecting all changes agreed upon in this letter (and incorporating such revisions in blackline against the April 11, 2022 initial draft) will follow under separate cover. We anticipate circulating that revised draft by no later than May 6, 2022, and we would be pleased to schedule a call during the week of May 9 to address any remaining open items.
For purposes of this letter, we use the following defined terms: "Company" or "Issuer" refers to Calloway-Briggs Renewables Inc.; "Selling Stockholder" refers to Pinnacle Vista Capital Partners III, LP; and "Underwriters" refers collectively to the several underwriters named in the Agreement, with Hargrove Keating & Co. serving as the "Representative."
We turn now to your specific comments.
II. Representations and Warranties of the Company
A. Accuracy of Registration Statement (Section 1(a))
Calderwood & Harkness has requested that the Company's representation in Section 1(a) — that the registration statement on Form S-1 (File No. 333-264851), as of its effective date, does not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading — be qualified by the addition of a knowledge qualifier (i.e., "to the Company's knowledge").
The Underwriters respectfully decline to accept a knowledge qualifier on this representation. The accuracy of the registration statement and prospectus is a core underwriter protection and is universally recognized as market-standard for initial public offerings. The Company bears primary responsibility for the content of the registration statement and the prospectus as filed with the Securities and Exchange Commission (the "SEC"), and it is therefore appropriate that this representation run without qualification as to the Company's knowledge. The Underwriters rely on this representation as a fundamental element of the due diligence framework established by Section 11 of the Securities Act of 1933, as amended (the "Securities Act"), and its inclusion without a knowledge qualifier is consistent with prevailing market practice across comparable IPO transactions, including those in the renewable-energy sector.
We note, moreover, that the representation as drafted is already appropriately limited in scope. It runs solely to the registration statement and the prospectus (including any documents incorporated therein by reference), and it does not extend to information furnished by the Underwriters for inclusion in those documents (the so-called "Underwriter Information"). Accordingly, the Company's exposure under this representation is limited to statements and disclosures for which it has direct responsibility and over which it exercises editorial control.
With respect to the definition of "Underwriter Information," we confirm that the carve-out as proposed in the C&H Comment Letter — encompassing the names and addresses of the Underwriters, the share allocations set forth in the underwriting section of the prospectus, and statements regarding stabilization activities and overallotment transactions — is acceptable. We will incorporate this definition in the revised draft without modification.
B. Financial Statements (Section 1(b))
Calderwood & Harkness has proposed two modifications to the financial-statement representation in Section 1(b). We address each in turn.
First, C&H has requested a clarification that the representation regarding compliance with generally accepted accounting principles ("GAAP") is limited to (i) the audited consolidated financial statements of the Company and its subsidiaries for the fiscal years ended December 31, 2019 ("FY 2019"), December 31, 2020 ("FY 2020"), and December 31, 2021 ("FY 2021"), and (ii) the unaudited interim consolidated financial data for the fiscal quarter ended March 31, 2022 ("Q1 2022"), in each case as included in the registration statement. The Underwriters accept this clarification. The representation was always intended to be limited to the financial statements as filed, and C&H's proposed language makes that limitation explicit.
Second, C&H has requested the insertion of a reference to Ashford & Pemberton LLP as the independent registered public accounting firm that audited the Company's consolidated financial statements. The Underwriters accept this insertion. Identifying the auditor by name is consistent with the prospectus disclosure and enhances the specificity of the representation.
Third, C&H has requested that the "present fairly" representation be qualified with the phrase "in all material respects." The Underwriters note that this qualification is, in our view, already implied by the GAAP compliance qualifier — the representation that financial statements were prepared in accordance with GAAP inherently incorporates a materiality concept, as GAAP itself applies materiality thresholds throughout. Including the phrase "in all material respects" would therefore be technically redundant. That said, we recognize that this language is consistent with the formulation used in the independent auditor's report issued by Ashford & Pemberton LLP and is commonly included in similar representations. Accordingly, if C&H insists on its inclusion, the Underwriters are willing to accept the qualification, and we will include it in the revised draft on the assumption that your client prefers to retain it.
C. No Material Adverse Effect (Section 1(c))
Section 1(c) of the Agreement contains the Company's representation regarding the absence of a "Material Adverse Effect" since the date of the most recent balance sheet included in the registration statement. This is, understandably, among the most heavily negotiated provisions of the Agreement, and the C&H Comment Letter includes extensive proposed modifications to the definition of "Material Adverse Effect" as well as to the related carve-outs. We address each element below.
Definition Scope. Calderwood & Harkness has proposed a formulation of the definition of "Material Adverse Effect" that we find generally acceptable. Specifically, C&H proposes that "Material Adverse Effect" means any event, change, occurrence, or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, properties, financial condition, or results of operations of the Company and its subsidiaries, taken as a whole, or (b) the ability of the Company to consummate the transactions contemplated by the Underwriting Agreement. The Underwriters accept this formulation, which is consistent with prevailing market practice and adequately captures both the business-condition prong and the transaction-consummation prong of the definition.
Carve-Outs. C&H has proposed six carve-outs from the definition of Material Adverse Effect. We address each below:
(i) Changes in general economic or market conditions. Accepted. This is a standard carve-out, and we have no objection to its inclusion.
(ii) Changes in GAAP or applicable law. Accepted. Changes in accounting standards or legal requirements of general applicability should not, standing alone, constitute a Material Adverse Effect, and this carve-out is consistent with market practice.
(iii) Changes affecting the renewable-energy or utility industries generally. Accepted. We agree that industry-wide changes should be carved out, and this formulation appropriately limits the carve-out to changes of general applicability within the renewable-energy and utility sectors.
(iv) Natural disasters, pandemics, or acts of war. Accepted. The Underwriters recognize the importance of this carve-out, particularly in light of the ongoing global public health environment and geopolitical developments. We accept its inclusion.
(v) Changes resulting from the announcement or pendency of the IPO. Accepted. It is appropriate to exclude effects that are attributable to the announcement or pendency of the Offering itself, as such effects are an inherent consequence of the transaction and should not be the basis for invoking the Material Adverse Effect representation.
(vi) Changes in the Company's stock price or credit rating. Accepted. We note, as a technical matter, that the stock-price component of this carve-out is not directly applicable in the pre-IPO context, as there is no existing public market for the Company's Common Stock. However, we accept the carve-out as drafted on the understanding that it will be applicable following pricing and the commencement of trading, and that the credit-rating component is applicable at all times.
Disproportionate-Impact Qualifier. C&H has proposed that each of the foregoing carve-outs apply only "to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, relative to other similarly situated companies operating in the renewable-energy and utility industries." The Underwriters accept this qualifier. It ensures that, while industry-wide or macroeconomic events are carved out in principle, the carve-outs do not shield the Company if such events cause harm to the Company that is materially disproportionate to the harm experienced by its peers. This is a reasonable and market-standard limitation on the breadth of the carve-outs.
C&H's Proposed Additional Carve-Out — Compliance with the Underwriting Agreement. C&H has proposed an additional carve-out for "changes resulting from the Company's compliance with the terms of the Underwriting Agreement." The Underwriters decline this proposed carve-out. The Underwriting Agreement does not contemplate or require the Company to take any actions that would reasonably be expected to give rise to a Material Adverse Effect. The covenants and conditions contained in the Agreement are customary and well-understood, and we are not aware of any provision of the Agreement whose performance could cause a Material Adverse Effect on the Company's business or financial condition. Accordingly, this carve-out is not necessary and, if included, could have the unintended consequence of effectively swallowing the Material Adverse Effect representation by immunizing any adverse development that the Company could characterize as related to its performance of the Agreement. We respectfully decline this addition.
C&H's Proposed Additional Carve-Out — Changes in Commodity Prices. C&H has proposed a standalone carve-out for "changes in the prices of electricity, natural gas, renewable energy credits, or other commodities." The Underwriters decline this proposed carve-out as a separate and independent exception. We note that changes in commodity prices that are of general applicability within the renewable-energy and utility industries are already captured by carve-out (iii) above — changes affecting the renewable-energy or utility industries generally — subject to the disproportionate-impact qualifier. A company-specific adverse development caused by commodity price fluctuations that disproportionately affects the Company relative to its peers should not be excluded from the Material Adverse Effect definition, as it may indicate a vulnerability unique to the Company's contractual arrangements, hedging strategies, or project economics. A standalone commodity-price carve-out, without the tethering to industry-wide applicability, is overbroad and could undermine the Underwriters' protections in circumstances where the Company's exposure to commodity-price risk differs materially from that of its competitors. We encourage the parties to discuss this point further on the next call.
D. Authorization and Enforceability (Section 1(d))
Calderwood & Harkness has proposed revised language for Section 1(d) regarding the due authorization, execution, delivery, and enforceability of the Underwriting Agreement by the Company. The Underwriters accept the proposed language as drafted. We have no comments on this provision.
E. No Conflicts (Section 1(e))
C&H has proposed two modifications to the no-conflicts representation in Section 1(e).
First, C&H has requested the addition of a materiality qualifier to the portion of the representation addressing conflicts with agreements, instruments, or obligations to which the Company or any of its subsidiaries is a party or by which any of them is bound. Specifically, C&H proposes qualifying the representation with the phrase "except as would not reasonably be expected to have a Material Adverse Effect," while retaining the flat (unqualified) representation with respect to conflicts with the Company's certificate of incorporation, bylaws, and material agreements specifically identified in the registration statement. The Underwriters accept this modification. It is reasonable to apply a materiality screen to the universe of all contracts and instruments to which the Company is a party, while preserving the unqualified representation for the Company's organizational documents and its most significant contractual arrangements.
Second, C&H has requested the elimination of the representation regarding the Company's compliance with applicable laws and governmental orders. The Underwriters decline to eliminate this representation, as it is a standard component of the no-conflicts representation in IPO underwriting agreements and is important to the Underwriters' due diligence framework. However, we are willing to accept a materiality qualifier on the compliance-with-law representation, such that the Company would represent that it is in compliance with all applicable laws, rules, regulations, and governmental orders, "except where the failure to be in such compliance would not reasonably be expected to have a Material Adverse Effect." We believe this is a reasonable compromise that preserves the substance of the representation while acknowledging that immaterial regulatory non-compliance should not give rise to a breach.
F. Tax Matters (Section 1(l))
Calderwood & Harkness has proposed that the representations in Section 1(l) regarding tax matters — including the Company's timely filing of tax returns, payment of taxes, and absence of pending or threatened tax proceedings — be qualified to cover only matters "that would reasonably be expected to have a Material Adverse Effect." The Underwriters accept this qualification. A materiality screen for tax representations is reasonable and is consistent with practice in comparable transactions.
Additionally, C&H has requested the inclusion of a reference to Kessler McBride & Associates LLP as the Company's external tax advisor with respect to the structuring and compliance of the tax-equity structures employed across the Company's project portfolio (including the Solaris West tax-equity partnership with Veltara Basin Financial LLC). The Underwriters accept this addition, which we understand is consistent with the disclosure in the registration statement regarding the Company's reliance on external tax advisors in connection with its tax-equity financing arrangements.
G. Environmental Matters (Section 1(m))
C&H has proposed two modifications to the environmental-matters representation in Section 1(m). First, C&H proposes the addition of a materiality qualifier such that the representation is limited to environmental matters that are either (a) identified in the registration statement or (b) would reasonably be expected to have a Material Adverse Effect. The Underwriters accept this qualification, which appropriately narrows the scope of the representation while ensuring that all material environmental issues are covered.
Second, C&H has requested the inclusion of a reference to Greenridge Environmental Sciences LLC as having conducted Phase I and, where applicable, Phase II environmental site assessments for the Company's project portfolio. The Underwriters accept this addition, which is consistent with the disclosure in the registration statement and the due diligence materials previously made available to the Underwriters.
H. Title to Properties / Land Rights (Section 1(n))
Calderwood & Harkness has proposed several modifications to the title-to-properties representation in Section 1(n), which we address in turn.
First, C&H proposes qualifying the representation regarding the Company's good and marketable title to owned properties and valid and enforceable leasehold interests in leased properties with the phrase "in all material respects." The Underwriters accept this qualification, which is customary and appropriate given the breadth of the Company's real-property holdings and leasehold interests across its project portfolio.
Second, C&H proposes limiting the scope of the representation to the nine specifically named operational project sites identified in the registration statement (Solaris West, Red Mesa, Painted Rock, Pronghorn, Brazos, Mesquite Wind, Cimarron Solar, Lakeview Wind, and Cottonwood Solar). The Underwriters decline this limitation. While we understand the Company's desire to confine the representation to its existing operational assets, the Underwriters require comfort regarding all material properties and real-property interests, including those associated with the Company's development-stage projects. In particular, the registration statement contains detailed disclosure regarding the Silverleaf Wind project and the Copper Basin Solar + Storage project, both of which are described as material components of the Company's development pipeline. Investors will rely on the accuracy of the Company's disclosures regarding these projects, and the Underwriters believe it is appropriate for the title representation to extend to all material properties — whether operational or in development — to ensure comprehensive coverage. We would be pleased to discuss appropriate qualifications (e.g., customary development-stage exceptions) on a call, but we cannot agree to exclude these projects from the representation entirely.
Third, C&H has proposed the insertion of customary exceptions for permitted liens, easements, restrictions, encumbrances, and other title matters that do not materially interfere with the Company's current use and operation of the properties to which they relate. The Underwriters accept these exceptions, which are standard and which we had intended to include in any event.
I. Intellectual Property (Section 1(o))
Calderwood & Harkness has proposed that the intellectual-property representation in Section 1(o) be limited to intellectual property that is material to the business of the Company and its subsidiaries as currently conducted. The Underwriters accept this limitation, which is reasonable and consistent with comparable transactions. We have no further comments on this provision.
III. Representations and Warranties of the Selling Stockholder
We note that the C&H Comment Letter was primarily directed at the representations and warranties of the Company, which is appropriate given Calderwood & Harkness's role as issuer's counsel. With respect to the representations and warranties of the Selling Stockholder (Section 1A of the Agreement), PD&Y has separately received a comment letter dated April 25, 2022 from Whitfield Archer & Doss LLP ("WA&D") — specifically from Christine Navarro and Derek Fong — on behalf of Pinnacle Vista Capital Partners III, LP (the "Selling Stockholder"). We address those comments here for completeness and to provide a single comprehensive response letter for all parties.
The Underwriters accept the Selling Stockholder's request that its representations regarding the Company (as opposed to representations regarding the Selling Stockholder's own affairs) be limited to matters within its knowledge. This is a customary accommodation for selling stockholders in IPO transactions, where the selling stockholder — while often a significant shareholder — may not have the same degree of access to Company information as the Company's own officers and directors. We will qualify the relevant representations accordingly.
However, the Selling Stockholder's representations regarding its own affairs — including representations regarding (i) title to and ownership of the shares being sold by the Selling Stockholder, free and clear of all liens and encumbrances, (ii) authority and power to enter into and perform its obligations under the Underwriting Agreement and the custody agreement, and (iii) the absence of conflicts between the Underwriting Agreement and the Selling Stockholder's organizational documents or material agreements — shall remain as flat representations without knowledge qualifiers. These are matters within the Selling Stockholder's direct control and knowledge, and the Underwriters require unqualified comfort on these points.
With respect to the Selling Stockholder's representation regarding affiliations with Financial Industry Regulatory Authority ("FINRA") member firms, WA&D has proposed that this representation be limited to the actual knowledge of Hugh Pemberton and Diane Kovac, in their capacities as Managing Partners of Pinnacle Vista Capital Management LLC (the general partner of the Selling Stockholder). The Underwriters accept this limitation. Given the organizational structure of the Selling Stockholder and the number of limited partners and affiliated entities within the Pinnacle Vista fund complex, it is reasonable to confine the FINRA-affiliation representation to the actual knowledge of the individuals who are in the best position to have visibility into such matters.
IV. Conditions to Closing
A. Officer's Certificate (Section 6(a))
Calderwood & Harkness has proposed a form of officer's certificate to be executed by Garrett Calloway, Chief Executive Officer, and Marcus Yoon, Chief Financial Officer, of the Company, and delivered to the Representative at the closing of the Offering. The Underwriters accept C&H's proposed form, subject to the requirement that the certificate confirm each of the following as of the closing date:
(i) the accuracy in all material respects of the representations and warranties of the Company contained in the Underwriting Agreement as of the date of the Agreement and as of the closing date (or, with respect to representations that speak as of a specified date, as of such specified date);
(ii) the due performance in all material respects by the Company of all covenants and obligations required to be performed by it under the Underwriting Agreement on or before the closing date;
(iii) the absence of any Material Adverse Effect (as defined in the Agreement, including all agreed-upon carve-outs as described in Section II.C above) since the date of the most recent balance sheet included in the registration statement; and
(iv) the absence of any stop order suspending the effectiveness of the registration statement, any proceedings for that purpose pending before or threatened by the SEC, and the absence of any notice from the SEC of any objection to the use of the form of the registration statement.
We confirm that the reference to "Material Adverse Effect" in the officer's certificate will track the definition agreed upon in Section 1(c) of the Agreement, including all carve-outs and qualifications as described in Part II.C of this letter.
B. Legal Opinions (Section 6(b))
The Underwriters accept the following arrangements with respect to legal opinions to be delivered at the closing of the Offering:
Calderwood & Harkness LLP, as issuer's counsel, will deliver to the Underwriters at closing an opinion of counsel covering, among other matters, (i) the due authorization by the Company of the Underwriting Agreement and the transactions contemplated thereby, (ii) the valid issuance, full payment, and non-assessability of the shares of Common Stock to be sold in the Offering, (iii) the enforceability of the Underwriting Agreement against the Company (subject to customary enforceability exceptions), (iv) the absence of material conflicts between the Underwriting Agreement and the Company's certificate of incorporation, bylaws, and material agreements, and (v) compliance with applicable provisions of the Delaware General Corporation Law. The Underwriters confirm that PD&Y, as counsel to the Underwriters, will deliver a separate opinion of underwriters' counsel at closing covering customary matters.
In addition, the Underwriters will require a tax opinion from Calderwood & Harkness LLP (we understand the responsible partner is Leonard Cross) regarding the material U.S. federal income tax consequences of the Offering, which opinion is to be filed as an exhibit to the registration statement on Form S-1 in accordance with Item 601(b)(8) of Regulation S-K. This requirement was discussed with Jennifer Kwon on the April 15, 2022 call and we understand it is not in dispute.
We accept C&H's proposed limitation that the issuer's counsel opinion will be governed by, and limited in scope to, the laws of the State of New York, the General Corporation Law of the State of Delaware, and the federal laws of the United States. No opinions will be required with respect to the laws of any other jurisdiction, and the opinion may contain customary assumptions, qualifications, and exceptions.
C. Comfort Letter (Section 6(c))
Calderwood & Harkness has proposed language regarding the comfort letter to be delivered by Ashford & Pemberton LLP, the Company's independent registered public accounting firm, in accordance with Statement on Auditing Standards No. 72 (Comfort Letters for Underwriters and Certain Other Requesting Parties) and AU-C Section 920. The Underwriters accept C&H's proposed language and confirm the following schedule for comfort-letter deliveries:
(i) Initial comfort letter: To be dated June 8, 2022, covering the audited consolidated financial statements of the Company and its subsidiaries for FY 2019, FY 2020, and FY 2021, and the unaudited interim consolidated financial data for Q1 2022 (ended March 31, 2022), as included in the registration statement.
(ii) Bring-down at pricing: To be delivered on the date of the pricing agreement, updating the initial comfort letter through a date not more than three business days prior to the date of the pricing agreement.
(iii) Bring-down at closing: To be delivered on the closing date, updating the initial comfort letter through a date not more than three business days prior to the closing date.
The Underwriters accept that the scope and form of the comfort letter will be as mutually agreed among the Underwriters, the Company, and Ashford & Pemberton LLP, based on the request letter to be delivered by the Underwriters. We understand that the request letter has been substantially agreed upon and that there are no material open issues regarding its scope.
D. Lock-Up Agreements (Section 6(d))
The Underwriters require, as a condition to closing, the execution and delivery of lock-up agreements from all directors, executive officers, and holders of one percent (1%) or more of the Company's pre-IPO outstanding Common Stock. Based on the Company's current capitalization, this requirement applies to approximately eighteen (18) persons and entities. The lock-up agreements must be in form and substance satisfactory to the Representative and must be delivered prior to the effectiveness of the registration statement.
Calderwood & Harkness has proposed a form of lock-up agreement providing for a lock-up period of one hundred eighty (180) days following the date of the final prospectus (the "Lock-Up Period"). The Underwriters accept this form and the duration of the Lock-Up Period, which is consistent with market practice for IPOs in the renewable-energy sector.
C&H has proposed the following carve-outs from the lock-up restrictions, each of which the Underwriters accept:
• Transfers to affiliates: A locked-up person may transfer shares to an affiliate, provided that the affiliate agrees in writing to be bound by the terms of the lock-up agreement for the remainder of the Lock-Up Period.
• Estate-planning transfers: A locked-up person may transfer shares for bona fide estate-planning purposes (including transfers to trusts, family members, and family-controlled entities), provided that the transferee agrees in writing to be bound by the terms of the lock-up agreement for the remainder of the Lock-Up Period.
• 10b5-1 plan adoption: A locked-up person may adopt a trading plan intended to satisfy the conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, provided that no sales or other dispositions of shares may be made under such plan during the Lock-Up Period.
• Pledges to lenders: A locked-up person may pledge shares to a bona fide lending institution as collateral for a loan or line of credit, provided that the pledgee agrees in writing to be bound by the terms of the lock-up agreement for the remainder of the Lock-Up Period upon any foreclosure, seizure, or other disposition of the pledged shares.
Lock-Up Release Mechanics. Any release or waiver of the lock-up restrictions prior to the expiration of the Lock-Up Period shall require the prior written consent of Hargrove Keating & Co. in its capacity as lead-left book-runner and Representative of the several Underwriters. The lock-up restrictions shall also terminate automatically upon the occurrence of a "Change of Control" of the Company, as defined in the lock-up agreement.
C&H's Proposed Additional Carve-Out — Charitable Donations of Shares. C&H has proposed an additional carve-out permitting locked-up persons to donate shares of Common Stock to charitable organizations or foundations during the Lock-Up Period. The Underwriters decline this proposed carve-out. While we appreciate the policy considerations that may animate this request, a charitable-donation exception is not market-standard for IPO lock-up agreements and could create an indirect path for shares to enter the trading market during the Lock-Up Period. Specifically, there is a risk that a charitable recipient could sell donated shares immediately upon receipt, thereby introducing selling pressure during the period when market stabilization and price discovery are most critical. We note that no comparable IPO lock-up agreement in the renewable-energy or broader energy-infrastructure sectors has included such a carve-out in recent market practice.
C&H's Proposed Carve-Out — Exercise of Pre-IPO Options. C&H has proposed a carve-out permitting the exercise of stock options outstanding as of the closing of the Offering. The Underwriters accept this carve-out, provided that the underlying shares of Common Stock received upon exercise (including upon cashless or net exercise) remain subject to the lock-up restrictions for the remainder of the Lock-Up Period. To be clear, the carve-out is limited to the act of exercise itself and does not permit the sale, transfer, or other disposition of the shares received upon such exercise during the Lock-Up Period.
E. Lender Consents and Notices (Section 6(e))
Calderwood & Harkness has proposed a closing condition requiring the Company to have obtained or delivered, as applicable, all consents and notices required under the Company's existing credit and financing arrangements in connection with the Offering. The Underwriters accept this condition as proposed, which we understand encompasses the following:
(i) Consent or notice (as required) under the corporate revolving credit facility and term loan with Veltrano National Bank, as Administrative Agent, in its capacity as lender under the Company's senior secured credit facility.
(ii) Consent or notice (as required) under the project-finance facilities with Prairie Commercial Bank, N.A., specifically the $165 million Mesquite Wind project-finance facility and the $143 million Cimarron Solar project-finance facility.
(iii) Consent from Veltara Basin Financial LLC regarding the Solaris West tax-equity partnership (aggregate invested capital of approximately $280 million), including written confirmation from Veltara Basin that the consummation of the IPO does not constitute a "Recapture Event," "Change of Control," or other triggering event under the tax-equity partnership agreement.
We note that obtaining the Veltara Basin consent may require lead time, and we encourage the Company and its counsel to prioritize this item in the near term to avoid any delays as we approach the anticipated closing date.
F. Good-Standing Certificates (Section 6(f))
Calderwood & Harkness has proposed a list of entities for which good-standing certificates (or certificates of existence or authorization, as applicable) must be delivered at closing. The Underwriters accept C&H's proposed list, which encompasses the following:
(i) Calloway-Briggs Renewables Inc. — certificates of good standing from the Secretary of State of the State of Delaware (state of incorporation) and the Secretary of State of the State of Texas (principal place of business and state of qualification);
(ii) the following ten (10) material subsidiaries, in each case from the Secretary of State of the applicable state of organization or qualification:
• CBR Holdings LLC
• Calloway-Briggs Operating Company LLC
• Solaris West Solar LLC
• Red Mesa Wind Energy LLC
• Painted Rock Solar LLC
• Pronghorn Wind LLC
• Brazos Energy Storage LLC
• Mesquite Wind Holdings LLC
• Cimarron Solar Development LLC
• CBR Development Co. LLC
All such certificates shall be dated within five (5) business days of the closing date.
G. DTC Eligibility (Section 6(g))
The Underwriters accept C&H's proposed condition that the shares of Common Stock to be sold in the Offering must be eligible for book-entry transfer through The Depository Trust Company ("DTC"). We understand that Continental Shareowner Services, Inc., acting as the Company's transfer agent and registrar, will confirm DTC eligibility. Our contact for this purpose is Maria Costello, Vice President, Corporate Actions, at Continental Shareowner Services. We expect this condition to be satisfied in the ordinary course and do not anticipate any issues.
H. NYSE Listing Approval (Section 6(h))
The Underwriters accept C&H's proposed condition that the shares of Common Stock must be approved for listing on the New York Stock Exchange (the "NYSE") under the proposed ticker symbol "CBRI" (NYSE Application No. NYSE-2022-04218), subject only to official notice of issuance. We understand that the listing application has been filed and that the Company is engaged with the NYSE in the review process. The Underwriters will require written confirmation from the NYSE that the listing has been approved, subject only to official notice of issuance and satisfaction of any remaining administrative conditions, prior to the execution of the pricing agreement.
V. Covenants
A. Issuer Lock-Up (Section 4(a))
The Company has agreed that it will not, without the prior written consent of the Representative, directly or indirectly issue, sell, offer to sell, grant any option or right to purchase, or otherwise dispose of, or file any registration statement under the Securities Act with respect to, any shares of Common Stock or any securities convertible into or exchangeable or exercisable for shares of Common Stock, for a period of one hundred eighty (180) days following the date of the final prospectus. Calderwood & Harkness has proposed certain exceptions to this restriction, which the Underwriters accept as follows:
• Issuances under equity incentive plans: Issuances of shares of Common Stock or awards under the Company's 2022 Omnibus Equity Incentive Plan (with an initial share reserve of 12,727,273 shares) and the Company's 2022 Employee Stock Purchase Plan (with an initial share reserve of 2,545,455 shares) are permitted, provided that the recipients of such shares or awards are subject to lock-up agreements for the remainder of the Lock-Up Period (to the extent not already subject to such agreements).
• Acquisition-related issuances: Issuances of shares of Common Stock in connection with bona fide acquisitions, mergers, or similar transactions are permitted, provided that the recipients of such shares execute and deliver lock-up agreements for the remainder of the Lock-Up Period and that the aggregate number of shares so issued does not exceed five percent (5%) of the outstanding Common Stock immediately following the closing of the Offering.
• Form S-8 registrations: The filing of registration statements on Form S-8 with respect to shares of Common Stock issuable under the Company's employee benefit plans is permitted.
C&H has proposed an additional exception for issuances of shares of Common Stock upon the conversion, exercise, or exchange of securities outstanding as of the closing of the Offering. The Underwriters accept this exception, provided that all such securities are disclosed in the registration statement and that the shares of Common Stock issued upon such conversion, exercise, or exchange are subject to the lock-up restrictions for the remainder of the Lock-Up Period.
B. Use of Proceeds (Section 4(b))
Calderwood & Harkness has proposed a use-of-proceeds covenant requiring the Company to apply the net proceeds of the Offering in the manner described in the "Use of Proceeds" section of the prospectus. The Underwriters accept this covenant, which we understand will be consistent with the following disclosure:
• Approximately $200,000,000 to repay a portion of the outstanding indebtedness under the Term Loan B facility with Veltrano National Bank;
• Approximately $100,000,000 to fund the remaining construction costs of the Cimarron Solar project located in Doña Ana County, New Mexico; and
• Approximately $71,700,000 for general corporate purposes, including working capital, potential acquisitions, and the development of the Company's project pipeline.
The Underwriters have no material disagreement with this covenant. We note, however, that any material deviation from the stated use of proceeds following the closing of the Offering should be disclosed by the Company in its periodic reports filed with the SEC, consistent with Item 701 of Regulation S-K.
C. Ongoing Reporting Covenant (Section 4(c))
Calderwood & Harkness has proposed a covenant requiring the Company to provide the Underwriters with quarterly financial information and other updates during the period between the signing of the Underwriting Agreement and the closing of the Offering, consistent with the Company's status as an "emerging growth company" under the Jumpstart Our Business Startups Act (the "JOBS Act"). The Underwriters accept this covenant as proposed. We anticipate that, given the expected timeline to closing, this covenant will likely require only one interim reporting period.
VI. Indemnification and Contribution (Section 7)
A. Company Indemnification of the Underwriters (Section 7(a))
Calderwood & Harkness has proposed a cap on the Company's indemnification obligations to the Underwriters, equal to the aggregate net proceeds received by the Company from the Offering. The Underwriters respectfully decline this proposal. The Company's indemnification of the Underwriters is a core protection of the underwriting relationship and is, without exception, uncapped in market-standard IPO underwriting agreements. The Underwriters assume significant Section 11 and Section 12 liability under the Securities Act in connection with the Offering, and the Company's indemnification obligation is the primary mechanism by which the Underwriters are protected against losses arising from misstatements or omissions in the registration statement and prospectus for which the Company bears responsibility. Imposing a cap on this obligation would fundamentally alter the risk allocation between the parties and is inconsistent with the prevailing market standard across all sectors, including renewable energy. We note that neither the rating agencies, nor institutional investors, nor any of the other book-running managers would find a cap on issuer indemnification acceptable, and we strongly urge the Company to withdraw this request.
The Underwriters do accept the following two clarifications proposed by C&H with respect to Section 7(a):
First, the Underwriters accept the clarification that the Company's indemnification obligations do not extend to losses, claims, damages, or liabilities that are finally judicially determined to have resulted from the willful misconduct or gross negligence of the indemnified Underwriter. This is a customary and appropriate limitation.
Second, the Underwriters accept the exclusion of indemnification with respect to misstatements or omissions in the "Underwriter Information" (as defined in the Agreement), which information is the sole responsibility of the Underwriters.
B. Selling Stockholder Indemnification (Section 7(b))
Whitfield Archer & Doss LLP, on behalf of Pinnacle Vista Capital Partners III, LP, has proposed that the Selling Stockholder's indemnification obligations be capped at the aggregate net proceeds received by the Selling Stockholder from the sale of its secondary shares in the Offering. Based on the current terms (6,818,182 secondary shares at a public offering price of $22.00 per share, less the underwriting discount), the aggregate gross proceeds to the Selling Stockholder would be approximately $150,000,000 (before deduction of the Selling Stockholder's proportionate share of the underwriting discount). The Underwriters accept this cap, which is customary for selling stockholders in IPO transactions and reflects the principle that a selling stockholder's exposure should not exceed the economic benefit it derives from the Offering.
The Underwriters further accept that the Selling Stockholder's indemnification obligation is limited in scope to losses, claims, damages, or liabilities arising from misstatements or omissions in the "Selling Stockholder Information" — that is, information furnished in writing by or on behalf of the Selling Stockholder specifically for inclusion in the registration statement or the prospectus.
C. Underwriter Indemnification of the Company (Section 7(c))
Calderwood & Harkness has proposed standard reciprocal indemnification language pursuant to which each Underwriter, severally and not jointly, agrees to indemnify the Company and the Selling Stockholder against losses, claims, damages, and liabilities arising from misstatements or omissions in the "Underwriter Information." The Underwriters accept this provision as proposed, which is consistent with market practice.
D. Contribution (Section 7(d))
C&H has proposed a contribution provision pursuant to which, if indemnification is unavailable or insufficient to hold any indemnified party harmless, the indemnifying party shall contribute to the losses in such proportion as is appropriate to reflect the relative fault of the Company and the Selling Stockholder, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions that gave rise to the losses, as well as the relative benefits received by each party from the Offering. The Underwriters accept this provision, subject to the following cap: in no event shall the aggregate contribution obligation of the Underwriters exceed the total underwriting discount received by the Underwriters in the Offering (which, based on a discount of 5.50% and assuming full exercise of the overallotment option, equals $33,000,000).
The Underwriters further accept C&H's proposed language providing that contribution is available only to the extent that indemnification is determined to be unavailable or insufficient under applicable law, and that the contribution mechanism is not an alternative remedy to be elected in lieu of indemnification.
E. Notice and Procedures (Section 7(e))
Calderwood & Harkness has proposed procedural provisions for indemnification claims, which the Underwriters accept as follows:
Notice Period: An indemnified party shall provide written notice of any claim, action, suit, or proceeding for which indemnification may be sought to the indemnifying party within thirty (30) days after receipt of notice of such claim or the commencement of such action, suit, or proceeding. Failure to provide timely notice shall not relieve the indemnifying party of its obligations except to the extent the indemnifying party is materially prejudiced by such failure.
Selection of Counsel: If there exists an actual or potential conflict of interest between the indemnified party and the indemnifying party (including where the indemnified party has defenses available to it that are different from or additional to those available to the indemnifying party), the indemnified party shall have the right to retain separate counsel, at the indemnifying party's expense. However, in no event shall the indemnifying party be liable for the fees and expenses of more than one separate counsel (in addition to any local counsel) for all indemnified Underwriter parties in connection with any single action or group of related actions.
VII. Termination Provisions (Section 8)
A. Market-Out Clause (Section 8(a))
Calderwood & Harkness has requested that the market-out termination trigger in Section 8(a) be narrowed. The Underwriters respectfully decline to narrow this provision. The market-out clause is a core underwriter protection that is included in substantially all IPO underwriting agreements, and the Underwriters cannot agree to limitations on this right that would constrain the Representative's ability to protect the Underwriters and, by extension, the integrity of the Offering in the event of adverse market developments.
As currently drafted (reflecting C&H's insertion of the "reasonable judgment" standard, which the Underwriters accept — see below), the Representative shall have the right to terminate the Agreement at any time prior to the closing if, in the reasonable judgment of the Representative, there shall have occurred, since the date of the Underwriting Agreement or since the respective dates as of which information is given in the registration statement and the prospectus, any of the following:
(i) a material adverse change in the financial markets in the United States or internationally that, in the Representative's reasonable judgment, makes it impracticable or inadvisable to proceed with the Offering;
(ii) a general suspension or material limitation of trading on the New York Stock Exchange, the Nasdaq Stock Market, or in the over-the-counter market;
(iii) a general moratorium on commercial banking activities declared by federal or New York State authorities;
(iv) an outbreak or escalation of hostilities or other national or international calamity involving the United States; or
(v) any other event or condition of such a character that, in the Representative's reasonable judgment, makes it impracticable or inadvisable to market, price, or deliver the shares on the terms contemplated by the prospectus.
We note that C&H has proposed replacing the "sole judgment" standard in the initial draft with a "reasonable judgment" standard. The Underwriters accept this modification. While the "sole judgment" formulation appears in some precedent underwriting agreements, the Underwriters are comfortable with a "reasonable judgment" standard, which requires that the Representative's exercise of the market-out be grounded in an objectively reasonable assessment of market conditions or other developments. This is a commercially reasonable compromise that addresses the Company's concern without materially impairing the Underwriters' ability to exercise the market-out in appropriate circumstances.
B. Termination for Material Adverse Effect (Section 8(b))
Calderwood & Harkness has proposed that the "Material Adverse Effect" standard used for purposes of the termination right in Section 8(b) track the definition agreed upon in Section 1(c) of the Agreement, including all carve-outs and qualifications described in Part II.C of this letter. The Underwriters accept this approach, which ensures consistency throughout the Agreement and avoids the interpretive difficulties that could arise if different definitions of Material Adverse Effect were used for different purposes.
C. Termination for Failure of Conditions (Section 8(c))
Section 8(c) provides that the Representative may terminate the Agreement if any condition to the Underwriters' obligations set forth in Section 6 of the Agreement has not been satisfied or waived on or before the closing date. This is a standard provision, and the Underwriters accept C&H's language as drafted.
D. Effect of Termination (Section 8(d))
Calderwood & Harkness has proposed language regarding the effect of termination, which the Underwriters accept. Upon any termination of the Agreement pursuant to Section 8, the Underwriters shall have no liability to the Company or the Selling Stockholder, except that the Company shall reimburse the Underwriters for their expenses as provided in Section 5 of the Agreement. In addition, the indemnification and contribution obligations of the Company and the Selling Stockholder under Section 7 shall survive any termination of the Agreement, which is essential to ensure that the Underwriters remain protected against claims arising from the registration statement and prospectus notwithstanding the termination of the Offering.
VIII. Expenses (Section 5)
Calderwood & Harkness has proposed an expense-allocation provision, which the Underwriters accept with the following understandings:
General Allocation. The Company shall bear all expenses incurred in connection with the Offering, except for the legal fees and out-of-pocket expenses of counsel to the Underwriters (which shall be borne by the Underwriters). Company expenses include, without limitation, the following:
• SEC registration and filing fees;
• NYSE listing fees in connection with Application No. NYSE-2022-04218;
• FINRA filing fees in connection with Filing No. 20221129-01;
• Financial printing costs payable to Ridgeway Financial Printing Corp.;
• Transfer agent and registrar fees payable to Continental Shareowner Services, Inc.;
• Blue Sky qualification and filing fees;
• Fees and expenses of issuer's counsel (Calderwood & Harkness LLP);
• Fees and expenses of the independent registered public accounting firm (Ashford & Pemberton LLP);
• Directors' and officers' insurance premiums; and
• Road show and investor-presentation expenses.
Underwriter Expense Reimbursement. The Company agrees to reimburse the Underwriters for FINRA-related expenses incurred in connection with the clearance of the underwriting terms and arrangements by FINRA, subject to a cap of $350,000 in the aggregate. This cap was agreed upon during the organizational meeting on March 28, 2022, and the Underwriters confirm it remains acceptable.
Selling Stockholder Expenses. C&H has proposed that the Selling Stockholder bear its own counsel fees (i.e., the fees and expenses of Whitfield Archer & Doss LLP) and its pro rata share of any transfer taxes applicable to the sale of the Selling Stockholder's secondary shares. The Underwriters accept this allocation, which is customary for selling stockholders in IPO transactions.
IX. Overallotment Option (Section 2)
Calderwood & Harkness has proposed language for the overallotment option (the "Greenshoe") in Section 2 of the Agreement. The Underwriters accept this language, and we summarize the key terms below for the avoidance of doubt:
• Option size: Up to 3,559,091 additional shares of Common Stock (representing 15% of the base offering shares), to be offered at the public offering price of $22.00 per share, less the underwriting discount of 5.50% (net price to Company: $20.79 per share).
• Exercise period: The option is exercisable, in whole or in part and from time to time, within thirty (30) days following the date of the final prospectus.
• Source of shares: The overallotment shares will be newly issued primary shares sold by the Company. The Selling Stockholder does not grant an overallotment option.
• Total shares upon full exercise: 27,272,727 shares of Common Stock (23,713,636 base offering shares plus 3,559,091 overallotment shares).
• Total offering size upon full exercise: $600,000,000 (based on the public offering price of $22.00 per share).
X. FINRA Compliance Matters (Section 9)
Calderwood & Harkness has proposed FINRA compliance representations, which the Underwriters accept. We confirm the following:
The total underwriting compensation is consistent with the requirements of FINRA Rule 5110 and does not exceed the maximum permissible underwriting compensation thereunder. The total underwriting discount is 5.50% of the aggregate public offering price, which equals $33,000,000 assuming full exercise of the overallotment option. This discount is allocated among the syndicate members as follows:
• Management fee: 20% ($6,600,000)
• Underwriting fee: 20% ($6,600,000)
• Selling concession: 60% ($19,800,000)
The underwriter expense reimbursement is capped at $350,000 and will be included in the computation of total underwriting compensation for purposes of Rule 5110.
We accept C&H's note that the FINRA corporate financing application (Filing No. 20221129-01) has been filed with FINRA's Corporate Financing Department and is currently pending review. We understand that the Company and its counsel are cooperating with any requests for additional information from FINRA, and we encourage prompt attention to any such requests to avoid delays in the clearance of the underwriting terms.
The Underwriters confirm that, to the best of their knowledge, no Underwriter is a "FINRA-restricted person" with respect to the Company, Pinnacle Vista Capital Partners III, LP, Pinnacle Vista Capital Management LLC, or any of their respective affiliates, within the meaning of FINRA Rule 5110.
XI. Share Allocation and Syndicate Matters
The Underwriters confirm the following share allocation for the base offering (excluding the overallotment option), which is subject to adjustment upon execution of the pricing agreement:
The foregoing allocations reflect the syndicate economics as agreed during the organizational meeting on March 28, 2022. Final allocations will be confirmed in the Agreement Among Underwriters ("AAU") and the pricing agreement, each of which will be executed at pricing. Any adjustments to the allocations set forth above will be made by the Representative in consultation with the syndicate members.
XII. Miscellaneous and Governing Law