1015-00001 · Graymont Brothers Inc · Transaction Documents/Underwriting

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CALDERWOOD & HARKNESS LLP

Attorneys at Law

599 Lexington Avenue New York, NY 10022

Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com

April 22, 2022

VIA EMAIL AND HAND DELIVERY

Margaret Yee, Esq. Partner, Capital Markets Prescott, Danforth & Yee LLP 1271 Avenue of the Americas New York, NY 10020

Re: Proposed Initial Public Offering of Common Stock of Calloway-Briggs Renewables Inc. — Comments on Initial Draft Underwriting Agreement

C&H Matter No. 1015-00001

Dear Ms. Yee:

We write on behalf of our client, Calloway-Briggs Renewables Inc., a Delaware corporation ("CBR" or the "Company"), headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746, in connection with the proposed initial public offering (the "IPO" or the "Offering") of shares of common stock of the Company, par value $0.01 per share (the "Common Stock"), on the New York Stock Exchange (proposed ticker symbol: CBRI). The aggregate offering size, inclusive of the overallotment option, is expected to be approximately $600,000,000.

We acknowledge receipt of the initial draft Underwriting Agreement (the "Draft Agreement") circulated by your firm on behalf of the several underwriters on or about April 18, 2022. As you are aware, the Draft Agreement contemplates the underwriting arrangement among CBR, as issuer, Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista" or the "Selling Stockholder"), as selling stockholder, and the several underwriters named therein (collectively, the "Underwriters"), with Hargrove Keating & Co. acting as representative of the Underwriters and lead-left book-running manager (in such capacity, the "Representative").

This letter sets forth the Company's comments and requested revisions to the Draft Agreement. A marked-up copy of the Draft Agreement reflecting our proposed revisions (in blackline format) is enclosed herewith for your review. Our comments are organized below by subject matter for ease of reference. Certain additional marked changes reflected in the enclosed blackline are self-explanatory or ministerial in nature and are not separately addressed in this letter. We trust that those changes will be non-controversial, but we are of course available to discuss any of them should questions arise.

I. Offering Structure and Economics

A. Offering Size and Share Calculations

We confirm our agreement with the overall structure of the Offering as set forth in the Draft Agreement, which contemplates: (i) a base offering of approximately 23,713,636 shares of Common Stock at an assumed midpoint public offering price of $22.00 per share, representing aggregate gross proceeds of approximately $521,700,000; plus (ii) a 15% overallotment option (the "Overallotment Option") covering approximately 3,559,091 additional shares, representing approximately $78,300,000 at the assumed midpoint price, for an aggregate offering size of approximately $600,000,000 (27,272,727 total shares assuming full exercise of the Overallotment Option).

With respect to the capitalization of the Company, we note for the record that the Company has 100,000,000 shares of Common Stock outstanding on a fully diluted, post-reclassification basis immediately prior to the Offering. Following the completion of the base offering (but excluding the Overallotment Option), the Company will have 123,713,636 shares of Common Stock outstanding; upon full exercise of the Overallotment Option, the Company will have 127,272,727 shares of Common Stock outstanding. We request that these figures be confirmed and reflected consistently throughout the Draft Agreement, the pricing agreement, and all schedules and exhibits thereto.

We further confirm that the Offering comprises both a primary and a secondary component. The secondary component consists of 6,818,182 shares of Common Stock being offered by the Selling Stockholder, Pinnacle Vista Capital Partners III, LP, representing aggregate gross proceeds of approximately $150,000,000 at the assumed midpoint price. The primary component consists of 16,895,455 shares of newly issued Common Stock to be sold by the Company, representing aggregate gross proceeds of approximately $371,700,000 at the assumed midpoint price. We have reviewed the relevant provisions of the Draft Agreement and confirm that the primary and secondary components appear to be correctly reflected; however, we request that the par value of $0.01 per share be verified and stated consistently in each instance where shares are referenced throughout the Draft Agreement.

B. Gross Spread

We confirm the proposed gross spread of 5.50% of the aggregate public offering price, which would result in a total underwriting discount of approximately $33,000,000 on full exercise of the Overallotment Option (or approximately $28,693,500 on the base offering alone). This rate is within the range we have observed in recent comparable renewables-sector and infrastructure IPOs of similar size and is acceptable to the Company, subject to the following comments.

We request clarification with respect to the allocation of the gross spread among its three customary components: the management fee, the underwriting fee, and the selling concession. Based on the organizational meeting discussion, our understanding is that the allocation is as follows: 20% management fee ($6,600,000), 20% underwriting fee ($6,600,000), and 60% selling concession ($19,800,000), in each case calculated on the basis of the full-exercise gross spread of $33,000,000. The Draft Agreement does not expressly set forth this allocation. We request that the allocation be specified either in the pricing agreement template or in a schedule to the Underwriting Agreement, in order to provide certainty for purposes of expense reconciliation and FINRA Rule 5110 compliance reporting.

Additionally, the underwriter share allocation percentages among the several Underwriters should be set forth in Schedule A to the Underwriting Agreement. Based on our understanding from the organizational meeting, the allocation is as follows:

We request that your firm confirm the foregoing allocation and that it be reflected in Schedule A to the final Underwriting Agreement.

C. Underwriter Expense Reimbursement

We note that the Draft Agreement provides for reimbursement by the Company of certain expenses incurred by the Underwriters in connection with the Offering. We request that the expense reimbursement cap of $350,000, which we understand to be limited to FINRA review-related costs, be clearly designated as such and stated to be inclusive of all FINRA filing fees, outside FINRA counsel fees, and all other costs and expenses relating to or arising from the FINRA corporate financing review process. The Draft Agreement should further specify that any expenses incurred by the Underwriters in connection with the FINRA review in excess of the $350,000 cap shall be the sole responsibility of the Underwriters and shall not be subject to reimbursement by the Company or the Selling Stockholder. We cross-reference our additional comments regarding FINRA Rule 5110 compliance in Section VIII below.

II. Material Adverse Effect Definition

We identify the definition of "material adverse effect" (or "Material Adverse Effect") as one of the most significant areas of comment on the Draft Agreement. This definition is central to several provisions of the Underwriting Agreement, including the bring-down closing condition, the termination provisions, and the scope of certain representations and warranties, and we believe it requires careful revision to reflect prevailing market practice and to account for the specific characteristics of CBR's business and the renewable-energy sector.

A. Scope of MAE Definition

The Draft Agreement defines "material adverse effect" to cover any event, change, occurrence, condition, 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.

We have two principal concerns with this formulation. First, with respect to prong (a), the current definition is overbroad in that it references "assets" and "properties" without qualification, which could be read to sweep in changes affecting individual assets (such as a single solar or wind project) that do not, in the aggregate, have a material impact on the Company's overall business, financial condition, or results of operations. Given that CBR operates a diverse portfolio of renewable-energy assets across multiple states and technologies, changes affecting particular assets should not independently constitute a "material adverse effect" unless they rise to the level of a company-wide impact. We propose that prong (a) be revised to read: "a material adverse effect on the business, financial condition, or results of operations of the Company and its subsidiaries, taken as a whole." This formulation is consistent with prevailing market practice in renewables-sector IPOs that we have reviewed, including several comparable transactions completed in 2021 and early 2022.

Second, to the extent the Draft Agreement includes "prospects" within the scope of the MAE definition (and we note that the term "prospects" appears in certain places in the Draft Agreement), we object to its inclusion and request its deletion. The term "prospects" is inherently forward-looking and introduces an unacceptable degree of uncertainty into the MAE standard. The inclusion of "prospects" would effectively allow the Underwriters to invoke a termination right or decline to close based on subjective assessments of the Company's future performance, which is inconsistent with the established purpose of the MAE definition as a backward-looking and present-tense standard. We are not aware of any recent renewables-sector or energy-infrastructure IPO of comparable size in which the MAE definition included "prospects," and we request that the term be deleted in its entirety.

B. Carve-Outs. The Draft Agreement includes certain carve-outs from the MAE definition, which is appropriate. However, we believe that the existing carve-outs are insufficient and require supplementation and refinement to reflect market practice and the specific risks inherent in CBR's business. We request that the following carve-outs be expressly stated in the MAE definition (certain of which are present in the Draft Agreement in some form but need to be revised or supplemented):

(i) General Economic and Market Conditions. Changes in general economic or market conditions in the United States or globally, including changes in prevailing interest rates, commodity prices (including natural gas, power, and renewable energy credit prices), foreign currency exchange rates, inflation rates, or credit markets.

(ii) Changes in Accounting Standards or Applicable Law. Changes in generally accepted accounting principles ("GAAP") or in applicable laws, rules, or regulations (including federal, state, and local tax laws), or the interpretation or enforcement thereof, in each case after the date of the Underwriting Agreement.

(iii) Changes Affecting the Renewable-Energy Industry. Changes or conditions generally affecting the renewable-energy, electric utility, or independent power producer industries in the United States, including (without limitation) changes in government subsidies or incentive programs, changes in investment tax credit ("ITC") or production tax credit ("PTC") policy, changes in renewable portfolio standards or clean energy standards, changes in interconnection queue procedures, backlogs, or policies, changes in power purchase agreement pricing trends, and changes in the availability or cost of renewable-energy equipment or materials.

(iv) Natural Disasters, Pandemics, and Geopolitical Events. Natural disasters, weather events (including hurricanes, tornadoes, floods, droughts, wildfires, and extreme temperatures), pandemics, epidemics, disease outbreaks, or public health emergencies (including COVID-19 and any variants thereof), or acts of war, armed hostilities, sabotage, cyberattack, terrorism, or military action (or any escalation or worsening of any of the foregoing), or any governmental response thereto (including sanctions, embargoes, and trade restrictions).

(v) Announcement or Pendency of the Offering. Changes or effects resulting from the announcement, disclosure, or pendency of the IPO or the transactions contemplated by the Underwriting Agreement, including any impact on the Company's relationships with its customers, suppliers, lenders, financing counterparties, joint-venture partners, interconnection counterparties, offtakers, tax-equity investors, employees, or governmental authorities.

(vi) Changes in Stock Price or Credit Rating. Changes in the trading price or trading volume of the Company's Common Stock after listing on the NYSE, or any change in the Company's credit ratings or the credit ratings of its indebtedness or securities (it being understood and agreed that the underlying causes of any such change may be taken into account in determining whether a Material Adverse Effect has occurred, to the extent such underlying causes are not otherwise excluded by any of the carve-outs set forth herein).

(vii) Failure to Meet Projections or Estimates. Any failure by the Company to meet any internal or published projections, forecasts, estimates, or predictions of revenue, earnings, cash flow, generation output, or other financial or operational metrics for any period (it being understood and agreed that the underlying causes of any such failure may be taken into account in determining whether a Material Adverse Effect has occurred, to the extent such underlying causes are not otherwise excluded by any of the carve-outs set forth herein).

In each case, the carve-out should apply unless the relevant event, change, occurrence, condition, or development has a disproportionate adverse impact on the Company and its subsidiaries, taken as a whole, relative to other companies of similar size operating in the renewable-energy sector in the United States. We note that the Draft Agreement's current formulation of the "disproportionate impact" qualifier refers to "similarly situated companies," which is vague and could give rise to disputes regarding the appropriate comparison group. We request that the qualifier be revised to reference "other companies of similar size operating in the renewable-energy sector in the United States," which provides a more concrete and commercially reasonable standard for comparison.

We specifically flag that carve-out (iii) above — the renewables-industry carve-out — is of critical importance to the Company. CBR's business is significantly exposed to federal and state tax credit policy, and its economics are directly affected by the availability and terms of the ITC and PTC under Sections 48 and 45 of the Internal Revenue Code. Across its 3.8 GW operating portfolio and 6.2 GW development pipeline, CBR relies on tax credits as a fundamental component of project-level economics and tax-equity financing structures. Any legislative or regulatory change to the ITC/PTC framework — whether an extension, modification, phase-down, or elimination — would affect the entire renewable-energy industry, not the Company alone. Accordingly, such changes should be excluded from the MAE definition unless they disproportionately affect CBR relative to its peers, as described above.

C. Interaction with Bring-Down Condition

We note that the MAE definition, as revised in accordance with our comments above, interacts directly with the closing condition set forth in the Draft Agreement requiring delivery of an officer's certificate (to be signed by Garrett Calloway, Chief Executive Officer, and Marcus Yoon, Chief Financial Officer) confirming, among other things, that no Material Adverse Effect has occurred since the date of the Underwriting Agreement.

We request that the bring-down representation and the officer's certificate condition reference "no Material Adverse Effect" as a defined term (with all of the carve-outs discussed above), rather than employing a broader or undefined formulation such as "no material adverse change" or "no event that could reasonably be expected to have a material adverse effect." The defined term, with its negotiated carve-outs, should control the scope of the bring-down obligation. This is essential to ensure consistency between the MAE definition and the closing conditions and to avoid creating an obligation that is, in substance, broader than the parties have agreed.

III. Representations and Warranties of the Company

A. General Comments on Scope

We acknowledge that the representations and warranties of the Company set forth in the Draft Agreement are broadly consistent with market practice for an initial public offering of this size. Nonetheless, we have a number of comments and proposed revisions, which we describe below.

As a threshold matter, we request that all representations and warranties of the Company be qualified by a materiality or "Material Adverse Effect" threshold to the extent they are not already so qualified. Flat, unqualified representations expose the Company to unnecessary risk and are inconsistent with the standards typically applied in IPO underwriting agreements of this size. We recognize that certain representations — including those relating to due organization and good standing, corporate authority and authorization, and the valid issuance of the shares to be sold in the Offering — are customarily given on an unqualified basis, and we do not object to that formulation for those specific representations. However, for all other representations, including those relating to compliance with laws, material contracts, tax matters, intellectual property, and environmental matters, we request that appropriate materiality or MAE qualifiers be inserted.

With respect to representations relating to the Company's subsidiaries, we note that the Draft Agreement defines "Subsidiaries" broadly to include all entities in which the Company holds a direct or indirect controlling interest. Given the number of special-purpose entities, project-level subsidiaries, and intermediate holding companies in CBR's corporate structure, many of which are dormant, de minimis, or single-asset entities, we request that the definition of "Subsidiaries" for purposes of the representations and warranties be limited to the ten material subsidiaries that are scheduled in the S-1 Registration Statement:

1. CBR Holdings LLC

2. Calloway-Briggs Operating Company LLC

3. Solaris West Solar LLC

4. Red Mesa Wind Energy LLC

5. Painted Rock Solar LLC

6. Pronghorn Wind LLC

7. Brazos Energy Storage LLC

8. Mesquite Wind Holdings LLC

9. Cimarron Solar Development LLC

10. CBR Development Co. LLC

At a minimum, the definition should track the subsidiaries listed in the S-1 Registration Statement and should not purport to sweep in entities that are not described or identified therein.

B. Specific Representation Comments

Financial Statements. The representation regarding the Company's financial statements should reference the audited consolidated financial statements of the Company for fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021, and the unaudited interim condensed consolidated financial data for the quarter ended March 31, 2022 (Q1 2022), in each case as included in the Registration Statement on Form S-1. These financial statements have been audited (or, in the case of Q1 2022, reviewed) by Ashford & Pemberton LLP, with Gregory Sondheim serving as the lead engagement partner. We request that the representation be clarified to state that the Company is representing that the financial statements "as they appear in the Registration Statement" comply with GAAP in all material respects and present fairly in all material respects the financial position and results of operations of the Company for the periods indicated, rather than constituting a freestanding or independent GAAP compliance representation that could be construed to extend beyond the financial statements as included in the Registration Statement. This distinction is important because the representation should not be read to impose a warranty as to the accuracy of the Company's underlying books and records apart from the audited and reviewed financial statements set forth in the Registration Statement.

No Material Adverse Change. The Draft Agreement includes a representation that, since a specified date, there has been no material adverse change in the business, properties, financial condition, or results of operations of the Company and its subsidiaries. We request that the measurement date for this representation be December 31, 2021, which is the end of the most recently completed fiscal year for which audited financial statements are included in the Registration Statement. The Draft Agreement currently references an earlier date, which would extend the look-back period and increase the Company's exposure without corresponding benefit to the Underwriters. Additionally, this representation should be subject to all of the MAE carve-outs discussed in Section II above, and the representation should reference the defined term "Material Adverse Effect" rather than employing standalone language.

Tax Matters. Given the significant complexity of CBR's tax-equity financing structures, which are central to the Company's business model and project-level economics, the tax representation requires careful calibration. The Company's tax-equity structures include, among others, the Solaris West partnership flip arrangement with Veltara Basin Financial LLC, in which Veltara Basin Financial LLC has invested $280,000,000 and which is structured to flip in 2028 upon achievement of a target return, as well as ITC and PTC positions claimed across the Company's operating portfolio. We request that the tax representation be qualified by the formulation "except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect." In addition, the Company should not be required to represent or warrant with respect to tax positions taken by tax-equity investors in the Company's projects, as the Company does not control the tax filings or positions of those counterparties. We are available to discuss the appropriate scope of the tax representation in greater detail with the assistance of our tax partner, Leonard Cross.

Environmental and Regulatory Compliance. CBR operates renewable-energy generation, transmission, and storage facilities across Texas, New Mexico, Arizona, California, and Oklahoma. The Company's projects are subject to a broad range of federal, state, and local environmental and regulatory requirements. Phase I and Phase II environmental site assessments have been conducted for the Company's material projects by Greenridge Environmental Sciences LLC. We request that the compliance representations relating to environmental matters be qualified by materiality and limited to compliance "in all material respects" with applicable environmental laws. An unqualified compliance representation would expose the Company to potential liability for immaterial violations or technical infractions that do not and could not affect the Company's business, financial condition, or results of operations in any meaningful respect.

intellectual Property. The Draft Agreement includes a representation that the Company "owns or has valid rights to all intellectual property necessary for its business." This representation is flat and unqualified. Given that the Company's business is the development, construction, and operation of renewable-energy projects (rather than a technology-centric business for which intellectual property is a core asset), a flat intellectual property representation is inappropriate and disproportionate to the role that intellectual property plays in the Company's operations. We request that this representation be qualified by a materiality threshold — for example, "the Company owns or has valid rights to all intellectual property material to the conduct of its business as currently conducted" — or, alternatively, that the representation be deleted and replaced with a narrower representation to the effect that the Company is not aware of any intellectual property infringement claims that would reasonably be expected to have a Material Adverse Effect.

Existing Indebtedness. The Draft Agreement includes a representation regarding the Company's existing indebtedness. We request that this representation accurately reference the Company's material financing arrangements, which include the following:

(a) Corporate Revolving Credit Facility: $400,000,000 revolving credit commitment, with Veltrano National Bank, N.A. as Administrative Agent, maturing January 2027;

(b) Term Loan B: $650,000,000 original principal amount ($612,500,000 currently outstanding), with Veltrano National Bank, N.A. as Administrative Agent, maturing January 2029;

(c) Mesquite Wind Construction Facility: $165,000,000 construction-to-term loan facility, with Prairie Commercial Bank, N.A. as Administrative Agent, with mandatory conversion to term loan in December 2024;

(d) Cimarron Solar Construction Facility: $143,000,000 construction-to-term loan facility, with Prairie Commercial Bank, N.A. as Administrative Agent, with mandatory conversion to term loan in March 2025; and

(e) Solaris West Tax-Equity Partnership: $280,000,000 invested by Veltara Basin Financial LLC in a partnership flip structure, with anticipated flip date in 2028.

We request that the indebtedness representation be limited to "material indebtedness" (as defined or described in the Registration Statement) and not extend to de minimis obligations, intercompany payables, or ordinary-course trade payables.

C. Representations of the Selling Stockholder

We note that the representations and warranties of the Selling Stockholder, Pinnacle Vista Capital Partners III, LP, are currently under separate review by Whitfield Archer & Doss LLP, which serves as counsel to Pinnacle Vista. Philip Archer and Christine Navarro of that firm are coordinating with us on these provisions. The Company reserves the right to supplement its comments with respect to the selling-stockholder representations and warranties following the completion of that coordination.

At this time, we request that the selling-stockholder representations be drafted as self-contained provisions within the Underwriting Agreement and that the Company not be required to provide any cross-indemnification for, or make any representations or warranties with respect to, the accuracy or completeness of the Selling Stockholder's own representations and warranties. Each party should be responsible solely for its own representations and warranties and the information it furnishes in connection with the Offering.

IV. Covenants

A. Issuer Lock-Up

The Draft Agreement includes an issuer lock-up provision that restricts the Company from issuing, selling, offering to sell, contracting to sell, granting any option to purchase, or otherwise disposing of, or registering under the Securities Act, any shares of Common Stock or any securities convertible into or exchangeable for Common Stock, for a period of 180 days following the date of the final prospectus, without the prior written consent of the Representative.

While we acknowledge that an issuer lock-up of this duration is customary in IPOs of this size, we request that the following carve-outs to the issuer lock-up be included (some of which are present in the Draft Agreement in some form but require refinement or clarification):

(a) Equity Incentive Plan Issuances. Issuances of shares of Common Stock (including upon the exercise of stock options, settlement of restricted stock units, or grants of restricted stock awards) under the Company's 2022 Omnibus Equity Incentive Plan, which has a share reserve of 12,727,273 shares (representing approximately 10% of post-IPO outstanding shares on a fully-exercised basis of 127,272,727 shares), and the Company's 2022 Employee Stock Purchase Plan, which has a share reserve of 2,545,455 shares (representing approximately 2% of post-IPO outstanding shares on a fully-exercised basis).

(b) Acquisition-Related Issuances. Issuances of shares of Common Stock (or securities convertible into or exchangeable for Common Stock) as consideration in connection with bona fide acquisitions, mergers, joint ventures, or strategic transactions, subject to a cap to be negotiated. The Company proposes a cap of up to 5% of post-IPO outstanding shares (approximately 6,363,636 shares on a fully-exercised basis), which provides the Company with appropriate flexibility to pursue growth opportunities during the lock-up period while limiting dilution. We note that the recipients of any such shares should be required to execute a lock-up agreement for the remainder of the 180-day lock-up period as a condition to such issuance.

(c) Conversion or Exchange of Outstanding Securities. Issuances of shares of Common Stock upon the conversion, exchange, or exercise of securities that are outstanding on the date of the Underwriting Agreement, including any convertible notes, warrants, or other convertible instruments.

(d) Form S-8 Registration. The filing of a registration statement on Form S-8 (or any successor form) with respect to the shares of Common Stock reserved for issuance under the Company's equity incentive plans described in clause (a) above.

(e) Exercise of Outstanding Options / Settlement of RSUs. Issuances of shares of Common Stock upon the exercise of stock options or settlement of restricted stock units that are outstanding on the date of the final prospectus, in each case in accordance with the terms of such awards as described in the Registration Statement.

In addition, we request that the issuer lock-up provision expressly provide that it shall not restrict the Company from repurchasing shares of Common Stock from terminated employees (or their estates or legal representatives) pursuant to the terms of the Company's equity incentive plans or individual award agreements, at the lower of cost or fair market value as of the date of such repurchase. Such repurchases are a customary feature of equity incentive plans and do not implicate the concerns underlying the issuer lock-up.

B. Individual Lock-Up Agreements

The Draft Agreement references the form of lock-up agreement (the "Lock-Up Agreement") to be executed by the Company's directors, executive officers, and holders of 1% or more of the Company's pre-IPO Common Stock. We understand that approximately 18 persons and entities are required to execute Lock-Up Agreements.

The Lock-Up Agreement provides for a lock-up period of 180 days following the date of the final prospectus, with early release permitted only upon the prior written consent of Hargrove Keating & Co. (as Representative) or the occurrence of a change of control of the Company. We have the following comments and requests regarding the form of Lock-Up Agreement:

(a) Transfers to Affiliates and Family Members. The Lock-Up Agreement should permit transfers of shares to affiliates of the locked-up party, including transfers to members of the locked-up party's immediate family, transfers to trusts established for the benefit of the locked-up party or members of the locked-up party's immediate family for estate-planning purposes, and transfers to entities wholly owned by the locked-up party or members of the locked-up party's immediate family; provided, in each case, that the transferee agrees to be bound by the terms of the Lock-Up Agreement for the remainder of the lock-up period by executing a joinder or a separate Lock-Up Agreement in the form attached to the Underwriting Agreement.

(b) Adoption of 10b5-1 Trading Plans. The Lock-Up Agreement should permit the locked-up party to establish or adopt a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 during the lock-up period, provided that no sales or other dispositions of shares shall be made under any such plan until after the expiration of the lock-up period. This carve-out is important to enable directors and officers to establish pre-planned trading programs in advance of the opening of trading windows following the lock-up period.

(c) Pledges as Collateral. The Lock-Up Agreement should permit the locked-up party to pledge shares to a financial institution as collateral for a bona fide loan or other credit facility, provided that any foreclosure, sale, or other disposition of such pledged shares during the lock-up period shall remain subject to the restrictions of the Lock-Up Agreement.

(d) Transfers by Operation of Law. The Lock-Up Agreement should expressly permit transfers that occur by operation of law, including transfers pursuant to a qualified domestic relations order, transfers by reason of death (whether by will, intestate succession, or otherwise), and transfers pursuant to a court order or divorce decree, provided that the transferee agrees to be bound by the terms of the Lock-Up Agreement.

These carve-outs are consistent with the lock-up provisions described in the Registration Statement and should be reflected in the final form of Lock-Up Agreement for all 18 signatories. We note that as of the date of this letter, the lock-up execution tracking process is underway and is being managed by Calderwood & Harkness. We will coordinate with your firm and the Representative on the logistics of obtaining executed Lock-Up Agreements from all required parties in advance of the pricing date.

C. Cooperation with Comfort Letter and Auditor Access

We request that the covenant regarding cooperation with the comfort letter process be revised to specify that the Underwriters and their counsel are entitled to three comfort letter circle-ups: (i) an initial comfort letter, to be delivered on or prior to the effective date of the Registration Statement, (ii) a bring-down comfort letter, to be delivered on the closing date of the Offering, and (iii) a pricing comfort letter, to be delivered on the pricing date. This is consistent with the timetable discussed and agreed upon at the organizational meeting held on April 5, 2022. To the extent the Underwriters request additional circle-ups beyond the three specified above, the cost and expense of any such additional circle-up shall be borne solely by the Underwriters and shall not be an obligation of the Company.

The comfort letters are being provided by Ashford & Pemberton LLP in accordance with the procedures set forth in Statement on Auditing Standards No. 72 (SAS 72) and AU-C Section 920, and will cover the audited consolidated financial statements of the Company for fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021, as well as the unaudited interim condensed consolidated financial data for the quarter ended March 31, 2022.

V. Conditions to Closing

A. Officer's Certificate

The Draft Agreement conditions closing on the delivery by the Company of an officer's certificate, to be signed by Garrett Calloway, Chief Executive Officer, and Marcus Yoon, Chief Financial Officer, confirming: (a) the accuracy of the representations and warranties of the Company at and as of the closing date (or, in the case of representations and warranties that speak as of a specific date, as of such date), (b) the performance of the covenants and obligations of the Company to be performed on or prior to the closing date, and (c) that no Material Adverse Effect has occurred since the date of the Underwriting Agreement.

As discussed in Section II.C above, we reiterate our request that the "no Material Adverse Effect" bring-down in the officer's certificate reference the defined term "Material Adverse Effect" (with all of the negotiated carve-outs), rather than a broader or undefined formulation. Consistency between the officer's certificate condition and the MAE definition is essential.

In addition, we suggest that the form of officer's certificate (which we understand will be circulated separately as Exhibit B to the Underwriting Agreement) include express cross-references to the specific representations and warranties in the Underwriting Agreement being confirmed, to provide clarity and to ensure that the officers are able to provide the certificate with confidence.

B. Secretary's Certificate

The Draft Agreement conditions closing on the delivery of a secretary's certificate by Sandra Haverford, General Counsel and Corporate Secretary of the Company, certifying the incumbency and signatures of the officers of the Company authorized to execute the Underwriting Agreement and related documents, and attaching certified copies of (i) the Amended and Restated Certificate of Incorporation of the Company (to be effective upon completion of the IPO), (ii) the Amended and Restated Bylaws of the Company (to be effective upon completion of the IPO), and (iii) the relevant resolutions of the Board of Directors and stockholders of the Company authorizing the Offering and the execution and delivery of the Underwriting Agreement and related documents.

We have no material comment on this condition and confirm that it is standard.

C. Legal Opinions

The Draft Agreement conditions closing on the delivery of the following legal opinions:

(a) Issuer's Counsel Opinion. A legal opinion of Calderwood & Harkness LLP, as counsel to the Company, addressed to the Underwriters, covering customary matters including the enforceability of the Underwriting Agreement, the valid issuance and non-assessability of the shares of Common Stock to be sold in the Offering, the absence of conflicts with the Company's organizational documents and applicable laws, due authorization by the Company, and such other matters as are customary in opinions delivered in connection with initial public offerings.

(b) Underwriters' Counsel Opinion. A legal opinion of Prescott, Danforth & Yee LLP, as counsel to the Underwriters. The scope of this opinion is to be confirmed by your firm.

(c) Tax Opinion. A tax opinion of Calderwood & Harkness LLP regarding material U.S. federal income tax consequences of the Offering and the ownership of the Common Stock, to be prepared under the supervision of Leonard Cross.

We request that the legal opinion condition be revised to specify that the opinions delivered pursuant to the foregoing shall be "in form and substance reasonably satisfactory to the Underwriters" rather than merely "satisfactory" to the Underwriters. The insertion of the word "reasonably" is a standard and customary qualifier that ensures the Underwriters may not withhold their satisfaction in an arbitrary or unreasonable manner. We believe this revision is consistent with market practice.

D. Comfort Letter

The Draft Agreement conditions closing on the delivery of the comfort letter from Ashford & Pemberton LLP, in both its initial and bring-down forms. We have no substantive comment on this condition, as the scope and procedures for the comfort letter are being coordinated separately between the auditors and underwriters' counsel.

E. Good-Standing Certificates

The Draft Agreement conditions closing on the delivery of certificates of good standing (or equivalent certificates) for the Company from the Secretary of State of the State of Delaware (the Company's jurisdiction of incorporation) and the Secretary of State of the State of Texas (the Company's principal place of business), and for the Company's material subsidiaries from their respective jurisdictions of formation.

We request that this condition be limited to the Company itself and its material subsidiaries (as listed in Section III.A above) and not extended to all of the Company's subsidiaries, many of which are dormant, de minimis, or single-asset entities for which the cost and administrative burden of obtaining good-standing certificates would be disproportionate to any benefit to the Underwriters.

F. Listing Approval

The Draft Agreement conditions closing on the approval of the listing of the shares of Common Stock on the New York Stock Exchange pursuant to the Company's listing application (Application No. NYSE-2022-04218). We have no substantive comment on this condition.

G. FINRA No-Objection

The Draft Agreement conditions closing on the receipt of a letter from FINRA advising that FINRA has no objection to the underwriting terms and arrangements (FINRA Filing No. 20221129-01). We have no substantive comment on this condition. We cross-reference our discussion of FINRA compliance matters in Section VIII below.

H. Lock-Up Delivery

The Draft Agreement conditions closing on the delivery of executed Lock-Up Agreements from all 18 identified lock-up parties. We request that this condition be revised to permit delivery of executed Lock-Up Agreements at or prior to the date of the final prospectus, rather than requiring delivery by the date of execution of the Underwriting Agreement. As a practical matter, the logistics of collecting executed Lock-Up Agreements from 18 individuals and entities (some of whom may be traveling, in different time zones, or represented by separate counsel) may require additional time. We believe that conditioning delivery on the date of the final prospectus provides an appropriate and workable deadline while still ensuring that all Lock-Up Agreements are in place prior to the commencement of the Offering.

VI. Indemnification and Contribution

A. Issuer Indemnification of Underwriters

We acknowledge that the Draft Agreement's provision requiring the Company to indemnify the Underwriters and their respective directors, officers, employees, agents, and controlling persons against losses, claims, damages, or liabilities arising from material misstatements or omissions in the Registration Statement, the prospectus, or any related documents is standard and generally appropriate for an IPO underwriting agreement of this type. We do, however, request the following modifications:

First, the Company's indemnification obligation should expressly exclude any losses, claims, damages, or liabilities arising from or based upon information furnished in writing by the Underwriters specifically for inclusion in the Registration Statement (the "Underwriter Information"). This is the standard "underwriter information" carve-out, and it should be clearly stated. The Underwriter Information is customarily limited to information contained in the "Underwriting" section of the prospectus describing the Underwriters' stabilization activities, short-selling activities, syndicate covering transactions, penalty bids, and related matters, as well as information relating to the composition of the underwriting syndicate and the terms of the underwriting arrangement. We request that the Underwriting Agreement include a schedule or other identification (by specific paragraph reference) of the particular statements in the "Underwriting" section of the prospectus that constitute Underwriter Information furnished in writing by Hargrove Keating & Co. on behalf of the several Underwriters.

Second, we request that the Company's indemnification obligation be subject to a cap equal to the total net proceeds received by the Company from the Offering. For purposes of this calculation, the Company's net proceeds would be the gross proceeds received by the Company from the sale of primary shares (approximately $371,700,000 at the assumed midpoint price, subject to adjustment based on the final public offering price and the number of primary shares sold) minus the Company's pro rata share of the underwriting discount and the Company's offering expenses. The Company's indemnification obligation should not be uncapped and should not be measured by reference to the total offering size (which includes the secondary component and the overallotment option), as the Company does not receive any proceeds from the sale of shares by the Selling Stockholder.

B. Selling Stockholder Indemnification

The Draft Agreement requires Pinnacle Vista Capital Partners III, LP, as Selling Stockholder, to indemnify the Underwriters for losses arising from information relating to the Selling Stockholder in the Registration Statement. We have the following comments on this provision:

We request that the Selling Stockholder's indemnification obligation be limited to (a) losses, claims, damages, or liabilities arising from or based upon any untrue statement or alleged untrue statement of a material fact, or any omission or alleged omission of a material fact required to be stated or necessary to make the statements not misleading, in each case to the extent that such statement or omission was made in reliance upon and in conformity with information furnished in writing by the Selling Stockholder (or on its behalf by Whitfield Archer & Doss LLP) specifically for inclusion in the Registration Statement or the prospectus, including information contained in the selling stockholder questionnaire and representation letter; and (b) losses arising from breaches of the Selling Stockholder's own representations and warranties in the Underwriting Agreement.

We further request that the Selling Stockholder's indemnification obligation be capped at the net proceeds received by the Selling Stockholder from the Offering (i.e., approximately $150,000,000 at the assumed midpoint price, minus the Selling Stockholder's pro rata share of the underwriting discount).

Importantly, the Company should not be required to provide any cross-indemnification for or in respect of the Selling Stockholder's representations, warranties, or information. Each party — the Company, the Selling Stockholder, and the Underwriters — should be responsible solely for its own information and representations. The Company and the Selling Stockholder are separate parties with separate economic interests in the Offering, and there is no basis for requiring the Company to backstop the Selling Stockholder's obligations under the indemnification provisions.

C. Underwriter Indemnification of Issuer and Selling Stockholder

The Draft Agreement provides for the Underwriters to indemnify the Company and the Selling Stockholder, but only with respect to losses arising from untrue statements or omissions based upon Underwriter Information. While this is the customary scope of underwriter indemnification in the misstatement/omission context, we request that the underwriter indemnification also extend to losses caused by the Underwriters' breach of their own representations, warranties, or covenants in the Underwriting Agreement (including, without limitation, breaches of the FINRA compliance representations discussed in Section VIII below). It would be inconsistent and inequitable for the Company to indemnify the Underwriters for breaches of the Company's representations and covenants while the Underwriters bear no reciprocal indemnification obligation for their own breaches.

D. Contribution. The contribution provisions of the Underwriting Agreement should be consistent with, and should supplement, the indemnification provisions described above. We request that the contribution provisions allocate liability among the parties based on (i) the relative benefits received by the Company, the Selling Stockholder, and the Underwriters from the Offering, and (ii) the relative fault of the Company, the Selling Stockholder, and the Underwriters in connection with the statements or omissions that resulted in such losses.

We request that the Underwriters' aggregate contribution obligation be capped at the total underwriting discount received by the Underwriters in connection with the Offering, which is $33,000,000 on full exercise of the Overallotment Option (or approximately $28,693,500 on the base offering alone). This cap is consistent with the prevailing market standard.

We further request that the contribution provisions expressly confirm that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act of 1933, as amended, shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. This provision is required by Section 11(f) of the Securities Act and should be included to avoid any ambiguity.

E. Procedures. We request the addition of standard indemnification and contribution procedures, including the following:

(a) Prompt Notice. An indemnified party shall promptly notify the indemnifying party in writing of any claim, action, or proceeding for which indemnification may be sought; provided, however, that the failure to give timely notice shall not relieve the indemnifying party of its obligations except to the extent that the indemnifying party is actually and materially prejudiced by such failure.

(b) Control of Defense. The indemnifying party shall be entitled to assume the defense of any claim, action, or proceeding at its own expense with counsel reasonably satisfactory to the indemnified party.

(c) Right to Participate. An indemnified party shall have the right to participate in the defense of any claim, action, or proceeding at its own expense (and with its own counsel).

(d) Consent to Settlement. No indemnifying party shall consent to the entry of any judgment or enter into any settlement without the prior written consent of each affected indemnified party (such consent not to be unreasonably withheld, conditioned, or delayed); provided that such consent shall not be required if the settlement involves only the payment of money and includes an unconditional release of each indemnified party from all liability in respect of such claims.

(e) Advancement of Expenses. The indemnifying party shall pay, as incurred, the reasonable fees and expenses of counsel for the indemnified party in connection with any claim, action, or proceeding for which indemnification is available.

We further request that the indemnification and contribution provisions of the Underwriting Agreement expressly survive the closing of the Offering and any termination of the Underwriting Agreement, regardless of the reason for such termination.

VII. Termination

A. Termination Rights

The Draft Agreement provides the Underwriters (acting through Hargrove Keating & Co. as Representative) with termination rights exercisable prior to the closing of the Offering upon the occurrence of certain specified events. We have the following comments on the termination triggers.

1. Market-Out. The market-out clause in the Draft Agreement permits the Representative to terminate the Underwriting Agreement if, since the date of the Underwriting Agreement or the applicable time, as the case may be, there has been a material adverse change in the financial markets in the United States or a material disruption in securities settlement, payment, or clearance services in the United States.

We are concerned that this formulation is overbroad and could, under certain interpretations, permit termination based on ordinary market volatility or short-term declines in stock prices or market indices, which are a normal feature of the capital markets and do not, in our view, warrant a unilateral right of termination. We request that the market-out provision be narrowly defined and limited to extraordinary market disruptions, including (but not limited to):

(a) any suspension of, or material limitation on, trading in securities generally on the New York Stock Exchange, the Nasdaq Stock Market, or any other national securities exchange;

(b) any general moratorium on commercial banking activities declared by federal or New York State authorities;

(c) any material disruption in commercial banking or securities settlement, payment, or clearance services in the United States; or

(d) any material outbreak or escalation of hostilities or other national or international calamity or crisis (including any act of terrorism) that, in the reasonable judgment of the Representative, makes it impracticable or inadvisable to proceed with the Offering on the terms and in the manner contemplated by the prospectus.

The current draft's broad formulation should be revised to incorporate the specific triggers described above and to preclude termination based on ordinary fluctuations in market conditions.

2. Disaster-Out / Force Majeure. The disaster-out clause in the Draft Agreement permits the Representative to terminate the Underwriting Agreement upon the outbreak of hostilities, the escalation of existing hostilities, the declaration of war, any act of terrorism, or any other national or international calamity or crisis.

We request that this provision be revised to require that any such event, in the reasonable judgment of the Representative, make it impracticable or inadvisable to proceed with the Offering. The current draft permits termination upon the occurrence of the listed events without any reasonableness qualifier, which could permit the Underwriters to terminate based on events that do not, in fact, have any material impact on the ability to consummate the Offering. The insertion of the formulation "in the reasonable judgment of the Representative, makes it impracticable or inadvisable to proceed with the offering" ensures that the termination right is exercised in a commercially reasonable manner, while still affording the Underwriters the flexibility to protect their interests in the face of genuinely extraordinary circumstances.

3. Company MAE. The Draft Agreement provides for a termination right upon the occurrence of a "material adverse effect" with respect to the Company. However, the termination provision in the Draft Agreement uses undefined language that is broader than the defined term "Material Adverse Effect" as set forth elsewhere in the Draft Agreement. Specifically, the termination provision refers to "any change in or affecting the business, assets, properties, financial condition, or results of operations of the Company" that "could reasonably be expected to" have a material adverse effect, which is a lower threshold than "would reasonably be expected to" and which does not incorporate the negotiated carve-outs.

We request that the Company MAE termination trigger reference the defined term "Material Adverse Effect" (as revised per our comments in Section II above) and be subject to all carve-outs contained in that definition. The purpose of negotiating an MAE definition with specific carve-outs is to establish the parameters within which the parties will evaluate whether a material adverse effect has occurred; those parameters should apply consistently throughout the Underwriting Agreement, including in the termination provisions.

4. Legal/Regulatory. The Draft Agreement provides for a termination right upon the issuance of any stop order by the Securities and Exchange Commission with respect to the Registration Statement, the institution by the SEC of proceedings seeking a stop order, or the issuance of any order, decree, or injunction by any court or governmental authority seeking to restrain or prevent the consummation of the Offering.

We have no substantive comment on this termination trigger, which is standard.

B. Effects of Termination

We request that the effects-of-termination provision be revised to provide that, upon termination of the Underwriting Agreement by the Representative, all obligations of the parties under the Underwriting Agreement shall terminate and be of no further force or effect, except that the following provisions shall survive termination:

(a) The indemnification and contribution provisions set forth in Article [__] of the Underwriting Agreement (which shall survive indefinitely);

(b) The expense reimbursement obligations of the parties, on the basis that the Company shall bear its own expenses and the Underwriters shall bear their own expenses, subject to the Company's obligation to reimburse the Underwriters for FINRA review-related costs up to the $350,000 cap described in Section I.C above; and

We note that the Draft Agreement's termination provision, as currently drafted, suggests that the Company may be required to reimburse the Underwriters for all or a portion of the Underwriters' out-of-pocket expenses upon termination by the Underwriters. We request the deletion or limitation of any such obligation. If the Underwriters elect to terminate the Underwriting Agreement, the Company should not be required to bear the Underwriters' costs and expenses (other than the agreed FINRA-related reimbursement cap). Each party should bear its own expenses in the event of a termination.

VIII. FINRA Compliance

A. Rule 5110 Compliance

We request that the Underwriting Agreement include an affirmative representation by the Underwriters that the underwriting terms and arrangements set forth in the Underwriting Agreement comply with the requirements of FINRA Rule 5110 (the "Corporate Financing Rule"). Specifically, the underwriter compensation elements — including the gross spread of 5.50%, the expense reimbursement cap of $350,000, and any other items of value received or to be received by the Underwriters in connection with the Offering — should be confirmed by the Underwriters to be within FINRA guidelines and to constitute fair and reasonable compensation in compliance with Rule 5110.

As noted above, the FINRA corporate financing application (Filing No. 20221129-01) has been filed with respect to the Offering. The Underwriting Agreement should expressly condition closing on the receipt of a letter from FINRA advising that it has determined not to raise any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements, or that FINRA has otherwise confirmed that the Offering may proceed.

B. FINRA-Related Representations

In addition to the Rule 5110 compliance representation, we request that the Underwriting Agreement include the following representations by the Underwriters:

(a) Rule 5130 / Rule 5131 Compliance. No Underwriter is a "restricted person" within the meaning of FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings), and the allocation of shares in the Offering complies in all material respects with FINRA Rules 5130 and 5131 (New Issue Allocations and Distributions), including with respect to the prohibition on spinning and the requirements regarding directed share programs, quid pro quo allocations, and flipping.

(b) Rule 5121 Compliance. To the extent that any Underwriter or any affiliate of any Underwriter may be deemed to have a conflict of interest with the Company, the Selling Stockholder, or any of their respective affiliates within the meaning of FINRA Rule 5121 (Public Offerings of Securities with Conflicts of Interest), such Underwriter shall comply with the requirements of Rule 5121, including the appointment of a qualified independent underwriter, if applicable.

These representations are important to ensure that the Company can rely on the Underwriters' compliance with the FINRA new-issues rules and conflicts-of-interest rules in connection with the Offering.

IX. Overallotment Option

The Draft Agreement grants the Underwriters an option (the "Overallotment Option" or "Greenshoe") to purchase up to an additional 3,559,091 shares of Common Stock (representing approximately 15% of the base offering shares), at the public offering price less the underwriting discount, for the purpose of covering over-allotments, i

CALDERWOOD & HARKNESS LLP
Attorneys at Law
599 Lexington Avenue New York, NY 10022
Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
April 22, 2022
VIA EMAIL AND HAND DELIVERY
Margaret Yee, Esq. Partner, Capital Markets Prescott, Danforth & Yee LLP 1271 Avenue of the Americas New York, NY 10020
Re: Proposed Initial Public Offering of Common Stock of Calloway-Briggs Renewables Inc. — Comments on Initial Draft Underwriting Agreement
C&H Matter No. 1015-00001
Dear Ms. Yee:
We write on behalf of our client, Calloway-Briggs Renewables Inc., a Delaware corporation ("CBR" or the "Company"), headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746, in connection with the proposed initial public offering (the "IPO" or the "Offering") of shares of common stock of the Company, par value $0.01 per share (the "Common Stock"), on the New York Stock Exchange (proposed ticker symbol: CBRI). The aggregate offering size, inclusive of the overallotment option, is expected to be approximately $600,000,000.
We acknowledge receipt of the initial draft Underwriting Agreement (the "Draft Agreement") circulated by your firm on behalf of the several underwriters on or about April 18, 2022. As you are aware, the Draft Agreement contemplates the underwriting arrangement among CBR, as issuer, Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista" or the "Selling Stockholder"), as selling stockholder, and the several underwriters named therein (collectively, the "Underwriters"), with Hargrove Keating & Co. acting as representative of the Underwriters and lead-left book-running manager (in such capacity, the "Representative").
This letter sets forth the Company's comments and requested revisions to the Draft Agreement. A marked-up copy of the Draft Agreement reflecting our proposed revisions (in blackline format) is enclosed herewith for your review. Our comments are organized below by subject matter for ease of reference. Certain additional marked changes reflected in the enclosed blackline are self-explanatory or ministerial in nature and are not separately addressed in this letter. We trust that those changes will be non-controversial, but we are of course available to discuss any of them should questions arise.
I. Offering Structure and Economics
A. Offering Size and Share Calculations
We confirm our agreement with the overall structure of the Offering as set forth in the Draft Agreement, which contemplates: (i) a base offering of approximately 23,713,636 shares of Common Stock at an assumed midpoint public offering price of $22.00 per share, representing aggregate gross proceeds of approximately $521,700,000; plus (ii) a 15% overallotment option (the "Overallotment Option") covering approximately 3,559,091 additional shares, representing approximately $78,300,000 at the assumed midpoint price, for an aggregate offering size of approximately $600,000,000 (27,272,727 total shares assuming full exercise of the Overallotment Option).
With respect to the capitalization of the Company, we note for the record that the Company has 100,000,000 shares of Common Stock outstanding on a fully diluted, post-reclassification basis immediately prior to the Offering. Following the completion of the base offering (but excluding the Overallotment Option), the Company will have 123,713,636 shares of Common Stock outstanding; upon full exercise of the Overallotment Option, the Company will have 127,272,727 shares of Common Stock outstanding. We request that these figures be confirmed and reflected consistently throughout the Draft Agreement, the pricing agreement, and all schedules and exhibits thereto.
We further confirm that the Offering comprises both a primary and a secondary component. The secondary component consists of 6,818,182 shares of Common Stock being offered by the Selling Stockholder, Pinnacle Vista Capital Partners III, LP, representing aggregate gross proceeds of approximately $150,000,000 at the assumed midpoint price. The primary component consists of 16,895,455 shares of newly issued Common Stock to be sold by the Company, representing aggregate gross proceeds of approximately $371,700,000 at the assumed midpoint price. We have reviewed the relevant provisions of the Draft Agreement and confirm that the primary and secondary components appear to be correctly reflected; however, we request that the par value of $0.01 per share be verified and stated consistently in each instance where shares are referenced throughout the Draft Agreement.
B. Gross Spread
We confirm the proposed gross spread of 5.50% of the aggregate public offering price, which would result in a total underwriting discount of approximately $33,000,000 on full exercise of the Overallotment Option (or approximately $28,693,500 on the base offering alone). This rate is within the range we have observed in recent comparable renewables-sector and infrastructure IPOs of similar size and is acceptable to the Company, subject to the following comments.
We request clarification with respect to the allocation of the gross spread among its three customary components: the management fee, the underwriting fee, and the selling concession. Based on the organizational meeting discussion, our understanding is that the allocation is as follows: 20% management fee ($6,600,000), 20% underwriting fee ($6,600,000), and 60% selling concession ($19,800,000), in each case calculated on the basis of the full-exercise gross spread of $33,000,000. The Draft Agreement does not expressly set forth this allocation. We request that the allocation be specified either in the pricing agreement template or in a schedule to the Underwriting Agreement, in order to provide certainty for purposes of expense reconciliation and FINRA Rule 5110 compliance reporting.
Additionally, the underwriter share allocation percentages among the several Underwriters should be set forth in Schedule A to the Underwriting Agreement. Based on our understanding from the organizational meeting, the allocation is as follows:
We request that your firm confirm the foregoing allocation and that it be reflected in Schedule A to the final Underwriting Agreement.
C. Underwriter Expense Reimbursement
We note that the Draft Agreement provides for reimbursement by the Company of certain expenses incurred by the Underwriters in connection with the Offering. We request that the expense reimbursement cap of $350,000, which we understand to be limited to FINRA review-related costs, be clearly designated as such and stated to be inclusive of all FINRA filing fees, outside FINRA counsel fees, and all other costs and expenses relating to or arising from the FINRA corporate financing review process. The Draft Agreement should further specify that any expenses incurred by the Underwriters in connection with the FINRA review in excess of the $350,000 cap shall be the sole responsibility of the Underwriters and shall not be subject to reimbursement by the Company or the Selling Stockholder. We cross-reference our additional comments regarding FINRA Rule 5110 compliance in Section VIII below.
II. Material Adverse Effect Definition
We identify the definition of "material adverse effect" (or "Material Adverse Effect") as one of the most significant areas of comment on the Draft Agreement. This definition is central to several provisions of the Underwriting Agreement, including the bring-down closing condition, the termination provisions, and the scope of certain representations and warranties, and we believe it requires careful revision to reflect prevailing market practice and to account for the specific characteristics of CBR's business and the renewable-energy sector.
A. Scope of MAE Definition
The Draft Agreement defines "material adverse effect" to cover any event, change, occurrence, condition, 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.
We have two principal concerns with this formulation. First, with respect to prong (a), the current definition is overbroad in that it references "assets" and "properties" without qualification, which could be read to sweep in changes affecting individual assets (such as a single solar or wind project) that do not, in the aggregate, have a material impact on the Company's overall business, financial condition, or results of operations. Given that CBR operates a diverse portfolio of renewable-energy assets across multiple states and technologies, changes affecting particular assets should not independently constitute a "material adverse effect" unless they rise to the level of a company-wide impact. We propose that prong (a) be revised to read: "a material adverse effect on the business, financial condition, or results of operations of the Company and its subsidiaries, taken as a whole." This formulation is consistent with prevailing market practice in renewables-sector IPOs that we have reviewed, including several comparable transactions completed in 2021 and early 2022.
Second, to the extent the Draft Agreement includes "prospects" within the scope of the MAE definition (and we note that the term "prospects" appears in certain places in the Draft Agreement), we object to its inclusion and request its deletion. The term "prospects" is inherently forward-looking and introduces an unacceptable degree of uncertainty into the MAE standard. The inclusion of "prospects" would effectively allow the Underwriters to invoke a termination right or decline to close based on subjective assessments of the Company's future performance, which is inconsistent with the established purpose of the MAE definition as a backward-looking and present-tense standard. We are not aware of any recent renewables-sector or energy-infrastructure IPO of comparable size in which the MAE definition included "prospects," and we request that the term be deleted in its entirety.
B. Carve-Outs. The Draft Agreement includes certain carve-outs from the MAE definition, which is appropriate. However, we believe that the existing carve-outs are insufficient and require supplementation and refinement to reflect market practice and the specific risks inherent in CBR's business. We request that the following carve-outs be expressly stated in the MAE definition (certain of which are present in the Draft Agreement in some form but need to be revised or supplemented):
(i) General Economic and Market Conditions. Changes in general economic or market conditions in the United States or globally, including changes in prevailing interest rates, commodity prices (including natural gas, power, and renewable energy credit prices), foreign currency exchange rates, inflation rates, or credit markets.
(ii) Changes in Accounting Standards or Applicable Law. Changes in generally accepted accounting principles ("GAAP") or in applicable laws, rules, or regulations (including federal, state, and local tax laws), or the interpretation or enforcement thereof, in each case after the date of the Underwriting Agreement.
(iii) Changes Affecting the Renewable-Energy Industry. Changes or conditions generally affecting the renewable-energy, electric utility, or independent power producer industries in the United States, including (without limitation) changes in government subsidies or incentive programs, changes in investment tax credit ("ITC") or production tax credit ("PTC") policy, changes in renewable portfolio standards or clean energy standards, changes in interconnection queue procedures, backlogs, or policies, changes in power purchase agreement pricing trends, and changes in the availability or cost of renewable-energy equipment or materials.
(iv) Natural Disasters, Pandemics, and Geopolitical Events. Natural disasters, weather events (including hurricanes, tornadoes, floods, droughts, wildfires, and extreme temperatures), pandemics, epidemics, disease outbreaks, or public health emergencies (including COVID-19 and any variants thereof), or acts of war, armed hostilities, sabotage, cyberattack, terrorism, or military action (or any escalation or worsening of any of the foregoing), or any governmental response thereto (including sanctions, embargoes, and trade restrictions).
(v) Announcement or Pendency of the Offering. Changes or effects resulting from the announcement, disclosure, or pendency of the IPO or the transactions contemplated by the Underwriting Agreement, including any impact on the Company's relationships with its customers, suppliers, lenders, financing counterparties, joint-venture partners, interconnection counterparties, offtakers, tax-equity investors, employees, or governmental authorities.
(vi) Changes in Stock Price or Credit Rating. Changes in the trading price or trading volume of the Company's Common Stock after listing on the NYSE, or any change in the Company's credit ratings or the credit ratings of its indebtedness or securities (it being understood and agreed that the underlying causes of any such change may be taken into account in determining whether a Material Adverse Effect has occurred, to the extent such underlying causes are not otherwise excluded by any of the carve-outs set forth herein).
(vii) Failure to Meet Projections or Estimates. Any failure by the Company to meet any internal or published projections, forecasts, estimates, or predictions of revenue, earnings, cash flow, generation output, or other financial or operational metrics for any period (it being understood and agreed that the underlying causes of any such failure may be taken into account in determining whether a Material Adverse Effect has occurred, to the extent such underlying causes are not otherwise excluded by any of the carve-outs set forth herein).
In each case, the carve-out should apply unless the relevant event, change, occurrence, condition, or development has a disproportionate adverse impact on the Company and its subsidiaries, taken as a whole, relative to other companies of similar size operating in the renewable-energy sector in the United States. We note that the Draft Agreement's current formulation of the "disproportionate impact" qualifier refers to "similarly situated companies," which is vague and could give rise to disputes regarding the appropriate comparison group. We request that the qualifier be revised to reference "other companies of similar size operating in the renewable-energy sector in the United States," which provides a more concrete and commercially reasonable standard for comparison.
We specifically flag that carve-out (iii) above — the renewables-industry carve-out — is of critical importance to the Company. CBR's business is significantly exposed to federal and state tax credit policy, and its economics are directly affected by the availability and terms of the ITC and PTC under Sections 48 and 45 of the Internal Revenue Code. Across its 3.8 GW operating portfolio and 6.2 GW development pipeline, CBR relies on tax credits as a fundamental component of project-level economics and tax-equity financing structures. Any legislative or regulatory change to the ITC/PTC framework — whether an extension, modification, phase-down, or elimination — would affect the entire renewable-energy industry, not the Company alone. Accordingly, such changes should be excluded from the MAE definition unless they disproportionately affect CBR relative to its peers, as described above.
C. Interaction with Bring-Down Condition
We note that the MAE definition, as revised in accordance with our comments above, interacts directly with the closing condition set forth in the Draft Agreement requiring delivery of an officer's certificate (to be signed by Garrett Calloway, Chief Executive Officer, and Marcus Yoon, Chief Financial Officer) confirming, among other things, that no Material Adverse Effect has occurred since the date of the Underwriting Agreement.
We request that the bring-down representation and the officer's certificate condition reference "no Material Adverse Effect" as a defined term (with all of the carve-outs discussed above), rather than employing a broader or undefined formulation such as "no material adverse change" or "no event that could reasonably be expected to have a material adverse effect." The defined term, with its negotiated carve-outs, should control the scope of the bring-down obligation. This is essential to ensure consistency between the MAE definition and the closing conditions and to avoid creating an obligation that is, in substance, broader than the parties have agreed.
III. Representations and Warranties of the Company
A. General Comments on Scope
We acknowledge that the representations and warranties of the Company set forth in the Draft Agreement are broadly consistent with market practice for an initial public offering of this size. Nonetheless, we have a number of comments and proposed revisions, which we describe below.
As a threshold matter, we request that all representations and warranties of the Company be qualified by a materiality or "Material Adverse Effect" threshold to the extent they are not already so qualified. Flat, unqualified representations expose the Company to unnecessary risk and are inconsistent with the standards typically applied in IPO underwriting agreements of this size. We recognize that certain representations — including those relating to due organization and good standing, corporate authority and authorization, and the valid issuance of the shares to be sold in the Offering — are customarily given on an unqualified basis, and we do not object to that formulation for those specific representations. However, for all other representations, including those relating to compliance with laws, material contracts, tax matters, intellectual property, and environmental matters, we request that appropriate materiality or MAE qualifiers be inserted.
With respect to representations relating to the Company's subsidiaries, we note that the Draft Agreement defines "Subsidiaries" broadly to include all entities in which the Company holds a direct or indirect controlling interest. Given the number of special-purpose entities, project-level subsidiaries, and intermediate holding companies in CBR's corporate structure, many of which are dormant, de minimis, or single-asset entities, we request that the definition of "Subsidiaries" for purposes of the representations and warranties be limited to the ten material subsidiaries that are scheduled in the S-1 Registration Statement:
1. CBR Holdings LLC
2. Calloway-Briggs Operating Company LLC
3. Solaris West Solar LLC
4. Red Mesa Wind Energy LLC
5. Painted Rock Solar LLC
6. Pronghorn Wind LLC
7. Brazos Energy Storage LLC
8. Mesquite Wind Holdings LLC
9. Cimarron Solar Development LLC
10. CBR Development Co. LLC
At a minimum, the definition should track the subsidiaries listed in the S-1 Registration Statement and should not purport to sweep in entities that are not described or identified therein.
B. Specific Representation Comments
Financial Statements. The representation regarding the Company's financial statements should reference the audited consolidated financial statements of the Company for fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021, and the unaudited interim condensed consolidated financial data for the quarter ended March 31, 2022 (Q1 2022), in each case as included in the Registration Statement on Form S-1. These financial statements have been audited (or, in the case of Q1 2022, reviewed) by Ashford & Pemberton LLP, with Gregory Sondheim serving as the lead engagement partner. We request that the representation be clarified to state that the Company is representing that the financial statements "as they appear in the Registration Statement" comply with GAAP in all material respects and present fairly in all material respects the financial position and results of operations of the Company for the periods indicated, rather than constituting a freestanding or independent GAAP compliance representation that could be construed to extend beyond the financial statements as included in the Registration Statement. This distinction is important because the representation should not be read to impose a warranty as to the accuracy of the Company's underlying books and records apart from the audited and reviewed financial statements set forth in the Registration Statement.
No Material Adverse Change. The Draft Agreement includes a representation that, since a specified date, there has been no material adverse change in the business, properties, financial condition, or results of operations of the Company and its subsidiaries. We request that the measurement date for this representation be December 31, 2021, which is the end of the most recently completed fiscal year for which audited financial statements are included in the Registration Statement. The Draft Agreement currently references an earlier date, which would extend the look-back period and increase the Company's exposure without corresponding benefit to the Underwriters. Additionally, this representation should be subject to all of the MAE carve-outs discussed in Section II above, and the representation should reference the defined term "Material Adverse Effect" rather than employing standalone language.
Tax Matters. Given the significant complexity of CBR's tax-equity financing structures, which are central to the Company's business model and project-level economics, the tax representation requires careful calibration. The Company's tax-equity structures include, among others, the Solaris West partnership flip arrangement with Veltara Basin Financial LLC, in which Veltara Basin Financial LLC has invested $280,000,000 and which is structured to flip in 2028 upon achievement of a target return, as well as ITC and PTC positions claimed across the Company's operating portfolio. We request that the tax representation be qualified by the formulation "except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect." In addition, the Company should not be required to represent or warrant with respect to tax positions taken by tax-equity investors in the Company's projects, as the Company does not control the tax filings or positions of those counterparties. We are available to discuss the appropriate scope of the tax representation in greater detail with the assistance of our tax partner, Leonard Cross.
Environmental and Regulatory Compliance. CBR operates renewable-energy generation, transmission, and storage facilities across Texas, New Mexico, Arizona, California, and Oklahoma. The Company's projects are subject to a broad range of federal, state, and local environmental and regulatory requirements. Phase I and Phase II environmental site assessments have been conducted for the Company's material projects by Greenridge Environmental Sciences LLC. We request that the compliance representations relating to environmental matters be qualified by materiality and limited to compliance "in all material respects" with applicable environmental laws. An unqualified compliance representation would expose the Company to potential liability for immaterial violations or technical infractions that do not and could not affect the Company's business, financial condition, or results of operations in any meaningful respect.
intellectual Property. The Draft Agreement includes a representation that the Company "owns or has valid rights to all intellectual property necessary for its business." This representation is flat and unqualified. Given that the Company's business is the development, construction, and operation of renewable-energy projects (rather than a technology-centric business for which intellectual property is a core asset), a flat intellectual property representation is inappropriate and disproportionate to the role that intellectual property plays in the Company's operations. We request that this representation be qualified by a materiality threshold — for example, "the Company owns or has valid rights to all intellectual property material to the conduct of its business as currently conducted" — or, alternatively, that the representation be deleted and replaced with a narrower representation to the effect that the Company is not aware of any intellectual property infringement claims that would reasonably be expected to have a Material Adverse Effect.
Existing Indebtedness. The Draft Agreement includes a representation regarding the Company's existing indebtedness. We request that this representation accurately reference the Company's material financing arrangements, which include the following:
(a) Corporate Revolving Credit Facility: $400,000,000 revolving credit commitment, with Veltrano National Bank, N.A. as Administrative Agent, maturing January 2027;
(b) Term Loan B: $650,000,000 original principal amount ($612,500,000 currently outstanding), with Veltrano National Bank, N.A. as Administrative Agent, maturing January 2029;
(c) Mesquite Wind Construction Facility: $165,000,000 construction-to-term loan facility, with Prairie Commercial Bank, N.A. as Administrative Agent, with mandatory conversion to term loan in December 2024;
(d) Cimarron Solar Construction Facility: $143,000,000 construction-to-term loan facility, with Prairie Commercial Bank, N.A. as Administrative Agent, with mandatory conversion to term loan in March 2025; and
(e) Solaris West Tax-Equity Partnership: $280,000,000 invested by Veltara Basin Financial LLC in a partnership flip structure, with anticipated flip date in 2028.
We request that the indebtedness representation be limited to "material indebtedness" (as defined or described in the Registration Statement) and not extend to de minimis obligations, intercompany payables, or ordinary-course trade payables.
C. Representations of the Selling Stockholder
We note that the representations and warranties of the Selling Stockholder, Pinnacle Vista Capital Partners III, LP, are currently under separate review by Whitfield Archer & Doss LLP, which serves as counsel to Pinnacle Vista. Philip Archer and Christine Navarro of that firm are coordinating with us on these provisions. The Company reserves the right to supplement its comments with respect to the selling-stockholder representations and warranties following the completion of that coordination.
At this time, we request that the selling-stockholder representations be drafted as self-contained provisions within the Underwriting Agreement and that the Company not be required to provide any cross-indemnification for, or make any representations or warranties with respect to, the accuracy or completeness of the Selling Stockholder's own representations and warranties. Each party should be responsible solely for its own representations and warranties and the information it furnishes in connection with the Offering.
IV. Covenants
A. Issuer Lock-Up
The Draft Agreement includes an issuer lock-up provision that restricts the Company from issuing, selling, offering to sell, contracting to sell, granting any option to purchase, or otherwise disposing of, or registering under the Securities Act, any shares of Common Stock or any securities convertible into or exchangeable for Common Stock, for a period of 180 days following the date of the final prospectus, without the prior written consent of the Representative.
While we acknowledge that an issuer lock-up of this duration is customary in IPOs of this size, we request that the following carve-outs to the issuer lock-up be included (some of which are present in the Draft Agreement in some form but require refinement or clarification):
(a) Equity Incentive Plan Issuances. Issuances of shares of Common Stock (including upon the exercise of stock options, settlement of restricted stock units, or grants of restricted stock awards) under the Company's 2022 Omnibus Equity Incentive Plan, which has a share reserve of 12,727,273 shares (representing approximately 10% of post-IPO outstanding shares on a fully-exercised basis of 127,272,727 shares), and the Company's 2022 Employee Stock Purchase Plan, which has a share reserve of 2,545,455 shares (representing approximately 2% of post-IPO outstanding shares on a fully-exercised basis).
(b) Acquisition-Related Issuances. Issuances of shares of Common Stock (or securities convertible into or exchangeable for Common Stock) as consideration in connection with bona fide acquisitions, mergers, joint ventures, or strategic transactions, subject to a cap to be negotiated. The Company proposes a cap of up to 5% of post-IPO outstanding shares (approximately 6,363,636 shares on a fully-exercised basis), which provides the Company with appropriate flexibility to pursue growth opportunities during the lock-up period while limiting dilution. We note that the recipients of any such shares should be required to execute a lock-up agreement for the remainder of the 180-day lock-up period as a condition to such issuance.
(c) Conversion or Exchange of Outstanding Securities. Issuances of shares of Common Stock upon the conversion, exchange, or exercise of securities that are outstanding on the date of the Underwriting Agreement, including any convertible notes, warrants, or other convertible instruments.
(d) Form S-8 Registration. The filing of a registration statement on Form S-8 (or any successor form) with respect to the shares of Common Stock reserved for issuance under the Company's equity incentive plans described in clause (a) above.
(e) Exercise of Outstanding Options / Settlement of RSUs. Issuances of shares of Common Stock upon the exercise of stock options or settlement of restricted stock units that are outstanding on the date of the final prospectus, in each case in accordance with the terms of such awards as described in the Registration Statement.
In addition, we request that the issuer lock-up provision expressly provide that it shall not restrict the Company from repurchasing shares of Common Stock from terminated employees (or their estates or legal representatives) pursuant to the terms of the Company's equity incentive plans or individual award agreements, at the lower of cost or fair market value as of the date of such repurchase. Such repurchases are a customary feature of equity incentive plans and do not implicate the concerns underlying the issuer lock-up.
B. Individual Lock-Up Agreements
The Draft Agreement references the form of lock-up agreement (the "Lock-Up Agreement") to be executed by the Company's directors, executive officers, and holders of 1% or more of the Company's pre-IPO Common Stock. We understand that approximately 18 persons and entities are required to execute Lock-Up Agreements.
The Lock-Up Agreement provides for a lock-up period of 180 days following the date of the final prospectus, with early release permitted only upon the prior written consent of Hargrove Keating & Co. (as Representative) or the occurrence of a change of control of the Company. We have the following comments and requests regarding the form of Lock-Up Agreement:
(a) Transfers to Affiliates and Family Members. The Lock-Up Agreement should permit transfers of shares to affiliates of the locked-up party, including transfers to members of the locked-up party's immediate family, transfers to trusts established for the benefit of the locked-up party or members of the locked-up party's immediate family for estate-planning purposes, and transfers to entities wholly owned by the locked-up party or members of the locked-up party's immediate family; provided, in each case, that the transferee agrees to be bound by the terms of the Lock-Up Agreement for the remainder of the lock-up period by executing a joinder or a separate Lock-Up Agreement in the form attached to the Underwriting Agreement.
(b) Adoption of 10b5-1 Trading Plans. The Lock-Up Agreement should permit the locked-up party to establish or adopt a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 during the lock-up period, provided that no sales or other dispositions of shares shall be made under any such plan until after the expiration of the lock-up period. This carve-out is important to enable directors and officers to establish pre-planned trading programs in advance of the opening of trading windows following the lock-up period.
(c) Pledges as Collateral. The Lock-Up Agreement should permit the locked-up party to pledge shares to a financial institution as collateral for a bona fide loan or other credit facility, provided that any foreclosure, sale, or other disposition of such pledged shares during the lock-up period shall remain subject to the restrictions of the Lock-Up Agreement.
(d) Transfers by Operation of Law. The Lock-Up Agreement should expressly permit transfers that occur by operation of law, including transfers pursuant to a qualified domestic relations order, transfers by reason of death (whether by will, intestate succession, or otherwise), and transfers pursuant to a court order or divorce decree, provided that the transferee agrees to be bound by the terms of the Lock-Up Agreement.
These carve-outs are consistent with the lock-up provisions described in the Registration Statement and should be reflected in the final form of Lock-Up Agreement for all 18 signatories. We note that as of the date of this letter, the lock-up execution tracking process is underway and is being managed by Calderwood & Harkness. We will coordinate with your firm and the Representative on the logistics of obtaining executed Lock-Up Agreements from all required parties in advance of the pricing date.
C. Cooperation with Comfort Letter and Auditor Access
We request that the covenant regarding cooperation with the comfort letter process be revised to specify that the Underwriters and their counsel are entitled to three comfort letter circle-ups: (i) an initial comfort letter, to be delivered on or prior to the effective date of the Registration Statement, (ii) a bring-down comfort letter, to be delivered on the closing date of the Offering, and (iii) a pricing comfort letter, to be delivered on the pricing date. This is consistent with the timetable discussed and agreed upon at the organizational meeting held on April 5, 2022. To the extent the Underwriters request additional circle-ups beyond the three specified above, the cost and expense of any such additional circle-up shall be borne solely by the Underwriters and shall not be an obligation of the Company.
The comfort letters are being provided by Ashford & Pemberton LLP in accordance with the procedures set forth in Statement on Auditing Standards No. 72 (SAS 72) and AU-C Section 920, and will cover the audited consolidated financial statements of the Company for fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021, as well as the unaudited interim condensed consolidated financial data for the quarter ended March 31, 2022.
V. Conditions to Closing
A. Officer's Certificate
The Draft Agreement conditions closing on the delivery by the Company of an officer's certificate, to be signed by Garrett Calloway, Chief Executive Officer, and Marcus Yoon, Chief Financial Officer, confirming: (a) the accuracy of the representations and warranties of the Company at and as of the closing date (or, in the case of representations and warranties that speak as of a specific date, as of such date), (b) the performance of the covenants and obligations of the Company to be performed on or prior to the closing date, and (c) that no Material Adverse Effect has occurred since the date of the Underwriting Agreement.
As discussed in Section II.C above, we reiterate our request that the "no Material Adverse Effect" bring-down in the officer's certificate reference the defined term "Material Adverse Effect" (with all of the negotiated carve-outs), rather than a broader or undefined formulation. Consistency between the officer's certificate condition and the MAE definition is essential.
In addition, we suggest that the form of officer's certificate (which we understand will be circulated separately as Exhibit B to the Underwriting Agreement) include express cross-references to the specific representations and warranties in the Underwriting Agreement being confirmed, to provide clarity and to ensure that the officers are able to provide the certificate with confidence.
B. Secretary's Certificate
The Draft Agreement conditions closing on the delivery of a secretary's certificate by Sandra Haverford, General Counsel and Corporate Secretary of the Company, certifying the incumbency and signatures of the officers of the Company authorized to execute the Underwriting Agreement and related documents, and attaching certified copies of (i) the Amended and Restated Certificate of Incorporation of the Company (to be effective upon completion of the IPO), (ii) the Amended and Restated Bylaws of the Company (to be effective upon completion of the IPO), and (iii) the relevant resolutions of the Board of Directors and stockholders of the Company authorizing the Offering and the execution and delivery of the Underwriting Agreement and related documents.
We have no material comment on this condition and confirm that it is standard.
C. Legal Opinions
The Draft Agreement conditions closing on the delivery of the following legal opinions:
(a) Issuer's Counsel Opinion. A legal opinion of Calderwood & Harkness LLP, as counsel to the Company, addressed to the Underwriters, covering customary matters including the enforceability of the Underwriting Agreement, the valid issuance and non-assessability of the shares of Common Stock to be sold in the Offering, the absence of conflicts with the Company's organizational documents and applicable laws, due authorization by the Company, and such other matters as are customary in opinions delivered in connection with initial public offerings.
(b) Underwriters' Counsel Opinion. A legal opinion of Prescott, Danforth & Yee LLP, as counsel to the Underwriters. The scope of this opinion is to be confirmed by your firm.
(c) Tax Opinion. A tax opinion of Calderwood & Harkness LLP regarding material U.S. federal income tax consequences of the Offering and the ownership of the Common Stock, to be prepared under the supervision of Leonard Cross.
We request that the legal opinion condition be revised to specify that the opinions delivered pursuant to the foregoing shall be "in form and substance reasonably satisfactory to the Underwriters" rather than merely "satisfactory" to the Underwriters. The insertion of the word "reasonably" is a standard and customary qualifier that ensures the Underwriters may not withhold their satisfaction in an arbitrary or unreasonable manner. We believe this revision is consistent with market practice.
D. Comfort Letter
The Draft Agreement conditions closing on the delivery of the comfort letter from Ashford & Pemberton LLP, in both its initial and bring-down forms. We have no substantive comment on this condition, as the scope and procedures for the comfort letter are being coordinated separately between the auditors and underwriters' counsel.
E. Good-Standing Certificates
The Draft Agreement conditions closing on the delivery of certificates of good standing (or equivalent certificates) for the Company from the Secretary of State of the State of Delaware (the Company's jurisdiction of incorporation) and the Secretary of State of the State of Texas (the Company's principal place of business), and for the Company's material subsidiaries from their respective jurisdictions of formation.
We request that this condition be limited to the Company itself and its material subsidiaries (as listed in Section III.A above) and not extended to all of the Company's subsidiaries, many of which are dormant, de minimis, or single-asset entities for which the cost and administrative burden of obtaining good-standing certificates would be disproportionate to any benefit to the Underwriters.
F. Listing Approval
The Draft Agreement conditions closing on the approval of the listing of the shares of Common Stock on the New York Stock Exchange pursuant to the Company's listing application (Application No. NYSE-2022-04218). We have no substantive comment on this condition.
G. FINRA No-Objection
The Draft Agreement conditions closing on the receipt of a letter from FINRA advising that FINRA has no objection to the underwriting terms and arrangements (FINRA Filing No. 20221129-01). We have no substantive comment on this condition. We cross-reference our discussion of FINRA compliance matters in Section VIII below.
H. Lock-Up Delivery
The Draft Agreement conditions closing on the delivery of executed Lock-Up Agreements from all 18 identified lock-up parties. We request that this condition be revised to permit delivery of executed Lock-Up Agreements at or prior to the date of the final prospectus, rather than requiring delivery by the date of execution of the Underwriting Agreement. As a practical matter, the logistics of collecting executed Lock-Up Agreements from 18 individuals and entities (some of whom may be traveling, in different time zones, or represented by separate counsel) may require additional time. We believe that conditioning delivery on the date of the final prospectus provides an appropriate and workable deadline while still ensuring that all Lock-Up Agreements are in place prior to the commencement of the Offering.
VI. Indemnification and Contribution
A. Issuer Indemnification of Underwriters
We acknowledge that the Draft Agreement's provision requiring the Company to indemnify the Underwriters and their respective directors, officers, employees, agents, and controlling persons against losses, claims, damages, or liabilities arising from material misstatements or omissions in the Registration Statement, the prospectus, or any related documents is standard and generally appropriate for an IPO underwriting agreement of this type. We do, however, request the following modifications:
First, the Company's indemnification obligation should expressly exclude any losses, claims, damages, or liabilities arising from or based upon information furnished in writing by the Underwriters specifically for inclusion in the Registration Statement (the "Underwriter Information"). This is the standard "underwriter information" carve-out, and it should be clearly stated. The Underwriter Information is customarily limited to information contained in the "Underwriting" section of the prospectus describing the Underwriters' stabilization activities, short-selling activities, syndicate covering transactions, penalty bids, and related matters, as well as information relating to the composition of the underwriting syndicate and the terms of the underwriting arrangement. We request that the Underwriting Agreement include a schedule or other identification (by specific paragraph reference) of the particular statements in the "Underwriting" section of the prospectus that constitute Underwriter Information furnished in writing by Hargrove Keating & Co. on behalf of the several Underwriters.
Second, we request that the Company's indemnification obligation be subject to a cap equal to the total net proceeds received by the Company from the Offering. For purposes of this calculation, the Company's net proceeds would be the gross proceeds received by the Company from the sale of primary shares (approximately $371,700,000 at the assumed midpoint price, subject to adjustment based on the final public offering price and the number of primary shares sold) minus the Company's pro rata share of the underwriting discount and the Company's offering expenses. The Company's indemnification obligation should not be uncapped and should not be measured by reference to the total offering size (which includes the secondary component and the overallotment option), as the Company does not receive any proceeds from the sale of shares by the Selling Stockholder.
B. Selling Stockholder Indemnification
The Draft Agreement requires Pinnacle Vista Capital Partners III, LP, as Selling Stockholder, to indemnify the Underwriters for losses arising from information relating to the Selling Stockholder in the Registration Statement. We have the following comments on this provision:
We request that the Selling Stockholder's indemnification obligation be limited to (a) losses, claims, damages, or liabilities arising from or based upon any untrue statement or alleged untrue statement of a material fact, or any omission or alleged omission of a material fact required to be stated or necessary to make the statements not misleading, in each case to the extent that such statement or omission was made in reliance upon and in conformity with information furnished in writing by the Selling Stockholder (or on its behalf by Whitfield Archer & Doss LLP) specifically for inclusion in the Registration Statement or the prospectus, including information contained in the selling stockholder questionnaire and representation letter; and (b) losses arising from breaches of the Selling Stockholder's own representations and warranties in the Underwriting Agreement.
We further request that the Selling Stockholder's indemnification obligation be capped at the net proceeds received by the Selling Stockholder from the Offering (i.e., approximately $150,000,000 at the assumed midpoint price, minus the Selling Stockholder's pro rata share of the underwriting discount).
Importantly, the Company should not be required to provide any cross-indemnification for or in respect of the Selling Stockholder's representations, warranties, or information. Each party — the Company, the Selling Stockholder, and the Underwriters — should be responsible solely for its own information and representations. The Company and the Selling Stockholder are separate parties with separate economic interests in the Offering, and there is no basis for requiring the Company to backstop the Selling Stockholder's obligations under the indemnification provisions.
C. Underwriter Indemnification of Issuer and Selling Stockholder
The Draft Agreement provides for the Underwriters to indemnify the Company and the Selling Stockholder, but only with respect to losses arising from untrue statements or omissions based upon Underwriter Information. While this is the customary scope of underwriter indemnification in the misstatement/omission context, we request that the underwriter indemnification also extend to losses caused by the Underwriters' breach of their own representations, warranties, or covenants in the Underwriting Agreement (including, without limitation, breaches of the FINRA compliance representations discussed in Section VIII below). It would be inconsistent and inequitable for the Company to indemnify the Underwriters for breaches of the Company's representations and covenants while the Underwriters bear no reciprocal indemnification obligation for their own breaches.
D. Contribution. The contribution provisions of the Underwriting Agreement should be consistent with, and should supplement, the indemnification provisions described above. We request that the contribution provisions allocate liability among the parties based on (i) the relative benefits received by the Company, the Selling Stockholder, and the Underwriters from the Offering, and (ii) the relative fault of the Company, the Selling Stockholder, and the Underwriters in connection with the statements or omissions that resulted in such losses.
We request that the Underwriters' aggregate contribution obligation be capped at the total underwriting discount received by the Underwriters in connection with the Offering, which is $33,000,000 on full exercise of the Overallotment Option (or approximately $28,693,500 on the base offering alone). This cap is consistent with the prevailing market standard.
We further request that the contribution provisions expressly confirm that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act of 1933, as amended, shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. This provision is required by Section 11(f) of the Securities Act and should be included to avoid any ambiguity.
E. Procedures. We request the addition of standard indemnification and contribution procedures, including the following:
(a) Prompt Notice. An indemnified party shall promptly notify the indemnifying party in writing of any claim, action, or proceeding for which indemnification may be sought; provided, however, that the failure to give timely notice shall not relieve the indemnifying party of its obligations except to the extent that the indemnifying party is actually and materially prejudiced by such failure.
(b) Control of Defense. The indemnifying party shall be entitled to assume the defense of any claim, action, or proceeding at its own expense with counsel reasonably satisfactory to the indemnified party.
(c) Right to Participate. An indemnified party shall have the right to participate in the defense of any claim, action, or proceeding at its own expense (and with its own counsel).
(d) Consent to Settlement. No indemnifying party shall consent to the entry of any judgment or enter into any settlement without the prior written consent of each affected indemnified party (such consent not to be unreasonably withheld, conditioned, or delayed); provided that such consent shall not be required if the settlement involves only the payment of money and includes an unconditional release of each indemnified party from all liability in respect of such claims.
(e) Advancement of Expenses. The indemnifying party shall pay, as incurred, the reasonable fees and expenses of counsel for the indemnified party in connection with any claim, action, or proceeding for which indemnification is available.
We further request that the indemnification and contribution provisions of the Underwriting Agreement expressly survive the closing of the Offering and any termination of the Underwriting Agreement, regardless of the reason for such termination.
VII. Termination
A. Termination Rights
The Draft Agreement provides the Underwriters (acting through Hargrove Keating & Co. as Representative) with termination rights exercisable prior to the closing of the Offering upon the occurrence of certain specified events. We have the following comments on the termination triggers.
1. Market-Out. The market-out clause in the Draft Agreement permits the Representative to terminate the Underwriting Agreement if, since the date of the Underwriting Agreement or the applicable time, as the case may be, there has been a material adverse change in the financial markets in the United States or a material disruption in securities settlement, payment, or clearance services in the United States.
We are concerned that this formulation is overbroad and could, under certain interpretations, permit termination based on ordinary market volatility or short-term declines in stock prices or market indices, which are a normal feature of the capital markets and do not, in our view, warrant a unilateral right of termination. We request that the market-out provision be narrowly defined and limited to extraordinary market disruptions, including (but not limited to):
(a) any suspension of, or material limitation on, trading in securities generally on the New York Stock Exchange, the Nasdaq Stock Market, or any other national securities exchange;
(b) any general moratorium on commercial banking activities declared by federal or New York State authorities;
(c) any material disruption in commercial banking or securities settlement, payment, or clearance services in the United States; or
(d) any material outbreak or escalation of hostilities or other national or international calamity or crisis (including any act of terrorism) that, in the reasonable judgment of the Representative, makes it impracticable or inadvisable to proceed with the Offering on the terms and in the manner contemplated by the prospectus.
The current draft's broad formulation should be revised to incorporate the specific triggers described above and to preclude termination based on ordinary fluctuations in market conditions.
2. Disaster-Out / Force Majeure. The disaster-out clause in the Draft Agreement permits the Representative to terminate the Underwriting Agreement upon the outbreak of hostilities, the escalation of existing hostilities, the declaration of war, any act of terrorism, or any other national or international calamity or crisis.
We request that this provision be revised to require that any such event, in the reasonable judgment of the Representative, make it impracticable or inadvisable to proceed with the Offering. The current draft permits termination upon the occurrence of the listed events without any reasonableness qualifier, which could permit the Underwriters to terminate based on events that do not, in fact, have any material impact on the ability to consummate the Offering. The insertion of the formulation "in the reasonable judgment of the Representative, makes it impracticable or inadvisable to proceed with the offering" ensures that the termination right is exercised in a commercially reasonable manner, while still affording the Underwriters the flexibility to protect their interests in the face of genuinely extraordinary circumstances.
3. Company MAE. The Draft Agreement provides for a termination right upon the occurrence of a "material adverse effect" with respect to the Company. However, the termination provision in the Draft Agreement uses undefined language that is broader than the defined term "Material Adverse Effect" as set forth elsewhere in the Draft Agreement. Specifically, the termination provision refers to "any change in or affecting the business, assets, properties, financial condition, or results of operations of the Company" that "could reasonably be expected to" have a material adverse effect, which is a lower threshold than "would reasonably be expected to" and which does not incorporate the negotiated carve-outs.
We request that the Company MAE termination trigger reference the defined term "Material Adverse Effect" (as revised per our comments in Section II above) and be subject to all carve-outs contained in that definition. The purpose of negotiating an MAE definition with specific carve-outs is to establish the parameters within which the parties will evaluate whether a material adverse effect has occurred; those parameters should apply consistently throughout the Underwriting Agreement, including in the termination provisions.
4. Legal/Regulatory. The Draft Agreement provides for a termination right upon the issuance of any stop order by the Securities and Exchange Commission with respect to the Registration Statement, the institution by the SEC of proceedings seeking a stop order, or the issuance of any order, decree, or injunction by any court or governmental authority seeking to restrain or prevent the consummation of the Offering.
We have no substantive comment on this termination trigger, which is standard.
B. Effects of Termination
We request that the effects-of-termination provision be revised to provide that, upon termination of the Underwriting Agreement by the Representative, all obligations of the parties under the Underwriting Agreement shall terminate and be of no further force or effect, except that the following provisions shall survive termination:
(a) The indemnification and contribution provisions set forth in Article [__] of the Underwriting Agreement (which shall survive indefinitely);
(b) The expense reimbursement obligations of the parties, on the basis that the Company shall bear its own expenses and the Underwriters shall bear their own expenses, subject to the Company's obligation to reimburse the Underwriters for FINRA review-related costs up to the $350,000 cap described in Section I.C above; and
(c) Any confidentiality obligations of the parties.
We note that the Draft Agreement's termination provision, as currently drafted, suggests that the Company may be required to reimburse the Underwriters for all or a portion of the Underwriters' out-of-pocket expenses upon termination by the Underwriters. We request the deletion or limitation of any such obligation. If the Underwriters elect to terminate the Underwriting Agreement, the Company should not be required to bear the Underwriters' costs and expenses (other than the agreed FINRA-related reimbursement cap). Each party should bear its own expenses in the event of a termination.
VIII. FINRA Compliance
A. Rule 5110 Compliance
We request that the Underwriting Agreement include an affirmative representation by the Underwriters that the underwriting terms and arrangements set forth in the Underwriting Agreement comply with the requirements of FINRA Rule 5110 (the "Corporate Financing Rule"). Specifically, the underwriter compensation elements — including the gross spread of 5.50%, the expense reimbursement cap of $350,000, and any other items of value received or to be received by the Underwriters in connection with the Offering — should be confirmed by the Underwriters to be within FINRA guidelines and to constitute fair and reasonable compensation in compliance with Rule 5110.
As noted above, the FINRA corporate financing application (Filing No. 20221129-01) has been filed with respect to the Offering. The Underwriting Agreement should expressly condition closing on the receipt of a letter from FINRA advising that it has determined not to raise any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements, or that FINRA has otherwise confirmed that the Offering may proceed.
B. FINRA-Related Representations
In addition to the Rule 5110 compliance representation, we request that the Underwriting Agreement include the following representations by the Underwriters:
(a) Rule 5130 / Rule 5131 Compliance. No Underwriter is a "restricted person" within the meaning of FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings), and the allocation of shares in the Offering complies in all material respects with FINRA Rules 5130 and 5131 (New Issue Allocations and Distributions), including with respect to the prohibition on spinning and the requirements regarding directed share programs, quid pro quo allocations, and flipping.
(b) Rule 5121 Compliance. To the extent that any Underwriter or any affiliate of any Underwriter may be deemed to have a conflict of interest with the Company, the Selling Stockholder, or any of their respective affiliates within the meaning of FINRA Rule 5121 (Public Offerings of Securities with Conflicts of Interest), such Underwriter shall comply with the requirements of Rule 5121, including the appointment of a qualified independent underwriter, if applicable.
These representations are important to ensure that the Company can rely on the Underwriters' compliance with the FINRA new-issues rules and conflicts-of-interest rules in connection with the Offering.
IX. Overallotment Option
The Draft Agreement grants the Underwriters an option (the "Overallotment Option" or "Greenshoe") to purchase up to an additional 3,559,091 shares of Common Stock (representing approximately 15% of the base offering shares), at the public offering price less the underwriting discount, for the purpose of covering over-allotments, i

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