References to the "company," "our," "us" or "we" refer to ArcLight Clean Transition Corp. II. The following discussion and analysis of the company's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements



This Annual Report on Form
10-K
includes forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other SEC filings.

Overview

We are a blank check company incorporated on January 13, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the "Business Combination"), that we have not yet to finalize. Our sponsor is ArcLight CTC Holdings II, L.P., a Delaware limited partnership.

Our registration statement for our initial public offering (the "Initial Public Offering") was declared effective on March 22, 2021. On March 25, 2021, we consummated our Initial Public Offering of 31,116,305 units (the "Units" and, with respect to the Class A ordinary shares included in the Units being offered, the "Public Shares"), including the partial exercise of the underwriters' option to purchase 3,616,305 additional Units (the "Over-Allotment Units"), at $10.00 per Unit, generating gross proceeds of approximately $311.2 million, and incurring offering costs of approximately $17.6 million, of which approximately $10.9 million was for deferred underwriting commissions.


                                       64

--------------------------------------------------------------------------------

Table of Contents

Simultaneously with the closing of the Initial Public Offering, we consummated the private placement ("Private Placement") of 9,223,261 warrants (each, a "Private Placement Warrant" and collectively, the "Private Placement Warrants"), at a price of $1.00 per Private Placement Warrant with the sponsor, generating gross proceeds of approximately $9.2 million.



Upon the closing of the Initial Public Offering and the Private Placement,
approximately $311.2 million of the net proceeds of the Initial Public Offering
and certain of the proceeds of the Private Placement were placed in a Trust
Account with Continental Stock Transfer & Trust Company acting as trustee and
invested in United States "government securities" within the meaning of
Section 2(a)(16) of the Investment Company Act of 1940, as amended, or the
Investment Company Act, having a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule
2a-7
promulgated under the Investment Company Act, which invest only in direct U.S.
government treasury obligations, as determined by the Company, until the earlier
of: (i) the completion of a Business Combination and (ii) the distribution of
the Trust Account as described below.

If we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or March 25, 2023 (unless such date is extended in accordance with the Company's amended and restated memorandum and articles of association) (the "Combination Period"), we will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay its income taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding Public Shares, which redemption will completely extinguish Public Shareholders' rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii), to the Company's obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.

Proposed Business Combination


On December 2, 2021, the Company, Opal HoldCo LLC, a Delaware limited liability
company ("
Opal HoldCo
"), and Opal Fuels LLC, a Delaware limited liability company ("
Opal Fuels
"), entered into a Business Combination Agreement (as it may be amended,
supplemented or otherwise modified from time to time, the "
Business Combination Agreement
").

The Business Combination Agreement and the transactions contemplated thereby
(collectively, the "
Business Combination
") were unanimously approved by the boards of directors of each of the Company
and Opal and also approved by Opal Holdco, the sole member of Opal Fuels. The
Business Combination Agreement provides for, among other things, the following
transactions: (i) each outstanding Class B ordinary share, par value $0.0001 per
share, of the Company will convert into one Class A ordinary share, par value
$0.0001 per share, of the Company; (ii) the Company will change the jurisdiction
of its incorporation by deregistering as an exempted company in the Cayman
Islands and domesticating to, and continuing as a corporation incorporated under
the laws of, the State of Delaware (the "
Domestication
") and, in connection with the Domestication, (A) the Company's name will be
changed to "Opal Fuels Inc." ("
New Opal
"), (B) each outstanding Class A ordinary share of the Company will become one
share of Class A common stock, par value $0.0001 per share, of New Opal (the "
New Opal Class
 A Common Stock
"), (C) each outstanding warrant to purchase one Class A ordinary share of the
Company will become a warrant to purchase one share of New Opal Class A common
stock and (D) New Opal will file its certificate of incorporation and adopt
bylaws to serve as its governing documents in connection with the Domestication;
and (iii) (A) Opal Fuels will cause its existing limited liability company
agreement to be amended and restated, (B) Opal Fuels will cause all of its
limited liability company interests existing immediately prior to the closing of
the Business Combination (the "
Closing
")
to be re-classified into a
number of common units (collectively, the "
Opal Units
") based
on a pre-transaction equity value
for Opal equal to $1,501,870,000, less all principal and accrued interest
outstanding immediately after the Closing pursuant to that certain convertible
promissory note, dated as of May 1, 2021 (as amended, including that certain
First Amendment to Convertible Note, dated November 29, 2021"), held by ARCC
Beacon LLC, a Delaware limited liability company ("
Ares
"), (C) the Company will contribute the (x) the amount of cash in the
Trust Account
established by the Company with the proceeds from its initial public offering as
of immediately prior to the Closing (and before, for the avoidance of doubt,
giving effect to

                                       65

--------------------------------------------------------------------------------

Table of Contents



the exercise of redemption rights by any of the Company's shareholders (the "
Public Share Redemptions
")), minus (y) the aggregate amount of cash required to fund the ACT Share
Redemptions and any other obligations to be funded from the Trust Account, plus
(z) the aggregate cash proceeds actually received in respect of the PIPE
Investment (as defined below) and (E) New Opal will issue to Opal Fuels, and
Opal Fuels will in turn distribute to Opal HoldCo and Hillman RNG Investments,
LLC ("
Hillman
") a number of shares of Class D common stock, par value $0.0001 per share, of
New Opal (the "
New Opal Class
 D Common Stock
"), and distribute to Ares (together with Opal HoldCo and Hillman, collectively,
the "
Opal Equityholders
") shares of Class B common stock, par value $0.0001 per share, of New Opal (the
"
New Opal Class

B Common Stock ") (neither of which will have any economic value but will entitle the holder thereof to five votes per share or one vote per share, respectively), equal to the number of Opal Units held by each of the Opal Equityholders.



In addition, if New Opal's annual EBITDA for the calendar year 2023 exceeds
$238,000,000 (the "
First Earnout Triggering Event
"), New Opal will issue to Opal HoldCo, Ares and Hillman (collectively, the "
Earnout Participants
") an aggregate of 5,000,000 shares of New Opal Class B Common Stock and New
Opal Class D Common Stock and corresponding Opal Units (collectively, the "
First Earnout Tranche
") in accordance with the allocations set forth in the Business Combination
Agreement. Additionally, if New Opal's annual EBITDA for the calendar year 2024
exceeds $446,000,000 (the "
Second Earnout Triggering Event
"), New Opal will issue to the Earnout Participants an aggregate of 5,000,000
additional shares of New Opal Class B Common Stock and New Opal Class D Common
Stock and corresponding Opal Units (collectively, the "
Second Earnout Tranche
") in accordance with the allocations set forth in the Business Combination
Agreement. In the event that the First Earnout Triggering Event does not occur
but the Second Earnout Triggering Event does occur, New Opal will be obligated
to issue both the First Earnout Tranche and the Second Earnout Tranche upon the
occurrence of the Second Earnout Triggering Event.

The Business Combination is expected to close late in the first half of 2022, following the receipt of the required approval by the Company's shareholders and the fulfillment of other customary closing conditions.

PIPE Financing (Private Placement)



Concurrently with the execution of the Business Combination Agreement, the
Company entered into subscription agreements (the "
Subscription Agreements
") with certain investors, including, among others, an affiliate of the Company,
as well as additional third-party investors. Pursuant to the Subscription
Agreements, each investor agreed to subscribe for and purchase, and the Company
agreed to issue and sell to such investors, immediately prior to the Closing, an
aggregate of 12,500,000 shares of the Company's common stock for a purchase
price of $10.00 per share, for aggregate gross proceeds of $125,000,000 (the "
PIPE Investment
").

The closing of the PIPE Investment is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Subscription Agreements provide that the Company will grant the investors in the PIPE Investment certain customary registration rights.

Investor Rights Agreement



The Business Combination Agreement contemplates that, at the Closing, Opal
Fuels, Ares, Hillman and the Class B Shareholders (collectively the "
New Opal Holders
") will enter into an Investor Rights Agreement (the "
Investor Rights Agreement
"), pursuant to which, among other things, (i) the Company and the Company's
sponsor will agree to terminate the Registration and Shareholder Rights
Agreement, dated as of March 25, 2021, entered into by them in connection with
the Company's initial public offering, (ii) New Opal will provide the New Opal
Holders certain registration rights with respect to certain shares of New Opal
Class A common stock held by them or otherwise issuable to them pursuant to the
Business Combination Agreement, Second A&R LLC Agreement or the certificate of
incorporation of New Opal and (iii) the New Opal Holders will agree not to
transfer, sell, assign or otherwise dispose of their shares of New Opal Class A
common stock for up to 180 days following the Closing, subject to certain
exceptions.

                                       66

--------------------------------------------------------------------------------

Table of Contents

Results of Operations



Our entire activity since inception through December 31, 2021 relates to our
formation, the preparation for the Initial Public Offering, and since the
closing of the Initial Public Offering, the search for a prospective initial
Business Combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial Business Combination. We will generate
non-operating
income in the form of interest income on cash and cash equivalents and
non-operating
income in the form of interest and investment income on investments held in
Trust Account from the proceeds derived from the Initial Public Offering. We
expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses. Additionally, we recognize
non-cash
gains and losses within other income (expense) related to changes in recurring
fair value measurement of our warrant liabilities at each reporting period.

For the period from January 13, 2021 (inception) through December 31, 2021, we had a net loss of approximately $16.2 million from changes in the value of derivative warrant liabilities of approximately $10.8 million, approximately $4.9 million in general and administrative costs and financing costs attributable to the warrant liabilities of approximately $463,000, partially offset by a gain of approximately $12,000 on investments held in Trust Account.

Liquidity and Capital Resources

As of December 31, 2021, we had approximately $812,000 in our operating bank account and working capital of approximately $1.4 million.

Our liquidity needs up to December 31, 2021 had been satisfied through a payment of $25,000 from the sponsor to cover certain expenses on behalf of the Company in exchange for the issuance of the Founder Shares (as defined below), a loan under a promissory note from our sponsor of approximately $172,000 (the "Note"), and the net proceeds from the consummation of the Private Placement not held in the Trust Account. The Note was repaid in full on March 26, 2021. In addition, in order to finance transaction costs in connection with a Business Combination, our officers, directors and Initial Shareholders may, but are not obligated to, provide the Company with Working Capital Loans. To date, there are no amounts outstanding under any Working Capital Loans.

Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity from the sponsor or an affiliate of the sponsor, or certain of our officers and directors to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.



We continue to evaluate the impact of the
COVID-19
pandemic and have concluded that the specific impact is not readily determinable
as of the date of the balance sheet. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Contractual Obligations



We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities,
other than an administrative services agreement to pay our sponsor $10,000 per
month for office space, secretarial and administrative services provided to us
(see "
Administrative Services Agreement" below)
.

                                       67

--------------------------------------------------------------------------------

Table of Contents

Registration and Shareholder Rights

The holders of the Founder Shares, Private Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) are entitled to registration rights pursuant to a registration and shareholder rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we will register such securities. In addition, the holders have certain "piggy-back" registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement



We granted the underwriters a
45-day option
from the date of the prospectus to purchase up to 4,125,000 additional Units at
the Initial Public Offering price less the underwriting discounts and
commissions. On March 25, 2021, the underwriters partially exercised the
over-allotment option to purchase an additional 3,616,305 Units. The remaining
unexercised over-allotment option expired at the conclusion of the 45-day option
period.

The underwriters were entitled to an underwriting discount of $0.20 per unit, or approximately $6.2 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $10.9 million in the aggregate, will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.

Administrative Services Agreement

On March 25, 2021, we entered into an agreement that provided that, commencing on the date that our securities were first listed on Nasdaq through the earlier of consummation of the initial Business Combination and the liquidation, we agreed to pay the sponsor $10,000 per month for office space, secretarial and administrative services provided to us. We incurred $100,000 in expenses in connection with such services for the period from January 13, 2021 (inception) ended December 31, 2021 as reflected in the accompanying statements of operations.


In addition, the sponsor, officers and directors, or their respective affiliates
will be reimbursed for any
out-of-pocket
expenses incurred in connection with activities on our behalf, such as
identifying potential target businesses and performing due diligence on suitable
Business Combinations. Our audit committee will review on a quarterly basis all
payments that were made by us to the sponsor, executive officers or directors,
or their affiliates. Any such payments prior to an initial Business Combination
will be made using funds held outside the Trust Account.

Deferred Legal Fees

We entered into an engagement letter to obtain legal advisory services, pursuant to which our legal counsel agreed to defer their fees until the closing of the initial Business Combination. As of December 31, 2021, the Company recorded an aggregate of approximately $4.0 million in connection with such arrangement as deferred legal fees in the accompanying balance sheet.

Critical Accounting Policies

This management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as its critical accounting policies:


                                       68

--------------------------------------------------------------------------------

Table of Contents

Class A Ordinary shares subject to possible redemption

We account for our Class A ordinary shares subject to possible redemption in accordance with the guidance in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity" ("ASC 480"). Class A ordinary shares subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders' equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, as of December 31, 2021, 31,116,305 Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders' equity section of our balance sheet.

Immediately upon the closing of the Initial Public Offering, we recognized the accretion from initial book value to redemption amount, which approximates fair value. The change in the carrying value of Class A ordinary shares subject to possible redemption resulted in charges against additional paid-in capital (to the extent available), accumulated deficit and Class A ordinary shares.

Derivative Warrant Liabilities

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

The warrants issued in our Initial Public Offering and the underwriters' exercise of their overallotment option and Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statement of operations. The fair value of warrants issued in connection with the Initial Public Offering and Private Placement were initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Placement warrants have been estimated using a Monte Carlo simulation model each measurement date. The fair value of Warrants issued in connection with our Initial Public Offering have subsequently been measured based on the listed market price of such warrants. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.

Investments Held in Trust Account

Our portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When our investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When our investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in net gain on investments held in Trust Account in the accompanying statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.


                                       69

--------------------------------------------------------------------------------

Table of Contents

Net loss per ordinary shares

We have two classes of shares: Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the periods. We have not considered the effect of the warrants sold in the Initial Public Offering and the Private Placement to purchase an aggregate of 15,446,522, of the Company's Class A ordinary shares in the calculation of diluted net income (loss) per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the period January 13, 2021 (inception) through December 31, 2021. Accretion associated with the Class A ordinary shares subject to possible redemption is excluded from earnings per share as the redemption value approximates fair value.

Recent Accounting Pronouncements



In August 2020, the FASB issued Accounting Standards Update ("ASU")
2020-06,
"Debt - Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic
815-40)"
("ASU
2020-06")
to simplify accounting for certain financial instruments. ASU
2020-06
eliminates the current models that require separation of beneficial conversion
and cash conversion features from convertible instruments and simplifies the
derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional
disclosures for convertible debt and freestanding instruments that are indexed
to and settled in an entity's own equity. ASU
2020-06
amends the diluted earnings per share guidance, including the requirement to use
the
if-converted
method for all convertible instruments. ASU
2020-06
is effective for the Company on January 1, 2024 and should be applied on a full
or modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. The Company is currently assessing the impact, if any, that ASU
2020-06
would have on its financial position, results of operations or cash flows.

Our management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

Off-Balance Sheet Arrangements



As of December 31, 2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.

JOBS Act



On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" under
the JOBS Act and are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We elected to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for
non-emerging
growth companies. As a result, our financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.

As an "emerging growth company", we are not required to, among other things,
(i) provide an auditor's attestation report on our system of internal controls
over financial reporting pursuant to Section 404, (ii) provide all of the
compensation disclosure that may be required of
non-emerging
growth public companies under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, (iii) comply with any requirement that may be adopted by the
PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's
report providing additional information about the audit and the financial
statements (auditor discussion and analysis), and (iv) disclose certain
executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our initial public offering or until we are no
longer an "emerging growth company," whichever is earlier.

                                       70

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses