References to the "company," "our," "us" or "we" refer to
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 otherSEC filings.
Overview
We are a blank check company incorporated on
Our registration statement for our initial public offering (the "Initial Public
Offering") was declared effective on
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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
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 withContinental Stock Transfer & Trust Company acting as trustee and invested inUnited 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 directU.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
Proposed Business Combination
OnDecember 2, 2021 , the Company,Opal HoldCo LLC , aDelaware limited liability company (" OpalHoldCo "), andOpal Fuels LLC , aDelaware 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 ofOpal 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 theCayman Islands and domesticating to, and continuing as a corporation incorporated under the laws of, theState 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 " NewOpal 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 ofMay 1, 2021 (as amended, including that certain First Amendment to Convertible Note, datedNovember 29, 2021 "), held byARCC Beacon LLC , aDelaware 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
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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 thePIPE Investment (as defined below) and (E) New Opal will issue toOpal Fuels , andOpal Fuels will in turn distribute toOpal 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 " NewOpal 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 " NewOpal 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
Investor Rights Agreement
The Business Combination Agreement contemplates that, at the Closing,Opal Fuels , Ares, Hillman and the ClassB 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 ofMarch 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
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Results of Operations
Our entire activity since inception throughDecember 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
Liquidity and Capital Resources
As of
Our liquidity needs up to
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
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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. OnMarch 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
Administrative Services Agreement
On
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
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
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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
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
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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
Recent Accounting Pronouncements
InAugust 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 onJanuary 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning onJanuary 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 ofDecember 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
OnApril 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
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