References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to CleanTech Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors, references to the
"Sponsor" refer to CleanTech Sponsor, and references to the "Co-Sponsor" refer
to CleanTech Investments. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the condensed consolidated financial statements and the notes thereto contained
elsewhere in this Quarterly Report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" that are not
historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. All statements,
other than statements of historical fact included in this Quarterly Report
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's final prospectus for its Initial Public
Offering (as defined below) filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated on June 18, 2020 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Quarterly Report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of our initial
public offering (the "Initial Public Offering") and the private placement of the
Private Placement Warrants (as defined below), the proceeds of the sale of our
shares in connection with our initial business combination (pursuant to forward
purchase agreements or backstop agreements we may enter into following the
consummation of the Initial Public Offering or otherwise), shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the
target, or a combination of the foregoing.
Business Combination Agreement
On December 16, 2021, the Company entered into an Agreement and Plan of Merger,
as amended on January 30, 2022 through Amendment No. 1 (the "Merger Agreement,"
and together with the other agreements and transactions contemplated by the
Merger Agreement, the "Business Combination") with CleanTech Merger Sub, Inc., a
Delaware corporation and a wholly owned subsidiary of CleanTech ("Merger Sub"),
and Nauticus Robotics, Inc., a Texas corporation ("Nauticus"). Pursuant to the
terms of the Merger Agreement, a business combination between CleanTech and
Nauticus will be effected through the merger of Merger Sub with and into
Nauticus, with Nauticus surviving the merger as a wholly owned subsidiary of
CleanTech (the "Merger"). The Board of Directors of CleanTech (the "Board") has
unanimously (i) approved and declared advisable the Merger Agreement, the Merger
and the other transactions contemplated thereby and (ii) resolved to recommend
approval of the Merger Agreement and related matters by the stockholders of
CleanTech.
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Preferred Stock. Immediately prior to the Effective Time, each share of Nauticus
Preferred Stock that is issued and outstanding immediately prior to such time
shall automatically convert into shares of Nauticus Common stock, par value
$0.01 per share (the "Nauticus Common Stock"), in accordance with its
Certificate of Incorporation (collectively, the "Nauticus Preferred Stock
Conversion"). An aggregate of 15,062,524 shares of CLAQ Common Stock will be
issued to the holders of Nauticus Preferred Stock.
Convertible Notes. Immediately prior to the Effective Time, each of (i) that
certain Unsecured Convertible Promissory Note, dated June 19, 2021, by and
between Goradia Capital, LLC and Nauticus, as amended on December 16, 2021, (ii)
that certain Unsecured Convertible Promissory Note, August 3, 2021, by and
between Material Impact Fund II, L.P. and Nauticus, as amended on December 16,
2021, (iii) that certain Unsecured Convertible Promissory Note, dated October
22, 2021, by and between In-Q-Tel, Inc. and Nauticus, as amended on December 16,
2021, (iv) that certain Unsecured Convertible Promissory Note, dated July 28,
2020, by and between Schlumberger Technology Corporation and Nauticus, as
amended on December 16, 2021, and (v) that certain Unsecured Convertible
Promissory Note, dated December 7, 2020, by and between Transocean Inc. and
Nauticus, as amended on December 16, 2021 (each, a "Nauticus Convertible Note"
and collectively, the "Nauticus Convertible Notes") shall automatically convert
into shares of Nauticus Common Stock in accordance with the terms of each such
Nauticus Convertible Note (collectively, the "Nauticus Convertible Notes
Conversion"). An aggregate of 5,299,543 shares of CLAQ Common Stock will be
issued to the holders of Nauticus Convertible Notes.
Common Stock. At the Effective Time, following the Nauticus Preferred Stock
Conversion and Nauticus Convertible Notes Conversion, each share of Nauticus
Common Stock (including shares of Nauticus Common Stock outstanding as a result
of the Nauticus Preferred Stock Conversion and Nauticus Convertible Notes
Conversion, but excluding shares of the holders of which perfect rights of
appraisal under Delaware law) will be converted into the right to receive the
applicable Per Share Merger Consideration (as defined below) and the Earnout
Shares (as defined below). An aggregate of 9,669,216 shares of CLAQ Common Stock
will be issued to the holders of Nauticus Common Stock.
Stock Options. At the Effective Time, each outstanding option to purchase shares
of Nauticus Common Stock (a "Nauticus Option"), whether or not then vested and
exercisable, will be assumed by CLAQ and converted automatically (and without
any required action on the part of such holder of outstanding option) into an
option to purchase shares of the CLAQ's Common Stock equal to the number of
shares determined by multiplying the number of shares of the Nauticus Common
Stock subject to such Nauticus Option immediately prior to the Effective Time by
the Exchange Ratio (as defined below), which product shall be rounded down to
the nearest whole number of shares, at a per share exercise price determined by
dividing the per share exercise price of such Nauticus Option immediately prior
to the Effective Time by the Exchange Ratio. Options to purchase an aggregate of
4,055,704 shares of CLAQ Common Stock will be issued to the holders of Nauticus
Options.
Earnout Shares. Following the closing of the merger, former holders of shares of
Nauticus Common Stock (including shares received as a result of the Nauticus
Preferred Stock conversion and the Nauticus Convertible Notes conversion) shall
be entitled to receive their pro rata share of up to 7,500,000 additional shares
of CleanTech Common Stock (the "Earnout Shares") if, within a 5-year period
following the signing date of the Merger Agreement, the closing share price of
the CleanTech Common Stock equals or exceeds any of three thresholds over any 20
trading days within a 30-day trading period (each, a "Triggering Event").
(i) one-half of the Escrow Shares will be released if, within a 5-year period
following the signing date of the Merger Agreement, the volume-weighted
average price of the Combined Company Common Stock equals or exceeds $15.00
per share over any 20 trading days within a 30-day trading period;
(ii) one-quarter of the Escrow Shares will be released if, within a 5-year period
following the signing date of the Merger Agreement, the volume-weighted
average price of the Combined Company Common Stock equals or exceeds $17.50
per share over any 20 trading days within a 30-day trading period; and
(iii) one-quarter of the Escrow Shares will be released if, within a 5-year
period following the signing date of the Merger Agreement, the
volume-weighted average price of the Combined Company Common Stock equals
or exceeds $20.00 per share over any 20 trading days within a 30-day
trading period.
On or about December 14, 2021, the Company entered into subscription agreements,
with certain investors pursuant to which, among other things, the Company agreed
to issue and sell, in a private placement to close immediately prior to the
closing of the Business Combination, an aggregate of 3,530,000 shares of common
stock for $10.00 per share for a total of $35,300,000 (the "Equity Financing").
On December 16, 2021, the Company entered into a Securities Purchase Agreement
(as further described below) with certain investors purchasing up to an
aggregate of $40,000,000 in principal amount of secured debentures (the
"Debentures") and warrants (the "Warrants") with an exercise price of $20.00
substantially concurrently with the closing of the Business Combination (the
"Debt Financing," and together with the Equity Financing, the "PIPE
Investment"). As of March 31, 2022, ATW Special Situations I LLC ("ATW") is the
only purchaser and has subscribed for Debentures in the aggregate principal
amount of $37,959,184 and associated warrants for 3,036,735 shares of the
Combined Company's common stock. ATW is managed by ATW Partners Opportunities
Management, LLC, which is an affiliate of Chardan Capital Markets, LLC
("Chardan"), and the Company's director, Mr. Jonas Grossman, is the Managing
Partner and President of Chardan. Chardan will not receive any fees or
compensation for ATW's participation in the Debt Financing.
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It is anticipated that upon completion of the Business Combination, CLAQ's
public stockholders (other than the PIPE Investment investors) would retain an
ownership interest of approximately 28.5% in the Combined Company, the PIPE
Investment investors will own approximately 5.6% of the Combined Company (such
that the public stockholders, including the PIPE Investment investors, would own
approximately 34.1% of the Combined Company), the Co-Sponsors, officers,
directors and other holders of founder shares will retain an ownership interest
of approximately 6.8% of the Combined Company and the Nauticus stockholders will
own approximately 59.1% (including the 7,500,000 Earnout Shares) of the Combined
Company. The ownership percentage with respect to the Combined Company does not
take into account (i) the redemption of any shares by the CLAQ's public
stockholders or (ii) the issuance of any additional shares upon the closing of
the Business Combination under the 2015 Equity Incentive Plan. If the actual
facts are different from these assumptions (which they are likely to be), the
percentage ownership retained by the CLAQ stockholders will be different. See
"Unaudited Pro Forma Condensed Combined Financial Information."
The Merger Agreement contains customary representations and warranties of the
parties thereto with respect to, among other things, (a) entity organization,
good standing and qualification, (b) capital structure, (c) authorization to
enter into the Merger Agreement, (d) compliance with laws and permits, (e)
taxes, (f) financial statements and internal controls, (g) real and personal
property, (h) material contracts, (i) environmental matters, (j) absence of
changes, (k) employee matters, (l) litigation, and (m) brokers and finders.
The Merger Agreement includes customary covenants of the parties with respect to
operation of their respective businesses prior to consummation of the Merger and
efforts to satisfy conditions to consummation of the Merger. The Merger
Agreement also contains additional covenants of the parties, including, among
others, covenants providing for CleanTech and Nauticus to use reasonable best
efforts to cooperate in the preparation of the Registration Statement and Proxy
Statement (as each such term is defined in the Merger Agreement) required to be
filed in connection with the Merger and to obtain all requisite approvals of
their respective stockholders including, in the case of CleanTech, approvals of
the restated certificate of incorporation, the share issuance under Nasdaq rules
and the omnibus incentive plan. CleanTech has also agreed to include in the
Proxy Statement the recommendation of its board that stockholders approve all of
the proposals to be presented at the special meeting.
CleanTech has agreed to approve and adopt a 2022 omnibus incentive plan (the
"Incentive Plan") to be effective as of the Closing and in a form mutually
acceptable to CleanTech and Nauticus. The Incentive Plan shall provide for an
initial aggregate share reserve equal to 5% of the number of shares of CleanTech
Common Stock on a fully diluted basis at the Closing. Subject to approval of the
Incentive Plan by the CleanTech's stockholders, CleanTech has agreed to file a
Form S-8 Registration Statement with the SEC following the Effective Time with
respect to the shares of CleanTech Common Stock issuable under the Incentive
Plan.
Each of CleanTech and Nauticus has agreed that from the date of the Merger
Agreement to the Effective Time or, if earlier, the valid termination of the
Merger Agreement in accordance with its terms, it will not initiate any
negotiations with any party, or provide non-public information or data
concerning it or its subsidiaries to any party relating to an Acquisition
Proposal or Alternative Transaction (as such terms are defined in the Merger
Agreement) or enter into any agreement relating to such a proposal. Each of
CleanTech and Nauticus has also agreed to use its reasonable best efforts to
prevent any of its representatives from doing the same.
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The consummation of the Merger is conditioned upon, among other things, (i)
receipt of the CleanTech stockholder approval and Nauticus stockholder approval,
(ii) the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the
absence of any governmental order, statute, rule or regulation enjoining or
prohibiting the consummation of the Transactions, (iv) the effectiveness of the
Registration Statement under the Securities Act, (v) CleanTech having at least
$5,000,001 of net tangible assets (as determined in accordance with Rule
3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), (vi) solely with respect to CleanTech, (A) the representations and
warranties of Nauticus being true and correct to applicable standards applicable
and each of the covenants of Nauticus having been performed or complied with in
all material respects and (B) the approval of the conversion of the convertible
notes and (vii) solely with respect to Nauticus, (A) the representations and
warranties of CleanTech being true and correct to applicable standards
applicable and each of the covenants of CleanTech having been performed or
complied with in all material respects (B) the receipt of the approval for
listing by Nasdaq of the shares of CleanTech Common Stock to be issued in
connection with the transactions contemplated by the Merger Agreement, (C) the
effective resignations of certain directors and executive officers of CleanTech,
(D) the amount of Minimum Cash Condition (as defined in the Merger Agreement)
being equal to or exceeding $50,000,000.
Other Agreements
The Business Combination Agreement contemplates the execution of various
additional agreements and instruments, on or before the Closing, including,
among others, the following:
Support Agreements
In connection with the execution of the Merger Agreement, CleanTech Sponsor I
LLC and CleanTech Investments, LLC (each, a "Sponsor," and collectively, the
"Co-Sponsors") entered into a support agreement (the "Sponsor Support
Agreement") with Nauticus pursuant to which the Sponsors have agreed to vote all
shares of CleanTech Common Stock beneficially owned by them in favor of the
Merger.
In addition, in connection with the execution of the Merger Agreement, certain
stockholders of Nauticus owning approximately 88.8% of the voting power of
Nauticus entered into a support agreement (the "Nauticus Support Agreement")
with CleanTech and Nauticus pursuant to which the stockholders agreed to vote
all shares of Nauticus beneficially owned by them in favor of the Merger.
Subscription Agreements
In connection with the execution of the Merger Agreement, CleanTech entered into
subscription agreements (collectively, the "Subscription Agreements") with
certain parties subscribing for shares of CleanTech Common Stock (the
"Subscribers") pursuant to which the Subscribers have agreed to purchase, and
CleanTech has agreed to sell to the Subscribers, an aggregate of 3,530,000
shares of CleanTech Common Stock, for a purchase price of $10.00 per share and
an aggregate purchase price of $35.3 million. The obligations to consummate the
transactions contemplated by the Subscription Agreements are conditioned upon,
among other things, customary closing conditions and the consummation of the
transactions contemplated by the Merger Agreement.
Securities Purchase Agreement
In connection with the execution of the Merger Agreement, CleanTech and Nauticus
entered into Securities Purchase Agreement with certain investors purchasing up
to an aggregate of $40,000,000 in principal amount of Debentures and Warrants.
The number of shares of Common Stock into which the Debentures are convertible
is equal to 120% of the aggregate issued amount of the Debentures divided by the
conversion price of $15.00, and the number of shares of Common Stock into which
the associated Warrants are exercisable is equal to 100% of the outstanding
principal amount of the Debentures divided by the conversion price, with an
exercise price equal to $20.00, subject to adjustment ("Debt Financing"). The
obligations to consummate the transactions contemplated by the Securities
Purchase Agreement are conditioned upon, among other things, customary closing
conditions and all conditions precedent to the Merger set forth in the Merger
Agreement shall have been satisfied or waived.
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Amended and Restated Registration Rights Agreement
In connection with the Closing, Nauticus, CleanTech and certain stockholders of
each of Nauticus and CleanTech who will receive shares of CleanTech Common Stock
pursuant to the Merger Agreement, will enter into an amended and restated
registration rights agreement ("Registration Rights Agreement") mutually
agreeable to CleanTech and Nauticus, which will become effective upon the
consummation of the Merger.
Lock-up Agreement and Arrangements
In connection with the Closing, the Sponsors and certain Nauticus stockholders
will enter into a lock-up agreement (the "Sponsor Lock-Up Agreement" and
"Company Stockholder Lock-up Agreement) with Nauticus and CleanTech, pursuant to
which each will agree, subject to certain customary exceptions, not to:
(i) offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of CleanTech Common Stock received as merger
consideration and held by it immediately after the Effective Time (the "Lock-Up
Shares"), or enter into a transaction that would have the same effect;
(ii) enter into transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of any of such shares, whether any of these
transactions are to be settled by delivery of such shares, in cash or otherwise;
or
(iii) publicly disclose the intention to make any offer, sale, pledge or
disposition, or to enter into any transaction, swap, hedge or other arrangement,
or engage in any "Short Sales" (as defined in the Sponsor Lock-Up Agreement and
Company Stockholder Lock-up Agreement) with respect to any security of
CleanTech;
during a "Lock-Up Period" under their respective agreements.
Under the Sponsor Lock-up Agreement, the Lock-Up period means the period
commencing on the Closing Date and ending on the earlier of (x) the one year
anniversary of the Closing Date; (y) the date on which the volume weighted
average price of shares of common stock equals or exceeds $13.00 per share for
twenty (20) of any thirty (30) consecutive trading days commencing after the
Closing on Nasdaq, and (z) the date specified in a written waiver duly executed
by Nauticus; provided that the restrictions set forth in the Sponsor Lock-up
Agreement do not apply to (1) transfers or distributions to such stockholder's
current or former general or limited partners, managers or members,
stockholders, other equity holders or direct or indirect affiliates (within the
meaning of Rule 405 under the Securities Act of 1933, as amended) or to the
estates of any of the foregoing; (2) transfers by bona fide gift to a member of
the stockholder's immediate family or to a trust, the beneficiary of which is
the stockholder or a member of the stockholder's immediate family for estate
planning purposes; (3) by virtue of the laws of descent and distribution upon
death of the stockholder; or (4) pursuant to a qualified domestic relations
order, in each case where such transferee agrees to be bound by the terms of the
Sponsor Lock-up Agreement.
Under the Company Lock-up Agreement, the Lock-Up period means the period
commencing on the Closing Date and ending on the earlier of (x) the date that is
180 calendar days after the consummation of the Business Combination, (y) the
date on which the volume weighted average price of shares of common stock equals
or exceeds $13.00 per share for twenty (20) of any thirty (30) consecutive
trading days commencing after the Closing on Nasdaq, and (z) the date specified
in a written waiver duly executed by the Sponsors and CleanTech; provided that
the restrictions set forth in the Company Lock-up Agreement do not apply to (1)
transfers or distributions to such stockholders current or former general or
limited partners, managers or members, stockholders, other equityholders or
other direct or indirect affiliates (within the meaning of Rule 405 under the
Securities Act of 1933, as amended) or to the estates of any of the foregoing;
(2) transfers by bona fide gift to a member of the stockholder's immediate
family or to a trust, the beneficiary of which is the stockholder or a member of
the stockholder's immediate family for estate planning purposes; (3) by virtue
of the laws of descent and distribution upon death of the stockholder; (4)
pursuant to a qualified domestic relations order, in each case where such
transferee agrees to be bound by the terms of this Agreement; (5) transfers or
distributions of, or other transactions involving, securities other than the
Lock-up Shares (including, without limitation, securities acquired in the PIPE
or in open market transactions); or (6) in the case of Angela Berka (or Reginald
Berka with respect to any community, marital or similar interest he may have in
the following shares), the transfer of up to 1,000,000 shares of Lock-up Shares
in a privately negotiated sale to another company stockholder, who shall enter
into a Lock-Up Agreement (or amend an existing Lock-Up Agreement) containing the
same terms and conditions as this Agreement with respect to such shares, or the
entry into any agreement with respect to such a sale entered into before, at or
after the Effective Time.
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Director Nomination Agreement
In connection with the Closing, CleanTech, the Sponsors and Nauticus will enter
into a Director Nomination Agreement (the "Director Nomination Agreement")
pursuant to which CleanTech will agree to nominate an individual designated by
the Sponsors to the Board of Directors of the Combined Company, effective as of
immediately prior to the Closing.
Director Designation Agreement
In connection with the execution of the Merger Agreement, CleanTech, Nauticus
and certain Nauticus stockholders entered into a director designation agreement
with Transocean, Inc. ("Transocean") to take all necessary action to cause a
member designated by Transocean (the "Transocean Designee") to remain on, or
otherwise be appointed to, the Board, from and after the effective time of the
Merger, as a Class III member of the Board, for an initial term expiring at the
third annual meeting following the date of the Second Amended and Restated
Certificate of Incorporation to be adopted in connection with the Merger.
Indemnification Agreements
In connection with the Closing, CleanTech has agreed to enter into customary
indemnification agreements, in form and substance reasonably acceptable to
CleanTech and Nauticus, with the individuals who will be nominated and, subject
to stockholder approval, elected to CleanTech's board of directors effective as
of the Closing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the three months ended March 31, 2022 and March
31, 2021 were organizational activities, those necessary to prepare for the
Initial Public Offering, described below, and, after the Initial Public
Offering, identifying a target company for a business combination. We do not
expect to generate any operating revenues until after the completion of our
initial business combination. We generate non-operating income in the form of
interest income on cash and cash equivalents held after the Initial Public
Offering. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended March 31, 2022, we had net income of $1,951,670,
which resulted from by the change in fair value of warrant liabilities of
$2,413,500, a net gain on investments held in Trust Account in the amount of
$17,545, which was partially offset by operating costs of $458,647, franchise
tax expense of $20,728.
For the three months ended March 31, 2021, we had no revenue or expenses.
Liquidity and Capital Resources
As of March 31, 2022 and December 31, 2021, the Company had $296,381 and
$518,905 in cash held outside of the Trust Account, respectively, a working
capital deficit of $220,239 and surplus of $259,136, respectively.
The Company's liquidity needs prior to the consummation of the Initial Public
Offering were satisfied through the proceeds of $25,000 from the sale of the
Founder Shares, and a loan of up to $250,000 under an unsecured and non-interest
bearing promissory note. Subsequent to the consummation of the Initial Public
Offering, the Company's liquidity will be satisfied through the net proceeds
from the private placement held outside of the Trust Account.
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In addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsor or an affiliate of the Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us funds as may be
required ("Working Capital Loans"). As of March 31, 2022 and December 31, 2021,
there were no amounts outstanding under any Working Capital Loan.
For the three months ended March 31, 2021, net cash used in operating activities
was $489,524, which was due to a net gain on investments in the Trust Account of
$17,545, the change in the fair value of warrant liabilities of $2,413,500, and
changes in operating assets and liabilities of $10,149, offset in part by our
net income of $1,951,670.
For the three months ended March 31, 2021, net cash provided by financing
activities was $267,000, which was fully comprised of proceeds from the related
party promissory note.
For the three months ended March 31, 2021, there was no cash provided or used in
operations.
We have incurred and expect to continue to incur significant costs in pursuit of
our acquisition plans. We may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing either to complete our business combination or
because we become obligated to redeem a significant number of public shares upon
completion of our business combination, in which case we may issue additional
securities or incur debt in connection with such business combination.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2022 or
December 31, 2021.
Contractual Obligations
Promissory Note - Related Party
On March 1, 2021, the Company issued an unsecured promissory note to the Sponsor
(the "Promissory Note"), pursuant to which the Company could borrow an aggregate
of up to $250,000 to cover expenses related to the Initial Public Offering. The
Promissory Note was non-interest bearing and is payable on the earlier of
Promptly after the date on which the Company consummates an Initial Public
Offering of its securities or (ii) the completion of the Initial Public
Offering. The outstanding balance under the Promissory Note of $188,302 was
repaid on July 23, 2021. The promissory note is no longer available to the
Company.
On March 23, 2022, the Company entered into a Promissory Note with the Sponsor
(the "Second Promissory Note") to which the Company could borrow up to an
aggregate of $267,000. The Second Promissory Note is non-interest bearing and
payable upon the earlier of (i) completion of the initial Business Combination
or (ii) the date on which the Company determines that it is unable to effect a
Business Combination. As March 31, 2022, the outstanding balance under the
Second Promissory Note was $267,000.
Underwriter's Agreement
The Company granted the underwriter a 45-day option to purchase up to 2,250,000
additional Units to cover over-allotments at the Initial Public Offering price,
less the underwriting discounts and commissions. On July 28, 2021, the
Underwriters exercised the over-allotment option in full and purchased an
additional 2,250,000 Units for an aggregate purchase price of $22,500,000.
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In connection with the closing of the Initial Public Offering and subsequent
exercise of the over-allotment option, the underwriter was paid a cash
underwriting fee of $0.20 per Unit, or $3,450,000 in the aggregate.
Related Party Extension Loans
The Company may extend the period of time to consummate a Business Combination
up to two times, each by an additional three months (for a total of 18 months to
complete a Business Combination). In order to extend the time available for the
Company to consummate a Business Combination, without the need for a separate
stockholder vote, is for the Company's initial stockholders or their affiliates
or designees, upon five days' advance notice prior to the application deadline,
to deposit into the trust account $1,500,000 or $1,725,000 if the underwriters'
over-allotment option is exercised in full ($0.10 per public share, or an
aggregate of $3,000,000 (or $3,450,000 if the over-allotment option is exercised
in full) if extended for each of the full three months), on or prior to the date
of the application deadline. In the event that the stockholders, or affiliates
or designees, elect to extend the time to complete the Company's initial
business combination and deposit the applicable amount of money into trust, the
initial stockholders will receive a non-interest bearing, unsecured promissory
note equal to the amount of any such deposit that will not be repaid in the
event that the Company is unable to close a business combination unless there
are funds available outside the trust account to do so. Such note would be paid
upon consummation of the Company's initial Business Combination.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements, and income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified
the following critical accounting policies:
Derivative Warrant Liabilities
The Company accounts for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in ASC 480, Distinguishing
Liabilities from Equity ("ASC 480"), and ASC 815, Derivatives and Hedging ("ASC
815"). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to
ASC 480, and whether the warrants meet all of the requirements for equity
classification under ASC 815, including whether the warrants are indexed to the
Company's own Common Stock, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted
at the time of warrant issuance and as of each subsequent quarterly period end
date while the warrants are outstanding.
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, Derivatives and Hedging. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value on the grant date and is then re-valued at
each reporting date, with changes in the fair value reported in the consolidated
statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative liabilities
are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. For the initial valuation, the
Company utilized a Monte Carlo simulation model for the initial valuation of the
Public Warrants, and the publicly-traded value for the subsequent valuation of
the Public Warrants. Changes in the estimated fair value of the warrants are
recognized as a non-cash gain or loss on the consolidated statements of
operations. The fair value of the Private Placement Warrants was estimated using
a Black-Scholes Option Pricing Model (see Note 9). The subsequent measurement of
the Public Warrants as of March 31, 2021 and December 31, 2021 is classified as
Level 1, as such, an observable market quote in an active market under the
ticker CLAQW was used.
Common stock subject to possible redemption
The Company accounts for its Common Stock subject to possible redemption in
accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from
Equity. Common Stock subject to mandatory redemption (if any) is classified as
liability instruments and are measured at fair value. Conditionally redeemable
Common Stock (including Common Stock that feature redemption rights that are
either within the control of the holder or subject to redemption upon occurrence
of uncertain events not solely within the Company's control) are classified as
temporary equity. At all other times, Common Stock are classified as
stockholders' equity. The Company's Common Stock feature certain redemption
rights that are considered to be outside of the Company's control and subject to
the occurrence of uncertain future events. Accordingly, as of March 31, 2022 and
December 31, 2021, 17,250,000 Common Stock subject to possible redemption are
presented as temporary equity, outside of the stockholders' deficit section of
the Company's balance sheet. Effective with the closing of the Initial Public
Offering, the Company recognized the accretion from the initial book value to
redemption amount, which resulted in charges against additional paid-in capital
(to the extent available) and accumulated deficit.
32
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable Common Stock to equal the redemption
value at the end of each reporting period. This method would view the end of the
reporting period as if it were also the redemption date for the security.
Increases or decreases in the carrying amount of redeemable Common Stock are
affected by charges against additional paid in capital and accumulated deficit.
Net income Per Share of Common Stock
Net income per share of common stock is computed by dividing net earnings by the
weighted-average number of shares of common stock outstanding during the period
(for all periods during which these shares were subject to forfeiture, the
calculation of weighted average shares outstanding excludes an aggregate of
562,500 shares of common stock held by the Sponsor that were subject to
forfeiture). The Company has not considered the effect of the Warrants sold in
the Initial Public Offering and private placement to purchase an aggregate of
15,800,000 shares in the calculation of diluted income per share, since the
exercise of the Warrants are contingent upon the occurrence of future events and
the inclusion of such Warrants would be anti-dilutive.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's condensed consolidated financial statements.
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