References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Zimmer Energy Transition Acquisition Corp. References to our
"management" or our "management team" refer to our officers, references to the
"sponsor" refer to ZETA Sponsor LLC, a Delaware limited liability company. 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 Quarterly 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 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. The words
"anticipate," "believe," "continue," "could," "estimate," "expect," "intend,"
"may," "might," "plan," "possible," "potential," "predict," "project," "should,"
"would" and similar expressions may identify forward-looking statements, but the
absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Quarterly Report are based on
our current expectations and beliefs concerning future developments and their
potential effects on us. There can be no assurance that future developments
affecting us will be those that we have anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of which are beyond
our control) or other assumptions that may cause actual results or performance
to be materially different from those expressed or implied by these
forward-looking statements. These risks and uncertainties include, but are not
limited to, those factors described in the section entitled "Risk Factors" of
the Company's final prospectus for our Initial Public Offering (as defined
below) filed with the Securities and Exchange Commission (the "SEC") and in our
other SEC filings. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these forward-looking
statements. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as may be required under applicable securities laws.
Overview
We are a blank check company incorporated on February 25, 2021 as a Delaware
corporation and formed for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the "Business Combination"). We have
not identified any Business Combination target. 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 (as defined
below) 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 the Forward Purchase Agreements (as defined below) entered into in connection
with the Initial Public Offering or other forward purchase agreements or
backstop agreements we may enter into following the consummation of our Initial
Public Offering or otherwise), our capital stock, debt or a combination of cash,
stock and debt.
We expect to incur significant costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to complete a Business Combination will be
successful.
Results of Operations
As of September 30, 2021, we had not commenced any operations. All activity for
the period from February 25, 2021 (inception) through September 30, 2021 relates
to our formation and Initial Public Offering, and, since the completion of the
Initial Public Offering, our search for a target to consummate a Business
Combination. We will not generate any operating revenues until after the
completion of a Business Combination, at the earliest. We will generate
non-operating income in the form of interest income from the proceeds derived
from the Initial Public Offering and placed in the Trust Account (as defined
below).
19
Table of Contents
For the three months ended September 30, 2021, we had net income of $11,216,117,
consisting of formation and operating costs of $3,132 and general and
administrative costs of $395,056, offset by an unrealized gain on fair value of
warrants and forward purchase units of $11,607,688 and gain on marketable
securities (net), dividends and interest on investment held in the Trust Account
of $6,617.
For the period from February 25, 2021 (inception) through September 30, 2021, we
had net income of $2,786,318, consisting of formation and operating costs of
$14,388, general and administrative costs of $554,323, financing expense of
$3,196,156 and offering costs allocated to warrants of $794,474, offset by an
unrealized gain on fair value of warrants and forward purchase units of
$7,339,042 and a gain on marketable securities (net), dividends and interest on
investment held in the Trust Account of $6,617.
Liquidity and Capital Resources
Our liquidity needs have been satisfied prior to the completion of our Initial
Public Offering through a capital contribution of our sponsor of $25,000 for the
shares of our Class B common stock, par value $0.0001 per share (the "founder
shares"), and a loan available to us of $300,000 by our sponsor under an
unsecured promissory note.
On June 18, 2021, we consummated our Initial Public Offering of 34,500,000 units
(the "Units"), which includes the exercise in full of the underwriters' option
to purchase an additional 4,500,000 Units at the initial public offering price
to cover over-allotments. Each Unit consists of one share of Class A common
stock, $0.0001 par value per share, and one-third of one redeemable warrant.
Each whole warrant entitles the holder thereof to purchase one share of our
Class A common stock at a price of $11.50 per share, subject to adjustment, and
only whole warrants are exercisable. The Units were sold at an offering price of
$10.00 per Unit, generating gross proceeds of $345,000,000. Since August 6,
2021, holders of the Units may elect to separately trade the public shares and
warrants included in the Units. No fractional warrants are issued upon
separation of the Units and only whole warrants trade. Simultaneously with the
consummation of the Initial Public Offering and the issuance and sale of the
Units on June 18, 2021, we consummated the private placement of 10,550,000
warrants (the "Private Placement Warrants") at a price of $1.00 per Private
Placement Warrant, generating total proceeds of $10,550,000 (the "Private
Placement").
Transaction costs for the Initial Public Offering amounted to $18,426,851,
consisting of $6,200,000 of underwriting discount, $10,850,000 of deferred
underwriting discount, and $1,376,851 of other offering costs.
Upon closing of the Initial Public Offering and the Private Placement, a total
of $345,000,000 ($10.00 per Unit) was placed in a U.S.-based trust account (the
"Trust Account"), with Continental Stock Transfer & Trust Company acting as
trustee. The proceeds held in the Trust Account have been invested only in U.S.
government treasury obligations with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 under the Investment
Company Act of 1940, as amended, which invest only in direct U.S. government
treasury obligations.
As of September 30, 2021, we had cash outside our Trust Account of $1,788,097
and had working capital of $2,087,616 (not taking into account any tax
obligations). All remaining cash from the Initial Public Offering is held in the
Trust Account and is generally unavailable for use prior to an initial Business
Combination. We believe the cash outside of our Trust Account is sufficient to
meet the expenditures required for operating our business prior to our initial
Business Combination.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
taxes payable and deferred underwriting discounts and commissions) and the
proceeds from the sale of the Forward Purchase Units (as defined below) to
complete our initial Business Combination. We may withdraw interest to pay our
franchise and income taxes. We estimate our annual franchise tax obligations for
the taxable years beginning after the completion of our Initial Public Offering,
based on the number of shares of our common stock authorized and outstanding
after the completion of our Initial Public Offering, to be $200,000, which is
the maximum amount of annual franchise taxes payable by us as a Delaware
corporation per annum, and which we may pay from funds from the Initial Public
Offering held outside of the Trust Account or from interest earned on funds held
in the Trust Account and released to use for this purpose. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our initial Business Combination, the remaining proceeds held in the
Trust Account will be used as working capital to finance the operations of the
target business or businesses, make other acquisitions and pursue our growth
strategies.
20
Table of Contents
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business prior to our initial Business
Combination. However, if our estimates of the costs of identifying a target
business, undertaking in-depth due diligence and negotiating an initial Business
Combination are less than the actual amount necessary to do so, 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 initial Business Combination or because we become
obligated to redeem a significant number of our 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, which may include a
specified future issuance. Subject to compliance with applicable securities
laws, we would only complete such financing simultaneously with the completion
of our initial Business Combination. If we are unable to complete our initial
Business Combination because we do not have sufficient funds available to us, we
will be forced to cease operations and liquidate the Trust Account. In addition,
following our initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Commitments and Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than as described below.
Registration Rights
The holders of the (i) founder shares, which were issued in a private placement
prior to the closing of the Initial Public Offering, (ii) Private Placement
Warrants and (iii) private placement warrants that may be issued upon conversion
of working capital loans (and any shares of Class A common stock issuable upon
the exercise of the Private Placement Warrants and warrants that may be issued
upon conversion of working capital loans and upon conversion of the founder
shares) are entitled to registration rights pursuant to a registration rights
agreement dated as of June 15, 2021. The holders of at least 20% in interest of
the then-outstanding number of these securities are entitled to demand that we
file a registration statement covering such securities subsequent to the
completion of the initial Business Combination and to require us to effect up to
an aggregate of three underwritten offerings of 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. In addition, the shares of Class A common stock and
warrants (and underlying shares of Class A common stock) purchased by the Zimmer
Entity (as defined below) as part of the Units in the Initial Public Offering
are entitled to registration rights under the registration rights agreement. The
Zimmer Entity is not subject to any lock-up period with respect to any
securities it purchased in the Initial Public Offering. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
Pursuant to the Forward Purchase Agreements, we agreed to use reasonable best
efforts (i) to file within 30 days after the closing of the Business Combination
a registration statement with the SEC for a secondary offering of the forward
purchase shares and the forward purchase warrants (and underlying shares of
Class A common stock), (ii) to cause such registration statement to be declared
effective promptly thereafter but in no event later than 60 days after the
initial filing, (iii) to maintain the effectiveness of such registration
statement until the earliest of (A) the date on which the Forward Purchasers (as
defined below) or their respective assignees cease to hold the securities
covered thereby, and (B) the date all of the securities covered thereby can be
sold publicly without restriction or limitation under Rule 144 under the
Securities Act and (iv) after such registration statement is declared effective,
cause us to conduct firm commitment underwritten offerings, subject to certain
limitations. In addition, the Forward Purchase Agreements provide for certain
"piggy-back" registration rights to the holders of forward purchase securities
to include their securities in other registration statements filed by us.
Administrative Services Agreement
Pursuant to an administrative services agreement, dated June 15, 2021, we have
agreed to pay Zimmer Partners, LP a total of $10,000 per month from funds held
outside the Trust Account for office space, utilities and secretarial and
administrative support. Upon the earlier of the consummation by the Company of
an initial Business Combination or the Company's liquidation, the Company will
cease paying these monthly fees. As of September 30, 2021, the Company had
accrued $35,333 pursuant to this agreement, which has been included in accrued
expenses on the balance sheet.
21
Table of Contents
Forward Purchase Agreements
On June 11, 2021, we entered into forward purchase agreements (the "Forward
Purchase Agreements") with ZP Master Utility Fund, Ltd. (the "Zimmer Entity")
and Bluescape Resources Company LLC ("Bluescape Resources" and, together with
the Zimmer Entity, the "Forward Purchasers"). Pursuant to the Forward Purchase
Agreements, the Zimmer Entity agreed to purchase 10,000,000 units and Bluescape
Resources agreed to purchase up to 10,000,000 units, with each unit consisting
of one share of Class A common stock and one-third of one warrant to purchase
one share of Class A common stock, at $11.50 per share, subject to adjustment,
for a purchase price of $10.00 per unit (the "Forward Purchase Units"). The
obligation of Bluescape Resources to purchase the Forward Purchase Units
pursuant to its Forward Purchase Agreement is subject to the approval of its
investment committee. The purchase of the Forward Purchase Units will take place
in one or more private placements to occur concurrently and only in connection
with the closing of the initial Business Combination. The proceeds from the sale
of Forward Purchase Units may be used as part of the consideration to the
sellers in the initial Business Combination, expenses in connection with the
initial Business Combination or for working capital in the post-Business
Combination company.
Underwriting Agreement
The underwriters in the Initial Public Offering are entitled to a deferred
underwriting discount of $10,850,000, which will be payable to the underwriters
from the amounts held in the Trust Account solely in the event that we complete
an initial Business Combination, subject to the terms of the underwriting
agreement.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies
The preparation of unaudited condensed 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 financial statements, and
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have not identified any critical accounting
policies other than the following.
Warrant Liabilities and Forward Purchase Units
The Company accounts for the warrants issued as part of the Units in the Initial
Public Offering and Private Placement Warrants (together the "Warrants") as
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. 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 and whether the warrant holders could potentially require "net cash
settlement" in a circumstance outside of the Company's control, 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 reporting period while the Warrants are outstanding. Because the
Company does not control the occurrence of events, such as a tender offer or
exchange, that may trigger cash settlement of the Warrants where not all of the
stockholders also receive cash, the Warrants do not meet the criteria for equity
treatment thereunder, as such, the Warrants must be recorded as a derivative
liability. The Company accounts for the Forward Purchase Agreements in
accordance with ASC 815-40 and accounts for such agreements as a derivative
liability. These liabilities are subject to re-measurement at each balance sheet
date, with changes in fair value recognized in the statements of operations.
22
Table of Contents
The Public Warrants are publicly traded and as such are classified as Level 1
and no longer require a valuation. The estimated fair value of the Private
Placement Warrants and Forward Purchase Units is determined using Level 3
inputs. Inherent in a Monte-Carlo simulation model are assumptions related to
expected stock-price volatility (pre-merger and post-merger, expected term,
dividend yield and risk-free interest rate). The Company estimates the
volatility of its Class A common stock based on management's understanding of
the volatility associated with instruments of other similar entities. The
risk-free interest rate is based on the U.S. Treasury Constant Maturity similar
to the expected remaining life of the Private Placement Warrants. The expected
life of the Private Placement Warrants is simulated based on management
assumptions regarding the timing and likelihood of completing a Business
Combination. The dividend rate is based on the historical rate, which the
Company anticipates will remain at zero.
The following table presents information about the Company's Level 3 liabilities
that are measured at fair value on a recurring basis as of September 30, 2021.
Private Placement Forward Purchase
Inputs Warrants Units
Exercise price $ 11.50 $ 10.00
10.0% 10.0%
pre-merger/ pre-merger/
14.5% 14.5%
Volatility post-merger post-merger
Expected term to business combination 0.86 year 0.86 year
Risk-free rate 1.13 % 0.08 %
Dividend yield 0 % 0 %
Stock price $ 9.73 $ 9.73
Recent Accounting Standards
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 January 1, 2022 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.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on our unaudited condensed financial statements.
© Edgar Online, source Glimpses