References in this report (this "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 our financial condition and results of
operations should be read in conjunction with the unaudited condensed 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 our
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
our 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 June 30, 2022, we had not commenced any operations. All activity for the
period from February 25, 2021 (inception) through June 30, 2022 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).
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For the three months ended June 30, 2022, we had net income of $1,987,208,
consisting of formation and operating costs of $11,029, offset by an unrealized
gain on fair value of warrants and Forward Purchase Units (as defined below) of
$1,849,858, gain on marketable securities (net), dividends and interest on
investment held in the Trust Account of $156,331 and income tax provision
$7,952.
For the six months ended June 30, 2022, we had net income of $25,493,564,
consisting of formation and operating costs of $632,716, offset by an unrealized
gain on fair value of warrants and Forward Purchase Units of $25,969,393, gain
on marketable securities (net), dividends and interest on investment held in the
Trust Account of $164,839 and income tax provision $7,952.
For the three months ended, and the period from February 25, 2021 (inception)
through June 30, 2021, we had a net loss of $8,418,544 and $8,429,799,
respectively, consisting of formation and operating costs of $159,268 and
$170,523, respectively. For the three months ended, and the period from February
25, 2021 (inception) through June 30, 2021, we had unrealized loss on fair value
of warrants and Forward Purchase Units amounting to $1,316,994 and $2,951,652,
respectively, financing expense of $3,196,156, and offering costs allocated to
warrants of $794,474.
Liquidity and Capital Resources
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 discounts and commissions, $10,850,000
of deferred underwriting discounts and commissions, 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 June 30, 2022, we had cash outside our Trust Account of $1,045,908 and had
working capital of $1,394,858 (excluding franchise and income taxes payable). As
of December 31, 2021, we had $1,634,576 in cash and working capital of
$1,776,113. The reduction in cash balances outside of the Trust Account is
attributable to payment of expenses related to the administrative and operating
activities. 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 for twelve months from
the date these unaudited condensed financial statements are issued.
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
franchise and income taxes payable and deferred underwriting discounts and
commissions) and the proceeds from the sale of the Forward Purchase Units 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. We will also be liable for income tax based on the
results of operations and applicable tax rates. We will pay both franchise and
income taxes 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 by the Trustee 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.
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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.
The Company's amended and restated certificate of incorporation provides that
the Company will have 24 months from the closing of the Initial Public Offering
(the "Combination Period") to complete the initial Business Combination. If the
Company is unable to complete the initial Business Combination within the
Combination Period, the Company will: (1) cease all operations except for the
purpose of winding up, (2) 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 the Company to pay its franchise and income taxes (less
up to $105,000 of interest to pay dissolution expenses and net of taxes
payable), divided by the number of then outstanding public shares, which
redemption will completely extinguish public stockholders' rights as
stockholders (including the right to receive further liquidating distributions,
if any), subject to applicable law, and (3) as promptly as reasonably possible
following such redemption, subject to the approval of the Company's remaining
stockholders and the board of directors, dissolve and liquidate, subject in each
case to the Company's obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable law. There will be no
redemption rights or liquidating distributions with respect to the Company's
warrants, which will expire worthless if the Company fails to complete the
initial Business Combination within the Combination Period.
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) shares of our Class B common stock, par value $0.0001 per
share (the "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.
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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 our liquidation, we will cease paying these
monthly fees. For the three months ended June 30, 2022 and 2021, $30,000 and
$4,000 of administrative fees were accrued, respectively. For the six months
ended June 30, 2022 and for the period from February 25, 2021 (inception)
through June 30, 2021, $60,000 and $5,333 of administrative fees were accrued,
respectively. The amounts owing to related parties as of June 30, 2022 and
December 31, 2021 were $125,705 and $65,705, respectively.
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 deferred
underwriting discounts and commissions 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.
Critical Accounting Estimates
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
estimates other than the following.
Warrant Liabilities
We account 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 our own common
stock and whether the warrant holders could potentially require "net cash
settlement" in a circumstance outside of our 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 we do 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. These liabilities
are subject to re-measurement at each balance sheet date, with changes in fair
value recognized in the Statements of Operations.
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The Public Warrants are publicly traded and as such are classified as Level 1.
The Private Placement Warrants are classified as Level 2, taking into account
that the inputs used in their valuation are benchmarked to those used for the
Public Warrants.
Recent Accounting Standards
See Note 2 to the unaudited condensed financial statements required by Item 1 of
this Quarterly Report.
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