Zeo Energy Corp 10-Q for FY2023 Q3
Zeo Energy Corp. (ZEO)
About this 10-Q
Zeo Energy Corp filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $631.72K
- down 85.2% from net income of $4.26M a year earlier
Table of Contents
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-half of one redeemable warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
ESGEN ACQUISITION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
i
Table of Contents
September 30, 2023 |
December 31, 2022 |
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| Assets |
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| Current assets: |
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| Cash |
$ | $ | ||||||
| Prepaid expenses |
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| Total current assets |
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| Non-current assets: |
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| Marketable securities held in Trust Account |
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| Total assets |
$ | $ | ||||||
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| Liabilities, Redeemable Ordinary Shares and Shareholders’ Deficit |
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| Current liabilities: |
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| Accounts payable and accrued expenses |
$ | $ | ||||||
| Due to related party |
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| Promissory note—related party |
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| Total current liabilities |
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| Non-current liabilities: |
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| Warrant liabilities |
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| Deferred underwriters fee |
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| Total liabilities |
$ | $ | ||||||
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| Commitments and Contingencies |
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| Class A ordinary shares subject to possible redemption, $ |
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| Shareholders’ Deficit: |
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| Preferred shares, $ |
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| Class A shares, $ |
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| Class B shares, $ |
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| Accumulated deficit |
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| Total shareholders’ deficit |
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| Total Liabilities, Redeemable Ordinary Shares and Shareholders’ Deficit |
$ | $ | ||||||
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2023 |
2022 |
2023 |
2022 |
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Legal and professional fees |
$ | $ | $ | $ | ||||||||||||
Insurance |
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Other operating costs |
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Operating cost—related party |
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Loss from operations |
( |
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) | ( |
) | ( |
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Other income (expense): |
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Dividends earned on marketable securities held in Trust Account |
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Recovery of offering costs related to the IPO allocated to warrants |
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Change in fair value of warrant liabilities |
( |
) | ||||||||||||||
Total other income, net |
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Net income (loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
Basic and diluted weighted average shares outstanding of Class A ordinary shares |
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Basic and diluted net income (loss) per share, Class A |
$ | $ | $ | ( |
) | $ | ||||||||||
Basic and diluted weighted average shares outstanding of Class B ordinary shares |
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Basic and diluted net income (loss) per share, Class B |
$ | ( |
) | $ | $ | $ | ||||||||||
Class A ordinary shares subject to possible redemption |
Class B ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
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| Balance as of December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
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| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
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| Redemption of Class A ordinary shares subject to possible redemption |
( |
) | ( |
) | — | — | — | — | — | |||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | ( |
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| Balance as of March 31, 2023 |
( |
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| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
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| Waiver of deferred underwriters fee |
— | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | ( |
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| Balance as of June 30, 2023 |
( |
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| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||||||||||
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| Balance as of September 30, 2023 |
$ | $ | $ | $ | ( |
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Class A ordinary shares subject to possible redemption |
Class B ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
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| Balance as of December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
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| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance as of March 31, 2022 |
$ | ( |
) | ( |
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| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance as of June 30, 2022 |
( |
) | ( |
) | ||||||||||||||||||||||||
| Accretion of ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance as of September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
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For the Nine Months Ended September 30, |
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2023 |
2022 |
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Cash flows from operating activities: |
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Net (loss) income |
$ | ( |
) | $ | ||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
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Dividends earned on marketable securities held in Trust Account |
( |
) | ||||||
Recovery of offering costs related to the IPO allocated to warrants |
( |
) | ||||||
Change in fair value of warrant liabilities |
( |
) | ||||||
Changes in current assets and liabilities: |
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Prepaid expenses |
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Accounts payable and accrued expenses |
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Due to related party |
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Net cash provided by (used in) operating activities |
( |
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Cash flows from investing activities: |
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Reinvestment of marketable securities held in Trust Account |
( |
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Extension funding of Trust Account |
( |
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Cash withdrawn from Trust Account in connection with redemption |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Redemption of Class A ordinary shares subject to possible redemption |
( |
) | ||||||
Proceeds from note payable-related party |
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Net cash used in financing activities |
( |
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Net change in cash |
( |
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Cash, beginning of the period |
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Cash, end of the period |
$ | $ | ||||||
Supplemental disclosure of cash flow information: |
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Change in value of Class A ordinary shares subject to possible redemption |
$ | $ | ||||||
Impact of the waiver of deferred underwriters fee |
$ | $ | ||||||
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2023 |
2022 |
2023 |
2022 |
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Net income (loss) |
$ | |
$ | $ | ( |
) | $ | |||||||||
Accretion of temporary equity to redemption value |
( |
) | ( |
) | ( |
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Net income including accretion of temporary equity to redemption value |
$ | ( |
) | $ | |
$ | $ | |||||||||
For the Three Months Ended September 30, |
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2023 |
2022 |
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Redeemable Class A |
Non-redeemable Class B |
Redeemable Class A |
Non-redeemable Class B |
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Basic and diluted net income (loss) per share: |
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Numerator: |
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Allocation of net income including accretion of temporary equity |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
Allocation of accretion of temporary equity to redemption value |
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Allocation of net income (loss) |
$ | $ | ( |
) | $ | $ | ||||||||||
Denominator: |
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Weighted-average shares outstanding |
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Basic and diluted net income (loss) per share |
$ | $ | ( |
) | $ | $ | ||||||||||
For the Nine Months Ended September 30, |
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2023 |
2022 |
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Redeemable Class A |
Non-redeemable Class B |
Redeemable Class A |
Non-redeemable Class B |
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Basic and diluted net (loss) income per share: |
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Numerator: |
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Allocation of net income including accretion of temporary equity |
$ | $ | $ | $ | ||||||||||||
Allocation of accretion of temporary equity to redemption value |
( |
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Allocation of net (loss) income |
$ | ( |
) | $ | $ | $ | ||||||||||
Denominator: |
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Weighted-average shares outstanding |
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Basic and diluted net (loss) income per share |
$ | ( |
) | $ | $ | $ | ||||||||||
September 30, 2023 |
December 31, 2022 |
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| Prepaid insurance |
$ | $ | ||||||
| Other prepaid expenses |
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| $ | $ | |||||||
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September 30, 2023 |
December 31, 2022 |
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| Legal accrual |
$ | $ | ||||||
| Other payables and expenses |
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| $ | $ | |||||||
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| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $ |
| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $ 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; |
September 30, 2023 |
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Level 1 |
Level 2 |
Level 3 |
Total |
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| Assets: |
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| Marketable securities held in Trust Account |
$ | |
$ | — | $ | — | $ | |
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| Liabilities: |
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| Public Warrants |
— | — | ||||||||||||||
| Private Warrants |
— | |||||||||||||||
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| Total liabilities |
$ | $ | $ | $ | ||||||||||||
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December 31, 2022 |
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Level 1 |
Level 2 |
Level 3 |
Total |
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| Assets: |
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| Marketable securities held in Trust Account |
$ | $ | — | $ | — | $ | ||||||||||
| Liabilities: |
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| Public Warrants |
— | — | ||||||||||||||
| Private Warrants |
— | |||||||||||||||
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| Total liabilities |
$ | $ | $ | $ | ||||||||||||
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “our,” “us” or “we” refer to ESGEN Acquisition Corporation. The following discussion and analysis of the Company’s 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 on Form 10-Q (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 contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:
| • | our ability to select an appropriate target business or businesses; |
| • | our ability to complete our initial business combination; |
| • | our expectations around the performance of a prospective target business or businesses; |
| • | our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; |
| • | our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination; |
| • | our potential ability to obtain additional financing to complete our initial business combination; |
| • | our pool of prospective target businesses; |
| • | the ability of our officers and directors to generate a number of potential business combination opportunities; |
| • | our public securities’ potential liquidity and trading; |
| • | the lack of a market for our securities; |
| • | the use of proceeds not held in the trust account or available to us from interest or dividend income on the trust account balance; |
| • | the trust account not being subject to claims of third parties; or |
| • | our financial performance following our initial public offering. |
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those factors described under the heading “Risk Factors.” 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. You should not take any statement regarding past trends or activities as representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements.
Overview
We were incorporated as a Cayman Islands exempted company on April 19, 2021 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”). We will not be limited to a particular industry or geographic region in our identification and acquisition of a target company.
Our sponsor is ESGEN LLC, a Delaware limited liability company (the “Sponsor”).
21
Table of Contents
The registration statement for our initial public offering (“initial public offering”, “IPO” or “Public Offering”) was declared effective on October 19, 2021. On October 22, 2021, we consummated our initial public offering of 27,600,000 units (the “Units” and, with respect to the ordinary shares included in the Units being offered, the “Public Shares”) at $10.00 per Unit (which included the full exercise of the underwriters’ over-allotment option), and the sale of 14,040,000 warrants (the “Private Placement Warrants”) each exercisable to purchase one Class A ordinary share at $11.50 per share, at a price of $1.00 per Private Placement Warrant in a private placement to our Sponsor that closed simultaneously with the initial public offering.
Following the closing of our initial public offering on October 22, 2021, $281,520,000 ($10.20 per Unit) from the net proceeds sold in our initial public offering, including proceeds of the sale of the Private Placement Warrants, was deposited in a trust account (“Trust Account”) and, until October 16, 2023, was only invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. To mitigate the risk of being deemed to have been operating as an unregistered investment company under the Investment Company Act, on October 16, 2023, we instructed the Trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in demand deposits (i.e., in one or more bank accounts) until the earliest of ESGEN’s completion of an initial business combination or January 22, 2024 (unless extended as described below), as applicable.
Prior to shareholder approval of the First Extension Charter Amendment (as defined below), we had 15 months from the closing of our initial public offering to consummate the initial Business Combination. If we have not consummated the initial Business Combination within the Combination Period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay income taxes, if any (less up to $100,000 of interest or dividends to pay winding up and dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii), to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
On January 18, 2023, the Company held an extraordinary general meeting of shareholders to consider and vote upon, among other things, a proposal to amend the Company’s amended and restated memorandum and articles of association (the “First Extension Charter Amendment”) to (i) extend the date by which the Company must consummate its initial Business Combination (the “Termination Date”) from January 22, 2023 to April 22, 2023 and (ii) in the event that the Company has not consummated an initial Business Combination by April 22, 2023, to allow the Company, by resolution of the Company’s board of directors (the “Board”) and, without any approval of the Company’s shareholders, upon five days’ advance notice prior to each Additional Extension, to extend the Termination Date up to six times (with each such extension being upon five days’ advance notice), each by one additional month (for a total of up to six additional months to complete a business combination) (each, an “Additional Extension” and such date, an “Additional Extension Date”), provided that the Sponsor or the Sponsor’s affiliates or permitted designees will deposit into the Trust Account for each Additional Extension Date the lesser of (a) $140,000 or (b) $0.04 for each Public Share that is then-outstanding, in exchange for one or more non-interest bearing, unsecured promissory notes issued by the Company to the Sponsor or the Sponsor’s affiliates or permitted designees (the “Lenders” and each a “Lender”). In connection with the vote to approve the First Extension Charter Amendment, the holders of 24,703,445 Class A ordinary shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.35 per share, for an aggregate redemption amount of $255,875,758. The Company currently has until January 22, 2024 (after giving effect to the second extension described below) to complete an initial Business Combination.
On October 20, 2023, the Company held an extraordinary general meeting (the “Meeting”) and approved (i) (a) the extension (such proposal, the “Extension Proposal”) of the time period the Company has to complete an initial Business Combination from October 22, 2023 to January 22, 2024 (the “Charter Amendment”) and (b) in the event that the Company has not consummated an initial Business Combination by January 22, 2024, to allow the Company, by resolution of the Board and, without any approval of the Company’s shareholders, upon five days’ advance notice prior to each Additional Extension, to complete six Additional Extensions, provided that the Sponsor or the Sponsor’s affiliates or permitted designees will deposit into the Trust Account for each Additional Extension Date the lesser of (x) $35,000 or (y) $0.0175 for each Public Share that is then-outstanding, in exchange for one or more non-interest bearing, unsecured promissory notes issued by a Lender, and (ii) the amendment of the Company’s amended and restated memorandum and articles of association to change certain provisions which restrict the Class B ordinary shares, par value $0.0001, of the Company (the “Class B ordinary shares”) from converting to Class A ordinary shares, par value $0.0001 (the “Class A ordinary shares”) prior to the consummation of an initial Business Combination (such proposal, the “Conversion Proposal”).
In connection with the vote to approve the above proposals, the holders of 1,488,000 Class A ordinary shares of ESGEN properly exercised their right to redeem their shares for cash at a redemption price of approximately $11.21 per share, for an aggregate redemption amount of $16,679,055.
In connection with the approval of the Extension Proposal at the Meeting and the adoption of the Charter Amendment, the Sponsor contributed into the Trust Account $0.0525 per share for each Class A ordinary share that was not redeemed at the Meeting, for an aggregate contribution of $73,949.
In connection with the approval of the Conversion Proposal at the Meeting and the adoption of the Charter Amendment, the Sponsor converted all of its 5,619,077 Class B ordinary shares into Class A ordinary shares (the “Sponsor Share Conversion”). As a result of the Sponsor Share Conversion and redemptions made in connection with the Extension Proposal and Conversion Proposal, 7,027,632 Class A ordinary shares remain outstanding. Notwithstanding the Sponsor Share Conversion, the Sponsor will be not entitled to receive any funds held in the Trust Account with respect to any Class A ordinary shares issued to the Sponsor as a result of the Sponsor Share Conversion and no additional amounts will be deposited into the Trust Account in respect of shares of Class A ordinary shares held by the Sponsor in connection with the extension of the Termination Date to the Extended Date or any Additional Extension Dates.
On April 19, 2023, the Company entered into a Business Combination Agreement, by and among the Company, ESGEN OpCo, LLC, a Delaware limited liability company and wholly-owned subsidiary of ESGEN (“OpCo”), Sunergy Renewables, LLC, a Nevada limited liability company (“Sunergy”), the Sunergy equity holders set forth on the signature pages thereto (collectively, “Sellers” and each, a “Seller”, and collectively with Sunergy, the “Sunergy Parties”), for limited purposes, the Sponsor, and for limited purposes, Timothy Bridgewater, an individual, in his capacity as the Sellers Representative (the “Business Combination Agreement”).
In accordance with the terms and subject to the conditions of the Business Combination Agreement, among other things: (i) prior to the consummation of the Business Combination (the “Closing”), each issued and outstanding Class B ordinary share of ESGEN will convert into one Class A ordinary share of ESGEN (the “ESGEN Share Conversion”); and (ii) following the ESGEN Share Conversion but prior to the Closing, ESGEN will, subject to the receipt of the requisite shareholder approval, transfer by way of continuation from the Cayman Islands to the State of Delaware and domesticate as a Delaware corporation (the “Domestication”) and will change its name as to be determined by the parties to the Business Combination Agreement (“New PubCo”).
In connection with the Domestication, (A) each outstanding Class A ordinary share will become one share of Class A common stock, par value $0.0001 per share, of New PubCo (the “New PubCo Class A Common Stock”), (B) each outstanding warrant to purchase one Class A ordinary share (each, an “ESGEN Warrant”) will become a warrant to purchase one share of New PubCo Class A Common Stock at an exercise price of $11.50 per share, and (C) New PubCo will file its certificate of incorporation and will adopt bylaws to serve as its governing documents upon consummation of the Domestication. In connection with the ESGEN Share Conversion and the Domestication, each issued and outstanding unit of ESGEN, each consisting of one Class A ordinary share and one-half of one ESGEN Warrant (each, an “ESGEN Unit”), that has not been previously separated into the underlying Class A ordinary shares and underlying ESGEN Warrants prior to the Domestication will be cancelled and will entitle the holder thereof to (x) one share of New PubCo Class A Common Stock and (y) one-half of one warrant representing the right to purchase one share of New PubCo Class A Common Stock at an exercise price of $11.50 per share on the terms and subject to the conditions applicable to ESGEN Warrants set forth in the Warrant Agreement, dated as of October 22, 2021, between ESGEN and Continental Stock Transfer & Trust Company (the “Trustee”).
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In accordance with the terms and subject to the conditions of the Business Combination Agreement, Sunergy will cause all holders of any options, warrants or rights to subscribe for or purchase any equity interests of Sunergy or its subsidiaries or securities (including debt securities) convertible into or exchangeable for, or that otherwise confer on the holder any right to acquire, any equity interests of Sunergy or any subsidiary thereof (collectively, the “Sunergy Convertible Interests”) existing immediately prior to the Closing either to exchange or convert all such holder’s Sunergy Convertible Interests into limited liability interests of Sunergy (the “Sunergy Company Interests”) in accordance with the governing documents of Sunergy or the Sunergy Convertible Interests (collectively, the “Sunergy Exchanges”).
At the Closing, ESGEN will contribute to OpCo (1) all of its assets (excluding its interests in OpCo, but including the amount of cash in the Trust Account as of immediately prior to the Closing (after giving effect to the exercise of redemption rights by any ESGEN shareholders)), and (2) a number of newly issued shares of Class V common stock of ESGEN, par value $0.0001 per share, which will generally have only voting rights (the “ESGEN Class V Common Stock”), equal to the number of Seller OpCo Units (as defined in the Business Combination Agreement) (the “Seller Class V Shares”) and (y) in exchange, OpCo shall issue to ESGEN (i) a number of common units of OpCo (the “OpCo Units”) which shall equal the number of total shares of ESGEN Class A Common Stock issued and outstanding immediately after the Closing and (ii) a number of warrants to purchase OpCo Units which shall equal the number of SPAC Warrants issued and outstanding immediately after the Closing (the transactions described above in this paragraph, the “ESGEN Contribution”). Immediately following the ESGEN Contribution, (x) the Sellers will contribute to OpCo the Sunergy Company Interests and (y) in exchange therefor, OpCo will transfer to the Sellers the Seller OpCo Units and the Seller Class V Shares.
The obligation of ESGEN, the Sunergy Parties and OpCo to consummate the Business Combination is subject to certain customary closing conditions, including, but not limited to, (i) the absence of any order, law or other legal restraint or prohibition enacted, issued or promulgated by any court of competent jurisdiction or other governmental entity of competent jurisdiction having the effect of making the Business Combination illegal or otherwise prohibiting the consummation of the Business Combination, (ii) the termination or expiration of any applicable waiting period applicable to the consummation of the Business Combination under the Hart-Scott-Rodino Act, (iii) the effectiveness of the Registration Statement on Form S-4 (the “Registration Statement”) in accordance with the provisions of the Securities Act, registering the ESGEN Class A Common Stock to be issued in connection with the Business Combination Agreement, (iv) receipt of the required approvals of ESGEN’s shareholders at a meeting of the shareholders of ESGEN in connection with the Business Combination, (v) the ESGEN Class A Common Stock to be issued in connection with the Business Combination immediately after Closing shall be listed on Nasdaq and ESGEN will be able to satisfy any continued listing requirements of Nasdaq immediately after Closing, (vi) if the ESGEN shareholders do not approve the Redemption Limitation Amendment (as defined in the Business Combination Agreement), ESGEN having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) remaining immediately after any holders of the ESGEN Class A Ordinary Shares exercise their redemption rights, (vii) the members of the post-Business Combination ESGEN board of directors shall have been elected or appointed in accordance with the Business Combination Agreement and (viii) the aggregate transaction proceeds, including from the Trust Account after giving effect to the exercise of redemption rights by any ESGEN shareholders pursuant to the ESGEN amended and restated memorandum and articles of association, as amended, and the proceeds resulting from the Initial PIPE Investment (as defined below) and any financing agreements executed in furtherance of the Business Combination Agreement, shall be greater or equal to $20,000,000.
Concurrently with the execution of the Business Combination Agreement, ESGEN entered into a subscription agreement (the “Initial Subscription Agreement”) with Sponsor. Pursuant to the Initial Subscription Agreement, Sponsor agreed to subscribe for and purchase, and ESGEN agreed to issue and sell to Sponsor, concurrently with the Closing, an aggregate of 1,000,000 shares of ESGEN Class A Common Stock for a purchase price of $10.00 per share, for aggregate gross proceeds of $10,000,000 (the “Initial PIPE Investment”). The closing of the Initial PIPE Investment is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Initial Subscription Agreement provides that ESGEN will grant Sponsor certain customary registration rights. In addition to the Initial PIPE Investment, under the Business Combination Agreement, ESGEN and Sunergy have agreed to use their reasonable best efforts to identify other investors to enter into equity financing agreements (the “Additional Financing Agreements” and, together with the Initial Subscription Agreement, the “Financing Agreements”), in form and substance reasonably acceptable to ESGEN and Sunergy, to support the transaction (such equity financing under the Financing Agreements, collectively, herein referred to as the “Private Placements”).
For additional information regarding the Business Combination Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on April 20, 2023.
The Business Combination is expected to close in the first quarter of 2024, following the receipt of the required approvals by our shareholders and the fulfillment of other customary closing conditions.
On April 5, 2023, the Company issued an unsecured promissory note (the “Note”) in the principal amount of up to $1,500,000 to the Sponsor, which may be drawn down by the Company from time to time prior to the consummation of the Company’s Business Combination. The Note does not bear interest, matures on the date of consummation of the Business Combination and is subject to customary events of default. As of September 30, 2023, there was $1,238,449 outstanding under the Note.
In addition, on October 17, 2023, the Company issued an amended and restated promissory note (the “Restated Note”) in the principal amount of up to $2,500,000 to the Sponsor. The Restated Note amends, restates, replaces and supersedes the Note dated April 5, 2023. The Restated Note may be drawn down by the Company from time to time prior to the consummation of the Company’s initial Business Combination. The Restated Note does not bear interest, matures on the date of consummation the Business Combination and is subject to customary events of default. The Restated Note will be repaid only to the extent that the Company has funds available to it outside of its Trust Account.
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Results of Operations
All of our activity from April 19, 2021 (inception) through September 30, 2023, was in preparation for our initial public offering, and since our initial public offering, including the effectuation of the Charter Amendment and the negotiation and entry into the Business Combination Agreement. We will not generate any operating revenues until the closing and completion of our initial Business Combination.
For the three months ended September 30, 2023, we had net income of $631,724, which consisted of a change in fair value of warrant liabilities of $1,046,784 and dividends earned on marketable securities held in the Trust Account of $413,940, partially offset by operating costs of $829,000.
For the three months ended September 30, 2022, we had net income of $4,262,070, which consisted of a gain on change in fair value of warrant liabilities of $3,345,600, dividends earned on marketable securities held in trust account of $1,245,745, partially offset by operating costs of $329,275.
For the nine months ended September 30, 2023, we had a net loss of $2,225,459, which consisted of a change in fair value of warrant liabilities of $206,016 and operating costs of $4,164,293, partially offset by dividends earned on marketable securities held in the Trust Account of $1,719,810 and recovery of offering costs related to the IPO allocated to warrants of $425,040.
For the nine months ended September 30, 2022, we had net income of $11,637,242, which consisted of a gain on change in fair value of warrant liabilities of $11,608,560 and dividends earned on marketable securities held in trust account of $1,632,690, partially offset by operating costs of $1,604,008.
Liquidity and Capital Resources
As of September 30, 2023, we had cash of $267,058 and owe $5,296,038 in accounts payable and accrued expenses and an additional $1,718,988 payable to related parties.
Prior to the completion of our initial public offering, our liquidity needs had been satisfied through a capital contribution from the Sponsor of $25,000 and a loan to us of up to $300,000 by our Sponsor under an unsecured promissory note, which had an outstanding balance of $171,346 at September 30, 2023 and December 31, 2022. The Sponsor has agreed to defer repayment of the loan until the close of the Business Combination. On April 5, 2023, we issued the Note in the principal amount of up to $1,500,000 to our Sponsor, which may be drawn down by us from time to time prior to the consummation of the initial Business Combination. As of September 30, 2023, there was $1,238,449 outstanding under the Note.
In addition, in order to finance transaction costs in connection with a business combination, our Sponsor, an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans. As of September 30, 2023 and December 31, 2022, there were no amounts outstanding under any Working Capital Loans.
Based on the foregoing, management believes that we will not have sufficient working capital and borrowing capacity 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.
In connection with the company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the company has until January 22, 2024 (unless extended as described above) to consummate a Business Combination. If a Business Combination is not consummated by this date and an Additional Extension not obtained, there will be a mandatory liquidation and subsequent dissolution of the company. It is uncertain whether the Company will be able to consummate a Business Combination by this time. Management has determined that the mandatory liquidation, should a Business Combination not occur, and an extension is not obtained, as well as the potential for us to have insufficient funds available to operate our business prior to a Business Combination, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern. It is uncertain whether the company will be able to consummate a Business Combination or obtain an Additional Extension by this time. No adjustments have been made to the carrying amounts of assets or liabilities should the company be required to liquidate after January 22, 2024 (unless extended as described above).
Contractual Obligations
Other than the below, we do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities.
Underwriting Agreement
The IPO underwriters were entitled to a deferred underwriters fee of 3.5% of the gross proceeds of our IPO upon the completion of our initial Business Combination. In April 2023, the IPO underwriters waived any right to receive such deferred underwriters fee and will therefore receive no additional underwriters fee in connection with the Closing.
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Office Space, Secretarial and Administrative Services
Through the earlier of consummation of the initial Business Combination or the liquidation, the Company incurs $10,000 per month for office space, utilities, secretarial support and administrative services provided by the Sponsor. For the three and nine months ended September 30, 2023, the Company incurred $30,000 and $90,000, respectively, pursuant to this agreement. For the three and nine months ended September 30, 2022, the Company incurred $30,000 and $90,000, respectively, pursuant to this agreement. No amounts have been paid for these services. As of September 30, 2023 and December 31, 2022, the Company reported on the balance sheets $165,000 and $120,000, respectively, pursuant to this agreement, in “Due to related party”.
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any 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 signed at the closing of our initial public offering (the “IPO Registration Rights Agreement”). The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of the initial Business Combination. However, the registration and shareholder rights agreement provides that we will not permit any registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”) to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the Founder Shares, and (ii) in the case of the Private Placement Warrants and the respective Class A ordinary shares issuable upon exercise of the Private Placement Warrants, 30 days after the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements. The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Working Capital Loans and warrants that may be issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration and expected shareholder rights agreement signed at the closing of our initial public offering. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the company register such securities.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of its initial Business Combination. However, the registration and shareholder rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period, which occurs (i) in the case of the Founder Shares, as described in the following paragraph, and (ii) in the case of the Private Placement Warrants and the respective Class A ordinary shares underlying such warrants, 30 days after the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Except as described herein, the Sponsor and its directors and executive officers have agreed not to transfer, assign or sell any of their Founder Shares until the earliest of (A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, or (y) the date on which we complete a liquidation, merger, share exchange or other similar transaction that results in all of the public shareholders having the right to exchange their ordinary shares for cash, securities or other property. Any permitted transferees would be subject to the same restrictions and other agreements of the Sponsor and its directors and executive officers with respect to any founder shares. Any permitted transferees will be subject to the same restrictions and other agreements of the Sponsor with respect to any Founder Shares.
In addition, pursuant to the registration and shareholder rights agreement, the Sponsor, upon and following consummation of an initial Business Combination, will be entitled to nominate three individuals for election to the board of directors, as long as the Sponsor holds any securities covered by the registration and shareholder rights agreement.
A&R Registration Rights Agreement
The Business Combination Agreement contemplates that, at the Closing, Sunergy, Sunergy’s underlying equityholders and the Initial Shareholders (as defined below) (collectively, the “New PubCo Holders”) and New PubCo will enter into an amended and restated IPO Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which, among other things, New PubCo and the Initial Shareholders will agree to amend and restate the Registration and Shareholder Rights Agreement, dated as of October 22, 2021, entered into by them in connection with ESGEN’s IPO. Pursuant to the A&R Registration Rights Agreement, New PubCo will agree that, within 30 days following the consummation of the Business Combination, it will use its commercially reasonable efforts to file a resale shelf registration statement on behalf of Sunergy, Sunergy’s underlying equityholders and the Initial Shareholders registering (i) New PubCo’s private placement warrants, (ii) any outstanding shares of New PubCo Class A Common Stock held by the New PubCo Holders, (iii) any shares of New PubCo Class A Common Stock issued or issuable upon exchange of an equivalent number of Class B units of OpCo and Class V common stock of New PubCo, par value $0.0001 per share, issued to the Sellers pursuant to the Business Combination Agreement, (iv) any shares of New PubCo Class A Common Stock issued or to be issued to any of the New PubCo Holders in connection with the Business Combination and (v) any other equity security of New PubCo issued or issuable with respect to any of the foregoing by way of a stock dividend or stock split or in connection
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with a combination of shares, recapitalization, merger, consolidation or reorganization (collectively, the “Registrable Securities”); provided, however, that as to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such Registrable Securities becomes effective under the Securities Act and such Registrable Securities shall have been sold, transferred, disposed of or exchanged in accordance with such registration statement, (B) such Registrable Securities shall have been otherwise transferred and such transferee is not entitled to the registration rights provided in the A&R Registration Rights Agreement, (C) such Registrable Securities shall have ceased to be outstanding, or (D) such Registrable Securities may be sold without registration pursuant to Rule 144 and Rule 145, as applicable, promulgated under the Securities Act (or any successor rule promulgated thereto) (but with no volume or other restrictions or limitations).
Additionally, the A&R Registration Rights Agreement will also provide, subject to certain underwriter cutbacks and suspension periods, (i) certain demand rights entitling the New PubCo Holders the right to require New PubCo to effect an underwritten offering and (ii) certain piggyback rights entitling the New PubCo Holders the right to include such New PubCo Holder’s Registrable Securities in any underwritten offering that New PubCo proposes to consummate for its own account or for the account of its stockholders.
Amendment to the Letter Agreement
Concurrently with the execution of the Business Combination Agreement, the Sponsor, the independent directors of the board of directors of ESGEN and one or more client accounts of Westwood Group Holdings, Inc. (successor to Salient Capital Advisors, LLC) (collectively, the “Initial Shareholders”) entered into an amendment (as amended, the “Amendment to the Letter Agreement”) to that certain Letter Agreement, dated as of October 22, 2021, by and between the Initial Shareholders, pursuant to which, among other things, each of the Initial Shareholders agreed (i) not to transfer his, her or its ESGEN Class B ordinary shares (or the ESGEN Class A Common Stock issuable in exchange for such ESGEN Class B ordinary shares pursuant to the Business Combination Agreement) prior to the earlier of (A) six months after the Closing or (B) subsequent to the Closing (x) if the last sale price of the ESGEN Class A Common Stock quoted on Nasdaq is greater than or equal to $12 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-consecutive trading day period commencing at least 90 days after Closing, or (y) the date on which ESGEN completes a liquidation, merger, share exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their ESGEN Class A ordinary shares (including any shares of ESGEN Class A Common Stock issuable in exchange for such ESGEN Class A ordinary shares) for cash, securities or other property and (ii) each Initial Shareholder agreed to waive any adjustment to the conversion ratio set forth in the governing documents of ESGEN with respect to the ESGEN Class B ordinary shares prior to the earlier of the ESGEN Share Conversion or the Closing.
Critical Accounting Estimates
The preparation of these financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We have not identified any critical accounting estimates.
Recent Accounting Pronouncements
Refer to Note 2 (“Significant Accounting Policies”) in the financial statements for the recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information otherwise required under this item. As of September 30, 2023, we were not subject to any market or interest rate risk. The net proceeds of the Public Offering, including amounts in the Trust Account, were invested in U.S. government securities with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, that invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception, and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our principal executive officer and principal financial and accounting officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of September 30, 2023, pursuant to Rule 13a-15(b) under the Exchange Act and determined that our disclosures controls and procedures were not effective as the material weakness identified as of December 31, 2022 and detailed in our Annual Report on Form 10-K continues to exist as of September 30, 2023. A material weakness, as defined in the SEC regulations, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting. We identified material weaknesses in our internal control over financial reporting, specifically, we did not design and maintain an effective control environment to prevent or detect material misstatements to the financial statements. Specifically, we lacked a sufficient complement of personnel with an appropriate level of internal controls and accounting knowledge, training and experience commensurate with our financial reporting requirements. Specifically, management did not design and maintain effective controls over the calculation of earnings per share and classification of the reinvestment of interest and dividend income in the Trust Account in the statement of cash flows.
Remediation Plan
Management plans to remediate the material weakness identified above by enhancing our processes to identify and appropriately apply applicable accounting requirements and increased communication among our personnel and third-party professionals with whom we consult regarding accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
Other than the remediation plan described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report, except as described below, there have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2023 (the “Annual Report”).
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There are no assurances that the approval of the Charter Amendment or the execution of the Business Combination Agreement will enable us to complete our proposed Business Combination.
In connection with the Charter Amendment, our amended and restated memorandum and articles of association were amended to, among other things, (i) extend the date by which the Company must consummate its initial Business Combination from January 22, 2023 to the Extended Date and (ii) in the event that the Company has not consummated an initial Business Combination by the Extended Date, to allow the Company, by resolution of the Board and, without any approval of the Company’s shareholders, upon five days’ advance notice prior to the Extended Date, to extend the Extended Date up to six times (with each such extension being upon five days’ advance notice), each by one additional month (for a total of up to six additional months to complete a business combination), provided that the Lenders will deposit into the Trust Account for each Additional Extension Date the lesser of (a) $140,000 or (b) $0.04 for each Public Share that is then-outstanding, in exchange for one or more non-interest bearing, unsecured promissory notes issued by the Company to the Lender. The purpose of the Charter Amendment is to allow the Company more time to complete its initial Business Combination and reduce the amount of funds to be deposited in the Trust Account to secure the extension.
Even though such extension was approved by our shareholders, the Company can provide no assurances that we will be able to complete our proposed Business Combination prior to the final Additional Extension Date. Our ability to consummate the Business Combination is dependent on a variety of factors, many of which are beyond our control. Additionally, we will be required to offer stockholders redemption rights again in connection with any stockholder vote to approve our proposed Business Combination. Other than in connection with a redemption offer or liquidation, our stockholders may be unable to recover their investment except through sales of our shares on the open market. The price of our shares may be volatile, and there can be no assurance that stockholders will be able to dispose of our shares at favorable prices, or at all.
We and our proposed target pursuant to the Business Combination Agreement will incur significant transaction and transition costs in connection with the proposed Business Combination.
We and our proposed target pursuant to the Business Combination Agreement expect to incur significant, non-recurring costs in connection with consummating the Business Combination and operating as a public company following the consummation of the Business Combination. We and such company may also incur additional costs to retain key employees. We will incur and be responsible for the expenses and fees as set forth in, and in connection with, the Business Combination Agreement. There can be no assurance that such fees and expenses will not be greater than expected or that there will be no unexpected costs related to the Business Combination.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial Business Combination.
If we are deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”), our activities may be restricted, including:
| • | restrictions on the nature of our investments; and |
| • | restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial Business Combination. |
In addition, we may have imposed upon us burdensome requirements, including:
| • | registration as an investment company with the SEC; |
| • | adoption of a specific form of corporate structure; and |
| • | reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are currently not subject to. |
In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We do not believe that our principal activities and the Business Combination will subject us to the Investment Company Act. To this end, the proceeds held in the Trust Account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the Trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. An investment in our securities is not intended for persons who are seeking a return on investments in government securities or investment securities. The Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial Business Combination (which shall be the Business Combination pursuant to the Business Combination Agreement should it occur); (ii) the redemption of any Class A ordinary shares properly tendered in connection with a shareholder vote to amend the Existing Charter (a) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial Business Combination (which shall be the Business Combination pursuant to the Business Combination Agreement should it occur) or to redeem 100% of our Class A ordinary shares if we do not complete our initial Business Combination by July 22, 2024 (assuming the Sponsor deposits the required amount into the Trust Account for each Additional Extension Date and unless shareholders approve one or more further Additional Extensions) or (b) with respect to any other provision relating to the rights of holders of our Class A ordinary shares; or (iii) absent an initial Business Combination (which shall be the Business Combination pursuant to the Business Combination Agreement should it occur) by July 22, 2024 (assuming the Sponsor deposits the required amount into the Trust Account for each Additional Extension Date and unless shareholders approve one or more further Additional Extensions), our return of the funds held in the Trust Account to the public shareholders as part of our redemption of the Class A ordinary shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a Business Combination. If we are unable to complete a Business Combination, the public shareholders may only receive their pro rata portion of the funds in the Trust Account that are available for distribution to the public shareholders, and our warrants will expire worthless.
If we are deemed to be an investment company for purposes of the Investment Company Act, we may be forced to abandon our efforts to complete an initial Business Combination and instead be required to liquidate ESGEN. To mitigate the risk of that result, on or about the 24-month anniversary of the effective date of the IPO Registration Statement, we will instruct the Trustee to liquidate the securities held in the Trust Account and instead hold all funds in the Trust Account in cash. As a result, following such change, we will likely receive minimal, if any, interest, on the funds held in the Trust Account, which would reduce the dollar amount that the public shareholders would have otherwise received upon any redemption or liquidation of ESGEN if the assets in the Trust Account had remained in U.S. government securities or money market funds.
On March 30, 2022, the SEC issued proposals (the “SPAC Rule Proposals”), relating, among other things, to circumstances in which SPACs such as us could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria. To comply with the duration limitation of the proposed safe harbor, a SPAC would have a limited time period to announce and complete a Business Combination transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for an initial Business Combination no later than 18 months after the effective date of the registration statement filed in connection with the IPO (the “IPO Registration Statement”). ESGEN would then be required to complete its initial Business Combination no later than 24 months after the date of the IPO Registration Statement.
There is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, such as ESGEN. As indicated above, we completed the IPO in October 2021 and have operated as a blank check company searching for a target business with which to consummate an initial Business Combination since such time (or approximately 24 months after the effective date of the IPO, as of the date hereof). As a result, it is possible that a claim could be made that we have been operating as an unregistered investment company. Furthermore, in connection with the approval of the Extension Proposal, the Company has until July 22, 2024 to consummate an initial Business Combination, which is a total of up to 33 months from the consummation of the Company’s IPO to complete an initial Business Combination. If we were deemed to be an investment company for purposes of the Investment Company Act, we might be forced to abandon our efforts to complete an initial Business Combination and instead be required to liquidate ESGEN. If we are required to liquidate ESGEN, our investors would not be able to realize the benefits of owning shares in a successor operating business, including the potential appreciation in the value of our shares and warrants or rights following such a transaction, and our warrants or rights would expire worthless.
The funds in the Trust Account have, since the IPO, been held only in cash or U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. To mitigate the risk of us being deemed to have been operating as an unregistered investment company under the Investment Company Act, prior to October 22, 2023, we instructed the Trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash (i.e., in one or more bank accounts) until the earliest of ESGEN’s completion of an initial Business Combination or July 22, 2024, as applicable. Following such liquidation of the assets in the Trust Account, we will likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount the public shareholders would have otherwise received upon any redemption or liquidation of ESGEN if the assets in the Trust Account had remained in U.S. government securities or money market funds. This means that the amount available for redemption will not increase at the same rate in the future.
In addition, even prior to the 24-month anniversary of the effective date of the IPO Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the 24-month anniversary of the effective date of the IPO Registration Statement, the greater the risk that we may be considered an unregistered investment company under Section 3(a)(1)(A) of the Investment Company Act, in which case we may be required to liquidate ESGEN. If we are required to liquidate, our shareholders will miss the opportunity to benefit from an investment in a target company and the potential appreciation in value of such investment through a Business Combination. Additionally, if we are required to liquidate, there will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless in the event of our winding up. The risk of being deemed subject to the Investment Company Act may increase the longer ESGEN holds securities, and also may increase to the extent the funds in the Trust Account are not held in cash (which may include an interest-bearing demand deposit account at a national bank).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
28
Table of Contents
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
29
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 14, 2023 | ESGEN Acquisition Corporation | |||||
| By: | /s/ Andrea Bernatova | |||||
| Andrea Bernatova | ||||||
| Chief Executive Officer | ||||||
| Date: November 14, 2023 | ESGEN Acquisition Corporation | |||||
| By: | /s/ Nader Daylami | |||||
| Nader Daylami | ||||||
| Chief Financial Officer | ||||||
30
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrea Bernatova, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 of ESGEN Acquisition Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: | November 14, 2023 |
| By: | /s/ Andrea Bernatova | |
| Name: | Andrea Bernatova | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nader Daylami, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 of ESGEN Acquisition Corporation: |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: | November 14, 2023 |
| By: | /s/ Nader Daylami | |
| Name: | Nader Daylami | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ESGEN Acquisition Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrea Bernatova, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2023
| By: | /s/ Andrea Bernatova | |
| Name: | Andrea Bernatova | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ESGEN Acquisition Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nader Daylami, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2023
| By: | /s/ Nader Daylami | |
| Name: | Nader Daylami | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |