NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Note 1. Description of Organization and Business
Operations
Organization and General
Rice Acquisition Corp. II is a blank check company
incorporated as a Cayman Islands exempted company on February 2, 2021. As used herein, the “Company” refers to Rice Acquisition
Corp. II and its majority-owned and controlled operating subsidiary, Rice Acquisition Holdings II LLC (“OpCo”), unless the
context indicates otherwise. The Company was 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”).
The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early
stage and emerging growth companies.
As of March 31, 2023, the Company had not commenced
any operations. All activity to date relates to the Company’s formation and the preparation for initial public offering (the “Initial
Public Offering”), described below, and, subsequent to the Initial Public Offering, identifying a target company for a Business
Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the
earliest. The Company generates non-operating income in the form of interest income on investments from the proceeds derived from the
Initial Public Offering (as defined below). The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Rice Acquisition
Sponsor II LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial
Public Offering was declared effective on June 15, 2021. On June 18, 2021, the Company consummated its Initial Public Offering of 34,500,000
units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public
Shares”), which included the full exercise of the underwriters’ option to purchase an additional 4,500,000 Units to cover
over-allotments, at $10.00 per Unit, generating gross proceeds of $345.0 million, and incurring offering costs of approximately $19.1
million, of which approximately $11.7 million and approximately $593,000 were for deferred underwriting commissions (see Note 5) and offering
costs allocated to the derivative warrant liabilities, respectively.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of 10,900,000 warrants (each, a “Private
Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant
to the Sponsor, generating proceeds of $10.9 million (see Note 4). Each Private Placement Warrant is exercisable to purchase one of the
Company’s Class A ordinary shares or one Class A Unit of OpCo together with a corresponding non-economic Class B ordinary share
of the Company.
Following the Initial Public Offering, the Public
Shareholders (as defined below) hold a direct economic equity ownership interest in the Company in the form of Class A ordinary shares,
and an indirect ownership interest in Opco through the Company’s ownership of Class A Units of Opco. By contrast, the holders of
the Company’s Founder Shares and Sponsor Shares (each as defined below in Note 4), including officers and directors to the extent
they hold such shares (the “Initial Shareholders”), will own direct economic interests in Opco in the form of Class B Units
and a corresponding non-economic voting equity interest in the Company in the form of Class B ordinary shares, as well as a small direct
interest through the Sponsor Shares (see Note 4).
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Upon the closing of the Initial Public Offering
and the Private Placement, $345,026,000 of the net proceeds of the sale of the Units in the Initial Public Offering and of the Private
Placement Warrants in the Private Placement were placed in a trust account (“Trust Account”) located in the United States
with Continental Stock Transfer & Trust Company acting as trustee, and is invested only in U.S. “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 of 1940, as amended (the “Investment Company Act”),
which invest only in direct U.S. government treasury obligations, as determined by the Company, until the earlier of (i) the completion
of a Business Combination and (ii) the distribution of the Trust Account as described below.
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least 80% of the net assets held in the Trust Account (net of amounts
disbursed to management for working capital purposes, if permitted, and excluding the amount of any deferred underwriting discount held
in the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, the Company will only complete
a Business Combination if the post-business combination company owns or acquires 50% or more of the voting securities of the target or
otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under
the Investment Company Act.
The Company will provide the holders of the Company’s
outstanding Class A ordinary shares, par value $0.0001 per share (the “Public Shareholders”) with the opportunity to redeem
all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting
called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder
approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Shareholders
will be entitled to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account (initially at $10.00
per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company
to pay its tax obligations). The per-share amount to be distributed to Public Shareholders who redeem their Public Shares will not be
reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 5). These Public Shares
were recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing
Liabilities from Equity.” The Company will proceed with a Business Combination if a majority of the shares voted are voted in favor
of the Business Combination.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
The Company will not redeem the Public Shares
in an amount that would cause its net tangible assets to be less than $5,000,001. If a shareholder vote is not required by law and the
Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to its amended and restated
memorandum and articles of association, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange
Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder
approval of the transaction is required by law, or the Company decides to obtain shareholder approval for business or legal reasons, the
Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender
offer rules. Additionally, each Public Shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against
the proposed transaction. If the Company seeks shareholder approval in connection with a Business Combination, the Initial Shareholders
agreed to vote their Founder Units and any Public Shares purchased during or after the Initial Public Offering in favor of a Business
Combination. In addition, the Initial Shareholders agreed to waive their redemption rights with respect to their Founder Units and Public
Shares in connection with the completion of a Business Combination.
If the Company is unable to complete a Business
Combination within 24 months from the closing of the Initial Public Offering, or June 18, 2023 (the “Combination Period”),
the Company 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 the Company to pay
taxes of the Company or Opco, if any (less up to $100,000 of interest to pay dissolution expenses), divided by the number of the then-outstanding
Public Shares and Class A Units of Opco (other than those held by the Company), which redemption will completely extinguish Public Shareholders’
rights as shareholders (including the right to receive further liquidating distributions, if any); and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the Company’s remaining shareholders and the Company’s board
of directors, liquidate and dissolve, subject in each case, to the Company’s obligations under Cayman Islands 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 warrants, which will expire worthless if the Company fails to consummate an initial Business Combination within 24 months
from the closing of the Initial Public Offering.
Pursuant to the Opco LLC Agreement and a letter
agreement that the Sponsor, and the Company’s officers and directors have entered into with the Company, the Sponsor, and the Company’s
officers and directors agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Units
they hold if the Company fails to consummate an initial Business Combination within 24 months from the closing of the Initial Public Offering
(although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the
Company fails to complete an initial Business Combination within the prescribed time frame).
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Risks and Uncertainties
In February 2022, the Russian Federation and Belarus
commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have
instituted economic sanctions against the Russian Federation and Belarus. The impact of this action and related sanctions on the world
economy is not determinable as of the date of these unaudited condensed consolidated financial statements.
Proposed Business Combination
On December 13, 2022, Rice Acquisition Corp. II, a
Cayman Islands exempted company (“RONI”), entered into a Business Combination Agreement (the “Original Business Combination
Agreement”), by and among RONI, Rice Acquisition Holdings II LLC, a Cayman Islands exempted company and majority-owned and
controlled operating subsidiary of RONI (“RONI Opco”), Topo Buyer Co, LLC, a Delaware limited liability company and a
direct, wholly owned subsidiary of RONI Opco (“RONI Buyer”), Topo Merger Sub, LLC, a Delaware limited liability company and
a direct, wholly owned subsidiary of RONI Buyer (“Merger Sub”), and NET Power, LLC, a Delaware limited liability company (“NET
Power”), on April 23, 2023, RONI Buyer and NET Power entered into the First Amendment to the Business Combination Agreement (the
“BCA Amendment” and, together with the Original Business Combination Agreement, as may be amended, supplemented or otherwise
modified from time to time, the “Proposed Business Combination Agreement” and the transactions contemplated thereby, collectively,
the “Proposed Business Combination”). Pursuant to the Proposed Business Combination Agreement, among other things:
| (i) | RONI
will change its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating
as a corporation incorporated under the laws of the State of Delaware, upon which (a) RONI will change its name to “NET Power Inc.”
(the “combined company”), (b) each then issued and outstanding Class A ordinary share of a par value $0.0001 each in
the capital of RONI will convert automatically, on a one-for-one basis, to a share of Class A common stock, par value $0.0001 per share,
of RONI (“Class A Common Stock”), (c) each then issued and outstanding Class B ordinary share of a par value $0.0001 each
in the capital of RONI will convert automatically, on a one-for-one basis, to a share of Class B common stock, par value $0.0001 per
share, of RONI (“Class B Common Stock”), and (d) each issued and outstanding warrant to purchase one Class A ordinary
share in the capital of RONI at a price of $11.50 per share will convert automatically, on a one-for-one basis, into a
whole warrant exercisable for one share of Class A Common Stock; |
| (ii) | Following
RONI’s domestication, RONI Opco will change its jurisdiction of formation by deregistering as a Cayman Islands limited liability
company and continuing and domesticating as a limited liability company formed under the laws of the State of Delaware (together with
RONI’s domestication, the “Domestications”), upon which, (a) RONI Opco will change its name to “NET Power Holdings
LLC”, (b) each then issued and outstanding Class A Unit of RONI Opco will convert automatically, on a one-for-one basis, to a Class
A Unit of RONI Opco as issued and outstanding pursuant to the terms of A&R LLC Agreement (as defined below), and (c) each then issued
and outstanding Class B Unit of RONI Opco will convert automatically, on a one-for-one basis, to either (i) a Class A Unit of RONI Opco
as issued and outstanding pursuant to the A&R LLC Agreement or (ii) a Class B Unit of RONI Opco as issued and outstanding pursuant
to the terms of the A&R LLC Agreement; and |
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
| (iii) | Following the Domestications, Merger Sub will merge with and into NET Power, with NET Power surviving the merger as a direct, wholly owned subsidiary of RONI Buyer, on the terms and subject to the conditions of the certificate of merger, pursuant to which (a) all of the equity interests of NET Power that are issued and outstanding immediately prior to the Proposed Business Combination will, in connection with the Proposed Business Combination, be cancelled, cease to exist and be converted into the right to receive an aggregate of 137,192,563 Class A Units of RONI Opco and an equivalent number of shares of Class B Common Stock (one share of Class B Common Stock together with one Class A Unit or Class B Unit of RONI Opco, a “RONI Interest”), subject to adjustment for (i) NET Power shares issued pursuant to the Amended and Restated Joint Development Agreement, dated December 13, 2022, by and among NET Power; RONI; Opco; Nuovo Pignone International, S.r.l., an Italian limited liability company; and Nuovo Pignone Tecnologie S.r.l., an Italian limited liability company, as of the Closing Date and (ii) cash funding raised by NET Power following entry into the Proposed Business Combination Agreement and retained on its books as of the Closing Date, as allocated pursuant to the Proposed Business Combination Agreement, and (b) any equity interests of NET Power that are held in the treasury of NET Power or owned by any subsidiary of NET Power immediately prior to the Proposed Business Combination will be cancelled and cease to exist. |
Following the Proposed Business Combination, holders
of Class A Units of RONI Opco (other than RONI) will have the right (an “exchange right”), subject to certain limitations,
to exchange RONI Interests for, at RONI’s option, (i) shares of Class A Common Stock on a one-for-one basis, subject to adjustment
for stock splits, stock dividends, reorganizations, recapitalizations and the like (collectively, “adjustments”), or (ii)
a corresponding amount of cash. RONI’s decision to make a cash payment or issue shares upon an exercise of an exchange right will
be made by RONI’s independent directors, and such decision will be based on facts in existence at the time of the decision, which
RONI expects would include the relative value of the Class A Common Stock (including trading prices for the Class A Common Stock at the
time), the cash purchase price, the availability of other sources of liquidity (such as an issuance of preferred stock) to acquire the
Class A Units of RONI Opco and alternative uses for such cash, among other considerations.
Holders of Class A Units of RONI Opco (other than
RONI) will generally be permitted to exercise the exchange right on a quarterly basis, subject to certain de minimis allowances. In addition,
additional exchanges may occur in connection with certain specified events, and any exchanges involving more than a specified number of
Class A Units of RONI Opco (subject to RONI’s discretion to permit exchanges of a lower number of units) may occur at any time upon
ten business days’ advanced notice. The exchange rights will be subject to certain limitations and restrictions intended to reduce
the administrative burden of exchanges upon RONI and ensure that RONI Opco will continue to be treated as a partnership for U.S. federal
income tax purposes.
Consummation of the Proposed Business Combination
is generally subject to customary conditions of the respective parties and conditions customary to special purpose acquisition companies,
including (i) expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(“HSR”), (ii) the absence of any law or governmental order, threatened or pending, preventing the consummation of the Proposed
Business Combination, (iii) receipt of requisite approval for consummation of the Proposed Business Combination from RONI’s and
NET Power’s shareholders, (iv) RONI’s possession of at least $5,000,001 of net tangible assets, as determined in accordance
with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended, immediately after giving effect to the Proposed Business Combination
and (v) approval of the RONI shares being issued in connection with the Proposed Business Combination (including the PIPE Financing (as
defined below)) for listing on the New York Stock Exchange. The statutory HSR waiting period expired on February 6, 2023.
Additionally, the obligation of NET Power to consummate
the Proposed Business Combination is further conditioned upon the sum of (i) the aggregate cash proceeds available for release from
RONI’s trust account (after giving effect to the exercise of redemption rights by RONI stockholders), plus (ii) the amount received
in respect of the PIPE Financing (whether funded by a current NET Power shareholder or by a third-party investor, and inclusive of funds
raised by NET Power during the period between signing and Closing), minus (iii) transaction expenses (for RONI and for NET Power), plus
(iv) all cash on the consolidated balance sheet of RONI and its subsidiaries, in the aggregate, exceeding $200,000,000 as of immediately
prior to the Closing.
The Company filed a Current Reports on Form 8-K with
the U.S. Securities and Exchange Commission (the “SEC”) on December 13, 2022 including additional details, the Original Business
Combination Agreement, and related supporting agreements and filed a Current Report on Form 8-K with the SEC on April 24, 2023 including
the BCA Amendment and related details. For additional information regarding NET Power, the Proposed Business Combination and the transactions
contemplated thereby, see the registration statement on Form S-4 containing a proxy statement and a prospectus of RONI initially filed
with the SEC on December 22, 2022 and declared effective on May 10, 2023.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Liquidity and Going Concern
As of March 31, 2023, the Company had approximately
$0.8 million in its operating bank account and working capital deficit of approximately $4.8 million.
The Company’s liquidity needs through March
31, 2023 have been satisfied through a payment of $25,000 from Sponsor to cover for certain expenses in exchange for the issuance of the
Founder Shares (as defined in Note 4), the loan of approximately $126,000 from the Sponsor pursuant to the Note (see Note 4), and the
proceeds from the consummation of the Private Placement not held in the Trust Account. The Company fully repaid the Note balance upon
closing of the Initial Public Offering. In addition, in order to finance transaction costs in connection with a Business Combination,
the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide
the Company Working Capital Loans (see Note 4). As of March 31, 2023 and December 31, 2022, there were no amounts outstanding under any
Working Capital Loan.
In connection with the Company’s
assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”) 2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined
that the liquidity needs, mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s
ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the
Company be required to liquidate after June 18, 2023. The unaudited condensed consolidated financial statements do not include any
adjustment that might be necessary if the Company is unable to continue as a going concern. The Company intends to complete a
Business Combination before the mandatory liquidation date. Over this time period, the Company 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.
Note 2. Basis of Presentation and Summary of
Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X
and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by
GAAP. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only
normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results
for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023
or any future period.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K filed by the Company with the SEC on March 2, 2023.
Emerging Growth Company
As an emerging growth company, the Company may
take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging
growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
Further, Section 102(b)(1) of the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or
revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended
(the “Securities Act”), registration statement declared effective or do not have a class of securities registered under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company
has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at
the time private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed consolidated
financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has
opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards
used.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Principles of Consolidation and Financial
Statement Presentation
The unaudited condensed consolidated
financial statements include the accounts of the Company and its majority-owned and controlled operating subsidiary after
elimination of all intercompany transactions and balances as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022. The ownership interest of
noncontrolling participants in the operating subsidiary is included as a separate component of shareholders’ deficit.
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with 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 unaudited condensed consolidated financial
statements and the reported amounts of income and expenses during the reporting period. Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its
estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly
from those estimates.
Offering Costs Associated with the Initial
Public Offering
Offering costs consisted of legal, accounting,
underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering.
Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities were expensed as incurred and
presented as non-operating expenses in the unaudited condensed consolidated statements of operations. Offering costs associated with the
Class A ordinary shares issued were charged against the carrying value of the Class A ordinary shares upon the completion of the Initial
Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably
expected to require the use of current assets or require the creation of current liabilities.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of March
31, 2023 and December 31, 2022.
Investments Held in the Trust Account
The Company’s portfolio of investments is
comprised of 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 investments in money market funds that invest in U.S. government securities and generally have a readily determinable
fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government
securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised
of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented
on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change
in fair value of these securities are included in interest earned on investments held in the Trust Account in the accompanying unaudited condensed
consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available
market information.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation coverage limit of $250,000. As of March 31, 2023 and December 31, 2022, the Company had not experienced
losses on these accounts. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's
financial condition, results of operations, and cash flows.
Fair Value of Financial Instruments
The fair value of the Company’s assets and
liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements,” equals or approximates
the carrying amounts represented in the condensed consolidated balance sheets, primarily due to their short-term nature, except for the
derivative warrant liabilities (see Note 9).
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Fair Value Measurements
Fair value is defined as the price that would
be received for sale of an asset or paid for transfer of a liability in an orderly transaction between market participants at the measurement
date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| ● | 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. |
In some circumstances, the inputs used to measure
fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is
categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Warrant Liabilities
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives,
pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period.
The Public Warrants and the Private Placement
Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments
as liabilities at fair value and adjusts the carrying value of the instruments to fair value at each reporting period. The liabilities
are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s
unaudited condensed consolidated statements of operations. The initial fair value of the Public Warrants and the Private Placement Warrants
were estimated using a Monte Carlo simulation model. While the fair value of the Private Placement Warrants continues to be measured under
Monte Carlo simulation model, subsequent to the Public Warrants being traded on an active market, the fair value of the Public Warrants
has since been based on the observable listed prices for such warrants. The determination of the fair value of the warrant liability may
be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative
warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current
assets or require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible
Redemption
The Company accounts for its ordinary shares subject
to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption (if any) are
classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class
A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A ordinary
shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that
are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Although the Company
did not specify a maximum redemption threshold, its amended and restated memorandum and articles of association provides that currently,
the Company will not redeem its Public Shares in an amount that would cause its net tangible assets (shareholders’ equity) to be
less than $5,000,001. Accordingly, as of the Initial Public Offering, 34,500,000 Class A ordinary shares subject to possible redemption
at the redemption amount were presented at redemption value as temporary equity, outside of the shareholders’ deficit section of
the Company’s condensed consolidated balance sheets.
Under ASC 480-10-S99, the Company has elected
to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption
value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date
of the security. Effective with the closing of the Initial Public Offering, the Company recognized the accretion from initial book value
to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as
Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. This presentation
assumes a business combination as the most likely outcome. Net income (loss) per ordinary share is calculated by dividing the net income
(loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per
ordinary share does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement
to purchase an aggregate of 19,525,000 ordinary shares in the calculation of diluted income (loss) per share, because their exercise is
contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income
(loss) per share is the same as basic net income (loss) per share for the three months ended March 31, 2023 and 2022. Accretion associated
with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
The following table presents a reconciliation
of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of ordinary shares:
| |
For the Three Months Ended March 31, 2023 | | |
For the Three Months Ended March 31, 2022 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Basic and diluted net (loss) income per ordinary share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net (loss) income | |
$ | (1,855,423 | ) | |
$ | (463,822 | ) | |
$ | 13,517,410 | | |
$ | 3,379,108 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average ordinary shares outstanding | |
| 34,502,500 | | |
| 8,625,000 | | |
| 34,502,500 | | |
| 8,625,000 | |
Basic and diluted net (loss) income per ordinary share | |
$ | (0.05 | ) | |
$ | (0.05 | ) | |
$ | 0.39 | | |
$ | 0.39 | |
Income Taxes
FASB ASC Topic 740, “Income
Taxes,” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31, 2023
and December 31, 2022. The Company’s management determined that the Cayman Islands is the Company’s only major tax
jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The
Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation
from its position. The Company is subject to income tax examinations by major taxing authorities since inception. There is currently
no taxation imposed on income by the government of the Cayman Islands. In accordance with Cayman Islands income tax regulations,
income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s unaudited condensed
consolidated financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits
will materially change over the next twelve months.
Recent Accounting Standards
In June 2022, the FASB issued ASU 2022-03, ASC
Subtopic 820, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The ASU amends ASC 820
to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure
requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU applies to both holders
and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for the Company in
fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim
and annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact
of this pronouncement on the condensed consolidated financial statements.
Management does not believe that any other recently
issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited
condensed consolidated financial statements.
Note 3. Initial Public Offering
On June 18, 2021, the Company consummated its
Initial Public Offering of 34,500,000 Units, which included the full exercise of the underwriters’ option to purchase an additional
4,500,000 Units to cover over-allotments, at $10.00 per Unit, generating gross proceeds of $345.0 million, and incurring offering costs
of approximately $19.1 million, of which approximately $11.7 million and approximately $593,000 were for deferred underwriting commissions
and offering costs allocated to the derivative warrant liabilities, respectively. Of the 34,500,000 Units sold, affiliates of Rice Investment
Group had purchased 1,010,000 Units (the “Affiliated Units”) at the Initial Public Offering price. The underwriters did not
receive any underwriting discounts or commissions on the 1,010,000 Affiliated Units.
Each Unit consists of one Class A ordinary share,
and one-fourth of one redeemable warrant (each, a “Public Warrant”). Each Public Warrant entitles the holder to purchase one
Class A ordinary share at a price of $11.50 per share, subject to adjustment (see Note 7).
Note 4. Related Party Transactions
Founder Units and Sponsor Units
On February 10, 2021, the Sponsor received 7,187,500
Class B Units of Opco for no consideration and purchased 7,187,600 of the Company’s Class B ordinary shares, par value $0.0001,
2,500 of the Company’s Class A ordinary shares and 100 Class A Units of Opco for aggregate consideration of $26,000. Of the aggregate
consideration, Opco received $1,000 for the Class A Units and the Company received $25,000 for the Class A ordinary shares and the Class
B ordinary shares. The Company then subscribed for 2,500 Class A Units of Opco for $25,000.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
In June 2021, the Sponsor forfeited 90,000 Class
B Units of Opco, and 30,000 Class B Units of Opco were issued to each of the Company’s independent director nominees. The Sponsor
transferred a corresponding number of shares of the Company’s Class B ordinary shares to the Company’s independent director
nominees. In June 2021, the Company effected a dividend, and Opco effected a distribution, resulting in an aggregate of 8,625,000 Class
B ordinary shares and 8,624,900 Class B Units of Opco outstanding, of which the Sponsor owned 8,535,000 of the Company’s Class B
ordinary shares and 8,534,900 Class B Units of Opco.
The Sponsor agreed to forfeit up to 1,127,500
Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters, so that the Founder Shares would
represent 20.0% of the Company’s issued and outstanding shares after the Initial Public Offering. The underwriters fully exercised
the over-allotment on June 16, 2021; thus, these 1,127,500 Founder Shares were no longer subject to forfeiture.
The Initial Shareholders agreed, subject to limited
exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of (A) one year after the completion
of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of the Class A ordinary
shares equals or exceeds $12.00 per share (as adjusted for share sub-divisions, share dividends, 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 the Company 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 Class A ordinary shares for cash, securities or other property.
The Company refers to the 8,624,900 Class B ordinary
shares and corresponding number of Class B Units of Opco (or the Class A Units of Opco into which such Class B Units will convert) collectively
as the “Founder Shares”. The Founder Shares consist of Class B Units of Opco (and any Class A Units of Opco into which such
Class B Units are converted) and a corresponding number of Class B ordinary shares, which together will be exchangeable for shares of
the Company’s Class A ordinary shares after the time of the initial Business Combination on a one-for-one basis, subject to adjustment
as provided herein. The Company refers to the 2,500 Class A ordinary shares and the 100 Class A Units of Opco and a corresponding number
of shares of the Company’s non-economic Class B ordinary shares (which together will be exchangeable into Class A ordinary shares
after the initial Business Combination on a one-for-one basis) collectively as the “Sponsor Shares”. The Sponsor Units are
considered non-redeemable and presented as permanent equity in the Company’s condensed consolidated balance sheets.
The Class B Units of Opco will convert into
Class A Units of Opco in connection with the initial Business Combination on a one-for-one basis, subject to adjustment for stock splits,
stock dividends, reorganizations, recapitalizations and the like and subject to further adjustment as provided herein. The Founder Shares
consist of Class B Units of Opco (and any Class A Units of Opco into which such Class B Units are converted) and a corresponding number
of Class B ordinary shares, which together will be exchangeable for Class A ordinary shares after the time of the initial Business Combination
on a one-for-one basis (subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like), and
subject to further adjustment as provided herein. In the case that additional Class A ordinary shares, or equity-linked securities, are
issued or deemed issued in excess of the amounts sold in the Initial Public Offering and related to the closing of the Business Combination,
the number of Class A Units of Opco into which the Class B Units of Opco will convert may be adjusted (unless the holders of a majority
of the outstanding Founder Shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number
of Class A ordinary shares issuable upon exchange of all Founder Shares will equal, in the aggregate, on an as-exchanged basis, 20% of
the sum of the total outstanding shares of the Company’s ordinary shares upon completion of the Initial Public Offering, plus all
Class A ordinary shares and equity-linked securities issued or deemed issued in connection with the Business Combination (excluding the
forward purchase securities and any shares or equity-linked securities issued, or to be issued, to any seller in the Business Combination
and excluding the Sponsor Shares). In addition, the number of outstanding Class B ordinary shares will be adjusted through a stock split
or stock dividend so that the total number of outstanding Class B ordinary shares corresponds to the total number of Class A Units of
Opco outstanding (other than those held by the Company) plus the total number of Class A Units Opco into which the Class B Units of Opco
are entitled to convert.
The Initial Shareholders agreed, subject to limited
exceptions, not to transfer, assign or sell any of the Founder Units held by them (and any Class A ordinary shares acquired upon exchange
of Founder Units) until one year after the date of the consummation of the initial Business Combination or earlier if, subsequent to the
initial Business Combination, (i) the last sale price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for
stock splits, stock dividends, 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 (ii) the Company consummates a subsequent liquidation, merger,
stock exchange or other similar transaction which results in all of the shareholders having the right to exchange their ordinary shares
for cash, securities or other property.
Private Placement Warrants
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of 10,900,000 Private Placement Warrants at a price of $1.00 per Private
Placement Warrant to the Sponsor, generating proceeds of $10.9 million.
Each whole Private Placement Warrant is exercisable
for one whole Class A ordinary share at a price of $11.50 per share. A portion of the proceeds from the Private Placement Warrants was
added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination
within the Combination Period, the Private Placement Warrants will expire worthless. The Private Placement Warrants will be non-redeemable
and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
The Sponsor and the Company’s officers and
directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days
after the completion of the initial Business Combination.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Related Party Loans
On February 10, 2021, the Sponsor agreed to loan
the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the
“Note”). This Note was non-interest bearing and payable upon the completion of the Initial Public Offering. As of June 16,
2021, the Company borrowed approximately $167,000 under the Note. The Company repaid the Note in full on December 14, 2021 and borrowing
is no longer available.
In addition, in order to finance transaction costs
in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and
directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company
completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to
the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that
a Business Combination does not close, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working
Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would
either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1.5 million
of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant.
The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans,
if any, have not been determined and no written agreements exist with respect to such loans. As of March 31, 2023 and December 31, 2022,
the Company had no borrowings under the Working Capital Loans.
Administrative Services Agreement
Commencing on June 15, 2021, the date that the
Company’s securities were first listed on the New York Stock Exchange, the Company agreed to pay the Sponsor a total of $10,000
per month for office space, secretarial and administrative services provided to the Company. Upon completion of the initial Business Combination
or the Company’s liquidation, the Company will cease paying these monthly fees. For the three months ended March 31, 2023 and 2022,
there was $30,000 in fees incurred and paid under this agreement.
In addition, the Sponsor, officers and directors,
or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the
Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations.
The audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, officers or directors,
or the Company’s or their affiliates. Any such payments prior to an initial Business Combination will be made from funds held outside
the Trust Account. No such amounts were reimbursed or accrued for as of March 31, 2023 and December 31, 2022.
Note 5. Commitments and Contingencies
Registration and Shareholder Rights
The holders of Founder Units, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) were entitled to registration
rights pursuant to a registration rights agreement signed upon consummation of the Initial Public Offering. These holders are entitled
to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that the Company
will not permit any registration statement filed under the Securities Act to become effective until the termination of the applicable
lock-up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such
registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option
from the final prospectus relating to the Initial Public Offering to purchase up to 4,500,000 additional Units to cover over-allotments,
if any, at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters fully exercised the over-allotment
on June 16, 2021.
The underwriters did not earn any commissions
on the 1,010,000 Affiliated Units. The underwriters were entitled to an underwriting discount of $0.20 per unit, or approximately $6.7
million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $11.7 million
in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject
to the terms of the underwriting agreement.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Note 6. Class A Ordinary Shares Subject to
Possible Redemption
The Company’s Class A ordinary shares
feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of
future events. The Company is authorized to issue 300,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders
of the Company’s Class A ordinary shares are entitled to one vote for each share. As of March 31, 2023 and December 31, 2022,
there were 34,502,500 Class A ordinary shares outstanding, of which 34,500,000 shares were subject to possible redemption and are
classified outside of permanent equity in the condensed consolidated balance sheets.
The Class A ordinary shares subject to possible
redemption reflected on the condensed consolidated balance sheets are reconciled on the following table:
Class A ordinary shares subject to possible redemption, December 31, 2021 | |
$ | 345,000,000 | |
Plus: | |
| | |
Increase in redemption value of Class A ordinary shares subject to redemption | |
| 4,816,773 | |
Class A ordinary shares subject to possible redemption, December 31, 2022 | |
| 349,816,773 | |
Plus: | |
| | |
Increase in redemption value of Class A ordinary shares subject to redemption | |
| 3,710,256 | |
Class A ordinary shares subject to possible redemption, March 31, 2023 | |
$ | 353,527,029 | |
Note 7. Shareholders’ Deficit
Class A Ordinary Shares - The Company
is authorized to issue 300,000,000 Class A ordinary shares with a par value of $0.0001 per share. As of March 31, 2023 and December 31,
2022, there were 34,502,500 Class A ordinary shares issued and outstanding, of which 34,500,000 Class A ordinary shares were subject to
possible redemption that are classified as temporary equity in the accompanying condensed consolidated balance sheets (see Note 6).
Class B Ordinary Shares - The Company
is authorized to issue 30,000,000 Class B ordinary shares with a par value of $0.0001 per share. As of March 31, 2023 and December 31,
2022, 8,625,000 Class B ordinary shares were issued and outstanding.
Ordinary shareholders of record are entitled to
one vote for each share held on all matters to be voted on by shareholders. Holders of the Class A ordinary shares and holders of the
Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the Company’s shareholders, except
as required by law. The Class B ordinary shares will automatically convert into Class A ordinary shares on the first business day immediately
following the consummation of the initial Business Combination at a ratio such that the number of Class A ordinary shares issuable upon
conversion of all Founder Units will equal, in the aggregate, on an as-converted basis, 20% of the sum of (i) the total number of Class
A ordinary shares issued and outstanding upon completion of the Initial Public Offering, plus (ii) the sum of the total number of Class
A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or
deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination, excluding any
Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued,
to any seller in the initial Business Combination and any private placement warrants issued to the Sponsor upon conversion of Working
Capital Loans. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one to one.
Preference Shares - The Company
is authorized to issue 1,000,000 preference shares, with a par value of $0.0001 per share, with such designations, voting and other rights
and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2023 and December 31,
2022, there were no preference shares issued or outstanding.
Class A and Class B Units of Opco
- For each Class B ordinary share there is a corresponding Class A or Class B Unit of Opco. In connection with an initial Business Combination,
or in certain circumstances described in the Opco LLC Agreement, at specified times after, the Class B Units of Opco are expected to convert
into Class A Units of Opco on a one-for-one basis, subject to adjustment. The Class A Units will be exchangeable (together with the cancellation
of a corresponding number of the Company’s Class B ordinary shares) for cash or into the Company’s Class A ordinary shares
after the time of an initial Business Combination on a one-for-one basis. The Company’s Class B ordinary shares comprising the Founder
Units and Sponsor Units cannot be transferred without transferring a corresponding number of Class A Units or Class B Units of Opco, as
applicable, and vice versa. As of March 31, 2023 and December 31, 2022, there were 2,600 Class A Units of Opco issued and outstanding
and 7,187,500 Class B Units of Opco issued and outstanding. In June 2021, Opco effected a distribution, resulting in an aggregate of 8,624,900
Class B Units of Opco issued and outstanding.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
Note 8. Derivative Warrant Liabilities
As of March 31, 2023 and December 31, 2022, the
Company had 8,625,000 Public Warrants and 10,900,000 Private Placement Warrants outstanding.
Public Warrants may only be exercised for a whole
number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade.
The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided that the Company has an effective
registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the Public Warrants and
a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis
and such cashless exercise is exempt from registration under the Securities Act). The Company agreed that as soon as practicable, but
in no event later than 15 business days after the closing of the initial Business Combination, it will use its commercially reasonable
efforts to file with the SEC and have an effective registration statement covering the Class A ordinary shares issuable upon exercise
of the warrants and to maintain a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed.
If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th business
day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration
statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on
a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
The warrants have an exercise price of $11.50
per share, subject to adjustments, and will expire five years after the completion of a Business Combination or earlier upon redemption
or liquidation. In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising
purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.20
per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the board and, in the case
of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Units held by the Sponsor or such affiliates,
as applicable, prior to such issuance) (the “Newly Issued Price”), the exercise price of the warrants will be adjusted (to
the nearest cent) to be equal to 115% of the Newly Issued Price.
Redemption of warrants for cash:
Once the warrants become exercisable, the Company
may redeem the outstanding warrants for cash (except as described herein with respect to the Private Placement Warrants):
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
| ● | upon
a minimum of 30 days’ prior written notice of redemption; and |
| ● | if,
and only if, the last sale price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
The Company will not redeem the warrants for cash
unless a registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants is
effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period, except
if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act.
If the Company calls the warrants for redemption for cash as described above, the management will have the option to require all holders
that wish to exercise warrants to do so on a “cashless basis.”
Redemption of warrants for Class A ordinary
shares:
Commencing 90 days after the warrants become exercisable,
the Company may redeem the outstanding warrants for Class A ordinary shares (except as described herein with respect to the Private Placement
Warrants):
| ● | in
whole and not in part; |
| ● | at
a price equal to a number of Class A ordinary shares to be determined by reference to an agreed table based on the redemption date and
the “fair market value” of Class A ordinary shares; |
| ● | upon
a minimum of 30 days’ prior written notice of redemption; and |
| ● | if
and only if, the last sale price of a Class A ordinary share equals or exceeds $10.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) on the trading day prior to the date on which the Company sends the notice
of redemption to the warrant holders. |
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
The “fair market value” of a
Class A ordinary share shall mean the average reported last sale price of Class A ordinary shares for the 10 trading days immediately
following the date on which the notice of redemption is sent to the holders of warrants.
The Private Placement Warrants shall be identical
to the Public Warrants, except that so long as they are held by the Sponsor or any of its respective permitted transferees, the Private
Placement Warrants: (i) may be exercised for cash or on a cashless basis, pursuant to subsection 3.3.1(c) of that certain Warrant Agreement,
dated June 15, 2021, between Continental Stock Transfer & Trust Company, the Company and Opco (the “Warrant Agreement”),
(ii) will terminate as of the close initial Business Combination if any holder, other than the Company (or any of its subsidiaries), of
the Class A Units of Opco associated with such Opco Warrant Rights (as defined in the Warrant Agreement) continues to hold any Class A
Units of Opco (or of any successor to Opco) immediately after the close of the initial Business Combination, in which case the associated
Opco Warrant Rights will not terminate, (iii) may not be transferred, assigned or sold until thirty (30) days after the completion by
the Company of an initial Business Combination, and (iv) shall not be redeemable by the Company for cash pursuant to Section 6.1 of the
Warrant Agreement; provided, however, that in the case of (iii), the Private Placement Warrants and any Class A ordinary shares held by
the Sponsor or any of its respective permitted transferees and issued upon exercise of the Private Placement Warrants or upon exchange
of any Class A Units of Opco issued upon exercise of any warrants of Opco may be transferred by the holders. None of the Private Placement
Warrants will be redeemable by the Company so long as they are held by the initial purchasers of the Private Placement Warrants or their
permitted transferees.
In no event will the Company be required to net
cash settle any warrant. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates
the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they
receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly,
the warrants may expire worthless.
Note 9. Fair Value Measurements
The following tables present information about
the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December
31, 2022, by level within the fair value hierarchy:
March 31, 2023 | |
| | |
| | |
| |
Description | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets: | |
| | |
| | |
| |
Investments held in Trust Account - money market fund | |
$ | 353,653,029 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | |
Derivative warrant liabilities - Public | |
$ | 12,506,250 | | |
$ | - | | |
$ | - | |
Derivative warrant liabilities - Private Placement | |
$ | - | | |
$ | - | | |
$ | 16,772,000 | |
December 31, 2022 | |
| | |
| | |
| |
Description | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets: | |
| | |
| | |
| |
Investments held in Trust Account - money market fund | |
$ | 349,942,773 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | |
Derivative warrant liabilities - Public | |
$ | 10,781,250 | | |
$ | - | | |
$ | - | |
Derivative warrant liabilities - Private Placement | |
$ | - | | |
$ | - | | |
$ | 14,051,190 | |
Transfers to/from Levels 1, 2 and 3 are recognized
at the beginning of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a
Level 1 measurement as the Public Warrants were separately traded beginning in August 2021. There were no other transfers to/from Levels
1, 2, and 3 during the three months ended March 31, 2023 and 2022.
Level 1 assets include investments in money market
funds invested in government securities and Level 1 liabilities include Public Warrants. The Company uses inputs such as actual trade
data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The Public Warrants and the Private Placement
Warrants were initially measured at fair value using a Monte Carlo simulation model. While the fair value of the Private Placement Warrants
continues to be measured under a Monte Carlo simulation model, subsequent to the Public Warrants being traded on an active market, the
fair value of the Public Warrants has since been based on the observable listed prices for such warrants. As of March 31, 2023 and December
31, 2022, the fair value of the Public Warrants was estimated at their listed public trading price.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
The estimated fair value of the Private Placement Warrants is determined
using Level 3 inputs. Inherent in a Monte Carlo simulation model with the volatility calculated by back solving in a Monte Carlo simulation
are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates
the volatility of its warrants based on implied volatility from the Company’s traded warrants. The risk-free interest rate is based
on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.
The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical
rate, which the Company anticipates remaining at zero. Any changes in these assumptions can change the valuation significantly.
The following table provides quantitative information
regarding Level 3 fair value measurement inputs at their measurement dates:
| |
March 31, 2023 | | |
December 31, 2022 | |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Stock price | |
$ | 10.24 | | |
$ | 10.17 | |
Volatility | |
| 15.01 | % | |
| 10.36 | % |
Term | |
| 5.17 | | |
| 5.33 | |
Risk-free rate | |
| 3.56 | % | |
| 3.95 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
The change in the fair value of the derivative
warrant liabilities, measured using Level 3 inputs, for the three months ended March 31, 2023 and 2022, is summarized as follows:
Derivative warrant liabilities at December 31, 2022 | |
$ | 14,051,190 | |
Change in fair value of derivative warrant liabilities | |
| 2,720,810 | |
Derivative warrant liabilities at March 31, 2023 | |
$ | 16,772,000 | |
Derivative warrant liabilities at December 31, 2021 | |
$ | 17,140,250 | |
Change in fair value of derivative warrant liabilities | |
| (10,305,950 | ) |
Derivative warrant liabilities at March 31, 2022 | |
$ | 6,834,300 | |
Note 10. Subsequent Events
The Company evaluated subsequent events and transactions
that occurred up to the date the unaudited condensed consolidated financial statements were issued. Based upon this review, other than
noted below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed
consolidated financial statements.
Additional PIPE Subscriptions
On April 23, 2023, RONI and OLCV NET Power, LLC, a
Delaware limited liability company that is also a holder of NET Power equity (“OXY”), entered into a subscription agreement
(the “OXY PIPE Subscription Agreement”), pursuant to which, among other things, OXY agreed to subscribe for and purchase,
and RONI has agreed to issue and sell to OXY 25,000,000 shares of Class A Common Stock for a purchase price of $250.0 million, on the
terms and subject to the conditions set forth therein. The OXY Subscription Agreement is substantially similar to the 2022 Subscription
Agreements, the form of which was attached as Exhibit 10.3 to the Current Report on Form 8-K filed by RONI on December 14, 2022. In addition
to such subscription, on April 23, 2023, OXY entered into a subscription agreement with NET Power, pursuant to which OXY agreed to purchase,
and NET Power agreed to issue, 31,328 NET Power units to OXY for a purchase price of $10.0 million, which will ultimately convert into
1,000,000 Class A Units of RONI Opco and an equivalent number of shares of Class B common stock, par value $0.0001 per share, of RONI
upon consummation of the transactions contemplated by the Business Combination Agreement.
Also on April 23, 2023, four trusts, the beneficiaries
of which are members of the Rice family, agreed to subscribe for and purchase, and RONI agreed to issue and sell to them, an aggregate
of 2,500,000 shares of Class A Common Stock for an aggregate purchase price of $25.0 million, pursuant to a subscription agreement between
each such trust and RONI, on the terms and subject to the conditions set forth therein. These subscription agreements are substantially
similar to the 2022 Subscription Agreements.
RICE ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2023
BCA Amendment
On April 23, 2023, in connection with the entry into
the OXY Subscription Agreements, RONI Buyer and NET Power entered into the BCA Amendment. Pursuant to the BCA Amendment, among other things,
the form of the certificate of incorporation of RONI (the “RONI Charter”) to be adopted upon the closing of the transactions
contemplated by the Proposed Business Combination Agreement (the “Closing”) and the form of the stockholders agreement (the
“Stockholders Agreement”) to be entered into by RONI, RONI Opco, Rice Acquisition Sponsor II LLC, a Delaware limited liability
company (“RONI Sponsor”), and certain holders of NET Power equity, including OXY, in connection with the Closing have been
replaced with the forms included in Exhibit A and Exhibit B, respectively, of the BCA Amendment.
The
form of the Stockholders Agreement included in the Original Business Combination Agreement provided that, among other things, the board
of directors of the combined company is expected to initially consist of nine directors (which may be increased to comply with independence
requirements). The prior form of the Stockholders Agreement further contemplated the granting of certain board designation rights, subject
to equity ownership thresholds in the combined company, as follows: (i) OXY would have the right to designate two directors; (ii) RONI
Sponsor would have the right to designate one director; (iii) 8 Rivers Capital, LLC (through an entity controlled by it) would have the
right to designate one director; and (iv) Constellation Energy Generation, LLC would have the right to designate one independent director.
Pursuant
to the BCA Amendment, the Stockholders Agreement will, among other things, provide that the board of directors of the combined company
is expected to initially consist of ten directors (which may be increased to comply with independence requirements). In addition, the
board designation rights set forth in the form of Stockholders Agreement contained in the BCA Amendment provides OXY with the right to
designate three, instead of two, directors. The form of RONI Charter contained in the BCA Amendment has been modified to reflect, among
other things, OXY’s increased board designation rights.
Further, on April 23, 2023, to reflect that the BCA
Amendment replaced the form of Stockholders Agreement, RONI, RONI Sponsor, NET Power and certain holders of NET Power equity (collectively,
the “Company Unitholders”) entered into the First Amendment to the Support Agreement, pursuant to which, among other things,
each Company Unitholder agreed to enter into such modified Stockholders Agreement in connection with the Closing.