Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,”
“us” or “we” refer to Power & Digital Infrastructure Acquisition II Corp. The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes
related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form
10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth
under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1.A. Risk Factors” and elsewhere in this Annual
Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. We have based these
forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject
to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
64
Overview
We are a blank check company incorporated in Delaware
on March 23, 2021. We were 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 or entities. We are an emerging growth company and, as such, we are subject
to all of the risks associated with emerging growth companies.
Our sponsor is XPDI Sponsor II LLC, a Delaware
limited liability company. The registration statement for our IPO was declared effective on December 9, 2021. On December 14, 2021, we
consummated our IPO of 28,750,000 units, which included the exercise of the underwriters’ option to purchase an additional 3,750,000
units at the initial public offering price to cover over-allotments (the “over-allotment units”), at $10.00 per unit, generating
gross proceeds of $287.5 million, and incurring offering costs of approximately $20.7 million, of which approximately $10.1 million was
for deferred underwriting fees.
Simultaneously with the closing of our IPO, we
completed the private placement (the “private placement”) of 11,125,000 private placement warrants, at a price of $1.00 per
private placement warrant to our sponsor and anchor investors, generating proceeds of approximately $11.1 million.
Upon the closing of the IPO and the private placement on December 14,
2021, approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale of the units in the IPO, including proceeds from
the sale of the Over-Allotment Units and certain of the proceeds from the sale of the private placement warrants, were deposited into
a segregated trust account (the “Trust Account”) located in the United States with Continental Stock Transfer & Trust
Company acting as trustee and approximately $1.7 million of such net proceeds were deposited in our operating account to pay expenses
in connection with the closing of the IPO and for working capital following the IPO. The proceeds held in the Trust Account have been
invested in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act 1940, as amended
(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, as determined
by the Company, until the earlier of: (i) the completion of an initial Business Combination and (ii) the distribution of the trust account
as described below.
Our management has broad discretion with respect
to the specific application of the net proceeds of the IPO and the sale of private placement warrants, although substantially all of the
net proceeds are intended to be applied generally toward consummating an initial Business Combination. There is no assurance that we will
be able to complete an initial Business Combination successfully. We 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 and excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at
the time of the agreement to enter into the initial Business Combination. However, we will only complete an initial Business Combination
if the post-transaction 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.
65
We will have until 18 months from the closing of
the IPO, or June 14, 2023, to complete the initial Business Combination. However, if we anticipate that it may not be able to complete
the initial Business Combination within 18 months, we may, but are not obligated to, extend the period of time we will have to complete
an initial Business Combination by up to two additional three-month periods (for a total of up to 24 months from the closing of the IPO
to complete an initial Business Combination), subject to the Sponsor or its affiliates or designees contributing, for each such three-month
extension, $0.10 per share of Class A common stock to the Trust Account (or approximately $2.9 million in the aggregate). In connection
with each such additional deposit, the Sponsor or its affiliates or designees will receive an additional 2,875,000 private placement warrants,
with the same terms as the original private placement warrants. The Public Stockholders will not be entitled to vote on, or redeem their
shares in connection with, any such extension.
Liquidity and Capital Resources
Our liquidity needs to date have been satisfied
through a capital contribution of $25,000 from our sponsor to purchase our Class B common stock (the “founder shares”), the
related party loan under a promissory note of approximately $115,000 from, our sponsor, which was repaid in full on December 17, 2021,
and the net proceeds from the consummation of the private placement not held in the Trust Account. In addition, in order to finance transaction
costs in connection with an initial Business Combination, our officers, directors and initial stockholders may, but are not obligated
to, provide working capital loans. As of December 31, 2022, there were no amounts outstanding under any working capital loans.
In connection with the Company’s assessment
of going concern considerations in accordance with the Financial Accounting Standards Board’s (“FASB’s”) Accounting
Standards Codification (“ASC”) Topic 205-40, “Presentation of Financial Statements – 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, which is considered to be one year from the issuance of these financial statements. No adjustments
have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 14, 2023. The 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, as it may be extended. Over this time period, the Company
will be using the funds outside of the Trust Account 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.
The Company cannot provide any assurance that new
financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern through one year from the issuance date of these financial statements. These financial statements
do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
We continue to evaluate the impact of the COVID-19
pandemic on the Company and have concluded that while it is reasonably possible that the virus could have a negative effect on our financial
position, results of the Company’s operations and/or search for a target company, the specific impact is not readily determinable
as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
66
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. Further, the impact of this action and related sanctions on
the world economy are not determinable as of the date of these financial statements.
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise
tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its
shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased
at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the
fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition,
certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority
to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. Any share redemption or other
share repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject
to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Business Combination, extension
vote or otherwise will depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection
with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any
“PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business
Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us and not by the redeeming holder, the mechanics of any required
payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a
Business Combination and in our ability to complete a Business Combination. Further, the application of the excise tax in the event of
a liquidation is uncertain.
Results of Operations
Our entire activity since inception up to December
31, 2022 related to our formation, the preparation for the IPO, and since the closing of the IPO, the search for a prospective initial
Business Combination. We will not generate any operating revenues until after the completion of our initial Business Combination. We generate
non-operating income in the form of investment income from the trust account. We will continue to incur increased expenses as a result
of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had a net income of approximately
$2.0 million, which consisted of approximately $4.2 million of income from investments held in the trust account, partially offset by
approximately $1.3 million in operating expenses and approximately $802,000 in income tax expenses. Operating expenses were comprised
of approximately $888,000 of general and administrative expenses, $240,000 of general and administrative expenses - related party, and
$215,000 of franchise tax expense.
For the period from March 23, 2021 (inception)
through December 31, 2021, we had a net loss of approximately $544,000, which consisted of approximately $392,000 in general and administrative
expenses and approximately $152,000 in franchise tax expense, partially offset by approximately $900 in income from investments held in
the trust account.
67
Contractual Obligations
Registration Rights
The holders of founder shares, private placement
warrants and warrants that may be issued upon conversion of working capital loans, if any (and any shares of common stock issuable upon
the exercise of the private placement warrants or warrants issued upon conversion of the working capital loans and upon conversion of
the founder shares), were entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation
of the IPO. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights
agreement provides that we will not be required to effect or permit any registration or cause any registration statement to become effective
until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriter was entitled to an underwriting
discount of $0.20 per unit on all units sold in the IPO, except for the units purchased by the anchor investors, or approximately $5.3
million in the aggregate, paid upon the closing of the IPO.
The underwriter received an additional fee of $0.35
per unit, or approximately $10.1 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 we complete
an initial business combination, subject to the terms of the underwriting agreement.
Administrative Support Services
Commencing on December 9, 2021, we have agreed
to pay affiliates of our sponsor a total of $20,000 per month for office space and administrative support services. Upon completion of
our initial business combination or our liquidation, we will cease paying these monthly fees. In connection with our initial business
combination, we may potentially make a cash payment to affiliates of our sponsor or anchor investor for any financial advisory, placement
agency or other similar investment banking or consulting services that affiliates of our sponsor or anchor investor may provide to us
in connection with our initial business combination, and may reimburse to affiliates of our sponsor or anchor investor for any out-of-pocket
expenses incurred by it in connection with the performance of such services.
Critical Accounting Policies and Estimates
The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. Management evaluates all of our financial instruments, including issued stock purchase
warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815-40, “Derivatives and Hedging - Contracts in Entity’s
Own Stock” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be classified
as liabilities or as equity, is re-assessed at the end of each reporting period.
The warrants issued in the IPO (“public warrants”) and the
private placement warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified
contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the
contracts continue to be classified in equity.
68
Class A common shares subject to possible redemption
We account for our Class A common stock subject
to possible redemption in accordance with the guidance in ASC 480. Class A common stock subject to mandatory redemption (if any) is classified
as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock
that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within our control) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’
equity. Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, all of our outstanding shares of Class A common stock is presented at redemption value
as temporary equity, outside of the stockholders’ equity section of our balance sheets.
Under ASC 480, we have 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 IPO, we 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 common shares
We comply with accounting and disclosure requirements
of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net loss per common share is calculated
by dividing the net loss by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net income (loss) does
not consider the effect of the public warrants and the private placement warrants to purchase an aggregate of 25,500,000 shares of Class
A common stock 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 year ended December 31, 2022 and for the period from March 23, 2021 (inception) through December 31,
2021. Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates
fair value.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging -
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required
under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on March
23, 2021 (inception). Adoption of the ASU did not impact our financial position, results of operations or cash flows.
Our management does not believe that there are
any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our balance
sheets.
69
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2022, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.
JOBS Act
The Jumpstart Our Business Startups Act of 2012,
or the JOBS Act, contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We
qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non- emerging growth companies. As a result, the financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating
the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply
for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever
is earlier.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by
Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 8. Financial Statements and Supplementary Data.
This information appears following Item 15 of this
Annual Report on Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
70
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and
other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company
reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer
and principal financial and accounting officer, to allow timely decisions regarding required disclosure.
As of December 31, 2022, as required by Rules 13a-15 and 15d-15 under
the Exchange Act, our principal executive officer and principal financial and accounting officer carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) were not effective due to a material weakness in our internal control over financial reporting due solely to the overstatement of
the Company’s legal expenses, which are classified in general and administrative expenses, by $87,187 and the overstatement of accounts
payable by the same amount. A material weakness is a deficiency, or a 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. Specifically, the Company’s management has concluded that the Company's
internal control around the accounting for accrued general and administrative expenses was not effectively designed or maintained. This
material weakness resulted in the restatement of the Company’s interim financial statements for the quarters ended June 30, 2022
and September 30, 2022. Additionally, this material weakness could result in a misstatement of the carrying value of accounts payable
or accrued expenses and the reported amount of general and administrative expenses in the financial statements that would not be prevented
or detected on a timely basis. As a result, our management performed additional analysis as deemed necessary to ensure that our financial
statements were prepared in accordance with generally accepted principles in the United States of America. Accordingly, management believes
that the financial statements included in this Annual Report present fairly, in all material respects, the Company's financial position,
result of operations and cash flows of the periods presented.
Management’s Report on Internal Controls Over Financial
Reporting
As required by SEC rules and regulations implementing
Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal control
over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect errors or misstatements in our financial statements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control
over financial reporting at December 31, 2022. In making these assessments, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments
and those criteria, management determined that our internal controls over financial reporting were not effective as of December 31, 2022,
for the reasons described above.
This Report does not include an attestation report
of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the
JOBS Act.
71
Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter,
there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting
except for the below.
We have performed additional accounting and financial analyses and
other post-closing procedures related to the accounting for accrued general and administrative expenses. To address the material weakness
described above, management has devoted, and plans to continue to devote, significant effort to improve the Company’s internal control
over financial reporting. While the Company has processes to identify and appropriately apply applicable accounting requirements, management
plans to enhance these processes to better evaluate its accrued costs with vendors. The Company plans to include providing enhanced review
and increased communication among its personnel, third-party professionals and vendors.
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
Our officers and directors are as follows:
Name Age Position
Theodore J. Brombach 60 Chairman of the Board
Patrick C. Eilers 56 Chief Executive Officer and Director
James P. Nygaard, Jr. 48 Chief Financial Officer
Paul Dabbar 55 Director
Paul Gaynor 57 Director
Scott Widham 65 Director
John B. Sexton 27 Vice President
John P. McGarrity 61 General Counsel and Secretary
Theodore J. Brombach serves as Chairman
of our board of directors. Mr. Brombach is a founding partner of XMS Capital Partners, LLC and serves as the firm’s Co-Managing
Partner and has served in such role since 2006. He is also the Chief Executive Officer of XA Investments LLC, an alternative asset management
firm he co-founded in 2016. Mr. Brombach is the President and Chief Executive Officer and a Trustee of XAI Octagon Floating Rate &
Alternative Income Term Trust (NYSE: XFLT), a closed end fund investing in alternative credit investments, and has served in such role
since 2017. He has over 30 years of investment banking experience in Chicago, New York and London. Mr. Brombach served as the Chairman
of XPDI I from December 2020 until the completion of its merger with Core Scientific in January 2022. Prior to founding XMS Capital, Mr.
Brombach was a Managing Director and co-head of Midwest Investment Banking at Morgan Stanley, which he joined in 1990. At XMS Capital,
he has led numerous M&A and capital raising transactions across a number of industry sectors. Mr. Brombach is a director of RiverWood
Bank. Mr. Brombach earned a Bachelor of Arts from the University of Notre Dame and a Master of Business Administration from the Kellogg
Graduate School of Management at Northwestern University.
Mr. Brombach’s qualifications to serve on
our board of directors include his extensive executive, director and leadership experience, including over 30 years in investment banking
experience.
72
Patrick C. Eilers serves as our Chief
Executive Officer and is a member of our board of directors. Mr. Eilers is the founder and has served since 2019 as the Managing Partner
of TEP, a private equity firm focused on the energy & power transition, in particular its impact on the electrical grid, with an expertise
in (i) renewable energy, (ii) energy storage, technology, equipment & services, and (iii) transitional energy infrastructure. Mr.
Eilers has over 20 years of investment experience focused on the energy & power transition. Mr. Eilers served as Chief Executive Officer
and Director of XPDI I from December 2020 until the completion of its merger with Core Scientific in January 2022. Prior to founding TEP,
Mr. Eilers was a Managing Director on the BlackRock Infrastructure Platform, where he also served as an Investment Committee member for
BlackRock’s Global Renewable Power Fund, Global Energy & Power Infrastructure Fund, and Chaired the Energy & Power Private
Equity Fund. Prior to joining BlackRock in 2016, he also worked at Madison Dearborn Partners overseeing the firm’s energy, power,
and chemicals practices for 10 years. Mr. Eilers earned a Bachelor of Science in Biology and Mechanical Engineering from the University
of Notre Dame and a Master of Business Administration from the Kellogg School of Management at Northwestern University.
Mr. Eilers’ qualifications to serve on our
board of directors include his extensive executive, director and leadership experience in private equity and investment banking, including
extensive knowledge relating to the power generation, power infrastructure, transmission, and battery storage industries.
James P. Nygaard, Jr. serves as our
Chief Financial Officer. Mr. Nygaard is a Managing Director of XMS Capital Partners, LLC and is responsible for leading M&A execution
activities at the firm. With 25 years of investment banking experience, he has completed several strategic transactions, financings, and
corporate finance advisory assignments for a diverse range of clients across a variety of industry sectors. Mr. Nygaard served as Chief
Financial Officer of XPDI I from December 2020 until the completion of its merger with Core Scientific in January 2022. Prior to joining
XMS Capital at the end of 2007, Mr. Nygaard spent 12 years in the Investment Banking Division of Morgan Stanley where he assumed various
roles within the corporate finance, M&A and administrative practices of the firm. While at Morgan Stanley, Mr. Nygaard led coverage
and strategic execution efforts for a number of Midwest-based companies, including 3M, Anheuser-Busch, ConAgra Brands, Ford Motor Company,
and General Mills.
Mr. Nygaard graduated summa cum laude from the
University of Illinois at Urbana-Champaign with a Bachelor of Arts in Economics, where he was valedictorian of his department and received
Bronze Tablet Honors, the university’s highest academic distinction.
Paul Dabbar serves on our board of
directors. Mr. Dabbar is currently the President and Chief Executive Officer of Bohr Quantum Technology Corp, a quantum communications
company, and has served as Chief Executive Officer since 2021. Mr. Dabbar served on the board of directors of XPDI I from February 2021
until the completion of its merger with Core Scientific in January 2022. Prior to Bohr Quantum, Mr. Dabbar served as Under Secretary for
Science at the U.S. Department of Energy from 2017 to 2021, managing the operations of, and investing capital at the seventeen U.S. National
Laboratories, conducting research and development in energy, technology and the sciences. Mr. Dabbar was previously a Managing Director
in investment banking at J.P. Morgan Chase & Co., in energy and mergers & acquisitions from 1996 to 2017. Mr. Dabbar was also
previously a nuclear submarine officer in the U.S. Navy. Mr. Dabbar earned a Bachelor of Science from the U.S. Naval Academy and an MBA
from Columbia University.
Mr. Dabbar’s qualifications to serve on our
board of directors include his extensive leadership experience in the communications and energy industry.
73
Paul Gaynor serves on our board of
directors. Mr. Gaynor is currently the Chief Executive Officer of Longroad Energy, a renewable energy company. Mr. Gaynor served on the
board of directors of XPDI I from February 2021 until the completion of its merger with Core Scientific in January 2022. Prior to co-founding
Longroad Energy, Mr. Gaynor served as CEO of First Wind, which he founded in 2004. Mr. Gaynor has also held various roles within Singapore
Power, PSG International, GE Capital, and GE Power Systems. Mr. Gaynor earned a Bachelor of Science in Mechanical Engineering from Worcester
Polytechnic Institute and an MBA from University of Chicago.
Mr. Gaynor’s qualifications to serve on our
board of directors include his extensive executive and leadership experience in the power generation and power infrastructure industries.
Scott Widham serves on our board
of directors. Mr. Widham brings over 30 years of broad-based management and operations experience in the digital transformation and telecommunications
industry. Mr. Widham is currently Chairman of Ezee Fiber, providing telecom services to government, enterprise, carrier and residences
in Texas. Mr. Widham served on the board of directors of XPDII from February 2021 until the completion of its merger with Core Scientific
in January 2022. Previously, he served as President of Never fail from 2018 to 2019, CEO of Alpheus Communications from 2011 to 2017 and,
prior to Alpheus, as CEO of Cobridge Communications, Broadwing Communications, and Capital Cable. Mr. Widham also served as EVP of Corecomm
and was a Director at MTV Networks. Mr. Widham earned a B.B.A. from the University of Texas at Austin.
Mr. Widham’s qualifications to serve on our
board of directors include his over 30 years of executive, financial and leadership experience in the telecommunications industry.
John B. Sexton serves on our management
team as a Vice President. Mr. Sexton is a Vice President for TEP where he focuses on control, and growth equity investments in companies
making North America’s power and energy systems increasingly sustainable and smart. Prior to joining TEP in 2021, Mr. Sexton served
as an Associate with Marathon Capital’s investment banking division where he served since 2018, working across M&A transactions
and tax equity financings in the renewables, carbon capture and energy services sectors. Mr. Sexton earned his Bachelor of Business Administration
in Finance in 2018, while minoring in Sustainability at the University of Notre Dame.
John P. McGarrity serves on our management
team as General Counsel and Secretary. Mr. McGarrity is managing director and chief administrative officer for XMS Capital Partners, LLC
and general counsel of XMS Holdings LLC. Mr. McGarrity has over 30 years of experience in legal and product development positions, primarily
in the financial services industry. Prior to joining XMS, and its asset management affiliate XA Investments LLC, in 2016, Mr. McGarrity
was managing director and general counsel of River Branch Holdings, a boutique international merchant bank that was acquired by Piper
Jaffray. Mr. McGarrity is the former executive vice president and head of product development for Man Investments, Inc., the North American
subsidiary of Man Group PLC. Previously, Mr. McGarrity served as a director on the capital markets desk at Bank One, N.A. Prior to that,
he was the Associate General Counsel and Secretary of Unicom Corporation, which merged with PECO Energy Company to become Exelon Corporation.
Mr. McGarrity began his career at Sidley Austin LLP, where he was a partner in its corporate and securities group. Mr. McGarrity earned
his B.B.A., cum laude, in finance and philosophy at the University of Notre Dame. He earned his J.D., magna cum laude, at the University
of Illinois College of Law, where he was an editor of the University of Illinois Law Review.
74
Number and Terms of Office of Officers and Directors
Our board of directors is divided into three classes,
with only one class of directors being elected in each year, and with each class (except for those directors appointed prior to our first
annual meeting of stockholders) serving a three-year term. In accordance with the Nasdaq corporate governance requirements, we are not
required to hold an annual meeting until one year after our first fiscal year end following our listing on the Nasdaq. The term of office
of the first class of directors, consisting of Mr. Gaynor, will expire at our first annual meeting of stockholders. The term of office
of the second class of directors, consisting of Mr. Dabbar and Mr. Widham, will expire at our second annual meeting of the stockholders.
The term of office of the third class of directors, consisting of Mr. Brombach and Mr. Eilers, will expire at our third annual meeting
of stockholders. We may not hold an annual meeting of stockholders until after we complete our initial business combination.
Prior to the completion of an initial business
combination, any vacancy on the board of directors may be filled by a nominee chosen by holders of a majority of our founder shares. In
addition, prior to the completion of an initial business combination, holders of a majority of our founder shares may remove a member
of the board of directors for any reason.
Pursuant to an agreement entered into concurrently
with the IPO, our sponsor, upon completion of an initial business combination, will be entitled to nominate three individuals for election
to our board of directors, as long as our sponsor holds any securities covered by the registration and stockholders rights agreement.
Our officers are appointed by the board of directors
and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized
to nominate persons to the offices set forth in our amended and restated certificate of incorporation as it deems appropriate. Our amended
and restated certificate of incorporation provides that our officers may consist of one or more chairman of the board of directors, chief
executive officer, president, chief financial officer, vice president, secretary, treasurer and such other offices as may be determined
by the board of directors.
Director Independence
The Nasdaq listing standards require that a majority
of our board of directors be independent within one year of our initial public offering. An “independent director” is defined
generally as a person that, in the opinion of the company’s board of directors, has no material relationship with the listed company
(either directly or as a partner, stockholder or officer of an organization that has a relationship with the company). Our board of directors
has determined that Mr. Dabbar, Mr. Gaynor and Mr. Widham are “independent directors” as defined in the Nasdaq listing standards
and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Executive Officer and Director Compensation
None of our executive officers or directors have
received any cash compensation for services rendered to us. Commencing on December 9, 2021, we have agreed to reimburse affiliates of
our sponsor for office space and administrative support services provided to us in the amount of $20,000 per month. Furthermore, in connection
with our initial business combination, we may potentially make a cash payment to XMS Capital, TEP or their respective affiliates for any
financial advisory, placement agency or other similar investment banking or consulting services that XMS Capital, TEP or their respective
affiliates may provide to us in connection with our initial business combination, and may reimburse to XMS Capital, TEP or their respective
affiliates for any out-of-pocket expenses incurred by it in connection with the performance of such services. In addition, our sponsor,
executive officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in
connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business
combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, executive officers or directors,
or our or their affiliates. Any such payments prior to an initial business combination will be made using funds held outside the trust
account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place
governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with
our activities on our behalf in connection with identifying and completing an initial business combination. Other than these payments
and reimbursements, no compensation of any kind, including finder’s and consulting fees, will be paid by the company to our sponsor,
executive officers and directors, or any of their respective affiliates, prior to completion of our initial business combination.
75
After the completion of our initial business combination,
directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All
of these fees will be fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials or tender offer materials
furnished to our stockholders in connection with a proposed business combination. We have not established any limit on the amount of such
fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation
will be known at the time of the proposed business combination, because the directors of the post combination business will be responsible
for determining executive officer and director compensation. Any compensation to be paid to our executive officers will be determined,
or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors
or by a majority of the independent directors on our board of directors.
We do not intend to take any action to ensure that
members of our management team maintain their positions with us after the completion of our initial business combination, although it
is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with
us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions
with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability
of our management to remain with us after the completion of our initial business combination will be a determining factor in our decision
to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that
provide for benefits upon termination of employment.
Committees of the Board of Directors
Our board of directors has three standing committees:
an audit committee, a compensation committee and a corporate governance and nominating committee. Subject to phase-in rules and a limited
exception, the rules of the Nasdaq and Rule 10A of the Exchange Act require that the audit committee of a listed company be comprised
solely of independent directors. Subject to phase-in rules and a limited exception, the rules of the Nasdaq require that the compensation
committee of a listed company be comprised solely of independent directors.
Audit Committee
We have established an audit committee of the board
of directors. Mr. Gaynor, Mr. Widham and Mr. Dabbar serve as members of our audit committee. Our board of directors has determined that
each of Mr. Gaynor, Mr. Widham and Mr. Dabbar are independent under the Nasdaq listing standards and applicable SEC rules. Mr. Gaynor
serves as the chairman of the audit committee. Each member of the audit committee is financially literate and our board of directors has
determined that Mr. Gaynor qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which
details the primary functions of the audit committee, including:
● reviewing and approving the annual audit plan for the company;
76
● appointing or replacing the independent registered public accounting firm;
● monitoring our environmental sustainability and governance practices;
The audit committee is a separately designated
standing committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.
Compensation Committee
We have established a compensation committee of
the board of directors. The members of our compensation committee are Mr. Gaynor, Mr. Widham, and Mr. Dabbar, and Mr. Widham serves as
chairman of the compensation committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have a compensation
committee composed entirely of independent directors. Our board of directors has determined that each of Mr. Gaynor, Mr. Widham, and Mr.
Dabbar are independent.
We have adopted a compensation committee charter,
which details the primary functions of the compensation committee, including:
● approving any employment or severance agreements with our Section 16 Officers;
77
● approving the compensation of our directors; and
The charter also provides that the compensation committee may, in its
sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible
for the appointment, compensation and oversight of the work of any such adviser.
However, before engaging or receiving advice from
a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each
such adviser, including the factors required by the Nasdaq and the SEC.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves,
and in the past year has not served, as a member of the compensation committee of any entity that has one or more executive officers serving
on our board of directors.
Corporate Governance and Nominating Committee
We have established a corporate governance and
nominating committee of our board of directors. The members of our corporate governance and nominating committee are Mr. Gaynor, Mr. Widham,
and Mr. Dabbar, and Mr. Dabbar serves as chairman of the corporate governance and nominating committee. Under the Nasdaq listing standards,
we are required to have a corporate governance and nominating committee composed entirely of independent directors. Our board of directors
has determined that each of Mr. Gaynor, Mr. Widham, and Mr. Dabbar are independent.
We have adopted a corporate governance and nominating
committee charter, which details the primary functions of the corporate governance and nominating committee, including:
● considering director nominees recommended by stockholders; and
78
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are
specified in the corporate governance and nominating committee charter, generally provide that persons to be nominated:
Each year in connection with the nomination of
candidates for election to the board of directors, the corporate governance and nominating committee will evaluate the background of each
candidate, including candidates that may be submitted by our stockholders.
Code of Ethics
We have adopted a Code of Ethics applicable to
our directors, officers and employees. A copy of the Code of Ethics will be provided without charge upon written request to our principal
executive offices. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report
on Form 8-K.
Conflicts of Interest
In general, officers and directors of a corporation
incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
● the corporation could financially undertake the opportunity;
● the opportunity is within the corporation’s line of business; and
Certain of our officers and directors presently
have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including one or more
other blank check companies, or other entities that are affiliates of our sponsor, pursuant to which such officer or director is or will
be required to present a business combination opportunity to such entity. Accordingly, if our sponsor, its affiliates or our officers
or directors becomes aware of a business combination opportunity that is suitable for an entity to which he or she has then-current fiduciary
or contractual obligations, including one or more other blank check companies, he or she will honor his or her fiduciary or contractual
obligations to present such business combination opportunity to such entity, subject to their fiduciary duties under Delaware law. We
do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our
ability to complete our initial business combination.
79
Below is a table summarizing the entities to which
our executive officers and directors currently have fiduciary duties, contractual obligations or other material management relationships:
Individual Entity Entity’s Business Affiliation
Paul Gaynor Longroad Energy Energy Chief Executive Officer
Scott Widham Widham Capital Investment Management President
John B. Sexton Transition Energy Partners, LLC Private Equity Vice President
XMS Holdings LLC Financial Services General Counsel
Potential investors should also be aware of the
following other potential conflicts of interest:
80
We are not prohibited from pursuing an initial
business combination with a business combination target that is affiliated with our sponsor, officers or directors or making the acquisition
through a joint venture or other form of shared ownership with our sponsor, officers or directors. In the event we seek to complete our
initial business combination with a business combination target that is affiliated with our sponsor, executive officers or directors,
we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or from an independent
accounting firm, that such initial business combination is fair to our company from a financial point of view. We are not required to
obtain such an opinion in any other context. Furthermore, in no event will our sponsor or any of our existing officers or directors, or
any of their respective affiliates, be paid by the company any finder’s fee, consulting fee or other compensation prior to, or for
any services they render in order to effectuate, the completion of our initial business combination. Further, commencing on December 9,
2021, we have agreed to reimburse affiliates of our sponsor for office space and administrative support services provided to us in the
amount of $20,000 per month. In addition, in connection with our initial business combination, we may potentially make a cash payment
to XMS Capital, TEP or their respective affiliates for any financial advisory, placement agency or other similar investment banking or
consulting services that XMS Capital, TEP or their respective affiliates may provide to us in connection with our initial business combination,
and may reimburse to XMS Capital, TEP or their respective affiliates for any out-of-pocket expenses incurred by it in connection with
the performance of such services.
We cannot assure you that any of the above-mentioned
conflicts will be resolved in our favor.
In the event that we submit our initial business
combination to our public stockholders for a vote, our sponsor, directors and each member of our management team have agreed to vote their
founder shares, and our sponsor, directors and each member of our management team have agreed to vote any shares purchased during or after
the offering, in favor of our initial business combination.
81
Limitation on Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation
provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists
or may in the future be amended. In addition, our amended and restated certificate of incorporation provides that our directors will not
be personally liable for monetary damages to us or our stockholders for breaches of their fiduciary duty as directors, unless they violated
their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful
payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as
directors.
We have entered into agreements with our officers
and directors to provide contractual indemnification in addition to the indemnification provided for in our amended and restated certificate
of incorporation. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director or employee for
any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification.
We have purchased a policy of directors’
and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of
a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors. Our officers and directors
have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, and have agreed to waive
any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to
us and will not seek recourse against the trust account for any reason whatsoever (except to the extent they are entitled to funds from
the trust account due to their ownership of public shares). Accordingly, any indemnification provided will only be able to be satisfied
by us if (i) we have sufficient funds outside of the trust account or (ii) we complete an initial business combination.
Our indemnification obligations may discourage
stockholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have
the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful,