United States securities and exchange commission logo
June 11, 2021
Daniel Rice, IV
Chief Executive Officer and Director
Rice Acquisition Corp.
102 East Main Street, Second Story
Carnegie, PA 15106
Re: Rice Acquisition
Corp.
Preliminary Proxy
Statement on Schedule 14A
Filed May 14, 2021
File No. 001-39644
Dear Mr. Rice, IV:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Preliminary Proxy Statement on Schedule 14A filed May 14, 2021
Do any of RAC's directors or officers or the Sponsor have interests that
may conflict with the
interests of RAC stockholders with respect to, page 12
1. Please revise to expand
the disclosure here to disclose the material conflicts of interest
that RAC s directors
and officers, the Sponsor, Archaea and the related affiliates may
have in the initial
business combination.
Questions and Answers
How will the Business Combination impact the shares of Common Stock
outstanding thereafter?,
page 13
2. You disclose that
additional shares of Common Stock may be issuable in the future as a
result of the issuance
of additional shares that are not currently outstanding, including
issuance of shares of
Class A Common Stock upon the exercise of the Warrants after the
consummation of
Business Combinations and that you intend apply to continue the listing
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of the Combined Company s Class A Common Stock and Warrants on the
NYSE. Here
or at another appropriate section, quantify the value of warrants,
based on recent trading
prices, that may be retained by redeeming stockholders assuming
maximum redemptions
and identify any material resulting risks.
Risk Factors, page 33
3. Please add a risk factor to highlight the up-C structure that
you will retain following the
Business Combinations, the equity interests held by the relevant
parties and the
attendant risks.
4. Please disclose the material risks to unaffiliated investors presented
by taking the
Companies public through a merger rather than an underwritten
offering. These risks
could include the absence of due diligence conducted by an underwriter
that would be
subject to liability for any material misstatements or omissions in a
registration statement.
Risks Relating to Ownership of Common Stock Following the Business Combinations
Future sales, or the perception of future sales, by the Combined Company or its
stockholders...,
page 60
5. Please quantify the total outstanding common shares restricted from
immediate resale but
which may be sold into the market in the near future and/or are
subject to registration
rights.
Unaudited Pro Forma Condensed Combined Financial Information
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1. Description of the Business Combinations, page 68
6. We note your disclosure that following the closing of the Business
Combinations, you will
retain "up-C' structure, whereby RAC s only assets will be its
equity interests in RAC
Opco. Revise to provide additional information regarding the ownership
structure,
specifically the non-controlling interest holders. To clarify the
numerous interests,
consider disclosing a table showing the number of RAC Opco equity
interests outstanding
after the Business Combinations detailing the number of shares by
Class type that each
entity will hold.
Note 2. Basis of Pro Forma Presentation, page 69
7. You state that the historical financial information has been adjusted
to reflect the pro
forma adjustments that are directly attributable to the Business
Combinations and the
PIPE Investment; however, we note the presentation of 3 pro forma
adjustment columns:
Transaction Accounting Adjustments, PIPE Financing Adjustments and
Financing
Transactions. Expand your disclosure to describe the nature of the
Financing Transactions
and how they differ from the other 2 pro forma adjustment columns.
Revise your pro
forma footnotes to separately address the basis of the Financing
Transactions pro forma
adjustments, as your current footnotes appear to combine Transaction
Accounting
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Adjustments and Financing Transaction amounts.
Note 3. Accounting for the Business Combinations, page 71
8. We note that the Business Combinations will be accounted for as a
reverse recapitalization
with Archaea treated as the accounting acquirer and RAC treated as the
acquired
company. In addition, the Aria Merger represents an acquisition of a
business. Please
provide us a comprehensive analysis of the factors considered pursuant
to ASC 805-10-
55-11 through 55-15 to support your conclusion given the relative size
and fair value of
the combining entities. In your response, address how the relationship
among the Rice
Investment Group, RAC and Archaea impacts your analysis.
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as
of
December 31, 2020, page 72
9. In notes 4(A) and 4(C), you state the historical financial information
for Rice and Archaea
are derived from the respective audited consolidated balance sheets as
of December 31,
2020; however, the historical amounts do not agree with the audited
financial statements
presented later in the filing. For example, but not limited to, the
amounts presented for
warrant liabilities and certain equity line items of Rice and the
goodwill amount for
Archaea are inconsistent with the amounts in the related audited
balance sheets. Similar
inconsistencies are noted between the amounts presented in the
historical statement of
operations of Rice on page 67 and the related audited consolidated
statement of
operations. Revise your financial statements accordingly.
10. We note your adjustment 4(f) to reflect the estimated goodwill balance
to be recognized as
part of the Aria Merger of $191 million. The amount is inconsistent
with that of the
preliminary opening balance sheet for Aria. Revise or advise.
11. Expand your disclosure related to adjustment 4(h) to provide detailed
information
regarding the financing arrangements and more specifically how the
funds will be
used. Clarify whether these financing arrangements are different from
the New Credit
Facility disclosed on page 131.
12. Expand adjustment 4(n) to separately disclose amounts for each
adjustment. In addition,
clarify whether the "reclassification" in (1) relates to note (i) in
which the Rice
Acquisition Corp. Class A common stock currently classified as
temporary equity is
adjusted to permanent equity under the assumption that no Public
Stockholders exercise
their Redemption Rights.
13. We note adjustment 4(q) to reflect the fair value step-up related to
the non-
controlling interests acquired as part of the Aria Merger of $396.1
million. The amount is
inconsistent with that of the preliminary opening balance sheet for
Aria. Revise and tell
us how the amount is determined.
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14. Throughout your filing, you have disclosed several transactions that
have not been
contemplated by your pro forma adjustments reflecting the Combined
Company. Tell us
what consideration you have given to the following transactions and
revise your pro forma
presentation, as appropriate:
expected repayment of the Term Loan B of Aria, as disclosed on
page 184,
sale of LES by Aria, as disclosed on pages F-39 and F-46,
expected repayment of the outstanding amounts under the credit
agreement related to
purchase of Big Run and the related guaranty fee owed to Noble, as
disclosed on
page 244,
forward purchase agreement disclosed on pages 229 and F-19, and
Senior Secured Notes issued by Archaea related to Project Assai,
as disclosed on
page 191.
Note 5. Adjustments to Unaudited Pro Forma Condensed Combined Statements of
Operations
for the Year Ended December 31, 2020, page 73
15. In regards to adjustment 5(a), revise to disclose the different asset
classes and the useful
lives used to determine the incremental depreciation and amortization
expenses.
16. Expand your disclosure related to adjustment 5(e) and tell us the
basis for the additional
interest expense amount.
17. Expand your disclosure to clarify how you determined no pro forma
adjustments related to
income taxes are necessary.
18. We note your Net Loss per Common Share for RAC historical financial
periods is
calculated similar to a two-class method of income per share according
to disclosures on
page F-15. Expand note 5(d) or the disclosures within Comparative
Share Information on
page 75 to discuss how pro forma loss per share is calculated under
Scenario 1 and 2, as
well as a discussion of the impact of potentially dilutive equity
outstanding, such as the
warrants.
Proposal No. 1 - The Business Combination Proposal
Background of the Business Combinations, page 100
19. You disclose on page 101 that you commenced an active search for
prospective businesses
and assets to acquire and that following the IPO you engaged Archaea
as a technical
advisor to assist you in the evaluation of potential target business
opportunities in the
renewable natural gas sector. However, thereafter your narrative
appears to focus
exclusively on the Aria and Archaea transactions. Please expand your
discussion to
describe the methodology by which you or the Special Committee
conducted its active
search for prospective business targets, disclose the number of
business combination
opportunities you evaluated as part of this process and if any were
outside the renewable
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natural gas sector, and disclose the date you engaged Archaea as your
technical advisor. In
terms of the business combination opportunities you and/or the Special
Committee
evaluated as part of its active search, discuss the information
gathered, how and by whom
it was evaluated, the negotiations which occurred, and any offers that
were made or
received. Explain whether any alternatives were considered and why you
believe the Aria
and Archaea transactions to be superior.
20. Prior to the consummation of your IPO on October 21, 2020, you
disclose that neither
you, nor anyone acting on your behalf, contacted any prospective
target business or had
any substantive discussions, formal or otherwise, with respect to a
merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar
business
combination with you. However, we note that on September 2, 2020,
Archaea and Aria
executed a confidentiality agreement (the Archaea NDA ) pursuant
to which Archaea
received confidential information about Aria as part of the
re-launched sales process for
Aria, and after your IPO, you disclose that you began receiving
confidential information about Aria as representative of Archaea under
the Archaea
NDA. Further, you disclose that on October 7, 2020, representatives of
Archaea, Ares,
and the Rice Investment Group held a virtual meeting to discuss
Archaea s potential
access to private capital sources from the Rice Investment Group for a
bid for Aria.
Considering that Archaea is majority-owned and controlled by Rice
Investment Group,
and that the Rice Investment Group is an affiliate of RAC (of which
partners include
Daniel Joseph Rice, IV, your Chief Executive Officer and director, and
J. Kyle Derham,
your Chief Financial Officer and director), and which is controlled by
Mr. Rice and his
family members, who also control your Sponsor, please reconcile the
disclosures and
explain the process and controls among RAC and its affiliates by which
you considered to
determine that "neither you nor anyone acting on your behalf contacted
any
prospectus target business or had any substantive discussions, formal
or otherwise, with
respect to any business combination" with you prior to the
consummation of your IPO on
October 21, 2020. As part of this discussion, please discuss when
Messrs. Rice and
Derham first were involved in discussions about Aria.
21. Considering the conflicts of interests involved in the Aria and
Archaea transactions,
including Archaea, acting as a technical advisor to the Special
Committee while at the
same time an acquisition target, discuss why Moelis was not given
access to Aria's virtual
data room to supplement due diligence until February 4, 2021, when
Moelis was retained
as a financial advisor to the Special Committee with regard to these
transactions on
December 1, 2021.
22. You disclose that in 2018, Aria engaged Barclays Investment Bank (
Barclays ) in
connection with a marketed sales process for Aria and its assets.
Please clarify whether
Barclays performed additional services to RAC after its IPO and
presented the business
combination with Aria in its capacity as an underwriter in RAC's IPO.
We note that RAC
will pay $7.6 million in deferred underwriting commissions in
connection with this
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Business Combination.
23. You disclose that on November 17, 2020, you provided a non-binding
letter of intent and
term sheet to Aria to acquire Aria on a cash free, debt free basis, to
be financed by
proceeds from the IPO, cash received pursuant to the Forward Purchase
Agreement and
PIPE investments of $250 million (subject to potential upsizing). You
further disclose
that the Special Committee discussed the proposed PIPE Investment on
January 15, 2021
and that RAC agreed to issue and sell to the PIPE Investors, an
aggregate of 30.0 million
newly issued shares of Class A Common Stock for an aggregate purchase
price of
$300.0 million. Please disclose who selected the PIPE investors, the
identity of the PIPE
Investors, and any material relationships between the PIPE investors
and RAC, the
Sponsor, the Companies and their affiliates. We note that the PIPE
Investors will own
26% of the Combined Company post-initial business combination (32%
assuming
maximum redemptions).
The Special Committee's Reasons for the Approval of the Business Combinations,
page 114
24. You disclose that the Special Committee considered that some of your
officers and
directors may have interests in the Business Combinations as
individuals that are in
addition to, and that may be different from, the interests of your
stockholders. Please
expand your disclosure and clarify whether the Special Committee
considered the
relationships among Archaea, the Rice Investment Group, a private
investment fund,
partners of which include Daniel Joseph Rice, IV, your Chief Executive
Officer and
director, and J. Kyle Derham, your Chief Financial Officer and
director, and which is
controlled by Mr. Rice and his family members, who also control your
Sponsor, and, as
applicable, describe the reasons the Special Committee recommended the
business
combination transaction notwithstanding these conflicts of interests.
Certain Projected Financial Information, page 116
25. We note your disclosure regarding various financial projections shared
with or by you, the
Special Committee, or Moelis. Please provide qualitative and
quantitative disclosure of
the material assumptions underlying these projections. For example,
please quantify
within these assumptions the natural gas, and RIN and LCFS credit
price assumptions
used in each, as well as to quantify any pricing assumptions of
long-term contracts for the
sale of renewable natural gas used.
Pro Forma Projected Financial Information, page 121
26. You disclose that the Pro Forma Projections did not utilize the RAC
Projections, the 4
Dev Projections or All Dev Projections for fiscal years 2021E through
2040E on a
standalone basis, but rather made changes primarily of (i) changes to
optimize the
sequencing and timing of the Aria and Archaea development projects so
as to bring those
projects with the greatest potential returns online the fastest as
part of a Combined
Company operational plan and (ii) more conservative assumptions
regarding the projected
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operation dates for certain of development projects and inclusion of
five additional
development projects, in each case, due to additional due diligence
completed by your
management, the Special Committee and their advisors following the
original presentation
of the RAC Projections and the Archaea Projections to the Special
Committee in
January 2021. Please expand to discuss as part of the formation of the
Pro Forma
Projections, the material assumptions which underlie such projections
to include (i) the
assumed material increase in capital expenditures, in particular from
2021-2024, and (ii)
operational changes this entails from any of the standalone
projections. Please also
describe the five additional development projects, and if such
additional projects relate to
the business of Aria or Archaea and when you expect to develop such
projects.
27. Please disclose all material projections and related assumptions
shared with Moelis for use
in its financial analyses. For example, the "Selected Publicly Traded
Companies
Analysis Combined Company" analysis beginning on page 126 appears
to rely in part
on Adjusted EBITDA and unadjusted EBITDA of the Combined Company,
which figures
are not disclosed in any of your disclosed projections. Please also
disclose how you
compute Adjusted EBITDA.
Interests of Certain Persons in the Business Combinations, page 129
28. Please revise the conflicts of interest discussion so that it
specifically discloses all material
interests in the transaction held by the company s officers and
directors, the sponsor,
Archaea and the affiliated parties, including:
the value of Archaea management's economic interest in your
sponsor;
the market value of the private placement warrants purchased by
the sponsor that will
expire if the transaction is not completed;
the interests that each of your sponsor, current officers and
directors will receive in
the business combination by quantifying the value of the
securities as of the most
recent practicable date. Also include the PIPE investors in your
discussion.
the value of the out of pocket expenses incurred by the sponsor,
directors, officers
and their affiliates that is subject to reimbursement.
29. Please revise to clarify if the sponsor and its affiliates can earn a
positive rate of return on
their investment, even if other shareholders of RAC experience a
negative rate of return
on the post-business combination Combined Company.
Information about the Combined Company, page 159
30. Please disclose the sources for the various tabular and/or graphical
presentations
appearing in this section.
Core Revenue Stream and Commercial Strategy: Securing Long-Term Fixed Price
Offtakes for
RNG Volumes, page 166
31. Please substantiate and describe the related assumptions for the
statement that on "a single
project basis, [you] can generate more than $12 per mmbtu of free cash
flow, giving [you]
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clear visibility to generating 60% free cash flow margins that will
allow [you] to reinvest
in future highly-economic projects."
Our Commercial and Growth Strategy , page 166
32. Please disclose the seven unique revenue sources that can be generated
from a single unit
of landfill gas that you disclose you have identified.
Upgrade/Conversion Projects, page 166
33. We note your graphical presentation. While you disclose your plan to
convert and upgrade
13 of your existing LFG-to-Electricity assets to LFG-to-RNG projects,
please explain the
16 organic RNG developments, and 25 high probability development
projects. For
example, explain what you mean by organic RNG development and high
probability RNG
development. For all three types of projects, discuss the timing of
such development and
any expected capital cost to develop. In this regard, we note your
disclosure on page 167
that the Combined Company has also identified over 25 high
probability development
projects that you expect to secure the rights to over the next
several months. You disclose
that these projects could produce an additional $250 million of EBITDA
(at $1.50 RIN,
$140 per metric ton LCFS and $15 per mmbtu fixed price assumptions)
that is not
reflected in your current EBITDA projections. If you retain such
disclosures, please
disclose the projected capital costs to develop such assets.
34. Please substantiate how your existing asset portfolio presents several
optimization
opportunities where one-time upfront capital investments can be
deployed to "generate
recurring revenues equal to two times the upfront cost."
RNG Development Pipeline and Project Assai, page 167
35. Please explain what you mean by your disclosure that you have
identified three similar
Assai-level projects already in the Combined Company s
portfolio. We note that you
refer to Archaea s high-BTU RNG plant under development as "Project
Assai."
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aria
Results of Operations, page 178
36. We note that you are engaged in two reportable segments: Renewable
Natural Gas and
Renewable Baseload Electricity. Revise to provide an analysis of your
operations for
each reportable segment quantifying the effect of each causal factor
for material changes
in the operations of your reportable segments. Refer to Item 303(a) of
Regulation S-K.
Impacts of COVID-19, page 193
37. You state that in response to the COVID-19 pandemic and related
mitigation measures,
Archaea began implementing changes in its business in March 2020 to
protect its
employees and customers, and to support appropriate health and safety
protocols and that
these measures resulted in additional costs, which Archaea expects
will continue through
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2021 as it continues to work to address employee safety. Please revise
your disclosure to
discuss any material costs incurred as a result of the modified
business practices the
Companies adopted in response to the COVID-19 pandemic that you refer
to here.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of
Archaea
Liquidity and Capital Resources, page 195
38. You state that Based on the Combined Company s current growth
plan, Archaea believes
that its cash on hand following the consummation of the Business
Combinations,
including the proceeds from the PIPE Investment, together with the
other assets and
expected cash flows of the Combined Company, will be sufficient to
meet the Combined
Company s working capital and capital expenditure requirements for a
period of at least
four years from the date of this proxy statement. Please quantify
and more fully disclose
and discuss Archaea s long term liquidity requirements and
priorities. Address potential
changes in those priorities based on the impact of changes in the
amount of cash available
on a pro forma basis post Business Combinations, considering Scenario
1 and 2 of your
pro forma financial statements. For example, we note your pro-forma
projections on page
123 include between approximately $152 million and $225 million in
capital expenditures
each year 2021 through 2024. Expand your disclosures to further
support your belief that
pro forma cash on hand following the Business Combinations will be
sufficient to meet
these projected expenditures and other working capital needs.
Conflicts of Interest, page 205
39. We note the disclosure that your Existing Charter provides that you
renounce your interest
in any corporate opportunity offered to any director or officer unless
such opportunity is
expressly offered to such person solely in his or her capacity as a
director or officer of
RAC and such opportunity is one that you are legally and contractually
permitted to
undertake and would otherwise be reasonable for you to pursue. Please
address whether
this corporate opportunity provision impacted your search for an
acquisition target. Please
revise to disclose, as applicable, the corresponding provision in your
proposed Combined
Company Charter.
Beneficial Ownership of Securities, page 236
40. Please clarify if Daniel Joseph Rice, IV can be considered the
beneficial owner of the
securities held by Archaea Energy LLC, considering that you disclose
that Archaea is
currently majority-owned and controlled by Rice Investment Group, a
private investment
fund which you disclose is controlled by Mr. Rice and his family
members.
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Certain Relationships and Related Party Transactions
RAC Opco LLC Agreement
Conversion of Class B Units of RAC Opco and Exchange Right, page 240
41. Following the initial business combination, you disclose that holders
of Class A units of
RAC Opco (other than RAC) will have the right (an exchange right
), subject to certain
limitations, to exchange Class A units of RAC Opco (and a
corresponding number of
shares of Class B Common Stock) for, at your 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, or (ii) a
corresponding amount of cash.
Please quantify the number of such Class A units of RAC Opco
outstanding after the
initial business combination, including the number of such units held
by other than RAC
and subject to the exchange right.
Non-Liquidating Distributions and Allocations of Income and Loss, page 241
42. You disclose that you do not anticipate making any distributions
(other than tax
distributions and reimbursements of expenses) to holders of RAC Opco
units (including
RAC) prior to your initial business combination, other than
redemptions of Class A units
of RAC Opco held by RAC in connection with a redemption of Public
Shares. Please
disclose if you have current plans to cause RAP Opco to make non-
liquidating distributions to the holders of RAC Opco units in the
foreseeable
future following your initial business combination.
Archaea Energy LLC and Subsidiaries
Independent Auditor's Report, page F-55
43. Please revise to provide an audit report stating that the audit was
also conducted in
accordance with the standards of the Public Company Accounting
Oversight Board or tell
us why you believe the current audit report is appropriate.
Notes to the Consolidated Financial Statements
Note 4. Business Acquisitions, page F-69
44. We note that on April 6, 2021, you completed the acquisition of PEI
Power LLC. Tell us
what consideration you have given to Rule 3-05 of Regulation S-X
regarding financial
statement presentation and Article 11 pro forma financial information
for the acquisition.
Note 13. Equity, page F-75
45. Tell us how the terms of the Series A incentive plan units will be
impacted by the
Business Combinations.
Daniel Rice, IV
Rice Acquisition Corp.
June 11, 2021
Page 11
General
46. Please provide an organizational chart or other visual representation of
your structure
assuming that the initial business combination transactions have occured.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Wei Lu, Staff Accountant, at (202) 551-3725 or Shannon
Buskirk, Staff
Accountant, at (202) 551-3717 if you have questions regarding comments on the
financial
statements and related matters. Please contact Kevin Dougherty, Staff Attorney,
at (202) 551-
3271 or Loan Lauren Nguyen, Legal Branch Chief, at (202) 551-3642 with any
other questions.
Sincerely,
FirstName LastNameDaniel Rice, IV
Division of
Corporation Finance
Comapany NameRice Acquisition Corp.
Office of Energy &
Transportation
June 11, 2021 Page 11
cc: Lanchi Huynh
FirstName LastName