OPAL Fuels Inc

From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business, some of which may be material. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. We do not believe that the outcome of any of our current legal proceedings will have a material adverse impact on our business, financial condition and results of operations.

Central Valley Project

In September 2021, an indirect subsidiary of the Company, MD Digester, LLC (“MD”), entered into a fixed-price Engineering, Procurement and Construction Contract (an “EPC Contract”) with VEC Partners, Inc. d/b/a CEI Builders (“CEI”) for the design and construction of a turn-key renewable natural gas production facility using dairy cow manure as feedstock. In December 2021, a second indirect subsidiary of the Company, VS Digester, LLC (“VS”) entered into a nearly identical EPC Contract with CEI for the design and construction of a second facility in connection with the same project. CEI’s performance under both of the EPC Contracts is fully bonded by a licensed surety.

CEI has submitted a series of change order requests seeking to increase the EPC Contract price under each contract by approximately $14 million (i.e., approximately $28 million in total), to cover cost escalations primarily arising from two events: (i) modifications to CEI’s design drawings required to meet its contracted performance guaranties, and (ii) the default of one of CEI’s major equipment manufacturers. The Company disputes responsibility for substantially all of the additional costs.

On January 5, 2024, the Company filed a civil lawsuit captioned, MD Digester, LLC. et. al. vs. VEC Partners, Inc. et. al.; California Superior Court, County of San Joaquin; Action No. STK-CV-UCC-2024-0000185 and commenced a related arbitration proceeding in order to obtain a formal determination on the claims, AAA Case No. 01-24-0000-0775. The Superior Court Action will be stayed, pending an award in the AAA proceeding. The AAA proceeding has been set for hearing in January 2026. The Company and CEI and have each nominated one arbitrator (each, a “Party-selected Arbitrator”) and a third arbitrator was appointed by the Party-selected Arbitrators to chair the panel. As a result of the procedural status of these matters, discovery has only recently commenced.

The EPC Contract requires that CEI continue working during the course of the litigation and related arbitration proceedings; however, CEI effectively stopped working. On June 26, 2024, MD issued a Notice of Default and Demand to Cure to CEI. CEI failed to do so, and on July 30, 2024, MD terminated CEI for default. MD notified CEI’s bond surety of the termination and demanded that it perform under the bond. The surety has recently denied the claim. MD intends to bring performance bond claims against the surety in the AAA proceeding.

On July 11, 2024, VS issued a Notice of Default and Demand to Cure, advising CEI of its defaults and giving it an opportunity to cure. CEI failed to do so, and on August 27, 2024, VS terminated CEI for default. VS has notified CEI’s bond surety of the second termination and demanded that it perform under the bond. The surety is investigating the claim and its response is expected to be issued in November 2024. If the surety denies the claim, in whole or in part, VS intends to bring performance bond claims against the surety in the AAA proceeding.

The Company believes its claims against CEI have substantial merit, and intends to prosecute its claims vigorously. However, due to the incipient stage of the litigation and related arbitration, the recency of the termination, and the proceedings with the bond surety, as well as the uncertainties involved in all litigation and arbitration, the Company does not believe it is reasonably estimable at this time to assess the likely outcome of the litigation and related arbitration, the timing of its resolution, or its ultimate impact, if any, on the Central Valley projects or the Company's business, financial condition or results of operations.