Why is ADES acquiring Arq?
In short, the acquisition of Arq provides long-term strategic shareholder value by:
i. Enabling commercial growth opportunities into expanded activated carbon and additional diverse and
emerging markets;
ii. Creating long-term cost and competitive advantages through technology, vertical integration and
environmental benefits; and
iii. Enhancing long-term profitability through entry into higher margin markets, by leveraging existing
operational and commercial capabilities
What other options were available to the Board of Directors during the strategic review process?
The Board of Directors considered various opportunities and options throughout the strategic review process.
After a thorough and diligent review, the Board determined that the proposed acquisition of Arq presented the
most value-enhancing path for the long-term sustainability of the Company.
Why did the terms of the transaction change after the initial announcement?
The Board and management were receptive to shareholder feedback regarding the ownership mix of the
proposed combined Company following the initial transaction announcement in the third quarter of 2022.
Further discussions between the Company and Arq that focused on macroeconomic conditions and other factors
yielded a new, mutually agreed upon deal structure that both parties believe is conducive to long-term value
creation and sustainability for the combined company.
Did the BOD consider an alternative in which a dividend was paid to shareholders and ADES continued to operate in its current state?
Multiple alternatives were considered. The BOD believes that, from a shareholder value growth proposition, the
best option available was the Arq acquisition. In order to continue to operate and grow the business based upon
its existing operations, balance sheet, working capital needs and liquidity considerations, the Board determined
that the cash available for a distribution would not be an attractive option to shareholders compared to the
acquisition of Arq, and would limit the Company’s ability to grow in the future.
Where does the acquisition position the combined Company within the North American activated carbon market?
Pre-acquisition ADES was a top-three provider of lignite-based feedstock Activated Carbon products in North
America and could serve ~35% of the market. Post-acquisition, utilizing both ADES’ existing lignite-based
feedstock and Arq Powder™ as a bituminous-based feedstock, the combined company has an opportunity to
serve more than 80% of the North American activated carbon market. The combined Company will be able to
pursue end markets served by both Powder and Granular Activated Carbon products and will be the only
completely vertically integrated activated carbon provider from feedstock to distribution in North America.
What impact does the acquisition have on ADES product portfolio?
As depicted in the table below, the acquisition of Arq provides ADES with the ability to produce higher-margin
bituminous-based Granulated Activated Carbon in addition to those lignite-based activated carbon products that
we currently produce, and opens the door to new, non-activated carbon markets that Arq is currently pursuing
and that otherwise would not be available to us within our existing business.

Why can’t ADES compete effectively in the Granular Activated Carbon market with its current assets?
a. The production of high-performing Granular Activated Carbon requires a high-quality feedstock like Arq
Powder™ to compete effectively. The manufacturing of GAC requires special heat treatment and shaping
equipment and additional processes that are not currently part of the Company’s Red River facility or
operations. Although ADES would have needed to include many of the same capital upgrades to its plant in order
to enable the processing of alternative feedstocks for standalone growth, the opportunity to immediately secure
a vertically integrated and patent protected feedstock makes this opportunity unique. This diversification and
growth opportunities are important as longer-term pressures likely will remain related to the coal-fired power
generation market.
b. The acquisition provides ADES with a sustainable competitive advantage compared to other activated carbon
producers by securing reliable access and availability of a high-quality, domestically sourced feedstock that is
cost competitive, vertically integrated into the combined operations and has been shown to create
high-performance products that are consistently activated and extremely porous.
c. The competitive value of securing our own domestic source of bituminous feedstock is significant, as alternative
high-quality sources are difficult and expensive to obtain.We will be the only North American activated carbon
manufacturer that controls 100% of its primary feedstock needs.
Why did ADES need to acquire Arq rather than licensing Arq’s intellectual property or purchasing bituminous coal feedstock from Arq via a joint venture?
a. ADES evaluated a number of different deal structures and is confident that the acquisition of Arq provides
the most value-enhancing path forward. The value of this acquisition lies in the ownership of the entire
combined infrastructure, which captures funding for the capital improvements that would be necessary to
utilize any bituminous based feedstock, the long-term cost advantage and security of owning the feedstock
and production process, and the growth opportunities available outside of activated carbon that would not
otherwise have been available to us through an alternative structure. By acquiring Arq, the combined
Company will become the only North American activated carbon producer that owns and controls its
bituminous feedstock source, providing insulation from much of the price and supply risk that competitors
are exposed to by purchasing feedstock on the open market.
b. Likewise, Arq did not desire a licensing model and wanted to have direct exposure to the value of endmarkets. As such, the most suitable alternatives were a business acquisition or joint venture. Given the
benefits of co-owned infrastructure and feedstock, the acquisition of Arq was determined to be the
preferred alternative.
Why is ADES raising debt to complete this acquisition given the Company’s strong cash position?
The $10 million term loan helps to facilitate the combined company’s business plan, including the funding of
capital spending requirements at the Red River and Corbin plants.
Who will comprise the executive officers and the Board of Directors of the combined company?
a. The following individuals will serve as executive officers of ADES
- Greg Marken, Chief Executive Officer
- Joe Wong, Chief Technology Officer
- Morgan Fields, Chief Accounting Officer
b. The following individuals will serve as the directors of ADES
- Spencer Wells, Chairman of the board
- Jeremy Blank
- Richard Campbell-Breeden
- Carol Eicher
- Gilbert Li
- Julian McIntyre
- Taylor Simonton
See biographies for all individuals on our ADES website (found here).
What is the ownership structure after the acquisition?
a. Prior to the effects of the new capital, legacy ADES and Arq shareholders owned 67.9% and 32.1% of the combined Company, respectively.
b. After giving effect to the PIPE investment and the warrants provided to the lenders, legacy ADES and Arq shareholders owned 59.2% and 28.0% of the Company, respectively while new PIPE investors and the lenders (assuming exercise of the warrants) owned 11.8% and 1.0% of the new Company respectively.
What are the terms of the Preferred Stock that will be issued to Arq for the acquisition?
The Preferred Stock issued to legacy Arq investors will automatically convert into common stock upon approval by ADES’ shareholders. Prior to conversion, the Preferred Stock will accrue quarterly dividends in an amount equal to the greater of the dividend paid on ADES’ common shares and 8% of the original issuance amount of $4 per share.If the conversion of the Preferred Shares is not approved within 635 days of closing, the coupon rate will increase by 200 basis points, and will subsequently increase by an additional 200 basis points on each subsequent anniversary. See preferred stock terms (located here).
Why does management believe Arq Powder™ to be a superior feedstock for producing GAC?
a. In-house and external testing have consistently demonstrated that Arq Powder™ can be used to create highperformance GAC products that have targeted activated carbon properties as well as strong market
application performance.
b. In addition, Arq Powder™ is derived from coal mine waste, which is both inexpensive to obtain and
abundant in quantity.
c. The conversion of previously mined coal waste provides a number of environmental benefits such as a lower
emissions footprint and the reclamation of previously unusable coal mine sites.
Does the Arq technology work and is the Corbin plant currently in production?
The Arq technology (product and process) is patent protected and has been applied to make a variety of carbon-rich products. The Corbin plant has been commissioned and produced Arq powder™ in sufficient volume to conduct large-scale product testing. Production volume will be increased significantly upon completion of certain upgrades contemplated in the combined company business plan, with increased production operations scheduled for 2024.
What are the changes for capex and corresponding impacts to the business plan related to?
We have completed more detailed third-party engineering related to the various capex projects associated with
the business plan. As a result of increased costs and certain changes to the scope of the projects, overall growthbased capital expenditures related to the initial phase of the Business Plan have increased from approximately
$75 million to $95 million. As such, we have modified certain operational plans and deferred the timing of
certain capital projects, which results in a delay in the estimated run-rate financial metrics compared to our
original estimates. See current proposed financial metrics in the Investor Presentation (located
here).
Does management expect to need to raise additional capital based on current business plan?
The combined Company’s expected capital requirements related to Phase 1 of the combined company’s
business plan are fully funded through available cash on hand, proceeds from the $10 million term loan and
capital raised via the PIPE.
Will the Company’s existing Tax Asset Protection Plan (TAPP) be affected by the acquisition?
As of the date of the acquisition, the Company has retained all of its ~$86M of existing tax credits, and as such,
the TAPP will remain in place.
Will the Company’s preexisting supply agreement with Norit be affected by the acquisition?
No, the Company’s Master Supply Agreement with Norit will not be affected by the acquisition agreement.