Item
1.01 Entry into a Material Definitive Agreement.
Merger
Agreement
On
June 5, 2023, Power & Digital Infrastructure Acquisition II Corp., a Delaware corporation (“XPDB”), and XPDB Merger Sub,
LLC, a Delaware limited liability company and wholly owned subsidiary of XPDB (“Merger Sub”), entered into an Agreement and
Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the “Merger
Agreement”) with Montana Technologies LLC, a Delaware limited liability company (the “Company”), pursuant to which
Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of XPDB (the “Merger”
and, along with the transactions contemplated in the Merger Agreement, the “Transactions”). Following the closing of the
Merger (the “Closing”), XPDB will be renamed “Montana Technologies Corporation” (the “Combined Company”).
As
part of the Transactions, equityholders of the Company will receive aggregate consideration of approximately $421.9 million (subject to adjustment as described in the Merger Agreement),
payable (i) in the case of Class B and Class C common unitholders of the Company (after giving effect to the conversion of all
outstanding preferred units of the Company into Class B common units, which conversion will occur prior to the Closing), newly
issued shares of Class A common stock, par value $0.0001 per share, of the Combined Company (“Class A common stock”),
with a value ascribed to each share of Class A common stock of $10.00, (ii) in the case of Class A unitholders of the Company, newly
issued shares of Class B common stock, par value $0.0001 per share, of the Combined Company (“Class B common stock”),
which Class B common stock will have a number of votes per share such that the equityholders of the Company as of immediately prior
to the Closing will collectively own at least 80% of the voting power of all classes of stock of the Combined Company entitled to
vote immediately following the Closing and (iii) in the case of the Company’s optionholders and warrantholders, options and
warrants of the Combined Company, respectively, having substantially similar terms to the applicable options and warrants of the
Company. The Company’s equityholders (other than Company warrantholders) will also have the opportunity to receive additional
equity consideration in the form of additional shares of Class A common stock at $10.00 per share upon achievement of certain
milestones related to production capacity and anticipated annualized EBITDA of the Combined Company following the Closing (the
“Earnout Shares” and each issuance of Earnout Shares, an “Earnout Payment”). The maximum value of the
Earnout Shares will be capped at $200 million (the “Maximum Earnout Value”) and the ability to receive Earnout Shares
will expire upon the fifth anniversary of the Closing. A majority of the independent directors of the Combined Company
will have sole discretion in determining milestone achievement, the calculations of payments and the dates construction is deemed
completed. The grants of the Earnout Shares will be dependent upon board approval to construct lines of production of coated
contractors based upon demand from customer commitments beyond three lines of production in the base plan.
Representations
and Warranties
Under
the Merger Agreement, the Company made customary representations and warranties relating to: organization; authorization; capitalization;
absence of Company subsidiaries; consents and approvals; financial statements; absence of undisclosed liabilities; absence of certain
changes; real estate; intellectual property; litigation; material contracts; taxes; environmental matters; licenses and permits; employee
benefits; labor and employment matters; international trade and anti-corruption matters; certain fees; absence of insurance policies;
affiliate transactions; information supplied; customers and suppliers; compliance with laws; and disclaimer of additional representations
or warranties.
Under
the Merger Agreement, XPDB and Merger Sub made customary representations and warranties relating to: organization; authorization; capitalization;
consents and approvals; financial statements; business activities and absence of undisclosed liabilities; absence of certain changes;
litigation; material contracts; taxes; compliance with laws; certain fees; organization of Merger Sub; Securities and Exchange Commission
(“SEC”) reports, Nasdaq Stock Market LLC (“NASDAQ”) compliance and the Investment Company Act; information supplied;
approvals of boards of directors and stockholders; XPDB’s Trust Account established in connection with the IPO (the “Trust
Account”); affiliate transactions; independent investigation; employee benefits; valid issuance of securities; takeover statutes
and charter provisions; and disclaimer of additional representations or warranties.
Covenants
The
Merger Agreement includes customary covenants of the parties with respect to business operations prior to the consummation of the Transactions
and efforts to satisfy conditions to the consummation of the Transactions. The Merger Agreement also contains additional covenants of
the parties, including, among others, covenants providing for XPDB and the Company to cooperate in the preparation of the Registration
Statement on Form S-4 required to be prepared in connection with the Transactions (the “Registration Statement”) and to use
commercially reasonable efforts to enter into subscription agreements with investors prior to the Closing for the purchase and sale of
equity interests of the Company and/or securities convertible into equity interests of the Company (the “Capital Raise”)
for aggregate gross proceeds to the Company of at least $85.0 million.
Conditions
to Closing
The
respective obligations of the parties to consummate the Transactions contemplated by the Merger Agreement, including the Merger, are
subject to the satisfaction, or written waiver by the parties, at or prior to the closing of the Transactions (the “Closing”)
of the following conditions:
| ● | there
must not be in effect any order prohibiting or preventing the consummation of the Transactions
and no law adopted, enacted or promulgated that makes consummation of the Transactions illegal
or otherwise prohibited; |
| ● | all
waiting periods and any extensions thereof applicable to the transactions contemplated by
the Merger Agreement under the Hart-Scott-Rodino Act, and any commitments or agreements (including
timing agreements) with any governmental entity not to consummate the Transactions before
a certain date, must have expired or been terminated; |
| ● | the
approval of each of the proposals set forth in the Registration Statement to be filed by
XPDB must have been obtained in accordance with the Delaware General Corporation Law (“DGCL”),
XPDB’s organizational documents and the rules and regulations of NASDAQ; |
| ● | the
Registration Statement must have become effective in accordance with the United States Securities
Act of 1933 (the “Securities Act”) and no stop order suspending the effectiveness
of the Registration Statement shall be in effect and no proceedings for that purpose have
commenced or shall be threatened by the SEC; and |
| ● | the
Class A Common Stock to be issued in the Transactions must have been approved for listing
by NASDAQ, subject only to official notice of issuance thereof. |
Conditions
to the Obligations of the Company
The
obligations of the Company to consummate the Transactions are subject to the satisfaction, or written waiver by the Company, at or prior
to the Closing, of the following conditions:
| ● | the
representations and warranties of XPDB and Merger Sub (other than fundamental representations),
disregarding qualifications contained therein relating to materiality, must be true and correct
as of the date of the Closing (the “Closing Date”) as if made at and as of such
time (or, if given as of an earlier date, as of such earlier date), except that this condition
will be satisfied unless any and all inaccuracies in such representations and warranties
of XPDB and Merger Sub, in the aggregate, would or would reasonably be expected to result
in a material adverse effect with respect to XPDB and Merger Sub, and fundamental representations
must be true and correct other than de minimis inaccuracies as of the Closing Date
(or, if given as of an earlier date, such earlier date); |
| ● | XPDB
and Merger Sub must have performed in all material respects its obligations under the Merger
Agreement required to be performed by them at or prior to the Closing; |
| ● | the
Company must have received a certificate executed and delivered by an authorized officer
of XPDB confirming that the conditions set forth in the immediately preceding bullet points
have been satisfied; and |
| ● | the
proceeds from the Transactions, consisting of the aggregate cash proceeds available for release
to XPDB from the Trust Account in connection with the Transactions (after, for the avoidance
of doubt, giving effect to any redemptions of shares of Class A Common Stock by stockholders
of XPDB but before release of any other funds) must be equal to or in excess of $85.0 million;
provided that this condition will no longer apply upon the receipt of proceeds from the Capital
Raise of $85.0 million or greater. |
Conditions
to the Obligations of XPDB and Merger Sub
The
obligations of XPDB and Merger Sub to consummate the Transactions are subject to the satisfaction, or written waiver by XPDB, at or prior
to the Closing of the following conditions:
| ● | the
representations and warranties of the Company (other than fundamental representations), disregarding
qualifications contained therein relating to materiality, must be true and correct as of
the Closing Date as if made at and as of such time (or, if given as of an earlier date, as
of such earlier date), except that this condition will be satisfied unless any and all inaccuracies
in such representations and warranties of the Company, in the aggregate, would or would reasonably
be expected to result in a material adverse effect with respect to the Company, and fundamental
representations must be true an correct other than de minimis inaccuracies as of the
date of the Merger Agreement and as of the Closing Date (or, if given as of an earlier date,
such earlier date); |
| ● | The
Company must have performed in all material respects its obligations under the Merger Agreement
required to be performed by it at or prior to the Closing; |
| ● | XPDB
must have received a certificate executed and delivered by an authorized officer of the Company
confirming that the conditions set forth in the immediately preceding bullet points have
been satisfied; and |
| ● | since
the date of the Merger Agreement, a material adverse effect with respect to the Company must
not have occurred. |
Waivers
Either
XPDB or the Company may waive any inaccuracies in the representations and warranties made to such party contained in the Merger Agreement
or in any document delivered pursuant to the Merger Agreement and waive compliance with any agreements or conditions for the benefit
of itself or such party contained in the Merger Agreement or in any document delivered pursuant to the Merger Agreement. Notwithstanding
the foregoing, pursuant to XPDB’s amended and restated certificate of incorporation, XPDB cannot consummate the proposed business
combination if it has less than $5,000,001 of net tangible assets remaining upon consummation of the Transactions after taking into account
the holders of public shares that properly demanded that XPDB redeem their public shares for their pro rata share of the trust account.
In connection with the Extension Meeting (as defined below), XPDB is seeking stockholder approval to eliminate this limitation.
Termination
The
Merger Agreement may be terminated and the Transactions abandoned at any time prior to the Closing, as follows:
| ● | in
writing, by mutual consent of the parties; |
| ● | by
XPDB or the Company if any law or order permanently restraining, enjoining or otherwise prohibiting
the consummation of the Merger has been enacted and has become final and non-appealable,
except that a party may not terminate the Merger Agreement for this reason if it has breached
in any material respect its obligations set forth in the Merger Agreement in any manner that
has proximately contributed to the enactment, issuance, promulgation or entry into such law
or order; |
| ● | by
the Company (if not in breach such that a closing condition cannot be satisfied) if any representation
or warranty is not true and correct or if XPDB has failed to perform any covenant or agreement
made by either XPDB or Merger Sub in the Merger Agreement, such that the conditions to the
obligations of XPDB, as described above, could not be satisfied as of the Closing Date, and
(ii) are not or cannot be cured within thirty days after written notice from the Company
of such breach is received by XPDB and Merger Sub, or which breach, untruth or inaccuracy,
by its nature, cannot be cured prior to the Outside Date (as defined below); |
| ● | by
XPDB (if not in breach such that a closing condition cannot be satisfied) if any representation
or warranty is not true and correct or if the Company has failed to perform any covenant
or agreement made by the Company in the Merger Agreement, such that the conditions to the
obligations of the Company, as described above, could not be satisfied as of the Closing
Date, and (ii) are not or cannot be cured within thirty days after written notice from XPDB
of such breach is received by XPDB, or which breach, untruth or inaccuracy, by its nature,
cannot be cured prior to the Outside Date; |
| ● | by
written notice by any party if the Closing has not occurred on or prior to June 14, 2023 (the “Outside Date”) so long as
such party is not then in breach of the Merger Agreement in a manner that contributed to the occurrence of the failure of a
condition; provided that if the XPDB stockholders approve any amendment to the organizational documents of XPDB that extends the
deadline by which XPDB may complete an initial business combination, the Outside Date will be automatically extended to such new
deadline for completing an initial business combination, including any extension (in one-month increments, for up to a total of 3
additional months) of the deadline pursuant to the approval of XPDB’s board of directors; |
| ● | by
the Company at any time within three business days if XPDB’s board of directors changes
its recommendation to its stockholders to vote in favor of the Transactions; or |
| ● | by
XPDB or the Company if the approval of certain proposals contained in the Registration Statement
is not obtained at the XPDB stockholders meeting (including any adjournments of such meeting). |
The
foregoing summary of the Merger Agreement is qualified in its entirety by reference to the text of the Merger Agreement, which is attached
as Exhibit 2.1 hereto and incorporated herein by reference. The Merger Agreement contains representations, warranties and covenants that
the respective parties thereto made to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied
in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject
to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement. In particular, the
assertions embodied in the representations and warranties in the Merger Agreement were made as of a specified date, are modified or qualified
by information in one or more confidential disclosure letters prepared in connection with the execution and delivery of the Merger Agreement,
may be subject to a contractual standard of materiality different from what might be viewed as material to investors, or may have been
used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Merger Agreement
are not necessarily characterizations of the actual state of facts about XPDB, Merger Sub or the Company at the time they were made or
otherwise and should only be read in conjunction with the other information that XPDB makes publicly available in reports, statements
and other documents filed with the SEC.
Sponsor
Support Agreement
In
connection with the execution of the Merger Agreement, XPDI Sponsor II LLC (the “Sponsor”) entered into a sponsor support
agreement (the “Sponsor Support Agreement”) with XPDB, the Company and other holders of Class B common stock, par value $0.0001
per share, of XPDB (“XPDB Class B common stock”) pursuant to which the Sponsor and the other holders of XPDB Class B common
stock agreed to, among other things, (i) vote at the special meeting to be called for approval of the Transactions any Class
A common stock, par value $0.0001 per share, of XPDB or XPDB Class B common stock (collectively, the “Sponsor Securities”), held of
record or thereafter acquired in favor of the proposals presented by XPDB at such meeting, (ii) be bound by certain other covenants
and agreements related to the Merger, (iii) be bound by certain transfer restrictions with respect to the Sponsor Securities and
(iv) waive certain antidilution protections with respect to the Sponsor Securities, in each case, on the terms and subject to the conditions
set forth in the Sponsor Support Agreement. The Sponsor Support Agreement also provides that the Sponsor has agreed to waive redemption
rights in connection with the consummation of the Transactions with respect to any Sponsor Securities they may hold.
The
Sponsor Support Agreement provides that as of immediately prior to (but subject to) the Closing, 1,380,736 (or 20%) of the XPDB Class
B common stock held by the Sponsor as of the Closing will be subject to certain time and performance-based vesting provisions described
below (the “Subject Vesting Shares”). Pursuant to the Sponsor Support Agreement, the Subject Vesting Shares will be subject
to an earnout, with the Subject Vesting Shares vesting on the earlier to occur, as applicable, of (i) from time to time, at the same
time and simultaneously with any Earnout Payment in an amount equal to (A) the aggregate number of the Subject Vesting Shares outstanding
immediately following the Effective Time multiplied by (B) a fraction (x) the numerator of which is the applicable Earnout Milestone
Amount (as defined in the Merger Agreement) and (y) the denominator of which is the Maximum Earnout Milestone Amount (as defined
in the Merger Agreement) (taking into account with respect to the nominator and denominator any adjustments in accordance with
the Merger Agreement) (the “Earnout Milestone Vesting”) and (ii) on any day following the Closing when the closing price
of a share of XPDB Class A common stock on NASDAQ (the “Closing Share Price”) equals or exceeds (a) $12.00 for up to an aggregate
of 50% of the Subject Vesting Shares vesting (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the
like) and (b) all remaining Subject Vesting Shares will vest when the Closing Share Price equals or exceeds $14.00 (as adjusted for stock
splits, stock dividends, reorganizations, recapitalizations and the like); provided, that if, prior to the $12.00 Vesting Time any Subject
Vesting Shares have vested pursuant to the Earnout Milestone Vesting, then (x) if the number of Vesting Shares that have vested pursuant
to the Earnout Milestone Vesting exceeds 690,368 Subject Vesting Shares, then no additional Subject Vesting Shares will vest and (y)
if the number of Subject Vesting Shares that have vested pursuant to the Earnout Milestone Vesting is less than 690,368 Subject Vesting
Shares (such deficit, the “Deficit Amount”), then a number of Subject Vesting Shares equal to 690,368 less the Deficit Amount
will vest.
The
Sponsor Support Agreement will terminate on the earlier of (i) the date the merger becomes effective and (ii) the termination
of the Merger Agreement in accordance with its terms.
The
foregoing summary of the Sponsor Support Agreement is qualified in its entirety by reference to the full text of the Sponsor Support
Agreement, which is attached as Exhibit 10.1 hereto and incorporated by reference herein.