Exhibit 10.4


 


December 14, 2021


 


Power & Digital Infrastructure Acquisition II Corp.

321 North Clark Street, Suite 2440

Chicago, IL 60654


 


		Re:	Initial Public Offering



 


Ladies and Gentlemen:


 


This letter (this “Letter
Agreement”) is being delivered to you in accordance with the Underwriting Agreement (the “Underwriting Agreement”)
entered into by and among Power & Digital Infrastructure Acquisition II Corp., a Delaware corporation (the “Company”),
and Barclays Capital Inc. and BofA Securities, Inc., as underwriters (the “Underwriters”), relating to an underwritten
initial public offering (the “Public Offering”) of 28,750,000 of the Company’s units (including 3,750,000
units that may be purchased pursuant to the Underwriters’ option to purchase additional units, the “Units”),
each consisting of one share of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”),
and one-half of one redeemable warrant (each whole warrant, a “Warrant”). Each Warrant entitles the holder thereof
to purchase one share of Common Stock at a price of $11.50 per share, subject to adjustment. The Units will be sold in the Public Offering
pursuant to a registration statement on Form S-1 and a prospectus (the “Prospectus”) filed by the Company with
the U.S. Securities and Exchange Commission (the “Commission”). Certain capitalized terms used herein are defined
in paragraph 1 hereof.


 


In order to induce the Company
and the Underwriters to enter into the Underwriting Agreement and to proceed with the Public Offering and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, XPDI Sponsor II LLC (the “Sponsor”)
and each of the undersigned (each, an “Insider” and, collectively, the “Insiders”)
hereby agrees, severally but not jointly, with the Company as follows:


 


1. Definitions.
As used herein, (i) “Business Combination” shall mean a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination, involving the Company and one or more businesses; (ii)
“Charter” shall mean the Company’s Amended and Restated Certificate of Incorporation, as the same
may be amended from time to time; (iii) “Founder Shares” shall mean the 7,187,500 shares of Class B Common
Stock of the Company, par value $0.0001 per share, issued and outstanding immediately prior to the consummation of the Public
Offering; (iv) “Initial Stockholders” shall mean the Sponsor and any Insider that holds Founder Shares;
(v) “Private Placement Warrants” shall mean the warrants to purchase shares of Common Stock of the Company
that will be acquired by the Sponsor for an aggregate purchase price of $8,000,000 (or up to $8,900,000 if the Underwriters’
exercise their option to purchase additional units), or $1.00 per Warrant, in a private placement that shall close simultaneously
with the consummation of the Public Offering (including Common Stock issuable upon conversion thereof); (vi) “Public
Shares” shall mean the Common Stock included in the Units issued in the Public Offering; (vii) “Public
Stockholders” shall mean the holders of Common Stock included in the Units issued in the Public Offering; (viii)
“Transfer” shall mean the (a) sale of, offer to sell, contract or agreement to sell, hypothecate, pledge,
grant of any option to purchase or otherwise dispose of or agreement to dispose of, directly or indirectly, or establishment or
increase of a put equivalent position or liquidation with respect to or decrease of a call equivalent position within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated
thereunder with respect to, any security, (b) entry into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of any security, whether any such transaction is to be settled by delivery of
such securities, in cash or otherwise, or (c) public announcement of any intention to effect any transaction specified in clause (a)
or (b); and (ix) “Trust Account” shall mean the trust account into which a portion of the net proceeds of
the Public Offering and the sale of the Private Placement Warrants shall be deposited.


 






    


     


    

 


2.
Representations and Warranties.


 


(a)
The Sponsor and each Insider, with respect to itself, herself or himself, represent and warrant to the Company that it, she or
he has the full right and power, without violating any agreement to which it, she or he is bound (including, without limitation, any non-competition
or non-solicitation agreement with any employer or former employer), to enter into this Letter Agreement, as applicable, and to serve
as an officer of the Company and/or a director on the Company’s Board of Directors (the “Board”), as applicable,
and each Insider hereby consents to being named in the Prospectus, road show and any other materials as an officer and/or director of
the Company, as applicable.


 


(b)
Each Insider represents and warrants, with respect to herself or himself, that such Insider’s biographical information furnished
to the Company (including any such information included in the Prospectus) is true and accurate in all material respects and does not
omit any material information with respect to such Insider’s background. The Insider’s questionnaire furnished to the Company
is true and accurate in all material respects. Each Insider represents and warrants that such Insider is not subject to or a respondent
in any legal action for, any injunction, cease-and-desist order or order or stipulation to desist or refrain from any act or practice
relating to the offering of securities in any jurisdiction; such Insider has never been convicted of, or pleaded guilty to, any crime
(i) involving fraud, (ii) relating to any financial transaction or handling of funds of another person, or (iii) pertaining to any dealings
in any securities and such Insider is not currently a defendant in any such criminal proceeding; and such Insider has never been suspended
or expelled from membership in any securities or commodities exchange or association or had a securities or commodities license or registration
denied, suspended or revoked.


 


3.
Business Combination Vote. It is acknowledged and agreed that the Company shall not enter into a definitive agreement regarding
a proposed Business Combination without the prior consent of the Sponsor. The Sponsor and each Insider, with respect to itself or herself
or himself, agrees that if the Company seeks stockholder approval of a proposed initial Business Combination, then in connection with
such proposed initial Business Combination, it, she or he, as applicable, shall vote all Founder Shares and any Public Shares held by
it, her or him, as applicable, in favor of such proposed initial Business Combination (including any proposals recommended by the Board
in connection with such Business Combination) and not redeem any Public Shares held by it, her or him, as applicable, in connection with
such stockholder approval.


 




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4.
 Failure to Consummate a Business Combination; Trust Account Waiver.


 


(a)
The Sponsor and each Insider hereby agree, with respect to itself, herself or himself, that in the event that the Company fails
to consummate its initial Business Combination within the time period set forth in the Charter, the Sponsor and each Insider shall take
all reasonable steps to cause the Company to (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably
possible but not more than 10 business days thereafter, redeem 100% of the Public Shares, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not
previously released to the Company to pay income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number
of then outstanding Public Shares, which redemption will completely extinguish the Public Stockholders’ rights as stockholders (including
the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the Company’s remaining stockholders and the Board, liquidate and dissolve, subject in the case of clauses
(ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and in all cases subject to the
other requirements of applicable law. The Sponsor and each Insider agree not to propose any amendment to the Charter (i) to modify the
substance or timing of the Company’s obligation to allow redemption in connection with its initial Business Combination or to redeem
100% of the Public Shares if the Corporation has not consummated an initial Business Combination within 18 months (or 21 months or 24
months, as applicable) from the closing of the Public Offering or (ii) with respect to any other provisions of the Charter relating to
stockholders’ rights or pre-initial Business Combination activity, the Public Stockholders shall be provided with the opportunity
to redeem their Public Shares upon the approval of any such amendment, at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account, including interest not previously released to the Company to pay taxes, divided by the number of
then outstanding Public Shares.


 


(b) The Sponsor and each
Insider, with respect to itself, herself or himself, acknowledges that it, she or he has no right, title, interest or claim of any
kind in or to any monies held in the Trust Account as a result of any liquidation of the Company with respect to the Founder Shares
held by it, her or him, if any. The Sponsor and each of the Insiders hereby further waive, with respect to any Founder Shares and
Public Shares held by it, her or him, as applicable, any redemption rights it, she or he may have in connection with the
consummation of a Business Combination, including, without limitation, any such rights available in the context of a stockholder
vote to approve such Business Combination or a stockholder vote to approve an amendment to the Charter (i) to modify the substance
or timing of the Company’s obligation to allow redemption in connection with its initial Business Combination or to redeem
100% of the Public Shares if the Corporation has not consummated an initial Business Combination within 18 months (or 21 months or
24 months, as applicable) from the closing of the Public Offering or (ii) with respect to any other provisions of the Charter
relating to stockholders’ rights or pre-initial Business Combination activity, the Public Stockholders shall be provided with
the opportunity to redeem their Public Shares upon the approval of any such amendment, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the Trust Account, including interest not previously released to the Company to pay
taxes, divided by the number of then outstanding Public Shares (although the Sponsor and the Insiders shall be entitled to
liquidation rights with respect to any Public Shares they hold if the Company fails to consummate a Business Combination within the
required time period set forth in the Charter).


 






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5.
Lock-up; Transfer Restrictions.


 


(a)
The Sponsor and the Insiders agree that they shall not Transfer any Founder Shares (the “Founder Shares Lock-up”)
until the earlier of (A) one year after the completion of an initial Business Combination and (B) the date following the completion of
an initial Business Combination on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other
similar transaction that results in all of the Company’s stockholders having the right to exchange their Common Stock for cash,
securities or other property. Notwithstanding the foregoing, if, subsequent to a Business Combination, the closing price of the Common
Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within a 30-trading day period commencing at least 150 days after the Company’s initial Business Combination,
the Founder Shares shall be released from the Founder Shares Lock-up. The period of the Founder Shares Lock-up pursuant to this Paragraph
5(a) is referred to as the “Founder Shares Lock-up Period.”


 


(b)
The Sponsor and Insiders agree that they shall not effectuate any Transfer of Private Placement Warrants or Common Stock underlying
such Warrants until 30 days after the completion of an initial Business Combination.


 


(c) Notwithstanding the
provisions set forth in paragraphs 5(a) and (b), Transfers of the Founder Shares, Private Placement Warrants and
Common Stock underlying the Private Placement Warrants are permitted (a) to the Company’s employees, officers or directors,
any affiliates or family members of any of the Company’s officers or directors, any employees, officers, directors or members
of the Sponsor (or former Sponsor if such transfer occurs after a dissolution of the Sponsor) or their affiliates, or any affiliates
of the Sponsor (or former Sponsor if such transfer occurs after a dissolution of the Sponsor); (b) in the case of an individual, by
gift to a member of one of the individual’s immediate family, an estate planning vehicle or to a trust, the beneficiary of
which is a member of the individual’s immediate family, an affiliate of such person or to a charitable organization; (c) in
the case of an individual, by virtue of laws of descent and distribution upon death of the individual; (d) in the case of an
individual, pursuant to a qualified domestic relations order; (e) by private sales or transfers made in connection with the
consummation of a Business Combination at prices no greater than the price at which the Founder Shares, Private Placement Warrants
or Common Stock, as applicable, were originally purchased; (f) by pro rata distributions from the Sponsor to its members, partners,
or shareholders pursuant to the Sponsor’s organizational documents; (g) by virtue of the laws of Delaware or the
Sponsor’s organizational documents upon liquidation or dissolution of the Sponsor; (h) to the Company for no value for
cancellation in connection with the consummation of an initial Business Combination, (including in connection with the transactions
contemplated by that certain Forfeiture Agreement, dated as of December 9, 2021 between the Company and the Sponsor); (i) in the
event of the Company’s liquidation prior to the completion of a Business Combination; or (j) in the event of completion of a
liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s
stockholders having the right to exchange their Common Stock for cash, securities or other property subsequent to the completion of
an initial Business Combination; provided, however, that in the case of clauses (a) through (g) these permitted
transferees must enter into a written agreement agreeing to be bound by these transfer restrictions.


 






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(d)
During the period commencing on the effective date of the Underwriting Agreement and ending 180 days after such date, the Sponsor
and each Insider shall not, without the prior written consent of the Representatives, Transfer any Units, Common Stock, Warrants or any
other securities convertible into, or exercisable or exchangeable for, Common Stock held by it, her or him, as applicable, subject to
certain exceptions enumerated in Section 6(i) of the Underwriting Agreement.


 


6.
Remedies. The Sponsor and each of the Insiders hereby agree and acknowledge that (i) each of the Underwriters and the Company
would be irreparably injured in the event of a breach by the Sponsor or such Insider of its, her or his obligations, as applicable under
paragraphs 3, 4, 5, 7, 10 and 11, (ii) monetary damages may not be an adequate remedy for such
breach and (iii) the non-breaching party shall be entitled to injunctive relief, in addition to any other remedy that such party may have
in law or in equity, in the event of such breach.


 


7.
Payments by the Company. Except as disclosed in the Prospectus, neither the Sponsor nor any affiliate of the Sponsor nor
any director or officer of the Company nor any affiliate of the officers shall receive from the Company any finder’s fee, reimbursement,
consulting fee, monies in respect of any payment of a loan or other compensation prior to, or in connection with any services rendered
in order to effectuate the consummation of the Company’s initial Business Combination (regardless of the type of transaction that
it is).


 


8.
Director and Officer Liability Insurance. The Company will maintain an insurance policy or policies providing directors’
and officers’ liability insurance, and the Insiders shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any of the Company’s directors or officers.


 


9.
Termination. This Letter Agreement shall terminate on the earlier of (i) the expiration of the Founder Shares Lock-up Period
and (ii) the liquidation of the Company.


 


10. Indemnification.
In the event of the liquidation of the Trust Account upon the failure of the Company to consummate its initial Business Combination
within the time period set forth in the Charter, the Sponsor (the “Indemnitor”) agrees to indemnify and
hold harmless the Company against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to,
any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, whether
pending or threatened) to which the Company may become subject as a result of any claim by (i) any third party for services rendered
or products sold to the Company (except for the Company’s independent auditors) or (ii) any prospective target business with
which the Company has discussed entering into a transaction agreement (a “Target”); provided, however,
that such indemnification of the Company by the Indemnitor (x) shall apply only to the extent necessary to ensure that such claims
by a third party for services rendered or products sold to the Company or a Target do not reduce the amount of funds in the Trust
Account to below the lesser of (i) $10.10 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as
of the date of the liquidation of the Trust Account if less than $10.10 per Public Share due to reductions in the value of the trust
assets, in each case net of interest that may be withdrawn to pay the Company’s tax obligations, (y) shall not apply to any
claims by a third party or Target who executed a waiver of any and all rights to the monies held in the Trust Account (whether or
not such waiver is enforceable) and (z) shall not apply to any claims under the Company’s indemnity of the Underwriters
against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Indemnitor shall have the right
to defend against any such claim with counsel of its choice reasonably satisfactory to the Company if, within 15 days following
written receipt of notice of the claim to the Indemnitor, the Indemnitor notifies the Company in writing that it shall undertake
such defense.


 






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11.
Forfeiture of Founder Shares. To the extent that the Underwriters do not exercise their option to purchase additional Units
within 45 days from the date of the Prospectus in full (as further described in the Prospectus), the Sponsor agrees to automatically surrender
to the Company for no consideration, for cancellation at no cost, an aggregate number of Founder Shares so that the number of Founder
Shares will equal of 20% of the sum of the total number of Common Stock and Founder Shares outstanding at such time. The Initial Stockholders
further agree that to the extent that the size of the Public Offering is increased or decreased, the Company will effect a stock split,
stock dividend, reverse stock split or stock repurchase, as applicable, with respect to the Founder Shares immediately prior to the consummation
of the Public Offering in such amount as to maintain the number of Founder Shares at 20% of the sum of the total number of Common Stock
and Founder Shares outstanding at such time.


 


12.
Entire Agreement. This Letter Agreement constitutes the entire agreement and understanding of the parties hereto in respect
of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written
or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby. This Letter Agreement
may not be changed, amended, modified or waived (other than to correct a typographical error) as to any particular provision, except by
a written instrument executed by all parties hereto.


 


13.
Assignment. No party hereto may assign either this Letter Agreement or any of its rights, interests, or obligations hereunder
without the prior written consent of the other parties. Any purported assignment in violation of this paragraph shall be void and ineffectual
and shall not operate to transfer or assign any interest or title to the purported assignee. This Letter Agreement shall be binding on
the Sponsor, each of the Insiders and each of their respective successors, heirs, personal representatives and assigns and permitted transferees.


 


14.
Counterparts. This Letter Agreement may be executed in any number of original or facsimile counterparts, and each of such
counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same
instrument.


 


15.
Effect of Headings. The paragraph headings herein are for convenience only and are not part of this Letter Agreement and
shall not affect the interpretation thereof.


 


16. Severability.
This Letter Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Letter Agreement or of any other term or provision hereof. Furthermore, in lieu of any
such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Letter
Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and
enforceable.


 


17.
Governing Law. This Letter Agreement shall be governed by and construed and enforced in accordance with the laws of the
State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of
another jurisdiction. The parties hereto (i) all agree that any action, proceeding, claim or dispute arising out of, or relating in any
way to, this Letter Agreement shall be brought and enforced in the courts of New York City, in the State of New York, and irrevocably
submit to such jurisdiction and venue, which jurisdiction and venue shall be exclusive, and (ii) waive any objection to such exclusive
jurisdiction and venue or that such courts represent an inconvenient forum.


 


18.
Notices. Any notice, consent or request to be given in connection with any of the terms or provisions of this Letter Agreement
shall be in writing and shall be sent by express mail or similar private courier service, by certified mail (return receipt requested),
by hand delivery or facsimile transmission.


 


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	 	Sincerely,
	 	 
	 	XPDI SPONSOR II LLC
	 	 
	 	By:	/s/
    Patrick C. Eilers
	 	Name:  	Patrick C. Eilers
	 	Title: 	Co-Chief Executive Officer



 


[Signature Page to Letter Agreement]


 







     


     


    

 


	 	/s/
    Patrick C. Eilers
	 	Patrick C. Eilers


 


[Signature Page to Letter Agreement]


 







     


     


    

 


	 	/s/
    James P. Nygaard, Jr.
	 	James P. Nygaard, Jr.


 


[Signature Page to Letter Agreement]


 







     


     


    

 


	 	/s/
    Theodore J. Brombach
	 	Theodore J. Brombach


 


[Signature Page to Letter Agreement]


 







     


     


    

 


	 	/s/
    Paul Gaynor
	 	Paul Gaynor


 


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	 	/s/
    Scott Widham
	 	Scott Widham


 


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	 	/s/
    Paul Dabbar
	 	Paul Dabbar


 


[Signature Page to Letter Agreement]


 







     


     


    

 


	 	/s/
    John B. Sexton
	 	John B. Sexton


 


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	 	/s/
    John P. McGarrity
	 	John P. McGarrity


 


[Signature Page to Letter Agreement]


 




     


     


    

 


	Acknowledged and Agreed:	 
	 	 
	POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
	 	 
	By:	 /s/ John P. McGarrity	 
	Name:	John P. McGarrity	 
	Title:	General Counsel and Secretary	 



 


[Signature Page to Letter Agreement]