Item 1.01. Entry into a Material Definitive
Agreement.
Merger Agreement
On June 27, 2023, BYTE Acquisition
Corp. (“BYTS” or “Parent”), a Cayman Islands exempted company (which shall de-register from the Register of Companies
in the Cayman Islands by way of continuation out of the Cayman Islands and into the State of Delaware so as to migrate to and domesticate
as a Delaware corporation prior to the Closing Date (as defined below)), entered into a merger agreement, by and among BYTS, BYTE Merger
Sub Inc., a Washington corporation and a direct, wholly owned subsidiary of BYTS (“Merger Sub”), and Airship AI Holdings,
Inc., a Washington corporation (“Airship AI” or the “Company”) (as it may be amended and/or restated from time
to time, the “Merger Agreement”). Capitalized terms used in this Current Report on Form 8-K but not otherwise defined herein
have the meanings given to them in the Merger Agreement.
Airship AI is a robust AI-driven
edge video, sensor and data management platform for government agencies and enterprises that gathers unstructured data from surveillance
cameras and sensors, applies artificial intelligence (“AI”) analytics, and provides visualization tools to improve decision
making in mission critical environments.
The
board of directors of BYTS has unanimously approved and declared advisable the Merger Agreement (as defined below) and the Business Combination
and resolved to recommend approval of the Merger Agreement and related matters by BYTS’ shareholders.
The Merger
The Merger Agreement provides
that, among other things and upon the terms and subject to the conditions thereof, following the Domestication (as defined below) Merger
Sub will merge with and into Airship AI (the “Merger”), after which Airship AI will be the surviving corporation (the “Surviving
Corporation”) and a wholly-owned subsidiary of BYTS. The transactions contemplated by the Merger Agreement together with the other
related agreements are referred to herein as the “Business Combination.” The time of the closing of the Business Combination
is referred to herein as the “Closing.” The date of the Closing is referred to herein as the “Closing Date.” In
connection with the Business Combination, BYTS will be renamed “Airship AI Holdings, Inc.” (“Airship Pubco”).
The Merger will become effective upon the filing of the articles of merger with the Secretary of State of the State of Washington or at
such later time as is agreed to by the parties to the Merger Agreement and specified in the articles of merger (the “Effective Time”).
The Domestication
On the day that is at least
one business day prior to the date of the Effective Time and subject to the conditions of the Merger Agreement, BYTS shall de-register
from the Register of Companies in the Cayman Islands by way of continuation out of the Cayman Islands and into the State of Delaware so
as to migrate to and domesticate as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law, as
amended, and Part XII of the Companies Act (Revised) of the Cayman Islands (the “Domestication”).
In connection with the Domestication,
(x) prior to the Domestication, Byte Holdings LP, a Cayman Islands exempted limited partnership and the Sponsor of BYTS (“Sponsor”),
will surrender to BYTS for no consideration the sole issued and outstanding Class B ordinary share of BYTS, par value $0.0001 per share,
and (y) at the effective time of the Domestication, (i) each then issued and outstanding Class A ordinary share of BYTS, par value $0.0001
per share, after giving effect to redemptions occurring prior to the Domestication, will convert automatically, on a one-for-one basis,
into one share of common stock, par value $0.0001 per share, of Parent (each a “Parent Common Share”), (ii) each then issued
and outstanding warrant of BYTS will become exercisable for one Parent Common Share (“Domesticated Parent Warrant”), pursuant
to the Warrant Agreement, dated as of March 18, 2021, by and between BYTS and Continental Stock Transfer & Trust Company, as warrant
agent, and (iii) each then issued and outstanding unit of BYTS shall separate and convert automatically into one Parent Common Share and
one-half of one Domesticated Parent Warrant.
Consideration and Structure
Under the Merger Agreement,
the Airship AI equityholders that hold shares of Company Common Stock (as defined below), Company Options (as defined below), Earnout
Warrants (as defined below) or Company SARs (as defined below) will receive an aggregate of 22.5 million Parent Common Shares (the “Aggregate
Merger Consideration”) in exchange for all of Airship AI’s outstanding equity interests.
The Merger Agreement also
provides, among other things, that the Airship AI equityholders that hold shares of Company Common Stock, Company Options, Earnout Warrants
or Company SARs have the contingent right to receive up to 5 million additional Parent Common Shares (the “Earnout Shares”),
subject to the following contingencies:
(A) 25%
of the Earnout Shares if, for the period starting on the Closing Date and ending on the last day of the full calendar quarter immediately
following the first anniversary of the Closing Date, (1) Company Revenue is at least $39 Million, or (2) the aggregate value of new Contract
awards (including awards obtained through purchase orders) with Federal law enforcement agencies (whether such awards are obtained directly
or through intermediaries) has grown by at least 100% as compared to the year-over-year amount for the twelve-month period ending on the
date of the Merger Agreement (the “First Operating Performance Milestone”);
(B) 75%
of the Earnout Shares if, for the period starting on the Closing Date and ending on the last day of the full calendar quarter immediately
following the third anniversary of the Closing Date, Company Revenue is at least $100 Million (the “Second Operating Performance
Milestone”);
(C) 50%
of the Earnout Shares if, at any time during the period starting on the Closing Date and ending on the fifth anniversary of the Closing
Date, over any twenty (20) Trading Days within any thirty (30) Trading Day period the VWAP of the Parent Common Shares is greater than
or equal to $12.50 per share (the “First Share Price Performance Milestone”); and
(D) 50%
of the Earnout Shares if, at any time during the period starting on the Closing Date and ending on the fifth anniversary of the Closing
Date, over any twenty (20) Trading Days within any thirty (30) Trading Day period the VWAP of the Parent Common Shares is greater than
or equal to $15.00 per share (the “Second Share Price Performance Milestone”).
Pursuant to the Merger Agreement,
at the Effective Time, each option (whether vested or unvested) (each, a “Company Option”) to purchase shares of common stock
of the Company (“Company Common Stock”) that is outstanding as of immediately prior to the Effective Time will be converted
into (i) an option to acquire, subject to substantially the same terms and conditions as were applicable under such Company Option (including
expiration date, vesting conditions, and exercise provisions), the number of Parent Common Shares (rounded down to the nearest whole share),
determined by multiplying the number of shares of Company Common Stock subject to such Company Option as of immediately prior to the Effective
Time by the Conversion Ratio (as defined below), at an exercise price per Parent Common Share (rounded up to the nearest whole cent) equal
to (A) the exercise price per share of Company Common Stock of such Company Option divided by (B) the Conversion Ratio (a “Converted
Stock Option”), and (ii) the right to receive a number of Earnout Shares in accordance with, and subject to, the contingencies set
forth in the Merger Agreement. At the Effective Time, Parent will assume all obligations of the Company with respect to each Converted
Stock Option.
Pursuant to the Merger Agreement,
at the Effective Time, each stock appreciation right (whether vested or unvested) granted under the Company’s stock appreciation
rights plan (each, a “Company SAR”) that is outstanding immediately before the Effective Time (whether vested or unvested)
shall, automatically and without any required action on the part of any holder or beneficiary thereof, be assumed by Parent and converted
into a stock appreciation right denominated in Parent Common Shares (a “Converted SAR”). Each Converted SAR shall continue
to have and be subject to substantially the same terms and conditions as were applicable to such Company SAR immediately before the Effective
Time (including expiration date, vesting conditions, and exercise provisions), except that (i) each Converted SAR shall cover that number
of Parent Common Shares equal to (A) the product (rounded down to the nearest whole number) of (1) the number of shares of Company Common
Stock subject to the Company SAR immediately before the Effective Time and (2) the Conversion Ratio and (B) a number of Earnout Shares
in accordance with, and subject to, the contingencies set forth in the Merger Agreement, and (ii) the per share base value for each Parent
Common Share covered by the Converted SAR shall be equal to the quotient (rounded up to the nearest whole cent) obtained by dividing (A)
the base value per share of Company Common Stock of such Company SAR immediately prior to the Effective Time by (B) the Conversion Ratio.
At the Effective Time, Parent will assume all obligations of the Company with respect to each Converted SARs.
Pursuant to the Merger Agreement,
at the Effective Time, all of the warrants of the Company (the “Company Warrants”) will be converted into (i) a warrant to
purchase, subject to substantially the same terms and conditions as were applicable under such Company Warrant, the number of Parent Common
Shares (rounded up to the nearest whole share), determined by multiplying (A) the number of shares of Company Common Stock subject to
such Company Warrant immediately prior to the Effective Time, by (B) the Conversion Ratio, at an exercise price per Parent Common Share
(rounded down to the nearest whole cent) equal to (1) the exercise price per share of Company Common Stock of such Company Warrant divided
by (2) the Conversion Ratio (a “Converted Warrant”) and (ii) with respect to each warrant to purchase shares of Company Common
Stock set forth on Schedule 1.1(a) to the Merger Agreement (the “Earnout Warrants”), the right to receive a number of Earnout
Shares in accordance with, and subject to, the contingencies set forth in the Merger Agreement. At the Effective Time, Parent will assume
all obligations of the Company with respect to any Converted Warrants.
The “Conversion Ratio”
is the quotient obtained by dividing (i) the number of Parent Common Shares constituting the Aggregate Merger Consideration, by (ii) the
number of shares constituting the aggregate number of shares of Company Common Stock that are issued immediately prior to the Effective
Time, plus the aggregate number of shares of Company Common Stock that are issuable upon full exercise of all Earnout Warrants outstanding
as of immediately prior to the Effective Time, plus the aggregate number of shares of Company Common Stock issuable upon full exercise
of all Company Options (whether vested or unvested) outstanding as of immediately prior to the Effective Time, plus the aggregate number
of Company SARs (whether vested or unvested) outstanding as of immediately prior to the Effective Time.
The Airship Pubco Bylaws will
provide that the Parent Common Shares issued to all holders of Company Common Stock, Company Options, Earnout Warrants and Company SARs
as the Aggregate Merger Consideration will be subject to a lock-up for a period of 180 days following the Closing, and that Parent Common
Shares issued to such holders upon satisfaction of the First Operational Performance Milestone (if any) will be subject to a 12-month
lock-up period beginning on the date such shares are issued, unless waived, amended or repealed by the unanimous approval of the board
of directors.
Representations, Warranties and Covenants
The parties to the Merger
Agreement have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants with
respect to the conduct of the Company and BYTS and their respective subsidiaries prior to the Closing, including the Company’s covenant
to provide to BYTS within ten business days of the execution of the Merger Agreement its audited financial statements for the years ended
December 31, 2022 and 2021 (the “PCAOB Financial Statements”) for inclusion in the registration statement on Form S-4 to be
filed by BYTS in connection with the Business Combination (the “Registration Statement”).
BYTS has also agreed that,
by the date that is twenty-one (21) Business Days following the later of (i) the date of the Merger Agreement and (ii) the date on which
BYTS receives a copy of the unmodified opinion of a U.S. registered independent accounting firm stating that the Year End Financials present
fairly, in all material respects, the financial position of the Company and its results of operations and cash flows as of and for the
dates set forth in the Year End Financials, in conformity with U.S. generally accepted accounting principles, consistently applied, BYTS
will enter into non-redemption agreements with certain investors (each a “Non-Redemption Agreement”) pursuant to which, among
other things, such investors will commit to hold or acquire, as applicable, and not to redeem an aggregate of $7 million of BYTS Class
A Ordinary Shares in connection with the Merger, on the terms and subject to the conditions set forth in these agreements.
BYTS and the Company may also
mutually agree that BYTS enter into and consummate subscription agreements with investors to purchase securities of BYTS in connection
with a private placement on terms mutually agreeable to BYTS and the Company, acting reasonably (any such purchase by investors, a “PIPE
Financing”).
Conditions to Closing
The Closing is subject to
certain customary conditions, including, among other things: (i) approval of the Business Combination and related agreements and transactions
by the respective shareholders of BYTS and the Company; (ii) the effectiveness of the Registration Statement; (iii) the Parent Common
Shares being conditionally approved for listing on the Nasdaq Stock Market (“Nasdaq”) or another national stock exchange;
(iv) BYTS having, after giving effect to any redemption of Class A ordinary share of BYTS in connection with the transactions contemplated
by the Merger Agreement, at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) or otherwise being exempt from the provisions of Rule 419 promulgated
under the Securities Act of 1933, as amended (the “Securities Act”); (v) the amount of cash remaining in the trust account
established for the benefit of BYTS’ public shareholders and others, following redemptions in connection with the transactions,
plus the amount of certain permitted financings of BYTS equaling or exceeding $7 million; and (vi) the unpaid legal fees of BYTS’
outside counsel as of immediately prior to the Closing not exceeding $2 million.
Termination
The Merger Agreement may be
terminated by BYTS and the Company under certain circumstances, including, among others, (i) by mutual written agreement of BYTS and the
Company, (ii) by either BYTS or the Company if the Closing has not occurred on or before September 25, 2023 (the “Outside Date”)
and the material breach or violation of any representation, warranty or covenant under the Merger Agreement by the party seeking to terminate
the Merger Agreement is not the cause of, or has not resulted in, the failure of the Closing to occur by the Outside Date, provided that,
if the Closing has not occurred on or prior to September 1, 2023, BYTS will prepare and file with the U.S. Securities and Exchange Commission
(the “SEC”) a mutually acceptable proxy statement to extend the time period to consummate an initial business combination
for an additional three months, from September 25, 2023 to December 26, 2023 (or such other date as the parties may agree in writing)
(the “Extension Proposal”) and the Outside Date will be extended to such date, (iii) by either BYTS or the Company if the
Business Combination is prohibited or made illegal by a final, nonappealable governmental order or law and the failure to comply with
any provision of the Merger Agreement by the party seeking to terminate the Merger Agreement is not a substantial cause of, or has not
substantially resulted in, such order or law, (iv) by the Company, if BYTS, or by BYTS, if the Company, at any time prior to the Closing,
has breached any of its covenants, agreements, representations and warranties except that, if such breach is curable by BYTS or the Company,
as applicable, through the exercise of such party’s reasonable best efforts, then, for a period of up to 30 days after receipt of
a notice from the Company or BYTS, as applicable, of such breach, such termination shall not be effective, and such termination shall
become effective only if it is not cured within a certain period of time and (v) by the Company in the event that BYTS has not entered
into the Non-Redemption Agreements prior to the Non-Redemption Agreement End Date.
Governance
The
executive management of Airship AI is expected to serve as the executive management of Airship Pubco following Closing. Pursuant to the
Merger Agreement, Airship Pubco’s board of directors will consist of five members, with the Sponsor having the right to designate
one independent director.
The foregoing description
of the Merger Agreement and the Business Combination does not purport to be complete and is qualified in its entirety by the terms and
conditions of the Merger Agreement, a copy of which is filed hereto as Exhibit 2.1 and is incorporated herein by reference. The Merger
Agreement contains representations, warranties and covenants that the parties to the Merger Agreement 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 parties and are subject to important qualifications and limitations agreed to by the parties in
connection with negotiating the Merger Agreement. The Merger Agreement has been attached to provide investors with information regarding
its terms and is not intended to provide any other factual information about BYTS, the Company or any other party to the Merger Agreement.
In particular, the representations, warranties, covenants and agreements contained in the Merger Agreement, which were made only for purposes
of the Merger Agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to
limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating
contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts) and may be subject to standards
of materiality applicable to the contracting parties that differ from those applicable to investors and reports and documents filed with
the SEC. Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations
of the actual state of facts or condition of any party to the Merger Agreement. In addition, the representations, warranties, covenants
and agreements and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning
the subject matter of the representations and warranties and other terms may change after the date of the Merger Agreement, which subsequent
information may or may not be fully reflected in BYTS’ public disclosures.
Timeframes for Filing and Closing
BYTS expects to file the Registration
Statement as promptly as practicable after the date of the Merger Agreement. The Closing is expected to occur following the fulfillment
or waiver of the closing conditions set forth in the Merger Agreement.
Certain Related Agreements
Parent Support Agreement
In connection with the execution
of the Merger Agreement, BYTS entered into a support agreement (the “Parent Support Agreement”) with the Sponsor and the Company,
pursuant to which the Sponsor agreed to, among other things, (i) vote all of its shares in favor of the various proposals related to the
Business Combination and the Merger Agreement and any other matters necessary or reasonably requested by BYTS for consummation of the
Business Combination, (ii) vote against any alternative proposal or alternative transaction or any proposal relating to an alternative
proposal or alternative transaction, (iii) vote against any merger agreement or merger, consolidation, combination, sale of substantial
assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by BYTS (other than the Merger Agreement and transactions
relating to the Merger), (iv) vote against any change in the business, management or board of directors of BYTS (other than in connection
with the Merger), (v) vote against any proposal that would impede the Merger or that would result in a breach with respect to any obligation
or agreement of BYTS, Merger Sub or the Sponsor under the Merger Agreement or the Parent Support Agreement, and (vi) vote in favor of
any proposal to extend the period of time BYTS is afforded under its organizational documents to consummate an initial business combination,
in each case, subject to the terms and conditions of the Parent Support Agreement. The Sponsor has also agreed (a) to forfeit 1,000,000
BYTS Class A ordinary shares owned by the Sponsor on the Closing Date and (b) to contribute 2,600,000 BYTS Class A ordinary shares owned
by the Sponsor to secure the non-redemption agreements and/or the PIPE Financing. The Parent Support Agreement also provides that the
Sponsor Shares will be subject to a lock-up for a period of 180 days following the Closing.
In addition, the Sponsor agreed
to be bound by exclusivity and publicity sections of the Merger Agreement.
The foregoing description
of the Parent Support Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Parent
Support Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
Company Support Agreement
In connection with the execution
of the Merger Agreement, BYTS entered into a support agreement (the “Company Support Agreement”) with the Company and certain
shareholders of the Company (the “Company Supporting Shareholders”) pursuant to which the Company Supporting Shareholders
agreed to, among other things, (i) vote to adopt and approve, or to execute a written consent with respect to the approval, within five
business days following the date of the effectiveness of the Registration Statement, the Merger Agreement and all other documents and
transactions contemplated thereby, (ii) vote against any alternative proposal or alternative transaction or any proposal relating to an
alternative proposal or alternative transaction, (iii) vote against any merger agreement or merger, consolidation, or combination sale
of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company (other than the Merger
Agreement and the transactions relating to the Merger), (iv) vote against any change in the business (to the extent in violation of the
Merger Agreement), management or board of directors of the Company (other than in connection with the Merger), and (v) vote against any
proposal that would impede the Merger or that would result in a breach with respect to any obligation or agreement of the Company or the
Company Supporting Shareholders under the Merger Agreement or the Company Support Agreement, in each case, subject to the terms and conditions
of the Company Support Agreement.
In addition, the Company Supporting
Shareholders agreed to be bound by exclusivity and publicity sections of the Merger Agreement.
The foregoing description
of the Company Support Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Company
Support Agreement, a copy of which is filed as Exhibit 10.2 hereto and incorporated by reference herein.
Registration Rights Agreement
The Merger Agreement contemplates
that, at the Closing, Airship Pubco, the Sponsor and certain former shareholders of the Company (collectively, the “Holders”)
will enter into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Airship Pubco will
agree to register for resale, pursuant to Rule 415 under the Securities Act, certain Parent Common Shares and Domesticated Parent Warrants
that are held by the Holders from time to time.
The Registration Rights Agreement
amends and restates the registration rights agreement that was entered into by BYTS, the Sponsor and the other parties thereto in connection
with BYTS’ initial public offering. The Registration Rights Agreement will terminate on the earlier of (a) the five year anniversary
of the date of the Registration Rights Agreement or (b) with respect to any Holder, on the date that such Holder no longer holds any Registrable
Securities (as defined therein).
The foregoing description
of the form of Registration Rights Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions
of the form of Registration Rights Agreement, a copy of which is filed as Exhibit 10.4 hereto and incorporated by reference herein.