Item 1.01 Entry Into A Material Definitive Agreement.
Merger Agreement
On October 3, 2022, AeroClean Technologies, Inc.,
a Delaware corporation (the “Company” or “AeroClean”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”) by and among the Company, Air King Merger Sub Inc., a Delaware corporation and direct wholly-owned
subsidiary of the Company (“Merger Sub”), and Molekule, Inc., a Delaware corporation (“Molekule”),
providing for, among other things, and subject to the terms and conditions therein, an all-stock merger transaction pursuant to which
Merger Sub will merge with and into Molekule, with Molekule continuing as the surviving entity and a wholly-owned subsidiary of the Company
(the “Merger”).
Pursuant to the Merger Agreement, at the effective
time of the Merger (the “Effective Time”), the outstanding shares of Molekule
common stock, par value $0.0001, that are issued and outstanding immediately prior to the effective time of the Merger (the “Molekule
Common Stock”) (including shares of Molekule Common Stock resulting from the conversion of Molekule’s preferred stock),
will be converted automatically into, and the holders of such shares of Molekule Common Stock will be entitled to receive (the “Merger
Consideration”), by virtue of the Merger and upon the terms and subject to the conditions set forth in the Merger Agreement,
fully paid and nonassessable shares of AeroClean common stock, par value $0.01 per share (the “AeroClean
Common Stock”), that shall result in the Molekule stockholders in the aggregate holding 49.5% of the Outstanding Shares (as
defined in the Merger Agreement).
At the Effective
Time, each in-the-money Molekule warrant will, by virtue of the Merger and without further action on the part of the holder thereof,
convert into the right to receive, for each share of Molekule Common Stock subject to such in-the-money Molekule warrant (including shares
of Molekule Common Stock issuable upon conversion of any Molekule preferred stock issuable upon exercise of any Molekule warrant), a
portion of the Merger Consideration equal to the Merger Consideration that would have been payable in respect of such share had such
in-the-money Molekule warrant been exercised immediately prior to the Effective Time less the exercise price with respect to such warrant.
Each Molekule warrant issued and outstanding as of the Effective Time that is not an in-the-money Molekule warrant will automatically
be cancelled and terminated for no consideration immediately prior to the Effective Time.
At the Effective Time, each outstanding
option to acquire Molekule Common Stock will be cancelled and terminated for no consideration. Any shares of Molekule Common Stock
that remain available for issuance pursuant to Molekule’s 2015 stock plan (the “Residual Shares”) will be
converted at the Effective Time into the number of shares of AeroClean Common Stock equal to the product of the number of such
Residual Shares and the exchange ratio determined in accordance with the Merger Agreement (the “Assumed Shares”).
At the Effective Time, AeroClean will assume the Molekule 2015 stock plan with the result that AeroClean may issue the Assumed
Shares after the Effective Time pursuant to the settlement of any equity awards granted under the 2015 stock plan, AeroClean’s
2021 Incentive Award Plan or any other AeroClean equity plan. As soon as reasonably practicable following the Effective Time,
AeroClean will grant awards of restricted stock units to specified Molekule employees who continue in service.
Representations and Warranties
Each of Molekule, the Company and Merger Sub have
made representations and warranties in the Merger Agreement that are customary for transactions of this nature. The representations and
warranties of the Company, Merger Sub and Molekule will not survive the closing of the Merger (the “Closing”).
Covenants
The Merger Agreement includes customary
covenants of the parties with respect to the operation of their respective businesses prior to the consummation of the transactions
contemplated under the Merger Agreement (the “Transactions”) and the use
of reasonable best efforts to take such actions as are necessary, proper or advisable to satisfy the conditions to the consummation
of the Transactions. The Merger Agreement also contains additional covenants of the parties, including, among others,
(a) covenants providing for the Company and Molekule to use reasonable best efforts to obtain all necessary regulatory
approvals, (b) covenants providing for the Company and Molekule to cooperate in the preparation of a registration statement on
Form S-4 (the “Registration Statement”), which includes an
AeroClean information statement and prospectus which are required to be filed in connection with the Transactions,
(c) covenants prohibiting Molekule from engaging in any transactions involving the securities of the Company without the prior
written consent of the Company, except as contemplated in the Merger Agreement, (d) covenants providing that the Company will
keep current and timely file all reports required to be filed or furnished with the Securities and Exchange Commission (the
“SEC”) and otherwise comply in all material respects with its reporting
obligations under applicable securities laws, (e) covenants providing for Molekule to use its reasonable best efforts to consummate
an equity financing of at least $5,000,000 and up to $7,000,000 prior to the date on which the SEC declares AeroClean’s
Registration Statement effective (Foundry Group Next, L.P. has committed to purchase at least $5,000,000 of securities in connection
with the equity financing) and (f) covenants that require the Company to maintain in effect directors’ and officers’
liability insurance for a period of six (6) years from the date on which the Merger becomes effective covering individuals who are
currently covered by Molekule’s directors’ and officers’ liability insurance policies.
Corporate Governance
The Merger Agreement provides that prior to the
Closing, the size of AeroClean’s board of directors will be increased by one director to a total of seven (7) directors, with
such vacancy to be filled by a director designated by Molekule. The designated director must be reasonably satisfactory to AeroClean.
AeroClean and Molekule have agreed that Brad Feld will be the director designated by Molekule.
Conditions to Consummation of the Merger
The obligations of both parties to consummate
the Merger are subject to the satisfaction of the following conditions:
(i) no governmental authority
shall have enacted, issued, promulgated, enforced or entered any governmental order which is in effect and has the effect of making the
Transactions illegal, and no law shall have been enacted, issued, promulgated, enforced or entered by any governmental
authority that, in any case, prohibits or makes illegal the Merger and related transactions;
(ii) the AeroClean stockholder
approval must remain valid and binding;
(iii) the Molekule stockholder
approval of the Transactions shall have been obtained (including approval by the holders of (a) a majority of the shares of Series 1
Preferred Stock and (b) a majority of the shares of Molekule Common Stock and Series 1 Preferred Stock on a converted
basis voting together as a single class);
(iv) the Registration Statement
shall have become effective and be in effect;
(v) the Information Statement
(as defined in the Merger Agreement) shall have been disseminated to AeroClean stockholders at least twenty (20) calendar days prior to
the Closing; and
(vi) the AeroClean Common Stock
to be issued in connection with the Transactions shall have been approved for listing on the Nasdaq Capital Market, subject only to official
notice of issuance thereof.
The obligation of AeroClean to consummate the
Merger is subject to the satisfaction of the following conditions, among others:
(i) the accuracy of
Molekule’s representations and warranties at the Closing;
(ii) the performance or
compliance in all material respects by Molekule of its covenants to be performed or complied with as of or prior to the Closing;
(iii) delivery by Molekule of
a customary officer’s certificate and a customary certificate regarding “U.S. real property interests”;
(iv) employment agreements with
certain key employees must be in full force and effect and such key employees shall not have terminated their employment with Molekule
or delivered any notice to Molekule of any intention to leave the employ of Molekule or AeroClean;
(v) the consents from Silicon Valley Bank and Trinity Capital Inc. must remain in full force and effect and must not have been amended, rescinded
or otherwise terminated;
(vi) the Backstop Purchase Agreement
executed by Foundry Group Next, L.P. shall remain in full force and effect, and shall not have been amended, rescinded or otherwise terminated;
and
(vii) Molekule
shall have commenced and consummated an equity financing and, in connection therewith, shall have received an amount in cash of not less
than $5,000,000.
The obligation of Molekule to consummate the Merger
is subject to the satisfaction of the following conditions:
(i) the accuracy of
AeroClean’s representations and warranties at the Closing;
(ii) the performance or
compliance in all material respects by AeroClean of its covenants to be performed or complied with as of or prior to the Closing;
and
(iii) the delivery
by AeroClean of a customary officer’s certificate.
Termination
The Merger Agreement may be terminated at any
time prior to the date of the Closing:
(a) by mutual written consent of
the Company and Molekule;
(b) by either the Company or Molekule
if the Closing has not occurred on or before the eight month anniversary of the date of the Merger Agreement (the “Outside Date”);
(c) by either the Company or Molekule
if a governmental authority shall have enacted, issued, promulgated, enforced or entered any law or governmental order which has become
final and non-appealable, and which permanently restrains, enjoins or otherwise prohibits the Transactions;
(d) by either the Company or Molekule,
if the required stockholder approval of the Company is not in full force and effect as of the Outside Date;
(e) by the Company, at any time
on or after the date that is two business days following the date that the Company receives, and notifies Molekule of the Company’s
receipt of, SEC approval and effectiveness of the Registration Statement, if Molekule does not deliver to the Company on or prior to such
date the Written Consent (as defined in the Merger Agreement);
(f) by the Company, upon certain
material and uncured breaches of the terms of the Merger Agreement by Molekule; or
(g) by Molekule, upon certain material
and uncured breaches of the terms of the Merger Agreement by the Company.
If the Merger Agreement is validly terminated,
all further obligations and liabilities of the Company, Merger Sub and Molekule under the Merger Agreement will terminate and become void
and of no further force and effect, with certain limited exceptions, including liability for any intentional and willful breach of the
Merger Agreement.
The Merger Agreement contains representations,
warranties and covenants that the respective parties made to each other as of the date of such 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. The
representations, warranties and covenants in the Merger Agreement are also modified in part by the underlying disclosure schedules, which
are not filed publicly, are subject to a contractual standard of materiality different from that generally applicable to stockholders
and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. The Company does not believe
that the disclosure schedules contain information that is material to an investment decision. Investors are not third-party beneficiaries
under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations
of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates.
This description of the Merger Agreement 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 attached
hereto as Exhibit 2.1 and is incorporated herein by reference.
Additional Agreements
Stockholder Support Agreement
In connection with the execution of the Merger
Agreement, Molekule stockholders that hold (a) a majority of the Molekule Series 1 Preferred Stock and (b) a majority of
the Molekule Common Stock and the Molekule Series 1 Preferred Stock on an as-converted basis, voting together as a single class,
executed Stockholder Support Agreements, dated October 3, 2022, pursuant to which such Molekule stockholders agreed to irrevocably
and unconditionally vote or execute a written consent to adopt the Merger Agreement and approve the Merger on or as promptly as reasonably
practicable (and in any event within two (2) business days) following the time which the Registration Statement is declared effective.
This description of the Stockholder Support Agreement
does not purport to be complete and is qualified in its entirety by the terms and conditions of the Stockholder Support Agreement, the
form of which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
Stockholders Agreement
The Merger Agreement provides that, upon the consummation
of the Merger, the Company, certain stockholders of the Company and certain stockholders of Molekule will enter into a Stockholders Agreement.
The Stockholders Agreement will provide that such stockholders will take all reasonable actions to nominate Brad Feld and the existing
members of AeroClean’s board of directors to be members of the board of directors of the Company following the consummation of the
Merger and until immediately after the Company’s 2024 annual meeting of stockholders.
This description of the Stockholders Agreement
does not purport to be complete and is qualified in its entirety by the terms and conditions of the Stockholders Agreement, the form of
which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
Amended and Restated Registration Rights
Agreement
The Merger Agreement provides that, upon the
consummation of the Merger, the Company and certain stockholders of the Company and Molekule will enter into an Amended and Restated
Registration Rights Agreement (the “Amended and Restated Registration Rights Agreement”). Under the Amended and Restated
Registration Rights Agreement, following the consummation of the Merger, certain stockholder signatories thereto will have certain “demand”
and “piggyback” registration rights. The Amended and Restated Registration Rights Agreement also provides that the Company
will pay certain expenses relating to such registrations and indemnify the stockholder signatories thereto against (or make contributions
in respect of) certain liabilities that may arise under the Securities Act of 1933, as amended (the “Securities Act”).
This description of the Amended and Restated
Registration Rights Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the
Amended and Restated Registration Rights Agreement, the form of which is attached hereto as Exhibit 10.3 and is incorporated
herein by reference.
Backstop Purchase Agreement
In connection with the consummation of the Merger,
Molekule agreed to commence and consummate an equity financing for cash of a minimum of $5,000,000 and up to $7,000,000 of securities
of Molekule by no later than the effectiveness of the Registration Statement. In connection with the equity financing, Foundry Group
Next, L.P. has delivered an executed Backstop Purchase Agreement to both Molekule and AeroClean irrevocably committing to both Molekule
and AeroClean to purchase for cash up to $5,000,000 of new equity to be issued by Molekule in connection with the equity financing, but
no later than the date on which the SEC declares the Registration Statement effective. The securities to be offered in the equity financing
will not be registered under the Securities Act, and will be offered only to persons reasonably believed to be accredited investors (as
defined in Rule 501 under the Securities Act). Nothing contained herein shall constitute an offer to sell or the solicitation of an offer
to buy any Molekule or Company securities.
This description of the Backstop Purchase Agreement
does not purport to be complete and is qualified in its entirety by the terms and conditions of the Backstop Purchase Agreement, a copy
of which is attached hereto as Exhibit 10.4 and is incorporated herein by reference.
Amended and Restated Certificate of Incorporation
In connection with the consummation of the Merger,
the Company’s certificate of incorporation will be amended and restated. The revised certificate of incorporation will change the
name of the company to “Molekule, Inc.” It will also include a provision exculpating the officers of the company from
liability for breaches of fiduciary duty to the extent permitted by Delaware law. The revised certificate of incorporation will become
effective upon the Closing.
This description of the Amended and Restated Certificate
of Incorporation does not purport to be complete and is qualified in its entirety by the terms of the Amended and Restated Certificate
of Incorporation, the form of which is attached hereto as Exhibit 3.1 and is incorporated herein by reference.
Amended and Restated Bylaws
In connection with the consummation of the Merger,
the Company’s bylaws will be amended and restated. The revised bylaws will include a six-month lockup provision which prohibits the
Molekule stockholders from transferring their Merger Consideration during the six month period following the Closing. The revised bylaws
will become effective upon the Closing.
This description of the Amended and Restated Bylaws
does not purport to be complete and is qualified in its entirety by the terms of the Amended and Restated Bylaws, the form of which is
attached hereto as Exhibit 3.2 and is incorporated herein by reference.