Aura Smart Air Ltd

M&A Activity • Mar 6, 2023

( t h e " C o m p a n y " )

Cessation of Publishing Reports in English

Further to the immediate report of the Company dated December 5th, 2021 (reference no. 2021-01-176457), the Company herby announces that it intends to stop its voluntarily reporting in English, on April 6, 2023. Form such date and forward the Company will not publish a translation into English of any of its reports.

This is an English translation of a Hebrew report of the company, that was published on February 27, 2023 (reference No. 2023-01- 021096) at the ISA reporting website (magna.isa.gov.il) (hereafter: "The Hebrew Version"). The English version is only for convenience purposes. This is not an official translation and has no binding force. The translation in any case cannot perfectly reflect the Hebrew Version. In the event of any discrepancy between the Hebrew Version and this translation, the Hebrew Version shall prevail.

Attn:	Attn:
The Securities Authority	The Tel Aviv Stock Exchange Ltd.
www.isa.gov.il	www.tase.co.il

RE: Engagement in a Merger Agreement with a Foreign Corporation Traded on the NASDAQ

March 6, 2023

The Company is hereby honored to inform that on February 26, 2023, after the approval of the Company's board of directors was obtained, the Company entered into a merger agreement with Molekule Group Inc., a company traded on the NASDAQ (NASDAQ: MKUL) ("Molekule" or the "Purchasing Company"),¹ for the purchase of all the Company's issued capital (the "Parties" and the "Agreement" or the "Merger Agreement", as the case may be). Within the framework of the Agreement and subject to the terms set forth therein and the provisions set forth in the Company's law, 5759-1999 (the "Companies Law"), a reverse triangular merger will be carried out so that Avatar Merger Sub Ltd., an Israeli subsidiary under the full ownership of Molekule (which was established for the purposes of this merger) (the "Target Company"), will be merged and integrated with the Company, the Company will become a subsidiary under the full ownership of Molekule and the Target Company will cease to exist (the "Merger" or the "Transaction"). Immediately upon the completion of the Transaction, all the Company's shareholders (as on the completion date) will hold Molekule shares in accordance with the Conversion Rate (as defined below), the Company will continue to operate under the full ownership of Molekule, the Company's shares will be delisted at the Tel Aviv Stock Exchange Ltd. (the "Stock Exchange") and the Company will become a private company as defined in the Companies Law.

It will be noted that the Company's board of directors decided to delay the immediate report concerning the Transaction in accordance with Regulation 36(b) of the Securities Regulations (Periodic and Immediate Reports), 5730-1970, since the filing of such report could have prevented the completion of the Transaction and could have had a negative effect on the terms of the Agreement.

The following are the key terms of the Agreement:

1. The Consideration for the Merger, The Effect of the Merger on the Company's Share Capital and a Share Swap

At the Time of the Merger (as defined below), all the Company's shareholders (as on the completion date) will be entitled to Molekule shares as detailed below (the "Consideration" or the "Consideration for the Merger"):

1.1. Any single Company share with no par value, which is issued and paid on the completion date (all such shares will be referred to hereinafter as the "Issued Company Capital as on the Completion Date"), will be automatically converted to a right to receive ordinary Molekule shares, each with a par value of 0.01 USD, at the ratio obtained by dividing 3,519,105 by the Issued Company Capital as on the Completion Date ("the Conversion Rate").² Subject to the provisions set forth in Section 1.5 below, it is clarified that the maximal amount of Consideration

¹ To the best of the Company's knowledge, Molekule conducts its business in the field of air quality, including the development, production and marketing of air purification systems.

² To the best of the Company's estimates, the Company's (fully diluted) paid share capital as on the completion date, is expected to be comprised of: (a) 24,500,753 ordinary Company shares (after the deduction of 137,633 blocked shares which will not mature by the completion date, owned by Mr. Yuval Bronstein); (b) 750,240 ordinary shares emanating from the realization of 8,336 untradeable employee options, which, at the Company's estimate, will be realized by the completion date (the balance of securities convertible to Company shares, which will not be realized by the completion date, will be delisted on the completion date, as specified in Section 2.1 below); (c) As stated in Section 2.2 below, an amount of ordinary shares the Company has undertaken to assign to Bank Mizrahi Tefahot Ltd. ("Bank Mizrahi" on the eve of the completion of the Transaction, to replace the warrants currently held by Bank Mizrahi), at a financial scope of approx. 500 thousand

paid by the Purchasing Company for the Transaction will be 3,519,105 ordinary shares of the Purchasing Company, which, as on the date of this report, constitute approx. 10.37% of Molekule's issued share capital (after and including the allocation of Molekule ordinary shares to Company shareholders, the "Maximal Amount of Allocated Shares").

When the S-4 form ("S-4 Form") filed by Molekule enters into effect in accordance with the laws governing its operations, the Molekule shares assigned to the Company's shareholders will be listed for trade on the NASDAQ. Out of all the Molekule shares which will be assigned to Company shareholders, the Molekule shares which will be held by the Hon. Messrs. Yuval Bronstein, Aviad Shnaiderman, Eldar Shnaiderman, Nevo Ben Shitrit, Yonatan Kolber (through a company under his full ownership – Anfield Ltd.), Highroad Ltd. and Bank Mizrahi will be subject to a voluntary block as detailed in Section 4 below. The other shares will not be subject to any block or similar restrictions.

• 1.2. The Consideration was determined in negotiations held between the Parties, and was examined by the Company's board of directors and was approved by it.
• 1.3. Tax will be withheld from the Consideration as required by law, other than if determined otherwise by the Tax Authority.³
• 1.4. As at the time of signing the Merger Agreement, the Consideration reflected: a price per Company share of approx. 0.35 USD (approx. 1.28 ILS), calculated based on the closing price of the Purchasing Company's shares which was known on the last trading day prior to the day of signing the Merger Agreement (i.e., February 24, 2023) and in accordance with the Conversion Rate (calculated based on the number of shares comprising the Company's issued capital as on the date of this Report). This Consideration represented a premium of approx. 183% on the average closing price of the Company's shares at the Stock Exchange in the 30 days immediately before the time of signing the Merger Agreement; and a premium of approx. 156% on the closing price of the Company's share at the Stock Exchange on February 26, 2023 (Calculated based on the representative USD exchange rate as at the time of signing the Merger Agreement and in accordance with the Conversion Rate, calculated based on the number of shares comprising the Company's issued capital as on the date of this report).⁴

Accordingly, the Consideration, as at the time of signing the Merger Agreement, reflected a value of approx. 8.6 million USD for the Company (based on the multiplication of the Maximal Number of Allocated Shares by the closing price of the Purchasing Company's shares known on the last trading day before the tie of signing the Merger Agreement).

• 1.5. If there are any changes in Molekule's share capital between the time of signing this Agreement and the actual time of the Merger, resulting from the distribution of a share dividend, a subdivision, reclassification, split, union, share swap or any similar incident, the Consideration provided for the Merger will be adjusted so it provides the Company's shareholders with the same economic influence awarded to them in accordance with the Agreement before said change. If such an adjustment is made, the Company will issue an immediate report regarding the adjustment and its impact.
• 1.6. The completion of the Merger will be carried out on the second business day after the fulfilment (or waiver) of all the conditions required in accordance with the Agreement or at any later time determined by the Parties (the "Completion Date"). The Merger will enter into effect on the day the Merger certificate is issued by the Registrar of Companies in accordance with the provisions set forth in Section 323(5) of the Companies Law (the "Merger Date").

2. Company Option and Warrant Holders

2.1. In accordance with the provisions set forth in the Merger Agreement, the options and blocked share units granted to employees, consultants and service providers which have not been realized to shares as at the time of the Merger (including because they did not mature), will expire and be cancelled, with no consideration given. Without derogating from the above, after the Merger Date, Molekule will be allowed, from time to time and at its sole discretion, to allocate blocked share units to parties related to the Company.

USD, to be calculated as follows: 500,000 USD divided by the average closing rate of the Molekule share in the 14 trading days preceding the Merger Agreement signing date (i.e., 2.84 USD per share) divided by the Conversion Rate as determined shortly before the completion date (the Conversion Rate will be determined as the ratio between the maximal amount of allocated shares and the Company capital issued on the date of completion). Furthermore, any share fractions formed following the conversion of Company shares to Molekule shares will be rounded down to the closest number of shares. It is clarified that said Company estimate amounts to forward-looking information, as defined in the Securities Law, 5728-1968, and such estimate may not be realized following actions taken by third parties (which are not known at this time), including due to the realization or expiration of convertible Company securities.

³ It will be noted that the Company intends to contact the Tax Authority to obtain a tax ruling pursuant to Section 103.U. of the Income Tax Ordinance (New Version), 5721-1961 (the "Ordinance") subject to certain conditions specified in the Agreement. If the Company fails to obtain the Tax Authority's confirmation in relation to a tax ruling made pursuant to Section 103.U. of the Ordinance (to the full satisfaction of Molekule) within two months of the time of signing this Agreement, the Company will submit an application for a tax ruling pursuant to Section 104.H. of the Ordinance (each will be referred to hereinafter as a "Tax Ruling").

⁴ As stated in footnote 2 of this report, the Company estimates that additional capital actions could be executed in the Company's issued capital before the completion date, and therefore the final Conversion Rate will be determined only shortly before the time of completion of the Transaction. The data provided in this Section above are based on the Company's issued capital as at the time of this report.

2.2. In accordance with the amendment to the financing agreement made between the Company and Bank Mizrahi on February 23, 2023,⁵ and signed as part of the Merger Agreement (the "Amendment to the Financing Agreement"), Bank Mizrahi's rights to purchase 671,072 ordinary Company shares will be cancelled subject to and after the fulfilment of all the condition precedents stipulated in the Merger Agreement and before the Completion Date ("Bank Mizrahi's Warrant" and the "Cancellation Date"). For further information in relation to Bank Mizrahi's Warrant, see the Company's supplementary immediate report of July 28, 2022 (reference no.: 2022-01-078771). Instead of Bank Mizrahi's Warrant and as part of the Amendment to the Financing Agreement, the Company will allocate to Bank Mizrahi, on the Cancellation Date (and subject to the fulfilment of all the condition precedents stipulated in the Merger Agreement, the approval of the Company's board of directors and the approval of the Stock Exchange), ordinary Company shares at an amount equal to 500 thousand USD, in accordance with the mechanism detailed in subsection (c) of footnote 2 above. These shares will be replaced by Molekule shares as part of the Consideration for the Merger, all as part of the Maximal Amount of Shares Allocated. Furthermore, the Amendment to the Financing Agreement also includes the provisions detailed in Section 3 below.

3. The Consent of the Entities Financing the Parties to the Transaction

The Entities Financing Molekule and Bank Mizrahi Provided their written consent to the Merger Agreement and the Transaction at the time of signing the Merger Agreement ("The Consent of the Financing Entities and Bank Mizrahi"). Bank Mizrahi offered its consent within the framework of the Amendment to the Financing Agreement, when, as part of this Amendment, it was determined as follows, without limitation:

• 3.1. Within three business days from the time of signing the Amendment to the Financing Agreement: (a) The short-term credit line provided by Bank Mizrahi to the Company will be reduced to a total amount of 1 million USD, and any used credit above said amount will be immediately repaid; (b) a total amount of 1.3 million USD out of the long-term loan will be immediately repaid using the deposit funds intended to guarantee the loan provided by Bank Mizrahi.
• 3.2. By July 31, 2023, the Company will furnish the bank with a guarantee made by Molekule in favor of Bank Mizrahi at a limited amount of approx. 3.4 million USD, which will be subordinate to the undertaking made by Molekule towards the entities financing its operations (if the financing entity has demanded the repayment of the debt before the time of payment of the guarantee) (the "Letter of Guarantee"). If no breach incident occurred (as defined in the Original Financing Agreement and excluding any cause related to a going concern notice), then, at the time of delivery of the Letter of Guarantee to Bank Mizrahi, the balance of the long-term loan, as it is at the time, will be provided as a new long-term loan bearing interest based on monthly Term SOFR interest with an added margin of 7%-8%,⁶ when the principal of the longterm loan will be paid in 24 monthly instalments starting after 36 months from the time of provision of the new loan (when only interest payments will be made during these 36 months). It is clarified that as at the time of this report, Molekule has not signed the Letter of Guarantee yet. It is further clarified that up to the time of signing the Letter of Guarantee, the balance of the long-term loan will be paid in accordance with the terms of the Original Financing Agreement.
• 3.3. The validity of the Bank's consent to the execution of the Merger is condition on the completion of the Transaction by July 31, 2023.
• 3.4. The Company must sign a share allocation agreement to arrange the allocation of Company shares to Bank Mizrahi in accordance with and subject to the provisions set forth in Section 2.2 above, and all by the Transaction Completion Date.

4. Voluntary Block and Support Agreements

• 4.1. The Hon. Messrs. Yuval Bronstein, Aviad Shnaiderman, Eldar Shnaiderman, Nevo Ben Shitrit, Yonatan Kolber (through a company under his full ownership Anfield Ltd.), Highroad Ltd. and Bank Mizrahi have irrevocably undertaken towards Molekule not to perform any transaction or action in Molekule shares/securities (other than certain actions such as the sale of shares purchased on the NASDAQ (i.e., which were not allocated as part of the Merger or given to Company officers and employees as equity based compensation), the realizations of securities which can be converted to shares, or transfers to their relatives or to related parties (all subject to said relatives or related parties providing a back-to-back irrevocable undertaking similar to the undertaking presented above)), for a period of 12 months, starting from the Completion Date (as defined above).
• 4.2. Furthermore, the following shareholders: Aviad Shnaiderman, Eldar Shnaiderman, Yonatan Kolber (through a company under his full ownership Anfield Ltd.) and Highroad Ltd., have undertaken towards the Company and Molekule, solely within the framework of their position as Company shareholders, to support the Merger Transaction including all the actions required for the completion of the Merger Transaction, all by making their votes in the general meeting of Company shareholders, including the general meeting which will be convened for the approval of the merger, all subject to and in accordance with the terms of

⁵ For details concerning the original financing agreement made with Bank Mizrahi on July 17, 2022, see the Company's immediate report of July 17, 2022 (reference no.: 2022-01-090220) (the "Original Financing Agreement").

⁶ It will be noted that Bank Mizrahi will have the power to raise the interest rate if there are any changes in Bank Mizrahi's credit recruitment costs between the time of signing the Amendment to the Financing Agreement and the time said loan is reissued.

the undertaking specified in the support documents. The undertakings made by the shareholders, as specified in this Section above, are not subject to the recommendations of the Company's board of directors, as provided from time to time.

5. Representations

• 5.1. The Merger Agreement includes extensive representations made by the Company, including with respect to its compliance with the applicable laws and with its articles of association, its power to enter into the Merger Agreement and carry out its obligations in accordance with said Agreement, its composition of capital and financial data, and information concerning legal proceedings, compliance with reporting duties, duties and obligations, the status of the Company's intellectual property, Company employees and material agreements. It will be noted that the representations made by the Company will be valid up to the Completion Date.
• 5.2. The Merger Agreement also includes representations made by Molekule and the Target Company, including with respect to their power to enter into the Merger Agreement and carry out their obligations in accordance with the Agreement, and information concerning their composition of capital, legal proceedings, compliance with reporting duties and with NASDAQ requirements. It will be noted that the representations made by Molekule and by the Target Company will be valid up to the Completion Date.

6. Interim Period

• 6.1. Within the framework of the Agreement, certain obligations and limitations have been imposed on each Party for the duration of the period commencing at the time of signing the Agreement and ending on the Completion Date or any other time when the Agreement is cancelled in accordance with the terms set forth therein (the "Interim Period"). These are related, without limitation, to the ongoing regular operations of the Parties to the Merger Agreement during the regular course of business and the execution of the actions required for the completion of the Merger, including limitations imposed on transfers and payments from Molekule to the Company in accordance with the language of the Consent of the Financing Parties⁷ , the completion and execution of the documents provided by the Financing Parties (as defined in Section 7.2 below), the submission of tax ruling applications to the Israel Tax Authority, the completion of the actions required opposite the Innovation Authority and the purchase of TAIL insurance for Company directors and officers.
• 6.2. Within the framework of the agreement, the Parties have also entered into a collaboration agreement (the "Technology Agreement"), which determines the actions the Company must take to integrate its technology within Molekule (the "Technology Integration"). In consideration of the Technology Integration and in accordance with the milestones determined in the Technology Agreement, Molekule will pay Aura an amount of approx. 68 thousand USD a month for a period of 12 months, starting from February 26, 2023 (a total of approx. 816 thousand USD). By virtue of the Technology Agreement, Molekule will be allowed to issue the Company with further work orders in relation to the above. The consideration for these further work orders will be determined by the Parties. In accordance with the terms of the Agreement, the Company is required to deposit its source code in the trusted hands of a third party, when said trustee will transfer the source code to Molekule in certain cases, such as the existence of certain grounds for insolvency in the Company.
• 6.3. Furthermore, within the framework of the Technology Agreement, the Company granted Molekule a license to use the Company's technology (other than technology which was developed in relation to grants provided by the Innovation Authority) in any product or service provided by Molekule (the "Molekule License"), all in exchange for an additional amount of 250 thousand USD. The Technology Agreement will enter into effect on February 26, 2023 and will expire on the Completion Date or when the Technology Integration has been completed (the "End Date") (if the Technology Agreement was not cancelled before then, as detailed below). Molekule may cancel and terminate the Technology Agreement with immediate effect and before the End Date, in certain circumstances detailed in the agreement, including the initiation of insolvency proceedings at the Company or if the Company stopped, ceased or failed to perform actions related to the Technology Integration or if there is any change in the control of the Company (as defined in the Agreement). Without derogating from the above, each party to the Technology Agreement may cancel it before the End Date if the counter party has performed a material breach of any of the provisions set forth in the Technology Agreement, and said breach was not corrected within 45 business days. If the Technology Agreement is cancelled by either party (before the End Date), the Molekule License will remain in force and will not expire with the termination of the Technology Agreement. In accordance with the terms of the Technology Agreement, each party to the Technology Agreement will remain the exclusive owner of the intellectual property it owned prior to the signature of the agreement, when Molekule will be the owner of all the intellectual property created as a result of the Technology Integration. Furthermore, the Technology Agreement includes further arrangements, including with respect to the indemnification of Molekule, a duty of confidentiality, access to information and documentation. In addition, within the framework of the Agreement, the Parties have also entered into a distribution agreement, granting Molekule exclusive rights to market and distribute the Company's products in North and South America ("Molekule's Territory")⁸ and granting the Company

⁷ It will be noted that within the framework of the aforesaid limitations, it was determined, without limitations, that starting from the time of signing Molekule will be allowed to transfer to the Company just the following amounts, all within the framework of a technology agreement: (a) A one-time payment at an amount of 250,000 USD and (b) 11 additional equal installments, each at an amount of approx. 68 thousand USD, and at a total amount of 750,000 USD.

⁸ It is clarified that the rights granted to Molekule are subordinate to the rights granted to Delos Living LLC ("Delos") in relation to the exclusivity granted to Delos for the distribution of Company products in the field of transportation in the USA.

non-exclusive rights to market and distribute Molekule's products around the world, other than in Molekule's Territory, all for one year starting on February 26, 2023 (the agreement will be automatically renewed for six more months if neither party declares its cancellation in accordance with the terms set forth therein). The distribution rights do not include distribution rights on website and social media. For the products provided to it, each party will pay its counter party, at the time of provision of said products, a fixed price determined in the agreement. Each party will be allowed to sell the products to its end clients at any price it deems fit, at its discretion, subject to the publication of product prices which are not lower than the minimal prices determined in the agreement. Furthermore, each party to the agreement will provide support services to the end clients who purchased its products for a period of seven years commencing at the time of purchase. The agreement includes mutual indemnification and limitation of liability arrangements. Furthermore, the agreement includes other arrangements, including with respect to the timeframes for the supply of products and insurance obligations.

6.4. Within the framework of the Agreement, the Company has agreed that during the Interim Period it will not: initiate the acceptance of Purchase Offers⁹ from third parties; provide information to third parties or hold negotiations with third parties in connection with a Purchase Offer; issue any public declarations or recommendations in relation

to a Purchase Offer; change or cancel the recommendation issued by the board of directors to its shareholders or add reservations to said recommendations; enter into any of the following, without limitation: memorandum of understanding, merger agreement, purchase agreement, option agreement or any similar agreement related to the Purchase Offer (whether in a binding or non-binding manner); and issue, sale or execute any disposition of Company securities, other than in relation to options realized before the Completion Date.

6.5. Notwithstanding the aforesaid in Section 6.4 above, in accordance with the Merger Agreement, if the Company receives a Purchase Offer from a third party, which was received before the general meeting of Company shareholders approved the Merger, and this offer was given in good faith and without any breach of the conditions specified in Section 6.4 above, then the Company will be allowed to enter into negotiations with the third party who made the Purchase Offer, in order to clarify its terms. If the Company's board of directors determines in good faith, after consulting with the Company's external accountants and legal counsels, that the Purchase Offer is a Better Offer,¹⁰ the Company will be allowed: (a) to grant the third party access to information and data related to its assets and operations in accordance with the NDA signed with such party; (b) to enter into negotiations with the third party in relation to the Better Offer.

If the Company elects to enter into an engagement to realize the Better Offer, it will be allowed to do so subject to the payment of compensation as detailed in Section 9 below.

7. The Condition Precedents for the Completion of the Transaction

• 7.1. The Parties' undertakings in relation to the completion of the Transaction are subject to the fulfilment of the conditions specified in the Agreement, including, without limitation, the following key conditions: (a) the approval of the Merger by a regular majority in the general meeting of Company shareholders; (b) The entrance into effect of the S-4 Form registration document in accordance with US law, and provided the publication of the registration document (as a prospectus) in Israel by the Israel Securities Authority is approved (such publication will be achieved through the publication of the S-4 registration document with the required additions and mutatis mutandis); (c) an approval form the NASDAQ for the listing of the Allocated Shares for trade and an approval from the Stock Exchange for the double listing of Molekule shares for trade in the Stock Exchange; (d) obtaining the Tax Ruling (as defined above) in accordance with the Income Tax Ordinance (New Version), 5721-1961 from the Israel Tax Authority; (e) the representations and undertakings made by the counter Party must be true and correct as on the Completion Date, other than such representations which if found to be incorrect will not cause a Material Change for the Worse;¹¹ and (f) the counter Party has materially upheld all of its obligations in accordance with the Merger Agreement.
• 7.2. Furthermore, the obligations which Molekule and the Target Company must uphold to complete the Transaction are subject to the fulfillment of the conditions specified in the Agreement, including, without limitation, the following key conditions: (a) the Consent of the Financing Entities and Bank Mizrahi will be in full force on the Completion Date (and after it), and all the required documents related to the Consent of the Financing Entities and

⁹ "Purchase Offer" – A good faith offer causing one of the following circumstances: (a) the merger of the Company or any similar proceeding; (b) a direct or indirect purchase of (1) more than 10% of the Company's assets, or (2) Company assets constituting more than 10% of the Company's income or profits (based on the last fiscal year); (c) a direct or indirect purchase or purchase offer, which leads to the buyer holding more than 10% of the Company's shares or more than 10% of the voting rights in it.

¹⁰"Better Offer" – A Purchase Offer, when any place the definition of the Purchase Offer refers to 10% will be considered as stating 75%, provided the Company's board of directors determined in good faith that such offer will lead to a transaction which: (a) if completed, will be more financially beneficial for the Company's shareholders than the Merger (considering the legal, financial and regulatory aspects and all the terms of the offer), and (b) can be reasonably completed under the suggested terms, considering the identity of the offering party, the required approvals and the legal, financial and regulatory aspects.

¹¹ "Material change for the Worse" – Any incident or circumstance which will have, or which one could reasonable expect to have, whether by itself or together with other such incidents or circumstances, a material negative impact on the Company's business, operational results, financial situation, liabilities, operations or assets, other than certain cases excluded in the Agreement, such as industry-wide political or economic events, incidents affecting all the Parties' fields of operation, wars and terrorist attacks, force majeure incidents and plagues (to the extent such events do not have a special wide impact on either Party).

Bank Mizrahi (including collateral agreements and agreements in favor of Molekule's financing entities) will be made in a format to Molekule's full satisfaction, will be signed and will be in full force (the "Financing Entity Documents"); (b) there are no grounds for a demand for an immediate repayment in accordance with the agreements made with Molekule's financing entities or Bank Mizrahi; (c) on the Completion Date, the Company will have a cash balance of no less than 400,000 USD;¹² and (d) the Innovations Authority approves the Merger Agreement (if such approval is needed).

• 1. Directors and Officers Serving in the Company after the Completion of the Merger; The ongoing Indemnification and Insurance of Company Directors and Officers
  2. 8.1. In accordance with the terms set forth in the Agreement, the Company has undertaken to execute any action required so that starting from the Merger Date, all the directors and officers serving in the Company at the time will cease to serve as directors and officers (including by such directors and officers submitting notices concerning the termination of their service as Company directors and officers, effective form the Merger Date).
  3. 8.2. In accordance with the terms set forth in the Agreement, the Company has undertaken to execute all the actions required so that starting from the Merger date, Mr. Ryan Taylor (Molekule's CFO) and Jason Dibone (Molekule's CEO) will serve as Company directors and officers.
  4. 8.3. Subject to the terms set forth in the agreement, it has been determined that Molekule will not make any material change in the Company's undertakings in accordance with the release and indemnification letters provided by the Company to its directors and officers, and all for a period of at least 7 years from the Merger Date.
  5. 8.4. Before the Completion Date and in coordination with Molekule, the Company will purchase, subject to the approval of the Merger and all the accompanying resolutions by the general meeting of Company shareholders, a TAIL director and officer liability insurance policy, which will be valid for a period of 7 years commencing on the Merger Date, when the conditions provided by said policy will not be worse than the conditions provided by the existing insurance policy. In any case, the annual premium Molekule or the Company will be required to pay for said insurance policies will not be more than 310% of the annual premium paid by the Company for such policies before the Completion Date.

9. Grounds for the Cancellation of the Agreement

The Agreement includes provisions determining that it may be cancelled with the provision of a written notice in any of the following cases: (a) in mutual written agreement between the Parties; (b) by either Party if the Completion Date does not occur by September 20, 2023 (the "Agreement Cancellation Date"); (c) by either Party, if there is any impediment preventing the completion of the Transaction, or if there is any order or law issued by a competent government authority preventing such completion; (d) by either Party, if the general meeting of Company shareholders fails to approve the Transaction; (e) by the non-breaching Party, if either Party commits a breach of the Agreement or fails to meet its obligations in accordance with the Agreement or has provided a false representation as detailed in the Agreement, all in a manner preventing the fulfilment of the conditions required for the execution of the Transaction, and said breach was not corrected (to the extent possible) at the earlier of 20 days after the submission of a notice concerning said breach by the cancelling Party or the Agreement Cancellation Date; (f) by Molekule, before the approval of the Merger by the meeting of Company shareholders, if the Company's board of directors cancels or changes its decision concerning the approval of the Transaction, or if the Company has committed a breach of its obligations specified in Section 6.4 above; (g) by Molekule, at any time, after a Company Purchase Offer (as defined above) has been declared in public or has become generally known to the public, if the Company failed to publicly approve the recommendation of the Company's board of directors to enter into the Merger Agreement within 10 business days of the receipt of Molekule's written request to do so, provided Molekule does not submit such a request more than once in relation to a Purchase Offer, all as detailed in the Agreement; and (h) by the Company, before the approval of the Merger by the general meeting of Company shareholders, if it enters into a written agreement related to a Better Offer in accordance with the terms set forth in the agreement as specified in Section 6.5 above and subject to the payment of the cancellation fees (as defined below) to Molekule.

Furthermore, the Agreement determines that the Company will be charged with the payment of cancellation fees to Molekule, at a total amount of 330 thousand USD (the "Cancellation Fees") in certain circumstances, including, without limitation, if the Company cancels the Agreement before the Completion Date due to its engagement in a final agreement related to a Better Offer, or if Molekule cancels the agreement following any breach of the provisions specified in Section 6.4 above committed by the Company.

1. The agreement also includes certain provisions, related, without limitation, to the duty of confidentiality and to the governing law (the laws of the state of Delaware, other than in relation to the Merger procedure), which will remain in force even if the Agreement is cancelled.

The Company is taking the required actions to publish an invitation to a general meeting whose agenda will include the approval of the merger and all the resolutions related to it. This meeting invitation will include the full details of the Transaction, including the reasons which brought the board of directors to approve it.

¹² Subject to Molekule completing the transfer of the consideration specified in the Technology Agreement, against the actual receipt of the services from the Company.

It will be further noted that shortly before the signing of the Merger Agreement and at Molekule's request, A written approval was obtained from Beth El Industries Ltd. ("Beth El") in relation to the balance of the Company's debt towards Beth El, which confirmed that: (a) The principal amount of the debt owed by the Company to Beth El, in accordance with the Production Agreement and the Interim Arrangement (as defined in footnote 13), is 8.3 million USD including the minimal amount the Company was obligated to order from Beth El (the "Total Debt"); (b) subject to the payment of the Total Debt, the Company and Beth El waive any demand or claim against each other; and (c) if the Company decides to stop producing its products at Beth El's factories, the Company will be obligated to purchase the production lines including any inventory, components, molds and plans for the consideration which will be agreed between the parties. Other than the terms detailed above, no changes have been made in relation to the Production Agreement and Interim Arrangement.¹³

For the avoidance of doubt and for the sake of caution, the Company wishes to stress there is no certainty that the conditions for said Transaction will be met, and therefore, there is no certainty the Transaction will be executed, and it is impossible to estimate, at this stage, if and when Said Transaction will be completed.

Sincerely, Aura Smart Air Ltd. By: Aviad Shnaiderman, CEO

¹³ For further details concerning the Company's production agreement with Beth El and the interim arrangement, see Section 20.1.2 of the Company's periodic financial statement of December 31, 2021, published on March 15, 2022 (reference no.: 2022-01-030457) and the immediate report dated December 29, 2022 (reference no.: 2022-01-158200) (the "Production Agreement and Interim Arrangement").