SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is made and entered into
as of November __, 2012 by and among 22nd Century Group, Inc., a Nevada
corporation (the “Company”), and the purchaser(s) identified on the signature
pages hereto (each a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2), Section 4(6), and Regulation S of the Securities Act
of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D
promulgated thereunder, the Company desires to offer, issue and sell to the
Purchasers (the “Offering”), and the Purchasers, severally and not jointly,
desire to purchase from the Company, in the aggregate, up to Three Million
(3,400,000) shares of the Company’s common stock, par value $0.00001 per share
(the “Common Stock”) at a purchase price of $0.25 per share of Common Stock (the
“Purchase Price”);

 

WHEREAS, each Purchaser shall also receive five-year warrants to purchase fifty
percent (50%) of the total number of shares of Common Stock as such Purchaser
purchases pursuant to this Agreement (the “Warrants”), with such Warrants having
an exercise price equal to One Dollar ($1.00) per share of Common Stock; and

 

WHEREAS, for purposes of this Agreement, the Common Stock, the Warrants and the
shares of Common Stock into which the Warrants are exercisable being hereinafter
collectively referred to as the “Securities.”

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration the
receipt and adequacy of which is hereby acknowledged, the Company and each of
the Purchasers agree as follows:

 

A.          Purchase and Sale

 

(1)         The introductory paragraphs of this Agreement are hereby
incorporated into this Agreement as if fully set forth herein. Subject to the
terms and conditions set forth in this Agreement, at the Closing the Company
shall issue and sell to each Purchaser, and each Purchaser shall, severally and
not jointly, purchase from the Company, the number of shares of Common Stock and
number of Warrants set forth on such Purchaser’s signature page to this
Agreement. The Closing shall take place at the offices of Foley & Lardner LLP,
One Independent Drive, Suite 1300, Jacksonville, FL 32202, on the Closing Date
or at such other location or time as the parties may agree (the “Closing”).
“Closing Date” means the business day on which all of the conditions set forth
in Sections H(1) and H(2) hereof are satisfied or waived, or such other date as
the parties may mutually agree in writing.

 

(2)         Prior to or at the Closing, each Purchaser shall deliver or cause to
be delivered to the Company the aggregate purchase price for the Common Stock
and Warrants to be purchased by such Purchaser as set forth on the signature
page of such Purchaser hereto (the “Investment Amount”). Wire transfer
instructions are set forth on Schedule A attached hereto. Such funds will be
held for the Purchaser’s benefit, and will be returned promptly, without
interest or setoff, if this Agreement is not accepted by the Company, or the
Offering is terminated pursuant to its terms by the Company.

 

 

 

 

(3)         At the Closing, the Company shall deliver to the Purchasers a
certificate stating that the representations and warranties made by the Company
in Section C of this Agreement were true and correct in all material respects
when made and are true and correct in all material respects on the Closing Date
relating to the Securities purchased pursuant to this Agreement as though made
on and as of such Closing Date (provided, however, that representations and
warranties that speak as of a specific date shall continue to be true and
correct as of the Closing with respect to such date). The foregoing obligations
of the Company shall be conditions precedent to each Purchaser’s obligation to
complete the purchase of the Securities as contemplated by this Agreement.

 

(4)         Each Purchaser acknowledges and agrees that the purchase of the
Securities by such Purchaser pursuant to the Offering is subject to all the
terms and conditions set forth in this Agreement.

 

(5)         The Purchaser understands and agrees that the Company in its sole
discretion reserves the right to accept or reject this or any other subscription
for Securities, in whole or in part, notwithstanding prior receipt by the
Purchaser of notice of acceptance of this subscription. The Company shall have
no obligation hereunder until the Company shall execute and deliver to the
subscriber an executed copy of this Agreement. If this subscription is rejected
in whole, or the Offering is terminated, all funds received from the Purchaser
will be returned without interest or offset, and this Agreement shall thereafter
be of no further force or effect. If this subscription is rejected in part, the
funds for the rejected portion of such subscription will be returned without
interest or offset, and this Agreement will continue in full force and effect to
the extent this subscription was accepted.

 

B.          Representations and Warranties of the Purchaser

 

Each Purchaser, severally and not jointly, hereby represents and warrants to the
Company as of the date hereof and as of the Closing Date, and agrees with the
Company as follows:

 

(1)         The Purchaser has carefully read this Agreement, the term sheet
attached hereto as Exhibit A (the “Term Sheet”) and the form of Warrant attached
hereto as Exhibit B (collectively the “Offering Documents”), and is familiar
with and understands the terms of the Offering, and the Purchaser also
acknowledges having access to and reviewed or had the opportunity to access and
review all of the information regarding the Company that is publicly available
on the EDGAR database of the United States Securities and Exchange Commission
(“SEC”), including but not limited to portions of the Company’s publicly
available documents which consist of the financial statements included therein
and the sections therein entitled “Risk Factors” and “Our Business”
(collectively, the “Publicly Available Information”). The Purchaser fully
understands all of the risks related to the purchase of the Securities. The
Purchaser has carefully considered and has discussed, or has the opportunity to
discuss, with the Purchaser’s professional legal, tax, accounting and financial
advisors, to the extent the Purchaser has deemed necessary, the suitability of
an investment in the Securities for the Purchaser’s particular tax and financial
situation and has determined that the Securities being purchased by the
Purchaser are a suitable investment for the Purchaser. The Purchaser recognizes
that an investment in the Securities involves substantial risks, including the
possible loss of the entire amount of such investment. The Purchaser further
recognizes that the Company has broad discretion concerning the use and
application of the proceeds from the Offering.

 

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(2)         The Purchaser acknowledges that (i) the Purchaser has had the
opportunity to request copies of any documents, records and books pertaining to
this investment and (ii) any such documents, records and books that the
Purchaser requested have been made available for inspection by the Purchaser,
the Purchaser’s attorney, accountant or other advisor(s). The Purchaser has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Securities.

 

(3)         The Purchaser and the Purchaser’s advisor(s) have had a reasonable
opportunity to ask questions of and receive answers from representatives of the
Company or Persons (as defined below) acting on behalf of the Company concerning
the Company, the Offering and the Securities and all such questions have been
answered to the full satisfaction of the Purchaser. For purposes of this
Agreement, “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

 

(4)         The Purchaser is not subscribing for Securities as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television, radio or the Internet (including without limitation, internet
“blogs,” bulletin boards, discussion groups and social networking sites) or
presented at any seminar, meeting or conference whose attendees have been
invited by any general solicitation or general advertising.

 

(5)         If the Purchaser is a natural Person, the Purchaser has reached the
age of majority in the state in which the Purchaser resides. The Purchaser has
adequate means of providing for the Purchaser’s current financial needs and
contingencies, is able to bear the substantial economic risks of an investment
in the Securities for an indefinite period of time, has no need for liquidity in
such investment and can afford a complete loss of such investment.

 

(6)         The Purchaser has sufficient knowledge and experience in financial,
tax and business matters to enable the Purchaser to utilize the information made
available to the Purchaser in connection with the Offering, to evaluate the
merits and risks of an investment in the Securities and to make an informed
investment decision with respect to an investment in the Securities on the terms
described in the Offering Documents. The Purchaser has independently evaluated
the merits and risks of its decision to purchase the Securities pursuant to the
Offering Documents, and the Purchaser confirms that it has not relied on the
advice of the Company’s or any other Purchaser’s business and/or legal counsel
in making its investment decision. Such Purchaser confirms that none of such
Persons has made any representations or warranties to such Purchaser in
connection with the transactions contemplated by the Offering Documents.

 

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(7)         The Purchaser will not sell or otherwise transfer the Securities
without registration under the Securities Act and applicable state securities
laws or an applicable exemption therefrom. The Purchaser acknowledges that
neither the offer nor sale of the Securities has been registered under the
Securities Act or under the securities laws of any state. The Purchaser
represents and warrants that the Purchaser is acquiring the Securities for the
Purchaser’s own account, for investment purposes and not with a view toward
resale or distribution within the meaning of the Securities Act, except pursuant
to sales registered or exempted under the Securities Act. The Purchaser is
acquiring the Securities in the ordinary course of business. The Purchaser has
not offered or sold the Securities being acquired nor does the Purchaser have
any present intention of selling, distributing or otherwise disposing of such
Securities either currently or after the passage of a fixed or determinable
period of time or upon the occurrence or non-occurrence of any predetermined
event or circumstances in violation of the Securities Act. The Purchaser is
aware that (i) the Securities are not currently eligible for sale in reliance
upon Rule 144 (as defined below) and (ii) the Company has no obligation to
register the Securities purchased hereunder. By making these representations
herein, the Purchaser is not making any representation or agreement to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an available exemption to the registration
requirements of the Securities Act.

 

(8)         The Purchaser understands that except for the piggy-back
registration rights provided in Section E hereof: (i) the Securities have not
been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) the Purchaser shall have
delivered to the Company an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) the Purchaser provides the Company with reasonable
assurance that such Securities can be sold, assigned or transferred pursuant to
Rule 144 or Rule 144A promulgated under the Securities Act (or a successor rule
thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the Securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.

 

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(9)         The Purchaser acknowledges that any certificates or other evidence
that may be issued representing the Securities shall bear any legend required by
the securities laws of any state and be stamped or otherwise imprinted with a
legend substantially in the following form:

 

The securities represented hereby have not been registered under the Securities
Act of 1933, as amended, or any state securities laws and neither the securities
nor any interest therein may be offered, sold, transferred, pledged or otherwise
disposed of except pursuant to an effective registration under such act or an
exemption from registration, which, in the opinion of counsel reasonably
satisfactory to this corporation, is available.

 

Certificates evidencing the Securities shall not be required to contain such
legend or any other legend (i) following any sale of such Securities pursuant to
Rule 144, or (ii) if such Securities have been sold pursuant to the Registration
Statement (as hereafter defined) and in compliance with the obligations set
forth in Section E(6) below, or (iii) such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC), in each such
case (i) through (iii) to the extent determined by the Company’s legal counsel
in its sole discretion. Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of such legend from certificates evidencing
the Securities is predicated upon (i) the reliance by the Company that the
Purchaser will sell such Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and/or (ii) that in the context of a
sale under Rule 144, if requested by the transfer agent of the Securities, the
Purchaser shall have signed and delivered a representation letter relating to
the Purchaser’s Securities.

 

(10)        If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust, estate or other entity: (i) such partnership,
corporation, trust, estate or other entity is duly organized and validly
existing and has the full legal right and power and all authority and approval
required (a) to execute and deliver this Agreement and all other instruments
executed and delivered by or on behalf of such partnership, corporation, trust,
estate or other entity in connection with the purchase of its Securities, and
(b) to purchase and hold such Securities; (ii) the signature of the party
signing on behalf of such partnership, corporation, trust, estate or other
entity is binding upon such partnership, corporation, trust, estate or other
entity; and (iii) such partnership, corporation, trust or other entity has not
been formed for the specific purpose of acquiring such Securities, unless each
beneficial owner of such entity is qualified as an accredited investor within
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act
and has submitted information to the Company substantiating such individual
qualification.

 

(11)        If the Purchaser is a retirement plan or is investing on behalf of a
retirement plan, the Purchaser acknowledges that an investment in the Securities
poses additional risks, including the inability to use losses generated by an
investment in the Securities to offset taxable income.

 

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(12)        The information contained in the purchaser questionnaire in the form
of Exhibit C attached hereto (the “Purchaser Questionnaire”) delivered by the
Purchaser in connection with this Agreement is complete and accurate in all
respects. The Purchaser is (i) an “accredited investor” as defined in Rule
501(a) of Regulation D under the Securities Act (“Regulation D”) on the basis
indicated therein, or (ii) is not a U.S. Person as defined in Regulation S under
the Securities Act (“Regulation S”) and is a resident of the jurisdiction set
forth therein. The Purchaser is not required to be a registered broker-dealer
under Section 15 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The information contained in the selling stockholder
questionnaire in the form of Exhibit D attached hereto (the “Selling Stockholder
Questionnaire”) and the anti-money laundering information form in the form of
Exhibit E attached hereto (the “Anti-Money Laundering Information Form”)
delivered by the Purchaser in connection with this Agreement are complete and
accurate in all respects. The Purchaser will notify the Company immediately of
any changes in any such information contained in such Purchaser’s Purchaser
Questionnaire, Selling Stockholder Questionnaire, or Anti-Money Laundering
Information Form until such time as the Purchaser has sold all of its shares of
Common Stock issuable upon the exercise of the Warrants or, if the shares of
Common Stock are registered pursuant to Section E, until the Company is no
longer required to keep the Registration Statement, as defined in Section E
below, effective, except to the extent that such changed information is not
required under the Securities Act to be disclosed in an amendment or supplement
to the Registration Statement.

 

(13)        The Purchaser acknowledges that the Company will have the authority
to issue additional shares of Common Stock and other securities of the Company
in excess of the Securities being issued in connection with the Offering, and
that the Company may issue additional shares of Common Stock and other
securities of the Company from time to time, which may cause dilution of the
existing shares of Common Stock and a decrease in the market price of such
existing shares of Common Stock.

 

(14)        The Purchaser acknowledges that the Company has existing contractual
commitments to broker-dealers for which the Company may be required to pay a
commission upon the closing of the Offering up to ten percent (10%) of some
portion of the aggregate consideration received by the Company from the Offering
and warrants equal to up to six percent (6%) of some portion of the aggregate
consideration received by the Company from the Offering, which warrants, if any,
would be exercisable for a period of five years, at an exercise price equal to
$1.00 per share of Common Stock.

 

(15)        The Purchaser understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and the Purchaser's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.

 

6

 

 

(16)        The Purchaser understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

 

(17)        This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Purchaser and shall constitute the legal, valid and
binding obligations of such Purchaser enforceable against the Purchaser in
accordance its terms.

 

(18)        The execution, delivery and performance by the Purchaser of this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby will not (i) result in a violation of the organizational documents of the
Purchaser or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Purchaser is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to the Purchaser,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of the Purchaser to perform its obligations hereunder.

 

(19)        The Purchaser acknowledges that any estimates or forward-looking
statements included in the Company’s Publicly Available Information were
prepared by the Company in good faith but that the attainment of any such
estimates or forward-looking statements cannot be guaranteed by the Company and
should not be relied upon.

 

(20)        No oral or written representations have been made, or oral or
written information furnished, to the Purchaser or its advisers, if any, in
connection with the Offering which are in any way inconsistent with the
information contained in the Company’s Publicly Available Information.

 

(21)        Other than consideration that may be payable by the Company to
broker-dealers as disclosed in Section B(14), the Purchaser has not entered into
any agreement or arrangement that would entitle any broker or finder to
compensation by the Company in connection with the sale of the Securities to
such Purchaser.

 

(22)        The Purchaser has, in connection with its purchase of the
Securities, complied with all applicable provisions of the Securities Act,
including the rules and regulations promulgated by the SEC thereunder, and
applicable state securities laws.

 

(23)        Each Purchaser who is not a US Person as defined in Regulation S
(“US Person”) represents and warrants as follows:

 

(i)          (a) the Purchaser is not a US Person and is not acting for the
account or benefit of a US Person and (b) the Purchaser is purchasing the
Securities in an offshore transaction pursuant to Regulation S;

 

7

 

 

(ii)         the Purchaser understands that the Securities have not been and
will not be registered under the Securities Act and may not be offered, resold,
pledged or otherwise transferred by such Purchaser except (a) (i) in the United
States to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule 144, (ii)
outside the United States in a transaction complying with the provisions of Rule
903 or Rule 904 of Regulation S, (iii) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 (if available), or
(iv) pursuant to an effective registration statement under the Securities Act,
and (b) in accordance with any applicable securities laws of any state of the
United States and other jurisdictions;

 

(iii)        the Purchaser understands and agrees that, if in the future it
decides to resell, pledge or otherwise transfer the Securities or any beneficial
interests in any Securities prior to the date which is twelve (12) months after
the later of (a) the date when the Securities are first offered to persons
(other than distributors) pursuant to Regulation S and (b) the date of closing
of the Offering, it will do so only (i) in compliance with the restrictions set
forth herein, (ii) pursuant to an effective registration statement under the
Securities Act, or (iii) in accordance with the provisions of Rule 144 (if
available) or Regulation S, and in each of such cases in accordance with any
applicable securities laws of any state of the United States;

 

(iv)        the Purchaser agrees to, and each subsequent holder is required to,
notify any purchaser of the Securities from it of the resale restrictions
referred to in paragraphs (ii) and (iii) above, if then applicable;

 

(v)         the Purchaser acknowledges that, prior to any proposed transfer of
the Securities other than pursuant to an effective registration statement, the
transferee of the Securities may be required to provide certifications and other
documentation relating to the non-US Person status of such transferee.

 

The Purchaser should check the Office of Foreign Assets Control (“OFAC”) website
at http://www.treas.gov/ofac before making the representations contained in
Sections B(24) and B(25) hereof.

 

(24)        The Purchaser represents that the amounts invested by it in the
Offering were not and are not directly or indirectly derived from activities
that contravene federal, state or international laws and regulations, including
anti-money laundering laws and regulations. Federal regulations and Executive
Orders administered by OFAC prohibit, among other things, the engagement in
transactions with, and the provision of services to, certain foreign countries,
territories, entities and individuals. The lists of OFAC prohibited countries,
territories, persons and entities can be found on the OFAC website at
http://www.treas.gov/ofac. In addition, the programs administered by OFAC (the
“OFAC Programs”) prohibit dealing with individuals1 or entities in certain
countries regardless of whether such individuals or entities appear on the OFAC
lists.

 

 

 

1 These individuals include specially designated nationals, specially designated
narcotics traffickers and other parties subject to OFAC sanctions and embargo
programs.

 

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(25)        To the best of the Purchaser’s knowledge, none of: (1) the
Purchaser; (2) any Person controlling or controlled by the Purchaser; (3) if the
Purchaser is a privately-held entity, any Person having a beneficial interest in
the Purchaser; or (4) any Person for whom the Purchaser is acting as agent or
nominee in connection with this investment is a country, territory, individual
or entity named on an OFAC list, or a person or entity prohibited under the OFAC
Programs. Please be advised that the Company may not accept any amounts from a
prospective investor if such prospective investor cannot make the representation
set forth in the preceding paragraph. The Purchaser agrees to promptly notify
the Company should the Purchaser become aware of any change in the information
set forth in these representations. The Purchaser understands and acknowledges
that, by law, the Company may be obligated to “freeze the account” of the
Purchaser, either by prohibiting additional subscriptions from the Purchaser,
declining any redemption requests and/or segregating the assets in the account
in compliance with governmental regulations. The Purchaser further acknowledges
that the Company may, by written notice to the Purchaser, suspend the redemption
rights, if any, of the Purchaser if the Company reasonably deems it necessary to
do so to comply with anti-money laundering regulations applicable to the Company
or any of the Company’s other service providers. These individuals include
specially designated nationals, specially designated narcotics traffickers and
other parties subject to OFAC sanctions and embargo programs.

 

(26)        To the best of the Purchaser’s knowledge, none of: (1) the
Purchaser; (2) any Person controlling or controlled by the Purchaser; (3) if the
Purchaser is a privately-held entity, any Person having a beneficial interest in
the Purchaser; or (4) any Person for whom the Purchaser is acting as agent or
nominee in connection with this investment is a senior foreign political
figure,2 or any immediate family3 member or close associate4 of a senior foreign
political figure, as such terms are defined in the footnotes below.

 

 

2 A “senior foreign political figure” is defined as a senior official in the
executive, legislative, administrative, military or judicial branches of a
foreign government (whether elected or not), a senior official of a major
foreign political party, or a senior executive of a foreign government-owned
corporation. In addition, a “senior foreign political figure” includes any
corporation, business or other entity that has been formed by, or for the
benefit of, a senior foreign political figure.

 

3 “Immediate family” of a senior foreign political figure typically includes the
figure’s parents, siblings, spouse, children and in-laws.

 

4 A “close associate” of a senior foreign political figure is a person who is
widely and publicly known to maintain an unusually close relationship with the
senior foreign political figure, and includes a person who is in a position to
conduct substantial domestic and international financial transactions on behalf
of the senior foreign political figure.

 

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(27)        If the Purchaser is affiliated with a non-U.S. banking institution
(a “Foreign Bank”), or if the Purchaser receives deposits from, makes payments
on behalf of, or handles other financial transactions related to a Foreign Bank,
the Purchaser represents and warrants to the Company that: (i) the Foreign Bank
has a fixed address, other than solely an electronic address, in a country in
which the Foreign Bank is authorized to conduct banking activities; (ii) the
Foreign Bank maintains operating records related to its banking activities;
(iii) the Foreign Bank is subject to inspection by the banking authority that
licensed the Foreign Bank to conduct banking activities; and (iv) the Foreign
Bank does not provide banking services to any other Foreign Bank that does not
have a physical presence in any country and that is not a regulated affiliate.

 

C.          Representations and Warranties of the Company

 

Except as disclosed in the Company’s Publicly Available Information, the Company
hereby makes the following representations and warranties to the Purchasers. For
purposes of this Section C, the phrase “to the knowledge of the Company” or any
phrase of similar import shall be deemed to refer to the actual knowledge Joseph
Pandolfino or Henry Sicignano III, as well as any other knowledge that such
individuals would have possessed had they made reasonable inquiry with respect
to the matters in question.

 

(1)         Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has full corporate power and authority to conduct its
business as currently conducted. The Company is duly qualified to do business as
a foreign corporation and is in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary, except where any failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on (i) the business, properties, financial condition or results
of operations of the Company or (ii) the transactions contemplated hereby and by
the other Offering Documents or by the agreements and instruments to be entered
into in connection herewith or therewith or on the ability of the Company to
perform its obligations under the Offering Documents (a “Material Adverse
Effect”).

 

(2)         Capitalization. As of the date of this Agreement, 31,598,979 shares
of Common Stock of the Company were issued and outstanding and an additional
15,284,018 shares of Common Stock of the Company are issuable upon exercise of
convertible debt, warrants and options. All outstanding warrants of the Company
contain a cashless exercise provision. Other than the foregoing securities of
the Company, the warrants that may be issuable as provided in Section B(14) in
the event of the Closing of the Offering and as otherwise set forth above or as
contemplated in this Agreement, (a) there are no other options, warrants, calls,
rights, commitments or agreements of any character to which the Company is a
party or by which either the Company is bound or obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement and (b) the issuance and sale of the
Securities contemplated hereby will not give rise to any preemptive rights,
rights of first refusal or other similar rights on behalf of any Person.

 

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(3)         Issuance of Securities. The Securities and the shares of Common
Stock underlying the Securities and their issuance have been duly and validly
authorized by all necessary action and no further action is required by the
Company in connection therewith. The Securities and the shares of Common Stock
underlying the Securities, when issued and paid for pursuant to this Agreement,
will be validly issued, fully paid and non-assessable securities of the Company.
The issuance of the Securities may result in the right of holders of other
securities of the Company to adjust the exercise, conversion, exchange or reset
price under such securities.

 

(4)         Authorization; Enforceability. The Company has all corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company necessary for the authorization, execution, delivery and performance of
this Agreement by the Company has been taken and no further action is required
by the Company in connection therewith. This Agreement has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies, and (iii) laws, or public policy underlying such laws, relating to
indemnification and contribution.

 

(5)         No Conflict; Governmental and Other Consents.

 

(a)          The execution and delivery by the Company of this Agreement, the
issuance of the Securities by the Company, and the consummation of the
transactions contemplated hereby will not result in the violation (i) assuming
the accuracy of the representations and warranties of each Purchaser, of any
law, statute, rule, regulation, order, writ, injunction, judgment or decree of
any court or governmental authority to or by which the Company is bound, or (ii)
of any provision of the Certificate of Incorporation or Bylaws of the Company,
and will not conflict with, or result in a breach or violation of, any of the
terms or provisions of, or constitute (with due notice or lapse of time or both)
a default under or give to others any rights of termination, amendment,
acceleration or cancellation of, any lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which the Company
is a party or by which it is bound or to which any of its properties or assets
is subject, nor result in the creation or imposition of any lien upon any of the
properties or assets of the Company, except in each case to the extent that any
such violation, conflict or breach would not be reasonably likely to have a
Material Adverse Effect.

 

(b)          Assuming the accuracy of the representations and warranties of each
Purchaser party hereto, no consent, approval, authorization or other order of
any governmental authority or stock exchange, or other third-party is required
to be obtained by the Company in connection with the authorization, execution
and delivery of this Agreement or with the authorization, issue and sale of the
Securities, except such post-Closing filings as may be required to be made with
the SEC, and with any state or foreign “Blue Sky” or securities regulatory
authority, or as would not be reasonably likely to have a Material Adverse
Effect on the Company.

 

11

 

 

(6)         Litigation. There are no pending or, to the Company’s knowledge,
threatened legal or governmental proceedings against the Company or any of its
subsidiaries or any of their respective officers or directors, which, if
adversely determined, would individually or in the aggregate be reasonably
likely to have a Material Adverse Effect on the Company. There is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries or any of their respective
officers or directors, wherein an unfavorable decision, ruling or finding could
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under this Agreement. Neither the
Company nor any Subsidiary (as defined below), nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any
action involving a claim or violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty.

 

(7)         Financial Information. The Company’s financial statements that
appear in the public filings of the Company as filed with the SEC have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”), except in the case of unaudited statements or as may be
indicated therein or in the notes thereto, applied on a consistent basis
throughout the periods indicated and such financial statements fairly present in
all material respects the financial condition and results of operations and cash
flows of the Company as of the dates and for the periods indicated therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

(8)         Absence of Certain Changes. Other than as publically disclosed in
the Publically Available Information, since the date of the Company’s most
recent financial statements contained in the public filings of the Company as
filed with the SEC, (i) there has not occurred any event not disclosed in the
Company’s Publicly Available Information that individually or in the aggregate
has caused a Material Adverse Effect or any occurrence, circumstance or
combination thereof that reasonably would be likely to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business, (B) liabilities that would not be required to be
reflected in the Company's financial statements pursuant to GAAP, or (C)
obligations pursuant to the agreements with Rodman & Renshaw (iii) the Company
has not (A) declared or paid any dividends, (B) amended or changed the
Certificate of Incorporation or Bylaws of the Company or similar corporate or
limited liability company documents of its Subsidiaries, or (C) altered its
method of accounting or the identity of its auditors and (iv) the Company has
not made a material change in officer compensation except in the ordinary course
of business consistent with past practice.

 

12

 

 

(9)         Investment Company. The Company is not an “investment company”
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder.

 

(10)        Subsidiaries. 22nd Century Limited, LLC is a wholly-owned Subsidiary
of the Company. Hercules Pharmaceuticals, LLC is a wholly-owned Subsidiary of
22nd Century Limited, LLC. Goodrich Tobacco Company, LLC is a 96% owned
Subsidiary of the Company. For the purposes of this Agreement, “Subsidiary”
shall mean any company or other entity of which at least 50% of the securities
or other ownership interest having ordinary voting power for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by the Company or any of its other Subsidiaries. The
Company or one of its Subsidiaries has the unrestricted right to vote, and
subject to limitations imposed by applicable law, to receive dividends and
distributions on all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

 

(11)        Certain Fees. Other than compensation that may payable pursuant to
Section B(14) as a result of the Closing of the Offering, no brokers’, finders’
or financial advisory fees or commissions will be payable by the Company with
respect to the transactions contemplated by this Agreement.

 

(12)        No Violation or Default. Neither the Company nor any of its
Subsidiaries is (i) in violation of any law, statute, rule, regulation, order,
writ, injunction, judgment or decree of any court, or (ii) in violation of any
provision of its charter or bylaws, or (iii) in violation of or default under
any lease, loan agreement, mortgage, security agreement, trust indenture or
other agreement or instrument to which the Company is a party or by which it is
bound or to which any of its properties or assets is subject, except in each
case to the extent that any such violation or default is disclosed in the
Company’s Publicly Available Information or would not be reasonably likely to
have a Material Adverse Effect.

 

(13)        Taxes. The Company has filed or has valid extensions of the time to
file all necessary material federal, state, and foreign income and franchise tax
returns due prior to the date hereof and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of any material tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.

 

(14)        Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
the Company believes are prudent and customary in the businesses in which the
Company is engaged. The Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without an increase in cost significantly greater than
general increases in cost experienced for similar companies in similar
industries with respect to similar coverage.

 

13

 

 

(15)         Intellectual Property Rights and Licenses. Except as disclosed in
the Company’s Publicly Available Information, the Company owns or possesses
adequate rights or licenses to use any and all information, know-how, trade
secrets, patents, copyrights, trademarks, service marks, trade names, domain
names, software, formulae, methods, processes and other intangible properties
(“Intangible Rights”) that are of a such nature and significance to its business
that the failure to own or have the right to use or derivatize such items
individually or in the aggregate would have a Material Adverse Effect. The
Company has not received any notice that it is in conflict with or infringing
upon the asserted intellectual property rights of others, and neither the use of
the Intangible Rights nor the operation of the Company’s businesses is
infringing or has infringed upon any intellectual property rights of others.
Except as disclosed in the Company’s Publicly Available Information, all
payments have been duly made that are necessary to maintain the Intangible
Rights in force. Except as disclosed in the Company’s Publicly Available
Information, no claims have been made and no claims are threatened, that oppose
or challenge the validity, scope or title to any Intangible Right of the
Company. The Company and each of its Subsidiaries have taken reasonable steps to
obtain and maintain in force all licenses and other permissions under Intangible
Rights of third parties necessary to conduct their businesses as heretofore
conducted by them, now being conducted by them or are otherwise reasonably
anticipated to be conducted, and the Company and each of its Subsidiaries are
not, have not been and do not anticipate being in material breach of any such
license or other permission.

 

(16)        Compliance with Law; Foreign Corrupt Practices. The Company is in
compliance with all applicable laws, except for such noncompliance that
individually or in the aggregate would not reasonably be likely to have a
Material Adverse Effect. The Company has not received any notice of, nor does
the Company have any knowledge of, any violation (or of any investigation,
inspection, audit or other proceeding by any governmental entity involving
allegations of any violation) of any applicable law involving or related to the
Company which has not been dismissed or otherwise disposed of that individually
or in the aggregate would be reasonably likely to have a Material Adverse
Effect. The Company has not received notice or otherwise has any knowledge that
the Company is charged with, threatened with or under investigation with respect
to, any violation of any applicable law that individually or in the aggregate
would reasonably be likely to have a Material Adverse Effect.

 

(17)        Ownership of Property. Except as set forth in the Company’s
financial statements included in the Company’s Publicly Available Information,
the Company has (i) good and marketable fee simple title to its owned real
property, if any, free and clear of all liens, except for liens which do not
individually or in the aggregate have a Material Adverse Effect; (ii) a valid
leasehold interest in all leased real property, and each of such leases is valid
and enforceable in accordance with its terms (subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy), except as would not be
reasonably likely to have a Material Adverse Effect, and (iii) good title to, or
valid leasehold interests in, all of its other material properties and assets
free and clear of all liens, except for liens which do not individually or in
the aggregate have a Material Adverse Effect.

 

14

 

 

(18)        No Integrated Offering. Neither the Company, nor, to its knowledge,
any of its affiliates or other Person acting on the Company’s behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the Offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the Securities Act, when integration would cause the Offering not to
be exempt from the registration requirements of Section 5 of the Securities Act.

 

(19)        No General Solicitation. Neither the Company nor, to its knowledge,
any Person acting on behalf of the Company, has offered or sold any of the
Securities by any form of “general solicitation” within the meaning of Rule 502
under the Securities Act. To the knowledge of the Company, no Person acting on
its behalf has offered the Securities for sale other than to the Purchasers and
certain other “accredited investors” within the meaning of Rule 501 under the
Securities Act.

 

(20)        No Registration. Assuming the accuracy of the representations and
warranties made by, and compliance with the covenants of, the Purchasers in
Section B hereof, and other than as required under this Agreement, no
registration of the Securities under the Securities Act is required in
connection with the offer and sale of the Securities by the Company to the
Purchasers.

 

(21)         Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each
Purchaser hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.

 

(22)        Environmental Matters. The Company has obtained, or has applied for,
and is in compliance with and in good standing under all permits required under
Environmental Laws (except for such failures that individually or in the
aggregate would not be reasonably likely to have a Material Adverse Effect) and
the Company has no knowledge of any proceedings to substantially modify or to
revoke any such permit. There are no investigations, proceedings or litigation
pending or, to the Company's knowledge, threatened against the Company or any of
the Company’s facilities relating to Environmental Laws or hazardous substances
that individually or in the aggregate would not be reasonably likely to have a
Material Adverse Effect. “Environmental Laws” shall mean all federal, national,
state, regional and local laws, statutes, ordinances and regulations, in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including orders, consent decrees or
judgments relating to the regulation and protection of human health, safety, the
environment and natural resources.

 

(23)        Publicly Available Information. The documents constituting the
Company’s Publicly Available Information, when they were filed with the SEC,
conformed in all material respects to the requirements of the Securities Act or
Exchange Act, as applicable.

 

15

 

 

(24)        Acknowledgment Regarding Purchaser's Purchase of Securities. The
Company acknowledges and agrees that except as set forth on the signature page
of this Agreement, no Purchaser is (i) an officer or director of the Company,
(ii) an “affiliate” of the Company (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act). The
Company further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to the
Offering Documents and the transactions contemplated hereby and thereby.

 

(25)        Employee Relations. The Company is not a party to any collective
bargaining agreement and, to its knowledge, its employees are not union members.
Each of the Company and its Subsidiaries is in compliance with all federal,
state, local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any employees of the Company.

 

(26)        Use of Proceeds. The Company intends to use the proceeds from the
Offering for working capital and other general corporate purposes.

 

D.          Understandings

 

Each of the Purchasers understands, acknowledges and agrees with the Company as
follows:

 

(1)         No federal, state or foreign agency or authority has made any
finding or determination as to the accuracy or adequacy of the Offering
Documents or as to the fairness of the terms of the Offering nor any
recommendation or endorsement of the Securities. Any representation to the
contrary is a criminal offense. In making an investment decision, the Purchasers
must rely on their own examination of the Company and the terms of the Offering,
including the merits and risks involved.

 

(2)         The Offering is intended to be exempt from registration under the
Securities Act by virtue of Sections 4(2) and 4(6) of the Securities Act and the
provisions of Rule 506 of Regulation D and the provisions of Regulation S
thereunder, which is in part dependent upon the truth, completeness and accuracy
of the statements made by the Purchaser herein and in the Purchaser
Questionnaire.

 

(3)         Notwithstanding the piggy-back registration rights provided herein,
there can be no assurance that the Purchaser will be able to sell or dispose of
the Securities. It is understood that in order not to jeopardize the Offering’s
exempt status under Section 4(2) of the Securities Act, Regulation D and
Regulation S, any transferee may, at a minimum, be required to fulfill the
investor suitability requirements thereunder.

 

16

 

 

(4)         The Securities purchased hereunder by any Purchaser who is not a US
Person under Regulation S are subject to the conditions listed under Section
903(b)(3), or Category 3, of Regulation S. Under Category 3, Offering
Restrictions (as defined under Regulation S) must be in place in connection with
the offering and additional restrictions are imposed on resales of the
Securities as described below. Prior to six months after the later of (1) the
time when the Securities are first offered to persons other than distributors in
reliance upon Regulation S or (2) the date of closing of the Offering (the
"Compliance Period"), each Purchaser who is not a US Person:

 

(a)          certifies that it is not a US Person and is not acquiring the
securities for the account or benefit of any US Person or is a US Person who
purchased securities in a transaction that did not require registration under
the Securities Act;

 

(b)          agrees to resell such Securities only in accordance with the
provisions of Rule 144 (if available) or Regulation S, or pursuant to
registration under the Securities Act, and agrees to not engage in hedging
transactions with regard to the Securities, directly or indirectly, unless in
compliance with the Securities Act;

 

(c)          acknowledges that the Purchaser has been notified that it is
subject to the same restrictions on offers and sales that apply to a
distributor;

 

(d)          agrees that the Company will be required to refuse to register any
transfer of the Securities not made in accordance with the provisions of Rule
144 (if available) or Regulation S, or pursuant to registration under the
Securities Act; and

 

(e)          any certificates evidencing the Securities will contain a legend to
the effect that transfer is prohibited except in accordance with the
restrictions set forth in (b) above during the Compliance Period.

 

E.          Piggy-Back Registration Rights

 

(1)         The shares of Common Stock purchased pursuant to this Agreement and
the shares of Common Stock issuable upon the exercise of the Warrants will have
piggy-back registration rights, which means that in the event the Company files
a registration statement under the Securities Act after the Closing Date of this
Offering to register the resale of additional shares of Common Stock issued by
or issuable by the Company pursuant to other securities subsequently sold by the
Company in a future securities offering after the Closing Date of this Offering
in an amount of at least Five Million Dollars ($5,000,000) (such future
securities offering shall not include any securities issued by the Company under
its equity incentive plans), then such shares of Common Stock will be included
in such registration statement to the extent permitted by the SEC and any
applicable underwriter. Notwithstanding the foregoing, the Purchasers shall not
have piggy-back registration rights if such shares of Common Stock are eligible
for unlimited resale pursuant to Rule 144.

 

17

 

 

(2)         Registration Expenses. If applicable pursuant to Section E(1), the
Company shall pay all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the SEC, in connection with applicable state
securities or “Blue Sky” laws, and to the OTC Bulletin Board (the “OTCBB”), (b)
printing expenses (it being understood that the Company, at its option, may
provide the Purchaser with electronic copies of any prospectus or supplement),
(c) fees and disbursements of counsel for the Company and (d) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. Notwithstanding the
foregoing, each Purchaser shall pay any and all costs, fees, discounts or
commissions attributable to the sale of its respective shares of Common Stock
received upon the exercise of the Warrants and all fees and expenses of its
counsel and other advisors.

 

(3)         Indemnification.

 

(a)          Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Purchaser, the partners, members, officers and directors of
each Purchaser and each Person or entity, if any, who controls such Purchaser or
any of the foregoing within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any losses, claims, damages or
liabilities (collectively, “Losses”) to which they may become subject (under the
Securities Act or otherwise) insofar as such Losses (or actions or proceedings
in respect thereof) arise out of, or are based upon, any material breach of this
Agreement or any other Offering Document by the Company or any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or arise
out of any failure by the Company to fulfill any undertaking included in a
registration statement and the Company will, as incurred, reimburse such
Purchaser, partner, member, officer, director or controlling Person for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
Loss arises out of, or is based upon, an untrue statement or omission or alleged
untrue statement or omission made in such registration statement in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Purchaser, partner, member, officer, director or controlling
Person specifically for use in preparation of a registration statement or any
breach of this Agreement by such Purchaser; provided further, however, that the
Company shall not be liable to any Purchaser of registrable Securities (or any
partner, member, officer, director or controlling Person of such Purchaser) to
the extent that any such Loss is caused by an untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus if
either (i) (A) such Purchaser failed to send or deliver a copy of the final
prospectus with or prior to, or, if Rule 172 is then in effect, such Purchaser
failed to confirm that a final prospectus was deemed to be delivered prior to,
the delivery of written confirmation of the sale by such Purchaser to the Person
asserting the claim from which such Loss resulted and (B) the final prospectus
corrected such untrue statement or omission, (ii) (X) such untrue statement or
omission is corrected in an amendment or supplement to the prospectus and (Y)
having previously been furnished by or on behalf of the Company with copies of
the prospectus as so amended or supplemented or, if Rule 172 is then in effect,
notified by the company that such amended or supplemented prospectus has been
filed with the SEC, such Purchaser thereafter fails to deliver such prospectus
as so amended or supplemented, with or prior to, or, if Rule 172 is then in
effect, such Purchaser fails to confirm that the prospectus as so amended or
supplemented was deemed to be delivered prior to, the delivery of written
confirmation of the sale of a registrable Security to the Person asserting the
claim from which such Loss resulted or (iii) such Purchaser sold registrable
Securities in violation of such Purchaser’s covenant contained in Paragraph (6)
below.

 

18

 

 

(b)          Indemnification by Purchasers. Each Purchaser, severally and not
jointly, agrees to indemnify and hold harmless the Company (and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, each officer of the Company who signs the
registration statement and each director of the Company), from and against any
losses, claims, damages or liabilities to which the Company (or any such
officer, director or controlling Person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any material breach of this Agreement by such Purchaser or any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading in each case, on the Effective Date thereof, if, and to the extent,
such untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with written information furnished by or
on behalf of such Purchaser specifically for use in preparation of the
registration statement, including, without limitation the Purchaser
Questionnaire, the Selling Stockholder Questionnaire, and the Anti-Money
Laundering Information Form, and such Purchaser will reimburse the Company (and
each of its officers, directors or controlling Persons) for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim; provided, however, that in no event shall
any indemnity under this Paragraph be greater in amount than the dollar amount
of the proceeds (net of (i) the purchase price of the registrable Securities
included in the registration statement giving rise to such indemnification
obligation and (ii) the amount of any damages such Purchaser has otherwise been
required to pay by reason of such untrue statement or omission or alleged untrue
statement or omission) received by such Purchaser upon the sale of such
registrable Securities.

 

19

 

 

(c)          Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall be entitled to participate therein, and to the extent
that it shall wish, assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof. After notice from
the Indemnifying Party to such Indemnified Party of its election to assume the
defense thereof, such Indemnifying Party shall not be liable to such Indemnified
Party for any legal expenses subsequently incurred by Indemnified Party in
connection with the defense thereof. An Indemnified Party shall have the right
to employ separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties. If there exists or shall exist a
conflict of interest that would make it inappropriate in the reasonable judgment
of the Indemnified Party for the same counsel to represent both the Indemnified
Party and such Indemnifying Party or any affiliate or associate thereof, the
Indemnified Party shall be entitled to retain its own counsel at the expense of
such Indemnifying Party; provided, further, that no Indemnifying Party be
responsible for the fees and expense of more than one separate counsel for all
Indemnified Parties. The Indemnifying Party shall not settle an action without
the consent of the Indemnified Party, which consent shall not be unreasonably
withheld, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding. All reasonable fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten business days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).

 

(d)          Contribution. If a claim for indemnification under Paragraph (5)(a)
or (b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or related to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Paragraph (5)(c), any reasonable attorneys’ or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Paragraph 5(d) was
available to such party in accordance with its terms.

 

20

 

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Paragraph (5)(d) were determined by pro rata allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Paragraph (5)(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such Purchaser from the sale of the
registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

(4)         Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of registrable Securities pursuant to the registration
statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described herein, such
Purchaser will discontinue disposition of such registrable Securities under the
registration statement until such Purchaser’s receipt of the copies of the
supplemented prospectus and/or amended registration statement, or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus or registration statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

 

(5)         Rule 144. Until such time as the registrable Securities are eligible
for unlimited resale pursuant to Rule 144 under the Securities Act, the Company
agrees with each holder of registrable Securities to:

 

(a)          comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company; and

 

(b)          to file with the SEC all reports and other documents required of
the Company under the Securities Act and the Exchange Act (at any time it is
subject to such reporting requirements).

 

21

 

 

F.           Covenants of the Company

 

The Company agrees to file one or more Forms D with respect to the Securities on
a timely basis as required under Regulation D under the Securities Act to claim
the exemption provided by Rule 506 of Regulation D. The Company, on or before
the Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Purchasers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.

 

G.           Further Covenants of the Company

 

(1)         The Company shall make a public announcement of the Closing of the
Offering by filing with the SEC a Current Report on Form 8-K and issuing a press
release within the time periods required under the federal securities laws.

 

(2)         The Company shall not publicly disclose the name of any Purchaser,
or include the name of any Purchaser in any filing or press release without the
prior written consent of such Purchaser, unless otherwise required by law. The
Purchaser consents to the disclosure of its name and details of its purchase in
a subsequent registration statement. The Company shall not, and shall cause each
of its officers, directors, employees and agents to not, knowingly provide any
Purchaser with any material nonpublic information regarding the Company from and
after the issuance of the above referenced filings and press release without the
express written consent of such Purchaser.

 

(3)         The Company shall use its commercially reasonable efforts to
maintain the listing eligibility of the Company Common Stock for quotation on
the OTCBB unless it lists its shares for trading on an alternative stock
exchange including at least one in the United States.

 

H.           Conditions to Closing; Termination

 

(1)         Conditions Precedent to the Obligations of the Purchasers to
Purchase Securities. The obligation of each Purchaser to acquire Securities at
the Closing is subject to the satisfaction or waiver by such Purchaser, at or
before the Closing, of each of the following conditions:

 

(a)          The representations and warranties of the Company contained herein
shall be true and correct in all material respects (other than those
representations and warranties that are qualified by “materiality” or Material
Adverse Effect qualifiers shall be true and correct in all respects) as of the
date when made and as of the Closing as though made on and as of such date
(except to the extent that such representation or warranty speaks of an earlier
date, in which case such representation and warranty shall be true and correct
in all material respects as of the Closing Date with respect to such date);

 

22

 

 

(b)          The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Offering Documents to be performed, satisfied or complied with by it at or prior
to the Closing;

 

(c)          No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Offering Documents;

 

(d)          Since the date of execution of this Agreement, no event or series
of events shall have occurred that reasonably could have or result in a Material
Adverse Effect;

 

(e)          Trading in the Common Stock shall not have been suspended by the
SEC or the OTCBB (except for any suspensions of trading of limited duration
agreed to by the Company) at any time since the date of execution of this
Agreement, and the Common Stock shall have been at all times since such date
eligible for quotation on the OTCBB;

 

(f)          The Company shall have delivered the items required to be delivered
by the Company in accordance with Section A(4); and

 

(g)          This Agreement shall not have been terminated as to such Purchaser
in accordance with Section H(3).

 

(2)         Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:

 

(a)          The representations and warranties of each Purchaser contained
herein shall be true and correct in all material respects (other than those
representations and warranties that are qualified by “materiality” or Material
Adverse Effect qualifiers, which shall be true and correct in all respects) as
of the date when made and as of the Closing Date as though made on and as of
such date;

 

(b)          Each Purchaser shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Offering Documents to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing;

 

23

 

 

(c)          No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Offering Documents;

 

(d)          Each Purchaser shall have delivered its Investment Amount in
accordance with Section A(2); and

 

(e)          This Agreement shall not have been terminated as to such Purchaser
in accordance with Section H(3).

 

(3)         Termination. This Agreement may be terminated prior to Closing:

 

(a)          By written agreement of the Purchasers and the Company; and

 

(b)          By the Company or a Purchaser (as to itself but no other Purchaser)
upon written notice to the other, if the Closing shall not have taken place by
6:30 p.m. Eastern time on or before November 6, 2012 (with the Company reserving
the right to further extend the termination date of the Offering to November 14,
2012 without further notice); provided, that the right to terminate this
Agreement under this Section H(3) shall not be available to any Person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such time.

 

In the event of a termination pursuant to Section H(3)(a), the Company shall
promptly notify all non-terminating Purchasers. Upon a termination in accordance
with this Section H(3), the Company and the terminating Purchaser(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Purchaser will have any liability to any other
Purchaser under the Offering Documents as a result thereof.

 

I.           Miscellaneous

 

(1)         All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, singular or plural, as identity of the
Person or Persons may require.

 

(2)         Any notice or other communication required or permitted to be given
or delivered under this Agreement shall be in writing and shall be deemed given
and effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered by fax prior to 6:30 p.m. Eastern Time on a business
day, (b) the next business day after the date of transmission, if such notice or
communication is delivered by fax on a day that is not a business day or later
than 6:30 p.m. Eastern Time on a business day, (c) upon receipt, if sent by an
internationally recognized overnight delivery service (with charges prepaid), or
(d) upon actual receipt by the party to whom such notice or other communication
is required to be given:

 

24

 

 

(a)          if to the Company, to it at:

 

22nd Century Group, Inc.

9530 Main Street

Clarence, NY 14031

Fax No.: (716) 877-3064

Attention: Joseph Pandolfino

 

or such other address as it shall have specified to the Purchaser in writing,
with a copy (which shall not constitute notice) to:

 

Foley & Lardner LLP

3000 K Street N.W., Suite 600

Washington, D.C. 20007

Fax No.: (202) 672-5399

Attention: Thomas L. James, Esq.

 

(b)          if to a Purchaser, to it at its address set forth on the signature
page to this Agreement, or such other address as it shall have specified to the
Company in writing.

 

(3)         This Agreement shall not confer any rights or remedies upon any
person other than the parties hereto and their respective successors and
permitted assigns.

 

(4)         Failure of the Company to exercise any right or remedy under this
Agreement or any other agreement among the Company and the Purchaser, or
otherwise, or delay by the Company in exercising such right or remedy, will not
operate as a waiver thereof. No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.

 

(5)         This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by the New York courts to agreements entered into and to be performed in
New York by and between residents of New York, and shall be binding upon the
Purchaser, the Purchaser’s heirs, estate, legal representatives, successors and
assigns and shall inure to the benefit of the Company, its successors and
assigns. The Company and each Purchaser hereby agree to submit to the
jurisdiction of the courts of the State of New York located within County of
Erie with respect to any proceeding arising out of or relating to this
Agreement, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

25

 

 

(6)         If any provision of this Agreement is held to be invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.

 

(7)         The parties understand and agree that, unless provided otherwise
herein, money damages would not be a sufficient remedy for any breach of the
Agreement by the Company or the Purchaser and that the party against which such
breach is committed shall be entitled to equitable relief, including injunction
and specific performance, as a remedy for any such breach. Such remedies shall
not, unless provided otherwise herein, be deemed to be the exclusive remedies
for a breach by either party of the Agreement but shall be in addition to all
other remedies available at law or equity to the party against which such breach
is committed.

 

(8)         The obligations of each Purchaser under this Agreement are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser hereunder, except as may result from the actions of any such
Purchaser other than through the execution hereof. Nothing contained herein
solely by virtue of being contained herein shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any similar
entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated hereby.

 

(9)         This Agreement, together with the agreements and documents executed
and delivered in connection with this Agreement, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.

 

(10)        This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

(11)        The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

 

26

 

 

(12)        This Agreement and the other Offering Documents (including any
schedules and exhibits hereto and thereto) supersede all other prior oral or
written agreements between the Purchaser, the Company, their affiliates and
Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and other Offering Documents (including any schedules and
exhibits hereto and thereto) and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein, neither the
Company nor any Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters.

 

(13)        No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Purchasers holding or being
obligated to purchase at least a majority of the Securities. No consideration
shall be offered or paid to any Purchaser to amend or consent to a waiver or
modification of any provision of any Offering Document unless the same
consideration is also offered to all Purchasers who then hold the Securities. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.

 

(14)        No Purchaser may assign any of its rights under this Agreement.

 

(15)        The representations and warranties of the parties contained herein
or in any other agreements or documents executed in connection herewith shall
survive the Closing.

 

(16)        Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

 

[Signature Pages to Follow]

 

27

 

 

SIGNATURE PAGE

 

The Purchaser hereby agrees to purchase the amount of Common Stock and Warrants
in exchange for the Investment Amount, as set forth below, and agrees to be
bound by the terms and conditions of this Agreement.

 

PURCHASER

 

1.          Investment Amount: $___________

 

2.          Number of Shares of Common Stock Purchased: ___________ (this amount
equals the Investment Amount divided by $0.25)

 

3.          Number of Warrants Purchased: ___________ (this amount equals the
Number of Shares of Common Stock Purchased multiplied by 0.50 (50%))

 

        Signature of Purchaser   Signature of Joint Purchaser   (and title, if
applicable)   (if any)                   Taxpayer Identification or Social  
Taxpayer Identification or Social   Security Number   Security Number of Joint
Purchaser (if any)                   Name (please print as name will appear    
  on Common Stock)                       Number and Street                      
City, State Zip Code      

 

ACCEPTED BY:

 

22nd cENTURY group, inc.

 

By:     Name:  Henry Sicignano III   Title:  President

 

28

 

 

Exhibit A

 

Term Sheet

 

29

 

 

Exhibit B

 

Form of Warrant

 

30

 

 

 

 

 

Exhibit C

 

Confidential Purchaser Questionnaire

 

31

 

 

Exhibit D

 

Selling Stockholder Questionnaire

 

32

 

 

Exhibit E

 

Anti-Money Laundering Information Form

33

 

 

Schedule A

 

Wire Transfer Instructions

 

Wire transfer instructions to be provided by the Company upon request.

 

34

 

 

 

TERM SHEET

 

Summary of Terms and Conditions

of

Private Offering of Common Stock

 

Note: The terms and conditions presented below do not constitute any form of
binding contract but rather are solely for the purpose of outlining those terms
pursuant to which a definitive agreement may ultimately be entered into. This
Term Sheet does not purport to summarize all the terms, conditions, covenants,
representations, warranties and other provisions which would be contained in the
definitive legal documentation for the financing contemplated herein. The
investment of the Investor is contingent upon completion of due diligence and
final negotiation and execution of satisfactory documentation containing
customary closing conditions, representations, warranties, etc.

 

Issuer:22nd Century Group, Inc. (OTCBB: XXI I) (the “Company”).

 

Investor(s):Certain “accredited investors” as selected by the Company
(collectively, the “Investors”).

 

Agent:____________________________ (“Agent”).

 

Investment:$0.25 per share of common stock. The Investors will purchase up to
2,800,000 shares of Common Stock of the Company for an aggregate purchase price
of up to Seven Hundred Thousand Dollars ($700,000), which equals a purchase
price of $0.25 per share. The Company reserves the right to offer and sell up to
an additional 600,000 shares of Common Stock of the Company for an aggregate
purchase price of up to an additional One Hundred Fifty Thousand Dollars
($150,000), which equals the same purchase price of $0.25 per share (the
“Over-Allotment Option”).

 

Purpose:Working capital of the Company.

 

Warrants:50% warrant coverage, 5-year term, $1.00 strike price, cashless
exercise. The Company will also grant warrants (the “Warrants”) to the Investors
to purchase up to 1,400,000 shares of Common Stock of the Company at an exercise
price of $1.00 per share. The right to exercise the Warrants will expire five
(5) years from the closing date of the Investment and the Warrants will contain
a cashless exercise provision. In the event the Over-Allotment Option is
exercised by the Company, then the Company will issue Warrants to the Investors
to purchase up to an additional 300,000 shares of Common Stock.

 

Registration:The shares of Common Stock issuable to the Investors as part of the
Investment and upon the exercise of the Warrants will have piggyback
registration rights, at the Company’s expense, less discounts and commissions.

 

Dilution:Full Ratchet Warrants. After adjusting for stock splits and other
changes, if any, to the Company’s capital structure, then in the event the
Company issues warrants in the future with an exercise price of less than $1.00
per share, then the exercise price of the Warrants issued to the Investors in
this transaction will be adjusted to such lower exercise price.

 

35

 

 

Documentation:The terms and conditions summarized herein represent the principal
terms and conditions which would be incorporated into appropriate documentation,
which will include a securities purchase agreement and related agreements and
documents pursuant to which the Common Stock and Warrants will be purchased
(collectively, the “Documentation”), but such terms and conditions summarized
herein are not intended to be an exhaustive description of the Documentation.

 

Transaction

Fees and

Expenses:Each party will pay for its own respective fees, commissions, costs,
charges, taxes and other expenses incurred in the negotiation and closing on the
Documentation, included but not limited to, fees of the Investor(s)’ counsel and
all recording fees, taxes and charges. The Company will pay for any fees and
expenses of the Agent upon the closing of the transactions contemplated herein.

 

Expiration:The parties are willing to move forward in this transaction if this
Term Sheet is signed by all parties no later than October 30, 2012 and as long
as the closing occurs on or before November 6, 2012.

 

SEEN AND AGREED:

 

22nd Century Group, Inc.

 

By:     Date: ________________, 2012       Henry Sicignano III     President    
      Accredited Investor           By:     Date: ________________, 2012      
Name:     Title:    

 

36

 

 

22nd Century Group, Inc.

Confidential Purchaser Questionnaire

 

Before any sale of securities by 22nd Century Group, Inc. can be made to you,
this Questionnaire must be completed and returned to: 22nd Century Group, Inc.,
9530 Main Street, Clarence, New York 14031

Attention: Henry Sicignano III, President; Facsimile: (716) 877-3064.

 

1.IF YOU ARE AN INDIVIDUAL PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (A);
IF YOU ARE AN ENTITY PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (B)

 

A. INDIVIDUAL IDENTIFICATION QUESTIONS

Name   Residence Address   Home Telephone Number (    ) Fax Number (    ) Date
of Birth   Social Security Number  

 

B. IDENTIFICATION QUESTIONS FOR ENTITIES

Name   Address of Principal   Place of Business   State (or Country) of
Formation   or Incorporation   Contact Person   Telephone Number (    ) Type of
Entity   (corporation, partnership,   trust, etc.)  

Was entity formed for the purpose of this investment?

Yes       No      

 

2.DESCRIPTION OF INVESTOR

The following information is required to ascertain whether you would be deemed
an “accredited investor” as defined in Rule 501 of Regulation D under the
Securities Act. Please check whether you are any of the following:

 

¨a corporation or partnership with total assets in excess of $5,000,000, not
organized for the purpose of this particular investment

¨private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940, a U.S. venture capital fund which invests
primarily through private placements in non-publicly traded securities and makes
available (either directly or through co-investors) to the portfolio companies
significant guidance concerning management, operations or business objectives

¨a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958

¨an investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that Act

¨a trust not organized to make this particular investment, with total assets in
excess of $5,000,000 whose purchase is directed by a sophisticated Person as
described in Rule 506(b)(2)(ii) of the Securities Act of 1933 and who completed
item 4 below of this questionnaire

 

37

 

 

¨a bank as defined in Section 3(a)(2) or a savings and loan association or other
institution defined in Section 3(a)(5)(A) of the Securities Act of 1933 acting
in either an individual or fiduciary capacity

¨an insurance company as defined in Section 2(13) of the Securities Act of 1933

¨an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 (i) whose investment decision is made by
a fiduciary which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or (ii) whose total assets exceed
$5,000,000, or (iii) if a self-directed plan, whose investment decisions are
made solely by a Person who is an accredited investor and who completed Part I
of this questionnaire;

¨a charitable, religious, educational or other organization described in
Section 501(c)(3) of the Internal Revenue Code, not formed for the purpose of
this investment, with total assets in excess of $5,000,000

¨an entity not located in the U.S. none of whose equity owners are U.S. citizens
or U.S. residents

¨a broker or dealer registered under Section 15 of the Securities Exchange Act
of 1934

¨a plan having assets exceeding $5,000,000 established and maintained by a
government agency for its employees

¨an individual who had individual income from all sources during each of the
last two years in excess of $200,000 or the joint income of you and your spouse
(if married) from all sources during each of such years in excess of $300,000
and who reasonably excepts that either your own income from all sources during
the current year will exceed $200,000 or the joint income of you and your spouse
(if married) from all sources during the current year will exceed $300,000

¨an individual whose net worth as of the date you purchase the securities
offered, together with the net worth of your spouse, be in excess of $1,000,000
(excluding the value of a primary residence and certain indebtedness related
thereto as set forth in footnote 1 below)1

¨an entity in which all of the equity owners are accredited investors

¨an individual or entity which is not a US Person as defined in Regulation S
under the Securities Act of 1933 (see attached Schedule A)

 

3.BUSINESS, INVESTMENT AND EDUCATIONAL EXPERIENCE

 

Occupation   Number of Years   Present Employer   Position/Title   Educational
Background  

 

--------------------------------------------------------------------------------

1 For purposes of calculating a person's net worth:

 

(A) The person's primary residence shall not be included as an asset;

 

(B) Indebtedness that is secured by the person's primary residence, up to the
estimated fair market value of the primary residence at the time of the sale of
securities, shall not be included as a liability (except that if the amount of
such indebtedness outstanding at the time of sale of securities exceeds the
amount outstanding 60 days before such time, other than as a result of the
acquisition of the primary residence, the amount of such excess shall be
included as a liability); and

 

(C) Indebtedness that is secured by the person's primary residence in excess of
the estimated fair market value of the primary residence at the time of the sale
of securities shall be included as a liability;

 

38

 

 

Frequency of prior investment (check one in each column):

 

  Stocks & Bonds Venture Capital Investments Frequently     Occasionally    
Never    

 

4.SIGNATURE

 

The above information is true and correct. The undersigned recognizes that the
Company and its counsel are relying on the truth and accuracy of such
information in reliance on the exemption contained in Subsection 4(2) of the
Securities Act of 1933, as amended, and Regulation D and Regulation S
promulgated thereunder. The undersigned agrees to notify the Company promptly of
any changes in the foregoing information which may occur prior to the
investment.

 

Executed  at ___________________, on this ____ day of __________, 2012

 

      (Signature)

 

39

 

 

Schedule A

 

“U.S. person” means:

 

(i)         Any natural person resident in the United States;

 

(ii)        Any partnership or corporation organized or incorporated under the
laws of the United States;

 

(iii)       Any estate of which any executor or administrator is a U.S. person;

 

(iv)       Any trust of which any trustee is a U.S. person;

 

(v)        Any agency or branch of a foreign entity located in the United
States;

 

(vi)       Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or account
of a U.S. person;

 

(vii)      Any discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and

 

(viii)      Any partnership or corporation if:

 

(A)            Organized or incorporated under the laws of any foreign
jurisdiction; and

 

(B)            Formed by a U.S. person principally for the purpose of investing
in securities not registered under the Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule 501(a)
under the Securities Act) who are not natural persons, estates or trusts.

 

The following are not “U.S. persons”:

 

(i)         Any discretionary account or similar account (other than an estate
or trust) held for the benefit or account of a non-U.S. person by a dealer or
other professional fiduciary organized, incorporated, or (if an individual)
resident in the United States;

 

(ii)         Any estate of which any professional fiduciary acting as executor
or administrator is a U.S. person if:

 

(A)            An executor or administrator of the estate who is not a U.S.
person has sole or shared investment discretion with respect to the assets of
the estate; and

 

(B)            The estate is governed by foreign law;

 

(iii)        Any trust of which any professional fiduciary acting as trustee is
a U.S. person, if a trustee who is not a U.S. person has sole or shared
investment discretion with respect to the trust assets, and no beneficiary of
the trust (and no settlor if the trust is revocable) is a U.S. person;

 

(iv)        An employee benefit plan established and administered in accordance
with the law of a

country other than the United States and customary practices and documentation
of such country;

 

(v)         Any agency or branch of a U.S. person located outside the United
States if:

 

(A)            The agency or branch operates for valid business reasons; and

 

(B)            The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located; and

 

(vi)         The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans.

 

“United States” means the United States of America, its territories and
possessions, any State of the United States, and the District of Columbia.

 

40

 

 

Selling Stockholder Questionnaire

 

To:

22nd Century Group, Inc.

9530 Main Street, Clarence, New York 14031

Attention: Henry Sicignano III, President

Facsimile: (716) 877-3064

 

Reference is made to the Securities Purchase Agreement (the “Agreement”), made
by and among 22nd Century Group, Inc., a Nevada corporation (the “Company”) and
the Purchasers noted therein.

 

Pursuant to Section B(12) of the Agreement, the undersigned hereby furnishes to
the Company the following information for use by the Company in connection with
the preparation of the Registration Statement contemplated by Section E of the
Agreement.

 

(1)Name and Contact Information:

(If you will hold Securities, as contemplated in the Agreement, through more
than one entity, whether or not affiliated, please complete a copy of this
Questionnaire for each entity.)

 

Full legal name of record holder as it should appear in the Registration
Statement:       Address of record holder:       Social Security Number or
Taxpayer identification number of record holder:       Identity of beneficial
owner (if
different than record holder):       Name of contact Person:       Telephone
number of contact Person:       Fax number of contact Person:       E-mail
address of contact Person:       Is the record holder a publicly held entity or
a subsidiary of a publicly held entity (i.e., an entity that has a class of
securities registered under the Securities Exchange Act of 1934). 

 

 Yes ¨  or    No ¨

 

 

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(2)      Beneficial Ownership of Registrable Securities (i.e. shares purchased
pursuant to the agreement):

 

(a)    Number of Securities to be owned by the Selling Stockholder:

 

 

 

(b)    Number of Securities requested to be registered:

 

 

 

(3)Beneficial Ownership of Other Securities of the Company Owned by the Selling
Stockholder (i.e. shares obtained independently of the Agreement):

 

Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company.

 

Type and amount of other securities beneficially owned by the Selling
Stockholder:

 

 

 

 

 

(4) Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (5% or more) has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

 

 

 

 

 

(5)Affiliations:

 

(a)Is Selling Stockholder a registered broker-dealer?

 

 

 

(b)If the answer to Item 5(a) is yes, will the Selling Stockholder receive the
Registrable Securities as compensation for underwriting activities? If yes,
provide a brief description of the transaction(s) involved.

 

 

 

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(c)     Is the Selling Stockholder an affiliate of a registered
broker-dealer(s)? (For purposes of this response, an “affiliate” of, or Person
“affiliated” with, a specified Person is a Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Person specified.)

 

 

 

(d)     If the answer to Item (5)(c) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):

 

 

 

(e)     If the answer to Item (5)(c) is yes, will the Selling Stockholder
acquire the Registrable Securities in the ordinary course of business? If not,
please explain.

 

 

 

(f)     If the answer to Item (5)(c) is yes, did the Selling Stockholder, at the
time of purchase of the Registrable Securities, have any agreements, plans or
understandings, directly or indirectly, with any Person to distribute the
Registrable Securities? If yes, please explain.

 

 

 

(6)     Voting or Investment Control over the Registrable Securities:

If the Selling Stockholder is not a natural Person, please identify all of the
natural Person or Persons who have voting or investment control over the
Registrable Securities listed in Item (2) above and their relation to the
Selling Stockholder:

 

 

 

(7)If you have specific language regarding any of the above information that you
would like included as a footnote to the Selling Stockholder section of the
Registration Statement, please so state (attached additional pages if
necessary)1:

 

 

 

1No representation is made that such language will be included in the
Registration Statement in the exact form provided.

 

[The remainder of this page has intentionally been left blank. Please continue
to the following page.]

 

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Pursuant to Section E(3) of the Agreement, the undersigned acknowledges that the
Company may, by notice to each Purchaser at its last known address, suspend or
withdraw the Registration Statement and require that the undersigned immediately
cease sales of Registrable Securities pursuant to the Registration Statement
under certain circumstances described in the Agreement. At any time that such
notice has been given, the undersigned may not sell Registrable Securities
pursuant to the Registration Statement.

 

The undersigned hereby further acknowledges that pursuant to Section E(3)(b) of
the Agreement, the undersigned shall indemnify the Company and each of its
directors and officers against, and hold the Company and each of its directors
and officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Company or its directors and
officers may become subject by reason of any statement or omission in the
Registration Statement made in reliance upon, or in conformity with, a written
statement by the undersigned, including the information furnished or omitted in
this Questionnaire by the undersigned.

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (7) above and the inclusion
of such information in the Registration Statement, any amendments thereto and
the related prospectus. The undersigned understands that such information will
be relied upon by the Company in connection with the preparation or amendment of
the Registration Statement and the related prospectus.

 

The undersigned has reviewed the answers to the above questions and affirms that
the same are true, complete and accurate. THE UNDERSIGNED AGREES TO NOTIFY THE
COMPANY IMMEDIATELY OF ANY CHANGES IN THE FOREGOING INFORMATION.

 

Dated: ____________________     Signature of Record Holder   (Please sign your
name in exactly the same manner as the certificate(s) for the shares being
registered)

 

44

 

 

Anti-Money Laundering Information Form

 

Please complete and return this form, along with the requested documentation to:
22nd Century Group, Inc.

9530 Main Street, Clarence, New York 14031, Attention: Henry Sicignano III,
President; Facsimile: (716) 877-3064

 

PURCHASER NAME:       LEGAL ADDRESS:               SSN# or TAX ID#   of
PURCHASER:  

 

IDENTIFICATION & DOCUMENTATION AND SOURCE OF FUNDS:

 

1.Please submit a copy of non-expired identification for the authorized
signatory(ies) on the Securities Purchase Agreement, showing name, date of
birth, address and signature. The address shown on the identification document
MUST match the Purchaser’s address as shown on the signature page to the
Securities Purchase Agreement.

 

Current Driver’s License         or         Valid Passport        or         Identity Card

                                                     (Circle one or more)

 

2.If the Purchaser is a corporation, limited liability company, trust or other
type of entity, please submit the following requisite documents: (i) Articles of
Incorporation, By-Laws, Certificate of Formation, Operating Agreement, Trust or
other similar documents for the type of entity; and (ii) Corporate Resolution or
power of attorney or other similar document granting authority to signatory(ies)
and designating that they are permitted to make the proposed investment.

 

3.Please advise where the funds were derived from to make the proposed
investment:

 

Investments      or      Savings      or      Proceeds of Sale      or      Other_______________
   

                                                       (Circle one or more)

 

Signature:           Print Name:           Title (if applicable):          
Date:    

 

45