Exhibit 10.1

 

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of October 31, 2017,
between 22nd Century Group, Inc., a Nevada corporation with its office located
at 9530 Main Street, Clarence, New York 14031 (the “Company”), and James E.
Swauger, an individual residing at 3655 Chucky River Road, Morristown, Tennessee
37813 (the “Employee”).

 

1.       Employment Duties and Responsibilities

 

1.1       Position and Title. The Company hereby agrees to employ the Employee
in the position(s) and under the terms and conditions set forth in Addendum A
attached hereto and the Employee hereby accepts such position(s) and agrees to
serve the Company, including Company Affiliates (as defined below), in such
capacity until this Agreement expires as set forth in Addendum A or this
Agreement is earlier terminated by one of the parties in accordance with the
terms set forth in Section 4 below.

 

1.2       Company Policies and Procedures. The Employee agrees to abide by all
applicable policies and procedures of the Company and its Affiliates (as defined
below) for which notice of the policy or procedure has been given to Employee in
writing by Company and acknowledgement of receipt has been given in writing by
Employee without material exception, and Employee agrees to perform his job
duties to the best of his ability.

 

1.3       Attention. During the term of this Agreement, excluding any periods of
vacation and sick leave to which Employee is entitled, Employee agrees (i) to
devote 80% of Employee’s full time, ability and attention to the business of the
Company and its Affiliates (as defined below), during normal working hours, and
(ii) not to acquire, hold or retain, whether directly or indirectly, more than a
two percent (2%) passive investment interest in any business competing with or
similar in nature to the business of the Company or any of its Affiliates,
except as otherwise provided below. For purposes of this Agreement, “Affiliates”
shall mean any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under the common control of,
the Company. Notwithstanding the foregoing provisions of this Section, the
Company recognizes that Employee continues to own and operate Vega Scientific
(“Vega”), a consulting enterprise to third-party companies and, as such, the
Company agrees that Employee may continue to own and operate Vega and to devote
up to 20% of normal working hours to this enterprise provided that he does not
perform services for other companies that are prohibited under Section 6.2
below).

 

2.       TERM OF EMPLOYMENT

 

2.1       Effective Date. The Effective Date of this Agreement shall be October
31, 2017.

 

2.2.       Term. The term of this Agreement shall be set forth on Addendum A
hereto, and the Company agrees to employ the Employee and the Employee hereby
agrees to serve the Company until the end of the Term of Employment, as defined
hereunder, or, if earlier, until this Agreement is terminated by one of the
parties in accordance with the terms set forth in Section 4 below.

 

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3.       COMPENSATION

 

3.1       Base Salary. Throughout the Term of Employment, the Company shall pay
to Employee, and Employee shall accept from the Company, a bi-weekly base salary
in the amount set forth on Addendum A attached hereto (the “Base Salary”),
payable on the Company’s standard pay schedule. Employee’s Base Salary may not
be decreased at any time during this Agreement without the express written
consent of the Employee. The Base Salary will be increased as set forth in
Addendum A hereto, as well as in such other amounts as the Company may determine
in its sole discretion from time to time, but nothing herein shall be deemed to
require any such increase other than as set forth in Addendum A hereto.

 

3.2       Incentive Compensation/Bonus. Employee may be eligible to receive a
bonus based upon satisfactory achievement of personal performance objectives and
business performance objectives as may be determined by the Company and the
Employee from time to time, and/or such other incentive compensation
arrangements that may be entered into between the Company and the Employee in
the future.

 

3.3       Stock Options/Restricted Stock Grants. Beginning in Q1 2019, Employee
will be eligible for stock options and/or restricted stock as may be awarded by
the Company, in its sole discretion, from time to time, subject to the terms of
the Company’s 2014 Omnibus Incentive Plan or any similar plan or agreement then
being offered by the Company during the term of this Agreement.

 

3.4.       Expenses. Employee shall be entitled to reimbursement of reasonable
business expenses that are incurred in the furtherance of Company business and
are consistent with the Company’s policies for such expense reimbursement.

 

3.5       Benefits. Employee will be eligible to receive health (single
coverage), dental (single coverage), personal disability, retirement, and/or
other fringe benefits as are provided to similarly situated executives of the
Company from time to time, as well as Employee may participate in the Company’s
401(k) retirement plan, all as described in Addendum A hereto. Employee shall
receive the relocation benefits and other specified benefits described in
Addendum A, and Employee shall be eligible for paid time off as described in
Addendum A.

 

4.       Termination of Employment

 

Employee’s employment with the Company may be terminated, prior to the
expiration of the Term of this Employment Agreement as set forth on Addendum A
hereto, in accordance with any of the following provisions:

 

4.1       Termination By Employee Without Good Reason. The Employee may
terminate employment at any time during the Term of this Agreement by giving
thirty (30) days' notice in writing to the Chief Executive Officer or President
of the Company. During the notice period, Employee must fulfill all Employee’s
duties and responsibilities set forth above and use Employee’s best efforts to
train and support Employee’s replacement, if any. Failure to comply with this
requirement may result in Termination for Cause described below, but otherwise
Employee's salary and benefits will remain unchanged during the 30-day
notification period. The Company, at its option, may relieve Employee of all
Employee’s duties and responsibilities at any time during the notice period, but
will, in such instance, be required to continue to maintain Employee’s pay and
benefits through the remainder of the 30-day notice period. In the event
Employee terminates his employment with the Company under this Section 4.1, then
(i) Employee shall be entitled to receive only that Base Salary earned on or
before the Employee’s last day of active service and other post-employment
benefits required by law or under Company policy, (ii) Employee shall not be
entitled to receive any portion of any bonus for the time period in which the
termination occurs, and (iii) all of Employee’s unvested Time Vested Options and
unvested Performance Based Stock Options will not vest and will be forfeited.

 

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4.2(a)       Termination By The Company Without Cause. The Company may terminate
Employee’s employment without cause at any time during the Term of this
Agreement by giving the Employee thirty (30) days’ notice of such termination,
during which period Employee will continue to receive the compensation and
benefits to which Employee would normally be entitled under the terms of this
Agreement. During the notice period, Employee must fulfill all of Employee’s
duties and responsibilities and use Employee’s best efforts to train and support
Employee’s replacement, if any. Notwithstanding the foregoing, the Company, at
its option, may instruct Employee during such period not to undertake any active
duties on behalf of the Company.

 

4.2(b)       If Employee is terminated under this Section 4.2, within thirty
(30) days following the conclusion of the notice period, the Company shall
provide a severance benefit to Employee as follows: Employee will continue to
receive Employee's Base Salary then in effect, paid in accordance with standard
payroll practices for a period of six (6) months following termination. Under
this Section, Employee shall not be entitled to receive any portion of any bonus
for the period in which the termination occurs; provided, however, that as
described in Addendum A hereto, (i) Employee’s unvested Time Vested Options will
automatically vest on the date that Employee is terminated under this Section
4.2, however, (ii) Employee’s unvested Performance Based Stock Options will not
vest and will be forfeited.

 

4.3          Termination By The Company For Cause. The Company may, at any time
and without notice (except as required below), terminate the Employee for
“cause.” Termination by the Company of the Employee for “cause” shall be limited
to termination based on any of the following grounds: (a) fraud,
misappropriation, embezzlement or acts of similar dishonesty; (b) conviction of
a felony crime; (c) intentional and willful misconduct that subjects the Company
to criminal or civil liability; (d) breach of the Employee’s duty of loyalty to
the Company or diversion or usurpation of corporate opportunities properly
belonging to the Company; (e) material breach by Employee of this Agreement
and/or any other agreement entered into between the Company and the Employee;
and/or (f) willful and/or continued failure to follow any lawful and proper
instructions or directions provided to Employee by the Chief Executive Officer
or President of the Company; provided, however, that Employee shall not be
terminated for cause under subsections (d), (e) or (f) above unless the Company
first has provided Employee with written notice that the Company considers the
Employee to be in violation of Employee’s obligations under those subsections
and Employee fails, within thirty (30) days of such notice, to cure the conduct
that has given rise to the notice.

 

In the event of a termination by the Company for Cause, Employee shall be
entitled to receive only that Base Salary earned on or before the Employee’s
last day of active service and other post-employment benefits required by law or
under Company policy. Under this Section, Employee shall not be entitled to
receive any portion of any bonus for the period in which the termination occurs
and (iii) all of Employee’s unvested Time Vested Options and unvested
Performance Based Stock Options will not vest and will be forfeited.

 

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4.4Termination by the Employee For Good Reason.

 

a.       This Agreement may be terminated by the Employee upon notice to the
Company of any event constituting "Good Reason" as defined herein.

 

b.       As used herein, the term "Good Reason" means (a) the failure of the
Company to pay Employee’s compensation in accordance with this Agreement without
the prior written consent of the Employee; (b) the decision by the Company to
require Employee to relocate his personal residence during the Term of
Employment; or (c) the failure of the Company to comply with the material terms
of this Agreement, including but not limited to the provisions of Section A of
the Addendum; provided, however, that the Employee shall not be deemed to have
Good Reason pursuant to this provision unless the Employee gives the Company
written notice that the specified conduct or event has occurred and making
specific reference to this Section 4.4 and the Company fails to cure such
conduct or event within thirty (30) days of receipt of such notice.

 

c.       In the event the Employee terminates this Agreement under this Section
4.4, Employee shall be entitled to the severance benefits described under
Section 4.2(b) pertaining to Termination By the Company Without Cause.

 

4.5          Termination By Death Or Disability. The Employee’s employment and
rights to compensation under this Agreement shall terminate if the Employee is
unable to perform the duties of Employee’s position due to death or disability;
and the Employee, or the Employee’s heirs, beneficiaries, successors, or
assigns, shall be entitled only to receive any compensation fully earned prior
to the date of the Employee’s last day of active employment prior to such death
or incapacitation due to disability and shall not be entitled to any other
compensation or benefits, except: (a) to the extent specifically provided in
this Agreement; (b) to the extent required by law; or (c) to the extent that
such benefit plans or policies under which Employee is covered provide a benefit
to the Employee or to the Employee’s heirs, beneficiaries, successors, or
assigns. As detailed in Addendum A hereto, Employee’s unvested Time Vested
Options (if any) will automatically vest in the case of the Employee’s
termination of employment with the Company by death or disability. For purpose
of this agreement, “disability” shall be defined as the Employee’s failure, due
to a mental or physical condition, to perform the essential functions of
Employee’s position for more than 180 days in any 360-day period.

 

4.6          Change In Control and Termination Provisions.

 

(a)          If within a three (3) year period following any Change in Control
(as defined below) after the date hereof, there occurs any of the following:

 

(i) any termination of the Employee other than as set forth in Section 4.3
(Termination by the Company for Cause) or Section 4.5 (Termination by Death or
Disability),

 

(ii) any reduction in the Base Salary or any other compensation as compared to
such Base Salary or any other compensation as of the date immediately prior to
the Change in Control,

 

(iii) any material diminution in the job responsibilities; or

 

(iv) any material, uncured breach of this Agreement by the Company;

 

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then, at the option of the Employee, exercisable by the Employee within ninety
(90) days after the occurrence of any of the foregoing events, the Employee may
resign his employment with the Company (or, if involuntarily terminated, give
notice of his intention to collect benefits under this Agreement) by delivering
a notice in writing (the “Notice of Termination”) to the Company, and the
Employee shall be entitled to receive the severance benefits described under
Section 4.2(b) pertaining to Termination by the Company Without Cause provided
that the Employee’s unvested Performance Based Stock Options, as described in
Addendum A, also will automatically vest on the date of such resignation.

  

(b)          Notwithstanding any provisions now or hereafter existing under the
Company’s 2014 Omnibus Incentive Plan or any other stock option plan or
restricted share plan of the Company or any entity which directly or indirectly
controls the Company, in the event of a Change in Control, all options and all
restricted shares provided and/or to be provided to the Employee pursuant to
this Agreement, the Company’s 2014 Omnibus Incentive Plan and/or any other
agreement between the Company (or any entity which directly or indirectly
controls the Company) and Employee shall be granted and shall immediately fully
vest as of the date of such Change in Control with such options and restricted
shares being valued at the closing price of the common stock underlying such
options and/or restricted stock grants on the day prior to the day of the Change
of Control or, in the event such common stock is not then traded and quoted on a
securities exchange or automated quotation system, then the value per share of
such common stock shall be the higher of either (i) the book value per share of
such common stock, (ii) the price per share of such common stock on the
effective date hereof, or (iii) the average price per share of such common stock
during the six (6) month period immediately preceding the date on which such
shares of common stock were no longer traded and/or quoted on a securities
exchange or automated quotation system.

 

(c)          For purposes of this Agreement, a “Change in Control” shall be
deemed to exist if any of the following occurs after the date hereof:

 

(i)       a person, as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (other than the Employee or a group including the
Employee), either (A) acquires thirty percent (30%) or more of the combined
voting power of the outstanding securities of the Company or any entity which
directly or indirectly controls the Company, which securities have the right to
vote in elections of directors of the Company or any entity which directly or
indirectly controls the Company, and such acquisition shall not have been
approved within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as hereinafter defined) then in office, or (B) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Company or any entity which directly or indirectly controls
the Company, which securities have the right to vote in elections of directors
of the Company or any entity which directly or indirectly controls the Company;
or

 

(ii)       Continuing Directors shall for any reason cease to constitute a
majority of the Board of Directors; or

 

(iii)       the Company or any entity which directly or indirectly controls the
Company disposes, by sale of stock, assets or otherwise, of all or substantially
all of the business of the Company or the business of any entity which directly
or indirectly controls the Company to a party or parties other than a subsidiary
or other affiliate of the Company or any entity which directly or indirectly
controls the Company pursuant to a partial or complete liquidation of the
Company or any entity which directly or indirectly controls the Company; or

 

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(iv)       the Board of Directors of the Company or any entity which directly or
indirectly controls the Company approves the consolidation or merger of the
Company or any entity which directly or indirectly controls the Company with or
into any other person or entity (other than a wholly-owned subsidiary of the
Company or any other entity which is directly or indirectly controlled by the
Company), or any other person’s consolidation or merger with or into the Company
or any entity which directly or indirectly controls the Company, which results
in all or part of the outstanding shares of common stock of the Company or any
entity which directly or indirectly controls the Company being changed in any
way or converted into or exchanged for stock or other securities or cash or any
other property.

 

For purposes of this Agreement, the term “Continuing Director” shall mean a
member of the Board of Directors of the Company or any entity which directly or
indirectly controls the Company who either was a member of such Board of
Directors on the date hereof or who subsequently became a Director of the
Company or any entity which directly or indirectly controls the Company and
whose election, or nomination for election, was approved by a vote of at least
two-thirds (2/3) of the Continuing Directors then in office.

 

5.       CONFIDENTIALITY AND NONDISCLOSURE

 

5.1          Non-Disclosure of Confidential Information. Employee recognizes
that Employee’s position with Company is one of the highest trust and confidence
and that Employee will have access to and contact with the trade secrets and
confidential and proprietary business information of Company. Employee agrees
that Employee shall not, while employed by Company or thereafter, directly or
indirectly, use for Employee’s own benefit or for the benefit of another, or
disclose to another any trade secret or Confidential Information (as defined
below) of the Company, except such use or disclosure is required in the
discharge of Employee’s duties and obligations on behalf of the Company or may
be legally compelled in accordance with any regulatory or litigation proceeding.

 

5.2          Definition of “Confidential Information.” For purposes of this
Agreement, “Confidential Information” shall include proprietary or sensitive
information, materials, knowledge, data or other information of the Company not
generally known or available to the public relating to (a) the services,
products, Biological Materials (as hereinafter defined), customer lists,
business plans, marketing plans, pricing strategies, or similar confidential
information of the Company, including but not limited to the Company’s trade
secrets, patents, intellectual property, systems, procedures, manuals, cost and
pricing information, solicitations, proposals, bids, contracts, confidential
reports and work product prepared in connection with projects and contracts,
supporting information for any of the above items, the identities and records of
government agencies and offices and contacts, contractors and contacts, and
subcontractors and contacts with whom the Company has done business or is
seeking to do business, the identities and records of vendors and suppliers of
personnel, material and/or raw materials, all accounting and financial
information, business plans and budgets, and all other information pertaining to
the business activities and affairs of the Company of every nature and type; (b)
the business of any Company customer, including without limitation, knowledge of
the customer’s current business or staffing needs; and (c) the identities and
records of current or former employees of the Company or potential hires and
their compensation arrangements with the Company.

 

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5.3          Return of Materials, Equipment and Biological Materials. Employee
further agrees that all memoranda, notes, computer files, records, drawings,
reports or other documents, in any format, made or compiled by Employee or made
available to Employee while employed by Company concerning any Company activity
shall be the property of Company and shall be delivered to Company upon
termination of Employee's employment or at any other time upon request. Employee
also agrees to return to the Company and not retain any and all equipment,
including laptop computers, and Biological Materials belonging to the Company on
or before Employee’s last day of employment with Company.

 

5.4          No Prior Restrictions. The Employee hereby represents and warrants
to the Company that the execution, delivery, and performance of this Agreement
does not violate any provision of any agreement or restrictive covenant which
the Employee has with any former employer which is not a Company Affiliate (a
“Former Employer”). The Employee further acknowledges that to the extent the
Employee has an obligation to the Former Employer not to disclose certain
confidential information, Employee intends to honor such obligation and the
Company hereby agrees not to knowingly request the Employee to disclose such
confidential information.

 

6.       Restrictive CovenantS

 

Employee acknowledges that Employee’s services to be rendered hereunder are of a
special and unusual character, which have a unique value to the Company and that
the Company will be investing time, effort, and expense in Employee. In view of
the unique value to the Company of the services of the Employee for which the
Company has contracted hereunder, the investments by the Company in the
Employee, and as a material inducement for the Company to enter into this
Agreement and to pay to the Employee the compensation provided hereunder,
Employee covenants and agrees as follows:

 

6.1.          Definitions. The following definitions shall be applicable to each
of the covenants set forth in this Section.

 

a.       Definition of “Customer.” As used herein, “Customer” is defined as any
person or entity, including without limitation a Government Agency, to whom
Employee, directly or indirectly (e.g., the end user of the services if the
Company is a subcontractor), provided services while employed with the Company
or with whom Employee interacted on behalf of the Company at any time during
Employee’s employment with Company.

 

b.       Definition of “Prospective Customer.” As used herein, “Prospective
Customer” shall mean any person or entity, including without limitation a
Government Agency, whom the Employee, at any time during the twelve (12) month
period preceding the termination of Employee’s employment, was involved in
working on a proposal for, soliciting or making a proposal to, on behalf of the
Company, for the provision of services.

 

c.       Definition of “Government Agency.” As used herein, “Government Agency”
shall be limited to the division, department, operating unit, group, or other
appropriate sub-entity of an agency to which the Employee provided services
while employed with the Company or with whom Employee interacted on behalf of
the Company at any time during Employee’s employment with Company.

 

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d.       Definition of “Biological Materials.” As used herein, “Biological
Materials” shall mean any plant, seed, propagule, embryo, leaf, root and/or
other plant part or tissue, and/or gene construct or fragment thereof, belonging
to or produced for the Company and/or its Affiliates, including any of the
foregoing produced by Employee or produced by others during Employee’s
employment with the Company.

 

e.       Definition of “Intellectual Property” As used herein, “Intellectual
Property” shall mean any and all inventions, developments, formulas,
discoveries, concepts, trademarks, improvements, designs, innovations, data,
processes, software, works of authorship, know-how, plants, plant varieties
(whether registered for plant variety protection or not), tobacco products,
smoking cessation aids, cannabis products, cannabinoids, cannabinoid products,
drugs and ideas (whether patentable or not) directly or indirectly related to
the Company and/or its Affiliates (i) conceived or made by Employee, either
alone or with others, while employed by the Company or its Affiliates, that
relate to the Company’s business or protectable interests as described in this
Agreement and/or (ii) conceived or made by Employee, either alone or with
others, with the use of Confidential Information.

 

6.2          Covenants.

 

a.       Non-Competition with Customers, Prospective Customers and Industry.
During Employee's employment by the Company and for a period of two (2) years
after Employee ceases to be employed by the Company for any reason, then
Employee will not (except on behalf of the Company), directly or indirectly, as
either an employee, contractor, or consultant, whether personally or through
another entity, develop, grow, make, offer, market, distribute, sell and/or
advocate (on behalf of Employee or another company, but excluding the Employee’s
general public speaking or publishing activities) altered toxicant tobacco
plants; very low nicotine tobacco plants; very high nicotine tobacco plants;
products made from altered nicotine tobacco plants; altered cannabinoid plants;
or products made from altered cannabinoid plants . Employee specifically
recognizes and agrees that the restrictions set forth in this subsection are
reasonable. Notwithstanding the foregoing provisions of this Section 6.2(a), the
Company recognizes that Employee has experience in the tobacco industry as a
prior employee of certain tobacco companies that market and sell combustible
cigarettes, cigars, and non-combustible tobacco products. The Company recognizes
that Employee is now, and will continue to be, a consultant to third-party
companies; as such, Employee will retain the right to conduct his personal
business with third party companies (including but not limited to the right to
seek employment from such third party companies), in areas not specifically
excluded in this Agreement, both during Employee's employment by the Company
(within the provisions of Section 1.3 of this Agreement) and after Employee
ceases to be employed by the Company and such permitted activities shall not
constitute a violation of this Agreement.

 

b.       Non-Interference With Customers or Prospective Customers. Employee
further agrees that, for the term of Employee’s employment and for a period of
two (2) years after Employee ceases to be employed by the Company, the Employee
shall not undertake to interfere with the Company’s relationship with any
Customer, Prospective Customer, researcher, supplier, distributer, farmer and/or
manufacturer. This means that Employee shall refrain: (i) from making
disparaging comments about the Company or its board, management or employees to
any Customer or Prospective Customer; (ii) from attempting to persuade any
Customer, Prospective Customer, researcher, supplier, distributer, farmer and/or
manufacturer to cease or reduce doing business with the Company; (iii) from
soliciting any Customer (excluding suppliers and distributors), Prospective
Customer (excluding suppliers and distributors), researcher, farmer and/or
manufacturer for the purpose of providing services competitive with the Company
Business; or (iv) from assisting any person or entity in doing any of the
foregoing.

 

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c.       Non-Solicitation and Non-Hiring of Employees. Employee agrees that, for
the term of Employee’s employment and for a period of two (2) years after
Employee ceases to be employed by the Company, the Employee shall not, directly
or indirectly, as an employee, consultant, contractor, principal, agent, or
owner, on Employee’s own behalf or the behalf of another person or entity: (i)
induce or attempt to induce any person employed or otherwise retained by the
Company to leave their employment or retention with the Company; (ii) hire or
employ, or attempt to hire or employ, any person employed by the Company; or
(iii) assist or facilitate in any way any other person or entity in the hiring
or other retention of any person employed by the Company. The foregoing
restriction shall not apply to any person who was brought on by the Employee as
a consultant or subcontractor to the Company at any time during the Employee’s
employment with the Company. This provision shall not limit the scope or the
enforceability of the confidentiality restriction prohibiting the use or
disclosure of any information pertaining to current or former employees of the
Company or potential hires that was obtained in any manner during the period of
Employee’s employment with the Company.

 

d.       Further Covenants. Employee further agrees, for the term of Employee’s
employment with the Company or any of its affiliates and for a period of two (2)
years after Employee ceases to be employed by the Company or any of its
Affiliates, as follows:

 

(i) To disclose promptly in writing to the Company (but to no others), in such
manner as the Company may from time to time prescribe, all Intellectual
Property, whether patentable or not, developed during the Term of employment
related to the Company. All such Intellectual Property shall be the sole and
exclusive property of the Company;

 

(ii) To assign and convey to the Company, upon request, the complete worldwide
right, title and interest in and to all Intellectual Property conceived or made
by Employee during the Term of employment related to the Company. Upon the
request of the Company, Employee shall execute such further assignments and
other instruments as may be necessary or desirable to fully and completely
assign all such Intellectual Property to the Company and to assist the Company
in applying for, obtaining and enforcing patents or copyrights or other rights
in the United States and in any other jurisdiction with respect to any such
Intellectual Property;

 

(iii) To promptly deliver to the Company any and all written records (in the
form of notes, sketches, drawings and any other form as may be specified by the
Company) documenting the concepts and/or actual reduction to practice of any
such Intellectual Property developed during the Term of employment related to
the Company. Such written records shall at all times be and remain the sole
property of the Company;

 

(iv) Employee shall not be entitled to any payments or awards by reason of any
patent application made by the Company or the granting of any patent thereon
and, in the event the Company is required by its contracts with its customers,
including the United States Government, to transfer rights to certain
Intellectual Property to said customers, Employee also shall not be entitled to
any payments or awards by reason of any patent application made by any of said
customers, or the granting of any patent thereon;

 

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(v) During the Employee’s employment with the Company and thereafter, and
subject to the Company’s agreement to compensate Employee for all reasonable
expenses in this regard, Employee shall do all lawful acts, including the
execution of papers and giving of testimony that may be necessary or helpful, in
obtaining, sustaining, reissuing and renewing United States patents and foreign
jurisdiction patents on all such Intellectual Property and/or for perfecting and
maintaining the title of the Company thereto; and to otherwise cooperate with
the Company in any controversy or legal proceedings relating to such
Intellectual Property or to patent applications or patents based thereon;

 

(vi) Insofar as reports, papers and technical information created by Employee
and/or the Company contain unique, proprietary, non-public, and/or copyrightable
material, the Employee agrees that the Company shall have the sole and exclusive
right to disclose, publish, reproduce, distribute and circulate said material,
without cost or liability; and Employee hereby grants all rights of Employee
therein to the Company and Employee further releases the Company, its affiliates
and its customers from any and all liability for disclosing, publishing,
reproducing, distributing and/or circulating any such materials; and

 

(vii) All information and/or materials related to the Company and/or its
business as created, in whole or in part, by the Employee during the course of
Employee’s employment with the Company and that relate to the Company shall be
solely owned by the Company as “Works Made for Hire”, as defined by the United
States Copyright Act. To the extent any such works are not, by operation of law,
“works made for hire”, then Employee hereby assigns to the Company the sole and
exclusive ownership of any and all rights of copyright in such works, including,
without limitation, all Intellectual Property developed during the Term of
employment related to the Company, and the Company shall have the sole right to
obtain and hold in its own name all copyrights, copyright registrations and
similar protections that may be available in such materials, works and
Intellectual Property.

 

6.3          Enforcement and Remedies.

 

a.       Reasonableness of Restrictions. Employee has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth in such provisions (including, but not limited to, the
time period of the restrictions) are fair and reasonable and are reasonably
required for the protection of the interests of the Company, its shareholders,
directors, officers, and employees.

 

b.       Severability and Reformation. In the event that, notwithstanding the
foregoing, any portions of this Section 6 hereof shall be held to be invalid or
unenforceable, the remaining portions thereof shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable portions had not
been included therein. In the event that any provision of this Section 6 shall
be declared by a court of competent jurisdiction to be invalid due to overly
broad, the parties do hereby authorize the court to reform the offending
provision so as to make it enforceable.

 

c.       Successors. Employee specifically acknowledges and agrees that these
covenants contained in this Section 6 shall be enforceable by any successor to
the Company.

 

d.       Extension of Term of Covenant In Event of Breach. In the event Employee
breaches any of the restrictions set forth in Section 6.2, then, in addition to
any other remedies to which the Company may be entitled, the duration of the
restrictions shall be extended automatically to one year from the latest date on
which Employee shall have ceased to violate the covenants.

 

 Page 10 of 16 

 

 

e.       Additional Remedies. In the event that Employee breaches any of the
covenants contained herein, the Company shall be entitled to its remedies at law
and in equity, including but not limited to compensatory and punitive damages,
and payment by Employee of the reasonable attorneys’ fees, court costs, and
other expenses incurred by the Company in enforcing the terms of this Agreement.
The parties also recognize that any breach of the covenants contained herein may
result in irreparable damage and injury to Company which will not be adequately
compensable in monetary damages, and that in addition to any remedy that Company
may have at law, the Company may seek such preliminary or permanent injunction
or decree as may be necessary to protect Company against, or on account of, any
breach of the provisions contained herein. In addition, Employee covenants and
agrees that, if Employee violates any of the covenants under Section 6.2 above,
the Company shall be entitled to an accounting and repayment of all profits,
compensation, commission, remuneration or benefits which Employee, directly or
indirectly, has realized and/or may realize from the transactions that give rise
to such violation(s).

 

7.          General Provisions

 

7.1       Notices. All notices and other communications required or permitted by
this Agreement to be delivered by the Company or Employee to the other party
shall be delivered in writing, either personally, by a national overnight
delivery service (such as FedEx or UPS) or by certified or express mail, return
receipt requested, postage prepaid, respectively, in each case being to the
attention of the Chief Executive Officer or President at the headquarters of the
Company, or to the address of record of the Employee on file at the Company. If
notice is sent by overnight delivery service, it shall be deemed given and
effective on the next business day after it was deposited with a national
overnight delivery service. If notice is sent by certified mail, it shall be
deemed given and effective on the third day after it was deposited in the mail.

 

7.2       Amendments: Entire Agreement. This Agreement may not be amended or
modified except by a writing executed by all of the parties hereto. This
Agreement, including any addenda hereto, constitutes the entire agreement
between Employee and the Company relating in any way to the employment of
Employee by the Company, and supersedes all prior discussions, understandings
and employment agreements among Employee, Company and Company’s Affiliates with
respect thereto.

 

7.3       Tax Matters. All payments provided pursuant to this agreement are
subject to reduction for applicable withholding and payroll taxes. To the extent
applicable, it is intended that this Agreement shall comply with the provisions
of Section 409A of the Internal Revenue Code (the “Code”) and the Treasury
regulations relating thereto, or with an exemption to Section 409A of the Code,
and payments, rights and benefits only may be made, satisfied or provided
hereunder upon an event and in a manner permitted by Code Section 409A. This
Agreement shall be interpreted, operated and administered in a manner consistent
with these intentions, and to the extent that any regulations or other guidance
issued under Code Section 409A would result in the Employee being subject to
payment of additional income taxes or interest under Code Section 409A, then the
parties agree, to the extent possible, to amend this Agreement to maintain to
the maximum extent possible the original intent of the Agreement while avoiding
the application of such taxes or interest.

 

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7.4       Successors and Assigns. This Agreement is personal to Employee and
shall not be assignable by Employee. The Company may assign its rights hereunder
to (a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business of the Company existing at such
time. All of the terms and provisions of this Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.

 

7.5       Severability: Provisions Subject to Applicable Law. All provisions of
this Agreement shall be applicable only to the extent that they do not violate
any applicable law, and are intended to be limited to the extent necessary so
that they will not render this Agreement invalid, illegal or unenforceable under
any applicable law. If any provision of this Agreement or any application
thereof shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of other provisions of this Agreement or of any
other application of such provision shall in no way be affected thereby.

 

7.6       Waiver of Rights. No waiver by the Company or Employee of a right or
remedy hereunder shall be deemed to be a waiver of any other right or remedy or
of any subsequent right or remedy of the same kind.

 

7.7       Definitions, Headings, and Number. A term defined in any part of this
Agreement shall have the defined meaning wherever such term is used herein. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any manner the meaning or interpretation of this Employment
Agreement. In construing this Agreement, feminine or neuter pronouns shall be
substituted for those masculine in form, and vice versa, and plural terms shall
be substituted for singular and singular for plural, in any place where the
context so requires.

 

7.8       Governing Law. This Agreement and the parties' performance hereunder
shall be governed by and interpreted under the laws of the State of New York.
Employee agrees to submit to the jurisdiction of the courts of the State of New
York, County of Erie, and that venue for any action arising out of this
Agreement or the parties' performance hereunder shall be in a court of competent
jurisdiction located in and serving the State of New York, County of Erie.

 

7.9.       Attorneys’ Fees. In the event of a dispute arising out of the
interpretation or enforcement of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs.

 

 

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7.10       Construction and Interpretation. This Agreement has been discussed
and negotiated by, all parties hereto and their counsel and shall be given a
fair and reasonable interpretation in accordance with the terms hereof, without
consideration or weight being given to its having been drafted by any party
hereto or its counsel.

 

IN WITNESS WHEREOF, the Company and the Employee have executed and delivered
this Agreement as of the date first written above.

 

 

EMPLOYEE:   22nd Century Group, Inc.                               By:     James
E. Swauger   Henry Sicignano, III       President and Chief Executive Officer  

 

 

 

 Page 13 of 16 

 

 

Addendum A to

Employment agreement of JAMES E. SWAUGER

 

This Addendum A is dated as of October 31, 2017 (the “Addendum”), to the
Employment Agreement between 22nd Century Group, Inc., (“Company”) and James E.
Swauger (“Employee”), dated as of October 31, 2017 (the “Agreement). This
Addendum shall be effective on October 31, 2017 if Employee commences full-time
work with the Company on or prior to that date.

 

A.Employee’s title for purposes of the Agreement shall be Senior Vice President
of Science and Regulatory Affairs. Employee shall commence his employment with
the Company on October 31, 2017. In this role, Employee shall report to the
President, will have primary hiring and retention authority with respect to all
personnel under his management, will have primary decision-making authority with
respect to all business issues under his responsibility, and will have direct
involvement with -- and responsibility for -- all budgetary issues in the
Company’s Science and Regulatory Affairs business units.

 

B.Unless earlier terminated as provided in the Agreement, the term of the
Agreement is for an initial period of three (3) years, and thereafter the
Agreement shall renew on an annual basis unless earlier terminated by the
Company or the Employee as provided in the Agreement.

 

C.Effective as of the date of this Addendum, Employee’s Base Salary for purposes
of the Agreement shall be equivalent to $250,000 per year (paid bi-weekly at a
gross rate of $9,615.38 per pay period prior to required deductions and
withholdings) for the period immediately following the effective date of this
Addendum. Thereafter, the Base Salary of Employee may be increased, from time to
time, in an amount as determined by the Company.

 

D.Pursuant to the Agreement, Employee shall be eligible for additional
compensation and benefits as follows: (i) cash bonuses, from time to time, in an
amount as determined by the Company, and (ii) participation in the Company’s
2014 Omnibus Incentive Plan and/or any similar stock equity plan that the
Company may establish after the date hereof. Generally, both annual cash bonuses
and equity incentive plan grants are awarded to employees in the first quarter
of the calendar year. As this the date of this Agreement is in the fourth
quarter of 2017, Employee will be eligible to receive a cash bonus and an equity
incentive plan grant in the first quarter of 2019 and at future times as
determined by the Company’s Board of Directors.

 

E.As a one-time inducement to accept the offer of employment from the Company,
the Employee will receive a grant of the following stock options after Employee
executes the Employment Agreement and this Addendum:

 

(i)a stock option to purchase Nine Hundred Thousand (900,000) privately issued
shares of the Company’s common stock (the “Time Vesting Shares”) at an exercise
price equal to the closing price of the Company’s common stock on the NYSE
American on October 31, 2017, with such stock option grant being subject to
Employee’s continued employment with the Company that will vest as follows: (i)
Three Hundred Thousand (300,000) of the Time Vesting Shares will be exercisable
on and after November 1, 2018, (ii) an additional Three Hundred Thousand
(300,000) of the Time Vesting Shares will be exercisable on and after November
1, 2019 and (iii) the final Three Hundred Thousand (300,000) of the Time Vesting
Shares will be exercisable on and after November 1, 2020.

 

 Page 14 of 16 

 

 

(ii)a stock option to purchase Three Hundred Thousand (300,000) privately issued
shares of the Company’s common stock (the “Performance Vesting Shares”) at an
exercise price equal to the closing price of the Company’s common stock on the
NYSE American on October 31, 2017, with (i) One Hundred Thousand (100,000) of
the Performance Vesting Shares vesting and becoming fully exercisable if and
when Employee is successful in submitting a complete Modified Risk Tobacco
Product (MRTP) application to the US Food and Drug Administration’s Center for
Tobacco Products for 22nd Century’s Very Low Nicotine MRTP candidate on or
before March 31, 2019, (ii) One Hundred Thousand (100,000) of the Performance
Vesting Shares vesting and becoming fully exercisable if and when the submitted
MRTP application is submitted by FDA CTP to the FDA CTP TPSAC for review, and
(iii) with the remaining One Hundred Thousand (100,000) of the Performance
Vesting Shares vesting and becoming fully exercisable when and if Employee is
successful in securing a Modified Risk Tobacco Product (MRTP) authorization from
the U.S. Food and Drug Administration’s Center for Tobacco Products on or before
December 31, 2020 or before the termination of Employee’s employment, whichever
is earlier (provided that the date December 31, 2020 shall be modified in a
corresponding fashion by any decision to extend the required submission date of
the MRTP to the FDA).

 

(iii)However, Employee’s outstanding and unvested options for Time Vesting
Shares and Performance Vesting Shares will automatically vest in accordance with
the provisions set forth in Article 4 of the Agreement.

 

F.Employee shall not be required to relocate his personal residence under the
Agreement at any time throughout the Term of Employment without his consent,
which can be withheld by Employee in his sole discretion. However, Employee’s
primary place of business will be the Company’s Western New York headquarters
and Employee will be required to be physically present in the Company’s Western
New York headquarters office not fewer than ten (10) days in each month
throughout the Term of the Agreement, excluding business travel days and
vacation days. As a further inducement to accept the offer of employment from
the Company, to accommodate Employee’s desire to maintain his residences outside
of New York State, the Company will rent one-bedroom apartment at Coventry Green
Apartments (4045 Coventry Green Circle, Clarence, NY 14221) and make that
apartment available exclusively to Employee for the duration of the Term of the
Agreement. The Company will also reimburse Employee for the cost of a mid-sized
rental car (or provide Employee with the use of a Company vehicle) for the time
Employee spends in Buffalo throughout the Term of the Agreement. Employee will,
however, be responsible for the cost of travel to and from Buffalo and
Employee’s out-of-state residence or other personal location. . The Company will
reimburse Employee for the expense of all pre-approved Company business travel.

 

G.As of the date of this Addendum, the Company pays 100% of Employee’s premiums
for BlueCross BlueShield GOLD PPO 7100 Insurance (single coverage). It is
understood, however, that Employee will not require Company health insurance in
the year 2017 or the year 2018. Therefore, Employee will be eligible in Q1 2019,
if he so desires, to receive health insurance (single coverage), and dental
insurance (single coverage) benefits as will be provided to similarly situated
executives of the Company.

 

 Page 15 of 16 

 

 

H.Employee may defer a percentage (up to the maximum permitted by law; $18,000
currently) of Employee’s pre-tax salary to the Company’s 401(k) plan. As of the
date of this Addendum, the Company makes per pay period Safe Harbor non-elective
contributions to each participant’s individual account in an amount equal to 3%
of the participant’s gross pay for the period, regardless of whether or not the
Employee made elective deferrals to the plan. Employee must designate how he
would like his 401(k) account invested. Employee will be eligible for this plan
at the 6-month anniversary of his start date (i.e. if Employee begins employment
on October 31, 2017, then Employee will be eligible to enroll in the Company’s
401(k) plan on May 1, 2018).

 

I.In addition to the Company’s six paid national holidays (New Year’s Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day),
Employee will be eligible for three weeks (15 business days) paid vacation time
in addition to five sick/personal days. (However, since the commencement date of
Employee’s employment with the Company is on October 31, 2017, then for the
remainder of the calendar year of 2017 Employee will be eligible for three (3)
business days paid vacation in addition to two (2) sick/personal day).

 

 

EMPLOYEE:   22nd Century Group, Inc.                               By:     James
E. Swauger   Henry Sicignano, III       President and Chief Executive Officer  

 

 

 Page 16 of 16