Exhibit 10.1

 

WARRANT EXERCISE AGREEMENT

 

THIS WARRANT EXERCISE AGREEMENT (this “Agreement”), dated as of August 1, 2013
and effective as of the date stated below, by and among 22nd Century Group,
Inc., a Nevada corporation (the “Company”), and each of the other parties set
forth on the signature page hereto (each such party, a “Holder” and,
collectively, the “Holders”).

 

WHEREAS, the Company and the Holders entered into the Securities Purchase
Agreement, dated as of January 11, 2013 (the “Purchase Agreement”), pursuant to
which the Company issued and sold to the Holders certain Series A Common Stock
Purchase Warrants (“Series A Warrants”) and Series C Common Stock Purchase
Warrants (“Series C Warrants” and collectively with the Series A Warrants, the
“Warrants”);

 

WHEREAS, pursuant to this Agreement, the Company and the Holders wish to enter
into an agreement regarding the cash exercise, coupled with a limited market
make-good adjustment, of some or all of the Warrants on the terms set forth
hereunder.

 

NOW THEREFORE, the Company and each Holder, in consideration of the mutual
covenants contained in this Agreement, do hereby agree as follows:

 

1.    Definitions. All initially capitalized, undefined terms used herein shall
have the meanings ascribed to such terms in the Purchase Agreement.

 

2.    Cash Exercise of Warrants; Adjusted Exercise Price. Effective upon the
Company meeting its obligation of the last sentence of this Section 2, the
Holders shall exercise for One Million Dollars ($1,000,000) the number of shares
of common stock of the Company (the “Common Stock”) underlying the Series A
Warrants and Series C Warrants as set forth on such Holder’s signature page
hereto at a negotiated exercise price of $0.60 per share. The mechanics of such
exercise shall otherwise be subject to the terms of the Warrants. The Holder
acknowledges and agrees that the number of shares of Common Stock to be acquired
by the Holders upon such cash exercise of the Warrants (the “Warrant Shares”)
will be issued with the restrictive legend required pursuant to Section 4.1 of
the Purchase Agreement and be otherwise subject to the provisions of the
Securities Purchase Agreement. Additionally, the Exercise Price (but, as to this
adjustment, not the number of shares of Common Stock issuable upon exercise of
the Warrants) of all unexercised Warrants shall hereby be reduced to $0.60 per
share, subject to adjustment therein. For purposes of Section 3(b) of any
unexercised Warrants, the issuances of securities under this Agreement and
adjustment to the Exercise Price hereunder shall be deemed an “Exempt Issuance”.
On or before 9 am ET on August 5, 2013, the Company shall have publicly
disclosed all information about the terms of this Agreement (“Disclosure”). The
closing and payment of the cash exercise under this Agreement shall occur within
one Trading Day following the date of the Disclosure (the “Closing Date”). For
avoidance of doubt, the term “Warrant Shares” shall not include shares of Common
Stock acquired pursuant to a cashless exercise of a Warrant or shares of Common
Stock that remain issuable under a Warrant following the Closing Date.

 

 

 

 

3.    Limited Market Make-Good. On the earlier of the date (a) all of the
Warrant Shares have been sold pursuant to Rule 144 or may be sold pursuant to
Rule 144 without volume or manner-of-sale restrictions, (b) immediately
following the six (6) month anniversary of the Closing Date (or, if the Company
is not then current in its reports with the Commission, such later date that the
Company becomes current pursuant to Rule 144) or (c) following the one year
anniversary of the Closing Date provided that a holder of Warrants is not an
Affiliate of the Company, all of the Warrant Shares may be sold pursuant to an
exemption from registration under Section 4(1) of the Securities Act without
volume or manner-of-sale restrictions in the opinion of counsel to the Company
or such Holder (such date, the “Effective Date”), if the five (5) day volume
weighted average price for the period covering the five (5) Trading Days
immediately prior to the Effective Date (the “Make-Good Price”) is less than the
greater of (a) $1.31 and (b) if the Disclosure has not been publicly disclosed
by 9 am ET on August 5, 2013, the highest closing bid price of the Common Stock
prior to the Closing Date (“Trigger Price”), then, within 3 Trading Days of the
Effective Date, the Company shall pay to such Holder an amount in cash
(“Make-Good Amount”) equal to (A)(B-C), where:

 

(A)= the number of Warrant Shares issued to the Holder under this Agreement that
are owned by a Holder on the Effective Date ;

(B)= Trigger Price, subject to adjustment for reverse and forward stock splits
and the like; and

(C)= the higher of (i) the Make-Good Price or (ii) $0.60.

 

Notwithstanding the foregoing, (i) the Company shall have no obligation to pay
the Make Good Amount until and unless the Holder has incurred an actual loss by
selling all or a portion of the Warrant Shares for less than the Trigger Price
in transactions which are not short-sales or other willful transactions by the
Holder at prices below the then current market price of the Common Stock on the
date(s) of sale of any Warrant Shares, and (ii) the amount of the payment to be
made by the Company to the applicable Holders shall be equal to the actual
losses incurred by the Holders upon the sales of the Warrant Shares below the
Trigger Price, but with the maximum amount payable hereunder being equal to no
more than the Make-Good Amount.

 

Notwithstanding anything herein to the contrary, at any time after the six (6)
month anniversary of the Closing Date, assuming the Effective Date has not yet
occurred, then (i) a Holder may declare the Effective Date to have occurred upon
written notice to the Company and (ii) the Company shall continue to have the
right to declare the Effective Date upon prior written notice to the Holders of
the occurrence and time of the Effective Date.

 

4.    Effect on Transaction Documents. Except as expressly set forth herein, all
of the other terms and conditions of the Transaction Documents (as defined in
the Purchase Agreement), as amended or modified to date, shall continue in full
force and effect after the execution of this Agreement and shall not be in any
way changed, modified or superseded by the terms set forth herein, including,
but not limited to, any other obligations the Company may have to the Holders
under the Transaction Documents. The Company expressly acknowledges and agrees
that no Holder shall be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws
from and after the issuance of the Disclosure provided that the Holders shall
not sell in excess of a number of shares of Common Stock during each of the five
(5) Trading Days immediately prior to the Effective Date equal to the greater of
(i) ten percent (10%) of the average daily trading volume of the Common Stock
during the five (5) Trading Days immediately prior to the date in question and
(ii) ten percent (10%) of the trading volume of the Common Stock on the date in
question; provided, however, that this restriction shall only be effective if
the Company shall have provided the Holders with prior written notice of the
occurrence and time of the Effective Date.

 

 

 

 

5.    Execution and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 

6.    Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.

 

7.    Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

8.    Headings. The headings in this Agreement are for convenience only, do not
constitute a part of the Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

9.    Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder hereunder are several and not joint with the obligations of any
other Holders hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto, shall be deemed to constitute the
Holders as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Holders are in any way acting in
concert with respect to such obligations or the transactions contemplated by
this Agreement. Each Holder shall be entitled to protect and enforce its rights,
including, but not limited to, the rights arising out of this Agreement, and it
shall not be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.

 

10.    Termination.  This Agreement may be terminated by the Holder if the
Closing Date has not occurred on or before 9:00 AM (EDT) on August 6, 2013.

 

IN WITNESS WHEREOF, each party has executed this Agreement as of the date
written next to the signatures of each party and this Agreement shall be
effective as of the date of execution of this Agreement by the last party to
execute this Agreement as shown by the date next to such party’s signature
below.

 

 

 

 

 

22ND CENTURY GROUP, INC.

 

 

Date: August 1, 2013

 

By: /s/ Joseph Pandolfino

Name: Joseph Pandolfino

Title: Chief Executive Officer

 

 

[signatures of Holders appears on the next page]

 

 

 

 

 

 

 

 

Name of Holder: Sabby Volatility Warrant Master Fund, Ltd.

 

Signature of Authorized Signatory of Holder: __________________________

 

Name of Authorized Signatory: _________________________

 

Title of Authorized Signatory: __________________________

 

Date: ___________________, 2013

 

Series A Warrants Exercised: ___________________________

 

Series C Warrants Exercised: __________________________

 

 

Name of Holder: Sabby Healthcare Volatility Master Fund, Ltd.

 

Signature of Authorized Signatory of Holder: __________________________

 

Name of Authorized Signatory: _________________________

 

Title of Authorized Signatory: __________________________

 

Date: ___________________, 2013

 

Series A Warrants Exercised: ____________________________

 

Series C Warrants Exercised: ___________________________