Document:

NEITHER THIS SECURITY
NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

 

SERIES C COMMON STOCK PURCHASE WARRANT

 

22nd
century group, inc.

 

	Warrant Shares: [___]	Initial Exercise Date: January 11, 2013

 

THIS SERIES C COMMON
STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [___] or its assigns (the “Holder”)
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on
or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the five
year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for
and purchase from 22nd Century Group, Inc., a Nevada corporation (the “Company”), up to [___] shares (as subject
to adjustment hereunder, the “Warrant Shares”) of Common Stock; provided, however, the exercisability
of this Series C Warrant shall vest ratably from time to time in proportion to the Holder’s (or its permitted assigns) exercise
of the Series B Common Stock Purchase Warrant as compared with all Series B Common Stock Purchase Warrants issued to Holder at
the Closing (“Vesting Schedule”). Notwithstanding anything herein to the contrary, (i) if the Holder exercises
all of its Series B Common Stock Purchase Warrants issued at Closing, then all Warrant Shares hereunder may be exercised by the
Holder and (ii) if the Holder exercises half of the Series B Common Stock Purchase Warrant issued at Closing, only half of the
Warrant Shares hereunder may be exercised by the Holder until such time that the Holder exercises additional Series B Common Stock
Purchase Warrants. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as
defined in Section 2(b).

 

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Section 1.           Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement
(the “Purchase Agreement”), dated January 11, 2013, among the Company and the purchasers signatory thereto.

 

Section 2.           Exercise.

 

a)         Exercise
of Warrant. Subject to the Vesting Schedule, exercise of the purchase rights represented by this Warrant may be made, in whole
or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the
address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise form annexed
hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have
received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn
on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice
of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number
of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and
the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise Form within one (1) Business Day of receipt of such notice. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given
time may be less than the amount stated on the face hereof.

 

b)         Exercise
Price. The exercise price per share of the Common Stock under this Warrant shall be $0.72, subject to adjustment hereunder
(the “Exercise Price”).

 

c)         Cashless
Exercise. If at any time after the Initial Exercise Date, there is no effective Registration Statement registering, or no current
prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or
in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

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	(A)	=	the VWAP on the Trading Day immediately preceding the
date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable
Notice of Exercise;

 

	(B)	=	the Exercise Price of this Warrant, as adjusted hereunder;
and

 

	(X)	= 	the number of Warrant Shares that would be issuable
upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather
than a cashless exercise.

 

Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant
to this Section 2(c).

 

d)         Mechanics
of Exercise.

 

i.            Delivery
of Warrant Shares Upon Exercise. Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder
by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal
at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an
effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder
or (B) the shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery
to the Company of the Notice of Exercise and (B) surrender of this Warrant (if required) (such date, the “Warrant Share
Delivery Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated
to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant
has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required
to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company
fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading
Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading
Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.

 

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ii.         Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing
the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.

 

iii.         Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv.         Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before
the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction
or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the
number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times
(2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in
which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.
Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v.           No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.

 

vi.         Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company,
and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company
may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The
Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.

 

vii.         Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

 

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e)         Holder’s
Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder
or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth
in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company
is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder
is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained
in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of
the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant
is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this
Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by
the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares
of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation”
shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock issuable upon exercise of this Warrant. The provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Warrant.

 

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Section 3.           Certain
Adjustments.

 

a)         Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)         Subsequent
Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall
sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any
offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective
price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued
in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than
the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive
Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall
be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased
such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be
equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. Notwithstanding anything in the Warrant to the contrary, no adjustments shall be made, paid or issued
under this Section 3(b) in respect of an Exempt Issuance; provided, however, in no event shall shares of Common Stock
issued and issuable upon conversion of the Preferred Stock be an “Exempt Issuance” for purposes of this Section 3(b).
The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any
Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).
For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share
Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters
into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have
issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may
be converted or exercised. In case any Common Stock Equivalent(s) (including, without limitation, any options or warrants) are
issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction,
(x) such Common Stock Equivalents will be deemed to have been issued for a value determined by use of the Black and Scholes Option
Pricing Model (the “Option Value”) and (y) the other securities issued or sold in such integrated transaction
shall be deemed to have been issued for the difference of (I) the aggregate consideration received by the Company, less (II)
the Option Value.

 

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c)         Subsequent
Rights Offerings. In addition to any adjustments pursuant to the other subsections of Section 3,
if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities
or other property pro rata to all the record holders of any class of shares of Common Stock (the “Purchase Rights”),
then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which
the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of
this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase
Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right
to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its
right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d)         Pro
Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)         Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor
Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after,
the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to
the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the
date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement
of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and
the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement
of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the
price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental
Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company
is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements
in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of
the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable
for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares
of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares
of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction
and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose
of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which
is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions
of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this
Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)         Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)         Notice
to Holder.

 

i.            Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of
Warrant Shares and setting forth a brief statement of the facts requiring such adjustment..

 

ii.         Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares
of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall
not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company
shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled
to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering
such notice except as may otherwise be expressly set forth herein.

 

    	10

    	 

    

 

Section 4.           Transfer
of Warrant.

 

a)         Transferability.
This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in
part, upon delivery of a written assignment of this Warrant substantially in the form attached hereto, to the principal office
of the Company or its designated agent, duly executed by the Holder or its agent or attorney, and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such notice and, if required, such payment, the Company shall (if surrendered)
execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination
or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary,
the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant
in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder
delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith,
may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b)         New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial
Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)         Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.

 

d)         Representation
by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities
law, except pursuant to sales registered or exempted under the Securities Act.

 

    	11

    	 

    

 

Section 5.           Miscellaneous.

 

a)         No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in
Section 3.

 

b)         Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.

 

c)         Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.

 

d)         Authorized
Shares.

 

The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be
listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).

 

    	12

    	 

    

 

Except and
to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting
the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking
any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

 

e)         Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.

 

f)         Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)         Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all
rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of
this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of
appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.

 

h)         Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Purchase Agreement.

 

    	13

    	 

    

 

i)         Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.

 

j)         Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.

 

k)         Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.

 

l)         Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and
the Holder.

 

m)         Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.

 

n)         Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.

 

********************

 

(Signature Page
Follows)

 

    	14

    	 

    

 

IN WITNESS WHEREOF, the
Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

	 	22nd century group, inc.
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:

 

    	15

    	 

    

 

NOTICE OF EXERCISE

 

		To:	22ND CENTURY GROUP, INC. 

 

(1)  The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.

 

(2)  Payment
shall take the form of (check applicable box):

 

 ̈
in lawful money of the United States; or

 

 ̈
if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).

 

(3)  Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

	 

 

The Warrant Shares shall be delivered to
the following DWAC Account Number:

 

	 
	 
	 
	 
	 

 

(4)  Accredited
Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities
Act of 1933, as amended.

 

[SIGNATURE
OF HOLDER]

 

Name of Investing Entity: _______________________________________________________________________________

Signature of Authorized Signatory of
Investing Entity: _________________________________________________________

Name of Authorized Signatory: ___________________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________________

Date: _______________________________________________________________________________________________

 

    	 

    	 

    

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [____
all of or [_______ shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________
whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

	 	Dated: ______________, _______

 

	 	Holder’s Signature:	 	 
	 	 	 	 
	 	Holder’s Address:SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase
Agreement (this “Agreement”) is dated as of January 11, 2013, between 22nd Century Group, Inc., a
Nevada corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described
in this Agreement.

 

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

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.
In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following terms have the meanings
set forth in this Section 1.1:

 

“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board
of Directors”means the board of directors of the Company.

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.

 

“Certificate
of Designation” means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary
of State of Nevada, in the form of Exhibit A attached hereto.

 

“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

    	 

    	 

    

 

“Closing
Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii)
the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived, but in no event later than
the third Trading Day following the date hereof.

 

“Closing
Statement” means the Closing Statement in the form on Annex A attached hereto.

 

“Commission”
means the United States Securities and Exchange Commission.

 

“Common
Stock” means the common stock of the Company, par value $0.00001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.

 

“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company
Counsel” means Foley & Lander LLP, with one of its offices located at 3000 K Street, N.W., Washington, D.C. 20007.

 

“Conversion
Price” shall have the meaning ascribed to such term in the Certificate of Designation.

 

“Conversion
Shares” shall have the meaning ascribed to such term in the Certificate of Designation.

 

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

“Effective
Date” means the earliest of the date that (a) a Registration Statement(s) registering all of the Registrable Securities
has been declared effective by the Commission (or, as to any particular Underlying Shares, the applicable Registration Statement
is effective), (b) all of the Registrable Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without
the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume
or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that a holder of Registrable
Securities is not an Affiliate of the Company, all of the Registrable Securities may be sold pursuant to an exemption from registration
under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such
holders a standing written unqualified opinion that resales may then be made by such holders of the Registrable Securities pursuant
to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

    	2

    	 

    

 

“EGS”
means Ellenoff Grossman & Schole LLP, with offices located at 150 East 42nd Street, New York, New York 10017.

 

“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors
or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities and (c) securities issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders
of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.

 

“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.

 

“FDA”
shall have the meaning ascribed to such term in Section 3.1(kk).

 

“FDCA”
shall have the meaning ascribed to such term in Section 3.1(kk).

 

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

    	3

    	 

    

 

“Lock-Up
Agreement” means each of (i) the Lock-Up Agreement in the form of Exhibit E-1 attached hereto as executed by each
of the insider persons set forth on Schedule A-1 hereto and (ii) the Lock-Up Agreement in the form of Exhibit E-2 attached
hereto as executed by at least the portions of the non-insider holders owning at least approximately ninety percent (90%) of amount
of securities set forth on Schedule A-2 hereto as issued by the Company in private placement transactions occurring in each of
December 2011, May 2012 and November 2012. All Lock-Up Agreements will be dated on or before the date of this Agreement.

 

“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum
Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Pharmaceutical
Product” shall have the meaning ascribed to such term in Section 3.1(kk).

 

“Preferred
Stock” means the 2,500 shares of the Company’s 10% Series A-1 Convertible Preferred Stock issued hereunder having
the rights, preferences and privileges set forth in the Certificate of Designation, in the form of Exhibit A hereto.

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

 

“Public
Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public
Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.

 

“Registration
Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

 

    	4

    	 

    

 

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants
or conversion in full of all shares of Preferred Stock, ignoring any conversion or exercise limits set forth therein, and assuming
that any previously unconverted shares of Preferred Stock are held until the five year anniversary of the Closing Date and all
dividends are paid in shares of Common Stock until such five year anniversary.

 

“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.

 

“Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.

 

“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”
means the Preferred Stock, the Warrants, the Warrant Shares and the Underlying Shares.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall
not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

“Stated
Value” means $1,000 per share of Preferred Stock.

 

“Subscription
Amount” shall mean, as to each Purchaser, the aggregate amount to be paid for the Preferred Stock purchased hereunder
as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.

 

    	5

    	 

    

 

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“Transaction
Documents” means this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement, the
Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

 

“Transfer
Agent” means Continental Stock Transfer & Trust Company, the current transfer agent of the Company, with a mailing
address of 17 Battery Place, New York, New York 10004 and a facsimile number of (212) 509-5150, and any successor transfer agent
of the Company.

 

“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock, upon exercise of
the Warrants and issued and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms
of the Certificate of Designation.

 

“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market other than the OTC Bulletin Board, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported
by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if
the Common Stock is then trading on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then trading on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

    	6

    	 

    

 

“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of exercise as set forth in Section 2.2(a), in the form
of Exhibit C attached hereto.

 

“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE II.

 

PURCHASE AND SALE

 

2.1           Closing.
On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution
and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly,
agree to purchase, an aggregate of $2,500,000 of shares of Preferred Stock with an aggregate Stated Value for each Purchaser equal
to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and Warrants
as determined by pursuant to Section 2.2(a). The aggregate number of shares of Preferred Stock sold hereunder shall be 2,500. Each
Purchaser shall deliver to the Company, via wire transfer, immediately available funds equal to its Subscription Amount and the
Company shall deliver to each Purchaser its respective shares of Preferred Stock and Warrants as determined pursuant to Section
2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or
such other location as the parties shall mutually agree.

 

2.2           Deliveries.

 

(a)          On
or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)          this
Agreement duly executed by the Company;

 

(ii)         a
legal opinion of Company Counsel, substantially in the form of Exhibit D attached hereto;

 

(iii)        a
certificate evidencing a number of shares of Preferred Stock equal to such Purchaser’s Subscription Amount divided by the
Stated Value, registered in the name of such Purchaser and evidence of the filing and acceptance of the Certificate of Designation
from the Secretary of State of Nevada;

 

(iv)        a
Warrant (the “Series A Warrant”) registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to 100% of such Purchaser’s Subscription Amount divided by the initial Conversion Price, with an exercise
price equal to $0.6995, subject to adjustment therein, which Warrant shall have a term of
exercise of five years;

 

    	7

    	 

    

 

(v)         a
Warrant (the “Series B Warrant”) registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by the initial Conversion Price, with an exercise
price equal to the initial Conversion Price, subject to adjustment therein, which Warrant
shall have a term of exercise of 12 months, subject to extension as set forth therein;

 

(vi)        a
Warrant (the “Series C Warrant”) registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by the initial Conversion Price, with an initial
exercise price equal to $0.6995, subject to adjustment therein, which Warrant shall have a
term of exercise of five years; provided, however, that the Series C Warrant will contain an early termination provision
in which the Series C Warrant will automatically terminate in the event the Series B Warrant is not exercised prior to its termination;

 

(vii)       the
Lock-Up Agreements; and

 

(viii)      the
Registration Rights Agreement duly executed by the Company.

 

(b)          On
or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, the following:

 

(i)          this
Agreement duly executed by such Purchaser;

 

(ii)         such
Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company; and

 

(iii)        the
Registration Rights Agreement duly executed by such Purchaser.

 

2.3           Closing
Conditions.

 

(a)          The
obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)          the
accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)         all
obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been
performed; and

 

(iii)        the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b)          The
respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being
met:

 

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(i)          the
accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);

 

(ii)         all
obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii)        the
delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv)        there
shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(v)         from
the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s
principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P.
shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the
reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed
a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

 

(a)          Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

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(b)          Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)          Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

 

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(d)          No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing
a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)          Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)
the filings required pursuant to Section 4.6 of this Agreement, (ii) the filing with the Commission pursuant to the Registration
Rights Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Conversion Shares and Warrant Shares for trading thereon in the time and manner required thereby, and (iv)
the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).

 

(f)          Issuance
of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with
the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed
by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.

 

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(g)          Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except
as set forth in Schedule 3.1(g), the Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under
the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee
stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the
most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable
for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. Except as set forth in Schedule 3.1(g), the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation
of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company
is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. Schedule A-1 is
a complete list of all officers, directors and 5% or more shareholders of the Company that beneficially own any voting securities
of the Company. Schedule A-2 is a complete list of all holders of the Company’s warrants and options that have full
ratchet anti-dilution or, could otherwise have a reduction in exercise price less than the Exercise Price of the Series A Warrants.

 

(h)          SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
since January 25, 2011 (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

 

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(i)          Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected 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 consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
except as set forth in Schedule 3.1(g), the Company has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth
on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations,
assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time
this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this
representation is made.

 

(j)          Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities
or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim
of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company
or any current director or officer of the Company, and the Company does not have any knowledge that any former director or officer
that served the Company has been investigated by the Commission. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.

 

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(k)          Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or
any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant
in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(l)          Compliance.
Except as set forth in Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation
of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)          Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation
or modification of any Material Permit.

 

(n)          Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens
for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP
and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.

 

    	14

    	 

    

 

(o)          Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights
and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses
and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).
None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2)
years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have
a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except
where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)          Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any 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
a significant increase in cost.

 

(q)          Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or
any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party
to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, providing for the borrowing of money from or lending of money too or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.

 

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(r)          Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect
to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to
ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries
as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined
in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect,
the internal control over financial reporting of the Company and its Subsidiaries.

 

(s)          Certain
Fees. Except as set forth in Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable
by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank
or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in
this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t)          Private
Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

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(u)          Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.

 

(v)         Registration
Rights. Other than each of the Purchasers, no Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiary.

 

(w)          Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance requirements.

 

(x)          Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y)          Disclosure.
All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and
correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.

 

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(z)          No
Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or their 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 this offering
of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require
the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any
Trading Market on which any of the securities of the Company are listed or designated. 

 

(aa)         Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds
the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry
on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(z) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties
by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;
and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

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(bb)         Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or
of any Subsidiary know of no basis for any such claim.

 

(cc)         No
General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd)         Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person
acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision
of FCPA.

 

(ee)         Accountants.
The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and belief
of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal
year ending December 31, 2012.

 

(ff)         Seniority.
As of the Closing Date, except as set forth in Schedule 3.1(ff), no Indebtedness or other claim against the Company is senior
to the Preferred Stock in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise,
other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby)
and capital lease obligations (which is senior only as to the property covered thereby).

 

(gg)         No
Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.

 

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(hh)         Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. 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 Transaction Documents and the transactions contemplated thereby and any advice given
by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to
each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ii)         Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, except as otherwise provided in Sections 3.2(f) and/or 4.15 hereof, it is understood
and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities
based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or
other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions,
before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each
Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative”
transaction. The Company further understands and acknowledges that, except as otherwise provided in Section 4.15 hereof,
(y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities
are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges
that such aforementioned hedging activities if done in compliance with Section 4.14 hereof will not constitute a breach of any
of the Transaction Documents.

 

(jj)         Regulation
M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of,
any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), except as set forth on Schedule 3.1(jj), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.

 

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(kk)         FDA.
As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal
Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical
Product”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed
by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration,
investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices,
good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the
failure to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company's knowledge,
threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint,
or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket
clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing
of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall,
suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries,
(iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent
decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws,
rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have
a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material
respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the
FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed,
produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product
being developed or proposed to be developed by the Company.

 

(ll)         Stock
Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance
with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value
of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted
under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has
been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock
options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their
financial results or prospects. 

 

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(mm)         Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(nn)         U.S.
Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the
meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s
request.

 

(oo)         Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act
of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly
or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or
more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(pp)         Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company and any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.

 

3.2           Representations
and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

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(a)          Organization;
Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

 

(b)          Own
Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities
law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

 

(c)          Purchaser
Status and No Financing Contingency. At the time such Purchaser was offered the Securities, it was, and as of the date hereof
it is, and on each date on which it exercises any Warrants or converts any shares of Preferred Stock, it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Each Purchaser represents and
warrants to the Company that such Purchaser has all the readily available funds in its possession which are necessary to close
the transactions described in this Agreement without any delay or other need to obtain financing to perform its obligations under
this Agreement.

 

(d)          Experience
of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)          General
Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.

 

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(f)          Certain
Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly
or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases
or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that
such Purchaser first communicated in December 10, 2012 with the Company or any other Person representing the Company regarding
the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty,
or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow
in order to effect Short Sales or similar transactions in the future.

 

The Company acknowledges and agrees that
the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer
Restrictions.

 

(a)          The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the fees and expenses of which shall
be borne by the Company, to the effect that such transfer does not require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement
and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration
Rights Agreement.

 

(b)          The
Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following
form:

 

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NEITHER THIS
SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE OR CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company
acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged
or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights
Agreement) thereunder.

 

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(c)          Certificates
evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities
Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale
under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the
Transfer Agent promptly if required by the Transfer Agent to effect the removal of the legend hereunder. If all or any shares of
Preferred Stock are converted or any portion of a Warrant is exercised at a time when there is an effective registration statement
to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 and the Company is then in
compliance with the current public information required under Rule 144, or if the Underlying Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such
Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission)
then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is
no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records
or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates
for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting
the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 

(d)          In
addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after
the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s
right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief.         

 

(e)          Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance
with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

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4.2           Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3           Furnishing
of Information; Public Information.

 

(a)           If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees
to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60th calendar day
following the date hereof. Until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain
the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions
in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

(b)           At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that
all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise
without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s
other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of
the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every
thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the
date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the
Purchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant
to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public Information
Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to
the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages
for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

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4.4           Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require
the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior
to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.5           Conversion
and Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion
included in the Certificate of Designation set forth the totality of the procedures required of the Purchasers in order to exercise
the Warrants or convert the Preferred Stock. Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice
of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Exercise or Notice of Conversion form be required in order to exercise the Warrants or convert the Preferred Stock. No additional
legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their
Preferred Stock. The Company shall honor exercises of the Warrants and conversions of the Preferred Stock and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6           Securities
Laws Disclosure; Publicity. The Company shall, by 9:00 a.m. (New York City time) on the Trading Day immediately following the
date hereof, file a Current Report on Form 8-K and press release disclosing the material terms of the transactions contemplated
hereby, including the Transaction Documents as exhibits thereto. On and after the earlier of (a) March 27, 2013 or (b) the Trading
Day immediately prior to the effective date of the initial Registration Statement (such date, the “Disclosure Date”),
the Company shall make a representation and covenant to the Purchaser that it shall have either (i) publicly disclosed all material,
non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents, or (ii) confirmed in writing to the Purchasers that any such material, non-public information
is no longer material and/or otherwise is not required to be publicly disclosed. On and after such date, the Company shall confirm
that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any
information that it believes then constitutes or might then constitute material, non-public information at that time (or represent
that any such information as of such date is stale and no longer material, non-public information). The Company understands and
confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.
In addition to such Purchaser’s other available remedies, in the event that, on and after the Disclosure Date, the Company
does not, or is unable, to represent and covenant to the Purchasers that the Purchasers are no longer in possession of information
that the Company believes constitutes or might constitute material, non-public information, the Company shall pay to each Purchaser,
in cash, as partial liquidated damages and not as a penalty, an amount per day equal to 0.33% of such Purchaser’s Subscription
Amount until the date that Company provides the Purchasers with the required representations and covenant. Nothing herein shall
limit such Purchaser’s right to pursue actual damages for the Company’s failure to make such representation as required
hereunder, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The Company and each
Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without
the prior consent of the Company, with respect to any such press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any such press release of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, rule or regulation, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities laws, rules
or regulations in connection with (i) any registration statement contemplated by the Registration Rights Agreement and (ii) the
filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by laws, rules and/or
Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted
under this clause (b).

 

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4.7           Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8           Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents
and certain material non-public information which the Company has already provided to the Purchasers (which is the information
subject the Disclosure Date obligations in Section 4.6), the Company covenants and agrees that neither it, nor any other Person
acting on its behalf, will provide any Purchaser or its agents or counsel with any additional information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser shall have entered into a written agreement with
the Company regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.9           Use
of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any other
portion of the Company’s debt other than as set forth on Schedule 4.9 hereto (other than payment of trade payables
in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common
Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.

 

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4.10         Indemnification
of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the
Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless
such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time
to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not
be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s
prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties,
covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.
The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall
be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities
the Company may be subject to pursuant to law.

 

4.11         Reservation
and Listing of Securities.

 

(a)          The
Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

 

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(b)          If,
on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than 200% of (i) the
Required Minimum on such date, minus (ii) the number of shares of Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation
to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time (minus the
number of shares of Common Stock previously issued pursuant to the Transaction Documents), as soon as possible and in any event
not later than the 75th day after such date; provided that the Company will not be required at any time to authorize
a number of shares of Common Stock greater than the maximum remaining number of shares of Common Stock that could possibly be issued
after such time pursuant to the Transaction Documents.

 

(c)          The
Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading
Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing
or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on
such date on such Trading Market or another Trading Market.

 

4.12         Participation
in Future Financing.

 

(a)          From
the date hereof until the date that is the later of (i) the 18 month anniversary of the Effective Date and (ii) the date that Purchaser
no longer holds any of its Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common
Stock Equivalents for cash consideration, Indebtedness or a combination of units hereof (a “Subsequent Financing”),
each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent
Financing (the “Participation Maximum”) on the same terms, conditions and price provided for by the Company
in the Subsequent Financing.

 

(b)          At
least two (2) Trading Days prior to the commencement of the Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask
such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).
Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The
Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed
to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

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(c)          Any
Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30
p.m. (New York City time) on the fourth (4th) Trading Day after all of the Purchasers have received the Pre-Notice that
such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing
and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no such notice from a Purchaser as of such fourth (4th) Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 

(d)          If
by 5:30 p.m. (New York City time) on the fourth (4th) Trading Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e)          If
by 5:30 p.m. (New York City time) on the fourth (4th) Trading Day after all of the Purchasers have received the Pre-Notice,
the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum. “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased
on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts
of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

 

(f)          The
Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after
the date of the initial Subsequent Financing Notice.

 

(g)          The
Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to
any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination
of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of
such Purchaser.

 

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(h)          Notwithstanding
anything to the contrary in this Section 4.12 and unless otherwise agreed to by such Purchaser, the Company shall either confirm
in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly
disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser
will not be in possession of any material, non-public information, by the fifteenth (15th) Business Day following delivery
of the Subsequent Financing Notice. If by such fifteenth (15th) Business Day, no public disclosure regarding a transaction
with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received
by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession
of any material, non-public information with respect to the Company or any of its Subsidiaries. 

 

(i)          Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.

 

4.13         Subsequent
Equity Sales.

 

(a)          From
the date hereof until the date that is the earlier of (i) the 3-month anniversary of the Effective Date or (ii) the date less than
60% of the initial aggregate Stated Value of Preferred Stock are no longer outstanding, neither the Company nor any Subsidiary
shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common
Stock Equivalents.

 

(b)          From
the date hereof until such time as no Purchaser holds any of the Warrants, the Company shall be prohibited from effecting or entering
into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
(or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means
a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise
price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares
of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or
exchange price that is subject to being reset (other than pursuant to adjustment provisions triggered by the Company subsequently
issuing securities with a lower conversion, exercise or exchange price) at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line
of credit, whereby the Company may issue securities to the provider of such equity line of credit at a future determined price.
Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall
be in addition to any right to collect damages.

 

(c)          Notwithstanding
any provisions of this Section 4.13 to the contrary, this Section 4.13 shall not apply in respect of (i) an Exempt Issuance or
(ii) after the Closing Date, an issuance of Common Stock or Common Stock Equivalents (subject to the restrictions on the incurrence
of debt and creation and issuance of preferred stock set forth in the Certificate of Designations and rights of the Purchasers
pursuant to Section 4.12 above) provided that the terms under which such securities are sold provide that such third party purchasers
cannot sell or otherwise transfer such securities until the three (3) month anniversary of the Effective Date, which agreement
shall be in the form of a lock-up acceptable to the Purchasers. In no event shall a Variable Rate Transaction shall be an Exempt
Issuance other otherwise permitted pursuant to this Section 4.13(c).

 

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4.14         Equal
Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration
is also offered to all of the parties to this Agreement. For clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat
the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.

 

4.15         Certain
Transactions and Confidentiality. Notwithstanding anything to the contrary that may be contained in this Agreement and/or any
other agreement entered into between any of the Purchasers and the Company, each Purchaser, severally and not jointly with the
other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will
(i) execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing
with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in Section 4.6 or (ii) prior to July __, 2013, execute (but not maintain)
any Short Sales, excluding sales, including Short Sales, made where a corresponding Notice of Conversion or Exercise is tendered
to the Company within three Trading Days of the sale and the shares received upon such exercise or conversion are used to close
out such sale (a “Prohibited Short Sale”).  Each Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant
to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and
terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding
the immediately preceding sentence, and notwithstanding anything contained in this Agreement to the contrary, other than a Prohibited
Short Sale, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6,
(ii) no Purchaser 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 time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality
to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6, other than prior
to the Disclosure Date (or such earlier date than the Purchaser no longer possesses material non-public information the on-going
duty of each Purchaser to maintain the confidentiality and non-disclosure of any material, non-public information which the Company
has previously provided to the Purchaser.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s
assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this Agreement.

 

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4.16         Form
D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any Purchaser. The Company 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 under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide
evidence of such actions promptly upon request of any Purchaser.

 

4.17         Capital
Changes. Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split
or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the
shares of Preferred Stock.

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before January 16, 2013; provided, however, that such termination will not affect
the right of any party to sue for any breach by any other party (or parties).

 

5.2           Fees
and Expenses. At the Closing, the Company has agreed to reimburse Sabby Management, LLC’s (“Sabby”)
legal counsel the non-accountable sum of $50,000 for its legal and due diligence fees and expenses. The Company shall deliver to
each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A.
Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation,
any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice
delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the
Purchasers.

 

5.3           Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

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5.4           Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder 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
via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5           Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding
or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

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

 

5.7           Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of
each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to
whom such Purchaser assigns or transfers any Securities, provided that (i) such transferee is an “accredited investor”
as defined under the Securities Act and (ii) such transferee agrees in writing to be bound, with respect to the transferred Securities,
by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8           No
Third-Party Beneficiaries. The placement agents of the Company shall be third party beneficiaries with respect to the representations
and warranties of the Purchasers in Section 3.2 hereof. This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10 and this Section 5.8.

 

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5.9           Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), 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 improper or is an inconvenient venue for such proceeding. 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 via overnight delivery (with
evidence of delivery) to such party at the address in effect for 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 other manner permitted by law. If either party shall commence an action, suit or proceeding
to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10,
the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.10         Survival.
The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.11         Execution.
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 each other party, it being
understood that the 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.

 

5.12         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.

 

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5.13         Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand
or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of the Preferred Stock or exercise of a Warrant, the applicable Purchaser shall be required
to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s
right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate
evidencing such restored right).

 

5.14         Replacement
of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or
in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15         Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.

 

5.16         Payment
Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document
or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from,
disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

    	38

    	 

    

 

5.17         Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any
time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments
in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated
with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents
is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof
forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such
excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser’s election.

 

5.18         Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance
or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind of 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 by the Transaction
Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser
to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate
legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each
Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent all of the
Purchasers and only represents Sabby. The Company has elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

5.19         Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages
or other amounts are due and payable shall have been canceled.

 

5.20         Saturdays,
Sundays, Holidays, etc.         If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken
or such right may be exercised on the next succeeding Business Day.

 

    	39

    	 

    

 

5.21         Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

 

5.22         WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES
EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY
AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 

 

(Signature Pages Follow)

 

    	40

    	 

    

IN WITNESS WHEREOF,
the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.

 

	22nd century group, inc.	Address for Notice:

 

	By:	/s/ Joseph Pandolfino	 	Fax:
	 	Name: Joseph Pandolfino	 	 
	 	Title: Chief Executive Officer	 	 

 

	With a copy to (which shall not constitute notice):	 
	 	 
	Stephen Bent , Esq.	 
	Foley & Lardner LLP	 
	3000 K Street, N.W., Suite 600	 
	Washington, D.C. 20007	 
	Telephone: 202-672-5300	 
	Fax: 202-672-5399	 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

    	41

    	 

    

 

[PURCHASER SIGNATURE PAGES TO XXII SECURITIES
PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as
of the date first indicated above.

 

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

 

Signature of Authorized Signatory of Purchaser: /s/ Robert
Grundstein

 

Name of Authorized Signatory: Robert Grundstein

 

Title of Authorized Signatory: COO of Purchaser’s Investment
Manager

 

Email Address of Authorized Signatory: ___________________________________________

 

Facsimile Number of Authorized Signatory: _________________________________________

 

Address for Notice to Purchaser: c/o Sabby Management, LLC,
10 Mountainview Road, Sutie 205, Upper Saddle River, NJ 07458

 

Address for Delivery of Securities to Purchaser (if not same
as address for notice):

Bank America Merrill Lynch; One Bryant Park, 6th
Floor, New York 10036, Attention: Miguelina Seda

 

Subscription Amount: $2,000,000

 

Shares of Preferred Stock: 2,000

 

Series A Warrant Shares: 3,333,333

 

Series B Warrant Shares:
1,666,667

 

Series C Warrant Shares: 1,666,667

 

EIN Number: _______________________

 

[SIGNATURE PAGES CONTINUE]

 

    	42

    	 

    

 

IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as
of the date first indicated above.

 

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

 

Signature of Authorized Signatory of Purchaser: /s/ Robert
Grundstein

 

Name of Authorized Signatory: Robert Grundstein

 

Title of Authorized Signatory: COO of Purchaser’s Investment
Manager

 

Email Address of Authorized Signatory: ___________________________________________

 

Facsimile Number of Authorized Signatory: _________________________________________

 

Address for Notice to Purchaser: c/o Sabby Management, LLC,
10 Mountainview Road, Sutie 205, Upper Saddle River, NJ 07458

 

Address for Delivery of Securities to Purchaser (if not same
as address for notice):

Bank America Merrill Lynch; One Bryant Park, 6th
Floor, New York 10036, Attention: Miguelina Seda

 

Subscription Amount: $2,000,000

 

Shares of Preferred Stock: 2,000

 

Series A Warrant Shares: 3,333,333

 

Series B Warrant Shares:
1,666,667

 

Series C Warrant Shares: 1,666,667

 

EIN Number: _______________________

 

 

 

    	43

    	 

    

 

Annex A

 

CLOSING STATEMENT

 

Pursuant to the attached Securities Purchase
Agreement, dated as of the date hereto, the purchasers shall purchase $2,500,000 of Preferred Stock and Warrants from 22nd
Century Group, Inc., a Nevada corporation (the “Company”). All funds will be wired into an account maintained
by the Company. All funds will be disbursed in accordance with this Closing Statement.

 

	Disbursement Date:  January ___, 2013
	 

 

	
        I. PURCHASE PRICE

         
	 
	Gross Proceeds to be Received	$
	 	 
	
        II. DISBURSEMENTS

         
	 
	 	$
	 	$
	 	$
	 	$
	 	$
	 	 
	Total Amount Disbursed:	$
	 	 
	WIRE INSTRUCTIONS:	 

 

	To:	 	 
	 	 	 
	To:	 	 

 

    	44

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