Document:

EXHIBIT 10.1

 

FRANKLIN FINANCIAL SERVICES CORPORATION

 

INCENTIVE STOCK OPTION PLAN OF 2013

 

    	 

    	 

    

 

FRANKLIN FINANCIAL SERVICES CORPORATION

 

INCENTIVE STOCK OPTION PLAN OF 2013

 

TABLE OF CONTENTS

 

	ARTICLE	 	PAGE
	 	 	 
	Article 1.	PURPOSE OF THE PLAN; TYPE OF OPTIONS	 1
	 	 	 
	Article 2.	DEFINITIONS	 1
	 	 	 
	Article 3.	ADMINISTRATION	 3
	 	 	 
	Article 4.	COMMON STOCK SUBJECT TO THE PLAN	 4
	 	 	 
	Article 5.	ELIGIBILITY	 4
	 	 	 
	Article 6.	OPTIONS IN GENERAL	 5
	 	 	 
	Article 7.	TERM, VESTING AND EXERCISE OF OPTIONS	 6
	 	 	 
	Article 8.	EXERCISE OF OPTIONS FOLLOWING TERMINATION
    OF EMPLOYMENT	 7
	 	 	 
	Article 9.	ADJUSTMENT PROVISIONS	 8
	 	 	 
	Article 10.	RECOVERY AND REIMBURSEMENT	 9
	 	 	 
	Article 11.	GENERAL PROVISIONS	10

 

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ARTICLE 1. PURPOSE OF THE PLAN; TYPE OF
OPTIONS

 

1.1          Purpose.
The Franklin Financial Services Corporation Incentive Stock Option Plan of 2013 is intended to provide selected Officers of Franklin
Financial Services Corporation and its Subsidiaries with an opportunity to acquire Common Stock of the Corporation. The Plan is
designed to help the Corporation attract, retain and motivate selected Officers to make substantial contributions to the success
of the Corporation’s business and the businesses of its Subsidiaries, to further align the interests of such Officers with
those of the Corporation’s shareholders, to facilitate an ownership culture among such Officers, and to promote the alignment
of pay with performance.

 

1.2          Authorized
Plan Options. Only Incentive Stock Options may be awarded under the Plan. The Company makes no warranty that Options granted
under this Plan will in fact qualify as Incentive Stock Options or that any such qualification will not be lost in the future,
whether by acts or omissions by the Corporation, the Committee or by any other cause.

 

ARTICLE 2. DEFINITIONS

 

2.1          “Agreement”.
A written instrument evidencing the grant of an Option. An Optionee may be issued one or more Agreements from time to time, reflecting
one or more Options.

 

2.2          “Board”.
The Board of Directors of the Corporation.

 

2.3          “Change
in Control or Ownership”. A "Change of Control or Ownership" shall be deemed to have occurred if:

 

(a)          any
one person, or more than one person acting as a group (as determined in 26 CFR 1.409A-3(i)(5)(v)(B)), acquires ownership of Common
Stock that, taken together with stock held by such person or group, constitutes more than 50% of the total voting power or total
fair market value of Common Stock then outstanding;

 

(b)          (i)
any one person, or more than one person acting as a group (as determined under 26 CFR 1.409A-3(i)(5)(v)(B)), acquires (or has acquired
during the twelve-month period ending on the most recent acquisition by such person or group) ownership of Common Stock possessing
30% or more of the total voting power of Common Stock or (ii) a majority of the Corporation’s Board of Directors is replaced
during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board of Directors
prior to the date of election; or

 

(c)          any
one person, or more than one person acting as a group (as determined under 26 CFR 1.409A-3(i)(5)(v)(B)) acquires (or has acquired
during the twelve-month period ending on the date of the most recent acquisition by such person or group) assets from the Corporation
that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of
the Corporation immediately prior to such acquisition or acquisitions.

 

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The existence of any of the foregoing events
shall be determined based on objective standards and in complete accordance with the requirements of Code Section 409A and 26 CFR
1.409A-3(i)(5) so that any accelerated distribution resulting from a Change in Control or Ownership does not result in a violation
of Code Section 409A.

 

2.4           “Code”.
The Internal Revenue Code of 1986, as amended.

 

2.5           “Committee”.
The committee which the Board appoints to administer the Plan.

 

2.6           “Common
Stock”. The common stock of the Corporation ($1.00 par value) as described in the Corporation's Articles of Incorporation,
or such other stock as shall be substituted therefor.

 

2.7           “Corporation”.
Franklin Financial Services Corporation, a Pennsylvania corporation.

 

2.8           “Employee”.
A common law employee of the Corporation or a Subsidiary.

 

2.9           “Exchange
Act”. The Securities Exchange Act of 1934, as amended.

 

2.10         “Incentive
Stock Option”. A Stock Option intended to satisfy the requirements of Code Section 422(b).

 

2.11         “Officer”.
An Employee designated as such by the Committee in accordance with the Corporation’s personnel policies in effect from time
to time.

 

2.12         “Optionee”.
An Officer to whom an Option has been granted pursuant to the provisions of the Plan.

 

2.13         “Participant”.
An Optionee holding one or more Options that remain outstanding.

 

2.14         “Plan”.
The Franklin Financial Services Corporation Incentive Stock Option Plan of 2013, as set forth in this document and as the same
may be amended from time to time.

 

2.15         “Securities
Act”. The Securities Act of 1933, as amended.

 

2.16         “Stock
Option” or “Option”. A grant of a right to purchase Common Stock pursuant to the provisions of the Plan.

 

2.17         “Subsidiary”.
A subsidiary corporation, as defined in Code Section 424(f), that is a subsidiary of a relevant corporation.

 

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ARTICLE 3. ADMINISTRATION

 

3.1          The
Committee. The Plan shall be administered by a committee of the Board composed of two or more members of the Board, all of
whom are “non-employee directors” as such term is defined under the rules and regulations adopted from time to time
by the Securities and Exchange Commission pursuant to Section 16(b) of the Exchange Act and “outside directors” as
defined under Section 162(m) of the Code and related regulations adopted from time to time by the Department of the Treasury. The
Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board.

 

3.2          Powers
of the Committee.

 

(a)          The
Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer
the Plan and to interpret the provisions of the Plan, to waive requirements relating to formalities or other matters that do not
modify the substance of rights of Participants or constitute a material amendment of the Plan, to correct any defect or supply
any omission of the Plan or any Agreement, and to reconcile any inconsistencies in the Plan or any Agreement. Any determination,
decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan
shall be final, conclusive and binding upon all Participants and any person claiming under or through a Participant.

 

(b)          Subject
to the terms, provisions and conditions of the Plan, the Committee shall have exclusive jurisdiction to:

 

(i)          determine
and select the Officers to be granted Options (it being understood that more than one Option may be granted to the same person);

 

(ii)         determine
the number of shares subject to each Option;

 

(iii)        determine
the date or dates when the Options will be granted;

 

(iv)        determine
the exercise price of shares subject to Options in accordance with Article 6;

 

(v)         determine
the date or dates when an Option will vest and may thereafter be exercised within the term of the Option specified pursuant to
Article 7;

 

(vi)        accelerate
the vesting of any Option and reduce or waive any restrictions on the vesting or exercise of any Options;

 

(vii)       prescribe
the form of the Agreement evidencing any Options granted under the Plan, which shall contain such terms and conditions as the Committee
shall approve that are not inconsistent with the Plan. The Committee shall have the authority to waive any condition of an outstanding
Option or amend an outstanding Option, provided that an amendment of an outstanding Option may not be made without the consent
of the Participant if such amendment would have an adverse effect on the rights of the Participant; and

 

(viii)      deal
with any other matter arising under the Plan.

 

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3.3          Liability.
No member of the Committee shall be liable for any action or determination made in good faith by the Committee with respect to
this Plan or any Options granted under this Plan.

 

3.4          Costs.
All costs incurred in connection with the administration and operation of the Plan shall be paid by the Corporation. Except for
the express obligations of the Corporation under the Plan and any Option Agreement, the Corporation shall have no liability with
respect to any Option or to any Optionee or any transferee of shares of Common Stock from any Optionee including, but not limited
to, any tax liability, capital losses, or other costs or losses incurred by any Optionee or transferee.

 

ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN

 

4.1          Common
Stock Authorized. The aggregate number of shares of Common Stock for which Options may be awarded under the Plan shall not
exceed 200,000 plus, as of the date of shareholder approval of the Plan but excluding shares reserved with respect to outstanding
awards thereunder, the number of remaining shares of Common Stock under the Corporation’s Incentive Stock Option Plan of
2002. The limitation established by the preceding sentence shall be subject to adjustment as provided in Article 9.

 

4.2          Shares
Available. The Common Stock to be issued under the Plan shall be the Corporation's Common Stock which shall be made available
at the discretion of the Board, either from authorized but unissued Common Stock or from Common Stock acquired by the Corporation,
including shares purchased in the open market. In the event that any outstanding Option under the Plan for any reason expires,
terminates or is forfeited, the shares of Common Stock allocable to such expiration, termination or forfeiture may thereafter again
be made subject to an Option under the Plan.

 

ARTICLE 5. ELIGIBILITY

 

5.1          Participation.
Options shall be granted by the Committee only to persons who are Officers on the grant date. The Committee shall select the Officers
who are to receive Options in such manner as the Committee determines.

 

5.2          Certain
Option Limitations. Notwithstanding any other provision of the Plan to the contrary, an individual who owns more than ten percent
of the total combined voting power of all classes of outstanding stock of the Corporation shall not be eligible for the grant of
an Option unless the special requirements set forth in Sections 6.2 and 7.1 are satisfied. For purposes of this section, in determining
stock ownership, an individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and
sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders,
partners or beneficiaries. “Outstanding stock” shall include all stock actually issued and outstanding immediately
before the grant of the Option. “Outstanding stock” shall not include shares authorized for issue under outstanding
Options held by the Optionee or by any other person.

 

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ARTICLE 6. OPTIONS IN GENERAL

 

6.1         Agreements.
All Options shall be subject to the terms and conditions set forth in this Plan and to those other terms and conditions consistent
with the Plan as the Committee deems appropriate. Each Agreement shall be evidenced by an Agreement. Except as set forth in the
Plan, the terms and conditions to which an Option may be subject need not be uniform among Optionees.

 

6.2         Exercise
Price. The exercise price of an Option to purchase a share of Common Stock shall be not less than 100% of the fair market value
of a share of Common Stock on the date the Option is granted, except that the exercise price shall be not less than 110% of such
fair market value in the case of an Option granted to any individual described in Section 5.2. The exercise price shall be subject
to adjustment as provided in Article 9.

 

6.3         Limitation
on Options. The aggregate fair market value (determined as of the date an Option is granted) of the Common Stock with respect
to which Options are exercisable for the first time by any individual in any calendar year (under the Plan and all other plans
maintained by the Corporation and Subsidiaries) shall not exceed $100,000.

 

6.4         Determination
of Fair Market Value. For purposes of the Plan, the fair market value of the Common Stock shall be determined as follows:

 

(a)          Exchange
Traded. In the event that the Common Stock is listed on an established stock exchange, the fair market value per share shall
be the closing sale price of the Common Stock on such exchange on the applicable date or, if no sale of Common Stock occurred on
that day, on the next preceding day on which a sale occurred.

 

(b)          NASDAQ
Listed. In the event that the Common Stock is not listed on an established stock exchange, but is then quoted on the NASDAQ
National Market®, the fair market value per share shall be the closing sale price of the Common Stock on the NASDAQ National
Market® on the applicable date or, if no sale of Common Stock occurred on that day, on the next preceding day on which a sale
occurred.

 

(c)          OTC
Traded. In the event that the Common Stock is not listed on an established stock exchange and is not quoted on the NASDAQ National
Market®, the fair market value per share shall be the average of the average of the closing bid and asked quotations of the
Common Stock for the five trading days immediately preceding the applicable date as reported by two brokerage firms to be selected
by the Committee which are then making a market in the Common Stock, except that if no closing bid or asked quotation is available
on one or more of such trading days, fair market value shall be determined by reference to the five trading days immediately preceding
the applicable date on which closing bid and asked quotations are available.

 

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(d)          Other.
In the event that the Common Stock is not listed on an established stock exchange, is not quoted on the NASDAQ National Market®
and no closing bid and asked quotations are available, or that the fair market value per share cannot otherwise be determined as
contemplated above, then fair market value per share shall be determined in good faith by the Committee.

 

6.5         Transferability
of Options. An Option granted hereunder shall not be transferable other than by will or the laws of descent and distribution,
and such Option shall be exercisable, during the Optionee’s lifetime, only by him or her.

 

6.6         No
Repricing; No Automatic Option Grants (Reloads). Without prior approval of the shareholders, the Corporation may not:

 

(a)          Cancel
a previously granted Option in exchange for cash or a replacement Option with a lower (or no) exercise price;

 

(b)          Provide
for any automatic grant of a new Option upon an Optionee’s exercise of any Option granted under the Plan; or

 

(c)          Amend
an Option to lower the exercise price, except for adjustments required or otherwise made under Section 9.1, or take any other action
that could constitute a repricing.

 

ARTICLE 7. TERM, VESTING AND EXERCISE OF
OPTIONS

 

7.1         Term
and Vesting. Each Option granted under the Plan shall terminate on the date determined by the Committee and specified in the
relevant Agreement; provided, however, that (i) each Option (other than an Option described in Clause (ii)) shall terminate not
later than ten years after the date of grant, (ii) each Option granted to an individual described in Section 5.2 shall terminate
not later than five years after the date of the grant. Each Option granted under the Plan shall be exercisable (i.e., become
vested) in whole or in part in accordance with terms and conditions determined by the Committee and specified in the relevant Agreement
and only after the date on which the Optionee has completed such period of continuous employment (not less than six months) with
the Corporation or a Subsidiary immediately following the date of the grant of the Option as may be specified in an Agreement;
provided, however, unless otherwise provided by the Committee in the Agreement, all outstanding Options shall become immediately
exercisable upon the earliest to occur, if at such time the Optionee is an employee of the Corporation or a Subsidiary, of a Change
in Control or Ownership, the Optionee’s death or disability (within the meaning of Code Section 22(e)(3)).

 

7.2         Exercise.

 

(a)          Subject
to the provisions of Article 8, an Option may be exercised only during the continuance of the Optionee's employment.

 

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(b)          A
person electing to exercise an Option shall give written notice to the Corporation of such election and of the number of shares
he or she has elected to purchase, in such form as the Committee shall have prescribed or approved, and shall at the time of exercise
tender the full exercise price of the shares he or she has elected to purchase and, subject to Section 10.5, the amount of withholding
tax due, if any. The exercise price shall be paid in full, in cash, upon the exercise of the Option; provided, however, that in
lieu of cash, if permitted in the relevant Agreement, an Optionee may exercise an Option by tendering to the Corporation shares
of Common Stock owned by him or her and having a fair market value equal to the cash exercise price applicable to the Option (with
the fair market value of such stock to be determined in the manner provided in Section 6.3) or by delivering such combination of
cash and such shares as equals the amount of such exercise price. Notwithstanding the foregoing, Common Stock acquired pursuant
to the exercise of an Incentive Stock Option may not be tendered as payment unless the holding period requirements of Code Section
422(a)(1) have been satisfied, and Common Stock not acquired pursuant to the exercise of an Incentive Stock Option may not be tendered
as payment unless it has been held, beneficially and of record, for at least six months (or, as may from time to time be determined
by the Committee, such longer time as may be required by applicable securities law or accounting principles to avoid adverse consequences
to the Corporation or an Optionee).

 

(c)          A
person holding more than one Option at any relevant time may, in accordance with the provisions of the Plan, elect to exercise
such Options in any order.

 

ARTICLE 8.

EXERCISE OF OPTIONS FOLLOWING TERMINATION
OF EMPLOYMENT

 

8.1         Death
or Disability. In the event of termination of an Optionee’s employment due to death or disability, all Options held by
such Optionee shall vest and become immediately exercisable. Such Options shall be exercisable by the Optionee for a period of
one (1) year following termination of employment due to disability. Such Options shall be exercisable by the Optionee’s legal
representative or beneficiaries, as applicable, for a period of two (2) years following the date of death provided that the Optionee’s
death occurred while the Optionee was employed or within three (3) months of termination of employment. In no event, however, may
an Option be exercised beyond the term of the Option set forth in the Agreement.

 

8.2         Termination
For Cause. In the event of an Optionee’s termination of employment “for cause,” his or her Option shall lapse
on the date of such termination. Termination “for cause” shall mean the Optionee was terminated after:

 

(a)          any
government regulatory agency recommends or orders in writing that the Corporation or a Subsidiary terminate the employment of the
Optionee or relieve him or her of his or her duties;

 

(b)          the
Optionee is convicted of or enters a plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime
involving fraud or moral turpitude, or the actual incarceration of the Optionee for a period of 45 consecutive days;

 

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(c)          the
Optionee willfully fails to follow the lawful instructions of the Board after receipt of written notice of such instructions, other
than a failure resulting from the Optionee's incapacity because of physical or mental illness;

 

(d)          a
finding is made by the Board that such termination is otherwise in the best interest of the Corporation.

 

8.3         Other
Termination. In the event of an Optionee’s termination of employment for any reason other than described elsewhere in
this article, his or her Option shall lapse at the earlier of (i) the expiration of the term of the Option, or (ii) three months
after such termination.

 

ARTICLE 9. ADJUSTMENT PROVISIONS

 

9.1         Share
Adjustments.

 

(a)          In
the event that the shares of Common Stock of the Corporation, as presently constituted, shall be changed into or exchanged for
a different number or kind of shares of stock or other securities of the Corporation, or if the number of such shares of Common
Stock shall be changed through the payment of a stock dividend, stock split or reverse stock split, then (i) the shares of Common
Stock authorized hereunder to be made the subject of Options, (ii) the shares of Common Stock then subject to outstanding Options
and the exercise price thereof, and (iii) the nature and terms of the shares of stock or securities subject to Options hereunder
shall be increased, decreased or otherwise changed to such extent and in such manner as may be necessary or appropriate to reflect
any of the foregoing events.

 

(b)          If
there shall be any other change in the number or kind of the outstanding shares of the Common Stock of the Corporation, or of any
stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, and
if a majority of the members of the Board shall, in its sole discretion, determine that such change equitably requires an adjustment
in any Option which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made
in accordance with such determination.

 

(c)          The
grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business structure, to merge, to consolidate, to dissolve, to liquidate
or to sell or transfer all or any part of its business or assets.

 

9.2         Corporate
Changes. Any agreement to which the Corporation or any Subsidiary is a party which provides for any merger, consolidation,
share exchange, or similar transaction of the Corporation with or into another corporation or other association whereby the Corporation
is not the surviving or parent corporation shall provide, without limitation, for the assumption of any outstanding Options by
the surviving corporation or association or its parent and all outstanding Options shall be subject to such agreement. In any case
where Options are assumed by another corporation, appropriate equitable adjustments as to the number and kind of shares or other
securities and the purchase or exercise price(s) shall be made. A liquidation or dissolution of the Corporation, shall cause each
outstanding Option, if not exercised, to terminate.

 

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9.3         Fractional
Shares. Fractional shares resulting from any adjustment in Options pursuant to this article shall be rounded down to the nearest
number of whole shares.

 

9.4         Limitation
on Adjustments. Notwithstanding the foregoing provisions of this Article 9, no adjustment shall be authorized or made to the
extent that such authority or adjustment would cause any Option to fail to comply with Section 422 of the Code.

 

ARTICLE 10. RECOVERY AND REIMBURSEMENT

 

10.1      Recovery
and Reimbursement. Each Option granted pursuant to the Plan shall be subject to the following conditions:

 

(a)          in
the event the Corporation is required to prepare an accounting restatement due to the material noncompliance of the Corporation
with any financial reporting requirement under the securities laws, the Corporation shall recover from the Optionee and the Optionee
shall forfeit and return to the Corporation any Option granted to the Optionee pursuant to the Plan or reimburse to the Corporation
any gain realized by the Optionee with respect to the exercise of any such Option during the three (3) year period preceding the
date on which the Corporation is required to prepare an accounting restatement, to the extent the number of Options granted to
the Optionee or the amount of gain realized with respect to exercise of such Options, based upon the erroneous data, exceeds the
number or Options or the amount of gain that would have been granted to or realized by the Optionee under the accounting restatement.

 

(b)          in
the event the Committee finds, in its discretion and after consideration of the facts presented on behalf of the Corporation and
the involved Participant:

 

(i)          that
the Participant has been engaged in fraud, embezzlement, theft, commission of a felony, or dishonesty in the course of the Participant’s
employment by or service with the Corporation, then the Committee shall require the Corporation to recover and the Participant
to forfeit and return to the Corporation all of such Participant’s outstanding Options and all rights to shares of Common
Stock with respect to exercised Options for which the Corporation has not yet delivered certificates, all of which Options and
rights to shares of Common Stock shall be automatically canceled; or

 

(ii)         that
the Participant has disclosed trade secrets of the Corporation or failed to perform the individual’s stated duties, and that
such actions have damaged the Corporation in any significant manner, then the Committee may require the Corporation to recover
and the Participant to forfeit and return to the Corporation all of such Participant’s outstanding Options and all rights
to shares of Common Stock with respect to exercised Options for which the Corporation has not yet delivered certificates, all of
which Options and rights to shares of Common Stock shall be automatically canceled.

 

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The decision of the Committee
as to the cause of the Participant’s discharge from employment with the Corporation shall be final for purposes of the Plan,
but shall not affect the finality of the Participant’s discharge by the Corporation for any other purposes. This Section
10.1(b) shall not apply to the extent such application would result in disqualification as an incentive stock option under Sections
421 and 422 of the Code of any Option granted pursuant to the Plan.

 

ARTICLE 11. GENERAL PROVISIONS

 

11.1        Effective
Date. The Plan shall become effective upon its adoption by the Board (January 24, 2013), provided that any grant of an Option
is subject to the approval of the Plan by the shareholders of the Corporation within 12 months of adoption by the Board.

 

11.2        Termination
of the Plan. Unless previously terminated by the Board, the Plan shall terminate on, and no Option shall be granted after,
the day immediately preceding the tenth anniversary of its adoption by the Board.

 

11.3        Limitation
on Termination, Amendment or Modification.

 

(a)          The
Board may at any time terminate, amend, modify or suspend the Plan, provided that, without the approval of the shareholders of
the Corporation, no amendment or modification shall be made solely by the Board which:

 

(i)          increases
the maximum number of shares of Common Stock as to which Options may be granted under the Plan;

 

(ii)         changes
the class of eligible Optionees; or

 

(iii)        otherwise
requires the approval of shareholders under applicable state or federal law, or by exchange-related rules.

 

(b)          No
amendment, modification, suspension or termination of the Plan shall in any manner affect any Option theretofore granted under
the Plan without the consent of the Participant or any person validly claiming under or through the Participant.

 

11.4        No
Right to Grant of Option or Continued Employment. Nothing contained in this Plan or otherwise shall be construed to (a) require
the grant of an Option to an individual who qualifies as an Officer, or (b) confer upon a Participant any right to continue in
the employ of the Corporation or any Subsidiary or limit in any respect the right of the Corporation or of any Subsidiary to terminate
the Participant's employment at any time and for any reason.

 

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11.5       Withholding
of Taxes.

 

(a)          A
Participant shall immediately notify the Corporation in writing of any sale, transfer, assignment or other disposition (or action
constituting a disqualifying disposition within the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through the exercise of an Option, within two (2) years after the grant of such Option or within one (1) year after the acquisition
of such shares, setting forth the date and manner of disposition, the number of shares disposed of and the price at which such
shares were disposed of. The Corporation shall be entitled to withhold from any compensation or other payments then or thereafter
due to the Participant such amounts as may be necessary to satisfy any withholding requirements of federal (including payroll taxes)
or state law or regulation and, further, to collect from the Participant any additional amounts which may be required for such
purpose. The Committee may, in its sole discretion, require shares of Common Stock acquired by a Participant upon exercise of an
Option to be held in an escrow arrangement for the purpose of enabling compliance with the provisions of this Section.

 

(b)          The
Committee is authorized to adopt rules, regulations or procedures related to tax withholding, including provision for the satisfaction
of a tax withholding obligation, by the retention of shares of Common Stock to which a Participant would otherwise be entitled
or by a Participant’s delivery of previously owned shares of Common Stock or other property.

 

11.6       Listing
and Registration of Shares.

 

(a)          No
Option granted pursuant to the Plan shall be exercisable in whole or in part, and no share certificate shall be delivered, if at
any relevant time a majority of the Board shall determine in its discretion that the listing, registration or qualification of
the shares of Common Stock subject to an Option on any securities exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, such Option, until such
listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable
to the Board.

 

(b)          If
a registration statement under the Securities Act with respect to the shares issuable under the Plan is not in effect at any relevant
time, as a condition of the issuance of the shares, a Participant (or any person claiming through a Participant) shall give the
Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for
his or her own account for investment and not with a view to their distribution. The Corporation may place upon any stock certificate
for shares issued under the Plan such legend as the Committee may prescribe to prevent disposition of the shares in violation of
the Securities Act or other applicable law.

 

11.7       Gender;
Number. Words of one gender, wherever used herein, shall be construed to include each other gender, as the context requires.
Words used herein in the singular form shall include the plural form, as the context requires, and vice versa.

 

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11.8       Applicable
Law. Except to the extent preempted by federal law, this Plan document, and the Agreements issued pursuant hereto, shall be
construed, administered and enforced in accordance with the domestic internal law of the Commonwealth of Pennsylvania.

 

11.9       Headings.
The headings of the several articles and sections of this Plan document have been inserted for convenience of reference only and
shall not be used in the construction of the same.

 

11.10     Code
Section 409A. This Plan and Options granted hereunder are intended to be exempt from the definition of “nonqualified
deferred compensation” within the meaning of Code Section 409A, and this Plan and Option grants made hereunder shall be interpreted
accordingly; provided, however, that to the extent this Plan or any Option granted hereunder would be deemed to constitute “nonqualified
deferred compensation” within the meaning of Code Section 409A, then this Plan and such Option are intended to comply with
Code Section 409A and, in such event, shall be interpreted accordingly.

 

11.11     Ownership
of Common Stock. A Participant shall have no rights as a shareholder with respect to any shares of Common Stock covered by
an Option until the shares are issued or transferred to the Participant on the stock records of the Corporation.

 

    	12[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS
        DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

RESEARCH LICENSE AND COMMERCIAL OPTION AGREEMENT

 

This Research License and Commercial Option Agreement
(this “Agreement”) is entered into as of the 1st day of October, 2013 (“Effective Date”) by and among 22nd
Century Limited, LLC (“22nd Century”) and 22nd Century Group, Inc. (“22nd Century Group”), each with
its corporate headquarters at 9530 Main Street, Clarence, New York 14031, United States of America, and British American Tobacco
(Investments) Limited (“BAT”), Reg. No. 00074974, with its registered office at Globe House, 1 Water Street, London
WC2R 3LA, United Kingdom. 

 

WHEREAS:

 

		1.	22nd Century has developed and acquired rights to certain materials, technology and intellectual property for use in Nicotiana
plants;

 

		2.	BAT desires to obtain from 22nd Century a research license to certain materials, technology and intellectual property of 22nd
Century in order to further develop them into commercial products;

 

		3.	BAT desires to obtain from 22nd Century an exclusive option to a license to commercialize such materials, technology and intellectual
property rights of 22nd Century; and

 

		4.	22nd Century is willing to grant BAT a research license and an exclusive option for a license on the terms and conditions set
forth in this Agreement.

 

NOW THEREFORE, the Parties agree as follows:

 

ARTICLE
1 – DEFINITIONS

 

For the purposes of this Agreement, the
terms and phrases below have the following definitions:

 

1.01         “22nd
Century Affiliate” means individually, and “22nd Century Affiliates” means collectively, any corporation, company
or other entity in which 22nd Century Group owns or controls, directly or indirectly, at least fifty one percent (51%) of the voting
securities.

 

1.02         “22nd
Century Product Affiliate” means individually, and “22nd Century Product Affiliates” means collectively, any
corporation, company or other entity in which 22nd Century Group owns or controls, directly or indirectly, at least fifty one percent
(51%) of the voting securities and no Competitor Party owns any of the voting securities.

 

1.03         “22nd
Century Product” means any product that 22nd Century or any 22nd Century Product Affiliate imports, exports, distributes,
markets, sells or offers to sell that is branded with the wholly-owned marks of 22nd Century or any 22nd Century Product Affiliate,
but in no event any product imported, exported, distributed, marketed, sold or offered under any brand or mark of any other individual,
entity, association, group, or other person(s) of any kind.

 

    	 

    	 

    

 

	
        [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS
        DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

1.04         “Affiliate”
or “Affiliates” means, with respect to any entity other than a 22nd Century Affiliate, BAT Affiliate, or Reynolds
Affiliate, any corporation, company or other entity which directly or indirectly controls, is controlled by, or is under common
control with such entity. “Control” of an entity shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies of such entity, whether through ownership of voting securities, by contract,
or otherwise.

 

1.05         “Article”
means any of the numbered Articles of this Agreement.

 

1.06         “BAT
Affiliate” means individually, and “BAT Affiliates” means collectively, any corporation, company or other entity
in which British American Tobacco plc owns or controls, directly or indirectly, at least thirty percent (30%) of the voting securities,
and shall include, without limitation, those set forth in APPENDIX A.

 

1.07         “Commercial
License Commencement” has the meaning set forth in Section 3.02.

 

1.08         “Commencement
Date” means the date that is the forty-fifth (45th) calendar day immediately following the Effective Date.

 

1.09         “Competitor
Party” means the following [*].

 

1.10         “Field
of Use” means any and all use of Nicotiana plants or parts thereof and tobacco and products produced therefrom, including,
without limitation, cigarettes, heat-not-burn cigarettes, electronic cigarettes, cigars, tobacco for smoking in pipes or by other
means, all forms of smokeless tobacco (such as snus, chewing tobacco, snuff and tobacco dissolvables), and nicotine products. Field
of Use shall, however, exclude solely: (i) products (other than combustible cigarettes and cigars, electronic cigarettes and heat-not-burn
products) produced from tobacco biomass, including, without limitation, plant proteins, pharmaceutical products other than nicotine
products, nutritional products, food and feed ingredients, and biofuels; and (ii) solely in the United States of America, a combustible
cigarette product that has been approved for smoking cessation by the Center for Drug Evaluation and Research (CDER) of the U.S.
Food and Drug Administration and is intended and offered for smoking cessation. For the avoidance of doubt, the carve out in (ii)
above shall not encompass products which may have been approved as a reduced risk product by the U.S. Food and Drug Administration
or any other U.S. regulatory body.

 

1.11         “Full
Term” has the meaning set forth in the Commercial License Agreement (as defined in Section 3.01 of this Agreement).

 

1.12         “Licensed
Intellectual Property Rights” means individually any, and collectively all, of the following:

 

		(i)	all of the Patent Rights;

 

		(ii)	all of the Plant Variety Rights;

 

    	- 2 -

    	 

    

 

(iii)          all know-how, copyrights, and/or
trade secrets related to the Patent Rights that are owned, co-owned, or licensed (with the right to sublicense) by 22nd Century
or any 22nd Century Affiliate as of the Commencement Date; and

 

(iv)         all
know-how, copyrights, and/or trade secrets related to the Patent Rights that are:

 

(aa)         acquired
by ownership or co-ownership or licensed (with the right to sublicense) at any time after the Commencement Date by 22nd Century
or a 22nd Century Affiliate, and

 

(bb)         disclosed to BAT pursuant to this Agreement by or on behalf of 22nd Century or any 22nd Century Affiliate,

 

except solely for any such know-how,
copyrights, and/or trade secrets that are subject to a third party restriction if 22nd Century delivers to BAT, within thirty (30)
calendar days after such disclosure, a written notice of non-inclusion that specifically identifies such know-how, copyrights,
and/or trade secret and such third party restriction imposed thereon, in which case such know-how, copyrights, and/or trade secrets
shall not be included as “Licensed Intellectual Property Rights” unless mutually agreed in writing by the Parties.

 

1.13         
“Licensed Product(s)” means any materials, products or parts thereof, including without limitation any plants, harvested
plant parts, seeds, cell lines, strains, genes, DNA, nucleic acid sequences and/or other tangible biological materials, which:

 

(a)          are
covered, in whole or in part, by an issued, unexpired claim or pending claim contained in the Patent Rights in any country;

 

(b)          use
a process, are manufactured by using a process, or are employed to practice a process which is covered, in whole or in part, by
an issued, unexpired claim or pending claim contained in the Patent Rights in any country;

 

(c)          are
progeny and/or derivatives of any of the foregoing; and/or

 

(d)          are
covered, in whole or in part, by any Plant Variety Rights in any country in which any such material, product or part thereof is
grown, made, used, sold, imported, exported or transferred.

 

1.14         “Non-Patent
Rights” means, collectively, any and all copyrights, mask work rights, and similar rights, and registrations, and applications
for registration, thereof, and any and all rights of or protecting trade secrets, know-how, computer programs, algorithms, databases,
and data, and any and all other intellectual, industrial, or proprietary rights, known or recognized now or in the future.

 

1.15         “Option”
has the meaning set forth in Section 3.01.

 

1.16         “Party”
means, individually, 22nd Century or BAT, as the case may be, and also 22nd Century Group with regard to Section 14.01 and Article
17.

 

    	- 3 -

    	 

    

 

	
        [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS
        DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

1.17         “Parties”
means, collectively, 22nd Century and BAT, and also 22nd Century Group with regard to Section 14.01 and Article 17.

 

1.18         “Patent
Rights” means, collectively, all of the following (a) each of the patents and patent applications listed in Appendix B;
(b) any and all applications claiming the benefit of the filing date or claiming priority for any of the foregoing patent applications,
including without limitation any divisional applications, continuation applications, continuation-in-part applications, reissue
applications, reexaminations and extensions, and any foreign corresponding or counterpart international, regional and national
applications; and (c) any and all patents issuing or reissuing from any of the foregoing patent applications.

 

1.19         “Permitted
Researcher” means any of the following entities, but only if and after such entity has entered into a Permitted Researcher
Agreement with 22nd Century or a 22nd Century Affiliate and only while such Permitted Researcher Agreement is in effect: (i) an
academic institution, or (ii) an entity that does not, and none of whose Affiliates, in any way, directly or indirectly, manufacture,
offer for sale, distribute, and/or sell tobacco or tobacco products, and the research conducted by such entity is under the direction,
funding or control of 22nd Century or a 22nd Century Affiliate. The term “Permitted Researcher” shall include, without
limitation, [*].

 

1.20         “Permitted
Researcher Agreement” means a legally binding written agreement entered into and signed by 22nd Century or a 22nd Century
Affiliate with an entity that (other than the execution of a Permitted Researcher Agreement) qualifies as a Permitted Researcher
and includes:

 

		(i)	confidentiality obligations which are either:

 

		(aa)	no less rigorous than the confidentiality obligations of the Parties under this Agreement, or,

 

		(bb)	if such Permitted Researcher is an educational institution
that does not agree to such confidentiality obligations, less rigorous confidentiality obligations that are nevertheless subject
to a requirement that such educational institution shall not:

 

		(A)	disclose to any third party without prior written authorization of 22nd Century or such 22nd Century Affiliate (which authorization
22nd Century or a 22nd Century Affiliate shall not give for any entity or person operating commercially in the Field of Use) or

 

		(B)	publically disclose, unless and until such educational institution has provided to 22nd Century or such 22nd Century Affiliate
a reasonable advance written notice prior to any such public disclosure and the option for 22nd Century or such 22nd Century Affiliate
to take reasonable steps to protect any intellectual property rights therein or related thereto,

 

any Property related to the Patent
Rights delivered, provided, or made available to such Permitted Researcher by 22nd Century or a 22nd Century Affiliate; and

 

    	- 4 -

    	 

    

 

		(ii)	an obligation to assign, transfer, convey or license to 22nd Century all rights, title and interest in any Property resulting
from the research conducted by such entity.

 

1.21         “Plant
Variety Rights” or “PVR” means intellectual property in the form of rights granted by applicable law to the breeder
of a new variety of plant that give the breeder control over the propagating material or harvested material of a plant variety
or the use thereof (such as for example, “Plant Variety Protection,” “PVP Certificates,” “Plant Variety
Right Certificates,” and “Plant Breeders’ Rights Certificates,” and any other rights granted by a member
state of the International Union for the Protection of New Varieties of Plants (UPOV) to comply with the International Convention
for the Protection of New Varieties of Plants (UPOV Convention)), which variety: (i) is a result of the research and development
funded by BAT or any BAT Affiliate (no matter who is the plant breeder) and (ii) is covered by the Patent Rights at the time of
filing an application for PVR.

 

1.22         “Property”
means, individually and collectively, any invention, development, discovery, creation, work, technology, process, method, reduction
to practice, data, code, device, design, application, implementation, concept, practice, or idea, whether novel, original, or new
or whether an improvement to, derivative work or derivation from, or amendment or modification to any existing any invention, development,
discovery, creation, work, technology, process, method, reduction to practice, data, code, device, design, application, implementation,
concept, practice, or idea, and any and all written and other tangible, and any and all electronic, copies, manifestations, and/or
reflections thereof.

 

1.23         “R&D
Development Plan” means the research and development plan prepared by BAT and delivered to 22nd Century.

 

1.24         “Research
Term” means the period of time commencing on the Effective Date of this Agreement and ending the earlier of (i) four (4)
years after the Effective Date or (ii) the date of the Commercial License
Commencement.

 

1.25         “Research
License” has the meaning set forth in Section 2.01.

 

1.26         “Research
Materials” means any plants, harvested plant parts, seeds, cell lines, strains, genes, DNA, nucleic acid sequences and/or
other tangible biological materials, but excluding seeds containing BAT commercial germplasm, covered by the Patent Rights and
produced during the development of a commercial Licensed Product by or on behalf of BAT or any BAT Affiliates.

 

1.27         “Research
Purposes” means solely for BAT’s and/or any BAT Affiliate’s own research and product development purposes, and
does not include the manufacture of commercial products for their sale.

 

1.28         “Research
Results” means, collectively all, and “Research Result” means individually, any Property resulting or arising
from or in connection with, or as a result of, any research, development, or other activities under this Agreement related to validation
of the patent claims of the Patent Rights.

 

    	- 5 -

    	 

    

 

1.29         “Reynolds
Affiliate” means individually, and “Reynolds Affiliates” means collectively, any corporation, company or other
entity in which Reynolds American Inc. owns, directly or indirectly, at least thirty percent (30%) of the voting securities. “Reynolds”
means Reynolds American Inc. and/or any Reynolds Affiliate.

 

1.30         “Section”
means any of the numbered sections under any Article.

 

1.31         “Territory”
means the entire world.

 

1.32         Certain
other defined terms have the meanings given them elsewhere in this Agreement.

 

ARTICLE
2 – RESEARCH LICENSE

 

2.01         Research
License Grant. Subject to the terms and conditions of this Agreement, 22nd Century hereby grants to BAT, and BAT accept from
22nd Century, an exclusive (except solely as provided in Sections 2.05 and 2.06) worldwide license to use, utilize, exercise, and
practice, or have any third party subcontracted by BAT pursuant to Section 2.03 or any BAT Affiliate licensed pursuant to Section
2.02 under this Agreement to use, utilize, exercise, and practice, the Patent Rights and the Licensed Intellectual Property Rights
for Research Purposes within the Field of Use during the Research Term, including without limitation the right to use, make, grow,
import and export Research Materials for Research Purposes (the “Research License”).

 

2.02         BAT
Affiliates. BAT has the unrestricted right to, and may as it decides in its sole discretion, sublicense, and grant the right
to sublicense to any BAT Affiliate, BAT’s rights under the Research License to any BAT Affiliate; provided, however, such
BAT Affiliates’ activities under such sublicense shall be subject to all the obligations of BAT under this Agreement related
thereto (provided that BAT shall be responsible for any and all payments owed or due to 22nd Century by BAT under this Agreement
for the actions of such BAT Affiliates). Subject to the subcontracting right under Section 2.03, such sublicense may not include
the right to further sublicense or the right to enforce any Patent Rights without the prior written consent of 22nd Century other
than any sublicense to any other BAT Affiliate. BAT shall be responsible and liable for the performance of such sublicensed BAT
Affiliates insofar as performance is required to or does fulfill any of BAT’s obligations and limitations under this Agreement,
including, without limitation, 22nd Century’s rights to the Research Materials, and an activity of such BAT Affiliate that,
if such activity had been performed by BAT, would be an activity under this Agreement shall be deemed to be an activity of BAT.
All such sublicense agreements shall automatically terminate upon termination of this Agreement other than as a result of BAT exercising
the Option.

 

    	- 6 -

    	 

    

 

	
        [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS
        DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

2.03         Subcontracting.
BAT and any BAT Affiliate may outsource any research and development and other activities under the Research License, including
in particular work relating to the R&D Development Plan, to any third party, which is selected by BAT or a BAT Affiliate in
its sole discretion, pursuant to a written contract agreement between such third party and BAT or such BAT Affiliate (“R&D
Contract Agreement”). Any R&D Contract Agreement shall be in writing and in compliance with the terms of this Agreement
relating to the Research License (provided that no payment shall be owed or due to 22nd Century or a 22nd Century Affiliate under
this Agreement by any such subcontractor). [*] BAT shall be responsible and liable for the performance of the contractors and subcontractors
of BAT and BAT Affiliates insofar as performance is required to or does fulfill any of BAT’s obligations and limitations
under this Agreement, including, without limitation, with regard to any rights of 22nd Century to the Research Materials, and an
activity of such contractor or subcontractor that, if such activity had been performed by BAT, would be an activity under this
Agreement shall be deemed to be an activity of BAT. All R&D Contract Agreements shall automatically terminate upon termination
of this Agreement other than as a result of BAT exercising the Option.

 

2.04         Limitations.
Other than as provided in Sections 2.02 and 2.03, the Research License does not include the right to grant sublicenses or any
other right under this Agreement to any other third party without the prior written consent of 22nd Century. During the Research
Term, except as permitted under Article 13 of this Agreement, neither Party shall (i) license, sublicense (except as permitted
for BAT in this Agreement), grant, offer to sell, assign or otherwise convey any of the Patent Rights in the Field of Use to any
third party, (ii) distribute any Research Materials to any third party except for Research Purposes, and then only pursuant to
a material transfer agreement, and/or (iii) sell or offer for sale any of the Research Materials to any third party.

 

2.05         Limited
Retention of Rights by 22nd Century.

 

(a)          Notwithstanding
any other provision of this Agreement, but subject to the provisions set forth in Section 2.05(b):

 

(i)          22nd
Century and 22nd Century Affiliates shall retain the right to practice the Patent Rights and Licensed Intellectual Property Rights
worldwide solely for research purposes (but, in no event, any commercialization) in the Field of Use during the Research Term,
but no research or development that benefits directly or indirectly any Competitor Party; provided, however, that nothing in this
Section 2.05(a)(i) shall limit 22nd Century’s rights outside the Field of Use and/or 22nd Century’s right to commercialize
22nd Century Products pursuant to Section 2.05(a)(ii); and

 

(ii)         22nd
Century and 22nd Century Product Affiliates shall retain the right in the Field of Use to make, have made, grow, have grown, import,
export, distribute, sell, offer to sell, and otherwise engage in commercialization of solely Licensed Products that are 22nd Century
Products during the Research Term.

 

(b)          22nd
Century and 22nd Century Affiliates may have any research permitted under Section 2.05(a)(i) performed by a Permitted Researcher
only in accordance with, and shall cause such Permitted Researcher to comply with and perform in accordance with, the Permitted
Researcher Agreement of such Permitted Researcher. [*]

 

(c)          Other
than to 22nd Century Affiliates or to have them exercised by Permitted Researchers under Section 2.05(a) and (b), such limited
retained rights under Section 2.05(a) of 22nd Century in the Field of Use may not be extended, sublicensed, assigned, or transferred
to any third party in any way.

 

    	- 7 -

    	 

    

 

(d)          22nd
Century shall be responsible and liable for the performance of the 22nd Century Affiliates and the contractors and subcontractors
of 22nd Century and 22nd Century Affiliates insofar as performance is required to or does fulfill any of 22nd Century’s obligations
and limitations under this Agreement. An activity of such a contractor or subcontractor that, if such activity had been performed
by 22nd Century, would be an activity under this Agreement shall be deemed to be an activity of 22nd Century.

 

2.06         Limited
Retention of Rights by NRC. Notwithstanding any other provision of this Agreement, a portion of the rights granted to BAT in
this Agreement is subject to certain research rights retained by the National Research Council of Canada and its Plant Biotechnology
Institute (the “NRC”) under 22nd Century’s worldwide exclusive in-license agreement with NRC, for NRC to use
certain of the Patent Rights identified in Appendix B, solely for research
(but not commercial) purposes within NRC, which may include academic collaborations with publicly funded institutions.

 

2.07         Research
Results. BAT or BAT Affiliates shall solely own any and all rights, title, and interest in and to any and all Research Results
and Property, and all proprietary rights therein and thereto, arising from or in connection with, or as a result of, any research,
development, or other activities by or for BAT or any BAT Affiliate or any research, development, or other activities fully or
partially funded by BAT or any BAT Affiliate (no matter who is the inventor, author, or other creator) related to, or that have
application in, the Field of Use or otherwise, including, without limitation, any improvements, derivative works, modifications,
or enhancements to or of or from or based on any of the Licensed Intellectual Property Rights. 22nd Century shall, and shall cause
any 22nd Affiliate or any employee of 22nd Century or a 22nd Century Affiliate to, execute any assignment or other document, and
take any other action reasonably requested by BAT to implement and effect the foregoing provisions.

 

For the avoidance of doubt, during the Research
Term

 

		(i)	BAT shall not be required to provide to 22nd Century
any seeds containing BAT commercial germplasm; and

 

		(ii)	nothing in this Section 2.07 shall be construed as to
grant BAT ownership rights in any Research Results or Property, or any proprietary rights therein or thereto, including without
limitation any improvements, modifications, or enhancements covered by the Licensed Intellectual Property Rights, arising from
or in connection with, or as a result of,

 

		(aa)	any research, development, or other activities by, or
by a third party (other than a BAT Affiliate) for, 22nd Century or any 22nd Century Affiliate, or

 

		(bb)	any research, development, or other activities fully
or partially (other than with BAT or a BAT Affiliate) funded by 22nd Century or any 22nd Century Affiliate (no matter who is the
inventor, author, or other creator), even if the source of such funding is from any payments made by BAT to 22nd Century pursuant
to the terms of this Agreement.

 

    	- 8 -

    	 

    

 

ARTICLE
3 – EXCLUSIVE OPTION

 

3.01         Exclusive
Option. Subject to the terms and conditions of this Agreement, 22nd Century hereby grants to BAT, and BAT accepts from 22nd
Century, a nontransferable option (the “Option”), exercisable only during the Research Term, for BAT to obtain a license
to commercialize the Patent Rights and other Licensed Intellectual Property Rights in the Field of Use under the terms and conditions
of the Commercial License Agreement attached as Schedule 1 to this Agreement (the “Commercial License Agreement”).
The Option shall be exclusive to BAT, and 22nd Century shall not grant, directly or indirectly, to any third party any option,
right, license, entitlement, expectation, or other capacity to commercialize, or exercise or practice for any commercial purposes
any Licensed Intellectual Property Rights in the Field of Use (except as otherwise provided in Sections 2.05 and 2.06).

 

3.02         Exercise
of Option. The Option may be exercised by BAT at any time during the Research Term upon written notice from BAT to 22nd Century,
such notice to include two (2) signature pages of the Commercial License Agreement executed on behalf of BAT (the “Exercise
Notice”). If BAT exercises the Option as provided in the first sentence of this Section 3.02 during the Research Term, the
Commercial License Agreement shall become, immediately and automatically (without need for any other action), a valid and effective
legally binding agreement between BAT and 22nd Century (“Commercial License Commencement”). 22nd Century and 22nd Century
Group shall provide BAT with two (2) signature pages of the Commercial License Agreement executed by 22nd Century and 22nd Century
Group promptly thereafter, provided that the execution of signature pages by 22nd Century and/or 22nd Century Group shall not be
a condition for the Commercial License Agreement becoming or being a valid and effective agreement between BAT and 22nd Century
upon BAT’s exercising the Option. The Commercial License Agreement shall be governed solely and shall be effective separately
and independently of this Agreement by the provisions, terms, and conditions set forth in the Commercial License Agreement and
the provisions, terms, and conditions of this Agreement.

 

    	- 9 -

    	 

    

 

ARTICLE
4 – RESEARCH AND DEVELOPMENT, REPORTS AND MATERIALS

 

4.01         Development
Plan. BAT shall use its reasonable endeavors to perform the R&D Development Plan work and shall be responsible for funding
all R&D Development Plan work undertaken by or for BAT or any BAT Affiliate. The R&D Development Plan shall be finalized
by BAT within thirty (30) days from the Effective Date of this Agreement or such longer period as reasonably requested by BAT.
For the avoidance of doubt, BAT shall not be obligated to undertake or continue, and may at any time end, any specific research
and development activities or pursue or perform any part of the R&D Development Plan if BAT, in its reasonable judgment, determines
that such activities or part have no realistic prospect of reasonably achieving, or are unlikely to contribute to the achievement
of, a Milestone (as defined in Section 5.02), without terminating or ending any other activities under this Agreement.

 

4.02         Data
Exchange.

 

(a)          Promptly
after the Commencement Date and subject to Section 9.03, 22nd Century shall: (i) provide to BAT descriptions of all seed germplasm
and seeds in the possession or under the control of 22nd Century or any 22nd Century Affiliate covered by any of the Licensed Intellectual
Property Rights as of the Commencement Date and, pursuant to a material transfer agreement in the form attached as Schedule
2 of this Agreement (“Material Transfer Agreement”), provide to BAT samples of any requested seed germplasm
and seeds in the possession or under the control of 22nd Century or any 22nd Century Affiliate covered by any of the Licensed Intellectual
Property Rights as of the Commencement Date; (ii) pursuant to a Material Transfer Agreement, allow access to any requested germplasm
and seeds owned by current or past collaborators with 22nd Century or any 22nd Century Affiliate covered by any the Licensed Intellectual
Property Rights as of the Commencement Date; (iii) provide access to BAT to any and all Property in the possession or under the
control of 22nd Century or any 22nd Century Affiliate relating to the Licensed Intellectual Property Rights and the related research
and development thereof as of the Commencement Date, including allowing reasonable access to all relevant individuals who
have been involved in researching and developing the Patent Rights; and (iv) share with BAT all information (and related Property)
that 22nd Century has as of the Commencement Date with regard to (aa) all third party intellectual property rights and prior art
which relates to the Field of Use, (bb) BAT’s potential freedom to operate regarding the Patent Rights and the commercialization
thereof, and (cc) how 22nd Century would propose to commercialize the Patent Rights in the event that they had acquired the rights
which BAT has obtained under this Agreement and the Commercial License Agreement.

 

(b)          The
Parties agree that the ”Material Transfer Agreement” referred to above shall be for the purposes of: (i) restricting
BAT from sharing the seed germplasm and seeds provided to BAT by 22nd Century with any third parties without the prior approval
of 22nd Century; and (ii) requiring BAT to return or destroy any such seed germplasm and seeds in the event that the Research License
terminates or expires without BAT exercising the Option in accordance with the “Material Transfer Agreement” as attached
as Schedule 2 to this Agreement.

 

    	- 10 -

    	 

    

 

4.03         BAT
Progress Meetings. During the Research Term, BAT shall hold quarterly progress meetings with 22nd Century at which: (a) BAT
will present (i) BAT’s research goals and research direction regarding the Patent Rights; (ii) an update on what stage BAT
is at with regard to satisfying the Milestones; and (iii) any other information BAT decides to share with 22nd Century, and (b)
22nd Century will present BAT with any research and development information or Research Results that 22nd Century decides to share
with BAT. The information disclosed at such R&D update meetings shall be disclosed on a confidential basis in accordance with
Article 10. If requested by BAT, 22nd Century’s vice president of R&D shall meet with BAT researchers in person no less
than twice per year and no more than four times per year, unless otherwise agreed by 22nd Century, at a destination chosen by BAT,
including within sixty days of the Effective Date. Prior to the commencement of any progress meeting, or any other meeting, each
of the individual participants in such meeting shall complete and sign a copy of the document attached as Schedule 3
to this Agreement so such individual is bound to obligations of confidentiality in accordance with Article 10. Nothing in such
document alters, changes, modifies, amends, limits, restricts, or replaces any provision in this Agreement or the Commercial License
Agreement.

 

4.04         Research
Materials. During the Research Term, subject to BAT’s ownership thereof and to Article 10 and Section 9.03, BAT shall
deliver to, upon request by, 22nd Century a reasonable number of samples of Research Materials created by and/or in the possession
or control of BAT or any BAT Affiliate under this Agreement. For the avoidance of doubt, BAT shall not be required to provide to
22nd Century any seeds containing BAT commercial germplasm.

 

4.05         License
to Research Results. BAT hereby grants to 22nd Century a non-exclusive, non-transferable, non-assignable, non-sublicensable,
worldwide license to any and all registered Research Results owned by BAT from the Commercial License Commencement, or from the
termination or expiration of the Research License in the event that BAT does not exercise the Option, to develop and commercialize
22nd Century Products. Such license shall be effective at 22nd Century’s election in 22nd Century’s sole discretion
and shall be on commercially reasonable terms negotiated in good faith, including, without limitation, a limited duration, an arm’s
length royalty, performance obligation, and no warranty, representation, covenant, indemnity, or comfort from BAT regarding validity,
enforceability, non-infringement, or risk of third party claims regarding infringement or misappropriation relating to such intellectual
property rights, but otherwise in no case on terms more onerous than the terms of the Commercial License (as defined in Schedule
1 to this Agreement) granted to BAT under the terms of the Commercial License Agreement attached as Schedule 1
to this Agreement. In the event the Research License expires or terminates without BAT exercising the Option, BAT shall provide
22nd Century with the details of any registered Research Results then in existence to the extent that 22nd Century is not already
aware of such Research Results, subject to compliance with Article 10.

 

ARTICLE
5 – PAYMENTS

 

5.01         Initial
Fee. Within two (2) business days after the execution of this Agreement by 22nd Century and BAT, BAT shall pay to 22nd Century
a non-refundable initial fee of seven million dollars ($7,000,000.00) pursuant to the wire transfer instructions provided to BAT
by 22nd Century prior to the Effective Date.

 

    	- 11 -

    	 

    

 

5.02         Milestone
Payments. In addition to the initial fee under Section 5.01, BAT agrees to pay 22nd Century, upon completion of each of the
performance milestones referenced in paragraphs (a) through (d) below in this Section 5.02, and set forth in a certain letter from
BAT to 22nd Century dated as of the Effective Date, during the Research Term (each, a “Milestone”) the payment that
is set forth below for such respective performance milestone (the “Milestone Fee”).

 

(a)          A
Milestone Fee of one million five hundred thousand dollars ($1,500,000.00) following successful achievement of Milestone 1 (the
“First Milestone”);

 

(b)          A
Milestone Fee of one million five hundred thousand dollars ($1,500,000.00) following successful achievement of Milestone 2 (the
“Second Milestone”);

 

(c)          A
Milestone Fee of two million dollars ($2,000,000.00) following successful achievement of Milestone 3 (the “Third Milestone”);
and

 

(d)          A
Milestone Fee of two million dollars ($2,000,000.00) following achievement of Milestone 4 (the “Fourth Milestone”).

 

The First Milestone and the Second Milestone
are collectively the “Phase I Milestones.” The Third Milestone and the Fourth Milestone are collectively the “Phase
II Milestones.” Each Milestone Fee is due and payable by the end of thirty (30) days of BAT’s or any BAT Affiliates
achievement of the associated Milestone. Milestone Fees shall not be due and payable after BAT exercises the Option. More precise
Milestone details, in order to ensure that they are measureable, have been agreed to by the Parties in a certain letter agreement
dated as of the Effective Date.

 

5.03         Taxes.
BAT shall deduct from any Milestone Fee to 22nd Century under this Agreement the appropriate amount of any withholding tax, duty,
or other charges imposed under applicable law, and required to be paid under applicable law, to a government on such Milestone
Fee payment under this Agreement, provided that BAT shall take reasonable steps within such applicable law to reduce or eliminate
any such withholding requirement. In no event shall BAT be liable or responsible for, and 22nd Century shall indemnify and hold
harmless BAT, for any amount of any tax assessed or due on any income of 22nd Century from any payment under this Agreement.

 

5.04         Currency
and Interest. All payments made to 22nd Century under this Agreement
shall be paid in United States Dollars by wire transfer to a United States Dollar account designated by 22nd Century, consistent
with all applicable laws and regulations. Any payment owed and due by a Party to the other Party under this Agreement and not paid
to such other Party within thirty (30) days after the date on which such payment became due shall bear interest until payment at
a rate of one percent (1%) for each full calendar month. The expiration or termination of this Agreement does not relieve a Party
of its financial obligations to the other Party which have accrued and become due hereunder prior to the date of such expiration
or termination. Each Party (the “Payor”) may offset or deduct from, or set off against, any payment owed by the Payor
to the other Party (the “Payee”) any undisputed amount that the Payee owes to the Payor if and to the extent that such
amount is undisputedly owed and due to the Payor under this Agreement. The Payor shall provide the Payee with written notice of
the offset, deduction, or set-off (identifying the cause and sum of both the amount owed by the Payee and the payment from which
such amount is offset or deducted or against which it is set off) at the time the remaining payment owed by the Payor is made or,
if no part of such payment is remaining, at the time such payment would have had to be made. Any such undisputed offset, deduction,
or set-off of any amount by the Payor shall satisfy the obligation of the Payor to pay such amount as if such amount had been paid
by the Payor to the Payee.

 

    	- 12 -

    	 

    

 

ARTICLE
6 – TERMINATION

 

6.01         Termination
by BAT; Commercial License Commencement. BAT may terminate this Agreement at any time during the Research Term and at BAT’s
sole discretion (without cause) by giving 22nd Century written notice at least thirty (30) days prior to such termination. This
Agreement shall automatically terminate and expire upon the Commercial License Commencement. It is understood that BAT will remain
responsible for all monetary payments or other obligations which accrued and became due prior to the effective date of termination.

 

6.02         Termination
of Research License. In the event that BAT terminates this Agreement without cause during the Research Term by giving a written
notice of termination of this Agreement pursuant to Section 6.01 (the “Termination Notice”), BAT shall have no liability
under this Agreement for, as a result of or on the occasion of such termination, and shall have no liability under this Agreement
after such termination (except for any liability of BAT under this Agreement for any breach of BAT antecedent to such termination
or for any breach of BAT after such termination of any obligation that survives such termination pursuant to Article 20), except
as follows:

 

(a)          In
the event that BAT so terminates this Agreement by giving the Termination Notice prior to the completion of both of the Phase I
Milestones, BAT shall pay to 22nd Century an amount equal to half the Milestone Fee payments that BAT would have made to 22nd Century
for the completion of any remaining Phase I Milestones. For the avoidance of doubt, no payment relating to any Milestone shall
be due to the extent that: (i) it has been previously completed and paid; or (ii) BAT has previously notified 22nd Century that
BAT has decided that there is no reasonable prospect of achieving such Milestone and so has ceased carrying out work related to
the achievement of that Milestone.

 

(b)          In
the event that BAT so terminates this Agreement by giving the Termination Notice after the completion of the Phase I Milestones,
BAT shall pay to 22nd Century an amount equal to half the Milestone Fee payments that BAT would have made to 22nd Century for the
completion of any remaining Phase II Milestones. For the avoidance of doubt, no payment relating to any Milestone shall be due
to the extent that: (i) it has been previously completed and paid; or (ii) BAT has previously notified 22nd Century that BAT has
decided there is no reasonable prospect of achieving such Milestone and so has ceased carrying out work related to the achievement
of that Milestone.

 

    	- 13 -

    	 

    

 

6.03         Notification.
Should BAT, at any time during the Research Term, permanently cease conducting the performance of all research or development activities
under this Agreement, BAT shall promptly notify 22nd Century and this Agreement will terminate upon such notice. It is understood
that BAT will remain responsible for all monetary payments or other obligations which accrued and became due prior to the effective
date of termination. For the avoidance of doubt, this Agreement will not terminate as long as BAT continues to perform research
and development activities directed to the achievement of at least one Milestone. BAT may cease to conduct activities directed
to achievement of one, two, or three Milestones if, in BAT’s reasonable judgment, it determines that the one, two, or three
Milestones are not achievable.

 

6.04         Termination
by 22nd Century. Subject to Section 6.05, 22nd Century shall have the right to terminate this Agreement during the Research
Term upon the occurrence of one or more of the following events:

 

(a)          failure
of BAT to make any payment required pursuant to this Agreement when due;

 

(b)          failure
of BAT to render reports to 22nd Century required by this Agreement;

 

(c)          the
initiation by BAT of any action that challenges the validity, enforceability or patentability of any Patent
Rights (except in response to any action by 22nd Century or any 22nd Century Affiliate against BAT or any BAT Affiliate asserting
infringement or breach of such Patent Rights);

 

(d)          the
material breach by BAT of any other material term of this Agreement.

 

6.05         Notice
of Breach and Right to Cure. In all cases of alleged breach by BAT of this Agreement entitling 22nd Century to terminate this
Agreement under Section 6.04, 22nd Century must give BAT sixty (60) days’
prior written notice of such breach including the remedy sought, be it termination of this Agreement or another remedy (“Breach
Notice”). The Breach Notice must
also specify the articles and sections of this Agreement which are claimed to have been breached and must contain a description
of the event(s) or occurrence(s) claimed to constitute a breach. In all cases, BAT
shall have sixty (60) days from the date of receipt of the Breach Notice
to cure the alleged breach or in good faith to dispute the existence
of a breach. If the claimed breach is cured within sixty (60) days, this Agreement shall not terminate. If BAT fails to cure the
alleged breach by BAT within sixty (60) days of the Breach
Notice, this Agreement shall terminate upon the expiration of the sixty
(60) days, unless BAT initiates arbitration against such termination under this Agreement, in which case the termination
of this Agreement or another remedy related thereto will not be effective and will be subject to the following: (i) if
it is decided in a final unappealable or unappealed decision in such arbitration
or an appeal thereof in accordance with Section 11.02 that the breach identified in such Breach Notice did not occur or did not
entitle 22nd Century to a termination of this Agreement, or that the prerequisites of the termination do not exist, the termination
shall be ineffective ab initio, or (ii) if it is decided in a final unappealable or unappealed decision in such arbitration
or an appeal thereof in accordance with Section 11.02 that
the breach identified in such Breach Notice occurred, that 22nd Century was entitled to the termination of this Agreement for such
breach, and that the prerequisites of such termination exist, BAT shall have the right to cure such breach within thirty (30) days
of receiving such decision, in which case the termination shall be ineffective, or absent such cure shall become effective at the
end of such thirty (30) day period. Any Breach Notice
shall not prejudice any Party’s rights and obligations under this Agreement, including without limitation, 22nd Century’s
right to receive monetary sums due hereunder. 

 

    	- 14 -

    	 

    

 

ARTICLE
7 – PATENT PROSECUTION

 

7.01         Patent
Prosecution. During the Research Term, 22nd Century shall prosecute and maintain all patents and patent applications of the
Patent Rights. 22nd Century shall not abandon any patent application filed or issued patent in the Patent Rights without express
prior written approval from BAT. Payment of all fees and costs relating to the filing, prosecution, and maintenance of the Patent
Rights are ordinarily the responsibility of 22nd Century. However, 22nd Century shall take any additional lawful prosecution or
maintenance activities related to the Patent Rights which BAT may reasonably request from time to time; provided, however, that
BAT pays all costs and expense, including all reasonable attorneys’ fees, necessary for such activities.

 

7.02         Cooperation.
BAT and 22nd Century agree to cooperate with each other in filing, prosecution, and maintenance of the Patent Rights. Upon the
request of BAT, 22nd Century will provide copies by email to BAT and any agents of BAT of all patent office actions and 22nd Century’s
responses to such office actions for the patent applications in Appendix B,
plus any other applications that are part of the Patent Rights that may be filed. 22nd Century will give BAT the opportunity to
offer comments and remarks thereon at BAT’s expense, such comments and remarks to be given due consideration by 22nd Century.
However, notwithstanding anything to the contrary in this Agreement, all decisions with respect to the filing, prosecution, and
maintenance of Patent Rights are reserved solely to 22nd Century.  

 

ARTICLE
8 – INFRINGEMENT OF PATENT RIGHTS BY THIRD PARTIES

 

8.01         Notice
of Infringement by Third Parties. Each of the Parties shall inform the other Party promptly in writing of any alleged infringement
of which it becomes aware and of any available evidence of infringement by a third party of any patent within the Patent Rights.

 

8.02         BAT
Enforcement Options. If, during the Research Term, BAT becomes aware of any alleged infringement by a third party in the Territory,
BAT has the right, but not the obligation, to either:

 

(a)          settle
the infringement suit by sub-licensing the alleged infringer (but only in accordance with the provisions of this Agreement and
if such settlement has no adverse effect on any consideration to be received
by 22nd Century under this Agreement) or by other means reasonably acceptable to 22nd Century; or

 

(b)          prosecute
at its own expense any infringement of the Patent Rights and/or Plant Variety Rights, in which case BAT may, for such purposes,
request to use the name of 22nd Century as party plaintiff and 22nd Century shall, upon BAT’s request, join any action and
become a party plaintiff, and costs and expenses (including without limitation attorneys’ fees) associated therewith must
be borne by BAT.

 

    	- 15 -

    	 

    

 

8.03         Enforcement
by BAT. If BAT undertakes the enforcement and/or defense of the Patent Rights and/or Plant Variety Rights by litigation, including
any declaratory judgment action, the total cost of any such action commenced or defended solely by BAT shall be borne by BAT and
BAT shall indemnify 22nd Century and any applicable licensor for any counter or cross-claim. Any recovery of damages by BAT as
a result of such action will be applied first in satisfaction of any unreimbursed expenses and attorneys’ fees of BAT relating
to the action, and second toward reimbursement of 22nd Century’s expenses, including attorneys’ fees, if any, relating
to the action. The balance remaining from any such recovery shall be equally split between 22nd Century and BAT. BAT is entitled
to settle any such litigation by agreement, consent, judgment, voluntary dismissal, or otherwise, but only with the prior written
consent of 22nd Century and if it has no adverse effect on any consideration
to be received by 22nd Century under this Agreement.

 

8.04         Enforcement
by 22nd Century. If BAT does not institute legal action against the infringing activity within three (3) months of having been
made aware of or notified thereof, 22nd Century has the right, but is not obligated, to prosecute at its own expense any such infringement
of the Patent Rights and/or Plant Variety Rights. In furtherance of that right, 22nd Century may use the name of BAT as a party
plaintiff in any such action. The total cost of any such infringement action commenced or defended solely by 22nd Century must
be borne by 22nd Century. Any recovery by 22nd Century in such action will be applied first in satisfaction of any unreimbursed
expenses and attorneys’ fees of 22nd Century relating to the action, and second toward reimbursement of BAT’s expenses,
including attorneys’ fees, if any, relating to the action. The balance remaining from any such recovery belongs solely to
22nd Century.

 

8.05         Cooperation
by the Parties. In any infringement suit instituted by either Party to enforce the Patent Rights, the other Party must, at
the request and expense of the Party initiating such suit, cooperate in all respects and, to the extent possible, have its employees
testify when requested and make available relevant records, papers, information, data, samples, specimens, and the like.

 

8.06         Invalidity
of any of Patent Rights and/or Plant Variety Patents. Any of the foregoing notwithstanding, if, at any time during the Research
Term, any of the Patent Rights and/or Plant Variety Rights are held invalid or unenforceable in a decision which is not appealable
or is not appealed within the time allowed, BAT does not have a damage claim or a claim for refund or reimbursement against 22nd
Century, but if such invalidity or unenforceability is of the last of the Patent Rights, no further Milestone Fees shall be due
for any time after such invalidity or unenforceability.

 

8.07         Freedom
to Operate Notice. Each Party to this Agreement will inform the other Party promptly in writing if it becomes aware that the
Patent Rights and/or Plant Variety Rights may infringe any third party’s patent rights.

 

    	- 16 -

    	 

    

 

ARTICLE
9 – REGULATORY APPROVALS, PUBLICATION AND EXPORT

 

9.01         Laws
and Regulations of the U.S. This Agreement is subject to all United States laws and regulations controlling the export of technical
data, computer software, laboratory prototypes and other commodities and technology. It is understood that 22nd Century is subject
to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other
commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979).

 

9.02         Licenses
and Authorizations. To the extent any third party or governmental licenses, approvals, or authorizations are required for BAT
to use and exploit the Licensed Intellectual Property Rights as envisaged under the terms of this Agreement, it shall be the sole
responsibility of BAT to obtain any and all such licenses, approvals, authorizations, technology or intellectual property at BAT’s
sole cost and expense. To the extent any third party or governmental licenses, approvals, or authorizations are required for 22nd
Century to use and exploit the Licensed Intellectual Property Rights as envisaged under the terms of this Agreement, it shall be
the sole responsibility of 22nd Century to obtain any and all such licenses, approvals, authorizations, technology or intellectual
property at 22nd Century’s sole cost and expense. Subject to, and without limiting any of, the provisions, rights, or obligations
of a Party under this Agreement, neither Party shall be obligated to procure any right under or to any intellectual property right
of any third party necessary for the other Party’s use or exploitation of any Licensed Intellectual Property Right.

 

9.03         Material
Exchange. Subject to Section 9.02, the Parties will cooperate in good faith with each other to obtain any and all permits or
approvals necessary for the exchange of any materials pursuant to Sections 4.02 and 4.04, respectively.

 

ARTICLE
10 – CONFIDENTIALITY

 

10.01         Confidentiality.
Each Party will each treat any Property disclosed to it (the
“Receiving Party”) by the other Party (the “Disclosing
Party”) with reasonable care and will not disclose such information to any other person, firm or corporation, except
Affiliates and contractors of the Receiving Party bound by the obligations of confidentiality and restricted use set forth in this
Article 10. Any Property the rights to which are owned under this Agreement by a Party shall be the confidential information of
such Party, and such Party shall be deemed to be the Disclosing Party of such Property under this Agreement. The Receiving Party
may not use the Disclosing Party’s confidential information other than for the benefit of the Parties and in
the performance of this Agreement. These obligations of non-disclosure and restricted use remain in effect for each subject disclosure
of confidential information while this Agreement is in effect and until the later of the date of termination of this Agreement
or five (5) years from the date of disclosure. However, notwithstanding the foregoing, no Receiving Party is obligated, with respect
to Property disclosed to it by the Disclosing Party, or any part thereof, which:

 

(a)          is
already known to the Receiving Party at the time of the disclosure;

 

(b)          becomes
publicly known without the wrongful act or breach of this Agreement by the Receiving Party;

 

(c)          is
rightfully received by the Receiving Party from a third party on a non-confidential basis;

 

    	- 17 -

    	 

    

 

(d)          is
subsequently and independently developed by employees or contractors of the Receiving Party who had no knowledge of such Property,
as verified by written records;

 

(e)          if
and to the extent and only as approved for release by prior written authorization of the Disclosing Party; or

 

(f)          is
disclosed pursuant to the requirements of applicable law or pursuant to any judicial or government requirement, regulation or order,
including without limitation any securities regulations, provided that the Receiving
Party takes reasonable steps to provide the Disclosing Party
sufficient prior notice in order to contest such request, requirement or order and provided that such disclosed confidential information
otherwise remains subject to the obligations of confidentiality set forth in this Article 10.

 

10.02         Confidential
Disclosures. The Parties agree that any Property to be treated as confidential information under this Article 10 must be disclosed
in writing or in another tangible medium and must be clearly marked “CONFIDENTIAL” or the like. Property disclosed
orally or visually that the Disclosing Party desires to keep confidential
must be summarized and reduced to writing and communicated to the Receiving
Party within thirty (30) days of such disclosure.

 

10.03         Exceptions
of Confidential Disclosures. Notwithstanding the foregoing of this Article 10, the Parties may use and disclose any confidential
information related to the Patent Rights to BAT Affiliates (if BAT) or 22nd Century Affiliates (if 22nd Century) and their potential
sublicensees, prospective investors, employees, consultants and agents with a need to know, collaborators, prospective collaborators
and other third parties in the chain of growing, manufacturing and distributing Licensed Products, but if and only if the applicable
party obtains from each such recipient a written confidentiality agreement, the provisions of which are at least as protective
of 22nd Century’s confidential information as those provided in this Article 10.

 

10.04         Confidentiality
Related to Patent Rights. Notwithstanding anything to the contrary in this Agreement, all information relating to filing, prosecution,
maintenance, defense, infringement, and the like regarding the Patent Rights (no matter how disclosed) is the confidential information
of 22nd Century and subject to the provisions of this Article 10.

 

ARTICLE
11 – GOVERNING LAW AND ARBITRATION

 

11.01         Governing
Law. As the Parties will be doing business in different locations, and seek certainty in their dealings with each other and
with third parties, the Parties to this Agreement expressly acknowledge and agree that this Agreement, and the performance or breach
thereof, shall be entered into, interpreted, governed, construed, and enforced in accordance with the substantive and procedural
laws of the State of New York, United States of America, without regard to any choice of law principles. The Parties hereby
irrevocably submit to the exclusive personal jurisdiction of the state and federal courts located in or serving the State of New
York, United States of America, for the purposes of any claim, action or proceeding brought pursuant to or arising from this Agreement.

 

    	- 18 -

    	 

    

 

11.02         Arbitration.
Any and all disputes arising out of or in connection with this Agreement, and/or any breach of this Agreement by BAT, any BAT Affiliates,
22nd Century, any 22nd Century Affiliates, any licensees and/or any sublicensees of the foregoing under this Agreement will be
referred to and finally resolved by arbitration administered by the International Centre for Dispute Resolution in accordance with
the International Arbitration Rules. Each Party shall be entitled to seek interim, interlocutory or permanent injunctive relief
from any state or federal court located in the State of New York, United States of America, and the parties hereby agree to submit
to the exclusive personal jurisdiction of the state and federal courts located in or serving the State of New York, United States
of America, for the purposes of any claim, action or proceeding brought pursuant to or arising from this Agreement. The Parties
agree that the arbitration proceedings will be conducted in New York City, State of New York, United States of America. The language
of the proceedings and all results thereof shall be in English. All arbitration proceedings will be conducted before a single arbitrator
selected by the relevant arbitration commission, provided that such arbitrator shall have experience in conducting business arbitration
with respect to intellectual property licensing. The decision resulting from the arbitrator shall be final, not appealable except
with respect to any point of law, and binding on the Parties and any judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction.

 

11.03         Injunctive
Relief. Each Party agrees that the other Party’s remedies at law for any breach of its obligations of this Agreement
(other than pure payment obligations) will or may be inadequate alone, and that such other Party shall be entitled to equitable
relief, including, without limitation, injunctive relief and specific performance, in addition to any other available remedies
it may have in law and in equity, and such Party hereby waives any requirement for security or posting of any bond in connection
with any such remedy.

 

ARTICLE
12 – NOTICES

 

12.01         Notices.

 

(a)          All
Notices (as defined in Section 12.02) by a Party to the other Party shall be sent to such other Party to at least the following
address and attention of such other Party (or such other address and/or attention as such other Party has notified by written Notice
to the Party sending the Notice at least thirty (30) days prior to such Notice):

 

	If to BAT:	If to 22nd Century:
	 	 
	British American Tobacco (Investments) Limited	22nd Century Limited, LLC
	Attention:  Head of Marketing Legal	Attention:  Joseph Pandolfino
	Globe House	9530 Main Street
	4 Temple Place	Clarence, New York  14031
	London WC2R 2PG	United States of America
	United Kingdom	 
	 	If to 22nd Century Group:
	 	 
	 	22nd Century Group, Inc.
	 	Attention:  Joseph Pandolfino
	 	9530 Main Street
	 	Clarence, New York  14031
	 	United States of America

 

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(b)          A
copy of any Notice sent to a Party under Section 12.01(a) shall be sent simultaneously to such Party to the following (whereby
such copy shall not be deemed to be notice):

 

	If such notice, demand, or written communication is to BAT, to each of the following:	If such notice, demand, or written communication is to 22nd Century or 22nd Century Group, to 
	 	each of the following:
	(1)  British American Tobacco (Investments) Limited	 
	Attention:  Head of Patents and Innovations	(1)  22nd Century Limited, LLC
	Globe House	Attention:  Michael R. Moynihan, PhD
	4 Temple Place	9530 Main Street
	London WC2R 2PG	Clarence, New York  14031
	United Kingdom	United States of America
	 	 
	(2)  By e-mail to: 	(2)  By email to:  
	(3)  By e-mail to: 	(3)  By email to:  
	 	 

 

A copy of any Notice by 22nd Century to BAT under Section 1.12(iv)
shall also be sent by 22nd Century simultaneously to:

 

	by mail to:	British American Tobacco (Investments) Limited
	 	Attention:  Head of Group Research & Development [Cambridge]
	 	210 Cambridge Science Park
	 	Milton Road
	 	Cambridge CB4 0WA
	 	United Kingdom

 

and by e-mail to:

 

12.02         Delivery.
The Parties agree that any notice or demand sent by a Party to the other Party (including, without limitation, exercising the Option,
notice of termination, notice of breach, notice of infringement, demand, notice under Section 1.14(iv), or any other notice resulting
in a deadline or having legal consequences under this Agreement) (“Notice”) must be sent to such Party at the address
and to the attention as stated for such Party in Section 12.01(a) by a reputable internationally recognized carrier with a delivery
confirmation or tracking number (charges prepaid). The date on which any such Notice to a Party is deemed given to such Party shall
be the date of the delivery by such internationally recognized carrier to such Party at the address and to the attention as set
forth in Section 12.01(a) for such Party.

 

    	- 20 -

    	 

    

 

ARTICLE
13 – SUCCESSORS, ASSIGNMENT AND CHANGE OF CONTROL

 

13.01         Successors.
This Agreement is binding upon and inures to the benefit of the respective successors and assigns of the Parties hereto.

 

13.02         No
Assignments. This Agreement may not be transferred or assigned by either Party except: (i) that BAT may transfer or extend
this Agreement to any BAT Affiliate (subject to a reasonable guaranty by BAT of such BAT Affiliate’s performance after such
transfer), or (ii) that either Party may transfer this Agreement in connection with the sale or other transfer of such Party’s
entire business, as the case may be, except in the event of a sale or other transfer by 22nd Century to a Competitor Party, in
which case the provisions in Section 13.03 shall apply to the same extent as in the event of a change of control set forth therein.
Any other assignment of this Agreement without the prior written consent of the other Party shall be null and void.

 

13.03         Change
of Control.  In the event a Competitor Party takes control of 22nd Century by obtaining more than fifty percent (50%)
of the common stock of 22nd Century Group, Inc., BAT’s rights under this Agreement will be unaffected, but BAT’s obligations
under this Agreement shall be amended automatically (without need for any notice or other action) and effective immediately upon
such change of control as follows:

 

(a)          BAT’s
obligations in Sections 4.03, 4.04, and 4.05 shall terminate; and

 

(b)          BAT
obligation to pay any further Milestone Fees pursuant to Section 5.02 shall terminate.

 

All other provisions of this Agreement will
remain unchanged.

 

ARTICLE
14 – INDEMNITY, REPRESENTATIONS AND DISCLaimer

 

14.01         Indemnity.
22nd Century and 22nd Century Group shall indemnify, defend and hold harmless BAT, all BAT Affiliates, and each of its officers,
directors, employees, agents, and licensors, and their respective successors and assigns (collectively, “BAT Indemnitee(s)”),
by counsel selected by 22nd Century, from and against any claim,
liability, cost, expense, demand, action, suit, proceeding, damages, judgment, penalty, deficiency, loss or obligation, of any
kind or nature (including, without limitation, reasonable attorneys’ fees and other costs and expenses of defense) (collectively,
“Claims”) based upon, arising out of, or otherwise relating, directly or indirectly, to any breach, or allegation giving
rise to any breach, of any warranty or representation of 22nd Century under Section 14.02. 
A BAT Indemnitee shall provide 22nd Century with reasonably prompt written notice of such a Claim. 22nd Century shall have the
right to compromise or settle such Claim; provided, however, that (i) no compromise or settlement of any such Claim may be effected
by 22nd Century without the consent of BAT unless (i) there is no finding or admission of any violation of law or the rights of
any person by a BAT Indemnitee, (ii) no such compromise or settlement has an adverse effect on any other claims that may be made
by a BAT Indemnitee against 22nd Century, (iii) the sole remedy provided thereunder is monetary damages which will be paid in full
by 22nd Century in accordance with such compromise or settlement and 22nd Century reasonably demonstrates its financial capacity
to do so, and (iv) no such compromise or settlement has an adverse effect on any consideration to be received by BAT under this
Agreement.

 

    	- 21 -

    	 

    

 

14.02         Warranties
and Representations of 22nd Century. 22nd Century warrants and represents that (a) as of the Effective Date it either owns
or is the exclusive worldwide licensee of the Patent Rights in the Field of Use, (b) it has the sole and unrestricted right to
grant the Research License and Option for the Commercial License provided in this Agreement, subject to the limitations set forth
in Sections 2.05 and 2.06, (c) performance of its obligations under this Agreement does not and will not violate any existing
agreement to which it is subject or a party, (d) the execution of this Agreement has been duly authorized and 22nd Century’s
performance hereunder is within its corporate power, and (e) to 22nd Century’s knowledge, as of the date of signing this
Agreement, the Patent Rights will not infringe any third party’s rights. 22nd Century warrants and represents that the wire
transfer instructions supplied under Section 5.01 are and will remain correct, complete, and sufficient for BAT to make any payments
under this Agreement to 22nd Century unless and until 22nd Century provides BAT written notice of different wire transfer instructions,
in which case 22nd Century warrants and represents that such different wire transfer instructions are and will remain correct,
complete, and sufficient for BAT to make any payments under this Agreement to 22nd Century.

 

14.03         Indemnity.
BAT shall indemnify, defend and hold harmless 22nd Century, all 22nd Century Affiliates, and each of its officers, directors, employees,
agents, and licensors, and their respective successors and assigns (collectively, “22nd Century Indemnitee(s)”), by
counsel selected by BAT, from and against any claim, liability,
cost, expense, demand, action, suit, proceeding, damages, judgment, penalty, deficiency, loss or obligation, of any kind or nature
(including, without limitation, reasonable attorneys’ fees and other costs and expenses of defense) (collectively, “Claims”)
of any third party (other than any BAT Affiliate or 22nd Century Affiliate) asserting any product liability claim against a 22nd
Century Indemnitee arising from any tobacco developed by BAT funded activities under this Agreement grown, made, imported, exported,
sold, offered for sale or used by or behalf of BAT or any BAT Affiliate and/or any Licensed Product grown, made, imported, exported,
sold, offered for sale or used by or behalf of BAT or any BAT Affiliate. A
22nd Century Indemnitee shall provide BAT with reasonably prompt written notice of such a Claim. BAT shall have the right to compromise
or settle such Claim; provided, however, that (i) no compromise or settlement of any such Claim may be effected by BAT without
the consent of 22nd Century unless (i) there is no finding or admission of any violation of law or the rights of any person by
a 22nd Century Indemnitee, (ii) no such compromise or settlement has an adverse effect on any other claims that may be made by
a 22nd Century Indemnitee against BAT, (iii) the sole remedy provided thereunder is monetary damages which will be paid in full
by BAT in accordance with such compromise or settlement and BAT reasonably demonstrates its financial capacity to do so, and (iv)
no such compromise or settlement has an adverse effect on any consideration to be received by 22nd Century under this Agreement.

 

14.04         Warranties
and Representations of BAT. BAT warrants and represents that (a) performance of its obligations under this Agreement
does not and will not violate any existing agreement to which it is subject or a party, and (b) the execution of this Agreement
has been duly authorized and its performance hereunder is within its corporate power.

 

    	- 22 -

    	 

    

  

14.05         Disclaimer.
OTHER THAN AS PROVIDED IN SECTION 14.02 (FOR 22ND CENTURY) OR 14.03 (FOR BAT), NEITHER PARTY NOR ANY OF SUCH PARTY’S
AFFILIATES MAKES ANY, AND ALL OF THEM DISCLAIM ALL, WARRANTIES, REPRESENTATIONS, AND CONDITIONS OF ANY KIND, EXPRESS OR IMPLIED
OR LEGAL, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES, REPRESENTATIONS, OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WORKMANSHIP OR TITLE OR NON-INFRINGEMENT, NOR IS THERE A WARRANTY, REPRESENTATION, OR CONDITION THAT THE USE OF THE
PATENT RIGHTS OR ANY RESEARCH RESULT, PROPERTY, OR ACTIVITY OF THIS AGREEMENT WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK
OR OTHER RIGHTS. IN ADDITION, NOTHING IN THIS AGREEMENT MAY BE DEEMED TO BE A REPRESENTATION OR WARRANTY BY 22ND CENTURY OF THE
VALIDITY OF ANY OF THE PATENTS OR THE ACCURACY, SAFETY, EFFICACY, OR USEFULNESS, FOR ANY PURPOSE, OF THE PATENT RIGHTS, OR ANY
REPRESENTATION, WARRANTY, OR CONDITION BY BAT OR ANY BAT AFFILIATE OF THE VALIDITY, ACCURACY, SAFETY, EFFICACY, OR USEFULNESS,
FOR ANY PURPOSE, OF ANY RESEARCH RESULT. 22ND CENTURY HAS NO OBLIGATION, EXPRESS OR IMPLIED, TO SUPERVISE, MONITOR, REVIEW OR OTHERWISE
ASSUME RESPONSIBILITY FOR THE PRODUCTION, MANUFACTURE, TESTING, MARKETING OR SALE OF ANY LICENSED PRODUCT BY BAT OR ITS AFFILIATES.
22ND CENTURY HAS NO LIABILITY WHATSOEVER TO BAT OR ANY THIRD PARTIES FOR OR ON ACCOUNT OF ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND
OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR IMPOSED UPON BAT OR
ANY OTHER PERSON OR ENTITY, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM THE USE OF THE PATENT RIGHTS BY BAT. IN NO EVENT
SHALL EITHER PARTY BE LIABLE, REGARDLESS OF THE BASIS OR GROUND OF LIABILITY, FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY,
LIQUIDATED, SPECIAL, OR PUNITIVE DAMAGES OR LOSSES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS AND LOST BUSINESS, WHETHER FORESEEABLE
OR NOT, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY THEREOF, UNDER THIS AGREEMENT.

 

ARTICLE
15 – BANKRUPTCY

 

15.01         Bankruptcy
etc. of 22nd Century. To the greatest extent permissible under applicable law, none of the licenses and rights granted to BAT
under this Agreement shall terminate, expire, be limited or restricted, or adversely modified or affected in the event that 22nd
Century or any 22nd Century Affiliate, or any licensor thereof, ceases or fails to conduct business operations, takes steps to
dissolve or cease to exist, files or is or becomes subject to a petition in bankruptcy (or similar reorganization proceeding),
admits its inability to pay its debts as they become due, makes a general assignment for the benefit of its creditors, or becomes
subject to the appointment of a receiver. This Agreement and the rights and licenses to BAT are subject to 11 U.S.C. § 365(n)
and the right of BAT to elect retention of this Agreement and the licenses and rights to BAT hereunder if BAT so decides in its
sole discretion. In the event of any bankruptcy or other such event as described above in this Section 15.01, to the greatest extent
permissible under applicable law, 22nd Century will assert the continuation of any licenses granted to 22nd Century or any 22nd
Affiliate and sublicensed to BAT under this Agreement. 22nd Century will further promptly engage in such acts as reasonably requested
by BAT to 22nd Century to ensure BAT’s continued rights under the licenses granted by 22nd Century under this Agreement and/or
BAT’s continued rights arising or flowing from any licenses granted to 22nd Century or 22nd Century and sublicensed to BAT
under this Agreement under substantially the same terms as those in effect immediately prior to the bankruptcy or other such event
as described above in this Section 15.01.

 

    	- 23 -

    	 

    

 

15.02         Cooperation.
If any of the events identified in Section 15.01 occurs or is likely to occur, 22nd Century shall promptly notify BAT thereof in
writing and provide BAT with all information requested by BAT related thereto. In such case, if and to the extent legally permissible
under applicable law, the Parties will cooperate with external legal and other advisers (each Party bearing its own cost related
thereto) to identify the best option or options to protect BAT and BAT Affiliates’ access to the Licensed Intellectual Property
Rights in or despite such event. 22nd Century agrees that, in any such event, it will undertake all as legally permissible under
applicable law to ensure that none of BAT’s rights and licenses under this Agreement are terminated, limited, restricted,
or adversely modified or affected. 

 

ARTICLE
16 – USE OF A PARTY'S NAME

 

16.01         Unless
required by operation of law, rule or regulation, including without limitation any securities law, rule or regulation, or any binding
judgment or court order or any requirement of a competent authority, neither 22nd Century nor any 22nd Century Affiliate may publish
or disclose this Agreement, the existence of this Agreement, or any of the provisions of this Agreement (except: (i) if and to
the extent expressly permitted by BAT in an advance written notice to 22nd Century, which shall be in BAT’s discretion, or
(ii) to each other, or (iii) to any legal or financial consultant subject to an obligation of confidentiality regarding such disclosure
or as necessary for, and in the course of, enforcing any of their rights under this Agreement), and none of the Parties may, without
the prior written consent of the other applicable Party:

 

(a)          use
in any publication, advertising, publicity, press release, or promotional activity or otherwise, any trade-name, personal name,
trademark, trade device, service mark, symbol, image, icon, or any abbreviation, contraction or simulation thereof owned by the
other Party; or

 

(b)          use
the name or image of any employee or agent of the other Party in any publication, publicity, advertising, press release, promotional
activity or otherwise.

 

None of the Parties may, without the prior
written consent of the other applicable Party, represent, either directly or indirectly, that any product or service of the other
Party is a product or service of the representing Party or that it is made in accordance with or utilizes the information or documents
of the other Parties.

 

    	- 24 -

    	 

    

 

ARTICLE
17 – GUARANTY

 

17.01         22nd
Century Group hereby guarantees to BAT the performance of any and all obligations, and any and all liability, of 22nd Century under
this Agreement, including, without limitation, all payments owed and due by 22nd Century to BAT, to the same extent as if such
obligations and liability were direct obligations and liabilities of 22nd Century Group to BAT. The guaranty in this Article 17
is an absolute, unconditional, and irrevocable continuing guaranty, which shall be effective as long as this Agreement is in effect,
and thereafter with regard to any obligation or liability of 22nd Century that accrued before, or that survives, the termination,
expiration, or cancellation of this Agreement until all such obligations and liabilities have been satisfied in full. 22nd Century
Group hereby waives, relinquishes, and abandons any right to request, demand, or require BAT first to claim or pursue any right
or remedy of any kind against 22nd Century for all or any part of any obligations or liability guaranteed by 22nd Century Group
under this Article 17. 22nd Group hereby confirms and agrees that its obligations and liability under the guaranty in this Article
17 shall be in effect, enforceable, and not be waived, relinquished, or abandoned in the event of, any amendment or change of this
Agreement. 22nd Century Group hereby waives notice of any amendment or change of this Agreement. Nothing in this Article 17 waives
any right of any Party to assert, to bring any action for, or to enforce any right or remedy by such Party against the other or
any direct obligation or liability of 22nd Century Group under Section 14.01.

 

17.02         In
the event 22nd Century Group no longer has any ownership interest in 22nd Century after the Effective Date, then 22nd Century Group
may from and after that time request BAT to consent to the release of 22nd Century Group from the guaranty in this Article 17 and
any obligation or liability of 22nd Century Group under Section 14.01, which consent BAT shall not unreasonably withhold, condition
or delay as long as (i) the entity which then owns 22nd Century (“New Owner”) agrees in a written agreement with BAT
to be bound by the guaranty in this Article 17 and any obligation or liability of 22nd Century Group under Section 14.01 to the
full extent as set forth therein for 22nd Century Group, (ii) New Owner is also of equal or greater financial strength as compared
to 22nd Century Group at the time of such request, (iii) 22nd Century and 22nd Century Group provides to BAT all information reasonably
necessary to assess the financial strength of New Owner (which provision of the last such information, 22nd Century and 22nd Century
Group shall be deemed to warrant and represent that neither of them nor any 22nd Century Affiliate has any further such information),
and (iv) 22nd Century shall pay, and 22 Century Group hereby guarantees under the same terms as set forth in Section 17.01, full
payment of BAT’s reasonable legal expenses arising from the release of 22nd Century Group from the guaranty in this Article
17 and/or New Owner’s agreements under Section 17.02(i). BAT enters into this Agreement in reliance upon 22nd Century Group’s
guaranty and the provisions in this Article 17.

 

ARTICLE
18 – SEVERANCE AND WAIVER

 

18.01         Severance.
Each clause of this Agreement is a distinct and severable clause and if any clause is deemed illegal, void or unenforceable, the
validity, legality or enforceability of any other clause or portion of this Agreement will not be affected.

 

18.02         Waiver.
The failure of a Party in any instance to insist upon the strict performance of the terms of this Agreement is not a waiver or
relinquishment of any of the terms of this Agreement, either at the time of the Party’s failure to insist upon strict performance
or at any time in the future, and such terms will continue in full force and effect.

 

    	- 25 -

    	 

    

 

ARTICLE
19 – TITLES AND DRAFTING

 

19.01         Titles.
All titles, section headings and article headings contained in this Agreement are inserted only as a matter of convenience and
reference. They do not define, limit, extend or describe the scope of this Agreement or the intent of any of its provisions.

 

19.02         Drafting.
For purposes of construing this Agreement, each of the Parties shall be deemed the drafter of this Agreement.

 

ARTICLE
20 – SURVIVAL OF TERMS

 

20.01         The
provisions of Articles 1 (with regard to any definition used in any of the following surviving terms), 10, 11, 12, 14 (with regard
to any Claim thereunder arising prior to the expiration or termination of this Agreement), 16, 17, 18, 19, and 21, this Article
20, and Sections 2.07, 4.05, and 6.02 (if and to the extent that any payment under such Section 6.02 is due and unpaid) shall survive
the expiration or termination of this Agreement.

 

ARTICLE
21 – ENTIRE UNDERSTANDING

 

21.01         This
Agreement represents the entire understanding among the Parties, and supersedes all other agreements, express or implied, among
the Parties concerning the subject matter hereof, and is not subject to any change or modification except by the execution of a
written instrument subscribed to by authorized representatives of the Parties.

 

ARTICLE
22 – ELECTRONIC COPY; COUNTERPARTS

 

22.01         The
Parties to this document agree that a copy of the original signature (including an electronic copy) may be used for any and all
purposes for which the original signature may have been used. The Parties further waive any right to challenge the admissibility
or authenticity of this document in a court of law based solely on the absence of an original signature.

 

22.02         This
Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which together will constitute
one and the same instrument.

 

[Signature page follows.]

 

    	- 26 -

    	 

    

 

IN WITNESS WHEREOF, the Parties have
executed this Agreement as of the Effective Date.

 

	BAT:	 	22ND CENTURY:
	 	 	 
	British American Tobacco (Investments) Limited	 	22nd Century Limited, LLC
	 	 	 
	By:	/s/  Gary Nicholson	 	By: 	/s/ Joseph Pandolfino
	Name: 	Gary Nicholson (Authorised Signatory)	 	Name:  	Joseph Pandolfino
	Title: 	Head of Global Leaf Research	 	Title:	Chief Executive Officer

 

	By:	/s/ Steve Burton	 
	Name:	Steve Burton (Authorised Signatory)	 
	Title:	Head of CORA and GR&D Finance	 

 

For the limited purpose of indemnity provided in Section 14.01
and Article 17:

22nd Century Group, Inc.

 

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

 

    	- 27 -

    	 

    

 

APPENDIX A

 

BAT
AFFILIATES

 

(without
limitation)

 

	No.	 	Centre Corporate Companies
	1	 	B.A.T (U.K. and Export) Ltd
	2	 	B.A.T Capital Corporation (incorp. in the U.S.)
	3	 	B.A.T. International Finance p.l.c.
	4	 	BATMark Ltd.
	5	 	British-American Tobacco (Holdings) Ltd.
	6	 	British American Tobacco Holdings (The Netherlands) B.V.
	7	 	British American Tobacco International Ltd. (incorp. in Switz.)
	8	 	British American Tobacco (Brands) Inc. (incorp. in the U.S.)
	9	 	British American Tobacco (Brands) Ltd.
	10	 	British American Tobacco (GLP) Ltd.
	11	 	British American Tobacco (Investments) Ltd.
	 	 	Asia-Pacific
	12	 	British American Tobacco Australia Ltd.
	13	 	British American Tobacco Bangladesh Company Ltd.
	14	 	PT Bentoel Internasional Investama Tbk (Indonesia)
	15	 	British American Tobacco Japan, Ltd.
	16	 	British American Tobacco (Malaysia) Berhad
	17	 	British American Tobacco (New Zealand) Ltd.
	18	 	Pakistan Tobacco Co. Ltd.
	19	 	British American Tobacco Korea Ltd.
	20	 	British American Tobacco Korea Manufacturing Ltd.
	21	 	B.A.T Services Ltd. (Taiwan, incorporated in the UK)
	22	 	British-American Tobacco Marketing (Singapore)
	 	 	Americas
	23	 	za-Piccardo S.A.I.C.y F. (Argentina)
	24	 	Souza Cruz, S.A. (Brazil)
	25	 	Imperial Tobacco Canada Ltd.
	26	 	British American Tobacco Chile Operaciones, S.A.
	27	 	British American Tobacco Colombia S.A.S.
	28	 	British American Tobacco Mexico, S.A. de C.V.
	29	 	C.A. Cigarrera Bigott Sucs. (Venezuela)
	30	 	British American Tobacco Belgium S.A.
	 	 	Western Europe
	31	 	British American Tobacco (Czech Republic), s.r.o.
	32	 	British American Tobacco Denmark A/S
	33	 	British American Tobacco France SAS
	34	 	British-American Tobacco (Germany) GmbH
	35	 	British American Tobacco (Industrie) GmbH
	36	 	BAT Pecsi Dohnygyr Kft. (Hungary)
	37	 	British American Tobacco Italia S.p.A.
	38	 	British American Tobacco Nederland B.V. 
	39	 	British American Tobacco Western Europe Region B.V.
	40	 	British-American Tobacco Polska S.A.
	41	 	British American Tobacco Polska Trading sp. zo.o.
	42	 	British-American Tobacco (Romania) Trading SRL
	43	 	British American Tobacco España, S.A.
	44	 	British American Tobacco Sweden AB
	45	 	Fiedler & Lundgren AB
	46	 	British American Tobacco Switzerland S.A.
	47	 	British American Tobacco UK Ltd.
	 	 	Eastern Europe, Middle East and Africa
	48	 	British American Tobacco (Algérie) S.P.A.
	49	 	British American Tobacco Egypt LLC
	50	 	B.A.T. Pars Company (Private Joint Stock) (Iran)
	51	 	British American Tobacco Kazakhstan Trading LLP
	52	 	British American Tobacco Exports B.V. (Morocco)
	53	 	British American Tobacco (Nigeria) Ltd.
	54	 	OJSC British American Tobacco – STF (Russia)
	55	 	OJSC British American Tobacco – Yava (Russia)
	56	 	CJSC British American Tobacco – SPb (Russia)
	57	 	CJSC International Tobacco Marketing Services
	58	 	B.A.T. Tobacco Holdings South Africa (Pty) Ltd
	59	 	B.A.T. Tütün Mamulleri Sanayi ve Ticaret A.S. (Turkey)
	60	 	A/T B.A.T. – Prilucky Tobacco Co. (Ukraine)

 

    	- 28 -

    	 

    

 

Appendix
B

 

PATENT RIGHTS

 

	Patent Family	 	Country/

Region	 	No.	 	Application No.	 	Filing

Date	 	Patent No.	 	Date

Issued	 	Assignee
	 	 	ARIPO	 	1	 	AP/P/2007/004181	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	Australia	 	2	 	2006233359	 	2/28/06	 	2006233359	 	7/19/12	 	22nd Century
	 	 	 	 	3	 	2012203977	 	7/5/12	 	 	 	 	 	22nd Century
	 	 	Canada	 	4	 	2599302	 	2/28/06	 	 	 	 	 	22nd Century
	Reducing Levels of Nicotinic	 	China	 	5	 	200680010544.X	 	2/28/06	 	200680010544.X	 	9/5/12	 	22nd Century
	Alkaloids in Plants	 	 	 	6	 	2012102520317	 	7/19/12	 	 	 	 	 	22nd Century
	PCT/IB2006/001741	 	Hong Kong	 	7	 	13109543.8	 	8/15/13	 	 	 	 	 	22nd Century
	(WO2006109197)	 	Japan	 	8	 	P2007-557629	 	2/28/06	 	4892744	 	1/6/12	 	NAIST*
		 	Korea	 	9	 	2007-7022315	 	2/28/06	 	 	 	 	 	22nd Century
	Filed on 02-28-2006	 	 	 	10	 	2013-7006598	 	3/14/13	 	 	 	 	 	22nd Century
	 	 	Mexico	 	11	 	2007/010520	 	2/28/06	 	301367	 	7/16/12	 	22nd Century
	 	 	 	 	12	 	2012/008279	 	7/16/12	 	305368	 	11/16/12	 	22nd Century
	 	 	 	 	13	 	2012/013312	 	11/15/12	 	 	 	 	 	22nd Century
	 	 	Philippines	 	14	 	1-2007-501841	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	South Africa	 	15	 	2007/08331	 	2/28/06	 	2007/08331	 	9/30/09	 	22nd Century
	 	 	United States	 	16	 	11/579661	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	 	 	17	 	13/082953	 	4/8/11	 	 	 	 	 	22nd Century
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increasing Levels of	 	Europe	 	18	 	06848676.0	 	9/13/06	 	 	 	 	 	22nd Century
	Nicotinic Alkaloids	 	 	 	19	 	11187201.6	 	10/28/11	 	 	 	 	 	22nd Century
		 	Hong Kong	 	20	 	12110455.3	 	10/19/12	 	 	 	 	 	22nd Century
	PCT/IB2006/004043	 	Japan	 	21	 	2009-537707	 	9/13/06	 	5087777	 	9/21/12	 	NAIST*
	(WO2007072224)	 	Taiwan	 	22	 	096116136	 	5/7/07	 	Notice of Allowance	 	 	 	22nd Century
	Filed 9/13/06	 	United States	 	23	 	11/520036	 	9/13/06	 	 	 	 	 	22nd Century
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Nucleic Acid Sequences	 	Canada	 	24	 	2688306	 	5/23/08	 	 	 	 	 	NRC**
	Encoding Transcription	 	China	 	25	 	200880100279.3	 	5/23/08	 	 	 	 	 	NRC**
	Factors Regulating Alkaloid	 	Hong Kong	 	26	 	11113618.2	 	5/23/08	 	 	 	 	 	NRC**
	Biosynthesis and Their Use	 	 	 	27	 	12/601752	 	5/23/08	 	 	 	 	 	NRC**
	in Modifying Plant	 	United States	 	28	 	13/464,212	 	5/4/12	 	 	 	 	 	NRC**
	Metabolism	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/IB2008/003131 (WO/2009/063312)	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Filed on 5-23-2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

*22nd Century holds a non-exclusive license from the Nara Institute
of Science and Technology (NAIST) with the right to sublicense.

 

**22nd Century holds an exclusive worldwide
license from the National Research Council of Canada (NRC) with the exclusive right to sublicense.

 

    	- 29 -

    	 

    

 

Schedule 1

 

COMMERCIAL LICENSE AGREEMENT

 

This Commercial License Agreement (this “Agreement”)
is entered into as of the Option Effective Date (as defined below) by and among 22nd Century Limited, LLC (“22nd Century”)
and 22nd Century Group, Inc. (“22nd Century Group”), each with its corporate headquarters at 9530 Main Street, Clarence,
New York 14031, United States of America, and British American Tobacco (Investments) Limited (“BAT”), Reg. No.
00074974, with its registered office at Globe House, 1 Water Street, London WC2R 3LA, United Kingdom.

 

WHEREAS:

 

		1.	BAT and 22nd Century entered into that certain Research License and Commercial Option Agreement dated as of September 30, 2013
(the “Research License Agreement”), in which 22nd Century granted BAT an exclusive option to enter into this Agreement.

 

		2.	BAT exercised such option causing this Agreement to be effective as of the date of the Commercial License Commencement (as
defined in the Research License Agreement) (the “Option Effective Date”).

 

		3.	BAT and 22nd Century wish to enter into this Agreement for 22nd Century to grant to BAT, and for BAT to receive, the licenses
and rights set forth in this Agreement under the terms and conditions set forth in this Agreement.

 

NOW THEREFORE, the Parties agree as follows:

 

ARTICLE
1 – DEFINITIONS

 

For the purposes of this Agreement, the
terms and phrases below have the following definitions:

 

1.01         “22nd
Century Affiliate” means individually, and “22nd Century Affiliates” means collectively, any corporation, company
or other entity in which 22nd Century Group owns or controls, directly or indirectly, at least fifty one percent (51%) of the voting
securities.

 

1.02         “22nd
Century Product Affiliate” means individually, and “22nd Century Product Affiliates” means collectively, any
corporation, company or other entity in which 22nd Century Group owns or controls, directly or indirectly, at least fifty one percent
(51%) of the voting securities and no Competitor Party owns any of the voting securities.

 

1.03         “22nd
Century Product” means any product that 22nd Century or any 22nd Century Product Affiliate imports, exports, distributes,
markets, sells or offers to sell that is branded with the wholly-owned marks of 22nd Century or any 22nd Century Product Affiliate,
but in no event any product imported, exported, distributed, marketed, sold or offered under any brand or mark of any other individual,
entity, association, group, or other person(s) of any kind.

 

    	- 30 -

    	 

    

 

	[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

1.04          “Article”
means any of the numbered Articles of this Agreement.

 

1.05         “Available
for Shipment” means Commercial Licensed Products which have been (i) harvested, (ii) processed in a leaf processing facility
of BAT or a BAT Affiliate or a third party with whom BAT or a BAT Affiliate has contracted, and (iii) inspected and cleared for
shipment.

 

1.06         “BAT
Affiliate” means individually, and “BAT Affiliates” means collectively, any corporation, company or other entity
in which British American Tobacco plc owns or controls, directly or indirectly, at least thirty percent (30%) of the voting securities,
and shall include, without limitation, those set forth in APPENDIX A.

1.07         “BAT
Excluded Businesses” means any of the following companies if and after such company becomes part of BAT or a BAT Affiliate
after the Option Effective Date of the Research License by merger, acquisition or business combination, but only while it is part
of BAT or a BAT Affiliate: [*], and any of the foregoing companies’ respective Affiliates.

 

1.08         “BAT
Excluded Products” means solely any Commercial Licensed Product that is (i) Available for Shipment to any third party that
is not a BAT Affiliate or Reynolds, (ii) the amount of Commercial Licensed Products actually shipped to any third party that is
not a BAT Affiliate or to Reynolds in an amount which is greater than the amount under the immediately preceding clause (i), and/or
(iii) is processed in a leaf processing facility of Reynolds or a third party with whom Reynolds has contracted.

1.09         “Affiliate”
or “Affiliates” means, with respect to any entity other than a 22nd Century Affiliate, BAT Affiliate, or Reynolds Affiliate,
any corporation, company or other entity which directly or indirectly controls, is controlled by, or is under common control with
such entity. “Control” of an entity shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies of such entity, whether through ownership of voting securities, by contract, or otherwise.

 

1.10         “BAT
Supplier” means any party which supplies BAT or any BAT Affiliates with Licensed Product which is grown from seeds provided
to such party by BAT or a BAT Affiliate and with respect to which BAT or a BAT Affiliate purchases for itself all of the Licensed
Product grown by such BAT Supplier. For the avoidance of doubt, any Licensed Product grown by a BAT Supplier which is not destroyed
shall only be used by BAT or a BAT Affiliate for processing in a BAT leaf processing facility for conversion of such tobacco leaf
into a tobacco leaf packaged product which, at any time during the Commercial Term, will, or is intended to, ultimately become
a Commercial Licensed Product (as defined in Section 1.12 below) Available for Shipment (as defined in Section 1.05 above).

 

1.11         “Co-exclusive
Term” means the initial three (3) Years of the Commercial Term.

 

1.12         
“Commercial Licensed Product” means a Licensed Product which is harvested tobacco leaf processed in a leaf processing
facility and any commercial product containing such harvested tobacco leaf or parts or extracts thereof. For the avoidance of doubt,
Commercial Licensed Products do not include, without limitation, Licensed Products which are seeds.

 

    	- 31 -

    	 

    

 

	[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

1.13         “Competitor
Party” means the following [*].

 

1.14         “Commercial
Term” means the period of time commencing on the Option Effective
Date and continuing uninterrupted until the later of (i) the expiration, invalidation of all claims of, or cancellation
of the last to expire of the Patent Rights, or (ii) in the event Plant
Variety Rights are granted for any plant variety that is a Licensed Product,
the expiration, invalidation of all claims of, or cancellation of such Plant Variety Rights.

 

1.15         
“Field of Use” means any and all use of Nicotiana plants or parts thereof and tobacco and products produced
therefrom, including, without limitation, cigarettes, heat-not-burn cigarettes, electronic cigarettes, cigars, tobacco for smoking
in pipes or by other means, all forms of smokeless tobacco (such as snus, chewing tobacco, snuff and tobacco dissolvables), and
nicotine products. Field of Use shall, however, exclude solely: (i) products (other than combustible cigarettes and cigars, electronic
cigarettes and heat-not-burn products) produced from tobacco biomass, including, without limitation, plant proteins, pharmaceutical
products other than nicotine products, nutritional products, food and feed ingredients, and biofuels; and (ii) solely in the United
States of America, a combustible cigarette product that has been approved for smoking cessation by the Center for Drug Evaluation
and Research (CDER) of the U.S. Food and Drug Administration and is intended and offered for smoking cessation. For the avoidance
of doubt, the carve out in (ii) above shall not encompass products which may have been approved as a reduced risk product by the
U.S. Food and Drug Administration or any other U.S. regulatory body.

 

1.16         “First
Commercial Term” means the initial three (3) Years of the Full Term.

 

1.17         “First
Day” means: (i) the Option Effective Date if the Option Effective Date is the first day of a calendar month or (ii) the first
day of the calendar month next following the Option Effective Date if the Option Effective Date is not the first day of a calendar
month.

 

1.18         “Full
Term” means the period of time from expiration of the Pilot Term and extending for the remainder of the Commercial Term.

 

1.19         “Licensed
Intellectual Property Rights” means individually any, and collectively all, of the following:

 

		(i)	all of the Patent Rights;

 

		(ii)	all of the Plant Variety Rights;

 

(iii)         all know-how, copyrights, and/or trade
secrets related to the Patent Rights that are owned, co-owned, or licensed (with the right to sublicense) by 22nd Century or any
22nd Century Affiliate as of the Commencement Date; and

 

(iv)         all
know-how, copyrights, and/or trade secrets related to the Patent Rights that are:

 

    	- 32 -

    	 

    

 

		(aa)	acquired by ownership or co-ownership or licensed (with
the right to sublicense) at any time after the Commencement Date by 22nd Century or a 22nd Century Affiliate, and

 

		(bb)	disclosed to BAT pursuant to this Agreement by or on
behalf of 22nd Century or any 22nd Century Affiliate,

 

except solely for any such know-how,
copyrights, and/or trade secrets that are subject to a third party restriction if 22nd Century delivers to BAT, within thirty (30)
calendar days after such disclosure, a written notice of non-inclusion that specifically identifies such know-how, copyrights,
and/or trade secret and such third party restriction imposed thereon, in which case such know-how, copyrights, and/or trade secrets
shall not be included as “Licensed Intellectual Property Rights” unless mutually agreed in writing by the Parties.

  

1.20         “Licensed
Product(s)” means any materials, products or parts thereof, including without limitation any plants, harvested plant parts,
seeds, cell lines, strains, genes, DNA, nucleic acid sequences and/or other tangible biological materials, which:

 

(a)          are
covered, in whole or in part, by an issued, unexpired claim or pending claim contained in the Patent Rights in any country;

 

(b)          use
a process, are manufactured by using a process, or are employed to practice a process which is covered, in whole or in part, by
an issued, unexpired claim or pending claim contained in the Patent Rights in any country;

(c)          are
progeny and/or derivatives of any of the foregoing; and/or

 

(d)          are
covered, in whole or in part, by any Plant Variety Rights in any country in which any such material, product or part thereof is
grown, made, used, sold, imported, exported or transferred.

 

1.21         “Non-exclusive
Term” means the period of time from expiration of the Co-exclusive Term and extending through the remainder of the Term.

 

1.22         “Non-Patent
Rights” means, collectively, any and all copyrights, mask work rights, and similar rights, and registrations, and applications
for registration, thereof, and any and all rights of or protecting trade secrets, know-how, computer programs, algorithms, databases,
and data, and any and all other intellectual, industrial, or proprietary rights, known or recognized now or in the future.

 

1.23         “Party”
means, individually, 22nd Century or BAT, as the case may be, and also 22nd Century Group with regard to Section 13.01(a) and Article
16.

 

1.24         “Parties”
means, collectively, 22nd Century and BAT, and also 22nd Century Group with regard to Section 13.01(a) and Article 16.

 

    	- 33 -

    	 

    

 

	[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

1.25         “Patent
Rights” means, collectively, all of the following (a) each of the patents and patent applications listed in Appendix B;
(b) any and all applications claiming the benefit of the filing date or claiming priority for any of the foregoing patent applications,
including without limitation any divisional applications, continuation applications, continuation-in-part applications, reissue
applications, reexaminations and extensions, and any foreign corresponding or counterpart international, regional and national
applications; and (c) any and all patents issuing or reissuing from any of the foregoing patent applications.

 

1.26         “Permitted
Researcher” means any of the following entities, but only if and after such entity has entered into a Permitted Researcher
Agreement with 22nd Century or a 22nd Century Affiliate and only while such Permitted Researcher Agreement is in effect: (i) an
academic institution, or (ii) an entity that does not, and none of whose Affiliates, in any way, directly or indirectly, manufacture,
offer for sale, distribute, and/or sell tobacco or tobacco products and the research conducted by such entity is under the direction,
funding or control of 22nd Century or a 22nd Century Affiliate. The term “Permitted Researcher” shall include, without
limitation, [*].

 

1.27         “Permitted
Researcher Agreement” means a legally binding written agreement entered into and signed by 22nd Century or a 22nd Century
Affiliate with an entity that (other than the execution of a Permitted Researcher Agreement) qualifies as a Permitted Researcher
and includes:

 

		(i)	confidentiality obligations which are either:

 

		(aa)	no less rigorous than the confidentiality obligations
of the Parties under this Agreement, or,

 

		(bb)	if such Permitted Researcher is an educational institution
that does not agree to such confidentiality obligations, less rigorous confidentiality obligations that are nevertheless subject
to a requirement that such educational institution shall not:

 

		(A)	disclose to any third party without prior written authorization of 22nd Century or such 22nd Century Affiliate (which authorization
22nd Century or a 22nd Century Affiliate shall not give for any entity or person operating commercially in the Field of Use) or

 

		(B)	publically disclose, unless and until such educational institution has provided to 22nd Century or such 22nd Century Affiliate
a reasonable advance written notice prior to any such public disclosure and the option for 22nd Century or such 22nd Century Affiliate
to take reasonable steps to protect any intellectual property rights therein or related thereto,

 

any Property related to the Patent
Rights delivered, provided, or made available to such Permitted Researcher by 22nd Century or a 22nd Century Affiliate; and

 

		(ii)	an obligation to assign, transfer, convey or license to 22nd Century all rights, title and interest in any Property resulting
from the research conducted by such entity.

 

1.28         “Pilot
Term” means the initial two (2) Years of the Commercial Term.

 

    	- 34 -

    	 

    

 

1.29         “Plant
Variety Rights” or “PVR” means intellectual property in the form of rights granted by applicable law to the breeder
of a new variety of plant that give the breeder control over the propagating material or harvested material of a plant variety
or the use thereof (such as for example, “Plant Variety Protection,” “PVP Certificates,” “Plant Variety
Right Certificates,” and “Plant Breeders’ Rights Certificates,” and any other rights granted by a member
state of the International Union for the Protection of New Varieties of Plants (UPOV) to comply with the International Convention
for the Protection of New Varieties of Plants (UPOV Convention)), which variety: (i) is a result of the research and development
funded by BAT or any BAT Affiliate (no matter who is the plant breeder) and (ii) is covered by the Patent Rights at the time of
filing an application for PVR.

 

1.30         “Property”
means, individually and collectively, any invention, development, discovery, creation, work, technology, process, method, reduction
to practice, data, code, device, design, application, implementation, concept, practice, or idea, whether novel, original, or new
or whether an improvement to, derivative work or derivation from, or amendment or modification to any existing any invention, development,
discovery, creation, work, technology, process, method, reduction to practice, data, code, device, design, application, implementation,
concept, practice, or idea, and any and all written and other tangible, and any and all electronic, copies, manifestations, and/or
reflections thereof.

 

1.31         “Quarter”
means, with regard to any Year, any one of the four periods of three (3) consecutive calendar months each that comprise such Year.

 

1.32         “R&D
Development Plan” means the research and development plan prepared by BAT and delivered to 22nd Century.

 

1.33         “Reynolds
Affiliate” means individually, and “Reynolds Affiliates” means collectively, any corporation, company or other
entity in which Reynolds American Inc. owns, directly or indirectly, at least thirty percent (30%) of the voting securities.

 

1.34         “Reynolds”
means Reynolds American Inc. and/or any Reynolds Affiliate.

 

1.35         “Research
Materials” means any plants, harvested plant parts, seeds, cell lines, strains, genes, DNA, nucleic acid sequences and/or
other tangible biological materials, but excluding seeds containing BAT commercial germplasm, covered by the Patent Rights and
produced during the development of a Commercial Licensed Product by or on behalf of BAT or any BAT Affiliate.

 

1.36         “Research
Purposes” means solely for BAT’s and/or any BAT Affiliate’s own research and product development purposes, and
does not include the manufacture of commercial products for their commercial sale.

 

1.37         “Research
Results” means, collectively all, and “Research Result” means individually any, Property resulting or arising
from or in connection with, or as a result of, any research, development, or other activities under this Agreement related to validation
of the patent claims of the Patent Rights.

 

    	- 35 -

    	 

    

 

1.38         “Second
Commercial Term” means the period of time from expiration of the First Commercial Term and extending until September 30,
2028.

 

1.39         “Section”
means any of the numbered sections under any Article.

 

1.40         “Term”
means the duration of this Agreement from the Option Effective Date until the date on which the expiration, termination, or cancellation
of this Agreement becomes effective.

 

1.41         “Territory”
means the entire world.

 

1.42         “Third
Commercial Term” means the period of time from expiration of the Second Commercial Term and extending until expiration of
the Commercial Term.

 

1.43         “Year”
means any period of time that: (i) commences on the Option Effective Date and ends on the end of the calendar day immediately preceding
the first anniversary of the First Day, or (ii) commences on any anniversary of the First Day and ends on the end of the calendar
day immediately preceding the next following anniversary of the First Day.

 

1.44         Certain
other defined terms have the meanings given them elsewhere in this Agreement.

 

ARTICLE
2 – COMMERCIAL LICENSE

 

2.01         Commercial
License Grant. Subject to the terms and conditions of this Agreement (including, without limitation, Section 2.02), 22nd Century
grants to BAT, and BAT accepts from 22nd Century, (i) an exclusive (except solely as provided in Section 2.05) license to use,
make and grow Licensed Products and import, export, distribute, sell and offer for sale Commercial Licensed Products in the Territory
(except that BAT may use, make, grow, import, export, distribute, sell and offer for sale, for commercial purposes, Commercial
Licensed Products in the United States of America only through the sublicense right under clause (iv) of this Section 2.01) and
the Field of Use during the Co-exclusive Term, (ii) a non-exclusive license to use, make and grow Licensed Products and import,
export, distribute, sell and offer for sale Commercial Licensed Products in the Territory (except that BAT may use, make, grow,
import, export, distribute, sell and offer for sale, for commercial purposes, Commercial Licensed Products in the United States
of America only through the sublicense right under clause (iv) of this Section 2.01) and the Field of Use during the Non-exclusive
Term, (iii) a non-exclusive worldwide license throughout the Territory to practice the Licensed Intellectual Property Rights for
Research Purposes within the Field of Use during the Commercial Term (the foregoing collectively the “Commercial License”),
and (iv) the right to sublicense solely Reynolds to use, make, grow, import, export, distribute, sell and offer for sale, for commercial
purposes, Commercial Licensed Products in the United States of America and the Field of Use during the Commercial Term.

 

For the avoidance of doubt, any
Licensed Product that is not destroyed shall only be used by BAT or a BAT Affiliate for

 

    	- 36 -

    	 

    

 

processing in a BAT leaf processing facility
for conversion of such tobacco leaf into a tobacco leaf packaged product which will or is intended to ultimately become a Commercial
Licensed Product Available for Shipment, or solely for research or other non-commercial purposes.

 

2.02         End
of Commercial Term. Unless this Agreement terminates earlier for any reason, upon the expiration of the
Commercial Term, all licenses and all other rights granted by 22nd Century to BAT under this Agreement shall become and
be and remain a perpetual, worldwide, fully-paid-up (with no further obligation by BAT or any BAT Affiliate or any third party
for any exercise of any right of BAT under this Agreement to make any payment to 22nd Century or any 22nd Century Affiliate), irrevocable,
transferable, assignable, sublicenseable, and non-exclusive license to use, make, grow, import, export, distribute, sell and offer
for sale any Licensed Products in the Field of Use anywhere in the Territory (without, for the avoidance of doubt, the limitations
under Section 2.01 or Section 2.03 regarding the United States of America) and either Party may use, practice, and exercise any
Licensed Intellectual Property Rights for Research Purposes within the Field of Use, and either Party may freely grant direct and
indirect sublicenses and rights to sublicense under all remaining Licensed Intellectual Property Rights in and outside the United
States to any person or entity, as decided by such Party in its sole discretion.

 

2.03         Sublicensing
BAT Affiliates. BAT has the unrestricted right to, and may as it decides in its sole discretion, sublicense, and grant the
right to sublicense, BAT’s rights under the Commercial License to any BAT Affiliate in the Territory (other than in the United
States of America). BAT has the unrestricted right to, and may as it decides in its sole discretion, sublicense BAT’s rights
under the Commercial License in the United States of America solely to Reynolds, so long as Reynolds is a BAT Affiliate, for Reynolds
to exercise in the United States of America as Reynolds decides in Reynolds’ sole discretion. Any such sublicense shall be
in compliance with this Agreement relating to the Commercial License and such BAT Affiliates’ activities under such sublicense
shall be subject to all the obligations of BAT under this Agreement related thereto (provided that BAT shall be responsible for
any and all payments owed or due to 22nd Century under this Agreement for the actions of such BAT Affiliates). Subject to the sublicensing
right under Section 2.04, such sublicense may not include the right to further sublicense or the right to enforce any Patent Rights
without the prior written consent of 22nd Century other than any sublicense to any other BAT Affiliate (subject to the limitations
expressly set forth in this Section 2.03 in the United States of America). BAT shall be responsible and liable for the performance
of such sublicensed BAT Affiliates insofar as performance is required to or does fulfill any of BAT’s obligations and limitations
under this Agreement, including without limitation the payment of all fees and royalties due 22nd Century and rights to Commercial
Seeds, and an activity of such BAT Affiliate that, if such activity had been performed by BAT, would be an activity under this
Agreement shall be deemed to be an activity of BAT. All such sublicense agreements shall automatically terminate upon termination
of this Agreement or upon such entity no longer being a BAT Affiliate.

 

    	- 37 -

    	 

    

 

	[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

2.04         Sublicensing
BAT Suppliers. BAT may sublicense the right to grow and process Licensed Products into Commercial Licensed Products under the
Commercial License to BAT Suppliers. Any such sublicense shall be in writing and in compliance with the terms of this Agreement
relating to the Commercial License (provided that no payment shall be owed or due to 22nd Century or a 22nd Century Affiliate under
this Agreement by any BAT Supplier). Any such sublicense agreement shall not include the right to further sublicense or the right
to enforce any Patent Rights without the prior written consent of 22nd Century. BAT shall be responsible and liable for the performance
of such sublicensed BAT Suppliers insofar as performance is required to or does fulfill any of BAT’s obligations and limitations
under this Agreement, and an activity of such BAT Supplier that, if such activity had been performed by BAT, would be an activity
under this Agreement shall be deemed to be an activity of BAT. All such sublicense agreements shall automatically terminate upon
termination of this Agreement.

 

2.05         Retention
of Rights by 22nd Century.

 

(a)          Notwithstanding
any other provision of this Agreement, subject to the provisions set forth in Section 2.05(b), 22nd Century and 22nd Century Affiliates
shall retain the right to practice the Patent Rights and Licensed Intellectual Property worldwide solely for research (but not
commercial) purposes in the Field of Use during the Commercial Term, but no research or development that benefits directly or indirectly
any Competitor Party; provided, however, that nothing in this Section 2.05(a) shall limit 22nd Century rights outside the Field
of Use, 22nd Century’s right to commercialize 22nd Century Products pursuant to Section 2.05(c), and/or 22nd Century’s
right to sublicense pursuant to Section 2.07.

 

(b)          22nd
Century and 22nd Century Affiliates may have any research permitted under Section 2.05(a) performed by a Permitted Researcher only
in accordance with, and shall cause such Permitted Researcher to comply with and perform in accordance with, the Permitted Researcher
Agreement of such Permitted Researcher. [*].

 

(c)          22nd
Century and 22nd Century Product Affiliates shall retain the worldwide right in the Field of Use to make, have made, grow, have
grown, import, export, distribute, sell, offer to sell and otherwise engage in commercialization of solely Licensed Products that
are 22nd Century Products during the Commercial Term.

 

(d)          22nd
Century shall be responsible for the performance of the 22nd Century Affiliates and the contractors and subcontractors of 22nd
Century and 22nd Century Affiliates insofar as performance is required to fulfill any of 22nd Century’s obligations and limitations
under this Agreement. An activity of such a contractor or subcontractor that, if such activity had been performed by 22nd Century,
would be an activity under this Agreement shall be deemed to be an activity of 22nd Century.

 

2.06         
Limited Retention of Rights by NRC. Notwithstanding any other provision of this Agreement, a portion of the rights granted
to BAT in this Agreement is subject to certain research rights retained by the National Research Council of Canada and its Plant
Biotechnology Institute (the “NRC”) under 22nd Century’s worldwide exclusive in-license agreement with NRC, for
NRC to use certain of the Patent Rights identified in Appendix B, solely
for research (but not commercial) purposes within NRC, which may include academic collaborations with publicly funded institutions.

 

    	- 38 -

    	 

    

 

2.07         Sublicensing
Third Parties. During the Non-exclusive Term, but not before, 22nd Century may license, and BAT may sublicense third parties
(other than BAT Affiliates), in the Field of Use as follows:

 

(a)          Subject
to BAT’s payment obligations under Section 3.08, BAT has the unrestricted right to, and may, grant any sublicense under the
Commercial License in the Territory (other than the United States of America) to any third party. Any such license granted by BAT
shall be in writing and be expressly subject to the rights of 22nd Century under this Agreement. BAT shall provide 22nd Century
a copy of each such third party license agreement within thirty (30) days after execution of the subject license agreement. BAT
shall be responsible and liable for the performance of its sublicensee(s) insofar as performance is required to or does fulfill
any of BAT’s obligations and limitations under this Agreement. Any sublicense shall not include the right to further sublicense
or the right to enforce any Patent Rights without the prior written consent of 22nd Century. BAT shall be responsible and liable
for the performance of any such sublicensee insofar as performance is required to or does fulfill any of BAT’s or any such
sublicensee’s obligations and limitations under this Agreement. All such sublicense agreements shall automatically terminate
upon termination of this Agreement.

 

(b)          Subject
to 22nd Century’s payment obligations under Section 3.08, 22nd Century may license the Licensed Intellectual Property Rights
worldwide in the Field of Use to third parties. Any such license granted by 22nd Century shall be in writing and be expressly subject
to the rights of BAT under this Agreement. 22nd Century shall provide BAT a copy of each such third party license agreement within
thirty (30) days after execution of the subject license agreement. 22nd Century shall be responsible and liable for the performance
of its licensee(s) insofar as performance is required to or does fulfill any of 22nd Century’s obligations and limitations
under this Agreement.

  

2.08         
Limitations. Other than as provided in Sections 2.03, 2.04, and 2.07, the Commercial License does not include the right
to grant sublicenses or any other right to sublicense under the Commercial License to any third party without the prior written
consent of 22nd Century. For the avoidance of doubt, Reynolds is the only entity to which BAT may sublicense any rights under the
Commercial License for use in the United States of America. Other than as expressly set forth in Sections 2.05, 2.06 and 2.07,
neither 22nd Century nor 22nd Century Affiliate has or shall have any right, and no rights may be extended, licensed, assigned,
or transferred to any third party, in any way, under the Licensed Intellectual Property Rights, in the Field of Use.

 

ARTICLE
3 – Royalties

 

3.01         Royalties.
During the Full Term, BAT agrees to pay (i) such of the Pilot Royalties under Section 3.02 and the Running Royalties under Section
3.03 that are owed and due by BAT to 22nd Century under the terms and conditions of this Article 3 (collectively, “Royalties”)
and (ii) such share of BAT Sublicense Profit set forth in Section 3.09. Other than as expressly provided elsewhere in this Agreement,
no other payments are owed or due from BAT on behalf of BAT, any BAT Affiliates, or any third party sublicensee(s) of BAT. BAT
will make the payment of any Royalties due to 22nd Century under this Article 3 pursuant to the wire transfer instructions provided
to BAT by 22nd Century on or prior to the Option Effective Date or such different wire instructions provided to BAT by 22nd Century
by written notice.

 

    	- 39 -

    	 

    

 

3.02         Pilot
Term Royalties. BAT shall pay 22nd Century a lump-sum royalty of one million U.S. Dollars (US$1,000,000.00) for the first Year
of the Pilot Term and a lump-sum royalty of two million U.S. Dollars (US$2,000,000.00) for the second Year of the Pilot Term (the
“Pilot Term Royalties”). The aforementioned one million U.S. Dollar (US$1,000,000.00) payment for the first Year of
the Pilot Term shall be paid within thirty (30) days of the Option Effective Date. The aforementioned two million U.S. Dollar (US$2,000,000.00)
royalty payment for the second Year of the Pilot Term shall be due within thirty (30) days after the beginning of such second Year
of the Pilot Term. During the Pilot Term, BAT and BAT Affiliates may not stockpile more than sixty thousand (60,000) metric tonnes
of Commercial Licensed Products that are Available for Shipment.

 

3.03         Running
Royalties. During the Full Term, subject to the provisions in Sections 3.05, 3.06, and 3.07, BAT shall pay to 22nd Century
a royalty at the Royalty Rate (as defined in Section 3.04) for all Commercial Licensed Products that are, and which royalty shall
accrue when Commercial Licensed Products are, Available for Shipment (the “Running Royalties”); provided, however,
that, subject to the Annual Royalty Limits pursuant to Section 3.07 and the credits pursuant to Section 3.06, the aggregate amount
of the Running Royalties owed and due by BAT to 22nd Century for:

 

		(i)	each Year during the First Commercial Term shall be the greater of (aa) the Running Royalties accrued and due for all Commercial
Licensed Products that are Available for Shipment during such Year or (bb) the amount of the Minimum Annual Running Royalty for
the First Commercial Term pursuant to Section 3.05; and

 

		(ii)	each Year during the Second Commercial Term shall be the greater of (aa) the Running Royalties accrued and due for all Commercial
Licensed Products that are Available for Shipment during such Year or (bb) the amount of the Minimum Annual Running Royalty for
the Second Commercial Term pursuant to Section 3.05.

 

No Minimum Annual Royalties shall exist for
any time after the Second Commercial Term. All Running Royalties due under this Agreement and accrued during a Quarter shall be
due and payable for such Quarter within thirty (30) days following the end of such Quarter during the Full Term. If and to
the extent that, at the end of a Year, the aggregate amount of all such Running Royalties for such Year is less than the Minimum
Annual Running Royalty for such Year (the “Royalty Difference”), BAT shall pay 22nd Century the Royalty Difference
within thirty (30) days after the end of such Year.

 

3.04         Royalty
Rate. The term “Royalty Rate” means either of the following: (i) two hundred U.S. Dollars (US$200.00) per metric
tonne of solely such Commercial Licensed Products supplied by BAT or a BAT Affiliate to Reynolds, or grown and processed by Reynolds
if and to the extent, and only if and to the extent, such Commercial Licensed Products are, notwithstanding the location of where
they were made Available for Shipment, used in a consumer product offered for sale and sold in the United States of America, or
(ii) for all other Commercial Licensed Products (but not for any Commercial Licensed Product subject to Section 3.04(i)), one hundred
U.S. Dollars (US$100.00) per full metric tonne, in each case adjusted for inflation as provided in Section 3.08.

 

    	- 40 -

    	 

    

 

 

3.05         Minimum
Annual Running Royalty. The term “Minimum Annual Running Royalty” means: (i) for each Year during the First Commercial
Term, an amount of three million U.S. Dollars (US$3,000,000.00), adjusted for inflation as provided in Section 3.08, and (ii)
for each Year during the Second Commercial Term, an amount of five million U.S. Dollars (US$5,000,000.00), adjusted for inflation
as provided in Section 3.08. For the determination of the Royalty Difference under Section 3.03, Running Royalties for BAT Excluded
Products shall not be counted in such calculation; all other Running Royalties shall be counted in such calculation. The Minimum
Annual Running Royalty shall be paid on a Quarterly basis.

 

3.06         Credits.
Any Royalty Difference under Section 3.03 for a Year may be credited against any future Running Royalties, provided that, for
any Year during the First Commercial Term and Second Commercial Term, 22nd Century shall be entitled to not less than the Minimum
Annual Running Royalty and any Royalty Difference accrued for such Year and not used as a credit shall accumulate until all of
the accumulated Royalty Difference has been used as a credit against Running Royalties during the First Commercial Term, the Second
Commercial Term, or the Third Commercial Term. Simply as an example, the chart as set forth in APPENDIX C is provided as
an illustration of the application of the credits and Minimum Annual Running Royalty.

 

3.07         Annual
Royalty Limits. During the Full Term, the annual cumulative Running Royalties due under this Agreement shall be capped for
a given Year at the amount set forth in the following provisions of this Section 3.07 for such Year; provided that, for the purpose
of determining whether such cap has been reached during a given Year, all Running Royalties for Commercial Licensed Products that
are BAT Excluded Products or that are made Available for Shipment by BAT or a BAT Affiliate to a BAT Excluded Business shall not
be counted in such calculation:

 

(a)          For
each Year during the First Commercial Term, such cap on the Running Royalties shall be fifteen million U.S. Dollars (US$15,000,000.00),
adjusted for inflation as provided in Section 3.08, and

 

(b)          For
each Year during the Second Commercial Term and for each Year during the Third Commercial Term, such cap on the Running Royalties
shall be twenty five million dollars (US$25,000,000.00), adjusted for inflation as provided in Section 3.08 (collectively, the
“Annual Royalty Limits”).

 

3.08         Inflation
Adjustment. Beginning in the year 2021, and every three (3) years thereafter, the Royalty Rate in Section 3.04, the Minimum
Annual Running Royalty in Section 3.05 and the Annual Royalty Limits in Section 3.07 shall each be adjusted for inflation as follows:

 

Minimum Annual
Running Royalty = ((prior Minimum Annual Running Royalty) x (cumulative CPI percentage increase since the last adjustment)) +
(prior Minimum Annual Running Royalty).

 

    	- 41 -

    	 

    

 

Annual Royalty
Limit = ((prior Annual Royalty Limit) x (cumulative CPI percentage increase since the last adjustment)) + (prior Annual Royalty
Limit).

 

Royalty Rate
= ((prior Royalty Rate) x (cumulative CPI percentage increase since the last adjustment)) + (prior Royalty Rate).

 

For example,
the CPI in 2017 will be compared to the CPI in 2020 and the amount for years 2021 through 2023 shall be increased by the percentage
difference. Further, for 2024 through 2026, the CPI in 2020 will be compared
with to the CPI in 2023 and the amount for years 2024 through 2026 will be increased by the percentage difference,
and so on.

 

“CPI”
means the Local Metropolitan Area Consumer Price Index published by the Bureau of Labor Statistics of the United States Department
of Labor for Urban Wage Earners and Clerical Workers. In the event the Consumer Price Index is converted to a different standard
reference base or otherwise revised, the determination of Adjusted royalty will be made with the use of such conversion factor,
formula or table for converting the Consumer Price Index as may be published by the Bureau of Labor Statistics, or if the Bureau
should fail to publish same, then with the use of such conversion factor, formula or table for converting the Consumer Price Index
as may be published by Prentice Hall, Inc., or any other nationally recognized publisher of similar statistical information. If
the Consumer Price Index ceases to be published and there is no successor thereto, such other index as Licensor and BAT may agree
upon will be substituted for the Consumer Price Index.

 

3.09         Other
Income. BAT and 22nd Century shall share sublicensing or licensing revenue as follows:

 

(a)          BAT
shall pay to 22nd Century fifty percent (50%) of any and all sublicense profits received by BAT or a BAT Affiliate from a third
party sublicensee (other than a BAT Affiliate) outside the United States of America under a permitted sublicense of BAT or such
BAT Affiliate with such third party sublicensee during the Non-exclusive Term, or at any time if and to the extent such sublicense
is legally required to such a third party (collectively, “BAT Sublicense Profit”). BAT Sublicense Profit shall include
such payments that are made by such third party sublicensee to BAT or such BAT Affiliate in consideration for such sublicense,
but shall exclude any amounts for which BAT may be required to pay any royalty amount to 22nd Century under this Article 3. The
definition of profits received by BAT or a BAT Affiliate from a third party sublicensee under this Section 3.09 shall mean gross
revenue (including without limitation royalties, sublicensing fees, option fees, bonuses, research fees, milestone payments and
advances) minus out-of-pocket costs and expenses directly incurred and paid in negotiating such sublicensing and any ongoing direct
cost for servicing such sublicense and any audit costs (which for the avoidance of doubt does not include any overhead amounts)
and such amounts which are required to be paid to the respective licensors of 22nd Century and/or BAT.

 

    	- 42 -

    	 

    

 

(b)          22nd
Century shall pay to BAT fifty percent (50%) of any and all license and sublicense profits received by 22nd Century or a 22nd
Century Affiliate from a third party licensee and/or sublicensee (other than a 22nd Century Affiliate) under a permitted license
and/or sublicense of 22nd Century or such 22nd Century Affiliate with such third party licensee and/or sublicensee during the
Non-exclusive Term (including, without limitation, any arising from any revenue by such third party for any direct or indirect
further sublicenses granted by such third party), or at any time if and to the extent such sublicense is legally required to such
a third party (collectively, “22nd Century License Income”). The definition of profits received by 22nd Century or
a 22nd Century Affiliate from a third party sublicensee under this Section 3.09 shall mean gross revenue (including without limitation
royalties, sublicensing fees, option fees, bonuses, research fees, milestone payments and advances) minus out-of-pocket costs
and expenses directly incurred and paid in negotiating such sublicensing and any ongoing direct cost for servicing such sublicense
and any audit costs (which for the avoidance of doubt does not include any overhead amounts) and such amounts which 22nd Century
is required to pay to its third party licensors.

 

(c)          At
the end of each Year, BAT shall deliver a written report to 22nd Century setting forth all BAT Sublicense Profit during such Year
and pay to 22nd Century fifty percent (50%) of such BAT Sublicense Profit within sixty (60) days of the end of such Year. At the
end of each Year, 22nd Century shall deliver a written report to BAT setting forth all 22nd Century License Income during such
Year and pay to BAT fifty percent (50%) of such 22nd Century License Income within sixty (60) days of the end of such Year.

 

(d)          It
is also agreed that BAT and 22nd Century shall not receive anything of value in lieu of cash payments in consideration for any
sublicense to a third party whose sublicense fees would count as BAT Sublicense Profit or 22nd Century License Income, as applicable,
under this Section 3.09 without the prior written permission of the other Party.

 

3.10         Records,
Royalty Statements and Reports. BAT and 22nd Century must keep, and shall cause each of their Affiliates with regard to any
transactions subject to Running Royalties by BAT or payments under Section 3.09 to keep, full, true and accurate books of accounts
and other records containing all particulars necessary to properly ascertain and verify the amounts payable to the other Party
hereunder. These books of account must be kept at the applicable party’s principal place of business for a minimum of five
(5) years following the end of the calendar year to which they pertain. All payments due under this Agreement shall be accompanied
by a written statement setting forth in detail the basis for such payment.

 

3.11         Audit.
22nd Century and BAT each shall have the right, from time to time and at reasonable times during normal business hours, through
an independent certified public accounting firm, to examine and verify the records of the other Party or licensed Affiliates of
such other Party under this Agreement, and sublicensee(s) under this Agreement in order to verify the calculation of any Running
Royalties, 22nd Century License Income, BAT Sublicense Income, and/or other fees and amounts payable under this Agreement. Such
examination and verification shall not occur more than once every two years. If any such examination and verification reveals
an underpayment by any Parties of more than 5% for any calendar quarter examined, the party being examined shall immediately pay
the other applicable Party the amount of such underpayment plus interest (in accordance with Section 3.14) and shall reimburse
the other applicable Party for all reasonable expenses incurred in the examination and verification of the records by the independent
certified public accounting firm.

 

    	- 43 -

    	 

    

 

3.12         Invalidity
or Unenforceability of any of Patent Rights. Any of the foregoing notwithstanding, if, at any time during the Commercial Term,
any of the Patent Rights are held invalid or unenforceable in a decision which is not appealable or is not appealed within the
time allowed, BAT does not have a damage claim or a claim for refund or reimbursement against 22nd Century, but if such invalidity
or unenforceability is of the last of the Patent Rights, no further Running Royalties or other payment shall be due for any time
after such invalidity or unenforceability.

 

3.13         Taxes.
Each Party shall deduct from any royalty or other payments to the other Party under this Agreement the appropriate amount of any
withholding tax, duty, or other charges imposed under applicable law, and required to be paid under applicable law, to a government
on such royalty or other payment under this Agreement, provided that such Party shall take reasonable steps within such applicable
law to reduce or eliminate any such withholding requirement. In no event shall a Party be liable or responsible for, and the other
Party shall indemnify and hold harmless such Party, for any amount of any tax assessed or due on any income of such other Party
from any payment under this Agreement to such other Party.

 

3.14         Currency
and Interest. All payments made to 22nd Century under this Agreement shall
be paid in United States Dollars by wire transfer to a United States Dollar account designated by 22nd Century, consistent with
all applicable laws and regulations. Any payment owed and due by a Party to the other Party under this Agreement and not paid
to such other Party within thirty (30) days after the date on which such payment became due shall bear interest until payment
at a rate of one percent (1%) for each full calendar month. The expiration or termination of this Agreement does not relieve a
Party of its financial obligations to the other Party which have accrued and become due hereunder prior to the date of such expiration
or termination. Each Party (the “Payor”) may offset or deduct from, or set off against, any payment owed by the Payor
to the other Party (the “Payee”) any undisputed amount that the Payee owes to the Payor if and to the extent that
such amount is undisputedly owed and due to the Payor under this Agreement. The Payor shall provide the Payee with written notice
of the offset, deduction, or set-off (identifying the cause and sum of both the amount owed by the Payee and the payment from
which such amount is offset or deducted or against which it is set off) at the time the remaining payment owed by the Payor is
made or, if no part of such payment is remaining, at the time such payment would have had to be made. Any such undisputed offset,
deduction, or set-off of any amount by the Payor shall satisfy the obligation of the Payor to pay such amount as if such amount
had been paid by the Payor to the Payee.

 

ARTICLE
4– FURTHER DEVELOPMENTS

 

4.01         Further
Research Materials. During the Commercial Term, subject to BAT’s ownership thereof and Article 9, BAT shall deliver
to and upon request by 22nd Century a reasonable number of samples of Research Materials created by and/or in the possession or
control of BAT or any BAT Affiliates under this Agreement. For the avoidance of doubt, BAT shall not be required to provide to
22nd Century any seeds containing BAT commercial germplasm.

 

    	- 44 -

    	 

    

 

4.02         Commercial
Seed Supply. Following the commercialization by BAT or any BAT Affiliate of any Commercial Licensed Product, upon 22nd Century’s
written request during the Commercial Term, and for a period of time of four (4) years following the expiration or early termination
of the Commercial License for any reason, BAT shall sell to 22nd Century requested quantities of male sterile seeds for each tobacco
variety requested by 22nd Century (the “Commercial Seed”) on commercially reasonable terms for use in commercializing
22nd Century’s and/or 22nd Century Affiliates’ wholly owned products and brands. For the avoidance of doubt, nothing
in this Section 4.02 shall require BAT to exhaust its supply of Commercial Seed of any tobacco variety.

 

4.03         Further
Research Results. BAT or BAT Affiliates shall solely own any and all rights, title, and interest in and to any and all Research
Results and Property, and all proprietary rights therein and thereto, arising from or in connection with, or as a result of, any
research, development, or other activities by or for BAT or any BAT Affiliate or any research, development, or other activities
fully or partially funded by BAT or any BAT Affiliate (no matter who is the inventor, author, or other creator) during the Term
related to, or that have application in, the Field of Use or otherwise, including, without limitation, any improvements, derivative
works, modifications, or enhancements to or of or from or based on any the Licensed Intellectual Property Rights (together “Further
Research Results”). 22nd Century shall, and shall cause any 22nd Affiliate or any employee of 22nd Century or a 22nd Century
Affiliate to, execute any assignment or other document, and take any other action reasonably requested by BAT to implement and
effect the foregoing provisions.

 

For the avoidance
of doubt, during the Commercial Term

 

		(i)	BAT shall not be required to
provide to 22nd Century any seeds containing BAT commercial germplasm; and

 

		(ii)	nothing in this Section 4.03
shall be construed as to grant BAT ownership rights in any Research Results or Property, or any proprietary rights therein or
thereto, including without limitation any improvements, modifications, or enhancements covered by the Licensed Intellectual Property
Rights, arising from or in connection with, or as a result of,

 

		(aa)	any research, development, or
other activities by, or by a third party (other than a BAT Affiliate) for, 22nd Century or any 22nd Century Affiliate, or

 

		(bb)	any research, development, or
other activities fully or partially (other than with BAT or a BAT Affiliate) funded by 22nd Century or any 22nd Century Affiliate
(no matter who is the inventor, author, or other creator), even if the source of such funding is from any payments made by BAT
to 22nd Century pursuant to the terms of this Agreement.

 

    	- 45 -

    	 

    

 

4.04         License
to Further Research Results. BAT hereby grants to 22nd Century a non-exclusive, non-transferable, non-assignable, non-sublicensable,
worldwide license to any and all registered Further Research Results owned by BAT during the Term to develop and commercialize
22nd Century Products. Such license shall be effective at 22nd Century’s election in 22nd Century’s sole discretion
and shall be on commercially reasonable terms negotiated in good faith, including, without limitation, a limited duration, an
arm’s length royalty, performance obligations, and no warranty, representation, covenant, indemnity, or comfort from BAT
regarding validity, enforceability, non-infringement, or risk of third party claims regarding infringement or misappropriation
relating to such intellectual property rights, but otherwise in no case on terms more onerous than the terms of the Commercial
License granted to BAT under this Agreement. In the event BAT terminates the Commercial License, BAT shall provide 22nd Century
with the details of any registered Further Research Results then in existence to the extent that 22nd Century is not already aware
of such Research Results, subject to compliance with Article 10.

 

ARTICLE
5 – TERMINATION

 

5.01         Termination
by BAT. BAT may terminate this Agreement at any time during the Term and at BAT’s sole discretion (without cause) by
giving 22nd Century written notice at least thirty (30) days prior to such termination. It is understood that BAT will remain
responsible for all monetary payments or other obligations which accrued and became due prior to the effective date of termination.

 

5.02         No
Payment. In the event that BAT terminates this Agreement, no payment shall be owed or due other than any Pilot Royalties,
Running Royalties, or other payments under this Agreement accrued, owed, and due prior to the effective date of such termination.

 

5.03         Termination
by 22nd Century. Subject to Section 5.05, 22nd Century shall have the right to terminate this Agreement during the Term upon
the occurrence of one or more of the following events:

 

(a)          failure
of BAT to make any payment required pursuant to this Agreement when due;

 

(b)          failure
of BAT to render reports to 22nd Century required by this Agreement;

 

(c)          the
initiation by BAT of any action that challenges the validity, enforceability or patentability of any Patent
Rights (except in response to any action by 22nd Century or any 22nd Century Affiliate against BAT or any BAT Affiliate asserting
infringement or breach of such Patent Rights);

 

(d)          the
material breach by BAT of any other material term of this Agreement.

 

    	- 46 -

    	 

    

 

5.04         Notice
of Breach and Right to Cure. In all cases of alleged breach by BAT of this Agreement entitling 22nd Century to terminate this
Agreement under Section 5.03, 22nd Century must give BAT sixty (60) days’
prior written notice of such breach including the remedy sought, be it termination of this Agreement or another remedy (“Breach
Notice”). The Breach Notice must
also specify the articles and sections of this Agreement which are claimed to have been breached and must contain a description
of the event(s) or occurrence(s) claimed to constitute a breach. In all cases, BAT
shall have sixty (60) days from the date of receipt of the Breach Notice to
cure the alleged breach or in good faith to dispute the existence of a breach.
If the claimed breach is cured within sixty (60) days, this Agreement shall not terminate. If BAT fails to cure the alleged
breach by BAT within sixty (60) days of the Breach Notice,
this Agreement shall terminate upon the expiration of the sixty (60) days, unless BAT initiates its arbitration rights against
such termination under this Agreement, in which case the termination of this Agreement or another remedy related thereto
will not be effective until a final unappealable decision in such proceeding has been rendered. Any
Breach Notice shall not prejudice any Party’s rights and obligations
under this Agreement, including without limitation, 22nd Century’s right to receive monetary sums due hereunder.
If BAT fails to cure the alleged breach by BAT within sixty (60) days of the
Breach Notice, this Agreement shall terminate upon the expiration of the sixty
(60) days, unless BAT initiates arbitration against such termination under this Agreement, in which case the termination
of this Agreement or another remedy related thereto will not be effective and will be subject to the following: (i) if
it is decided in a final unappealable or unappealed decision in such arbitration
or an appeal thereof in accordance with Section 10.03 that the breach identified in such Breach Notice did not occur or did not
entitle 22nd Century to a termination of this Agreement, or that the prerequisites of the termination do not exist, the termination
shall be ineffective ab initio, or (ii) if it is decided in a final unappealable or unappealed decision in such
arbitration or an appeal thereof in accordance with Section 10.03 that
the breach identified in such Breach Notice occurred, that 22nd Century was entitled to the termination of this Agreement for
such breach, and that the prerequisites of such termination exist, BAT shall have the right to cure such breach within thirty
(30) days of receiving such decision, in which case the termination shall be ineffective, or absent such cure shall become effective
at the end of such thirty (30) day period. Any Breach Notice
shall not prejudice any Party’s rights and obligations under this Agreement, including without limitation, 22nd Century’s
or BAT’s right to receive monetary sums due from the other Party hereunder.

 

ARTICLE
6 – PATENT PROSECUTION

 

6.01         Patent
Prosecution. During the Commercial Term, 22nd Century shall prosecute and maintain all patents and patent applications of
the Patent Rights. 22nd Century shall not abandon any patent application filed or issued patent in the Patent Rights without express
prior written approval from BAT. Payment of all fees and costs relating to the filing, prosecution, and maintenance of the Patent
Rights are ordinarily the responsibility of 22nd Century. However, 22nd Century shall take any additional lawful prosecution or
maintenance activities related to the Patent Rights which BAT may reasonably request from time to time; provided, however, that
BAT pays all costs and expense, including all reasonable attorneys’ fees, necessary for such activities.

 

6.02         Cooperation.
BAT and 22nd Century agree to cooperate with each other in filing, prosecution, and maintenance of the Patent Rights. Upon the
request of BAT, 22nd Century will provide copies by email to BAT and any agents of BAT of all patent office actions and 22nd Century’s
responses to such office actions for the patent applications in Appendix B,
plus any other applications that are part of the Patent Rights that may be filed. 22nd Century will give BAT the opportunity to
offer comments and remarks thereon at BAT’s expense, such comments and remarks to be given due consideration by 22nd Century.
However, notwithstanding anything to the contrary in this Agreement, all decisions with respect to the filing, prosecution, and
maintenance of Patent Rights are reserved solely to 22nd Century.

 

    	- 47 -

    	 

    

 

ARTICLE
7 – INFRINGEMENT OF PATENT RIGHTS BY THIRD PARTIES

 

7.01         Notice
of Infringement by Third Parties. Each of the Parties shall inform the other Party promptly in writing of any alleged infringement
of which it becomes aware and of any available evidence of infringement by a third party of any patent within the Patent Rights.

 

7.02         BAT
Enforcement Options. If, during the Term, BAT becomes aware of any alleged infringement by a third party in the Territory,
BAT has the right, but not the obligation, to either:

 

(a)          settle
the infringement suit by sub-licensing the alleged infringer (but only in accordance with the provisions of this Agreement and
if such settlement has no adverse effect on any consideration to be received by 22nd
Century under this Agreement) or by other means reasonably acceptable to 22nd Century; or

 

(b)          prosecute
at its own expense any infringement of the Patent Rights and/or Plant Variety Rights, in which case BAT may, for such purposes,
request to use the name of 22nd Century as party plaintiff and 22nd Century shall, upon BAT’s request, join any action and
become a party plaintiff, and costs and expenses (including without limitation attorneys’ fees) associated therewith must
be borne by BAT.

 

7.03         Enforcement
by BAT. If BAT undertakes the enforcement and/or defense of the Patent Rights and/or Plant Variety Rights by litigation, including
any declaratory judgment action, the total cost of any such action commenced or defended solely by BAT shall be borne by BAT and
BAT shall indemnify 22nd Century and any applicable licensor for any counter or cross-claim. Any recovery of damages by BAT as
a result of such action will be applied first in satisfaction of any unreimbursed expenses and attorneys’ fees of BAT relating
to the action, and second toward reimbursement of 22nd Century’s expenses, including attorneys’ fees, if any, relating
to the action. The balance remaining from any such recovery shall be equally split between 22nd Century and BAT. BAT is entitled
to settle any such litigation by agreement, consent, judgment, voluntary dismissal, or otherwise, but only with the prior written
consent of 22nd Century and if it has no adverse effect on any consideration to be
received by 22nd Century under this Agreement.

 

7.04         Enforcement
by 22nd Century. If BAT does not institute legal action against the infringing activity within three (3) months of having
been made aware of or notified thereof, 22nd Century has the right, but is not obligated, to prosecute at its own expense any
such infringement of the Patent Rights and/or Plant Variety Rights. In furtherance of that right, 22nd Century may use the name
of BAT as a party plaintiff in any such action. The total cost of any such infringement action commenced or defended solely by
22nd Century must be borne by 22nd Century. Any recovery by 22nd Century in such action will be applied first in satisfaction
of any unreimbursed expenses and attorneys’ fees of 22nd Century relating to the action, and second toward reimbursement
of BAT’s expenses, including attorneys’ fees, if any, relating to the action. The balance remaining from any such
recovery belongs solely to 22nd Century.

 

7.05         Cooperation
by the Parties. In any infringement suit instituted by either Party to enforce the Patent Rights and/or Plant Variety Rights,
the other Party must, at the request and expense of the Party initiating such suit, cooperate in all respects and, to the extent
possible, have its employees testify when requested and make available relevant records, papers, information, data, samples, specimens,
and the like.

 

    	- 48 -

    	 

    

 

7.06         Invalidity
of any of Patent Rights and/or Plant Variety Rights. Any of the foregoing notwithstanding, if, at any time during the Term,
any of the Patent Rights and/or Plant Variety Rights are held invalid or unenforceable in a decision which is not appealable or
is not appealed within the time allowed, BAT does not have a damage claim or a claim for refund or reimbursement against 22nd
Century, but if such invalidity or unenforceability is of the last of the Patent Rights, no further Running Royalties or other
payments shall be due for any time after such invalidity or unenforceability.

 

7.07         Freedom
to Operate Notice. Each Party to this Agreement will inform the other Party promptly in writing if it becomes aware that the
Patent Rights and/or Plant Variety Rights may infringe any third party’s patent rights and/or plant variety rights.

 

ARTICLE
8 – REGULATORY APPROVALS, PUBLICATION AND EXPORT

 

8.01         Laws
and Regulations of the U.S. This Agreement is subject to all United States laws and regulations controlling the export of
technical data, computer software, laboratory prototypes and other commodities and technology. It is understood that 22nd Century
is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes
and other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979).

 

8.02         Licenses
and Authorizations. To the extent any third party or governmental licenses, approvals, or authorizations are required for
BAT to use and exploit the Licensed Intellectual Property Rights as envisaged under the terms of this Agreement, it shall be the
sole responsibility of BAT to obtain any and all such licenses, approvals, authorizations, technology or intellectual property
at BAT’s sole cost and expense. To the extent any third party or governmental licenses, approvals, or authorizations are
required for 22nd Century to use and exploit the Licensed Intellectual Property Rights as envisaged under the terms of this Agreement,
it shall be the sole responsibility of 22nd Century to obtain any and all such licenses, approvals, authorizations, technology
or intellectual property at 22nd Century’s sole cost and expense. Subject to, and without limiting any of, the provisions,
rights, or obligations of a Party under this Agreement, neither Party shall be obligated to procure any right under or to any
intellectual property right of any third party necessary for the other Party’s use or exploitation of any Licensed Intellectual
Property Right.

 

ARTICLE
9 – CONFIDENTIALITY

 

9.01         Confidentiality.
Each Party will each treat any Property disclosed to it (the
“Receiving Party”) by the other Party (the “Disclosing Party”)
with reasonable care and will not disclose such information to any other person, firm or corporation, except Affiliates
and contractors of the Receiving Party bound by the obligations of confidentiality and restricted use set forth in this Article
11. Any Property the rights to which are owned under this Agreement by a Party shall be the confidential information of such Party,
and such Party shall be deemed to be the Disclosing Party of such Property under this Agreement. The Receiving Party may not use
the Disclosing Party’s confidential information other than for the benefit of the Parties and in
the performance of this Agreement. These obligations of non-disclosure and restricted use remain in effect for each subject
disclosure of confidential information while this Agreement is in effect and until the later of the date of termination of this
Agreement or five (5) years from the date of disclosure. However, notwithstanding the foregoing, no Receiving Party is obligated,
with respect to Property disclosed to it by the Disclosing Party, or any part thereof, which:

 

    	- 49 -

    	 

    

 

(a)          is
already known to the Receiving Party at the time of the disclosure;

 

(b)          becomes
publicly known without the wrongful act or breach of this Agreement by the Receiving Party;

 

(c)          is
rightfully received by the Receiving Party from a third party on a non-confidential basis;

 

(d)          is
subsequently and independently developed by employees or contractors of the Receiving Party who had no knowledge of such Property,
as verified by written records;

 

(e)          if
and to the extent and only as approved for release by prior written authorization of the Disclosing Party; or

 

(f)          is
disclosed pursuant to the requirements of applicable law or pursuant to any judicial or government requirement, regulation or
order, including without limitation any securities regulations, provided that the Receiving
Party takes reasonable steps to provide the Disclosing Party sufficient
prior notice in order to contest such request, requirement or order and provided that such disclosed confidential information
otherwise remains subject to the obligations of confidentiality set forth in this Article 11.

 

9.02         Confidential
Disclosures. The Parties agree that any Property to be treated as confidential information under this Article 11 must be disclosed
in writing or in another tangible medium and must be clearly marked “CONFIDENTIAL” or the like. Property disclosed
orally or visually that the Disclosing Party desires to keep confidential must
be summarized and reduced to writing and communicated to the Receiving Party
within thirty (30) days of such disclosure.

 

9.03         Exceptions
of Confidential Disclosures. Notwithstanding the foregoing of this Article 10, the Parties may use and disclose any confidential
information related to the Patent Rights to BAT Affiliates (if BAT) or 22nd Century Affiliates (if 22nd Century), to (if BAT or
a BAT Affiliate) BAT Suppliers, or to potential sublicensees, prospective investors, employees, consultants and agents with a
need to know, collaborators, prospective collaborators and other third parties in the chain of growing, manufacturing and distributing
Licensed Products, but if and only if the applicable party obtains from each such recipient a written confidentiality agreement,
the provisions of which are at least as protective of 22nd Century’s confidential information as those provided in this
Article 10.

 

9.04         Confidentiality
Related to Patent Rights. Notwithstanding anything to the contrary in this Agreement, all information relating to filing,
prosecution, maintenance, defense, infringement, and the like regarding the Patent Rights (no matter how disclosed) is the confidential
information of 22nd Century and subject to the provisions of this Article 10.

 

    	- 50 -

    	 

    

 

ARTICLE
10 – GOVERNING LAW AND ARBITRATION

 

10.01         Governing
Law. As the Parties will be doing business in different locations, and seek certainty in their dealings with each other and
with third-parties, the Parties to this Agreement expressly acknowledge and agree that this Agreement, and the performance or
breach thereof, shall be entered into, interpreted, governed, construed, and enforced in accordance with the substantive and procedural
laws of the State of New York, United States of America, without regard to any choice of law principles. The Parties hereby
irrevocably submit to the exclusive personal jurisdiction of the state and federal courts located in or serving the State of New
York, United States of America, for the purposes of any claim, action or proceeding brought pursuant to or arising from this Agreement.

 

10.02         Injunctive
Relief. Each Party agrees that the other Party’s remedies at law for any breach of its obligations of this Agreement
(other than pure payment obligations) will or may be inadequate alone, and that such other Party shall be entitled to equitable
relief, including, without limitation, injunctive relief and specific performance, in addition to any other available remedies
it may have in law and in equity, and such Party hereby waives any requirement for security or posting of any bond in connection
with any such remedy.

 

10.03         Arbitration.
Any and all disputes arising out of or in connection with this Agreement, and/or any breach of this Agreement by BAT, any BAT
Affiliates, 22nd Century, any 22nd Century Affiliates, any licensees and/or any sublicensees of the foregoing under this Agreement
will be referred to and finally resolved by arbitration administered by the International Centre for Dispute Resolution in accordance
with the International Arbitration Rules. Each Party shall be entitled to seek interim, interlocutory or permanent injunctive
relief from any state or federal court located in the State of New York, United States of America, and the parties hereby agree
to submit to the exclusive personal jurisdiction of the state and federal courts located in or serving the State of New York,
United States of America, for the purposes of any claim, action or proceeding brought pursuant to or arising from this Agreement.
The Parties agree that the arbitration proceedings will be conducted in New York City, State of New York, United States of America.
The language of the proceedings and all results thereof shall be in English. All arbitration proceedings will be conducted before
a single arbitrator selected by the relevant arbitration commission, provided that such arbitrator shall have experience in conducting
business arbitration with respect to intellectual property licensing. The decision resulting from the arbitrator shall be final,
not appealable except with respect to any point of law, and binding on the Parties and any judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction.

 

ARTICLE
11 – NOTICES

 

11.01         Notices.

 

(a)          All
Notices (as defined in Section 11.02) by a Party to the other Party shall be sent to such other Party to at least the following
address and attention of such other Party (or such other address and/or attention as such other Party has notified by written
Notice to the Party sending the Notice at least thirty (30) days prior to such Notice):

 

    	- 51 -

    	 

    

 

	If
                                         to BAT:

         

        British American
        Tobacco (Investments) Limited

        Attention: Head
        of Marketing Legal

        Globe House

        4 Temple Place

        London WC2R 2PG

        United Kingdom

         
	If
                                         to 22nd Century:

         

        22nd Century Limited,
        LLC

        Attention: Joseph
        Pandolfino

        9530 Main Street

        Clarence, New York
        14031

        United States of
        America

         

        If to 22nd Century
        Group:

         

        22nd Century Group,
        Inc.

        Attention: Joseph
        Pandolfino

        9530 Main Street

        Clarence, New York
        14031

        United States of
        America

 

(b)          A
copy of any Notice sent to a Party under Section 12.01(a) shall be sent simultaneously to such Party to the following (whereby
such copy shall not be deemed to be notice):

 

	If
                                         such notice, demand, or written communication is to BAT, to each of the following:

         

        (1)       British
        American Tobacco (Investments) Limited

        Attention: Head
        of Patents and Innovations

        Globe House

        4 Temple Place

        London WC2R 2PG

        United Kingdom

         

        (2)       By
        e-mail to:

         

        (3)       By
        e-mail to:

         
	If
                                         such notice, demand, or written communication is to 22nd Century, to each of the following:

         

        (1)       22nd Century
        Limited, LLC

        Attention: Michael
        R. Moynihan, PhD

        9530 Main Street

        Clarence, New York
        14031

        United States of
        America

         

        (2)       By email to:

         

        (3)       By email to:

 

A copy of any Notice by 22nd Century
to BAT under Section 1.19(iv) shall also be sent by 22nd Century simultaneously to:

 

		by mail to:	British American Tobacco (Investments)
Limited

Attention: Head of Group
Research & Development [Cambridge]

210 Cambridge Science
Park

Milton Road

Cambridge CB4 0WA

United Kingdom

 

and by e-mail
to:

 

    	- 52 -

    	 

    

 

11.02         Delivery.
The Parties agree that any notice or demand sent by a Party to the other Party (including, without limitation, exercising the
Option, notice of termination, notice of breach, notice of infringement, demand, notice under Section 1.15(iv), or any other notice
resulting in a deadline or having legal consequences under this Agreement) (“Notice”) must be sent to such Party at
the address and to the attention as stated for such Party in Section 11.01(a) by a reputable internationally recognized carrier
with a delivery confirmation or tracking number (charges prepaid). The date on which any such Notice to a Party is deemed given
to such Party shall be the date of the delivery by such internationally recognized carrier to such Party at the address and to
the attention as set forth in Section 11.01(a) for such Party.

 

ARTICLE
12 – SUCCESSORS, ASSIGNMENT AND CHANGE OF CONTROL

 

12.01         Successors.
This Agreement is binding upon and inures to the benefit of the respective successors and assigns of the Parties hereto.

 

12.02         No
Assignments. This Agreement may not be transferred or assigned by either Party except: (i) that BAT may transfer or extend
this Agreement to any BAT Affiliate (subject to a reasonable guaranty by BAT of such BAT Affiliate’s performance after such
transfer), or (ii) that either Party may transfer this Agreement in connection with the sale or other transfer of such Party’s
entire business, as the case may be, except in the event of a sale or other transfer by 22nd Century to a Competitor Party, in
which case the provisions in Section 13.03 shall apply to the same extent as in the event of a change of control set forth therein.
Any other assignment of this Agreement without the prior written consent of the other Party shall be null and void.

 

12.03         Change
of Control.  In the event a Competitor Party takes control of 22nd Century by obtaining more than fifty percent (50%)
of the common stock of 22nd Century Group, Inc., BAT’s rights under this Agreement will be unaffected, but BAT’s obligations
under this Agreement shall be amended automatically (without need for any notice or other action) and effective immediately upon
such change of control as follows:

 

(a)          the
Royalty Rates set forth in Section 3.03 shall be reduced to fifty dollars ($50.00) per metric tonne for BAT and one hundred dollars
($100.00) per metric tonne for Reynolds;

 

(b)          the
Pilot Term Royalties due pursuant to Section 3.02 and the Minimum Annual Royalties due pursuant to Section 3.05 shall all be reduced
by fifty percent (50%);

 

(c)          the
Annual Royalty Limits set forth in Section 3.07 shall be reduced by fifty percent (50%);

 

(d)          BAT’s
obligations in Sections 4.01, 4.03, and 4.04 shall terminate; and.

 

(e)          BAT’s
obligation to supply seed pursuant to Section 4.02 shall terminate.

 

All other provisions
of this Agreement will remain unchanged.

 

    	- 53 -

    	 

    

 

ARTICLE
13 – INDEMNITY, REPRESENTATIONS AND DISCLaimer

 

13.01         Indemnity.

 

(a)          22nd
Century and 22nd Century Group shall indemnify, defend and hold harmless BAT, all BAT Affiliates, and each of its officers, directors,
employees, agents, and licensors, and their respective successors and assigns (collectively, “BAT Indemnitee(s)”),
by counsel selected by 22nd Century, from and against any claim, liability,
cost, expense, demand, action, suit, proceeding, damages, judgment, penalty, deficiency, loss or obligation, of any kind or nature
(including, without limitation, reasonable attorneys’ fees and other costs and expenses of defense) (collectively, “Claims”)
based upon, arising out of, or otherwise relating, directly or indirectly, to any breach, or allegation giving rise to any breach,
of any warranty or representation of 22nd Century under Section 13.02.  A BAT Indemnitee
shall provide 22nd Century with reasonably prompt written notice of such a Claim. 22nd Century shall have the right to compromise
or settle such Claim; provided, however, that (i) no compromise or settlement of any such Claim may be effected by 22nd Century
without the consent of BAT unless (i) there is no finding or admission of any violation of law or the rights of any person by
a BAT Indemnitee, (ii) no such compromise or settlement has an adverse effect on any other claims that may be made by a BAT Indemnitee
against 22nd Century, (iii) the sole remedy provided thereunder is monetary damages which will be paid in full by 22nd Century
in accordance with such compromise or settlement and 22nd Century reasonably demonstrates its financial capacity to do so, and
(iv) no such compromise or settlement has an adverse effect on any consideration to be received by BAT under this Agreement.

 

(b)          BAT
shall indemnify, defend and hold harmless 22nd Century, all 22nd Century Affiliates, and each of its officers, directors, employees,
agents, and licensors, and their respective successors and assigns (collectively, “22nd Century Indemnitee(s)”), by
counsel selected by BAT, from and against any claim, liability, cost, expense,
demand, action, suit, proceeding, damages, judgment, penalty, deficiency, loss or obligation, of any kind or nature (including,
without limitation, reasonable attorneys’ fees and other costs and expenses of defense) (collectively, “Claims”)
of any third party (other than any BAT Affiliate or 22nd Century Affiliate) asserting any product liability claim against a 22nd
Century Indemnitee arising from any tobacco developed by BAT funded activities under this Agreement which is grown, made, imported,
exported, sold, offered for sale or used by or behalf of BAT or any BAT Affiliate and/or any Licensed Product which is grown,
made, imported, exported, sold, offered for sale or used by or behalf of BAT or any BAT Affiliate. A
22nd Century Indemnitee shall provide BAT with reasonably prompt written notice of such a Claim. BAT shall have the right to compromise
or settle such Claim; provided, however, that (i) no compromise or settlement of any such Claim may be effected by BAT without
the consent of 22nd Century unless (i) there is no finding or admission of any violation of law or the rights of any person by
a 22nd Century Indemnitee, (ii) no such compromise or settlement has an adverse effect on any other claims that may be made by
a 22nd Century Indemnitee against BAT, (iii) the sole remedy provided thereunder is monetary damages which will be paid in full
by BAT in accordance with such compromise or settlement and BAT reasonably demonstrates its financial capacity to do so, and (iv)
no such compromise or settlement has an adverse effect on any consideration to be received by 22nd Century under this Agreement.

 

    	- 54 -

    	 

    

 

13.02         Warranties
and Representations of 22nd Century. 22nd Century warrants and represents that (a) as of the Effective Date of the Research
License it either owns or is the exclusive worldwide licensee of the Patent Rights in the Field of Use, (b) it has the sole and
unrestricted right to grant the Commercial License provided in this Agreement, (c) performance
of its obligations under this Agreement does not and will not violate any existing agreement to which it is subject or a party,
(d) the execution of this Agreement has been duly authorized and 22nd Century’s performance hereunder is within its corporate
power, and (e) to 22nd Century’s knowledge, as of the date of signing the Research Agreement, the Patent Rights will not
infringe any third party’s rights. 22nd Century warrants and represents that the wire transfer instructions supplied under
Section 3.01 are and will remain correct, complete, and sufficient for BAT to make any payments under this Agreement to 22nd Century
unless and until 22nd Century provides BAT written notice of different wire transfer instructions, in which case 22nd Century
warrants and represents that such different wire transfer instructions are and will remain correct, complete, and sufficient for
BAT to make any payments under this Agreement to 22nd Century

 

13.03         Warranties
and Representations of BAT. BAT warrants and represents that (a) performance of its obligations under this Agreement
does not and will not violate any existing agreement to which it is subject or a party, and (b) the execution of this Agreement
has been duly authorized and its performance hereunder is within its corporate power.

 

13.04         Disclaimer.
OTHER THAN AS PROVIDED IN SECTION 13.02 (FOR 22ND CENTURY) OR 13.03 (FOR BAT), NEITHER PARTY NOR ANY OF SUCH PARTY’S
AFFILIATES MAKES ANY, AND ALL OF THEM DISCLAIM ALL, WARRANTIES, REPRESENTATIONS, AND CONDITIONS OF ANY KIND, EXPRESS OR IMPLIED
OR LEGAL, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES, REPRESENTATIONS, OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WORKMANSHIP OR TITLE OR NON-INFRINGEMENT, NOR IS THERE A WARRANTY, REPRESENTATION, OR CONDITION THAT THE USE OF THE
PATENT RIGHTS OR ANY FURTHER RESEARCH RESULT, PROPERTY, OR ACTIVITY OF THIS AGREEMENT WILL NOT INFRINGE ANY PATENT, COPYRIGHT,
TRADEMARK OR OTHER RIGHTS. IN ADDITION, NOTHING IN THIS AGREEMENT MAY BE DEEMED TO BE A REPRESENTATION OR WARRANTY BY 22ND CENTURY
OF THE VALIDITY OF ANY OF THE PATENTS OR THE ACCURACY, SAFETY, EFFICACY, OR USEFULNESS, FOR ANY PURPOSE, OF THE PATENT RIGHTS,
OR ANY REPRESENTATION, WARRANTY, OR CONDITION BY BAT OR ANY BAT AFFILIATE OF THE VALIDITY, ACCURACY, SAFETY, EFFICACY, OR USEFULNESS,
FOR ANY PURPOSE, OF ANY FURTHER RESEARCH RESULT. 22ND CENTURY HAS NO OBLIGATION, EXPRESS OR IMPLIED, TO SUPERVISE, MONITOR, REVIEW
OR OTHERWISE ASSUME RESPONSIBILITY FOR THE PRODUCTION, MANUFACTURE, TESTING, MARKETING OR SALE OF ANY LICENSED PRODUCT BY BAT
OR ITS AFFILIATES. 22ND CENTURY HAS NO LIABILITY WHATSOEVER TO BAT OR ANY THIRD PARTIES FOR OR ON ACCOUNT OF ANY INJURY, LOSS,
OR DAMAGE, OF ANY KIND OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY
OR IMPOSED UPON BAT OR ANY OTHER PERSON OR ENTITY, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM THE USE OF THE PATENT
RIGHTS BY BAT. IN NO EVENT SHALL EITHER PARTY BE LIABLE, REGARDLESS OF THE BASIS OR GROUND OF LIABILITY, FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, EXEMPLARY, LIQUIDATED, SPECIAL, OR PUNITIVE DAMAGES OR LOSSES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS AND
LOST BUSINESS, WHETHER FORESEEABLE OR NOT, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY THEREOF, UNDER THIS AGREEMENT.

 

    	- 55 -

    	 

    

 

ARTICLE
14 – BANKRUPTCY

 

14.01         Bankruptcy
etc. of 22nd Century. To the greatest extent permissible under applicable law, none of the licenses and rights granted to
BAT under this Agreement shall terminate, expire, be limited or restricted, or adversely modified or affected in the event that
22nd Century or any 22nd Century Affiliate, or any licensor thereof, ceases or fails to conduct business operations, takes steps
to dissolve or cease to exist, files or is or becomes subject to a petition in bankruptcy (or similar reorganization proceeding),
admits its inability to pay its debts as they become due, makes a general assignment for the benefit of its creditors, or becomes
subject to the appointment of a receiver. This Agreement and the rights and licenses to BAT are subject to 11 U.S.C. § 365(n)
and the right of BAT to elect retention of this Agreement and the licenses and rights to BAT hereunder if BAT so decides in its
sole discretion. In the event of any bankruptcy or other such event as described above in this Section 14.01, to the greatest
extent permissible under applicable law, 22nd Century will assert the continuation of any licenses granted to 22nd Century or
any 22nd Affiliate and sublicensed to BAT under this Agreement. 22nd Century will further promptly engage in such acts as reasonably
requested by BAT to 22nd Century to ensure BAT’s continued rights under the licenses granted by 22nd Century under this
Agreement and/or BAT’s continued rights arising or flowing from any licenses granted to 22nd Century or 22nd Century and
sublicensed to BAT under this Agreement under substantially the same terms as those in effect immediately prior to the bankruptcy
or other such event as described above in this Section 14.01.

 

14.02         Cooperation.
If any of the events identified in Section 15.01 occurs or is likely to occur, 22nd Century shall promptly notify BAT thereof
in writing and provide BAT with all information requested by BAT related thereto. In such case, if and to the extent legally permissible
under applicable law, the Parties will cooperate with external legal and other advisers (each Party bearing its own cost related
thereto) to identify the best option or options to protect BAT and BAT Affiliates’ access to the Licensed Intellectual Property
Rights in or despite such event. 22nd Century agrees that, in any such event, it will undertake all as legally permissible under
applicable law to ensure that none of BAT’s rights and licenses under this Agreement are terminated, limited, restricted,
or adversely modified or affected.

 

    	- 56 -

    	 

    

 

ARTICLE
15 – USE OF A PARTY'S NAME

 

15.01         Unless
required by operation of law, rule or regulation, including without limitation any securities law, rule or regulation, or any
binding judgment or court order or any requirement of a competent authority, neither 22nd Century nor any 22nd Century Affiliate
may publish or disclose this Agreement, the existence of this Agreement, or any of the provisions of this Agreement (except: (i)
if and to the extent expressly permitted by BAT in an advance written notice to 22nd Century, which shall be in BAT’s discretion,
or (ii) to each other, or (iii) to any legal or financial consultant subject to an obligation of confidentiality regarding such
disclosure or as necessary for, and in the course of, enforcing any of their rights under this Agreement), and none of the Parties
may, without the prior written consent of the other applicable Party:

 

(a)          use
in any publication, advertising, publicity, press release, or promotional activity or otherwise, any trade-name, personal name,
trademark, trade device, service mark, symbol, image, icon, or any abbreviation, contraction or simulation thereof owned by the
other Party; or

 

(b)          use
the name or image of any employee or agent of the other Party in any publication, publicity, advertising, press release, promotional
activity or otherwise.

 

None of the Parties
may, without the prior written consent of the other applicable Party, represent, either directly or indirectly, that any product
or service of the other Party is a product or service of the representing Party or that it is made in accordance with or utilizes
the information or documents of the other Parties.

 

ARTICLE
16 – GUARANTY

 

16.01         22nd
Century Group hereby guarantees to BAT the performance of any and all obligations, and any and all liability, of 22nd Century
under this Agreement, including, without limitation, all payments owed and due by 22nd Century to BAT, to the same extent as if
such obligations and liability were direct obligations and liabilities of 22nd Century Group to BAT. The guaranty in this Article
16 is an absolute, unconditional, and irrevocable continuing guaranty, which shall be effective as long as this Agreement is in
effect, and thereafter with regard to any obligation or liability of 22nd Century that accrued before, or that survives, the termination,
expiration, or cancellation of this Agreement until all such obligations and liabilities have been satisfied in full. 22nd Century
Group hereby waives, relinquishes, and abandons any right to request, demand, or require BAT first to claim or pursue any right
or remedy of any kind against 22nd Century for all or any part of any obligations or liability guaranteed by 22nd Century Group
under this Article 16. 22nd Group hereby confirms and agrees that its obligations and liability under the guaranty in this Article
16 shall be in effect, enforceable, and not be waived, relinquished, or abandoned in the event of, any amendment or change of
this Agreement. 22nd Century Group hereby waives notice of any amendment or change of this Agreement. Nothing in this Article
16 waives any right of any Party to assert, to bring any action for, or to enforce any right or remedy by such Party against the
other or any direct obligation or liability of 22nd Century Group under Section 13.01(a).

 

    	- 57 -

    	 

    

 

16.02         In
the event 22nd Century Group no longer has any ownership interest in 22nd Century after the Effective Date, then 22nd Century
Group may from and after that time request BAT to consent to the release of 22nd Century Group from the guaranty in this Article
16 and any obligation or liability of 22nd Century Group under Section 13.01(a), which consent BAT shall not unreasonably withhold,
condition or delay as long as (i) the entity which then owns 22nd Century (“New Owner”) agrees in a written agreement
with BAT to be bound by the guaranty in this Article 16 and any obligation or liability of 22nd Century Group under Section 13.01(a)
to the full extent as set forth therein for 22nd Century Group, (ii) such entity is also of equal or greater financial strength
as compared to 22nd Century Group at the time of such request, (iii) 22nd Century and 22nd Century Group provides to BAT all information
reasonably necessary to assess the financial strength of New Owner (which provision of the last such information, 22nd Century
and 22nd Century Group shall be deemed to warrant and represent that neither of them nor any 22nd Century Affiliate has any further
such information), and (iv) 22nd Century shall pay, and 22 Century Group hereby guarantees under the same terms as set forth in
Section 16.01, full payment of BAT’s reasonable legal expenses arising from the release of 22nd Century Group from the guaranty
in this Article 16 and/or New Owner’s agreements under Section 16.02(i). BAT enters into this Agreement in reliance upon
22nd Century Group’s guaranty and the provisions in this Article 16.

 

ARTICLE
17 – SEVERANCE AND WAIVER

 

17.01         Severance.
Each clause of this Agreement is a distinct and severable clause and if any clause is deemed illegal, void or unenforceable, the
validity, legality or enforceability of any other clause or portion of this Agreement will not be affected.

 

17.02         Waiver.
The failure of a Party in any instance to insist upon the strict performance of the terms of this Agreement is not a waiver or
relinquishment of any of the terms of this Agreement, either at the time of the Party’s failure to insist upon strict performance
or at any time in the future, and such terms will continue in full force and effect.

 

ARTICLE
18 – TITLES AND DRAFTING

 

18.01         Titles.
All titles, section headings and article headings contained in this Agreement are inserted only as a matter of convenience and
reference. They do not define, limit, extend or describe the scope of this Agreement or the intent of any of its provisions.

 

18.02         Drafting.
For purposes of construing this Agreement, each of the Parties shall be deemed the drafter of this Agreement.

 

ARTICLE
19 – SURVIVAL OF TERMS

 

19.01         The
provisions of Articles 1 (with regard to any definition used in any of the following surviving terms), 9, 10, 11, 13 (with regard
to any Claim thereunder arising prior to the expiration or termination of this Agreement), 15, 16, 17, 18, and 20, this Article
19, and Section 4.03, shall survive the expiration or termination of this Agreement.

 

    	- 58 -

    	 

    

 

ARTICLE
20 – ENTIRE UNDERSTANDING

 

20.01         This
Agreement represents the entire understanding among the Parties, and supersedes all other agreements, express or implied, among
the Parties concerning the subject matter hereof, and is not subject to any change or modification except by the execution of
a written instrument subscribed to by authorized representatives of the Parties. Upon the Option Effective Date of this Agreement,
the Research License Agreement shall terminate and expire, subject to any terms set forth in Article 18 of the Research License
Agreement, which shall survive but only with regard to the time preceding such Option Effective Date.

 

[Signature page
follows.]

 

    	- 59 -

    	 

    

 

IN WITNESS
WHEREOF, the Parties have executed this Agreement as of the Option Effective Date.

 

	BAT:	 	22ND CENTURY:
	 	 	 
	British American Tobacco (Investments) Limited	 	22nd Century Limited, LLC
	 	 	 
	By:	 	 	By:	 
	Name:	 	Name:
	Title:	 	Title:
	 	 	 	 	 

For the limited purpose of indemnity
provided in Section 13.01(a) and Article 16:

 

22nd Century Group, Inc.

 

	By:	 	 
	Name:	 
	Title:	 

 

    	- 60 -

    	 

    

 

APPENDIX
A

 

BAT
AFFILIATES

(without
limitation)

 

	No.	 	Centre
    Corporate Companies
	1	 	B.A.T (U.K. and Export) Ltd
	2	 	B.A.T Capital Corporation (incorp. in the U.S.)
	3	 	B.A.T. International Finance p.l.c.
	4	 	BATMark Ltd.
	5	 	British-American Tobacco (Holdings) Ltd.
	6	 	British American Tobacco Holdings (The Netherlands) B.V.
	7	 	British American Tobacco International Ltd. (incorp. in Switz.)
	8	 	British American Tobacco (Brands) Inc. (incorp. in the U.S.)
	9	 	British American Tobacco (Brands) Ltd.
	10	 	British American Tobacco (GLP) Ltd.
	11	 	British American Tobacco (Investments) Ltd.
	 	 	Asia-Pacific
	12	 	British American Tobacco Australia Ltd.
	13	 	British American Tobacco Bangladesh Company Ltd.
	14	 	PT Bentoel Internasional Investama Tbk (Indonesia)
	15	 	British American Tobacco Japan, Ltd.
	16	 	British American Tobacco (Malaysia) Berhad
	17	 	British American Tobacco (New Zealand) Ltd.
	18	 	Pakistan Tobacco Co. Ltd.
	19	 	British American Tobacco Korea Ltd.
	20	 	British American Tobacco Korea Manufacturing Ltd.
	21	 	B.A.T Services Ltd. (Taiwan, incorporated in the UK)
	22	 	British-American Tobacco Marketing (Singapore)
	 	 	Americas
	23	 	za-Piccardo S.A.I.C.y F. (Argentina)
	24	 	Souza Cruz, S.A. (Brazil)
	25	 	Imperial Tobacco Canada Ltd.
	26	 	British American Tobacco Chile Operaciones, S.A.
	27	 	British American Tobacco Colombia S.A.S.
	28	 	British American Tobacco Mexico, S.A. de C.V.
	29	 	C.A. Cigarrera Bigott Sucs. (Venezuela)
	30	 	British American Tobacco Belgium S.A.
	 	 	Western Europe
	31	 	British American Tobacco (Czech Republic), s.r.o.
	32	 	British American Tobacco Denmark A/S
	33	 	British American Tobacco France SAS
	34	 	British-American Tobacco (Germany) GmbH
	35	 	British American Tobacco (Industrie) GmbH
	36	 	BAT Pecsi Dohnygyr Kft. (Hungary)
	37	 	British American Tobacco Italia S.p.A.
	38	 	British American Tobacco Nederland B.V. 
	39	 	British American Tobacco Western Europe Region B.V.
	40	 	British-American Tobacco Polska S.A.
	41	 	British American Tobacco Polska Trading sp. zo.o.
	42	 	British-American Tobacco (Romania) Trading SRL
	43	 	British American Tobacco España, S.A.
	44	 	British American Tobacco Sweden AB
	45	 	Fiedler & Lundgren AB
	46	 	British American Tobacco Switzerland S.A.
	47	 	British American Tobacco UK Ltd.
	 	 	Eastern Europe, Middle
    East and Africa
	48	 	British American Tobacco (Algérie) S.P.A.
	49	 	British American Tobacco Egypt LLC
	50	 	B.A.T. Pars Company (Private Joint Stock) (Iran)
	51	 	British American Tobacco Kazakhstan Trading LLP
	52	 	British American Tobacco Exports B.V. (Morocco)
	53	 	British American Tobacco (Nigeria) Ltd.
	54	 	OJSC British American Tobacco – STF (Russia)
	55	 	OJSC British American Tobacco – Yava (Russia)
	56	 	CJSC British American Tobacco – SPb (Russia)
	57	 	CJSC International Tobacco Marketing Services
	58	 	B.A.T. Tobacco Holdings South Africa (Pty) Ltd
	59	 	B.A.T. Tütün Mamulleri Sanayi ve Ticaret A.S. (Turkey)
	60	 	A/T B.A.T. – Prilucky Tobacco Co. (Ukraine)

 

    	- 61 -

    	 

    

 

Appendix
B

 

PATENT RIGHTS

 

	Patent Family	 	Country/

    Region	 	No.	 	Application No.	 	Filing

    Date	 	Patent No.	 	Date

    Issued	 	Assignee
	 	 	ARIPO	 	1	 	AP/P/2007/004181	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	Australia	 	2	 	2006233359	 	2/28/06	 	2006233359	 	7/19/12	 	22nd Century
	 	 	 	 	3	 	2012203977	 	7/5/12	 	 	 	 	 	22nd Century
	 	 	Canada	 	4	 	2599302	 	2/28/06	 	 	 	 	 	22nd Century
	Reducing Levels of Nicotinic	 	China	 	5	 	200680010544.X	 	2/28/06	 	200680010544.X	 	9/5/12	 	22nd Century
	Alkaloids in Plants	 	 	 	6	 	2012102520317	 	7/19/12	 	 	 	 	 	22nd Century
	 	 	Hong Kong	 	7	 	13109543.8	 	8/15/13	 	 	 	 	 	22nd Century
	PCT/IB2006/001741	 	Japan	 	8	 	P2007-557629	 	2/28/06	 	4892744	 	1/6/12	 	NAIST*
	(WO2006109197)	 	Korea	 	9	 	2007-7022315	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	 	 	10	 	2013-7006598	 	3/14/13	 	 	 	 	 	22nd Century
	Filed on 02-28-2006 	 	Mexico	 	11	 	2007/010520	 	2/28/06	 	301367	 	7/16/12	 	22nd Century
	 	 	 	 	12	 	2012/008279	 	7/16/12	 	305368	 	11/16/12	 	22nd Century
	 	 	 	 	13	 	2012/013312	 	11/15/12	 	 	 	 	 	22nd Century
	 	 	Philippines	 	14	 	1-2007-501841	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	South Africa	 	15	 	2007/08331	 	2/28/06	 	2007/08331	 	9/30/09	 	22nd Century
	 	 	United States	 	16	 	11/579661	 	2/28/06	 	 	 	 	 	22nd Century
	 	 	 	 	17	 	13/082953	 	4/8/11	 	 	 	 	 	22nd Century
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increasing Levels of	 	Europe	 	18	 	06848676.0	 	9/13/06	 	 	 	 	 	22nd Century
	Nicotinic Alkaloids	 	 	 	19	 	11187201.6	 	10/28/11	 	 	 	 	 	22nd Century
		 	Hong Kong	 	20	 	12110455.3	 	10/19/12	 	 	 	 	 	22nd Century
	PCT/IB2006/004043	 	Japan	 	21	 	2009-537707	 	9/13/06	 	5087777	 	9/21/12	 	NAIST*
	(WO2007072224) 	 	Taiwan	 	22	 	096116136	 	5/7/07	 	Notice of Allowance	 	 	 	22nd Century
	Filed 9/13/06	 	United States	 	23	 	11/520036	 	9/13/06	 	 	 	 	 	22nd Century
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Nucleic Acid Sequences	 	Canada	 	24	 	2688306	 	5/23/08	 	 	 	 	 	NRC**
	Encoding Transcription	 	China	 	25	 	200880100279.3	 	5/23/08	 	 	 	 	 	NRC**
	Factors Regulating Alkaloid	 	Hong Kong	 	26	 	11113618.2	 	5/23/08	 	 	 	 	 	NRC**
	Biosynthesis and Their Use	 	 	 	27	 	12/601752	 	5/23/08	 	 	 	 	 	NRC**
	in Modifying Plant	 	United States	 	28	 	13/464,212	 	5/4/12	 	 	 	 	 	NRC**
	Metabolism	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/IB2008/003131 (WO/2009/063312)	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Filed on 5-23-2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

*22nd Century holds a non-exclusive
license from the Nara Institute of Science and Technology (NAIST) with the right to sublicense.

 

**22nd Century holds an exclusive
worldwide license from the National Research Council of Canada (NRC) with the exclusive right to sublicense.

 

    	- 62 -

    	 

    

 

APPENDIX
C

 

EXAMPLE
MINIMUM ROYALTY CREDIT

 

	PERIOD	 	EVENT	 	AMOUNT
                                         OF LEAF

        COMMERCIALISED

        BY
        BAT
	 	RUNNING

        ROYALTIES

        BASED
        ON

        $100
        per

        metric
        tonne
	 	MINIMUM

        ROYALTY
	 	ROYALTY

        CAP
	 	PAYMENT

        TO
        22nd

        CENTURY
	 	BAT
                                         CREDIT

        (CUMULATIVE)

	Pilot Year 1	 	End of pilot Year 1	 	0	 	0	 	-	 	-	 	$1m	 	0
	Pilot Year 2	 	End of pilot Year 2	 	0	 	0	 	-	 	-	 	$2m	 	0
	First Commercial Period	 	End of Year 3	 	0	 	0	 	$3m	 	$15m	 	$3m	 	$3m
	First Commercial Period	 	End of Year 4	 	25,000 metric tonnes	 	$2.5m	 	$3m	 	$15m	 	$3m	 	$3.5m
	First Commercial Period	 	End of Year 5	 	100,000 metric tonnes	 	$10m	 	$3m	 	$15m	 	$6.5m	 	0
	Second Commercial Period	 	End of Year 6	 	250,000 metric  tonnes	 	$25m	 	$5m	 	$25m	 	$25m	 	0
	Second Commercial Period	 	End of Year 7	 	260,000 metric tonnes	 	$26m	 	$5m	 	$25m	 	$25m	 	0
	Second Commercial Period	 	End of Year 8	 	275,000 metric tonnes	 	$27.5m	 	$5m	 	$25m	 	$25m	 	0
	Etc.	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

    	- 63 -

    	 

    

 

Schedule
2

 

MATERIAL
TRANSFER AGREEMENT

 

This Material
Transfer Agreement (this “Agreement”), effective as of the ______ day of _____, _____, is made by and between 22nd
Century Limited, LLC, having an office at 9530 Main Street, Clarence, New York 14031, United States of America ("22ND
CENTURY") and British American Tobacco (Investments) Limited (“BAT”), Reg. No. 00074974, with its registered
office at Globe House, 1 Water Street, London WC2R 3LA, United Kingdom ("COMPANY").

 

Further to
that certain Research License and Commercial Option Agreement entered into as of the 1st day of October, 2013, by and between
22ND CENTURY, 22ND CENTURY GROUP, and COMPANY (“Research Agreement”), in accepting the materials provided by 22ND
CENTURY pursuant to Section 4.02 of the Research Agreement (the “Material”), COMPANY hereby agrees to the following
terms and conditions:

 

		1.	All
                                         restrictions and obligations of this Agreement relate to the Material together with any
                                         progeny, mutants, or replicated forms thereof, and all cells and tissues containing the
                                         Material, including any replicated forms and any derivatives thereof.

 

		2.	The
                                         Material is to be used only at COMPANY's facilities, COMPANY AFFILIATE’S facilities,
                                         (or other facilities selected by COMPANY or COMPANY AFFILIATE) by COMPANY's primary researcher
                                         (the “P.R.”), and by individuals working under the P.R.’s direction.
                                         No Material will be transferred to any facility other than a COMPANY’s facility
                                         or COMPANY AFFILIATE’s facility except under a written agreement prohibiting further
                                         transfer to any party other than Company
                                         or a Company Affiliate. The Material will
                                         be used solely by COMPANY in accordance with the terms of the Research Agreement.

 

		3.	Other
                                         than as permitted in paragraph 2 above, no specimen of the Material will be given or
                                         made available to any other individual, person, company, institution, firm or corporation
                                         without the expressed prior written consent of 22ND CENTURY. This permission to use the
                                         Material shall be restricted to COMPANY's use under or pursuant to the Research Agreement
                                         only. The rights and licenses of COMPANY to use the Material are the rights and licenses
                                         granted in or pursuant to the Research Agreement and delivery of Material to COMPANY
                                         or any COMPANY AFFILIATE shall not be deemed to grant any additional or fewer rights
                                         or licenses. The Material may not be used commercially unless prior written permission
                                         is obtained from 22ND CENTURY or unless it is used commercially in accordance with the
                                         terms of or pursuant to the Research Agreement after exercise of the Option (as defined
                                         in the Research Agreement) therein. The foregoing provisions in this paragraph 3 are
                                         subject to any requirement by COMPANY, any COMPANY AFFILIATE, or any individual having
                                         possession or control of the Material under applicable law or pursuant to any judicial
                                         or government requirement, regulation or order to transfer any Material, provided that
                                         COMPANY takes reasonable steps to provide 22ND CENTURY reasonable prior notice (if not
                                         prohibited under such law, requirement, regulation, or order) to contest such request,
                                         requirement, or order.

 

    	- 64 -

    	 

    

 

		4.	COMPANY
                                         will use the Material in compliance with all laws and regulations applicable to the use,
                                         storage and disposition of the Material. The Material is experimental in nature, is not
                                         for human use, and is provided by 22ND CENTURY on an "as is" basis WITHOUT
                                         WARRANTIES OR REPRESENTATIONS OF ANY SORT, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED
                                         TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, OTHER THAN ANY
                                         WARRANTY OR REPRESENTATION IN OR PURSUANT TO THE RESEARCH AGREEMENT.

 

		5.	22ND
                                         CENTURY does not warrant that the use of the Material will not infringe any valid patent
                                         or other proprietary rights or that the Material is safe and without hazards. COMPANY
                                         assumes all risks associated with its use of the Material.

 

		6.	This
                                         Agreement shall terminate upon termination of Research Agreement or, following exercise
                                         of the Option, termination of the Commercial License Agreement (as defined in the Research
                                         Agreement) (the "Termination Date"), or as mutually agreed in advance in writing
                                         by the parties. Following the Termination Date, COMPANY will, upon written request of
                                         22ND CENTURY, either return all the remaining quantity of the Material to 22ND CENTURY,
                                         or certify in writing to 22ND CENTURY that it has destroyed all the remaining quantity
                                         of the Material in COMPANY's possession.

 

		7.	As
                                         the parties are located and/or will be doing business in different countries, and seek
                                         certainty in their dealings with each other and with other parties, the parties to this
                                         Agreement expressly acknowledge and agree that this Agreement, and the performance or
                                         breach thereof, shall be entered into, interpreted, governed, construed, and enforced
                                         in accordance with the substantive and procedural laws of the State of New York, in the
                                         United States of America, without regard to any choice of law principles. Each party
                                         agrees to bring any action or proceedings in respect to any controversy or claim arising
                                         out of or relating to this Agreement, or the breach thereof, including without limitation
                                         any inability of the parties to reach an agreement in the future as to any matter with
                                         respect to which such agreement is required or anticipated by this Agreement, exclusively
                                         in the United States of America, Supreme Court of New York, Erie County, or in the District
                                         Court of the United States of America for the Western District of New York, and the parties
                                         further consent to the personal jurisdiction of such courts.

 

		8.	Nothing
                                         in this Agreement modifies, amends, alters, changes, terminates, waives, or limits any
                                         right, obligation, term, condition, warranty, representation, or provision in or pursuant
                                         to the Research Agreement. In the event of a conflict or discrepancy between any provision(s)
                                         of the Research Agreement and any provision(s) of this Agreement, the provision(s) of
                                         the Research Agreement shall prevail and control.

 

    	- 65 -

    	 

    

 

	22nd CENTURY LIMITED, LLC	 	BRITISH AMERICAN
                    TOBACCO 

        (INVESTMENTS) LIMITED

	 	 	 
	By:	 	 	By:	 
	Name: Joseph Pandolfino	 	Name:  Gary Nicholson (Authorised
	Title: Chief Executive Officer	 	Signatory)
	Date:	 	 	Title: Head of Global Leaf Research
	 	 	 	Date:	 

 

	 	By:	 
	 	Name: Steve Burton (Authorized Signatory)
	 	Title: Head of CORA and GR&D Finance
	 	Date:	 

 

    	- 66 -

    	 

    

 

Schedule
3

 

NON-DISCLOSURE
AND CONFIDENTIALITY

 

22nd Century
LLC (“22nd Century”) and British American Tobacco (Investments) Limited (“BAT”) (each, a
“Party”) entered into a certain Research License and Commercial Option Agreement dated _____ __, 2013 (the
“Agreement”), pursuant to which 22nd Century and BAT agree to conduct various meetings, whether personally,
by telephone, or by other means. The individual identified below in the signature block (“Individual”) wishes to participate
in such a meeting. In consideration for being permitted to participate in the meeting on behalf of one of the Parties (the “Represented
Party”), Individual agrees, upon signing below, to the following terms and agrees to comply with the following terms.

 

1.          Individual
acknowledges that, in the course of, or in connection with, the meeting, Individual may learn, receive, obtain, or be disclosed,
provided, or provided access to documents, documentation, samples, tests, data, items, inventions, systems, methods, and information
or property of any kind, whether in writing, electronically, tangibly, orally, visually, or otherwise (the “Information”).

 

2.          Subject
to paragraph 4 below, Individual will treat any Information with reasonable care and will not disclose any Information to any
other person, firm or corporation, except to the Represented Party or to any person to which the Represented Party is permitted
under the Agreement to disclose the Information. If and to the extent that Individual is obligated pursuant to the requirements
of applicable law or pursuant to any judicial or government requirement, regulation or order, including without limitation any
securities regulations, Individual shall first notify the Represented Party and follow the directions of the Represented Party
to the greatest extent as Individual is permitted to do so under applicable law.

 

3.          Individual
does not receive any right, title, interest, or license in or to any Information and agrees not to use, utilize, reproduce, copy,
create derivative works from or improvements, modifications, or derivations to, or reverse engineer, decompile, or disassemble
any Information, except solely for and on behalf of the Represented Party if and to the extent that Represented Party has a right
under the Agreement to use, utilize, reproduce, copy, create derivative works from or improvements, modifications, or derivations
to, or reverse engineer, decompile, or disassemble such Information.

 

4.          This
document applies to and covers all Information, provided, however, that: (i) if any Information belongs to the Represented Party,
nothing in this document affects the right of the Represented Party to authorize Individual to disclose, use, and utilize such
Information as decided by the Represented Party within its rights to such Information, and (ii) if any Information belongs to
the other Party, nothing in this document affects the right of the Represented Party to authorize Individual to disclose, use,
and utilize such Information if and to the extent the Represented Party has the right under the Agreement to disclose, use, and
utilize such Information.

 

5.          Nothing
in this document grants, or shall be deemed to grant, any right, title, interest, or license in or to any Information to the Represented
Party, without limiting any right, title, interest, or license granted to the Represented Party under the Agreement.

 

By signing
below, Individual agrees to all of the foregoing provisions:

 

	Signature of Individual:  	 	 	Date: 	 
	 	 	 	 	 
	Name of Individual (print):  	 	 	 	 
	 	 	 	 	 
	Title of Individual:  	 	 	 	 
	 	 	 	 	 
	Represented Party:  	 	 	 	 

 

    	- 67 -

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