Document:

ESCROW
AGREEMENT

     

    THIS
ESCROW AGREEMENT (the “Agreement”) is made and
entered into as of December 2, 2010, by and among 22nd Century
Limited, LLC, a limited liability company organized under the laws of the State
of Delaware (“Issuer”),
Rodman & Renshaw, LLC, a limited liability company organized under the laws
of the State of Delaware that is a broker-dealer that is acting as placement
agent for Issuer (“Placement
Agent”), and Bank of America, National Association, a national banking
association duly organized and existing under the laws of the United States of
America, having an office in Chicago, Illinois (the “Escrow Agent”).

    

    WHEREAS,
Issuer is offering to certain accredited investors (“Subscribers”) in a private
placement offering of Units consisting of the Issuer’s limited liability company
membership interests and warrants to acquire additional amounts of the Issuer’s
limited liability company membership interests (collectively, the “Securities”), with the total
gross proceeds from the sales of the Securities to be held in a non-interest
bearing escrow account until at least the minimum amount of gross proceeds of
Six Million Dollars ($6,000,0000.00) are received (the “Minimum Offering”) and
up to the maximum amount of gross proceeds of Thirteen Million Dollars
($13,000,000.00) are received (the “Maximum Offering”), all pursuant to the
details contained in the Issuer’s Private Placement Memorandum, dated as of
November 1, 2010 (collectively, the “Offering”);

    

    WHEREAS,
in connection with the Offering, Issuer and Placement Agent have entered into a
separate agreement, pursuant to which Placement Agent is authorized to solicit
and collect, on behalf of Issuer, subscriptions for the Securities in the
Offering and to manage the sale of the Securities;

    

    WHEREAS,
Subscribers desiring to purchase the Securities must, among other things, submit
the full payment for their respective investments prior to the closing of the
Minimum Offering in connection with entering into subscription agreements with
Issuer (each such agreement, a “Subscription Agreement”);
and

    

    WHEREAS,
Issuer and Placement Agent desire to deposit such funds contributed by the
Subscribers with the Escrow Agent, to be held and disbursed in accordance with
the terms of this Escrow Agreement.

    

    NOW,
THEREFORE, in consideration of the mutual promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

    

    ARTICLE
I

    ESTABLISHMENT OF
ESCROW

     

    Section
1.1.    Appointment.  The
parties hereto hereby appoint the Escrow Agent, and the Escrow Agent hereby
agrees to serve, as the escrow agent and depositary subject to the terms and
conditions set forth herein.  Escrow Agent shall open a non-interest
bearing escrow account (the “Escrow Account”) for the
deposit of the payments received by Subscribers for purchase of Securities in
the Offering, as set forth in this Agreement.  Such payments deposited
in the Escrow Account shall hereinafter collectively be referred to as the
“Escrow
Funds.”  The Escrow Funds will be held and disbursed by the
Escrow Agent only in accordance with the express terms and conditions of this
Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
1.2.     Receipt of Funds and Subscription
Information.  All payments for the purchase of Securities in
the Offering which are in the form of a personal, certified or cashiers’ check
shall be made payable to:  “Bank of America, N.A., Escrow Agent for
22nd
Century Limited, LLC.”  All wire transfers shall include the
Subscriber’s name and be directed in accordance with the wire instructions set
forth in Exhibit
A-2. Upon
delivery to Placement Agent or Issuer of any payment made for the purchase of
Securities in the Offering which are in the form of personal, certified or
cashiers’ checks, Placement Agent or Issuer, as the case may be, shall by noon
of the next Business Day after receipt, transmit such payment for Securities to
the Escrow Agent with a written account of each sale in the form attached hereto
as Exhibit B
(the “Subscription
Information”).  The written account of each sale shall set
forth, among other things, the name, address and taxpayer identification number
(“TIN”) or social
security number of the Subscriber, the amount of Securities subscribed and the
amount paid therefor.  Issuer shall also provide the Subscription
Information with respect to any payments made by wire transfer for the purchase
of Securities in the Offering.  To the extent Subscription Information
is not provided within two (2) business days of the receipt of Escrow Funds by
the Escrow Agent, Escrow Agent shall return such Escrow Funds.  Escrow
Agent shall have no obligation to accept documents or instructions from any
party other than Issuer or Placement Agent with respect to the Escrow Account.
Any checks received by the Escrow Agent which are made payable to any party
other the Escrow Agent shall be returned to the Issuer or Placement
Agent.

     

    Section
1.3.    Uncollectible Funds; Account
Statements.  The Escrow Agent shall promptly notify Issuer and
Placement Agent of the receipt by the Escrow Agent of any non-collectable funds
or other discrepancies with respect to funds received by the Escrow Agent and
shall deliver to Issuer and Placement Agent monthly account statements with
respect to Escrow Funds on deposit in the Escrow Account.  If any
check is returned to the Escrow Agent as uncollectible or dishonored for any
reason, Escrow Agent shall return such check to the Issuer or Placement Agent
and Issuer agrees to pay to Escrow Agent any fees associated with such returned
or dishonored check.

    

    ARTICLE
II

     

    NON-INVESTMENT
OF ESCROW FUNDS

     

    The
Escrow Funds shall remain uninvested.  Issuer and Placement Agent
hereby acknowledge and agree that they will not be entitled to any interest or
other income on the Escrow Funds and will not have any claim or cause of action
against the Escrow Agent for its failure to invest the Escrow Funds in an
interest bearing or otherwise accreting account and Issuer shall indemnify and
hold the Escrow Agent harmless from any such claim (and any expenses incurred
defending such claim) asserted by Issuer, Placement Agent, any investor, any
Subscriber or any of their respective shareholders, members, managers or
creditors, or any trustee(s) in bankruptcy or other persons not a party to this
Agreement.  Issuer and Placement Agent shall inform subscribers that
payments for purchase of Securities in the Offering will remain
uninvested.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
III

    DISBURSEMENTS FROM THE
ESCROW ACCOUNT

    

    Section
3.1     Minimum Offering
Requirement.  Escrow Agent
shall not make any disbursements to Issuer from the Escrow Funds until such time
as Issuer and Placement Agent deliver to the Escrow Agent written notification
in the form set forth in Exhibit C hereto (the
“Minimum Offering
Notice”), signed by Issuer and Placement Agent, which shall specify that
subscriptions for at least Six Million Dollars ($6,000,000.00) (the “Minimum”) have been received
and accepted; that to the best of Issuer and Placement Agent’s knowledge after
due inquiry and review of its records, gross proceeds representing payment in
full for the Minimum have been received, deposited with and collected by Escrow
Agent; and that such subscriptions have not been withdrawn, rejected or
otherwise terminated.

     

    Section
3.2      Disbursement to Issuer Upon Receipt
of Disbursement Request.  Simultaneously
with or at any point after Issuer and Placement Agent deliver to the Escrow
Agent the Minimum Offering Notice and Escrow Agent has confirmed the Escrow
Account balance is consistent with the amount set forth in the Minimum Offering
Notice, Issuer and Placement Agent may deliver to the Escrow Agent one or more
written disbursement requests in the form set forth in Exhibit D hereto
(each, a “Disbursement
Request”), with each Disbursement Request being required to be signed by
each of the Issuer and Placement Agent.  Promptly upon receipt of a
Disbursement Request, but in no event later than five (5) Business Days
following receipt thereof by the Escrow Agent, the Escrow Agent shall disburse
to Issuer such Escrow Funds as are called for pursuant to the Disbursement
Request.

     

    Section
3.3     Rejection of any Subscription or
Termination of the Offering.  No later than
fifteen (15) Business Days after receipt by Escrow Agent of written notice (i)
from Issuer and Placement Agent that Issuer and Placement Agent intend to reject
a Subscriber’s subscription, (ii) from Issuer and Placement Agent that there
will be no closing of the Securities to Subscribers, or (iii) from any federal
or state securities administrator or similar regulatory authority that a stop
order has been issued with respect to the Offering and such order has remained
in effect for at least five (5) Business Days in the form set forth in Exhibit E hereto (a
“Termination Request”),
Issuer and Placement Agent shall provide Escrow Agent with joint written
instruction to pay each identified Subscriber together with the applicable
Subscriber Information, by federal wire transfer or bank check by first class
mail, the amount paid by such Subscriber without interest.  Issuer and
Placement Agent may, at any time, terminate this Agreement by delivering to the
Escrow Agent a Termination Request, which shall set forth (i) the requested
termination date and (ii) instructions for the delivery of the Escrow
Funds.  The Termination Request shall be received by the Escrow Agent
not fewer than  fifteen (15) Business Days prior to the requested
termination date.  If the Termination Request does not set forth
instructions for the delivery of the Escrow Funds, the Escrow Agent is directed
to return to the party or parties from which such funds were received and
collected based on the Subscription Information and the Escrow Agent shall incur
no liability for taking such action.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
3.4     Expiration of Offering
Period.  Notwithstanding
anything to the contrary contained herein, if Escrow Agent shall not have
received a Minimum Offering Notice and confirmed the Escrow Account balance in
at least the amount of the Minimum of Six Million Dollars ($6,000,000.00) on or
before the close of business on December 15, 2010 (or such later date as Issuer
and Placement Agent may notify the Escrow Agent in writing, but in no case later
than December 31, 2010) (the “Expiration Date”), Issuer and
Placement Agent shall provide Escrow Agent with joint written instruction in the
form set forth in Exhibit E hereto to pay each identified Subscriber together
with the applicable Subscriber Information, by check and by first class mail,
the amount paid by such Subscriber without interest.  Escrow Agent
shall, within fifteen (15) Business Days after receipt of such joint instruction
from Issuer and Placement Agent, return to each Subscriber, by bank check and by
first class mail, the amount paid by such Subscriber without interest as set
forth in such joint written instruction.

     

    Section
3.5     Deadline for Delivery of Disbursement
Requests.  Notwithstanding
anything to the contrary contained herein, Issuer shall not deliver to Escrow
Agent any Disbursement Request after the Expiration Date (the “Disbursement Request
Deadline”).  In the event that there are Escrow Funds remaining
in the Escrow Account as of the Disbursement Request Deadline, Escrow Agent
shall, within fifteen (15) Business Days after receipt of joint written
instruction from Issuer and Placement Agent in the form set form in Exhibit E
hereto, return to each Subscriber, by bank check and by first class mail, such
Subscriber’s allocable share of the Escrow Funds without interest as set forth
in such instruction.  If Issuer and Placement Agent have not delivered
any Disbursement Request prior to the Disbursement Request Deadline, the Escrow
Agent is directed to return to the party or parties from which such funds were
received and collected based on the Subscription Information and the Escrow
Agent shall incur no liability for taking such action.

     

    Section
3.6     Required Receipt of Funds by Escrow
Agent.  Notwithstanding
the provisions of this Article III, in no
event shall the Escrow Agent be required to disburse funds prior to its receipt
of, or any amounts in excess of, collected funds then available and payment of
its fees and expenses.

     

    ARTICLE
IV

    COMPENSATION;
EXPENSES

     

     As compensation for its services to be
rendered under this Agreement, for each year or any portion thereof, the Escrow
Agent shall receive a fee in the amount specified in Exhibit A to this Agreement and shall be
reimbursed upon request for all expenses, disbursements and advances, including
reasonable fees of outside counsel, if any, incurred or made by it outside of the performance of routine
duties in connection with carrying out the purposes of this Agreement,
including, without limitation, fees incurred in connection with review and
execution of any amendments or other documents subsequently executed in
connection with the Escrow Account.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Issuer shall pay such fees and
expenses.  Issuer
agrees that it will, at all
times, maintain a minimum deposit with the Escrow Agent in the amount set forth
in Exhibit A to cover fees and expenses of the Escrow Agent (the “Fee
Deposit”).  The
Escrow Agent is hereby authorized and directed to apply the Fee Deposit to any
fees or expenses that have been invoiced but that have remained unpaid for
thirty (30) days or more.  Upon any such application of the Fee Deposit, Issuer
shall promptly replenish
the Fee Deposit in the amount of such application.  Amounts due for
fees and expenses at the time this Agreement is executed shall be deemed to have
been invoiced at such time and for purposes of this Article
IV shall be deemed an
invoice.  The Escrow Agent is not obligated to perform services under
this Agreement if its fees and expenses are not timely paid.  The
Set-Up Fee, Annual Administration Fee and Fee Deposit as set forth in
Exhibit
A are due upon execution of
this Agreement.
The Escrow Agent is hereby
authorized to withhold any disbursement it would otherwise make from the Escrow
Account if at the time of such disbursement any invoiced fees or expenses remain
unpaid.  It is understood that the foregoing provisions may affect the
disbursement of funds to parties not responsible for the payment of fees and
expenses.

     

    ARTICLE
V

    EXCULPATION AND
INDEMNIFICATION

    

    Section
5.1     Limited Duties of Escrow
Agent.  The obligations and duties of the Escrow Agent are
confined to those specifically set forth in this Agreement which obligations and
duties shall be deemed purely ministerial in nature.  No additional
obligations and duties of the Escrow Agent shall be inferred or implied from the
terms of any offering documents with respect to the Securities, any Subscription
Agreement or other any other documents or agreements, notwithstanding references
herein to other documents or agreements.  In the event that any of the
terms and provisions of any other agreement between any of the parties hereto
conflict or are inconsistent with any of the terms and provisions of this
Agreement, the terms and provisions of this Agreement shall govern and control
the duties of the Escrow Agent in all respects.  The Escrow Agent
shall not be subject to, or be under any obligation to ascertain or construe the
terms and conditions of any offering documents with respect to the Securities,
any Subscription Agreement or any other agreement or instrument, or to interpret
this Agreement in light of any Subscription Agreement or other agreement or
instrument whether or not now or hereafter deposited with or delivered to the
Escrow Agent or referred to in this Agreement.  The Escrow Agent shall
not be obligated to inquire as to the form, execution, sufficiency, or validity
of any such instrument nor to inquire as to the identity, authority, or rights
of the person or persons executing or delivering same.  The Escrow
Agent shall have no duty to know or inquire as to the performance or
nonperformance of any provision of any other agreement, instrument, or
document.  The Escrow Agent shall have no duty to know or inquire as
to the terms and conditions, representation, warranties or covenants of any
other statement, agreement, instrument, or document related to the Offering,
including but not limited to the offering documents, subscription agreement or
any statement by the Issuer or Placement Agent.  The Escrow Agent
shall have no responsibility for holding, issuing or delivering any securities,
including the Securities.  The parties hereto shall provide the Escrow
Agent with a list of authorized representatives, initially authorized hereunder
as set forth on Exhibit G, as such
Exhibit G may
be amended or supplemented from time to time by delivery of a revised and
re-executed Exhibit
G to the Escrow Agent.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    The
Escrow Agent is authorized to comply with and rely upon any notices,
instructions or other communications believed by it to have been sent or given
by the parties or by a person or persons authorized by the parties, including
without limitation, communications received by electronic transmission. 
Each of the Issuer and the Placement Agent agrees to indemnify and hold harmless
the Escrow Agent against any and all claims, losses, damages, liabilities,
judgments, costs and expenses (including reasonable attorneys’ fees)
(collectively, “Losses”)
incurred or sustained by the Escrow Agent as a result of or in connection with
the Escrow Agent’s reliance upon and compliance with instructions or directions
given by such party, provided, however,
that such Losses have not arisen from the gross negligence or willful misconduct
of the Escrow Agent, it being understood that the failure of the Escrow Agent to
verify or to confirm that the person giving the instructions or directions, is,
in fact, an authorized person does not constitute gross negligence or willful
misconduct.

    

    Section
5.2     Liability of Escrow
Agent.  The Escrow Account shall be maintained in accordance
with applicable laws, rules and regulations and policies and procedures of
general applicability to escrow accounts established by the Escrow
Agent.  The Escrow Agent shall not be liable for any act that it may
do or omit to do hereunder in good faith and in the exercise of its own best
judgment or for any damages not directly resulting from its gross negligence or
willful misconduct.  Without limiting the generality of the foregoing
sentence, it is hereby agreed that in no event will the Escrow Agent be liable
for any lost profits or other indirect, special, incidental or consequential
damages which the parties may incur or experience by reason of having entered
into or relied on this Agreement or arising out of or in connection with the
Escrow Agent’s duties hereunder, notwithstanding that the Escrow Agent was
advised or otherwise made aware of the possibility of such
damages.  The Escrow Agent shall not be liable for acts of God, acts
of war, breakdowns or malfunctions of machines or computers, interruptions or
malfunctions of communications or power supplies, labor difficulties, actions of
public authorities, or any other similar cause or catastrophe beyond the Escrow
Agent’s reasonable control.  Any act done or omitted to be done by the
Escrow Agent pursuant to the advice of its attorneys shall be conclusively
presumed to have been performed or omitted in good faith by the Escrow
Agent.

     

    Section
5.3     Suspension of Performance;
Disbursement Into Court.  In the event the Escrow Agent is
notified of any dispute, disagreement or legal action relating to or arising in
connection with the escrow, the Escrow Funds, or the performance of the Escrow
Agent's duties under this Agreement, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it.  The
Escrow Agent may hold all documents and funds and may wait for settlement of any
such controversy by final appropriate legal proceedings, arbitration, or other
means as, in the Escrow Agent's discretion, it may require.  In such
event, the Escrow Agent will not be liable for interest or
damages.  Furthermore, the Escrow Agent may, at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves.  The Escrow Agent is authorized, at its
option, to deposit with the court in which such action is filed, all documents
and funds held in escrow, except all costs, expenses, charges, and reasonable
attorneys’ fees incurred by the Escrow Agent due to the interpleader action and
which Issuer agrees to pay.  Upon initiating such action, the Escrow
Agent shall be fully released and discharged of and from all obligations and
liability imposed by the terms of this Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
5.4     Indemnification.  Issuer
hereby agrees to indemnify and hold the Escrow Agent, and its directors,
officers, employees, and agents, harmless from and against all costs, damages,
judgments, attorneys’ fees (whether such attorneys shall be regularly retained
or specifically employed), expenses, obligations and liabilities of every kind
and nature which the Escrow Agent, and its directors, officers, employees, and
agents, may incur, sustain, or be required to pay in connection with or arising
out of this Agreement, unless the aforementioned results from the Escrow Agent’s
gross negligence or willful misconduct, and to pay the Escrow Agent on demand
the amount of all such costs, damages, judgments, attorneys’ fees, expenses,
obligations, and liabilities.  Specifically with respect to a breach
of the representations, warranties or covenants in Article XI of this Agreement
costs shall include, but are not limited to, (i) taxes, penalties and
interest arising from such a breach and (ii) fees charged by accountants,
attorneys, or other professionals to confirm the taxable status of the Escrow
Account and to prepare any tax returns or other required filings with the
Internal Revenue Service (“IRS”) (or reasonable fees
charged by the Escrow Agent for similar services provided by its own employees)
arising from such a breach.  The costs and expenses of enforcing this
right of indemnification also shall be paid by Issuer.  The foregoing
indemnities in this paragraph shall survive the resignation or substitution of
the Escrow Agent and the termination of this Agreement.  The Placement
Agent shall not be required to indemnify Escrow Agent for expenses, loses or
liabilities not resulting from Placement Agent’s own actions or
inactions.  Escrow Agent shall nevertheless be entitled to recover
from Placement Agent expenses, loses or liabilities incurred by it resulting
from its complying with instructions delivered to it by Placement Agent either
individually or in conjunction with Issuer.

    

    ARTICLE
VI

    TERMINATION OF
AGREEMENT

     

    Section
6.1     Termination.  Upon
the first to occur of the termination of the Escrow Period, the disbursement of
all amounts in the Escrow Funds pursuant to a Disbursement Request or the
disbursement of all amounts in the Escrow Funds into court pursuant to Section 5.3 or Article VII hereof,
this Escrow Agreement shall terminate and the Escrow Agent shall have no further
obligations or liability whatsoever with respect to this Escrow Agreement or the
Escrow Funds.  The escrow period (“Escrow Period”) shall begin
upon the execution and delivery of this Agreement and shall terminate upon the
earlier to occur of the following (upon which this Agreement shall
terminate):

     

    (a)      December
15, 2010, which date may be extended until December 31, 2010 upon written notice
to Escrow Agent (which written notice shall include a statement that such
extension is not in contravention of the terms of the Offering) in the form of
Exhibit F
attached hereto; or

     

    (b)     The
termination date set forth in a properly executed and delivered Termination
Request; or

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)      delivery
of the Escrow Deposits by the Escrow Agent pursuant to Article III;
or

     

    (c)      The
resignation of the Escrow Agent as set forth in Article VII herein.

     

    Section
6.2.     Upon termination of this Agreement pursuant
to this Article
VI, it is understood and agreed  that the Escrow Agent shall be
entitled (i) to keep any monies paid to it in respect of fees or expenses
previously due and owing and (ii) to offset from the amount of Escrow Funds
on deposit as of the date of termination any amounts due for fees and expenses
that, as of such date, have been previously invoiced and remain unpaid or which
are then due and payable on a pro rata basis.

    

    ARTICLE
VII

    RESIGNATION OF ESCROW
AGENT

    

    The
Escrow Agent may resign at any time upon giving at least thirty (30) days prior
written notice to Issuer and Placement Agent; provided that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows:  Issuer and Placement
Agent shall use their best efforts to select a successor escrow agent within
thirty (30) days after receiving such notice.  If Issuer and Placement
Agent fail to appoint a successor escrow agent within such time, the Escrow
Agent shall have the right at the expense of Issuer to petition any court of
general jurisdiction sitting in Cook County, Illinois for the appointment of a
successor escrow agent.  The successor escrow agent shall execute and
deliver an instrument accepting such appointment and it shall, without further
acts, be vested with all the estates, properties, rights, powers, and duties of
the predecessor escrow agent as if originally named as escrow
agent.  Upon delivery of such instrument, the Escrow Agent shall be
discharged from any further duties and liability under this
Agreement.  The Escrow Agent shall be paid any outstanding fees and
expenses prior to transferring assets to a successor escrow agent.

    

    ARTICLE
VIII

    NOTICES

    

    All
notices required by this Agreement shall be in writing and shall be deemed to
have been received (a) immediately if sent by facsimile transmission (with
a confirming copy sent the same Business Day by registered or certified mail or
by nationally recognized overnight courier), or by hand delivery (with signed
return receipt), (b) the next Business Day if sent by nationally recognized
overnight courier or (c) the second following Business Day if sent by
registered or certified mail, in any case to the respective addresses as
follows:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Notices
involving claims or objections to claims must be sent by registered or certified
mail or by overnight courier and may not be sent via facsimile.

    

    If to
Issuer:

    

    22nd
Century Limited, LLC

    8201 Main
Street, Suite 6

    Williamsville,
New York  14221

    Attention:  Joseph
Pandolfino, Chief Executive Officer

    Telephone:  716-270-1523

    Fax:  716-877-3064

    

    If to
Placement Agent:

    

    Rodman
& Renshaw, LLC

    1251
Avenue of Americas, 20th
floor

    New York,
New York  10020

    Attention:  Gregory
Dow, Esq.

    Telephone:  212-356-0526

    Fax:  212-356-0536

    

    If to the
Escrow Agent:

    

    Bank of
America Merrill Lynch

    Global
Securities Solutions

    540 West
Madison StreetIL4-540-20-06

    Chicago,
Illinois  60661

    Attention:   Patrice
Emery

    Telephone:  (312)
 904-1286

    Fax:  (312)
904-0990

    

    ARTICLE
IX

    TAX REPORTING; PATRIOT
ACT

    

    Section
9.1     Restrictions on Escrow
Account.  Issuer hereby (i) represents and
warrants that, as of the date this Agreement is made and entered into, the
Escrow Account is not a Qualified Settlement Fund, Designated Settlement Fund,
or Disputed Ownership Fund within the meaning of section 468B of the Internal
Revenue Code of 1986, as amended (and the regulations thereunder) and
(ii) covenants that neither Issuer nor Placement Agent shall take, fail to take
or permit to occur any action or inaction, on or after the date this Agreement
is made and entered into, that causes the Escrow Account to
become such a Qualified Settlement Fund, Designated Settlement Fund, or Disputed
Ownership Fund at any time.

    

    Section
9.2.    Patriot
Act.  Section 326 of the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (“USA PATRIOT Act”)
requires the Escrow Agent to implement reasonable procedures to verify the
identity of any person that opens a new account with it.  Accordingly,
the parties acknowledge that Section 326 of the USA PATRIOT Act and the Escrow
Agent’s identity verification procedures require the Escrow Agent to obtain
information which may be used to confirm Issuer’s identity including without
limitation name, address and organizational documents (“identifying
information”).  Issuer and Placement Agent agree to provide the
Escrow Agent with and consent to the Escrow Agent obtaining from third parties
any such identifying information required as a condition of opening an account
with or using any service provided by the Escrow Agent.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
9.3.    Tax
Information.  Issuer and Placement Agent have each provided the
Escrow Agent with its fully executed IRS Form W-9 and/or other required
documentation.  Issuer and Placement Agent each represents that its
respective correct TIN assigned by the IRS, or any other taxing authority, is
set forth in the delivered forms, as well as in the Substitute IRS Form W-9 set
forth on the signature page of this Agreement.

    

    Section
9.4.    Tax Returns.  Any
tax returns required to be filed by the Issuer with respect to the Issuer and/or
the Offering will be prepared and filed by Issuer with the IRS and any other
taxing authority as required by law.  Issuer and Placement Agent each
acknowledges and agrees that Escrow Agent shall have no responsibility for the
preparation and/or filing of any income, franchise or any other tax return with
respect to the Escrow Funds or Escrow Account.

    

    ARTICLE
X

    MISCELLANEOUS
PROVISIONS

    

    Section
10.1   Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois and the parties hereto consent to jurisdiction in the State of
Illinois and venue in any state or Federal court located in the City of
Chicago.

    

    Section
10.2   Successors.  Any
entity into which the Escrow Agent may be merged or with which it may be
consolidated, or any entity to whom the Escrow Agent may transfer a substantial
amount of its Escrow business, shall be the successor to the Escrow Agent
without the execution or filing of any paper or any further act on the part of
any of the parties, anything herein to the contrary
notwithstanding.

    

    Section
10.3   Attachment or
Levy.   In the event that any Escrow Funds shall be attached,
garnished or levied upon by any court order, or the delivery thereof shall be
stayed or enjoined by an order of a court, or any order, judgment or decree
shall be made or entered by any court order affecting the property deposited
under this Escrow Agreement, the Escrow Agent is hereby expressly authorized, in
its sole discretion, to obey and comply with all writs, orders or decrees so
entered or issued, which it is advised by legal counsel of its own choosing is
binding upon it, whether with or without jurisdiction, and in the event that the
Escrow Agent obeys or complies with any such writ, order or decree it shall not
be liable to any of the parties hereto or to any other person, entity, firm or
corporation, by reason of such compliance notwithstanding such writ, order or
decree be subsequently reversed, modified, annulled, set aside or
vacated.

    

    Section
10.4   Amendments.  This
Agreement may be amended, modified, and/or supplemented only by an instrument in
writing executed by all parties hereto.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
10.5   Counterparts.  This
Agreement may be executed by the parties hereto individually or in one or more
counterparts, each of which shall be an original and all of which shall together
constitute one and the same agreement.  This Agreement,
signed and transmitted by facsimile machine or pdf file, is to be treated as an
original document and the signature of any party hereon, if so transmitted, is
to be considered as an original signature, and the document so transmitted is to
be considered to have the same binding effect as a manually executed
original.

     

    Section
10.6   Headings.  The
headings used in this Agreement are for convenience only and shall not
constitute a part of this Agreement.  Any references in this Agreement
to any other agreement, instrument, or document are for the convenience of the
parties and shall not constitute a part of this Agreement.

    

    Section
10.7   Business Day.  As
used in this Agreement, “Business Day” means a day
other than a Saturday, Sunday, or other day when banking institutions in
Chicago, Illinois are authorized or required by law or executive order to be
closed.

    

    Section
10.8   No
Third Party Beneficiaries.  This Agreement constitutes a
contract solely among the parties by which it has been executed and is
enforceable solely by the parties by which it has been executed and no other
persons.  It is the intention of the parties hereto that this
Agreement may not be enforced on a third party beneficiary or any similar
basis.

    

    Section
10.9   Severability.  The
parties agree that if any provision of this Agreement shall under any
circumstances be deemed invalid or inoperative this Agreement shall be construed
with the invalid or inoperative provisions deleted and the rights and
obligations of the parties shall be construed and enforced
accordingly.

    

    Section 10.10 Assignments.  No
party hereto shall assign its rights hereunder until its assignee has submitted
to the Escrow Agent (i) Patriot Act disclosure materials and the Escrow
Agent has determined that on the basis of such materials it may accept such
assignee as a customer and (ii) assignee has delivered an IRS Form W-8 or
W-9, as appropriate, to the Escrow Agent which the Escrow Agent has determined
to have been properly signed and completed.  In addition, the
foregoing rights to assign shall be subject, in the case of any party having an
obligation to indemnify the Escrow Agent, to the Escrow Agent’s approval based
upon the financial ability of assignee to indemnify it being reasonably
comparable to the financial ability of assignor, which approval shall not be
unreasonably withheld.

     

    Section 10.11 Arbitration.  Any
claim against the Escrow Agent arising out of or relating to this Agreement
shall be settled by arbitration in accordance with commercial rules of the
American Arbitration Association.  Arbitration proceedings conducted
pursuant to this Article X shall be
held in Chicago, Illinois.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section 10.12  Offering.  Each of
the Issuer and Placement Agent represent, warrant and covenants that (i) it has
not and will not use the name of the Escrow Agent in any materials with respect
to the Offering or otherwise without the express written consent of the Escrow
Agent, which consent the Escrow Agent hereby gives with respect to the Private
Placement Memorandum and Securities Purchase Agreement of the Issuer, copies of
which have been provided to Escrow Agent; (ii) it has complied (in all material
respects) and will continue to comply (in all material respects) with all laws,
rules and regulations having application to this Agreement or the Offering,
including the Investment Act Company Act of 1940 and all other applicable
federal and state securities and financial laws and regulations; (iii) it will
not accept Subscriptions exceeding the maximum offering amount or from more than
one hundred (100) investors; (iv) at all times during the term of this Escrow
Agreement less than twenty-five percent (25%) of the amounts represented by
Subscriptions delivered to the Escrow Agent will be submitted on behalf of
Subscribers who are benefit plan investors as defined in 29 CFR 2510.101.3; (v)
each document, notice, instruction or request provided by Issuer or Placement
Agent to Escrow Agent shall comply with applicable laws and regulations; and
(vi) it shall disclose in writing to potential and actual Subscribers that the
Escrow Funds shall remain uninvested, losses to the Escrow Funds are borne
solely by Subscribers, and the Escrow Agent is not responsible for issuing or
holding the Securities.

    

    IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement
as of the day and year first above written.

    

    
      
        	 
      	
                ISSUER:

              
	 
      	 
      
	 
      	
                22nd
      CENTURY LIMITED, LLC

              
	 
      	 
      	 
      
	
                  

              	
                By: 

              	
                /s/ Joseph Pandolfino

              
	 
      	 
      	
                Name: 

              	
                Joseph Pandolfino

              
	 
      	 
      	
                Title:

              	
                Chief Executive Officer

              
	 
      	 
      	 
      
	 
      	
                PLACEMENT
      AGENT:

              
	 
      	 
      
	 
      	
                RODMAN
      & RENSHAW, LLC

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                /s/ David Horin

              
	 
      	 
      	
                Name:

              	
                David Horin

              
	 
      	 
      	
                Title:

              	
                Chief Financial Officer

              
	 
      	 
      	 
      
	 
      	
                ESCROW AGENT:

              
	 
      	 
      
	 
      	
                BANK
      OF AMERICA, NATIONAL

                ASSOCIATION

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                /s/ Erik R. Benson

              
	 
      	 
      	
                Name:

              	
                Erik R. Benson

              
	 
      	 
      	
                Title:

              	
                Vice
PresidentSPLIT-OFF
AGREEMENT

     

    This SPLIT-OFF AGREEMENT, dated as
of January 25, 2011 (this “Agreement”), is entered into by and among 22nd Century
Group, Inc., a Nevada corporation (“Seller”), Touchstone Split Corp., a Delaware
corporation (“Split-Off Subsidiary”) and David Rector (“Buyer”).

     

    RECITALS:

     

    WHEREAS, Seller is the owner of
all of the issued and outstanding capital stock of Split-Off Subsidiary;
Split-Off Subsidiary is a wholly-owned subsidiary of Seller which will acquire
the business assets and liabilities previously held by Seller; and Seller has no
other businesses or operations prior to the Merger (as defined
herein);

     

    WHEREAS, following the
consummation of the transactions contemplated pursuant to this Agreement,
Seller, 22nd Century Limited, LLC, a Delaware limited liability corporation
(“22nd
Century”), and a newly-formed wholly-owned Delaware subsidiary of Seller,
22nd
Century Acquisition Subsidiary, LLC (“Acquisition Subsidiary”), will consummate
the transactions contemplated pursuant to an Agreement and Plan of Merger and
Reorganization (the “Merger Agreement”) pursuant to which Acquisition Subsidiary
will merge with and into 22nd Century with 22nd Century remaining as the
surviving entity (the “Merger”); and the equity holders of 22nd Century will
receive securities of Seller in exchange for their equity interests in 22nd
Century;

     

    WHEREAS, the execution and
delivery of this Agreement is required by 22nd Century as a condition to its
execution of the Merger Agreement and the consummation of the assignment,
assumption, purchase and sale transactions contemplated by this Agreement is
also a condition to the completion of the Merger pursuant to the Merger
Agreement, and Seller has represented to 22nd Century in the Merger Agreement
that the transactions contemplated by this Agreement will be consummated prior
to the closing of the Merger, and 22nd Century relied on such representation in
entering into the Merger Agreement;

     

    WHEREAS, Buyer desires to
purchase the Shares (as defined in Section 2.1) from Seller, and
to assume, as between Seller and Buyer, all responsibility for any debts,
obligations and liabilities of Seller and Split-Off Subsidiary, on the terms and
subject to the conditions specified in this Agreement; and

     

    WHEREAS, Seller desires to
sell and transfer the Shares to Buyer, on the terms and subject to the
conditions specified in this Agreement;

     

    NOW, THEREFORE, in
consideration of the premises and the covenants, promises and agreements herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, agree as follows:

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    I.     
      ASSIGNMENT
AND ASSUMPTION OF SELLER’S ASSETS AND LIABILITIES.

     

    Subject
to the terms and conditions provided below:

     

    1.1           Assignment
of Assets.  Seller hereby contributes, assigns, conveys and
transfers to Split-Off Subsidiary, and Split-Off Subsidiary hereby receives,
acquires and accepts, all assets and properties of Seller as of the Closing,
including but not limited to the following:

     

    
      	
               
      

            	
              (a)

            	
              all
      cash and cash equivalents;

            

    

     

    
      	
               
      

            	
              (b)

            	
              all
      accounts receivable;

            

    

     

    
      	
               
      

            	
              (c)

            	
              all
      inventories of raw materials, work in process, parts, supplies and
      finished products;

            

    

     

    
      	
               
      

            	
              (d)

            	
              all
      of Seller’s rights, title and interests in, to and under all contracts,
      agreements, leases, licenses (including software licenses), supply
      agreements, consulting agreements, commitments, purchase orders, customer
      orders and work orders, and including all of Seller’s rights thereunder to
      use and possess equipment provided by third parties, and all
      representations, warranties, covenants and guarantees related to the
      foregoing (provided that to the extent any of the foregoing or any claim
      or right or benefit arising thereunder or resulting therefrom is not
      assignable by its terms, or the assignment thereof shall require the
      consent or approval of another party thereto, this Agreement shall not
      constitute an assignment thereof if an attempted assignment would be in
      violation of the terms thereof or if such consent is not obtained prior to
      the Closing, and in lieu thereof Seller shall reasonably cooperate with
      Split-Off Subsidiary in any reasonable arrangement designed to provide
      Split-Off Subsidiary the benefits thereunder or any claim or right arising
      thereunder);

            

    

     

    
      	
               
      

            	
              (e)

            	
              all
      intellectual property, including but not limited to issued patents, patent
      applications (whether or not patents are issued thereon and whether
      modified, withdrawn or resubmitted), unpatented inventions, product
      designs, copyrights (whether registered or unregistered), know-how,
      technology, trade secrets, technical information, notebooks, drawings,
      software, computer coding (both object and source) and all documentation,
      manuals and drawings related thereto, trademarks or service marks and
      applications therefor, unregistered trademarks or service marks, trade
      names, logos and icons and all rights to sue or recover for the
      infringement or misappropriation
thereof;

            

    

     

    
      	
               
      

            	
              (f)

            	
              all
      fixed assets, including but not limited to the machinery, equipment,
      furniture, vehicles, office equipment and other tangible personal property
      owned or leased by Seller;

            

    

     

    
      	
               
      

            	
              (g)

            	
              all
      customer lists, business records, customer records and files, customer
      financial records, and all other files and information related to
      customers, all customer proposals, all open service agreements with
      customers and all uncompleted customer contracts and
      agreements;

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (h)

            	
              to
      the extent legally assignable, all licenses, permits, certificates,
      approvals and authorizations issued by Governmental Entities and necessary
      to own, lease or operate the assets and properties of Seller and to
      conduct Seller’s business as it is presently conducted;
  and

            

    

     

    
      	 	
              (i) 

            	
              all
      real property or interests therein.

            

    

     

    all of
the foregoing being referred to herein as the “Assigned Assets.”

     

    1.2           Assignment
and Assumption of Liabilities. Seller hereby assigns to
Split-Off Subsidiary, and Split-Off Subsidiary hereby assumes and agrees to pay,
honor and discharge all debts, adverse claims, liabilities, judgments and
obligations of Seller as of the Closing, whether accrued, contingent or
otherwise and whether known or unknown, including those arising under any law
(including the common law) or any rule or regulation of any Governmental Entity
or imposed by any court or any arbitrator in a binding arbitration resulting
from, arising out of or relating to the assets, activities, operations, actions
or omissions of Seller, or products manufactured or sold thereby or services
provided thereby, or under contracts, agreements (whether written or oral),
leases, commitments or undertakings thereof, but excluding in all
cases the obligations of Seller under the Transaction Documentation all of the
foregoing being referred to herein as the “Assigned Liabilities”).

     

    The
assignment and assumption of Seller’s assets and liabilities provided for in
this Article
I is
referred to as the “Assignment.”

     

    II.           PURCHASE
AND SALE OF STOCK.

     

    2.1           Purchased
Shares.  Subject to the terms and conditions provided below,
Seller shall sell and transfer to Buyer and Buyer shall purchase from Seller, on
the Closing Date (as defined in Section 3.1), all of the
issued and outstanding shares of capital stock of Split-Off Subsidiary (the
“Shares”).

     

    2.2           Purchase
Price.  The purchase price for the Shares shall be $1 (the
“Purchase Price”).

     

    III.          CLOSING.

     

    3.1           Closing.  The
closing of the transactions contemplated in this Agreement (the “Closing”) shall
take place as soon as practicable following the execution of this Agreement;
provided, however, that
the Closing must occur prior to the closing of the Merger.  The date
on which the Closing occurs shall be referred to herein as the “Closing
Date.”

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    3.2           Transfer
of Shares.  At the Closing, Seller shall deliver to Buyer
certificates representing the Shares purchased by Buyer, duly endorsed to Buyer
or as directed by Buyer, which delivery shall vest Buyer with good and
marketable title to such Shares, free and clear of all liens and
encumbrances.

     

    3.3           Payment
of Purchase Price.  At the Closing, Buyer shall deliver the
Purchase Price to Seller.

     

    3.4           Transfer
of Records.  On or before the Closing, Seller shall transfer to
Split-Off Subsidiary all existing corporate books and records in Seller’s
possession relating to Split-Off Subsidiary and its business, including but not
limited to all agreements, litigation files, real estate files, personnel files
and filings with governmental agencies; provided, however, when any such
documents relate to both Seller and Split-Off Subsidiary, only copies of such
documents need be furnished. On or before the Closing, Buyer and Split-Off
Subsidiary shall transfer to Seller all existing corporate books and records in
the possession of Buyer or Split-Off Subsidiary relating to Seller, including
but not limited to all corporate minute books, stock ledgers, certificates and
corporate seals of Seller and all agreements, litigation files, real property
files, personnel files and filings with governmental agencies; provided, however, when any such
documents relate to both Seller and Split-Off Subsidiary or its business, only
copies of such documents need be furnished.

     

    3.5           Instruments
of Assignment. At the Closing, Seller and Split-Off Subsidiary shall
deliver to each other such instruments providing for the Assignment as the other
may reasonably request (the “Instruments of Assignment”).

     

    IV.          BUYER’S
REPRESENTATIONS AND WARRANTIES.  Buyer represents and warrants
that:

     

    4.1           Capacity
and Enforceability.  Buyer has the legal capacity to execute
and deliver this Agreement and the documents to be executed and delivered by
Buyer at the Closing pursuant to the transactions contemplated hereby. This
Agreement and all such documents constitute valid and binding agreements of
Buyer, enforceable in accordance with their terms.

     

    4.2           Compliance.  Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby by Buyer will result in the breach of any term
or provision of, or constitute a default under, or violate any agreement,
indenture, instrument, order, law or regulation to which Buyer is a party or by
which Buyer is bound.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    4.3           Purchase
for Investment.  Buyer is financially able to bear the economic
risks of acquiring the Shares and the other transactions contemplated hereby,
and has no need for liquidity in their investment in the Shares. Buyer has such
knowledge and experience in financial and business matters in general, and with
respect to businesses of a nature similar to the business of Split-Off
Subsidiary (after giving effect to the Assignment), so as to be capable of
evaluating the merits and risks of, and making an informed business decision
with regard to, the acquisition of the Shares and the other transactions
contemplated hereby. Buyer is an “accredited investor” within the meaning of
Rule 501 of Regulation D under the Securities Act. Buyer is acquiring the Shares
solely for his own account and not with a view to or for resale in connection
with any distribution or public offering thereof, within the meaning of any
applicable securities laws and regulations, unless such distribution or offering
is registered under the Securities Act of 1933, as amended (the “Securities
Act”), or an exemption from such registration is available. Buyer has
(i) received all the information he has deemed necessary to make an
informed decision with respect to the acquisition of the Shares and the other
transactions contemplated hereby; (ii) had an opportunity to make such
investigation as he has desired pertaining to Split-Off Subsidiary (after giving
effect to the Assignment) and the acquisition of an interest therein and the
other transactions contemplated hereby, and to verify the information which is,
and has been, made available to him; and (iii) had the opportunity to ask
questions of Seller concerning Split-Off Subsidiary (after giving effect to the
Assignment). Buyer has received no public solicitation or advertisement with
respect to the offer or sale of the Shares. Buyer realizes that the Shares are
“restricted securities” as that term is defined in Rule 144 promulgated by the
Securities and Exchange Commission under the Securities Act, the resale of the
Shares is restricted by federal and state securities laws and, accordingly, the
Shares must be held indefinitely unless their resale is subsequently registered
under the Securities Act or an exemption from such registration is available for
their resale. Buyer understands that any resale of the Shares by him must be
registered under the Securities Act (and any applicable state securities law) or
be effected in circumstances that, in the opinion of counsel for Split-Off
Subsidiary at the time, create an exemption or otherwise do not require
registration under the Securities Act (or applicable state securities laws).
Buyer acknowledges and consents that certificates now or hereafter issued for
the Shares will bear a legend substantially as follows:

     

    THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER
ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH
REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE CASE OF THE
SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT
AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF
THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE
AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH
OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT
VIOLATE THE SECURITIES LAWS.

     

    Buyer
understands that the Shares are being sold to him pursuant to the exemption from
registration contained in Section 4(1) of the Securities Act and that Seller is
relying upon the representations made herein as one of the bases for claiming
the Section 4(1) exemption.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    4.4           Liabilities.  Following
the Closing, Seller will have no liability for any debts, liabilities or
obligations of Split-Off Subsidiary or its business or activities, and there are
no outstanding guaranties, performance or payment bonds, letters of credit or
other contingent contractual obligations that have been undertaken by Seller
directly or indirectly in relation to Split-Off Subsidiary or its business and
that may survive the Closing.

     

    V.           SELLER’S
AND SUBSIDIARY’S REPRESENTATIONS AND WARRANTIES.  Seller and
Split-Off Subsidiary, jointly and severally, represent and warrant to Buyer
that:

     

    5.1           Organization
and Good Standing.  Each of Seller and Split-Off Subsidiary is
a corporation duly incorporated, validly existing, and in good standing under
the laws of their respective states of incorporation.

     

    5.2           Authority
and Enforceability.  The execution and delivery of this
Agreement and the documents to be executed and delivered at the Closing pursuant
to the transactions contemplated hereby, and performance in accordance with the
terms hereof and thereof, have been duly authorized by Seller and all such
documents constitute valid and binding agreements of Seller enforceable in
accordance with their terms.

     

    5.3           Title to
Shares.  Seller is the sole record and beneficial owner of the
Shares.  At Closing, Seller will have good and marketable title to the
Shares, which Shares are, and at the Closing will be, free and clear of all
options, warrants, pledges, claims, liens and encumbrances, and any restrictions
or limitations prohibiting or restricting transfer to Buyer, except for
restrictions on transfer as contemplated by Section 4.3
above.  The Shares constitute all of the issued and outstanding shares
of capital stock of Split-Off Subsidiary.

     

    5.4           WARN
Act.  Split-Off Subsidiary does not have a sufficient number of
employees to make it subject to the Worker Adjustment and Retraining
Notification Act.

     

    5.5           Representations
in Merger Agreement.  Split-Off Subsidiary represents and
warrants that all of the representations and warranties by Seller, insofar as
they relate to Split-Off Subsidiary, contained in the Merger Agreement are true
and correct.

     

    VI.          OBLIGATIONS
OF BUYER PENDING CLOSING.  Buyer covenants and agrees that
between the date hereof and the Closing:

     

    6.1           Not
Impair Performance.  Buyer shall not take any intentional
action that would cause the conditions upon the obligations of the parties
hereto to effect the transactions contemplated hereby not to be fulfilled,
including, without limitation, taking or causing to be taken any action that
would cause the representations and warranties made by any party herein not to
be true, correct and accurate as of the Closing, or in any way impairing the
ability of Seller to satisfy its obligations as provided in Article VII.

     

    6.2           Assist
Performance.  Buyer shall exercise his reasonable best efforts
to cause to be fulfilled those conditions precedent to Seller’s obligations to
consummate the transactions contemplated hereby which are dependent upon actions
of Buyer and to make and/or obtain any necessary filings and consents in order
to consummate the sale transaction contemplated by this
Agreement.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    VII.        OBLIGATIONS
OF SELLER PENDING CLOSING.  Seller covenants and agrees that
between the date hereof and the Closing:

     

    7.1           Business
as Usual.  Split-Off Subsidiary shall operate and Seller shall
cause Split-Off Subsidiary to operate in accordance with past practices and
shall use best efforts to preserve its goodwill and the goodwill of its
employees, customers and others having business dealings with Split-Off
Subsidiary. Without limiting the generality of the foregoing, from the date of
this Agreement until the Closing Date, Split-Off Subsidiary shall preserve and
maintain Split-Off Subsidiary’s assets in their current operating condition and
repair, ordinary wear and tear excepted. From the date of this Agreement until
the Closing Date, Split-Off Subsidiary shall not (i) amend, terminate or
surrender any material franchise, license, contract or real property interest,
or (ii) sell or dispose of any of its assets except in the ordinary course
of business. Neither Split-Off Subsidiary nor Buyer shall take or omit to take
any action that results in Seller incurring any liability or obligation prior to
or in connection with the Closing.

     

    7.2           Not
Impair Performance.  Seller shall not take any intentional
action that would cause the conditions upon the obligations of the parties
hereto to effect the transactions contemplated hereby not to be fulfilled,
including, without limitation, taking or causing to be taken any action which
would cause the representations and warranties made by any party herein not to
be materially true, correct and accurate as of the Closing, or in any way
impairing the ability of Buyer to satisfy her obligations as provided in Article
VI.

     

    7.3           Assist
Performance.  Seller shall exercise its reasonable best efforts
to cause to be fulfilled those conditions precedent to Buyer’s obligations to
consummate the transactions contemplated hereby which are dependent upon the
actions of Seller and to work with Buyer to make and/or obtain any necessary
filings and consents. Seller shall cause Split-Off Subsidiary to comply with its
obligations under this Agreement.

     

    VIII.       SELLER’S
AND SPLIT-OFF SUBSIDIARY’S CONDITIONS PRECEDENT TO
CLOSING.  The obligations of Seller and Split-Off Subsidiary to
close the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions
precedent (any or all of which may be waived by Seller and 22nd Century in
writing):

     

    8.1           Representations
and Warranties; Performance.  All representations and
warranties of Buyer contained in this Agreement shall have been true and
correct, in all material respects, when made and shall be true and correct, in
all material respects, at and as of the Closing, with the same effect as though
such representations and warranties were made at and as of the Closing. Buyer
shall have performed and complied with all covenants and agreements and
satisfied all conditions, in all material respects, required by this Agreement
to be performed or complied with or satisfied by Buyer at or prior to the
Closing.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    8.2           Additional
Documents.  Buyer shall deliver or cause to be delivered such
additional documents as may be necessary in connection with the consummation of
the transactions contemplated by this Agreement and the performance of their
obligations hereunder.

     

    8.3           Release
by Split-Off Subsidiary.  At the Closing, Split-Off Subsidiary
shall execute and deliver to Seller a general release which in substance and
effect releases Seller and 22nd Century from any and all liabilities and
obligations that Seller and 22nd Century may owe to Split-Off Subsidiary in any
capacity, and from any and all claims that Split-Off Subsidiary may have against
Seller, 22nd Century or their respective managers, members, officers, directors,
stockholders, employees and agents (other than those arising pursuant to this
Agreement or any document delivered in connection with this
Agreement).

     

    IX.         BUYER’S
CONDITIONS PRECEDENT TO CLOSING.  The obligation of Buyer to
close the transactions contemplated by this Agreement is subject to the
satisfaction at or prior to the Closing of each of the following conditions
precedent (any and all of which may be waived by Buyer in writing):

     

    9.1           Representations
and Warranties; Performance.  All representations and
warranties of Seller and Split-Off Subsidiary contained in this Agreement shall
have been true and correct, in all material respects, when made and shall be
true and correct, in all material respects, at and as of the Closing with the
same effect as though such representations and warranties were made at and as of
the Closing. Seller and Split-Off Subsidiary shall have performed and complied
with all covenants and agreements and satisfied all conditions, in all material
respects, required by this Agreement to be performed or complied with or
satisfied by them at or prior to the Closing.

     

    X.          OTHER
AGREEMENTS.

     

    10.1         Expenses.  Each
party hereto shall bear its expenses separately incurred in connection with this
Agreement and with the performance of its obligations hereunder.

     

    10.2         Confidentiality.  Buyer
shall not make any public announcements concerning this transaction without the
prior written agreement of 22nd Century, other than as may be required by
applicable law or judicial process. If for any reason the transactions
contemplated hereby are not consummated, then Buyer shall return any information
received by Buyer from Seller or Split-Off Subsidiary, and Buyer shall cause all
confidential information obtained by Buyer concerning Split-Off Subsidiary and
its business to be treated as such.

     

    10.3         Brokers’
Fees.  In connection with the transaction specifically
contemplated by this Agreement, no party to this Agreement has employed the
services of a broker and each agrees to indemnify the other against all claims
of any third parties for fees and commissions of any brokers claiming a fee or
commission related to the transactions contemplated hereby.

    
      
         

      

      
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    10.4         Access
to Information Post-Closing; Cooperation.

     

    (a)           Following
the Closing, Buyer and Split-Off Subsidiary shall afford to Seller and its
authorized accountants, counsel and other designated representatives, reasonable
access (and including using reasonable efforts to give access to persons or
firms possessing information) and duplicating rights during normal business
hours to allow records, books, contracts, instruments, computer data and other
data and information (collectively, “Information”) within the possession or
control of Buyer or Split-Off Subsidiary insofar as such access is reasonably
required by Seller. Information may be requested under this Section 10.4(a) for, without
limitation, audit, accounting, claims, litigation and tax purposes, as well as
for purposes of fulfilling disclosure and reporting obligations and performing
this Agreement and the transactions contemplated hereby. No files, books or
records of Split-Off Subsidiary existing at the Closing Date shall be destroyed
by Buyer or Split-Off Subsidiary after Closing but prior to the expiration of
any period during which such files, books or records are required to be
maintained and preserved by applicable law without giving Seller at least 30
days’ prior written notice, during which time Seller shall have the right to
examine and to remove any such files, books and records prior to their
destruction.

     

    (b)           Following
the Closing, Seller shall afford to Split-Off Subsidiary and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) duplicating rights during normal business hours to
Information within Seller’s possession or control relating to the business of
Split-Off Subsidiary. Information may be requested under this Section 10.4(b) for, without
limitation, audit, accounting, claims, litigation and tax purposes as well as
for purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby. No files,
books or records of Split-Off Subsidiary existing at the Closing Date shall be
destroyed by Seller after Closing but prior to the expiration of any period
during which such files, books or records are required to be maintained and
preserved by applicable law without giving Buyer at least 30 days prior written
notice, during which time Buyer shall have the right to examine and to remove
any such files, books and records prior to their destruction.

     

    (c)           At
all times following the Closing, Seller, Buyer and Split-Off Subsidiary shall
use their reasonable efforts to make available to the other party on written
request, the current and former officers, directors, employees and agents of
Seller or Split-Off Subsidiary for any of the purposes set forth in Section 10.4(a) or (b) above or as
witnesses to the extent that such persons may reasonably be required in
connection with any legal, administrative or other proceedings in which Seller
or Split-Off Subsidiary may from time to be involved.

     

    (d)           The
party to whom any Information or witnesses are provided under this Section 10.4 shall reimburse
the provider thereof for all out-of-pocket expenses actually and reasonably
incurred in providing such Information or witnesses.

    
      
         

      

      
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    (e)           Seller,
Buyer, Split-Off Subsidiary and their respective employees and agents shall each
hold in strict confidence all Information concerning the other party in their
possession or furnished by the other or the other’s representative pursuant to
this Agreement with the same degree of care as such party utilizes as to such
party’s own confidential information (except to the extent that such Information
is (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from any other source by such party), and each
party shall not release or disclose such Information to any other person, except
such party’s auditors, attorneys, financial advisors, bankers, other consultants
and advisors or persons with whom such party has a valid obligation to disclose
such Information, unless compelled to disclose such Information by judicial or
administrative process or, as advised by its counsel, by other requirements of
law.

     

    (f)           Seller,
Buyer and Split-Off Subsidiary shall each use their best efforts to forward
promptly to the other party all notices, claims, correspondence and other
materials which are received and determined to pertain to the other
party.

     

    10.5         Guarantees,
Surety Bonds and Letter of Credit Obligations.  In the event
that Seller is obligated for any debts, obligations or liabilities of Split-Off
Subsidiary by virtue of any outstanding guarantee, performance or surety bond or
letter of credit provided or arranged by Seller on or prior to the Closing Date,
Buyer and Split-Off Subsidiary shall use their best efforts to cause to be
issued replacements of such bonds, letters of credit and guarantees and to
obtain any amendments, novations, releases and approvals necessary to release
and discharge fully Seller from any liability thereunder following the Closing.
Buyer and Split-Off Subsidiary, jointly and severally, shall be responsible for,
and shall indemnify, hold harmless and defend Seller from and against, any costs
or losses incurred by Seller arising from such bonds, letters of credits and
guarantees and any liabilities arising therefrom and shall reimburse Seller for
any payments that Seller may be required to pay pursuant to enforcement of its
obligations relating to such bonds, letters of credit and
guarantees.

     

    10.6         Filings
and Consents.  Buyer, at his risk, shall determine what, if
any, filings and consents must be made and/or obtained prior to Closing to
consummate the purchase and sale of the Shares. Buyer shall indemnify the Seller
Indemnified Parties (as defined in Section 12.1 below) against
any Losses (as defined in Section 12.1 below) incurred
by such Seller Indemnified Parties by virtue of the failure to make and/or
obtain any such filings or consents. Recognizing that the failure to make and/or
obtain any filings or consents may cause Seller to incur Losses or otherwise
adversely affect Seller, Buyer and Split-Off Subsidiary confirm that the
provisions of this Section 10.6 will not limit
Seller’s right to treat such failure as the failure of a condition precedent to
Seller’s obligation to close pursuant to Article VIII
above.

     

    10.7         Insurance.  Buyer
acknowledges that on the Closing Date, effective as of the Closing, any
insurance coverage and bonds provided by Seller for Split-Off Subsidiary, and
all certificates of insurance evidencing that Split-Off Subsidiary maintains any
required insurance by virtue of insurance provided by Seller, will terminate
with respect to any insured damages resulting from matters occurring subsequent
to Closing.

     

    10.8         Agreements
Regarding Taxes.

     

    (a)           Tax
Sharing Agreements.  Any tax sharing agreement between Seller
and Split-Off Subsidiary is terminated as of the Closing Date and will have no
further effect for any taxable year (whether the current year, a future year or
a past year).

    
      
         

      

      
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    (b)           Returns
for Periods Through the Closing Date.  Seller will include the
income and loss of Split-Off Subsidiary (including any deferred income triggered
into income by Reg. §1.1502-13 and any excess loss accounts taken into income
under Reg. §1.1502-19) on Seller’s consolidated federal income tax returns for
all periods through the Closing Date and pay any federal income taxes
attributable to such income. Seller and Split-Off Subsidiary agree to allocate
income, gain, loss, deductions and credits between the period up to Closing (the
“Pre-Closing Period”) and the period after Closing (the “Post-Closing Period”)
based on a closing of the books of Split-Off Subsidiary, and both Seller and
Split-Off Subsidiary agree not to make an election under Reg.
§1.1502-76(b)(2)(ii) to ratably allocate the year’s items of income, gain, loss,
deduction and credit. Seller, Split-Off Subsidiary and Buyer agrees to report
all transactions not in the ordinary course of business occurring on the Closing
Date after Buyer’s purchase of the Shares on Split-Off Subsidiary’s tax returns
to the extent permitted by Reg. §1.1502-76(b)(1)(ii)(B). Buyer agrees to
indemnify Seller for any additional tax owed by Seller (including tax owned by
Seller due to this indemnification payment) resulting from any transaction
engaged in by Split-Off Subsidiary during the Pre-Closing Period or on the
Closing Date after Buyer’s purchase of the Shares. Split-Off Subsidiary will
furnish tax information to Seller for inclusion in Seller’s consolidated federal
income tax return for the period which includes the Closing Date in accordance
with Split-Off Subsidiary’s past custom and practice.

     

    (c)           Audits.  Seller
will allow Split-Off Subsidiary and its counsel to participate at Split-Off
Subsidiary’s expense in any audits of Seller’s consolidated federal income tax
returns to the extent that such audit raises issues that relate to and increase
the tax liability of Split-Off Subsidiary. Seller shall have the absolute right,
in its sole discretion, to engage professionals and direct the representation of
Seller in connection with any such audit and the resolution thereof, without
receiving the consent of Buyer or Split-Off Subsidiary or any other party acting
on behalf of Buyer or Split-Off Subsidiary, provided that Seller will not settle
any such audit in a manner which would materially adversely affect Split-Off
Subsidiary after the Closing Date unless such settlement would be reasonable in
the case of a person that owned Split-Off Subsidiary both before and after the
Closing Date, or unless the Split-Off Subsidiary consents, such consent not to
be unreasonably withheld. In the event that after Closing any tax authority
informs Buyer or Split-Off Subsidiary of any notice of proposed audit, claim,
assessment or other dispute concerning an amount of taxes which pertain to
Seller, or to Split-Off Subsidiary during the period prior to Closing, Buyer or
Split-Off Subsidiary must promptly notify Seller of the same within 15 calendar
days of the date of the notice from the tax authority. In the event Buyer or
Split-Off Subsidiary does not notify Seller within such 15 day period, Buyer and
Split-Off Subsidiary, jointly and severally, will indemnify Seller for any
incremental interest, penalty or other assessments resulting from the delay in
giving notice. To the extent of any conflict or inconsistency, the provisions of
this Section 10.8 shall control over the provisions of Section 12.2
below.

    
      
         

      

      
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    (d)           Cooperation
on Tax Matters.  Buyer, Seller and Split-Off Subsidiary shall
cooperate fully, as and to the extent reasonably requested by any party, in
connection with the filing of tax returns pursuant to this Section and any
audit, litigation or other proceeding with respect to taxes. Such cooperation
shall include the retention and (upon the other party’s request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Split-Off Subsidiary shall (i) retain all
books and records with respect to tax matters pertinent to Split-Off Subsidiary
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Seller,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and
(ii) give Seller reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if Seller so requests,
Buyer agrees to cause Split-Off Subsidiary to allow Seller to take possession of
such books and records.

     

    10.9         ERISA.  Effective
as of the Closing Date, Split-Off Subsidiary shall terminate its participation
in, and withdraw from, any employee benefit plans sponsored by Seller, and
Seller and Buyer shall cooperate fully in such termination and withdrawal.
Without limitation, Split-Off Subsidiary shall be solely responsible for
(i) all liabilities under those employee benefit plans notwithstanding any
status as an employee benefit plan sponsored by Seller, and (ii) all
liabilities for the payment of vacation pay, severance benefits, and similar
obligations, including, without limitation, amounts which are accrued but unpaid
as of the Closing Date with respect thereto. Buyer and Split-Off Subsidiary
acknowledge that Split-Off Subsidiary is solely responsible for providing
continuation health coverage, as required under the Consolidated Omnibus
Reconciliation Act of 1985, as amended (“COBRA”), to each person, if any,
participating in an employee benefit plan subject to COBRA with respect to such
employee benefit plan as of the Closing Date, including, without limitation, any
person whose employment with Split-Off Subsidiary is terminated after the
Closing Date.

     

    XI.         TERMINATION.  This
Agreement may be terminated at, or at any time prior to, the Closing by mutual
written consent of Seller, Buyer and 22nd Century.

     

    If this
Agreement is terminated as provided herein, it shall become wholly void and of
no further force and effect and there shall be no further liability or
obligation on the part of any party except to pay such expenses as are required
of such party.

     

    XII.        INDEMNIFICATION.

     

    12.1         Indemnification
by Buyer.  Buyer covenants and agrees to indemnify, defend,
protect and hold harmless Seller and 22nd Century, and their respective
officers, directors, employees, stockholders, agents, representatives and
Affiliates (collectively, the “Seller Indemnified Parties”) at all times from
and after the date of this Agreement from and against all losses, liabilities,
damages, claims, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys’ fees and expenses of investigation), whether or not involving a third
party claim and regardless of any negligence of any Seller Indemnified Party
(collectively, “Losses”), incurred by any Seller Indemnified Party as a result
of or arising from (i) any breach of the representations and warranties of
Buyer set forth herein or in certificates delivered in connection herewith,
(ii) any breach or nonfulfillment of any covenant or agreement (including
any other agreement of Buyer to indemnify set forth in this Agreement) on the
part of Buyer under this Agreement, (iii) any Assigned Asset or Assigned
Liability or any other debt, liability or obligation of Split-Off Subsidiary,
(iv) the conduct and operations, whether before or after Closing, of (A)
the business of Seller pertaining to the Assigned Assets and Assigned
Liabilities or (B) the business of Split-Off Subsidiary, (v) claims
asserted, whether before or after Closing, (A) against Split-Off Subsidiary or
(B) pertaining to the Assigned Assets and Assigned Liabilities, or (vi) any
federal or state income tax payable by Seller or 22nd Century and attributable
to the transactions contemplated by this Agreement.  The obligations
of Buyer under this Section, as between Buyer and the Seller Indemnified
Parties, are joint and several.

    
      
         

      

      
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    12.2         Third
Party Claims.

     

    (a)           Defense.  If
any claim or liability (a “Third-Party Claim”) should be asserted against any of
the Seller Indemnified Parties (the “Indemnitee”) by a third party after the
Closing for which Buyer has an indemnification obligation under the terms of
Section 12.1, then the
Indemnitee shall notify Buyer (the “Indemnitors”) within 20 days after the
Third-Party Claim is asserted by a third party (said notification being referred
to as a “Claim Notice”) and give the Indemnitor a reasonable opportunity to take
part in any examination of the books and records of the Indemnitee relating to
such Third-Party Claim and to assume the defense of such Third-Party Claim and
in connection therewith and to conduct any proceedings or negotiations relating
thereto and necessary or appropriate to defend the Indemnitee and/or settle the
Third-Party Claim. The expenses (including reasonable attorneys’ fees) of all
negotiations, proceedings, contests, lawsuits or settlements with respect to any
Third-Party Claim shall be borne by the Indemnitors. If the Indemnitors agree to
assume the defense of any Third-Party Claim in writing within 20 days after the
Claim Notice of such Third-Party Claim has been delivered, through counsel
reasonably satisfactory to Indemnitee, then the Indemnitors shall be entitled to
control the conduct of such defense, and any decision to settle such Third-Party
Claim, and shall be responsible for any expenses of the Indemnitee in connection
with the defense of such Third-Party Claim so long as the Indemnitors continue
such defense until the final resolution of such Third-Party Claim. The
Indemnitors shall be responsible for paying all settlements made or judgments
entered with respect to any Third-Party Claim the defense of which has been
assumed by the Indemnitors.  Except as provided on subsection (b)
below, both the Indemnitor and the Indemnitee must approve any settlement of a
Third-Party Claim. A failure by the Indemnitee to timely give the Claim Notice
shall not excuse Indemnitor from any indemnification liability except only to
the extent that the Indemnitors are materially and adversely prejudiced by such
failure.

     

    (b)           Failure
to Defend.  If the Indemnitors shall not agree to assume the
defense of any Third-Party Claim in writing within 20 days after the Claim
Notice of such Third-Party Claim has been delivered, or shall fail to continue
such defense until the final resolution of such Third-Party Claim, then the
Indemnitee may defend against such Third-Party Claim in such manner as it may
deem appropriate and the Indemnitee may settle such Third-Party Claim, in its
sole discretion, on such terms as it may deem appropriate. The Indemnitors shall
promptly reimburse the Indemnitee for the amount of all settlement payments and
expenses, legal and otherwise, incurred by the Indemnitee in connection with the
defense or settlement of such Third-Party Claim. If no settlement of such
Third-Party Claim is made, then the Indemnitors shall satisfy any judgment
rendered with respect to such Third-Party Claim before the Indemnitee is
required to do so, and pay all expenses, legal or otherwise, incurred by the
Indemnitee in the defense against such Third-Party Claim.

    
      
         

      

      
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    12.3         Non-Third-Party
Claims.  Upon discovery of any claim for which Buyer has an
indemnification obligation under the terms of Section 12.1 which does not
involve a claim by a third party against the Indemnitee, the Indemnitee shall
give prompt notice to Buyer of such claim and, in any case, shall give Buyer
such notice within 30 days of such discovery. A failure by Indemnitee to timely
give the foregoing notice to Buyer shall not excuse Buyer from any
indemnification liability except to the extent that Buyer is materially and
adversely prejudiced by such failure.

     

    12.4         Survival.  Except
as otherwise provided in this Section 12.4, all
representations and warranties made by Buyer, Split-Off Subsidiary and Seller in
connection with this Agreement shall survive the Closing. Anything in this
Agreement to the contrary notwithstanding, the liability of all Indemnitors
under this Article
XII
shall terminate on the third (3rd)
anniversary of the Closing Date, except with respect to (a) liability for
any item as to which, prior to the third (3rd)
anniversary of the Closing Date, any Indemnitee shall have asserted a Claim in
writing, which Claim shall identify its basis with reasonable specificity, in
which case the liability for such Claim shall continue until it shall have been
finally settled, decided or adjudicated, (b) liability of any party for
Losses for which such party has an indemnification obligation, incurred as a
result of such party’s breach of any covenant or agreement to be performed by
such party after the Closing, (c) liability of Buyer for Losses incurred by
a Seller Indemnified Party due to breaches of their representations and
warranties in Article
IV of
this Agreement, and (d) liability of Buyer for Losses arising out of
Third-Party Claims for which Buyer has an indemnification obligation, which
liability shall survive until the statute of limitation applicable to any third
party’s right to assert a Third-Party Claim bars assertion of such
claim.

     

    XIII.      MISCELLANEOUS.

     

    13.1         Definitions.  Capitalized
terms used herein without definition have the meanings ascribed to them in the
Merger Agreement.

     

    13.2        
Notices.  All
notices and communications required or permitted hereunder shall be in writing
and deemed given when received by means of the United States mail, addressed to
the party to be notified, postage prepaid and registered or certified with
return receipt requested, or personal delivery, or overnight courier, as
follows:

    
      
         

      

      
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    (a)          If
to Seller, addressed to:

     

    22nd Century
Group, Inc.

    8201 Main
Street, Suite 6

    Williamsville,
NY 14221

    Attn:
Joseph Pandolfino

    Facsimile:
716.877.3064

    

    With a
copy to (which shall not constitute notice hereunder):

     

    Foley
& Lardner LLP

    3000 L
Street, N.W., Suite 600

    Washington,
DC 20007

    Attention:  Thomas
L. James, Esq.

    Facsimile:  202.672.5399

     

    (b)          If
to Buyer or Split-Off Subsidiary, addressed to:

     

    David
Rector

    1640
Terrace Way

    Walnut
Creek, CA 94597

    Facsimile:  925.930.6338

     

    With a
copy to (which shall not constitute notice hereunder):

     

    Gottbetter
& Partners, LLP

    488
Madison Avenue, 12th
Floor

    New York,
NY 10022

    Attention:  Scott
Rapfogel, Esq.

    Facsimile:  212.400.6901

     

    or to
such other address as any party hereto shall specify pursuant to this Section 13.2 from time to
time.

     

    13.3         Exercise
of Rights and Remedies.  Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.

     

    13.4         Time.  Time
is of the essence with respect to this Agreement.

     

    13.5         Reformation
and Severability.  In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired
thereby.

    
      
         

      

      
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    13.6         Further
Acts and Assurances.  From and after the Closing, Seller, Buyer
and Split-Off Subsidiary agree that each will act in a manner supporting
compliance, including compliance by its Affiliates, with all of its obligations
under this Agreement and, from time to time, shall, at the request of another
party hereto, and without further consideration, cause the execution and
delivery of such other instruments of conveyance, transfer, assignment or
assumption and take such other action or execute such other documents as such
party may reasonably request in order more effectively to convey, transfer to
and vest in Buyer, and to put Split-Off Subsidiary in possession of, all
Assigned Assets and Assigned Liabilities, and to convey, transfer to and vest in
Seller and Buyer, and to them in possession of, the Purchase Price Securities
and the Shares (respectively), and, in the case of any contracts and rights that
cannot be effectively transferred without the consent or approval of other
Persons that is unobtainable, to use its best reasonable efforts to ensure that
Split-Off Subsidiary receives the benefits thereof to the maximum extent
permissible in accordance with applicable law or other applicable restrictions,
and shall perform such other acts which may be reasonably necessary to
effectuate the purposes of this Agreement.

     

    13.7         Entire
Agreement; Amendments.  This Agreement contains the entire
understanding of the parties relating to the subject matter contained herein.
This Agreement cannot be amended or changed except through a written instrument
signed by all of the parties hereto and by 22nd Century. No provisions of this
Agreement or any rights hereunder may be waived by any party without the prior
written consent of 22nd Century.

     

    13.8         Assignment.  No
party may assign his, her or its rights or obligations hereunder, in whole or in
part, without the prior written consent of the other parties.

     

    13.9         Governing
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts or choice of laws thereof.

     

    13.10       Counterparts.  This
Agreement may be executed in one or more counterparts, with the same effect as
if all parties had signed the same document. Each such counterpart shall be an
original, but all such counterparts taken together shall constitute a single
agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page was an original
thereof.

     

    13.11       Section
Headings and Gender.  The Section headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement. All personal pronouns used in this
Agreement shall include the other genders, whether used in the masculine,
feminine or neuter, and the singular shall include the plural, and vice versa, whenever and as
often as may be appropriate.

     

    13.12       Third-Party
Beneficiary.  Each of Seller, Buyer and Split-Off Subsidiary
acknowledges and agrees that this Agreement is entered into for the express
benefit of 22nd Century, and that 22nd Century is relying hereon and on the
consummation of the transactions contemplated by this Agreement in entering into
and performing its obligations under the Merger Agreement, and that 22nd Century
shall be in all respects entitled to the benefit hereof and to enforce this
Agreement as a result of any breach hereof.

    
      
         

      

      
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    13.13       Specific
Performance; Remedies.  Each of Seller, Buyer and Split-Off
Subsidiary acknowledge and agree that 22nd Century would be damaged irreparably
if any provision of this Agreement is not performed in accordance with its
specific terms or is otherwise breached. Accordingly, each of Seller, Buyer and
Split-Off Subsidiary agrees that 22nd Century will be entitled to seek an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and its terms and
provisions in any action instituted in any court of the United States or any
state thereof having jurisdiction over the parties and the matter, subject to
Section 13.9, in addition to
any other remedy to which 22nd Century be entitled, at law or in equity. Except
as expressly provided herein, the rights, obligations and remedies created by
this Agreement are cumulative and are in addition to any other rights,
obligations or remedies otherwise available at law or in equity, and nothing
herein will be considered an election of remedies.

     

    13.14       Submission
to Jurisdiction; Process Agent; No Jury Trial.

     

    (a)           Each
party to the Agreement hereby submits to the jurisdiction of any state or
federal court sitting in the State of New York in any action arising out of or
relating to this Agreement and agrees that all claims in respect of the action
may be heard and determined in any such court. Each party to the Agreement also
agrees not to bring any action arising out of or relating to this Agreement in
any other court. Each party to the Agreement agrees that a final judgment in any
action so brought will be conclusive and may be enforced by action on the
judgment or in any other manner provided at law or in equity. Each party to the
Agreement waives any defense of inconvenient forum to the maintenance of any
action so brought and waives any bond, surety or other security that might be
required of any other party with respect thereto.

     

    (b)           EACH
PARTY TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO JURY TRIAL OF ANY
DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY DEALINGS AMONG THEM
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. The scope of this waiver is
intended to be all encompassing of any and all actions that may be filed in any
court and that relate to the subject matter of the transactions, including
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each party to the Agreement hereby acknowledges that this
waiver is a material inducement to enter into a business relationship and that
they will continue to rely on the waiver in their related future dealings. Each
party to the Agreement further represents and warrants that it has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED ORALLY OR IN WRITING, AND THE WAIVER WILL APPLY TO ANY
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of commencement of
any action, this Agreement may be filed as a written consent to trial by a
court.

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    13.15       Construction.  The
parties hereto have participated jointly in the negotiation and drafting of this
Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof will arise favoring or disfavoring any party
because of the authorship of any provision of this Agreement. Any reference to
any federal, state, local or foreign law will be deemed also to refer to law as
amended and all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words “include,” “includes,” and “including” will be
deemed to be followed by “without limitation.”  The words “this
Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The parties hereto intend that each representation,
warranty and covenant contained herein will have independent significance. If
any party hereto has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which that party has not breached will not
detract from or mitigate the fact that such party is in breach of the first
representation, warranty or covenant.

     

    [Signature
page follows this page.]

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the
parties hereto have duly executed this Split-Off Agreement as of the day and
year first above written.

     

    
      
        
          
            
              
                
                  
                    
                      	 	
                              22ND
      CENTURY GROUP, INC.

                            
	 	 
      	 
      
	 	
                              By: 

                            	
                              /s/ David Rector

                            
	 	Name:  
      David
      Rector
	 	Title:    
      President
	 	 
      	 
      
	 	
                              TOUCHSTONE
      SPLIT CORP.

                            
	 	 
      	 
      
	 	
                              By: 

                            	
                              /s/ David Rector

                            
	 	Name:  
      David
      Rector
	 	Title:    
      President
	 	 
      	 
      
	 	
                              BUYER

                            
	 	 
      	 
      
	 	
                              /s/ David Rector

                            
	 	
                              David
      Rector

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