Document:

ALGODON WINES & LUXURY DEVELOPMENT
GROUP, INC.

 

AND

 

DPEC CAPITAL, INC.

 

WARRANT AGREEMENT

 

Dated as of October 1, 2012

 

    	 

    	 

    

 

WARRANT AGREEMENT
dated as of October 1, 2012 between ALGODON WINES & LUXURY DEVELOPMENT GROUP, INC., a Delaware corporation (the
“Company”), and DPEC CAPITAL, INC. (the “Placement Agent”) and its assignees or designees
(each hereinafter sometimes referred to as a “Holder” or the “Holders”).

 

WITNESSETH:

 

WHEREAS,
the Placement Agent has agreed to act as the placement agent in connection with the Company’s proposed private placement
up to 7,500,000 shares of Series A Preferred Stock of the Company, $.01 par value per share (the “Preferred Shares”)
(plus up to an additional 2,250,000 shares), at an offering price of $2.30 per share (the “Offering”).

 

WHEREAS,
the Company has agreed to issue warrants to the Placement Agent (the “Warrants”) to purchase ten percent (10%) of the
aggregate number of Preferred Shares sold in the Offering, or up to 975,000 shares of Preferred Shares.

 

WHEREAS,
as the Offering is being sold on a “best efforts” basis,” the Offering may have multiple closings (each, a “Closing”).

 

WHEREAS,
the Warrants will be issued on the date of each Closing of the Offering by the Company to the Placement Agent in consideration
for, and as part of, the Placement Agent’s compensation for serving as Placement Agent.

 

WHEREAS,
the terms and conditions of the Warrants in which the Warrants will

be issued are set forth in this Agreement.

 

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

 

    	 

    	 

    

 

1.          Grant.
The Company agrees to grant to the Placement Agent Warrants to purchase such number of shares which are equal to ten percent (10%)
of the aggregate number of shares of Preferred Shares sold on such Closing Date at an initial exercise price of $2.30 per share
(the “Exercise Price”). The Warrants shall be exercisable at any time from the date of grant (which shall be the date
of each Closing (each, a “Closing Date”) until 5:30 p.m., New York time, on the date which is five years from each
Closing Date. The number of shares subject to the Warrants granted hereunder and the Exercise Price shall be subject to adjustment
as provided in Section 10 hereof.

 

In the event that the
underlying Preferred Shares are converted in accordance with their terms to common stock, such conversion shall, with respect to
all unexercised Warrants issued hereunder, effect a conversion of all such Warrants into warrants to purchase the Company’s
common stock on economically equivalent terms.

 

2.          Warrant
Certificates. The warrant certificates (the “Warrant Certificates”) delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this Agreement.

 

3.          Registration
of Warrants. The Warrants shall be numbered and shall be registered on the books of the Company when issued.

 

4.          Exercise
of Warrants.

 

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4.1        Method
of Exercise. The Warrants initially are exercisable at the Exercise Price (subject to adjustment as provided in Section 10
hereof) as set forth in Section 7 hereof payable by certified or official bank check in New York Clearing House funds. Upon surrender
of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price
for the shares of Preferred Shares purchased, at the Company’s principal offices (presently located at 135 Fifth Avenue,
10th Floor, New York, New York 10010), the Holder shall be entitled to receive a certificate or certificates for the
shares of Preferred Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option
of the Holder thereof, in whole or in part (but not as to fractional shares of Preferred Shares underlying the Warrants). In the
case of the purchase of less than all of the shares of Preferred Shares purchasable under any Warrant Certificate, the Company
shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like
tenor for the balance of the shares of Preferred Shares purchasable thereunder.

 

4.2        Exercise
by Surrender of Warrants. In addition to the method of payment set forth in Section 4.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full
or in part by surrendering the Warrant Certificate in the manner specified in Section 4.1 in exchange for the number of shares
of Preferred Shares equal to the product of (x) the number of shares of Preferred Shares as to which the Warrants are being exercised,
multiplied by (y) a fraction, the numerator of which is the Market Price (as hereinafter defined) of the shares of Preferred Shares
minus the Exercise Price of the shares of Preferred Shares and the denominator of which is the Market Price per share of Preferred
Shares. As used in this Agreement, the phrase “Market Price” at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three
(3) trading days, in either case as officially reported by the principal securities exchange on which the Preferred Shares is listed
or admitted to trading, or, if the Preferred Shares is not listed or admitted to trading on any exchange, the average closing sale
price as furnished by the NASD through The NASDAQ Stock Market, Inc. (“NASDAQ”) or similar organization if NASDAQ is
no longer reporting such information, or if the Preferred Shares is not quoted on NASDAQ, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information available to it. Solely for the purposes of this Section
4.2, Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 15 hereof (“Notice Date”) or (ii) as the average of the Market Price for each
of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price.

 

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5.          Issuance
of Certificates. Upon the exercise of any Warrants, the issuance of certificates for shares of Preferred Shares, properties
or rights underlying such Warrants shall be made forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax, other than income taxes, which may be payable in respect of
the issuance thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been
paid.

 

The Warrant Certificates
and the certificates representing the shares of Preferred Shares or other securities, property or rights issued upon exercise of
any Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the then present President or any
Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of
the then present Secretary or any Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution
by the Company upon initial issuance, division, exchange, substitution or transfer.

 

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6.          Transfer
of Warrants. The Warrants shall be transferable only on the books of the Company maintained at its principal office, where
its principal office may then be located, upon delivery of the Warrant Certificates representing such Warrants duly endorsed by
the Holder or by its duly authorized attorney or representative accompanied by proper evidence of succession, assignment or authority
to transfer. Upon any registration transfer, the Company shall execute and deliver the new Warrant Certificates to the person entitled
thereto.

 

7.          Exercise
Price and Number of Securities. Except as otherwise provided in Section 10 hereof, each Warrant is exercisable to purchase
one share of Preferred Shares at an initial exercise price equal to the Exercise Price. The Exercise Price and the number of shares
of Preferred Shares for which the Warrant may be exercised shall be the price and the number of shares of Preferred Shares which
shall result from time to time from any and all adjustments in accordance with the provisions of Section 10 hereof.

 

8.          Registration
Rights.

 

8.1        Registration
Under the Securities Act of 1933. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that
the Warrants are being acquired as an investment and not with a view to the distribution thereof. Each Warrant Certificate and
each certificate representing shares of Preferred Shares and any of the other securities issuable upon exercise of the Warrant
(collectively, the “Warrant Shares”) shall bear the following legend unless (i) the Warrants or Warrant Shares are
distributed to the public or sold to the underwriters for distribution to the public pursuant to this Section 8 or otherwise pursuant
to a registration statement filed under the Securities Act of 1933, as amended (the “Act”), or (ii) the Company has
received an opinion of counsel, in form and substance reasonably satisfactory to counsel for the Company, that such legend is unnecessary
for any such certificate:

 

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THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

 

THE TRANSFER OR EXCHANGE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT BETWEEN THE ISSUER AND DPEC
CAPITAL, INC. DATED AS OF OCTOBER 1, 2012. 

 

8.2        Piggyback
Registration. If, at any time commencing after the date hereof and expiring five (5) years thereafter, the Company proposes
to register any of its securities under the Act (other than in connection with an initial public offering of shares of Preferred
Shares of the Company or in connection with a merger or pursuant to Form S-4 or Form S-8 or successor form thereto) it will give
written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders
of the Warrant Shares of its intention to do so. If any of the Holders of the Warrant Shares notify the Company within twenty (20)
days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement,
the Company shall afford such Holders of the Warrant Shares the opportunity to have any such Warrant Shares registered under such
registration statement. In the event that such registration relates to an underwritten public offering and the managing underwriter
for said offering advises the Company in writing that in its opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise
adversely affecting the offering, the Company will include in such registration (a) first, the securities the Company proposes
to sell, (b) second, the securities held by the entities that made the demand for registration, (c) third, the Warrant
Shares requested to be included in such registration which in the opinion of such underwriter can be sold, pro rata
among the Holders of Warrant Shares on the basis of the number of Warrant Shares requested to be registered by such Holders, and
(d) fourth, other securities requested to be included in such registration.

 

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Notwithstanding the provisions
of this Section 8.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section
8.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof.

 

8.3        Covenants
of the Company With Respect to Registration. In connection with any registration under Section 8.2 hereof, the Company covenants
and agrees as follows:

 

(a) The Company shall
pay all costs (excluding fees and expenses of Holder(s)’ counsel and any underwriting or selling commissions), fees and expenses
in connection with all registration statements filed pursuant to Section 8.2 hereof including, without limitation, the Company’s
legal and accounting fees, printing expenses, blue sky fees and expenses.

 

    	-7-

    	 

    

 

(b) The Company will
take all necessary action which may be required in qualifying or registering the Warrant Shares included in a registration statement
for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided
that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.

 

(c) The Company shall
indemnify the Holder(s) of the Warrant Shares to be sold pursuant to any registration statement and each person, if any, who controls
such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement.

 

(d) Nothing contained
in this Agreement shall be construed as requiring the Holder(s) to exercise the Warrants prior to the initial filing of any registration
statement or the effectiveness thereof.

 

(e) The Company shall
furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriters, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement),
and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration
relates to an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the Company’s financial statements included in such registration
statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters
in underwritten public offerings of securities.

    	-8-

    	 

    

 

(f) The Company shall
as soon as practicable after the effective date of any registration statement filed pursuant to this Section 8, and in any event
within 15 months thereafter, make “generally available to its security holders” (within the meaning of Rule 158 under
the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the registration statement.

 

(g) For purposes of
this Agreement, the term “Majority” in reference to the Warrants or Warrant Shares shall mean in excess of fifty percent
(50%) of the then outstanding Warrants or Warrant Shares that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction
therewith or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act.

 

9.          Obligations
of Holders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 8 hereof
that each of the selling Holders shall:

 

(a) Furnish to the
Company such information regarding themselves, the Warrant Shares held by them, the intended method of sale or other disposition
of such securities, the identity of and compensation to be paid to any underwriters proposed to be employed in connection with
such sale or other disposition, and such other information as may reasonably be required to effect the registration of their Warrant
Shares.

 

    	-9-

    	 

    

 

(b) Notify the Company,
at any time when a prospectus relating to the Warrant Shares covered by a registration statement is required to be delivered under
the Act, of the happening of any event with respect to such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

 

(c) The Holder(s) of
the Warrants and/or Warrant Shares to be sold pursuant to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they
may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration statement; provided, however, that the indemnity of
such Holder(s) shall be limited to the net proceeds received by such Holder(s) in the sale of securities pursuant to the respective
registration statement.

 

10.        Adjustments
to Exercise Price and Number of Securities. The Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of any Warrant shall be subject to adjustment from time to time only upon the happening of the following
events:

 

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(a)          Stock
Dividend, Subdivision and Combination. In case the Company shall (i) declare a dividend or make a distribution on its outstanding
shares of Preferred Shares in shares of Preferred Shares, (ii) subdivide or reclassify its outstanding shares of Preferred Shares
into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Preferred Shares into a smaller number
of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying
the Exercise Price by a fraction, the denominator of which shall be the number of shares of Preferred Shares outstanding after
giving effect to such action, and the numerator of which shall be the number of shares of Preferred Shares outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.

 

(b)          Adjustment
in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 10, the number
of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number
of whole shares of Preferred Shares by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product
so obtained by the adjusted Exercise Price.

 

(c)          Definition
of Preferred Shares. For the purpose of this Section 10, the term “Preferred Shares” shall mean (i) the class of
stock designated as Series A Preferred Shares as approved by the Issuer’s Board of Directors as of the date hereof, or (ii)
any other class of stock resulting from successive changes or reclassifications of such Preferred Shares consisting solely of changes
in par value, or from par value to no par value, or from no par value to par value.

 

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(d)          Merger
or Consolidation. In case of any consolidation of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or change of the outstanding Preferred Shares), the
corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of
such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger by a holder of the number of shares of Preferred Shares for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall
provide for adjustments which shall be identical to the adjustments provided in Section 10. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.

 

(e)          No
Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than two cents ($.02) per share; provided, however, that in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to at least two cents ($.02) per Warrant.

 

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11.        Exchange
and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable, without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated
by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of the Warrant, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor,
in lieu thereof.

 

12.        Elimination
of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Preferred
Shares upon the exercise of any Warrant, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Preferred Shares or other securities, properties or rights.

    	-13-

    	 

    

 

13.        Reservation
and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Preferred
Shares, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Preferred Shares or other
securities, properties or rights as shall be issuable upon the exercise thereof. Every transfer agent (“Transfer Agent”)
for the Preferred Shares and other securities of the Company issuable upon the exercise of the Warrants will be irrevocably authorized
and directed at all times to reserve such number of authorized shares of Preferred Shares and other securities as shall be requisite
for such purpose. The Company will keep a copy of this Agreement on file with every Transfer Agent for the Preferred Shares and
other securities of the Company issuable upon the exercise of the Warrants. The Company will supply every such Transfer Agent with
duly executed stock and other certificates, as appropriate, for such purpose. The Company covenants and agrees that, upon exercise
of the Warrants and payment of the Exercise Price therefor, all shares of Preferred Shares and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder.
As long as any Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Preferred Shares issuable
upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the
Preferred Shares issued to the public in connection herewith may then be listed and/or quoted on The NASDAQ Stock Market.

 

14.        No
Rights as Stockholder; Notices to Holders in Certain Circumstances. Nothing contained in this Agreement shall be construed
as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings
of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company.
If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur:

 

(a)the
Company shall take a record of the holders of its shares of Preferred Shares for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or

 

    	-14-

    	 

    

 

(b)the
Company shall offer to all the holders of its Preferred Shares any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor;
or

 

(c)a dissolution,
liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed;

 

then in any one or more of said events,
the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible
or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or
sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants,
or any proposed dissolution, liquidation, winding up or sale.

 

15.        Notices.
All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made
and sent when delivered, or mailed by registered or certified mail, return receipt requested:

 

(a)           if
to the registered Holder(s) of the Warrants, to the addresses of such Holder as shown on the books of the Company; or

 

(b)           if
to the Company, to the address set forth in Section 4 hereof or to such other address as the Company may designate by notice to
the Holders.

 

16.          Supplements;
Amendments; Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought. The Company and the Placement Agent may from time to time supplement or amend this
Agreement without the approval of any holders of Warrant Certificates (other than the Placement Agent) in order to cure any ambiguity,
to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder which the Company and the Placement Agent may deem
necessary or desirable and which the Company and the Placement Agent deem shall not adversely affect the interests of the Holders.

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17.        Successors.
All of the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Placement
Agent and their respective successors and assigns hereunder.

 

18.        Survival
of Representations and Warranties. All statements in any schedule, exhibit or certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions contemplated by this Agreement, shall be deemed to be
representations and warranties hereunder. Notwithstanding any investigations made by or on behalf of the parties to this Agreement,
all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive.

 

19.        Governing
Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.

 

20.        Severability.
If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.

 

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21.        Captions.
The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they
be construed as, a part of this Agreement and shall be given no substantive effect.

 

22.        Benefits
of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company
and the Placement Agent and any other registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and
the Placement Agent and any other Holder(s) of the Warrant Certificates or Warrant Shares.

 

23.        Counterparts.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the same instrument.

 

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IN WITNESS HEREOF,
the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

	ATTEST:	 	ALGODON WINES & LUXURY DEVELOPMENT GROUP, INC.
	 	 	 	 
	/s/ Keith Fasano	 	By: 	/s/ Scott L. Mathis
	Director
of Compliance	 	Name: 	Scott L. Mathis
	  	 	Title:	Chief Executive Officer
	 	 	 	 
	 	 	DPEC CAPITAL, INC.
	 	 	 	 
	 	 	By:	/s/ Tim Holderbaum
	 	 	Name:	Tim Holderbaum
	 	 	Title:	Financial
and Operations Principal

 

    	-18-

    	 

    

 

WARRANT CERTIFICATE

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO
THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.

 

THE TRANSFER OR EXCHANGE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT DATED AS OF OCTOBER 1, 2012 BETWEEN THE
ISSUER AND DPEC CAPITAL, INC.

 

EXERCISABLE ON OR BEFORE

5:30 P.M., NEW YORK TIME, March 31, 2018

 

Warrant No. ___

 

____________ Shares of Preferred Shares

 

This Warrant Certificate
certifies that DPEC Capital, Inc., or registered assigns, is the registered holder of Warrants to purchase initially, at any time
from March 31, 2013 until 5:30 p.m., New York time on March 31, 2018 (“Expiration Date”), up to ____,000 shares of
fully-paid and non-assessable Series A Preferred Shares, $.01 par value per share (the “Preferred Shares”) of ALGODON
WINES & LUXURY DEVELOPMENT GROUP, INC., a Delaware corporation (the “Company”), at the initial exercise price,
subject to adjustment in certain events, of $2.30 per share of Preferred Shares (the “Exercise Price”) upon surrender
of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions
set forth herein and in the Warrant Agreement dated as of October 1, 2012 between the Company and DPEC Capital, Inc. (the “Warrant
Agreement”). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds
payable to the order of the Company.

 

No Warrant may be exercised
after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto,
shall thereafter be void.

 

The Warrants evidenced
by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description
of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words “holders”
or “holder” meaning the registered holders or registered holder) of the Warrants.

 

    	-19-

    	 

    

 

The Warrant Agreement
provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company’s securities
issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable
upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall
not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement.

 

Upon due presentment
for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except
for any tax or other governmental charge imposed in connection with such transfer.

 

Upon the exercise of
less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant
Certificate representing such numbered unexercised Warrants.

 

The Company may deem
and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

All terms used in this
Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement.

 

This Warrant Certificate
does not entitle any holder thereof to any of the rights of a shareholder of the Company.

 

IN WITNESS WHEREOF,
the Company has caused this Warrant Certificate to be duly executed under its corporate seal.

 

	Dated: ______________, 2012	 	 
	 	 	 
	ATTEST:	 	ALGODON WINES & LUXURY DEVELOPMENT GROUP, INC.
	 	 	 
	 	 	By:______________________________
	Secretary	 	Name: Scott L. Mathis
	 	 	Title: Chairman

 

    	-20-EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is
made as of May 12, 2014, between 22nd Century Group, Inc., a Nevada corporation (the “Company”), and Thomas L. James
(the “Executive”).

 

1.           EMPLOYMENT
DUTIES AND RESPONSIBILITIES

 

1.1           Position
and Title.  The Company hereby agrees to employ the Executive in the position described on Addendum A attached hereto
and the Executive hereby accepts such position and agrees to serve the Company in such capacity until this Agreement is terminated
by one of the parties in accordance with the terms set forth in Section 4 below. Notwithstanding anything contained in this Agreement
to the contrary, the Company and the Executive agree that the Executive shall join the Company on a full-time basis only after
the Executive has satisfied his required notice and wind-down period with his existing employer.

 

1.2           Company
Policies and Procedures.  The Executive agrees to abide by all applicable policies and procedures of the Company.

 

1.3           Attention.  During
the term of this Agreement, excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees (i)
to devote the primary portion of his productive time, ability and attention to the business of the Company during normal working
hours, and (ii) not to acquire, hold or retain, whether directly or indirectly, more than a two percent (2%) interest in any business
competing with or similar in nature to the business of the Company or any of its Affiliates (as such term is defined below).  For
purposes of this Agreement, “Affiliates” shall mean any person or entity that, directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under the common control of, the Company.

 

2.           TERM
OF EMPLOYMENT

 

2.1           Effective
Date.  The Effective Date of this Agreement shall be the date first set forth above.

 

2.2.           Term.  The
initial term of this Agreement shall be set forth on Addendum A hereto, and the Company agrees to employ the Executive and the
Executive hereby agrees to serve the Company until this Agreement is terminated by one of the parties in accordance with the terms
set forth in Section 4 below.

 

3.           COMPENSATION

 

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

 

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

 

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

 

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

 

    	1

    	 

    

 

3.5           Benefits.  Executive
shall receive such health (family coverage), dental (family coverage), retirement, paid time-off and other fringe benefits as are
provided to similarly situated executives of the Company.  Such benefits may be amended, from time to time, so that they
are at least commensurate with those provided to other senior corporate officers of the Company.  Executive shall also
receive other benefits as may be set forth on Addendum A hereto.

 

3.6           Equipment.  Company
will provide Executive with use of, or monthly reimbursement for, a laptop computer, cellular phone, or other equipment that the
Company may deem necessary or helpful for Executive to conduct business and/or remain in contact with the office(s) or employees
while Executive is away from the office.

 

4.           TERMINATION
OF EMPLOYMENT

 

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

 

4.1           Termination
By Executive Without Good Reason.  The Executive may terminate employment at any time during the course of this Agreement
by giving thirty (30) days' notice in writing to the Chairman or President of the Company.  During the notice period,
Executive must fulfill all Executive’s duties and responsibilities set forth above and use Executive’s best efforts
to train and support Executive’s replacement, if any.  Failure to comply with this requirement may result in Termination
for Cause described below, but otherwise Executive's salary and benefits will remain unchanged during the 30-day notification period.  The
Company, at its option, may relieve Executive of all Executive’s duties and responsibilities at any time during the notice
period, but will, in such instance, be required to continue to maintain Executive’s pay and benefits through the remainder
of the 30 day notice period.

 

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

 

If Executive is terminated under this section, within thirty
(30) days following the conclusion of the notice period, the Company shall provide a severance benefit to Executive as
follows: Executive will continue to receive Executive’s Base Salary then in effect, paid in accordance with standard
payroll practices, until the later of either (i) three (3) years following termination or (ii) the expiration of the initial term
of the employment period as set forth in Addendum A hereto.  Under this section, Executive shall not be entitled to receive
any portion of Executive’s target bonus for the period in which the termination occurs but shall receive any accrued bonus
for any performance period fully completed prior to the date of termination.

 

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

 

In the event of a termination by the Company
for Cause, Executive shall be entitled to receive only that Base Salary earned on or before the Executive’s last day of active
service and other post-employment benefits required by law or under Company policy.  Under this section, Executive shall
not be entitled to receive any portion of Executive’s target bonus for the period in which the termination occurs but shall
receive any accrued bonus for any performance period fully completed prior to the date of termination. 

 

    	2

    	 

    

 

	 	4.4	Termination by the Executive For Good Reason.

 

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

 

b.           As
used herein, the term "Good Reason" means the occurrence of any of the following, without the prior written consent of
the Executive: (i) failure of the Company to pay Executive’s compensation in accordance with this Agreement; (ii) a change
in the location of the Executive's principal place of employment to a location more than twenty-five (25) miles from Executive’s
current worksite; (iii) a change in job title and/or duties of Executive without the consent of Executive; and/or (iv) a change
in the person to whom the Executive reports within the Company; provided, however, that the Executive shall not be deemed to have
Good Reason pursuant to this provision unless the Executive gives the Company written notice that the specified conduct or event
has occurred and making specific reference to this Section 4.4 and the Company fails to cure such conduct or event within thirty
(30) days of receipt of such notice.

 

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

 

4.5           Termination
By Death Or Disability.  The Executive’s employment and rights to compensation under this Employment Agreement
shall terminate if the Executive is unable to perform the duties of Executive’s position due to death or disability; and
the Executive, or the Executive’s heirs, beneficiaries, successors, or assigns, shall be entitled only to receive any compensation
fully earned prior to the date of the Executive’s last day of active employment prior to such death or incapacitation due
to disability and shall not be entitled to any other compensation or benefits, except: (a) to the extent specifically provided
in this Employment Agreement; (b) to the extent required by law; or (c) to the extent that such benefit plans or policies under
which Executive is covered provide a benefit to the Executive or to the Executive’s heirs, beneficiaries, successors, or
assigns.  For purpose of this agreement, “disability” shall be defined as the Executive’s failure,
due to a mental or physical condition, to perform the essential functions of Executive’s position for more than 120 days
in any 360 day period.

 

4.6           Change
In Control and Termination Provisions.

 

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

 

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

 

(ii) a diminution of the Executive’s
responsibilities, as compared to the Executive’s responsibilities immediately prior to the Change in Control, including but
not limited to a change in the job title, duties and/or person to whom the Executive reports within the Company,

 

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

 

(iv) any failure to provide the
Executive with benefits at least as favorable as those enjoyed by similarly-situated senior corporate officers of the Company after
the Change in Control or as granted to the Executive by this Agreement,

 

(v) any relocation of the Executive’s
principal site of employment to a location more than twenty-five (25) miles from the Executive’s principal place of employment
as of the date immediately prior to the Change in Control, or

 

    	3

    	 

    

 

(vi) any material breach of this
Agreement by the Company;

 

then, at the option of the Executive,
exercisable by the Executive within ninety (90) days after the occurrence of any of the foregoing events, the Executive may resign
his employment with the Company (or, if involuntarily terminated, give notice of his intention to collect benefits under this Agreement)
by delivering a notice in writing (the “Notice of Termination”) to the Company, and the Executive shall be entitled
to receive the greater of either (A) the Base Salary which remains unpaid for the remainder of the initial term of this Agreement
as set forth in Addendum A hereto or (B) the Base Salary for a period of three (3) years following such Notice of Termination.  In
addition, the Company shall pay to the Executive any bonus and/or additional compensation that would have been payable for the
year in which such termination occurs.  In addition, the Company shall, for eighteen (18) months following such termination,
(i) reimburse the Executive for his reasonable costs of medical and dental coverage as provided under COBRA, (ii) reimburse the
Executive for his reasonable costs incurred in maintaining his life and disability insurance coverage, and (iii) reimburse the
Executive for all other benefits granted to the Executive in this Agreement, each at levels substantially equivalent to those provided
by the Company to the Executive immediately prior to the termination of his employment (including such other benefits as shall
be provided to senior corporate officers of the Company in lieu of such benefits from time to time during the eighteen (18) month
payment period), on the same basis, including the Company’s payment of premiums and contributions, as such benefits are provided
to other senior corporate officers of the Company or were provided to the Executive prior to the termination.  Reimbursements
of expenses which provide for nonqualified deferred compensation under Internal Revenue Code Section 409A, if any, shall not be
paid before six (6) months and one day after the Executive’s date of termination of employment.  The amount of
expenses eligible for reimbursement, or in-kind benefits provided, during a taxable year of the Executive may not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided in any other taxable year.  Reimbursements shall be paid
on or before April 1st of the Executive’s taxable year immediately following the taxable year in which the expense was incurred.  The
right to reimbursement hereunder is not subject to liquidation or exchange for another benefit.

 

In addition, for the period commencing from the date
of the Notice of Termination and ending on December 31 of the second calendar year following the calendar year in which the Executive’s
date of termination of employment occurs, the Executive will be provided with outplacement services that are mutually acceptable
to the Company and the Executive.  Rights and benefits of the Executive or transferee under the benefit plans and programs
of the Company shall be determined in accordance with the provisions of such plans and programs. 

 

Notwithstanding the foregoing, in the event that the
death of the Executive occurs within six (6) months following the date of termination of employment, the Company shall pay to the
Executive’s estate any unpaid portion of the amounts due to be paid to the Executive pursuant to this Section 4.6 within
forty-five (45) days following receipt by the Company of notice of Executive’s death.

 

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

 

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

 

(i)           a
person, as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (other than the Executive or a group including
the Executive), either (A) acquires forty percent (40%) or more of the combined voting power of the outstanding securities of the
Company or any entity which directly or indirectly controls the Company, which securities have the right to vote in elections of
directors of the Company or any entity which directly or indirectly controls the Company, and such acquisition shall not have been
approved within sixty (60) days following such acquisition by a majority of the Continuing Directors (as hereinafter defined) then
in office, or (B) acquires fifty percent (50%) or more of the combined voting power of the outstanding securities of the Company
or any entity which directly or indirectly controls the Company, which securities have the right to vote in elections of directors
of the Company or any entity which directly or indirectly controls the Company; or

 

    	4

    	 

    

 

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

 

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

 

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

 

For purposes of this Agreement,
the term “Continuing Director” shall mean a member of the Board of Directors of the Company or any entity which directly
or indirectly controls the Company who was a member of such Board of Directors on the date hereof, was appointed or elected to
serve as a member of such Board of Directors within twenty (20) days following the date hereof, or who subsequently became a member
of the Board of Directors of the Company or any entity which directly or indirectly controls the Company and whose election, or
nomination for election, was approved by a vote of at least two-thirds (2/3) of the Continuing Directors then in office.

 

5.           CONFIDENTIALITY
AND NONDISCLOSURE

 

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

 

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

 

    	5

    	 

    

 

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

 

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

 

6.           RESTRICTIVE
COVENANTS

 

Executive acknowledges that Executive’s
services to be rendered hereunder are of a special and unusual character, which have a unique value to the Company and that the
Company will be investing time, effort, and expense in Executive.  In view of the unique value to the Company of the
services of the Executive for which the Company has contracted hereunder, the investments by the Company in the Executive, and
as a material inducement for the Company to enter into this Agreement and to pay to the Executive the compensation provided hereunder
(including, if applicable, the severance payments referred to in Section 4 above), Executive covenants and agrees as follows:

 

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

 

a.           Definition
of “Same or Substantially Similar Services.”  As used herein, “Same or Substantially Similar Services”
means services, including without limitation the provision of goods and/or services that are identical or substantially similar,
in whole or in part, to goods and/or services (i) which were provided by Executive while Executive was employed with the Company;
(ii) which were provided by employees or contractors whom Executive was directly or indirectly managing while Executive was
employed with the Company; or (iii) which were the subject of proposals or contracts with which Executive was involved while employed
with the Company.

 

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

 

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

 

d.           Definition
of “Government Agency.” As used herein, “Government Agency” shall be limited to the division,
department, operating unit, group, or other appropriate sub-entity of an agency to which the Executive provided services while
employed with the Company or with whom Executive interacted on behalf of the Company at any time during Executive’s employment
with Company; provided, however, that the United States Securities and Exchange Commission (SEC”) shall be excluded from
this definition of Government Agency so that nothing shall restrict the Executive from providing legal and business services to
third-party persons and entities in their activities with the SEC at any time after the termination of the Executive’s employment
with the Company, as long as such third-parties are not Customers or Prospective Customers of the Company.

 

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

 

f.           Definition
of  “Intellectual Property.”  As used herein, “Intellectual Property” shall
mean any and all inventions, developments, formulas, discoveries, concepts, trademarks, improvements, designs, innovations, data,
processes, software, works of authorship, know-how, plants, plant varieties (whether registered for plant variety protection or
not), tobacco products, smoking cessation aids, drugs and ideas (whether patentable or not) directly or indirectly related to the
Company (i) conceived or made by Executive, either alone or with others, while employed by the Company, (ii) conceived or made
by Executive, either alone or with others, with the use of Confidential Information, and/or (iii) conceived or made by Executive,
either alone or with others, within one (1) year after the Executive’s last day of active service unless conclusively proven
by Executive to have been first conceived or made by Executive after Executive’s last day of active service without reference
to any Confidential Information.

 

6.2         Covenants

 

a.           Non-Competition
with Customers, Prospective Customers and Tobacco Industry.  During Executive's employment by the Company and for
a period of two (2) years after Executive ceases to be employed by the Company, then Executive will not (except on behalf of the
Company), directly or indirectly, as either an employee, contractor, or consultant, whether personally or through another entity,
provide or offer to provide any goods or services to any entity or any affiliate of such entity engaged in the United States or
Canada in the making, offering, marketing, distributing and/or selling of products made from or related to the tobacco (Nicotiana)
plant or cannabis plant (e.g., Cannabis indica, Cannabis sativa, etc.) and/or providing or offering to provide the
Same or Substantially Similar Services to any Customer or Prospective Customer.  Executive specifically recognizes and
agrees that the restrictions set forth in this subsection are reasonable.

 

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

 

c.           Non-Solicitation
and Non-Hiring of Employees.  Executive agrees that, for the term of Executive’s employment and for a period
of two (2) years after Executive ceases to be employed by the Company, the Executive shall not, directly or indirectly, as an employee,
consultant, contractor, principal, agent, or owner, on Executive’s own behalf or the behalf of another person or entity:
(i) induce or attempt to induce any person employed by the Company to leave their employment with the Company; (ii) hire or employ,
or attempt to hire or employ, any person employed by the Company; or (iii) assist or facilitate in any way any other person or
entity in the hiring of any person employed by the Company.  The foregoing restriction also shall apply with respect
to any person who was an employee, consultant or subcontractor of the Company at the time of, or during the six (6) months preceding,
the Executive’s termination from the Company.  This provision shall not limit the scope or the enforceability of
the confidentiality restriction prohibiting the use or disclosure of any information pertaining to current or former employees
of the Company or potential hires that was obtained in any manner during the period of Executive’s employment with the Company.

 

    	7

    	 

    

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.3         Enforcement
and Remedies

 

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

 

    	8

    	 

    

 

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

 

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

 

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

 

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

 

7.           GENERAL
PROVISIONS.

 

7.1           Notices.  All
notices and other communications required or permitted by this Agreement to be delivered by the Company or Executive to the other
party shall be delivered in writing, either personally or by certified or express mail, return receipt requested, postage prepaid,
or by overnight delivery services (as such Federal Express), respectively, to the attention of the Chairman or President at the
headquarters of the Company, or to the address of record of the Executive on file at the Company.  If notice is sent
by certified mail, it shall be deemed given and effective on the third day after it was deposited in the mail. If notice is sent
by overnight delivery service, it shall be deemed given and effective on the next business day immediately after the day after
it was given to the overnight delivery company.

 

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

 

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

 

    	9

    	 

    

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

  

	EXECUTIVE:	22nd Century Group, Inc.	 
	 	 	 	 
	 	 	 	 
	By: 	 /s/ Thomas L. James	 	By:	/s/Joseph Pandolfino	 
	 	Thomas L. James	 	Joseph Pandolfino	 
	 	 	Chief Executive Officer	 

  

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ADDENDUM A TO

EMPLOYMENT AGREEMENT OF THOMAS L. JAMES

 

This Addendum A to the Employment Agreement of Thomas L. James
is made and effective as of the date of May 12, 2014.

 

	A.	Executive’s title for purposes of the Agreement shall be Vice President, General Counsel and Secretary.

 

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

 

	C.	Effective as of the date of this Addendum, Executive’s Base Salary for purposes of the Agreement shall be $200,000.00 for the earlier of the twelve (12) month period immediately following the effective date of this Addendum or the date on which other executive officers of the Company are reviewed for increases in their respective compensation and benefits.  Thereafter, the Base Salary of Executive may be increased in an amount as determined by the Company in conjunction with the increases granted to other executive officers of the Company.

 

	D.	Pursuant to the Agreement, Executive shall be eligible for additional compensation and benefits as follows: (i) participation in the Company’s 2014 Omnibus Incentive Plan and/or similar stock equity plan that the Company may establish after the date hereof.  You will also be eligible for additional long-tem incentive programs and awards as may be awarded by the Company, in its sole discretion.

 

	E.	On the first day of business that you join the Company on a full-time basis after your required notice and wind-down period with your existing employer, the Company shall issue to you one hundred thousand (100,000) shares of Company common stock.  You will have all the rights of a stockholder of the Company with respect to voting the 100,000 shares of common stock awarded under the above-described grant, which shall also be subject to share adjustments, receipt of dividends (if any) and distributions (if any) on such shares.  Subject to your continued employment with the Company, and regardless of the date on which these shares are actually granted, these 100,000 shares will no longer be subject to forfeiture on May 1, 2017.  Furthermore, any such shares that are  subject to forfeiture shall cease to be subject to forfeiture on the first to occur (if any) of the following: (i) the event of a change in control of the Company (as defined in your attached Employment Agreement), (ii) termination of your employment with the Company by death or disability (as defined in your attached Employment Agreement), (iii) termination by you of your employment with the Company for good reason (as defined in your Employment Agreement), or (iv) termination of your employment with the Company without cause (as defined in your attached Employment Agreement)

 

	F.	On the first day of business that you join the Company on a full-time basis after your required notice and wind-down period with your existing employer, the Company shall grant you a stock option under the Company’s 2014 Omnibus Incentive Plan to purchase 300,000 shares of common stock of the Company at the average of the closing prices of the Company’s common stock for the ten (10) trading days prior to the date that is the first business day that you join the Company on a full-time basis after your required notice and wind-down period with your existing (according to the vesting schedule described herein).  Subject to your continued employment with the Company, and regardless of the date on which the shares are actually issued to you, the 300,000 shares of common stock subject to this stock option will vest and become exercisable in accordance with the following schedule:  50,000 shares will vest immediately upon your first day of employment with the Company; 100,000 shares will vest on May 1, 2015; 100,000 shares will vest on May 1, 2016; and 50,000 shares will vest on May 1, 2017.  Furthermore, unvested stock options shall all become automatically fully vested and exercisable on the first to occur (if any) of the following: (i) the event of a Change in Control of the Company (as defined in your attached  Employment Agreement), (ii) termination of your employment with the Company by death or disability (as defined in your attached Employment Agreement), (iii) termination by you of your employment with the Company for Good Reason (as defined in your attached Employment Agreement), or (iv) termination of your employment with the Company without Cause (as defined in your attached Employment Agreement).

 

    	11

    	 

    

 

	G.	In order to assist you with your moving expenses, a signing bonus of $140,000 will be made to you on your first day of employment with the Company.  This bonus will be subject to a “claw back provision” in three equal increments of $46,666.67 each according to the following schedule:  $46,666.67 will no longer be subject claw back on May 1, 2015; $46,666.67 will no longer be subject claw back on May 1, 2016; and $46,666.67 will no longer be subject to claw back on May 1, 2017.  The $140,000 bonus will also no longer be subject claw back on the first to occur (if any) of the following:  (i) termination of your employment by the Company without Cause (as defined in your attached  Employment Agreement), (ii) termination of your employment by you for Good Reason (as defined in your attached Employment Agreement), (iii) termination of your employment with the Company by death or disability (as defined in your attached Employment Agreement, or (iv) the event of a Change in Control of the Company (as defined in your attached  Employment Agreement).  If however, your employment with the Company ceases at any time before the three-year anniversary of the date that you commence full-time employment with the Company after your required notice and wind-down period with your existing employer due to termination by you without Good Reason (as defined in your attached Employment Agreement), or termination by the Company for Cause (as defined in your attached Employment Agreement), then your signing bonus will e subejt to the claw back schedule described above,

 

	H.	Bonus:   - You will be eligible to receive an annual cash bonus targeted at a percentage of your annual base salary based upon satisfactory achievement of personal performance objectives and business performance objective as may be determined by the Company.  Generally, bonuses are determined and awarded in the first quarter of the calendar year immediately following the year for which performance is measured.

 

	I.	401(k) Retirement Plan:  You may defer a percentage (up to the maximum permitted by law; $17,500 currently) of your pre-tax salary to the Company’s 401(k) plan.  As of the date of the Employment Agreement, the Company makes non-elective contributions per each pay period to each participant’s individual account under the Company’s 401(k) plan in an amount equal to 3% of the participant’s gross pay for the period, regardless of whether or not the employee made elective deferrals to the 401(k) plan.  You must designate how you would like your 401(k) account invested.  You will be eligible for this plan at the 6-month anniversary of your start date with the Company after your required notice and wind-down period with your existing employer. 

 

	J.	Health Insurance Coverage:   The Company offers full-time employees health insurance.  Since you will be an officer of the Company, the Company will pay 100% of your premiums for BlueCross BlueShield PPO 843 Platinum Health Insurance (family coverage at $1,670.59 per month) and 100% of your premiums for Delta Dental PPO plus Premier Plan 3 (family coverage).  This health insurance coverage and dental insurance coverage will commence on the first day of the month immediately following the month in which you actually commence full-time employment with the Company after your required notice and wind-down period with your existing employer. For example, if you were to begin your employment with the Company at any time in May 2014, then your health/dental insurance coverage with the Company would begin on June 1, 2014.  However, as a further example, if you were to begin your employment with the Company at any time in June 2014, then your health/dental insurance coverage with the Company would begin on Julye 1, 2014. 

 

	K.	In addition to the Company’s six paid national holidays (New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day), you will be entitled to four weeks (20 business days) paid vacation time and five sick/personal days.  Generally speaking, vacation/personal time off must be coordinated with the Chief Executive Officer of the Company.  

 

IN WITNESS, WHEREOF, the parties have executed this Addendum
as of the same date as the Employment Agreement.

 

	EXECUTIVE:	22nd Century Group, Inc.	 
	 	 	 	 
	 	 	 	 
	By: 	/s/ Thomas L. James	 	By:	/s/Joseph Pandolfino	 
	 	Thomas L. James	 	Joseph Pandolfino	 
	 	 	Chief Executive Officer	 

 

    	12

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