Item 1.01 Entry into a Material Definitive
Agreement.
On October 13, 2016,
22nd Century Group, Inc. (the “Company”) entered into a placement agency agreement (the “Placement Agency Agreement”)
with Chardan Capital Markets, LLC (the “Placement Agent”) relating to the Company’s registered direct offering
(the “Offering”) to select investors (the “Investors”). Pursuant to the Placement Agency Agreement, the
Company agreed to pay the Placement Agent a cash fee of 6.0% of the gross proceeds from the Offering. The Placement Agent had no
commitment to purchase any of the securities and acted only as an agent in obtaining indications of interest from investors who
would purchase the securities directly from the Company. The Placement Agency Agreement requires us to indemnify the Placement
Agent and certain of its affiliates against certain customary liabilities.
In addition, on October
14, 2016, the Company and two institutional investors introduced to the Company by the Placement Agent entered into a securities
purchase agreement (the “Securities Purchase Agreement”) relating to the issuance and sale of units, with each unit
consisting of one share of common stock and a warrant to purchase 0.5 shares of common stock. The purchase price per unit is $1.3425
and the investors are purchasing $11.4 million of units, consisting of an aggregate of 8,500,000 shares of common stock and warrants
to purchase up to 4,250,000 shares of common stock. The warrants will provide for an exercise price of $1.45 per share and will
be exercisable six months from the date of issuance. The warrants will have a term of 5.5 years. The exercise price of the warrants
will also be adjusted in the event of stock splits, reverse stock splits and the like pursuant to their terms. The holder will
not have the right to exercise any portion of the warrant if the holder, together with its affiliates, would beneficially own in
excess of 4.99% of the number of shares of the Company’s common stock (including securities convertible into common stock)
outstanding immediately after the exercise; provided, however, that the holder may increase or decrease this limitation at any
time, although any increase shall not be effective until the 61
st
day following the notice of increase and the holder
may not increase this limitation in excess of 9.99%. The Securities Purchase Agreement provides that, subject to certain exceptions,
for a period ending on the earlier of (i) 90 days after the closing of the Offering and (ii) the trading day following the day
that the closing price of the Company’s common stock exceeds $2.00 per share for ten consecutive trading days, neither the
Company nor any of its subsidiaries will issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any shares of common stock or common stock equivalents.
The Securities Purchase
Agreement provides that, subject to certain exceptions, until the warrants are no longer outstanding, the Company will be prohibited
from effecting or entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or
common stock equivalents (or a combination of units thereof) involving a variable rate transaction, which generally includes any
transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable
for, or include the right to receive additional shares of common stock either (A) at a conversion price or exchange rate that is
based upon and/or varies with the trading prices of or quotations for the shares of common stock at any time after the initial
issuance of such securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly
or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, whereby
the Company may issue securities at a future determined price.
The net proceeds to
the Company from the Offering, after deducting Placement Agent fees and the Company’s estimated offering expenses, and excluding
the proceeds, if any, from the exercise of the warrants, are expected to be approximately $10.7 million. The Offering is expected
to close on or before October 19, 2016.
The common stock and
shares underlying the warrants are registered under the Securities Act of 1933, as amended, on the Company’s Registration
Statement on Form S-3 (Registration Nos. 333-195386 and 333-214093) previously filed with the Securities and Exchange Commission
and declared effective on June 5, 2014. The common stock and warrants in this Offering are being offered and sold pursuant to a
base prospectus and a prospectus supplement filed as part of the Registration Statement.
The foregoing summaries
of the terms of the Placement Agency Agreement, the Securities Purchase Agreement and the warrants are subject to, and qualified
in their entirety by, such documents attached hereto as Exhibits 1.1, 10.1 and 10.2, respectively, and incorporated herein by reference.
Each of the Placement Agency Agreement and the Securities Purchase Agreement contains representations and warranties that the respective
parties made to, and solely for the benefit of, the other parties thereto in the context of all of the terms and conditions of
that agreement and in the context of the specific relationship between the parties. The provisions of the Placement Agency Agreement
and the Securities Purchase Agreement, including the representations and warranties contained therein, are not for the benefit
of any party other than the parties to such agreements or as stated therein and are not intended as documents for investors and
the public to obtain factual information about the current state of affairs of the parties to those documents and agreements. Rather,
investors and the public should look to other disclosures contained in the Company’s filings with the Securities and Exchange
Commission.