UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934
Filed by the Registrant x
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Filed by a Party other than the Registrant ¨
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Check the appropriate box:
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¨
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Preliminary Proxy Statement
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¨
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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x
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Definitive Proxy Statement
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¨
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Definitive Additional Materials
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¨
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Soliciting Material Pursuant to §240.14a-12
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(Name of Registrant as Specified in its
Charter)
(Name of Person(s) Filing
Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x
No fee required.
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities
to which transaction applies:
(2) Aggregate number of securities
to which transaction applies:
(3) Per unit price or other
underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate
value of transaction:
(5) Total fee paid:
¨
Fee paid previously with preliminary materials.
¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration
Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS
The 2020 annual meeting
of stockholders of 22nd Century Group, Inc. (the “Company”) will be held at the
Buffalo Club, 388 Delaware Avenue, Buffalo, NY, 14202 on Friday, May 1, 2020, beginning at 10:30 A.M. local time. At the
meeting, the holders of the Company’s outstanding common stock will act on the following matters:
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(1)
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The election of the two director nominees named in the attached proxy statement as Class III directors to serve for a three-year
period until the annual meeting of stockholders in the year 2023 and, in each instance, until their respective successors have
been elected and qualified;
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(2)
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The approval, on an advisory basis, of the 2019 compensation of the Company’s named executive officers;
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(3)
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The ratification of the appointment of Freed Maxick CPAs, P.C. as the Company’s independent registered certified public
accounting firm for fiscal year 2020; and
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(4)
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The transaction of any other business as may properly come before the meeting or any adjournment or postponement thereof.
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Stockholders of record
at the close of business on March 5, 2020, are entitled to notice of and to vote at the annual meeting and any postponements or
adjournments thereof.
We are pleased to take
advantage of the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their stockholders
over the Internet. As a result, we are mailing to most of our stockholders a Notice of Internet Availability of Proxy Materials
(the “Notice”) instead of a paper copy of this proxy statement and our 2019 Annual Report. We believe that this process
allows us to provide our stockholders with the information they need in a timelier manner, while reducing the environmental impact
and lowering the costs of printing and distributing our proxy materials. The Notice contains instructions on how to access those
documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including
this proxy statement, our 2019 Annual Report and a form of proxy card. All stockholders who have previously requested a paper copy
of our proxy materials will continue to receive a paper copy of the proxy materials by mail.
Your vote is important.
Whether or not you plan to attend the meeting, we hope that you will vote as soon as possible. You may vote your shares via a toll-free
telephone number or over the Internet. If you received a proxy card or voting instruction card by mail, you may submit your proxy
card or voting instruction card by signing, dating and mailing your proxy card or voting instruction card in the envelope provided.
We intend to hold our annual meeting in person. However, we
are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our stockholders
may have and the protocols that federal, state, and local governments may impose. In the event it is not possible or advisable
to hold our annual meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which
may include holding the meeting solely by means of remote communication. Please monitor our annual meeting website at www.xxiicentury.com for
updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As
always, we encourage you to vote your shares prior to the annual meeting.
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By Order of the Board of Directors,
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/s/ Michael J. Zercher
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Michael J. Zercher
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President and Chief Operating Officer
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Dated: March 17, 2020
TABLE OF CONTENTS
22nd Century Group, Inc.
8560 Main Street, Suite 4
Williamsville, New York 14221
2020 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 1, 2020
PROXY STATEMENT
The Board of Directors
of 22nd Century Group, Inc. (the “Company”) is soliciting proxies from its stockholders to be used at the annual meeting
of stockholders to be held at the Buffalo Club, 388 Delaware Avenue, Buffalo,
NY, 14202 on Friday, May 1, 2020, beginning at 10:30 A.M. local time, and at any postponements or adjournments thereof.
This proxy statement contains information related to the annual meeting.
In accordance with
rules and regulations adopted by the U.S. Securities and Exchange Commission (the “SEC”), we have elected to provide
our stockholders access to our proxy materials over the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials
(the “Notice”) will be mailed on or about March 17, 2020 to most of our stockholders who owned our common stock at
the close of business on the record date, March 5, 2020. Stockholders will have the ability to access the proxy materials on a
website referred to in the Notice or request a printed set of the proxy materials be sent to them by following the instructions
in the Notice.
The Notice will also
provide instructions on how you can elect to receive future proxy materials electronically or in printed form by mail. If you choose
to receive future proxy materials electronically, you will receive an email next year with instructions containing a link to the
proxy materials and a link to the proxy voting site. Your election to receive proxy materials electronically or in printed form
by mail will remain in effect until you terminate such election.
Choosing to receive
future proxy materials electronically will allow us to provide you with the information you need in a timelier manner, will save
us the cost of printing and mailing documents to you and will conserve natural resources.
ABOUT THE ANNUAL MEETING
Why did I receive these materials?
Our Board of Directors
is soliciting proxies for the 2020 annual meeting of stockholders. You are receiving a proxy statement because you owned shares
of our common stock on March 5, 2020, and that entitles you to vote at the meeting. By use of a proxy, you can vote whether or
not you attend the meeting. This proxy statement describes the matters on which we would like you to vote and provides information
on those matters so that you can make an informed decision.
What information is contained in this proxy statement?
The information in
this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, our Board, the compensation
of directors and executive officers and other information that the Securities and Exchange Commission requires us to provide annually
to our stockholders.
Who is entitled to vote at the meeting?
Holders of common stock
as of the close of business on the record date, March 5, 2020, will receive notice of, and be eligible to vote at, the annual meeting
and at any adjournment or postponement of the annual meeting. At the close of business on the record date, we had outstanding and
entitled to vote a total of 138,612,079 shares of common stock.
How many votes do I have?
Each outstanding share
of our common stock you owned as of the record date will be entitled to one vote for each matter considered at the meeting. There
is no cumulative voting.
Who can attend the meeting?
Only persons with evidence
of stock ownership as of the record date or who are invited guests of the Company, as determined by the Chairman of the Board or
the executive officers of the Company, may attend and be admitted to the annual meeting of the stockholders. Stockholders with
evidence of stock ownership as of the record date may be accompanied by one guest. Photo identification may be required (a valid
driver’s license, state identification or passport). If a stockholder’s shares are registered in the name of a broker,
trust, bank or other nominee, the stockholder must bring a proxy or a letter from that broker, trust, bank or other nominee or
their most recent brokerage account statement that confirms that the stockholder was a beneficial owner of shares of common stock
of the Company as of the record date. Since seating is limited, admission to the meeting will be on a first-come, first-served
basis.
Cameras (including
cell phones with photographic capabilities), recording devices and other electronic devices will not be permitted at the meeting.
What constitutes a quorum?
The presence at the
meeting, in person or by proxy, of the holders of one-third (33.33%) of the voting power of common stock issued and outstanding
on the record date will constitute a quorum, permitting the conduct of business at the meeting. Proxies received but marked as
abstentions or broker non-votes, if any, will be included in the calculation of the number of votes considered to be present at
the meeting for purposes of a quorum.
How may I vote my shares in person at the meeting?
If your shares are
registered directly in your name with our transfer agent, you are considered, with respect to those shares, the stockholder of
record. As the stockholder of record, you have the right to vote in person at the meeting. If your shares are held in a brokerage
account or by another nominee or trustee, you are considered the beneficial owner of shares held in street name. As the beneficial
owner, you are also invited to attend the meeting. Since a beneficial owner is not the stockholder of record, you may not vote
these shares in person at the meeting unless you obtain a “legal proxy” from your broker, trustee or nominee that holds
your shares, giving you the right to vote the shares at the meeting. The meeting will be held at the Buffalo Club, 388 Delaware
Avenue, Buffalo, NY, 14202. If you need directions to the meeting, please contact the Buffalo Club at 716-886-6400.
How can I vote my shares without attending the meeting?
Whether you hold shares
directly as a registered stockholder of record or beneficially in street name, you may vote without attending the meeting. You
may vote by granting a proxy or, for shares held beneficially in street name, by submitting voting instructions to your broker,
trustee or nominee. In most cases, you will be able to do this by telephone, by using the Internet or by mail if you received a
printed set of the proxy materials.
By Telephone or
Internet. If you have telephone or Internet access, you may submit your proxy by following the instructions provided in the
Notice, or if you received a printed version of the proxy materials by mail, by following the instructions provided with your proxy
materials and on your proxy card or voting instruction card.
By Mail. If
you received printed proxy materials, you may submit your proxy by mail by signing your proxy card if your shares are registered
or, for shares held beneficially in street name, by following the voting instructions included by your stockbroker, trustee or
nominee, and mailing it in the enclosed envelope. If you provide specific voting instructions, your shares will be voted as you
have instructed.
Your shares will be
voted as you indicate. The Board and management do not intend to present any matters at this time at the annual meeting other than
those outlined in the notice of the annual meeting. Should any other matter requiring a vote of stockholders arise, stockholders
that vote confer upon the individuals designated as proxies the discretionary authority to vote the shares represented by such
proxy on any such other matter in accordance with their best judgment. Our Board of Directors has designated Andrea S. Jentsch
and Michael J. Zercher, and each or any of them or their designees, as proxies to vote the shares of common stock solicited on
its behalf.
Can I change my vote?
Yes. You may revoke
your proxy and change your vote at any time before the final vote at the meeting. If you are a stockholder of record, you may do
this by signing and submitting a new proxy card with a later date; by voting by telephone or by using the Internet, either of which
must be completed by 11:59 p.m. Eastern Time on April 29, 2020 (your latest telephone or Internet proxy is counted); or by
attending the meeting and voting in person by ballot. Attending the meeting alone will not revoke your proxy unless you specifically
request your proxy to be revoked. If you hold shares through a bank or brokerage firm, you must contact that bank or firm directly
to revoke any prior voting instructions.
How are we soliciting this proxy?
We are soliciting this
proxy on behalf of our Board of Directors and will pay all expenses associated with this solicitation. In addition to mailing these
proxy materials, certain of our officers and other employees may, without compensation other than their regular compensation, solicit
proxies through further mailing or personal conversations, or by telephone, facsimile or other electronic means. We will also,
upon request, reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their reasonable
out-of-pocket expenses for forwarding proxy materials to the beneficial owners of our stock and to obtain proxies.
Will stockholders be asked to vote on any other
matters?
To the knowledge of
the Company and its management, stockholders will vote only on the matters described in this proxy statement. However, if any other
matters properly come before the meeting, the persons named as proxies for stockholders will vote on those matters in the manner
they consider appropriate.
What vote is required to approve each item?
The director nominees
receiving the highest vote totals of the eligible shares of our common stock that are present, in person or by proxy, and entitled
to vote at the meeting will be elected as our directors. The approval of the advisory resolution on executive compensation and
the approval of the ratification of the appointment of Freed Maxick CPAs, P.C. (“Freed”) require the affirmative vote
of the majority of the votes present, in person or by proxy, and entitled to vote at the meeting.
How are votes counted?
With regard to the
election of our director nominees, votes may be cast in favor or “withheld” and votes that are withheld will be excluded
entirely from the vote and will have no effect. You may not cumulate your votes for the election of our director nominees.
For the approval of
the advisory resolution on executive compensation and the ratification of the appointment of Freed, you may vote “FOR,”
“AGAINST” or “ABSTAIN” such proposals. Abstentions are considered to be present and entitled to vote at
the meeting and, therefore, will have the effect of a vote against each of the proposals.
If you hold your shares
in “street name,” the Company has supplied copies of its proxy materials for its 2020 annual meeting of stockholders
to the broker, bank or other nominee holding your shares of record and they have the responsibility to send these proxy materials
to you. Your broker, bank or other nominee that has not received voting instructions from you may not vote on any proposal other
than the appointment of Freed as our independent registered certified public accounting firm for fiscal 2020. These “broker
non-votes” will be included in the calculation of the number of votes considered to be present at the meeting for purposes
of determining a quorum, but will not be considered in determining the number of votes necessary for approval of any of the proposals
and will have no effect on the outcome of any of the proposals. Your broker, bank or other nominee is permitted to vote your shares
on the appointment of Freed as our independent registered certified public accounting firm without receiving voting instructions
from you.
Why did I receive a notice in the mail regarding the Internet
availability of proxy materials instead of a full set of proxy materials?
We are pleased to continue
to take advantage of the SEC rule that allows companies to furnish their proxy materials over the Internet. Accordingly, we have
sent to most of our stockholders of record and beneficial owners a notice regarding Internet availability of proxy materials. Instructions
on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders
may request to receive proxy materials in printed form by mail or electronically on an ongoing basis. A stockholder’s election
to receive proxy materials by mail or electronically by email will remain in effect until the stockholder terminates such election.
Why did I receive a full set of proxy materials in the
mail instead of a notice regarding the Internet availability of proxy materials?
We are providing stockholders
who have previously requested to receive paper copies of the proxy materials with paper copies of the proxy materials instead of
a Notice. If you would like to reduce the environmental impact and the costs incurred by us in mailing proxy materials, you may
elect to receive all future proxy materials electronically via email or the Internet. To sign up for electronic delivery, please
follow the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the
Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.
How can I get electronic access to the proxy materials?
You can view the proxy
materials on the Internet at http://www.proxyvote.com. Please have your 12 digit control number available. Your 12 digit
control number can be found on your Notice. If you received a paper copy of your proxy materials, your 12 digit control number
can be found on your proxy card or voting instruction card.
What should I do if I receive more than one set
of voting materials?
You may receive more
than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction
cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card
for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more
than one name, you will receive more than one proxy card. Please vote your shares applicable to each proxy card and voting instruction
card that you receive.
PRINCIPAL STOCKHOLDERS
The following table
sets forth information regarding the beneficial ownership of our common stock as of March 5, 2020, by (i) each person who, to our
knowledge, owns more than 5% of our common stock, (ii) each of our current directors, director nominees and executive officers,
and (iii) all our current directors, director nominees and executive officers as a group. Derivative securities exercisable or
convertible into shares of our common stock within sixty (60) days of March 5, 2020 are deemed to be beneficially owned and outstanding
for computing the share ownership and percentage of the person holding securities, but are not deemed outstanding for computing
the percentage of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The address
of named beneficial owners that are officers and/or directors of the Company is: c/o 22nd Century Group, Inc., 8560 Main Street,
Suite 4, Williamsville, New York 14221. The following table is based upon information supplied by officers and directors, and with
respect to 5% or greater stockholders who are not officers or directors, information filed with the SEC.
Name of Beneficial Owner
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Number of
Shares
Beneficially
Owned
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Percentage
Beneficially
Owned (1)
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Management and Directors:
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Michael J. Zercher (2)
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790,632
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*
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Andrea S. Jentsch (3)
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25,000
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*
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James W. Cornell (4)
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868,047
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*
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Richard M. Sanders (5)
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377,860
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*
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Nora B. Sullivan (6)
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410,118
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*
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Clifford B. Fleet
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225,000
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*
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Roger D. O’Brien
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-
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*
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All directors, director nominees and executive officers as a group (7 persons) (2) - (6)
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2,696,657
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1.9%
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5% Owners:
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ETF Managers Group LLC (7)
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14,028,533
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10.1%
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BlackRock Inc. (8)
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8,262,791
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6.0%
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Empery Asset Management, LP (9)
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6,975,336
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4.99%
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(1)
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Based on 138,612,079 shares of common stock issued and outstanding as of March 5, 2020.
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(2)
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Consists of (a) 20,715 shares of common stock held directly
and (b) 769,917 shares of common stock issuable upon exercise of stock. 25,958 shares of common stock issuable upon exercise of
stock options and 36,000 restricted stock units are not included in the number of beneficially owned shares because they do not
vest within 60 days of March 5, 2020.
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(3)
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25,000 restricted stock units are not included in the number of beneficially owned shares because
they do not vest within 60 days of March 5, 2020.
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(4)
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Consists of (a) 317,947 shares of common stock held directly and (b) 550,100 shares of common stock
issuable upon exercise of stock options.
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(5)
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Consists of (a) 87,600 shares of common stock held directly; (b) 290,100 shares of common stock
issuable upon exercise of stock options.
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(6)
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Consists of (a) 58,375 shares of common stock held directly; (b) 351,743 shares of common stock
issuable upon exercise of stock options.
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(7)
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Information is based on Schedule 13G filed on February 27, 2020 on behalf of (i) ETF Managers Group,
LLC, an investment management company, and (ii) the ETFMG Alternative Harvest EFT, a series of the ETF Manager Trust, which is
managed by ETF Managers Group, LLC. The principal business address of ETF Managers Group, LLC is 30 Maple Street, Suite 2, Summit,
New Jersey 07901.
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(8)
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Information is based on Schedule 13G filed on February 5, 2020 on behalf of BlackRock Inc. The
principal business address of BlackRock Inc. is 55 East 52nd Street, New York, New York 10055.
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(9)
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Information is based on Schedule 13G/A filed on January 28, 2020 on behalf of (i) Empery Asset
Management, LP, a Delaware limited partnership (“Empery” or the “Investment Manager”), (ii) Ryan M. Lane,
an individual who is a citizen of the United States of America (“Mr. Lane”), and (iii) Martin D. Hoe, an individual
who is a citizen of the United States of America (“Mr. Hoe”, together with Empery and Mr. Lane, the “Reporting
Persons”). Empery serves as the investment manager with respect to the shares of Common Stock held by, and the underlying
warrants held by, the funds (the “Empery Funds”). Each of Mr. Lane and Mr. Hoe is a Managing Member of Empery AM GP,
LLC, the general partner of the Investment Manager. Each of the Empery Funds and Mr. Lane and Mr. Hoe disclaim any beneficial ownership
of any such shares. Beneficial ownership includes 5,801,118 shares of common stock and 1,174,218 shares of common stock exercisable
upon the exercise of warrants. Excludes 9,359,993 shares of common stock issuable upon exercise of warrants because the warrants
contain a blocker provision under which the holder thereof does not have the right to exercise the warrants to the extent (but
only to that extent) that such exercise would result in beneficial ownership by the holder thereof or any of its affiliates of
more than 4.99% of the common stock. The business office of Empery is 1 Rockefeller Plaza, Suite 1205, New York, NY 10020
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SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, executive officers, and stockholders
holding more than 10% of our outstanding common stock to file with the U.S. Securities and Exchange Commission (“SEC”)
initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors
and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based on a review of the SEC filed ownership reports during 2019, the Company believes that all Section 16(a) filing requirements
were met during 2019.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
The Company’s
Board of Directors is classified into three classes of directors, with one class of directors being elected at each annual meeting
of stockholders of the Company to serve for a term of three years or until the earlier expiration of the term of their class of
directors or until their successors are elected and take office as provided below. To maintain the staggered terms of election
of directors, stockholders of the Company are voting upon the election of two director nominees as Class III directors to serve
for a three-year period until the Annual Meeting of Stockholders in the year 2023.
The Bylaws of the Company
provide that the Board will determine the number of directors to serve on the Board. The number of authorized directors of the
Company as of the date of this proxy statement is six (6), with five (5) persons currently serving as directors (one Class III
director, two Class II directors and two Class II directors) and with one (1) vacancy on the Board. The Board previously appointed
Clifford B. Fleet to serve as a Class I director on August 3, 2019 to fill a prior vacancy in the Class I director position. The
Board previously appointed Roger D. O’Brien to serve as a Class II director on January 10, 2020 to fill a prior vacancy in
the Class II director position. The Bylaws of the Company require the stockholders of the Company to vote to approve the appointment
of such directors by the Board at the next annual meeting of the stockholders after their appointment to serve on the Board. The
Board did not re-nominate James W. Cornell to serve as a Class III director on the Board. Accordingly, Mr. Cornell’s term
will expire at this 2020 annual meeting of stockholders. Our Board has nominated Clifford B. Fleet and Roger D. O’Brien to
be elected as Class III directors. Information about each director nominee is set forth below. Assuming the election of each of
the director nominees, the Board will consist of four members (one Class I director, one Class II director and two Class III directors)
with two vacancies (one in Class I and II).
The nominees for director
have each indicated to the Company that they will be available to serve as a director. If a nominee named herein for election as
a director should for any reason become unavailable to serve prior to the 2020 annual meeting of stockholders, then the Board may,
prior to the annual meeting, (i) reduce the size of the Board to eliminate the position for which that person was nominated,
(ii) nominate a new candidate in place of such person or (iii) leave the position vacant to be filled at a later time.
The individuals named
as proxy voters in the accompanying proxy, or their substitutes, will vote “FOR” each the director nominees with respect
to all proxies we receive unless instructions to the contrary are provided. If any nominee for director becomes unavailable for
any reason, the votes will be cast for a substitute nominee designated by our Board. We have no reason to believe that any nominee
for director will be unable to serve if elected. We strongly encourage our directors to attend our 2020 annual meeting. All our
directors attended our 2019 Annual Meeting.
The following sets
forth certain information, as of March 5, 2020, about the Board’s nominees for election at the annual meeting and each director
whose term will continue after our annual meeting.
Nominees for Election at the Annual Meeting
Class III Directors — Terms Expiring 2023
Clifford B. Fleet. Mr. Fleet, age 49, has served as a
director since his appointment on August 3, 2019 by the Board to fill a vacancy in the Class I director position resulting from
the resignation of Henry Sicignano, III as of July 26, 2019. Mr. Fleet also served as the President and Chief Executive Officer
of the Company from August 3, 2019 until December 13, 2019, at which time he resigned, effective on December 31, 2019. Mr. Fleet
also served as a strategic advisor consultant to the Company from December 2018 to August 3, 2019. Mr. Fleet currently serves as
the President and CEO of the Colonial Williamsburg Foundation, the world’s largest living history museum and a national leader
in American education. Prior to the Colonial Williamsburg Foundation, Mr. Fleet served as the President and CEO of 22nd Century
Group. From 1995 to 2017 Mr. Fleet worked at Altria Group, serving in a variety of senior-level management positions in Finance,
Operations, Marketing, and Business Strategy and Development. From 2013 to 2017, Mr. Fleet served as the President and CEO of Philip
Morris USA, Altria’s largest subsidiary, when he ran Philip Morris USA, the nation’s largest tobacco company, and John
Middleton, a leading machine-made cigar manufacturer. During his tenure he led both organizations to business success in
highly regulated environments. In addition, Mr. Fleet is an adjunct professor at the College of William & Mary teaching
in the business school. Mr. Fleet holds a Bachelor of Arts, Master of Arts, Master of Business Administration and Juris Doctor
from the College of William & Mary. Mr. Fleet’s extensive experience in the tobacco industry led to our conclusion that
he should serve as a director.
Roger D. O’Brien. Mr. O’Brien,
age 71, has served as a director since his appointment on January 10, 2020 by the Board to fill a vacancy in the Class II director
position resulting from the death of Dr. Joseph A. Dunn on November 30, 2019. Mr. O’Brien has served since 2000 as the President
of O’Brien Associates, LLC, a general management consulting firm providing advisory and implementation services to companies
in a variety of competitive industries, with special focus on general management, technology commercialization, marketing and strategy
development. From 1998 to 1999, Mr. O’Brien served as the Chief Operating Officer of Ultralife Batteries, Inc. (Nasdaq: ULBI)
and from 1991 to 1996, he was the Chief Executive Officer and a major shareholder of Holotek Ltd., a high-technology company with
a proprietary position in the design, development, manufacture and sales of laser imaging systems worldwide. Previously, Mr. O’Brien
served as a senior executive for Exxon Venture Capital, Tenneco Automotive and as an early officer of Sun Microsystems (Nasdaq:
SUN) prior to the company’s acquisition by Oracle Corporation. Mr. O’Brien is currently a member of the Board of Directors
of Innovative Technology Solutions and Bristol-ID Technologies, Inc. In addition, Mr. O’Brien is an adjunct professor at
the Rochester Institute of Technology, where he is a graduate instructor in Rochester, New York and in Croatia. Mr. O’Brien
holds a Bachelor of Science degree in Nuclear Engineering from New York University and an MBA degree from The Wharton School of
the University of Pennsylvania. Mr. O’Brien’s experience with strategic advisory consulting and his prior public company
experience led to our conclusion that he should serve as a director.
Our Board of Directors
recommends a vote FOR the above director nominees.
Directors Continuing in Office
Class I Director — Term Expiring 2021
Richard M. Sanders. Mr. Sanders,
age 66, has served as a director since December 9, 2013. Since August 2009, Mr. Sanders has served as a General Partner of Phase
One Ventures, LLC, a venture capital firm which focuses on nanotechnology and biotechnology start-up opportunities in New Mexico
and surrounding states. From January 2002 until June 2009, Mr. Sanders served as President and CEO of Santa Fe Natural Tobacco
Company (“SFNTC”), a division of Reynolds American, Inc., which manufactures and markets the Natural American Spirit
cigarette brand. During his 7-year tenure as head of SFNTC, Mr. Sanders tripled Natural American Spirit’s market share and
SFNTC’s operating earnings and directed the successful expansion of Natural American Spirit into international markets in
Western Europe and Asia. Prior to directing SFNTC’s robust growth, Mr. Sanders worked for R.J. Reynolds Tobacco Company where
he began his career as a marketing assistant in 1977. From 1987 to 2002, he served in a wide spectrum of executive positions including,
among others, Senior Vice President of Marketing and Vice President of Sales. A native of Minneapolis, Mr. Sanders earned a Bachelor’s
Degree in political science from Hamline University in St. Paul and an M.B.A. Degree in Marketing from Washington University in
St. Louis, Missouri. Mr. Sanders’ extensive experience in management, including in the tobacco industry, led to our conclusion
that he should serve as a director of our Company.
Class II Director — Term Expiring 2022
Nora B. Sullivan. Ms. Sullivan,
age 62, has served as a director since May 18, 2015. Ms. Sullivan is also currently President of Sullivan Capital Partners, LLC,
a financial services company providing investment banking and consulting services to businesses seeking growth through acquisitions,
strategic partnerships and joint venture relationships. Her experience includes the development and advancement of strategic initiatives
and the implementation of best practice governance policies. Prior to founding Sullivan Capital Partners in 2004, Ms. Sullivan
worked for Citigroup Private Bank from 2000 to 2004, providing capital markets and wealth management services to high net worth
individuals and institutional clients. From 1995 to 1999, Ms. Sullivan was Executive Vice President of Rand Capital Corporation
(NASDAQ: RAND), a publicly traded closed-end investment management company providing capital and managerial expertise to small
and mid-size businesses. Ms. Sullivan is also a member of the Boards of Directors of Evans Bancorp, Inc. (NYSE American: EVBN),
Robinson Home Products, and Rosina Food Products. She is also a member of the Investment Committee of the Patrick P Lee Foundation,
Chairman of the Technology Transfer Committee of the Roswell Park Comprehensive Cancer Center, and a member of the Board of Directors
of the Cortland College Foundation. Ms. Sullivan holds an M.B.A. Degree in Finance and International Business from Columbia University
Graduate School of Business and a Juris Doctor degree from the University of Buffalo School of Law. Ms. Sullivan’s experience
in governance matters and with mergers and acquisitions led to our conclusion that she should serve as a director.
CORPORATE GOVERNANCE
Board Composition
Directors hold office
for a term ending on the date of the third annual stockholders’ meeting following the annual meeting at which such director’s
class was most recently elected until the earlier of their death, resignation, removal or until their successors have been duly
elected and qualified. There are no family relationships among our directors. Our bylaws provide that the number of members of
our Board of Directors may be changed from time to time by resolutions adopted by the Board of Directors and/or the stockholders.
Our Board of Directors currently consists of five (5) members with one (1) vacancy.
Board Leadership Structure
Our Board of Directors
does not have a policy on whether or not the roles of Chief Executive Officer and Chairman of the Board should be separate. Our
Board reserves the right to assign the responsibilities of the Chief Executive Officer and Chairman position as determined by our
Board to be in the best interest of our Company. In the circumstance where the responsibilities of the Chief Executive Officer
and Chairman are vested in the same individual or in other circumstances when deemed appropriate, the Board will designate a lead
independent director from among the independent directors to preside at the meetings of the non-employee director executive sessions.
The positions of Chief
Executive Officer and Chairman have been separate positions since October 25, 2014. Our Board retains the authority to modify this
structure to best address our Company’s unique circumstances as and when appropriate.
Board Role in Risk Oversight
Our full Board is responsible
for the oversight of our operational risk management process. Our Board has assigned responsibility for addressing certain risks,
and the steps management has taken to monitor, control and report such risk, to our Audit Committee, including risks relating to
execution of our growth strategy, with appropriate reporting to the full Board. Our Board relies on our Compensation Committee
to address significant risk exposures facing our Company with respect to compensation. Our Compensation Committee periodically
conducts a review of our compensation policies and practices to assess whether any risks arising from such policies and practices
are reasonably likely to materially adversely affect our Company.
Number of Meetings of the Board of Directors
The Board held five
(5) meetings during 2019. Directors are expected to attend Board meetings and to spend time needed to meet as frequently as necessary
to properly discharge their responsibilities. Each director attended at least 75% of the aggregate number of meetings of the Board
during 2019.
Director Independence
The Board has determined
that each of Nora B. Sullivan, Richard M. Sanders and Roger D. O’Brien qualify as “independent” directors under
the applicable definition of the listing standards of the New York Stock Exchange American market (“NYSE American”).
Stockholder Communications
Stockholders may send
communications to the Company's directors as a group or individually, by writing to those individuals or the group: c/o the President
of 22nd Century Group, Inc., 8560 Main Street, Suite 4, Williamsville, New York 14221. The President will review all correspondence
received and will forward all correspondence that is relevant to the duties and responsibilities of the Board or the business of
the Company to the intended director(s). Examples of inappropriate communication include business solicitations, advertising and
communication that are frivolous in nature, relates to routine business matters or raises grievances that are personal to the person
submitting the communication. Upon request, any director may review communication that is not forwarded to the directors pursuant
to this policy.
Committees of the Board of Directors
Our Board of Directors
currently has three standing committees: (i) a Corporate Governance and Nominating Committee, (ii) an Audit Committee and (iii)
a Compensation Committee. Each of these Board committees are described below. Members of these committees are elected annually
at the regular Board meeting held in conjunction with the annual stockholders' meeting. The charters of the Corporate Governance
and Nominating Committee, Audit Committee and Compensation Committee are each available on the investor relations section of our
website at www.xxiicentury.com.
Governance and Nominating Committee
The Corporate Governance
and Nominating Committee consists of Ms. Sullivan and Messrs. Sanders and O’Brien, with Mr. O’Brien serving as chair.
The Corporate Governance and Nominating Committee is responsible for: (a) developing and recommending corporate governance principles
and procedures applicable to our Board and employees; (b) recommending committee composition and assignments; (c) overseeing annual
self-evaluations by the Board, its committees, individual directors and management with respect to their respective performance;
(d) maintaining a process for the consideration of director candidates; (e) identifying and recommending individuals qualified
to become directors; (f) assisting in succession planning; (g) recommending whether incumbent directors should be nominated for
re-election to our Board; (h) reviewing the adequacy of the Corporate Governance and Nominating Committee charter on an annual
basis; and (i) maintaining a continuing education program for directors. The Corporate Governance and Nominating Committee
met eight (8) times during 2019.
Nominations of persons
for election to the Board at the annual meeting may also be made by any stockholder entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in our bylaws. Such nominations by any stockholder shall be made
pursuant to timely notice in writing to the Secretary. To be timely, a stockholder’s notice shall be delivered to the Secretary
at our principal executive offices not later than the close of business on the ninetieth (90th) day nor earlier than the close
of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting;
provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on
the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made.
Audit Committee
The Audit Committee
consists of Ms. Sullivan and Messrs. Sanders and O’Brien, with Ms. Sullivan serving as chair. Our Board has determined that
Ms. Sullivan is the Audit Committee financial expert as defined under the rules of the SEC and that all Audit Committee members
are independent under the applicable listing standards of the NYSE American and applicable rules of the SEC related to audit committee
members. The Audit Committee, established in accordance with section 3(a)(58)(A) of the Exchange Act, oversees our accounting and
financial reporting processes and the audits of our financial statements. The Audit Committee met four (4) times during 2019.
The Audit Committee
has sole authority for the appointment, compensation and oversight of the work of our independent registered public accounting
firm, and responsibility for reviewing and discussing with management and our independent registered public accounting firm our
audited consolidated financial statements included in our Annual Report on Form 10-K, our interim financial statements and our
earnings press releases. The Audit Committee also reviews the independence and quality control procedures of our independent registered
public accounting firm, reviews management’s assessment of the effectiveness of internal controls, discusses with management
the Company’s policies with respect to risk assessment and risk management and reviews the adequacy of the Audit Committee
charter on an annual basis.
Compensation Committee
The Compensation Committee
consists of Ms. Sullivan and Messrs. Sanders and O’Brien, with Mr. Sanders serving as chair. The Compensation Committee establishes,
administers and reviews our policies, programs and procedures for compensating our executive officers and directors. The Compensation
Committee met seven (7) times during 2019.
The Compensation Committee
is responsible for: (a) assisting our Board in fulfilling its fiduciary duties with respect to the oversight of the Company’s
compensation plans, policies and programs, including assessing our overall compensation structure, reviewing all executive compensation
programs, incentive compensation plans and equity-based plans, and determining executive compensation; and (b) reviewing the adequacy
of the Compensation Committee charter on an annual basis.
Director Compensation
In February 2019,
each of our independent non-employee directors received an equity award of restricted stock units under our Plan valued at $101,220
(equaling 42,000 units) that vested one year from the date of grant in February 2020. In addition, each independent non-employee
director received the following cash amounts:
Compensation Type
|
|
Amount
|
|
Annual Cash Retainer
|
|
$
|
60,000
|
|
Board Committee Chair Annual Retainer
|
|
$
|
10,000
|
|
Board Committee Non-Chair Annual Retainer
|
|
$
|
5,000
|
|
Chairman of the Board Annual Retainer
|
|
$
|
50,000
|
|
For 2019, Mr. Cornell
received a special one-time equity award consisting of stock options valued at $148,950 (equaling 150,000 options) under our Plan
with an exercise price of $2.21 per share, a vesting period of five and one-half months and a term of five and one-half years,
and an award of restricted stock units under our Plan valued at $238,680 (equaling 108,000
units) that vested in February 2020. This special one-time award was in recognition of Mr. Cornell’s extraordinary efforts
in connection with the Company’s transition to the new management team. Mr. Fleet did not receive any compensation for service
as a director in 2019 and all compensation was for service as an executive officer.
The following amounts
were earned by our directors during the year ended December 31, 2019:
Name
|
|
Year
|
|
|
Fees
earned
or paid in
cash
|
|
|
Option
Awards (1)
|
|
|
Restricted
Stock Unit
Awards (2)
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
James W. Cornell
|
|
|
2019
|
|
|
$
|
168,750
|
|
|
$
|
148,950
|
|
|
$
|
339,900
|
|
|
$
|
-
|
|
|
$
|
657,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Dunn, Ph.D.
|
|
|
2019
|
|
|
$
|
93,750
|
|
|
$
|
-
|
|
|
$
|
101,220
|
|
|
$
|
-
|
|
|
$
|
194,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Sanders
|
|
|
2019
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
101,220
|
|
|
$
|
-
|
|
|
$
|
201,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nora B. Sullivan
|
|
|
2019
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
101,220
|
|
|
$
|
-
|
|
|
$
|
201,220
|
|
|
(1)
|
Represents the grant date fair value calculated pursuant to FASB ASC 718. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for options granted in 2019:
|
Risk-free interest rate
|
|
|
1.62
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
70
|
%
|
Expected life of options
|
|
|
2.73 years
|
|
|
(2)
|
Represents
the fair value of each restricted stock unit based on closing price of the Company’s common stock on the date of the
award.
|
EXECUTIVE OFFICERS
Currently, our Board
of Directors has hired an outside consultant to assist it with a search for a new Chief Executive Officer. Certain information
regarding our current executive officers as of March 11, 2020 is provided below:
Name
|
|
Age
|
|
Position
|
Michael J. Zercher
|
|
49
|
|
President and Chief Operating Officer
|
Andrea S. Jentsch
|
|
49
|
|
Chief Financial Officer
|
Michael J. Zercher, President and Chief
Operating Officer. Mr. Zercher has served as our President since December 13, 2019 and he has served as our Chief Operating
Officer since June 10, 2019. He previously served as the Company’s Vice President of Business Development since September
2016. Mr. Zercher was previously the head of Santa Fe Natural Tobacco Company’s international business operations based in
Santa Fe, New Mexico and Zurich, Switzerland from January 2003 to August 2009. Subsequently, Mr. Zercher was a self-employed consultant
to entrepreneurs and high-growth businesses in the United States and Europe from September 2009 to September 2016 and the founder
and owner of Santa Fe Hard Cider, LLC based in Santa Fe, New Mexico from December 2012 to September 2016. Mr. Zercher has more
than twenty-five years of experience in the tobacco industry and other consumer packaged goods industries in general management,
marketing, sales, operations and business development in the United States, Europe and Asia.
Andrea S. Jentsch, Chief Financial
Officer. Ms. Jentsch has served as our Chief Financial Officer since December 3, 2019. Ms. Jentsch previously served as the
Company’s Director of Accounting and Financial Reporting since May 2019. Prior to joining the Company, Ms. Jentsch was the
Operations Manager at Forbes Capretto Homes during April and May of 2019 and the Director of Finance and Administration at First
Healthcare Products, Inc. from January 2017 through March 2019. Prior to her time at First Healthcare, Ms. Jentsch served in multiple
roles over a twenty-year period with HSBC Technology & Services USA, HSBC Bank USA, N.A. and other HSBC companies until May
2013. Ms. Jentsch earned a Bachelor of Science in Finance from the Rochester Institute of Technology in 1993.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This compensation discussion
and analysis describes the material elements of compensation awarded to, earned by, or paid to each of our named executive officers,
whom we refer to as our “NEOs,” during 2019 and describes our policies and decisions made with respect to the information
contained in the following tables, related footnotes and narrative for 2019. The NEOs are identified below in the table titled
“Summary Compensation Table.” In this compensation discussion and analysis, we also describe various actions regarding
NEO compensation taken before or after 2019 when we believe it enhances the understanding of our executive compensation program.
Overview of Our Executive Compensation Philosophy and Design
We believe that a skilled,
experienced and dedicated management team is essential to the future performance of our Company and to building stockholder value.
We have sought to establish competitive compensation programs that enable us to attract and retain executive officers with these
qualities. The other objectives of our compensation programs for our executive officers are the following:
|
·
|
to motivate our executive officers to achieve and create stockholder value;
|
|
·
|
to attract and retain executive officers who we believe have the experience, temperament, talents,
and convictions to contribute significantly to our future success; and
|
|
·
|
to align the economic interests of our executive officers with the interests of our stockholders.
|
In light of these objectives,
we have sought to reward our NEOs for creating value for our stockholders and for loyalty and dedication to our Company.
Setting Executive Compensation
Our Compensation Committee
has primary responsibility for, among other things, determining our compensation philosophy, evaluating the performance of our
executive officers, setting the compensation and other benefits of our executive officers, overseeing the Company’s response
to the outcome of the advisory votes of stockholders on executive compensation, assessing the relative enterprise risk of our compensation
program and administering our incentive compensation plans.
Our Board of Directors,
our Compensation Committee and our President each play a role in setting the compensation of our NEOs. Our Board of Directors appoints
the members of our Compensation Committee and delegates to the Compensation Committee the direct responsibility for overseeing
the design and administration of our executive compensation program. Our Board of Directors and our Compensation Committee value
the opinions of our stockholders and are committed to ongoing engagement with our stockholders on executive compensation practices.
The Compensation Committee specifically considers the results from the annual stockholder advisory vote on executive compensation.
At the 2019 Annual Meeting of Stockholders, more than 79% of the votes cast on the stockholder advisory vote on executive compensation
were in favor of our executive compensation.
Our Compensation Committee
engaged the compensation consulting firm of Towers Watson in 2015 to provide broad executive compensation benchmarks based upon
surveys of public and private companies which were similarly sized to us. Based upon these survey results, the Committee adopted
a comprehensive executive compensation structure that it felt would best align the interests of our management with those of our
stockholders. The Compensation Committee did not engage a compensation consultant in 2016 or 2017. The Committee re-engaged
Willis Towers Watson (formerly Towers Watson) in 2018 to conduct another market survey on executive compensation and incentive
practices and trends for similarly sized public companies. To assure independence, the Compensation Committee pre-approves all
other work unrelated to executive compensation proposed to be provided by Willis Towers Watson. The Compensation Committee also
considered all factors relevant to the consultant’s independence from management when it was engaged, including but not limited
to the following factors:
|
·
|
The provision of other services that the consultant provides to us;
|
|
·
|
The amount of fees received from us as a percentage of the consultant’s total revenue;
|
|
·
|
The consultant’s policies and procedures designed to prevent conflicts of interest;
|
|
·
|
Business or personal relationships of the consultant with our Compensation Committee members;
|
|
·
|
The amount of our stock owned by the consultant; and
|
|
·
|
Business or personal relationships of the consultant with our executive officers
|
Elements of Executive Compensation
The key elements of our compensation structure
are:
|
·
|
Provide a base salary for each NEO based on the job description and scope of responsibilities of
that position. Each position is assigned a target annual salary and range, with minimum and maximum salaries established for each
position.
|
|
·
|
Provide annual discretionary cash incentive opportunities (bonuses) for each NEO. Annual incentive awards are based
on a percentage of each position’s base salary and are tied to the achievement of several weighted, measurable objectives
defined for that position in the relevant calendar year, as well as other discretionary considerations including the Company’s
performance.
|
|
·
|
Provide long-term incentive pay opportunities which provide for continuity of key management personnel
through grants of stock incentives that align our executives’ interests with those of our stockholders. These incentives
are designed to vest over multiple years and are determined in dollar amounts as a multiple of each executive’s base salary.
|
|
·
|
Retirement and other benefits.
|
Base Salary
We pay our NEOs a base
salary to compensate them for services rendered and to provide them with a steady source of income for living expenses throughout
the year. We determine the base salary of each NEO based on the job description and scope of responsibilities of that position.
Each position is assigned a target annual salary and range, with minimum and maximum salaries established for each position.
The fiscal 2020 base
salaries for our NEOs, as well as the percentage increase from the fiscal 2019 base salaries, are as follows:
|
|
|
|
|
Percentage Increase Over Fiscal
|
|
Name
|
|
Fiscal 2020 Base Salary
|
|
|
2019 Base Salary
|
|
Michael J. Zercher (1)
|
|
$
|
366,100
|
|
|
|
4.6
|
%
|
Andrea S. Jentsch (2)
|
|
$
|
250,000
|
|
|
|
N/A
|
|
|
(1)
|
Mr. Zercher’s salary was increased during 2020 to $366,100 after he was appointed as the President of the Company on
December 13, 2019 following his earlier appointment as Chief Operating Officer of the Company on June 10, 2019. The percentage
increase over his fiscal base salary is based on his 2019 salary of $350,000.
|
|
(2)
|
Ms. Jentsch was appointed as the Chief Financial Officer of the Company on December 3, 2019 and was awarded an initial
base salary for 2020 of $250,000.
|
Incentive Compensation
For 2019, our
incentive compensation program consisted of (i) a discretionary annual cash bonus opportunity and (ii) long-term equity
incentive compensation consisting of equity awards in the form of restricted stock units. We award annual discretionary
incentive awards (bonuses) for each NEO that are based on a percentage of each position’s base salary and are tied to
the achievement of several weighted, measurable objectives defined for that position in the upcoming calendar year, as well
as other discretionary considerations including Company performance. We also provide for a long-term incentive pay program
which provides for continuity of key management personnel through grants of stock incentives. These incentives are designed
to vest over multiple years and are determined in dollar amounts as a multiple of each executive’s base salary.
The annual discretionary
cash bonus opportunity and the long-term equity incentive compensation for 2019 are discussed in detail below.
Annual
Discretionary Cash Bonus Opportunity
The Compensation Committee
has the authority to award discretionary annual cash bonuses to our NEOs. The cash bonuses are intended to compensate NEOs for
individual performance achievements and for achieving important goals and objectives, including those set out in performance reviews
from the prior year. In addition to individual performance, determination of a NEO’s achievements generally takes into account
such factors as our overall financial performance and improving our operations. Bonus levels vary depending on the individual executive
and are not formulaic, but instead are based upon an objective and subjective evaluation of performance and other circumstances.
For 2019, target bonus levels were not established by the Compensation Committee for Mr. Zercher and for Ms. Jentsch because they
were not in their current positions at the beginning of 2019.
The Compensation Committee
recommended, and the Board of Directors unanimously approved, the award of discretionary cash bonuses in 2020 in recognition of
their new positions and of their work performance in 2019 as follows: $420,000 for Mr. Zercher and $50,000 for Ms. Jentsch.
Long-Term
Equity Incentive Compensation
Our Compensation Committee
believes that equity awards enhance the alignment of the economic interests of our NEOs and the economic interest of our stockholders
and provides our NEOs with incentives to remain in our employment. In 2019, we granted awards of restricted stock units to our
NEOs to motivate and retain our NEOs while aligning their economic interest with our stockholders through potential long-term equity
ownership.
For 2019, we awarded
our NEOs with the following restricted stock units valued at $271,395 for Mr. Zercher and $115,000 for Ms. Jentsch. The restricted
stock units vest over various time periods from the date of the grant, subject to continued employment with us.
The restricted stock
unit (“RSU”) awards resulted in a total grant of the following number of shares to our NEOs under such RSUs as of the
date of grant in February 2019, May 2019, and December 2019 (as described in more detail in the Grant of Plan-Based Awards section
in this proxy statement).
Name
|
|
Restricted Stock Units (#)
|
|
Michael J. Zercher
|
|
|
204,000
|
|
Andrea S. Jentsch
|
|
|
50,000
|
|
Retirement and Other Benefits
We are strongly committed to encouraging
all employees to save for retirement. To provide employees with the opportunity to save for retirement on a tax-deferred basis,
we sponsor a 401(k)-plan pursuant to which we make a safe harbor non-elective contribution of 3% of the employee’s annual
compensation. We also provide health and dental insurance, group-term life insurance, and long-term disability insurance to the
employees. We do not maintain any pension or non-qualified deferred compensation plans.
Severance Arrangement
Effective July 26,
2019, Henry Sicignano III resigned as the President and Chief Executive Officer, and as a member of the Board of Directors, of
the Company for personal reasons. In connection with Mr. Sicignano's resignation, the Company and Mr. Sicignano:
|
·
|
Entered into a consulting agreement for Mr. Sicignano to consult with the Company on a variety of corporate matters for $200,000 per year over a term of 42 months;
|
|
·
|
Agreed that the Company would continue to provide Mr. Sicignano with group health insurance for a period of 42 months;
|
|
·
|
Agreed that all of Mr. Sicignano’s unvested stock options (constituting 297,369 stock options) shall vest immediately and the exercise date of all of Mr. Sicignano’s options shall be the date that is the lesser of (a) 48 months from July 26, 2019 or (b) the latest exercise date allowable under the option award agreement; and
|
|
·
|
Entered into a mutual general release and a non-competition agreement.
|
Former Officers’ Compensation
On August 3, 2019 Clifford B. Fleet was
appointed President and Chief Executive Officer of the Company. Mr. Fleet’s base salary was $395,000 and he was awarded a
signing bonus of $150,000. Mr. Fleet was also awarded 350,000 restricted stock units, of which, 100,000 RSUs vested immediately
with the remaining 250,000 RSUs vesting in equal annual increments over a two-year period. The fair value of the RSUs that vested
immediately was $202,000. In addition, Mr. Fleet was awarded 450,000 stock options with an exercise price of $2.02 per share and
that vested in equal annual increments over a three-year period. On December 13, 2019 Mr. Fleet resigned his position effective
December 31, 2019 in order to accept a leadership position at The Colonial Williamsburg Foundation. Mr. Fleet remains a member
of the Company’s Board of Directors.
In December 2019 John T. Brodfuehrer transitioned
from his role as the Chief Financial Officer and Treasurer and became the Company’s Vice President of Strategy. Please refer
to the Summary Compensation Table for information regarding Mr. Brodfuehrer’s compensation during the years ended December
31, 2019, 2018, and 2017.
On December 30, 2019 Thomas L. James provided
notice of his resignation as the Vice President, General Counsel and Secretary of the Company effective January 29, 2020. Please
refer to the Summary Compensation Table for information regarding Mr. James’s compensation during the years ended December
31, 2019, 2018, and 2017.
Summary Compensation Table
The following table
summarizes the compensation paid by the Company in each of the last three completed fiscal years for our NEOs:
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option Awards
(1)
|
|
|
Stock Awards (3)
|
|
|
All Other Compensation (4)
|
|
|
Total
|
|
Michael J. Zercher
|
|
|
2019
|
|
|
$
|
290,569
|
|
|
$
|
420,000
|
|
|
$
|
-
|
|
|
$
|
271,395
|
|
|
$
|
25,327
|
|
|
$
|
1,007,291
|
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea S. Jentsch
|
|
|
2019
|
|
|
$
|
88,654
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
115,000
|
|
|
$
|
7,532
|
|
|
$
|
261,185
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clifford B. Fleet
|
|
|
2019
|
|
|
$
|
303,442
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202,000
|
|
|
$
|
8,676
|
|
|
$
|
514,118
|
|
Former President and Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Sicignano, III
|
|
|
2019
|
|
|
$
|
267,746
|
|
|
$
|
-
|
|
|
$
|
255,950
|
(2)
|
|
$
|
-
|
|
|
$
|
34,490
|
|
|
$
|
558,186
|
|
Former President and Chief Executive
|
|
|
2018
|
|
|
$
|
379,148
|
|
|
$
|
-
|
|
|
$
|
533,108
|
|
|
$
|
-
|
|
|
$
|
37,190
|
|
|
$
|
949,446
|
|
Officer
|
|
|
2017
|
|
|
$
|
242,690
|
|
|
$
|
94,800
|
|
|
$
|
345,987
|
|
|
$
|
-
|
|
|
$
|
27,988
|
|
|
$
|
711,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T. Brodfuehrer
|
|
|
2019
|
|
|
$
|
188,437
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
171,110
|
|
|
$
|
24,576
|
|
|
$
|
484,122
|
|
Former Chief Financial Officer and
|
|
|
2018
|
|
|
$
|
200,769
|
|
|
$
|
100,000
|
|
|
$
|
223,397
|
|
|
$
|
-
|
|
|
$
|
24,189
|
|
|
$
|
548,355
|
|
Treasurer
|
|
|
2017
|
|
|
$
|
199,423
|
|
|
$
|
71,100
|
|
|
$
|
128,836
|
|
|
$
|
-
|
|
|
$
|
13,278
|
|
|
$
|
412,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas L. James
|
|
|
2019
|
|
|
$
|
222,196
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
187,980
|
|
|
$
|
17,672
|
|
|
$
|
427,848
|
|
Former VP, General Counsel and
|
|
|
2018
|
|
|
$
|
218,154
|
|
|
$
|
60,000
|
|
|
$
|
223,397
|
|
|
$
|
-
|
|
|
$
|
22,305
|
|
|
$
|
523,856
|
|
Secretary
|
|
|
2017
|
|
|
$
|
203,224
|
|
|
$
|
67,500
|
|
|
$
|
128,836
|
|
|
$
|
-
|
|
|
$
|
19,589
|
|
|
$
|
419,149
|
|
|
(1)
|
Represents the grant date fair value calculated pursuant to FASB ASC 718. The following assumptions were used for options granted
in 2019:
|
Risk-free interest rate
|
|
|
1.62%
|
|
Expected dividend yield
|
|
|
0%
|
|
Expected stock price volatility
|
|
|
70%
|
|
Expected life of options
|
|
|
2.73 years
|
|
|
(2)
|
In connection with the acceleration of vesting of Mr. Sicignano’s options, the Company incurred a charge of $255,950.
|
|
(3)
|
Represents the grant fair value computed in accordance with FASB ASC 718. The assumptions use for the restricted stock units
is set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2019.
|
|
|
|
|
(4)
|
All Other Compensation consists of the following:
|
Name
|
|
Year
|
|
|
Fringe
Benefits *
|
|
|
Employer
Contributions to
Company 401(k)
Plan
|
|
|
All Other
Compensation
Total
|
|
Michael J. Zercher
|
|
|
2019
|
|
|
$
|
19,673
|
|
|
$
|
5,654
|
|
|
$
|
25,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea S. Jentsch
|
|
|
2019
|
|
|
$
|
6,955
|
|
|
$
|
577
|
|
|
$
|
7,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clifford B. Fleet
|
|
|
2019
|
|
|
$
|
8,676
|
|
|
$
|
-
|
|
|
$
|
8,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Sicignano, III
|
|
|
2019
|
|
|
$
|
26,085
|
|
|
$
|
8,406
|
|
|
$
|
34,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T. Brodfuehrer
|
|
|
2019
|
|
|
$
|
16,176
|
|
|
$
|
8,400
|
|
|
$
|
24,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas L. James
|
|
|
2019
|
|
|
$
|
8,807
|
|
|
$
|
8,865
|
|
|
$
|
17,672
|
|
|
*
|
Includes Company paid premiums for health insurance,
dental insurance, group-term life insurance, and long-term disability insurance.
|
Grant of Plan-Based
Awards
As described above
in the Compensation Discussion and Analysis, we granted restricted stock units to our NEOs in 2019. The following table sets forth
information regarding all such awards
Name
|
|
Grant Date
|
|
Date of
Board
Action
|
|
Restricted Stock Unit Awards: Number of Shares of Stock (#)
|
|
|
|
|
|
Grant Date Fair Value
Restricted Stock Units,
Stock Awards and
Option Awards ($) (5)
|
|
Michael J. Zercher
|
|
2/28/2019
|
|
2/28/2019
|
|
|
54,000
|
|
|
|
(1
|
)
|
|
$
|
130,140
|
|
|
|
12/13/2019
|
|
12/13/2019
|
|
|
150,000
|
|
|
|
(2
|
)
|
|
$
|
141,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea S. Jentsch
|
|
5/3/2019
|
|
5/3/2019
|
|
|
50,000
|
|
|
|
(3
|
)
|
|
$
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clifford B. Fleet
|
|
9/9/2019
|
|
9/9/2019
|
|
|
100,000
|
|
|
|
(4
|
)
|
|
$
|
202,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Sicignano, III
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T. Brodfuehrer
|
|
2/28/2019
|
|
2/28/2019
|
|
|
71,000
|
|
|
|
(1
|
)
|
|
$
|
171,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas L. James
|
|
2/28/2019
|
|
2/28/2019
|
|
|
78,000
|
|
|
|
(1
|
)
|
|
$
|
187,980
|
|
|
(1)
|
Represents RSUs which vest in equal annual increments over three years on February 28, 2020, 2021 and 2022.
|
|
|
|
|
(2)
|
Represents RSUs which vest in equal annual increments over two years on December 13, 2020 and 2021.
|
|
|
|
|
(3)
|
Represents RSUs of which one-half vested in February 2020 with the remaining one-half vesting in August 2020.
|
|
|
|
|
(4)
|
Mr. Fleet was awarded 100,000 restricted stock units on September 9, 2019 that
vested immediately. Upon his resignation, the 250,000 RSUs and the 450,000 stock options that were not vested were forfeited.
The option and RSU awards had a fair value of $567,150 and $505,000, respectively, on the grant dates.
|
|
|
|
|
(5)
|
Represents the grant fair value computed in accordance with FASB ASC 718. The assumptions used for the restricted stock units
is set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2019.
|
Outstanding Equity Awards at 2019 Fiscal
Year
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Equity Incentive Plan
Awards: Number of
Unearned Shares,
Restricted Stock Units or
Other Rights That Have
Not Vested (#)
|
|
|
Equity Incentive
Plan Awards:
Market
or
Payout Value of
Unearned
Shares,
Restricted Stock
Units or Other
Rights That
Have Not Vested
($) (4)
|
|
Michael J. Zercher
|
|
|
650,000
|
|
|
|
-
|
|
|
$
|
1.07
|
|
|
|
8/24/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
45,333
|
|
|
|
22,667
|
|
|
$
|
1.39
|
|
|
|
5/24/2027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
51,917
|
|
|
|
25,958
|
|
|
$
|
2.76
|
|
|
|
3/6/2028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
(1)
|
|
$
|
165,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,000
|
(2)
|
|
$
|
59,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea S. Jentsch
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
(3)
|
|
$
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Sicignano, III
|
|
|
100,000
|
|
|
|
-
|
|
|
$
|
0.69
|
|
|
|
5/18/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
350,000
|
|
|
|
-
|
|
|
$
|
0.96
|
|
|
|
2/16/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
425,532
|
|
|
|
-
|
|
|
$
|
0.95
|
|
|
|
3/4/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
333,000
|
|
|
|
-
|
|
|
$
|
1.39
|
|
|
|
5/24/2027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
279,533
|
|
|
|
-
|
|
|
$
|
2.76
|
|
|
|
3/6/2028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John T. Brodfuehrer
|
|
|
194,529
|
|
|
|
-
|
|
|
$
|
0.96
|
|
|
|
2/16/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
202,128
|
|
|
|
-
|
|
|
$
|
0.95
|
|
|
|
3/4/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
82,667
|
|
|
|
41,333
|
|
|
$
|
1.39
|
|
|
|
5/24/2027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
39,048
|
|
|
|
78,098
|
|
|
$
|
2.76
|
|
|
|
3/6/2028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,000
|
(2)
|
|
$
|
78,100
|
|
Thomas L. James
|
|
|
300,000
|
|
|
|
-
|
|
|
$
|
2.61
|
|
|
|
5/27/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
197,568
|
|
|
|
-
|
|
|
$
|
0.96
|
|
|
|
2/16/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
136,170
|
|
|
|
-
|
|
|
$
|
0.95
|
|
|
|
3/4/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
82,667
|
|
|
|
41,333
|
|
|
$
|
1.39
|
|
|
|
5/24/2027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
39,048
|
|
|
|
78,098
|
|
|
$
|
2.76
|
|
|
|
3/6/2028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,000
|
(2)
|
|
$
|
85,800
|
|
|
(1)
|
Represents RSUs which vest in equal annual increments over two years on December 13, 2020 and 2021.
|
|
(2)
|
Represents RSUs which vest in equal annual increments over three years on February 28, 2020, 2021,
and 2022.
|
|
(3)
|
Represents RSUs of which one-half vested in February 2020 with the remaining one-half vesting in
August 2020.
|
|
(4)
|
The amounts in this column are based on the closing stock price of the Company’s common stock
on December 31, 2019. These amounts do not reflect the actual amounts that may be realized.
|
Option Exercise and Stock Vested for
Fiscal 2019
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
|
Exercise
|
|
|
Exercise
|
|
|
Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)(1)
|
|
|
($)(2)
|
|
Clifford B. Fleet
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
$
|
202,000
|
|
|
(1)
|
Mr. Fleet was awarded 100,000 restricted stock units on September 9, 2019 that vested immediately.
|
|
(2)
|
The value realized on vesting is based on the closing stock price of the Company’s common stock on September 9, 2019.
The amount does not reflect the actual amount that may be realized.
|
Employment Agreements with Executive Officers
We have entered into
employment agreements with each of our NEOs as follows:
Michael J. Zercher. Mr. Zercher
entered into an employment agreement with us as of September 9, 2019, which was effective as of June 10, 2019, for an initial term
of three years that automatically renews on an annual basis thereafter unless terminated. If Mr. Zercher’s employment is
terminated by the Company without Cause or by Mr. Zercher for Good Reason (as such terms are defined in his employment agreement),
then Mr. Zercher will be entitled to a severance benefit in the form of a continuation of his then-base salary for twenty-four
(24) months from the termination date as long as Mr. Zercher complies with restrictive covenants contained in his employment agreement.
The employment agreement
of Mr. Zercher provides that in the event of a change in control (as defined in his employment agreement) of our Company, then
during the three (3)-year period following such change in control if certain triggering events occur, such as if he is terminated
other than for Cause (as defined in his employment agreement), death or disability, or if his responsibilities are diminished after
the change in control as compared to his responsibilities prior to the change in control, or if his base salary or benefits are
reduced, or he is required to relocate more than twenty-five (25) miles from his then current place of employment, then in any
such events he will have the option, exercisable within ninety (90) days of the occurrence of such an event, to resign his employment
with us, in which case he will be entitled to receive: (a) his base salary for twenty-four (24) months thereafter; and (b) the
immediate vesting of all options and/or restricted stock grants previously granted or to be granted to him.
The employment agreement
of Mr. Zercher also provides that during his employment by us and for a period of two (2) years after he ceases to be employed
by us, the following non-compete covenants will apply: (i) he will not (except on behalf of us) provide or offer to provide any
goods or services to any entity engaged in the United States in the making, offering, marketing, distributing and/or selling of
products made from the tobacco (Nicotiana) plant or the 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, (ii)
he will not interfere with our relationships with any customer, prospective customer, researcher, supplier, distributor, farmer
and/or manufacturer, and (iii) he will not induce or attempt to induce any persons employed by us to leave their employment with
us, nor hire or employ, or attempt to hire or employ, any persons employed by us, nor assist or facilitate in any way any other
person or entity in the hiring of any persons employed by us; provided, however, that in
recognition of Mr. Zercher’s experience in the tobacco industry as a prior employee of certain large tobacco companies, the
employment agreement of Mr. Zercher provides that he may work for another tobacco company on products that are traditional combustible
cigarettes and cigars, but which are not the same or substantially similar services of the Company with respect to very low nicotine
or very high nicotine tobacco products.
Andrea S. Jentsch. Ms. Jentsch entered
into an employment agreement with us as of December 3, 2019, which was effective as of that same date, for an initial term of three
years that automatically renews on an annual basis thereafter unless terminated. If Ms. Jentsch’s employment is terminated
by the Company without Cause or by Ms. Jentsch for Good Reason (as such terms are defined in her employment agreement), then Ms.
Jentsch will be entitled to a severance benefit in the form of a continuation of her then-base salary for twelve (12) months from
the termination date as long as Ms. Jentsch complies with restrictive covenants contained in her employment agreement.
The employment agreement
of Ms. Jentsch provides that in the event of a change in control (as defined in her employment agreement) of our Company, then
during the three (3)-year period following such change in control if certain triggering events occur, such as if she is terminated
other than for Cause (as defined in her employment agreement), death or disability, or if her responsibilities are diminished after
the change in control as compared to her responsibilities prior to the change in control, or if her base salary or benefits are
reduced, or she is required to relocate more than twenty-five (25) miles from her then current place of employment, then in any
such events she will have the option, exercisable within ninety (90) days of the occurrence of such an event, to resign her employment
with us, in which case she will be entitled to receive: (a) her base salary for twelve (12) months thereafter; and (b) the immediate
vesting of all stock options previously granted or to be granted to her.
The employment agreement
of Ms. Jentsch also provides that during her employment by us and for a period of one (1) year after she ceases to be employed
by us, the following non-compete covenants will apply: (i) she will not (except on behalf of us) provide or offer to provide any
goods or services to any entity engaged in the United States in the making, offering, marketing, distributing and/or selling of
products made from the tobacco (Nicotiana) plant or the 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, (ii)
she will not interfere with our relationships with any customer, prospective customer, researcher, supplier, distributor, farmer
and/or manufacturer, and (iii) she will not induce or attempt to induce any persons employed by us to leave their employment with
us, nor hire or employ, or attempt to hire or employ, any persons employed by us, nor assist or facilitate in any way any other
person or entity in the hiring of any persons employed by us.
Estimated Additional
Compensation Triggered by Termination of Employment If Termination on the Last Business Day of 2019
The following table
illustrates the additional compensation that we estimate would be payable to each of our NEOs on termination of employment under
each of the circumstances described above, assuming the termination occurred on December 31, 2019. The amounts shown are estimates
and do not necessarily reflect the actual amounts that these individuals would receive on termination of employment.
Name
|
|
Salary
Multiple
|
|
Salary
|
|
|
Fringe
Benefits (1)
|
|
|
Early
Vesting
of Restricted
Stock Units (2)
|
|
|
Early
Vesting
of Stock
Options (3)
|
|
|
Total
|
|
Termination
by the Company Without Cause or by the Executive for Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Zercher
|
|
2x
|
|
$
|
700,000
|
|
|
$
|
44,746
|
|
|
$
|
224,400
|
|
|
|
-
|
|
|
$
|
969,146
|
|
Andrea
S. Jentsch
|
|
1x
|
|
$
|
250,000
|
|
|
$
|
14,622
|
|
|
$
|
27,500
|
|
|
|
-
|
|
|
$
|
292,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
or Disability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Zercher
|
|
n/a
|
|
|
-
|
|
|
|
-
|
|
|
$
|
224,400
|
|
|
|
-
|
|
|
$
|
224,400
|
|
Andrea
S. Jentsch
|
|
n/a
|
|
|
-
|
|
|
|
-
|
|
|
$
|
27,500
|
|
|
|
-
|
|
|
$
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
of Control with Triggering Event
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Zercher
|
|
2x
|
|
$
|
700,000
|
|
|
$
|
44,746
|
|
|
$
|
224,400
|
|
|
|
-
|
|
|
$
|
969,146
|
|
Andrea
S. Jentsch
|
|
1x
|
|
$
|
250,000
|
|
|
$
|
14,622
|
|
|
$
|
27,500
|
|
|
|
-
|
|
|
$
|
292,122
|
|
(1)
|
Health and dental insurance payments and group-term life insurance and long-term disability insurance payments have been estimated based on current rates for a period or 24 months for Mr. Zercher and 12 months for Ms. Jentsch.
|
(2)
|
The dollar amount is calculated based on the closing price of our common stock on December 31, 2019.
|
(3)
|
The dollar amount is calculated as the difference between the stock option exercise price versus the closing price of our common stock on December 31, 2019. On December 31, 2019, the exercise price of the outstanding options exceeded the closing price of our common stock.
|
Equity Plans
Equity Incentive
Plan. On October 21, 2010, we established the 2010 Equity Incentive Plan (the “EIP”) for officers, employees, directors,
consultants and advisors to the Company and its affiliates, consisting of 4,250,000 shares of common stock reserved for issuance
under the EIP. The EIP has a term of ten years and is administered by our Board or a committee to be established by our Board,
to determine the various types of incentive awards that may be granted to recipients under this plan, such as stock grants, stock
options, stock appreciation rights, performance share awards, restricted stock and restricted stock units, and the number of shares
of common stock to underlie each such award under the EIP. There are no additional shares of common stock available for issuance
under the EIP.
22nd Century Group,
Inc. 2014 Omnibus Incentive Plan. Our Board of Directors adopted, and our stockholders approved at our 2014 annual meeting
of stockholders, the 22nd Century Group, Inc. 2014 Omnibus Incentive Plan (the “Plan”). The Plan allows for the granting
of equity and cash incentive awards to eligible individuals, including the issuance of shares of our common stock pursuant to awards
under the Plan. The approval of the Plan in 2014 included the authorization of 5,000,000 shares of our common stock to underlie
awards under the Plan. Our Board of Directors subsequently adopted, and our stockholders approved at our 2017 annual meeting of
stockholders, an amendment to the Plan authorizing an additional 5,000,000 shares of our common stock to underlie awards under
the Plan. Our Board of Directors later adopted, and our stockholders approved at our 2019 annual meeting of stockholders, a further
amendment to the Plan authorizing another 5,000,000 shares of our common stock to underlie awards under the Plan. Awards under
the Plan are intended to support the creation of long-term value for our stockholders. We believe the Plan strikes an appropriate
balance between rewarding performance and limiting stockholder dilution, while providing our Company with the flexibility to meet
changing compensation needs. The Compensation Committee of our Board of Directors administers the Plan. The Plan permits the grant
of stock options (including incentive stock options), stock appreciation rights, restricted stock, restricted stock units, performance
shares, performance units, annual cash incentives, long-term cash incentives, dividend equivalent units and other types of stock-based
awards.
Compensation Policies and Practices and Risk Management
The Compensation Committee
considers, in establishing and reviewing our compensation philosophy and programs, whether such programs encourage unnecessary
or excessive risk taking. Base salaries are fixed in amount and consequently the Compensation Committee does not see them as encouraging
risk taking. We also provide NEOs with equity awards to help further align their interests with those of our stockholders. The
Compensation Committee believes that these awards do not encourage unnecessary or excessive risk taking since the awards are generally
provided at the beginning of an employee’s tenure or at various intervals to award achievements or provide additional incentive
to build long-term value and are subject to vesting schedules to help ensure that executives have significant value tied to our
long-term corporate success and performance.
The Compensation Committee
believes that our compensation philosophy and programs encourage employees to strive to achieve both short- and long-term goals
that are important to our success and building stockholder’s value, without promoting unnecessary or excessive risk taking.
The Compensation Committee has concluded that our compensation philosophy and practices are not reasonably likely to have a material
adverse effect on us.
Compensation Committee Interlocks and Insider Participation
During the last fiscal
year, no member of the Compensation Committee had a relationship with us that required disclosure under Item 404 of Regulation
S-K. During the past fiscal year, none of our executive officers served as a member of the board of directors or Compensation Committee,
or other committee serving an equivalent function, of any entity that has one or more executive officers who served as members
of our Board of Directors or our Compensation Committee. None of the members of our Compensation Committee is an officer or employee
of our Company, nor have they ever been an officer or employee of our Company
Compensation Committee Report
Our Compensation Committee
has reviewed and discussed the “Compensation Discussion and Analysis” contained in this proxy statement with management.
Based on our Compensation Committee’s review and discussions with management, our Compensation Committee recommended to our
Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Richard M. Sanders (Chair)
Nora B. Sullivan
Roger D. O’Brien
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our policy is to enter
into transactions with related persons on terms that, on the whole, are no less favorable to us than those available from unaffiliated
third parties. Our Board of Directors has adopted written policies and procedures regarding related person transaction. For purposes
of these policies and procedures:
|
·
|
A “related person” means any of our directors, executive officers, nominees for director,
holder of 5% or more of our common stock or any of their immediate family members; and
|
|
·
|
A “related person transaction” generally is a transaction (including any indebtedness
or a guarantee of indebtedness) in which we were or are to be a participant and the amount involved exceeds $120,000 and in which
a related person had or will have a direct or indirect material interest.
|
Each of our executive
officers, directors or nominees for director is required to disclose to our Audit Committee certain information relating to related
person transactions for review, approval or ratification by our Audit Committee. In making a determination about approval or ratification
of a related person transaction, our Audit Committee will consider the information provided regarding the related person transaction
and whether consummation of the transaction is believed by the committee to be in our best interests. Our Audit Committee may take
into account the effect of a director’s related person transaction on the director’s status as in independent member
of our Board of Directors and eligibility to serve on committees of our Board under SEC rules and the listing standards of the
NYSE American. Any related person transaction must be disclosed to our full Board of Directors. There were no related party transactions
in 2019 and 2018.
PROPOSAL NO. 2
ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION
We
are asking stockholders to approve an advisory resolution on the Company's 2019 executive compensation as reported in this proxy
statement.
We
urge stockholders to read the "Executive Compensation" section beginning on page 14 of this proxy statement, as well
as the Compensation Discussion and Analysis, the Summary Compensation Table and other related compensation tables and narrative
in this proxy statement, which provide detailed information on the compensation of our NEOs.
In
accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking stockholders
to approve the following advisory resolution:
RESOLVED, that
the stockholders of 22nd Century Group, Inc. (the “Company”) approve, on an advisory basis, the 2019 compensation of
the Company's named executive officers disclosed in the Executive Compensation section and the related compensation tables, notes
and narrative in the Proxy Statement for the Company's 2020 Annual Meeting of Stockholders.
This
advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board of Directors. Although
non-binding, the Board and Compensation Committee will review and consider the voting results when making future decisions regarding
our executive compensation program.
Our Board of Directors
recommends a vote FOR the approval of the advisory resolution on executive compensation.
PROPOSAL NO. 3
THE RATIFICATION OF THE APPOINTMENT OF FREED MAXICK CPAs, P.C. AS
THE COMPANY’S INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM FOR
FISCAL YEAR 2020
The Audit Committee
has appointed Freed Maxick CPAs, P.C. (“Freed”) as our independent registered certified public accounting firm for
the fiscal year 2020 and has further directed that the selection of Freed be submitted to a vote of stockholders at the annual
meeting for ratification.
In selecting Freed
to be our independent registered public accounting firm for 2020, our Audit Committee considered the results from its review of
Freed’s independence, including (i) all relationships between Freed and our Company and any disclosed relationships or services
that may impact Freed’s objectivity and independence; (ii) Freed’s performance and qualification as an independent
registered public accounting firm; and (iii) the fact that the Freed engagement audit partner is rotated on a regular basis as
required by applicable laws and regulations.
Our Audit Committee
charter does not require that our stockholders ratify the selection of Freed as our independent registered public accounting firm.
We are doing so because we believe it is a matter of good corporate governance practice. If our stockholders do not ratify the
selection, our Audit Committee may reconsider whether to retain Freed, but still may retain the firm. Even if the selection is
ratified, our Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that
such a change would be in the best interests of us and our stockholders.
Representatives of
Freed are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they
desire, to make a statement.
Our Board of Directors recommends a vote
FOR the ratification of the appointment of
Freed Maxick CPAs, P.C. as our independent registered certified public accounting firm for the year 2020.
If the appointment is not ratified, our Audit Committee will consider whether it should select another
independent registered certified public accounting firm.
INDEPENDENT REGISTERED CERTIFIED PUBLIC
ACCOUNTING FIRM FEES AND SERVICES
The following table shows the fees billed
to us for the audits and other services provided by for the fiscal years ended December 31, 2019 and 2018, respectively.
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Audit fees
|
|
$
|
265,000
|
|
|
$
|
196,000
|
|
Audit-related fees
|
|
|
1,000
|
|
|
|
|
|
Tax fees
|
|
|
-
|
|
|
|
-
|
|
All other fees
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
266,000
|
|
|
$
|
196,000
|
|
Audit Fees consist
of the aggregate fees billed for professional services rendered for the audit of our consolidated annual financial statements and
the quarterly reviews of financial statements and for any other services that are normally provided by our independent registered
public accountants in connection with our statutory and regulatory filings or engagements.
Audit Related Fees
consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably
related to the performance of the audit or review of our financial statements and the financial statements of our subsidiaries
that were not otherwise included in Audit Fees. The Audit Fees included service rendered in connection with the filing of registration
statements during 2019.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit
Services
The Audit Committee,
in accordance with its charter, must pre-approve all non-audit services provided by our independent registered public accountants.
The Audit Committee generally pre-approves specified series in the defined categories of audit services, audit related services
and tax services up to specified amounts. Pre-approval may also be given as part of our Audit Committee’s approval of the
scope of the engagement of the independent registered public accountants or on an individual, explicit case-by-case basis before
the independent auditor is engaged to provide each service.
The Audit Committee
has considered whether the provision of the services not related to the audit of the financial statements acknowledged in the table
above was compatible with maintaining the independence of Freed and is of the opinion that the provision of these services
was compatible with maintaining Freed’s independence.
AUDIT COMMITTEE REPORT
The Audit Committee
has reviewed and discussed the audited financial statements with management, which has represented that the financial statements
were prepared in accordance with accounting principles generally accepted in the United States. The Audit Committee discussed with
management the quality and acceptability of the accounting principles employed, including all critical accounting policies used
in the preparation of the financial statements and related notes, the reasonableness of judgments made, and the clarity of the
disclosures included in the statements.
The Audit Committee
also reviewed our consolidated financial statements for fiscal 2019 with Freed, our independent public accounting firm for fiscal
2019, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles
generally accepted in the United States. The Board of Directors has discussed with Freed the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended.
The Audit Committee
has received the written disclosures and the letter from Freed mandated by applicable requirements of the Public Company Accounting
Oversight Board regarding the independent auditors' communications with the Board of Directors concerning independence and has
discussed with Freed its independence and has considered whether the provision of non-audit services provided by Freed is compatible
with maintaining Freed’s independence.
Based on the reviews
and discussions referred to above, the Board of Directors recommended that the audited financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2019 for filing with the Securities and Exchange Commission.
The Board of Directors has selected Freed as our independent auditor for 2020.
This report is submitted by the members
of the Audit Committee of the Board of Directors:
Nora B. Sullivan (Chair)
|
|
Richard M. Sanders
|
|
Roger D. O’Brien
|
|
STOCKHOLDER PROPOSALS FOR THE 2021
MEETING
Our amended and restated
bylaws provide that, for matters to be properly brought before an annual meeting, business must be either (i) specified in the
notice of annual meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii)
otherwise brought before the annual meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought
before the annual meeting by a stockholder.
Stockholder proposals
intended for inclusion in our proxy statement relating to the next annual meeting in 2021 must be received by us no later than
November 17, 2020. Any such proposal must comply with Rule 14a-8 of Regulation 14A of the proxy rules of the SEC.
Notice to us of a stockholder
proposal submitted otherwise than pursuant to Rule 14a-8 also will be considered untimely if received at our principal executive
offices other than during the time period set forth below and will not be placed on the agenda for the meeting. In addition to
any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to our secretary. To be timely, a stockholder’s notice must be delivered
to the secretary at our principal executive offices not later than the close of business on the ninetieth (90th) day nor earlier
than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s
annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or
more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close
of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by us.
IMPORTANT NOTICE REGARDING THE INTERNET
AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING TO BE HELD ON
MAY 1, 2020
This proxy statement and our 2019 Annual
Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC, are available at www.xxiicentury.com/investors/sec-filings
. For directions to the annual meeting, please contact the Buffalo Club at 716-886-6400.
OTHER MATTERS
The Board knows of
no matter to be brought before the annual meeting other than the matters identified in this proxy statement. However, if any other
matter properly comes before the annual meeting or any adjournment of the meeting, it is the intention of the persons named in
the proxy solicited by the Board to vote the shares represented by them in accordance with their best judgment.
|
BROADRIDGE CORPORATE ISSUER SOLUTIONS C/O 22ND CENTURY GROUP, INC. P.O.BOX 1342 BRENTWOOD, NY 11717 VOTE BY INTERNET - www.proxyvote.com Use the internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY 0000445901_1 R1.0.1.18 For Withhold For All AllAllExcept The Board of Directors recommends you vote FOR the following: To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 000 1. Election of Directors Nominees 01 Clifford B. Fleet02 Roger D. O'Brien The Board of Directors recommends you vote FOR the following proposals: To approve, by non-binding vote, 2019 executive compensation. Ratification of the appointment of Freed Maxick CPAs as the independent registered public accounting firm. ForAgainst Abstain 000 000 NOTE: Such other business as may properly come before the meeting or any adjournment thereof. For address change/comments, mark here. (see reverse for instructions) Please indicate if you plan to attend this meeting Yes 0 No 0 0 Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement, Shareholder Letter is/are available at www.proxyvote.com 22ND CENTURY GROUP, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS ANNUAL MEETING OF STOCKHOLDERS MAY 1, 2020 The stockholder(s) hereby appoint(s) Michael Zercher and Andrea Jentsch or either of them, as proxies, each with the power to appoint his/her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of 22ND CENTURY GROUP, INC. that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 10:30 a.m., Eastern Time on Friday, May 1, 2020, at the Buffalo Club, 388 Delaware Avenue, Buffalo, NY 14202, and any adjournment or postponement thereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR PROPOSALS 2 AND 3. 0000445901_2 R1.0.1.18 (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side
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