Item 5.02: Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On October 31, 2017,
the Board of Directors of 22nd Century Group, Inc. (the “Company”) appointed James E. Swauger, Ph.D., as Senior Vice
President of Science and Regulatory Affairs of the Company.
Dr. Swauger, age 56,
was previously a leader of the scientific and regulatory functions at Reynolds American Inc. and its affiliates (“Reynolds”)
where Dr. Swauger was employed for 23 years from 1993 through 2016 in various positions of significant scientific and regulatory
responsibilities with Reynolds, including his service as the Vice President of Regulatory Oversight at Reynolds from 2008 to 2016.
Dr. Swauger executed
an employment agreement with the Company, dated as of October 31, 2017 (the “Employment Agreement”), for an initial
term of three years that automatically renews on an annual basis thereafter unless terminated. Pursuant to the Employment Agreement,
Dr. Swauger will earn an initial base salary of two hundred fifty thousand dollars ($250,000) and may become eligible for future
bonuses and equity awards. If Dr. Swauger’s employment is terminated by the Company without Cause or by Dr. Swauger for Good
Reason (as such terms are defined in the Employment Agreement), then Dr. Swauger will be entitled to a severance benefit in the
form of a continuation of his then-base salary for a period of six (6) months.
In connection with
his appointment, Dr. Swauger was awarded (i) a stock option to purchase nine hundred thousand (900,000) shares of the Company’s
common stock (the “Time Vesting Options”) at an exercise price of $2.12 per share, which equals the closing price per
share of the Company’s common stock on the NYSE American stock exchange on October 31, 2017, and (ii) a stock option to purchase
three hundred thousand (300,000) shares of the Company’s common stock (the “Performance Vesting Options”) at
an exercise price of $2.12 per share.
The Time Vesting Options
will vest, subject to continued employment with the Company, as follows: (i) three hundred thousand (300,000) will vest on November
1, 2018, (ii) three hundred thousand (300,000) will vest on November 1, 2019 and (iii) the final three hundred thousand (300,000)
will vest on November 1, 2020.
The Performance Vesting
Options will vest as follows: (i) one hundred thousand (100,000) will vest if and when Dr. Swauger is successful in submitting
a complete Modified Risk Tobacco Product (“MRTP”) application to the Center for Tobacco Products (“CTP”)
of the U.S. Food and Drug Administration (“FDA”) for the Company’s Very Low Nicotine MRTP candidate known as
“BRAND A” on or before March 31, 2019, (ii) one hundred thousand (100,000) will vest if and when the submitted MRTP
application is submitted by the CTP to the FDA’s Tobacco Products Scientific Advisory Committee (“TPSAC”) for
review, and (iii) the remaining one hundred thousand (100,000) will vest if and when Dr. Swauger is successful in securing a Modified
Risk Tobacco Product (“MRTP”) authorization from the FDA on or before December 31, 2020 or before the termination of
his employment, whichever is earlier (provided that the date December 31, 2020 will be modified in a corresponding fashion by any
decision to extend the required submission date of the MRTP application to the FDA).
In the event of a Change
in Control of the Company (as defined in the Employment Agreement) or the termination of Dr. Swauger’s employment by the
Company without Cause or by Dr. Swauger for Good Reason (as such terms are defined in the Employment Agreement), then the Time
Vesting Options will automatically vest on that date, but Dr. Swauger’s unvested Performance Vesting Options will not vest
and will be forfeited. In the event of the termination of Dr. Swauger’s employment by the Company with Cause or by Dr. Swauger
without Good Reason (as such terms are defined in the Employment Agreement), then all of the unvested Time Vesting Options and
all of the unvested Performance Vesting Options will not vest and will be forfeited.
There are no family
relationships between Mr. Swauger and any director, executive officer or person nominated or chosen by the Company to become a
director or executive officer. Additionally, there have been no transactions involving Mr. Swauger that would require disclosure
under Item 404(a) of Regulation S-K.
The description of
the Employment Agreement is qualified by reference to the Employment Agreement, which is attached hereto as Exhibit 10.1 to this
Current Report on Form 8-K.