CONFIDENTIAL 22nd Century Group, Inc. 11923 SW 37 Terrace Miami, FL 33175 Attn.: Mr. David Rector, CEO Dear Mr. Rector:
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January
25, 2011
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CONFIDENTIAL
22nd Century
Group, Inc.
00000 XX
00 Xxxxxxx
Miami, FL
33175
Attn.:
Xx. Xxxxx Xxxxxx, CEO
Dear Xx.
Xxxxxx:
Xxxxxx
& Xxxxxxx, LLC (“Xxxxxx”), a Delaware limited liability company, is pleased
to act as the exclusive financial advisor to 22nd Century Group, Inc., a Nevada
corporation (the “Company”) with respect to the matters set forth
herein. This letter agreement (the “Agreement”) sets forth the terms
of our engagement.
1. Services. During
the Term (as defined below), Xxxxxx shall provide the Company with financial
advisory and consulting services from time to time as requested by the
Company. In such capacity, Xxxxxx shall advise the Company with
respect to financial matters relating to the Company’s capital structure and
financing needs. Xxxxxx shall not be required to render services in
excess of 10 hours per calendar month. All such services may be
rendered telephonically
2. Term. Xxxxxx’x
obligation to provide the services described in Section 1 shall commence on the
date that the Company consummates the merger contemplated by that certain
Agreement and Plan of Merger and Reorganization, dated as of January 25, 2011,
by and among the Company, 22nd Century
Acquisition Subsidiary, LLC, a wholly-owned subsidiary of the Company, and
22nd
Century Limited, LLC (the “Merger”) and shall continue for a period of one
year. Notwithstanding anything
to the contrary contained herein, the provisions concerning indemnification,
contribution and the Company’s obligations to pay fees and reimburse expenses
contained herein will survive any expiration or termination of this
Agreement.
3. Fees. In
consideration for the services to be provided by Xxxxxx hereunder, immediately
upon consummation of the Merger, the Company shall issue to Xxxxxx a warrant,
substantially in the form annexed hereto as Exhibit A (the “Warrant Shares”),
entitling Xxxxxx to purchase 500,000 shares (the “Warrant”) of the common stock,
par value $0.00001 per share, of the Company, at an exercise price of $1.50 per
share at any time during the five-year period beginning on the date the Merger
is consummated. The terms of the warrant shall include, among other provisions,
anti-dilution protection in the event of stock dividends and combinations, stock
splits, stock issuances for consideration less than the exercise price (subject
to carve outs for stock issuances pursuant to equity incentive plans approved by
the Company’s board of directors and ratified by shareholders), reorganizations,
mergers and consolidations, a “cashless” or “net exercise” provision and
“piggyback” registration rights with respect to the Warrant Shares (including
any shares issued as a result of the anti-dilution provisions of the
Warrant.)
4. Expenses. In
addition to the Warrant, whether or not a transaction is consummated, the
Company hereby agrees to reimburse Xxxxxx for all reasonable travel and other
out-of-pocket expenses incurred in connection with Xxxxxx’x engagement pursuant
hereto, including the reasonable fees and expenses of Xxxxxx’x counsel; provided, however, any single
expense or group of related expenses, in excess of $5,000 shall require the
prior written approval of the Company’s chief executive officer or chief
financial officer, which approval shall be binding on the
Company. Nothing contained in this Section 4 shall be construed
as limiting or impairing Xxxxxx’x right to indemnification and contribution
under Section 7 hereof in any way.
Xxxxxx
& Xxxxxxx, LLC 0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000
Tel: 000 000 0000 Fax: 000 000 0000
xxx.xxxx.xxx Member: FINRA,
SIPC
5. Right of First
Refusal. If at any time during the two-year period following
the date on which the Merger is consummated, the Company or any of its
affiliates, as defined in Rule 144 promulgated under the Securities Act of 1933,
as amended, (“Affiliates”) (i) disposes of or acquires business units (whether
in a transaction involving the purchase and sale of stock or assets) or acquires
any of its outstanding securities or make any exchange or tender offer or enters
into a merger, consolidation or other business combination or any
recapitalization, reorganization, restructuring or other similar transaction,
including without limitation, an extraordinary dividend or distributions or a
spin-off or split-off, and the Company decides to retain a financial advisor for
such transaction; (ii) decides to issue (including by way of refinance) any
indebtedness for borrowed money using a financial manager or agent, or (ii)
determines to raise capital by means of a public offering or a private placement
of debt or equity securities using an underwriter or a placement agent, then in
each such instance Xxxxxx (or any Affiliate designated by Xxxxxx) shall have the
first preferential right to act as the lead advisor, lead manager, lead agent,
managing underwriter, lead book runner or lead placement agent with respect to
such transaction on ordinary and customary terms to be agreed upon by the
parties. In the event the Company decides to pursue any of the
transactions described in clauses (i), (ii)or (iii) of the first sentence if
this Section 5, it shall provide written notice of such desire or intent, which
notice shall specify the material terms of such transaction, including the
nature of the proposed transaction and the expected size of the
transaction. Xxxxxx shall have twenty (20) business days from its
receipt of such notice to inform the Company that it is exercising its
preferential right of first refusal as specified in this Section
5. If Xxxxxx decides to accept such engagement, the agreement
governing such engagement shall contain, among other things, provisions for
customary fees and other compensation for transactions of similar size and terms
and shall also contain provisions for indemnification and
contribution. If Xxxxxx and the Company are unable to reach agreement
on such ordinary and customary terms, and the Company proposes to pursue any
such transaction using a financial advisor, lead manager, lead placement agent,
lead agent or managing underwriter other than Xxxxxx, the Company shall first
provide Xxxxxx, in writing, with the proposed terms of any bona fide arms-length
negotiated terms of such engagement (the “Notice”). If, within twenty
(20) business days of the receipt the Notice, Xxxxxx does not accept, in
writing, the engagement to which the Notice pertains pursuant to terms no less
favorable to the Company than those set forth in the Notice, then the Company
shall be free to negotiate and enter into an engagement with any third-party
financial advisor, lead manager, lead placement agent, lead agent or managing
underwriter with regard to the transactions to which the Notice
pertains. Xxxxxx’x failure to exercise the rights set forth in this
Section 5 with regard to any particular transaction contemplated hereby shall
not affect Xxxxxx’x rights as set forth in this Section 5 with regard to any
subsequent transaction within the period contemplated by this Section
5.
6. Use of
Information. The Company will furnish Rodman such written
information as Xxxxxx reasonably requests in connection with the performance of
its services hereunder. The Company understands, acknowledges and
agrees that, in performing its services hereunder, Xxxxxx will use and rely
entirely upon such information as well as publicly available information
regarding the Company and that Xxxxxx does not assume responsibility for
independent verification of the accuracy or completeness of any information,
whether publicly available or otherwise furnished to it, concerning the Company,
including, without limitation, any financial information, forecasts or
projections considered by Xxxxxx in connection with the provision of its
services.
7. Publicity. In
the event of the consummation or public announcement of any transaction
hereunder, Xxxxxx shall have the right (i) to approve the text of any such
announcement and (ii) to disclose its participation in such transaction,
including, without limitation, the placement at its cost of “tombstone”
advertisements in financial and other newspapers and journals.
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8. Securities
Matters. The Company shall be responsible for any and all
compliance with the securities laws applicable to it, other than those
applicable to Xxxxxx in its capacity as a financial advisor hereunder. Xxxxxx
agrees to cooperate with counsel to the Company in that regard.
9. Indemnity.
(a) In
connection with the Company’s engagement of Xxxxxx as its financial advisor, the
Company hereby agrees to indemnify and hold harmless Xxxxxx and its Affiliates,
and the respective controlling persons, directors, officers, shareholders,
members, agents and employees of any of the foregoing (collectively the
“Indemnified Persons”), from and against any and all claims, actions, suits,
proceedings (including those of shareholders), damages, liabilities and expenses
incurred by any of them, including the reasonable fees and expenses of counsel,
as incurred, (collectively a “Claim”), (i) which are related to or arise out of
(a) any actions taken or omitted to be taken (including any untrue statements
made or any statements omitted to be made) by the Company, or (b) any actions
taken or omitted to be taken by any Indemnified Person in connection with the
Company’s engagement of Xxxxxx, or (ii) otherwise relate to or arise out of
Xxxxxx’x activities on the Company’s behalf under Xxxxxx’x engagement, and the
Company shall reimburse any Indemnified Person for all expenses (including the
reasonable fees and expenses of counsel) incurred by such Indemnified Person in
connection with investigating, preparing or defending any such claim, action,
suit or proceeding, as incurred, whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. The
Company will not, however, be responsible for any Claim, which is finally
judicially determined to have resulted from the gross negligence or willful
misconduct of any person seeking indemnification for such Claim. The
Company further agrees that no Indemnified Person shall have any liability to
the Company for or in connection with the Company’s engagement of Xxxxxx except
for any Claim incurred by the Company as a result of such Indemnified Person’s
gross negligence or willful misconduct.
(b) The
Company further agrees that it will not, without the prior written consent of
Xxxxxx, settle, compromise or consent to the entry of any judgment in any
pending or threatened Claim in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Person is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes an
unconditional, irrevocable release of each Indemnified Person from any and all
liability arising out of such Claim.
(c) Promptly
upon receipt by an Indemnified Person of notice of any complaint or the
assertion or institution of any Claim with respect to which indemnification is
being sought hereunder, such Indemnified Person shall notify the Company in
writing of such complaint or of such assertion or institution, but failure to so
notify the Company shall not relieve the Company from any obligation it may have
hereunder, except and only to the extent such failure results in the forfeiture
by the Company of substantial rights and defenses. If the Company so
elects or is requested by such Indemnified Person, the Company will assume the
defense of such Claim, including the employment of counsel reasonably
satisfactory to both the Company and such Indemnified Person and the payment of
the fees and expenses of such counsel. In the event, however, that such legal
counsel reasonably determines that having common counsel would present such
counsel with a conflict of interest or if the defendant in, or target of, any
such Claim, includes an Indemnified Person and the Company, and such legal
counsel reasonably concludes in writing that there may be legal defenses
available to such Indemnified Person or other Indemnified Persons different from
or in addition to those available to the Company, then such Indemnified Person
may employ its own separate counsel to represent or defend him, her or it in any
such Claim and the Company shall pay the reasonable fees and expenses of such
counsel. Notwithstanding anything herein to the contrary, if the
Company fails timely or diligently to defend, contest, or otherwise protect
against any Claim, the relevant Indemnified Person shall have the right, but not
the obligation, to defend, contest, compromise, settle, assert crossclaims, or
counterclaims or otherwise protect against the same, and shall be fully
indemnified by the Company therefor, including without limitation, for the
reasonable fees and expenses of its counsel and all amounts paid as a result of
such Claim or the compromise or settlement thereof. In addition, with
respect to any Claim in which the Company assumes the defense, the Indemnified
Person shall have the right to participate in such Claim and to retain his, her
or its own counsel therefor at his, her or its own expense.
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(d) The
Company agrees that if any indemnity sought by an Indemnified Person hereunder
is held by a court to be unavailable for any reason then (whether or not Xxxxxx
is the Indemnified Person), the Company and Xxxxxx shall contribute to the Claim
for which such indemnity is held unavailable in such proportion as is
appropriate to reflect the relative benefits to the Company, on the one hand,
and Xxxxxx on the other, in connection with Xxxxxx’x engagement referred to
above, subject to the limitation that in no event shall the amount of Xxxxxx’x
contribution to such Claim exceed the amount of fees actually received by Xxxxxx
from the Company pursuant to Xxxxxx’x engagement. The Company hereby
agrees that the relative benefits to the Company, on the one hand, and Xxxxxx on
the other, with respect to Xxxxxx’x engagement shall be deemed to be in the same
proportion as (a) the total value paid or proposed to be paid or received by the
Company or its stockholders as the case may be, pursuant to any transaction
(whether or not consummated) for which Xxxxxx is engaged to render services
bears to (b) the fee paid or proposed to be paid to Xxxxxx in connection with
such engagement.
(e) The
Company’s indemnity, reimbursement and contribution obligations under this
Agreement (a) shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any Indemnified Person may have at law or at
equity and (b) shall be effective whether or not the Company is at fault in any
way.
10. Limitation of Engagement to
the Company. The Company acknowledges that Xxxxxx has been
retained only by the Company, that Xxxxxx is providing services hereunder as an
independent contractor (and not in any fiduciary or agency capacity) and that
the Company’s engagement of Xxxxxx is not deemed to be on behalf of, and is not
intended to confer rights upon, any shareholder, owner or partner of the Company
or any other person not a party hereto as against Xxxxxx or any of its
Affiliates, or any of its or their respective officers, directors, controlling
persons (within the meaning of Section 15 of the Securities Act of 1933, as
amended (the “Securities Act”) or Section 20 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), employees or agents. Unless
otherwise expressly agreed in writing by Xxxxxx, no one other than the Company
is authorized to rely upon this Agreement or any other statements or conduct of
Xxxxxx, and no one other than the Company is intended to be a beneficiary of
this Agreement. The Company acknowledges that any recommendation or
advice, written or oral, given by Xxxxxx to the Company in connection with
Xxxxxx’x engagement is intended solely for the benefit and use of the Company’s
management and directors in considering a possible transaction, and any such
recommendation or advice is not on behalf of, and shall not confer any rights or
remedies upon, any other person or be used or relied upon for any other
purpose. Xxxxxx shall not have the authority to make any commitment
binding on the Company. The Company, in its sole discretion, shall
have the right to reject any transaction introduced to it by
Xxxxxx.
11. Limitation of Xxxxxx’x
Liability to the Company. Xxxxxx and the Company further agree
that neither Xxxxxx nor any of its affiliates or any of their respective
officers, directors, controlling persons (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act), employees or agents shall
have any liability to the Company, its security holders or creditors, or any
person asserting claims on behalf of or in the right of the Company (whether
direct or indirect, in contract, tort, for an act of negligence or otherwise)
for any losses, fees, damages, liabilities, costs, expenses or equitable relief
arising out of or relating to this Agreement or the services rendered hereunder,
except for losses, fees, damages, liabilities, costs or expenses that arise out
of or are based on any action of or failure to act by Xxxxxx and that are
finally judicially determined to have resulted solely from the gross negligence
or willful misconduct of Xxxxxx.
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12. Governing Law;
Costs. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be fully performed therein. Any disputes which arise under
this Agreement will be heard only in the state or federal courts located in the
City of New York, State of New York. The parties hereto expressly
agree to submit themselves to the jurisdiction of the foregoing courts in the
City of New York, State of New York. The parties hereto expressly
waive any rights they may have to contest the jurisdiction, venue or authority
of any court sitting in the City and State of New York. In the event
of the bringing of any action, proceeding or suit by a party hereto against the
other party hereto, arising out of or relating to this Agreement, the party in
whose favor the final judgment or award shall be entered shall be entitled to
have and recover from the other party the costs and expenses incurred in
connection therewith, including its reasonable attorneys’ fees. Any
rights to trial by jury with respect to any such action, proceeding or suit are
hereby waived by Xxxxxx and the Company.
13. Notices. All
notices hereunder will be in writing and sent by certified mail, hand delivery,
overnight delivery or fax, if sent to Xxxxxx, to Xxxxxx & Xxxxxxx, LLC, 0000
Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, fax number (000)
000-0000, Attention: General Counsel, and if sent to the Company, to 0000 Xxxx
Xxxxxx, Xxxxx 0, Xxxxxxxxxxxxx, Xxx Xxxx 00000, fax number (000) 000-0000,
Attention: Xxxxxx Xxxxxxxxxx, with a copy to Xxxxx & Xxxxxxx LLP, 0000 X
Xxxxxx X.X., Xxxxx 000, Xxxxxxxxxx, X.X. 00000, Attention: Xxxxxx X. Xxxxx,
Esq. Notices sent by certified mail shall be deemed received three
business days thereafter, notices sent by hand delivery or overnight delivery
shall be deemed received on the date of the relevant written record of receipt,
and notices delivered by fax shall be deemed received as of the date and time
printed thereon by the fax machine.
14. Miscellaneous. This
Agreement shall not be modified or amended except in writing signed by Xxxxxx
and the Company. This Agreement shall be binding upon and inure to
the benefit of Xxxxxx and the Company and their respective assigns, successors,
and legal representatives. This Agreement constitutes the entire
agreement of Xxxxxx and the Company, and supersedes any prior agreements, with
respect to the subject matter hereof. If any provision of this
Agreement is determined to be invalid or unenforceable in any respect, such
determination will not affect such provision in any other respect, and the
remainder of this Agreement shall remain in full force and
effect. This Agreement may be executed in counterparts (including
facsimile and .pdf counterparts), each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
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In
acknowledgment that the foregoing correctly sets forth the understanding reached
by Xxxxxx and the Company, please sign in the space provided below, whereupon
this letter shall constitute a binding agreement as of the date indicated
above.
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Very
truly yours,
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XXXXXX
& XXXXXXX, LLC
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By:
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/s/ Xxxx Xxxxx
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Name:
Xxxx Xxxxx
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Title:
Senior Managing
Director
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Accepted
and Agreed to as of
the date
first written above:
22ND CENTURY
GROUP, INC.
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By:
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/s/ Xxxxx Xxxxxx
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Name: Xxxxx
Xxxxxx
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Title:
Chief Executive
Officer
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