22nd Century Group, Inc. (OTCBB:XXII) announced a private placement of 2,500 series A-1 10% convertible preferred stock at $1,000 per share with certain accredited investors for gross proceeds of $2,500,000 on January 11, 2013. The preferred shares are convertible into a total of 4,166,667 common shares at a conversion price of $0.60 per share, subject to future adjustments. The company also issued a five-year series A warrant which entitles the holders to purchase up to an additional 4,166,667 common shares at an exercise price of approximately $0.72 per share. The investors will be entitled to receive, and the company will pay, cumulative dividends at the rate per share of 10% per annum payable quarterly on January 1, April 1, July 1, and October 1, beginning on the first such date after the original issue date and on each conversion date. The company also granted the investors in the form of a series B warrant, a one-year over-allotment option to purchase up to an aggregate of 2,083,333 additional common shares at a price of $0.60 per share. The series B warrants will mature in one year. The series B warrant may not be exercised on a cashless basis except only in certain limited circumstances. In the event the investors exercise, in whole or in part the over-allotment option, then the investors will have the right to exercise on a pro-rata basis the portion of the series C warrant issued to the investors to acquire up to an additional aggregate of 2,083,333 common shares at an exercise price of approximately $0.72 per share. The series C warrants will expire in five years. Any dividends, whether paid in cash or company's shares, that are not paid within three trading days following a dividend payment date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue daily from the dividend payment date through and including the date of actual payment in full. The agreement may be terminated by any investor, as to such investor's obligations hereunder only and without any effect whatsoever on the obligations between the company and the other investors, by written notice to the other parties, if the closing has not been consummated on or before January 16, 2013.

Stephen Bent of Foley & Lardner LLP served as the legal advisor to the company. Chardan Capital Markets, LLC acted as an exclusive placement agent to the company. The company paid a commission equivalent to 10% of the gross proceeds and issued 416,666 shares to the placement agent. In the event the investor exercise for cash any of the warrants issued to the investor in the transaction, then the company will also pay an additional cash commission to the agent equal to 8% of any such additional cash amounts received by the company. Ellenoff Grossman & Schole LLP served as the legal advisor to Sabby Management, LLC. The company paid $50,000 to Ellenoff Grossman & Schole LLP for its legal and due diligence fees and expenses. Sabby Volatility Warrant Master Fund, Ltd. and Sabby Healthcare Volatility Master Fund, Ltd., funds managed by Sabby Management, LLC purchased 2,000 preferred shares, 3,333,333 series A warrants, 1,666,667 series B warrants, and 1,666,667 series C warrants for gross proceeds of $2,000,000 in the transaction. The securities were issued pursuant to Regulation D and Regulation S.

On January 11, 2013, 22nd Century Group, Inc. closed the transaction.