Business Context and Reporting Period
This Form 8-K was filed by 22nd Century Group, Inc. on November 6, 2015, reporting events occurring on that date and referencing a press release issued on November 9, 2015. The filing primarily addresses the resolution of disputes with former director Joseph Pandolfino and Alternative Cigarettes ("AC"), alongside a reference to third-quarter financial results.
Key Financial Metrics
The filing text does not provide specific revenue, profit, cash flow, margin, or debt figures for the Company. It references an earnings press release (Exhibit 99.1) for the quarter ended September 30, 2015, but does not contain the numerical data within this document.
Specific financial terms related to the settlement agreement include:
- Receivables from AC: Total amount due was $46,069.
- Cash Settlement: AC agreed to pay $23,069 in cash.
- Promissory Note: AC issued a note for the remaining $23,000, due by December 1, 2015, guaranteed by Mr. Pandolfino.
- Consulting Fees: The Company agreed to pay Mr. Pandolfino $6,000 per month for a 30-month period.
- Stock Options: 100,000 shares at an exercise price of $1.43 per share, vesting on March 3, 2016.
Material Changes
The most significant material change is the departure of Mr. Joseph Pandolfino from the Board of Directors, effective November 6, 2015. This change resulted from a settlement agreement resolving all disputes between the Company, Mr. Pandolfino, and AC. Additionally, AC has agreed to cease operations and liquidate or be sold by December 31, 2015.
Outlook, Risks, and Contingencies
Management Commentary and Settlement Terms:
- Lock-Up Agreement: Mr. Pandolfino agreed not to sell or transfer shares until December 31, 2016, contingent on timely severance and consulting payments.
- Voting Restrictions: Mr. Pandolfino agreed not to vote against current directors or support changes in control unless endorsed by the Nominating Committee.
- Severance: The Company will pay accrued severance and continue payments over the remainder of a three-year period following the prior termination date.
- Consulting Role: Mr. Pandolfino will serve as a consultant for 30 months, with an option to terminate after 12 months with 30 days' notice.
- Guaranty Removal: The Company agreed to remove Mr. Pandolfino as a guarantor on a pre-existing bank loan by December 31, 2015.
Risks and Contingencies:
- The settlement is contingent on the Company making severance and consulting payments in a timely manner; failure to do so could void the lock-up and voting restrictions.
- Mr. Pandolfino remains bound by non-compete, confidentiality, and non-solicitation provisions.
- Both parties agreed to pay their own litigation expenses.
Investor Verification Checklist
- Verify the actual Q3 2015 financial results (revenue, net income, cash flow) in the referenced Exhibit 99.1, as they are not included in this text.
- Confirm the status of the $23,000 promissory note from AC and whether it was paid by the December 1, 2015 deadline.
- Monitor the Company's cash flow to ensure it can meet the ongoing $6,000 monthly consulting obligation and severance payments.
- Check subsequent filings to confirm Mr. Pandolfino's removal as a guarantor on the bank loan by December 31, 2015.
- Review the liquidation or sale status of Alternative Cigarettes (AC) as required by the settlement.