Exhibit 10.1





Exhibit 10.1




Execution Version




SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT




Between




STAR SCIENTIFIC, INC.,




as Issuer,




And




The Investor Set Forth on Schedule I hereto




February 28, 2011




 


 









 







This SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is
entered into and effective as of February 28, 2011, between Star Scientific, Inc., a Delaware
corporation (the “Company”), and the investor set forth on Schedule I hereto (the
“Investor”). 



WHEREAS, the Investor has previously entered into a securities purchase and registration
rights agreements with the Company (the “Prior Agreement”), whereby the Company sold to the
Investor and the Investor purchased from the Company a warrant (the “Prior Warrant”), to
purchase the amount of shares of the Company’s common stock, par value $0.0001 per share
(“Common Stock”), set forth opposite the Investor’s name under the heading “Prior Warrant
Shares” on Schedule I hereto (the “Prior Warrant Shares”), having a per share
exercise price set forth opposite the Investor’s name under the heading “Prior Exercise Price” on
Schedule I hereto;



WHEREAS, the Company and the Investor desire that upon the terms and conditions set forth
herein that: (i) Investor will exercise its Prior Warrant in full thereby purchasing its Prior
Warrant Shares (A) at the exercise price and (B) for the aggregate exercise price set forth
opposite the Investor’s name under the headings “Exercise Price” and “Aggregate Exercise Price”,
respectively, on Schedule I hereto and that the Company issue to the Investor the Prior
Warrant Shares; and (ii) Investor will purchase from the Company and the Company will sell and
issue to the Investor a warrant, substantially in the form attached hereto as Exhibit A
(the “Warrant”), to purchase the amount of shares of the Company’s Common Stock set forth
opposite the Investor’s name under the heading “New Warrants” on Schedule I hereto (the
“Warrant Shares”), having an exercise price set forth opposite Investor’s name under the
heading “New Exercise Price” on Schedule I hereto;



WHEREAS, the Investor acknowledges that as an inducement for the Company to enter into this
Agreement, the Investor has waived its rights under Section 12 of its Prior Warrant, with regard to
the transactions contemplated hereby; and



WHEREAS, each Investor will have registration rights with respect to the Warrant Shares and
other Registrable Securities (as defined herein) pursuant to the terms of this Agreement.



NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:



1. Agreement to Sell and Purchase the Prior Warrant Shares and Warrant. At the
Closing (as defined herein), the Company will sell to the Investor, and the Investor will purchase
from the Company, upon the terms and subject to the conditions hereinafter set forth, the Prior
Warrant Shares and the Warrant for the aggregate purchase price set forth opposite the Investor’s
name under the heading “Aggregate Exercise Price” on Schedule I hereto.


 


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2. Delivery of the Prior Warrant Shares and Warrant at Closing. The completion of the
purchase, sale and issuance of the Prior Warrant Shares and the Warrant (the “Closing”)
shall occur on the date of this Agreement (the “Closing Date”) (or upon such other date as
the Company and the Investor shall agree), at the offices of the Company’s counsel. At the
Closing, the Company shall issue to the Investor as indicated on Schedule I hereto (i) one
or more stock certificates, registered in the Investor’s name and address as set forth on
Schedule I hereto, representing the
Prior Warrant Shares and (ii) the Warrant issued in the name of the Investor. The Company’s
obligation to issue the Prior Warrant Shares and the Warrant to the Investor shall be subject to
the following conditions, any one or more of which may be waived by the Company: (i) receipt by the
Company of a wire transfer of immediately available funds to an account designated in writing by
the Company, in the full amount of the total purchase price payable by the Investor for the Prior
Warrant Shares and Warrant that the Investor is hereby agreeing to purchase set forth opposite the
name of the Investor under the heading “Aggregate Exercise Price” on Schedule I hereto;
(ii) receipt by the Company of an executed Notice of Exercise Form annexed to the Prior Warrant
covering the Prior Warrant Shares of the Investor; and (iii) the accuracy, in all material
respects, of the representations and warranties made by the Investor and the fulfillment, in all
material respects, of those undertakings of the Investor to be fulfilled prior to the Closing. The
Investor’s obligation to purchase the Prior Warrant Shares shall be subject to the following
conditions, any one or more of which may be waived by an Investor (provided that no such waiver
shall be deemed given unless in writing and executed by the Investor): (i) receipt by the Investor
of a counter-signed copy of this Agreement executed by the Company; (ii) receipt by the Investor of
a copy of the Warrant; (iii) receipt by the Investor of evidence of irrevocable instructions issued
by the Company to the Company’s transfer agent instruction the transfer agent to issue to the
Investor a stock certificate representing the Investor’s Prior Warrant Shares (subject to full
satisfaction of the conditions to Closing set forth in this Section 2); and (iv) the accuracy, in
all material respects, of the representations and warranties made by the Company and the
fulfillment, in all material respects, of those undertakings of the Company to be fulfilled prior
to the Closing.



3. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to, and covenants with the Investor, as follows:



3.1 Organization. Each of the Company and its Subsidiaries (as defined in Rule 405
under the Securities Act of 1933, as amended (the “Securities Act”)) is duly organized and
validly existing in good standing under the laws of the jurisdiction of its organization. Each of
the Company and its Subsidiaries has full power and authority to own, operate and occupy its
properties and to conduct its business as presently conducted and is registered or qualified to do
business and in good standing in each jurisdiction in which it owns or leases property or transacts
business and where the failure to be so qualified would have a material adverse effect upon the
financial condition or business, operations, assets or prospects of the Company and its
Subsidiaries, taken as a whole (a “Material Adverse Effect”).



3.2 Due Authorization. The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and the Warrant, and has taken all
necessary corporate action to enter into and perform this Agreement, to issue the Prior Warrant
Shares in accordance with the terms of this Agreement, to enter into and perform the Warrant, and
to issue the Warrant Shares in accordance with the terms of the Warrant. This Agreement has been,
and upon the Closing in accordance with the terms of the Agreement, the Warrant will be, duly
authorized, validly executed and delivered by the Company and constitutes, or will constitute, a
legal, valid and binding agreement of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights
generally and except as enforceability may be subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law). Upon their
issuance in accordance with the terms of this Agreement and the Prior Warrant, the Prior Warrant
Shares will
be duly authorized, validly issued, fully paid and non-assessable, the Warrant will be duly
authorized and validly issued, and the Warrant Shares, upon exercise of the Warrant in accordance
with its terms, will be duly authorized.


 


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3.3 Non-Contravention. Except as would not reasonably be expected to have a Material
Adverse Effect, the execution and delivery of this Agreement, the issuance and sale of the Prior
Warrant Shares and the Warrant under this Agreement, the fulfillment of the terms of this Agreement
and the consummation of the transactions contemplated hereby will not (i) conflict with or
constitute a violation of, or default (with or without the giving of notice or the passage of time
or both) under, (A) any material bond, debenture, note or other evidence of indebtedness, or under
any material lease, indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or any Subsidiary is a party or by which it or any of
its Subsidiaries or their respective properties are bound, (B) the charter, by-laws or other
organizational documents of the Company or any Subsidiary, or (C) any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration panel or authority
applicable to the Company or any Subsidiary or their respective properties, or (ii) result in the
creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever
upon any of the material properties or assets of the Company or any Subsidiary or an acceleration
of indebtedness pursuant to any obligation, agreement or condition contained in any material bond,
debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of
trust or any other agreement or instrument to which the Company or any Subsidiary is a party or by
which any of them is bound or to which any of the property or assets of the Company or any
Subsidiary is subject. No consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, self-regulatory
organization, stock exchange or market, or other governmental body in the United States is required
for the execution and delivery of this Agreement, the valid issuance and sale of the Prior Warrant
Shares and Warrant pursuant to this Agreement, other than such as have been or will be made or
obtained prior to the Closing Date, and except for any securities filings required to be made under
federal or state securities laws.



3.4 SEC Filings. Since January 1, 2010, the Company and its Subsidiaries have filed
all reports, schedules, forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the “Commission”) pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (such
reports, including exhibits thereto and documents incorporated by reference therein collectively,
the “SEC Documents”). To the best of the Company’s knowledge, as of their respective filing
dates, none of the SEC Documents contained an untrue statement of material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements made
therein, in the light and circumstances under which they were made, not misleading, except to the
extent corrected by subsequently filed SEC Documents.



3.5 Absence of Certain Change. Except as disclosed in the SEC Documents, since
September 30, 2010, there has been no adverse change or adverse development in the business,
properties, assets, operations, financial condition, prospects, liabilities or results of
operations of the Company or its Subsidiaries which to the knowledge of the Company would
reasonably be expected to have a Material Adverse Effect.


 


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3.6 Capitalization. As of February 1, 2011, the authorized capital stock of the
Company consisted of (i) 187,500,000 shares of Common Stock, of which 127,119,323 shares were
issued and outstanding and 42,353,075 shares were issuable and reserved for issuance pursuant to
the Company’s stock option plans or securities exercisable or exchangeable for, or convertible
into, shares of Common Stock, and (ii) 100,000 shares of preferred stock, of which as of the date
hereof no shares were issued. All of such outstanding shares have been, or upon issuance will be,
validly issued, fully paid and nonassessable. Except as disclosed in the SEC Documents, as of the
date hereof, (i) no shares of the Company’s capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iii) there are no outstanding securities of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, and (iv) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or
agreement. The Company disclosed in its SEC Documents or has furnished to Investor true and
correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the
date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect
on the date hereof (the “By-laws”).



3.7 Registration of the Prior Warrant Shares.



(a) The Prior Warrant Shares have been duly registered for resale upon exercise of the Prior
Warrant pursuant to registration statements on Form S-3 (the “Prior Registration
Statement”) filed pursuant to the Prior Agreement.



(b) The Prior Registration Statement has been declared effective by the Commission, and no
stop order relating thereto has been issued and, to the Company’s knowledge, no such stop order has
been threatened or proceeding to issue such a stop order commenced.



(c) The prospectus contained in the Prior Registration Statement is current and may be used by
the Investor for resale of the Prior Warrant Shares.



(d) The Prior Warrant Shares are duly listed for trading on the Nasdaq Global Market (the
“Principal Market”) upon issuance.



3.8 Broker. The Company has taken no action which would give rise to any claim by any
person for brokerage commissions, finder’s fees or similar payments by the Company or the Investors
relating to this Agreement or the transactions contemplated hereby.


 


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4. Representations, Warranties and Covenants of Investor. The Investor represents and
warrants to, and covenants with, the Company, as follows:



4.1 Due Authorization; Organization. Investor has all requisite power, authority and
capacity to execute, deliver and perform its obligations under this Agreement, and has taken all
necessary corporate, company, partnership or individual action as the case may be to enter and
perform this Agreement. This Agreement has been duly authorized and validly executed and delivered
by Investor and constitutes a legal, valid and binding agreement of Investor enforceable against
Investor in accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in a proceeding in
equity or at law). Any individual retirement account (“IRA”) to which the Prior Warrant
Shares, the Warrant or Warrant Shares may be issued and delivered on behalf of the Investor, if
applicable, is duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization. Such IRA has full power and authority to own, operate and occupy
its properties and to conduct its business as presently conducted and is registered or qualified to
do business and in good standing in each jurisdiction in which it owns or leases property or
transacts business and where the failure to be so qualified would have a material adverse effect on
the financial condition of Investor or such IRA.



4.2 Non-Contravention. The execution and delivery of this Agreement, the purchase of
the Prior Warrant Shares and the Warrant under this Agreement, the fulfillment of the terms of this
Agreement and the consummation of the transactions contemplated hereby will not (i) conflict with
or constitute a violation of, or default (with or without the giving of notice or the passage of
time or both) under, (A) any material bond, debenture, note or other evidence of indebtedness, or
under any material lease, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which Investor is a party, (B) the charter, by-laws or other
organizational documents of Investor, as applicable, or (C) any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or authority applicable
to Investor or its property, or (ii) result in the creation or imposition of any lien, encumbrance,
claim, security interest or restriction whatsoever upon any of the material properties or assets of
Investor or an acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of indebtedness or any
material indenture, mortgage, deed of trust or any other agreement or instrument to which Investor
is a party or by which any of them is bound or to which any of the property or assets of Investor
is subject. No consent, approval, authorization or other order of, or registration, qualification
or filing with, any regulatory body, administrative agency, self-regulatory organization, stock
exchange or market, or other governmental body in the United States is required for the execution
and delivery of this Agreement and the purchase of the Prior Warrant Shares and the Warrant by
Investor, other than such as have been made or obtained.



4.3 Private Placement. Investor represents and warrants to, and covenants with, the
Company that Investor is acquiring the Prior Warrant Shares and the Warrant for its own account for
investment only and with no present intention of distributing any of the Prior Warrant Shares, the
Warrant or the Warrant Shares in violation of the applicable securities laws, or any arrangement or
understanding with any other persons regarding the distribution of the Prior Warrant Shares,
Warrant or Warrant Shares. Investor has been advised and understands that neither the Warrant nor
the Warrant Shares have been registered under the Securities Act or under the “blue sky” or similar
laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the
Securities Act and such other laws, if applicable, or, subject to the terms and
conditions of this Agreement, if an exemption from registration is available. Investor has
been advised and understands that the Company, in issuing the Prior Warrant Shares and the Warrant,
is relying upon, among other things, the representations and warranties of Investor herein in
concluding that such issuance is a “private offering” and is exempt from the registration
provisions of the Securities Act.


 


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4.4 Certain Trading Activities. Neither Investor nor any of its affiliates has
directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding
with such Investor, engaged in any purchase or sale of Common Stock (including, without limitation,
any Short Sales (as defined below) involving the Company’s securities) since the date that such
Investor became aware of the transactions contemplated hereby. For the purposes of this
Section 4.4, “Short Sales” include, without limitation, all “short sales” as defined in
Rule 200 of Regulation SHO adopted under the Exchange Act and all types of direct and indirect
stock pledges, forward sales contracts, options, puts, calls, short sales and other transaction
through non-US broker-dealers or foreign regulated brokers having the effect of hedging the
securities of the Company or the investment contemplated under this Agreement. The Investor
covenants that neither it, nor any person acting on its behalf or pursuant to any understanding
with it, will engage in any transaction in the securities of the Company (including short sales)
prior to the filing of a Current Report on Form 8-K, Annual Report on Form 10-K, press release, or
other applicable Exchange Act report reporting this transaction.



4.5 No Advice. Investor understands that nothing in this Agreement or any other
materials presented to Investor in connection with the purchase and sale of the Prior Warrant
Shares and the Warrant constitutes legal, tax or investment advice. Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Prior Warrant Shares and the Warrant.



4.6 Accredited Investor. Investor is an “accredited investor” as that term is defined
in Rule 501(a) of Regulation D under the Securities Act and is able to bear the risk of its
investment in the Prior Warrant Shares, Warrant, and Warrant Shares. Investor has such knowledge
and experience in financial and business matters that it is capable of evaluating the merits and
risks of the purchase of the Prior Warrant Shares, Warrant and Warrant Shares.



4.7 Limited Representations. Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the Company and its
Subsidiaries which have been requested and materials relating to the offer and sale of the Prior
Warrant Shares, Warrant, and Warrant Shares, which have been requested by Investor. Investor and
its advisors, if any, have been afforded the opportunity to ask such questions of the Company as
they deem appropriate for purposes of the investment contemplated hereby. Investor acknowledges
and agrees that the most recent disclosure of the Company’s results is for the three and nine month
periods ended on, and the most recent disclosure of the Company’s financial condition is at,
September 30, 2010, as reported on the Company’s quarterly report on Form 10-Q, filed with the
Commission on November 9, 2010, and that, except as disclosed in the SEC documents, no information
more recent than such date has been provided to Investor as to the Company’s results, operations,
financial condition, business or prospects. Investor understands that its purchase of the Prior
Warrant Shares, Warrant and, if applicable, Warrant Shares involves a high degree of risk and that
Investor may lose its entire investment in the Prior Warrant Shares, Warrant and, if applicable,
Warrant Shares, and that Investor can afford to do so without material adverse consequences to its
financial condition. Investor is not relying on any information provided by the Company and
its Subsidiaries, except to the extent provided in Section 3 herein.


 


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4.8 No Recommendation. Investor understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any recommendation or
endorsement of the Prior Warrant Shares, Warrant or Warrant Shares or the fairness or suitability
of an investment in the Prior Warrant Shares, Warrant or Warrant Shares nor have such authorities
passed upon or endorsed the merits thereof.



4.9 Restrictive Legend. The Company shall issue the Warrant and certificates for the
Prior Warrant Shares and, if applicable, Warrant Shares to Investor with a legend as described in
Section 6 below. Investor covenants that, in connection with any transfer of any Prior
Warrant Shares or Warrant Shares pursuant to the Prior Registration Statement or registration
statement contemplated by Section 5 hereof, as applicable, including the prospectuses
contained therein, Investor will comply with the applicable prospectus delivery requirements of the
Securities Act, provided that copies of a current prospectus relating to such effective
registration statements are available to Investor.



4.10 Residence. Investor is a resident or organized under the laws of the
jurisdiction set forth next to Investor’s name on Schedule I hereto.



4.11 No Market. Investor understands that the Prior Warrant is and, upon exercise of
the Warrant, the Warrant Shares will be, restricted securities and that there is no public trading
market for the Warrant, that none is expected to develop, and that the Warrant and Warrant Shares
must be held indefinitely unless and until the resale of the Warrant or Warrant Shares is
registered under the Securities Act or subject to the terms and conditions of this Agreement and
the applicable securities laws, an exemption from registration is available. Investor has been
advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.



4.12 No Commissions. Investor has taken no action which would give rise to any claim
by any person for brokerage commissions, finder’s fees or similar payments by the Company or
Investor relating to this Agreement or the transactions contemplated hereby.



4.13 Transactional Exemption. Investor understands that the Prior Warrant Shares,
Warrant and Warrant Shares are being offered and sold in reliance on a transactional exemption from
the registration requirements of federal and state securities laws and that the Company is relying
upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of Investor to acquire the Prior Warrant Shares, Warrant and Warrant
Shares.



4.14. Investor Undertaking. Investor covenants that it will not sell, transfer,
assign, hypothecate or pledge in any way any of the Prior Warrant Shares or the Warrant Shares
unless the resale of the Prior Warrant Shares or Warrant Shares, as applicable, have been
registered for resale under the Securities Act and in compliance with applicable prospectus
delivery requirements, if any, or otherwise in compliance with the requirements of an available
exemption from registration under the Securities Act and the rules and regulations promulgated
thereunder.
Investor further agrees to indemnify the Company against any loss, cost or expenses, including
reasonable expenses, incurred as a result of such legend removal on Investor’s behalf.


 


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5. Registration Rights.



5.1 Certain Definitions



“Holder” and “Holders” shall include Investor and any transferee or transferees of Registrable
Securities to whom the registration rights conferred by this Agreement and the Prior Agreement,
have been transferred in compliance with this Agreement and the Prior Agreement.



The terms “register,” “registered” and “registration” shall refer to a registration effected
by preparing and filing a registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness
of such registration statement.



“Registrable Securities” shall mean: (i) Warrant Shares issued or issuable to each Holder (A)
with respect to the Warrant Shares, upon exercise of the Warrant, (B) upon any distribution with
respect to, any exchange for or any replacement of such Warrant, or (C) upon any conversion,
exercise or exchange of any securities issued in connection with any such distribution, exchange or
replacement; (ii) securities issued or issuable upon any stock split, stock dividend,
recapitalization or similar event with respect to the foregoing; and (iii) any other security
issued as a dividend or other distribution with respect to, in exchange for or in replacement of
the securities referred to in the preceding clauses, except that any such Warrant Shares or other
securities shall cease to be Registrable Securities when (D) they have been sold to the public or
(E) they may be sold by the Holder thereof without restriction pursuant to Rule 144.



“Registration Expenses” shall mean all expenses to be incurred by the Company in connection
with each Holder’s registration rights under this Agreement (such amount not to exceed $5,000 in
the aggregate), including, without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, and blue sky fees and expenses, reasonable fees
and disbursements of counsel to Holders (using a single counsel selected by a majority in interest
of the Holders) for a review of the Registration Statement (as defined herein) and related
documents, and the expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall be paid in any
event by the Company).



“Selling Expenses” shall mean all underwriting discounts, selling commissions and transfer
taxes applicable to the sale of Registrable Securities and all fees and disbursements of counsel
for Holders not included within “Registration Expenses”.


 


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5.2 Registration Requirements. The Company shall use its reasonable best efforts to
effect the registration of the resale of the Registrable Securities (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as would permit or facilitate the resale of all the
Registrable Securities in the manner (including manner of sale) and in all states reasonably
requested by the Holder. Such reasonable best efforts by the Company shall include, without
limitation, the following:



(a) The Company shall, as expeditiously as possible:




(i) But in any event within 60 days of the Closing, prepare and file a
registration statement with the Commission pursuant to Rule 415 under the Securities
Act on Form S-3 under the Securities Act (or in the event that the Company is
ineligible to use such form, such other form as the Company is eligible to use under
the Securities Act provided that such other form shall be converted into a Form S-3
promptly after Form S-3 becomes available to the Company) covering resales by the
Holders as selling stockholders (not underwriters) of the Warrant Shares issuable
upon full exercise of the Warrant (the “Registration Statement”). The Company
shall use its reasonable best efforts to cause such Registration Statement and other
filings to be declared effective as soon as possible, and in any event prior to 120
days (or, if the Commission elects to review the Registration Statement, 180 days)
following the Closing.




(ii) Without limiting the foregoing, the Company will promptly respond to all
Commission comments, inquiries and requests, and shall request acceleration of
effectiveness of the Registration Statement at the earliest possible date. The
Company shall provide the Holders reasonable opportunity to review the portions of
any such Registration Statement or amendment or supplement thereto containing
disclosure regarding the Holders prior to filing.




(iii) Prepare and file with the Commission such amendments and supplements to
such Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement and notify the Holders of the filing and effectiveness of such
Registration Statement and any amendments or supplements.




(iv) Furnish or otherwise make available to each Holder copies of a current
prospectus included in the Registration Statement conforming with the requirements of
the Securities Act, copies of the Registration Statement, any amendment or supplement
thereto and any documents incorporated by reference therein and such other documents
as such Holder may reasonably require in order to facilitate the disposition of
Registrable Securities owned by such Holder.




(v) Register and qualify the securities covered by the Registration Statement
under the securities or “blue sky” laws of all domestic jurisdictions, to the extent
required; provided that the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.


 


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(vi) Notify each Holder immediately of the happening of any event (but not the
substance or details of any such events unless specifically requested by a Holder) as
a result of which the prospectus (including any supplements thereto or
thereof) included in such Registration Statement, as then in effect, includes an
untrue statement of material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and use its reasonable best efforts to promptly
update and/or correct such prospectus.




(vii) Notify each Holder immediately of the issuance by the Commission or any
state securities commission or agency of any stop order suspending the effectiveness
of the Registration Statement or the threat or initiation of any proceedings for that
purpose. The Company shall use its reasonable best efforts to prevent the issuance
of any stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible time.




(viii) Upon request, permit counsel to the Holders to review the Registration
Statement and all amendments and supplements thereto within a reasonable period of
time (but not less than two (2) full days on which there is trading on the Principal
Market or such other market or exchange on which the Common Stock is then principally
traded) prior to each filing and will not request acceleration of the Registration
Statement without prior notice to such counsel, provided, however, that the Company
shall not be obligated to comply with this Section 5.2(a)(viii) if compliance
would cause the Company to fail to comply with any other provisions hereunder.




(ix) If required by the Principal Market or the principal securities exchange
and/or market on which the Common Stock is then listed, qualify the Registrable
Securities covered by such Registration Statement for listing on the Principal Market
or the principal securities exchange and/or market on which the Common Stock is then
listed, including the preparation and filing of any required filings with such
principal market or exchange.



(b) In the event that the Registration Statement has been declared effective by the Commission
and, afterwards, any Holder’s ability to sell Registrable Securities registered for resale under
the Registration Statement is suspended for more than (i) 45 days in any 90-day period or (ii) 90
days in any calendar year, including without limitation by reason of any suspension or stop order
with respect to the Registration Statement or the fact that an event has occurred as a result of
which the prospectus (including any supplements thereto) included in the Registration Statement
then in effect includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, then the Company shall take such action as may be necessary to
amend or supplement the Registration Statement or the prospectus (including any supplements
thereto) included in the Registration Statement, such that the Registration Statement or the
prospectus, as so amended, shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements not
misleading.



(c) If any Holder intends to distribute the Registrable Securities by means of an
underwriting, such Holder shall so advise the Company. Any such underwriting may only be
administered by nationally or regionally recognized investment bankers reasonably satisfactory to
the Company.


 


10









 





(d) Subject to Section 5.2(c) above, the Company shall enter into such customary
agreements (including an underwriting agreement containing such representations and warranties by
the Company and such other terms and provisions, as are customarily contained in underwriting
agreements for comparable offerings and are reasonably satisfactory to the Company) and take all
such other actions as the Holder or the underwriters participating in such offering and sale may
reasonably request in order to expedite or facilitate such offering and sale other than such
actions which are disruptive to the Company or require significant management availability.



(e) The Company shall make available for inspection by the Holders, representative(s) of all
the Holders together, any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney or accountant retained by any Holder or underwriter, all financial and
other records customary for purposes of the Holders’ due diligence examination of the Company and
review of the Registration Statement, all documents filed with the Commission subsequent to the
Closing, pertinent corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the Registration Statement,
provided that such parties agree to keep such information confidential. Notwithstanding the
foregoing, the foregoing right shall not extend to any Holder (i) who is not a financial investor
or entity or (ii) who, itself or through any affiliate, has any strategic business interest that
would reasonably be expected to be in conflict with any business of the Company or its
Subsidiaries.



(f) The Company may suspend the use of any prospectus used in connection with the Registration
Statement only in the event, and for such period of time as, (i) such a suspension is required by
the rules and regulations of the Commission or (ii) it is determined in good faith by the Board of
Directors of the Company that because of valid business reasons (not including the avoidance of the
Company’s obligations hereunder), it is in the best interests of the Company to suspend such use,
and prior to suspending such use in accordance with this clause (f)(ii) the Company provides the
Holders with written notice of such suspension, which notice need not specify the nature of the
event giving rise to such suspension. The Company will use reasonable best efforts to cause such
suspension to terminate at the earliest possible date.



(g) The Company shall prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep the Registration Statement
effective at all times during the Registration Period (as defined below), and, during such period,
comply with the provisions of the Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement. In the case of amendments and
supplements to the Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 5.2(g)) by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Exchange Act, the Company shall
have incorporated such report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the Commission on the same day on which the Exchange Act
report is filed which created the requirement for the Company to amend or supplement the
Registration Statement.


 


11









 





(h) Each Holder agrees by its acquisition of the Registrable Securities that, upon receipt of
a notice from the Company of the occurrence of any event of the kind described in Sections
5.2(a)(vi) or 5.2(a)(vii), and upon notice of any suspension under Section 5.2(f), such
Holder will forthwith discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder’s receipt of the copies of the supplemented prospectus and/or amendment
to the Registration Statement contemplated by this Section 5.2, or until it is advised in
writing by the Company that the use of the applicable prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus or the Registration Statement. The Company may
provide appropriate stop orders to enforce the provisions of this paragraph.



(i) If requested by a Holder, the Company shall (i) as soon as practicable incorporate in a
prospectus supplement or post-effective amendment such information as a Holder reasonably requests
to be included therein relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering, (ii) as soon as practicable make all required
filings of such prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) as
soon as practicable, supplement or make amendments to the Registration Statement if reasonably
requested by a Holder holding any Registrable Securities.



5.3 Expenses of Registration. All Registration Expenses in connection with any
registration, qualification or compliance with registration pursuant to this Agreement shall be
borne by the Company, and all Selling Expenses of a Holder shall be borne by such Holder.



5.4 Registration on Form S-3. The Company shall use its reasonable best efforts to
remain qualified for registration on Form S-3 or any comparable or successor form or forms, or in
the event that the Company is ineligible to use such form, such form as the Company is eligible to
use under the Securities Act, provided that if such other form is used, the Company shall convert
such other form to a Form S-3 promptly after the Company becomes so eligible, provided that the
Company shall maintain the effectiveness of the Registration Statement then in effect until such
time as the Registration Statement covering the Registrable Securities has been declared effective
by the Commission.



5.5 Registration Period. In the case of the registration effected by the Company
pursuant to this Agreement, the Company shall keep such registration effective from the date on
which the Registration Statement initially became effective until the earlier of (i) the date on
which all the Holders have completed the sales or distribution described in the Registration
Statement relating to the Registrable Securities registered for resale thereunder or, (ii) until
such Registrable Securities may be sold by the Holders without restriction pursuant to Rule 144 (or
any successor thereto) (provided that the Company’s transfer agent has accepted an instruction from
the Company to such effect) (the “Registration Period”). Thereafter, the Company shall be
entitled to withdraw such Registration Statement and the Holders shall have no further right to
offer or sell any of the Registrable Securities registered for resale thereon pursuant to the
Registration Statement (or any prospectus relating thereto).


 


12









 





5.6 Indemnification.



(a) Company Indemnity. The Company will indemnify and hold harmless each Holder, each
of its officers, directors, agents and partners, and each person controlling each of the foregoing,
within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder
with respect to which registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any underwriter, against
all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of the circumstances
under which they were made, or any violation by the Company of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable to the Company and
relating to action or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each Holder, each of its officers, directors,
agents and partners, and each person controlling each of the foregoing, each such underwriter and
each person who controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to a Holder to the extent
that any such claim, loss, damage, liability or expense arises out of or is based (i) on any untrue
statement or omission based upon written information furnished to the Company by a Holder or the
underwriter (if any) therefore, (ii) the failure of a Holder to deliver at or prior to the written
confirmation of sale, the most recent prospectus, as amended or supplemented, or (iii) the failure
of a Holder otherwise to comply with this Agreement. The indemnity agreement contained in this
Section 5.6(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent of the Company
(which consent will not be unreasonably withheld).



(b) Holder Indemnity. Each Holder will, severally and not jointly, if Registrable
Securities held by it are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify and hold harmless the Company, each of its directors,
officers, agents and partners, and each underwriter, if any, of the Company’s securities covered by
such a registration statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each person controlling
such other Holder(s) against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make a statement therein not misleading in light of the
circumstances under which they were made, and will reimburse the Company and such other Holder(s)
and their directors, officers and partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating and defending any such claim,
loss, damage, liability or action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and stated to be
specifically for use therein,
and provided that the maximum amount for which such Holder shall be liable under this
indemnity shall not exceed the net proceeds received by such Holder from the sale of the
Registrable Securities pursuant to the registration statement in question. The indemnity agreement
contained in this Section 5.6(b) shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).


 


13









 





(c) Procedure. Each party entitled to indemnification under this Section 5.6
(the “Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party
to assume the defense of any such claim in any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation
resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such defense at its own
expense, and provided further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this Section 5.6
except to the extent that the Indemnifying Party is materially and adversely affected by such
failure to provide notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such non-privileged information
regarding itself or the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.



5.7 Contribution. If the indemnification provided for in Section 5.6 herein
is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein (other than by reason of the exceptions provided therein), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other, in such proportion
as is appropriate to reflect the relative fault of the Company and of such Holder in connection
with the statements or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or by such Holder.



In no event shall the obligation of any Indemnifying Party to contribute under this
Section 5.7 exceed the amount that such Indemnifying Party would have been obligated to pay
by way of indemnification if the indemnification provided for under Sections 5.6(a) or
5.6(b) hereof had been available under the circumstances.


 


14









 





The Company and the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 5.7 were determined by pro rata allocation (even if the Holders or
the underwriters were treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to in the immediately preceding paragraphs shall
be deemed to include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no Holder or underwriter
shall be required to contribute any amount in excess of the amount by which (i) in the case of any
Holder, the net proceeds received by such Holder from the sale of Registrable Securities pursuant
to the registration statement in question or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.



5.8 Survival. The indemnity and contribution agreements contained in Sections 5.6
and 5.7 and the representations and warranties of the Company referred to in Section
5.2(d) shall remain operative and in full force and effect regardless of (i) any termination of
this Agreement or any underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of the Company, and (iii) the consummation of the sale or
successive resales of the Registrable Securities.



5.9 Information by Holders. Each Holder shall promptly furnish to the Company such
information regarding such Holder and the distribution and/or sale proposed by such Holder as the
Company may from time to time reasonably request in writing in connection with any registration,
qualification or compliance referred to in this Agreement, and the Company may exclude from such
registration the Registrable Securities of any Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. The intended method or methods
of disposition and/or sale of such securities as so provided by such purchaser shall be included
without alteration in the Registration Statement covering the Registrable Securities and shall not
be changed without written consent of such Holder. Each Holder agrees that, other than ordinary
course brokerage arrangements, in the event it enters into any arrangement with a broker dealer for
the sale of any Registrable Securities through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, such Holder shall
promptly deliver to the Company in writing all applicable information required in order for the
Company to be able to timely file a supplement to the Prospectus pursuant to Rule 424(b), or take
any other action, under the Securities Act, to the extent that such supplement or other action is
legally required. Such information shall include a description of (i) the name of such Holder and
of the participating broker dealer(s), (ii) the number of Registrable Securities involved, (iii)
the price at which such Registrable Securities were or are to be sold, and (iv) the commissions
paid or to be paid or discounts or concessions allowed or to be allowed to such broker dealer(s),
where applicable.




6. Stock Legend.



6.1 Upon payment therefor as provided in this Agreement, the Company will issue the Prior
Warrant Shares and the Warrant Shares in the name of each Investor.


 


15









 





Any certificate representing Prior Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:



THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND MAY
NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, AND AFTER
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OR THAT THE PROSPECTUS DELIVERY REQUIREMENTS HAVE BEEN
MET.



Any certificate representing the Warrant Shares issued by the Company shall also be stamped or
otherwise imprinted with a legend in substantially the following form:



THESE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO RIGHTS AND OBLIGATIONS AS SET FORTH IN
A SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY 28, 2011 BY AND AMONG
STAR SCIENTIFIC, INC. AND THE SEVERAL INVESTORS PARTY THERETO AS SUCH MAY BE AMENDED FROM TIME TO
TIME.



The Warrant shall be imprinted with the legends set forth in the Warrant on Exhibit A
hereto.



The Company agrees to issue the Prior Warrant Shares or Warrant Shares, issued upon exercise
of the Prior Warrant or Warrant, as applicable, without the legends set forth above at such time as
the Holder thereof is (i) permitted to transfer such Prior Warrant Shares or Warrant Shares, as
applicable, without restriction pursuant to an available exemption from registration under the
Securities Act, and upon such transfer after delivery to the Company of a customary representation
satisfactory to the Company that such exemption has been met, or (ii) at such time the Prior
Warrant Shares or Warrant Shares, as applicable, have been registered for resale under the
Securities Act, and upon such resale after delivery to the Company of a customary representation
that the Holder has complied with the plan of distribution in the applicable prospectus contained
in the registration statement and that the prospectus delivery requirements have been met, if any.



7. Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement, all covenants, agreements, representations and
warranties made by the Company and Investor herein shall survive the execution of this Agreement,
the delivery to Investor of the Prior Warrant Shares and the Warrant being purchased and the
payment therefor.


 


16









 





8. Notices. All notices, requests, consents and other communications hereunder shall
be in writing, shall be mailed (i) if within domestic United States by first-class registered or
certified airmail, or nationally recognized overnight express courier, postage prepaid, or by
facsimile, or (ii) if delivered from outside the United States, by International Federal Express or
facsimile, and shall be deemed given (A) if delivered by first-class registered or certified mail
domestic, three business days after so mailed, (B) if delivered by nationally recognized overnight
carrier, one business day after so mailed, (C) if delivered by International Federal Express,
two business days after so mailed, and (D) if delivered by facsimile, upon electric confirmation of
receipt and shall be delivered as addressed as follows:



(a) if to the Company, to:




Star Scientific, Inc.

4470 Cox Road

Glen Allen, Virginia 23060

Telephone: (804) 527-1970

Facsimile: (804) 527-1976

Attention: Chief Financial Officer




with copies to:




Star Scientific, Inc.

7475 Wisconsin Ave.

Bethesda, MD 20814

Attn: Robert E. Pokusa

General Counsel

Phone: (301) 654-8300

Telecopy: (301) 654-9308;




and




Latham & Watkins LLP

555 Eleventh Street, N.W.

Suite 1000

Washington, DC 20004

Attn: William P. O’Neill

Phone: (202) 637-2200

Telecopy: (202) 637-2201



(b) if to Investor, at its address set forth under its name on Schedule I hereto, or
at such other address or addresses as may have been furnished to the Company in writing.



9. Changes. This Agreement may not be modified or amended by the Company or the
Investor except pursuant to an instrument in writing signed by each of the Company and the
Investor.



10. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of this Agreement.



11. Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or impaired thereby.


 


17









 





12. Governing Law. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without giving effect to the principles of
conflicts of law.



13. Entire Agreement. This Agreement constitutes the entire agreement between the
parties hereto pertaining to the subject matter hereof, and any and all other written or oral
agreements relating to such subject matter are expressly cancelled.



14. Finders Fees. Neither the Company nor Investor nor any affiliate thereof has
incurred any obligation which will result in the obligation of the other party to pay any finder’s
fee or commission in connection with this transaction.



15. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together, shall constitute but one
instrument, and shall become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.



16. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company and Investor. Investor shall not
assign any rights or obligations under this Agreement other than, solely with respect to any Prior
Warrant Shares, Warrant or Warrant Shares transferred in accordance with this Agreement, including
the legends described herein, to any permitted transferee of such Prior Warrant Shares, Warrant or
Warrant Shares, provided, however, that no such assignment shall relieve Investor
of its obligations under this Agreement.



17. Expenses. Each of the Company and Investor shall bear its own expenses in
connection with the preparation and negotiation of the Agreement.



18. Pronouns. All pronouns or any variation thereof shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity
or entities may require.



[Signature pages follow.]





 


18









 







IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.



	 	 	 	 	 
	 	STAR SCIENTIFIC, INC.

 	 
	 	By:  	/s/ Paul L. Perito
 	 
	 	 	Name:  	Paul L. Perito 	 
	 	 	Title:  	Chairman, President and

Chief Operating Officer 	 



Signature Page to Securities Purchase and Registration Rights Agreement




 


 









 








IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.



	 	 	 	 	 
	 	JOSEPH L. SCHWARZ

 	 
	 	By:  	/s/ Joseph L. Schwarz
 	 
	 	 	Name:  	Joseph L. Schwarz 	 



Signature Page to Securities Purchase and Registration Rights Agreement





 


 









 







SCHEDULE I




SCHEDULE OF INVESTORS




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Prior	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Warrant	 	 	Prior	 	 	Aggregate	 	 	 	 	 	 	New Exercise	 
	Name and Address	 	Shares	 	 	Exercise Price	 	 	Exercise Price	 	 	New Warrants	 	 	Price	 
	 
	 	 
	Joseph L. Schwarz*
	 	 	2,000,000	 	 	$	1.00	 	 	$	2,000,000	 	 	 	2,000,000	 	 	$	2.00	 








	 	 	 
	*	 	If investor so elects, Prior
Warrant Shares
issued upon
exercise of the
Prior Warrant and
the Warrant shall
be issuable to a
custodian for the
benefit of an
individual
retirement account
of Investor.





 


 









 







Exhibit A




THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, AND UPON DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE
PROPOSED TRANSFER IS EXEMPT FROM THE SECURITIES ACT OR THAT THE PROSPECTUS DELIVERY REQUIREMENTS
HAVE BEEN MET.



COMMON STOCK PURCHASE WARRANT




To purchase common stock shares of common stock, $0.0001 par value, of



Star Scientific, Inc.




THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
Morgan Stanley Smith Barney LLC, Custodian for the benefit of Joseph L. Schwarz, Roth IRA (the
“Holder”), is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after February 28, 2011 (the “Initial
Exercise Date”) and on or prior to the close of business on February 28, 2016 (the
“Termination Date”) but not thereafter (the “Exercise Period”), to subscribe for
and purchase from Star Scientific, Inc., a corporation incorporated in Delaware (the
“Company”), up to 2,000,000 shares (the “Warrant Shares”) of common stock, par
value $0.0001 per share, of the Company (the “Common Stock”). The purchase price of one
share of Common Stock (the “Exercise Price”) under this Warrant shall be $2.00, subject to
adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. The term “Holder” shall refer to
the Holder identified above or any subsequent transferee of this Warrant. Capitalized terms used
but not otherwise defined herein shall have the meanings set forth in the Securities Purchase and
Registration Rights Agreement, dated February 28, 2011, between the Company and Holder (the
“Purchase Agreement”).



1. Authorization of Warrant Shares. The Company represents and warrants that all
Warrant Shares which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable.


 


1









 






2. Exercise of Warrant.



(a) Except as provided in Section 3 herein, exercise of the purchase rights represented by
this Warrant may be made at any time or times on or after the Initial Exercise Date and before or
on the Termination Date by (i) surrendering this Warrant, with the Notice of Exercise Form annexed
hereto completed and duly executed, to the offices of the Company (or such other office or agency
(including the transfer agent, if applicable) of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder appearing on
the books of the Company) and (ii) delivering payment of the Exercise Price of the shares
thereby purchased by wire transfer of immediately available funds or cashier’s check drawn on a
United States bank. The Holder exercising his purchase rights in accordance with the preceding
sentence shall be entitled to receive a certificate for the number of Warrant Shares so purchased,
which certificate will bear a legend substantially similar to the legend set forth on this Warrant.
Certificates for shares purchased hereunder shall be issued and delivered to the Holder within
five (5) Trading Days (as defined below) after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and the Holder shall be deemed to no longer
hold this Warrant with respect to such shares and to have become a holder of record of such shares
for all purposes, in each case as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to
Section 4 prior to the issuance of such shares, have been paid.



(b) In the event that the Warrant is not exercised in full, the number of Warrant Shares shall
be reduced by the number of such Warrant Shares for which this Warrant is exercised and/or
surrendered, and the Company, if requested by Holder and at his expense, shall within ten (10)
Trading Days issue and deliver to the Holder a new Warrant of like tenor in the name of the Holder
or as the Holder (upon payment by Holder of any applicable transfer taxes) may request, reflecting
such adjusted Warrant Shares.



“Trading Day” shall mean a day on which there is trading on the Principal Market or such other
market or exchange on which the Common Stock is then principally traded.



3. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.



4. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder; provided, however, that the Holder
shall pay any applicable transfer taxes.



5. Closing of Books. The Company will not close its stockholder books or records in
any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.




6. Division and Combination.



(a) This Warrant may be divided or combined with other Warrants upon presentation hereof at
the aforesaid office of the Company, together with a written notice specifying the denominations in
which new Warrants are to be issued, signed by the Holder or his agent or attorney. The Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice.



(b) The Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 6.



 


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7. No Rights as Stockholder until Exercise. This Warrant does not entitle the Holder
to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof.
Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or payment and this
Warrant shall no longer be issuable with respect to such Warrant Shares.



8. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will
make and deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.



9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or
a legal holiday, then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.



10. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject
to adjustment from time to time upon the happening of any of the following. In case the Company
shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock
to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise
of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of the Company which he would
have owned or have been entitled to receive had such Warrant been exercised in advance thereof.
Upon each such adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price
per Warrant Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company purchasable pursuant hereto as a result of such adjustment. An
adjustment made pursuant to this paragraph shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such event.


 


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11. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.
If, at any time while this Warrant is outstanding (i) the Company effects any merger or
consolidation of the Company with or into another individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited liability company, joint
stock company or other entity of any kind (each a “Person”), in which the Company is not
the survivor and the stockholders of the Company immediately prior to such merger or consolidation
do not own, directly or indirectly, at least fifty percent (50%) of the voting securities of the
surviving entity, (ii) the Company effects any sale of all or substantially all of its assets or a
majority of its Common Stock is acquired by a third party, in each case, in one or a series of
related transactions, (iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which all or substantially all of the holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property, or (iv) the
Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares of Common Stock covered
by Section 10 above) (in any such case, a “Fundamental Transaction”), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of
securities, cash or property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the
holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without
regard to any limitations on exercise contained herein (the “Alternate Consideration”).
The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously
with the consummation thereof, any successor to the Company, surviving entity or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall
assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may
be), and the other obligations under this Warrant. The foregoing provisions of this Section 11
shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations,
spin-offs, or dispositions of assets.



12. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of
securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice
shall state the number of Warrant Shares (and other securities or property) purchasable upon the
exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or
property) after such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.




13. Notice of Corporate Action. If at any time:



(a) the Company shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or



(b) there shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or merger of the Company
with, or any sale, transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or


 


4









 





(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the
Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least five
Business Days’ prior written notice of the date on which a record date shall be selected for such
dividend, distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation
or winding up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least five
Business Days’ prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, the date on which the holders of
Common Stock shall be entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place
and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property deliverable upon such
disposition, dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder appearing on the books of
the Company and delivered in accordance with Section 16(d).



14. Authorized Shares. The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of any applicable law
or regulation.



Except and to the extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in par value and (b)
take all such action as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant.


 


5









 





15. Call. At any time and from time to time following the date the registration
statement registering the resale of the Warrant Shares issuable upon exercise of the Warrant is
declared effective by the U.S. Securities and Exchange Commission, the Company shall have the
right, upon 20 Business Days’ prior written notice to the Holder (“Call Notice”), to call
(require Holder to exercise) all or any portion of this Warrant at the Exercise Price provided
that (i) the Warrant Shares are registered for resale pursuant to the Securities Act and have been
for at least the 20-Trading Day period preceding the Call Notice, (ii) the Prospectus has not been
suspended
at any time during the 20-Trading Day period preceding the Call Notice, (iii) the Common Stock
is currently listed (and is not suspended from trading) on the Principal Market as of the date the
Call Notice is delivered to the Holder through the effective date of such call, (iv) the Company is
not in default (or taken any action or failure to act which through the passage of time would
result in a default) under the Purchase Agreement, (v) the VWAP of the Common Stock on the
Principal Market is equal to or greater than $5.00 (subject to adjustment to reflect forward or
reverse stock splits, stock dividends, recapitalizations and the like) (the “Threshold
Price”) for at least 20 consecutive Trading Days, and (vi) the Call Notice is delivered within
3 Business Days’ of the most recent day in the previous clause and that the Common Stock reached
the Threshold Price. At any time prior to the effective date of such call, the Holder shall have
the right to exercise this Warrant in accordance with its terms.



“VWAP” shall mean for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on an the Principal Market or the
New York Stock Exchange, the American Stock Exchange or the Nasdaq Small Cap Market (each an
“Approved Market”), the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the primary Approved Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. ET to 4:02 p.m. Eastern Time) using the HP function; (b) if the Common Stock is not then
listed or quoted on an Approved Market and if prices for the Common Stock are then quoted on the
OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common
Stock as determined by the Company and Holder in good faith.



“Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial
banks in the City of New York are authorized or required by law or executive order to remain
closed.




16. Miscellaneous.



(a) Jurisdiction. This Warrant shall constitute a contract under the laws of the
State of New York, without regard to its conflict of law, principles or rules.



(b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the
exercise of this Warrant will have restrictions upon resale imposed by state and federal securities
laws and/or as set forth in the Purchase Agreement.


 


6









 





(c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise
any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise
prejudice Holder’s rights, powers or remedies, provided, however, that all rights hereunder
terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of his rights, powers or remedies hereunder.



(d) Notices. All notices, requests, consents and other communications provided for
herein shall be in writing and shall be effective upon delivery in person, when faxed and received,
or five Business Days after being mailed by certified or registered mail, return receipt requested,
postage pre-paid, addressed as follows:




(i) If to the Holder:




Morgan Stanley Smith Barney LLC

Harborside Financial Center

Plaza 2, 7th Floor

Jersey City, NJ 07311




or to the address of the Holder as shown on the books of the Company; or




(ii) If to the Company:




Star Scientific, Inc.

4470 Cox Road

Glen Allen, Virginia 23060

Telephone: (804) 527-1970

Facsimile: (804) 527-1976

Attention: Chief Financial Officer




with a copy to:




Star Scientific, Inc.

7475 Wisconsin Avenue

Bethesda, MD 20814

Telephone: (301) 654-8300

Facsimile: (301) 654-9308

Attention: General Counsel



or at such other address as the Holder or the Company, as applicable, may hereafter have advised
the other in accordance with the provisions of this paragraph.



(e) Limitation of Liability. No provision hereof, in the absence of any affirmative
action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of
the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase
price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.


 


7









 





(f) Successors and Assigns; No Assignment. This Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of
the Company, provided that neither the Company (except pursuant to a transaction subject to
Section 11 herein) nor the Holder may assign this Warrant without the prior written consent of the
other party.



(g) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.



(h) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Warrant.



(i) Headings. The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.




 


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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto
duly authorized.



Dated: February 28, 2011



	 	 	 	 	 
	 	STAR SCIENTIFIC, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Paul L. Perito 	 
	 	 	Title:  	Chairman, President and 
Chief
Operating Officer 	 



Signature Page to Warrant





 


 









 







NOTICE OF EXERCISE





To: Star Scientific, Inc.



(1) The undersigned hereby elects to purchase                      Warrant Shares of Star Scientific, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.



(2) Payment shall take the form of in lawful money of the United States.



(3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned. The Warrant Shares shall be delivered to the following:



	 	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 






(4) Accredited Investor/Qualified Institutional Buyer. The undersigned is an “accredited
investor” as defined in Regulation D under the Securities Act of 1933, as amended.



	 	 	 	 	 
	 	[PURCHASER]

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	Dated: