Exhibit 10.1 


 


LOAN AGREEMENT


 


	US $5,800,000	March 12, 2014


 


This Loan Agreement
(“Agreement”) is entered into as of the date set forth above between Star Scientific, Inc., a Delaware corporation
with a place of business at 4470 Cox Road, Suite 110, Glen Allen, Virginia 23060 (the “Company”), and John
Joseph McKeon, an individual with an address at 15A Golf Village, Key Largo, FL 33037 (in his personal capacity, “Lender”).


 


Intending to
be legally bound hereby, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:


 


1.          ADVANCES
AND TERMS OF PAYMENT.


 


1.1             Advances.


 


Lender shall
at any time and from time to time during the Term make loans to the Company in accordance with the terms and conditions hereof
(“Advances”), at the discretion of the Company’s Chief Executive Officer or Chief Financial Officer to
meet the ongoing financial needs of the Company, in accordance with Section 1.2 below. The aggregate outstanding principal
amount of all Advances during the Term shall not exceed Five Million and Eight Hundred Thousand Dollars ($5,800,000) (the “Maximum
Advance Limit”). The Company may not re-borrow Advances hereunder after repayment of such Advances, unless otherwise
consented to by Lender in writing. Lender has on the date hereof sufficient liquid funds equal to the Maximum Advance Limit, and
Lender will maintain liquid funds to be used for the Advances equal to the Maximum Advance Limit (less any then outstanding Advances)
during the Term. All Advances are subject to the terms and conditions set forth herein, including the limitations set forth in
Section 1.6.


 




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1.2           Criteria
for Making Advances.


 


(a) Each Advance
made by Lender to the Company shall be in increments of One Million and Two Hundred Fifty Thousand Dollars ($1,250,000), and the
aggregate amount of Advances during any thirty (30) calendar day period during the Term shall not exceed One Million and Two Hundred
Fifty Thousand Dollars ($1,250,000). The Company shall provide Lender with written notice (a “Draw Request”)
not less than ten (10), nor more than thirty (30), days in advance of the date the Company intends to obtain an Advance (the “Draw
Date”) together with a written statement, in reasonable detail (subject to the limitations with respect to material nonpublic
information contained in the next sentence) , by the Company’s Chief Executive Officer or Chief Financial Officer of the
proposed use of proceeds for such Advance and how such use of proceeds is reasonably expected to advance the Company’s then
current business plan in a cost efficient manner (the “Use of Proceeds Statement”). The Use of Proceeds Statement
shall not contain any material non-public information unless the inclusion of such material non-public information is expressly
consented to by Lender in writing (and Lender provides other documentation reasonably acceptable to the Company in connection
with the receipt of such material non-public information, including without limitation an agreement to keep such information confidential
and refrain from trading in the Company’s securities on the basis of such information). Notwithstanding the foregoing, any
amounts available to be drawn by the Company at the expiration of the Term may, with ten (10) calendar days prior written notice
to the Lender (“End of Term Notice”), be drawn at once by the Company in a single Advance (an “End
of Term Advance”), it being understood that any End Of Term Advance shall be reduced by any Third Party Financing (as
defined below). The Company shall be permitted, with respect to an End of Term Advance, to require Lender to immediately exercise
its conversion rights specified in Section 4 of this Agreement for the entire amount that is drawn by the Company in such
single Advance, and the Company shall specify in its End of Term Notice the amount of such Advance and its intention to require
Lender to exercise such conversion rights. Notwithstanding the foregoing, Lender shall not be required to exercise such conversion
rights with respect to an End of Term Advance if such exercise would cause the Ownership Cap (as defined below) to be violated
(it being understood that Lender would be required to exercise such conversion rights up to an amount that is directly below such
Ownership Cap, if the Company were to so specify). Any amounts not converted by Lender with respect to an End of Term Advance
may, at the election of the Company, be repaid in cash or remain outstanding. The Company shall be required to provide Lender
with a separate Draw Request with respect to each Advance. The Use of Proceeds Statement shall be based on the reasonable beliefs
of the Company’s Chief Executive Officer or Chief Financial Officer and shall not be construed as a guarantee. The Company
shall have no duty to update the Use of Proceeds Statement (provided, however, that any Use of Proceeds Statement following the
initial Use of Proceeds Statement shall identify, in reasonable detail, how the use of proceeds were deployed by the Company with
respect to the immediately preceding Draw Request submitted by the Company). Lender shall have five (5) business days after receipt
of the Use of Proceeds Statement to make a non-binding suggestion of commercially reasonable changes to the Company’s proposed
use of proceeds that are consistent with the Company’s current business plan. The Company shall reasonably and in good faith
consider incorporating such proposed changes into its proposed use of proceeds; provided, however, that acceptance of such proposed
changes by the Company shall not be a condition precedent to Lender’s obligation to make the Advance. Upon receipt of a
Draw Request, Lender shall provide, or cause to be provided, the Advance referenced in the Draw Request to the Company by wire
transfer of readily available funds on or before the Draw Date. Notwithstanding the foregoing, if the Company consummates third
party financing during the Term (“Third Party Financing”), then Lender’s obligation to provide any Advances
thereafter, equal to the amount of such third party equity financing obtained by the Company, shall (on a dollar for dollar basis)
become at the discretion of Lender. Lender’s obligation to provide any Advance to the Company is conditioned upon the representations
and warranties of the Company contained in Section 6 being true in all material respects on the Draw Date of the Advance.
Any of the foregoing Draw Request notices and requirements and borrowing limitations may be waived by Lender in writing.


 


(b) If, during
the Term, the Company raises Third Party Financing in an amount equal to or greater than the Maximum Advance Limit, then the Company
shall be permitted, upon thirty (30) days written notice to Lender, to terminate this Agreement, subject to Lender’s rights
and obligations hereunder, including (without limitation) Lender’s conversion rights set forth in Section 4, Lender’s
rights with respect to the Warrants under Section 5 and Lender’s right to the payment of principal and interest.


 




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1.3           Interest.


 


Interest shall
accrue on the unpaid principal amount of any outstanding Advances at the lesser of (a) three (3%) percent per annum or (b) the
maximum rate permitted by applicable law. Interest shall be computed on the basis of the number of days elapsed from the date
of the advance and a year of 365 days. Accrued interest on any outstanding Advances will be paid in arrears by the Company on
a calendar quarterly basis on the first day of April, July, October and January of each calendar year (or if such day does not
fall on a business day, the next business day) or at the time of repayment of such Advances, whichever occurs earlier as set forth
in the Note.


 


1.4           Evidence
of Advances.


 


Each Advance
will be evidenced by an unsecured promissory note in the form attached hereto as Exhibit A executed by the Company and
payable to Lender on the Draw Date (a “Note”). If the Company voluntarily grants a security interest (other
than a purchase money security interest or a mortgage loan) to any third party for indebtedness first incurred by the Company
(other than purchase money indebtedness or mortgage loans) during the Term, then the Company shall also grant to Lender a security
interest on identical security terms given to, and on a pari passu basis with, such third party. Lender shall and the Company
shall act reasonably and on market terms in connection with any inter-creditor lien agreement requested by such other lien holder.
The Company shall not otherwise be restricted from incurring any indebtedness, raising any capital or granting any security interest
during the Term.


 


1.5            Documentation.


 


The Company
shall maintain accurate and complete books and records regarding each Advance and accrued interest thereon which shall be reasonably
available to Lender upon reasonably notice to the Company (and subject to the Company’s obligations with respect to any
material non-public information contained in such books and records). Lender shall provide such further documentation relating
to this Agreement as may be reasonably requested by the Company’s management and/or its Board of Directors or any committee
thereof.


 


1.6           Certain
Restrictions on Advances


 


The
parties acknowledge that, on or about the date hereof, the Company is entering into various third party financing arrangements
pursuant to the agreements described on Schedule 1.6. (the “Concurrent Financing”) separate and apart
from the transactions contemplated by this Agreement. Concurrent Financing for all purposes of this Agreement shall also include
any exercise of warrants outstanding on the date hereof that occurs within sixty (60) days from the date hereof). The Company
shall not be permitted to request any Advance until such time as no more than Two Million Dollars ($2,000,000) of the proceeds
raised by the Company in the Concurrent Financing remains to be spent or otherwise used by the Company. Either the Company’s
Chief Executive Officer or Chief Financial Officer shall confirm in writing to the Lender that the condition specified in the
immediately preceding sentence has been met, after which such time the Company shall be permitted to request an Advance pursuant
to the terms and conditions contained in this Agreement.


 




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1.7           Lender
Participation in Equity Financings


 


(a) For a period
two (2) years following the date hereof, the Lender shall have the option and right (but not the obligation) to participate in
any Equity Issuance at the same price and the same terms and conditions as offered to other investors in the Equity Issuance (other
than any Equity Issuance pursuant to the Concurrent Financing) that results in net proceeds to the Company, provided that the
Lender’s right to participation in any such Equity Issuance shall not exceed the Pro Rata Portion. The Company agrees to
use its reasonable best efforts to take any and all action, or to cause such action to be taken, as is necessary or appropriate
to allow the Lender to fully participate in any Equity Issuance in accordance with the provisions of this Agreement. “Equity
Issuance” means any issuance, sale or placement of stock of the Company, and any issuance, sale or placement of any other
securities of the Company that are convertible or exchangeable into stock of the Company. However, the following issuances will
not be considered an Equity Issuance: (1) any issuance of stock pursuant to an exercise of an award under the Company’s
equity incentive plans, (2) any issuance of stock pursuant to current or future compensation arrangements, (3) any issuance as
consideration for an acquisition, or (4) any issuance of shares upon the conversion of warrants outstanding on the date hereof.
“Pro Rata Portion” means with respect to Lender at a given time and with respect to a given Equity Issuance, the aggregate
dollar value of shares of common stock, other capital stock or other securities to be issued, sold or placed in the Equity Issuance
equal to the product of (I) the dollar amount resulting from the product of (a) the aggregate dollar value of shares of common
stock, other capital stock or other securities proposed to be issued, sold or placed in the Equity Issuance, multiplied by (b)
fifty percent (50%), and (II) zero percent (0)% (such zero percent (0%) being referred to as the “Execution Date Multiplier”).
In the event that, on the date that definitive documents are executed with respect to any Equity Issuance, there are outstanding
Notes representing Advances under this Agreement, then the Execution Date Multiplier shall be increased to reflect Investor’s
participation in the Concurrent Financing as if such Advances were outstanding on the date hereof.


 


(b) In the event
the Company proposes to undertake an Equity Issuance, the Company shall promptly give the Lender
prior written notice of its intention, describing the type of equity interests, the price at which such securities are proposed
to be issued (or, in the case of an underwritten or privately placed offering in which the price is not known at the time the
notice is given, the method of determining the price and an estimate thereof), the timing of such proposed Equity Issuance and
the general terms and conditions upon which the Company proposes to effect the Equity Issuance. The Lender shall have five (5)
Business Days (or, if the Company expects that the proposed Equity Issuance will be effected in less than five (5) business days,
such shorter period, that shall be as long as practicable, as may be required in order for the Lender to participate in such proposed
Equity Issuance) from the date the Lender receives notice of the proposed Equity Issuance to elect to purchase up to his Pro Rata
Portion of such Equity Issuance for the consideration and upon the terms specified in the notice provided by the Company pursuant
to this Section 1.7 by giving written notice to the Company and stating therein the quantity of equity interests to be
purchased. Any such notice shall be irrevocable; provided, however, that if the Equity Issuance does not occur within thirty (30)
business days following such notice and the terms of the Equity Issuance are materially modified, then the Lender will be provided
the opportunity to similarly participate on such modified terms (or decline to participate in such Equity Issuance on such modified
terms). Any purchase of Equity Interests by the Lender pursuant to this Section 1.7 shall occur contemporaneously with,
and be subject to the same terms and conditions as, the closing of the sale of the Equity Interests by the Company to the other
parties.


 




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(c)          Notwithstanding
the foregoing, unless the Company consents, Lender shall not be permitted to participate in any Equity Issuance at any level that
would require the Company to seek shareholder approval with respect to Lender’s participation in the Equity Issuance or
otherwise violate any rules and regulations of the NASDAQ Global Market (and any participation by Lender, if any, shall reasonably
attempt to be structured so as not to require shareholder approval or otherwise violate any rules or regulation of the NASDAQ
Global Market).


 


(d)          In
the event that the Lender does not exercise the right set forth in this Section 1.7 within the applicable period as set
forth above, the Company shall be permitted to sell the equity interests in respect of which such rights were not exercised; provided,
however, that if Lender does not exercise such right and the Company materially modifies the terms and conditions of the Equity
Issuance, the Company shall use its commercially reasonable efforts to permit Lender to participate in such Equity Issuance as
specified in this Section 1.7 (it being understood Lender’s participation shall not be a condition precedent to the
Company’s ability to consummate such financing).


 


(e)          The
Company shall have the right, in its sole discretion, at all times prior to consummation of any proposed Equity Issuance giving
rise to the rights granted by this Section 1.7, to abandon, withdraw or otherwise terminate such proposed Equity Issuance,
without any liability to the Lender.


 


		2.	REPAYMENT OF OBLIGATIONS.



 


The Company’s
repayment obligations of principal and interest hereunder shall be set forth in the Note. Except in the event of a default by
the Company with respect to its payment obligations under any individual Note, Lender agrees that he will not make any demand
for, nor have any right to, repayment by the Company of any Advances under such Note prior to the time specified in the applicable
Note. The decision regarding repayment of any Advances prior to the time specified in the applicable Note shall be in the sole
discretion of the Company’s Chief Executive Officer or Chief Financial Officer, provided, however, subject to the Company’s
rights with respect to an End of Term Advance: (i) the Company is not permitted to prepay any portion of the Note for which Lender
is prohibited or limited from converting the portion of the Note to be repaid as a result of the Ownership Cap or any Blocker
Provision included in any Warrant to be issued at such conversion and (ii) the Company shall provide the Lender no less twenty
(20) calendar days advance notice of the Company’s intention to prepay any of the Advances and, the Lender shall be permitted
to exercise its conversion rights set forth in Section 4 below. Any repayments shall first be applied to outstanding interest
and then to outstanding principal.


 




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		3.	TERM.



 


The
provisions of Sections 1.1 and 1.2 of this Agreement shall be effective as of the date first set forth above and
shall continue in full force and effect for a term (the “Term”) ending on April 15, 2015.


 


		4.	CONVERSION OF ADVANCES
TO EQUITY; SHARE VOTING RESTRICTIONS.



 


4.1          Conversion.


 


(a)          To
the extent permitted by law and subject to Sections 4.1(b) and 4.2 below, Lender in his discretion may, at any time and from time
to time prior to repayment in full of any Advance under any Note (including after notice by the Company of prepayment of any Advance),
upon fifteen (15) calendar days advance written notice (the “Conversion Notice”) to the Company, convert (a
“Conversion”) all or a portion of any outstanding Advances and, at the election of the Company, accrued interest
thereon (the “Converted Amount”) into investment units in the Company (“Units”). Each such
Unit shall consist of one share of Common Stock, and one warrant to purchase one share of Common Stock from the Company (the “Warrant”).
Each Warrant shall (a) be exercisable for a term of seven (7) years commencing six (6) months after the date of issuance of such
Warrant and (b) have an exercise price equal to $1.00. The Converted Amount on the date of Conversion will convert pursuant to
this Section 4 into such number of shares of Common Stock and such number of Warrants that equals the Converted Amount
divided by $1.00, with any partial share and Warrant to purchase a partial share that would result from such conversion calculation
rounded up to a whole share of Common Stock (collectively, the “Shares”). Any Warrants issued to Lender under
this Agreement shall be issued in substantially the form attached hereto as Exhibit B to this Agreement. Once any Converted
Amount is converted to Shares and Warrants under this Section, the Maximum Advance Limit shall be reduced dollar-for-dollar by
the aggregate amount of the Advances (excluding accrued interest) being converted, and the Converted Amount (including accrued
interest if applicable) will be extinguished, abated and deemed to be repaid in full as of the date of the Conversion. The Company
shall reduce any shares of Common Stock reserved for issuance to Lender upon a Conversion or exercise of the Warrants issued in
connection with a Conversion in proportion to the amount of any repayment.


 


(b)          Notwithstanding
the foregoing, Lender shall only be permitted to effect a Conversion into a number of Units that, after giving effect to such
Conversion, would not cause the Ownership Cap (as defined below) to be violated. Any Warrant included as part of the Unit issuable
in connection with any Conversion, as described in Section 4.1(a) above, that, if exercised, would violate the Ownership
Cap, shall contain a provision (the “Blocker Provision”) providing that such Warrant shall be exercisable only
at such time, if any, when the Ownership Cap would not be violated after giving effect to such exercise (a “Blocked Warrant”).
Any Unit that contains a Blocked Warrant shall be issued proportionately such that Lender receives the maximum number of shares
of Common Stock and Warrants (other than Blocked Warrants) that will not violate the Ownership Cap. By example only, if Lender
desired to effect a Conversion for 10 Units (comprised of 10 shares of Common Stock and 10 Warrants), and that 15 shares of Common
Stock was the maximum number of shares that could be issued to Lender without Lender’s beneficial ownership violating the
Ownership Cap (absent any requisite shareholder approval, if applicable), Lender would be permitted to effect a Conversion for
10 shares of Common Stock, 5 Warrants and 5 Blocked Warrants (it being understood that such Blocked Warrants would be exercisable
only at such time, if any, when the Ownership Cap was not violated). No Blocked Warrant will be included in the calculation of
beneficial ownership for purposes of determining the Ownership Cap for any Conversion.


 




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4.2           Ownership
Caps.


 


(a) The Company
shall not issue to Lender any Warrants (other than Blocked Warrants pursuant to Section 4.1(b) above) or shares of Common
Stock under this Agreement until such time when such shares (including shares issuable upon exercise of the Warrants) proposed
to be issued, when aggregated with all other shares then owned beneficially (as calculated pursuant to (i) Section 13(d) of the
Securities Exchange Act of 1934 and Rule 13d-3 promulgated thereunder and (ii) the rules and regulations of the NASDAQ Global
Market) by the Lender would not result in the beneficial ownership by the Lender of more than 9.99% of the then issued and outstanding
shares of Common Stock (the “Ownership Cap”), without the prior written consent of Lender. The Ownership Cap
shall be appropriately adjusted for any stock dividend, stock split, reverse stock split or similar transaction.


 


4.3           Registration
Rights.


 


The Company
and the Lender shall have the registration rights, duties and obligations set forth on Exhibit C to this Agreement with
respect to any shares of Common Stock that become issuable to Lender pursuant to this Agreement upon a Conversion or upon the
exercise of Warrants (including the Warrants issuable to Lender pursuant to Section 5 hereof).


 


4.4           Closing
of Conversion.


 


The completion
of a Conversion shall occur within five business days after the receipt of the Conversion Notice by the Company (or upon such
other day as the Company and Lender shall agree), at the offices of the Company’s counsel. At the closing, among other things,
the Company shall issue to the Lender one or more stock certificates (and, as applicable, Warrants or Blocked Warrant), registered
in the Lender’s name and address representing the shares of Common Stock.


 


4.5           Share
Voting Restrictions.


 


Should this
agreement or the issuance of shares of Common Stock in excess of the Ownership Cap be sought as a result of any NASDAQ requirement,
Lender shall not be entitled to vote on any matter seeking such approval for this Agreement, including without limitation any
vote seeking approval for the Company to issue shares of Common Stock to Lender in excess of the Ownership Cap. For clarification,
Lender and all shares of Common Stock issued as a result of conversion shall be entitled to vote on all matters except those expressly
restricted hereby.


 




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		5.	WARRANT
ISSUANCE.



 


On
the date of this Agreement as part of the consideration for the entry into this Agreement, the Company shall issue Warrants to
Lender for the purchase of 500,000 shares of Common Stock in substantially the form attached hereto as Exhibit C. Each
Warrant shall (a) be exercisable for a term of seven (7) years commencing six (6) months after the date of this Agreement and
(b) have an exercise price equal to $1.00., All such Warrants are fully vested at issuance and not subject to any vesting conditions
or other contingencies. All such Warrants are fully earned as of the date hereof and are not in any fashion conditioned upon or
subject to the Company requesting or receiving any Advances under this Agreement. For the avoidance of doubt, no Warrant referred
to in this Section 5 will be deemed a Blocked Warrant, nor shall any such Warrant referred to in this Section 5
contain a Blocker Provision.


 


		6.	REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.



 


The Company
represents and warrants to the Lender as of the date of this Agreement and as of each Draw Date:


 


6.1            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, 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 not 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”).


 


6.2           Due
Authorization.


 


The Company
has all requisite power and authority to execute, deliver and perform its obligations under this Agreement, and has taken all
necessary corporate action to enter into and perform this Agreement and to issue the shares of Common Stock upon a Conversion
and upon exercise of the Warrants. This Agreement has been duly authorized, validly executed and delivered by the Company and
constitutes 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).


 




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6.3             Non-Contravention.


 


Except
as would not reasonably be expected to have a Material Adverse Effect, the execution and delivery of 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
or for any Advance hereunder, other than such as have been or will be made or obtained prior to the date hereof, and except for
any securities filings required to be made under federal or state securities laws.


 


6.4           Solvency.


 


On the date
of this Agreement and after giving effect to this Agreement and the receipt of Advances by the Company up to the Advance Limit,
the Company is able to pay its debts and liabilities, as such debts and liabilities become absolute and mature. The Company is
not the subject of a voluntary or involuntary bankruptcy or insolvency action, has not made a general assignment of its assets
for the benefit of creditors, and has not taken any corporate action to authorize any of the foregoing.


 


6.5           SEC
Filings.


 


Since January
1, 2013, 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 or furnished
SEC Documents.


 




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6.6           Absence
of Certain Changes.


 


Except as disclosed
in the SEC Documents or otherwise publicly disclosed by the Company, since January 1, 2014, 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.


 


6.7            Capitalization.


 


As of February
15, 2014, the authorized capital stock of the Company consists of (i) 274,800,000 shares of Common Stock, of which 172,607,230
shares are issued and outstanding and 36,094,832 shares are 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 are issued. On the date of this Agreement, the Company has
sufficient shares authorized and reserved for issuance upon the exercise of the Investment Units, including the Warrants issued
pursuant to Section 5. On the date of any Advance hereunder, the Company has, or will have, sufficient shares authorized
and reserved for issuance upon a Conversion or the exercise of the Warrants issued upon such Conversion. 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
or in connection with the Concurrent Financing, 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 Lender 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”).


 


6.8            Material
Non-Public Information.


 


The Company
has not provided (and during the Term the Company will not provide) any material non-public information to Lender, unless expressly
consented to by Lender in writing (and Lender provides other documentation reasonably acceptable to the Company in connection
with the receipt of such material non-public information, including without limitation an agreement to keep such information confidential
and refrain from trading in the Company’s securities on the basis of such information).


 




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		7.	REPRESENTATIONS AND WARRANTIES
OF LENDER.



 


The Lender
represents and warrants to the Company as of the date of this Agreement and as of each Draw Date:


 


7.1              Due
Authorization


 


Lender has
all requisite power, authority and capacity to execute, deliver and perform his obligations under this Agreement, and has taken
all necessary individual action to enter into and perform this Agreement. This Agreement has been duly authorized and validly
executed and delivered by Lender and constitutes a legal, valid and binding agreement of Lender enforceable against Lender 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).


 


7.2              Non-Contravention.


 


The execution
and delivery of 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 Lender is a party,
(B) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority
applicable to Lender or his 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 Lender 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 Lender is a party or by which
he is bound or to which any of the property or assets of Lender 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
by Lender, other than such as have been made or obtained, and except for any securities filings required to be made under federal
or state securities laws.


 


7.3           Private
Placement.


 


Lender
represents and warrants to, and covenants with, the Company that Lender is acquiring the Warrants and shares of Common Stock for
his own account for investment only and with no present intention of distributing any of the Warrants and shares of Common Stock
in violation of the applicable securities laws, or any arrangement or understanding with any other persons regarding the distribution
of the securities. Lender has been advised and understands that the Warrants and shares of Common Stock have not been registered
under the Securities Act of 1933, as amended (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.
Lender has been advised and understands that the Company, in issuing the Warrants and shares of Common Stock, is relying upon,
among other things, the representations and warranties of Lender herein in concluding that such issuance is a “private offering”
and is exempt from the registration provisions of the Securities Act.


 




    	11



    	 



    

 


7.4           Certain
Trading Activities.


 


Neither Lender
nor any of its affiliates has directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding
with Lender, 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 Lender was presented with draft documentation relating to the transactions
proposed hereby. For the purposes of this Section 7.4, “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. Lender covenants that neither he, nor any person acting on his behalf or pursuant to any understanding with him, will
engage in any transaction in the securities of the Company (including Short Sales) prior to the completion of one trading day
following 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 the transactions contemplated hereby.


 


7.5           No
Advice.


 


Lender understands
that nothing in this Agreement or any other materials presented to Lender in connection with the acquisition of the Warrants and
shares of Common Stock constitutes legal, tax or investment advice. Lender has consulted such legal, tax and investment advisors
as he, in his sole discretion, has deemed necessary or appropriate in connection with his acquisition of the Warrants and shares
of Common Stock.


 


7.6           Accredited
Investor; Big Boy.


 


Lender
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 his investment in the Warrants and shares of Common Stock. Lender has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and risks of the acquisition of the Warrants and shares
of Common Stock. Lender acknowledges that it does not have any material non-public information relating to the Company. Lender
further acknowledge that the Company and its respective agents, officers, directors and affiliates possess material non-public
information not known to Lender regarding or relating to the Company or the Units, including, but not limited to, information
concerning the business, financial condition, results of operations, legal matters associated with ongoing or past litigation
matters, investigations, the Company’s corporate transition matters (including transactions related to the corporate transition
matters and amounts that become payable by the Company), prospects and other plans of the Company. Lender acknowledges that any
material nonpublic information may be indicative of a value of the Units that is substantially less than the purchase price that
may be paid for such Units by Lender, or may be otherwise adverse to Lender, and such material nonpublic information, if known
to Lender, could be material to your decision to acquire the Units or otherwise engage in the transactions contemplated by this
Agreement. Accordingly Lender understands and accepts that there is an information disparity between Lender and the Company, confirm
that the Company is not obligated to disclose, and consistent with Lender’s instructions, has not disclosed material, non-public
information to Lender, and has no liability arising from such non-disclosure. Investor acknowledges that neither the Company nor
any of its agents, officers or directors or affiliates have delivered any information or made any representation to Investor,
except as expressly set forth herein.


 




    	12



    	 



    

 


7.7           Limited
Representations.


 


Lender and his
advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and
its Subsidiaries that have been requested and materials relating to the offer and acquisition of the Warrants and shares of Common
Stock, that have been requested by Lender. Lender and his 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. Lender 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 Company’s
financial condition at, September 30, 2013, as reported on the Company’s quarterly report on Form 10-Q, filed with the Commission
on November 12, 2013. Lender acknowledges that Lender has had the opportunity to ask questions or otherwise request information
related to (or otherwise is aware of) the Company’s results, operations, financial conditions or prospects since September
30, 2013. Lender does not have, or is otherwise aware of, any information that is or would be material to the Company’s
results, operations, financial conditions or prospects, that the Company does not have or is otherwise aware of. Lender understands
that his acquisition of the Warrants and shares of Common Stock involves a high degree of risk and that Lender may lose his entire
investment in the Warrants and shares of Common Stock, and that Lender can afford to do so without material adverse consequences
to his financial condition. Lender is not relying on, nor has, any information provided by the Company and its Subsidiaries, except
to the extent provided in Section 6 herein.


 


7.8           No
Recommendation.


 


Lender 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 Warrants and shares of Common Stock or the fairness or suitability of an investment in the Warrants and
shares of Common Stock nor have such authorities passed upon or endorsed the merits thereof.


 


7.9           Restrictive
Legend.


 


The
Company shall issue the certificates for the Warrants and shares of Common Stock to Lender with a legend as described in Exhibit
C to this Agreement. Lender covenants that, in connection with any transfer of any Warrants and shares of Common Stock pursuant
to the registration statement contemplated by Exhibit C hereof, as applicable, including the prospectuses contained therein,
Lender will comply with the applicable prospectus delivery requirements of the Securities Act, provided that copies of a current
prospectus relating to such effective registration statement are available to Lender.


 




    	13



    	 



    

 


7.10          Residence.


 


Lender is a resident of
the State of Florida.


 


7.11          No Market.


 


Lender understands
that the Warrants and shares of Common Stock are restricted securities, and that the Warrants and shares of Common Stock must
be held indefinitely unless and until the resale of such Warrants and shares of Common Stock are 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. Lender has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.


 


7.12          No Commissions.


 


Lender 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 Lender relating to this Agreement or the transactions contemplated hereby.


 


7.13          Transactional
Exemption.


 


Lender understands
that the Warrants and shares of Common Stock 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 Lender set forth herein in order to determine the applicability
of such exemptions and the suitability of Lender to acquire the Warrants and shares of Common Stock .


 


7.14          Lender Undertaking.


 


Lender covenants
that he will not sell, transfer, assign, hypothecate or pledge in any way any of the Warrants and shares of Common Stock unless
the resale of the securities 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.


 


7.15          Liquidity.


 


Lender
has sufficient liquid assets in excess of his personal expenses, debts and liabilities to permit him to make Advances up to the
Maximum Advance Limit to the Company. Lender shall, for the full duration of the Term, maintain the requisite liquidity and capacity
described in the preceding sentence.


 




    	14



    	 



    

 


		8.	MISCELLANEOUS PROVISIONS.



 


8.1           Notices.


 


Any notice required
to be provided hereunder shall be in writing and personally delivered or sent by registered or certified mail postage prepaid,
return receipt requested to the Company or Lender, as the case may be, at the addresses set forth in the first paragraph of this
Agreement.


 


8.2           Choice
of Law and Venue.


 


This Agreement
shall be construed in accordance with the laws of the Commonwealth of Virginia without giving effect to its conflicts of law principles.


 


8.3           No
Assignment.


 


Neither party
may assign any of their rights or delegate any of their duties hereunder without the prior written consent of the other party,
and any such attempted assignment or delegation without such consent shall be void and of no force and effect.


 


8.4           Invalidity.


 


If any provision
of this Agreement is held invalid or unenforceable to any extent or in any application, the remainder of this Agreement shall
not be affected thereby and the invalidity or unenforceability of any part or provision of this Agreement shall not affect any
other part or provision of this Agreement, all of which are inserted conditionally on their being valid and enforceable.


 


8.5           Expenses.


 


Each party shall
pay their own respective costs and expenses incurred in connection with the preparation, negotiation and execution of this Agreement
(including the Exhibits attached hereto); provided, however, that the Company shall pay the reasonable out of pocket legal expenses
of Lender subject to a maximum amount equal to the reasonable legal expenses of the Company incurred in connection with the preparation,
negotiation and execution of this Agreement including the Company’s legal expense incurred in connection with any prior
loan agreement or credit facility arrangement that was contemplated after December 1, 2013 (such expenses to be paid out of the
proceeds from the Concurrent Financing).


 


8.6           Entire
Agreement; Order of Precedence.


 


This Agreement
constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between
the Company and Lender with respect to the subject matter hereof. In the event of a conflict between the terms of this Agreement
and the terms of any Warrant, the terms of this Agreement shall govern and control.


 




    	15



    	 



    




8.7            Assignment


 


This Agreement
shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns; but neither
this Agreement nor any of the rights, benefits or obligations hereunder (including, without limitation, any rights, benefits or
obligations with respect to any Note) shall be assigned, by operation of law or otherwise, by any party without the prior written
consent of the other party (in the other party’s sole discretion).


 


8.8           Use
of Lender’s Name in Press Release


 


The Company
shall not use the Lender’s name in any press release issued by the Company related to this Agreement or the transactions
contemplated hereby, without the consent of Lender.


 




    	16



    	 



    

 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered at the Company’s place of business
in Glen Allen, Virginia.


 


	 	STAR SCIENTIFIC, INC.
	 	 
	/s/ Peter Patel	 	By:	/s/  Michael J. Mullan 
	Witness: Peter Patel	 	Name: Dr. Michael J. Mullan
	 	Title: Chairman  and CEO
	 	 


 


	/s/ Peter Patel	 	/s/ John Joseph McKeon
	Witness: Peter Patel	 	John Joseph McKeon


 


Signature Page to Loan Agreement


 




    	 



    	 



    

 


Schedule
1.6


 


Concurrent Financing


 


The
Concurrent Financing is comprised of the various financing transactions effected pursuant to various financing-related agreements,
all executed March 12, 2014, among the Company and various investors and lenders.


 




    	 



    	 



    

 


Exhibit
A 



 


Form of Note


 


Please see attached.


 




    	 



    	 



    

 


THIS PROMISSORY
NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR UNDER THE SECURITIES LAWS OF APPLICABLE STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO REGISTRATION UNDER SUCH LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.


 


PROMISSORY NOTE


 


	US $[Amount of Advance]	[Draw Date]


 


FOR
VALUE RECEIVED, Star Scientific, Inc., a Delaware corporation (the “Company” or “Borrower”),
hereby unconditionally promises to pay to John Joseph McKeon an individual with an address at 15A Golf Village, Key Largo,
FL 33037 or his permitted assignee (the “Lender”) the principal sum of ________________ MILLION DOLLARS ($_,000,000),
together with accrued interest, in lawful money of the United States of America (the “Note”). Interest and principal
shall be payable at such address or by wire transfer to such account as the Lender shall specify by written notice or in the absence
of such notice at 15A Golf Village, Key Largo, FL 33037.


 


		1.	Due
                                         Date; Prepayment. Subject to Section 3 below, this Note shall be due and payable
                                         on the second anniversary of this Note (“Due Date”). Prior to the
                                         Due Date, the Company may at any time, and from time to time, repay, without penalty
                                         or premium, any or all amounts due under this Note, provided, however, that the Company
                                         shall provide Lender with no less than twenty (20) calendar days written notice of the
                                         Company’s intention to prepay during which period Lender may exercise conversion
                                         rights under this Note and the Loan Agreement. Notwithstanding the foregoing, the Company
                                         may not pay such portion of this Note before the Due Date to the extent that Lender is
                                         for any reason not permitted to convert such portion of this Note into the Units including
                                         due to the Ownership Cap or provisions of Section 16 of the Securities Act. Any repayment
                                         or prepayment shall first be applied to interest and then to principal.



 


		2.	Interest.
                                         Interest shall accrue on the unpaid principal amount of this Note at the lesser of:
                                         (i) three (3) percent per annum and (ii) the maximum rate permitted by applicable law,
                                         computed on the basis of the number of revolving days elapsed from the date of the advance
                                         and a year of 365 days. Accrued interest on any unpaid principal amount will be paid
                                         in cash in arrears by the Company on a calendar quarterly basis on the first day of April,
                                         July, October and January of each calendar year (or if such day does not fall on a business
                                         day, the next business day) or at the time of repayment of this Note, whichever occurs
                                         earlier.



 




    	 



    	 



    

 


		3.	Conversion;
                                         Units. Lender may in accordance with the Loan Agreement convert (the “Conversion”)
                                         all or a portion of this Note (including after notice by the Company of prepayment of
                                         this Note) (the “Converted Amount”) into investment units in the Company.
                                         Each such investment unit shall consist of one share of the Company’s common stock,
                                         par value $0.0001 per share (the “Common Stock”) and one warrant to
                                         purchase one share of Common Stock at an exercise price of $1.00 for a term of seven
                                         years commencing six months from the date hereof (the “Warrants”)
                                         (collectively, the Common Stock and Warrants are referred to as the “Units”).
                                         The Converted Amount will convert into such number of shares of Common Stock and such
                                         number of Warrants that equals the Converted Amount divided by $1.00 with any partial
                                         share and Warrant to purchase a partial share that would result from such conversion
                                         calculation rounded up to a whole share of Common Stock. Once any Converted Amount is
                                         converted, the Converted Amount will be deemed to be extinguished, abated and repaid
                                         in full as of the date of the delivery of the Units. NOTWITHSTANDING THE FORGOING,
                                         THIS NOTE MAY NOT BE CONVERTED INTO THE UNITS TO THE EXTENT THAT THE COMBINATION OF SHARES
                                         AND WARRANTS RECEIVED IN THE CONVERSION WOULD RESULT IN LENDER’S BENEFICIAL OWNERSHIP
                                         IN STAR SCIENTIFIC, INC. EXCEEDING 9.99% OF THE COMPANY’S OUTSTANDING COMMON STOCK
                                         (THE “OWNERSHIP CAP”). FOR CLARIFICATION, WARRANTS SHALL NOT CONSTITUTE BENEFICIAL
                                         OWNERSHIP TO THE EXTENT SUCH WARRANTS CONTAIN A PROHIBITION ON EXERCISE IF SUCH EXERCISE
                                         WOULD CAUSE LENDER’S BENEFICIAL OWNERSHIP TO EXCEED THE OWNERSHIP CAP.



 


		4.	Loan Agreement.
                                         This Note has been executed and delivered pursuant to that certain Loan Agreement, dated
                                         March 12, 2014, by and between Lender and Company (the “Loan Agreement”),
                                         and this Note is one of the “Notes” referred to in the Loan Agreement. Unless
                                         otherwise defined herein, capitalized terms used in this Note shall have the meaning
                                         ascribed to them in the Loan Agreement. This Note evidences an Advance made under the
                                         Loan Agreement, and the holder of this Note shall be entitled to the benefits, and is
                                         subject to the restrictions, set forth in the Loan Agreement. This Note and the Units
                                         that may be acquired upon conversion of this Note are subject to registration rights
                                         as more fully provided in the Loan Agreement.



 


		5.	Assignment.
                                         This Note may be assigned by Lender only upon the written consent of the Company
                                         (such consent to be in the sole discretion of the Company), provided that such assignment
                                         does not violate federal securities laws or require the Company to seek the approval
                                         of its shareholders with respect to the assignment, conversion of the Note or otherwise.
                                         The assignee shall be deemed to be the holder of this Note entitled to all rights hereunder
                                         including conversion rights set forth herein and in the Loan Agreement.



 


		6.	Event of Default/Remedies.
                                         Each of the following shall constitute an event of default (“Event of Default”)
                                         under this Note: (i) Borrower fails to make any payment when due under this Note, (ii)
                                         or (iii) Borrower files for bankruptcy or bankruptcy proceedings are instituted against
                                         it, or a general assignment is made by the Company for the benefit of its creditors.
                                         Borrower fails to timely deliver the Units upon conversion. Upon the occurrence of an
                                         Event of Default that is not cured for twenty (20) days following written notice, this
                                         Note shall be due and payable in full and Lender shall be entitled to pursue all available
                                         remedies and damages resulting from such Event of Default in the event the Company is
                                         not able to repay this Note in full.



 


		7.	Costs.
                                         The Company shall pay Lender’s reasonable costs incurred for enforcement of
                                         Lender’s rights and remedies, including reasonable attorneys’ fees and legal
                                         expenses, in connection with a Company Event of Default pursuant to Section 6 of this
                                         Note.



 




    	 



    	 



    

 


		8.	Miscellaneous.
                                         Presentment or other demand for payment, notice of dishonor and protest are expressly
                                         waived by the Company. This Note shall be governed by and construed in accordance with
                                         the laws of the State of Florida. If there is a lawsuit, Borrower agrees upon Lender’s
                                         request to submit to the jurisdiction of the courts of Sarasota County, State of Florida.
                                         The terms of this Note shall be binding upon and inure to the benefit of the parties
                                         and their respective permitted successors and assigns; but neither this Note nor any
                                         of the rights, benefits or obligations hereunder shall be assigned, by operation of law
                                         or otherwise, by any party without the prior written consent of the other party (in the
                                         other party’s sole discretion). If any part of this Note cannot be enforced, this
                                         fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of
                                         its rights or remedies under this Note without losing them. Upon any change in the terms
                                         of this Note, and unless otherwise expressly stated in writing, no party who signs this
                                         Note shall be released from liability. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
                                         EXTEND CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO
                                         EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH
                                         IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT BORROWER AND
                                         LENDER FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS COVERING SUCH MATTERS
                                         ARE CONTAINED IN THIS WRITING OR THE LOAN AGREEMENT, WHICH IS THE COMPLETE AND EXCLUSIVE
                                         STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY
                                         IT.



 


IN
WITNESS WHEREOF, the Company has executed this instrument as of the date set forth above.


 


	 	COMPANY: 
	 	 
	 	STAR SCIENTIFIC, INC.
	 	 
	 	By:	 
	 	 	Name: Dr. Michael J. Mullan
	 	 	Title: Chairman and CEO


 




    	 



    	 



    

 


Exhibit
B


 


Form of Lender
Warrant


 


Please see attached.


 




    	 



    	 



    

 


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, John Joseph McKeon (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 September 12, 2014 (the “Initial Exercise Date”) and on or prior to the close of business on September
12, 2021 (the “Termination Date”) but not thereafter (the “Exercise Period”), to subscribe
for and purchase from Star Scientific, Inc., a Delaware corporation (the “Company”), up to 500,000 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 $1.00, 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 Loan Agreement,
dated March 12, 2014, between the Company and Holder (the “Loan 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.


 


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.


 


(c)          Notwithstanding
the foregoing, this Warrant shall not be exercisable, and the Company shall not issue to Lender any shares of Common Stock underlying
this Warrant, until such time when such shares (including shares issuable upon exercise of the Warrants) proposed to be issued,
when aggregated with all other shares then owned beneficially (as calculated pursuant to (i) Section 13(d) of the Securities Exchange
Act of 1934 and Rule 13d-3 promulgated thereunder and (ii) the rules and regulations of the NASDAQ Stock Market) by the Lender
would not result in the beneficial ownership by the Lender of more than 9.99% of the then issued and outstanding shares of Common
Stock (the “Ownership Cap”), without the prior written consent of Investor. The Ownership Cap shall be appropriately
adjusted for any stock dividend, stock split, reverse stock split or similar transaction.


 


“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.


 


“Principal
Market” means the Nasdaq Global Market.


 


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.


 




    	2



    	 



    




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.


 


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.


 




    	3



    	 



    

 


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.


 


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.


 




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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


 


(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).


 




    	5



    	 



    

 


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.


 


15.         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.


 


(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:


 




    	6



    	 



    

 


(i)          If
to the Holder:


 


John Joseph McKeon


15A Golf Village, Key
Largo,


FL 33037


Phone: 201 919-7550


 


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.


1255 23rd Street,
NW, Suite 875


Washington, DC 20037


Attn: Robert E. Pokusa


General Counsel


Phone: (202) 887-5104


Telecopy: (301) 654-8300


 


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.


 


(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.


 




    	7



    	 



    

 


(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.


 




    	8



    	 



    

 


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


 


Dated: March 12, 2014


 


	 	STAR SCIENTIFIC, INC.
	 	 
	 	By:	 
	 	 	Name: Michael J. Mullan 
	 	 	Title: Chairman and CEO


 


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: 	 


 




    	 



    	 



    

 


Exhibit
C


 


Registration
Rights and Obligations


 


		1.	REGISTRATION RIGHTS.



 


1.1          Certain
Definitions.


 


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


 


“Registration
Expenses” shall mean all expenses to be incurred by the Company in connection with each Holder’s registration
rights under this Agreement, 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) (provided, that such amount of any reimbursement of the reasonable
fees and expenses of counsel to Holders not to exceed $5,000 in the aggregate or, if the Registration Expenses relate to a registration
statement other than on Form S-3, $7,500 in the aggregate) 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).


 


“Registrable
Securities” shall mean: (i) the shares of Common Stock that may be issuable to Lender upon the exercise of Warrants,
as contemplated under this Agreement (the “Shares”) (A) upon any distribution with respect to, any exchange for or
any replacement of such shares of Common Stock, or (B) 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
shares of Common Stock or other securities shall cease to be Registrable Securities when (A) they have been sold to the public
or (B) they may be sold by the Holder thereof without restriction pursuant to Rule 144.


 


“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.”


 




    	C-1



    	 



    

 


1.2           Registration
Requirements.


 


Unless waived
in writing by Lender, 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 75 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 Shares (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
60 days (or, if the Commission elects to review the Registration Statement, 120 days) following the filing of the Registration
Statement. The Company, in its sole discretion, may elect to include for offer and sale securities in addition to the Registrable
Securities in the Registration Statement. By 5:30 p.m. (New York time) on the Business Day immediately following the effective
date of the Registration Statement, the Company shall file with the Commission in accordance with Rule 424(b) under the Securities
Act the final prospectus to be used in connection with sales pursuant to the applicable Registration Statement (whether or not
such a prospectus is technically required by such rule).


 


(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.


 




    	C-2



    	 



    

 


(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.


 


(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 NASDAQ Global Market (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 1.2(a)(ix) if compliance would cause the Company to fail
to comply with any other provisions hereunder.


 


(ix)         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.


 




    	C-3



    	 



    




 


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


 


(d)          Subject
to Section 1.2(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.


 




    	C-4



    	 



    

 


(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 1.2(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.


 


(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 1.2(a)(vii) or 1.2(a)(viii), and upon notice of any suspension under Section
1.2(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 1.2, 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.


 




    	C-5



    	 



    

 


1.3           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.


 


1.4           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 S3 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.


 


1.5           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).


 


1.6           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 or 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).


 




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(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 or 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 1.6(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).


 


(c)          Procedure.
Each party entitled to indemnification under this Section 1.6 (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 1.6 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.


 




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1.7           Contribution.


 


If the indemnification
provided for in Section 1.6 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 1.7 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the indemnification provided for under Sections 1.6(a)
or 1.6(b) hereof had been available under the circumstances.


 


The
Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 1.7 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.


 




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1.8           Survival.


 


The indemnity
and contribution agreements contained in Sections 1.6 and 1.7 and the representations and warranties of the Company referred
to in Section 1.2(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.


 


1.9           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.


 


2.          STOCK
LEGEND.


 


Upon conversion
as provided in Section 4 of the Loan Agreement, the Company will issue the Shares in the name of the Lender. Any certificate
representing the Shares shall be stamped or otherwise imprinted with a legend in substantially the following form:


 




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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. THE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT
TO RIGHTS AND OBLIGATIONS AS SET FORTH IN A LOAN AGREEMENT DATED AS OF __________, 2014 BY AND AMONG STAR SCIENTIFIC, INC. AND
THE LENDER PARTY THERETO AS SUCH MAY BE AMENDED FROM TIME TO TIME.


 


The Company
agrees to issue the Shares without the legends set forth above at such time as the Holder thereof is (i) permitted to transfer
such Shares 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 Shares 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.


 







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