Document:

Exhibit 10.61

 Exhibit 10.61 
  
 SUBORDINATION AGREEMENT 
  
 This Subordination Agreement is made as of the 25th day of March, 2004 by and among Jonnie R. Williams, residing at 1 Starwood Lane Manakin-Sabot,
Virginia 23103 (the “Subordinated Creditor”), Star Scientific, Inc., a Delaware corporation (the “Borrower”) and Manchester Securities Corp., a New York corporation (“Senior Creditor”). Each undefined capitalized term
contained herein shall have the meaning set forth in the Securities Purchase Agreement among the Borrower and the Senior Creditor dated the date hereof (“Securities Purchase Agreement”). 
  
 WHEREAS, the Borrower intends to enter into the Securities Purchase
Agreement, Registration Rights Agreement and Security Agreement contemporaneously herewith (as same may be amended from time to time, the “Transaction Agreements”) with the Senior Creditor, pursuant to which, among other things, the Senior
Creditor shall purchase the Borrower’s 8% Convertible Debentures issued by the Borrower (the “Debentures”); 
  
 WHEREAS, Subordinated Creditor is an officer and shareholder of Borrower; 
  
 WHEREAS, Borrower now owes Subordinated Creditor the sum of $4,500,000, and Subordinated Creditor may, from time to
time, make further loans, advancements or extensions of credit to Borrower (collectively, the “Subordinated Debt”); and 
  
 WHEREAS, the Senior Creditor requires that the Subordinated Creditor enter into this Subordination Agreement as a condition precedent to the Senior
Creditor entering into the Transaction Agreements and purchasing the Debentures; 
  
 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby act and agree as follows: 
  
 1. The Subordinated Creditor agrees that the payment of the Subordinated Debt
or any part thereof is expressly subordinated to the prior payment and satisfaction in full of the Senior Debt (as defined in this paragraph 1). As used herein, “Senior Debt” means the principal, interest, premium, fees and other sums
payable from time to time to the Senior Creditor under the Debentures. Interest, fees and charges constituting Senior Debt will be calculated as provided for in the Debentures and without regard to whether or not same are allowable in any bankruptcy
or insolvency proceedings involving the Borrower. 
  
 2. Except
for Permitted Payments (as defined in paragraph 3 hereof) so long as any part of the Senior Debt shall be unpaid, no payment of, or with respect to, any Subordinated Debt shall be made at any time by the Borrower or received by the Subordinated
Creditor (in any manner, including by set-off). If the Subordinated Creditor receives any payment to which the Subordinated Creditor shall not be entitled under this Section 2 or Section 3 hereof, the Subordinated Creditor will hold any such payment
in trust for the benefit of the Senior Creditor, and will forthwith remit same to the Senior Creditor. 
  
 3. Notwithstanding anything in this Agreement to the contrary, so long as no default by the Borrower or any Subsidiary of the Company exists under the
Senior Debt, or the Subordinated Debt, the Borrower shall have the right to pay any principal and interest (not to 

 
exceed the legal rate) then due and payable on the Subordinated Debt; provided further, however, that such payment will not (i) result in, or
cause a default under the Debentures or any of the Transaction Agreements, (ii) the Borrower is not insolvent at the time such payment is made and such payment does not cause Borrower to be insolvent, and (iii) immediately after such payment is made
the Borrower’s cash on hand (determined in accordance with generally accepted accounting principles consistently applied) will be not less than $10,000,000 (“Permitted Payments”). 
  
 4. As long as any of the Senior Debt shall be outstanding: 
  
 (a) Except for Permitted Payments, any payment or distribution to which any
holder of Subordinated Debt would otherwise be entitled to receive with respect to the Subordinated Debt, but for the subordination provisions of this Agreement, shall be paid directly to the Senior Creditor. 
  
 (b) Except for Permitted Payments, in the event that any payment on account
of Subordinated Debt or any distribution of assets of the Borrower shall be received by the Subordinated Creditor in violation of the subordination provisions of this Agreement, such payment or distribution shall be held by such Subordinated
Creditor in trust for the benefit of the Senior Creditors and shall be paid over forthwith to the Senior Creditor. 
  
 (c) Subordinated Creditor agrees that upon the occurrence of a Bankruptcy Event (as defined in the Debenture), any payment or distribution of any kind or
character, whether in cash, securities, or other property, which is payable or deliverable upon or with respect to any or all of Borrower’s indebtedness to Subordinated Creditor, shall be paid or delivered directly to for application to the
Senior Debt, due or not due, until all of such indebtedness has been fully paid and satisfied. In the event a Bankruptcy Event occurs and Senior Creditor does not receive evidence that Subordinated Creditor has filed a proper claim not later than
fifteen days before the applicable bar date, in a form and manner satisfactory to Senior Creditor than Senior Creditor shall have the right to file such claim in Subordinated Creditor’s name, or its own name. Furthermore, Subordinated
Creditor hereby irrevocably authorizes and empowers the Senior Creditor to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor in an amount not to exceed the Senior Debt and to file claims and take
such other proceedings in Senior Creditor’s own name or in the name of Subordinated Creditor or otherwise, as Senior Creditor deems necessary or advisable in its reasonable discretion for the enforcement of this Agreement. Subordinated Creditor
hereby agrees to execute and deliver to Senior Creditor all powers of attorney, assignments or other instruments requested by Senior Creditor in order to enable Senior Creditor to enforce all claims upon or with respect to any or all of
Borrower’s indebtedness to Subordinated Creditor, and to collect and receive all payments or distributions (other than Permitted Payments) which are payable or deliverable at any time upon or with respect to any such indebtedness of Borrower to
Subordinated Creditor. 
  
 (d) No agreement (oral or written),
note, or instrument evidencing any Subordinated Debt shall be amended, terminated, exchanged, transferred or otherwise affected without the prior written consent of the Senior Creditor 

  

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 (e) The Subordinated Creditor will not demand any payment in respect of the Subordinated Debt, other than
Permitted Payments. 
  
 (f) The Subordinated Creditor will neither
request nor accept any security for any of the Subordinated Debt. The Borrower and Subordinated Creditor hereby represent and warrant that no security interest or collateral has been granted to or on behalf of Subordinated Creditor in respect of the
Subordinated Debt. 
  
 (g) Without the written consent of the
Senior Creditor, Subordinated Creditor will not bring any proceeding to enforce any of its rights or remedies with respect to the Subordinated Debt or cause a Bankruptcy Event. 
  
 5. The terms of this Agreement, the subordination effected hereby and the rights of the holder or holders of Senior Debt
shall not be affected by: (i) any amendment of or addition or supplement to the Debentures, the Transaction Agreements or any other instrument or agreement relating to the Senior Debt or securing or guaranteeing any of the Senior Debt, (ii) any
exercise or non-exercise of any right, power or remedy under or in respect of the Senior Debt or any instrument or agreement relating thereto, or securing or guaranteeing any of same, or (iii) any waiver, consent, release, indulgence, extension,
renewal, modification, delay or other action, inaction or omission in respect of any Senior Debt or any instrument or agreement relating thereto, or securing or guaranteeing any of same, all whether or not the holders of the Subordinated Debt shall
have had notice or knowledge of any of the foregoing. 
  
 6. The
Subordinated Creditor shall not exercise any right of subrogation, contribution or similar right, regardless of any payment made hereunder until the Senior Debt has been paid in full. 
  
 7. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. 
  
 8. Any evidence of indebtedness now or
hereafter evidencing any of the Subordinated Debt shall be marked with the following legend: 
  
 “Payment of this indebtedness is subject to the terms and conditions of a Subordination Agreement dated March 25, 2004 between Star Scientific, Inc., certain subsidiaries of Star Scientific, Inc., Jonnie
Williams and certain creditors of Star Scientific, Inc. A copy of said Subordination Agreement may be obtained, upon written request of any holder of this note, from Star Scientific, Inc., at 801 Liberty Way, Chester, Virginia 23836.”

  
 9. Nothing contained in this Agreement or otherwise will in
any event be deemed to constitute any holder of Senior Debt the agent of the Subordinated Creditor for any purpose nor to create any fiduciary or similar relationship between any such holder of Senior Debt and the Subordinated Creditor. The
Subordinated Creditor acknowledges and agrees that no release, action or inaction with respect to any Collateral for Senior Debt; nor any amendment to the Transaction Agreements or any instrument or agreement relating to, securing or guaranteeing

  

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any of the Senior Debt; nor any exercise or non-exercise of any right, power or remedy under or in respect of any of the Senior Debt or any instrument or
agreement relating to, securing or guaranteeing any of the Senior Debt; nor any waiver, consent, release, indulgence, extension, renewal, modification, delay or other action, inaction or omission (intentional or unintentional) in respect of any of
the Senior Debt or any Collateral therefor or any instrument or agreement relating to, securing or guaranteeing any of the Senior Debt will in any event give rise to any claim against any holder of Senior Debt or any officer, director, employee or
agent of such holder. 
  
 10. Upon the happening of an Event of
Default under the Debentures or Transaction Agreements, the Subordinated Creditor irrevocably authorizes and directs Senior Creditor, and its successors and assigns and any trustee in bankruptcy, receiver or assignee for the benefit of creditors of
the Borrower, whether in voluntary or involuntary liquidation, dissolution or reorganization, to take such action in the name of the Subordinated Creditor as Senior Creditor may deem to be necessary or appropriate to effectuate the subordination
provided for in this Agreement and to file all such claims and proofs of claim as the Senior Creditor may deem necessary or appropriate to collect on the Senior Debt; and the Subordinated Creditor hereby irrevocably appoints Senior Creditor and its
successor and assign, or any such trustee, receiver or assignee, as the attorney- or attorneys-in-fact of the Subordinated Creditor for such purpose, with full powers of substitution and resubstitution. Upon the happening of an Event of Default
under the Debentures or Transaction Agreements, the Subordinated Creditor hereby further appoints the Senior Creditor, as such Subordinated Creditor’s attorney-in-fact for the purpose of voting with respect to any plan proposed in any
reorganization, arrangement or composition proceedings for the Borrower, it being understood that Senior Creditor may exercise its rights hereunder as Senior Creditor in its reasonable discretion may determine, and without regard, but in good faith,
to the effect which same would have on the interests of the Subordinated Creditor. The powers of attorney granted herein are powers coupled with an interest and are, therefore, irrevocable. 
  
 11. The Subordinated Creditor acknowledges receipt of copies of the
Debentures and Transaction Agreements and further agrees not to contest any of the provisions of such documents or the exercise by the Senior Creditor and the Collateral Agent of their respective rights and remedies thereunder. 
  
 12. The Subordinated Creditor and Borrower agree that if the Senior Debt is
refinanced (i) the Subordinated Debt will continue to be junior and subordinate to the refinancing debt and (ii) in order to evidence such subordination, Subordinated Creditor and Borrower shall, upon request of any lender or lenders providing the
refinancing debt (“Refinancing Lenders”), execute and deliver to such Refinancing Lenders a subordination agreement containing substantially the same terms as set forth in this Agreement (and prior to such execution and delivery, all of
the terms of this Agreement shall inure to the benefit of such Refinancing Lenders as if such Person or Persons were the original Senior Creditor hereunder.) 
  
 13. Subordinated Creditor represents and warrants that no subsidiary of Borrower owes Subordinated Creditor any money. Subordinated Creditor further
agrees that he will not make any loans, advancements or extensions of Credit to any subsidiary of Borrower. 
  

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 14. Notwithstanding anything to the contrary herein, provided that no Bankruptcy Event has occurred,
Subordinated Creditor and the Borrower may agree to convert the outstanding Subordinated Debt into common stock of the Borrower. 
  
 15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 
  
 16. This Subordination Agreement shall terminate upon the satisfaction in
full of the Senior Debt. 
  
 17. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission, and
facsimile signatures shall be binding on the parties hereto. 
  
 Executed, as an instrument under seal, as of the day and year first above written. 
  

	
	SUBORDINATED CREDITOR:
	
	          /s/    Jonnie R. Williams
	

	 Name: Jonnie R. Williams
 Address:

  
 Agreed to: 
  
 BORROWER: 
  
 STAR SCIENTIFIC, INC. 
  
  

			
		
	By:	 	          /s/    Paul L. Perito
	 	 	

	 	 	 Name: Paul L. Perito
 Title: Chairman, President & C.O.O.

  

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	 Acknowledged:
  
 SENIOR CREDITORS:
  
 MANCHESTER SECURITIES CORP.

		
	By:	 	/s/    Elliot Greenberg
	 	 	

	 	 	 Name: Elliot Greenberg
 Title: Vice President

  

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 SCHEDULE A 
  

							
	 Name of
 Subordinated Creditor

	 	 Address

	 	 Date of Loan

	  	Amount Outstanding

  

 7Exhibit 10.62

 Exhibit 10.62 
  
 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AFTER RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT 
  
 COMMON STOCK PURCHASE WARRANT 
  

To Purchase 100,000 Shares of $0.0001 par value Common Stock of 
  

Star Scientific, Inc. 
  
 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) CERTIFIES that, for value received, Reedland Capital Partners, an Institutional
Division of Financial West Group (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 March 25, 2004 (the “Initial Exercise
Date”) and on or prior to the close of business on the fifth (5th) anniversary of the Initial Exercise Date
(the “Termination Date”) but not thereafter (the “Exercise Period”), to subscribe for and purchase from Star Scientific, Inc., a corporation incorporated in Delaware (the “Company”), up to 100,000
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 $4.49, 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. 
  
 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 on or before 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 or by 
  

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means of a cashless exercise pursuant to Section 2(c). The Holder exercising its 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 delivered to the Holder
within five (5) Trading Days 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 its expense, shall within ten (10) Trading Days (as defined below) 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 provision regarding payment of the Exercise Price in cash, the Holder, by indicating its intent to do so on the Notice
of Exercise Form, may elect to receive a reduced number of Warrant Shares in lieu of tendering the Exercise Price in cash. In such case, the number of Warrant Shares to be issued to the Holder shall be computed using the following formula:

  

							
	 	 	  
 X =
	 	Y x (A-B)

	  	 
	 	 	 	 	A	  	 

  
  
 (X) = the number of Warrant Shares to be issued to the Holder upon such “cashless exercise”; 
  
 (A) = the VWAP (as defined below) on the Trading Day immediately preceding
the date on which such exercise is effective; 
  
 (B) = the
Exercise Price of the Warrants, as adjusted; and 
  
 (Y) = the
number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant. 
  
 “VWAP” shall mean for any date, the price determined by the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on the Nasdaq, or any national exchange that is then the principal market for the Common 

  

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

  
 3. No Fractional Shares or Scrip. No fractional shares
or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction multiplied by the Exercise Price. 
  
 4. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder; provided, however, that the Holder shall pay any applicable transfer taxes. 
  
 5. Closing of Books. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 
  
 6. Division and Combination. 
  
 (a) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the denominations in which new Warrants are to be issued, signed by the Holder or its 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 Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased 

  

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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 (which, in the case of the Warrant, shall not include the posting of any bond), and
upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

  
 9. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday. 
  
 10. Adjustments of
Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In
case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it 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 resulting from 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. In case the Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or
otherwise dispose of all or 

  

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substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“Other Property”), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right
thereafter to receive upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or Common Stock of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the all the obligations and liabilities of the Company hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section
11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations, spin-offs, or dispositions of assets. 
  
 12. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was
made. 
  
 13. Notice of Corporate Action. If at any time:

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

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 (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 15(d). 
  
 14. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or
regulation. 
  
 Except and to the extent as waived or consented to
by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount
payable therefor upon such exercise immediately prior to such increase in par value and (b) take all such action as may be necessary or appropriate in order that the Company 

  

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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 its rights,
powers or remedies hereunder. 
  
 (d) Notices. All notices,
requests, consents and other communications provided for herein shall be in writing and shall be effective upon delivery in person, when faxed and received, or five business days after being mailed by certified or registered mail, return receipt
requested, postage pre-paid, addressed as follows: 
  
 (i) If to
the Holder: 
  
 Reedland Capital Partners, 
 An Institutional Division of Financial West Group 
 30 Sunnyside Avenue 
 Mill Valley, CA 94941 
 Telephone: 
 Facsimile: 
 Attention: 
  
 or to the address of the Holder as
shown on the books of the Company; or 
  
 (ii) If to the Company:

  
 Star Scientific, Inc. 
 801 Liberty Way 
 Chester, Virginia 23836

 Telephone: (804) 530-0535 
 Facsimile: (804) 530-8474 
  

 7 

 Attention: Christopher G. Miller 
  
 with a copy to: 
  
 Star Scientific, Inc. 
 7475 Wisconsin
Avenue 
 Suite 850 
 Bethesda,
MD 20814 
 Telephone: (301) 654-8300 
 Facsimile: (301) 654-9308 
 Attention: Robert E. Pokusa, Esq. 
  
 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 nor the Holder may assign this Warrant without the prior written consent of the other party. 
  
 (g) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of
the Company and the Holder. 
  
 (h) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. 
  

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

 8 

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

  
 Dated: March 25, 2004 
  

			
	 STAR SCIENTIFIC, INC.

		
	By:	 	/s/    Paul L. Perito
	 	 	

	 	 	 Name: Paul L. Perito
 Title: Chairman, President & C.O.O.

  

 9 

 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 (check applicable box): 
  
  ̈    in lawful money of the
United States; or 
  
  ̈    the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). 
  
 (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 either: (i) an “accredited investor” as defined in Regulation D under
the Securities Act of 1933, as amended. 
  

			
	[PURCHASER]
		
	By:	 	 
	 	 	

	 	 	 Name:
 Title:

	 Dated:
	 	 
	 	 	

  

 10

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