Document:

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                                                                  EXHIBIT 10.37

                           LOAN AND SECURITY AGREEMENT

      This LOAN AND SECURITY AGREEMENT is entered into as of January 20, 2000
between FINOVA CAPITAL CORPORATION, BUSINESS CREDIT, a Delaware corporation
(FINOVA), with a place of business located at 1000 Abernathy Road N.E., Building
400, Suite 1500, Atlanta, Georgia 30328 and STAR TOBACCO AND PHARMACEUTICALS,
INC., a Virginia corporation (Borrower), with its chief executive office located
at 16 South Market Street, Petersburg, Virginia 23803.

      The parties agree as follows:

      1.    DEFINITIONS AND CONSTRUCTION

            1.1           TERMS. In addition to the terms that are defined
within this Agreement, the following terms shall have the following definitions
when used in this Agreement:

                  Account Debtor means any Person who is or who may become
obligated under, with respect to, or on account of an Account.

                  Accounts means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, whether or not earned by performance, all credit insurance,
guaranties, and other security therefor, as well as all goods returned to or
reclaimed by Borrower, and Borrower's Books relating to any of the foregoing.

                  Agreement means this Loan and Security Agreement and any
riders, addenda, extensions, supplements, amendments or modifications to or in
connection with this Loan and Security Agreement.

                  Applicable Margin means a percentage equal to one half percent
(0.5%).

                  Authorized Representative means any officer, employee or other
representative of Borrower authorized in writing by Borrower to transact
business with Finova.

                  Bankruptcy Code means the United States Bankruptcy Code (11
U.S.C. Sections 101 et seq.), as amended, and any successor statute.

                  Borrower's Books means all of Borrower's books and records
including all of the following: ledgers; records indicating, summarizing or
evidencing Borrower's assets (including the Collateral) or liabilities; all
information relating to Borrower's business operations or financial condition;
and all computer programs (whether owned by Borrower or in which it has an
interest), disk or tape files, printouts, runs or other computer prepared
information, and the equipment containing such information.

                  Business Day means any day which is not a Saturday, Sunday or
other day on which banks in the State of Georgia are authorized or required to
close.

                  Code means the Georgia Uniform Commercial Code, as amended
from time to time.

                  Collateral means all of the following: the Accounts; the
General Intangibles; the Investment Property; the Negotiable Collateral; any
money or other assets of Borrower which hereafter come into the possession,
custody or control of Finova; and all proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, money,
deposit accounts or other tangible or intangible property resulting from the
sale or other disposition of the Collateral, or any portion thereof or interest
therein, and the proceeds thereof.

                  Conditions Precedent Rider means that certain Conditions
Precedent Rider to this Agreement dated as of the date hereof between Finova and
Borrower.

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                  Eligible Accounts means those Accounts created by Borrower in
the ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, are owing from Account Debtors that are acceptable to
Finova, strictly comply with all of the representations and warranties made by
Borrower to Finova in the Loan Documents; PROVIDED, HOWEVER, that standards of
eligibility may be established and revised from time to time by Finova in
Finova's reasonable credit judgment. In determining such eligibility, Finova
may, but is not obligated to, rely on agings, reports and schedules of Accounts
furnished to Finova by Borrower. Eligible Accounts shall not include any of the
following: (a) Accounts that the Account Debtor has failed to pay within thirty
(30) days after the original invoice date; (b) all Accounts owed by any Account
Debtor that has failed to pay fifty percent (50%) or more of the aggregate
amount of its Accounts owed to Borrower within thirty (30) days after the
original invoice date; (c) Accounts with respect to which the Account Debtor is
an officer, director, employee or agent of Borrower; (d) Accounts with respect
to which the Account Debtor is a subsidiary of, related to, affiliated with or
has common shareholders, officers or directors with Borrower; (e) Accounts with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or which contain other terms by reason
of which payment by the Account Debtor may be conditional; (f) Accounts with
respect to which the Account Debtor is not a resident of the United States or
Canada; (g) Accounts with respect to which the Account Debtor is the United
States or any department, agency or instrumentality of the United States, unless
Borrower has complied, to the satisfaction of Finova, with the Federal
Assignment of Claims Act with respect to such Accounts; (h) Accounts with
respect to which the Account Debtor is a state, county or municipality, or
political subdivision or agency thereof, and applicable law disallows or
restricts an assignment of Accounts on which it is the Account Debtor; (i)
Accounts with respect to which Borrower is or may become liable to the Account
Debtor for goods sold or services rendered by the Account Debtor to Borrower or,
for any other reason, are subject to any right of offset in favor of the Account
Debtor; (j) Accounts with respect to an Account Debtor whose total obligations
to Borrower exceed fifteen percent (15%) of all Accounts, to the extent such
obligations exceed such percentage; (k) Accounts with respect to which the
Account Debtor disputes liability or makes any claim with respect thereto, or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; (l) Accounts that represent progress billings or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services; (m) Accounts that are payable in
currency other than United States dollars; (n) Accounts that arise from a retail
sale of goods to a Person who is purchasing same primarily for personal, family
or household purposes; or (o) Accounts owing from Brown & Williamson Tobacco
Corporation.

                  Environmental Law means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, the Hazardous Materials Transportation
Act, the Toxic Substances Control Act, the regulations pertaining to such
statutes, and any other safety, health or environmental statutes, laws,
regulations or ordinances of the United States or of any state, county or
municipality in which Borrower conducts its business or the Collateral is
located.

                  Equipment means all of Borrower's present and hereafter
acquired equipment, machinery, machine tools, motors, furniture, furnishings,
fixtures, motor vehicles, rolling stock, processors, tools, parts, dies, jigs,
goods (other than consumer goods, farm products or Inventory), wherever located,
and any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever located.

                  ERISA means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.

                  ERISA Affiliate means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.

                  Event of Default means each of the events specified in Section
8.

                  Fixed Charge Coverage Ratio means, for any period, a ratio of
(a) Borrower's earnings before interest expense, tax expense, depreciation,
amortization and any other non-cash charges less unfinanced capital expenditures
to (b) the sum of Borrower's interest expense, tax expense, scheduled current
portion of long term debt, capital lease expenses, amounts required to be
escrowed by Borrower under the Master Tobacco Settlement Agreement ("MSA") or
the model statutes created under the MSA and dividends, advances and other
distributions to shareholders, all accrued, paid or payable and determined in
accordance with GAAP.

                  Finova Expenses means all of the following: costs and expenses
(including taxes, assessments and insurance premiums) required to be paid by
Borrower under any of the Loan Documents which are paid or advanced by Finova;

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filing, recording, publication, appraisal (including periodic Collateral
appraisals), real estate survey, environmental audit and search fees assessed,
paid or incurred by Finova in connection with Finova's transactions with
Borrower; costs and expenses incurred by Finova in the disbursement or
collection of funds to or from Borrower; charges resulting from the dishonor of
checks; costs and expenses paid or incurred by Finova to cure any Event of
Default or enforce any provision of the Loan Documents, or in the direct
collection of the Accounts or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale or advertising to
sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Finova that result from
third party claims against Finova covered by Borrower's indemnification of
Finova in Section 11.4; costs and expenses paid or incurred by Finova in
enforcing or defending the Loan Documents; and Finova's reasonable attorneys
fees and expenses incurred (including the reasonable allocated costs of Finova's
in-house counsel) in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing, defending or otherwise representing Finova in
connection with the Loan Documents or the Obligations (including reasonable
attorneys fees and expenses incurred in connection with a workout, a
restructuring, an action to lift the automatic stay of Section 362 of the
Bankruptcy Code, any other action or participation by Finova in an Insolvency
Proceeding concerning Borrower or any guarantor of the Obligations or any
defense or participation by Finova in any lender liability, preference or
fraudulent conveyance actions).

                  General Intangibles means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes or regulations (except relating to
trademark and trademark applications), choses or things in action, goodwill,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, infringement claims, computer programs, computer discs, source
codes, computer tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds and tax refund claims) other than goods,
Accounts, licenses, franchises, patents and patent applications, trade names,
trademarks and trademark applications, service marks, copyrights and copyright
applications, trade secrets, blueprints, drawings and monies due under any
royalty or licensing agreements, and Borrower's Books relating to any of the
foregoing.

                  Hazardous Material means any substance, material, emission or
waste which is or hereafter becomes regulated or classified as a hazardous
substance, hazardous material, toxic substance or solid waste under any
Environmental Law, asbestos, petroleum products, urea formaldehyde,
polychlorinated biphenyls (PCBs), radon and any other hazardous or toxic
substance, material, emission or waste.

                  Insolvency Proceeding means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors or proceedings seeking reorganization, liquidation, arrangement or
other similar relief.

                  Inventory means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service, Borrower's present and future raw
materials, work in process, finished goods and materials used in or consumed in
Borrower's business, goods which have been returned to, repossessed by or
stopped in transit by Borrower, packing and shipping materials, wherever
located, any documents of title representing any of the above, and Borrower's
Books relating to any of the foregoing.

                  Investment Property means all of Borrower's present and future
investment property, including all certificated and uncertificated securities,
securities entitlements, securities accounts, commodity accounts and commodity
contracts, except any escrow fund amounts to be established under the MSA or the
model statutes created under the MSA.

                  IRC means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.

                  Loan Documents means, collectively, this Agreement, any Notes,
any security agreements, pledge agreements, deeds of trust, mortgages or other
encumbrances or agreements which secure the Obligations, any guaranties of the
Obligations, any lock box or blocked account agreements and any other agreement
entered into between Borrower or any guarantor of the Obligations and Finova
relating to or in connection with this Agreement.

                  Maximum Rate means the maximum non-usurious rate of interest
permitted by applicable law that at any time, or from time to time, may be
contracted for, taken, reserved, charged or received on the Obligations in
question or, to the extent permitted by applicable law, under such applicable
laws that may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow. Notwithstanding any
other provision in this Agreement, the Maximum Rate shall be calculated on a
daily basis (computed on the actual number of days elapsed over a year of 365 or
366 days, as the case may be).

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                  Multiemployer Plan means a multiemployer plan as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.

                  Negotiable Collateral means all of Borrower's present and
future letters of credit, notes, drafts, instruments, documents, leases and
chattel paper, and Borrower's Books relating to any of the foregoing.

                  Note means any promissory note made by Borrower to the order
of Finova concurrently herewith or at any time hereafter.

                  Obligations means all loans, advances, debts, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Finova to charge Borrower's loan account), obligations,
fees, lease payments, guaranties, covenants and duties owing by Borrower to
Finova of any kind and description (whether pursuant to or evidenced by the Loan
Documents, by any Note or other instrument or by any other agreement between
Finova and Borrower, and irrespective of whether for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and all interest thereon, including any interest
that, but for the provisions of the Bankruptcy Code, would have accrued, and all
Finova Expenses which Borrower is required to pay or reimburse pursuant to the
Loan Documents, by law or otherwise.

                  Person means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.

                  Plan means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.

                  Reference Rate means the variable rate of interest, per annum,
published by The Wall Street Journal as the "Prime Rate" and based on "the base
rate on corporate loans posted by at least 75% of the nation's 30 largest
banks". The Reference Rate is nothing more nor less than an index for
determining the interest rate payable under the terms of this Agreement. The
Reference Rate is not necessarily the best rate, or any other definition of
rates, offered by the banks that establish the rate or by Finova. In the event
The Wall Street Journal ceases to publish the "Prime Rate", Finova, in its
reasonable judgment, may substitute any similar index for the Reference Rate.

            1.2           CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting and the term "or" has the inclusive meaning generally represented by
the phrase "and/or". The words hereof, herein, hereby, hereunder and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Section, subsection, clause, exhibit and
schedule references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in any of the other Loan Documents to this
Agreement or any of the other Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
restatements, substitutions and supplements thereto and thereof.

            1.3           ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles (GAAP) as in effect from time to time. When used
herein, the term financial statements shall include the notes and schedules
thereto.

            1.4           RIDERS, EXHIBITS, ETC. The Conditions Precedent Rider
and any other riders, exhibits, addenda and schedules to this Agreement shall be
deemed incorporated herein by reference.

            1.5           CODE. Any terms used in this Agreement, which are
defined in the Code, shall be construed and defined as set forth in the Code
unless otherwise defined herein.

      2.    ADVANCES AND TERMS OF PAYMENT

            2.1           REVOLVING ADVANCES. Upon the request of Borrower, made
at any time during the term hereof, and so long as no Event of Default exists,
Finova shall, in its sole discretion, make advances (the Revolving Advances) to
Borrower in an amount equal to eighty percent (80%) of the aggregate outstanding
amount of Eligible Accounts; PROVIDED, HOWEVER, that in no event shall the
aggregate amount of the outstanding Revolving Advances be greater than, at any
time, the sum of Three Million

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Dollars ($3,000,000) (the Revolving Advance Limit). Finova may reduce its
advance rates on Eligible Accounts, reduce the Revolving Advance Limit or
establish reserves with respect to borrowing availability if Finova determines,
in its sole discretion, that there has occurred, or is likely to occur, an
impairment of the prospect of repayment of all or any portion of the
Obligations, the value of the Collateral or the validity or priority of Finova's
security interests in the Collateral.

             2.2        INITIAL ADVANCE. Finova agrees that, upon satisfaction
on or before January 21, 2000 of each of the conditions precedent set forth in
the Conditions Precedent Rider and elsewhere in this Agreement, Finova shall
advance to Borrower, on Borrower's request therefor, an amount not less than Two
Hundred Fifty Thousand Dollars ($250,000) as Finova's initial Revolving Advance
under this Agreement, and all future Revolving Advances under this Agreement
shall be for an amount not less than Three Thousand Dollars ($3,000) and shall
be deemed to be and constitute, together with the initial Revolving Advance, one
general obligation of Borrower and a single loan from Finova to Borrower, and
shall be secured by Finova's security interest in and lien upon all of the
Collateral, and by all other security interests and liens heretofore, now or at
any time or times hereafter granted by Borrower to Finova.

            2.3         OVERADVANCES. All Revolving Advances made hereunder
shall be added to and deemed part of the Obligations when made. If, at any time
and for any reason, the aggregate amount of the outstanding Revolving Advances
exceeds the dollar or percentage limitations contained in Section 2.1 (an
Overadvance), then Borrower shall, upon demand by Finova, immediately pay to
Finova, in cash, the amount of such excess.

            2.4         OVERADVANCE FEE. Without affecting Borrower's
obligation to immediately repay to Finova the amount of each Overadvance in
accordance with the provisions of Section 2.3, in the event Finova agrees to
permit any Overadvance to exist and continue and in consideration for permitting
such Overadvance to exist and continue, Finova shall be entitled to charge
Borrower a fee in an amount equal to Two Hundred Fifty Dollars ($250) per day
for each day any Overadvance exists or, alternatively, such other fee as Finova
and Borrower may agree to at the time the Overadvance is made or discovered. If
the fee provided for in this Section 2.4 is held to constitute interest under
applicable law, it shall be deemed to be interest on the total outstanding
principal balance of all the Obligations and not merely interest on the
Overadvance.

            2.5         AUTHORIZATION TO MAKE REVOLVING ADVANCES. Borrower
hereby authorizes Finova to make Revolving Advances based upon telephonic or
other instructions received from anyone purporting to be an Authorized
Representative, or, at the discretion of Finova without instructions from or
notice to Borrower, if such Revolving Advances are necessary to satisfy any
Obligations. All requests for Revolving Advances hereunder shall specify the
date on which the requested Revolving Advance is to be made (which day shall be
a day that Finova is open for business) and the amount of the requested
Revolving Advance. Requests received after 11:00 a.m. Eastern time on any day
shall be deemed to have been made as of the opening of business on the
immediately following Business Day. All Revolving Advances made under this
Agreement shall be conclusively presumed to have been made to, at the request
of, and for the benefit of Borrower when deposited to the credit of Borrower or
otherwise disbursed in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.

            2.6         INTEREST.

                  A.    BASIC RATE; DEFAULT RATE. Except where specified to the
contrary in any Loan Document, the aggregate outstanding principal balances of
all Obligations shall bear interest at an annual rate equal to the lesser of (a)
the Maximum Rate or (b) the Reference Rate plus the Applicable Margin. At
Finova's option, the aggregate outstanding principal balances of all Obligations
shall bear interest, from and after written notice by Finova to Borrower of the
existence of an Event of Default and without constituting a waiver of any such
Event of Default, at an annual rate equal to the lesser of (a) the Maximum Rate
or (b) the Reference Rate plus the Applicable Margin plus three percent (3.0%);
provided, however, that in the event an Insolvency Proceeding is commenced by or
against Borrower, Finova may charge such default rate of interest without
providing written notice thereof to Borrower. Borrower acknowledges that the
default rate of interest reflects a substantially greater level of risk to
Finova when an Event of Default exists and that Finova is entitled to additional
compensation for such risk. All interest payable by Borrower under the Loan
Documents shall be due and payable on the first day of each calendar month
during the term of this Agreement and shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed, based on the
aggregate principal amount of the Obligations that are outstanding on each day.
Interest shall continue to accrue until all of the Obligations are paid in full.

                  B.    INITIAL RATE. The Reference Rate as of the date of this
Agreement is eight and one-half percent (8.50%) per annum, and, therefore, the
effective rate of interest hereunder as of the date of this Agreement, expressed
in simple

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interest terms, is nine percent (9.00%) per annum. The interest rate
payable by Borrower under the terms of this Agreement shall be adjusted in
accordance with any change in the Reference Rate from time to time on the date
of any such change.

                  C.    MINIMUM INTEREST. Notwithstanding anything to the
contrary contained in the Loan Documents, Borrower shall pay Finova a minimum
monthly interest charge in respect of the outstanding principal balance of the
Obligations equal to Four Thousand Dollars ($4,000) per month.

            2.7         VERIFICATION AND COLLECTION OF ACCOUNTS. Finova may,
at any time, (a) notify Account Debtors of Borrower that the Accounts have been
assigned to Finova and that Finova has a security interest in the Accounts; and
(b) contact Account Debtors of Borrower, either in writing or by telephone, for
the purpose of verifying the validity, amount or any other matter relating to
any Accounts. Finova may, at any time that an Event of Default exists, collect
the Accounts directly. Unless and until Finova begins direct collection of the
Accounts or gives Borrower other written instructions, Borrower shall collect
all Accounts and the proceeds of other Collateral for the benefit of Finova,
receive in trust all payments thereon as Finova's trustee and immediately
deliver said payments to Finova in their original form as received by Borrower
(subject to the terms of any lockbox, blocked account or similar agreement
entered into for the purpose of collection of the Accounts).

            2.8         CREDITING PAYMENTS. For the purpose of calculating the
availability of Revolving Advances under Section 2.1, the receipt by Finova of
any wire transfer of funds, check or other item of payment shall be applied
immediately to provisionally reduce the Obligations, but such receipt shall not
be considered a payment on account unless such wire transfer is of immediately
available federal funds and is made to the appropriate deposit account of Finova
or unless and until such check or other item of payment is honored when
presented for payment. For the purpose of calculating interest under Section
2.6A, the receipt by Finova of any wire transfer of funds, check or other item
of payment shall be deemed to have occurred three (3) Business Days after the
date Finova actually receives such item of payment. In the event any check or
other item of payment is not honored when presented for payment, Borrower shall
be deemed not to have made such payment. Notwithstanding anything to the
contrary contained herein, any wire transfer, check or other item of payment
received by Finova after 11:00 a.m. Eastern time shall be deemed to have been
received by Finova as of the opening of business on the immediately following
Business Day.

            2.9         INTENTIONALLY OMITTED.

            2.10        LOAN ORIGINATION FEE. Borrower shall pay Finova a fee
(the Loan Origination Fee) in the amount of Fifteen Thousand Dollars ($15,000).
The Loan Origination Fee shall be fully earned and is due and payable on the
date that the initial Revolving Advance is made hereunder.

            2.11        INTENTIONALLY OMITTED.

            2.12        INTENTIONALLY OMITTED.

            2.13        INTENTIONALLY OMITTED.

            2.14        EXAMINATION FEE. Borrower shall pay Finova a fee in an
amount equal to Seven Hundred Dollars ($700) per day per examiner plus
out-of-pocket expenses incurred by Finova for each field examination of Borrower
performed by Finova during the entire term of this Agreement.

            2.15        MISCELLANEOUS FEES. Borrower shall pay Finova its
customary fees for wire transfers (including a premium for early and late
transfers), returned checks, letter of credit guarantees and any other services
provided by Finova to Borrower that are incidental to this Agreement. Upon
Borrower's request, Finova shall provide Borrower with a written schedule of the
amounts of all such miscellaneous fees.

            2.16        MAXIMUM CHARGES. Notwithstanding any provision contained
in this Agreement or any of the other Loan Documents, in no contingency or event
whatsoever shall the aggregate of all amounts that are contracted for, charged
or collected pursuant to the terms of this Agreement or any of the other Loan
Documents and that are deemed interest under applicable law exceed that highest
rate permissible under any applicable law. No agreements, conditions, provisions
or stipulations contained in this Agreement or any of the other Loan Documents
or the exercise by Finova of the right to accelerate the payment or maturity of
all or any portion of the Obligations, or the exercise of any option whatsoever
contained in any of the Loan Documents, or the prepayment by Borrower of any of
the Obligations, or the occurrence of any contingency whatsoever, shall entitle
Finova to charge or receive in any event, interest or any charges, amounts,
premiums or fees deemed interest by applicable law (such interest, charges,
amounts, premiums and fees referred to in this Section 2.16 collectively as
Interest) in excess of the Maximum Rate and in no event

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shall Borrower be obligated to pay Interest exceeding the Maximum Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Borrower to pay
Interest exceeding the Maximum Rate shall be without binding force or effect, at
law or in equity, to the extent only of the excess of Interest over the Maximum
Rate. If any Interest is charged or received in excess of the Maximum Rate
(Excess), Borrower acknowledges and stipulates that any such charge or receipt
shall be the result of an accident and bona fide error, and such Excess, to the
extent received, shall be applied first to reduce the principal Obligations and
the balance, if any, returned to Borrower, it being the intent of the parties
hereto not to enter at any time into a usurious or otherwise illegal
relationship. The right to accelerate the maturity of any of the Obligations
does not include the right to accelerate any interest that has not otherwise
accrued on the date of such acceleration, and Finova does not intend to collect
any unearned interest in the event of any such acceleration. Borrower recognizes
that, with fluctuations in the rates of interest set forth in Section 2.6 and
the Maximum Rate, such an unintentional result could inadvertently occur but for
the agreements of the parties to limit interest to the Maximum Rate and to
apply, credit or return any Excess as provided herein. All monies paid to Finova
hereunder or under any of the other Loan Document, whether at maturity or by
prepayment, shall be subject to any rebate of unearned interest as and to the
extent required by applicable law. By the execution of this Agreement, Borrower
covenants that (a) the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess, and (b) Borrower shall not seek or pursue
any other remedy, legal or equitable, against Finova, based in whole or in part
upon contracting for, charging or receiving any Interest in excess of the
Maximum Rate. For the purpose of determining whether or not any Excess has been
contracted for, charged or received by Finova, all Interest at any time
contracted for, charged or received from Borrower in connection with this
Agreement shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the
Obligations. Borrower and Finova shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee or premium
rather than as Interest and (b) exclude voluntary prepayments and the effects
thereof. The provisions of this Section 2.16 shall be deemed to be incorporated
into every Loan Document (whether or not any provision of this Section 2.16 is
referred to therein). All such Loan Documents and communications relating to any
Interest owed by Borrower and all figures set forth therein shall, for the sole
purpose of computing the extent of the Obligations, be automatically recomputed
by Borrower, and by any court considering the same, to give effect to the
adjustments or credits required by this Section 2.16. Notwithstanding any
provisions contained in this Agreement or any of the other Loan Documents
providing that interest is to be computed on the basis of a 360 day year,
interest shall never exceed the Maximum Rate computed on the basis of a 365 or
366 year, as the case may be. In no event shall Borrower be obligated to pay any
of the fees payable under this Agreement to the extent that the amount of such
fees otherwise payable under such sections, when added to the amount of interest
charged under Section 2.6 or otherwise, would result in the assessment or
collection of sums deemed to be Interest in excess of the Maximum Rate (it being
the express intent and understanding of the parties hereto that such fees not
constitute interest or a charge for the use or detention of money).

            2.17        MONTHLY STATEMENTS. Finova shall render monthly

statements to Borrower of all Obligations, including statements of all
principal, interest, fees and Finova Expenses charged, and such statements shall
be conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Finova unless, within thirty (30) days after receipt
thereof by Borrower, Borrower shall deliver to Finova, by registered or
certified mail or overnight courier service, at Finova's address stated in
Section 12, written objection to Finova's statement specifying the error or
errors, if any, contained in such statements.

            2.18        PAYMENT MECHANICS. As an administrative convenience to
Borrower to ensure the timely payment of amounts owing by Borrower to Finova
under this Agreement, Borrower hereby requests Finova to advance for the account
of Borrower an amount each month sufficient to pay interest accrued on the
principal amount of the Obligations during the immediately preceding month and
all monthly principal installments or other payments due under a Note or other
Loan Document and amounts from time to time sufficient to pay all fees and
Finova Expenses owing by Borrower under this Agreement. Borrower authorizes
Finova to make a Revolving Advance for Borrower's account of a sum sufficient
each month to pay, on the due date thereof, all interest accrued on the
principal amount of the Obligations during the immediately preceding month and
all monthly principal installments or other payments due under a Note or other
Loan Document and sums from time to time sufficient to pay, on the due date
thereof, all fees and Finova Expenses owing by Borrower under this Agreement,
and Finova may apply the proceeds of each such Revolving Advance to the payment
of such interest, installments, fees and Finova Expenses. Each such Revolving
Advance shall thereafter accrue interest at the rate then applicable under this
Agreement. Finova, however, shall not be obligated to make any such Revolving
Advance and Borrower acknowledges that Finova will be particularly disinclined
to do so if an Event of Default or an Overadvance exists at the time of, or
would result from the making of, such Revolving Advance.

            2.19        REPAYMENT OF THE OBLIGATIONS. All of the Obligations
shall be payable by Borrower to Finova upon the earliest of (a) the receipt by
Finova or Borrower of any collections or proceeds of any of the Collateral, to
the extent of such collections or proceeds, (b) the occurrence of an Event of
Default in consequence of which Finova elects to accelerate the maturity and
payment of the Obligations or (c) termination of the Loan Agreement pursuant to
Section 3.1 or Section 3.2; provided, however, that any portion of the
Obligations payable on demand under any of the Loan Documents shall be paid on
demand.

                                       7
<PAGE>   8

      3.    TERM OF AGREEMENT AND EARLY TERMINATION

            3.1         TERM. This Agreement shall become effective in
accordance with Section 14.1 and shall continue in full force and effect for a
term ending five (5) years after the date hereof and shall be deemed
automatically renewed for successive terms of one (1) year thereafter until
terminated as of the end of the initial term or any renewal term (each a Term)
by either party giving the other written notice at least sixty (60) days prior
to the end of the then current Term.

            3.2         EARLY TERMINATION. Borrower, subject to the payment of
the fee described below, may terminate this Agreement other than at the end of
the then current Term by giving Finova prior written notice of its intention to
effect an early termination of this Agreement. Finova may terminate this
Agreement at any time that an Event of Default exists. In view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Finova's lost
profits as a result of an early termination of this Agreement, in either of the
instances described in the preceding two sentences, Borrower shall pay to
Finova, upon the effective date of such early termination and in addition to all
other Obligations, as liquidated damages for the loss of the bargain and not as
a penalty, an early termination fee (the Early Termination Fee) in an amount
equal to: (a) four percent (4.0%) of the Revolving Advance Limit if such
termination occurs at any time during the first year of the initial Term; (b)
two percent (2.0%) of the Revolving Advance Limit if such termination occurs at
any time during the second year of the initial Term; and (c) one percent (1.0%)
of the Revolving Advance Limit if such termination occurs during the third,
fourth or fifth year of the initial Term or during any renewal Term. The Early
Termination Fee shall be presumed to be the amount of damages sustained by
Finova as the result of the early termination and Borrower agrees that it is
reasonable under the circumstances currently existing. The Early Termination Fee
shall be deemed included in the Obligations. Notwithstanding anything herein to
the contrary, if and to the extent the Early Termination Fee constitutes
interest under applicable law, the Early Termination Fee, when added to all
other interest contracted for, charged or received under this Agreement or any
other Loan Documents, shall not exceed, and shall be limited to an amount which
constitutes, interest at the Maximum Rate.

            3.3         RIGHT OF FIRST REFUSAL. If Borrower seeks to terminate
this Agreement prior to the end of the initial Term in order to refinance with
another lender, Borrower shall give Finova the opportunity to match the pricing
and credit structure terms being offered by the refinancing lender by delivering
to Finova a copy of the written commitment for financing issued by the
refinancing lender. Finova shall deliver to Borrower written notice of its
decision within fifteen (15) days after Finova's receipt of the commitment. If
Finova decides to match the pricing and credit structure terms set forth in the
commitment, this Agreement and the other Loan Documents shall be amended
accordingly and the Term of this Agreement shall be extended for a period of
four (4) years from the date of the amendment. If Finova decides not to match
the pricing and credit structure terms set forth in the commitment and Borrower
proceeds with the refinancing and causes an early termination hereof, Finova
shall be entitled to payment of an Early Termination Fee as provided in Section
3.2.

            3.4         EFFECT OF TERMINATION. Upon termination of this
Agreement, all of the Obligations shall be immediately due and payable in full.
No termination of this Agreement shall relieve or discharge Borrower of
Borrower's duties, obligations and covenants hereunder until all of the
Obligations have been fully and indefeasibly paid and satisfied, and Finova's
continuing security interest in the Collateral shall remain in effect until all
of the Obligations have been fully and indefeasibly paid and satisfied.

      4.    CREATION OF SECURITY INTEREST

            4.1         GRANT OF SECURITY INTEREST. Borrower hereby grants to
Finova a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
and all of its covenants and duties under the Loan Documents. Finova's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Finova or Borrower. Other than sales of Inventory to buyers in the
ordinary course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.

            4.2         NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, upon the request of Finova, immediately endorse and assign such
Negotiable Collateral to Finova and deliver physical possession of such
Negotiable Collateral to Finova.

            4.3         DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower
shall execute and deliver to Finova, concurrently with Borrower's execution and
delivery of this Agreement and at any time thereafter at the request of Finova,
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and

                                       8

<PAGE>   9

all other documents that Finova may reasonably request, in form satisfactory to
Finova, to perfect and continue perfected Finova's security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
hereunder and under the other Loan Documents.

            4.4         POWER OF ATTORNEY. Borrower hereby irrevocably
designates and appoints Finova (and any Persons designated by Finova) as
Borrower's true and lawful attorney-in-fact, and authorizes Finova, in either
Borrower's or Finova's name, to: (a) at any time that an Event of Default exists
(i) demand payment on Accounts or other proceeds of Inventory or other
Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of Borrower's rights and remedies to collect any Account or
other Collateral, (iv) sell or assign any Account upon such terms, for such
amount and at such time or times as Finova deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Finova, and open all mail addressed
to Borrower, (viii) make, settle and adjust all claims under Borrower's policies
of insurance and endorse the name of Borrower on any item of payment for the
proceeds of such policies of insurance, and (ix) do all other acts and things
necessary, in Finova's determination, to fulfill Borrower's obligations under
this Agreement or any of the other Loan Documents; and (b) at any time that
Finova determines that it is necessary or appropriate to preserve, protect,
insure or maintain its rights hereunder (i) take control, in any manner, of any
item of payment or proceeds of any Collateral, (ii) sign Borrower's name on any
of the documents described in Section 4.3 or on any other similar documents to
be executed, recorded or filed in order to perfect or continue perfected
Finova's security interest in the Collateral and file or record any of the
foregoing documents, (iii) endorse Borrower's name on any items of payment or
proceeds thereof and deposit the same to the account of Finova for application
to the Obligations, (iv) sign Borrower's name on any invoices, bills of lading,
freight bills, chattel paper, documents, instruments or similar documents or
agreements relating to any Accounts or any goods pertaining thereto or any other
Collateral, (v) sign Borrower's name on any verification of Accounts and notices
thereof to Account Debtors, and (vi) prepare, file and sign Borrower's name on
any proof of claim in bankruptcy or other similar document against an Account
Debtor. The appointment of Finova as Borrower's attorney-in-fact and each and
every one of Finova's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and this Agreement has been terminated.

            4.5         RIGHT TO INSPECT. Finova, through any of its officers,
employees or agents, shall have the right at any time or times during Borrower's
usual business hours and after notice to Borrower, or during the usual business
hours of any third party having control over any of Borrower's Books and after
notice to such third party, to inspect Borrower's Books in order to verify the
amount or condition of, or any other matter relating to, the Collateral or
Borrower's financial condition. Finova also shall have the right at any time or
times during Borrower's usual business hours and after notice to Borrower to
inspect and examine the Inventory and the Equipment and to check and test the
same as to quality, quantity, value and condition. If an Event of Default exists
or if Finova reasonably believes that an Event of Default exists, Finova may
conduct any of the inspections referenced in this Section 4.5 at any time
without regard to Borrower's or any third party's usual business hours and
without notice.

            4.6         SECURITY AGREEMENT FILED AS UCC-1 FINANCING STATEMENT.
A carbon, photographic or other reproduction or copy of this Agreement or of a
financing statement is sufficient as, and may be filed in lieu of, a financing
statement.

      5.    REPRESENTATIONS AND WARRANTIES

            Borrower makes the following representations and warranties to
Finova and each such representation and warranty shall be deemed to be repeated
with each Revolving Advance made by Finova and shall be conclusively presumed to
have been relied on by Finova regardless of any investigation made or
information possessed by Finova. The following representations and warranties
shall be cumulative and in addition to any and all other representations and
warranties which Borrower shall now or hereafter give, or cause to be given, to
Finova.

            5.1         NO PRIOR ENCUMBRANCES; SECURITY INTERESTS. Borrower has
good and indefeasible title to the Collateral, free and clear of liens, claims,
security interests or encumbrances, except for those permitted under Section
7.2.

            5.2         ACCOUNTS. All of Borrower's Accounts constitute bona
fide existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, and, in the case of Accounts created by the sale and delivery of
Inventory, the Inventory giving rise to such Accounts has been delivered to the
Account Debtor. At the time of the creation of each Eligible Account or the
assignment thereof to Finova, each such Eligible Account is unconditionally owed
to Borrower without defense, dispute, offset, counterclaim or right of return or
cancellation and Borrower has not received notice of actual or imminent
bankruptcy, insolvency or material impairment of the financial condition of the
Account Debtor regarding such Eligible Account.

                                       9

<PAGE>   10

            5.3         INVENTORY. All Inventory is of good and merchantable
quality, free from defects.

            5.4         LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, processor or similar party
unless Finova has consented thereto in writing and are located only at the
locations listed on Schedule 5.4 attached hereto and incorporated herein by
reference.

            5.5         INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality and quantity of the
Inventory and Borrower's cost therefor.

            5.6         LOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive
office of Borrower is located at the address stated in the first paragraph of
this Agreement and/or at offices located at 2200 Wilson Boulevard, Arlington,
Virginia 22201.

            5.7         DUE INCORPORATION AND QUALIFICATION. Borrower is a
corporation duly organized and existing and in good standing under the laws of
the state of its incorporation and is qualified or licensed to do business in,
and is in good standing in, any state in which the nature of Borrower's business
requires such qualification or licensing.

            5.8         FICTITIOUS NAMES. Borrower is conducting its business
at the present time under the following trade or fictitious names: Star Tobacco
and Star Tobacco and Pharmaceuticals. Borrower has complied with the fictitious
name laws of all jurisdictions in which compliance is required in connection
with its use of such names. During the five (5) years prior to the date of this
Agreement, Borrower conducted business under the following trade or fictitious
names in addition to those stated above: Star Tobacco Corporation and Star
Tobacco.

            5.9         PERMITS AND LICENSES. Borrower holds all licenses,
permits, franchises, approvals and consents as are required in the conduct of
its business and the ownership and operation of its properties.

            5.10        DUE AUTHORIZATION; NO CONFLICT; ENFORCEABILITY. The
execution, delivery and performance of the Loan Documents to which Borrower is a
party are within Borrower's corporate powers, have been duly authorized and are
not in conflict with nor constitute a breach of any provision contained in
Borrower's Articles or Certificate of Incorporation or Bylaws; nor will they
create a default or breach under any material agreement to which Borrower is a
party. The Loan Documents constitute Borrower's legal, valid and binding
obligations, enforceable in accordance with their respective terms.

            5.11        LITIGATION. There are no actions or proceedings pending
by or against Borrower before any court or administrative agency and Borrower
has no knowledge or notice of any pending, threatened or imminent litigation,
governmental investigations, or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of the Obligations, except for ongoing
collection matters in which Borrower is the plaintiff and such matters as have
been disclosed to Finova in writing prior to the date of this Agreement.

            5.12        TAXES. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property or in connection with Borrower's business have been paid
in full prior to delinquency or the expiration of any extension period.
Borrower's federal tax identification number is 54-1564447.

            5.13        NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Finova have been prepared or will be parepared in
accordance with GAAP and fairly present Borrower's financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has been no material adverse change in the financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Finova.

            5.14        SOLVENCY. Borrower is able to pay its debts (including
trade debts) as they mature, has capital sufficient to carry on its business and
the fair saleable value of its assets exceeds the amount of its liabilities. No
transfer of property is being made by Borrower and no obligation is being
incurred by Borrower in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay or
defraud either present or future creditors of Borrower.

            5.15        ERISA. Neither Borrower, nor any ERISA Affiliate nor any
Plan is or has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations thereof. No lien upon the assets of Borrower has arisen with
respect to any Plan. No prohibited transaction within the meaning of ERISA
Section 406 or IRC Section 4975(c) has occurred with respect to any Plan.
Neither Borrower nor any ERISA Affiliate has

                                       10

<PAGE>   11

incurred any withdrawal liability with respect to any Multiemployer Plan.
Borrower and each ERISA Affiliate have made all contributions required to be
made by them to any Plan or Multiemployer Plan when due. There is no accumulated
funding deficiency in any Plan, whether or not waived.

            5.16        ENVIRONMENTAL LAWS AND HAZARDOUS MATERIALS. Borrower has
complied with all Environmental Laws. Except as disclosed to Finova in writing
prior to the date of this Agreement, Borrower has not caused or permitted any
Hazardous Materials to be located, incorporated, generated, stored,
manufactured, transported to or from, released, disposed of or used at, upon,
under or within any premises at which Borrower conducts its business, or in
connection with Borrower's business. To the best of Borrower's knowledge, no
prior owner or operator of any premises at which Borrower conducts its business
has caused or permitted any of the above to occur at, upon, under or within any
of such premises.

            5.17        INTELLECTUAL PROPERTY. As of the date hereof, Borrower
does not own or have rights as licensee in or to any trademarks, except as set
forth on Schedule 5.17 attached hereto and incorporated herein by reference.

            5.18        LABOR AND EMPLOYMENT DISPUTES. There are no pending
grievances, disputes or controversies with any union or other organization of
Borrower's employees, or pending threats of strikes or work stoppages, or
demands for collective bargaining by any union or other organization of
Borrower's employees.

            5.19        YEAR 2000 COMPLIANCE. Borrower has taken all action
necessary to assure that there will be no material adverse change to Borrower's
internal business systems by reason of the advent of the year 2000, including
that all of Borrower's computer-based systems, embedded microchips and other
processing capabilities effectively recognize and process dates after December
31, 1999.

      6.    AFFIRMATIVE COVENANTS

            Borrower covenants and agrees that during the term of this Agreement
and until payment in full of the Obligations, and unless Finova shall otherwise
consent in writing, Borrower shall do all of the following:

            6.1         ACCOUNTING SYSTEM. Borrower at all times shall maintain
a standard and modern system of accounting in accordance with GAAP with ledger
and account cards or computer tapes, disks, printouts and records pertaining to
the Collateral which contain information as may from time to time be requested
by Finova. Borrower also shall keep proper books of account showing all sales,
claims and allowances on its Inventory.

            6.2         COLLATERAL REPORTS. Borrower shall deliver to Finova, no
later than the fifteenth day of each month during the term of this Agreement, a
detailed aging of the Accounts, a reconciliation statement, a summary aging, by
vendor, of all accounts payable and any book overdraft, and copies of Borrower's
bank account statements. Borrower shall deliver to Finova, as Finova may from
time to time require, collection reports, sales journals, invoices, original
delivery receipts, customers' purchase orders, shipping instructions, bills of
lading and other documentation respecting shipment arrangements. Absent such a
request by Finova, copies of all such documentation shall be held by Borrower as
custodian for Finova.

            6.3         RETURNS. Returns and allowances, if any, as between
Borrower and its Account Debtors, shall be permitted by Borrower on the same
basis and in accordance with the usual and customary practices of Borrower as
they exist at the time of the execution and delivery of this Agreement or as may
be established by Borrower from time to time with Finova's consent, which shall
not be unreasonably withheld. If any Account Debtor returns any Inventory to
Borrower, Borrower shall promptly determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Finova) in the appropriate amount to such Account Debtor. Borrower shall
promptly notify Finova of all returns and recoveries and of all disputes and
claims.

            6.4         [Omitted].

            6.5         FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
shall deliver to Finova: (a) as soon as available, but in any event within
thirty (30) days after the end of each month during each of Borrower's fiscal
years, a company prepared balance sheet and profit and loss statement covering
Borrower's operations during such period; and (b) as soon as available, but in
any event within ninety (90) days after the end of each of Borrower's fiscal
years, financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants acceptable to Finova. All such annual
financial statements shall include a balance sheet and profit and loss
statement, together with the accountants' letter to management. Borrower shall
also deliver Borrower's Form 10-Qs, 10-Ks or 8-Ks, and any other filings made by
Borrower with the Securities and Exchange Commission, if any, as soon as the
same become available, and any other report reasonably requested by Finova
relating to the

                                       11

<PAGE>   12

Collateral or the financial condition of Borrower, including financial
projections, and a certificate signed by the chief financial officer of Borrower
to the effect that all reports, statements or computer prepared information of
any kind or nature delivered or caused to be delivered to Finova under this
Section 6.5 fairly present the financial condition of Borrower and further
certifying that Borrower is in compliance with all financial covenants contained
in this Agreement and that there exists on the date of delivery of such
certificate to Finova no condition or event which constitutes an Event of
Default. If Borrower is a parent company of one or more subsidiaries or is a
subsidiary of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.

            6.6         LITIGATION. Borrower shall promptly notify Finova in
writing of any litigation, governmental investigations or criminal prosecutions
involving Borrower where Borrower's exposure is greater than $100,000 in a
single matter or when Borrower's exposure on all litigation matters exceeds
$250,000, other than collection matters in which Borrower is the plaintiff.

            6.7         TAX RETURNS, RECEIPTS. Borrower shall deliver to Finova
copies of each of Borrower's federal income tax returns, and any amendments
thereto, within thirty (30) days after the filing thereof with the Internal
Revenue Service. Furthermore, Borrower shall deliver to Finova, promptly upon
request by Finova, satisfactory evidence of Borrower's payment of all federal
withholding taxes and excise taxes required to be paid by Borrower.

            6.8         [Omitted]

 [Omitted]

            6.10        MAINTENANCE OF EQUIPMENT. Borrower shall keep and
maintain the Equipment in good operating condition and repair and shall make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved.

            6.11        TAXES. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property or in connection with Borrower's business shall be paid
in full prior to delinquency or the expiration of any extension period. Borrower
shall make due and timely payment or deposit of all federal, state and local
taxes, assessments or contributions required of it by law and will execute and
deliver to Finova, on demand, appropriate certificates attesting to the payment
or deposit thereof. Borrower shall make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability and local, state and
federal income taxes, and shall, upon request, furnish Finova with proof
satisfactory to Finova indicating that Borrower has made such payments or
deposits, except that Borrower may refrain from funding an escrow required by
MSA or any statutes promulgated thereunder so long as the same is being
diligently contested through appropriate procedures and Borrower is maintaining
adequate reserves therefor.

            6.12        INSURANCE. Borrower, at its expense, shall keep and
maintain the Collateral insured against all risk of loss or damage from fire,
theft, vandalism, malicious mischief, explosion, sprinklers and all other
hazards and risks of physical damage included within the meaning of the term
"extended coverage" in such amounts as are ordinarily insured against by other
similar businesses. Borrower shall also keep and maintain comprehensive general
public liability insurance and property damage insurance, and insurance against
loss from business interruption, insuring against all risks relating to or
arising from Borrower's ownership and use of the Collateral and Borrower's other
assets and the operation of Borrower's business. All such policies of insurance
shall be in such form, with such companies and in such amounts as may be
satisfactory to Finova. Borrower shall deliver to Finova certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All such policies of insurance (except those of public liability and
property damage) shall contain a Lender's Loss Payable endorsement in a form
satisfactory to Finova, naming Finova as loss payee thereof (as its interests
appear), and shall contain a waiver of warranties. All proceeds payable under
any such policy shall be payable to Finova to be applied to the Obligations. All
public liability and property damage policies shall name Finova as an additional
insured. All such policies shall provide that Finova shall receive no less than
thirty (30) days prior written notice of any cancellation or termination of such
policies.

            6.13        NO OFFSETS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without offset or counterclaim, and Borrower hereby waives any right to offset,
against the repayment of the Obligations, any claims it may have against Finova.

            6.14        FINOVA EXPENSES. Borrower acknowledges that Finova
Expenses include, among other things, (a) Finova's reasonable attorneys fees and
expenses incurred in defending or otherwise representing Finova concerning the
Loan Documents or the Obligations and (b) charges resulting from the dishonor of
checks. Since Finova Expenses are a part of the Obligations which are secured by
the Collateral, Finova shall not be required to discharge any lien or terminate
any security interest

                                       12

<PAGE>   13

in the Collateral unless and until (y) Borrower and Finova execute a mutual
general release of liability and indemnification in favor of and acceptable to
Finova and (z) to the extent another financial institution refinances the
Obligations, such financial institution delivers an agreement, acceptable to
Finova, to indemnify Finova for loss arising from checks delivered to Finova for
collection and payment of the Obligations which are returned for non-payment or
for any other reason.

            6.15        COMPLIANCE WITH LAW. Borrower shall comply with the
requirements of all applicable laws, rules, regulations and orders of
governmental authorities relating to Borrower and the conduct of Borrower's
business, including the Fair Labor Standards Act and the Americans with
Disabilities Act.

            6.16        [Omitted]

            6.17        ENVIRONMENTAL LAWS AND HAZARDOUS MATERIALS. Borrower
shall not permit any lien under any Environmental Law to be filed against any of
the Collateral or any of Borrower's real property, and will promptly notify
Finova of any proceeding, inquiry or claim relating to any alleged violation of
any Environmental Law, or any alleged loss, damage or injury resulting from any
Hazardous Material. Finova shall have the right to join and participate in, to
the extent necessary to protect the Collateral and to defend Finova against any
claim, as a party if it so elects, any legal or administrative proceeding
initiated against Borrower or any guarantor of the Obligations with respect to
any Hazardous Material or in connection with any Environmental Law.

            6.18        FIXED CHARGE COVERAGE RATIO. Borrower shall maintain a
Fixed Charge Coverage Ratio of at least 1.0 to 1.0, calculated at the end of
each of Borrower's fiscal quarters for the twelve (12) month period ending on
the last day of such fiscal quarter. Borrower shall deliver a certificate to
Finova within fifteen (15) days after the end of each fiscal quarter, certifying
its compliance with this covenant and attaching any supporting documentation
requested by Finova.

      7.    NEGATIVE COVENANTS

            Borrower covenants and agrees that during the term of this Agreement
and until payment in full of the Obligations, Borrower will not do any of the
following without Finova's prior written consent:

            7.1         INDEBTEDNESS. Create, incur, assume, permit or otherwise
become liable with respect to any indebtedness outside of the ordinary and usual
course of Borrower's business, except (a) indebtedness set forth in Borrower's
latest financial statements submitted to Finova prior to the date of this
Agreement and renewals or extensions of such indebtedness, (b) indebtedness for
the payment of all or any part of the purchase price of any fixed assets and any
renewals or extensions of such indebtedness, but not any increases in the
principal amount thereof outstanding at the time and (c) the Obligations.

            7.2         SECURITY INTERESTS. Create, incur, assume or permit to
exist any security interest, lien, pledge, mortgage or encumbrance on any
Collateral or on any of Borrower's real property, except (a) the security
interests granted to Finova by Borrower, (b) the security interests disclosed in
the UCC searches obtained by Finova prior to the funding of the initial
Revolving Advance hereunder (other than security interests required to be
terminated pursuant to the Conditions Precedent Rider) , (c) the purchase money
security interest granted to Brown & Williamson Tobacco Corporation ("B&W") in
cut tobacco under that certain Supply Agreement for Star Scientific Blend
between B&W and the Borrower, (d) purchase money security interests upon fixed
assets which secure indebtedness permitted by Section 7.1(b) above, but only if
such security interests shall at all times be confined solely to the fixed
assets, the purchase price of which was financed through the incurrence of such
indebtedness and (e) any security interest which Borrower has disclosed in
writing to Finova and to which Finova has given its prior written consent.

            7.3         EXTRAORDINARY TRANSACTIONS. Enter into any transaction
not in the ordinary and usual course of Borrower's business, including the sale,
lease or other disposition of, whether by sale or otherwise, any of Borrower's
assets other than sales of Inventory in the ordinary and usual course of
Borrower's business; or make any advance, loan or capital contribution to any
Person except in the ordinary and usual course of Borrower's business.

            7.4         CHANGE NAME.  Change Borrower's name, business structure
or identity, or add any new fictitious name.

            7.5         FUNDAMENTAL CHANGES. Except upon prior written consent
of FINOVA, which consent shall not be unreasonably withheld, enter into any
acquisition, merger, consolidation, reorganization or recapitalization, or
reclassify its capital stock, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or acquire by purchase or otherwise all
or substantially all of the assets, stock or other beneficial ownership interest
of any other Person.

            7.6         GUARANTY. Guaranty or otherwise become in any way liable
with respect to the obligations of

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<PAGE>   14

any third party except by endorsement of instruments or items of payment for
deposit to the account of Borrower for negotiation and delivery to Finova.

            7.7         RESTRUCTURE. Except upon prior written consent of
FINOVA, which consent shall not be unreasonably withheld, make any change in
Borrower's capital structure or in the principal nature of Borrower's business
operations.

            7.8         PREPAYMENTS.  Prepay any indebtedness owing to any third
party.

            7.9         CHANGE OF OWNERSHIP. Except upon prior written consent
of FINOVA, which consent shall not be unreasonably withheld, cause, permit or
suffer any transfer, whether direct or indirect, of the ownership of ten percent
(10%) or more of Borrower's outstanding capital stock or other beneficial
ownership interest in any single transaction or series of transactions.

            7.10        [Omitted]

            7.11        [Omitted]

            7.12        [Omitted]

            7.13        CONSIGNMENTS. Consign any Inventory; or sell any
Inventory on bill and hold, sale on approval or other conditional terms of sale.

            7.14        [Omitted]

            7.15        ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify or terminate any agreement currently existing
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Finova
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Finova pursuant to or in accordance with this Agreement, and agrees
that Finova may contact directly any such accounting firm or service bureau in
order to obtain such information.

            7.16        SUSPENSION.  Suspend or go out of business.

            7.17        LOCATION OF CHIEF EXECUTIVE OFFICE. Relocate its chief
executive office to a new location unless Finova is given thirty (30) days prior
written notice thereof.

      8.    EVENTS OF DEFAULT

            The occurrence of any one or more of the following events shall
constitute an "Event of Default" under this Agreement:

            8.1         FAILURE TO PAY.  Borrower fails to pay when due any of
the Obligations;

            8.2         FAILURE TO PERFORM. Borrower fails or neglects to timely
perform, keep or observe any term, provision, condition, representation,
warranty, covenant or agreement contained in this Agreement, in any of the other
Loan Documents or in any other present or future agreement between Borrower and
Finova;

            8.3         MISREPRESENTATION. Any representation, warranty or
statement of fact made by Borrower or any officer, employee, agent or director
of Borrower to Finova shall when made or deemed to be made be false or
misleading in any material respect;

            8.4         MATERIAL ADVERSE CHANGE.  There is a material adverse
change in Borrower's business or financial condition;

            8.5         LEVY OR ATTACHMENT. Any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any judicial officer;

            8.6         INSOLVENCY BY BORROWER.  An Insolvency Proceeding is
commenced by Borrower;

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<PAGE>   15

            8.7         INSOLVENCY AGAINST BORROWER.  An Insolvency Proceeding
is commenced against Borrower;

            8.8         INJUNCTION AGAINST BORROWER.  Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct all
or any material part of its business affairs;

            8.9         GOVERNMENT LIEN. A notice of lien, levy or assessment is
filed of record with respect to any of Borrower's assets by the United States
government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency, or any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of Borrower's assets and the same is not
paid on the payment date thereof;

            8.10        JUDGMENT. A judgments or other claims for an amount in
excess of One Hundred Thousand Dollars ($100,000) in any single action or Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate becomes a lien or
encumbrance on Borrower's assets;

            8.11        CROSS DEFAULT TO MATERIAL AGREEMENTS.  There is a
default in any material agreement to which Borrower is a party with one or more
third parties or by which Borrower or Borrower's property or assets are bound;

            8.12        SUBORDINATED DEBT PAYMENTS. Borrower makes any payment
on account of indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination agreement applicable to such
indebtedness;

            8.13        [Omitted]

            8.14        ERISA VIOLATION. A prohibited transaction within the
meaning of ERISA Section 406 or IRC Section 4975(c) shall occur with respect to
a Plan which could have a material adverse effect on the financial condition of
Borrower; any lien upon the assets of Borrower in connection with any Plan shall
arise; Borrower or any ERISA Affiliate shall completely or partially withdraw
from a Multiemployer Plan and such withdrawal could, in the opinion of Finova,
have a material adverse effect on the financial condition of Borrower; Borrower
or any of its ERISA Affiliates shall fail to make full payment when due of all
amounts which Borrower or any of its ERISA Affiliates may be required to pay to
any Plan or any Multiemployer Plan as one or more contributions thereto;
Borrower or any of its ERISA Affiliates creates or permits the creation of any
accumulated funding deficiency, whether or not waived; the voluntary or
involuntary termination of any Plan which termination could, in the opinion of
Finova, have a material adverse effect on the financial condition of Borrower;
or Borrower shall fail to notify Finova promptly in writing and in any event
within ten (10) days of the occurrence of any event which constitutes an Event
of Default under this clause or would constitute such an Event of Default upon
the exercise of Finova's judgment; or

            8.15        CRIMINAL PROCEEDINGS. Criminal proceedings are
instituted against Borrower, any member of Borrower's senior management or any
guarantor of the Obligations that could result in the forfeiture or loss of
Collateral or a material impairment of the financial condition of Borrower or
any guarantor of the Obligations.

            Notwithstanding anything contained in this Section 8 to the
contrary, Finova shall refrain from exercising its rights and remedies and an
Event of Default shall not be deemed to exist by reason of the occurrence of any
of the events set forth in Sections 8.5, 8.7, 8.8, 8.9 or 8.10 of this Agreement
if, within twenty (20) days after the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; PROVIDED, HOWEVER, Finova
shall not be obligated to make Revolving Advances to Borrower during such
period.

       9.   FINOVA'S RIGHTS AND REMEDIES

            9.1         RIGHTS AND REMEDIES. At any time that an Event of
Default exists, Finova may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:

                  (a)   Declare all Obligations, whether evidenced by this
Agreement, any of the other Loan Documents or otherwise, immediately due and
payable in full;

                  (b)   Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, any of the other Loan Documents or any
other agreement between Borrower and Finova;

                                       15

<PAGE>   16

                  (c)   Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Finova, but without
affecting Finova's rights and security interest in the Collateral and without
affecting Borrower's duties, obligations and covenants hereunder, including
payment of the Obligations;

                  (d)   Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Finova considers advisable and,
in such cases, Finova will credit Borrower's loan account with only the net
amounts received by Finova in payment of such disputed Accounts, after deducting
all Finova Expenses incurred or expended in connection therewith;

                  (e)   Seek the appointment of a receiver (and Borrower hereby
consents to such appointment);

                  (f)   Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Finova considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if Finova so requires and to deliver or make the
Collateral available to Finova at a place designated by Finova. Borrower
authorizes Finova to enter any premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien that in Finova's
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Finova a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Finova's rights or remedies provided herein, at law, in equity,
or otherwise;

                  (g)   Without notice to Borrower (such notice being expressly
waived) and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Finova (including any amounts received in a lockbox or blocked account), or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Finova;

                  (h)   Hold, as cash collateral, any and all balances and
deposits of Borrower held by Finova (including any amounts received in a lockbox
or blocked account) to secure the Obligations;

                  (i)   Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale and sell (in the manner provided for
herein) the Collateral. Finova is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale and selling any Collateral.
Borrower's rights under all licenses and all franchise agreements shall inure to
Finova's benefit;

                  (j)   Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Finova
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;

                  (k)   Finova shall give notice of the disposition of the
Collateral as follows:

                        (1)   Finova shall give the Borrower and any other
Person entitled to notice under applicable law, a notice in writing of the time
and place of public sale or, if the sale is a private sale or some other
disposition other than a public sale is to be made, then the time on or after
which the private sale or other disposition is to be made;

                        (2)   The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
(5) calendar days before the date fixed for the sale, or at least five (5)
calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value;

                  (l)   Finova may credit bid and purchase at any public sale;

                  (m)   Any deficiency that exists after disposition of the
Collateral as provided above shall be paid immediately by Borrower. Any excess
will be remitted without interest by Finova to the party or parties legally
entitled to such excess; and

                  (n)   In addition to the foregoing, Finova shall have all
rights and remedies provided by law and any rights and remedies contained in any
other Loan Documents. All such rights and remedies shall be cumulative.

                                       16

<PAGE>   17

            9.2         NO WAIVER. No delay on the part of Finova in exercising
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or otherwise, preclude other or further exercise of the right,
power or privilege or the exercise of any other right, power or privilege.

      10.   TAXES AND EXPENSES REGARDING THE COLLATERAL

            If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums or otherwise) due to third parties regarding the Collateral,
or fails to make any deposits or furnish any required proof of payment or
deposit, or fails to perform any of Borrower's other covenants under the terms
of this Agreement or any other Loan Document, then, Finova may, in its
reasonable credit judgment, do any or all of the following: (a) make any payment
which Borrower has failed to pay or any part thereof; (b) set up such reserves
in Borrower's loan account as Finova deems necessary to protect Finova from the
exposure created by such failure; (c) obtain and maintain insurance policies of
the type described in Section 6.12 and take any action with respect to such
policies as Finova deems prudent; or (d) take any other action deemed necessary
by Finova to preserve and protect its interests and rights under this Agreement
or any other Loan Document. Any payments made by Finova shall not constitute an
agreement by Finova to make similar payments in the future or a waiver by Finova
of any Event of Default under this Agreement. Finova need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance
or lien and the receipt of notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.

      11.   WAIVERS AND INDEMNIFICATIONS

            11.1        WAIVERS. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, notice of nonpayment at maturity, notice of intention to
accelerate and notice of acceleration, so that Finova may exercise any and all
rights and remedies under the Loan Agreement or any other Loan Documents, or as
otherwise provided at law or in equity, at any time that an Event of Default
exists, without any further notice, grace or opportunity to cure whatsoever.
Borrower further waives notice prior to Finova's taking possession or control of
the Collateral, any bond or security which might be required by any court prior
to allowing Finova to exercise any of Finova's remedies, and the benefit of all
valuation, appraisement and exemption laws. Borrower agrees that, at any time
that an Event of Default exists, Finova may compromise, settle or release
without notice to Borrower any accounts, documents, instruments, chattel paper
or guaranties at any time held by Finova on which Borrower may in any way be
liable.

            11.2        NO MARSHALING. Borrower hereby expressly waives all
rights, if any, to require a marshaling of assets by Finova or to require that
Finova first resort to some or any portion of the Collateral before foreclosing
upon, selling or otherwise realizing on any other portion thereof.

            11.3        FINOVA'S LIABILITY FOR COLLATERAL. So long as Finova
complies with its obligations, if any, under Section 9207 of the Code, Finova
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency
or other Person. All risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.

            11.4        INDEMNIFICATION. Borrower shall defend, indemnify and
hold harmless Finova, its directors, officers, agents, employees, participants
and assigns, from and against any and all claims, suits, actions, causes of
action, debts, liabilities, damages, losses, obligations, charges, judgments and
expenses, including attorneys fees and costs, of any nature whatsoever, in any
way relating to or arising from the transactions contemplated by this Agreement
or any other Loan Document (including those relating to or arising from any
alleged or actual violation of any Environmental Law, or any loss, damage or
injury resulting from any Hazardous Material); provided that the foregoing
indemnification shall not extend to liabilities, damages, losses, obligations,
judgments and expenses proximately caused by the gross negligence or willful
misconduct of Finova. This indemnification provision shall survive the
termination of this Agreement.

            12.   NOTICES

            Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement, the Loan Documents or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to Borrower or to Finova, as the case may
be, at their addresses set forth below:

                                       17

<PAGE>   18

            IF TO BORROWER:   STAR TOBACCO AND PHARMACEUTICALS, INC.
                              16 South Market Street
                              Petersburg, Virginia 23803
                              Attn: Jim McNulty

            WITH A COPY TO:   PAUL, HASTINGS, JANOFSKY & WALKER LLP
                              Tenth Floor
                              1299 Pennsylvania Avenue, N.W.
                              Washington, DC 20004-2400
                              Attn:  Paul L. Perito

            IF TO FINOVA:     FINOVA CAPITAL CORPORATION, BUSINESS
                              CREDIT
                              1000 Abernathy Road N.E.
                              Building 400, Suite 1500
                              Atlanta, Georgia 30328
                              Attn: Service Center Manager

            WITH A COPY TO:   FINOVA CAPITAL CORPORATION
                              2020 Santa Monica Blvd., Suite 500
                              Santa Monica, CA 90404
                              Attn: Michael N. Rosner

            The parties hereto may change the address at which they are to
receive notices hereunder by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Finova in connection with Sections 9504 and 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail or one (1) calendar day
after deposit thereof with an overnight delivery service. Borrower acknowledges
and agrees that notices sent by Finova in connection with Sections 9504 or 9505
of the Code shall be deemed sent when deposited in the mail or with an overnight
delivery service or otherwise sent by Finova in accordance with the delivery
methods set forth above.

      13.   DESTRUCTION OF PAPERS DELIVERED TO FINOVA

            All documents, schedules, invoices, agings or other papers delivered
to Finova may be destroyed or otherwise disposed of by Finova four (4) months
after they are delivered to or received by Finova unless Borrower requests, in
writing, the return of said documents, schedules, invoices, agings or other
papers and makes arrangements, at Borrower's expense, for their return.

      14.   GENERAL PROVISIONS

            14.1        EFFECTIVENESS; TIME OF THE ESSENCE. This Agreement and
the other Loan Documents shall be binding and deemed effective when executed by
Borrower and Finova. Time is of the essence of this Agreement and the other Loan
Documents.

            14.2        SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any
rights or duties hereunder without Finova's prior written consent and any
prohibited assignment shall be void and of no effect as against Finova. No
consent to an assignment by Finova shall release Borrower from its Obligations.
Finova and its successors and assigns may assign this Agreement and any other
Loan Document and its rights and duties hereunder and thereunder. Finova
reserves the right to sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in Finova's rights and benefits
hereunder. In connection therewith, Finova may disclose all documents and
information which Finova now or hereafter may have relating to Borrower or
Borrower's business. Borrower expressly consents to any assignment by Finova to
its wholly owned subsidiary, Finova Funding Inc., of certain of Finova's rights
hereunder and under the other Loan Documents, including the beneficial interest
in loans made by Finova, and any subsequent assignment by Finova Funding Inc. to
LaSalle National Bank (or any successor trustee), as trustee of the Finova Small
Business Loan Master Trust, of such rights.

            14.3        SECTION HEADINGS. Section headings in this Agreement are
included for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.

                                       18

<PAGE>   19

            14.4        INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Finova or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.

            14.5        SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.

            14.6        AMENDMENTS IN WRITING. Neither this Agreement nor any
provision hereof may be amended, modified, waived or terminated orally or by
course of conduct or pattern of dealing, but only by a written agreement signed
by an authorized officer of Finova. Any purported amendment, modification,
waiver or termination of this Agreement or any provision hereof that is not in
writing and signed by an authorized officer of Finova shall be void and of no
effect.

            14.7        INTEGRATION. This Agreement, together with the other
Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof. This Agreement, together with the other
Loan Documents, supersedes all prior agreements, understandings and
negotiations, if any, which are merged into this Agreement and the other Loan
Documents.

            14.8        COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts each of
which, when executed and delivered, shall be deemed to be an original and all of
which, when taken together, shall constitute but one and the same Agreement.

            14.9        REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Finova of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences and other voidable or recoverable payments
of money or transfers of property (a Voidable Transfer), and if Finova is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Finova is required or elects
to repay or restore, and as to all reasonable costs, expenses and attorneys fees
of Finova related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated and restored and shall exist as
though such Voidable Transfer had never been made.

            14.10       CONSULTATION WITH COUNSEL. Borrower and Finova
acknowledge that they have been given the opportunity to consult with counsel
and other advisors of their choice prior to entering into this Agreement.

            14.11       LIMITATION OF LIABILITY. No claim may be made by
Borrower or any other Person against Finova or the officers, directors,
employees, participants, assignees or agents of Finova for any special,
indirect, punitive or consequential damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith, and Borrower hereby waives, releases and
agrees not to sue upon any claim for any such damages.

            14.12       TELEFACSIMILE EXECUTION. Delivery of an executed
counterpart of this Agreement or any other Loan Document by telefacsimile
transmission shall be equally as effective as delivery of an executed hard copy
of the same. Any party delivering an executed counterpart of this Agreement or
any other Loan Document by telefacsimile transmission shall also deliver an
executed hard copy of the same, but the failure by such party to deliver an
executed hard copy shall not affect the validity, enforceability and binding
effect of this Agreement or such other Loan Document.

            14.13       FINANCE LENDER LICENSE.  Finova is licensed as a Finance
Lender by the California Department of Corporations, file number 603 2362.

                                       19

<PAGE>   20

      15.   CHOICE OF LAW AND VENUE

            THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW); PROVIDED,
HOWEVER, THAT THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED SHALL
GOVERN WITH RESPECT TO (A) THE CREATION OF LIENS ON COLLATERAL LOCATED IN SUCH
STATE AND (B) THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF FINOVA'S LIENS
UPON ANY PORTION OF THE COLLATERAL LOCATED IN SUCH STATE AND THE ENFORCEMENT IN
SUCH STATE OF FINOVA'S OTHER REMEDIES WITH RESPECT TO THE COLLATERAL LOCATED IN
SUCH STATE.

            THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
COURTS LOCATED IN THE COUNTY OF MARICOPA, STATE OF ARIZONA, THE FEDERAL COURTS
WHOSE VENUE INCLUDES THE COUNTY OF MARICOPA, STATE OF ARIZONA, OR, AT THE SOLE
OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. THE PARTIES EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE
PARTIES HEREBY WAIVE ANY OBJECTION WHICH EITHER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY ANY SUCH COURT. FURTHERMORE,
BORROWER AND FINOVA EACH WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 15.

      16.   WAIVER OF JURY TRIAL

            BORROWER AND FINOVA HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FINOVA
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered at Finova's place of business in Atlanta, Georgia.

<TABLE>
<S>                                         <C>
                                            STAR TOBACCO AND PHARMACEUTICALS, INC.,
Attest:                                     a Virginia corporation

                                            Signed By:
------------------------------                        ----------------------------
Secretary/Assistant Secretary               Print Name:
[Corporate Seal]                            Title/Capacity:

                                            FINOVA CAPITAL CORPORATION,
                                            BUSINESS CREDIT, a Delaware corporation

                                            Signed By:
                                                      ----------------------------

                                            Print Name:
                                            Title/Capacity
</TABLE>

                                       20<PAGE>   1
                                                                   EXHIBIT 10.38

                       LEASE AND PURCHASE OPTION CONTRACT

OWNER/LANDLORD:            Industrial Development Authority of
                           The Town of Chase City, Virginia

OPTIONEE/TENANT:           Star Scientific, Inc.

DATE OF CONTRACT:          March 10, 2000

         THIS LEASE AND PURCHASE OPTION CONTRACT is made this 10th of March,
2000, by and between the INDUSTRIAL DEVELOPMENT AUTHORITY OF THE TOWN OF CHASE
CITY, VIRGINIA, a body politic and corporate (hereafter the "IDA")
Grantor/Landlord, whose address is 319 Main Street, Chase City, Virginia 23927,
and STAR SCIENTIFIC, INC. (hereafter "Star"), Grantee/Tenant, whose address is
16 South Market Street, Petersburg, Virginia 23802;

                                   WITNESSETH:

         That for an in consideration of the mutual covenants of the reciprocal
benefits inuring to the parties hereunder, and in consideration of the
reciprocal duties hereby imposed upon the parties, and for other good and
valuable consideration, IDA hereby leases, the real property described in the
attachment hereto and identified as "Exhibit A" (hereafter the "Property"), and
Star hereby leases the Property from IDA, said lease being made upon the
following terms and conditions.

         1. LEASE TERM: The term of the lease shall be for a period of one
hundred twenty (120) months commencing on the first day of May, 2000, and ending
at midnight on the 30th day of April, 2010, unless the lease term is shortened
by Star's exercise of its purchase option.

                                       1
<PAGE>   2

         2. RENT: The monthly rent due from Star to IDA during the term of this
lease shall be ELEVEN THOUSAND ONE HUNDRED TWENTY-THREE & 63/100 ($11,123.63)
DOLLARS, the first of which monthly installments shall be due on the first day
of May, 2000, with a like installment to be due and payable on the first day of
each month thereafter, to and including April 1, 2010.

         3. USE OF THE PREMISES: The parties hereby acknowledge that the
premises shall be used for activities related to the processing of tobacco,
production of Lamina and other products, and fabrication of mobile units for
farm use. Star shall make no illegal use of the premises nor permit the same to
be done by any agent, employee or assign.

         4. EXPENSES BORNE BY STAR: Throughout the term of this lease, and
throughout any renewal or extension hereof, Star shall pay in full all costs
arising from any of the following:

                  a. Insurance of all types on the premises, including hazard
                  and property insurance, and liability insurance on the
                  premises to indemnify the IDA in an amount of at least
                  $1,000,000.00. IDA shall be shown as a named insured on the
                  policy and furnished with evidence of insurance upon request.
                  Insurance on the premises shall be maintained in an amount not
                  less than ONE MILLION FOUR HUNDRED THOUSAND & NO/100
                  ($1,400,000.00) DOLLARS, or the maximum insurable amount. Star
                  shall endeavor to obtain cancellation notification provisions

                                       2
<PAGE>   3

                  requiring the insurer to afford a minimum of sixty (60) days
                  notice of any proposed cancellation.

                  b. All taxes assessed, levied, and imposed upon the personal
                  property located on the premises and any business licenses,
                  merchants capital or business operation taxes arising because
                  of business activities thereon.

                  c. All real estate taxes, both town and county, assessed
                  levied, or imposed upon the real estate which taxes shall be
                  paid on or before the due date. Taxes for the initial and
                  final year shall be prorated with Star paying a proportionate
                  share representing the number of months during which the lease
                  existed in said years.

                  d. Star hereby agrees that during the term of this lease or
                  any renewal, it shall be responsible exclusively for all
                  maintenance of the premises, including both the interior and
                  exterior of the premises, and the demised real property
                  surrounding the premises, and including (although not
                  exclusively) exterior painting, glass, roof, heating and
                  cooling, air conditioning, driveways, parking areas and any
                  maintenance or repairs necessary to be made to maintain the
                  premises.

         5. ASSIGNMENT OR SUBLEASE PROHIBITED: Star shall not assign this lease
or sublet any portion of the premises, without the prior written consent of IDA,
which consent shall not be unreasonably withheld. Any such assignment or

                                       3
<PAGE>   4

subletting without written consent shall be void at the option of IDA, and shall
constitute a cause for termination by IDA.

         6. ENTRY AND INSPECTIONS: Prior to occupying the premises, Star shall
be permitted to inspect the premises and the personal property leased hereby to
determine the condition of the premises and property. Any exception taken by
Star as to the conditions found shall be noted in writing and acknowledge by the
IDA; otherwise Star shall accept the premises and property on an "as is" basis.

         During this lease Star shall permit IDA or IDA's agent to enter upon
the premises at reasonable times and upon reasonable notice for the purpose of
inspection the same, and will permit IDA at any time within sixty (60) days
prior to the expiration of this lease, to place upon the premises any usual "for
lease" or "for sale" signs permitting persons desiring to lease or purchase the
premises to inspect the same.

         7. INDEMNIFICATION: Star shall hold harmless IDA from and against any
and all claims for personal injury and/or property damage arising out of
resulting from, or incident to its entry upon, and/or its use or occupancy of
the leased premises.

         This is a covenant of first payment and defense, not merely of
indemnity. If a claim for personal injury and/or property damage is asserted
against IDA by any person or legal entity alleged to have arisen out of Star's
entry upon the leased premises or to have arising out of, to have resulted from
or to have occurred as an incident of its use and/or occupancy of the premises,
then, upon written notification from IDA, Star shall immediately and without
further demand enter upon the affirmative defense of any such claim and shall
pay promptly, to the complete indemnification and exoneration of IDA,

                                       4
<PAGE>   5

all fees, costs and expenses (including attorney's fees) that might be, or
become, due incident to any such claim (to include negotiated settlements or
compromises or any awards or judgments as a result of arbitration or judicial
proceeding) to the end that IDA shall have no exposure and shall suffer no
damage or expense incident thereto.

         8. UTILITIES: Star agrees that Star shall be responsible for all
utilities, including water, gas, electricity, heat and other services delivered
to the premises.

         9. TRADE FIXTURES: Any and all improvements made to the premises during
the term hereof shall belong to IDA, except trade fixtures of Star. Star may
upon termination hereof remove all trade fixtures owned by Star, provided
however the premises shall be restored to the original condition by Star,
reasonable wear and tear excepted, and Star shall make repair to or pay for all
repairs necessary for damage to the premises occasioned by removal of the trade
fixtures.

         10. CONDEMNATION: If any part of the premises shall be taken or
condemned for public use, and a part thereof remains which is susceptible of
occupation hereunder, the lease shall as to the part taken terminate as of the
date the condemnor acquires possession and thereafter Star shall be required to
pay such proportion of the rent of the remaining term as the value of the
premises remaining bears to the total value to the premises, and its permitted
use for the original purpose of this lease, at the date of condemnation.
Provided, however, IDA may at its option, terminate this lease as of the date
the condemnor acquires possession. In the event that the demised premises are
condemned in whole, or that such portion is condemned that the remainder is not

                                       5
<PAGE>   6

susceptible for use hereunder, this lease shall terminate upon the date upon the
condemnor acquires possession.

         In the event IDA receives notification of condemnation proceedings
against the premises, IDA shall immediately notify Star and allow Star the
election of invoking its purchase agreement contained hereinafter, and in the
event Star exercises its option IDA shall defer to Star all decisions pertaining
to settlement with the condemning authority. In the event Star fails to elect
its purchase option, the parties hereto agree that any amount received by IDA
from the condemning authority shall be deducted from the purchase price of the
property as provided hereinafter in Section 17, if and when said purchase is
elected by Star.

         Star shall be permitted to be a party to the condemnation proceeding in
light of the option held by Star for the purchase of the property. No settlement
of account with the condemning authority shall be permitted by IDA without the
agreement of Star or assignment of Star's respective right to seek its own
remedy against the condemnor.

         11. DESTRUCTION OF THE PREMISES: In the event of a partial destruction
of the premises during the term hereof, from any cause, IDA shall forthwith
repair the same provided that such repairs can be made within sixty (60) days
under the existing governmental laws and regulations. If such repairs cannot be
made, IDA at its option may make the same within a reasonable time, the lease
continuing in effect with the rent proportionately abated as aforesaid and in
the event IDA shall not elect to make such repairs the lease may be terminated
at the option of either party.

         12. DEFAULT PROVISIONS: If default is made in the payment of rent or
failure to complete the purchase of the property following election of the
option,

                                       6
<PAGE>   7

IDA shall give notification to Star at the address specified herein stating the
reasons for default and IDA's intention to seek a remedy. Should the breach or
default not be corrected, including all rents paid and/or closing held, within
thirty (30) days of the receipt of such notice IDA shall have the right to
re-enter without further demand or notice and at IDA's option, terminate the
lease and with it the option for the purchase of the property or rights of Star
under any other option. It is provided however nothing contained herein shall
prevent IDA from enforcing, by an action for specific performance of its rights
against Star.

         13. MEMORANDUM OF LEASE AND OPTION: The parties agree that they shall
execute a Memorandum of Lease and Purchase Option which may be recorded by
either party in the Circuit Court of Mecklenburg County, all costs of such
recordation to be borne by Star even if IDA opts for such recordation.

         14. OPTION TO PURCHASE: So long as Star is not in substantial default
of its performance of any term of this lease, Star shall have the option to
purchase the Property for the purchase price hereinafter set forth, upon the
terms and conditions specified in the provisions hereinafter stated.

         15. PURCHASE PRICE: The purchase price for the property shall be the
sum of the following:

                  a. The balance due on a note or notes secured by a credit line
                  deed of trust dated March 10, 2000, securing unto Community
                  National Bank repayment of debt in the original principal sum
                  not to exceed FIVE HUNDRED THOUSAND & NO/100 ($500,000.00)
                  DOLLARS; PLUS,

                                       7
<PAGE>   8

                  b. The balance due on a note or notes secured by a deed of
                  trust dated July 24, 1998, securing unto Lake County
                  Development Corporation repayment of a debt in the original
                  principal sum of $250,000.00; PLUS,

                  c. The balance due on a note or notes securing unto IDA,
                  repayment of a debt in the original principal sum of
                  $200,000.00; PLUS,

                  d. The sum of FIFTY THOUSAND & NO/100 ($50,000.00) DOLLARS.

         Star may exercise its option to purchase at any time during the term of
this lease by paying the balance then due on each of said three notes, plus
paying to IDA an additional FIFTY THOUSAND & NO/100 ($50,000.00) DOLLARS. Upon
receipt of such payments, IDA shall deliver title to the premises to Star by
SPECIAL WARRANTY Deed. Should Star make all rental payments due hereunder, and
then elect to exercise its option to purchase, IDA shall, after receipt of the
last of said monthly rental payments, and upon receipt of the sum of FIFTY
THOUSAND & NO/100 ($50,000.00) DOLLARS, deliver title to the premises to Star by
Special Warranty Deed.

         16. EXPIRATION OF STAR'S PURCHAES OPTION: If star is in compliance with
the terms and conditions hereof, it shall have the right to exercise its
purchase option at any time during the term of the lease. However, Star's
purchase option shall, if not duly exercised on or before April 30, 2010,
automatically terminate and expire on May 1, 2010.

                                       8
<PAGE>   9

         17. EXERCISE OF PURCHASE OPTION: Star's purchase option must be
exercised by Star in writing, by mailing via certified mail/return receipt, or
by hand-delivery to IDA, of written notice of Star's exercise of its purchase
option. To be effective, such written notice must be received by IDA on or
before April 30, 2000. Such written notice shall state the date of closing,
which date shall be a maximum of sixty (60) days from the date said written
notice is received by IDA.

         18. CLOSING COSTS: If Star exercises its purchase option, IDA shall pay
the cost of preparation of a Special Warranty deed, grantor's tax assessed upon
recordation of the deed, and any attorney's fee incurred by IDA at its election.
Star shall pay all other costs incurred as an incident of closing.

         19. RETURN OF PREMISES: Should Star not exercise its purchase option,
then upon termination of this lease the Property and personal property shall be
returned to IDA in the condition which existed upon commencement of this lease,
reasonable wear and tear excepted. Star shall have the right to replace personal
property.

         20. REQUIREMENT FOR NOTICES: Any notice required hereunder shall be
deemed effective if mailed by the mailing party to the other party via certified
mail, return receipt requested, to the addresses provided for each party herein,
or to such other address as either party may designate in writing from time to
time. Hand-delivered notices shall also be effective, but the notifying party
shall bear the burden of proof of delivery.

         21. BINDING EFFECT: This agreement shall be binding upon the parties
hereto and upon any successor or assign of either party hereto. The terms hereof
may be amended only by written document signed by the duly authorized officers
or

                                       9
<PAGE>   10

agents of either party, and no modification or amendment hereof shall have
any force or effect unless in writing and duly signed.

         22. SEVERABILITY: The parts and provisions of this contract are
severable. If any part or provision shall be held invalid by a court of
competent jurisdiction, the remainder of this contract shall remain in effect.

         23. SUCCESSORS IN TITLE: The parties covenant and agree that all terms
and conditions hereof shall be binding upon the parties, their heirs, assigns,
devisees, executors, administrators and other successors in title.

         24. WRITTEN MODIFICATION REQUIRED: This contract supersedes and
replaces any agreement or understanding, whether oral or written, heretofore
entered into between the parties, and no amendment hereto shall be binding
unless made in writing and duly executed on behalf of both parties hereto.

         25. EXECUTION IN DUPLICATE ORIGINAL AND COUNTERPARTS: This Contract is
made in duplicate on the day, month and year aforesaid, and each copy hereof
bearing original signatures shall be deemed an original. In addition, this lease
may be executed in counterparts, so that the execution of one original by a
party and another original by the other party shall together constitute one
fully binding original.

         26. RESCISSION OF PRIOR LEASE: Upon execution hereof on behalf of both
parties, the terms and conditions hereof shall become effective, and in addition
all terms and conditions of the Lease and Option agreement between the parties,

                                       10
<PAGE>   11

dated May 29, 1998, shall automatically terminate and be superceded by the terms
and conditions hereof.

         27. AUTHORITY TO SIGN: This Contract is executed on behalf of each
party pursuant to action duly taken to authorize the undersigned individuals to
execute this contract on behalf of his or her principal. Either party shall be
the right to require written evidence of such authority from the other party.

         WITNESS the following signatures and seals:

INDUSTRIAL DEVELOPMENT                               STAR SCIENTIFIC, INC.
AUTHORITY OF THE TOWN
OF CHASE CITY, VIRGINIA

BY:                                                  BY:
   ---------------------------                          --------------------
      Charles L. Duckworth                               Authorized Officer
      Chairman

Attest:

------------------------------
Charley Ramsey, Secretary

STATE OF VIRGINIA
COUNTY/CITY OF ____________to wit:

         The foregoing instrument was acknowledged before me this ____day of
March, 2000, on behalf of the Industrial Development Authority Chase City,
Virginia, by Charles L. Duckworth, its Chairman, whose signature was attested by
Charley Ramsey, its secretary.

                                  ----------------------------------
                                  Notary Public

                                       11
<PAGE>   12

My commission expires:_______________
STATE OF VIRGINIA
COUNTY/CITY OF ________________. to-wit:

         The foregoing instrument was acknowledged before me this _____day of
March, 2000, by James A. McNulty, CFO of Star Scientific, Inc., on behalf of
said corporation.

                                                 ------------------------------
                                                 Notary Public

My commission expires:
                      -----------------

                                       12

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