Document:

Exhibit 10.57

 Exhibit 10.57 
  
 SECURITIES PURCHASE AGREEMENT 
  
 SECURITIES PURCHASE AGREEMENT (“Agreement”) dated as of March 25, 2004 between STAR SCIENTIFIC, INC., a Delaware corporation (the
“Company”), and MANCHESTER SECURITIES CORP., a New York corporation (the “Purchaser”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Debentures. 
  
 W I T N E S S E
T H: 
  
 WHEREAS, the Company desires to
sell and issue to the Purchaser, and the Purchaser wishes to purchase from the Company: (i) an aggregate of $9 million in principal amount of the Company’s 8% Senior Convertible Debentures, due March 25, 2006, in the form attached hereto
as Exhibit A (the “Debentures”) on the terms and conditions set forth herein; and (ii) warrants (the “Warrants”) to purchase 502,681 shares of the Company’s common stock, par value $0.0001 per
share (“Common Stock”), in the form attached hereto as Exhibit B; 
  
 WHEREAS, the Debentures will be convertible into shares of Common Stock (“Common Shares”) pursuant to the term thereof and the
Warrants will be exercisable for shares of Common Stock (“Warrant Shares”) pursuant to the terms thereof, and the Purchaser will have registration rights with respect to the Common Shares and Warrant Shares pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the Company, the other holders of Debentures and the Purchaser substantially in the form of Exhibit C hereto (“Registration Rights Agreement”);

  
 WHEREAS, the Company’s obligations under the
Debentures will be secured by a perfected first lien on all finished product inventory and accounts receivable of the Company and its subsidiaries, pursuant to the terms of a security agreement (the “Security Agreement”) by and
among the Company, the Subsidiaries (as defined below) the Purchaser, the other holders of Debentures and Manchester Securities Corp. as Collateral Agent, substantially in the form of Exhibit D; 
  
 WHEREAS, pursuant to the Guaranty in favor of the Purchaser dated as
the date hereof in the form and substance of Exhibit E hereto (the “Guaranty”), the Company’s subsidiary, Star Tobacco, Inc., a Virginia corporation, will guaranty the Company’s obligations under this
Agreement, the Securities Agreement and the Debentures; 
  
 NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows: 
  
 ARTICLE I 
  
 Purchase and Sale of Debentures and Warrants 
  
 Section 1.1 Issuance of Debentures; Warrants. Upon the following terms
and conditions, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, (a) $9 million principal amount of Debentures and (b) Warrants to purchase 502,681 shares of Common Stock. 

 Section 1.2 Purchase Price. The purchase price for the Debentures and Warrants to be acquired by
the Purchaser (the “Purchase Price”) shall be the Purchase Price set forth on the signature page hereto. 
  
 Section 1.3 The Closing. 
  
 (a) Timing. Subject to the fulfillment or waiver of the conditions set forth in Article V hereof, the purchase and sale of the Debentures and
Warrants shall take place at a closing (the “Closing”), on or about the date hereof or such other date as the Purchaser and the Company may agree upon (the “Closing Date”). 
  
 (b) Form of Payment and Closing. On the Closing Date, the Company
shall deliver to the Purchaser all of the Debentures and Warrants purchased by it hereunder, each issued in the name of the Purchaser. The Debentures and Warrants shall be issued in accordance with the number and denomination of Debentures and
Warrants requested by the Purchaser. On the Closing Date the Purchaser shall deliver the Purchase Price by wire transfer of immediately available funds to an account designated in writing by the Company. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing. Subject to the payment of the Purchase Price in accordance with this Agreement, the Debentures and Warrants will be
fully paid for by the Purchaser as of the Closing Date. 
  
 ARTICLE II 
  
 Representations and
Warranties 
  
 Section 2.1 Representations and
Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchaser as of the date hereof and the Closing Date: 
  
 (a) Organization and Qualification; Material Adverse Effect. The Company is a corporation duly incorporated and
existing in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries (defined as an entity which
the Company has at least a 50% ownership interest in and control) other than the subsidiaries listed on Schedule 2.1(a) attached hereto (“Subsidiaries”). Except where specifically indicated to the contrary, all references in
this Agreement to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries of the Company. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not reasonably be expected to have a Material Adverse Effect.
“Material Adverse Effect” means any adverse effect on the business, operations, properties, or financial condition of the Company and its Subsidiaries, and which is (either alone or together with all other adverse effects) material
to the Company and its Subsidiaries, if any, taken as a whole. 
  

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 (b) Authorization; Enforcement. (i) The Company has all requisite corporate power and authority
to enter into and perform this Agreement, the Debentures, the Warrants, the Security Agreement, the Subordination Agreement (as defined below) and the Registration Rights Agreement (the “Transaction Documents”) and to issue the Debentures
in accordance with the terms hereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby, including the issuance of the Debentures, have been duly authorized
by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required, (iii) the Transaction Documents have been, or at the Closing
will be, duly executed and delivered by the Company, (iv) assuming they have been duly executed and delivered by the Purchaser the Transaction Documents constitute, or at the Closing will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of creditors’ rights and remedies or by other equitable principles of general application, and (B) to the extent the indemnification provisions contained in this Agreement and the Registration Rights Agreement may be limited by
applicable federal or state securities laws and (v) the Debentures and Warrants and the Common Shares and Warrant Shares issuable upon the conversion and/or exercise thereof have been duly authorized and, upon issuance thereof and payment therefor
in accordance with the terms of this Agreement, the Debentures will be validly issued and free and clear of any and all liens, claims and encumbrances for claims of the Company. 
  
 (c) Capitalization. Except as set forth on Schedule 2.1(c), as of the date hereof, the authorized capital stock of
the Company consists of (i) 100,000,000 shares of Common Stock, of which as of the date hereof, 59,719,480 shares are issued and outstanding, 5,613,512 shares are issuable and reserved for issuance pursuant to the Company’s stock option plans
or securities exercisable or exchangeable for, or convertible into, shares of Common Stock, and (ii) 100,000 shares of preferred stock, of which as of the date hereof no shares are issued. All of such outstanding shares have been, or upon issuance
will be, validly issued, fully paid and nonassessable. As of the date hereof, except as described in this Section 2.1(c) or disclosed in Schedule 2.1(c), (i) no shares of the Company’s capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, (iii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act of 1933, as
amended (“Securities Act” or “1933 Act”) (except the Registration Rights Agreement), (iv) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (v) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the issuance or exercise of the Debentures, 
  

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 the Warrants or the Option as described in this Agreement and (vi) the Company does not have any stock appreciation
rights or “phantom stock” plans or agreements or any similar plan or agreement. The Company disclosed in its SEC Documents or has furnished to the Purchaser true and correct copies of the Company’s Certificate of Incorporation, as
amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible or
exchangeable into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. 
  
 (d) Issuance of Shares. Upon issuance in accordance with this Agreement and the terms of the Debentures and Warrants, the Common Shares and
Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable and free from all taxes (other than transfer taxes where the Debentures and Warrants have been transferred and other than any taxes due because of actions by
Purchaser), liens and charges with respect to the issue thereof and, subject to applicable securities laws (i) the Common Shares and Warrant Shares will be entitled to be traded on the Principal Market (as defined below) or the New York Stock
Exchange, the American Stock Exchange or the Nasdaq Small Cap Market (each “an Approved Market”), and (ii) the holders of such Common Shares or Warrant Shares shall be entitled to all rights and preferences accorded to a holder of Common
Stock. As of the date of this Agreement, the outstanding shares of Common Stock are currently listed on the Principal Market. 
  
 (e) No Conflicts. Except as disclosed in Schedule 2.1(e), the execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated hereby and thereby and issuance of the Debentures and Warrants, and the Common Shares and Warrant Shares will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock of the Company or the By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, except as would not reasonably
be expected to have a Material Adverse Effect or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the
Nasdaq National Market (“Principal Market”) or other principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 2.1(e), neither the Company nor its Subsidiaries is in violation of any term of, or in default under, (x) its certificate of incorporation,
any certificate of designations, preferences and rights of any outstanding series of preferred stock or By-laws or their organizational charter or by-laws, respectively, (y) any material contract, agreement, mortgage, indebtedness, indenture,
instrument, or (z) any judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, the non-compliance with which (in the case of (x), (y) or (z)) would reasonably be expected to have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency
or any regulatory or self-regulatory agency in order for it to execute, 
  

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 deliver or perform any of its obligations under, or contemplated by, the Transaction Documents or the issuance of the
Debentures, the Warrants and the Common Shares and Warrant Shares, in accordance with the terms hereof or thereof. Except as disclosed in Schedule 2.1(e), all consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company complies with and is not in violation of the listing requirements of the Principal Market. 
  
 (f) SEC Documents; Financial Statements. Since January 1, 2003, the
Company as well as its majority owned Subsidiaries have filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC
Documents”). The Company has delivered to the Purchaser or its representatives true and complete copies of any SEC Documents that were not filed electronically via EDGAR. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The last draft Report on Form 10-K for the year ended December 31, 2003 (the “Company’s
10-K”) provided by the Company to Purchaser prior to the date hereof, will not differ in any material respect from the final report to be filed with the SEC and such report does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. 
  

(g) Absence of Certain Changes. Except as disclosed in Schedule 2.1(g), the Company’s 10-K or the SEC Documents filed at least
thirty (30) days prior to the date hereof, since September 30, 2003 there has been no adverse change or adverse development in the business, properties, assets, operations, financial condition, prospects, liabilities or results of operations of the
Company or its Subsidiaries which has had or, to the knowledge of the Company or its Subsidiaries, is reasonably likely to have a Material Adverse Effect. The Company has not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. 
  

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 (h) Absence of Litigation. To the Company’s knowledge, there are no material pending or
threatened legal proceedings, other than routine litigation incidential to the Company’s business, to which the Company or any of its Subsidiaries is a party or of which any of their property is the subject, (i) except as set forth in SEC
Documents which were filed at least 10 days before the date hereof, (ii) except as set forth in the Company’s 10-K, and (iii) except which individually and in the aggregate, respectively, would not be reasonably likely to result in liability to
the Company in excess of $50,000 and $100,000, respectively. 
  
 (i) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further represents to the Purchaser that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its
representatives. 
  
 (j) No Integrated Offering. Except as
set forth in Schedule 2.1(j), neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of Debentures and Warrants to the Purchaser to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market or other Approved Market (as defined below), nor will the Company or any of its Subsidiaries take any action or steps that would cause the offering of the Debentures to be
integrated with other offerings. 
  
 (k) Employee
Relations. Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened, the effect of which would be reasonably likely to result
in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement. No executive officer (as defined in Rule 501(f) of the 1933 Act) whose departure would be adverse to the Company has
notified the Company in writing that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. 
  
 (l) Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted,
except as would not reasonably expect to have a Material Adverse Effect. Except as set forth on Schedule 2.1(l) or in the Company’s 10-K, none of the Company’s trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two (2)
years from the date of this Agreement, except as would not be reasonably expected to have a Material Adverse Effect. The Company and its 
  

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 Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical
information by others. 
  
 (m) Environmental Laws. The
Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval where such noncompliance or failure to receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii) above would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect. 
  
 (n)
Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its
Subsidiaries, in the ordinary course of business as currently conducted, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 2.1(n) or such as do not materially interfere with the use of
such property by the Company or any of its Subsidiaries in the ordinary course of business as currently conducted. Any material real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as do not materially interfere with the use made of such property and buildings by the Company and its Subsidiaries in the ordinary course of business as currently conducted. 
  
 (o) Regulatory Permits. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities, necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any written
notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit except as would reasonably be expected to have a Material Adverse Effect. 
  
 (p) Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 
  
 (q) Foreign Corrupt Practices Act. Except as would not reasonably be expected to have a Material Adverse Effect, neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of acting for, or on behalf of, the Company, directly or indirectly used any corporate 
  

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 funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity;
directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or any similar treaties of the United States; or directly or indirectly made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee. 

 
 (r) Tax Status. Except as set forth in the Company’s 10-K,
the Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (i) has paid all taxes and other
governmental assessments and charges, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (ii) has set aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and the Company is not aware of any basis for any such claim.

  
 (s) Certain Transactions. Except as set forth on
Schedule 2.1(s), the Company 10-K, or the SEC Documents filed on EDGAR at least thirty (30) Trading Days prior to the date hereof and except for arm’s length transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Schedule 2.1(c) or the Company’s 10-K, none of the officers, directors or employees
of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director or any such employee has a substantial interest or is an officer, director, trustee or partner. 
  
 (t) Dilutive Effect. The Company understands and acknowledges that the number of Common Shares issuable upon conversion of Debentures and Warrant
Shares issuable upon exercise of the Warrants, pursuant to the Debentures and Warrants purchased pursuant to this Agreement will increase in certain circumstances. 
  
 (u) Application of Takeover Protections. There are no anti-takeover provisions contained in the Company’s
Certificate of Incorporation or otherwise which will or would reasonably be expected to be triggered as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Common Shares and
the Purchaser’s ownership of the Common Shares. 
  
 (v)
Rights Plan. Neither the Company nor any of its Subsidiaries has adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. 
  

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 (w) Obligations. Except to the extent (if any) specifically set forth in the Transaction
Documents, the Company’s obligations thereunder are not subject to any right of set off, counterclaim, delay or reduction. 
  
 (x) Form S-3. The Company is eligible to file the Registration Statement (as defined in the Registration Rights Agreement) for secondary offerings
on Form S-3 (as in effect on the date of this Agreement) under the 1933 Act and rules promulgated thereunder. 
  
 (y) No MFN or Variable Rate Transactions. The Company has no outstanding securities or other instruments issued pursuant to any MFN or Variable
Rate Transaction. 
  
 “MFN Transaction” shall
mean a transaction in which the Company issues or sells any securities in a capital raising transaction or series of related transactions (the “MFN Offering”) which grants to the investor (the “MFN Investor”) the
right to receive additional securities based upon future capital raising transactions of the Company on terms more favorable than those granted to the MFN Investor in the MFN Offering. 
  
 “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells, on or
subsequent to the Closing Date (a) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (x) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after the initial issuance of such debt or equity securities, or (y) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common
Stock (but excluding standard stock split anti-dilution provisions), or (b) any securities of the Company pursuant to an “equity line” structure which provides for the sale, from time to time, of securities of the Company which are
registered for resale pursuant to the 1933 Act. 
  
 (z)
Indebtedness. 
  
 Except as disclosed in in the
Company’s 10-K, neither the Company nor any of its Subsidiaries has any outstanding Indebtedness (as defined below). For purposes of this Agreement: (i) “Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above 
  

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 secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (ii) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

  
 (aa) Sarbanes-Oxley Act. The Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 and any and all applicable rules and regulations promulgated by the SEC thereunder, except where such noncompliance would not have, individually or in the aggregate, a
Material Adverse Effect. 
  
 (bb) Investment Company
Status. The Company is not, and immediately after receipt of payment for the Debentures issued under this Agreement will not be, and “investment company” or an entity “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940, as amended (the “Investment Company Act”), and shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

  
 (cc) Listing and Maintenance Requirements. Since
January 1, 2003, the Company has been in compliance with all listing and maintenance requirements for the Principal Market except, in each case, as could not reasonably be expected to result in a Material Adverse Effect. Since January 1, 2003, the
Company has not received any communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market. 
  
 (dd) Stabilization. Neither the Company nor any of its affiliates has, directly or indirectly, bid for, purchased,
or attempted to induce any person to bid for or purchase, any shares of Common Stock, or any securities exchangeable or convertible therefor, during the period of ten (10) business days ending on and including the date of this Agreement. 

 
 Section 2.2 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the Company as of the date hereof and the Closing Date: 
  
 (a) Accredited Investor Status; Sophisticated Purchaser. The Purchaser is an “accredited investor” as that term is defined in Rule
501(a) of Regulation D under the 1933 Act and is able to bear the risk of its investment in Debentures, Warrants, Common Shares and Warrant Shares. The Purchaser has such knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of the purchase of the Debentures, the Warrants, Common Shares and Warrant Shares. 
  
 (b) Information. The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and sale of the Debentures, the Warrants, Warrant Shares and Common Shares which have been requested by the Purchaser. The Purchaser and its advisors, if any, have been
afforded the opportunity to ask questions of the 
  

 10 

 Company. Neither such inquiries nor any other due diligence investigations conducted by the Purchaser or its advisors, if
any, or its representatives shall modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in Section 2.1 above. The Purchaser understands that its purchase of the Debentures and
Common Shares involves a high degree of risk. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Debentures and Common Shares.

  
 (c) No Governmental Review. The Purchaser understands
that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Debentures and Common Shares or the fairness or suitability of the investment in the
Debentures, Warrants, Warrant Shares and Common Shares nor have such authorities passed upon or endorsed the merits thereof. 
  
 (d) Legends. The Company shall issue the Debentures and Warrants and certificates for the Common Shares and Warrant Shares to the Purchaser
without any legend except as described in Article VI below. The Purchaser covenants that, in connection with any transfer of Common Shares by the Purchaser pursuant to the registration statement contemplated by the Registration Rights Agreement, it
will comply with the applicable prospectus delivery requirements of the 1933 Act, provided that copies of a current prospectus relating to such effective registration statement are or have been supplied to the Purchaser. 
  
 (e) Authorization; Enforcement. Each of this Agreement, the Security
Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding agreement of the Purchaser enforceable against the Purchaser in accordance with their
terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies. The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Security Agreement and the Registration Rights Agreement and each other agreement
entered into by the parties hereto in connection with the transactions contemplated by this Agreement. 
  
 (f) Residency. The Purchaser is a resident of the State of New York. 
  
 (g) No Conflicts. The execution, delivery and performance of this Agreement, the Security Agreement and the
Registration Rights Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the certificate of incorporation, by-laws or other documents of
organization of the Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Purchaser is bound, or (iii) result in a violation of any law, rule, regulation or decree applicable to the Purchaser. 
  
 (h) Purchase Representation. The Purchaser is purchasing the Debentures and the Warrants for its own account and not
with a view to distribution in violation of any securities laws. The Purchaser has been advised and understands that neither the 
  

 11 

 Debentures, the Warrants nor the shares of Common Stock issuable upon conversion or exercise thereof have been registered
under the 1933 Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available, except under circumstances where neither
such registration nor such an exemption is required by law. The Purchaser has been advised and understands that the Company, in issuing the Debentures and Warrants, is relying upon, among other things, the representations and warranties of the
Purchaser contained in this Section 2.2 in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the 1933 Act. 
  
 (i) Rule 144. The Purchaser understands that there is no public trading market for the Debentures or Warrants, that
none is expected to develop, and that the Debentures and Warrants must be held indefinitely unless and until such Debentures, Warrants or Common Shares or Warrant Shares received upon conversion or exercise thereof are registered under the 1933 Act
or an exemption from registration is available. The Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the 1933 Act. 
  
 (j) Brokers. The Purchaser has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or
similar payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby. 
  
 (k) Reliance by the Company. The Purchaser understands that the Debentures and Warrants are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the applicability of such exemptions and the suitability of the Purchaser to acquire the Debentures and Warrants and the Common Shares and Warrant Shares issuable upon conversion or exercise thereof. 
  
 (l) Stabilization. Neither the Purchaser nor any of its affiliates
has, directly or indirectly, offered, sold, or attempted to induce any person to offer or sell, any shares of Common Stock, or any securities exchangeable or convertible therefor, during the period of ten (10) business days ending on and including
the date of this Agreement. 
  
 (m) Except as set forth in
Section 2.1 of this Agreement and as contained in the Company’s 10-K, the Purchaser is not relying on any information provided by, or representations or warranties made by, the Company or its Subsidiaries or their respective directors,
officers, employees or representatives. 
  
 ARTICLE III

  
 Covenants 
  
 Section 3.1 Registration and Listing; Effective Registration. Until
such time as no Debentures are outstanding, the Company will cause the Common Stock to continue at all times to be registered under Sections 12(b) or (g) of the 1934 Act, will comply in all material respects with its reporting and filing obligations
under the 1934 Act, and will not take any action or file any document (whether or not permitted by the 1934 Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. Until such time as no Debentures or Warrants are
outstanding, the Company shall continue the listing or trading of the Common Stock on the Principal Market or one of the other Approved Markets and comply in all material respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Approved 
  

 12 

 Market on which the Common Stock is listed. The Company shall cause the Common Shares to be listed on the Principal
Market or one of the other Approved Markets no later than the effectiveness of the registration of the Common Shares under the Act, and shall continue such listing(s) on one of the Approved Markets, for so long as any Debentures or Warrants are
outstanding. 
  
 Section 3.2 Securities Compliance. The
Company shall notify the SEC and the Principal Market, in accordance with their requirements, of the transactions contemplated by this Agreement, the Debentures, the Warrants and the Registration Rights Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Debentures, the Warrants and the Common Shares and Warrant Shares issuable upon conversion or exercise thereof.

  
 Section 3.3 Notices. The Company agrees to provide all
holders of Debentures and Warrants with copies of all notices and information, including without limitation notices and proxy statements in connection with any meetings, that are provided generally to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such Common Stock holders. 
  
 Section 3.4 Use of Proceeds. The Company agrees that the net proceeds received by the Company from the sale of the Debentures and Warrants, shall
be used only for acquisitions and general corporate purposes, including working capital and payment of the MSA escrow funding. 
  
 Section 3.5 Reservation of Shares; Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Debentures and exercise of the Warrants, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of
all Debentures and the exercise of all Warrants, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the then outstanding Debentures and exercise of the then
outstanding Warrants, the Company will take such corporate action as may be necessary to expeditiously increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including without
limitation engaging in best efforts to obtain the requisite shareholder approval and taking the actions described in the Debentures. Without in any way limiting the foregoing, the Company agrees to reserve and at all times keep available solely for
purposes of conversion of Debentures and exercise of the Warrants, such number of authorized but unissued shares of Common Stock that is at least equal to 150% of the number of Common Shares issuable upon conversion of all Debentures and 100% of the
number of Warrant Shares issuable upon exercise of all the Warrants, computed as if all Debentures are convertible at the Conversion Price (as defined in the Debentures) and as if all Warrants are exercisable at the Exercise Price (as defined in the
Warrants), without regard to any limitations on beneficial ownership contained therein. 
  
 Section 3.6 Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Article V of this Agreement. 
  

 13 

 Section 3.7 Blue Sky Laws. The Company shall take such actions as it reasonably determines are
required to comply with all “blue sky” laws applicable to the sale of the Debentures and Warrants hereunder; provided, however, that the Company shall not be required in connection therewith to register or qualify as a foreign corporation
in any jurisdiction where it is not so qualified or to take any action that would subject it to service of process in suits or taxation, in each case, in any jurisdiction where it is no so subject. 
  
 Section 3.8 Publicity. The Company shall, immediately upon the
Closing: (i) issue a press release with respect to such transactions, in the form of the press release attached as Exhibit F hereto and (ii) file the Company’s 10-K with the SEC, which shall describe the sale of the Debenture and
Warrants and which shall include the Transaction Documents as exhibits. 
  
 Section 3.9 Shareholder Rights Plan. None of the acquisitions of the Debentures or Warrants or Common Shares or Warrant Shares nor the deemed beneficial ownership of shares of Common Stock prior to, or the acquisition of such shares
pursuant to, the conversion of Debentures will in any event under any circumstances trigger the “poison pill” provisions of any stockholders’ rights or similar agreements, or a substantially similar occurrence under any successor or
similar plan. 
  
 Section 3.10 Financial Information. The
Company agrees to send the following to the Purchaser for so long as any Debentures or Warrants are outstanding copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with
the making available or giving thereof to the shareholders. 
  
 Section 3.11 Transactions With Affiliates. The Company agrees that any transaction or arrangement (i) between it and any of its Subsidiaries, (ii) between any of its Subsidiaries, and (iii) between it or any of its Subsidiaries and
any affiliate or employee of the Company shall be effected on an arms’ length basis in accordance with customary commercial practice and, except with respect to grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company’s outside directors. 
  
 Section 3.12 Transfer of Assets; Subsidiaries. 
  
 (a) While any of the Debentures remain outstanding, without the prior written consent of the Purchaser (which may be withheld in the Purchaser’s sole discretion), neither the Company nor any of the Subsidiaries shall sell, offer to
sell, or otherwise transfer, dispose of or encumber any material portion of their respective assets other than for fair value as determined by the Company’s Board of Directors in its business judgment or in the ordinary course of business.

  
 (b) While any of the Debentures remains outstanding, neither
the Company nor any Subsidiary will transfer any assets consisting of inventory or accounts receivable to any Subsidiary unless such Subsidiary: (i) is a party to the Security Agreement and (ii) shall have issued a guaranty in favor of the holders
of Debentures substantially in the form of the Guaranty. 
  

 14 

 Section 3.13 Indebtedness and Liens. 
  
 (a) Incurrence of Indebtedness. So long as the Debentures are
outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Debenture and
the other Debentures, (ii) Permitted Indebtedness and (iii) Permitted Subordinated Indebtedness. 
  
 (b) Existence of Liens. So long as this Debenture is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries other than Permitted Liens. 
  
 “Permitted
Indebtedness” means Indebtedness of the Company and the Subsidiaries (A) in an amount not to exceed at any one time $55.2 million in the aggregate, which Permitted Indebtedness is (i) incurred in connection with Purchase Money Indebtedness,
(ii) incurred in connection with the purchase or sale of a business or assets not for purposes of incurrence of Indebtedness, (iii) obligations to trade creditors incurred in the ordinary course of business, (iv) obligations with respect to
customary provisions regarding post-closing purchase price adjustments and indemnification in agreements for the purchase or sale of a business or assets, (v) a bona fide capitalized lease obligation, (vi) otherwise incurred or assumed in the
ordinary course of business, (vi) owed to Brown and Williamson, as described in the Company’s 10-K, or (vii) a guarantee of any Indebtedness set forth in the items referred to in the foregoing clauses (i)-(vi) or (B) incurred and maintained
among the Company and its Subsidiaries provided that the funds represented by such Indebtedness were not obtained in a manner that would violate any of the foregoing clauses (A)(i)-(vii). 
  
 “Permitted Liens” means (i) any lien for taxes not yet due or delinquent or is being contested in good
faith by appropriate proceedings for which adequate reserves have been established in accordance with generally acceptable accounting principles in the United States applied on a consistent basis, (ii) any statutory lien arising in the ordinary
course of business by operation of law with respect to a liability that is not yet due or delinquent or is being contested in good faith by appropriate proceedings, (iii) any lien created by operation of law, such as materialmen’s liens,
mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or is being contested in good faith by appropriate proceedings, (iv) deposits, pledges or liens
securing (A) obligations incurred in respect of workers’ compensation, unemployment insurance or other forms of governmental insurance or benefits, (B) the performance of bids, tenders, leases, contracts (other than for the payment of money)
and statutory obligations or (C) obligations on surety or appeal bonds, but only to the extent such deposits, pledges or liens are incurred or otherwise arise in the ordinary course of business and secure obligations not past due or delinquent, (v)
restrictions on the use of property and minor irregularities in the title thereto which do not (A) secure obligations for borrowed money or (B) materially impair the value of such property or its use in the ordinary course of business, (vi) the
liens in certain assets granted to Brown & Williamson Tobacco Corporation (“Brown & Williamson”) pursuant to either the Restated Security Agreement, dated as of August 21, 2000 by and between the Company and Brown and Williamson or
the Security Agreement, dated as of August 21, 2000, between Star Tobacco, Inc. and Brown and Williamson, (vii) any lien in support of Purchase Money Indebtedness, (viii) any lien in support of Indebtedness permitted under clause (A)(v) of the
definition of “Permitted 
  

 15 

 Indebtedness”, including any guarantee of such Indebtedness, and (ix) any minor imperfection of title or similar
lien which individually or in the aggregate with other such liens would not reasonably be expected to have a Material Adverse Effect (as defined in Section 2.1(a) of the Purchase Agreement). 
  
 “Permitted Subordinated Indebtedness” means Indebtedness of
the Company, and not any Subsidiary, that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Debenture and the other Debentures on terms and pursuant to an agreement reasonably satisfactory to the Purchaser.

  
 “Purchase Money Indebtedness” means
Indebtedness of the Company or any Subsidiary incurred solely for the purpose of financing all or any part of the purchase price, or the cost of construction or improvement of any property; provided, however, that the aggregate
principal amount of any such Indebtedness does not exceed the lesser of the fair market value of such property, as determined in the good faith judgment of the Board of Directors of the Company, or a duly authorized officer or such purchase price or
cost, including any refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the date of refinancing. 
  
 Section 3.14 Dividends; Stock Repurchases. So long as any Debentures remain outstanding, the Company will not declare
any dividends on any shares of any class of its capital stock (other than dividends consisting solely of Common Stock or rights to purchase Common Stock of the Company), or apply any of its property or assets to the purchase, redemption or other
retirement of, or set apart any sum for the payment of any dividends on, or for the purchase, redemption or other retirement of, or make any other distribution by reduction of capital or otherwise in respect of, any shares of any class of its
capital stock, except that the Company may declare and pay cash dividends on its Common Stock from the proceeds of its settlement with, or judgment against, R.J. Reynolds, for patent infringement; provided that: (i) immediately following such
dividend, the Company shall retain $25 million in cash on hand; and (ii) holders of the Debentures shall be distributed a pro rata portion of such dividend on an “as converted” basis. 
  
 Section 3.15 Corporate Existence. So long as any Debentures or
Warrants remain outstanding, the Company and each Subsidiary will maintain its corporate existence in good standing and remain qualified to do business as a foreign corporation in each jurisdiction in which the nature of its activities or the
character of the properties it owns or leases makes such qualification necessary, except where the failure to maintain such qualifications would not reasonably be expected to have a Material Adverse Effect. 
  
 Section 3.16 MFN and Variable Rate Transactions. So long as any
Debentures or Warrants remain outstanding, the Company will not engage in any MFN Transactions or Variable Rate Transactions. 
  
 Section 3.17 Settlement Amount Payment. In the event that, pursuant to the terms of the Master Settlement Agreement involving 46 State Attorneys
General and more fully described in the Company’s Report on Form 10K/A for the year ended December 31, 2002 (the “Master Settlement Agreement”), the Company must deposit amounts in escrow in excess of $10 million in 2004 for 2003
sales (the “Escrow Limit”), then the Company shall, within 90 days of the 
  

 16 

 Escrow Limit being exceeded, effect a private placement of equity securities yielding net proceeds at least equal to the
amount by which escrow deposits required by the Master Settlement Agreement exceeded the Escrow Limit. 
  
 Section 3.18 Purchaser Undertaking in Connection with Legend Removal. Purchaser shall not sell, transfer, assign, hypothecate or pledge in any way
any Common Shares or Warrant Shares issued without a Securities Legend in accordance with Article V except for sales (A) in accordance with the terms of the Plan of Distribution section of the prospectus contained in the Registration Statement and
in compliance with prospectus delivery requirements or (B) in compliance with the requirements of Rule 144 under the 1933 Act. Purchaser further undertakes to indemnify the Company against any loss, cost or expense, including reasonable legal fees,
incurred as a result of such legend removal on Purchaser’s behalf. 
  
 Section 3.19 Subordination Agreement. The Company covenants to comply with its obligations under the Subordination Agreement. 
  
 ARTICLE IV 
  
 Conditions to Closings 
  
 Section 4.1 Conditions Precedent to the Obligation of the Company to Sell. The obligation hereunder of the Company to issue and/or sell the Debentures and Warrants at the Closing is subject to the satisfaction,
at or before the Closing, of each of the applicable conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion. 
  
 (a) Accuracy of the Purchaser’s Representations and Warranties.
The representations and warranties of the Purchaser will be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time. 
  
 (b) Performance by the Purchaser. The Purchaser shall have performed all agreements and satisfied all conditions
required to be performed or satisfied by the Purchaser at or prior to the Closing, including payment of the Purchase Price to the Company as provided herein. 
  
 (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by the Transaction Documents. 
  
 Section 4.2 Conditions Precedent to the Obligation of the Purchaser to Purchase. The obligation hereunder of the
Purchaser, to acquire and pay for the Debentures and Warrants at the Closing is subject to the satisfaction, at or before the Closing, of each of the applicable conditions set forth below. These conditions are for the Purchaser’s benefit and
may be waived by the Purchaser at any time in its sole discretion. 
  
 (a) Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier date, which shall be true and correct in all material respects as of such date). 
  

 17 

 (b) Performance by the Company. The Company shall have performed all agreements and satisfied all
conditions required to be performed or satisfied by the Company at or prior to the Closing, including, without limitation, delivery of the Debentures and Warrants to the Purchaser. 
  
 (c) Nasdaq Trading. From the date hereof to the Closing Date, trading in the Company’s Common Stock shall not
have been suspended by the SEC and trading in securities generally as reported by the Principal Market (or other Approved Market) shall not have been suspended or limited, and the Common Stock shall be listed on the Principal Market or another
Approved Market. 
  
 (d) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents. The Nasdaq shall not have objected or indicated that it may object to the consummation of any of the transactions contemplated by this Agreement. 
  
 (e) Opinion of Counsel. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company in the form attached hereto as Exhibit G and such other opinions, certificates and documents as the Purchaser or their counsel shall reasonably require incident to the Closing. 

 
 (f) Registration Rights Agreement. The Company and the Purchaser
shall have executed and delivered the Registration Rights Agreement in the form and substance of Exhibit C attached hereto. 
  
 (g) Security Agreement. The Company, the Subsidiaries, the Purchaser and the Collateral Agent shall have executed and delivered the Security
Agreement in the form and substance of Exhibit D attached hereto. 
  
 (h) Financing Statements. The Company and the Subsidiaries shall have executed and delivered UCC-1 Financing Statements pertaining to the Security Agreement. 
  
 (i) Subordination Agreement. The Purchaser and Jonnie Williams shall
have executed and delivered the Subordination Agreement in the form and substance of Exhibit H attached hereto. 
  
 (j) Officer’s Certificates. The Company shall have delivered to the Purchaser a certificate in form and substance satisfactory to the
Purchaser and the Purchaser’s counsel, executed by an officer of the Company, certifying as to satisfaction of closing conditions, incumbency of signing officers, and the true, correct and complete nature of the Certificate of Incorporation,
By-Laws, good standing and authorizing resolutions of the Company. 
  
 (k) Subsidiary Guarantee. The Subsidiary shall have executed and delivered the Guaranty in the form and substance of Exhibit E attached hereto. 
  

 18 

 ARTICLE V 
  

Legend and Stock 
  
 Upon payment therefor as provided in this Agreement, the Company will issue one or more Debentures and Warrants in the name of the Purchaser and in such
denominations to be specified by the Purchaser prior to (or from time to time subsequent to) Closing. Each Debenture and Warrant, and any certificate representing Common Shares or Warrant Shares issued upon conversion or exercise thereof prior to
such Common Shares being registered under the 1933 Act for resale or available for resale under Rule 144(k) under the 1933 Act, shall be stamped or otherwise imprinted with a legend in substantially the following form: 
  
 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AFTER RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. 
  
 THESE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO RIGHTS AND
OBLIGATIONS AS SET FORTH IN A SECURITIES PURCHASE AGREEMENT DATED AS OF MARCH 25, 2004, AND A REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 25, 2004, IN EACH CASE AMONG STAR SCIENTIFIC, INC. AND CERTAIN OTHER PARTIES THERETO AS SUCH MAY BE AMENDED
FROM TIME TO TIME. 
  
 In addition, any Debenture issued shall
also be stamped or otherwise imprinted with a legend in substantially the following form: 
  
 THIS DEBT INSTRUMENT IS BEING ISSUED WITH “ORIGINAL ISSUE DISCOUNT” ) (“OID”) WITHIN THE MEANING OF SECTION 1273(a) OF THE UNITED STATED INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
“CODE”). THE HOLDER MAY OBTAIN THE “ISSUE PRICE,” THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE “ISSUE DATE,” THE YIELD TO MATURITY, THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE OF THIS DEBT INSTRUMENT BY
SUBMITTING A REQUEST FOR SUCH INFORMATION TO THE COMPANY’S CHIEF FINANCIAL OFFICER, 801 LIBERTY WAY, CHESTER, VA 23836, (804) 530-0535. 
  
 The Company agrees to issue Common Shares or Warrant Shares issued upon conversion of Debentures or exercise of Warrants, without the first legend set
forth above with respect to the Securities Act (the “Securities Legend”), at such time as (i) the holder thereof is permitted to dispose of such Common Shares or Warrant Shares issuable upon conversion of the Debentures or exercise of the
Warrants pursuant to Rule 144(k) under the 1933 Act, or (ii) such securities have been registered under the 1933 Act, subject to the undertaking in Section 3.18 above by the Purchaser; provided that in the case of clause (i) or (ii) the Company also
agrees, 
  

 19 

 upon request of the Purchaser to reissue Common Shares or Warrant Shares without the legend set forth above with respect
to rights and obligations under this Agreement and the Registration Rights Agreement (the “Rights and Obligations Legend” and, together with the Securities Legend, the “Stock Legends”). 
  
 Upon the Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) Trading Days thereafter, issue new certificates representing such Common Shares or Warrant Shares without such Securities Legend. Any Common Shares or Warrant Shares issued after the Registration Statement has
become effective shall be free and clear of any Securities Legends. Notwithstanding the removal of such Securities Legend, the Purchaser agrees to comply with Section 3.18. 
  
 Subject to Section 3.18, nothing herein shall limit the right of any holder to pledge these securities pursuant to a bona
fide margin account or lending arrangement entered into in compliance with law, including applicable securities laws. 
  
 ARTICLE VI 
  
 Termination 
  
 Section 6.1 Termination. This Agreement, may be terminated by action of the Board of Directors of the Company or by the Purchaser at any time if the Closing shall not have been consummated by the second
business day following the date of this Agreement; provided, however, that the party (or parties) prepared to close shall retain its (or their) right to sue for any breach by the other party (or parties). 
  
 ARTICLE VII 
  
 Indemnification 
  
 Section 7.1 Indemnification by the Company. In consideration of the
Purchaser’s execution and delivery of the this Agreement, the Security Agreement and the Registration Rights Agreement and acquiring the Debentures and Warrants hereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Purchaser and all of its partners, officers, directors, employees, members and direct or indirect investors and any of the foregoing person’s agents or
other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Purchaser Indemnitees”) from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including
reasonable attorneys’ fees and disbursements (the “Purchaser Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other certificate or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, ©) 
  

 20 

 any cause of action, suit or claim brought or made against such Purchaser Indemnitee by a third party and arising out of
or resulting from (i) the execution, delivery, performance, breach by the Company or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Debentures and Warrants and (d) the enforcement of this Section. Notwithstanding the foregoing, Purchaser Indemnified Liabilities shall not include any
liability of any Indemnitee arising solely out of such Purchaser Indemnitee’s willful misconduct or fraudulent action(s). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make
the maximum contribution to the payment and satisfaction of each of the Purchaser Indemnified Liabilities which is permissible under applicable law. Nothwithstanding the foregoing, to the extent this Section overlaps with Section 6(a) of the
Registration Rights Agreement, the amount of the Holder’s indemnification shall not exceed the limitation contained in such provision. 
  
 Section 7.2 Indemnification by Purchaser. In consideration of the Company’s execution and delivery of the this Agreement, the Security
Agreement and the Registration Rights Agreement and acquiring the Debentures and Warrants hereunder and in addition to all of the Purchaser’s other obligations under the Transaction Documents, the Purchaser shall defend, protect, indemnify and
hold harmless the Company and all of its partners, officers, directors, employees, members and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Company Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Company
Indemnified Liabilities”), incurred by any Company Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Purchaser in the Transaction Documents or any
other certificate or document contemplated hereby or thereby, or (b) any breach of any covenant, agreement or obligation of the Purchaser contained in the Transaction Documents or any other certificate or document contemplated hereby or thereby.
Notwithstanding the foregoing, Company Indemnified Liabilities shall not include any liability of any Company Indemnitee arising solely out of such Company Indemnitee’s willful misconduct or fraudulent action(s). To the extent that the
foregoing undertaking by the Purchaser may be unenforceable for any reason, the Purchaser shall make the maximum contribution to the payment and satisfaction of each of the Company Indemnified Liabilities which is permissible under applicable law.
Notwithstanding the foregoing, to the extent that this Section overlaps with Section 6(b) of the Registration Rights Agreement, the amount of the Holder’s indemnification shall not exceed the limitation contained in such provision. 

 
 Section 7.3 Procedure. Each party entitled to indemnification under
this Article 7 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be 
  

 21 

 unreasonably withheld), and the Indemnified Party may participate in such defense at its own expense, and provided
further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Article 7 except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such non-privileged information
regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 
  
 ARTICLE VIII 
  
 Governing Law; Miscellaneous 
  
 Section 8.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW
YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH
SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. IF ANY PROVISION OF THIS AGREEMENT SHALL BE
INVALID OR UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS
AGREEMENT IN ANY OTHER JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY. 
  
 Section 8.2 Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the
same force and effect as if the signature were an original, not a facsimile signature. 
  

 22 

 Section 8.3 Headings. The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement. 
  
 Section 8.4 Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. 
  
 Section 8.5 Entire Agreement; Amendments; Waivers. 
  
 (a) This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than
by an instrument in writing signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. 
  
 (b) The Purchaser may, as to itself only, at any time elect, by notice to
the Company, to waive (whether permanently or temporarily, and subject to such conditions, if any, as the Purchaser may specify in such notice) any of its rights under any of the Transaction Documents to acquire shares of Common Stock from the
Company, in which event such waiver shall be binding against the Purchaser in accordance with its terms; provided, however, that the voluntary waiver contemplated by this sentence may not reduce the Purchaser’s obligations to the Company under
the Transaction Documents. 
  
 Section 8.6 Notices. Any
notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have been
delivered upon receipt. The addresses and facsimile numbers for such communications shall be: 
  
 If to the Company: 
  
 Star Scientific, Inc. 
 801 Liberty Way 
 Chester, Virginia 23836 
 Telephone: (804) 530-0535 
 Facsimile: 
 Attention: 
 Chief Financial Officer 
  

 23 

 With a copy to: 
  

Star Scientific, Inc. 
 7475 Wisconsin Ave. 
 Suite 850 
 Bethesda, Maryland 20814 
 Telephone: (301) 654-8300 
 Facsimile: (301) 654-9308 
 Attention: Robert Pokusa, Esq. 
  
 If to the Purchaser: 
  
 As set forth on the signature page hereto. 
  
 Each party shall provide five (5) days prior written notice to the other party of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and
an image of the first page of such transmission or ©) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively. 
  
 Section
8.7 Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any Permitted Assignee (as defined below).
The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser, including by merger or consolidation. The Purchaser may assign some or all of its rights hereunder to any
permitted assignee of the Debentures or Warrants or Common Shares or Warrant Shares to the extent such assignee signs a counterpart signature page to this Agreement or a joinder agreement, in form and substance satisfactory to the Company, assuming
the obligations of Purchaser under this Agreement, including, without limitation, Section 3.18 hereof (in each case, a “Permitted Assignee”); provided, however, that any such assignment shall not release the Purchaser from
its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption. Notwithstanding anything to the contrary contained in the Transaction Documents, subject to Section 3.18,
the Purchaser shall be entitled to pledge the Debentures or Warrants or Common Shares or Warrant Shares in connection with a bona fide margin account. 
  
 Section 8.8 No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 
  
 Section 8.9 Survival. The representations, warranties and agreements of the Company and the Purchaser contained in the Agreement shall survive the
Closing. 
  

 24 

 Section 8.10 Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of
this Agreement and the consummation of the transactions contemplated hereby. 
  
 Section 8.11 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be
applied against any party. 
  
 Section 8.12 Remedies. The
Purchaser and each Permitted Assignee shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any provision of the Transaction Documents shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of
any breach of any provision of the Transaction Documents and to exercise all other rights granted by law. The Purchaser and each Permitted Assignee without prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time prior to its
complete recovery as a result of such remedy. 
  
 Section 8.13
Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser under the Transaction Documents or the Purchaser enforces or exercises its rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 
  
 Section 8.14 Days. Unless the context refers to “business days” or “Trading Days”, all references
herein to “days” shall mean calendar days. 
  
 Section
8.15 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, wherever the Purchaser exercises a right, election, demand or option under
a Transaction Document and the Company or applicable Subsidiary does not fully perform its respective related obligations within the periods therein provided, then the Purchaser in its sole discretion may rescind or withdraw from time to time any
relevant notice, demand or election in whole or in part without prejudice to its future actions and rights. 
  
 Section 8.16 Fees and Expenses. On the Closing Date, the Company shall pay the legal fees and expenses of counsel of Purchaser reasonably incurred
in connection with the preparation, execution, and delivery of the Transaction Documents, and performance of the Purchaser’s obligations hereunder up to a maximum amount of $25,000, provided that Purchaser shall promptly reimburse the Company
for all expenses paid by the Company before on or after the date hereof, in the event the Closing has not occurred within two Business Days of the date 
  

 25 

 hereof, unless the failure of the Closing to occur in that time is due to the failure of one or more conditions set forth
in Section 5.2 to be satisfied. 
  
 * * * * *

  
 [Signature Page Follows] 
  

 26 

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

									
	 COMPANY:
	 	 	 	PURCHASER:
			
	 STAR SCIENTIFIC, INC.
	 	 	 	MANCHESTER SECURITIES CORP.
					
	 By:
	 	 /s/    Paul L. Perito

	 	 	 	 By:
	 	 /s/    Elliot Greenberg

	 	 	    Name: Paul L. Perito	 	 	 	 	 	    Name: Elliot Greenberg
	 	 	    Title: Chairman, President & C.O.O.	 	 	 	 	 	    Title: Vice President
				
	 	 	 	 	 	 	Notice Information:
				
	 	 	 	 	 	 	Purchase Price: $9,000,000

  

 List of Schedules 
  

			
	 Schedule 2.1(a)
	  	Subsidiaries
	 Schedule 2.1(c)
	  	 Capitalization

	 Schedule 2.1(e)
	  	 No Conflicts

	 Schedule 2.1(g)
	  	 Certain Changes

	 Schedule 2.1(j)
	  	 No Integrated Offering

	 Schedule 2.1(l)
	  	 Intellectual Property Rights

	 Schedule 2.1(n)
	  	 Title

	 Schedule 2.1(s)
	  	 Certain Transactions

  
 List of Exhibits

  

			
	 EXHIBIT A
	  	 Form of Debenture

	 EXHIBIT B
	  	 Form of Warrant

	 EXHIBIT C
	  	 Registration Rights Agreement

	 EXHIBIT D
	  	 Security Agreement

	 EXHIBIT E
	  	 Guaranty

	 EXHIBIT F
	  	 Form of Press Release

	 EXHIBIT G
	  	 Opinion of Counsel

	 EXHIBIT H
	  	 Subordination AgreementExhibit 10.58

 Exhibit 10.58 
  
 REGISTRATION RIGHTS AGREEMENT 
  
 This Registration Rights Agreement (“Agreement”) is entered into as of March 25, 2004, between Star Scientific, Inc., a Delaware
corporation with offices at 801 Liberty Way, Chester, Virginia 23836 (the “Company”) and the Purchaser set forth on the signature page hereto (the “Purchaser”). 
  
 W I T N E S S E T H: 
  
 WHEREAS, pursuant to the Securities Purchase Agreement, dated on or about the
date hereof, by and between the Company and the Purchaser (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchaser, and the Purchaser has agreed to purchase from the Company, $9,000,000 in principal amount of
the Company’s 8% Senior Convertible Debentures (the “Debentures”), subject to the terms and conditions set forth therein; and 
  
 WHEREAS, the terms of the Debentures provide that they will be convertible into shares (the “Common Shares”) of the common stock, par value
$0.0001 per share (the “Common Stock”) of the Company; and 
  
 WHEREAS, pursuant to the Purchase Agreement, the Company issued 5-year warrants (“Warrants”) exercisable into 502,681 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $4,476; 
  
 NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Purchase Agreements and this Agreement, the Company and each Purchaser agree as follows: 
  
 1. Certain Definitions. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Purchase Agreements
or the Debentures. As used in this Agreement, the following terms shall have the following respective meanings: 
  
 “Closing” and “Closing Date” shall mean the Closing and Closing Date with respect to the purchase of the Debentures and Warrants.

  
 “Commission” or “SEC” shall mean the
Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 
  
 “Holder” and “Holders” shall include the Purchaser and any transferee or transferees of Registrable Securities, Debentures, and/or
Warrants which have not been sold to the public to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement and the Purchase Agreement. 
  
 “1934 Act” shall mean the Securities Exchange Act of 1934, as
amended. 
  
 The terms “register,”
“registered” and “registration” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement. 

 Star Scientific, Inc. 
  

 “Registrable Securities” shall mean: (i) the Common Shares and Warrant Shares (without
regard to any limitations on beneficial ownership contained in the Debentures or Warrants) issued or issuable to each Holder (a) upon conversion of the Debentures or exercise of the Warrants, (b) upon any distribution with respect to, any exchange
for or any replacement of such Debentures or Warrants, or (c) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (ii) securities issued or issuable upon any stock
split, stock dividend, recapitalization or similar event with respect to the foregoing; and (iii) any other security issued as a dividend or other distribution with respect to, in exchange for or in replacement of the securities referred to in the
preceding clauses, except that any such Common Shares, Warrant Shares or other securities shall cease to be Registrable Securities when (x) they have been sold to the public or (y) they may be sold by the Holder thereof under Rule 144(k).

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

  
 “Registration Statement” shall have the meaning set
forth in Section 2(a) herein. 
  
 “Regulation D” shall
mean Regulation D as promulgated pursuant to the Securities Act, and as subsequently amended. 
  
 “Securities Act” or “Act” shall mean the Securities Act of 1933, as amended. 
  
 “Selling Expenses” shall mean all underwriting discounts, selling commissions and transfer taxes applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for Holders not included within “Registration Expenses”. 
  
 2. Registration Requirements. The Company shall use its best efforts to effect the registration of the resale of the Registrable Securities
(including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under
the Securities Act) as would permit or facilitate the resale of all the Registrable Securities in the manner (including manner of sale) and in all states reasonably requested by the Holder. Such best efforts by the Company shall include, without
limitation, the following: 
  
 (a) The Company shall, as
expeditiously as possible after the Closing Date: 
  

 2 

 Star Scientific, Inc. 
  

 (i) But in any event within 45 days of the Closing, prepare and file a registration
statement with the Commission pursuant to Rule 415 under the Securities Act on Form S-3 under the Securities Act (or in the event that the Company is ineligible to use such form, such other form as the Company is eligible to use under the Securities
Act provided that such other form shall be converted into an S-3 as soon as Form S-3 becomes available to the Company) covering resales by the Holders as selling stockholders (not underwriters) of the Registrable Securities and, to the extent
practicable, no other securities other than shares of Common Stock issued pursuant to the Restated Non-Circumvention and Finder’s Fee Agreement, dated March 23, 2004, including shares issued upon exercise of warrants issued in connection
therewith (the “Registration Statement”), which Registration Statement, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers
the resale of such indeterminate number of additional shares of Common Stock as may be issued upon conversion of the Debentures and exercise of the Warrants. The number of shares of Common Stock initially included in such Registration Statement
shall be no less than the sum of (A) two times the number of Common Shares that are then issuable upon conversion of the Debentures (assuming full conversion, respectively, at the then applicable Conversion Price (as defined in the Debentures), and
(B) 100% of the Warrant Shares issuable upon full exercise of the Warrants. Nothing in the preceding sentence will limit the Company’s obligations to reserve shares of Common Stock pursuant to Section 3.5 of the Purchase Agreement. Thereafter
the Company shall use its best efforts to cause such Registration Statement and other filings to be declared effective as soon as possible, and in any event prior to 90 days (or, if the SEC elects to review the Registration Statement, 150 days)
following the Closing Date (the “Effectiveness Deadline”). Without limiting the foregoing, the Company will promptly respond to all SEC comments, inquiries and requests, and shall request acceleration of effectiveness at the earliest
possible date. The Company shall provide the Holders reasonable opportunity to review any such Registration Statement or amendment or supplement thereto prior to filing. 
  
 (ii) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the
prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement and notify the Holders of the filing
and effectiveness of such Registration Statement and any amendments or supplements. 
  
 (iii) Furnish to each Holder such numbers of copies of a current prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents incorporated by reference therein and such other documents as such Holder may reasonably require in order to facilitate the disposition of Registrable Securities owned by
such Holder. 
  
 (iv) Register and qualify the
securities covered by such Registration Statement under the securities or “Blue Sky” laws of all domestic jurisdictions, to the extent required; provided that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 
  

 3 

 Star Scientific, Inc. 
  

 (v) Notify each Holder immediately of the happening of any event (but not the
substance or details of any such events unless specifically requested by a Holder) as a result of which the prospectus (including any supplements thereto or thereof) included in such Registration Statement, as then in effect, includes an untrue
statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus. 
  
 (vi) Notify each
Holder immediately of the issuance by the Commission or any state securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the threat or initiation of any proceedings for that purpose. The
Company shall use its best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. 
  
 (vii) Permit counsel to the Holders to review the Registration Statement and all amendments and supplements
thereto within a reasonable period of time (but not less than two (2) full Trading Days (as defined in the Debentures)) prior to each filing and will not request acceleration of the Registration Statement without prior notice to such counsel.

  
 (viii) List the Registrable Securities
covered by such Registration Statement with all securities exchange(s) and/or markets on which the Common Stock is then listed and prepare and file any required filings with the Principal Market. 
  
 (b) Set forth below in this Section 2(b) are (I) events that may arise that
the Purchaser considers will interfere with the full enjoyment of their rights under this Agreement, the Purchase Agreement, the Debentures and the Warrants (the “Interfering Events”), and (II) certain remedies applicable in each of these
events. 
  
 Paragraphs (i) through (iii) of this Section 2(b)
describe the Interfering Events, provide a remedy to the Purchaser if an Interfering Event occurs. 
  
 Paragraph (iv) provides, inter alia, that the Purchaser has the right to specific performance. 
  
 The preceding paragraphs in this Section 2(b) are meant to serve only as an
introduction to this Section 2(b), are for convenience only, and are not to be considered in applying, construing or interpreting this Section 2(b). 
  
 (i) Delay in Effectiveness of Registration Statement. 
  
 In the event that such Registration Statement has not been declared 
  

 4 

 Star Scientific, Inc. 
  

 effective by: (x) the Effectiveness Deadline if the SEC does not elect to review the Registration
Statement or (y) within 150 days of the Closing Date, if the SEC elects to review the Registration Statement, or the Company at any time fails to issue unlegended Registrable Securities to the extent required by Article V of the Purchase Agreement,
then the Company shall pay each Holder (other than (i) in the case of a Registration Statement not declared effective, a Holder of Registrable Securities that the Company could exclude from registration in accordance with Section 9 and (ii) in the
case of a failure to issue unlegended certificates in accordance with the Purchase Agreement, a Holder that is not a party to, including as a permitted assignee bound to, the Purchase Agreement) a Monthly Delay Payment (as defined below) with
respect to each successive 30-day period (or portion thereof appropriately prorated) thereafter that effectiveness of the Registration Statement is delayed or failure to issue such unlegended Registrable Securities persists. 
  
 (B) Subject to subsection (C)(II) below, as used in this
Agreement, a “Monthly Delay Payment” shall be a cash payment equal to 1% of the amount equal to (x) the Conversion Price multiplied by (y) the sum of the number of Common Shares that are Registrable Securities and held by the applicable
Holder plus the number of Common Shares issuable upon conversion of Debentures held by such Holder. Payment of the Monthly Delay Payments shall be due and payable from the Company to such Holder on the later of (I) the end of the applicable 30-day
period or portion thereof and (II) 5 business days after demand therefor. At the option of the Holder, Monthly Delay Payments may be added to the outstanding Principal Amount of the Debentures held by it. 
  
 (C) Notwithstanding the foregoing, (I) there shall be
excluded from the calculation of the number of days that the Registration Statement has not been declared effective the delays which are solely attributable to delays in the Purchaser providing information required for the Registration Statement and
(II) the aggregate amount of Monthly Delay Payments payable to a Purchaser pursuant to this Agreement shall not exceed ten (10) times the amount of Monthly Delay Payment calculated for such Purchaser pursuant to subsection (B) above. 
  
 (ii) No Listing; Suspension of Class of Shares

  
 (A) In the event that the Company fails,
refuses or for any other reason is unable to cause the Registrable Securities covered by the Registration Statement to be listed (subject to issuance) with the Principal Market or one of the other Approved Markets (as defined in the Purchase
Agreement) at all times during the period (“Listing Period”) from the date (“Effectiveness Commencement Date”) which is the earlier of the effectiveness of the Registration Statement and the 90th day following the Closing Date (or the 150th day if the SEC elects to review the Registration 
  

 5 

 Star Scientific, Inc. 
  

 Statement) until such time as the registration period specified in Section 5 terminates, then the
Holder shall have available the remedy set forth in Section 4(a) of the Debentures. 
  
 (B) In the event that shares of Common Stock of the Company are not listed on any of the Approved Markets at all times following the
Closing Date, or are otherwise suspended from trading and remain unlisted or suspended for 3 consecutive days, then the Holder shall have available the remedy set forth in Section 4(a) of the Debentures. 
  
 (iii) Blackout Periods. 
  
 In the event the Registration has become effective and,
afterwards, any Holder’s ability to sell Registrable Securities under the Registration Statement is suspended for more than (i) 30 days in any 90-day period or (ii) 60 days in any calendar year (“Suspension Grace Period”), including
without limitation by reason of any suspension or stop order with respect to the Registration Statement or the fact that an event has occurred as a result of which the prospectus (including any supplements thereto) included in such Registration
Statement then in effect includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing (a
“Blackout”), then the Company shall provide to each Holder a Monthly Delay Payment for each 30-day period or portion thereof (appropriately prorated) from and after the expiration of the Suspension Grace Period, on the terms set forth in
Section 2(b)(i)(B) above. 
  
 (iv) Cumulative
Remedies. The Monthly Delay Payments provided for above are in addition to and not in lieu or limitation of any other rights the Holders may have at law, in equity or under the terms of the Debentures, the Warrants, the Purchase Agreement and
this Agreement, including without limitation, the right to monetary contract damages and specific performance; provided that (x) no holder of Debentures may collect default interest in addition to Monthly Delay Payments and (y) no holder of
Debentures may collect more than one Monthly Delay Payment with respect to the same 30-day period or portion thereof. Each Holder shall be entitled to specific performance of any and all obligations of the Company in connection with the registration
rights of the Holders hereunder. 
  
 (c) If the Holder(s) intend
to distribute the Registrable Securities by means of an underwriting, the Holder(s) shall so advise the Company. Any such underwriting may only be administered by nationally or regionally recognized investment bankers reasonably satisfactory to the
Company. 
  
 (d) The Company shall enter into such customary
agreements for secondary offerings (including a customary underwriting agreement with the underwriter or 
  

 6 

 Star Scientific, Inc. 
  

 underwriters, if any) and take all such other reasonable actions reasonably requested by the Holders in connection
with any underwritten offering or when the SEC has required that the Holders be identified as underwriters in the Registration Statement in order to expedite or facilitate the disposition of such Registrable Securities and in such connection:

  
 (i) make such representations and warranties
to the Holders and the underwriter or underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in secondary offerings; 
  
 (ii) cause to be delivered to the sellers of Registrable Securities and the underwriter or underwriters, if
any, opinions of independent counsel to the Company, on and dated as of the effective day (or in the case of an underwritten offering, dated the date of delivery of any Registrable Securities sold pursuant thereto) of the Registration Statement, and
within ninety (90) days following the end of each fiscal year thereafter, which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Holders and the underwriter(s), if any, and their counsel and covering such
matters that are customarily given to underwriters in underwritten offerings, addressed to the Holders and each underwriter, if any; 
  
 (iii) cause to be delivered, immediately prior to the effectiveness of the Registration Statement (and, in the case of an underwritten
offering, at the time of delivery of any Registrable Securities sold pursuant thereto), and at the beginning of each fiscal year following a year during which the Company’s independent certified public accountants shall have reviewed any of the
Company’s books or records, a “comfort” letter from the Company’s independent certified public accountants addressed to each underwriter (including the Holders, if the SEC has required them to be identified as underwriters in the
Registration Statement), if any, to the extent requested by such underwriters, stating that such accountants are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent certified public accountants delivered in connection with secondary offerings; such accountants shall have
undertaken in each such letter to update the same during each such fiscal year in which such books or records are being reviewed so that each such letter shall remain current, correct and complete throughout such fiscal year; and each such letter
and update thereof, if any, shall be reasonably satisfactory to such underwriters; 
  
 (iv) if an underwriting agreement is entered into, the same shall include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten offerings; and 
  
 (v) deliver such documents and certificates as may be reasonably requested by the Holders of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement, if any. 
  

 7 

 Star Scientific, Inc. 
  

 (e) The Company shall make available for inspection by the Holders, representative(s) of all the
Holders together, any underwriter participating in any disposition pursuant to a Registration Statement, and any attorney or accountant retained by any Holder or underwriter, all financial and other records customary for purposes of the
Holders’ due diligence examination of the Company and review of any Registration Statement, all SEC Documents (as defined in the Purchase Agreement) filed subsequent to the Closing, pertinent corporate documents and properties of the Company,
and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement, provided that such parties
agree to keep such information confidential. Notwithstanding the foregoing, the foregoing right shall not extend to any Holder (i) who is not a financial investor or entity or (ii) who, itself or through any affiliate, has any strategic business
interest that would reasonably be expected to be in conflict with any business of the Company or its subsidiaries. 
  
 (f) Subject to Section 2(b) above and to clause (i) below, the Company may suspend the use of any prospectus used in connection with the Registration
Statement only in the event, and for such period of time as, (i) such a suspension is required by the rules and regulations of the Commission or (ii) it is determined in good faith by the Board of Directors of the Company that because of valid
business reasons (not including the avoidance of the Company’s obligations hereunder), it is in the best interests of the Company to suspend such use, and prior to suspending such use in accordance with this clause (ii) the Company provides the
Holders with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension. The Company will use reasonable best efforts to cause such suspension to terminate at the earliest possible date.
This provision shall not affect the right of Holders to receive Monthly Delay Payments pursuant to Section 2(b) above. 
  
 (g) The Company shall file a Registration Statement with respect to any newly authorized and/or reserved Registrable Securities consisting of Common
Shares or Warrant Shares described in clause (i) of the definition of Registrable Securities within five (5) business days of any stockholders meeting authorizing same and shall use its best efforts to cause such Registration Statement to become
effective within sixty (60) days of such stockholders meeting. If the Holders become entitled, pursuant to an event described in clause (ii) and (iii) of the definition of Registrable Securities, to receive any securities in respect of Registrable
Securities that were already included in a Registration Statement, subsequent to the date such Registration Statement is declared effective, and the Company is unable under the securities laws to add such securities to the then effective
Registration Statement, the Company shall promptly file, in accordance with the procedures set forth herein, an additional Registration Statement with respect to such newly Registrable Securities. The Company shall use its best efforts to (i) cause
any such additional Registration Statement, when filed, to become effective under the Securities Act, and (ii) keep such additional Registration Statement effective during the period described in Section 5 below and cause such Registration Statement
to become effective within 90 days of that date that the need to file the Registration Statement arose. All of the registration rights and remedies under this Agreement shall apply to the registration of the resale of such newly reserved
shares and such new Registrable Securities, including without limitation the provisions providing for default payments contained herein. 
  

 8 

 Star Scientific, Inc. 
  

 (h) The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep
such Registration Statement effective at all times during the Registration Period (as defined below), and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing
a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the 1934 Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with
the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement. 
  

(i) Each Holder agrees by its acquisition of the Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Sections 2(a)(v) or 2(a)(vi), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement contemplated by Section 3(l), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. 

 
 (j) If requested by a Holder, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment such information as a Holder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable
make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or
make amendments to any Registration Statement if reasonably requested by a Holder holding any Registrable Securities. 
  
 3. Expenses of Registration. All Registration Expenses in connection with any registration, qualification or compliance with registration pursuant
to this Agreement shall be borne by the Company, and all Selling Expenses of a Holder shall be borne by such Holder. 
  
 4. Registration on Form S-3. The Company shall use its best efforts to remain qualified for registration on Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form, such form as the Company is eligible to use under 
  

 9 

 Star Scientific, Inc. 
  

 the Securities Act, provided that if such other form is used, the Company shall convert such other form to a Form S-3
as soon as the Company becomes so eligible, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement or Form S-3 covering the Registrable Securities has been
declared effective by the SEC. 
  
 5. Registration Period.
In the case of the registration effected by the Company pursuant to this Agreement, the Company shall keep such registration effective until the earlier of (a) the date on which all the Holders have completed the sales or distribution described in
the Registration Statement relating thereto or, (b) until such Registrable Securities may be sold by the Holders under Rule 144(k) (provided that the Company’s transfer agent has accepted an instruction from the Company to such effect) (the
“Registration Period”). Subject to Section 8 below, this Agreement shall be terminated automatically without further action by any party hereto upon the expiration of the Registration Period. 
  
 6. Indemnification. 
  
 (a) Company Indemnity. The Company will indemnify and hold harmless
each Holder, each of its officers, directors, agents and partners, and each person controlling each of the foregoing, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, any underwriter,
against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the circumstances under which they were made, or any violation by the Company of the Securities Act or any state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each Holder, each of its officers, directors, agents and partners, and
each person controlling each of the foregoing, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based (i) on any untrue statement or omission based upon
written information furnished to the Company by such Holder or the underwriter (if any) therefor and stated to be specifically for use therein or (ii) the failure of a Holder to deliver at or prior to the written confirmation of sale, the most
recent prospectus, as amended or supplemented. The indemnity agreement contained in this Section 6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent will not be unreasonably withheld). 
  

 10 

 Star Scientific, Inc. 
  

 (b) Holder Indemnity. Each Holder will, severally and not jointly, if Registrable Securities
held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, agents and partners, and each underwriter, if any, of
the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, each other Holder (if
any), and each of their officers, directors and partners, and each person controlling such other Holder(s) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading in light of the circumstances under which they were made, and will reimburse the Company and such other Holder(s) and their directors, officers and partners, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be
specifically for use therein, and provided that the maximum amount for which such Holder shall be liable under this indemnity shall not exceed the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to the
registration statement in question. The indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld). 
  
 (c) Procedure. Each party entitled to indemnification under this Section 6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 6 except to the extent that the Indemnifying
Party is materially and adversely affected by such failure to provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such non-privileged information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting
therefrom. 
  

 11 

 Star Scientific, Inc. 
  

 7. Contribution. If the indemnification provided for in Section 6 herein is unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein (other than by reason of the exceptions provided therein), then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities as between the Company on the one hand and any Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of such Holder in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company
on the one hand and of any Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder. 
  
 In no event shall
the obligation of any Indemnifying Party to contribute under this Section 7 exceed the amount that such Indemnifying Party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 6(a) or 6(b)
hereof had been available under the circumstances. 
  
 The Company
and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Holders or the underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraphs. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraphs shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no Holder or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any Holder, the net proceeds received by such Holder from
the sale of Registrable Securities pursuant to the registration statement in question or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public
exceeds, in any such case, the amount of any damages that such Holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 
  
 8. Survival. The indemnity and contribution agreements contained in Sections 6 and 7 and the representations and
warranties of the Company referred to in Section 2(d)(i) shall remain operative and in full force and effect regardless of (i) any termination of this Agreement or the Purchase Agreement or any underwriting agreement, (ii) any investigation made by
or on behalf of any Indemnified Party or by or on behalf of the Company, and (iii) the consummation of the sale or successive resales of the Registrable Securities. 
  
 9. Information by Holders. Each Holder shall promptly furnish to the Company such information regarding such Holder
and the distribution and/or sale proposed by such Holder as the Company may from time to time reasonably request in writing in connection with any 
  

 12 

 Star Scientific, Inc. 
  

 registration, qualification or compliance referred to in this Agreement, and the Company may exclude from such
registration the Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. The intended method or methods of disposition and/or sale (Plan of Distribution) of such
securities as so provided by such Purchaser shall be included without alteration in the Registration Statement covering the Registrable Securities and shall not be changed without written consent of such Holder. Each Holder agrees that, other than
ordinary course brokerage arrangements, in the event it enters into any arrangement with a broker dealer for the sale of any Registrable Securities through a block trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, such Holder shall promptly deliver to the Company in writing all applicable information required in order for the Company to be able to timely file a supplement to the Prospectus pursuant to Rule 424(b) under the
Securities Act, to the extent that such supplement is legally required. Such information shall include a description of (i) the name of such Holder and of the participating broker dealer(s), (ii) the number of Registrable Securities involved, (iii)
the price at which such Registrable Securities were or are to be sold, and (iv) the commissions paid or to be paid or discounts or concessions allowed or to be allowed to such broker dealer(s), where applicable. 
  
 10. Replacement Certificates. The certificate(s) representing the
Registrable Securities held by any Purchaser (or then Holder) may be exchanged by such Purchaser (or such Holder) at any time and from time to time for certificates with different denominations representing an equal aggregate number of Registerable
Securities, as reasonably requested by such Purchaser (or such Holder) upon surrendering the same. No service charge will be made for such registration or exchange. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any certificates representing a Registrable Security and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or upon surrender and cancellation of such certificate if mutilated,
the Company will make and deliver a new certificate of like tenor and dated as of such cancellation at no charge to the holder. 
  
 11. Transfer or Assignment. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Purchaser by the Company under this Agreement to cause the Company to register Registrable Securities may be transferred or assigned (in whole or in part) to a permitted transferee or
assignee of Debentures, Warrants or Registrable Securities, and all other rights granted to the Purchaser by the Company hereunder may be transferred or assigned to any permitted transferee or assignee of any Debentures, Warrants or Registrable
Securities; provided in each case that the Company must be given written notice by the Purchaser at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights agrees in writing to be bound by the registration provisions of this
Agreement. 
  
 12. Reports Under The 1934 Act. 

 
 With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

  

 13 

 Star Scientific, Inc. 
  

 (a) make and keep public information available, as those terms are understood and defined in Rule
144; 
  
 (b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144;
and 
  
 (c) furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities pursuant to Rule 144 without registration. 

 
 13. Miscellaneous. 
  
 (a) Remedies. The Company and the Purchaser acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

  
 (b) Jurisdiction. Each of the Company and the
Purchaser (i) hereby irrevocably submits to the exclusive jurisdiction of the United States District Court, the New York State courts and other courts of the United States sitting in the Borough of Manhattan, New York County, New York State for the
purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waives, and agrees not to assert in any such suit action or proceeding, any claim that it is not personally subject to the jurisdiction of such
court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. The Company and the Purchaser consent to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law. 
  
 (c) Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing by facsimile, mail or personal delivery and shall be effective upon actual receipt of such notice. The addresses for such
communications shall be: 
  
 to the Company: 
  
 Star Scientific, Inc. 
 801 Liberty Way 
 Chester, Virginia 23836

 Telephone: (804) 530-0535 
  

 14 

 Star Scientific, Inc. 
  

 Facsimile: (804) 530-8474 
 Attention: Christopher G. Miller 
  
 with a copy to: 
  
 Star Scientific, Inc. 
 7475 Wisconsin Ave.

 Suite 850 
 Bethesda, MD
20814 
 Telephone: (301) 654-8300 
 Facsimile: (301) 654-9308 
 Attention: Robert Pokusa, Esq. 
  
 to the Purchaser: 
  
 As set forth on Schedule I hereto 
  
 with a copy to: 
  
 Kleinberg, Kaplan, Wolff & Cohen, P.C. 
 551 Fifth Avenue 
 New York, New York 10176 
 Attn: Lawrence D. Hui, Esq. 
 Tel: (212) 986-6000 
 Fax: (212) 986-8866 
  
 Any party hereto may from time to time change its address for notices by giving at least five days’ written notice of such changed address to the other parties
hereto. 
  
 (d) Waivers. No waiver by any party of any
default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any
party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 
  
 (e) Execution in Counterpart. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same counterpart. 
  
 (f) Signatures. Facsimile signatures shall be valid and binding on each party submitting the same. 
  
 (g) Entire Agreement; Amendment. This Agreement, together with the Purchase Agreement, the Debentures, the Warrants and the agreements and
documents contemplated hereby and thereby, contains the entire understanding and agreement of the parties. 
  

 15 

 Star Scientific, Inc. 
  

 (h) Governing Law. This Agreement and the validity and performance of the terms hereof shall
be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed and to be performed entirely within such state. 
  
 (i) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY. 
  
 (j) Titles. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement. 
  
 (k) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against
any party. 
  
 [Signature Page Follows] 
  

 16 

 Star Scientific, Inc. 
  

 In Witness Whereof, the parties hereto have caused this Agreement to be duly executed as of
the date first above written. 
  

			
	 STAR SCIENTIFIC, INC.

		
	 By:
	 	 /s/    Paul L. Perito

	 Name:
	 	 Paul L. Perito

	 Title:
	 	 Chairman, President & C.O.O.

	
	 MANCHESTER SECURITIES CORP.

		
	 By:
	 	 /s/    Elliot Greenberg

	 Name:
	 	 Elliot Greenberg

	 Title:
	 	 Vice President

  

 17 

 Schedule I 
  

			
	 Name of Purchaser

	 	 Contact Information

	 Manchester Securities Corp.
	 	 712 Fifth Avenue

	 	 	 36th
Floor

	 	 	 New York, New York 10019

	 	 	 Attn: Brett Cohen

	 	 	 Tel: (212) 506-2999

	 	 	 Fax: (212) 586-9467

		
	 Copy to: See Section 13(c)
	 	 

  

 18

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