Document:

<PAGE>   1
                                                                   EXHIBIT 10.35

                  SUPPLY AGREEMENT FOR STAR SCIENTIFIC BLEND

         THIS AGREEMENT entered into and effective as of this 1st day of
January, 2000 by and between BROWN & WILLIAMSON TOBACCO CORPORATION, a Delaware
corporation with its principal office at 1500 Brown & Williamson Tower,
Louisville, Kentucky 40202 (hereinafter "B&W"), and STAR TOBACCO AND
PHARMACEUTICALS, INC., a Virginia corporation having its principal address at 16
South Market Street, Petersburg, Virginia (hereinafter "Star") (individually a
"Party" and collectively the "Parties").

                             W I T N E S S E T H:

         WHEREAS, B&W and Star are in the business of manufacturing cigarettes,
including the manufacture and processing of component parts of cigarettes; and

         WHEREAS, blended cut tobacco is an important component of Star's
cigarette products; and

         WHEREAS, Star is willing to pay B&W to acquire and blend, and B&W
agrees to acquire and blend for Star, cut tobacco material in accordance with
the terms and conditions of this agreement (the "Agreement"); and

         WHEREAS, B&W will provide additional services to Star, including the
procurement of leaf stocks, blend formulation and administrative services;

         NOW THEREFORE, in consideration of the mutual representations,
warranties and covenants and subject to the terms and conditions herein
contained, the Parties hereto agree as follows:

<PAGE>   2

1.       DEFINITIONS

         1.01 "Star Scientific Blend" as used herein means blended tobacco
prepared by B&W which B&W may supply to Star from time to time hereunder, having
the Specifications and properties set forth by Star in Appendix A attached
hereto and made a part hereof, as revised form time to time by written agreement
of the Parties.

         1.02 "B&W's Factory" shall mean B&W's manufacturing facility located in
Macon, Georgia.

         1.03 "Specifications" shall mean the properties and ingredients of Star
Scientific Blend as set forth in Appendix "A."

         1.04 "Blend" or any other form of the word shall mean the processing of
tobacco materials into Star Scientific Blend.

         1.05 "Order(s)" shall mean Star's written instructions, to B&W to Blend
tobacco Materials into stated quantities of Star Scientific Blend.

         1.06 "Materials" shall mean casings, flavorings, and other materials
normally utilized in cut tobacco processing.

         1.07 "Cigarette Manufacturing Agreement" means an agreement between
Star and B&W dated January 1, 2000 for the manufacture of cigarettes for Star
by B&W.

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<PAGE>   3

         1.08 "Affiliated B&W Companies" means B&W and all other domestic and
international companies in which British American Tobacco, p.l.c. owns, directly
or indirectly, a thirty percent (30%) or greater equity interest.

2.       SUPPLY OF STAR SCIENTIFIC BLEND

         During the term of this Agreement, B&W agrees to acquire and blend cut
tobacco pursuant to Star's specifications and sell Star Scientific Blend to Star
and Star agrees to accept and purchase Star Scientific Blend from B&W in
accordance with the terms set forth herein.

         All Orders under this Agreement shall be submitted to B&W at B&W's
Factory and shall set forth the type of Star Scientific Blend (i.e., non-menthol
or menthol), the quantity in pounds of each type to be purchased, and the
general shipping instructions including a destination address. The terms and
conditions of this Agreement: (i) shall be deemed incorporated into and made a
part of each Order, and (ii) shall not be modified, supplemented, or superseded
by any terms or conditions in a purchase order or acknowledgment or acceptance
thereof, except as expressly agreed to in a writing separate from such purchase
order signed by authorized representatives of both Parties and specifying the
extent to which such purchase order overrides the terms and conditions of this
Agreement. B&W shall accept all Orders that conform to the terms of this
Agreement which are consistent with the Firm Commitment issued in accordance
with paragraph 3.02 provided that Star is not in default under this Agreement.

         Star will utilize the Star Scientific Blend [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                     - 3 -
<PAGE>   4

[***].

3.       PRICES, INVOICES, FORECASTING

         3.01 The price for Star Scientific Blend for delivery on or before
December 31, 2000 shall be as set forth in Schedule A appended hereto.

         Subsequent to the Year 2000, prices shall be determined on an annual
basis and appended hereto as Schedule A, on or before November 1 of the
preceding year to reflect changes in stock availability, market conditions,
buying expense, anticipated processing yields, and other factors that effect the
overall cost of the Star Scientific Blend. These prices include packaging in
mutually acceptable containers and are [***].

         Prices shall be subject to change if the Star Scientific Blend or
Materials are changed or if Star requires additional blends other than those set
forth in Appendix A. In the event of a change in the importation duty rates
and/or the Tariff Rate Quota (TRQ) system or changes in other costs to import
tobacco into the United States which is used for the Star Scientific Blend, B&W
reserves the right to re-negotiate selling prices.

         Identification of the goods to the contract shall occur and therefore
title and risk of loss will transfer to Star when they are placed in the hands
of the carrier. [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

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<PAGE>   5
[***]. The container and shipping pallets will remain the property of B&W. Star
shall return the container and shipping pallets to B&W's Factory or other
designated location within thirty (30) days of receipt at Star's expense. The
returned containers and pallets shall be reasonably clean, neatly stacked, and
properly secured.

         3.02 Within thirty (30) days following the signing of this Agreement
and on or before the first workday of each following calendar quarter,
throughout the duration of this Agreement, Star shall issue a forecast, by
quarter, of the anticipated requirements for Star Scientific Blend for the next
twelve months, for shipment to Star under the terms of this Agreement.
Additionally, Star shall provide B&W by July 1st of each year a Firm Commitment
for its requirements for Star Scientific Blend for the next calendar year (the
"Firm Commitment") and an estimate of the requirements for Star Scientific Blend
for the calendar year following the Firm Commitment.

         [***]

         [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                     - 5 -
<PAGE>   6

[***]

         3.03 Star will pay B&W for all Star Scientific Blend [***], by wire
transfer to the account of B&W as follows:

                      [***]

         3.04 In the event Star does not timely pay any amounts due B&W pursuant
to this Agreement, Star shall pay late charges on such past due amounts at a
monthly rate of [***] (or, if less, the maximum interest rate then allowed
under  applicable law). If any invoice to Star under this Agreement or the
Cigarette  Manufacturing Agreement for the manufacture of cigarettes for Star
by B&W is more than seven (7) days past due, [***].

         3.05 B&W hereby reserves a vendor's lien purchase money security
interest in the Star Scientific Blend sold to Star to secure the payment of the
purchase price of the Star Scientific Blend as provided for in this Agreement.
Star will execute such additional instruments as B&W may reasonably request in
order to perfect the purchase money security interest hereby reserved.

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

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<PAGE>   7

4.       TERM

         4.01 The initial term of this Agreement shall terminate on [***] and
thereafter it shall automatically renew for successive one-year renewal terms,
subject to the right of either Star or B&W to terminate this Agreement for any
reason on at least one (1) year's prior written advance notice to the other
Party but such notice may not be effective until [***]. Notwithstanding the
foregoing provisions of this paragraph, the provisions of Paragraphs 5, 7 and 9
shall survive any expiration or earlier termination of this Agreement.

         4.02 This Agreement may also be terminated by either Party in the event
of any material breach of any of the terms hereof, if the offending Party, after
having been given written notice of such breach, shall fail to cure such breach
within [***] of receipt of such notice. In such event, the non-offending Party
may elect to give notice of termination of this Agreement, effective as of the
date provided in such notice, but no later than [***] after the expiration of
the cure period. Failure to so terminate within such [***] period shall be
deemed to be a waiver only of the specific event of breach with respect to which
such notice of breach was given.

         4.03 [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

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<PAGE>   8

[***]

5.       FAILURE TO MEET STAR SPECIFICATIONS

         5.01 B&W will certify that each shipment of Star Scientific Blend meets
the Specifications as outlined in Appendix A hereof.

         5.02 Star may, at its option, reject any shipment which, in Star's
reasonable opinion is not suitable for use, such reasons for rejection
including, but not limited to, contamination such as mold, odor, padding,
unacceptable particle size or foreign matter or which does not meet the
Specifications as represented by a proper analysis of the shipment; or Star may
accept the shipment at a mutually agreed upon price not to exceed the then
existing price for Star Scientific Blend. B&W may, in its sole discretion,
dispose of the rejected material in any manner it elects and shall bear the cost
of disposal. Star shall not return any rejected material until B&W is notified
in writing by Star concerning the reason for rejection, and B&W shall have had
the opportunity to inspect the rejected material. B&W's liability in the event
of a valid rejection of a shipment shall be limited to the removal and
replacement of the rejected product with product conforming to Star's
Specifications without additional cost to Star.

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

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<PAGE>   9

         EXCEPT AS EXPRESSLY PROVIDED HEREIN, B&W MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND TO STAR OR ITS CUSTOMERS, INCLUDING BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
FURTHERMORE, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE RESPONSIBLE FOR
INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY ACTS OR OMISSIONS
ASSOCIATED THEREWITH OR RELATING TO THE USE OF THE STAR SCIENTIFIC BLEND
FURNISHED, WHETHER SUCH CLAIM IS BASED ON BREACH OF WARRANTY, CONTRACT, TORT, OR
OTHER DAMAGES OR WHETHER ANY OTHER REMEDY PROVIDED HEREIN FAILS.

6.       STAR ACCESS TO B&W'S FACILITIES

         Star shall, on reasonable notice and during such periods that B&W is
blending Star Scientific Blend for Star, have access to those areas of the B&W's
Factory reasonably necessary to allow Star to observe and inspect B&W's
processing of Star Scientific Blend.

7.       CONFIDENTIALITY

         7.01 Each Party shall use its reasonable efforts to insure that all
information with respect to confidential information of the other Party is kept
confidential.

         7.02 The respective obligations of Star and B&W under this Paragraph 9
shall not apply to any information that (i) is or becomes public without breach
of this Agreement, (ii) is developed independently by the Party receiving the
information without use of any confidential

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<PAGE>   10

information disclosed by the other Party under this Agreement, or (iii) is in
the possession of the Party receiving the information prior to its receipt of
the information, or (iv) becomes known to the Party receiving the information
from a source other than the disclosing Party.

8.       FORCE MAJEURE

         8.01 B&W shall not be liable to Star by reason of delay for
non-performance, if and so long as such delay or non-performance is caused by
occurrences beyond the reasonable control of B&W (hereinafter "Force Majeure
Event") including, but not limited to the following: acts of God; expropriation
or confiscation of facilities; compliance with any regulation, order or law of
any governmental authority; shortage or unavailability of materials, equipment
or labor through no fault of B&W; criminal acts; acts of war, rebellion,
insurrection or sabotage, or damage resulting therefrom; fires, floods,
explosions, and washouts; accidents, epidemics, breakdowns, riots, strikes or
other industrial disturbances, whether direct or indirect; or any cause, whether
or not of the same class or kind as those specifically named above, not within
the reasonable control of the Party whose performance is affected. In the event
a Force Majeure Event continues for more than sixty (60) days), Star may in its
sole discretion, terminate the affected Order, or may terminate this Agreement
within seventy-five (75) days from the date of the first occurrence of the Force
Majeure Event.

         8.02 [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                     - 10 -
<PAGE>   11

[***]

9.       INDEMNIFICATION

         9.01 Each Party hereby agrees to indemnify, protect, save and keep
harmless the other Party, its parent, affiliates and subsidiaries and the
directors, officers, employees, agents, successors and assigns of each of them,
from and against any and all liabilities, obligations, costs, expenses
(including reasonable attorneys' fees), losses, damages, penalties, judgments,
claims, actions and suits brought by or through any third Party (herein
collectively called "liabilities") imposed on, incurred or asserted against any
one or more of them because of the breach of the other Party's obligations
hereunder.

         9.02 Star agrees to indemnify, protect, save and keep harmless B&W, its
parent, affiliates and subsidiaries and the directors, officers, employees,
agents, successors and assigns of each of them, from and against any and all
liabilities, obligations, costs, expenses (including reasonable attorneys'
fees), losses, damages, penalties, judgments, claims, actions and suits brought
by or through any third Party (hereinafter collectively called "the
liabilities") imposed on, incurred by or asserted against any one or more of
them because of the sale, resale, consumption or use of any of the Star
Scientific Blend, or any product made therefrom by [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                     - 11 -
<PAGE>   12

[***]

         9.03 Each Party agrees to give the other Party prompt written notice of
any claimed liabilities coming within the purview of this paragraph 9 and to
cooperate fully in the defense thereof.

10.      MISCELLANEOUS PROVISIONS

         10.01 This Agreement shall inure to the benefit of and be binding upon
each of the Parties hereto and their respective successors and assigns. B&W
shall not, directly or indirectly, in whole or in part, assign any of its rights
under this Agreement except in connection with the sale of B&W's Factory or a
merger, consolidation or sale of all, or substantially all, of the assets of
B&W's business. Star shall not, directly or indirectly, in whole or in part,
assign any of its rights and/or obligations under this Agreement without the
prior written consent of B&W except in connection with a merger, consolidation
or sale of all, or substantially all, of the assets of Star's business. In the
event that either Party shall assign this Agreement at any time for any reason,
the other Party shall have the option to immediately (within [***] of receipt of
the notice of any such new successor or assignee) terminate this Agreement
effective [***] after written notice to the other Party.

         10.02 Each and every one of the provisions of this Agreement is subject
to modification by reason of law, ruling, order, or regulation made by a
competent governmental authority affecting either Party.

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

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<PAGE>   13

         10.03 All material notices given by either Party to the other Party
under the provisions of this Agreement shall be forwarded to and effective upon
receipt by:

                         BROWN & WILLIAMSON TOBACCO CORPORATION
                         2600 Weaver Road
                         Macon, GA 31298
                         Attn: [***]

                         STAR SCIENTIFIC, INC.
                         16 South Market Street
                         Petersburg, VA 23803
                         Attn: Jonnie R. Williams

        with a copy to:

                         BROWN & WILLIAMSON TOBACCO CORPORATION
                         Brown & Williamson Tower
                         401 South 4th Avenue
                         Louisville, KY 40202

or at such other addresses that either Party may from time to time
designate by written notice as its address or addresses for the purposes
thereof.

         10.04 This Agreement shall be governed by and construed in accordance
with the internal substantive laws of the State of Georgia.

                            [SIGNATURE PAGE FOLLOWS]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                     - 13 -
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          SIGNATURE PAGE TO SUPPLY AGREEMENT FOR STAR SCIENTIFIC BLEND

         IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties hereto by their respective officers thereunto duly authorized, as of the
date first above written.

                                          BROWN & WILLIAMSON TOBACCO CORPORATION

                                          By:
                                             -----------------------------------
                                          Name:
                                          Title:

                                          STAR TOBACCO AND PHARMACEUTICALS, INC.

                                          By:
                                             -----------------------------------
                                          Name:
                                          Title:<PAGE>   1
                                                                EXHIBIT 10.36

                       CIGARETTE MANUFACTURING AGREEMENT

         THIS AGREEMENT is made this 1st day of January, 2000, between BROWN &
WILLIAMSON TOBACCO CORPORATION, a Delaware corporation ("B&W"), and STAR
TOBACCO AND PHARMACEUTICALS, INC., a Virginia corporation ("Star"),
individually a "Party" and collectively, the "Parties".

         WHEREAS, B&W and Star are in the business of manufacturing cigarettes,
including the manufacture and processing of component parts of cigarettes; and

         WHEREAS, Star is willing to pay B&W to manufacture for sale to Star
and Star agrees to purchase its designated requirements of Star cigarette
brands from B&W; and

         WHEREAS, B&W will provide additional services to Star, including the
procurement of leaf stocks, blend formulation and administrative services;

         NOW THEREFORE, in consideration of the mutual representations,
warranties and covenants and subject to the terms and conditions herein
contained, the Parties hereto agree as follows:

         1.       Definitions.

         "B&W's Factory" means B&W's manufacturing facility located in Macon,
Georgia.

         "Blended Tobacco" means the tobacco which B&W blends or prepares,
having the specification and properties set forth in Appendix A, for use in
manufacturing the cigarettes for Star pursuant to this Agreement.

         "Bonded Warehouse" means a warehouse of Star which qualifies as a
bonded warehouse under the regulations promulgated by the Department of
Treasury, Division of Alcohol, Tobacco and Firearms.

                                      -1-

<PAGE>   2

         "Brands" means the individual brandnames of cigarettes marketed and
sold by Star, or its subsidiaries, under trademarks owned by or licensed to
Star, or its subsidiaries, which Star elects to have B&W manufacture and
package for Star pursuant to the terms of this Agreement.

         "Cigarette Materials" means filters, tipping paper, cigarette paper
and packaging materials including, but not limited to, labels, foil,
cellophane, box blanks, carton blanks and case packaging materials.

         "Cylinders" means the dies utilized to print the packaging materials
for the Brands.

         "Materials" means Cigarette Materials and Tobacco Materials.

         "Orders" shall mean Star's weekly written instructions to manufacture
cigarettes pursuant to this Agreement.

         "Star's Specifications" means the properties and ingredients of Star's
cigarette brands in the respective Styles as set forth in Appendix A attached
hereto and made a part hereof, as revised from time to time by written
agreement of the Parties.

         "Stick" means one cigarette.

         "Style" means a type of cigarette such as: (i) kings, or 100's, or
(ii) filter or non-filter, or (iii) menthol or non-menthol, or (iv) a
combination of any two or more of the foregoing with respect to any Brand.

         "Style/Brand" means an individual Style of a Brand.

         "Supply Agreement for Star Scientific Blend" means an agreement
between Star and B&W dated January 1, 2000 for the supply of blended cut
tobacco to Star by B&W.

         "Tobacco Materials" means casings, Blended Tobacco, flavorings and
other materials normally utilized in the production of cigarettes but excluding
Cigarette Materials.

                                      -2-

<PAGE>   3

         2.       Manufacturing of Star's Brands.

                  2.01 During the term of this Agreement and subject to the
terms and provisions hereof, B&W agrees to acquire and blend cut tobacco which
will comply with Star's Specifications in sufficient quantities to manufacture
for Star the quantities of cigarettes which Star orders from B&W pursuant to
the terms of this Agreement and B&W agrees to manufacture, package and ship
Star's designated requirements of the cigarettes for each Style/Brand in
accordance with Star's Orders which conform to the terms and provisions of this
Agreement.

         3.       Forecasts, Requirements, Minimum Production Quantities.

                  3.01 Star shall provide B&W by July 1st of each year a
forecast and commitment ("Firm Commitment") for its requirements for cigarettes
to be manufactured under this Agreement for the next calendar year (by blend if
more than one blend is contemplated), and an estimate of the requirements for
cigarettes for the calendar year following the year for which the Firm
Commitment was issued. The Firm Commitment will be utilized by B&W as the basis
for acquiring the necessary Tobacco Materials to manufacture the Brands.

                  3.02 [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -3-

<PAGE>   4

                  3.03 [***]

                  3.04 B&W will manufacture additional Styles/Brands at Star's
request provided that the volume for each [***].

                  3.05 All Orders under this Agreement shall be submitted to
B&W at B&W's Factory and shall set forth the weekly quantity for each
Style/Brand, and the general shipping instructions including a destination
address which must be a Bonded Warehouse. Star will provide weekly orders, for
its weekly requirements. The weekly Orders shall be issued to B&W at least two
weeks prior to the week shipment is requested. The weekly total quantity of

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -4-

<PAGE>   5

Styles/Brands shall be fixed, but daily shipments may be varied provided Star
gives B&W two (2) days advance written notice. The terms and conditions of this
Agreement: (i) shall be deemed incorporated into and made a part of each Order,
and (ii) shall not be modified, supplemented, or superseded by any terms or
conditions in a purchase order or acknowledgment or acceptance thereof except
as expressly agreed to in a writing separate from such purchase order signed by
authorized representatives of both Parties and specifying the extent to which
such purchase order overrides the terms and conditions of this Agreement. B&W
shall accept all Orders that conform to the terms of this Agreement which are
consistent with the Firm Commitment issued in accordance with paragraph 3.01
provided that Star is not in default under this Agreement.

         4.       Pricing and Payment.

                  4.01 B&W shall invoice Star for the quantity of the Brands
shipped by B&W on a weekly basis. [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -5-

<PAGE>   6

[***]

                  4.02 Any changes by Star to Star's Specifications (as to
cigarettes or tobacco blend), packaging, Star's ability to utilize random
health warnings, or a change in the importation duty rates and/or the Tariff
Rate Quota (TRQ) system or changes in other costs to import tobacco into the
United States which is used in the Blended Tobacco, will give B&W the right to
renegotiate the pricing set forth in Appendix B. For cigarettes to be delivered
after December 31, 2000, Star will provide B&W by November 1 of the preceding
year with a 12-month forecast breaking down its Firm Commitment under Paragraph
3 by Style and Brand, and pricing for the ensuing 12-month period will be
determined by B&W on an annual basis and appended hereto as Appendix B based
upon changes in stock availability, market conditions, buying expense,
anticipated processing yields, and other manufacturing costs.

                  4.03 Actual costs for transportation by an independent bonded
carrier, insurance, other standard commercial charges and any tax, duty or
payment to or for the benefit of a governmental entity, or payments required by
statute or regulation, incurred with respect to cigarettes manufactured by B&W
for Star under this agreement, will be for Star's account. These charges will
be noted separately from the standard manufactured price and will be invoiced
separately. Star will pay, without offset or setoff, all amounts due to B&W for
manufacturing of the Brands, freight insurance and other applicable charges
within ten (10) days of the date of B&W's invoice by wire transfer to:

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -6-

<PAGE>   7

                     [***]

                  4.04 In the event Star does not timely pay any amounts due
B&W pursuant to this Agreement, Star shall pay late charges on such past due
amounts at a monthly rate of [***].

                  4.05 B&W hereby reserves a vendor's lien purchase money
security interest in the Brands sold to Star to secure the payment of the
purchase price of the Brands as provided for in this Agreement. Star will
execute such additional instruments as B&W may reasonably request in order to
perfect the purchase money security interest hereby reserved.

         5.       Delivery, Shipment, Risk of Loss.

                  5.01 Identification of the goods to the contract shall occur
and therefore title and risk of loss will transfer to Star when they are placed
in the hands of the carrier. Freight from [***] to Star's Bonded
Warehouse in Petersburg, Virginia will be coordinated and paid by B&W but
billed to Star as an additional charge with each invoice.

                  5.02 The shipping pallets will remain the property of B&W.
Star shall return the shipping pallets to B&W's Factory or other designated
location within thirty (30) days of

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -7-

<PAGE>   8

receipt at Star's expense. The returned pallets shall be reasonably clean,
neatly stacked, and properly secured.

         6.       Term

                  6.01 The initial term of this Agreement shall terminate on
[***] and thereafter it shall automatically renew for successive one-year
renewal terms, subject to the right of either Star or B&W to terminate this
Agreement for any reason on at least one (1) year's prior written advance notice
to the other Party but such notice may not be effective until [***].
Notwithstanding the foregoing provisions of this paragraph, the provisions of
Section 6 shall survive any expiration or earlier termination of this Agreement.

                  6.02 This Agreement may also be terminated by either Party in
the event of any material breach of any of the terms hereof, if the offending
Party, after having been given written notice of such breach, shall fail to cure
such breach within [***] of receipt of such notice. In such event, the
non-offending Party may elect to give notice of termination of this Agreement,
effective as of the date provided in such notice, but no later than [***] after
the expiration of the cure period. Failure to so terminate within such [***]
period shall be deemed to be a waiver only of the specific event of breach with
respect to which such notice of breach was given.

                  6.03 [***]

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -8-

<PAGE>   9

[***]

                  6.04 The Parties agree that these notice provisions are
adequate in all circumstances, and, on termination of this Agreement in
accordance with this paragraph, neither Party shall be liable for any costs or
liabilities of the other associated with or resulting from such termination
except as provided in this Agreement.

         7.       Insurance

                  7.01 During the term of this agreement [***] shall maintain in
full force and effect adequate insurance for its benefit which shall provide
for coverage in an amount equal to at least the replacement cost of the
production materials, including any tobacco leaf, and any finished manufactured
cigarettes which are in [***] possession or control at the time of any loss or
damage thereto.

         8.       Indemnification

                  8.01 Each Party hereby agrees to indemnify, protect, save and
keep harmless the other Party, its parent, affiliates and subsidiaries and the
directors, officers, employees, agents, successors and assigns of each of them,
from and against any and all liabilities,

                                      -9-

<PAGE>   10

obligations, costs, expenses (including reasonable attorneys' fees), losses,
damages, penalties, judgments, claims, actions and suits brought by or through
any third Party (herein collectively called "liabilities") imposed on, incurred
or asserted against any one or more of them because of the breach of the other
Party's obligations hereunder.

                  8.02 Star agrees to indemnify, protect, save and keep
harmless B&W, its parent, affiliates and subsidiaries and the directors,
officers, employees, agents, successors and assigns of each of them, from and
against any and all liabilities, obligations, costs, expenses (including
reasonable attorneys' fees), losses, damages, penalties, judgments, claims,
actions and suits brought by or through any third Party (hereinafter
collectively called "the liabilities") imposed on, incurred by or asserted
against any one or more of them because of the sale, resale, consumption or use
of any of the cigarettes manufactured by B&W for Star pursuant to this
Agreement. This indemnity does not apply where the cigarettes supplied by B&W
fails to meet Star's Specifications and the liabilities for which this
indemnity is claimed result from such failure by B&W.

                  8.03 Each Party agrees to give the other Party prompt written
notice of any claimed liabilities coming within the purview of this Article 11
and to cooperate fully in the defense thereof.

                  8.04 EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, B&W MAKES
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND TO STAR OR ITS CUSTOMERS,
INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. FURTHERMORE, UNDER NO CIRCUMSTANCES SHALL
EITHER PARTY BE

                                      -10-

<PAGE>   11

RESPONSIBLE FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR
EXEMPLARY DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
ACTS OR OMISSIONS ASSOCIATED THEREWITH OR RELATING TO THE USE OF THE STAR
SCIENTIFIC BLEND FURNISHED, WHETHER SUCH CLAIM IS BASED ON BREACH OF WARRANTY,
CONTRACT, TORT, OR OTHER DAMAGES OR WHETHER ANY OTHER REMEDY PROVIDED HEREIN
FAILS.

         9.       Force Majeure

                  9.01 B&W shall not be liable to Star by reason of delay for
non-performance, if and so long as such delay or non-performance is caused by
occurrences beyond the reasonable control of B&W (hereinafter "Force Majeure
Event") including, but not limited to the following: acts of God; expropriation
or confiscation of facilities; compliance with any regulation, order or law of
any governmental authority; shortage or unavailability of Materials, equipment
or labor through no fault of B&W; criminal acts; acts of war, rebellion,
insurrection or sabotage, or damage resulting therefrom; fires, floods,
explosions, and washouts; accidents, epidemics, breakdowns, riots, strikes or
other industrial disturbances, whether direct or indirect; or any cause,
whether or not of the same class or kind as those specifically named above, not
within the reasonable control of the Party whose performance is affected. In
the event a Force Majeure Event continues for more than sixty (60) days), Star
may in its sole discretion, terminate the affected Order, or may terminate this
Agreement within seventy-five (75) days from the date of the first occurrence
of the Force Majeure Event.

                                      -11-

<PAGE>   12

                  9.02 The Parties recognize that B&W will be manufacturing
cigarettes for its own needs and those of its Affiliated BAT Companies, [***].

         10.      Miscellaneous Provisions

                  10.01 B&W represents and warrants that it has and will have
the available manufacturing capacity to and will produce on a timely basis
Star's designated requirements of the Brands as specified in Star's Orders,
subject to the annual volume limitation set forth in Paragraph 4.

                  10.02 Star will recognize, and will reimburse B&W for, the
cost of any Tobacco Materials or Cigarette Materials which may become obsolete
due to changes in specifications mandated as a result of changes in laws or
regulations.

                  10.03 Star grants to B&W any license that may be necessary
under any of Star's registered trademarks and issued or pending patents to
enable B&W to fulfill its obligations under this Agreement.

Note: Redacted portions have been marked with [***]. The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                      -12-

<PAGE>   13

                  10.04 No amendment or modification or addition to this
Agreement shall be binding upon either Party unless reduced to writing.

                  10.05 Any notice or other communication to either Party to
this Agreement required or permitted hereunder shall be in writing and shall be
deemed to be effective when received by such Party.

                  10.06 The validity, construction and performance of this
Agreement shall be governed and interpreted in accordance with the laws of the
State of Georgia.

                            [SIGNATURE PAGE FOLLOWS]

                                      -13-

<PAGE>   14

              SIGNATURE PAGE TO CIGARETTE MANUFACTURING AGREEMENT

         IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers as of the effective date shown above.

                     BROWN & WILLIAMSON TOBACCO CORPORATION

                     By:
                           ------------------------------------
                     Date:
                           ------------------------------------

                     STAR TOBACCO AND PHARMACEUTICALS, INC.

                     By:
                           ------------------------------------
                     Date:
                           ------------------------------------

                                      -14-

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