Document:

EX-10.78

EXHIBIT 10.78

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of March 14, 2011,
by and between STAR SCIENTIFIC, INC., a Delaware corporation (the “Company”), and JONNIE R.
WILLIAMS (“Executive”).

Recitals 

A. The Company is engaged in the commercialization of tobacco containing less toxins
(principally tobacco specific nitrosamines (“TSNA”)), development of less toxic tobacco products
and potentially reduced-risk tobacco products, and the development, testing and commercialization
of certain compounds through its Rock Creek Pharmaceuticals subsidiary.

B. Executive is the Chief Executive Officer of the Company, and Executive and the Company
desire to set forth the terms and conditions of the Executive’s employment by the Company

Agreement 

NOW, THEREFORE, in consideration of these premises, the mutual covenants and agreements of the
parties hereunder, and for other good and valuable consideration the sufficiency and receipt of
which are hereby acknowledged, the parties hereto hereby agree as follows:

§ 1. Employment and Duties.

1.1 Position. The Company hereby employs Executive, and Executive hereby accepts
employment with the Company, as Chief Executive Officer of the Company.

1.2 Duties. Executive agrees to devote his best efforts, and shall have primary
responsibility within the Company, to act as the senior executive of the Company and have
responsibility for the effective operation of the Company, including day to day oversight and
responsibility for the Company’s wholly owned subsidiary, Star Tobacco, Inc., and including
oversight and responsibility for the its leaf operations and hard and moist tobacco products
(including Stonewall® moist and dry snuff and ARIVA®, a compressed
tobacco product), certain of which activities are conducted by the Company, but excluding those
functions and operations specifically delegated to the President and Chief Operating Officer
(being primarily legal, legislative and regulatory affairs, scientific issues including testing
and evaluation, and dealings with the media, public interest groups and third persons outside
the Company relating to public health and related interests) and to perform such other duties
assigned to him by the Board of Directors of the Company (the “Board of Directors”). Executive
shall perform his duties in a trustworthy, businesslike and loyal manner.

 

 

 

1.3 Reporting. Executive shall report to the Board of Directors.

1.4 Place of Employment. Executive shall perform his services hereunder at the
Company’s Glen Allen and Chase City, VA offices. Executive’s primary office shall be in
Glen Allen, VA, however, Executive shall spend a portion of his time in the Company’s primary
office for regulatory operations and for certain executive functions of the Company located in
Washington D.C. and Bethesda, MD.

1.5 Change of Duties. The duties of Executive may be modified from time to time by
the mutual consent of the Company and Executive without resulting in a rescission of this
Agreement. The mutual written consent of the Company and Executive shall constitute execution
of that modification. Notwithstanding any such change, the employment of Executive shall be
construed as continuing under this Agreement as so modified.

1.6 Devotion of Time to Company’s Business. During the Term of this Agreement (as
such term is defined in Section 1.7. hereof), Executive agrees (i) to devote
substantially all of his productive time, ability and attention to the business of the Company
during normal working hours, (ii) not to engage in any other business duties or business
pursuits whatsoever which conflict with his duties to the Company, (iii) whether directly or
indirectly, not to render any services of a commercial or professional nature to any
individual, trust, partnership, company, corporation, business, organization, group or other
entity (each, a “Person”) which conflict with his duties to the Company, whether for
compensation or otherwise, without the prior written consent of the Board of Directors, and
(iv) whether directly or indirectly, not to acquire, hold or retain more than a one percent
(1%) interest in any business competing with or similar in nature to the business of the
Company or any of its Affiliates (as such term is defined below); provided, however, the
expenditure of reasonable amounts of time for litigation support, book projects, charitable,
professional educational or professional activities or, subject to the foregoing, the making of
passive personal investments shall not be deemed a breach of this Agreement or require the
prior written consent of the Company if those activities do not materially interfere with the
services required of Executive under this Agreement. For purposes of this Agreement,
“Affiliates” shall mean any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with, the Company.

1.7 Term. Unless sooner terminated as provided in Section 4 hereof the
term of this Agreement shall commence on January 1, 2011 and shall continue through December
31, 2012 (the “Term). The Company and Executive shall consult on extension of the Term as soon
as reasonably practicable in the month of September 2012 but neither the Company nor Executive
shall be under any obligation to extend the Term. The Term, together with any extensions or
renewal terms shall be referred to in this Agreement as the “Term of this Agreement.”

1.8 Observance of Company Rules, Regulations and Policies. Executive shall duly,
punctually and faithfully perform and observe any and all rules, regulations and policies which
the Company may now or hereafter reasonably establish governing the conduct of its
 business or its employees to the extent such rules, regulations and policies are not in
conflict with this Agreement. Executive shall promptly provide written notice to the Board of
Directors of any such apparent conflict of which Executive becomes aware.

§ 2. Compensation.

2.1 Base Salary. During the Term of this Agreement, the Company shall pay to
Executive an annual base salary in such amounts as the Compensation Committee of the Board of
Directors (the “Compensation Committee”) shall recommend to the full Board of Directors for
approval (the “Base Salary”) and the Base Salary for 2011 shall initially be set at $1,000,000,
subject to adjustment from time to time in the good faith discretion of the Board of Directors,
payable in arrears on a monthly or semi-monthly basis in accordance with the Company’s standard
payroll procedures in effect at the time of payment.

 

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2.2 Performance Bonuses. In addition to the Base Salary, the Company may pay to
Executive bonuses based on the Company’s performance and/or Executive’s performance as follows:

(a) Discretionary/Special Bonuses.

Based upon performance of the Company as reflected by satisfaction of the performance
goals listed in Exhibit A, attached hereto, the Company may pay Executive a bonus
in addition to Base Salary in such amount as may be determined by the Board of Directors.

(b) Establishment of Annual Bonus Performance Goals. The Company may propose
new performance goals for purposes of determining additional annual bonuses payable to
Executive, in consultation with Executive.

2.3 Stock Options. The Company and Executive acknowledge the entry on or about
March 14, 2011, into an agreement granting to Executive an option to purchase 4,900,000 shares
of the Common Stock of the Company upon terms set forth in such agreement. Such options shall
vest and become exercisable solely upon stockholder approval and achievement of the performance
goals set forth in Schedule 2.3 attached hereto.

2.4 Incentive Plans. In addition to all other benefits and compensation provided
by this Agreement, Executive shall be eligible to participate in such of the Company’s equity,
compensation and incentive plans as are generally available to any of the management executives
of the Company, including without limitation any executive and performance bonus or incentive
plans.

2.5 Vacation. Executive shall be entitled to such annual vacation time with full
pay as the Company may provide in its standard policies and practices for any other management
executives; provided, however, that in any event Executive shall be entitled to a minimum of
twenty (20) days annual paid vacation time.

2.6 Directors and Officers Liability Insurance. Executive shall be entitled to
participation in, and have the benefit of directors and officers liability insurance providing
coverage in an amount of less than that provided by the Company for its Chief Operating Officer
and/or Chairman of the Board.

2.7 Term Life Insurance. The Company shall maintain term life insurance in the
amount of $10,000,000, with such beneficiary or beneficiaries thereunder as may be designated
from time to time by Executive, and shall pay the premiums due on such policy and maintain such
policy in full force and effect during the Term of this Agreement.

2.8 Disability Insurance. The Company shall maintain the disability insurance
policy presently provided by the Company and the Company shall pay the premiums due on such
policy and maintain such policy in full force and effect during the Term of this Agreement.

2.9 Automobile. The Company will furnish Executive with an automobile equipped
with a car telephone and will reimburse Executive all reasonable costs and expenses relating to
Executive’s use of such automobile and car telephone, including without limitation, amounts
incurred for insurance, gas and general maintenance and repairs.

2.10 Mobile Telephone. Executive shall have use of a wireless mobile telephone of
his choice and the Company will be responsible for payment of all business usage charges and
all usual operational and maintenance expenses associated with the use by Executive of such
telephone.

2.11 Club Dues. The Company shall reimburse Executive for monthly and/or annual
dues related to Executives membership in a club or clubs, consistent with the Company’s
practice with the Company’s other senior executives.

2.12 Outside Counsel for Executive. In order for Executive to have the benefit of
counsel to advise and counsel Executive with respect to the employment issues relating to terms
of this Agreement, the Company shall pay the reasonable attorneys’ fees and expenses incurred
by Executive in connection with such advise and counsel and the drafting and execution of this
Agreement.

2.13 Other Benefits. Executive shall participate in and have the benefits of all
present and future vacation, holiday, paid leave, unpaid leave, life, accident, disability,
dental, vision and health insurance plans, pension, profit-sharing and savings plans and all
other plans and benefits which the Company now or in the future from time to time makes
available to any of its management executives.

2.14 Withholding. The parties shall comply with all applicable legal withholding
requirements in connection with all regular monthly and/or bi-monthly compensation payable to
Executive hereunder.

 

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§ 3. Expense Reimbursement. The Company shall reimburse Executive for all business
travel and other out-of-pocket expenses reasonably incurred by Executive in the course of
performing his duties under this Agreement. All reimbursable expenses shall be appropriately
documented and shall be in reasonable detail and in a format and manner consistent with the
Company’s expense reporting policy, as well as applicable federal and state tax record keeping
requirements.

§ 4. Termination and Rights on Termination. This Agreement shall terminate upon the
occurrence of any of the following events:

4.1 Death. Upon the death of Executive, in which event the Company shall, within
thirty (30) days of receiving notice of such death, pay Executive’s estate all salary and other
compensation hereunder, then due and payable and all accrued vacation pay and bonuses, if any,
in each case payable or accrued through the date of death. In addition, the Company shall pay
Executive’s estate, at the time or times otherwise payable under the terms of this Agreement,
all salary and accrued benefits that would have been payable hereunder by the Company to
Executive during the one year period immediately following Executive’s death. Any payment due
under this Section 4.1 may be funded by one or more policies of life insurance to be
purchased by the Company and which provide for a benefit in the amount payable to Executive as
beneficiary under such policy or policies equal to that due Executive under this Section. In
the event the Company purchases such policy or policies and thereafter maintains such policy or
policies in continuous and full force and effect during the term hereof, then Executive agrees
to look solely to such policy or policies for payment of any amount due hereunder; provided,
however, that in the event the Company does not purchase such policy or policies and thereafter
maintain such policy or policies in continuous and full force and effect during term hereof,
then the Company shall be directly and fully obligated to Executive for such payment.

4.2 Disability. Upon the mental or physical Disability (as such term is defined
below) of Executive, in which event the Company shall, within thirty (30) days following the
determination of Disability, pay Executive all salary then due and payable and all accrued
vacation pay and bonuses, if any, in each case payable or accrued through the date of
determination. In addition, the Company shall pay all salary and accrued benefits that would
have been payable hereunder by the Company to Executive during the one year period immediately
following Executive’s disability. For purposes of this Agreement, “Disability” shall mean a
physical or mental condition, verified by a physician designated by the Company, which prevents
Executive from carrying out one or more of the material aspects of his assigned duties for at
least ninety (90) consecutive days, or for a total of ninety (90) days in any six (6) month
period. Any payment due under this Section 4.2 may be funded by one or more policies of
disability insurance to be purchased by the Company and which provide for a benefit in the
amount payable to Executive as beneficiary under such policy or policies equal to that due
Executive under this Section. In the event the Company purchases such policy or policies and
thereafter maintains such policy or policies in continuous and full force and effect during the
term hereof, then Executive agrees to look solely to such policy or policies for payment of any
amount due hereunder; provided, however, that in the event the Company does not purchase such
policy or policies and thereafter maintain such policy or policies in continuous and full force
and effect during term hereof, then the Company shall be directly and fully obligated to
Executive for such payment.

4.3 Termination by the Company For Cause. Upon delivery by the Company to
Executive of a written notice terminating this Agreement for Cause (as such term is defined
below), which notice shall be supported by a reasonably detailed statement of the relevant
facts and reasons for termination, in which event the Company shall, within thirty (30) days
following such termination, pay Executive all salary then due and payable through the date of
termination. Executive shall not be entitled to any severance compensation or any accrued
vacation pay or bonuses. For purposes of this Agreement, “Cause” shall mean:

(a) Executive shall have committed an act of dishonesty, fraud, embezzlement or theft
with respect to the property, business or affairs of the Company, in any such event in
such a manner as to cause material loss, damage or injury to the Company;

(b) Executive shall have materially breached this Agreement and such breach shall
have continued for a period of twenty (20) days after receipt of written notice from the
Company specifying such breach;

(c) Executive shall have been grossly negligent in the performance of his duties
hereunder, intentionally not performed or misperformed any of such duties, or refused to
abide by or comply with the directives of the Board of Directors, which action shall have
continued for a period of twenty (20) days after receipt of written notice from the
Company demanding such action cease or be cured;

 

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(d) Executive shall have been found guilty of, or has plead nolo contendere to, the
commission of a felony offense or other crime involving moral turpitude; or

(e) Executive shall have abused alcohol or drugs (legal or illegal) that, in the
reasonable judgment of the Board of Directors, materially impairs Executive’s ability to
perform his duties hereunder.

4.4 Termination by the Company Without Cause. Thirty (30) days after delivery by
the Company to Executive of a written notice terminating Executive’s employment under this
Agreement for any reason without cause, in which event the Company shall continue to pay
Executive all salary, benefits, bonuses and other compensation that would be due hereunder
through the end of the Term of this Agreement had the Company not terminated Executive’s
employment.

4.5 Voluntary Termination by Executive. Thirty (30) days after delivery by
Executive to the Company of a written notice terminating this Agreement for any reason without
cause, in which event the Company shall, within thirty (30) days following the effective date
of termination, pay Executive all salary then due and payable through the date of termination.
Executive shall not be entitled to any severance compensation or any accrued vacation pay or
bonuses.

4.6 Termination by Executive for Good Reason. Thirty (30) days after delivery by
Executive to the Company of a written notice terminating this Agreement for Good Reason (as
such term is defined below), in which event the Company shall pay Executive such amounts in
such manner as provided for in Section 4.4 hereof. For purposes of this Agreement,
“Good Reason” shall mean:

(a) The assignment of Executive to any duties inconsistent with, or any adverse
change in, Executive’s positions, duties, responsibilities, functions or status with the
Company, or the removal of Executive from, or failure to reelect Executive to, any of such
positions; provided, however, that a change in Executive’s positions, duties,
responsibilities, functions or status that Executive shall agree to in writing shall not
be an event of Good Reason or give rise to termination under this Section 4.6;

(b) A reduction by the Company of Executive’s Base Salary without his written
consent;

(c) The failure by the Company to continue in effect for Executive any material
benefit provided herein or otherwise available to any of the management executives of the
Company, including without limitation, any retirement, pension or incentive plans, life,
accident, disability or health insurance plans, equity or cash bonus plans or savings and
profit sharing plans, or any action by the Company which would adversely affect
Executive’s participation in or reduce Executive’s benefits under any of such plans or
deprive Executive of any fringe benefit enjoyed by Executive; or

(d) Any other material breach by the Company of this Agreement which is not cured
within twenty (20) days of delivery of written notice thereof by Executive to the Company.

4.7 Termination by Executive upon Certain Change of
Management. Thirty (30) days after delivery by Executive to the Company of a written notice
terminating this Agreement upon (a) a
change in the senior management of the Company resulting from the death or disability of Paul
L. Perito, or (b) a removal and replacement of a majority of the Board of Directors, including
such other persons elected to serve as directors with the approval of the Board of Directors
subsequent to the date hereof, by the stockholders of the Company at a special meeting of the
stockholders, held in accordance with the terms of the Company’s Certificate of Incorporation
and By-Laws and in accordance with all applicable laws, called by a stockholder or a group of
stockholders of the Company for such purpose, in which event the Company shall, within thirty
(30) days following the effective date of termination, pay Executive the sum of $2,500,000.
Although the parties have been advised that 26 U.S.C. 280G is not applicable to any payment
that may become due Executive hereunder, if 26 U.S.C. 280G is found to be applicable, then the
Company shall pay any tax due by Executive under Section 280G as a result of any payment to
Executive under this Section 4.7. It is anticipated by the parties that payment that
may become due under (b) above will be funded by one or more policies of life and/or disability
insurance to be purchased by the Company which provide for a benefit in the amount of
$2,500,000 payable to Executive as beneficiary under such policy or policies. In the event the
Company purchases such policy or policies and thereafter maintains such policy or policies in
continuous and full force and effect during the term hereof, then Executive agrees to look
solely to such policy or policies for payment of any amount due under (ii) above; provided,
however, that in the event the Company does not purchase such policy or policies and thereafter
maintain such policy or policies in continuous and full force and effect during the term
hereof, then the Company shall be directly and fully obligated to Executive for such payment.

 

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4.8 Effect of Termination; Executive’s Stock Options. All rights and obligations
of the Company and Executive under this Agreement shall cease as of the effective date of
termination, except that the obligations of the Company under this Section 4 and
Executive’s obligations under Sections 5 and 6 hereof shall survive such termination in
accordance with their respective terms. In addition, notwithstanding anything to the contrary
contained herein or in any agreement with respect thereto, (a) upon termination of Executive’s
employment pursuant to Sections 4.3 or 4.5, all equity options, restricted equity
grants and similar rights held by Executive with respect to securities of the Company,
including without limitation any stock options referred to in Section 2.3 herein shall,
to the extent not then fully vested, immediately terminate and revert to the Company, (b) upon
termination of Executive’s employment pursuant to Section 4.4, all equity options,
restricted equity grants and similar rights held by Executive with respect to securities of the
Company, including without limitation Executive’s stock options referred to in Section
2.3 herein shall, remain in full force and effect and shall not be affected by such
termination, and (c) upon termination of Executive’s employment pursuant to any other provision
of this Section 4, all equity options, restricted equity grants and similar rights held
by Executive with respect to securities of the Company, including without limitation
Executive’s stock options referred to in section 2.3 herein, if such stock options shall have been approved by the Company’s stockholders, shall, to the extent not then fully
vested, immediately become fully vested.

4.9 No Termination by Merger; Transfer of Assets or Dissolution. This Agreement
shall not be terminated by any dissolution of the Company resulting from either merger or
consolidation in which the Company is not the consolidated or surviving corporation or other
entity or transfer of all or substantially all of the assets of the Company. In such event, the
rights, benefits and obligations herein shall automatically be deemed to be assigned to the
surviving or resulting corporation or other entity or to the transferee of the assets, as the
case may be, with the consent of Executive.

§ 5. Restriction on Competition.

5.1 Covenant Not to Compete. During the Term of this Agreement and for a period of
twelve (12) months from the termination of this Agreement, Executive shall not, without the
prior written consent of the Company, either directly or indirectly, for himself or on behalf
of or in conjunction with any other Person (i) own, manage, operate, control, be employed by,
participate in, render services to, or be associated in any manner with the ownership,
management, operation or control of, any business similar to the type of business conducted by
the Company or any of its Affiliates within any of the geographic territories in which the
Company or any of its Affiliates conducts business, (ii) solicit business of the same or
similar type being carried on by the Company or any of its Affiliates from any Person known by
Executive to be a customer of the Company or any of its Affiliates, whether or not Executive
had personal contact with such Person during and by reason of Executive’s employment with the
Company, or (iii) endeavor or attempt in any way to interfere with or induce a breach of any
contractual relationship that the Company or any of its Affiliates may have with any employee,
customer, contractor, supplier, representative or distributor.

5.2 No Breach for Activities Deemed Not Competitive. It is further agreed that, in
the event that Executive shall cease to be employed by the Company and enter into a business or
pursue other activities that, at such time, are not in competition with the Company or any of
its Affiliates, Executive shall not be chargeable with a violation of this Section 5 if
the Company subsequently enters the same (or a similar) competitive business or activity. In
addition, if Executive has no actual knowledge that his actions violate the terms of this
Section 5, Executive shall not be deemed to have breached the restrictive covenants
contained herein if, promptly after being notified by the Company of such breach, Executive
ceases the prohibited actions.

5.3 Severability. The covenants in this Section 5 are severable and
separate, and the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. If any provision of this Section 5 relating to the time period or
geographic area of the restrictive covenants shall be declared by a court of competent
jurisdiction to exceed the maximum time period or geographic area, as applicable, that such
court deems reasonable and enforceable, such time period or geographic area shall be deemed to
be, and thereafter shall become, the maximum time period or largest geographic area that such
court deems reasonable and enforceable and this Agreement shall automatically be considered to
have been amended and revised to reflect such determination.

5.4 Fair and Reasonable. Executive has carefully read and considered the
provisions of this Section 5 and, having done so, agrees that the restrictive covenants
in this Section 5 impose a fair and reasonable restraint on Executive and are
reasonably required to protect the interests of the Company, its Affiliates and their
respective officers, directors, employees and stockholders. It is further agreed that the
Company and Executive intend that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company throughout the term of these
covenants.

 

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§ 6. Confidential Information.

6.1 Confidential Information. Executive hereby agrees to hold in strict confidence
and not to disclose to any third party, other than employees and agents of the Company or
persons retained by the Company to represent its interests, any of the valuable, confidential
and proprietary business, financial, technical, economic, sales and/or other types of
proprietary business information relating to the Company or any of its Affiliates (including
all trade secrets) in whatever form, whether oral, written, or electronic (collectively, the
“Confidential Information”), to which Executive has, or is given (or has had or been given),
access during the course of his employment with the Company. It is agreed that the Confidential
Information is confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical, financial,
organizational, sales or other valuable aspects of the business and trade of the Company or its
Affiliates, including without limitation, technologies, products, processes, plans, clients,
personnel, operations and business activities. This restriction shall not apply to any
Confidential Information that (a) becomes known generally to the public through no fault of the
Executive, (b) is required by applicable law, legal process, or any order or mandate of a court
or other governmental authority to be disclosed, or (c) is reasonably believed by Executive,
based upon the advice of legal counsel, to be required to be disclosed in defense of a lawsuit
or other legal or administrative action brought against Executive; provided, however, that in
the case of clause (b) or (c), Executive shall give the Company reasonable advance written
notice of the Confidential Information intended to be disclosed and the reasons and
circumstances surrounding such disclosure, in order to permit the Company to seek a protective
order or other appropriate request for confidential treatment of the applicable Confidential
Information.

6.2 Return of Company Property. In the event of termination of Executive’s
employment with the Company for whatever reason or no reason, (a) Executive agrees not to copy,
make known, disclose or use, any of the Confidential Information without the Company’s prior
written consent, and (b) Executive or Executive’s personal representative shall return to the
Company (i) all Confidential Information, (ii) all other records, designs, patents, business
plans, financial statements, manuals, memoranda, lists, correspondence, reports, records,
charts, advertising materials and other data or property delivered to or compiled by Executive
by or on behalf of the Company or its respective representatives, vendors or customers that
pertain to the business of the Company or any of its Affiliates, whether in paper, electronic
or other form, and (iii) all keys, credit cards, vehicles and other property of the Company.
Executive shall not retain or cause to be retained any copies of the foregoing. Executive
hereby agrees that all of the foregoing shall be and remain the property of the Company and the
applicable Affiliates and be subject at all times to their discretion and control.

§ 7. Corporate Opportunities.

7.1 Duty to Notify. During the Term of this Agreement, in the event that Executive
shall become aware of any business opportunity related to the business of the Company,
Executive shall promptly notify the Board of Directors of such opportunity. Executive shall not
appropriate for himself or for any other Person other than the Company (or any Affiliate) any
such opportunity unless, as to any particular opportunity, the Board of Directors fails to take
appropriate action within thirty (30) days. Executive’s duty to notify the Board of Directors
and to refrain from appropriating all such opportunities for thirty (30) days shall neither be
limited by, nor shall such duty limit, the application of the general laws relating to the
fiduciary duties of an agent or employee.

7.2 Failure to Notify. In the event that Executive fails to notify the Board of
Directors or so appropriates any such opportunity without the express written consent of the
Board of Directors, Executive shall be deemed to have violated the provisions of this Section
notwithstanding the following:

(a) The capacity in which Executive shall have acquired such opportunity; or

(b) The probable success in the hands of the Company of such opportunity.

§ 8. No Prior Agreements. Executive hereby represents and warrants to the Company that
the execution of this Agreement by Executive, his employment by the Company, and the performance of
his duties hereunder will not violate or be a breach of any agreement with a former employer or any
other Person. Further, Executive agrees to indemnify and hold harmless the Company and its
officers, directors and representatives for any claim, including, but not limited to, reasonable
attorneys’ fees and expenses of investigation, of any such third party that such third party may
now have or may hereafter come to have against the Company or such other persons, based upon or
arising out of any non-competition agreement, invention, secrecy or other agreement between
Executive and such third party that was in existence as of the effective date of this Agreement. To
the extent that Executive had any oral or written employment agreement or understanding with the
Company, this Agreement shall automatically supersede such agreement or
understanding, and upon execution of this Agreement by Executive and the Company, such prior
agreement or understanding automatically shall be deemed to have been terminated and shall be null
and void.

 

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§ 9. Representation. Executive acknowledges that he (a) has reviewed this Agreement in
its entirety, (b) has had an opportunity to obtain the advice of separate legal counsel prior to
executing this Agreement, and (c) fully understands all provisions of this Agreement.

§ 10. Assignment; Binding Effect. Executive understands that he has been selected for
employment by the Company on the basis of his personal qualifications, experience and skills.
Executive agrees, therefore, that he cannot assign or delegate all or any portion of his
performance under this Agreement. This Agreement may not be assigned or transferred by the Company
without the prior written consent of Executive. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns. Notwithstanding the
foregoing, if Executive accepts employment with an Affiliate, unless Executive and his new employer
agree otherwise in writing, this Agreement shall automatically be deemed to have been assigned to
such new employer (which shall thereafter be an additional or substitute beneficiary of the
covenants contained herein, as appropriate), with the consent of Executive, such assignment shall
be considered a condition of employment by such new employer, and references to the “Company” in
this Agreement shall be deemed to refer to such new employer.

§ 11. Complete Agreement; Waiver: Amendment. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors or representatives
covering the same subject matter as this Agreement. This Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company and Executive with respect
to the subject matter hereof and thereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This Agreement may not be
later modified except by a further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term.

§ 12. Notices. All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be given or made by
personally delivering the same to or sending the same by prepaid certified or registered mail,
return receipt requested, or by reputable overnight courier, or by facsimile machine to the party
to which it is directed at the address set out on the signature page to this Agreement, with copies
to counsel as indicated, or at such other address as such party shall have specified by written
notice to the other party as provided in this Section, and shall be deemed to be given if delivered
personally at the time of delivery, or if sent by certified or registered mail as herein provided
three (3) days after the same shall have been posted, or if sent by reputable overnight courier
upon receipt, or if sent by facsimile machine as soon as the sender receives written or telephonic
confirmation that the facsimile was received by the recipient and such facsimile is followed the
same day by mailing by prepaid first class mail.

§ 13. Severability; Headings. If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by the portion held
invalid and inoperative. This severability provision shall be in addition to, and not in place of,
the provisions of Section 5.3 above. The Sections headings herein are for reference
purposes only and are not intended in any way to describe, interpret, define or limit the extent or
intent of this Agreement or of any part hereof.

§ 14. Equitable Remedy. Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the restrictive covenants set forth in Sections 5 and 6
hereof, and because of the immediate and irreparable damage that would be caused to the Company for
which monetary damages would not be a sufficient remedy, it is hereby agreed that in addition to
all other remedies that may be available to the Company or Executive at law or in equity, the
Company or Executive shall be entitled to specific performance and any injunctive or other
equitable relief as a remedy for any breach or threatened breach of the aforementioned restrictive
covenants.

§ 15. Arbitration. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. The arbitrators shall not
have the authority to add to, detract from, or modify any provision hereof nor to award punitive
damages to any injured party. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators’ award in any court having jurisdiction.
Notwithstanding the foregoing, the Company shall be entitled to seek injunctive or other equitable
relief, as contemplated by Section 14 hereof, from any court of competent jurisdiction,
without the need to resort to
arbitration. Should judicial proceedings be commenced to enforce or carry out this provision
or any arbitration award, the prevailing party in such proceedings shall be entitled to reasonable
attorneys’ fees and costs in addition to other relief.

 

8

 

§ 16. Governing Law. This Agreement shall in all respects be construed according to
the laws of the Commonwealth of Virginia, without regard to its conflict of laws principles.

§ 17. Counterparts. This Agreement may be executed in any number of counterparts, each
of which may be executed by less than all of the parties to this Agreement, each of which shall be
enforceable against the parties actually executing such counterparts, and all of which together
shall constitute one instrument.

§ 18. Signatures. The parties shall be entitled to rely upon and enforce a facsimile
of any authorized signatures as if it were the original.

[Signatures on following page.]

 

9

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	STAR SCIENTIFIC, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/S/ Paul L. Perito
 

	 	 
	 

	 	 	 	Paul L. Perito	 	 
	 

	 	 	 	President	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices:	 	 
	 
	 	 	 	 	 	 
	 	 	1250 24th Street, N.W.	 	 
	 	 	Seventh Floor	 	 
	 	 	Washington, D.C. 20037	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Jonnier R. Williams	 	 
	 	 	 	 	 
	 	 	Jonnie R. Williams	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices:	 	 
	 
	 	 	 	 	 	 
	 	 	1 Starwood Lane	 	 
	 	 	Mankin-Sabat, VA 23103	 	 

Attachment: Schedule 2.3

 

10

 

Schedule 2.3

March 14, 2011

Star Scientific, Inc.

Performance Criteria and Percentage Allocation for Option Vesting

	•	 	The introduction of AnatablocTM into the market for sale as a dietary supplement, following
a successful clinical trial of the product and a related clinical study report by an
independent third party issued by such party (80% of options granted on March 14, 2011)

	•	 	Gross sales of CigRx® surpass $1,000,000 on a cumulative basis (20%)

	•	 	Public stock of Star Scientific trades at above $5.00 at close of NASDAQ market on any one
trading day (50%)

	•	 	The Company enters into an agreement with a major tobacco (including one of the top three
US tobacco companies) company for licensing and/or sale of one of its three BDL smokeless
products and/or the licensing or sale of the current versions of Stonewall or Ariva (25%)

	•	 	The Company enters into an agreement for the development of an isomer of its RCP006
compound as a drug product (20%)

	•	 	The United States Court of Appeals for the Federal Circuit reverses the jury verdict in
favor of RJR and remands the case back to the Federal District Court for a retrial (40%)

	•	 	The Food & Drug Administration (FDA), after review and consideration, acts favorably on any
one of the three (3) pending Modified Risk Applications under §911 of the Tobacco Act of 2009
for the Company’s low-TSNA smokeless tobacco products (20%)

	•	 	The PTO rules in Star’s favor on the two pending Reexamination Petitions addressing claims
in the ‘649 and ‘401 patents (15%)

 

11EX-10.79

EXHIBIT 10.79

THIRD AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

THIS THIRD AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered
into as of March 14, 2011, by and between STAR SCIENTIFIC, INC., a Delaware corporation (the
“Company”), and PAUL L. PERITO (“Executive”).

Recitals

A. The Company is engaged in the commercialization of tobacco containing less toxins
(principally tobacco specific nitrosamines (“TSNA”)), development of less toxic tobacco products
and potentially reduced-risk tobacco products, and the development, testing, and commercialization
of certain compounds through its Rock Creek Pharmaceuticals subsidiary.

B. Executive is the Chairman of the Board, President and Chief Operating Officer of the
Company.

C. The Company and Executive are parties to a certain Amended and Restated Executive
Employment Agreement, dated as of June 14, 2002, as amended and modified by that certain First
Modification Agreement, dated as of November 1, 2002 and as amended and restated in that Second
Amended and Restated Executive Employment Agreement dated December 30, 2005 (collectively, the
“Original Employment Agreement”).

D. The Company and Executive desire to modify and amend certain terms of the Original
Employment Agreement to consolidate all of the terms and conditions of the Original Employment
Agreement as so modified into a single amended and restated employment agreement.

Agreement

NOW, THEREFORE, in consideration of these premises, the mutual covenants and agreements of the
parties hereunder, and for other good and valuable consideration the sufficiency and receipt of
which are hereby acknowledged, the parties hereto hereby agree as follows:

§ 1. Employment and Duties.

1.1  Position. The Company hereby employs Executive, and Executive hereby accepts
employment with the Company, as President and Chief Operating Officer of the Company.

1.2 Duties. Executive agrees to devote his best efforts, and shall have primary
responsibility within the Company, to oversee and manage (i) development and management of the
intellectual property, including all matters relating to science and technology related to the
Company’s business and all related research and development, (ii) legal affairs of the Company,
including all matters concerning the Company’s corporate governance and structure, securities laws
and other regulatory compliance, employment laws compliance and counseling, contract negotiation
and dispute resolution, and litigation involving the Company, (iii) financial affairs of the
Company, (iv) government relations and lobbying concerning the Company’s business and affairs, (v)
public and investor relations concerning the Company’s business and affairs, and (vi) such other
duties, including management and oversight functions, consistent with the foregoing, assigned to
him by the Board of Directors of the Company (the “Board of Directors”). Executive shall perform
his duties in a trustworthy, businesslike and loyal manner.

1.3 Authority to Select Counsel and Government and Public Relations Professionals.
Executive shall have sole authority, subject only to confirmation and ratification by the Board of
Directors, to select all outside counsel, lobbyists and other government relations professionals,
and public relations professionals as Executive deems necessary and appropriate in the performance
of his duties hereunder.

1.4 Reporting. Executive shall report to the Board of Directors.

 

 

 

1.5 Place of Employment. The Company shall maintain and pay all costs associated with
the Company’s Washington, D.C. and Bethesda offices which shall be the principal offices in which
Executive shall perform his services hereunder, as well as the Company’s principal offices for the
regulatory functions of the Company.

1.6 Change of Duties. The duties of Executive may be modified from time to time by the
mutual consent of the Company and Executive without resulting in a rescission of this Agreement.
The mutual written consent of the Company and Executive shall constitute execution of that
modification. Notwithstanding any such change, the employment of Executive shall be construed as
continuing under this Agreement as so modified.

1.7 Devotion of Time to Company’s Business. During the Term of this Agreement (as such
term is defined in Section 1.9. hereof), Executive agrees (i) to devote substantially all
of his productive time, ability and attention to the business of the Company during normal working
hours, (ii) not to engage in any other business duties or business pursuits whatsoever which
conflict with his duties to the Company, (iii) whether directly or indirectly, not to render any
services of a commercial or professional nature to any individual, trust, partnership, company,
corporation, business, organization, group or other entity (each, a “Person”) which conflict with
his duties to the Company, whether for compensation or otherwise, without the prior written consent
of the Board of Directors, and (iv) whether directly or indirectly, not to acquire, hold or retain
more than a one percent (1%) interest in any business competing with or similar in nature to the
business of the Company or any of its Affiliates (as such term is defined below); provided, however,
the expenditure of reasonable amounts of time for litigation support, book projects, charitable,
professional educational or professional activities or, subject to the foregoing, the making of
passive personal investments shall not be deemed a breach of this Agreement or require the prior
written consent of the Company if those activities do not materially interfere with the services
required of Executive under this Agreement. For purposes of this Agreement, “Affiliates” shall mean
any Person that, directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Company.

1.8 Term. Unless sooner terminated as provided in Section 4 hereof the term of
this Agreement shall commence on effective as of January 1, 2011 and shall continue through
December 31, 2012 (the “Term”). The Company and Executive shall consult on extension of the Term as
soon as reasonably practicable in the month of September 2012 but neither the Company nor the
Executive shall be under any obligation to extend the Term. The Term, together with any extension
or renewal terms shall be referred to in this Agreement as the “Term of this Agreement.”

1.9 Observance of Company Rules, Regulations and Policies. Executive shall duly,
punctually and faithfully perform and observe any and all rules, regulations and policies which the
Company may now or hereafter reasonably establish governing the conduct of its business or its
employees to the extent such rules, regulations and policies are not in conflict with this
Agreement. Executive shall promptly provide written notice to the Board of Directors of any such
apparent conflict of which Executive becomes aware.

§ 2. Compensation.

2.1 Base Salary. During the Term of this Agreement, the Company shall pay to Executive
an annual base salary in such amounts as the Compensation Committee of the Board of Directors shall
recommend to the full Board of Directors for approval (the “Base Salary”) and the Base Salary for
2011 shall initially be set at $1,000,000, subject to adjustment from time to time in the good
faith discretion of the Board of Directors, payable in arrears on a monthly or semi-monthly basis
in accordance with the Company’s standard payroll procedures in effect at the time of payment.

2.2 Performance Bonuses. In addition to the Base Salary, the Company may pay to
Executive bonuses based on the Company’s performance and/or Executive’s performance as follows:

(a) Discretionary/Special Bonuses. Based upon performance of the Company as reflected
by satisfaction of the performance goals that may be established from time to time by the
Compensation Committee and approved by the Board of Directors, the Company may pay Executive a
bonus in addition to Base Salary.

(b) Establishment of Annual Bonus Performance Goals. The Company may propose new
performance goals for purposes of determining additional annual bonuses payable to Executive, in
consultation with Executive.

2.3 Stock Options. The Company and Executive acknowledge the entry on or about March
14, 2011, into an agreement granting to Executive an option to purchase 4,000,000 shares of the
Common Stock of the Company upon terms set forth in such agreement.
Such options shall vest and become exercisable solely upon stockholder approval and
achievement of the performance goals set forth in Schedule 2.3 attached hereto.

 

2

 

2.4 Incentive Plans. In addition to all other benefits and compensation provided by
this Agreement, Executive shall be eligible to participate in such of the Company’s equity,
compensation and incentive plans as are generally available to any of the management executives of
the Company, including without limitation any executive and performance bonus or incentive plans.

2.5 Vacation. Executive shall be entitled to such annual vacation time with full pay
as the Company may provide in its standard policies and practices for any other management
executives; provided, however, that in any event Executive shall be entitled to a minimum of twenty
(20) days annual paid vacation time.

2.6 Directors and Officers Liability Insurance; Professional Liability Insurance.
Executive shall be entitled to participation in, and have the benefit of directors and officers
liability insurance providing coverage in an amount of less than that provided by the Company for
its Chief Executive Officer and/or Chairman of the Board. The Company shall acquire and maintain
professional liability insurance for Executive insuring against any claims against Executive
arising from his performance of legal services to the Company while acting in his capacity as an
officer and employee of the Company.

2.7 Term Life Insurance. The Company shall maintain the term life insurance policy in
the amount of $5,000,000 as presently provided by the Company with the Perito 1995 Family Trust
U/A/D 53195, Robin Crawford Perito, Trustee, as beneficiary thereunder, and shall pay the premiums
due on such policy and maintain such policy in full force and effect during the Term of this
Agreement.

2.8 Disability Insurance. The Company shall maintain the disability insurance policy
presently provided by the Company and the Company shall pay the premiums due on such policy and
maintain such policy in full force and effect during the Term of this Agreement.

2.9 Automobile. The Company will furnish Executive with an automobile equipped with a
car telephone and will reimburse Executive all reasonable costs and expenses relating to
Executive’s use of such automobile and car telephone, including without limitation, amounts
incurred for insurance, gas and general maintenance and repairs.

2.10 Mobile Telephone. Executive shall have use of a wireless mobile telephone of his
choice and the Company will be responsible for payment of all business usage charges and all usual
operational and maintenance expenses associated with the use by Executive of such telephone.

2.11 Club Dues. The Company shall reimburse Executive for monthly and/or annual dues
related to Executives membership in the City Club, Georgetown Club, University Club and Kenwood
Golf Club.

2.12 Outside Counsel for Executive. In order for Executive to have the benefit of
counsel to advise and counsel Executive with respect to the employment issues relating to terms of
this Agreement, the Company shall pay the reasonable attorneys’ fees and expenses incurred by
Executive in connection with such advise and counsel and the drafting and execution of this
Agreement.

2.13 Other Benefits. Executive shall participate in and have the benefits of all
present and future vacation, holiday, paid leave, unpaid leave, life, accident, disability, dental,
vision and health insurance plans, pension, profit-sharing and savings plans and all other plans
and benefits which the Company now or in the future from time to time makes available to any of its
management executives.

2.14 Withholding. The parties shall comply with all applicable legal withholding
requirements in connection with all regular monthly and/or bi-monthly compensation payable to
Executive hereunder.

§ 3. Expense Reimbursement.

3.1 General Business Expenses. The Company shall reimburse Executive for all business
travel and other out-of-pocket expenses reasonably incurred by Executive in the course of
performing his duties under this Agreement. All reimbursable expenses shall be appropriately
documented and shall be in reasonable detail and in a format and manner consistent with the
Company’s expense reporting policy, as well as applicable federal and state tax record keeping
requirements.

 

3

 

3.2 Professional Educational Expenses and Fees. In addition, the Company shall
reimburse Executive for (i) all reasonable expenses incurred for continuing education courses
required to maintain Executive’s professional status and bar membership as an attorney, and (ii)
all reasonable professional fees, licenses, and dues associated with Executive’s professional
status and bar membership as an attorney.

§ 4. Termination and Rights on Termination. This Agreement shall terminate upon the
occurrence of any of the following events:

4.1 Death. Upon the death of Executive, in which event the Company shall, within
thirty (30) days of receiving notice of such death, pay Executive’s estate all salary and other
compensation hereunder, then due and payable and all accrued vacation pay and bonuses, if any, in
each case payable or accrued through the date of death. In addition, the Company shall pay
Executive’s estate, at the time or times otherwise payable under the terms of this Agreement, all
salary and accrued benefits that would have been payable hereunder by the Company to Executive
during the one year period immediately following Executive’s death. Any payment due under this
Section 4.1 may be funded by one or more policies of life insurance to be purchased by the
Company and which provide for a benefit in the amount payable to Executive as beneficiary under
such policy or policies equal to that due Executive under this Section. In the event the Company
purchases such policy or policies and thereafter maintains such policy or policies in continuous
and full force and effect during the term hereof, then Executive agrees to look solely to such
policy or policies for payment of any amount due hereunder; provided, however, that in the event
the Company does not purchase such policy or policies and thereafter maintain such policy or
policies in continuous and full force and effect during term hereof, then the Company shall be
directly and fully obligated to Executive for such payment.

4.2 Disability. Upon the mental or physical Disability (as such term is defined below)
of Executive, in which event the Company shall, within thirty (30) days following the determination
of Disability, pay Executive all salary then due and payable and all accrued vacation pay and
bonuses, if any, in each case payable or accrued through the date of determination. In addition,
the Company shall pay all salary and accrued benefits that would have been payable hereunder by the
Company to Executive during the one year period immediately following Executive’s disability. For
purposes of this Agreement, “Disability” shall mean a physical or mental condition, verified by a
physician designated by the Company, which prevents Executive from carrying out one or more of the
material aspects of his assigned duties for at least ninety (90) consecutive days, or for a total
of ninety (90) days in any six (6) month period. Any payment due under this Section 4.2 may
be funded by one or more policies of disability insurance to be purchased by the Company and which
provide for a benefit in the amount payable to Executive as beneficiary under such policy or
policies equal to that due Executive under this Section. In the event the Company purchases such
policy or policies and thereafter maintains such policy or policies in continuous and full force
and effect during the term hereof, then Executive agrees to look solely to such policy or policies
for payment of any amount due hereunder; provided, however, that in the event the Company does not
purchase such policy or policies and thereafter maintain such policy or policies in continuous and
full force and effect during term hereof, then the Company shall be directly and fully obligated to
Executive for such payment.

4.3 Termination by the Company For Cause. Upon delivery by the Company to Executive of
a written notice terminating this Agreement for Cause (as such term is defined below), which notice
shall be supported by a reasonably detailed statement of the relevant facts and reasons for
termination, in which event the Company shall, within thirty (30) days following such termination,
pay Executive all salary then due and payable through the date of termination. Executive shall not
be entitled to any severance compensation or any accrued vacation pay or bonuses. For purposes of
this Agreement, “Cause” shall mean:

(a) Executive shall have committed an act of dishonesty, fraud, embezzlement or theft with
respect to the property, business or affairs of the Company, in any such event in such a manner as
to cause material loss, damage or injury to the Company;

 

4

 

(b) Executive shall have materially breached this Agreement and such breach shall have
continued for a period of twenty (20) days after receipt of written notice from the Company
specifying such breach;

(c) Executive shall have been grossly negligent in the performance of his duties hereunder,
intentionally not performed or misperformed any of such duties, or refused to abide by or comply
with the directives of the Board of Directors, which action shall have continued for a period of
twenty (20) days after receipt of written notice from the Company demanding such action cease or
be cured;

(d) Executive shall have been found guilty of, or has plead nolo contendere to, the
commission of a felony offense or other crime involving moral turpitude; or

(e) Executive shall have abused alcohol or drugs (legal or illegal) that, in the reasonable
judgment of the Board of Directors, materially impairs Executive’s ability to perform his duties
hereunder.

4.4 Termination by the Company Without Cause. Thirty (30) days after delivery by the
Company to Executive of a written notice terminating Executive’s employment under this Agreement
for any reason without cause, in which event the Company shall continue to pay Executive all
salary, benefits, bonuses and other compensation that would be due hereunder through the end of the
Term of this Agreement had the Company not terminated Executive’s employment.

4.5 Voluntary Termination by Executive. Thirty (30) days after delivery by Executive
to the Company of a written notice terminating this Agreement for any reason without cause, in
which event the Company shall, within thirty (30) days following the effective date of termination,
pay Executive all salary then due and payable through the date of termination. Executive shall not
be entitled to any severance compensation or any accrued vacation pay or bonuses.

4.6 Termination by Executive for Good Reason. Thirty (30) days after delivery by
Executive to the Company of a written notice terminating this Agreement for Good Reason (as such
term is defined below), in which event the Company shall pay Executive such amounts in such manner
as provided for in Section 4.4 hereof. For purposes of this Agreement, “Good Reason” shall
mean:

(a) The assignment of Executive to any duties inconsistent with, or any adverse change in,
Executive’s positions, duties, responsibilities, functions or status with the Company, or the
removal of Executive from, or failure to reelect Executive to, any of such positions; provided,
however, that a change in Executive’s positions, duties, responsibilities, functions or status
that Executive shall agree to in writing shall not be an event of Good Reason or give rise to
termination under this Section 4.6;

(b) A reduction by the Company of Executive’s Base Salary without his written consent;

(c) The failure by the Company to continue in effect for Executive any material benefit
provided herein or otherwise available to any of the management executives of the Company,
including without limitation, any retirement, pension or incentive plans, life, accident,
disability or health insurance plans, equity or cash bonus plans or savings and profit sharing
plans, or any action by the Company which would adversely affect Executive’s participation in or
reduce Executive’s benefits under any of such plans or deprive Executive of any fringe benefit
enjoyed by Executive; or

(d) Any other material breach by the Company of this Agreement which is not cured within
twenty (20) days of delivery of written notice thereof by Executive to the Company.

4.7 Termination by Executive upon Certain Change of
Management. Thirty (30) days after delivery by Executive to the Company of a written notice
terminating this Agreement upon (a) a change
in the senior management of the Company resulting from the death or disability of Jonnie R.
Williams, or (b) a removal and replacement of a majority of the Board of Directors, including such
other persons elected to serve as directors with the approval of the Board of Directors subsequent
to the date hereof, by the stockholders of the Company at a special meeting of the stockholders,
held in accordance with the terms of the Company’s Certificate of Incorporation and By-Laws and in
accordance with all applicable laws, called by a stockholder or a group of stockholders of the
Company for such purpose, in which event the Company shall, within thirty (30) days following the
effective date of termination, pay Executive the sum of $2,500,000. Although
the parties have been advised that 26 U.S.C. 280G is not applicable to any payment that may
become due Executive hereunder, if 26 U.S.C. 280G is found to be applicable, then the Company shall
pay any tax due by Executive under Section 280G as a result of any payment to Executive under this
Section 4.7. It is anticipated by the parties that payment that may become due under (b)
above will be funded by one or more policies of life and/or disability insurance to be purchased by
the Company which provide for a benefit in the amount of $2,500,000 payable to Executive as
beneficiary under such policy or policies. In the event the Company purchases such policy or
policies and thereafter maintains such policy or policies in continuous and full force and effect
during the term hereof, then Executive agrees to look solely to such policy or policies for payment
of any amount due under (ii) above; provided, however, that in the event the Company does not
purchase such policy or policies and thereafter maintain such policy or policies in continuous and
full force and effect during the term hereof, then the Company shall be directly and fully
obligated to Executive for such payment.

 

5

 

4.8 Effect of Termination; Executive’s Stock Options. All rights and obligations of
the Company and Executive under this Agreement shall cease as of the effective date of termination,
except that the obligations of the Company under this Section 4 and Executive’s obligations
under Sections 5 and 6 hereof shall survive such termination in accordance with their
respective terms. In addition, notwithstanding anything to the contrary contained herein or in any
agreement with respect thereto, (a) upon termination of Executive’s employment pursuant to
Sections 4.3 or 4.5, all equity options, restricted equity grants and similar rights held
by Executive with respect to securities of the Company, including without limitation Executive’s
stock options referred to in Section 2.3 herein shall, to the extent not then fully vested,
immediately terminate and revert to the Company, (b) upon termination of Executive’s employment
pursuant to Section 4.4, all equity options, restricted equity grants and similar rights
held by Executive with respect to securities of the Company, including without limitation
Executive’s stock options referred to in Section 2.3 herein shall, remain in full force and
effect and shall not be affected by such termination, and (c) upon termination of Executive’s
employment pursuant to any other provision of this Section 4, all equity options,
restricted equity grants and similar rights held by Executive with respect to securities of the
Company, including without limitation Executive’s stock options referred to in Section 2.3
herein, if such stock options shall have been approved by the Company’s stockholders, shall, to the extent not then fully vested, immediately become fully vested.

4.9 No Termination by Merger; Transfer of Assets or Dissolution. This Agreement shall
not be terminated by any dissolution of the Company resulting from either merger or consolidation
in which the Company is not the consolidated or surviving corporation or other entity or transfer
of all or substantially all of the assets of the Company. In such event, the rights, benefits and
obligations herein shall automatically be deemed to be assigned to the surviving or resulting
corporation or other entity or to the transferee of the assets, as the case may be, with the
consent of Executive.

§ 5. Restriction on Competition.

5.1 Covenant Not to Compete. During the Term of this Agreement and for a period of
twelve (12) months from the termination of this Agreement, Executive shall not, without the prior
written consent of the Company, either directly or indirectly, for himself or on behalf of or in
conjunction with any other Person (i) own, manage, operate, control, be employed by, participate
in, render services to, or be associated in any manner with the ownership, management, operation or
control of, any business similar to the type of business conducted by the Company or any of its
Affiliates within any of the geographic territories in which the Company or any of its Affiliates
conducts business, (ii) solicit business of the same or similar type being carried on by the
Company or any of its Affiliates from any Person known by Executive to be a customer of the Company
or any of its Affiliates, whether or not Executive had personal contact with such Person during and
by reason of Executive’s employment with the Company, or (iii) endeavor or attempt in any way to
interfere with or induce a breach of any contractual relationship that the Company or any of its
Affiliates may have with any employee, customer, contractor, supplier, representative or
distributor.

5.2 No Breach for Activities Deemed Not Competitive. It is further agreed that, in the
event that Executive shall cease to be employed by the Company and enter into a business or pursue
other activities that, at such time, are not in competition with the Company or any of its
Affiliates, Executive shall not be chargeable with a violation of this Section 5 if the
Company subsequently enters the same (or a similar) competitive business or activity. In addition,
if Executive has no actual knowledge that his actions violate the terms of this Section 5,
Executive shall not be deemed to have breached the restrictive covenants contained herein if,
promptly after being notified by the Company of such breach, Executive ceases the prohibited
actions.

5.3 Severability. The covenants in this Section 5 are severable and separate,
and the unenforceability of any specific covenant shall not affect the provisions of any other
covenant. If any provision of this Section 5 relating to the time period or geographic area
of the restrictive covenants shall be declared by a court of competent jurisdiction to exceed the
maximum time period or geographic area, as applicable, that such court deems reasonable and
enforceable, such time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that such court
deems reasonable and enforceable and this Agreement shall automatically be considered to have been
amended and revised to reflect such determination.

 

6

 

5.4 Fair and Reasonable. Executive has carefully read and considered the provisions of
this Section 5 and, having done so, agrees that the restrictive covenants in this 
Section 5 impose a fair and reasonable restraint on Executive and are reasonably required to
protect the interests of the Company, its Affiliates and their respective officers, directors,
employees and stockholders. It is further agreed that the Company and Executive intend that such
covenants be construed and enforced in accordance with the changing activities, business and
locations of the Company throughout the term of these covenants.

§ 6. Confidential Information.

6.1 Confidential Information. Executive hereby agrees to hold in strict confidence and
not to disclose to any third party, other than employees and agents of the Company or persons
retained by the Company to represent its interests, any of the valuable, confidential and
proprietary business, financial, technical, economic, sales and/or other types of proprietary
business information relating to the Company or any of its Affiliates (including all trade secrets)
in whatever form, whether oral, written, or electronic (collectively, the “Confidential
Information”), to which Executive has, or is given (or has had or been given), access during the
course of his employment with the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential Information encompasses
technical know-how, trade secrets, or technical, financial, organizational, sales or other valuable
aspects of the business and trade of the Company or its Affiliates, including without limitation,
technologies, products, processes, plans, clients, personnel, operations and business activities.
This restriction shall not apply to any Confidential Information that (a) becomes known generally
to the public through no fault of the Executive, (b) is required by applicable law, legal process,
or any order or mandate of a court or other governmental authority to be disclosed, or (c) is
reasonably believed by Executive, based upon the advice of legal counsel, to be required to be
disclosed in defense of a lawsuit or other legal or administrative action brought against
Executive; provided, however, that in the case of clause (b) or (c), Executive shall give the
Company reasonable advance written notice of the Confidential Information intended to be disclosed
and the reasons and circumstances surrounding such disclosure, in order to permit the Company to
seek a protective order or other appropriate request for confidential treatment of the applicable
Confidential Information.

6.2 Return of Company Property. In the event of termination of Executive’s employment
with the Company for whatever reason or no reason, (a) Executive agrees not to copy, make known,
disclose or use, any of the Confidential Information without the Company’s prior written consent,
and (b) Executive or Executive’s personal representative shall return to the Company (i) all
Confidential Information, (ii) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts, advertising
materials and other data or property delivered to or compiled by Executive by or on behalf of the
Company or its respective representatives, vendors or customers that pertain to the business of the
Company or any of its Affiliates, whether in paper, electronic or other form, and (iii) all keys,
credit cards, vehicles and other property of the Company. Executive shall not retain or cause to be
retained any copies of the foregoing. Executive hereby agrees that all of the foregoing shall be
and remain the property of the Company and the applicable Affiliates and be subject at all times to
their discretion and control.

§ 7. Corporate Opportunities.

7.1 Duty to Notify. During the Term of this Agreement, in the event that Executive
shall become aware of any business opportunity related to the business of the Company, Executive
shall promptly notify the Board of Directors of such opportunity. Executive shall not appropriate
for himself or for any other Person other than the Company (or any Affiliate) any such opportunity
unless, as to any particular opportunity, the Board of Directors fails to take appropriate action
within thirty (30) days. Executive’s duty to notify the Board of Directors and to refrain from
appropriating all such opportunities for thirty (30) days shall neither be limited by, nor shall
such duty limit, the application of the general laws relating to the fiduciary duties of an agent
or employee.

7.2 Failure to Notify. In the event that Executive fails to notify the Board of
Directors or so appropriates any such opportunity without the express written consent of the Board
of Directors, Executive shall be deemed to have violated the provisions of this Section
notwithstanding the following:

(a) The capacity in which Executive shall have acquired such opportunity; or

(b) The probable success in the hands of the Company of such opportunity.

 

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§ 8. No Prior Agreements. Executive hereby represents and warrants to the Company that
the execution of this Agreement by Executive, his employment by the Company, and the performance of
his duties hereunder will not violate or be a breach of any agreement with a former employer or any
other Person. Further, Executive agrees to indemnify and hold harmless the Company and its
officers, directors and representatives for any claim, including, but not limited to, reasonable
attorneys’ fees and expenses of investigation, of any such third party that such third party may
now have or may hereafter come to have against the Company or such other persons, based upon or
arising out of any non-competition agreement, invention, secrecy or other agreement between
Executive and such third party that was in existence as of the effective date of this Agreement. To
the extent that Executive had any oral or written employment agreement or understanding with the
Company, this Agreement shall automatically supersede such agreement or understanding, and upon
execution of this Agreement by Executive and the Company, such prior agreement or understanding
automatically shall be deemed to have been terminated and shall be null and void.

§ 9. Representation. Executive acknowledges that he (a) has reviewed this Agreement in
its entirety, (b) has had an opportunity to obtain the advice of separate legal counsel prior to
executing this Agreement, and (c) fully understands all provisions of this Agreement.

§ 10. Assignment; Binding Effect. Executive understands that he has been selected for
employment by the Company on the basis of his personal qualifications, experience and skills.
Executive agrees, therefore, that he cannot assign or delegate all or any portion of his
performance under this Agreement. This Agreement may not be assigned or transferred by the Company
without the prior written consent of Executive. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective heirs, legal representatives, successors, and assigns. Notwithstanding the
foregoing, if Executive accepts employment with an Affiliate, unless Executive and his new employer
agree otherwise in writing, this Agreement shall automatically be deemed to have been assigned to
such new employer (which shall thereafter be an additional or substitute beneficiary of the
covenants contained herein, as appropriate), with the consent of Executive, such assignment shall
be considered a condition of employment by such new employer, and references to the “Company” in
this Agreement shall be deemed to refer to such new employer.

§ 11. Complete Agreement; Waiver: Amendment. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors or representatives
covering the same subject matter as this Agreement. This Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company and Executive with respect
to the subject matter hereof and thereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This Agreement may not be
later modified except by a further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term.

§ 12. Notices. All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be given or made by
personally delivering the same to or sending the same by prepaid certified or registered mail,
return receipt requested, or by reputable overnight courier, or by facsimile machine to the party
to which it is directed at the address set out on the signature page to this Agreement, with copies
to counsel as indicated, or at such other address as such party shall have specified by written
notice to the other party as provided in this Section, and shall be deemed to be given if delivered
personally at the time of delivery, or if sent by certified or registered mail as herein provided
three (3) days after the same shall have been posted, or if sent by reputable overnight courier
upon receipt, or if sent by facsimile machine as soon as the sender receives written or telephonic
confirmation that the facsimile was received by the recipient and such facsimile is followed the
same day by mailing by prepaid first class mail.

§ 13. Severability; Headings. If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by the portion held
invalid and inoperative. This severability provision shall be in addition to, and not in place of,
the provisions of Section 5.3 above. The Sections headings herein are for reference
purposes only and are not intended in any way to describe, interpret, define or limit the extent or
intent of this Agreement or of any part hereof.

§ 14. Equitable Remedy. Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the restrictive covenants set forth in Sections 5 and 6
hereof, and because of the immediate and irreparable damage that would be caused to the Company for
which monetary damages would not be a sufficient remedy, it is hereby agreed that in addition to
all other remedies that may be available to the Company or Executive at law or in equity, the
Company or Executive shall be entitled to specific performance and any injunctive or other
equitable relief as a remedy for any breach or threatened breach of the aforementioned restrictive
covenants.

 

8

 

§ 15. Arbitration. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration conducted in accordance
with the rules of the American Arbitration Association then in effect. The arbitrators shall not
have the authority to add to, detract from, or modify any provision hereof nor to award punitive
damages to any injured party. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators’ award in any court having jurisdiction.
Notwithstanding the foregoing, the Company shall be entitled to seek injunctive or other equitable
relief, as contemplated by Section 15 hereof, from any court of competent jurisdiction,
without the need to resort to arbitration. Should judicial proceedings be commenced to enforce or
carry out this provision or any arbitration award, the prevailing party in such proceedings shall
be entitled to reasonable attorneys’ fees and costs in addition to other relief.

§ 16. Governing Law. This Agreement shall in all respects be construed according to
the laws of the Commonwealth of Virginia, without regard to its conflict of laws principles.

§ 17. Counterparts. This Agreement may be executed in any number of counterparts, each
of which may be executed by less than all of the parties to this Agreement, each of which shall be
enforceable against the parties actually executing such counterparts, and all of which together
shall constitute one instrument.

§ 18. Signatures. The parties shall be entitled to rely upon and enforce a facsimile
of any authorized signatures as if it were the original.

[Signatures on following page.]

 

9

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	COMPANY:

STAR SCIENTIFIC, INC.

 	 
	 	By:  	/s/Jonnie R. Williams
 	 
	 	 	Jonnie R. Williams 	 
	 	 	Chief Executive  Officer 	 
	 
	 	Address for Notices:

4470 Cox Road

Suite 110

Glen Allen, VA 23060

Attention: Mr. Jonnie R. Williams

EXECUTIVE:

 	 
	 	/s/ Paul L. Perito
 	 
	 	Paul L. Perito 	 
	 	
Address for Notices:
7 Newlands Street
Chevy Chase, Maryland 20815 	 
	 

Attachment: Schedule 2.3

 

10

 

Schedule 2.3

March 14, 2011

Star Scientific, Inc.

Performance Criteria and Percentage Allocation for Option Vesting

	•	 	The introduction of AnatablocTM into the market for sale as a dietary supplement, following
a successful clinical trial of the product and a related clinical study report by an
independent third party issued by such party (80% of options granted on March 14, 2011)

	•	 	Gross sales of CigRx® surpass $1,000,000 on a cumulative basis (20%)
	 
	•	 	Public stock of Star Scientific trades at above $5.00 at close of NASDAQ market on any one
trading day (50%)

	•	 	The Company enters into an agreement with a major tobacco company (including one of the top three
US tobacco companies) for licensing and/or sale of one of its three BDL smokeless
products and/or the licensing or sale of the current versions of Stonewall or Ariva (25%)

	•	 	The Company enters into an agreement for the development of an isomer of its RCP006
compound as a drug product (20%)

	•	 	The United States Court of Appeals for the Federal Circuit reverses the jury verdict in
favor of RJR and remands the case back to the Federal District Court for a retrial (40%)

	•	 	The Food & Drug Administration (FDA), after review and consideration, acts favorably on any
one of the three (3) pending Modified Risk Applications under §911 of the Tobacco Act of 2009
for the Company’s low-TSNA smokeless tobacco products (20%)

	•	 	The PTO rules in Star’s favor on the two pending Reexamination Petitions addressing claims
in the ‘649 and ‘401 patents (15%)

 

11

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