Document:

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                             APPLIED FINANCIAL, INC.
                        6975 Union Park Center, Suite 200
                               Midvale, Utah 84047

                       MASTER LEASE AGREEMENT NO. AFI0224

       This Master Lease Agreement is made December 5, 2001, between APPLIED
FINANCIAL, INC., with its principal office at 6975 Union Park Center, Suite 200,
Midvale, UT 84047 (the "Lessor") and STAR SCIENTIFIC, INC. with its principal
office at 801 Liberty Way, Chester, VA 23836 (the "Lessee").

1.     LEASE:

       Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor,
the property (together with all attachments, replacements, parts, substitutions,
additions, repairs, accessions and accessories, incorporated therein and/or
affixed thereto) (collectively, the "Property") described in any Lease Schedule
("Schedule") executed and delivered by Lessor and Lessee in connection with this
Master Lease Agreement. Each Schedule shall incorporate by reference the terms
and conditions of this Master Lease Agreement, and together with the Acceptance
Certificate (as defined herein) and Master Progress Funding Agreement, if
applicable, shall constitute a separate "Lease". In the event of conflict
between the provisions of this Master Lease Agreement and any Schedule the
provisions of the Schedule shall govern.

2.     ADDITIONAL DEFINITIONS:

       (a)  Except as otherwise provided in Section 6(a) hereof, "Acceptance
Date" means, as to the Property designated on any Schedule, the date Lessee
accepts the Property as set forth in any acceptance certificate signed by the
Lessee which is acceptable to Lessor (the "Acceptance Certificate"). If Lessee
fails to sign and deliver an Acceptance Certificate, then except as otherwise
provided in Section 6(a) hereof, the Acceptance Date shall be a date determined
by Lessor which shall be no sooner than the date Lessee receives substantially
all of the Property.

       (b) "Commencement Date" means, as to the Property designated on any
Schedule, where the Acceptance Date for such Schedule falls on the first day of
a calendar quarter, that date, and in any other case, the first day of the
calendar quarter following the calendar quarter in which such Acceptance Date
falls.

3.     TERM OF LEASE:

       The term of any Lease, as to all Property designated on the applicable
Schedule, shall commence on the Acceptance Date for such Property, and shall
continue for all "Initial Period" ending that number of months from the
Commencement Date as specified in the Schedule. Thereafter, Lessee shall have
options to purchase or return the Property or to extend the Lease, all as
provided in Section 18(m) of this Agreement.

4.     RENT AND PAYMENT:

       Lessee shall pay as rent for use of the Property, aggregate rentals equal
to the sum of all the Monthly Rentals (defined in the Schedule) and other
payments due under the Lease for the entire Initial Period. The Monthly Rental
shall begin on the Acceptance Date and shall be due and payable by Lessee in
advance of the first day of each month throughout the Initial Period. If the
Acceptance Date does not

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fall on the first day of a calendar quarter, then the first rental payment shall
be calculated by multiplying the number of days from and including the
Acceptance Date to the Commencement Date by a daily rental equal to
one-thirtieth (1/30) of the Monthly Rental, and shall be due and payable on the
Acceptance Date. Lessee shall pay all rentals to Lessor, or its assigns, at
Lessor's address set forth above (or as otherwise directed in writing by Lessor,
or its assigns), without notice or demand. LESSEE SHALL NOT ABATE, SET OFF OR
DEDUCT ANY AMOUNT OR DAMAGES FROM OR REDUCE ANY MONTHLY RENTAL OR OTHER PAYMENT
DUE FOR ANY REASON. THIS LEASE IS NON-CANCELABLE FOR THE ENTIRE TERM OF THE
INITIAL PERIOD AND ANY EXTENSION PERIODS.

       If any rental or other payment due under any Lease shall be unpaid after
its due date, Lessee will pay on demand, as a late charge, but not as interest,
the greater of twenty-five dollars ($25) or two percent (2%) of any such unpaid
amount but in no event to exceed maximum lawful charges. If late charges are
assessed by a lending institution due to any late payment by Lessee, Lessee
agrees to pay such late charges or to reimburse Lessor for their payment.

5.     TAXES:

       Lessee shall pay to Lessor when due all taxes, fees, assessments and
charges paid, payable or required to be collected by Lessor, however designated,
which are levied or based on the Monthly Rental or other payment due under the
Lease, or on the possession, use, operation, lease, rental, sale, purchase,
control or value of the Property, including without limitation, registration and
license fees and assessments, state and local privilege or excise taxes,
documentary stamp taxes or assessments, sales and use taxes, personal and other
property taxes, and taxes or charges based on gross revenue, but excluding taxes
based on Lessor's net income (collectively, "taxes"). Lessor shall invoice
Lessee for all taxes in advance of their payment due date, and Lessee shall
promptly remit to Lessor all taxes upon receipt of an invoice from Lessor.
Lessee shall pay all penalties and interest resulting from its failure to timely
remit all taxes to Lessor when invoiced by Lessor. Lessor shall file all
required sales and use tax and personal property tax returns and reports
concerning the Property with all applicable governmental agencies.

6.     USE; ALTERATIONS AND ATTACHMENTS:

       (a)  After Lessee receives and inspects any Property and is satisfied
that the Property is satisfactory, Lessee shall execute and deliver to Lessor an
Acceptance Certificate in form provided by Lessor; provided, however, that
Lessee's failure to execute and deliver an Acceptance Certificate for any
Property shall not affect the validity and enforceability of the Lease with
respect to the Property. If Lessee has signed and delivered a Master Progress
Funding Agreement, Lessor may, in its sole discretion, at any time by written
notice to Lessee, declare all prior Authorizations signed in connection with the
Master Progress Funding Agreement to be and constitute the "Acceptance
Certificate" for all purposes under the Lease, and the Acceptance Date of the
Lease shall be the date determined by Lessor in its sole discretion which shall
not be earlier than the date of the last Authorization.

       (b)  Lessee shall at all times keep the Property in its sole possession
and control. The Property shall not be moved from the location stated in the
Schedule without the prior written consent of Lessor which consent shall not be
unreasonably withheld. Upon any permitted change in location, Lessee hereby
authorizes Lessor to file UCC financing statements, fixture filings, real
property waivers, and other filings and recordings as may be deemed necessary,
by Lessor. If the nature of the Property is such that it requires frequent
removal from the location stated in the Schedule, Lessee may move the Property
to another location or locations upon prior written notice to Lessor, subject to
the provisions outlined in this subparagraph (b). To the extent the Property
includes vehicles, such Property shall be home-based at the location in the
Schedule.

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       (c)  Lessee shall cause the Property to be installed, used, operated and,
at the termination of the Lease, removed (i) in accordance with any applicable
manufacturer's manuals or instructions; (ii) by competent and duly qualified
personnel only; and (iii) in accordance with applicable governmental
regulations.

       (d)  Lessee may not make alterations or attachments that will
detrimentally affect the Property's end-of-Initial Period residual value without
first obtaining the written consent of Lessor. Any such alterations or
attachments shall be made at Lessee's expense and shall not interfere with the
normal and satisfactory operation or maintenance of the Property. The
manufacturer may incorporate engineering changes or make temporary alterations
to the Property upon request of Lessee. Unless Lessor shall otherwise agree in
writing, all such alterations and attachments shall be and become the property
of Lessor upon their attachment to the Property or, at the option of Lessor,
shall be removed by Lessee at the termination of the Lease as to such Property
and the Property restored at Lessee's expense to its original condition,
reasonable wear and tear only excepted.

       (e)  The Property is and shall remain personal property during the term
of the Lease notwithstanding that any portion thereof may in any manner become
affixed, attached to or located on real property or any building or improvement
thereon. Lessee shall not permit the Property to become an accession to other
goods or a fixture to or part of any real property. Upon request by Lessor,
Lessee will obtain and deliver to Lessor a waiver of liens, in form satisfactory
to Lessor, from all persons not a party hereto who might secure an interest,
lien or other claim in the Property.

       (f)  In the event the Property includes software (which Lessee agrees
shall include all documentation, later versions, updates, upgrades, and
modifications) (herein "Software"), the following shall apply: (i) Lessee shall
possess and use the Software in accordance with the terms and conditions of any
license agreement ("License") entered into with the owner/vendor of such
Software and shall not breach the License (at Lessor's request, Lessee shall
provide a complete copy of the License to Lessor); (ii) Lessee agrees that
Lessor has an interest in the License and Software due to its payment of the
price thereof and is an assignee or third-party beneficiary of the License,
(iii) as due consideration for Lessor's payment of the price of the License and
Software and for providing the Software to Lessee at a lease rate (as opposed to
a debt rate), Lessee agrees that Lessor is leasing (and not financing) the
Software to Lessee; (iv) except for the original price paid by Lessor, Lessee
shall, at its own expense, pay promptly when due all servicing fees, maintenance
fees, update and upgrade costs, modification costs, and all other costs and
expenses relating to the License and Software and maintain the License in effect
during the term of the Lease; and (v) the Software shall be deemed Property for
all purposes under the Lease.

       (g)  Lessee shall comply with all applicable laws, regulations,
requirements, rules and orders, all manufacturer's instructions and warranty
requirements, and with the conditions and requirements of all policies of
insurance with respect to the Property and the Lease.

       (h)  The Property is leased solely for commercial or business purposes.

7.     MAINTENANCE AND REPAIRS; RETURN OF PROPERTY:

       (a)  During the continuance of each Lease, Lessee shall, at its own
expense, and in accordance with all manufacturer maintenance specifications, (i)
keep the Property in good repair, condition and working order; (ii) make all
necessary adjustments, repairs and replacements; (iii) furnish all required
parts, mechanisms, devices and servicing; and (iv) not use or permit the
Property to be used for any purpose for which, in the opinion of the
manufacturer, the Property is not designed or reasonably suitable. Such parts,
mechanisms and devices shall immediately become a part of the Property for all
purposes hereunder and title thereto shall vest in Lessor. If the manufacturer
does not provide

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maintenance specifications, Lessee shall perform all maintenance in accordance
with industry standards for like Property.

       (b)  During the continuance of each Lease, Lessee shall, at its own
expense, either (i) enter into and maintain in force a contract with the
manufacturer or other qualified maintenance organization reasonably satisfactory
to Lessor for maintenance of each item of Property that reasonably requires such
a contract, or (ii) self-maintain the items of Property in accordance with the
manufacturer's standard maintenance agreement. Such contract as to each item
shall commence upon the Acceptance Date. Lessee shall furnish Lessor with a copy
of such contract or provide to Lessor satisfactory evidence of self-maintenance,
in Lessor's sole discretion, upon demand.

       (c)  Lessee shall pay all shipping and delivery charges and other
expenses incurred in connection with the Property. Upon default, or at the
expiration or earlier termination of any Lease, Lessee shall, at its own
expense, assemble, prepare for shipment and promptly return the Property to
Lessor at the location within the Continental United States designated by
Lessor. Upon such return, the Property shall be in the same operating order,
repair, condition and appearance as of the Acceptance Date, except for
reasonable wear and tear from proper use thereof, and shall include all
engineering changes theretofore prescribed by the manufacturer. If available,
Lessee shall provide maintenance certificates or qualification letters and/or
arrange for and pay all costs which are necessary for the manufacturer to accept
the Property under contract maintenance at its then standard rates
("recertification"). The term of the Lease shall continue upon the same terms
and conditions until such recertification has been obtained. With regard to
Software, at the expiration or earlier termination of any Lease, or upon demand
by Lessor upon the occurrence of an Event of Default under the Lease, Lessee
shall (i) delete from its systems all Software then installed, (ii) destroy all
copies or duplicates of the Software which were not returned to Lessor, and
(iii) cease using the Software altogether. Upon its receipt from Lessee, Lessor
shall be responsible to return the Software to the owner/vendor/licensor so that
Lessee shall not be in breach of any software license.

8.     OWNERSHIP AND INSPECTION:

       (a)  The Property shall at all times be the property of Lessor or its
assigns, and Lessee shall have no right, title or interest therein except as to
the use thereof subject to the terms and conditions of the Lease. For purposes
of the foregoing, Lessee transfers to Lessor all of Lessee's right, title and
interest (including all ownership interest) in and to the Property free and
clear of all liens, security interests and encumbrances. Lessor may affix (or
require Lessee to affix) tags, decals or plates to the Property indicating
Lessor's ownership, and Lessee shall not permit their removal or concealment.
Lessee shall not permit the name of any person or entity other than Lessor or
its assigns to be placed on the Property as a designation that might be
interpreted as a claim of ownership or security interest.

       (b)  LESSEE SHALL KEEP THE PROPERTY AND LESSEE'S INTEREST UNDER ANY LEASE
FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES, EXCEPT THOSE PERMITTED IN WRITING
BY LESSOR OR ITS ASSIGNS.

       (c)  Lessor, its assigns and their agents shall have free access to the
Property at all reasonable times during normal business hours for the purpose of
inspecting the Property and for any other purpose contemplated in the Lease.

       (d)  Lessee shall immediately notify Lessor in writing of all details
concerning any material damage or loss to the Property, including without
limitation, any damage or loss arising from the alleged or apparent improper
manufacture, functioning or operation of the Property.

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9.     WARRANTIES:

       (a)  Lessee acknowledges that Lessor is not the manufacturer of the
Property nor manufacturer's agent nor a dealer therein. The Property is of a
size, design, capacity, description and manufacture selected by the Lessee.
Lessee is satisfied that the Property is suitable and fit for its purposes.
LESSEE AGREES THAT LESSOR HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR
REPRESENTATION WHATSOEVER, EXPRESS OR IMPLIED, AS TO THE PROPERTY, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OR REPRESENTATION AS TO: (i) THE DESCRIPTION,
CONDITION, DESIGN, QUALITY OR PERFORMANCE OF THE PROPERTY OR QUALITY OR CAPACITY
OF MATERIALS OR WORKMANSHIP IN THE PROPERTY; (ii) ITS MERCHANTABILITY OR FITNESS
OR SUITABILITY FOR A PARTICULAR PURPOSE WHETHER OR NOT DISCLOSED TO LESSOR, AND
(iii) DELIVERY OF THE PROPERTY FREE OF THE RIGHTFUL CLAIM OF ANY PERSON BY WAY
OF INFRINGEMENT OR THE LIKE. LESSOR EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES. If
the Software is not properly installed, does not function as represented or
warranted by original licensor, or is unsatisfactory for any reason, Lessee
shall make any claim on account thereof solely against original licensor and
shall nevertheless pay all sums payable under the Lease, Lessee hereby waiving
the right to make any Such claims against Lessor. Lessor shall not be liable to
Lessee for any loss, damage or expense of any kind or nature caused, directly or
indirectly, by the Property or the use, possession or maintenance thereof, or
the repair, service or adjustment thereof, or by any delay or failure to provide
any such maintenance, repair, service or adjustment, or by any interruption of
service or loss of use thereof (including without limitation, Lessee's use of or
right to use any Software) or for any loss of business howsoever caused.

       (b)  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE LEASE,
LESSOR SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO LESSEE OR ANY THIRD
PARTY, FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT
OF OR RELATED TO THE TRANSACTION CONTEMPLATED HEREUNDER, WHETHER IN AN ACTION
BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY) OR ANY OTHER
LEGAL THEORY, INCLUDING WITHOUT LIMITATION, LOSS OF ANTICIPATED PROFITS, OR
BENEFITS OF USE OR LOSS OF BUSINESS, EVEN IF LESSOR IS APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING.

       IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF
ANY LEASE WHICH PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES
OR EXCLUSION OF DAMAGES, IS INTENDED BY THE PARTIES TO BE SEVERABLE FROM ANY
OTHER PROVISION AND IS A SEPARABLE AND INDEPENDENT ELEMENT OF RISK ALLOCATION
AND IS INTENDED TO BE ENFORCED AS SUCH.

       (c)  Lessor assigns to Lessee all assignable warranties on the Property,
including without limitation any warranties described in lessor's purchase
contract, which assignment shall be effective only (i) during the Initial Period
and any extensions thereof, and (ii) so long as no Event of Default exists.

10.    NET LEASE; LESSEE'S OBLIGATIONS ABSOLUTE AND UNCONDITIONAL:

       This Agreement is a "net lease" and, as between Lessor and Lessee, Lessee
shall be responsible for and shall indemnify Lessor against, all costs, expenses
and claims of every nature whatsoever arising out of or in connection with or
related to the Lease or the Property.

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       Lessee agrees that its obligation to pay Monthly Rental and other
obligations under the Lease shall be irrevocable, independent, absolute and
unconditional and shall not be subject to any abatement, reduction, recoupment,
defense, offset or counterclaim otherwise available to Lessee; nor, except as
otherwise expressly provided herein or as agreed to by Lessor in writing, shall
this Agreement terminate for any reason whatsoever prior to the end of the
Initial Period.

11.    ASSIGNMENT BY LESSOR:

       Lessor may assign or transfer its rights and interests in the Lease and
Property to another party ("Lessor's Assignee") either outright or as security
for loans (collectively, the "Underwriting"). Upon notice of any such assignment
and instructions from Lessor, Lessee shall pay its Monthly Rental and other
payments and perform its other obligations under the Lease to the Lessor's
Assignee (or to another party designated by Lessor's Assignee). Upon any such
sale or assignment, LESSEE'S OBLIGATIONS TO LESSOR'S ASSIGNEE UNDER THE ASSIGNED
SCHEDULE SHALL BE ABSOLUTE AND UNCONDITIONAL AND LESSEE WILL NOT ASSERT AGAINST
LESSOR'S ASSIGNEE ANY CLAIM, DEFENSE, OFFSET OR COUNTERCLAIM WHICH LESSEE MIGHT
HAVE AGAINST LESSOR. Lessor's Assignee shall have all of the rights but none of
the obligations of Lessor under the assigned Lease, and after such assignment
Lessor shall continue to be responsible for all of Lessor's obligations under
the Lease.

       Upon any such assignment, Lessee agrees to promptly execute and deliver
to Lessor: (i) estoppel certificates, acknowledgments of assignment and other
documents requested by Lessor which acknowledge the assignment, affirm
provisions of the Lease, or which may be required to effect the Underwriting,
and (ii) UCC-1 financing statements or precautionary filings as requested.

       Only one executed counterpart of any Schedule shall be marked "Original";
any other executed counterparts shall be marked "Duplicate Original" or
"Counterpart". No security interest in any Schedule may be created through the
transfer and possession of any counterpart other than the "Original".

12.    RISK OF LOSS ON LESSEE:

       From the earlier of the date the supplier ships the Property to Lessee or
the date Lessor confirms Lessee's purchase order or contract to supplier until
the date the Property is returned to Lessor as provided in the Lease. Lessee
hereby assumes and shall bear all risk of loss for theft, damage or destruction
to the Property, howsoever caused. NO SUCH LOSS OR DAMAGE SHALL IMPAIR ANY
OBLIGATION OF LESSEE UNDER THIS LEASE WHICH SHALL CONTINUE IN FULL FORCE AND
EFFECT.

       In the event of damage or loss to the Property (or any part thereof) and
irrespective of payment from any insurance coverage maintained by Lessee, but
applying full credit therefore, Lessee shall at the option of Lessee, (a) place
the Property in good repair, condition and working order; or (b) replace the
Property (or any part thereof) with like property of equal or greater value, in
good repair, condition and working order and transfer clear title to such
replacement property to Lessor whereupon such replacement property shall be
deemed the Property for all purposes under the Lease; or (c) pay to Lessor the
total rent due and owing at the time of such damage or loss plus all amount
which is equal to the Casualty Loss Value specified in the Casualty Loss
Schedule attached to the applicable Schedule.

13.    INSURANCE:

       Lessee shall obtain and maintain for the entire term of this Lease, at
its own expense (as primary insurance for Lessor and Lessee), property damage
and liability insurance and insurance against loss or

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damage to the Property including without limitation loss by fire (including so
called extended coverage), theft, collision and such other risks of loss as are
customarily insured against on the type of Property leased under any Lease and
by businesses in which Lessee is engaged, in such amounts, in such form and with
such insurers as shall be satisfactory to Lessor; provided, however, that the
amount of insurance against loss or damage to the Property shall be equal to or
greater than the Casualty Loss Value of such items of Property as specified in
the Causality Loss Schedule attached to the Schedule. Each insurance policy will
name Lessee as insured and Lessor and its assignees as additional insureds and
loss payees thereof as their interests may appear, shall contain cross-liability
endorsements and shall contain a clause requiring the insurer to give Lessor and
its assignees at least thirty (30) days prior written notice of any material
alteration in the terms of such policy or of the cancellation thereof. Lessee
shall furnish to Lessor a certificate of insurance or other evidence
satisfactory to Lessor that such insurance coverage is in effect; provided,
however, that Lessor shall be under no duty either to ascertain the existence of
or to examine such insurance policy or to advise Lessee in the event such
insurance coverage shall not comply with the requirements hereof. All insurance
covering loss or damage to the Property shall contain a breach of warranty
clause satisfactory to Lessor.

14.    INDEMNIFICATION:

       Except for the gross negligence or willful misconduct of Lessor, Lessee
shall indemnify and hold Lessor harmless from and against any and all claims,
(including without limitation negligence tort and strict liability), damages,
judgments, suits and legal proceedings, and any and all costs and expenses in
connection therewith (including attorney's fees incurred by Lessor either in
enforcing this indemnity or in defending against such claims), arising out of or
in any manner connected with or resulting from the Lease or the Property,
including, without limitation the manufacture, purchase, financing, ownership,
rejection, non-delivery, transportation, delivery, possession, use, operation,
maintenance, condition, lease, return, storage or disposition thereof, including
without limitation (a) claims for injury to or death of persons and for damage
to property; (b) claims relating to patent, copyright, or trademark
infringement, (c) claims relating to latent or other defects in the Property
whether or not discoverable by Lessor and (d) claims for wrongful, negligent or
improper act or misuse by Lessor. Lessee agrees to give Lessor prompt notice of
any such claim or liability. For purposes of this paragraph and any Lease, the
term "Lessor" shall include Lessor, its successors and assigns, shareholders,
directors, officers, representatives and agents, and the provisions of this
paragraph shall survive expiration of any Lease with respect to events occurring
prior thereto.

       Upon request of Lessor, Lessee shall assume the defense of all demands,
claims, or actions, suits and all proceedings against Lessor for which indemnity
is provided and shall allow Lessor to participate in the defense thereof. Lessor
shall be subrogated to all rights of Lessee for any matter which Lessor has
assumed obligation hereunder, and may settle any such demand, claim, or action
without Lessee's prior consent, and without prejudice to Lessor's right to
indemnification hereunder.

15.    EVENTS OF DEFAULT:

       An "Event of Default" shall occur under any Lease if Lessee does any of
the following and such breach is not cured to Lessor's satisfaction within ten
(10) days after written notice thereof is provided to Lessee; provided, however,
that the ten (10) day cure period shall not apply for Lessee's breach of Section
15(e) or failure to maintain insurance as required under section 13 hereof:

       (a)  fails to pay any Monthly Rental or other payment required under the
Lease when the same becomes due and payable and such failure continues for ten
(10) days after its due date;

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       (b)  attempts to or does, remove, sell, assign, transfer, encumber,
sublet or part with possession of any one or more items of the Property or any
interest under any Lease, except as expressly permitted herein, or permits a
judgment or other claim to become a lien upon any or all of Lessee's assets or
upon the Property;

       (c)  permits any item of Property to become subject to any levy, seizure,
attachment, assignment or execution or Lessee abandons any item of Property;

       (d)  or any guarantor, fails to observe or perform any of its covenants
and obligations required to be observed or performed under the Lease and such
failure continues uncured for twenty (20) days after occurrence thereof, except
that the twenty (20) day cure period shall not apply and an Event of Default
shall occur immediately upon Lessee's failure to maintain insurance;

       (e)  or any guarantor, breaches any of its representations and warranties
made under any Lease, or if any such representations or warranties shall be
false or misleading in any material respect;

       (f)  or any guarantor, shall (i) be adjudicated insolvent or a bankrupt,
or cease, be unable, or admit in writing its inability, to pay its debts as they
mature, or make a general assignment for the benefit of creditors or enter into
any composition or arrangement with creditors; (ii) apply for or consent to the
appointment of a receiver, trustee or liquidator of it or of a substantial part
of its property, or authorize such application or consent, or proceedings
seeking such appointment shall be instituted against it without such
authorization, consent or application and shall continue undismissed for a
period of sixty (60) days; (iii) authorize or file a voluntary petition in
bankruptcy or apply for or consent to the application of any bankruptcy,
reorganization in bankruptcy, arrangement, readjustment of debt, insolvency,
dissolution, moratorium or other similar law of any jurisdiction, or authorize
such application or consent or proceedings to such end shall be instituted
against it without such authorization, application or consent and such
proceeding instituted against it shall continue undismissed for a period of
sixty (60) days;

       (g)  or any guarantor, shall suffer a material adverse change in its
financial condition which, in the reasonable discretion of Lessor, would
adversely affect Lessee's ability to make rental payments after the date hereof
as reasonably determined by Lessor in its reasonable discretion, or there shall
occur a substantial change in ownership of the outstanding stock of Lessee or a
substantial change in control of its board of directors;

       (h)  shall be in default under any other Schedule or agreement executed
with Lessor; or shall fail to sign and deliver to Lessor any document requested
by Lessor in connection with any Lease or shall fail to do any thing reasonably
determined by Lessor to be necessary or desirable to effectuate the transaction
contemplated by the Lease or to protect Lessor's rights and interests in the
Lease and Property; or shall fail to provide financial statements to Lessor as
provided in Section 18(g) hereof, or if Lessee is in default of any agreement
greater than $1,000,000.00 with any party other than Lessor;

       (i)  breach by Lessee of any license or other agreement for Computer
Software (hereafter described as Software) included in the Schedule;

       (j)  failure of Lessee to promptly execute and deliver to Lessor any
document required under Section 11 of this Agreement.

16.    REMEDIES:

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       Upon the occurrence of any Event of Default and at any time thereafter,
Lessor may, with or without giving notice to Lessee and with or without
canceling the Lease, do any one or more of the following:

       (a)  enforce this Agreement according to its terms;

       (b)  advance funds on Lessee's behalf to cure the Event of Default,
whereupon Lessee shall immediately reimburse Lessor therefore, together with
late charges accrued thereon;

       (c)  refuse to deliver the Property to Lessee;

       (d)  upon notice to Lessee, cancel this Master Lease Agreement and any or
all Schedules executed pursuant thereto.

       (e)  if Lessor determines, in its sole discretion, not to take possession
of the Property, Lessor shall continue to be the owner of the Property and may,
but is not obligated to, dispose of the Property by sale or otherwise, all of
which determinations may be made by Lessor in its sole discretion and for its
own account;

       (f)  declare immediately due and payable all amounts due or to become due
hereunder for the full term of the Lease (including any renewal or purchase
options which Lessee has contracted to pay);

       (g)  with or without terminating the Lease, recover the Casualty Loss
Value of the Property as of the rent payment date immediately preceding the date
of default together with all costs and expenses incurred by Lessor in the
repossession, recovery, storage, repair, sale, re-lease or other disposition of
the Property, including without limitation, reasonable attorneys' fees and costs
incurred in connection therewith or otherwise resulting or arising from Lessee's
default, and any indemnity if then determinable, plus interest on all of the
above until paid (before and after judgment) at the lesser of the rate of
eighteen percent (18%) per annum or the highest rate permitted by law
(collectively, "Lessor's Damages");

       (h)  without notice to Lessee, repossess the Property wherever found,
with or without legal process, and for this purpose Lessor and/or its agents or
assigns may enter upon any premises of or under the control or jurisdiction of
Lessee or any agent of Lessee, without liability for suit, action or other
proceeding by Lessee (any damages occasioned by such repossession being hereby
expressly waived by Lessee) and remove the Property therefrom; Lessee further
agrees on demand, to assemble the Property and make it available to Lessor at a
place to be designated by Lessor;

       (i)  in its sole discretion, re-lease or sell any or all of the Property
at a public or private sale on such terms and notice as Lessor shall deem
reasonable (such sale may, at Lessor's sole option, be conducted at Lessee's
premises), and recover from Lessee liquidated damages for the loss of a bargain
and not as a penalty an amount equal to the Lessor's Damages;

       (j)  if Lessee breaches any of its obligations under Section 7(c) of this
Agreement with regard to Software, Lessee shall be liable to Lessor for
additional damages in an amount equal to the original price paid by Lessor for
the Software, and in addition, at Lessor's option. Lessor shall be entitled to
injunctive relief;

       (k)  exercise any other right or remedy which may be available to it
under the Uniform Commercial Code or any other applicable law;

                                                                             9

<PAGE>

       (l)  a cancellation hereunder shall occur only upon notice by Lessor and
only as to such items of Property as Lessor specifically elects to cancel and
this Lease shall continue in full force and effect as to the remaining items, if
any;

       (m)  (i) by notice to Lessee, declare any license agreement with respect
to Software terminated, in which event the right and license of Lessee to use
the Software shall immediately terminate, and Lessee shall thereupon cease all
use of the Software and return all copies thereof to Lessor or original
licensor; (ii) have access to and disable the Software by any means deemed
necessary by Lessor, for which purposes Lessee hereby expressly consents to such
access and disablement, promises to take no action that would prevent or
interfere with Lessor's ability to perform such access and disablement, and
waives and releases any and all claims that it has or might otherwise have for
any and all losses, damages, expenses, or other detriment that it might suffer
as a result of such access and disablement; and (iii) Lessee agrees that the
detriment which Lessor will suffer as a result of a breach by Lessee of the
obligations contained in the Lease cannot be adequately compensated by monetary
damages, and therefore Lessor shall be entitled to injunctive and other
equitable relief to enforce the provisions of this paragraph 16(m). LESSEE
AGREES THAT LESSOR SHALL HAVE NO DUTY TO MITIGATE LESSOR'S DAMAGES UNDER ANY
LEASE BY TAKING LEGAL ACTION TO RECOVER THE SOFTWARE FROM LESSEE OR ANY THIRD
PARTY, OR TO DISPOSE OF THE SOFTWARE BY SALE, RE-LEASE OR OTHERWISE.

       In the event Lessor in good faith believes that the prospect of payment
or performance has become impaired, Lessor shall have the right, in its
reasonable discretion, to declare the entire indebtedness under any Lease
immediately due and payable.

       Lessor may exercise any and all rights and remedies available at law or
in equity, including those available under the Uniform Commercial Code. The
rights and remedies afforded Lessor hereunder shall not be deemed to be
exclusive, but shall be in addition to any rights or remedies provided by law.
Lessor's failure promptly to enforce any right or remedy hereunder shall not
operate as a waiver of such right or remedy, and Lessor's waiver of any default
shall not constitute a waiver of any subsequent or other default. Lessor may
accept late payments or partial payments of amounts due under the Lease and may
delay enforcing any of Lessor's rights or remedies hereunder without losing or
waiving any of Lessor's rights or remedies under the Lease.

17.    LESSEE'S REPRESENTATIONS AND WARRANTIES:

       Lessee represents and warrants as follows:

       (a)  If Lessee is a corporation, duly organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation, duly
qualified to do business in each jurisdiction where any Property is, or is to be
located, and has full corporate power and authority to hold property under lease
and to enter into and perform its obligations under any Lease, the execution,
delivery and performance by Lessee of any Lease has been duly authorized by all
necessary corporate action on the part of Lessee, and is not inconsistent with
its Articles of Incorporation or By-Laws or other governing instruments;

       (b)  If Lessee is a partnership, duly organized by written partnership
agreement and validly existing in accordance with the laws of the jurisdiction
of its organization, duly qualified to do business in each jurisdiction where
the Property is, or is to be located, and has full power and authority to hold
property under lease and to enter into and perform its obligations under any
Lease, the execution, delivery and performance by Lessee of any Lease has been
duly authorized by all necessary action on the part of the Lessee, and is not
inconsistent with its partnership agreement or other governing instruments. Upon
request, Lessee will deliver to Lessor certified copies of its partnership
agreement and other governing

                                                                             10

<PAGE>

instruments and original certificate of partners and other instruments deemed
necessary or desirable by Lessor. To the extent required by applicable law,
Lessee has filed and published its fictitious business name certificate;

       (c)  The execution, delivery and performance by Lessee of any Lease does
not violate any law or governmental rule, regulation, or order applicable to
Lessee does not and will not contravene any provision, or constitute a default
under any indenture, mortgage, contract, or other instrument to which it is
bound and, upon execution and delivery of each Lease, will constitute a legal,
valid and binding agreement of Lessee, enforceable in accordance with its terms;

       (d)  No action, including any permits or consents, in respect of or by
any state, federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by Lessee of any Lease;

       (e)  All computer hardware and software that is utilized by Lessee in the
operation of its businesses is "Year 2000 Compliant" in that it is capable of
accepting, processing and printing date data between and within the twentieth
and twenty-first centuries, and neither the performance nor functionality of any
computer hardware or software is affected by dates prior to during, or after the
Year 2000. Upon request, Lessee shall provide written assurances to Lessor that
its hardware and software are "Year 2000 Compliant".

18.    GENERAL:

       (a)  Entire Agreement. Each Schedule shall incorporate the terms and
            ----------------
conditions of this Master Lease Agreement and, together with the Acceptance
Certificate (as defined herein) and Master Progress Funding Agreement (and
Authorizations thereunder), if applicable, and any amendments to any of the
foregoing documents, shall supersede all prior agreements and constitute the
entire understanding and agreement between the Lessor and Lessee with regard to
the subject matter hereof and thereof, and there is no understanding or
agreement, oral or written, which is not set forth herein or therein.

       (b)  Time Is of the Essence; Provisions Severability. Time is of the
            -----------------------------------------------
essence with respect to any Lease. The provisions contained in any agreement
shall be deemed to be independent and severable. The invalidity or partial
invalidity of any one provision or portion of the Lease under the laws of any
jurisdiction shall not affect the validity or enforceability of any other
provisions of the Lease. The captions and headings set forth herein are for
convenience of reference only and shall not define or limit any of the terms
hereof.

       (c)  Notice. Notices or demands required to be given hereunder shall be
            -------
in writing and addressed to the other party at the address herein or such other
address provided by written notice hereunder and shall be effective (i) upon the
next business day if sent by guaranteed overnight express service (such as
Federal Express); (ii) on the same day if personally delivered; or (iii) three
days after mailing if sent by certified or registered U.S. mail, postage
prepaid.

       (d)  Governing Law; Waiver of Trial by Jury. THIS LEASE SHALL IN ALL
            --------------------------------------
RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF UTAH, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. LESSEE
AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL COURTS IN THE
STATE OF UTAH IN ALL MATTERS RELATING TO THE LEASE, THE PROPERTY AND THE CONDUCT
OF THE RELATIONSHIP BETWEEN LESSOR AND LESSEE. THIS LEASE WAS EXECUTED IN THE
STATE OF UTAH (BY THE LESSOR HAVING COUNTERSIGNED IT IN UTAH) AND IS TO BE
PERFORMED IN THE STATE OF UTAH (BY

                                                                              11

<PAGE>

REASON OF ONE OR MORE PAYMENTS REQUIRED TO BE MADE TO LESSOR IN UTAH). LESSOR
AND LESSEE HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THE LEASE OR PROPERTY OR THE CONDUCT OF THE RELATIONSHIP BETWEEN LESSOR AND
LESSEE.

       (e)  Binding Effect; Survivability. The provisions of each Lease shall
            -----------------------------
inure to the benefit of and shall bind Lessor and Lessee and their respective
permitted successors and assigns. All representations, warranties, covenants and
indemnities of Lessee made or agreed to in the Lease or in any certificates
delivered in connection therewith shall survive the expiration, termination or
cancellation of the Lease for any reason.

       (f)  Further Assurances; Financing Statements. Lessee will cooperate with
            -----------------------------------------
Lessor in protecting Lessor's interests in the Property, the Lease and the
amounts due under the Lease, including, without limitation, the execution and
delivery of Uniform Commercial Code statements and filings, patent and copyright
registration documents with respect to proprietary Software (if applicable), and
other documents reasonably requested by Lessor. Lessee shall pay all costs of
filing any financing, continuation or termination statements with respect to the
Property and Lease, including without limitation, any intangibles tax,
documentary stamp tax or other similar taxes or charges relating thereto and all
costs of UCC or other lien searches and of obtaining and filing any full or
partial third-party releases deemed necessary or advisable by Lessor. Lessee
will do whatever may be necessary or advisable to have a statement of the
interest of Lessor in the Property noted on any certificate of title relating to
the Property and will deposit said certificate with Lessor. Lessee will execute
and deliver to Lessor such other documents and written assurances and take such
further action as Lessor may request to more fully carry out the implementation,
effectuation, confirmation and perfection of the Lease and any rights of Lessor
thereunder. Lessee grants to Lessor a security interest in all deposits and
other property transferred or pledged to Lessor to secure the payment and
performance of all of Lessee's obligations under the Lease.

       (g)  Financial Statements. Lessee, and any guarantor, shall provide to
            --------------------
Lessor a copy of its annual audited financial statements within
one-hundred-twenty (120) days after its fiscal year end, and a copy of its
quarterly unaudited financial statements within ninety (90) days after the end
of each fiscal quarter.

       (h)  Security Interest. In the event a court of competent jurisdiction or
            ------------------
other governing authority shall determine that the Lease is not a "true lease"
or is a lease intended as security or that Lessor (or its assigns) does not hold
legal title to or is not the owner of the Property, then the Lease shall be
deemed to be a security agreement with Lessee, as debtor, having granted to
Lessor, as secured party, a security interest in the Property effective the date
of the Lease, and the Property shall secure all duties and obligations of Lessee
under any Lease or other agreement with Lessor. As security for the performance
by Lessee of its duties and obligations under any Lease, Lessee hereby grants to
Lessor a security interest in all of Lessee's rights under any license agreement
related to any Software, including, without limitation, all of its rights with
respect to the Software. With regard to any security interest created hereunder
in any of the Property, Lessee consents and agrees that Lessor shall have all of
the rights, privileges and remedies of a secured party under the Utah Uniform
Commercial Code.

       (i)  Change in Lessee's Name or Address. Lessee shall not change its name
            ----------------------------------
or address from that set forth above, unless it shall have given Lessor or its
assigns no less than thirty (30) days prior written notice.

                                                                              12

<PAGE>

       (j)  Covenant of Quiet Possession. Lessor agrees that so long as no Event
            ----------------------------
of Default has occurred and is continuing, Lessee shall be entitled to quietly
possess the Property subject to and in accordance with the terms and conditions
of this Agreement.

       (k)  Lessor's Right to Perform for Lessee. If Lessee fails to perform or
            -------------------------------------
comply with any of its agreements contained herein, Lessor may perform or comply
with such agreements and the amount of any payments and expenses of Lessor
incurred in connection with such performance or compliance (including attorneys'
fees), together with interest thereon at the lesser of the rate of eighteen
percent (18%) per annum, or the highest rate permitted by law shall be deemed
additional rent payable by Lessee upon demand.

       (l)  Attorneys' Fees. Lessee shall reimburse Lessor for all charges,
            ----------------
costs, expenses and attorneys' fees incurred by Lessor (a) in defending or
protecting its interest in the Property; (b) in the execution, delivery,
administration, amendment and enforcement of the Lease or the collection of any
rent or other payments due under the Lease; and (c) in any lawsuit or other
legal or arbitration/mediation proceeding to which the Lease gives rise,
including without limitation, actions in tort.

       (m)  Lessee's Options at End of Initial Period. At the end of the Initial
            -----------------------------------------
Period of any Lease, Lessee shall, provided at least one-hundred-eighty (180)
days prior written notice is received by Lessor from Lessee via certified mail,
do one of the following: (1) purchase the Property for a price to be determined
by Lessor and Lessee, (2) extend the Lease for twelve (12) additional months at
the rate specified on the respective Schedule, or (3) return the Property to
Lessor at Lessee's expense to a destination within the Continental United States
specified by Lessor and terminate the Schedule; provided, however, that for
option (3) to apply, all accrued but unpaid late charges, interest, taxes,
penalties, and any and all other sums due and owing under the Schedule must
first be paid in full, the provisions of Sections 6(c) and (d) and 7(c) hereof
must be specifically complied with, and Lessee must enter into a new Schedule
with Lessor to lease Property which replaces the Property listed on the old
Schedule. With respect to options (1) and (3), each party shall have the right
in its absolute and sole discretion to accept or reject any terms of purchase or
of any new Schedule, as applicable. In the event Lessor and Lessee have not
agreed to either option (1) or (3) by the end of the Initial Period or if Lessee
fails to give written notice of its option via certified mail at least
one-hundred-eighty (180) days prior to the termination of the Initial Period,
then option (2) shall apply at the end of the Initial Period. At the end of the
extension period provided for in option (2) above, the Lease shall continue in
effect at the rate specified in the respective Schedule for successive periods
of six (6) months each subject to termination at the end of any such successive
six-month renewal period by either Lessor or Lessee giving to the other party at
least ninety (90) days prior written notice of termination.

       (n)  Amendment and Modification. The Lease may not be amended or modified
            --------------------------
except by a writing signed by a duly authorized representative of each party,
but no such amendment or modification needs further consideration to be binding.
Notwithstanding the foregoing, Lessee authorizes Lessor to amend any Schedule to
identify more accurately the Property (including, without limitation, supplying
serial numbers or other identifying data), and such amendment shall be binding
on Lessor and Lessee unless Lessee objects thereto within 10 days after
receiving notice of the amendment from Lessor.

       (o)  Joint and Several Liability. In the event two or more parties
            ---------------------------
execute the Agreement as Lessee, each party shall be jointly and severally
liable for all Lessee representations, warranties, and obligations (including
without limitation, payment obligations) under this Agreement or under any
Schedule or other document executed in connection herewith.

19.    WAIVERS:

                                                                              13

<PAGE>

       To the extent permitted by applicable law, Lessee hereby waives any and
all rights and remedies conferred upon a Lessee by Sections 2A-508 through
2A-522 of the Uniform Commercial Code, including but not limited to Lessee's
rights to: (i) cancel the Lease; (ii) repudiate the Lease; (iii) reject the
Property; (iv) revoke acceptance of the Property; (v) recover damages from
Lessor for any breaches of warranty or for any other reason; (vi) claim, grant
or permit a security interest in the Property in Lessee's possession or control
for any reason; (vii) deduct all or any part of any claimed damages resulting
from Lessor's default, if any, under the Lease; (viii) "cover" by making any
purchase or lease of or contract to purchase or lease Property in substitution
for those due from Lessor, (ix) recover any general, special, incidental or
consequential damages, for any reason whatsoever; and (x) commence legal action
against Lessor for specific performance, replevin, detinue, sequestration, claim
and deliver or the like for any Property identified in the Lease. To the extent
permitted by applicable law, Lessee also hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use any Property in mitigation of Lessor's damages as set
forth in Section 16 hereof or which may otherwise limit or modify any of
Lessor's rights or remedies in that section.

       No waiver or modification by Lessor of any of the terms and conditions
hereof shall be effective unless in writing signed by an officer of Lessor.

20.    ASSIGNMENT BY LESSEE:

       LESSEE MAY NOT ASSIGN THIS AGREEMENT OR ANY OF ITS RIGHTS HEREUNDER OR
SUBLEASE THE PROPERTY WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, NO PERMITTED
ASSIGNMENT OR SUBLEASE SHALL RELIEVE LESSEE OF ANY OF ITS OBLIGATIONS HEREUNDER.

       BY INITIALING THIS SECTION, LESSEE ACKNOWLEDGES THAT IT HAS READ THE
ABOVE PARAGRAPHS UNDER SECTIONS 18, 19 AND 20, AND FULLY UNDERSTANDS THEIR
CONTENT AND AGREES TO THEIR PROVISIONS.

                                                             Initialed__________

21.    POWER OF ATTORNEY.

       LESSEE HEREBY AUTHORIZES AND APPOINTS LESSOR AND LESSORS AGENTS AND
ASSIGNS AS LESSEE'S ATTORNEY-IN-FACT TO (A) COMPLETE, EXECUTE, FILE AND AMEND ON
LESSEE'S BEHALF UCC FINANCING STATEMENTS, PRECAUTIONARY OR OTHERWISE, IN
CONNECTION WITH THE PROPERTY AND LEASE AND TO CONFORM THE DESCRIPTION OF THE
PROPERTY (INCLUDING SERIAL NUMBERS) IN ANY SUCH FINANCING STATEMENTS OR OTHER
DOCUMENTATION, AND (B) EXECUTE ACKNOWLEDGEMENT LETTERS AND OTHER DOCUMENTS
REQUIRED TO BE EXECUTED BY LESSEE TO EFFECT ANY UNDERWRITING WITH REGARD TO A
SCHEDULE.

       IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement on the
month, day and year first above written.

LESSOR:                                     LESSEE:

APPLIED FINANCIAL, INC.                    STAR SCIENTIFIC, INC.

BY: /s/ Mark Caldwell                      BY: /s/ Christopher G. Miller
  ----------------------------                 ------------------------------

                                                                              14

<PAGE>

TITLE: Assistant Vice President            TITLE: Chief Financial Officer
                                                  -----------------------------

                                                                              15

<PAGE>

                        MASTER PROGRESS FUNDING AGREEMENT

       Reference is made to Master Lease Agreement No, AFI0224 dated December 5,
2001, ("Master Lease") between STAR SCIENTIFIC, INC, ("Lessee") and APPLIED
FINANCIAL, INC, ("Lessor"), Lessee and Lessor have agreed to enter into one or
more Lease Schedules to the Master Lease (each Lease Schedule together with the
Master Lease is referred to herein collectively as the "Lease" and is
incorporated herein and made a part of this Agreement by this reference)
pursuant to which Lessor will lease to Lessee certain items of Property listed
on said Lease (the "Property"), All capitalized terms used herein but not
                                -----------------------------------------
defined herein shall have the meanings ascribed to them in the Lease.
---------------------------------------------------------------------

       With regard to each Lease executed and delivered by Lessee, Lessee may
request Lessor to purchase and pay for certain items of Property to be leased
thereunder prior to the commencement of such Lease. Provided Lessee completes,
executes and delivers to Lessor a Partial Acceptance and Authorization for
Progress Payment ("Authorization") in form acceptable to Lessor, and such
Authorization is consistent with all terms and conditions of this Agreement and
the Lease, and Lessee is not in default of this Agreement or the Lease, Lessor
agrees to make payments against the purchase price for such items of Property as
directed by the Authorization. All such payments made by Lessor shall be
referred to herein as "Progress Payment(s)".

       Upon Lessor's payment of any Progress Payment hereunder, title to the
items of Property paid by such Progress Payment shall vest in Lessor, and Lessee
hereby sells and assigns its purchase orders and contracts and all of its right,
title and interest to such items of Property to Lessor. From the date risk of
loss passes from each vendor as to items of Property paid for by Lessor
hereunder, Lessee shall bear all risk of loss, and Lessee shall assume and be
responsible for all of Lessee's obligations with respect to such items of
Property as specified in the Lease.

       Lessee agrees that in consideration of each Progress Payment made by
Lessor pursuant to this Agreement, Lessee shall pay to Lessor a daily pro-rata
interim "service charge" calculated by multiplying the "Lease Rate Factor"
specified in the applicable Lease times the amount of such Progress Payment
divided by 30. The daily service charges shall accumulate and be payable monthly
in arrears on the last day of each such month. The daily service charges shall
begin on the date Lessee authorizes Lessor to disburse the Progress Payment and
shall continue until all items of Property specified in the Lease are installed,
tested and are finally accepted by Lessee as evidenced by Lessee's execution and
delivery of the final "Acceptance Certificate" required under the Lease. If any
service charge due under this Agreement shall be unpaid after its due date,
Lessor shall be entitled to collect late charges from Lessee pursuant to
Paragraph 2 of Section 4 of the Master Lease.

       Lessee agrees that (a) if it breaches any of its obligations under this
Agreement or the Lease, or (b) if any Lease for which Progress Payments have
been made is not fully executed and delivered and the Property is not accepted
under such Lease within three (3) months after the first Progress Payment is
made for items of Property covered by such Lease, or (c) if there is a material
adverse change in the creditworthiness or financial condition of Lessee as
determined by Lessor in its sole discretion, or (d) if there is a material
adverse change in market conditions which effects Lessor's ability to secure
nonrecourse underwriting for the Lease, then Lessor may do one or more of the
following (i) cease disbursing Progress Payments, (ii) collect all service
charges due under this Agreement and all amounts due under the Lease, (iii)
without requiring Lessee to execute an Acceptance Certificate, begin the Lease
for those items of Property paid under any Progress Payment, (iv) require Lessee
to reimburse Lessor for all Progress Payments made, together with all unpaid
daily service charges, and (v) exercise any rights or remedies under the Lease
and at law or in equity. The occurrence of any of the events specified in (a)
through (d) above shall constitute an Event of Default under the Lease. Lessee
shall reimburse Lessor for all of its collection and enforcement costs
(including attorneys' fees). In the case of (iii) above, Lessee

                                                                              16

<PAGE>

hereby grants Lessor Power of Attorney to execute said Acceptance Certificate on
Lessee's behalf for which the "Acceptance Date", as more fully defined in
Section 2 of the Master Lease, shall be the date the last Progress Payment was
made by Lessor. In the case of (iv) above, upon receipt of all amounts, charges,
and reimbursements required, Lessor will convey its rights and interests in such
Property to Lessee and reassign to Lessee all purchase orders and contracts for
such Property.

Dated: December 5, 2001

LESSOR:                                         LESSEE:

APPLIED FINANCIAL, INC.                         STAR SCIENTIFIC, INC.

BY: /s/ Mark Caldwell                      BY: /s/ Christopher G. Miller
  ----------------------------                 --------------------------------

TITLE: Assistant Vice President            TITLE: Chief Financial Officer
                                                  -----------------------------

                                                                              17

<PAGE>

                             LEASE SCHEDULE NO. 001
                                       TO
                       MASTER LEASE AGREEMENT NO. AFI0224

       Reference is made to Lease Schedule No. 001 dated December 5, 2001 (the
"Schedule") to Master Lease Agreement No. AF10224 dated December 5, 2001 (the
"Master Lease") between APPLIED FINANCIAL, INC. (the "Lessor") and STAR
SCIENTIFIC, INC. (the "Lessee").

       This Schedule incorporates by reference the terms and conditions of the
Master Lease, Exhibit A (the "Property Description") and Exhibit B (the
"Casualty Loss Schedule"), and constitutes a separate "Lease" between Lessor and
Lessee. All capitalized terms used herein but not defined herein shall have the
same meanings ascribed to them in the Master Lease.

1.   Property: Used Tobacco Curing Barns (Star Model) and Container Handlers
     (Assembled) as more fully described on the attached Exhibit A of two (2)
     pages, which by this reference is made a part here.

2.   Property Location: Various locations as more fully described on the
     attached Exhibit A of two (2) pages, which by this reference is made a part
     hereof.

3.   Acceptance Date: As specified in the Acceptance Certificate

4.   Initial Period: Thirty-six (36) months starting on the Commencement Date

5.   Monthly Rental: $30,128.68, plus applicable sales tax

6.   Deposit: $10,000.00 applied to the first Monthly Rental, plus applicable
     sales tax

7.   Total Cost Not: $1,057,889.00

8.   Lease Rate Factor: .02848

9.   Floating Lease Rate Factor: The Lease Rate Factor of .02848 shall
     increase .000069966 for every five (05) basis point increase in thirty-six
     (36) month U.S. Treasury Notes as of the Acceptance Date of the Property
     (the "Revised Lease Rate Factor"), at which time the Monthly Rental under
     this Schedule shall be adjusted by multiplying the Total Cost, indicated in
     Section 7, by the Revised Lease Rate Factor. The thirty-six (36) month U.S.
     Treasury Note yield used as the basis for the derivation of the Revised
     Lease Rate Factor herein is 3.56%.

10.  Balloon Payment. For purposes of this Lease Schedule only, at the end of
     of the Initial Period, Lessee shall be required to purchase the Property on
     the last day of the Initial Period for an amount equal to $158,683.35, plus
     applicable sales tax ("Balloon Payment"). Lessee's failure to pay the
     Balloon Payment when due shall constitute an additional Event of Default
     under the Lease.

                                                                              18

<PAGE>

11.  Representation of Lessee: Lessor and Lessee agree that this Schedule
     constitutes a "finance lease" under the Uniform Commercial Code - Article
     2A, in that (a) Lessee has selected the Property in its sole discretion,
     (b) Lessor has acquired the Property solely for purposes of leasing such
     Property under this Schedule, and (c) Lessee has received a copy of the
     contract evidencing Lessor's purchase of the Property.

LESSOR:                                       LESSEE:

APPLIED FINANCIAL, INC.                       STAR SCIENTIFIC, INC.

BY: /s/ Mark Caldwell                      BY:    /s/ Christopher G. Miller
  ------------------------------                  ------------------------------

TITLE: Assistant Vice President            TITLE: Chief Financial Officer
                                                  ------------------------------

                                                                              19<PAGE>

                                                              Security Agreement
--------------------------------------------------------------------------------

         THIS SECURITY AGREEMENT (this "Agreement" or "Security Agreement")
dated as of April 9, 2002, is made by and between STAR SCIENTIFIC, INC., a
Delaware corporation having its chief executive office at 801 Liberty Way,
Chester, VA 23836 (the "Borrower"), and Key Equipment Finance, a Division of Key
Corporate Capital Inc. and assigns, having an office at 66 South Pearl Street,
Post Office Box 1865, Albany, NY 12207-1865 ("KEF").

                              W I T N E S S E T H:
                              -------------------

1.   Grant of Security Interest in the Equipment. In consideration of one or
     -------------------------------------------
more loans, advances or other financial accommodations at any time before, at or
after the date hereof, made or extended by KEF to or for the account of the
Borrower, directly or indirectly, as principal, guarantor or otherwise and to
secure the prompt payment and performance in full when due, whether by lapse of
time, acceleration or otherwise, of the Secured Obligations, the Borrower hereby
pledges, assigns, transfers hypothecates to KEF and grants to KEF a security
interest in, and acknowledges and agrees that this Agreement shall create a
continuing security interest in, all of Borrower's right, title and interest in
and to the Collateral.

     The Secured Obligations of the Borrower are absolute, irrevocable and
unconditional under any and all circumstances whatsoever and shall not be
subject to any right of set-off, counterclaim, deduction, defense or other right
which the Borrower may have for any reason against any vendor, supplier,
manufacturer, KEF or any other party. All obligations of Borrower hereunder
shall survive the expiration, cancellation or other termination of this
Agreement.

2.   Definitions. Unless the context otherwise requires, as used in this
     -----------
Agreement, the following terms shall have the respective meanings indicated
below and shall be equally applicable to both the singular and the plural forms
thereof:

     "Alteration" shall have the meaning specified in Section 6 hereof.
      ----------

     "Applicable Law" shall mean all applicable Federal, state, local and
      --------------
foreign laws, ordinances, judgments, decrees, injunctions, writs, rules,
regulations, orders, licenses and permits of any Governmental Authority.

     "Authorized Signer" shall mean any officer of Borrower, set forth on an
      -----------------
incumbency certificate (in form and substance satisfactory to KEF) delivered by
Borrower to KEF, who is authorized and empowered to execute the Loan Documents.

     "Certificate of Acceptance" shall mean a certificate of acceptance, in form
      -------------------------
and substance satisfactory to KEF, executed and delivered by Borrower in
accordance with Section 3 hereof.

     "Collateral" shall mean the Equipment and any and all substitutions,
      ----------
replacements or exchanges therefor, and any and all proceeds (both cash and
non-cash) receivable or received from the sale, lease, license, collection, use,
exchange or other disposition of the Collateral, including insurance proceeds,
thereof (including, without limitation, claims of the Borrower against third
parties for Loss or Damage to any such collateral).

     "Collateral Schedule" shall mean each collateral schedule now or hereafter
      -------------------
attached hereto and made a part hereof, in substantially the form of Schedule 1
hereto.

<PAGE>

         "Default" shall mean any event or condition which, with the passage of
          -------
time or the giving of notice, or both, would constitute an Event of Default.

         "Default Rate" shall mean an annual interest rate equal to the lesser
          ------------
of 18% or the maximum interest rate permitted by Applicable Law.

         "Equipment" shall mean an item or items of personal property which are
          ---------
described on the Collateral Schedule, together with all replacement parts,
additions and accessories incorporated therein or affixed thereto including,
without limitation, any software that is a component or integral part of, or is
included or used in connection with, any Item of Equipment, but with respect to
such software, only to the extent of Borrower's interest therein; if any.

         "Equipment Location" shall mean the location of the Equipment, as set
          ------------------
forth on Schedule 1, or such other location as Borrower shall from time to time
specify in writing.

         "Event of Default" shall have the meaning specified in Section 16
          ----------------
hereof.

         "GAAP" shall have the meaning specified in Section 22(g) hereof.
          ----

         "Governmental Action" shall mean all authorizations, consents,
          -------------------
approvals, waivers, filings and declarations of any Governmental Authority,
including, without limitation, those environmental and operating permits
required for the ownership, lease, use and operation of the Equipment.

         "Governmental Authority" shall mean any foreign, Federal, state,
          ----------------------
county, municipal or other governmental authority, agency, board or court.

         "Guaranty" shall mean any guarantor of the Secured Obligations.
          --------

         "Installment(s)" shall mean the periodic payments due to repay the
          --------------
Note, and, where the context hereof requires, all such additional amounts as may
from time to time be payable under any provision of the Loan Documents.

         "Item of Equipment" shall mean each item of the Equipment.
          -----------------

         "Liability" shall have the meaning set forth in Section 18 hereof.
          ---------

         "Loan Documents" shall mean, collectively, this Agreement, the Note,
          --------------
and all other documents prepared by KEF and now or hereafter executed in
connection therewith.

         "Lien" shall mean all mortgages, pledges, security interests, liens,
          ----
encumbrances, claims or other charges of any kind whatsoever, except the
security interest of KEF created by this Agreement.

         "Loss or Damage" shall mean any loss, theft destruction, disappearance
          --------------
or any condemnation, expropriation or requisition of or damage to any Item of
Equipment.

         "Note" shall mean that certain Promissory Note in the original
          ----
principal amount of $3,000,000.00 executed in connection herewith, together with
any extensions, modifications, renewals, refinancings or other restructurings
thereof.

         "Secured Obligations" means all of the following obligations of
          -------------------
Borrower, whether direct or indirect, absolute or contingent, matured or
unmatured, originally contracted with KEF or another party, and now or hereafter
owing to or acquired in any manner partially or totally by KEF or in which KEF

                                                                    Page 2 of 12

<PAGE>

may have acquired a participation, contracted by Borrower alone or jointly or
severally: (a) any and all indebtedness, obligations, liabilities, contracts,
indentures, agreements, warranties, covenants, guaranties, representations,
provisions, terms, and conditions of whatever kind, now existing or hereafter
arising, and however evidenced, that are now or hereafter owed, incurred or
executed by Borrower to, in favor of, or with KEF (including, without
limitation, those as are set forth or contained in, referred to, evidenced by,
or executed with reference to the Loan Documents, any letter of credit
agreements, advance agreements, indemnity agreements, guaranties, fines of
credit, mortgage deeds, security agreements, assignments, pledge agreements,
hypothecation agreements, instruments, and acceptance financing agreements), and
including any partial or total extension, restatement, renewal, amendment, and
substitution thereof or therefor; (b) any and all claims of whatever kind of KEF
against Borrower, now existing or hereafter arising, including, without
limitation, any arising out of or in any way connected with warranties made by
Borrower to KEF in connection with any instrument purchased by KEF; and (c) any
and all of KEF's fees, costs and expenses related to the foregoing.

     "Supplier" shall mean the manufacturer or the vendor of the Equipment, as
      --------
set forth on each Collateral Schedule.

     "Term" shall mean the term of the Note.
      ----

     "UCC" shall have the meaning set forth in Section 16(b)(2) hereof. Where
      ---
applicable and except as otherwise defined herein, terms used in this Agreement
shall have the meaning assigned to them in the UCC.

     "Upgrade" shall have the meaning specified in Section 8 hereof.
      -------

3.   Delivery and Acceptance. Concurrently with execution of the Collateral
     -----------------------
Schedule hereunder, Borrower shall execute and deliver to KEF a Certificate of
Acceptance for the Equipment described on such Collateral Schedule. KEF SHALL
HAVE NO OBLIGATION TO ADVANCE ANY FUNDS TO BORROWER UNLESS AND UNTIL KEF SHALL
HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING TO THE EQUIPMENT EXECUTED BY
BORROWER. Such Certificate of Acceptance shall constitute Borrower's
acknowledgment that such Equipment (a) was received by Borrower, (b) is
satisfactory to Borrower in all respects, (c) is suitable for Borrower's
purposes, (d) is in good order, repair and condition, (e) has been installed and
operates properly, and (f) is subject to all of the terms and conditions of the
Loan Documents. Borrower's execution and delivery of a Certificate of Acceptance
shall be conclusive evidence as between KEF and Borrower that the Items of
Equipment described therein are in all of the foregoing respects satisfactory to
Borrower, and Borrower shall not assert any claim of any nature whatsoever
against KEF based on any of the foregoing matters; provided, however that
nothing contained herein shall in any way bar, reduce or defeat any claim that
Borrower may have against the Supplier or any other person (other than KEF).

4.   Payments. Borrower shall pay the Note on the terms set forth therein. All
     --------
Installments shall be payable when due whether or not Borrower has received any
additional notice that such Installments are due. All Installments shall be paid
to KEF at 66 South Pearl Street, Post Office Box 1865, Albany, NY 12207-1865, or
as otherwise directed by KEF in writing.

5.   Location; Inspection; Label. The Equipment shall be delivered to the
     ---------------------------
Equipment Location and shall not be removed therefrom without KEF's receipt of
prior written notice from Borrower. Borrower shall maintain possession and
control of the Equipment at all times. Borrower will promptly give written
notice to KEF of any change in the identity or location of any Item of Equipment
which might require new filings or other action to assure continued perfection
of the security interest of KEF granted hereby. The Borrower owns, and will
continue to own, all Equipment Locations except as otherwise indicated on

                                                                    Page 3 of 12

<PAGE>

Schedule 1. KEF shall have the right to enter upon the Equipment Location and
inspect the Equipment at any reasonable time. At KEF's request, Borrower shall
affix permanent labels evidencing KEF's interest in the Equipment in a prominent
place on the Equipment and shall keep such labels in good repair and condition.

6.  Use; Alterations. Borrower shall use the Equipment only in the course of its
    ----------------
business for commercial purposes (and shall not permanently discontinue use of
the Equipment), and in compliance with Applicable Law and the requirements of
any applicable insurance policies, and only in the manner for which it was
designed and intended and so as to subject it only to ordinary wear and tear.
Borrower shall comply with all Applicable Law with respect to the Equipment.
Borrower shall immediately notify KEF in writing of any existing or threatened
investigation, claim or action by any Governmental Authority in connection with
any Applicable Law or Governmental Action which could adversely affect the value
of the Equipment or the perfection or priority of the security interest of KEF
in the Collateral. Borrower shall not make any material alterations, additions,
modifications or improvements (each, an " Alteration") to the Equipment without
KEF's prior written consent; provided that Borrower, at its own expense, shall
make Alterations as may be required from time to time to meet the requirements
of Applicable Law or Governmental Action. All such Alterations immediately, and
without further act, shall be deemed to constitute Items of Equipment and fully
be subject to the security interest granted to KEF hereunder.

7.  Repairs and Maintenance. Borrower, at Borrower's own cost and expense, shall
    -----------------------
(a) keep the Equipment in good repair, good operating condition and working
order and in compliance with the manufacturer's specifications and Borrower's
standard practices (but with respect to the latter, in no event less than
industry practices) and (b) maintain, service and repair the Equipment as
otherwise required herein. Borrower, at its own cost and expense and within a
reasonable period of time, shall replace any part of any Item of Equipment that
becomes unfit or unavailable for use from any cause, with a replacement part of
the same manufacture, value, remaining useful life and utility as the replaced
part immediately preceding the replacement (assuming that such replaced part was
in the condition required by this Agreement). Such replacement part shall be
free and clear of all Liens and upon installation, attachment or incorporation
in, on or into such Item of Equipment such replacement part immediately, and
without further act, shall be deemed to constitute an Item of Equipment and
fully be subject to the security interest granted to KEF hereunder.

8.  Equipment Upgrades/Attachments. In addition to the requirements of Section 6
    ------------------------------
hereof, Borrower, at its own expense, may from time to time add or install
upgrades or attachments (each, an "Upgrade") to the Equipment; provided that
                                                               --------
such Upgrades are readily removable without causing material damage to the
Equipment, and do not materially adversely affect the fair market value of the
Equipment. Any such Upgrades shall be owned by Borrower, shall become subject to
the security interest created by this Agreement and shall be kept free and clear
of all Liens so long as attached to the Equipment.

9.  Lease and Assignment. (a) WITHOUT KEF'S PRIOR WRITTEN CONSENT, BORROWER
    --------------------
SHALL NOT (1) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF, THE
EQUIPMENT OR ANY INTEREST THEREIN, OR ASSIGN OR DELEGATE ITS RIGHTS OR
OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR (2) LEASE OR LEND THE EQUIPMENT TO, OR
PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN BORROWER, EXCEPT FOR THOSE
ENTITIES THAT HAVE ENTERED INTO A LICENSE AGREEMENT WITH BORROWER AND HAVE
EXECUTED A LETTER AGREEMENT ALLOWING KEF TO ENTER THE PREMISES TO RETRIEVE THE
EQUIPMENT.

                                                                    Page 4 of 12

<PAGE>

     (b) KEF, at any time with or without notice to Borrower, may sell,
transfer, grant participations in, assign and/or grant a security interest in
any or all of KEFs right, title and interest in and to the Loan Documents, or in
KEF's security interest in any Item of Equipment. In any such event, any such
purchaser, transferee, assignee or secured party shall have and may exercise all
of KEF's rights hereunder or thereunder, and BORROWER SHALL NOT ASSERT AGAINST
ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE,
COUNTERCLAIM OR OFFSET THAT BORROWER MAY HAVE AGAINST KEF. Borrower agrees that
upon written notice to Borrower of any such sale, transfer, assignment and/or
security interest, Borrower shall acknowledge receipt thereof in writing and
shall comply with the reasonable directions and demands of such purchaser,
transferee, assignee or secured party.

     (c) Subject to the foregoing, all covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, KEF and its successors and
permitted assigns and Borrower and its successors and permitted assigns.

10.  Loss of or Damage to Equipment. (a) In the event of Loss or Damage to any
     ------------------------------
Item of Equipment, Borrower shall immediately notify KEF of same and, at the
option of Borrower, with prior written consent of KEF, as specified in a notice
from KEF to Borrower, Borrower shall within thirty (30) days following such Loss
or Damage: (1) place such Item of Equipment in good condition and repair, in
accordance with the terms hereof; (2) replace such Item of Equipment with
replacement equipment (acceptable to KEF) in as good condition and repair, and
with the same or better fair market value as such replaced Item of Equipment
immediately preceding the Loss or Damage (assuming that such replaced Item of
Equipment was in the condition required by this Agreement), which replacement
equipment shall immediately, and without further act, be deemed to constitute
Items of Equipment and be fully subject to this Agreement and the security
interest granted to KEF as if originally pledged as Collateral hereunder and
shall be free and clear of all Liens; or (3) pay to KEF any unpaid Installments
and other charges due prior to the payment date specified in such notice plus an
amount, with respect to an Item of Equipment, equal to the pro rata portion of
the Installments attributable to such Item of Equipment under the Loan Documents
after discounting such Installments to present worth as of the payment date
specified in such notice on the basis of a per annum rate of discount equal to
three percent (3%) from the respective dates upon which such Installments would
have been paid but for the operation of this clause, together with interest on
such amount at the Default Rate from the payment date specified in such notice
to the date of actual payment.

     (b) Upon KEF's receipt of the payment required under clause (3) above, KEF
shall release its security interest in such Item of Equipment. If Borrower fails
to either restore or replace the Item of Equipment pursuant to clauses (1) or
(2) above, respectively, Borrower shall make the payment under clause (3) above.

11.  Insurance. (a) Borrower, at Borrower's own cost and expense, shall maintain
     ---------
(1) insurance against all risks of physical loss or damage to the Equipment
(which shall include theft and collision for Equipment consisting of motor
vehicles, and shall not exclude loss resulting from flood or earthquake) in an
amount not less than the full replacement value thereof and (2) comprehensive
public liability insurance including blanket contractual liability for personal
and bodily injury and property damage in an amount satisfactory to KEF.

     (b) All insurance policies required hereunder shall (1) require 30 days'
prior written notice to KEF of cancellation or material change in coverage (any
such cancellation or change, as applicable, not being effective until the
thirtieth (30th) day after the giving of such notice); (2) name "KeyCorp and its
subsidiaries and affiliated companies, including Key Equipment Finance, a
Division of Key Corporate Capital Inc., their successors and assigns" as sole
loss payee under the property insurance policies; (3) not

                                                                    Page 5 of 12

<PAGE>

require contributions from other policies held by KEF; (4) waive any right
of subrogation against KEF; (5) in respect of any liability of KEF, except for
the insurers' salvage rights in the event of a Loss or Damage, waive the right
of such insurers to set-off, to counterclaim or to any other deduction, whether
by attachment or otherwise to the extent of any monies due KEF under such
policies; (6) not require that KEF pay or be liable for any premiums with
respect to such insurance covered thereby; (7) be in full force and effect
throughout any geographical areas at any time traversed by any Item of
Equipment; and (8) contain breach of warranty provisions providing that, in
respect of the interests of KEF in such policies, the insurance shall not be
invalidated by any action or inaction of Borrower or any other person (other
than KEF) and shall insure KEF regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Borrower or by
any other person (other than KEF). Prior to funding the Note, and thereafter not
less than 15 days prior to the expiration dates of the expiring policies
theretofore delivered pursuant to this Section, Borrower shall deliver to KEF a
duplicate original of all policies (or in the case of blanket policies,
certificates thereof issued by the insurers thereunder) for the insurance
maintained pursuant to this Section.

     (c) Proceeds of insurance with respect to physical loss or damage to the
Equipment shall be applied, at the option of Borrower, with written consent of
KEF, to repair or replace the Equipment or to reduce or satisfy (as applicable)
the Secured Obligations.

12.  Taxes. Borrower shall pay when due any and all taxes, fees, levies,
     -----
imposts, duties, assessments and public and private charges levied or assessed
on or with respect to the Equipment, on the use thereof, or on this Agreement or
any of the other Loan Documents.

13.  KEF's Right to Perform for Borrower. If Borrower fails to perform any of
     -----------------------------------
its obligations contained in the Loan Documents, KEF may (but shall not be
obligated to) itself perform such obligations, and the amount of the reasonable
costs and expenses of KEF incurred in connection with such performance, together
with interest on such amount from the date paid by KEF until the date repaid by
Borrower to KEF, at the Default Rate, shall be payable by Borrower to KEF upon
demand. No such performance by KEF shall be deemed a waiver of any rights or
remedies of KEF, or be deemed to care the default of Borrower hereunder. All
such sums and amounts so expended by KEF shall be repayable by the Borrower
immediately without notice or demand, shall constitute additional Secured
Obligations and shall bear interest from the date said amount's are expended at
the Default Rate.

14.  Delinquent Payments; Interest. If Borrower fails to pay any of the
     -----------------------------
Installments within ten (10) days after the same becomes due, Borrower shall pay
to KEF a late charge equal to five percent (5%) of such delinquent amount. Such
late charge shall be payable by Borrower upon demand by KEF and shall be deemed
part of the Secured Obligations. In no event shall such late charge exceed the
maximum amounts permitted under Applicable Law.

15.  Personal Property Liens, Warranty of Title. The Borrower is, and will
     ------------------------------------------
continue to be, the sole owner of the Equipment, free from any Lien. KEF and
Borrower hereby agree that the Equipment is, and shall at all times remain,
personal property notwithstanding the fact that any Item of Equipment may now
be, or hereafter become, in any manner affixed or attached to real property or
any improvements thereon. Borrower shall at all times keep the Equipment free
and clear from all Liens, and the Borrower shall obtain and deliver to KEF (to
be recorded at the Borrower's expense) from each person having a Lien on any
Equipment Location waivers of any Lien which such person might have or hereafter
obtain or claim with respect to the Equipment. Borrower shall (a) give KEF
immediate written notice of any Lien on the Collateral, (b) promptly, at
Borrower's sole cost and expense, take such action as may be necessary to
discharge any such Lien, and (c) indemnify and hold KEF, on an after-tax basis,
harmless from and against any loss or damage caused by any such Lien. Borrower
warrants that it has good, valid and marketable title to the Equipment, and that
(1) the security interest in the Collateral granted to KEF

                                                                    Page 6 of 12

<PAGE>

hereunder, when properly perfected by filing, shall constitute a valid and
perfected first priority security interest in the Collateral and, (2) the
Collateral is not subject to, and Borrower will not grant or permit to exist,
any Liens or claims on or against the Collateral, whether senior, superior,
junior, subordinate or equal to the security interest granted to KEF hereby, or
otherwise.

16.  Events of Default, Remedies. (a) As used herein, the term "Event of
     ---------------------------
Default" shall mean any of the following events: (1) Borrower fails to pay any
Installment within ten (10) days after the same shall have become due and
payable; (2) Borrower or any Guarantor becomes insolvent or makes an assignment
for the benefit of its creditors; (3) a receiver, trustee, conservator or
liquidator of Borrower or any Guarantor or of all or a substantial part of
Borrower's or such Guarantor's assets is appointed with or without the
application or consent of Borrower or such Guarantor, respectively; (4) a
petition is filed by or against Borrower or any Guarantor under any bankruptcy,
insolvency or similar legislation and, with regard to any non-Lessee or
non-Guarantor filed petition, such petition is not dismissed within forty-five
(45) days; (5) Borrower or any Guarantor violates or fails to perform any
provision of either the Loan Documents or any other loan, lease or credit
agreement or any acquisition or purchase agreement with KEF, KEF's parent,
subsidiaries or affiliates, or any obligation with any other party in excess of
$1,000,000.00; (6) Borrower violates or fails to perform any covenant or
representation made by Borrower in the Loan Documents; (7) any representation or
warranty made herein or in any of the Loan Documents, certificates, financial
statements or other statements furnished to KEF (or KEF's parent, subsidiaries
or affiliates) shall prove to be false or misleading in any material respect as
of the date on which the same was made; (8) Borrower makes a bulk transfer of
furniture, fixtures or other equipment or inventory; (9) there is a material
adverse change in Borrower's or any Guarantor's financial condition, (10)
Borrower merges or consolidates with any other corporation or entity, or sells,
leases or disposes of all or substantially all of its assets without the prior
written consent of KEF; (11) a change in control occurs in Borrower or any
Guarantor; (12) the death or dissolution of Borrower or any Guarantor; (13) any
of the liens created or granted hereby, or intended to be granted or created
hereby, to KEF shall fail to be valid, first priority perfected liens subject to
no prior or equal lien; or (14) an additional Lien attaches to the Equipment or
the Equipment becomes subject to risk of seizure or forfeiture.

     (b)  (1) Upon the occurrence of an Event of Default, KEF, at its option,
may declare any or all of the Secured Obligations, including, without
limitation, the Note, to be immediately due and payable, without demand or
notice to Borrower or any Guarantor. The obligations and liabilities accelerated
thereby shall bear interest (both before and after any judgment) until paid in
full at the Default Rate. Should there occur a Default and if a voluntary or
involuntary petition under the United States Bankruptcy Code is filed by or
against Borrower while such Default remains uncured, the Secured Obligations
automatically shall be accelerated and due and payable and interest thereon at
the Default Rate automatically shall apply as of the date of the first
occurrence of the Default, without any notice, demand or action of any type on
the part of KEF (including any action evidencing the acceleration or imposition
of the Default Rate). The fact that KEF has, prior to the filing of the
voluntary or involuntary petition under the United States Bankruptcy Code, acted
in a manner which is inconsistent with the acceleration and imposition of the
Default Rate shall not constitute a waiver of this provision or estop KEF from
asserting or enforcing KEFs rights hereunder.

          (2) Furthermore, upon the occurrence of an Event of Default, KEF shall
have, in addition to the rights and remedies provided herein, in the other Loan
Documents or by law, the rights and remedies of a secured party under the
Uniform Commercial Code under the laws of the State of New York (the "UCC")
(regardless of whether the UCC is the law of the jurisdiction where the rights
and remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further KEF may do any one or more of the following as
KEF in its sole discretion may elect, with or without judicial process or the
aid and assistance of others: (a) enter and remain on any premises on which any
of the Equipment may be located and, without resistance or interference by the
Borrower, without liability to

                                                                    Page 7 of 12

<PAGE>

KEF by reason of such entry or taking possession, take possession of the
Equipment, (b) prepare for sale and sell or otherwise dispose of any Equipment
on any such premises, (c) require the Borrower to assemble and make available to
KEF at Borrower's expense any Equipment at any place and time designated by KEF,
(d) remove any Equipment from any such premises for the purpose of effecting
sale or other disposition thereof, (e) without demand and without advertisement,
notice, hearing or process of law, all of which the Borrower hereby waives, at
any place and time or times, sell and deliver any or all Equipment held by or
for it at public or private sale, by one or more contracts, in one or more
parcels, for cash, upon credit or otherwise, at such prices and upon such terms
as KEF deems advisable, in its sole discretion, or (f) lease all or any portion
of the Equipment on such terms and conditions as KEF in its sole discretion may
determine. In addition to all other sums due KEF hereunder, the Borrower shall
pay KEF all reasonable costs and expenses incurred by KEF, including reasonable
attorneys' fees and court costs, in obtaining or liquidating the Collateral, in
enforcing payment of Secured Obligations, or in the prosecution or defense of
any action or proceeding by or against KEF or the Borrower concerning any matter
arising out of or connected with the Loan Documents, the Collateral or the
Secured Obligations, including without limitation any of the foregoing arising
in, arising under or related to a case under the United States Bankruptcy Code.

          (3) Borrower's waivers regarding disposition of the equipment. IF AN
EVENT OF DEFAULT OCCURS, BORROWER HEREBY WAIVES ANY DEFENSES, RIGHTS, OFFSETS OR
CLAIMS AGAINST KEF ARISING OUT OF THE REPOSSESSION, RETENTION, SALE, MANNER OR
METHOD OF SALE OR DISPOSITION OF ANY ITEMS OF EQUIPMENT. THE BORROWER AGREES
THAT ANY REQUIREMENT OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS
PERSONALLY SERVED ON OR MAILED, POSTAGE PREPAID, TO THE BORROWER IN ACCORDANCE
WITH THE NOTICE PROVISIONS HEREOF AT LEAST 10 DAYS BEFORE THE TIME OF SALE OR
OTHER EVENT GIVING RISE TO THE REQUIREMENT OF SUCH NOTICE. KEF SHALL NOT BE
OBLIGATED TO MAKE ANY SALE OR OTHER DISPOSITION OF THE EQUIPMENT REGARDLESS OF
NOTICE HAVING BEEN GIVEN. KEF MAY BE THE PURCHASER AT ANY SUCH SALE. THE
BORROWER HEREBY WAIVES ALL OF ITS RIGHTS OF REDEMPTION FROM ANY SUCH SALE. KEF
MAY POSTPONE OR CAUSE THE POSTPONEMENT OF THE SALE OF ALL OR ANY PORTION OF THE
EQUIPMENT BY ANNOUNCEMENT AT THE TIME AND PLACE OF SUCH SALE, AND SUCH SALE MAY,
WITHOUT FURTHER NOTICE, BE MADE AT THE TIME AND PLACE TO WHICH THE SALE WAS
SCHEDULED. NONE OF KEF'S RIGHTS OR REMEDIES HEREUNDER ARE INTENDED TO BE
EXCLUSIVE OF, BUT EACH SHALL BE CUMULATIVE AND IN ADDITION TO, ANY OTHER RIGHT
OR REMEDY REFERRED TO HEREUNDER OR OTHERWISE AVAILABLE TO KEF OR ITS ASSIGNS AT
LAW OR IN EQUITY, AND MAY BE PURSUED SINGLY, SUCCESSIVELY OR CONCURRENTLY AT THE
SOLE DISCRETION OF LENDER AND MAY BE EXERCISED AS OFTEN AS OCCASION THEREFOR
SHALL OCCUR. THE FAILURE TO EXERCISE, OR ANY DELAY IN THE EXERCISE OF, ANY RIGHT
OR REMEDY SHALL IN NO EVENT BE CONSTRUED AS A WAIVER, RELEASE OR EXHAUSTION OF
ANY SUCH REMEDIES. NO EXPRESS OR IMPLIED WAIVER BY KEF OF ANY EVENT OF DEFAULT
SHALL CONSTITUTE A WAIVER OF ANY OTHER EVENT OF DEFAULT OR A WAIVER OF ANY OF
KEFS RIGHTS UPON THE REOCCURRENCE OF ANY SUCH EVENT OF DEFAULT.

     (c)  The Borrower hereby authorizes KEF, upon the occurrence and during the
continuation of any Event of Default hereunder, at KEF's option to adjust,
compromise and settle any losses under any insurance afforded, and the Borrower
does hereby irrevocably constitute KEF and each of its designees, as its
attorneys-in-fact, with full power and authority, upon the occurrence and during
the continuation of any Event of Default hereunder, to effect such adjustment,
compromise and/or settlement and to endorse any drafts drawn by an insurer of
the Equipment or any part thereof and to do everything necessary to

                                                                    Page 8 of 12

<PAGE>

carry out such purposes and to receive and receipt for any unearned premiums due
under policies of such insurance; but unless or until KEF elects to adjust,
compromise or settle losses as aforesaid, such insurance proceeds shall be
subject to the lien and security interest of KEF hereunder.

     (d)  Upon the occurrence, and during the continuance, of an Event of
Default hereunder, any payments in respect of the Secured Obligations and any
proceeds of the Collateral, when received by KEF in cash or its equivalent, will
be applied first to costs of collection and, thereafter, in reduction of the
Secured Obligations in such order and manner as KEF may direct in its sole
discretion, and the Borrower irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that KEF
shall have the continuing and exclusive right to apply any and all such payments
and proceeds in KEF's sole discretion, notwithstanding any entry to the contrary
upon any of its books and records. The Borrower shall remain liable to KEF for
any deficiency. Any surplus remaining after the full payment and satisfaction of
the Secured Obligations shall be returned to the Borrower or to whomsoever a
court of competent jurisdiction shall determine to be entitled thereto.

     (e)  To the extent that any of the Secured Obligations are now or hereafter
secured by property other than the Collateral, or by a guarantee, endorsement or
property of any other person, then KEF also shall have the right to proceed
against such other property, guarantee or endorsement upon the occurrence of a
default hereunder, and KEF shall have the right, in its sole discretion, to
determine which rights, liens, security interests or remedies KEF shall at any
time pursue, relinquish, subordinate or modify, without in any way affecting the
Secured Obligations or any of KEF's rights under this Agreement.

17.  Notices. All notices and other communications hereunder shall be in writing
     -------
and shall be transmitted by hand, overnight courier or certified mail (return
receipt requested), postage prepaid. Such notices and other communications shall
be addressed to the respective party at the address set forth above or at such
other address as any party may from time to time designate by notice duly given
in accordance with this Section. Such notices and other communications shall be
effective upon the earlier of receipt or five (5) days after mailing if mailed
in accordance with the terms of this section.

18.  General Indemnification. Borrower shall pay, and shall indemnify and hold
     -----------------------
KEF and its directors officers, employees, counsel, agents and advisors harmless
on an after-tax basis from and against, any and all liabilities, causes of
action, claims, suits, penalties, damages, losses, costs or expenses (including
attorneys' fees), obligations, liabilities, demands and judgments, and Liens, of
any nature whatsoever (collectively, a "Liability") arising out of or in any way
related to: (a) the Loan Documents, (b) a failure to comply fully with
Applicable Law and (c)Borrower's failure to perform any covenant, or breach of
any representation or warranty under the Loan Documents; provided that the
foregoing indemnity shall not extend to the Liabilities to the extent resulting
solely from the gross negligence or willful misconduct of KEF. Borrower shall
promptly deliver to KEF copies of any documents received from the United States
Environmental Protection Agency or to any state, county or municipal
environmental or health agency concerning the Equipment or its operation and
copies of any documents submitted by Borrower or any of its subsidiaries to the
United States Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning the Equipment or its operation.
Borrower further agrees to indemnify KEF against and hold it harmless from all
present and future stamp, transfer, documentary and other such taxes, levies,
fees, assessments or other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of the Loan Documents.

19.  Severability; Captions. Whenever possible, each provision of this Agreement
     ----------------------
shall be interpreted in such manner as to be effective and valid under
Applicable Law. If, however, any provision of this Agreement or any of the Loan
Documents shall be prohibited or unenforceable in any jurisdiction, it shall, as
to such jurisdiction, be deemed modified to conform to the minimum requirements
of such law,

                                                                    Page 9 of 12

<PAGE>

or if for any reason it is not deemed so modified, it shall be
ineffective only to the extent of such prohibition or unenforceability without
affecting the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction. Captions are intended for convenience or reference only,
and shall not be construed to define, limit or describe the scope or intent of
any provisions hereof.

20.  Financial and Other Data. During the Term hereof, Borrower shall furnish
     ------------------------
KEF (a) as soon as available, and in any event within 120 days after the last
day of each fiscal year, financial statements of Borrower and each Guarantor and
(b) from time to time as KEF may reasonably request, other financial reports,
information or data (including federal and state income tax returns) and
quarterly or interim financial statements of Borrower and each Guarantor. All
such information shall be audited (or if audited information is not available,
compiled or reviewed) by an independent certified public accountant

21.  [RESERVED]
     ----------

22.  Representations and Warranties of Borrower. Borrower represents and
     ------------------------------------------
warrants that (a) Borrower is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation; (b) the
execution, delivery and performance of this Agreement and all related
instruments and documents: (1) have been duly authorized by all necessary
corporate action on the part of Borrower, (2) do not require the approval of any
stockholder, partner, trustee, or holder of any obligations of Borrower except
such as have been duly obtained, and (3) do not and will not contravene any law,
governmental rule, regulation or order now binding on Borrower, or the charter
or by-laws of Borrower, or contravene the provisions of, or constitute a default
under, or result in the creation of any lien or encumbrance upon the property of
Borrower under, any indenture, mortgage, contract or other agreement to which
Borrower is a party or by which it or its property is bound; (c) the Loan
Documents, when entered into, will constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with the
terms thereof; (d) there are no pending actions or proceedings to which Borrower
is a party, and there are no other pending or threatened actions or proceedings
of which Borrower has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Borrower, or the ability of Borrower to perform its
obligations under the Loan Documents; (e) Borrower is not in default under any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of any installments under any lease agreement which,
either individually or in the aggregate, would have the same such effect; (f)
under the laws of the state(s) in which the Equipment is to be located, the
Equipment consists solely of personal property and not fixtures; (g) the
financial statements of Borrower (copies of which have been furnished to KEF)
have been prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and fairly present Borrower's financial condition
and the results of its operations as of the date of and for the period covered
by such statements, and since the date of such statements there has been no
material adverse change in such conditions or operations; (h) the address stated
above is the chief place of business and chief executive office, or in the case
of individuals, the primary residence, of Borrower; (i) Borrower does not
conduct business under a trade, assumed or fictitious name, except as set forth
in Schedule 1; (j) this Agreement creates a valid first priority security
interest in the Collateral securing payment and performance of the Secured
Obligations and all filings and other action necessary to perfect such security
interest have been taken or shall be promptly taken; (k) Borrower has filed or
has caused to have been filed all Federal, state and local tax returns which, to
the knowledge of Borrower, are required to be filed, and has paid or caused to
have been paid all taxes as shown on such returns or on any assessment received
by it, to the extent that such taxes have become due, unless and to the extent
only that such taxes, assessments and governmental charges are currently
contested in good faith and by appropriate proceedings by Borrower and adequate
reserves therefor have been established as required under GAAP and, to the
extent Borrower believes it advisable to do so, Borrower has set up reserves
which are believed by Borrower to be adequate for the payment of

                                                                   Page 10 of 12

<PAGE>

additional taxes for years which have not been audited by the respective tax
authorities; (l) except as previously disclosed in writing to KEF, neither
Borrower nor any of its officers or directors (if a corporation), partners (if a
partnership) or members or managers (if a limited liability corporation) has,
directly or indirectly, any financial interest in the Supplier, and (m) Borrower
is not in violation of any Applicable Law, the violation of which would have a
material adverse effect on the conduct of its business, and Borrower has
obtained any and all licenses, permits, franchises or other governmental
authorizations necessary for the ownership of its properties and the conduct of
its business; and (n) none of the proceeds of the loan made by KEF will be used,
directly or indirectly, by Borrower for the purpose of purchasing or carrying,
or for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve
System (herein called "margin stock") or for any other purpose which might make
the transactions contemplated herein a "purpose credit" within the meaning of
Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.

23.  Further Covenants of Borrower. The Borrower further covenants and agrees
     -----------------------------
that it will not change its legal name, be a party to a merger, consolidation or
other change in structure or use a trade name in its business without at least
30 days' prior written notice to KEF; and shall execute and deliver to KEF (to
be filed at Borrower's expense) all UCC statements as may be required by KEF in
connection with such event.

24.  Miscellaneous. Time is of the essence with respect to this Agreement. ANY
     -------------
FAILURE OF KEF TO REQUIRE STRICT PERFORMANCE BY BORROWER OR ANY WAIVER BY KEF OF
ANY PROVISION HEREIN SHALL NOT BE CONSTRUED AS A CONSENT OR WAIVER OF ANY
PROVISION OF THIS AGREEMENT. None of the Loan Documents may be amended except by
a writing signed by KEF and Borrower. This Agreement will be binding upon KEF
only if executed by a duly authorized officer or representative of KEF at KEF's
principal place of business as set forth above. This Agreement and all other
Loan Documents shall be executed on Borrower's behalf by Authorized Signers of
Borrower. The Borrower hereby waives presentment, notice of dishonor and protest
of all instruments included in or evidencing any Secured Obligations, and all
other notices and demands whatsoever (except as expressly provided herein). THIS
AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF
NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

25.  Jury Trial Waiver. KEF AND BORROWER HEREBY EACH WAIVE THEIR RESPECTIVE
     -----------------
RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION OR PROCEEDING TO
WHICH KEF OR BORROWER MAY BE PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY ACTION, COUNTERCLAIM
OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY, OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND
VOLUNTARILY BY KEF AND THE BORROWER WHO EACH

                                                                   Page 11 of 12

<PAGE>

ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

26.  More than One Borrower. If more than one person or entity executes this
     ----------------------
Agreement, each of the other Loan Documents, and all addenda or other documents
executed in connection herewith or therewith, as "Borrower," the obligations of
"Borrower" contained herein and therein shall be deemed joint and several and
all references to "Borrower" shall apply both individually and jointly.

27.  Entire Agreement. This Agreement, together with the other Loan Documents,
     ----------------
collectively constitute the entire understanding or agreement between KEF and
Borrower with respect to the financing of the Equipment, and there is no
understanding or agreement, oral or written, which is not set forth herein or
therein. This Agreement shall not be modified except by the written agreement of
KEF and Borrower.

28.  Execution in Counterparts. This Agreement may be executed in any number of
     -------------------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.

29.  Power of Attorney; UCC Filings. BORROWER SHALL EXECUTE AND DELIVER TO KEF
     ------------------------------
CONCURRENTLY WITH THE EXECUTION OF THIS AGREEMENT, AND AT ANY TIME FROM TIME TO
TIME THEREAFTER, ALL FINANCING STATEMENTS, AMENDMENTS TO FINANCING STATEMENTS,
CHATTEL MORTGAGES, ASSIGNMENTS, AND ALL OTHER INSTRUMENTS, IN FORM SATISFACTORY
TO KEF, AND TAKE ALL OTHER ACTION AS KEF MAY REASONABLY REQUIRE, TO PERFECT AND
CONTINUE PERFECTED, MAINTAIN THE PRIORITY OF OR PROVIDE NOTICE OF KEF'S SECURITY
IN THE COLLATERAL. BORROWER HEREBY APPOINTS KEF, OR ITS ASSIGNEE, AND ANY OF
KEF'S OR ASSIGNEE'S OFFICERS OR EMPLOYEES AS ITS TRUE AND LAWFUL ATTORNEY IN
FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF
BORROWER ALL UCC FINANCING STATEMENTS WHICH IN KEFS SOLE DISCRETION ARE
NECESSARY OR PROPER TO SECURE KEF'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE
JURISDICTIONS. Borrower hereby ratifies, to the extent permitted by law, all
that KEF shall lawfully and in good faith do or cause to be done by reason of
and in compliance with this paragraph.

Lender:                                     Borrower:

Key Equipment Finance, a Division of Key    STAR SCIENTIFIC, INC.
Corporate Capital, Inc.

By:     /s/ Krista L. Spada                 X      /s/ Christopher G. Miller
     -----------------------------           -----------------------------------
       Name:   Krista L. Spada              Name:  Christopher G. Miller
       Title:  Regional Business            Title: Chief Financial Officer
               Unit Manager
                                                                   Page 12 of 12

<PAGE>

                                AMENDMENT NO. 01
                              TO SECURITY AGREEMENT

           THIS AMENDMENT dated as of April 9, 2002 amends that certain Security
Agreement dated as of April 9, 2002 (the "Agreement") between Key Equipment
Finance, a Division of Key Corporate Capital Inc., as lender, and STAR
SCIENTIFIC, INC., as Borrower. Unless otherwise specified herein, all
capitalized terms shall have the meanings ascribed to them in the Agreement

BORROWER'S FINANCIAL COVENANTS. Borrower hereby covenants with Lender as
follows:

1.   ACCELERATION CLAUSE

           In addition to the standard language in the Loan Documents, Lender
and Borrower agree to the following: If at any time during the term of this
Security Agreement, i.) the contract between Brown and Williamson Tobacco Corp.,
and Borrower is not renewed or is cancelled for any reason; and/or ii.) the
Borrower does not maintain a ratio of Adjusted Cash Flow to Fixed Charges that
exceeds 1.25x for each fiscal year end over the life of the Security Agreement,
then the Lender has a right to accelerate all outstanding payments with 30 days
notice from Lender, which is to include, but not limited to, Installments, taxes
and the remaining Balloon Payment.

           "Adjusted Cash Flow" is defined as net income after taxes and
exclusive of extraordinary gains and losses, gains on sale of fixed assets, and
other income; PLUS interest expense (all interest paid or accrued, but not on
zero coupon debt), taxes, depreciation, amortization, and lease payments (all
calculated for the preceding twelve-month period).

           "Fixed Charges" means the sum of current maturities of long-term
debt, current maturities of capital leases, interest expense (all interest paid
or accrued, but not on zero coupon debt), dividends, capital expenditures (not
including leased equipment) and annual calculated payments under the Master
Settlement Agreement due for the current year and lease payments (all calculated
for the preceding twelve-month period).

Compliance. Borrower shall, within thirty (30) days of the end of each fiscal
----------
year end of Borrower, provide Lender with a certificate (a "Compliance
Certificate") representing that Borrower is in full compliance with the
foregoing financial covenants and setting forth the calculations used by
Borrower to reach its conclusion. The Compliance Certificate shall be signed by
Borrower's chief financial officer or, if Borrower does not have a chief
financial officer, such other officer or employee of Borrower who performs the
duties typically undertaken by a chief financial officer.

           In addition, on a quarterly basis, Borrower will provide KEF with a
listing of any pending or threatened actions or proceedings, of which Borrower
has knowledge, before any court, arbitrator or administrative agency, which,
either individually or in the aggregate, would adversely affect the financial
condition of Borrower, or the ability of Borrower to perform its obligations
under the Loan Documents.

           EXCEPT AS EXPRESSLY MODIFIED HEREBY, ALL OF THE TERMS, COVENANTS AND
CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND ARE IN ALL
RESPECTS HEREBY RATIFIED AND AFFIRMED.

<PAGE>

          IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment
as of the date first written above.

Lender:                                     Borrower:

Key Equipment Finance, a Division of Key
Corporate Capital Inc.                      STAR SCIENTIFIC INC.

By:      /s/ Krista L. Spada                X       /s/ Christopher G. Miller
    --------------------------------         --------------------------------
Name:  Krista L. Spada                      Name:  Christopher G. Miller
Title: Regional Business                    Title: CFO
       Unit Manager

                                       2

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