Document:

Education Management Corp. Long Term Incentive Compensation Plan

 Exhibit 10.01 
 EDUCATION MANAGEMENT CORPORATION 
 LONG TERM INCENTIVE COMPENSATION PLAN 
 1. Purpose. The purpose of the Education Management Corporation Long Term Incentive Compensation Plan (the “Plan”) is to enhance
the ability of the Company to attract, motivate, reward, and retain key employees, to strengthen their commitment to the success of the Company and to align their interests with those of the Company’s shareholders by providing additional
incentive compensation payable under, and subject to the terms and conditions of, the Plan in the event of a Realization Event. 
 2.
Administration. The Plan shall be administered by the Committee. The Committee shall have full authority to: (i) establish the rules and regulations relating to the Plan; (ii) interpret the Plan and those rules and regulations;
(iii) select Participants in the Plan; (iv) calculate the total amount of the Bonus Pool and the amounts to be received by Participants in the Plan; (v) decide the facts in any case arising under the Plan; and (vi) make all other
determinations and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority or power, where appropriate. 
 The Committee’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals,
decisions, delegations, amendments, terminations and other actions, shall be final, binding and conclusive on the Company, its stockholders and all persons having or claiming an interest under the Plan. No member of the Committee shall be liable for
any action, failure to act, determination or interpretation made with respect to the Plan or any transaction hereunder, and the Company hereby agrees to indemnify each member of the Committee, to the maximum extent permitted by applicable law, for
any such action, failure to act, determination or interpretation. 
 3. Eligible Employees. Participation in the Plan shall be limited
to those key management employees and consultants of the Company and its subsidiaries selected by the Committee to participate in the Plan. The Committee may designate any of such employees to participate in the Plan at the Effective Date and from
time to time thereafter, and, upon such designation, an employee so designated shall become a Participant. 
 4. Units. 1,000,000
units (the “Units”) are available for allocation to Participants by the Committee. Each Unit represents a right to receive payment from the Bonus Pool, if any, established upon a Realization Event on the terms and conditions set
forth herein. 
 5. Award Agreement. The grant of Units pursuant to the Plan will be represented by an award agreement (the
“Award Agreement”) that may contain such other terms and conditions as determined by the Committee, not inconsistent with the terms of the Plan, applicable to the Participant. 
 6. Payments Pursuant to the Bonus Pool. 
 (a) Creation of Bonus Pool. Upon a Realization Event, a bonus pool (the “Bonus Pool”) will be created in an amount determined in accordance with Schedule A hereto based upon the aggregate Cash on Cash Return realized
by the Sponsors prior to and in connection with the Realization Event. 

 (b) Entitlement to Payment; Effect of Termination of Employment. Unless the Committee determines
otherwise, (i) in order to receive any payment under the Plan, a Participant must remain continuously employed by the Company or one or more of its subsidiaries from the date on which he or she becomes a Participant in the Plan through the
Payment Date, and (ii) upon termination of a Participant’s employment for any reason, including disability, the Participant shall cease to be a Participant in the Plan and the Participant’s Units shall be immediately forfeited. In the
discretion of the Committee, a Participant may forfeit his or her Units in the event that the Participant does not continue to work on a full time basis or is demoted or accepts a position of lesser responsibility with the Company or any of its
subsidiaries. 
 (c) Timing of Payment. Any payments from the Bonus Pool
payable to a Participant shall be paid in a lump sum within 2 1/2 months of the end of the calendar year in which
the Realization Event occurs (the “Payment Date”). 
 (d) Amount of Payment. The amount of the payment to each
Participant entitled to receive payment under the Plan shall be determined as follows: 
  

			
	Step 1:	  	Upon a Realization Event, the amount of the Bonus Pool shall be determined based on the Cash on Cash Return realized by the Sponsors.
		
	Step 2:	  	Each Participant who holds Units on the Payment Date shall be entitled to receive a Bonus Pool Share. The amount of any such Participant’s “Bonus Pool Share” shall be
determined by multiplying the amount of the Bonus Pool by a fraction, the numerator of which is the total number of Units held by the Participant and the denominator of which is 1,000,000.
		
	Step 3:	  	Any amount of the Bonus Pool in excess of the aggregate amounts payable to the Participants pursuant to Step 2 shall not be paid under the Plan but shall instead be forfeited to the
Company.

 An example of a calculation pursuant to this Section 6(d) is attached to the Plan as Exhibit A for
illustrative purposes only (and based on the assumptions contained therein). 
 (e) Form of Payment. Payments under the Plan shall be
paid in the form of cash or, if the Realization Event occurs after or in connection with an initial public offering of the Company’s Common Stock, in cash or Common Stock, in the discretion of the Committee. If payments under the Plan are to be
paid in the form of Common Stock, then the number of such shares payable to the Participant shall be determined by dividing (i) the amount of the payment payable to the Participant as determined in Section 6(d) above by (ii) the
arithmetic mean of the Fair Market Value of a share of Common Stock for the ten (10) trading days ending on the third business day preceding the Payment Date. Notwithstanding any other provision of the Plan or an Award Agreement to the
contrary, no shares of Common Stock may be issued under the Plan 

  

 2 

 
prior to the completion of any registration or qualification of such shares of Common Stock under applicable state and federal securities or other laws, or
under any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine to be necessary or advisable, unless an exemption to such registration or qualification is available
and satisfied. 
 7. Amendment or Termination. The Committee may amend or terminate the Plan at any time in its discretion;
provided, however, that, (i) no amendment or termination of the Plan may adversely affect the rights of any Participant in the Plan as of the date of such action and (ii) any increase in the number of shares of Common Stock
authorized to be issued hereunder, and any other amendment of the Plan for which stockholder approval is required, shall be subject to the approval of the stockholders of the Company. If no Realization Event occurs within 10 years of the Effective
Date, the Committee will have the discretion to terminate the Plan and all Units granted under the Plan without any payment being made to the holders thereof. 
 8. Miscellaneous Provisions 
 (a) This Plan shall inure to the benefit of and be binding upon the
Company and all Participants and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and permitted assigns. The rights of Participants under the Plan may not be sold,
transferred or otherwise disposed and any such attempted sale, transfer or other disposition shall be void. 
 (b) The Plan shall be
unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment hereunder. 
 (c) The Company shall have the right to deduct from payments hereunder any taxes or other amounts required by law to be withheld. Each Participant entitled to any payment hereunder shall make arrangements satisfactory
to the Company to pay all tax liabilities arising hereunder. 
 (d) Nothing contained in the Plan shall limit or affect in any manner or
degree the normal and usual powers of management, exercised by the officers and the Board or committees thereof, to change the duties or the character of employment of any employee of the Company or any of its subsidiaries or to remove the
individual from the employment of the Company or any of its subsidiaries at any time, all of which rights and powers are expressly reserved. 
 (e) Nothing in the Plan shall be interpreted or construed to confer upon a Participant any right with respect to continuance of employment by the Company or any of its subsidiaries, nor shall the Plan interfere in any way with the right of
the Company or any of its subsidiaries to terminate a Participant’s employment at any time. The transfer of a Participant’s employment from the Company to a subsidiary of the Company (or vice versa) shall not constitute a termination of
employment for purpose of the Plan and shall have no effect on the rights and obligations of the Company and any Participant under the Plan. 
  

 3 

 (f) Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles thereof. 
 9. Definitions. 
 (a) “Aggregate Proceeds” shall equal the sum of (i) the aggregate cash proceeds
received by the Sponsors in respect of their Common Stock prior to or in connection with the Realization Event (which shall include both (x) cash and marketable securities realized as a result of any disposition of shares or received as
dividends or distributions of such shares owned by them and (y) the fair market value of any property received by the Sponsors in respect of such shares in forms other than cash or marketable securities) plus (ii) the fair market value of
any shares of Common Stock owned by the Sponsors immediately following the Realization Event. 
 (b) “Award Agreement” shall
have the meaning set forth in Section 5. 
 (c) “Board” shall mean the Board of Directors of the Company. 

(d) “Bonus Pool” shall have the meaning set forth in Section 6(a). 
 (e) “Bonus Pool Share” shall have the meaning set forth in Section 6(d). 
 (f) “Cash on Cash Return” shall mean the gross return (based on the Aggregate
Proceeds) realized by the Sponsors on all of the capital invested by them in shares of Common Stock. The Cash on Cash Return shall be separately calculated for, and must be separately satisfied with respect to, capital invested in shares of Common
Stock by the Sponsors after June 1, 2006, so that the applicable Cash on Cash Return target stated as a percentage equals 100 + ((x/36) times (y-100)), where x = the number of months that have elapsed from the date of investment through the
date the return is being measured, (provided that x shall not exceed 36), and y = the applicable Cash on Cash Return percentage in accordance with Schedule A; provided, however, that for purposes of such calculation, returns shall first be
attributed to the earliest capital invested.1 If one or more of the Sponsors ceases to own any shares of Common
Stock, Cash on Cash Return shall thereafter be determined based solely on the returns realized by the remaining Sponsors. 
 (g)
“Committee” shall mean the Board, or if the Board so determines, the Compensation Committee of the Board or such other committee appointed by the Board from time to time to administer the Plan and to perform the functions set forth
herein. 
 (h) “Common Stock” shall mean the common stock, par value $0.01 per share, of the Company, and any other
securities into which such shares are changed or for which such shares are exchanged. 

	 1
	 For purposes of illustration, to achieve a Bonus Pool of $12,000,000, (i) a 300% Cash on Cash
Return would have to be realized on the Sponsors’ initial capital investment and (ii) on subsequently invested capital measured on a realized return to the Sponsors two years following the date of investment, the Cash on Cash Return needed
on that subsequently invested capital would be equal to 233% (100 + ((24/36) * (300-100)) = 233). 

  

 4 

 (i) “Company” shall mean Education Management Corporation and any successor to Education
Management Corporation by merger, consolidation or otherwise. 
 (j) “Effective Date” shall mean February 26, 2007.

 (k) “Fair Market Value” shall have the meaning set forth in the Company’s 2006 Stock Option Plan. 
 (l) “Participant” shall mean a key management employee or consultant of the Company or any of its subsidiaries selected by the Committee
to participate in the Plan. 
 (m) “Payment Date” shall have the meaning set forth in Section 6(d). 
 (n) “Realization Event” shall mean the first day following which both of the following have occurred (i) the Sponsors cease to hold
in the aggregate at least 30% of the outstanding voting securities of the Company, measured by voting power, and (ii) the Sponsors have, in the aggregate, disposed of at least 70% of their shares of Common Stock and received in respect thereof
cash or marketable securities. 
 (o) “Sponsors” shall mean GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore
Fund, L.P., GS Capital Partners V GmbH & Co. KG, GS Capital Partners V Institutional, L.P., Providence Equity Partners V L.P., Providence Equity Partners V-A L.P., Providence Equity Partners IV L.P., and Providence Equity Operating Partners
IV L.P. 
 (p) “Units” shall have the meaning set forth in Section 4. 
  

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 SCHEDULE A 
 Bonus Pool Calculations 
  

			
	Cash-on-Cash Return	  	Amount of Bonus Pool
		
	 Less than 200%
	  	0
		
	 At least 200% but less than 250%
	  	$2,000,000
		
	 At least 250% but less than 300%
	  	$6,000,000
		
	 At least 300% but less than 350%
	  	$12,000,000
		
	 At least 350% but less than 400%
	  	$21,000,000

 In the event that the Cash-on-Cash Return exceeds 400%, the Bonus Pool shall equal .0075 x the Aggregate Proceeds
in excess of the total capital invested in shares of Common Stock by all shareholders of the Company. 
  

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 Exhibit A 
 Example under the Education Management Corporation Long-Term Incentive Plan 
 Assumptions: 
  

	 	•	 	 Eight employees are selected to be Participants on the Effective Date and enter into Award Agreements granting each of them 1,000 Units. All of them remain employed
through the Payment Date. 

  

	 	•	 	 Two employees are selected to be Participants after the Effective Date and enter into Award Agreements granting each of them 500 Units. Both remain employed through
the Payment Date. 

  

	 	•	 	 A Realization Event occurs resulting in a Cash on Cash Return of 300%. 

 Calculations: 
 Based on the foregoing assumptions, the bonus payments would be calculated as follows: 
  

			
	Step 1:	  	The Bonus Pool is equal to $12,000,000.
		
	Step 2:	  	A Unit represents the right to a payment of $12.00. ($12,000,000 divided by 1,000,000.)
		
	Step 3:	  	Each Participant who received Units on the Effective Date would receive a bonus payment of $12,000 (1,000 multiplied by $12.00.) Each Participant who received Units after the Effective Date
would receive a bonus payment of $6,000 (500 multiplied by $12.00.)

 (Note:    The foregoing calculations do not take into account
reductions for payment of all applicable withholding taxes.) 
  

 7Exhibit 10.91

 Exhibit 10.91 
 ESCROW RELEASES 
 PURCHASE AGREEMENT 
 BY AND BETWEEN 
 QVT Associates LP 
 Whitebox Hedged High Yield Partners, LP 
 Star Scientific, Inc. 
 Star Tobacco, Inc. 

 TABLE OF CONTENTS 
  

					
	1.	 	Definitions.	  	1
			
	2.	 	Basic Transaction.	  	2
			
	3.	 	 Representations and Warranties of the Sellers. The Sellers represent and warrant to the Purchasers that the statements contained
in this Section 3 are true, correct and complete as of the Effective Date and as of the 2006 Payment Effective Date.
	  	3
			
	4.	 	 Representations and Warranties of the Purchasers. The Purchasers represent and warrant to the Sellers the that the statements
contained in this Section 4 are true, correct and complete as of the Closing Date.
	  	5
			
	5.	 	Other Covenants.	  	6
			
	6.	 	Miscellaneous.	  	8

 EXHIBITS 
 Exhibit A Escrow Accounts 
 Exhibit B Form of Acknowledgement 
 Exhibit C Form of Opinion from Sellers’ Counsel 

 ESCROW RELEASES PURCHASE AGREEMENT 
 This Escrow Releases Purchase Agreement is entered into on March 14, 2007 (the “Effective Date”), by and between QVT Associates LP,
a limited partnership formed under the laws of the State of Delaware and Whitebox Hedged High Yield Partners, LP, a limited partnership formed under the laws of the British Virgin Islands (collectively, the “Purchasers”) and Star
Scientific, Inc., a Delaware corporation (“STSI”) and Star Tobacco, Inc., a Virginia corporation (“STI”) (collectively, the “Sellers”). The Purchasers and the Sellers are referred to collectively
herein as the “Parties.” 
 This Agreement contemplates a transaction in which the Purchasers will purchase all
Sellers’ right, title and interest in and to all income from and reversionary interests in the escrow accounts identified on Exhibit A, which were established by the Sellers on behalf of STI as a non-participating manufacturer under state
statutes adopted substantially in the form of the Model Statute set forth on Exhibit T to the Master Settlement Agreement between the major tobacco companies and each state in the United States and the District of Columbia, other than the states of
Virginia, Texas, Louisiana and Minnesota (the “Escrow”). 
 Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 
 1. Definitions.
 (a) “Acknowledgement” has the meaning set forth in Section 2(c)(i) below. 
 (b) “Assigned Interests” means all of the right, title, and interest in and to (a) the Principal and the 2006 Payments; and
(b) the interest in all income generated by and other appreciation of the Principal and, upon the deposit thereof, the 2006 Payments. 
 (c) “Closing” has the meaning set forth in Section 2(c) below. 
 (d) “Closing Date” has the
meaning set forth in Section 2(c) below. 
 (e) “Escrow” has the meaning set forth in the preamble above. 

(f) “Escrow Agent” means Branch Banking & Trust Company. 
 (g) “Escrow Agreement” means the agreements between the Sellers and the Escrow Agent under which the escrow accounts identified on
Exhibit A were established and as of the Closing Date are maintained. 
 (h) “Escrow Claims” has the meaning set forth in
Section 5(c) below. 
 (i) “Knowledge” means actual knowledge after reasonable inquiry. 

 (j) “Law” means a law, order, ruling, rule, regulation, writ, assessment, injunction,
judgment or decree. 
 (k) “Material Adverse Effect” means the ability of a Party to consummate the transactions
contemplated by this Agreement or a material adverse change in the value of the Escrow. 
 (l) “Notice of Election” has the
meaning set forth in Section 5(c)(ii) below. 
 (m) “Party” has the meaning set forth in the preamble above.

 (n) “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). 
 (o)
“Principal” means the reversionary interest in all amounts deposited in the Escrow prior to March 13, 2007. 
 (p)
“Purchase Price” has the meaning set forth in Section 2(b) below. 
 (q) “Purchasers” has the meaning
set forth in the preamble above. 
 (r) “SEC Documents” means Sellers’ Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2005, Sellers’ Quarterly Reports on Form 10-Q for the periods ended March 31, 2006, June 30, 2006, and September 30, 2006, and each current report on Form 8-K filed by Sellers since January 1,
2005. 
 (s) “Sellers” has the meaning set forth in the preamble above. 
 (t) “2006 Payments” mean the Sellers’ deposits to be made into Escrow on or about April 15, 2007 pursuant to state statutes
adopted substantially in the form of the Model Statute set forth on Exhibit T to the Master Settlement Agreement between the major tobacco companies and each state in the United States other than Virginia, Texas, Louisiana and Minnesota; provided,
however, that the 2006 Payments shall not exceed $700,000. 
 2. Basic Transaction.
 (a) Purchase and Sale. On and subject to the terms and conditions of this Agreement, the Purchasers hereby purchase from the Sellers, and the
Sellers hereby sell, transfer, convey, and deliver to the Purchasers, all of Sellers’ right, title and interest in and to the Assigned Interests free and clear of all liens, pledges, charges, or encumbrances of any kind or nature against
delivery of the consideration specified in Section 2(b)(i), and when the 2006 Payments are deposited, Section 2(b)(ii). 
 (b)
Purchase Price. The Purchasers agree to pay Sellers an amount equal to: (i) the product of thirty cents ($.30) and the Principal as of the Closing Date; plus (ii) the product of thirty cents ($.30) and the amount of the 2006
Payments when deposited into the Escrow. 
  

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 (c) The Closing. The closing of the
purchase and sale provided for herein (the “Closing”) occurred simultaneously with the execution of this Agreement (the date of such execution and Closing, the “Closing Date”) at
Latham & Watkins, LLP, 555 11th Street, N.W., Suite 1000, Washington, D.C. 20004 and shall be effective as
of 4.30 p.m. Eastern Time on the Closing Date. At the Closing: 
 (i) the Sellers delivered to Purchasers the notice, instruction,
acknowledgement and Account Control Agreement (the “Acknowledgement”) in the form of Exhibit B hereto executed by Sellers and the Escrow Agent; 
 (ii) the Sellers provided the Purchasers an opinion from outside counsel that was acceptable to the Purchasers in the form of Exhibit C hereto; 
 (iii) the Purchasers delivered to the Sellers the consideration specified in clause (i) of Section 2(b) above by wire transfer in same day
funds into an account designated in writing by Sellers; and 
 (iv) the Sellers shall deliver, or cause to be delivered, to the Purchaser an
executed affidavit, dated not more than thirty (30) days prior to the Closing Date, in accordance with Code Section 1445(b)(2) and Treasury Regulation Section 1.1445-2(b), which statement certifies that such Person is not a foreign
person and sets forth such Person’s name, taxpayer identification number and address. 
 (d) 2006 Payments. 
 (i) Sellers shall deposit the 2006 Payments into the applicable Escrow Accounts no later than April 16, 2007. 
 (ii) Purchasers shall deliver to the Sellers the consideration specified in Section 2(b)(ii) above into an account designated in writing by Sellers
upon written confirmation from the Escrow Agent that the 2006 payments have been deposited into the applicable Escrow Accounts (the date of such confirmation being the “2006 Payment Effective Date”). 
 (iii) For purposes of clarity, nothing in this Agreement provides Purchasers the right to 2006 Payments in excess of $700,000 or obligate the Purchasers
to pay a Purchase Price based on 2006 Payments of more than $700,000. 
 3. Representations and Warranties of the Sellers. The
Sellers represent and warrant to the Purchasers that the statements contained in this Section 3 are true, correct and complete as of the Effective Date and as of the 2006 Payment Effective Date. 
 (a) Incorporation. STSI is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and
STI is a corporation duly organized, validly existing, and in good standing under the laws of the State of Virginia. The Sellers have not received a written notification that any proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification, and to the Sellers’ Knowledge, no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification. The Sellers are not in violation of their charter or bylaws. 
  

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 (b) Authorization of Transaction. The Sellers have full power and authority to execute and
deliver this Agreement and to perform their obligations hereunder. Without limiting the generality of the foregoing, the respective Boards of Directors of each of the Sellers have duly authorized the execution, delivery, and performance of this
Agreement by the Sellers. This Agreement constitutes the valid and legally binding obligation of the Sellers, enforceable in accordance with its terms and conditions. 
 (c) Noncontravention. To the Knowledge of the Sellers, the consummation of the transactions contemplated herein will not result in: (i) any violation of the certificate of incorporation or bylaws of the
Sellers; (ii) a breach or violation of any of the terms and provisions of, or constitute a default under any contract, agreement, license, understanding, indenture, mortgage, deed of trust, loan agreement, joint venture, lease (including
without limitation any sale and leaseback arrangement) or bond, debenture, note or other evidence of indebtedness, to which a Seller is a party or by or to which it or the Assigned Interests are or may be bound or subject; or (iii) a breach or
violation of any Law of any government or governmental court, agency or body having jurisdiction over the Sellers or the Assigned Interests. For purposes of clarity and not qualification of the representation and warranty contained in this
Section 3(c), Sellers shall remain as parties to the Escrow Agreement as required by the Model Statue but upon the Closing, shall have no right, title or interest in or to the Assigned Interests; upon the Closing, Purchasers shall own and
control the Assigned Interests free and clear of all liens, claims, pledges and encumbrances of any kind or nature, and the Sellers shall have no further rights, interests or liens in the Assigned Interests. 
 (d) Ownership. Except as set forth in the SEC Documents, the Sellers have good and valid title to the Assigned Interests, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest, whether imposed by agreement, contract, understanding, law, equity or otherwise, except to the extent otherwise set forth in the Escrow Agreements. Upon delivery of the full
consideration as set forth in Section 2(b), Purchasers will have good and valid title to all of Sellers’ rights, title and interest in and to the Assigned Interests and no further act nor thing need occur to transfer such rights, title and
interest to the Purchasers. 
 (e) SEC Documents. STSI has filed in a timely manner all documents that STSI was required to file under
the Securities and Exchange Act of 1934 during the 12 months period ending on the Closing Date. As of their respective filing dates, the SEC Documents complied or, when filed will comply in all material respects with the requirements of the
Securities and Exchange Act of 1934 or the Securities Act of 1933, as applicable, and none of the SEC Documents contained or, when filed, will contain any untrue statement of a material fact or omitted or, when filed, will omit to state a material
fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, as of their respective filing dates, except to the extent corrected by a
subsequently filed SEC Document. 
 (f) State Statutes. To the knowledge of Sellers, each of the states which are beneficiaries of the
Escrow have duly enacted statutes substantially in the form of the Model Statute set forth in Exhibit T to the Master Settlement Agreement between the major tobacco companies and each state in the United States and the District of Columbia,
other than the states of Virginia, Texas, Louisiana and Minnesota. Such statutes have not been repealed and remain in full force and effect. Sellers have fully complied with their obligations and duties under such state statutes. 
  

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 (g) Escrow Agreement. Each Escrow Agreement was duly authorized, executed and delivered by the
parties thereto and remains in full force and effect. 
 (h) Litigation; Escrow Claims. Except as disclosed in the SEC Documents,
(i) the Sellers have no Knowledge of any outstanding injunctions, judgments, orders, decrees, rulings, or charges against them; and (ii) neither Seller has Knowledge that it is a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction, except where the injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing, or
investigation would not reasonably be expected to have a Material Adverse Effect. Sellers have no knowledge of any pending or threatened Escrow Claims. 
 (i) Brokers’ Fees. The Sellers have no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which
the Purchasers could become liable or obligated. 
 (j) Solvency. Except as disclosed in the SEC Documents, based on the financial
condition of the Sellers as of the Closing Date, (i) the Sellers’ assets do not constitute unreasonably small capital to carry on either of their businesses for the current fiscal year as now conducted and as proposed to be conducted
including capital needs taking into account the particular capital requirements of the business conducted by the Sellers, and projected capital requirements and capital availability thereof; and (ii) the current cash flow of the Sellers,
together with the proceeds the Sellers would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of each of their debts when such
amounts are required to be paid. The Sellers’ do not intend to incur debts beyond each of their ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

 4. Representations and Warranties of the Purchasers. The Purchasers represent and warrant to the Sellers the that the
statements contained in this Section 4 are true, correct and complete as of the Closing Date. 
 (a) Organization of the
Purchasers. The Purchasers are entities duly organized, validly existing, and in good standing under the laws of the jurisdiction(s) of their organization or formation, as applicable. The Purchasers have not received a written notification
that any proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification, and to the Purchasers’ Knowledge, no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. The Purchasers are not in violation of their charter or bylaws. 
 (b) Authorization of Transaction. The Purchasers have full power and authority to execute and deliver this Agreement and to perform their
obligations hereunder. Without limiting the generality of the foregoing, the board of directors, managing members or other governing body of each Purchaser have duly authorized the execution, delivery, and performance of this Agreement by the
Purchasers. This Agreement constitutes the valid and legally binding obligation of the Purchasers, enforceable in accordance with its terms and conditions. 
  

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 (c) Noncontravention. To the Knowledge of the Purchasers, the consummation of the transactions
contemplated herein will not result in: (i) any violation of the organizational documents of the Purchasers; (ii) a breach or violation of any of the terms and provisions of, or constitute a default under any contract, agreement, license,
understanding, indenture, mortgage, deed of trust, loan agreement, joint venture, lease (including without limitation any sale and leaseback arrangement) or bond, debenture, note or other evidence of indebtedness, to which a Purchaser is a party or
by or to which it or the Assigned Interests are or may be bound or subject; or (iii) a breach or violation of any Law of any government or governmental court, agency or body having jurisdiction over the Purchasers. 
 (d) Brokers’ Fees. The Purchasers have no liability or obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Sellers could become liable or obligated. 
 (e) Information.
Each Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Sellers, and materials relating to the transactions contemplated hereunder that have been requested by a
Purchaser or its advisors, if any. Each Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Sellers. Each Purchaser acknowledges and understands that its purchase of the Assigned Interests involves a
significant degree of risk, including the risks reflected in the SEC Documents. 
 5. Other Covenants. 
 (a) The Purchasers shall pay their pro rata share (calculated as the ratio of the Principal and the 2006 Payments to the total balance of the Escrow) of
the Escrow Agent’s charges with respect to the Escrow Accounts listed on Exhibit A in accordance with the applicable agreements between the Escrow Agent and the Sellers to the extent that such charges arise on or after the Closing Date for the
period after the Closing Date. Such agreements between the Escrow Agent and the Sellers shall not be modified or amended without written consent of the Purchasers. 
 (b) The Sellers shall not change the method of investment of the Principal or the 2006 Payments without the written consent of the Purchasers. 
 (c) In the event that the Sellers (or their successors or assigns) or the Purchasers receive a notice of a claim that may require payments from the
Escrow (“Escrow Claims”), the Parties’ rights and obligations shall be as set forth in this Section 5(c). 
 (i)
Each Party shall have the right to engage counsel at its own cost and expense in connection with any Escrow Claim. 
 (ii) Promptly after
receipt of notice of an Escrow Claim, Sellers shall notify the Purchasers of such claim in writing. Within 15 days following a Purchaser’s receipt of such a notice from Sellers, but to the extent possible not later than 10 days before the date
on which any response to a complaint or summons is due, Purchasers shall notify Sellers in writing if one or both Purchasers elect to assume control of the defense and settlement of the Escrow Claim (a “Notice of Election”).

  

 -6- 

 (iii) If the Purchasers deliver a Notice of Election relating to an Escrow Claim within the required
notice period, the Purchasers shall be entitled to control the defense and settlement of such Escrow Claim to the extent the Escrow Claim is limited to the Principal and the 2006 Payments and is to be paid out of the Escrow; provided that:

 (A) the Sellers shall be entitled to participate in the defense of such claim and to employ counsel at their own expense to assist in the
handling of such claim; and 
 (B) the Purchasers shall obtain the prior approval of Sellers before entering into any settlement of such
claim if any amounts are to be paid from sources other than the Escrow. 
 (C) Sellers agree to provide any and all assistance that the
Purchasers may reasonably request, including, without limitation, asserting any counterclaims or defenses on Purchasers’ behalf which the Purchasers may not be permitted to make. 
 (iv) If the Purchasers do not deliver a Notice of Election relating to any Escrow Claim within the required notice period, the Sellers shall have the
right to defend the claim in such manner as they may deem reasonably appropriate, but in any event no less than a reasonable person who owned the Assigned Interests would undertake. The Purchasers shall be entitled to participate in the defense of
the claim and to employ counsel at Sellers’ expense to assist in the defense. 
 (v) The Sellers shall not enter into any settlement
that would result in any payment from or any lien, charge, pledge or other encumbrance of any kind or nature against the Assigned Interests without the Purchasers’ express written consent, which may be withheld in the Purchasers’ sole
discretion. 
 (vi) As between the Purchasers and Sellers, each Party shall be responsible for all of its own legal fees and costs incurred
in connection with any Escrow Claim. 
 (d) The transaction contemplated by this Agreement is a sale of the Assigned Interests and not a
financing or loan transaction. Nonetheless, out of an abundance of caution and solely to protect the rights and interests of the Purchasers in the event the transaction is recharacterized, Sellers authorize Purchasers to file UCC Financing
Statements and any other notices or documents the Purchasers deem prudent or useful, naming the Sellers as debtors and the Purchasers as Secured Parties. 
 (e) Sellers covenant and agree that from and after the Closing they will execute, deliver and acknowledge (or cause to be executed, delivered and acknowledged), from time to time at the request of the Purchasers and
without further consideration, all such further instruments and take all such further action as may be reasonably necessary or appropriate to transfer more effectively to the Purchasers, or to perfect or record Purchasers’ title to or interest
in or to, the Assigned Interests, or otherwise to confirm or carry out the provisions and intent of this Agreement. 
  

 -7- 

 (f) Purchasers covenants and agree that from and after the Closing they will execute, deliver and
acknowledge (or cause to be executed, delivered and acknowledged), from time to time at the request of Sellers and without further consideration, all such further instruments and take all such further action as may be reasonably necessary or
appropriate to confirm or carry out the provisions and intent of this Agreement. 
 (g) Promptly upon receipt, the Sellers shall deliver to
the Purchasers copies of each and every account statement or other communication or notice delivered by the Escrow Agent to the Sellers. 
 6. Miscellaneous.
 (a) Press Releases and Public Announcements. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable
Law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable efforts to advise the other Parties prior to making the disclosure and shall take any reasonable comments
from the other Parties). 
 (b) Survival. All representations, warranties and covenants shall survive without end. 
 (c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns. 
 (d) Entire Agreement. This Agreement (including the documents referred to herein)
constitutes the entire agreement between the Parties and supersedes any prior understandings, term sheets, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof.

 (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and
their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party other than in connection with a merger, sale
of assets or other similar transaction. 
 (f) Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one and the same instrument. 
 (g) Headings. The
section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 
  

 -8- 

 (h) Notices. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed
to the intended recipient as set forth below: 
  

					
		 	If to the Sellers:	  	 Star Scientific, Inc.
 Star Tobacco,
Inc.
 7475 Wisconsin Avenue
 Bethesda, MD 20817
 Attention: General Counsel

			
		 	If to the Purchasers:	  	 QVT Associates LP
 c/o QVT Financial
LP
 1177 Avenue of the Americas, 9th Floor
 New York, NY 10036
 Attention: Kevin
McGoey

			
		 		  	 Whitebox Hedged High Yield Partners, LP
 c/o
Whitebox Advisors, LLC
 3033 Excelsior Boulevard, Suite 300
 Minneapolis, MN 55416
 Attention: Jonathan Wood

 Any Party may send any notice, request, demand, claim, or other communication hereunder to the
intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth. 
 (i) Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule. 
 (j) Jurisdiction and Venue. The Parties shall submit any disputes arising under this Agreement to the exclusive jurisdiction of the United States federal and state courts located in the Borough of Manhattan,
New York, New York. 
 (k) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Purchasers and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 
  

 -9- 

 (l) Severability. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

 (m) Expenses. Subject to Section 5(c), each Party will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions contemplated hereby. 
 (n) Construction. The Parties
have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or
burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation. 
 [Signature page is on the immediately following page.] 
  

 -10- 

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

  

					
	STAR SCIENTIFIC, INC.	 	
			
	By:	 	 /s/ Paul L. Perito
	 	
	Name:	 	Paul L. Perito	 	
	Its:	 	 Chairman of the Board, President,
 and Chief Operating
Officer
	 	

  

					
	STAR TOBACCO, INC.	 	
			
	By:	 	 /s/ Michael C. Bujakowski
	 	
	Name:	 	Michael C. Bujakowski	 	
	Its:	 	Director	 	

  

					
	WHITEBOX HEDGED HIGH YIELD PARTNERS, LP
			
	By:	 	 /s/ Andrew Redleaf
	 	
	Name:	 	Andrew Redleaf	 	
	Its:	 	Managing Member of the General Partner	 	

  

					
	QVT ASSOCIATES LP,
by its general partner, QVT Associates GP LLC
			
	By:	 	 /s/ Kevin McGoey
	 	
	Name:	 	Kevin McGoey	 	
	Its:	 	Authorized Signatory	 	
			
	By:	 	 /s/ Tracy Fu
	 	
	Name:	 	Tracy Fu	 	
	Its:	 	Managing Member

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