Document:

EXHIBIT 10.1

 Exhibit 10.1 
  

 SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT 
 Between 
 STAR SCIENTIFIC, INC.,

 as Issuer, 
 And

 Joseph L. Schwarz 
 as Investor 
 March 3, 2006 
  

 This SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered
into effective as of March 3, 2006 between Star Scientific, Inc., a Delaware corporation (the “Company”), and Joseph L. Schwarz (“Investor”). 
 WHEREAS, the Company and Investor desire that Investor will purchase from the Company and the Company will issue and sell to Investor, upon the terms and
conditions set forth in this Agreement: (a) an aggregate of 2,000,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), for a per share purchase price of
$3.00 per share; and (b) a warrant substantially in the form attached hereto as Exhibit A (the “Warrant”), to purchase an additional 2,000,000 shares (the “Warrant Shares”) of Common Stock at a per share
price equal to $3.00 (the “Exercise Price”); and 
 WHEREAS, Investor will have registration rights with respect to the
Shares, Warrant Shares and other Registrable Securities (as defined herein) pursuant to the terms of this Agreement. 
 NOW, THEREFORE, in
consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 
 1. Agreement to Sell and Purchase the Shares and Warrant. At the Closing (as defined in Section 2), the Company will sell to Investor, and
Investor will purchase from the Company, upon the terms and subject to the conditions hereinafter set forth, the Shares and the Warrant for the aggregate purchase price of $6,000,000 consisting of $600,000 payable at Closing (defined herein) and
$5,400,000 payable pursuant to a promissory note entered into simultaneously herewith between Investor and the Company substantially in the form attached hereto as Exhibit B (the “Note”). The Investor shall also secure his
obligations arising under the Note by granting the Company a security interest in the Shares pursuant to a pledge agreement executed by the Investor simultaneously herewith substantially in the form attached hereto as Exhibit C (the
“Pledge Agreement”). 
 2. Delivery of the Shares and Warrant at Closing. The completion of the purchase, sale and
issuance of the Shares and the Warrant (the “Closing”) shall occur on the date of this Agreement (the “Closing Date”) (or upon such other date as the Company and Investor shall agree), at the offices of the
Company’s counsel. At the Closing, the Company shall issue to Investor or to an individual retirement account of Investor’s choosing (the “IRA”) (a) one or more stock certificates, registered in Investor’s name
and address as set forth on the signature page hereto or in the name and address of the IRA, representing the Shares, which shall be subject to the Pledge Agreement and (b) the Warrant issued in the name of Investor. The Company’s
obligation to issue the Shares and the Warrant to Investor shall be subject to the following conditions, any one or more of which may be waived by the Company: (a) receipt by the Company of a wire transfer of immediately available funds to an
account designated in writing by the Company, in the full amount of the purchase price for the Shares and Warrant as set forth on the signature page hereto; and (b) the accuracy, in all material respects, of the representations and warranties
made by Investor and the fulfillment, in all material respects, of those undertakings of Investor to be fulfilled prior to the Closing. Investor’s obligation to purchase the Shares and Warrant shall be subject to the following conditions, any
one or more of which may be waived by Investor (provided that no such waiver shall be deemed given unless in writing and executed by Investor): (a) receipt by Investor of a counter-signed copy of this Agreement executed by the Company;
(b) subject to the terms of the 

  

 1 

 
Pledge Agreement, the receipt by Investor of one or more stock certificates representing the Shares; (c) receipt by Investor of a copy of the Warrant
and (d) the accuracy, in all material respects, of the representations and warranties made by the Company and the fulfillment, in all material respects, of those undertakings of the Company to be fulfilled prior to the Closing. 
 3. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, Investor, as
follows: 
 3.1 Organization. Each of the Company and its Subsidiaries (as defined in Rule 405 under the Securities Act of 1933,
as amended (the “Securities Act”)) is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. Each of the Company and its Subsidiaries has full power and authority to own, operate
and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to
be so qualified would have a material adverse effect upon the financial condition or business, operations, assets or prospects of the Company and its Subsidiaries, taken as a whole (a “Material Adverse Effect”). 
 3.2 Due Authorization. The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and
the Warrant, and has taken all necessary corporate action to enter into and perform this Agreement, to issue the Shares in accordance with the terms of this Agreement, to enter into and perform the Warrant, and to issue the Warrant Shares in
accordance with the terms of the Warrant. This Agreement has been, and upon the Closing in accordance with the terms of the Agreement, the Warrant will be, duly authorized, validly executed and delivered by the Company and constitutes, or will
constitute, a legal, valid and binding agreement of the Company enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or
at law). Upon their issuance in accordance with the terms of this Agreement, the Shares will be duly authorized, validly issued, fully paid and non-assessable, the Warrant will be duly authorized and validly issued and the Warrant Shares, upon
exercise of the Warrant in accordance with its terms, will be duly authorized, validly issued, fully paid and non-assessable. 
 3.3
Non-Contravention. Except as would not reasonably be expected to have a Material Adverse Effect, the execution and delivery of this Agreement, the issuance and sale of the Shares and the Warrant under this Agreement, the fulfillment of the
terms of this Agreement and the consummation of the transactions contemplated hereby will not (A) conflict with or constitute a violation of, or default (with or without the giving of notice or the passage of time or both) under, (i) any
material bond, debenture, note or other evidence of indebtedness, or under any material lease, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by
which it or any of its Subsidiaries or their respective properties are bound, (ii) the charter, by-laws or other organizational documents of the Company or any Subsidiary, or (iii) any law, administrative regulation, ordinance or order of
any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary or their respective properties, or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material 

  

 2 

 
properties or assets of the Company or any Subsidiary or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them is bound or to
which any of the property or assets of the Company or any Subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, self-regulatory
organization, stock exchange or market, or other governmental body in the United States is required for the execution and delivery of this Agreement, the valid issuance and sale of the Shares and Warrant pursuant to this Agreement, other than such
as have been made or obtained, and except for any securities filings required to be made under federal or state securities laws. 
 3.4
SEC Filings. Since January 1, 2005, the Company and its Subsidiaries have filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the
“SEC” or “Commission”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (collectively, the “SEC Documents”). 
 3.5 Absence of Certain Change. Except as disclosed in the SEC Documents filed at least thirty (30) days prior to the date hereof, since
September 30, 2005 there has been no adverse change or adverse development in the business, properties, assets, operations, financial condition, prospects, liabilities or results of operations of the Company or its Subsidiaries which to the
knowledge of the Company would reasonably be expected to have a Material Adverse Effect. 
 3.6 Capitalization. As of the date hereof,
the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which as November 1, 2005, 75,151,415 shares were issued and outstanding, and as of the date hereof 12,351,207 shares are issuable and
reserved for issuance pursuant to the Company’s stock option plans or securities exercisable or exchangeable for, or convertible into, shares of Common Stock, and (ii) 100,000 shares of preferred stock, of which as of the date hereof no
shares are issued. All of such outstanding shares have been, or upon issuance will be, validly issued, fully paid and nonassessable. Except as disclosed in the SEC Documents, as of the date hereof, (i) no shares of the Company’s capital
stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iii) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (iv) there are no
securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance or exercise of the Shares and the Warrant and (v) the Company does not have any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement. The Company disclosed in its SEC Documents or has 

  

 3 

 
furnished to Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the
“Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”). 
 3.7 Litigation. The Company represents that it has no new information regarding the timing or content of a decision by the court in its patent infringement case against RJR filed in the United States District Court for Maryland other
than disclosed in its public filings with the SEC. 
 4. Representations, Warranties and Covenants of Investor. 
 4.1 Due Authorization. Investor has all requisite power, authority and capacity to execute, deliver and perform his obligations under this
Agreement, and has taken all necessary corporate, company, partnership or individual action as the case may be to enter and perform this Agreement. This Agreement has been duly authorized and validly executed and delivered by Investor and
constitutes a legal, valid and binding agreement of Investor enforceable against Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors’ and contracting parties’ rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 4.2 Non-Contravention. The execution and delivery of this Agreement, the purchase of the Shares and the Warrant under this
Agreement, the fulfillment of the terms of this Agreement and the consummation of the transactions contemplated hereby will not (A) conflict with or constitute a violation of, or default (with or without the giving of notice or the passage of
time or both) under, (i) any material bond, debenture, note or other evidence of indebtedness, or under any material lease, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which Investor is
a party, (ii) the charter, by-laws or other organizational documents of Investor, as applicable, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable
to Investor or his property, or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of Investor or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which Investor is a
party or by which any of them is bound or to which any of the property or assets of Investor is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative
agency, self-regulatory organization, stock exchange or market, or other governmental body in the United States is required for the execution and delivery of this Agreement and the purchase of the Shares and the Warrant by Investor, other than such
as have been made or obtained. 
 4.3 Private Placement. Investor represents and warrants to, and covenants with, the Company that
Investor is acquiring the Shares and the Warrant for its own account for investment only and with no present intention of distributing any of the Shares, the Warrant or the Warrant Shares, or any arrangement or understanding with any other persons
regarding the distribution of the Shares, Warrant or Warrant Shares. Investor has been advised and understands that neither the Shares, the Warrant nor the Warrant Shares have been registered under the 

  

 4 

 
Securities Act or under the “blue sky” or similar laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the
Securities Act and such other laws, if applicable, or, subject to the terms and conditions of this Agreement, if an exemption from registration is available. Investor has been advised and understands that the Company, in issuing the Shares and the
Warrant, is relying upon, among other things, the representations and warranties of Investor herein in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the Securities Act. 

4.4 No Short Sales. Investor represents, warrants and covenants that neither Investor nor any of his affiliates has directly or indirectly
sold, or will directly or indirectly sell during the 30 day period following the Closing, any shares of the Common Stock unless Investor owned or owns such shares of the Common Stock at the time of such sale and promptly delivered or will promptly
deliver such shares of Common Stock against such sale. 
 4.5 No Advice. Investor understands that nothing in this Agreement or any
other materials presented to Investor in connection with the purchase and sale of the Shares and the Warrant constitutes legal, tax or investment advice. Investor has consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of the Shares and the Warrant. 
 4.6 Accredited Investor.
Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act and is able to bear the risk of his investment in the Shares, Warrant, and Warrant Shares. Investor has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Shares, Warrant and Warrant Shares. 
 4.7 Limited Representations. Investor and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and its Subsidiaries which have been
requested and materials relating to the offer and sale of the Shares, Warrant and Warrant Shares which have been requested by Investor. Investor and its advisors, if any, have been afforded the opportunity to ask such questions of the Company as
they deem appropriate for purposes of the investment contemplated hereby. Investor acknowledges that the Company has not disclosed its results for the twelve month period ending on, or its financial condition at, December 31, 2004, and that the
Company has no plans to do so until the completion of its audit for such period and the filing of its annual report on Form 10-K with the SEC, which may be delayed or extended in accordance with the SEC rules. Investor acknowledges that the most
recent disclosure of the Company’s results is for the three month period ending on, and the most recent disclosure of the Company’s financial condition is at, September 30, 2005, as reported on the Company’s quarterly report on
Form 10-Q, and that no information more recent than such date has been provided to Investor as to the Company’s results, operations, financial condition, business or prospects. Investor understands that his purchase of the Shares, Warrant and,
if applicable, Warrant Shares involves a high degree of risk and that Investor may lose his entire investment in the Shares, the Warrant and if applicable the Warrant Shares, and that Investor can afford to do so without material adverse
consequences to its financial condition. Investor is not relying on any information provided by the Company and its Subsidiaries, except to the extent provided in Section 3 herein. 
 4.8 No Recommendation. Investor understands that no United States federal or state agency or any other government or governmental agency has
passed on or made any 

  

 5 

 
recommendation or endorsement of the Shares, Warrant or Warrant Shares or the fairness or suitability of an investment in the Shares, Warrant or Warrant
Shares nor have such authorities passed upon or endorsed the merits thereof. 
 4.9 Restrictive Legend. The Company shall issue the
Warrant and certificates for the Shares and, if applicable, Warrant Shares to Investor with a legend as described in Section 6 below. Investor covenants that, in connection with any transfer of Shares or Warrant Shares pursuant to the
registration statement contemplated by Section 5 hereto, he will comply with the applicable prospectus delivery requirements of the Securities Act, provided that copies of a current prospectus relating to such effective registration statement
are or have been supplied to Investor. 
 4.10 Residence. Investor is a resident of the State of Nevada. 
 4.11 No Market. Investor understands that there is no public trading market for the Warrant, that none is expected to develop, and that the
Shares, Warrant and Warrant Shares must be held indefinitely unless and until the sale of such Shares, Warrant or Warrant Shares are registered under the Securities Act or subject to the terms and conditions of this Agreement, an exemption from
registration is available. Investor has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act. 
 4.12
No Commissions. Investor has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments by the Company or Investor relating to this Agreement or the transactions
contemplated hereby. 
 4.13 Transactional Exemption. Investor understands that the Shares, Warrant and Warrant Shares are being
offered and sold in reliance on a transactional exemption from the registration requirements of Federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Investor set forth herein in order to determine the applicability of such exemptions and the suitability of Investor to acquire the Shares, Warrant and Warrant Shares. 
 5. Registration Rights. 
 5.1
Certain Definitions 
 “Holder” and “Holders” shall include Investor and any transferee or transferees of
Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement. 
 The terms “register,” “registered” and “registration” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. 
 “Registrable Securities” shall mean: (i) the Shares and Warrant Shares issued or issuable to each Holder (a) with respect to the Warrant Shares, upon exercise of the Warrant, (b) upon any distribution with
respect to, any exchange for or any replacement of such Shares or Warrant, or (c) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (ii) securities issued
or issuable upon any 

  

 6 

 
stock split, stock dividend, recapitalization or similar event with respect to the foregoing; and (iii) any other security issued as a dividend or other
distribution with respect to, in exchange for or in replacement of the securities referred to in the preceding clauses, except that any such Shares, Warrant Shares or other securities shall cease to be Registrable Securities when (x) they have
been sold to the public or (y) they may be sold by the Holder thereof under Rule 144(k). 
 “Registration Expenses”
shall mean all expenses to be incurred by the Company in connection with each Holder’s registration rights under this Agreement (such amount not to exceed $5,000 in the aggregate), including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, and blue sky fees and expenses, reasonable fees and disbursements of counsel to Holders (using a single counsel selected by a majority in interest of the Holders) for a
review of the Registration Statement and related documents, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event
by the Company). 
 “Selling Expenses” shall mean all underwriting discounts, selling commissions and transfer taxes
applicable to the sale of Registrable Securities and all fees and disbursements of counsel for Holders not included within “Registration Expenses”. 
 5.2 Registration Requirements. The Company shall use its reasonable best efforts to effect the registration of the resale of the Registrable Securities (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as would permit or facilitate
the resale of all the Registrable Securities in the manner (including manner of sale) and in all states reasonably requested by the Holder. Such reasonable best efforts by the Company shall include, without limitation, the following: 
 (a) The Company shall, as expeditiously as possible after the filing of the Report on Form 10-K for the year ended December 31, 2005 (the
“Company’s 2005 10-K”): 
 (i) But in any event within 60 days of the filing of the Company’s 2005
10-K, prepare and file a registration statement with the Commission pursuant to Rule 415 under the Securities Act on Form S-3 under the Securities Act (or in the event that the Company is ineligible to use such form, such other form as the Company
is eligible to use under the Securities Act provided that such other form shall be converted into an S-3 promptly after Form S-3 becomes available to the Company) covering resales by the Holders as selling stockholders (not underwriters) of the
Registrable Securities (the “Registration Statement”). The number of shares of Common Stock initially included in such Registration Statement shall be no less than the sum of (A) the Shares and (B) the Warrant Shares
issuable upon full exercise of the Warrant. Thereafter the Company shall use its reasonable best efforts to cause such Registration Statement and other filings to be declared effective as soon as possible, and in any event prior to 90 days (or, if
the SEC elects to review the Registration Statement, 180 days) following the filing of the Company’s 2005 10-K (the “Effectiveness Deadline”). Without limiting the foregoing, the Company will promptly respond to all SEC
comments, inquiries and requests, and shall request 

  

 7 

 
acceleration of effectiveness at the earliest possible date. The Company shall provide the Holders reasonable opportunity to review the portions of any such
Registration Statement or amendment or supplement thereto containing disclosure regarding the Holders prior to filing. 
 (ii)
Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement and notify the Holders of the filing and effectiveness of such Registration Statement and any amendments or supplements. 
 (iii) Furnish to each Holder such numbers of copies of a current prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents incorporated by reference therein and such other documents as such Holder may reasonably require in order to facilitate the disposition of Registrable Securities owned by
such Holder. 
 (iv) Register and qualify the securities covered by such Registration Statement under the securities or
“blue sky” laws of all domestic jurisdictions, to the extent required; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions. 
 (v) Notify each Holder immediately of the happening of any event (but not the
substance or details of any such events unless specifically requested by a Holder) as a result of which the prospectus (including any supplements thereto or thereof) included in such Registration Statement, as then in effect, includes an untrue
statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its reasonable best efforts to promptly update
and/or correct such prospectus. 
 (vi) Notify each Holder immediately of the issuance by the Commission or any state
securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the threat or initiation of any proceedings for that purpose. The Company shall use its reasonable best efforts to prevent the issuance
of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. 
 (vii)
Permit counsel to the Holders to review the Registration Statement and all amendments and supplements thereto within a reasonable period of time (but not less than two (2) full Trading Days) prior to each filing and will not request
acceleration of the Registration Statement without prior notice to such counsel. 
 (viii) List the Registrable Securities
covered by such Registration Statement on the principal securities exchange and/or market on which the Common Stock is then listed and prepare and file any required filings with such principal market or exchange. 
  

 8 

 (b) In the event the Registration Statement has become effective and, afterwards, any Holder’s
ability to sell Registrable Securities under the Registration Statement is suspended for more than (i) 45 days in any 90-day period or (ii) 90 days in any calendar year, including without limitation by reason of any suspension or stop
order with respect to the Registration Statement or the fact that an event has occurred as a result of which the prospectus (including any supplements thereto) included in such Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, then the Company shall take such action as may be necessary to
amend or supplement such Registration Statement or prospectus such that such Registration Statement or prospectus, as so amended, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements not misleading. 
 (c) If the Holder(s) intend to distribute the Registrable Securities by means of an
underwriting, the Holder(s) shall so advise the Company. Any such underwriting may only be administered by nationally or regionally recognized investment bankers reasonably satisfactory to the Company. 
 (d) The Company shall enter into such customary agreements (including an underwriting agreement containing such representations and warranties by the
Company and such other terms and provisions, as are customarily contained in underwriting agreements for comparable offerings and are reasonably satisfactory to the Company) and take all such other actions as the Holder or the underwriters
participating in such offering and sale may reasonably request in order to expedite or facilitate such offering and sale other than such actions which are disruptive to the Company or require significant management availability. 
 (e) The Company shall make available for inspection by the Holders, representative(s) of all the Holders together, any underwriter participating in any
disposition pursuant to a Registration Statement, and any attorney or accountant retained by any Holder or underwriter, all financial and other records customary for purposes of the Holders’ due diligence examination of the Company and review
of any Registration Statement, all documents filed with the SEC subsequent to the Closing, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement, provided that such parties agree to keep such information confidential. Notwithstanding the foregoing, the foregoing
right shall not extend to any Holder (i) who is not a financial investor or entity or (ii) who, itself or through any affiliate, has any strategic business interest that would reasonably be expected to be in conflict with any business of
the Company or its Subsidiaries. 
 (f) The Company may suspend the use of any prospectus used in connection with the Registration Statement
only in the event, and for such period of time as, (i) such a suspension is required by the rules and regulations of the Commission or (ii) it is determined in good faith by the Board of Directors of the Company that because of valid
business reasons (not including the avoidance of the Company’s obligations hereunder), it is in the best interests of the 

  

 9 

 
Company to suspend such use, and prior to suspending such use in accordance with this clause (ii) the Company provides the Holders with written notice
of such suspension, which notice need not specify the nature of the event giving rise to such suspension. The Company will use reasonable best efforts to cause such suspension to terminate at the earliest possible date. 
 (g) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and
the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the
Registration Period (as defined below), and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(h)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the 1934 Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report
is filed which created the requirement for the Company to amend or supplement such Registration Statement. 
 (h) Each Holder agrees by its
acquisition of the Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 5.2(a)(v) or 5.2(a)(vi), and upon notice of any suspension under Section 5.2(f), such
Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by
Section 5.2, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. 
 (i) If requested by a Holder, the Company shall (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as a Holder reasonably requests to be included
therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by a Holder holding any Registrable Securities.

 5.3 Expenses of Registration. All Registration Expenses in connection with any registration, qualification or compliance with
registration pursuant to this Agreement shall be borne by the Company, and all Selling Expenses of a Holder shall be borne by such Holder. 
 5.4 Registration of Form S-3. The Company shall use its reasonable best efforts to remain qualified for registration on Form S-3 or any comparable or successor form or forms, or in 

  

 10 

 
the event that the Company is ineligible to use such form, such form as the Company is eligible to use under the Securities Act, provided that if such other
form is used, the Company shall convert such other form to a Form S-3 promptly after the Company becomes so eligible, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a
Registration Statement or Form S-3 covering the Registrable Securities has been declared effective by the SEC. 
 5.5 Registration
Period. In the case of the registration effected by the Company pursuant to this Agreement, the Company shall keep such registration effective from the date on which the Registration Statement initially became effective until the earlier of
(a) the date on which all the Holders have completed the sales or distribution described in the Registration Statement relating thereto or, (b) until such Registrable Securities may be sold by the Holders under Rule 144(k) (provided that
the Company’s transfer agent has accepted an instruction from the Company to such effect) (the “Registration Period”). 
 5.6 Indemnification. 
 (a) Company Indemnity. The Company will indemnify and hold harmless each Holder, each of its
officers, directors, agents and partners, and each person controlling each of the foregoing, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under which they were made, or any violation by the Company of the Securities Act or any state securities law or in either case, any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each Holder, each of its officers, directors, agents and partners, and each person
controlling each of the foregoing, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based (i) on any untrue statement or omission based upon
written information furnished to the Company by a Holder or the underwriter (if any) therefore, (ii) the failure of a Holder to deliver at or prior to the written confirmation of sale, the most recent prospectus, as amended or supplemented or
(iii) the failure of a Holder otherwise to comply with this Agreement. The indemnity agreement contained in this Section 5.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will not be unreasonably withheld). 
 (b) Holder Indemnity.
Each Holder will, severally and not jointly, if Registrable Securities held by it are included in the securities as to which such registration, qualification or 

  

 11 

 
compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, agents and partners, and each underwriter, if any, of
the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person controlling such other Holder(s) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or
necessary to make a statement therein not misleading in light of the circumstances under which they were made, and will reimburse the Company and such other Holder(s) and their directors, officers and partners, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be
specifically for use therein, and provided that the maximum amount for which such Holder shall be liable under this indemnity shall not exceed the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to the
registration statement in question. The indemnity agreement contained in this Section 5.6(b) shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities if such settlement is effected without the consent of
such Holder (which consent shall not be unreasonably withheld). 
 (c) Procedure. Each party entitled to indemnification under this
Section 5.6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at its own expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5.6 except to the extent that the Indemnifying Party is materially and adversely affected by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such non-privileged information regarding
itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 
 5.7 Contribution. If the indemnification provided for in Section 5.6 herein is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein (other than by reason of the exceptions provided therein), then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or liabilities as between the Company 

  

 12 

 
on the one hand and any Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of such Holder in
connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of any Holder on the other shall
be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by such Holder.

 In no event shall the obligation of any Indemnifying Party to contribute under this Section 5.7 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 5.6(a) or 5.6(b) hereof had been available under the circumstances. 
 The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5.7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraphs.
The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraphs shall be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this section, no Holder or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any Holder, the net proceeds received by such Holder from the sale of Registrable Securities pursuant to the registration statement in question or (ii) in the case of an underwriter, the
total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such Holder or underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. 
 5.8 Survival. The indemnity and contribution agreements contained in
Sections 5.6 and 5.7 and the representations and warranties of the Company referred to in Section 5.2(d) shall remain operative and in full force and effect regardless of (i) any termination of this Agreement or any underwriting agreement,
(ii) any investigation made by or on behalf of any Indemnified Party or by or on behalf of the Company, and (iii) the consummation of the sale or successive resales of the Registrable Securities. 
 5.9 Information by Holders. Each Holder shall promptly furnish to the Company such information regarding such Holder and the distribution and/or
sale proposed by such Holder as the Company may from time to time reasonably request in writing in connection with any registration, qualification or compliance referred to in this Agreement, and the Company may exclude from such registration the
Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. The intended method or methods of disposition and/or sale of such securities as so provided by such
purchaser shall be included without alteration in the Registration Statement covering the Registrable Securities and shall not be changed without written consent of such Holder. Each Holder agrees that, other than ordinary 

  

 13 

 
course brokerage arrangements, in the event it enters into any arrangement with a broker dealer for the sale of any Registrable Securities through a block
trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, such Holder shall promptly deliver to the Company in writing all applicable information required in order for the Company to be able to
timely file a supplement to the Prospectus pursuant to Rule 424(b), or take any other action, under the Securities Act, to the extent that such supplement or other action is legally required. Such information shall include a description of
(i) the name of such Holder and of the participating broker dealer(s), (ii) the number of Registrable Securities involved, (iii) the price at which such Registrable Securities were or are to be sold, and (iv) the commissions paid
or to be paid or discounts or concessions allowed or to be allowed to such broker dealer(s), where applicable. 
 6. Stock Legend.

 6.1 Investor shall not sell, transfer, assign, hypothecate or pledge in any way any Shares or Warrant Shares except for sales (A) in
accordance with the terms of the Plan of Distribution section of the prospectus contained in the Registration Statement and in compliance with prospectus delivery requirements or (B) in compliance with the requirements of Rule 144 under the
Securities Act. 
 6.2 Upon payment therefor as provided in this Agreement, the Company will issue the Shares and the Warrant in the name of
Investor. Any certificate representing Shares or Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: 
 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AFTER RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. 
 THESE SECURITIES REPRESENTED HEREBY
ARE ALSO SUBJECT TO RIGHTS AND OBLIGATIONS AS SET FORTH IN A SECURITIES PURCHASE AGREEMENT DATED AS OF MARCH 3, 2006 BY AND AMONG STAR SCIENTIFIC, INC. AND JOSEPH L. SCHWARZ AS SUCH MAY BE AMENDED FROM TIME TO TIME. 
 The Company agrees to issue Shares or Warrant Shares, issued upon exercise of the Warrant, without the legend set forth above at such time as the holder
thereof is permitted to dispose of such Shares or Warrant Shares pursuant to Rule 144(k) under the Securities Act. 
 The Warrant shall be
imprinted with the legends set forth on Exhibit A. 
 7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and Investor herein shall survive the execution of this Agreement, the delivery to Investor of the
Shares and the Warrant being purchased and the payment therefor. 
  

 14 

 8. Notices. All notices, requests, consents and other communications hereunder shall be in
writing, shall be mailed (A) if within domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United
States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed, and (iv) if delivered by facsimile, upon electric confirmation of receipt and shall be delivered
as addressed as follows: 
 (a) if to the Company, to: 
 Star Scientific, Inc. 
 7475 Wisconsin Ave. 
 Suite 850 
 Bethesda, MD 20814 

Attn: Paul L. Perito 
 President and
Chief Operating Officer 
 Phone: (301) 654-8300 
 Telecopy: (301) 654-9308 
 with copies to: 
 Star Scientific, Inc. 
 7475 Wisconsin Ave.

 Suite 850 
 Bethesda, MD
20814 
 Attn: Robert E. Pokusa 
 General Counsel 
 Phone: (301) 654-8300 
 Telecopy: (301) 654-9308 
 and 
 Latham & Watkins LLP 
 555 Eleventh
Street, N.W. 
 Suite 1000 
 Washington, DC 20004 
 Attn: William P. O’Neill 
 Phone: (202) 637-2200 
 Telecopy: (202) 637-2201 
 (b) if to Investor, at its address on the signature page hereto, or at such other address or addresses as may have been furnished to the Company in
writing. 
  

 15 

 9. Changes. This Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and Investor. 
 10. Headings. The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this Agreement. 
 11. Severability. In case any provision
contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 
 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, without
giving effect to the principles of conflicts of law. 
 13. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to such subject matter are expressly cancelled. 
 14. Finders Fees. Neither the Company nor Investor nor any affiliate thereof has incurred any obligation which will result in the obligation of the other party to pay any finder’s fee or commission in
connection with this transaction. 
 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 
 16. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company
and Investor. Investor shall not assign any rights or obligations under this Agreement other than, solely with respect to any Shares or Warrant Shares transferred in accordance with this Agreement, including the legends described herein, to any
permitted transferee of such Shares or Warrant, provided, however, that no such assignment shall relieve Investor of its obligations under this Agreement. 
 17. Expenses. Each of the Company and Investor shall bear its own expenses in connection with the preparation and negotiation of the Agreement. 
 [Signature pages follow.] 
  

 16 

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

			
	 STAR SCIENTIFIC, INC.

		
	 By:
	 	 /s/  Paul Perito

		 	 Paul Perito

		 	 Chairman, President and COO

			
	
	 JOSEPH L. SCHWARZ

		
	 By:
	 	 /s/  Joseph L. Schwarz

	 Address:
	 	 8191 Big Bluff Avenue

		 	 Las Vegas, Nevada 89148

	 Telephone:
	 	 (702) 267-9438

	 Cellular:
	 	 (317) 431-3389

 Exhibit A 
 Warrant 

 Exhibit B 
 Note 

 Exhibit C 
 Pledge AgreementEXHIBIT 10.2

 Exhibit 10.2 
 EXHIBIT A 
 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AFTER RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT . 
 COMMON STOCK PURCHASE WARRANT 
 To
Purchase 2,000,000 Shares of $0.0001 par value Common Stock of 
 Star Scientific, Inc. 
 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) CERTIFIES that, for value received, Joseph L. Schwarz (the
“Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after March 3, 2006 (the “Initial Exercise Date”) and on or prior to
the close of business on June 30, 2007 (the “Termination Date”) but not thereafter (the “Exercise Period”), to subscribe for and purchase from Star Scientific, Inc., a corporation incorporated in Delaware (the
“Company”), up to 2,000,000 shares (the “Warrant Shares”) of Common Stock, par value $0.0001 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock (the
“Exercise Price”) under this Warrant shall be $3.00, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. The
term “Holder” shall refer to the Holder identified above or any subsequent transferee of this Warrant. 
 1. Authorization of
Warrant Shares. The Company represents and warrants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable. 
 2. Exercise of Warrant. 
 (a) Except as provided in Section 3 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after
the Initial Exercise Date and before or on the Termination Date by (i) surrendering this Warrant, with the Notice of Exercise Form annexed hereto completed and duly executed, to the offices of the Company (or such other office or agency
(including the transfer agent, if applicable) of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and (ii) delivering payment of the Exercise
Price of the shares thereby purchased by wire transfer of immediately available funds or cashier’s check drawn on a United States bank. The 

  

 1 

 
Holder exercising his purchase rights in accordance with the preceding sentence shall be entitled to receive a certificate for the number of Warrant Shares
so purchased, which certificate will bear a legend substantially similar to the legend set forth on this Warrant. Certificates for shares purchased hereunder shall be issued to the Holder or to an individual retirement account of the Holder’s
choosing (the “IRA”), and shall be delivered to the Holder or the IRA within five (5) Trading Days (as defined below) after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder shall be deemed to no longer hold this Warrant with respect to such shares and to have become a holder of record of such shares for all purposes,
in each case as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 4 prior to the issuance of such shares, have been paid.

 (b) In the event that the Warrant is not exercised in full, the number of Warrant Shares shall be reduced by the number of such Warrant
Shares for which this Warrant is exercised and/or surrendered, and the Company, if requested by Holder and at his expense, shall within ten (10) Trading Days issue and deliver to the Holder a new Warrant of like tenor in the name of the Holder
or as the Holder (upon payment by Holder of any applicable transfer taxes) may request, reflecting such adjusted Warrant Shares. 
 “Trading Day” shall mean a day on which there is trading on the principal market or such other market or exchange on which the Common Stock is then principally traded. 
 3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.
As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

 4. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any
issue tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder; provided, however,
that the Holder shall pay any applicable transfer taxes. 
 5. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 
 6. Division and
Combination. 
 (a) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the denominations in which new Warrants are to be issued, signed by the Holder or his agent or attorney. The Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice 
  

 2 

 (b) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new
Warrant or Warrants under this Section 6. 
 7. No Rights as Stockholder until Exercise. This Warrant does not entitle the Holder
to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be
issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment and this Warrant shall no longer be issuable with respect to such Warrant Shares. 
 8. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 
 9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 
 10. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or
(iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of
Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of 

  

 3 

 
Warrant Shares or other securities of the Company purchasable pursuant hereto as a result of such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 
 11.
Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“Other Property”), are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or Common Stock of the Company, if it is
the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume all the
obligations and liabilities of the Company hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant
Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, “common stock of the successor or acquiring
corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations, spin-offs, or dispositions of assets. 
 12. Exercise Price Adjustment. In the event that on or subsequent to the Closing Date, the Company issues or sells any shares of Common Stock or
other securities which are convertible into or exchangeable for its Common Stock or any convertible securities, or any warrants or other rights to subscribe for or to purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than shares or options issued or which may be issued pursuant to (i) the Company’s current employee option plans or shares issued upon exercise of options, 

  

 4 

 
warrants or rights outstanding on the date of the Purchase Agreement and listed in the Company’s most recent periodic report filed under the 1934 Act or
in the Purchase Agreement, or (ii) arrangements with the Holder) at an effective price per share price which is less than the Exercise Price then in effect immediately prior to such issue or sale, then the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such issue or sale to an amount determined by multiplying the Exercise Price then in effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or sale, plus (2) the number of shares of Common Stock which the aggregate consideration received by the Company for such additional shares would purchase at the
Exercise Price then in effect; and (y) the denominator of which shall be the number of shares of Common Stock of the Company outstanding immediately after such issue or sale. 
 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was
made. 
 14. Notice of Corporate Action. If at any time: 
 (c) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or 
 (d) there shall be
any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or, 
 (e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; 
 then, in any one or more of such cases, the Company shall give to Holder (i) at least five business
days’ prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least five business days’
prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on 

  

 5 

 
which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled
to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up
is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation
or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 15(d). 
 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any applicable law or regulation. 
 Except and to the extent as waived
or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares
above the amount payable therefor upon such exercise immediately prior to such increase in par value and (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant. 
 16. Miscellaneous. 
 (f) Jurisdiction. This Warrant shall constitute a contract under the laws of the State of New York, without regard to its conflict of law,
principles or rules. 
 (g) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant
will have restrictions upon resale imposed by state and federal securities laws and/or as set forth in the Securities Purchase and Registration Rights Agreement, dated March 3, 2006, by and between the Company and the Holder. 
 (h) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, provided, however, that all rights hereunder terminate on the Termination Date. If the Company 

  

 6 

 
willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of his rights, powers or remedies hereunder. 
 (i) Notices. All notices, requests, consents and other
communications provided for herein shall be in writing and shall be effective upon delivery in person, when faxed and received, or five business days after being mailed by certified or registered mail, return receipt requested, postage pre-paid,
addressed as follows: 
  

	 	(i)	If to the Holder: 

 Joseph L. Schwarz

 8191 Big Bluff Avenue 
 Las Vegas, Nevada 89148 
 Telephone: (702) 267-9438 
 Cellular Phone: (317) 431-3389 
 or to
the address of the Holder as shown on the books of the Company; or 
  

	 	(ii)	If to the Company: 

 Star Scientific, Inc.

 801 Liberty Way 
 Chester, Virginia 23836 
 Telephone: (804) 530-0535 
 Facsimile: (804) 530-8474 
 Attention: Chief Financial Officer 
 with a copy to: 
 Star Scientific, Inc. 
 7475 Wisconsin Avenue 
 Suite 850 
 Bethesda, MD 20814 
 Telephone: (301) 654-8300 
 Facsimile: (301) 654-9308 
 Attention: General Counsel 
 or at such
other address as the Holder or the Company, as applicable, may hereafter have advised the other in accordance with the provisions of this paragraph. 
 (j) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no 

  

 7 

 
enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 
 (k) Successors and
Assigns; No Assignment. This Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company, provided that neither the Company (except pursuant to a transaction
subject to Section 11 herein) nor the Holder may assign this Warrant without the prior written consent of the other party. 
 (l)
Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. 
 (m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. 
 (n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this
Warrant. 
 [Signature Page Follows] 
  

 8 

 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly
authorized. 
 Dated: March 3, 2006 
  

			
	STAR SCIENTIFIC, INC.
		
	By:	 	 /s/  Paul L. Perito

	Name:	 	Paul L. Perito
	Title:	 	Chairman, President & C.O.O.

  

 9 

 NOTICE OF EXERCISE 
  

	To:	Star Scientific, Inc. 

 (1) The undersigned hereby elects
to purchase              Warrant Shares of Star Scientific, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any. 
 (2) Payment shall take the form of in lawful money of the United States. 
 (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned. The Warrant Shares shall be delivered to
the following: 
 ___________________________________ 
 ___________________________________ 
 ___________________________________ 
 (4) Accredited Investor/Qualified Institutional Buyer. The undersigned is an “accredited investor” as defined in Regulation D under the
Securities Act of 1933, as amended. 
  

			
	[PURCHASER]
		
	 By:
	 	  

	 Name:
	 	
	 Title:
	 	
	 Dated:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00098-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00098-of-00352.parquet"}]]