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PROXY STATEMENT RIGHT TO REVOKE PROXY ANY STOCKHOLDER giving the proxy enclosed with this statement has the power to revoke the proxy at any time prior to the exercise thereof. BY WHOM AND THE MANNER IN WHICH THE PROXY IS BEING SOLICITED The proxy is solicited by and on behalf of the management of P. Lolul.r.nltn COMPANY. The expense of the solicitation of proxies for this meeting, including the cost of mailing, will be borne by the Company. In addition to the use of the mails, the Company may request persons holding stock in their name or custody, or in the name of nominees, to send proxy material to their principals and request authority for the execution of the proxies and will reimburse such persons for their expense in so doing at a total estimated cost of about Five Hun- dred Dollars ($500.00). To the extent necessary in order to assure sufficient representation at the meeting, officers and regular employees of the Company, at no additional compensation, will request the return of proxies personally, by telephone or telegram. The extent to which this will be necessary depends entirely on how promptly proxies are received, and stock- holders are urged to send in their proxies without delay. The management has no knowledge or information that any other person will specially engage any employees to solicit proxies. VOTING SECURITIES OUTSTANDING The outstanding number of each class of voting securities of the Company and the number of votes to which each class is entitled are as follows: Common Stock Preferred Stock Total Number of Shares ...... 2,246,371 98,000 2,344,371 Number of Votes ...... 2,246,371 98,000 2,344,371 Only stockholders of record at 3 P.M. on March 10, 1948, will be entitled to vote. [3j 88751036

ELECTION OF DIRECTORS Principal Occupation or Name of Corporation in Year when which such occupa- first elected Name of Nominee Employment tion is carried on Director Herbert A. Kent President P. Lorillard Company 1939 George D. Whitefield Executive Vice President P. Lorillard Company 1935 Edgar S. Bowling Director P. Lorillard Company 1935 Todd Wool Vice President & Secretary P. Lorillard Company 1937 William J. Halley Vice President & Treasurer P. Lorillard Company 1941 Frank Hopewell Vice President P. Lorillard Company 1940 James A. Glascock Manager, Whitlock Branch, Richmond, Va. P. Lorillard Company 1940 Irvin H. Peak Manager, P. Lorillard Company 1943 Kentucky Leaf Dept., Louisville, Ky. F. Gladden Searle Director, Member of Executive Committee Worthington Pump & Machinery Corp. 1943 Harold F. Temple Director of Export Operations P. Lorillard Company 1943 Donald A. Henderson Treasurer & Director Twentieth Century- Fox Film Corp. 1946 Lewis Gruber Sales Manager P. Lorillard Company 1946 Claude W. Berkley Director of Sales Personnel P. Lorillard Company 1946 [4l r At this Annual Meeting thirteen (13) Directors are to be elected, who shall hold office until the next following Annual Meeting of Stockholders or until their successors are duly elected and qualified. It is the intention of the persons named in the enclosed form of proxy to vote such proxy for the election of the nominees named below. If any of the nominees named below is not a candidate for election as a Director at the meeting -an event which the management does not anticipate-the.proxies will be voted for a substitute nominee and the other nominees named below. Each of the nominees named below was elected a Director at the last Annual Meeting of the Stockholders. Approximate amount of each class of securities of the issuer beneficially owned directly or indi- rectly as of Febrxary 16, 1948 1500 shares of Common Stock 1800 shares of Common Stock 6200 shares of Common Stock 900 shares of Common Stock 800 shares of Common Stock 1000 shares of Common Stock 2000 shares of Common Stock 1200 shares of Common Stock 1200 shares of Common Stock 800 shares of Common Stock 100 shares of Common Stock 200 shares of Common_ Stock 1200 shares of Common Stock 88751037

REMUNERATION OF ALL DIRECTORS AND NOMINEES DURING THE FISCAL YEAR ENDED DECEMBER 31, 1947 There is set forth below, in tabular form, with respect to each Director of the Company during the fiscal year ended December 31, 1947, and each nominee for election as Director who during the fiscal year ended December 31, 1947, received aggregate remuneration from the Company and its subsidiaries exceeding $20,000.00, exdusive of amounts paid or set aside pursuant to the Employees' Retirement Plan, the following information: (1) The name of each such person; (2) The aggregate remuneration received by such person from the Company and its subsidiaries, directly or indirectly ; - (3) The amount of the excess remuneration received for the fiscal year ended December 31, 1947, over the remuneration received for the fiscal year ended December 31, 1946, in all cases where such excess exceeds 10% ; (4) The net amount each person would receive after payment of Federal income taxes, assuming that each person had no other income and was a married man with two children; (5) The amount paid into the Employees' Retirement Plan by the Company for each such person during the fiscal year ended December 31, 1947. In no case did such payments exceed by more than 10% the payments made during the fiscal year ended December 31, 1946; (6) The amount each such person will receive annually upon retirement, assuming the attainment of retirement age and the continuation of the salary rate in effect December 31, 1947. No officer or Director not named below received remuneration totalling more than $20,000.00 during the fiscal year ended December 31, 1947. (1) (2) (3) (4) (5) (6) Herbert A. Kent...... $60,000.00 $ ... $29,177.25 $12,780.00 $17,539.00 George D. Whitefield.. 45,000.00 ... 24,608.25 11,657.00 12, 339.00 Edgar S. Bowling..... 36,000.00 ... 21, 3 36.7 5 1, 817.00 1,999.00 Todd Wool ......... 36,000.00 ... 21,336.75 2,984.00 8,299.00 William J. Halley..... 36,000.00 21,336.75 4,759.00 14,330.00 Frank Hopewell ...... 36,000.00 4,038.37 21,336.75 5,790.00 12,354.00 James A. Glascock.... 20,400.00 14,557.50 7,250.00 7,281.00 Irvin H. Peak........ 23,000.00 3,000.00 15,837.00 2,536.00 6,250.00 REMUNERATION PAID TO ALL DIRECTORS AND OFFICERS AS A GROUP There are set forth below, in tabular form, the aggregate amounts paid or set aside, directly or indirectly, by the Company and its subsidiaries to or for the benefit of all persons as a group who were Directors or officers of the Company at any time during the fiscal year ended December 31, 1947: Fees and Salaries of Bonuses Amount Paid by Company Officer.r and Directors and under as such Shares in Profrts Employees' Retirement Plan $418,713.38 0 $70,279.00 In no case did any of the above amounts exceed by more than 10% the correspond- ing amount for the fiscal year ended December 31, 1946. [5] 88751 038

AUDITORS The Board of Directors has again appointed Messrs. Deloitte, Plender Griffiths & Company to be the independent Public Accountants for your Company, and a repre- sentative of that firm will be present at the Annual Meeting of Stockholders. . PROPOSED AMENDMENT OF ARTICLE XII OF THE BY-LAWS At a Meeting of the Board of Directors held January 15, 1947, Mr. Donald A. Henderson, Director, Mr. F. Gladden, Searle, Director, and Mr. Thomas L. Perkins, Assistant Secretary of the Company and partner of the firm of Perkins, Daniels & Perkins, General Counsel to the Company, were appointed a Committee to look into Article XII of the By-laws and report to the Board of Directors any changes the Com- mittee might care to recommend. This Committee made its Report in writing to the Board at its Regular Meeting held January 21, 1948. Attached to said Report was a draft of a proposed revision of Article XII, entitled "Incentive Compensation for Officers and Key Personnel." Neither Mr. Henderson nor Mr. Searle is an officer or employee of the Company and therefore they cannot, under the terms of this amended By-law, partici- pate in this incentive compensation. The Report of the Committee on Incentive Compensation may be summarized as follows: 1. The present By-law.provides that 15 °Jo of the net profits of the Company, as defined in the By-law, shall be distributed "to and among those officers and employees of the Company who have both been in the employ and owned Common Stock of the Company for the whole of such year as an extra dividend upon and in the proportion among such officers and employees of such shares of Common Stock thus owned by them respectively." The Committee had certain definite objections to the present By-law: (a) They felt that distribution on the basis of stock ownership did not provide the incentive to management which is the true purpose of an incentive compensation plan. (b) The legality of the present By-law is subject to some doubt in view of an injunction obtained by a stockholder in 1931, prohibiting the Company from taking a vote on a resolution amending the present By-law. The basis of the holding was that payment of incentive compensation in proportion to the stock held resulted in an illegal extra dividend to certain stockholders. Although the New Jersey law has since been amended to take care of such a situation, it is felt that it would be unwise to make any payments under the present By-law without getting a prior court determination. (c) No payments have been made under the present By-law since 1926 because under the present formula no incentive com ensation can be paid until earnings on the Common Stock have reached approximately ~2.20 per share, and, clearly, an inoperative incentive plan serves no useful function. 2. The Committee considered a proper incentive compensation plan to be neces- sary and desirable for P. Lorillard Company. (a) All the niajor competitors have incentive compensation plans and we cannot expect to attract and hold able men by giving less incentive than do our competitors. [6] 88751039

0 ® 0 ® (b) The trend of industry as a whole is toward incentive forms of compensation. The Committee found that a very large number and probably a majority of the larger corporations in this country have such plans. (c) A properly functioning incentive plan is of real benefit to the stockholders by reason of the increased earnings derived from their partnership with the management, which can contribute most to the success of the Company's business. The compensation of management is in a large measure fixed by the fruits of their own efforts and the stockholders profit as management succeeds. 3. The Committee studied numerous reports on incentive compensation plans of a large number of other companies and in detail the other plans in the tobacco business. They found a very large variety of plans. In the majority the distribution is based on a percentage of net profits, either after deductions for capital and surplus or deduction of a specified amount; the majority are limited either by the plan itself or the practical administration ther,eof to executives and key personnel; quite a few are limited to major executives alone; practically all provide for distributions in cash, and the distribution is either on the basis of individual merit or, in some cases, in relation to salaries; and several have specified percentages, at least for top executives. One tobacco company is the only one other than our Company in which the distribution is on the basis of the Common Stock held. 4. The Committee made the following specific recommendations: (a) They felt that incentive compensation income should be only that income above a certain base of earnings for the Common Stock. A study of the dividend record revealed that dividends of $1.20 per share were paid on the Common Stock from 1940 through 1943; dividends of $1.00 per share were paid for the years 1944 through 1946; and a dividend of $1.50 per share was paid in 1947. The earnings for the years 1940 through 1946 ranged from a high of $1.72 per share in 1942 to a low of $1.26 per share in 1946. In 1947 the earnings were $2.15 per share. The present By-law provides that incentive compensation is to be paid on such earnings as may remain after payment of dividends on the Preferred Stock and after deducting $1.50 per share on the Common Stock and 7% on its average surplus and undivided profits. Feeling that the stockholders do benefit from a partnership with management and that such partnership, to serve a useful purpose, must be an operating and functioning one, the Committee recommended that incentive compensation income be the consoli- dated income of the Company and its subsidiary Companies, figured without regard to any payments made pursuant to this By-law, minus the sum of all dividends on any outstanding stock of the Company, other than the Common Stock, and an amount equal to $1.20 per share on the average number of outstanding shares of Common Stock of the Company. This recommendation means that all of the first $1.20 per share earned on the Common Stock of the Company would belong to the stockholders `exclusively and that on any earnings over and above $1.20 per share the management would share on a partnership basis with the stockholders. (b) The Committee prepared numerous tables showing the results to stockholders and management at various percentage levels, and on the basis of these studies recom- mended the percentage of profits to be distributed to management be reduced from 15% to 10%. The net result of these changes is that under the recommended plan manage- ment will receive as incentive compensation 10% of the income between $1.20 per E 71 88751040 0

share and approximately $2.20 per share-where it would receive no incentive com- pensation under the present plan. On earnings in excess of $2.20 per share it would receive only 10%, instead of the 15% provided for in the present plan. (c) The Committee found that the methods of distribution of incentive compen- sation are almost as numerous as the plans themselves. However, the majority limit the distribution to officers and key personnel. The Committee felt that it is very desirable to have the percentage to be paid to the President and Vice Presidents fixed by the plan itself. This leaves the matter entirely in the hands of the stockholders and prevents any possible embarrassment that might arise from having the amounts fixed annually by the Board of Directors or a committee thereof. It accordingly recommended that out of incentive income each year 1% thereof be paid to the President; 8/10 of I% to the Executive Vice President; 6/10 of 1% to each of the other 'Vice Presidents, but not in excess of 2.4%-to a11 such other Vice Presidents; the remaininng 5.8% of incentive income to be paid out would be dis- tributed each year by the Board of Directors to such other officers and key personnel and in such amounts as the Board shall determine, but not more than 4/10 of 1% to any one person. (d) Since any new incentive compensation by-law will be passed by the stock- holders and can only be amended by the stockholders the Committee felt that it is equitable and advisable to give the stockholders the opportunity from time to time to re-examine and re-consider the By-law in the light of changing circumstances. Accord- ingly, the Committee recommended that the plan must be submitted at least once every five years to the stockholders for such action as they may care to take. The management in submitting the plan to the stockholders may suggest amendments and will in any case` give the stockholders the opportunity to vote for or against the continuation of the plan as it now stands or as it may be amended. The proposed new By-law, which is being submitted by the management for the vote of the stockholders, reads as follows: ARTICLE XII Incentive Compensation for Officers and Key Personnel Section 1. As soon as reasonably may be after the end of the calendar year 1948, and of each calendar year of the Company's existence thereafter, the Treasurer shall submit to the Board of Directors a certificate (which certificate shall be endorsed with the approval of the independent Auditors of the Company) certifying the amount of "incentive compensation income" for such calendar year, which "incentive compensation income" shall be an amount equal to the consolidated net income of the Company and its subsidiary companies for such calendar year, determined in accordance with generally accepted principles of accounting, figured without regard to any payments to be made pursuant to this By-law, minus the sum of (a) an amount equal to the dividends for such calendar year to which the holders of any outstanding stock of the Company other than the Common Stock of the Company may be entitled and (b) an amount equal to $1.20 per share on the average number of shares of Common Stock of the Company (induding stock represented by scrip certificates) outstanding during such calendar year. For the purpose of this paragraph any stock of any class held in the treasury of the Company shall be considered not to be outstanding. 183 t

® Q H 0 ® a ® 0 t` 0 Section 2. The Board of Directors shall cause the following payments and distribu- tions to be made from the "incentive compensation income" as thus certified and approved: To the President of the Company .......................... 1~/0 of such income; To the Executive Vice President .................... 8/10 of 1%' of such income; To each of the other Vice Presidents ................ 6/10 of 1 % of such income, but not in excess of 2.4Qfo to all of the other Vice Presidents of the Company; To such other officers and key personnel of the Company and its subsidiaries, induding officers and key per- sonnel who are members of the Board of Directors, in such amounts as the Board may determine ............ 5.8~/0 of such income, but not in excess of 4/10 of 1% to any one person. If any President and/or any Vice President shall have served as such for less than the full calendar year the payment to such person shall bear the same proportion to the full amount due such office as the time so served bears to the full calendar year. If for any reason the full amounts allocated herein to the President and the Vice Presidents shall in any year not be paid to them, then any amount not so paid shall be added to the amount that would otherwise have been paid to other officers and key personnel, so that in each year 10% of incentive compensation income shall be paid to Management under this By-law. Section 3. The President shall have the duty of recommending to the Board of Directors to what officers and key personnel other than the President and Vice Presi- dents, and in what amounts, the portion of the "incentive compensation income" allo- cated to such persons shall be paid. The Board, as to officers and key personnel who may be members of the Board, shall in no event pay to such members amounts in excess of those recommended by the President. Section 4. The acts and findings of the Treasurer and Auditors in certifying and approving the "incentive compensation income" for any such year and the acts of the Board of Directors in causing payment and distribution to be made thereof shall be binding annd conclusive. Section 5. This Article of the By-laws may'be amended or repealed only by the action of the stockholders of the Company, and not by the Directors. The Directors shall at least once in every five years present this Article of the By-laws to a Stockholders Meeting for such action as the stockholders care to take. The Directors at the meeting of January 21, 1948, adopted the Report of the Com- mittee and formulated and advised the amendment of Article XII of the By-laws so that as amended it would be in the form and language of the proposed amended By-law set forth in full above. For the reasons stated in the Report of the Committee, the management strongly feel that this amendment to Article XII of the By-laws will be of the utmost advantage to the_ Company and its stockholders. The amended By-law provides that from "incentive compensation income" (which may be defined as the net income of the Company remaining after all expenses, after the payment of all dividends on any outstanding dass off stock of the Company except the Common Stock, and after the deduction of an amount equal to $1.20 per share on the average issued Common Stock of the Company) there shall be paid to the President, Vice Presidents, other officers and key personnel certain percentages therein provided for. [9l 88751042

These percentages are 1~/0 of said incentive compensation income to the President; 8/10 of 1% to the Executive Vice President; 6110 of 1% to each of the other Vice Presi- dents-but not in excess of 2.4~/o to all other Vice Presidents; and 5.8% to other officers and key personnel of the Company and its subsidiaries. There is a further proviso that any amounts not paid to the President and Vice Presidents shall be addedpto the amount.to be paid to other officers and key personnel, so that each year 10~/0 of said incentive compensation income will be paid out to the officers and key personnel of the Company. The Company normally has one President, one Executive Vice President and four other Vice-Presidents. As the amount to be paid to other officers and key personnel is to such persons and in such amounts as the Board of Directors may determine, it is impossible to state the number of persons in this class. There is a proviso that no one person in this class shall receive more than 4/10 of 1~/0 of said incentive compensation income. The By-law provides that the President shall have the duty of recommending to the Board of Directors to what officers and key personnel and in what amounts this portion of the incentive compensation income shall be paid. The Board as to such officers and key personnel who may be members of the Board shall in no event pay to such members amounts in excess of those recommended by the President. This By-law can only be amended or repealed by the stockholders and the Directors shall at least once in every five years present the By-law to a Stockholders Meeting for such action as the stockholders may care to take. In the event the suggested amendment to Article XII of the By-laws is not adopted by the stockholders then the present Article XII will remain in full force and effect and payments will be made thereunder in accordance with its terms to the extent such pay- ments may be legal under the statutes of New Jersey. The Company would have to earn the sum of $4.20 per share of Common Stock before payments under the proposed amendment would be less than payments under the present By-law. There is set forth below, after the name of each officer or class, the amount said officer or class would have received under the amended By-law had said amended By-law been in effect during 1947: H. A. Kent, President .................................................. $ 22,203.44 G. D. Whitefield, Executive Vice President ................................. 17,762.76 W. J. Halley, Vice President and Treasurer ................... .............. 13,322.07 Todd Wool, Vice President and Secretary ................................... 13,322.07 EdgarS.Bowling,VicePresident.......................................... 13,322.07 Frank Hopewell, Vice President .......................................... 13,322.07 Other officers and key personnel ........................................... 128,780.00 Total ........................................................ $222,034.48 Amount by which Federal and State Income Taxes would have been reduced by deduction for incentive compensation .............................. 3 86,438.01 Net cost to the Company* ....... ......................... .•••••••••••••• $135,596.47 * The net rost to the Comoanv would of course be increased if Federal and State Income Taxes are reduced and would be reduced if Federal and State Income 'raxes are rncreasea. NOTE: It is imnossible to determine what amounts would have been paid to individual officers, directors or key personnel other than the President and Vice Presidents. The amount set aside for Directors and officers under the Employees Retirement Plan for the year 1947 was $70,279.00. The amount set aside for other employees under the Employees' Retirement Plan for the year 1947 was $278,070.00. The amount set aside under the Employees' Retirement Plan for the individual officers, directors and [10]

0 ® 0 nominees whose remuneration for 1947 exceeded $20,000.00 is set forth above under the heading "Remuneration of all Directors and Nominees during the Fiscal Year ended December 31, 1947." The Employees' Retirement Plan was adopted by the stockholders at the Rnnaal Meeting held March 13, 1945, and was made effective as of January I, 1945. It includes all salaried employees who have completed three years, of service with the Company and provides for retirement at age 65 on retirement allowances in accordance with compen- sation earned during membership in the Plan. All the costs are borne by the Company. The contributions by the Company consist of annual normal contributions com uted as a percentage of the salary of aIl members in each year, plus a contribution for prior services which was actuarily' determined at the inception of the Plan and is being paid off by the Company in ten annual installments. CONCLUSION ® The Annual Meeting is called for the purpose of electing Directors and for the consideration of and voting on the proposed amendment of Article XII of the By-laws and for the transaction of, such other business as may properly come before the meeting. At the date of this Proxy Statement the only business the management intends to present or knows will come before the.meeting is the election of Directors and the consideration of and voting on the proposed amendment to the By-laws. However, if any other- matters properly come before the meeting it is the intention of the persons named in the enclosed form of proxy to vote such proxy in accordance with their judgment on such matters. Dated, March 4, 1948.

. Xnpqt all 1ltplt bg t4el;P prQSQI1#s, That the undersigned hereby constitutes, appoints, and directs. HExBERT A. KENT (President), GEORGE D. WHTTEFIELD (Executive Vice President), WILLIAM J. HALI,,EY _(Vice• Pres-xdent and Treas'Urer), and TODD WooL (Vice President and Secretary), or any of them, in the name, place and stead of the undersigned, to attend as the attorneys and agents of and for the undersigned, at the Annual Meeting of the Stockholders-of P, LORILLARD CoM- PANY, a New Jersey Corporation, to be held on the 6th day of April, 1948, at eleven o'clock in the forenoon, at the office of the Corporation, Room 803, 15 Exchange Place, Jersey City, N. ~., as well as at any and all adjournmettt or adjournments of such meeting, and to vote as the proxy of the undersigne thereat for the election of thirteen (13) Directors to hold office until the next following Annual Meeting of Stockholders or until their successors are elected and qualified and on any resolution that may be submitted to a vote of the stockholders thereat in accordance with the notice of said meet- ing dated March 4, 1948, receipt whereof is hereby acknowledged; and for the transaction of such other business as may properly come before said meeting or any adjournment or adjournments thereof, according to the number of votes the undersigned would be entitled to cast if then personally present, and to do all such acts and things as may be necessary or proper in order to carry out the action taken by said meeting or any adjournment or adjournments thereof, hereby giv- ing to said attorneys and agents, or any of them, power to substitute another or others in their or his stead and ratifying and confirming all that the attorneys and agents of the undersigned, or any of them, or any substitute or substitutes for any of them, may do by virtue hereof. The undersigned specifies the following action which he desires to be taken pursuant to his proxy at said meet- ing and at any adjournment or adjournments thereof on the question of amending Article XII of the By-laws, as described in the Proxy Statement, by indicating in the place provided herein whether he desires his shares of stock to be voted for or against the proposed amendment. This Proxy will be voted at said meeting and at any adjournment or adjournments thereof in accordance with such specification. FOR THE PROPOSED AMENDMENT F1 AGAINST THE PROPOSED AMENDMENT E] Unless otherwise directed herein, the proxy or proxies appointed herein are authorized to vote in f avor o f the amendment o f By-law XII as set f orth in the proxy statement. With respect to matters not known or deter- mined at the time o f the solicitation hereo f said proxy or proxies are authorized to vote in their discretion. The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or to act with respect to such stock. The undersigned hereby acknowledges receipt of the "Notice of Annual Meeting of Stockholders," dated March 4, 1948, the "Proxy Statement" and Annual Report furnished therewith. IN wrrNEss WHEREOF, I have hereunto set my hand and seal this day of , 1948. 1 ~4j,. (sEAL) (Stockholder should sign here) 5t0 LSL88