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EXHIBIT B RESTRICTED STOCK OPTION PLAN FOR EMPLOYEES OF P. LORILLARD COMPANY 1. Purpose o f the Plan. This Restricted Stock Option Plan (hereinafter called the Plan) is intended to encourage ownership of stock of P. Lorillard Company (hereinafter called the Company), in the manner contemplated by Section 421 of the Internal Revenue Code of 1954, by officers and other key employees now or hereafter employed by the Company and its subsidiary (which latter term shall include any corporation which shall at the time constitute a "subsidary corporation" of the Company, as that term is defined in such Section 421) to provide additional incentive to such employees to remain with the Company and promote the success of the Company's business and to encourage new employees to enter into the Company's employ. 2. Stock Subject to Plan. There will be reserved for use upon the exercise of options to be granted from time to time under the Plan (hereinafter called the Options) an aggregate of one hundred thousand (100,000) shares of the Common Stock of the par value of Ten dollars ($10) per share (hereinafter called the Common Stock) of the Company, which number shall be subject to adjustment as provided in paragraph 14 hereof. If an Option, after having been granted, shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered thereby shall (unless the Plan shall have been terminated) be added to the shares otherwise available for Options which may thereafter be granted, but such unpurchased shares shall not be deemed to increase the aggregate number of shares (100,000) for which options may be granted. 3. Administration of the Plan. Subject to the provisions of the Plan, the Board of Directors shall have plenary authority in its sole discretion to select the employees of the Company and its sub-

sidiary (including officers and including directors who shall be employees) to whom the Options shall be granted, the number of shares to be covered by and the term of each of the Options, the time or times at which the Options shall be granted, and the other terms and conditions thereof. The Plan shall be administered by the Stock Option Committee which shall be appointed by, and to serve at the pleasure of, the Board and which shall consist of not less than three (3) Directors, none of whom shall be an officer or other employee of the Company. The Committee shall conduct its business and hold meetings as determined by it from time to time, and any action taken by the Committee at meetings duly called shall require the affirmative vote of at least a majority of its members. The Committee shall adopt and may amend its own rules of procedure and shall keep an accurate and complete record of its proceedings. The Stock Option Committee shall have power to interpret the Plan and to prescribe, amend and rescind rules and regulations relating to it. The Board of Directors shall exercise the powers and authority granted to the Stock Option Committee herein during any period in which such Stock Option Committee shall not be in existence. 4. Employees to Whom Options Shall Be Granted. The employees to whom Options shall be granted shall, subject to the provi- sions of the Plan, be selected by the Board of Directors, in its sole discretion. An employee who is a member of the Board of Directors shall not be granted an Option except pursuant to the recommendation of the Stock Option Committee. 5. Number of Shares to Be Covered by Options Granted to Individual Employees. The number of shares of the Common Stock covered by the Option or Options which shall be granted to any individual employee shall not exceed twelve thousand five hundred (12,500) in the aggregate. 6. Factors to Be Considered in Granting Options. An Option shall be granted only to an employee and only for a reason connected with his employment. In making any determination as to employees to whom Options shall be granted and as to the number of shares to be covered by any such Option, the Board of Directors shall take into account, in each case, 2

the duties of the employee, his present and potential contributions to the success of the Company, his compensation and such other factors as the Board shall deem relevant to the accomplishment of the purpose of the Plan. 7. Option Price. The purchase price of the shares of the Common Stock which shall be covered by each Option shall be not less than eighty-five per cent (85% ) of the fair market value of such shares at the time of the granting of the Option but not less than the par value thereof. For such purpose, the fair market value per share of such Common Stock shall be the mean between the highest and lowest quoted selling prices thereof on the New York Stock Exchange on the date of the grant of the Option or on the next preceding day or during a longer period. If the price so determined shall not be an even multiple of one-quarter of one dollar, it shall be rounded out to the next higher amount which shall be an even multiple of one- quarter of one dollar. 8. Term of Option. The term of each Option shall be such term, not exceeding ten (10) years from the date on which the Option shall have been granted, as shall be fixed at that time by the Board of Directors in its sole discretion and such term shall be subject to earlier termination as hereinafter provided. 9. Exercise of Options. Subject to the provisions of the Plan, an Option may be exercised at any time in whole or from time to time in part; provided, however, that such Option shall not be exercisable in part for less than one hundred (100) shares except where the balance of the shares subject to the Option shall be less than one hundred (100). The purchase price of the shares as to which an Option shall be exercised shall be paid in full in cash at the time of exercise. Except as provided in paragraphs 12 and 13, an Option may not be exercised at any time unless the holder thereof shall then be an employee of the Company or its subsidiary. The holder of an Option shall not have any of the rights of a stockholder with respect to any share covered by such Option until he shall become the holder of record of such share. 10. Non-Transferability of Options and Holding of Option Stock. (a) An Option shall not be transferable otherwise than by will or the laws of descent and distribution and shall be exercisable, during the lifetime of the employee, only by him. 3

(b) Except as otherwise provided in this paragraph 10(b), an employee to whom an Option shall have been granted shall not, within a period of two (2) years after the date upon which the Option shall have been exercised with respect to any share, make any sale or other disposition (which term shall have the meaning ascribed to it in Section 421(d) (4) of the Internal Revenue Code of 1954) of such share. The immediately preceding sentence shall not prevent (i) the sale or other disposition of such share following the death, retirement or other termination of the employment of such employee or (ii) the pledge or hypothecation at any time by such employee of such share with a recognized lending institution upon the terms and conditions at the time in use by such institution, including, but not limited to, terms and conditions permitting such institution to realize, by sale or otherwise, upon such share held as security for such pledge or hypothecation. Notwithstanding the other provisions of this paragraph 10(b), the Stock Option Committee shall have the power, in circumstances deemed by it in its sole discretion to be appropriate, to relieve employees to whom Options shall have been granted from the operation of this paragraph 10 (b) as to any or all of the shares covered by such Options. 11. Employee's Agreement to Serve. Each employee receiving an Option shall, as one of the terms of the Option Agreement hereinafter referred to, agree that he will remain in the employ of the Company or its subsidiary, or both, for a period of at least two (2) years from the date on which the Option shall be granted. On recommendation made by the Stock Option Committee in any individual case which such Committee shall deem excep- tional, the Board of Directors may specify a period of less than two (2) years but in no event less than one (1) year. Such employment, subject to the provisions of paragraph 12 hereof, and subject also to the provisions of any contract between the Company or such subsidiary and such employee, will be at the pleasure of the Board of Directors and at such compensation as the Board of Directors shall from time to time reasonably determine. Any termination of such employee's employ- ment during the period in which he has agreed pursuant to the foregoing provisions of this paragraph 11 to remain in employment which is either (i) for cause or (ii) voluntary on the part of the employee and without the consent of the Company shall be deemed a violation by the employee of his agreement and, upon the occur- rence of such violation, the Option held by him, to the extent not theretofore exercised, shall forthwith terminate. Such termination of the Option shall be in 4

addition to all other rights and remedies for breach of contract to which the Com- pany shall be entitled. 12. Termination of Employment. In case the employment of an employee to whom an Option shall have been granted shall be terminated (otherwise than as a result of death), such Option may, subject to the provisions of paragraph 11 hereof, be exercised (to the extent that the employee shall be entitled to do so at the termination of his employment) at any time within three (3) months after the date on which he shall have ceased to be an employee but in any event not more than ten (10) years after the date on which such Option shall have been granted. Nothing in the Plan or in any Option Agreement shall confer upon any employee any right to continue in the employ of the Company or its subsidiary or to limit or restrict in any way the right of the Company or such subsidiary to terminate his employment at any time for any reason. 13. Death of Employee. If an employee to whom an Option shall have been granted shall die while he shall be employed by the Company or its subsidiary, or both, or within three (3) months after the termination of his employment, such Option may be exercised (to the extent that the employee may have been entitled to do so at the date of his death) by the person or persons to whom the Option shall have been transferred by will or the laws of descent and distribution, at any time within one (1) year from the date of the employee's death, but in any event not more than ten (10) years after the date on which such Option shall have been granted. 14. Adjustments upon Changes in Capitalization. In the event of changes in the outstanding Common Stock of the Company because of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations or liquidations, the number and class of shares available under the Plan and the maximum number of shares as to which Options may be granted to any employee shall be appropri- ately adjusted by the Board of Directors and appropriate provision to cover the contingency of such changes shall be made in each Option Agreement as to the shares covered thereby. 5

15. Listing, Registration and Qualification of Shares. Any Option shall be subject, among other things, to the effecting by the Company of any listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any Federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Board of Directors shall determine, in its sole discretion, is necessary or desirable as a condition of, or in connection with, the granting of the Option or the issue or purchase of the shares covered thereby. The Company shall make every reasonable effort to effect such listing, registration or qualification or to obtain such consent or approval. 16. Option f or Investment Purposes. Each employee to whom an Option shall be granted shall furnish evidence satisfactory to the Company and its counsel that he is acquiring all shares to which the Option relates for investment purposes only and not with a view to the distribution thereof. 17. Termination and Amendment of the Plan. The Plan shall terminate on November 1, 1967, and Options shall not be granted under the Plan after that date. The Plan may at any time or from time to time be terminated, modified or amended by the stockholders of the Company, in the manner prescribed by the laws of New Jersey. The Board of Directors may from time to time modify or amend the Plan, provided, however, that no such modi- fication or amendment by the Board of Directors shall (a) increase the maximum number of shares for which Options may be granted under the Plan either in the aggregate or to any individual employee, (b) decrease the minimum Option price provided for in paragraph 7, or (c) lengthen the term of the Plan or the period during which Options may be exercised. The termination or any modifica- tion or amendment of the Plan shall not, without the consent of an employee, affect his rights under an Option theretofore granted to him. 6