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Proxy Statement This proxy statement is furnished in connection with the solicitation by man- agement of proxies for use at the Annual Meeting of Stockholders of P. Lorillard Company to be held on April 12, 1966. A proxy may be revoked by the stockholder notifying the Secretary in writing prior to the voting of the proxy. The Company will bear the cost of the solicitation of proxies, including the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of stock. In addition to the use of the mails, proxies may be solicited by personal interview, by telephone or by telegraph. The Company has 6,668,354 shares of Common Stock and 98,000 shares of Preferred Stock issued. Each stockholder is entitled to one vote for each share of Common Stock and Preferred Stock registered in his name at the close of business on February 21, 1966. ELECTION OF DIRECTORS Fifteen directors are to be elected, to serve until the next Annual Meeting and until their successors are duly elected and qualified. It is the intention of the persons named in the enclosed form of proxy to vote for the election of the nominees named below. If any of the nominees named below is not a candidate for 2 z-

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. Name of nominee Principal occupation or employment Nameof organizatson in which such occupation is carried on Approximate amount of •each class of Year securities of the when Company beneficially A rst owned directly or ted indirectly as of director January 25, 1966 J. Edgar Bennett President P. Lorillard Company 1960 11,247 shares of John J. Darby Comptroller P. Lorillard Company 1964 Common Stock(3) (4) 3,661 shares of George 0. Davies Executive Vice P. Lorillard Company 1955 Common Stock(3) 22,573 shares of Melvin E. Dawley President President and Lord & Taylor- 1950 Common Stock(3) (4) 1,126 shares of Henry E. Erickson Chief Executive Officer Vice President, department stores P. Lorillard Company 1961 Common Stock 1,712 shares of Lewis Gruber Leaf Consultant P. Lorillard Company 1946 Common Stock(4) 14,392 shares of Common Stock (1) (3) Donald A. Henderson Vice President, Twentieth Century-Fox 1946 656 shares of Finance Film Corporation Common Stock William A. Jordan Vice President, P. Lorillard Company 1963 1,745 shares of Peter G. Levathes Sales Vice President, P. Lorillard Company 1966 Common Stock (3) 200 shares of Robert Meyer Advertising President Heintz van Landewyck 1965 Common Stock 400 shares of William D. Okerson Vice President, s.a.r.1.-tobacco products P. Lorillard Company 1964 Common Stock 826 shares of Harold X. Schreder Manufacturing President Distributors Group, 1956 Common Stock (4) 224 shares of Incorporated -investment bankers and Group Securities, Inc. -mutual fund Common Stock 3

ame of nominee rincipal occupation or employment Name of organization in which such occupation is carried on Year when flrst elected director Approximate amount of each class of securities of the Company beneficially owned directly or indirectly as of 7anuary 25, 1966 Harold E. Stassen Attorney Stassen, Kephart, 1963 1,050 shares of Sarkis & Kostos Common Stock Anna F. Woessner Secretary P. Lorillard Company 1965 524 shares of Manuel Yellen Chairman of P. Lorillard Company 1956 Common Stock(4) 29,011 shares of the Board and Common Stock (2) (3) (4) Chief Executive Officer (1) Includes 7,400 shares held in trusts. (2) Includes 337 shares held as custodian for his children and 2,950 shares held in trusts. (3) Includes shares held in escrow for release in instalments, subject to compliance with pre- scribed conditions, over ten and fifteen-year periods following termination of employment. The numbers of shares to be released annually during the ten-year period and, where appli- cable, during the fifteen-year period, are, respectively, as follows: J. Edgar Bennett, 32 and 174; John J. Darby, 43; George 0. Davies, 437 and 246; Lewis Gruber, 699; William A. Jordan, 29; Manuel Yellen, 437 and 246. (4) Includes shares of Common Stock purchased on September 1, 1964, or December 1, 1965, under a stock purchase agreement providing for the immediate sale and transfer of shares, with a down payment of $5 per share to be made forthwith; annual instalments of approxi- mately 2 i/z % or 4% of principal to be paid thereafter; the unpaid balance, secured by the shares as collateral, to be paid within five years; and simple interest at 2i/a% or 4% on the unpaid balance, with a right of prepayment in full but only as to all shares. The approximate amount of the purchase price remaining unpaid as of February 1, 1966 and, in parentheses, the largest amount outstanding at any time during 1965 were as follows: J. E. Bennett, $19,000 ($20,000) ; G. 0. Davies, $134,000 ($139,000) ; H. E. Erickson, $19,000 ($20,000) ; W. D. Okerson, $19,000 ($20,000) ; A. F. Woessner, $20,000 ($20,000) ; and M. Yellen, $134,000 ($139,000). All of the nominees, except for Miss Woessner and Mr. Levathes, were elected as directors by the stockholders. For more than the last five years Miss Woessner has served the Company as Corporate Secretary and Mr. Levathes served Twenti- eth Century-Fox Film Corporation in various capacities including Executive Vice President and was thereafter Executive Vice President of the advertising firm of Clyne-Maxon Inc. 4 Y

REMUNERATION AND OTHER TRANSACTIONS WITH DIRECTORS AND NOMINEES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1965 Set forth below is the remuneration for the year 1965 for the named and for directors and officers of the Company as a group : Aggregate direct remuneration (including current incentive Capacities in which com¢ensation Name of individual remuneration was received for 1965) persons there Contingent com¢ensation for 1965 payable in annual instalments in 1967, 1968 and 1969 if earned out J. E. Bennett_________ President; and Executive Vice Presi- dent, Operations _ $ 105,132 $ 54,536 M. J. Cramer__ President and Chief Executive Officer; and employee (1) _ 95,064 50,710 J. J. Darby____ Comptroller____ 41,912 10,000 G. 0. Davies__ Executive Vice President, Finance_- 79,817 45,747 H. E. Erickson Vice President Leaf____- 80,000 55,747 ______- W. A. Jordan , Sa1es __ Vice President 68 836 44 302 ------ __ W. D. Okerson________ _ , _ Vice President, Manufacturing_____~_ , 66,166 , 37,638 H. B. Parmele______ Vice President, Research (2) ______ 49,684 40,826 A F. Woessner____-..__ Secretary ___ 33,000 M. Yellen _ Chairman of the Board and Chief Ex- _ ecutive Officer; and Executive Vice President, Sales and Advertising_.____ 100,648 65,409 Directors and officers as a group (35 in number, including those named above) * (3) (4) ____ 127 1 285 419 470 , , , * Includes for this purpose all employees having an officer title. (1) On July 13, 1965, Mr. Cramer resigned as President and Chief Executive Officer and continued as an employee under an employment agreement dated September 15, 1965, in which he agreed that he would render until October 31, 1971, specific services in connection with the international and export business of the Company, with customary employment to be not less than six months a year, at a salary of $50,000 per year commencing January 1, 1966 (with con- tinuation of his previous $75,000 salary until that date), and would thereafter render, without additional consideration, such consulting and advisory services as the Company might reasonably request for a period not exceeding five years. -0 (2) For the period prior to Dr. Parmele's death on September 27, 1965. (3) The Company has a two-year agreement terminating on November 30, 1966, with r-V t3~ Mr. Gruber who retired November 30, 1964, and whose retirement payments started as of that (aT date. Under such agreement, payments at the rate of $25,000 per year are being made to ~ O 5 W

Mr. Gruber for consulting services. On retirement, Mr. Gruber commenced to receive contingent compensation awarded over a period of prior years consisting in 1965 of the release of 350 of the escrowed shares referred to in note 3 on page 4 and $2,512 a month. (4) In addition, the sum of $39,300 was paid as compensation for legal services in inter- national matters to the law firm of Stassen, Kephart, Sarkis & Kostos, of which Harold E. Stassen is a partner. The foregoing table reflects all current and contingent awards for 1965 to officers and directors under the Company's incentive compensation plan. The retirement benefits to which employees, including officers and directors, are entitled are set forth in the table on page 7. Incentive compensation under the Company's incentive compensation plan for key personnel may be paid currently and as contingent awards. Contingent awards of incentive compensation for 1964 and subsequent years under an amend- ment to the plan referred to below are payable in three equal annual instalments, commencing with the second year following the year for which the awards are made, if earned out by continued services and, in the event of retirement or other approved termination of employment, if requirements as to non-competition and conduct not prejudicial to the Company are complied with. Contingent awards for years prior to 1964 were contingently payable following termination of employ- ment over a period of fifteen years (ten years in the case of contingent awards for years prior to 1960). The amounts so contingently payable to the directors and officers referred to in the foregoing table during each of the fifteen years following termination of employment (and, in parentheses, where applicable, any additional amount payable during each of the ten years following termination of employ- ment) are as follows : J. E. Bennett, $4,682 ; M. J. Cramer, $8,693 ; J. J. Darby, $1,571 ($500) ; G. 0. Davies, $4,682; H. E. Erickson, $5,015; L. Gruber, $22,735 ($7,412) ; W. A. Jordan, $1,835 ($388) ; W. D. Okerson, $250; H. B. Parmele, $4,682; M. Yellen, $4,682; directors and officers as a group, $60,091 ($9,176). All the remuneration set forth was received by, or is contingently payable to, the persons named in their capacities as officers or employees of the Company. %0 The following table illustrates the estimated normal annual retirement allow- v ances payable under the Employees' Retirement Plan of the Company upon retire- ~,~,y ~o 6 0 .0b I 'J

ment at age sixty-five to employees in the earnings classifications and with the years of service shown : Em¢loyee's average annual earni:ngs during the highest consecutive 5 o f the 10 years Total annual benefits for years of credited service shown preceding retirement 20 years 25 years 30 years $ 25,000 $ 6,980 $ 8,680 $10,370 35,000 9,980 12,430 14,870 50,000_ 14,480 18,050 21,620 75,000 21,980 27,430 32,870 100,000 _ _ - 29,480 36,800 44,120 125,000- 36,980 46,180 50,000 On December 1, 1965, options to purchase the following shares of Common Stock were granted: J. E. Bennett, 7,500; J. J. Darby, 1,000; G. O. Davies, 6,000; H. E. Erickson, 3,000; W. A. Jordan, 5,000; W. D. Okerson, 5,000; M. Yellen, 10,000 and officers and directors as a group, 47,600. In addition, a right to pur- chase was granted to and exercised by A. F. Woessner on such date to purchase 500 shares under the stock purchase arrangement referred to below. In the case of each option, the option price was $45 per share, which was not less than 100% of the fair market value on the date of grant. The option term in each case is five years, subject to earlier termination upon death, severance of employment or other events. Subject to specified exceptions, shares acquired on the exercise of the option are required to be held for two years after such exercise. Each optionee has agreed to serve the Company for a period of at least two years from the date of grant. Under Article XV of the By-laws, the Company has a Stock Purchase, Option and Incentive Plan pursuant to which an offering of Common Stock was made by the Company on July 31, 1963, to a total of 697 employees, including officers and directors, in each case at a purchase price of $44.75 per share which was 100 per cent of the fair market value on such date. Three forms of offering were used, namely, a stock subscription arrangement, a stock purchase arrangement and a stock option arrangement. 7

The stock subscription arrangement calls for the issue of stock only when full payment for the stock has been made, requires no down payment, but pre- scribes authorization of payroll deductions over a period ending in July, 1968, with interest credits to the employee's account compounded semi-annually at the rate of three per cent per annum on amounts deducted from payroll. The employee has the right at any time until the stock is issued to rescind his purchase as to all (but not as to part) of the shares subscribed for and to the return of all amounts so withheld plus interest credits. The employee has the right of prepay- ment, but only in full and only on or after August 1, 1966. If employment termi- nates prior to that date, the purchase is deemed rescinded. Under this arrange- ment, 407 employees subscribed for a total of 19,720 shares of the Company's Common Stock during 1964. The stock subscription arrangement was not made available to any officer or director listed in the remuneration table, but 185 shares were subscribed for by other officers as a group on August 3, 18 and 27, 1964. The market values of the Company's Common Stock, based upon the mean between the highest and lowest selling prices of the Company's Common Stock on the New York Stock Exchange on such dates, were $44.06, $44.75 and $46.50, respectively. The stock purchase arrangement provides for the immediate sale and transfer of shares, with ten per cent of the purchase price (but not less than $5 per share) to be paid forthwith; annual instalments of approximately two and one-half per cent to be paid thereafter; the unpaid balance to be paid over a period ending in July, 1968, with right of prepayment in full but only as to all shares; and simple interest payable to the Company at two and one-half percent to be charged on the unpaid balance of the purchase price. The employee is entitled to all dividends on the stock, such dividends being at a rate of approximately 5.6% based upon a purchase price of $44.75 per share and upon the dividend rate currently paid on outstanding shares. The stock is held as collateral, subject to being returned to the Company if the purchase price is not paid before the end of the period in July, 1968, without refund of any payments made or release of shares equivalent to such payments, but with no further liability on the part of the employee. If employment is terminated within two years after the purchase agreement is made, the Company is entitled to repurchase all shares for the amounts paid by the employee exclusive of interest. Thirty-two employees agreed to purchase a total of 17,950 shares under this arrangement and such shares were all sold and transferred at a purchase price of $44.75 per share upon receipt by the Company of the 8

required down payment of $5 per share. Each such stock purchase contract was executed under date of September 1, 1964, on which date the mean between the highest and lowest selling prices of the Company's Common Stock on the New York Stock Exchange was $47.31 per share. Included among the employees agreeing to purchase shares under the stock purchase arrangement were the follow- ing directors and officers referred to in the remuneration table : J. E. Bennett, 500 shares; M. J. Cramer, 1,500 shares; G. 0. Davies, 3,500 shares; H. E. Erickson, 500 shares ; W. D. Okerson, 5D0 shares ; M. Yellen, 3,500 shares ; directors and officers as a group, 11,400 shares. The stock option arrangement provides for an option term of ten years or such shorter period, but not less than five years, as may be required to qualify the option for specified tax treatment under the applicable provisions of the Internal Revenue Code, subject in any event to earlier termination upon death or severance of employment. Subject to specified exceptions, shares acquired on the exercise of options are required to be held for two years after such exercise. Each optionee must agree to serve the Company for a period of at least two years from the date of grant. Under this arrangement options were granted as follows: J. E. Bennett, 3,000 ; M. J. Cramer, 4,000 ; J. J. Darby, 1,000 ; H. E. Erickson, 3,000 ; W. A. Jordan, 2, 000 ; W. D. Okerson, 1,000 ; officers and directors as a group, 20,400 and all employees, 35,400. The Company also has a Restricted Stock Option Plan which was approved at the annual meeting of stockholders in 1958 and which authorized the granting of options to purchase a maximum of 200,000 shares of Common Stock (after giving effect to the 2-for-1 stock split of 1959) to officers and key employees. In addition to the options referred to above, options for the following shares were granted under that plan during the last five years : J. E. Bennett, 3,000 ; M. J. Cramer, 7,000 ; J. J. Darby, 1,000 ; H. E. Erickson, 3,000 ; W. A. Jordan, 1,000 ; W. D. Okerson, 2,000 and A. F. Woessner, 500; all officers and directors as a group, 25,000; all employees, 45,300. There were no bonus, profit-sharing or other remuneration or incentive plans, now in effect or in effect within the past five years, other than as stated above. Mr. Robert Meyer, a director of the Company, is President of Heintz van Landewyck s.a.r.l., a Luxembourg tobacco manufacturer (hereinafter called 9

HVL), all of the share capital of which is owned by Mr. Meyer and members of his family. P. Lorillard International S.A., a wholly-owned subsidiary of the Company, and HVL each own a one-half interest in P. Lorillard s.a.r.l., a Luxem- bourg corporation, which, since April, 1964, has manufactured and sold under license certain of the Company's brands for several of the Common Market countries. PROPOSAL TO CONCUR IN REDUCTION OF DEFERMENT PERIOD FOR CERTAIN INCENTIVE COMPENSATION AWARDS Upon the recommendation of a committee of directors not eligible to par- ticipate in the Company's incentive compensation plan (Article XII of the By- laws), the Board of Directors amended the plan so as to reduce the period of deferment for a portion of awards made in 1965 and subsequent years. In sub- stance, the amendment, described more fully below, provides that, as a contingent award is earned out, it will become payable in annual instalments in succeeding years instead of being payable following termination of employment. The amendment involves no increase in incentive compensation. Explanation and Effect of Change: Under the Company's incentive com- pensation plan, a committee of non-participating directors designates a Con- tingent Compensation Group, with the award to each employee in the group being divided into a "Current Allotment" and a "Contingent Allotment." The plan pro- vides that $5,000 of the total award, and not more than 75% nor less than 25% of the balance of the award, is to be a Current Allotment payable at the time of the award, with the remainder of the total allotment being contingently payable as a Contingent Allotment. Contingent Allotments must be earned out by con- tinued employment with the Company for three years after the incentive com- pensation awards are made unless termination of employment results from death, disability or retirement (including early retirement) or under circumstances deemed by the committee not to be contrary to the Company's interests. Heretofore, Contingent Allotments have been payable in monthly instalments over a period of years following termination of employment (ten years in the case 10

of awards for 1959 and prior years; fifteen years in the case of awards for 1960 and subsequent years). This provision has been changed so as to make Contingent Allotments payable in three annual instalments commencing with the second year after the year for which the award has been made. The requirement that Con- tingent Allotments be earned out by continued service remains unaltered. The change in the deferment period, which was made on the recommendation of an independent consultant on compensation matters, is in keeping with current industry trends for the reason, among others, that amounts paid currently are today more of an incentive to many employees than heretofore as the result of the reduction of tax rates made by the Revenue Act of 1964. The requirement of earning out, as heretofore stated, has not been changed. Also, payments of Contingent Allotments following termination of employment continue to be conditional on the employee not engaging in competition with the Company or in conduct prejudicial to the Company. The acceleration in the pay- ment of deferred compensation, however, will result in limiting this condition to the three-year earn-out period. On the other hand, under the Company's retire- ment plan, each retirement allowance is conditioned on the employee not engaging in any occupation connected with the manufacture or distribution of tobacco products which is in competition with the Company, and any employee who does so engage may thus lose his entire pension thereafter. Since incentive compensation received during employment is counted for the purpose of calculating pensions, the acceleration in payment of deferred compen- sation will result in some increase in, retirement benefits. The Company's inde- pendent actuary has estimated that the increase in such benefits will result in an increase in the Company's annual contribution to the retirement plan from approximately $59,000 to approximately $73,000 per year after four years. Facts Concerning the Company's Incentive Compensation Plan: Article XII of the By-laws of the Company relating to incentive compensation, as heretofore amended, copies of which will be available at the Annual Meeting, provides, in general, for an annual incentive compensation amount determined by application of the following percentages to net operating income (that is, consolidated earn- ings before Federal taxes on income, incentive compensation awards and capital gains or losses) : 3% of the first $50 million, 4% of the next $3 million, 5% of the 11