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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>13. Legal Proceedings</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Tobacco-Related Product Liability Litigation</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of October 26, 2009, approximately 6,850 product liability cases are pending against cigarette
manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 5,910 of
these cases. Lorillard, Inc. is a co-defendant in approximately 710 cases. Approximately 3,215 of
these lawsuits are <i>Engle </i>Progeny Cases, described below, in which the claims of approximately
8,600 individual plaintiffs are asserted.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The pending product liability cases are composed of the following types of cases:
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Conventional Product Liability Cases</i>. Conventional Product Liability Cases are brought by
individuals who allege cancer or other health effects caused by smoking cigarettes, by using
smokeless tobacco products, by addiction to tobacco, or by exposure to environmental tobacco smoke.
As of October 26, 2009, approximately 150 cases are pending against cigarette manufacturers,
including approximately 35 cases against Lorillard Tobacco. Lorillard, Inc. is a co-defendant in
four cases.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Engle Progeny Cases</i>. <i>Engle </i>Progeny Cases are brought by individuals who purport to be members
of the decertified <i>Engle </i>class. These cases are pending in a number of Florida courts. Lorillard
Tobacco is a defendant in approximately 3,215 <i>Engle </i>Progeny Cases. Lorillard, Inc. is a
co-defendant in approximately 700 cases. Many of the cases have been filed on behalf of multiple
class members, and approximately 8,600 individual smokers are asserting claims in the pending
cases. The time period for filing <i>Engle </i>Progeny Cases expired in January 2008 and no additional
cases may be filed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>West Virginia Individual Personal Injury Cases</i>. West Virginia Individual Personal Injury Cases
are brought by individuals who allege cancer or other health effects caused by smoking cigarettes,
by using smokeless tobacco products, or by addiction to cigarette smoking. The cases are pending in
a single West Virginia court and have been consolidated for trial. Lorillard Tobacco is a defendant
in approximately 50 of the 715 pending cases that are part of this proceeding. Lorillard, Inc. is
not a defendant in any of these cases.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Flight Attendant Cases</i>. Flight Attendant Cases are brought by non-smoking flight attendants
alleging injury from exposure to environmental smoke in the cabins of aircraft. Plaintiffs in these
cases may not seek punitive damages for injuries that arose prior to January 15, 1997. Lorillard
Tobacco is a defendant in each of the approximately 2,600 pending Flight Attendant Cases.
Lorillard, Inc. is not a defendant in any of these cases. The time for filing Flight Attendant
Cases expired during 2000 and no additional cases in this category may be filed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Class Action Cases</i>. Class Action Cases are purported to be brought on behalf of large numbers
of individuals for damages allegedly caused by smoking. Eight of these cases are pending against
Lorillard Tobacco. Lorillard, Inc. is a co-defendant in two of these eight cases. Two of the eight
cases assert claims on behalf of purchasers of “light” cigarettes. Lorillard, Inc. is not a
defendant in either of these cases. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant
in the approximately 40 additional “lights” class actions that are pending against other cigarette
manufacturers.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Reimbursement Cases</i>. Reimbursement Cases are brought by or on behalf of entities who seek
reimbursement of expenses incurred in providing health care to individuals who allegedly were
injured by smoking. Plaintiffs in these cases have included the U.S. federal government, U.S. state
and local governments, foreign governmental entities, hospitals or hospital districts, American
Indian tribes, labor unions, private companies and private citizens. Four such cases are pending
against Lorillard Tobacco and other cigarette manufacturers in the United States and one such case
is pending in Israel. Lorillard, Inc. is a co-defendant in two of the cases pending in the United
States. Plaintiffs in the case in Israel have attempted to assert claims against Lorillard, Inc.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in this category is the suit filed by the federal government, <i>United States of
America v. Philip Morris USA</i>, <i>Inc.</i>, <i>et al.</i>, that sought return of profits and injunctive relief. In
August 2006, the trial court issued its verdict and granted injunctive relief. The verdict did not
award monetary damages. In May 2009, the verdict was largely affirmed by an appellate court. See
"—Reimbursement Cases” below.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Filter Cases</i>. In addition to the above, Filter Cases are brought by individuals, including
former employees of Lorillard Tobacco, who seek damages resulting from their alleged exposure to
asbestos fibers that were incorporated into filter material used in one brand of cigarettes
manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago.
Lorillard Tobacco is a defendant in 31 such cases, including two cases in which Lorillard, Inc. is
a co-defendant. Lorillard, Inc. is also a defendant in an additional Filter Case, in which
Lorillard Tobacco is not a defendant.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, Lorillard Tobacco and Lorillard, Inc. are named as defendants in one case in
which it is alleged that a fire caused by a Lorillard cigarette led to an individual’s death.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Plaintiffs assert a broad range of legal theories in these cases, including, among others,
theories of negligence, fraud, misrepresentation, strict liability, breach of warranty, enterprise
liability (including claims asserted under the federal Racketeering Influenced and Corrupt
Organizations Act (“RICO”)), civil conspiracy, intentional infliction of harm, injunctive relief,
indemnity, restitution, unjust enrichment, public nuisance, claims based on antitrust laws and
state consumer protection acts, and claims based on failure to warn of the harmful or addictive
nature of tobacco products.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Plaintiffs in most of the cases seek unspecified amounts of compensatory damages and punitive
damages, although some seek damages ranging into the billions of dollars. Plaintiffs in some of the
cases seek treble damages, statutory damages, disgorgement of profits, equitable and injunctive
relief, and medical monitoring, among other damages.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Conventional Product Liability Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of October 26, 2009, approximately 150 cases are pending against cigarette manufacturers in
the United States. Lorillard Tobacco is a defendant in approximately 35 of these cases. Lorillard,
Inc. is a co-defendant in four of the pending cases.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Since January 1, 2007, verdicts have been returned in five cases. Neither Lorillard Tobacco
nor Lorillard, Inc. was a defendant in any of these trials. A defense verdict was returned in one
of the trials, but juries found in favor of the plaintiffs and awarded damages in the other four
trials. Appeals are pending in three of the matters, while the parties’ post-trial motions have not
been ruled upon in the fourth case. In rulings addressing cases tried in earlier years, some
appellate courts have reversed verdicts returned in favor of the plaintiffs while other judgments
that awarded damages to smokers have been affirmed on appeal. Manufacturers have exhausted their
appeals and have been required to pay damages to plaintiffs in ten individual cases in recent
years. Punitive damages were paid to the smokers in four of the ten cases. Neither Lorillard
Tobacco nor Lorillard, Inc. was a party to these ten matters.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of October 26, 2009, no trials were underway in any Conventional Product Liability Cases.
One case pending against cigarette manufacturers is scheduled for trial in 2009. Neither Lorillard
Tobacco nor Lorillard, Inc. is a defendant in this case. Some cases are scheduled for trial in
2010, including some in which Lorillard Tobacco is a defendant. Trial dates are subject to change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Engle Progeny Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Plaintiffs are individuals who allege they or their decedents are former members of <i>Engle</i>, a
class action case that was pending in Florida. The 2006 ruling by the Florida Supreme Court that
ordered decertification of the <i>Engle </i>class also permitted former class members to file individual
actions, including claims for punitive damages. The court further held that these individuals are
entitled to rely on a number of the jury’s findings in favor of the
plaintiffs in the first phase of the <i>Engle </i>trial. The time period for filing <i>Engle </i>Progeny Cases
expired in January 2008 and no additional cases may be filed. During 2009, the Florida Supreme
Court rejected a petition that sought to extend the time for purported class members to file an
additional lawsuit.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in approximately 3,215 cases filed by individuals who allege
they or their decedents were members of the <i>Engle </i>class. Lorillard, Inc. is a co-defendant in
approximately 700 of the pending cases. Some of the suits are on behalf of multiple plaintiffs.
Claims have been asserted by or on behalf of the estates of approximately 8,600 former class
members in these 3,215 cases. In some cases, spouses of alleged former class members have also
brought derivative claims.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The <i>Engle </i>Progeny Cases are pending in various Florida state and federal courts. Some of these
courts have issued rulings that address whether these individuals are entitled to rely on a number
of the jury’s findings in favor of the plaintiffs in the first phase of the <i>Engle </i>trial. Some of
these decisions have led to pending petitions for appeal. The U.S. Court of Appeals for the
Eleventh Circuit agreed to review trial court rulings determining how courts should apply the
Florida Supreme Court’s ruling regarding the <i>Engle </i>jury’s first phase verdict. In another case, an
intermediate appellate court denied a plaintiff’s request to immediately certify an appeal to the
Florida Supreme Court.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     None of the cases pending against Lorillard Tobacco or Lorillard, Inc. are scheduled for trial
during the remainder of 2009. Lorillard Tobacco is a defendant in
several <i> Engle </i>Progeny Cases that
have been placed on courts’ 2010 trial calendars or in which specific 2010 trial dates have been
set. Lorillard, Inc. is a defendant in some of these cases. Trial schedules are subject to change
and it is not possible to predict how many of the cases pending against Lorillard Tobacco or
Lorillard, Inc. will be tried during 2010. It also is not possible to predict whether some courts
will implement procedures that consolidate multiple <i>Engle </i>Progeny Cases for trial.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of October 26, 2009, no trials were underway in any <i>Engle </i>Progeny Cases.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Verdicts have been returned in nine <i>Engle </i>Progeny Cases since the Florida Supreme Court issued
its 2006 ruling that permitted members of the <i>Engle </i>class to bring individual lawsuits. Neither
Lorillard Tobacco nor Lorillard, Inc. was a defendant in these nine trials. In two of the nine
trials, juries awarded actual damages and punitive damages. The punitive damages awards were
$5 million in one of the cases and $25 million in the other. In four of the trials, juries awarded
only actual damages. In the three other trials, juries found in favor of the defendants that the
plaintiffs were not former <i>Engle </i>class members. As of October 26, 2009, appeals were on file in
five of the cases in which plaintiffs were awarded damages, and a defendant’s post-trial motion was
pending in the sixth case.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In a case tried prior to the Florida Supreme Court’s 2006 decision permitting members of the
<i>Engle </i>class to bring individual lawsuits, one Florida court allowed the plaintiff to rely at trial
on certain of the <i>Engle </i>jury’s findings. That trial resulted in a verdict for the plaintiffs in
which they were awarded approximately $25 million in actual damages. Neither Lorillard Tobacco nor
Lorillard, Inc. was a party to this case. The defendants in this case are pursuing an appeal of the
judgment, which was not entered until 2008.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In June 2009, Florida amended the security requirements for a stay of execution of any
judgment during the pendency of appeal in <i>Engle </i>Progeny Cases. The amended statute provides for the
amount of security for individual <i>Engle </i>Progeny Cases to vary within prescribed limits based on the
number of adverse judgments that are pending on appeal at a given time. The required security
decreases as the number of appeals increases to ensure that the total security posted or deposited
does not exceed $200 million in the aggregate. This amended statute applies to all judgments
entered on or after June 16, 2009 and expires on December 31, 2012.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>West Virginia Individual Personal Injury Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The proceeding known as “West Virginia Individual Personal Injury Cases” consolidates for
trial in a single West Virginia court a number of cases that have been filed against cigarette
manufacturers, including Lorillard Tobacco. The order that consolidated the cases, among other
things, permitted only those cases filed by September 2000 to participate in the consolidated
trial. As a result, no additional cases may be part of this proceeding.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 1,250 cases became part of this proceeding, and Lorillard Tobacco was named in
all but a few of them. Lorillard, Inc. is not a defendant in any of these cases. More than 500 of
the cases have been dismissed in their entirety. Lorillard Tobacco has been dismissed from
approximately 650 additional cases because those plaintiffs did not submit evidence that they had
smoked a Lorillard Tobacco product. These 650 additional cases remain pending against other
cigarette manufacturers and some or all the dismissals of Lorillard Tobacco could be contested in
subsequent appeals noticed by the plaintiffs.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 715 cases are pending. Lorillard Tobacco is a defendant in approximately 50 of
the pending cases. The court has entered a trial plan that calls for a multi-phase trial. The first
phase of trial is scheduled to begin on February 1, 2010. Trial dates are subject to change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Flight Attendant Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Approximately 2,600 Flight Attendant Cases are pending. Lorillard Tobacco and three other
cigarette manufacturers are the defendants in each of these matters. Lorillard, Inc. is not a
defendant in any of these cases. These suits were filed as a result of a settlement agreement by
the parties, including Lorillard Tobacco, in <i>Broin v. Philip Morris Companies</i>, <i>Inc.</i>, <i>et al.</i>
(Circuit Court, Miami-Dade County, Florida, filed October 31, 1991), a class action brought on
behalf of flight attendants claiming injury as a result of exposure to environmental tobacco smoke.
The settlement agreement, among other things, permitted the plaintiff class members to file these
individual suits. These individuals may not seek punitive damages for injuries that arose prior to
January 15, 1997. The period for filing Flight Attendant Cases expired during 2000 and no
additional cases in this category may be filed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The judges that have presided over the cases that have been tried have relied upon an order
entered in October 2000 by the Circuit Court of Miami-Dade County, Florida. The October 2000 order
has been construed by these judges as holding that the flight attendants are not required to prove
the substantive liability elements of their claims for negligence, strict liability and breach of
implied warranty in order to recover damages. The court further ruled that the trials of these
suits are to address whether the plaintiffs’ alleged injuries were caused by their exposure to
environmental tobacco smoke and, if so, the amount of damages to be awarded.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco was a defendant in each of the eight flight attendant cases in which
verdicts have been returned. Defendants have prevailed in seven of the eight trials. In one of the
seven cases in which a defense verdict was returned, the court granted plaintiff’s motion for a new
trial and, following appeal, the case has been returned to the trial court for a second trial. The
six remaining cases in which defense verdicts were returned are concluded. In the single trial
decided for the plaintiff, <i>French v. Philip Morris Incorporated</i>, <i>et al.</i>, the jury awarded $5.5
million in damages. The court, however, reduced this award to $500,000. This verdict, as reduced by
the trial court, was affirmed on appeal and the defendants have paid the award. Lorillard Tobacco’s
share of the judgment in this matter, including interest, was approximately $60,000. In addition,
Lorillard Tobacco has paid its share of the attorneys’ fees, costs and post-judgment interest
awarded to the plaintiff’s counsel in this matter. During 2009, a Florida appellate court denied
Lorillard Tobacco’s appeal from an order granting interest on an award of attorneys’ fees Lorillard
Tobacco had previously paid. As a result of this ruling, Lorillard Tobacco was ordered to pay
approximately $315,000. Pursuant to an agreement with the other defendants in this matter,
Lorillard Tobacco paid approximately $28,000 and the other defendants paid the remainder.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of October 26, 2009, none of the flight attendant cases are scheduled for trial. Trial
dates are subject to change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Class Action Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in eight pending cases. Lorillard, Inc. is a co-defendant in
two of these cases. In most of the pending cases, plaintiffs seek class certification on behalf of
groups of cigarette smokers, or the estates of deceased cigarette smokers, who reside in the state
in which the case was filed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Cigarette manufacturers, including Lorillard Tobacco and Lorillard, Inc., have defeated
motions for class certification in a total of 36 cases, 13 of which were in state court and 23 of
which were in federal court. Motions for class certification have also been ruled upon in some of
the “lights” cases or in other class actions to which neither Lorillard Tobacco nor Lorillard, Inc.
was a party. In some of these cases, courts have denied class certification to the plaintiffs,
while classes have been certified in other matters.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>The Scott Case</i></b><i>. </i>In one of the class actions pending against Lorillard Tobacco, <i>Scott v. The
American Tobacco Company</i>, <i>et al. </i>(District Court, Orleans Parish, Louisiana, filed May 24, 1996),
the members of the class have been awarded damages. The defendants, including Lorillard Tobacco,
have noticed an appeal from this award to the Louisiana Court of Appeal, Fourth Circuit. The court
heard the appeal in September 2009 but it had not issued a ruling as of October 26, 2009. The
appeal is from the amended final judgment entered by the District Court in July 2008 that ordered
defendants to pay approximately $264 million to fund a court-supervised cessation program for the
members of the certified class. The amended final judgment also awards post-judgment judicial
interest that will continue to accrue from June 2004 until the judgment either is paid or is
reversed on appeal. As of October 26,
2009, judicial interest totaled approximately $103 million. Lorillard, Inc., which was a party
to the case in the past, is no longer a defendant in <i>Scott</i>.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     During 1997, <i>Scott </i>was certified a class action on behalf of certain cigarette smokers
resident in the State of Louisiana who desire to participate in medical monitoring or smoking
cessation programs and who began smoking prior to September 1, 1988, or who began smoking prior to
May 24, 1996 and allege that defendants undermined compliance with the warnings on cigarette
packages.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Trial in <i>Scott </i>was heard in two phases. At the conclusion of the first phase in July 2003, the
jury rejected medical monitoring, the primary relief requested by plaintiffs, and returned
sufficient findings in favor of the class to proceed to a Phase II trial on plaintiffs’ request for
a statewide smoking cessation program. Phase II of the trial, which concluded in May 2004, resulted
in an award of $591 million to fund cessation programs for Louisiana smokers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2007, the Louisiana Court of Appeal reduced the amount of the award by
approximately $328 million; struck an award of prejudgment interest, which totaled approximately
$440 million as of December 31, 2006; and limited class membership to individuals who began smoking
by September 1, 1988, and whose claims accrued by September 1, 1988. In January 2008, the Louisiana
Supreme Court denied plaintiffs’ and defendants’ separate petitions for review. The U.S. Supreme
Court denied defendants’ request that it review the case in May 2008. The case was returned to the
trial court, which subsequently entered the amended final judgment. The defendants, including
Lorillard Tobacco, have appealed the amended final judgment.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Should the amended final judgment be sustained on appeal, Lorillard Tobacco’s share of that
judgment, including the award of post-judgment interest, has not been determined. In the fourth
quarter of 2007, Lorillard, Inc. recorded a pretax provision of approximately $66 million for this
matter which was included in selling, general and administrative expenses on the consolidated
statements of income and in other liabilities on the consolidated balance sheets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The parties filed a stipulation in the trial court agreeing that an article of Louisiana law
required that the amount of the bond for the appeal be set at $50 million for all defendants
collectively. The parties further agreed that the plaintiffs have full reservations of rights to
contest in the trial court the sufficiency of the bond on any grounds. Defendants collectively
posted a surety bond in the amount of $50 million, of which Lorillard Tobacco secured 25%, or $12.5
million. While Lorillard Tobacco believes the limitation on the appeal bond amount is valid as
required by Louisiana law, in the event of a successful challenge the amount of the appeal bond
could be set as high as 150% of the judgment and judicial interest combined. If such an event
occurred, Lorillard Tobacco’s share of the appeal bond has not been determined.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>The Engle Case</i></b><i>. </i>The case of <i>Engle v. R.J. Reynolds Tobacco Co.</i>, <i>et al. </i>(Circuit Court,
Miami-Dade County, Florida, filed May 5, 1994), was certified as a class action on behalf of
Florida residents, and survivors of Florida residents, who were injured or died from medical
conditions allegedly caused by addiction to smoking. During 1999 and 2000, a jury returned verdicts
that, among other things, awarded the certified class $145 billion in punitive damages, including
$16.3 billion against Lorillard Tobacco. During 2006, the Florida Supreme Court vacated the
punitive damages award, determined that the case could not proceed further as a class action and
ordered decertification of the class. The trial court entered orders during 2008 that formally
decertified the class. In July 2008, plaintiff voluntarily dismissed the case and <i>Engle </i>is no
longer pending.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Florida Supreme Court’s 2006 decision also reinstated awards of actual damages to two of
the three individuals whose claims were heard during the second phase of the <i>Engle </i>trial. One
individual was awarded $3 million and the second was awarded $4 million. Both individuals informed
the court that they would not seek punitive damages. These verdicts were paid in February 2008.
Lorillard Tobacco’s payment was approximately $3 million for the verdicts and the interest that
accrued since November 2000.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Other Class Action Cases</i></b>. In one of the cases pending against Lorillard Tobacco, <i>Brown v. The
American Tobacco Company</i>, <i>Inc.</i>, <i>et al. </i>(Superior Court, San Diego County, California, filed June
10, 1997), the court initially certified the case as a class action but it subsequently granted
defendants’ motion for class decertification. During 2009, the California Supreme Court vacated the
class decertification order and <i>Brown </i>has been returned to the trial court for further activity.
While it is not possible to predict future developments in <i>Brown</i>, a new class certification order
could be entered. The class previously certified in <i>Brown </i>was composed of residents of California
who smoked at least one of defendants’ cigarettes between June 10, 1993 and April 23, 2001 and who
were exposed to defendants’ marketing and advertising activities in California.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>“Lights” Class Actions</i></b><i>. </i>Cigarette manufacturers are defendants in another group of
approximately 40 cases in which plaintiffs’ claims are based on the allegedly fraudulent marketing
of “light” or “ultra-light” cigarettes. Classes have been certified in some of these matters. In
one of the pending “lights” cases, <i>Good v. Altria Group</i>, <i>Inc</i>., <i>et al.</i>, the U.S. Supreme Court
ruled that neither the Federal Cigarette Labeling and Advertising Act nor the Federal Trade
Commission’s regulation of cigarettes’ tar and nicotine disclosures preempts (or bars) some of
plaintiffs’ claims. Lorillard Tobacco is a defendant in one class action in which plaintiffs claims
are limited to purchasers of “light” cigarettes, <i>Schwab v. Philip Morris USA, Inc., et al.</i>, which
is discussed below. In another case, <i>Cleary v. Philip Morris Incorporated, et al.</i>, plaintiffs were
permitted to amend their complaint in an existing class action in order to assert claims on behalf
of a subclass of individuals who purchased “light” cigarettes from the defendants, including
Lorillard Tobacco. During 2009, the court dismissed the “light” cigarettes claims asserted against
Lorillard Tobacco. As of October 26, 2009, the deadline for plaintiffs to appeal this ruling had
not expired. Lorillard, Inc. is not a party to any of the purported “lights” class actions. During
2009, a petition was filed with the Judicial Panel on Multidistrict Litigation (the “Panel”)
proposing the transfer and consolidation of “lights” class actions in federal courts into a
specially constituted court for pretrial proceedings. The eleven cases identified by the plaintiffs
included the <i>Cleary </i>and <i>Schwab </i>cases that are pending against Lorillard Tobacco. In September 2009,
the Panel issued a conditional transfer order that denied the request as to three of the cases,
including <i>Cleary </i>and <i>Schwab</i>, but proposed the transfer and consolidation of eight other “lights”
class actions in the U.S. District Court for the District of Maine. This order became final in
October 2009 and none of the cases pending against Lorillard Tobacco or Lorillard, Inc. are part of
the consolidated proceeding.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>The Schwab Case</i></b><i>. </i>In the case of <i>Schwab v. Philip Morris USA</i>, <i>Inc.</i>, <i>et al. </i>(U.S. District
Court, Eastern District, New York, filed May 11, 2004), plaintiffs base their claims on defendants’
alleged violations of the RICO statute in the manufacture, marketing and sale of “light”
cigarettes. Plaintiffs estimated damages to the class in the hundreds of billions of dollars. Any
damages awarded to the plaintiffs based on defendants’ violation of the RICO statute would be
trebled. In September 2006, the court granted plaintiffs’ motion for class certification and
certified a nationwide class action on behalf of purchasers of “light” cigarettes. In March 2008,
the Second Circuit Court of Appeals reversed the class certification order and ruled that the case
may not proceed as a class action. <i>Schwab </i>has been returned to the U.S. District Court for the
Eastern District of New York for further proceedings, but the future activity in this matter, if
any, is not known. Lorillard, Inc. is not a party to this case.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Reimbursement Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard Tobacco is a defendant in the four Reimbursement Cases that are pending in the U.S.
and it has been named as a party to a case in Israel. Lorillard, Inc. is a co-defendant in two of
the four cases pending in the U.S. Plaintiffs in the case in Israel have attempted to assert claims
against Lorillard, Inc.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>U.S. Federal Government Action</i></b>. In August 2006, the U.S. District Court for the District of
Columbia issued its final judgment and remedial order in the federal government’s reimbursement
suit (<i>United States of America v. Philip Morris USA</i>, <i>Inc.</i>, <i>et al</i>., U.S. District Court, District of
Columbia, filed September 22, 1999). The verdict concluded a bench trial that began in September
2004. Lorillard Tobacco, other cigarette manufacturers, two parent companies and two trade
associations are defendants in this action. Lorillard, Inc. is not a party to this case.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In its 2006 verdict, the court determined that the defendants, including Lorillard Tobacco,
violated certain provisions of the RICO statute, that there was a likelihood of present and future
RICO violations, and that equitable relief was warranted. The government was not awarded monetary
damages. The equitable relief included permanent injunctions that prohibit the defendants,
including Lorillard Tobacco, from engaging in any act of racketeering, as defined under RICO; from
making any material false or deceptive statements concerning cigarettes; from making any express or
implied statement about health on cigarette packaging or promotional materials (these prohibitions
include a ban on using such descriptors as “low tar,” “light,” “ultra-light,” “mild” or “natural”);
and from making any statements that “low tar,” “light,” “ultra-light,” “mild” or “natural” or
low-nicotine cigarettes may result in a reduced risk of disease. The final judgment and remedial
order also requires the defendants, including Lorillard Tobacco, to make corrective statements on
their websites, in certain media, in point-of-sale advertisements, and on cigarette package
“inserts” concerning: the health effects of smoking; the addictiveness of smoking; that there are
no significant health benefits to be gained by smoking “low tar,” “light,” “ultra-light,” “mild” or
“natural” cigarettes; that cigarette design has been manipulated to ensure optimum nicotine
delivery to smokers; and that there are adverse effects from exposure to secondhand smoke. If the
final judgment and remedial order are not modified or vacated on appeal, the costs to Lorillard
Tobacco for compliance could exceed $10 million.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     Following trial, the defendants, the government and several intervenors noticed appeals to the
Circuit Court of Appeals for the District of Columbia. In May 2009, a three judge panel upheld
substantially all of the District Court’s final judgment and remedial order. Defendants received a
stay of the judgment and remedial order from the Court of Appeals that remained in effect while the
appeal was pending. In September 2009, the Court of Appeals denied defendants’ rehearing petitions
as well as their motion to vacate those statements in the appellate ruling that address defendants’
marketing of “low tar” or “lights” cigarettes, to vacate those parts of the trial court’s judgment
on that issue, and to remand the case with instructions to deny as moot the government’s
allegations and requested relief regarding “lights” cigarettes. The Court of Appeals has stayed
its order that formally relinquishes jurisdiction of defendants’ appeal pending the filing and
disposition of defendants’ petitions for writ of certiorari to the U.S. Supreme Court. The
opportunity for defendants to petition the U.S. Supreme Court expires in December 2009.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     While trial was underway, the Court of Appeals ruled that plaintiff may not seek to recover
profits earned by the defendants. Prior to trial, the government had claimed that it was entitled
to approximately $280 billion from the defendants for its claim to recover profits earned by the
defendants. In the most recent appeal, recovery of profits was not considered but the issue may
however be considered by the U.S. Supreme Court.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Settlement of State Reimbursement Litigation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On November 23, 1998, Lorillard Tobacco, Philip Morris Incorporated, Brown & Williamson
Tobacco Corporation and R.J. Reynolds Tobacco Company (the “Original Participating Manufacturers”)
entered into the Master Settlement Agreement (“MSA”) with 46 states, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of
the Northern Mariana Islands to settle the asserted and unasserted health care cost recovery and
certain other claims of those states. These settling entities are generally referred to as the
“Settling States.” The Original Participating Manufacturers had previously settled similar claims
brought by Mississippi, Florida, Texas and Minnesota, which together with the MSA are referred to
as the “State Settlement Agreements.”
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements provide that the agreements are not admissions, concessions or
evidence of any liability or wrongdoing on the part of any party, and were entered into by the
Original Participating Manufacturers to avoid the further expense, inconvenience, burden and
uncertainty of litigation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard recorded pretax charges for its obligations under the State Settlement Agreements of
$294 million and $848 million
for the three months and
nine months ended September 30, 2009, respectively, and $304 million and $854 million
for the three months and nine months ended September 30, 2008,
respectively. Lorillard’s portion of ongoing adjusted payments and legal fees is based on its share
of domestic cigarette shipments in the year preceding that in which the payment is due.
Accordingly, Lorillard records its portions of ongoing settlement payments as part of cost of
manufactured products sold as the related sales occur.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements require that the domestic tobacco industry make annual
payments of $9.4 billion, subject to adjustment for several factors, including inflation, market
share and industry volume. In addition, the domestic tobacco industry is required to pay settling
plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million, as well as an additional
amount of up to $125 million in each year through 2008. These payment obligations are the several
and not joint obligations of each settling defendant.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The State Settlement Agreements also include provisions relating to significant advertising
and marketing restrictions, public disclosure of certain industry documents, limitations on
challenges to tobacco control and underage use laws, and other provisions. Lorillard Tobacco and
the other Original Participating Manufacturers have notified the States that they intend to seek an
adjustment in the amount of payments made in 2003 pursuant to a provision in the MSA that permits
such adjustment if the companies can prove that the MSA was a significant factor in their loss of
market share to companies not participating in the MSA and that the States failed to diligently
enforce certain statutes passed in connection with the MSA. If the Original Participating
Manufacturers are ultimately successful, any adjustment would be reflected as a credit against
future payments by the Original Participating Manufacturers under the agreement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     From time to time, lawsuits have been brought against Lorillard Tobacco and other
participating manufacturers to the MSA, or against one or more of the states, challenging the
validity of the MSA on certain grounds, including as a violation of the antitrust laws. See
“—MSA-Related Antitrust Suit” below.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, in connection with the MSA, the Original Participating Manufacturers entered into
an agreement to establish a $5.2 billion trust fund payable between 1999 and 2010 to compensate the
tobacco growing communities in 14 states (the “Trust”). Payments to the Trust will no longer be
required as a result of an assessment imposed under a new federal law repealing the federal supply
management program for tobacco growers, although the states of Maryland and Pennsylvania are
contending that payments under the Trust should continue to growers in those states since the new
federal law did not cover them, and the matter is being litigated. Under the new law, enacted in
October 2004, tobacco quota holders and growers will be compensated with payments totaling $10.1
billion, funded by an assessment on tobacco manufacturers and importers. Payments to qualifying
tobacco quota holders and growers commenced in 2005.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard believes that the State Settlement Agreements will materially adversely affect its
cash flows and operating income in future years. The degree of the adverse impact will depend,
among other things, on the rates of decline in domestic cigarette sales in the premium price and
discount price segments, Lorillard’s share of the domestic premium price and discount price
cigarette segments, and the effect of any resulting cost advantage of manufacturers not subject to
significant payment obligations under the State Settlement Agreements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Filter Cases</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition to the above, claims have been brought against Lorillard Tobacco and Lorillard,
Inc. by individuals who seek damages resulting from their alleged exposure to asbestos fibers that
were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard
Tobacco for a limited period of time ending more than 50 years ago. Lorillard Tobacco is a
defendant in 31 such cases. Lorillard, Inc. is a defendant in three Filter Cases, including two
that also name Lorillard Tobacco. Since January 1, 2007, Lorillard Tobacco has paid, or has reached
agreement to pay, a total of approximately $18.3 million in settlements to finally resolve
approximately 80 claims. The related expense was recorded in selling, general and administrative
expenses on the consolidated statements of income. In the only such case tried since January 1,
2007, a jury in the District Court of Bexar County, Texas, returned a verdict for Lorillard Tobacco
in September 2008 in the case of <i>Young v. Lorillard Tobacco Company</i>. As of October 26, 2009, eight
of the Filter Cases were scheduled for trial. Trial dates are subject to change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Tobacco-Related Antitrust Cases</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Indirect Purchaser Suits</i></b><b>. </b>Approximately 30 antitrust suits were filed in 2000 and 2001 on
behalf of putative classes of consumers in various state courts against cigarette manufacturers,
including Lorillard Tobacco. The suits all alleged that the defendants entered into agreements to
fix the wholesale prices of cigarettes in violation of state antitrust laws which permit indirect
purchasers, such as retailers and consumers, to sue under price fixing or consumer fraud statutes.
More than 20 states permit such suits. Lorillard, Inc. was not named as a defendant in any of these
cases. Lorillard Tobacco was a defendant in all but one of these indirect purchaser cases. Three
indirect purchaser suits, in New York, Florida and Michigan, thereafter were dismissed by courts in
those states, and the plaintiffs withdrew their appeals. The actions in all other states, except
for New Mexico and Kansas, were voluntarily dismissed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In the Kansas case, the District Court of Seward County certified a class of Kansas indirect
purchasers in 2002. In July 2006, the Court issued an order confirming that fact discovery was
closed, with the exception of privilege issues that the Court determined, based on a Special
Master’s report, justified further fact discovery. In October 2007, the Court denied all of the
defendants’ privilege claims, and the Kansas Supreme Court thereafter denied a petition seeking to
overturn that ruling. Discovery currently is ongoing. No date has been set by the Court for
dispositive motions and trial.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     A decision granting class certification in New Mexico was affirmed by the New Mexico Court of
Appeals in February 2005. As ordered by the trial court, class notice was sent out in October 2005.
The New Mexico plaintiffs were permitted to rely on discovery produced in the Kansas case. In
June 2006, the New Mexico trial court granted summary judgment to all defendants, and the suit was
dismissed. An appeal was filed by the plaintiffs in August 2006. The New Mexico Court of Appeals
affirmed dismissal of all claims against Lorillard Tobacco in December 2008, although claims
against its major competitors were reinstated. Plaintiff has not sought to reinstate the claims
against Lorillard Tobacco and the time for such action has expired. Accordingly, the New Mexico
suit has now been concluded as against Lorillard Tobacco.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>MSA-Related Antitrust Suit. </i></b>In October 2008, Lorillard Tobacco was named as a defendant in an
action filed in the Western District of Kentucky, <i>Vibo Corporation, Inc. d/b/a/ General Tobacco v.
Conway, et al</i>. The suit
alleges that the named defendants, which include 52 state and territorial attorneys general
and 19 tobacco manufacturers, violated the federal Sherman Antitrust Act of 1890 (the “Sherman
Act”) by entering into and participating in the MSA. The plaintiff alleges that MSA participants,
like it, that were not in existence when the MSA was executed in 1998 but subsequently became
participants, are unlawfully required to pay significantly more sums to the states than companies
that joined the MSA within 90 days after its execution. In addition to the Sherman Act claim,
plaintiff has raised a number of constitutional claims against the states. Plaintiff seeks a
declaratory judgment in its favor on all claims, an injunction against the continued enforcement of
the MSA, treble damages against the tobacco manufacturer defendants, including Lorillard Tobacco
and other manufacturer defendants, and damages and injunctive relief against the states, including
contract recession and restitution. In December 2008, the court dismissed the complaint against all
defendants, including Lorillard Tobacco. The court has not yet entered its final judgment.
Accordingly, the time for plaintiff to appeal the decision has not yet expired.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Defenses</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Each of Lorillard Tobacco and Lorillard, Inc. believes that it has valid defenses to the cases
pending against it as well as valid bases for appeal should any adverse verdicts be returned
against either of them. As of October 26, 2009, Lorillard Tobacco was a defendant in approximately
5,910 pending product liability cases, and Lorillard, Inc. was a co-defendant in approximately 710
of these cases. While Lorillard Tobacco and Lorillard, Inc. intend to defend vigorously all tobacco
products liability litigation, it is not possible to predict the outcome of any of this litigation.
Litigation is subject to many uncertainties. Plaintiffs have prevailed in several cases, as noted
above. It is possible that one or more of the pending actions could be decided unfavorably as to
Lorillard Tobacco, Lorillard, Inc. or the other defendants. Lorillard Tobacco and Lorillard, Inc.
may enter into discussions in an attempt to settle particular cases if either believe it is
appropriate to do so.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Neither Lorillard Tobacco nor Lorillard, Inc. can predict the outcome of pending litigation.
Some plaintiffs have been awarded damages from cigarette manufacturers at trial. While some of
these awards have been overturned or reduced, other damages awards have been paid after the
manufacturers have exhausted their appeals. These awards and other litigation activities against
cigarette manufacturers continue to receive media attention. In addition, health issues related to
tobacco products also continue to receive media attention. It is possible, for example, that the
2006 verdict in <i>United States of America v. Philip Morris USA, Inc.</i>, <i>et al.</i>, which made many
adverse findings regarding the conduct of the defendants, including Lorillard Tobacco, could form
the basis of allegations by other plaintiffs or additional judicial findings against cigarette
manufacturers. In addition, the ruling in <i>Good v. Altria Group, Inc., et al. </i>could result in
further “lights” litigation. Any such developments could have an adverse effect on the ability of
Lorillard Tobacco or Lorillard, Inc. to prevail in smoking and health litigation and could
influence the filing of new suits against Lorillard Tobacco or Lorillard, Inc. Lorillard Tobacco
and Lorillard, Inc. also cannot predict the type or extent of litigation that could be brought
against either of them, or against other cigarette manufacturers, in the future.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard records provisions in the consolidated financial statements for pending litigation
when it determines that an unfavorable outcome is probable and the amount of loss can be reasonably
estimated. Except for the impact of the State Settlement Agreements and <i>Scott </i>as described above,
management is unable to make a meaningful estimate of the amount or range of loss that could result
from an unfavorable outcome of material pending litigation and, therefore, no material provision
has been made in the consolidated financial statements for any unfavorable outcome. It is possible
that Lorillard’s results of operations or cash flows in a particular quarterly or annual period or
its financial position could be materially adversely affected by an unfavorable outcome or
settlement of certain pending litigation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Indemnification Obligations</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the Separation Lorillard entered into a separation agreement with Loews
(the “Separation Agreement”) and agreed to indemnify Loews and its officers, directors, employees
and agents against all costs and expenses arising out of third party claims (including, without
limitation, attorneys’ fees, interest, penalties and costs of investigation or preparation for
defense), judgments, fines, losses, claims, damages, liabilities, taxes, demands, assessments and
amounts paid in settlement based on, arising out of or resulting from, among other things, Loews’
ownership of or the operation of Lorillard and its assets and properties, and its operation or
conduct of its businesses at any time prior to or following the Separation (including with respect
to any product liability claims).
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     Loews is a defendant in four pending product liability cases. One of these is a Reimbursement
Case in Israel, two are purported Class Action Cases on file in U.S. courts and the fourth is a
Filter case on file in a U.S. court. Lorillard Tobacco also is a defendant in each of the four
product liability cases in which Loews is involved. Pursuant to the Separation Agreement, Lorillard
will be required to indemnify Loews for the amount of any losses and any legal or other fees with
respect to such cases.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Other Litigation</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Lorillard is also party to other litigation arising in the ordinary course of business. The
outcome of this other litigation will not, in the opinion of management, materially affect
Lorillard’s results of operations or equity.
</div>
</div>
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