10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      to                     

Commission File Number: 001-34097

Lorillard, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-1911176
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

714 Green Valley Road, Greensboro, North Carolina	27408-7018
(Address of principal executive offices)	(Zip Code)

(336) 335-7000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Class	Outstanding at August 4, 2008
Common stock, $0.01 par value	173,927,256 shares

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION		3
	Item 1.      Financial Statements.	3
	Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.      Quantitative and Qualitative Disclosures about Market Risk.	29
	Item 4.      Controls and Procedures.	30
PART II. OTHER INFORMATION		31
	Item 1.      Legal Proceedings.	31
	Item 1A.   Risk Factors.	31
	Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.      Defaults Upon Senior Securities	35
	Item 4.      Submissions of Matters to a Vote of Security Holders	35
	Item 5.      Other Information	35
	Item 6.      Exhibits	36
	SIGNATURES	37
	CERTIFICATIONS	38

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	June 30,     2008			December 31, 2007
(In millions, except share and per share data)
Assets:
Cash and cash equivalents	$	1,158		$	1,210
Accounts receivables, less allowance of $2 and $2		24			10
Receivables from limited partnerships		50			198
Inventories		294			223
Deferred income taxes		427			462
Total current assets		1,953			2,103
Plant and equipment		208			207
Prepaid pension assets		107			103
Other investments		15			65
Deferred taxes and other assets		67			122
Total assets	$	2,350		$	2,600
Liabilities and Shareholders’ Equity:
Accounts and drafts payable	$	21		$	29
Accrued liabilities		280			231
Settlement costs		604			919
Income taxes		145			9
Total current liabilities		1,050			1,188
Postretirement pension, medical and life insurance benefits		274			284
Other liabilities		109			115
Total liabilities		1,433			1,587
Commitments and Contingent Liabilities (Notes 7 and 8)
Shareholders’ Equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares
Common stock:
Authorized - 600,000,000 shares; par value—$0.01 per share
Issued and outstanding - 173,924,429 and 173,923,429 shares		2			2
Additional paid-in capital		219			217
Earnings retained in the business		782			882
Accumulated other comprehensive loss		(86	)		(88	)
Total shareholders’ equity		917			1,013
Total liabilities and shareholders’ equity	$	2,350		$	2,600

See Notes to Consolidated Condensed Financial Statements

3

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
(In millions, except per share data)
Net sales (including excise taxes of $184, $180, $347 and $342 respectively)	$	1,070	$	1,056	$	1,991	$	1,969
Cost of sales		627		614		1,181		1,158
Gross profit		443		442		810		811
Selling, general and administrative		91		83		191		165
Operating income		352		359		619		646
Other income (expense), net		5		22		14		54
Income before income taxes		357		381		633		700
Income taxes		140		142		242		259
Net income	$	217	$	239	$	391	$	441
Earnings per share	$	1.25	$	1.37	$	2.25	$	2.53
Number of shares outstanding		173.92		173.92		173.92		173.92

See Notes to Consolidated Condensed Financial Statements

4

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

	Comprehensive Income (Loss)			Common Stock		Additional Paid-in Capital			Earnings Retained in the Business			Accumulated Other Comprehensive Loss
(In millions)
Balance, January 1, 2007, as previously reported				$	—	$	215		$	1,178		$	(99	)
Par value adjustment, Lorillard common stock - 1.7 million to 1 stock split					2		(2	)
Effect of adopting FIN No. 48 on retained earnings										(25	)
Balance, January 1, 2007, as adjusted					2		213			1,153			(99	)
Comprehensive income:
Net income	$	441								441
Other comprehensive gains, minimum pension liability		(2	)										2
Comprehensive income	$	439
Dividends paid										(437	)
Stock-based compensation							3
Balance, June 30, 2007				$	2	$	216		$	1,157		$	(97	)
Balance, January 1, 2008, as previously reported				$	—	$	219		$	882		$	(88	)
Par value adjustment, Lorillard common stock - 1.7 million to 1 stock split					2		(2	)
Balance, January 1, 2008, as adjusted					2		217			882			(88	)
Comprehensive income:
Net income	$	391								391
Other comprehensive gains, minimum pension liability		(2	)										2
Comprehensive income	$	389
Dividends paid										(491	)
Stock-based compensation							2
Balance, June 30, 2008				$	2	$	219		$	782		$	(86	)

See Notes to Consolidated Condensed Financial Statements

5

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2008			2007
(In millions)
Cash flows from operating activities:
Net income	$	391		$	441
Adjustments to reconcile net cash provided (used in) by operating activities :
Depreciation and amortization		17			21
Deferred income taxes		87			(33	)
Share-based compensation		1			1
Amortization of marketable securities		—			(12	)
Investment income		1			(20	)
Changes in operating assets and liabilities:
Accounts receivable		(16	)		(5	)
Inventories		(71	)		(54	)
Accounts payable and accrued liabilities		40			(15	)
Settlement costs		(315	)		(222	)
Income taxes		136			211
Other assets		1			(2	)
Postretirement health and life insurance benefits		(10	)		(9	)
Other		(2	)		—
Net cash provided by operating activities		260			302
Cash flows from investing activities:
Purchases of investments		(800	)		(1,041	)
Proceeds from maturities of investments		497			1,050
Proceeds from sales of investments		500			399
Additions to plant and equipment		(18	)		(27	)
Net cash provided by investing activities		179			381
Cash flows from financing activities:
Dividends paid		(491	)		(437	)
Excess tax benefits from share-based arrangements		—			1
Net cash used in financing activities		(491	)		(436	)
Change in cash and cash equivalents		(52	)		247
Cash and cash equivalents, beginning of year		1,210			1,128
Cash and cash equivalents, end of period	$	1,158		$	1,375
Cash paid for income taxes	$	37		$	80

See Notes to Consolidated Condensed Financial Statements

6

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The consolidated condensed financial statements of Lorillard, Inc. (the “Company”), together with its subsidiaries (“Lorillard”), include the accounts of the Company and its subsidiaries after the elimination of intercompany accounts and transactions. The Company manages its operations on the basis of one reportable segment through its principal subsidiary, Lorillard Tobacco Company (“Lorillard Tobacco”).

In the opinion of management, the accompanying unaudited consolidated condensed financial statements reflect all adjustments necessary to present fairly the financial position as of June 30, 2008 and December 31, 2007 and the unaudited consolidated condensed statements of income, shareholders’ equity, and changes in cash flows for the three months and six months ended June 30, 2008 and 2007.

Results of operation for the three months and six months for each of the years reported herein are not necessarily indicative of results of operations of the entire year.

These consolidated, condensed financial statements should be read in conjunction with the combined and consolidated financial statements and notes thereto included in the Company’s Registration Statement (File No. 333-149051) (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 (the “Securities Act”).

On June 10, 2008, Loews Corporation (“Loews”) distributed 108,478,429 shares of common stock of the Company in exchange for and in redemption of all 108,478,429 outstanding shares of Loews’s Carolina Group stock, as described in the Registration Statement. Pursuant to the terms of the Exchange Offer, described in the Registration Statement, on June 16, 2008, Loews accepted 93,492,857 shares of Loews common stock in exchange for 65,445,000 shares of the Company’s common stock. As a result of such distributions, Loews ceased to own any equity interest in the Company and the Company became an independent publicly held company.

Prior to the Separation, Lorillard was included in the Loews consolidated federal income tax return, and federal income tax liabilities were included on the balance sheet of Loews. Under the terms of the pre-Separation Tax Allocation Agreement between Lorillard and Loews, the Company made payments to, or was reimbursed by Loews for the tax effects resulting from its inclusion in Loews’ consolidated federal income tax return. As of June 10, 2008, Loews is obligated to reimburse Lorillard $12 million related to pre-Separation tax benefits and payments, of which $11 million will be reimbursed in September 2008 and $1 million will be reimbursed by December 2009.

On May 7, 2008, the Company amended its certificate of incorporation to affect a 1,739,234.29 for 1 stock split of its 100 shares of common stock then outstanding. All common share and per share information has been retroactively adjusted for the periods presented.

7

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Lorillard adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, on January 1, 2007, and recognized an additional liability for unrecognized tax benefits and recorded a decrease of approximately $25 million to the January 1, 2007 balance of earnings retained in the business.

Lorillard adopted FASB Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” on January 1, 2008, utilizing the one year deferral that was granted for the implementation of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 did not have a material impact on Lorillard’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 requires an employer to recognize the funded status of a defined benefit postretirement plan in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Lorillard adopted SFAS No. 158 in December of 2006 which decreased equity by $99 million as of December 31, 2006. See Note 8 for additional information on Lorillard’s benefit plans.

Lorillard adopted FASB SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” on January 1, 2008. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. Lorillard elected not to implement the provisions permitting the measurement of eligible financial assets and liabilities at January 1, 2008 using the fair value option. The adoption of SFAS No. 159 did not have a material impact on Lorillard’s financial position or results of operations.

Lorillard will adopt FASB SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The adoption of SFAS No. 162 is not expected to have a material impact on Lorillard’s financial position or results of operations.

2. Inventories

Inventories are valued at the lower of cost, determined on a LIFO basis, or market and consisted of the following:

	June 30,     2008		December 31, 2007
(In millions)
Leaf tobacco	$	223	$	172
Manufactured stock		66		45
Material and supplies		5		6
	$	294	$	223

If the average cost method of accounting was used, inventories would be greater by approximately $151 million at June 30, 2008 and December 31, 2007, respectively.

8

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

3. Plant and Equipment

Plant and equipment is stated at cost and consisted of the following:

	June 30,     2008			December 31, 2007
(In millions)
Land	$	3		$	3
Buildings		85			85
Equipment		574			565
Total		662			653
Accumulated depreciation		(454	)		(446	)
Plant and equipment-net	$	208		$	207

4. Accrued Liabilities

Accrued liabilities were as follows:

	June 30,     2008		December 31, 2007
(In millions)
Legal fees	$	29	$	17
Salaries and other compensation		20		19
Medical and other employee benefit plans		26		29
Consumer rebates		65		66
Sales promotion		23		24
Excise and other taxes		71		45
Other accrued liabilities		46		31
Total	$	280	$	231

5. Other Income (Expense), Net

The components of other income (expense), net are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
(In millions)
Interest income, net	$	4	$	14	$	13	$	35
Limited partnership equity income		1		8		1		19
Other income (expense), net		5		22		14		54

9

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. Fair Value

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

• Level 1 – Quoted prices for identical instruments in active markets.

• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Lorillard is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. Lorillard performs due diligence to understand the inputs used or how the data was calculated or derived, and corroborates the reasonableness of external inputs in the valuation process.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

June 30, 2008	Level 1		Level 2		Level 3		Total
(In millions)
Assets:
Cash and cash equivalents	$	1,158	$	—	$	—	$	1,158

The following section describes the valuation methodologies used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instrument is generally classified.

Cash and Cash Equivalents

The valuation of securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills.

10

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. Earnings Per Share

Basic and diluted earnings per share (“EPS”) were calculated using the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
(In millions)
Net Earnings	$	217	$	239	$	391	$	441
Weighted Average Shares Outstanding for Basic and Diluted		173.92		173.92		173.92		173.92

For the three and six months ended June 30, 2008 and 2007 earnings per share assuming dilution were the same as basic earnings per share because there were no instruments issued that could potentially dilute basic earnings per share for the periods presented.

As discussed in Note 1, Basis of Presentation, Loews distributed its interest in the Company to holders of Loews’ Carolina Group Stock and Loews’ Common Stock in a series of transactions which were completed on June 10, 2008 and June 16, 2008, respectively. The Company had 173,923,429 shares outstanding as of the completion of the separation from Loews. All prior period EPS amounts were adjusted to reflect the new capital structure of the Company.

8. Benefit Plans

Lorillard has defined benefit pension, postretirement benefits, profit sharing and savings plans for eligible employees.

Net periodic benefit cost components were as follows:

Pension Benefits	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
(In millions)
Service cost	$	4		$	4		$	8		$	9
Interest cost		14			13			27			26
Expected return on plan assets		(17	)		(17	)		(34	)		(34	)
Amortization of net loss		—			1			—			1
Amortization of prior service cost		1			1			2			2
Net periodic benefit cost	$	2		$	2		$	3		$	4

11

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Other Postretirement Benefits	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
(In millions)
Service cost	$	1	$	1	$	2	$	2
Interest cost		3		3		6		6
Expected return on plan assets
Amortization of net loss		—		—		—		—
Amortization of prior service cost		—		—		—		—
Net periodic benefit cost	$	4	$	4	$	8	$	8

9. Legal Proceedings and Commitments

Commitments

At June 30, 2008, Lorillard had outstanding letters of credit of $2 million. Those letters of credit act as a guarantee of payment to certain third parties in accordance with specific terms and conditions.

Legal Proceedings

Tobacco Related Product Liability Litigation

Approximately 5,875 product liability cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 4,950 of these cases. The Company is a defendant in approximately 1,110 cases. Approximately 2,210 of these lawsuits are Engle Progeny Cases, described below, in which the claims of approximately 8,430 individual plaintiffs are asserted.

The pending product liability cases are composed of the following types of cases:

“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. Approximately 175 cases are pending, including approximately 45 cases against Lorillard Tobacco. The Company is a defendant in five cases.

“Engle Progeny cases” are brought by individuals who were members of a decertified class. These cases are pending in a number of Florida courts. Lorillard Tobacco is a defendant in approximately 2,210 Engle Progeny cases. The Company is a defendant in approximately 1,100 cases. Lorillard Tobacco is a party to each of the Engle Progeny cases in which the Company is named as a defendant. Many of the cases have been filed on behalf of multiple class members, and approximately 8,430 individual smokers are asserting claims in the pending cases.

“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 55 of the 730 pending cases that are part of this proceeding. The Company is not a defendant in any of these cases. The court has stayed activity in the proceeding, including the start of trial, until the U.S. Supreme Court resolves a petition in an unrelated case in which Lorillard Tobacco is not a defendant.

“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 2,625 pending Flight Attendant cases. The Company 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.

12

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

“Class action cases” are purported to be brought on behalf of large numbers of individuals for damages allegedly caused by smoking. Seven of these cases are pending against Lorillard Tobacco. The Company is a defendant in two of these seven cases. The only one of the Class Action cases pending against Lorillard Tobacco to assert claims on behalf of purchasers of “light” cigarettes, Schwab v. Philip Morris USA, Inc., et al., was the subject of a 2008 ruling by a federal appellate court that overturned an order that certified a nationwide class action composed of purchasers of “light” cigarettes. The Company is not a defendant in this case. Neither the Company nor Lorillard Tobacco are defendants in approximately 25 additional “lights” class actions that are pending against other cigarette manufacturers.

“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. The Company is a defendant in two of the cases pending in the United States.

Included in this category is the suit filed by the federal government, United States of America v. Philip Morris USA, Inc., et al., that sought disgorgement of profits and injunctive relief. During 2005, an appellate court ruled that the government may not seek disgorgement of profits. During August of 2006, the trial court issued its verdict and granted injunctive relief. The verdict did not award monetary damages. See “REIMBURSEMENT CASES” below.

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 is a defendant in 26 Filter cases. Lorillard Tobacco is a defendant in 24 such cases. The Company is a defendant in four Filter cases, including two of which also name Lorillard Tobacco.

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.

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.

CONVENTIONAL PRODUCT LIABILITY CASES - Approximately 175 cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 45 of these cases. The Company is a defendant in five of the pending cases. Lorillard Tobacco is a party to each of the cases in which the Company is a defendant.

Since January 1, 2006, verdicts have been returned in five cases. Neither the Company nor Lorillard Tobacco were defendants in any of these trials. Defense verdicts were returned in four of the five trials, while juries found in favor of the plaintiffs and awarded damages in the remaining case. The defendants are pursuing an appeal in this matter. 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 nine individual cases in recent years. Punitive damages were paid to the smokers in three of the nine cases. Neither the Company nor Lorillard Tobacco were parties to these nine matters.

13

LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

None of the cases in which the Company or Lorillard Tobacco are defendants are scheduled for trial in 2008. The trial dates are subject to change.

ENGLE PROGENY CASES - Plaintiffs are individuals who allege they or their decedents are members of the class that was decertified in Engle, a class action case. The 2006 ruling by the Florida Supreme Court that ordered decertification of the class also permitted 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 Engle trial.

As of August 1, 2008, Lorillard Tobacco was a defendant in approximately 2,210 cases filed by individuals who allege they were members of the Engle class. The Company is a defendant in approximately 1,100 of the pending cases. Lorillard Tobacco is a party to each of the cases in which the Company is a defendant. Some of the suits are on behalf of multiple class members, and approximately 8,430 class members are asserting claims in these 2,210 cases. These cases are pending in various state and federal courts in Florida. As of August 1, 2008, four Engle Progeny cases in which Lorillard Tobacco or the Company are defendants are set for trial in 2008. Trial dates are subject to change.

WEST VIRGINIA INDIVIDUAL PERSONAL INJURY CASES - Approximately 730 cases are pending in a single West Virginia court in a consolidated proceeding known as West Virginia Individual Personal Injury Cases. The cases have been consolidated for trial. The court has stayed activity in the proceeding until a petition pending before the U.S. Supreme Court in an unrelated case is resolved. Lorillard Tobacco is not a defendant in the matter in question that is pending before the U.S. Supreme Court. Lorillard Tobacco is a defendant in approximately 55 of the 730 cases. The Company is not a defendant in any of these cases.

During the third quarter of 2006 and the fourth quarter of 2007, Lorillard Tobacco was dismissed from approximately 825 of the cases because those plaintiffs had not submitted evidence that they had smoked a Lorillard Tobacco product. These dismissals are not final and it is possible some or all of these dismissals could be contested in subsequent appeals noticed by the plaintiffs.

FLIGHT ATTENDANT CASES - Approximately 2,625 Flight Attendant cases are pending. Lorillard Tobacco and three other cigarette manufacturers are the defendants in each of these matters. The Company 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 Broin v. Philip Morris Companies, Inc., et al. (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 judges that have presided over the cases that have been tried have relied upon an order entered during October of 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.

Lorillard Tobacco has been 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 the single trial decided for the plaintiff, French v. Philip Morris Incorporated, et al., 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. The court has ruled that Lorillard Tobacco will be required to pay approximately $290,000 in pre-judgment interest on the award of attorneys’ fees Lorillard Tobacco previously paid in this matter. Pursuant to an agreement with the other defendants’ in this matter, Lorillard Tobacco expects that it will be reimbursed for approximately $190,000 of this amount should such award be sustained. Lorillard Tobacco has noticed an appeal from the order requiring it to pay post-judgment interest. 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.

None of the flight attendant cases are scheduled for trial. Trial dates are subject to change.

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CLASS ACTION CASES - Lorillard Tobacco is a defendant in seven pending cases. The Company is a defendant in two of these cases. Lorillard Tobacco is a party to both of the cases in which the Company is a defendant. 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. Cigarette manufacturers are defendants in another group of approximately 25 cases in which plaintiffs have asserted claims on behalf of smokers or purchasers of “light” cigarettes. Lorillard Tobacco is a defendant in one of these cases, Schwab v. Philip Morris USA, Inc., et al. During 2008, a federal appellate court issued a ruling that overturned an order that certified Schwab as a nationwide class action. The case has been returned to the trial court for further proceedings, and future activity in this matter, if any, cannot be predicted. The Company is not a defendant in any of the purported class actions filed on behalf of purchasers of “lights” cigarettes.

Cigarette manufacturers, including the Company and Lorillard Tobacco, 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 the Company nor Lorillard Tobacco were parties. In some of these cases, courts have denied class certification to the plaintiffs, while classes have been certified in other matters.

The Scott case - One of the class actions pending against Lorillard Tobacco is Scott v. The American Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May 24, 1996). During 1997, the court certified a class composed 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. The Company is no longer a party to Scott.

Trial in Scott was heard in two phases. In its July 2003 Phase I verdict, 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 state-wide smoking cessation program.

During May of 2004, the jury awarded approximately $591 million to fund cessation programs for Louisiana smokers. The court subsequently awarded prejudgment interest. During February 2007, the Louisiana Court of Appeal reduced the amount of the award by approximately $328 million; struck the 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. During January 2008, the Louisiana Supreme Court denied plaintiffs’ and defendants’ separate petitions for review. During May of 2008, the U.S. Supreme Court denied defendants’ request that it review the case.

During July 2008, the District Court of Orleans Parish, Louisiana, entered an amended final judgment that orders defendants to pay approximately $264 million to fund a court-supervised cessation program for class members. The amended 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 August 1, 2008, judicial interest totaled approximately $82 million. The deadline for defendants to seek appellate review of the amended judgment has not expired.

Lorillard Tobacco’s share of any judgment, including an award of post-judgment interest, has not been determined. In the fourth quarter of 2007, Lorillard Tobacco 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.

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. The trial court entered an order setting the amount of the bond at $50 million for all defendants. Defendants collectively posted a surety bond in that amount, of which Lorillard Tobacco secured 25%, or $13 million. While Lorillard Tobacco believes the limitation on the appeal bond amount is valid as required by

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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.

The Engle Case - The case of Engle v. R.J. Reynolds Tobacco Co., et al. (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. During July 2008, plaintiff voluntarily dismissed the case and Engle is no longer pending.

The Florida Supreme Court’s 2006 decision reinstated awards of actual damages to two of the three individuals whose claims were heard during the second phase of the Engle trial. These awards totaled approximately $2.8 million to one smoker and $4 million to the second, and bear interest at the rate of 10.0% per year. These verdicts were paid during February 2008. Lorillard Tobacco’s payment was approximately $3 million for the verdicts and the interest that accrued since November 2000.

The Engle Agreement: Florida enacted legislation during the Engle trial that limited the amount of an appellate bond required to be posted in order to stay execution of a judgment for punitive damages in a certified class action. While Lorillard Tobacco believes this legislation was valid and that any challenges to the possible application or constitutionality of this legislation by the Engle class would fail, Lorillard Tobacco entered into an agreement with the plaintiffs during May 2001 in which it contributed $200 million to a fund held for the benefit of the Engle class members (the “Engle Agreement”). As a result, the class agreed to a stay of execution with respect to Lorillard Tobacco on its punitive damages judgment until appellate review was completed, including any review by the U.S. Supreme Court. Final appellate review was completed in November 2007. The $200 million is being maintained for the benefit of the members of the Engle class, with the court to determine how that fund will be allocated consistent with state rules of procedure. The Engle Agreement contained certain additional restrictions that no longer remain in force now that final appellate review has been completed.

Other class action cases - Motions for class certification were granted in two other cases against Lorillard Tobacco. In one of them, Brown v. The American Tobacco Company, Inc., et al. (Superior Court, San Diego County, California, filed June 10, 1997), a California court granted defendants’ motion to decertify the class. The class decertification order has been affirmed on appeal, but the California Supreme Court has agreed to hear the case. The class originally certified in Brown 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. It is possible that the class certification ruling could be reinstated as a result of the pending appeal. The second case, Daniels v. Philip Morris, Incorporated, et al. (Superior Court, San Diego County, California, filed August 2, 1998), has been dismissed in favor of the defendants. During 2002, the court granted defendants’ motion for summary judgment and dismissed the case. The California Court of Appeal and the California Supreme Court affirmed Daniels’ dismissal, and the U.S. Supreme Court declined to review the case. Prior to granting defendants’ motion for summary judgment, the court had certified a class composed of California residents who, while minors, smoked at least one cigarette between April of 1994 and December 31, 1999 and were exposed to defendants’ marketing and advertising activities in California.

“Lights” class actions - As discussed above, other cigarette manufacturers are defendants in approximately 25 cases in which plaintiffs’ claims are based on the allegedly fraudulent marketing of “lights” or “ultra-lights” cigarettes. Classes have been certified in some of these matters. In one of the pending “lights” cases, Good v. Altria Group, Inc., et al., the U.S. Supreme Court is considering whether federal law bars plaintiffs from challenging statements authorized by the Federal Trade Commission about tar and nicotine yields that have been made in cigarette advertisements. Lorillard Tobacco is a defendant in one purported “lights” class action, Schwab v. Philip Morris USA, Inc., et al. The Company is not a party to any of the purported “lights” class actions.

The Schwab case - In the case of Schwab v. Philip Morris USA, Inc., et al. (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

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sale of “lights” 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. During September 2006, the court granted plaintiffs’ motion for class certification and certified a nationwide class action on behalf of purchasers of “light” cigarettes. During 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. Schwab 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. The Company is not a party to this case.

REIMBURSEMENT CASES - 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 the case in Israel. The Company is a defendant in two of the cases pending in the U.S. Plaintiffs in the case in Israel have attempted to assert claims against the Company. Lorillard Tobacco is a party to each of the cases in which the Company is a defendant.

U.S. Federal Government Action - During 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 (United States of America v. Philip Morris USA, Inc., et al., 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. The Company is not a party to this case.

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. Defendants have appealed to the U.S. Court of Appeals for the District of Columbia Circuit which has stayed the judgment and remedial order while the appeal is proceeding. The government also has noticed an appeal from the final judgment. The Court of Appeals is scheduled to hear oral argument of the consolidated appeal during October 2008. While trial was underway, the District of Columbia Court of Appeals ruled that plaintiff may not seek return of profits, but this appeal was interlocutory in nature and could be reconsidered in the present appeal. Prior to trial, the government had estimated that it was entitled to approximately $280 billion from the defendants for its return of profits claim. In addition, the government sought during trial more than $10 billion for the creation of nationwide smoking cessation, public education and counter-marketing programs. In its 2006 verdict, the trial court declined to award such relief. It is possible that these claims could be reinstated on appeal.

SETTLEMENT OF STATE REIMBURSEMENT LITIGATION - 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 a 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 Master Settlement Agreement are generally referred to as the “State Settlement Agreements.”

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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.

Lorillard recorded pretax charges for its obligations under the State Settlement Agreements of $293 million and $275 million ($178 million and $172 million after taxes) and $550 million and $524 million ($340 million and $330 million after taxes) for the three and six months ended June 30, 2008 and 2007, 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.

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.

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.

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 that agreement on certain grounds, including as a violation of the antitrust laws. Lorillard Tobacco is a defendant in one such case, which has been dismissed by the trial court but has been appealed by the plaintiffs. Lorillard Tobacco understands that additional such cases are proceeding against other defendants.

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. In 2005 other litigation was resolved over the Trust’s obligation to return payments made by the Original Participating Manufacturers in 2004 or withheld from payment to the Trust for the fourth quarter of 2004, when the North Carolina Supreme Court ruled that such payments were due to the Trust. Lorillard’s share of payments into the Trust in 2004 was approximately $30 million and its share of the payment due for the last quarter of that year was approximately $10 million. 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.

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 U.S. 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.

FILTER CASES - In addition to the above, claims have been brought against the Company and Lorillard Tobacco 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. Approximately 26 such

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matters are pending against Lorillard. The Company is a defendant in four Filter cases, including two in which Lorillard Tobacco is also named. Lorillard Tobacco is named in 24 Filter cases. Since January 1, 2006, the Company and Lorillard Tobacco have paid, or have reached agreement to pay, a total of approximately $12.8 million in payments of judgments and settlements to finally resolve approximately 60 claims. No such cases have been tried since January 1, 2006. Trial dates are scheduled in two of the pending cases. Trial dates are subject to change.

Tobacco – Related Antitrust Cases

Indirect Purchaser Suits - Approximately 30 antitrust suits were filed in 2000 and 2001 on behalf of putative classes of consumers in various state courts against Lorillard Tobacco and its major competitors. 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 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, also were voluntarily dismissed.

In the Kansas case, the District Court of Seward County certified a class of Kansas indirect purchasers in 2002. On July 14, 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. On October 29, 2007 the Court denied all of the defendants’ privilege claims, and the Kansas Supreme Court thereafter denied a petition seeking to overturn that ruling. Additional expert discovery, as approved by the Court, will take place later this year and in 2009. No date has been set by the Court for dispositive motions and trial.

A decision granting class certification in New Mexico was affirmed by the New Mexico Court of Appeals on February 8, 2005. As ordered by the Court, class notice was sent out on October 30, 2005. The New Mexico plaintiffs were permitted to rely on discovery produced in the Kansas case. On June 30, 2006, the New Mexico Court granted summary judgment to all defendants, and the suit was dismissed. An appeal was filed by the plaintiffs on August 14, 2006, and has not yet been heard.

MSA Federal Antitrust Suit - Sanders v. Lockyer, et al. (U.S. District Court, Northern District of California, filed June 9, 2004). Lorillard Tobacco and the other major cigarette manufacturers, along with the Attorney General of the State of California, were sued by a consumer purchaser of cigarettes in a putative class action alleging violations of the Sherman Act and California state antitrust and unfair competition laws. The plaintiff sought treble damages of an unstated amount for the putative class as well as declaratory and injunctive relief. All claims were based on the assertion that the Master Settlement Agreement that Lorillard Tobacco and the other cigarette manufacturer defendants entered into with the State of California and more than forty other states, together with certain implementing legislation enacted by California, constituted unlawful restraints of trade. On March 28, 2005 the defendants’ motion to dismiss the suit was granted. Plaintiffs appealed the dismissal to the Court of Appeals for the Ninth Circuit. Argument was heard on February 15, 2007, and the Court of Appeals issued an opinion on September 26, 2007 affirming dismissal of the suit. Plaintiffs filed a petition seeking certiorari from the U.S. Supreme Court, which was denied on May 12, 2008, ending this suit.

Defenses

Each of the Company and Lorillard Tobacco believe that it has valid defenses to the cases pending against it. The Company and Lorillard Tobacco also believe they have valid bases for appeal should any adverse verdicts be returned against either of them. The Company is a defendant in 1,110 pending product liability cases. Lorillard Tobacco also is a defendant in each of these cases. While the Company and Lorillard Tobacco 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 the Company, Lorillard Tobacco or the other defendants. The Company and Lorillard Tobacco may enter into discussions in an attempt to settle particular cases if either believe it is appropriate to do so.

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Neither the Company nor Lorillard Tobacco 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 United States of America v. Philip Morris USA, Inc., et al., 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. This could have an adverse affect on the ability of the Company or Lorillard Tobacco to prevail in smoking and health litigation and could influence the filing of new suits against the Company or Lorillard Tobacco. The Company and Lorillard Tobacco 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.

Except for the impact of the State Settlement Agreements and Scott 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 Condensed 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.

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OTHER LITIGATION

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.

10. Subsequent Events

On July 9, 2008, Lorillard announced that its Board of Directors had approved a share repurchase program, authorizing the Company to repurchase in the aggregate up to $400 million of its outstanding common stock. Purchases by the Company under this program may be made from time to time at prevailing market prices in open market purchases, privately negotiated transactions, block purchase techniques or otherwise, as determined by the Company’s management. The purchases will be funded from existing cash balances.

This program does not obligate the Company to acquire any particular amount of common stock. The timing, frequency and amount of repurchase activity will depend on a variety of factors such as levels of cash generation from operations, cash requirements for investment in the Company’s business, current stock price, market conditions and other factors. The share repurchase program may be suspended, modified or discontinued at any time and has no set expiration date.

During July 2008, the District Court of Orleans Parish, Louisiana, entered an amended final judgment in the Scott case that orders defendants to pay approximately $264 million to fund a court-supervised cessation program for class members. The amended judgment also awards post-judgment judicial interest from June 2004 that will continue to accrue until the judgment either is paid or is reversed on appeal. As of August 1, 2008, judicial interest totaled approximately $82 million. The deadline for defendants to seek appellate review of the amended judgment has not expired.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our historical consolidated financial statements and the notes related to those financial statements included in this Quarterly Report in Form 10-Q. In addition to historical information, the following discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The terms “Lorillard,” “we,” “our” and “us” refer to Lorillard, Inc. and its consolidated subsidiaries. We use the terms “the Company” and “Lorillard Tobacco” when we wish to refer only to Lorillard, Inc. or Lorillard Tobacco Company, respectively.

Overview

We are the third largest manufacturer of cigarettes in the United States. We were founded in 1760 and are the oldest continuously operating tobacco company in the United States. Newport, which is our flagship brand, is a menthol flavored premium cigarette brand and the top selling menthol and second largest selling cigarette brand overall in the United States based on gross units sold in the first six months of 2008 and in the full year 2007. In addition to the Newport brand, our product line has five additional brand families marketed under the Kent, True, Maverick, Old Gold and Max brand names. These six brands include 44 different product offerings which vary in price, taste, flavor, length and packaging. In the United States and certain U.S. possessions and territories, we shipped 18.2 billion cigarettes in the first six months of 2008 and 36.6 billion cigarettes for full year 2007. Our major trademarks outside of the United States were sold in 1977. We manufacture all of our products at our Greensboro, North Carolina facility.

Critical Accounting Policies and Estimates

For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Lorillard’s Financial Condition and Results of Operations” included in our Information Statement/Prospectus filed with the Securities and Exchange Commission on May 9, 2008.

Business Environment

Participants in the U.S. tobacco industry, including us, face a number of issues that have adversely affected their results of operations and financial condition in the past and will continue to do so, including:

• A substantial volume of litigation seeking compensatory and punitive damages ranging into the billions of dollars, as well as equitable and injunctive relief, arising out of allegations of cancer and other health effects resulting from the use of cigarettes, addiction to smoking or exposure to environmental tobacco smoke, including claims for economic damages relating to alleged misrepresentation concerning the use of descriptors such as “lights,” as well as other alleged damages.

• Substantial annual payments continuing in perpetuity, and significant restrictions on marketing and advertising have been agreed to and are required under the terms of certain settlement agreements, including the Master Settlement Agreement among major tobacco manufacturers and 46 states and various other governments and jurisdictions (the “MSA”) that we

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entered into in 1998 along with Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the “Original Participating Manufacturers”) to settle asserted and unasserted health care cost recovery and other claims. We and certain other U.S. tobacco product manufacturers previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota (the “Initial State Settlements,” and together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements impose a stream of future payment obligations on us and the other major U.S. cigarette manufacturers and place significant restrictions on their ability to market and sell cigarettes.

• The continuing contraction of the domestic cigarette market, in which we currently conduct our only significant business. As a result of price increases, restrictions on advertising, promotions and smoking in public and private facilities, increases in regulation and excise taxes, health concerns, a decline in the social acceptability of smoking, increased pressure from anti-tobacco groups and other factors, domestic cigarette shipments have decreased at a compound rate of approximately 2.3% from the twelve months ended June 30, 1999 through the twelve months ended June 30, 2008.

• Increases in cigarette prices since 1998 have led to an increase in the volume of discount and, specifically, deep discount cigarettes. Cigarette price increases have been driven by increases in state and local excise taxes and by manufacturer price increases. Price increases have led, and continue to lead, to high levels of discounting and other promotional activities for premium brands. Deep discount brands have grown from an estimated share in 1998 of less than 1.5% to an estimated 12.9% for the six months ended June 30, 2008, and continue to be a significant competitive factor in the domestic market. We do not have sufficient empirical data to determine whether the increased price of cigarettes has deterred consumers from starting to smoke or encouraged them to quit smoking, but it is likely that increased prices may have had an adverse effect on consumption and may continue to do so.

• Substantial and increasing regulation of the tobacco industry. A bill was introduced in February 2007 in the U.S. Congress to grant the FDA authority to regulate tobacco products. The bill has been considered and approved by Congressional committees in both houses of Congress during 2007 and 2008 and was approved by the House of Representatives on July 30, 2008. It is possible that the Senate will consider and approve a version of the bill later in 2008. We believe that the FDA could promulgate regulations, if the bill is enacted into law, that could among other things result in a ban on or restrict the use of menthol in cigarettes. The bill would impose new restrictions on the manner in which cigarettes can be advertised and marketed, require larger and more severe health warnings on cigarette packaging, restrict the level of tar and nicotine contained in or yielded by cigarettes and may alter the way cigarette products are developed and manufactured. We also believe that any such proposals, if enacted, would provide our larger competitors with a competitive advantage.

• Substantial federal, state and local excise taxes which are reflected in the retail price of cigarettes. For the six months ended June 30, 2008, the federal excise tax was $0.39 per pack and combined state and local excise taxes ranged from $0.07 to $4.25 per pack. For the six months ended June 30, 2008, excise tax increases ranging from $1.00 to $1.25 per pack were implemented in four states. Increases in state excise taxes on cigarette sales were enacted in ten states during 2007 and ranged from $0.20 per pack to $1.00 per pack. One measure passed by Congress in September 2007 would have increased the federal excise tax on cigarettes by $0.61 per pack to finance health insurance for children. While this bill was vetoed by the President, it is possible that similar bills or other proposals containing a federal excise tax increase may be considered by Congress in the future. We believe that increases in excise and similar taxes have had an adverse impact on sales of cigarettes and that future increases, the extent of which cannot be predicted, could result in further volume declines for the cigarette industry, including us, and an increased sales shift toward deep discount cigarettes rather than premium brands. In addition, we and other cigarette manufacturers and importers are required to pay an assessment under a federal law designed to fund payments to tobacco quota holders and growers.

• Continuing and substantial restrictions on smoking. Over the last decade, states and many local and municipal governments and agencies, as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict or discourage smoking, including legislation, regulations or policies prohibiting or restricting smoking in public buildings and

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facilities, stores, restaurants and bars, on airline flights and in the workplace. Other similar laws and regulations are currently under consideration and may be enacted by state and local governments in the future. It is likely that such smoking restrictions may have had an adverse effect on consumption and may continue to do so.

The domestic market for cigarettes is highly competitive. Competition is primarily based on a brand’s price, including the level of discounting and other promotional activities, positioning, consumer loyalty, retail display, quality and taste. Lorillard Tobacco’s principal competitors are the two other major U.S. cigarette manufacturers, Philip Morris USA (“Philip Morris”) and Reynolds American, Inc. (“RAI”). Lorillard Tobacco also compete with numerous other smaller manufacturers and importers of cigarettes, including deep discount cigarette manufacturers. Lorillard Tobacco believes its ability to compete even more effectively has been restrained in some marketing areas as a result of retail merchandising contracts offered by Philip Morris and RAI which limit the retail shelf space available to its brands. As a result, in some retail locations Lorillard Tobacco is limited in competitively supporting its promotional programs, which may constrain sales.

The following table presents Lorillard Tobacco’s selected industry and market share data for the three and six months ended June 30, 2008 and 2007:

Selected Industry and Market Share Data (1)

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
(Units in billions)
Lorillard Tobacco total domestic unit volume	9.464		9.473		17.879		17.861
Industry total domestic unit volume	89.671		92.652		170.059		175.811
Lorillard Tobacco share of the domestic market	10.6	%	10.2	%	10.5	%	10.2	%
Lorillard Tobacco premium segment as a percentage of its total domestic volume	92.9	%	94.7	%	93.1	%	94.8	%
Lorillard Tobacco share of the premium segment	13.5	%	13.1	%	13.4	%	13.1	%
Newport share of the domestic market	9.6	%	9.4	%	9.5	%	9.4	%
Newport share of the premium segment	13.2	%	12.8	%	13.1	%	12.7	%
Total menthol segment market share for the industry	28.4	%	28.0	%	28.4	%	28.2	%
Total discount segment market share for the industry	27.2	%	26.3	%	27.1	%	26.6	%
Newport’s share of the menthol segment	33.7	%	33.5	%	33.6	%	33.2	%
Newport’s share of Lorillard Tobacco’s total volume (2)	90.9	%	92.2	%	91.0	%	92.3	%
Newport’s share of Lorillard Tobacco’s net sales (2)	94.0	%	93.9	%	94.0	%	93.9	%

(1) Market share data is based on data made available by Management Science Associates, Inc. (“MSAI”), an independent third-party database management organization that collects wholesale shipment data from various cigarette manufacturers. MSAI divides the cigarette market into two price segments, the premium price segment and the discount or reduced price segment. MSAI’s information relating to unit sales volume and market share of certain of the smaller, primarily deep discount, cigarette manufacturers is based on estimates derived by MSAI. Management believes that volume and market share information for deep discount manufacturers may be understated and, correspondingly, market share information for the larger manufacturers, including Lorillard Tobacco, may be overstated by MSAI.

(2) Source: Lorillard Tobacco shipment reports.

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Result of Operations

Three and Six Months ended June 30, 2008 Compared to the Three and Six Months ended June 30, 2007

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	(In millions)				(In millions)
Net sales (including excise taxes of $184, $180, $347 and $342 respectively)	$	1,070	$	1,056	$	1,991	$	1,969
Cost of sales		627		614		1,181		1,158
Gross profit		443		442		810		811
Selling, general and administrative		91		83		191		165
Operating income		352		359		619		646
Other income (expense), net		5		22		14		54
Income before income taxes		357		381		633		700
Income taxes		140		142		242		259
Net income	$	217	$	239	$	391	$	441

Three Months ended June 30, 2008 Compared to Three Months ended June 30, 2007

Net sales. Net sales increased by $14 million, or 1.3%, from $1,056 million for the three months ended June 30, 2007 to $1,070 million for the three months ended June 30, 2008. Net sales increased $55 million due to higher average unit prices reflecting price increases in September 2007 and May 2008 and higher net unit sales volume after adjusting for the impact of additional units shipped in 2007 as part of a free product promotion, partially offset by $41 million due to higher sales incentives. Federal excise taxes are included in net sales and have remained constant at $19.50 per thousand units, or $0.39 per pack of 20 cigarettes, since January 1, 2002.

Lorillard Tobacco’s total unit volume decreased 0.2% and domestic unit volume decreased 0.1%, during the three months ended June 30, 2008 compared to the corresponding period of 2007. Unit volume figures in this section are provided on a gross basis. Total and domestic Newport unit volume decreased 1.6% and 1.5%, respectively, during the three months ended June 30, 2008 compared to the corresponding period of 2007. Industry-wide domestic unit volume decreased 3.2% during the three months ended June 30, 2008 compared to the corresponding period of 2007. Industry shipments of premium brands comprised 72.8% of industry-wide domestic unit volume during the three months ended June 30, 2008 and 73.7% in the corresponding period of 2007.

Cost of sales. Cost of sales increased by $13 million, or 2.1%, from $614 million for the three months ended June 30, 2007 to $627 million for the three months ended June 30, 2008. The increase in cost of sales is primarily attributed to higher expenses related to the State Settlement Agreements. We recorded charges for Lorillard Tobacco’s obligations under the State Settlement Agreements of $293 million and $275 million for the three months ended June 30, 2008 and 2007, respectively, an increase of $18 million. The $18 million increase is due to the impact of the inflation adjustment ($11 million) and other adjustments ($8 million), partially offset by lower volume ($1 million) under the State Settlement Agreements. Promotional product expenses decreased $16 million and were partially offset by increases of approximately $11 million in manufacturing costs, depreciation, research and development, property taxes and higher returned goods.

Selling, general and administrative. Selling, general and administrative expenses increased $8 million, or 9.6%, from $83 million for the three months ended June 30, 2007 to $91 million for the three months ended June 30, 2008. The increase includes costs related to the separation from Loews Corporation (“Loews”) of $5 million for financial and legal fees associated with the transaction. In addition, our outside legal fees and other external product liability defense costs were $23 million and $19 million, for the three months ended June 30, 2008 and 2007, respectively. The $4 million increase is primarily due to increased legal fees related to Engle Progeny case filings and legal fees related to a claim by Lorillard Tobacco that it is entitled to reduce its MSA payments based on a loss of market share to nonparticipating manufacturers.

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Other income (expense), net. Other income (expense), net decreased $17 million, or 77.3%, from $22 million for the three months ended June 30, 2007 to $5 million for the three months ended June 30, 2008. Other income (expense), net includes $8 million from equity in the earnings of limited partnership investments for the three months ended June 30, 2007. Investments in limited partnerships were substantially reduced during the first quarter of 2008. The remaining decrease in other income (expense), net reflects lower interest rates and a lower average invested asset balance for the three months ended June 30, 2008 compared to 2007.

Income taxes. Income taxes decreased by $2 million, or 1%, from $142 million for the three months ended June 30, 2007 to $140 million for the three months ended June 30, 2008. The change reflects the decrease in income before income taxes of $24 million in 2008, or 6.3%, partially offset by an increase in the effective tax rate from 37.3% in the 2007 second quarter to 39.2% in the 2008 second quarter. This increase in the effective tax rate impacts income tax expense by $7 million, and is the result of the impact of separation from Loews on the availability to us of the manufacturer’s deduction for the pre-separation period and the non-deductibility of certain separation expenses.

Six Months ended June 30, 2008 Compared to Six Months ended June 30, 2007

Net sales. Net sales increased by $22 million, or 1.1%, from $1,969 million for the six months ended June 30, 2007 to $1,991 million for the six months ended June 30, 2008. Net sales increased $65 million due to higher average unit prices reflecting price increases in September 2007 and May 2008 and higher net unit sales volume after adjusting for the impact of additional units shipped in 2007 as part of a free product promotion, partially offset by $43 million due to higher sales incentives. Federal excise taxes are included in net sales and have remained constant at $19.50 per thousand units, or $0.39 per pack of 20 cigarettes, since January 1, 2002.

Lorillard Tobacco’s total unit volume decreased 0.2% and domestic unit volume increased 0.1%, during the six months ended June 30, 2008 compared to the corresponding period of 2007. Unit volume figures in this section are provided on a gross basis. Total and domestic Newport unit volume decreased 1.6% and 1.3%, respectively, during the six months ended June 30, 2008 compared to the corresponding period of 2007. Industry-wide domestic unit volume decreased 3.3% during the six months ended June 30, 2008 compared to the corresponding period of 2007. Industry shipments of premium brands comprised 72.9% of industry-wide domestic unit volume during the six months ended June 30, 2008 and 73.4% in the corresponding period of 2007.

Cost of sales. Cost of sales increased by $23 million, or 2.0%, from $1,158 million for the six months ended June 30, 2007 to $1,181 million for the six months ended June 30, 2008. The increase in cost of sales is primarily attributed to higher expenses related to the State Settlement Agreements. We recorded charges for Lorillard Tobacco’s obligations under the State Settlement Agreements of $550 million and $524 million for the six months ended June 30, 2008 and 2007, respectively, an increase of $26 million. The $26 million increase is due to the impact of the inflation adjustment ($20 million) and other adjustments ($7 million), partially offset by lower volume ($1 million) under the State Settlement Agreements. Promotional product expenses decreased by $21 million and were partially offset by increases of approximately $15 million in manufacturing costs, depreciation, research and development, property taxes and higher returned goods.

Selling, general and administrative. Selling, general and administrative expenses increased $26 million, or 15.8%, from $165 million for the six months ended June 30, 2007 to $191 million for the six months ended June 30, 2008. The increase includes costs related to the separation from Loews of $10 million for a management bonus and $8 million for financial and legal fees associated with the transaction. In addition, our outside legal fees and other external product liability defense costs were $38 million and $28 million, for the six months ended June 30, 2008 and 2007, respectively. The $10 million increase is primarily due to increased legal fees related to Engle Progeny case filings and legal fees related to a claim by Lorillard Tobacco that it is entitled to reduce its MSA payments based on a loss of market share to nonparticipating manufacturers.

Other income (expense), net. Other income (expense), net decreased $40 million, or 74.1%, from $54 million for the six months ended June 30, 2007 to $14 million for the six months ended June 30, 2008. Other income (expense), net includes $19 million from equity in the earnings of limited partnership investments for the six months ended June 30, 2007. Investments in limited partnerships were substantially reduced during the first quarter of 2008. The remaining decrease in other income (expense), net reflects lower interest rates and a lower average invested asset balance for the six months ended June 30, 2008 compared to 2007.

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Income taxes. Income taxes decreased by $17 million, or 6.6 %, from $259 million for the six months ended June 30, 2007 to $242 million for the six months ended June 30, 2008. The change reflects the decrease in income before income taxes of $67 million in 2008, or 9.6%, partially offset by an increase in the effective tax rate from 37.0% for the six months ended June 30, 2007 to 38.2% for the six months ended June 30, 2008. This increase in the effective tax rate impacts income tax expense by $7 million, and is the result of the impact of separation from Loews on the availability to us of the manufacturer’s deduction for the pre-separation period and the non-deductibility of certain separation expenses.

Liquidity and Capital Resources

Our cash and cash equivalents, and investments, net of receivables and payables, totaled $1,223 million and $1,489 million at June 30, 2008 and December 31, 2007, respectively. At June 30, 2008, 94.6% of our cash and investments were invested in short-term securities.

Cash Flows

Cash flow from operating activities. The principal source of liquidity for our business and operating needs is internally generated funds from our operations. We generated net cash flow from operations of $260 million for the six months ended June 30, 2008 compared to $302 million for the six months ended June 30, 2007. The decreased cash flow in 2008 reflects lower net income and higher payments under the State Settlement Agreements, partially offset by timing differences related to cash payments of estimated taxes.

Cash flow from investing activities. Our cash flow from investing activities provided cash of $179 million for the six months ended June 30, 2008 compared to $380 million in the six months ended June 30, 2007. The decrease in cash flow provided by investing activities in 2008 is primarily due to a decrease in the level of investment purchases and sales.

During the first six months of 2008, capital expenditures were $18 million compared to $27 million for the corresponding period of 2007. The expenditures were primarily for the modernization of manufacturing equipment. Our capital expenditures for 2008 are forecast to be between $40 million and $50 million.

Cash flow from financing activities. Our cash flow from operations has exceeded our working capital and capital expenditure requirements during the first six months of 2008. We paid cash dividends to Loews of $291 million and $200 million on January 24, 2008 and April 28, 2008, respectively.

Liquidity

We believe that cash flow from operating activities will be sufficient for the foreseeable future to enable Lorillard Tobacco to meet its obligations under the State Settlement Agreements and to fund our working capital and capital expenditure requirements. We cannot predict our cash requirements related to any future settlements or judgments, including cash required to bond any appeals, if necessary, and can make no assurance that it will be able to meet all of those requirements.

On July 9, 2008, the Company announced that its Board of Directors had approved a share repurchase program, authorizing it to repurchase in the aggregate up to $400 million of its outstanding common stock. Purchases by the Company under this program may be made from time to time at prevailing market prices in open market purchases, privately negotiated transactions, block purchase techniques or otherwise, as determined by its management. The purchases will be funded from existing cash balances.

This program does not obligate the Company to acquire any particular amount of common stock. The timing, frequency and amount of repurchase activity will depend on a variety of factors such as levels of cash generation from operations, cash requirements for investment in our business, current stock price, market conditions and other factors. The share repurchase program may be suspended, modified or discontinued at any time and has no set expiration date.

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Other than commercial obligations incurred in the ordinary course of business, we have no indebtedness for borrowed money. We believe that it would be appropriate for a company of our size and financial characteristics to have a prudent level of debt as a component of its capital structure in order to reduce its total cost of capital and improve total stockholder returns. Accordingly, the Company expects to raise between $750 million and $1.0 billion of debt financing, although the structure, timing and amount of such indebtedness cannot yet be determined and will depend on a number of factors, including, but not limited to, the credit and interest rate environment prevailing at such time, the Company’s cash requirements, the priorities of the Company’s newly appointed Board of Directors and other business, financial and tax considerations. The proceeds of any such debt financing may be used to fund stock repurchases, acquisitions, dividends or for other general corporate purposes. The Company presently has no commitments or agreements with or from any third party regarding any debt financing transaction and no assurance can be given that the Company will ultimately pursue any debt financing or, if pursued, that it will be able to obtain debt financing at the anticipated levels or on attractive terms.

State Settlement Agreements

The State Settlement Agreements require Lorillard Tobacco and the other Original Participating Manufacturers (Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company) to make aggregate annual payments of $9.4 billion, subject to adjustment for several factors described below. In addition, the Original Participating Manufacturers are required to pay plaintiffs’ attorneys’ fees, subject to an aggregate annual cap of $500 million, as well as an additional aggregate amount of up to $125 million in each year through 2008. These payment obligations are several and not joint obligations of each of the Original Participating Manufacturers. Lorillard Tobacco’s obligations under the State Settlement Agreements will materially adversely affect our cash flows and operating income in future years.

Both the aggregate payment obligations of the Original Participating Manufacturers, and Lorillard Tobacco’s payment obligations, individually, under the State Settlement Agreements are subject to adjustment for several factors which include:

• inflation;

• aggregate volume of Original Participating Manufacturers cigarette shipments;

• other Original Participating Manufacturers and Lorillard Tobacco’s market share; and

• aggregate Original Participating Manufacturers operating income, allocated to such manufacturers that have operating income increases.

The inflation adjustment increases payments on a compounded annual basis by the greater of 3.0% or the actual total percentage change in the consumer price index for the preceding year. The inflation adjustment is measured starting with inflation for 1999. The volume adjustment increases or decreases payments based on the increase or decrease in the total number of cigarettes shipped in or to the 50 U.S. states, the District of Columbia and Puerto Rico by the Original Participating Manufacturers during the preceding year compared to the 1997 base year shipments. If volume has increased, the volume adjustment would increase the annual payment by the same percentage as the number of cigarettes shipped exceeds the 1997 base number. If volume has decreased, the volume adjustment would decrease the annual payment by 98.0% of the percentage reduction in volume. In addition, downward adjustments to the annual payments for changes in volume may, subject to specified conditions and exceptions, be reduced in the event of an increase in the Original Participating Manufacturers aggregate operating income from domestic sales of cigarettes over base year levels established in the State Settlement Agreements, adjusted for inflation. Any adjustments resulting from increases in operating income would be allocated among those Original Participating Manufacturers who have had increases.

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In the first six months of 2008, Lorillard Tobacco paid $796 million under the State Settlement Agreements. In addition, in April 2008, Lorillard Tobacco deposited $72 million, in an interest-bearing escrow account in accordance with procedures established in the MSA pending resolution of a claim by Lorillard Tobacco and the other Original Participating Manufacturers that they are entitled to reduce their MSA payments based on a loss of market share to nonparticipating manufacturers. Most of the states that are parties to the MSA are disputing the availability of the reduction and Lorillard Tobacco believes that this dispute will ultimately be resolved by judicial and arbitration proceedings. Lorillard Tobacco’s $72 million reduction is based upon the Original Participating Manufacturers collective loss of market share in 2005. In April of 2007 and 2006, Lorillard Tobacco had previously deposited $111 million and $109 million, respectively, in the same escrow account discussed above, which was based on a loss of market share in 2004 and 2003 to non-participating manufacturers. Lorillard Tobacco and the other Original Participating Manufacturers have the right to claim additional reductions of MSA payments in subsequent years under provisions of the MSA. In addition to the payments made in the first six months of 2008, Lorillard Tobacco anticipates the additional amount payable in 2008 will be approximately $200 million to $225 million, primarily based on 2008 estimated industry volume.

Contractual Cash Payment Obligations

The following chart presents our contractual cash payment obligations as of June 30, 2008.

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	($ in millions)
Contractual obligations	$	313	$	203	$	110	$	—	$	—
Operating lease obligations		5		1		4		—		—
Purchase obligations		66		55		11		—		—
Total	$	384	$	259	$	125	$	—	$	—

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

We invest in financial instruments that involve market risk. Our measure of market risk exposure represents an estimate of the change in fair value of our financial instruments. Market risk exposure is presented below for each class of financial instrument we held at June 30, 2008 and December 31, 2007, assuming immediate adverse market movements of the magnitude described below. We believe that the rate of adverse market movement represents a measure of exposure to loss under hypothetically assumed adverse conditions. The estimated market risk exposure represents the hypothetical loss to future earnings and does not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ. In addition, since our investment portfolio is subject to change based on its portfolio management strategy as well as in response to changes in the market, these estimates are not necessarily indicative of the actual results which may occur. The market risk exposure represents the potential loss in carrying value and pretax impact to future earnings caused by the hypothetical change in price.

Exposure to market risk is managed and monitored by senior management. Senior management approves our overall investment strategy and has the responsibility to ensure that the investment positions are consistent with that strategy with an acceptable level of risk.

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Interest rate risk. Our fixed income investments, which are included in cash and cash equivalents, are exposed to fluctuations in interest rates. Changes in interest rates have historically had a minimal impact on this portfolio.

Equity price risk. From time to time, we have exposure to equity price risk as a result of our investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices which affect the value of equity securities or instruments that derive their value from such securities or indexes. Equity price risk was measured assuming an instantaneous 25% decrease in the underlying reference price or index from its level at June 30, 2008 and December 31, 2007, with all other variables held constant. The fair value and related market risk exposure of Lorillard’s investment in equity based instruments was $49 million and our $12 million at December 31, 2007. At March 31, 2008, we provided notice of liquidation for our investments in limited partnerships, which resulted in no exposure to equity price risk as of such date.

Item 4. Controls and Procedures.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective, in all material respects, to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Except as described below, there have been no material developments in our legal proceedings since those reported in our Information Statement/Prospectus filed with the Securities and Exchange Commission on May 9, 2008.

Item 1A. Risk Factors.

The Company’s Information Statement/Prospectus filed with the Securities and Exchange Commission on May 9, 2008 includes a detailed discussion of certain material risk factors facing our company. The information presented below describes updates and additions to such risk factors and should be read in conjunction with the risk factors and information disclosed in our Information Statement/Prospectus filed with the Securities and Exchange Commission on May 9, 2008.

The following risk factors in the Company’s Information Statement/Prospectus filed with the Securities and Exchange Commission on May 9, 2008, which are included under the heading “Risks Factors Relating to Lorillard” are amended and restated in their entirety as follows:

As of August 1, 2008, Lorillard Tobacco is a defendant in approximately 4,950 tobacco-related lawsuits. As of August 1, 2008, the Company is a defendant in approximately 1,110 tobacco-related lawsuits. These cases, which are extremely costly to defend, could result in substantial judgments against the Company and/or Lorillard Tobacco.

Numerous legal actions, proceedings and claims arising out of the sale, distribution, manufacture, development, advertising, marketing and claimed health effects of cigarettes are pending against the Company and Lorillard Tobacco, and it is likely that similar claims will continue to be filed for the foreseeable future. In addition, several cases have been filed against Lorillard Tobacco and other tobacco companies challenging certain provisions of the Master Settlement Agreement among major tobacco manufacturers and 46 states and various other governments and jurisdictions (the “MSA”) and state statutes promulgated to carry out and enforce the MSA.

Approximately 4,950 tobacco-related cases are pending against Lorillard Tobacco in the United States. The Company is a defendant in approximately 1,110 of these cases. Punitive damages, often in amounts ranging into the billions of dollars, are specifically pleaded in a number of cases in addition to compensatory and other damages. It is possible that the outcome of these cases, individually or in the aggregate, could result in bankruptcy. It is also possible that the Company or Lorillard Tobacco may be unable to post a surety bond in an amount sufficient to stay execution of a judgment in jurisdictions that require such bond pending an appeal on the merits of the case. Even if the Company or Lorillard Tobacco are successful in defending some or all of these actions, these types of cases are very expensive to defend. A material increase in the number of pending claims could significantly increase defense costs and have an adverse effect on the Company’s results of operation and financial condition.

Further, adverse decisions in actions against tobacco companies other than the Company or Lorillard Tobacco could have an adverse impact on the industry, including the Company and Lorillard Tobacco. In several cases in recent years, for example, various courts, including the U.S. Supreme Court, have considered the ratio of awards of actual damages to those of punitive damages. In one such case, Williams v. Philip Morris USA, Inc., plaintiff was awarded approximately $525,000 in compensatory damages and $80 million in punitive damages, a ratio of more than 150:1. The case has been the subject of multiple appellate rulings and is again pending before the U.S. Supreme Court. Neither the Company nor Lorillard Tobacco are parties to Williams. Should appellate courts establish binding precedents regarding these or other issues, the conduct of future trials involving the Company or Lorillard Tobacco would be affected.

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A judgment has been rendered against Lorillard Tobacco in the Scott litigation.

In June 2004, the court entered a final judgment in favor of the plaintiffs in Scott v. The American Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May 24, 1996), a class action on behalf of certain cigarette smokers resident in the State of Louisiana. The jury awarded plaintiffs approximately $591 million to fund cessation programs for Louisiana smokers. The court’s final judgment also reflected its award of prejudgment interest. During February 2007, the Louisiana Court of Appeal issued a ruling that, among other things, reduced the amount of the award by approximately $328 million; struck the award of prejudgment interest, which totaled approximately $440 million as of December 31, 2006; and ruled that the only class members who are eligible to participate in the smoking cessation program are those who began smoking by September 1, 1988, and whose claims accrued by September 1, 1988. Both the Louisiana Supreme Court and the U.S. Supreme Court issued rulings during 2008 that denied review of the case at this stage of the proceedings. During July 2008, the District Court of Orleans Parish, Louisiana, entered an amended final judgment that orders defendants to pay approximately $264 million to fund a court-supervised cessation program for class members. The amended judgment also awards post-judgment judicial interest from June 2004 that will continue to accrue until the judgment either is paid or is reversed on appeal. As of August 1, 2008, judicial interest totaled approximately $82 million. The deadline for defendants to seek appellate review of the amended judgment has not expired.

Lorillard Tobacco’s share of any judgment, including an award of post-judgment interest, has not been determined. In the fourth quarter of 2007, Lorillard Tobacco recorded a pretax provision of approximately $66 million for this matter. The Company is no longer a party to Scott.

The Florida Supreme Court’s ruling in Engle has resulted in additional litigation against cigarette manufacturers, including the Company and Lorillard Tobacco.

The case of Engle v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, 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. The case was tried between 1998-2000 in a multi-phase trial that resulted in verdicts in favor of the class. During 2006, the Florida Supreme Court issued a ruling that, among other things, determined that the case could not proceed further as a class action. During February 2008, the trial court entered an order on remand from the Florida Supreme Court that formally decertified the class.

The 2006 ruling by the Florida Supreme Court in Engle also permits members of the Engle class to file individual claims, including claims for punitive damages. The Florida Supreme Court held that these individual plaintiffs are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. These findings included that smoking cigarettes causes a number of diseases; that cigarettes are addictive or dependence-producing; and that the defendants, including the Company and Lorillard Tobacco, were negligent, breached express and implied warranties, placed cigarettes on the market that were defective and unreasonably dangerous, and concealed or conspired to conceal the risks of smoking. Lorillard Tobacco is a defendant in approximately 2,210 cases pending in various state and federal courts in Florida that were filed by members of the Engle class, which we refer to as the “Engle Progeny” cases. These 2,210 cases are filed on behalf of approximately 8,430 individual plaintiffs. The Company is a defendant in approximately 1,100 of the Engle Progeny cases. Lorillard Tobacco is a co-defendant in each of the cases in which the Company is a party.

Lorillard Tobacco has substantial payment obligations under litigation settlement agreements which will materially adversely affect its cash flows and operating income in future periods.

In 1998, Lorillard Tobacco and the other Original Participating Manufacturers entered into the MSA with 46 states and various other governments and jurisdictions to settle asserted and unasserted health care cost recovery and other claims.

Under the State Settlement Agreements, Lorillard Tobacco paid $945 million in 2007 and is obligated to pay between $1.05 to $1.10 billion in 2008, primarily based on 2007 estimated industry volume. Annual payments under the State Settlement Agreements are required to be paid in perpetuity and are based, among other things, on Lorillard Tobacco’s domestic market share and unit volume of domestic shipments, in the year preceding the year in which payment is due, and, with respect to the Initial State Settlements, in the year in which payment is due.

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Concerns that mentholated cigarettes may pose greater health risks could adversely affect us.

Some plaintiffs and other sources, including public health agencies, have claimed or expressed concerns that mentholated cigarettes may pose grater health risks than non-mentholated cigarettes, including concerns that menthol cigarettes may make it easier to start smoking and harder to quit. For example, the bill passed by the House of Representatives on July 30, 2008 granting the FDA the authority to regulate tobacco products included a provision requiring that the Tobacco Scientific Advisory Committee established in the bill evaluate issues surrounding the use of menthol as a flavoring or ingredient in cigarettes within one year of such Committee’s establishment. The bill as passed by the House would permit the FDA to ban menthol upon a finding that such prohibition would be appropriate for the public health. In the course of consideration of the bill by a committee of the House of Representatives, an, amendment was offered and rejected which would have banned the use of menthol as an ingredient in cigarettes. In June 2008, seven former U.S. health secretaries criticized the bill, which would ban the use of characterizing flavors other than menthol in cigarettes, for exempting menthol from the ban and argued that the menthol exemption discriminates against African American smokers who often prefer menthol cigarettes and have higher rates of some smoking-related diseases. Prior to these developments in 2002, the U.S. Department of Health and Human Services National Institutes of Health Center for Disease Control and Prevention and National Cancer Institute and other public health agencies supported the First Conference on Menthol Cigarettes. The executive summary of the conference proceedings outlined “why it is important to study menthol cigarettes” and included statements that “menthol’s sensation of coolness might result in deeper inhalation” and “could contribute to increased uptake of inhaled tobacco constituents, including nicotine and cancer-causing agents…” In addition, the Center for Disease Control and Prevention has published a pamphlet titled “Pathways to Freedom, Winning the Fight Against Tobacco” that, under the heading “The Dangers of Menthol” states that “menthol can make it easier for a smoker to inhale deeply, which may allow more chemicals to enter the lungs. Menthol in cigarettes does not make smoking safer. In fact, menthol may even make things worse.” Since Lorillard Tobacco is the leading manufacturer of mentholated cigarettes in the United States, Lorillard Tobacco could face increased exposure to tobacco-related litigation. Even if such claims are unsubstantiated, increased concerns about the health impact of mentholated cigarettes could adversely affect Lorillard Tobacco’s sales, including sales of Newport. Any ban or limitation on the use of menthol in cigarettes would adversely affect our results of operation and financial condition.

Sales of cigarettes are subject to substantial federal, state and local excise taxes.

Federal excise taxes were last increased in 2002 from $0.34 per pack to $0.39 per pack. A provision in a bill passed by Congress in 2007 to expand the Children’s Health Insurance Program would have raised the federal excise tax by $0.61 per pack, but that bill was vetoed by President Bush in December 2007 and was not enacted into law. It is expected that an increase in Federal excise taxes may be introduced by Congress again in 2008. State and local excise taxes ranged from $0.07 to $4.25 per pack for the six months ended June 30, 2008. Various states and localities have raised the excise tax on cigarettes substantially in recent years. Increases in state excise taxes on cigarette sales were enacted in ten states during 2007 and ranged from $0.20 per pack to $1.00 per pack. For the six months ended June 30, 2008, excise tax increases ranging from $1.00 to $1.25 per pack were implemented in four states. It is our expectation that several states will propose further increases in 2008 and in subsequent years. We believe that increases in excise and similar taxes have had an adverse impact on sales of cigarettes. In addition, we believe that future increases, the extent of which cannot be predicted, could result in further volume declines for the cigarette industry, including Lorillard Tobacco, and an increased sales shift toward lower priced discount cigarettes rather than premium brands.

Lorillard Tobacco derives most of its revenue from one brand.

Lorillard Tobacco’s largest selling brand, Newport, accounted for approximately 94.0% and 93.9% of its sales revenue for the first six months of 2008 and the full year 2007, respectively. Lorillard Tobacco’s principal strategic plan revolves around the marketing and sales promotion in support of its Newport brand. We cannot ensure that Lorillard Tobacco will continue to successfully implement its strategic plan with respect to Newport or that implementation of such plan will result in the maintenance or growth of the Newport brand.

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Lorillard Tobacco is a defendant in a case that was initially certified as a nationwide class action involving “lights” cigarettes and that could result in a substantial verdict, if the class certification order is reinstated.

Schwab v. Philip Morris USA, Inc., et al. (U.S. District Court, Eastern District, New York, filed May 11, 2004), was certified by a federal judge as a nationwide class action on behalf of individuals who purchased “lights” cigarettes. This ruling was reversed by a federal court of appeals during March of 2008 and plaintiffs have not sought further review of the class certification order. Plaintiffs’ claims in Schwab are based on defendants’ alleged RICO violations in the manufacture, marketing and sale of “lights” cigarettes. The federal court of appeals stayed all activity before the trial court until the appeal was concluded and the case has now been returned to the trial court for further action pursuant to the appeals court’s order.

The proposed regulation of cigarettes by the Food and Drug Administration may adversely affect us.

A bill that would grant the U.S. Food and Drug Administration (“FDA”) authority to regulate tobacco products was introduced in Congress in February 2007. The bill, which is being supported by Philip Morris USA (“Philip Morris”) and opposed by us and Reynolds American Inc. (“RAI”), was approved by the House of Representatives on July 30, 2008. It is possible that the full Senate will consider and approve the bill later in 2008. Attempts have been recently made to amend the bill to ban the use of menthol as an ingredient in cigarettes. Although no amendments restricting the use of menthol were approved by the committees considering the bill, additional attempts to do so may occur during the Senate’s consideration of the bill.

The proposed bill would:

• require a Tobacco Scientific Advisory Committee established by the bill to evaluate issues surrounding the use of menthol in cigarettes within one year of its establishment;

• require larger and more severe health warnings on packs and cartons;

• ban the use of descriptors on tobacco products, such as “low-tar” and “light”;

• require the disclosure of ingredients and additives to consumers;

• require pre-market approval by the FDA for claims made with respect to reduced risk or reduced exposure products;

• require the reduction or elimination of nicotine or any other compound in cigarettes;

• allow the FDA to mandate the use of reduced risk technologies in conventional cigarettes;

• allow the FDA to place more severe restrictions on the advertising, marketing and sales of cigarettes;

• permit inconsistent state regulation of labeling and advertising and eliminate the existing federal preemption of such regulation; and

• grant the FDA the regulatory authority to consider and impose broad additional restrictions through a rule making process, including a ban on the use of menthol in cigarettes.

It is possible that such additional regulation could result in a decrease in cigarette sales in the United States (including sales of Lorillard Tobacco’s brands) and increased costs to Lorillard Tobacco which may have a material adverse effect on our financial condition, results of operations, and cash flows. We believe that such regulation may adversely affect Lorillard Tobacco’s ability to compete against its larger competitors, including Philip Morris, who may be able to more quickly and cost-effectively comply with these new rules and regulations.

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Lorillard Tobacco may not be able to develop, produce or commercialize competitive new products and technologies required by regulatory changes or changes in consumer preferences.

Consumer health concerns and changes in regulations are likely to require Lorillard Tobacco to introduce new products or make substantial changes to existing products. For example, 37 states have enacted legislation requiring cigarette manufacturers to reduce the ignition propensity of their products. We believe that there may be increasing pressure from public health authorities to develop a conventional cigarette or an alternative cigarette that provides a demonstrable reduced risk of adverse health effects. Lorillard Tobacco may not be able to develop a reduced risk product that is acceptable to consumers. In addition, the costs associated with developing any such new products and technologies could be substantial.

Increased restrictions on smoking in public places could adversely affect Lorillard Tobacco’s sales volume, revenue and profitability.

Since 1994, all of the states and many local and municipal governments and agencies, as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict, or discourage smoking, including legislation, regulations or policies prohibiting or restricting smoking in public buildings and facilities, stores, restaurants and bars, on airline flights and in the workplace. Other similar laws and regulations are currently under consideration and may be enacted by state and local governments in the future. Although we have no empirical evidence of the effect of such restrictions, we believe that restrictions on smoking in public places may lead to a decrease in the number of people who smoke or a decrease in the number of cigarettes smoked by smokers. Increased restrictions on smoking in public places may have decreased and may continue to decrease the volume of cigarettes that would otherwise be sold by Lorillard Tobacco absent such restrictions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submissions of Matters to a Vote of Security Holders

On May 8, 2008, Loews Corporation, as the Company’s sole stockholder, adopted a written consent in lieu of a meeting of approving:

• Certificate of Amendment to the Certification of Incorporation; and

• our 2008 Incentive Compensation Plan.

On June 6, 2008, Loews Corporation, as the Company’s sole stockholder, adopted a written consent in lieu of a meeting of approving our Amended and Restated Certificate of Incorporation.

Loews Corporation was the Company’s sole stockholder on May 8, 2008 and June 6, 2008, and accordingly, its action by written consent constituted the action and approval of our stockholders under Delaware law and the Company’s certificate of incorporation, as amended, as in effect at the time of such consent.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Lorillard, Inc., incorporated herein by reference to Exhibit 3.1 to Lorillard’s Report on Form 8-K filed on June 12, 2008
3.2	Amended and Restated Bylaws of Lorillard, Inc., incorporated herein by reference to Exhibit 3.2 to Lorillard’s Report on Form 8-K filed on June 12, 2008
4.1	Specimen certificate for shares of common stock of Lorillard, Inc., incorporated herein by reference to Exhibit 4.1 to Lorillard, Inc.’s Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008
10.1	Separation Agreement between Loews Corporation and Lorillard, Inc., Lorillard Tobacco Company, Lorillard Licensing Company, LLC, One Park Media Services, Inc. and Plisa, S.A.*
10.2	Assignment and Assumption of Services Agreement, dated as of April 1, 2008, by and between R.J. Reynolds Tobacco Company and R.J. Reynolds Global Products, Inc., with a joinder by Lorillard Tobacco Company, incorporated herein by reference to Exhibit 10.17 to Lorillard, Inc.’s Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008
10.3	Lorillard, Inc. 2008 Incentive Compensation Plan*
10.4	Form of Lorillard, Inc. indemnification agreement for directors and executive officers, incorporated herein by reference to Exhibit 10.19 to Lorillard, Inc.’s Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008
10.5	Amendment to Employment Agreement between Lorillard, Inc. and Martin L. Orlowsky, dated May 5, 2008, incorporated herein by reference to Exhibit 10.20 to Lorillard, Inc.’s Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008
11.1	Statement regarding computation of earnings per share. (See Note 7 to the consolidated condensed financial statements.)*
31.1	Certification by the Chief Executive Officer of Lorillard, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) *
31.2	Certification by the Chief Financial Officer of Lorillard, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) *
32.1	Certification by the Chief Executive Officer and Chief Financial Officer of Lorillard, Inc. pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) *

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 7, 2008

LORILLARD, INC.
By:	/s/ Martin L. Orlowsky
	Martin L. Orlowsky
	Chairman, President and Chief
	Executive Officer
By:	/s/ David H. Taylor
	David H. Taylor
	Director, Executive Vice President,
	Finance and Planning and Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

Execution Version

SEPARATION AGREEMENT

by and among

LOEWS CORPORATION,

LORILLARD, INC.,

LORILLARD TOBACCO COMPANY,

LORILLARD LICENSING COMPANY, LLC,

ONE PARK MEDIA SERVICES, INC.

and

PLISA S.A.

Dated as of May 7, 2008.

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
Section 1.1	Certain Definitions	2
Section 1.2	Other Definitions	8
ARTICLE II
ALLOCATION OF COSTS AND EXPENSES
Section 2.1	Allocation of Costs and Expenses	8
ARTICLE III
RELEASE AND INDEMNIFICATION
Section 3.1	Release of Pre-Separation Claims	10
Section 3.2	General Cross Indemnification	12
Section 3.3	Registration Statement Indemnification	13
Section 3.4	Notice and Defense of Claims	15
Section 3.5	Contribution	17
Section 3.6	Subrogation	17
Section 3.7	Other Matters	18
Section 3.8	Covenant to Remove Indemnified Party	18
Section 3.9	Tax Matters	18
ARTICLE IV
TAX RELATED PROVISIONS
Section 4.1	Non-Taxable Transaction	19
Section 4.2	Tax Returns and Tax Payments	19
Section 4.3	Representations and Covenants	24
Section 4.4	Indemnity Obligations and Payments	27
Section 4.5	Tax Contests	28
Section 4.6	Cooperation; Retention of Records; Access; Confidentiality	29
Section 4.7	Further Assurances	31
Section 4.8	Dispute Resolution	31

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ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, DISPOSITION AND DIVESTITURE
Section 5.1	Consolidation, Merger, Conveyance, Transfer, Disposition and Divestiture	31
ARTICLE VI
DISPUTE RESOLUTION
Section 6.1	Negotiation	32
Section 6.2	Arbitration	33
Section 6.3	Costs and Expenses	34
Section 6.4	Confidentiality of Arbitration Proceedings	34
Section 6.5	Tax Matters	34
ARTICLE VII
OTHER PROVISIONS
Section 7.1	Treatment of Carolina Group 2002 Stock Option Plan	34
Section 7.2	Provision of Information	35
Section 7.3	Binding Effect	35
Section 7.4	No Assignment	35
Section 7.5	No Third Party Beneficiaries	36
Section 7.6	Notices	36
Section 7.7	Governing Law	36
Section 7.8	Counterparts	36
Section 7.9	Severability	37
Section 7.10	Amendment, Modification and Termination	37
Section 7.11	Entire Agreement	37
Section 7.12	No Circumvention	37
Section 7.13	Descriptive Headings	37
Section 7.14	Drafting of Language	37

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SEPARATION AGREEMENT

SEPARATION AGREEMENT, dated as of May 7, 2008, by and among LOEWS CORPORATION, a Delaware corporation (“Loews”), LORILLARD, INC., a Delaware corporation (“Lorillard”), LORILLARD TOBACCO COMPANY, a Delaware corporation, LORILLARD LICENSING COMPANY, LLC, a North Carolina limited liability company, ONE PARK MEDIA SERVICES, INC., a Delaware corporation, and PLISA S.A., a Swiss société anonyme.

WHEREAS, Loews is and will remain the owner of all of the issued and outstanding shares of common stock of Lorillard until the Effective Date (as defined below); and

WHEREAS, in accordance with its certificate of incorporation and applicable law, the Board of Directors of Loews has determined to distribute Loews’s entire ownership interest in Lorillard to the holders of Loews’s Carolina Group stock (“CG Stock”) and Loews common stock in several integrated transactions by which Lorillard will become a separate public company; and

WHEREAS, Loews and Lorillard acknowledge and agree that the Separation will benefit both Loews and the Lorillard Group as more fully described in the Registration Statement; and

WHEREAS, Loews and Lorillard acknowledge and agree that Lorillard has always operated as an independent subsidiary of Loews, although from time to time plaintiffs have named Loews as a defendant in Actions allegedly arising out of the business and activities of Lorillard and other members of the Lorillard Group, and may do so in the future; and

WHEREAS, each member of the Lorillard Group acknowledges that Loews is not a proper party in any Action of the type referred to in the preceding clause, and is not responsible for any costs or damages which may arise from any such Action and, accordingly, it would be appropriate to indemnify the Loews Group in respect thereof; and

WHEREAS, Loews acknowledges that Lorillard, as an independent company, would not be a proper party to any Action based on the actions of Loews, and, accordingly, it would be appropriate to indemnify the Lorillard Group in respect thereof.

NOW, THEREFORE, in contemplation of Lorillard ceasing to be wholly-owned by Loews and for good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the following meanings:

“Action” means any claim, action, cause of action, suit, proceeding, demand or investigation, whether civil, criminal, administrative, investigative or other.

“Agreement” and “hereof” and “herein” means this Separation Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and refers to the Agreement as the same may be in effect at the time such reference becomes operative.

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are authorized or obligated by law or executive order to close.

“Carryback Item” means any net operating loss, net capital loss, excess tax credit or other similar Tax item which may or must be carried from one taxable period to another taxable period under the Code or other applicable Tax law.

“Code” means the Internal Revenue Code of 1986, as amended.

“Contingent Dividend” shall have the meaning ascribed to such term in the Registration Statement.

“Deconsolidation Date” means the date of the Deconsolidation Event.

“Deconsolidation Event” means any event or transaction occurring on or after the Effective Date, including the Separation or any component thereof, that causes Lorillard to no longer be eligible to be included in the Loews Consolidated Group for Federal Income Tax purposes.

“Effective Date” shall mean the closing date of the Redemption.

“Exchange Act” means the Securities Exchange Act of 1934.

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“Exchange Offer” shall have the meaning ascribed to such term in the Registration Statement.

“Federal Income Tax” means any Tax imposed under Subtitle A of the Code and any related interest and any penalties, additions to such Tax, or additional amounts imposed with respect thereto.

“Filings” means annual audited financial statements, annual reports to stockholders, annual, quarterly and current reports issued or filed pursuant to or under the Exchange Act and any registration statements, prospectuses and other filings made with the SEC prior to, on or after the Effective Date, other than the Registration Statement.

“Final Determination” means a determination within the meaning of Section 1313(a) of the Code or any similar provision of state or local Tax law.

“Governmental Entity” means any federal, national, state, provincial, local, foreign, international or other court, government, department, commission, board, bureau or agency, authority (including, but not limited to, any central bank or taxing authority) or instrumentality (including, but not limited to, any court, tribunal or grand jury).

“Group” means either the Loews Group or the Lorillard Group, as applicable.

“IRS” means the Internal Revenue Service.

“Keepwell” means any guaranty, keepwell, net worth or financial condition maintenance agreement of or by any member of the Loews Group provided to any Person with respect to any actual or contingent obligation of any member of the Lorillard Group.

“Liabilities” means any and all debts, liabilities, costs, expenses and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or unreserved, known or unknown, or determined or determinable, including those arising under any law, claim, demand or Action (whether asserted or unasserted), or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any governmental entity, and those arising under any contract, in tort or otherwise, or any fines, damages or equitable relief which may be imposed, and including all costs and expenses related thereto.

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“Loews Consolidated Group” means an affiliated group of corporations within the meaning of Section 1504(a) of the Code, of which Loews is the common parent corporation, that has filed consolidated Federal Income Tax Returns.

“Loews Group” means, collectively, Loews and all of its direct and indirect Subsidiaries now or hereafter existing and their respective successors, other than members of the Lorillard Group.

“Lorillard Group” means, collectively, Lorillard, Lorillard Tobacco Company, Lorillard Licensing Company, LLC, One Park Media Services, Inc., Plisa S.A., all of Lorillard’s other direct and indirect Subsidiaries now or hereafter existing and each of their respective predecessors and successors.

“Losses” means with respect to any Person, all losses, damages (whether compensatory, punitive, consequential, multiple or other), judgments, settlements, assessments, equitable or injunctive relief or disgorgements, Taxes and, to the extent incurred, other Liabilities, including all punitive damages and criminal and civil fines and penalties suffered by such Person, and including all costs, expenses and interest relating thereto (including, but not limited to, all expenses of investigation and preparation for defense, all accountant or attorneys’ fees and all other out-of-pocket expenses incurred), regardless of whether any such Losses relate to or arise out of such Person’s own alleged or actual negligent or grossly negligent conduct, reckless conduct or intentional misconduct.

“Person” means any individual, corporation, partnership, joint venture, limited liability company, association or other entity and any trust, unincorporated organization or government or any agency or political subdivision thereof or any other Governmental Entity.

“Post-Deconsolidation Period” means any taxable year or other taxable period beginning after the Deconsolidation Date and, in the case of any taxable year or other taxable period that begins on or before and ends after the Deconsolidation Date, that part of the taxable year or other taxable period that begins after the Deconsolidation Date.

“Pre-Deconsolidation Period” means any taxable year or other taxable period that ends on or before the Deconsolidation Date and, in the case of any taxable year or other taxable period that begins on or before and ends after the Deconsolidation Date, that part of the taxable year or other taxable period that ends on the Deconsolidation Date.

“Prime Rate” means the rate of interest per annum published in The Wall Street Journal as the Prime Rate, as in effect from time to time.

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“Proposed Acquisition Transaction” means a transaction or series of related transactions (or any agreement, understanding, arrangement or substantial negotiations, within the meaning of Section 355(e) of the Code and Regulations, to enter into a transaction or series of related transactions), as a result of which (i) Lorillard would merge or consolidate with any other Person or (ii) any Person or group of Persons would (directly or indirectly) acquire, or have the right to acquire (through an option or otherwise) from Lorillard and/or one or more of its stockholders, respectively, any amount of stock of Lorillard, that would, when combined with any other changes in ownership of the stock of Lorillard pertinent for purposes of Section 355(e) of the Code and Regulations, comprise more than 35% of the total combined voting power or total value of all outstanding stock of Lorillard as of the date of such transaction or, in the case of a series of transactions, the date of the last transaction of such series. In determining whether a transaction constitutes an indirect acquisition for purposes of the preceding sentence, any recapitalization resulting in a shift of voting power or any redemption of shares of stock (including any redemption of Lorillard equity pursuant to the exception in Section 4.3(b)(iii)) shall be treated as an indirect acquisition of stock by the non-exchanging stockholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and Regulations and shall be interpreted accordingly by Loews, in its sole and absolute discretion, which discretion shall be exercised in good faith.

“Prospectus” means, collectively, the prospectuses included in the Registration Statement, and in the form filed with the SEC pursuant to Rule 424 under the Securities Act, as amended or supplemented by any prospectus supplement and by all other amendments and supplements to such prospectuses, including post-effective amendments and all material incorporated by reference in such prospectuses.

“Redemption” shall have the meaning ascribed to such term in the Registration Statement.

“Registration Statement” means the registration statement on Form S-4 of Lorillard (No. 333-149051) filed with the SEC under the Securities Act, including the Prospectus relating thereto, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement and Prospectus.

“Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant taxable year or other taxable period.

“Regulation S-K” means Regulation S-K of the General Rules and Regulations under the Securities Act.

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“Regulation S-X” means Regulation S-X of the General Rules and Regulations under the Securities Act.

“Ruling Request” means the request for rulings submitted by Loews to the IRS related to the Separation, including the exhibits attached thereto, and all related supplements.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933.

“Separation” has the meaning set forth in the Registration Statement.

“Separation Date” shall mean the latest of (i) the Effective Date, (ii) the day of the closing of the Exchange Offer, or (iii) the day of the distribution of the Contingent Dividend.

“Separation Tax Liability” shall mean (i) any Taxes imposed on, increase in Taxes incurred by, or reduction of a Tax Asset of any member of the Loews Group, pursuant to a Final Determination resulting from, or arising in connection with, the failure of the Separation to qualify as tax-free under Section 355 of the Code (including, without limitation, any Tax resulting from the application of Section 355(d) or Section 355(e) of the Code to the Separation) or any corresponding provisions of any successor statute and any similar provision of state or local Tax law, and (ii) any and all Losses of any member of the Loews Group resulting from, based upon, arising out of or otherwise in respect of the failure of the Separation to qualify as tax-free under the Code (or any similar provision of state or local Tax law).

“Subsidiary” means with respect to any Person (i) a corporation, 50% or more of the voting or capital stock of which is, as of the time in question, directly or indirectly owned by such Person, (ii) any partnership, joint venture, association, limited liability company, joint stock company, trust, unincorporated organization or other entity in which such Person, directly or indirectly, owns 50% or more of the equity thereof or economic interest therein or has the power to elect or direct the election of 50% or more of the members of the governing body of such entity or otherwise has control (including shared control) over such entity (e.g., as a general partner of a partnership or a managing member of a limited liability company), or (iii) any other Person which would be considered a subsidiary of such Person within the meaning of Regulation S-K or Regulation S-X.

“Tax” or “Taxes” means all taxes, charges, fees, duties, levies, imposts, rates or other assessments or governmental charges of any kind imposed by any Governmental Entity, including, without limitation, income, gross receipts, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, estimated, custom duties, property, sales, use, license,

6

capital stock, transfer, franchise, registration, payroll, withholding, social security, unemployment, disability, value added, alternative or add-on minimum or other taxes, and including any interest, penalties, charges or additions attributable thereto.

“Tax Asset” means any Tax item of loss, deduction or credit, or other attribute that has not been used during a taxable period and that could reduce a Tax in another taxable period, including a net operating loss, net capital loss, unused investment tax credit, unused foreign tax credit, research and experimentation credit, excess charitable deduction, credit related to alternative minimum tax, or any other unused Tax credit.

“Tax Certificate” means the officer’s certificate of Loews, dated as of May 5, 2008, provided to Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) in connection with the Tax Opinion.

“Tax Contest” means an audit (including the Compliance Assurance Process), claim, dispute, suit, action, proposed assessment, review, examination, or other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

“Tax Opinion” means the written opinion to be delivered by Skadden to Loews in connection with the Separation to the effect that the Separation will qualify as tax-free under Section 355 of the Code to Loews and Loews’s stockholders (except with respect to cash received by Loews’s stockholders in lieu of fractional shares of Lorillard common stock).

“Tax Return” means any return, report, certificate, form or similar statement or document (including any related supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated tax) required to be supplied to, or filed with, a Governmental Entity, or any bill for or notice related to ad valorem or other similar Taxes received from a Governmental Entity, in each case, in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

“Third Party Claim” means any Action made against any member of either the Loews Group or the Lorillard Group by any Person that is not a member of either Group.

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Section 1.2 Other Definitions.

Term	Defined in Section
“AAA”	6.2
“Agreement Disputes”	6.1
“CFO”	4.8
“CG Option”	7.1
“CG SAR”	7.1
“CG Stock”	Preamble
“Dispute Notice”	6.1
“Indemnified Party”	3.4(a)
“Indemnifying Party”	3.4(a)
“Loews”	Preamble
“Loews Filed Tax Return”	4.2(a)(i)
“Loews Taxes”	4.2(c)(i)
“Lorillard”	Preamble
“Lorillard Filed Tax Return”	4.2(a)(ii)
“Lorillard Taxes”	4.2(c)(ii)
“Prohibited Acts”	4.3(b)(viii)
“Repayment Amount”	4.2(b)(iii)
“Rules”	6.2
“Ruling”	4.3(a)(i)
“Tax Advisor”	4.8
“Tax Benefit”	4.2(b)(iii)
“Tax Dispute”	4.8
“Tax Materials”	4.3(a)(i)
“Tax Records”	4.6(c)

ARTICLE II

ALLOCATION OF COSTS AND EXPENSES

Section 2.1 Allocation of Costs and Expenses.

(a) Lorillard shall pay (or, to the extent incurred by and paid for by any member of the Loews Group, will promptly reimburse such member of the Loews Group for any and all amounts so paid) for:

(i) all fees, costs and expenses (including fees and expenses of counsel) related to Lorillard’s organizational documents;

(ii) all fees, costs and expenses (including fees and expenses of counsel) related to the listing of Lorillard common stock on any domestic or foreign securities exchange and associated costs;

(iii) all fees, costs and expenses (including fees and expenses of counsel) related to the preparation of (1) documents related to Lorillard’s employee benefit plans, retirement plans and equity-based plans to be in effect following the Separation, (2) the descriptions thereof in the Registration Statement and Prospectus, and (3) the “Management” section of the Registration Statement and Prospectus;

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(iv) all fees, costs and expenses (including fees and expenses of counsel) of the independent accountants associated with the financial statements, management’s discussion and analysis of Lorillard’s financial condition and results of operation and the other financial information of Lorillard set forth in the Registration Statement and Prospectus; and

(v) 50% of the fees payable to Lehman Brothers for financial advisory services in connection with the Separation.

(b) Loews shall pay (or, to the extent incurred by and paid for by any member of the Lorillard Group, will promptly reimburse such member of the Lorillard Group for any and all amounts so paid) for:

(i) all fees, costs and expenses (including fees and expenses of counsel) related to the Ruling Request;

(ii) all fees, costs and expenses (including fees and expenses of counsel) of the independent accountants associated with the pro forma financial information of Loews set forth in the Registration Statement and Prospectus, and with the issuance of a comfort letter with respect to the Registration Statement;

(iii) 50% of the fees payable to Lehman Brothers for financial advisory services in connection with the Separation;

(iv) 100% of the fees payable to Morgan Stanley & Co. Incorporated and J.P. Morgan for financial advisory services in connection with the Separation; and

(v) 100% of the fees payable to any dealer manager in the Exchange Offer.

(c) Except as otherwise provided in Section 2.1(a) and Section 2.1(b), Lorillard and Loews shall each pay 50% of the aggregate fees, costs and expenses (including fees and expenses of counsel) incurred by them and their Subsidiaries in connection with the Separation, including, but not limited to:

(i) all fees, costs and expenses (including fees and expenses of counsel) related to the preparation, negotiation, execution, printing and filing, as required, of this Agreement and all of the other documents, agreements, forms, applications, contracts or consents related to the Separation;

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(ii) all fees, costs and expenses (including fees and expenses of counsel) related to the preparation, printing, filing and distribution, as required, of the Registration Statement and Prospectus, including all fees, costs and expenses of complying with applicable federal, state or foreign securities laws and domestic or foreign securities exchange rules and regulations; and

(iii) all registration fees paid to the SEC in connection with the Registration Statement.

To the extent that Loews or Lorillard previously shall have paid an amount in excess of its 50% share of the fees, costs and expenses referred to in this Section 2.1(c), Lorillard or Loews, as the case may be, shall reimburse the other for such excess payment.

(d) The allocations provided for in this Section 2.1 shall not apply to the extent that Article III, Article IV or Article VI otherwise address the responsibilities of any party with respect to any fees, costs or expenses.

ARTICLE III

RELEASE AND INDEMNIFICATION

Section 3.1 Release of Pre-Separation Claims.

(a) Except as otherwise provided in this Agreement, each member of the Lorillard Group remises, releases and forever discharges Loews and all Persons who at any time prior to the Effective Date have been stockholders, directors, officers, or employees of Loews (in their respective capacities as such) (the “Loews Releasees”), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities owed by Loews or any of the Loews Releasees to any member of the Lorillard Group, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Date, including in connection with all activities to implement the Separation.

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(b) Except as otherwise provided in this Agreement, Loews remises, releases and forever discharges each member of the Lorillard Group and all Persons who at any time prior to the Effective Date have been directors, officers, or employees of any member of the Lorillard Group (in each case, in their respective capacities as such)(the “Lorillard Releasees”), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities owed by any member of the Lorillard Group or any of the Lorillard Releasees to Loews, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Date, including in connection with all activities to implement the Separation.

(c) Lorillard shall not make, and shall not permit any member of the Lorillard Group to make, any claim or demand or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Loews or any other Person released pursuant to Section 3.1(a) with respect to any Liabilities released pursuant to Section 3.1(a). Loews shall not make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Lorillard or any member of the Lorillard Group, or any other Person released pursuant to Section 3.1(b), with respect to any Liabilities released pursuant to Section 3.1(b).

(d) It is the intent of each of Loews and Lorillard by virtue of the provisions of this Section 3.1 to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Effective Date between or among Lorillard or any member of the Lorillard Group, on the one hand, and Loews, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Effective Date), except as expressly set forth in Section 3.1(e). At any time, at the request of Loews or Lorillard, as the case may be, any party shall execute and deliver a release reflecting the provisions of this Section 3.1.

(e) Notwithstanding the foregoing, nothing contained in this Section 3.1 shall impair any right of any Person to enforce this Agreement in accordance with its terms.

(f) This Section 3.1 shall not apply to any matters to which Article IV applies.

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Section 3.2 General Cross Indemnification.

(a) Each member of the Lorillard Group, jointly and severally, shall indemnify and hold harmless each member of the Loews Group and each of its officers, directors, and employees against any and all Losses arising out of Actions, including, without limitation, Losses arising out of, resulting from or in connection with any Action, whether grounded in tort, contract, statute or otherwise, whether now pending or hereafter asserted, which may arise out of, pertain to or be in connection with any of the following, and whether occurring before, on or after the Effective Date:

(i) any breach by any member of the Lorillard Group of all or any portion of this Agreement, or any other acts or omissions by any member of the Lorillard Group arising out of the performance of its obligations under this Agreement;

(ii) the ownership or the operation of the assets or properties of, and the operation or conduct of the business of, including contracts entered into by, any member of the Lorillard Group;

(iii) any matter relating, directly or indirectly, to the tobacco or cigarette business, including without limitation any health-related claim, the use of any tobacco products (including, without limitation, flavorings, filters, wrappers, or other elements used in the manufacturing of tobacco products), the manufacture, sale, promotion, distribution, or marketing of any tobacco products, or exposure to tobacco products, such as environmental tobacco smoke, whether or not such products relate to any member of the Lorillard Group;

(iv) any employee, former employee, or independent contractor of any member of the Lorillard Group (or the termination of any such relationship), or any employee benefit plan, program, agreement or arrangement sponsored by or contributed to by any member of the Lorillard Group or to which any member of the Lorillard Group is, or at any time was, a party;

(v) any other activities, action or inaction on the part of any member of the Lorillard Group or its officers, directors, employees, affiliates acting as such (other than a member of the Loews Group acting as such), fiduciaries or agents, excluding any action expressly permitted hereunder;

(vi) any Keepwell; and

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(vii) any untrue statement or alleged untrue statement of a material fact contained in any Filing of any member of the Loews Group, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to information, if any, relating to a member of the Lorillard Group and provided to Loews by or on behalf of a member of the Lorillard Group or derived from the records of any member of the Lorillard Group.

(b) Loews shall indemnify and hold harmless each member of the Lorillard Group and each of its officers, directors, and employees against any and all Losses arising out of Actions, including, without limitation, Losses arising out of, resulting from or in connection with any Action, whether grounded in tort, contract, statute or otherwise, whether now pending or hereafter asserted, which may arise out of, pertain to or be in connection with any of the following, and whether occurring before, on or after the Effective Date:

(i) any breach by Loews of all or any portion of this Agreement, or any other acts or omissions by Loews arising out of the performance of its obligations under this Agreement;

(ii) any other activities, action or inaction on the part of Loews or its officers, directors, employees, fiduciaries or agents, excluding any action expressly permitted hereunder; and

(iii) any untrue statement or alleged untrue statement of a material fact contained in any Filing of any member of the Loews Group, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to information, if any, not relating to any member of the Lorillard Group.

(c) The indemnification obligations contained in this Section 3.2 shall be applicable whether or not any Action or the facts or transactions giving rise to such Action arose prior to, on or subsequent to the Effective Date and whether or not the Action giving rise to any claim for indemnification is valid.

Section 3.3 Registration Statement Indemnification.

(a) Each member of the Lorillard Group, jointly and severally, shall indemnify and hold harmless each member of the Loews Group and each of its directors, officers, and employees from and against any and all Losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not

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misleading, except insofar as such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to Loews and furnished in writing by Loews expressly for use in the Registration Statement or Prospectus.

(b) Loews shall indemnify and hold harmless Lorillard and each of its directors, officers, and employees from and against any and all Losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only insofar as such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to Loews and furnished in writing by Loews expressly for use in the Registration Statement or Prospectus.

(c) The parties agree that the statements set forth in the Registration Statement and Prospectus under the following captions constitute the only information relating to Loews furnished in writing by Loews expressly for use in the Registration Statement or Prospectus:

(i)	“Summary—Loews”,”—The Carolina Group” and “The Redemption”;
(ii)	“Transaction Background”;
(iii)	“The Redemption”, excluding “-Listing and Trading of Lorillard Common Stock”;
(iv)	“Market Price of and Dividends on Common Equity and Related Matters—Historical Market Value of Loews Common Stock”, “—Historical Market Value of Carolina Group Stock” and “—Holders”;
(v)	“Documents Incorporated by Reference”;
(vi)	“Loews Corporation and Subsidiaries Pro Forma Financial Information”;
(vii)	the cover page of the Offer to Exchange;
(viii)	“Questions and Answers About the Exchange Offer”;
(ix)	“Summary—The Exchange Offer”, “—Effects of the Separation on Loews” and “—Summary Pro Forma Financial Information of Loews”;
(x)	“Risk Factors Relating to the Exchange Offer”;
(xi)	“Terms of the Exchange Offer”;
(xii)	“Contingent Dividend Distribution”;
(xiii)	“Transactions Concerning Loews Common Stock”;

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(xiv)	“Comparison of Rights of Holders of Loews Common Stock and Lorillard Common Stock”, except for the description of Lorillard common stock;
(xv)	“Capitalization of Loews” and,
(xvi)	Certain U.S. Federal Income Tax Consequences”.

Section 3.4 Notice and Defense of Claims.

(a) If any Action shall be brought against any Person entitled to indemnification pursuant to this Agreement (each, an “Indemnified Party”) in respect of which indemnity may be sought, such Indemnified Party shall promptly notify the applicable party or parties obligated under this Agreement to indemnify such Indemnified Party (each, an “Indemnifying Party”), and such Indemnifying Party shall assume the defense thereof, including employment of counsel and payment of all fees and expenses. The failure of the Indemnified Party to give notice as provided in this Section 3.4 shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party is materially prejudiced by the failure to give notice.

(b) When an Indemnified Party reasonably determines that an Action is likely to proceed to trial or that it is otherwise appropriate that the Indemnified Party be separately represented, such Indemnified Party shall have the right to employ separate counsel in such Action and to participate in the defense thereof at the expense of the Indemnifying Party. Prior to employing separate counsel, the Indemnified Party shall provide notice to the Indemnifying Party of its intention to employ separate counsel. It is understood, however, that Indemnifying Party shall, in connection with any one such Action or separate but substantially similar or related Actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified parties not having actual or potential differing interests among themselves.

(c) The Indemnified Party shall submit to the Indemnifying Party not less frequently than quarterly, copies of invoices from separate counsel, and the Indemnifying Party shall reimburse the Indemnified Party for uncontested fees and expenses within thirty (30) days of the receipt of such invoices. Any fees and expenses objected to by the Indemnifying Party as not reasonable shall be subject to the dispute resolution provisions of Article VI of this Agreement.

(d) All indemnification payments due under this Agreement shall be made by wire transfer of immediately available funds to a bank account of the Indemnified Party. Late payments shall be subject to interest at a rate per annum equal to the then effective Prime Rate plus two hundred (200) basis points (or the maximum legal rate, whichever is lower), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

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(e) An Indemnified Party shall not settle or compromise any Action for which indemnification hereunder has been sought by the Indemnified Party without first providing notice to the Indemnifying Party, unless the Indemnifying Party has failed to assume and prosecute the defense of such Action in accordance with this Agreement. Such notice to be provided by the Indemnified Party will include a reasonable opportunity for the Indemnifying Party to consent to the settlement or compromise, or to object on the basis that the settlement or compromise will materially impair the rights or defenses of the Indemnifying Party in the same or similar Actions.

(f)

(i) If an Action for which indemnification hereunder has been sought by the Indemnified Party is settled or compromised by the Indemnified Party despite the assumption of the defense by the Indemnifying Party and the written objection of the Indemnifying Party that such settlement or compromise will materially impair the rights and defenses of the Indemnifying Party in the same or similar Actions, the Indemnified Party shall not be entitled to indemnification pursuant to this Agreement for any amounts paid pursuant to such settlement or compromise unless it shall be determined thereafter in accordance with Article VI hereof that such settlement or compromise did not materially impair the rights and defenses of the Indemnifying Party in the same or similar Actions.

(ii) If an Action for which indemnification hereunder has been sought by the Indemnified Party is settled or compromised by the Indemnified Party either with the consent of the Indemnifying Party or where the Indemnifying Party has failed to assume and prosecute the defense of such Action in accordance with this Agreement, the Indemnifying Party shall indemnify and hold harmless each Indemnified Party, to the extent provided by this Article III, from and against any Losses relating to such Action, including Losses incurred by reason of such settlement.

(iii) If a final judgment for plaintiff is entered in any Action for which indemnification hereunder has been sought by the Indemnified Party, the Indemnifying Party shall indemnify and hold harmless each Indemnified Party, to the extent provided in this Article III, from and against any Losses relating to such Action, including Losses incurred by reason of such judgment.

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(g) The provisions of this Article III shall determine the respective indemnification obligations and rights of the parties to this Agreement, but shall not be deemed to prevent or impair the absolute right of any member of the Loews Group or the Lorillard Group from assuming the defense of, or effecting any settlement or compromise of, any Action to which it is a party, which rights are expressly permitted hereunder.

Section 3.5 Contribution.

(a) If the indemnification provided for in this Article III is unavailable to an Indemnified Party under Section 3.3 in respect of any Losses referred to therein, or if such indemnification is insufficient to hold the Indemnified Party harmless, then an Indemnifying Party, in lieu of or in addition to indemnifying such Indemnified Party, as the case may be, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party on the one hand and the applicable Indemnified Party on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party on the one hand or Indemnified Party on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(b) The parties agree that it would not be just and equitable if contribution pursuant to this Section 3.5 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 3.5(a). The amount paid or payable by an Indemnified Party as a result of the Losses referred to in Section 3.5(a) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating any claim or defending any such Action. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

Section 3.6 Subrogation.

Upon indemnification of the Losses under this Agreement, the Indemnifying Party shall be subrogated to the rights of the Indemnified Party against insurers or other third parties with respect to such assumed or indemnified amount. It is expressly agreed that no insurer or any other third party shall be (i) entitled to a benefit (as a third party beneficiary or otherwise) it would not be entitled to receive in the absence of Section 3.2 or Section 3.3 of this Agreement, (ii) relieved of the responsibility to pay any insured claims or indemnified claims or any other claims for which it is obligated or (iii) entitled to any subrogation rights with respect to any obligation hereunder. The Indemnified Party shall, upon request, provide a formal assignment of a claim against an insurer or other

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third party to the Indemnifying Party with respect to the assumed or indemnified amount or shall otherwise reasonably cooperate at the Indemnifying Party’s request and expense, with any attempt by the Indemnifying Party to recoup assumed or indemnified amounts from insurers or other third parties.

Section 3.7 Other Matters.

(a) No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Action in respect of which any Indemnified Party is a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party and each of its officers, directors, and employees from any liability, penalty, admission of wrongdoing, restraint or other obligation with respect to claims that are the subject matter of such Action at least to the same extent as the Indemnifying Party is itself released.

(b) The indemnity and contribution obligations contained in this Article III shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party or Indemnifying Party.

(c) The parties hereto shall, and shall cause their respective Subsidiaries to, cooperate with each other in a reasonable manner with respect to access to unprivileged information and similar matters in connection with any Action. The provisions of this Article III are for the benefit of, and are intended to create third party beneficiary rights in favor of, each of the Indemnified Parties referred to herein.

Section 3.8 Covenant to Remove Indemnified Party.

Loews and each member of the Lorillard Group agree that at all times henceforth, if an action is commenced by a third party with respect to which any member of either the Loews Group or the Lorillard Group is indemnified pursuant to this Article III, then such member of the Loews Group or the Lorillard Group, as the case may be, shall use its best commercial efforts to cause such defendant to be removed from such Action. However, nothing in this Section 3.8 will obligate any party to settle any Action.

Section 3.9 Tax Matters.

This Article III shall not apply to any matters to which Article IV applies.

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ARTICLE IV

TAX RELATED PROVISIONS

Section 4.1 Non-Taxable Transaction.

Loews and Lorillard intend that the Separation will qualify as a non-taxable transaction under Section 355 of the Code, after which none of Lorillard or its Subsidiaries will be a member of the Loews Consolidated Group.

Section 4.2 Tax Returns and Tax Payments.

(a) Filing of Tax Returns.

(i) Loews shall have the sole and exclusive responsibility for preparing and filing each Tax Return required to be filed after the Deconsolidation Date that includes any member of the Loews Group (each, a “Loews Filed Tax Return”). Lorillard shall prepare and deliver (at its own cost and expense) to Loews in a manner consistent with past practice pro forma Tax Returns (including work papers) and any other information that Loews deems necessary to prepare and timely file any Loews Filed Tax Return with respect to each member of the Lorillard Group included in, or reflected on, a Loews Filed Tax Return no later than ninety days before the due date for the filing of the relevant Tax Return (giving effect to valid extensions thereof), provided, however, that with respect to the Loews Filed Tax Return of the Loews Consolidated Group for the taxable period ending on December 31, 2008, Lorillard shall prepare and deliver such pro forma Tax Returns and information no later than ninety days after the Deconsolidation Date. Each member of the Lorillard Group hereby irrevocably authorizes and designates Loews as its agent, coordinator and administrator for the purpose of taking any and all actions necessary or incidental to the filing of any such Loews Filed Tax Returns and, except as otherwise provided in this Article IV, for the purpose of making payments to, or collecting refunds from, any Governmental Entity in respect of a Loews Filed Tax Return. Except as otherwise provided in this Article IV, Loews shall have the exclusive right to file, prosecute, compromise or settle any claim for, or refund of, Taxes in respect of a Loews Filed Tax Return and to determine whether any refunds of Taxes shall be received by way of refund or credit against a current or future Tax liability.

(ii) Lorillard shall have the sole and exclusive responsibility for preparing and filing each Tax Return required to be filed after the Deconsolidation Date that includes any member of the Lorillard Group which is not a Loews Filed Tax Return (each, a “Lorillard Filed Tax Return”). Except as otherwise required by law, Lorillard shall prepare and file all Lorillard Filed

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Tax Returns on a basis that is consistent with the Tax Materials and shall not take any position (or make any election) in the preparation and filing of such Lorillard Filed Tax Returns that is inconsistent with any position or election made by Loews in connection with the preparation and filing of any Tax Return of the Loews Consolidated Group that includes any Pre-Deconsolidation Period.

(b) Obligation to Remit Taxes.

(i) Loews and Lorillard shall each remit or cause to be remitted to the applicable Governmental Entity in a timely manner any Taxes due in respect of any Tax Return that such party is required to file. In the case of any Loews Filed Tax Return or Lorillard Filed Tax Return, for which the party not required to file such Tax Return is obligated under this Article IV to pay all or a portion of the Taxes reported as due on such Tax Return, the party filing such Tax Return shall notify the other party in writing of its obligation to pay such Taxes and the party receiving such notice shall pay such amount to the party filing such Tax Return in accordance with the notice provisions contained in Section 4.4(b).

(ii) Not later than thirty days after the Deconsolidation Date, the Lorillard Group shall calculate its Federal Income Tax liability based upon its actual taxable income for its taxable period ending on the Deconsolidation Date and shall pay such amount to Loews, net of any previous estimated Federal Income Tax payments to Loews in respect of the same taxable period. If Loews and Lorillard determine not later than thirty days after the Deconsolidation Date that the Lorillard Group has, through previous estimated Federal Income Tax payments to Loews, made an overpayment of Federal Income Tax for the taxable period of the Lorillard Group ending on the Deconsolidation Date, Loews will pay an amount equal to such overpayment to the Lorillard Group, but only at such time and only to the extent that Loews is able to apply such overpayment to offset a future estimated Federal Income Tax payment of the Loews Consolidated Group for the taxable period ending on December 31, 2008. Upon the filing of the relevant Loews Filed Tax Return, a final adjustment payment shall be made by Loews to the Lorillard Group or vice versa, as appropriate, reflecting any difference between the amounts previously paid by the Lorillard Group to Loews in respect of the taxable period of the Lorillard Group ending on the Deconsolidation Date (including any estimated Federal Income Tax payments), any amounts previously paid by Loews to the Lorillard Group relating to overpayments of Federal Income Tax for the taxable period of the Lorillard Group ending on the Deconsolidation Date, and the Federal Income Tax liability of the Lorillard Group for such taxable period as reflected on such Loews Filed Tax Return.

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(iii) In the event that the Lorillard Group generates a net operating loss during its taxable period ending on the Deconsolidation Date and the Loews Consolidated Group receives a refund from a Governmental Entity or realizes a reduction in otherwise required Tax payments (a “Tax Benefit”) as a result of the use of such net operating loss, not later than 90 days after Loews files the Tax Return of the Loews Consolidated Group in respect of Federal Income Taxes for the taxable period ending on December 31, 2008, Loews shall pay to Lorillard an amount equal to such refund received or Tax Benefit realized; provided, that Loews shall be entitled to reduce the amount of any such payment for its reasonable costs and expenses in obtaining such refund or realizing such Tax Benefit, including any Taxes imposed on the receipt of such refund or realization of such Tax Benefit; provided, further, that in the event, and to the extent, that Loews is required to repay such refund or Tax Benefit, plus any interest, penalties, charges or additions attributable thereto (a “Repayment Amount”), to a Governmental Entity, Lorillard shall pay Loews such Repayment Amount within five Business Days of receiving a written request therefor from Loews.

(c) Tax Sharing Obligations and Prior Agreements.

(i) Loews and the other members of the Loews Group shall be responsible for the payment of (and shall be entitled to any refund of, whether received in cash or applied against future Tax obligations) (1) all Taxes attributable to any member of the Loews Group for any Pre-Deconsolidation Period or Post-Deconsolidation Period other than the Separation Tax Liability and (2) the Separation Tax Liability but only to the extent such Taxes arise solely as a result of any breach of any covenant or any other obligation contained in the Tax Materials or this Agreement by Loews, any other member of the Loews Group or any stockholder of Loews (collectively, the “Loews Taxes”).

(ii) Lorillard and the other members of the Lorillard Group shall be responsible for the payment of (and shall be entitled to any refund of, whether received in cash or applied against future Tax obligations) (1) all Taxes attributable to any member of the Lorillard Group and (2) the Separation Tax Liability, except to the extent that the Separation Tax Liability arises solely as a result of any breach of any covenant or any other obligation contained in the Tax Materials or this Agreement by Loews, any other member of the Loews Group or any stockholder of Loews (collectively, the “Lorillard Taxes”).

(iii) For purposes of this Article IV, the liability for Federal Income Tax attributable to the members of the Lorillard Group means, for any Pre-Deconsolidation Period, an amount equal to the Federal Income Tax which would have been payable

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by the Lorillard Group for such taxable period if the Lorillard Group had filed its own consolidated Tax Return in respect of Federal Income Taxes for such taxable period and all prior taxable periods. In the case of any Loews Filed Tax Return that includes any member of the Lorillard Group only for the portion of the relevant taxable period that ends on the Deconsolidation Date, taxable income, assets or other attributes of the Lorillard Group shall be allocated by Loews to such portion of such taxable period based on an actual or hypothetical closing of the books at the close of the Deconsolidation Date performed by Loews, unless otherwise required by applicable Tax law.

(iv) Except to the extent of a Final Determination to the contrary, no member of the Lorillard Group shall take any position on any Tax Return, in connection with any Tax Contest or otherwise that any member of the Loews Group (1) is or has been a member of a combined, consolidated or unitary group of corporations for any Tax purpose that includes a member of the Lorillard Group other than the Loews Consolidated Group or (2) has any liability for any Taxes attributable to any member of the Lorillard Group other than liability imposed under Regulations Section 1.1502-6 with respect to Federal Income Taxes of the Loews Consolidated Group. In the event that any Governmental Entity challenges such position, (x) Lorillard shall promptly notify Loews of such challenge, (y) Lorillard shall, at its own cost and expense, use its best efforts to contest such challenge, and (z) notwithstanding Lorillard’s control right as set forth in Section 4.5(c), upon request by Loews, Loews shall, at its own cost and expense, be allowed to participate in the handling of any such challenge and Lorillard shall consult with Loews regarding any such challenge, including any correspondence or filings submitted in connection therewith, and regarding strategy and settlement decisions with respect to any such challenge. Lorillard shall not settle any such challenge without the consent of Loews, which consent shall not be unreasonably withheld, delayed or conditioned.

(v) In connection with the Deconsolidation Event, Loews shall determine in accordance with applicable Tax laws the allocation of applicable Tax Assets, if any, among Loews, each other member of the Loews Group, Lorillard and each other member of the Lorillard Group. In the absence of controlling legal authority or unless otherwise provided in this Agreement, each Tax Asset, if any, shall be allocated to the member of the Loews Group or the Lorillard Group who generated such Tax Asset.

(vi) Within thirty days after the Separation Date, Lorillard shall provide such information as Loews reasonably determines is necessary for Loews to calculate the amount of earnings and profits that will be allocated to Lorillard as a result of the Separation, determined in accordance with Section 312(h) of the Code and applicable Regulations. Loews shall advise

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Lorillard in writing of an estimate of such amount within ninety days after the Separation Date and shall provide a final calculation of such amount when available. Each of Loews and Lorillard agrees to use the earnings and profits allocated pursuant to this provision for all Tax purposes.

(vii) Except as set forth in this Agreement and in consideration of the mutual indemnities and other obligations under this Agreement, any and all prior Tax sharing or allocation agreements or practices between any member of the Loews Group and any member of the Lorillard Group shall be terminated as of the Deconsolidation Date, and no member of the Loews Group or the Lorillard Group shall have any continuing rights or obligations thereunder.

(d) Amended Tax Returns.

(i) Lorillard shall not, and shall not permit any other member of the Lorillard Group to, file any amended Tax Return that includes any member of the Loews Group.

(ii) Loews shall not, and shall not permit any other member of the Loews Group to, file any amended Tax Return that includes any member of the Lorillard Group and that has an adverse effect on Lorillard without the prior written consent of Lorillard, which shall not be unreasonably withheld, delayed or conditioned. Receipt of consent by Loews or any other member of the Loews Group from Lorillard under the provisions of this Section 4.2(d)(ii) shall not limit or modify Loews’s continuing indemnification obligation under Section 4.4(a)(i).

(e) Carrybacks from Post-Deconsolidation Period.

(i) Except as otherwise required by applicable Tax law, each of Lorillard and the other members of the Lorillard Group hereby agrees to relinquish, and make or cause to be made, any available elections and take any other actions required to relinquish, the right to claim in any Pre-Deconsolidation Period of the Lorillard Group any Carryback Item arising in any Post-Deconsolidation Period of the Lorillard Group.

(ii) Notwithstanding Section 4.2(e)(i), if Lorillard or any other member of the Lorillard Group is required by applicable Tax law to carry back a Carryback Item arising in a Post-Deconsolidation Period to a Pre-Deconsolidation Period, then (1) any Carryback Item of any member of the Loews Group that may be carried back to the same Pre-Deconsolidation

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Period shall be used before any Carryback Item of any member of the Lorillard Group unless expressly prohibited by applicable Tax law, and (2) to the extent the Carryback Item of any member of the Lorillard Group is used in a Pre-Deconsolidation Period and any member of the Loews Group receives a refund from a Governmental Entity or realizes a Tax Benefit as a result of the use of such Carryback Item, Loews shall pay Lorillard an amount equal to such refund received or Tax Benefit realized within thirty days following either the receipt of such refund or the filing of the Tax Return reflecting the realization of such Tax Benefit; provided, that Loews shall be entitled to reduce the amount of any such payment for its reasonable costs and expenses in obtaining such refund or realizing such Tax Benefit, including any Taxes imposed on the receipt of such refund or realization of such Tax Benefit; provided, further, that in the event, and to the extent, that Loews is required to repay a Repayment Amount to a Governmental Entity, Lorillard shall pay Loews such Repayment Amount within five Business Days of receiving a written request therefor from Loews.

Section 4.3 Representations and Covenants.

(a) Compliance with the Ruling and Tax Opinion.

(i) Loews hereby represents and warrants that (1) it has examined final copies (or, if final copies are not available, drafts in substantially finalized form) of (A) the private letter ruling received from the IRS by Loews related to the Separation (the “Ruling”) with respect to the transactions addressed therein, (B) the Tax Opinion, (C) the Ruling Request, (D) the Tax Certificate and (E) any other materials delivered or deliverable in connection with the issuance of the Ruling and the rendering of the Tax Opinion (collectively, the “Tax Materials”) and (2) the facts presented and representations made therein, to the extent descriptive of or otherwise relating to Loews or any other member of the Loews Group, were, at the time presented or represented and from such time until and including the date hereof true, correct and complete in all material respects. Loews hereby reaffirms and agrees to comply with any and all covenants and agreements in the Tax Materials applicable to Loews or any other member of the Loews Group.

(ii) Lorillard (on behalf of itself and all other members of the Lorillard Group) hereby represents and warrants that (1) it has examined the Tax Materials, (2) the facts presented and representations made therein, to the extent descriptive of or otherwise relating to Lorillard or any other member of the Lorillard Group, were, at the time presented or represented and from such time until and including the date hereof true, correct and complete in all material respects, and (3) it has not entered into any agreement, understanding, or arrangement, and has not had substantial negotiations (each within the meaning of

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Section 355(e) of the Code and applicable Regulations) regarding the acquisition of Lorillard or any other member of the Lorillard Group at any time during the two-year period ending on the date hereof, and shall neither enter into any such agreement, understanding, or arrangement, nor have any such substantial negotiations, between the date hereof and the Deconsolidation Date. Lorillard (on behalf of itself and all other members of the Lorillard Group) hereby reaffirms and agrees to comply with any and all covenants and agreements in the Tax Materials applicable to Lorillard or any other member of the Lorillard Group.

(iii) Each party to this Agreement shall deliver a certificate of an officer or other appropriate authorized representative affirming the truth and accuracy of the representations and warranties of such party and compliance with the covenants of such party set forth in this Section 4.3(a) and such other matters reasonably requested by another party hereto. Such certificates shall be dated as of the Effective Date and, if requested by any party hereto, the closing date of the Exchange Offer and / or the Contingent Dividend. Skadden shall be entitled to rely on any such certificate in connection with rendering the Tax Opinion.

(b) Prohibited Acts. Except as provided in Section 4.3(c), no member of the Lorillard Group shall take or permit to be taken any action or fail to take any other action at any time, which action or failure to act may (x) preclude the Separation from qualifying as tax-free under Section 355 of the Code (or any corresponding provisions of any successor statute and any similar provision of state or local Tax law) or (y) cause Loews, any other member of the Loews Group, or any stockholder of Loews that receives Lorillard common stock in the Separation to recognize gain or loss, or otherwise include any amount in income, as a result of the Separation for Tax purposes (except with respect to gain or loss recognized by Loews’s stockholders with respect to cash received in lieu of fractional shares of Lorillard common stock). Without limiting the generality of the foregoing, except as provided in Section 4.3(c), Lorillard (on behalf of itself and all other members of the Lorillard Group) hereby covenants and agrees that no member of the Lorillard Group shall take or permit to be taken within two years of the Separation Date the following actions:

(i) any Proposed Acquisition Transaction or approval of any Proposed Acquisition Transaction for any purpose;

(ii) the issuance of any Lorillard equity (including any instrument that is convertible or exchangeable into such equity) or rights to acquire any Lorillard equity (other than (1) any such issuance qualifying under Regulations Section 1.355-7(d)(8) in connection with the performance of services or (2) any issuances which, in the aggregate, would not result in a Proposed Acquisition Transaction);

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(iii) redemptions or repurchases of any Lorillard equity (except to the extent consistent with the requirements of Revenue Procedure 96-30, 1996-1 C.B. 696, and statements made with respect thereto in the Tax Materials, provided that Lorillard shall provide written notification to Loews of any such redemptions or repurchases within twenty (20) days thereof);

(iv) recapitalizations or other dispositions of, or modifications to the terms of, any Lorillard equity;

(v) any liquidation, merger or consolidation involving any member of the Lorillard Group;

(vi) any sale or other disposition of all or substantially all of the assets of any member of the Lorillard Group in a single transaction or series of related transactions;

(vii) the disposition or discontinuance of the operation of the Lorillard Group’s active trade or business used to satisfy Section 355(b) of the Code in the Ruling; or

(viii) actions or positions inconsistent with any representation or covenant of Lorillard or any member of the Lorillard Group contained in Section 4.3(a)(ii) or Section 4.6(b); (all of such actions in this subsection are collectively referred to as the “Prohibited Acts”).

(c) Requirement for Prohibited Acts. Lorillard or any other member of the Lorillard Group may take any of the Prohibited Acts if (i) Lorillard provides notification, upon determining that it desires to pursue such action, to Loews of its plans with respect to such action, and promptly responds to any inquiries made by Loews following such notification, and (ii) prior to taking such action, obtains, at its own cost and expense, either an unqualified written opinion of a nationally recognized law firm, or a supplemental ruling from the IRS, in either case in form and substance reasonably acceptable to Loews, that the taking of such action will not (x) preclude the Separation from qualifying as tax-free under Section 355 of the Code (or any corresponding provisions of any successor statute and any similar provision of state or local Tax law) or (y) cause Loews, any other member of the Loews Group, or any stockholder of Loews that receives Lorillard common stock in the Separation to recognize gain or loss, or otherwise include any amount in income, as a result of the Separation for Tax purposes (except with respect to gain or loss recognized by Loews’s stockholders with respect to cash received in lieu of fractional shares of Lorillard common stock); provided, however, that (A) no request for a supplemental ruling shall be made prior to obtaining Loews’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned, and (B) Loews shall have the right to participate in the preparation of all correspondence and in all

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calls, meetings and similar events related to obtaining such supplemental ruling. Receipt of an opinion or a supplemental ruling by Lorillard or any other member of the Lorillard Group under the provisions of this Section 4.3(c) shall not limit or modify Lorillard’s continuing indemnification obligation under Section 4.4(a)(ii).

Section 4.4 Indemnity Obligations and Payments.

(a) Indemnity Obligations.

(i) Each member of the Loews Group, jointly and severally, shall indemnify and hold harmless each member of the Lorillard Group and each of its officers, directors, and employees from and against, and will reimburse such Persons for all Losses attributable to Loews Taxes.

(ii) Notwithstanding whether any action is permitted or consented to hereunder and notwithstanding anything to the contrary contained in this Agreement, each member of the Lorillard Group, jointly and severally, shall indemnify and hold harmless each member of the Loews Group and each of its officers, directors, and employees from and against, and will reimburse such Persons for (1) all Losses attributable to Lorillard Taxes and (2) all Taxes and other Losses arising out of, based upon or relating or attributable to any breach of any representation, covenant or obligation of any member of the Lorillard Group under this Article IV.

(b) Notice. An Indemnified Party making a claim for indemnification under this Article IV shall provide the Indemnifying Party from whom such indemnification is sought with written notice of such claim describing such claim in reasonable detail and accompanied by reasonable documentation supporting such claim no later than twenty (20) Business Days after the Indemnified Party (i) files a Tax Return reporting Taxes due which are subject to indemnification or (ii) receives written notice from a Governmental Entity with respect to Taxes that may be subject to indemnification under this Article IV; provided, however, that the failure of the Indemnified Party to give notice as provided in this Section 4.4(b) shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party is prejudiced by the failure to give notice.

(c) Indemnification Payments. The Indemnifying Party shall pay the Indemnified Party the amount of any claim made under this Article IV within three Business Days of receipt of written notice of such claim; provided, however, that if such claim is still subject to the outcome of any Tax Contest, then payment shall not be due until ten (10) Business Days after such claim either is resolved through a Final Determination, or prior to a Final Determination, if the Indemnified Party and the Indemnifying Party agree on the indemnification obligation under this Article IV with respect to such claim.

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(d) Treatment of Payments. Any payment made between the parties pursuant to this Agreement shall be treated, for all Tax purposes and to the extent permitted by law, as a contribution by Loews to Lorillard or a distribution by Lorillard to Loews, as the case may be, occurring immediately prior to the Deconsolidation Date. If the recipient of such payment (or any member of its Group) is subject to Tax attributable, directly or indirectly, to the receipt of such payment, the payor shall reimburse the recipient for all Losses attributable to such Tax liability and pay to the recipient an additional amount that, when added to any other payment otherwise required to be made, will result in the recipient receiving and retaining an amount equal to such other payment, after taking into account all Taxes payable by the recipient (or any member of its Group) that are attributable to the receipt of such other payment and such additional amount.

(e) The provisions of this Article IV are for the benefit of, and are intended to create third party beneficiary rights in favor of, each of the Indemnified Parties referred to herein.

Section 4.5 Tax Contests.

(a) Notice.

(i) If an Indemnified Party becomes aware of any pending or threatened Tax Contest in respect of which indemnity may be sought under this Article IV, such Indemnified Party shall promptly notify the Indemnifying Party. The failure of the Indemnified Party to give notice as provided in this Section 4.5(a) shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party is prejudiced by the failure to give notice.

(ii) The Indemnified Party shall submit to the Indemnifying Party a list of all fees and expenses at the end of the calendar month in which such fees and expenses are incurred, and the Indemnifying Party shall reimburse the Indemnified Party for such fees and expenses within thirty days of the receipt of such list.

(b) Control of Tax Contests by Loews. Loews shall have the sole responsibility and control over the handling of any pending or threatened Tax Contest, including the exclusive right to communicate with agents of the Governmental Entity and to control, resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Tax Contest, involving any Loews Filed Tax Return; provided, however, that Loews shall be obligated to act in good

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faith with respect to any Tax Contest which involves a Tax or adjustment for which Lorillard is liable pursuant to this Article IV. Specifically, Loews shall, in good faith, (i) consult with Lorillard regarding its comments with respect to any such Tax Contest, including any correspondence or filings submitted in connection therewith, (ii) consult with Lorillard as to strategy and settlement decisions with respect to any such Tax Contest, and (iii) use its best efforts to arrive at a settlement of any such Tax Contest that reflects the ultimate merits of the issues without taking into account the fact that Lorillard is liable for the Tax or adjustment under this Article IV.

(c) Control of Tax Contests by Lorillard. Lorillard shall have the full responsibility and control over the handling of any pending or threatened Tax Contest, including the exclusive right to communicate with agents of the Governmental Entity and to control, resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Tax Contest, involving any Lorillard Filed Tax Return; provided, however, that Lorillard shall be obligated to act in good faith with respect to any Tax Contest which involves a Tax or adjustment for which Loews is liable pursuant to this Article IV. Specifically, Lorillard shall, in good faith, (i) consult with Loews regarding its comments with respect to any such Tax Contest, including any correspondence or filings submitted in connection therewith, (ii) consult with Loews as to strategy and settlement decisions with respect to any such Tax Contest, and (iii) use its best efforts to arrive at a settlement of any such Tax Contest that reflects the ultimate merits of the issues without taking into account the fact that Loews is liable for the Tax or adjustment under this Article IV.

(d) Exclusivity. The procedures set forth in this Section 4.5 and not in Article III shall govern for all claims for indemnification relating to Taxes.

Section 4.6 Cooperation; Retention of Records; Access; Confidentiality.

(a) General. Each party shall fully cooperate, and shall cause all members of such party’s Group (the Loews Group or the Lorillard Group) to fully cooperate, with the other party in connection with the preparation and filing of any Tax Return or the conduct of any Tax Contest (including, where appropriate or necessary, providing a power of attorney) concerning any issues or any other matter contemplated under this Article IV. Each party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation.

(b) Consistent Treatment. Unless and until there has been a Final Determination to the contrary, no member of the Loews Group or the Lorillard Group shall take any position on any Tax Return, in connection with any Tax Contest or otherwise that is inconsistent with (i) the allocation of Taxes, Tax Assets and earnings and profits between the Loews Group and the Lorillard Group as set forth in this Article IV, (ii) the Ruling or (iii) the Tax Opinion.

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(c) Retention of Tax Records. For as long as the contents thereof may become material in the administration of any matter under applicable Tax law, but in any event until the later of (x) the expiration of any applicable statutes of limitation (as extended), and (y) seven years after the Separation Date, the parties shall retain records, documents, work papers, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns in respect of Taxes of any member of either the Loews Group or the Lorillard Group for any Pre-Deconsolidation Period or any Post-Deconsolidation Period or for any Tax Contests relating to such Tax Returns (collectively, the “Tax Records”). At any time after the Deconsolidation Date that Lorillard proposes to destroy any such Tax Records, it shall first notify Loews in writing and Loews shall be entitled to receive such Tax Records proposed to be destroyed which could affect the liability of any member of the Loews Group for Taxes. At any time after the Deconsolidation Date that Loews proposes to destroy any such Tax Records, it shall first notify Lorillard in writing and Lorillard shall be entitled to receive that portion of such Tax Records proposed to be destroyed that relates solely to Lorillard Taxes for taxable periods beginning on or before the Deconsolidation Date and that could reasonably affect the liability of any member of the Lorillard Group for Taxes.

(d) Access. Lorillard shall make available, and cause the other members of the Lorillard Group to make available, to members of the Loews Group and their advisors and representatives all Tax Records in their possession that relate to any taxable period beginning on or before the Separation Date. At Lorillard’s reasonable request, Loews shall provide to Lorillard and its advisors and representatives a copy of that portion, and only that portion, of any Tax Record in its possession that relates to Lorillard Taxes for taxable periods beginning on or before the Deconsolidation Date and that is reasonably necessary for the preparation of a Tax Return of a member of the Lorillard Group or with respect to a Tax Contest of such Tax Return.

(e) Confidentiality. Each party shall hold and cause its directors, officers, employees, advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such party) concerning the other party hereto furnished to it by such other party or its representatives pursuant to this Article IV (except to the extent that such information can be shown to have been (i) in the public domain through no fault of such party, (ii) later lawfully acquired from other sources not known to be under a duty of confidentiality by the party to which it was furnished, or (iii) independently developed), and each party shall not release or disclose such information to any other Person, except its directors, officers, employees, auditors, attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to be bound by the provisions of this Section 4.6(e). Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information.

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Section 4.7 Further Assurances.

Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Article IV.

Section 4.8 Dispute Resolution.

In the event of any disagreement arising under this Article IV, including any dispute in connection with a claim by a third party (a “Tax Dispute”), the parties shall promptly notify the chief financial officer of each of Loews and Lorillard (each, a “CFO” and, together, the “CFOs”) of such Tax Dispute, who together shall attempt in good faith to resolve such Tax Dispute. If such Tax Dispute is not resolved within seven Business Days following the date on which the CFOs receive notification, the parties shall jointly retain an independent, nationally recognized law or accounting firm which must be located in New York, New York (the “Tax Advisor”) to act as an arbitrator in order to resolve the Tax Dispute. The Tax Advisor’s determination as to any Tax Dispute shall be made in accordance with the terms of this Article IV and shall be final and binding on the parties and not subject to collateral attack for any reason (other than manifest error). All fees and expenses of the Tax Advisor shall be shared equally by Loews and Lorillard.

ARTICLE V

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, DISPOSITION AND DIVESTITURE

Section 5.1 Consolidation, Merger, Conveyance, Transfer, Disposition and Divestiture.

(a) If any member of the Lorillard Group enters into a letter of intent, agreement in principle (or other agreement whether or not subject to conditions) or enters into a binding agreement to (i) consolidate with or merge into any other Person (other than another member of the Lorillard Group that is a party to this Agreement) or (ii) convey, transfer or otherwise dispose of or divest (including by way of sale, assignment, license, lease, pledge or hypothecation) all or a significant portion of its properties or assets to any other Person (other than another member of the Lorillard Group that is a party to this Agreement), then such member of the Lorillard Group shall promptly, but in no event later than one Business Day following such event, provide notice to Loews of such event; provided, however, that the failure of such member of the Lorillard Group to deliver said notice shall not release such party from its obligations hereunder.

(b) If any member of the Lorillard Group (i) consolidates with or merges into any other Person (other than another member of the Lorillard Group that is a party to this Agreement) or (ii) conveys, transfers or otherwise disposes of or divests (including by way of sale, assignment, license, lease, pledge or hypothecation) all or a significant portion of its properties or assets to any other

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Person (other than another member of the Lorillard Group that is a party to this Agreement), then as a condition to the effectiveness of such consolidation, merger, conveyance, transfer, disposition or divestiture, such other Person shall automatically become jointly and severally bound by all of the obligations hereunder of each party hereto that is a member of the Lorillard Group, and shall further evidence such obligation by executing and delivering to Loews prior to or at the time of such consolidation, merger, conveyance, transfer, disposition or divestiture a written agreement substantially in the form attached hereto as Exhibit A.

(c) For purposes of this Section 5.1, any equity security or equity interest of Lorillard Licensing Company, LLC and any interest in the intellectual property owned by Lorillard Licensing Company, LLC will be deemed a “significant portion” of the properties or assets of each of Lorillard and Lorillard Licensing Company, LLC.

(d) Any consolidation, merger, conveyance, transfer, disposition or divestiture in violation of this Section 5.1 shall be void.

(e) Lorillard shall describe its obligations under this Agreement, including specifically those provided for in this Article V, in each set of annual audited financial statements or interim unaudited financial statements that is included in any Filing that it makes with the SEC.

ARTICLE VI

DISPUTE RESOLUTION

Section 6.1 Negotiation.

In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity, termination or breach of this Agreement or otherwise arising out of, or in any way related to, this Agreement (collectively, “Agreement Disputes”), the general counsels of Lorillard and Loews and/or such other executive officer designated by the relevant party shall in good faith negotiate for a reasonable period of time to settle such Agreement Dispute; provided, that such reasonable period shall not, unless otherwise agreed by the relevant parties in writing, exceed thirty days from the time of receipt by any such party of written notice of such Agreement Dispute (“Dispute Notice”); provided, further, that in the event of any arbitration in accordance with Section 6.2 hereof, the relevant parties shall not assert the defenses of statute of limitations and laches arising during the period beginning after the date of receipt of the Dispute Notice, and any contractual time period or deadline under this Agreement to which such Agreement Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Agreement Dispute has been resolved.

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Section 6.2 Arbitration.

If the Agreement Dispute has not been resolved for any reason after thirty days have elapsed from the receipt by a party thereto of a Dispute Notice, such Agreement Dispute shall be determined, at the request of any relevant party, by arbitration conducted in New York City, before and in accordance with the then-existing Commercial Arbitration Rules of the American Arbitration Association (“AAA”), except as modified herein (the “Rules”). There shall be three arbitrators. Each of Loews and Lorillard shall appoint one arbitrator within thirty (30) days of receipt by respondent of a copy of the demand for arbitration. The two party-appointed arbitrators shall have thirty (30) days from the appointment of the second arbitrator to agree on a third arbitrator who shall chair the arbitral tribunal. Any arbitrator not timely appointed by the parties shall be appointed by the AAA upon the written request of either Loews or Lorillard within thirty (30) days of such request in accordance with the listing, ranking and striking method in the Rules, and in any such procedure, each party shall be given a limited number of strikes, excluding strikes for cause. The hearing shall be held no later than one hundred twenty (120) days following the appointment of the third arbitrator. Any controversy concerning whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether any Person is bound to arbitrate, or as to the interpretation of enforceability of this Article VI shall be determined by the arbitrators. In resolving any Agreement Dispute, the parties intend that the arbitrators shall apply the substantive laws of the State of New York, without regard to any choice of law principles thereof that would mandate the application of the laws of another jurisdiction. The parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrators shall be final and binding on the parties. The parties agree to comply and cause the members of their applicable Group to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction, including (a) the Supreme Court of the State of New York, New York County, or (b) the United States District Court for the Southern District of New York. The arbitrators shall be entitled, if appropriate, to award any remedy in such proceedings, including monetary damages, specific performance and all other forms of legal and equitable relief; provided, however, the arbitrators shall not be entitled to award punitive, exemplary, treble or any other form of non-compensatory damages unless in connection with indemnification for a Third Party Claim (and in such a case, only to the extent awarded in such Third Party Claim). Without limiting the provisions of the Rules, unless otherwise agreed in writing by or among the relevant parties or permitted by this Agreement, the relevant parties shall keep, and shall cause the members of their applicable Group to keep, confidential all matters relating to the arbitration or the award, and any negotiations, conferences and discussions pursuant to this Article VI shall be treated as compromise and settlement negotiations; provided, that such matters may be disclosed (i) to the extent reasonably necessary in any proceeding brought to enforce the award or for entry of a judgment upon the award and (ii) to the extent otherwise required by law, rule, regulation or legal process. Nothing said or disclosed, nor any document produced, in the course of any negotiations, conferences and discussions that is not otherwise independently discoverable shall be offered or received as

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evidence or used for impeachment or for any other purpose in any current or future arbitration. Nothing contained herein is intended to or shall be construed to prevent any party from applying to any court of competent jurisdiction for interim measures or other provisional relief in connection with the subject matter of any Agreement Disputes. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

Section 6.3 Costs and Expenses.

Loews and Lorillard will bear equally all fees, costs, disbursements and other expenses of the arbitration, and each of them shall be solely responsible for all fees, costs, disbursements and other expenses incurred in the preparation and prosecution of its case; provided, that in the event that a party fails to comply with the orders or decision of the arbitral tribunal, then such non-complying party shall be liable for all costs and expenses (including, without limitation, attorneys fees) incurred by the other party in its effort to obtain either an order to compel, or an enforcement of an award, from a court of competent jurisdiction.

Section 6.4 Confidentiality of Arbitration Proceedings.

Except to the extent necessary in connection with arbitration of any Agreement Dispute, a court challenge to the arbitration contemplated by Section 6.2 hereof or for enforcement of an arbitral award, information concerning (i) the existence of an arbitration pursuant to Section 6.2 hereof, (ii) any documentary or other evidence given by a party or a witness in the arbitration and (iii) the arbitration award may not be disclosed by the tribunal administrator, the arbitrators, any party or its counsel to any Person or entity not connected with the proceeding unless required by law, rule, regulation or legal process, and then only to the extent of disclosing what is legally required. A party filing any document arising out of or relating to any arbitration in court shall seek from the court confidential treatment for such document.

Section 6.5 Tax Matters.

This Article VI shall not apply to any matters to which Article IV applies.

ARTICLE VII

OTHER PROVISIONS

Section 7.1 Treatment of Carolina Group 2002 Stock Option Plan.

Each of Loews and Lorillard shall take all actions necessary so that each option to purchase shares of CG Stock (each, a “CG Option”) and each stock appreciation right to be settled in shares of CG Stock (each, a “CG SAR”) issued under the Carolina

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Group 2002 Stock Option Plan which is outstanding and unexercised immediately prior to the Effective Date shall be assumed as of such date by Lorillard and shall be converted into, as applicable, either (a) an option to purchase the same number of shares of Lorillard common stock as was subject to the CG Option being assumed, at the same exercise price, for the same remaining period and subject to the same terms and conditions (including those relating to vesting) applicable to the CG Option being assumed, or (b) a stock appreciation right with respect to the same number of shares of Lorillard common stock as were subject to the CG SAR being assumed, at the same exercise price, for the same remaining period and subject to the same terms and conditions (including those relating to vesting) applicable to the CG SAR being assumed. Effective as of the Effective Date, Lorillard shall assume the Carolina Group 2002 Stock Option Plan.

Section 7.2 Provision of Information.

(a) If, from time to time after the Effective Date, Loews determines in good faith that it requires financial or other information related to Lorillard or any other member of the Lorillard Group for the purpose of complying with its obligations under the federal securities laws, including for use in connection with any Filing, then Lorillard shall promptly provide such information to Loews upon request.

(b) If, from time to time after the Effective Date, Lorillard determines in good faith that it requires financial or other information related to Loews for the purpose of complying with its obligations under the federal securities laws, including for use in connection with any Filing, then Loews shall promptly provide such information to Lorillard upon request.

Section 7.3 Binding Effect.

This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their successors and assigns (including, but not limited to, any successor of Loews or Lorillard succeeding to the Tax attributes of such party under Section 381 of the Code), except as expressly otherwise provided herein. All references in this Agreement to the equity of any member of the Lorillard Group shall also mean and refer to the equivalent securities of or ownership interest in any successor to such Lorillard Group member.

Section 7.4 No Assignment.

Except as otherwise provided for in this Agreement, neither this Agreement nor any of the rights, interests or obligations of any party hereto may be assigned by such party without the prior written consent of the other parties, other than an assignment by any party to this Agreement of all of its rights, interests or obligations hereunder to its successor.

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Section 7.5 No Third Party Beneficiaries.

Nothing in this Agreement shall convey any rights upon any Person or entity which is not a party or a permitted assignee of a party to this Agreement, except with respect to released Persons and Indemnified Parties under Article III and Article IV.

Section 7.6 Notices.

All notices and other communications provided for hereunder shall be dated and in writing and shall be deemed to have been given (a) when delivered, if delivered personally, sent by confirmed telecopy or sent by registered or certified mail, return receipt requested, postage prepaid, (b) on the next Business Day if sent by overnight courier, and (c) when received if delivered otherwise. Such notices shall be delivered to the address set forth below, or to such other address as any party shall furnish to each other party.

If to Loews or any other member of the Loews Group, to:

General Counsel

Loews Corporation

667 Madison Avenue

New York, New York 10065-8087

Phone: (212) 521-2000

Fax: (212) 521-2997

If to Lorillard or any other member of the Lorillard Group, to:

General Counsel

Lorillard, Inc.

714 Green Valley Road

Greensboro, North Carolina 27408-7018

Phone: (336) 335-7718

Facsimile: (336) 335-7707

Section 7.7 Governing Law.

This Agreement shall be construed and enforced in accordance with, and the rights and duties of the parties shall be governed by, the laws of the State of New York without regard to any principles of conflicts of law or choice of law that would mandate the application of laws of another jurisdiction.

Section 7.8 Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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Section 7.9 Severability.

In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. To the extent that any such provision is so held to be invalid, illegal or unenforceable, Loews and Lorillard shall in good faith use their best efforts to find and effect an alternative means to achieve the same or substantially the same result as that contemplated by such provision.

Section 7.10 Amendment, Modification and Termination.

This Agreement may be amended, modified, supplemented or terminated only by written agreement executed by all of the parties hereto or their respective successors, provided, however, this Agreement may be terminated by Loews at any time and for any reason prior to the Effective Date.

Section 7.11 Entire Agreement.

This Agreement, including any schedules or exhibits annexed hereto, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes all previous negotiations, commitments and writings with respect to such subject matter. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein.

Section 7.12 No Circumvention.

The parties, on behalf of themselves and their successors, agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such party’s Group or any successor to such Person to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement (including adversely affecting the rights or ability of any party to successfully pursue indemnification, contribution or payment pursuant to Article III or Article IV).

Section 7.13 Descriptive Headings.

The descriptive headings of the several articles and sections of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof.

Section 7.14 Drafting of Language.

Each of the parties hereto agrees that the drafting of the language contained in this Agreement was a cooperative effort, that each party was equally responsible for such drafting and that it would be inequitable for any party to be deemed the “drafter” of any specific language contained herein pursuant to any judicial doctrine or presumption relating thereto.

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IN WITNESS HEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written.

LOEWS CORPORATION
By:	/s/ Gary W. Garson
Name:	Gary W. Garson
Title:	Senior Vice President, Secretary and General Counsel
LORILLARD, INC.
By:	/s/ Ronald S. Milstein
Name:	Ronald S. Milstein
Title:	Senior Vice President, Legal and External Affairs, General Counsel and Secretary
LORILLARD TOBACCO COMPANY
By:	/s/ Ronald S. Milstein
Name:	Ronald S. Milstein
Title:	Senior Vice President, Legal and External Affairs, General Counsel and Secretary
LORILLARD LICENSING COMPANY, LLC
By:	/s/ Victor Lindsley
Name:	Victor Lindsley
Title:	Member of the Board of Directors

Signature Page to Separation Agreement

ONE PARK MEDIA SERVICES, INC.
By:	/s/ Ronald S. Milstein
Name:	Ronald S. Milstein
Title:	Vice President and Assistant Secretary
PLISA S.A.
By:	/s/ Vincent Losito
Name:	Vincent Losito
Title:	Member of the Board of Directors

Signature Page to Separation Agreement

Exhibit A

Form of Assumption Agreement

Date:                     

Loews Corporation

Attention: General Counsel

667 Madison Avenue

New York, New York 10065-8087

Ladies and Gentlemen:

Reference is made to the Separation Agreement (the “Separation Agreement”), dated as of May 7, 2008, by and among Loews Corporation, a Delaware corporation (“Loews”), Lorillard, Inc., a Delaware corporation (“Lorillard”), the Subsidiaries of Lorillard named therein and any other Person who later becomes a party to the Separation Agreement by an agreement substantially similar hereto or otherwise pursuant to Section 5.1 of the Separation Agreement. Capitalized terms used but not defined herein have the meanings given in the Separation Agreement.

1. Assumption. The undersigned hereby (i) acknowledges that it has received and reviewed a complete copy of the Separation Agreement, and (ii) agrees that, upon its execution of this Agreement, it shall become a party to the Separation Agreement as a member of the Lorillard Group and shall be fully bound by, and subject to, all of the terms, conditions and other provisions of the Separation Agreement that are binding upon a member of the Lorillard Group with all attendant rights, duties and obligations stated therein, with the same force and effect as if the undersigned had executed the Separation Agreement on the date thereof.

2. Notice. Section 7.6 of the Separation Agreement is hereby supplemented to reflect the undersigned party’s address for notices:

Contact:

Entity:

Address:

Facsimile:

Exhibit A-1

3. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights and duties of the parties hereto shall be governed by, the laws of the State of New York without regard to any principles of conflicts of law or choice of law that would mandate the application of laws of another jurisdiction.

4. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

5. Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreement executed by all of the parties to the Separation Agreement or their respective successors.

6. Descriptive Headings. The descriptive headings of the several sections of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning of such sections.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above.

Entity:

By:

Name:

Title:

Acknowledged by:

LOEWS CORPORATION

Name:

Title:

Exhibit A-2

EX-10.3

Exhibit 10.3

LORILLARD, INC.

2008 INCENTIVE COMPENSATION PLAN

1. General.

1.1 Purpose. The Lorillard, Inc. 2008 Incentive Compensation Plan (the “Plan”) has been established by Lorillard, Inc. (the “Company”) to (i) attract and retain persons eligible to participate in the Plan, (ii) motivate Participants, by means of appropriate incentives, to achieve long-term goals of the Company, and reward Participants for achievement of those goals, and (iii) provide incentive compensation opportunities that are competitive with those of other companies, and thereby promote the financial interest of the Company and its Subsidiaries.

1.2 Operation and Administration. The operation and administration of the Plan shall be subject to the provisions of Section 2 (relating to operation and administration). Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Section 3 of the Plan).

2. Operation and Administration of the Plan.

The Plan shall be administered by a Committee appointed by the Board of Directors. The Committee shall have the authority, in its sole discretion, subject to and not inconsistent with the express terms and provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted (including whether an Option granted is an ISO or NQSO); to determine the number of shares of Company Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria, if any, relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged or surrendered; to make adjustments in the Performance Goals that may be required for any award in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company (to the extent not inconsistent with Section 162(m) of the Code, if applicable), or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Award Certificates; and to make all other determinations deemed necessary or advisable for the administration of the Plan.

The Committee may, in its absolute discretion, without amendment to the Plan, (a) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after Termination or otherwise adjust any of the terms of such Option, and (b) accelerate the vesting date, or waive any condition imposed hereunder, with respect to any Award or otherwise adjust any of the terms applicable to any Award. Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding awards may not be amended to reduce the exercise price of outstanding Options or SARs or cancel outstanding Options or SARs in exchange for cash, other awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs without stockholder approval.

Subject to Section 162(m) of the Code and except as required by Rule 16b-3 with respect to grants of Awards to individuals who are subject to Section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees.

The Board of Directors may exercise any of the authority conferred upon the Committee hereunder. In the event of any such delegation of authority or exercise of authority by the Board of Directors, references in the Plan to the Committee shall be deemed to refer to the delegate of the Committee or the Board of Directors, as the case may be. All decisions, determinations and interpretations of the Committee or the Board of Directors shall be final and binding on all persons with any interest in an Award, including the Company and the Participant (or any person claiming any rights under the Plan from or through any Participant). No member of the Committee or the Board of Directors shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award.

3. Definitions.

3.1 “Annual Incentive Award” shall mean a cash-based Performance Award described in Section 6.5 or an Other Cash-Based Award described in Section 6.6 hereof, in either case, where the amount of such award is based upon a performance period of one year or less.

3.2 “Award” shall mean any Option, Restricted Stock, Restricted Stock Unit, Stock Bonus award, Stock Appreciation Right, Performance Award, Other Stock-Based Award or Other Cash-Based Award granted pursuant to the terms of the Plan.

3.3 “Award Certificate” shall mean the written certificate setting forth the terms and conditions of an Award, in such form as the Committee may from time to time prescribe.

3.4 “Board of Directors” shall mean the Board of Directors of the Company.

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3.5 “Cause” shall have the meaning set forth in the employment or engagement agreement between a Participant and the Company, its Subsidiaries or any of their successors, if such agreement exists and contains a definition of Cause; otherwise Cause shall mean (1) conviction of the Participant for committing (or the Participant’s plea of nolo contendere to) a felony under Federal law or the law of the state in which such action occurred, (2) dishonesty in the course of fulfilling a Participant’s employment, engagement or directional duties, (3) willful and deliberate failure on the part of a Participant to perform the Participant’s employment, engagement or directional duties in any material respect or (4) such other events as shall be determined in good faith by the Committee. The Committee shall, unless otherwise provided in the Award Certificate or any employment agreement with the Participant, have the sole discretion to determine whether Cause exists, and its determination shall be final and binding.

3.6 “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(i) any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 30% or more of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or

(ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least a two-thirds of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or

(iii) there is consummated a merger or consolidation of the Company with any other corporation other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 30% or more of the combined voting power of the Company’s then outstanding securities; or

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(iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity at least 70% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale.

3.7 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. References in the Plan to specific sections of the Code shall be deemed to include any successor provisions thereto.

3.8 “Committee” shall mean, at the discretion of the Board of Directors, a Committee of the Board of Directors, which shall consist of two or more persons, each of whom, unless otherwise determined by the Board of Directors, is an “outside director” within the meaning of Section 162(m) of the Code and a “nonemployee director” within the meaning of Rule 16b-3.

3.9 “Company” shall mean Lorillard, Inc., a Delaware corporation, and, where appropriate, each of its Subsidiaries.

3.10 “Company Stock” shall mean the common stock of the Company, par value $.01 per share.

3.11 “Disability” shall mean, unless otherwise provided by the Committee, (1) “Disability” as defined in any individual Award Certificate to which the Participant is a party, or (2) if there is no Award Certificate or it does not define “Disability,” permanent and total disability as determined under the Company’s long-term disability plan, the long-term disability plan maintained by any Subsidiary or any company attributed to the Company in the future applicable to the Participant.

3.12 “Effective Date” shall mean the date as of which this Plan is adopted by the Board of Directors.

3.13 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

3.14 The “Fair Market Value” of a share of Company Stock, as of a date of determination, shall mean (1) the closing sales price per share of Company Stock on the national securities exchange on which such stock is principally traded on the date of determination of such Award (or the closing price on the last trading day prior to the date of determination if the date of determination was not a trading day), or (2) if the shares of Company Stock are not listed or admitted to trading on any such exchange, the closing sales price

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per share of Company Stock as reported by the Nasdaq Stock Market on the date of determination, or if the date of determination is not a trading day, for the trading day immediately preceding the day of the determination of the Award, or (3) if the shares of Company Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith. In no event shall the fair market value of any share of Company Stock, the Option exercise price of any Option, the exercise price per share of Company Stock under any Stock Appreciation Right, or the amount payable per share of Company Stock under any other Award, be less than the par value per share of Company Stock.

3.15 “Full Value Award” means any Award, other than an Option or Stock Appreciation Right, which Award is settled in Stock.

3.16 “ISO” shall mean an Option that is an “incentive stock option” within the meaning of Section 422 of the Code, or any successor provision, and that is designated by the Committee as an ISO.

3.17 “Long Term Incentive Award” shall mean an Award described in Section 6.5 hereof that is based upon a performance period in excess of one year.

3.18 “Non-employee Director” shall mean a member of the Board of Directors who is not an employee of the Company.

3.19 “NQSO” shall mean a nonqualified stock option, which is an Option other than an ISO.

3.20 “Option” shall mean an option to purchase shares of Company Stock granted pursuant to Section 6.2.

3.21 “Other Cash-Based Award” shall mean a right or other interest granted to a Participant pursuant to Section 6.6 hereof, other than an Other Stock-Based Award.

3.22 “Other Stock-Based Award” shall mean a right or other interest granted to a Participant, valued in whole or in part by reference to, or otherwise based on, or related to, Company Stock pursuant to Section 6.6 hereof, including but not limited to (i) unrestricted Company Stock awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan, and (ii) a right granted to a Participant to acquire Company Stock from the Company containing terms and conditions prescribed by the Committee.

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3.23 “Participant” shall mean an employee, consultant or director of the Company to whom an Award is granted pursuant to the Plan, and, upon the death of the employee, consultant or director, his or her successors, heirs, executors and administrators, as the case may be.

3.24 “Performance Award” shall mean an Award, granted in the form of Company Stock, with respect to Company Stock or in cash, in each case intended to qualify as performance-based compensation pursuant to Section 162(m) of the Code, and granted to a Participant pursuant to Section 6.5 hereof.

3.25 “Performance Goal(s)” shall mean the following business criteria applied to the Participant and/or a business unit or the Company and/or a Subsidiary: revenue, economic value added (EVA), net income, operating income, unit volume, return on stockholders’ equity, return on sales, stock price, earnings per share, growth in earnings per share, earnings before interest, taxes, depreciation and amortization (EBITDA), cash flow, sales growth, margin improvement, income before taxes (IBT), IBT margin, return on investment, return on capital, return on assets, values of assets, market share, market penetration goals, personnel Performance Goals, business development goals (including without limitation regulatory submissions, product launches and other business development-related opportunities), regulatory compliance goals, customer retention goals, customer satisfaction goals, goals relating to acquisitions or divestitures, gross or operating margins, operating efficiency, working capital performance, expense targets and/or productivity targets or ratios. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria, and may be applied to one or more of the Company, a Subsidiary, or affiliate, or a division of or strategic business unit of the Company or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee, and such other criteria as the stockholders of the Company may approve.

3.26 “Person” shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, except that such term shall not include (1) the Company, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

3.27 “Restricted Stock” shall mean a share of Company Stock which is granted pursuant to the terms of Section 6.4 hereof.

3.28 “Restricted Stock Unit” shall mean a unit representing the right to receive Company Stock in the future granted under Section 6.4.

3.29 “Retirement” shall mean retirement from active employment with the Company, its subsidiaries or any of their successors, pursuant to any retirement program of the Company, its subsidiaries, or any of their successors in which the Participant participates. A Termination by a consultant or non-employee director shall not be considered a Retirement unless otherwise specifically determined by the Committee.

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3.30 “Rule 16b-3” shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time.

3.31 “Securities Act” shall mean the Securities Act of 1933, as amended from time to time.

3.32 “Stock Appreciation Right” shall mean the right, granted to a Participant under Section 6.3, to be paid an amount measured by the appreciation in the Fair Market Value of a share of Company Stock from the date of grant to the date of exercise of the right, with payment to be made in cash and/or shares of Company Stock, as specified in the Award Certificate or determined by the Committee.

3.33 “Stock Bonus” shall mean a bonus payable in shares of Company Stock granted pursuant to Section 6.4 hereof.

3.34 “Subsidiary” shall mean a “subsidiary corporation” within the meaning of Section 424(f) of the Code.

3.35 “Termination” shall mean that the Participant ceases, for any reason, to be an employee, consultant or non-employee director of the Company, its subsidiaries or any of their successors, including, without limitation, as a result of the fact that the entity by which the Participant is employed or engaged or of which he or she is a director has ceased to be affiliated with the Company, its subsidiaries or their successors. To the extent that any Award constitutes a deferral of compensation within the meaning of Section 409A(d) of the Code, no amount payable pursuant to such Award upon Termination shall be paid unless and until the Participant shall have incurred a “separation from service” within the meaning of Section 409A(a)(2)(A)(i) of the Code and the applicable guidance issued thereunder.

4. Awards Subject to the Plan.

4.1 Shares Available for Awards. The maximum number of shares of Company Stock reserved for issuance under the Plan shall be 3,000,000 shares (subject to adjustment as provided herein). Such shares may be authorized but unissued Company Stock or authorized and issued Company Stock held in the Company’s treasury. The Committee may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan.

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4.2 Individual Limitation. The total number of shares of Company Stock subject to Awards awarded to any one Participant during any tax year of the Company, shall not exceed 500,000 shares (subject to adjustment as provided herein).

4.3 ISO Limitation. The maximum number of shares of Company Stock reserved for issuance of ISOs under the Plan shall be 1,000,000 shares (subject to adjustment as provided herein).

4.4 Annual Incentive Award Limitation. The annual maximum value of the aggregate payment that any Participant may receive with respect to any Other Cash-Based Award that is an Annual Incentive Award is $10,000,000 (subject to adjustment as provided herein). The annual maximum value of the aggregate payment that any Participant may receive with respect to any such Other Cash-Based Award that is a Long Term Incentive Award is the amount set forth in the previous sentence above multiplied by a fraction, the numerator of which is the number of months in the performance period and the denominator of which is twelve.

4.5 Adjustment. In the event of a corporate transaction involving Company Stock and/or the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the Committee shall make an equitable adjustment to preserve the benefits or potential benefits of the Plan and outstanding Awards. Action by the Committee shall include, as applicable: (i) adjustment of the number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares referred to in Sections 4.1 and 4.2; (iii) adjustment of the number and kind of shares or other property subject to outstanding Awards; (iv) adjustment of the exercise price, grant price or purchase price relating to any Award; (v) settlement in cash or Company Stock of an Award; and (vi) any other adjustments that the Committee determines to be equitable; provided that, except as the Committee may otherwise determine, with respect to ISOs, any such adjustment shall be made in accordance with Section 424 of the Code and no such adjustment shall cause any Award hereunder which is or could be subject to Section 409A of the Code to fail to comply with the requirements of such section.

4.6 Reuse of Shares. If any shares subject to an Award are forfeited, cancelled, or surrendered or if an Award terminates or expires without a distribution of shares to the Participant, the shares of Company Stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, surrender, withholding, termination or expiration, again be available for Awards under the Plan. Notwithstanding the foregoing, upon the exercise of any Award granted in tandem with any other Awards, such related Awards shall be cancelled to the extent of the number of shares of Company Stock as to which the Award is exercised and such number of shares shall no longer be available for Awards under the Plan.

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5. Eligibility.

The persons who shall be eligible to receive Awards pursuant to the Plan shall be individuals the Committee shall select from time to time, who are employees (including officers of the Company and its Subsidiaries, whether or not they are directors of the Company or its Subsidiaries), Non-employee Directors, and consultants of the Company and its Subsidiaries as the Committee shall select from time to time; provided, that ISOs shall be granted only to employees (including officers and directors who are also employees) of the Company or its Subsidiaries.

6. Awards Under the Plan.

6.1 Award Certificate. The Committee may grant Awards in such amounts and with such terms and conditions as the Committee shall determine in its sole discretion, subject to the terms and provisions of the Plan. Each Award granted under the Plan (except an unconditional Stock Bonus) shall be evidenced by an Award Certificate as the Committee may in its sole discretion deem necessary or desirable and unless the Committee determines otherwise, such Award Certificate must be signed, acknowledged and returned by the Participant to the Company. Unless the Committee determines otherwise, any failure by the Participant to sign and return the Award Certificate within such period of time following the granting of the Award as the Committee shall prescribe shall cause such Award to the Participant to be null and void. By accepting an Award or other benefits under the Plan (including participation in the Plan), each Participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, all provisions of the Plan and the Award Certificate.

6.2 Stock Options.

(a) Grant of Stock Options. The Committee may grant Options under the Plan to purchase shares of Company Stock in such amounts and subject to such terms and conditions as the Committee shall from time to time determine in its sole discretion, subject to the terms and provisions of the Plan. The exercise price of the share purchasable under an Option shall be determined by the Committee, but in no event shall (i) the exercise price be less than the Fair Market Value per share on the grant date of such Option, or (ii) the period to exercise the Option exceed ten (10) years as measured from the date of grant.

(b) Each Option shall be clearly identified in the applicable Award Certificate as either an ISO or a NQSO and shall state the number of shares of Company Stock to which the Option (and/or each type of Option) relates.

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(c) Special Requirements for ISOs.

(i) To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which ISOs are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company shall exceed $100,000, such Options shall be treated as NQSOs. Such Fair Market Value shall be determined as of the date on which each such ISO is granted.

(ii) No ISO may be granted to an individual if, at the time of the proposed grant, such individual owns (or is deemed to own under the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company unless (A) the exercise price of such ISO is at least 110 percent of the Fair Market Value of a share of Company Stock at the time such ISO is granted and (B) such ISO is not exercisable after the expiration of five years from the date such ISO is granted.

6.3 Stock Appreciation Rights.

(a) The Committee may grant either unrelated Stock Appreciation Rights or related (tandem) Stock Appreciation Rights as follows:

(i) The Committee may grant unrelated Stock Appreciation Rights in such amount and subject to such terms and conditions, as the Committee shall from time to time determine in its sole discretion, subject to the terms and provisions of the Plan, provided, however, that in no event shall (i) the exercise price of the shares of Company Stock subject to the Stock Appreciation Right be less than the Fair Market Value per share of Company Stock on the grant date of such Stock Appreciation Right, or (ii) the period to exercise the Stock Appreciation Right exceed ten (10) years as measured from the date of grant. The holder of a Stock Appreciation Right shall, subject to the terms and conditions of the Plan and the applicable Award Certificate, have the right to surrender to the Company for cancellation all or a portion of such Stock Appreciation Right, but only to the extent that such Stock Appreciation Right is then exercisable, and to be paid therefore, in either shares of Company Stock or cash, as the Committee shall determine in the Award Certificate or otherwise, an amount equal to the excess (if any) of (x) the aggregate Fair Market Value of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered, determined as of the exercise date, over (y) the aggregate exercise price of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered.

(ii) The Committee may grant a related Stock Appreciation Right in connection with all or any part of an Option granted under the Plan, either at the time such Option is granted or at any time thereafter prior to the exercise, termination or cancellation of such Option, and subject to such terms and conditions as the Committee shall from time to time determine in its sole discretion, consistent with the terms and provisions of the Plan, provided, however, that in no event shall the

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exercise price of the shares of Company Stock subject to the Stock Appreciation Right be less than the Fair Market Value per share on the grant date of such Stock Appreciation Right. The holder of a related Stock Appreciation Right shall, subject to the terms and conditions of the Plan and the applicable Award Certificate, have the right by exercise thereof to surrender to the Company for cancellation all or a portion of such related Stock Appreciation Right, but only to the extent that the related Option is then exercisable, and to be paid therefor, in either shares of Company Stock or cash, as the Committee shall determine in the Award Certificate or otherwise, an amount equal to the excess (if any) of (i) the aggregate Fair Market Value of the shares of Company Stock subject to the related Stock Appreciation Right or portion thereof surrendered, determined as of the exercise date, over (ii) the aggregate exercise price of the shares of Company Stock subject to the Stock Appreciation Right or portion thereof surrendered. Upon any exercise of a related Stock Appreciation Right or any portion thereof, the number of shares of Company Stock subject to the related Option shall be reduced by the number of shares of Company Stock in respect of which such Stock Appreciation Right shall have been exercised. Upon any exercise of an Option or portion thereof, the number of shares of Company Stock subject to any related Stock Appreciation Right shall be reduced by the number of shares of Company Stock in respect of which such Option shall have been exercised.

(b) The grant or exercisability of any Stock Appreciation Right shall be subject to such conditions as the Committee, in its sole discretion, shall determine.

6.4 Restricted Stock, Restricted Stock Units, and Stock Bonus.

(a) The Committee may grant Restricted Stock awards, consisting of such number of shares of Company Stock, alone or in tandem with other Awards under the Plan, subject to such restrictions, terms and conditions, as the Committee shall determine in its sole discretion and as shall be evidenced by the applicable Award Certificates. The vesting of a Restricted Stock award granted under the Plan may be conditioned upon the completion of a specified period of employment or service with the Company or any Subsidiary, upon the attainment of specified Performance Goals, and/or upon such other criteria as the Committee may determine in its sole discretion. The Committee may also grant Restricted Stock Unit awards representing the right to receive shares of Company Stock in the future. Such right may be subject to the achievement of one or more goals relating to the completion of service by the Participant and/or the achievement of performance or other objectives.

(b) The Committee may, upon such terms and conditions as the Committee determines in its sole discretion, provide that a certificate or certificates representing the shares underlying a Restricted Stock award shall be registered in the Participant’s name and bear an appropriate legend specifying that such shares are not transferable and are subject to the provisions of the Plan and the restrictions, terms and conditions set forth in the applicable Award Certificate, or that such certificate or certificates shall be held in escrow by the Company on behalf of the Participant until such shares become vested or are forfeited. Except as provided in the applicable Award Certificate, no shares underlying a Restricted Stock award may be assigned, transferred, or otherwise encumbered or disposed of by the Participant until such shares have vested in accordance with the terms of such Award.

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(c) If and to the extent that the applicable Award Certificate may so provide, a Participant shall have the right to vote and receive dividends on the shares underlying a Restricted Stock award granted under the Plan. Unless otherwise provided in the applicable Award Certificate, any stock or other property received as a dividend on or in connection with a stock split of the shares underlying a Restricted Stock award shall be subject to the same restrictions as the shares underlying such Restricted Stock award.

(d) Restricted Stock Unit awards shall be subject to the restrictions, terms and conditions contained in the Plan and the applicable Award Certificates entered into by the Participants. Until the lapse or release of all restrictions applicable to an Award of Restricted Stock Units, no shares of Company Stock shall be issued in respect of such Awards and, unless otherwise provided by the Committee in the Award Certificate, no Participant shall have any rights as a stockholder of the Company with respect to the shares of Company Stock covered by such Restricted Stock Unit award. Upon the lapse or release of all restrictions with respect to a Restricted Stock Unit award or at a later date if distribution has been deferred, in accordance with the provisions of Section 409A of the Code, one or more share certificates, registered in the name of the Participant, for an appropriate number of shares, free of any restrictions set forth in the Plan and the related Award Certificate shall be delivered to the Participant.

(e) The Committee may grant Stock Bonus awards, alone or in tandem with other Awards under the Plan, subject to such terms and conditions as the Committee shall determine in its sole discretion and as may be evidenced by the applicable Award Certificate.

(f) Notwithstanding anything contained in this Section 6.4 to the contrary, the Committee may, in its sole discretion, waive the forfeiture period and any other conditions set forth in any Award Certificate under appropriate circumstances (including the death, disability or Retirement of the Participant or a material change in circumstances arising after the date of an Award) and subject to such terms and conditions (including forfeiture of a proportionate portion of the Award) as the Committee shall deem appropriate.

6.5 Performance Based Awards.

(a) The Committee may grant Company Stock-and/or cash-based Performance Awards, alone or in tandem with other Awards under the Plan, to acquire shares of Company Stock or cash, intended to qualify as performance based compensation under Section 162(m) of the Code, in such amounts and subject to such terms and conditions as the Committee shall from time to time in its sole discretion determine, subject to the terms of the Plan. To the extent necessary to satisfy the “short-term deferral” exception to Section 409A of the Code, unless the Committee shall determine otherwise, the Performance Awards shall provide that payment shall be made within 2 ¹/2 months after the end of the performance period to which the Award relates.

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(b) In the event that the Committee grants a Performance Award (other than an Option) that is intended to constitute qualified performance-based compensation within the meaning of Section 162(m) of the Code, the following rules shall apply (as such rules may be modified by the Committee to conform with Section 162(m) of the Code and the Treasury Regulations thereunder as may be in effect from time to time, and any amendments, revisions or successor provisions thereto): (a) payments (whether in cash or Company Stock) under the Performance Award shall be made solely on account of the attainment of one or more objective Performance Goals; (b) Performance Goals shall be established in writing by the Committee not later than 90 days after the commencement of the period of service to which the Performance Award relates (or such shorter period as may be required under Section 162(m) of the Code); and (c) the Committee may not have discretion to increase the amount payable under such Award with respect to any “covered employee” as defined in Section 162(m) of the Code after the Award is granted, provided, however, that whether or not a Performance Award is intended to constitute qualified performance-based compensation within the meaning of Section 162(m) of the Code, the Committee shall have the authority to make appropriate adjustments in Performance Goals under an Award to reflect the impact of extraordinary items not reflected in such Performance Goals. For purposes of the Plan, extraordinary items shall mean (1) any profit or loss attributable to acquisitions or dispositions of stock or assets, (2) any changes in accounting standards that may be required or permitted by the Financial Accounting Standards Board or adopted by the Company after the goal is established, (3) all items of gain, loss or expense for the year related to restructuring charges for the Company, (4) all items of gain, loss or expense for the year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business, (5) all items of gain, loss or expense for the year related to discontinued operations that do not qualify as a segment of a business as defined in APB Opinion No. 30, and (6) such other items as may be prescribed by Section 162(m) of the Code and the Treasury Regulations thereunder as may be in effect from time to time, and any amendments, revisions or successor provisions and any changes thereto. The Committee shall, prior to making payment under any award under this Section 6.5, certify in writing that all applicable Performance Goals have been attained. The Committee may establish such other rules applicable to Performance Awards to the extent not inconsistent with Section 162(m) of the Code.

6.6 Other Stock- or Other Cash-Based Awards.

(a) The Committee is authorized to grant Awards to Participants in the form of Other Stock-Based Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Other Stock-Based awards, consisting of stock purchase rights, Awards of Company Stock, or Awards valued in whole or in part by reference to, or otherwise based on, Company Stock, may be granted either alone or in addition to or in conjunction with other Awards under the Plan. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the persons to

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whom and the time or times at which such Awards shall be made, the number of shares of Company Stock to be granted pursuant to such Awards, and all other conditions of the Awards. Unless otherwise determined by the Committee, any such Award shall be confirmed by an Award Certificate executed by the Company and the Participant, which Award Certificate shall contain such provisions as the Committee determines to be necessary or appropriate to carry out the intent of this Plan with respect to such Award.

(b) To the extent necessary to satisfy the “short-term deferral” exception to Section 409A of the Code, unless the Committee shall determine otherwise, the Awards shall provide that payment shall be made within 2 ¹/2 months after the end of the performance period to which the Award relates. With respect to Other Stock- or Other Cash-Based Awards intended to qualify as performance-based compensation under Section 162(m) of the Code, such Award shall comply with the requirements of Section 6.5 hereof.

6.7 Exercisability of Awards; Cancellation of Awards in Certain Cases.

(a) Except as hereinafter provided, each Award Certificate with respect to an Option or Stock Appreciation Right shall set forth the period during which and the conditions subject to which the Option or Stock Appreciation Right evidenced thereby shall be exercisable, and each Award Certificate with respect to a Restricted Stock award, Restricted Stock Unit award, Stock Bonus award, Performance Award or other applicable award shall set forth the period after which and the conditions subject to which the shares underlying such Award shall vest or be deliverable, all such periods and conditions to be determined by the Committee in its sole discretion.

(b) Except as provided in Section 7 hereof, no Option or Stock Appreciation Right may be exercised and no shares of Company Stock underlying any other Award under the Plan may vest or become deliverable unless the Participant is at such time in the employ (for Participants who are employees) or service (for Participants who are Non-employee Directors or consultants) of the Company or a Subsidiary (or a company, or a parent or subsidiary company of such company, issuing or assuming the relevant right or award in a transaction) and has remained continuously so employed or in service since the relevant date of grant of the Award.

(c) An Option or Stock Appreciation Right shall be exercisable by the filing of a written notice of exercise or a notice of exercise in such other manner with the Company, on such form and in such manner as the Committee shall in its sole discretion prescribe, and by payment in accordance with Section 6.8 hereof.

(d) Unless the applicable Award Certificate provides otherwise, in the case of an Option or Stock Appreciation Right, at any time after the Company’s receipt of written notice of exercise of an Option or Stock Appreciation Right and prior to the Option or Stock Appreciation Right exercise date (as defined in Section 6.7(e)), and in the case of a stock award or Performance Award,

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at any time within the six (6) business days immediately preceding the otherwise applicable date on which the previously Restricted Stock, stock award or Performance Award would otherwise have become unconditionally vested or the shares subject thereto unconditionally deliverable, the Committee, in its sole discretion, shall have the right, by written notice to the Participant, to cancel such Award or any part thereof if the Committee, in its sole judgment, determines that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Company Stock from, and/or the Participant’s sale of Company Stock to, the public markets illegal, impracticable or inadvisable. If the Committee determines to cancel all or any part of an Award, the Company shall pay to the Participant an amount equal to the excess of (i) the aggregate Fair Market Value of the shares of Company Stock subject to the Award or part thereof canceled (determined as of the Option or Stock Appreciation Right exercise date, or the date that shares would have been unconditionally vested or delivered in the case of Restricted Stock, Stock Bonus or Performance Award), over (ii) the aggregate Option exercise price or the Stock Appreciation Right exercise price or part thereof canceled (in the case of an Option or Stock Appreciation Right) or any amount payable as a condition of delivery of shares (in the case of Restricted Stock, Stock Bonus or Performance Award). Such amount shall be delivered to the Participant as soon as practicable after such Award or part thereof is canceled.

(e) Unless the applicable Award Certificate provides otherwise, the “Option exercise date” and the “Stock Appreciation Right exercise date” shall be the date that the written notice of exercise, together with payment, are received by the Company.

6.8 Payment of Award Price.

(a) Unless the applicable Award Certificate provides otherwise or the Committee in its sole discretion otherwise determines, any written notice of exercise of an Option or Stock Appreciation Right must be accompanied by payment of the full exercise price. If Section 6.7(d) applies, and the six (6) business day delay for the Option exercise date is applied, the Participant shall have no right to pay the Option exercise price or to receive Company Stock with respect to the Option prior to the lapse of such six (6) business days.

(b) Payment of the Option exercise price and of any other payment required by the Award Certificate to be made pursuant to any other Award shall be made in any combination of the following: (a) by certified or official bank check payable to the Company (or the equivalent thereof acceptable to the Committee), (b) with the consent of the Committee in its sole discretion, by personal check (subject to collection) which may in the Committee’s discretion be deemed conditional, (c) unless otherwise provided in the applicable Award Certificate, and as permitted by the Committee, by delivery of previously-acquired shares of Company Stock owned by the Participant having a Fair Market Value (determined as of the Option exercise date, in the case of Options, or other relevant payment date as determined by the Committee, in the case of other Awards) equal to the portion of the exercise price being paid thereby; and/or (d) unless otherwise provided in applicable Award Certificate, and as permitted by the Committee, on a net-settlement basis with the Company withholding the amount of Company Stock sufficient to cover the

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exercise price and tax withholding obligation. Payment in accordance with clause (a) of this Section 6.8(b) may be deemed to be satisfied, if and to the extent that the applicable Award Certificate so provides or the Committee permits, by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Company Stock to be acquired pursuant to the Award to pay for all of the Company Stock to be acquired pursuant to the Award and an authorization to the broker or selling agent to pay that amount to the Company and to effect such sale at the time of exercise or other delivery of shares of Company Stock.

7. Termination of An Award.

(a) With respect to vested awards, unless the applicable Award Certificate provides otherwise or the Committee in its sole discretion otherwise determines, the term of each Award shall end on the earliest of the date on which (1) such Option or Stock Appreciation Right has been exercised in full, all restrictions on such Restricted Stock award have lapsed in full, shares in respect of such Restricted Stock Unit award have been delivered, or such Performance Award, Annual Incentive Award, Stock Bonus Award, Other Stock-Based Award, or Other Cash-Based Award has been paid or settled, (2) except as described in (3), (4) or (5) below, the date on which the Participant experiences a Termination, (3) with respect to an Option or Stock Appreciation Right that has vested and become exercisable, the one-year anniversary of the date on which the Participant dies or suffers a Disability, (4) with respect to an Option or Stock Appreciation Right that has vested and become exercisable, the three-year anniversary of the date on which the Participant experiences a Termination due to such Participant’s Retirement, (5) with respect to an Option or Stock Appreciation Right that has vested and become exercisable, the end of the ninety (90) day period following the date the Participant experiences a Termination for any reason not listed in (3) or (4) above, or (6) with respect to an Option or Stock Appreciation Right, the tenth (10^th ) anniversary of the date of grant.

(b) With respect to unvested awards, unless the applicable Award Certificate provides otherwise, or the Committee in its sole discretion otherwise determines, upon the occurrence of a Termination of a Participant for any reason, all outstanding Awards that are unvested, unexercisable, restricted or subject to any performance condition, as of the date of such Termination, shall be immediately forfeited, provided, however, that the Committee, in its sole discretion (but in a manner not inconsistent with Section 162(m) of the Code), may accelerate the vesting, extend the exercise period and remove any restriction or performance condition with respect to any outstanding Award (but with respect to an Option or Stock Appreciation Right, not beyond the ten (10) year anniversary of the date of grant).

8. Effect of Change in Control.

(a) Unless the applicable Award Certificate provides otherwise or the Committee in its sole discretion determines otherwise, in the event of a Change of Control:

(i) any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested; and

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(ii) the restrictions, deferral limitations, payment conditions, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any Performance Goals imposed with respect to Awards shall be deemed to be fully achieved at the target level.

(b) Upon a Change in Control, the Committee may provide for the cancellation of all Options and Stock Appreciation Rights then outstanding. Upon such cancellation, the Company shall make, in exchange for each such Option or Stock Appreciation Right, a payment either in (i) cash, (ii) shares of the successor entity, or (iii) a combination of cash or shares, at the discretion of the Committee, and in each case as the Committee shall, in its sole discretion determine, in an amount per share subject to such Option or Stock Appreciation Right equal to the excess, if any, of the Fair Market Value of a share of Company Stock as of the date of the Change in Control over the per share exercise price of such Option or Stock Appreciation Right.

9. Miscellaneous.

(a) Award Certificates evidencing Awards under the Plan shall contain such other terms and conditions, not inconsistent with the Plan, as the Committee may determine in its sole discretion, including penalties for the commission of competitive acts or other actions detrimental to the Company. Notwithstanding any other provision hereof, the Committee shall have the right at any time to deny or delay a Participant’s exercise of Options if the Committee reasonably believes the Participant (i) to be engaged in material conduct adversely affecting the Company or (ii) to be contemplating such conduct, unless and until the Committee shall have received reasonable assurance that the Participant is not engaged in, and is not contemplating, such material conduct adverse to the interests of the Company.

(b) Participants are and at all times shall remain subject to the trading window policies adopted by the Company from time to time throughout the period of time during which they may exercise Options, Stock Appreciation Rights or sell shares of Company Stock acquired pursuant to the Plan.

10. No Special Employment Rights; No Right to Award.

(a) Nothing contained in the Plan or any Award Certificate shall confer upon any Participant any right with respect to the continuation of employment or service by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Participant.

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(b) No person shall have any claim or right to receive an Award hereunder. The Committee’s granting of an Award to a Participant at any time shall neither require the Committee to grant any other Award to such Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other person.

11. Securities Matters.

(a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable.

(b) The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any transfer of shares of Company Stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of a transfer. During the period of such deferral in connection with the exercise of an Award, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.

12. Withholding Taxes.

(a) Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.

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(b) Whenever shares of Company Stock are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash.

13. Amendment or Termination of the Plan.

The Board of Directors or the Committee may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required if and to the extent the Board of Directors or Committee determines that such approval is appropriate or necessary for purposes of satisfying Sections 162(m) or 422 of the Code or Rule 16b-3 or other applicable law. Awards may be granted under the Plan prior to the receipt of such stockholder approval of the Plan but each such grant shall be subject in its entirety to such approval and no Award may be exercised, vested or otherwise satisfied prior to the receipt of such approval. No amendment or termination of the Plan may, without the consent of a Participant, adversely affect the Participant’s rights under any outstanding Award.

14. Transfers Upon Death; Nonassignability.

(a) A Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, upon the death of a Participant, outstanding Awards granted to such Participant may be exercised only by the executor or administrator of the Participant’s estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Award.

(b) During a Participant’s lifetime, the Committee may, in its discretion, pursuant to the provisions set forth in this clause (b), permit the transfer, assignment or other encumbrance of an outstanding Option unless such Option is an ISO and the Committee and the Participant intends that it shall retain such status. Subject to the approval of the Committee and to any conditions that the Committee may prescribe, a Participant may, upon providing written notice to the General Counsel of the Company, elect to transfer any or all Options granted to such Participant pursuant to the Plan to members of his or her immediate family, including, but not limited to, children, grandchildren and spouse or to trusts for the benefit of such immediate family

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members or to partnerships in which such family members are the only partners; provided, however, that no such transfer by any Participant may be made in exchange for consideration. Any such transferee must agree, in writing, to be bound by all provisions of the Plan.

15. Effective Date and Term of Plan.

The Plan shall become effective on the Effective Date. Any Awards granted on or after the first regularly scheduled meeting of the shareholders of the Company that occurs more than twelve (12) months after the date the Company becomes a separate publicly-held corporation, within the meaning of Section 162(m) of the Code and the Treasury regulations promulgated thereunder (the “Separation Date”) shall be subject to approval of the stockholders of the Company. In the absence of such approval, Awards made after the Separation Date shall be null and void. Unless earlier terminated by the Board of Directors, the right to grant Awards under the Plan shall terminate on the first anniversary of the Effective Date if such stockholder approval is not obtained and on the tenth anniversary of the approval of the Plan by the Company’s stockholders if such stockholder approval is obtained. Awards outstanding at Plan termination shall remain in effect according to their terms and the provisions of the Plan.

16. Applicable Law.

Except to the extent preempted by any applicable federal law, the Plan shall be construed and administered in accordance with the laws of the State of Delaware, without reference to the principles of conflicts of law.

17. Rights With Respect to Awards Granted Pursuant to the Plan.

(a) No Person shall have any claim to be granted any award under the Plan. Except as provided specifically herein, a Participant or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by any award until the date of the issuance of a Company Stock certificate to him or her for such shares.

(b) Determinations by the Committee under the Plan relating to the form, amount and terms and conditions of grants and Awards need not be uniform, and may be made selectively among persons who receive or are eligible to receive grants and awards under the Plan, whether or not such persons are similarly situated.

18. Unfunded Status of Awards.

The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give any such Participant any rights that are greater than those of a general creditor of the Company.

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19. No Fractional Shares.

No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

20. Interpretation.

The Plan is designed and intended to the extent applicable, to comply with Section 162(m) of the Code, and to provide for grants and other transactions which are exempt under Rule 16b-3, and all provisions hereof shall be construed in a manner to so comply. Awards under the Plan are intended to comply with Code Section 409A and all Awards shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the effective date of the Plan. Notwithstanding any provision of the Plan or any Award Certificate to the contrary, in the event that the Committee determines that any Award may or does not comply with Code Section 409A, the Company may adopt such amendments to the Plan and the affected Award (without Participant consent) or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (i) exempt the Plan and any Award from the application of Code Section 409A and/or preserve the intended tax treatment of Awards or (ii) comply with the requirements of Code Section 409A.

********

Approved and adopted by the Board of Directors this 5^th day of May, 2008.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Martin L. Orlowsky, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2008 of Lorillard, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: August 7, 2008
By:	/s/ Martin L. Orlowsky
	Martin L. Orlowsky
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David H. Taylor, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2008 of Lorillard, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: August 7, 2008
By:	/s/ David H. Taylor
	David H. Taylor
	Director, Executive Vice President,
	Finance and Planning and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL

OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lorillard, Inc. (the “Company”) for the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Martin L. Orlowsky, as Chief Executive Officer of the Company, and David H. Taylor, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Martin L. Orlowsky
Name:	Martin L. Orlowsky
Title:	Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date:	August 7, 2008
/s/ David H. Taylor
Name:	David H. Taylor
Title:	Director and Executive Vice President, Finance and Planning and Chief Financial Officer (Principal Financial Officer)
Date:	August 7, 2008