Edgar Filing: LOEWS CORP

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LOEWS CORPORATION
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(Name of Registrant as Specified In Its Charter)

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SUBJECT TO COMPLETION; DATED OCTOBER 17, 2001

PRELIMINARY PROXY MATERIAL

[LOEWS LOGO]
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OFFICE OF THE PRESIDENT 667 MADISON AVENUE
NEW YORK, NY 10021-8087
(212) 521-2000

, 2001

Dear Loews Shareholder:

As part of our strategic plan to augment shareholder value in Loews, our
board of directors requests your approval to create a tracking stock that is
intended to reflect the economic performance of a defined set of assets and
liabilities that we will refer to as the "Carolina Group." Initially, the
Carolina Group will consist of our ownership interest in our wholly owned
subsidiary, Lorillard, Inc., together with the notional, intergroup debt and
certain other liabilities that we describe in the attached proxy statement.

We expect to issue shares of the tracking stock, which we refer to as
"Carolina Group stock," through a public offering. The publicly offered shares
will be a new class of common stock of Loews and will represent only a portion
of the economic performance of the Carolina Group. The portion of the economic
performance of the Carolina Group that is not represented by these shares will
continue to be reflected in the existing Loews common stock. Our determination
of whether, and when, to issue Carolina Group stock will depend on market
conditions and any other factors that help us determine what is in the best
interests of Loews shareholders.

Before we can proceed with the creation and issuance of Carolina Group
stock, we must receive the affirmative vote of a majority of the outstanding
shares of Loews common stock in favor of an amendment to our charter which would
establish the Carolina Group stock. We have called a special meeting of Loews
shareholders for this purpose and to approve a stock option plan based on
Carolina Group stock, which we will hold at a.m., Eastern time, on
, , 2001, at . We describe the terms
of the proposed charter amendment and the Carolina Group stock in detail in the
attached proxy statement.

FOR A DISCUSSION OF THE MATERIAL RISKS INVOLVED IN CONNECTION WITH THE
PROPOSED CHARTER AMENDMENT AND THE CAROLINA GROUP, SEE "RISK FACTORS -- THE
PROPOSED CHARTER AMENDMENT" BEGINNING ON PAGE 15 OF THE ACCOMPANYING PROXY
STATEMENT AND "RISK FACTORS -- THE CAROLINA GROUP" BEGINNING ON PAGE 23 OF THE
ACCOMPANYING PROXY STATEMENT.

Whether you own a few or many shares of Loews common stock and whether or
not you plan to attend the special meeting, it is important that we be able to
count your votes on the matters that come before the special meeting. You may
vote your shares by marking your votes on the proxy card, signing and dating it,
and mailing it in the envelope provided. If you sign and return your proxy card
without specifying your choices, we will vote your shares in accordance with our
directors' recommendations.

We look forward to seeing you at the special meeting.

Sincerely,

------------------- -------------------- ----------------------
James S. Tisch Andrew H. Tisch Jonathan M. Tisch

This proxy statement is dated , 2001 and was first mailed to
Loews shareholders on , 2001.

LOEWS CORPORATION
667 MADISON AVENUE
NEW YORK, NY 10021-8087

-------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON , , 2001

-------------------------

We will hold a special meeting of the shareholders of Loews Corporation at
a.m., Eastern time, on , , 2001, at
, for the following purposes:

- to approve and adopt an amendment to our charter to authorize the
creation of Carolina Group stock,

- to approve a new stock option plan to enable us to grant stock option
awards based on shares of Carolina Group stock to officers, employees,
non-employee directors and consultants of Lorillard, Inc. and its
subsidiaries and any future companies attributed to the Carolina Group,
and

- to act upon such other matters as may properly come before the special
meeting or any adjournment or postponement of the special meeting.

We describe these items of business more fully in the attached proxy
statement.

Only holders of record of Loews common stock at the close of business on
, 2001 have the right to notice of, and to vote at, the special
meeting or any adjournment or postponement of the special meeting.

BY ORDER OF THE BOARD OF DIRECTORS

BARRY HIRSCH
Secretary

New York, New York
, 2001

TO ENSURE THAT WE MAY VOTE YOUR SHARES AT THE SPECIAL MEETING, WE URGE YOU
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU CAN WITHDRAW YOUR PROXY, OR CHANGE YOUR VOTE, AT ANY TIME
BEFORE IT IS VOTED BY EXECUTING A LATER-DATED PROXY, BY VOTING BY BALLOT AT THE
SPECIAL MEETING, OR BY FILING AN INSTRUMENT OF REVOCATION WITH THE INSPECTORS OF
ELECTION IN CARE OF THE SECRETARY AT THE ABOVE ADDRESS.

QUESTIONS AND ANSWERS ABOUT THE PROPOSED CHARTER AMENDMENT

At the special meeting, we will ask you to consider and vote upon the
approval of an amendment to our charter to create Carolina Group stock. Here are
some questions and answers relating to the proposed charter amendment.

Q: PLEASE BRIEFLY DESCRIBE THE PROPOSED CHARTER AMENDMENT.

A: The proposed charter amendment provides for the creation of a new class of
our common stock, which we intend to call "Carolina Group stock." Carolina
Group stock is intended to reflect the economic performance of the Carolina
Group, which will initially consist of our ownership interest in our wholly
owned subsidiary, Lorillard, Inc., together with an amount of notional,
intergroup debt to be determined in connection with the anticipated public
offering of Carolina Group stock and certain other liabilities that we
describe in this proxy statement. We provide a detailed description of the
Carolina Group starting on page 44.

Q: WHAT IS A TRACKING STOCK AND HOW DOES IT WORK?

A: A tracking stock is a separate class or series of a company's common stock
that is intended to reflect the economic performance of a defined set of
assets and liabilities, usually consisting of a specific business or
subsidiary.

The terms of Carolina Group stock are designed to tie the economic value of
Carolina Group stock to the performance of the Carolina Group rather than to
the performance of Loews generally. However, holders of Carolina Group stock
will be shareholders of Loews and not of the Carolina Group or Lorillard,
Inc. or any other subsidiary of Loews.

Q: WHAT WILL HAPPEN TO MY SHARES OF LOEWS COMMON STOCK?

A: Following the public offering of Carolina Group stock, your shares of Loews
common stock will reflect the interest in all of the assets and liabilities
of Loews other than the interest in the Carolina Group represented by the
shares of Carolina Group stock sold in the public offering. We refer to the
set of assets and liabilities that will be reflected by the Loews common
stock following the issuance of Carolina Group stock as the "Loews Group."

Q: WHAT WILL HAPPEN TO MY DIVIDENDS ON LOEWS COMMON STOCK?

A: The payment of dividends on Loews common stock will continue to be a business
decision that our board of directors makes from time to time based upon the
dividends paid to us by our subsidiaries, capital requirements of Loews and
other factors that our board of directors considers relevant. Loews currently
pays and, subject to the factors described in the preceding sentence, intends
to continue paying a cash dividend on Loews common stock equal to $0.15 per
share per quarter.

Q: WILL THE PROPOSED CHARTER AMENDMENT RESULT IN A SPIN-OFF OF A COMPANY?

A: No. The proposed charter amendment will not result in a distribution,
transfer or spin-off of any company or any assets or liabilities of Loews or
its subsidiaries. Holders of Loews common stock or of Carolina Group stock
will be common shareholders of Loews and, as such, will be subject to risks
associated with an investment in Loews and all of our assets and liabilities.
Lorillard, Inc. and its subsidiaries will continue to be separate and
independent legal entities, with separate and independent boards of
directors, management and operations.

Q: HOW WILL THE PROPOSED CHARTER AMENDMENT AFFECT FUTURE FINANCIAL STATEMENT
PRESENTATION OF LOEWS?

A: We include in this proxy statement full historical financial statements of
the Carolina Group, as well as consolidating financial

information for Loews. In addition, we incorporate by reference the full
consolidated financial statements of Loews. Following issuance of Carolina
Group stock, we plan to present separate financial statements for the
Carolina Group in addition to Loews's consolidated and consolidating
financial statements. Presentation of the separate group financial statements
of the Carolina Group will provide current and potential investors with
supplemental financial information regarding the underlying businesses of the
Carolina Group.

Q: WHAT DO I NEED TO DO NOW?

A: To vote, just mail your signed proxy card in the enclosed return envelope as
soon as possible so that we may vote your shares at the special meeting. The
special meeting will take place on , , 2001.
Our directors recommend that you vote in favor of the proposal to amend our
charter to create Carolina Group stock.

Q: CAN I CHANGE MY VOTE?

A: Yes. Just deliver a later-dated, signed proxy card to our Secretary before
the special meeting or attend the special meeting in person and vote. You may
also change your vote prior to the special meeting by filing an instrument of
revocation with the inspectors of election in care of the Secretary of Loews.

Q: WHOM CAN I CALL WITH QUESTIONS?

A: If you have any questions about the proposed charter amendment, please call
us at . Information regarding Loews is also available on the Loews
home page on the Internet at www.loews.com.

If you would like copies of any of the documents we refer to or that we
incorporate by reference in this proxy statement, you should call us at
.

THE CAROLINA GROUP AND THE LOEWS GROUP ARE NOTIONAL GROUPS THAT ARE INTENDED TO
REFLECT THE PERFORMANCE OF DEFINED SETS OF ASSETS AND LIABILITIES. THE CAROLINA
GROUP AND THE LOEWS GROUP WILL NOT BE SEPARATE LEGAL ENTITIES. INVESTORS IN
CAROLINA GROUP STOCK AND LOEWS COMMON STOCK WILL BE SHAREHOLDERS OF LOEWS AND
WILL BE SUBJECT TO THE RISKS RELATED TO AN EQUITY INVESTMENT IN LOEWS. LOEWS'S
ASSETS AND LIABILITIES REFLECTED IN THE CAROLINA GROUP AND THE LOEWS GROUP WILL
REMAIN ASSETS AND LIABILITIES OF LOEWS AND WILL THEREFORE BE SUBJECT TO THE
CLAIMS OF LOEWS'S CREDITORS GENERALLY. IN THE EVENT OF THE LIQUIDATION OR
WINDING UP OF LOEWS, ASSETS OF LOEWS REMAINING FOR DISTRIBUTION TO LOEWS'S
COMMON SHAREHOLDERS WILL BE DISTRIBUTED TO HOLDERS OF CAROLINA GROUP STOCK AND
LOEWS COMMON STOCK IN PROPORTION TO THE MARKET CAPITALIZATION OF THE OUTSTANDING
SHARES OF EACH GROUP. THIS LIQUIDATION ALLOCATION MAY DIFFER FROM LOEWS'S
ALLOCATION OF ASSETS AND LIABILITIES BETWEEN THE GROUPS. OUR BOARD OF DIRECTORS
MAY, SUBJECT TO THE RESTRICTIONS IN LOEWS'S CERTIFICATE OF INCORPORATION (AS
REVISED BY THE PROPOSED CHARTER AMENDMENT), CHANGE THE ALLOCATION OF THE ASSETS
AND LIABILITIES THAT ARE REFLECTED IN EACH OF THE LOEWS GROUP AND THE CAROLINA
GROUP WITHOUT SHAREHOLDER APPROVAL. GIVEN THE DISCRETION OF OUR BOARD OF
DIRECTORS IN THESE MATTERS, IT MAY BE DIFFICULT TO ASSESS THE FUTURE PROSPECTS
OF EACH GROUP BASED ON PAST PERFORMANCE.

iii

The following diagrams illustrate in general terms the economic substance
of the changes to our structure that would result from the proposed charter
amendment and the issuance of Carolina Group stock. While the diagrams reflect
the economic substance of the changes, they do not precisely reflect the legal
and corporate structure of Loews before or after the transactions. For a more
complete description of the proposed charter amendment, see "The Charter
Amendment Proposal -- Description of the Proposed Charter Amendment" starting on
page 31.

CURRENT LOEWS STRUCTURE

[CHART OF CURRENT LOEWS CORPORATE STRUCTURE]
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KEY:
Legal entities are represented by solid boxes [ ]
Legal ownership is represented by solid lines
------

*Several subsidiaries are not wholly owned by Loews. See "Summary -- Loews Corporation" for a
description of Loews's ownership interests in its various subsidiaries.

LOEWS STRUCTURE FOLLOWING CREATION OF THE
CAROLINA GROUP AND THE LOEWS GROUP

[CHART OF LOEWS CORPORATE STRUCTURE FOLLOWING CREATION OF CAROLINA AND LOEWS
GROUP]

LOEWS STRUCTURE FOLLOWING THE ANTICIPATED ISSUANCE OF
SHARES OF CAROLINA GROUP STOCK

[CHART OF LOEWS CORPORATE STRUCTURE FOLLOWING ISSUANCE OF SHARES OF CAROLINA
GROUP STOCK]
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KEY:
Legal entities are represented by solid boxes [ ] Notional groups are represented by dotted boxes [ ]
Legal ownership is represented by solid lines ______ Interest in economic performance is represented ------
by dotted lines

*Several subsidiaries are not wholly owned by Loews. See "Summary -- Loews
Corporation" for a description of Loews's ownership interests in its various
subsidiaries.

TABLE OF CONTENTS

PAGE
----

SUMMARY............................. 1
General........................... 1
Loews Corporation................. 1
The Carolina Group................ 1
The Loews Group................... 2
Data Sources...................... 3
The Special Meeting............... 3
The Proposed Charter Amendment.... 4
Comparison between Loews Common
Stock and Carolina Group
Stock.......................... 8
The Stock Option Plan Proposal.... 10
Recommendation of our Board of
Directors...................... 10
FORWARD-LOOKING STATEMENTS.......... 11
SELECTED HISTORICAL FINANCIAL DATA
OF LOEWS CORPORATION.............. 13
RISK FACTORS -- THE PROPOSED CHARTER
AMENDMENT......................... 15
RISK FACTORS -- THE CAROLINA
GROUP............................. 23
THE SPECIAL MEETING................. 29
General........................... 29
Date, Time and Place of the
Special Meeting; Record Date... 29
Vote Required; Quorum............. 29
Proxies; Revocability of Proxies;
Cost of Solicitation........... 29
Recommendation of our Board of
Directors...................... 30
THE CHARTER AMENDMENT PROPOSAL...... 31
Description of the Proposed
Charter Amendment.............. 31
Recommendation of our Board of
Directors...................... 31
Reasons for the Proposed Charter
Amendment...................... 32

PAGE
----

Terms of the Proposed Charter
Amendment...................... 33
The Public Offering............... 42
Material Federal Income Tax
Consequences................... 42
Appraisal Rights.................. 43
DESCRIPTION OF THE CAROLINA GROUP... 44
Introduction...................... 44
Strategy.......................... 46
Competitive Strengths............. 46
Advertising and Sales Promotion... 49
Properties........................ 50
Raw Materials and Manufacturing... 50
Distribution Methods.............. 51
Research and Development.......... 52
Intellectual Property............. 52
Competition....................... 53
Pricing........................... 54
Taxes............................. 54
Employees......................... 55
Management of Lorillard........... 55
Legislation and Regulation........ 58
Environmental Matters............. 62
Legal Proceedings................. 62
Payment Obligations under the
State Settlement Agreements.... 75
SELECTED HISTORICAL COMBINED
FINANCIAL DATA OF THE CAROLINA
GROUP............................. 79
THE CAROLINA GROUP MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................ 82
Overview.......................... 82
Pricing and Volume................ 83
Litigation and Settlements........ 83
Results of Operations............. 84

PAGE
----

Liquidity......................... 88
Accounting Standards.............. 89
RELATIONSHIP BETWEEN THE LOEWS GROUP
AND THE CAROLINA GROUP............ 90
The Carolina Group Policy
Statement...................... 90
Relationship with Loews........... 93
THE STOCK OPTION PLAN PROPOSAL...... 97
General........................... 97
Description of the Carolina Group
2002 Stock Option Plan......... 97
Recommendation of our Board of
Directors...................... 100
STOCK OWNERSHIP OF MANAGEMENT AND
DIRECTORS......................... 101
OWNERSHIP OF VOTING SECURITIES IN
EXCESS OF FIVE PERCENT BY
BENEFICIAL OWNERS................. 103
SHAREHOLDER PROPOSALS............... 103
WHERE YOU CAN FIND MORE
INFORMATION....................... 104
APPENDICES
Appendix A: Form of Certificate of
Amendment of the Restated
Certificate of Incorporation of
Loews Corporation under Section
242 of the Delaware General
Corporation Law................ A-1
Appendix B: Carolina Group Policy
Statement...................... B-1
Appendix C: Form of Carolina Group
2002 Stock Option Plan......... C-1
Appendix D: Index to Financial
Statements..................... D-1

vii

SUMMARY

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the proposal upon which we are asking you to vote, you should read this entire
document carefully, as well as those additional documents to which we refer you.
See "Where You Can Find More Information" on page 104. All references to "we,"
"our," or "us" in this proxy statement are to Loews Corporation.

GENERAL

We are asking you to vote upon and approve a proposed charter amendment.
This proposal would permit us to create a new class of common stock of Loews
intended to reflect the economic performance of the Carolina Group. We are also
asking you to vote upon and approve a new stock option plan to enable us to
grant stock option awards based on shares of Carolina Group stock to officers,
employees, non-employee directors and consultants of Lorillard, Inc. and its
subsidiaries and any future companies attributed to the Carolina Group.

LOEWS CORPORATION

Loews Corporation is a holding company. Its subsidiaries engage in the
following lines of business: property, casualty and life insurance (CNA
Financial Corporation, an 89% owned subsidiary); the production and sale of
cigarettes (Lorillard, Inc., a wholly owned subsidiary); the operation of hotels
(Loews Hotels Holding Corporation, a wholly owned subsidiary); the operation of
offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 53% owned
subsidiary); the distribution and sale of watches and clocks (Bulova
Corporation, a 97% owned subsidiary); and the ownership and operation of crude
oil tankers.

Our principal executive offices are at 667 Madison Avenue, New York, New
York 10021-8087. Our telephone number is (212) 521-2000. We are incorporated
under the laws of the State of Delaware.

THE CAROLINA GROUP

Carolina Group stock is intended to reflect the economic performance of the
Carolina Group. We will initially attribute the following assets and liabilities
to the Carolina Group:

- Loews's 100% stock ownership interest in Lorillard, Inc.;

- notional, intergroup debt owed by the Carolina Group to the Loews Group,
in an amount and with terms to be determined in connection with the
anticipated offering of Carolina Group stock; and

- any and all liabilities, costs and expenses of Loews and Lorillard, Inc.
and its subsidiaries and predecessors arising out of or related to
tobacco or otherwise arising out of the past, present or future business
of Lorillard, Inc. or its subsidiaries or predecessors, or claims arising
out of or related to the sale of any businesses previously sold by
Lorillard, Inc. or its subsidiaries or predecessors, in each case,
whether grounded in tort, contract, statute or otherwise, whether pending
or asserted in the future.

We also intend to attribute the following additional assets and liabilities
to the Carolina Group:

- all net income or net losses arising from the assets and liabilities that
are reflected in the Carolina Group and all net proceeds from any
disposition of those assets, in each case, after deductions to reflect
dividends paid to holders of Carolina Group stock or credited to the
Loews Group in respect of its intergroup interest; and

- any acquisitions or investments made from net income attributable to
assets reflected in the Carolina Group or net proceeds from sales of
assets reflected in the Carolina Group.

Lorillard, Inc.'s principal asset is its 100% ownership interest in
Lorillard Tobacco Company. In this document, we refer to Lorillard, Inc. and its
subsidiaries as "Lorillard." Lorillard engages in the production and sale of
cigarettes in the United States, including Puerto Rico and certain U.S.
territories. Lorillard's largest selling brand is Newport, which accounted for
approximately 80% of Lorillard's unit sales in 2000 and approximately 84% of
Lorillard's unit sales in the first half of 2001. Newport is the second largest
brand in the overall U.S. cigarette market and the leading menthol brand in the
U.S. cigarette market. Lorillard also owns several other brands, including Kent,
True, Max, Satin, Triumph, Maverick and Old Gold. Newport, Kent, True, Max,
Satin, Triumph, Maverick and Old Gold are registered trademarks of Lorillard.

Lorillard, Inc. and its subsidiaries are, and we expect they will continue
to be, separate and independent legal entities, with separate and independent
boards of directors, management and operations, whether or not the proposed
charter amendment is approved or Carolina Group stock is issued.

THE LOEWS GROUP

The Loews Group will initially consist of all of Loews's assets and
liabilities other than the ownership interest in the Carolina Group represented
by any outstanding Carolina Group stock, and will include as an asset the
notional, intergroup debt of the Carolina Group. The principal assets of the
Loews Group will thus include:

- CNA Financial Corporation (89% ownership) -- one of the largest property
and casualty insurance organizations in the United States;

- Loews Hotels Holding Corporation (wholly owned) -- operates 17 hotels and
resorts;

- Diamond Offshore Drilling, Inc. (53% ownership) -- one of the world's
largest offshore drilling companies;

- Bulova Corporation (97% ownership) -- a major distributor and marketer of
watches and clocks;

- Carolina Group (majority of economic interest represented by an
intergroup interest); and

- Subsidiaries engaged in the ownership and operation of crude oil tankers.

DATA SOURCES

In accordance with standard industry practice, market share data presented
in this document is based on the number of individual cigarettes shipped.
Lorillard primarily relies on the following three sources of data for market
share assessments:

- The Maxwell Report, an independent third-party industry report published
by industry analyst John C. Maxwell, Jr., collects unit sales volume data
on an industry, brand, company, and selected segment basis (including
menthol versus non-menthol and premium versus discount).

- Management Science Associates, Inc., an independent third-party database
management organization, collects wholesale shipment data from various
cigarette manufacturers and provides analysis of market share, unit sales
volume and premium versus discount mix for individual companies and the
industry as a whole.

- Lorillard/Excel Retail Shipment Data, a proprietary database, consists of
data reported to Lorillard by the majority of its direct wholesale
customers. These wholesale customers advise Lorillard regarding shipments
from wholesalers to retailers of cigarettes produced by Lorillard and
other manufacturers. Management Science Associates processes this data on
behalf of Lorillard and aggregates the information in various formats to
indicate market share and sales volume activity at the retail level. The
Lorillard/Excel Retail Shipment Data provides shipment data within brand
families, including information relating to individual stock keeping
units.

Management Science Associates makes its quarterly data available more
quickly than other industry data sources. Accordingly, Loews has historically
utilized data from Management Science Associates for presentation of information
in Loews's periodic reports and, unless otherwise indicated, utilizes data from
Management Science Associates in "The Carolina Group Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Unless otherwise indicated, in the remainder of the document and, in
particular, under "Description of the Carolina Group," Lorillard cites data from
The Maxwell Report. The Maxwell Report data enables Lorillard to reflect
industry segment information and to make brand-to-brand comparisons. In
addition, The Maxwell Report data encompasses major and minor cigarette
manufacturers by analyzing state tax reports, while data from Management Science
Associates focuses primarily on the largest U.S. manufacturers. The Maxwell
Report data facilitates the presentation of Lorillard's overall competitive
position among manufacturers, brands and market segments (premium versus
discount and menthol versus non-menthol).

THE SPECIAL MEETING

General; Time and Place of
Special Meeting............... We are furnishing this proxy statement to you
in connection with the solicitation of proxies
by our board of directors for use at a special
meeting of shareholders of Loews to be held on
, , 2001 at
a.m., Eastern time, at
and at any and all adjournments or
postponements of the special meeting.

Record Date................... Our board of directors has fixed the close of
business on , 2001 as the record
date for determining shareholders entitled to
notice of and to vote at the special meeting or
any adjournments or postponements of the
special meeting.

Mailing Date.................. We are first mailing this proxy statement and
form of proxy on or about , 2001
to shareholders of record at the close of
business on the record date.

Vote Required................. In order to approve the proposed charter
amendment, we must receive the affirmative vote
of a majority of the outstanding shares of
Loews common stock. In order to approve the
stock option plan proposal, we must receive the
affirmative vote of shares representing a
majority of the votes cast by the holders of
shares present and entitled to vote at the
special meeting. Shares of Loews common stock
entitle the holder to one vote per share. As of
September 30, 2001, our directors and executive
officers beneficially owned approximately 29.8%
of the total voting power of the outstanding
Loews common stock. We believe these directors
and executive officers intend to vote in favor
of the proposed charter amendment and the stock
option plan proposal.

THE PROPOSED CHARTER AMENDMENT

The Proposed Charter
Amendment..................... Approval of the proposed charter amendment will
permit our board of directors to amend our
charter to define the Carolina Group and the
Loews Group and create a new class of common
stock of Loews intended to reflect separately
the economic performance of the Carolina Group.

The Public Offering........... If you approve the proposed charter amendment,
we currently intend to issue in an underwritten
public offering shares of Carolina Group stock
representing a portion (which will initially be
less than a majority) of the economic
performance of the Carolina Group. We intend to
allocate 100% of the net proceeds from the
public offering to the Loews Group, which will
use the net proceeds for general corporate
purposes. We will determine the number of
shares to be issued based on capital
requirements of Loews, market conditions at the
time of the public offering and other factors.

Timing of the Public
Offering...................... We currently expect to complete the public
offering shortly following shareholder approval
of the proposed charter amendment. However,
even if our shareholders approve the proposed
charter amendment, our board of directors
reserves the right not to create Carolina Group
stock or not to issue Carolina Group stock
after we have created it.

Carolina Group Stock.......... Carolina Group stock will be a separate class
of common stock of Loews intended to reflect
the economic performance of the Carolina Group.
The Carolina Group is not a separate legal
entity and cannot issue securities. Holders of
Carolina Group stock will not have an ownership
interest in the Carolina Group, Lorillard, Inc.
or any of its subsidiaries. Rather, investors
in Carolina Group stock will be stockholders of
Loews.

Intergroup Interest........... Following the creation of Carolina Group stock,
Loews will retain 100% legal ownership of the
common stock of Lorillard, Inc. and any other
assets of Loews reflected in the Carolina
Group. We expect that the shares of Carolina
Group stock to be sold in the public offering
will represent a minority economic interest in
the Carolina Group's performance. The Loews
Group will retain the remaining economic
interest in the Carolina Group's performance.
That interest will be reflected in the
consolidating financial statements of the Loews
Group as an "intergroup interest." An
intergroup interest is similar to the Loews
Group holding Carolina Group stock, except that
no voting or other shareholder rights are
associated with an intergroup interest. The
Carolina Group policy statement provides that
the Carolina Group will not have or be able to
have an intergroup interest in the Loews Group.

Reasons for the Proposed
Charter Amendment............. We expect the proposed charter amendment to:

- Increase market awareness of the
performance and value of Lorillard's
business by creating a separate
investment vehicle designed primarily to
track the economic performance of our
ownership interest in Lorillard, Inc.,

- Promote market recognition and
realization of the distinct values of
the businesses reflected in the Loews
Group and the Carolina Group,

- Provide greater financial flexibility by
creating an additional publicly traded
equity security that Loews can use to
raise capital, and

- Permit the creation of more effective
management incentive and retention
programs, with the ability to direct
business-specific options and securities
to employees of the businesses
attributed to each group.

For additional reasons for the proposed charter
amendment, see "The Charter Amendment
Proposal -- Reasons for the Proposed Charter
Amendment."

Relationship between the Loews
Group and the Carolina
Group....................... Following creation of the Carolina Group, we
expect that Lorillard, Inc. will continue to be
managed by its independent board of directors
and Loews's other subsidiaries will continue to
be managed by their respective boards of
directors. There will be limited financial
arrangements between the Loews Group and the
Carolina Group, including, for example, with
respect to debt, taxes and fees for services
provided from one group to the other. Given the
dissimilar nature of the businesses underlying
each group, we do not expect the intergroup
interactions to be numerous or substantial.

The Carolina Group policy statement will
generally provide that we will resolve all
material matters as to which the holders of
Loews common stock and Carolina Group stock may
have potentially divergent interests in a
manner that our board of directors determines
to be in the best interests of Loews and all of
its common shareholders. The policy statement
provides that any such determination would be
made only after consideration is given to the
potentially divergent interests and all other
relevant interests of the holders of the
separate classes of Loews's common shares.

Subject to some exceptions, our board of
directors may modify, suspend or rescind the
policies set forth in the policy statement,
adopt additional policies or make exceptions to
existing policies, at any time, without the
approval of our shareholders, although our
board of directors has no present intention to
do so. See "Relationship between the Loews
Group and the Carolina Group -- The Carolina
Group Policy Statement" for a detailed
description of the policy statement.

Dividends..................... The proposed charter amendment provides that
dividends on Carolina Group stock are limited
to an available dividend amount equal to the
lesser of:

- the assets of Loews legally available
for dividends; and

- the amount that would legally be
available for dividends on Carolina
Group stock if the Carolina Group were a
separate Delaware corporation.

Any dividend paid on one class of stock will
reduce the amount available to pay future
dividends on both classes of common stock.

While we can offer no assurance that we will do
so, we currently intend to continue paying a
quarterly dividend of $0.15 per share on Loews
common stock and to pay a quarterly dividend on
Carolina Group stock following its issuance.
The payment of dividends on Loews common stock
and Carolina Group stock will be a business
decision that our board of directors makes from
time to time based upon the dividends paid to
Loews by its subsidiaries, the capital
requirements of Loews and other factors that
our board of directors considers relevant.

The failure of the independent boards of
directors of Lorillard Tobacco Company or
Lorillard, Inc. to pay dividends could lead to
our decreasing or eliminating dividends on
Carolina Group stock and/or Loews common stock.

Risk Factors.................. When evaluating the proposed charter amendment,
you should be aware of the risk factors we
describe under "Risk Factors -- The Proposed
Charter Amendment" starting on page 15 and
"Risk Factors -- The Carolina Group" starting
on page 23.

Federal Income Tax
Considerations................ We expect the proposed charter amendment and
the issuance of shares of Carolina Group stock
to be tax free to Loews and to the holders of
Loews common stock. See "The Charter Amendment
Proposal -- Material Federal Income Tax
Consequences" for more information and further
explanation.

Listing....................... We expect the Loews common stock to continue to
be listed on the New York Stock Exchange. We
expect to list Carolina Group stock on a
national securities exchange or quotation
system.

COMPARISON BETWEEN LOEWS COMMON STOCK AND CAROLINA GROUP STOCK

LOEWS COMMON STOCK CAROLINA GROUP STOCK
(GIVING EFFECT TO (GIVING EFFECT TO
LOEWS COMMON STOCK PROPOSED CHARTER PROPOSED CHARTER
(CURRENT) AMENDMENT) AMENDMENT)
------------------ ------------------ -----------------------

DIVIDENDS $0.15 per share Anticipated to be Quarterly dividends in
per quarter, if $0.15 per share amounts to be
declared. per quarter, if determined, if
declared. declared.

VOTING RIGHTS 1 vote per share. 1 vote per share. 1/10 of a vote per
share.

REDEMPTION AT OPTION OF Not redeemable. Not redeemable. Redeemable for cash at
BOARD OF DIRECTORS 105% of market value or
UPON OCCURRENCE OF Loews common stock at
CERTAIN TAX EVENTS 100% of market value.

REDEMPTION AT OPTION OF Not redeemable. Not redeemable. Redeemable for cash at
BOARD OF DIRECTORS 120% of market value or
ANY TIME FOLLOWING Loews common stock at
THE SECOND 115% of market value.
ANNIVERSARY OF THE
PUBLIC ISSUANCE OF
CAROLINA GROUP STOCK
UNTIL THE SALE OF AT
LEAST 80% OF THE
ASSETS ATTRIBUTED TO
A GROUP

REDEMPTION IN EXCHANGE Not redeemable. Not redeemable. Redeemable for a
FOR THE STOCK OF A proportionate number of
SUBSIDIARY AT OPTION shares of common stock
OF THE BOARD OF of a Loews subsidiary
DIRECTORS holding all assets and
liabilities attributed
to the Carolina Group.

RIGHTS ON SALE OF AT None. None. At the option of our
LEAST 80% OF ASSETS board of directors:
ATTRIBUTED TO A GROUP

- Holders will receive
a pro rata share of the
net proceeds (subject
to reduction for
repayment of notional
debt, amounts not
distributed from
Lorillard to Loews
and the creation by
Loews of reserves for
tobacco-related
contingent
liabilities and
future costs) from
the disposition in
the form of cash
and/or securities
(other than Loews
common stock) by
special dividend or
redemption;

- Loews will redeem
shares of Carolina
Group stock for
shares of Loews
common stock at 115%
of market value; or

- We will take some
combination of the
actions described
above.

If, on the 91st day
following an 80% sale,
Loews has not redeemed
all of the outstanding
shares of Carolina
Group stock and if
Lorillard subsequently
distributes to Loews
any previously
undistributed portion
of the net proceeds
and/or Loews
subsequently releases
any amount of net
proceeds previously
retained by Loews as a
reserve for
tobacco-related
contingent liabilities
and future costs,
Loews will distribute
the pro rata share of
such amounts to
holders of Carolina
Group stock.

DISSOLUTION After payment of After payment of debts After payment of debts
debts and other and other liabilities and other liabilities
liabilities of of Loews, including the of Loews, including the
Loews, including liquidation preference liquidation preference
the liquidation of any class or series of any class or series
preference of any of Loews preferred of Loews preferred
class or series of stock, holders of stock, holders of
Loews preferred shares of Loews common shares of Carolina
stock, holders of stock will share Group stock will share
shares of Loews ratably in the funds of ratably in the funds of
common stock will Loews remaining for Loews remaining for
share ratably in distribution to its distribution to its
the funds of Loews common shareholders in common shareholders in
remaining for proportion to the proportion to the
distribution. aggregate market aggregate market
capitalization of the capitalization of the
outstanding shares of outstanding shares of
Loews common stock to Carolina Group stock to
the aggregate market the aggregate market
capitalization of the capitalization of the
outstanding shares of outstanding shares of
Loews common stock and Loews common stock and
Carolina Group stock. Carolina Group stock.

THE STOCK OPTION PLAN PROPOSAL

General....................... We are also asking you to vote upon a related
proposal to approve a new stock option plan to
enable us to grant stock option awards based on
shares of Carolina Group stock to officers,
employees, non-employee directors and
consultants of Lorillard, Inc. and its
subsidiaries and any future company attributed
to the Carolina Group. See "The Stock Option
Plan Proposal" for additional information about
the stock option plan proposal.

RECOMMENDATION OF OUR BOARD OF DIRECTORS

Our board of directors has approved the proposed charter amendment and the
stock option plan proposal and recommends that you vote FOR each of them.

FORWARD-LOOKING STATEMENTS

Some statements in this proxy statement or incorporated by reference
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. The words "believes," "expects," "intends," "anticipates," "estimates,"
and similar expressions are intended to identify forward-looking statements.
These statements inherently are subject to a variety of risks and uncertainties,
many of which are beyond our control, that could cause actual results to differ
materially from those projected. These risks and uncertainties include, among
others:

- the impact of competitive products, policies and pricing;

- product and policy demand and market responses;

- development of claims and their impact on loss reserves;

- the performance of reinsurance companies under reinsurance contracts with
CNA Financial Corporation and its subsidiaries;

- general economic and business conditions;

- changes in financial markets such as fluctuations in interest rates,
credit conditions and currency, commodity and stock prices;

- changes in foreign, political, social and economic conditions;

- regulatory initiatives and compliance with governmental regulations,
judicial decisions and rulings;

- changes in foreign and domestic oil and gas exploration and production
activity, and expenditures related to rig conversion and upgrade;

- changes in the composition of the loss reserves of CNA Financial
Corporation and its subsidiaries and the possibility of future increases
in reserves;

- limitations upon Loews's ability to receive dividends from its insurance
subsidiaries imposed by state regulatory agencies and minimum risk-based
capital standards based on standards established by the National
Association of Insurance Commissioners;

- the possibility of downgrades in Loews's or its subsidiaries' ratings by
ratings agencies and changes in rating agency policies and practices;

- the actual closing of contemplated transactions and agreements;

- the results of financing efforts; and

- the economic effects of the September 11, 2001 terrorist attacks.

The tobacco industry continues to be subject to:

- claims and regulations relating to the use of tobacco products and
exposure to environmental tobacco smoke;

- legislation, including actual and potential excise tax increases;

- increasing marketing and regulatory restrictions, governmental regulation
and privately imposed smoking restrictions;

- litigation, including risks associated with adverse jury and judicial
determinations, courts reaching conclusions at variance with the general
understandings of applicable law, bonding requirements and the absence of
adequate appellate remedies to get timely relief from any of the
foregoing; and

- the effects of price increases related to the Master Settlement Agreement
and other state settlement agreements and excise tax increases on
consumption rates.

Developments in any of these areas, which we describe more fully elsewhere in
this proxy statement, could cause results of the Carolina Group to differ
materially from results that have been or may be projected by or on behalf of
the Carolina Group.

These forward-looking statements speak only as of the date of this proxy
statement. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement to reflect
any change in our expectations or any change in events, conditions or
circumstances on which any statement is based.

SELECTED HISTORICAL FINANCIAL DATA OF LOEWS CORPORATION

This information is only a summary and you should read it together with the
financial information we include elsewhere in this proxy statement or that we
incorporate by reference in this proxy statement. For copies of the financial
information we incorporate by reference, see "Where You Can Find More
Information" on page 104.

In the table below, we provide you with selected historical consolidated
financial data of Loews. We prepared this information using our consolidated
financial statements at and for each of the fiscal years in the five-year period
ended December 31, 2000 and at and for the six-month periods ended June 30, 2001
and 2000. We derived the consolidated results of operations data below for each
of the three years ended December 31, 2000, and the consolidated balance sheet
data at December 31, 2000 and 1999 from consolidated financial statements
incorporated by reference in this proxy statement audited by Deloitte & Touche
LLP, independent auditors. We derived the consolidated results of operations
data below for each of the two years ended December 31, 1997 and the
consolidated balance sheet data at December 31, 1998, 1997 and 1996 from audited
consolidated financial statements not included or incorporated by reference in
this proxy statement. We derived the remaining data from unaudited consolidated
financial statements for the periods presented.

For supplemental information about the Carolina Group, see "Selected
Historical Combined Financial Data of the Carolina Group" on page 79, "The
Carolina Group Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 82, and the financial information we
include in Appendix D of this proxy statement.

LOEWS CORPORATION

SELECTED HISTORICAL FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
-------------------- ---------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
--------- -------- --------- --------- --------- --------- ---------

RESULTS OF OPERATIONS:
Revenues(1)................. $ 9,422.5 $9,969.7 $21,261.2 $21,442.7 $21,296.0 $20,266.6 $20,442.4
Income (loss) before taxes,
minority interest and
cumulative effect of
changes in accounting
principles -- net......... $(1,460.9) $1,202.5 $ 3,205.9 $ 944.2 $ 1,077.4 $ 1,593.2 $ 2,407.8
Income (loss) before
cumulative effect of
accounting changes........ $ (889.6) $ 694.2 $ 1,876.7 $ 521.1 $ 464.8 $ 793.6 $ 1,383.9
Cumulative effect of changes
in accounting
principles -- net......... (53.3) (157.9)
--------- -------- --------- --------- --------- --------- ---------
Net income (loss)........... $ (942.9) $ 694.2 $ 1,876.7 $ 363.2 $ 464.8 $ 793.6 $ 1,383.9
========= ======== ========= ========= ========= ========= =========
INCOME (LOSS) PER SHARE:
Income (loss) before
cumulative effect of
accounting changes........ $ (4.51) $ 3.47 $ 9.44 $ 2.40 $ 2.03 $ 3.45 $ 5.96
Cumulative effect of changes
in accounting
principles -- net......... (0.27) (0.73)
--------- -------- --------- --------- --------- --------- ---------
Net income (loss)........... $ (4.78) $ 3.47 $ 9.44 $ 1.67 $ 2.03 $ 3.45 $ 5.96
========= ======== ========= ========= ========= ========= =========

-------------------------
(1) Certain amounts applicable to prior periods have been reclassified to
conform to the presentation followed in 2001.

LOEWS CORPORATION

SELECTED HISTORICAL FINANCIAL DATA -- CONTINUED
(IN MILLIONS, EXCEPT PER SHARE DATA)

DECEMBER 31
JUNE 30 ---------------------------------------------------------
2001 2000 1999 1998 1997 1996
----------- --------- --------- --------- --------- ---------

FINANCIAL POSITION:
Investments....................... $41,586.8 $40,395.6 $40,633.0 $42,705.2 $41,619.1 $39,917.4
Total assets...................... 74,386.7 70,877.1 69,463.7 70,979.4 69,983.1 67,402.9
Long-term debt.................... 5,835.4 6,040.0 5,706.3 5,966.7 5,752.6 4,370.7
Shareholders' equity.............. 9,681.4 11,191.1 9,977.7 10,201.2 9,665.1 8,731.2
Cash dividends per common share... 0.28 0.50 0.50 0.50 0.50 0.50
Book value per share.............. 49.09 56.74 47.75 45.31 42.02 37.96
Shares of common stock
outstanding..................... 197.2 197.2 209.0 225.2 230.0 230.0

RISK FACTORS -- THE PROPOSED CHARTER AMENDMENT

You should consider the following factors, in addition to the other
information contained elsewhere in this proxy statement, in connection with the
proposed charter amendment.

WE CANNOT ASSURE YOU THAT WE WILL CREATE OR ISSUE CAROLINA GROUP STOCK

This proxy statement describes the proposed charter amendment and issuance
of Carolina Group stock. However, the creation and issuance of Carolina Group
stock are subject to various conditions and uncertainties. Our board of
directors reserves the right not to amend our charter to create Carolina Group
stock, even if shareholders approve the proposed charter amendment, or not to
issue any shares of Carolina Group stock, even if we amend our charter to create
Carolina Group stock.

WE CANNOT ASSURE YOU THAT LOEWS WILL PAY DIVIDENDS ON LOEWS COMMON STOCK OR
CAROLINA GROUP STOCK

Determinations as to the future dividends on Loews common stock and
Carolina Group stock primarily will depend on the dividends paid to Loews by its
subsidiaries, the capital requirements of Loews and other factors that our board
of directors considers relevant. While we cannot assure you that we will do so,
we currently intend to continue paying a quarterly dividend of $0.15 per share
on Loews common stock and a quarterly dividend on Carolina Group stock following
its issuance. Our board of directors could pay lesser dividends on the series of
stock related to a particular group than it would pay if that group were a
separate Delaware corporation. Furthermore, our ability to pay dividends on one
series of stock may be reduced by dividends that we pay on the other series of
stock.

Our board of directors reserves the right to declare and pay dividends on
Loews common stock and on Carolina Group stock in equal or unequal amounts, and
could, in its sole discretion, declare and pay dividends, or refrain from
declaring and paying dividends, exclusively on Loews common stock or exclusively
on Carolina Group stock, or on both. Our board of directors may take such
actions regardless of the relative amounts available for the payment of
dividends for each group, the amount of prior dividends declared on each class
of common stock, the respective voting or liquidation rights of each class, or
any other factor. See "The Charter Amendment Proposal -- Terms of the Proposed
Charter Amendment -- Dividends" for detailed information on the dividends we are
permitted to pay with respect to Loews common stock and Carolina Group stock.

Dividends on Carolina Group stock, if any, will be payable out of the
lesser of:

- the assets of Loews legally available for the payment of dividends, and

- the Carolina Group's "available dividend amount," which is intended to be
the amount that would legally be available for the payment of dividends
if the Carolina Group were a separate Delaware corporation.

Dividends on Loews common stock, if any, are payable only to the extent of all
funds of Loews legally available for the payment of dividends minus the Carolina
Group's available dividend amount.

We thus may be unable or unwilling to pay dividends on a class of common
stock under circumstances where we currently pay dividends on the Loews common
stock.

LOEWS'S ABILITY TO PAY DIVIDENDS ON LOEWS COMMON STOCK AND CAROLINA GROUP STOCK
MAY BE LIMITED BY LOEWS'S HOLDING COMPANY STRUCTURE

Loews is a holding company. Loews is dependent on the cash flows of its
subsidiaries and cash distributions from those subsidiaries to Loews. The
subsidiaries are separate and independent legal entities and have no obligation,
contingent or otherwise, to make funds available to Loews, whether in the form
of loans, dividends or otherwise. In addition, Loews's subsidiaries may become
parties to financing arrangements which contain limitations on the ability of
such subsidiaries to pay dividends or to make loans or advances to Loews. In the
event of any insolvency, bankruptcy or similar proceedings of a subsidiary,
creditors of such subsidiary would generally be entitled to priority over Loews
with respect to assets of the affected subsidiary.

THE INDEPENDENCE OF THE BOARD OF DIRECTORS OF LORILLARD, INC. AND THE BOARD OF
DIRECTORS OF ITS WHOLLY OWNED SUBSIDIARY, LORILLARD TOBACCO COMPANY, MAY AFFECT
LORILLARD'S PAYMENT OF DIVIDENDS TO LOEWS AND THEREBY INHIBIT LOEWS'S ABILITY OR
WILLINGNESS TO PAY DIVIDENDS AND MAKE OTHER DISTRIBUTIONS ON CAROLINA GROUP
STOCK

Loews's ability and willingness to pay dividends and make other
distributions on Carolina Group stock, including dividends and distributions
following a disposition of substantially all of the assets attributed to the
Carolina Group, will depend on a number of factors, including whether the
independent board of directors of Lorillard Tobacco Company causes Lorillard
Tobacco Company to declare dividends to its parent, Lorillard, Inc. and whether,
in turn, the independent board of directors of Lorillard, Inc. causes Lorillard,
Inc. to declare dividends to Loews. In the event that Lorillard Tobacco Company
or Lorillard, Inc. does not distribute its earnings, Loews is unlikely to pay
dividends on Carolina Group stock.

We expect that the boards of directors of each of Lorillard, Inc. and
Lorillard Tobacco Company will continue to function independently of Loews and
will direct the operations and management of the assets and businesses of those
corporations, respectively. None of the individuals currently serving as
directors of Lorillard, Inc. or Lorillard Tobacco Company are officers,
directors or employees of Loews. Accordingly, each of these individuals may be
considered to be independent of Loews. Notwithstanding Loews's right, as sole
shareholder, to elect and remove directors of Lorillard, Inc., Loews has no
present intention to remove any person currently serving as a director of
Lorillard, Inc. Moreover, Loews expects that in the event of any future
vacancies on the board of directors of Lorillard, Inc., Loews will nominate
individuals who are not officers, directors or employees of Loews to fill such
vacancies.

HOLDERS OF LOEWS COMMON STOCK AND CAROLINA GROUP STOCK WILL BE SHAREHOLDERS OF
ONE COMPANY AND, THEREFORE, FINANCIAL IMPACTS ON ONE GROUP COULD AFFECT THE
OTHER GROUP

For the purposes of preparing the respective financial statements of the
Loews Group and the Carolina Group, we will attribute assets, liabilities and
shareholders' equity to these groups. However, the change in the capital
structure of Loews that would result from the proposed charter amendment will
not affect the legal title to those assets or the legal responsibility for those
liabilities of Loews or of any of its subsidiaries.

Holders of Loews common stock and holders of Carolina Group stock will all
be common shareholders of Loews, and will be subject to risks associated with an
investment in a single company. Financial effects arising from one group that
affect Loews's consolidated results of operations or financial condition could,
if significant, affect the combined results of operations or financial position
of the other group or the market price of the class of common shares relating to
the other group. In addition, if Loews or any of its subsidiaries were to incur
significant indebtedness on behalf of one group, including indebtedness incurred
or assumed in connection with an acquisition or investment, it

could affect the credit rating of Loews and its subsidiaries taken as a whole.
This, in turn, could increase the borrowing costs of Loews. Net losses of either
group and dividends or distributions on shares of any class of common or
preferred stock will reduce the funds of Loews legally available for payment of
future dividends on each of Loews common stock and Carolina Group stock. For
these reasons, you should read Loews's consolidated financial information
together with the financial information of the Loews Group and the Carolina
Group.

THE MARKET PRICE OF CAROLINA GROUP STOCK MAY NOT REFLECT THE FINANCIAL
PERFORMANCE AND ECONOMIC VALUE OF THE CAROLINA GROUP AS WE INTEND AND MAY NOT
EFFECTIVELY TRACK THE SEPARATE PERFORMANCE OF THE CAROLINA GROUP

The market price of Carolina Group stock may not in fact reflect the
financial performance and economic value of the Carolina Group as we intend. The
performance of Loews as a whole may affect the market price of Carolina Group
stock or the market price could more independently reflect the performance of
the Carolina Group. Investors may discount the value of Carolina Group stock
because the Carolina Group is not a separate legal entity.

THE COMPLEX NATURE OF THE TERMS OF CAROLINA GROUP STOCK, OR CONFUSION IN THE
MARKETPLACE ABOUT WHAT A TRACKING STOCK IS, COULD MATERIALLY ADVERSELY AFFECT
THE MARKET PRICE OF CAROLINA GROUP STOCK AND/OR LOEWS COMMON STOCK

Tracking stocks like Carolina Group stock are more complex than traditional
common stock and are not directly or entirely comparable to common stock of
stand-alone companies or companies that have been spun off by their parent
companies. The complex nature of the terms of Carolina Group stock, and the
potential difficulties investors may have in understanding these terms, may
materially adversely affect the market price of Carolina Group stock and/or
Loews common stock. Examples of these terms include:

- the discretion of our board of directors to make determinations that may
affect Carolina Group stock and Loews common stock differently,

- Loews's redemption and/or exchange rights under particular circumstances,
described elsewhere in this proxy statement, and

- the disparate voting rights of Carolina Group stock and Loews common
stock.

Confusion in the marketplace about what a tracking stock is and what it is
intended to represent, and/or investors' reluctance to invest in tracking
stocks, could materially adversely affect the market price of Carolina Group
stock and/or Loews common stock.

THE CAROLINA GROUP STOCK PRICE COULD BE VOLATILE AND INVESTORS MAY NOT BE ABLE
TO RESELL THEIR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE

No market currently exists for Carolina Group stock. Because Carolina Group
stock is intended to follow a more focused business than Loews as a whole and
because we cannot predict the extent to which investor interest in Carolina
Group stock will lead to the development of a liquid trading market for Carolina
Group stock, the market price of Carolina Group stock may be more volatile than
the market price of Loews common stock has been to date. This volatility may
result from any of the following factors, some of which are beyond our control:

- tobacco-related litigation and other contingencies affecting Lorillard or
others in the tobacco business;

- variations in Lorillard's quarterly operating results;

- changes by securities analysts in financial estimates or investment
recommendations relating to Carolina Group stock;

- changes in market valuations of other tobacco-related companies; and

- the potential for future sales or issuances of Loews common stock or
Carolina Group stock.

HOLDERS OF LOEWS COMMON STOCK AND CAROLINA GROUP STOCK WILL GENERALLY VOTE
TOGETHER AS A SINGLE CLASS

Under the proposed charter amendment, holders of Loews common stock and
Carolina Group stock will generally not have the right to vote separately as a
class with respect to matters affecting each group. Holders of either class of
stock will have the right to vote on matters presented to Loews shareholders as
a separate class only to the extent required by Delaware law. We do not plan to
hold separate meetings for holders of Loews common stock or Carolina Group
stock.

HOLDERS OF LOEWS COMMON STOCK WILL BE IN A POSITION TO CONTROL THE OUTCOME OF
ANY MATTER AS TO WHICH ALL OF OUR COMMON SHARES VOTE TOGETHER AS ONE CLASS

Currently, each share of Loews common stock has one vote. Each share of
Carolina Group stock will be entitled to 1/10 of a vote, which we expect to be
disproportionately less than the initial economic interest represented by each
share of Carolina Group stock. When a vote is taken on any matter as to which
all of our common shares are voting together as one class, the Loews common
stock will be in a position to control the outcome of the vote on that matter.
The voting power of Carolina Group stock will be subject to adjustment for stock
splits, stock dividends and combinations with respect to either class of stock.

HOLDERS OF CAROLINA GROUP STOCK MAY HAVE INTERESTS DIFFERENT FROM HOLDERS OF
LOEWS COMMON STOCK

The existence of separate classes of our common stock could give rise to
occasions when the interests of the holders of Loews common stock and Carolina
Group stock diverge or conflict or appear to diverge or conflict. Subject to its
fiduciary duties, our board of directors could, in its sole discretion, from
time to time, make determinations or implement policies that disproportionately
affect the groups or the different classes of stock. The proposed charter
amendment would not require our board of directors to select the option that
would result in the highest value for either the holders of Loews common stock
or Carolina Group stock. Examples include determinations by our board of
directors to:

- pay or omit the payment of dividends on Loews common stock or Carolina
Group stock,

- redeem shares of Carolina Group stock,

- approve dispositions of Loews assets attributed to either group,

- reallocate funds or assets between groups and determine the amount and
type of consideration paid therefor,

- allocate business opportunities, resources and personnel,

- if and to the extent there is an intergroup interest, allocate the
proceeds of issuances of Carolina Group stock either to the Loews Group,
with a corresponding reduction in the intergroup interest, or to the
combined attributed net assets of the Carolina Group,

- formulate public policy positions for Loews,

- establish relationships between the groups,

- make financial decisions with respect to one group that could be
considered to be detrimental to the other group, and

- settle or otherwise seek to resolve actual or potential litigation
against Loews in ways that might adversely affect Lorillard.

Any such decisions by our board of directors could have or be perceived to have
a negative effect on either the Loews Group or the Carolina Group and could have
a negative effect on the market price of Loews common stock or Carolina Group
stock.

IF CAROLINA GROUP STOCK IS NOT TREATED AS A CLASS OF COMMON STOCK OF LOEWS,
SEVERAL ADVERSE FEDERAL INCOME TAX CONSEQUENCES WILL RESULT

If Carolina Group stock is considered property other than common stock of
Loews, Loews would generally be taxed on a portion of the appreciation of the
assets reflected in the Carolina Group. According to the Carolina Group policy
statement, the Carolina Group would be responsible for the payment of these
taxes. In addition, Loews may no longer be able to file a consolidated U.S.
federal income tax return with the Carolina Group. See "Relationship between the
Loews Group and the Carolina Group -- Relationship with Loews -- Taxes." These
tax liabilities, if they arise, would be likely to have a material adverse
effect on Loews.

CHANGES IN THE TAX LAW OR IN THE INTERPRETATION OF CURRENT TAX LAW MAY RESULT IN
REDEMPTION OF THE CAROLINA GROUP STOCK OR CESSATION OF THE ISSUANCE OF SHARES OF
CAROLINA GROUP STOCK

If there are adverse tax consequences to the issuance of Carolina Group
stock, it is possible that we would not issue shares of Carolina Group stock
even if we would otherwise choose to do so. This possibility could affect the
value of Carolina Group stock and/or Loews common stock then outstanding.

Furthermore, we are entitled to redeem Carolina Group stock for either (1)
cash in an amount equal to 105% of the market value of the Carolina Group stock
or (2) Loews common stock having a value equal to 100% of the market value of
the Carolina Group stock, if, based upon the opinion of tax counsel, there are
adverse federal income tax law developments related to Carolina Group stock that
occur after the issuance of Carolina Group stock. If we did redeem Carolina
Group stock for Loews common stock, the interests of holders of Loews common
stock would be diluted as a result of the redemption for Carolina Group stock.

OUR BOARD OF DIRECTORS MAY REDEEM SHARES OF CAROLINA GROUP STOCK AT ANY TIME
AFTER THE SECOND ANNIVERSARY OF THE PUBLIC ISSUANCE OF CAROLINA GROUP STOCK
UNTIL THE DISPOSITION OF 80% OF THE ASSETS ATTRIBUTED TO THE CAROLINA GROUP

Our board of directors may, at any time after the second anniversary of the
date we initially issue shares of Carolina Group stock until the disposition of
80% of the assets attributed to the Carolina Group, redeem all outstanding
shares of Carolina Group stock for either (1) cash in an amount equal to 120% of
the Carolina Group stock's market value or (2) Loews common stock having a value
equal to 115% of the Carolina Group stock's market value. A decision to redeem
the Carolina Group stock could be made at a time when either or both of the
Loews common stock and Carolina Group stock may be considered to be overvalued
or undervalued. In addition, a redemption at any premium would dilute the
interests of holders of the Loews common stock, and would preclude holders of
both Loews common stock and Carolina Group stock from retaining their investment
in a security intended to reflect separately the economic performance of the
relevant group. It would also give holders of shares of converted Carolina Group
stock an amount of consideration that may differ from the amount of
consideration a third-party buyer pays or would pay

for all or substantially all of the assets attributed to the Carolina Group. For
further details, see "The Charter Amendment Proposal -- Terms of the Proposed
Charter Amendment -- Redemption."

IF WE CHOOSE TO REDEEM CAROLINA GROUP STOCK FOR CASH, HOLDERS OF CAROLINA GROUP
STOCK MAY HAVE TAXABLE GAIN OR TAXABLE INCOME

We may, under certain circumstances, redeem Carolina Group stock for cash.
If we choose to do so, holders of Carolina Group stock would generally be
subject to tax on the excess, if any, of the total consideration they receive
for their Carolina Group stock over their adjusted basis in the Carolina Group
stock.

OUR BOARD OF DIRECTORS WILL NOT OWE SEPARATE DUTIES TO HOLDERS OF LOEWS COMMON
STOCK AND HOLDERS OF CAROLINA GROUP STOCK

Principles of Delaware law established in cases involving differing
treatment of two classes of capital stock or two groups of holders of the same
class of capital stock provide that a board of directors owes an equal duty to
all shareholders regardless of class or series, and does not have separate or
additional duties to either group of shareholders. Thus, holders of either class
of common stock who believe that a determination by our board of directors has a
disparate impact on their class of stock may not be able to obtain a remedy for
such a claim.

OUR BOARD OF DIRECTORS MAY CHANGE THE CAROLINA GROUP POLICY STATEMENT WITHOUT
SHAREHOLDER APPROVAL

In connection with the issuance of Carolina Group stock, our board of
directors intends to adopt the Carolina Group policy statement that we describe
in this proxy statement to govern the relationship between the Loews Group and
the Carolina Group. Our board of directors may modify, suspend or rescind the
policies set forth in the policy statement or make additions or exceptions to
them, in the sole discretion of our board of directors, without approval of our
shareholders. Our board of directors may also adopt additional policies,
depending upon the circumstances. Any changes to our policies could have a
negative effect on the holders of one or both of our classes of common stock.

OUR DIRECTORS' AND OFFICERS' DISPROPORTIONATE OWNERSHIP OF LOEWS COMMON STOCK
COMPARED TO CAROLINA GROUP STOCK MAY GIVE RISE TO CONFLICTS OF INTEREST

Our directors and officers own shares of Loews common stock and have been
awarded stock options with respect to shares of Loews common stock. As of
September 30, 2001, our directors and executive officers beneficially owned
approximately 29.8% of the total voting power of the outstanding Loews common
stock. The number of shares of Carolina Group stock owned by our directors and
officers, if any, is likely to be significantly less than the number of shares
of Loews common stock owned by our directors and officers. Accordingly, our
directors and officers could have an economic incentive to favor the Loews Group
over the Carolina Group.

BECAUSE IT WILL BE POSSIBLE FOR AN ACQUIROR TO OBTAIN CONTROL OF LOEWS BY
PURCHASING SHARES OF LOEWS COMMON STOCK WITHOUT PURCHASING ANY SHARES OF
CAROLINA GROUP STOCK, HOLDERS OF CAROLINA GROUP STOCK MAY NOT SHARE IN ANY
TAKEOVER PREMIUM

As the majority of the voting power of all shares of our common stock will
be represented by Loews common stock, a potential acquiror could acquire control
of Loews by acquiring shares of Loews common stock without purchasing any shares
of Carolina Group stock. As a result, holders of Carolina Group stock might not
share in any takeover premium and Carolina Group stock may have

a lower market price than it would have if there were a greater likelihood that
holders of Carolina Group stock would share in any takeover premium.

HOLDERS OF CAROLINA GROUP STOCK MAY RECEIVE LESS CONSIDERATION UPON A SALE OF
THE ASSETS ATTRIBUTED TO THE CAROLINA GROUP THAN IF THE CAROLINA GROUP WERE A
SEPARATE COMPANY

Assuming the assets attributed to any group represent less than
substantially all of the assets of Loews as a whole, our board of directors
could, in its sole discretion and without shareholder approval, approve sales
and other dispositions of any amount of the assets owned by Loews and attributed
to a group, because the Delaware General Corporation Law requires shareholder
approval only for a sale or other disposition of all or substantially all of the
assets of the entire company. Similarly, the boards of directors of Lorillard,
Inc. or its subsidiaries could decide to sell or otherwise dispose of the
operating and other assets reflected in the financial statements of the Carolina
Group without the approval of holders of Carolina Group stock.

If 80% or more of the assets attributed to the Carolina Group are sold, at
the option of our board of directors:

- Holders of Carolina Group stock will receive a pro rata share of the net
proceeds (subject to reduction for repayment of notional debt, amounts
not distributed from Lorillard to Loews, and the creation by Loews of
reserves for tobacco-related contingent liabilities and future costs)
from the disposition in the form of cash and/or securities (other than
Loews common stock) by special dividend or redemption;

- We will redeem shares of Carolina Group stock for shares of Loews common
stock at 115% of market value; or

- We will take some combination of the actions described above.

Our board of directors has the discretion to choose among the foregoing options.
The value of the consideration paid to holders of Carolina Group stock in the
different scenarios described above could be significantly different. The
proposed charter amendment would not require our board of directors to select
the option that would result in the distribution with the highest value to the
holders of Carolina Group stock.

If, on the 91st day following an 80% sale, Loews has not redeemed all of
the outstanding shares of Carolina Group stock and if Lorillard subsequently
distributes to Loews any previously undistributed portion of the net proceeds
and/or Loews subsequently releases any amount of net proceeds previously
retained by Loews as a reserve for tobacco-related contingent liabilities or
future costs, Loews will distribute the pro rata share of such amounts to
holders of Carolina Group stock. See "The Charter Amendment Proposal -- Terms of
the Proposed Charter Amendment -- Redemption -- Redemption in connection with
certain significant transactions."

If the Carolina Group were a separate, independent company and its shares
were acquired by another person, some of the costs of that sale, including
corporate level taxes, might not be payable in connection with that acquisition.
As a result, shareholders of a separate, independent company might receive an
amount greater than the net proceeds that would be received by the holders of
the Carolina Group stock. In addition, we cannot assure you that the net
proceeds per share of Carolina Group stock received by its holder in connection
with any redemption following a sale of Carolina Group assets will be equal to
or greater than the market value per share of Carolina Group stock prior to or
after announcement of a sale of assets reflected in the Carolina Group. Nor can
we assure you that where consideration is based on the market value of the
Carolina Group stock that market value will be equal to or greater than the net
proceeds per share of Carolina Group stock.

IN THE FUTURE, LOEWS MAY CAUSE A MANDATORY EXCHANGE OF CAROLINA GROUP STOCK

Under the proposed charter amendment, Loews may exchange all outstanding
shares of Carolina Group stock for shares of one or more qualifying subsidiaries
of Loews. Such an exchange would result in the qualifying subsidiary becoming
independent of Loews and the holders of Carolina Group stock owning shares
directly in that subsidiary. If Loews chooses to exchange shares of Carolina
Group stock in this manner, the market value of the common stock received in
that exchange could be less than the market value of Carolina Group stock
exchanged.

FUTURE SALES OF CAROLINA GROUP STOCK AND LOEWS COMMON STOCK COULD ADVERSELY
AFFECT THEIR RESPECTIVE MARKET PRICES AND OUR ABILITY TO RAISE CAPITAL IN THE
FUTURE

Sales of substantial amounts of Carolina Group stock or Loews common stock
in the public market after we complete the transactions contemplated by the
proposed charter amendment could depress the market price of Carolina Group
stock or Loews common stock. Such sales could also impair Loews's ability to
raise capital in the future. The shares of Carolina Group stock that we sell to
the public in the public offering will be freely tradable without restriction
under the Securities Act of 1933 by persons other than "affiliates" of Loews, as
defined under the Securities Act. Any sales of substantial amounts of Carolina
Group stock or Loews common stock in the public market, or the perception that
such sales might occur, whether as a result of the public offering or otherwise,
could materially adversely affect the market price of Carolina Group stock or
Loews common stock. Our board of directors will not solicit the approval of
holders of Loews common stock or Carolina Group stock prior to the issuance of
authorized but unissued shares of Loews common stock or Carolina Group stock,
unless that approval is deemed advisable by our board of directors or is
required by applicable law, regulation or stock exchange listing requirements.

IF WE LIQUIDATE LOEWS, AMOUNTS DISTRIBUTED TO HOLDERS OF EACH CLASS OF COMMON
STOCK MAY NOT REFLECT THE VALUE OF THE ASSETS ATTRIBUTED TO THE GROUPS

Under the proposed charter amendment, we would determine the liquidation
rights of the holders of the respective classes of stock in accordance with the
market capitalization of the outstanding shares of each group at a specified
time prior to the time of liquidation. However, the relative market
capitalization of the outstanding shares of each group may not correctly reflect
the value of the net assets remaining and attributed to the groups after
satisfaction of outstanding liabilities. Accordingly, the holders of either
Loews common stock or Carolina Group stock could receive less consideration upon
liquidation than they would if the groups were separate entities.

RISK FACTORS -- THE CAROLINA GROUP

LORILLARD HAS A $16.25 BILLION JUDGMENT ENTERED AGAINST IT IN THE ENGLE
LITIGATION; IF LORILLARD IS UNSUCCESSFUL IN ITS APPEAL OF THIS JUDGMENT, OR THE
STAY OF THE JUDGMENT IS TERMINATED, THE JUDGMENT COULD RESULT IN THE LOSS OF ALL
OR SUBSTANTIALLY ALL OF THE VALUE OF ANY OUTSTANDING SHARES OF CAROLINA GROUP
STOCK

On November 6, 2000, the Circuit Court of Dade County, Florida, entered a
final judgment in favor of the plaintiffs in Engle v. R.J. Reynolds Tobacco Co.,
et al. (Circuit Court, Dade County, Florida, filed May 5, 1994). Engle is a
class action case on behalf of Florida residents and citizens, and their
survivors, alleging personal injury or death due to their addiction to
cigarettes containing nicotine. Under the court's final judgment, Lorillard is
liable for $16.25 billion in punitive damages and as much as $12.5 million in
compensatory damages. The judgment also provides that the jury's awards bear
interest at the rate of 10% per year. Three other defendants in the Engle matter
are subject to punitive damages totaling $128.75 billion in the aggregate.

Lorillard has appealed the Engle judgment, but we cannot assure you that
Lorillard will ultimately prevail on appeal. In the event that the circuit
court's $16.25 billion punitive damages judgment against Lorillard is ultimately
upheld, the amount of that judgment would significantly exceed the assets of
Lorillard. Even if the circuit court's $16.25 billion punitive damages judgment
were reduced, the reduced amount of the final judgment might ultimately exceed
the assets of Lorillard and result in a liquidation or bankruptcy of Lorillard.
The failure to prevail on appeal in the Engle case would have a significant
adverse effect on the results of operations and financial condition of Lorillard
and could result in the loss of all or substantially all of the value of any
outstanding shares of Carolina Group stock. See "Description of the Carolina
Group -- Legal Proceedings -- Class Action Cases -- The Engle Case" for a more
detailed discussion of the Engle case.

In exchange for a $200.0 million payment by Lorillard, the class in the
Engle case has agreed to a stay of execution of its punitive damages judgment
until appellate review is completed. We refer to this agreement as the Engle
agreement. However, if Lorillard, Inc.'s balance sheet net worth (as determined
in accordance with generally accepted accounting principles in effect as of July
14, 2000) falls below $921.2 million, the stay pursuant to the agreement would
terminate and the class would be free to challenge the separate stay granted in
favor of Lorillard pursuant to recent Florida legislation. The Florida
legislation limits to $100.0 million 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. If the agreed upon stay were terminated, a successful
challenge of the statutory stay of execution could result in Lorillard's
bankruptcy and in the loss of all or substantially all of the value of any
outstanding shares of Carolina Group stock.

THE ENGLE AGREEMENT MAY AFFECT LORILLARD'S PAYMENT OF DIVIDENDS TO LOEWS AND
THEREBY INHIBIT LOEWS'S ABILITY OR WILLINGNESS TO PAY DIVIDENDS ON CAROLINA
GROUP STOCK

Under the Engle agreement, described immediately above, Lorillard, Inc. is
required to maintain a balance sheet net worth of at least $921.2 million.
Because dividends from Lorillard, Inc. to Loews are deducted from the balance
sheet net worth of Lorillard, Inc., the Engle agreement may affect the payment
of dividends by Lorillard, Inc. to Loews. For a description of the Engle
agreement, see "-- Lorillard has a $16.25 billion judgment entered against it in
the Engle litigation; if Lorillard is unsuccessful in its appeal of this
judgment, or the stay of the judgment is terminated, the judgment could result
in the loss of all or substantially all of the value of any outstanding shares
of Carolina Group stock," and "Description of the Carolina Group -- Legal
Proceedings -- Class Action Cases -- The Engle Case."

LORILLARD IS A DEFENDANT IN MORE THAN 4,340 TOBACCO-RELATED LAWSUITS, WHICH ARE
EXTREMELY COSTLY TO DEFEND, AND WHICH COULD RESULT IN SUBSTANTIAL JUDGMENTS
AGAINST LORILLARD

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 Lorillard, and it is likely
that similar claims will continue to be filed for the foreseeable future. There
has been a noteworthy increase in the number of pending cases in recent years.
Recent settlements and victories by plaintiffs in highly publicized cases
against Lorillard and other tobacco companies, together with acknowledgments by
Lorillard and other tobacco companies regarding the health effects of smoking,
may stimulate further claims. In addition, adverse outcomes in pending cases
could have adverse effects on the ability of Lorillard to prevail in smoking and
health litigation.

Approximately 4,340 tobacco-related cases are pending against Lorillard in
the United States. 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. An unfavorable resolution of any of these
actions could have a material adverse effect on the results of operations and
financial condition of Lorillard, which in turn could adversely affect the value
of Carolina Group stock. It is possible that the outcome of these cases,
individually or in the aggregate, could result in bankruptcy and in the loss of
all or substantially all of the value of any outstanding shares of Carolina
Group stock. Even if Lorillard is 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 these defense costs
and have a material adverse effect on Lorillard's results of operations and
financial condition, which in turn could adversely affect the value of Carolina
Group stock. For a discussion of tobacco litigation, see "Description of the
Carolina Group -- Legal Proceedings," included elsewhere in this proxy
statement.

LORILLARD IS A DEFENDANT IN AN ACTION BROUGHT BY THE U.S. DEPARTMENT OF JUSTICE
THAT COULD RESULT IN SUBSTANTIAL DAMAGES

On September 22, 1999, the U.S. Department of Justice brought an action
against Lorillard and other tobacco companies. The government seeks to recover
funds expended by the federal government in providing health care to smokers who
have developed diseases and injuries alleged to be smoking-related. In addition,
the government seeks, pursuant to the federal Racketeer Influenced and Corrupt
Organization Act, or RICO, disgorgement of profits the government contends were
earned as a consequence of a RICO racketeering "enterprise." During September
2000, the court dismissed the government's claims asserted under the Medical
Care Recovery Act as well as those under the Medicare as Secondary Payer
provisions to the Social Security Act. During July 2001, the court reaffirmed
its dismissal of the Medical Care Recovery Act claims, and dismissed the
Medicare as Secondary Payer Act claims, which the government had attempted to
reassert in an amended complaint. The RICO claims were not dismissed and a trial
has been scheduled for June 2003. An unfavorable resolution of this action could
result in damages in the billions of dollars and have a material adverse effect
on the results of operations and financial condition of Lorillard, which in turn
could adversely affect the value of Carolina Group stock. For a discussion of
the government's case, see "Description of the Carolina Group -- Legal
Proceedings -- Reimbursement Cases -- U.S. Federal Government Action," included
elsewhere in this proxy statement.

WE INTEND TO ALLOCATE TO THE CAROLINA GROUP ANY LIABILITIES OR EXPENSES THAT
LOEWS INCURS AS A RESULT OF TOBACCO-RELATED LITIGATION

The Carolina Group will be allocated any and all liabilities, costs and
expenses of Loews and Lorillard, Inc. and its subsidiaries and predecessors
arising out of or related to tobacco or otherwise arising out of the past,
present or future business of Lorillard, Inc. or its subsidiaries or
predecessors, or claims arising out of or related to the sale of any businesses
previously sold by Lorillard, Inc. or its subsidiaries or predecessors, in each
case, whether grounded in tort, contract, statute or otherwise,

whether pending or asserted in the future. This allocation could have a material
adverse effect on the results of operations and financial condition of
Lorillard, which in turn could adversely affect the value of Carolina Group
stock.

Accordingly, Loews and/or Lorillard may make decisions with respect to
litigation and settlement strategies designed to obtain dismissal or release of
Loews from tobacco-related litigation or liabilities. Such decisions and
strategies could result, for example, in limitations on payment of dividends by
Lorillard to Loews or an increase in Lorillard's exposure in such litigation. In
such an event, these decisions and strategies could have a material adverse
effect on the value of the Carolina Group stock.

LORILLARD HAS SUBSTANTIAL PAYMENT OBLIGATIONS UNDER LITIGATION SETTLEMENT
AGREEMENTS WHICH WILL MATERIALLY ADVERSELY AFFECT ITS CASH FLOWS AND OPERATING
INCOME IN FUTURE PERIODS

On November 23, 1998, Lorillard and other manufacturers of tobacco products
entered into a Master Settlement Agreement 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 and territories. Lorillard and the other major U.S. tobacco
manufacturers had previously settled similar claims brought by four other
states, Florida, Texas, Minnesota and Mississippi. Throughout this document we
refer to the Master Settlement Agreement, together with the agreements with
Florida, Texas, Minnesota and Mississippi, as the "State Settlement Agreements."

Under the State Settlement Agreements, Lorillard is obligated to pay
approximately $1.1 billion in 2001 ($572.3 million of which Lorillard paid as of
June 30, 2001) and annual payments are expected to be in excess of $1.0 billion
in future years. To satisfy its payment obligations under these settlements,
Lorillard has raised prices on cigarettes, and the price increases have
adversely affected its sales volumes. See "Description of the Carolina
Group -- Payment Obligations under the State Settlement Agreements" for
additional information about Lorillard's payment obligations under the State
Settlement Agreements. Lorillard's obligations under the State Settlement
Agreements will materially adversely affect its cash flows and operating income
in future periods.

CONCERNS THAT MENTHOLATED CIGARETTES MAY POSE GREATER HEALTH RISKS COULD
ADVERSELY IMPACT LORILLARD

Some plaintiffs and other sources, including the Centers for Disease
Control and Prevention, have claimed that mentholated cigarettes may pose
greater health risks than non-mentholated cigarettes. If such claims were to be
substantiated, Lorillard, as the leading manufacturer of mentholated cigarettes
in the United States, could face increased exposure to tobacco-related
litigation. Even if those claims are not substantiated, increased concerns about
the health impact of mentholated cigarettes could adversely affect Lorillard's
sales, including sales of Newport.

LORILLARD IS DEPENDENT ON THE U.S. CIGARETTE BUSINESS, WHICH WE EXPECT TO
CONTINUE TO CONTRACT

Lorillard's U.S. cigarette business is currently its only significant
business. The U.S. cigarette market has generally been contracting and we expect
it to continue to contract. Lorillard does not have foreign cigarette sales that
could offset these effects, as it sold the international rights to substantially
all of its brands, including Newport, in 1977. As a result of price increases,
restrictions on advertising and promotions, funding by U.S. manufacturers,
including Lorillard, of smoking prevention campaigns, 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, U.S.
cigarette shipments among major U.S. cigarette manufacturers have decreased at a
compound annual rate of approximately 2.3% over the period 1980-2000, as
measured by Management Science Associates. Lorillard's wholesale list prices
increased by an average of 105.5% from August of 1997

through its most recent price increase in April of 2001. In addition, recent and
future price increases may encourage smokers to switch from premium to discount
brands, particularly during times of economic weakness. Lorillard's focus on the
premium market and its obligations under the State Settlement Agreements make it
very difficult to compete successfully in the discount market. If the market for
premium cigarettes contracts, and Lorillard is unable to capture market share
from its competitors, there could be a material adverse effect on the results of
operations and financial condition of Lorillard, which in turn could adversely
affect the value of Carolina Group stock.

LORILLARD IS SUBJECT TO IMPORTANT LIMITATIONS ON ADVERTISING AND MARKETING
CIGARETTES THAT COULD HARM ITS COMPETITIVE POSITION

Television and radio advertisements of tobacco products have been
prohibited since 1971. Under the State Settlement Agreements, Lorillard
generally cannot use billboard advertising, cartoon characters, sponsorship of
concerts, non-tobacco merchandise bearing its brand names and various other
advertising and marketing techniques. In addition, the Master Settlement
Agreement prohibits the targeting of youth in advertising, promotion or
marketing of tobacco products. Accordingly, Lorillard has determined not to
advertise its cigarettes in magazines with large readership among people under
the age of 18. Additional restrictions may be imposed or agreed to in the
future. Recent proposals have included limiting tobacco advertising to
black-and-white, text-only advertisements. These limitations may make it
difficult to maintain the value of an existing brand if sales or market share
decline for any reason. Moreover, these limitations significantly impair the
ability of cigarette manufacturers, including Lorillard, to launch new premium
brands. For a more detailed discussion of the business restrictions contained in
the Master Settlement Agreement, see "Description of the Carolina
Group -- Advertising and Sales Promotion." With the exception of Newport, unit
sales of Lorillard's brands are declining, and Lorillard does not expect to
reverse this trend. These factors could have a material adverse effect on the
results of operations and financial condition of Lorillard, which in turn could
adversely affect the value of Carolina Group stock.

THE CIGARETTE INDUSTRY IS SUBJECT TO SUBSTANTIAL AND INCREASING REGULATION AND
TAXATION

A wide variety of federal, state and local laws limits the advertising,
sale and use of cigarettes, and these laws have proliferated in recent years.
For example, many local laws prohibit smoking in restaurants and other public
places. This trend has had, and is likely to continue to have, a material
adverse effect on Lorillard's competitive position, sales volumes, operating
income and cash flows. Private businesses have also adopted regulations which
prohibit or restrict, or are intended to discourage, smoking. In addition,
cigarettes are subject to substantial and increasing excise taxes. Federal
excise taxes included in the price of cigarettes are $17.00 per thousand
cigarettes ($0.34 per pack of 20 cigarettes). The federal excise tax on
cigarettes is scheduled to increase by $2.50 per thousand cigarettes in 2002.
Additional excise taxes, which are levied upon and paid by the distributors, are
also in effect in the 50 states, the District of Columbia and many
municipalities. Various states have proposed, and certain states have recently
passed, increases in their state tobacco excise taxes. The state taxes generally
range from $.025 to $1.11 per package of 20 cigarettes. Increased excise taxes
are likely to result in declines in overall sales volume and shifts by consumers
to less expensive brands. Both of these results could have a material adverse
effect on the results of operations and financial condition of Lorillard, which
competes in the discount market on a limited basis.

In 1996, the U.S. Food and Drug Administration, the FDA, published
regulations that would have severely restricted cigarette advertising and
promotion and limited the manner in which tobacco products could be sold. On
March 21, 2000, the U.S. Supreme Court held that Congress did not give the FDA
authority to regulate tobacco products under the Federal Food, Drug, and
Cosmetic Act and, accordingly, the FDA's assertion of jurisdiction over tobacco
products was impermissible under that Act. Since the Supreme Court decision,
various proposals have been made for federal and state

legislation to regulate cigarette manufacturers. Recently, a Presidential
commission appointed by former President Clinton issued a final report
recommending that the FDA be given authority by Congress to regulate the
manufacture, sale, distribution and labeling of tobacco products to protect
public health. In addition, Congressional advocates of FDA regulation have
introduced legislation for consideration by the 107th Congress. Some states have
also enacted or proposed regulations, including with respect to mandatory
disclosure of ingredients, including flavorings, some of which are trade
secrets, and requiring that cigarettes sold in their states have reduced
ignition propensity. Ignition propensity refers to a lit cigarette's
susceptibility to burning or igniting other materials while not being smoked.
Lorillard cannot predict the ultimate outcome of these proposals. Additional
federal or state regulation relating to the manufacture, sale, distribution,
advertising and labeling of tobacco products could reduce sales, increase costs
and have a material adverse effect on Lorillard's business. Extensive and
inconsistent regulation by multiple states could prove to be particularly
disruptive to Lorillard's business. These factors could have a material adverse
effect on the results of operations and financial condition of Lorillard, which
in turn could adversely affect the value of Carolina Group stock.

COMPETITION FROM OTHER CIGARETTE MAKERS COULD ADVERSELY AFFECT LORILLARD

The cigarette industry is highly competitive. Some of Lorillard's
competitors have substantially greater financial, marketing, personnel and other
resources than Lorillard has. In particular, Philip Morris had a 51.6% share of
the U.S. cigarette market in the first half of 2001. Lorillard and other tobacco
companies have brought suit alleging, among other claims, that Philip Morris has
used its influence with retail outlets to deny Lorillard and other tobacco
companies access to visible in-store display and adequate signage space for
their cigarette brands, a critical means of competition. R.J. Reynolds also has
significant financial resources and market share with a 22.2% share of the U.S.
cigarette market in the first half of 2001.

The volume of cigarette sales is sensitive to price changes. Changes in
pricing by Lorillard or other cigarette manufacturers could have an adverse
impact on Lorillard's volume of units sold. For example, in recent years,
wholesale price increases by Philip Morris and others have resulted in increases
at the retail level that Lorillard believes adversely affected industry unit
sales. By contrast, in 1993, Philip Morris substantially reduced wholesale
prices. In an effort to prevent the loss of sales, Lorillard reduced its
wholesale prices and its results were adversely affected. Future price changes
could have a material adverse effect on the results of operations and financial
condition of Lorillard, which in turn could adversely affect the value of
Carolina Group stock.

Philip Morris has developed an alternative cigarette called Accord(R) in
which the tobacco is heated rather than burned. R.J. Reynolds has developed an
alternative cigarette called Eclipse(R) in which the tobacco is primarily
heated, with only a small amount of tobacco burned. Philip Morris and R.J.
Reynolds have indicated that these products may deliver fewer smoke components
as compared to conventional cigarettes. Lorillard has not developed an
alternative cigarette which heats, rather than burns, tobacco. Should Accord(R)
or Eclipse(R) gain significant share of the U.S. cigarette market, Lorillard may
be at a competitive disadvantage. Other U.S. cigarette manufacturers have
developed or announced plans to develop cigarette products claimed to have fewer
adverse health effects than conventional cigarettes.

In recent years, small manufacturers of low price cigarettes have
proliferated and have increased market share to 8.5% of U.S. industry unit sales
in 2000. Because some of these small manufacturers are not obligated to make
significant payments under the State Settlement Agreements, these manufacturers
have a substantial cost advantage in the discount segment of the U.S. cigarette
market. These factors could have a material adverse effect on the results of
operations and financial condition of Lorillard, which in turn could adversely
affect the value of Carolina Group stock.

LORILLARD 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 to introduce new products or make substantial changes to existing
products. For example, New York State has recently enacted legislation requiring
that cigarette manufacturers reduce the ignition propensity of their products.
We cannot assure you that Lorillard will be able to meet the requisite standards
without adversely affecting its profitability and without adversely affecting
the taste of its product, or otherwise reducing consumer acceptance. Similarly,
Lorillard believes that there will be increasing pressure from public health
authorities and consumers to develop a conventional cigarette or an alternative
cigarette that provides a demonstrable reduced risk of adverse health effects.
Lorillard may not be able to develop a reduced risk product that is acceptable
to consumers in a cost effective manner, or at all. The costs associated with
developing new products and technologies, as well as the inability to develop
acceptable products in response to competitive conditions or regulatory
requirements, may have a material adverse effect on the results of operations
and financial condition of Lorillard, which in turn could adversely affect the
value of Carolina Group stock.

LORILLARD IS A DEFENDANT IN MULTIPLE TOBACCO-RELATED ANTITRUST LAWSUITS

Lorillard is a defendant in multiple actions alleging violations of federal
and state antitrust laws, including allegations that Lorillard and the other
defendants conspired to fix prices of cigarettes. For a more detailed discussion
of these cases, see "Description of the Carolina Group -- Legal Proceedings --
Tobacco-Related Antitrust Cases." An adverse outcome in any of these cases could
have a material adverse effect on the results of operations and financial
condition of Lorillard, which in turn could adversely affect the value of
Carolina Group stock.

LORILLARD DERIVES MOST OF ITS REVENUE FROM THE SALES OF ONE PRODUCT

Lorillard's largest selling brand, Newport, accounted for approximately 84%
of Lorillard's sales revenue in 2000. Lorillard's principal strategic plan
revolves around the advertising and promotion of its Newport brand. Lorillard
cannot ensure that it will successfully implement its strategic plan with
respect to Newport or that implementation of its strategic plan will result in
the maintenance or growth of Newport brand sales. The failure by Lorillard to
maintain sales of Newport could have a material adverse effect on the results of
operations and financial condition of Lorillard, which in turn could adversely
affect the value of Carolina Group stock.

LORILLARD RELIES ON A SINGLE MANUFACTURING FACILITY FOR THE PRODUCTION OF ITS
CIGARETTES

Lorillard produces all of its cigarettes at its Greensboro, North Carolina
manufacturing facility. If Lorillard's manufacturing plant is damaged, destroyed
or incapacitated or Lorillard is otherwise unable to operate its manufacturing
facility, Lorillard may be unable to produce cigarettes and may be unable to
meet customer demand. Any such disruption could have a material adverse effect
on the results of operations and financial condition of Lorillard, which in turn
could adversely affect the value of Carolina Group stock.

LORILLARD RELIES ON A LIMITED NUMBER OF KEY EXECUTIVES AND HAS EXPERIENCED, AND
MAY CONTINUE TO EXPERIENCE, DIFFICULTY IN ATTRACTING AND HIRING QUALIFIED NEW
PERSONNEL IN SOME AREAS OF ITS BUSINESS

The loss of any of Lorillard's key employees could adversely affect its
business. Other than with respect to Lorillard's chief executive officer, Martin
L. Orlowsky, Lorillard does not have employment agreements with any of its key
employees. Lorillard is currently experiencing difficulty in identifying and
hiring qualified personnel in some areas of its business. This difficulty is
primarily attributable to the health and social issues associated with the
tobacco industry. The loss of the services of any key personnel or Lorillard's
inability to attract and hire personnel with the requisite skills could restrict
Lorillard's ability to develop new products, enhance existing products in a
timely manner, sell products or manage its business effectively. These factors
could have a material adverse effect on the results of operations and financial
condition of Lorillard, which in turn could adversely affect the value of
Carolina Group stock.

THE SPECIAL MEETING

GENERAL

We are mailing this proxy statement and the accompanying proxy card
beginning , 2001 to holders of Loews common stock in connection
with the solicitation of proxies by our board of directors for use at the
special meeting. We solicit proxies to give all shareholders on the record date
an opportunity to vote on matters that will come before the special meeting.
This procedure is necessary because shareholders live in all states and abroad
and many may not be able to attend the special meeting. You can vote or let us
vote your shares of Loews common stock only if you are present in person or
represented by proxy. A form of proxy is being provided to holders of Loews
common stock with this proxy statement. Information with respect to the
execution and revocation of proxies is provided under "-- Proxies; Revocability
of Proxies; Cost of Solicitation."

At the special meeting, holders of Loews common stock eligible to vote will
be asked to consider and vote upon the approval and adoption of the proposed
charter amendment and the stock option plan proposal. For more information, see
"The Charter Amendment Proposal" and "The Stock Option Plan Proposal."

Even if the holders of Loews common stock approve the proposed charter
amendment, our board of directors can choose to delay the filing of the proposed
charter amendment or not to file it at all.

DATE, TIME AND PLACE OF THE SPECIAL MEETING; RECORD DATE

The special meeting is scheduled to be held at a.m., Eastern
time, on , , 2001, at . Our board of directors has fixed the
close of business on , 2001 as the record date for determination
of holders of Loews common stock entitled to notice of and to vote at the
special meeting. On , 2001, there were outstanding
shares of Loews common stock.

VOTE REQUIRED; QUORUM

In order to approve the proposed charter amendment, we must receive the
affirmative vote of a majority of the outstanding shares of Loews common stock.
In order to approve the stock option plan proposal, we must receive the
affirmative vote of shares representing a majority of the votes cast by the
holders of shares present and entitled to vote. Each share of Loews common stock
has one vote on each matter properly brought before the special meeting.

The presence, either in person or by proxy, of holders of a majority of the
shares entitled to vote on the proposals to be presented to shareholders at the
special meeting is necessary to constitute a quorum at the special meeting.
Shares of Loews common stock represented by a properly completed proxy will be
treated as present at the special meeting for purposes of determining a quorum,
without regard to whether the proxy is marked as casting a vote or abstaining.
See "-- Proxies; Revocability of Proxies; Cost of Solicitation" for more
information.

PROXIES; REVOCABILITY OF PROXIES; COST OF SOLICITATION

If a shareholder attends the special meeting, he or she may vote by ballot.
However, many shareholders may be unable to attend the special meeting.
Therefore, our board of directors is soliciting proxies so that each holder of
Loews common stock at the close of business on the record date has the
opportunity to vote on the proposals to be considered at the special meeting.

You may vote your shares by proxy by marking your votes on the proxy card,
signing and dating it, and mailing it in the envelope provided. You can specify
your choices by marking the appropriate boxes on your proxy card. If you sign
and return your proxy card without specifying choices, we will vote the shares
as recommended by our board of directors. Abstentions marked on your proxy card
are voted neither FOR nor AGAINST, but we count these shares in determining a
quorum for the proposals. Since a majority of outstanding shares is required to
approve the proposed charter amendment, abstentions have the effect of a vote
against the proposed charter amendment. Abstentions have no effect on the stock
option plan proposal.

The proxy card also confers discretionary authority on the individuals
appointed by our board of directors and named on the proxy card to vote the
shares represented by the proxy card on any other matter that is properly
presented for action at the special meeting. No proxies instructing that they be
voted AGAINST or ABSTAIN from voting on the proposed charter amendment or the
stock option plan proposal will be voted in favor of any adjournment of the
special meeting to solicit additional proxies. You may revoke your proxy at any
time before it is voted at the special meeting by executing a later-dated proxy
by mail, by voting by ballot at the special meeting, or by filing an instrument
of revocation with the inspectors of election in care of the Secretary of Loews.

IF YOU HOLD YOUR SHARES THROUGH A BANK OR BROKER, FOLLOW THE VOTING
INSTRUCTIONS ON THE FORM YOU RECEIVE. BROKER NON-VOTES ARE NOT COUNTED AS
PRESENT.

YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE BY SIGNING AND RETURNING THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
If you do attend the special meeting, you may vote by ballot, thereby canceling
any proxy previously given.

The cost of soliciting proxies in the accompanying form will be borne by
Loews. In addition to solicitations by mail, a number of regular employees of
Loews and of its subsidiaries may solicit proxies in person or by telephone.

RECOMMENDATION OF OUR BOARD OF DIRECTORS

OUR BOARD OF DIRECTORS HAS APPROVED THE PROPOSED CHARTER AMENDMENT AND THE
STOCK OPTION PLAN PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSED CHARTER AMENDMENT AND THE STOCK OPTION PLAN PROPOSAL.

THE CHARTER AMENDMENT PROPOSAL

The description of the material terms of the proposed charter amendment set
forth below is not complete. We qualify this description by reference to the
form of proposed charter amendment, which we have attached as Appendix A to this
proxy statement. We urge all shareholders to read the proposed charter amendment
in its entirety.

DESCRIPTION OF THE PROPOSED CHARTER AMENDMENT

We are proposing the following amendments to our charter, which we refer to
as the "proposed charter amendment:"

The proposed charter amendment would:

- Create a new class of common stock called Carolina Group stock, par value
$0.01 per share, which we intend to reflect the economic performance of
the Carolina Group. We refer to this stock as "Carolina Group stock."

- Define the "Carolina Group," the economic performance of which we intend
Carolina Group stock to reflect. We will attribute our 100% stock
ownership interest in Lorillard, Inc. to the Carolina Group. In addition,
the Carolina Group will include notional, intergroup debt owed by the
Carolina Group to the Loews Group, in an amount and with terms to be
determined in connection with the anticipated offering of Carolina Group
stock, and other defined obligations and potential liabilities.

- Define the "Loews Group." The Loews Group will initially consist of all
of Loews's assets and liabilities other than the economic interest in the
Carolina Group represented by any outstanding Carolina Group stock, and
will include as an asset the notional, intergroup debt of the Carolina
Group. The principal assets of the Loews Group will thus include:

-- CNA Financial Corporation (89% ownership);

-- Loews Hotels Holding Corporation (wholly owned);

-- Diamond Offshore Drilling, Inc. (53% ownership);

-- Bulova Corporation (97% ownership);

-- Carolina Group (majority of economic interest represented by an
intergroup interest); and

-- Subsidiaries engaged in the ownership and operation of crude oil
tankers.

- Establish the terms of Carolina Group stock, consisting of 600 million
authorized shares and entitling the holders of Carolina Group stock to
1/10 of a vote per share.

We include a more complete description of Carolina Group stock under
"-- Terms of the Proposed Charter Amendment."

In order to approve the proposed charter amendment, we must receive the
affirmative vote of a majority of the outstanding shares of Loews common stock.
Any shares not voted, whether by abstention, broker non-vote or otherwise, have
the effect of a vote against the proposed charter amendment.

RECOMMENDATION OF OUR BOARD OF DIRECTORS

OUR BOARD OF DIRECTORS HAS APPROVED THE PROPOSED CHARTER AMENDMENT AND
RECOMMENDS THAT YOU VOTE FOR THE PROPOSED CHARTER AMENDMENT.

REASONS FOR THE PROPOSED CHARTER AMENDMENT

Our board of directors recommended the proposed charter amendment following
its review of various alternatives to provide a mechanism to increase market
awareness of the performance and value of the Lorillard business. Our board of
directors considered the following factors in approving, and recommending that
shareholders approve, the proposed charter amendment.

GREATER MARKET AWARENESS OF LORILLARD'S BUSINESS

Loews believes that creating a separate investment vehicle designed
primarily to track the economic performance of our ownership interest in
Lorillard will increase awareness of the separate value of the Lorillard
business.

GREATER MARKET RECOGNITION OF VALUES OF THE BUSINESSES ATTRIBUTED TO THE LOEWS
GROUP

Loews believes that creating the two groups will promote market recognition
and realization of the distinct values of the various businesses reflected in
the Loews Group.

PROVIDE GREATER FINANCIAL FLEXIBILITY

Loews believes that the creation of Carolina Group stock will provide Loews
with greater financial flexibility. Loews expects that Carolina Group stock will
create an additional publicly traded equity security that it can use to raise
capital.

PROVIDE GREATER STRATEGIC FLEXIBILITY

Our board of directors considered Loews's strategic flexibility after
implementation of the proposed charter amendment, including the ability to
engage in mergers, acquisitions, divestitures, spin-offs, split-offs and
recombinations, and to unwind the tracking stock structure after a period of
time under the terms of our charter, as amended.

CREATE MORE EFFECTIVE INCENTIVE PROGRAMS

Loews believes that creation of Carolina Group stock will enable it to
develop more effective incentive and retention programs, with the ability to
direct business specific options and securities to employees of the businesses
attributed to each group.

INCREASED SHAREHOLDER CHOICE

A corporation typically uses tracking stocks in situations where the
corporation has two or more businesses that have distinctly different investor
profiles. Loews believes that the creation and issuance of Carolina Group stock
will provide investors in the future with an opportunity to make an investment
choice between the different types of investment in the Loews Group and the
Carolina Group.

OTHER CONSIDERATIONS

In addition, our board of directors considered other factors relating to
the proposed charter amendment, including:

- our expectation that implementation of the proposed charter amendment and
issuance of shares of Carolina Group stock will not be taxable for U.S.
federal income tax purposes to us or to our shareholders, and

- the fact that several other large, well-known companies, such as General
Motors Corporation, AT&T Corp., Georgia-Pacific Corporation, Worldcom,
Inc. and Sprint Corporation, have created tracking stocks.

Our board of directors also considered the following potential adverse
consequences of the proposed charter amendment:

- There can be no assurance as to:

-- the degree to which the market price of Loews common stock and Carolina
Group stock will reflect the separate performance of the Loews Group
and the Carolina Group, respectively, or

-- the impact of the proposed charter amendment or the anticipated
issuance of the Carolina Group stock on the market price and the
aggregate equity market capitalization of Loews common stock.

- The proposed charter amendment presents additional corporate governance
issues, such as our directors' fiduciary obligation to holders of
different classes of common stock representing different businesses. In
particular, in the future, interests of the two groups could diverge, or
appear to diverge, and complex issues could arise in resolving such
conflicts that effectively require our board of directors to benefit or
appear to benefit one group more than the other group.

- In general, the tracking stock will make analyzing the capital structure
of Loews more difficult.

- The existence of tracking stock may limit potential unsolicited
acquisitions since a person interested in acquiring the businesses
allocated to only one group without negotiation with our management would
still be required to seek control of the voting power represented by all
of the outstanding capital stock of Loews entitled to vote on that
acquisition, including the class of common shares related to the other
group.

- Holders of Loews common stock and holders of Carolina Group stock will
each continue to bear the risks associated with an investment in shares
issued by a single corporation.

- The use of Carolina Group stock in connection with a future acquisition
by Loews could have various adverse effects, such as the possible
inability or increased difficulty of receiving a ruling from the Internal
Revenue Service that an acquisition will qualify as tax free.

Our board of directors believes, however, that, on balance, the positive
aspects of the proposed charter amendment outweigh any potentially adverse
consequences, and recommends that our shareholders approve the proposed charter
amendment.

TERMS OF THE PROPOSED CHARTER AMENDMENT

GENERAL

If we adopt the proposed charter amendment, we will amend our charter to
authorize 600 million shares of Carolina Group stock, par value $0.01 per share,
in addition to our existing authorized capital stock. Currently, 700 million
shares of capital stock are authorized, consisting of 100 million shares of
preferred stock, par value $0.10 per share, and 600 million shares of Loews
common stock, par value $1.00 per share. As of September 30, 2001, we had
outstanding 191,493,300 shares of Loews common stock and no shares of Loews
preferred stock.

We designed Carolina Group stock to track the economic performance of the
Carolina Group. Under the proposed charter amendment, the Carolina Group will
include Loews's ownership interest in its wholly owned subsidiary, Lorillard,
Inc., together with notional, intergroup debt owed by the Carolina Group to the
Loews Group in an amount and with terms to be determined in connection with the
anticipated public offering of Carolina Group stock and any and all liabilities,
costs and expenses of Loews and Lorillard, Inc. and its subsidiaries and
predecessors arising out of or related to tobacco or otherwise arising out of
the past, present or future business of Lorillard, Inc. or its subsidiaries or
predecessors, or claims arising out of or related to the sale of any businesses
previously sold by Lorillard, Inc. or its subsidiaries or predecessors, in each
case, whether grounded in tort, contract, statute or otherwise, whether pending
or asserted in the future. The proposed charter amendment provides for
adjustments to the definition of the Carolina Group to reflect, among other
things, net income and net losses arising after the date of issuance of Carolina
Group stock, as well as any allocations of assets and liabilities between the
groups and acquisitions or investments made from net income attributable to
assets reflected in the Carolina Group.

The proposed charter amendment defines the "Loews Group" generally as the
assets and liabilities of Loews or any of its subsidiaries, other than the
economic performance in the Carolina Group represented by the outstanding shares
of Carolina Group stock.

THE CAROLINA GROUP ALLOCATION FRACTION

The proposed charter amendment defines the "Carolina Group Allocation
Fraction" to represent the interest in the economic performance of the Carolina
Group reflected by Carolina Group stock issued to the public. At any time that
all of the interest in the economic performance of the Carolina Group is not
reflected by the outstanding Carolina Group stock, this fraction will be used,
in effect, to allocate to the Loews Group the right to participate, to the
extent of its intergroup interest, in any dividend, distribution, liquidation or
other payment made to holders of Carolina Group stock. At any time that all of
the interest in the economic performance of the Carolina Group is fully
reflected by the outstanding Carolina Group stock, this fraction will equal one
and, accordingly, the intergroup interest will equal zero.

Subject to the criteria we describe below, this fraction is subject to
adjustment from time to time as our board of directors deems appropriate:

- to reflect subdivisions (by stock split or otherwise) and combinations
(by reverse stock split or otherwise) of Carolina Group stock and stock
dividends payable in shares of Carolina Group stock,

- to reflect the fair market value of any allocations by Loews of cash,
property or other assets or liabilities from the Loews Group to the
Carolina Group (or vice versa), or of cash or property or other assets or
liabilities of the Loews Group to, or for the benefit of, employees of
businesses attributed to the Carolina Group in connection with employee
benefit plans or arrangements of Loews or any of its subsidiaries (or
vice versa),

- to reflect the number of shares of capital stock of Loews contributed to,
or for the benefit of, employees of businesses attributed to the Carolina
Group in connection with benefit plans or arrangements of Loews or any of
its subsidiaries,

- to reflect repurchases by Loews, on behalf of the Loews Group or the
Carolina Group, of shares of Carolina Group stock,

- to reflect issuances of Carolina Group stock for the account of the
Carolina Group or the Loews Group,

- to reflect dividends or other distributions to holders of Carolina Group
stock, to the extent a pro rata payment is not made to the Loews Group,
and

- under such other circumstances as our board of directors determines
appropriate to reflect the economic substance of any other event or
circumstance.

In addition, in determining the percentage interest of holders of Carolina
Group stock in any particular dividend or other distribution, we will reduce the
economic interest of holders of Carolina Group stock in the Carolina Group to
reflect dilution arising from shares of Carolina Group stock reserved for
issuance upon conversion, exercise or exchange of other securities that are
entitled to participate in such dividend or other distribution.

The proposed charter amendment provides that any such adjustment must be
made in a manner that our board of directors determines to be fair and equitable
to holders of Loews common stock and holders of Carolina Group stock. In the
event that any assets or other property attributed to the Loews Group are
allocated to the Carolina Group, the consideration paid by Loews to acquire such
assets or other property will be presumed to be its "fair market value" as of
its acquisition. Any adjustment to the Carolina Group Allocation Fraction made
by our board of directors in accordance with these principles will be at the
sole discretion of our board of directors and will be final and binding on all
shareholders.

VOTING RIGHTS

Holders of Loews common stock have one vote per share. Except as we
describe below, under the terms of the proposed charter amendment, each
outstanding share of Carolina Group stock will be entitled to 1/10 of a vote and
each outstanding share of Loews common stock will continue to be entitled to one
vote. The voting rights of Carolina Group stock will be subject to adjustments
to reflect stock splits, reverse stock splits, stock dividends or certain stock
distributions with respect to Loews common stock or Carolina Group stock.

Except as otherwise required by Delaware law or any special voting rights
of any class or series of Loews preferred stock or any other class of Loews
common shares, holders of shares of Loews common stock, Carolina Group stock and
any other class or series of Loews capital stock that are entitled to vote will
vote as one class with respect to all matters to be voted on by shareholders of
Loews. No separate class vote of Carolina Group stock will be required, except
as required by the Delaware General Corporation Law. When a vote is taken on any
matter as to which all of our common shares are voting together as one class,
the Loews common stock will be in a position to control the outcome of the vote
on that matter.

DIVIDENDS

General. While we cannot assure you that we will do so, we currently
intend to continue paying a quarterly dividend of $0.15 per share on Loews
common stock and to pay a quarterly dividend on Carolina Group stock following
its issuance. Because Loews is a holding company, our principal source of funds
is dividends we receive from our subsidiaries. The failure of the independent
board of directors of Lorillard Tobacco Company or Lorillard, Inc. to pay
dividends could lead to our decreasing or eliminating dividends on Carolina
Group stock and/or Loews common stock. The proposed charter amendment provides
that dividends on Carolina Group stock are limited to an available dividend
amount equal to the lesser of:

- the assets of Loews legally available for dividends; and

- the amount that would legally be available for dividends on Carolina
Group stock if the Carolina Group were a separate Delaware corporation.

Dividends on Loews common stock are limited to the amount of funds legally
available for all of Loews, less the sum of the available dividend amount for
Carolina Group stock. Net losses of either group and dividends or distributions
on shares of either class of common stock will reduce the funds of Loews legally
available for payment of dividends on each of Loews common stock and Carolina
Group stock.

Discrimination among classes of common shares. The proposed charter
amendment does not provide for mandatory dividends. Provided that there are
sufficient assets to pay a dividend on a class of stock as described under
"-- General," our board of directors will have the sole authority and discretion
to declare and pay dividends (or to refrain from declaring or paying dividends),
in equal or unequal amounts, on Loews common stock, Carolina Group stock, any
other class or series of Loews capital stock or any two or more of such classes.
Subject to not exceeding the applicable available dividend amount, our board of
directors has this power regardless of the relative available dividend amounts,
prior dividend amounts declared, liquidation rights or any other factor.

SHARE DISTRIBUTIONS

Loews may declare and pay a distribution consisting of shares of Loews
common stock, Carolina Group stock or any other securities of Loews or any other
person to holders of Loews common stock or Carolina Group stock only in
accordance with the provisions described below. We refer to this type of
distribution as a "share distribution."

Distributions on Loews common stock or Carolina Group stock. Loews may
declare and pay a share distribution to holders of Loews common stock or
Carolina Group stock consisting of any securities of Loews, any subsidiary of
Loews, or any other person. However, securities attributable to a group may be
distributed to holders of another group only for consideration. In the case of
shares of Carolina Group stock distributed to holders of Loews common stock,
such consideration may consist, in whole or in part, of a decrease in the
intergroup interest, if any, held by the Loews Group in the Carolina Group.

Discrimination among classes of Loews common shares. The proposed charter
amendment does not provide for mandatory share distributions. Subject to the
restrictions described above, our board of directors will have the sole
authority and discretion to declare and pay share distributions (or to refrain
from declaring or paying share distributions), in equal or unequal amounts, on
Loews common stock, Carolina Group stock, or any other class or series of Loews
capital stock or any two or more of such classes. Subject to not exceeding the
applicable available dividend amounts, our board of directors has this power
regardless of the relative available dividend amounts, prior share distributions
declared, liquidation rights or any other factor.

REDEMPTION

Redemption in exchange for shares of Loews common stock or cash following a
tax event at option of our board of directors. At any time following the
occurrence of a tax event, our board of directors, in its sole discretion, may
redeem all outstanding shares of Carolina Group stock for (1) shares of Loews
common stock or (2) cash. In such event, each share of Carolina Group stock will
be redeemed in exchange for (1) that number of shares of Loews common stock,
calculated to the nearest 1/10,000, equal to 100% of the ratio of the average
market price per share of Carolina Group stock to the average market price per
share of Loews common stock or, at the sole discretion of our board of
directors, (2) such amount of cash, calculated to the nearest $0.01, equal to
105% of the average market price per share of Carolina Group stock.

In order to redeem Carolina Group stock on the basis of a tax event, Loews
must obtain an opinion of counsel that, as a result of the enactment of an
amendment to or change (or prospective

change) in a law or an interpretation of the law that takes place after Carolina
Group stock is issued, there is more than an insubstantial risk that, for tax
purposes:

- any issuance of Carolina Group stock would be treated as a sale or other
taxable disposition by Loews or any of its subsidiaries of any of the
assets, operations or relevant subsidiaries underlying Carolina Group
stock,

- the existence of Carolina Group stock would subject Loews, its
subsidiaries or its affiliates, or any of their respective successors to
the imposition of tax or other adverse tax consequences, or

- either Loews common stock or Carolina Group stock would not be treated
solely as common stock of Loews.

For purposes of the optional redemption provision described above, the
average market price per share of Loews common stock or Carolina Group stock, as
the case may be, means the average of the daily closing market value per share
for Loews common stock or Carolina Group stock for the 20 consecutive trading
days ending on the 5th trading day prior to the date notice of the redemption is
mailed to holders of Carolina Group stock.

If we choose to redeem shares of Carolina Group stock for cash, holders of
Carolina Group stock generally will be subject to tax in the event the total
consideration they receive for their Carolina Group stock exceeds their adjusted
basis in the Carolina Group stock.

Redemption in exchange for shares of Loews common stock or cash at any time
following the second anniversary of the public issuance of Carolina Group stock
at the option of our board of directors. At any time following the second
anniversary of the date that Carolina Group stock is initially issued until the
occurrence of a disposition of all or substantially all of the assets attributed
to the Carolina Group, our board of directors, in its sole discretion, may
redeem all outstanding shares of Carolina Group stock for (1) shares of Loews
common stock or (2) cash. In such event, each share of Carolina Group stock will
be redeemed in exchange for (1) that number of shares of Loews common stock,
calculated to the nearest 1/10,000, equal to 115% of the ratio of the average
market price per share of Carolina Group stock to the average market price per
share of Loews common stock or (2) such amount of cash, calculated to the
nearest $0.01, equal to 120% of the average market price per share of Carolina
Group stock.

Redemption in exchange for stock of qualifying subsidiaries at option of
our board of directors. The proposed charter amendment also provides that Loews
may, in its sole discretion, at any time, without shareholder approval, redeem
all outstanding shares of Carolina Group stock in exchange for a specified
number of outstanding shares of common stock of a subsidiary of Loews that
satisfies certain requirements under the Internal Revenue Code of 1986, as
amended, and that directly or indirectly holds all of the assets and liabilities
of the Carolina Group (and no other material assets or liabilities). We refer to
a subsidiary that satisfies these requirements as a "qualifying subsidiary."
This type of redemption must be tax free to the holders of Carolina Group stock,
except with respect to any cash that holders receive in lieu of fractional
shares.

In this case, we would exchange the shares of Carolina Group stock for an
aggregate number of shares of common stock of the qualifying subsidiary equal to
the number of outstanding shares of common stock of the qualifying subsidiary
held by Loews multiplied by the Carolina Group Allocation Fraction.

We may redeem shares of Carolina Group stock for qualifying subsidiary
stock only if we have funds legally available for distribution under Delaware
law.

Redemption in connection with certain significant transactions. In the
event of a sale, transfer, assignment or other disposition of all or
substantially all of the assets attributed to the Carolina Group, Loews may take
one of the actions set forth below on or prior to the 90th calendar day
following the disposition date, which action will be selected in the sole
discretion of our board of directors; provided, however, that if (1) Loews has
received any of the net proceeds from the disposition, and (2) Loews has
determined not to retain all such amounts as Loews tobacco contingency reserves,
Loews must take one of the actions set forth below on or prior to the 90th
calendar day following the disposition date:

- Loews may redeem each outstanding share of Carolina Group stock in
exchange for a number of shares of Loews common stock (calculated to the
nearest 1/10,000) equal to 115% of the ratio of the average market price
per share of Carolina Group stock to the average market price per share
of Loews common stock.

- Subject to limitations, Loews may declare and pay a dividend in cash
and/or in securities (other than Loews common stock) or other property to
holders of the outstanding shares of Carolina Group stock equally on a
pro rata basis in an aggregate amount equal to the net proceeds of the
disposition received by Loews (less any Loews tobacco contingency
reserves) allocable to Carolina Group stock.

- Subject to limitations, if the disposition involves the disposition of
all, not merely substantially all, of the assets reflected in the
Carolina Group, Loews may redeem all outstanding shares of Carolina Group
stock in exchange for cash and/or securities (other than Loews common
stock) or other property in an aggregate amount equal to the net proceeds
of such disposition allocable to Carolina Group stock.

- Subject to limitations, if the disposition involves all or substantially
all of the assets attributed to the Carolina Group (and with respect to
the sale of all of such assets, Loews elects to effect a redemption using
an aggregate amount of consideration less than the aggregate amount of
the net proceeds allocable to the Carolina Group because it has not
received 100% of the net proceeds or has established Loews tobacco
contingency reserves), Loews may redeem a number of outstanding shares of
Carolina Group stock in exchange for a redemption price in cash and/or
securities (other than Loews common stock) equal to the net proceeds of
that disposition received by Loews (less any Loews tobacco contingency
reserves) allocable to Carolina Group stock. The number of shares of
Carolina Group stock to be redeemed would be equal to the lesser of (1) a
number determined by dividing the aggregate amount of net proceeds
received by Loews (less any Loews tobacco contingency reserves) allocated
to the redemption of these shares by the average market value of one
share of Carolina Group stock during the 20 consecutive trading day
period ending on the 5th trading day immediately preceding the date of
the public announcement that a definitive agreement has been signed for
the disposition and (2) the total number of outstanding shares of
Carolina Group stock.

- Subject to limitations, Loews may take a combination of the actions
described in the preceding bullets whereby Loews may redeem some shares
of Carolina Group stock in exchange for shares of Loews common stock at
the exchange rate described in the first bullet above, and use an amount
equal to a portion of the net proceeds of the disposition received by

Loews (less any Loews tobacco contingency reserves) allocable to Carolina Group
stock to either (1) declare and pay a dividend as described in the second bullet
above, or (2) redeem part or all of the remaining shares of Carolina Group stock
as described in the immediately preceding two bullets.

The value of the consideration paid to holders of Carolina Group stock in the
different scenarios described above could vary significantly. The proposed
charter amendment would not require our board of directors to select the option
that would result in the distribution with the highest value to the holders of
Carolina Group stock.

It is possible that Lorillard will, in its independent judgment, retain
some or all of the net proceeds from the sale of all or substantially all of the
assets of the Carolina Group. See "Risk Factors -- The Proposed Charter
Amendment -- The independence of the board of directors of Lorillard, Inc. and
the board of directors of its wholly owned subsidiary, Lorillard Tobacco
Company, may affect Lorillard's payment of dividends to Loews and thereby
inhibit Loews's ability or willingness to pay dividends and make other
distributions on Carolina Group stock." It is also possible that after Loews
receives some or all of the net proceeds from the sale of substantially all of
the assets of the Carolina Group, that Loews will retain some or all of such net
proceeds as Loews tobacco contingency reserves.

If, on the 91st day following the disposition date, Loews has not redeemed
all of the outstanding shares of Carolina Group stock and (1) Loews has not
received 100% of the net proceeds from the disposition, or (2) Loews has
received some or all of the net proceeds from the disposition but has determined
to retain Loews tobacco contingency reserves, the following principles will
apply: each time that Loews receives any distributions from Lorillard, Loews is
required to pay a dividend in cash and/or in securities (other than Loews common
stock) or other property to holders of the outstanding shares of Carolina Group
stock equally on a pro rata basis in an aggregate amount equal to the amount of
the distribution (less any increase in Loews tobacco contingency reserves made
in connection with each new distribution from Lorillard) allocable to Carolina
Group stock. If, and when, Loews, in its sole discretion, determines to release
some or all of the Loews tobacco contingency reserves, Loews is required
promptly to pay a dividend in cash and/or in securities (other than Loews common
stock) or other property to holders of the outstanding shares of Carolina Group
stock equally on a pro rata basis in an aggregate amount equal to the released
Loews tobacco contingency reserves allocable to Carolina Group stock. In no
event will Loews be required to make dividend payments more frequently than once
per fiscal quarter. Any unpaid amounts in any fiscal quarter will be accumulated
for payment in the next fiscal quarter.

For purposes of these redemption provisions, the "average market price per
share" of Loews common stock or Carolina Group stock, as the case may be, means
the average of the daily closing market value per share for such Loews common
stock or Carolina Group stock, as applicable, during the 20 consecutive trading
day period ending on the 5th trading day immediately preceding the date of the
public announcement that a definitive agreement has been signed for the
disposition.

For purposes of these provisions, "substantially all of the assets" of the
Carolina Group as of any date means a portion of such assets that represents at
least 80% of the fair value of the assets attributed to the Carolina Group as of
such date.

For purposes of these provisions, the term "net proceeds" means the
proceeds from the sale received after payment or provision for:

- repayment of any notional, intergroup debt,

- taxes and transaction costs in connection with the sale, and

- any other liabilities or obligations (contingent or otherwise) of the
Carolina Group, other than any Loews tobacco contingency reserves or
Lorillard tobacco contingency reserves, including

-- indemnity or guarantee obligations, and

-- liabilities assumed for future purchase price adjustments.

For purposes of these provisions, the term "Loews tobacco contingency
reserves" means an amount retained by Loews which our board of directors from
time to time determines in good faith should be retained for tobacco-related
contingencies or other costs or liabilities of any kind (contingent or
otherwise, by way of contract, tort, indemnity, guarantee or otherwise), whether
or not any such contingency, cost or liability would be deductible as a cost or
expense or would qualify for treatment as a reserve under generally accepted
accounting principles.

For purposes of these provisions, the term "Lorillard tobacco contingency
reserves" means an amount retained by Lorillard, Inc. or Lorillard Tobacco
Company or any of their respective subsidiaries, which such entity's board of
directors from time to time determines in good faith should be retained for
tobacco-related contingencies or other costs or liabilities of any kind
(contingent or otherwise, by way of contract, tort, indemnity, guarantee or
otherwise), whether or not any such contingency, cost or liability would be
deductible as a cost or expense or would qualify for treatment as a reserve
under generally accepted accounting principles.

We may only pay a dividend or redeem shares of Carolina Group stock if we
have funds for distributions under Delaware law and the amount to be paid to
holders is less than or equal to the available distribution amount.

Certain exceptions. The provisions described under "-- Redemption in
connection with certain significant transactions" will not apply, and Loews will
not be required to redeem any securities or make any dividend or other
distribution it would otherwise be required to make, in some circumstances,
including the following:

- if the underlying disposition is conditioned upon the affirmative vote of
a majority of holders of Carolina Group stock, voting as a separate
class,

- if the disposition is in connection with a liquidation of Loews,

- in connection with a spin-off or similar disposition of Loews's entire
interest in the Carolina Group to the holders of Carolina Group stock,
including a disposition that is made in connection with a redemption as
described under "-- Redemption in exchange for shares of Loews common
stock or cash following a tax event at option of our board of directors"
or "-- Redemption in exchange for stock of qualifying subsidiaries at
option of our board of directors," and

- if the disposition is to a person or group of which Loews is the majority
owner and the Carolina Group receives in exchange primarily equity
securities of that person or group as consideration and that person or
group engages or proposes to engage primarily in one or more businesses
similar or complementary to the businesses reflected in the Carolina
Group prior to such transaction.

GENERAL PROCEDURES

Public announcements; notices. The proposed charter amendment provides
that, in the case of specified dispositions or a redemption, Loews will publicly
announce or otherwise provide specified information to holders of Carolina Group
stock.

Fractional shares. Our board of directors will not have to issue or
deliver any fractional shares to any holder of Carolina Group stock upon any
redemption, dividend or other distribution under the

provisions described under "-- Redemption." Instead of issuing fractional
shares, Loews will pay cash for the fractional share in an amount equal to the
fair market value of the fractional share, without interest.

No adjustments for dividends or other distributions. No adjustments for
dividends will be made upon the exchange of any shares of Carolina Group stock;
except that, if a redemption date with respect to Carolina Group stock comes
after the record date for the payment of a dividend or other distribution to be
paid on that stock but before the payment or distribution, the registered
holders of those shares at the close of business on such record date will be
entitled to receive the dividend or other distribution on the payment date,
notwithstanding the redemption of those shares or Loews's default in payment of
the dividend or distribution.

Payment of taxes. If any person exchanging a certificate representing
shares of Carolina Group stock wants us to issue a certificate in a name other
than the registered name on the old certificate, that person must pay any
transfer or other taxes required by reason of the issuance of the certificate in
another name or establish, to the satisfaction of Loews or its agent, that the
tax has been paid or is not applicable.

Notices of disposition of all or substantially all of the assets attributed
to the Carolina Group. Promptly following the disposition date, we will announce
publicly by press release:

- the net proceeds of the disposition;

- the number of shares outstanding of Carolina Group stock on the date of
the notice; and

- the Carolina Group Allocation Fraction on the date of the notice.

Not later than the 60th calendar day after the disposition date, we will
announce publicly by press release whether we will pay a special dividend or
redeem shares of Carolina Group stock for shares of Loews common stock or cash
and/or other securities. In addition, in the case of a dividend, we will
announce in the press release the record date for determining holders entitled
to receive the dividend. Notwithstanding the foregoing, Loews may take
additional time, to the extent determined necessary in the judgment of the Loews
board of directors, to assess the appropriate amount of the net proceeds to be
held in reserve for contingent liabilities.

We will also mail to each holder of shares of Carolina Group stock any
additional notices and other information required by law or the charter
amendment.

LIQUIDATION RIGHTS

Currently, in the event of a liquidation, dissolution or winding up of
Loews, after payment or provision for payment of the debts and other liabilities
of Loews, holders of Loews common stock are entitled to share ratably in the
funds of Loews remaining for distribution.

Under the proposed charter amendment, in the event of a liquidation,
dissolution or winding up of Loews, whether voluntary or involuntary, Loews will
first pay or provide for payment of debts and other liabilities of Loews,
including the liquidation preferences of any class or series of Loews preferred
stock. Thereafter, holders of shares of Loews common stock, Carolina Group stock
and any other class of Loews common shares will share ratably in the funds of
Loews remaining for distribution to its common shareholders in proportion to the
aggregate market capitalization of the outstanding shares of each class of
stock, as applicable, to the aggregate market capitalization of all the
outstanding shares of Loews common stock and Carolina Group stock. Loews will
calculate the market capitalizations based on the 20 consecutive trading day
period ending on 5th trading day immediately prior to the date of the public
announcement of the liquidation, dissolution or winding up of Loews.

Neither of the following, by itself, will constitute a liquidation,
dissolution or winding up of Loews:

- the consolidation or merger of Loews with or into any other corporation
or corporations or the sale, transfer or lease of all or substantially
all of the assets of Loews, or

- any transaction or series of related transactions that results in all of
the assets and liabilities reflected in the Carolina Group being held by
one or more subsidiaries of Loews and the distribution of shares of such
subsidiary or subsidiaries, and no other material assets or liabilities,
to the holders of the outstanding shares of Carolina Group stock.

DETERMINATIONS BY OUR BOARD OF DIRECTORS

Any determinations made by our board of directors under any provision
described in this section "-- Terms of the Proposed Charter Amendment" will be
final and binding on all shareholders of Loews, except as may otherwise be
required by law. Loews will prepare a statement of any determination by our
board of directors respecting the fair market value of any properties, assets or
securities, and will file the statement with our Secretary.

NO PREEMPTIVE RIGHTS

Holders of Loews common stock or Carolina Group stock do not have any
preemptive rights to subscribe for any additional shares of capital stock or
other obligations convertible into or exercisable for shares of capital stock
that may hereafter be issued by Loews.

THE PUBLIC OFFERING

We currently intend to issue in an underwritten public offering shares of
Carolina Group stock representing a portion of the economic performance of the
Carolina Group. We will determine the amount to be issued based on capital
requirements of Loews, market conditions at the time of the public offering and
other factors. We intend to allocate 100% of the net proceeds from the public
offering to the Loews Group for general corporate purposes.

TIMING OF THE PUBLIC OFFERING

We currently expect to complete the public offering shortly following
shareholder approval of the proposed charter amendment.

Even if our shareholders approve the proposed charter amendment, our board
of directors reserves the right not to create Carolina Group stock or not to
issue Carolina Group stock once it is created.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

It is the opinion of Wachtell, Lipton, Rosen & Katz that subject to the
discussion below in this section, neither the adoption of the proposed charter
amendment, nor the occurrence of the public offering of Carolina Group stock,
will be taxable to Loews, holders of Loews common stock or holders of Carolina
Group stock.

The conclusions in the preceding paragraph are not free from doubt. These
conclusions assume that Carolina Group stock is treated as a class of common
stock of Loews. The filing of consolidated income tax returns by the Loews Group
together with the Carolina Group also assumes that Carolina

Group stock is treated as a class of common stock of Loews. While Loews believes
that, under current law, Carolina Group stock will be treated as common stock of
Loews, there are no authorities directly on point nor will Loews receive an
advance ruling from the Internal Revenue Service. There is a risk that the
Internal Revenue Service could assert that Carolina Group stock is property
other than common stock of Loews. Loews believes it is unlikely the Internal
Revenue Service would prevail on that view, but no assurance can be given that
the views expressed in the preceding paragraph, if contested, would be sustained
by a court.

If Carolina Group stock is considered property other than common stock of
Loews, Loews would generally be taxed on a portion of the appreciation of the
Carolina Group assets and may no longer be able to file a consolidated U.S.
federal income tax return that includes the Carolina Group.

The foregoing discussion under this section "Material Federal Income Tax
Consequences" is only a summary of the material federal income tax consequences
of the issuance of Carolina Group stock. It is not a complete analysis of all
potential tax effects relevant to the issuance of Carolina Group stock. The
discussion does not address consequences that may be relevant to a particular
holder of Loews common stock or Carolina Group stock subject to special
treatment under U.S. federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, non-U.S. persons, holders
that acquired their Loews common stock or Carolina Group stock upon the exercise
of options or otherwise as compensation and holders that do not hold such shares
as capital assets, nor any consequences arising under any state, local or
foreign jurisdiction. The discussion is based on the Internal Revenue Code,
Treasury Regulations thereunder and administrative rulings and court decisions
as of the date of this proxy statement. All of the foregoing is subject to
change and any such change could affect the continuing validity of this
discussion. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR CONCERNING THE U.S.
FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ISSUANCE OF
CAROLINA GROUP STOCK TO YOU.

APPRAISAL RIGHTS

Under the Delaware General Corporation Law, you will not have appraisal
rights in connection with the proposed charter amendment.

DESCRIPTION OF THE CAROLINA GROUP

INTRODUCTION

Carolina Group stock is intended to reflect the economic performance of the
Carolina Group. We will initially attribute the following assets and liabilities
to the Carolina Group:

- Loews's 100% stock ownership interest in Lorillard, Inc.;

- notional, intergroup debt owed by the Carolina Group to the Loews Group,
in an amount and with terms to be determined in connection with the
anticipated offering of Carolina Group stock; and

- any and all liabilities, costs and expenses of Loews and Lorillard, Inc.
and its subsidiaries and predecessors arising out of or related to
tobacco or otherwise arising out of the past, present or future business
of Lorillard, Inc. or its subsidiaries or predecessors, or claims arising
out of or related to the sale of any business previously sold by
Lorillard, Inc. or its subsidiaries or predecessors, in each case,
whether grounded in tort, contract, statute or otherwise, whether pending
or asserted in the future.

We also intend to attribute the following additional assets and liabilities
to the Carolina Group:

- all net income or net losses from the assets and liabilities that are
reflected in the Carolina Group and all net proceeds from any disposition
of those assets, in each case, after deductions to reflect dividends paid
to holders of Carolina Group stock or credited to the Loews Group in
respect of its intergroup interest; and

- any acquisitions or investments made from assets reflected in the
Carolina Group or net proceeds from sales of assets reflected in the
Carolina Group.

The Carolina Group is not a separate legal entity and cannot issue securities.
Holders of Carolina Group stock will not have an ownership interest in the
Carolina Group, Lorillard, Inc. or any of its subsidiaries. Rather, investors in
Carolina Group stock will be shareholders of Loews. Neither the proposed charter
amendment, nor the issuance of Carolina Group stock, will result in the actual
transfer of assets of Loews or any of its subsidiaries, and Lorillard, Inc. will
remain a wholly owned subsidiary of Loews. Lorillard, Inc. and its subsidiaries
are, and we expect they will continue to be, separate and independent legal
entities, with separate and independent boards of directors, management and
operations, whether or not the proposed charter amendment is approved or
Carolina Group stock is issued.

Lorillard, Inc.'s principal asset is its 100% ownership interest in
Lorillard Tobacco Company. Lorillard engages in the production and sale of
cigarettes in the United States, including Puerto Rico and certain U.S.
territories.

Founded in 1760 by Pierre Lorillard in New York, Lorillard is the oldest
continuously operating tobacco company in the United States. Lorillard has a
long history of taking innovative steps in the tobacco industry. In 1926,
Lorillard introduced its first blended cigarette product under the Old Gold
label. Lorillard launched its first filter cigarette, Kent, in 1952. In 1957,
Lorillard introduced its current leading brand, Newport, and premiered True in
1966. Lorillard became a wholly owned subsidiary of Loews in 1971.

Unless otherwise indicated, the market data information referenced in this
section is derived from The Maxwell Report, which reports individual units
shipped by U.S. cigarette manufacturers.

Lorillard ranked fourth overall in the U.S. cigarette industry with a 9.3%
share of the market in 2000. Total shipments for the U.S. cigarette market in
2000 were approximately 435.0 billion units.

Newport, a menthol flavored premium brand, and Lorillard's largest selling
brand, was the second largest selling brand in the United States in 2000.
Newport accounted for approximately 7.3% of units shipped in the United States
in 2000, second only to Marlboro, Philip Morris's leading brand. Newport is the
largest selling brand in the menthol segment of the U.S. cigarette market, with
a 29.4% share of that segment in 2000. Newport accounted for approximately 80%
of Lorillard's units shipped in 2000 and approximately 84% of Lorillard's units
shipped in the six-month period ended June 30, 2001. The Lorillard product line
is comprised of eight brand families consisting of 63 combinations of price,
taste, flavor, length and packaging. In addition to Newport, Lorillard currently
markets cigarettes under the Kent, True, Maverick, Old Gold, Max, Satin and
Triumph brand names.

Lorillard produces cigarettes for both the premium and discount segments of
the U.S. cigarette markets. Lorillard does not currently compete in a
subcategory of the discount segment that it identifies as the super-discount
segment. Premium brands are well-known, established brands marketed at higher
retail prices. Discount brands are generally less well-recognized brands
marketed at lower retail prices. Lorillard defines the super-discount
subcategory to include brands sold at the lowest retail prices. Super-discount
cigarettes are typically manufactured by smaller companies, many of which,
relative to Lorillard and other major U.S. manufacturers, have no, or
significantly lower, payment obligations under the State Settlement Agreements.

Like Newport, Kent and True are well-established premium brands, and have
48 and 35 year market histories, respectively. With 2.05 billion units shipped
in 2000, Kent ranked fifteenth among U.S. premium brands with a 0.7% share of
the U.S. premium segment and a 0.5% share of the overall U.S. market. With 1.27
billion units shipped in 2000, True ranked seventeenth among U.S. premium brands
with a 0.4% share of the U.S. premium segment and a 0.3% share of the overall
U.S. market. Lorillard's other premium brand cigarettes are Max, Satin and
Triumph. Together, Maverick and Old Gold, Lorillard's discount brands, accounted
for approximately 1.2% and 0.8% of total units shipped in the U.S. market in
2000 and the six-month period ended June 30, 2001, respectively.

The U.S. cigarette industry is a mature industry with consumption,
including consumption of premium brand cigarettes, in a general state of
protracted decline. Aggregate U.S. cigarette shipments have decreased at a
compound annual rate of approximately 2.3% over the period 1980 to 2000 as
measured by Management Science Associates.

For a number of years, Lorillard and other cigarette manufacturers have
been faced with factors which adversely affect their cigarette businesses,
including:

- lawsuits against tobacco manufacturers by private plaintiffs and
governmental entities, some of which have resulted in substantial jury
verdicts;

- enacted and proposed legislation and regulation intended to discourage
and restrict the marketing and smoking of cigarettes; and

- an overall decline in the social acceptability of smoking, coupled with
increased pressure from anti-tobacco groups.

On November 23, 1998, Lorillard, Philip Morris, R.J. Reynolds, Brown &
Williamson and other manufacturers of tobacco products entered into a Master
Settlement Agreement 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
and territories. Lorillard and the other major U.S. tobacco manufacturers had
previously settled similar claims brought by Florida, Texas, Minnesota and
Mississippi.

Under the Master Settlement Agreement and the settlement agreements with
Florida, Texas, Minnesota and Mississippi, which we collectively refer to in
this document as the "State Settlement Agreements," Lorillard is obligated to
pay approximately $1.1 billion in 2001 ($572.3 million of which Lorillard paid
as of June 30, 2001). Annual payments under the State Settlement Agreements are
expected to be in excess of $1.0 billion in future years. For a more detailed
discussion of Lorillard's payment obligations under the State Settlement
Agreements, see "-- Payment Obligations under the State Settlement Agreements."

In addition, pursuant to the terms of the Master Settlement Agreement,
Lorillard and other industry participants agreed to various restrictions and
limitations regarding the advertising, promotion and marketing of tobacco
products in the United States. For a more detailed discussion of the business
restrictions contained in the Master Settlement Agreement, see "-- Advertising
and Sales Promotion."

STRATEGY

Lorillard's primary long-term business objective is to increase earnings
and profits while responsibly marketing high-quality tobacco products to adult
smokers within the current regulatory and statutory framework. Lorillard aims to
meet this objective through the focused advertising and promotion of the Newport
brand, which is the leading menthol brand and second largest overall brand in
the U.S. cigarette market.

An important component of Lorillard's long-term business strategy involves
product line extensions. In January of 2001, Lorillard introduced Newport
Medium, the latest Newport product. Lorillard believes that this line extension
will strengthen Newport's overall appeal to adult smokers by offering an
additional menthol taste option. Lorillard expects to consider additional
Newport and other line extensions from time to time in the future.

In order to complement its primary emphasis on Newport, Lorillard makes
selective marketing expenditures on its other brands based on its assessment of
market-place opportunity and the prospect for profitable returns on those
expenditures. As a general matter, Lorillard will support a particular brand
only if it believes that it can maintain or increase individual brand
profitability.

Like all Lorillard brands, Lorillard's discount brands are managed for
profitability. Lorillard's discount brands fill out the Lorillard brand
portfolio and enhance retail representation of Lorillard brands by providing
retailers and adult smokers a broader range of Lorillard product offerings.

In its effort to increase earnings and profits, Lorillard continuously
explores opportunities to reduce costs and otherwise improve operating
efficiencies in all areas of its business, including manufacturing processes and
raw material procurement. Lorillard manages its production processes to promote
efficiency and quality control.

COMPETITIVE STRENGTHS

THE NEWPORT BRAND

As the leading brand in the menthol segment and the number two U.S. brand
overall, Newport enjoys strong brand recognition. Introduced in 1957, Newport
has a 44 year history and is the largest selling U.S. menthol brand. Lorillard
introduced "pleasure," its Newport marketing theme, in 1972. Lorillard
reinforces the Newport "pleasure" theme in all aspects of its advertising and
promotion of Newport. Lorillard believes that this consistent marketing focus
enhances the value of the Newport brand.

Newport's unit shipments have increased 8.6% between 1996 and 2000 and 0.3%
in the first half of 2001 over the same period in 2000.

NEWPORT HISTORICAL U.S. UNIT VOLUME
(BILLIONS OF UNITS)

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ----- ----- ----- ----- -----

Newport.................................................. 15.85 15.80 31.81 31.44 32.10 31.43 29.30

---------------
Source: The Maxwell Report

STRENGTH IN THE MENTHOL CIGARETTE SEGMENT

As reflected in the table below, the menthol segment has consistently
accounted for approximately 25% of the overall U.S. cigarette market over the
last five years. With a 29.4% share of the U.S. menthol segment in 2000,
Lorillard believes that Newport is well positioned in this relatively stable
category of the U.S. cigarette market, despite the Philip Morris Retail Leaders
program which has substantially restrained Lorillard's ability to advertise,
promote and market Newport more effectively.

U.S. MENTHOL MARKET SHARE

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998 1997 1996
% % % % % % %
---------- ---------- ---- ---- ---- ---- ----

Menthol as a % of total U.S. unit
sales............................ 25.6 25.9 24.9 25.4 25.3 25.1 25.3
Newport as a % of U.S. menthol
market........................... 30.5 29.1 29.4 29.2 27.6 26.0 23.9

---------------
Source: The Maxwell Report

EMPHASIS ON THE PREMIUM SEGMENT

Lorillard focuses its marketing efforts on the relatively more profitable
premium segment of the U.S. cigarette industry. The following table demonstrates
the breakdown between U.S. premium and discount sales for each of Lorillard and
its major competitors.

PERCENTAGE OF UNITS SHIPPED IN THE U.S. PREMIUM/DISCOUNT SEGMENT

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998
% % % % %
------------------ ------------------ ------------------ ------------------ ------------------
PREMIUM DISCOUNT PREMIUM DISCOUNT PREMIUM DISCOUNT PREMIUM DISCOUNT PREMIUM DISCOUNT
------- -------- ------- -------- ------- -------- ------- -------- ------- --------

-----------------------------------------------------------------------------------------------------------------------------
Lorillard........... 91.2 8.8 86.1 13.9 87.3 12.7 81.7 18.3 88.0 12.0
-----------------------------------------------------------------------------------------------------------------------------

Philip Morris....... 89.9 10.1 88.1 11.9 88.2 11.8 88.0 12.0 86.4 13.6
R.J. Reynolds....... 62.7 37.3 62.9 37.1 63.2 36.8 62.6 37.4 62.6 37.4
Brown &
Williamson......... 48.7 51.3 49.7 50.3 49.0 51.0 48.3 51.7 45.4 54.6

1997 1996
% %
------------------ ------------------
PREMIUM DISCOUNT PREMIUM DISCOUNT
------- -------- ------- --------

--------------------- ---------------------------------------
Lorillard........... 91.2 8.8 93.7 6.3
--------------------- ---------------------------------------
Philip Morris....... 85.7 14.3 84.4 15.6
R.J. Reynolds....... 63.4 36.6 63.0 37.0
Brown &
Williamson......... 43.8 56.2 43.1 56.9

---------------
Source: The Maxwell Report

The table below reflects Lorillard's market penetration in the U.S. premium
segment:

MARKET SHARE IN PREMIUM SEGMENT OF THE U.S. CIGARETTE MARKET

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998 1997 1996
% % % % % % %
---------- ---------- ----- ----- ----- ----- -----

Philip Morris................. 62.5 60.9 60.7 59.7 58.5 57.7 56.3
R.J. Reynolds................. 18.8 19.4 19.8 19.7 20.6 21.2 21.7
------------------------------------------------------------------------------------------------------
Lorillard..................... 11.5 11.4 11.5 11.6 11.0 10.9 10.9
------------------------------------------------------------------------------------------------------
Brown & Williamson............ 7.1 8.0 7.8 8.8 9.3 9.7 10.4
Others........................ 0.2 0.2 0.2 0.3 0.5 0.5 0.7
----- ----- ----- ----- ----- ----- -----
TOTAL..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====

---------------
Source: The Maxwell Report
Totals may not equal 100 due to rounding.

SUPERIOR PROFITABILITY

Among Lorillard, Philip Morris and R.J. Reynolds, Lorillard was the most
profitable U.S. cigarette company, as measured by operating profit per 1,000
units shipped in the United States, for the years 2000, 1999 and 1998. Lorillard
believes it could have been even more profitable but for the anti-competitive
effects of the Philip Morris Retail Leaders program. The table below reflects
unadjusted operating profit per 1,000 units shipped in the United States for the
years 1996 through 2000, and adjusted operating profit per 1,000 units sold in
the United States for the six-month period ending June 30, 2001. The adjustment
for the six-month period ending June 30, 2001 excludes payments made by
Lorillard and Philip Morris pursuant to the Engle agreement to allow comparison
to R.J. Reynolds (which undertook no such obligation). See "Description of the
Carolina Group -- Legal Proceedings -- Class Action Cases -- The Engle Case."

OPERATING PROFIT/1,000 UNITS

FIRST FIRST
HALF HALF
2001 2000 2000 1999 1998 1997 1996
------ ------ ------ ------ ------ ------ ------

------------------------------------------------------------------------------------------------
Lorillard........................ $29.31* $26.58 $27.68 $23.44 $12.75 $13.14 $17.07
------------------------------------------------------------------------------------------------
Philip Morris Domestic Tobacco... 24.66** 22.45 25.25 23.34 6.54 13.98 18.22
R.J. Reynolds.................... 10.28 9.37 8.59 7.49 (2.04) 5.72 NA***

---------------
Sources: The Maxwell Report for units

Publicly filed SEC documents for Philip Morris (U.S. tobacco segment
data) and R.J. Reynolds operating profit

* Adjusted to exclude the $200 million charge relating to the Engle agreement.
** Adjusted to exclude the $500 million charge relating to the Engle agreement.
*** Because R.J. Reynolds has not restated its historical financial statements
for 1996, the data for that year is not available.

Based on units shipments data reported by The Maxwell Report and segment
operating profit reported by Philip Morris in its Annual Report on Form 10-K for
the year ended December 31, 2000, Philip Morris's total worldwide operating
profit for tobacco-related businesses per 1,000 units shipped was $11.96 in 2000
and $11.82 per 1000 units shipped in the first half of 2001, adjusted, with
respect to the first half of 2001, to exclude a $500 million charge relating to
the Engle agreement.

We have not included data for Brown & Williamson because its parent
company, British American Tobacco p.l.c., does not report U.S. only segment
data.

ADVERTISING AND SALES PROMOTION

Lorillard advertises its products to adult smokers in magazines,
newspapers, direct mail and point-of-sale display materials. In addition,
Lorillard promotes its cigarette brands to adult smokers through distribution of
store coupons, retail price promotions, and personal contact with distributors
and retailers. Lorillard believes that it conducts these activities in
accordance with the terms of the Master Settlement Agreement and other
applicable restrictions.

As a general matter, Lorillard allocates its marketing expenditures among
brands on the basis of marketplace opportunity and profitable return. In
particular, Lorillard focuses its marketing efforts on the premium segment of
the U.S. cigarette industry, with a specific focus on Newport.

Advertising of tobacco products through television and radio has been
prohibited since 1971. In addition, advertising and promotion activities by
Lorillard and other major tobacco manufacturers have been severely restricted by
the State Settlement Agreements and could be further restricted by proposed
federal, state and local laws and regulations. Pursuant to the Master Settlement
Agreement, Lorillard and the other major tobacco product manufacturers have
agreed to various restrictions and limitations regarding the advertising,
promotion and marketing of tobacco products in the United States. Among other
things, the Master Settlement Agreement:

- prohibits the targeting of youth in the advertising, promotion or
marketing of tobacco products;

- bans the use of cartoon characters in all tobacco advertising and
promotion;

- limits each tobacco manufacturer to one event sponsorship during any
twelve-month period, which may not include major team sports or events in
which the intended audience includes a significant percentage of youth;

- bans all outdoor advertising of tobacco products with the exception of
small signs at retail establishments that sell tobacco products;

- bans tobacco manufacturers from offering or selling apparel and other
merchandise that bears a tobacco brand name, subject to specified
exceptions;

- prohibits the distribution of free samples of tobacco products except
within adult-only facilities;

- prohibits payments for tobacco product placement in various media; and

- bans gift offers based on the purchase of tobacco products without
sufficient proof that the intended gift recipient is an adult.

Many states, cities and counties have enacted legislation or regulations
further restricting tobacco advertising. For example, the Attorney General of
Massachusetts issued regulations in 1999 severely restricting the placement of
outdoor and point-of-sale advertising in retail stores and banning the self-
service display of tobacco products. In early 2000, the District Court upheld
the regulations, and the First Circuit Court of Appeals affirmed the District
Court's ruling later that year. Several tobacco companies, including Lorillard,
appealed to the U.S. Supreme Court. In a decision issued on June 28, 2001, the
U.S. Supreme Court upheld the ban on self-service display of tobacco products
but declared the other challenged regulations preempted by federal law and thus
invalid. For additional information regarding the Massachusetts regulations and
other tobacco-related legislation and regulations, see "-- Legislation and
Regulation."

There may be additional state and federal legislative and regulatory
initiatives relating to the advertising and sales promotion of cigarettes in the
future. Lorillard cannot predict the impact of such initiatives on its marketing
and sales efforts.

Lorillard believes that cigarette smoking is an adult activity, that
children should not smoke and that laws prohibiting the sale of cigarettes to
minors should be strictly enforced. Restrictions and prohibitions contained in
the Master Settlement Agreement relating to the marketing and promotion of
Lorillard products are consistent with Lorillard's commitment to preventing
youth smoking. Lorillard intends to strictly comply with these restrictions and
prohibitions, and all other obligations it has undertaken pursuant to the Master
Settlement Agreement.

Lorillard has funded and plans to continue to fund a Youth Smoking
Prevention Program, which is designed to discourage youth from smoking. The
program addresses not only youth, but also parents and, through the "We Card"
program, retailers, to prevent purchase of cigarettes by underage purchasers. In
accordance with the Master Settlement Agreement, Lorillard has determined not to
advertise its cigarettes in magazines with large readership among people under
the age of 18.

PROPERTIES

Lorillard's manufacturing facility is located on approximately 88 acres in
Greensboro, North Carolina. This 942,600 square-foot plant contains modern, high
speed cigarette manufacturing machinery. The Greensboro facility also includes a
warehouse with shipping and receiving areas totaling 54,800 square feet. In
addition, Lorillard owns tobacco receiving and storage facilities totaling 1.5
million square feet in Danville, Virginia.

Lorillard's executive offices are located in a 130,000 square-foot,
four-story office building in Greensboro. Its 88,000 square foot research
facility is also located in Greensboro.

Lorillard's principal properties are owned in fee. With minor exceptions,
Lorillard owns all of the machinery used by it. Lorillard believes that its
properties and machinery are in generally good condition.

Lorillard leases sales offices in major cities throughout the United
States, a cold-storage facility in Greensboro and warehousing space in 34 public
distributing warehouses located throughout the United States.

RAW MATERIALS AND MANUFACTURING

In its production of cigarettes, Lorillard uses domestic burley tobacco,
flue-cured leaf tobacco grown in the United States and abroad, and aromatic
tobacco grown primarily in Turkey and other Near Eastern countries. A domestic
supplier manufactures all of Lorillard's reconstituted tobacco.

Lorillard purchases more than 90% of its leaf tobacco from Dimon
International, Inc. Lorillard directs Dimon in the purchase of tobacco according
to Lorillard's specifications for quality, grade, yield, chemistry, particle
size, moisture content and other characteristics. Dimon purchases and processes
the whole leaf and then dries and bundles it for shipment to and storage at
Lorillard's Danville facility.

Dimon historically has procured most of Lorillard's leaf tobacco
requirements through commission buyers at tobacco auctions. However, the tobacco
industry is currently shifting to direct contract purchasing from tobacco
farmers. Dimon has stated in its public filings that it believes it is well
prepared to participate in direct contracting with tobacco farmers in the United
States and that it does not expect any material economic effect from the
progressive shift from the auction system to

direct contract buying. Lorillard entered into a new contract with Dimon to
reflect the transition from auction to direct contract purchasing.

In the event that Dimon becomes unwilling or unable to supply leaf tobacco
to Lorillard, Lorillard believes that it can readily obtain high-quality leaf
tobacco from well-established, alternative industry sources, including Standard
Commercial Corporation and Universal Corporation.

Due to the varying size and quality of annual crops and other economic
factors, including U.S. tobacco production controls, tobacco prices have
historically fluctuated. The U.S. price supports that accompany production
controls have inflated the market price of tobacco. In addition, the transition
in tobacco purchasing from auction markets to direct farmer contracting may
increase the market price of domestically grown tobacco. However, Lorillard does
not believe that this increase, if any, will have a material effect on its
business. Over the past five years, prices paid by Lorillard for tobacco have
risen less than the U.S. rate of inflation, as measured by the U.S. Consumer
Price Index.

Lorillard stores its tobacco in 29 storage silos on its 130 acre Danville
facility. To protect against loss, amounts of all types and grades of tobacco
are stored in each silo. Because the process of aging tobacco normally requires
approximately two years, Lorillard maintains large quantities of leaf tobacco at
all times. Lorillard believes its current tobacco supplies are adequately
balanced for its present production requirements. If necessary, Lorillard can
purchase aged tobacco in the open markets to supplement existing inventories.

Lorillard produces cigarettes at its Greensboro manufacturing plant, which
has a production capacity of approximately 175 million cigarettes per day and
approximately 50 billion cigarettes per year. Through various automated systems
and sensors, Lorillard actively monitors all phases of production to promote
quality and compliance with applicable regulations.

Lorillard currently has in place an arrangement with another U.S. cigarette
manufacturer pursuant to which each party to the arrangement has agreed to
utilize its excess capacity, if any, to produce the other party's cigarettes in
the event that a catastrophic occurrence disables a party's manufacturing
ability. In addition, Lorillard maintains business interruption insurance.

Lorillard has storage capacity for 1.8 billion cigarettes at its Greensboro
central distribution center. In addition, Lorillard's leased cold-storage
facility in Greensboro holds approximately 300 million cigarettes, and Lorillard
stores cigarettes in 34 public distributing warehouses across the country.

DISTRIBUTION METHODS

Lorillard sells its products primarily to:

- distributors, who in turn service retail outlets;

- chain store organizations; and

- government agencies, including the U.S. Armed Forces.

Upon completion of the manufacturing process, Lorillard ships cigarettes to
public distributing warehouse facilities for rapid order fulfillment to
wholesalers and other direct buying customers. Lorillard retains a portion of
its manufactured cigarettes at its Greensboro central distribution center and
Greensboro cold-storage facility for future finished goods replenishment.

Lorillard has approximately 830 direct customers servicing approximately
400,000 retail accounts. Lorillard does not sell cigarettes directly to
consumers. During 2000, 1999 and 1998, sales made by Lorillard to McLane
Company, Inc., a wholesale distributor wholly owned by Wal-Mart Stores, Inc.,

comprised 15%, 13%, and 13%, respectively, of Lorillard's revenues. No other
customer accounted for more than 10% of 2000, 1999 or 1998 sales. In the first
half of 2001, sales made by Lorillard to McLane comprised 15% of Lorillard's
revenues. Lorillard does not have any backlog orders.

Most of Lorillard's customers buy cigarettes on a next day delivery basis.
Approximately 90% of Lorillard's customers purchase cigarettes using electronic
funds transfer, which provides immediate payment to Lorillard.

Lorillard's sales personnel monitor inventories, work with retailers on
displays and signs, and enter into discount arrangements with retailers from
time to time.

RESEARCH AND DEVELOPMENT

Lorillard's research and development staff includes 68 scientists, 30 of
whom have advanced degrees. Research and development efforts at Lorillard focus
primarily on:

- developing quality products that appeal to consumers;

- studying and developing consumer-acceptable products with the potential
for reduced health risk;

- identifying and investigating, through the use of internal and external
resources, suspect constituents of cigarette products or their components
to determine the feasibility of reduction or elimination;

- maintaining state-of-the-art knowledge about public health and scientific
issues related to cigarette products;

- developing new, or modifying existing, products and processes to promote
quality control and to comply with current and anticipated laws and
regulations, including investigating ways to reduce cigarette ignition
propensity; and

- collaborating and cooperating with outside public and private scientific
institutions and encouraging independent research relating to cigarette
products.

Current tobacco-related research activities include: analysis of cigarette
components, including cigarette paper, filters, tobacco and ingredients,
analysis of mainstream and sidestream smoke, and modification of cigarette
design. Lorillard employs advanced scientific equipment in its research efforts,
including gas chromatographs, mass spectrographs and liquid chromatographs.

Lorillard does not currently believe there is significant consumer demand
for an alternative cigarette product similar to Accord(R), manufactured by
Phillip Morris, or Eclipse(R), manufactured by R.J. Reynolds. Accordingly,
Lorillard has not yet developed such a product.

INTELLECTUAL PROPERTY

Lorillard believes that trademarks, including brand names, are important to
its business. Lorillard owns the patents, trade secrets, know-how and
trademarks, including Lorillard's brand names and the distinctive packaging and
displays used by Lorillard. All of Lorillard's material trademarks are
registered with the U.S. Patent and Trademark Office. Rights in these trademarks
in the United States will last indefinitely as long as Lorillard continues to
use the trademarks.

Lorillard considers the blends of tobacco and the flavor formulas used to
make its brands to be trade secrets. These trade secrets are generally not the
subject of patents, though various Lorillard manufacturing processes are
patented.

Lorillard sold the international rights to substantially all of its major
brands, including Newport, in 1977.

COMPETITION

Lorillard sells its cigarette products in the United States in highly
competitive markets. Lorillard believes its ability to compete even more
effectively has been restrained by the Philip Morris Retail Leaders program.
Competition is primarily based on a brand's price, positioning, consumer
loyalty, retail display, promotion, quality and taste. Lorillard's principal
competitors are the three other major U.S. cigarette manufacturers, Philip
Morris, R.J. Reynolds and Brown & Williamson. Lorillard's 9.3% market share of
the 2000 U.S. cigarette industry was fourth highest overall. Philip Morris and
R.J. Reynolds accounted for approximately 48.7% and 22.2%, respectively, of U.S.
shipments in 2000. Lorillard's 9.3% market share of the U.S. cigarette industry
was fourth highest for the first half of 2001. Philip Morris and R.J. Reynolds
accounted for approximately 51.6% and 22.2% respectively, of U.S. units shipped
in the first half of 2001. Among the four major manufacturers in the U.S.
premium segment, Lorillard ranked third behind Philip Morris and R.J. Reynolds
with an 11.5% share of the premium segment of the U.S. cigarette market in 2000.
For the first half of 2001, Lorillard had an 11.5% share of the U.S. premium
cigarette market compared to 11.4% in the first half of 2000. Premium cigarette
sales accounted for 87.3% of Lorillard's total units shipped in 2000, and 91.2%
of Lorillard's total units shipped in the first half of 2001.

The following table shows historical units shipped for each of Lorillard
and its major competitors.

UNITS SHIPPED IN THE U.S. CIGARETTE MARKET
(BILLIONS OF UNITS)

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ------ ------ ------ ------ ------

Philip Morris............ 104.81 106.46 211.90 208.15 227.59 235.15 230.84
R.J. Reynolds............ 45.12 47.62 96.40 96.44 110.48 116.92 119.08
Brown & Williamson....... 21.96 24.96 49.16 56.06 69.13 77.34 83.56
------------------------------------------------------------------------------------------------------
Lorillard................ 18.95 20.43 40.40 43.61 42.11 41.83 40.40
------------------------------------------------------------------------------------------------------
Others................... 12.24 10.31 37.14 20.74 11.57 11.29 11.10
------ ------ ------ ------ ------ ------ ------
TOTAL................ 203.08 209.78 435.00 425.00 460.88 482.53 484.98
====== ====== ====== ====== ====== ====== ======

---------------
Source: The Maxwell Report

The following table shows historical market share information for each of
Lorillard and its major competitors in the overall U.S. cigarette market.

MARKET SHARE IN THE U.S. CIGARETTE MARKET

FIRST HALF FIRST HALF
2001 2000 2000 1999 1998 1997 1996
% % % % % % %
---------- ---------- ----- ----- ----- ----- -----

Philip Morris................. 51.6 50.7 48.7 49.0 49.4 48.7 47.6
R.J. Reynolds................. 22.2 22.7 22.2 22.7 24.0 24.2 24.6
Brown & Williamson............ 10.8 11.9 11.3 13.2 15.0 16.0 17.2
------------------------------------------------------------------------------------------------------
Lorillard..................... 9.3 9.7 9.3 10.3 9.1 8.7 8.3
------------------------------------------------------------------------------------------------------
Others........................ 6.0 4.9 8.5 4.9 2.5 2.3 2.3
----- ----- ----- ----- ----- ----- -----
TOTAL..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====

---------------
Source: The Maxwell Report
Totals may not equal 100 due to rounding.

Since 1996, units shipped for the overall U.S. industry have decreased at a
compounded rate of 2.7% on an annualized basis. Lorillard has increased its
market share from 8.3% in 1996 to 9.3% in 2000.

Based on Excel-Retail Data that consolidates industry information for units
shipped from wholesalers to retail accounts, Newport has the largest market
share in the U.S. menthol segment, with a 28.5% market share in 2000 and a 29.9%
market share in the first half of 2001. According to Excel-Retail Data,
Newport's primary competitors in the U.S. menthol segment are Salem,
manufactured by R.J. Reynolds, Kool, manufactured by Brown & Williamson, and
Marlboro Menthol, manufactured by Philip Morris. Excel-Retail Data indicates
that Salem, Kool and Marlboro Menthol had market shares of 11.3%, 10.9% and
10.4%, respectively, of the U.S. menthol segment in 2000.

Premium brand units shipped have decreased from an average of 71.3% of U.S.
units shipped in 1996 to an average of 70.7% of U.S. units shipped in 2000, and
represented 74.2% of U.S. units shipped in the first half of 2001. Profit
margins on discount brands tend to be lower than profit margins on premium
brands. Lorillard focuses on the relatively more profitable premium segment of
the U.S. cigarette market.

In recent years, small manufacturers of low price cigarettes have
proliferated and have gained market share. Many of these small manufacturers are
not currently affected to a significant degree by payment obligations under the
State Settlement Agreements due to their relatively small market shares.
Collectively, these small manufacturers, excluding Liggett and Commonwealth,
accounted for approximately 5.3% of the domestic cigarette market in 2000, up
from 0.4% in 1996. Liggett and Commonwealth had 1.5% and 1.7% U.S. market
shares, respectively, in 2000. The market share gains made by the small
manufacturers have generally been concentrated in the super-discount subcategory
of the discount price segment. Lorillard believes that payment obligations under
the State Settlement Agreements make it economically impractical for Lorillard
to compete effectively in the super-discount subcategory of the discount price
segment. See "-- Payment Obligations under the State Settlement Agreements" for
further discussion of Lorillard's payment obligations under the State Settlement
Agreements.

Lorillard believes that a number of factors have made it more difficult to
promote cigarettes and to compete in the cigarette industry. For example, the
State Settlement Agreements contain provisions restricting the marketing of
cigarettes. See "-- Advertising and Sales Promotion," and "-- Legal Proceedings"
for discussion of the marketing restrictions contained in the State Settlement
Agreements. In addition, various groups have undertaken activities designed to
restrict cigarette sales, the form and content of cigarette advertising and
introduction of new cigarette products. Finally, Lorillard believes that
substantial restraints have been imposed on its ability to advertise, promote
and market cigarettes more effectively at retail outlets due to the Philip
Morris Retail Leaders program.

PRICING

Lorillard believes that the volume of U.S. cigarette sales is sensitive to
price changes. Changes in pricing by Lorillard or other cigarette manufacturers
could have an adverse impact on Lorillard's volume of units sold, which in turn
could have an adverse impact on Lorillard's profits and earnings. Lorillard
makes independent pricing decisions based on a number of factors. Lorillard
cannot predict the potential adverse impact of price changes on industry volume
or Lorillard volume, on the mix between premium and discount sales or on
Lorillard's market share.

TAXES

Federal excise taxes included in the price of cigarettes are $17.00 per
1,000 cigarettes ($0.34 per pack of 20 cigarettes). The federal excise tax on
cigarettes is scheduled to increase by $2.50 per 1,000 cigarettes in 2002. State
excise taxes are also in effect in the 50 states, the District of Columbia

and many municipalities. Various states have proposed, and certain states have
recently passed, increases in their state tobacco excise taxes. The state taxes
generally range from $.025 to $1.11 per package of 20 cigarettes. Federal excise
taxes are paid by Lorillard. State excise taxes are levied upon and paid by the
distributors, provided that Lorillard is secondarily liable for non-payment by a
distributor of the excise taxes attributable to sales of Lorillard cigarettes.
Lorillard does not believe the risk of liability associated with these excise
taxes to be material.

EMPLOYEES

As of September 30, 2001, Lorillard had approximately 3,300 full-time
employees. As of that date, approximately 1,300 of those employees were
represented by labor unions covered by collective bargaining agreements. Two of
the collective bargaining agreements expire in April of 2002; the third
agreement expires in March of 2003. Lorillard believes its relationships with
its union and non-union employees are good.

Lorillard provides a retirement plan, a profit sharing plan, and other
benefits for its hourly paid employees who are represented by unions. In
addition, Lorillard provides to its salaried employees a retirement plan, group
life, disability and health insurance program and a savings plan. In addition,
Lorillard maintains an incentive compensation plan for certain salaried
employees.

MANAGEMENT OF LORILLARD

LORILLARD TOBACCO COMPANY

The following table sets forth the directors and senior management of
Lorillard Tobacco Company:

NAME AGE POSITION
---- --- --------

Martin L. Orlowsky........................ 59 Director; Chairman, President and Chief Executive
Officer
Dewey R. Tedder........................... 64 Director; Senior Executive Vice President,
Operations and Technology
Randy B. Spell............................ 50 Director; Executive Vice President, Marketing and
Sales
Thomas R. Staab........................... 59 Director; Senior Vice President and Chief
Financial Officer
Christopher R.E. Coggins.................. 51 Senior Vice President, Science and Technology
George T. Baroody......................... 59 Vice President, Marketing Services
Major H. Bowes............................ 65 Vice President, Manufacturing
Louis E. Burch............................ 64 Vice President, Leaf Operations
William G. Crump.......................... 55 Vice President, Human Resources
Ronald S. Milstein........................ 45 Vice President and General Counsel
Thomas B. Moring.......................... 53 Vice President, Support Services
Dennis M. Smith........................... 54 Vice President, Management Information Systems
Kathleen A. Sparrow....................... 44 Vice President, Sales
George R. Telford......................... 59 Vice President, Brand Marketing
Steven C. Watson.......................... 40 Vice President, External Affairs

LORILLARD, INC.

The following table sets forth the directors of Lorillard, Inc.:

NAME AGE POSITION
---- --- --------

Connie S. Linhart......................... 49 Director; Chairperson, President and Treasurer
Martin L. Orlowsky........................ 59 Director
Gerard M. Byrne........................... 66 Director; Vice President and Assistant
Treasurer

Connie S. Linhart is President and Treasurer of Lorillard, Inc. As
President and Treasurer, Ms. Linhart is responsible for all the finance,
administrative and treasury management functions of Lorillard, Inc. Ms. Linhart
has performed similar responsibilities for various special-purpose, passive
investment companies in Delaware since 1986, and has held the positions of
President and/or Treasurer of Lorillard since 2000. Ms. Linhart graduated as a
Phi Beta Kappa member from Purdue University with a B.S. degree in Accounting
and Business Management.

Martin L. Orlowsky is Chairman, President and CEO of Lorillard Tobacco
Company. He has been with Lorillard since 1990. He has served as President and
CEO since January, 1999 and added the Chairman's position in January, 2001.
Previously, he served as President and Chief Operating Officer and prior to this
position he was Executive Vice President, Marketing & Sales. Before joining
Lorillard, he served as President, Planters & LifeSavers and President, Grocery
Products, both divisions of Nabisco Brands, Inc. Prior to his association with
Nabisco, he spent nine years with R.J. Reynolds Tobacco Co., and his last
position with R.J. Reynolds was as Executive Vice President, Marketing & Sales.
Mr. Orlowsky serves on the board of directors of the United Way of Greater
Greensboro and on the board of management for the Guilford College YMCA.

Gerard M. Byrne is Vice President and Assistant Treasurer of Lorillard,
Inc. Mr. Byrne has held his present position since 1994. Prior to joining
Lorillard, Mr. Byrne served as Director of Federal Taxation at Loews.

Dewey R. Tedder is Senior Executive Vice President, Operations & Technology
of Lorillard Tobacco Company. Mr. Tedder has been with Lorillard since 1958. He
has been in his current position since 1999. Previously, Mr. Tedder served as
Executive Vice President, Operations for four years and as Senior Vice
President, Operations for four years prior to his promotion to Executive Vice
President. Mr. Tedder is a member of the Guilford County Board of Education and
is also a member of the Board of Visitors, Bryan School of Business at the
University of North Carolina at Greensboro.

Randy B. Spell is Executive Vice President, Marketing & Sales of Lorillard
Tobacco Company. Mr. Spell has been with Lorillard since 1977 and in his current
position since 1999. Previously, Mr. Spell served as Senior Vice President,
Sales for four years and prior to that, as Vice President, Sales for one year.

Thomas R. Staab is Senior Vice President, Chief Financial Officer of
Lorillard Tobacco Company. Mr. Staab assumed his current position when he joined
the company in 1998. Prior to joining Lorillard, Mr. Staab served as Vice
President, Chief Financial Officer for Fieldcrest Cannon from 1994 until 1997,
as Vice President of Finance from 1992 through 1993 and as Controller from 1986
through 1991.

Dr. Christopher R.E. Coggins is Senior Vice President, Science & Technology
of Lorillard Tobacco Company. Mr. Coggins has held his present position since
joining Lorillard in 1996. He served as a principal scientist for R.J. Reynolds
Tobacco Company for 11 years before joining Lorillard. Mr. Coggins serves on the
Scientific Advisory Board for the University of North Carolina at Greensboro.

George T. Baroody is Vice President, Marketing Services of Lorillard
Tobacco Company. Mr. Baroody has been with Lorillard in his current position
since 1996. Prior to joining Lorillard, he was Vice President, Merchandising for
R.J. Reynolds Tobacco Company. He also served as Director of Merchandising and
Sales Promotion for Jos. Schlitz Brewing Company.

Major H. Bowes is Vice President, Manufacturing of Lorillard Tobacco
Company. Mr. Bowes has been with Lorillard since 1963. He has been in his
present position since 1997. He previously served as Director, Manufacturing for
six years. Mr. Bowes is a board member of the East Market Street Development
Corporation and Junior Achievement of Greensboro.

Louis E. Burch is Vice President, Leaf Operations of Lorillard Tobacco
Company. Mr. Burch has been with Lorillard since 1968. He has been in his
current position since 1997. He previously served as Director, Leaf Purchases
for 13 years and as Director, Leaf Usage and Foreign Purchases for five years.

William G. Crump is Vice President, Human Resources of Lorillard Tobacco
Company. Mr. Crump has been with the company and in his current position since
1997. Prior to joining Lorillard, he was a partner with Paul Ray Berndtson, an
executive management consulting firm for three years. He also served as Senior
Vice President, Human Resources and Administration with Dun & Bradstreet. Mr.
Crump serves as a member of the executive board of the YMCA of Greater
Greensboro.

Ronald S. Milstein is Vice President and General Counsel of Lorillard
Tobacco Company. Mr. Milstein has been with Lorillard since 1996 and has held
his current position since 1998. Before joining Lorillard, Mr. Milstein served
as Vice President, General Counsel for Del Laboratories for two years and was
also with Culbro Corporation as Vice President, Assistant General Counsel for
eleven years. He is a member of the Guilford County Planning Board.

Thomas B. Moring is Vice President, Support Services of Lorillard Tobacco
Company. Mr. Moring has been with Lorillard since 1971 and in his current
position since 1999. He served as Director, Quality Management for 13 years and
as Research Administrator for seven years before joining Quality Management. Mr.
Moring is a board member of the National Conference for Community and Justice
and is Chairman of the Bryan Business School Alumni Advisory Committee.

Dennis M. Smith is Vice President, Management Information Systems of
Lorillard Tobacco Company. Mr. Smith has been with Lorillard in his current
position since 1997. Prior to joining Lorillard, Mr. Smith was Vice President of
Management Information Systems at Loews for seven years.

Kathleen A. Sparrow is Vice President, Sales of Lorillard Tobacco Company.
Ms. Sparrow has been with Lorillard since 1980. She has been in her current
position since 1999. Previously, Ms. Sparrow served as General Manager, Sales
Planning and Operations for two years and prior to that, Director of Sales
Planning for two years.

George R. Telford is Vice President, Brand Marketing of Lorillard Tobacco
Company. Mr. Telford has been with Lorillard since 1975. He has been in his
current position since 1987. Previously, Mr. Telford served as group brand
director for Advertising and Brand Management for four years.

Steven C. Watson is Vice President, External Affairs of Lorillard Tobacco
Company. Mr. Watson joined Lorillard in 2000 to head the newly created
department. Prior to joining Lorillard, he served as Vice President of
Broadcasting and Communications for the National Basketball Association's Miami
HEAT for four years. He also served as the Regional Political Director for the
Republican National Committee in 1989, and as Special Assistant for Trade
Development for the U.S. Department of Commerce prior to 1989.

LEGISLATION AND REGULATION

FEDERAL LEGISLATION

The Federal Comprehensive Smoking Education Act, which became effective in
1985, requires the use on cigarette packaging and advertising of one of the
following four warning statements, on a rotating basis: (1) "SURGEON GENERAL'S
WARNING: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May
Complicate Pregnancy." (2) "SURGEON GENERAL'S WARNING: Quitting Smoking Now
Greatly Reduces Serious Risks to Your Health." (3) "SURGEON GENERAL'S WARNING:
Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, and Low
Birth Weight." (4) "SURGEON GENERAL'S WARNING: Cigarette Smoke Contains Carbon
Monoxide." This law also requires that each person who manufactures, packages or
imports cigarettes annually provide to the Secretary of Health and Human
Services a list of the ingredients added to tobacco in the manufacture of
cigarettes. This list of ingredients may be submitted in a manner which does not
identify the company which uses the ingredients or the brand of cigarettes which
contains the ingredients.

Prior to the effective date of the Federal Comprehensive Smoking Education
Act, federal law had, since 1965, required that cigarette packaging bear a
warning statement which from 1970 to 1985 read as follows: "Warning: The Surgeon
General Has Determined That Cigarette Smoking Is Dangerous To Your Health." In
addition, in 1972 Lorillard and other cigarette manufacturers had agreed,
pursuant to consent orders entered into with the U.S. Federal Trade Commission,
the "FTC," to include this health warning statement in print advertising, on
billboards and on certain categories of point-of-sale display materials relating
to cigarettes. Furthermore, advertising of tobacco products has been prohibited
on radio and television since 1971.

From time to time, bills have been introduced in Congress, among other
things:

- to end or limit the price supports for leaf tobacco;

- to prohibit all tobacco advertising and promotion;

- to require new health warnings on cigarette packages and advertising;

- to authorize the establishment of various anti-smoking education
programs;

- to provide that current federal law should not be construed to relieve
any person of liability under common or state law;

- to permit state and local governments to restrict the sale and
distribution of cigarettes;

- concerning the placement of advertising of tobacco products;

- to provide that cigarette advertising not be deductible as a business
expense;

- to prohibit the mailing of unsolicited samples of cigarettes and
otherwise to restrict the sale or distribution of cigarettes;

- to impose additional, or to increase existing, excise taxes on
cigarettes;

- to require that cigarettes be manufactured in a manner that will cause
them, under certain circumstances, to be self-extinguishing; and

- to subject cigarettes to regulation in various ways by the U.S.
Department of Health and Human Services or other regulatory agencies,
including regulation by the FDA under the Food, Drug and Cosmetics Act.

In 1995, Congress passed legislation prohibiting the sale of cigarettes by
vending machines on certain federal property, and the General Services
Administration has published implementing regulations. In January 1996, the
Substance Abuse and Mental Health Services Administration issued final
regulations implementing a 1992 law (Section 1926 of the Public Health Service
Act), which

requires the states to enforce their minimum sales age laws as a condition of
receiving federal substance abuse block grants.

FOOD AND DRUG ADMINISTRATION REGULATION OF TOBACCO PRODUCTS

In 1996, the FDA published regulations, the "FDA Regulations," which would
have severely restricted cigarette advertising and promotion and limited the
manner in which tobacco products could be sold. In enacting the FDA Regulations,
the FDA determined that nicotine is a drug and that cigarettes are a nicotine
delivery system and, accordingly, subject to FDA regulatory authority as medical
devices. The FDA premised its regulations on the need to reduce smoking by
underage youth and young adults. The FDA Regulations included the following:

- Regulations regarding minimum sales age. These regulations would have
made unlawful the sale of cigarettes to anyone under age 18. These
regulations would have also required proof of age to be demanded from any
person under age 27 who attempts to purchase cigarettes.

- Regulations regarding advertising and billboards, vending machines,
self-service displays, sampling premiums, and package labels. These
regulations would have limited all cigarette advertising to black and
white, text only format in most publications and outdoor advertising such
as billboards. The regulations also would have prohibited billboards
advertising cigarettes within 1,000 feet of a school or playground,
required that the established name for the product, "Cigarettes," and an
intended use statement, "Nicotine -- Delivery Device For Persons 18 or
Older," be included on all cigarette packages and advertising, banned
vending machine sales, product sampling, and the use of cigarette brand
names, logos and trademarks on premium items, and prohibited the
furnishing of any premium item in consideration for the purchase of
cigarettes or the redemption of proofs-of-purchase coupons.

- Regulations which would have prohibited use of cigarette brand names to
sponsor sporting and cultural events and required cigarette manufacturers
to comply with certain stringent FDA regulations, known as "good
manufacturing practices," governing the manufacture and distribution of
medical devices.

Lorillard and other cigarette manufacturers filed a lawsuit in the U.S.
District Court in North Carolina challenging the FDA's assertion of jurisdiction
over cigarettes. Lower court rulings in this litigation were appealed to the
U.S. Supreme Court which, on March 21, 2000, held that Congress did not give the
FDA authority to regulate tobacco products under the Federal Food, Drug and
Cosmetic Act and, accordingly, the FDA's assertion of jurisdiction over tobacco
products was impermissible under that Act. Since the Supreme Court decision,
various proposals have been made for federal and state legislation to regulate
cigarette manufacturers.

In September 2000, former President Clinton appointed a Presidential
commission to collect information and make recommendations regarding changes in
the tobacco farming economy. In May 2001, the commission issued a final report
recommending, among other things, that "Congress authorize the FDA to establish
fair and equitable regulatory mechanisms over the manufacture, sale, marketing,
distribution and labeling of tobacco products." In addition, the final report
recommended a $0.17 increase in the federal excise tax on each pack of
cigarettes sold in the United States to fund various of the report's
recommendations. Lorillard cannot predict the ultimate outcome of the
commission's recommendations.

Congressional advocates of FDA regulation have introduced legislation that
would give the FDA authority to regulate the manufacture, sale, distribution and
labeling of tobacco products to protect public health for consideration by the
107th Congress. Lorillard cannot predict the ultimate outcome of this proposal.

INSTITUTE OF MEDICINE COMMITTEE

In December of 1999, the FDA requested the Institute of Medicine to convene
a committee of experts to formulate scientific methods and standards for the
assessment of potential reduced-exposure products, or "PREPs," including
conventional and alternative cigarettes.

The committee's charge was to determine, for each class of products:

- whether PREPs could or did provide a reduced exposure to harmful
substances;

- whether the reduced exposure was associated with decreased health
hazards;

- whether "surrogate indicators of harm" could be used to evaluate PREPs in
a timely manner; and

- the public health and societal implications of reduced harm tobacco
products.

On February 22, 2001, the committee issued a draft report recommending that
Congress enact legislation enabling a suitable agency to regulate
tobacco-related products that purport to reduce exposure to one or more tobacco
toxicants or to reduce risk of disease, and to implement other policies designed
to reduce the harm from tobacco use. The report recommended regulation of all
tobacco products, including PREPS. Lorillard cannot predict the ultimate outcome
of the recommendations provided in the Committee's report.

ENVIRONMENTAL TOBACCO SMOKE

Studies and reports with respect to the alleged health risk to non-smokers
of environmental tobacco smoke have received significant publicity. In 1986, the
Surgeon General of the United States and the National Academy of Sciences
reported that environmental tobacco smoke puts non-smokers at an increased risk
of lung cancer and respiratory illness. In January 1993, the U.S. Environmental
Protection Agency released a report, the "EPA Risk Assessment," concluding that
environmental tobacco smoke is a human lung carcinogen in adults, and causes
respiratory effects in children, including increased risk of lower respiratory
tract infections, increased prevalence of fluid in the middle ear and additional
episodes and increased severity and frequency of asthma. Many scientific papers
on environmental tobacco smoke have been published since the EPA report, with
variable conclusions.

In recent years, many federal, state, local and municipal governments and
agencies, as well as private businesses, have adopted legislation, regulations
or policies which prohibit or restrict, or are intended to discourage, smoking,
including legislation, regulations or policies prohibiting or restricting
smoking in various places such as public buildings and facilities, stores and
restaurants and on airline flights and in the workplace. This trend has
increased significantly since the release of the EPA Risk Assessment. Additional
laws, regulations and policies intended to prohibit, restrict or discourage
smoking are being proposed or considered by various federal, state and local
governments, agencies and private businesses with increasing frequency. In July
1998, a federal judge struck down the lung cancer related portions of the EPA's
scientific risk assessment in an opinion which is currently on appeal.

In September 1997, the California Environmental Protection Agency released
a report, the "Cal/EPA Report," concluding that environmental tobacco smoke
causes specified development, respiratory, carcinogenic, and cardiovascular
effects including lung and nasal sinus cancer, heart disease, SIDS, respiratory
infections and asthma induction and exacerbation in children. The Cal/EPA Report
was subsequently released as a monograph by the National Cancer Institute in
November, 1999. In May, 2000, the Department of Health and Human Service's
National Toxicology Program listed environmental tobacco smoke as "known to be a
human carcinogen." Various public health organizations have also issued
statements on ETS and health effects.

The California Air Resources Board has scheduled a hearing on December 13,
2001 to consider the identification of environmental tobacco smoke as a toxic
air contaminant, or "TAC," under the Toxic Air Contaminant Identification and
Control Act, referred to as the "Tanner Act." The Children's Environmental
Health Protection Act amended the Tanner Act to require a review of TACs for the
purpose of ensuring adequate protection of children's health, and to tighten
existing controls as needed. If California, on the basis of its assessments of
risk and exposure, identifies environmental tobacco smoke as a TAC, California
could initiate the control phase of the Tanner Act, which involves adoption of
measures to reduce or eliminate emissions. These measures could include further
restrictions regarding venues where smoking is permitted or controls on product
emissions.

INGREDIENT DISCLOSURE

On August 2, 1996, the Commonwealth of Massachusetts enacted legislation
requiring each manufacturer of cigarettes and smokeless tobacco sold in
Massachusetts to submit to the Department of Public Health, or "DPH," an annual
report, beginning in 1997, (1) identifying for each brand sold certain "added
constituents," and (2) providing nicotine yield ratings and other information
for certain brands based on regulations promulgated by the DPH. The legislation
provides for the public release of this information, which includes trade secret
ingredients used in cigarettes.

In 1996, several cigarette and smokeless tobacco manufacturers filed suit
in federal district court in Boston challenging the legislation. On December 10,
1997, the court issued a preliminary injunction, enjoining the required
submission of ingredient data to the DPH. The requirement to submit the nicotine
yield ratings and other information was not enjoined, and the cigarette and
smokeless tobacco manufacturers submitted their data to the DPH on December 15,
1997 and again on each December 1 since 1998. The district court ruled on
September 7, 2000 that the Massachusetts law and its implementing regulations
were unconstitutional as to the required submission of ingredient data. The
Commonwealth of Massachusetts appealed to the U.S. Circuit Court for the First
Circuit, and the appeal was argued on May 10, 2001. No decision has yet been
published by the appellate court.

Any impact on Lorillard from the legislation and its implementing
regulations cannot now be predicted. If the manufacturers ultimately are
required to disclose their trade secrets to the DPH and the DPH then discloses
them to the public, further litigation seeking compensation for the taking of
the manufacturers' property may ensue.

Other similar laws and regulations have been enacted or considered by other
state governments, and could have a material adverse effect on the financial
condition and results of operations of Lorillard if implemented without adequate
provisions to protect the manufacturers' trade secrets from being disclosed. The
State of Texas has implemented legislation similar to the Massachusetts measure
described above. However, the Texas legislation does not allow for the public
release of trade secret information.

For a description of federal legislation pertaining to ingredient
disclosure, see "-- Federal Legislation."

FIRE-SAFETY STANDARDS

In August 2000, New York State enacted legislation that requires the
State's Office of Fire Prevention and Control to promulgate by January 1, 2003
fire-safety standards for cigarettes sold in New York. The legislation requires
that cigarettes sold in New York meet ignition propensity performance standards
established by the Office of Fire Prevention and Control. All cigarettes sold in
New York will be required to meet the established standards within 180 days
after the standards are promulgated. Lorillard cannot predict the impact of this
law on its business until the standards are published. Similar legislation is
being considered in other states and localities and at the federal level.

ADVERTISING

For a description of certain restrictions on advertising and sales
promotion within the cigarette industry, see "--Advertising and Sales
Promotion."

There may be additional state and federal legislative and regulatory
initiatives relating to cigarettes in the future. Lorillard cannot predict the
impact of such initiatives on its business.

ENVIRONMENTAL MATTERS

Lorillard and its subsidiaries are subject to federal, state and local
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances. Such laws and regulations provide
for significant fines, penalties and liabilities, sometimes without regard to
whether the owner or operator of the property knew of, or was responsible for,
the release or presence of hazardous or toxic substances. In addition, third
parties may make claims against owners or operators of properties for personal
injuries and property damage associated with releases of hazardous or toxic
substances. Finally, regulations promulgated by the U.S. Environmental
Protection Agency and other governmental agencies under various statutes have
resulted in, and likely will continue to result in, substantial expenditures for
pollution control, waste treatment, plant modification and similar activities.

Lorillard and its subsidiaries have been engaged in a continuing program to
assure compliance with federal, state and local environmental laws and
regulations. Although it is difficult to identify precisely the portion of
capital expenditures or other costs attributable to compliance with
environmental laws and regulations, Lorillard does not expect such expenditures
or other costs to have a material adverse effect on the business, results of
operations or financial condition of Lorillard or its subsidiaries.

LEGAL PROCEEDINGS

Throughout this section, information regarding pending cases is as of
October 5, 2001.

INTRODUCTION

Approximately 4,750 product liability cases are pending against cigarette
manufacturers in the United States; Lorillard is a defendant in approximately
4,340 of these cases. Lawsuits continue to be filed against Lorillard and other
manufacturers of tobacco products. Several of the lawsuits also name Loews as a
defendant. Among the 4,750 product liability cases, approximately 1,250 cases
are pending in a West Virginia court. Another group of approximately 2,900 cases
has been brought by flight attendants alleging injury from exposure to
environmental tobacco smoke in the cabins of aircraft. Lorillard is a defendant
in all of the flight attendant suits and is a defendant in most of the cases
pending in West Virginia.

Excluding the flight attendant and West Virginia suits, approximately 600
product liability cases are pending against U.S. cigarette manufacturers. Of
these 600 cases, Lorillard is a defendant in approximately 265 cases. Loews is a
defendant in approximately 50 of these actions, although it has not received
service of process of approximately 10 of them.

Tobacco litigation includes various types of claims. In these actions,
plaintiffs claim substantial compensatory, statutory and punitive damages, as
well as equitable and injunctive relief, in amounts ranging into the billions of
dollars. These claims are based on a number of legal theories including, among
other theories, theories of negligence, fraud, misrepresentation, strict
liability, breach of warranty, enterprise liability, civil conspiracy,
intentional infliction of harm, violation of consumer protection statutes,
violation of antitrust statutes, and failure to warn of the harmful and/or
addictive nature of tobacco products.

Some cases have been brought by individual plaintiffs who allege cancer
and/or other health effects resulting from an individual's use of cigarettes
and/or smokeless tobacco products, addiction to smoking or exposure to
environmental tobacco smoke. These cases are generally referred to as
"conventional product liability cases." In other cases, plaintiffs have brought
claims as purported class actions on behalf of large numbers of individuals for
damages allegedly caused by smoking. These cases are generally referred to as
"purported class action cases." In other cases, plaintiffs are U.S. and foreign
governmental entities or entities such as labor unions, private companies,
hospitals or hospital districts, American Indian tribes, or private citizens
suing on behalf of taxpayers. Plaintiffs in these cases seek reimbursement of
health care costs allegedly incurred as a result of smoking, as well as other
alleged damages. These cases are generally referred to as "reimbursement cases."
In addition, there are claims for contribution and/or indemnity in relation to
asbestos claims filed by asbestos manufacturers or the insurers of asbestos
manufacturers. These cases are generally referred to as "claims for
contribution."

In addition to the above, claims have been brought against Lorillard
seeking damages resulting from alleged exposure to asbestos fibers which were
incorporated into filter material used in one brand of cigarettes manufactured
by Lorillard for a limited period of time, ending more than 40 years ago. These
cases are generally referred to as "filter cases." Approximately 20 filter cases
are pending against Lorillard.

Lorillard believes that it has valid defenses to the cases pending against
it. Lorillard also believes it has valid bases for appeal of the adverse
verdicts against it. Lorillard will continue to maintain a vigorous defense in
all such litigation. Lorillard may enter into discussions in an attempt to
settle particular cases if it believes it is appropriate to do so.

While Lorillard intends to defend vigorously all smoking and health related
litigation which may be brought against it, it is not possible to predict the
outcome of any of this litigation. Litigation is subject to many uncertainties,
and it is possible that some of these actions could be decided unfavorably.

In addition, adverse developments in relation to smoking and health,
including the release in 1998 of industry documents, have received widespread
media attention. These developments may reflect adversely on the tobacco
industry and, together with adverse outcomes in pending cases, could have
adverse effects on the ability of Lorillard to prevail in smoking and health
litigation and could prompt the filing of additional litigation.

Except for the impact of the State Settlement Agreements as described
below, Lorillard is unable to make a meaningful estimate of the amount or range
of loss that could result from an unfavorable outcome of pending litigation. It
is possible that the results of operations or cash flows of the Carolina Group
in a particular quarterly or annual period or the Carolina Group's financial
position could be materially affected by an unfavorable outcome of certain
pending litigation.

To the extent Loews is a defendant in any of the lawsuits described in this
section, Loews believes that it is not a proper defendant in these matters and
has moved or will move for dismissal of such claims against it. Any costs,
expenses or liabilities of Loews arising out of any such lawsuits will be
allocated to the Carolina Group. See "Relationship between the Loews Group and
the Carolina Group -- The Carolina Group Policy Statement -- Allocation of
Certain Liabilities and Expenses" for a description of the allocation to the
Carolina Group of the tobacco-related liabilities and expenses incurred by
Loews.

SIGNIFICANT RECENT DEVELOPMENTS

On October 5, 2001, a jury returned a verdict in favor of the defendants in
Tompkin v. Brown & Williamson Tobacco Corp., et al., a conventional product
liability case in the United States District

Court for the Northern District of Ohio. Lorillard is a defendant in the case.
The deadline for plaintiff to file any post-trial motions or to seek appellate
review of the verdict has not expired.

On June 6, 2001, a jury awarded $5.5 million in compensatory damages and
$3.0 billion in punitive damages to the plaintiff in Boeken v. Philip Morris,
Inc., a conventional product liability case in the Superior Court of Los Angeles
County, California. The court ruled that it would grant in part Philip Morris's
motion for a new trial and hold a new trial limited to plaintiff's punitive
damages claim if plaintiff did not consent to a reduction of the award to $100.0
million. Plaintiff accepted the reduced award and the trial court entered an
amended judgment awarding plaintiff $100.0 million in punitive damages. Philip
Morris has noticed an appeal from the amended judgment to the California Court
of Appeals. Neither Loews nor Lorillard was a defendant in this matter.

On June 4, 2001, the jury in the case of Blue Cross and Blue Shield of New
Jersey, Inc., et al. v. Philip Morris, Incorporated, et al., a health plan
reimbursement case pending in the U.S. District Court for the Eastern District
of New York, returned a verdict awarding damages against the defendants,
including Lorillard. In this trial, the jury heard evidence as to the claims of
only one of the plan plaintiffs, Empire Blue Cross and Blue Shield, referred to
as "Empire." In its June 4, 2001 verdict, the jury found in favor of the
defendants on some of Empire's claims, one of which findings precluded the jury
from considering Empire's claims for punitive damages. The jury found in favor
of Empire on certain other of plaintiff's claims. As a result of these findings,
Empire is entitled to an award of approximately $17.8 million in total actual
damages, including approximately $1.5 million attributable to Lorillard. Final
judgment reflecting this verdict has not been entered. The court denied
plaintiff's post-verdict application for trebling of the damages awarded by the
jury. Plaintiff's counsel has sought an award of $39.0 million in attorneys'
fees. The court has not ruled on this application.

SETTLEMENT OF STATE REIMBURSEMENT CASES

On November 23, 1998, Lorillard, Philip Morris Incorporated, Brown &
Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company, the "Original
Participating Manufacturers," entered into a Master Settlement Agreement 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."

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 Lorillard and the other participating
manufacturers to avoid the further expense, inconvenience, burden and
uncertainty of litigation. For a discussion of Lorillard's payment obligations
under the State Settlement Agreements, see "-- Payment Obligations under the
State Settlement Agreements."

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 under age
use laws, and other provisions. For a more detailed discussion of the business
restrictions contained in the State Settlement Agreements, see "-- Advertising
and Sales Promotion."

according to their relative market share of domestic cigarette shipments, except
that Philip Morris paid more than its market share in 1999 but will have its
payment obligations reduced in 2009 and 2010 to make up for the overpayment. Of
the total $5.2 billion, a total of $1.1 billion was paid in 1999, 2000 and 2001,
$61.4 million of which was paid by Lorillard. Lorillard believes its remaining
payments under the agreement will total approximately $454.0 million. All
payments will be adjusted for inflation, changes in the unit volume of domestic
cigarette shipments, and the effect of new increases in state or federal excise
taxes on tobacco products that benefit the tobacco growing community.

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. Almost all domestic manufacturers have agreed to become subject to
the terms of the Master Settlement Agreement.

CONVENTIONAL PRODUCT LIABILITY CASES

Conventional product liability cases are cases in which individuals allege
they or their decedents have been injured due to smoking cigarettes, due to
exposure to environmental tobacco smoke, due to use of smokeless tobacco
products, or due to cigarette or nicotine dependence or addiction. Plaintiffs in
most conventional product liability cases seek unspecified amounts in
compensatory damages and punitive damages. Lorillard is a defendant in
approximately 1,400 of these cases. This total includes approximately 1,150
cases pending in West Virginia that are part of a consolidated proceeding.
Additional cases are pending against other cigarette manufacturers. Loews is a
defendant in 10 of the cases filed by individuals, although seven of the cases
have not been served on Loews. Loews is not a defendant in any of the
conventional product liability cases pending in West Virginia.

Since January 1, 1999, 19 cases filed by individual plaintiffs have been
tried. Lorillard was a defendant in four of the 19 cases, and juries returned
verdicts in favor of the defendants in each of these four matters. Loews was not
a defendant in any of the 19 conventional product liability cases tried since
January 1, 1999.

Lorillard was not a defendant in 15 of the individual cases tried since
January 1, 1999. Juries have returned verdicts in favor of the defendants in ten
of these 15 cases. In the five cases decided in plaintiffs' favor, juries have
awarded various amounts. In a 2000 case, a Florida jury awarded plaintiff
$200,000 in actual damages but declined to award punitive damages. In a June
2001 verdict, as discussed under "Significant Recent Developments," a California
jury awarded the plaintiff approximately $5.5 million in actual damages and $3.0
billion in punitive damages, although the court subsequently reduced the
punitive damages award to $100.0 million. The three other cases in which juries
found in favor of the plaintiffs resulted in awards of $51.5 million by a
California jury in 1999 (reduced to $26.5 million by the trial court); $80.3
million by an Oregon jury in 1999 (reduced to $32.8 million by the trial court);
and $21.5 million by a California jury in 2000.

As a result of pending appeals or post-trial motions, plaintiffs have not
been able to execute on any of the judgments reflecting these adverse verdicts.
In the Florida case that resulted in the award of $200,000, the trial court
granted defendant's post-trial motion and entered judgment in favor of the
defendant. Plaintiff, however, has noticed an appeal. In the California case
that resulted in the $3.0 billion award in punitive damages, the court reduced
the punitive damages award to $100.0 million. The defendant has noticed an
appeal from the judgment. The three additional suits are also on appeal.

During 2001, juries have returned verdicts in six conventional product
liability cases. Verdicts in favor of defendants were returned in five of the
cases, including the two in which Lorillard was a

defendant. The sixth, and the only one resolved in favor of the plaintiffs
during 2001, was the one discussed above that resulted in the award of $3.0
billion in punitive damages (subsequently reduced to $100.0 million by the trial
court).

During 2001, another cigarette manufacturer, Brown & Williamson Tobacco
Corporation, paid $1.1 million in damages and interest to a former smoker and
his spouse for injuries incurred as a result of smoking. Carter v. Brown &
Williamson Tobacco Corporation (Circuit Court, Duval County, Florida, filed
February 10, 1995). In the 1996 trial of that case, the jury awarded plaintiffs
a total of $750,000 in damages. Plaintiffs did not seek punitive damages. In
1998, the Florida Court of Appeal reversed the judgment, holding that
plaintiffs' claims were barred by the statute of limitations. The Florida
Supreme Court, however, reinstated the jury's damages award during 2000 and
denied Brown & Williamson's motion for rehearing during 2001. Brown &
Williamson's motion to stay the mandate pending the resolution of its petition
for writ of certiorari to the U.S. Supreme Court was denied. Brown & Williamson
therefore paid approximately $1.1 million in damages and interest to the
plaintiffs during 2001. Brown & Williamson subsequently filed a petition for
writ of certiorari with the U.S. Supreme Court. On June 29, 2001, the U.S.
Supreme Court declined to accept for review the petition for writ of certiorari.
Lorillard was not a defendant in this matter.

Some additional cases are scheduled for trial during the remainder of 2001
against U.S. cigarette manufacturers and manufacturers of smokeless tobacco
products. Various trials are also scheduled for 2002 and beyond. These trials
include a consolidated trial of the cases brought by approximately 1,250 West
Virginia smokers or users of smokeless tobacco products that is scheduled to
begin during March 2002. Lorillard is a defendant in some of the cases set for
trial, including the consolidated West Virginia trial. The trial dates are
subject to change.

The California Supreme Court is reviewing decisions by the California Court
of Appeals as to whether a California statute bars claims against cigarette
manufacturers if the claims accrued between 1988 and 1998. Several cases against
cigarette manufacturers, including Lorillard, have been dismissed based on
application of the statute in question.

Flight Attendant Cases. There are approximately 2,900 cases pending in the
Circuit Court of Dade County, Florida against Lorillard and three other U.S.
cigarette manufacturers in which the plaintiffs are present or former flight
attendants, or the estates of deceased flight attendants, who allege injury as a
result of exposure to environmental tobacco smoke in the aircraft cabin. Loews
is not a defendant in any of the flight attendant cases.

The suits were filed as a result of a settlement agreement on October 10,
1997 by the parties to Broin v. Philip Morris Companies, Inc., et al. (Circuit
Court, 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 was approved by the trial
court on February 3, 1998. Pursuant to the settlement agreement, among other
things, Lorillard and three other U.S. cigarette manufacturers paid
approximately $300.0 million to create and endow a research institute to study
diseases associated with cigarette smoke. In addition, the settlement agreement
permitted the plaintiff class members to file individual suits. These
individuals may not seek punitive damages for injuries that arose prior to
January 15, 1997.

During October 2000, the Circuit Court of Dade County, Florida entered an
order that may be construed to hold 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. It is not clear
how the trial judges will apply this order. The Third District of the Florida
Court of Appeal dismissed as premature defendants' appeal from the October 2000
decision.

As of October 5, 2001, trial had been held in one of the flight attendant
cases. On April 5, 2001, a jury in the Circuit Court of Dade County, Florida
returned a verdict in favor of Lorillard and the other defendants in the case of
Fontana v. Philip Morris Incorporated, et al. The court has entered final
judgment in favor of the defendants and has denied plaintiff's post-trial
motions. As of October 5, 2001, the deadline for plaintiff to notice an appeal
from the final judgment had not expired.

Additional flight attendant cases are set for trial. As of October 5, 2001,
approximately 15 such cases were scheduled for trial between November 2001 and
February 2002. It is possible that several of the flight attendant cases will be
tried in 2002 and thereafter.

CLASS ACTION CASES

There are approximately 45 purported class action cases pending against
cigarette manufacturers and other defendants. Of these approximately 45 cases,
Lorillard is a defendant in approximately 25, six of which also name Loews as a
defendant. In addition, two cases that name both Loews and Lorillard as
defendants have not been served on any of the parties. Many of the purported
class actions are in the pre-trial, discovery stage, although trial proceedings
were under way in two of the matters as of October 5, 2001. Most of the suits
seek class certification on behalf of residents of the states in which the
purported class action cases have been filed, although some suits seek class
certification on behalf of residents of multiple states. Plaintiffs in all but
two of the purported class action cases seek class certification on behalf of
individuals who smoked cigarettes or were exposed to environmental tobacco
smoke. In one of the two remaining purported class action cases, plaintiffs seek
class certification on behalf of individuals who paid insurance premiums.
Plaintiffs in the other remaining suit seek class certification on behalf of
U.S. residents under the age of 22 who purchased cigarettes as minors and who do
not have personal injury claims. Plaintiffs in some of the reimbursement cases,
which are discussed below, also seek certification of such cases as class
actions.

Various courts have ruled on motions for class certification in smoking and
health-related cases. In 12 state court cases, which were pending in five states
and the District of Columbia, courts have denied plaintiffs' class certification
motions. In another 14 cases, cigarette manufacturers have defeated motions for
class certification before either federal trial courts or courts of appeal from
cases pending in 12 states and the Commonwealth of Puerto Rico. The denial of
class certification in a New York federal court case, however, was due to the
court's interest in preserving judicial resources for a potentially broader
class certification ruling in In re Simon (II) Litigation, which is discussed
below. In six cases in which Lorillard is a defendant, plaintiffs' motions for
class certification have been granted and appeals either have been rejected at
the interlocutory stage, appeals have not yet been considered, or, in one case,
plaintiffs' claims were resolved through a settlement agreement. These six cases
are Broin (which is the matter concluded by a settlement agreement and discussed
under "-- Conventional Product Liability Cases -- Flight Attendant Cases"),
Engle, Blankenship, Scott, Daniels and Brown.

Theories of liability asserted in the purported class action cases include
a broad range of product liability theories, including those based on consumer
protection statutes and fraud and misrepresentation. Plaintiffs seek damages in
each case that range from unspecified amounts to the billions of dollars. Most
plaintiffs seek punitive damages and some seek treble damages. Plaintiffs in
many of the cases seek medical monitoring. Plaintiffs in some of the purported
class action cases are represented by a well-funded and coordinated consortium
of approximately 60 law firms throughout the United States.

and survivors of such individuals, who have been injured or have died from
medical conditions allegedly caused by their addiction to cigarettes containing
nicotine.

The case is being tried in three phases. The first phase began during July
of 1998 and involved consideration of certain issues claimed to be "common" to
the members of the class and their asserted causes of action.

On July 7, 1999, the jury returned a verdict against defendants, including
Lorillard, at the conclusion of the first phase. The jury found, among other
things, that cigarette smoking is addictive and causes lung cancer and a variety
of other diseases, that the defendants concealed information about the health
risks of smoking, and that defendants' conduct "rose to a level that would
permit a potential award or entitlement to punitive damages." The verdict
permitted the trial to proceed to a second phase. The jury was not asked to
award damages in the Phase One verdict.

By order dated July 30, 1999 and supplemented on August 2, 1999, together,
the "Punitive Damages Order," the trial judge amended the trial plan with
respect to the manner of determining punitive damages. The Punitive Damages
Order provided that the jury would determine punitive damages, if any, on a
lump-sum dollar amount basis for the entire qualified class. The Third District
of the Florida Court of Appeal rejected as premature defendants' appeals from
the Punitive Damages Order, and the Florida Supreme Court declined to review the
Punitive Damages Order at that time.

The first portion of Phase Two of the trial began on November 1, 1999
before the same jury that returned the verdict in Phase One. In the first part
of Phase Two, the jury determined issues of specific causation, reliance,
affirmative defenses, and other individual-specific issues related to the claims
of three named plaintiffs and their entitlement to damages, if any.

On April 7, 2000, the jury found in favor of the three plaintiffs and
awarded them a total of $12.5 million in economic damages, pain and suffering
damages and damages for loss of consortium. After awarding damages to one of the
three plaintiffs, the jury appeared to find that his claims were barred by the
statute of limitations. The final judgment entered by the trial court on
November 6, 2000 reflected the damages award, and held only a portion of this
plaintiff's claims were barred by the statute of limitations.

The second part of Phase Two of the trial began on May 22, 2000 and was
heard by the same jury that heard the trial's prior phases and considered
evidence as to the punitive damages to be awarded to the class. On July 14,
2000, the jury awarded a total of $145.0 billion in punitive damages against all
defendants, including $16.25 billion against Lorillard.

On November 6, 2000, the Circuit Court of Dade County, Florida, entered a
final judgment in favor of the plaintiffs that reflects the jury's three
verdicts in favor of the plaintiffs. The judgment also provides that the jury's
awards bear interest at the rate of 10% per year. The court's final judgment
denied various of defendants' post-trial motions, which included a motion for
new trial and a motion seeking reduction of the punitive damages award.
Lorillard has noticed an appeal from the final judgment to the Third District of
the Florida Court of Appeal and has posted its appellate bond in the amount of
$100.0 million pursuant to recent Florida legislation limiting 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 believes this
legislation is valid and that any challenges to the possible application or
constitutionality of this legislation would fail, during May of 2001, Lorillard
and two other defendants jointly contributed a total of $709.0 million to a fund
that will not be recoverable by them even if challenges to the judgment are
resolved in favor of the defendants. As a result, the class has agreed to a stay
of execution, referred to as the Engle agreement, on its punitive damages
judgment until appellate review is completed, including any review by the U.S.
Supreme Court. Lorillard contributed a total of $200.0 million to this fund,
which included the $100.0 million that was posted as collateral for its
appellate bond. Accordingly, Lorillard has recorded a pre-tax charge of $200.0
million in the quarter ending June 30, 2001.

In the event that Lorillard's balance sheet net worth falls below $921.2
million (as determined in accordance with generally accepted accounting
principles in effect as of July 14, 2000), the stay granted in favor of
Lorillard in the Engle agreement would terminate and the class would be free to
challenge the Florida legislation.

In addition, the Engle agreement requires Lorillard to obtain the written
consent of class counsel or the court prior to selling any trademark of or
formula comprising a cigarette brand having a U.S. market share of 0.5% or more
during the preceding calendar year. The Engle agreement also requires Lorillard
to obtain the written consent of the Engle class counsel or the court to license
to a third party the right to manufacture or sell such a cigarette brand unless
the cigarettes to be manufactured under the license will be sold by Lorillard.

Now that the jury has awarded punitive damages and final judgment has been
entered, Lorillard believes that it is unclear how the Punitive Damages Order
will be implemented. The Punitive Damages Order provides that the lump-sum
punitive damages amount, if any, will be allocated equally to each class member
and acknowledges that the actual size of the class will not be known until the
last case has withstood appeal, i.e., the punitive damages amount, if any,
determined for the entire qualified class, would be divided equally among those
plaintiffs who are ultimately successful. The Punitive Damages Order does not
address whether defendants would be required to pay the punitive damages award,
if any, prior to a determination of claims of all class members, which is Phase
Three of the trial plan, a process that could take years to conclude. The final
judgment entered by the court on November 6, 2000 directs that the amounts
awarded by the jury are to be paid immediately. Phase Three would address
potentially hundreds of thousands of other class members' claims, including
issues of specific causation, reliance, affirmative defenses and other
individual-specific issues regarding entitlement to damages, in individual
trials before separate juries.

Lorillard has been named in four separate lawsuits that are pending in the
Florida courts in which the plaintiffs claim that they are members of the Engle
class, that all liability issues associated with their claims were resolved in
the earlier phases of the Engle proceedings, and that trials on their claims
should proceed immediately. Lorillard is opposing trials of these actions on the
grounds that they should be considered during Phase Three of the Engle case and
should be stayed while the Engle appeal is proceeding.

Lorillard remains of the view that the Engle case should not have been
certified as a class action. Lorillard believes that class certification in the
Engle case is inconsistent with the majority of federal and state court
decisions which have held that mass smoking and health claims are inappropriate
for class treatment. Lorillard has challenged the class certification, as well
as numerous other legal errors that it believes occurred during the trial.
Lorillard believes that an appeal of these issues on the merits should prevail.

Other Class Action Cases. Trial began during January of 2001 in the case
of Blankenship v. American Tobacco Company, et al. (Circuit Court, Ohio County,
West Virginia, filed January 31, 1997), but a mistrial was declared while
plaintiffs were presenting their evidence. Re-trial began during September of
2001 and was proceeding as of October 5, 2001. During 2000, the court granted
plaintiffs' motion for class certification. The court has ruled that the class
consists of West Virginia residents who were cigarette smokers on or after
January 31, 1995; who had a minimum of a five-pack per year smoking history as
of December 4, 2000; who have not been diagnosed with certain medical
conditions; and who have not received health care funded by the State of West
Virginia. The West Virginia Supreme Court of Appeals declined to review
defendants' petition for a writ of prohibition against the class certification
ruling. Plaintiffs seek the creation of a fund, the purpose of which would be to
pay for class members to receive medical monitoring for chronic obstructive
pulmonary disease, emphysema and lung cancer. The case is being tried pursuant
to a multi-phase trial plan. The first phase, which was in trial as of October
5, 2001, addresses issues "common" to the class members' claims, including
matters relating to the defendants' alleged liability and the

necessity and reasonableness of plaintiffs' proposed medical monitoring plan.
The court has not specified the issues to be addressed in the trial's subsequent
phases. Lorillard is a defendant in the case.

Jury selection began during June of 2001 in the case of Scott v. The
American Tobacco Company, et al. (District Court, Orleans Parish, Louisiana,
filed May 24, 1996). A twelve-member jury and ten alternate jurors were
selected, but the Louisiana Court of Appeals and the Louisiana Supreme Court, in
response to writ applications initiated by the defendants, excused a total of
nine jurors or alternate jurors. The Supreme Court has directed the trial court
to re-open the jury selection process in order to select additional jurors. In
their writ applications, defendants contended that several selected jurors had
family members who were potential members of the class certified by the trial
court, and that the selected jury was biased against the defendants. As of
October 5, 2001, the trial court had not announced when the process to select
new jurors would begin. The trial court has certified a class comprised of
residents of 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 allege that defendants undermined compliance with the
warnings on cigarette packages. Lorillard is a defendant in the case.

During December of 2000, the Superior Court of San Diego County, California
issued an order in the case of Daniels v. Philip Morris, Incorporated, et al.
that granted plaintiffs' motion for class certification on behalf of California
residents who, while minors, smoked at least one cigarette between April 1994
and December 31, 1999. Trial in this matter is scheduled to begin during May
2002, although the court has indicated that trial may be delayed until July
2002. Lorillard is a defendant in the case.

During April of 2001, the Superior Court of San Diego County, California in
the case of Brown v. The American Tobacco Company, Inc., et al., granted in part
plaintiff's motion for class certification and certified a class comprised of
adult residents of California who smoked at least one of defendants' cigarettes
"during the applicable time period" and who were exposed to defendants'
marketing and advertising activities in California. Certification was granted as
to plaintiff's claims that defendants violated California Business and
Professions Code sec.sec. 17200 and 17500. The court subsequently defined "the
applicable class period" for plaintiffs' claims, pursuant to a stipulation
entered by the parties, as June 10, 1993 through April 23, 2001. Trial is
scheduled to begin during October 2002. Lorillard is a defendant in the case.

REIMBURSEMENT CASES

In addition to the cases settled by the State Settlement Agreements
described above, approximately 60 other suits are pending, comprised of cases
brought by the U.S. federal government, county governments, city governments,
unions, American Indian tribes, hospitals or hospital districts, private
companies and foreign governments filing suit in U.S. courts, in which
plaintiffs seek recovery of funds allegedly expended by them to provide health
care to individuals with injuries or other health effects allegedly caused by
use of tobacco products or exposure to cigarette smoke. These cases are based
on, among other things, equitable claims, including injunctive relief,
indemnity, restitution, unjust enrichment and public nuisance, and claims based
on antitrust laws and state consumer protection acts. Plaintiffs in some of
these actions seek certification as class actions. Plaintiffs seek damages in
each case that range from unspecified amounts to the billions of dollars. Most
plaintiffs seek punitive damages and some seek treble damages. Plaintiffs in
some of the cases seek medical monitoring. Lorillard is named as a defendant in
all of the reimbursement cases except for a few of those filed in U.S. courts by
foreign governments. Loews is named as a defendant in approximately 30 of the
pending reimbursement cases, although it has not received service of two of
these matters.

U.S. Federal Government Action. The U.S. federal government filed a
reimbursement suit on September 22, 1999 in the U.S. District Court for the
District of Columbia against Lorillard, other

U.S. cigarette manufacturers, some parent companies and two trade associations.
Loews is not a defendant in this action. Plaintiff asserted claims under the
Medical Care Recovery Act, the Medicare as Secondary Payer provisions of the
Social Security Act, and the Racketeer Influenced and Corrupt Organizations Act.
The government alleges in the complaint that it has incurred costs of more than
$20.0 billion annually in providing health care costs under several federal
programs, including Medicare, military and veterans' benefits programs, and the
Federal Employee Health Benefits Program. The federal government seeks to
recover an unspecified amount of health care costs, and various types of other
relief, including disgorgement of profits, injunctive relief and declaratory
relief that defendants are liable for the government's future costs of providing
health care resulting from the defendants' alleged wrongful conduct.

During September 2000, the court granted in part and denied in part
defendants' motion to dismiss the complaint. The court dismissed plaintiff's
claims asserted under the Medical Care Recovery Act as well as those under the
Medicare as Secondary Payer provisions of the Social Security Act. The court
denied the motion as to plaintiff's claims under the Racketeering Influenced and
Corrupt Organizations Act. Plaintiff sought modification of the trial court's
order as it related to the dismissal of the Medical Care Recovery Act claim. In
an amended complaint filed during February 2001, plaintiff attempted to replead
the Medicare as Secondary Payer claim. In a July 2001 decision, the court
reaffirmed its dismissal of the Medical Care Recovery Act claims. The court also
dismissed plaintiff's reasserted claims under the Medicare as Secondary Payer
Act. The court has denied a motion for intervention and a proposed complaint in
intervention filed by the Cherokee Nation Tribe on behalf of a purported
nationwide class of American Indian tribes.

In June of 2001, the government invited defendants in the lawsuit,
including Lorillard, to meet to discuss the possibility of a settlement of the
government's case. Lorillard participated in one such meeting and no further
meetings are scheduled.

Reimbursement Cases filed by Foreign Governments in U.S. Courts. Cases
have been brought in U.S. courts by the nations of Belize, Bolivia, Ecuador,
Guatemala, Honduras, Kyrgyz, Nicaragua, Panama, the Russian Federation,
Tajikistan, Thailand, Ukraine and Venezuela, as well as ten Brazilian states, 11
Brazilian cities and one Canadian province. Both Loews and Lorillard are named
as defendants in the cases filed by Belize, Bolivia, Ecuador, Honduras, Kyrgyz,
the Russian Federation, Tajikistan, Ukraine and Venezuela, nine of the ten
Brazilian states, the 11 Brazilian cities and the Canadian province. Loews has
not received service of process of the cases filed by Honduras or Venezuela. The
suits filed by Ecuador, Kyrgyz and Thailand have been voluntarily dismissed by
the plaintiffs. A federal court of appeal has affirmed the trial court's orders
dismissing the cases filed by Guatemala, Nicaragua and Ukraine and plaintiffs
have filed petitions for writ of certiorari with the U.S. Supreme Court with
respect to the ruling. The case filed by the Province of Ontario, Canada is
pending on appeal following the entry of an order granting defendants' motion to
dismiss the complaint. In addition, Lorillard and Loews were dismissed from two
suits that remain pending against other defendants. One of these cases was filed
by the Marshall Islands, while the plaintiff in the other remaining suit is one
of the Brazilian states. Each of the remaining cases is in the pre-trial,
discovery stage.

In 1977, Lorillard sold substantially all of its trademarks outside of the
United States and the international sales business in cigarettes associated with
those brands. Performance by Lorillard of obligations under the 1977 agreement
reflecting the sale was guaranteed by Loews. Lorillard and Loews have received
notice from Brown & Williamson Tobacco Corporation, which claims to be a
successor to the purchaser, that indemnity will be sought under certain
indemnification provisions of the 1977 agreement with respect to suits brought
by various of the foregoing foreign jurisdictions, and in certain cases brought
in foreign countries by individuals concerning periods prior to June 1977 and
during portions of 1978.

Reimbursement Cases by American Indian Tribes. American Indian tribes are
the plaintiffs in six pending reimbursement suits. Most of these cases have been
filed in tribal courts. Lorillard is a defendant in each of the cases. Loews is
not named as a defendant in any of the pending tribal cases. Each of the pending
cases is in the pre-trial, discovery stage.

Reimbursement Cases by Private Companies and Health Plans or Hospitals and
Hospital Districts. Three cases are pending against cigarette manufacturers in
which the plaintiffs are private companies, including not-for-profit insurance
companies. Lorillard is a defendant in each of the pending cases. Loews is not a
defendant in any of the pending private company cases. One of the cases was
filed in New York by eight German insurance companies.

On June 4, 2001, trial concluded in the case of Blue Cross and Blue Shield
of New Jersey. For a discussion of this case, see "-- Significant Recent
Developments."

In addition, two suits filed by hospitals or hospital districts are
pending. Lorillard is named as a defendant in both such cases. Loews is not
named as a defendant in either of such cases. In one additional suit, a city
governmental entity and several hospitals or hospital districts are plaintiffs.
Loews is a defendant in this case.

Reimbursement Cases by Labor Unions. Eight reimbursement cases are pending
in various federal or state courts in which the plaintiffs are labor unions,
their trustees or their trust funds. Lorillard is a defendant in each of these
suits. Loews is a defendant in two of the pending suits. Two of the eight
pending cases are on appeal from final judgment entered in favor of the
defendants. Approximately 75 union cases have been dismissed in recent years.
Some of these cases were dismissed voluntarily, while others were dismissed as a
result of defendants' motions. Appeals were sought from some of these dismissal
rulings and defendants have prevailed in each of these appeals. The Second,
Third, Fifth, Seventh, Eighth, Ninth and Eleventh Circuit Courts of Appeal have
found in favor of the defendants in each of the appeals from dismissal orders
entered by the federal trial courts that were submitted to them, and the U.S.
Supreme Court has denied petitions for writ of certiorari that sought review of
some of these decisions. In addition, the Circuit Court of Appeals for the
District of Columbia has reversed a decision by a district court refusing to
dismiss a union case. Several cases pending in state courts also have been
dismissed.

Trial has been held in one of the reimbursement cases brought by labor
unions. On March 18, 1999, the jury in Iron Workers Local Union No. 17 Insurance
Fund, et al. v. Philip Morris, Inc., et al. (U.S. District Court, Northern
District, Ohio, Eastern Division, filed May 20, 1997), returned a verdict in
favor of the defendants, which included Lorillard, on all counts of plaintiffs'
complaint. During pre-trial proceedings, the court granted plaintiffs' motion
for class certification on behalf of funds in Ohio established under the
Taft-Hartley Act. Plaintiffs voluntarily dismissed the appeal they noticed
following the verdict.

EASTERN DISTRICT OF NEW YORK LITIGATION

case (Mason v. The American Tobacco Company, Inc., et al.). The Falise and H.K.
Porter cases have been voluntarily dismissed. The judge's order invited the
federal government to join in the settlement discussions. On July 31, 2000, the
federal judge orally proposed the formation of a national punitive damages class
action for the purposes of settlement. Pursuant to the judge's proposal,
Lorillard entered into discussions with a committee of counsel representing a
broad-based group of plaintiffs in an effort to arrive at a comprehensive
settlement of all exemplary and punitive damage claims, including claims
involved in the Engle class action in Florida described above. The parties were
unable to reach an understanding and the negotiations were suspended in late
2000.

The federal judge directed that a combined suit be filed encompassing all
of the claims pending before him that name cigarette manufacturers as
defendants. This matter is styled In re Simon (II) Litigation (U.S. District
Court, Eastern District, New York, filed September 6, 2000). Loews is a
defendant in this proceeding. In a November 2000 ruling, the court stated that
"Simon II should be triable without appreciable delay should it be certified."
During March of 2001, the court heard argument of plaintiffs' motion for class
certification, plaintiffs' motion for appointment of class counsel, and
defendants' motion to dismiss the complaint.

During 2001, trial has been held in Blue Cross and Blue Shield of New
Jersey (trial was limited to the claims of only one plan plaintiff), a
reimbursement case described under "-- Significant Recent Developments."

Following conclusion of the trial in Blue Cross and Blue Shield of New
Jersey, described under "-- Significant Recent Developments," the U.S. District
Judge stayed the claims asserted in the suit by the other plan plaintiffs
pending resolution of the appeals the court expects the parties in the trial to
file. The U.S. District Judge also stayed several of the cases involving
cigarette manufacturers pending before the judge.

CONTRIBUTION CLAIMS

In addition to the foregoing cases, 21 cases are pending in which private
companies seek recovery of funds expended by them to individuals whose asbestos
disease or illness was alleged to have been caused in whole or in part by
smoking-related illnesses. Lorillard is named as a defendant in each action,
although it has not received service of process in two of the cases. Loews is
named as a defendant in four of the cases but has not received service of
process in one of them. Fourteen of the 21 cases have been filed since December
1, 2000, including five initiated since April 1, 2001. As noted under
"-- Eastern District of New York Litigation," plaintiffs in the Falise case
dismissed their suit against all defendants and gave up their right to file suit
again in the future. The remaining cases are in the pre-trial, discovery stage.

FILTER CASES

A number of cases have been filed against Lorillard seeking damages for
cancer and other health effects claimed to have resulted from exposure to
asbestos fibers which were incorporated, for a limited period of time, ending
more than 40 years ago, into the filter material used in one of the brands of
cigarettes manufactured by Lorillard. Approximately 20 filter cases are pending
in federal and state courts against Lorillard. Loews is not a defendant in any
of the pending filter cases. Allegations of liability include negligence, strict
liability, fraud, misrepresentation and breach of warranty. Plaintiffs in most
of these cases seek unspecified amounts in compensatory and punitive damages.
Trials have been held in 15 such cases. Five such trials have been held since
January 1, 1999. Juries have returned verdicts in favor of Lorillard in 11 of
the 15 trials. Four verdicts have been returned in plaintiffs' favor. In a 1995
trial, a California jury awarded plaintiffs approximately $1.2 million in actual
damages and approximately $700,000 in punitive damages. In a 1996 trial, another
California jury awarded plaintiff approximately $140,000 in actual damages. In a
1999 trial, a Maryland jury awarded plaintiff approximately $2.2 million in
actual damages. In a 2000 trial, a

California jury awarded plaintiffs $1.1 million in actual damages and the case
was settled prior to a determination of punitive damages.

TOBACCO-RELATED ANTITRUST CASES

Wholesalers and Direct Purchasers Suits. Lorillard and other domestic and
international cigarette manufacturers and their parent companies, including
Loews, were named as defendants in nine separate federal court actions brought
by tobacco product wholesalers for violations of U.S. antitrust laws and
international law. The complaints allege that defendants conspired to fix the
price of cigarettes to wholesalers since 1993 in violation of the Sherman Act.
These actions seek certification of a class including all domestic and
international wholesalers similarly affected by such alleged conduct, and
damages, injunctive relief and attorneys' fees. These actions were consolidated
for pre-trial purposes in the U.S. District Court for the Northern District of
Georgia. The Court has granted class certification for a four-year class
(beginning in 1996 and ending in 2000) of domestic direct purchasers. Loews has
been voluntarily dismissed without prejudice from all direct purchaser cases.

Indirect Purchaser Suits. Approximately 30 suits are pending in various
state courts alleging violations of state antitrust laws which permit indirect
purchasers, such as retailers and consumers, to sue under price fixing or
consumer fraud statutes. Approximately 18 states permit such suits. Lorillard is
a defendant in all but one of these indirect purchaser cases. Two indirect
purchaser suits, in Arizona and New York, have been dismissed in their entirety.
Loews was also named as a defendant in most of these indirect purchaser cases
but has been voluntarily dismissed without prejudice from all of them.

Tobacco Growers Suit. DeLoach v. Philip Morris Inc., et al. (U.S. District
Court, Middle District of North Carolina, filed February 16, 2000). Lorillard is
named as a defendant in a lawsuit that, after several amendments, alleges only
antitrust violations. The other major domestic tobacco companies are also
presently named as defendants, and the plaintiffs have now added the major leaf
buyers as defendants. This case was originally filed in U.S. District Court,
District of Columbia, and transferred to a North Carolina federal court upon
motion by the defendants. Plaintiffs seek certification of a class including all
tobacco growers and quota holders (the licenses that a farmer must either own or
rent to sell the crop), who sold tobacco or held quota under the federal tobacco
leaf price support program since February 1996. The plaintiffs' claims relate to
the conduct of the companies in the purchase of tobacco through the auction
system under the federal program. The suit seeks an unspecified amount of actual
damages, trebled under the antitrust laws, and injunctive relief.

OTHER TOBACCO-RELATED LITIGATION

Cigarette Smuggling Litigation. Lorillard and other domestic cigarette
manufacturers and their parent companies, including Loews, have been named as
defendants in cases filed in a Florida court by the Republic of Ecuador, the
Republic of Honduras and the Republic of Belize. Plaintiffs allege that the
defendants evaded cigarette taxation by engaging in a scheme to smuggle
cigarettes into each nation. Plaintiffs contend defendants sold cigarettes to
distributors who in turn sold the cigarettes to smugglers. Plaintiff seeks
unspecified amounts in actual damages, treble damages, punitive damages and
equitable relief in each of the three suits. Lorillard and Loews have received
service of each of the three suits.

prohibition of self-service promotional displays relating to cigarettes, cigars
and smokeless tobacco products are constitutional. Such regulations include
those designed to prevent the sale of cigarettes to minors or to regulate
conduct as it relates to the sale or use of cigarettes.

OTHER LITIGATION

Lorillard is also party to other litigation arising in the ordinary course
of business. Lorillard believes that the outcome of this other litigation will
not materially affect Lorillard's results of operations or equity.

PAYMENT OBLIGATIONS UNDER THE STATE SETTLEMENT AGREEMENTS

The following discussion summarizes Lorillard's future payment obligations
under the Master Settlement Agreement and the settlement agreements with
Mississippi, Florida, Texas and Minnesota. Payment obligations under the State
Settlement Agreements are the several and not joint obligations of each party to
the agreements and are not the responsibility of any parent or affiliate of a
party to the agreements, including Loews. The State Settlement Agreements are
exhibits to our Form 10-K for the year ended December 31, 2000. The following
description of the State Settlement Agreements is qualified in its entirety by
reference to the terms of the State Settlement Agreements.

PAYMENT OBLIGATIONS UNDER THE MASTER SETTLEMENT AGREEMENT

Future payments under the Master Settlement Agreement will be allocated
among Lorillard, Philip Morris Incorporated, R.J. Reynolds Tobacco Company and
Brown & Williamson Tobacco Corporation, which we refer to collectively as the
"Original Participating Manufacturers," on the basis of relative unit volume of
domestic cigarette shipments in the year prior to the year payments are due, and
are subject to adjustment as described below. Payments by signatories to the
Master Settlement Agreement other than the Original Participating Manufacturers
are governed by different provisions. We refer to these other signatories as
"Subsequent Participating Manufacturers."

Initial Payments. The Original Participating Manufacturers will pay
aggregate amounts of approximately $2.6 billion on January 10, 2002 and $2.7
billion on January 10, 2003. These payments are subject to adjustment for
changes in the volume of domestic cigarette shipments as described below. In
addition, Lorillard has already paid its $628.0 million share of approximately
$7.9 billion in total initial payments paid to date by the Original
Participating Manufacturers.

Annual and Strategic Contribution Payments. On April 15, 2002 and on each
April 15 thereafter, the Original Participating Manufacturers will pay the
following aggregate amounts, which we refer to as the "annual payments," subject
to adjustment as described below:

2002 and 2003............................................... $6.5 billion
2004 through 2007........................................... $8.0 billion
2008 through 2017........................................... $8.1 billion
2018 and each year thereafter............................... $9.0 billion

In addition to the foregoing annual payments, the Original Participating
Manufacturers will pay $861 million on April 15, 2008 and on each April 15
thereafter through 2017, which we refer to as the "strategic contribution
payments," subject to adjustment as described below. Lorillard has paid its
$785.4 million share of the approximately $9.5 billion total annual and
strategic contribution payments paid to date by the Original Participating
Manufacturers.

Adjustments to Annual and Strategic Contribution Payments. The annual and
strategic contribution payments are subject to adjustment for inflation and for
changes in volume of domestic cigarette shipments as described below. 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 the 1997 level of approximately $7.1 billion,
adjusted for inflation. In 2000, the Original Participating Manufacturers'
aggregate operating income from domestic sales of cigarettes was approximately
$8.3 billion. Any adjustments resulting from increases in operating income will
be allocated among those Original Participating Manufacturers who have had
increases. The annual and strategic contribution payments will also be subject
to further adjustment as follows:

- Annual payments will be reduced by a percentage intended to reflect the
Original Participating Manufacturers' separate payment obligations to
Mississippi, Florida, Texas and Minnesota, which were not parties to the
Master Settlement Agreement. This percentage is 12.45% for payments due
in or before 2007, 12.24% for payments due after 2007 but before 2018 and
11.07% for payments due in or after 2018. These percentages result in
reductions that are lower than the actual payment obligations owed to
Mississippi, Florida, Texas and Minnesota. See "-- Payment Obligations
under the Settlement Agreements with Mississippi, Florida, Texas and
Minnesota."

- Subject to specified conditions and exceptions, the annual and strategic
contribution payments will also be subject to a dollar-for-dollar offset
for amounts paid by Participating Manufacturers and made available to any
Settling State pursuant to specified federal tobacco-related legislation
enacted after November 23, 1998 and on or before November 30, 2002. No
qualifying federal tobacco legislation has been enacted.

- Subject to specified conditions, the annual and strategic contribution
payments will also be subject to a further offset for any amounts paid by
any Original Participating Manufacturers or other released party on any
claims released under the Master Settlement Agreement.

Payments to Foundation. The Original Participating Manufacturers will also
make payments to fund a national foundation which has been established by the
National Association of Attorneys General. On March 31, 2002, and on each March
31 for the subsequent six years, the Original Participating Manufacturers will
pay $25.0 million in the aggregate to fund the foundation. These payments are
not subject to adjustment. On March 31, 2002 and 2003, the Original
Participating Manufacturers will make additional $300.0 million payments in the
aggregate for the benefit of a national public education fund established by the
foundation. In addition, if for any calendar year beginning with 2003, the
signatories to the Master Settlement Agreement who were signatories for the
entire calendar year in question have an aggregate share of all domestic
cigarette sales for that year equal to or greater than 99.05%, the Original
Participating Manufacturers will pay $300.0 million for the benefit of the
national public education fund on April 15 of the subsequent year. The payments
described in the preceding two sentences are subject to adjustment for inflation
and for changes in the volume of domestic cigarette shipments as described
below.

Inflation Adjustment. The inflation adjustment applies to annual and
strategic contribution payments and to payments for the benefit of the national
public education fund established by the foundation. It increases payments on a
compounded annual basis by the greater of 3% 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 inflation rate for
1999 was approximately 2.7%, resulting in an adjustment for payments made in
2000 of 3% and the inflation rate in 2000 was approximately 3.4%, resulting in a
compound adjustment for payments made in 2001 of approximately 6.5%.

Volume Adjustment. The volume adjustment applies to initial payments,
annual and strategic contribution payments and payments for the benefit of the
national public education fund established by the foundation. It 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, as compared to the 1997 base number of cigarettes shipped by the Original
Participating Manufacturers. When volume has

increased, the volume adjustment increases payments by the same percentage as
the number of cigarettes shipped exceeds the 1997 base number. When volume has
decreased, the volume adjustment decreases payments by a percentage equal to 98%
of the percentage reduction in volume. As noted above, certain Original
Participating Manufacturers do not realize the full impact of a downward volume
adjustment in years in which the Original Participating Manufacturers have
achieved specified increases in aggregate operating income. See "-- Adjustments
to Annual and Strategic Contribution Payments."

In 2000, the total number of cigarettes shipped in or to the 50 U.S.
states, the District of Columbia and Puerto Rico by the original manufacturers
was approximately 402,662 million. This represents a decrease of approximately
15% from the 1997 base number of 475,656 million.

Costs and Attorneys Fees. The Original Participating Manufacturers will
also pay the reasonable fees of in-house and outside counsel representing the
Settling States and other specified governmental entities as described below.
Each of the payment obligations described below is separate from and in addition
to the other payment obligations.

- Liquidated fees for outside counsel as agreed to between the outside
counsel and the Original Participating Manufacturers. These fees are
subject to a total limit of $1.3 billion and a quarterly limit of $62.5
million. All liquidated fees are to be paid in or prior to 2003. As of
June 30, 2001, 25 liquidated offers have been accepted totaling $625.7
million, $560.5 million of which has been paid.

- Fees for outside counsel awarded in arbitration, subject to an annual cap
of $500.0 million. This cap includes amounts awarded in arbitration to
outside counsel for Mississippi, Florida and Texas. As of June 30, 2001,
$13.6 billion fees have been awarded in arbitration, $1.9 billion of
which has been paid.

- Reasonable costs and expenses incurred by outside counsel not to exceed
$75.0 million per year. As of June 30, 2001, $29.7 million of these costs
and expenses has been agreed to and paid.

- Up to $150.0 million for reimbursement of in-house costs and expenses,
including payment for in-house attorney and paralegal time. $150.0
million of these costs and expenses has been agreed to, all of which has
been paid.

Amounts owed in any year or quarter which could not be paid because of any
cap are rolled over to the next year or quarter without interest. As of June 30,
2001, Lorillard has paid its $219.4 million share of the $14.3 billion in
aggregate fees and expenses paid to date by the Original Participating
Manufacturers.

PAYMENTS BY SUBSEQUENT PARTICIPATING MANUFACTURERS

Under the Master Settlement Agreement, each Subsequent Participating
Manufacturer is required to make payments in any year that equal, on a
per-cigarette basis, the sum of the annual and strategic contribution payments
and payments for the benefit of the national public education fund by the
Original Participating Manufacturers in that year, provided, however, that any
Subsequent Participating Manufacturer who signed the MSA within 90 days of its
effective date is required to make such payments only with respect to cigarettes
that represent the increase in its market share in such year over the greater of
the Subsequent Participating Manufacturers' 1998 market share and 125% of its
1997 market share.

PAYMENTS BY NON-PARTICIPATING MANUFACTURERS

Each of the Settling States, other than a few territories, has enacted a
statute as provided for in the Master Settlement Agreement. The statutes require
that any cigarette manufacturer that is not a

signatory to the Master Settlement Agreement make payments into an escrow fund
to cover possible future liabilities to the relevant Settling State. The payment
required to be made by a nonparticipating manufacturer under the statutes is
somewhat less than the annual payment that would be paid by an Original
Participating Manufacturer with the same market share as the nonparticipating
manufacturer's market share. Due to this payment requirement, many manufacturers
have chosen to become Subsequent Participating Manufacturers.

If the Settling States had not enacted the statutes described in the
immediately preceding paragraph, the Original Participating Manufacturers would
have been entitled to a decrease in their payment obligations for some losses in
their market share. Because the entitlement depends on many factors, including
when the statutes were enacted, and whether they are diligently enforced, there
may be decreases for 2000 and 2001 payments.

PAYMENT OBLIGATIONS UNDER THE SETTLEMENT AGREEMENTS WITH MISSISSIPPI, FLORIDA,
TEXAS AND MINNESOTA

Future payments under the settlement agreements with Mississippi, Florida,
Texas and Minnesota will be allocated among the Original Participating
Manufacturers on the basis of relative unit volume of domestic cigarette
shipments, and will be subject to adjustment for inflation and for changes in
the volume of domestic cigarette shipments on terms substantially similar to
those in the Master Settlement Agreement.

Initial Payments. The Original Participating Manufacturers will pay an
aggregate of approximately $1.5 billion on January 2, 2002 and $731.0 million on
January 2, 2003, subject to the adjustments described above. In addition,
Lorillard has already paid its $529.0 million share of approximately $4.7
billion in total initial payments paid to date by the Original Participating
Manufacturers.

Annual Payments. On December 31, 2001, and on each December 31 thereafter,
the Original Participating Manufacturers will pay 17% of the following amounts,
subject to the adjustments described above:

2001 and 2002............................................... $6.5 billion
2003 and each year thereafter............................... $8.0 billion

Lorillard has paid its $304.0 million share of the approximately $13.5
billion total annual payments paid to date by the Original Participating
Manufacturers.

TOBACCO GROWER TRUST FUND

The Original Participating Manufacturers committed, under the Master
Settlement Agreement, to work cooperatively with the tobacco grower community to
address concerns about the potential adverse economic impact on that community.
On January 21, 1999, the Original Participating Manufacturers reached an
agreement to establish a $5.2 billion trust fund payable between 1999 and 2010
to compensate the tobacco growing communities in 14 states. Payments to the
trust fund are to be allocated among the Original Participating Manufacturers
according to their relative market share of domestic cigarette shipment. Philip
Morris paid more than its market share in the first year of the agreement but
will have its payment obligations reduced in 2009 and 2010 to make up for the
overpayment. Of the total $5.2 billion, a total of $1.1 billion was paid in
1999, 2000 and 2001, $61.4 million of which was paid by Lorillard. Lorillard
believes that its remaining payments under the agreement will total
approximately $454.0 million. All payments will be adjusted for inflation,
changes in the unit volume of domestic cigarette shipments, and the effect of
new increases in state or federal excise taxes on tobacco products that benefit
the growing community.

SELECTED HISTORICAL COMBINED FINANCIAL DATA
OF THE CAROLINA GROUP

In the table below, we provide you with selected historical combined
financial data of the Carolina Group. We prepared this information using our
combined financial statements at and for each of the fiscal years in the
five-year period ended December 31, 2000 and at and for the six-month periods
ended June 30, 2001 and 2000. We derived the combined results of operations data
below for each of the three years ended December 31, 2000, and the combined
balance sheet data at December 31, 2000 and 1999 from combined financial
statements included in this proxy statement, audited by Deloitte & Touche LLP,
independent auditors. We derived the combined results of operations data below
for each of the two years ended December 31, 1997 and the combined balance sheet
data at December 31, 1998, 1997 and 1996 from audited combined financial
statements not included or incorporated by reference in this proxy statement. We
derived the remaining data from unaudited combined financial statements for the
periods presented.

This information is only a summary and you should read it together with the
financial information we include in Appendix D to this proxy statement or
incorporate by reference in this proxy statement. For copies of the financial
information we incorporate by reference, see "Where You Can Find More
Information."

THE CAROLINA GROUP IS A NOTIONAL GROUP THAT REFLECTS THE PERFORMANCE OF A
DEFINED SET OF ASSETS AND LIABILITIES. THE CAROLINA GROUP IS NOT A SEPARATE
LEGAL ENTITY. THE PURPOSE OF THE FOLLOWING FINANCIAL INFORMATION IS TO PROVIDE
INVESTORS WITH ADDITIONAL INFORMATION TO USE IN ANALYZING THE RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF THE CAROLINA GROUP, AND THE FOLLOWING
FINANCIAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF LOEWS.

THE CAROLINA GROUP

SELECTED HISTORICAL COMBINED FINANCIAL DATA
(IN MILLIONS)

SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------------- ----------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------

RESULTS OF OPERATIONS:
Net sales (including
federal excise taxes
of $311.1, $337.3,
$667.9, $512.6,
$495.3, $491.0 and
$477.6)............... $2,180.3 $2,098.8 $4,233.8 $3,991.3 $2,807.5 $2,391.0 $2,212.4
Cost of sales........... 1,109.8 1,122.8 2,197.7 2,069.1 979.3 973.8 936.9
Selling, advertising and
administrative........ 715.1 433.0 918.7 900.2 712.9 668.9 586.1
Fixed non-unit based
settlement costs...... 579.0 198.8
-------- -------- -------- -------- -------- -------- --------
Operating income........ 355.4 543.0 1,117.4 1,022.0 536.3 549.5 689.4
Net investment income... 51.1 40.8 104.9 57.4 56.8 25.1 26.7
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 406.5 583.8 1,222.3 1,079.4 593.1 574.6 716.1
Income taxes............ 160.7 224.4 469.5 427.6 241.6 211.6 271.9
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 245.8 $ 359.4 $ 752.8 $ 651.8 $ 351.5 $ 363.0 $ 444.2
======== ======== ======== ======== ======== ======== ========
OTHER DATA(1):
EBITDA................ $ 419.6 $ 597.4 $1,248.9 $1,118.2 $ 616.9 $ 596.5 $ 738.0
EBIT.................. 406.8 584.9 1,223.8 1,094.3 594.5 575.5 716.5

THE CAROLINA GROUP

SELECTED HISTORICAL COMBINED FINANCIAL DATA (CONTINUED)
(IN MILLIONS)

DECEMBER 31
JUNE 30 --------------------------------------------------
2001 2000 1999 1998 1997 1996
----------- -------- -------- -------- -------- ------

FINANCIAL POSITION:
Cash and cash equivalents,
including marketable
securities..................... $1,710.3 $1,516.5 $1,283.9 $ 541.2 $ 609.8 $226.3
Current assets................... 2,358.3 2,160.0 1,868.1 918.3 962.0 563.7
Current liabilities.............. 1,267.3 1,074.7 1,051.6 446.3 427.4 304.2
Working capital.................. 1,091.0 1,085.3 816.5 472.0 534.6 259.5
Total assets..................... 2,848.9 2,666.6 2,208.7 1,276.3 1,337.7 897.2
Combined attributed net assets... 1,370.5 1,376.8 921.2 569.3 667.5 404.0

-------------------------

(1) EBITDA (income before income taxes plus interest, depreciation and
amortization) and EBIT (income before income taxes plus interest) are
supplemental financial measures used by us in evaluating our business and
should be read in conjunction with all of the information in the Selected
Historical Combined Financial Data as well as the Combined Financial
Statements (including the Notes thereto) prepared in accordance with
accounting principles generally accepted in the United States of America.
EBITDA and EBIT should not be considered as an alternative to income before
income taxes or cash flow from operations or as an indication of the
Carolina Group's performance or as a measure of liquidity. In addition,
these measures may not be comparable to similarly titled measures of other
companies.

THE CAROLINA GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise noted, market share and units data contained in "The
Carolina Group Management's Discussion and Analysis of Financial Condition and
Results of Operations" is derived from Management Science Associates.

OVERVIEW

The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in combined
attributed net assets and cash flows of the Carolina Group had it been a
separate legal entity during the periods presented. The combined financial
statements of the Carolina Group and this section should be read in conjunction
with Loews's Form 10-K/A for the year ended December 31, 2000.

Loews will attribute its 100% stock ownership interest in Lorillard, Inc.
to the Carolina Group. In addition, the Carolina Group will reflect notional,
intergroup debt owed by the Carolina Group to the Loews Group in an amount to be
determined, and any and all liabilities, costs and expenses of Loews and
Lorillard, Inc. and its subsidiaries and predecessors arising out of or related
to tobacco or otherwise arising out of the past, present or future business of
Lorillard, Inc. or its subsidiaries or predecessors, or claims arising out of or
related to the sale of any businesses previously sold by Lorillard, Inc. or its
subsidiaries or predecessors, in each case, whether grounded in tort, contract,
statute or otherwise, whether pending or asserted in the future. The combined
financial statements included in Appendix D to this proxy statement reflect the
results of the proposed Carolina Group but do not include the notional,
intergroup debt which will be deemed to be incurred at the time of the public
offering of the Carolina Group stock. Loews has provided the financial
statements of the Carolina Group as an annex to this document and Management's
Discussion and Analysis of Financial Condition and Results of Operations to
provide additional disclosures to Loews shareholders to allow them to assess the
financial performance of the Carolina Group.

Lorillard is engaged in the manufacture and sale of cigarettes and is the
fourth largest cigarette manufacturer in the United States. For the year ended
December 31, 2000, Lorillard had an approximate 9.8% overall market share of the
U.S. cigarette market based on unit sales and an approximate 10.6% overall share
of the U.S. cigarette market in 1999. Lorillard's largest selling premium brands
include Newport, Kent, and True. Its discount brands include Maverick and Old
Gold. Newport accounted for approximately 80% of Lorillard's unit sales in 2000.

The existence of separate classes of our common stock could give rise to
occasions where the interests of the holders of Loews common stock and Carolina
Group stock diverge or conflict or appear to diverge or conflict. Subject to its
fiduciary duties, our board of directors could, in its sole discretion, from
time to time, make determinations or implement policies that affect
disproportionately the groups or the different classes of stock. For example,
Loews's board of directors may decide to reallocate assets, liabilities,
revenue, expenses and cash flows between groups, without the consent of
shareholders. The proposed charter amendment would not require our board of
directors to select the option that would result in the highest value for either
the holders of Loews common stock or Carolina Group stock.

As a result of the flexibility provided to Loews's board of directors, it
might be difficult for investors to assess the future prospects of the Carolina
Group based on the Carolina Group's past performance.

The combined financial statements of the Carolina Group were prepared in
accordance with accounting principles generally accepted in the United States of
America. The combined financial statements of the Carolina Group reflect the
assets, liabilities, revenue and expenses attributed to the Carolina Group, as
well as allocations deemed reasonable by Loews's management, to present the
results of operations, financial position and cash flows reflected in the
Carolina Group on a stand-alone basis. All significant intercompany accounts and
transactions within the Carolina Group have been eliminated.

PRICING AND VOLUME

In order to fund its obligations under the State Settlement Agreements,
Lorillard independently implemented a series of cigarette price increases from
1997 through April 2001. As a result, Lorillard's manufacturer's list price
increased by an average of $1.42 per pack or 105.5% from August 1997 through
April 2001. Other cigarette manufacturers took similar steps. The federal excise
tax on a pack of cigarettes sold by Lorillard has increased from $0.24 ($12.00
per thousand units) in 1997 to $0.34 ($17.00 per thousand units) in the six
months ended June 30, 2001, or 41.7%. The federal excise tax on cigarettes is
scheduled to increase by $0.05 per pack to $0.39 ($19.50 per thousand units) on
January 1, 2002. State excise taxes generally range from $0.025 to $1.11 per
pack of 20 cigarettes. All of the states levy excise taxes on cigarettes. Unlike
federal excise taxes, which are paid by Lorillard and included in its net sales,
Lorillard does not pay the excise taxes levied by the states. The state taxes
are paid by Lorillard's wholesale customers. Various states have proposed, and
certain states have recently passed, increases in their state tobacco excise
taxes. These wholesale price increases, coupled with the excise tax increases,
have resulted in lower overall cigarette demand, leading to lower unit volume
sales. The wholesale price increases have also stimulated competition among
manufacturers to discount prices at the retail level by offering coupons and
other discounts to retailers or directly to adult smokers.

Lorillard's unit sales volume decreased by 7.0% in 2000 over 1999 compared
to an industry increase of 0.2%. Lorillard's volume decline is attributable to
Philip Morris's restrictive promotional programs and Lorillard's decision not to
reduce the wholesale price of its two discount brands, Maverick and Old Gold, to
match retail pricing offered by minor manufacturers of super discount brands.
After 1999, Lorillard chose to forgo unit volume in order to maintain its
desired profit margins for these brands. As a result, Maverick and Old Gold
sales volume declined from 18.0% of units sold by Lorillard in 1999 to 12.6% in
2000. In the premium segment, Lorillard has actively employed retail price
promotions to offset the impact of rapid wholesale price increases and respond
to discounting by competitors. Lorillard cannot predict the full impact these
wholesale price increases may have on its operations.

In accordance with industry practice, promotional support in the form of
coupons and other discounts is recorded as an expense under "Selling,
advertising and administrative" rather than reducing net sales. In the first
quarter of 2002, the Carolina Group will be required to adopt the provisions of
the FASB's Emerging Issues Task Force Issues No. 00-14, "Accounting for Certain
Sales Incentives," and No. 00-25, "Vendor Income Statement Characterization of
Consideration from a Vendor to a Retailer." As a result of both issues,
promotional expenses historically included in selling, advertising and
administrative expenses will be reclassified to cost of sales, or as reductions
of net sales. Beginning with the first quarter of 2002, prior period amounts
will be reclassified for comparative purposes. For a more complete discussion of
the FASB issues described in this paragraph, see "-- Accounting Standards."

LITIGATION AND SETTLEMENTS

Numerous legal actions, proceedings and claims are pending against
Lorillard that allege damages arising out of the use of or exposure to
Lorillard's tobacco products. Additional claims are

likely to be asserted. This document describes this litigation under "Risk
Factors -- The Carolina Group" and "Description of the Carolina Group -- Legal
Proceedings" and Note 9 to the Carolina Group's combined financial statements
included in Appendix D to this proxy statement. Until 1997, settlement expenses
associated with this litigation did not have a material effect on Lorillard's
results of operations.

The State Settlement Agreements described under "Description of the
Carolina Group -- Legal Proceedings -- Settlement of State Reimbursement Cases,"
impose a stream of future payment obligations on Lorillard and the other major
U.S. cigarette manufacturers and the Master Settlement Agreement places
significant restrictions on their ability to market and sell cigarettes.
Lorillard believes that the State Settlement Agreements will have a material
negative impact on the Carolina Group's consolidated results of operations and
cash flows in future periods. The degree of the adverse impact will depend,
among other things, on the rates of decline in U.S. cigarette sales in the
premium and discount segments, Lorillard's share of the domestic premium and
discount segments, and the effect of any resulting cost advantage of
manufacturers not subject to the State Settlement Agreements. Lorillard expects
the cash payments to be made under the State Settlement Agreements in 2001 to be
approximately $1.1 billion, $572.3 million of which Lorillard paid as of June
30, 2001. In future years, Lorillard estimates that those payments will exceed
$1.0 billion per year.

Lorillard believes that, notwithstanding the defenses available in
litigation matters, it is possible that the Carolina Group's results of
operations, cash flows or financial condition could be materially adversely
affected by the ultimate outcome of various pending or future litigation
matters, as well as by litigation costs. Except for the State Settlement
Agreements described in Note 9 to the Carolina Group's combined financial
statements included in Appendix D to this proxy statement, Lorillard is unable
to predict the outcome of the litigation or to derive a meaningful estimate of
the amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.

RESULTS OF OPERATIONS

The following table sets forth specific items from the historical financial
statements of income appearing in Appendix D to this proxy statement.

SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)

Net sales (including federal excise taxes of
$311.1, $337.3, $667.9, $512.6 and $495.3)... $2,180.3 $2,098.8 $4,233.8 $3,991.3 $2,807.5
Cost of sales.................................. 1,109.8 1,122.8 2,197.7 2,069.1 979.3
Selling, advertising and administrative
expenses..................................... 715.1 433.0 918.7 900.2 712.9
Fixed non-unit based settlement costs.......... 579.0
-------- -------- -------- -------- --------
Operating income............................... 355.4 543.0 1,117.4 1,022.0 536.3
Net investment income.......................... 51.1 40.8 104.9 57.4 56.8
-------- -------- -------- -------- --------
Income before income taxes..................... 406.5 583.8 1,222.3 1,079.4 593.1
Income taxes................................... 160.7 224.4 469.5 427.6 241.6
-------- -------- -------- -------- --------
Net income..................................... $ 245.8 $ 359.4 $ 752.8 $ 651.8 $ 351.5
======== ======== ======== ======== ========

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

Net sales. Net sales increased by $81.5 million, or 3.9%, from $2,098.8
million in the six months ended June 30, 2000 to $2,180.3 million in the six
months ended June 30, 2001. The increase was due to higher average unit prices
which would have resulted in an aggregate increase of approximately $253.3
million, or 12.1%, but was partially offset by a decrease of approximately
$171.8 million, or 8.2%, reflecting lower unit sales volume. Federal excise
taxes are included in the price of cigarettes and have remained constant at
$17.00 per thousand units, or $0.34 per pack of 20 cigarettes since January 1,
2000.

Lorillard's overall unit sales volume decreased by 6.8% for the six months
ended June 30, 2001, while Newport's unit sales volume increased by 0.6%
primarily as a result of the introduction of the Newport Medium line extension
and strengthened promotional support, as compared to the corresponding period of
the prior year. The decrease in Lorillard's overall unit sales volume reflects
lower unit sales of its Maverick and Old Gold brands in the discount market
segment. This decline reflects increased competition in the discount segment and
continued limitations imposed by Philip Morris's merchandising arrangements and
general competitive conditions. See "Risk Factors -- The Carolina
Group -- Competition from other cigarette makers could adversely affect
Lorillard." Overall, industry unit sales volume decreased by 2.6% for the six
months ended June 30, 2001.

Lorillard's share of the U.S. cigarette market was 9.4% for the six months
ended June 30, 2001 as compared to 9.9% for the six months ended June 30, 2000.
Newport, a premium brand, accounted for 83.9% and 77.7% of Lorillard's unit
sales for the six months ended June 30, 2001 and 2000, respectively. Newport's
market share of the U.S. premium segment was 10.7% and 10.4% for the six months
ended June 30, 2001 and 2000, respectively.

Cost of sales. Cost of sales decreased by $13.0 million, or 1.2%, from
$1,122.8 million in the six months ended June 30, 2000 to $1,109.8 million in
the six months ended June 30, 2001. The decrease was primarily due to lower unit
sales volume, partially offset by an increase of $33.4 million in costs related
to Lorillard's obligations under the State Settlement Agreements in the six
months ended June 30, 2001.

Lorillard recorded pre-tax charges of $581.3 million and $547.9 million for
the six months ended June 30, 2001 and 2000, respectively, to accrue its
obligations under the State Settlement Agreements. 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 sales as the related sales occur.

Cost of sales also includes the full amount of federal excise taxes
reflected in net sales. Federal excise taxes for the six months ended June 30,
2001 declined by $26.2 million, as compared to the corresponding period in the
prior year, due to reduced unit sales volume.

Selling, advertising, and administrative. Selling, advertising, and
administrative expenses increased $282.1 million, or 65.2%, from $433.0 million
in the six months ended June 30, 2000 to $715.1 million in the six months ended
June 30, 2001. The increase was primarily due to a $200.0 million charge related
to the Engle agreement and an increase in promotional expenses, mostly in the
form of coupons and other discounts provided to retailers and passed through to
the consumer.

Net investment income. Net investment income increased by $10.3 million,
or 25.2%, from $40.8 million in the six months ended June 30, 2000 to $51.1
million in the six months ended June 30, 2001. The increase was primarily due to
an increased level of invested assets, as compared to the prior year.

Income taxes. Income taxes decreased by $63.7 million, or 28.4%, from
$224.4 million in the six months ended June 30, 2000 to $160.7 million in the
six months ended June 30, 2001. The change reflects the decline in income before
income taxes of $177.3 million in 2001, or 30.4%, partially offset by a higher
effective income tax rate.

Net income. Net income decreased by $113.6 million, or 31.6%, from $359.4
million in the six months ended June 30, 2000 to $245.8 million in the six
months ended June 30, 2001. The decrease was primarily due to the charge related
to the Engle agreement, higher tobacco settlement costs and expenses related to
increased promotional activities, partially offset by higher net sales and
increased net investment income.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO 1999

Net sales. Net sales increased by $242.5 million, or 6.1%, from $3,991.3
million in 1999 to $4,233.8 million in 2000. The increase was due to higher
average unit prices which would have resulted in an aggregate increase of
approximately $550.3 million, or 13.8%, including $200.1 million from the
increase in federal excise taxes, but was partially offset by a decrease of
approximately $307.8 million, or 7.7%, reflecting lower unit sales volume in
2000.

Lorillard's overall unit volume decreased by 7.0% as compared to 1999.
Newport, which accounted for approximately 80% of Lorillard's unit sales in
2000, increased by 1.5% as compared to 1999. Sales of the Newport brand were
approximately 73% of Lorillard's unit sales in 1999. Newport's increase in unit
sales volume reflects increased promotional activities to the extent practicable
in light of existing limitations due to competitive conditions. The decrease in
Lorillard's overall unit sales volume reflects lower unit sales of its Maverick
and Old Gold brands in the discount market segment. This volume decline is
primarily attributable to Lorillard's decision not to reduce the wholesale price
of its two discount brands, Maverick and Old Gold, in response to wholesale
price reductions made by Lorillard's competitors in the discount segment.
Lorillard chose to forgo unit volume in order to maintain its desired profit
margins for these brands.

Newport's share of the U.S. cigarette market increased 0.1% to 7.7% in
2000, as compared to 7.6% in 1999. Overall U.S. industry unit sales volume
increased by 0.2% in 2000, as compared to 1999.

Cost of sales. Cost of sales increased by $128.6 million, or 6.2%, from
$2,069.1 million in 1999 to $2,197.7 million in 2000. The increase was due
primarily to an increase in the rate of federal excise taxes of $200.1 million
and an increase of $10.7 million in settlement costs in 2000. These increases
were partially offset by lower unit sales volume.

Cost of sales for 2000 and 1999 included charges of $1,076.5 million and
$1,065.8 million, respectively, related to Lorillard's obligations under the
State Settlement Agreements.

Selling, advertising, and administrative. Selling, advertising, and
administrative expenses increased $18.5 million, or 2.1%, from $900.2 million in
1999 to $918.7 million in 2000. The increase was primarily due to increases in
product litigation expenses and higher trade sales promotion expenses, partially
offset by a reduction in consumer promotion expenses.

Net investment income. Net investment income increased by $47.5 million,
or 82.8%, from $57.4 million in 1999 to $104.9 million in 2000. The increase was
primarily due to an increased level of invested assets and higher interest
rates, as well as $14.9 million of interest expense in 1999 related to income
tax settlements for 1991 through 1994.

Income taxes. Income taxes increased by $41.9 million, or 9.8%, from
$427.6 million in 1999 to $469.5 million in 2000. The change reflects the
increase in income before income taxes of $142.9

million in 2000, or 13.2%, partially offset by a lower effective income tax rate
related to lower state taxes.

Net income. Net income increased by $101.0 million, or 15.5%, from $651.8
million in 1999 to $752.8 million in 2000. The increase was primarily due to
increased net investment income and higher net sales, partially offset by lower
unit sales volume and increased product litigation expenses.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998

Net sales. Net sales increased by $1,183.8 million, or 42.2%, from
$2,807.5 million in 1998 to $3,991.3 million in 1999. This increase is comprised
of an increase of approximately $1,045.9 million, or 37.3%, due to higher unit
prices and approximately $137.9 million, or 4.9%, due to an increase in unit
sales volume. Federal excise taxes are included in the price of cigarettes and
remained constant at $12.00 per thousand units, or $0.24 per pack of 20
cigarettes from January 1, 1998 through December 31, 1999.

Lorillard's overall unit sales volume increased by 3.6% as compared to
1998. Newport, which accounted for approximately 73% and 77% of Lorillard's unit
sales in 1999 and 1998, respectively, decreased by 1.8% as compared to 1998.
Newport's decline in unit sales volume reflects the effects of various price
increases that followed the Master Settlement Agreement in November 1998. While
Newport's unit sales volume declined, its share of the U.S. cigarette market
increased to 7.6% at December 31, 1999, as compared to 7.1% at December 31,
1998. Overall U.S. industry unit sales volume was down by 9.0% in 1999, as
compared to 1998. The increase in Lorillard's overall unit sales volume reflects
higher unit sales of its Maverick and Old Gold brands in the discount market
segment, resulting from increased sales promotion activities, for these brands.

Cost of sales. Cost of sales increased by $1,089.8 million, or 111.3% from
$979.3 million in 1998 to $2,069.1 million in 1999. The increase was primarily
due to $1,065.8 million in tobacco litigation settlement costs recorded in 1999,
reflecting the first full year of unit-based costs incurred under the Master
Settlement Agreement.

Cost of sales also includes an increase of $17.3 million related to
increased federal excise taxes from the higher unit sales volume.

Selling, advertising, and administrative. Selling, advertising, and
administrative expenses increased $187.3 million, or 26.3%, from $712.9 million
in 1998 to $900.2 million in 1999. The increase was primarily due to an increase
in consumer promotional expenses. The increase was also due to the
implementation in 1999 of Lorillard's Youth Smoking Prevention Program. These
increases were partially offset by decreases in advertising expenses due to
restrictions placed on outdoor advertising by the Master Settlement Agreement
and lower product litigation expenses.

Fixed non-unit based settlement costs. Fixed non-unit based settlement
costs, amounting to $579.0 million in 1998, reflect the impact of the fixed and
determinable portions of Lorillard's obligations under the State Settlement
Agreements.

Net investment income. Net investment income increased by $0.6 million, or
1.1%, from $56.8 million in 1998 to $57.4 million in 1999. The increase was
primarily due to higher average invested assets and higher interest rates,
partially offset by $14.9 million of interest expense in 1999 related to income
tax settlements for 1991 through 1994.

Income taxes. Income taxes increased by $186.0 million, or 77.0%, from
$241.6 million in 1998 to $427.6 million in 1999. The change reflects the
increase in income before income taxes of $486.3 million, or 82.0%, in 1999,
partially offset by a lower effective income tax rate.

Net income. Net income increased by $300.3 million, or 85.4%, from $351.5
million in 1998 to $651.8 million in 1999. The increase was primarily due to
wholesale price increases implemented in order to fund Lorillard's obligations
under the State Settlement Agreements. The increased income from the higher
wholesale prices was partially offset by significantly higher tobacco litigation
settlement costs and increased promotional activities.

LIQUIDITY

Approximately 4,340 tobacco-related cases are pending against Lorillard,
and it is likely that similar claims will continue to be filed in the
foreseeable future. These actions include product liability cases, class action
cases, reimbursement cases brought by governmental and private entities seeking
recovery of health care costs allegedly incurred as a result of smoking, claims
for contribution and/or indemnity in relation to asbestos claims filed by
asbestos manufacturers or their insurers and claims seeking damages resulting
from alleged exposure to asbestos fibers which were incorporated into filter
material used in one brand of cigarettes manufactured by Lorillard for a limited
period of time.

On July 14, 2000, the jury in the Engle case awarded $16.25 billion in
punitive damages against Lorillard. Lorillard recorded a $200.0 million pre-tax
charge to earnings in the 2001 second quarter in connection with the Engle
agreement, in which the Engle class agreed not to pursue any collection of, or
execution on, the judgment until completion of all appeals, including to the
U.S. Supreme Court. However, if Lorillard, Inc.'s balance sheet net worth (as
determined in accordance with generally accepted accounting principles in effect
as of July 14, 2000) falls below $921.2 million, the stay pursuant to the
agreement would terminate and the class would be free to challenge the separate
stay granted in favor of Lorillard pursuant to recent Florida legislation. The
Engle agreement was not a settlement of any part of the Engle action, and
Lorillard continues to believe that it will be successful in overturning the
judgment on appeal. For a discussion of the Engle case and the Engle agreement,
see "Description of the Carolina Group -- Legal Proceedings -- Class Action
Cases -- The Engle Case."

The terms of the State Settlement Agreements require significant payments
to be made to the Settling States which began in 1998 and continue in
perpetuity. For a discussion of Lorillard's payment obligations under the State
Settlement Agreements, see "Description of the Carolina Group -- Payment
Obligations under the State Settlement Agreements." See also "Description of the
Carolina Group -- Legal Proceedings" and Note 9 of the Notes to the Combined
Financial Statements included in Appendix D to this proxy statement for
additional information regarding these settlements and other litigation matters.

The principal source of liquidity for Lorillard's business and operating
needs is internally generated funds from its operations. Lorillard generated net
cash flow from operations of approximately $448.0 million for the six months
ended June 30, 2001, compared to $396.9 million for the six months ended June
30, 2000. The increased cash flow in 2001 reflects timing differences related to
cash payments for estimated taxes partially offset by the lower net income. Net
cash flow from operations was approximately $550.4 million for the year ended
December 31, 2000, compared to $1,024.9 million for the year ended December 31,
1999. Cash flow from operations in 1999 reflects the impact of the wholesale
price increases, beginning in 1998, which were implemented to fund the State
Settlement Agreements. The initial volume based payment under these agreements
was not due until 2000. As a result, cash flow from operations was significantly
higher in 1999 than in 2000.

Lorillard's cash flow from operations has exceeded its working capital and
capital expenditure requirements. Lorillard has paid dividends to Loews of
$300.0 million, $300.0 million and $450.0 million for the years ended December
31, 2000, 1999 and 1998, respectively. During the second quarter of 2001,
Lorillard paid dividends to Loews of $250.0 million. For accounting purposes,
dividends paid by Lorillard are treated as paid by the Carolina Group to Loews.
Lorillard believes that cash flows from operating activities will be sufficient
for the foreseeable future to enable it to

meet its obligations under the State Settlement Agreements and to fund its
capital expenditure requirements. Lorillard cannot predict its 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. See "Risk Factors -- The Carolina Group."

ACCOUNTING STANDARDS

In June of 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." This Statement
addressed a limited number of issues caused by implementation difficulties for
entities applying SFAS No. 133. SFAS No. 133, as amended and interpreted,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts. SFAS No.
133 requires that an entity recognize all derivative instruments as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Carolina Group adopted SFAS No. 133, as amended, on January 1, 2001.
The adoption of SFAS No. 133 did not have a material impact on the financial
position or results of operations of the Carolina Group.

In the first quarter of 2002, the Carolina Group will be required to adopt
the provisions of the FASB's Emerging Issues Task Force Issues No. 00-14,
"Accounting for Certain Sales Incentives," and 00-25, "Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer." Issue No. 00-14
addresses the recognition, measurement, and income statement characterization of
sales incentives, including rebates, coupons and free products or services,
offered voluntarily by a vendor without charge to the customer that can be used
in, or that are exercisable by a customer as a result of, a single exchange
transaction. Implementation of the recognition and measurement criteria will not
have a material impact on the Carolina Group's results of operations or combined
attributed net assets. Issue No. 00-25 addresses whether consideration from a
vendor to a reseller of the vendor's products is (a) an adjustment of the
selling prices of the vendor's products and, therefore, should be deducted from
revenue when recognized in the vendor's income statement or (b) a cost incurred
by the vendor for assets or services received from the reseller and, therefore,
should be included as a cost or an expense when recognized in the vendor's
income statement. As a result of both issues, promotional expenses historically
included in selling, advertising and administrative expenses will be
reclassified to cost of sales, or as reductions of net sales. Prior period
amounts will be reclassified for comparative purposes. Adoption of these
provisions will not affect the Carolina Group's net income or combined
attributed net assets.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires companies to use the purchase method of accounting for business
combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests method of accounting. The Carolina Group will adopt this
standard for any future business combinations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill and intangible assets
with indefinite lives from an amortization method to an impairment-only
approach. Amortization of goodwill and intangible assets with indefinite lives
will cease upon adoption of SFAS No. 142 on January 1, 2002. The adoption of
SFAS No. 142 will not have a material impact on the financial position or
results of operations of the Carolina Group.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 applies to the accounting and reporting
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. Adoption of this
Statement is required for fiscal years beginning after June 15, 2002. The
Carolina Group is in the process of reviewing the impact this new standard may
have on its operations and financial position.

RELATIONSHIP BETWEEN THE LOEWS GROUP
AND THE CAROLINA GROUP

THE CAROLINA GROUP POLICY STATEMENT

In connection with the creation and issuance of Carolina Group stock, Loews
will, effective upon issuance of Carolina Group stock, adopt the Carolina Group
policy statement, which Loews intends to follow. We have included the full text
of the Carolina Group policy statement as Appendix B to this proxy statement and
the following description is qualified in its entirety by reference to the terms
of the Carolina Group policy statement. While it has no present intention to do
so, our board of directors may amend the Carolina Group policy statement at any
time without shareholder consent.

GENERAL POLICY

Our board of directors has determined that all material matters in which
holders of Loews common stock and Carolina Group stock may have divergent
interests will be generally resolved in a manner that is in the best interests
of Loews and its common shareholders of all classes after giving consideration
to the potentially divergent interests and all other relevant interests of the
holders of the separate classes of Loews common shares. Under the Carolina Group
policy statement, the relationship between the Loews Group and the Carolina
Group and the means by which the terms of any material transaction between them
will be determined will be governed by a process of fair dealing. In making
determinations in connection with the policies set forth in the Carolina Group
policy statement, the members of our board of directors will act in a fiduciary
capacity and in accordance with legal guidance concerning their obligations
under applicable law.

RELATIONSHIP BETWEEN THE LOEWS GROUP AND THE CAROLINA GROUP

Following creation of the Carolina Group, we expect that Lorillard, Inc.
will continue to be managed by its independent board of directors and Loews's
other subsidiaries will continue to be managed by their respective boards of
directors.

We expect that there will be limited financial arrangements between the
Loews Group and the Carolina Group, including, for example, with respect to
debt, taxes and fees for services provided from one group to the other. Given
the dissimilar nature of the businesses underlying each group, we do not expect
the intergroup interactions to be numerous or substantial.

The Carolina Group policy statement provides that, except as otherwise
provided in the policy statement, all material commercial transactions between
the Loews Group and the Carolina Group will be on commercially reasonable terms
taken as a whole and will be subject to the review by, and approval of, the
board of directors of Loews.

Each group will have access to the support services of the other group. For
shared corporate services that arise as a result of being part of a combined
entity, including securities filing and financial reporting services, costs
relating to these services will be:

- allocated, at cost, directly to the group utilizing those services, and

- if not directly allocable to a group, allocated, at cost, between the
groups on a fair and reasonable basis as our board of directors
determines.

For other support services, the Carolina Group policy statement provides
that each group will seek to minimize the aggregate costs incurred by the two
groups combined, although each group also will be entitled to negotiate and
procure support services on their own either from the other group or from third
parties.

The Carolina Group policy statement provides that the Carolina Group will
not acquire an intergroup interest in the Loews Group.

CORPORATE OPPORTUNITIES

The Carolina Group policy statement provides that our board of directors
will allocate any business opportunities and operations, any acquired assets and
businesses and any assumed liabilities between the two groups, in whole or in
part, as it considers to be in the best interests of Loews and its shareholders
as a whole and as contemplated by the other provisions of the policy statement.
If a business opportunity or operation, an acquired asset or business, or an
assumed liability would be suitable to be undertaken by or allocated to either
group, the Loews board of directors will allocate it using its business judgment
or in accordance with procedures that the Loews board of directors adopts from
time to time to ensure that decisions will be made in the best interests of
Loews and its shareholders as a whole. Any allocation of this type may involve
the consideration of a number of factors that the Loews board of directors
determines to be relevant.

Except under the policy statement and any other policies adopted by our
board of directors, neither the Carolina Group nor the Loews Group will have any
duty, responsibility or obligation to provide financial support to the other
group, except as described under "-- Relationship with Loews -- Financing
Arrangements," or otherwise to assist the other group.

DIVIDEND POLICY

General. While we cannot assure you that we will do so, we currently
intend to continue paying a quarterly dividend of $0.15 per share on Loews
common stock and to pay a quarterly dividend on Carolina Group stock following
its issuance. The Carolina Group policy statement provides that, subject to the
limitation on dividends set forth in our charter, as amended by the proposed
charter amendment, including any preferential rights of any series of preferred
stock of Loews that may hereafter be issued, and to the limitations of
applicable law, holders of shares of Loews common stock or Carolina Group stock
will be entitled to receive dividends on that stock when, as and if, our board
of directors authorizes and declares dividends on that stock. The payment of
dividends on Loews common stock and Carolina Group stock will be a business
decision that our board of directors makes from time to time based upon the
results of operations, financial conditions and capital requirements of Loews
and other factors that our board of directors considers relevant.

Payment of dividends on Loews common stock and Carolina Group stock may be
restricted by loan agreements, indentures and other transactions that Loews
enters into from time to time. In addition, Loews's ability to pay dividends on
Loews common stock and Carolina Group stock may be limited by Loews's holding
company structure. Because it has no operations of its own, Loews's ability to
pay dividends is dependent on the cash flows of, and cash distributions from,
its subsidiaries. The subsidiaries are separate and independent legal entities
and have no obligation, contingent or otherwise, to make funds available to
Loews, whether in the form of loans, dividends or otherwise.

Available Dividend Amount. The proposed charter amendment provides that
dividends on Carolina Group stock are limited to an available dividend amount
equal to the lesser of:

- the assets of Loews legally available for dividends; and

- the amount that would legally be available for dividends on Carolina
Group stock if the Carolina Group were a separate Delaware corporation.

Dividends on Loews common stock are limited to the amount of legally available
funds for all of Loews less the sum of the available dividend amount for
Carolina Group stock. Under Delaware law, a corporation may pay dividends either
(1) out of its surplus, or (2) in the absence of a surplus, out

of the corporation's net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.

The available dividend amount for the Carolina Group would be determined by
the consolidated financial statements of Lorillard, Inc. and its subsidiaries
combined with any additional assets and liabilities allocated to the Carolina
Group. Initially, the only assets and liabilities allocated to the Carolina
Group will be Loews's 100% ownership interest in Lorillard, Inc., the
intergroup, notional debt in an amount and with terms to be determined in
connection with the expected offering of Carolina Group stock and any and all
liabilities, costs and expenses of Loews and Lorillard, Inc. and its
subsidiaries and predecessors arising out of or related to tobacco or otherwise
arising out of the past, present or future business of Lorillard, Inc. or its
subsidiaries or predecessors, or claims arising out of or related to the sale of
any businesses previously sold by Lorillard, Inc. or its subsidiaries or
predecessors, in each case, whether grounded in tort, contract, statute or
otherwise, whether pending or asserted in the future. Subject to the limitations
described in this section, the board of directors of Loews currently intends to
pay a dividend on the Carolina Group stock based on the initial offering price
of such stock and the dividend yield of certain comparable companies.

Dependence on Lorillard Dividends. For so long as the only asset
attributed to the Carolina Group is the stock of Lorillard, Inc., the principal
source of cash to pay dividends on Carolina Group stock, including in respect of
the Loews Group's intergroup interest, would be dividends paid by Lorillard,
Inc. to Loews. Although the Loews Group could, in effect, make loans to the
Carolina Group in order to fund dividend payments, Loews has no current
intention of causing the Loews Group to do so. Accordingly, the ability and
willingness of Loews to pay dividends in respect of Carolina Group stock,
including in respect of the Loews Group's intergroup interest, will depend
primarily upon the payment of dividends by Lorillard, Inc. to Loews.

The Carolina Group policy statement currently provides that all dividends
paid by Lorillard, Inc. to Loews will be allocated to the Carolina Group.
Lorillard, Inc.'s principal source of cash is dividends from its wholly owned
subsidiary, Lorillard Tobacco Company. The payment of dividends by each of
Lorillard, Inc. and Lorillard Tobacco Company is a business decision of that
company's board of directors, subject to the limitation on dividends under
applicable law and under any loan agreements, indentures or other transactions
that each company enters into from time to time.

Loews understands that in making their respective business decisions
regarding payment of dividends, the boards of directors of Lorillard, Inc. and
Lorillard Tobacco Company plan to take into account the results of operations,
financial condition and capital requirements of such entity and such other
factors that the respective board of directors considers relevant, including
cash needs in respect of payment obligations under the State Settlement
Agreements, cash needs for the cost of defending tobacco litigation, and cash
needs for payment of judgments in or settlements of tobacco litigation.

None of the individuals currently serving as a director of Lorillard, Inc.
or Lorillard Tobacco Company is an officer, director or employee of Loews.
Accordingly, each of these individuals may be considered to be independent of
Loews, although as sole shareholder of Lorillard, Inc. Loews has the right to
elect and remove directors of Lorillard, Inc. Should any person serving as a
director of Lorillard, Inc. be removed, resign or not seek reelection, Loews
expects to nominate individuals who are not officers, directors or employees of
Loews to fill such vacancies. Loews has no present intention to remove any
person currently serving as a director of Lorillard, Inc.

On July 14, 2000, the jury in the Engle case awarded $16.25 billion in
punitive damages against Lorillard. Under the Engle agreement, in which the
Engle class agreed not to pursue any collection of, or execution on, the
judgment until completion of all appeals, including to the U.S. Supreme Court,
Lorillard is required to maintain a balance sheet net worth (as determined in
accordance with generally accepted accounting principles in effect as of July
14, 2000) of at least $921.2 million. Because dividends from Lorillard, Inc. to
Loews are deducted from the balance sheet net worth of

Lorillard, Inc., this agreement may affect the payment of dividends by
Lorillard, Inc. to Loews. See "Description of the Carolina Group -- Legal
Proceedings -- Class Action Cases -- The Engle Case," included elsewhere in this
proxy statement, for a more detailed discussion of the Engle agreement and the
Engle case.

If and when Lorillard, Inc. pays dividends to Loews, we intend to apply all
of the cash from such distributions in the following order of priority until the
notional, intergroup debt is repaid:

- first, to satisfy any intergroup obligations, other than with respect to
the notional, intergroup debt, from the Carolina Group to the Loews
Group;

- second, to satisfy accrued interest on the Carolina Group's notional,
intergroup debt;

- third, to pay any regularly-declared quarterly dividends on Carolina
Group stock and to make proportional distributions to the Loews Group in
respect of its intergroup interest in the Carolina Group; and

- fourth, to reduce the principal of the Carolina Group's notional,
intergroup debt.

ALLOCATION OF CERTAIN LIABILITIES AND EXPENSES

Carolina Group will be allocated any and all liabilities, costs and
expenses of Loews and Lorillard, Inc. and its subsidiaries and predecessors
arising out of or related to tobacco or otherwise arising out of the past,
present or future business of Lorillard, Inc. or its subsidiaries or
predecessors, or claims arising out of or related to the sale of any businesses
previously sold by Lorillard, Inc. or its subsidiaries or predecessors, in each
case, whether grounded in tort, contract, statute or otherwise, whether pending
or asserted in the future.

AMENDMENT AND MODIFICATION TO THE CAROLINA GROUP POLICY STATEMENT

Our board of directors may modify, suspend or rescind the policies set
forth in the Carolina Group policy statement, including any resolution
implementing the provisions of the policy statement. Our board of directors may
also adopt additional or other policies or make exceptions with respect to the
application of the policies described in the Carolina Group policy statement in
connection with particular facts and circumstances, all as our board of
directors may determine, consistent with its fiduciary duties to Loews and all
of our shareholders.

RELATIONSHIP WITH LOEWS

REALLOCATION OF ASSETS

We may reallocate assets between the Loews Group and the Carolina Group in
exchange for an increase or decrease in the retained intergroup interest held by
the Loews Group in the Carolina Group. Any reallocations of assets between the
groups that do not result in such an adjustment, other

than reallocations made under a contract for the provision of goods or services
between the groups, will be accompanied by:

- the reallocation by the transferee group to the transferor group of other
assets or consideration,

- the creation of intergroup debt owed by the transferee group to the
transferor group, or

- the reduction of intergroup debt owed by the transferor group to the
transferee group,

in each case, in an amount having a fair market value, in the judgment of our
board of directors, equivalent to the fair market value of the assets
reallocated by the transferor group.

FINANCING ARRANGEMENTS

The Carolina Group will be deemed to owe notional, intergroup debt to the
Loews Group in an amount and with terms to be determined in connection with the
anticipated offering of Carolina Group stock.

ACCOUNTING MATTERS

Following issuance of any shares of Carolina Group stock, Loews intends to
prepare financial statements in accordance with accounting principles generally
accepted in the United States of America for the Carolina Group, as well as
consolidated and consolidating financial statements of Loews. Notwithstanding
any allocation of assets or liabilities for dividend purposes or the purpose of
preparing group financial statements, holders of Loews common stock and holders
of Carolina Group stock will continue to be subject to the risks associated with
an investment in a single corporation and all of Loews's assets and liabilities.

TAXES

Loews and Lorillard, Inc. are currently parties to a tax sharing agreement,
which will remain in effect after the issuance of Carolina Group stock. The
agreement provides that Lorillard Inc. will make payments to Loews, and Loews
will make payments to Lorillard, Inc., in respect of the federal tax liability
Lorillard, Inc. would have if it were not a member of the Loews affiliated
group. Any payments made pursuant to the tax sharing agreement between Loews and
Lorillard, Inc. will be credited to the Loews Group or the Carolina Group, as
the case may be, for purposes of determining the allocation of responsibility
for taxes between the Loews Group and the Carolina Group as described below.

According to the Carolina Group policy statement, the Carolina Group will
generally be responsible for the consolidated tax liability, computed on a
stand-alone basis, of a hypothetical affiliated group consisting of the Carolina
Group, which we refer to as the "hypothetical Carolina affiliated group." Such
consolidated tax liability will take into account losses, deductions and other
tax attributes, such as capital losses or charitable deductions, but only to the
extent that such tax attributes could be utilized by the hypothetical Carolina
affiliated group on a stand-alone basis.

With respect to each taxable period ending after the date that Carolina
Group stock initially is issued, allocation of responsibility for taxes will be
made between the Carolina Group and the Loews Group as follows:

- if the hypothetical Carolina affiliated group has consolidated federal
taxable income, or consolidated, combined or unitary taxable income for
state, local or foreign tax purposes, for the taxable period, then the
Carolina Group will credit the Loews Group an amount equal to the tax
that would have been payable by the hypothetical Carolina affiliated
group had it filed a consolidated federal, or consolidated, combined or
unitary state, local or foreign, tax return

on a stand-alone basis for such taxable period and all prior taxable
periods including periods before the formation of the Carolina Group, and

- if the hypothetical Carolina affiliated group has a consolidated net
operating loss, net capital loss, excess tax credit or other tax
attribute for federal income tax purposes, or a consolidated, combined or
unitary net operating loss, net capital loss, excess tax credit or other
tax attribute for state, local or foreign tax purposes, for the taxable
period, then the Loews Group will credit the Carolina Group an amount
equal to the refund to which the hypothetical Carolina affiliated group
would have been entitled had it filed a consolidated federal, or
consolidated, combined or unitary state, local or foreign, tax return on
a stand-alone basis for such taxable period and all prior taxable periods
including periods before the formation of the Carolina Group.

It is possible that the Internal Revenue Service may assert that Carolina
Group stock is not stock of Loews, in which case the members of the Loews Group
and the Carolina Group may not be members of the same federal income tax
affiliated group filing consolidated returns. Loews believes that it is unlikely
that the IRS would prevail on that view, but, as discussed under "The Charter
Amendment Proposal -- Material Federal Income Tax Consequences," we can give no
assurance in that regard. The Carolina Group would be responsible for any
corporate-level taxes resulting from the treatment of Carolina Group stock as
not stock of Loews, and any corporate-level taxes on the actual or deemed
disposition of the Carolina Group caused by the issuance of Carolina Group
stock. See "Risk Factors -- The Proposed Charter Amendment -- If Carolina Group
stock is not treated as a class of common stock of Loews, several adverse
federal income tax consequences will result."

With respect to taxable periods ending on or prior to the date on which
Carolina Group stock is initially issued, the Carolina Group will generally be
responsible for the taxes attributable to the businesses and entities reflected
in the Carolina Group. The responsibility of the Carolina Group for consolidated
income taxes attributable to it will generally be considered to have been
settled for taxable periods ending on or prior to the date on which Carolina
Group stock is initially issued, except that:

- the Carolina Group will be required to credit the Loews Group with
respect to the taxable period ending on December 31, 2000 in the event
that the taxable income or loss used to calculate the consolidated income
tax asset or liability accruals for taxes currently payable set forth on
the financial statements of the Carolina Group differs from the Carolina
Group taxable income or loss reflected in the 2000 income tax return of
the consolidated group, and

- consolidated income taxes resulting from audit adjustments or other tax
contests from any prior year will be determined on a stand-alone basis.
For example, the Carolina Group will be required to credit the Loews
Group in the event that a loss or deduction attributable to the Carolina
Group for such a period is disallowed.

SERVICES AGREEMENTS

Lorillard has entered into individual services agreements with Loews
pursuant to which certain administrative, technical and ministerial services may
be provided by Loews. These services may include assistance in:

- cash management and the investment of financial assets;

- the preparation and filing of tax returns;

- internal auditing and accounting, including investment accounting and
financial reporting; and

- other miscellaneous services as the parties may, from time to time,
agree.

The services agreement between Loews and Lorillard further provides that
Lorillard may provide main frame data processing services and related technical
support and information resources management services and consultation to Loews.

Costs and expenses for all services rendered under these services
agreements are charged to the receiving party and reimbursed to the providing
party at cost. Each services agreement may be terminated by either party upon
six months' notice to the other and, in the case of the services agreement
between Loews and Lorillard Licensing Company LLC, a subsidiary of Lorillard
Tobacco Company, upon ten days' notice to the other.

Lorillard has paid Loews an aggregate of approximately $100,000 and
$100,000 in the six months ended June 30, 2001 and 2000, respectively, and
$200,000, $100,000 and $3.5 million in 2000, 1999 and 1998, respectively, for
services performed by Loews. Loews has paid Lorillard an aggregate of
approximately $400,000 and $1.1 million in the six months ended June 30, 2001
and 2000, respectively, and $2.6 million, $2.9 million and $3.0 million in 2000,
1999 and 1998, respectively, for services performed by Lorillard.

EMPLOYEE BENEFIT PLANS

Certain tax-qualified employee benefit plans sponsored by Lorillard Tobacco
Company, Loews and certain of Loews's other subsidiaries have deposited their
financial assets into a single custody account maintained by The Chase Manhattan
Bank as custodian. The management of the assets in this custody account is
directed by the trustees of each plan. Loews's investment department provides
the trustees with investment management services in connection with these
assets.

THE STOCK OPTION PLAN PROPOSAL

GENERAL

We currently issue stock-based awards to our employees and non-employee
directors under the Loews Corporation 2000 Stock Option Plan. Loews's
shareholders approved this plan in 2000. As of , 2001 this plan
authorized a total of approximately 2,000,000 shares of Loews common stock for
stock-based awards consisting of stock options, including incentive stock
options, or ISOs, under the Internal Revenue Code.

In anticipation of the issuance of Carolina Group stock, our board of
directors will approve the adoption of the Carolina Group 2002 Stock Option
Plan, subject to the approval of shareholders of Loews. The Carolina Group 2002
Stock Option Plan will be substantially similar to the Loews Corporation 2000
Stock Option Plan, except that instead of providing for awards based on Loews
common stock the Carolina Group 2002 Stock Option Plan provides for awards based
on Carolina Group stock.

Approval of the Carolina Group 2002 Stock Option Plan requires the
affirmative vote of shares representing a majority of the votes cast by the
holders of shares present and entitled to vote. OUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE CAROLINA GROUP 2002 STOCK OPTION
PLAN. Any shares not voted, whether by abstention, broker non-vote or otherwise,
will have no effect on the approval of the stock option plan proposal.

Our board of directors will not implement the Carolina Group 2002 Stock
Option Plan unless our shareholders approve the charter amendment proposal
described in this proxy statement and Loews issues shares of Carolina Group
Stock.

The 2000 Loews Corporation Stock Option Plan, under which stock-based
awards with respect to Loews common stock are outstanding, is administered by
the Incentive Compensation Committee of our board of directors, referred to
throughout this section as the Incentive Compensation Committee. If approved,
the Carolina Group 2002 Stock Option Plan is expected to be administered in the
same manner.

DESCRIPTION OF THE CAROLINA GROUP 2002 STOCK OPTION PLAN

ELIGIBILITY AND TYPES OF GRANTS

Those persons who are responsible for or contribute to the management,
growth or profitability of Lorillard and any future company attributed to the
Carolina Group may receive grants under the Carolina Group 2002 Stock Option
Plan. Optionees will be selected from time to time by the Incentive Compensation
Committee from a pool of all officers, employees, non-employee directors and
consultants of Lorillard and any future company attributed to the Carolina
Group, an estimated people as of , 2001. The Carolina Group
2002 Stock Option Plan provides for the grant of both incentive stock options or
ISOs, within the meaning of Section 422 of the Internal Revenue Code, and
nonqualified stock options or NQOs, which do not meet the requirements of
Section 422 of the Internal Revenue Code or are not intended to be ISOs.

SHARES SUBJECT TO THE CAROLINA GROUP 2002 STOCK OPTION PLAN

The aggregate number of shares of Carolina Group stock for which options
may be granted under the Carolina Group 2002 Stock Option Plan is ;
and the maximum number of shares of Carolina Group stock with respect to which
options may be granted to any individual in any calendar year is .
These shares of Carolina Group stock may consist either in whole or in part of
authorized but unissued shares of Carolina Group stock or shares of Carolina
Group stock

held in the treasury of Loews. Shares of Carolina Group stock subject to an
option which has expired or been canceled or terminated will become available
for the granting of additional options under the Carolina Group 2002 Stock
Option Plan.

ADMINISTRATION

The Carolina Group 2002 Stock Option Plan will be administered by the
Incentive Compensation Committee. Subject to the terms of the Carolina Group
2002 Stock Option Plan, the Incentive Compensation Committee has broad authority
to administer and interpret the Carolina Group 2002 Stock Option Plan, including
the authority to determine who will receive a grant and to determine the
specific provisions of that grant. The Incentive Compensation Committee also has
the authority to accelerate the exercisability of an outstanding option and
extend the option term of an outstanding option. The Incentive Compensation
Committee will determine who will receive a grant of options to purchase
Carolina Group Stock and will make other decisions regarding administration of
the Carolina Group 2002 Stock Option Plan based on the recommendation of the
board of directors of Lorillard, Inc.

EXERCISE

The exercise price for the purchase of shares of Carolina Group stock under
each option will be determined by the Incentive Compensation Committee;
provided, however, that the exercise price per share may not be less than 100%
of the fair market value of the Carolina Group stock on the date of grant. The
full exercise price of these shares will be paid at the time of exercise and
allocated to the Carolina Group. The Incentive Compensation Committee may permit
an optionee to elect to pay the exercise price of an option by irrevocably
authorizing a third party to sell the shares of Carolina Group stock (or a
sufficient portion of the shares) acquired upon exercise of the option and remit
to Loews for the account of the Carolina Group a sufficient portion of the sale
proceeds to pay the entire exercise price and any applicable tax withholding. In
addition, the Incentive Compensation Committee may permit full or partial
payment to be made by the transfer of unrestricted shares of Carolina Group
stock that have been owned by the optionee for at least six months based on the
fair market value of those shares on the date of exercise.

VESTING

Unless otherwise provided by the Incentive Compensation Committee at the
time of grant or thereafter, each option granted under the Carolina Group 2002
Stock Option Plan will vest and become exercisable in four equal annual
installments, commencing on the first anniversary of the date of grant of the
option, and will thereafter remain exercisable for the duration of the option's
term.

TERM

Unless otherwise provided by the Incentive Compensation Committee at the
time of grant or thereafter, the term of each option granted under the Carolina
Group 2002 Stock Option Plan will end on the earliest to occur of (i) the date
the optionee's employment, directorship or consultancy with Lorillard, or any
future company attributed to the Carolina Group, is terminated for cause or
voluntarily by the optionee, (ii) the first anniversary of the optionee's death
or disability, (iii) the third anniversary of the optionee's retirement (if the
optionee is an employee), or (iv) the ninetieth day after the optionee's
employment, directorship or consultancy terminates for any other reason. In no
event may the term of any option granted under the Carolina Group 2002 Stock
Option Plan exceed ten years from the option's date of grant. Unless otherwise
provided by the Incentive Compensation Committee, any outstanding option that is
unvested following a termination of employment, directorship or consultancy
shall be forfeited immediately.

TRANSFERABILITY

Options granted under the Carolina Group 2002 Stock Option Plan are not
transferable, except by will or the laws of descent and distribution or, in the
case of an NQO, to the optionee's immediate family, if expressly permitted by
the Incentive Compensation Committee.

ADJUSTMENTS

In the event of any change affecting the shares of the Carolina Group
stock, including any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, split-up, spin-off, redemption,
combination or exchange of shares, the Incentive Compensation Committee may make
adjustments to preserve the benefits or potential benefits of the Carolina Group
2002 Stock Option Plan and outstanding Carolina Group stock options. These
adjustments may include adjustments to (i) the number and kind of shares
deliverable under the Carolina Group 2002 Stock Option Plan, (ii) the number and
kind of shares that may be covered by options granted to any individual
optionee, (iii) the number and kind of shares covered by outstanding options,
(iv) the exercise price of outstanding options, (v) settlement of outstanding
options in cash or Carolina Group stock, and (vi) other adjustments that the
Incentive Compensation Committee determines to be equitable.

AMENDMENTS AND TERMINATION

The Carolina Group 2002 Stock Option Plan will be unlimited in duration.
The board of directors may, at any time, amend or terminate the Carolina Group
Stock Option Plan, provided that no such amendment or termination may adversely
affect the rights of any optionee under any option granted under the Carolina
Group 2002 Stock Option Plan prior to the date of such amendment or termination
without the prior written consent of that optionee. The Carolina Group 2002
Stock Option Plan may not be amended without shareholder approval to the extent
such approval is required by law or the rules of any exchange on which the
Carolina Group stock is traded.

REGISTRATION OF THE CAROLINA GROUP STOCK ISSUED UNDER THE CAROLINA GROUP 2002
STOCK OPTION PLAN

We intend that the shares of Carolina Group stock covered by the
Carolina Group 2002 Stock Option Plan will be registered under the Securities
Act. This registration, if completed, would in most cases permit the
unrestricted resale in the public market of shares issued pursuant to the
Carolina Group 2002 Stock Option Plan.

NEW PLAN BENEFITS

Because grants under the Carolina Group 2002 Stock Option Plan are
discretionary and based on the financial performance of the Carolina Group, it
is not possible to determine or to estimate the benefits or amounts that will be
received in the future by individual employees, consultants or groups of
employees or consultants under the Carolina Group 2002 Stock Option Plan.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of the principal federal income tax
consequences of transactions under the Carolina Group 2002 Stock Option Plan
based on current federal income tax laws. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
tax consequences.

Nonqualified Stock Options. In general, (i) an optionee will not be
subject to tax at the time an NQO is granted, and (ii) an optionee will include
in ordinary income in the taxable year in which

he or she exercises an NQO an amount equal to the difference between the
exercise price and the fair market value of the Carolina Group stock on the date
of exercise. Upon disposition of the Carolina Group stock acquired upon
exercise, appreciation or depreciation after the date ordinary income is
recognized will be treated as capital gain (or loss). Loews generally will be
entitled to a deduction for the account of the Carolina Group in an amount equal
to a recipient's ordinary income in Loews's taxable year in which the optionee
includes that amount in income. The exercise of NQOs is subject to withholding
of all applicable taxes.

Incentive Stock Options. No taxable income will be realized by an option
holder upon the grant or exercise of an ISO. If shares of Carolina Group stock
are issued to an optionee pursuant to the exercise of an ISO granted under the
Carolina Group 2002 Stock Option Plan and if no disposition of those shares is
made by that optionee within two years after the date of grant of the ISO or
within one year after the receipt of those shares by that optionee, then (i)
upon a sale of those shares, any amount realized in excess of the exercise price
of the ISO will be taxed to that optionee as a long-term capital gain and any
loss sustained will be a long-term capital loss, and (ii) no deduction will be
allowed to Loews. However, if shares acquired upon the exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
generally (i) the optionee will realize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of the shares at exercise (or, if less, the amount realized on the disposition
of the shares) over the exercise price thereof, and (ii) Loews will be entitled
to deduct that amount. Any additional gain or loss recognized by the option
holder will be taxed as a short-term or long-term capital gain or loss, as the
case may be, and will not result in any deduction by Loews. If an ISO is
exercised at a time when it no longer qualifies as an incentive stock option
under the Internal Revenue Code, it will be treated as an NQO.

RECOMMENDATION OF OUR BOARD OF DIRECTORS

OUR BOARD OF DIRECTORS HAS APPROVED THE STOCK OPTION PLAN PROPOSAL AND
RECOMMENDS THAT YOU VOTE FOR THE STOCK OPTION PLAN PROPOSAL.

100

STOCK OWNERSHIP OF MANAGEMENT AND DIRECTORS

The following table sets forth certain information as to the shares of
Loews common stock beneficially owned by each director and nominee, each of
Loews's six highest compensated executive officers, and by all executive
officers and directors of Loews as a group, at October 1, 2001, based on data
furnished by them.

AMOUNT
NAME BENEFICIALLY OWNED(1) PERCENT OF CLASS
---- --------------------- ----------------

John Brademas........................................ 2,620(2) *
Dennis H. Chookaszian................................ 9,200(3) *
Paul J. Fribourg..................................... 13,200(4) *
Bernard Myerson...................................... 64,200(5) *
Edward J. Noha....................................... 3,400(6) *
Michael F. Price..................................... 51,200(7) *
Arthur L. Rebell..................................... 4,750(8) *
Gloria R. Scott...................................... 400(9) *
Andrew H. Tisch...................................... 2,509,000(10) 1.3%
James S. Tisch....................................... 2,665,000(11) 1.4%
Jonathan M. Tisch.................................... 105,000(12) *
Laurence A. Tisch.................................... 19,679,996(13) 10.3%
Preston R. Tisch..................................... 31,899,296(14) 16.7%
Fred Wilpon.......................................... 1,200(15) *
All executive officers and directors as a group (24
persons including those listed above).............. 57,030,937(16) 29.8%

-------------------------
* Represents less than 1% of the outstanding shares of Loews common stock.

(1) Except as otherwise indicated the persons listed as beneficial owners of
the shares have sole voting and investment power with respect to those
shares.

(2) Includes 400 shares of Loews common stock issuable upon the exercise of
options granted under the Loews Corporation 2000 Stock Option Plan (the
"Stock Option Plan") that are currently exercisable. In addition, Mr.
Brademas owns 234 shares of the common stock of CNA Financial Corporation,
an 89% owned subsidiary of Loews ("CNA").

(3) Includes 1,200 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
In addition, Mr. Chookaszian owns 404,031 shares of CNA common stock.

(4) Includes 12,000 shares owned by an affiliate of ContiGroup Companies, Inc.
("ContiGroup"). Mr. Fribourg is an executive officer of ContiGroup. Mr.
Fribourg disclaims beneficial interest in the ContiGroup shares. Also
includes 1,200 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.

(5) Includes 1,200 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
In addition, Mr. Myerson's wife owns 5,000 shares of Loews common stock as
to which he disclaims any beneficial interest.

101

(6) Includes 400 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
In addition, Mr. Noha owns beneficially 1,350 shares of CNA common stock.

(7) Includes 1,200 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
Mr. Price owns beneficially 20,400 shares of the common stock of Bulova
Corporation ("Bulova"), a 97% owned subsidiary of Loews.

(8) Includes 3,750 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
In addition, Mr. Rebell owns beneficially 6,000 shares of CNA common stock,
including 2,300 shares with respect to which he has shared voting and
investment power, and 2,000 shares of common stock of Diamond Offshore
Drilling, Inc., a 53% owned subsidiary of Loews ("Diamond Offshore"),
including 1,500 shares issuable upon the exercise of options that are
currently exercisable.

(9) Includes 400 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.

(10) Includes 5,000 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
Also includes 2,500,000 shares of Loews common stock and 6,100 shares of
CNA common stock held by a trust of which Mr. A.H. Tisch is the managing
trustee and beneficiary. In addition, 40,000 shares of Loews common stock
are held by a charitable foundation as to which Mr. A.H. Tisch has shared
voting and investment power.

(11) Includes 5,000 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
Also includes 2,500,000 shares of Loews common stock and 6,100 shares of
CNA common stock held by a trust of which Mr. J.S. Tisch is the managing
trustee and beneficiary. In addition, 100,000 shares of Loews common stock
are held by a charitable foundation as to which Mr. J.S. Tisch has shared
voting and investment power. In addition, Mr. J.S. Tisch owns 5,000 shares
of Diamond Offshore common stock.

(12) Includes 5,000 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.
In addition, 110,000 shares of Loews common stock are held by a charitable
foundation as to which Mr. J.M. Tisch has shared voting and investment
power.

(13) Includes 5,062,000 shares of Loews common stock held of record by Mr. L.A.
Tisch as trustee of trusts for the benefit of his wife, as to which he has
sole voting and investment power. Does not include 10,385,760 shares of
Loews common stock held by the sons of Mr. L.A. Tisch as reported on the
principal shareholders table, below.

(14) Includes 7,611,300 shares of Loews common stock held of record by Mr. P.R.
Tisch as trustee of trusts for the benefit of his wife, as to which he has
sole voting and investment power.

(15) Includes 1,200 shares of Loews common stock issuable upon the exercise of
options granted under the Stock Option Plan that are currently exercisable.

(16) Includes 42,025 shares of Loews common stock issuable upon the exercise of
options that are currently exercisable.

102

OWNERSHIP OF VOTING SECURITIES IN EXCESS OF FIVE PERCENT
BY BENEFICIAL OWNERS

The following table contains certain information as to all persons who, to
the knowledge of Loews, were the beneficial owners of 5% or more of the
outstanding shares of Loews common stock. Except as otherwise noted, this
information is as of September 30, 2001, and each person has sole voting and
investment power with respect to the shares set forth.

AMOUNT PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------

Laurence A. Tisch(1)........................................ 30,065,756(2) 15.7%
667 Madison Avenue
New York, N.Y. 10021-8087
Preston R. Tisch(1)......................................... 31,899,296(3) 16.7%
667 Madison Avenue
New York, N.Y. 10021-8087

-------------------------

(1) Laurence A. Tisch and Preston R. Tisch are each Co-Chairman of the Board of
Loews, and are brothers. James S. Tisch, President and Chief Executive
Officer and a director of Loews, and Andrew H. Tisch, Chairman of the
Executive Committee and a director of Loews, are sons of Mr. L.A. Tisch.
Jonathan M. Tisch, Chairman and Chief Executive Officer of Loews Hotels and
a director of Loews, is the son of Mr. P.R. Tisch. Each of Messrs. J.S.
Tisch, A.H. Tisch and J.M. Tisch are members of Loews's Office of the
President.

(2) Includes 5,062,000 shares of Loews common stock held of record by Mr. L.A.
Tisch as trustee of trusts for the benefit of his wife, as to which he has
sole voting and investment power. Also includes an aggregate of 10,385,760
shares of Loews common stock beneficially owned by Andrew H. Tisch, Daniel
R. Tisch, James S. Tisch and Thomas J. Tisch, each of whom is a son of Mr.
L.A. Tisch. Such shares were reported in a Schedule 13D filed with the
Securities and Exchange Commission by Mr. L.A. Tisch and his sons which
stated that the filing persons were filing jointly solely for information
purposes because of their family relationships. However, they did not affirm
that they constituted a "group" for any purpose, and each such person
expressly disclaimed beneficial ownership of any shares beneficially owned
by any other such person.

(3) Includes 7,611,300 shares of Loews common stock held of record by Mr. P.R.
Tisch as trustee of trusts for the benefit of his wife, as to which he has
sole voting and investment power.

SHAREHOLDER PROPOSALS

Shareholder proposals for Loews's Annual Meeting to be held in 2002 must
have been received by Loews at its principal executive offices not later than
November 27, 2001 in order to be included in Loews's proxy materials. Proxies
solicited by Loews for the 2002 Annual Meeting may confer discretionary
authority to vote on any proposals submitted after February 10, 2002 without a
description of them in the proxy materials for that meeting. Shareholder
proposals should be addressed to Loews Corporation, 667 Madison Avenue, New
York, New York 10021-8087, Attention: Corporate Secretary.

103

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference rooms at 450 Fifth Street,
N.W., Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. Our SEC filings are
also available to the public from commercial documents retrieval services and at
the Internet world wide web site maintained by the SEC at www.sec.gov.

The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this proxy statement except
for any information superseded by information contained directly in this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that we have previously filed with the SEC. These documents contain
important information about us and our financial condition.

LOEWS SEC FILINGS PERIOD
----------------- ------

Annual Report on Form 10-K/A Year ended December 31, 2000 (as amended
on March 16, 2001)
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001 and June 30,
2001
Current Reports on Form 8-K Filed on January 9, 2001, May 8, 2001, May
23, 2001 and September 17, 2001

We are also incorporating by reference into this proxy statement additional
documents that may be filed with the SEC from the date of this proxy statement
to the date of the special meeting. These include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements. If you are a shareholder, we may have
sent you some of the documents incorporated by reference, but you can obtain any
of them through us, the SEC or the SEC's Internet world wide web site as
described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference such exhibits in this proxy statement. Shareholders may obtain
documents incorporated by reference in this proxy statement by requesting them
in writing or by telephone at the following address and phone number:

Loews Corporation
667 Madison Avenue
New York, New York 10021-8087
Telephone: (212) 521-2000
Attention: Corporate Secretary

If you would like to request documents from us, please do so by ,
2001 to receive them before the special meeting.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MATTERS BEING CONSIDERED AT THE
SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY
STATEMENT IS DATED , 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE
ANY IMPLICATION TO THE CONTRARY.

104

APPENDIX A

FORM OF
CERTIFICATE OF AMENDMENT OF THE
RESTATED CERTIFICATE OF INCORPORATION OF LOEWS CORPORATION
UNDER SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW

Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Loews Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:

FIRST: The Board of Directors of the Corporation unanimously
adopted resolutions proposing and declaring advisable an
amendment to the Restated Certificate of Incorporation to
establish a new class of common stock, Carolina Group stock,
having the number, designation, relative rights,
preferences, and limitations as set forth herein.

SECOND: To effect the foregoing, Article FOURTH of the Restated
Certificate of Incorporation of the Corporation is hereby
amended as set forth in Exhibit A hereto.

THIRD: At a meeting of stockholders of the Corporation duly held on
, 2001, a majority of the outstanding stock of the
Corporation entitled to vote voted to approve the foregoing
amendment in accordance with the provisions of the Restated
Certificate of Incorporation of the Corporation and the
General Corporation Law of the State of Delaware.

FOURTH: Said amendment was duly adopted in accordance with Section
242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, Loews Corporation has caused this certificate to be
signed by Barry Hirsch, its Senior Vice President, General Counsel and
Secretary, this day of , 2001.

LOEWS CORPORATION

By:
--------------------------------------
Name: Barry Hirsch
Title: Senior Vice President,
General Counsel and Secretary

A-1

EXHIBIT A

ARTICLE FOURTH

ARTICLE FOURTH IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:

FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,300,000,000 shares, consisting of
100,000,000 shares of Preferred Stock, par value $.10 per share ("Preferred
Stock") and 1,200,000,000 common shares, of which 600,000,000 shall be Loews
common stock having a par value of $1.00 per share ("Loews common stock") and
600,000,000 shall be Carolina Group stock having a par value of $0.01 per share
("Carolina Group stock").

PART A: PREFERRED STOCK

The Board of Directors is hereby authorized to issue the Preferred Stock,
from time to time, in one or more series, on such terms and conditions as it may
deem advisable and to fix by resolution the designation of each series and the
powers, preferences, and relative, participating, optional or other special
rights of the shares of each series, and the qualifications, limitations or
restrictions thereof, to the full extent now or hereafter permitted by law. The
authority of the Board of Directors with respect to each such series shall
include, but not be limited to, determination of the following:

(a) the designation and number of shares comprising such series;

(b) the dividends, if any, which shall be payable on the shares of such
series and any preferences and other terms and conditions applicable
thereto;

(c) any rights and preferences of the holders of the shares of such series
upon the liquidation, dissolution, or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation;

(d) the full, limited or special voting rights, if any, of the shares of
such series, in addition to voting rights provided by law, and the
terms and conditions applicable thereto;

(e) any provision with respect to the conversion of the shares of such
series into, or the exchange of such shares for, shares of any other
class or classes, or of any other series of any class, of the capital
stock of the Corporation and/or any other property or cash, and the
terms and conditions applicable to any such conversion or exchange;

(f) any provision with respect to the redemption, purchase, or retirement
of such shares and the terms and conditions applicable thereto;

(g) any provision with respect to the issuance of additional shares of such
series or of any other class or series on a parity with or superior to
the shares of such series; and

(h) any other relative, participating, optional or special powers,
preferences, or rights of, and any other qualifications, limitations,
or restrictions with respect to, the shares of such series as the Board
of Directors may deem advisable.

A-2

PART B: LOEWS COMMON STOCK AND CAROLINA GROUP STOCK

1. Voting Rights.

(a) Subject to paragraph 1(c) of this Part B of this Article Fourth,
holders of Loews common stock shall be entitled to one vote for each share of
such stock held and holders of Carolina Group stock shall be entitled to 1/10 of
a vote for each share of such stock held on all matters presented to such
shareholders.

(b) Except as may otherwise be required by the laws of the State of
Delaware or, with respect to additional or special voting rights (which may
include, without limitation, rights of any holders of any class or series to
elect one or more directors voting separately as a class) of any class or series
of Preferred Stock or any other class of common shares, in this Certificate of
Incorporation, as the same may be amended from time to time, the holders of
shares of Loews common stock, the holders of shares of Carolina Group stock, the
holders of shares of each other class of common shares, if any, entitled to vote
thereon, and the holders of shares of each class or series of Preferred Stock,
if any, entitled to vote thereon, shall vote as one class with respect to all
matters to be voted on by shareholders of the Corporation, and no separate vote
or consent of the holders of shares of Loews common stock, the holders of shares
of Carolina Group stock or the holders of shares of any such class of common
shares or any such class or series of Preferred Stock shall be required for the
approval of any such matter.

(c) If the Corporation shall in any manner subdivide (by stock split or
otherwise) or combine (by reverse stock split or otherwise) the outstanding
shares of Loews common stock or Carolina Group stock, or pay a stock dividend in
shares of any class to holders of that class, the per share voting rights of
Carolina Group stock specified in paragraph 1(a) of Part B of this Article
Fourth shall be appropriately adjusted so as to avoid any dilution in the
aggregate voting rights of any one class relative to the other class.

2. Dividends.

(a) DIVIDENDS ON LOEWS COMMON STOCK. Dividends on Loews common stock may
be declared and paid only to the extent of (i) the assets of the Corporation
legally available therefor minus (ii) the Carolina Group Available Dividend
Amount (such amount available for the payment of dividends on Loews common stock
is referred to in this Part B of this Article Fourth as the "Loews Group
Available Dividend Amount").

(b) DIVIDENDS ON CAROLINA GROUP STOCK. Dividends on Carolina Group stock
may be declared and paid only out of the lesser of (i) the assets of the
Corporation legally available therefor, and (ii) the Carolina Group Available
Dividend Amount. Concurrently with the payment of any dividend on shares of
Carolina Group stock, at the election of the Board of Directors, either (x) the
Loews Group shall receive from the Carolina Group an aggregate payment of the
same kind of cash and/or property that is the subject of such dividend, which
payment shall be equal to the excess, if any, of (i) the quotient obtained by
dividing (A) the aggregate amount of such dividend, as determined by the Board
of Directors, by (B) the Carolina Group Allocation Fraction, over (ii) the
aggregate amount of such dividend, as so determined, or (y) the Carolina Group
Allocation Fraction will be adjusted as described in paragraph 8 of this Part B
of this Article Fourth. The payment to be made to the Loews Group pursuant to
the preceding sentence may, at the discretion of the Board of Directors, be
reflected by an allocation or by a direct transfer of cash or other property.

(c) DISCRIMINATION BETWEEN OR AMONG CLASSES OF COMMON SHARES. The Board of
Directors, subject to the provisions of paragraphs 2(a) and 2(b) of this Part B
of this Article Fourth, shall have the sole authority and discretion to declare
and pay dividends (or to refrain from declaring or paying the same) exclusively
to the holders of Loews common stock, exclusively to the holders of Carolina

A-3

Group stock, exclusively to the holders of any other class of common shares or
to the holders of any two or more of such classes in equal or unequal amounts,
notwithstanding the relationship between the Loews Group Available Dividend
Amount and the Carolina Group Available Dividend Amount, the respective amounts
of prior dividends declared on, or the liquidation rights of, Loews common stock
or Carolina Group stock, or any other factor.

3. Share Distributions.

Subject to the provisions of paragraph 4 of Part B of this Article Fourth,
the Corporation may declare and pay a distribution consisting of shares of Loews
common stock, Carolina Group stock or any other securities of the Corporation or
any other Person (hereinafter sometimes called a "share distribution") to
holders of Loews common stock or Carolina Group stock only in accordance with
this paragraph 3 of this Part B of this Article Fourth.

(a) DISTRIBUTIONS ON LOEWS COMMON STOCK OR CAROLINA GROUP STOCK. The
Corporation may declare and pay a share distribution to holders of Loews common
stock, Carolina Group stock or any other class of common shares consisting of
any securities of the Corporation, any Subsidiary of the Corporation, or any
other Person, including, without limitation, a share distribution consisting of
shares of any class or series of Preferred Stock or shares of Loews common
stock, Carolina Group stock or any other class of common shares (or Convertible
Securities convertible into or exercisable or exchangeable for shares of any
class or series of Preferred Stock or shares of Loews common stock, Carolina
Group stock or any other class of common shares). However, securities of a group
may be distributed to holders of another group only for consideration.

Concurrently with the making of any share distribution with respect to
Carolina Group stock, at the election of the Board of Directors, either (x) the
Loews Group shall receive from the Carolina Group an aggregate payment of the
same kind of property that is the subject of such distribution, which payment
shall be equal to the excess, if any, of (i) the quotient obtained by dividing
(A) the aggregate amount of such distribution, as determined by the Board of
Directors, by (B) the Carolina Group Allocation Fraction, over (ii) the
aggregate amount of such distribution, as so determined, or (y) the Carolina
Group Allocation Fraction shall be adjusted as described in paragraph 8 of this
Part B of this Article Fourth. Any payment to be made to the Loews Group
pursuant to the preceding sentence may, at the discretion of the Board of
Directors, be reflected by an allocation or by a direct transfer of cash or
other property.

(b) DISCRIMINATION BETWEEN OR AMONG CLASSES OF COMMON SHARES. The Board of
Directors, subject to the foregoing provisions of this paragraph 3 of this Part
B of this Article Fourth, shall have the sole authority and discretion to
declare and pay (or to refrain from declaring or paying) share distributions
exclusively to holders of Loews common stock, exclusively to holders of Carolina
Group stock, exclusively to the holders of any other class of common shares or
to holders of any two or more of such classes in equal or unequal amounts,
notwithstanding the relationship between the Loews Group Available Dividend
Amount, the Carolina Group Available Dividend Amount, the respective amounts of
prior share distributions declared on, or the liquidation rights of, Loews
common stock or Carolina Group stock, or any other factor.

4. Exchange of Carolina Group stock.

(a) EXCHANGE AT OPTION OF BOARD OF DIRECTORS FOLLOWING THE OCCURRENCE OF
TAX EVENTS. At any time following the occurrence of a Tax Event, the Board of
Directors, in its sole discretion, may effect a recapitalization of the
Corporation (a "Board Required Exchange") by declaring that all of the
outstanding shares of Carolina Group stock shall be exchanged for (i) fully paid
and nonassessable shares of Loews common stock in accordance with the Tax Event
Equity Exchange Rate or (ii) cash, in accordance with the Tax Event Cash
Exchange Rate.

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(b) EXCHANGE AT OPTION OF BOARD OF DIRECTORS FOLLOWING THE SECOND
ANNIVERSARY OF THE INITIAL ISSUANCE DATE. Following the second anniversary of
the date of initial issuance of any shares of Carolina Group stock (the "Initial
Issuance Date") until the occurrence of a Significant Transaction, the Board of
Directors, in its sole discretion, may effect a Board Required Exchange by
declaring that all of the outstanding shares of Carolina Group stock shall be
exchanged for (i) fully paid and nonassessable shares of Loews common stock in
accordance with the Regular Equity Exchange Rate or (ii) cash, in accordance
with the Regular Cash Exchange Rate.

(c) EXCHANGE FOR STOCK OF QUALIFYING SUBSIDIARIES AT OPTION OF BOARD OF
DIRECTORS. At any time following the Initial Issuance Date, so long as all of
the assets and liabilities included in the Carolina Group are held, directly or
indirectly, by one or more Qualifying Subsidiaries of the Corporation that hold
no other material assets or liabilities (the "Carolina Group Subsidiaries"), the
Board of Directors may, subject to the availability of assets of the Corporation
legally available therefor, effect a Board Required Exchange by exchanging, on a
pro rata basis, all of the outstanding shares of Carolina Group stock in
exchange for an aggregate number of outstanding fully paid and nonassessable
shares of common stock of such Carolina Group Subsidiary or Subsidiaries as set
forth in Section 4(h) of this Part B of this Article Fourth, provided that no
such exchange may occur unless the exchange is tax free to the holders of
Carolina Group stock (except with respect to any cash received by such holders
in lieu of fractional shares).

(d) EXCHANGE, REDEMPTION AND/OR DIVIDEND IN CONNECTION WITH CERTAIN
SIGNIFICANT TRANSACTIONS. In the event of a Disposition other than a Carolina
Group Related Business Transaction in a transaction or series of related
transactions of all or substantially all of the assets (as defined below) of the
Carolina Group to any Person(s) or group(s) of which the Corporation is not a
majority owner (whether by merger, consolidation, sale of assets or stock,
liquidation, dissolution, winding up or otherwise) (a "Significant
Transaction"), effective upon the consummation of such Disposition, the
Corporation may take one of the actions set forth in clauses (i) through (iii)
below on or prior to the 90th day following the consummation of the Significant
Transaction; provided, however, that if the Corporation has received any Net
Proceeds from the Disposition, and the Corporation has determined not to retain
all such amounts as Loews Tobacco Contingency Reserves, the Corporation must
effect one of the actions set forth in clauses (i) through (iii) below on or
prior to the 90th calendar day following the consummation of the Significant
Transaction, which action will be selected in the sole discretion of the Board
of Directors:

(i) exchange all outstanding shares of Carolina Group stock, at the
sole discretion of the Board of Directors, for fully paid and nonassessable
shares of Loews common stock at the Regular Equity Exchange Rate;

(ii) (x) subject to the limitations described in paragraph 2(b) of
this Part B of this Article Fourth and to the other provisions described in
this paragraph 4(d) of this Part B of this Article Fourth, declare and pay
a dividend in cash and/or in securities (other than Loews common stock) or
other property (determined as provided below) to holders of the outstanding
shares of Carolina Group stock equally on a share-for-share basis in an
aggregate amount equal to the Carolina Group Aggregate Distributable Amount
of such Significant Transaction; or (y) provided that there are assets of
the Corporation legally available therefor and to the extent the Carolina
Group Available Dividend Amount would have been sufficient to pay a
dividend in lieu thereof as described in clause (x) of this paragraph 4(d)
of this Part B of this Article Fourth, then (A) if such Significant
Transaction involves the Disposition of all (not merely substantially all)
of the assets of the Carolina Group and the Corporation elects to effect a
redemption using an aggregate amount of consideration equal to the
aggregate amount of the Carolina Group Net Proceeds, redeem all outstanding
shares of Carolina Group stock in exchange for cash and/or securities
(other than Loews common stock) or other property (determined as provided
below) in an aggregate amount equal to the Carolina Group Net

A-5

Proceeds; or (B) if such Significant Transaction involves the Disposition
of all or substantially all of the assets of the Carolina Group (and with
respect to the sale of all of such assets, the Corporation elects to effect
a redemption using an aggregate amount of consideration less than the
aggregate amount of the Carolina Group Net Proceeds because it has not
received 100% of the Net Proceeds or has established Loews Tobacco
Contingency Reserves), apply an aggregate amount of cash and/or securities
(other than Loews common stock) or other property (determined as provided
below) equal to the Carolina Group Aggregate Distributable Amount to the
redemption of outstanding shares of Carolina Group stock, the number of
shares to be redeemed to equal the lesser of (1) the whole number nearest
the number determined by dividing the aggregate amount so allocated to the
redemption of Carolina Group stock by the average Market Value of one share
of Carolina Group stock during the 20-Trading Day period beginning on the
5th Trading Day immediately preceding the date of a public announcement
that a definitive agreement has been signed for such Disposition, and (2)
the number of shares of Carolina Group stock outstanding; or

(iii) subject to the limitations described in paragraph 2(b) of this
Part B of this Article Fourth and to the other provisions described in this
paragraph 4(d) of this Part B of this Article Fourth, combine the issuance
of shares of Loews common stock in exchange for shares of Carolina Group
stock with the payment of a dividend on or the redemption of shares of
Carolina Group stock for cash and/or other securities (other than Loews
common stock) or other property as described below.

In the event that the Board of Directors elects the option described in
clause (iii) of the preceding paragraph, the outstanding shares of Carolina
Group stock exchanged for fully paid and nonassessable shares of Loews common
stock shall be exchanged at the Regular Equity Exchange Rate and a dividend
shall be paid on all the remaining shares of Carolina Group stock equally on a
share for share basis, or some or all of the remaining outstanding shares of
Carolina Group stock shall be exchanged for cash and/or other securities (other
than Loews common stock) or other property, as follows: the aggregate amount of
such dividend, in the case of a dividend, or the portion of the Carolina Group
Aggregate Distributable Amount to be applied to such an exchange, in the case of
an exchange, shall equal (A) an amount equal to the total Carolina Group
Aggregate Distributable Amount multiplied by (B) one minus a fraction, the
numerator of which shall be the number of shares of Carolina Group stock
exchanged for shares of Loews common stock and the denominator of which shall be
the total number of outstanding shares of Carolina Group stock. In the event of
an exchange, if the Significant Transaction involves the Disposition of all (not
merely substantially all) of the assets of the Carolina Group and the
Corporation elects to effect a redemption using an aggregate amount of
consideration equal to the aggregate amount of the Carolina Group Net Proceeds,
then all remaining outstanding shares of Carolina Group stock will be redeemed
in exchange for cash and/or securities (other than Loews common stock) or other
property in an aggregate amount equal to the portion of the Carolina Group
Aggregate Distributable Amount to be applied to the exchange. If the Significant
Transaction involves the Disposition of all or substantially all of the assets
of the Carolina Group (and with respect to the sale of all of such assets, the
Corporation elects to effect a redemption using an aggregate amount of
consideration less than the aggregate amount of the Carolina Group Net Proceeds
because it has not received 100% of the Net Proceeds or has established Loews
Tobacco Contingency Reserves), then the portion of the Carolina Group Aggregate
Distributable Amount to be applied to the exchange will be used to redeem a
number of shares equal to the lesser of (1) the whole number nearest the number
determined by dividing the aggregate amount so allocated to the redemption of
Carolina Group stock by the average Market Value of one share of Carolina Group
stock during the 20-Trading Day period beginning on the 5th Trading Day
immediately preceding the date of a public announcement that a definitive
agreement has been signed for such Disposition, and (2) the number of shares of
Carolina Group stock outstanding.

A-6

Notwithstanding the foregoing, the Corporation shall be under no obligation
to effect any of the actions described in clauses (i) through (iii) above that
it might otherwise be required to effect (x) if the underlying Significant
Transaction is conditioned upon the affirmative vote of a majority of the
holders of Carolina Group stock, voting as a separate class, (y) in connection
with a spin-off or similar disposition of the Corporation's entire interest in
the Carolina Group to the holders of Carolina Group stock, including any such
disposition that is made in connection with a Board Required Exchange, or (z) in
connection with the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.

(e) INCREMENTAL DIVIDEND/FINAL REDEMPTION IN CONNECTION WITH CERTAIN
SIGNIFICANT TRANSACTIONS. In the event of a Significant Transaction, if, on the
91st day following consummation of the Significant Transaction, the Corporation
has not redeemed all of the outstanding shares of Carolina Group stock and
either (x) Lorillard, Inc. has not distributed to the Corporation 100% of the
Net Proceeds, or (y) the Corporation has received from Lorillard, Inc. some or
all of the Net Proceeds but has determined to retain some or all of such Net
Proceeds as Loews Tobacco Contingency Reserves (the "Trigger Event"), the
following principles will govern: each time, following the Triggering Event,
that the Corporation receives any distributions from Lorillard, Inc. (each such
distribution, a "Lorillard Dividend"), the Corporation shall be required to pay
a dividend in cash and/or in securities (other than Loews common stock) or other
property to holders of the outstanding shares of Carolina Group stock equally on
a share-for-share basis in an aggregate amount equal to the Carolina Group
Incremental Dividend (less any increase in Carolina Group Tobacco Contingency
Reserves made in connection with any new Lorillard Dividend). If, and when, the
Corporation determines that it can release some or all of the Loews Tobacco
Contingency Reserves (such released amounts, "Released Reserves"), the
Corporation is required promptly to pay a dividend in cash and/or in securities
(other than Loews common stock) or other property to holders of the outstanding
shares of Carolina Group stock equally on a share-for-share basis in an
aggregate amount equal to the Carolina Group Released Reserves. In no event will
the Corporation be required to make dividend payments pursuant to this paragraph
4(e) of this Part B of this Article Fourth more frequently than once per fiscal
quarter. Any unpaid amounts in any fiscal quarter will be accumulated for
payment in the next fiscal quarter.

(f) CONSUMMATION; CONVERTIBLE SECURITIES. For purposes of this paragraph 4
of this Part B of this Article Fourth, in the case of a Significant Transaction
involving a Disposition of assets in a series of related transactions, such
Disposition shall not be deemed to have been consummated until the consummation
of the last of such transactions. Any exchange described in this paragraph 4 of
this Part B of this Article Fourth shall be effected in accordance with the
applicable provisions set forth in paragraph 5 of this Part B of this Article
Fourth. In the event that, at the time of any Significant Transaction, there are
outstanding any Convertible Securities convertible into or exercisable for
shares of Carolina Group stock that would give the holders rights to receive any
dividend or exchange consideration related to the Significant Transaction upon
exercise, conversion or otherwise, or would adjust as a result of such dividend
or exchange to give the holder equivalent economic rights, then the shares of
Carolina Group stock underlying such Convertible Securities will be taken into
account for purposes of determining the terms of any dividend payment or
exchange effected in lieu of a Significant Transaction Exchange.

(g) PAYMENT TO LOEWS GROUP. Concurrently with the payment of any dividend
referred to in paragraph 4(d) or 4(e) of this Part B of this Article Fourth, at
the election of the Board of Directors, either (A) the Loews Group shall receive
from the Carolina Group an aggregate payment of the same kind of property that
is the subject of such dividend, which payment shall be equal to the excess of
(i) the quotient obtained by dividing (x) the aggregate amount of such dividend,
as determined by the Board of Directors, by (y) the Carolina Group Allocation
Fraction, over (ii) the aggregate amount of such dividend, as so determined, or
(B) the Carolina Group Allocation Fraction will be adjusted as described in
paragraph 8 of this Part B of this Article Fourth. Any payment to be

A-7

made to the Loews Group pursuant to the preceding sentence may, at the
discretion of the Board of Directors, be reflected by an allocation or by a
direct transfer of cash or other property.

(h) EXCHANGE RATES. For purposes of this paragraph 4 of this Part B of this
Article Fourth:

The term "Tax Event Equity Exchange Rate" shall mean the number of Exchange
Shares for which each share of Carolina Group stock shall be exchangeable
pursuant to a Board Required Exchange, determined as follows: Each share of
Carolina Group stock shall be exchangeable for such number of shares of Loews
common stock (calculated to the nearest 1/10,000), subject to paragraph 5 below,
equal to 100% of the ratio of the Average Market Price Per Share of such
Carolina Group stock to the Average Market Price Per Share of Loews common
stock. For purposes of computing the Tax Event Equity Exchange Rate, the
"Average Market Price Per Share" of Loews common stock or Carolina Group stock,
as the case may be, shall mean the average of the daily Market Value per share
for such Loews common stock or Carolina Group stock for the 20 consecutive
Trading Days ending on the 5th Trading Day prior to the date an Exchange Notice
is mailed.

The term "Tax Event Cash Exchange Rate" shall mean such amount of cash for
which each share of Carolina Group stock shall be exchangeable pursuant to a
Board Required Exchange, determined as follows: Each share of Carolina Group
stock shall be exchangeable for such amount of cash (calculated to the nearest
$.01), subject to paragraph 5 below, equal to 105% of the Average Market Price
Per Share of such Carolina Group stock. For purposes of computing the Tax Event
Cash Exchange Rate, the "Average Market Price Per Share" of Carolina Group
stock, as the case may be, shall mean the average of the daily Market Value per
share for such Carolina Group stock for the 20 consecutive Trading Days ending
on the 5th Trading Day prior to the date an Exchange Notice is mailed.

The term "Regular Equity Exchange Rate" shall mean the number of Exchange
Shares for which each share of Carolina Group stock shall be exchangeable
pursuant to a Board Required Exchange or a Significant Transaction Exchange,
determined as follows: If the shares of Carolina Group stock are to be exchanged
for shares of Loews common stock, each share of Carolina Group stock shall be
exchangeable for such number of shares of Loews common stock (calculated to the
nearest 1/10,000), subject to paragraph 5 below, equal to 115% of the ratio of
the Average Market Price Per Share of such Carolina Group stock to the Average
Market Price Per Share of Loews common stock. For purposes of computing the
Regular Equity Exchange Rate, the "Average Market Price Per Share" of Loews
common stock or Carolina Group stock, as the case may be, shall mean (i) in the
case of a Board Required Exchange, the average of the daily Market Value per
share for such Loews common stock or Carolina Group stock for the 20 consecutive
Trading Days ending on the 5th Trading Day prior to the date an Exchange Notice
is mailed, or (ii) in the case of a Significant Transaction Exchange, the
average of the daily Market Value per share for such Loews common stock or
Carolina Group stock for the 20 consecutive Trading Days beginning on the 5th
Trading Day immediately preceding the date of a public announcement that a
definitive agreement has been signed for such Disposition.

The term "Regular Cash Exchange Rate" shall mean such amount of cash for
which each share of Carolina Group stock shall be exchangeable pursuant to a
Board Required Exchange, determined as follows: If the shares of Carolina Group
stock are to be exchanged for cash, each share of Carolina Group stock shall be
exchangeable for such amount of cash (calculated to the nearest $.01), subject
to paragraph 5 below, equal to 120% of the Average Market Price Per Share of
such Carolina Group stock. For purposes of computing the Regular Cash Exchange
Rate, the "Average Market Price Per Share" of Carolina Group stock, as the case
may be, shall mean the average of the daily Market Value per share for such
Carolina Group stock for the 20 consecutive Trading Days ending on the 5th
Trading Day prior to the date an Exchange Notice is mailed.

A-8

If the shares of Carolina Group stock are to be exchanged for shares of one
or more Carolina Group Subsidiaries, such shares of Carolina Group stock shall
be exchanged, on a pro rata basis, for an aggregate number of outstanding fully
paid and nonassessable shares of common stock of each such Carolina Group
Subsidiary equal to the number of outstanding shares of common stock of such
Subsidiary held by the Corporation multiplied by the Carolina Group Allocation
Fraction and, if the Board of Directors so determines, the remaining shares of
such Subsidiary shall be distributed on a pro rata basis to the holders of
shares of Loews common stock (or shares of Loews common stock shall be exchanged
for such remaining shares of such Subsidiary); provided that no such
distribution (or mandatory exchange) may occur unless the distribution (or
mandatory exchange) is tax free to the holders of Loews common stock (except
with respect to any cash received by such holders in lieu of fractional shares).
If at the time of such an exchange for shares of one or more Carolina Group
Subsidiaries, there are outstanding any Convertible Securities convertible into
or exercisable for shares of Carolina Group stock that would become exercisable
or convertible for shares of one or more Carolina Group Subsidiaries as a result
of such exchange, and the obligation to issue such shares under such options,
warrants, convertible securities or similar rights is not assumed or otherwise
provided for by one or more Carolina Group Subsidiaries, then the shares of
Carolina Group stock underlying such Convertible Securities will be taken into
account for purposes of determining the Carolina Group Allocation Fraction for
such exchange.

The phrase "substantially all of the assets" of the Carolina Group as of
any date shall mean a portion of such assets that represents at least 80% of the
Fair Value of the assets attributed to the Carolina Group as of such date.

The term "Exchange Shares" shall mean the shares of Loews common stock or
shares of one or more Carolina Group Subsidiaries, as the case may be, into
which shares of Carolina Group stock may be exchanged pursuant to a Board
Required Exchange.

5. Certain Procedures Relating to Exchanges.

(a) The Board of Directors may, in its sole discretion, elect to issue
fractional Exchange Shares in connection with an exchange or to make a cash
payment in lieu of fractional shares, as described below. If the Board of
Directors elects not to issue fractional Exchange Shares, then no such
fractional shares shall be issued in connection with the exchange of shares of
Carolina Group stock into Exchange Shares, and, in lieu thereof, each holder of
Carolina Group stock who would otherwise be entitled to a fractional interest of
an Exchange Share shall, upon surrender of such holder's certificate or
certificates representing shares of Carolina Group stock, receive a cash payment
(without interest) (the "Fractional Payment") equal to (i) in the case of an
exchange for shares of Loews common stock, the product resulting from
multiplying (A) the fraction of a share of Loews common stock to which such
holder would otherwise have been entitled by (B) the Average Market Price Per
Share of Loews common stock on the Exchange Date, or (ii) in the case of an
exchange for shares of one or more Carolina Group Subsidiaries, such value as is
determined by the Board of Directors.

(b) No adjustments in respect of dividends shall be made upon the exchange
of any shares of Carolina Group stock; provided, however, that, if the Exchange
Date with respect to Carolina Group stock shall be subsequent to the record date
for the payment of a dividend or other distribution thereon or with respect
thereto but prior to the payment or distribution thereof, the registered holders
of such shares at the close of business on such record date shall be entitled to
receive the dividend or other distribution payable on such shares on the date
set for payment of such dividend or other distribution, notwithstanding the
exchange of such shares or the Corporation's default in payment of the dividend
or distribution due on such date.

A-9

(c) At such time or times as the Corporation exercises its right to cause a
Board Required Exchange, and at the time of any Significant Transaction
Exchange, the Corporation shall give notice of such exchange to the holders of
Carolina Group stock whose shares are to be exchanged, by mailing by first-class
mail a notice of such exchange (an "Exchange Notice"), in the case of an
exchange at the discretion of the Board of Directors, not less than 30 nor more
than 60 days prior to the date fixed for such exchange (the "Exchange Date"),
and, in the case of any other required exchange, as soon as practicable before
or after the Exchange Date, in either case, to their last addresses as they
appear upon the Corporation's books. Each such Exchange Notice shall specify the
Exchange Date and the Exchange Rate applicable to such exchange, and may be
conditioned on or otherwise subject to such terms as the Board of Directors may
determine.

(d) In the case of certificated shares, before any holder of shares of
Carolina Group stock shall be entitled to receive certificates representing such
Exchange Shares, such holder must surrender, at such office as the Corporation
shall specify, certificates for such shares of Carolina Group stock duly
endorsed to the Corporation or in blank or accompanied by proper instruments of
transfer to the Corporation or in blank, unless the Corporation shall waive such
requirement. The Corporation shall, as soon as practicable after such surrender
of certificates representing such shares of Carolina Group stock, issue and
deliver, at the office of the transfer agent representing Exchange Shares, to
the holder for whose account such shares of Carolina Group stock were so
surrendered, or to such holder's nominee or nominees, certificates representing
the number of Exchange Shares to which such holder shall be entitled, together
with the Fractional Payment, if any.

(e) From and after any Exchange Date, all rights of a holder of shares of
Carolina Group stock shall cease except for the right, upon surrender of the
certificates representing such shares of Carolina Group stock, to receive
certificates representing Exchange Shares together with a Fractional Payment, if
any, as described in paragraphs 5(a) and 5(d) of this Part B of this Article
Fourth and rights to dividends as described in paragraph 5(b) of this Part B of
this Article Fourth. No holder of a certificate that immediately prior to the
applicable Exchange Date represented shares of Carolina Group stock shall be
entitled to receive any dividend or other distribution with respect to Exchange
Shares until surrender of such holder's certificate for a certificate or
certificates representing Exchange Shares. Upon surrender, the holder shall
receive the amount of any dividends or other distributions (without interest)
that were payable with respect to a record date after the Exchange Date, but
that were not paid by reason of the foregoing with respect to the number of
Exchange Shares represented by the certificate or certificates issued upon such
surrender. From and after an Exchange Date applicable to Carolina Group stock,
the Corporation shall, however, be entitled to treat certificates for Carolina
Group stock that have not yet been surrendered for exchange as evidencing the
ownership of the number of Exchange Shares for which the shares of Carolina
Group stock represented by such certificates have been exchanged,
notwithstanding the failure to surrender such certificates.

(f) If any certificate for Exchange Shares is to be issued in a name other
than that in which the certificate representing shares of Carolina Group stock
surrendered in exchange therefor is registered, it shall be a condition of such
issuance that the person requesting the issuance pays any transfer or other
taxes required by reason of the issuance of certificates for such Exchange
Shares in a name other than that of the record holder of the certificate
surrendered, or establishes, to the satisfaction of the Corporation or its
agent, that such tax has been paid or is not applicable. Under no circumstances
shall the Corporation be liable to a holder of shares of Carolina Group stock
for any Exchange Shares or dividends or distributions thereon delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.

(g) At the time an Exchange Notice is delivered with respect to any shares
of Carolina Group stock, or at the time of the Exchange Date, if earlier, the
Corporation shall have reserved and kept available, solely for the purpose of
issuance upon exchange of the outstanding shares of Carolina

A-10

Group stock, such number of Exchange Shares as shall be issuable upon the
exchange of the number of shares of Carolina Group stock specified or to be
specified in the applicable Exchange Notice, provided that the Corporation shall
not under any circumstances be precluded from satisfying its obligation in
respect of the exchange of the outstanding shares of Carolina Group stock by
delivery of purchased Exchange Shares that are held in the treasury of the
Corporation.

(h) The Board of Directors may adjust the foregoing procedures as may be
appropriate to reflect any ownership of shares through book-entry accounts or
otherwise in non-certificated form.

(i) The Corporation will effect any Significant Asset Exchange on a pro
rata basis with respect to each holder of Carolina Group stock.

6. Liquidation.

In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to the
prior payment in full of the preferential amounts to which any class or series
of Preferred Stock is entitled, (a) the holders of the shares of Loews common
stock shall share in the aggregate in a percentage of the funds of the
Corporation remaining for distribution to its common shareholders equal to 100%
multiplied by the average daily ratio (expressed as a decimal) of X/Z for the
20-Trading Day period ending on the fifth Trading Day immediately prior to the
date of the public announcement of such liquidation, dissolution or winding up
of the Corporation, (b) the holders of the shares of Carolina Group stock shall
share in the aggregate in a percentage of the funds of the Corporation remaining
for distribution to its common shareholders equal to 100% multiplied by the
average daily ratio (expressed as a decimal) of W/Z for such 20-Trading Day
period, and (c) if applicable, the holders of the shares of any other class of
common shares of the Corporation (other than Loews common stock or Carolina
Group stock), on the basis that may be set forth in this Certificate of
Incorporation with respect to any such shares, shall share in the aggregate in a
percentage of the funds of the Corporation remaining for distribution to its
common shareholders equal to 100% multiplied by the average daily ratio
(expressed as a decimal) of V/Z for such 20-Trading Day period, where X is the
aggregate Market Capitalization of the Loews common stock, W is the aggregate
Market Capitalization of the Carolina Group stock, V is the aggregate Market
Capitalization, if applicable, of any other class of common shares (other than
Loews common stock and Carolina Group stock), and Z is the aggregate Market
Capitalization of (i) the Loews common stock, (ii) the Carolina Group stock and
(iii) any other class of common shares of the Corporation (other than Loews
common stock and Carolina Group stock). Neither the consolidation or merger of
the Corporation with or into any other corporation or corporations nor the sale,
transfer or lease of all or substantially all of the assets of the Corporation
shall itself be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph 6 of this Part B of this
Article Fourth. Notwithstanding the foregoing, any transaction or series of
related transactions that results in all of the assets and liabilities included
in the Carolina Group being held by one or more Carolina Group Subsidiaries, and
the distribution of some or all of the shares of such Carolina Group
Subsidiaries (and no other material assets or liabilities) to the holders of the
outstanding Carolina Group stock shall not constitute a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation for purposes of this
paragraph 6 of this Part B of this Article Fourth, but shall be subject to
paragraph 4 of this Part B of this Article Fourth.

7. Determinations by the Board of Directors.

Any determinations made by the Board of Directors under any provision of
this Part B of this Article Fourth shall be final and binding on all
shareholders of the Corporation, except as may otherwise be required by law. The
Corporation shall prepare a statement of any determination by the

A-11

Board of Directors, respecting the fair market value of any properties, assets
or securities, and shall file such statement with the Secretary of the
Corporation.

8. Adjustment of the Carolina Group Allocation Fraction.

(a) The denominator of the Carolina Group Allocation Fraction shall be
adjusted from time to time as deemed appropriate by the Board of Directors (i)
to reflect subdivisions (by stock split or otherwise) and combinations (by
reverse stock split or otherwise) of Carolina Group stock and stock dividends
payable in shares of Carolina Group stock, (ii) to reflect the fair market value
of contributions or allocations by the Corporation of cash or property or other
assets or liabilities from the Loews Group to the Carolina Group (or vice
versa), or of cash or property or other assets or liabilities of the Loews Group
to, or for the benefit of, employees of businesses attributed to the Carolina
Group in connection with employee benefit plans or arrangements of the
Corporation or any of its subsidiaries (or vice versa), (iii) to reflect the
number of shares of capital stock of the Corporation contributed to, or for the
benefit of, employees of businesses attributed to the Carolina Group in
connection with benefit plans or arrangements of the Corporation or any of its
Subsidiaries, (iv) to reflect repurchases by the Corporation of shares of
Carolina Group stock for the account of the Loews Group or the Carolina Group,
(v) to reflect issuances of Carolina Group stock for the account of the Carolina
Group or the Loews Group, (vi) to reflect dividends or other distributions to
holders of the Carolina Group stock to the extent a pro rata payment is not made
to the Loews Group, and (vii) under such other circumstances as the Board of
Directors determines appropriate to reflect the economic substance of any other
event or circumstance, provided that, in each case, the adjustment shall be made
in a manner that the Board of Directors determines is fair and equitable to
holders of Loews common stock and Carolina Group stock (and intended to reflect
the relative deemed economic ownership interest, if any, of the Loews Group in
the Carolina Group). Any adjustment made by the Board of Directors pursuant to
the preceding sentence shall, subject to the foregoing, be at the sole
discretion of the Board of Directors, and all such determinations shall be final
and binding on all shareholders of the Corporation. For purposes of this
paragraph 8 of this Part B of this Article Fourth, the consideration paid by the
Loews Group to acquire any assets or other property contributed or allocated to
the Carolina Group shall be presumed to be the "fair market value" as of its
acquisition.

(b) Without duplication of any adjustment pursuant to paragraph 8(a) of
this Part B of this Article Fourth, in the event that the Corporation shall
issue shares of Carolina Group stock for the account of the Carolina Group, then
the denominator of the Carolina Group Allocation Fraction shall be increased by
the number of shares of Carolina Group stock so issued.

(c) Without duplication of any adjustment pursuant to paragraph 8(a) of
this Part B of this Article Fourth, if, in connection with any share issuance
described in paragraph 8(b) of this Part B of this Article Fourth, or otherwise,
the Corporation contributes or allocates cash or other property or assets from
the Loews Group to the Carolina Group, the denominator of the Carolina Group
Allocation Fraction shall be increased (or further increased) by an amount
obtained by dividing (i) the fair market value of such cash, property or assets
(as determined by the Board of Directors) by (ii) the net per share offering
price of the Carolina Group stock.

9. Certain Definitions.

Unless the context otherwise requires, the terms defined in this paragraph
9 of this Part B of this Article Fourth shall have, for all purposes of this
Part B of this Article Fourth, the meanings herein specified:

"Carolina Group" shall mean, as of any date that any shares of Carolina
Group stock have been issued and continue to be outstanding, without
duplication, the direct or indirect interest of the

A-12

Corporation (either itself or through direct or indirect subsidiaries,
affiliates, joint ventures or other investments, or any of their predecessors or
successors) in, and the direct or indirect liability of the Corporation (or any
such subsidiary, affiliate, joint venture or other investment) for:

(a) Lorillard, Inc.,

(b) any dividend or distribution paid by Lorillard, Inc. following the
Initial Issuance Date,

(c) all assets, liabilities and businesses acquired by a member of the
Carolina Group or acquired by the Corporation or any of its Subsidiaries
for the account of, or contributed, allocated or otherwise transferred to,
the Carolina Group (including the net proceeds of any new issuance for the
account of the Carolina Group of any new shares of Carolina Group stock or
Convertible Securities), in each case, after the Initial Issuance Date and
as determined by the Board of Directors in accordance with the provisions
of this Part B of this Article Fourth,

(d) all net income or net losses arising after the Initial Issuance
Date from the assets and liabilities that are reflected in the Carolina
Group and the proceeds of any Disposition of any such assets following the
Initial Issuance Date,

(e) notional, intergroup debt owed from the Carolina Group to the
Loews Group, in an amount and with terms to be determined by the Board of
Directors prior to the Initial Issuance Date, and

(f) any and all liabilities, costs and expenses of the Corporation and
Lorillard, Inc. and its subsidiaries and predecessors arising out of or
related to tobacco or otherwise arising out of the past, present or future
business of Lorillard, Inc. or its subsidiaries or predecessors, or claims
arising out of or related to the sale of any businesses previously sold by
Lorillard, Inc. or its subsidiaries or predecessors, in each case, whether
grounded in tort, contract, statute or otherwise, whether pending or
asserted in the future.

Notwithstanding the foregoing, the Carolina Group shall not include (1) any
assets, liabilities or businesses disposed of after the Initial Issuance Date or
(2) any assets, liabilities or businesses allocated to the Loews Group or
otherwise distributed, paid or transferred from the Carolina Group, whether to
the Loews Group, to holders of shares of Carolina Group stock or otherwise, in
each case after the Initial Issuance Date and as determined by the Board of
Directors in accordance with the provisions of this Part B of this Article
Fourth. Accordingly, the assets of the Carolina Group shall be reduced by, among
other things, (x) payments of dividends or distributions to holders of Carolina
Group stock or to the Loews Group in respect of its interest in the Carolina
Group in connection with any such dividend or distribution, (y) payments of
interest or principal on the notional, intergroup debt owed to the Loews Group,
and (z) payments in respect of any costs, expenses or other liabilities
allocated to the Carolina Group.

"Carolina Group Aggregate Distributable Amount" shall mean the Carolina
Group Allocated Portion of the excess of (1) the Net Proceeds received by the
Corporation over (2) the Loews Tobacco Contingency Reserves.

"Carolina Group Allocated Portion" shall mean, with respect to the Carolina
Group as a whole, or any dividend, distribution, payment, consideration or other
amount or allocation requiring apportionment between the holders of Carolina
Group stock (other than the Corporation and its Subsidiaries), on the one hand,
and the Loews Group, on the other hand, the following: (a) in the case of the
Carolina Group as a whole, the proportion of such Group represented by the
Carolina Group Allocation Fraction, and (b) in the case of any other amount or
allocation, the product of (i) such amount or allocation and (ii) the Carolina
Group Allocation Fraction.

A-13

"Carolina Group Allocation Fraction" shall mean, as of any date of
determination, a fraction, the numerator of which shall be the number of shares
of Carolina Group stock outstanding on such date and the denominator of which
shall be a number initially determined by the Board of Directors, in its sole
discretion, prior to the Initial Issuance Date, subject to adjustment from time
to time as described in this Part B of this Article Fourth, provided that such
fraction shall in no event be greater than one. If the holders of any securities
of the Corporation or any other Person that are convertible into or exercisable
or exchangeable for shares of Carolina Group stock are entitled to participate
in any dividend or other distribution with respect to the Carolina Group stock,
such shares so issuable upon such conversion, exercise or exchange shall be
taken into account in calculating the Carolina Group Allocation Fraction and any
amount payable to the Loews Group in such manner as the Board of Directors
determines to be appropriate.

"Carolina Group Available Dividend Amount" shall mean, as of any date, the
Carolina Group Allocated Portion of the excess of (a) the amount by which the
total assets of the Carolina Group exceed the total liabilities of the Carolina
Group as of such date over (b) the sum of (i) the par value of all issued shares
of Carolina Group stock and each class or series of Preferred Stock attributed
to the Carolina Group, (ii) the amount of the consideration received for any
shares of Preferred Stock attributed to the Carolina Group without par value
that have been issued, except such part of the consideration therefor as may
have been allocated to surplus in a manner permitted by law, and (iii) any
amount not included in subclauses (i) and (ii) above that the Corporation (by
appropriate action of the Board of Directors) has transferred to stated capital
specifically in respect of Carolina Group stock, minus (c) all reductions from
such sums set forth in clauses (i), (ii) and (iii) above as have been effected
in a manner permitted by law; provided, however, that, in the event that the law
governing the Corporation changes from that governing the Corporation on the
date the adoption of the Amendment to this Certificate of Incorporation pursuant
to which the Carolina Group stock was authorized (whether because of amendment
of the applicable law or because of a change in the jurisdiction of
incorporation of the Corporation through merger or otherwise), the Carolina
Group Available Dividend Amount shall mean the amount of dividends, as
determined by the Board of Directors, that could be paid by a Corporation
(governed under such applicable law) having the assets and liabilities of the
Carolina Group, an amount of outstanding common stock (and having an aggregate
par value) equal to the amount (and aggregate par value) of the outstanding
Carolina Group stock and of each class or series of Preferred Stock attributed
to the Carolina Group and having an amount of earnings or loss or other relevant
corporate attributes as reasonably determined by the Board of Directors in light
of all factors deemed relevant by the Board of Directors.

"Carolina Group Incremental Dividend" shall mean, as of any date, with
respect to any Lorillard Dividend, an amount equal to the Carolina Group
Allocated Portion of the Lorillard Dividend.

"Carolina Group Net Proceeds" shall mean, as of any date, with respect to
any Disposition of any of the assets of the Carolina Group, an amount, if any,
equal to the Carolina Group Allocated Portion of the Net Proceeds.

"Carolina Group Related Business Transaction" shall mean any Disposition of
all or substantially all the assets attributed to the Carolina Group in a
transaction or series of related transactions that results in the Corporation or
one or more of its Subsidiaries receiving in consideration of such assets
primarily equity securities (including, without limitation, capital stock, debt
securities convertible into or exchangeable for equity securities or interests
in a general or limited partnership or limited liability company, without regard
to the voting power or other management or governance rights associated
therewith) of any entity that (a) acquires such properties or assets or succeeds
(by merger, formation of a joint venture or otherwise) to the business conducted
with such properties or assets or controls such acquiror or successor, and (b)
which the Board of Directors determines is primarily engaged or

A-14

proposes to engage primarily in one or more businesses similar or complementary
to the businesses conducted by the Carolina Group prior to such Disposition.

"Carolina Group Released Reserves" shall mean, as of any date, with respect
to any Released Reserves, an amount equal to the Carolina Group Allocated
Portion of the Released Reserves.

"Carolina Group Tobacco Contingency Reserves" shall mean, as of any date,
with respect to any Loews Tobacco Contingency Reserves, an amount equal to the
Carolina Group Allocated Portion of the Loews Tobacco Contingency Reserves.

"Convertible Securities" shall mean any securities of the Corporation or
any Subsidiary of the Corporation that are convertible into, exchangeable for or
evidence the right to purchase any shares of Loews common stock or Carolina
Group stock, whether upon conversion, exercise or exchange, or pursuant to
anti-dilution provisions of such securities or otherwise.

"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock, or otherwise) by the Corporation or Lorillard, Inc. (or its respective
successors) of any of its respective Subsidiaries or properties or assets.
Disposition shall not include a merger, consolidation, exchange of shares or
other business combination transaction involving the Corporation or Lorillard,
Inc. or Lorillard Tobacco Company in which the Corporation or Lorillard, Inc. or
Lorillard Tobacco Company (or its respective successors) continues, immediately
following such transaction, to hold the same, direct and indirect, interest in
the business, assets and liabilities comprising the Carolina Group that it held
immediately prior to such transaction (other than as a result of any action by
any Person included in the Carolina Group).

"Fair Value" shall mean, in the case of equity securities or debt
securities of a class that has previously been publicly traded for a period of
at least three months, the Market Value thereof (if such Market Value, as so
defined, can be determined) or, in the case of an equity security or debt
security that has not been publicly traded for at least such period, means the
fair value per share of stock or per other unit of such other security, on a
fully distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the Board
of Directors; provided, however, that, in the case of property other than
securities, the "Fair Value" thereof shall be determined in good faith by the
Board of Directors based upon such appraisals or valuation reports of such
independent experts as the Board of Directors shall in good faith determine to
be appropriate in accordance with good business practice. Any such determination
of Fair Value shall be described in a statement filed with the records of the
actions of the Board of Directors.

"Group" shall mean the Loews Group or the Carolina Group.

"Initial Issuance Date" shall mean the date of first issuance of any shares
of Carolina Group stock.

"Loews Group" shall mean, as of any date, the interest of the Corporation
in all of the businesses in which the Corporation is or has been engaged,
directly or indirectly (either itself or through direct or indirect
subsidiaries, affiliates, joint ventures or other investments or any of their
predecessors or successors), and the respective assets and liabilities of the
Corporation therein, other than the Carolina Group Allocated Portion of the
Carolina Group.

"Loews Tobacco Contingency Reserves" shall mean an amount retained by the
Corporation, which the Board of Directors from time to time determines in good
faith should be retained for tobacco-related contingencies or other costs or
liabilities of any kind (contingent or otherwise, by way of contract, tort,
indemnity, guarantee or otherwise), whether or not any such contingency, cost or
liability would be deductible as a cost or expense or would qualify for
treatment as a reserve under generally accepted accounting principles.

A-15

"Lorillard Tobacco Contingency Reserves" shall mean an amount retained by
Lorillard, Inc. or Lorillard Tobacco Company or any of their respective
subsidiaries, which such entity's board of directors from time to time
determines in good faith should be retained for tobacco-related contingencies or
other costs or liabilities of any kind (contingent or otherwise, by way of
contract, tort, indemnity, guarantee or otherwise), whether or not any such
contingency, cost or liability would be deductible as a cost or expense or would
qualify for treatment as a reserve under generally accepted accounting
principles.

"Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (a) the Market Value of
one share of such class or series on such Trading Day and (b) the number of
shares of such class or series outstanding on such Trading Day.

"Market Value" of any class or series of capital stock of the Corporation
on any day shall mean the average of the daily closing price of a share of such
class or series on such day (if such day is a Trading Day, and, if such day is
not a Trading Day, on the Trading Day immediately preceding such day) on the New
York Stock Exchange or, if the shares of such class or series are not quoted on
the New York Stock Exchange on such Trading Day, on the Nasdaq National Market,
or, if the shares of such class or series are not quoted on the Nasdaq National
Market on such Trading Day, the average of the closing bid and asked prices of a
share of such class or series in the over-the-counter market on such Trading Day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Corporation, or, if such closing bid and asked prices are not made
available by any such New York Stock Exchange member firm on such Trading Day
(including, without limitation, because such securities are not publicly held),
the market value of a share of such class or series as determined by the Board
of Directors; provided that, for purposes of determining the ratios set forth in
paragraph 6 of this Part B of this Article Fourth, (a) the "Market Value" of any
share of Loews common stock or Carolina Group stock on any day prior to the "ex"
date or any similar date for any dividend or distribution paid or to be paid
with respect to Loews common stock or Carolina Group stock, as applicable, shall
be reduced by the fair market value of the per share amount of such dividend or
distribution as determined by the Board of Directors, and (b) the "Market Value"
of any share of Loews common stock or any share of Carolina Group stock on any
day prior to (i) the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) of outstanding
shares of Loews common stock or Carolina Group stock, as applicable, or (ii) the
"ex" date or any similar date for any dividend or distribution with respect to
the Loews common stock or Carolina Group stock in shares of Loews common stock
or Carolina Group stock, as applicable, shall be appropriately adjusted to
reflect such subdivision, combination, dividend or distribution.

"Net Proceeds" shall mean, as of any date, with respect to any Disposition
of any of the assets of the Carolina Group, an amount, if any, equal to the
gross proceeds of such Disposition after any payment of, or reasonable provision
for, (a) any taxes payable by the Corporation or any other member of the Loews
Group in respect of such Disposition or in respect of any mandatory dividend or
redemption resulting from such Disposition (or that would have been payable but
for the utilization of tax benefits attributable to the Loews Group), (b) any
transaction costs borne by the Loews Group in connection with such Disposition,
including, without limitation, any legal, investment banking and accounting fees
and expenses borne by the Loews Group in connection with such Disposition, (c)
any liabilities and other obligations (contingent or otherwise) of the Carolina
Group (other than Loews Tobacco Contingency Reserves or Lorillard Tobacco
Contingency Reserves), including, without limitation, any indemnity or guarantee
obligations incurred by the Loews Group in connection with the Disposition or
any liabilities assumed by the Loews Group for future purchase price
adjustments, (d) any preferential amounts, accumulated and unpaid dividends and
other obligations in respect of Preferred Stock attributed to the Carolina Group
and (e) repayment of any notional, intergroup debt. To the extent the proceeds
of any Disposition include any securities (other than Loews common stock) or
other property other than cash, the Board of Directors shall determine

A-16

the value of such securities or property; provided that the value of any
marketable securities included in such proceeds shall be the average of the
daily Market Value of such securities for the 20-Trading Day period beginning on
the 5th Trading Day immediately preceding the date of a public announcement that
a definitive agreement has been signed for such Disposition.

"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.

"Qualifying Subsidiary" of a Person shall mean a Subsidiary of such Person
in which such Person's ownership and voting interest is sufficient to satisfy
the ownership and voting requirements of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder, for a distribution of such Person's
interest in such Subsidiary to the holders of Carolina Group stock and, in the
event that the Carolina Group Allocation Fraction is less than one, the holders
of Loews common stock (or any such securities into which the Carolina Group
stock or the Loews common stock may have been converted, reclassified or changed
or for which they may have been exchanged), as the case may be, to be tax free
to such holders.

"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company or partnership 50% or more of whose outstanding voting
securities or membership or partnership interests, as the case may be, are,
directly or indirectly, owned by such Person.

"Tax Event" shall mean receipt by the Corporation of an opinion of tax
counsel of the Corporation's choice, to the effect that, as a result of any
amendment to, clarification of, or change (including a prospective change) in,
the laws (or any interpretation or application of the laws) of the United States
or any political subdivision or taxing authority thereof or therein (including
enactment of any legislation and the publication of any judicial or regulatory
decision, determination or pronouncement), which amendment, clarification or
change is effective, announced, released, promulgated or issued on or after the
date of initial issuance of the Carolina Group stock, regardless of whether such
amendment, clarification or change is issued to or in connection with a
proceeding involving the Corporation, the Loews Group or the Carolina Group and
whether or not subject to appeal, there is more than an insubstantial risk that:

(i) for tax purposes, any issuance of Carolina Group stock would be
treated as a sale or other taxable disposition by the Corporation or any of
its Subsidiaries of any of the assets, operations or relevant subsidiaries
to which the Carolina Group stock relates,

(ii) the existence of the Carolina Group stock would subject the
Corporation, its Subsidiaries or affiliates, or any of their respective
successors or shareholders to the imposition of tax or to other adverse tax
consequences, or

(iii) for tax purposes, either Loews common stock or Carolina Group
stock is not or, at any time in the future, would not be treated solely as
common stock of the Corporation.

"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not available
for trading on the New York Stock Exchange or the Nasdaq National Market or in
the over-the-counter market.

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APPENDIX B

LOEWS CORPORATION
BOARD OF DIRECTORS

POLICY STATEMENT REGARDING
CAROLINA GROUP STOCK MATTERS

1. GENERAL POLICY. It is the policy of the Board of Directors (the
"BOARD") of Loews Corporation ("LOEWS") that:

(a) all material matters as to which the holders of the Loews common
stock and the holders of Carolina Group stock may have potentially
divergent interests shall be resolved in a manner that the Board determines
to be in the best interests of Loews and all of its common shareholders,
after giving fair consideration to the potentially divergent interests and
all other relevant interests of the holders of the separate classes of
common stock of Loews; and

(b) a process of fair dealing will govern the relationship between the
Loews Group and the Carolina Group and the means by which the terms of any
material transaction between them will be determined.

In making determinations in connection with these policies, the members of
the Board will act in a fiduciary capacity and pursuant to legal guidance
concerning their respective obligations under applicable law.

2. RELATIONSHIP BETWEEN THE GROUPS. The Loews Group and the Carolina Group
will be managed in a manner designed to maximize the operations, unique assets
and value of both Groups. Lorillard, Inc. will continue to be managed by its
independent board of directors and Loews's other subsidiaries will continue to
be managed by their respective boards of directors.

There will be certain limited financial arrangements between the two
Groups, including, for example, with respect to debt, taxes and fees for
services provided from one Group to the other. However, given the dissimilar
nature of the businesses underlying each Group, Loews does not expect the
intergroup interactions to be numerous or substantial.

(a) General. Except as otherwise provided in this policy statement, all
material commercial transactions between the Loews Group and the Carolina Group
will be on commercially reasonable terms taken as a whole and will be subject to
the review by, and approval of, the Board.

(b) Allocation of Corporate Overhead and Support Services. Each Group will
have access to the support services of the other Group.

With respect to shared corporate services that arise as a result of being
part of a combined entity (e.g., securities filing and financial reporting
services), costs relating to such services will be allocated, at cost, directly
to the Group utilizing those services, and to the extent such costs are not
directly attributable, allocated, at cost, between the Groups on a fair and
reasonable basis as determined by the Board. With respect to other support
services, while the Groups will seek to obtain for the combined Groups the
lowest aggregate cost for all such services, each Group will be entitled to
procure such services from the other Group or from third parties.

(c) No Intergroup Interest in Loews Group. The Carolina Group shall not
acquire an Intergroup Interest in the Loews Group.

(d) Taxes. Loews and Lorillard, Inc. are parties to a tax sharing
agreement (the "AGREEMENT"). The Agreement provides that Lorillard, Inc. will
make payments to Loews, and Loews will make payments to Lorillard, Inc., in
respect of the consolidated federal income tax liability of a hypothetical
affiliated group consisting of Lorillard, Inc. and its subsidiaries, computed on
a stand-

B-1

alone basis as if the members of such hypothetical affiliated group were not
members of the Loews affiliated group. The Agreement will remain in effect after
the issuance of Carolina Group stock. The allocation of responsibility for taxes
between the Loews Group and the Carolina Group will be based on the consolidated
tax liability, computed on a stand-alone basis, of a hypothetical affiliated
group consisting of the Carolina Group (the "HYPOTHETICAL CAROLINA AFFILIATED
GROUP"). If the Hypothetical Carolina Affiliated Group has consolidated federal
taxable income, or consolidated, combined or unitary taxable income for state,
local or foreign tax purposes, for the taxable period, then the Hypothetical
Carolina Affiliated Group will credit the Loews Group an amount equal to the tax
that would have been payable by the Hypothetical Carolina Affiliated Group had
it filed a consolidated federal, or consolidated, combined or unitary state,
local or foreign tax return on a stand-alone basis for such taxable period and
all prior taxable periods including periods before the formation of the Carolina
Group. If the Hypothetical Carolina Affiliated Group has a net operating loss,
net capital loss, excess tax credit or other tax attribute for federal income
tax purposes, or a consolidated, combined or unitary net operating loss, net
capital loss, excess tax credit or other tax attribute for state, local or
foreign tax purposes, for the taxable period, then the Loews Group will credit
the Carolina Group an amount equal to the refund to which the Hypothetical
Carolina Affiliated Group would have been entitled had it filed a consolidated
federal, or consolidated, combined or unitary state, local or foreign tax return
on a stand-alone basis for such taxable period and all prior taxable periods
including periods before the formation of the Carolina Group. In addition and
without duplication, the Carolina Group shall be responsible for any tax items
arising out of or relating to the following: (i) the treatment of Carolina Group
stock as anything other than common stock of Loews, (ii) the actual or deemed
disposition of the Carolina Group or of the stock or assets of any entity which
is a member of the Carolina Group arising out of or relating to the issuance of
Carolina Group stock, and (iii) any distribution of the stock of any company the
assets of which are tracked by the Carolina Group stock or any transaction
undertaken in connection therewith. For purposes of determining the allocation
of responsibility for taxes between the Loews Group and the Carolina Group (i)
any payments made pursuant to the Agreement will be credited to the Loews Group
or the Carolina Group, as the case may be, and (ii) the notional, intergroup
debt owed from the Carolina Group to the Loews Group shall be disregarded and
interest payments on such debt will not be treated as interest expense for
purposes of the Agreement. With respect to taxable periods ending on or prior to
the date on which Carolina Group stock is initially issued, the Carolina Group
will generally be responsible for the taxes attributable to the businesses and
entities reflected in the Carolina Group. The responsibility of the Carolina
Group for consolidated income taxes attributable to it will generally be
considered to have been settled for taxable periods ending on or prior to the
date on which Carolina Group stock is initially issued, except that (i) the
Carolina Group will be required to credit the Loews Group with respect to the
taxable period ending on December 31, 2000 in the event that the taxable income
or loss used to calculate the consolidated income tax asset or liability
accruals for taxes currently payable set forth on the financial statements of
the Carolina Group differs from the Carolina Group taxable income or loss
reflected in the 2000 income tax return of the consolidated group, and (ii)
consolidated income taxes resulting from audit adjustments or other tax contests
will be determined on a stand-alone basis. For example, the Carolina Group will
be required to credit the Loews Group in the event that a loss or deduction
attributable to the Carolina Group for such a period is disallowed.

3. CORPORATE OPPORTUNITIES. The Board will allocate any business
opportunities and operations, any acquired assets and businesses and any assumed
liabilities between the Loews Group and the Carolina Group, in whole or in part,
as it considers to be in the best interests of Loews and its shareholders as a
whole and as contemplated by the provisions of these policies. To the extent a
business opportunity or operation, an acquired asset or business, or an assumed
liability would be suitable to be undertaken by or allocated to either Group, it
will be allocated by the Board in its business judgment or in accordance with
procedures adopted by the Board from time to time to ensure that decisions will
be made in the best interests of Loews and its shareholders as a whole. Any

B-2

such allocation may involve the consideration of a number of factors that the
Board determines to be relevant, including, without limitation, whether the
business opportunity or operation, the acquired asset or business, or the
assumed liability is principally within the existing scope of a Group's business
and whether a Group is better positioned to undertake or have allocated to it
such business opportunity or operation, acquired assets or business or assumed
liability.

4. DIVIDEND POLICY. Subject to the limitations set forth in the Charter,
including any preferential rights of any series of preferred stock of Loews, and
to the limitations of applicable law, holders of shares of Loews common stock or
Carolina Group stock will be entitled to receive dividends on such stock when,
as and if authorized and declared by the Board. The payment of dividends on the
Loews common stock or the Carolina Group stock will be a business decision to be
made by the Board from time to time based upon the results of operations,
financial condition and capital requirements of Loews and such other factors as
the Board considers relevant. Payment of dividends on the Loews common stock and
the Carolina Group stock may be restricted by loan agreements, indentures and
other transactions entered into by Loews from time to time.

5. FINANCIAL REPORTING. Loews will prepare and include in its filings with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, consolidated financial statements of Loews and combined
financial statements of the Carolina Group (for so long as the Carolina Group
stock is outstanding). The combined financial statements of the Carolina Group
will reflect the combined financial position, results of operations and cash
flows of the businesses attributed thereto and in the case of annual financial
statements shall be audited.

6. DEFINITIONS. Capitalized terms not defined in this policy statement
shall have the meanings set forth in the Charter. References throughout this
policy statement to "ARTICLES," set in all capital letters, are references to
ARTICLES in the Charter.

6.1 Charter.

"Charter" means the Restated Certificate of Incorporation of Loews, as
amended from time to time.

6.2 Loews common stock.

"Loews common stock" means the Loews common stock as defined in ARTICLE
FOURTH of the Charter.

6.3 Loews Group.

"Loews Group" means the Loews Group as defined in Part B of ARTICLE FOURTH
of the Charter.

6.4 Carolina Group.

"Carolina Group" means the Carolina Group as defined in Part B of ARTICLE
FOURTH of the Charter.

6.5 Carolina Group stock.

"Carolina Group stock" means the Carolina Group stock as defined in ARTICLE
FOURTH of the Charter.

7. AMENDMENT AND MODIFICATION OF THESE POLICIES. These policies and any
resolution implementing the provisions hereof may at any time and from time to
time be amended, modified or rescinded by the Board, and the Board may adopt
additional or other policies or make exceptions with respect to the application
of these policies in connection with particular facts and circumstances, all as
the Board may determine, consistent with its fiduciary duties to Loews and all
of its shareholders.

B-3

APPENDIX C

FORM OF CAROLINA GROUP
2002 STOCK OPTION PLAN

SECTION 1

GENERAL

1.1 Purpose. The Carolina Group 2002 Stock Option Plan (the "Plan") has
been established by Loews Corporation (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 Carolina
Group, and reward Participants for achievement of those goals, and (iii) provide
incentive compensation opportunities that are competitive with those of other
similar companies, and thereby promote the financial interest of Lorillard, Inc.
and its subsidiaries and any future companies attributed to the Carolina Group.

1.2 Operation and Administration. The operation and administration of the
Plan shall be subject to the provisions of Section 3 (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 6 of the Plan).

SECTION 2

OPTIONS

2.1 Option Grant. The Committee may grant Options in accordance with this
Section 2.

2.2 Definitions. The grant of an "Option" permits the Participant to
purchase shares of Stock at an Exercise Price established by the Committee. Any
Option granted under the Plan may be either an incentive stock option (an "ISO")
or a non-qualified option (an "NQO"), as determined in the discretion of the
Committee. An "ISO" is an Option that is intended to be an "incentive stock
option" described in section 422(b) of the Code and does in fact satisfy the
requirements of that section. An "NQO" is an Option that is not intended to be
an "incentive stock option" as that term is described in section 422(b) of the
Code, or that fails to satisfy the requirements of that section.

2.3 Exercise Price. The "Exercise Price" of each Option granted under
this Section 2 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option is granted; except
that the Exercise Price shall not be less than 100% of the Fair Market Value of
a share of Stock on the date of grant (or, if greater, the par value of a share
of Stock).

2.4 Vesting and Exercise. An Option shall be exercisable in accordance
with such terms and conditions and during such periods as may be established by
the Committee.

(a) Unless otherwise provided by the Committee at the time of grant
or thereafter, each Option shall vest and become exercisable in four equal
annual installments beginning on the first anniversary of the date of
grant, and shall thereafter remain exercisable during the Option Term.

(b) Unless otherwise provided by the Committee at the time of grant
or thereafter, the Option Term of each Option shall end on the earliest of
(1) the date on which such Option has been exercised in full, (2) the date
on which the Participant experiences a Termination for Cause or a voluntary
Termination, (3) the one-year anniversary of the date on which the
Participant experiences a Termination due to death or Disability, (4) the
three-year anniversary of the date on which the Participant experiences a
Termination due to such person's Retirement, and (5) the 90th day after the
Participant experiences a Termination for any other reason;

C-1

provided, that in no event may the Option Term exceed ten (10) years from
the date of grant of the Option. Except as otherwise determined by the
Committee at the time of grant or thereafter, upon the occurrence of a
Termination of a Participant for any reason, the Option Term of all
outstanding Options held by the Participant that are unvested as of the
date of such Termination shall thereupon end and such unvested Options
shall be forfeited immediately; provided, however, that the Committee may,
in its sole discretion, accelerate the vesting of any Option and/or extend
the exercise period of any Option (but not beyond the ten-year anniversary
of the grant date).

(c) An Option may be exercised and the underlying shares purchased in
accordance with this Section 2 at any time after the Option with respect to
those shares vests and before the expiration of the Option Term. To
exercise an Option, the Participant shall give written notice to the
Company stating the number of shares with respect to which the Option is
being exercised.

(d) The full Exercise Price for shares of Stock purchased upon the
exercise of any Option shall be paid at the time of such exercise (except
that, in the case of an exercise arrangement approved by the Committee and
described in the last sentence of this paragraph (d), payment may be made
as soon as practicable after the exercise). The Exercise Price shall be
payable by check, or such other instrument as the Committee may accept. The
Committee may permit a Participant to elect to pay the Exercise Price upon
the exercise of an Option by irrevocably authorizing a third party to sell
shares of Stock (or a sufficient portion of the shares) acquired upon
exercise of the Option and remit to the Company a sufficient portion of the
sale proceeds to pay the entire Exercise Price and any tax withholding
resulting from such exercise. In the case of any ISO such permission must
be provided for at the time of grant and set forth in an Option
Certificate. In addition, if approved by the Committee, payment, in full or
in part, may also be made in the form of unrestricted Mature Shares, based
on the Fair Market Value of the Mature Shares on the date the Option is
exercised; provided, however, that, in the case of an ISO the right to make
a payment in such Mature Shares may be authorized only at the time the
Option is granted.

SECTION 3

OPERATION AND ADMINISTRATION

3.1 Effective Date. The Plan shall be effective as of , 2002
(the "Effective Date"). The Plan shall be unlimited in duration and, in the
event of Plan termination, shall remain in effect as long as any Options under
it are outstanding.

3.2 Shares Subject to Plan. The shares of Stock for which Options may be
granted under the Plan shall be subject to the following:

(a) The shares of Stock with respect to which Options may be granted
under the Plan shall be shares currently authorized but unissued or
currently held or subsequently acquired by the Company as treasury shares,
including shares purchased in the open market or in private transactions.

(b) Subject to the following provisions of this subsection 3.2, the
maximum number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be shares of Stock.

(c) To the extent any shares of Stock covered by an Option are not
delivered to a Participant or beneficiary because the Option is forfeited
or canceled, or the shares of Stock are used to pay the Exercise Price or
satisfy the applicable tax withholding obligation, such shares shall not be
deemed to have been delivered for purposes of determining the maximum
number of shares of Stock available for delivery under the Plan.

C-2

(d) Subject to paragraph 3.2(e), the maximum number of shares that
may be covered by Options granted to any one individual during any one
calendar year period shall be shares.

(e) In the event of 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
Committee may make adjustments to preserve the benefits or potential
benefits of the Plan and outstanding Options. Action by the Committee may
include: (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 Section 3.2(d); (iii) adjustment of the number and kind of
shares subject to outstanding Options; (iv) adjustment of the Exercise
Price of outstanding Options; (v) settlement in cash or Stock in an amount
equal to the excess of the value of the Stock subject to such Option over
the aggregate Exercise Price (as determined by the Committee) of such
Options; and (vi) any other adjustments that the Committee determines to be
equitable.

3.3 General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:

(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any shares of Stock under the Plan or
make any other distribution of benefits under the Plan unless such delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.

(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may
be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.

3.4 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the delivery of any shares or other
benefits under the Plan shall be conditioned on satisfaction of the applicable
withholding obligations. The Committee, in its discretion, and subject to such
requirements as the Committee may impose prior to the occurrence of such
withholding, may permit such withholding obligations to be satisfied through
cash payment by the Participant, through the surrender of shares of Stock which
the Participant already owns, or through the surrender of shares of Stock to
which the Participant is otherwise entitled under the Plan; provided that
surrender of shares may be used only to satisfy the minimum withholding required
by law.

3.5 Grant and Use of Options. In the discretion of the Committee, more
than one Option may be granted to a Participant. Options may be granted as
alternatives to or replacements of Options granted or outstanding under the
Plan. Subject to the overall limitation on the number of shares of Stock that
may be delivered under the Plan, the Committee may use available shares of Stock
as the form of payment for compensation, grants or rights earned or due under
any other compensation plans or arrangements of Lorillard, Inc. or its
subsidiaries or any future company attributed to the Carolina Group, including
the plans and arrangements of such entities assumed in business combinations.
Notwithstanding the foregoing, the assumption by the Company of options in
connection with the acquisition of a business or other entity and the conversion
of such options into options to acquire Stock shall not be treated as a new
grant of Options under the Plan unless specifically so provided by the
Committee.

3.6 Settlement of Options. The Committee may from time to time establish
procedures pursuant to which a Participant may elect to defer, until a time or
times later than the exercise of an Option, receipt of all or a portion of the
shares of Stock subject to such Option and/or to receive cash at such later time
or times in lieu of such deferred shares, all on such terms and conditions as
the Committee shall determine. If any such deferrals are permitted, then a
Participant who elects

C-3

such deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until shares are actually delivered to the
Participant with respect thereto, except to the extent otherwise determined by
the Committee.

3.7 Other Plans. Amounts payable under this Plan shall not be taken into
account as compensation for purposes of any other employee benefit plan or
program of the Company or any of its Subsidiaries, except to the extent
otherwise provided by such plans or programs, or by an agreement between the
affected Participant and the Company or Lorillard, Inc. or its subsidiaries or
any future company attributed to the Carolina Group.

3.8 Heirs and Successors. The terms of the Plan shall be binding upon,
and inure to the benefit of, the Company and its successors and assigns, and
upon any person acquiring, whether by merger, consolidation, purchase of assets
or otherwise, all or substantially all of the Company's assets and business.

3.9 Transferability. Options granted under the Plan are not transferable
except (i) as designated by the Participant by will or by the laws of descent
and distribution or (ii) in the case of an NQO, as otherwise expressly permitted
by the Committee including, if so permitted, pursuant to a transfer to such
Participant's immediate family, whether directly or indirectly or by means of a
trust or partnership or otherwise. If any rights exercisable by a Participant or
benefits deliverable to a Participant under any Option Certificate under the
Plan have not been exercised or delivered, respectively, at the time of the
Participant's death, such rights shall be exercisable by the Designated
Beneficiary, and such benefits shall be delivered to the Designated Beneficiary,
in accordance with the provisions of the applicable terms of the Option
Certificate and the Plan. The "Designated Beneficiary" shall be the beneficiary
or beneficiaries designated by the Participant to receive benefits under the
group term life insurance plan of Lorillard, Inc. or any of its subsidiaries or
any future company attributed to the Carolina Group or such other person or
persons as the Participant may designate by notice to the Company. If a deceased
Participant fails to have designated a beneficiary, or if the Designated
Beneficiary does not survive the Participant, any rights that would have been
exercisable by the Participant and any benefits distributable to the Participant
shall be exercised by or distributed to the legal representative of the estate
of the Participant. If a deceased Participant designates a beneficiary and the
Designated Beneficiary survives the Participant but dies before the Designated
Beneficiary's exercise of all rights under the Option Certificate or before the
complete distribution of benefits to the Designated Beneficiary under the Option
Certificate, then any rights that would have been exercisable by the Designated
Beneficiary shall be exercised by the legal representative of the estate of the
Designated Beneficiary, and any benefits distributable to the Designated
Beneficiary shall be distributed to the legal representative of the estate of
the Designated Beneficiary. All Options shall be exercisable, subject to the
terms of this Plan, only by the Participant or any person to whom such Option is
transferred pursuant to this paragraph, it being understood that the term
Participant shall include such transferee for purposes of the exercise
provisions contained herein.

3.10 Notices. Any written notices provided for in the Plan or under any
Option Certificate shall be in writing and shall be deemed sufficiently given if
either hand delivered or if sent by confirmed fax or overnight courier, or by
postage paid first class mail. Notice and communications shall be effective when
actually received by the addressee. Notices shall be directed, if to the
Participant, at the Participant's address indicated in the Option Certificate,
or if to the Company, at the Company's principal executive office to the
attention of the Company's Secretary.

3.11 Action by Company. Any action required or permitted to be taken by
the Company shall be by resolution of the Board, or by action of one or more
members of the Board (including a committee of the Board) who are duly
authorized to act for the Board, or by a duly authorized officer of the Company.

C-4

3.12 Limitation of Implied Rights.

(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company, in its
sole discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the amounts, if
any, payable under the Plan, unsecured by any assets of the Company, and
nothing contained in the Plan shall constitute a guarantee that the assets
of the Company shall be sufficient to pay any benefits to any person.

(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any Participant the right to be
retained in the employ of, or as a director or consultant to, the Company
or any Subsidiary, nor any right or claim to any benefit under the Plan,
unless such right or claim has specifically accrued under the terms of the
Plan.

3.13 Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.

3.14 Laws Applicable to Construction. The interpretation, performance and
enforcement of this Plan and all Option Certificates shall be governed by the
laws of the State of Delaware without reference to principles of conflict of
laws, as applied to contracts executed in and performed wholly within the State
of Delaware.

3.15 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

SECTION 4

COMMITTEE

4.1 Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in the Compensation Committee of the
Board or such other committee of the Board as the Board may from time to time
designate (the "Committee") in accordance with this Section 4. In addition, the
Board may exercise any power given to the Committee under the Plan.

4.2 Powers of Committee. The Committee's administration of the Plan shall
be subject to the following:

(a) Subject to the provisions of the Plan, the Committee will have
the authority and discretion to select from among the Eligible Grantees
those persons who shall receive Options, to determine the grant date of,
the number of shares subject to and the Exercise Price of those Options, to
establish all other terms and conditions of such Options, and (subject to
the restrictions imposed by Section 5) to cancel or suspend Options.

(b) The Committee will have the authority and discretion to interpret
the Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.

(c) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding on all persons.

(d) In controlling and managing the operation and administration of
the Plan, the Committee shall take action in a manner that conforms to the
articles and by-laws of the Company, and applicable state corporate law.

4.3 Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its

C-5

responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it. Any such allocation or delegation may be revoked by the
Committee at any time.

4.4 Information to be Furnished to Committee. The Company and
Subsidiaries shall furnish the Committee with such data and information as it
determines may be required for it to discharge its duties. The records of the
Company and Subsidiaries as to an employee's or Participant's employment,
engagement, termination, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Participants and
other persons eligible for benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.

SECTION 5

AMENDMENT AND TERMINATION

The Board may, at any time, amend or terminate the Plan; provided that no
amendment or termination may, in the absence of written consent to the change by
the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Option granted under the Plan prior to the date such
amendment is adopted by the Board; and further provided that adjustments
pursuant to paragraph 3.2(e) shall not be subject to the foregoing limitations
of this Section 5.

SECTION 6

DEFINED TERMS

In addition to the other definitions contained herein, the following
definitions shall apply:

(a) Board. The term "Board" means the Board of Directors of the
Company.

(b) Carolina Group. The term "Carolina Group" shall have the meaning
set forth in the Company's Restated Certificate of Incorporation, as
amended from time to time.

(c) Cause. The term "Cause" shall have the meaning set forth in the
employment or engagement agreement between a Participant and Lorillard,
Inc. or its subsidiaries or any future company attributed to the Carolina
Group, if such an agreement exists and contains a definition of Cause;
otherwise Cause shall mean (1) conviction of the Participant for committing
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 directorial duties, (3) willful and deliberate
failure on the part of a Participant to perform the Participant's
employment, engagement or directorial 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 Option Certificate or
an employment agreement with the Participant, have the sole discretion to
determine whether Cause exists, and its determination shall be final.

(d) Code. The term "Code" means the Internal Revenue Code of 1986,
as amended. A reference to any provision of the Code shall include
reference to any successor provision of the Code.

(e) Committee. The term "Committee" shall have the meaning set forth
in Section 4.1.

(f) Company. The term "Company" shall have the meaning set forth in
Section 1.1.

(g) Designated Beneficiary. The term "Designated Beneficiary" shall
have the meaning set forth in Section 3.9.

C-6

(h) Disability. The term "Disability" shall mean, unless otherwise
provided by the Committee, (1) "Disability" as defined in any individual
Option Certificate to which the Participant is a party, or (2) if there is
no such Option Certificate or it does not define "Disability," permanent
and total disability as determined under the long-term disability plan of
Lorillard, Inc. or any of its subsidiaries or any future company attributed
to the Carolina Group applicable to the Participant.

(i) Effective Date. The term "Effective Date" shall have the meaning
set forth in Section 3.1.

(j) Eligible Grantee. The term "Eligible Grantee" shall mean any
individual who is employed on a full-time or part-time basis, or who serves
as a consultant to, Lorillard, Inc. or any of its subsidiaries or any
future company attributed to the Carolina Group and any non-employee
director of Lorillard, Inc. or any of its subsidiaries or any future
company attributed to the Carolina Group. An Option may be granted to an
individual in connection with such individual's hiring or engagement prior
to the date the individual first performs services for Lorillard, Inc. or
any of its subsidiaries or any future company attributed to the Carolina
Group, provided that the individual will be an Eligible Grantee upon his
hiring or engagement, and further provided that such Options shall not
become vested prior to the date the individual first performs such
services.

(k) Exercise Price. The term "Exercise Price" shall have the meaning
set forth in Section 2.3.

(l) Fair Market Value. The "Fair Market Value" of a share of Stock
shall be, as of any given date, the mean between the highest and lowest
reported sales prices on the immediately preceding date (or, if there are
no reported sales on such immediately preceding date, on the last date
prior to such date on which there were sales) of the Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange, on any
other national securities exchange on which the Stock is listed or on
NASDAQ. If there is no regular public trading market for such Stock, the
Fair Market Value of the Stock shall be determined by the Committee in good
faith.

(m) ISO. The term "ISO" shall have the meaning set forth in Section
2.2.

(n) Mature Shares. The term "Mature Shares" shall mean shares of
Stock that have been owned by the Participant in question for at least six
months.

(o) NQO. The term "NQO" shall have the meaning set forth in Section
2.2.

(p) Option. The term "Option" shall have the meaning set forth in
Section 2.2.

(q) Option Certificate. The term "Option Certificate" shall mean a
written Option certificate setting forth the terms and conditions of an
Option, in such form as the Committee may from time to time prescribe.

(r) Option Term. The term "Option Term" shall mean the period
beginning on the date of grant of an Option and ending on the date the
Option expires pursuant to the Plan and the relevant Option Certificate.

(s) Plan. The term "Plan" shall have the meaning set forth in
Section 1.1.

(t) Retirement. The term "Retirement" shall mean retirement from
active employment with Lorillard, Inc. or its subsidiaries or any future
company attributed to the Carolina Group pursuant to any retirement plan or
program of Lorillard, Inc. or its subsidiaries or any future company
attributed to the Carolina Group in which the Participant participates. A
Termination by a consultant or non-employee director shall in no event be
considered a Retirement.

C-7

(u) Stock. The term "Stock" shall mean shares of Carolina Group
stock, par value, $0.01 per share, of the Company.

(v) Subsidiary. The term "Subsidiary" means any business or entity
in which at any relevant time the Company holds at least a 50% equity
(voting or non-voting) interest.

(w) Termination. A Participant shall be considered to have
experienced a Termination if he or she ceases, for any reason, to be an
employee, consultant or non-employee director of Lorillard, Inc. or any of
its subsidiaries or any future company attributed to the Carolina Group,
including, without limitation, as a result of the fact that the entity by
which he or she is employed or engaged or of which he or she is a director
has ceased to be affiliated with Lorillard, Inc. or its subsidiaries or any
future company attributed to the Carolina Group.

C-8

APPENDIX D

INDEX TO FINANCIAL STATEMENTS

THE PURPOSE OF THE FOLLOWING FINANCIAL INFORMATION IS TO PROVIDE INVESTORS WITH
ADDITIONAL INFORMATION TO USE IN ANALYZING THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF THE CAROLINA GROUP, AND THE FOLLOWING FINANCIAL
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS OF LOEWS WHICH ARE INCORPORATED BY REFERENCE IN THE PROXY STATEMENT.

PAGE
----

HISTORICAL FINANCIAL STATEMENTS
LOEWS CORPORATION
Consolidating Condensed Financial Information............. D-2
Unaudited Consolidating Statements of Income for the years
ended December 31, 2000, 1999 and 1998................. D-3
Unaudited Consolidating Balance Sheets as of December 31,
2000 and 1999.......................................... D-6
Unaudited Consolidating Condensed Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998... D-8
Unaudited Consolidating Statements of Operations for the
six months ended June 30, 2001 and 2000................ D-11
Unaudited Consolidating Balance Sheet as of June 30,
2001................................................... D-13
Unaudited Consolidating Condensed Statements of Cash Flows
for the six months ended June 30, 2001 and 2000........ D-14
RECONCILIATION TO CAROLINA GROUP FINANCIAL STATEMENTS
Unaudited Combined Statements of Income for the years
ended December 31, 2000, 1999 and 1998................. D-17
Unaudited Combined Balance Sheets as of December 31, 2000
and 1999............................................... D-20
Unaudited Combined Statements of Income for the six months
ended June 30, 2001 and 2000........................... D-22
Unaudited Combined Balance Sheet as of June 30, 2001...... D-24
CAROLINA GROUP
Independent Auditors' Report.............................. D-25
Combined Statements of Income and Changes in Combined
Attributed Net Assets for the six months ended June 30,
2001 and 2000 and the years ended December 31, 2000,
1999 and 1998.......................................... D-26
Combined Balance Sheets as of June 30, 2001 and December
31, 2000 and 1999...................................... D-27
Combined Statements of Cash Flows for the six months ended
June 30, 2001 and 2000 and the years ended December 31,
2000, 1999 and 1998.................................... D-28
Notes to Combined Financial Statements.................... D-29

D-1

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

CONSOLIDATING CONDENSED FINANCIAL INFORMATION

In conjunction with the issuance of Carolina Group stock, Loews has
separated for financial reporting purposes in all periods the Loews Group and
Carolina Group. Below is the consolidating financial information for these
individual groups, including the allocation of expenses between the groups in
accordance with our allocation policies, as well as other related party
transactions such as services between groups. Neither group is a separate
company or legal entity. Rather it is intended to reflect a defined set of
assets and liabilities.

D-2

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2000

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

REVENUES:
Insurance premiums............ $11,471.7 $11,471.7
Investment income -- net...... $ 101.7 2,792.1 $(300.0)(1) 2,593.8
Investment (losses) gains..... (0.6) 1,021.7 1,021.1
Manufactured product
(including federal excise
taxes of $667.9 in the
Carolina Group)............ 4,233.8 149.8 4,383.6
Other......................... 6.9 1,784.1 1,791.0
-------- --------- ------- ---------
Total................. 4,341.8 17,219.4 (300.0) 21,261.2
-------- --------- ------- ---------
EXPENSES:
Insurance claims and
policyholders' benefits.... 9,831.1 9,831.1
Amortization of deferred
acquisition costs.......... 1,879.8 1,879.8
Cost of sales................. 2,178.2 72.9 2,251.1
Other operating expenses(2)... 939.8 2,796.6 3,736.4
Interest...................... 1.5 355.4 356.9
-------- --------- ------- ---------
3,119.5 14,935.8 18,055.3
-------- --------- ------- ---------
1,222.3 2,283.6 (300.0) 3,205.9
-------- --------- ------- ---------
Income taxes.................. 469.5 637.4 1,106.9
Minority interest............. 222.3 222.3
-------- --------- ------- ---------
Total................. 469.5 859.7 1,329.2
-------- --------- ------- ---------
Net income...................... $ 752.8 $ 1,423.9 $(300.0) $ 1,876.7
======== ========= ======= =========

-------------------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

(2) Includes $2.6 of expenses allocated by the Carolina Group to the Loews Group
for computer-related charges and $0.2 of expenses allocated by the Loews
Group to the Carolina Group for services provided pursuant to a services
agreement.

D-3

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1999

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

REVENUES:
Insurance premiums............ $13,276.7 $13,276.7
Investment income -- net...... $ 65.7 2,674.4 $(300.0)(1) 2,440.1
Investment (losses) gains..... 1.0 (289.3) (288.3)
Manufactured products
(including federal excise
taxes of $512.6 in the
Carolina Group)............ 3,991.3 134.0 4,125.3
Other......................... 6.5 1,882.4 1,888.9
-------- --------- ------- ---------
Total................. 4,064.5 17,678.2 (300.0) 21,442.7
-------- --------- ------- ---------
EXPENSES:
Insurance claims and
policyholders' benefits.... 11,890.3 11,890.3
Amortization of deferred
acquisition costs.......... 2,142.6 2,142.6
Cost of sales................. 2,050.5 65.9 2,116.4
Other operating expenses(2)... 919.7 3,075.2 3,994.9
Interest...................... 14.9 339.4 354.3
-------- --------- ------- ---------
2,985.1 17,513.4 20,498.5
-------- --------- ------- ---------
1,079.4 164.8 (300.0) 944.2
-------- --------- ------- ---------
Income taxes.................. 427.6 (122.1) 305.5
Minority interest............. 117.6 117.6
-------- --------- ------- ---------
Total................. 427.6 (4.5) 423.1
-------- --------- ------- ---------
Income before cumulative effect
of changes in accounting
principles.................... 651.8 169.3 (300.0) 521.1
Cumulative effect of changes in
accounting
principles -- net............. (157.9) (157.9)
-------- --------- ------- ---------
Net income...................... $ 651.8 $ 11.4 $(300.0) $ 363.2
======== ========= ======= =========

-------------------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

(2) Includes $2.9 of expenses allocated by the Carolina Group to the Loews Group
for computer-related charges and $0.1 of expenses allocated by the Loews
Group to the Carolina Group for services provided pursuant to a services
agreement.

D-4

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

REVENUES:
Insurance premiums............ $13,530.1 $13,530.1
Investment income -- net...... $ 51.9 2,865.1 $(450.0)(1) 2,467.0
Investment (losses) gains..... 77.0 77.0
Manufactured products
(including federal excise
taxes of $495.3 in the
Carolina Group)............ 2,807.5 129.1 2,936.6
Other......................... 5.7 2,279.6 2,285.3
-------- --------- ------- ---------
Total................. 2,865.1 18,880.9 (450.0) 21,296.0
-------- --------- ------- ---------
EXPENSES:
Insurance claims and
policyholders' benefits.... 11,700.9 11,700.9
Amortization of deferred
acquisition costs.......... 2,180.2 2,180.2
Cost of sales................. 961.9 65.8 1,027.7
Other operating expenses(2)... 729.7 3,631.9 4,361.6
Fixed non-unit based
settlement costs........... 579.0 579.0
Interest...................... 1.4 367.8 369.2
-------- --------- ------- ---------
2,272.0 17,946.6 20,218.6
-------- --------- ------- ---------
593.1 934.3 (450.0) 1,077.4
-------- --------- ------- ---------
Income taxes.................. 241.6 112.9 354.5
Minority interest............. 258.1 258.1
-------- --------- ------- ---------
Total................. 241.6 371.0 612.6
-------- --------- ------- ---------
Net income...................... $ 351.5 $ 563.3 $(450.0) $ 464.8
======== ========= ======= =========

-------------------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

(2) Includes $3.0 of expenses allocated by the Carolina Group to the Loews Group
for computer-related charges and $3.5 of expenses allocated by the Loews
Group to the Carolina Group for services provided pursuant to a services
agreement.

D-5

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

ASSETS:
Investments:
Fixed maturities...................... $27,244.3 $27,244.3
Equity securities..................... $ 13.8 2,668.7 2,682.5
Other investments..................... 1,368.5 1,368.5
Short-term investments................ 1,627.1 7,473.2 9,100.3
-------- --------- ---------- ---------
Total investments........................ 1,640.9 38,754.7 40,395.6
Cash..................................... 1.4 193.8 195.2
Receivables -- net....................... 68.4 15,233.2 15,301.6
Property plant & equipment -- net........ 199.5 3,006.8 3,206.3
Deferred income taxes.................... 344.8 59.2 404.0
Goodwill and other intangibles........... 0.6 378.1 378.7
Other assets............................. 416.2 3,875.1 4,291.3
Investment in combined attributed net
assets of the Carolina Group.......... 1,376.8 $ (1,376.8)(1)
Deferred acquisition costs of insurance
subsidiaries.......................... 2,417.8 2,417.8
Separate Account business................ 4,286.6 4,286.6
-------- --------- ---------- ---------
Total assets..................... $2,671.8 $69,582.1 $ (1,376.8) $70,877.1
======== ========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Insurance reserves:
Claim and claim adjustment expense.... $26,962.7 $26,962.7
Future policy benefits................ 6,669.5 6,669.5
Unearned premiums..................... 4,820.6 4,820.6
Policyholders' funds.................. 601.5 601.5
-------- --------- ---------- ---------
Total insurance reserves................. 39,054.3 39,054.3
Payable for securities purchased......... 971.4 971.4
Securities sold under agreements to
repurchase............................ 1,308.4 1,308.4
Long-term debt, less unamortized
discounts............................. $ 4.0 6,036.0 6,040.0
Other liabilities........................ 1,291.0 4,526.4 5,817.4
Separate Account business................ 4,286.6 4,286.6
-------- --------- ---------- ---------
Total liabilities................ 1,295.0 56,183.1 57,478.1
-------- --------- ---------- ---------
Minority interest.......................... 2,207.9 2,207.9
-------- --------- ---------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value............... $ 197.2(2) 197.2
Additional paid-in capital............... 45.6(2) 45.6
Earnings retained in the business........ 10,191.6(2) 10,191.6
Accumulated other comprehensive income... 756.7(2) 756.7
Combined attributed net assets........... 1,376.8 11,191.1 (12,567.9)(2)
-------- --------- ---------- ---------
Total shareholders' equity................. 1,376.8 11,191.1 (1,376.8) 11,191.1
-------- --------- ---------- ---------
Total liabilities and shareholders'
equity................................... $2,671.8 $69,582.1 $ (1,376.8) $70,877.1
======== ========= ========== =========

---------------
(1) To eliminate the Loews Group's 100% equity interest in the combined
attributed net assets of the Carolina Group.
(2) To eliminate the combined attributed net assets of the Carolina Group and
the Loews Group, and to record the Loews Corporation consolidated equity
accounts at the balance sheet date.

D-6

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

ASSETS:
Investments:
Fixed maturities...................... $ 5.6 $27,918.8 $27,924.4
Equity securities..................... 11.7 4,011.8 4,023.5
Other investments..................... 1,367.3 1,367.3
Short-term investments................ 1,283.8 6,034.0 7,317.8
-------- --------- ---------- ---------
Total investments........................ 1,301.1 39,331.9 40,633.0
Cash..................................... 2.0 181.9 183.9
Receivables -- net....................... 54.9 13,486.0 13,540.9
Property plant & equipment -- net........ 196.8 2,755.9 2,952.7
Deferred income taxes.................... 334.1 439.8 773.9
Goodwill and other intangibles........... 1.1 408.4 409.5
Other assets............................. 320.0 3,611.1 3,931.1
Investment in combined attributed net
assets of the Carolina Group.......... 921.2 $ (921.2)(1)
Deferred acquisition costs of insurance
subsidiaries.......................... 2,435.6 2,435.6
Separate Account business................ 4,603.1 4,603.1
-------- --------- ---------- ---------
Total assets..................... $2,210.0 $68,174.9 $ (921.2) $69,463.7
======== ========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Insurance reserves:
Claim and claim adjustment expense.... $27,355.9 $27,355.9
Future policy benefits................ 6,102.0 6,102.0
Unearned premiums..................... 5,103.1 5,103.1
Policyholders' funds.................. 709.9 709.9
-------- --------- ---------- ---------
Total insurance reserves................. 39,270.9 39,270.9
Payable for securities purchased......... 516.6 516.6
Securities sold under agreements to
repurchase............................ 1,647.3 1,647.3
Long-term debt, less unamortized
discounts............................. $ 4.1 5,702.2 5,706.3
Other liabilities........................ 1,284.7 4,106.8 5,391.5
Separate Account business................ 4,603.1 4,603.1
-------- --------- ---------- ---------
Total liabilities................ 1,288.8 55,846.9 57,135.7
-------- --------- ---------- ---------
Minority interest.......................... 2,350.3 2,350.3
-------- --------- ---------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value............... $ 209.0(2) 209.0
Additional paid-in capital............... 46.2(2) 46.2
Earnings retained in the business........ 8,705.9(2) 8,705.9
Accumulated other comprehensive income... 1,016.6(2) 1,016.6
Combined attributed net assets........... 921.2 9,977.7 (10,898.9)(2)
-------- --------- ---------- ---------
Total shareholders' equity................. 921.2 9,977.7 (921.2) 9,977.7
-------- --------- ---------- ---------
Total liabilities and shareholders'
equity................................... $2,210.0 $68,174.9 $ (921.2) $69,463.7
======== ========= ========== =========

D-7

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000

LOEWS ADJUSTMENTS
CAROLINA GROUP GROUP AND ELIMINATIONS TOTAL
-------------- ---------- ---------------- ----------
(IN MILLIONS)

Net cash provided (used) by operating
activities......................... $ 550.4 $ (717.1) $(300.0)(1) $ (466.7)
------- ---------- ------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities...... (60,838.3) (60,838.3)
Proceeds from sales of fixed
maturities...................... 58,345.0 58,345.0
Proceeds from maturities of fixed
maturities...................... 4,222.3 4,222.3
Purchases of equity securities..... (1,858.0) (1,858.0)
Proceeds from sales of equity
securities...................... 2,941.6 2,941.6
Purchases of property and
equipment....................... (30.1) (637.1) (667.2)
Securities sold under agreements to
repurchase...................... (338.9) (338.9)
Change in short-term investments... (222.2) (903.0) (1,125.2)
Change in other investments........ 1.4 334.8 336.2
------- ---------- ------- ----------
(250.9) 1,268.4 1,017.5
------- ---------- ------- ----------
FINANCING ACTIVITIES:
Dividends paid to shareholders..... (300.0) (99.7) 300.0(1) (99.7)
Dividends paid to minority
interests....................... (33.5) (33.5)
Purchases of treasury shares....... (305.7) (305.7)
Purchases of treasury shares by
subsidiaries.................... (127.9) (127.9)
Redemption of preferred stock by
subsidiary...................... (150.0) (150.0)
Principal payments on long-term
debt............................ (0.1) (166.5) (166.6)
Issuance of long-term debt......... 476.9 476.9
Receipts credited to
policyholders................... 4.8 4.8
Withdrawals of policyholder account
balances........................ (137.8) (137.8)
------- ---------- ------- ----------
(300.1) (539.4) 300.0 (539.5)
------- ---------- ------- ----------
Net change in cash................... (0.6) 11.9 11.3
Cash, beginning of year.............. 2.0 181.9 183.9
------- ---------- ------- ----------
Cash, end of year.................... $ 1.4 $ 193.8 $ 195.2
======= ========== ======= ==========

---------------
(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

D-8

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ----------
(IN MILLIONS)

Net cash provided (used) by operating
activities............................. $1,024.9 $(2,793.3) $(300.0)(1) $ (2,068.4)
-------- --------- ------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities.......... (58,532.7) (58,532.7)
Proceeds from sales of fixed
maturities.......................... 57,211.8 57,211.8
Proceeds from maturities of fixed
maturities.......................... 2,995.5 2,995.5
Purchases of equity securities......... (1,575.4) (1,575.4)
Proceeds from sales of equity
securities.......................... 1,803.4 1,803.4
Purchases of property and equipment.... (20.7) (687.5) (708.2)
Securities sold under agreements to
repurchase.......................... 1,067.8 1,067.8
Change in short-term investments....... (706.1) 1,213.4 507.3
Change in other investments............ 2.2 267.8 270.0
-------- --------- ------- ----------
(724.6) 3,764.1 3,039.5
-------- --------- ------- ----------
FINANCING ACTIVITIES:
Dividends paid to shareholders......... (300.0) (108.9) 300.0(1) (108.9)
Dividends paid to minority interests... (40.1) (40.1)
Purchases of treasury shares........... (601.6) (601.6)
Principal payments on long-term debt... (0.1) (478.0) (478.1)
Issuance of long-term debt............. 225.1 225.1
Receipts credited to policyholders..... 7.0 7.0
Withdrawals of policyholder account
balances............................ (78.0) (78.0)
-------- --------- ------- ----------
(300.1) (1,074.5) 300.0 (1,074.6)
-------- --------- ------- ----------
Net change in cash....................... 0.2 (103.7) (103.5)
Cash, beginning of year.................. 1.8 285.6 287.4
-------- --------- ------- ----------
Cash, end of year........................ $ 2.0 $ 181.9 $ 183.9
======== ========= ======= ==========

---------------
(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

D-9

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ----------
(IN MILLIONS)

Net cash provided (used) by operating
activities........................... $ 379.8 $ (23.1) $(450.0)(1) $ (93.3)
------- ---------- ------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities........ (70,141.5) (70,141.5)
Proceeds from sales of fixed
maturities........................ 66,429.6 66,429.6
Proceeds from maturities of fixed
maturities........................ 3,564.0 3,564.0
Purchases of equity securities....... (1,072.6) (1,072.6)
Proceeds from sales of equity
securities........................ 850.8 850.8
Purchases of property and
equipment......................... (18.9) (625.1) (644.0)
Securities sold under agreements to
repurchase........................ 426.8 426.8
Change in short-term investments..... 88.5 698.1 786.6
Change in other investments.......... 1.7 48.3 50.0
------- ---------- ------- ----------
71.3 178.4 249.7
------- ---------- ------- ----------
FINANCING ACTIVITIES:
Dividends paid to shareholders....... (450.0) (114.6) 450.0(1) (114.6)
Dividends paid to minority
interests......................... (40.7) (40.7)
Purchases of treasury shares......... (218.0) (218.0)
Purchases of treasury shares by
subsidiaries...................... (191.1) (191.1)
Principal payments on long-term
debt.............................. (0.1) (861.8) (861.9)
Issuance of long-term debt........... 1,073.8 1,073.8
Receipts credited to policyholders... 6.2 6.2
Withdrawals of policyholder account
balances.......................... (20.5) (20.5)
------- ---------- ------- ----------
(450.1) (366.7) 450.0 (366.8)
------- ---------- ------- ----------
Net change in cash..................... 1.0 (211.4) (210.4)
Cash, beginning of year................ 0.8 497.0 497.8
------- ---------- ------- ----------
Cash, end of year...................... $ 1.8 $ 285.6 $ 287.4
======= ========== ======= ==========

---------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

D-10

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

REVENUES:
Insurance premiums..................... $ 4,131.9 $ 4,131.9
Investment income -- net............... $ 46.6 1,270.5 $ (250.0)(1) 1,067.1
Investment (losses) gains.............. 2.1 990.9 993.0
Manufactured products (including
federal excise taxes of $311.1 in
the Carolina Group)................. 2,180.3 62.8 2,243.1
Other.................................. 5.7 981.7 987.4
-------- --------- -------- ---------
Total.......................... 2,234.7 7,437.8 (250.0) 9,422.5
-------- --------- -------- ---------
EXPENSES:
Insurance claims and policyholders'
benefits............................ 6,406.0 6,406.0
Amortization of deferred acquisition
costs............................... 874.1 874.1
Cost of sales.......................... 1,099.9 29.5 1,129.4
Other operating expenses(2)............ 728.0 1,566.9 2,294.9
Interest............................... 0.3 178.7 179.0
-------- --------- -------- ---------
1,828.2 9,055.2 10,883.4
-------- --------- -------- ---------
406.5 (1,617.4) (250.0) (1,460.9)
-------- --------- -------- ---------
Income taxes............................. 160.7 (599.5) (438.8)
Minority interest........................ (132.5) (132.5)
-------- --------- -------- ---------
Total.......................... 160.7 (732.0) (571.3)
-------- --------- -------- ---------
Income (loss) before cumulative effect of
changes in accounting principles....... 245.8 (885.4) (250.0) (889.6)
Cumulative effect of changes in
accounting principles -- net........... (53.3) (53.3)
-------- --------- -------- ---------
Net income (loss)........................ $ 245.8 $ (938.7) $ (250.0) $ (942.9)
======== ========= ======== =========

-------------------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

(2) Includes $0.4 of expenses allocated by the Carolina Group to the Loews Group
for computer related charges and $0.1 of expenses allocated by the Loews
Group to the Carolina Group for services provided pursuant to a services
agreement, which are eliminated in these consolidating statements.

D-11

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- --------
(IN MILLIONS)

REVENUES:
Insurance premiums............. $5,546.3 $5,546.3
Investment income -- net....... $ 40.5 1,418.5 $(200.0)(1) 1,259.0
Investment (losses) gains...... (1.7) 156.7 155.0
Manufactured products
(including federal excise
taxes of $337.3 in the
Carolina Group)............. 2,098.8 64.9 2,163.7
Other.......................... 3.3 842.4 845.7
-------- -------- ------- --------
Total.................. 2,140.9 8,028.8 (200.0) 9,969.7
-------- -------- ------- --------
EXPENSES:
Insurance claims and
policyholders' benefits..... 4,691.1 4,691.1
Amortization of deferred
acquisition costs........... 925.3 925.3
Cost of sales.................. 1,112.6 32.6 1,145.2
Other operating expenses(2).... 443.4 1,388.6 1,832.0
Interest....................... 1.1 172.5 173.6
-------- -------- ------- --------
1,557.1 7,210.1 8,767.2
-------- -------- ------- --------
583.8 818.7 (200.0) 1,202.5
-------- -------- ------- --------
Income taxes..................... 224.4 190.7 415.1
Minority interest................ 93.2 93.2
-------- -------- ------- --------
Total.................. 224.4 283.9 508.3
-------- -------- ------- --------
Net income....................... $ 359.4 $ 534.8 $(200.0) $ 694.2
======== ======== ======= ========

-------------------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

(2) Includes $1.1 of expenses allocated by the Carolina Group to the Loews Group
for computer related charges and $0.1 of expenses allocated by the Loews
Group to the Carolina Group for services provided pursuant to a services
agreement, which are eliminated in these consolidating statements.

D-12

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING BALANCE SHEET
JUNE 30, 2001

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ---------
(IN MILLIONS)

ASSETS:

Investments:
Fixed maturities..................... $28,058.3 $28,058.3
Equity securities.................... 1,802.4 1,802.4
Other investments.................... 1,591.3 1,591.3
Short-term investments............... $1,735.2 8,399.6 10,134.8
-------- --------- ----------- ---------
Total investments....................... 1,735.2 39,851.6 41,586.8
Cash.................................... 1.0 164.4 165.4
Receivables -- net...................... 43.8 17,378.4 17,422.2
Property plant & equipment -- net....... 191.1 2,818.6 3,009.7
Deferred income taxes................... 437.3 412.7 850.0
Goodwill and other intangibles.......... 0.3 349.5 349.8
Other assets............................ 440.2 4,017.6 4,457.8
Investment in combined attributed net
assets of the Carolina Group......... 1,370.5 $ (1,370.5)(1)
Deferred acquisition costs of insurance
subsidiaries......................... 2,464.2 2,464.2
Separate Account business............... 4,080.8 4,080.8
-------- --------- ----------- ---------
Total assets.................... $2,848.9 $72,908.3 $ (1,370.5) $74,386.7
======== ========= =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Insurance reserves:
Claim and claim adjustment expense... $29,506.7 $29,506.7
Future policy benefits............... 7,055.3 7,055.3
Unearned premiums.................... 4,756.4 4,756.4
Policyholders' funds................. 590.0 590.0
-------- --------- ----------- ---------
Total insurance reserves................ 41,908.4 41,908.4
Payable for securities purchased........ 1,678.9 1,678.9
Securities sold under agreements to
repurchase........................... 2,407.1 2,407.1
Long-term debt, less unamortized
discounts............................ 5,835.4 5,835.4
Other liabilities....................... $1,478.4 5,344.1 6,822.5
Separate Account business............... 4,080.8 4,080.8
-------- --------- ----------- ---------
Total liabilities............... 1,478.4 61,254.7 62,733.1
-------- --------- ----------- ---------
Minority interest......................... 1,972.2 1,972.2
-------- --------- ----------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value........... $ 197.2 (2) 197.2
Additional paid-in capital........... 47.6 (2) 47.6
Earnings retained in the business.... 9,194.5 (2) 9,194.5
Accumulated other comprehensive
income............................. 242.1 (2) 242.1
Combined attributed net assets....... 1,370.5 9,681.4 (11,051.9)(2)
-------- --------- ----------- ---------
Total shareholders' equity.............. 1,370.5 9,681.4 (1,370.5) 9,681.4
-------- --------- ----------- ---------
Total liabilities and shareholders'
equity.................................. $2,848.9 $72,908.3 $ (1,370.5) $74,386.7
======== ========= =========== =========

D-13

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ----------
(IN MILLIONS)

Net cash provided (used) by operating
activities.......................... $ 448.0 $ (464.7) $(250.0)(1) $ (266.7)
------- ---------- ------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities....... (51,784.3) (51,784.3)
Proceeds from sales of fixed
maturities....................... 39,424.7 39,424.7
Proceeds from maturities of fixed
maturities....................... 11,964.3 11,964.3
Purchases of equity securities...... (752.5) (752.5)
Proceeds from sales of equity
securities....................... 1,666.5 1,666.5
Purchases of property and
equipment........................ (14.4) (215.5) (229.9)
Proceeds from sales of property and
equipment........................ 10.2 262.4 272.6
Securities sold under agreements to
repurchase....................... 1,098.7 1,098.7
Change in short-term investments.... (194.2) (787.2) (981.4)
Change in other investments......... (119.7) (119.7)
------- ---------- ------- ----------
(198.4) 757.4 559.0
------- ---------- ------- ----------
FINANCING ACTIVITIES:
Dividends paid to shareholders...... (250.0) (54.2) 250.0 (1) (54.2)
Dividends paid to minority
interests........................ (17.5) (17.5)
Principal payments on long-term
debt............................. (662.6) (662.6)
Issuance of long-term debt.......... 449.4 449.4
Receipts credited to
policyholders.................... 1.5 1.5
Withdrawals of policyholder account
balances......................... (38.3) (38.3)
Other............................... (0.4) (0.4)
------- ---------- ------- ----------
(250.0) (322.1) 250.0 (322.1)
------- ---------- ------- ----------
Net change in cash.................... (0.4) (29.4) (29.8)
Cash, beginning of period............. 1.4 193.8 195.2
------- ---------- ------- ----------
Cash, end of period................... $ 1.0 $ 164.4 $ 165.4
======= ========== ======= ==========

---------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

D-14

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

LOEWS CORPORATION

UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000

ADJUSTMENTS
CAROLINA GROUP LOEWS GROUP AND ELIMINATIONS TOTAL
-------------- ----------- ---------------- ----------
(IN MILLIONS)

Net cash provided (used) by operating
activities......................... $ 396.9 $ (438.5) $(200.0)(1) $ (241.6)
--------- ---------- ------- ----------
INVESTING ACTIVITIES:
Purchases of fixed maturities...... (483.6) (25,625.3) (26,108.9)
Proceeds from sales of fixed
maturities...................... 1,607.6 26,957.9 28,565.5
Proceeds from maturities of fixed
maturities...................... 1,132.8 1,132.8
Purchases of equity securities..... (952.0) (952.0)
Proceeds from sales of equity
securities...................... 1,255.0 1,255.0
Purchases of property and
equipment....................... (9.2) (406.5) (415.7)
Proceeds from sales of property and
equipment....................... 0.4 32.9 33.3
Securities sold under agreements to
repurchase...................... 301.7 301.7
Change in short-term investments... (1,312.7) (1,872.8) (3,185.5)
Change in other investments........ (15.6) (15.6)
--------- ---------- ------- ----------
(197.5) 808.1 610.6
--------- ---------- ------- ----------
FINANCING ACTIVITIES:
Dividends paid to shareholders..... (200.0) (50.4) 200.0 (1) (50.4)
Dividends paid to minority
interests....................... (17.3) (17.3)
Purchases of treasury shares....... (305.7) (305.7)
Purchases of treasury shares by
subsidiaries.................... (38.3) (38.3)
Redemption of preferred stock by
subsidiary...................... (150.0) (150.0)
Principal payments on long-term
debt............................ (0.1) (111.3) (111.4)
Issuance of long-term debt......... 425.6 425.6
Receipts credited to
policyholders................... 2.5 2.5
Withdrawals of policyholder account
balances........................ (71.6) (71.6)
--------- ---------- ------- ----------
(200.1) (316.5) 200.0 (316.6)
--------- ---------- ------- ----------
Net change in cash................... (0.7) 53.1 52.4
Cash, beginning of period............ 2.0 181.9 183.9
--------- ---------- ------- ----------
Cash, end of period.................. $ 1.3 $ 235.0 $ 236.3
========= ========== ======= ==========

---------------

(1) To eliminate the dividend paid by the Carolina Group to the Loews Group.

D-15

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED FINANCIAL STATEMENT SCHEDULES

In accordance with Article 5 of Regulation S-X of the Securities and
Exchange Commission, we have presented the historical financial statements of
the Carolina Group in the manner customary for a commercial and industrial
company and have therefore included classified financial statements. In
contrast, the income statements and balance sheets in the Loews Corporation
financial reporting format are unclassified due to the significance of Loews's
insurance subsidiary to the consolidated financial statements. The
reclassification columns on the following pages provide a reconciliation of the
Carolina Group financial statement schedules to a classified format. We believe
this reconciliation provides Loews stockholders with additional information to
use in analyzing the results of operations and financial condition of the
Carolina Group.

THE CAROLINA GROUP IS A NOTIONAL GROUP THAT REFLECTS THE PERFORMANCE OF A
DEFINED SET OF ASSETS AND LIABILITIES. THE CAROLINA GROUP IS NOT A STAND-ALONE
ENTITY. THE PURPOSE OF THE FOLLOWING FINANCIAL INFORMATION IS TO PROVIDE
INVESTORS WITH ADDITIONAL INFORMATION TO USE IN ANALYZING THE RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF THE CAROLINA GROUP, AND THE FOLLOWING
FINANCIAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF LOEWS.

D-16

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2000

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

REVENUES:
Investment income -- net..................... $ 101.7 $(101.7)
Investment (losses) gains.................... (0.6) 0.6
Net sales of manufactured products (including
federal excise taxes of $667.9)........... 4,233.8 $4,233.8
Other........................................ 6.9 (6.9)
-------- ------- --------
Total................................ 4,341.8 (108.0) 4,233.8
-------- ------- --------
EXPENSES:
Cost of sales................................ 2,178.2 19.5 2,197.7
Other operating expenses..................... 939.8 (21.1) 918.7
Interest..................................... 1.5 (1.5)
-------- ------- --------
Total operating costs and expenses... 3,119.5 (3.1) 3,116.4
-------- ------- --------
Operating income............................... 1,222.3 (104.9) 1,117.4
Net investment income.......................... 104.9 104.9
-------- ------- --------
Income before income taxes..................... 1,222.3 1,222.3
Income taxes................................... 469.5 469.5
-------- ------- --------
Net income..................................... $ 752.8 $ 752.8
======== ======= ========

D-17

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1999

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

REVENUES:
Investment income -- net..................... $ 65.7 $(65.7)
Investment (losses) gains.................... 1.0 (1.0)
Net sales of manufactured products (including
federal excise taxes of $512.6)........... 3,991.3 $3,991.3
Other........................................ 6.5 (6.5)
-------- ------ --------
Total................................ 4,064.5 (73.2) 3,991.3
-------- ------ --------
EXPENSES:
Cost of sales................................ 2,050.5 18.6 2,069.1
Other operating expenses..................... 919.7 (19.5) 900.2
Interest..................................... 14.9 (14.9)
-------- ------ --------
Total operating costs and expenses... 2,985.1 (15.8) 2,969.3
-------- ------ --------
Operating income............................... 1,079.4 (57.4) 1,022.0
Net investment income.......................... 57.4 57.4
-------- ------ --------
Income before income taxes..................... 1,079.4 1,079.4
Income taxes................................... 427.6 427.6
-------- ------ --------
Net income..................................... $ 651.8 $ 651.8
======== ====== ========

D-18

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

REVENUES:
Investment income -- net..................... $ 51.9 $(51.9)
Net sales of manufactured products (including
federal excise taxes of $495.3)........... 2,807.5 $2,807.5
Other........................................ 5.7 (5.7)
-------- ------ --------
Total................................ 2,865.1 (57.6) 2,807.5
-------- ------ --------
EXPENSES:
Cost of sales................................ 961.9 17.4 979.3
Other operating expenses..................... 729.7 (16.8) 712.9
Fixed non-unit based settlement costs........ 579.0 579.0
Interest..................................... 1.4 (1.4)
-------- ------ --------
Total operating costs and expenses... 2,272.0 (0.8) 2,271.2
-------- ------ --------
Operating income............................... 593.1 (56.8) 536.3
Net investment income.......................... 56.8 56.8
-------- ------ --------
Income before income taxes..................... 593.1 593.1
Income taxes................................... 241.6 241.6
-------- ------ --------
Net income..................................... $ 351.5 $ 351.5
======== ====== ========

D-19

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED BALANCE SHEET
DECEMBER 31, 2000

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

ASSETS:
Investments:
Fixed maturities..........................
Equity securities......................... $ 13.8 $ 13.8
Other investments.........................
Short-term investments.................... 1,627.1 $ (125.8) 1,501.3
-------- --------- --------
Total investments............................ 1,640.9 (125.8) 1,515.1
Cash......................................... 1.4 1.4
Receivables -- net........................... 68.4 (5.2) 63.2
Inventories.................................. 269.3 269.3
Deferred income taxes........................ 311.0 311.0
-------- --------- --------
Total current assets................. 2,160.0
Property plant & equipment -- net............ 199.5 199.5
Prepaid pension assets....................... 143.0 143.0
Deferred income taxes........................ 344.8 (344.8)
Goodwill and other intangibles............... 0.6 (0.6)
Other assets................................. 416.2 (252.1) 164.1
-------- --------- --------
Total assets......................... $2,671.8 $ (5.2) $2,666.6
======== ========= ========
LIABILITIES AND COMBINED ATTRIBUTED NET ASSETS:
Accounts payable and accrued liabilities..... $ 398.8 $ 398.8
Settlement costs............................. 675.9 675.9
-------- --------- --------
Total current liabilities............ 1,074.7
Long-term debt, less unamortized discounts... $ 4.0 (4.0)
Settlement costs............................. 25.8 25.8
Postretirement health and life insurance
benefits.................................. 185.4 185.4
Other liabilities............................ 1,291.0 (1,287.1) 3.9
-------- --------- --------
Total liabilities.................... 1,295.0 (5.2) 1,289.8
Combined attributed net assets............... 1,376.8 1,376.8
-------- --------- --------
Total liabilities and combined attributed net
assets.................................... $2,671.8 $ (5.2) $2,666.6
======== ========= ========

D-20

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

ASSETS:
Investments:
Fixed maturities.......................... $ 5.6 $ (5.6)
Equity securities......................... 11.7 (11.7)
Other investments.........................
Short-term investments.................... 1,283.8 (1.9) $1,281.9
-------- --------- --------
Total investments............................ 1,301.1 (19.2) 1,281.9
Cash......................................... 2.0 2.0
Receivables -- net........................... 54.9 54.9
Inventories.................................. 230.6 230.6
Deferred income taxes........................ 298.7 298.7
-------- --------- --------
Total current assets................. 1,868.1
Property plant & equipment -- net............ 196.8 196.8
Prepaid pension assets....................... 83.1 83.1
Deferred income taxes........................ 334.1 (334.1)
Goodwill and other intangibles............... 1.1 (1.1)
Other assets................................. 320.0 (259.3) 60.7
-------- --------- --------
Total assets......................... $2,210.0 $ (1.3) $2,208.7
======== ========= ========
LIABILITIES AND COMBINED ATTRIBUTED NET ASSETS:
Accounts payable and accrued liabilities..... $ 473.6 $ 473.6
Settlement costs............................. 578.0 578.0
-------- --------- --------
Total current liabilities............ 1,051.6
Long-term debt, less unamortized discounts... $ 4.1 (0.1) 4.0
Settlement costs............................. 37.2 37.2
Postretirement health and life insurance
benefits.................................. 186.8 186.8
Other liabilities............................ 1,284.7 (1,276.8) 7.9
-------- --------- --------
Total liabilities.................... 1,288.8 (1.3) 1,287.5
Combined attributed net assets............... 921.2 921.2
-------- --------- --------
Total liabilities and combined
attributed net assets............. $2,210.0 $ (1.3) $2,208.7
======== ========= ========

D-21

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2001

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

REVENUES:
Investment income -- net..................... $ 46.6 $(46.6)
Investment (losses) gains.................... 2.1 (2.1)
Net sales of manufactured products (including
federal excise taxes of $311.1)........... 2,180.3 $2,180.3
Other........................................ 5.7 (5.7)
-------- ------ --------
Total................................ 2,234.7 (54.4) 2,180.3
-------- ------ --------
EXPENSES:
Cost of sales................................ 1,099.9 9.9 1,109.8
Other operating expenses..................... 728.0 (12.9) 715.1
Interest..................................... 0.3 (0.3)
-------- ------ --------
Total operating costs and expenses... 1,828.2 (3.3) 1,824.9
-------- ------ --------
Operating income............................... 406.5 (51.1) 355.4
Net investment income.......................... 51.1 51.1
-------- ------ --------
Income before income taxes..................... 406.5 406.5
Income taxes................................... 160.7 160.7
-------- ------ --------
Net income..................................... $ 245.8 $ 245.8
======== ====== ========

D-22

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2000

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

REVENUES:
Investment income -- net..................... $ 40.5 $(40.5)
Investment (losses) gains.................... (1.7) 1.7
Net sales of manufactured products (including
federal excise taxes of $337.3)........... 2,098.8 $2,098.8
Other........................................ 3.3 (3.3)
-------- ------ --------
Total................................ 2,140.9 (42.1) 2,098.8
-------- ------ --------
EXPENSES:
Cost of sales................................ 1,112.6 10.2 1,122.8
Other operating expenses..................... 443.4 (10.4) 433.0
Interest..................................... 1.1 (1.1)
-------- ------ --------
Total operating costs and expenses... 1,557.1 (1.3) 1,555.8
-------- ------ --------
Operating income............................... 583.8 (40.8) 543.0
Net investment income.......................... 40.8 40.8
-------- ------ --------
Income before income taxes..................... 583.8 583.8
Income taxes................................... 224.4 224.4
-------- ------ --------
Net income..................................... $ 359.4 $ 359.4
======== ====== ========

D-23

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

UNAUDITED COMBINED BALANCE SHEET
JUNE 30, 2001

CAROLINA GROUP RECLASSIFICATIONS TOTAL
-------------- ----------------- --------
(IN MILLIONS)

ASSETS:
Investments:
Fixed maturities..........................
Equity securities.........................
Other investments.........................
Short-term investments.................... $1,735.2 $ (25.9) $1,709.3
-------- --------- --------
Total investments............................ 1,735.2 (25.9) 1,709.3
Cash......................................... 1.0 1.0
Receivables -- net........................... 43.8 43.8
Inventories.................................. 282.3 282.3
Deferred income taxes........................ 321.9 321.9
--------
Total current assets................. 2,358.3
Property plant & equipment -- net............ 191.1 191.1
Prepaid pension assets....................... 156.6 156.6
Deferred income taxes........................ 437.3 (437.3)
Goodwill and other intangibles............... 0.3 (0.3)
Other assets................................. 440.2 (297.3) 142.9
-------- --------- --------
Total assets......................... $2,848.9 $2,848.9
======== ========= ========
LIABILITIES AND COMBINED ATTRIBUTED NET ASSETS:
Accounts payable and accrued liabilities..... $ 578.6 $ 578.6
Settlement costs............................. 688.7 688.7
--------
Total current liabilities............ 1,267.3
Settlement costs............................. 22.0 22.0
Postretirement health and life insurance
benefits.................................. 185.4 185.4
Other liabilities............................ $1,478.4 (1,474.7) 3.7
-------- --------- --------
Total liabilities.................... 1,478.4 1,478.4
Combined attributed net assets............... 1,370.5 1,370.5
-------- --------- --------
Total liabilities and combined attributed net
assets....................................... $2,848.9 $2,848.9
======== ========= ========

D-24

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Loews Corporation:

We have audited the accompanying combined balance sheets of the Carolina
Group as of December 31, 2000 and 1999, and the related combined statements of
income and changes in combined attributed net assets and cash flows for each of
the three years in the period ended December 31, 2000. The combined financial
statements include the accounts of Loews's (the "Company") wholly owned
subsidiary, Lorillard, Inc. and certain other defined obligations and tobacco
liabilities as described in Note 1 to these financial statements. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as,
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Carolina Group at December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Raleigh, North Carolina
February 15, 2001 (October 5, 2001 as to Note 9)

D-25

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

COMBINED STATEMENTS OF INCOME AND CHANGES
IN COMBINED ATTRIBUTED NET ASSETS

SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------- ------------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(UNAUDITED)
(DOLLAR AMOUNTS IN MILLIONS)

Net sales (including federal excise taxes
of $311.1, $337.3, $667.9, $512.6 and
$495.3)................................. $2,180.3 $2,098.8 $4,233.8 $3,991.3 $2,807.5
Cost of sales (Note 9).................... 1,109.8 1,122.8 2,197.7 2,069.1 979.3
Selling, advertising and administrative... 715.1 433.0 918.7 900.2 712.9
Fixed non-unit based settlement costs
(Note 9)................................ 579.0
-------- -------- -------- -------- --------
Total operating costs and expenses........ 1,824.9 1,555.8 3,116.4 2,969.3 2,271.2
-------- -------- -------- -------- --------
Operating income.......................... 355.4 543.0 1,117.4 1,022.0 536.3
Net investment income..................... 51.1 40.8 104.9 57.4 56.8
-------- -------- -------- -------- --------
Income before income taxes................ 406.5 583.8 1,222.3 1,079.4 593.1
Income taxes (Note 7)..................... 160.7 224.4 469.5 427.6 241.6
-------- -------- -------- -------- --------
Net income................................ 245.8 359.4 752.8 651.8 351.5
Combined attributed net assets, beginning
of period............................... 1,376.8 921.2 921.2 569.3 667.5
Dividends paid............................ (250.0) (200.0) (300.0) (300.0) (450.0)
Other..................................... (2.1) 1.1 2.8 0.1 0.3
-------- -------- -------- -------- --------
Combined attributed net assets, end of
period.................................. $1,370.5 $1,081.7 $1,376.8 $ 921.2 $ 569.3
======== ======== ======== ======== ========

See Notes to Combined Financial Statements

D-26

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

COMBINED BALANCE SHEETS

DECEMBER 31,
JUNE 30, --------------------
2001 2000 1999
----------- -------- --------
(UNAUDITED) (AUDITED)
(DOLLAR AMOUNTS IN MILLIONS)

ASSETS:
Cash and cash equivalents.............................. $1,710.3 $1,516.5 $ 170.9
Marketable securities.................................. 1,113.0
Trade receivables, less allowance for doubtful accounts
and cash discounts of $2.7, $2.9 and $3.7............ 43.8 63.2 54.9
Inventories:
Leaf tobacco......................................... 190.7 209.7 184.9
Manufactured stock................................... 85.7 53.5 39.1
Materials and supplies............................... 5.9 6.1 6.6
Deferred income taxes (Note 7)......................... 321.9 311.0 298.7
-------- -------- --------
Total current assets......................... 2,358.3 2,160.0 1,868.1
Plant and equipment-net (Note 3)....................... 191.1 199.5 196.8
Prepaid pension assets (Note 8)........................ 156.6 143.0 83.1
Deferred charges and other assets (Notes 7 and 8)...... 142.9 164.1 60.7
-------- -------- --------
Total assets................................. $2,848.9 $2,666.6 $2,208.7
======== ======== ========
LIABILITIES AND COMBINED ATTRIBUTED NET ASSETS:
Accounts and drafts payable............................ $ 20.9 $ 48.2 $ 42.8
Accrued liabilities (Note 4)........................... 329.6 342.2 350.5
Settlement costs (Note 9).............................. 688.7 675.9 578.0
Income taxes........................................... 228.1 8.4 80.3
-------- -------- --------
Total current liabilities.................... 1,267.3 1,074.7 1,051.6
Long-term debt (Note 5)................................ 4.0
Settlement costs (Note 9).............................. 22.0 25.8 37.2
Postretirement health and life insurance benefits
(Note 8)............................................. 185.4 185.4 186.8
Other non-current liabilities.......................... 3.7 3.9 7.9
-------- -------- --------
Total liabilities............................ 1,478.4 1,289.8 1,287.5
Commitments and Contingent Liabilities (Notes 5, 6, 7,
8 and 9)
Combined attributed net assets......................... 1,370.5 1,376.8 921.2
-------- -------- --------
Total liabilities and combined attributed net
assets.................................... $2,848.9 $2,666.6 $2,208.7
======== ======== ========

See Notes to Combined Financial Statements

D-27

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

COMBINED STATEMENTS OF CASH FLOWS

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------- --------------------------------
2001 2000 2000 1999 1998
-------- -------- -------- --------- ---------
(UNAUDITED) (AUDITED)
(DOLLAR AMOUNTS IN MILLIONS)

Cash flows from operating activities:
Net income............................................. $ 245.8 $ 359.4 $ 752.8 $ 651.8 $ 351.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 12.8 12.6 25.1 23.9 22.4
Deferred income taxes.................................. (92.5) (12.6) (10.9) (181.0) (45.6)
Amortization of marketable securities.................. (11.5) (11.5) (35.9) (19.8)
Changes in operating assets and liabilities:
Receivables.......................................... 19.4 18.1 (8.3) (13.1) (16.5)
Inventories.......................................... (13.0) 15.8 (38.7) (9.0) 6.3
Accounts payable and accrued liabilities............. (40.0) (49.1) (5.8) 110.4 (2.0)
Settlements.......................................... 9.0 76.5 86.5 414.0 83.5
Accrued taxes........................................ 219.7 (12.5) (72.2) 50.0 (14.1)
Deferred charges and other assets...................... 102.4 2.2 (105.1) 11.9 18.1
Postretirement and pension benefits payable............ (13.6) 0.5 (61.3) 4.1 (2.9)
Other.................................................. (2.0) (2.5) (0.2) (2.2) (1.1)
-------- -------- -------- --------- ---------
Net cash provided by operating activities.............. 448.0 396.9 550.4 1,024.9 379.8
-------- -------- -------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities..................... (483.6) (483.6) (2,459.7) (1,595.9)
Proceeds from sale of marketable securities............ 1,607.6 1,607.6 1,736.9 1,480.8
Additions to plant and equipment....................... (14.4) (9.2) (30.1) (20.7) (18.9)
Proceeds from disposal of plant and equipment.......... 10.2 0.4 1.4 2.2 1.7
-------- -------- -------- --------- ---------
Net cash (used) provided by investing activities....... (4.2) 1,115.2 1,095.3 (741.3) (132.3)
-------- -------- -------- --------- ---------
Cash flows from financing activities:
Dividends.............................................. (250.0) (200.0) (300.0) (300.0) (450.0)
Payments on long-term debt............................. (0.1) (0.1) (0.1) (0.1)
-------- -------- -------- --------- ---------
Net cash used in financing activities.................. (250.0) (200.1) (300.1) (300.1) (450.1)
-------- -------- -------- --------- ---------
Change in cash and cash equivalents.................... 193.8 1,312.0 1,345.6 (16.5) (202.6)
Cash and cash equivalents, beginning of period......... 1,516.5 170.9 170.9 187.4 390.0
-------- -------- -------- --------- ---------
Cash and cash equivalents, end of period............... $1,710.3 $1,482.9 $1,516.5 $ 170.9 $ 187.4
======== ======== ======== ========= =========
Cash paid for:
Income taxes......................................... $ 33.5 $ 249.3 $ 552.6 $ 558.7 $ 298.8
Interest............................................. 0.1 $ 14.3 $ 15.8 $ 1.5 $ 1.4
======== ======== ======== ========= =========

See Notes to Combined Financial Statements

D-28

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

CAROLINA GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN MILLIONS)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation -- The Carolina Group consists of Loews's 100% stock
ownership interest in Lorillard, Inc., and any and all liabilities, costs and
expenses of Loews and Lorillard, Inc. and its subsidiaries and predecessors
arising out of or related to tobacco or otherwise arising out of the past,
present or future business of Lorillard, Inc. or its subsidiaries or
predecessors, or claims arising out of or related to the sale of any businesses
previously sold by Lorillard, Inc. or its subsidiaries or predecessors, in each
case, whether grounded in tort, contract, statute or otherwise, whether pending
or asserted in the future.

The combined financial statements reflect the results of operations,
financial position, changes in combined attributed net assets and cash flows of
the Carolina Group as if it were a separate entity for all periods presented.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in combined
attributed net assets and cash flows of the Carolina Group had it been a
separate, stand-alone entity during the periods presented. The combined
financial statements of the Carolina Group reflect all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the financial
position as of June 30, 2001 and the results of operations and changes in cash
flows for the six months ended June 30, 2001 and 2000. These financial
statements should be read in conjunction with Loews's annual report on Form
10-K/A for the year ended December 31, 2000 and quarterly report on Form 10-Q
for the six months ended June 30, 2001.

The combined financial statements of the Carolina Group were prepared in
accordance with accounting principles generally accepted in the United States of
America. The combined financial statements of the Carolina Group reflect the
assets, liabilities, revenue and expenses directly attributable to the Carolina
Group, as well as allocations deemed reasonable by Loews's management, to
present the results of operations, financial position and cash flows of the
Carolina Group on a stand-alone basis. All significant intercompany accounts and
transactions within the Carolina Group have been eliminated.

Lorillard, Inc.'s principal asset is its 100% ownership interest in
Lorillard Tobacco Company. Throughout this document, we refer to Lorillard, Inc.
and its subsidiaries as "Lorillard." Lorillard is engaged in the manufacture and
sale of cigarettes. Its principal products are marketed under the brand names
Newport, Kent, True, Maverick and Old Gold with substantially all of its sales
in the United States. Sales by Lorillard to one customer represented 14.1%,
12.7% and 12.3% of total sales of the Carolina Group in 2000, 1999 and 1998,
respectively.

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the consolidated
financial statements and related notes. Actual results could differ from those
estimates.

Accounting changes -- In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." This bulletin summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. This bulletin, through its
subsequent revised releases, SAB No. 101A and No. 101B, was effective for
registrants no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. Adoption of this bulletin, which occurred on October 1,
2000, did not have a significant impact on the results of operations or equity
of the Carolina Group.

D-29

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

Cash equivalents and marketable securities -- Cash equivalents consist of
short-term liquid investments with a maturity at date of purchase of three
months or less. The Carolina Group's investments in cash equivalents and
marketable securities are classified as debt securities available-for-sale and
consist of U.S. government, federal agency, and corporate debt securities, that
mature within one year. Those investments are stated at fair value. Gross
realized gains and losses and unrealized holding gains and losses were not
material. The cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. The amortized cost basis approximates
fair value. Interest and dividend income are included as a component of
investment income. The cost of securities sold is based on the specific
identification method and transactions are recorded on the trade date.

Inventories -- Inventories are valued at the lower of cost, determined on a
last-in, first-out basis (LIFO), or market. The inventory of leaf tobacco is
classified as a current asset in accordance with generally recognized trade
practice; although, due to the duration of the aging processes, a significant
portion of the tobacco on hand will not be sold or used within one year. If the
average cost method of accounting had been used, inventories would have been
greater by approximately $206.7 at June 30, 2001, and $205.7 and $212.6 at
December 31, 2000 and 1999, respectively.

Depreciation -- Buildings, machinery and equipment are depreciated for
financial reporting purposes on the straight line method over estimated useful
lives of those assets. Depreciation for tax purposes is provided on an
accelerated basis.

Revenue recognition -- Revenue from product sales is recognized upon
shipment of goods when title and risk of loss passes to customers.

Tobacco settlement costs -- Lorillard's obligations under the State
Settlement Agreements require annual payments 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 sales as the related sales occur. The 1998 charges represent
Lorillard's share of all fixed and determinable portions of its obligations
under the tobacco settlements and are not considered a component of cost of
sales.

Accounting pronouncements -- In June 2000, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." This Statement addressed a limited number of issues caused
by implementation difficulties for entities applying SFAS No. 133. SFAS No. 133,
as amended and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts. SFAS No. 133 requires that an entity recognize all derivative
instruments as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Carolina Group adopted SFAS No. 133, as
amended, on January 1, 2001. The adoption of SFAS No. 133 did not have a
material impact on the financial position or results of operations of the
Carolina Group.

D-30

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

charge to the customer that can be used in, or that are exercisable by a
customer as a result of, a single exchange transaction. Implementation of the
recognition and measurement criteria will not have a material impact on the
Carolina Group's results of operations or attributed net assets. Issue 00-25
addresses whether consideration from a vendor to a reseller of the vendor's
products is (a) an adjustment of the selling prices of the vendor's products
and, therefore, should be deducted from revenue when recognized in the vendor's
income statement or (b) a cost incurred by the vendor for assets or services
received from the reseller and, therefore, should be included as a cost or an
expense when recognized in the vendor's income statement. As a result of both
issues, certain costs historically included in selling, advertising and
administrative expenses will be reclassified to cost of sales, or as reductions
of net sales. Prior period amounts will be reclassified for comparative
purposes.

2. RELATED PARTY TRANSACTIONS

Loews and Lorillard are parties to a services agreement in which Loews
performs certain administrative and technical services on behalf of Lorillard.
Such services include internal auditing, accounting, and cash management
services, in addition to advice and assistance with respect to preparation of
tax returns. Under the agreement, Lorillard is required to reimburse Loews for
(i) allocated personnel costs of Loews personnel actually providing such
services and (ii) all out-of-pocket expenses related to the provision of such
services. Lorillard was charged $0.1 and $0.1 for the six month periods ended
June 30, 2001 and 2000, respectively, and $0.2, $0.1 and $3.5 during the years
ended December 31, 2000, 1999, and 1998, respectively. The cost allocated to
Lorillard, which is not calculated on an arm's length basis, is estimated to be
the incremental cost incurred by Loews in providing these services to Lorillard.

In addition, Lorillard provides computer services to Loews and its
subsidiaries. Lorillard charged Loews $0.4 and $1.1 during the six months ended
June 30, 2001 and 2000, respectively, and $2.6, $2.9 and

D-31

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

$3.0 during the years ended December 31, 2000, 1999, and 1998, respectively, as
reimbursement for such services. The amount billed by Lorillard to Loews and its
subsidiaries, which is not calculated on an arm's length basis, is estimated to
be the incremental cost incurred by Lorillard in providing these services.

3. PLANT AND EQUIPMENT

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

DECEMBER 31,
JUNE 30, ------------------
2001 2000 1999
----------- ------- -------
(UNAUDITED)

Land................................................ $ 8.1 $ 10.4 $ 10.4
Buildings........................................... 97.3 103.0 102.4
Equipment........................................... 335.7 325.2 303.7
------- ------- -------
Total..................................... 441.1 438.6 416.5
Accumulated depreciation............................ (250.0) (239.1) (219.7)
------- ------- -------
Net plant and equipment................... $ 191.1 $ 199.5 $ 196.8
======= ======= =======

4. ACCRUED LIABILITIES

Accrued liabilities were as follows:

DECEMBER 31,
JUNE 30, ----------------
2001 2000 1999
----------- ------ ------
(UNAUDITED)

Legal fees............................................ $ 39.8 $ 40.2 $ 32.4
Salaries and other compensation....................... 16.4 14.0 13.6
Pension, medical and other employee benefit plans..... 23.7 26.5 30.8
Consumer rebates...................................... 88.6 117.9 129.4
Sales promotion....................................... 42.6 33.4 15.1
Advertising........................................... 3.2 9.4 15.7
Excise and other taxes................................ 69.6 44.6 53.9
Other accrued liabilities............................. 45.7 56.2 59.6
------ ------ ------
Total....................................... $329.6 $342.2 $350.5
====== ====== ======

D-32

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

5. DEBT

Long-term debt was as follows:

DECEMBER 31,
---------------
2000 1999
----- ----

8.75% mortgage note due 2001................................ $ 4.0 $4.1
Less current portion........................................ (4.0) (.1)
----- ----
Net long-term debt.......................................... $ -- $4.0
===== ====

6. LEASE OBLIGATIONS

Lorillard leases certain real estate and transportation equipment under
various operating leases. Listed below are future minimum rental payments
required under those operating leases with noncancellable terms in excess of one
year at December 31, 2000.

2001........................................................ $ 5.5
2002........................................................ 4.2
2003........................................................ 0.8
2004........................................................ 0.2
2005........................................................ 0.2
-----
Net minimum lease payments.................................. $10.9
=====

Rental expense for all operating leases was $3.7 and $3.4 for the six
months ended June 30, 2001 and 2000, respectively, and $6.8, $10.0 and $35.1 for
the years ended December 31, 2000, 1999 and 1998, respectively.

7. INCOME TAXES

Lorillard is a member of the Loews affiliated group that files consolidated
federal income tax returns. Lorillard and Loews have a Federal Income Tax
Allocation Agreement that provides for payments with respect to the federal
income tax liability which Lorillard would have if it were not a member of the
Loews affiliated group.

D-33

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

The provision (benefit) for income taxes consisted of the following:

SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
2001 2000 2000 1999 1998
------ ------ ------ ------ ------
(UNAUDITED)

Current
Federal...................................... $216.9 $205.1 $414.5 $493.8 $233.8
State........................................ 36.3 32.0 65.9 114.8 53.4
Deferred
Federal...................................... (72.2) (10.1) (6.4) (149.4) (37.3)
State........................................ (20.3) (2.6) (4.5) (31.6) (8.3)
------ ------ ------ ------ ------
Total................................ $160.7 $224.4 $469.5 $427.6 $241.6
====== ====== ====== ====== ======

Deferred tax assets (liabilities) are as follows:

DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------

Legal..................................................... $ 16.3 $ 14.8 $ 7.1
Employee benefits......................................... 29.7 56.3 50.3
Settlement costs.......................................... 285.0 253.6 77.0
Consumer rebates.......................................... 18.5 16.9 18.9
Depreciation.............................................. (17.3) (18.3) (19.8)
State and local income taxes.............................. 10.3 (4.1) 9.5
Allowance for doubtful accounts........................... -- -- 2.2
Inventory capitalization.................................. 15.5 15.5 8.9
Other -- net.............................................. (13.2) (0.6) (1.3)
------ ------ ------
$344.8 $334.1 $152.8
====== ====== ======

D-34

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

A reconciliation between the statutory federal income tax rate and the
Carolina Group's effective income tax rate is as follows:

SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------
2001 2000 2000 1999 1998
---- ---- ----- ----- -----
(UNAUDITED)

Statutory rate...................................... 35.0% 35.0% 35.0% 35.0% 35.0%
Increase (decrease) in rate resulting from:
State taxes....................................... 2.6 3.3 3.3 5.0 4.9
Other............................................. 1.9 0.1 0.1 (0.4) 0.8
---- ---- ---- ---- ----
Effective rate...................................... 39.5% 38.4% 38.4% 39.6% 40.7%
==== ==== ==== ==== ====

The consolidated federal income tax returns filed by Loews have been
settled through 1994. Years 1995 through 1997 are currently under examination by
the Internal Revenue Service. In the opinion of management, the amount accrued
in the consolidated balance sheet is believed to be adequate to cover any
additional assessments which may be made by federal, state and local tax
authorities and such assessments, if any, should not have a material effect on
the financial condition or results of operations of the Carolina Group.

8. RETIREMENT PLANS

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

Pension and postretirement benefits -- The Salaried Pension Plan provides
benefits based on employees' compensation and service. The Hourly Pension Plan
provides benefits based on fixed amounts for each year of service. Lorillard
also provides medical and life insurance benefits to eligible retired employees.
The following provides a reconciliation of benefit obligations, plan assets and
funded status of the pension and postretirement plans.

D-35

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------------
2000 1999 2000 1999
------ ------ ------- -------

Change in benefit obligation:
Benefit obligation at beginning of year........... $580.9 $631.8 $ 122.1 $ 125.0
Service cost...................................... 10.5 12.3 3.3 3.4
Interest cost..................................... 45.6 42.3 9.4 8.1
Plan participants' contribution................... -- -- 3.9 3.1
Amendments........................................ 5.9 9.7 0.5 --
Actuarial loss/(gain)............................. 37.6 (76.3) (6.2) (9.0)
Transfer in....................................... -- -- -- --
Benefits paid..................................... (44.3) (38.9) (10.6) (8.5)
------ ------ ------- -------
Benefit obligation at end of year................. $636.2 $580.9 $ 122.4 $ 122.1
====== ====== ======= =======
Change in plan assets:
Fair value of plan assets at beginning of year.... $551.7 $579.2 $ -- $ --
Actual return on plan assets...................... 84.1 (10.7) -- --
Employer contribution............................. 95.4 22.1 6.7 5.4
Plan participants' contribution................... -- -- 3.9 3.1
Transfer in....................................... -- -- -- --
Benefits paid..................................... (44.3) (38.9) (10.6) (8.5)
------ ------ ------- -------
Fair value of plan assets at end of year.......... $686.9 $551.7 $ -- $ --
====== ====== ======= =======
Funded status..................................... $ 50.8 $(29.2) $(122.4) $(122.1)
Unrecognized net actuarial loss/(gain)............ 62.4 66.3 (71.2) (69.9)
Unrecognized prior service cost................... 30.4 28.8 (0.3) (0.9)
Unrecognized net obligation....................... 0.4 6.3 -- --
------ ------ ------- -------
Net amount recognized............................. $144.0 $ 72.2 $(193.9) $(192.9)
====== ====== ======= =======

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------------
2000 1999 2000 1999
------ ------ -------- --------

Amounts recognized in balance sheet consist of:
Prepaid (accrued) benefit cost...................... $143.0 $ 83.1 $(193.9) $(192.9)
Accrued benefit liability........................... -- (10.9) -- --
Intangible asset.................................... 1.0 -- -- --
------ ------ ------- -------
Net amount recognized............................... $144.0 $ 72.2 $(193.9) $(192.9)
====== ====== ======= =======

D-36

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----

Weighted-average assumptions at December 31:
Discount rate................................ 7.50% 8.00% 6.75% 7.50% 8.00% 6.75%
Expected return on plan assets............... 8.00% 6.75% 7.00% N/A N/A N/A
Rate of compensation increase................ 5.50% 5.50% 5.50% N/A N/A N/A
Ultimate trend rate assumptions.............. N/A N/A N/A 5.50% 6.00% 4.75%

For measurement purposes at December 31, 2000 health care costs for 2000
for the plans were assumed at an annual rate of 9.00% pre-65 and 11.00% post-65.
Those rates were assumed to decrease gradually to 5.50% in 2008 for pre-65 and
5.50% in 2012 for post-65 and remain at that level thereafter. Net periodic
pension and other postretirement benefit costs include the following components:

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------ ---------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ----- ----- -----

Components of net periodic benefit cost:
Service cost.................................... $ 10.5 $ 12.3 $ 11.4 $ 3.3 $ 3.4 $ 3.3
Interest cost................................... 45.6 42.3 40.6 9.4 8.1 8.0
Expected return on plan assets.................. (43.9) (38.2) (37.7) -- -- --
Amortization of unrecognized net obligation..... 5.9 5.9 5.9 -- -- --
Amortization of unrecognized net loss (gain).... 1.3 3.0 2.6 (5.0) (4.6) (5.4)
Amortization of unrecognized prior service
cost......................................... 4.3 4.0 4.2 (0.1) (0.2) (0.1)
------ ------ ------ ----- ----- -----
Net periodic benefit cost....................... $ 23.7 $ 29.3 $ 27.0 $ 7.6 $ 6.7 $ 5.8
====== ====== ====== ===== ===== =====

A one-percentage-point change in assumed health care cost trend rate would
change the postretirement benefit obligation by approximately $8.0 and the
aggregate service and interest cost components by $1.0.

Profit Sharing -- Lorillard has a non-contributory Profit Sharing Plan for
hourly employees. Company contributions under this plan are based on Lorillard's
performance with a maximum contribution of 15% of participants' earnings.
Contributions for 2000, 1999 and 1998 were $9.1, $10.2 and $9.4, respectively.

Savings Plan -- Lorillard sponsors an Employees Savings Plan for salaried
employees. Lorillard provides a contribution of 1% of employee compensation up
to a maximum of one thousand dollars a year. Additionally, for employees who
were participants in the Plan on December 31, 1981, Lorillard's contribution is
increased by an additional .04% to 1.3% of compensation depending on age.
Lorillard contributions for 2000, 1999 and 1998 were $1.4, $1.4 and $1.3,
respectively.

9. LEGAL PROCEEDINGS, CONTINGENT LIABILITIES AND COMMITMENTS

Throughout this section, information regarding pending cases is as of
October 5, 2001.

D-37

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

D-38

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

SIGNIFICANT RECENT DEVELOPMENTS

On October 5, 2001, a jury returned a verdict in favor of the defendants in
Tompkin v. Brown & Williamson Tobacco Corp., et al., a conventional product
liability case in the United States District Court for the Northern District of
Ohio. Lorillard is a defendant in the case. The deadline for plaintiff to file
any post-trial motions or to seek appellate review of the verdict has not
expired.

On June 6, 2001, a jury awarded $5.5 in compensatory damages and $3,000.0
in punitive damages to the plaintiff in Boeken v. Philip Morris, Inc., a
conventional product liability case in the Superior Court of Los Angeles County,
California. The court ruled that it would grant in part Philip Morris's motion
for a new trial and hold a new trial limited to plaintiff's punitive damages
claim if plaintiff did not consent to a reduction of the award to $100.0.
Plaintiff accepted the reduced award and the trial court entered an amended
judgment awarding plaintiff $100.0 in punitive damages. Philip Morris has
noticed an appeal from the amended judgment to the California Court of Appeals.
Neither Loews nor Lorillard was a defendant in this matter.

On June 4, 2001, the jury in the case of Blue Cross and Blue Shield of New
Jersey, Inc., et al. v. Philip Morris, Incorporated, et al., a health plan
reimbursement case pending in the U.S. District Court for the Eastern District
of New York, returned a verdict awarding damages against the defendants,
including Lorillard. In this trial, the jury heard evidence as to the claims of
only one of the plan plaintiffs, Empire Blue Cross and Blue Shield, referred to
as "Empire." In its June 4, 2001 verdict, the jury found in favor of the
defendants on some of Empire's claims, one of which findings precluded the jury
from considering Empire's claims for punitive damages. The jury found in favor
of Empire on certain other of plaintiff's claims. As a result of these findings,
Empire is entitled to an award of approximately $17.8 in total actual damages,
including approximately $1.5 attributable to Lorillard. Final judgment
reflecting this verdict has not been entered. The court denied plaintiff's
post-verdict application for trebling of the damages awarded by the jury.
Plaintiff's counsel has sought an award of $39.0 in attorneys' fees. The court
has not ruled on this application.

D-39

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

SETTLEMENT OF STATE REIMBURSEMENT CASES

Lorillard recorded pre-tax charges of $581.3 and $547.9 for the six months
ended June 30, 2001 and 2000, respectively, and $1,076.5, $1,065.8 and $579.0
for the years ended December 31, 2000, 1999 and 1998, respectively, to account
for its obligations under the State Settlement Agreements. The 1998 charges
represent Lorillard's share of all fixed and determinable portions of its
obligations under the tobacco settlements. For periods subsequent to December
31, 1998, 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 sales as the related sales occur.

The State Settlement Agreements require that the domestic tobacco industry
make annual payments in the following amounts, subject to adjustment for several
factors, including inflation, market share and industry volume: 2001, $9,900.0;
2002, $11,300.0; 2003, $10,900.0; 2004 through 2007, $8,400.0; and thereafter,
$9,400.0. In addition, the domestic tobacco industry is required to pay settling
plaintiffs' attorneys' fees, subject to an annual cap of $500.0, as well as
additional amounts of $250.0 per annum for 2001 through 2003. These payment
obligations are the several and not joint obligations of each settling
defendant.

In addition, as part of the Master Settlement Agreement, the Original
Participating Manufacturers committed to work cooperatively with the tobacco
growing community to address concerns about the potential adverse economic
impact on that community. On January 21, 1999, the Original Participating
Manufacturers reached an agreement to establish a $5,150.0 trust fund payable
between 1999 and 2010 to compensate the tobacco growing communities in 14
states. Payments to the trust fund are to be allocated among the Original
Participating Manufacturers according to their relative market share of domestic
cigarette shipments, except that Philip Morris paid more than its market share
in 1999 but will have its payment obligations reduced in 2009 and 2010 to make
up for the overpayment. Of the total $5,150.0, a total of $1,060.0 was paid in
1999, 2000 and 2001, $61.4 of which was paid by Lorillard. Lorillard believes
that its remaining payments under the agreement will total approximately $454.0.
All payments will be

D-40

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

adjusted for inflation, changes in the unit volume of domestic cigarette
shipments, and the effect of new increases in state or federal excise taxes on
tobacco products that benefit the tobacco growing community.

CONVENTIONAL PRODUCT LIABILITY CASES

Lorillard was not a defendant in 15 of the individual cases tried since
January 1, 1999. Juries have returned verdicts in favor of the defendants in ten
of these 15 cases. In the five cases decided in plaintiffs' favor, juries have
awarded various amounts. In a 2000 case, a Florida jury awarded plaintiff $0.2
in actual damages but declined to award punitive damages. In a June 2001
verdict, as discussed under "Significant Recent Developments," a California jury
awarded the plaintiff approximately $5.5 in actual damages and $3,000.0 in
punitive damages, although the court subsequently reduced the punitive damages
award to $100.0. The three other cases in which juries found in favor of the
plaintiffs resulted in awards of $51.5 by a California jury in 1999 (reduced to
$26.5 by the trial court); $80.3 by an Oregon jury in 1999 (reduced to $32.8 by
the trial court); and $21.5 by a California jury in 2000.

As a result of pending appeals or post-trial motions, plaintiffs have not
been able to execute on any of the judgments reflecting these adverse verdicts.
In the Florida case that resulted in the award of $0.2, the trial court granted
defendant's post-trial motion and entered judgment in favor of the defendant.
Plaintiff, however, has noticed an appeal. In the California case that resulted
in the $3,000.0 award in punitive damages, the court reduced the punitive
damages award to $100.0. The defendant has noticed an appeal from the judgment.
The three additional suits are also on appeal.

During 2001, juries have returned verdicts in six conventional product
liability cases. Verdicts in favor of defendants were returned in five of the
cases, including the two in which Lorillard was a defendant. The

D-41

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

sixth, and the only one resolved in favor of the plaintiffs during 2001, was the
one discussed above that resulted in the award of $3,000.0 in punitive damages
(subsequently reduced to $100.0 by the trial court).

During 2001, another cigarette manufacturer, Brown & Williamson Tobacco
Corporation, paid $1.1 in damages and interest to a former smoker and his spouse
for injuries incurred as a result of smoking. Carter v. Brown & Williamson
Tobacco Corporation (Circuit Court, Duval County, Florida, filed February 10,
1995). In the 1996 trial of that case, the jury awarded plaintiffs a total of
$0.8 in damages. Plaintiffs did not seek punitive damages. In 1998, the Florida
Court of Appeal reversed the judgment, holding that plaintiffs' claims were
barred by the statute of limitations. The Florida Supreme Court, however,
reinstated the jury's damages award during 2000 and denied Brown & Williamson's
motion for rehearing during 2001. Brown & Williamson's motion to stay the
mandate pending the resolution of its petition for writ of certiorari to the
U.S. Supreme Court was denied. Brown & Williamson therefore paid approximately
$1.1 in damages and interest to the plaintiffs during 2001. Brown & Williamson
subsequently filed a petition for writ of certiorari with the U.S. Supreme
Court. On June 29, 2001, the U.S. Supreme Court declined to accept for review
the petition for writ of certiorari. Lorillard was not a defendant in this
matter.

The suits were filed as a result of a settlement agreement on October 10,
1997 by the parties to Broin v. Philip Morris Companies, Inc., et al. (Circuit
Court, 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 was approved by the trial
court on February 3, 1998. Pursuant to the settlement agreement, among other
things, Lorillard and three other U.S. cigarette manufacturers paid
approximately $300.0 to create and endow a research institute to study diseases
associated with cigarette smoke. In addition, the settlement agreement permitted
the plaintiff class members to file individual suits. These individuals may not
seek punitive damages for injuries that arose prior to January 15, 1997.

D-42

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

caused by their exposure to environmental tobacco smoke and, if so, the amount
of damages to be awarded. It is not clear how the trial judges will apply this
order. The Third District of the Florida Court of Appeal dismissed as premature
defendants' appeal from the October 2000 decision.

CLASS ACTION CASES

D-43

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

plaintiffs seek punitive damages and some seek treble damages. Plaintiffs in
many of the cases seek medical monitoring. Plaintiffs in some of the purported
class action cases are represented by a well-funded and coordinated consortium
of approximately 60 law firms throughout the United States.

The Engle Case. Trial began during July of 1998 in the case of Engle v.
R.J. Reynolds Tobacco Co., et al. (Circuit Court, Dade County, Florida, filed
May 5, 1994). The trial court, as amended by the Florida Court of Appeal,
granted class certification on behalf of Florida residents and citizens, and
survivors of such individuals, who have been injured or have died from medical
conditions allegedly caused by their addiction to cigarettes containing
nicotine.

On April 7, 2000, the jury found in favor of the three plaintiffs and
awarded them a total of $12.5 in economic damages, pain and suffering damages
and damages for loss of consortium. After awarding damages to one of the three
plaintiffs, the jury appeared to find that his claims were barred by the statute
of limitations. The final judgment entered by the trial court on November 6,
2000 reflected the damages award, and held only a portion of this plaintiff's
claims were barred by the statute of limitations.

The second part of Phase Two of the trial began on May 22, 2000 and was
heard by the same jury that heard the trial's prior phases and considered
evidence as to the punitive damages to be awarded to the class. On July 14,
2000, the jury awarded a total of $145,000.0 in punitive damages against all
defendants, including $16,250.0 against Lorillard.

D-44

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

of the Florida Court of Appeal and has posted its appellate bond in the amount
of $100.0 pursuant to recent Florida legislation limiting 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 believes this
legislation is valid and that any challenges to the possible application or
constitutionality of this legislation would fail, during May of 2001, Lorillard
and two other defendants jointly contributed a total of $709.0 to a fund that
will not be recoverable by them even if challenges to the judgment are resolved
in favor of the defendants. As a result, the class has agreed to a stay of
execution, referred to as the Engle agreement, on its punitive damages judgment
until appellate review is completed, including any review by the U.S. Supreme
Court. Lorillard contributed a total of $200.0 to this fund, which included the
$100.0 that was posted as collateral for its appellate bond. Accordingly,
Lorillard has recorded a pre-tax charge of $200.0 in the quarter ending June 30,
2001.

In the event that Lorillard's balance sheet net worth falls below $921.2
(as determined in accordance with generally accepted accounting principles in
effect as of July 14, 2000), the stay granted in favor of Lorillard in the Engle
agreement would terminate and the class would be free to challenge the Florida
legislation.

D-45

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

state court decisions which have held that mass smoking and health claims are
inappropriate for class treatment. Lorillard has challenged the class
certification, as well as numerous other legal errors that it believes occurred
during the trial. Lorillard believes that an appeal of these issues on the
merits should prevail.

Jury selection began during June 2001 in the case of Scott v. The American
Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May
24, 1996). A twelve-member jury and ten alternate jurors were selected, but the
Louisiana Court of Appeals and the Louisiana Supreme Court, in response to writ
applications initiated by the defendants, excused a total of nine jurors or
alternate jurors. The Supreme Court has directed the trial court to re-open the
jury selection process in order to select additional jurors. In their writ
applications, defendants contended that several selected jurors had family
members who were potential members of the class certified by the trial court,
and that the selected jury was biased against the defendants. As of October 5,
2001, the trial court had not announced when the process to select new jurors
would begin. The trial court has certified a class comprised of residents of 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
allege that defendants undermined compliance with the warnings on cigarette
packages. Lorillard is a defendant in the case.

During December 2000, the Superior Court of San Diego County, California
issued an order in the case of Daniels v. Philip Morris, Incorporated, et al.
that granted plaintiffs' motion for class certification on behalf of California
residents who, while minors, smoked at least one cigarette between April 1994
and December 31, 1999. Trial in this matter is scheduled to begin during May
2002, although the court has indicated that trial may be delayed until July
2002. Lorillard is a defendant in the case.

During April 2001, the Superior Court of San Diego County, California in
the case of Brown v. The American Tobacco Company, Inc., et al., granted in part
plaintiff's motion for class certification and certified a class comprised of
adult residents of California who smoked at least one of defendants' cigarettes
"during the applicable time period" and who were exposed to defendants'
marketing and advertising activities in California. Certification was granted as
to plaintiff's claims that defendants violated California Business and
Professions Code sec. 17200 and sec. 17500. The court subsequently defined "the

D-46

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

applicable class period" for plaintiffs' claims, pursuant to a stipulation
entered by the parties, as June 10, 1993 through April 23, 2001. Trial is
scheduled to begin during October 2002. Lorillard is a defendant in the case.

REIMBURSEMENT CASES

U.S. Federal Government Action. The U.S. federal government filed a
reimbursement suit on September 22, 1999 in the U.S. District Court for the
District of Columbia against Lorillard, other U.S. cigarette manufacturers, some
parent companies and two trade associations. Loews is not a defendant in this
action. Plaintiff asserted claims under the Medical Care Recovery Act, the
Medicare as Secondary Payer provisions of the Social Security Act, and the
Racketeer Influenced and Corrupt Organizations Act. The government alleges in
the complaint that it has incurred costs of more than $20,000.0 annually in
providing health care costs under several federal programs, including Medicare,
military and veterans' benefits programs, and the Federal Employee Health
Benefits Program. The federal government seeks to recover an unspecified amount
of health care costs, and various types of other relief, including disgorgement
of profits, injunctive relief and declaratory relief that defendants are liable
for the government's future costs of providing health care resulting from the
defendants' alleged wrongful conduct.

D-47

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

Reimbursement Cases filed by Foreign Governments in U.S. Courts. Cases
have been brought in U.S. courts by the nations of Belize, Bolivia, Ecuador,
Guatemala, Honduras, Kyrgyz, Nicaragua, Panama, the Russian Federation,
Tajikistan, Thailand, Ukraine and Venezuela, as well as ten Brazilian states, 11
Brazilian cities and one Canadian province. Both Loews and Lorillard are named
as defendants in the cases filed by Belize, Bolivia, Ecuador, Honduras, Kyrgyz,
the Russian Federation, Tajikistan, Ukraine and Venezuela, the ten Brazilian
states, nine of the 11 Brazilian cities and the Canadian province. Loews has not
received service of process of the cases filed by Honduras or Venezuela. The
suits filed by Ecuador, Kyrgyz and Thailand have been voluntarily dismissed by
the plaintiffs. A federal court of appeal has affirmed the trial court's orders
dismissing the cases filed by Guatemala, Nicaragua and Ukraine and plaintiffs
have filed petitions for writ of certiorari with the U.S. Supreme Court with
respect to the ruling. The case filed by the Province of Ontario, Canada is
pending on appeal following the entry of an order granting defendants' motion to
dismiss the complaint. In addition, Lorillard and Loews were dismissed from two
suits that remain pending against other defendants. One of these cases was filed
by the Marshall Islands, while the plaintiff in the other remaining suit is one
of the Brazilian states. Each of the remaining cases is in the pre-trial,
discovery stage.

On June 4, 2001, trial concluded in the case of Blue Cross and Blue Shield
of New Jersey. For a discussion of this case, see "Significant Recent
Developments."

D-48

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

EASTERN DISTRICT OF NEW YORK LITIGATION

On April 18, 2000, a federal judge in the Eastern District of New York
issued an order that consolidates, for settlement purposes only, ten pending
cases involving Lorillard as well as other industry defendants. These cases
include three contribution cases (Falise v. The American Tobacco Company, et
al., H.K. Porter Company, Inc. v. The American Tobacco Company, Inc., et al. and
Raymark Industries, Inc. v. The American Tobacco Company, Inc., et al.), two
union cases (Bergeron, et al. v. Philip Morris, Inc., et al. and The National
Asbestos Workers Medical Fund, et al. v. Philip Morris Incorporated, et al.),
one private company case (Blue Cross and Blue Shield of New Jersey, Inc., et al.
v. Philip Morris Incorporated, et al.), two smoking and health class actions
that have been served on defendants (Decie v. The American Tobacco Company,
Inc., et al. and Simon v. Philip Morris Incorporated, et al.), one smoking and
health class action in which none of the defendants has received service of
process (Ebert v. Philip Morris Incorporated, et al.) and one case that contains
elements of both a smoking and health class action and a private citizen
reimbursement case (Mason v. The American Tobacco Company, Inc., et al.). The
Falise and H.K. Porter cases have been voluntarily dismissed. The judge's order
invited the federal government to join in the settlement discussions. On July
31, 2000, the federal judge orally proposed the formation of a national punitive
damages class action for the purposes of settlement. Pursuant to the judge's
proposal, Lorillard entered into discussions with a committee of counsel
representing a broad-based group of plaintiffs in an effort to arrive at a
comprehensive settlement of all exemplary and punitive damage claims, including
claims involved in the Engle class action in Florida described above. The
parties were unable to reach an understanding and the negotiations were
suspended in late 2000.

D-49

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

proceeding. In a November 2000 ruling, the court stated that "Simon II should be
triable without appreciable delay should it be certified." During March of 2001,
the court heard argument of plaintiffs' motion for class certification,
plaintiffs' motion for appointment of class counsel, and defendants' motion to
dismiss the complaint.

During 2001, trial has been held in Blue Cross and Blue Shield of New
Jersey (trial was limited to the claims of only one plan plaintiff), a
reimbursement case described under "Significant Recent Developments."

CONTRIBUTION CLAIMS

FILTER CASES

A number of cases have been filed against Lorillard seeking damages for
cancer and other health effects claimed to have resulted from exposure to
asbestos fibers which were incorporated, for a limited period of time, ending
more than 40 years ago, into the filter material used in one of the brands of
cigarettes manufactured by Lorillard. Approximately 20 filter cases are pending
in federal and state courts against Lorillard. Loews is not a defendant in any
of the pending filter cases. Allegations of liability include negligence, strict
liability, fraud, misrepresentation and breach of warranty. Plaintiffs in most
of these cases seek unspecified amounts in compensatory and punitive damages.
Trials have been held in 15 such cases. Five such trials have been held since
January 1, 1999. Juries have returned verdicts in favor of Lorillard in 11 of
the 15 trials. Four verdicts have been returned in plaintiffs' favor. In a 1995
trial, a California jury awarded plaintiffs approximately $1.2 in actual damages
and approximately $0.7 in punitive damages. In a 1996 trial, another California
jury awarded plaintiff approximately $0.1 in actual damages. In a 1999 trial, a
Maryland jury awarded plaintiff approximately $2.2 in actual damages. In a 2000
trial, a California jury awarded plaintiffs $1.1 in actual damages and the case
was settled prior to a determination of punitive damages.

TOBACCO-RELATED ANTITRUST CASES

D-50

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

wholesalers since 1993 in violation of the Sherman Act. These actions seek
certification of a class including all domestic and international wholesalers
similarly affected by such alleged conduct, and damages, injunctive relief and
attorneys' fees. These actions were consolidated for pre-trial purposes in the
U.S. District Court for the Northern District of Georgia. The Court has granted
class certification for a four-year class (beginning in 1996 and ending in 2000)
of domestic direct purchasers. Loews has been voluntarily dismissed without
prejudice from all direct purchaser cases.

OTHER TOBACCO-RELATED LITIGATION

Cigarette Advertising Suit. On June 28, 2001, the U.S. Supreme Court
voided in large part a Massachusetts law that placed restrictions on cigarette
advertising and promotional practices. The Court held that the Federal Cigarette
Labeling and Advertising Act preempts many of Massachusetts' regulations
governing outdoor and point-of-sale cigarette advertising. The Court also ruled
that Massachusetts' outdoor and point-of-sale advertising regulations relating
to smokeless tobacco and cigars violate the First Amendment and are
unconstitutional. However, the Court held that the prohibition of self-service
promotional displays relating to cigarettes, cigars and smokeless tobacco
products are constitutional. Such regulations include those designed to prevent
the sale of cigarettes to minors or to regulate conduct as it relates to the
sale or use of cigarettes.

D-51

The following financial information should be read in conjunction with the
consolidated financial statements of Loews.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN MILLIONS)

OTHER LITIGATION

D-52

FORM OF PROXY CARD

LOEWS CORPORATION PROXY

--------------------------------------------------------------------------------

This Proxy is Solicited on Behalf of the Board of Directors.

The undersigned hereby constitutes and appoints Bernard Myerson, Barry
Hirsch and Gary W. Garson and each of them, each with full power of
substitution, true and lawful attorneys, agents and proxies with all the powers
the undersigned would possess if personally present, to vote all shares of
Common Stock of the undersigned in Loews Corporation at the Special Meeting of
Shareholders to be held at , on , 2001, at A.M., Eastern Time,
and at any adjournments thereof, upon the matters set forth in the Notice of
Meeting and accompanying Proxy Statement and, in their judgment and discretion,
upon such other business as may properly come before the meeting. This Proxy
when properly executed will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS
1 and 2.

THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.

[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ITEMS 1 and 2.

1. To approve an amendment to the FOR [ ] AGAINST [ ] ABSTAIN [ ]
Loews charter to create Carolina
Group stock.

2. To approve the Carolina Group 2002 FOR [ ] AGAINST [ ] ABSTAIN [ ]
Stock Option Plan to enable us to
grant stock option awards based on
shares of Carolina Group stock to
officers, employees, non-employee
directors and consultants of
Lorillard, Inc. and its subsidiaries.

By returning this proxy card you are conferring upon management the authority
to vote upon such other business as may properly come before the Loews Special
Meeting or any postponements or adjournments thereof.

Signatures(s):____________________________________ Date:___________________

Please sign this proxy as name(s) appear(s) above and return it promptly
whether or not you plan to attend the special meeting. If signing for a
corporation or partnership or as agent, attorney or fiduciary, indicate the
capacity in which you are signing. If you do attend the special meeting and
decide to vote by ballot, such vote will supercede this proxy.