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PROXY STATEMENT P. LORILLARD COMPANY ANNUAL MEETING OF STOCKHOLDERS, APRIL 9, 1968 Voting Securities of the Company Only stockholders of record at the close of business on February 20, 1968, will be entitled to vote at the meeting. As of that date, there were outstanding 98,000 shares of Preferred Stock, par value $100 per share ("7% Preferred Stock"), and 6,479,232 shares of Common Stock, par value $5 per share ("Common Stock"), excluding 204,987 shares of Common Stock held in the treasury. Each share of 7% Preferred Stock and each share of Common Stock is entitled to one vote on all matters at the meeting. t Your vote is important. Please date and sign your proxy and mail it promptly in the return envelope provided. MERGER At the Annual Meeting, the stockholders of P. Lorillard Company, a New Jersey corporation ("the New Jersey Company" or the "Company"), will consider and vote upon, among other things, the proposed merger of the New Jersey Company into Lorillard Corporation, a Delaware corporation (the "Delaware Company"), a wholly-owned subsidiary of the New Jersey Company. The Delaware Company is also referred to herein as the "Surviving Company" since the corporate existence of the New Jersey Company will be deemed vested and continued in and as part of the Delaware Company following the effective date of the merger. The terms of the merger are set forth in the Agreement of Merger (the "Merger Agreement") attached hereto as Exhibit A. It is expected that the effective date of the merger will be on or about April 9, 1968, following approval of the stockholders and upon completion of the filings of the Merger Agreement required by law. A copy of the Certificate of Incorporation of the Delaware Company, as amended by the Merger Agreement, which will be the Certificate of Incorporation of the Surviving Company, is also attached as an Appendix to the Merger Agreement. The authorized capital of the Surviving Company will be as set forth below under "Effect of Proposed Merger on Capitalization and on Net Income Applicable to and Book Value of Common Stock". The merger will not involve any change in the business, properties or management of the Company. All corporate acts, plans, policies, obligations and rights of the New Jersey Company will be taken for all purposes as the acts, plans, policies, obligations and rights of the Surviving Company, and the officers and employees of the New Jersey Company will become the officers and employees of the Surviving Company. The Board of Directors believes that the best interests of the Company will be served by changing its place of incorporation from New Jersey to Delaware and at the same time effecting (i) a conversion of the outstanding 7% Preferred Stock into new 65/s % Subordinated Debentures due April 1, 1993 (the "Debentures" ), at the rate of $140 principal amount of Debentures for each share of 7% Preferred Stock, (ii) an increase of the Company's authorized Common Stock from 10,000,000 shares to 20,000,000 shares, (iii) the authorization of a new class of 2,000,000 shares of Preferred Stock, without par value (defined below as the "New Preferred Stock"), issuable in series upon authority of the Board of Directors and (iv) the change of the Company's name to "Lorillard Corporation". As explained in more detail hereinafter, moving the Company's legal domicile to Delaware will afford the Company the advantages of incorporation under the General Corporation Law of Delaware; substitution of the Debentures for the 7% Preferred Stock will result in an increase of net income ~ ~ V Cb GJ ~ ~ Cfl

applicable to Common Stock of approximately $213,000 per year; authorizing a new class of series Preferred Stock and increasing the authorized Common Stock will give the Surviving Company a great deal of flexibility in connection with future financings and possible acquisitions; and, finally, changing the name of the Company at this time will, in the view of management, offer certain intangible advantages. Upon the merger becoming effective, the Delaware Company will take over the business of the New Jersey Company and there will be outstanding the same number of shares of Common Stock of the Surviving Company as the shares of the New Jersey Company which were outstanding immediately prior to the merger becoming effective. The directors and officers holding office in the Surviving Company will be the same as the directors and officers holding office with the New Jersey Company immediately prior to the merger becoming effective. The Delaware Company will assume all obligations of the New Jersey Company, including the 3% Twenty-Five Year Debentures due March 1, 1976 (issued in 1951), 33/a % Twenty-Five Year Debentures due April 1, 1978 (issued in 1953) and 4%s % Sinking Fund Debentures due June 1, 1986 (issued in 1961). The Common Stock of the Surviving Company will be listed on the New York Stock Exchange. This merger proposal has been approved by the Board of Directors of the Company. However, the Merger Agreement provides that the merger may be abandoned by action of a majority of the Board of Directors at any time prior to the effective date of the merger should • changed circumstances make the consummation of the merger for any reason undesirable. Effects of the Merger on Holders of 7% Preferred Stock and Common Stock Since the merger will affect holders of 7% Preferred Stock differently from holders of Common Stock, and since holders of 7% Preferred Stock will be affected variously depending upon the price at which they originally purchased their shares (and whether they are individuals or corporations or other entities) and other factors, the Board of Directors urges all stockholders to consider carefully the following: (i) The 65/a% annual interest payable on $140 principal amount of Debentures ($9.275), as compared with the $7 dividend payable on each share of 7% Preferred Stock, resulting in a 32.5 % increase in income. (ii) The difference between New York Stock Exchange prices (during the period preceding the announcement of the merger by the Board of Directors) for a share of 7% Preferred Stock and the $140 principal amount of Debentures into which it will be converted. (iii) The fact that the 7% Preferred Stock does not have call provisions while the Deben- tures may be redeemed at the option of the Surviving Company beginning April 1, 1978 or, through the operation of the sinking fund, beginning April 1, 1974. (iv) Whether or not any tax will have to be paid, and how much, on the amount of any gain which may be realized by the holder of a share of 7% Preferred Stock upon its conversion into Debentures. (v) The fact that the dividends-received exclusion for Federal income tax purposes will not be available for interest income received by individuals holding Debentures. (vi) In the case of most corporations, the fact that interest on the Debentures will be fully subject to Federal income tax while only 15% of the dividends on the 7% Preferred Stock are subject to tax. (vii) The increase in after-tax earnings of the Company available for dividends on the Common Stock because of the fact that interest on the Debentures will be tax deductible by the Company while dividends on the 7% Preferred Stock are not so deductible. v 2 0 T, m

(viii) The fact that, if the Board of Directors should issue any series of the New Preferred Stock which is convertible into shares of Common Stock of the Company, the conversion price at the time of conversion of any-shares thereof may be below the prevailing market price of the Common Stock, thus resulting in possible dilution. These and other considerations are discussed more fully below. It will not be necessary for holders of Common Stock to exchange their existing Common Stock certificates for stock certificates of the Surviving Company. It is anticipated that the New York Stock Exchange will rule that such existing certificates will constitute "good delivery" for transactions on the Exchange after the merger and, under the laws of both New Jersey and Delaware, the assignment of certificates of the New Jersey Company will transfer good title to shares of the Common Stock of the Surviving Company. Vote Required Neither the statutes of New Jersey nor the Certificate of Incorporation or By-laws of the Company requires a class vote of either the Common Stock or the 7% Preferred Stock with respect to the merger. However, the favorable votes required by the Merger Agreement proposed by management for approval of the merger are (a) two-thirds of the votes of the holders of the outstanding Common Stock only voting as a separate class; (b) two-thirds of the votes of the holders of the outstanding 7% Preferred Stock only voting as a separate class; and (c) two-thirds of the votes of the holders of all the outstanding capital stock (both Common Stock and 7% Preferred Stock) of the Company voting as a single combined class, in accordance with the New Jersey General Corporation Act. The merger will be effective only if it is approved under all three methods of counting votes. Accordingly, management urges all Preferred Stockholders, as well as all Common Stockholders, to return their proxies. Failure to vote is equivalent to a vote against the proposal. Change in State of Incorporation In 1911 the Company was incorporated in the State of New Jersey, whose laws were then deemed to be well adapted to the conduct of its business. In the intervening years, the corporation laws of Dela- ware have developed extensively to a point where, at present, management believes it to be modern and the most flexible corporation law of any State. Because of the fact that a great many business corporations (including about half of the 100 largest industrial corporations ranked according to sales as of June, 1967) are-and many of them have been for many years-incorporated in Delaware, there is a sub- stantial body of judge-made law, created by a judiciary thoroughly experienced in the problems and affairs of business corporations, which serves as a clear guide to corporate action. Moreover, the Delaware corporation law was extensively amended as recently as 1967, in order to keep pace with modern business trends and to deal specifically with certain problems which have only in recent years assumed importance. Management has been advised by Messrs. Cravath, Swaine & Moore, special counsel to the Company, that, in their opinion, Delaware offers the most favorable "corporate climate" for the Company, con- sidering its present situation as a large and growing publicly-owned corporation. It is to be noted that, in recent years, many publicly-owned corporations, including many New Jersey corporations, have changed their domiciles by merging into Delaware subsidiaries. Conversion of the 7% Preferred Stock The authorized capital stock of the Company includes 99,576 shares of 7% Preferred Stock, of which 98,000 shares were issued and outstanding on February 20, 1968. Although the Certificate of Incorporation does not include provision for the redemption of the 7% Preferred Stock at the option of the Company, under both Delaware and New Jersey law it may be converted into other securities in a merger pursuant to the vote of stockholders. ,a ~ v 3 00 w -0 m v

After careful study, the Board of Directors has determined that converting the 7% Preferred Stock is in the Company's best interests and that, in its opinion, and in the opinion of the investment banking firms of Smith, Barney & Co., Incorporated and Lehman Brothers, which have so advised the Company, the terms of the proposed exchange for Debentures are fair and equitable to the holders of both the 7% Preferred Stock and the Common Stock. Plan of Conversion The Delaware Company has authorized an issue of new Debentures, to be known as 6-5/8 % Sub- ordinated Debentures due April 1, 1993, in an aggregate principal amount not exceeding $13,720,000. The Merger Agreement provides that upon the merger becoming effective all of the 7% Preferred Stock of the New Jersey Company issued and outstanding will be automatically converted into Debentures on the basis of $140 principal amount of Debentures for each share of 7% Preferred Stock. The final dividend on the 7% Preferred Stock prior to the merger will be the regular quarterly dividend payable on April 1, 1968, to holders of record at the close of business on March 4, 1968. Present plans contemplate that the merger will become effective on or about April 9, 1968. Interest on the new Debentures will commence to accrue as of April 1, 1968, the date such final dividend is payable, so that there will be no interruption of income to the holder. The Debentures issued for the 7% Preferred Stock will be initially issued in denominations of $100 and multiples of $100 less than $1,000 and $1,000 and multiples of $1,000. If a holder of 7% Preferred Stock becomes entitled to receive a fractional part of a Debenture because his holdings of 7% Preferred Stock do not convert into an even multiple of $100, he will be given an opportunity either to sell his fractional interest in a Debenture or to purchase an additional fractional interest so as to round his holdings of Debentures to an even $100 principal amount. Such purchases and sales will be made upon the instruction of holders of 7% Preferred Stock to Chemical Bank New York Trust Company, the Exchange Agent designated by the Company to act on behalf of the stockholders for such purchases and sales, on the basis of the then current market prices for the Debentures. If instructions are not received by the Exchange Agent from a particular holder entitled to a fractional interest within the 25-day period immediately following the effective date of the merger, such fractional interest will be sold for his account. No interest will accrue on any cash payments for fractional interests. Holders of 7% Preferred Stock certificates will be notified promptly of the date on which the merger becomes effective, and will receive instructions as to the procedure for obtaining Debentures by surrendering their stock certificates to the Exchange Agent. Debentures will be delivered as promptly as practicable after the effective date of the merger. Holders of 7% Preferred Stock are requested not to submit any of their certificates until they receive such instructions. Comparison of 7% Preferred Stock and Debentures In view of the substantial differences between the 7% Preferred Stock and the Debentures, the Board of Directors recommends that each holder of the 7% Preferred Stock consider carefully the following: Redemption. The 7% Preferred Stock does not have any "maturity" as in the case of a debt obligation, is not subject to periodic retirement through a sinking fund or otherwise, and does not have any call provisions. The Debentures, on the other hand, will mature on April 1, 1993, and will be subject to redemption by the Surviving Company from time to time through the operation of a sinking fund commencing April 1, 1974. Otherwise, the Debentures will be noncallable by the Company for a period of ten years commencing April 1, 1968. Thereafter, in the event of a general decline in interest rates and after consideration of the premium, if any, which would be payable to holders of the Debentures, the Company may find the optional redemption of all or a part of the Debentures to be advantageous to it. 4

Income Yield. For each share of 7% Preferred Stock, the holder will, upon its conversion, receive annually interest on the Debentures in an amount of $9.275, an increase in income of 32.5% over the $7 dividend paid on one share of 7% Preferred Stock. Under the Company's present Certificate of Incorporation, the 7% Preferred Stock is entitled to dividends at the rate of $7 yearly per share before dividends may be paid on the Common Stock, but the Company is not legally obligated to pay such dividends, although cumulative, until declared by the Board of Directors. On the other hand, payment of the principal of and interest on the Debentures will be fixed obligations of the Surviving Company, payable prior to dividends on any class of stock. Interest on the Debentures will be payable semi-annually on April 1 and October 1 of each year; dividends on the 7% Preferred Stock are payable quarterly. Market Price and Principal Amount. The principal amount of each Debenture will exceed by more than $24 the market price of a share of the 7% Preferred Stock based upon the average of the closing prices on the New York Stock Exchange during the two-week period preceding January 17, 1968, the day the proposed merger was approved by the Board of Directors (see "Price Range of 7% Preferred Stock" below), which represents an increase of approximately 21%. The market value of the Debentures will not be affected by changes in the market value of the Company's Common Stock, but will fluctuate with, among other factors, general interest rates. Thus, the market value of the Debentures may increase if interest rates decline or decrease JT interest rates rise. The 7% Preferred Stock is not, and the Debentures will not be, convertible into Common Stock. Tax Resulting from Conversion. The foregoing comparison does not take into account the Federal income tax effects of the conversion of the 7% Preferred Stock into Debentures, which will differ among stockholders. Holders of the 7% Preferred Stock are advised to consult their tax counsel regarding the Federal income tax consequences to them of the conversion. Generally speaking, however, in the opinion of the Company's special counsel, Messrs. Cravath, Swaine & Moore, under present Federal income tax laws any gain or loss realized upon the conversion of the 7% Preferred Stock into Debentures will, if such stock is a capital asset in the hands of the stockholder, constitute capital gain or loss, which will be long-term or short-term depending upon his holding period. Such holder will realize a gain if and to the extent that the aggregate market value of his Debentures and the amount of any cash received (for any fractional interest), excluding dividends and interest, exceeds his tax basis for his 7% Preferred Stock, and will realize a loss if and to the extent that his tax basis exceeds such aggregate market value of Debentures and cash. Tax on Debenture Income. The Company's special counsel have advised that interest payments on the Debentures will be taxable in full as ordinary income and will not qualify for the dividends- received exclusion (up to $100 for an individual or $200 if a joint Federal income tax return is filed) presently allowable to United States citizens or residents on dividends received on the 7% Preferred Stock. Such counsel have also advised that domestic corporations subject to Federal income tax holding the 7% Preferred Stock, which are now subject to a tax only on 15% of the dividends received thereon, will be taxable in full on interest received on the Debentures (except in the case of insurance companies which are taxed under certain special rules). Other Differences. In the event of the dissolution or liquidation of the Company, holders of the Debentures would be entitled to receive their principal amount ($140 in respect of each share of 7% Preferred Stock converted), including accrued interest, before any payments may be made to the holders of the Common Stock or to holders of any class of preferred stock. On the other hand, in such an event, holders of the 7% Preferred Stock would be entitled to receive its par value ($100 per share), plus any dividends accumulated and unpaid, before any payment may be made to the holders of the Common Stock. Holders of the 7% Preferred Stock are entitled to one vote per share but, except as otherwise required by New Jersey law, are not entitled to vote separately as a class. On the other hand, the holders of Debentures will not have any right to vote at meetings of stockholders. Additional information on the Debentures is set forth below under "Description of Debentures". 5 ~ ~ ~ ~ w `a rn 10

Reasons for Conversion of 7% Preferred Stock At the time of the Company's incorporation and the issuance of the 7% Preferred Stock in 1911, income tax considerations were not a factor and, accordingly, many corporations issued preferred stock with provisions similar to the Company's 7% Preferred Stock. The conversion of the 7% Preferred Stock into new Debentures will be advantageous to the Company since interest on debt securities is deductible for Federal income tax purposes while dividends are not deductible. Many New Jersey corporations having a preferred stock similar to the 7% Preferred Stock have converted such securities into debentures for that reason. Annual interest payable on the new Debentures will amount initially to a maximum aggregate of $908,950, but the effective, after-tax cost will be approximately $473,000 (based upon current tax rates). Since the Company's annual cost of paying dividends on the 7% Preferred Stock is $686,000 (based upon the 98,000 shares of 7% Preferred Stock now outstanding), the Company will realize a yearly net cash saving of approximately $213,000 which, of course, will benefit the holders of Common Stock. An additional important reason for converting the 7% Preferred Stock into Debentures is the very small number of shares which are outstanding. Only 98,000 shares are outstanding, which constitute less than $10 million of the Company's total equity capital of approximately $219 million, or less than 4.5% at the end of 1967. As explained below (see "Increase in Authorized Capital Stock"), it is believed that the Company, in common with many other large corporations, shol.ild have a significant Y amount of a modern type of preferred stock available for use in acquisitions and otherwise upon authority -. of the Board of Directors. In the judgment of the Board of Directors, the retention of this small amount of the 7% Preferred Stock would unduly complicate the Company's capital structure and it accordingly proposes its conversion into the Debentures. Other Federal Income Tax Consequences In the opinion of Messrs. Cravath, Swaine & Moore, special counsel to the Company, under present Federal income tax laws no gain or loss will be recognized to the New Jersey Company, the Delaware Company, or the Surviving Company as a result of the merger, and no gain or loss will be recognized under such laws to the holders of Common Stock as a result thereof. New York Stock Exchange Listing The Company has been advised that trading in the 7% Preferred Stock on the New York Stock Exchange will end at the time the merger becomes effective. Application will be made for listing the Debentures on the New York Stock Exchange. It is expected that, if the stockholders of the Company approve the Merger Agreement at the Annual Meeting on April 9, 1968, trading in the Debentures on that Exchange will commence shortly thereafter. Price Range of 7% Preferred Stock ' The table below sets forth the range of the reported high and low sales prices per share of the 7% Preferred Stock on the New York Stock Exchange during the periods indicated: 1966 1967 1968* High Low High Low High Low First Quarter............ 154 140 138 1283/4 125 1111/s Second Quarter........ 143%a 134 137 1231h Third Quarter............ 144 1241i5 127 123 Fourth Quarter........ 1311h 1251h 125 109 * Through January 17, 1968. During the two-week period immediately preceding January 17, 1968, the average closing sale price of the 7% Preferred Stock on the New York Stock Exchange was $115.68. On January 16, 1968, the closing price was $120 and on January 17, 1968, the day the Board of Directors approved the proposal to convert the 7% Preferred Stock into Debentures, the closing price was $125. During the period from January 18, 1968, through February 21, 1968, the 7% Preferred Stock did not trade on that Exchange. 6

Increase in Authorized Capital Stock Upon consummation of the merger, the Surviving Company will have an authorized capital stock consisting of 20,000,000 shares of Common Stock, $5 par value (representing an increase of 10,000,000 shares), and 2,000,000 shares of a new class of Preferred Stock, without par value (the "New Preferred Stock"). Shares of New Preferred Stock (which will be the only authorized preferred stock of the Surviving Company) may be issued in one or more series and with such terms and at such times and for such consideration as the Board of Directors determines, without further stockholder action. Stock- holder apptoval may, however, be required by the New York Stock Exchange in certain transactions, such as an acquisition for which the issuance of Common Stock or securities convertible inta Common Stock could result in an increase of approximately 20% or more in the number or market value of the then outstanding shares of Common Stock. It is intended that there should be sufficient authorized but unissued shares of both classes available for possible acquisitions (involving less than such 20% ), financings as and when necessary, stock dividends and for other corporate purposes without the necessity of further stockholder action at any special or annual meeting. It is to be moted that the New Preferred Stock differs substantially from the present 7% Preferred Stock which is to be converted in the merger. 2,000,000 shares are to be authorized as opposed to the less than 100,000 of the 7% Preferred Stock. Moreover, the New Preferred Stock is issuable in series from time to time by authority of the Board of Directors which will have the power also to set the specific terms and conditions of each series. For example, in order to effect a tax-free acquisition of another business, the availability of preferred stock might prove to be indispensable, if in the judgment of the Board the acquisition is sufi'iciently attractive to more than offset the lack of a tax deduction for the pre- ferred dividend payable. Often the specific terms of the securities to be offered for businesses and business properties to be acquired are of paramount importance to the prospective sellers of such businesses and properties, and the Board of Directors believes that it is desirable to be in a position to offer preferred stock of differing characteristics to meet the needs of different situations. Availability of a substantial number of shares of preferred stock issuable in this manner has been sought by many corporations in recent years for the same reasons. Except in connection with employee stock option and purchase plans (see "1967 Stock Option Plan" and "Other Employee Benefit and Incentive Plans" below), the Company is not a party to any agreement or understanding which might require the issuance of any of the unissued Common Stock or New Pre- ferred Stock of the Surviving Company to be authorized, and the Board of Directors presently has no plans, arrangements or understandings for the issuance of these shares. However, officers of the Company have had discussions and negotiations during the past year with respect to possible acquisitions as part of the Company's policy of exploring diversification opportunities. It is not possible at this time to predict whether such discussions or negotiations will result in understandings or agreements, but if they do, all understandings and agreements will continue to be subject to approval of the Board of Directors, as at present. Reference is made to the consolidated financial statements of the Company for the year ended December 31, 1967, which are contained in the Annual Report of the Company for the year 1967, a copy of which has heretofore been mailed to each stockholder; such financial statements are hereby incorporated in this Proxy Statement by reference. No other material contained therein is to be con- sidered a part of the proxy soliciting material. Change of Name In the opinion of management, the reincorporation of the Company under Delaware law offers a unique opportunity to present a different and more modem public image by adopting a more easily remembered corporate name. It is hoped that the change in name will become associated not only with the Company's reincorporation in Delaware, but with the general modernization and corporate "streamlining" which will be accomplished by the merger. 7 -0 ~ v m w -0 ~ ~

Effect of Proposed Merger on Capitalization and on Net Income Applicable to and Book Value of Common Stock The following table sets forth the capitalization as of December 31, 1967 and as adjusted to give effect to the proposed conversion of all the 7% Preferred Stock into Debentures and the proposed changes in capitalization: Actual Increase (Decrease) Pro Forma Capitalization (1) : Twenty-five year 3% Debentures, due 1976(2) $ 9,692,000 $ - $ 9,692,000 Twenty-five year 33/ % Debentures, due 1978(2) ...................................................... 13,652,000 - 13,652,000 4s% Sinking Fund Debentures, due 1986(2) 34,807,000 - 34,807,000 65/s % Subordinated Debentures, due 1993........ - 13,720,000 13,720,000 Total long-term debt .............................. $ 58,151,000 $13,720,000 $ 71,871,000 .:~ 7% Preferred Stock, par value $100 per share.. 9,800,000 (9,800,000) - New Preferred Stock, no par value, 2,000,000 shares authorized ............. ._.......................... - Common Stock, par value $5 per share, 10,000,000 shares authorized, 20,000,000 shares to be authorized(3) ............................ 33,417,395 - 33,417,395 Additional paid-in capital .................................. 28,872,418 - 28,872,418 Retained earnings .............................................. 155,930,161 (3,920,000) (4) 152,010,161 Common Stock in treasury (204,987 shares, at cost) .......................................................... (9,307,686) - (9,307,686) Total Capitalization........................ ........ $276,863,288 $ - $276,863,288 Net Income Applicable to Outstanding Common Stock for year ended December 31, 1967: Total ................................................................ $ 30,348,228 $ 213,346(5) $ 30,561,574 Per share of Common Stock .............................. $4.67 $ .03 $4.70 Book Value Per Share of Common Stock as of December 31, 1967 ............................................ $32.25 $ ( .61) $31.64 (1) Not including short-term debt, $47,800,000. (2) After deducting debentures held by the Company for sinking fund purposes, $3,149,000 principal amount in the aggregate. (3) 344,552 shares of Common Stock were reserved at December 31, 1967 for issuance under various stock option and purchase plans. (4) Retained earnings are reduced by the excess of the principal amount of the Subordinated Debentures due 1993 over the par value of the 7% Preferred Stock. (5) Net income applicable to the Common Stock is increased by the excess of the dividends eliminated on con- version of the 7% Preferred Stock over the additional interest cost (net of Federal income taxes at present rates) on the Subordinated Debentures due 1993 to be issued. 8

Certificate of Incorporation and By-laws The following sets forth the principal changes made in the existing Certificate of Incorporation and By-laws of the Company in so far as they affect the rights of stockholders (other than changes in capital- ization discussed above). The rights of stockholders and the Company will also be affected to the extent that the laws of Delaware differ from the laws of New Jersey. Authorization of New Preferred Stock. The following is a brief summary description of the New Preferred Stock of the Delaware Company. This summary does not purport to be complete. For a full description of the terms of the New Preferred Stock reference is made to Article Fourth of the Certificate of Incorporation of the Delaware Company, a copy of which is attached to the Merger Agree- ment (Exhibit A) as an Appendix. The following statements are subject to the provisions thereof and are qualified by such reference. (a) Issuance in Series. The Board of Directors has the authority to issue (without further author- ization of stockholders) New Preferred Stock in one or more series and to fix at the time of the establish- ment of each series the designation of the series, the dividend rate, the redemption price (but not more than $115 per share), including the terms and conditions thereof, the amounts payable on liquidation (but not more than $115 per share if voluntary or $100 if involuntary), the sinking fund provisions, if any, the terms and conditions, if any, of conversion into Common Stock, the voting powers, if any, and whether the issuance of additional series of New Preferred Stock shall be subject to any restrictions. Any cumulative dividend requirements and any sinking fund, conversion or redemption provisions which may attach to any future series of New Preferred Stock may affect the earnings of the Company available for distribution to the holders of the Common Stock. (b) Dividend Rights. The holders of New Preferred Stock of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate fixed for such series by the Board of Directors, payable quarterly before any sum shall be set aside for the purchase or redemption of New Preferred Stock and before any dividend (other than a dividend payable in Common Stock) shall be paid on, or other distribution made in respect of, Common Stock. The New Preferred Stock of each series will be on a parity as to dividends, sharing ratably in the payment of dividends. Except as may otherwise be provided in the resolution or resolutions providing for the issuance of any particular series, dividends on the New Preferred Stock will be cumulative. Subject to the foregoing, holders of Common Stock will be entitled to receive such dividends as may be declared by the Board of Directors. Various indentures to which the Company is now a party, and which upon consummation of the merger will be assumed by the Surviving Company, contain certain covenants limiting the payment of dividends and the purchase, redemption or retirement of shares of stock. Under the most restrictive of these covenants the amount which could have been expended for the foregoing purposes at December 31, 1967, was limited to approximately $87,000,000. (c) Voting Rights. Unless the resolution or resolutions of the Board of Directors establishing any series of New Preferred Stock provides otherwise with respect to such series, the holders of the New Preferred Stock shall not have any voting powers except as may be prescribed by law. (d) Liquidation Rights. Holders of New Preferred Stock will be entitled to receive, before any distribution of assets is made upon the Common Stock, on liquidation, dissolution or winding up of the Surviving Company, such amounts per share as shall be fixed by the Board of Directors for any series (but not more than $115 per share if voluntary or $100 if involuntary) plus in either case accrued divi- dends. If, upon any liquidation, there are insufficient funds to pay all series of New Preferred Stock in full, the holders thereof will be entitled to share ratably in all the assets of the Surviving Company then remaining according to their respective rights and preferences. ~ ~ ~ 9 cO w %o ~ w

(e) Redemption Provisions. The New Preferred Stock of each new series may be redeemed at the option of the Surviving Company at the times and redemption prices (but not more than $115 per share) fixed by the Board of Directors for such series, plus accrued dividends. Shares of New Preferred Stock, or of any series thereof, will be redeemable at the time so fixed, in whole or in part, by lot or pro rata in such manner as the Board of Directors may determine, upon not less than 30 days' notice at the then applicable redemption price. Shares of New Preferred Stock may not be redeemed at any time (except for amounts already deposited in• sinking funds) unless cumulative dividends (if any) upon the New Preferred Stock of all series then outstanding through the last complete dividend period shall have been paid or provided for. Series of New Preferred Stock which shall have been redeemed shall be cancelled but will thereafter have the status of authorized and unissued shares of New Preferred Stock. (f) Conversion Rights. If the resolution or resolutions of the Board of Directors establishing the series of New Preferred Stock so provides, the New Preferred Stock of such series may be con- vertible into Common Stock or other securities at the option of the holders thereof upon the terms and conditions fixed therein. Since any such convertible stock may be issued by action of the Board of Directors (without a further opportunity for stockholders to vote), the Common Stock earnings could be diluted as a result of conversions. (g) Other Provisions. The New Preferred Stock will not have any pre-emptive or subscription rights and, when fully paid, will not be liable for further calls or assessments. If the resolution or resolu- tions of the Board of Directors establishing the series of New Preferred Stock so provides, such series may be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series, or may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Surviving Company, or upon the issuance of any additional New Preferred Stock, or upon the payment of dividends, or upon the purchase or redemption by the Company of any outstanding stock, and such series may contain any other special rights or restrictions permitted by law. Pre-emptive Rights. Under the law of New Jersey, holders of Common Stock of the Company have the pre-emptive right to purchase additional shares of Common Stock or securities convertible into shares of Common Stock as and when issued by the Company for cash, except to the extent that such pre-emptive rights have heretofore been waived by the stockholders, which has been done in the case of shares of Common Stock issuable to employees pursuant to certain plans approved by the stockholders (see "1967 Stock Option Plan" and "Other Employee Benefit and Incentive Plans" below). Under Delaware law, stockholders are not entitled to any pre-emptive rights unless such rights are expressly provided for in the certificate of incorporation. There has been included in the Certificate of Incorporation of the Delaware Company a provision expressly granting to holders of Common Stock pre-emptive rights to purchase additionall shares of Common Stock sold for cash (but not other securities including New Preferred Stock or other securities convertible into shares of Common Stock) except that 343,812 shares of Common Stock may be sold by the Surviving Company for employee benefit purposes (pursuant to stock option plans or otherwise) without pre-emptive rights. Such number of shares of Common Stock is the same number of shares as has already been approved, by stockholder vote, for sale to employees, without pre-emptive rights, for stock option and stock purchase purposes. (In the event that any of such 343,812 shares of Common Stock shall be issued after February 21, 1968, and prior to the effective date of the merger, such number, as it will appear in the Certificate of Incorporation of the Surviving Company, will be reduced by the amount of the shares so issued during such period.) (See "1967 Stock Option Plan" and "Other Employee Benefit and Incentive Plans" below. ) Such pre-emptive rights will not apply to the disposition of shares held in the treasury of the Surviving Company. . ,~ Other Differences ~ The Certificate of Incorporation of the Delaware Company makes it clear that the Delaware ~ Company (like the New Jersey Company) has authority to engage in diverse businesses. As permitted _~c 10 ~ oz w 0 J ~ -d ..~