Corporate Governance Guidelines

Vector Group Ltd
CORPORATE GOVERNANCE GUIDELINES
(as adopted March 3, 2004)

I. Introduction

The Board of Directors of Vector Group Ltd. (the “Company”),acting on the recommendation of its Corporate Governance andNominating Committee, has developed and adopted a set of corporategovernance principles to promote the functioning of the Boardand its committees and to set forth a common set of expectationsas to how the Board should perform its functions.

II. Board Composition

The composition of the Board should balance the following goals:

  • The size of the Board should facilitate substantive discussionsof the whole Board in which each director can participatemeaningfully;
  • The composition of the Board should encompass a broad rangeof skills, expertise, industry knowledge, diversity of opinionand contacts relevant to the Company’s business; and
  • A majority of the Board shall consist of directors whothe Board has determined have no material relationship withthe Company and who are otherwise “independent”under the rules of the New York Stock Exchange, Inc.

III. Selection of Chairman of the Boardand Chief Executive Officer

The Board is free to select its Chairman and the Company’sChief Executive Officer (the “CEO”) in the mannerit considers in the best interests of the Company at any givenpoint in time. These positions may be filled by one individualor by two different individuals.

IV. Selection of Directors

Nominations.
The Board is responsible for selectingthe nominees for election to the Company’s Board of Directors.The Company’s Corporate Governance and Nominating Committeeis responsible for recommending to the Board a slate of directorsor one or more nominees to fill vacancies occurring betweenannual meetings of stockholders.
Criteria.
The Board should, based on the recommendationsof the Corporate Governance and Nominating Committee, selectnew nominees for the position of independent director consideringthe following criteria:

  • Personal qualities and characteristics, accomplishmentsand reputation in the business community;
  • Current knowledge and contacts in the communities in whichthe Company does business and in the Company’s industry orother industries relevant to the Company’s business;
  • Ability and willingness to commit adequate time to Boardand committee matters;
  • The fit of the individual’s skills and personality withthose of other directors and potential directors in buildinga Board that is effective, collegial and responsive to theneeds of the Company; and
  • Diversity of viewpoints, background, experience and otherdemographics.

Invitation.
The invitation to join the Board shouldbe extended by the Board itself via the Chairman of the Boardand CEO of the Company, together with an independent director,when deemed appropriate.
Orientation and Continuing Education.
Management, workingwith the Board, should provide an orientation process for newdirectors, including background material on the Company, itsbusiness plan and its risk profile, and meetings with seniormanagement. The Company encourages its directors to participatein continuing education programs to assist them in performingtheir Board responsibilities.

V. Election Term

The Board does not believe it should establish term limits.

VI. Retirement of Directors

The Board does not believe it should establish a mandatoryretirement age.

VII. Board Meetings

The Board currently plans at least four meetings each year,with further meetings to occur (or action to be taken by unanimousconsent) at the discretion of the Board. The meetings may consistof committee meetings, where appropriate, and the Board meeting.The agenda of each Board meeting will be prepared by the Chairmanof the Board. Any director may request that an item be includedon the agenda or raise at any Board meeting subjects that werenot on the agenda for that meeting. Management will seek toprovide all directors with appropriate Board materials in advanceof meetings, although the Board recognizes that this will notalways be consistent with the timing of transactions and theoperations of the business and that in certain cases it maynot be possible.Materials presented to the Board or its committees shouldbe as concise as possible, while still providing the desiredinformation needed for the directors to make an informed judgment.

VIII. Executive Sessions

To ensure free and open discussion and communication amongthe non-management directors of the Board, the non-managementdirectors will meet in executive sessions periodically, withno members of management present. The Chair of the CorporateGovernance and Nominating Committee will preside at the executivesessions. Non-management directors who are not independent underthe rules of the New York Stock Exchange, Inc. may participatein these executive sessions, but the independent directors shouldmeet separately in executive session at least once per year.The non-management directors will maintain such records of executivesessions as they deem appropriate, including records to enablethe CEO to satisfy applicable certification requirements ofthe New York Stock Exchange, Inc.

IX. Committees of the Board

The Company shall have at least the committees required bythe rules of the New York Stock Exchange, Inc. Currently, theseare the Audit Committee, the Compensation Committee and theCorporate Governance and Nominating Committee. Each of thesethree committees must have a written charter satisfying therules of the New York Stock Exchange, Inc. The Audit Committeemust also satisfy the requirements of SEC Rule 10A-3.All directors, whether members of a committee or not, areinvited to make suggestions to a committee chair for additionsto the agenda of his or her committee or to request that anitem from a committee agenda be considered by the Board. Eachcommittee chair will give a periodic report of his or her committee’sactivities to the Board.Each of the Audit Committee, the Compensation Committee andthe Corporate Governance and Nominating Committee shall be composedof directors who are not officers or employees of the Company,who the Board has determined have no material relationship withthe Company and who are otherwise “independent” underthe rules of the New York Stock Exchange, Inc., and, in thecase of the Audit Committee, who satisfy the additional eligibilityrequirements of SEC Rule 10A-3. The Audit Committee shall haveat least three members. The required qualifications for themembers of each committee shall be set out in the respectivecommittees’ charters. A director may serve on more than onecommittee for which he or she qualifies.

X. Management Succession

At least annually, the Board shall review and concur in asuccession plan, developed by management, addressing the policiesand principles for selecting a successor to the CEO, both inan emergency situation and in the ordinary course of business.The succession plan should include an assessment of the experience,performance, skills and planned career paths for possible successorsto the CEO.

XI. Executive Compensation

  1. Evaluating and Approving Salary for theCEO
    . The Board, acting through the Compensation Committee,evaluates the performance of the CEO and the Company againstthe Company’s goals and objectives, and determines and approvesthe compensation level of the CEO.
  2. Evaluating and Approving the Compensationof Management
    . The Board, acting through the CompensationCommittee, evaluates and approves the proposals for overallcompensation policies applicable to executive officers.

XII. Board Compensation

The Board should conduct a review at least once every threeyears of the components and amount of Board compensation inrelation to other similarly situated companies. Board compensationshould be consistent with market practices but should not beset at a level that would call into question the Board’s objectivity.The Company provides reasonable directors’ and officers’ liabilityinsurance for directors and shall indemnify the directors tothe fullest extent permitted by law and the Company’s certificateof incorporation and by-laws.

XIII. Expectations for Directors

The business and affairs of the Company shall be managed byor under the direction of the Board in accordance with Delawarelaw. In performing their duties, the primary responsibilityof the directors is to exercise their business judgment in thebest interests of the Company. The Board has developed a numberof specific expectations of directors to promote the dischargeof this responsibility and the efficient conduct of the Board’sbusiness.

  1. Commitment and Attendance.
    All independentand management directors should make every effort to attendmeetings of the Board and meetings of committees of whichthey are members. Members may attend by telephone to mitigateconflicts.
  2. Participation in Meetings.
    Eachdirector should be sufficiently familiar with the businessof the Company, including its financial statements andcapital structure, and the risks and competition it faces,to facilitate active and effective participation in thedeliberations of the Board and of each committee on whichhe or she serves. Upon request, management will make appropriatepersonnel available to answer any questions a directormay have about any aspect of the Company’s business. Directorsshould also review the materials provided by managementand advisors in advance of the meetings of the Board andits committees and should arrive prepared to discuss theissues presented.
  3. Loyalty and Ethics.
    In their rolesas directors, all directors owe a duty of loyalty to the Company.This duty of loyalty mandates that the best interests of theCompany take precedence over any interests possessed by adirector.The Company has adopted a Code of Business Conduct and Ethics,including a compliance program to enforce the Code. Certainportions of the Code deal with activities of directors, particularlywith respect to transactions in the securities of the Company,potential conflicts of interest, the taking of corporate opportunitiesfor personal use, and competing with the Company. Directorsshould be familiar with the Code’s provisions in these areasand should consult with the Company’s counsel in the eventof any issues.
  4. Other Directorships.
    The Company valuesthe experience directors bring from other boards on whichthey serve, but recognizes that those boards may also presentdemands on a director’s time and availability and may presentconflicts or legal issues. Directors should advise the Chairof the Corporate Governance and Nominating Committee and theCEO before accepting membership on other boards of directorsor other significant commitments involving affiliation withother businesses or governmental units.If a member of the Audit Committee simultaneously serves onthe audit committee of more than two other public companies,the Board must determine that such simultaneous service wouldnot impair the ability of such member to effectively serveon the Audit Committee, and must disclose such determinationin the Company’s annual proxy statement.
  5. Contact with Management.
    All directorsare invited to contact the CEO at any time to discuss anyaspect of the Company’s business. Directors also have completeaccess to other members of management. The Board expects thatthere will be frequent opportunities for directors to meetwith the CEO and other members of management in Board andcommittee meetings and in other formal or informal settings.Further, the Board encourages management to, from time totime, bring managers into Board meetings who: (a) can provideadditional insight into the items being discussed becauseof personal involvement and substantial knowledge in thoseareas, and/or (b) are managers with future potential thatthe senior management believes should be given exposure tothe Board.
  • Contact with Other Constituencies.
    It is important that the Company speak to employees and outsideconstituencies with a single voice, and that management serveas the primary spokesperson.
  • Confidentiality.
    The proceedings anddeliberations of the Board and its committees are confidential.Each director shall maintain the confidentiality of informationreceived in connection with his or her service as a director.

XIV. Evaluating Board Performance

The Board, acting through the Corporate Governance and NominatingCommittee, should conduct a self-evaluation at least annuallyto determine whether it is functioning effectively. The CorporateGovernance and Nominating Committee should periodically considerthe mix of skills and experience that directors bring to theBoard to assess whether the Board has the necessary tools toperform its oversight function effectively.Each committee of the Board should conduct a self-evaluationat least annually and report the results to the Board, actingthrough the Corporate Governance and Nominating Committee. Eachcommittee’s evaluation must compare the performance of the committeewith the requirements of its written charter, if any.

XV. Reliance on Management and Outside Advice

In performing its functions, the Board is entitled to relyon the advice, reports and opinions of management, counsel,accountants, auditors and other expert advisors. The Board shallhave the authority to retain and approve the fees and retentionterms of its outside advisors.