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The American Tobacco Company 1964 Annual Report Tareyton 0926714-010 .

Annual Meeting The Annual Meeting ol Slockl]otd~t$ wit~ take pf~ce On Wednesday*, Aprtl 7, ?~16S, in RariIan Township adja~enl to l:lcrni~ton, New ]ertey A tormaJ Notice OJ MeeUng~ proxy Statement and proxy accompatly tJli~ repoR.

Company office: ¢50 East q2n~ Street New ¥0Fk, New YOrk 10017 PROFI T-SHARING PLAN F[f'st National City Bank, Trustee 39'9 Park Avenue New York, New York 10022 March l, 1965 To All Profit-Sharing Plaa Members As you know, Profit-Sharing Plan funds are partly invested in American Tobacco Common Stock. This stuck is owned by the Plan Trustee, which does the actual voting at meetings of stockholders. However, you have an interest in this stock as a Plan Member and therefore the Company has worked out arrange- ments with the Trustee whereby each Member is able to indicate confidentially to the Trustee his deskes as to the voting of the shares of such stock in whirl1 he has aa interest and the Trustee has agreed that in exercising its voting powers it will be bound thereby. You can indicate to the Trustee your desires as to voting of the stock in which you have an interest at the 1965 Annual Meeting of Stockholders of the Company by completing and returning to the Trustee die enclosed "Vote Specification" card. To help you understand the matters that are to be acted on, we are enclosing material that all American Tobacco stockholders receive~ Notice of Meeting, a Proxy State~ ment and the Company's Annual Report for 1964. Study these enclosures carefully. Then fill in and sign the enclosed "Vote Specification" card and return it promptly to the Trustee--First National City Bank--in the postage-pald return envelope, Your wishes will be treated in confidence by the Trustee. To receive consideration the card must reach the Trustee by noon April 6, 1965. Each year you ate a Plan Member you will receive an individual statement showing just where you stand in the Profit-Sharlng Plan. Your 1964 statement is now being prepared and will be mailed to you in the ileal" futllf'e. Enclosures PROFIT-SHAKING PLAN COMMITTEE

NOTICE OF MEETING Flemlngton, New Jersey March 1, 1965 The Amaual Meeting of stockholders of The American T~bacco Company wilI be held at the Hunterdon Central High School, in Raritan Township adjacent to Flemlngton, New Jersey, on Route 69 between the New Jersey Avenue and the East -~fain Street intersections, at one-lhlrty o'clock in the afternoon (Eastern Standard Time) on Wednesday, April 7, ]965, for the gollowlng pin,poses: (1) To elect Directors; {2) To consider and vote on a proposal (designated Proposal d and set forth in the following proxy statement) to elect Lybrand, Ross Bros. & Montgomery independent auditm's for the Company for tile year 1965; (3) To consider and vote on a proposal (designated Proposal 2 and set forth i11 the following proxy statement) to approve the Profit-Sharing Plan of The American Tobacco Company, which will be resubmitted to the Annual Meeting pursuant to the Plan; (4) To consider and vote oil a proposal (desigoated Proposal 3 and set forth in the following proxy statement), declared advisable by the Board of Directors, to approve and adopt the amendments described therein to the Retirement Plan for Employees a~ld Former Employees of The American Tobacco Company and Designated Affiliated Corporations, to be effective as of January 1, 1965; and (5) To transact such other business as may properly come before the meeting. The stock transfer hooks will not be closed but holders of Preferred Stock and Common Smock, to he entitled to vote, must he holders of record at the close of lmslness on March 8, 1965. JOHN W. H.~d~LON, Secretary

PROXY STATEMENT Ths aeeompanyinR proxy is selicRed by the MamugemenL The proxy may be revoked by notice in writing given *o the Secretary at any tinae before balug voted. Proxies in the acevmp~mying form~ properly executed, duly returned to the Management and not revoked, will be voted and, where a speeificatibn is made on the hailer proxided therein, will be voted in accordance with such speclheatlon. The Management is not awsre at the date hereof of any matter Io be presented at this meeting other than [he election of directors and Proposals 1, 2 and 3. If any other matter is properly presented, it is l~ended that the persons named in the proxies will vote thereon according to their best juilgme~. Attendance at the meePm g does not serve to revoke the proxy. The number of shares o[ each class of voting securities of the Company outstanding is: Preferred, 527,831 share.*; Common, 25,999,116 shares. The Preferred Stock ($100 par valee) is entitled to sixteen votes per share. The Common Stock ($6.25 par value) is entitled to one vote per share. The record date for ibc determination of stockholders entitled to vote at the m~etthg is the close of business March 8, 1965. ELECTION OF DIRECTORS The Board o~ Directors consis~ of e/ghteen me~elaers who are elected to held ofi%~ until the next Annual Meeting or antiI their ~uceer~ors are duly d~cted and qualified. It is intended that proxies in the ~c¢ompanying term will be voted for the nominees named below or, in the event any such novgmec is not a candidafe or is tmable to ~erve as a director atthe time of the election ( whish is not now expected), ~or any nominee who shall be d~slgnated by the presem Board of Directors to fill such vacancy. The nominees named below are members of the present Board and have gervcd as directors of the Company for the periods eomraeneing with the dat~ set after their respective names. There are set ibrth ledow opposite the name of each nmnine~ (1) under the heading "Common" the d~ares of Common Stock o1 the Company beneficially owned dire~dy or indirecdy by the nominee on February l, 1965, plus the shares (if any) of Common Stosh, hsht by the Trustee mailer the Company's Profit-Sheribg Plvn and attributable to deposits made by him through voluntary payrall dedavhen~, in whleh the nomibev had a b~¢fmlal interest as of l)eeemb~r 31, 1964, and (2) ~/er the heading "Common attributable to profit sharing" the shmtes (if any) of Cerumen Stosh o1 the Company, held by the Tm~stee under the proilt-Sharing Plan and attrthutshle to profit sharing, in which the nomibe0 had a beneficial idterest as of December 31, ]964. Tile id~ormatlon as to security holdings is based on information reeeivcd by the Company ~om the nomleees, lkom the Pr oilt-Sharing Plan Committee and [mm the Truste~ under th~ ProfiVSharing Plan. ~Bme Orpheus D. Baxalys Alfred F. Bowden James J. Cunniugham A. Gordon Findiby John G, Hager, Jr. Virgil D. ]'lager Robert K. Heimann Cyril F. Hetsko A. LeRoy Jan~n Alvin R. Jennings Eugene F. Mooney 1chn B. Sparrow Silas E. $tricklend George L. Turner Robert B. Walker Joseph R. Waterhouse (2) year first Co~a~on Positions and o~ce$ whh Company elected ( 1 ) attri[I umhle t¢, orotherprlncipaloeeup~tion(a) dlr¢ctor Common(b) profit sharing (e} Vie~Preside~lt and Managing Director, The Amesh 1940 11,780 204 can Tchacce Company of th~ Orient, Inc. Vice.President; Presldent~ Cigar Division, and 1951 2,952 428 Pre~iden% Amebean Cigar Corporation Director of Parshases 196,3 1,940 t91 Vice-Pr~ident, Advertising and Sule% Cigar Divi- 1953 8,020 294 slen~ and. Vlee-Presiile~t, American Cigar Cor- poration Vice.Presldent, Cigarette and Toheeco MauuJaeture 1956 1,620 289 E~ecntlve Vice-President 1955 1,624 557 Vice-Presid~nt for Markedug and Pu~ilc Relations 1963 1,237 241 Vice.President and General Counsel 1965 500 -- Executive Vice-Preslde~t 1948 2:670 579 Retired (formerly Executive Partner, L)brand, 1965 100 Ross Brot. & Montgomery) Director of Sales 1963 2,0~7 312 Vice-President, American Supplfers Division 1958 2,422 245 Vice-President, American Suppliers Division 1957 524 276 President, American Suppliers Di~dsinn 1958 2,462 334 Prealdent 1955 2,740 722 Vic~Preeident and Treasurer 1962 1,079 300

(2) Year first Common Positions and ¢Jfflc es with Company elected (1) attrlbatable to Name or other principal occupation (a) director Common(b) profit sharS~gie) George H. Woodard President, Welling & Woodard, Inc., Management 1964 100 -- Consultants William B. Young V~ce-President, Manufacture, and Vice-Presidvnt, 1956 4,445 i93 Manufacture and Leaf, Cigar Division (a) The positions and offmes listed opposite the name of a nominee are with tire Con~panv unless otherwise noted and ere his ptln¢ipal tmcupatlsm The Amorlcan Tobacco ComFany of the Orient Inc. is an al~llated company engaged in pttrclmze ~nd hand[lag el leaf tobacco. American C~gar Corporation, also an affiliated company, produces higher pricec[ ciga~ brands, (b~ T~ numbers of shax~e, held 6y the PIaa Truste~ as of Decem~r 3L 1966, attributaLle to voluntary de[msit~ made J3y nom/nee~ and in which nomanees had a hene~eial interezt, iueludvd in the numbers shown in CMumn (1) opposite lhe names of nominees ~r~ as ~ol]ows. the nttmbor (with fractions omitted~ he~iu set ~orth after the uan/e o{ a nomit~ee heing oqu~valeul as o~ that date to h~s undivided proportionate ittteresl in all th~ ehare~ of C.omta~n Stc.ek then held by the plan Trustee ~ttrlha~able to deposit~ through voIuntaryp.,ayroll deduetior~: ~ram¢~ J. Cunning&am, 360; J~hn G. Hater, Jr.. 420; Virgil D. Hater, 582; Robert K. Heimann, 137~ A. LoRe7 Jansen, 470; Eugene F. Mooney, 3~1; John B. Sparrow, 422; Sila~ E. Striekland. 124; George L. Turner. 4,62; Joseph K Waterhouse, 77; ~d Willianl B. Yomlg, 865. (c) Tke ~amher of shares aboaa itt Coluraa (2} oFeosite the ~am~. 0£ a nominee is ~he number (with fraetloos emiItedi eq~i~aletzI as of December 31. 1964 to Ms ~mdivid¢d proportionate interest in all the shares of C~nmmon Stock of the Company ~en held by the Pie, Trt~ste~ attributabtv t~ profit sh~zing. The Company is also informed that none of the nominees was the beneficial owner on February I, 1965 of outstanding equity seouritie~ of subsidiaries of the Company or (except Mr. ltmxalys, who owned 62 shares) of Prcfcrred Stock of the Compan>. Cyril F. Hetsko entered the employ of the Company as its Gen~ra~ Counsel on November 6. i964, following his resignation from Chadbourne, Parke~ Whiteside & WolfL As an associate and {rein 1955 as a member of that /trm, he had worked on the Company's legal affairs for '24 yearn, the fast five as the Company's Chief Couns¢b He became a Vice-President and a director on January 1, 1965. Alvfa 1{. Jennfags, a certified public accountant, wa~ for many years preceding hf~ rvth-emeat at the end of i964 a member of d~e firm of Lybrand, Ross Bro~. & Montgomery, having served as its Managing Pmxner and Chairman of its Executive Committee ~Oln 1934 to 1962 a~d thereafter as Executive Partner. He became a director of the Comp,mv on ffanuary 1, 1965. George H. Woodard. a registered engineer, has had more dian 35 years' experience in management consulting, corporate executls'¢ and staff {unctions and d:vdopluent engineering. Hc is, and has been since its incorporailoa in 1959. President and principal stocldedder of Walling & Woodard, Inc., management consuhants. He became a director of the Company on October 1, 1964. RFmMUNERATIOrq There is set ~orth in Coinran (1) of the fallowing tabulation, on an accrual basis, aU direct remuneration paid by the Company and its subsidiaries to the following persons for services in all capacities while directors or officers of the Company dmfag its last fiscal year: each director, and each of the three highest paid o~teers, of the Company whose direct aggregate remunerafion exceeded $30,000; and all directors and oflgcers of the Company m~ a group. The 1964 profit sh~re~ of these indixidual~ payable to the Trustee under tim Company's Profit-Sharlng Plan are stated in Column (2). Estimated annual retirement benefits- to the same individuals at normal retirement date under existing retirement pIan~ are stated ia Cofamn (3). (2) {3) (1) Profit share Estimated annual Agg~egat e ~r 1~64 nnir omen t bene~ Name el individual Capacit ie~ in which r ernalxer ation payable v~ at normal orider~tits*ol~'oup remanerationwaszeceived(xi tbl (c) (di Truste~ (el (all to) retirementdat~ (f) Orplmus D. Ba~xalys(g) Vice-President and Mzmagi~g Diree- $ 67,090 $ -- $16.836 Alfred F. Bowden(h) James L Cunnfaghara A. Gordon Findlay(h) John G. tinter, Jr. tot, The American Tobacco Corn party of the Orient, Inc. Vice-President; President, Cigar Dls~alo~ Director of Purchases Vice-president, Advertising and Sales, Cigar Division Viee.Prealdent, Cigarette and Tobacco Manufacture 3 89,936 10,965 16,224 48,770 5,855 7,919 57,026 6,880 13,434 66,106 8,007 tl,761

NanLe ot individual ur identity of group Virgil D. Hag~r(h) Hiram R. Hanraer (g) (i) Robert K. Heimann(j) A. LeRoy Jansen(h) Eugene F. Mooney John FJ, Sparrow Silos E. Strickland George L. Turner(k) Robert B. Walker Joseph R. Waterhotme(h) (1) George A. Wilkinson(g) (m) Wigiam B. Young(g) (h) Directors and og~cers as a group(n) Capaeitlea in whlc}l xemttrleratiott wa~ reeelV~ll (~J Executive Vice-President Vice-Preddent, Departmel~t of Re- search and Dove~opmelit Assistant to tho President; Vie~- president for Marketing and Public Ralzt/ons Executive Vice-Pr~sidcnt 146,253 17,956 Director of Sales 71,135 g,631 Vice~Presideng American Suppliers 55~276 6,663 Division Vice-President, American Suppliers 57,135 6,894 Division Prezid~nt~ American Suppliers 82,260 4,689 Division President 233,255 28,756 Treasurer; Vice-President and 78fi98 9,533 Treasui'er Dire~gor, Tax Department; Special 61.667 -- Assistant Vice-President, 5$annfacture 79,231 -- Directors and Officers as a group 1,546,069 151,537 (2) (3) (1) Profit share Estimated manual Aggregate for 196~ r etir etc~ent beile~i rer~tll~eranon paTable ~o at tlom~l (ill (ci Cd~ Trustee (el (d) /ei rettrera~ntdate if~ $ 146,253 $ 17,956 $19,807 4g~159 70,369 8,536 10,765 17,737 12,550 I0,063 1] ,209 12,449 24,247 12,865 12,120 9,629 a) Capacities referred to were -~ith Ti~e ?~alerican Tobacco Ceml~aoy, unless otherwise indicated. The Amerioma "l'o]~acco Company ~t e O~eu * Inc. i8 an a~I[a ed coltlpanv engaged ~ p~rch~se lind hattdlJ~g of leaf tohaueo. 16) Includes undefer~d noncontlng~nt portio~ ~t i~eutivc compensation for 1~'~ utLder Article XII of lhe By-Law~. te "fh~ de~crred, eontingellt portion o~ incentive oompcusation under Article XI[ of the gy.La'&s aecrtl~d fo~ all years o~ Ipartleip~Lioll prior to 19(~ {1~57 being lhe firlt 3'e,lr for vlhleh it 'w~ pro~Jdr:d it I~0.~ablo to e,leh pattic[l~ant i~ ~qual ~nrtual installm~nts during th~ ten y~ar~ ~ollowing the ~losa of the year i~ which his ~mployment by the Compan)" terrafn~te~. Commencing with da~ year ]96~, Artlcle XD has provided /or Ihe rec/~ction of the data'red purlieu ~f i~.'¢ntr~ o~tpensattorl of eaoh ~a~¢/clpaz:t fo~ any year by the amoun~ el hls profit ~are for Slleh year u~dcr the Profit-Sharlng Plan. T~e respective amount~ ei d~'Ierred ~n~et~fi,~c c¢31ttpell~tti~tl accrued ior 196~ for the ir t dlvid rut Is named in the ab~v~ table, tho~ reduced by pro6t sharing except i~ t he, so ins~talnees where no p~fit share i~ sh~wll, ¢t~, ir~ parenth~!~, the r~speetlv~ ~tunua] installments l~ayah]e to them a~I~r tcrtuiu~tlon of empl~mcnt in r¢~pect of deferred incentive compensatio~ accrued for a[[ years of parlieipatlon including 1964, are as fol]ow~: Orpheus D. Baxaly~, $9,090, /$4.550) ; Alfred f. Bowden, $8,971, ($7,277) ; J~ro¢~ J. C~maingham. ~3,2~, ($478) ; A. Gordon Find/ay, $146, i$2,789) ; John G. linger, Jr. $3 724. /$2,~65) Virgil D. Hager, $2~,297 ($11,795) Hiram R. H~amer $2,909 ($5,302) Robert K. H~imann, $10,166, ($1.536) : A, LcRov Jansen, $28,297, /$12.~9) ; E~gene F. Moane~, $~ 670, ($3,185) ; John B. Sparrow, $2,~63, ($1,3211 ; Silos E. Strieklaad, $3,491, ($3~206) ; C.~rge L. Turner, $10,071, !Sg557i ; Robert B. Walker, $56,500, ($16,721) ; Joseph R, Waterhous¢, $9,69~, ($3,051~ ; George A. wgklason, $~,667, ~,243); ~V~ll~am B. Yoang, $~9~281, ($7,~3); and Director* ~d Off~ccrs ~s ,~ group, $213,394. ($94,344) • (dl As of Deeeraber ~1, 1~66, the Profit-Sharing PIan balances /other IliOn balances attribmahle t~ deposits through voluntary payroll deductions) re resemcd hy the Piaa "Unlts~' standing to he elcdit ot the individuals named in the abow table, i~cluding the market la]ue on that ~arro of tile lamuber ot share~ of Comlilort ~tuck ~[ ~e Company h~]d by th~ Plan "l~lustee equivalertt On t~lat date to lllct~ uncl~vid~d 'proport]ollate int~rc~ls ~n th~ tot~l ntlmb~r o[ s~teh share~ then h~ld b~z the Tlu~Lee alt~ibutab]e to profit sharing, but excluding their profit ah~res for 1964 !payable to the Trustee in 2965), were as folIows: Orpheus D. Baxalys, $28,265; Alfred IL Bowden, $~-/1,982 ; James J, Cunnlngham, $19,0~3; A. Gordon Findlay, $31,778; John G. Hagen, Jr., $29~684; Virgil I). Hager, $54,427; Hirar~ R. H~nm~r, $0 Robert K. Heiroann, $2~¢806; A. LeRoy Jansen, $57,~8; Eugewe F. Mooney, $32,036; John g. Sparrow ~25,858; 5i ¢s E. Strieklaad, $29,289; Georg~ L, Turner, $39,2~1 ; Robecl 1L '~¢al/cer, ~8,746; 2oseph IL ~'~teehou~e, $~,342~ Ge~rg~ A. Wilkinson, $28,324; Willlam B. young, $36,575; and Director~ and Offtcers ~s ~ group, $302,41~ (e) Th~ figures in ~lumn (2) ar~ the dolla~ ~alues as n~ Deecraber 31, 1964 of the plan ~Units" e~onstguiing the profit sharc~ of tR~ named indlvlduals for 1964. (D Estlm~ted ulson basi~ ,s~ aet~l or assamed ele~fh~n b~ ~alp]~e o[ ~int a~ ~m~er a~n~tRy. (g) I% profit share /or 1964, ha~ing ~ttained hi~ Ne~mal Reti~emem Date before January 1, I~t~4. (h) Also ~cer ~f a~021ated company or companies. /i) /~tired September 30, 1964. Amount in C~lumn (1) is for I964 through that dale. (j) Assistant to the Prcsldcnt through January 3I, [ggi~; Viee-F¢~sldem for Marketing and Pu~lio Rel~llons from Fel~ruary ], lg6~. (k) Amount in (~alumn /2) is based on his earnings, i~eiudlble f~r profit ~haring, through July, 31, 1964, his Normal Retirement Date. (1) Treasurer thtvugkout 1964 ~nd VieePr~sident [r~m Pehraary 1, 1964~ (r~) Director, Tax Department, through November 30, 1964; Speclal Assistant from D~e~mber b 1964. Retired January 31, 1965. in) Th~ uggrega~e remuneration for ll~e fiscal year 196~, from Ihe Compatty and its ~ubsidiarle~, on an accrual basis, of Director~ and Of~eers as a grou~ shown in Column (1), ~¢as approxlmat~y thlrteen on~-h~adredths of 1% of the Cor~panE~ consalidatcti net sa~es Tile Company paid Wailing & Woodard, Iuc. (of which George H. Woodard, a director of the Company, is President and prlnclpal stock6older J ~76,11g £or services rendered by li~at corporation during the last quarter of 1964, 4

Proposal 1 ELECTION OF INDEPENDENT AUDITORS The ~fanagoment r~ommends tile c[~t~on by trio stockholders o~ Lyheand, Ross Bro~. ~ Montgun~ry as indepeIIdent auditors for the Company ~or the year 196g. In liue with this recolnmendat[on the _Management inlend~ to ifilroduee at the ~orifieoming Am~ual ~vleetlng the following res01ution (designated hereifi as Propos~ t) : R~SOLI?ED, that Lybrand, Ross Bros. & ~VIDn~om©ry be and thvy har~by are elected independent auditors fo~ the Comp~ly ~or tbe year I965. This firm of oertified peblle ac~untant~ has been for over 30 year~ the indcpendent auditors for the Company. In accordance with the Company's practice a member o~ ifie firm will attcnd the Annval Mee~thg and respond to qnestlons ~.hi~ may be a~ked by stockhold~s. The Management recommends that you vo~e FOR Proposal I. Propostd~ RESUBMISSION OF PROFIT-Sf{AI~EWG PLAN The Pro~t-$harlng Plan el The American Tobacco Company was adopted by the stockholders at the Annual Meelifi~ in 1960. The Board of Directors has since made a number of minor changes, in inrge part dealguad to facilibate admini~ratlon. The Board, in further exercise of itn amendatory authority, also added a provision (Section 7 of Article XI) that the plan be restlbmittad to the ~tockheldors within five year~ after the last ~tockhalder approval and anoifie, provision preeludifig a member ~ part+c'pation in profiI~ a~ter his normal ~'etirement da~e. As fi~o years will have elapsed since the stogbholder approval in ]960, the Plan~ a~ araeo dad, is r e~ubmitted to th~ stockheldcrs at tbi~ Annual Meeling. Summary el P/an A brief de~erlption of the material tealures of the Plan as currently in ef[ect appears bvluw. A copy of the Plan will be sent to arty ~tockholder upon request to tl~e Secretary at ~lte Company's o~ce at 150 £a~t 42nd Street, New York, N. Y. 10027, and copies will be a~tilable at the meeting. Stockholders ar~ referred to the text of the Plan, ~md the follow, trig summary is qualified by such reference. Employees Covered, All ~egular iull-thne employees of the pertioipating empl~yerc~--~he Company mid t~'o of its ~ubsidiaries, The Hatheway-Steane Corporation mad American Cigar Corporatlon---he~ome members of the Plan on the JaIluary l ~allowlng eompletlon of one calendar year of eo~tinuot~s ~ervice. Approximately 12~5130 employees participated ia profit ~harthg for 1964. Employer Contribtttions. Each year the participating empleyer~ contribute a sum equal to ifie |ollowhg percentages o~ eozts~]idated net income before ta~es ~as defined in the Plan): 3~/~ of the first $1D0,O00~O00, plu~ 5% of the next $50,000,000, plus 6% of any excess. No con t but on w be made, however, for s~y year (a) fc~r which net income before taxes do~ not equal or exceed 12% of net worth, (b) in which a cash dividend ~s not paid on the Common S ock of the Company, or c) n exees~ of the amoulr deduc blc for that year by the pert~cipoting employers for Federal income tax perpose~. The Board of Direr.tots may in its discretion diseonlifiue, suspend or reduce eontrifiutions. Investment by Trustee. Employer contributions are pald Io Fi~st Nati0nal Cit> Bank as Trustee o~ The Americar~ Tobacc~ Profit-Sharing Plan Tt~ast to be credited by it ono-tidrd to the American Stock Fund for inve~t~nent ~olely in Common Stock of the Company and two.thlr~ls to the Diversified Fund ~or inve~maent in such sectrrifie~ and other property as the Trustee in its discretion may select. dpporllonmettt o/Contrlbttt~ons to Members. Corttrthutio~s are apportioned to Plan members on the ha~is of each m~raheFs adjusted earnings for the year in relation to the atl}t~tted earnings of all member~. "Adjusted earnings" for any year m~an~ earnings for that ye~tr plus 50~ ~f such earning~ in excess ot $4,800. Distribttth~tt and FC/ithdrawals. A meraher'~ balances in Ihe Profit-Sharing Plan Trust arising fro~a ¢rap1c>yer eontrlhulions become thBtribntable upon termination of employment. In eases of ternaiuatlon by death or rellremcnt the full amount is distributable. In the ca-*e ot any other lermJnatlon a pctcentage varying with the member's length

of service and reaching I00% upon completion of thirteen years' continuous service is distributable, except that upon termination ot employment for serious misconduct (discharge for cause, as defined in the Plan) the entire amount of such balances is subject to forfeiture. Distribution is made by such method of settlement--a sing|e distribution in cash or partly in cash and partlg in Common Stock of the Company, periodic eaab instalhnents, purchase of annuity, or other~dec---as the Profit-Sharing Plan Committee appointed by the Board of Directors to administer the Plan determines. A member may withdraw a portion of his profit-sharing balances during employment, subject to certain restrlction~ and subject also to the penalty of a 10% forfeiture. Theze and all other fodeitures are reapportioned among Plan members annually. Voluntary Deposlt~. In addition to receiving contributions from the Company the Plan Trustee is authorized to accept voluntary deposits from members. Any eligible member may became a depositor by electing to make deposits of h~s own funds by payroll deduction in amounts not less than $2 pe~ week and not more than 10% of his base pay. Each depositor has the option of directing that his deposits be allocated for investment entirely in tim American Stock Fund or one-third in that fund and two-thirds in the Diversified Fund. DepositPd ltmds nmy be withdrawn during employment, subject to limitations provided in the Plan. Deposit helanees become distributable in full upon termination of the member's participation ~ a depoaltnr. Approximately 2,250 mouthers were participating as depositors oa D¢ceruber 31, 1964. 1964 Employer Contributions under Plan and 1964 Incentive Compensation under Article XII The contributions of the participating employers to the Fe~fi~Sharing Plan accrued for the year 1964 amount to $6,211.856 (equibsient to $2,998,00.5 a~r Federal and state taxes based on income), of "~ffiieb $151,537 is apportionable to the aeeounls of fifl~en directors and officers and $6,g6~319 to other employees. For the same year incentiw compensation under Article X[I of the By-Laws was accrued in the following amounts for the employees participating therein: The under.fred nnncontingent portion (constltutlng one-hal~ of s~ch compensation) egv~Tegatmi $460.518, of which $362,027 wa~ accrued for eighteen directors a~d officers. The deferred contingent portion (constituting the otber half of such compensation), aftez reduction by profit sharing in the case of persons participating in the Prnfi~Sherlng Plan ~or that year, aggregated $231,320, of which $213,394 was aecrtted for such directors and offi~rs. RESOLUTION CONSTITUTING PROPOSAL 2 The resolution constituting Proposal 2 ls as defiowe: RE~OLVEtg that the Frofit.fiharfeg Plan of Tha American Tabaccu Company, as resubmitted to this Annual Meeting pursuant to Section 7 of Article XI thereof, be attd it hereby is approved. The vote in favor of Proposal 2 of a majority in interest of the Preferred Stock and et a majority in interest of the Coramon Stock present at the meeting and voting (each voting as a ela~s) is necessary for the adoption tllereof. The Management recommends that you vote FOR Proposal 2, PROPOSED AMENDMENTS OF REVISED RETIREMENT PLAN The Retirement Plan for EmpLoyees and Former Employees of The Ainerican Tobacco Company and DesigxLated Affiliated Corporatini,~, known as the Revised Retlrement plan, was adopted by the stockholders at the Annual Meeting in 1960 and has since been amended in various particulars by the Board of Directors. Approximately 15,250 employees of the Company, The Hatheway-Steann Corporation and American Cigar Corporation are covered by the Plan; of this number, eightoen are directors or officers of the Company. Tbe Board o~ Dire<tars has recently declared advisable and adopted certain additional amendments to become effective as of Jauuary l, 1965 subject to the favorable vute of the stockholders. The action was also subject to a ruling of the luternsi Revenue Service as to thc continued qualification vf the Plan as so amended, so that the Company's con- t~ib~t[ut~s would eonthme to be deductible for incom~ tax purposes. This ruling has been received.

Summary o[ Proposed Amer~nts The proposed amendments to the Plan make changes with resI~Ct to "past service" benefits and early retirement. A brief description of the material features of the amendmen~ appeoxs hdow. A copy ~ the Revised Retiremen~ Plan as currendy in e~ect and ~ the proposed amendments will be sent to a~ stockholder upon written request to the Secretary at ~he Company's o~c~ at 150 East 4,2mi Street, New york, N. Y. 10017, a~ copies will be avaitab~e ~4 the meetln~ Stockholders arc rcferled to Lhe text of the Plan and such amendments and the following summary is qualified by such re~rence. Change with Resp~ to "Past Settee'~ Benefit Present Plan. Under the Plan as now in effect, normal retiremet~t, ~verance and disability benefits are payable at an annual rate equal to the sum el: (i) a "pa~t service" benefit based on years el continuous employment before 1960 muk~- plied by ~ of i% of 1955-1950 awrago ammal earnings up to $4,800 and l~,z% (~ of 1% in th~ ease el alL, ability ben¢~s) of such earnings in exce~s of $4,800, plus (ii) a "future service" benefit equal to 1% of ~arni~gs after 1959. No credit is given ~or more then 35 years of service in the case of normal retirement or disability benefits, or ~or service before the employee's 30th blrt~ay in the ease of ~verance henefit~, or in any case for ~rvlce alter age 65, and the maximum benefit under the Plan is $37.500 per annum. Proposed C~ge. The amendments (which apply ~nly to persons in ~erv~ce on or after January 1, 1965) would change the ba~e period for calendaring "past service" benefits from the years 1955.1959 to tlle years 1960-1954 and abe increase the ~ of 1% multipliers to % of i%. This chan~ is intended to bring Plan benefits more in line with current pay levels, which were 8e~erally ]figher in the more rece~ 5-year peried. There are, however, certain seasonal and other emp~yees wl~oae earnings were less in the later l~riod ~han in the earlier period, and tSere~ore the proposed amend- ments also provide that henefits under the Pla~ as a~w in effect shall not be reduced for any ~mpl~y~ as a result ~f the amendments. Change ~th Respe~ to Early Retirement Presem P~an. Early retlrem~nt is permitted emplo~.es with 12 years of continuous service on or after reaching age 55. If payment o~ benefits begins before a~ 65, the amount is reduced t~ the actuarial equlvalent of the accrued benefit payabl~ at age 65. Propo~ Change. The amendments (which do not chauge the 12-year service requirement) would permit early retire- ment at or after a~ 62 without reduction and early retlrem~t at and Mter age 55 with a reduction of 6% per year for each year before age 62. This change would rc~uk in a larger benefit in all c~s of early retirement. It is con- sidered desirable to facilita~ esr]y ~et~rement in this manner since it could result in reduction of employment l~vcls, especiafy where Company olmratio~ are undergoing ieereascd auWmatlon, Cost o] Pla~ and Proposed Amendments It is the present i~tenfion of the Company to continue to fund the unfunded past service cost of the plan as now in effect over a period oI yea~s, o~ whlch there ~main (as of January I, 1965) 41 y~ars in the c~ of the Company and 42 y~rs i~ the case of the participating a~liates. This cost as o~ that date was e~timated hy the Company's ~nd~. pend~nt actuary at $57,660,0O0. The actaary Ires ~tlmated that the amendments will increase the u~{unded cost of benefits for ~rvice prior to 1965 by approximately $17,050,008, c~]cn~a[c~ on thv a~umption that. if the amendments are approved, one-third of ~l digible employees will retire at age 62 m~d the balance at age 65. Th~ present annual cost of funding to the Company and its parfeipafing a~liates, and the additional cost by reason of the amendm~nt~ on th~ ~Ule ]~asls and under curr~nt col~ditlo~s~ are ae~oxdin~ly estlnla~d a~ fo~]ows: Plan as Cutx¢lltly Add$tioua] Cost of in Effcot Amendments Aftex Deducting After Deducting A ¢~tlat y's Taxos (at CUlr~r~t A~t noxy'~ Taxos (at Current Estimate Bates) asEstim~ted Eslima~ ll.atos) asI~stimated Befo~ Taxes by Company Before TO:.~ by Company Annual payment with respect to past service $1,885,000 $ 946,000 $ 850,000 $427,000 Annual payment with respect to ¢~rrent service ............................ $3,285,0O0 $1,648,000 $ 295,000 $148,000 Totals ....................... $5,170,000 -$2,594,000 $1,145,000 $575,00O