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SECTION 4. (A) Payment to each President and Senior Vice Pxesldent, of the amotmts payable to them under Sec~on l(B) hereof, and to each of the aJgottees of the Management Group of the amount of his total allotment~ under Section 2(I]) hereof, with respect to any year ahaU he made as follows: (I) One-haLf thereof shall be payable in cash as soon as pracHcchle. (2) The balance, being one-haLf thereof, shall be eontingenrly payable as hereinafter provided. (I3) All amounts conBngentiy payable to all persons hereunder, such persons being here- after referred to as "participants," shall be psyuble in cash in ten eciatal annual contingent install- ments, one s~sh instalhneut to be paid on the last bushiess day in January, or as soon as practicable lhersaLfcr, in each of the ten years following the dose of the year in which the participant's employment by the Company terminates; but all such payments shall be subject to the following conditions: (i) If any participant ceases to he employed by the Company within a period of five years f~om the close ~ff any year for which an allotment is made to him hereunder, the part of his allotment with respect to such year which is e~ntingently payable in instalhnems as aforesaid shad be reduced to the proportion thereof which the number of oomplsted calendar quarter-years from the beginning of such five year period to the termination of employment bears to twenty; provided, however, that the provisions of this subdivision (i) shall have no application to any termination of employment (a) by death or (b) under such circumstances that the participant is eligible for retirement benefits (inelRding early retirement), severance benefits or disability benefits mtdex the Company's Retirement Plan, or (e) for other reasons deemed by the Board of Directors not deafmental te the Company's interests. (ii) Payment of all unpaid installments shall be eontlngent upon the participant's not having, shace the tcnninatlon of his employment with tim Compzily~ accepted employment with, or rendered personal service to, any competitor ef the Compsa~y or engaged ha any activity in competition with the Company, except as expressly approved by the Company. (iii) Payment of each such installment chad be conditioned upon the participant's having during the year preceding such payment been svailchle to the Board of Directors, or any repre- sentative deslgnaled by the Board of DLfeetors, for eonsuhation, at such times and places, upon prior wriltcn notice, as the Board or such representative may reasonchly request, having due regard to the age, health and convenience of the participant; provided, however, that the partici- pant is to be reimbursed for all expenses in connection therewith, and if said participant is more than 100 miles from the Company's prJnclpaI o~ices, such consultation may at his option be at the place where he then is located and may he, at the Company's option, either by personal visit to him by the representative of the Company for such purpose, or by written communication. (iv) Stthjcct to Section 5 hergof, no suds histallment may he t~ansfcrrcd by any partici- pant in any maimer whatsoever, including transfer by operation of law. If any partieipant is, in the opinion of the Board of Directors, incapable of handling his affairs, or makes or suffers any attempted transfer, whether vokmtary or invohmtary, of any contingent hastallment, then in the discretion of the Board of Directors payment thereof to such participant shall cease and paynmnts may be made or applied tt~ or for the benefit of such participant or his spouse, I0

children, or other dependents, or any of them, in such ma~mar and in such proportion as the ]Board of Directors shall from time to time deem proper, subject, however, to the other pro- visions hereof. (C) Any portion of any allotment which terminates by reason of noncompliance with its eondltions shah re}~rt to the Company. SECTIOn- 5. Any of the said ~nnual contingent payments that may fail due after death of p~u-tithpant shall he pald in ~t'h installments as herein p~ovided, either to rush pc,~on as sha~ funaish evidence satisinetoD" to the Company tha~ under the last will and testament of the par- tic~paut or for other ~eason such person i~ authorized in law to ~eceive such paym~nh or~ in the discretion of the Company, to such pe~on as shall ~ur~ish the Company with evidence o~ appoint- ment as representative of di~ estate of the participant; provided, however, thaL the Incentive Compensa~iort Colnmit~e may, in its sdie ~iscretion, aeee~rate ~nc or more of such payments. The Company may ~ely ~pon ~ny oplni~ln of e~JunBcl in determining [he person en~itIed to receive such payments and the receipt o~ any s~ch person ~or ~ch payments shall release the Compatty ~rom any ~urther chligatlon in respect thereof. Th6 word "person" as used in shis Section may ~nclude one or rnoz-~ individuals, ~rms, trusts or ~orporatlot/s. SECTION 6. For file purpose of this Article, the term "net profits earned by the Company" in any year is defir~ed to raeaia the net Lrteome stetted by the independent publio accountants who have audited th~ Conlpany~s boo]cs as fnieiy reflecting the consoBdated resalts o~ the operations for such year of th~ Company and its subsidiaries included hi the eo~xzo]Bdated financial statemeats set forth in the ~nnual report for s~ch year of the Company to the sto~khclders. SKc'floN 7. At the time of ~endexing their report with re~p~et t~ the ~gnclal ~ta~ments of the Company a~d its consolidated s~beidlarie~s~ such public account~nt~ shall also furnish to the Company their written certi~c~te statiag the a~gregate amount avalIabI~ ~r allotme~lt Inr such year, and the amotmls thereof to he allotted to the President and to each Senior Vice Presidcnh and the amount avaiXuble fo~ allotment to the M~tnageme~t Group~ pursuant ~o this Article, which certiiqcate as to the amoants available and payable hereusder shall he binding and eo~tcIuslve on all haterested pa~ies, and no nne claiming hereunder shall have a right to qtr~titJn the sarae, or to al~ e.xara~qt~on ~ the books or acec~u~ of the C~n~pany or ~hsi~iar~c~. SEC'~'~ON 8. Tl~is Article may he repealed only by the actioit of the stovJdmlders of the Company, and not by the Directors. Upon the nnanboous recoiJJmendation of the Incentive Com- pensation Committee, this Article nmy be amended or modified by the Dh-eetors in accordance with Article XI, exsept that, without the approval of die s~oeld~alth~rs of the Company, no such anaendment or modification shall he made which increases the aggregate amount payable here- under or alters the araoultt thereof payable herev-nder to the President ~nd Sc~fio~ ~rice Presidents. and ]B~rther RF.SOLV:~D, as also recommended hy resolutlo~ ~f the Board of D~zectors ~{ The. hmcrlean Tobacco C~mpany, that with respect to so m~tch of that portion o~ the year 1957 beginning Jant~ary 1, 1957 and ending on the date o~ the 1957 organization meeting of the Board of D~rector~ at which 1I

officers are eIected, after the annual meeting of stockholders, d~rlng whinh John A. Crowe holds ~he omee of Vice-President, he shaB be entitled to the araou~t of Article XII ineentivv compensa- tion which under the amended _article XH would be allotted to a Senior ¥ice President holding e~ce du~ing such portion of 1957. A majority of the votes east in person or by proxy on Proposal A wilI be required for its adoption. The Management recommends ffi~t you, vote FOR Proposal A. Proposal B ELECTION OF I~DEPENDENT AUDITORS The Managen~e~t proposes and reeemmendr the election by the stcckhnlders at the Annual Meeting of ]b[essrs. Lyhrand, RoBs Bros. & Montgorae~ as independent authtor~ for the Company thr the year 1957. fax H~e with thi~ recomraendr tinn the/VLn~tgemertt inteadr kn introd~ at the £ortheotalag Ant~aI Meeting the fo~lowlng resolution (designated herein as Proposal B) : REsonwrh that Messrs, Lyhrand, Ross Bzo~. & Montgomery be and they hereby are elected as independent auditors for the Company for th~ year 1957. This firm of cet-Yitled ptthlle accountants have been tot 25 yeas'~ the independent ~ditors for the Company. In accordance with the Cornpar~y's customary practice a mei~JJer of the firm wiI1 attextd the Annual Mee~ng and respond to c~esti~ns "~hleh m~y he asked by stoekholders. The Management recommends that you vote FOR Proposal B. Proposal C I~SOLUTION PROPOSED BY TEPEE STOCYd/OLDERS Tim Company is in:ffirmed thet Lexvhs D. Gilbex% a record holder of g0 s~ares of Common Stoek~ whose address is 1165 Park Avenue, New York 28, N. Y., and/or John J. Gilbert, a ~eeord holder of 80 shares of Co*amen Stock, whose address is 1165 Park Avenue, New York 28, N. Y., and/or John Campbell Itenl% a record holder of 400 shares of Common Stock, whose address is 5 East 93rd Street, New York 28, N. g., intend to introduce at the forthcoming Ammal Meeting the following resohttinn (designated herein as P~oposal C) : "RESOLVED: ~]~nt file stockhnlders of The American Tobacco Compaay, assembled ia am~nal meeting in person and by proxy, hereby request that the Board of Directors bring before a sub- sequent swekhalde~s' meeting a formal proposal for ~hn a~tendment of Article XII of the By-Laws, which amendment would provide that any non-recurring profit, s~ch as that resulting from the sale of buildings, be excluded irora the basis on whloh payment~ ul incentive compensalloa to ~f~cer~ are caleulat~d?' The proposers of rbls resolution, Messrs. Gilbert, Gilbert and Hera% haw furnished the following statement setting forth the reasons advanced by them in support of their proposal: "Incentive eompen- satio~t p~yments shn~ld hn n~atie on a basis ol s~le~, to ff,~ e~alu~t~n o~ n~n-reeu~ing profit~ which have nothing to do with executive sales initiative. From tlm¢ to time the Corporation has non-recurring pro£ts, such as ffiose resulfieg ~rom sale oI pxoperty no longer needed. There is no reason why exee~tffie~ should be rewaeded for transactions ~nreinted to the regular h~slness of the Corporation. Increasing sales of American Tohnceo products should be the early foundation for such compensation. If yott agree, pJease mark your prox7 FOR this resolution, ntherwise it is automatically east against it." The Management, after ea~alully evnsldering Proposal C and obtaBgmg the advi~e ~f the Company's indep¢ndent atalitors, Messrs. Lybrand, Ross Bros. & Mon~gomezy, share the view of the independent 12

auditors that the method now provided in Article XII for computing incentive compensation (~hich method will not be changed by the amendment of Article XlI contained in Proposal A) is a practical and objective method, fair to participants and stot:khelders alike. Incentive compensation is based upon net income reported to stoctdlolders and is determined by the thdependent auditors. In the opinion o2 the independent auditors net income as reported to stockholders is determined in conformity with generally accepted aecounthlg principles applied on a consistent basis. Proposal C, on the other hand, would reTaire that incentive compensation be based not on actual net income as reported to the stockholders hut on an ammmt which would he axrlver/M by e~rcluding certain actual transactions of the Company thLring the year, namely "non-recurring profits, s~eh a~ those resulting ~rom sale of property no longer needed". These transactions are not ha any sense "unrelated m the regular business" hut on the contrary are an essenthd part o£ it requiring managerial experience and judgment. Usually book profits on sales o2 capital assets arise because of over-Iiberal pxovlsions for depreciation in prior years. The apparent profit under such eheltmstances is in effect an adjustment of excess charges to income for the prior years. Moreover, according to the Company's b~depemtent auditors, while profits or losses on disposal o£ capital assets and certain other items which may represent non-operatlng cherges or credits would nor- really he reflected in income attempt, if they were so material as to distort nor income for the year they would he reflected in the sm~lus account and he excluded from the determination of net income as repotted to stoeltholdors and on which Article XII incentive compensation is hm~ed. A majority of the votes o~t in person or by proxy on Proposal C will be required for its adoption. The Management recommends that yo~ vote AGAINST P;oposal C. The Management is not aware at the dale hereof of any matter that is intended to be presented at this meeting other than tile election of directors and Proposals A, B and C. If any matter not lumm~ at the date hereof is properly presented for action at the meeting, it is intended that the persons named in the proxies will vote thereon according to thalr best judgment. REMUNERATION Remuneration of Directors and Officers. There is set ~orik in the following tabulation, on an accrual hurls, all direct remuneration paid by the Company and its subsidiaries to the thllo~ng persons ~or services in alI capacities wbile dlaectors er officers of the Company during its last fiscal year: each dikector, and each of the three highest paid o~ce~, of the Company whose direct aggregate renmneration exceeded ~30,000; and ull directors and officers o~ the Cott~pally as a gc~up. Estimated mmuaI retirement benefits to the same individuals at aorraal retirement date under the Retirement Plan ~or employees adop~ted by the stockholders at the 1949 Azmaal Meeting are stated in Column (4). (4} Estimated mm~ual (2) (2) (~) retirement benefit Nzme o£ ]ndlvldua~ Capacltie~ ia M~ieh .~eg~e ~t normal or iden~D, o£ g~oup remuneration wm~ r~-~ved ~mnnsrati~n r~i~ment d~e Orpheus D. Baxalys Vice-Preside~ and Man~gdng Dh'ector, The $ 50,000 $17,000 Amerlean Tobacco Company of the O~e~, In~./a) Assistant to the President, The A~nerlcan 45,000 Tobacco Company Vice-Presldent and Director o~ Parchasc~ 172,797(e) The Am~rlcan Toba~'o Company 13. Alfred F. Box~en 15,500 Biehard J. Boylan(b) 17,000

(1) Name ~f indivxd~al Thoma~ F. Connors James R. Coon(b)(e) Jotm A. @owe(e) John S. Dowd A. Gordon Fin~ay (e) Preston L. Fowler (e) (~) Charles C-~bow(e) J'ohn G, IIagsr, Jr, ~¢irg~l D. ~ager Paul M. Hahn(c) Hir~tm R. Hanmer Harry L. Hilyard (e) John R. Hutchings~ Jr. A. LeRoy Jansen Jsm~s F. Strlekland (i) Robert B. Walker Wi01am B. Young(e) (4) F.~t~ ated a~nua] (2) (~) retirement benefit Ca/~aeit Jes ~a ~hldl Agg~to at normal ~m.t~r~tlmt ~-~s r~.e~etl ~mun~ratlon xetlr eln~ll~ date D~rcctor of Traffic, The American Tobacco 8 34,000 $I1,434 C~mprmy Vicc.Presldent and CompWo]ler, The Am~rlcan ~72,797(c) ~ 17,000 Tc~h~.~c~ C~ra~~~" ~ce President, Ass~s~mlt Chi~ of M~mtfaemre ~72,797(~) 17,000 and Cklef of Manufacture. 2~ae _A~neriean Tobacco Company Executive Vke-President, Az~acxlcan Suppliers, 60,000 18,308 Inco~orat~d(a) V~ce-President, American Cigarette ~nd C~gar 4~000 14,000 D~vision oi II~e American Tobacco Eompaay Vicc.P~sMen~ and Chief of Manu~cture, 44,999(d) 14,811 The ]'.merh~an Tobacco ComI~any Vice-Prcsldent, 4merican Cigarette and Cigar 40,000 11.1¢3 D~i~i~n of The American Tobacco Compar~y Manager of Louls~ille, Ky., C~garette plant, 10,846(g) 11~161 Tk~ Am~zlc~r~ '~oba~ Company R~slstant to the Vice-preslde~lts in charge of 35,657 13,400 Ma~t~factule~ The American Tob~oco Com puny President, The Amebean Tobacco Corapa~y 273,496(h) 2.5,000 Director of ~esea~ch, The A~0erica~ Tobacco 45.000 14,378 Company Treasurer. The A~aerican Tobacco Compaw 50,000 12,152 Vice.Presldenb A~mrlcan Suppllem~ Income- 45,000 I1.237 rated(a) Auditor, Th~ ~neriean Tobacco Company 50,000 15,528 Prcsldont, American Supplier% Incorporated(a} 75,000 16,395 Director of Salea, The American Tobacco 47,000 16,100 Company As.~stant to the Vice presidents ha charge o1 23,054(j) 8,583 Manatacmrc, The Amexleaa Tobacco Com- pany Di~ector~ aug O~ccrs Directors m~g O~ce~s as a g~oup b,5~5,6~.9 aS a ~roup (Bt A~]iated company" engaged in ~lxroha~e ~ud handling ~ leaf tob~oc~ (~/ Retired D~ccmher 31, 1956. (c) Inclode~ ~122,797 Articl~ Xl~ blocnt~v~ ~omp~d~satiou, (d) Includes $~1,874 Artic2e XII incentiw compensation earnect pr~or t~ ~t~cmenh /¢) Also o~ce~ ~f a~ate~ ©om~'f ~ eo~p:x~i~. (~) Retired April 4, I955. (g) Remuneral]0n sho~ is for period !n~eq~en~ [o e]ecdo~ tls a dir~ctor ~n AugUSL 28~ 1956, (~) Includes $153,495 Articl~ Xll i~ce~tiw compensation. (1) Retiring, February 2fl, ~57. The amounts refel"red to in the notes to the above ta]~le as Arlicl~ XlI incetafivo compensation were accrued as incentive compensation (based en amount of Company profits), under ArtieIe XII oI tile By-Laws, as amended by vote of tile stockholders at the 1951 Ammal 3~'ccting. 14

No amount was set aside or accrued during the Conapany's last fseal year for pension or retirement benefits prc~posed to he paid unde~ any eaistidg plan by the Company or any of its subsidiaries to any ¢~thc~r ox director ~{ the C~mp,".txy. The Retirement PLan for employees adopted by vote of the stockholders at the I949 Annual Meeting covers approaim~ely 18,100 regular fulLtin,e employees of the Company and its subsltharies. The aggregate amount of remuneration for the fiscal year 1956, received from the Compa~ty and its • subsidiaries, directly er indlreedy, oh an accrual basis, by all the directors and officm's ~f the Company as a group~ was approximately fourteen one-hundredths" o£ 1% of the Company's consolidated net ~ales. M1S CELLANEOUS Any stockholder makhig written reqxtest therefor to the Secretary of the Company will he fuxl~ished a smnm~'y of t/Je Annual ~{eefing which wiiI be prepared after the meeting has been held. Comments or suggestions by stockholders with regard to the Annual Report are welcomed, as they are w~th regard to all otixer matters affecting the C?mpany's interests. bIemidgton, N. J. is reached By the Lehigh Valley Ridlr(~ad. The present train schedule, which is subject to change and should be confirmed, is as foI]ows: Leave Pennsylvania Station (33rd Street and Seventh Avenue~ New York, N. Y.) 10:55 A. M. Arrive Flemlngton Junction 12:03 P. M. Leave FLamlngton Junction 5:24 P. M. Arrive Pennsylvania Station 6:40 P. IVL The Company wilI procure tran~portatidn from }Iew York to Flemlngton by railroad and return by railroad or, @ expressly requested, return by bus, at Company expense for any stockholder of record desirous of at~endidg thc meeting, on his notifying the Secretary in wri6ng at 150 East 42rid Street: New York 17, New York, not Later than March 28, 1957, that he wishes such transportation obtained. If you do not plan to attend, you are urgently requested to execute the enclosed proxy and marl it to the C~mpany promptly. Expense o[ Solicitation. The expense of the solidltadon of proxies for this meeting, including the cost o~ mailing, wii1 be berne by the Company. In addition to mailing copies ef this material to stockholders, the Company will x-equest persons who hold stock in their names or custody or in the names of nominees far others, to f~rward copies of sudl material to these persons for whom they hold stock of the Company and tu request authority fo~ the execution of the proxies. To the extent necessary in order to assure su~iaient representation at the meeting, othcers and some regular employees of the Compat~y and approxinlately 6 employee~ of Philip G. Cameron Company will request ~ke return of prnxids by telephone, telegram or id person, at an estlmatcd cost of about $13,000. The amount of the expense to he borne by the Company will depend upon the volume of shares represented by the proxies ~ecelved~ in response to the Notice of Meeting. If proxies are not received promptly, it may he necessary for the Compgny to send tslegrapblc solicitation to those stockh~l~lers who have not gespondeth Stoekhelders who do not inteod to be present at the Vieetidgare urged to send in their Proxies ~dthout delay. Prompt response is helpful, and your coeperatlo= wilt t~e appreciated. February 11, 1957. 15