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THE AMERICAN TOBACCO COMPANY FOR THE YEAR ENDED DECEMIB~R 31~ 1948 WITH CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND E~}",NED SURPLUS Execuf;ve Office 111 FIFTH AVENUE . NEW YORK 3, N, Y.

NOTICE OF ?vIEETING Flemln~on, N. L, March 1, 1949 I~/OTICE IS I~Ei~gB~" ~IV~ tha~ the Annual Me~fing of the Preferred and Common Stockholders of T~E A~ERIC, A~ TOBACCO Co'~}'~y w~ll be held at No. ~ Park Avenue, FI~ming~on, New Jersey, ~ two o'cIock in the ~ternoon (E~tcrn Standard Time) ~n Wednesday, April 5, 1949, for the folIowing purposes: (1) to cleat Directors~ (2) to con~ider imd vote upon a proposal (designated Proposal A and set forth in the attached P~xy Statement) to amend Arfici~ XII of the By~a~. which proposal has been recommended by the Board of Directors; (3) to consider a~d vote upo~ a Ploposal (desig-nated Proposal 15 and s~t forth in the at+mch0d Proxy Statement) t~ approve and authorize a rc~ire~aent plan t~ be kaown as The American Tohac~o Company Retirement Plan, the adoption o~ which ha~ been declared adv~chle by the Board of Directors; (4) to consider and cam upon two proposals (de~i~ma~ed Propo~a~ C and D and ~e~ forth in ~e at~achad Proxy St~me~) ~na~e by thre~ stockholders; and (5) to tr~sact ~uch other b t~mess a~ may properly come before ~ald meet~n~ Tile Preferred and Common S~o@ transfer hooks wiII not be closed, hut holders o2 Preferred Stock and Common Stock to he entitled to vote must bs halders ef record a~ the clos~ of bu~thess oa March 7, 1949. JOEIV. W. tt.~J~'I.O:~, Secretary SP EC]LAL NOTI(~E Holders of whal was formerly Common Stock E who still hold their Common Stock B ~er~cate~ ~re remlud~d ~t, By ~meudme~t of tha Chat~r o£ the C~mp~y ~a Apri~ ~, 194~, each shar~ of C~mmon Stock B out~andlng was changed into one share of Common Stock, ~th the votinZ ri~hta of Commo~ Stock, aavae[y: Oae w~ per share. I PROXY STATEMEI~T The enclosed Proxy is solicited by mid on behalf af lhe Managcmen/ mad is revocable. Proxies in tile farm enclosed, properly executed by stockhalders and du]y returned to the Management, will he voted and, ff a choice be specified with r~spect to matters to ha acted upon, vail be voted in accordance wlth such specifications. The outxtandiag nm~bor of each class of vogng secu~dties of th~ Company i$: Preferred 526,997 shsre~; Common 5~3~8~425 ~harea, Th~ Pre~er~ed. S~J~ ~, ¢¢.~tfed t~ ~ur ~£e~ per sha~e. T~e Co~am~3n St~k L~ ~t[~ to ~ne vot~ per ~thare. ELECTION OF DIKECTOB:S The Board of Directors consists of seventeen mcmhars who are ~I~:ted to hold o~e until the ne~ Am~ttal Meeting or ttat~l ~eff successors are duly elected and qua/ified. It is th~ iritention of the l~roxy Commlttee to voto at this

Annual Meeting for the £olIowing nominees, who together constitmte the present Board~ and who bare sezvcd as dlrectors oi the Company for the periods commencing with the dates stated afLer their respective names : year First I~T a~a e Pr~noipa~ Occupation Elected Dfreoto~ Orpheus D. Bz~xalys Vice-President, The Amerifian Tobacco Company of the Orient, Inc. 1940 Richard J. Bo~lan Vlce~Prcslden~, The American Tobacco Ccqnpany 1929 Douglas W. Braabear ¥ice-Presld~nt, American Suppliers, Incorporated 1943 Thomas P. Conners Director of Truffle, The American Tobacco Company 1946 " James R. Coon Vice-Presideut, The Azaefican Tobacco Company 1936 John A. Crowe Assistant Chief o1 Manufacture, The American Tobacco Company 1931 John S. Dowd x2ice-Presldent~ American SuppliSrs, Incorporated 1943 Preston L. Fowler Vicc-Presldent, The American Tobacco Company 1941 paul M. Hahn Vice-P~esldent, The Amerlcm~ Tobacco Company 1921 Hiram R. Htmmer Director of Research, The Aamerican Tobacco Company 1938 ~mund A. Harvey Treasurer, The AnlCtican Tobacco Compa~)' 1932 Harry L. Hilyar d Assietan~ Treasurer, The American Tobacco Company 1944 A. LeRoy Jansen Auditor, 'fh~ American Tobacco, Company 1948 James E. Lipscomb, Jr. Pxasident, American SuppllotB :[ncorporatc6 1918 W~iam ~. O3~hury As*i.~ant Chi6f of Mau~ula¢l~, The Ame~icau Toba~ Company 1930 Vincent Riggi0 Pl~sldent, The Amerlosn Tobacoo Company 1927 J&raes F. Striehland ¥1oe-Preuldent, AmeHcma Suppliers, Incorporated 1946 A. LeRoy Jansen, Aadltor of the Company, was ele.ct ed a ~iro:t0r on April 27, 1949~ to ~ucceea l~red B. Router, late Auditor, deceased. During the five years p~ous ~o Ms elecuo~ Mr. Janson was Manager o£ the Gcneaul Aceountin~ D~partment, and for over two years Assistant Au~tor of the Company. Although the Managem~rtt doe~ nat contemplate the possibilRT, in IRe event art7 nominee is not a candidate or is unable to serve as a director at tim time of the eleehon, the proxies will be voted for a~y nomlnee who shall be designated by the present Board of Directors to fill such vaea~ry. Of the ootstandlng securities of the Company st the close of busine~ on Febrnary I, 1949, the Company is ln~orme3 that these nominees were ~irecfiy or indine~4ly the ~rl0~ oW~t~*$ o~ seenlities as folinws: N~m~ Common Ph'e~er~d Orpheus D. Baxulys 819 43 Rie~ta~d ], B~yla~ 1.075 150 Douglas W. Rrashear 100 Thomas P. Com~o~ 145 James I% Coon 652 59 John S. Dowd ~A0 ~rezton L Fowler 560 1OO paul M, ~Lthn 1,686 IIiram R. Eanme~ 120 Edmund A. Harvey 300 40 Harry L, Hilyard I20 A. LeRoy Jonson 163 ~ames E. Lipscomh, Jx.. I,B~B 1@3 William H, Ogsbury 120 50 Vincent Riggin 5,242 James F. StrlckLand 320 lnfomation regardin$ the remuneratioa of dlreetors is here~mdter set forth under the caption "Remttr*erafion". Propoea~ A PSROPOS~D AMENDMENT OF ARTICLI: XII OF THE BY-LAWS The Managemem recvmmends te the ~tvckhulde~ an amendment o~ Artb:le XI1 o] the By-Laws ~o effee~ a reduc~on o] the razss o] eompensat~n provided therein, The proposed amendment is set forth as proposal A on pag~m 3 and 6 of this Proxy Statement. The reduction proposed has aIr~ady been effected voluntarily with re.~pect to thl~ 1948 compensation of the President and the f~ur Vic~-pre~idents now in o~i~e by the agreement described on p~go 4. 2 c

Article XII cf the By-Laws of the Company was adopted by the stochholSers oa Match 13, 1912, by a vote of 621,047 shares of stock in it* favor to 35 shares against it. In ¢Eect. it providus that at the end of each year of the Company's operations an amount equal to 10~ of the net profits, a~ defined in she B~Law, earned by the Company durlag such year in exceBB of $8,222,245.82 (she eofima~l amount of such net profits earned during 1910) be divided among she Pre~idsat and the five Vice-Presidsnts of the Company, one-foursh to the President and on~-fifth of the remathdsr ~o each of she five Vice.Presldents, as salary for she year in addition to the fixed ~alary of each of said ofiiners. Atticic XII in its present form is as lallaws: "Section 1. As soon as praofieahin a~er the em3 of she year 1912 and of each year of the Company's operations thereafter, the Treasurer of the Company shall ascertain the net profits, as hereinafter dufiaed, earned by she Cempany during such year, and if such net profits exceed she sum of $8,222,245.82, which is the estimated amount of such net profits earned during the year 1910 by the businesses that now bdong to the Company, the Treasurer churl pay an mnount equal in the aggregate to ten per cent. of ~ueh exee~s to the President and tlve Vice~Pt, esidsnts of the Company in the following proportions, to wit: One-fourth thereof, or 2½ per cent. of such amount, to she Prmident; one-fifsh of the remaindsr thereof, or 11.~ per cent. of such amount, to each of the five Vlao.Presidsnts as salary for the year, ia addition to the fixed salary of each of saitl o~See~. "Section 2. If any such o~ce he vacant for a time amounting ht she aggregate to one month in any year, so much of the amount provided by this resolution to be paid to she incumbent of such o~ce as is propurtiunat~ to the time of such vacancy chall he returned into the general profit account of the Company. If there shall be a change during she year in the incumbent of any omen, the amount h~relnhefore provided to he paid shall be divided among the different incumbents of such office in the proportion of their respective periods of incumbency du~ng the year, subjeet to the above provision in relation to vacancies. "Section 3. For she purpose of this By-Law the nat profits earned by she Company in any year shall consist of she net earning~ made by the Company in its busthes~ as a manufacturer and seller of tobacco and its products after deducting all expenses and lasses, such provisions as chall be dsterntined by the Boar~ of Directors of she Company for depreciation and for all outstanding trade obligations, and an additional amount equal to 6 per cent. d/vidsnds on $52,459,400 of its 6 per cent. preferred stock, to which profits shaIl be adds3, or from which prcfiis shsil he dsdacted, as the case may he, the CDmpeny's proportion (llased on its stock liohtlngs) of the net profits or losses tot she year of its snhsuliary companies engaged in she manu- facture and sale of smoking tobacco, chewing tobacco, eillsrettes, or ll~e cigars, except earnings on pre~r- enee shares of British-Amerinan Tobacco Company, Limited, and shares of Imperial Tobacco Company (of Great Britain and Ireland), Limited. "Section 4. The declaratinn of she Treasurer as to she amount o1 net profi~s for the year and the sum duo anyane bereundsr shall be binding and eoneluslve o~ all parties, and ~o one clalmfag hereunder shell have a right to questinn she said declaration, or to a~y examination o£ the books or accounts of the Company, and nothing herein contained ~itall give any thcumhent of any o~ee any right to claim to continue therein, or any o~her right except as beraln specifically expressed. "Se~dun 5. This By-Law may he modified or repealed only by she action of the stochlioftlers of she Company and not by the directors." In 1955 a suhstantfal reduction in the amount payable nnder Article XII was effected hy the dsalarofion by the Board of Directars, as its policy, that thereafter no Presitla~ er ¥1c¢-Pr~id~t should he elected to o~ee unle~ he should agree in ad~ane~ to waive any pay~ac~ts to him under Article XII, as to the year 1955 ~d each year there- after, in e~cc~s of an amount e~np~te~l in accordance wish a formula ~t forth in the declaration of policy. The fo~uIa provided in effect that the amount to be paid to such o~ee~ under Article XII should, beginning with she year 1935, he besed upon an aggregate amount equal to 10% of the exc~ of the net profits of the Company for each ~uch year above $15,500,000, which $15,ll00,000 includes an amount equal to 6% dividends on the out- standing 6 ~ eenL P~eferred Stock of she Company. The 1953 formula also provided for further reductions she ~at¢ of Article X][ compensation in yeats in which she net profits of the Company ctduulated according to Astiela XII should exceed $32,500,000. In place of the uniform 10% provided by Article XII the ~rmufa aubstltate& wish re,pent to a~y year in which the net profits ~ceeded such amoe=t of $52,500,fl00, she following scala of perocntagrs: A~ amount equal to 9% of net profits in exee~ of $52.500,0ll0 hut le~s than $55,000,000; an amount equal to 8% 3

of act profits in excess of $35,000,000 but less titan $37,500,000; an amottnt equal to 7% of net prohts in excea* of $37,500,000 but less then $40,000,000; an amount equal to 6% of nat prafi~z in exce~s of $40~000~000 but less than 242,500,000, and an amount equal to 5% of net p~ofits exceeding 242,500,0fl0. Since July 12, 1933 ul[ Presldents and ¥ic¢-p~sidents of the Company have waived any payments ~nher Article XII in excess of amounts sonforming ~th such statem~t of pohey and aIi payments nnder Article XII, beglnnlag wlth those fo~ the year 1935. have been at the reduced amoLmts resthting foam the aI~Ii~ati~ of s~ch formula. The President and Vice.Presfdent~ and the other members of th~ Board o] Direetors of the Company nvw recommend to the stosht~efders an a~zendmez~t ~ Article XII to ~ffeet a ~rther reduction of ~e rate~ of cornpe~a- tlo~ belaw those already affected by the 1933 ]ormula above r~ferred to. AB a prellmfoary atop and m order to accelerate the rednctlon in Article XII eompensuliozl, the Presldorrt, Mr. Vincent l~iggla, and the later Vice-Presidents, Messrs. ~cherd ~ Boylan, James R. Coon, Preston L. Fc~wler and Paul M..Hain~ (being all of the Vice.Presldents then in oflice)~ on Novembor 3, 1948 entered into an agreemDnt wlth the C~pany r~duci~g the respectlve rcges o] rem~neratlon o] eaeh of them ~nc:er Ar~de XII ]or the year 1948 ]del~w the rates provided for by the above-maniC,ned forz0vla, by agreeing that thr the year 1948 fl~ Article XfI remtmertttlan of each ~f thera should re~ectlauly be ~ased on an aggregate amount ~ompoter] at the ~nlfo~m rate o2 5% instead o~ ~ush of the ~ever~l rates o2 10%. 9%, ~%. 7%, 6% and 5% a~ might l~e applle'shl~ under the d933 form~a. At the time the above-mentioned agreement wan entered into it vsgs ttnder~tood ~y the offteers nm'~ed and file ~ther members of the ~chrd of Direo~rs that there ~ould be preseI~edt to the Armuul ~ee~ing of S~.ockBthtlars to be held in ApriI 19~9. a proposed amenthaextt to Article XII to afloat the s~me reductlel~ ia the r~te~ o~ compensation under that Article for the future as v,a~ proidde~ for the yea~ 1948 by tho agreement th~ entexed inl~. AeeordlngIy, a resolution was adopted by the Board of Dir~tors of the Company recommemt~ng to the stockholders tha~ ~ the Annual Mec~ing~ Sections (1) and (3) of Artisla XII be amended as herefohclew indfoated to effect ~uch The amend~taents proposed in Seetlon (1) incinde the substitutlan of 2Ifi,500,000 of net prefit~ in place of $~222~245.~, a~d th~ ad¢1~ti~ ¢~ ~ ~[~ra rate ¢~ 5% in~e~d ~ t~ ~e~l ~zte~ r~m~ ~r~m ~[3~ t~ ~% a~ herdnahere oudlned. Several shangzs in Section (3) o2 Arilele XII are gso proposed: (a) In order to bring Article XII as proposed to be araended i~o conformBy ~th the 1933 formula herclnabove referred to, it is proposed to ~rn~t from Sect%n (~) of Article XII the words "and an ahdillonal amount equal to 6 per eent. d~vidends en $52¢~59~400 of its 6 per cent. preferred ~toch', ~le.ce, under the provlsfo~ of that formula the $15~500,000 includ~ the amo~tnt of such dfoldends, (See description of 1933 ~o~mofa on pages 3 sad 4.) (b) By the ~exmz of Sectlan (3) ~ Artlcle XII in ilz present form, the Company'~ proportlan (ba~ed on ~tz stock holdings) ~f the net p~ofits o~ los~es for the year ~f the ~erlean C~garc~e ma~ Gigar Compaay, a~ a suheidlary company ~ngaged in the m~nufoeturo and sale of Pa/1 MalI clgarette~, is added to or deductec~ from, as the case may be~ the act pr~fi~ of the Cempmay subjec~ t~ the By-Law. Because of the sub~tantlal ~r~,~th ul ~e pall ~ b~d~ ~ i~ b~]i~ved that a~es b~th t~ th~ Co~pawy a~d ~r~ the A~ne~%an Cigarette and Cigar Company will result from the manufacture of I~ull Mail clg, arettes by the Company for th~ American Cigarette ~nd Cigar Company. Such ehenge t~ the manulact~re of the elgarettes by the C~m~a~ th~te~d ¢~ by Am~aa C~ar~ a~d, Cigar Czral}~y t~k ~la~ o~ Jm~r] 1 ~ t~ ~ear. I~ ~s therefore proposed to insert in Sectio~ ~3) the words "dJrecdy or through the Company or any ether alfiIidted company" after the word "ma~ulactur~", so that such raanu~ac~re by the Company will u~ change the l~eaen~ txeatmeat under tba By-Law ~f net proKt~ o~ le~es o2 the Arner~a~ Cigarette artd Cigar Catagart3,. (~) 2he proposed amendment to Seo~len (~) also om~t~ the re~ereneo ~o earnfog~ on preference shares of Britith-~Mrerlean Tc*heceo C~mpany, Limlted and ~heres of lmpe~iaI Toheceo C~mpa~y (of Gr~a~ Britain and Irdand) Limhed, for the rea~on that ~o shar¢~ of these eompaofes haw heen h~ld by the Compare/ for more than 34 yea~ anti reference ~ such shares he~ therefore become obsolete.

The proposed amendmenLq to Septlon (1) and Sectinn (3) of Article, XIi are an follows, new matter to he inset ~od in the mmended Sections being tmdurzcoreff and matter io he outhteff hi the amended ~effons hslng in brackets: Section 1. ~ soon as practleable after the end of the year [1912] 1949 and of eaoh ye~" of th@ Companp's operations thereafter, the Treasurer el the Company shall ascertain the net profit% as hereinafter defme~ earned by the Company during sacl'~ year, m~d if eud~ not p~ofo~ exceed the s'~a of [$8,222,2¢5.~;2: wh/eff Ja the estimated anxotm~ of such net profit~ earned during the year 1910 by tixe businezses that now belong to the Company] $15 500,000, the Treasurer chall pay an amo~mt e~uttl m the aggregate to [telt] per cent. of ~ueh exe~ to the President and five VJee-Prt~id~nts of th@ Company in the inllowing proportions, to wlt: O~e-foari~ thereof~ or [2~,] )-~:L~ per e~nt. of such amount, to the President; one-fifth of the xenxaindur ~he~e~i, ~r [II/~ ~l~r eenL ~i such mx~unt. ~o eaeff rd the ~'~ Vin~-Px~ident~ a~ .~siary for the year, in addition to the fixed salalT of each o~ ~ald o~ioers. Section3. ~or the ]purp~ of this By.Law the net profits enticed by th~ Com3pany in any year shall ¢onsie~ of th~ net earnings made hy the Company fo it~ butin~ss as a ma~lainet~lIer ~d selinr of tobacco and Its products afar dtaia0~ing nil axpense~ and lo~s¢~, and euch proai~inns ~ chall be determined By the Board of I~:eetors ~f the Compa~ ~r depreciation and for all outsta~dlng trade oBllgatinns, [and an additional ~moun~ equal to 6 peq ~ent. dhAdends on ~5~459,400 o~ its 6 per eau~ preferred ~ockJ to which prefft~ shall be addu~ or from ~hieh ~ro~ts shall be ~dnc~ed, ~ the ease may h ~ the Compa.y'~ proportion [baB~d o~ its stock hMdthgs[ of tho net gsotit~ or in~ses for th~ year of its stthsidfary eompanie~ engageff ~n the mm~a~ture (d~reclly or through the Company or an other a~lthted eom~ and saIe ~ ~moklng tobacco, ohewing tobac=~, cigarettes, or Iitde ¢iga~ [axc.p~ ear~ings on p~ef~renee shar~ of Bsillsh-Amerinan Tchaeco Company, ~mited and shares of Imperial Tobacco Cottony (of Great Britain and Ir~Iand)~ Limlt~t]. The per$ar~ who parlfoipate in Ar tinl* XII re~nmaeratinn ar~, ~ above stated, the Presidunt and the ¥ice-Pre~idcrrls. The uames of the Presldent and th~ rotor Vice-Presidents now in o~ce oxe stared herch~ahove. 'Ihe AztieI~ XII remunera- tion of th~ Pre~dunt thr the ti~eal year 1948 as reduced by tilt agreement of November 3, 1948 hereinbefore rethrted to (the ~ates u:lder which agreemcmc are, as hereinchove pointed out, ~deutleal .~4th those which .Mll Re in effect i~ the prepared amea~dment to the By-La~' is adopted) was $527,731A2. If the agc,~emaea~ had ~aet Been made~ hi~ Aeffein XII remmaarati~a ~or 1948 woefd here been $592¢12ti.911 qPae Artinle XII remuneration of each ~f th~ fo~r Viee.F~esidex~tz for the h~aI year 1948 as t~th~ced by the agreement of ~ovember 3, 1948 w~s $196,638.8~ If th~ agreem~mt had ~ot beau made, th~ Article X|I remtmeratinn of e*~ of the foox ~qce.Presidents for 19~8 wo~d Rave been $355,452,54. There was no b~aus or pr~llt-cha#mg plan~ other than Ardcle XII, in effect during the year 1948. Amount~ paid or cot aside for the benefit of (1) dineetors end o~cer~ and (2) employees during the year I948 under any pe~si~n or retlremettt plan ar~ etate~ on page 1~ of ~ ~oxy Statement. Th~ re~oIutinn authe~ng sttch am~x~chn~nt will require ~or ~ts adoption a majeeffy of the v~es cast there~rt by preferred and e~wmon ~toeldaoIder~. ~fhe propo.'ed resoIutinn eon~tut~ng Proposal A h~ a~ follows: RXSOLVSD, as reeommcmded by r~effutfon of the Bo~rd of Di~ector~ of Th~ AmerJcen Tobeceo Company, that $eetione (I) and 13) of Article XII of ft~ Bylaws b~ and they hereby ar~ amended t~ read ~s follows: Seotinn 1. A~ ~oon a~ praetioobIe after th~ end of the year ~949 ~=ti af each year of the Comp~y's operations thareofter~ the Treasure~ of the ComRauy chall a~eeztain the net profits, a* hereiaaft~r deff~ed~ earned hy the Company daring such year~ and tf such net profits exceed the ~ttra of $15,500,000 the Tlea~rer shall ]pat an amaount ~q~a~ ~ the aggregate to five ~ev cent. of such excezs to the Preaident and th'e Vice-Presidents of the Company in the thllow~ng proportions~ to Wit: Oneduurth th~xeof, or I~ p~r cent. of such am~tmh to the President; ~ne-~llh of the rema~ndur thereof, or ~4 per cent. of such ~mottuL to eael~ of the fiw Viec-President~ as eahlry for the year, in taiditinn to th~ llxed salary of each of ~ald aflieers.

ii • S~fion 3. For the purpose of this By-Law the net pro~ts eai'nea by th~ Compmay in any year shall consist of the net earnings made by the Company in its business as a manufoct~trer ~nd seller of tobacco and it~ products after fiedu~ting all expenses and los~es, and such provisions as shall he determlped by the BoBzfi of Directors of the Company for dcprceffillon and for aIi oulstandthg trade obligndons, to which profits shall be added, or fzom wffich profits shall bu deducted, as the case may he, the Company's proper tinn (based on its stock holdinfis) of the net profits or losses far the year o£ i[s subsidiary companies engaged in the manuthelure (dbrecdy or tEcough the Company or any ether a~illated company) mid sale of eraoklng tobaetm, chewing tobacco, cigarettes, or liffio u~gar~o. The Management recommends that you vo~e IN FAVOR OF t~e adoplffiu of the proposed amendments to ArtioIe XII set jordl tts Proposa~ A. Proposal B RETIREMENT pLAN ~!~e Boart{ of Direators of Th~ Am~rloan Tobacco Bompar~ has fo~nulated a Retirement Plan for employees, to he Imewn as The fixnerlean Tchaeeo Company Rellrement Planl providing for ~efircmenh disability and ~sveranee benoths, and has passed a resolutffi~ declaring that in it~ opidior, the adoption thereof is advisaffi~ and clh~fing that ~aid Pla~ shall b~ Bubr~ted f~ acorn ~here~n by th~ ~ezxe~ anti coram~n ~o~kh~dexs of lh~ Company at ~h~ Annual Meeting of Stodtholders. I~ two-thlrd~ th thlere~t of the holdexs of preferred ~toch and two-th~r~ in tht~rest of the holders of common ~tock, p~esent at the meeting and young (halde~a of preferred stock and holdex~ of ~om- men st~ch each voting a~ a cla~s) vote in dryer of the Plar~ it will heeonm operative in acooedanee with its terms. Among th~ important p~rposes of the proposed ~lan are t~ e~able old~r employees to retire wlthoul hardship, to retain present employee8 and to ate:act new employees of rite de~irwi ealthre. The vabm of a relirement p]a~ is ~ow gener~y reeogr~ed and ~ev~ral thousand corporations haw r~fireznent pla~s in effect. The problem ~f s~etgisy for o~d or disabled empfoyeea ha~ been dlsutmsefi ~r~ra fm~e to thne with ~arthus ooBeetive harga~thg representndve~ o~ the Company½ employee& As stated hereinhalow, the Corapnny reserves the right to amend, modily or terminate the plan in whoI~ or in ~ a~ a~ fixa~ ~ di~ t~me t~ lhae. Stc~kisolderg apP~ "~ he ~e~red ~r any ~menfita~t ~]~h ~aatexi~y ine~easca the coat of the ~lan ~o the Company or alters in favor e~ odicexs and dlrector~ the a~Ioe~tion of the benefits as between (1) officers and d~reetors and (2) other employees, It should he pdinted out that the CoMpany hms had in effect for ahem ten years ~n informal voluntary noa-eon- trth~tory plan to provide for employees who have become tmBt fez ae~ffi¢ duties. It applles to employees to whom the Baaed grants retis~ment benefits upon being ed'tised in each ca~e hy the manager of the ffiotary or head of the d~par~ment in which the ~mploye¢ served, ~Sth recommendations satisfactory I~o the Board, that he is unfit for further finales and should be retired from active work~ and that he has had 12 yean~ of eonfinuou~ servlee warranting in the judgment of his fa~ory manager or department head the granting to him ,~f retirement benefits, The bencfit~ per atmum are 2% of the empffiyeds wage or salary at the date of retirement for each year of servlce~ provided that no retirement benefit shall exceed 50% of the employee's wage or salary at the date of rcfiremenh except tkat no ~firement benefit shall be less than 89 p~r week. The b~efit of a retired employee enditled to a Federal Old Age Benefit is reduced by an amount equal to one-half of the Federal Old Age Benefih hut in nz ease balow such mffilraum af $9 per week. The preaent plan is ~ot regarded by the Management as nde~[uate. It i$ no~ actually a r¢fix~aeut or severance plan, but rather a dischili~y plan. No retirement age ~ fixed and the conditions of retdiem~nt a~e not defi~to. The Mmaag~memt heli~cs that the adoption of a for~aal plan auch as J~l now proposed, provlding for retirement at a fixed age and also for severance and disability benefits, ~riil promote good employee reIaflom, stabilize empinyment by redacing turnover and generally in0rease effieiency. The number of e~aployeca of the Company and it~ subsidiarins receiving benefi~ under the present informal plan on January 1, 1949 was 495 and the amount of benefit~ which wa~ paid ~nder it for the yeax ended December 31, 1948 was approximately $426,900. 6

~OIJp INSI~OR~qCE PLA~ In addition to the informal retirement plan herrinabov¢ mentioned, the Company ban maJntalned since October 1, 1946 a group llfe insurance plan whlcb covers all r%.ular full-time employm!s of the Company and of its consolidated American subsidiaries and certain empicye~s of other sabsldicrics, the maximum amounL of ineuran~¢ thereunder for any employee bring limited to $10,g00. The amount of group llfe insurance proriiled for each employee is determined byhisbarieamatmlpay• EachofthoofflcersandOlre~torswasinsaredfor$1g,ooOundersuabpriicy. The coat of the insurance is payable ratably by the Compaziy and such smbsidlarJcs. The total number of employees in~ured under the plan on January I, 1!149 (including gg officers and directors of the Company and its sabsldiaries) w~s appreximatriy I9,300. • The net premium under the plan for the policy year ended Scpteml~er 30, 1948 was 8358,174.67, of wlfieh $2,236•51 was applicable to the 3il officers and directors of the Company and its sabridlarirs who are insured. The Company reserved the right to terminate or change the group ll~e insuxan~ plan at any t~m~. PROpOSEI~ ]~ETIREMX~T p~ PoHnwlnglsaaummaryofthegrovlsionsofthcnewpropo~edretiremenLpicn (herrincalirdt~'pian-). Copie~ o~thePlanareavailableattheoYazeoftheCompanyandwiUgepre~entedatthomeetiag. Htookholdars are referred to the tex~ of the Pffin end the summary ~hick follows i~ qualliled ia its entirety by referemee to the Plan itseIf. Unless otherwise required by the context, the following to=as as used imrrin have the folIowlnH meanings: (1) "Company" moans The American Tobacco Company; Amc~rieau Suppliars~ Incorporated; The Hathaway-Sienna Corporation; The American Tobacco Company of the Orient, Inc.; Griden H~lt Manufacmr. hag Company; Araerican Cigaxette and Cigar Comptmy; and Henry Clay and Book & Company, Limbo4. Tim term "Company" thril also inchede any other affilLate of The American Tobacco Company, if, and to the extent that, the Hoard of Directors of The American Toimceo Compzmy and the Hoard of Direztnrs of ~uoh amliate shall so provide• (2) "Sen,lee" manna regular full-time employment by the Company~ whether on a salaried, hourly-rated or piecework basis, excluding all seasonri~ temporary and pa~t-tlme ~mpiaylment or ernploymcnt on a retainer or f~e basi~. (3) An "emaployeH' means any person in the ~ervlce of the Company exempt employees of Henry Clay and Hock & Company, Limited who are non-resigent~ of the United States ned aIl other employees who are non- reridant aliens of the United Stale~; provided that the Hoard of Director~ may specifically deslgnat~ any such non-real&ants or non-resident alic~ as employees w{thia the meaning ef the Pica. (6,) "Hoard of Dlrcotors'~ means the Hoard of Directors of 'Ihe Amencma Tobacco Company and ~uab committees or other agencies to which suab H~ard of Directors from time Io time delegates all or any part of the powers granted to the Hoard in the Plan• (5) Tile "effective date" means January I, 1949. "Past ser'~cc" and 'Tuture service" refer t~ ~e~ioe before anti after the effective date, respeetivriy. Other d~finitians contained in the Plan, tut deal/ha with details not n,~ec~sarv for tlsis sIatement, arc those of the expressions "annual rate of compensation", "aoOaal earnings", "Primary Social" Security benefit", %ormal retire- ment date" and "year". Compensation under ArBele XII of die By-Law~ ia not included in computing benefits unge¢ the Plan. It is estimated t~a~ oat af apllroximatriy 19,40g employees who will be covered by th~ Plan, 18 arc also officera or gireoto~s of The American Tobacco Company. ~une 30, 195¢ wtil he the normal retirement date for employees wh¢~ sixty.fifth birthday occurs before that date• Thereafter, the normal rofifemaent date edll be age 65. Retirement is automatic at nolna2al retlrcmaon~ date, tmir~a daferre~ with the consent of the employee and the approvaI of the Board of Directors. Rot iremon~ withia the fiveffoar period prior to n~nal retirement date is permissible if the employee then has I2 years of continuous sorvlec and tl~ Board ~f ]Directors eonsenls~ hut if the employee thus retiring prior to his normal retirement da~ elects ~u bare hi~ 7

retireracnt benefft~ start at the date of his acttla] retirement instead of at ~ n0~Iaa] re{~rcment date there wl]l be a reductlon o~ hi~ bea~£ts on ~r~ a~mar~al basis to spread the payments over the isnger pcrlod. A sp~clal 9rov~on eff0ctive until June 30~ 1.954 permits a1~ empIeyee 65 years of age or over who has 12 years of continuous lervlee. to retire, in which case hls retirement benefits will eon~lence irm~ectlately wlthovt any aehmr~aI adjastmenL Only continuous ser~ce ,atil bc eonl~deredt in detormlnlng e~b'dlty for bei~fi~s arid the amounL thereof. Approved absences without pay do not constitute an hrterruptl~ of past or future ser~ioe. Employees havln5 12 years of coM~nuous past sorvlee will rceelve full ere[h[ fu~- ali pa~t service, fueluding all approved absences without pay~ but en~,oloyees hav~ng les~ than 12 years of con[lateens past servise will r~elve past sere/co oredlt for approved a~seaees without pay only for th~ firs~ six months of any such absence. In computlnS years of future ~ervise ~ d~ermlne el~g4~il~ uzd~r [be PI~, enrployee~ -~ill ~ecei'¢~ ~zedlt for a~p~o~ absentees "effluent pay only $~ ~he fiz~t s~-~ mollth~ of any s1~¢h absence. MAXI~U~ RENEI~$ The ma-23mmg az~caa[ b~me~t fuw dk~ab~d.ty, re~z~m~¢nt o~ s~vezmlce ur~der thr~ ~la)l wiI1 be 5~)°/o of Slat portion nat iu oxeo~s of $10,005, of file employee's average actual earnings per annum during the last 5 calendar years of employment, plus g0~ of that portion, if any, of such. average actual earnings in excess of $10,000; prosfd, ed ~gat in no event s~all azzy bereft[ exceed $25,500 per annual. X~I~EI~IE~T BENEFn'$ An empIoyee L~ eligible for retirement benefits who h~ 12 years of service immediately prior to normal retlreme~lt date or actual reffremenl date, whichever is ear/Jer. }~etisement benefil~ ~re a pension for fife payable monthly at an aa~auaI rate determined by ~ggregtttlng SIs ~ums computed as specifics in the following paragraphs (1) to (5) in&nerve: C~nIT fez F~r $5~000 Am~u~ (1) Past ServiCe. 2% of that portion of the employeff~ annual rate o[ compensatlott on the effective date of the Plan no~ in exee~s Of $5,005 tisaes all years of past s,~oo within 55 years prior ~o nprraal retire- meat date or atn~al ~tirement, whlch~ver is oarlisr; plus (5) Future Service. 2~ of that portion of the employee's ae~tml earnings not in exe~s o£ $5.000 durlng each year of future service within 25 years prior to norm~d retirement date or aetna[ rctlremenb whida- erer i~ earlie%; CI~BDIT FOR A~OU~'yS ABOVE $5,000 AZ~NL'ALL¥ (5) Past Svrvi~e. 3.3/8~0 of that poaion, if any o the ereplovee)s annua rate of compensation on tl e effeeiive date of the plea in exce~s of $5.500 tlraes the years of past service after age 30; (4) Future Service. 11/~% of the p~eff~n, i$ any, of the employee's actu~I earnings in excess of $5,005 duifng each year o~ future ~ervlce a~ter age ~O and before nor~aai re~ireraent da~e; s~t fi2~ ~c~ S~cum~e Dguuex~ol¢ (~e) 5q~o of th~ primary Social Security boldest. 'lb~ f~rcg~ia5 formals, is ~aodlf~k ".~ittx ~¢speot to past ~rvlce ~e~its (to wlt, ~h~e ave~afn5 pr~or to the effe~th,e date) a~ ~o employees ~ch an azmual rate of compensation of more tha~t $10,500 on that date; as to ~uch employees pa~t servise credits for d~o amount of compensation are e~tputed on the average rate of thelr oompetlsatlon for the 5-year period 19~ to 1948, incltx~ve, or such portion che~eof a~ they may have been employed (ozlng a mialraum rate of $I0,000 per year) in~tead of the annual rate of eompen~effen on the effective date. Iu dele~m~aln5 the p¢ri~d t)~ 9rmt or future ~ie~ cradle f~ retirement b~uefft~, the~e "nell be exethd~d nil yca~s in which the employee was rc~eivlng benefits under the Plan or any other form of disability benefits 5ranted by the Board but, to the extent of such exeiuaion~ there may be su~l~lltuted any years tha~ the employee may r~ndcr terwlee afro% /~ noxmaI re[grommet date.