the American Tobacco Company Incorporated, Annual Report 1950

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a n I rel. 1950

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NOTICE OF MEETING Flemthgton, N. J., March 1, ]951 ~'OTICE IS HEREBY GIVEN that the Annual Meeting of the Preferred and Common Stockholders of THE AMERICAN TOBACCO COMpANy will be held at No. 43 Park Avenue, Flemington, New Jersey, at one-thirty o'clock in the afternoon (Eastern Standard Time) on Wednesday, April 4, 1951, for tile fallowing purposes: (1) to elect Directors; (2) to consider and vote upon a proposal (designated Proposal A and set forth in the following proxy statement) to amend the By-Laws by repealing Article XlI as now in effect and substituting therefor a new Article XII, which proposal has been recommended hy the Board of Directors; (3) m consider and vote upon a proposal (designated Proposal B and set forth in the following proxy statement) to amend the Agreement and Act of Merger and Consolidation under which the Company was organized, as heretofore amended, which has been declared advisable by the Board of Directors; (4) to consider and vote upon a proposal (designated Proposal C and set forth in the following proxy statement) made hy three stockholders; (5) to consider and vote upon a proposal (designated Yro- posal D and set forth in the following proxy statement) made by a stockholder; and (6) to transact such other business as may properly come lssfore the meeting. The Preferred and Common Stock transfer books will not be clos~d, but holders of Preferred Stock and Common Stock to he entitIet] to vote must be holders of ~ecord at the close of business on March g, 195I. JOHN W. HANLON, Secretclrf SPECIAL NOTICE Holders of what was for~lerly Comraon Stock B who ~fill hold their Cotmnon Stock B certificates arc remiaded that, by amendment of the Charter o~ the Company on April 8, ] 9d~8, each share of Common Stock B outstanding was changed into one share ~i Common Stock, with the votLng rights of Common Stock, namely: One vote per share.

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F PROXY STATEMENT The enclosed proxy is solicited by and on behalf of the Management and is revocable in writing. proxies in the form enclosed, properly executed by stockholders and duly returned to the Management a,d not revoked, will he voted and, if a choice ~e speeified with respect to matters to be acted upon, will he voted in accordance with such specifications. The outstanding number of each class of voting securities of the Company is: Preferred 526,997 shares; Common 5,378,425 shares. The Preferred Stock is:entitled to four votes per share. The Cornmon Stock is entitled to one vote per share. ELECTION OF DIRECTORS The Board o£ Directors consists of seventeen members who are elected to hold office tmtil the next Annttal Meeting or until their successors are dtdy elected and qualified. It is the intention 9f the Proxy Committee to vote at tiffs Annual Meeting for the nominees 1lamed below. These nominees, with the exception of Alfred F. Bowden, constitute the present Board and have served as directors of the Company f,r the periods commencing with the date~ set after their respective names. The Company is informed that these nominees were directly or indirectly the beneficial owners of outstanding securities of the Gompauy at the close of huslness on February 7, 1951, as set forth after their respective names. yea,- First prineilzaI O~eapatlon ¢.)rpheus D. Baxa]ys AIlred P. gowden Richard J. Boylan lhmglas W. Brasbear Thomas P. Conners lanle~ 11. Coon JL,hn A. Crowe l~bn S. Dowd Preston L. Fowler paul M. Hahn thrum R. I[anmer ~[tutmd A. Harvey fl~rry L I[ilyard A, L~Roy Jansen lances E. Li~scomb, 3"r. Witllam I[. Oo~bury la,nes F. Strickland Vice-Presldent, The Amerlea= Tobacco Company of the Orient, Inc. Assistant to the President, The American Tobacco Co,npany Vice-Presldent, The American Tobacco Cortlpany Vice-President. American Suppliers, Incorporated Director of Traflle, Tile American Tobacco Company Vice-President, The A~ne~iean Tobacco Comp~my Vice-Presldent, The American Tobacco Company Vice-Preaidenl, Araerical~ Snppllers, incorporated Vice.Preddent, The American Tobacco Compaay President. The American Tobacco Company Director of Research, The American Tobacco Compaay Vice-Preddent, The Amerluan Tobacco Company Treasurer, The American Tobacco Company Auditor, The American Tobacco Company Pre*idenb American Suppliers, Inaor- porated Assistant Chief of Manufacture, The Americas Tobacco Company Vice,President, A~neriean Suppliers, Incorpcrated [leeaed D~eemr Common P~hrred 1940 884 62 105 1929 1~720 200 £948 100 1946 145 I936 652 50 193I 500 I05 1946 300 194I 600 100 I931 2,086 1938 120 1932 500 40 1944 120 1948 265 1918 1,800 100 1930 ' 120 50 1946 320

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Mr. Bowden has held the office of Asslstam to the President for the past 12 years, acting in that capacity for three successive Presidents of the Company, Messrs. Hi]], Ri~io and Hahn. His emphiy- meat in the Company covers a period of 30 years. In addition to his executive duties, he has responsibility for the Company'~ public relations and ~upolvision of the Company's B,itish sufisldiary, J. Wix & finns, Ltd. Although the Management does not contemplate file possihiBty, in the event any numlnee is not a eandldale or is annMe to serve as a dlreeter at the time of the election, it is intended that the pro~zlez .will be voted for any nominee who shall be desiffnated by the present Board of l)irectors to fill such .vacano~ Information regarding the remuneration of directors is hereinafter set forth meier the caption ~ ~Rem ii/lera[ion7~. Proposal A PROPOSED AIVd~NDMENT OF ARTICLE XII OF THE BY-LAWS The Management recommends to the stockholders an amendment of Article Xll of the lly-£aws reducing substantially the amount of compensation payabln under enrren~ rates of earnings. The proposed amendment is set forth as Proposal A on pages 5 and 6 of this proxy statement. The reduction proposed has already been effeeted ~ohintarily with respect to the 1950 compensation of the President and the five Vice-Presidents now ill office by action of the Board of Directors descr fired on page 4. ArLicle XII of tile By-Laws of the Company was adopted hy the stockholders on March 13, 1912, by a vote of 621,047 shares o£ stock in its favor to 35 shares opposed. On the reeommendatlon hf the Management, it was amended at the ]949 Annual Meeting of stockholders, the effect of the amend- ment being a substantial reduction in the rates of incentive eompensation payable under the By-Law. Article XI1, as no~" in effect, was adopted by the stockholders on April 6, 1949, by 5,I74~4~9 votes in its favor to 110,290 votes opposed. It provides as follows: Section 1. As soon as practicable after file end of the year 1949 and of cash year of the Company's operations thereafter, the Trea~rer of the Company shall ascertain the net profits, as hnrelnafter defined, earned by the Company during such year, and if such net profits exceed the sum of $15,500,000 file Treaso-rcr shall pay an amount equal ia the aggregate to five per cent. of such excess to the President and five Vice-Presldents of the Company in the following propor- tlons, to wit: One-fourth thereof, or ]l/~t per cent. of such amount~ to the President; one-fifth of the remainder thereof, or a~ per cent. of such amount, to each of the five Vice-Presidents as salary for the year, in addition to the fixed salary of each of said officers. Section 2. If any such office be vacant for a time amounting in the aggregate to one month in any year, so much of the amount provided by this restdution to be paid to the incumbent of such office as is proportionate to the time of such vacancy shall be returned into the general profit aeeount of the Company. If there shall he a shange during the year in the hlcumhent of any office, the amount hereinbefore provided to be paid shall be divided among file different incumbents of such office in the proportion of their respective periods of incumbency during the year, subject to the above provision in relation to vacancies. Section 3. For the purpose of this By-Law the net profits earned by the Cmnpany in any year shall consist cf file net earnings made by the Company in its business as a manufacturer and seller of tobacco and its products after deducting all expenses and losses, and such provisions as shall be determined by the Board of Directors of the Company for depreeiatiou and for all nut- standing trade obligations, to wbich profits shall be added, or from which profits shall be deducted, as the case may be, the Company's proportion (based on its stock holdings) of the net profits or losses for the year of its subsidiary companies engaged in the manufaetnre (directly or through the l- i i

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Company or any other afl~ii~tted company) and sale of smoking tobacco, chewing tobacco, cigar- ettes, or little o~gars. Seetlcn d,. The declaration of tile Treasurer as to the amount of net profits for the year and the sum due anyone hereunder shall he binding and conclusive on all parties, and no one ela!ming hereunder shall have a right to qnestinn the said declaration, or to any examirmtion of the hooks or accounts of the Company, and nothing herein contained shah give any incumbent of any ofiqee any right to elalm to continue therein, or any other right except as herein specifically expressed. Section 5. This By-Law may he modified or repealed only hy the notion of the stockholders of the Company and not by the directors. The Board of Directors at its organization meeting on April 7, 1950, after the last Annual Meeting of stockholders, initiated a study of the operation of .M'ticIe XII of the By-Laws in relation to current conditions to determine ,ubether further revision or modification thereof should be recommended. At the same meeting the Board of Directors adopted resolutions under ~filch the President and the five Vies- Presidents now in office, by accepting election to their respective offices, consented tha! any proposed revision or modification of Article XII which would receive the favorable vote of a majority of the Board of Directors might by resolution of the Board of Directors be made applieable to their respective remuneration for the year 1950. There are two major changes under the recommended proposal: (1) the net profits upon which compensation is based are defined as the net income repotted by the independent public accountants who have audited the Company's books as fairly reflecting the consolidated results of the operations for such year of the Company and the subsidiaries included in the consolidated financial statements furnished to stockholders; and (2) the amount of incentive eompensatinn payable under cnrrent rates of earnings is reduced substantially. In addition, the distribution of the compensation between the President and the Vice.Presidents is readjusted to meet the President's recommendation that his percentage be rethmed from 25% to 20% and that of each of tile five Vice-Presidents he increased from 15% to 16%. In the opinion of Management, the amendment constituting Proposal A is designed to provide amounts of payments that should meet she approval of the most conservative and yet preserve the principle of incentive compensation that has been traditional in the Company. Accorthngly, a resolution was adopted by the Board of Directors on July 25, 1950 recommending to the stockholders that at the Annual Meethag the By-Laws be amended by repealing Article XII of the By-Laws as now in effect and substituting therefor the new Article XII fiereinbalow set forth, aB effective as of January 1, 1951. The Board of Direct9rs also adopted a resolution making the proposed revision of Artlele XII applicable to the respective remuneration for the year d950 of each o~eer entitlrd to compensation under Article XII of the By-Laws elected to such office during that pear. The persons who participate in Article XII remuneration are, as ststrd above, the President and the Vice-Presidents. The Article XII remuneration for the fiscal year 1950 of Paul M. Hahn who has served as President since April 7, 1950, as reduced pursuant to the resolutions of the Board of Directors hereinbefore referred to, was $125,876.34. If such reduction had not been made, his Article XII remuneration for 1950 wouid have been 8269,801.84. The Article XII remuneration for the fiscal year 1950 of Vtheent Riggin who had served as President to April 7, 1950, was no~ affected. The ~trticle XII remuneration for the fiseai year 1950 of Richard J. Boylan, James R. Coon, John A. Crowe and Preston L. Fowler, the four Viee-Presldents who were in office for the entire year, as reduced pursuant to she resolutions of the Board of Directors hereinbefore referred to, was $206,292.35 each. If suvh reduction had not been made the Article XII rennmeratlon of each of such four Vine-Presidents for 1950 would have been $180,914.31. The Article XII remuneration for the fiscal year 1950 of Edmund A. Harvey who was elected a Vice-President on April 7, 1950, as reduced pursuant to the resolutions of the Board of Directors 4

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hereinbefore referred to, was $78,336.00. If 5u~h reduetinn bad not been triode, his Article XII remunera- tion for 1950 would have been $233~33L43. There was no bonus or profit-sharing plan, other than Article XII, in effect during the year 1950. The Company had in effect for about ten years prior to January 1, 1949 an informaI, voluntary, non- contributory plan to provide for employees who had become unfit for active duties, m~der which plan payments are still being made. The Company now has in effect the formal, non:cont~ibutory Retirement Plan for employees, adopted by vote of the stockholders at the 1949 Annual Meeting. The amounts pald or set aside for the benefit of (a) employees (or fornaer empIoyees) and (h) officers and directors (or former officers and directors) of the Company and its consolidated subsidiaries during the year 1950 under any bonus, profit-sharing, pension or retirement plan were as fonows: (a) Employees (other than directors or officers): Payme s o former employees of approximately $354,000 under the old informal plan referred to above and approximately $137,000 under the Retlrenlent Plan adopted in 1949. (b) Directors and officers: A. Payments to three former officers or directors (one of whom ,~as formerly an officer and director of the Company, and the other two, officers or directors of a subsidiary) of an aggrega[e of $14,000 under the old informal plan referred to above. B. The amounts of incentive compensation accrued during 1950 to the President and . Vice-Presidents are stated o= pages 9 and 10 of this proxy statement. SuCh incentive compensation was accrued under Article XII of the By-Laws, as reduced in the case of the present President and Vice-Presidents by the voluntary reduction in incentive compensation described on pages 4 and 10 of this proxy statement. The resolution authorizing sneh amendment will require for its adoption a majority of the votes cast thereon by Preferred and Common stockholders. The proposed resolution constituting Proposal A is as follows: RESOLVED, as recommended by resolution of the Board of Directors of The Ameriean Tobacco Company, that the By-Laws of the Company be and they hereby are anaended by the repeal of Article XII of the By Jaws as now in effect m~d the substitution therefor of the foBowing new Article XU, eli effective as of January 1, 1951: ARTICLE XII Section 1. As soon as practicable after the end of the year 1951 and of each year thereafter, if the net profits earned hy the Company during such year, as hereina£ter defined, exceed the sum of $15,500,000, there shall be paid to the persons who have held the o~ecs of the President and of the five Vice-Presidents during such year an amount equal in the aggre- gate, exeep~ as provided in Section 2 hereof, to 5% of the first $6,000,000 of such excess, 4% of the next $2,700,000 thereof, 3% of the next $2,700,000 thereof, 2% of the next $2,700,00f) thereof, and 1% of the balance thereof, of which aggregate amount, except as provided in Section 2 hereof, 20% shall be paid to the person or persons who held the ottlee of the President and 16% she be pad to the person or persons who held the office of one of the five Vic~-Presidents, as saIary for such year in addition to tbe fixed salary of each of such persons. Seeiinn 2. If any such of~ce shall have been vacant at any time during the year, the amount provided by Section I to be paid to the incunthent or incumbents of such office for 5

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suck year shall be reduced proportionately, and the aggregate amount otherwise payable to all snob officers for gush year shall be reduced accordingly. If any such o~qce shall have had more than one incumbent during the year, the amount payable in respect of s~ck office shall be divided among the different incumbents in the proportion of their respective periods of incumbency during the year. Section 3. For the purpose of this By-Law, the term '*net profits earned by the Com- pany" in any year is defined to mean the net income stated by file independent public accountants who have audited the Company's books as fairly redeeming the consolidated results of the operations for suck year of the Company and its subsidiaries theIuded in the consolidated tlnaneial statements set forth in the annual report for sush year of the Company to the stockholders. Section 4. At the time of rendering their report with respect to tile financial state- ments of the Company and its consolidated subsidiaries, such public aeeomatants shall also furnish to the Treasuxer of file Company their written certificate stating the amounts to be paid for such year to the President and each Vice-President pttrslTant to this By-Law, which certificate as to the anmtmts payable to anyone hereunder shall be binding and eon- elusive on all interested parties, and no one claiming hereunder shall have a rlgbt to question the same, or to .any examination of the hocks or accounts of the Company or subsidiaries. Nothing herein contained shall give any incumbent of any office any right to einlm to continue therein, or any other right except as herein specifically expressed. Section 5. This By;Law may be modified or repealed only by the action of the stockholders of the Company and not by the directors. The Maudgement recommends that you vote IN FAVOR OF Proposal A. Froposal B PROPOSED INCREASE IN AUTHORIZED CAPITAL STOCK AND AMENDMENT OF AGREEMENT AND ACT OF MERGER AND CONSOLIDATION The Board of Directors of the Company at a meeting held on January 30, 1951, adopted a resolu- tion deelarlng it to be advisable that the authorized Common Stock of the Company be increased from th9 presently authorized 6,000,000 sharo~ of Common Stock of the par value of $25 each to 10,000,00fi sberez of Common Stock of the par value o£ $25 each, and that to effect such change Article IV of the Agreement and Act of Merger and Consolidation, as heretofore amended, be amended so that after such amendment the total authorized capital of the Company pill be $3fi4,010,600, of which 540,106 shares will he Preferred Stock of the par value of $100 each mid 10,000,000 shares will be Common Stock of the par value of $25 each. The resolution adopted by the Board of Directors with respect ¼o such amendment to be voted on by the stockholders is set forth in Exhibit A hereto (see page 12). Such proposed increase in the authorized Commoh Stock is considered advisabin by the Board of Directors in order to make additional shares of Common Stock available for prompt issumlee should occasion arlse at some future time. The Board of Directors has no present plans for such issuance. Since Proposal B relates only to an increase in the authorized Common Stock of the Company, the Management is of the opinion ~aat financial statement~ would not disclose anything material to the exercise of prudent judgment as to this proposal. Financial statements 0f the Company are not, therefore, included in this proxy statement, However, the ammal report of the Company mailed to you with this proxy statement sets forth the financial eondition of the Company as of December S1, 1950. The Agreement and Act of Merger and Consolidation, as amended, does not deny or restrict such preemptive rights or other subscription rights as the holders of capital stock may have under the laws g t,

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of New Jersey, the Company s ~ ate of ncorpora ~ot~. I tile up n on of corn sol, the holders of Preferred Stock of the Company have no preemptive rights with respect to shares of ha Common Stock. In order to authorize tTze propossd amendmer~b the afftrnzative vote of bwo-thirds of tire outstanding Preferred Stock, as well as the a~rmatlve vote of two-thirds o/the outstanding Common Stock is required. The proposed .resolution constituting Proposal B is as follows: RESOLVED, as declared advisable by ~esolution of the Board of Directors of The American Tobacco Company, that the authorized Common Stock of the Company be i~creased from the presently authorized Six Milllon (6,000,000) shares of Common Stock of the par value of $25 each to Ten Millibn (10,000,000} shares of Common Stock of the par value of $25 each, and that to effect such change, Article 1V of the Agreement and Act of Merger and Consolidatlon between The American Tobacco Company, Consolidated Tabaeca Company and Continental Tobacco Company, as heretofore amended, he amended to read as follows: Article lV~Tbe capital stock of the said merged corporation is $304,010,600. Five Hundred Forty Thousand One Hmldred and Six (540,106) shares shall he Preferred Stock of the par value of $100 cash. Ten l~[iIIion (1O,000=000) shares shall he Common Stock of the par value of $25 each. The rights of the holders of the said Preferred Stock and Common Stock, respectively, shall be as follows: The holders of the Preferred Stock shldI be entitled to four votes for each share of the par value of $100 held hy them, and the holders of the Common Stock shall be entltled to one vote for each share of the par value of $25 held by them. The holders of the Preferred Stock shah he entitled to receive out of the surplus or out of the net profits, and the merged corporation shah he bound to pay thereon as and when declared by the Board of Directors, a dlvideed at the rate of, but never exceeding, six per centum per annum, cmnulative from and after the first day of October, 190~, payable yearly, bzlf yearly, or quarterly, before any dividend shall be se~ apart or paid on the Cerumen Stock; provided, however, that when ali accrued dividends on the Preferred Stock have been paid, the Directors shall, if in their judgment the su "plus or the net profits, after deducting the amount of dividends to acer ~e on the Preferred Stock during the current year, shah be su~eient for such purpose, have.power in their discretion to declare and pay a dividend~ or dividends, on the common Stock. In case of liquidation, or dissolution, or distribution of assets of the said merged corporation, the holders of Preferred Stock thall be paid the par amount of their Preferred shares and the amount of dividends accumulated and unpaid hefore any amount shall be payable or paid to the holders of the Common Stock; the balance of the assfits of said merged uorporatlon shall he divided ratably among the holders of the Common Stock, share and share alike. r The Management recommends that you vote IN FA~ OR OF Proposal B. Proposal C The Company is thformed that Lewis D. GiIbert, whose address is 1165 Park Avenue, New York 28, New York, Jolm J. Gilbert, whose address is 1165 Park Avenue, New York 28, New York, and John Campbell Hen/'/ whose address is 65 East 76th Street Ne~: York 21, Now York, stockholders, intend to introduce at the forthcoming Annual Meeting the foil owing resolution (designated herein as Proposal C) : "l~Esonw~: That the stockholders hereby request the Board of Directors to take appropriate steps to submit to stockholders an amendment to the Certificate of Ibeorpgration providing for CUnlU- latlve voting, that is to say that at all elections of directors, the stockholders shall have the right of cumulagve voting, which means each shareholder shall he entitled to as many votes as shall equal the number of votes which he would be enftled to cast for the election of directors with respect to 7

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his shares of stock multiplied by the number of dirce¢ors to be elected and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit." The proposers of this resolution have furnished the fidh~witN statement setting forth the reasons advanced by them in support of their proposal: "At present all directors of American Tobacco are ere. ployees----the public stockholders are completely unrepresented. Cumulative voting if adopted would enable public shareholders to get Board representation with greater ease. Such large corporations as Westingho~se and Swift (state law) Boeing and United Aircraft (voluntary action) hale both cumulative voting and outside directors which in no way binder successful operation of the corporations mentioned. Almost 300,000 votes were cast in its favor last year--if you agree with us, please mark your ballot FOR." Tile same proposers, Messrs. Gilbert, Gilbert and Henry, introduced substantially identical pro- posals at the 1949 and I950 Annual Meetings. Each of these proposals was overwhelmlngly rejected by the stockholdert. At the 1950 Annual Meeting, stockholders east 4,936,241 votes opposed to this proposal The long-continued reem'd of successful operation of the Cnmpany'~ business by directors giving their entire tlm0 and effort to the service of the Company and its subsidiaries indicates, in the opinlblt of the Management, that it would not be in the interest of the Company to initiate this amendment. The Manugemen~ recommends that you w~e OPPOSED TO Proposal C. Proposal D The Company is informed thai Jessie Adler, whose address is c/o Federation of Women Sharcholders in Ameraean Business, Inc., P. O. Box 190, Grand Central Station, 1~. Y. 17, N. Y., intends to introduce at the fbrthcoming Annual Meeting the followiug rgsoltttion (designated herein as Proposal D) : "RESOLVED: That the stockholders hereby request the Board of Directors to take appropriate steps to submit to stockhdiders an amendment to the Certificate of Incorporation or the Bydaws, as may be necessary, to enable the annual meetings of stockholders to be held at such place i~ the City of New York as the Board of Directors may from time to time designate." The proposer of this res~Iutlon has furni~ed ~e following statement setting forth the reasons advanced by her in support of her proposal: "It is nd longer required under Jersey law for corporations to confine annual meeliugs to New Jersey. Change of mcetiug place does not alter tax status. Othe~ New dersey ¢orporatlbn~American Can, National Biscuit, American Sugar, Intemaafional Harvester-- have taken their meetdig place~ out of the State for stoekl~alder convenience. Stockholder meetings in Flemington limit attendance by business men and women. Main o~ees, directors meetings, ape in New York City." The Company is required by New Jersey law to maintain its registered otfica within that State. Stock- holders' meetings are held br Fiemlbgton, N..L, where the Company's registered of~ce is located. The Company provides transportation from New York to Flemington and retmr~, and luncheon for stock- holders attending. The Management believes that Flemiugton has proved to be easily accessible to stockholders and that the meeting quarters ate pleasant and comfortable, However, in die absence of z~asons of Compar~y interest, it is the ~plblbn of the Managememt that the Iocatlbn of die meeting place is solely a matter of stockholders' convenience as indicated by their votes. The Management makes ale recommendation as to Proposal D. The Management is not now aware of any other matter intended to be presented for action at this lueeting,

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/ REMU2'qERATION Remtmaratiorr o/Directors aT~d Officers. Tbere is set forth in the following tabulation file aggregate rerauneration, on an accrual basis, directly or indirectly paid or set aside by the Company and its suh- sidlaries to, or for the benefit of, the following persons for sexwlces in all capacities while acting as directors or of~eers of the Company during it~ last fiscal year: each person who was a director of the Company at any time during such fiscal year and whose aggregate remuneration, exclusive of pension, retirement and similar payments, exceeded $25,000; each person who was one of the three highest-paid ofl~ce~s of the Company durillg such fiscal year and whose aggregate remuneration, exclusive of pension, r~tirement and similar payments, exzeeded $25,O00;;and all persons, as a group, who were dlreetors or ofiqcers of the Company at any time during such fiscal year. Where the total remuneratloa shown in Columns (3) and (4) exceeds by more than ten per cent. the corresponding total remuneration for the preceding fiscal year, the excess is stated in Column (6); where the total remuneration shown in Columns (3) and (4) is less by more than ten per cent. than the corresponding total remuneration for the preceding fiseal year, the decrease is slated in Column (7). Estimated anna1 retirement be~lefits to the same individuals at normal retirement date under the Retirement Plan for employees adopted by the stockholders at the 1949 Annual Meeting are stated in Column (8). (1) Namoofindivldual ~rlden~tyofgroup Orpheus D. Baxaiys R~herdJ. BoyIan Douglas W. Brashear Thomas P. Connor~ James I% Coon(b) John A.~owe(b)(c) JohnS. Dowd Preston L. Fowler(b) Pa~M. Hahn(b)/d) (2) (4) Capaeltiez in which (3) Participation remuneration was received S~laries in proIits Vice-President and Man- $50,000 aging Director, The Amerlean To/~aeco Com- pany of the Orient, Inc. (a) Vice-president and Direr- 50,000 $106,292.35 tor of Purchases, The American Tohecco Com- pany Vice-President, American 40,000 Suppliers, Incorporated (a); General Manager of $temmeries Director of Tra~c, The 32,000 American T,,heceo Com- pany Vice Pre~iderlt arm Comp- 50,000 106,292.35 troger, The American Tobacco Company Vice.Presldent* The Amer- 50,000 106~292.35 lean Tobacco Cnmi2any Vice-president, American 50,000 Suppliers, Int~orporated &) Viee-Presldent and Chief 50,000 106,292.35 of Manufactttre, The AmericanTobae¢o Gnu- puny President and ¥iee-Presi- 101,333.34 I25,876.34 dent, The .Mnerican To- bacco Company; Presi- dent, American Cigar- cite and Cigar Company (a) Affdia/ed company engaged in purchase and handling of lea~ tohaeeo. go) Al~o of S~er of affiliated comoany or companies. (c) Elected a Vice-President Ma~h 22. 1949. (d/ EIeeted President of Th~ Am~rlcaJa ]obaeco Company ApriI 7, 1950. 9 (8) E~mated (5) annpal Applicable (fi) (7) retirement ~oltit~n o~ Exoe~s Decraase b~nefit group over /taJer at normal insurance pro~ou~ previous retirement ' pr~minm ~'ear year date $67.75 $16,298 67.73 g98,156.29 17,00{I 67.73 14,000 67.73 11,432 67.73 98,156.29 1~000 67.73 53,345.62 1~000 67.73 1~000 67.73 98,156.29 14,846 67.73 27,238.96 25,000

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William H. Ogsbury Vincent Riggio (b) (g) lames F, StrickIand {1) C2) Name of individual Cai~aokles in which or identify o~ glroup rel:atmerafion was r e~ived Hiram R. Hamner Director of Re~earch, The AmerlnanTvbaoeo Com- p'any Edm~nd A. Harvey (e) Treast~er and Vice-Pr~i- dent, The American To- bacco Company HarryL. iIilpard(b)(f) Assistant Treasmer and Treasurer, Tbe Amer- icaa Tobacco Company A. LeRoyJanson Audltor~ 'I3~e American Tobacco Company JamesE. Lipscomb, Jr. President, Amerieml Sup- pliers, Inc?rporatedla) As~islant Chlef of Manu- facture, The Aluerlcan Tobacco Company President and Chairman of theBoard, The Amer- ican Tobacco Company Vice.Presldent, American Suppliers, Incorporated Directors and Of~cers Director~ and O~eers as as a group a group (4) (3) Participation Salaries in profitz 834,666.70 50,000 $78,336 47,333.35 40,000 120,000 50~000 68,666.69 30,005.19 50,000 67.73 %2,000.08 709,386.93 1,219.14 (B) Est[maled (5) manual Applicable (6) (7) retirement per tioli of ~xee~s D~cre~e henefi~ gr~p over undor at normal i~snI~nee pI~V]OU~ ~re&~o~ r~tii~t plemlnm year y~r dat~ $67.73 $13,100 67.73 $78,336 17,000 67.73 7,333.33 12,323 67.73 6,000 16,62~ 67.73 25,000 67.73 17,000 67.73 $312,075.84 23,000 15,337 593,293.24 (a) Af~llstcd company engaged in purchase and handling of leaf tnhaecu. (b) Also o~o~r o£ a~liated company or companies. (e) Elected a Vice president Apri~ 7, 1950. The amount reported in Column (6) is aecotmted for by partlcipati~n a~ a Vi~Presldent undo< Article XII for over 8 months of 1950, a~ against no participation in 1949. (f) Elected T~e~urer April 7,1950. (g} Elected Chairman of Board of Director~ April 7, 1950; retired January~16.195I. The araomat reported in Column 17) is accounted for by participation as president under ArficIe XII lot over 3 months of 1950 as against participation for the entire year 19~,9. The amounts stated in Column (4) above were accrued as incentive compensation (based on amount of Company profits), ul~der A~ticle XII of the By-La~s, after giving effect to tim voluntary reduction in the incentive compensation for 1950 of the President, Paul M. Hahn, and the five Vice-Presidents, Richard J. Boylan, James R. Coon, John A. Crowe, Preston L. Fowler and Edmund A. Harvey, described on page 4 of this proxy statement. The effect of such reduction was to reduce the remuneration df these respective o~cers by the following amounts which would otherwise have beert payable to them: Paul M. Hahn, $143,925.50; Richard J. Boyinn, James R. Coon, Jobn A. Crowe and Preston L. Fowler, $74,621.96 each, and Edmund A. Harvey, $54,995.43; a total reduction of $497,408.77. No fees or commissions were paid tu or fur the benefit of any of the individuals listed above. There were no pension, retirement or similar payments to or for the benefit of directors and ofiqeers of the Company during its last fisoa~ year. The Retirement plan for employees adopted by vote of the sthckholders at the 1949 Annual Meeting covers approximately 18,600 regular full-tlme employees of the Company and its subsldiaries. The Company has maintained since October L 1946 a group llfe insurance plan whicb covers all regu- lar full-time employees ofi the Company and of its consolidated American snbsidiaries and certain employees of other subsidiaries: the maximum amount ef insurance theretmder for any employee being limited to 10

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$10,000. The amount of group life insurance provided for earl, employee is determined by his basle annual pay. Each of the officers and directors was insured for $10,000 under such policy. The cDst of the insurance is payable ratably by the Company and such subsidiaries. The total number of employees insured under rite plan on January 1, 1951 was approximately 18,500. The aggregate armmnt of remuneration for the fiscal year 1950, received from the Company and fits subsidiaries, dlrectly or h~directly, on an accrual basis, by all the directors and officers of the Company as a group, was approximately nineteen onethundredfl~s of 1% of the Company's ¢onsohda ed ne sales. MISCELLANEOUS Any stoc~older making written request therefor to the Secretary of the Company will he furnished a summary of the Annual Meeting that will be prnpared after *he meeting has been held, Messrs. Lybrand, Ross Bros. & Montgomery have for many years been the independent auditors for the Company, and are appointed by resolution of the Buard of Directors. ~ aeeoedance with the Company's customary practice, a member of the firm of auditors w~ll atteud the Atmnal Meeting and respond to que~ions which may be asked¸ by stockholders. Comments or sttggestions by stockholders with regard to the audit are welcomed, as they are with regard to all other matters affecting th8 Company's th~rests. Flemington, N. J., is reached by the Lehigh Valley Railroad. This year arrangemems have also been made for return bus transportation to New York promptly after ~ meeting for stoekho]dexs who not~y the Secretary in writing prior to March 31, 195~. of their desire to return by bus rather than by train. The present train schedule, which is ~u~ect to change and should he confirmS, is as follows: Leave Pennsylvania Station (33rd S~et and Seventh A'1enu~ New York, N. Y.) 10:55 A. M. Arrive Flemington Junction 12:03 P~ M. Leave F~emington J'unption 5:¸16 p. M. Arrive Pennsylvania Station 6:35 P. M. The Company will p~c~uT-e transportation from _New York to Flemlngton by railr~d and retarn by rail- road or, ~ expressly re,tested ~ ~e s~ckholder's notice, re~r~ by b~ at Company expense for any stockholder of record desirous of attending the meetin~ on his notifying the Secretary in wrltln~ prior to March 31, 1951, that he wishes such ~ransportati~n obtained, f~ yea do not plan to attend~ you are urgently requested to execute the enclosed proxy and umil it ~o th~ C~mpany promptly. Expense of Solicitation. The expense of the solicitation of proxies for this meeting, including the cost e f mailing, will be borne by the Company. ~ addition to mailing eopi~ of rids materiaI to stockholders, the Compa~ will request persons who hold ~toch in their name or custody or in the name of nomlrtees for others, to forward copies of such material to those persons for whom they hold stock of the Company and to request avlhority [or the execution of the proxies. The Company may r¢inthur~e such persons for their out-of-pocket e~penses and clerical ~arges in connection l~lerewith, which expenses are estlmated to he about $1,800~ To the extent necessary in order to assure sufficient representation at the meeting, officers and ~ome regular employees of the Company and approximately 6 employees of Pbilip G. Cameron Com- pany wlil request the return of proxies by telephone, te]~ram or in person, at art estimated cost of about $14,000. The amount of the expense to bc bor~c by the Company will depend upon the volume of shares rcpr~ented by the proxies received promptly in response to the No~iee of" M~eting. ~ proxies are not received promptly, it may be necessary for th~ Company to send telegraphi~ solieltatlon to those stockholders wh~l have not responded. The expense o f such telegraphic solicitation would he abo~ $2,500. As the affirmative vote of two-th~rds of the outstanding Preferred Stock, as well as the affirmative vote of two-thirds of the outstanding Common Stock, is required in order to authorizc the proposed amend- ment of the Agreement and ~kct of Merger and Consolidation (Proposal B), tile Stockholders are urged to send in thelr proxies without delay, appreciated. Prompt response is helpful, and your cooperation will be February 7, 1951.

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EXHIBIT A R~L~E~. ~at the Board ef Direeto~ ~f Ti~ Am~ean Tobae~ Com~ny he~y de'ares ~ ~ be ~d~ahl~ that thv authorized Common S~ock of the Company be increased from the present~ authorized Six Million (6.000.000) shares of Common Stock of ~e par value of $25 ea~ to Ten Million (10,000.000) shares of Common Stock o~ the par v~ of $25 each. and¸ that to effect the foregoing change. Article IV vf the Agreement and Act of Merger and Col~solidatlon. as heretofore ameMed, be amended to read ~s £ollows: ~ti~e IV. The capital stock of the said merged corporation is $g04~10.600. Five Hundred Forty Thousand One Hundred and Six ($40,106) shares shall he Preferred Stock of the par value of ~100 e~ch. Ten Millh~n (10,000,01)0) shares shall he Common Stock of the par value of $2~ each. The rights of the holders of tile said Preferred Stock and Common Stock, respectively, shall be as follows: The holders of file Preferred Stock sh?ll be entitled to fofir votes for each share of tJ~e par value of $100 h~ltl by them, and the holders of the Common Stock shall he entitled to nee vote for each share of Lhe par value of $25 held by them. The holders of l]te Preferred Stock shall be entitled to receive out of the surplus or out of the net profits, a~d the merged Corporation shall he hound to pay thereon as and when declared by the Board of Directors, a dividend at the rate of, hut never exceeding, six per eentum per annum, eamu/ative from and after the frost ~.y n f October. 1904, payabl~ yearly, half yearly~ o~ q~terly, before any dividend shall be set apart or paid on the Common Stock; provided, however, that when all aeeruetl dividends on the Preferred Stock have been paid, the Directors shall, if in their iudg~e~t the surplu~ or the net profits, after deducSug the amount of dk~ide~ds tr~ aee~e on the Preferred Stock dpring the current year, shall be suffmient for such purpose, have power in their dlsexetion to declare and pay a dividend, or dividends, on the Common Stock. In case o~ l~qltldafion, or dissolution, or dlslrih~,tlon of assels of the said merged eorporatlon, the holders of Preferred Stock shah he paid the par ampm~t of their Preferred shar~s and the amollnt of dividends accumulated and unpaid before any amount shall he payable or paid to the holders of the Common Stock; the tedanee of the assets of said merged corporation shall be divided ratably among~he holders of the Common Stock, share and share alike. Ftr~Tr~gg R~SOLVgD, that the furegoing matters, including such proposed amendment to said Agree- ment and Act of Merger and Consolidation, shah be submitted for action thereon by the Preferred and Common Stockholders of the Company at the next annual meeting the~reof to he held on Wednesday, April 4, 1951, at one-thlrty o'clock in the afternoon, or at any adjour,ment thereof, at~d that notice of the time, piano and purposes of such meeting, including the taking of action upon the foregoing matters, ~hall he given irt accordance with the 9rovisiotas of th~ By-Laws of the Company. Fu~a'ra~a R~,SOLVga, that, in the event that two-thirds in interest of each class of stocktutlders having ~oting power shall vote in favor of such change and amendment at said afi~mal meeting or at any adiourn- raent thereof, the proper officers of the Company he and they hereby are authorized and empowered to make, execute mad aekno~dedge or prove a certificate of such change and amendment and to file th~ same in the ofiqee of the Secretary af State of the State of N~w Jersey, and Ia take oil ether steps deemed necessary or advisable to effect sack ckange and ,ameedment. 12 Nil

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• NOTICE OF MF~TING F]em~ton, N. J., March 1, 195~ NOTICZ ~s II~gBY Olv~,~ ~|~,tt the Annual Me~ng o~ the Preferred and C~rca~on Stockholders of T~E A~aERrCAN TOBACCO COMPANY wili b~ held at No, 43 Park Avenue, Fl~ralngton, Ne~ J~r~ey, at ot~-th[rty o'~I~ck ~t the ~ftert~o~ (Eastern St~ad~r~[ ¸Time) on Wednesday, April 4, 1951, for the following p,lrposes: (1) to elect Dir~tors; (2) to consider and vote u~on a proposal (designated Proposal A and ~ forth in the fo]]owln~ proxy statement) to anqcnd the By-Laws by repealing Artlcl~ XII as now i*l ~ff~ct and su/~stlt~ting therefor a new Artlcl~ XII, which proposal b.as been recommended by th~ Board of D~re~tors; (3) to consider an~ vote ~pon a proposal (designated Proposal B and ~t fi,rth in the {o]lowii~g proxy statem~ot) Io amend the Agreement and Act of M~r~er and ConsoIidatlon ~mder which the Company was org~nlzec/, a~ h~retofore am~ndecl, which has heel1 dechred advisal~]e hy th~ Board of Directors; (4) to conslder a~*d vote upott a proposal (designated Proposal C and s~t fn~th ~n the fol/owing proxy star,anent) mad~ by three s~ock/~olders; (5) to consider and vote upon ~ proposal (deslgnat~d Pro- posal D an~ set forth in ~he following proxy statement) mac/v ?~y ~ ~toekholder; and (6) to transact ~t,ch other business as may properly come ]~fore the meeting, The Pre£errcd and¸ Corara~n Stock transfer hooks wl]I not be closed but ho]der~ of Pr~£errcd Stock and Contmon Stock to h~ ~ntit]ed to vot~ must be holders of re~ord at the close of busln~ss o~* March 5, 19SL Jo~ W. HAN~Or~, Secretary SPECIAL NOTICE Holder~ of what w~ formerly Comm~l Stock B who still hok] t~.eir Common Stock B ¢ertific~t~ ar~ rerni~ed that, by ~mendv~ent of ~hv Charter of lh~ Company on April 8, Stock, ~ith th~ votln~ r~ts of Co~m*on S~ck, nam~: One votv per sb~re.

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•% PROXY STATEMENT The enclosed proxy is sollelted by and on behalf of the Management mad is revocable in writing. Proxies in the form enclosed, properly executed by stockholders and duly returned to the Management and not revoked, will be voted and, if a ehoiee be specified with respect to matters to be acted upon, will be voted in accordance with such specifications. The outstanding number of each class of voting securities of the Company is: Preferred 526,997 shares; Connnon 5,378,425 shares. Tile Preferred Stock is'entitled to four votes per share. The Common Stock is entitled to one vote per share. ELECTION OF DIRECTORS The Board of Directors consists of seventeen members who are elected to hold office until the next Annual Meeting or tmtil their successors are duly elected and qualified. It is the intention of the Proxy Committee to vote at this Annual Meeting for the nominees named below. These nominees, with the exception of Alfred F. Bowden, constitute Lhe present Board and have sen,ed as direetors of the Company for the periods commencing with the date~ set after their respective names. The Company is informed that these nominees were direcdy or indirectly the beneficial owners of outstanding securities of the Company at die dose of business on February 7, 1951, as set forth after their respective names. Ytar First Name Ptinoipal O¢~lpatlon ~eeted Director Orpheus D. Baxalys Viee.Presideah The America Toba*,zo 1940 Alfred F. Bowden Richard f. Boylan Dougle~ W. Brashear Thomas P. Conners James R. Coon John A. Crowe John S. Dow~ Prestml h Fowler PauI M. Hahn Hiram R. Hamacr Edmund A. Harvey Harry L. Hilyard A. hnRoy Jans~ • James E. Lipscomb, Jr. William H. Og~ury James F. S~ickland Con~aon p~ef~rred 884 62 - Company of the Orient, Inc. Asslst ant to the President, The American 105 Tobacco Company Vie~-President~ The American Tobacco 1929 1,720 200 Company " Virx:-Presldent, American Suppliers, 1948 100 Ineo~orated Dire.etor of Traffic, 3~ae Amerlc~n 1946 • 146 Tahac~e Company Vice President. The American Tobaceo 1936 652 80 Company Vim-President, The Araericau Tobacco 1931 500 105 Company ~ce-Presldent. American Suppliers, 1946 800 Incorporated Vice-President, The American Tobacco 1941 6tl0 100 Company President, The American Tobacco 1931 2,086 Company Director of ]~eareh. Th~ American 1938 120 Tobacco Company Vice-President, The American Tobacco 1932 500 40 Company Treasurer, "f~e Americas Tobaccn 194'i, 120 Company Auditor, The Amerle.~n Tobacco 1948 26.5 Company President, American Suppliers, Inner- 1918 1,800 100 porated As.~istant Chief of Manufacture, The 1930 12{) 50 American Taha~o Company Viee-Prezideab American Suppliers, 1946 ~20 Incorporated

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Mr. Bowden has held the office of Assistant tv the President for the past I2 years, acting in that cngacity for three successive Presidents of the Company, Me~rs. Hill~ Riggin and Haht~. His employ- ment in the Compaffy covers a peHed of 30 years. In addition to his e~ceeutive duties, he has responsibility for the Company's public relations and supervision of the Company's British su/~sidiary, J. Wix & Sons~ Ltth Klthough the Management does not contemplate the possibility, in the event any nominee is not a candidate o~ is unable to serve as a director at tile Lime of the ele~ion, it is intended that the proxies will be voted for any nominee who shall he designated by the present Board of I)ireetors to fill such v~eaney: Information regarding the remuneration of directexs is hereinafter se~ forth under the caption ~ ~Ptemlllt el'atlen". Proposal A PIlOPOSED AbllgNDMENT OF ARTICLE XII OF TIIE BY-LAWS The Management recommends to the stockheblers an amendment o/ ¢lrticle Xll of the By-La~ws reducing substantlally the amount o/ compensation payable ~nder cttrrsmt rates of earrt~ngs. The proposed amendme*tt is set forth as Proposal A on pages 5 and 6 of this proxy .statement. The reduetinn proposed has a~eady been dffeeted soluntarily with reageet te the 1950 compensation of the President and the rice Vine-Presidents now in ofl~ce by action of the Board of Directors described on page &. Artiele X~I of the By-Laws of the Company was adopted by the stockholders on March I3, 1912, by a vote of 621,047 shares of stosh in its favor to 35 shores opposed. On the reeommendaffen of the Management, it was a~nended at the I949 Annual Meeting of stoeltholders, the effect of the amend- ment being ~ Substantial¸ reduction in the rates of incentive compensation payable under the By-Law. Artiele XII~ as now in effect, was adopted by the stockholders on April 6, 1949, hy 6,174,489 votes in its favor to I10,290 votez opposed. It provlties as follows: Seetlen 1. As soon as practicable after the end of th~ year 1949 and of each year of the Company's aper~tlons therea£te~ the Treasurer of the Company shall ascertain the net prellts~ ashereinafter defined, earned by the Company &racing such year, and ff such net profits exceed the ~tml of $15,500~000 the Treasurer shail pay an amuunt equal in the aggregate to five per eel. of such excess to the President and five Vlee-Presidenis o£ the Company in the following prapur- tions; to wit: One~ourfit thereof, or 1~ per cent. of such amount, to the PrBsldent~ aue-iifth of the remainder thereof, or ~ per cent. of ~uch amount, to each of the fi~e Vise-Presldents as salary for the year, in additinn to the fixed sldary of each of said o~eers. Section 2. If any sush office be vacant for a time amounting in the aggregate to one month in any year, so much of th? amount provided by this resolution to he paid to the incumbent of such o~lee as is proportionate to rite time of such vacancy thail be returned into the general grgfit a~6ount of the Company. If there shall be a change during the year in ibe incumbent of any office, the amount hereinbefore provided t~ be pap~ shall be divided among the different Inenmbenls of such elfiee fit the groportlon of their respective periods of ineumhency dnHng file year, subject to the ahove provision in relation to vacaneles. Seetlo~t 3. For the purpose of this By-Law the net profits earned by the Company in any • year shall conslzt of the net earnings made by the Company in its business as a manufacturer and ~eller of tobacco and its predueis after deducting all expenses and losses, and such provisions as sl~all be determined by tbe Board of Diseetors of the Company for depreeiatfon and/or all out- standing trade obIigailon~ to which profits shall b~ added~ or from edllch profits shall he deducted, as the e~se may be, the Compang's proportion (based on its ~toch holdings) of the net profltz or losses for the year of its subsidiary companies engaged in th~ m~nufacture ( dise~tl~ or through the ik

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Company or any other ath~atvd eorngany) and sale of smoking tobacco, chewing tobacco, olgar- ettes, or little cigars. Section 4. The declaration of the Treasurer as to the amoumt of net profits for the year and the sum d~ anyone hereunder shall be binding and conclusive oil all parties~ and no one daimlng hereunder shall have a right to question the said declaration, or to any examination of the books or accounts of the Company, and notlCmg herein eontaltted shM[ give any incumbent of any office any right to claim to continue therein, or any other right except as herein specifically expressed. Shetinn 5. This By-Law may he modi fled or repealed only by the action of the stockholders of the Company and not by the directors. The Board of Directors at its organization meeting on April 7, 1950, after the last Aroma1 Meeting of stockholders, initiated a study of the operation of .~Lrtlele XII of the By-La~s in relatin~ ~o current conditions to detormlne whether further revision or modification thereof should be revommended. At the same meeting the Board of Directors adopted resolntthns under which the President and the five Viee- Presidents no~s in office, by aeeepdng ~leedon ~o their ~espeeBve offiee~, eon~emed that any px~pe~e6 revision or modification of Article XII which would receive the favorable vole of a majority of the Board of Directors might by resolution of the Board of Directors be made app!izable to their respective x~uneratlon fo~ the yea~ 1950. There are two major changes under the recommended proposal: (1) the net profits upon which eompensatlon is hosed are defined as the net income reported by the independent publie aecoul~tants who have audited the Company's books as fairly reflectlng the eonsolldated results of the operatinn~ for such year of the Company and the subsidiaries included in the consolidated finanelal stateqnems furnished to stockholders; and (2) tbo amount of incentive compensation payable under current rates of earnings is reduced substantially. In addition, the dL~trihudon of the eom/mnsation between the President and the Vice-Presidents is readjusted to meet the Presifinm's reeommendafion that his percentage be reduced from 25% to 20% and that of each o£ the five Vice-Presidents he increased from 15% to 16%. In the opinion of Management, the amendment constituting Proposal A is designed to provide amounts of payments that should meet the approval of the most conservative and yet preserye the psincipl~ of incendw compensation that ha~ been traditional iu the Company, Ae.coxdlngty, a resolutinxt was adopted by the Board of DireCtors on July 25, 1950 recommending to the stockholders that at the Annual Meeting the By-Laws be amended by repealing Article XII ~f the By-Laws as now in effect and skhstltudng therefor die new Article XII hcreinhclow set f~rth, aI[ effeed~e a~ of January l, 1951. The Board of Direetdrs also adopted a resolution making the proposed revision of Article Xll applicable to the re*pecdve xemunerafion for the year 1950 of each officer entitled to com~oensation under Article XII of the By-L~'ag elected to ~uch oitlce dozing that year. The persons who partinipate in Article XlI remuneration are, as staled above, the President and the Vice-Presldents. The Article XII remuneration for the fiscal year 1930 of Paul M. Hahn who has served as President slnee April 7, 1950, as reduced pursuant to the resolutions of the Board ot Direetors hereinbefore referred to, was $125~876.34. [f such red~etion had not been made, his Article XlI remuneration for 1950 would have been $269,801.84. The Article XI1 remuneration for the fiscal year 1950 of ¥1neent Riggth who had served as Presldept to April 7, 1950, was not affected. The Artiele XII remtmeratlon for the fiscal year 1950 of Rthhard J. Boylan, James R. Cram, John A. Crowe and Preston L. Fowler, the four Vice-Presldents who were in ofliee for the entire year, as reduced pursuant to the resclutio~ls of the Board of Directors hereinbefore referred to, was 8106,292.35 each. If such reductlotl had not been made the Ardele XII remuneration of each of suab four Vice-Presidents for 1950 would have been $1g0,914.31. The Article XII remuneration for the fiscal year 1950 of Edmmtd A. Harvey who was elected a Vine-President on April 7, 1950, as reduced pursuant to the reso]utions of the Board of Directors

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hereinbefore referred to, was $78,336.00. If such reduction had not been made, his Article XII remunera- tion for 1950 would have been $133,331.43. TEare was no hontts or profit-sharing plan, other than Artio!e XII, in effect during the year 1950. The Company had in effect for about ten years prior to January 1, 1949 an informal, voluntary, non- contributory plan to provide for employees who had become tmfit for active duties, under which plan payments are still being made. The Cmnpany now has in effect the formal, non-contributory Retirement Plan for employees, adopted by vote of the stoekholders at the 1949 Annual Meeting. The amounts paid or set aside for the benefit of (a) employees (or former emplnyees) and (b) offeers and directors (or former officers and dil~eetars) of file Company and its consolidated subsidiaries during the year 1950 under any bonus, profit-shazing, pension or retirement plan were as follo,*s: (a) Employees (other than directors or officers) : Payments to former employees of approximately $354,000 under the old informal plan referred to above and approxhnately $137,000 under the Retirement Plan adopted in 1949. (h) Directors and otficers: A. Payments to three former officers or directors (one of whom was formerly an officer and director of the Company, and the other two, officers or directors of a ~ubsidlary) of an aggrega!e of $14,000 under the old informal plan referred to above. B. The amounts of incentive compensation acet,zed during 1950 to the President and Vice-Presldents are stated on pages 9 and 10 of this proxy statement. Such incentive compensation was accrued under Article XII of the By-Laws, as reduced 0i the case of the present President and Vice-Presidents by:the voluntary reduction in incentive compensation described on pages 4 and 10 of this proxy statement. The resolufion authorizing such amendment will require for its adoption a majority of the votes east thereon by Preferred and Common stockholders. The proposed resolution constituting Proposal A is as follows: RgSOLWD, as recommended by resoitttion of the Board of Directors of '131e American ToEaeco Company, teat the By-La,~s of the Company be and they hereby are amended by the repeal of Article XII of the By-Laws as now in effect and the substittttlon therefor of the foIlowi,g new Article XII, all effective as of J'anuary 1, 395I: ARTICLE XII Section 1. As soon as practicable after the end of the year 1951 and of each year thereafter, if thg net profits earned by the Company during such year, as hereinafter defined, exceed the sum of $15,500,000, there shall be paid to the persons "~'ho have held the offices of the President and of the five Vice-Presidents during such year an amount equal in the aggre- gate, except as provided in Section 2 hereof, to 5% of the first 86,000,000 of such excess, 4% of rite next $2,700,000 thereof, 3% of the next $2,700,000 thereof, 2% of the next $2,700,000 thereof, and 1% of the balance thereof, of which aggregate amotmt~ except as provided in Section 2 hereof, 20% shalI be paid to the person or persons who held the office of the President and 16% shall be paid to the person or persons who held the o~ee of one of the five Vice-Presidents, as salary for such year in addition to the fixed salary of each of such persons. Section 2. If any such office shall have been vacant at any time durblg the year, the amount provided by Section 1 to be paid to the incumbent or inc,~mhents of s,~sh office for 5

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such year shall he reduced proportionately, and the aggregate amount otherwise Fayabie to all such officers for guch year shall be reduced accordingly. If only such office sh~ll have had more than one incumbent during the'year, the amotmt payable in respect of such office shall ha divided among the different ineurahents in the proportion of their respective periods of incumbency during the year. Section 3. Ft~r the p~rp~ ~f thi~ By-Law, tse term "net pio£~ earned by the Com- pany" in aft)" year is definecb to mean the net income stated by the independent public accountants who have audited thv Company's books as fairly reflest!ng the consolidated resells of the operations f0r such year of the Company and its subsidiaries included in the consolidated financial stat~nien/s set forth in the annual report for such year of the Compony the stockholders. their Section 4. At the time of rend~ing report with respect to the financial state- me~t~ of the Compatty and its eou~lidated subsldi~vie~, such public ae~oagtznts shall also furnish to the Treasurer of the Company their writte~ certificate stafi~g the amounts to he paid for stWh year to the President and each Vice-President pursuant to this By-Law, which certi~cate auto the amounts payable to anyone hareunder shall be hindlng and con- duslve on all interested patties, and no one claiming beretmder sha?l have a ~ght to question the samd, o~ to any examination of the hocks or accounts of the Company o~ ~ubsldlavies. Nothing herein contained shall give any incumbent of anF office any right to claim to continue. therein, or any other right except as herein specifically expressed. Section 5. 'I~nis By,Law may he modified or iepoalod only by the action of die stockholders of the Company and not by the directors. ~'he Management recommends that you vote IN FAVOR OF Proposal/2. Proposal B PROPOSED ]NCRKASE IN AUTHORIZED CAPITAL STOCK AND AMENDMENT OF AGREF,31ENT KND ACT OF MERGER AND CONSOLIDATION The Board of Directors of the Company at a meeting held on January 30, 1951, adopted a resolu- tion declaring it to he advisable that the authorized Common Stock of the Company he increased from the presently authorized 6,000,000 shares of Common Stock bf the par value of $25 each to 10,000,000 shares of Common Stock of the par valu¢ of $25 each, and thyt to effect such change Article IV of the Agreement and Act of Merger and Consolidation, as heretofore amended, be amended so that after such amendment the total authorized capital of the Company .will he 8304,010,600, of which 540,106 shares will be Preferred Stock of the par value of $100 each and 10,000,000 shares will be Common Stock of the par value 0£ $25 each. The resolution adopted by the Board of Direetot-s with respect to such amendment to be voted on by the stockholders is set. forth in Exhibit A hereto (see page 12). Such proposed increase in the authorized Common Stock is considered advisable by the Board of Directors in order to make additional shares of Common Stock available for prompt issuance should occasion arise at some future tim0. The Board of D/rectors has no present plans for such issuanae. Shice Proposal B relates only to an increase in the authorized Common Stock of the Company, the Management is of the opinion that financial ~atements would not disclose anything material to the exercise of pr~de~at judgment as to this proposal Financial statements of the Company are nob therefore, inel~ in tJ~t~ proxy ¢tatcxaeat. Ho~gver, the aaixuai report ~f the Corapany malle~ to you with ~is proxy statement sets forth the financial condition of the Company as of December gl, 1950. The Agreement and Act of Merger mad Consolidation, as amended, does not deny or restrict such preemptive rights or other subscription rights as the holders of capital stock may hay0 under the laws

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t S of New Jerseyt the Compatly's State of incorporation: hi the opkdon of counsel, the hoIderS of Preferred Stock of the Company have no preemptive rights with respect to shares of its Coimnon Stock. In order to authorize the proposed amendment, the ng~rmatlve vote o/ two-thirds o/the orttstt~ndlng Pre/erred Stock, as well as the aff~rmatlve vote el two-thirds o/the outstanding Common Stock is required. The proposed resolution eonstitutthg Proposal B is as follows: RESOLVED, as declared advisable by resolution of the Board of Directors of The American Tchaeeo Company, flint the attthorized Common Stock of the Company he increased from the presmltly authorized Six MiBion (6,000,000) shares of Common Stock of the par value of $25 each to Ten Million (10~000,000) shares of Common Stock of the par value of $~5 ease, arid that to effect such change, Articie 1V of the Agreen~ent and Act of Merger and Consolidafiort between The American Tobacco Company, Gonsoiidated Tobacco Company and Continental Tobacco Colnpany, as heretofore amended, be anaended to read as follows: Artlcle IV. The eaphal stock of the said merged ¢orporatthn is $304,010,600. Five Hundr~l Forty Thottsand One Hundred and Six (540,106) shares shall be Preferred Stock of the par value of Sh00 each. Ten Million (10,000,000) shares shall he Common Stock of the par value of $25 each. The rights of the holders of tea said Preferred Stock and Common Stock, respectively, ~hall be as foUows: "Pne holders of the Preferred Stock shall he entitled to four votes for each shnt-e of the par value of $100 held by them, and the holders of the Common Stock shall be entitled to One vote for each share of the par value of $25 held by them. The holders of the Preferred Stock shall he entitled to receive out of the surplus or out of the net profits, and the merged corporation shah ha herald to pay thereon as and when declared by the Board of Directors, a dividend at the ra~e of, but n~vor exceeding, six per eentum per annum, cumulative from and after the first day of October, 190~, payable yearly, half yearly, or quarterly, before any dividend shall he set apart or paid on the Common Stock; provided, however, that when all accrued dividends on the Preferred Stock have been paid, the Directors shall, ffi in their judgment th~ ~urpius or she ~aet p~o£~% after deducting the amount of dividends to accrue on the Preferrad Stock during the eurrent year, shah be sufficient for such putpese, hove power in their discretion to declare and pay a dividend, or dlvldeeds, on the Comthon Stock. ha ease of liquidation, or dissolution, or distribution of assets of the said merged, corporation, the holders of Preferred Stock shdR he paid the par amount of their Preferred share.s and the amount of dividends ae~umulatad and unpaid before any amount shall be payable or paid to the holders of the Common Stock; the balance of the assets of said merged corporation shall be divided ratably among the holders of the Common Stock, share and share alike. The Management recommends that you vote IN FAVOR OF Proposal J~. Proposal C The Company is reformed hat Lewis D. Gfiber, whose address m 1165 Park Avenue, ~e~v York 28, Now York, John J. Gilbert, whose address is 1165 Park Avenue. New York 28, New York, and John Campbell Henry, whose address is 65 East 76th S~reet, New York 21, N~v York, stockholders, intend to intraduee at the forthcomthg Annual Meeting the following resolution (designated herein as proposal C) : RESOLVED. T~mt the ~teckbelders hereby request the Board of Dtrec ors to take approprm e s eps to submit to stockholders an amendment to the Certificate o£ Ineorporatlun providing for ¢umtt. latlve voting, that is to say that at all elections of'directors, the stockbeldars shall have the right of eumniatixe voting, welch means each shareholder shall be entitled to as many votes ~s shah equal the number ~f vo~es ~shish he ".~ onld be entitled m cas~ for the election of dizcethr~ with respect to

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- ! • J his shares of stock multiplied by tlm number of directors to Be edeeted aM lae may east ~1i o£ s~ch • votes for a single dlrector or may di.~lrthute them among the number to 1on voted for, or any two or more of them as he may see fit." The proposers of dlis resolution have ft?rnlsherl the followlng statement setting forth the reasons advanced by them in support of their proposal: "At present all directors of American Tobacco are em- plogees--the public stoeltholders are completely unrepresented. Cumulative vodng if adopted would ~lahin pu~blic sbarekolders to get Boa~d representation with greater ease. Such large corporatinrts as Westinghau.~ and Swift (state la~) Roelrg and United Aircraft (~ol~ut~y actthrL) have both ¢~mulati~e voting and outside directors ~vh]¢ll in no way hinder successful operation of the eo~poratinns mentioned. Almost 300,000 votes were cast in its favor iast year if you agree with as, please mark your ballot FOR." Tim same proposers, Messrs. Gilberh GiIhert and Henry, introduced ~thstantiallv identical pro- p[~sals at the 1949 and 1950 Annual Meeting~. Each of these proposals was overwhelmingly rejected by the stosklloI[ters. At the 1950 Antlual Meeting, stockholders east 4,936,241 votes opposed to this proposal. The lang-contlnued record of successful operation of the Company's business by ¸directors giving their entire time e~nd effort to the wervice of the Company and its sahsidla~ies hxdlcates, in the opinion of the Management, that ~t ~vou~d ~ot h~ m th~ in~r~gt of ~he Comg~ny to ~itiate this amendment. The Management recommends that yo~ vo~e OPPOSED TO Proposal C. Proposal D The Company is informed that Jessie Adler. whose address is e/o Federation of Women Shareholders in American Business, Inc., P. O. Box 190, Grand Central SLation, N. Y~ 17, N. Y,, intends to introdue~ at the fbrtheoming Annual Meeting the fo]]o~ing resolution (designated herein as Proposal D) : ~'RESOL~*D: That the stockholders hereby reqtte~t the Board o~ Directors to take appropriate steps to submit to stochholdors an amendment to the Certi~cate of Incorporation or the Bylaws, as may he necessary, to enable the annual meeting~ of stockholders to he held at ¸such place in the City of New York as the Board of Directors may from time to time designate." The proposer of this re~oIutinn has f~rnlshed the followlng statement setting forth the reasons advanced hy her i~ s~pport of her proposal: "it is ~o longer required ~t~der Jersey law for eorgerat;oa~ • to ¢o~lfizm annual meetlnge to New Jersey. Change of meetlng place does not alter tax status. Other New Jersey ¢orpo~ations-~Ameriean Can, National Biscuit, American Sugar, International ~ai~,ester-- have taken their meeting places out of the State for stockholder convenlettee. Stoc~o]der meetings in Flemington limit attendance by basines~ men and women. Main othc~s, directors me~ings, are in Ne~v York City.' ..... The Company is required by New Jersey law to maintain its legistered office within that State. Stock. homers' taectinge .ace he[4 it1 FI~mingtoo, N. ~., where the Company's registered o~ce is ineateth The Company provides transportation from New York to Flerrfington and return, and luncheon for stock- holders attending. The Managea~etat believes that FIemingtoJ~ has proved to he easily "accessible to stockholders and that the meeting quarters are pleasant and comfortable. However, ia the absence of reasons of Company interest, Jt i~ the opinion of the Management that the Ioeation of the meeting place is solely a matter of stochIxofde~s' c~nvetlien¢¢ as indlcated by their votes. The Ma~age~et~t makes p.o recommendation as to Proposal D. The Management is not now aware of any other matter intel~ded to bs presented for action at this meeting.

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i ..H . 8EMUNE~TIO~ Remuner~Uion of Director* and O~ers, ~re is set ~rth in the following tabu]~ion the aggregate remuneration, on an accrual basis, dJroedy or indirecdy p~d or set aside by the Coalpany and it~ sub- sldi~rle~ D, or for the benefit of, th~ following persons for ser~c~ ~n all cap~eities while acting as ~reetors or o~e~ of the C~mpany d~rlng ~ la~ fi~e~ y~: each p~so~ whd was a di~o~tor of ~he C~mpany at anytime during such ~sc.al year a~ whose aggregate remuneration, exolusive of pension, retirome~ and similar l~n~, exceeded $25,000; sach person who was one of the three hi~eg-pald o~eers of the Company during suoh fiscal year and ~ose s~re~te remuneration, exc]~sive of ponslon~ r~lir~ment and similar payments, exceeded ~25,000;:and all persons, as a group, who were directors or o~com of the Company at any time during such fiscal year. Where the tc~ ~munerati~ shown ~n Cohm~ (3) and (4) exceeds by more thaa tea per cent. the cor~espondlng total remuneration for the proeedh~g fis~l year, the excess is ~ated ir~ Colum~ (6); where the total remuneration shown in Columns (3) and (4) Js lo~s by more than ten per cent. than the eorrespondlng total remuneration for the preeedlng fiscal year, the dee.reuse is stated th Column (7). Estimated annual xetirement benefits to the ~ame individmds at n°rnaal retirement ddte under ~/~e Retirement Plan for ernployees adopted by the stockholders at the 1949 Annual Meeting are stated in Colunm (8). ID Name of individual Orpheus D. BaxaIys Pdah~rd J. Boyla~ Doughs W, Brashesr Thomas P. Coan~r~ lame~ R. Coon(b) John A. Crow,(b) tc) John S. Dowd Preston L. Fo'~hr (b) Paul M. Hahn (b) (d) (2) (4) Capaoitiez in which (3) participation Viee-Pregdent and Man~ $50,000 aging Diractor~ The AmerioanTobaeco Com- pany of the Orient I~e. Vice President and Diree. 50,000 $106.292,35 to~ of PRrchas~, The Amerio~n Tobacco Com- pany Vice-Presldent, American 40.000 Su pliers, Incorporated (~; General l'vlanagcr of St~mmer~es Director o[ '~ra~e, The ~,2,0~0 American Tobacco Com- pany V~oe-Pre~Jdent ~nd Cutup- 50,000 106,292,35 troller, The Ame~fl~n Tobacco Company Viee-Presidem, The Amer- 50,0110 106,292,85 loan Tobacco Company Vic~-Pre~ident, American 50,009 Suppliers, Incorporated Vice Pze~ideat and Chief 50~000 106~292.55 of Manufacture, The Ameri~n Tobacco Com. pany Pr~ident and V~ee-Presi- 101,333.34 125,876.34 dent, The Araexlea~ T~- b~eee Company; PresL deut, American Cigar- ette and Cigar Company (al A~li~e~ ~ ~i~ ~ engaged, in p~ha~e an6 handling ~{ ]~o{ lobate. (b) Also offin~r of a£qliated company or eorspanies. (e) EIec~ed a Vi¢o-Presidem March ~. I949. (d) E%ated President of The Amerlea~ Tobacco Company April 7, I9~0. 9 (8) l~t~m~ge6 (5) • annual Applicable (6) (7i retirera~ut ~ ~ gx~s Decrees© h~eat group o~er ~der st normal, Insurance previous pre~io~ retirem*at $67.78 016,298 67.75 ~9g,1~6.29 17,800 67.75 14,000 67~3 11,482 67.78 98,166.~9 1~000 67.7~ 53,M5.62 I7,000 67.73 1%000 67.7~ 9g,156.29 14,846 6%75 27,238,96 25,fl00

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(i) (2) (4) Name of h*divldual Capacities in which (3) par [icipation or identity of gxot, p remuneration was received Salaries ill ~,mfitz ~fJram R. Hanmer Director of Research, The $34,666.70 AmerlcanTobaeco Com. phny Edmvad A. HarWy (e) Treasurer and Vice-Presl. 50,000 $73,366 dent, The Amer can To- bacco Company Harry h Hilyard(b) (f) Assislant Treasurer and 47,333.35 Treasurer The Kme~. lean Tobacco Company A. LeRoy Jansen Auditor, 37ae. American 40,000 Tobacco Company JamasE. Lipscomb, Jr. President, Amerlcan Sup- i20.000 pliers, lnoorporated a) William H. Ogsbttry Assist&nt Cklei of Manu- 50,000 facture, The Aroerican Tobacco Company VineentRiggio(b)(g1 President and Chalrraan 68,666.69 80,006.19 67.73 of the Board, The Amer. lean Tobacco Company James F. Striskland Vice-President, American fi0~O00 67.73 Suppliers, Incorporated ('q Directors and Officers Directors and Officers as 952,000.03 709,386.93 1,219.14 as a group a group (8) EstimaIed (5) a~ual Applicable (6) (7) retirement portion o~ ~xe,~s Decrease beneg~ ~roup over wider at .orraal insurance previo.s pre~ou~ retirement premium year year date $67.73 $13,100 67.73 $78,336 I7,000 07.73 7,333.35 12,323 6703 4,00[} 14,624 67.73 25,000 67.73 17,690 $312,075.84 25~000 13,337 593,298.24 (a) Affiliated comgany engaged ha purchase and handling of 1oaf tobacco. (b} Also officer of a~liated oompa~7 or oompanJcs. (e) Eleetecl a Viee.ple~ident April 7, 1950. ~ae amount rOl~orted in Cohmn (6) is accounted L~Or by participation as a Vice President under Attlele XI] for over 8 month ~ 950, a ga n t no partielpatloa in 19~9. (f) Elected Treasurer April 7,1950. (g) Elected Chairman of Board of Directors April 7, ]950; ~tired January 16,1951. The amoun~ reported in Colunma (7) is accounted l'or ?or pal~telpation a~ Pres]dexlt Ilnder Article X~I for over 3 months of 19~0 as against partlelpation for the enlire y~.ar 1949. The amounts stated in Column (4,) above were accrued as incentive compensation (based on amount of Company profits), under Article XII of the By-Laws, after giving effect to the vokhatary reduction in the incentive compensation for 1950 of the President, Paul M. Hahn, and the five Vice-Presidents, Richard J. Bnylan, James R Coon, John A. Crowe, Preston L Pew er and Ethnmld A. Harvey, described on page 4 of this proxy statement. The effect o/such reduction was to reduce the remuneration o/ these respective o~cers by the/ollowing amounts which would gtherwise /rave been payable to them Paul M. tfaha $143:925 50; R chard J Boylan, James IL Coo& Johtt .4 Crowe and ))re ton L Fowler, $74,621.96 each, and Edmund A. Harvey, $54,995.43 a •total reduction of $497,408.77. No fees or commissions were paid to or for the beneth of any of the individuals listed above. There wer6no pension, retirement or similar payments to or for the benefit of directors and othcers of ~e Company during its last fiscal year. The Retirement Plan for employees adopted by vote of the stockholders at the 1949 Annual Meeting covers approximately 18,600 regular full-time ernlth,yees of the Corapany and its subsidiaries. The Company bas maintained since October 1, I946 a group life insurance l~lan which covers all regu- lar full-thne employees of the Company and of its consolidated American subsidiaries and certain employees of other subsidiarie% the maximum amoun of insura lee fllereunder for any employee being limlte8 to 10

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$I0,000. The amount of group life insurance prodded for each employee is determined by his basic annual pay. Each of the officers arid directors was insured for $i0,000 under such pulley. The cost of the insurance is payable ratably by the Company and such subsidiaries. The total number of employees insured under the plan on Janaaly 1, 1951 was approxboately 18,500. The aggregate amount of remuneration fob the fiscal year 1950, received from the Company and its subsidiaries, directly or irrdireetly, oJ~ an aeeruai basis, by all the directors and officers of the Company as. a group, was approximately nineteen one-hundredffi~ of 1% of the Company's consolidated ne sales. MISCELLANEOUg Any stockholder making written request therefor to the Secretary of the Company will be furnished a summary of the Annuat Mooting that will bo prepared Mter the meeting has been held. Messrs. Lybr~nd, Ross Bros. & M~ntgomery have for many years been the independent auditors for th~ Compaay, and are appointed by re~olution of the Board o~" D~reetor~. In accordance with the C~ompany'~ customary practice, a member of file fixan of auditors will attend the AI~ilU~L Meeti~ and respond to questions which may be a~ked by ~mckh~ders. Comments or suggestions by stockholders with ~egard m the a~dil are welcomed, as they are with regard to a]I other matters aff¢ctlng th~ Compauy's interests. Flemington, N. J., is reached by the Lehigh Valley Railroad. This year arrangements have also been made for returfi bus transportation Lu New York promptly a/~ter t~ meeting for stockholJ.ers "~h~ wo~'~ the Secretary in writing prior to March 31, 1951, of their desire to return by bus rad~er than by train, The pr~ent train sc~duffi, which is ~u~eet to change and ~ould he ~ngrmed, is as follows: Leavv Pennsylvania Station (33rd Street and Sevett~lx &venue, New York, N. Y.) 10:55 A. M. Arrive Flemiagt~tt Junction 12:03 P~ M. Leave Flemington Sunction 5:16 P. M. Arrive Pennsylvania Station 6:35 P. M. The Company will procure transportation [rum New York to Fiemington by railroad and retmctt by rail* road or, i[ expressly requested i~ the stockholder's notice, retuc,~ by bus, at Compax~y expense for arty stockholder of re0o)'d des~rq~,s of attending the meeting, on his notifying the Secretary in writing grin: to March 31, 1951, that he wishes such trat~spartation obtairted. If you do not plan to attend, you am urgently rexlaested to execute the e~ciosed proxy and mall it to the Campany promptly. Expense o] Solicitation. The expense of the solicitation of proxies for this me~ting, including the cost of mailing, will be borne by the Company. In eddition to maliing copies of tlfis materinlto stockholders, the ComlJany will request persons wlm hold stock in their name or custody or in the name of nominees for others, to forward copies of such material to those persons for whom they hold stock of the Company and to request authority for the execution of the proxies. The Company may reimintrse sud~ 15ersons for their out-of-pocket expenses and cleriea~ charges in connection fixerewlth, which expenses ate esgmated to he about $1,800. To the extent necessary in order to assure suflleient representation at the meeting, otfieera and some regular employees of the Company and approximamly 6 employees of Philip G. Camarnn Com- pany will request the return of proxies by telephone, telegram or in person, at an estimated cost of about $14,000. The amount of the expense to be borne by the Company will depmid upon the volume o£ share~ represented by the proxies received promptly in response to file Notice of Meeting. If proxies are not received prompdy, it may be necessary for the Company to send telegraphic solicitation to those stockholders ~ho have not respanded. The expense o f such telegraplfic solicitation would be about $2,500. As the atfirmatlve ,~ote af two.thirds of the outstanding Prcferred Stock, as well as the affirmative vote o£ two-thirds of the outstandlng Common Stock, is required in order to authorize the proposed amend- ment of the Agreement and Act of Merger and Consolidation (Proposal B), the Stockholders are urged to send ii/ their proxies without delay. Prompt response is helpful, and ym~r cooperation will be appreeiated; February 7, 1951. It

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£ EXItlBIT A RE.~OL'~ED, that the B~rtrd ~f Di.regter~ cffi The Amerlc~ Toba¢~t~ Company hereby declares it to he advisable/hat the authorized Comraon Stock of tile Company ire in0reased from the presentIy authorized Six Million (0,000,000) ~hares of Common Stock of the par value of $25 each to Ten Million (10,600,000) shares of Common Stock of the par value of $25 each, and that to effect the foregoing change, Article IV of the Agreement and Act of Merger and Consolidation, as heretofore amended, he amended to read as follows: ArtieIe IV. The capital stock of the said merged corporation is $304,010,600. Five Hundred Forty Thousand One Hundred and Six (540,106) shares shall he Preferred Stock of the par value of S10t) e.ash. Ten ~'¢lilllon (lO,000,0OO) shares shall be Common Stock of the par vahn: of $25 each. The rights of the holders of the said Preferred Stock and Common Stock, respectively, shall be at follows: The holders of tire Pret~n-ed Stock shall be entitled to four votes for each share of the par value of $100 held by them, and the holders of the Common Stock *hall be entitled to one vote for each share of the par value of $25 held by them. The holder~ of the Preferred Stock shall be entitled to recelvc out of the surplus or out of the net profits, attd Ibe merged eorporation shall be bound to pay th#reqn as and when deelt, red by the Board of I)h'eetors, a dividend at the rate of, but never exceeding, six per centum per annum, oamulzti'~e ft't~m and after the first day of October, I904, payablq yearLy, Exlf yearly, or quarterly, , before zany dividend shall be set apart or paid on the Common Stock; provided, however, that when aIi accrued dividends on the Preferred Stock have been paid, the Director~ shall, if it1 their judgmen~ the surpl~ or the net p~ofits, after deductlng th~ amount of dividends to accrue on the Prefi'rred Stock during the current year, shall be suff~cle~t for such purpose, hav~ power in their discredon to declare a.d pay a di*~dend, or dividends, on the Common Stock. In ease of liquidation, or dissolution, or dlstrlbulion of assets of the said merged corporation, file holders of preferred Stock shall he pttid the par amount of their Preferred share~ ~nd the amount of dividends accumulated and unpaid before any amount shall he payable or paid to the holders nl' the Common Stock; the balance of the assets of said merged corporation shali be divided ralably among the holders of the Cora~non Stock, share and share alike. FURTHER R~SOI,VED, that the foregoing matters, including such proposed amendment to said Agree- ment and Act of Merger and Consolldatlon, shall he submitted for action thereon by the Preferred and Common Stockholders of the Company at the next ann~,ai meeting thereof to he held on Wedneeday~ April 4, 1951, at one-ffiirty o'clock in the afternoon, or at any adjo~rmncnt thereof, and that notice of the time, place and purposes of sueb meeting, including the taking of action upon the foregoing matle~s, eball he g~en in aecordartce with the provisions of the Hy-Laws of the C~mparty~ FUaTEr~R R~:~)LWth that, in the event that two-thlrds in interest of each class of stockhoIders having vothag pc~wer shall t'ote in favor of such change anti amentimem at said anhual meeting or at any ad~oura- merit the.reef, the proper officers of the Company be and they hereby are authorized and empowered to make, execute aed aeknowledge or prove a certificate of such change and amendment and to file the same in the office of the" Secretary of State ~f the St~xtt~ of New Jersey, anti t~ take all etEer s~epa decreed necessary or advisable to effect snch char~ge and am0ndment. 12

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THE TOBACCO COMPANY FOR THE YEAR ENDED DECEMBER 31j 1950 WITH CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME AND EARNED SURPLUS Executive Office 111 FIFTH AVENUE. NEW YORK 3, N.Y.

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HIGHI iGHTS OF 1950 |950 Net income per common share ................ $7.17 Dividends paid per common share .... 4.00 Net sales ....................... $871,621,139 Income, before taxes on income 78,724,339 Net income ............................ 41,732,716 Dividends paid (preferred and common) 24,975,682 Portion of net income invested m assets used in the business and to provlde for debenture sinking fund requirements..I7,057,034 Current assets, December 31 ................. 693,026,307 Current liabilities, December 31 .......... 103,373,663 Net working cap~lal, Decemhe~ 3I ..... 459,552,644 Number o1 stockholders at December 31: Common ...................................... 64,565 Preferred .................................... 6,558 1949 $7.90 4.00 $85%0%A80 74,327,119 45,675,I54 24,675,682 20,999,472 583,761,695 132,931,853 450,630,042 64,I04 8,813 2

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THE PRESIDENT'S LETTER M~¢hl, 1951 To our Stockho|ders: Your Man(xgemeilt welcomes the opportuni[y to submit to y~ a report of the Company's operatlons hx 1~50. I hope that each stoc]~ho~de~ will consider this report --my flr~t as PTesident--as a personal message ~rem the Nl~/lageme~t el tile Company, presenting a complete, yet concise, summary of opert:~ons in 1950. I should like to call the stockholder~' attention to the following developments: I. During 1950, the ~olnlX~ny's uni~ ~nd dollar s(~les were higher thGn i~ 1949; n~t earnlnqs would h~ve exceeded i~49 e~nings 8xsBp~ for I/ghcr taxes; the Comga~¥'s financial position is suhslantia]ly stronger, as indicated by the fact that loans fronx b~lk~ decreased $7,000,000. ~unded debt wa~ reduced $9.~94,0D0, whilc ~ash increased appro~dmateIy Sa_,O00,0O0; and at the same tlme $I7,057,034 ot e~rnhlgs was added to surplus. 2. Your Man~qeme~t has ~epared ~or s~hm~ion at the ~ual M~e~g a p~opos~l ~or a lurther an~ very substantial red~c~oi~ in ~be rate of o~cers' incealive compen~tioa under Article XII of [he By-Lctws. As ct pretlr~nary step, the p~esent P~eside~t c~d Vice Preslden~s have agreed to (~ccept the r~duced l~t~ of hlcent~ve ~ornpens~Hon for i~,50. Th~s ~lounLs io a ~-odueflo~ in ~he President's incentiv~ compensation to~ I950 of crppro:dmately $144,000, or (~ decrec~se of $3% frOlT~ the ~n~ount th~t otherwise wo~Id be p~ble to }nrn under lhe ex~s~ng Axdcle XH, and a r~duct[o~ ~n ~he Incen~v~ compen s,~t~on of each Vice P~s~dent holdinq c~'~ce throughou~ 1950 o~ op~oxi- mately $75,000, or a decr~ctse of 4I% ~rom the caxount th~ otherwise would be ]~y~l~Ie to him under ~e existing ~dcIe ~[L T~ ~opo~I i~ ~et fo~h 5~ de~il in ~h~ l~OX~ ~t~men~ ucc~rap~n~g ~hls ~epo~t 3. Doing lhe coumo of the yeax, ±h~ Management adopted new policies and p~=tices havlnq Io do principally with Advertising and Sal~s. Thes~ included a new adver~sing theme, "BE HAPPY - ~ GO LUCKY," ini~ted in September, ~s~d the eXpansio~l Of [he Cor~pun~'s sale~ orgc~i~</don. ~ARNINGS ConsoI~d~ed net income fe~ 1550 ~t~ ~axes) ~ S3,942A38 lower than in I94~. Before ~res, however, it was $2,397,220 higher than in I949. Not income fox 1950

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amounted to $7,17 per common shaz6, I£ taxes on 1959 income had been computed <xt the rc~t~s that prevailed in 1949 (prior to th~ recent shanges in the F~deral ~ax law~), ne~ income in 1950 woaid have be~n approxlma~ely $8.93 par common share, as Cemlx~red with $7.90 per ¢omrnon share in 1949. SALES Dollar and unit sales hl 1950 were higher thal~ ~n 1949, most 01 ~he increase m doIh~ sales beln~ aftfibutable to hxgh~ ciqc~rette ~rlces. The Company's total uni~ sales of cigarettes continued in 1950 to be the larqem in ~h~ ind~s%z¥, It ~s gr~ztifying to ~eport that, with the im~s~ of o~ ne~ advertising, LUCKY STI~IKE sales appear ~o have resumed an upward trend xu c~ number ot import~l~ markets. Reports in~cat~ that ~n the United States armed services, both her~ a/ad Sales of PAIL MALL Cigct~ettes continued to increase throu~h~ut 1959 at a rate wldsh made th~s brand's performance outstanding in the industry, and definitely e~ned for it fifth pI~c~ among the country's ~aior br~d~. Sales of tIERBEiqT TAREYTO~ Cig~retles also Lncreased nolably, at a rate o1 ga:n almosl c~s lavor~rble a~ th~xt of pALL MALL. Sinc~ ~uly, c~ larger portion al ou~ c~gorette sales h~ts bee~l to the arme~ 1orces, although t~ese sales still repr~nent ~ sm~rll per ~ion of our total output, Sales of our cigars in 1950 increased ~ubmantiaIIy over 1949, Serles o~ the Con~pany's brands al smokin~ tobacco were higher h~ 1999 lhan in 1949. DIVIDENDS The ~or ty-~fix year rscord of uniD~te~r upt ¢~d dividends on the CgDmmon and preferred stock was continued Ln I990, d~wdends having b~en paid on both classes cf stock ever s~nce the Compcmy was incorporated in I994, The dividend on the common stock whtck wil~ be mailed to stockholdets fore.row, consisting of a regular payment of 75 cents per share and ¢~n ~xfr~ dividend o{ $1.00 per share, is the 182nd consecutive ~vldend on this class of stock, The an%ount of dividends p~dd on the c, olnmon stock [s nclturally dependent upon e~aings, out of which such d~v~d~nds are p~id. Be¢~e ot ~¢reased t~es, ~ earinng~ p~r share on the common stock h~ve decreased in 1890. As ~x result, tim dividends paid last y~ar represent ~ larger p~oportion of the earninq~ p~ common share them ~n 1949. 4

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FINANCES Fun£ed debt at December 31, 1350, w('~ $9,694,00l) lower ~an at Dece~e~ 81, I943, while m)te~ pay~]e to b~nks decr~<:sed 97,300,009, or a comh~ed redn~on debt of ~pro::~a~e]y $17,300,030. At the ~c~e time. cash in banks and on hand increased appmxlmateIy $4r00(],000. It iS piercing to report that m I950 youl" Comp<~ny w~s c~)le io impzove ~ts J~nan~icd posidon witho~[ co~respondi~q ~ity finaIzcincJ. TI)/s re£ie~[~ ~n c[ g~'~c(f ~le<:~lre the e[~ect o~ the cons~rv~ive di~dend pollcy w~ h<~ been ~ollowed ~or the p~t severcfl years. Slnkin~ Fun£ requir~me~I~ for ~he Company's v~dous d~benl~e issues wlI] amount to ~p~o~mateJy $10,000,000 i~ 199]. 1~ th~ ~senee of ~h/ ~ncln~, ~'~ucdon in dGbt ~ust con~nu~ to come ~orn ~Gr~nin~s relcdned in he ~u~J~tess INVENTORIES The Company's h~v~lzn~nt in invent~es of lecd b~bacco, man~f~ciurBd stock, ~peratlng ~pplles, etc. ~ Decem~r 31, 1950, fo+x~led $532,679,223 ~orapared with $531,557,888 a~ Decer~ber 31~ I949, an increase of $1,121.337. The Company had to ~y higher prices for the tobacco purcha~sd d~nng the the forese~bI~ future. TAXES J~le hicr e<zse nl nonn~1 Co~por~tG tc~x r~tes C~n~. the ~nc~ctFgenf of C~I excess pTo~ts • tczx h~e aIre~/dy had an e~eet on ~he Company's earni:~s, Fede:~l ~n~ Stogie tax~ Gn income in I950 were equ~xl to $6.93 per common she*re, compar~,d with $5.84 per ~ommon sh~ in 1949. WRITE-DOV~N OF BRANDS, GOOD V~ILL, ETC. In June 1~50 ~he Board of Dkecto~s, in accordanc~ with what has com~ to be r~g~rded c[s i~oclern ~ccountillg pr(~c~ice, authorized th~ red~cdoll to $1 of the item% "Bran6% ~rade-ma~:ks, p~tea~, qoo£ wL[L e~c,," w~ch had beea c~[ed ia the C~m- party's Balanc~ Sheet since 1913 ~t $54,039,431. The a~nount of the %v~te-down h~s 5

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been ~h~w~ed ~g~n~ E~xned Su~ph~s. in the o~m%on el %he Bo~d, the aclua[ ~ainB o{ the brand~ ~ad other intang~51es is I~ grea~er than the 9~re a~ which this item h~ been cani~d. PROPOSED REDUCTION tN INCENTIVE COMPENSATION ~ lh~ Annu~l ~ee~ng ~i ~lockhdider~ held in 19~, u zesolulion subrn~led by the Manaqemeu~ w~s approved, the e~ect of whlch wcs to reduce the rate el inc~nfve compensation Ior the P~esldeut a~d Vice President~, under Article XK of the Corn. pany'~ By-Luw~. ~hi~ ~duc~n was ~p~olied hu c~pt~th~g ~m~:n~ve comloen~5~r~ for the years 19~8 ~nd 1949. Your Direc~or~ hold the vm~, as expresse~ to the ~ochholders i~ my Ieimz o9 Ap~l 18, lSSU, tha~ "the ~ct of the pro~ions of Article X]] ~of o~ Byth~ws> upon the comp~ns~on of o~cers should 5e studied from time to time in the Ik/ht o~ ci2"r er*± CO~.dh[ous." Such u s~udy was i*~it~ated ~unultanec~usly with the election oi diflcers in AI~I 195D, ~nd its conclu~on~ ~ported to ~he B~ard in luly. The mudy has resul~sd in a recommendation by the Boa~d thut Article XII be ~ain rsvise8 downw~d by attend- merit The effect o~ this r evmion vWdl be ~x ~u~ther and very ~tth~tcmt~I reduction in the compen~io~ o~ th~ lop ~xecu~v~ ~ o~ the C~pmny. Det~L~ o~ th~ ~c~rn. mendat~on and its effecL are given in ~he pzo~/ stcd~ment The ~'~du.ctioz~ will be app~ab]e ~o the inceal~ve co~pensa~ion o~ ths ~en~ l~emdent and Vice Presidents ~c~l for ~he pus~ ye~ u~d, on u~p~ by the ~tockh~Ide~, the c~mendrnen~ w~II also be applicable to I9~1 and subsec~nt ye:~. INCREASE IN AUTHORIZED COMMON STOCK In order tha~ th~ Company be in a position to issue ud~tional common share~ i£ 1he occ<~on shsu/d ~Jse, you~ Boazd o[ Dk~c~oz~ h~ prepped a resslutlor* for presen~xtiom al the ~nau~l 1VJ[~ing wtKch, if edop~ed by the s~ockho]ds~s, would i~crec~e the s~/thor~zed c~rnr~on s~ock iror~, sLx rnithon shure£ ~o ten nl~/~ion sh~res. Your ~.'Ic~n~geraelK hc~s me p~es~nt pl~ns to issue ~ddldonQl commo~1 s~oc]~ ht~, L,I order to provide thr any po~siSIe In~e reqz~remems, it is deemed ~d~di/e to inc~esse ~e number o~ Corar~ou sh~r~ authorized. RETIREMENT PLAN At the Annual Meeting of stuckholders on Ap~ii 6, 19~9, the PI~n providin~ ]or ret~nent and disability b~nefi~s for employe~s, which was d~scfthed in the proxy st~d~m~nt tc>~ th~ ye~u, '~as ~pp~ o-~I by app~ ~mm~el¥ $8~ ~i the vo~es c~st ~ th~ Meetinq. 6

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Under the terms of the proposal approved hy the stackholdols, the Phrn bec~e op~xat~ve as of Jonua~y L 1949. Payments ~nade under the Pk~n and charged to income i*~ I~50 ameunte01 to $136,~43. I~ is exp~t~d theft redreme~*ts unde~ the Plan "~ll ~nc~e~e in ~e ye~s ~uheu6 and ~hah ~h~[o:e, the ann~I p~nu~nts chsr yeabl~ to income w~I/ i~creclso acco]'cl[ngly. PERSONNEL Oa Jaausry 16, lSSl, NI~. Vincent Biq~6o. ~fft~r 1oxty-lo~r yea~£ in the service o~ the Company, remred as a D[roctor cm~ ~s Chain~lan of the Board, to which office he had been elected early l~t year. His request for retirern.ent was ~ranI~d by the I~oard with appropriate tribu~e to hls ]onq ~eco~ of ~st~nguish~d service to the Company. In closinq t~ letler, ~ should like, on behalf oI the Board of Directors, t0 express our 0ppr~ci~xtion ~or ~he co0per(lilor~ of ottr employees ~I~td customers and for the eonfinue~ interesl of the ~ornpany's stockl~older~ in the ~t~drs of our Con~psny. PAUL ~4. HAl-IN Pre~Idenl

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1950 OPERATIONS AT A GLANCE THE COMPANY RECEIVED ........ $872,663,000 !:RECEIVED FOR THE GOODS "~ : :~'i ~ IT SOLD illustrated are only ~/~ ~^A i~ few of o.r 200 or mare ": ~ ~ ~Q~'v~'V~v different trade-mc~ked brands /~ : :: -f RECEIV~ ~ E~ D~VID~ i~, :~ ~%~:~.~::. ~. "~ INTEREST AND MISCELLANEOUS~J" ~'~. :: '* , ~l#l,lq¢#U00 THIS |S HOW IT WAS USED OR SET ASIDE: :FOR REVENUE AND TAXES : FOR TOBACCO I ~:OR BOND AND BANK INTEREST ' -FOR DIVIDENDS . TO STOCKHOLDERS EOR ADDITION TO SURPLUS TO MEET FUTURE NEEDS WHICH ACCOUNTS FOR ......... $872,663,000

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CONSOLIDATED STATEMENTS OF INCOME AND EARNED SURPLUS lnck~:Un~ Ameri~,~n C&3ure,~ grid ~qaz C~mp,~nF ,~nd all whollF ~wnod domestic S~[bsidiaries except The Ametic~ Tubacco Cempan7 ~f lhe* O.Ient. ~c. FOR YEARS ENDED DECEMBER 31 1949 SALES, Jess ire[de and cash rJiscomlts, re~rns and cdlowances ........................................... 8871,621,130 ~ $868,~98,089 Cost o~ sales, selH~Lg, general and admin~stra. 1~ve expenses ................................ 78S,004,418 775,720,97Z OPERATING PROFIT ............................ 86,616,714 83,275,1 IT Add: D1vldends and inLerest from subsidiaries not consd~dated he~eb~ (Note t) 793,731 883,$97 Other income ........................................ 279,997 $ 97,659,532 904297 $ 94,36&40I Deducl: Iltteresl, amortizuflcn of discotult ~nd re demption premium on 8% debentures .... 7,950,154 7,529,542 Othor interest and discount ........................ 1,546,694 IA81,945 Provision lot reserves <xgmnsI invesL~lellts in secur£ties ............................ 1,484,304 400,000 portion of net income el American Cig~r~ ette and CIq~ Coznpmly applicable to ~nori~7 interest ...................... 230,(]54 159,690 Other expenses and losses ...................... 422,587 10,934,193 465,705 19,036,282 Income, before state and federal t~es on income ........................ 76,794,~9 74,327,119 Deduct: State income taxes .................. 2,992,990 2,627,000 Feder(~l income t~xes ................. 31,799,0(]0 27,734,000 Federal excess profits tcc{es .............. 2,703,000 97,454,800 -- ~0,361,009 99,270,899 49,956,119 Add, Refund and ~djustme~tt of prior years' federal c~d state t~es mcludL~g ~n~rest, less related expenses ................. 9,46~,877 1,709,085 NET INCOME ....................................... 4L799,716 45,675,154 Deducl, C~h dividend~ on prelerred sleek, $6 per share ............................ 3,I61,982 3,161,982 B~lance ~dded LO ectrned s~rpl~s .......... 59,570,794 49r519,]72 ~o~ed ~urplus, beglnn~ng of year 141,362,483 120,3~9,011 ]79,933,217 162,876,183 Deduct: W~e off of br(xnds~ tzade marks, patents, good wl]], e~c ................................ 54,059,490 " Cash d~/dends on co,rotten stock, $4 per she's .................................................. 21,513,700 75,613,130 21,,513,700 21,513,700 E~RNED SURPLUS, end of year (Note 2) .... $104,~20r087 $141r362,489 Depreciuflon provided ~nd ch~rqed to costs ¢~nd expenses ~moun~ed ~o $Z,901,944 in 1950 and $2,800,5I~ in 1949. The notes ref~zTed to above Gre (Ys integr~/l l~xrL oi these stcternen~s.

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CONSOLIDATED BALANCE SHEETS Includlng American C~garetfe and Cigar Company and all wholly owned domest*c subsldiades ~xcept The American Tobacco Compcmy o~ the Orient, Lnc, ASSETS 1950 DemcQ~d deposi~ k~ b~k~ and cash on hand .................. $ 22A56,72I Accounts receivable, customers ............. 59,703,550 M/scellaneous accounts receivable ......................... 762,946 Leaf tobacco, manufactured stock, opera%h%~ supplies, e[c., at cwezage cosl ........................ 532,679,225 Cash on deposit v~th sinking tund trustees ~or redemption of debentures ...................................... 560,073 I/eceivable~ from unconsolidated subsidlar~es .................. 83,794 Totrtl current aa~eis .................................... 593,028,~07 Hece*vables f~om uncon~lldated subsidiaries (including in 1950, $58L214; 1£49, $581,288 from French subsidiary) ................. 2,881,214 Inveslments Jn s~urifies of sub~ldiades not consolidated ~erein, ¢~ amounts not in excess of co~t (includes $5,400,009 in wholIy owned British subsidiary) (Note 3) ................................. 12,848,011 Insurance deposits c~d miscellcmeous investments ........... 1,919,786 Benl esto[e, mochiltery, fixtures, etc., at cost, less aIlowc~nce for d~precicrtion, 1950, $28,616,923; 1949r $27,I94,023 43,746.796 Prepaid expenses and deferred eh~xges .................. 2,083,342 Brands, trade rnu~ks, patent~, good will, etc. 1~4Q $ i7,949,456 33,127,991 544,14.5 531,557,886 459,777 122A80 583,781,695 3,581,299 14,090,03I 2,23t,8~1 43,506,609 8,344,928 54,099,431 S657,405,457 $704,9D5,823 10 The netes referred to above are an inlegrcd part of these statements.

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A5 OF DECEMBER 31 LIABILITIES Notes payable to b~fl{s ................. Accounts payable ............................. Dividemd on preferred stock for quarter ended December 31 Accraed inter e~t ........................ ~.cc~ued taxes .......................................... 2~dverfis~ng (xnd other ¢tccr~.ed expenses .......................................... Debentures to he redeemed throuqh sinking fund Oloeradons (Note 4) .............................................. Four per cent bonds ~atufinq August 1, 1951 ........ Paycrbles to unconso~dated subrAdic~ries ........................... ~950 1949 $ 7&00O,000 $ 80,000,000 5,808,&56 4,265,039 790,496 790,496 992,254 1,034,091 39,9~L975 84,905,749 1,816,710 2,056,319 9,891,000 9,694,000 831,250 301,522 185,959 Total current ]iablHtles ....................................... I33,373,663 Three per cent debentures (Note ¢] ............ 215,653,000 Four pe~ cent bonds matuxJng August 1, 1951 Minority interest m American Cigc~rette and Cigar Company ..... CAPITAL Capitcd s±ock (Note 5): P~eferred, six pe~ cen~ cumu]~tlve, pax value $I00 per sh~re Common, par v~]u~ $25 per share .................... Excess e~ net pToceeds ~rern scrle of common steel{ ove~ p~]: v~Iu.e Earned surplus (Note 2] ............................................. 104,320,087 314,398,828 Less, Treasury stock, at cost (93,713 sha~es oi common stock] 7,007,060 Total capital and ~urpfus, less tre~tsury stock .... 307,391,768 $657,405,457 132,931,653 22s,s4&0eo 831,250 349,026,663 369,3(]6,903 987,026 884,758 52,699,700 52,699,700 136,803,450 136,803,450 20,575,591 20,575,591 210,078,74I 210,078,741 141,362,483 351,44L224 7,007,080 344,4~4,1B4 $704,605,823 The notes relerred to above are ¢~n integral part of these stutements. 11

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NOTES ACCOMPANYING FINANCIAL STATEMENTS 1. The eq~dty in the earnings of unconsolidated ~ubsidlaries <excluding the French subsidlary> ~mounted to $1,711,405 and $1,275,587 to~ 1950 and 1949, ,esp~cdvely. 2. Under the pro~/mions of the indenture relating to the Twenty Year 3% Debentures, du9 J~nuary L I968, cnsh divld~nd~ declazed an common stocks and payments m~de in pur chaslng ~hares of any class of the Company's s~ock eubsequont to December ~l, 1947, may • not exceed the aggregate of $15,~00,008 and consolidated net ~ncome earned ~ubaequent to Decen~ber 3], ]947, less divid~nd~ paid on preferred stock. At December 31, 1950, approximamly $73,800,000 of earned surplus was free of this restnc~on. 3. The net tangible ~ts ~pp][o~ble ~o the investment in unconsolidated subsidiaries at December 31, 1950, ~excluding the net usset~ ~ the F~ench subsidiary, whlch inwstm~nt sub~/diary translated ~nto dollars ~ appro~ia~e rates o~ exchange. 4. Tlnee per ~ent debsntm'os outstanding at Decembez 31, 1950. compose: l~xSngi~a] Am~tm~ Redeemable I~ede~mc~bi~ ~r wlddn ~e year~ December 3L 1951 Tweniy year, d~/e April 15, I~$2 ............. $%673,00D $ 70,~31,050 Twe~ky y~c~r, due ]'~nuary I, IS88 ................ 3,(J00,ODO 88,900,000 Twenty five yea[, due October i~, ISS9 ............ 3,21~,[J[30 7S,~Z2,O00 $9,851,000 $21,5,SSS,000 • Estimaled p~ncipal amount to b~ redeemed through sinking ~und opszations at l:~ce~ as providad by the indentures. S. Capital stock at December ~i, 1950 comprises; Im C~m~c.n/~ Authorized r~ued ]~easuvF Preferred ..................... 540,105 528,997 None Common .................... 6,000,000 5,~72,138 93,713 12

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The President, the Board of Directors and Stoc~hold~rs of T~ .~_~E~CAN TOBACCO COMpANY~ 111 Fifth Avenue, Hew ~for~ 3, New Yo£~. We ]~c~ve ~c~mined the ¢onso~dc~ted ~o~]~3.ce shee~ o~ T~IE ~.I~E~CAN '~OB~CO Colv~p~,~y ~r the year then ended. The ~Ilc~al stat~rn~r~ts of American Cigareite and Ci~r Comp~m¥, a co~solidat~. ~bsi~ia~y, w~re ezxamined by ofl~a" ~nd~pendent c~f~ed public ~ccount~nt~. Our ~xaminc~[~on ~v~s n~a~ in a~cord~nc~ Wi~. ~e~erc~lIy c~c~pt~d ~ud~g s~nd~s, and accorclinqly included such te~ts o~ the accounting r~cord~ of ~e companle~ ~except American Ci~'~:~e~t ~ and Ciga~ Company~ and such other ~udi~mg p_~c~res a~ w~ cons~c~e~'ed necessary i~ the clrcu~u~tccnc~. We rn~d~ ~ ~mi]ar examination for [he year ]949. ~n o~ o~L~on, h~s~d u~on o~r ex~t~ons a~d upo~ t,~e ze~ort~ o~ other ind~pen~e~t cer ti~i~d pu~][~ ~cco~ni~.~, t]~ ~conl]~c~uyi~ bc~[~nc~ ~he~t~ cried rektt~d ~tat~e~B ~ incense ca~ ~c~e~ ~]~.~ ~e~ ~ ~-,~ ~o~d~c~ ~. ~ The ~ra~ ~c'~ T~c~ C~m~y and the subsld~rie~ finclu~led therein ~ of Dec~ 31, 1950 and ~949, and the consol~cl~ed re~ult~ o~ the~" opez*c~t~o~ for th~ y~a~s ~heu ~nde~, in con~o~mi~ wI~h gel~rall~ accepted Ly]~ND, ROSS ~ROS~ ~ MONTGO~Y New Yozk, February 6, 1951. 13

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CONSOLIDATED STATEMENTS OF INCOME FOR YEARS ENDED DECIMB~R ~1 1950 NET ~ALE~ ........................ $871,621 Cost of sales ............................ 785,004 OPEBAT1NG PI~OFIT .............. 86,617 Add: Other Income, less od1~z ex- penses ..................... I,(295" 85,522 Deduct: Interest, discount and pre- mium ............................ 6,797 Income before taxes on income 76,725 Ded'act: T~x~s o~ inc~e ...... 37,454 39,271 Ad~: P~[o~ yea~s' ter~ a~i~umments, net .................................... 2,462 NET INCOME far the year ...... 41,733 DrV~,I~DS pAiD: P~eferred ............................... 3,182 Common ................................ 21,614 24,676 Pori]on o~ net income invesle~ in ~ssets used hl the b~ainess ¢~nd to provide fo: debentu.re sinking fund z~quirement~ .................... • Doduc~m IIn "~hou~ uu4s) 194~ [ 1948 i~1~47 i 1946 $656,6~6 ' $873A67 i $816,661 $764,167 77~,721 79zL127 757,376 709,463 --i 83,276 79,340 62,265 5'L764 62 tOO" t ~g 34,4 8~,337 79,240 62,940 55,108 9,010 8,716 7,356 6,812 74,627 70,524 55,584 48,296 ~£,36[ 24,~5Z 22,4&5 19,567 43,966 42,172 33,I39 28259 1,709 1,740 708 1,I27 45,676 43,912 33,845 29,88~ 8,162 6,162 3,I62 3,162 21,514 ~0,169 17,704 I4,567 24,678 23,331 20,866 17,729 $ 17,057 $ 20,999 ~ $ 2068I $ 12,979 $ 12,157 14

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CONSOLIDATED BALANCE AS OF DECEMBER 31 SHEETS ASSET5 C~sh ................................... $ 32,157 $ 17,949 Accounts receivable ................... 36,783 83,128 inventories ......................... 532,679 55L558 Other current cossets ............ 1,407 1,227 Total current assets $33,028 ~55,762 567,883 537,872 Inve~tmer#~ in u~con~o][dcrted s~- sid~arles .................... 13r848 14,080 I4,446 14,$56 Other receivables ~nd investments 4,80I 5,513 4,873 3,913 Plant <~nd equipmeat--net ........... 43,747 $3,507 41,859 32~847 ~rel~ald expense~, etc .................. 2,~3 3,~5 3,5~5 3/*~ Brands, h~clde-marks, etc ........ 54,099 54*099 54,099 Toted a~sets ............ $857,405 $704,606 $686,675 r $646,754 (In T~o~a:a~m) 1948 1947 194~ $ 16,176 $ I9,505 $ 17,821 36,548 35,I30 27,919 5~4,958 483,]$3 407,0~4 20I t04 703 452,462 15,284 &609 22,583 5,4~2 54,099 $552,~ LIABILITIES AND CAPITAL Notos potable ..................... S 73,000 Accounts p~/~b ]e .................. Accx'tted lc~xes ..................... Funcled d~ht due within one yecrr Othe~ ~uz~:ent ticchi[~tte~ .............. Total current ~iabilities .... l~un~ed deh~ ..................... Defen'ed income ................... Minority interest ................... cap~l ................................ Earned surplus ..................... Treasury stock (deducllon~ ..... T~;t~rl ]iabiI~fie~ c~nd caplt~] $ 80,000 $ 75,000 $122,500 $ 85,000 5,808 4,~65 8,517 9,043 ~1,332 39,942 34,906 34,9~9 30,328 37,989 10,722 9,6£4 9,21i 6,057 6,~45 5,90t 4,057 ~,71O 4,649 4,~08 [33,573 I32,932 125,387 172,577 134,774 215,653 256,375 236,069 170r$08 176,9~3 .... 105 987 865 784 715 799 Zl[~r(]7£ Z&Q,07£ 2[0,079 2[0,079 171,9~97 104,320 141,382 120,363 99,782 86,503 (7,007) (7,007) (7,007) (7,007) (18,178) $657,405 $704,606 $685,675 $646,754 $552,529 15

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