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PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER From the Nebraska State Medical Journal: "... Lot us not tell then they are going to get lung cancer on the basis of ciga. retie smoking. Such a course might save us very red faces in the near future." From an article in Fortune Magazine on "The Science of Statistics": "Basic physiological investigations must now take over. The only way to prove that smoking causes lung cancer is to per- form scientific experiments that would prove the existence of a biological mechanism." From a Life Magazine article on the Sur- geon General's Report: "The report and its conclusions are al- ready being challenged by scientists as eminent as any on the Surgeon Gen- eral's Committee. These critics.., have pointed out that the incriminating sta- tistics have never been backed up by conclusive laboratory proof-lung cancer has never been induced in any experi- mental animal by the inhalation of ciga- ret smoke alone." Before we leave this subject, let us look briefly at the other side of the coin. There must be very good reason.~-reasons deep- rooted in human needs and wants-why 65,000,000 Americans, representing more than half our adult population, smoke cigarettes regularly. Let me illustrate this with a little news item which ap- peared in the press last December. This item was headlined "Navy's No-Smoking Test Turns to Ashes in 3 Days." It read as follows: "The nerves of 15 sailors ordered to stop smoking for eight days became so frayed that the test was halted after three days, Lewis D. Gilbert ,%muel Go/dbladt Albert Goldstein 11 MNAT00415051

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Navy psychologist Benjamin B. Wey- brew reported today. "The smokers in the test got irritable, ate too much, had trouble sleeping and per- sonal relationships began to deteriorate. "Dr. Weybrew said the 'psychological contagion' spread to nonsmoking sailors and 'there was a danger of impairing the efficiency of the crew.' The test was held aboard the Triton while the nation's largest nuclear sub was on a six-month global crui~ in 1960." Fortunately the great contribution made by tobacco to our daily lile-which has always been self-evident to me-is also self-evident to objective seientists and medical men. In the Annual Report we quoted a statement from the American Medical A.~sociation which is worthy of repetition here. Said the A.M.A.: "Since smoking may produce a tranqui- lizing otlect as well as other favorable psychic reactions not so well identified, these factors need further study in evalu- ating the whole matter..." I may turn out to be a poor prophet, but perhaps we may begin to hear more of the good effects of our product than some of our anti-tobacco campaigners would like. My report to you today would not be complete without reference to a series of positive steps the present management has taken to underline and reaffirm a policy and position we have always held. We believe smoking is a form of enjoy- ment for adults. We have no interest in promoting tobacco use among young- 12 stem. For many years we have taken special pains to see that our advertising copy and our advertising illustrations are consistent with this position. Early last June I instructed our sales organization to discontinue all advertising in college publications and all campus promotion so that there could be no possible mis- understanding of our position either by the general public or by critics of to- bacco. Later that month several other tobacco companies made similar an- nouncements through The Tobacco Institute. In August of last year we terminated the employment of our last remaining sports figure as a commercial announcer. We did this with regret because Frank Gif- ford, the great halfback oI the New York Giants Football Team, is a fine young man. However, we believe it to be in the best interests of the Company to lean over backwards, if need be, to demon- strate that we have no wish to appeal to youth in our promotion. In that same month we stated categorically in Lvcgv SvRIgv. advertising that "smok- ing is a pleasure meant for adults," and while our attempt to separate the men from the boys was criticized by some we received favorable comment.s from men of good will who appreciated what we were trying to do. Three months ago we announced that we would undertake no new commitments to sponsor sports pro. grams on radio and televlsion-again, to avoid even the appearance of directing our advertising to minors. I am not going to criticize an), of our competitors for MNAT004150>2

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER their advertising practices in this area, but I will say to you that the present management of The American Tobacco Company is determined to promote its brands with clean hands. As to the immediate state of our busi- ness, I bring you good news. While our January dollar sales were down, Febru- ary sales showed a distinct improvement. For the first 28 days of March unit ciga- rette sales, unit cigar sales and consoli- dated dollar sales were higher than for the comparable period in 1963. We do not have final March figures, but it is certain that dollar sales for the full month will be substantially higher than March 1963. Net income figures for the first quarter will not be available until later this month. The trend of our business is such, however, that I would hope and expect these figures will not be far below last year's for the same period, even though our advertising expen.~s in the first quar- ter of 1964 will be higher than for any other quarter in the Company's history. As you know, we are now promoting five major cigarette brands on a national basis, as compared with four last year. One reason for our good showing in this quarter is the fact that our new Cigarette is requiring less advertising expenditure than we had anticipated. CARLTON was so well received by the press that a demand for the brand ex- isted even before we had distribution or paid advertising. While it would be pre. mature for me to make any predictions, it does appear thus far that in CARLTON We have the right product at, the right time. It is a product which literally sells on sight, and in fact our ~lllng theme for C^RLTON Cigarettes is the simple Matilda Clickman Joseph d. Hack John Campbell Henry 13 MNAT00415053

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Edward J. Maguire I)r. Samuel Moskou,itz Evelyn Springlc phrase "See for Yourself." Ladies and gentlemen, I want to express on behalf of my associates and myself our thanks for the very real support and encouragement we have received from the stockholders. We have our share of challenges and problems in this compli- cated age, and we are doing our best to meet these problems so as to serve the best interests of the Company and the stockholders. We know today's problemg must be met with hard work. We know we cannot afford to stand still for a mo- ment. I assure you we are not going to stand still-we intend to move forward. Election of Direclors The following directors were elected: Orpheus D. Baxalys, Alfred F. Bowdcn, James J. Cunningham, A. Gordon Find- lay, John G. Hager, Jr., Virgil D. Hagcr, Hiram R. Hanmer, Robert K. Heimann, A. LeRoy Jan.~on, Eugene F. Mooney, John B. Sparrow, Silas E. Strickland, George L. Turner, Robert B. Walker, Joseph R. Waterhouse, George A. Wil- kin.qon and William B. Young. Action on Proposals Proposal One to elect Lybrand, Ross Bros. & Montgomery independent audi- tors for the Company for 1964, recom- mended by management, was adopted. 29,019,050 votes were east by the stock- holders "For" and 41,608 "Against" thc Proposal. Proposal Two to amend the Certificate of :Incorporation, recommended by man- agement, was adopted. 451,609 shares of preferred stock, being more than two- thirds in interest of the preferred stock out-standing, and 20,134,272 shares of 14 MNAT00415054

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Adele L. St~nton common stock, being more than two- thirds in interest of the common stock outstanding, were voted "For" Proposal Two. 1,696 shares of preferred stock and 90,076 shares of common stock were voted "Against" the Proposal. Proposal Three to provide for cumulative voting, introduced by Lewis D. Gilbert, John J. Gilbert and John Campbell Henry, was defeated. 25,943,543 votes were cast "Against" and 1,429,891 "For" the Proposal, or 5.22~. of the stock voted. Financial Reports Mr. Batzer of the firm of Lybrand, Ross Bros. & Montgomery read to the meet- ing the report of the independent audi- tors for the year 1963. The report stated that, as in prior years, the accountants had reviewed or tested accounting pro- cedures and evaluated the systems of internal control of the Company and its subsidiaries and that, in their opinion, the accounting procedures and systems of internal control are, in all material respects, adequate and appropriate to the needs of the business. The report described the procedures followed by the accountant~ in substantiating accounts receivable and inventories, indicating that (a) tesL~ and reviews were made as to cash collections recorded in cus- tomers' accounts which showed that the Company's customers are paying their accounts substantially in accordance with the credit terms granted by the Company; and (b) inventories were priced at costs determined by the aver- aging of the transactions reflected by the inventories in the accounts and the costs were computed by procedures consistent with those employed for man3' years, as MNAT00415055

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER approved by the United States Treasury for tax purposes. The Annual Report of the Company's operations for the year ended Deeember 31, 1963, a copy of which had been mailed to each stockholder of record, was pre- sented to the meeting by the Secretary. Discussion Sherman M. Ancier, Philip Appelbaum, John F. Astbury, Thomas V. Brosnahan, Lewis D. Gilbert, Matilda Glickman, Samuel Goldbladt, Albert Goldstein, Joseph J. Hack, John Campbell Henry, Edward J. Maguire, Dr. Samuel Mosko- witz, Stella Phillips, Evelyn Springle, Adele L. Stanton, Eleanor M. Summers, Joseph W. Szczech, Arthur L. Valen- tine, Dr. Frederic C, Willson and Paul D. Wolfe participated in the di~ussion with questions, comments and sugges- tions. In response to questions about the Com- pany's auditing procedures, Mr. Walkcr gave the following information to share- holders. The Company's accounting rec- ords permit management to make in- formed decisions. Regarding recommen- dations made by the independent public auditors, Mr. Jansen, Executive Vice President, recalled only one instance, in over a period of almost thirty years, in which independent public accountants recommended a change in our account- ing procedures. ]n that instance, the recommendation was examined by man- agement and the change was instituted promptly. 16 As to inventory control, Mr. Walker stated that the Company counts all of its hogsheads of tobacco at least twice a year and the independent auditors also count a substantial portion of the total inventory. In a discu~ion on cumulative voting, Mr. Gilbert stated why he favored it. Mi~ Stanton spoke against cumulative voting, while Miss Phillips favored it. The following is a summary of other subjects that were brought out in the general discussion period. As to directors, the Company's by-laws provide for regular meetings of the di- rectors on Tue,~iay of each week; the), also meet informally each day at lunch- con, and formal business is usually con- ducted on the last Tuesday of each month. Last year there were 16 meetings of the Board at which formal business was transacted and at least 9 members of the Board, usually more, attended each meeting. Two members of the Board -John G. Hager, Jr., and Virgil D. Hager -are brothers. The Company does not reveal its adver- tlsing expenditures because of competi- tive reasons; however, advertising ex- penses in 1963 were approximately 20% higher than in 1962. The various media used by the Company are carefully eval- uated on a continuing basis. It would not be useful for the Company to list its tele- vision shows in the Annual Report be. cause the television sea~n ends three months after the Annual Report is i~ued and new shows are purcha~d which be- gin in the fall. MNAT00415056

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Arthur L. Valentine Dr. Samuel Moskowitz stated that the Federal Trade Commission's attempt to force cigarette manufacturers to label their cigarettes as "harmful to health" is unwarranted. He emphasized that statistical correla- tion is not proof of causal relationship between cigarette smoking and lung cancer, and said he was astounded that the Surgeon General and his Advi~ry Committee were taken in by such studies. In the absence of laboratory or other positive evidence, there may be no relationship between smoking and lung cancer, he said. Havirig used statistical calculations in his own work, he realized that one can pretty much determine what one wants to prove in advance and then go ahead and prove it with statistics. Mr. Gilbert read to the meeting excerpts from editorials appearing in the Abing- don, Pennsylvania, Journal of January Dr. Frederic C. Willson Paul D. Wol[e 23 and 30, 1964, which discussed throat cancer and noted that man.u-heavy smokers pass the age of 90 while many nonsmokers contract throat cancer at an early age. The Corapany currently has eight lung cancer lawsuits pending. One of them is on appeal to the Supreme Court; lhe other ~ven are in a pre-trial stage. Brief di~ussions of Company products di~losed that the Company packages it.~ filter cigarettes with the filters at the top of the package becau~ consumer re- search surveys indicate that this packing is preferred by most filter smokers. ROI.TAN is the nation's largest-selling 10¢ cigar and the Company is working to improve the brand's distribution east of the Mississippi. First shipments of new ROI-TAN Little Cigars, with filters, were made eight to ten days before the meet- ing. Cigars are profitable to the Company. 17 MNAT00415057

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER After close of meeting, stockholders rush to stage to visit Mr. Walker and directors. 18 On leaf tobacco, the Company's inven- tory was le~s at the end of 1963 than the end of 1962 partly because the Burley auction markets closed earlier last year than usual. Currently, the Company's leaf tobacco inventory is about the ~mc or slightly below what it was this time last year. Other information given during the dis- cussion period included: Federal and other taxes on Company income, as stated in the Annual Report, amount to more than 52% because of the inclusion of state and local taxes; the action at the meeting on the charter amendment puts the Company in a position to purcha~ shares of its own common stock and, if it should decide to do so, purcha~s would probably be made on the open market; from the end of 1963 to the date of the Annual Meeting, the market price of the Company's common stock increa,~d by 16%, compared with an average gain of about 5% for other major tobacco com- panies, and about 7% in the Dew Jones Industrial averages; most of the income received by the Company trom Gallahcr Ltd. in 1963 was tax free bccau~ British lax had already been collected on Galls- her's income. One stockholder expres.scd objection to use of animals in scientific experimentation. During the course of the meeting, and at its close, several stockholders compli- mented the Company on its recent prog. ress and commended the Chairman for an informative and pleasant meeting. MNAT00415058

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PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER y OUR COMPANY'S PRINCIPAL PRODUCTS which make your dividends possible... Cigarettes PALL MALL LUCKY STRIKE TAREYTON (with activated charcoal filter) CARLTON MONTCLAIR HERBERT TAREYTON Cigars ROI-TAN ANTONIO v CLEOPATRA LA CORONA BOCK v CA. CABAlqAS Smoking tobaccos HALF AND HALF BLUE BOAR GENUINE "BULL" DURHAM 150 East 42nd Street, New York, N. ~'. 10017 PrJntcd |n U. S. A. MNAT00415060