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Plan Investments Employer contributions are paid to the Trustee of the American Brands, Inc. Master Defined Contribution Plan Trust. The Northern Trust Company is the Trustee. The contributions are invested in five investment funds available through the trust, including the American Stock Fund which invests principally in Company Common Stock, an equity fund, a diversified fund, a government securities fund and a short-term investment fund. The portion of each annual Company profit-sharing contribution apportioned to each member is allocated among investment funds as the member may elect. The member may make such election as follows: (a) 30% to the American Stock Fund and 70% in 10% increments in any of the investment funds or (b) entirely to the short-term investment fund. A member may also elect once within any three-month period to transfer up to 25% of the balance held in any investment fund to any other of such funds. Apportionment of Contributions to Members Contributions of the Company are apportioned to Plan members on the basis of each member's Adjusted Earnings for the year in relation to the Adjusted Earnings of all members. "Adjusted Earnings" means earnings for that year plus 50% of such earnings in excess of the Social Security wage base ($60,600 for 1994). Distributions and Withdrawals A member's balances in the Profit-Sharing Plan arising from employer contributions become distributable upon termination of employment. In case of retirement, death, disability or termination without fault (or upon partial or complete termination of the Plan) the full amount is distributable. In the case of any other termination, the full amount is distributable if the member has completed five years of service but is forfeited if the member has not completed five years of service. Distribution is made by such method of settlement--a single distribution in cash or partly in cash and partly in Company Common Stock, or periodic cash installmentsDas the member may elect. Tax Deferred and Matching Contributions An eligible employee may direct the Company to make a payroll deduction from his earnings in amounts of from 1% to 3% and that such amounts be contributed to the Plan as a tax deferred contribution. The Company currently contributes out of its net income before taxes for each year an amount equal to the employee's tax deferred contributions, but not in excess of 50% of the Internal Revenue Code limit on tax deferred contributions (the limit for 1994 is $9,240). The amount of tax deferred contributions and matching contributions are subject to certain limitations required by the Internal Revenue Code which are set forth in the Plan (see "Statutory Limitations" below). In the event tax deferred contributions of an employee are reduced because of these limitations, the amount of matching contributions for such employee will be proportionally reduced. No matching contribution may be made for any year (a) in which a cash dividend shall not have been paid on the Common Stock of the Company or (b) in excess of the amount deductible for such year by the Company for federal income tax purposes. Also, absent the amendments, no matching contribution will be made for any year for which net income before taxes shall not have equaled or exceeded 12% of net worth for such year. Tax deferred contributions and matching contributions will be nonforfeitable at all times. Each employee may invest his tax deferred contributions in 10% increments in any one or more of the investment funds. Not more often than once in any calendar quarter, an employee may change his investment option. Matching contributions for years from and after 1990 are invested entirely in the American Stock Fund. 42

Voluntary After-Tax Deposits In addition to receiving Company contributions and tax-deferred and matching contributions, the Plan Trustee is authorized to accept voluntary after-tax deposits from members. Any eligible member may become a depositor by electing to make deposits of his own funds by payroll deductions in amounts not exceeding 10% of his base pay for the pay period. Each depositor has the same options for investment of his deposits as he has with respect to investment of tax-deferred contributions. Other Provisions The Plan is also permitted to receive a transfer or rollover of an employee's balance from a tax qualified plan of a predecessor employer. In addition, subject to certain statutory limitations, Plan members may also take loans from their Plan account balances which are repaid by payroll deduction. Statutory Limitations The Plan contains contribution limits in order to meet the requirements of the Internal Revenue Code. The annual amount of tax deferred contributions that may be made by a member is limited to a fixed dollar amount ($9,240 for 1994). The Internal Revenue Code also limits the amount of tax deferred contributions and after-tax contributions by highly compensated employees (as defined in the Internal Revenue Code) to a multiple of such contributions made by non-highly compensated employees. In addition, the Internal Revenue Code limits annual additions to the Profit-Sharing Plan to the lesser of $~30,000 or 25% of compensation and provides that Profit-Sharing Plan contributions cannot be based on compensation in excess of a fixed dollar amount ($150,000 for 1994). Supplemental Retirement Plan The Company's Supplemental Retirement Plan contains a supplemental profit-sharing feature. The Supplemental Retirement Plan provides "highly compensated employees" (as defined in the Internal Revenue Code) with a benefit equal to the amounts that cannot be contributed to the Profit- Sharing Plan because of the Internal Revenue Code limit on annual additions to the lesser of $~30,000 or 25% of compensation. The Supplemental Retirement Plan also provides "executive participants" (employees holding the oi~ce of Vice President or a senior office) with supplemental profit-sharing amounts equal to the difference between the amount contributed under the Profit-Sharing Plan and the amount that would have been contributed thereunder if the $150,000 limit on compensation was not included therein. Thus, if the proposed amendments are adopted and result in an increase or decrease of the Company's contribution to the Profit-Sharing Plan, the supplemental profit-sharing amounts under the Supplemental Retirement Plan will correspondingly increase or decrease. Summary of Proposed Amendments Under the Profit-Sharing Plan as now in effect, the Company contributes a sum equal to one-sixth of 1% of "net income before taxes" as a profit-sharing contribution, provided that (a) net income before taxes equals or exceeds 12% of net worth of the Company and its consolidated subsidiaries for such year and (b) a cash dividend on the Common Stock of the Company has been paid in such year. In order to conform to the changes in the Company's executive incentive compensation program described under Item 5 above, it is proposed that the Profit-Sharing Plan be amended in order to replace "net income before taxes" with "adjusted income from continuing operations", and eliminate the net worth percentage threshold required before Company contributions are permitted under the Plan. As noted above under Item 5, the Board considers "adjusted income from continuing operations" to be a more appropriate measure of Company performance for purposes of determining Company contributions under the Profit-Sharing Plan in that it is designed to better reflect the normal results of operations of a given year exclusive of unusual or extraordinary items. The Board has

approved a similar amendment, subject to approval of the stockholders, to the executive incentive compensation program set forth in Article XlI of the By-laws of the Company, and believes that a consistent basis for determining executive incentive compensation under Article XII and profit- sharing for employees generally under the Profit-Sharing Plan is desirable. The Company's "adjusted income from continuing operations" would be its income from continuing operations before income taxes adjusted by (i) excluding the dedurti6n for contributions under the Plan, (ii) excluding unrealized gains and losses on securities, and adjusting realized gains and losses on trading securities to reflect cost, (iii) excluding restructuring charges or credits, and charges for impaired assets other than those sold in the ordinary course of business, (iv) including the results of operations for such year from businesses classified as discontinued operations prior to disposition and (v) to the extent not adjusted pursuant to items (ii), (iii) or (iv), excluding gains or losses included in continuing operations resulting from the sale or writedown of intangible assets, land or buildings, investments in business units and securities resulting from the sale of business units. "Adjusted income from continuing operations" as well as the actual amount contributed each year would continue to be certified by the independent accountants who have audited the Company's books and certified its consolidated financial statements for the year in question. The Company's profit- sharing contribution for 1993, based on one-sixth of 1% of "net income before taxes", was $1,562,400, while the Company's profit-sharing contribution for 1993, based on one-sixth of 1% of "adjusted income from continuing operations", would have been $1,861,942. The Board is also recommending the elimination of the condition that net income before taxes equal or exceed 12% of net worth before profit-sharing contributions may be made. The limitation has never had applicability in the past, is not typical in competitive practice and the Board does not believe that profit-sharing contributions should be absolutely precluded for a year in which this condition is not met. The following table shows actual amounts that were contributed under the Plan as currently in effect, and amounts that would have been contributed under the Plan, as amended, for the 1993 plan year on behalf of each of the three most highly compensated executive officers, and on behalf of all current executive officers of the Company as a group, and all employees of the Company (including all current officers who are not executive officers) as a group. Messrs. Househam and Humphrey and current directors of the Company who are not executive officers of the Company are not eligible to have contributions made on their behalf either under the Plan as currently in effect or under the Plan as proposed to be amended. NEW PLAN BENEFITS Name and Position William J. Alley $165,685 Chairman of the Board and Chief Executive Ol~cer Thomas C. Hays 92,707 President and Chief Operating Ot~cer Arnold Henson 77,799 Executive Vice President and Chief Operating Officer Executive Group 626,292 Employees including Non-Executive Officers 936,108 (1) Includes supplemental profit-sharing amounts. Present Plan (1) Proposed Plan (1) $ 197,450 110,480 92,714 746,363 1,115,579 44

If the proposed amendments are not approved, the Profit-Sharing Plan will continue in accordance with its current terms. Resolution Constituting Item 6 The resolution (designated herein as Item 6) to approve the amendments to the Profit-Sharing -- Plan is as follows: "RESOLVED, that, as conditionally adopted by the Board of Directors, the amendments to the Profit-Sharing Plan of American Brands, Inc. described in the proxy statement accompanying the notice of this Annual Meeting, be and they are hereby approved effective as of January 1, 1994." The Board of Directors recommends that you vote FOR Item 6. Item 7 RESOLUTION REQUESTING ELIMINATION OF ELECTION OF DIRECTORS BY CLASSES PROPOSED BY TWO STOCKHOLDERS The Company is informed that John J. Gilbert, whose address is 1165 Park Avenue, New York, New York 10128-1210, a record holder of 400 shares of Common Stock and claiming an additional family interest of 2,000 shares, and/or John C. Henry, a record holder of 12,800 shares of Common Stock, whose address is 5 East 93rd Street, New York, New York 10128, intend to introduce at the Annual Meeting the following resolution (designated herein as Item 7): "RESOLVED: That the stockholders of American Brands, Inc., assembled in annual meeting in person and by proxy, hereby request that the Board of Directors take the steps needed to provide that at future elections of directors new directors be elected annually and not by classes, as is now provided, and that on expiration of present terms of directors their subsequent election shall be on an annual basis." The proponents have furnished the following statement setting forth the reasons advanced by them in support of their proposal: "Continued strong support along the lines we suggest were shown at the last annual meeting when 32.57%, 5,111 owners of 55,920,387 shares, were cast in favor of this proposal. The vote against included 14,294 unmarked proxies. "LAC Minerals Ltd., Interco, Chemical Banking Corporation and Commonwealth Edison Company of Chicago are among the latest companies to end their stagger system of electing directors. In 1992 we withdrew our resolution on the subject at Westinghouse after they agreed to end their stagger system of electing directors. Chemical Bank's management, to its credit, voluntarily ended theirs without a resolution. "In the 1990 proxy statement of Kmart Corporation, the State Board of Administration of Florida, pointed out: 'We disagree with management's usual argument favoring classified boards--that they provide stability and continuity. Stability and continuity are fine in the abstract, but may not be in the best interest of shareholders depending upon the management practices which are being continued. We also disagree with management's other standard argument favoring classified boards, that they are necessary to protect shareholders from abusive takeover tactics. We believe that broad anti-takeover defenses such as classified boards can serve as entrenchment devices which discourage all take-over attempts, both good and bad. Finally, we belie~,e that by eliminating the market for corporate control as a disciplinary check on management actions, classified boards can have a negative impact on ongoing company performance. 45

In our view, the classified board is contrary to the long-term interests of all shareholders by not providing that directors be accountable on an annual basis. Accordingly, we urge your support for the proposal which recommends that the Board of Directors take the necessary steps to repeal the classified board and institute annual election of directors.' "If you agree, please mark your proxy for this resolution; otherwise it is automatically cast against it, unless you have marked to abstain." Board of Directors Statement on Item 7 Under the corporate law of Delaware, the State in which the Company is incorporated, the change contemplated by the proposal would require an amendment to the Company's Certificate of Incorporation which must first be approved by the Board of Directors and then submitted to a vote of the stockholders. A vote in favor of Item 7, therefore, would constitute a request that the Board initiate this amendment. The Board does not believe, however, that such an amendment would be in the best interests of the Company or its stockholders. In 1986, the stockholders approved an amendment to the Company's Certificate of Incorporation to provide for the current division of the Board by class, with one class elected each year for a three- year term. Fully 86.9% of the votes cast with respect to that proposal were cast in its favor. The Board believes that a classified Board enables the Company to plan for a reasonable period into the future and thereby provide for continuity of corporate policies. The Board also believes that flexibility is achieved by the election of one-third of the directors annually, while stability is retained because a majority of the directors at all times will have had prior experience in the management of the Company's business. In addition, the classified Board would preclude the immediate removal of all incumbent directors by a person seeking a change in control of the Company and thereby would benefit all of the Company's stockholders as the incumbent directors would then be in a position to act to protect the stockholders' value in the Company. Surveys of corporate board structures conducted by certain organizations independent of the Company have shown that more than half of the corporations included in the surveys maintain classified boards. For the foregoing reasons, the Board believes that the amendment contemplated by Item 7 is not in the best interests of the Company. Resolutions substantially similar to Item 7 were soundly rejected by the stockholders at the 1993, 1992, 1991, 1990 and 1989 Annual Meetings. The Board of Directors recommends that you vote AGAINST Item 7. Item 8 RESOLUTION REQUESTING CANCELLATION OF COMPANY PENSIONS FOR OUTSIDE DIRECTORS PROPOSED BY ONE STOCKHOLDER The Company is informed that Howard H. Witsma, whose address and stock ownership will be furnished by the Company promptly upon receipt of any oral or written request therefor, intends to introduce at the Annual Meeting the following resolution (designated herein as Item 8): "RESOLVED: We the stockholders assembled in person and by proxy, do request that the Board of Directors take the necessary steps so that (i) the pensions currently granted to 'outside' directors be reviewed with an eye towards cancellation and (ii) no such pensions be granted in the future nor increased, if granted, without the direct and specific vote of such stockholders assembled in Annual Meeting." 46

The proponent has furnished the following statement setting forth the reasons advanced by him in support of the proposal: "REASONS: Although it has become commonplace for 'outside' directors to be pensioned, these people are the employees of the stockholders and not the Company. These ladies and gentlemen are currently being handsomely remunerated for their services in the form of retainers, per diems, and expenses for their work for the Company. Further these same ladies and gentlemen are otherwise employed, or are retired with pensions, and are being paid for their services at their place of primary employment. Such 'double dipping' is not in the interests of we, the stockholders and owners of the Corporation, nor fair to us. While we certainly require top talent as our directors, there are many corporations today, despite what management may say to the contrary, where this practice is not permitted. "Last year 11,701 proxies representing 46,743,806 shares were cast in favor of this proposal. The vote against included 14,231 unmarked proxies." Board of Directors Statement on Item 8 The Company has a policy of paying retirement benefits to each non-employee director who voluntarily retires or decides not to stand for reelection. The annual retirement benefit is equal to the annual basic director's fee in effect at the time of retirement and is paid for the number of years equal to the director's full years of service. The benefit is payable beginning in the year in which the director retires or attains age 65, whichever occurs later, and continues to be payable to the director's beneficiary in the event of the director's death until all such payments have been made. Management of the Company has expressed to the Board and the Board believes that the Company's retirement policy for outside directors assists it in remaining competitive with other major corporations so that the Company may attract and retain persons of the highest quality to serve on your Board of Directors. An independent benefits consulting firm reports that over 60% of the 136 major publicly-held companies that it surveyed provide retirement benefits for their outside directors. The Board is opposed to the proposal for an additional reason. The proposal would require the termination of retirement benefits being paid to directors that have already retired and cancellation of retirement benefits that have already accrued for directors currently serving. The Company's retirement policy was an inducement for non-employee directors to join and remain in service on the Board. The Board believes that the termination of these already earned retirement benefits would be a breach of the Company's obligations. A resolution substantially similar to Item 8 was soundly rejected by the stockholders at the 1993 Annual Meeting. The Board of Directors recommends that you vote AGAINST Item 8. Item 9 RESOLUTION REQUESTING ESTABLISHMENT OF MINIMUM STOCK OWNERSHIP REQUIREMENTS FOR SENIOR MANAGERS AND OUTSIDE DIRECTORS PROPOSED BY ONE STOCKHOLDER The Company is informed that Robert.]. Jones, whose address and stockholding will be furnished by the Company promptly upon receipt of any oral or written request therefor, intends to introduce at the Annual Meeting the following resolution (designated herein as Item 9): "Robert J. Jones--owner of 7000 shares of American Brands proposes that he requests and recommends that Senior Managers of American Brands be required to own, at their own expense, shares in American Brands equal to a year's pay; also in conjunction with this, that future Outside Directors that are nominated at meetings subsequent to this 1994 meeting, not affecting the 47

unexpired terms of existing directors, be required to hold, at their own expense, five thousand shares of American Brands, Inc." The proponent has furnished the following statement setting forth the reasons advanced by him in support of his proposal: -- "This hot l'nanagement reform, Such as insisting that top managers and. outside directors nominated in the future, hold meaningful stakes in the company to ensure their motivation to insure success and upward movement of stock prices; this is in effect at RJR Nabisco, Eastman Kodak, and such a policy of insider purchases would be a bullish sign for investment managers to make investments in American Brands. Lets [sic] face it, if~cour money was involved in a company, you would do your darndest to insure that [sic] the company's success in all phases of its operations Board of Directors Statement on Item 9 Each outside director of the Company currently owns at least 500 shares of Common Stock of the Company and, as part of the annual director's fee, receives an additional 200 shares each year under a stockholder approved plan for outside directors. The Board agrees that the interests of stockholders and the directors should be aligned by stock ownership on the part of the directors, but the Board does not agree that the large number of shares mandated by the proposal should be required. The proposal would require that each outside director own 5,000 shares costing approximately $175,000 (using a market price of $35 per share), or approximately five times the annual fee currently received from the Company for outside director services. The Board believes that such a policy would have the consequence of greatly limiting the pool of potential outside directors to only those persons with substantial wealth, and thus severely inhibit the Company's ability to obtain highly qualified directors. The Board encourages ownership of shares of the Company's stock by its management employees as well. As can be seen from the table on pages 3 to 5, executive officers of the Company already own a significant amount of shares of the Company's Common Stock. This stock ownership is encouraged by grants of stock options under the Company's Long-Term Incentive Plan which will benefit the employee only to the extent that stockholders also gain from an increase in the value of the Company's Common Stock as well as by grants of performance awards payable in stock. The Company's Profit- Sharing Plan permits employees to invest their Plan assets in the Company's Common Stock and the Company's contribution that matches the employee's tax deferred contributions is required to be so invested. The Board believes that these are appropriate means of encouraging stock ownership among key employees rather than mandating purchase of a fixed number of shares regardless of the employee's current financial resources. The Board wishes the Company to be able to attract the most highly qualified managers without imposing a limitation of minimum stock ownership and does not wish to have to dismiss a skilled manager for failure to meet such requirement. The Board also objects to the proposal because it contains a number of obviously important, yet extremely vague, concepts. For example, the terms "senior managers", "a year's pay" and "at their own expense" can be interpreted in various ways. Should the term senior managers be limited to senior executive officers or extended to a broader group of employees? Should a year's pay be measured by base salary only, include bonuses or include bonuses and other forms of incentive compensation? Is Common Stock acquired under the Company's employee benefit plans acquired at one's "own expense"? These questions do not have simple answers and the proposal provides no guidance in dealing with them. Thus, the Company could never be sure any policy implemented would be in line with the expectations of those stockholders voting in favor of the proposal. For the foregoing reasons, the Board believes that the proposal is not in the best interests of the Company or its stockholders. The Board of Directors recommends that you vote AGAINST Item 9. 48

Item 10 RESOLUTION REQUESTING IMPLEMENTATION OF MACBRIDE PRINCIPLES PROPOSED BY SEVEN STOCKHOLDERS The Company is informed that the New York City Employees' Retirement System, the New York City Teachers' Retirement System, the New York City Fire Department Pension Fund and the New York City Police Pension Fund, the custodian of each of which is the Comptroller of the City of New York, with the co-sponsorship of the Missionary Oblates of Mary Immaculate, the Friars of the Atonement, and the New York State Common Retirement Fund, the sole trustee of which is H. Carl McCall, State Comptroller of the State of New York, whose respective addresses and stockholdings will be furnished by the Company promptly upon receipt of any oral or written request therefor, intend to introduce at the Annual Meeting the following resolution (designated herein as Item 10): "WHEREAS, American Brands has two wholly-owned subsidiaries operating in Northern Ireland, Gallaher Ltd. and TM Group Ltd.; "WHEREAS, employment discrimination in Northern Ireland has been cited by the International Commission of Jurists as being one of the major causes of the conflict in that country; "WHEREAS, Dr. Sean MacBride, founder of Amnesty International and Nobel Peace laureate, has proposed several equal opportunity employment principles to serve as guidelines for corporations in Northern Ireland. These include: 1. Increasing the representation of individuals from underrepresented religious groups in the workforce including managerial, supervisory, administrative, clerical and technical jobs. 2. Adequate security tbr the protection of minority employees both at the workplace and while traveling to and from work. 3. The banning of provocative religious or political e~i~blems froxn the workplace. 4. All job openings should be publicly advertised and special recruitment efforts should be made to attract applicants from underrepresented religious groupings. 5. Layoff, recall, and termination procedures should not in practice, favor particular religious groupings. 6. The abolition of job reserwations, apprenticeship restrictions, and differential employment criteria, which discriminate on the basis of religion or ethnic origin. 7. The development of training programs that will prepare substantial numbers of current minority employees for skilled jobs, including the expansion of existing programs and the creation of new programs to train, upgrade, and improve the skills of minority employees. 8. The establishment of procedures to assess, identify and actively recruit minority employees,, with potential for further advancement. 9. The appointment of a senior management staff member to oversee the company's affirmative action efforts and the setting up of timetables to carry out affirmative action principles. "RESOLVED, Shareholders request the Board of Directors to: 1. Make all possible lawful efforts to implement and/or increase activity on each of the nine MacBride Principles." 49

The proponents have furnished the following statement setting forth the reasons advanced by them in support of their proposal: "--Continued discrimination and worsening employment opportunities have been cited as contributing to support for a violent solution to Northern Ireland's problems, "rain May 1986, the United States District Court ruled in NYCERS v. American Brands, 634 F. Supp. 1382 (S.D.N.Y., May 12, 1986) that 'all nine of the MacBride Principles could be legally implemented by management in its Northern Ireland facility.' "--An endorsement of the MacBride Principles by American Brands will demonstrate its concern for human rights and equality of opportunity in its international operations. Please vote your proxy FOR these concerns." Board of Directors Statement on Item 10 The Company is committed to a policy of equal employment opportunity. Consistent with this policy, the Company's subsidiary, Gallaher Limited, has adopted a Declaration of Practice which sets forth the positive measures taken by Gallaher to ensure that the policy of equal opportunity is actively pursued without discrimination against any section of the community. The Declaration of Practice is worded as follows: "Gallaher Limited, recognising the importance of equality of opportunity in employment, declares that it practises such equality of opportunity irrespective of religion, race, sex or disability and further declares that it: a. is committed to recruitment, selection and promotion on the basis of merit alone; b. uses as criteria in making judgments about merit (i) the actual requirements of the job; (ii) job-related personnel specifications; (iii) either ability to do the job or potential ability to do the job; c. disseminates information on job openings in a manner that provides access to this information by all groups and welcomes and takes positive steps to encourage applications from all persons with potential to do the job in question; d. monitors and retains records on the outcome, in terms of religion, sex, race and disability, of its recruitment, selection, training, layoff and promotion procedures and on trends in the composition of its work force; e. identifies any under-representation that may exist in its group of applicants, those hired or those promoted; investigates the cause of the under-representation; and eliminates any practice discovered which has the effect of discriminating on any basis other than merit; takes appropriate measures where necessary to ensure the effective practice of equality of opportunity in employment; f. actively promotes, in association with trade unions or other representatives of the company workforce, an atmosphere and working environment that both encourages harmony and co- operation among all employees and discourages behaviour or the circulation and display of literature that could give offence on the grounds of religion, race, sex or to the disabled; and, to this end, bans all religious or political displays and otherwise works toward the elimination within the workplace of religious or political tensions; g. ensures that layoff, recall and termination procedures shall be according to agreements negotiated with trade unions or other representatives of the company's workforce, and that those procedures shall not be inconsistent with the principle of equality of opportunity; h. keeps its working environment and procedures for recruitment, selection, training, layoff and promotion under review and works co-operatively with the Fair Employment Agency or the Equal Opportunity Commission in promoting equality of opportunity in employment; 5O

i. observes the strictest confidentiality with regard to the disclosure of personal information obtained from individuals in furtherance of its policy of promoting equality of opportunity in employment; j. adopts a training policy which recognises the needs and potential, relative to job performance, of employees (or applicants) of under-represented groups, subject to the condition that no one will be excluded from training programmes on the grounds of religious belief, political opinion, sex or disability; k. allocates responsibility for its equality of opportunity policy to a member of senior management." As noted in the Declaration of Practice, Gallaher already monitors employment practices with respect to religion and other matters relating to recruitment, selection, training, and layoff and promotion procedures. Gallaher also is a signatory to the Declaration of Principle and Intent of the Fair Employment (Northern Ireland) Act 1976 (the "1976 Act") and has been certified as an Equal Opportunity Employer Organisation by the Fair Employment Agency established under the 1976 Act, which, in simple terms, does not permit discrimination. Gallaher's employment practices in its tobacco manufacturing operation in Northern Ireland were investigated by the Fair Employment Agency to determine the degree to which the Company's stated commitment to equality of opportunity was being given practical effect. The Fair Employment Agency's Report, which was published in November 1988, found that in the past the personnel practices of the Company resulted in failures to provide equality of employment opportunity but that these practices were generally replaced commencing in the mid-1960's. The Fair Employment Agency's Report found that overall the number of Protestants and Catholics employed at the tobacco manufacturing .operation at the time of the Report were not significantly different from what would be expected taking into account the religious composition of the local area, though there are considerable imbalances in certain areas and categorie.s. The Report concluded that: "The efforts made by the Company and the Local Trade Union Officials to introduce locally meaningful equal opportunity measures are positive and encouraging and the Agency is satisfied that the action taken is indicative of real commitment to provide equality of opportunity." A new law governing employment discrimination in Northern Ireland became effective on January 1, 1990. The Fair Employment (Northern Ireland) Act 1989 (the "1989 Act") established a Fair Employment Commission which has more powers than the Fair Employment Agency which it replaced. The 1989 Act requires employers to register with the Fair Employment Commission, monitor their workforce and regularly review their recruitment, training and promotion practices. The 1989 Act now makes even indirect discrimination illegal and allows the Fair Employment Commission to mandate measures, including the setting of goals and timetables to remedy under-representation in a company's workforce. The Board of Directors believes that the nondiscrimination requirements of the 1989 Act are already being undertaken by Gallaher under its own Declaration of Practice made in 1987. The Board considers the Declaration of Practice to be more constructive than the MacBride Principles in addressing equality of opportunity in Northern Ireland without requiring discriminatory action in favor of any group. TM Group PLC also has adopted a similar declaration of practice for its employees. The Board does not believe it to be necessary or advisable to adopt the MacBride Principles to achieve the goal of equal employment opportunity. The Board of Directors has determined that the Company cannot endorse or subscribe to the MacBride Principles for two additional reasons. First, the Department of Economic Development in Northern Ireland has indicated its Government's opposition to the MacBride Principles. Second, Northern Ireland counsel, with whom the Company has consulted on several occasions, advised the Company that implementation would require discriminatory action by Gallaher in violation of the 51