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R. J. Reynolds Tobacco Company Annual Report 1964 N N

R.J. REYNOLDS TOBACCO COMPANY WINISTON-SALEM, NORTH CAROLINA Notice of Annual Meeting of Stockholders April 14, .1965 . .. . . _ . ,_ ._. TO THE STOCKHOLDERS OF R. J. REYNOLDS TOBACCO COMPANY The Annuali Meeting of the Stockholders of R. J. Reynolds Tobacco Company will be held at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2 o'clock in the afternoon, Eastern Standard Time, on Wednesday, April 14, 1965, for the purpose of (a) electing directors; (b) considering and acting upon the resolution (more fully described in the accompanying Proxy State- ment) which is expected to be presented by two stockholders and which is oppose& by management; and (c) transacting such other business as may properly come before the meeting. Holders of Common Stock of record at the close of business on February 23, • 1965 will be entitled to vote at the meeting. WILLIAM R. LYBROOK Secretary March 4, 1965 You are cordially requested to attend the meeting. If you are unable to do so, please sign and date the accompanying proxy and mail it at once in the enclosed envelope.

Y Proxy Statement GENERAL The accompanying proxy is solicited by the management of the Company. All shares represented by duly furnished proxies will be voted in accordance therewith. A stockholder furnishing the accompanying proxy may revoke it at any time before it is voted by fiiling written notice with~ the Sec- retary of the Company. Solicitation other than by maili may be made personally, by telephone and by telegraph, by regularly ernploye& officers and employees of the Company who will not be additionally compensated therefor. The Company may request persons holding stock in, their names for others, such as brokers and nominees, to forward proxy material to their principals and request authority for the execution, of the proxy and will reimburse such persons for their expenses in so doing. The total cost of soliciting the proxies will be borne by the Company. As of the close of business on February 23, 1965, there were outstanding and entitled! to vote 40,826,147 shares (one vote per share) of the Company's Common Stock. Stock- holders of record at the close of business February 23, 1965 will be entitled to vote.

ELECTION OF DIRECTORS A board of fifteen directors, to serve for a term of one year and untiI their successors are chosen and shall qualify, is to be elected at the meeting. It is in- tended' that the proxy, unless otherwise directed, will be voted for the election of the nominees named below. If any nominee shall not become a candidate for election as director at the meeting, an event not now anticipated by management, the proxy will be voted for such substitute as shall be designated by management. Name PrinciROllOccuPation First Beeame Director WILLARD M. BRIGHT Vice President_ 1964 L. H. COLEMAN Attorney, member of Davis Polk Wardwell Sunderland & Kiendl----- _----- _ 1959 A. H. GALLOWAY President and Chairman, Executive Committee 1951 BOWMAN GRAY Chairman, Board of Directors (b) _______-__ 1947 GORDON GRAY Chairman, National Trust for Historic Preservation 1961 S. B. HANES, JR. Executive Vice President 1948' REUBEN P. HUGHES President, Pacific Hawaiian Products Cbmpany -- - - - 1965 WILLIAM R. LYBROOK CHARLES F. MYERS, JR. Vice President and Secretary_____ President and Chief Executive Officer, Burlington Industries, Inc----- _________- 1952 1964, DAVID S. PEOPLES Vice President and Comptroller_-__ 1959 H. H. RAMM Vice President and General Counsel (b)_ 1946 JOSEPH H. SHERRILL Vfce President- 1960 W. S. SMITH, dR. Vice President 1960 COLIN STOKES Executive Vice President (b) 1957 CHAS. B. WADE, JR. Vice President 1955 the Shares of Common Stock Beneficially Owned On January 29, 1965 (a) 800: 1,200 24,841 142,000 (c) 138,600 (d) 8,200 124,636 (e) 3,250 (f) 200 700 2,400 6,000 400 15,053 1,412 (g) Profit Sharing Plan of the Company and' credited (b) Member of the Executive Committee of the Board of Directors. (c) Bowman Gray also is income beneficiary of a trust holding 1,366 shares of Common Stock and has a remainder interest in a trust holding 2,000 shares of Common Stock. (d); Gordon Gray also has a- reversionary interest- in three trusts holding a total of 5,190 shares of Common Stock, has a remainder interest in a trust holding 2,000 shares of Common Stock and is income beneficiary of a trust holding 682 shares of Common Stock. (e) Reuben P. Hughes also has a reversionary interest in a trust holding 53,334 shares; of Common Stock. (f) William R. Lybrook also has a remainder interest in a trust holding 1,332 shares of Common Stock. (g) Colin Stokes is income beneficiary of a trust holding 6,900 shares of Common Stock. (a) Shares held by the Trustee under to any individual's account are not included. 3 ~s~3~..,•s%.

All of the persons nominated for election~ as directors were elected to their present terms as directors at the Annual Stockholders Meeting held in 1964 with the exception of Willard M. Bright, Charles F. Myers, Jr. and Reuben P. Hughes, who became directors on May 4, 1964, October 8, 1964 and January 1, 1965, re- spectively. For the last five years prior to his becoming a director Willard M. Bright was associated with Lever Brothers Company, being Director of Research and Development until February, 1960 when he became a Vice President of that Company. For the last five years prior to his becoming a director Charles F. Myers, Jr., has been associated with Burlington Industries, Inc. being Treasurer until February, 1962, Executive Vice President from 1961 until February, 1962 and President and Chief Executive Officer since February, 1962. For the last five years prior to his becoming a director Reuben P. Hughes was President of Pacific Hawaiian Products Company (now known as PHP Co., Inc.), a California corpora- tion, the assets of which were acquired by the Company's subsidiary of the same name in February, 1963, and since that time he has beeni President of the Com- pany's subsidiary, Pacific Hawaiian Products Company, a Delaware corporation. _ REMUNERATION OF DIRECTORS AND OFFICERS The following inforrnation is given as to each director, and each of the three highest paid officers, of the Company who received~ direct remuneration for 1964 from the Company and its subsidiaries of more than $30,000, and as to all the directors and officers of the Company as a group. Amount Credited Accumulhted' Credits in Profit Sharing Trust as of December 31, 1964 (2) Direct for 1964 Shares of Cash and Remuneration Name of Individual for in Profitl Sharing Company's Common Miscellaneous Investments or ldentity of Group 1964 (1) Trust (2Y Stock (a) (at market) Willard M. Bright__ _$ 48,000 $ - - $ - A. H. Galloway__ - 140,000 17,889 1,088:23 81,416 Bowman Gray_- _ 170,000 21,723 1,711.06 124,310 S. B. Hanes, Jr. 89,167 11,394 858.07 60,836 Kenneth H. Hoover (5) ____ 70,000 8,945 808.60 55,785 William R. Lybrook_-____- 65,000 8,306 627.11 44,737 David S. Peoples_ _-___ 49,833 6,368 306.11 23,857 H. H. Ramm.___----- 89,187 11,394 911.29 63,503 Joseph H. Sherrill_---___ 47,400 6,057 264.76 17,115 W. S. Smith, 62,500 7,986 347.14 28,539 Colin 81,667 10,435 567,83 43,840 Chas. B. Wade, Jr------------------- 58,500 7,475 552.68 39,980 All Directors and Officers (18 in number) as a group 1,035,5711 124,302 8,304.65 603,219 4 Estimated Annual Normal' Retirement .- Allowance (3) $115,726 (4) 48,500 56,107 35,625 (6) 28,233 22,776 28,684 21,804 26,226 33,750 27,125 ~

I (a) The closing price of the Common Stock on December 31, 1964 was $38.875 a share. (1) The capacity in which remuneration was received by each of the individuals name& is shown in the second column of the preceding table. Mr. Peoples became a Vice President on May 4, 1964. Mr. Hoover was a Vice President and a Director until his retirement on December 311, 1964. (2) Under the Profit Sharing Plan, which became effective on January 1, 1956 and was last amende& in 1963, a cert'ain share of the annual "Operating Income", as defined in the Plan, is paid in trust for credit by the Trustee to the respective accounts of regular, full-time em- ployees, who have completed certain service requirements, in proportion to their wages or salaries for the year. Distributions from the Trust are made upon termination of employment except discharges for certain causes. In case of voluntary resignation, a member of the Plan is entitled to distribution of his accounts on the basis of 10 ryo for each full year of membership in the Plan, the balance being forfeited. Accumulated credits in the Profit Sharing Trust as of December 31, 1964 shown above do not include credits for 1964 as the profit sharing contribution for that year was not paid into the Trust until after the end of the year. The number of shares of stock shown excludes fractions of less than an hundredt'h~ of a share. (3) The estimated annual! normal retirement allowanees shown are computed as pro- vided under the Employees' Retirement Plan, as amended, and are based on the assumption that the persons named will continue to receive until age 65 salaries at the same rates as in effect at the beginning of 1965. (4) Under an agreement dated May 14, 1964 between Willard M. Bright and the Company, in the event he remains in the employ of the Company until he reaches age 65 and then retires, the Company is obligated to supplement his retirement allowance so that such~ supplement and the retirement allowance will total $2,500 per month. (5) Under an agreement' dated June 12, 11964 between Kenneth H. Hoover and the Com- pany, for the period of five years commencing January 11, 1965 he is obligated to render to the Company advice an& consultation as to the operations of the Research Department and for such services will be paid $20,000 annually. (6) Kenneth H. Hoover, pursuant to the Employees' Retirement Plan, as amended, elected to receive upon his retirement a reduced annuali allowance of $6,605 payable during his life and thereafter to his wife during her life. (7) During 1964the firm of Davis Polk wardwell! Sunderland & Kiendl, of which L. H. Coleman is a partY-er, was paid $132,000 for legal services. Pursuant to the Agreement dated December 17, 1962, between the Company and Pacific Hawaiian Products Company (such name having subsequentliy been change& to PHP Co:, Inc.), under the conditions set forth in the agreement and for a period of three years from February 14, 1963, should Reuben P. Hughes, or the trustee of the trust in whi& he has a reversionary interest, desire to selli any of the shares of Common Stock of the Company received', by them respectively upon the liquidation of PHP Co., Inc., he, or the trustee, as the case may be, may request the Company either to register the shares under the Securities Act of 1933 or to purchase the shares. Mr. Hughes received 124,636 shares of such Common Stock and the trustee 53,334 shares upon such liquidation. Should the Company elect to purchase the shares, the purchase price is to equal the average, for the five busi- ness days preceding, the date of receipt of the request, of the mean for each day of the high and low sale price of the Company's Common Stock on the New York Stock Exchange. 5

PROPOSAL OF TWO STOCKHOLDERS Lewis D. Gilbert and John J. Gilbert, 1165 Park Avenue, New York 28, N. Y., who state that each of them is the owner of 120 shares of the Company's stock and that they represent an additional family interest of 120 shares, have advised the Company that they will introduce at the meeting the following resolution: "RESOLVED: That the stockholders of R. J. Reynolds Tobacco Company, assembled in annual meeting in person and by proxy, hereby request the Board of Directors to take the steps necessary to provide for cumulative voting in the election of directors, which means each stockholder shalU be en- titled to as many votes as shall equal the number of shares he owns mul- tiplied by the number of directors to be elected, and he may cast all of such votes for a single candidate or any two or more of them as he may see fit." They have submitted the following as a statement of reasons in support of their resolution :"At the last annual meeting 3,779 owners with 1,062,485 shares vote& in favor of our similar resolution. The vote against included company stock held by the Trustee under the Profit Sharing Plan which was cast without request- ing confidential voting instructions from the beneficial owners. California Corpora- tions Commissioner Charles E. Rickershauser has declared himself in favor of cumu- lative voting and insisted his statement on~ the beneficial effects of cumulative vot- ing to be sent to California American Broadcasting-Paramount Theatres owners when management soiicit'ed! proxies to eliminate this democratic voting procedure." The Board of Directors recommends voting "AGAINST" adoption of this resolution. OBJECTIONS TO RESOLUTION The same proposal was considered at the Annual ;~Ieetings held in 1959 and in 1964, iand was overwhelmingly rejected both, t'imes: At the 1964 meeting 33,527,648 shares, or 96.93 1c, were cast against the resolution. These shares were held by approximately 72,661 stockholders of record. To be effective, it is important that each member of the Board of Directors have the responsibility of representing all stockholders of the Company. Directors elected through cumulative voting could regard themselves as representing only the special group of stockholders who elected them and this might well be contrary to the interests of the stockholders as a whole. Cumulative voting makes possible 6

partisanship among directors which would interfere with their ability to work to- gether, a requirement essential to the effective functioning of the Board. The Board: of Directors is convinced that it would not be in the interest of the Company or its stockholders to change the existing method of electing direc- tors, which method has worked satisfactorily and successfully during the entire history of the Company. MISCELLANEOUS The management has no knowledge of any other matters to be acted upon pursuant to the proxy. If any other matters should properly come before the meet- ing, it is the intention of the persons designated in the proxy to vote thereon ac- cording to their best judgment. Messrs. Ernst & Ernst for many years have been the independ'ent auditors for the Company. They are appointed each year by resolution of the: Board of Di- rectors. A member of that firm will attend the Annual Meeting and will be avail- able to answer questions that may be asked by stockholders. A summary of the proceedings of the Annual Meeting will be sent to the stockholders. Stockholders who are unable to attend the meeting in person are urged to forward their proxies without delay. A prompt response will be greatly appreciated. R. J. REYNOLDS TOBACCO COMPANY Winston-Salem, N. C. March, 4,' 1965 7

t Notice of Annual Meeting and Proxy Sta temen t Annual Meeting of Stockholders April 14, 1965 R. J. REYNOLDS TOBACCO CO. WINSTON-SALEM, NORTH CAROLINA

To the Stockholders Throughout the past year the tobacco industry has been confronted by multiple problems and challenges from many di- rections. We of the Company have tried our best to live up to the promise we ex- pressed! in this letter last year: to face these problems realistically in a continu- ing effort to do what is best for the users of the Company's products, for its stock- holders.and employees, for the communi- ties in which it operates, and for the industry of which it is a part. In this course we will persist. A&expected, the report of the Surgeon General's Committee on Smoking; and Health, released on J,anuarv 11, 1964 , had an immediate and adverse effect on ciga- rette consumption. However, with the passing months, figures reported by the Internal Revenue Service have indicated~ a reversal of the downward: trend, and at the end of the year consurnption was ap- proaching a more normal level. What ef- fects the report may have on cig;arette consumpt'ion over the longer term are most difficult, of course, to predict. Sales and net earnings of the Company in 1964 were below the record! highs reached in 1963. Sales of 51,6131802,495~ were 3.57less than in 1963 and net earn- ings of $124,005,490 were 3:9 o belowthe 1963'figure. Net earnings available for the Common~Stock were $3.02 a share in 1964 as against $3.13 a share in the preceding year. The decline in earnings was attribu~table principally to reduced sales, greater promotional costs, particularly for the new TEMro Cigarette brand «,hich was introduced early in the year, and higher costs for leaf tobacco. ~ : . As we have said on many occasions, it is our firm conviction that the answers to questions about smoking and health will finallv come only through scientific re- search. Early last year six of the major tobacco companies, including this Company, made available grants which aggregated $10,000;000to the American~ AIedical Association Education and Research Foundation, to help finance the Founda- tion's long-range study of the possible relationship of smoking to disease. This: research project had been authorized by the AMA's house of delegates the pre- vious December, and the A\IA's board of trustees, after appropriating an initial $500,000, had announced its intention to solicit funds from industry, founda- tions, voluntarv health organizations, and physicians: The grant from the six tobacco companies is being made available over a five-year period. A joint letter from the presidents of the companies made the offer of the funds "in the hope and ex- pectation that the research project pro- posed will aid materiallv in finding solu- tions to the public health problems of national and international concern." The Education and Research Foundationsub- sequentlv appointed a committee of five to direct the research. A large number ofgrant's have already been made under this program. 0 The vear 1964 marked the tenth anni, versai.v of a program established by rep- 1