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Remuneration The table below sets forth, with respect to the calendar year 1980, information concerning remuneration of the five most highly compensated executive officers of the Company and all officers and directors of the Company as a group (59 persons including the officers named below). Cash and cash-equivalent remuneration(2) Incentive Compensation Name Capacities in which served(1) Salaries and directors fees(3) and Deferred Profit-Sharing Plans(4) Personal benefits(5) Hugh Cuiiman Group Executive Vice President $ 275,833 $ 234,141 $ 31,513 C. H. Goldsmith President 311,667 282,072 14,888 R. R. Miiihiser Vice Chairman of the Board 330,000 273,194 22,245 J. A. Murphy Group Executive Vice President 275,833 220,641 2,308 George Weissman Chairman of the Board 383,333 366,185 10,376 Group 7,182,066 5,064,417 426,059 (1) All of the named persons also served as directors of the Company during 1980. (2) Amounts shown are for the full year, whether or not the person was an officer or director for the full year. (3) Directors who are full-time employees of the Company or a subsidiary receive no additional compensation for services as a director. (4) Includes amounts awarded under the Incentive Compensation Plan and amounts allocated from the Company's contribution to the Deferred Profit-Sharing Plan with respect to the calendar year 1980. (5) Represents primarily personal use of corporate aircraft (excess of the Company's in- cremental cost over amounts paid by the user) and automobiles and payment of expenses incurred in connection with financial counseling. Does not include relocation expense reimbursement made under Company policy to employees moving at the request of the Company. The Company maintains a non-contributory retirement plan (the "Retirement Plan") for the benefit of all of its employees (including officers, but excluding directors as such) and for salaried employees of Miller Brewing Company who, in each case, are not covered by collective bargaining agreements. Full retirement allowances are payable upon retire- ment at the normal retirement age of 65; such annual retirement allowances are com- puted at the rate of 11/4% of average compensation received during the 60 highest paid consecutive months of the last 120 months of an employee's accredited service ("five-year average compensation") not in excess of the applicable social security integration level, plus 13/a % of that portion of five-year average compensation in excess of such social 11

security integration level, multiplied by the number of years of accredited service. How- ever, there is a minimum benefit equal to 11/2% of the first $12,000 of five-year average compensation multiplied by not in excess of 30 years of accredited service. "Compensa- tion" is defined as base pay plus overtime and, for persons retiring on or after January 1, 1980, the full amount of any award under the Incentive Compensation Plan. Examples of annual full retirement allowances payable under the Retirement Plan are set forth in the following table. The examples assume retirement at the normal retirement age of 65 after assumed periods of service and are based upon the social security inte- gration level in effect for the calendar year 1981. However, full retirement allowances (based upon the number of years of accredited service to date of retirement) or, in some instances, actuarially reduced retirement allowances are payable upon retirement com- mencing at earlier ages. In the case of retirement after age 65, credit is given for com- pensation and accredited service to age 70, provided the employee attained age 65 after December 31, 1978; otherwise the employee receives the actuarial equivalent of the full retirement allowance he or she would have received at age 65. An employee with more than 35 years of accredited service is limited to the greater of a full retirement allowance based upon 35 years of service and five-year average compensa- tion including incentive compensation awards or a full retirement allowance based on all service and five-year average compensation excluding incentive compensation awards, with a maximum allowance in either case of $ . However, the maximum annual re- tirement allowance payable is subject to adjustment in 1982 and future years by the same percentage increase applicable to the maximum permissible benefit under the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA limits the maximum annual benefit payable under a qualified retirement plan. If an annual benefit exceeds the limit (presently $ ) imposed by ERISA, the payment of the excess is made from the Com- pany's general funds rather than from the Retirement Plan Trust. Five-year average compensation Years of service 5 10 20 30 35 $100,000 $ 8,496 $ 16,992 $ 33,985 $ 50,977 $ 59,473 150,000 12,871 25,742 51,485 77,227 90,098 200,000 17,246 34,492 68,985 103,477 120,723 300,000 25,996 51,992 103,985 155,977 181,973 400,000 34,746 69,492 138,985 208,477 243,223 500,000 43,496 86,992 173,985 260,977 304,473 600,000 52,246 104,492 208,985 313,477 700,000 60,996 121,992 243,985 At January 30, 1981, Messrs. H. Cullman, Goldsmith, Millhiser, Murphy and Weissman had accredited service (calculated to the nearest whole year) of 32, 35, 40, 19 and 29 years, respectively. 12

A long-term disability plan protects most employees and their families against loss of income due to long-term disability. Prior to age 65 (or, if disabled after age 60, after five years of disability or age 70, whichever first occurs), the maximum annual benefit is $48,000. At age 65 (or such other age as aforesaid), benefits cease unless the employee had five years of accredited service at the time of disability, in which case benefits would be payable equal to a full retirement allowance under the Retirement Plan computed as if the employee had worked during the entire period of disability (until age 65 or such other age) at the compensation being received at the time of disability. A survivor income benefit plan provides annual income benefits 'to the family of a salaried employee of the Company who dies while in active service or after retirement. Subject to certain exceptions, the spouse of a salaried employee who dies while in active service and prior to age 65 receives, until the date such employee would have attained age 65, an annual amount; commencing in the fifth year after the employee's death, equal to 25% of the employee's base annual compensation at the time of death. Benefits cease when the employee would have attained age 65 unless the employee had five years of accredited service at the time of death in which case the spouse would receive an annual amount for life equal to what he or she would have received under the Retirement Plan if the employee had lived, had remained in the employ of the Company to age 65 at the com- pensation in effect at death and had elected the option giving the spouse 50% of an actuarially reduced full retirement allowance for life. If the employee dies after retirement or after age 65 while in active service, the annual income payments equal 50% of the employee's retirement allowance. In certain instances, benefits are also payable to de- pendent children. Prior to 1977, the Company, with stockholder approval, had adopted various stock option plans: These plans provided for the granting of options to purchase the Company's Common Stock at fair market value on the date of grant; the options were intended to constitute qualified stock options ("qualified options") under the Internal Revenue Code or options that were not so qualified ("non-qualified options"). No further options may be granted under these plans. However, outstanding options may still be exercised until their expiration, which is generally five years from the date of grant in the case of qualified options and ten years in the case of non-qualified options. In accordance with stock- holder approval obtained in 1977, the Compensation Committee of the Board of Directors is empowered to extend for an additional period of up to five years the term of any qualified option granted prior to April 28, 1977. The effect of such an extension is to convert the qualified option into a non-qualified option. In 1977, the stockholders approved the 1977 Stock Unit Plan. Under the Plan, units are granted to key employees of the Company and its affiliates. Each recipient of a unit must agree to remain in the employ of the Company or its affiliates for at least one year from 13

the date of the grant at such rate of compensation (not less than the rate then in effect) as the Company or its affiliates may from time to time determine. Subject to certain exceptions with respect to persons who are subject to the reporting requirements of the Securities Exchange Act of 1934, upon exercise of a unit, the unit holder is entitled to do one of the following: purchase one share of Common Stock at not less than the fair market value on the date the unit was granted (the "unit price"); or receive, in the form of Com- mon Stock or Common Stock and cash, the amount by which the fair market value of a share of Common Stock on the date of exercise of the unit exceeds the unit price (the' "Appreciation Value" of such unit), provided that such unit holder at the same time exer- cises a second unit and purchases one share of Common Stock; or receive, in the form of Common Stock or Common Stock and cash, an amount equal to one-half of the Appre- ciation Value of such unit on the date of exercise (the "Reduced Appreciation Value"). No unit holder may, upon exercise, receive in cash more than one-half of the Appreciation Value or Reduced Appreciation Value of all of the units such unit holder is exercising at such time. The maximum term of a unit is ten years. No unit may be exercised during the first year of its term. During the second year, any number of units up to 25% of the total covered by the grant may be exercised and, during the third and fourth years, any number of units which, when added to those previously exercised, do not exceed 50% and 75%, respec- tively, of the total number granted. During the fifth and following years, the unit holder may exercise any number of units which, when added to units previously exercised, does not exceed the total number of units covered by the grant. No units were granted during 1980. With respect to options granted under the Company's stock option plans and units granted under the Stock Unit Plan, the following tabulation shows, as to certain directors and officers and as to all directors and officers as a group, 60 persons including the officers named below, (i) the number of shares subject to options and the average per share exercise price as to options granted since January 1, 1980, (ii) the net value of shares or cash realized since January 1, 1980 upon the exercise of options and units granted since January 1, 1980 or prior thereto, (iii) the number of shares sold since January 1, 1980 by officers who exercised options or units since that date, (iv) the number of shares subject to options and the number of units outstanding at January 30, 1981, and (v) the potential (unrealized) value of such outstanding options and units as of such date (market value less exercise or unit price). Figures in the tabulation have been adjusted, where appro- priate, to reflect stock split-ups. 14

H. C. H. R. R. J. A. G. Cuiiman Goldsmith Mitihiser Murphy Weissman Group Granted(1) January 1, 1980 to January 30, 1981: Number of Shares ..... 61,700 Average per share exer- cise price ......... $24.30 Exercised January 1, 1980 to January 30, 1981: Net value realized In shares or cash (2) .. - 336,478 Sales January 1, 1980 to January 30, 1981: Number of Shares ..... 10,000 Outstanding at January 30, 1981: Number of shares sub- ject to options ..... 16,000 18,000 26,000 29,000 18,000 380,200 Number of units ...... 26,400 30,600 33,400 26,000 39,700 421,025 Potential unrealized value(3) ............ $653,006 $739,869 $939,819 $852,000 $851,838 $12,300,133 In addition, during the period employees were granted extensions with respect to previ- ously granted qualified options covering a total of 30,010 shares at an average option price per share of $25.50. (1) Represents extension, for an additional five years, of previously granted qualified options. (2) Represents market value less exercise price in the case of options and Appreciation Value and/or Reduced Appreciation Value in the case of units. (3) Represents market value less exercise price in the case of options and Appreciation Value in the case of units. Additional Information As previously indicated, several of the Company's directors are officers or directors of banks or bank holding companies with which the Company and its subsidiaries have transactions in the ordinary course of business. The following table sets forth the names of certain of the banks involved, the maximum amount of borrowings outstanding at any one time from such bank by the Company and its subsidiaries during the period January 1, 1980 to January 30, 1981, the amount of such borrowings outstanding at January 30, 1981 and the amount of interest (including commitment fees) accrued to such banks during such period. In all instances, such borrowings were on substantially the same terms, including interest rates, as those prevailing at the time for comparable transactions with 15

other financial institutions. The Company and certain of its subsidiaries maintain deposit account balances with certain of these banks to compensate them for account handling and other important services and to support lines of credit. Outstanding Jan. 1, 1980 Bank Jan. 30,1981(1) Jan. 30,1981 Interest accrued(2) Bankers Trust Company 27,239,000 1,548,000 1,352,814 Chemical Bank 29,900,000 1,612,167 Citibank, N.A. 99,285,000 52,338,000 18,027,087 M & I Marshall & Ilsley Bank 6,500,000 38,203 United Virginia Bank(3) 16, 000,000 10, 000, 000 994,875 (1) Maximum amount. (2) Includes commitment fees. (3) Does not include $10,000,000 General Obligation Water and Sewer Bonds Series 1980 of the Mission Viejo Water and Sanitation District purchased by Bankers Trust Company in 1980, $8,600,000 of industrial revenues bonds held by Central Fidelity Bank, N.A. and a $1,000,000 industrial development revenue note payable to United Virginia Bank. The general obligation bonds are guaranteed by the Company and the industrial revenue obli- gations are secured by promissory notes in like principal amount of the Company payable to the issuing authority. A subsidiary of Aetna Life and Casualty Co., of which Mr. Donaldson is a director, owns $30,800,000 principal amount of industrial revenue bonds which are guaranteed by the Company, and The New York Life Insurance Company, of which Mrs. Young is a director, owns $25,000,000 principal amount of the Company's 8~/s % Promissory Notes due November 30, 1998. During the year ended December 31, 1980, the firm of Betancourt, Cordido and Associates, of which Dr. Cordido-Freytes is a member, received legal fees of $204,995 from affiliates of the Company. Edward Lasker, a former director, is counsel to the firm of McKenna, Conner & Cuneo; from January 1, 1980 to April 23, 1980, during which period Mr. Lasker served as a director, a predecessor firm was paid legal fees of $281,595 by the Company and its subsidiaries. 16 c:

SELECTION OF AUDITORS (Proposal 2) The Audit Committee has recommended to the Board of Directors that Coopers & Lybrand, who have been the Company's auditors since 1933, be continued in that capacity. The stockholders are being asked to approve the Board's decision to retain Coopers & Lybrand for the fiscal year ending December 31, 1981. A representative of Coopers & Lybrand will be present at the meeting, will be given an opportunity to make a statement if he desires to do so and will be available to answer questions. Audit services performed by Coopers & Lybrand during the year ended December 31, 1980 consisted of the examination of the consolidated financial statements of the Com- pany and its consolidated subsidiaries, examination of the financial statements of uncon- solidated subsidiaries and affiliates, examination of the financial statements of employee benefit plans sponsored by the Company and its subsidiaries, preparation of various reports based on such examinations, limited review of quarterly financial information, services related to filings with the Securities and Exchange Commission, attendance at meetings of the Audit Committee of the Board of Directors and consultation with officers of the Company and its subsidiaries and affiliates in connection with various accounting matters. In addition to these auditing services, during the year ended December 31, 1980, Coopers & Lybrand performed other professional services which accounted in the aggre- gate for 35.8% of the audit fees paid to Coopers & Lybrand for 1980. 8.1 % of such fees was accounted for by computer and communications system services, 10.6% by tax planning and return preparation services for the Company and its subsidiaries, 8.2% by tax planning and tax return preparation services for employees, 4.6% by a review of ad- ministrative service functions and 4.3% by other services. The Audit Committee of the Board of Directors meets regularly with representatives of Coopers & Lybrand and reviews the nature and extent of the auditing services provided by that firm. The Audit Com- mittee approves the non-audit professional services performed by Coopers & Lybrand either before or after such services are rendered, after considering the possible effect of such services on the independence of that firm. The Board of Directors recommends a vote FOR Proposal (2). 17

STOCKHOLDER PROPOSAL (Proposal 3) The Company has been notified that the following proposal* will be submitted to the meeting: "WHEREAS the nature of business demands that our Company increase markets in the highly competitive cigarette industry; WHEREAS cigarette industry executives estimate 'annual consumption for the next several years will slow to between a 0.3% decline and a 0.7% gain' (Business Week 12/15/80); WHEREAS these facts make the relatively untapped market in developing nations a po- tential target for increased promotion of cigarettes; WHEREAS some tobacco firms are using aggressive promotion tactics to create new markets, even in remote corners of the Third World, which have had little traditional consumption of cigarettes; WHEREAS the vast majority of people in such countries can ill-afford to become habitu- ated to smoking for financial and health reasons; WHEREAS many cigarettes in the Third World are relatively more expensive and carry up to 76% more grams of tar than those same brands sold in developing nations; THEREFORE BE IT RESOLVED that the shareholders request the Board of Directors to make available to requesting shareholders a report, produced at reasonable cost and excluding proprietary information, which shall cover the following: 1. A description of Third World regions of Africa, Asia, and Latin America where our Company manufactures and/or markets cigarettes. 2. Market size and market share, as well as advertising and promotional activities and costs in these areas annually since 1975, including projections for the next five years. 3. A description of our Company's present policy related to: a. The World Health Organization's recommendation on banning promotion of tobacco, especially in Third World nations. b. A limitation of cigarette tar and nicotine levels in Third World nations equal to that in the United States. c. Informing consumers of the risks of tobacco use in countries where there may be little or no governmental regulations concerning health risks for smokers." The statement submitted in support of the proposal is as follows: "The United States cigarette industry in 1980 posted its best performance in five years. Yet overall tobacco consumption is increasing at a higher rate in new Third World markets * The name and address of the proponents will be furnished by the Company or the Se- curities and Exchange Commission to any person, orally or in writing as requested, promptly upon the receipt of any oral or written request therefor. 18

than domestic. This raises serious concern about the future health prospects in develop- ing nations where previously uncommon smoking-related diseases are now beginning to appear. - WHO warned in a recent report that smoking-related diseases will appear in developing nations before communicable diseases and malnutrition have been controlled, and its Committee on Smoking Control has recommended that all nations ban the promotion of tobacco and limit cigarette tar and nicotine content. We are concerned that some current practices of tobacco companies in developing nations may vitiate against such recom- mendations of the World Health Organization. Tobacco consumption is growing fastest in countries with the greatest poverty, illiteracy and food shortages. As church investors, we are concerned about the health and welfare of such people and do not believe these should be unnecessarily sacrificed for financial return to us as shareholders." The Board of Directors recommends a vote AGAINST Proposal (3). Your Board of Directors believes that this resolution is not in the best interests of the Company and its stockholders. In addition, it is misleading in a number of respects. Contrary to the proponents' sugges- tion, the Company's cigarette business within the United States has never been stronger- indeed in 1980 the Company achieved its largest one-year increase in unit sales and the highest unit sales and largest market share in its history. The Company is not diverting any of its energies from the United States market and has no intention of doing so. Contrary to the proponents' suggestion, our cigarettes exported from the United States are identical to our comparable brands sold domestically. Our cigarettes manufactured abroad are essentially similar to our domestic cigarettes although they may be designed to appeal to local tastes and may contain locally-grown tobacco in response to legal and other requirements. None of our cigarettes delivers more than a small fraction of a gram of tar. In all areas of the world, the Company complies with all legal requirements affect- ing the manufacture, sale, advertising and promotion of cigarettes. The price of cigarettes sold abroad varies widely from country to country due primarily to the effect of excise and other taxes and, in many instances, is subject to governmental price controls. Despite the expenditure of hundreds of millions of dollars by governments, the tobacco industry and other research groups over more than 25 years, no conclusive clinical or medical proof of any cause-and-effect relationship between cigarette smoking and disease has been discovered. Despite the proponents' disclaimer, compliance in a meaningful fashion with the resolu- tion would be expensive and would require disclosure, to the competitive detriment of the Company, of confidential information such as projections for the next five years. Finally, it is doubtful if the requested report would be useful to shareholders. 19

OTHER MATTERS Management knows of no other business which will be presented to the meeting. If other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best judgment. The cost of this solicitation of proxies will be borne by the Company. In addition to the use of the mails, some of the officers and regular employees of the Company may solicit proxies by telephone and telegraph and will request brokerage houses and other cus- todians, nominees and fiduciaries to forward soliciting material to the beneficial owners of Common Stock held of record by such persons. The Company will reimburse such persons for expenses incurred in forwarding such soliciting material. It is contemplated that additional solicitation of proxies will be made in the same manner under the engage- ment and direction of D. F. King & Co., Inc., 60 Broad Street, New York, N.Y. 10004, at an anticipated cost to the Company of $17,000 plus reimbursement of out-of-pocket ex- penses. The Company's 1980 Annual Report, including financial statements, has been mailed to all stockholders. The Annual Report is not to be considered proxy soliciting material. 1982 ANNUAL MEETING Proposals of stockholders intended to be presented at the 1982 Annual Meeting must be received by the Company on or before December 13, 1981 in order to be included in the Company's proxy statement for such meeting. Eugene J. T. Flanagan, Vice Presldent and Secretary March 13, 1981 20