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J~.v~ ~-., J0 NOTICE OF MEETING ` Flemington, N. J., March 2, 1959 'The Annual Meeting of stQckholders of THE AMERtcAN 'TonAcco COMPANY will be held at the Hunterdon Theatre, corner of Route 69 and Church Street, Flemington, New Jersey, at one-thirty o'clock in the afternoon (Eastern Standard Time) on Wednesday, April 1, 1959, for the following purposes:. (1) to elect Directors; (2) to consider and vote upon a proposal (designated Proposal 1 and set forth in the following proxy statement) to elect Lybrand, Ross Bros. & Montgomery as independent auditors for the Company for the year 1959, which proposal has been recommended by, the Management;, (3) to consider and vote upon a proposal relating to cumulative voting (designated Proposal 2 and set forth in the following proxy statement) expected to be introduced by three stock• holders; and (4) to transact such other business as may properly come before the meeting. The stock transfer books will not be closed, but holders of Preferred Stock and Common Stock, to be entitled to vote, must be holders of record at the close of business on*March 2, 1959. JOSN •W. HANLON, Secretary

PROXY STATEMENT .. The enclosed proxy is solicited by the Management. The proxy may be revoked by notice in writing given to the Secretary at any time before being voted. Proxies in the form enclosed, properly executed by stockholders and duly returned to the Management and not revoked, will be voted and, where a specifica- tion is made on the ballot provided therein, will be voted in accordance with such specification. Attendance at the meeting does not serve to revoke the proxy. The number of shares of each class of voting securities of the Company outstanding is: Preferred, 527,831 shares; Common, 6,512,522 shares. The Preferred Stock is entitled to four votes per share. The Common Stock is entitled to one vote per share. The record date for the determination of stockholders entitled to vote at the meeting is the close of business March 2, 1959. ELECTION OF DIRECTORS The Board of Directors consists of 'nineteen members who are elected to hold office until the next Annual Meeting or until their successors are duly elected and qualified. It is intended that proxies in the accompanying form will be voted for the nominees named below. These nominees are members of the present Board and have served as directors of the Company for, the periods commencing with the dates set after their respective' names. The Company is informed that these nominees were directly or indirectly the beneficial owners of outstanding securities of the Company at the close of business on ~ February 2, 1959, as set forth after their respective names. Name Positions and Offices with Company and Principal Occupation(a) Year First Elected Director Common Preferred Orpheus D. Baxalys Vice-President and Managing Director, 1940 2,405 62 Alfred F. Bowden The American Tobacco Company of the Orient, Inc. (b) Vice-President in charge of Public Re- 1951 - 700 Thomas P. Connors lations Director of Traffic 1946 300 John A. Crowe Senior Vice-President 1931 800 105 A. Gordon Findlay Vice-President, American Cigarette and 1953 2,005 Charles Ganshow Cigar Division, and Chief of Cigar Sales Vice-President, American Cigarette and 1953 1,000 John G. Hager, Jr. Cigar Division, and Deputy Comp• troller Manager of Louisville, Ky., Cigarette 1956 200 Virgil D. Hager Factory . Vice-President, Manufacture 1955 190 Paul M. Hahn President 1931 4,784 Hiram R. Hanmer Vice-President, Department of Research 1938 300 Harry L Hilyard and Development Vice-President and Treasurer - 1944 750 A. LeRoy Janson Vice-President and Comptroller 1948 500 ~ 0 0 2 ~

Name • - Positions and Offices with Company _and Principal Occupation(a) Year First Elected Director Common Preferred Ferdinand Mallgraf Director of Purchases 1957 100 John B. Sparrow Vice-President, American Suppliers Di• vision 1958 .. 250 Silas );. Strickland Vice-President and General Manager of Stemmeries, American Suppliers Di- vision 1957 100 George L. Turner President, American Suppliers Division 1958 200 Robert B. Walker Vice-President and Director of Sales 1955 410 George A. Wilkinson Director, Tax Department 1957 300 William B. Young Assistant to the Senior Vice-President 1956 620 • (a) The positions and offices listed after the name of a nominee are with the Company, unlesa otherwise noted, and occupation. (b) Affiliated company engaged in purchase and handling of leaf tobacco. are hie principal The Company is also informed that none of the nominees was directly or indirectly the beneficial owner on February 2, 1959, of outstanding securities of subsidiaries of the Company, other than directors' qualifying shares. John B. Sparrow was elected a director on September 30, 1958. He has been employed by the Company or American Suppliers, Incorporated, formerly the Company's chief leaf-buying subsidiary, for more than 27 years. During the 5 years prior to January 1, 1959, he was employed by American Suppliers, Incorporated, as a leaf-buying supervisor to July 1, 1954, as Assistant to a Vice President to March 1, 1957, and as a Vice President to January 1, 1959. He became a Vice President of American Suppliers Division on January 1, 1959, following the merger into the Company of American Suppliers, Incorporated. American Suppliers Division now conducts the operations formerly carried on by that subsidiary. In the event any nominee is not a candidate or is unable to serve as a director at the time of the election, which is not now expected, it is intended that the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill such vacancy. Proposal 1 ELECTION OF INDEPENDENT AUDITORS The Management proposes and recommends the election by'the stockholders at the Annual Meeting of Messrs. Lybrand, Ross Bros. & Montgomery as independent auditors for the Company for the year 1959. In line with this recommendation the Management intends to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Proposal 1): RESOLVED, that Messrs. Lybrand, Ross Bros. & Montgomery be and they hereby are elected the independent auditors for the Company for the year 1959. This firm of certified public accountants have been for over 25 years the independent auditors for the Company. In accordance with the Company's customary practice a member of the firm will attend the Annual I,Vleeeting and respond to questions which may be asked by stockholders. The Management recommends that you vote FOR Proposal 1. Proposal 2 RESOLUTION PROPOSED BY THREE STOCKHOLDERS The Company is informed that Lewis D. Gilbert, a record holder of 80 shares of Common Stock, whose address is 1165 Park Avenue, New. York 28, N. Y., and/or John J. Gilbert, a record holder of 3

80 shares of Common Stock, whose address is 1165 Park Avenue, New York 28, N. Y., and/or John Campbell Henry, a record holder of 400 shares of Common Stock, whose address is 5 East 93rd Street, New York 28, N. Y., intend to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Proposal 2) : "RESOLVED: That the stockholders of The American Tobacco Company, assembled in annual meeting in person and 'by proxy, hereby request that the Board of Directors take the steps necessary to provide for elections of directors by cumulative voting, which means each stockholder shall be entitled to as many votes as shall equal the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied 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." - ----- - - The proposers of this resolution, Messrs. Gilbert, Gilbert and Henry, have urnis e t e fo owing statement setting forth the reasons advanced by them in support of their proposal: "Growing interest of owners in cumulative voting was demonstrated last year when 231,537 votes were cast in favor of our resolution, compared to 223,920 votes when it was last introduced in 1953. The need for cumulative voting at American Tobacco is especially important because of the continued insistence of the management on an all-management Board of Directors, in contrast to Lorillard and even R. J. Reynolds. Cumulative voting is now mandatory under the law of 22 states, North Carolina being the latest so to act." Believing as it does in the principle that the Company is best managed by directors giving their entire time and effort to its service, the Management is of..the opinion that Proposal 2 does not serve any useful purpose, and that it would not be in the Company's interest to initiate steps to provide for cumulative voting. Substantially identical proposals were introduced by the same proposers in 1958 and at five consqcutive annual meetings from 1949 to 1953. That the great majority of the stockholders share the Management's opinion is evidenced by the fact that each of these proposals was overwhelmingly rejected by the stockholders. At the 1958 meeting, 'when the proposal was last submitted, the stockholders cast 6,439,532 votes (96oJo) against the proposal. The Management recommends that you vote AGAINST Proposal 2. The Management is not aware at the date hereof of any matter that is intended to be presented at this meeting other than the election of directors and Proposals 1 and 2. If any matter not known at the date hereof is properly presented for action at the meeting, it is intended that the persons named in the proxies will vote thereon according to their best judgment. RE11ILfiTERATION Remuneration of Directors and Officers. There is set forth in'the following tabulation, on an accrual basis, all direct remuneration paid by .the Company and its subsidiaries to the following persons for services in all capacities while directors or officers of the Company during its last fiscal year: each director, and each of the three highest paid officers, of the Company whose direct aggregate remuneration exceeded $30,000; and all directors and officers of the Company as a group. Estimated annual retirement benefits to the same individuals at normal retirement date under the Retirement Plan for en'iployees adopted by the stockholders at the 1949 Annual Meeting are stated in Column (4). 4 ~ 0 0 w N Ln

1) Name of individual or identity of group 2) (3) Capacities in which Aggregate remuneration was received (a) remuneration (b) (4) Estimated annual retirement benefit at normal retirement date (maximum i25,o00) Orpheus D. Baxalys Vice-President and Managing Director, The = 57,854 $11,080(g) Alfred F. Bowden American Tobacco Company of the Orient, Inc. Vice-President in charge of Public Relations 55,804 • 17,750 Thomas P. Connors Director of Traffic 39,457 11,744 John A. Crowe(c) Senior Vice-president 141,100 -14,446(g) A. Gordon Findlay(c) Vice-President, American Cigarette and Cigar 49,482 16,250 Charles Ganshow(c) Division, and Chief of Cigar Sales Vice-President, American Cigarette and Cigar 51,729 11,286 John G. Hager, Jr. Division, and Deputy Comptroller Manager of Louisville, Ky., Cigarette Factory 35,129 11,529 Virgil D. Hager Vice-President, Manufacture 62,322 17,821 Paul M. Hahn(c) President 202,624 14,250(g) Hiram R. Hanmer Director of Research 56,386 14,713 ' Harry L. Hilyard(c) Vice-President and Treasurer 70,357 6,599(g) John R. Hutchings, Jr.(d) President, American Suppliers, Incorporated 30,707 -0- A. LeRoy Janson (c) Vice-President and Comptroller 74,786 17,898 Ferdinand Mallgraf Director of Purchases 47,565 7,182(g) Silas E. Strickland (c) General Manager of Stemmeries, Company 44,407 13,373 George L. Turner and American Suppliers, Incorporated • Vice-President(e) and President, American 44,743(f) 11,098 Robert B. Walker Suppliers, Incorporated Vice-President and Director of Sales 62,322 20,000 George A. Wilkinson Director, Tax Department 44,743 10,021 William B. Young(c) Assistant to the Senior Vice-President 44,743 9,279 Directors and Officers Directors and Officers as a grpup 1,297,536 as a group (a) Capacities referred to were with The American Tobacco Company, unless otherwise indicated. The American Tobacco Company of the Orient, Inc. is, and American Suppliers, Incorporated until its merger into the Company on December 31, 1958 was, an affiliated company engaged in purchase and handling of leaf tobacco. (b) Includes undeferred noncontingent portion of incentive compensation for 1958 under Article XII of the By-Lawa. (c) Also officer of affiliated company or companies. (d) Deceased June 21, 1958. (e) Prior to election as President on June 25, 1958. (f) Remuneration shown is for period subsequent to election as a director effective February 4, 1958. (g) Reflects actuarial reduction resulting from his election (which will become irrevocable upon commencement of benefit payments) to take a reduced pension payable to himself for life and to a beneficiary for life, if the beneficiary survives him. Depending upon actuarial calculations the annual pension payments to four of the individuals indicated as having made such election and to their beneficiaries range from 53°fo to 71°Jo of the annual benefits such individuals would have been entitled to if they had not elected such reduced pensions. The pension payment listed in the table for the remaining individual is 80°fo of the amount he would have been entitled to, and his beneficiary will receive annual payments of 40°fo of such amount if she survives him. The deferred portion of incentive compensation under Article XII of the By-Laws accrued since 1957 (the first year for which it was provided) is payable to each participant in equal annual con-t tingent installments during the ten years following the close of the year in which his employment by the Company terminates. The respective. amounts of deferred incentive compensation accrued for 1958 for the directors and officers referred to in the above table and, in parentheses, the respective annual installments to be paid to them after termination of employment in respect of deferred incentive com- 5 Ln 0 0 w ~ tn tA a 10

pensation accrued since 1957 are as follows: Orpheus D. Baxalys, $4,854, ($927); Alfred F. Bowden, $8,304, ($1,621) ; Thomas P. Connors, $3,457, ($645) ; John A. Crowe, $66,100, ($13,102) ; A. Gordon Findlay, $6,982, ($1,052) ; Charles Ganshow, $7,729, ($1,506) ; John G. Hager, Jr., $3,129, ($579) ; Virgil D. Hager, $12,322, ($2,065) ; Paul M. Hahn, $82,624, ($16,377) ; Hiram R. Hanmer, $8,386, ($1,638) ; Harry L. Hilyard, $10,357, ($2,035) ; John R. Hutchings, Jr., $2,054, ($1,205) ; A. LeRoy Janson, $14,786, ($2,478) ; Ferdinand Mallgraf, $7,065, ($1,339) ; Silas E. Strickland, $6,407, ($949) ; George L. Turner, $7,393, ($1,006) ; Robert B. Walker, $12,322, ($2,065) ; George A. Wilkinson, $6,743, ($1,307) ; William B. Young, $6,743, ($1,307) ; and Directors and Officers as a group; $284,417, . , ($55,201). the Company and its subsidiaries. No amount was set aside or accrued during the Company's last fiscal year for pension or retirement benefits proposed to be paid under any existing plan by the -Company or any of its subsidiaries to any officer or director of the Company. The Retirement Plan for employees covers approximately 16,000 regular full-time employees of The aggregate remuneration for the fiscal year 1958, from the Company and its subsidiaries, directly or indirectly, on an accrual basis, of all the directors and officers of the Company as a group, was approximately fourteen one-hundredths of 1% of the Company's consolidated net sales. MISCELLANEOUS Promptly after the meeting stockholders will be mailed a return postcard on which they will be able to indicate their desire to receive a copy of the summary of the Annual Meeting. ' The Company will provide transportation from New York to Flemington, N. J., and return by chartered buses at Company expense for stockholders of record who notify John W. Hanlon, Secretary, The American Tobacco Company, 150 East 42nd Street, New York 17, New York, in writing not later than March 24, 1959 that they desire such transportation. The chartered buses will leave from Gates 8, 10 and 12 on the lower level of the Port Authority Bus Terminal, 8th Avenue and 41st Street, New York, New York, promptly at 10:00 A. M. on April 1, 1959 and will return to this terminal from Flem- ington after the meeting. Expense of Solicitation. The expense of the solicitation of proxies for this meeting, including the cost of mailing, will be borne by the Company. In addition to mailing copies of this, material to stockholders, the Company will request persons who hold stock in their names or custody or in the names of nominees for others, to forward copies of such material to those persons for whom they hold stock of the Company and to request authority for the execution of the proxies. To the extent necessary in order to assure sufficient representation at the meeting, officers and some regular employees of the Company and, at an estimated cost of about $11,000, approximately 4 employees of Philip G. Cameron Company sill request the return of proxies by telephone, telegram or in person. The amount of the expense to be borne by the Company will depend upon the volume of shares represented by the proxies received promptly in response to the Notice of Meeting. If proxies are not received promptly, it may be necessary for -tlie Company to send telegraphic solicitation to those stockholders who have not responded. Stockholders•who do not intend to be present at the Meeting are urged to send in their Proxies with- out delay. Prompt response is helpful, and your cooperation will be appreciated. February 13, 1959. 6

Annual RepOf t FOR THE YEAR ENDED DECEMBER 3'1, 9958 CONTENTS HIGHLIGHTS . . . . . ... . . . . PRESIDENT'S LETTER .. OPERATIONS AT A GLANCE . CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS . . . . . . CONSOLIDATED BALANCE SHEETS : . . . NOTES TO STATEMENTS . SUPPLEMENTARY FINANCIAL INFORMATION AND AUDITORS' CERTIFICATE . . . . . TEN-YEAR FINANCIAL REVIEW . . DIRECTORS AND OFFICERS . . . . . . . 2 3 12 13 14 17 is 20  Executive Office, I50 East 42nd Street, New York 17

HIGHLIGHTS I Per Common Share Net income . . Dividends paid . Net sales . . . . . . . . . • Income, before taxes on income .... Net income . . . ... . . . . . Dividends paid (common and preferred) . Portion of net income invested in assets used in the business and to provide for debenture sinking fund requirements . Current assets, December 31 . . . . Current liabilities, December 31 . . . Net working capital, December 31 ... Number of stockholders, December 31: Common. . . . . . . : Preferred . . . . . . . . . 1958 $8.55 5.00 $1,103,023,397 124,607,844 58,845,844 35,729,596 23,116,248 716,070,588 142,307,069 573,763,519 88,202 7,177 1957. $8.28 5.00 $1,098,092,746 118,604,650 57,094,650 35,729,596 21,365,054 740,482,648 171,137,745 569,344,903 86,998 7,187 . I u7 0 2 0 w N N

r16 THE PRESIDENT'S LETTER- February 4, 1959 To Our Stockholders fTJHIS report covers operations of The American Tobacco Company, includ- ing wholly-owned subsidiaries, for 1958. Net income in 1958 was the highest in the history of the Company, $58,845,844 as compared with $57,094,650 in 1957. The year 1958 was the fourth successive year in which net income has reached a new high. Dollar sales were $1,103,023,397 as compared with $1,098,092,746 in 1957. Fourth-quarter dollar sales were $12,518,608 higher than those for the fourth quarter of 1957. ' Total unit cigarette sales during the fourth quarter of 1958 were higher than in the comparable quarter of 1957. Total unit sales for the first three quarters were lower than in 19.57, resulting in lower unit ciga- rette sales for the full year. SALES PALL MALL showed a substantial gain in unit volume during 1958, keeping and improving its position as the nation's -leading king-size ciga- rette. It is the second largest-selling cigarette among all brands. According to independent estimates, PALL MALL accounts for approximately two-thirds of all nonfilter king-size -sales and about one-fourth of all nonfilter ciga-e rette sales in the U. S. Although industry sales of nonfilter standard-size cigarettes continued to decline, LUCKY STRIKE remained the third largest-selling cigarette in America. Unit sales of LucKY STRIKE decreased in line with the decline reported for the standard-'size market as a whole. In June 1958, your Company announced a radically new filter tip for the HIT PARADE Cigarette. The new tip, with 400,000 filter traps, gives HIT PARADE higher filtration. of smoke solids (which include nicotine and . so-called "tars") than any other leading brand. . In July a second radically new product, the DUAL FILTER TAREYTON Cigarette, was introduced. TAREYTON's dual filter comprises two separate filters in each cigarette: a pure white outer filter, plus an inner filter with 3