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Annual Report / 1960 Liggett & Myers Tobacco Company, zInc.

Stockholders' Annual Meeting The Annual Nleeting of Stockholders will be held on Tuesdav, March 28, 1961 at Hotel Plaza, Journal Square, Jersev City, New Jersev, at 2:30 PA1. Formal notice of this meeting, together -,i•ith the proxy and proxy statement, will be mailed to stockholders on Feb- ruarv 24, 1961. Those of vou ,vho are unable to attend the meeting are urged to sign your proxies and return them promptly to the Companv so that the stock of the Company will be represented as full\• as possible at the meeting. Today your Company is owned by approsimatelv 48,200 stockholders. About 8?17~ of the total Common and Preferred stock was voted by person or proxy at the last annual stockholders' meetina on March 29, 1960.

Contents page 2 Highlights of Operations 3 President's Letter 4 Officers and Directors 5 Sales, Earnings and Dividend Record 6 Financial Condition and Capital Expenditures 7 Taxes and Manufacturing 8 Export and Leaf Tobacco 9 Research 12 Disposition of Total Earnings 13 Opinion of Certified Public Accountants 14 Consolidated Balance Sheet 16 Consolidated Earnings 17 Consolidated Retained Earnings and Notes to Financial Statements 18 Ten Years in Review 20 Advertising and Sales Promotion Li~gett & --NI~Ters Tobacco ConzpanjT 1960 Annual Report TIMN 446163

Liggett & Myers Tobacco Company Highlights of Operations 1960 1959 Net Sales ............... $543,172,587 $554,936,026 Earnings before taxes . . . . . . . . . . 62,712,895 65,074,689 Income and franchise taxes . . . . . . . 34,004,000 35,036,000 Earnings before preferred dividends . . . 28,708,895 30,038,689 Net earnings after preferred dividends .. 27,407,640 28,608,582 Percentage of net sales . . . . . . . . . 5.05 ~ 5.16°Jo Net earnings per share of common stock .. $6.96 $7.28 Dividends per share of common stock .. . $5.00 $5.75 Current assets . . . . . . . . . . . . . $354,845,972 $365,063,763 Current liabilities. . . . . . . . . . . , 21,463,405 32,906,832 Ratio . . . . . . . . . • • . . . . . . 16.5 to 1 11.1 to 1 Funded debt . . . . . . . . . . . . . . 78,500,000 84,250,000 Capital stock . . . . . . . . . . . . . . 116, 262,425 117,854,650 Additional paid-in capital . . . . . . . . 20,534,676 20,211,080 Retained earnings . . . . . . . . . . . 156,071,334 149,168,514 Approximate number of stockholders . . 48,200 47,000 2 TIMN 446164

J LIGGETT & MYERS TOBACCO COMPANY~~ Notice of Annual Meeting of Stockholders Notice is hereby given that the Annual Meeting of Stockholders of LIGGETT & MYERS TOBACCO COMPANY will be held at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M., on Tuesday, March 28, 1961 (1) to elect fourteen Directors for the ensuing year, (2) to consider and act upon the proposal of two stockholders to provide for election of Directors by cumulative voting, (3) to consider and act upon the proposal of two stockholders to change the location of the annual meeting from Jersey City to New York City, and to transact such other business as may properly come before the meeting, all as set forth in the follow- ing Proxy Statement. - Stockholders of record at the close of business on February 17, 1961 will be entitled to vote at the meeting. By order of the Board of Directors, R. M. CHENOWETH, Secretary New York, N. Y., February 24, 1961. The stock of the Company should be represented as fully as possible at the Annual Meeting. If you will not be present at the meeting please date, sign and return promptly the enclosed proxy in the accompanying envelope. PROXY STATEMENT Revocability of Proxy. The shares represented by all properly executed proxies which are sent to us will be voted in the man- ner specified. Under New Jersey law any person giving a proxy has the power to revoke it by written notice to the Secretary at any time before it is voted. Persons Making the Solicitation. The enclosed proxy is being solicited by the Management. The cost of solicitation will be paid by the Company. In addition to solicitation by mail, arrangements may be made with brokerage houses and other cus- todians, nominees and fiduciaries to send proxies and proxy material to their principals. No solicitation is to be made by specially engaged employees or other paid solicitors. T'oting Securities and Principal Holders Thereof. As of December 31, 1960, there were outstanding 177,861 shares of Preferred Stock and 3,939,053 shares of Common Stock, such stock being the voting stock of the Company. Each share of Preferred Stock (Par Value $100.00) entitles the holder to four votes and each share of Common Stock (Par Value $25.00) entitles the holder to one vote. As stated in the notice of meeting, stockholders of record at the close of business on February 17, 1961 will be entitled to vote at the meeting. Nominees and Directors. The number of Directors of the Company is fixed at fourteen who are annually elected and hold office until the next Annual Meeting of Stockholders, or until their successors are duly elected and qualified. It is intended that a vote under the proxy will be cast for the following nominees, who have been designated by the Board of Directors: J. B. ANDERSON, W. A. BLOUNT, L. W. BRUFF, F. R. DARKIS, 117. F. HARRINGTOl\T, F. H. HORAN, J. C. HUNDLEY, G. B. LEAKE, W. B. LEWIS. JR., C. G. 11cl1NLLAN, E. J. PARRISH, W. L. PERRY, L. D. THOMPSON and ZACH TOA1S. If any such nominee is not a candidate for election as a Director at the meeting, an event which the Management does not anticipate, the proxy will be voted for a substitute nominee and for the others named above. All of the foregoing persons are now Directors of the Company. TIMN 446165 ~~~

R'ith respect to each person nominated for election as a Director for the ensuing year, the following information is supplied: Principal Occupation Period served (in all cases as DiiPrtor NAn1P. with the Company) (Since Year) Shares of Common Stock Beneficially Owned December 31,1960 J. fl). A nderson .................. Treasurer 1958 400 W. A. 131ount ................... President (a) 1941 3,000 L. W. IiruR. ..................... dt•ertising Department Manager 1953 225 F. R. I)arki-s .................... Vice President and Director of Research 1956 700 A1. F. Harrington ................ Vice President and Leaf Department Manager 1955 310 F. H. Horan .................... Vice President and General Counsel (a) 1954 350 J. C. liundle}• .................. Branch Manager 1947 350 G. B. Leake .................... Assistant to Vice President 1959 195 W. B. Lewis, Jr .................. Vice President and Sales Manager (a) 1954 900 C. G. Mc'_1lullan ................. Branch Manager 1960 596 E. J. Parrish ................... Export Department Manager 1960 211 W. L. Perry .................... Vice President and Chairman of Executive Committee (a) 1950 3,500 L. D. Thompson ................. Vice President, Manu f acturing and Leaf (a) 1951 400 Zach Ton-is ..................... Executive Vice President (a) 1945 2,800 (a) Member of the Executive Committee. Mr. McMullan has been associated with the Company since 1925 and Manager of our Richmond, Vir- ginia Branch since 1947. He was elected a member of the Board of Directors on March 30, 1960. '11r. Parrish began his career -,cith the Company in 1934. During the past five years he has been Man- ager of the Export Department. He was elected a member of the Board of Directors on March 30, 1960. Remuneration and Other Transactions with Management and Others. For the calendar year 1960, the Company and its subsidiaries paid directly to each of its Directors and Officers. where the same exceeded $30,000, the following amounts: Name of Individual Capacities in or Identity Which Remuneration of Group was Received Direct Aggregate Remuneration (a) Estimated Annual Benefits Upon Retirement J. B. Anderson .................. Treasurer $45,000 $18,869 W. A. Blount ................... President 70.OOQ 25,000 L. W. Bruff ...................... drertising Department Manager 80,000 25,000 F. R. Darkis .................... Vice President and Director of Research 60,000 9,663 i1I. E. Harrington ............... Vice President and Leaf Department Manager 60,000 19,827 F. H. Horan .................... Vice President and General Counsel 45,000 25,000 J. C. Hundley .................. Branch Manager 50.000 15,322 G. B. Leake ..................... ssistant to Vice President 35,000 12,719 W. B. Lewis, Jr . ................ Vice President and Sales Manager 45,000 25,000 W. L. Perry .................... Vice President 48,000 25,000 L. D. Thompson ................. Vice President 100,000 25,000 Zach Toms ..................... Vice President and Secretary 48,000 25,000 Directors and Officers as a Group 734,750 (a) Does not include the deferred portion of compensation for 1960 provided for five of the senior officers, as ex- plained below. Under employment contracts with the Company, Messrs. W. A. Blount, F. H. Horan, W. B. Lewis, Jr., W. L. Perry and Zach Toms will each be entitled, contingent upon their compliance with certain conditions, to TIMN 446166

receive annual, post retirement compensation in varying amounts, payable to each participant in sixty equal monthly installments over a period of five years, the first thereof to be payable in the month next succeeding his retirement or termination of employment. The respective amounts of contingent compensation for 1960, payable to them during each of the five years after termination of employment and constituting, in each case, one-fifth of the contingently payable part of compensation for such year, are as follows: W. A. Blount, $26,000; F. H. Horan, $21,000; W. B. Lewis, Jr., $21,000; W. L. Perry, $22,400; Zach Toms, $22,400; and Directors and Officers as a Group, $112,800. Pursuant to the Incentive Stock Option Plan for Key Employees, the Company granted options on Febru- ary 17, 1960 to Directors and Officers named in the preceding tabulation to purchase shares of common stock of the Company at a price of $823/g per share as follows: J. B. Anderson, 400 shares; F. R. Darkis, 600 shares; M. E. Harrington, 400 shares; G. B. Leake, 200 shares; L. D. Thompson, 1,000 shares and Directors and Officers as a group, 2,600 shares. For each such option the option price is the closing market price on the day the option was granted and the duration is ten years from such date. Since the beginning of the last fiscal year and up to February 1, 1961 Directors and Officers exercised options to purchase 3,054 shares of the common stock of the Company. Of this number 100 shares were pur- chased at $62~~ per share and the balance were purchased at $67~g per share. The name of each such person, the number of such shares purchased by him and the market value per share (the mean between the high and low prices on the New York Stock Exchange) on each date of purchase are as follows: J. B. Anderson, 100, $83.13; F. R. Darkis, 200, $84.25 ; F. H. Horan, 200, $84.31; J. C. Hundley, 150, $85.31; C. G. McMullan, 104, $82.69; E. J. Parrish, 100, $84.25; V'. L. Perry, 1,500, $81.38; L. D. Thompson, 100, $84.25; and Zach Toms, 600, $82.19. Directors and Officers as a group purchased 750 shares of common stock of the Company during the first calender quarter of 1960 when the price range per share on the New York Stock Exchange was 89L50- $81.00; 1,500 shares during the third calendar quarter when such price range was $86.75-$80.125; 700 shares during the fourth calendar quarter when such price range was $85.375-$80.875; and 104 shares during the first calendar quarter of 1961 up to February 1, 1961, when such price range was $90.75-$81.375. STOCKHOLDERS' PROPOSALS LeN+-is D. Gilbert and John J. Gilbert of 1165 Park Avenue, New York 28, N. Y., who state that each owns 18 shares of Common Stock of the Company and that they represent a family interest of 18 additional shares, have jointly informed the Company in writing that they intend to present at the meeting the following resolutions for action by the stockholders: Proposal I "RESOLVED: That the stockholders of Liggett & 117yers 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 numher of shares he owns niultiplied 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 statement in support of this resolution submitted by such stockholders is as follows: "Last year 3,957 owners with 278,153 shares voted in favor of our similar resolution, an in- crease over the 2,696 owners with 175,777 shares who voted in its favor the year before. Cumulative voting is especially important at Liggett & Myers because of the company's prac- tice of placing only corporate officers on the Board of Directors. Cumulative voting would allow stock- holders to chose an 'outside' director who could be independent of management thinking when express- ing his views." For the following reasons the Directors recommend a vote against this proposal: It is the duty of the Board of Directors to administer the affairs of the Company for the benefit of ALL its stockholders. The present system of voting in this Company, under which the holders of a majority of the shares elect a Board, should result, and in our Company has resulted, in a Board each member of which looks after the interests of the whole group of stockholders and not of a small fraction. If the method of voting were changed as proposed, a Director elected only because of a cumulative voting provision might represent and TIMN 446167

act f,,r tlw benefit of a special interest, which might N%rll ht• contrary to the welfare of the stockholders as a whnle. It is recommended that the stockholders vote against this proposal. Pro posal ll "RESOLVED: That the stockholders of Lingett & Myers Tobacco Company, assembled in annual rnecting in person and by proxy, hereby request that the Board of Directors take the necessary steps to change the location of the annual meeting from Jersey City to New York City." Tlir statement in support of this resolution submitted by such stockholders is as follows: "Last year 2,831 owners with 213,354 shares voted in favor of our similar resolution. In its proxy statement arguments against our proposal management stated that stockholders miaht well be of the opinion that annual meetings should not be held in a location of special con- Venience to one relatively small group of owners. We agree and the solution lies in rotating the annual meeting to principal plant locations and to large cities such as New York. Adoption of this resolution would be a step in the right direction." F or the following reasons the Directors recommend a vote against this proposal: Since its incorporation under the laws of New Jersey in 1911 this Company has always held its meet- inp N+ithin the boundaries of its corporate home state. For many years the meetings were invariably held in Jersey City. In 1943, for local tax reasons, the meeting was moved to Flemington. Three years ago, the reason for that move having disappeared, it was thought desirable to return to the historical place of ineeting, Jersey City. Except for a few stockholders that location is as convenient as any in the New York-New Jersey metro- politan area. It must also be remembered that ours is a large national group of stockholders who could rea- sonably believe that meetings should not be set for a place of special convenience for one relatively small group or for a number of even smaller groups of stockholders by rotating the places of such meetings. It is recommended that the stockholders vote against this proposal. Other I<latters. As of this date the AZanagement knows of no business which will come before the meeting other than that aho~-e set forth, but if any other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best jud`ment. The Company's accounts for the year 1960 and for many prior years have been audited by Messrs. Haskins & Sells, independent public accountants. Thev are appointed each year by resolution of theyBoard of Directors. A member of that firm will be present at the Annual Meeting and will be available to answer such questions as may properly be asked of him. Upon written request to the Secretary of the Company, there will be furnished to any Stockholder a re- port of the Annual 117eeting that will be prepared as soon as practicable after the meeting has been held. The Stocb-holders are urged to send in their proxies without delay. Prompt response is helpful and your cooperation rrill be appreciated. By Order of the Board of Directors, R. D7. CHENOWETH, Secretary New Y ork, N. Y., February 24, 1961 TIMN 446168

WILLIAM A. BLOUNT To the Stockholder•s: This 1960 Annual Report, the 50th report of Liggett & Myers Tobacco Company, presents the operations and audited financial statements of the Company for the year 1960, with comparative figures for the previous year. Research has long been an important activity of our Company. One of the most significant developments during the past year was the com- pletion of the new wing and dedication of the Company's Research Center in Durham, North Carolina. This expansion should provide the necessary space for our growing research program over the next decade. In the following pages we give you a more detailed report about our research activities which we hope will be of interest. There is good reason for an optimistic outlook in the cigarette industry today. Domestic consumption of cigarettes reached a new high level in 1960 for the sixth consecutive year. The outlook for the next several years should be equally promising. While the Company is unable to report an increase in sales for last year, there are encouraging signs in our business for the future. The sale of CHESTERFIELD king size cigarettes continued its upward trend. The decline in sales of CHESTERFIELD regular size, which has persisted for several years, continued in 1960 but at a reduced rate. The sale of L&M king size cigarettes also showed a healthy increase during the past year. We have strengthened the OASIS advertising and redesigned the package and carton in an effort to gain a larger share of the menthol cigarette market. We are hopeful that these changes will produce results. On behalf of the entire organization, I wish to express appreciation to the shareowners for their continued confidence, interest and helpfulness during the past year. February 3, 1961 «'ILLIA;1i A. BLOUNT President 3 TIMN 446169

Liggett & Myers Tobacco Company F:xecutive Offices - 630 Fifth Avenue, New York 20, N. Y. Officers Directors VVILLIAM A. BLOUNT President & Chie f Executive O fficer ZACH TOMs Executive Vice President WILLIAM L. PERRY Vice President & Chairman of Executive Committee .i . T;- ar._ .,• ~ILLiAM B. LEWis, JR. Vice President, Sales FRANCIS H. HORAN Vice President & General Counsel LOY D. THOMPSON Vice President, Production MILTON E. HARRINGTON Vice President, Lea f FREDERICK R. DARKIS Vice President & Director of Research J. BOwLING ANDERSON Treasurer RUSSELL M. CHENOWETH Secretary RALPH P MoORE Assistant Treasurer RUSSELL G. CUTTER Auditor FREDERICK J. GRAEFF Assistant Secretary RUFUS H. HOSEA Assistant Secretary CHARLES B. MORGENTHALER Assistant Secretary J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W BRUFF FREDERICK R. DARKIs MILTON E. HARRINGTON FRANCIS H. HORAN J. CAMDEN HUNDLEY GRAYDON B. LEAKE WILLIAM B. LEWIS, JR. C. GRICE MCMULLAN EDWARD J. PARRISH WILLIAM L. PERRY LOY D. THOMPSON ZACH TOMS Transfer Agent - Chemical Bank New York Trust Co., 30 Broad Street, New York 15, N. Y. Registrar - The First National City Bank of New York, 55 Wall Street, New York 15, N. Y. Executive Personnel 4 At its meeting on March 30, 1960, the Board of Directors voted to increase the number of Directors of the Company from 12 to 14. C. Grice McMullan, Manager of the Richmond Branch and Edward f. Parrish, Manager of the Export Department of the Company were elected to fill the new positions on the Board. Two new Vice Presidents were elected by the Board of Directors at the March 30, 1960 meeting. These were Dr. Frederick R. Darkis, Director of Research and Milton E. Harring- ton, Leaf Department Manager. At the same meeting Russell M. Chenoweth was elected Secretary of the Company to succeed Zach Toms who resigned from that position. TIMN 446170