Tobacco Holdings, Inc.

To the Stockholders of R.J. Reynolds Tobacco Holdings, Inc.:

I am pleased to invite you to attend the special American's common stock outstanding at the time ofmeeting of stockholders of R.J. Reynolds Tobacco the closing.Holdings, Inc. to be held on July 28, 2004. At the

The combination agreement must be adopted by RJRspecial meeting, RJR will ask you to vote on a proposal

stockholders. Whether or not you plan to attend theto adopt a combination agreement that RJR entered

special meeting, please take the time to submit yourinto with Brown & Williamson Tobacco Corporation

proxy. Voting instructions are inside this document.on October 27, 2003, and to approve the relatedcombination transactions. Pursuant to the combination The RJR board of directors unanimously has approvedagreement, RJR Tobacco will combine with B&W's the combination agreement and related combinationU.S. cigarette and tobacco business. The full transactions and unanimously has determined that theintegration of the companies is anticipated to generate combination transactions are advisable and in the bestat least $500 million in annualized cost savings interests of RJR and its stockholders. The RJR boardbeginning between 18 and 24 months after the closing. of directors recommends that you vote ""for'' the

adoption of the combination agreement and theThe combination transactions will result in the approval of the related combination transactions andcreation of a new North Carolina holding company ""for'' the approval of the adjournment of the specialnamed Reynolds American Inc. It is expected that the meeting, if necessary, to solicit additional proxies ifReynolds American common stock will be listed on there are insucient votes at the time of the specialthe NYSE under the symbol ""RAI.'' There is meeting to approve the proposal to adopt thecurrently no public trading market for the shares of combination agreement and approve the relatedReynolds American common stock. combination transactions.

If the combination transactions are completed, you This document describes the combination agreementwill be entitled to receive one share of Reynolds and the proposed combination transactions andAmerican common stock for each share of RJR provides specic information concerning the specialcommon stock you own, and B&W will hold shares meeting. You are encouraged to read this entirerepresenting approximately 42% of Reynolds document carefully.

Andrew J. SchindlerChairman of the Board, President andChief Executive Ocer

R.J. Reynolds Tobacco Holdings, Inc.

For a discussion of certain risk factors that you should consider in evaluating the combination transactions and aninvestment in Reynolds American, see ""Risk Factors'' beginning on page 16.

Neither the Securities and Exchange Commission nor any state securities commission has approved ordisapproved of the Reynolds American common stock to be issued in the combination transactions ordetermined if this document is truthful or complete. Any representation to the contrary is a criminal oense.

This document is dated June 23, 2004, and is rst being mailed to RJR stockholders on or about June 28, 2004.

Tobacco Holdings, Inc.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERSTO BE HELD JULY 28, 2004

RJR will hold a special meeting of its stockholders on July 28, 2004, at 9:00 a.m. (local time) in the RJRPlaza Building Auditorium, 401 North Main Street, Winston-Salem, North Carolina, to consider and vote on thefollowing:

1. A proposal to adopt the combination agreement, dated as of October 27, 2003, between RJR andBrown & Williamson Tobacco Corporation, as amended, and to approve the related combinationtransactions pursuant to which, among other things:

RJR will merge with a new wholly owned subsidiary of Reynolds American and become a whollyowned subsidiary of Reynolds American;

Upon completion of the merger, each share of RJR common stock outstanding immediately prior tothe merger will be converted into the right to receive one share of Reynolds American common stock;

B&W will contribute its U.S. cigarette and tobacco business to Reynolds American; and

RJR stockholders, in the aggregate, will be entitled to receive approximately 58% and B&W will holdapproximately 42% of Reynolds American common stock outstanding upon completion of thecombination transactions.

2. A proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies ifthere are insucient votes at the time of the special meeting to approve the rst proposal described above.

A copy of the combination agreement is attached to this document as Annex A. The articles of incorporation andbylaws of Reynolds American are set forth in Annexes C and D to this document.

Only RJR's stockholders of record at the close of business on June 16, 2004, are entitled to notice of, and tovote at, the special meeting and any adjournments or postponements of the special meeting. No business otherthan the proposals described in this notice will be considered at the special meeting or any adjournment orpostponement thereof. A complete list of RJR's stockholders of record entitled to vote at the special meeting willbe available for inspection at the special meeting.

Your vote is very important, regardless of the number of shares you own. RJR cannot complete thecombination transactions unless the combination agreement is adopted by the armative vote of the holders of amajority of the shares of RJR common stock outstanding and entitled to vote at the special meeting. Please submityour proxy as soon as possible to make sure that your shares are represented at the special meeting.

For your shares to be voted, you may complete, sign, date and return the enclosed proxy card or you maysubmit your proxy by telephone or over the Internet. If you are a holder of record, you may also cast your vote inperson at the special meeting. If your shares are held in an account at a brokerage rm or bank, you must instructthem on how to vote your shares. If you do not submit your proxy, vote in person or instruct your broker or bankhow to vote, it will have the same eect as voting against the adoption of the combination agreement and approvalof the related combination transactions.

The RJR board of directors unanimously recommends that you vote ""for'' the adoption of the combinationagreement and the approval of related combination transactions which are described in detail in theaccompanying document and ""for'' the approval of the adjournment of the special meeting, if necessary, to solicitadditional proxies.

Attendance at the special meeting will be limited to our stockholders as of June 16, 2004, and to guests ofRJR. Admittance tickets will be required. If you are a stockholder and plan to attend, you MUST request anadmittance ticket by writing to the Oce of the Secretary, R.J. Reynolds Tobacco Holdings, Inc., 401 North MainStreet, P.O. Box 2866, Winston-Salem, North Carolina 27102-2866. If your shares are not registered in your ownname, evidence of your stock ownership as of June 16, 2004, must accompany your letter. You can obtain thisevidence from your bank or brokerage rm, typically in the form of your most recent monthly statement. Anadmittance ticket will be held in your name at the registration desk, not mailed to you in advance of the meeting.

We anticipate that a large number of stockholders will attend the meeting. Seating is limited, so we suggestyou arrive early. The auditorium will open at 8:30 a.m.

By Order of theRJR Board of Directors,

McDara P. Folan, IIISecretary

June 23, 2004Winston-Salem, North Carolina

REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and nancial information about RJR from RJR's 2003annual report previously mailed to RJR's stockholders and from annual, quarterly and other reports that RJRhas led with the Securities and Exchange Commission, or will le between the date of this document and thedate of the special meeting, and which are not included in or delivered with this document. For a listing of thedocuments incorporated by reference, please see ""Where You Can Find More Information'' beginning onpage 209. This information is available to you without charge upon your written or oral request. You canobtain the documents incorporated by reference by requesting them in writing from RJR at the followingaddress or by telephone:

R.J. Reynolds Tobacco Holdings, Inc.Attention: Corporate Secretary

401 North Main StreetP.O. Box 2866

Winston-Salem, North Carolina 27102-2866(336) 741-5500

If you would like to request documents, please do so by July 16, 2004, in order to receive them before thespecial meeting. In addition, if you have any questions about the special meeting, the combination agreementor related combination transactions, you may contact:

MacKenzie Partners, Inc.105 Madison Avenue

New York, New York 10116(800) 322-2885 (toll free)

or(212) 929-5500 (collect)

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT Accounting Treatment 53THE SPECIAL MEETING 1 Regulatory Approvals 53

SUMMARY 4 Federal Securities Laws Consequences;SUMMARY SELECTED HISTORICAL Stock Transfer Restrictions 53

AND UNAUDITED PRO FORMA Interests of Directors and Management ofFINANCIAL DATA 12 RJR in the Combination Transactions 54Selected Historical Consolidated Financial Contracts, Arrangements, Understandings

Data of RJR 12 or Relationships Between B&W andSelected Historical Consolidated Financial Reynolds American 57

Data of B&W/Lane 14 Absence of Appraisal Rights; Listing ofSelected Unaudited Pro Forma Combined Reynolds American Common Stock 57

Financial Data of Reynolds American 15 MARKET PRICE AND DIVIDENDRISK FACTORS 16 INFORMATION 58

CAUTIONARY STATEMENT Market Price 58REGARDING FORWARD-LOOKING Recent Closing Prices 58STATEMENTS 28 RJR and Reynolds American Dividend

THE SPECIAL MEETING 29 Policies 58Date, Time and Place 29 RJR and Reynolds American StockPurpose of the Special Meeting 29 Repurchase Programs 59

Record Date; Shares Entitled to Vote; UNAUDITED PRO FORMA COMBINEDQuorum 29 FINANCIAL INFORMATION 60

Vote Required 29 MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIALStock Ownership of RJR Directors andCONDITION AND RESULTS OFExecutive Ocers 30OPERATIONS 72Attendance at the Special Meeting 30RJR 72Submitting Your Proxy by Mail 30B&W/Lane 72Submitting Your Proxy by Telephone 30

REYNOLDS AMERICAN BUSINESS 96Submitting Your Proxy by Internet 30General 96Shares Registered in the Name of aIndustry Overview 98Brokerage Firm, Bank or Other

Nominee 30 Competition 98

Other Proxy Information 30 Strategy 99

Voting of Proxies 31 Marketing 99

Revocability of Proxies 31 Manufacturing and Distribution 100

Solicitation of Proxies 32 Raw Materials 100

THE COMBINATION TRANSACTIONS 33 Research and Development 101

Background of the Combination Intellectual Property 101Transactions 33 Legislation and Other Matters Aecting

Recommendation of RJR's Board of the Cigarette Industry 101Directors; Reasons of RJR for the Litigation Affecting the Cigarette Industry 102Combination Transactions 38 ERISA Litigation 135

Opinions of Financial Advisors to RJR 40 Environmental Matters 136Synergies Anticipated by RJR 48 Other Contingencies 137Material U.S. Federal Income Tax Employees 138

Consequences 48

i

DIRECTORS AND MANAGEMENT OF SECURITY OWNERSHIP OF CERTAINREYNOLDS AMERICAN 139 BENEFICIAL OWNERS AND

MANAGEMENT 193Directors 139Stock Ownership of Directors andCommittees of the Board of Directors of

Management 193Reynolds American 144Stock Ownership of PrincipalReynolds American Management 144

Stockholders 194Director and Management Compensation 149DESCRIPTION OF REYNOLDSTHE COMBINATION TRANSACTION

AMERICAN CAPITAL STOCK 196AGREEMENTS 150Authorized Shares 196The Combination Transactions 150Common Stock 196Combination Agreement 152Series A Preferred Stock 196Formation Agreement 164Series B Preferred Stock 198Lane Purchase Agreement 167

COMPARISON OF RIGHTS OF RJRGovernance Agreement 173STOCKHOLDERS AND REYNOLDS

Non-competition Agreement 186AMERICAN SHAREHOLDERS 200

Contract Manufacturing Agreement forLEGAL OPINIONS 206

BAT 190EXPERTS 207

Contract Manufacturing Agreement forFUTURE STOCKHOLDER PROPOSALS 208Lane 191

RJR 2004 Annual Meeting 208

Reynolds American 2005 Annual Meeting 208

WHERE YOU CAN FIND MOREINFORMATION 209

INDEX OF DEFINED TERMS 210

ANNEXES

Annex A Combination Agreement

Annex B Form of Governance Agreement

Annex C Form of Reynolds American Amended and Restated Articles of Incorporation

Annex D Form of Reynolds American Amended and Restated Bylaws

Annex E Opinion of Lehman Brothers Inc.

Annex F Opinion of J.P. Morgan Securities Inc.

ii

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

Below are brief answers to frequently asked questions concerning the combination transactions and thespecial meeting. These questions and answers do not, and are not intended to, address all of the informationthat may be important to you. You are urged to read this entire document carefully and the other documents towhich RJR and Reynolds American refer you.

Q: Why is the RJR board of directors Q: What stockholder approvals are needed torecommending that you vote ""for'' the adoption approve the proposals?of the combination agreement and the approval

A: The adoption of the combination agreement andof the related combination transactions?the approval of the related combination

A: The RJR board of directors believes: transactions require the armative vote of theholders of a majority of the shares of RJR

the combination transactions will combine thecommon stock outstanding and entitled to vote

businesses of two highly regarded industryat the special meeting. The proposal to adjourn

participants with strong brands;the special meeting, if necessary, to solicit

decreases in RJR Tobacco's total annual additional proxies requires the approval of thedomestic shipment volume of 11.7%, 0.2% holders of a majority of the shares of RJRand 5.9% in 2003, 2002 and 2001, common stock represented and entitled to voterespectively, make it necessary for RJR thereon at the special meeting.Tobacco to reduce costs to maintain its

Q: If I would like to submit a proxy, what do Icompetitiveness with manufacturers of deep-need to do now?discount brands and oset the eect of

increasing excise taxes on the volume of A: After carefully reading and considering thecigarettes sold; and information contained in this document, please

submit your proxy as soon as possible so that the combined company will be a moreyour shares may be represented at the specialecient and competitive company withmeeting.increased cash ows, capital eciencies and

expected annual synergies of at least If your RJR shares are not held in ""street$500 million at a one time estimated name,'' which means your shares are not held ofaggregate cost of approximately $700 million record by your broker, bank or other nominee,to $800 million based on information there are three ways to submit your proxy:currently available.

you can submit your proxy by telephone untilYou should review in more detail the RJR board

11:59 p.m. Eastern Time on July 27, 2004of directors' additional reasons for the

(July 25, 2004 with respect to shares held incombination transactions beginning on page 38.

the R.J. Reynolds Capital Investment Plan orin the Savings and Investment Plan forQ: Are there any important risks about theEmployees of R.J. Reynolds Tobacco incombination transactions or ReynoldsPuerto Rico) by calling (800) 690-6903 (tollAmerican's business of which I should befree) on a touch-tone telephone and followingaware?the instructions on the proxy card;

A: Yes, there are important risks involved. Beforemaking any decision on whether and how to you can submit your proxy by Internet untilvote, RJR and Reynolds American urge you to 11:59 p.m. Eastern Time on July 27, 2004read carefully and in its entirety the section (July 25, 2004 with respect to shares held inentitled ""Risk Factors'' beginning on page 16. the R.J. Reynolds Capital Investment Plan or

in the Savings and Investment Plan forQ: When and where is the special meeting?

Employees of R.J. Reynolds Tobacco inA: The special meeting will take place on July 28, Puerto Rico) by logging onto the Internet,

2004, at 9:00 a.m. (local time) in the RJR Plaza going to the website ""www.proxyvote.com''Building Auditorium, 401 North Main Street, and following the instructions on yourWinston-Salem, North Carolina. computer screen; or

1

you can submit your proxy by mail by In addition, you may attend the special meetingcompleting, signing and dating the enclosed in person and vote. Simply attending the specialproxy card and returning it promptly in the meeting, however, without voting will not revokeaccompanying envelope, which is postage- your proxy. Correspondence to the secretary ofpaid if mailed in the United States, for receipt RJR should be sent to R.J. Reynolds Tobaccoprior to the date of the special meeting. Holdings, Inc., Attention: Corporate Secretary,

401 North Main Street, P.O. Box 2866,If you sign, date and send your proxy and do not Winston-Salem, N.C. 27102-2866. If you holdindicate how you want to vote, your proxy will your RJR shares in ""street name'' and you havebe voted for the proposal. instructed your broker, bank or other nominee to

vote your shares, you must follow the directionsQ: If my RJR shares are held in ""street name'' by provided by your broker, bank or other nominee

my broker, will my broker vote my shares for to change your vote or vote in person.me?

Q: What will happen if I abstain from voting orA: Your broker, bank or other nominee will vote fail to vote?

your RJR shares for you only if you provideinstructions to it on how to vote. Please refer to A: An abstention or failure to vote will have thethe voting instruction card used by your broker, same eect as a vote against:bank or other nominee to see if you may submitvoting instructions using the telephone or the adoption of the combination agreementInternet. If you do not give voting instructions to and approval of the related combinationyour broker, your vote will not be counted, transactions; andwhich will have the same eect as a vote againstthe adoption of the combination agreement and the approval of the proposal to adjourn theapproval of the related combination special meeting to solicit additional proxies.transactions, unless you appear and vote inperson at the special meeting. If your broker, Q: When do RJR, B&W and Reynolds Americanbank or other nominee holds your RJR shares expect to complete the combinationand you wish to attend the special meeting, transactions?please bring a letter from your broker, bank orother nominee identifying you as the benecial A: RJR, B&W and Reynolds American areowner of the shares and authorizing you to vote working to complete the combinationat the special meeting. transactions as soon as possible. The goal is to

complete the combination transactions mid-Q: What do I do if I want to change my vote or vote 2004. However, because the combination

in person? transactions are subject to governmentalapprovals and other conditions, RJR and

A: There are two ways to change your vote after Reynolds American cannot predict the exactyou have submitted your proxy card: timing of the completion of the combination

transactions. you may send a later-dated, signed proxy card

to the secretary of RJR, which must be Q: Should I send in my RJR stock certicatesreceived prior to the date of the special now?meeting; or

A: No. After the combination transactions are you may send a notice of revocation to the completed, Reynolds American will send you

secretary of RJR, which must be received written instructions for exchanging your RJRprior to the date of the special meeting. stock certicates.

2

Q: Who can help answer my questions?

A: If you have any questions about the special ormeeting or the combination transactions, or if

MacKenzie Partners, Inc.you need additional copies of this document or

105 Madison Avenuethe enclosed proxy card, you should contact:

New York, New York 10116R.J. Reynolds Tobacco Holdings, Inc. (800) 322-2885 (toll free)Attention: Corporate Secretary or401 North Main Street (212) 929-5500 (collect)P.O. Box 2866Winston-Salem, North Carolina 27102-2866(336) 741-5500

The following chart depicts the organization of Reynolds American upon completion of the combinationtransactions.

B&W

100%

100%

42%Common Stock

58%Common Stock

100%Reynolds American

Series BPreferred Stock

Santa FeCMSI

ReynoldsTobacco

ReynoldsAmerican

RJR

Former RJRStockholders

Lane

100%

3

SUMMARY

This summary highlights material information from this document. This summary may not contain allof the information that is material or important to you. To understand the combination transactions fully andfor a more complete description of the terms of the combination agreement, you are urged to read thisdocument carefully in its entirety, including the Annexes and the other documents to which you have beenreferred. For a discussion of the risk factors that you should consider, see ""Risk Factors'' beginning onpage 16.

Throughout this document, when the term ""RJR'' is used, it is referring to R.J. Reynolds TobaccoHoldings, Inc.; when the term ""RJR Tobacco'' is used, it is referring to R.J. Reynolds Tobacco Company, adirect, wholly owned subsidiary of RJR; when the term ""Reynolds American'' is used, it is referring toReynolds American Inc., the newly formed holding company that will own RJR, Reynolds Tobacco, Santa Feand Lane, and shares of which will be publicly traded following the completion of the combinationtransactions; when the term ""Reynolds Tobacco'' is used, it is referring to the surviving corporation from themerger of RJR Tobacco with and into a new wholly owned subsidiary of B&W that will hold the assets andliabilities of B&W's U.S. cigarette and tobacco business and that will be contributed by B&W to ReynoldsAmerican prior to the merger with RJR Tobacco; when the term ""Santa Fe'' is used, it is referring to Santa FeNatural Tobacco Company, Inc., a direct, wholly owned subsidiary of RJR and manufacturer and distributorof cigarette and other tobacco products under the NATURAL AMERICAN SPIRIT brand and that will be adirect, wholly owned subsidiary of Reynolds American following the completion of the combinationtransactions; when the term ""Lane'' is used, it is referring to Lane Limited, an indirect, wholly ownedsubsidiary of BAT that manufactures or distributes roll-your-own cigarette, cigar and pipe tobacco brands andother tobacco products, including DUNHILL and CAPTAIN BLACK tobacco products, and that will be anindirect, wholly owned subsidiary of Reynolds American following the completion of the combinationtransactions; when the term ""CMSI'' is used, it is referring to Cigarette Manufacturers Supplies Inc., the directparent of Lane; when the term ""BAT'' is used, it is referring to British American Tobacco p.l.c.; when the term""B&W'' is used, it is referring to Brown & Williamson Tobacco Corporation, an indirect, wholly ownedsubsidiary of BAT; and when the term ""combination transactions'' is used, it is referring collectively to thetransactions contemplated by the combination agreement, the formation agreement, the governanceagreement, the Lane purchase agreement and the documents referred to therein. A chart depicting theorganization of Reynolds American upon completion of the combination transactions is set forth on page 3.For a list of other dened terms used herein, see ""Index of Dened Terms'' on page 210.

All capitalized brand names of cigarette and tobacco products described in this document are trademarksof their respective owners.

The Companies

R.J. REYNOLDS TOBACCO HOLDINGS, INC. United States. RJR Tobacco's largest selling401 North Main Street cigarette brands, CAMEL, WINSTON, SALEMP.O. Box 2866 and DORAL, were four of the top ten best-sellingWinston-Salem, North Carolina 27102-2866 brands of cigarettes in the United States in 2003.(336) 741-5500 Those brands, and RJR's other brands, including

VANTAGE, MORE and NOW, are manufacturedRJR is a holding company whose shares are listed

in a variety of styles and marketed in the Unitedon the NYSE under the symbol ""RJR.'' RJR's

States to meet a range of adult smoker preferences.wholly owned operating subsidiaries include RJR

RJR was incorporated in Delaware in 1970.Tobacco and Santa Fe. RJR Tobacco is the secondlargest cigarette manufacturer and marketer in the

4

BROWN & WILLIAMSON TOBACCO What RJR Stockholders Will Receive in the RJRCORPORATION Merger (Page 150)

401 South Fourth StreetUpon completion of the RJR merger, each RJR

Louisville, Kentucky 40202stockholder will be entitled to receive one share of

(502) 568-7000Reynolds American common stock for each share ofRJR common stock owned on the closing date.

B&W is the third largest cigarette manufacturer andThese shares in the aggregate will constitute

marketer in the United States. B&W is an indirect,approximately 58% of the outstanding Reynolds

wholly owned subsidiary of BAT. B&W's principalAmerican common stock on the closing date.

domestic cigarette brands in the United Statesinclude KOOL, PALL MALL, CAPRI, MISTY What B&W Will Contribute to Reynoldsand GPC. These brands, and B&W's other brands, American (Page 151)including CARLTON, LUCKY STRIKE and

B&W and its aliates will transfer to a new whollyVICEROY, are manufactured in a variety of stylesowned subsidiary of B&W, which is referred to asand marketed in the United States to meet a range""B&W Opco,'' all of the assets and liabilities of itsof adult smoker preferences. In addition, B&W isU.S. cigarette and tobacco business, subject toengaged in non-U.S. tobacco businesses, consistingspecied exceptions, and an amount of cashprimarily of tobacco distribution, marketing andsucient to pay all accrued liabilities of B&W as ofmanufacturing for export, including tobaccothe closing date under the Master Settlementbusinesses in Japan and Korea. B&W wasAgreement with 46 U.S. states, the District ofincorporated in Delaware in 1927.Columbia and ve U.S. territories, referred to as the""MSA,'' and specied settlement agreements withREYNOLDS AMERICAN INC.various other states. At the closing, B&W then will401 North Main Streetcontribute all of the B&W Opco capital stock toP.O. Box 2990Reynolds American, which is referred to as theWinston-Salem, North Carolina 27102-2990""B&W Opco stock contribution.''(336) 741-2000

Following the completion of the combinationReynolds American was formed in January 2004 as transactions, B&W will remain an indirect, whollya North Carolina corporation and is currently owned subsidiary of BAT and will hold the shares ofowned 50% by B&W and 50% by RJR. To date, Reynolds American received in the combinationReynolds American has not conducted any transactions. In addition, B&W will continue to ownactivities other than those related to its formation its non-U.S. tobacco businesses and hold otherand the completion of the combination transactions. specied assets and liabilities.Upon completion of the combination transactions, it

Following the closing, B&W Opco will indemnifyis expected that Reynolds American common stockB&W and its aliates for, among other things, allwill be listed on the NYSE under the symbolliabilities arising before or after the closing that""RAI''.relate to B&W's U.S. cigarette and tobaccobusiness. These liabilities include B&W's historic

The Combination Transactions and future tobacco-related litigation liabilities andall liabilities under the MSA and other state

A chart depicting the organization of Reynolds settlement agreements with respect to B&W'sAmerican upon completion of the combination U.S. tobacco and cigarette business. B&W Opcotransactions is set forth on page 3. will not assume responsibility for any of B&W's pre-

closing indebtedness for borrowed money.

RJR Merger (Page 150)Purchase of Lane (Page 151)

As part of the combination transactions, a new As part of the combination transactions, awholly owned subsidiary of Reynolds American will subsidiary of BAT will sell all of the capital stock ofmerge with and into RJR, and RJR will be the the parent company of Lane to Reynolds Americansurviving corporation. This transaction is referred to for an aggregate cash purchase price ofas the ""RJR merger.'' $400 million. Upon completion of the combination

5

transactions, Lane will be an indirect, wholly owned Nomination of Reynolds American Directors;subsidiary of Reynolds American. Number and Composition of Board Committees

(Page 173)Contribution of Santa Fe to Reynolds American

On the closing date, Reynolds American, BAT and(Page 151)B&W will enter into a governance agreement

As part of the combination transactions, RJR will pursuant to which B&W will be entitled tocontribute all of the capital stock of Santa Fe to nominate a number of directors on the ReynoldsReynolds American in exchange for shares of American board of directors in approximateSeries B preferred stock of Reynolds American. proportion to its ownership interest in ReynoldsUpon completion of the combination transactions, American. For example, B&W will have the right toSanta Fe will be a direct, wholly owned subsidiary nominate 5 of 13 directors as long as B&W'sof Reynolds American. ownership interest in Reynolds American is at least

32%.Post-Closing Merger of B&W Opco and RJRTobacco (Page 152) The Reynolds American board of directors will have

at least three committees: audit, corporateFollowing the completion of the combinationgovernance and nominating, and compensation.transactions, Reynolds American will contribute allThese three committees will consist entirely ofof the B&W Opco capital stock to RJR.independent directors. The governance agreementSubsequently, RJR Tobacco will merge with andprovides that each committee of the Reynoldsinto B&W Opco, and B&W Opco will be theAmerican board of directors will have at least vesurviving corporation. The surviving corporation ismembers with proportionate representation byreferred to as ""Reynolds Tobacco.''B&W's board designees on each committee.

Directors and Senior Executives of ReynoldsBoard Approval Rights (Page 176)American Immediately Following the Completion

of the Combination Transactions (Page 139)Pursuant to the governance agreement, the approval

Upon completion of the combination transactions, of a majority of B&W's designees on the Reynoldsthe Reynolds American board of directors will American board of directors will be required inconsist of 13 members, including: connection with the following matters:

Mr. Andrew J. Schindler, the current chairman any issuance of Reynolds American securities inof the board, chief executive ocer and president excess of 5% of its outstanding voting stock,of RJR; unless at such time B&W's ownership interest in

Reynolds American is less than 32%; and Ms. Susan M. Ivey, the current chairman of theboard, chief executive ocer and president of any repurchase of Reynolds American commonB&W; stock, subject to a number of exceptions, unless at

such time B&W's ownership interest in Reynolds six of the current independent RJR directors, whoAmerican is less than 25%.are identied beginning on page 140; and

ve directors designated by B&W, at least three Shareholder Approval Rights (Page 176)of whom will be independent directors and no

Pursuant to the governance agreement, the approvalmore than two of whom will be executives of

of B&W, as a Reynolds American shareholder, willB&W or its aliates, some of whom are

be required in connection with, among other things,identied beginning on page 140.

the following matters:Mr. Schindler will be the executive chairman of

the sale or transfer of certain Reynolds AmericanReynolds American for the six-month period

intellectual property associated with B&W brandsfollowing the completion of the combination

having an international presence, other than intransactions and is expected to be the non-executive

connection with a sale of Reynolds American;chairman thereafter. Reynolds American does notcurrently anticipate that it would have an executive Reynolds American's adoption of any takeoverchairman during the term that Mr. Schindler serves defense measures that would apply to theas the non-executive chairman. Ms. Ivey will be the acquisition of equity securities of Reynoldschief executive ocer of Reynolds American. American by B&W or its aliates, other than the

6

adoption of the Reynolds American rights plan; voting stock. In addition, BAT and B&W mayand terminate the governance agreement as follows:

if Reynolds American or the Reynolds American Reynolds American's participation in anyboard of directors or any board committee, intransaction that would be reasonably expected toexercising its duciary duties, fails to implementjeopardize B&W's tax ruling obtained inB&W's board of directors and board committeeconnection with, or B&W's tax-free treatment of,representation rights, or willfully and deliberatelythe combination transactions.overrides B&W's board and shareholder approval

B&W/BAT Standstill (Page 180) rights and such breach is not cured, then BATand B&W may terminate the standstill provisions

Under the governance agreement, B&W and BATand the entire governance agreement; and

have agreed, with specied exceptions, not to if Reynolds American or the Reynolds Americanacquire additional Reynolds American shares if, as

board of directors willfully and deliberatelya result of such acquisition, the voting interest ofbreaches materially B&W's board of directorsBAT and its subsidiaries would exceedand board committee representation rightsapproximately 42%. B&W's ownership interest inwithout a duciary duty exception, and suchReynolds American will, however, be permitted tobreach is not cured, then BAT and B&W mayexceed 42% to the extent Reynolds Americanterminate the standstill provisions and all of theirrepurchases shares of its common stock.other obligations under the governance

B&W and BAT also have agreed not to take certainagreement, but BAT and B&W will retain all of

actions, including soliciting proxies for anytheir board, approval and other rights under the

shareholder proposal, seeking additionalgovernance agreement.

representation on the Reynolds American board ofReynolds American may terminate certain of BAT'sdirectors, participating in a group with respect toand B&W's board of directors and board committeeReynolds American common shares and proposingrepresentation rights under the governance agreementa merger or other sale of Reynolds American.in the event BAT or B&W willfully and deliberatelyHowever, if a third party makes an oer to acquireviolates the standstill provisions and such breach is not30% or more of Reynolds American's capital stockcured; however, the Reynolds American rights planor assets, B&W and BAT may make a proposal towould continue to apply to BAT and its subsidiariesacquire additional Reynolds American capital stock.and BAT and its subsidiaries would continue to have

These standstill restrictions expire on the earlier of registration rights so long as they still held registrablethe tenth anniversary of the completion of the securities, see ""The Combination Transactioncombination transactions and the termination of the Agreements Governance Agreement Effect ofstandstill provisions as described under ""The Termination of the Governance Agreement onCombination Transaction Agreements Reynolds American's Rights Plan'' beginning onGovernance Agreement Termination'' beginning page 185.on page 183; however, the Reynolds American

The Reynolds American Articles of Incorporationrights plan would continue to apply to BAT and itsand Bylaws (Annexes C and D)subsidiaries, see ""The Combination Transaction

Agreements Governance Agreement Eect of The Reynolds American articles of incorporationTermination of the Governance Agreement on and bylaws set forth certain of the rights,Reynolds American's Rights Plan'' beginning on preferences, powers and restrictions of Reynoldspage 185. American's shareholders. These documents are

attached as Annexes C and D to this document.Termination of Governance Agreement

You are urged to read these documents as they will(Page 183)

govern your rights as a shareholder of ReynoldsThe governance agreement (other than registration American.rights provisions and certain other specied

Rights of Reynolds American Shareholdersprovisions) will terminate automatically if B&W's(Page 200)ownership interest in Reynolds American equals

100% or is less than 15%, or any non-BAT person or Reynolds American is incorporated under the lawsgroup owns more than 50% of Reynolds American of North Carolina. RJR is incorporated under the

7

laws of Delaware. You are urged to read the section to the tax treatment relevant to B&W, RJR'sentitled ""Comparison of Rights of RJR stockholders and Reynolds American of theStockholders and Reynolds American formation of B&W Opco, the B&W Opco stockShareholders'' beginning on page 200 for a contribution and the RJR merger, and certaincomparison of the rights of a shareholder of other tax aspects of the combination transactionsReynolds American and the rights of a stockholder relevant to B&W and Reynolds American;of RJR. the receipt of a private letter ruling from the IRS

or an opinion of Cravath, Swaine & Moore LLP,Non-competition (Page 186)in each case reasonably acceptable to B&W,

Upon completion of the combination transactions, relating to the tax treatment relevant to ReynoldsReynolds American and BAT will enter into a non- American, B&W Opco and RJR of the post-competition agreement under which: closing contribution of B&W Opco to RJR and Reynolds American generally will be prohibited the merger of RJR Tobacco with and into B&W

from manufacturing and marketing cigarettes, Opco to form Reynolds Tobacco;""roll your own'' cigarette tobacco, cigars,

the receipt of a private letter ruling from the IRS,cigarillos and pipe tobacco for sale outside of the

reasonably acceptable to RJR, relating to the taxUnited States for a period of ve years; and

treatment relevant to B&W, RJR's stockholders BAT generally will be prohibited from and Reynolds American of the B&W Opco stock

manufacturing and marketing cigarettes, ""roll contribution and the RJR merger, and certainyour own'' cigarette tobacco, cigars, cigarillos and other tax aspects of the combination transactionspipe tobacco for sale in the United States for a relevant to B&W and RJR;period of ten years.

the receipt of a private letter ruling from the IRSor an opinion of Jones Day, in each caseReynolds American Dividend Policy (Page 58)reasonably acceptable to RJR, relating to the tax

Upon completion of the combination transactions,treatment relevant to RJR, RJR's stockholders

the executive chairman and the chief executiveand Reynolds American of the RJR merger, and

ocer of Reynolds American will deliver a letter toto the tax treatment to Reynolds American,

B&W conrming that they intend to recommend toB&W Opco and RJR of the post-closing

the Reynolds American board of directors thatcontribution of B&W Opco to RJR and the

Reynolds American pay dividends each scal yearmerger of RJR Tobacco with and into B&W

in an aggregate amount that is approximately 75%Opco to form Reynolds Tobacco;

of Reynolds American's annual consolidated net the absence of any legal prohibition regarding theincome.

completion of the combination transactions;

The Combination Agreement the accuracy of the representations andwarranties of RJR and B&W in the combinationThe combination agreement is attached as Annex Aagreement to the extent required by theto this document. You are urged to read thecombination agreement;combination agreement carefully.

the performance by RJR and B&W of theirConditions to the Combination Transactions

respective material obligations in the combination(Page 153)

agreement in all material respects; andThe completion of the combination transactions

no transaction material adverse eect, as deneddepends on the satisfaction or waiver of severalin the combination agreement, shall haveconditions, including the following:occurred with regard to RJR or B&W since the

the adoption of the combination agreement by date of the combination agreement.RJR's stockholders at the special meeting;

Transaction material adverse eect means any the receipt of required regulatory approvals, change, eect, event, occurrence or development

including under U.S. antitrust laws; occurring after the date of the combination the receipt of a private letter ruling from the agreement that, individually or in the aggregate, is

Internal Revenue Service, referred to as the reasonably likely to render RJR or B&W's""IRS,'' reasonably acceptable to B&W, relating contributed businesses insolvent or is reasonably

8

likely to render Reynolds American insolvent meeting of RJR stockholders was not held atfollowing the completion of the combination least ve business days prior to such terminationtransactions. or because the RJR stockholders did not adopt

the combination agreement and approve theNo Solicitation (Page 155) related combination transactions at the special

meeting, and within 12 months after theThe combination agreement generally prohibits RJRtermination date, RJR enters into an agreementand B&W from soliciting or engaging in anywith respect to, or completes, an alternativediscussions or negotiations with a third party withbusiness combination of a specied magnitude; orrespect to an alternative business combination or

from entering into any agreement with respect to an RJR accepts an unsolicited, bona de writtenalternative business combination or other acquisitions superior proposal from a third party in accordanceof 20% or more of RJR or B&W. If, however, prior with the terms of the no solicitation provision.to obtaining the RJR stockholders' approval, the

B&W has agreed to pay a $130 million terminationboard of directors of either RJR or B&W receives anfee to RJR if the combination agreement isunsolicited, bona fide written superior proposal for aterminated as a result of B&W's acceptance of antransaction of a specified magnitude from a thirdunsolicited, bona de written superior proposal fromparty, then, subject to the satisfaction of specifieda third party in accordance with the terms of the noconditions, including the payment of the terminationsolicitation provision.fee, if applicable, such board of directors may

terminate the combination agreement and accept Termination of the Combination Agreementsuch superior proposal. For more information, see (Page 158)""The Combination Transaction Agreements

RJR and B&W can mutually agree to terminate theCombination Agreement No Other Transactionscombination agreement at any time. Either RJR orInvolving RJR or B&W'' beginning on page 155.B&W also may terminate the combination

Termination Fees (Page 159) agreement if:

RJR has agreed to pay a $130 million termination the combination transactions are not completedfee to B&W if the combination agreement is on or before October 27, 2004, so long as aterminated under any of the following circumstances: principal cause of the failure to complete the

combination transactions is not the breach by the RJR's board of directors withdraws or changes itsterminating party of any of its representations,recommendation of the combination agreementwarranties or covenants in the combinationin a manner adverse to B&W, or determines thatagreement;the combination agreement is no longer

advisable; a governmental order or other action prohibitingthe completion of the combination transactions RJR's board of directors recommends that RJR'sbecomes nal and non-appealable;stockholders vote against adoption of the

combination agreement and approval of the RJR's stockholders fail to adopt the combinationrelated combination transactions, or recommends agreement and to approve the relatedthe approval of certain proposals from third combination transactions at the special meeting;parties regarding an alternative business

the other party breaches or fails to perform in anycombination;

material respect any of its representations, RJR's board of directors takes certain actions warranties or covenants contained in the

with respect to RJR's stockholders rights plan combination agreement and such breach orwithout B&W's prior written approval, such as failure to perform results in the failure ofamending the RJR rights agreement or specied closing conditions and is not curedredeeming the RJR rights; within 30 days after written notice from the other

party; or any person makes an RJR takeover proposal afterthe date of the combination agreement, thereafter under specied circumstances, one of the eventsthe combination agreement is terminated either described under "" Termination Fees'' abovebecause the combination transactions were not that would result in payment of the terminationcompleted by October 27, 2004, and the special fee has occurred.

9

rulings from the IRS regarding certain aspects ofRecommendation of the RJRthe tax treatment of the combination transactions

Board of Directors (Page 38) and either IRS private letter rulings or opinions ofcounsel regarding other aspects of the tax treatmentThe RJR board of directors unanimously hasof the combination transactions. On June 22, 2004,determined that the combination agreement andthe parties received favorable tax rulings from therelated combination transactions are advisable, fairIRS.to and in the best interests of RJR's stockholders

and unanimously has approved the combinationAccounting Treatment (Page 53)agreement and related combination transactions.

The RJR board of directors recommends that you Reynolds American will account for thevote ""for'' the adoption of the combination combination transactions using the purchaseagreement and the approval of the related method of accounting in accordance withcombination transactions and ""for'' the approval of accounting principles generally accepted in thethe adjournment of the special meeting, if United States. RJR will be treated as the acquirornecessary, to solicit additional proxies. for nancial accounting purposes.

Opinions of Financial Advisors (Page 40)Regulatory Approvals (Page 53)

In deciding to approve the combination agreementUnder the Hart-Scott-Rodino Antitrustand related combination transactions, the RJRImprovements Act of 1976, as amended, referred toboard of directors considered the respective opinionsas the ""HSR Act,'' RJR and B&W may notof Lehman Brothers Inc., referred to as ""Lehmancomplete the combination transactions until theyBrothers,'' and J.P. Morgan Securities Inc., referredhave furnished information to the Antitrust Divisionto as ""JPMorgan,'' each dated October 27, 2003,of the United States Department of Justice and thewhich provided that, as of that date, and based uponFederal Trade Commission, referred to as theand subject to the matters set forth in their""FTC,'' and the applicable waiting period hasrespective opinions, the consideration to be receivedexpired or been terminated. RJR and B&W madeby the RJR stockholders in the combination is fair,their initial HSR Act filings on November 5, 2003.from a nancial point of view, to those stockholders.On December 5, 2003, the FTC made a request forThese opinions are attached as Annexes E and F toadditional information. On February 9, 2004 andthis document. The Lehman Brothers andMarch 1, 2004, RJR and B&W filed their respectiveJPMorgan opinions are not recommendations as toresponses to this request for information. On June 22,how any holder of RJR common stock should vote2004, the FTC voted not to challenge the businesswith respect to the combination transactions. Youcombination transactions.are urged to read these opinions, as well as the

descriptions of the analyses and assumptions on At any time before or after completion of thewhich such opinions were based, in the section combination transactions, any state could takeentitled ""The Combination Transactions action under the antitrust laws as it deems necessaryOpinions of Financial Advisors to RJR'' beginning or desirable in the public interest, including seekingon page 40. to enjoin the completion of the combination

transactions, to rescind the combinationOther Information transactions or to seek divestiture of particular

assets of RJR or B&W. Private parties also mayMaterial U.S. Federal Income Tax Consequences;seek to take legal action under the antitrust lawsTax Rulings (Page 48)under certain circumstances.

The parties have structured the B&W Opco stockcontribution and the RJR merger to qualify as tax- Such actions could have a material adverse eect onfree exchanges under Section 351 of the Internal the business, nancial condition or results ofRevenue Code of 1986, as amended, referred to as operations of all or each of RJR, B&W andthe ""Code,'' and intend for the RJR merger under Reynolds American, could delay completion of thethe combination agreement to qualify as a tax-free combination transactions, could result in the partiesreorganization under Section 368(a) of the Code. litigating with a challenging party or could causeThe combination transactions are conditioned on RJR and B&W to abandon the combinationRJR and B&W receiving satisfactory private letter transactions.

10

Interests of Directors and Management of RJR event the executive officer's employment isin the Transactions (Page 54) terminated by RJR without ""cause'' or by the

executive officer for ""good reason'' following theSome of RJR's executive ocers and directors havecompletion of the combination transactions; theinterests in the combination transactions that areestimated aggregate value of this severance benefit,dierent from, or in addition to, your interests as anexcluding continuing benefits coverage and anyRJR stockholder.excise tax gross-up payment, for all 11 RJR

Those additional interests that arise upon executive officers, excluding Mr. Schindler, whosecompletion of the combination transactions without severance arrangements are discussed above, isfurther action include: approximately $13.2 million; and a ""change of control'' payment in the amount of

additional annual retirement benefits under theapproximately $7.2 million, excluding any exciseRJR excess benefit plans for all 11 RJR executivetax gross-up payment, to Mr. Schindler under hisofficers, including Mr. Schindler, if such executiveemployment agreement upon completion of theofficer's employment is terminated following thecombination transactions;completion of the combination transactions; the

the accelerated vesting of unvested options to estimated aggregate annual amount of thesepurchase 286,000 shares of RJR common stock additional benefits, excluding any excise tax gross-and approximately 9.2 million performance units up payment, for all 11 RJR executive officers wouldand the lapse of restrictions on approximately be approximately $650,000.234,000 restricted shares following completion of

The RJR board of directors was aware of thesethe combination transactions, with an aggregateinterests and considered them, among othervalue as of April 30, 2004 of approximatelymatters, in approving the combination agreement$34.1 million for all 11 RJR executive ocers,and the related combination transactions.including Mr. Schindler, and one former

executive ocer;No Appraisal Rights; NYSE Listing (Page 57)

the appointment of certain RJR directors to theUnder Delaware law, you will not have anyReynolds American board of directors; andappraisal rights as a result of the combination indemnication of, and provisions for liabilitytransactions because you will be receiving shares ofinsurance for, RJR directors and ocers byReynolds American common stock that will beReynolds American.listed on the NYSE. Based upon conversations with

Those additional interests that arise upon completion representatives of the NYSE, it is expected thatof the combination transactions and the occurrence of approval for listing of the Reynolds Americansome other event described below include: common stock on the NYSE under the symbol

""RAI'' will be received before the special meeting. an additional three years of service credit forMr. Schindler under his employment agreement

Stock Ownership of RJR Directors and Executiveupon his retirement following the completion ofOcers (Page 193)the combination transactions; the estimated

additional annual pension payment, excluding any RJR's directors and executive ocers beneciallyexcise tax gross-up payment, would be owned less than 1% of RJR common stockapproximately $250,000; outstanding on the record date. RJR believes that

severance agreements with certain RJR executive each of its directors and executive ocers intends toofficers that generally provide for payment of two vote his or her shares in favor of the proposal to beyears' pay and continuing benefits coverage in the considered and voted on at the special meeting.

11

SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA

Selected Historical Consolidated Financial Data of RJR

The following selected historical consolidated nancial data as of December 31, 2003 and 2002, and foreach of the years in the three-year period ended December 31, 2003, have been derived from RJR's auditedconsolidated nancial statements and accompanying notes incorporated by reference and contained in RJR's2003 annual report previously mailed to RJR's stockholders. The selected historical consolidated nancial dataas of December 31, 2001, 2000 and 1999, and for the years ended December 31, 2000 and 1999, have beenderived from audited consolidated nancial statements of RJR not presented or incorporated by referenceherein. The selected historical consolidated nancial data as of March 31, 2004, and for the three-monthperiods ended March 31, 2004 and 2003, have been derived from RJR's unaudited condensed consolidatednancial statements and accompanying notes incorporated by reference herein and contained in RJR'sMarch 31, 2004 quarterly report led with the Securities and Exchange Commission, referred to as the""SEC.''

Eective in 1999, the nancial statements segregate the account balances and activities of theinternational tobacco business and Nabisco and report those account balances and activities as discontinuedoperations. For further information, including the impact of new accounting developments, acquisitions,restructuring and impairment charges, you are urged to read this table in conjunction with RJR's consolidatednancial statements and accompanying notes incorporated by reference and contained in RJR's 2003 annualreport and March 31, 2004 quarterly report and in the annual, quarterly and other reports and otherinformation that RJR has led with the SEC, or will le with the SEC between the date of this document andthe date of the special meeting. See ""Where You Can Find More Information'' beginning on page 209. Theinformation set forth below is not necessarily indicative of RJR's or Reynolds American's future nancialcondition or results of operations.

12

For the Three MonthsEnded March 31, For the Years Ended December 31,

2004 2003 2003 2002 2001 2000 1999

(Dollars in Millions, Except Per Share Amounts)(Unaudited)

Results of Operations:

Net sales1 $ 1,218 $ 1,218 $ 5,267 $ 6,211 $ 6,269 $ 6,085 $ 5,898

Cost of products sold1,2 711 749 3,218 3,732 3,560 3,436 3,292

Selling, general and administrative

expenses 295 334 1,327 1,463 1,429 1,369 1,354

Fixture impairment 106

Restructuring and impairment

charges (9) 368 224 141

Goodwill and trademark impairment

charges 4,089 13 89

Income (loss) from continuing

operations 122 71 (3,689) 418 444 299 195

Net income (loss) 122 71 (3,446) (44) 435 1,827 2,343

Balance Sheet Data

(at end of periods):

Total assets 9,477 NA 9,677 14,651 15,122 15,554 14,377

Long-term debt 1,692 NA 1,671 1,755 1,631 1,674 1,653

Long-term retirement benets 1,068 NA 1,034 1,176 514 543 676

Per Share Data:

Basic income (loss) from continuing

operations 1.45 0.84 (44.08) 4.71 4.57 2.96 1.80

Diluted income (loss) from

continuing operations 1.43 0.84 (44.08) 4.64 4.48 2.94 1.80

Basic net income (loss) 1.45 0.84 (41.17) (0.50) 4.48 18.04 21.60

Diluted net income (loss) 1.43 0.84 (41.17) (0.49) 4.39 17.94 21.58

Book value (end of period)3 36.46 NA 35.92 78.05 85.16 83.30 66.08

Basic weighted average shares, in

thousands 84,274 84,031 83,697 88,733 97,043 101,264 108,495

Diluted average shares, in thousands 85,238 84,952 83,697 90,175 98,986 101,857 108,570

Cash dividends declared per share of

common stock4 $ 0.95 $ 0.95 $ 3.80 $ 3.73 $ 3.30 $ 3.10 $ 1.55

1 Excludes excise taxes of $371 million and $375 million for the three months ended March 31, 2004 and2003, respectively, and $1.572 billion, $1.751 billion, $1.529 billion, $1.631 billion and $1.173 billion for theyears ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.

2 Includes settlement expense of $449 million and $462 million for the three months ended March 31, 2004and 2003, respectively, and $1.934 billion, $2.514 billion, $2.584 billion, $2.329 billion and $2.178 billion forthe years ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.

3 Historical book value per share is computed by dividing stockholders' equity by the number of commonshares outstanding at the end of the period.

4 RJR began trading as a separate company on June 15, 1999. From the third quarter of 1999 through thesecond quarter of 2001, RJR's board of directors declared a quarterly cash dividend of $0.775 per commonshare, or $3.10 on an annualized basis. From the third quarter 2001 through the rst quarter of 2002, RJR'sboard of directors declared a quarterly cash dividend of $0.875 per common share, or $3.50 on an annualizedbasis. Since the second quarter of 2002, RJR's board of directors has declared a quarterly cash dividend of$0.95 per common share, or $3.80 on an annualized basis.

13

Selected Historical Combined Consolidated Financial Data of B&W/Lane

The following selected historical combined consolidated nancial data of B&W and Lane as ofDecember 31, 2003, 2002 and 2001, and for each of the years in the three-year period ended December 31,2003, have been derived from the combined consolidated audited nancial statements and accompanyingnotes of B&W and Lane. The combined business presented in these nancial statements is referred to as""B&W/Lane.'' The selected historical combined consolidated nancial data as of March 31, 2004 and for thethree months ended March 31, 2004 and 2003 have been derived from the unaudited condensed combinedconsolidated nancial statements and accompanying notes of B&W/Lane included elsewhere in thisdocument. The selected historical combined consolidated nancial data of B&W/Lane as of December 31,2000 and 1999 and for the years ended December 31, 2000 and 1999 have been derived from the unauditedcombined consolidated nancial statements of B&W/Lane not presented or incorporated by reference. Forfurther information, including the impact of new accounting developments, acquisitions, restructuring andimpairment charges, you are urged to read this table in conjunction with the combined consolidated nancialstatements and accompanying notes of B&W/Lane included in this document. The information set forthbelow is not necessarily indicative of B&W/Lane's or Reynolds American's future nancial position or resultsof operations. Per share data and dividends declared per share have not been presented, as the nancialinformation for B&W/Lane represents the U.S. tobacco operations of BAT and is not the presentation of asingle legal entity.

For the Three MonthsEnded March 31, For the Years Ended December 31,

2004 2003 2003 2002 2001 2000 1999

(Dollars in Millions)(Unaudited) (Unaudited)

Results of Operations:

Net sales1 $ 799 $ 766 $3,098 $3,660 $3,893 $3,677 $3,808

Cost of sales1 283 249 946 1,068 1,203 1,130 1,089

Settlement expenses 221 223 926 1,204 1,260 1,178 1,215

Selling, general and administrative 178 191 693 706 742 927 917

Trademark impairment charges 165

Restructuring and impairmentcharges 1 17 2 24 247 11

Income (loss) from continuingoperations 63 55 183 366 271 (31) 143

Net income (loss) 63 55 183 366 271 (31) 143

Balance Sheet Data (at end ofperiods):

Total assets 4,783 NA 4,614 4,564 4,280 4,266 4,204

Long-term debt 729 NA 739 744 731 746 842

Long-term retirement benets 371 NA 474 584 386 402 328

1 Excludes excise taxes of $176 million and $183 million for the three months ended March 31, 2004 and2003, respectively, and $762 million, $850 million, $759 million, $843 million and $678 million for the yearsended December 31, 2003, 2002, 2001, 2000 and 1999, respectively. B&W/Lane historically has notincluded settlement expenses, including MSA-related expenses, in cost of sales. B&W/Lane has includedsuch expenses in the settlement expenses line item.

14

Selected Unaudited Pro Forma Condensed Combined Financial Data of Reynolds American

The following selected unaudited pro forma condensed combined nancial data give eect to thecombination transactions as if they had been completed on March 31, 2004, for the purpose of the balancesheet, and on January 1, 2003, for the statements of income for the year ended December 31, 2003 and for thethree months ended March 31, 2004.

This selected unaudited pro forma condensed combined nancial data should be read in conjunction withthe ""Unaudited Pro Forma Condensed Combined Financial Information'' beginning on page 62. Thisinformation is provided for illustrative purposes only and is not necessarily indicative of what ReynoldsAmerican's results of operations or nancial position would have been if the combination transactions hadactually occurred on the dates specied. In addition, the unaudited pro forma condensed combined nancialdata are based on estimates and assumptions described in the notes accompanying such statements, whichestimates are preliminary and have been made solely for the purpose of developing such pro formainformation. The unaudited pro forma combined income statement data do not include any of the synergiesand cost reductions expected to result from the combination transactions.

For the Three Months For the Year EndedEnded March 31, 2004 December 31, 2003

(Dollars in Millions, ExceptPer Share Amounts)

(Unaudited)

Results of Operations:Net sales1 $ 2,017 $ 8,365Cost of products sold1,2 1,222 5,125Selling, general and administrative expenses 477 2,086Fixture impairment 106Restructuring and impairment charges (9) 385Goodwill and trademark impairment charges 4,254Income (loss) from continuing operations 185 (3,549)Balance Sheet Data (at end of period):Total assets 14,538 NALong-term debt (less current maturities) 1,692 NALong-term retirement benets 1,813 NAPer Share Data:Basic income (loss) from continuing operations 1.27 (24.39)Diluted income (loss) from continuing operations 1.26 (24.39)Book value (at end of period)3 40.41 NABasic average shares outstanding, in thousands4 146,143 145,492Diluted average shares outstanding, in thousands4 147,107 145,492

1 Excludes excise taxes of $371 million and $176 million for RJR Tobacco and B&W/Lane, respectively, forthe three months ended March 31, 2004 and $1,572 million and $762 million for RJR Tobacco andB&W/Lane, respectively, for the year ended December 31, 2003.

2 Includes settlement expense of $449 million and $221 million for RJR Tobacco and B&W/Lane,respectively, for the three months ended March 31, 2004 and $1,934 million and $926 million for RJRTobacco and B&W/Lane, respectively, for the year ended December 31, 2003.

3 Pro forma book value per share is computed by dividing pro forma stockholders' equity by the number of proforma common shares of Reynolds American outstanding at the end of period (147,113,000). See note 4below.

4 See note A to Reynolds American's unaudited pro forma condensed combined nancial statements for adiscussion of the calculation of the pro forma number of shares outstanding.

15

RISK FACTORS

In addition to the other information included in ""Cautionary Statement Regarding Forward-LookingStatements'' beginning on page 28 or incorporated by reference in this document, you are urged to considercarefully the matters described below in determining whether to vote to adopt the combination agreement andapprove the related combination transactions and whether to own shares of Reynolds American commonstock.

Risks Related to the Combination Transactions

The integration of RJR Tobacco and B&W's U.S. cigarette and tobacco business may be dicult andcostly and may require a signicant amount of time. As a result, Reynolds American may not realizesome of the anticipated benets of the combination transactions.

The business combination of RJR Tobacco and B&W's U.S. cigarette and tobacco business involves theintegration of two businesses that previously operated independently, each with its own business, products,customers, employees, culture and systems. The success of the combination transactions will depend, in part,on the ability of Reynolds American to successfully integrate the two businesses and realize the anticipatedsynergies and cost savings from integrating RJR Tobacco and B&W's U.S. cigarette and tobacco business.Reynolds American may not realize these anticipated benets or achieve these benets within the anticipatedtime frame. For example, the elimination of duplicative costs may not be possible and the benets from thecombination transactions may be oset by costs incurred in integrating the companies.

Reynolds American may not be able to integrate these two businesses without encountering diculties,added costs and delays, including:

costs and delays in combining the business processes of RJR and B&W;

potential diculty in integrating the separate information and other technologies of the two businesses;

integrating infrastructure operations in a rapid and ecient manner;

diversion of management resources from the business of the combined company;

potential diculty arising from labor relations and integrating union and non-union employees;

potential incompatibility of business cultures;

lower productivity;

retaining and integrating management and other key employees of the combined company; and

potential losses of key employees due to perceived uncertainty in career opportunities, compensationlevels and benets.

Any one or all of these factors may cause increased operating costs or the loss of customers andemployees. Many of these factors will be outside the control of Reynolds American. The failure to timely andeciently integrate RJR Tobacco and B&W's U.S. cigarette and tobacco business could have a materialadverse eect on the business, nancial condition and operating results of Reynolds American.

Substantial expenses will be incurred in connection with the combination transactions and in order toachieve anticipated synergies. The anticipated cost savings from the combination transactions may notoset these costs.

Reynolds American estimates that as a result of the combination transactions, including the consolidationof manufacturing facilities, it will incur an aggregate cost of approximately $700 million to $800 million.Because legal restrictions prohibit RJR and B&W from exchanging non-public competitive information andtaking any actions to coordinate the business decisions of RJR and B&W prior to the completion of thecombination transactions, these cost estimates are based largely on RJR's preliminary estimates and may varyfrom actual results for the reasons stated above and in ""Cautionary Statement Regarding Forward-LookingStatements'' beginning on page 28. In addition, RJR estimates that it will incur investment banking, legal,accounting and other merger-related expenses of $35 million, some of which will be incurred even if thecombination transactions are not completed. The foregoing amounts are preliminary estimates. The actualamounts may be higher or lower. Moreover, Reynolds American may incur additional unanticipated expenses

16

in connection with the integration of RJR Tobacco and B&W's U.S. cigarette and tobacco business. Theanticipated cost savings from the combination transactions may not oset these costs.

The Pension Benet Guaranty Corporation, or ""PBGC,'' could require additional nancial support of theB&W pension plans that are to be transferred to Reynolds American or take other action as a result ofthe completion of the combination transactions. Such actions could have an adverse eect on thenancial condition of Reynolds American.

RJR's and B&W's pension plans are subject to Title IV of the Employee Retirement Income SecurityAct of 1974, as amended, including regulation by the PBGC, a U.S. government agency. The PBGC insuresthe obligations to employees under B&W's and RJR's pension plans in the event the pension plans terminate.Following a review by the PBGC of information relating to the combination transactions, the PBGC sent aletter dated April 16, 2004 to BATUS Holdings, Inc., B&W's indirect U.S. parent company, expressingconcern that, following completion of the combination transactions, Reynolds American may be unable tosupport the B&W pension plans in the future and to fully satisfy the liabilities under the B&W pension plansin the event the plans are terminated and indicating that it is seeking to determine if Reynolds American'snancial strength and creditworthiness will result in an unreasonable increase in the PBGC's risk inconnection with B&W's pension plans that are to be transferred to Reynolds American. In addition, the PBGCindicated its belief that additional protection for the B&W pension plans is required.

Representatives of B&W, RJR and the PBGC met on May 20, 2004, to address the PBGC's concerns.The PBGC has requested additional information from B&W. B&W has complied with this request. Actionstaken or requested by the PBGC in order to address the unfunded benet liabilities of the B&W plans, whichthe PBGC asserts were approximately $680 million on a termination basis as of March 31, 2004, could includeincreased cash contributions to B&W's pension plans in excess of federal regulatory minimum requirements,which are currently being met, provision of security to the PBGC or termination of one or more of such plans.Actions taken or requested by the PBGC could have an adverse eect on the nancial condition of ReynoldsAmerican.

Reynolds American will depend on key personnel, the loss of whom could harm its business.

The successful integration of RJR Tobacco with B&W's U.S. cigarette and tobacco business will dependin part on the retention of personnel critical to the integrated business and operations of Reynolds American.Reynolds American may be unable to retain RJR and B&W personnel that are critical to the success of thecombined companies, resulting in disruption of operations, loss of key information, expertise or know-how andotherwise diminishing the anticipated benets of the combination transactions. The loss of the services ofcertain key employees could divert management's time and attention, increase Reynolds American's expensesand adversely aect its ability to conduct its business eciently and eectively.

RJR may waive one or more of the conditions to the combination agreement that is important to youwithout the approval of RJR's stockholders.

Each of the conditions to RJR's obligations to complete the combination transactions may be waived, inwhole or in part, by RJR, to the extent permitted by applicable law. The RJR board of directors will evaluatethe materiality of any waiver to determine whether amendment of this document and resolicitation of proxiesis necessary. In the event that RJR's board of directors determines that a waiver is not signicant enough torequire resolicitation of its stockholders, it will have the discretion to complete the combination transactionswithout seeking further stockholder approval. See ""The Combination Transaction Agreements Combination Agreement Conditions'' beginning on page 153. Because certain conditions may not besatised prior to the date of the special meeting, there is a risk that the RJR board of directors may waive acondition that is important to you without the approval of RJR's stockholders.

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The assumption of B&W's historical and future liabilities will expose Reynolds Tobacco and itssubsidiaries to signicant additional potential liabilities associated with the cigarette and tobaccoindustry.

Following the completion of the combination transactions, B&W Opco, referred to as ""ReynoldsTobacco'' following the post-closing merger with RJR Tobacco, will indemnify B&W and its aliates forB&W's historic and future liabilities related to the contributed business, including all tobacco-related litigationand all post-closing liabilities under the MSA and other state settlement agreements with respect to B&W'sU.S. cigarette and tobacco business. These liabilities could expose Reynolds Tobacco to material losses. See""Reynolds American Business Litigation Aecting the Cigarette Industry.'' RJR Tobacco will be mergedinto B&W Opco, thereby exposing RJR Tobacco's assets to these liabilities. Although B&W's litigationliabilities are substantially similar to the liabilities to which RJR Tobacco is currently exposed, ReynoldsTobacco's liabilities could exceed the value of B&W's contributed business or the assets of Reynolds Tobacco,which would materially adversely aect Reynolds American's business, nancial condition and operatingresults and reduce the benets of the combination transactions.

A signicant portion of Reynolds American's asset base will consist of intangible assets and goodwill.Under applicable accounting rules, Reynolds American will be required to evaluate and measure certainintangible assets, including goodwill, for impairment on an annual basis, which may result in futurematerial impairment charges that could adversely aect the trading price of Reynolds American commonstock.

As of March 31, 2004, RJR's total assets of $9.5 billion included $3.3 billion of goodwill and $1.8 billionof trademarks. RJR engaged an independent appraisal rm to assist it in determining the fair value of itsreporting units and trademarks. The determination of fair value involves considerable estimates and judgment.In particular, the determination of fair value of a reporting unit involves, among other factors, developingforecasts of future cash ows, discount rates adjusted for risk premiums and stock volatility, and growth rates.When goodwill impairment is implied from test results, its measurement involves the determination of the fairvalues of individual assets and liabilities, including unrecorded intangibles.

A substantial portion of the consideration paid for B&W/Lane will be allocated to intangible assets andgoodwill. This allocation is based on management's reasonable estimates and assumptions to evaluate andmeasure intangible assets. Estimates and assumptions used in a purchase allocation include, among otherfactors, market estimates of xed assets and projected income and estimated lives related to intangible assets,such as customer-related intangibles, contract-based manufacturing intangibles and technology-basedintangibles.

Beginning in 2002, RJR's goodwill and trademark values were impaired $830 million as a result of theadoption of SFAS No. 142, and $13 million as a result of the 2002 annual impairment test, based on estimatedlower sales volumes on two brands. During 2003, RJR's goodwill and trademarks were impaired $4.1 billion.These impairments were in connection with RJR Tobacco's initiation of comprehensive changes in itsstrategies and cost structure, in response to adverse impacts of competitive changes, which were greater thananticipated during the 2002 annual testing of trademarks and goodwill. In connection with B&W/Lane'sannual intangible asset impairment review during the fourth quarter of 2003, the carrying value of certaintradename intangible assets exceeded their fair value. Accordingly, B&W/Lane recorded an asset impairmentcharge of $165 million during 2003. See ""Management's Discussion and Analysis of Financial Condition andResults of Operations B&W/Lane Years Ended December 31, 2003, 2002 and 2001 and Three MonthsEnded March 31, 2004 and 2003 2003 Compared with 2002 Trademark impairment charge'' beginningon page 84.

If the current business environment worsens, RJR's strategic initiatives or the combination transactionsadversely aect RJR's nancial performance, or RJR's estimates and assumptions used in valuing RJR'sgoodwill and trademarks are worse than predicted, the value of Reynolds American's goodwill and trademarkscould be impaired in future periods. Reynolds American's shareholders may be adversely aected by possiblefuture material impairment charges.

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B&W's status as a signicant Reynolds American shareholder, its representation on the ReynoldsAmerican board of directors and its rights under the governance agreement may create conicts ofinterest and may result in the business of Reynolds American being operated dierently than the mannerin which RJR is currently being operated.

Upon completion of the combination transactions, B&W will own approximately 42% of the outstandingReynolds American common stock, and pursuant to the governance agreement, ve B&W nominees will bemembers of the 13-member Reynolds American board of directors. These relationships could give rise toconicts of interest, including:

conicts between B&W and other Reynolds American shareholders, whose interests may dier withrespect to the strategic direction or signicant corporate transactions of Reynolds American; and

conicts related to corporate opportunities that could be pursued by Reynolds American, on the onehand, or by B&W and its aliates, on the other hand.

The Reynolds American articles of incorporation will disclaim any duty BAT or its subsidiaries, directorsor employees have to present Reynolds American any business opportunity not primarily relating to the UnitedStates. See ""Comparison of Rights of RJR Stockholders and Reynolds American Shareholders CorporateOpportunity'' beginning on page 206.

B&W's signicant interest in Reynolds American could be determinative in matters submitted to a voteby Reynolds American shareholders. In addition, B&W's rights under the governance agreement willprovide it signicant inuence over Reynolds American. Such inuence could result in Reynolds Americantaking actions that Reynolds American's other shareholders do not support.

Upon completion of the combination transactions, B&W will own approximately 42% of outstandingReynolds American common stock. As no RJR stockholder currently owns more than 15% of the outstandingRJR common stock, B&W's ownership interest, together with its rights under the governance agreement, willprovide it with signicant inuence over the conduct of Reynolds American's business. Unless substantially allof Reynolds American's public shareholders vote together on matters presented to Reynolds Americanshareholders from time to time, B&W, by itself or together with RJR's current largest stockholder, would havethe power to determine the outcome of matters submitted to a shareholder vote.

Rights granted to B&W under the governance agreement that will provide it inuence over ReynoldsAmerican's business include:

B&W will be entitled to nominate a number of directors on the Reynolds American board of directorsin approximate proportion to its ownership interest in Reynolds American;

each committee of the Reynolds American board of directors will have proportionate representation byB&W's board designees;

the approval of a majority of B&W's designees on the Reynolds American board of directors will berequired in connection with the following matters:

any issuance of Reynolds American securities in excess of 5% of its outstanding voting stock, unlessat such time B&W's ownership interest in Reynolds American is less than 32%; and

any repurchase of Reynolds American common stock, subject to a number of exceptions, unless atsuch time B&W's ownership interest in Reynolds American is less than 25%;

the approval of B&W, as a Reynolds American shareholder, will be required in connection with, amongother things, the following matters:

the sale or transfer of certain Reynolds American intellectual property associated with B&W brandshaving an international presence, other than in connection with a sale of Reynolds American;

Reynolds American's adoption of any takeover defense measures that would apply to the acquisitionof equity securities of Reynolds American by B&W or its aliates, other than the adoption of theReynolds American rights plan; and

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Reynolds American's participation in any transaction that would be reasonably expected tojeopardize B&W's tax ruling obtained in connection with, or B&W's tax-free treatment of, thecombination transactions.

Such inuence could result in Reynolds American taking actions that Reynolds American's other shareholdersdo not support. For more information, see ""The Combination Transaction Agreements CombinationAgreement'' and "" Governance Agreement'' beginning on pages 152 and 173, respectively.

B&W's signicant ownership interest in Reynolds American and Reynolds American's shareholder rightsplan, classied board of directors and other antitakeover defenses could deter acquisition proposals andmake it dicult for a third party to acquire control of Reynolds American without the cooperation ofB&W. This could have a negative eect on the price of Reynolds American common stock.

As Reynolds American's largest shareholder, B&W could vote its shares of Reynolds American commonstock against any takeover proposal submitted for shareholder approval or refuse to accept any tender oer forshares of Reynolds American common stock. This right would make it very dicult for a third party to acquireReynolds American without B&W's consent. In addition, Reynolds American, like RJR, will have ashareholder rights plan, a classied board of directors and other takeover defenses in its articles ofincorporation and bylaws. B&W's ownership interest in Reynolds American and these defenses coulddiscourage potential acquisition proposals and could delay or prevent a change in control of ReynoldsAmerican. These deterrents could adversely aect the price of Reynolds American common stock and make itvery dicult to remove or replace members of the board of directors or management of Reynolds Americanwithout the cooperation of B&W.

Reynolds American shareholders may be adversely aected by the expiration of the standstill and transferrestrictions in the governance agreement, which would enable B&W to, among other things, transfer allor a signicant percentage of its Reynolds American shares to a third party, seek additionalrepresentation on the Reynolds American board of directors, replace existing Reynolds Americandirectors, solicit proxies or otherwise acquire eective control of Reynolds American.

The standstill provisions contained in the governance agreement generally restrict B&W from acquiringadditional shares of Reynolds American common stock and taking other specied actions as a shareholder ofReynolds American. These restrictions will expire upon the earlier of ten years from the date the combinationtransactions are completed and the termination of the standstill provisions of the governance agreement uponthe occurrence of certain events, including where:

Reynolds American, its board of directors or any committee, in exercising its duciary duties, fails toimplement B&W's board of directors and committee representation and voting rights;

Reynolds American, its board of directors or any committee willfully and deliberately takes, or fails totake, any action resulting in a material breach of B&W's board of directors and committeerepresentation and voting rights, without a duciary duty exception;

Reynolds American, its board of directors or any committee willfully and deliberately takes, or fails totake, any action resulting in B&W failing to receive its material approval rights in the governanceagreement; or

the number of directors designated by B&W serving on the Reynolds American board of directors atany time is less than the number of directors which B&W is entitled to designate.

See ""The Combination Transaction Agreements Governance Agreement Termination'' beginning onpage 183. Subject to the terms of the Reynolds American shareholder rights plan, B&W will be free afterexpiration of the standstill period to increase its ownership interest in Reynolds American to more than 50%and may use this controlling vote to elect any number or all of the members of Reynolds American board ofdirectors. See ""The Combination Transaction Agreements Governance Agreement Eect ofTermination of the Governance Agreement on Reynolds American's Rights Plan'' beginning on page 185.

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In addition, if the transfer restrictions in the governance agreement are terminated, subject to the termsof the Reynolds American shareholder rights plan, there will be no contractual restrictions on B&W's ability tosell or transfer its shares of Reynolds American common stock on the open market, in privately negotiatedtransactions or otherwise. These sales or transfers could create a substantial decline in the price of shares ofReynolds American common stock or, if these sales or transfers were made to a single buyer or group ofbuyers that owned RJR shares, could result in a third party acquiring eective control of Reynolds American.

Certain RJR directors and executive ocers may have interests in the completion of the combinationtransactions that are dierent from, or in addition to, those of RJR stockholders. In considering therecommendation of the RJR board of directors, RJR stockholders should consider whether such interestsmay have inuenced the RJR directors to approve and recommend the combination transactions.

RJR directors and executive ocers may have interests in the combination transactions that are dierentfrom, or in addition to, the interests of other RJR stockholders. The value of such additional interests payableto RJR