Document:

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                                                                    Exhibit 10.1

                            FORMATION AGREEMENT, dated as of July 30, 2004 (this
                        "Agreement"), among BROWN & WILLIAMSON TOBACCO
                        CORPORATION, a Delaware corporation ("B&W"), BROWN &
                        WILLIAMSON U.S.A., INC., a North Carolina corporation
                        ("B&W Opco"), and REYNOLDS AMERICAN INC., a North
                        Carolina corporation ("Reynolds American").

            WHEREAS the respective Boards of Directors of B&W, B&W Opco and
Reynolds American have approved the execution, delivery and performance of this
Agreement;

            WHEREAS B&W and R.J. Reynolds Tobacco Holdings, Inc., a Delaware
corporation ("RJR"), entered into the Business Combination Agreement, dated as
of October 27, 2003, as amended (the "Combination Agreement"), and each of B&W,
RJR, B&W Opco, Reynolds American and certain of their affiliates will engage in
the Transactions (as defined in the Combination Agreement);

            WHEREAS B&W has agreed to contribute to B&W Opco, and B&W Opco has
agreed to accept from B&W, all of the assets, other than the Excluded Assets (as
defined below), of B&W in exchange for all of the outstanding capital stock of
B&W Opco (the "Asset Contribution");

            WHEREAS B&W has agreed to assign to B&W Opco, and B&W Opco has
agreed to assume from B&W, all of the liabilities, other than the Excluded
Liabilities (as defined below), of B&W (the "Assumption of Liabilities");

            WHEREAS B&W and B&W Opco have agreed to certain arrangements
regarding the employees of B&W; and

            WHEREAS B&W and Reynolds American have agreed that the B&W Opco
Stock Contribution (as defined in the Combination Agreement) will occur
immediately following completion of the Asset Contribution and the Assumption of
Liabilities.

            NOW, THEREFORE, the parties hereto agree as follows:

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                                   ARTICLE I

                                  Definitions

            SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the following meanings:

            "Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding of any nature (whether criminal, civil,
legislative, administrative, regulatory, prosecutorial or otherwise) by or
before any court, arbitrator or governmental entity or similar body.

            An "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.

            "Agreement" has the meaning set forth in the preamble to this
Agreement.

            "Asset Contribution" has the meaning set forth in the recitals to
this Agreement.

            "Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
B&W Opco or any of its Subsidiaries including any disposition by means of a
merger, consolidation or similar transaction (each referred to for the purposes
of this definition as a "disposition") of (a) any shares of capital stock of a
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than B&W Opco or one of its
Subsidiaries), (b) all or substantially all the assets of any division or line
of business of B&W Opco or any of its Subsidiaries or (c) any other assets of
B&W Opco or any of its Subsidiaries outside of the ordinary course of business
of B&W Opco or such Subsidiary, in each case, other than (i) a disposition by a
Subsidiary of B&W Opco to B&W Opco or by B&W Opco or any of its Subsidiaries to
a Subsidiary of B&W Opco, (ii) a disposition by B&W Opco or any Subsidiary of
B&W Opco to Reynolds American or any of its Subsidiaries (other than B&W Opco
and its

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Subsidiaries) if the transferee agrees to jointly and severally assume the
obligations of B&W Opco under this Agreement, such assumption to be in form and
substance reasonably satisfactory to B&W (provided that the obligations of B&W
Opco under this Agreement shall not be terminated as a result of such
assumption), (iii) a disposition that constitutes a Restricted Payment but that
is not otherwise prohibited by Section 5.05(c) or (iv) any sale or disposition
deemed to occur in connection with creating or granting any liens to a third
party that is not an affiliate of Reynolds American in connection with a bona
fide financing or that arise as a matter of law.

            "Assumed Liabilities" means all the Liabilities (other than the
Excluded Liabilities) of B&W or any of the Included Subsidiaries or otherwise to
the extent related to the B&W Business (including (a) all Liabilities of B&W and
the Included Subsidiaries arising out of the operation or conduct of their
respective businesses prior to the Asset Contribution, (b) all Liabilities of
B&W and its affiliates under the State Settlements and (c) all Liabilities of
B&W and the Included Subsidiaries arising out of or in connection with any
Action to the extent relating to the development, manufacture, packaging,
labeling, production, delivery, sale, resale, distribution, marketing,
promotion, use or consumption of, or exposure to tobacco products, including
smoking and health-related and safety-related claims).

            "Assumption of Liabilities" has the meaning set forth in the
recitals to this Agreement.

            "B&W" has the meaning set forth in the preamble to this Agreement.

            "B&W Accounting Policies" has the meaning set forth in Section
2.04(a).

            "B&W Benefit Plans" has the meaning assigned to such term in the
Combination Agreement.

            "B&W Business" means the tobacco businesses of B&W and the Included
Subsidiaries as such businesses have been conducted in the United States and its
territories and possessions on or prior to the date of this Agreement.

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            "B&W Indemnitees" means B&W, each affiliate of B&W (other than
Reynolds American, B&W Opco and their respective Subsidiaries following the
Effective Time (as defined in the Combination Agreement)), each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.

            "B&W Opco" has the meaning set forth in the preamble to this
Agreement.

            "B&W Opco Common Stock" means the common stock, par value $0.01 per
share, of B&W Opco.

            "B&W Opco Indemnitees" means B&W Opco, Reynolds American and their
respective Subsidiaries and Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing.

            "B&W Opco Services" has the meaning assigned to such term in Section
2.06(b).

            "B&W Opco Stock Contribution" has the meaning assigned to it in the
Combination Agreement.

            "B&W Packaging" has the meaning assigned to such term in Section
2.05.

            "B&W Services" has the meaning assigned to such term in Section
2.06(a).

            "B&W Trademark" has the meaning assigned to such term in Section
2.05.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Combination Agreement" has the meaning set forth in the recitals to
this Agreement.

            "Consent" has the meaning assigned to such term in Section 2.03.

            "Consolidated Net Worth" means, as at any date of determination, the
total amount of shareholders' equity that would be shown on the balance sheet of
B&W Opco and its Subsidiaries, determined on a consolidated basis in

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accordance with GAAP, as of such date of determination; provided, however, that
Consolidated Net Worth as so determined shall be adjusted by adding thereto the
sum, without duplication, of (i) all consolidated non-cash impairment and
amortization charges related to goodwill, trademarks and other intangible assets
of B&W Opco and its Subsidiaries during the period from the date of this
Agreement to such date of determination and (ii) all restructuring charges
related to B&W Opco and its Subsidiaries that have been reflected in the
consolidated financial statements of Reynolds American that have been filed with
the SEC during the period from the date of this Agreement to such date of
determination.

            "Contributed Assets" means (other than the Excluded Assets), without
duplication, (a) all the capital stock of the Included Subsidiaries, (b) all the
business, properties, assets, goodwill and rights of B&W and the Included
Subsidiaries of whatever kind and nature, real or personal, tangible or
intangible, that are owned by, leased or licensed to B&W or any of the Included
Subsidiaries on the date of this Agreement (including any items arising under
insurance policies and all guarantees, warranties, indemnities and similar
rights in favor of B&W to the extent relating to any Contributed Asset or any
Assumed Liability and all assets of the B&W Benefit Plans the sponsorship of
which is transferred to B&W Opco in connection with this Agreement) and (c) an
amount in cash equal to the Estimated MSA Liability Amount.

            "Employees" means all individuals employed immediately prior to the
Asset Contribution by B&W and the Included Subsidiaries, whether employed within
or outside the United States and whether or not subject to a labor or collective
bargaining agreement, including active employees, employees on vacation,
holiday, jury duty, bereavement leave or other leave of absence (including
employees on short-term disability and long-term disability).

            "Employment Transfer Time" has the meaning assigned to such term in
Section 4.01.

            "Estimated MSA Liability Amount" means the accrued MSA Liability
Amount as of the date of this

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Agreement, as estimated in writing by B&W not less than two days nor more than
five days prior to the date of this Agreement.

            "Excluded Assets" means:

            (a) all cash, cash equivalents and bank deposits of B&W and its
      Subsidiaries other than (1) any cash described in clause (c) of the
      definition of Contributed Assets or (2) any cash, cash equivalents,
      deposits or other assets securing the obligations of B&W and its
      Subsidiaries for workers' compensation, licenses, permits and other
      similar obligations required under law;

            (b) the capital stock of each of the Excluded Subsidiaries and all
      the business, properties, assets, goodwill, rights and Liabilities of the
      Excluded Subsidiaries;

            (c) all receivables, accounts and indebtedness (other than trade
      receivables) due to B&W from PLC or any of its Subsidiaries, other than
      from any Included Subsidiary;

            (d) any loan agreements, security documents and other contracts
      related to receivables, accounts and indebtedness described in clause (c)
      of this definition or clauses (i) and (j) of the definition of Excluded
      Liabilities;

            (e) the $100 million bond filed by B&W in connection with the appeal
      of Engle v. R.J. Reynolds Tobacco Co. class action litigation in Florida,
      collateral securing such bond and all interest and other proceeds thereof;

            (f) all other bonds, letters of credit or similar instruments
      provided by B&W or any of its Subsidiaries in connection with any
      tobacco-related litigation, collateral securing such bonds and all
      interest and other proceeds thereof, including those listed on Schedule
      1.01(a);

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            (g) all rights and interests of B&W and the Excluded Subsidiaries
      under this Agreement and any other Transaction Agreement;

            (h) all records prepared in connection with the Transactions;

            (i) any tax records and copies of all other records of B&W or any of
      its Subsidiaries;

            (j) any service marks and service mark applications, trademarks and
      trademark applications, trade dress, logos and slogans, whether registered
      or unregistered, and the right to use any such service marks and service
      mark applications, trademarks and trademark applications, trade dress,
      logos and slogans, in any jurisdiction other than the United States and
      its territories and its possessions;

            (k) any patents, patent applications, inventions, trade secrets,
      proprietary processes, databases, software and formulae, and the right to
      use any such patents, patent applications, inventions, trade secrets,
      proprietary processes, databases, software and formulae, to the extent
      registered or patented in, or otherwise protected by, any jurisdiction
      other than the United States and its territories and its possessions;

            (l) all rights, claims and credits of B&W or any of its Subsidiaries
      to the extent arising out of any other Excluded Asset or any Excluded
      Liability, including any such items arising under insurance policies and
      all guarantees, warranties, indemnities and similar rights in favor of B&W
      or any of its Subsidiaries in respect of any other Excluded Asset or any
      Excluded Liability;

            (m) any capital stock of Reynolds American owned by B&W or any of
      its Subsidiaries;

            (n) any rights in the assets of the trusts established pursuant to
      the Secular Trust Agreements by and among State Street Bank and Trust
      Company, B&W, and the individuals party thereto listed on Schedule

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      1.01(b) (the "SERP Trust Individuals"), to the extent held in an account
      thereunder for the purpose of providing a fund to pay benefits under the
      Supplemental Pension Plan for Executives of B&W (the "B&W SERP") (defined
      in the Secular Trust Agreement as the "SERP Account");

            (o) any assets held in connection with the B&W Executive Life
      Insurance Plan (the "B&W ELP");

            (p) all rights to refunds, credits or offsets of Taxes relating to
      the Contributed Assets or the Assumed Liabilities with respect to
      Pre-Closing Tax Periods; and

            (q) all assets identified on Schedule 1.01(c).

            "Excluded Liabilities" means:

                  (a) any Liability of an Excluded Subsidiary or any other
      Liability to the extent arising out of the business of an Excluded
      Subsidiary;

                  (b) all obligations of B&W and the Excluded Subsidiaries under
      this Agreement and any other Transaction Agreement;

                  (c) any Liability under the B&W SERP, to the extent it
      pertains or relates to the service and/or accrued benefits of the SERP
      Trust Individuals prior to the Employment Transfer Time, calculated on the
      assumption that the SERP Trust Individual's employment terminated
      immediately prior to the Employment Transfer Time;

                  (d) any liability under each Agreement Pertaining to Revisions
      to Benefit Plans and Programs (the "Revision Agreement") entered into at
      any time prior to the Employment Transfer Time between B&W and a SERP
      Trust Individual, to the extent it pertains or relates to the B&W SERP
      with respect to the period prior to the Employment Transfer Time;

                  (e) any liability under the B&W ELP and any liability under
      any successor or substitute plan, program or arrangement in effect
      immediately prior to

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      the Employment Transfer Time providing life insurance coverage to any
      person covered under the B&W ELP or any such successor or substitute plan,
      program or arrangement, other than any liability related to group
      term-life insurance payable in lieu of continued B&W ELP participation;

                  (f) any liability under a Revision Agreement entered into at
      any time prior to the Employment Transfer Time, to the extent it pertains
      or relates to the B&W ELP or any successor or substitute plan, program or
      arrangement described in clause (e) above, other than any liability
      related to group term-life insurance payable to non-officers in lieu of
      continued B&W ELP participation;

                  (g) any Liability to the extent such Liability relates to the
      Excluded Assets;

                  (h) (i) all Taxes (other than U.S. federal and state excise
      Taxes) of each Included Subsidiary measured with respect to all Taxable
      periods ending on or before the date of this Agreement and the portion
      through the end of the date of this Agreement for any Taxable period that
      includes (but does not end on) the date of this Agreement, provided, that
      for purposes of this Agreement, (A) all real property Taxes, personal
      property Taxes and similar ad valorem obligations levied with respect to
      the Contributed Assets for a Tax period that includes (but does not end
      on) the date of this Agreement shall be apportioned between B&W and B&W
      Opco based upon the number of days of such period included in the
      Pre-Closing Tax Period and the number of days of such Tax period after the
      date of this Agreement (which period shall not include the date of this
      Agreement) and (B) all other Taxes (other than U.S. federal and state
      excise Taxes) for a Tax period that includes (but does not end on) the
      date of this Agreement shall be determined based upon an actual closing of
      the books as if such Tax period ended as of the close of business on the
      date of this Agreement, (ii) any and all Taxes (other than U.S. federal
      and state excise Taxes) of any member of an affiliated, consolidated,
      combined, or unitary group of which an Included Subsidiary (or any of
      their
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      predecessors) is or was a member on or prior to the date of this
      Agreement, including pursuant to Treas. Reg.ss.1.1502-6 or any analogous
      or similar provision of Law, and (iii) all Taxes (other than U.S. federal
      or state excise Taxes) of an Included Subsidiary arising from or related
      to the Transactions;

                  (i) all Liabilities of B&W or any of the Included Subsidiaries
      in respect of (i) borrowed money, (ii) bonds, debentures, notes or similar
      instruments issued in connection with borrowed money, (iii) conditional
      sale or other title retention agreements related to property or assets
      purchased by B&W or any of the Included Subsidiaries, (iv) the deferred
      purchase price of property or services (other than trade payables and
      other accounts payable generated in the ordinary course), (v) interest
      rate protection agreements, foreign currency exchange agreements or other
      interest or exchange rate hedging arrangements and (vi) guarantees given
      by B&W or any Included Subsidiary in respect of any of the foregoing
      (other than any letters of credit); and

                  (j) all payables, accounts and indebtedness (other than trade
      payables) owed by B&W to PLC or any of its Subsidiaries, other than to any
      Included Subsidiary.

            "Excluded Subsidiaries" means, collectively, the Subsidiaries of B&W
listed on Schedule 1.01(d) and the Subsidiaries of such listed Subsidiaries.

            "Filings" means Reynolds American's Form S-4 initially filed with
the SEC on January 16, 2004 and any other document filed or required to be filed
with the SEC by Reynolds American or RJR in connection with the Transactions
(including any preliminary or final form thereof or any amendment or supplement
thereto).

            "Final Determination" means the final resolution of Liability for
any Tax for any taxable period by or as a result of (a) a final and unappealable
decision, judgment, decree or other order by any court of competent
jurisdiction, (b) a final settlement with the IRS, a closing agreement or
accepted offer in compromise under

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Sections 7121 or 7122 of the Code or a comparable agreement under the laws of
other jurisdictions, in each case which resolves the entire Tax Liability for
any taxable period, (c) any allowance of a refund or credit in respect of an
overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered by the jurisdiction imposing the Tax, or (d) any
other final disposition, including, without limitation, by reason of the
expiration of the applicable statute of limitations.

            "GAAP" means U.S. generally accepted accounting principles,
consistently applied by the applicable party (except to the extent relating to a
change in GAAP).

            "Included Subsidiaries" means, collectively, the Subsidiaries of B&W
that are not Excluded Subsidiaries.

            "Indemnifiable Losses" means all losses, Liabilities, damages
(including compensatory damages, punitive damages, exemplary damages, penalties,
sanctions and restitution), deficiencies, fines, expenses, Actions, demands,
judgments, orders, decrees or settlements, whether or not resulting from Third
Party Claims, including interest and penalties recovered by a third party with
respect thereto and out-of-pocket expenses and reasonable attorneys' and
accountants' fees and expenses incurred in the investigation or defense of any
of the same or in asserting, preserving or enforcing any of an Indemnitee's
rights hereunder, suffered or incurred by an Indemnitee.

            "Indemnifying Party" has the meaning assigned to such term in
Section 5.03(a).

            "Indemnitee" means any of the B&W Indemnitees or the B&W Opco
Indemnitees, as the case may be.

            "Independent Firm" has the meaning set forth in Section 2.04(c).

            "IRS" means the United States Internal Revenue Service.

            "Liabilities" means any and all debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or

<PAGE>

unliquidated, accrued or not accrued, known or unknown, whenever or however
arising and whether or not the same would be required by GAAP to be reflected in
financial statements or disclosed in the notes thereto.

            "Measurement Time" has the meaning set forth in Section 2.04(a).

            "Minimum Required Working Capital Amount" means, with respect to any
date, the amount set forth on Schedule 1.01(e) with respect to such date.

            "MSA" means the Master Settlement Agreement, dated as of November
23, 1998, among the 46 states and five U.S. territories listed on the signature
pages thereto, the District of Columbia, Philip Morris Incorporated, R.J.
Reynolds Tobacco Company, B&W and Lorillard Tobacco Company, as amended,
supplemented or replaced.

            "MSA Liability Amount" means, with respect to any period, the total
of all amounts due by B&W for such period pursuant to (a) the State Settlements
and (b) attorney fee payment agreements adopted pursuant to any of the State
Settlements.

            "Negotiation Period" has the meaning set forth in Section 2.04(b).

            "Non-Assignable Assets" has the meaning set forth in Section 2.03.

            "Notice of Dispute" has the meaning set forth in Section 2.04(b).

            "Person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
governmental entity, unincorporated organization or other entity.

            "PLC" means British American Tobacco p.l.c., a public limited
company incorporated under the laws of England and Wales.

            "Pre-Closing Tax Period" means all taxable periods ending on or
before the day of this Agreement and the portion ending on the day of this
Agreement of any

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taxable period that includes (but does not end on) such day.

            "RJR" has the meaning set forth in the recitals to this Agreement.

            "Representative" of any Person means any officer, director, manager,
employee, consultant, attorney or other advisor or representative of such
Person.

            "Restricted Payments" means, with respect to B&W Opco or any of its
Subsidiaries, (a) the declaration or payment of any dividends or any other
distributions of any sort in respect of its capital stock (including any payment
in connection with any merger or consolidation involving such Person) or similar
payment to the direct or indirect holders of its capital stock (other than
dividends or distributions payable solely in its capital stock and dividends or
distributions payable solely to B&W Opco or one of its Subsidiaries), (b) the
purchase, redemption or other acquisition or retirement for value of any capital
stock of B&W Opco held by any Person or of any capital stock of a Subsidiary of
B&W Opco held by any affiliate of Reynolds American (other than B&W Opco or a
Subsidiary of B&W Opco), including in connection with any merger or
consolidation and including the exercise of any option to exchange any capital
stock, or (c) the making of any investment in Reynolds American or any of its
Subsidiaries (other than B&W Opco or one of its Subsidiaries); provided,
however, that, with respect to any calendar year, Restricted Payments shall not
include the declaration or payment of any dividends (other than extraordinary
dividends or liquidating dividends) or any other distributions of any sort by
B&W Opco in respect of its capital stock in an aggregate amount equal to the
sum, without duplication, of (i) (A) the aggregate amount of dividends (other
than extraordinary dividends or liquidating dividends) paid by Reynolds American
to the holders of Reynolds American common stock during such calendar year and
(B) the aggregate amount of cash required by Reynolds American to repurchase
Reynolds American common stock pursuant to Section 2.04(d) of the Governance
Agreement (as defined in the Combination Agreement) and (ii) the aggregate
amount of interest, indebtedness and corporate overhead expenses paid by
Reynolds American or

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R.J. Reynolds Tobacco Holdings, Inc. during such calendar year (including
amounts paid in respect of payroll and other compensation expenses (including
pensions) and other post-retirement benefits, but excluding amounts paid by
Reynolds American in respect of the $400 million loan to Reynolds American from
FHS, Inc.), Taxes, insurance, SEC, NYSE and other administrative fees and
expenses, banking fees and expenses and other types of corporate overhead and
administrative costs and expenses associated with being a public holding
company); provided, further, however, that, in the event Reynolds American owns
any "significant subsidiary" (as defined in Regulation S-X of the SEC) that is
not a Subsidiary of B&W Opco, the amount determined in clause (i) and (ii) above
will be reduced by the amount of such payments allocated to such significant
subsidiary by Reynolds American as determined by Reynolds American in good faith
consistent with past practice.

            "Reynolds American" has the meaning set forth in the preamble to
this Agreement.

            "SEC" means the Securities and Exchange Commission.

            "State Settlements" means (a) the MSA and (b) the Settlement
Agreement, dated as of August 25, 1997, among the State of Florida, Philip
Morris Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco
Company and United States Tobacco Company, as amended by the Stipulation of
Amendment to Settlement Agreement and For Entry of Consent Decree, dated as of
September 11, 1998, (c) the Settlement Agreement and Stipulation for Entry of
Consent Decree, dated as of May 8, 1998, among the State of Minnesota, Philip
Morris Incorporated, R.J. Reynolds Tobacco Company, B&W and Lorillard Tobacco
Company, (d) the Comprehensive Settlement Agreement and Release, dated as of
October 17, 1997, among the State of Mississippi, Philip Morris Incorporated,
R.J. Reynolds Tobacco Company, B&W and Lorillard Tobacco Company, as amended by
the Stipulation of Amendment to Settlement Agreement and For Entry of Agreed
Order, dated as of July 2, 1998, (e) the Comprehensive Settlement Agreement and
Release, dated as of January 16, 1998, among the State of Texas, Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco Company and
United States Tobacco Company, as amended by

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the Stipulation of Amendment to Settlement Agreement and For Entry of Consent
Decree, dated as of July 24, 1998, in each case, as amended, supplemented or
replaced, and (f) the Trust Agreement, dated July 19, 1999 among Philip Morris
Incorporated, B&W, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company,
as settlors, The Chase Manhattan Bank, as trustee, and the Grower States listed
therein, as amended, supplemented or replaced.

            "Submission Notice" has the meaning set forth in Section 2.04(c).

            A "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.

            "Successor Company" has the meaning assigned to such term in Section
5.05(a).

            "Taxes" means all (a) domestic or foreign (whether national,
Federal, state, provincial, local or otherwise) taxes, assessments, duties or
similar charges of any kind whatsoever, including all corporate franchise,
income, sales, use, ad valorem, receipts, value added, profits, license,
withholding, payroll, employment, excise, property, net worth, capital gains,
transfer, stamp, documentary, payroll, alternative minimum, recapture and other
taxes, including any interest, fines, penalties and additions imposed with
respect to such amounts; (b) Liability for the payment of any amounts of the
type described in clause (a) as a result of being a member of an affiliated,
consolidated, combined, unitary or aggregate group and (c) Liability for the
payment of any amounts as a result of an express or implied obligation to
indemnify any other person with respect to the payment of any amounts of the
type described in clause (a) or (b).

            "Texas Settlement Agreement" means the Comprehensive Settlement
Agreement and Release, dated as of January 16, 1998, among the State of Texas,
Philip Morris

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Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco Company and
United States Tobacco Company, as amended by the Stipulation of Amendment to
Settlement Agreement and For Entry of Consent Decree, dated as of July 24, 1998,
and as further amended by the Agreement of Amendment to Settlement Agreement,
dated as of June 8, 2001.

            "Third Party Claim" has the meaning set forth in Section 5.03(a).

            "Transaction Agreements" has the meaning assigned to such term in
the Combination Agreement.

            "Transactions" has the meaning assigned to such term in the
Combination Agreement.

            "Working Capital" means, as of any time, (a) the sum of (i)
Inventories - FIFO basis (including leaf, finished goods, wrapping materials,
spare parts and miscellaneous), (ii) Accounts Receivable External (including
domestic accounts receivable, leaf (ELT) accounts receivable and miscellaneous
accounts receivable), (iii) Due from Affiliates - Trading and (iv) Other Debtors
(including salesforce contingent funds, sundry unidentified items, unamortized
strike/wage concessions, prepaid insurance, prepaid legal fees, etc. but
excluding LIC, home escrows and the Star note) less (b) the sum of, (i) Excise
Tax Payable (Federal and state), (ii) Accrued Liabilities (including marketing
accruals, provisions for payroll, vacation pay, profit sharing, etc.), (iii)
Accounts Payable and (iv) Due to Affiliates - Trading. For the avoidance of
doubt, Working Capital shall not include any accruals relating to the MSA
Liability Amount.

            "Working Capital Statement" has the meaning set forth in Section
2.04(a).

                                   ARTICLE II

                               Asset Contribution

            SECTION 2.01. The Asset Contribution. Upon the effectiveness of this
Agreement, B&W shall contribute, assign, convey, transfer and deliver to B&W
Opco, and B&W

<PAGE>

Opco shall acquire and accept from B&W, all right, title and interest of B&W in
and to the Contributed Assets. B&W Opco has previously issued to B&W 100 fully
paid and nonassessable shares of B&W Opco Common Stock, representing all of the
outstanding capital stock of B&W Opco.

            SECTION 2.02. Retention of Copies; Access. Notwithstanding anything
to the contrary contained in this Agreement and subject to Section 6.10, (a) B&W
may retain, at its expense, archival copies of contracts, books and records or
other documents or materials conveyed by this Agreement, and (b) B&W Opco will
permit B&W to have reasonable access to such contracts, books, records,
documents and materials on and after the date of this Agreement to make such
copies. B&W Opco will give B&W at least 30 calendar days' prior written notice
of B&W Opco's intention to dispose of any books, records or other documentation
which constitute Contributed Assets. B&W will have the opportunity to obtain
possession, at its own expense, of any such books, records or documentation as
B&W may reasonably require prior to B&W Opco's disposition thereof. In the
absence of bad faith or wilful misconduct, neither B&W nor B&W Opco will have
any liability arising out of or in connection with its retention and handling of
such records.

            SECTION 2.03. Consents. Notwithstanding anything to the contrary
contained in this Agreement, if the contribution, assignment, conveyance,
transfer or delivery or attempted contribution, assignment, conveyance, transfer
or delivery to B&W Opco of any Contributed Asset is (a) prohibited by any
applicable Law or (b) would require any authorization, approval, consent or
waiver (each a "Consent") from a third Person and such Consent shall not have
been obtained prior to the effectiveness of this Agreement (each, a
"Non-Assignable Asset"), in either case, the Asset Contribution shall proceed,
but the Asset Contribution shall not constitute the contribution, assignment,
conveyance, transfer or delivery of such Non-Assignable Asset, and this
Agreement shall not constitute a contribution, assignment, conveyance, transfer
or delivery of such Non-Assignable Asset unless and until such Consent is
obtained. After the Asset Contribution, B&W and B&W Opco shall continue to use
reasonable best efforts to obtain any necessary Consent. The cost of obtaining
any

<PAGE>

such Consent shall be borne solely by B&W and shall constitute an Excluded
Liability hereunder. During the period between the date of this Agreement and
the consummation of the contribution, assignment, conveyance, transfer or
delivery of such Non-Assignable Asset, B&W will operate such Non-Assignable
Assets pursuant to written instructions from B&W Opco and all benefits of, and
risks arising out of or related to, the ownership and operation of such
Non-Assignable Asset will be for the account of B&W Opco, except as set forth in
Section 5.01(b) or 5.02(b). At or as soon as reasonably practicable after the
date of this Agreement, B&W and B&W Opco will enter into such agreements as may
be reasonably required to carry out the intent of the immediately preceding
sentence in order to provide such further specific assurances as B&W or B&W Opco
may reasonably request.

            SECTION 2.04. Working Capital Adjustment. (a) As soon as reasonably
practicable after the date of this Agreement (but in no event later than 60
calendar days after the date of this Agreement), B&W Opco will cause to be
prepared and delivered to B&W an unaudited consolidated balance sheet of B&W
Opco and its Subsidiaries as of the date of this Agreement, after giving effect
to the Asset Contribution and the Assumption of Liabilities but prior to giving
effect to the B&W Opco Stock Contribution (such time being referred to as the
"Measurement Time"), together with a statement of each component of Working
Capital of B&W Opco as of the Measurement Time (the "Working Capital
Statement"). The Working Capital Statement will be prepared in accordance with
the same accounting principles, policies, practices and procedures used to
prepare the amounts set forth on Schedule 1.01(e), which are the same accounting
principles, policies, practices and procedures used to prepare the B&W Audited
Historical Financial Statements (as defined in the Combination Agreement),
except that inventory is valued on a FIFO basis (the "B&W Accounting Policies").
B&W will have the right to audit the worksheets, examine underlying records and
review any work papers relating to the Working Capital Statement.

            (b) If B&W disagrees with the Working Capital Statement, B&W must,
within 20 business days after delivery of the Working Capital Statement to B&W,
notify B&W Opco in writing as to whether B&W accepts the Working Capital

<PAGE>

Statement. If B&W notifies B&W Opco that it does not accept the Working Capital
Statement (the "Notice of Dispute"), B&W will set out each disputed item, the
amount in dispute and its reasons for such dispute in reasonable detail,
including any adjustments which, in B&W's opinion, should be made to the Working
Capital Statement in order to comply with the requirements of this Section 2.04.
After delivery of the Notice of Dispute, B&W may not introduce additional
disagreements with respect to any item in the Working Capital Statement. If a
Notice of Dispute is received by B&W Opco in accordance with this Section
2.04(b), B&W and B&W Opco will use all reasonable efforts to meet and resolve
the objections of B&W to the Working Capital Statement within 60 calendar days
of B&W Opco's receipt of the Notice of Dispute (the "Negotiation Period").

            (c) If B&W and B&W Opco do not reach agreement prior to expiration
of the Negotiation Period, then B&W and B&W Opco will each deliver to the
Atlanta office of Ernst & Young LLP or such other accounting firm as the parties
shall jointly agree (the "Independent Firm") a written notice (a "Submission
Notice") specifying the nature and value of all items remaining in dispute
within ten calendar days following the expiration of the Negotiation Period. B&W
and B&W Opco will be deemed to have agreed with all items and amounts contained
in the Working Capital Statement other than the disputed items in each
Submission Notice.

            (d) The Independent Firm will (i) make an examination of the Working
Capital Statement, (ii) inspect and examine each party's working papers, (iii)
schedule meetings at which each party may present supporting data and arguments
to substantiate its position and (iv) after giving each party an opportunity to
rebut the other party's data and arguments, decide all disputed items set forth
in each Submission Notice. B&W Opco and B&W will instruct, and will use their
reasonable best efforts to cause, the Independent Firm to determine and report
to B&W and B&W Opco in writing upon all disputed items included in the
Submission Notices within 90 calendar days following the delivery of such
Submission Notices to the Independent Firm in accordance with this Section 2.04,
and such report will be final, binding and conclusive on B&W and B&W Opco. The

<PAGE>

Independent Firm's determination will be accompanied by a certificate of the
Independent Firm that it reached its decision in accordance with the provisions
of this Section 2.04. The Independent Firm will not have the authority to review
or make a determination with respect to any matter except the disputed items
included in each Submission Notice, it being understood that the Independent
Firm will not conduct its own independent audit or review, but rather will only
resolve specific differences between B&W and B&W Opco and make a determination
within the range of such differences as set forth in each Submission Notice. In
resolving such differences, the Independent Firm may not assign a value to an
item greater than the greatest value claimed by any party or less than the
smallest value for such item claimed by any party in the Submission Notice. The
fees and disbursements of the Independent Firm will be allocated equally between
B&W and B&W Opco. In acting under this Agreement, the Independent Firm will be
entitled to the privileges and immunities of arbitrators. The Working Capital
Statement will be deemed final, binding and conclusive on the parties hereto for
the purposes of this Section 2.04 upon the earliest of (A) the failure of B&W to
deliver a Notice of Dispute to B&W Opco pursuant to Section 2.04(b) within 20
business days of B&W Opco's delivery of the Working Capital Statement to B&W,
(B) the resolution of all disputes by B&W and B&W Opco in accordance with this
Section 2.04, (C) the failure by B&W to deliver a Submission Notice to the
Independent Firm in accordance with Section 2.04(c) (provided B&W Opco has
delivered a Submission Notice in accordance with Section 2.04(c)) or (D) the
resolution of all the disputed items set forth in the Submission Notice by the
Independent Firm. The Working Capital Statement, as modified by all adjustments
provided for in the Notice of Dispute, will be deemed final, binding and
conclusive on the parties hereto for the purpose of this Section 2.04 upon
failure of B&W Opco to deliver a Submission Notice to the Independent Firm in
accordance with Section 2.04(c) (provided B&W has delivered a Submission Notice
in accordance with Section 2.04(c)). B&W and B&W Opco will each permit the other
party, its agents and the Independent Firm reasonable access during normal
business hours, and on reasonable notice, to all relevant books and records,
computer files, premises and personnel involved in the preparation of the
underlying records and operating systems which generated

<PAGE>

the information used in the preparation of the Working Capital Statement, the
Notice of Dispute and the Submission Notice and will permit them to take copies
of such accounts, documents and records at their own expense.

            (e) Within five business days of the Working Capital Statement being
deemed final, if the Working Capital of B&W Opco as of the Measurement Time (as
finally determined) is less than the Minimum Required Working Capital Amount as
of the Measurement Time, B&W shall pay to B&W Opco an amount equal to (i) such
Minimum Required Working Capital Amount less such Working Capital plus (ii)
interest on such difference from the date of this Agreement to the date of such
payment at a rate per annum equal to (A) three-month LIBOR (as reported in The
Wall Street Journal (Northeast edition) or, if not reported therein, in another
authoritative source acceptable to B&W and B&W Opco) on the date of this
Agreement (or if no quotation for three-month LIBOR is available for such date,
on the next preceding date for which such a quotation is available) plus (B)
1.5%.

            SECTION 2.05. License of B&W Trademark. From the date of this
Agreement until the second anniversary of the date of this Agreement, B&W hereby
grants to B&W Opco and its Subsidiaries a non-exclusive, non-assignable,
royalty-free license to use the Brown & Williamson(R) trademark (the "B&W
Trademark") on purchase orders, product labels, packaging materials and all
other Contributed Assets on which the B&W Trademark appears as of the date of
this Agreement ("B&W Packaging"). During such period, Reynolds American will use
the B&W Trademark in the form and style in which it was used on the B&W
Packaging as of the date of this Agreement (whether alone or in combination with
other trademarks) on B&W Packaging, provided that any such products manufactured
by B&W Opco are manufactured, in all material respects, at the same quality
standards maintained by B&W prior to the Effective Time. Any B&W Packaging not
used within the aforesaid license period shall not thereafter be used by B&W
Opco and will be destroyed at B&W Opco's sole expense unless otherwise agreed to
by B&W in writing.

            SECTION 2.06. Transition Support Services. (a) B&W and its
affiliates shall provide B&W Opco with the

<PAGE>

services described on Schedule 2.06(a) (the "B&W Services") for the transitional
period set forth on such Schedule; provided, however, B&W and its affiliates
shall not be obligated to perform any such B&W Service if and to the extent that
such B&W Service (i) has not historically been provided by B&W in the ordinary
course with respect to the B&W Business, or in a volume substantially greater
than that which has been historically provided to the B&W Business by B&W or
such affiliate, (ii) would require B&W to hire any additional personnel or make
any capital expenditures, (iii) is for any operations of B&W Opco other than in
respect of the B&W Business or (iv) would breach any contract to which B&W is a
party or violate any applicable law to which B&W is subject. B&W Opco will
reimburse B&W for the B&W Services at B&W's fully-allocated costs. During the
period in which the B&W Services are being provided, B&W Opco shall furnish B&W
with such information and other reasonable assistance as is necessary to enable
B&W to perform the B&W Services. Any such information shall be provided by B&W
Opco at the same times and in the same format as previously supplied to B&W by
the B&W Business. B&W Opco shall be responsible for assuring that such
information is accurate and complete. B&W's performance of any B&W Service may
be suspended during any period that B&W Opco fails to provide such information
and assistance to the extent such failure renders performance of such B&W
Service by B&W unduly burdensome. B&W shall not be liable to B&W Opco for any
Indemnifiable Losses in respect of providing any B&W Service absent gross
negligence or wilful misconduct.

            (b) B&W Opco and its Subsidiaries shall provide B&W and its
affiliates with the services described on Schedule 2.06(b) (the "B&W Opco
Services") for the transitional period set forth on such Schedule; provided,
however, B&W Opco and its Subsidiaries shall not be obligated to perform any
such B&W Opco Service if and to the extent that such B&W Opco Service (i) has
not been historically provided to B&W in the ordinary course of the B&W
Business, or in a volume substantially greater than that which has been
historically provided to B&W and its affiliates prior to the date of this
Agreement, (ii) would require B&W Opco to hire any additional personnel or make
any capital expenditures, (iii) is for any operations of a person other than B&W
or any of its affiliates or

<PAGE>

(iv) would breach any contract to which B&W Opco is a party or violate any
applicable law to which B&W Opco is subject. B&W will reimburse B&W Opco for the
B&W Opco Services at B&W Opco's fully-allocated costs. During the period in
which the B&W Opco Services are being provided, B&W shall furnish B&W Opco with
such information and other reasonable assistance as is necessary to enable B&W
Opco to perform the B&W Opco Services. Any such information shall be provided by
B&W at the same times and in the same format as previously supplied. B&W shall
be responsible for assuring that such information is accurate and complete. B&W
Opco's performance of any B&W Opco Service may be suspended during any period
that B&W fails to provide such information and assistance to the extent such
failure renders performance of such B&W Opco Service by B&W Opco unduly
burdensome. B&W Opco shall not be liable to B&W for any Indemnifiable Losses in
respect of providing any B&W Opco Service absent gross negligence or wilful
misconduct.

            SECTION 2.07. Further Assurances. On and after the effectiveness of
this Agreement, B&W shall from time to time, at the request of B&W Opco and at
B&W's expense, execute and deliver, or cause to be executed and delivered, such
other instruments of conveyance and transfer and take such other actions as B&W
Opco may reasonably request, in order to more effectively consummate the
transactions contemplated hereby and to vest in B&W Opco title to the
Contributed Assets.

            SECTION 2.08. Texas Settlement Agreement. The parties hereto hereby
acknowledge and agree that (a) consistent with Section 2.03, the Texas
Settlement Agreement shall not be assigned by B&W to B&W Opco unless and until
such time as all required consents under the Texas Settlement Agreement for such
assignment shall have been obtained or as otherwise permitted by an order of the
United States District Court for the Eastern District of Texas, Texarkana
Division, or appellate courts thereof, (b) this Agreement shall not purport to
release B&W from its obligations under the Texas Settlement Agreement to the
State of Texas or any other party to the Texas Settlement Agreement except in
accordance with the terms of the Texas Settlement Agreement or as otherwise
permitted by an order of the United States District Court for the Eastern
District of Texas, Texarkana Division, or appellate courts

<PAGE>

thereof, and (c) consistent with Section 3.01, upon effectiveness of this
Agreement, B&W Opco shall assume, satisfy, perform, pay and discharge all
Liabilities of B&W under the Texas Settlement Agreement, which are Assumed
Liabilities, and such Assumed Liabilities shall be subject to the provisions of
Article V.

                                  ARTICLE III

                            Assumption of Liabilities

            SECTION 3.01. Assumption of Liabilities. Upon the effectiveness of
this Agreement, B&W Opco agrees to assume, satisfy, perform, pay and discharge
each of the Assumed Liabilities.

            SECTION 3.02. Further Assurances. (a) On and after the effectiveness
of this Agreement, B&W Opco shall from time to time, at the request of B&W, take
such actions as B&W may reasonably request, in order to more effectively
consummate the transactions contemplated hereby, including the assumption of the
Assumed Liabilities by B&W Opco. The parties intend that any payment or accrual
by B&W Opco of any Assumed Liabilities shall be deductible by B&W Opco for all
Tax purposes to the extent provided by applicable law. If B&W Opco receives a
refund or credit or accrues an offset to Tax relating to Pre-Closing Tax
Periods, B&W Opco shall pay to B&W within 20 days of such receipt or accrual the
amount of such refund, credit or offset to Tax.

            (b) B&W and B&W Opco shall cooperate in good faith, and shall cause
their respective officers, directors, affiliates, employees, agents, auditors
and representatives to cooperate in good faith, in all matters relating to
Taxes, including by maintaining and making available to each other all books and
records necessary in connection with Taxes.

                                   ARTICLE IV

                                Employee Matters

            SECTION 4.01. Transfer of Employment to B&W Opco. (a) Upon the
effectiveness of this Agreement, (i) B&W Opco shall assume and honor all terms
and
<PAGE>

conditions of employment (including under any applicable labor or collective
bargaining agreement) in respect of the Employees to the extent required to
accomplish the transfer of employment of the Employees to B&W Opco in connection
with the Asset Contribution and Assumption of Liabilities and (ii) B&W and B&W
Opco agree to take or cause to be taken such actions as are reasonably
practicable (including the assumption, if necessary, of Liabilities relating to
the employment of Employees) such that the employment of the Employees will
transfer to B&W Opco at such time (the "Employment Transfer Time"). B&W Opco
shall offer to employ and continue the employment of each Employee at the same
salary and wages payable by B&W and the Included Subsidiaries to such Employee
immediately prior to the Employment Transfer Time and shall maintain terms and
conditions of employment which replicate those provided by B&W and the Included
Subsidiaries immediately prior to the Employment Transfer Time as and to the
extent required by applicable Law or as a result of negotiation with applicable
unions.

            (b) If any Employee requires a work permit or employment pass or
other approval for his or her employment to continue with B&W Opco following the
Employment Transfer Time, B&W Opco shall use its reasonable best efforts to
ensure that any necessary applications are promptly made and to secure the
necessary permit, pass or other approval.

            (c) B&W and B&W Opco intend that (i) for purposes of any severance
or termination benefit plan, program, policy, agreement or arrangement of B&W or
any Included Subsidiary, the Transactions shall not constitute a severance of
employment of any Employee prior to or upon the consummation of the Transactions
and (ii) Employees will have continuous and uninterrupted employment immediately
before and immediately after the Employment Transfer Time. B&W Opco shall assume
all Liabilities in respect of claims made by any Employees for severance or
other termination benefits (including claims for wrongful dismissal, notice of
termination of employment or pay in lieu of notice) arising out of, relating to
or in connection with B&W Opco's failure to offer employment to, or continue the
employment of, any Employee, or failure to offer or continue employment on terms
and conditions which would preclude any claims of constructive dismissal or

<PAGE>

similar claims under any applicable Law or other failure to comply with the
terms of this Agreement, or where any such severance or termination benefits are
automatically required to be paid under applicable Law.

            SECTION 4.02. Transfer of Benefit Plans. As of the Employment
Transfer Time, B&W Opco shall adopt as the successor plan sponsor, all B&W
Benefit Plans (and, as applicable, any related trusts) and shall assume all of
B&W's rights under such related trusts and all of B&W's Liabilities under the
B&W Benefit Plans (other than Excluded Liabilities), and B&W and B&W Opco shall
take all action reasonably required to effect such adoption and assumption as of
the Employment Transfer Time. Following such adoption and assumption, PLC and
its Subsidiaries shall have no further Liabilities of any kind or description
under the B&W Benefit Plans or their related trusts (except for Excluded
Liabilities).

                                    ARTICLE V

                           Indemnification; Covenants

            SECTION 5.01. Indemnification by B&W Opco and Reynolds American.
Subject to the provisions of this Article V, from and after the effectiveness of
the Asset Contribution and the Assumption of Liabilities, B&W Opco and Reynolds
American (but, in the case of Reynolds American, only with respect to clause (c)
below) shall jointly and severally indemnify, defend and hold harmless the B&W
Indemnitees from and against, and pay or reimburse the B&W Indemnitees for, all
Indemnifiable Losses, as incurred, to the extent:

                        (a) relating to or arising from the Contributed Assets
      or the Assumed Liabilities (including the failure by B&W Opco to pay,
      perform or otherwise discharge any of the Assumed Liabilities in
      accordance with their terms), whether such Indemnifiable Losses relate to
      or arise from events, occurrences, actions, omissions, facts or
      circumstances occurring, existing or asserted before, at or after the
      Asset Contribution and Assumption of Liabilities;

<PAGE>

                        (b) relating to or arising from the Non-Assignable
      Assets, whether such Indemnifiable Losses relate to or arise from events,
      occurrences, actions, omissions, facts or circumstances occurring,
      existing or asserted before, at or after the Asset Contribution and
      Assumption of Liabilities; provided, however, that with respect to
      Indemnifiable Losses relating to or arising from events, occurrences,
      facts or circumstances relating to or arising from actions or omissions by
      any B&W Indemnitee occurring after the Asset Contribution and Assumption
      of Liabilities, B&W Opco shall not be liable to the extent such
      Indemnifiable Losses directly relate to or arise from (i) actions or
      omissions by any B&W Indemnitee that are in conflict with any written
      instruction from B&W Opco with respect to such Non-Assignable Asset or
      (ii) any action taken by B&W with respect to such Non-Assignable Assets
      outside the ordinary course of business or that is finally determined by a
      court of competent jurisdiction to result from the gross negligence or
      wilful misconduct of B & W;

                        (c) relating to or arising from any untrue or allegedly
      untrue statement of a material fact contained in, or incorporated by
      reference to, any of the Filings or any omission to state therein a
      material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were
      made, not misleading, but in each case not with respect to statements made
      therein or incorporated by reference therein based upon information
      supplied in writing by B&W specifically for inclusion or incorporation by
      reference therein; provided, however, that the indemnification provided
      for in this clause (c) shall only apply to Third Party Claims; or

                        (d) the aggregate MSA Liability Amount due and payable
      with respect to any period prior to the date of this Agreement and paid by
      a B&W Opco Indemnitee on or after such time is less than the Estimated MSA
      Liability Amount, with any such payment or payments being made promptly
      following the finalization of the various components thereof; provided,
      however, that any reduction in such MSA

<PAGE>

      Liability Amount resulting from any Non-Participating Manufacturer's
      adjustment shall not be considered for purposes of this Section 5.01(d).

            SECTION 5.02. Indemnification by B&W. Subject to the provisions of
this Article V, from and after the effectiveness of the Asset Contribution and
the Assumption of Liabilities, B&W shall indemnify, defend and hold harmless the
B&W Opco Indemnitees from and against, and pay or reimburse the B&W Opco
Indemnitees for, all Indemnifiable Losses, as incurred, to the extent:

                  (a) relating to or arising from the Excluded Assets or
      the Excluded Liabilities (including the failure by B&W to pay, perform or
      otherwise discharge any of the Excluded Liabilities in accordance with
      their terms), whether such Indemnifiable Losses relate to or arise from
      events, occurrences, actions, omissions, facts or circumstances occurring,
      existing or asserted before, at or after the Asset Contribution and
      Assumption of Liabilities (other than Indemnifiable Losses that relate to
      or arise from the Non-Assignable Assets);

                  (b) relating to or arising from the Non-Assignable Assets with
      respect to such Indemnifiable Losses relating to or arising from events,
      occurrences, facts or circumstances relating to or arising from actions or
      omissions by B&W occurring after the Asset Contribution and Assumption of
      Liabilities that (i) are in conflict with any written instruction from B&W
      Opco with respect to such Non-Assignable Asset or (ii) are taken outside
      the ordinary course of business or are finally determined by a court of
      competent jurisdiction to result from the gross negligence or wilful
      misconduct of B & W;

                  (c) relating to or arising from any untrue statement of a
      material fact contained in, or incorporated by reference to, any of the
      Filings or any omission or alleged omission to state therein a material
      fact required to be stated therein or necessary to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading, but only with respect to statements made

<PAGE>

      therein or incorporated by reference therein based upon information
      supplied in writing by B&W specifically for inclusion or
      incorporation by reference therein; provided, however, that the
      indemnification provided for in this clause (c) shall only apply to
      Third Party Claims; or

                  (d) the aggregate MSA Liability Amount due and payable
      with respect to any period prior to the date of this Agreement and
      paid by a B&W Opco Indemnitee on or after the date of this Agreement
      is greater than the Estimated MSA Liability Amount, with any such
      payment or payments being made promptly following the finalization
      of the various components thereof.

            SECTION 5.03. Procedures Relating to Indemnification. (a) In order
for an Indemnitee to be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made by any Person
who is not an Indemnitee against such Indemnitee (a "Third Party Claim"), such
Indemnitee must notify the party who may become obligated to provide
indemnification hereunder (the "Indemnifying Party") in writing, and in
reasonable detail, of the Third Party Claim reasonably promptly, and in any
event within 20 days after receipt by such Indemnitee of written notice of the
Third Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually and materially prejudiced as a
result of such failure; provided, further, however, that no such notice shall
need to be given by any B&W Indemnitee with respect to Third Party Claims
arising as a result of any Action pending as of the date of this Agreement.
After any required notification (if applicable), the Indemnitee shall deliver to
the Indemnifying Party, promptly after the Indemnitee's receipt thereof, copies
of all notices and documents (including court papers) received by the Indemnitee
relating to the Third Party Claim.

            (b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof (at the expense of the

<PAGE>

Indemnifying Party) with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnitee; provided, however, that (i) the
Indemnifying Party shall not be entitled to assume such defense unless it first
acknowledges in writing its obligation hereunder to indemnify the Indemnitee
with respect to all material elements of such Third Party Claim and (ii) the
Indemnifying Party shall not be entitled to assume the defense of a Third Party
Claim if (but only to the extent that) the Indemnitee reasonably determines that
it has defenses, claims or positions that are unique, separate or distinct from
the defenses, claims or positions that might be available to other Persons
relating to such Third Party Claim (such as jurisdictional defenses). Except as
set forth below, should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party will not be liable to the Indemnitee
for any legal expenses subsequently incurred by the Indemnitee in connection
with the defense thereof. If the Indemnifying Party assumes such defense, the
Indemnitee shall have the right to participate, at its own expense, in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense; provided, however, that an
Indemnitee may reassume control of any defense if the Indemnitee reasonably
believes that the Indemnifying Party does not have the financial capability to
fully indemnify the Indemnitee for the Indemnifiable Losses that may be incurred
by the Indemnitee as a result of the applicable Third Party Claim or if the
Indemnifying Party fails to diligently prosecute the defense of such Third Party
Claim within 20 calendar days after receipt of written notice of such failure to
prosecute by the Indemnitee. The Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel employed by the Indemnitee (i) for any
period during which the Indemnifying Party has not assumed the defense thereof,
(ii) as a result of the retention of control pursuant to the proviso to the
first sentence of this Section 5.03(b) or (iii) following the reassumption of
control of any defense pursuant to the proviso to the preceding sentence.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to
assume the defense of any Third Party Claim if the Third Party Claim seeks an
order, injunction or other equitable

<PAGE>

relief or relief for other than money damages against the Indemnitee which the
Indemnitee reasonably determines cannot be separated from any related claim for
money damages. If such equitable or other relief portion of the Third Party
Claim can be so separated from that for money damages, the Indemnifying Party
shall be entitled to assume the defense of the portion relating to money damages
and, in such event, the Indemnifying Party shall continue to be liable for the
reasonable fees and expenses of counsel employed by the Indemnitee with respect
to the portion of the defense of such Third Party Claim that the Indemnifying
Party has not assumed. The indemnification required by Section 5.01 or 5.02, as
the case may be, shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when invoices are received or
the Indemnifiable Loss is incurred. If the Indemnifying Party chooses to defend
or prosecute a Third Party Claim (i) all the parties hereto reasonably necessary
or appropriate for such defense or prosecution shall cooperate in the defense or
prosecution thereof, which cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying Party of records
and information which are reasonably relevant to such Third Party Claim, (ii)
the Indemnifying Party shall keep the Indemnitee reasonably informed of all
significant developments in connection with the defense or prosecution of such
Third Party Claim and (iii) the Indemnitee shall agree to any settlement,
compromise or discharge of such Third Party Claim which the Indemnifying Party
may recommend (after representing to the Indemnitee that such settlement is
reasonably likely to be acceptable to the parties to the Third Party Claim) and
which by its terms obligates the Indemnifying Party to pay the full amount of
Liability of the Indemnitee in connection with such Third Party Claim; provided,
however, that, unless the Indemnitee in its sole discretion otherwise consents
in writing, the Indemnifying Party shall not consent to entry of any Judgment or
enter into any settlement (x) that provides for injunctive or other nonmonetary
relief affecting the Indemnitee or any of its affiliates (other than the
Indemnifying Party and its Subsidiaries) or their respective properties or (y)
that does not include as an unconditional term thereof the giving by each
claimant or plaintiff to such Indemnitee of a release from all Liability with
respect to such claim.

<PAGE>

If the Indemnifying Party shall have assumed the defense of a Third Party Claim,
the Indemnitee shall not admit any Liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying Party's
prior written consent.

            (c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not involve a
Third Party Claim, the Indemnitee shall deliver notice of such claim (in
reasonably sufficient detail to enable the Indemnifying Party to evaluate such
claim) with reasonable promptness to the Indemnifying Party. The failure by any
Indemnitee to give such notification shall not affect the indemnification
provided hereunder except to the extent that the Indemnifying Party shall have
been actually and materially prejudiced as a result of such failure. If the
Indemnifying Party has disputed its Liability with respect to such claim the
Indemnifying Party and the Indemnitee shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by litigation, subject to the provisions of Section
6.09, in an appropriate court of competent jurisdiction.

            SECTION 5.04. Certain Limitations. (a) The amount of any
Indemnifiable Losses or other Liability for which indemnification is provided
under this Agreement shall be net of any amounts actually recovered by the
Indemnitee from third parties (including amounts actually recovered under
insurance policies) with respect to such Indemnifiable Losses. The Indemnitee
shall use its reasonable best efforts to seek to obtain recovery in respect of
any Indemnifiable Loss or such other Liability under any available insurance
policy.

            (b) Any indemnification payments made pursuant to this Agreement
shall be treated for all Tax purposes (i) as to the Indemnitee, as nontaxable
reimbursements or capital contributions, as the case may be, and (ii) as to the
Indemnifying Party, as deductible payments to the extent provided by applicable
law, unless, and then only to the extent, otherwise required by a Final
Determination. If an indemnification payment made pursuant to this Agreement is
treated as a taxable payment as a result of a

<PAGE>

Final Determination, such indemnification payment shall be (i) reduced to take
account of the present value of any net Tax benefit actually realized by the
Indemnitee in connection with or otherwise arising from the incurrence of the
applicable Indemnifiable Loss and (ii) increased to take account of any net Tax
cost incurred by the Indemnitee as a result of the receipt of such
indemnification payment (grossed up for such increase).

            SECTION 5.05. Limitation on Transfer of B&W Opco Assets. (a) B&W
Opco shall not consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, directly or indirectly,
all or substantially all its assets to, any Person, unless the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not B&W Opco)
shall expressly assume all the obligations of B&W Opco under this Agreement. Any
such assumption shall be in writing and in form and substance reasonably
satisfactory to B&W. For purposes of this Section 5.05(a), the sale, lease,
conveyance, assignment, transfer or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of B&W Opco, which
properties and assets, if held by B&W Opco instead of such Subsidiaries, would
constitute all or substantially all of the properties and assets of B&W Opco on
a consolidated basis, shall be deemed to be the transfer of all or substantially
all of the properties and assets of B&W Opco. Notwithstanding the foregoing, the
obligations of B&W Opco under this Agreement shall not be terminated as a result
of any such assumption.

            (b) B&W Opco shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, consummate any Asset Disposition unless B&W Opco or
such Subsidiary receives consideration at the time of such Asset Disposition
that has a fair market value at least equal to the fair market value (including
as to the value of all non-cash consideration) of the shares and assets subject
to such Asset Disposition. In the event that the value of the shares and assets
subject to such Asset Disposition exceeds $20,000,000, the fair market value of
such shares and
<PAGE>

assets shall be determined in good faith by the Board of Directors of Reynolds
American.

            (c) B&W Opco shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to make a Restricted Payment if at the
time B&W Opco or such Subsidiary makes such Restricted Payment the Consolidated
Net Worth (adjusted to give effect to any such Restricted Payment) would be less
than $5.9 billion (or if different, 75% of the Consolidated Net Worth of B&W
Opco and its Subsidiaries as reflected on the balance sheet of B&W Opco and its
Subsidiaries on August 1, 2004, after giving effect to the Transactions
(including the merger of R. J. Reynolds Tobacco Company into B&W Opco and the
distribution of Santa Fe Natural Tobacco Company, Inc. by RJR to Reynolds
American)).

            (d) The limitations set forth in this Section 5.05 shall terminate
in the event that Reynolds American has expressly assumed all of the obligations
of B&W Opco under this Agreement. Any such assumption shall be in writing and in
form and substance reasonably satisfactory to B&W. Notwithstanding the
foregoing, the obligations of B&W Opco under this Agreement (other than under
this Section 5.05) shall not be terminated as a result of any such assumption.

                                   ARTICLE VI

                                  Miscellaneous

            SECTION 6.01. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

<PAGE>

                        (a) if to B&W or B&W Opco (prior to completion of the
            B&W Opco Stock Contribution), to

                            401 South 4th Avenue
                            Louisville, KY  40232
                            Fax: (502) 217-7297

                            Attention:  General Counsel

                            with a copy to:

                            Cravath, Swaine & Moore LLP
                            825 Eighth Avenue
                            New York, NY 10019
                            Fax: 212-474-3700
                            Phone: 212-474-1000

                            Attention:  Philip A. Gelston, Esq.
                                        Sarkis Jebejian, Esq.

                        (b) if to Reynolds American or B&W Opco (after the
            completion of the B&W Opco Stock Contribution), to

                            401 North Main Street
                            Winston-Salem, NC  27102-2990
                            Fax: (336) 741-2998

                            Attention: General Counsel

                            with a copy to:

                            Jones Day
                            222 East 41st Street
                            New York, NY 10017
                            Fax: 212-755-7306
                            Phone: 212-326-3939

                            Attention: Jere R. Thomson, Esq.

            SECTION 6.02. Amendments; Waivers. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
of a waiver, by the party against whom the waiver is to be effective.

<PAGE>

            (b) The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights nor shall any single or partial exercise by any party to this Agreement
of any of its rights under this Agreement preclude any other or further exercise
of such rights or any other rights under this Agreement. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law or otherwise.

            SECTION 6.03. Interpretation. When a reference is made in this
Agreement to a Section, Subsection, Schedule or Exhibit, such reference shall be
to a Section or Subsection of, or a Schedule or an Exhibit to, this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein", "hereby" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. The words "date hereof" shall refer to the date of this Agreement.
The term "or" is not exclusive. The word "extent" in the phrase "to the extent"
shall mean the degree to which a subject or other thing extends, and such phrase
shall not mean simply "if". The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms. Any
agreement or instrument defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement or instrument as from
time to time amended, modified or supplemented. References to a Person are also
to its permitted successors and assigns. This Agreement, including the
provisions of Article V, shall not be strictly construed against any Indemnitee
seeking to enforce any indemnification rights under this Agreement.

            SECTION 6.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or Law,
or public policy, all other conditions and provisions of this

<PAGE>

Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the Transactions contemplated
hereby are fulfilled to the extent possible.

            SECTION 6.05. Counterparts; Effectiveness. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties; provided,
however, that the rights and obligations of Reynolds American under this
Agreement shall not become effective until the completion of the B&W Opco Stock
Contribution. This Agreement and the obligations set forth herein shall remain
in effect following consummation of the Transactions and shall not terminate
unless and until each of the parties hereto has agreed to such termination in
writing.

            SECTION 6.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other Transaction Agreements constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and thereof and,
except for Article V, are not intended to confer upon any Person other than the
parties any rights or remedies.

            SECTION 6.07. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.

            SECTION 6.08. Assignment. Except as set forth in Section 5.05(a),
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or

<PAGE>

otherwise, by any of the parties without the prior written consent of the other
parties hereto, except that B&W may assign, in its sole discretion, any of or
all its rights, interests and obligations under this Agreement to PLC or any of
its Subsidiaries that agrees in writing to be bound by the provisions hereof
(provided that any such assignment shall not relieve B&W from its obligations
under this Agreement). Any purported assignment without such prior written
consent shall be void. Subject to the preceding sentences, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and assigns.

            SECTION 6.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in the Chancery Court of the State of Delaware, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
Chancery Court of the State of Delaware in the event any dispute arises out of
this Agreement or any Transaction, (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court, (c) irrevocably and unconditionally waives (and agrees not to
plead or claim) any objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement or any Transaction, (d) agrees that it
will not bring any action relating to this Agreement or any Transaction in any
court other than any Federal court sitting in the State of Delaware or Chancery
Court of the State of Delaware (provided that this Section 6.09(d) shall not
apply in respect of any claim for indemnification in respect of any Third Party
Claim that is brought in any other court, in which case, such an action may be
brought in such other court) and (e) waives any right to trial by jury with
respect to any action related to or arising out of this Agreement or any
Transaction.

<PAGE>

            SECTION 6.10. Confidentiality. (a) B&W agrees to maintain, and B&W
shall cause its directors, officers, employees and other representatives to
maintain, the confidentiality of all material non-public information obtained by
B&W from Reynolds American or any of its Subsidiaries or their respective
directors, officers, employees or agents in connection with this Agreement.

            (b) Notwithstanding the foregoing, the confidentiality obligations
of Section 6.10(a) will not apply to information obtained other than in
violation of this Agreement:

            (i) which B&W or any of its directors, officers, employees or other
      representatives is required to disclose by judicial or administrative
      process, or by other requirements of applicable law or regulation or any
      governmental authority; provided, however, that, where and to the extent
      practicable, B&W (A) will give B&W Opco and Reynolds American reasonable
      notice of any such requirement and, to the extent protective measures
      consistent with such requirement are available, the opportunity to seek
      appropriate protective measures and (B) will cooperate with B&W Opco and
      Reynolds American in attempting to obtain such protective measures;

            (ii) which becomes available to the public other than as a result of
      a breach of Section 6.10(a); or

            (iii) which has been provided to B&W or any of its officers,
      employees or other representatives by a third party other than from
      Reynolds American or any of its Subsidiaries or their respective
      directors, officers, employees or agents whom B&W reasonably believes
      obtained such information in breach of a contractual or fiduciary
      obligation to B&W Opco.

            (c) Notwithstanding anything herein to the contrary, any party to
this Agreement (and any employee, representative or other agent of such party)
may disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of the transactions contemplated by this Agreement
and all materials of any kind (including opinions or other tax analyses) that
are

<PAGE>

provided to it relating to such tax treatment and tax structure, except that (i)
this provision shall not permit disclosure until the earliest of (A) the date of
the public announcement of discussions relating to the transaction, (B) the date
of the public announcement of the transaction or (C) the date of the execution
of an agreement (with or without conditions) to enter into the transaction, (ii)
tax treatment and tax structure shall not include the identity of any existing
or future party (or any affiliate of such party) to this Agreement and (iii)
this provision shall not permit disclosure to the extent that nondisclosure is
necessary in order to comply with applicable securities laws. Nothing in this
Agreement shall in any way limit any party's ability to consult any tax advisor
(including a tax advisor independent from all other entities involved in the
transactions contemplated by this Agreement) regarding the tax treatment or tax
structure of the transactions contemplated by this Agreement.

<PAGE>

            IN WITNESS WHEREOF, the parties hereto have executed this Formation
Agreement as of the day and year first above written.

                                BROWN & WILLIAMSON TOBACCO CORPORATION

                                By______________________________________________
                                  Name:
                                  Title:

                                BROWN & WILLIAMSON U.S.A., INC.

                                By______________________________________________
                                  Name:
                                  Title:

                                REYNOLDS AMERICAN INC.

                                By______________________________________________
                                  Name:  Charles A. Blixt
                                  Title: Executive Vice
                                         President and
                                         General Counsel<PAGE>

                                                                    Exhibit 10.2

                                    GOVERNANCE AGREEMENT, dated as of July 30,
                           2004 (this "Agreement"), among BRITISH AMERICAN
                           TOBACCO p.l.c., a public limited company incorporated
                           under the laws of England and Wales ("BAT"), BROWN &
                           WILLIAMSON TOBACCO CORPORATION, a Delaware
                           corporation ("B&W"), and REYNOLDS AMERICAN INC., a
                           North Carolina corporation ("Reynolds American").

            WHEREAS the respective Boards of Directors of BAT, B&W and Reynolds
American have approved the execution, delivery and performance of this
Agreement;

            WHEREAS B&W and R.J. Reynolds Tobacco Holdings, Inc., a Delaware
corporation ("RJR"), entered into the Business Combination Agreement dated as of
October 27, 2003 (the "Combination Agreement"), and each of B&W, RJR, Reynolds
American and certain of their affiliates will engage in the Transactions (as
defined in the Combination Agreement);

            WHEREAS B&W will own approximately 42% of the outstanding shares of
common stock, par value $0.01 per share, of Reynolds American (the "Common
Stock") immediately following the completion of the Transactions; and

            WHEREAS BAT, B&W and Reynolds American desire to establish in this
Agreement certain terms and conditions concerning the corporate governance of
Reynolds American, the acquisition and disposition of securities of Reynolds
American by BAT, B&W and their respective affiliates and other matters.

            NOW, THEREFORE, the parties hereto agree as follows:

<PAGE>

                             ARTICLE I. Definitions

            SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the following meanings:

            An "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.

            "Approval Termination Event" means (i) any wilful and deliberate
action, or failure to take action, by Reynolds American or the Board of
Directors that results in B&W failing to receive a material right provided for
in Section 2.04(a), (b) or (d) or (ii) any wilful and deliberate action, or
failure to take action, by Reynolds American or the Board of Directors relating
to Section 2.04(c) that materially increases the likelihood of an adverse tax
event or consequence to any Investor Party as a result of such action or failure
to take action.

            "B&W" has the meaning set forth above.

            "B&W Counteroffer" means an offer by any Investor Party to acquire
any and all of the outstanding Common Stock not beneficially owned by an
Investor Party at the time of the offer (or such lesser number or percentage of
shares of Common Stock (a) equal to (i) the percentage of Common Stock that is
subject to acquisition pursuant to a Third Party Offer giving rise to B&W's
ability to make such B&W Counteroffer (if the Board of Directors has approved,
consented to or recommended (other than a negative recommendation) such Third
Party Offer) less (ii) B&W's Percentage Interest at such time or (b) as may be
approved by a majority of the Other Directors). Unless otherwise approved by a
majority of the Other Directors prior to the acquisition of shares of Common
Stock pursuant to a B&W Counteroffer, any B&W Counteroffer structured as a
tender offer or other share purchase shall include a binding commitment (subject
to any mandatory legal restrictions and requirements) by the offering party to
acquire within one year of the closing of such tender offer or share purchase
any Common Stock that remains outstanding at the time of such closing for
consideration equal to or greater than the

                                       2
<PAGE>

consideration paid in such tender offer or share purchase for the same class of
Common Stock less the percentage of Common Stock, if any, that B&W was not
required to acquire pursuant to clause (a) above.

            "B&W Opco" means Brown & Williamson U.S.A., Inc., a North Carolina
corporation.

            "B&W's Percentage Interest" means, as of any date of determination,
the percentage of Voting Power (determined on the basis of the number of
outstanding shares of Voting Stock, as set forth in the most recent SEC filing
of Reynolds American prior to such date that contained such information) that is
beneficially owned by the Investor Parties as of such date. For purposes of
determining whether and to what extent an Investor Party is entitled to any
right under this Agreement, Voting Stock acquired by any of them in breach of
this Agreement will be excluded from any calculation of B&W's Percentage
Interest.

            "BAT" has the meaning set forth above.

            "beneficial owner" and words of similar import have the meaning
assigned to such terms in Rule 13d-3 promulgated of the Exchange Act as in
effect on the date of this Agreement.

            "Board" or "Board of Directors" means the Board of Directors of
Reynolds American, except where the context requires otherwise.

            "Board Provisions" means Sections 2.01, 2.02, 2.03 and 2.06.

            "Closing" has the meaning assigned to such term in the Combination
Agreement.

            "Combination Agreement" has the meaning set forth above.

            "Common Stock" has the meaning set forth above and, as the context
may require, any other common stock of Reynolds American that may be issued from
time to time.

            "Core Committee" has the meaning assigned to such term in Section
2.03(b).

                                        3

<PAGE>

            "Corporate Governance and Nominating Committee" shall mean the
Corporate Governance and Nominating Committee of the Board of Directors or any
successor committee thereto.

            "Deferral Period" has the meaning assigned to such term in Section
3.06.

            "Demand Registration" has the meaning assigned to such term in
Section 3.01(a).

            "Director" means a member of the Board of Directors.

            "Discriminatory Transaction" means any corporate action (other than
those taken pursuant to the express terms of this Agreement) that would (a)
impose material limitations on the legal rights of any Investor Party as a
holder of a class of Voting Stock, including any action that would impose
material restrictions without lawful exemption for the Investor Parties that are
based upon the size of security holding, nationality of a security holder, the
business in which a security holder is engaged or other considerations
applicable to any Investor Party and not to holders of the same class of Voting
Stock generally or (b) deny any material benefit to any Investor Party
proportionately as a holder of any class of Voting Stock that is made available
to other holders of that same class of Voting Stock generally.

            "Equity Security" means (a) any Common Stock or other Voting Stock,
(b) any securities of Reynolds American convertible into or exchangeable for
Common Stock or other Voting Stock or (c) any options, rights or warrants (or
any similar securities) issued by Reynolds American to acquire Common Stock or
other Voting Stock.

            "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, as amended.

            "GAAP" means U.S. generally accepted accounting principles, as in
effect at the time such term is relevant.

                                        4

<PAGE>

            "Independent Director" means a Director of Reynolds American who
qualifies as an "independent director" of Reynolds American under (a) (i) NYSE
Rule 303A(2), as such rule may be amended, supplemented or replaced from time to
time, or (ii) if Reynolds American is not listed on the NYSE, any comparable
rule or regulation of the primary securities exchange or quotation system on
which the Common Stock is listed or quoted (whether by final rule or otherwise)
and (b) any other applicable law, rule or regulation mandating, or imposing as a
condition to any material benefit to Reynolds American or any of its
Subsidiaries, the independence of one or more members of the Board of Directors,
excluding, in each case, requirements that relate to "independence" only for
members of a particular Board committee or directors fulfilling a particular
function. In addition, in order for a Director to be deemed to be an
"Independent Director", (A) such Director shall not be, or at any time during
the previous three years have been, a director, officer or employee of BAT or
any of its subsidiaries (other than Reynolds American and its subsidiaries, if
applicable) and (B) assuming for this purpose that such Director were a director
of BAT (whether or not such Director actually is or has been a director of BAT),
such Director would be considered to be an "independent director" of BAT under
NYSE Rule 303A(2), as such rule may be amended, supplemented or replaced from
time to time (provided that, with respect to this clause (B), (x) BAT shall be
deemed to be a NYSE listed company, (y) any permitted delays for compliance or
exceptions for foreign issuers under the NYSE rules shall be inapplicable and
(z) the fact that such Director is serving as a Director of Reynolds American
shall be disregarded). The fact that a Person has been designated by B&W for
nomination as an Investor Director pursuant to this Agreement will not, by
itself, disqualify that person as an Independent Director if that person
otherwise meets the criteria of an Independent Director.

            "Inspectors" has the meaning assigned to such term in Section
3.04(f).

            "Investor Director" means a Director who is designated for such
position by B&W in accordance with Section 2.01.

                                        5

<PAGE>

            "Investor Parties" means BAT and its Subsidiaries (other than, if
Reynolds American is a Subsidiary of BAT, Reynolds American and its
Subsidiaries).

            "Management Director" means a Director who is also an executive
officer of Reynolds American.

            "Nominee Calculation Date" has the meaning assigned to such term in
Section 2.01(d).

            "NYSE" means the New York Stock Exchange, Inc.

            "Other Director" means an Independent Director that is not an
Investor Director. In no event, however, will Andrew J. Schindler be deemed to
be an Other Director.

            "Person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
governmental entity, unincorporated organization or other entity.

            "Piggyback Registration" has the meaning assigned to such term in
Section 3.02.

            "Prior Year Net Income" means, as of any date of determination,
Reynolds American's consolidated net income, prepared in accordance with GAAP,
for the fiscal year immediately preceding such date for which financial
statements have been made publicly available.

            "Records" has the meaning assigned to such term in Section 3.04(f).

            "Registrable Securities" means (a) all shares of Common Stock issued
to B&W pursuant to the Combination Agreement or purchased by any Investor Party
without breach of Article IV of this Agreement and held at any time by any
Investor Party and (b) any securities issued or issuable with respect to any
such shares of Common Stock by way of a stock dividend or other similar
distribution or stock split, or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided, however, that such securities shall cease to be Registrable Securities
when (i) a Registration Statement relating to such securities shall have been
declared effective by the SEC and such

                                        6

<PAGE>

securities shall have been disposed of by an Investor Party pursuant to such
Registration Statement; (ii) such securities have been disposed of by an
Investor Party pursuant to Rule 144 promulgated under the Securities Act or
(iii) such securities may be disposed of within the next three months without
registration under the Securities Act by the applicable Investor Party pursuant
to Rule 144(k) promulgated under the Securities Act in an orderly manner without
materially adversely affecting the price at which such securities can be sold,
as reasonably determined by such Investor Party.

            "Registration Statement" has the meaning assigned to such term in
Section 3.01(a).

            "Reynolds American" has the meaning set forth above.

            "RJR" has the meaning set forth above.

            "SEC" means the Securities and Exchange Commission.

            "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, as amended.

            "Significant Transaction" means any sale, merger, acquisition
(including by way of tender offer or exchange offer), consolidation,
dissolution, recapitalization or other business combination involving Reynolds
American or any of its Subsidiaries pursuant to which more than 30% of the
Voting Power or the consolidated total assets of Reynolds American would be
acquired or received by any Person or 13D Group (other than Reynolds American or
its Subsidiaries).

            "Standstill Percentage" means B&W's Percentage Interest immediately
following the Closing (assuming the conversion of all shares of RJR common stock
outstanding immediately prior to the Closing into the number of shares of Common
Stock issuable upon surrender of the related certificates).

                                        7

<PAGE>

            "Standstill Period" means the period from the date of this Agreement
until the Standstill Termination Date.

            "Standstill Termination Date" means the earliest to occur of: (i)
the date that is the tenth anniversary of the date of this Agreement or (ii) the
date on which a Significant Transaction is consummated or occurs.

            A "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.

            "Third Party Offer" means a bona fide written offer to enter into a
Significant Transaction by a Person other than an Investor Party or any other
Person acting on behalf of, or who is part of a 13D Group with, any Investor
Party, which offer is (a) reasonably capable of being completed, taking into
account all financial, legal, regulatory and other aspects of such offer and (b)
has not expired or been withdrawn.

            "13D Group" means any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Stock that would be required
under Section 13(d) of the Exchange Act, and the rules and regulations
thereunder (as in effect on, and based on legal interpretations thereof existing
on, the date hereof), to file a statement on Schedule 13D with the SEC as a
"person" within the meaning of Section 13(d)(3) of the Exchange Act if such
group beneficially owned Voting Stock representing more than 5% of any class of
Voting Stock then outstanding.

            "Transaction Agreements" has the meaning assigned to such term in
the Combination Agreement.

            "Unaffiliated Equity Holders" means holders of Equity Securities
other than any Investor Party.

                                        8

<PAGE>

            "Underwriter" means a securities dealer who purchases any
Registrable Securities as a principal in connection with a distribution of such
Registrable Securities and not as part of such dealer's market-making
activities.

            "Voting Power" means the ability to vote or to control, directly or
indirectly, by proxy or otherwise, the vote of any Voting Stock at the time such
determination is made; provided, however, that a Person will not be deemed to
have Voting Power as a result of an agreement, arrangement or understanding to
vote such Voting Stock if such agreement, arrangement or understanding (a)
arises solely from a revocable proxy or consent given in response to a public
proxy or consent solicitation made pursuant to the applicable rules and
regulations under the Exchange Act and (b) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable or successor
report).

            "Voting Stock" means securities having the right to vote generally
in any election of Directors of Reynolds American.

                        ARTICLE II. Corporate Governance

            SECTION 2.01. Composition of the Board of Directors. The composition
of the Board of Directors and manner of selecting members thereof shall be as
follows:

            (a) The Board of Directors shall be composed of 13 Directors. The
number of such Directors may be increased only in accordance with Section
2.01(g).

            (b) Immediately following the Closing, the Directors shall be those
individuals designated in accordance with Section 1.09 of the Combination
Agreement and Exhibit H thereto and shall be classified as set forth on such
Exhibit H.

            (c) Except as otherwise provided herein, the Directors shall be
nominated as follows (it being understood that such nomination shall include any
nomination of any incumbent Director for reelection to the Board of Directors):

                                        9

<PAGE>

            (i) the Corporate Governance and Nominating Committee shall nominate
      for election one Management Director, who shall be the Chief Executive
      Officer or equivalent senior executive of Reynolds American;

            (ii) B&W shall have the right to designate for nomination by the
      Corporate Governance and Nominating Committee five Investor Directors, at
      least three of whom shall be Independent Directors and two of whom may be
      executive employees of any Investor Party, and each of whom shall be
      nominated for election by the Corporate Governance and Nominating
      Committee; and

            (iii) the Corporate Governance and Nominating Committee shall
      nominate for election the remaining Directors, each of whom shall be an
      Independent Director; provided, however, that the Corporate Governance and
      Nominating Committee may re-nominate Andrew J. Schindler for election to
      the Board of Directors without regard to whether he is an Independent
      Director.

                  (d) Notwithstanding anything in Section 2.01(c) to the
contrary,

                  (i) if B&W's Percentage Interest, calculated as of the close
            of business on the last NYSE trading day of the month prior to the
            meeting in which the Corporate Governance and Nominating Committee
            selects Director nominees (the "Nominee Calculation Date"), falls
            below 32% but remains at least 27%, the Directors shall be nominated
            as set forth in Section 2.01(c) except B&W shall have the right to
            designate for nomination four Investor Directors, at least two of
            whom shall be Independent Directors and two of whom may be executive
            officers of any Investor Party;

                  (ii) if B&W's Percentage Interest, calculated as of the
            Nominee Calculation Date, falls below 27% but remains at least 22%,
            the Directors shall be nominated as set forth in Section 2.01(c)
            except B&W shall have the right to designate for nomination three
            Investor Directors, at least two of whom shall be Independent
            Directors and one of whom may be an executive officer of any
            Investor Party;

                                       10

<PAGE>

                  (iii) if B&W's Percentage Interest, calculated as of the
            Nominee Calculation Date, falls below 22% but remains at least 15%,
            the Directors shall be nominated as set forth in Section 2.01(c)
            except B&W shall have the right to designate for nomination two
            Investor Directors, at least one of whom shall be an Independent
            Director and one of whom may be an executive officer of any Investor
            Party; and

                  (iv) if B&W's Percentage Interest, calculated as of the
            Nominee Calculation Date, falls below 15%, B&W shall no longer have
            the right to designate for nomination any Investor Director.

            (e) In connection with each meeting of the shareholders of Reynolds
American in which Directors shall be elected, B&W shall have the right to
designate for nomination a number of nominees for Director that together with
the persons designated for nomination by B&W who are Directors in the classes
not standing for election at such meeting equals the number of Investor
Directors that B&W is entitled to designate for nomination pursuant to this
Section 2.01 as of the date of such meeting. Reynolds American shall cause each
person designated for election in accordance with this Section 2.01 to be
included in management's slate of nominees for such meeting.

            (f) B&W and the Board of Directors, respectively, shall have the
right to designate any replacement for a Director designated for nomination or
nominated, as the case may be, in accordance with this Section 2.01 by B&W or
the Board of Directors, respectively, upon the death, resignation, retirement,
disqualification or removal from office for other cause of such Director. Such
replacement for any Independent Director shall also be an Independent Director.
The Board of Directors shall elect each person so designated.

            (g) Without limiting the generality of Section 2.01(c), in the event
that the number of Investor Directors on the Board of Directors differs from the
number that B&W has the right (and wishes) to designate pursuant to this Section
2.01, (i) if the number of Investor Directors exceeds such number, B&W shall
promptly take all appropriate action to cause to resign that number of

                                       11

<PAGE>

Investor Directors as is required to make the remaining number of such Investor
Directors conform to this Section 2.01 or (ii) if the number of Investor
Directors otherwise is less than such number, the Board of Directors shall take
all necessary action to create sufficient vacancies on the Board of Directors to
permit B&W to designate the full number of Investor Directors that it is
entitled (and wishes) to designate pursuant to this Section 2.01 (such action to
include expanding the size of the Board of Directors, seeking the resignation of
Directors or, at the request of B&W, calling a special meeting of the
shareholders of Reynolds American for the purpose of removing Directors to
create such vacancies to the extent permitted by applicable law). Upon the
creation of any vacancy pursuant to the preceding sentence, B&W shall designate
the person to fill such vacancy in accordance with this Section 2.01, and the
Board of Directors shall elect each person so designated. In the event that the
number of Directors is increased pursuant to this Section 2.01(g), the Board of
Directors shall cause the number of Directors to be reduced at the first
available opportunity to comply with the number of Directors otherwise specified
by Section 2.01(a).

            (h) Notwithstanding anything to the contrary in the foregoing, in no
event will (i) the number of Investor Directors divided by the total number of
Directors then comprising the Board exceed (ii) the number of Investor Directors
which B&W is then entitled to designate pursuant to Sections 2.01(c) and (d)
divided by 12, rounded up to the nearest whole number.

            (i) In the event that the Corporate Governance and Nominating
Committee or the Board of Directors relies on Section 2.08 to exclude an
Investor Director nominee from management's slate of nominees (or otherwise take
adverse action with respect to any such Investor Director nominee, including
failing to recommend the election of such Investor Director nominee), the
Corporate Governance and Nominating Committee and the Board of Directors shall
afford B&W a reasonable opportunity to select a replacement Investor Director
nominee for inclusion, subject to Section 2.08, on management's slate of
nominees.

                                       12
<PAGE>

            SECTION 2.02. Solicitation and Voting of Shares. (a) Reynolds
American shall use its reasonable best efforts to solicit from its shareholders
eligible to vote for the election of Directors proxies in favor of the nominees
selected in accordance with Section 2.01.

            (b) In any election of Directors or any meeting of the shareholders
of Reynolds American called expressly for the removal of Directors, so long as
the Board of Directors will include after such meeting (assuming for this
calculation that management's entire slate of nominees is elected at such
meeting) the number of Investor Directors contemplated by Section 2.01, each
Investor Party shall attend in person or by proxy for purposes of establishing a
quorum and shall vote all their shares of Voting Stock (i) in favor of any
nominee or Director selected in accordance with Section 2.01 and(ii) otherwise
against the removal of any Director designated in accordance with Section 2.01;
provided, however, that the Investor Parties will have no obligation under this
sentence with respect to the election of Directors at a meeting of Reynolds
American shareholders where a Person (other than Reynolds American, an Investor
Party, a Person that is part of a 13D Group with any Investor Party or any
Person on the behalf of any of them) has made a material effort to solicit
proxies in favor of a different slate of nominees for election to the Board at
such meeting. In any other matter submitted to a vote of the shareholders of
Reynolds American, the Investor Parties may vote any or all of their shares in
their sole discretion; provided, however, that in the event the approval of B&W
shall be required with respect to such matter pursuant to Section 2.04(b) or
2.04(c) and such approval shall have been given, the Investor Parties shall vote
to approve such matter at any meeting of shareholders held in connection
therewith.

            (c) Each Investor Party hereby appoints Reynolds American and any
designee of Reynolds American, each of them individually, its proxy and
attorney-in-fact, with full power of substitution and resubstitution (i) to vote
or act by written consent with respect to all of B&W's Voting Stock which it has
the right to vote pursuant to the first sentence of Section 2.02(b) or the
proviso to the second sentence of Section 2.02(b) and (ii) to sign its name (as
shareholder) to any consent, certificate or other

                                       13
<PAGE>

document relating to Reynolds American that the law of the State of North
Carolina may permit or require in connection with any matter referred to in
clause (i). This proxy is given to secure the performance of the duties of each
Investor Party under this Agreement, and its existence will not be deemed to
relieve any Investor Party of its obligations under Section 2.02(b). Each
Investor Party affirms that this proxy is coupled with an interest and is
irrevocable until termination of this Agreement pursuant to Section 6.11,
whereupon such proxy and power of attorney shall automatically terminate. Each
Investor Party shall take such further action and execute such other instruments
as may be necessary to effectuate the intent of this proxy. For Voting Stock as
to which any Investor Party is the beneficial but not the record owner, each
Investor Party will cause any record owner of such Voting Stock to grant
Reynolds American a proxy to the same effect as that contained herein. Each
Investor Party represents that any proxy heretofore given in respect of such
Voting Stock is not irrevocable, and hereby revokes any and all such proxies.
This Section 2.02(c) shall not limit any Investor Party's right to vote pursuant
to the second sentence of Section 2.02(b) (other than pursuant to the proviso
thereof) or pursuant to the proviso to the first sentence of Section 2.02(b) and
shall not operate to grant any proxy to any Person in connection therewith.

            (d) B&W agrees that it will take all action as a shareholder of
Reynolds American, or as is otherwise reasonably within its control, as
necessary to effect the provisions of this Agreement.

            SECTION 2.03. Committees. (a) Subject to the general oversight and
authority of the Board of Directors under applicable law, the Board of Directors
shall establish, empower and maintain the committees of the Board of Directors
contemplated by this Section 2.03.

            (b) The following committees shall be established, empowered and
maintained by the Board of Directors at all times during the term of this
Agreement: (i) an Audit Committee, (ii) a Corporate Governance and Nominating
Committee and (iii) a Compensation Committee (collectively, the "Core
Committees"). Each of the Audit Committee, the Nomination and Governance
Committee and the

                                       14
<PAGE>

Compensation Committee shall consist solely of Independent Directors. Investor
Directors shall serve on each committee of the Board of Directors, and the
number of Investor Directors on a committee of the Board of Directors shall be
not less than (x) the number of Investor Directors at such time divided by (y)
the total number of Directors at such time multiplied by (z) the number of
Directors serving on such committee, rounded to the nearest whole number, with
B&W selecting the Investor Directors that will serve on each committee of the
Board, subject to the requirements set forth herein; provided, however, that (i)
each of the committees named in this Section 2.03(b) shall have not less than
five Directors on such committee and (ii) so long as there are any Investor
Directors serving on the Board of Directors, at least one Investor Director
shall serve on each committee of the Board of Directors. Notwithstanding the
foregoing, an Investor Director shall not serve on any committee if such service
would violate mandatory legal or listing requirements (or law, rule or
regulation requiring committee member independence as a condition to a material
benefit to Reynolds American or any of its Subsidiaries) concerning the
independence of directors; provided, however, that Reynolds American shall take
all reasonable efforts to avoid any such disqualification.

            (c) The Board of Directors may establish such other committees as it
deems necessary or desirable, provided that such committees are established in
compliance with the terms of this Agreement (including the proportionality
requirement set forth in Section 2.03(b)).

            (d) The Board of Directors shall designate an Investor Director or
an Other Director to replace any disqualified Investor Director member or Other
Director member, respectively, of any committee. In the event that any Investor
Director or Other Director ceases to serve on any committee of the Board of
Directors and, after a reasonable time, no successor to such Director is
designated in accordance with the terms hereof to serve on such committee, the
number of members of such committee may be temporarily reduced if such reduction
does not (and no such reduction is intended to) result in a change of the
relative authorities and representation within such

                                       15
<PAGE>

committee among the Investor Directors (taken as a group) and the Other
Directors (taken as a group).

            (e) In the event that the Board of Directors or any committee
thereof relies on Section 2.08 to exclude an Investor Director from serving on a
committee on which such Investor Director is qualified to serve, the Board of
Directors and any such committee shall permit B&W to designate another Investor
Director, subject to Section 2.08, to serve as a member of such committee.

            SECTION 2.04. Approval Required for Certain Actions. (a) The
approval of a majority of the Investor Directors shall be required for the Board
of Directors to approve or authorize, and for Reynolds American or any of its
Subsidiaries to do, any of the following (in addition to any other Board or
shareholder approval required by any law, rule or regulation or the constituent
documents of Reynolds American):

            (i) if, at the time of such approval, authorization or action, B&W's
      Percentage Interest has not fallen below 32%, issue any Equity Securities,
      or any securities convertible into or exercisable for Equity Securities,
      in any transaction or series of related transactions if such issuance
      would require the approval of Reynolds American's shareholders under NYSE
      Rule 312.03(c) as in effect of the date of this Agreement (assuming the
      "20 percent" threshold set forth therein were, instead, "5 percent" and
      disregarding the exceptions set forth therein); or

            (ii) if, at the time of such approval, authorization or action,
      B&W's Percentage Interest has not fallen below 25%, repurchase Common
      Stock pursuant to self-tender offers, stock repurchase programs, open
      market transactions or otherwise; provided, however, that Reynolds
      American and its Subsidiaries may (x) repurchase Common Stock from
      employees or former employees pursuant to the terms and conditions of
      Reynolds American's employee stock plans, (y) on or after the first
      anniversary of the Closing, repurchase Common Stock if the dividends
      declared (and, to the extent the payment date has occurred, paid) on
      Common Stock during each of the preceding four fiscal

                                       16
<PAGE>

      quarters has equaled or exceeded 18.75% of the Prior Year Net Income
      applicable at the time that any such dividend was declared and (z)
      repurchase Common Stock to comply with the requirements of Section
      2.04(d).

            (b) The approval of B&W, as shareholder, such approval, if given,
not to be unreasonably delayed, shall be required for Reynolds American or any
of its Subsidiaries to do or effect any of the following (in addition to any
other Board or shareholder approval required by any law, rule, regulation or the
constituent documents of Reynolds American):

            (i) the entry by Reynolds American or any of its Subsidiaries into
      any Discriminatory Transaction;

            (ii) any sale, asset exchange, lease, exchange, mortgage, pledge,
      transfer or other disposition (by merger or otherwise) (collectively, a
      "disposition") by Reynolds American or any of its Subsidiaries (in one
      transaction or a series of transactions) of any of Reynolds American's
      intellectual property relating to the brands set forth on Schedule 2.04,
      other than any disposition to a wholly-owned Subsidiary of Reynolds
      American or any disposition that (A) occurs in connection with creating or
      granting any liens to a third party that is not an affiliate of Reynolds
      American in connection with a bona fide financing, (B) arises as a matter
      of law or occurs pursuant to a court order, (C) occurs as a result of the
      acquisition of all outstanding Equity Securities by any Person (including
      by way of merger, tender or exchange offer or any similar transaction) or
      all or virtually all of the assets of Reynolds American and its
      Subsidiaries or (D) if B&W's Percentage Interest has fallen below 32%,
      occurs as a result of the acquisition of a majority of the Voting Power of
      all outstanding Voting Stock by any Person (including by way of merger,
      tender or exchange offer or similar transaction);

            (iii) any amendment to the Articles of Incorporation or By-Laws of
      Reynolds American or to the charter of any committee of the Board of
      Directors, in each case which amendment would conflict in any material
      respect with the provisions of this Agreement, or any

                                       17
<PAGE>

      amendment or repeal of Section 2.03 of the By-Laws of Reynolds American or
      Article Eighth, Section 8 of the Articles of Incorporation of Reynolds
      American, in each case as in effect as of the Closing; or

            (iv) the adoption or implementation of any takeover defense measures
      (including a rights plan) that would apply to the acquisition of
      beneficial ownership of any Equity Securities by any Investor Party;
      provided, however, that Reynolds American may enter into a Rights
      Agreement in the form of Exhibit C to the Combination Agreement and may
      enter into any replacement or extension thereof in the form of such
      Exhibit C.

            (c) The approval of B&W, as shareholder, such approval, if given,
not to be unreasonably delayed, shall be required for Reynolds American or any
of its Subsidiaries to do or effect any of the following prior to the fifth
anniversary of the date of this Agreement(in addition to any other Board or
shareholder approval required by any law, rule, regulation or the constituent
documents of Reynolds American):

            (i) effect any transaction or take any action that is reasonably
      likely to be inconsistent with the representations, facts or assumptions
      set forth in the B&W Tax Ruling (as defined in the Combination Agreement)
      or materially inconsistent with the representations, facts or assumptions
      set forth in the materials submitted to the Internal Revenue Service in
      seeking the B&W Tax Ruling; provided, however, that for purposes of this
      Section 2.04(c)(i), if a representation, fact or assumption set forth in
      the B&W Tax Ruling or the materials submitted to the Internal Revenue
      Service in seeking the B&W Tax Ruling indicated that a party had no plan
      or intention to effect a particular transaction or take a particular
      action, effecting such transaction or taking such action after the Closing
      (as defined in the Combination Agreement) will be deemed to be
      inconsistent with such plan or intention representation, fact or
      assumption; or

                                       18
<PAGE>

            (ii) effect any other transaction or take any other action that, in
      the opinion of Cravath, Swaine & Moore LLP or other nationally recognized
      B&W tax counsel, had such transaction or action been effected at Closing,
      would more likely than not have prevented the Asset Contribution and
      Assumption of Liabilities, on the one hand, or the B&W Opco Stock
      Contribution and the Merger (as those terms are defined in the Combination
      Agreement), on the other hand, from qualifying as exchanges within the
      meaning of Section 351 of the Internal Revenue Code of 1986, as amended.

In addition, B&W and Reynolds American shall cooperate in good faith, and shall
cause their respective officers, directors, affiliates, employees, agents,
auditors and representatives to cooperate in good faith, in all matters relating
to Taxes (as defined in the Combination Agreement), including by maintaining and
making available to each other all books and records necessary in connection
with Taxes.

            (d) If, on or prior to June 30, 2005, Reynolds American issues
Common Stock upon exercise of any option, warrant or other security relating to
Common Stock or otherwise issues Common Stock (restricted or otherwise) to any
of its directors, officers, employees or consultants, then prior to or within a
reasonable period after such issuance (but in any event not later than the end
of such fiscal quarter in which such issuance occurs), Reynolds American will
repurchase a number of shares of outstanding Common Stock so that the number of
outstanding shares of Common Stock are not increased by such issuance; provided,
however, that (i) Reynolds American will not be required to repurchase such
shares, if, at the time of such issuance, B&W's Percentage Interest has fallen
below 25% and (ii) Reynolds American will not be required to repurchase the
first 241,414 shares that are so issued.

            SECTION 2.05. Financial Statements. As soon as reasonably
practicable following the end of each fiscal quarter and fiscal year, Reynolds
American shall furnish to B&W and BAT the consolidated financial statements of
Reynolds American (including providing draft statements as such statements
become available and, with respect to fiscal years, audit reports as such
reports become

                                       19
<PAGE>

available). Each of Reynolds American, B&W and BAT shall use its reasonable best
efforts to assist the other party with respect to the timeliness of filing,
releasing or posting the other party's respective financial disclosure
documents. Reynolds American shall cooperate with and assist BAT and B&W in the
translation of Reynolds American's financial statements in order to conform such
financial statements to applicable international accounting standards and shall
otherwise provide BAT and B&W with access to information necessary in connection
with such financial statements.

            SECTION 2.06. Articles of Incorporation and By-Laws. The Board of
Directors of Reynolds American shall take or cause to be taken all lawful action
necessary to ensure at all times that Reynolds American's Articles of
Incorporation and By-Laws are not at any time inconsistent in any material
respect with the provisions of this Agreement.

            SECTION 2.07. Interested Transactions. The approval by a majority of
the Other Directors shall be required (in addition to any other Board or
shareholder approval required by any law, rule or regulation) for Reynolds
American or any of its Subsidiaries to enter into or effect, or agree to enter
into or effect, any material contract or transaction between or involving
Reynolds American or any of its Subsidiaries, on the one hand, and any Investor
Party, on the other hand, the terms of which are not governed by a pre-existing
agreement to which Reynolds American or any of its Subsidiaries is a party or a
provision of Reynolds American's Articles of Incorporation or By-Laws.

            SECTION 2.08. Fiduciary Duties. Nothing in Section 2.01, 2.02, 2.03
or 2.06 shall be deemed to require the Board of Directors or any committee or
member thereof to take any action or refrain from taking any action, or result
in a breach of Sections 2.01, 2.02, 2.03 or 2.06 by reason of the failure to
take such action or the failure to refrain from taking such action, as the case
may be, if the Board of Directors, such committee or Director determines in good
faith (after consideration of specific written advice of outside legal counsel,
which advice will be provided to B&W) that taking such action or refraining from

                                       20
<PAGE>

taking such action, as the case may be, would cause a violation of his or her
fiduciary duties to shareholders, including B&W and its affiliates, under
applicable law. This Section 2.08 shall not be interpreted to create any
fiduciary obligation that would not exist in the absence of this Section 2.08.

            SECTION 2.09. Change in Law. In the event any law, rule or
regulation comes into force or effect (including by amendment) which conflicts
with the terms and conditions of this Agreement, the parties shall negotiate in
good faith to revise the Agreement to achieve the parties' intention set forth
herein.

            SECTION 2.10. Changes in B&W's Percentage Interest Attributable to
Issuances of Common Stock. To the extent that any decrease in B&W's Percentage
Interest is attributable to issuances of Equity Securities by Reynolds American
(as opposed to dispositions of Equity Securities by any Investor Party), such
decrease will not be taken into account in determining whether B&W's Percentage
Interest has fallen below any of the thresholds for B&W's Percentage Interest
set forth in this Article II.

                        ARTICLE III. Registration Rights

            SECTION 3.01. Registration. (a) At any time and from time to time
following the first anniversary of the date of this Agreement, Reynolds American
agrees that upon the written request of any Investor Party holding Registrable
Securities (a "Demand Registration"), it will as promptly as reasonably
practical prepare and file a registration statement (a "Registration Statement")
under the Securities Act as to the number of shares of Registrable Securities
specified in such request; provided, however, that (i) Reynolds American shall
not be obligated to effect more than two Demand Registrations in any
eighteen-month period, (ii) the Registrable Securities for which a Demand
Registration has been requested by any Investor Party holding Registrable
Securities shall have a value (based on the average closing price per share of
Common Stock for the ten trading days preceding the delivery of B&W's request
for such Demand Registration) of not less than $100,000,000 and (iii) Reynolds
American shall not be required to file a shelf Registration

                                       21
<PAGE>

Statement pursuant to Rule 415 of the Securities Act under this Section 3.01.
Each such request for a Demand Registration shall specify the number of shares
of Registrable Securities proposed to be offered for sale and shall also specify
the intended method of distribution thereof; provided, however, that the
Investor Parties may change such number if such change shall not materially
adversely affect the timing or success of the offering, so long as such change
does not result in less than $100,000,000 of Registrable Securities being
included in the Registration Statement.

            (b) Reynolds American agrees to use its reasonable best efforts (i)
to cause any Registration Statement to be declared effective as promptly as
reasonably practicable after the filing thereof and (ii) to keep such
Registration Statement effective for a period of not less than 90 days, or, if
earlier, the period sufficient to complete the distribution of the Registrable
Securities. Reynolds American further agrees to supplement or make amendments to
the Registration Statement as may be necessary to keep such Registration
Statement effective for the period set forth in clause (ii) above, including (A)
to respond to the comments of the SEC, if any, (B) as may be required by the
registration form utilized by Reynolds American for such Registration Statement
or by the instructions applicable to such registration form, (C) as may be
required by the Securities Act or the rules and regulations thereunder or (D) as
may be reasonably requested in writing by B&W or any Underwriter for B&W.
Reynolds American agrees to furnish to B&W copies of any such supplement or
amendment prior to its being used or filed with the SEC. Upon the expiration of
the time period set forth in clause (ii) above, a Demand Registration Statement
shall count as a Demand Registration Statement for purposes of determining when
future Demand Registrations which can be requested pursuant to this Section
3.01, except to the extent set forth in paragraph (e) below.

            (c) In the event an offering of shares of Registrable Securities
involves one or more Underwriters, B&W shall select the lead Underwriter and any
additional Underwriters in connection with the offering from a list of

                                       22
<PAGE>

nationally-recognized investment banks reasonably agreed to between Reynolds
American and B&W.

            (d) Notwithstanding the foregoing provisions of this Section 3.01,
B&W may not request a Demand Registration within the 90-day period after a
Registration Statement for Common Stock has been filed by Reynolds American (for
its own account or for any other security holders) with and declared effective
by the SEC, unless such Registration Statement has been withdrawn; provided,
however, the forgoing limitation will not apply if an Investor Party holding
Registrable Securities was not given the opportunity, in accordance with Section
3.02, to include its Registrable Securities in the Registration Statement
described in this Section 3.01(d).

            (e) Any Investor Party holding Registrable Securities included in a
Registration Statement shall be permitted to remove all or any part of the
Registrable Securities held by it from any Registration Statement at any time
prior to the effective date of the Registration Statement covering such
Registrable Securities; provided, however, that such Demand Registration shall
nonetheless count as a Demand Registration for purposes of determining when
future Demand Registrations can be requested pursuant to this Section 3.01,
unless B&W reimburses Reynolds American for all Registration Expenses incurred
by Reynolds American in connection with such withdrawn Demand Registration.

            SECTION 3.02. Piggyback Registration. If Reynolds American proposes
to file a Registration Statement under the Securities Act with respect to an
offering of Common Stock for (a) Reynolds American's own account (other than a
Registration Statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC)) or (b) the account of any of its holders of Common Stock
pursuant to a demand registration requested by such holders, then Reynolds
American shall give written notice of such proposed filing to B&W as soon as
practicable (but in no event less than twenty days before the anticipated filing
date), and such notice shall offer any Investor Party holding Registrable
Securities the opportunity to register such number of shares of Registrable
Securities as B&W and its affiliates may request on the same terms and
conditions

                                       23
<PAGE>

as Reynolds American's or such holder's Common Stock (a "Piggyback
Registration"). Reynolds American shall control the determination of the form of
any offering contemplated by this Section 3.02, including whether any such
offering shall be in the form of an underwritten offering and, if any such
offering is in the form of an underwritten offering, Reynolds American shall
select the lead Underwriter and any additional Underwriters in connection with
such offering.

            SECTION 3.03. Reduction of Offering. Notwithstanding anything
contained herein, if the lead Underwriter of an underwritten offering described
in Section 3.01 or Section 3.02 delivers a written opinion to Reynolds American
that the number of shares of Common Stock (including all Registrable Securities)
that B&W, Reynolds American and any other Persons intend to include in any
Registration Statement is such that the success of any such offering would be
materially and adversely affected, including the price at which the securities
can be sold, then the number of shares of Common Stock to be included in the
Registration Statement for the account of B&W, Reynolds American and any other
Persons shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in any such Registration Statement to the
amount recommended by such lead Underwriter; provided, however, that (a)
priority in the case of a Demand Registration pursuant to Section 3.01 shall be
(i) first, the Registrable Securities requested to be included in the
Registration Statement for the account of the Investor Parties, allocated pro
rata among them in accordance with the number of Registrable Securities held by
each of them so that the total number of Registrable Securities to be included
in any such offering for the account of all such Persons will not exceed the
number recommended by such lead Underwriter, (ii) second, securities initially
proposed to be offered by Reynolds American for its own account and (iii) third,
pro rata among any other securities of Reynolds American requested to be
registered by the holders thereof pursuant to a contractual right of
registration so that the total number of registrable securities to be included
in any such offering for the account of all such Persons will not exceed the
number recommended by such lead Underwriter, (b) priority in the case of a
Piggyback Registration

                                       24
<PAGE>

initiated by Reynolds American for its own account pursuant to Section 3.02
shall be (i) first, securities initially proposed to be offered by Reynolds
American for its own account, (ii) second, the Registrable Securities requested
to be included in the Registration Statement for the account of the Investor
Parties, allocated pro rata among them in accordance with the number of
registrable securities held by each of them so that the total number of
Registrable Securities to be included in any such offering for the account of
all such Persons will not exceed the number recommended by such lead
Underwriter, and (iii) third, pro rata among any other securities of Reynolds
American requested to be registered pursuant to a contractual right of
registration and (c) priority with respect to inclusion of securities in a
Registration Statement initiated by Reynolds American for the account of holders
other than any Investor Party pursuant to demand registration rights afforded
such holders shall be (i) first, securities offered for the account of such
holders so that the total number of registrable securities to be included in any
such offering for the account of all such Persons will not exceed the number
recommended by such lead Underwriter, (ii) second, securities offered by
Reynolds American for its own account, (iii) third, the Registrable Securities
offered for the account of the Investor Parties and (iv) fourth, pro rata among
any other securities of Reynolds American requested to be registered pursuant to
a contractual right of registration. Until such time as B&W owns less than 15%
of the outstanding Common Stock of Reynolds American, Reynolds American shall
not enter into any contractual arrangements that would conflict with the
priorities set forth in the proviso to the preceding sentence.

            SECTION 3.04. Registration Procedures. Subject to the provisions of
Section 3.01 hereof, in connection with the registration of the sale of
Registrable Securities hereunder, Reynolds American will as promptly as
reasonably practicable:

            (a) furnish to B&W, if requested, prior to the filing of a
      Registration Statement, copies of such Registration Statement as is
      proposed to be filed, and thereafter such number of copies of such
      Registration Statement, each amendment and supplement thereto (in

                                       25
<PAGE>

      each case including all exhibits thereto and documents incorporated by
      reference therein), the prospectus included in such Registration Statement
      (including each preliminary prospectus), copies of any and all transmittal
      letters or other correspondence with the SEC relating to the Registration
      Statement and such other documents in such quantities as B&W may
      reasonably request from time to time in order to facilitate the
      disposition of the Registrable Securities;

            (b) use its reasonable best efforts to register or qualify the
      Registrable Securities under such other securities or blue sky laws of
      such jurisdictions as B&W reasonably requests and do any and all other
      acts and things as may be reasonably necessary or advisable to enable B&W
      to consummate the disposition of the Registrable Securities in such
      jurisdictions; provided, however, that Reynolds American will not be
      required to (i) qualify generally to do business in any jurisdiction where
      it would not otherwise be required to qualify but for this Section
      3.04(b), (ii) subject itself to taxation in any such jurisdiction or (iii)
      consent to general service of process in any such jurisdiction;

            (c) notify B&W, at any time when a prospectus relating thereto is
      required to be delivered under the Securities Act, of the happening of any
      event as a result of which the prospectus included in such Registration
      Statement or amendment contains an untrue statement of a material fact or
      omits to state any material fact required to be stated therein or
      necessary to make the statements therein, in the light of the
      circumstances under which they were made, not misleading, and Reynolds
      American will prepare a supplement or amendment to such prospectus so
      that, as thereafter delivered to the purchasers of the Registrable
      Securities, such prospectus will not contain an untrue statement of a
      material fact or omit to state any material fact required to be stated
      therein or necessary to make the statements therein, in the light of the
      circumstances under which they were made, not misleading;

                                       26
<PAGE>

            (d) use its reasonable best efforts to cause the Registrable
      Securities covered by any Registration Statement to be registered with or
      approved by such other governmental agencies or authorities as may be
      necessary by virtue of the business and operations of Reynolds American to
      enable B&W to consummate the disposition of the Registrable Securities;
      provided, however, that Reynolds American will not be required to (i)
      qualify generally to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3.04(d), (ii)
      subject itself to taxation in any such jurisdiction or (iii) consent to
      general service of process in any such jurisdiction;

            (e) enter into customary agreements (including an underwriting
      agreement in customary form that is reasonably satisfactory to Reynolds
      American) and use commercially reasonable efforts to take such other
      actions as are reasonably required in order to expedite or facilitate the
      disposition of the Registrable Securities;

            (f) make available for inspection by B&W, any Underwriter
      participating in any disposition pursuant to such Registration Statement,
      and any attorney for B&W and the Underwriter and any accountant or other
      agent retained by B&W or any such Underwriter (collectively, the
      "Inspectors"), all financial and other records, pertinent corporate
      documents and properties of Reynolds American (collectively, the
      "Records") as shall be reasonably necessary to enable them to exercise
      their due diligence responsibility, and cause the officers, directors and
      employees of Reynolds American and its Subsidiaries to supply all
      information reasonably requested by any such Inspector in connection with
      such Registration Statement; provided, however, that (i) Records and
      information obtained hereunder shall be used by such Inspector only to
      exercise their due diligence responsibility, (ii) Records or information
      that Reynolds American determines, in good faith, to be confidential shall
      not be disclosed by the Inspectors unless (x) the disclosure of such
      Records or information is necessary to avoid or correct a material
      misstatement or

                                       27
<PAGE>

      omission in the Registration Statement or (y) the release of such Records
      or information is ordered pursuant to a subpoena or other order from a
      court or governmental authority of competent jurisdiction and (iii)
      Reynolds American may require, as a condition to the provision to any
      Inspector of any Records, that such Inspector execute and deliver to
      Reynolds American a written agreement, in form and substance reasonably
      satisfactory to Reynolds American, pursuant to which such Inspector agrees
      to the confidential treatment of such Records;

            (g) use its reasonable best efforts to obtain and deliver to the
      Underwriters and the Investor Parties a comfort letter from the
      independent public accountants for Reynolds American in customary form and
      covering such matters of the type customarily covered by comfort letters
      as such Underwriters and the Investor Parties may reasonably request;

            (h) use its reasonable best efforts to obtain and deliver to the
      Underwriters and the Investor Parties a 10b-5 statement and legal opinions
      from Reynolds American's counsel in customary form and covering such
      matters as customarily covered by 10b-5 statements and legal opinions as
      such Underwriters and the Investor Parties may reasonably request;

            (i) otherwise use its reasonable best efforts to comply with all
      applicable rules and regulations of the SEC, and make generally available
      to its security holders, within the required time period, an earnings
      statement covering a period of twelve months, beginning with the first
      fiscal quarter after the effective date of the Registration Statement (as
      the term "effective date" is defined in Rule 158(c) under the Securities
      Act), which earnings statement shall satisfy the provisions of Section
      11(a) of the Securities Act and Rule 158 thereunder or any successor
      provisions thereto; and

            (j) use its reasonable best efforts to cause all Registrable
      Securities to be listed or quoted on the NYSE and each other securities
      exchange or automated

                                       28
<PAGE>

      quotation system on which similar securities issued by Reynolds American
      are listed or quoted.

            SECTION 3.05. Conditions to Offerings. The obligations of Reynolds
American to take the actions contemplated by Sections 3.01, 3.02 and 3.04 with
respect to an offering of Registrable Securities shall be subject to the
following conditions:

            (a) the Investor Parties shall conform to all applicable
      requirements of the Securities Act and the Exchange Act with respect to
      the offering and sale of securities;

            (b) B&W shall advise each Underwriter through which any of the
      Registrable Securities are offered that the Registrable Securities are
      part of a distribution that is subject to the prospectus delivery
      requirements of the Securities Act;

            (c) Reynolds American may require B&W to furnish to Reynolds
      American such information regarding B&W or the distribution of the
      Registrable Securities as Reynolds American may from time to time
      reasonably request in writing, in each case only as required by the
      Securities Act or the rules and regulations thereunder or under state
      securities or blue sky laws; and

            (d) in any underwritten offering pursuant to Section 3.01 or Section
      3.02 hereof, any Investor Party including Registrable Securities in a
      Registration Statement, together with Reynolds American, shall enter into
      an underwriting agreement in customary form with the Underwriter or
      Underwriters selected for such underwriting, as well as such other
      documents customary in similar offerings, including, custody agreements,
      powers of attorney and indemnification provisions relating to information
      provided in writing by an Investor Party.

Any Investor Party holding Registrable Securities agrees that, upon receipt of
any notice from Reynolds American of the happening of any event of the kind
described in

                                       29
<PAGE>

Section 3.04(c) hereof or a condition described in Section 3.06 hereof, B&W will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering the sale of such shares of Registrable
Securities until B&W's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.04(c) hereof or notice from Reynolds
American of the termination of the Deferral Period and, if so directed by
Reynolds American, will promptly deliver to Reynolds American all copies (other
than any permanent file copies then in B&W's possession) of the most recent
prospectus covering such Registrable Securities that was current at the time of
receipt of such notice.

            SECTION 3.06. Black-out Period. Reynolds American's obligations
pursuant to Sections 3.01 and 3.02 hereof shall be suspended if compliance with
such obligations would (a) violate applicable law or (b) require Reynolds
American to disclose a material financing, acquisition or other corporate
development, and the proper officers of Reynolds American have determined, in
the good faith exercise of their reasonable business judgment, that such
disclosure is not in the best interests of Reynolds American; provided, however,
that any such suspension shall not exceed 60 days and all such suspensions shall
not exceed 120 days in any twelve-month period (the "Deferral Period"). Reynolds
American shall promptly give B&W written notice of any such suspension
containing the approximate length of the anticipated delay, and Reynolds
American shall notify B&W upon the termination of the Deferral Period.

            SECTION 3.07. Registration Expenses. All fees and expenses incident
to Reynolds American's performance of or compliance with the registration
obligations of this Article III, including all fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel for any Underwriters in connection with blue sky qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses of
Reynolds American, any registration or filing fees payable under any Federal or
state securities or blue sky laws, the fees and expenses incurred in connection
with any listing or quoting of the securities to be registered on any national
securities exchange or automated quotation system, fees and disbursements of
counsel for Reynolds

                                       30
<PAGE>

American and its independent certified public accountants (including the
expenses of any comfort letters required by or incident to such performance) and
the fees and expenses of other Persons retained by Reynolds American, will be
borne by Reynolds American. Any Investor Party or any other Person registering
Registrable Securities will bear and pay any underwriting discounts and
commissions applicable to securities offered for its or its affiliates' account,
transfer taxes and fees and expenses of its counsel.

            SECTION 3.08. Indemnification; Contribution. (a) In connection with
any registration of Registrable Securities pursuant to Section 3.01 or 3.02
hereof, Reynolds American agrees to indemnify, to the fullest extent permitted
by law, B&W, its affiliates, their directors, officers and shareholders and each
Person who controls B&W (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act) against any and all losses,
claims, damages, liabilities and expenses (including reasonable attorneys' fees)
caused by any untrue or alleged untrue statement of material fact contained in
any Registration Statement, prospectus or preliminary prospectus contained
therein, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of a prospectus, in the light of the circumstances under which they
were made) not misleading; provided, however, that Reynolds American shall not
be required to indemnify B&W, its affiliates, their officers, directors,
shareholders or controlling Persons for any losses, claims, damages, liabilities
or expenses resulting from any such untrue statement or omission if such untrue
statement or omission is made in reliance on and in conformity with any
information with respect to B&W or such other parties furnished to Reynolds
American in writing by B&W or such other parties expressly for use therein. In
connection with an underwritten offering, Reynolds American will indemnify each
Underwriter, the officers and directors of such Underwriter, and each Person who
controls such Underwriter (within the meaning of either the Securities Act or
the Exchange Act) to the same extent as provided above with respect to the
indemnification of B & W; provided, however, that such Underwriter agrees to
indemnify Reynolds American to the same extent as provided

                                       31
<PAGE>

below with respect to the indemnification of Reynolds American by B&W.
Notwithstanding the forgoing, with respect to any untrue statement or omission
of material fact made in any prospectus or preliminary prospectus, the
provisions of this Section 3.08 shall not inure to the benefit of any Investor
Party, any other holder of Registrable Securities or any Underwriter from whom
the Person asserting any such loss, claim, damages, liabilities or expenses
purchased the Registrable Securities to the extent that it shall be established
that (i) any such loss, claim, damages, liabilities or expenses of such Person
arises primarily from the fact that any Investor Party or any Underwriter sold
Registrable Securities to such a Person, (ii) there was not sent or given a copy
of the final prospectus (as amended or supplemented) at or prior to the written
confirmation of such sale (provided Reynolds American shall have previously
furnished a sufficient number of copies thereof on a timely basis to the
Investor Parties, any such holder and each Underwriter, as the case may be, in
accordance herewith) and (iii) the final prospectus (as amended or supplemented)
would have corrected any such untrue statement or omission of a material fact.

            (b) In connection with any Registration Statement, the Investor
Parties holding Registrable Securities, as the case may be, will furnish to
Reynolds American in writing such information and affidavits with respect to the
Investor Parties holding Registrable Securities, as the case may be, as Reynolds
American reasonably requests, including, but not limited to, information
relating to the Investor Parties, as the case may be, for use in connection with
any such Registration Statement, prospectus or preliminary prospectus and agrees
to indemnify Reynolds American, its directors, its officers who sign the
Registration Statement and each Person, if any, who controls Reynolds American
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as the foregoing indemnity from Reynolds
American to B&W, but only with respect to information relating to B&W or such
other holders of Registrable Securities, as the case may be, furnished to
Reynolds American in writing by B&W expressly for use in the Registration
Statement, the prospectus, any
                                       32
<PAGE>

amendment or supplement thereto, or any preliminary prospectus.

            (c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to Section 3.08(a) or (b), such Person
(hereinafter called the indemnified party) shall promptly notify the Person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and the indemnified party shall have been advised by counsel
that representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) at any time for all such indemnified parties, and that all such
reasonable fees and expenses shall be reimbursed as they are incurred. In the
case of the retention of any such separate firm for the indemnified parties,
such firm shall be designated in writing by the indemnified parties. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for reasonable fees and expenses of

                                       33
<PAGE>

counsel as contemplated by the third sentence of this Section 3.08(c), the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request or reasonably objected in
writing, on the basis of the standards set forth herein, to the propriety of
such reimbursement prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

            (d) If the indemnification provided for in this Section 3.08 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to in
this Section 3.08, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages,

                                       34
<PAGE>

liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 3.08(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.

            The parties agree that it would not be just and equitable if
contribution pursuant to this Section 3.08(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in this Section 3.08(d). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

            If indemnification is available under this Section 3.08, the
indemnifying party shall indemnify each indemnified party to the full extent
provided in Sections 3.08(a) and (b) without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 3.08(d).

            SECTION 3.09. Rule 144. For so long as Reynolds American is subject
to the requirements of Section 13, 14 or 15(d) of the Securities Act, Reynolds
American agrees that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder and it will take such further action as B&W reasonably may
request, all to the extent required from time to time to enable the Investor
Parties to sell Registrable Securities within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of B&W, Reynolds American will deliver to B&W a
written statement as to whether it has complied with such requirements.

            SECTION 3.10. Lockup. If and to the extent requested by the managing
Underwriters of an underwritten public offering of equity securities of Reynolds
American, Reynolds American and B&W agree not to effect, and to cause

                                       35
<PAGE>

their respective affiliates not to effect, except as part of such registration,
any offer, sale, pledge, transfer or other distribution or disposition or any
agreement with respect to the foregoing, of the issue being registered or of a
similar security of Reynolds American, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144, during the seven-day period prior to and during such period that the
lead Underwriter may reasonably request, no greater than 90 days, beginning on
the effective date of such registration.

            SECTION 3.11. Termination of Registration Rights. The registration
rights contained in this Article III shall terminate on the date on which all
shares of Common Stock subject to this Agreement cease to be Registrable
Securities. Notwithstanding the forgoing, the registration rights contained in
this Article III shall terminate in any event with respect to any Investor Party
or any other holder of Registrable Securities when any such holder no longer
owns any Registrable Securities. In addition, even if the registration rights
contained in this Article III are no longer in effect, in the event that an
Investor Party intends to dispose of a significant number of Common Shares and
such disposition could reasonably be expected to have an adverse impact on the
trading price of shares of Common Stock or otherwise have an adverse impact on
the market for Common Stock, Reynolds American and the Investor Parties shall
cooperate in connection with such disposition and shall take commercially
reasonable efforts to mitigate the adverse effects of any such disposition;
provided, however, that nothing in this sentence shall be deemed to restrict an
Investor Party in connection with the sale of any Common Stock (including the
size or timing of such disposition).

   ARTICLE IV. Limitations on Purchases of Equity Securities and Other Actions

            SECTION 4.01. Purchases of Equity Securities. Except for the
acquisition of shares of Common Stock pursuant to the Combination Agreement and
subject to the exceptions set forth in Section 4.03, during the Standstill
Period, the Investor Parties shall not, directly or indirectly, acquire, agree
to acquire or make a proposal to

                                       36
<PAGE>

acquire beneficial ownership of any shares of
Equity Securities. Equity Securities acquired pursuant to this Article IV shall
be subject to all of the terms, covenants and conditions of this Agreement.

            SECTION 4.02. Additional Limitations. Subject to the exceptions set
forth in Section 4.03, during the Standstill Period, the Investor Parties shall
not:

            (a) seek, make or take any action to solicit, initiate or encourage,
      any offer or proposal for, or any indication of interest in, a merger,
      consolidation, tender or exchange offer, sale or purchase of assets or
      securities or other business combination or any dissolution, liquidation,
      restructuring, recapitalization or similar transaction in each case
      involving Reynolds American or any of its Subsidiaries or the acquisition
      of any equity interest in, or a substantial portion of the assets of,
      Reynolds American or any of its Subsidiaries;

            (b) "solicit", or become a "participant" in any "solicitation" of,
      any "proxy" (as such terms are defined in Regulation 14A under the
      Exchange Act) from any holder of Voting Stock in connection with any vote
      on any matter (whether or not relating to the election or removal of
      Directors), or agree or announce its intention to vote with any Person
      undertaking a "solicitation", except to the extent required by applicable
      law, rule, regulation or order (including any applicable rule, regulation
      or order of a self-governing authority, such as the New York Stock
      Exchange, the UK Listing Authority and the UK Panel on Takeovers and
      Mergers);

            (c) form, join or in any way participate in a 13D Group with respect
      to any Voting Stock (other than a 13D Group composed of the Investor
      Parties);

            (d) grant any proxies with respect to any Voting Stock to any Person
      (other than as recommended by the Board of Directors) or deposit any
      Voting Stock in a voting trust or enter into any other arrangement or
      agreement with respect to the voting thereof;

                                       37
<PAGE>

            (e) seek, alone or in concert with other Persons, additional
      representation on the Board of Directors or seek the removal of any member
      of the Board that is not an Investor Director or a change in the
      composition or size of the Board of Directors that is inconsistent with
      this Agreement;

            (f) enter into any arrangements, understandings or agreements
      (whether written or oral) with, or advise, finance or assist any other
      Persons in connection with any of the foregoing; or

            (g) request, propose or otherwise seek any amendment or waiver of
      the provisions of Article IV.

            SECTION 4.03. Standstill Exceptions. Notwithstanding Sections 4.01
and 4.02:

            (a) during the Standstill Period, the Investor Parties may acquire
      beneficial ownership of additional Equity Securities if, after giving
      effect to any such acquisition, B&W's Percentage Interest would not exceed
      the Standstill Percentage less the percentage of Voting Power (calculated
      as of the date of disposition) associated with any Equity Securities
      disposed of by any Investor Party (other than to another Investor Party)
      following the date of this Agreement;

            (b) if, during the Standstill Period, Reynolds American becomes the
      subject of a Third Party Offer, Reynolds American shall promptly, and in
      any event within two business days, deliver written notice to B&W to such
      effect, which notice shall to the extent known by Reynolds American set
      forth the percentage of Voting Power or assets that the third party is
      seeking to acquire pursuant to the Third Party Offer, and the Investor
      Parties shall have the right to make a B&W Counteroffer to the Board of
      Directors in response to such Third Party Offer. If Reynolds American
      accepts any such B&W Counteroffer, the Investor Parties may acquire Equity
      Securities in accordance with the terms of such B&W Counteroffer. If
      Reynolds American rejects any such B&W Counteroffer and enters into an
      agreement with a third party (other than the Investor Parties) with
      respect to a Significant Transaction or a third

                                       38
<PAGE>

      party (other than the Investor Parties) initiates a tender offer or
      exchange offer that would constitute a Significant Transaction, the
      Investor Parties may make and consummate a public proposal constituting a
      B&W Counteroffer (including by way of a tender offer or exchange offer).
      Notwithstanding the foregoing, an Investor Party's right to make any B&W
      Counteroffer and to acquire additional Equity Securities pursuant to this
      clause (b) is subject to the condition that the Investor Directors recuse
      themselves from any and all consideration by the Board of Directors or any
      committee thereof of a Third Party Offer or a B&W Counteroffer; and

            (c) during the Standstill Period, the Investor Parties shall be
      permitted to make requests to the Board of Directors to amend or waive any
      of the limitations set forth in Section 4.01 or 4.02, which the Other
      Directors, acting by majority, may accept or reject in their sole
      discretion; provided, however, that (i) any such request shall not be
      publicly disclosed by the Investor Parties and (ii) any such request shall
      be made in a manner that is not reasonably likely to require the public
      disclosure of such request by Reynolds American.

                      ARTICLE V. Transfer of Common Stock

            SECTION 5.01. Limitation on Transfer of Common Stock. (a) During the
term of this Agreement, any sale, transfer or other disposition of shares of
Common Stock by the Investor Parties shall be subject to the following
limitations:

            (i) no shares of Common Stock may be sold, transferred or otherwise
      disposed of, directly or indirectly, to any Person or 13D Group, if, after
      giving effect to such sale, transfer or other disposition such Person or
      13D Group would, to B&W's knowledge, beneficially own, or have the right
      to acquire, 7.5% or more of the Voting Power of all Voting Stock, except
      in connection with a tender offer or exchange offer for Common Stock
      (provided that the Board of Directors has not recommended to its

                                       39
<PAGE>

      shareholders that such tender offer or exchange offer be rejected); and

            (ii) none of the Investor Parties will, in any six-month period,
      sell, transfer or otherwise dispose of, directly or indirectly, Common
      Stock representing in the aggregate more than 5% of the Voting Power of
      all Voting Stock without first obtaining the consent of a majority of the
      Other Directors, except in connection with a tender offer or exchange
      offer for Common Stock (provided that the Board of Directors has not
      recommended to its shareholders that such tender offer or exchange offer
      be rejected).

            (b) Notwithstanding any of the foregoing, B&W may at any time
transfer any or all of its shares of Common Stock to any Investor Party, and any
such transferee may make similar transfers; provided, however, that (x) any such
transferee shall agree to be bound by the terms of this Agreement and (y) for
purposes of calculating any ownership threshold applicable to B&W and/or its
affiliates under this Agreement, all shares of Common Stock held by B&W and any
permitted transferee under this Section 5.01(b) shall be taken into account.

            (c) Reynolds American may place appropriate legends on the
certificates representing Common Stock held by the Investor Parties setting
forth the restrictions referred to above and any restrictions appropriate for
compliance with U.S. federal securities laws. Reynolds American will promptly
issue replacement certificates to the Investor Parties, upon request, in order
to permit the Investor Parties to engage in sales, transfers and other
dispositions that are not restricted hereunder or under U.S. federal securities
laws. Purported transfers of shares of Common Stock that are not in compliance
with this Article V shall be void.

                           ARTICLE VI. Miscellaneous

            SECTION 6.01. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given upon receipt by the parties at the following addresses (or

                                       40
<PAGE>

at such other address for a party as shall be specified by like notice):

            (a)   if to BAT, to

                  Globe House
                  4 Temple Place
                  London WC2R 2PG United Kingdom
                  Fax: 44 207 845 2189

                  Attention: General Counsel

                  with a copy to:

                  Cravath, Swaine & Moore LLP
                  825 Eighth Avenue
                  New York, NY 10019
                  Fax: 212-474-3700
                  Phone: 212-474-1000

                  Attention:  Philip A. Gelston, Esq.
                              Sarkis Jebejian, Esq.

            (b)   if to B&W, to

                  401 South 4th Avenue
                  Louisville, KY  40232
                  Fax: (502) 217-7297

                  Attention: General Counsel

                  with a copy to:

                  Cravath, Swaine & Moore LLP
                  825 Eighth Avenue
                  New York, NY 10019
                  Fax: 212-474-3700
                  Phone: 212-474-1000

                  Attention:  Philip A. Gelston, Esq.
                              Sarkis Jebejian, Esq.

            (c)   if to Reynolds American, to

                  401 North Main Street
                  Winston-Salem, NC  27102-2990

                                       41
<PAGE>

                  Fax: (336) 741-2998

                  Attention: General Counsel

                  with a copy to:

                  Jones Day
                  222 East 41st Street
                  New York, NY 10017
                  Fax: 212-755-7306
                  Phone: 212-326-3939

                  Attention: Jere R. Thomson, Esq.

            SECTION 6.02. Amendments; Waivers. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
of a waiver, by the party against whom the waiver is to be effective; provided,
however, that no such amendment or waiver by Reynolds American shall be
effective without the approval of a majority of the Other Directors (except for
amendments or waivers that are administrative in nature or that do not
materially adversely affect the rights of the Unaffiliated Equity Holders, which
amendments and waivers shall only require the approval of a majority of the
Directors).

            (b) The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights nor shall any single or partial exercise by any party to this Agreement
of any of its rights under this Agreement preclude any other or further exercise
of such rights or any other rights under this Agreement. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law or otherwise.

            SECTION 6.03. Interpretation. When a reference is made in this
Agreement to a Section, Subsection or Exhibit, such reference shall be to a
Section or Subsection of, or an Exhibit to, this Agreement unless otherwise
indicated. The headings contained in this Agreement are

                                       42
<PAGE>

for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words "date hereof" shall refer to the date of this Agreement. The term "or" is
not exclusive. The word "extent" in the phrase "to the extent" shall mean the
degree to which a subject or other thing extends, and such phrase shall not mean
simply "if". The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms. Any agreement or instrument
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement or instrument as from time to time amended,
modified or supplemented. References to a Person are also to its permitted
successors and assigns.

            SECTION 6.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the Transactions contemplated hereby are fulfilled to the extent possible.

            SECTION 6.05. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.

            SECTION 6.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other Transaction

                                       43
<PAGE>

Agreements constitute the entire agreement, and supercede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof and are not intended to confer upon any Person
other than the parties any rights or remedies.

            SECTION 6.07. Governing Law. Except to the extent specifically
required by the North Carolina Business Corporation Act, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. The parties declare that it is their
intention that this Agreement shall be regarded as made under the laws of the
State of Delaware and that the laws of the State of Delaware shall be applied in
interpreting its provisions in all cases where legal interpretation shall be
required, except to the extent the North Carolina Business Corporation Act is
specifically required by such act to govern the interpretation of this
Agreement.

            SECTION 6.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by any of the parties
without the prior written consent of the other parties hereto, except that B&W
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to BAT or any of its Subsidiaries that agrees
in writing to be bound by the provisions hereof. Any purported assignment
without such prior written consent shall be void. Subject to the preceding
sentences, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.

            SECTION 6.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in the Chancery Court

                                       44
<PAGE>

of the State of Delaware, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of Delaware or Chancery Court of the State of Delaware in
the event any dispute arises out of this Agreement or any Transaction, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, (c) irrevocably and
unconditionally waives (and agrees not to plead or claim) any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or any Transaction, (d) agrees that it will not bring any action relating to
this Agreement or any Transaction in any court other than any Federal court
sitting in the State of Delaware or Chancery Court of the State of Delaware, (e)
waives any right to trial by jury with respect to any action related to or
arising out of this Agreement or any Transaction and (f) agrees that this
Agreement involves at least $100,000 and has been entered into by the parties in
express reliance upon 6 Del. C. Section 2708. Without limiting the agreement of
the parties set forth in this Section 6.11, in the event that any dispute
arising under this Agreement is subject to, or adjudicated by, the courts of the
State of North Carolina, the parties agree that any such dispute will be
adjudicated by the North Carolina Business Court (with any references in this
Section 6.09 to Delaware courts being deemed to be references to North Carolina
courts and any references in this Section 6.09 to the Chancery Court of the
State of Delaware being deemed to be references to the North Caroline Business
Court).

            SECTION 6.10. Effectiveness. This Agreement shall become effective
upon the execution of this Agreement.

            SECTION 6.11. Termination.

            (a) Automatic Termination. This Agreement shall automatically
terminate at such time that (i) B&W's Percentage Interest equals 100% or is less
than 15% or (ii) any Person or 13D Group (other than the Investor Parties or any
Person participating in a 13D Group with the Investor Parties) beneficially owns
or controls Voting

                                       45
<PAGE>

Stock representing more than 50% of the Voting Power of all Voting Stock.

            (b) Termination by BAT and B&W. BAT and B&W shall be entitled to
terminate this Agreement in the event that (i) (A) Reynolds American, the Board
of Directors or any committee of the Board of Directors takes any action, or
fails to take appropriate action, which action, or failure to take action, would
have resulted in a material breach of any of the Board Provisions but for the
fiduciary duty exception set forth in Section 2.08 or (B) an Approval
Termination Event occurs or (ii) the number of Investor Directors serving on the
Board of Directors at any time is less than the number of Investor Directors to
which B&W is entitled at such time pursuant to Section 2.01 (provided B&W has
complied in all material respects and in good faith with the requirements set
forth in this Agreement regarding the nomination of, and voting for, directors),
in the case of clauses (i) and (ii) subject to notice from B&W and the
expiration of a 45-day period in which to cure such action or failure to act (if
such action or failure to act is capable of being cured).

            (c) Termination of Obligations. BAT and B&W shall be entitled to
terminate Articles IV and V and Sections 2.01(g) and (h) and Sections 2.02(b)
and (c), but the remainder of this Agreement shall continue until otherwise
terminated pursuant to Section 6.11(a) or (b), in the event that the Board of
Directors or Reynolds American willfully and deliberately fails to take
appropriate action, which action, or failure to take action, results in a
material breach of the Board Provisions, subject to notice from B&W and the
expiration of a 45-day period in which to cure such breach or failure (if such
breach or failure is capable of being cured). Reynolds American shall be
entitled to terminate Article II (provided that Section 2.04(c) shall survive
until the fifth anniversary of the date of this Agreement and Sections
2.01(g)(i) and (h) and 2.02(b) and (c) shall survive until otherwise terminated
pursuant to Section 6.11(a)), but the remainder of this Agreement shall continue
until otherwise terminated pursuant to Section 6.11(a), in the event that BAT or
B&W willfully and deliberately takes any action, or fails to take appropriate
action, which action, or failure to take action, results in a material breach of
Section 4.01 hereof

                                       46
<PAGE>

(subject to the exceptions set forth in Section 4.03), subject to notice from
Reynolds American and the expiration of a 45-day period in which to cure such
breach or failure (if such breach or failure is capable of being cured).

            (d) Survival. In the event that this Agreement shall terminate, all
provisions of this Agreement shall terminate and shall be void, except (i)
Article III shall survive any such termination until the Investor Parties no
longer hold Registrable Securities, (ii) Section 2.04(c) shall survive until the
fifth anniversary of the date of this Agreement and (iii) Articles I and VI
shall survive any such termination indefinitely. Nothing in this Section 6.11
will be deemed to release any party from any liability for any wilful and
material breach of this Agreement or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement.

            SECTION 6.12. Confidentiality. (a) Each of BAT and B&W agree to
maintain, and they shall cause each of their respective Subsidiaries, directors,
officers, employees and other representatives (including any Investor Director)
to maintain, the confidentiality of all material non-public information obtained
by the Investor Parties from Reynolds American or any of its Subsidiaries or
their respective directors, officers, employees or agents, and not to use such
information for any purpose other (i) than the evaluation and protection of the
investment by the Investor Parties in Reynolds American, (ii) the exercise by
the Investor Parties of any of their respective rights under this Agreement and
(iii) the exercise by the Investor Directors of their fiduciary duties as
Directors of Reynolds American.

            (b) Notwithstanding the foregoing, the confidentiality obligations
of Section 6.12(a) will not apply to information obtained other than in
violation of this Agreement:

            (i) which any of Investor Parties or any of their officers,
      employees, representatives, consultants or advisors is required to
      disclose by judicial or administrative process, or by other requirements
      of applicable law or regulation or any governmental

                                       47
<PAGE>

      authority (including any applicable rule, regulation or order of a
      self-governing authority, such as the New York Stock Exchange, the UK
      Listing Authority and the UK Panel on Takeovers and Mergers); provided,
      however, that, where and to the extent practicable, the disclosing party
      (A) gives the other party reasonable notice of any such requirement and,
      to the extent protective measures consistent with such requirement are
      available, the opportunity to seek appropriate protective measures and (B)
      cooperates with such party in attempting to obtain such protective
      measures;

            (ii) which becomes available to the public other than as a result of
      a breach of Section 6.12(a); or

            (iii) which has been provided to any of the Investor Parties or any
      of their officers, employees, representatives, consultants or advisors by
      a third party who obtained such information other than from any such
      Person or other than as a result of a breach of Section 6.12(a).

            (c) Notwithstanding anything herein to the contrary, any party to
this Agreement (and any employee, representative or other agent of such party)
may disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of the transactions contemplated by this Agreement
and all materials of any kind (including opinions or other tax analyses) that
are provided to it relating to such tax treatment and tax structure, except that
(i) this provision shall not permit disclosure until the earliest of (A) the
date of the public announcement of discussions relating to the transaction, (B)
the date of the public announcement of the transaction or (C) the date of the
execution of an agreement (with or without conditions) to enter into the
transaction, (ii) tax treatment and tax structure shall not include the identity
of any existing or future party (or any affiliate of such party) to this
Agreement and (iii) this provision shall not permit disclosure to the extent
that nondisclosure is necessary in order to comply with applicable securities
laws. Nothing in this Agreement shall in any way limit any party's ability to
consult any tax advisor (including a tax advisor independent from all other
entities involved in the

                                       48
<PAGE>

transactions contemplated by this Agreement) regarding the tax treatment or tax
structure of the transactions contemplated by this Agreement.

            SECTION 6.13. Acknowledgment of Securities Laws. Each of BAT and B&W
hereby acknowledges that it is aware, and that it will advise its
representatives who are informed as to the material non-public information that
is the subject of Section 6.12, that the United States securities laws prohibit
any Person who has received from an issuer material, non-public information from
purchasing or selling securities of such issuer or from communication of such
information to any other Person under circumstances in which it is reasonably
foreseeable that such Person is likely to purchase or sell such securities.

                                       49
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have executed this Governance
Agreement as of the day and year first above written.

                                   BRITISH AMERICAN TOBACCO P.L.C.

                                   By Roger H. Lomax
                                      ------------------------------------------
                                      Name: Roger H. Lomax
                                      Title: Attorney-in-Fact

                                   BROWN & WILLIAMSON TOBACCO CORPORATION

                                   By Timothy J. Hazlett
                                      ------------------------------------------
                                      Name: Timothy J. Hazlett
                                      Title: Vice President and Secretary

                                   REYNOLDS AMERICAN INC.

                                   By Charles A. Blixt
                                      ------------------------------------------
                                      Name: Charles A. Blixt
                                      Title: Executive Vice President and
                                             General Counsel

                                       50

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