IV. USE OF INSIDE INFORMATION AND SPECULATION IN COMPANY SECURITIES

There are numerous laws, both federal and state, regulating transactions in corporate securities (stocks, listed options, bonds, etc.) and the securities industry. Violation of these laws can lead to civil and criminal actions against the individual, as well as the corporation involved.

A. Use of Inside Information

The use of material nonpublic information in connection with the purchase or sale of any securities is strictly prohibited. Any such use of material nonpublic information may constitute "insider trading" under the law and subject the employee to civil and criminal penalties, as well as disciplinary action by the Company, including termination of employment. Federal and state securities laws prohibit the purchase or sale of securities while in possession of material nonpublic information. Disclosing such information, whether intentionally, carelessly or negligently, to others who trade in such securities in light of that information is referred to as "tipping," and is also prohibited by these laws. In addition to responding to these laws, this Code has been adopted to avoid even the appearance of improper conduct on the part of anyone employed by the Company.

Inside information is any information about a company or its business activities not generally known to the public and which could affect a decision to buy, sell or retain such company's stock. It is important to recognize that the prohibition against insider trading is not limited to RAI stock, publicly traded options and other securities. The prohibition also extends to securities of other companies, such as prospective acquisition or merger candidates, prospective purchasers of businesses or assets of the Company, and customers, suppliers and other businesses, about which an employee may obtain material nonpublic information in the course of employment.

Material information is any information that a reasonable investor would consider important in a decision to buy, hold or sell securities. In short, material information is any information that could reasonably affect the price of the securities. Although it is impractical to establish an absolute rule in determining what constitutes material information, the following are examples of information that may be regarded as material:

• Proposed mergers and acquisitions or sales of businesses;
  
  
• Changes in dividend amounts or policy;
  
  
• Earnings that are higher or lower than financial analysts' expectations;
  
  
• Acquisition or loss of a significant contract or a significant customer or vendor relationship;
  
  
• Major management changes;
  
  
• Purchase or sale of a significant asset;
  
  
• Incurring significant debt or selling significant amounts of securities of the Company;
  
  
• Initiation of, and subsequent developments in, litigation to which the Company is a party; and
  
  
• Development or marketing of significant new products.
  
  

Except for transactions made in accordance with a written, prearranged trading plan complying with SEC Rule 10b5-1 and approved by the General Counsel or Secretary of RAI, or their designee (a "Rule 10b5-1 Plan"), employees who know of any material fact about the Company that has not been disclosed to the public (commonly known as "inside information") may not engage in any transactions in the Company's securities until such information is disclosed to the public. For purposes of the foregoing, information should be considered "public" information beginning 48 hours after the information has been broadly disseminated to the public (e.g., by means of a press release distributed via a wire service or a report filed with the Securities and Exchange Commission).

The restriction of trading based on inside information also includes selling or purchasing stock through the Reynolds American Capital Investment Plan ("CIP"), the Savings and Investment Plan for Employees of R. J. Reynolds Tobacco in Puerto Rico ("SIP"), the Santa Fe Natural Tobacco Company, Inc. Profit Sharing/401(k) Plan, or through the exercise of Company-issued stock options. Even if an employee is not the direct purchaser or seller of the securities, the employee can be subject to severe penalties if he or she used or passed on the material nonpublic information involved in the illegal trading.

Employees who adopt a Rule 10b5-1 Plan when they do not otherwise possess material, nonpublic information on the date of adoption, may continue to trade pursuant to their Rule 10b5-1 Plan even after they learn of inside information or, with respect to covered employees (as defined below), even during a trading blackout period (as defined below). These types of plans must meet certain technical requirements as to the manner, amount, timing and price of trades, and thus must be approved by the General Counsel or Secretary of RAI, or their designee, before becoming effective.

Please note that trading in RAI stock always poses some degree of danger that an allegation can be made that the trading was based on material nonpublic information, especially when judged after the fact. When trading in RAI stock, employees should exercise the utmost caution and discretion.

B. Trading in RAI Stock Prohibited During “Trading Blackout Periods”

To avoid potentially problematic trading during the period immediately prior to RAI's quarterly earnings announcements, employees at the Vice President level and above and employees involved in RAI's earnings release process ("covered employees") shall not purchase or sell RAI stock or derivative securities, or exercise any options in such stock, during the period ("trading blackout period") beginning on the last day of a calendar quarter and ending forty-eight (48) hours after RAI's public release of its earnings statement for such quarter, unless (1) expressly permitted by the General Counsel or Secretary of RAI, or their designee, after making a determination that an employee seeking permission for waiver during the trading blackout period does not possess any material nonpublic information about the Company and is facing a financial hardship, or (2) such transactions are occurring in accordance with a Rule 10b5-1 Plan that itself has been approved by the General Counsel or Secretary of RAI, or their designee. The General Counsel or Secretary of RAI shall report any waivers granted during a trading blackout period pursuant to the immediately preceding sentence to the Chair of the Audit Committee of the Board of Directors of RAI. The foregoing trading blackout restriction also applies to the RAI Common Stock Fund in the CIP and the SIP. Accordingly, if a covered employee reallocates funds in the CIP or the SIP within the trading blackout period, the percentage of funds invested in the RAI Common Stock Fund must remain the same throughout the trading blackout period.

Having a trading blackout period for covered employees should not be construed as indicating that there is an unrestricted open window for trading in RAI stock at any other time for covered employees or that non-covered employees may trade in RAI stock at any time. The general prohibition against trading based on inside nonpublic information is always operative for all employees. Therefore, if at any time in the course of your duties you acquire material nonpublic information, you must refrain from trading in RAI stock or derivative securities until such information becomes public or unless such transactions are occurring in accordance with a Rule 10b5-1 Plan that itself has been approved by the General Counsel or Secretary of RAI, or their designee.

C. Speculation in Company Securities

In addition to the prohibition against the use of inside information that applies to all employees, the various securities laws place definite restrictions on the manner in which directors and executive officers of the Company, their family members, their associates, etc., may engage in transactions involving the securities of the Company.

Generally speaking, the laws provide that no executive officer or director of the Company, their family members, their associates, etc., may engage in "short-swing" trading (any purchase and sale or sale and purchase of securities within any period of less than six (6) months) and short sales. The Company discourages, even in instances where the law is not violated, officers and directors from engaging in trading activity of a speculative nature involving the Company's securities. Specific policy guidelines and reporting requirements related to Section 16 of the Securities Exchange Act of 1934 have been provided to executive officers and directors of the Company, and any questions regarding such policy guidelines or reporting requirements should be directed to the General Counsel or Secretary of RAI.

The rules covering insider trading are complex and evolving. An employee is strongly encouraged to consult with the General Counsel or Secretary of RAI prior to initiating any securities trade, if he or she possesses material nonpublic information related to such securities.