REYNOLDS AMERICAN INC.
AUDIT COMMITTEE CHARTER

Purposes

    The purposes of the Audit Committee of the Board of Directors of Reynolds American Inc. (“RAI ”) shall be to assist the Board of Directors in fulfilling its oversight responsibilities by:

1.       overseeing that management has maintained the reliability and integrity of the accounting policies, financial reporting and disclosure practices and financial statements of RAI and its subsidiaries (sometimes collectively referred to as the “Company”);

2.       overseeing that management has established and maintained processes to assure that an adequate system of internal control is functioning within the Company;

3.       overseeing that management has established and maintained processes to assure compliance by the Company with all applicable laws, regulations and Company policies;

4.       overseeing (a) the integrity of the Company’s financial statements and (b) the Company’s compliance with legal and regulatory requirements; and

5.       overseeing the qualifications, independence and performance of the Company’s independent auditors and internal audit department.

     The Audit Committee also shall prepare the Audit Committee’s report, made pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), to be included in RAI’s annual proxy statement (the “Audit Committee Report”).

Composition of the Audit Committee

     Number. The Audit Committee shall consist of no fewer than three members, the exact number of which will be determined from time to time by the RAI Board.

     Qualifications. Each Audit Committee member shall have the following qualifications:

1.       Each Audit Committee member shall meet the independence criteria of (a) the rules of the New York Stock Exchange, Inc. (“NYSE”), as such requirements are interpreted by the Board of Directors in its business judgment and as set forth in RAI’s Corporate Governance Guidelines, and (b) Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the Securities and Exchange Commission (“SEC”), including Rule 10A-3 of the Exchange Act, and the NYSE.

2.       Each Audit Committee member shall be financially literate or shall become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. Additionally, at least one member of the Audit Committee shall have accounting or related financial management expertise sufficient to meet the criteria of a financial expert within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. The Board of Directors shall determine, in its business judgment and upon the recommendation of the Corporate Governance and Nominating Committee of the Board of Directors of RAI, whether a member is financially literate and whether at least one member has the requisite accounting or financial management expertise and meets the financial expert criteria of Section 407 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. The designation or identification of a person as an Audit Committee financial expert shall not (a) impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board of Directors in the absence of such designation or identification, or (b) affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

3.       Each Audit Committee member shall receive as compensation from RAI only those forms of compensation as are not prohibited by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the SEC and the NYSE. Permitted compensation includes director’s fees, which includes all forms of compensation paid to directors of RAI for service as a director or member of a committee of the Board of Directors.

4.       Each Audit Committee member shall serve on no more than three audit committees of public companies (including RAI).

     Appointment and Removal. The Board of Directors will appoint the members and the Chair of the Audit Committee based on nominations made by the Corporate Governance and Nominating Committee of the Board of Directors of RAI. Each Audit Committee member shall serve at the pleasure of the Board of Directors for such term or terms as the Board of Directors or Corporate Governance and Nominating Committee may determine or until such Audit Committee member is no longer a member of the Board of Directors.

Powers, Duties and Responsibilities of the Audit Committee

     General. The Audit Committee is responsible for overseeing the Company’s financial reporting process on behalf of the Board of Directors. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, for the appropriateness of the accounting and reporting policies that are used by the Company and for implementing the internal controls of the Company. The independent auditors are responsible for auditing the Company’s financial statements and for reviewing the Company’s interim financial statements. The review of the financial statements by the Audit Committee is not of the same nature and not for the same purpose as the audit performed by the independent auditors. Consequently, the Audit Committee cannot provide any expert or special assurance as to the Company’s financial statements or internal controls or any professional certification as to the independent auditors’ work.

      The Audit Committee is directly responsible for the appointment, termination, compensation, retention, evaluation and oversight of the work of the Company’s independent auditors (including resolution of disagreements between management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.

     The Audit Committee is directly responsible for the appointment, termination, compensation, retention, evaluation and oversight of the work of the General Auditor.

     In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible in order to best react to a changing environment.

     Specific Powers, Duties and Responsibilities. The Audit Committee shall have the following specific powers, duties and responsibilities:

1.       hold such regular meetings as may be necessary and such special meetings as may be called by the Chair of the Audit Committee or at the request of the independent auditors or the General Auditor;

2.       create an agenda for the work of the Audit Committee for the ensuing year;

3.       retain and terminate the Company’s independent auditors (subject, if applicable, to shareholder ratification);

4.       approve all audit engagement fees, terms and services; approve any non-audit engagements with the Company’s independent auditors; and review and approve the independent auditors’ annual engagement letter. The Audit Committee is to exercise this authority in a manner consistent with Sections 201, 202, and 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing standards promulgated thereunder by the SEC and the NYSE. The Audit Committee may delegate the authority to grant any pre-approvals required by such Sections to one or more members of the Audit Committee as it designates, subject to the delegated member or members reporting any such pre-approvals to the Audit Committee at its next scheduled meeting;

5.       at least annually, obtain and review a report by the independent auditors describing (a) the audit firm’s internal quality-control procedures, and (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues;

6.       at least annually, review and discuss the information provided by management and the independent auditors relating to the independence of such audit firm, including, among other things, information related to the non-audit services provided and expected to be provided by the independent auditors, and present findings regarding such independence to the Board of Directors. The Audit Committee is responsible for (a) ensuring that the independent auditors submit at least annually to the Audit Committee a formal written statement delineating all relationships between the independent auditors and the Company consistent with applicable independence standards, (b) actively engaging in a dialogue with the independent auditors with respect to any disclosed relationship or services that may impact their objectivity and independence, and (c) taking appropriate action in response to the independent auditors’ report to satisfy itself of their independence. In connection with the Audit Committee’s evaluation of the independent auditors’ independence, the Audit Committee shall also review and evaluate the lead and reviewing partners of the independent auditors and take such steps as may be required by law with respect to the identification and regular rotation of the audit partners serving on the Company’s audit engagement team;

7.       set RAI’s hiring policies for employees or former employees of the independent auditors, which include the restrictions set forth in Section 206 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC;

8.       provide direct oversight of the internal audit department; review and approve the Company’s internal audit charter, annual audit plans and budgets, including the adequacy of staffing; and review the performance of the internal audit department;

9.       confer with the independent auditors and the internal auditors concerning the scope of their examinations of the books and records of the Company; direct the special attention of the auditors to specific matters or areas deemed by the Audit Committee or the auditors to be of special significance; and authorize the auditors to perform such supplemental reviews or audits as the Audit Committee may deem desirable;

10.   review and discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit (including the nature and extent of any significant changes in accounting principles or the application thereof, the independent auditors’ judgments about the quality and the acceptability of the Company’s accounting principles and financial disclosures), as well as any audit problems or difficulties and management’s response, including (a) any restriction on audit scope or on access to requested information, (b) any disagreements with management, (c) significant issues discussed with the independent auditors’ national office, (d) any accounting adjustments that were noted by the independent auditors but were determined by management to be immaterial, and (e) all material written communications between the independent auditors and management of the Company (such as management or internal control letters or schedules of unadjusted differences). The Audit Committee is to decide all unresolved disagreements between management and the independent auditors regarding financial reporting;

11.   review and discuss with management, the internal auditors and the independent auditors policies with respect to risk assessment and risk management to assess and manage the Company’s exposure to risk. The Audit Committee should discuss the Company’s major risk exposures and the steps management has taken to maintain and control these exposures;

12.   meet to review and discuss with management, the internal auditors and the independent auditors the annual audited and quarterly financial statements of the Company, including (a) reviewing the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (b) the disclosure regarding internal controls and other matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC;

13.   review and discuss with management, the internal auditors and the independent auditors earnings and other financial press releases (including any use of “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies (which review may occur after issuance and may be done generally as a review of the types of information to be disclosed and the form of presentation to be made). The Chair of the Audit Committee, or his or her designee, may represent the full Audit Committee at such discussions;

14.   review through discussions with management, the internal auditors and the independent auditors the adequacy of the Company’s system of internal controls, which shall include (a) the disclosures regarding internal controls and matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated by the SEC and (b) a review with the independent auditors of their opinion on the effectiveness of management’s assessment of internal controls over financial reporting and the independent auditor’s analysis of matters requiring modification to management’s certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;

15.   obtain from the independent auditors and the internal auditors their recommendations regarding internal controls and other matters relating to the accounting procedures and the books and records of the Company and review the correction of controls deemed to be deficient;

16.   provide an independent, direct communication between the Board of Directors, management, the internal auditors and the independent auditors, including meeting in separate executive sessions with management, the internal auditors and the independent auditors to discuss any matters that the Audit Committee, management, the internal auditors or the independent auditors believe should be discussed;

17.   review the adequacy of internal controls and procedures related to executive travel and entertainment, including use of Company-owned aircraft;

18.   review and discuss with the independent auditors (a) the report of their annual audit, or proposed report of their annual audit, (b) the accompanying management letter, if any, (c) the reports of their reviews of the Company’s interim financial statements conducted in accordance with Statement on Auditing Standards No. 100, and (d) the reports of the results of such other examinations outside of the course of the independent auditors’ normal audit procedures that the independent auditors may from time to time undertake. The foregoing shall include the reports required by Section 204 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC and, as appropriate, a review of (i) major issues regarding (A) accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and (B) the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (ii) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (iii) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company;

19.   obtain assurance from the independent auditors that in the course of conducting their annual audit, there have been no acts detected or that have otherwise come to the attention of the audit firm that require disclosure to the Audit Committee under Section 10A(b) of the Exchange Act;

20.   periodically obtain reports from management, the internal auditors and the independent auditors concerning the actions to ensure compliance with the Company’s Code of Conduct and the results of confirmations and violations of the Code. The Committee shall also assist the Board of Directors in reviewing and, when appropriate, granting any request for a waiver of the Code;

21.   review with appropriate Company personnel the programs and policies of the Company designed to ensure compliance with applicable laws and regulations and monitoring the results of these compliance efforts;

22.   review with appropriate Company personnel the procedures established by the Company that monitor the compliance by the Company with its loan and indenture covenants and restrictions;

23.   establish procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters as required by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the SEC and the NYSE; and (c) the confidential receipt, retention, and consideration of any report of evidence of a material violation within the meaning of Rule 205 of the Rules of Practice of the SEC (“Material Violations”);

24.   consider such other matters in relation to the financial affairs of the Company and its accounts, and in relation to the internal and external audit of the Company as the Audit Committee may, in its discretion, determine to be advisable;

25.   report through its Chair to the Board of Directors following the meetings of the Audit Committee. Such report should include a review of any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors, and the performance of the internal audit function;

26.   review affiliate or related party transactions; and

27.   maintain minutes or other records of meetings and activities of the Audit Committee.

Designation as Qualified Legal Compliance Committee

      The Audit Committee also shall function as a qualified legal compliance committee (a “QLCC”) for the Company within the meaning of Rule 205 of the Rules of Practice of the SEC. In its capacity as a QLCC, the Audit Committee shall receive any reports of Material Violations governed by such rule from attorneys representing the Company, including in-house counsel (“QLCC Reports”). The Audit Committee shall take such actions as may be permitted or required of a QLCC under applicable law, which may include the making of inquiries and investigations in response to any QLCC Reports, making such reports and giving such notices to the Company’s officers and RAI’s Board of Directors as may be necessary or appropriate, and providing such notifications to the SEC as may be permitted or required by law. The performance by the Audit Committee of the functions of a QLCC shall not increase the liability of any member of the Audit Committee under state law.

Meetings of the Audit Committee

      The Audit Committee shall meet in person or telephonically at least quarterly, or more frequently as it may determine necessary, to comply with its responsibilities as set forth in this Charter. The Chair of the Audit Committee shall, in consultation with the other members of the Audit Committee, management, the General Auditor and the Company’s independent auditors, be responsible for calling meetings of the Audit Committee, establishing agendas therefor and supervising the conduct thereof. A majority of the number of Audit Committee members will constitute a quorum for conducting business at a meeting of the Audit Committee. The act of a majority of the Audit Committee members present at an Audit Committee meeting at which a quorum is in attendance will be the act of the Audit Committee, unless a greater number is required by law or RAI’s Articles of Incorporation or By-Laws. The Audit Committee also may take any action permitted under this Charter by unanimous written consent.

    The Audit Committee may request any officer or employee of the Company, or the Company’s outside legal counsel, independent auditors or other advisors, to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. The Audit Committee shall meet with the Company’s management, the internal auditors and the independent auditors periodically in separate executive sessions to discuss any matter that the Audit Committee, management, the internal auditors or the independent auditors believe should be discussed privately.

Resources and Authority of the Audit Committee

      The Audit Committee shall have the resources and authority appropriate to discharge its responsibilities as required by law, including the authority to engage independent counsel and other advisors as the Audit Committee deems necessary to carry out its duties. The Audit Committee also may, to the extent it deems necessary or appropriate, meet with the Company’s investment bankers or financial analysts who follow the Company.

     The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of (a) compensation to the Company’s independent auditors engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for the Company, (b) compensation to outside legal counsel or any other advisors employed by the Audit Committee, and (c) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

Audit Committee Report

      The Audit Committee shall prepare, with the assistance of management, the independent auditors and legal counsel, the Audit Committee Report.

Annual Review of Charter

      The Audit Committee shall conduct and review with the Board of Directors annually an evaluation of this Charter and recommend any changes to the Board of Directors. The Audit Committee may conduct this Charter evaluation in such manner as the Audit Committee, in its business judgment, deems appropriate.

Annual Performance Evaluation

      The Audit Committee shall conduct and review with the Board of Directors annually an evaluation of the Audit Committee’s performance with respect to the requirements of this Charter. This evaluation also shall also set forth the goals and objectives of the Audit Committee for the upcoming year. The Audit Committee may conduct this performance evaluation in such manner as the Audit Committee, in its business judgment, deems appropriate.