RAI Reynolds American (delisted)

PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in or incorporated by reference in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus carefully together with the information incorporated by reference herein, including “Risk Factors” and the financial statements, and notes related thereto, incorporated by reference in this prospectus, before making an investment decision.

OUR BUSINESS

History of BAT

The BAT Group has had a significant global presence in the tobacco industry for over 100 years. The British-American Tobacco Company Ltd., referred to as BAT Ltd., was incorporated in 1902, when the Imperial Tobacco Company and the American Tobacco Company agreed to form a joint venture company. BAT Ltd. inherited companies and quickly expanded into major markets, including India and Ceylon, Egypt, Malaya, Northern Europe and East Africa. In 1927, BAT Ltd. expanded into the U.S. market through its acquisition of B&W.

During the 1960s, 1970s and 1980s, the BAT Group diversified its business under the umbrella of B.A.T Industries p.l.c., with acquisitions in the paper, cosmetics, retail and financial services industries, among others. Various business reorganizations followed as the business was eventually refocused on the BAT Group’s core cigarette, cigars and tobacco products businesses with BAT becoming a separately listed entity on the London Stock Exchange in 1998.

In 1999, the BAT Group announced a global merger with Rothmans International, at that time the fourth largest tobacco company in the world. The BAT Group acquired Imperial Tobacco Canada in 2000, and in 2003 the BAT Group acquired Ente Tabacchi Italiani S.p.A., Italy’s state-owned tobacco company. Investments were made in Peru and Serbia in 2003, through the acquisitions of Tabacalera Nacional and Duvanska Industrija Vranje. In July 2004, the U.S. assets, liabilities and operations, other than certain specified assets and liabilities, of BAT’s wholly owned subsidiary, B&W, were combined with RJR Tobacco Company. RAI was previously formed as a new holding company for these combined businesses. As a result of the B&W business combination, B&W acquired beneficial ownership of approximately 42% of RAI’s outstanding common stock. In 2008, the BAT Group acquired Tekel, the Turkish state-owned tobacco company, as well as 100% of the cigarette and snus business of Skandinavisk Tobakskompagni A/S. Following the acquisition of its business during 2009, the BAT Group recognized an effective 99% interest in Bentoel in Indonesia. In 2011, the BAT Group completed the acquisition of 100% of Protabaco in Colombia. In 2012, the BAT Group acquired CN Creative Limited, a UK based start-up company specializing in the development of e-cigarette technologies. During 2013, the BAT Group entered into joint operations in China and Myanmar. In 2015, the BAT Group acquired the shares it did not already own in Souza Cruz; the Blue Nile Cigarette Company Limited, a tobacco manufacturing and distribution company in the Republic of Sudan; the CHIC Group, a vapor product business in Poland; and TDR d.o.o., a cigarette manufacturer in Central Europe. Also in 2015, in connection with the Lorillard merger, the BAT Group invested $4.7 billion to maintain its approximate 42% equity position in the enlarged RAI, following RAI’s purchase of Lorillard.

In 2016, the BAT Group acquired Ten Motives, a UK based e-cigarette business with particular strength in traditional grocery and convenience channels.

In 2017, the BAT Group completed the acquisition of the remaining 57.8% of RAI the BAT Group did not already own. Following completion of the acquisition, RAI became an indirect, wholly owned subsidiary of BAT and is no longer a publicly held corporation.

During 2017, the BAT Group acquired certain tobacco assets from Bulgartabac Holding AD in Bulgaria and Fabrika Duhana Sarajevo d.d. in Bosnia-Herzegovina. The BAT Group also acquired Winnington

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Holdings AB in Sweden and certain assets from Must Have Limited in the UK, including the electronic cigarette brand ViP. The financial impact of these transactions to the BAT Group were immaterial individually and in aggregate.

On December 21, 2017, the BAT Group signed an agreement to acquire 100% of the share capital of Twisp Propriety Limited, a South African e-cigarette / nicotine vapor company, for up to ZAR 635 million (£37.9 million). Following the July 2018 announcement by the South African Competition Commission of its recommendation to prohibit the proposed acquisition, the BAT Group has elected to appeal the decision to the Competition Tribunal of South Africa. If successful in its appeal, completion of the proposed acquisition is expected to occur in the third quarter of 2019.

BAT was incorporated in July 1997 under the laws of England and Wales as a public limited company and is domiciled in the United Kingdom.

BAT’s ordinary shares are listed on the London Stock Exchange under the trading symbol “BATS” and are classified as a premium listing. BAT ordinary shares also have a secondary listing on the Johannesburg Stock Exchange under the abbreviated name “BATS” and the trading symbol “BTI”.

BAT ordinary shares trade in the form of BAT ADSs in the United States, and the BAT ADSs are listed on the NYSE where they trade under the trading symbol “BTI”.

BAT’s principal and registered offices are located at Globe House, 4 Temple Place, London WC2R 2PG, United Kingdom, and its telephone number is +44 (0)20 7845 1000. BAT’s website address is www.bat.com . The web address of BAT has been included as an inactive textual reference only. BAT’s website and the information contained therein or connected thereto are not intended to be incorporated into this prospectus.

Overview of our Business: British American Tobacco p.l.c.

BAT is the parent holding company of the BAT Group, a leading, multi-category consumer goods company that provides tobacco and nicotine products to millions of consumers around the world.

According to the BAT Group’s internal estimates, the BAT Group is a market leader in more than 55 countries by volume, producing the cigarette chosen by one in eight of the world’s one billion smokers. The BAT Group in 2017, excluding the BAT Group’s associated undertakings, was organized into five regions: Asia-Pacific, Americas, Eastern Europe Middle East and Africa (EEMEA) and Western Europe, and the U.S.—Reynolds American Inc. The BAT Group has a devolved structure, with each local company having responsibility for its operations.

Effective January 1, 2018, the BAT Group is organized into four regions, being the United States, Asia-Pacific and Middle East (APME), Europe and North Africa (ENA) and Americas and Sub-Saharan Africa (AmSSA).

The BAT Group’s range of combustible products covers all segments, from value-for-money to premium with a portfolio of international, regional and local tobacco brands to meet a broad array of adult tobacco consumer preferences wherever the BAT Group operates. The BAT Group is investing in building a portfolio of potentially less harmful tobacco and nicotine products alongside its traditional tobacco business—including vapor and tobacco heating products (THPs) in the Next Generation Products (NGP) category, and, in the oral tobacco and nicotine products category, products such as snus, tobacco-free nicotine pouches and moist snuff. Collectively, the BAT Group refers to these products as its potentially reduced-risk products.

The BAT Group manages a globally integrated supply chain and its products are distributed to retail outlets worldwide.

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THE TRANSACTIONS

On July 25, 2017, the acquisition by the BAT Group of the shares of RAI common stock that it did not already own was completed. We refer to the RAI acquisition and the related transactions, including the issuance of the Unregistered 2.297% Notes, the Unregistered 2.764% Notes, the Unregistered 3.222% Notes, the Unregistered 3.557% Notes, the Unregistered 4.390% Notes, the Unregistered 4.540% Notes, the Unregistered 2020 Floating Rate Notes and the Unregistered 2022 Floating Rate Notes, collectively as the “Transactions.”

B.A.T. Netherlands Finance B.V.

BATNF was incorporated as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands on April 23, 2014. BATNF’s principal function is to operate as a financing company for the BAT Group. It has its statutory seat ( statutaire zetel ) in Amstelveen, The Netherlands and is registered with the Trade Register ( Handelsregister ) of the Chamber of Commerce under no. 60533536. The registered offices of BATNF are located at Handelsweg 53A, 1181 ZA Amstelveen, The Netherlands and its phone number is +31 (0)20 540 6911.

Reynolds American Inc.

RAI was incorporated in the State of North Carolina on January 2, 2004. RAI’s principal offices are located at 401 North Main Street, Winston-Salem, North Carolina 27101, United States and its telephone number is +1 336 741 2000.

RAI is a holding company whose wholly owned operating subsidiaries include: (i) RJR Tobacco Company, whose brand portfolio includes the premium brands Newport and Camel and the traditional value brand Pall Mall; (ii) SFNTC, the manufacturer and marketer of the premium cigarette brand Natural American Spirit in the United States; (iii) American Snuff Co., the second largest smokeless tobacco products manufacturer in the United States; (iv) R. J. Reynolds Vapor Company, referred to as RJR Vapor, a marketer of digital vapor cigarettes in the United States; and (v) Niconovum USA, Inc. and Niconovum AB, which are marketers of nicotine replacement therapy products in the United States and Sweden, respectively.

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The BAT Group believes that further tobacco-control regulation is inevitable over the medium term in most of the BAT Group’s markets, and is driven by tobacco control activities undertaken by national governments and non-governmental organizations, as well as guidelines and protocols derived from the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”). The FCTC is an international public health treaty, ratified by 181 countries worldwide, that establishes a global program to promote the regulation of tobacco in an effort to reduce initiation and encourage cessation.

The FCTC has led to increased efforts by tobacco control advocates and public health organizations to reduce the supply of and demand for tobacco products, and to encourage governments to further regulate the tobacco industry. Many of the measures outlined in the FCTC have been or are being implemented by means of national legislation in many markets in which the BAT Group operates.

In recent years, some countries have moved beyond the recommendations of the FCTC. For example, the adoption of the Tobacco Plain Packaging Act 2011 in Australia has required the use of plain packaging in Australia since December 1, 2012. Also, the EU has adopted the revised Tobacco and Related Products Directive (Directive 2014/40/EU) (“TPD2”). Among other things, this directive bans the sale of tobacco products with a characterizing flavor. Menthol flavored cigarettes are exempt from the ban until May 2020. TPD2 also purports to leave open to EU member states the possibility of further standardizing the packaging of tobacco products and to apply its provisions in different ways. For example, it provides, among other things, that the labeling, packaging and the tobacco product itself shall not include any element or feature that suggests that a particular tobacco product has vitalizing, energetic, healing, rejuvenating, natural, organic properties or has other health or lifestyle benefits. On February 1, 2017, the French Government applied its laws transposing these provisions into French national law to prohibit the sale of all variants of Vogue cigarettes from February 2018, as well as the use of certain other tobacco brand and brand variant names. The law was subsequently annulled, but France may still seek to introduce it. It is also possible that other countries may adopt a similar approach. For example, in 2018, Belgium notified the EU of its intention to adopt a French-style prohibition on certain brands and brand variants, while Pakistan is considering adopting a prohibition on messages on cigarette packaging that directly or indirectly promote a cigarette brand or usage.

More recently, significant debate has been generated regarding the appropriate regulation of next generation products. This includes debate over the nicotine-containing liquids used in vapor products, and the classification of products and restrictions on advertising. While this nascent category has grown in size and complexity in a relatively short period of time, a consensus framework for regulation

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and taxation has yet to emerge. The TPD2, for example, establishes frameworks for the regulation of novel tobacco products and e-cigarettes, introducing nicotine limits, health warning requirements, advertising restrictions as well as pre-market notification and post-market disclosure obligations. Conversely, some governments have intentionally banned or are seeking to ban novel tobacco products and products containing nicotine, while others would need to amend their existing legislation to permit their sale. Even in countries where the sale of such products is permitted, some governments have adopted, or are seeking to adopt, bans on vaping in public places or to restrict permitted flavors.

Significant and/or unexpected increases or structural changes in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These changes may result in a decline in overall sales volume for the BAT Group’s products or may alter its sales mix.

Tobacco products are subject to high levels of taxation, including excise taxes, sales taxes, import duties and levies in most markets in which the BAT Group operates. In many of these markets, taxes are generally increasing but the rate of increase varies between markets and between different types of tobacco products. Increases in tobacco excise taxes may be caused by a number of factors, including fiscal pressures, health policy objectives and increased lobbying pressure from anti-tobacco advocates. Significant or unexpected increases in tobacco taxes, the introduction of laws establishing minimum retail selling prices, changes in relative tax rates for different tobacco products or adjustments to excise structures, have and may continue to result in an increase in illicit trade, a decline in overall sales volume for the BAT Group’s products or an alteration in the sales mix in favor of value-for-money brands and may have an adverse effect on the BAT Group’s business, results of operations and financial conditions. Increases in tobacco-related taxes, the introduction of new tobacco-related taxes or changes to excise structures can limit the BAT Group’s ability to increase the prices on tobacco products or could necessitate absorption of tax increases. Additionally, tax increases can also lead to portfolio erosion, reduction of legal industry sales volumes and growth in illicit trade.

The BAT Group faces significant tobacco-related and other litigation that may be lost or compromised, resulting in a material loss or other consequences, including substantially reduced profitability and severely impaired liquidity.

There are a number of legal and regulatory actions, proceedings and claims against the BAT Group related to tobacco products pending in a number of jurisdictions, including the United States and Canada. These proceedings comprise claims for personal injury (both individual claims and class actions), economic loss arising from the treatment of smoking and health-related diseases (such as medical recoupment claims brought by local governments), negligence, strict liability in tort, design defect, failure to warn, fraud, misrepresentation, deceptive and unfair trade practices, conspiracy, medical monitoring, and violations of antitrust and racketeering laws. There are also ongoing proceedings that are not directly related to tobacco products, including environmental pollution claims. These various proceedings could give rise to material liability.

Tobacco-related litigation

Tobacco-related litigation falls into three broad categories: medical reimbursement cases; class actions and individual cases.

Tobacco-related litigation outside the United States

As at June 30, 2018, active product liability claims against the BAT Group companies existed in 15 markets outside the United States. The only markets with five or more claims were Argentina, Brazil, Canada, Chile, Nigeria and Italy.

In Canada, following the implementation of legislation enabling provincial governments to recover healthcare costs directly from tobacco manufacturers, ten actions for recovery of healthcare costs arising from the treatment of smoking and health-related diseases have been brought and are

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proceeding in ten provinces. Damages sought have not yet been quantified by all ten provinces; however, in respect of five provinces, the damages quantified in each of the provinces range between CAD$10-330 billion. Legislation in two of the three territories has received the Royal Assent but is not yet in force.

In respect of the two class actions against the Group’s subsidiary Imperial Tobacco Canada (“ITCAN”) in Quebec, in 2015 the Quebec Court of Appeal upheld the Order for Security, of which ITCAN’s share is CAD $758 million, which has been paid in full to the Court escrow account as required by the judgment. ITCAN continues to retain strong legal grounds to appeal the original judgment. No charge against profit has been made with regards to the deposit, as ITCAN continues to assess that the deposits are fully recoverable upon a successful appeal of the original judgment.

As at June 30, 2018, medical reimbursement actions had been brought in Angola, Argentina, Brazil, Canada, Nigeria and South Korea and class actions had been brought in Brazil, Venezuela and Canada, with 11 class actions in Canada spread over seven provinces.

Tobacco-related litigation in the United States

In the United States, the total number of tobacco product liability cases pending as at June 30, 2018 involving RJR Tobacco Company, Lorillard Tobacco and/or B&W was approximately 4,053. Since many of these pending cases seek unspecified damages, it is not possible to quantify the total amounts being claimed, but the aggregate amounts involved in such litigation are significant, possibly totaling billions of U.S. dollars.

The tobacco-related legal actions range from individual lawsuits to class-actions and other aggregate claim lawsuits. For example, in Engle v. R. J. Reynolds Tobacco Co., involving RJR Tobacco Company and B&W, the Florida Supreme Court issued a ruling that, while determining that the case could not proceed further as a class action, permitted members of the Engle class to file individual claims, including claims for punitive damages, through January 11, 2008. The decision preserved several of the Engle jury findings for use in adjudicating these subsequent individual actions, which are now known as Engle progeny cases.

As of June 30, 2018, RJR Tobacco Company had been served in 2,427 pending Engle progeny cases filed on behalf of approximately 3,072 individual plaintiffs. Many of these are in active discovery or nearing trial.

The Engle progeny cases have resulted in increased litigation and trial activity, including an increased number of adverse verdicts, and increased expenses. Since the beginning of 2016 through June 30, 2018, RJR Tobacco Company or Lorillard Tobacco has paid judgments in 41 Engle progeny cases and have cumulatively paid $323.2 million in compensatory or punitive damages and $109.1 million for attorneys’ fees and statutory interest, for a total of $432.3 million in these cases. In addition, since the beginning of 2016 through June 30, 2018 outstanding jury verdicts in favor of the Engle progeny plaintiffs had been entered against RJR Tobacco Company or Lorillard Tobacco for $137.2 million in compensatory damages (as adjusted) and $176.3 million in punitive damages, a total of $313.5 million. A significant majority of these verdicts are in various stages in the appellate process and have been bonded as required by Florida law under the $200 million bond cap passed by the Florida legislature in 2009. Although RJR Tobacco Company cannot currently predict when or how much it may be required to bond and pay, RJR Tobacco Company will likely be required to bond and pay additional judgments as the litigation proceeds.

Class-action suits have been filed in a number of states against individual cigarette manufacturers, including B&W and RJR Tobacco Company, alleging that the use of the terms “lights” and “ultra-lights” constitutes unfair and deceptive trade practices. In addition, several class actions have been filed against Santa Fe Natural Tobacco Company, Inc. (“SFNTC”) and RAI asserting that use of the terms “natural”, “additive-free” and “organic” in the product labeling and advertising for SFNTC’s Natural American Spirit cigarette brand violates state deceptive and unfair trade practice, statutes.

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Furthermore, the BAT Group is subject to substantial payment obligations under the Master Settlement Agreement dated November 23, 1998 between 46 U.S. states, the District of Columbia and five U.S. territories and various tobacco manufacturers, including RJR Tobacco Company, B&W and Lorillard Tobacco, resolving various state healthcare cost recovery claims and the state settlement agreements with the states of Mississippi, Florida, Texas and Minnesota (the “MSA” and such settlement agreements, collectively “State Settlement Agreements”). RAI’s operating subsidiaries’ expenses and payments under the State Settlement Agreements for 2017 amounted to $2,856 million in respect of settlement expenses and $4,612 million in respect of settlement cash payments. RAI’s operating subsidiaries’ projected expenses and payments under the State Settlement Agreements for 2018 and 2019, and thereafter, amount to greater than $2,800 million per year in respect of projected settlement expenses and, in respect of projected settlement cash payments, greater than $900 million in respect of 2018 and greater than $2,900 million per year in respect of 2019 and thereafter.

It is likely that legal actions, proceedings and claims arising out of the sale, distribution, manufacture, development, advertising, marketing and claimed health effects of cigarettes and other tobacco products will continue to be filed against the BAT Group and other tobacco companies for the foreseeable future.

Judgments in favor of plaintiffs in highly publicized cases against members of the BAT Group and other tobacco companies regarding the health effects of smoking may stimulate further claims. A material increase in the number of pending claims could significantly increase defense costs. In addition, adverse outcomes in pending cases could have adverse effects on the ability of the BAT Group to prevail in other smoking and health litigation.

Non-tobacco-related litigation

There are also a number of non-tobacco-related legal and regulatory proceedings against the BAT Group. For example, one of the BAT Group’s subsidiaries has certain liabilities in respect of indemnities given on the purchase and disposal of former businesses in the United States, which has resulted in the BAT Group subsidiary entering into an arrangement with certain parties to fund a portion of the ongoing costs of the clean-up of environmental contamination in the Fox River. The sums the BAT Group subsidiary has agreed to pay under the funding agreement are subject to ongoing adjustment, as clean-up costs can only be estimated in advance of the work being carried out and as certain sums payable are the subject of ongoing U.S. litigation. In 2017, the BAT Group subsidiary paid £18 million in respect of clean-up costs and is potentially liable for further significant future clean-up costs. Such BAT Group subsidiary may also be liable under the indemnities in respect of claims in relation to the environmental clean-up of the Kalamazoo River. The amount of the clean-up costs for the Kalamazoo River is presently unclear, but could run into hundreds of millions of dollars. Non-tobacco-related litigation, including for natural resource damages which costs cannot be estimated at this time, could impose substantial monetary obligations on the BAT Group and could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

General litigation conclusion

The BAT Group’s consolidated results of operations, cash flows and financial position could be materially affected in a particular fiscal year by an unfavorable outcome of certain pending or future litigation, including through exposure to substantial liabilities as a result of such outcomes. This, in turn, could materially increase costs, including costs associated with bringing proceedings and defending such claims, which includes exposure to adverse costs orders. Any negative publicity resulting from these claims may adversely affect the BAT Group’s reputation.

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The BAT Group is exposed to economic, regulatory and political factors inherent in its global operations and any geopolitical tensions, social unrest, terrorism and organized crime have the potential to disrupt the BAT Group’s business in multiple markets.

The BAT Group operates in over 200 markets. The BAT Group’s results of operations and financial condition are influenced by the economic, regulatory and political situations in the markets and regions in which it has operations, which are often unpredictable and outside of its control. In particular, a substantial majority of the BAT Group’s profit from operations is based on its operations in 15 markets, including the U.S. The BAT Group’s reported profits may be adversely affected by a significant downturn in one or more of these larger markets.

Economic, regulatory and political factors affecting the BAT Group include the prevailing economic climate, governmental austerity measures, levels of employment, inflation, governmental action to increase minimum wages, employment costs, interest rates, raw material costs and consumer confidence. Any change to such factors in any of the markets in which the BAT Group operates could affect consumer behavior and have an impact on its revenue, margins and cash flow.

Additionally, some markets in which the BAT Group operates face the threat of increasing civil unrest and can be subject to frequent changes in regime. In others, terrorism, conflict, the threat of war or criminal activity, or economic policy changes, such as state nationalization of assets and withdrawal from international or bilateral trade agreements, may have a significant impact on the business environment and could lead to potential loss of life, loss of assets and disruption to normal business processes. National and international sanction regimes may also affect jurisdictions where the BAT Group operates or third parties with whom it may have commercial relationships and could lead to supply and payment chain disruptions. In addition, some markets maintain trade barriers or adopt policies that favor domestic producers, preventing or restricting the BAT Group’s sales.

Certain of these risks may disrupt the BAT Group’s supply chain, manufacturing capabilities or distribution capabilities, resulting in the loss of personnel, property or equipment that are critical to its business in certain markets and difficulty in staffing and managing its operations, which could in turn reduce the BAT Group’s volumes, revenues and net earnings. The BAT Group may also face increased costs due to the need for more complex supply chain arrangements and to build new facilities or to maintain inefficient facilities as a result of these risks.

The acquisition of RAI resulted in the BAT Group becoming subject to U.S. regulations which are different from the regulations to which the BAT Group was subject before such acquisition. Current and future U.S. regulations could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

Following the acquisition of RAI, the BAT Group’s exposure to the impact of a wide variety of U.S. federal, state and local laws has increased. Any such existing or future additional regulations will pose an increased compliance burden for the BAT Group and, particularly where supplemented by new regulations, this could lead to higher costs and greater complexity, and potential reputational damage, product recall, regulatory sanctions or fines in connection with inadvertent breach. The enactment of unduly onerous and restrictive regulation could have a material adverse effect on the results of operations, cash flows and financial position of the BAT Group.

These regulations include limitations on the advertising, sale and/or use of tobacco products in the United States, which have proliferated in recent years. For example, some local laws prohibit the sale of certain tobacco products, prohibit certain types of marketing practices, such as consumer coupons, or prohibit the consumption of cigarettes and other tobacco products in restaurants and other public places. Private businesses also have adopted policies that prohibit or restrict, or are intended to discourage, smoking and tobacco use. Among other things, these laws, regulations and policies could result in a decline in the overall sales volume of tobacco products in the United States, which could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

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The BAT Group is now subject to, among others, the following U.S. laws and regulations:

U.S. securities, corporate governance and compliance laws and regulations

As a result of the registration of the BAT ordinary shares with the SEC in connection with the acquisition of RAI and the listing of its ADSs on the NYSE, BAT is subject to U.S. securities laws and other U.S. laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, which applies to the BAT Group’s worldwide activities and the Sarbanes-Oxley Act of 2002 as a foreign private issuer (as defined in Rule 3b-4(c) of the Exchange Act and Rule 405 of the Securities Act). These regulations are different from the regulations to which BAT was subject to prior to the acquisition of RAI, and therefore pose an increased compliance burden on BAT. While BAT continuously seeks to improve its systems of internal controls and to remedy any weaknesses identified, there can be no assurance that the policies and procedures will be followed at all times or effectively detect and prevent violations of applicable laws. Failure to comply with the requirements could lead to loss of U.S. exchange listing, fines, criminal liability and reputational damage.

FDA regulations

The U.S. Food and Drug Administration (“FDA”) has broad authority over the manufacture, sale, marketing and packaging of tobacco products. Regulations issued by the FDA could, among other impacts, result in a decrease in cigarette and smokeless tobacco product sales in the United States, including sales of the BAT Group’s brands, have resulted in increased costs for the historical RAI Group and may increase the costs of operations of the BAT Group.

For example, the ability of the BAT Group to introduce new tobacco products in the United States could be adversely affected by FDA rules and regulations. Under the Family Smoking Prevention and Tobacco Control Act of 2009, as amended (the “FDA Tobacco Act”), for a manufacturer to launch a new tobacco product or modify an existing tobacco product after March 22, 2011, the manufacturer must obtain an order from the FDA’s Center for Tobacco Products (the “CTP”), allowing the new or modified product to be marketed. In order to obtain such an order, a manufacturer must file an application in accordance with one of three following pathways: a pre-market tobacco application, a substantial equivalence application, or a substantial equivalence exemption application.

Similarly, a manufacturer that introduced a product between February 15, 2007 and March 22, 2011, was required to file a substantial equivalence report with the CTP demonstrating either (1) that the new or modified product had the same characteristics as a product commercially available as at February 15, 2007, referred to as a predicate product, or (2) if the new or modified product had different characteristics than the predicate product, that it did not raise different questions of public health. A product subject to such report is referred to as a provisional product. A manufacturer may continue to market a provisional product unless and until the CTP issues an order that the provisional product is not substantially equivalent (“NSE”), in which case the FDA could then require the manufacturer to remove the provisional product from the market. On September 15, 2015, the CTP issued four NSE orders to RJR Tobacco Company, determining that four cigarette styles were not substantially equivalent to their respective predicate products, and ordering that RJR Tobacco Company immediately stop all distribution, importation, sale, marketing and promotion of these provisional products. RJR Tobacco Company has complied with these NSE orders. Although the sales of the provisional products subject to the foregoing NSE orders are not material to RJR Tobacco Company, with the exception of the 14 provisional products sold by the RAI Group operating subsidiary SFNTC recently cleared by the CTP as substantially equivalent, almost all of the RAI Group’s products currently on the market are provisional products. If the CTP were to issue NSE orders with respect to other provisional products of the RAI Group such orders, if not withdrawn or invalidated, would have an adverse impact on the sales of the products subject to the orders, and could have an adverse impact on the results of operations, cash flows and financial position of the BAT Group.

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Further, the FDA may seek to require the reduction of nicotine levels under the FDA Tobacco Act and also may require the reduction or elimination of other constituents. For instance, the FDA has proposed a rule that, if adopted, would require the reduction, over a three-year period, of the levels of N-nitrosonornicotine (“NNN”) contained in smokeless tobacco products.

In addition, on July 28, 2017, the FDA announced its intention to issue an Advance Notice of Proposed Rulemaking (“ANPRM”) to seek input on the potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to ‘non-addictive’ levels. Subsequently, on March 16, 2018, the FDA published its ANPRM entitled “Tobacco Product Standard for Nicotine Level of Combusted Cigarettes” and invited interested parties to submit comments on, among other issues: maximum nicotine limits; technical achievability; analytical testing methods; whether any maximum nicotine level should apply to combustible tobacco products in addition to cigarettes and whether such limits should be implemented through a single target or a stepped-down approach. The closing date for comments was July 16, 2018.

If the proposed rule on NNN reduction (either in its current form or in a form substantially similar to its current form) or other rules on nicotine reduction are adopted, compliance or the inability to comply could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

FDA regulations in relation to next generation products

The FDA may also issue other regulations that, among other things, make it more difficult for the BAT Group to grow its e-cigarette business in the United States or that limit the level of nicotine in cigarettes made, sold or marketed in the United States. On May 10, 2016, the FDA issued a final regulation deeming e-cigarettes and certain other tobacco products to be subject to the FDA’s regulatory authority under the FDA Tobacco Act. In addition, “components” and “parts” (e.g., batteries), but not “accessories” (e.g., lighters, pipe pouches), of newly deemed products are themselves subject to the FDA Tobacco Act by virtue of the final rule. As a result, such newly ‘deemed’ tobacco products will be subject to many of the same requirements of the FDA Tobacco Act that currently apply to cigarettes and smokeless tobacco products. Under this regulation, any newly ‘deemed’ tobacco product, including e-cigarettes that were not on the market as at February 15, 2007, is considered a new tobacco product subject to premarket review by the FDA. Neither RJR Vapor VUSE e-cigarette, nor virtually any other e-cigarette, was on the market as at such date. As a result, e-cigarette manufacturers, including RJR Vapor and the BAT Group, are not able to utilize the substantial equivalence pathway for clearing these products, but instead have to file premarket tobacco product applications. A compliance policy set forth in the final rule permitted the continued marketing of ‘deemed’ tobacco products for a period of time following the effective date of the final rule, provided that a premarket tobacco product application would be filed for each product by August 8, 2018 (later extended to November 8, 2018).

However, on July 28, 2017, the FDA revised its compliance policy and further extended the deadline for filing these applications until August 8, 2021 for combustible products and until August 8, 2022 for non-combustible products. The FDA also re-confirmed that a manufacturer that files a premarket application for such a product before the relevant deadline may continue to market the product unless and until the FDA declines to issue a marketing order for said product. For products that were not in the market by August 8, 2016, manufacturers must file and await clearance of such premarket applications before placing such products into commerce.

For the FDA to clear a premarket tobacco product application (“PMTA”) covering an e-cigarette, as with combustible tobacco products, the applicant must show that the marketing of the e-cigarette would be appropriate for the protection of the public health. In draft guidance issued by the FDA, the agency has stated that to completely assess whether a PMTA shows that a product is appropriate for the protection of the public health, the “FDA will look at the product in the context of the current tobacco product market. The FDA can do this by understanding the spectrum of risk of currently available tobacco products and assessing the new product within that spectrum.” While the FDA has stated on several occasions an intention to issue foundational rules to make the application and product review process

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more efficient, predictable and transparent for manufacturers, there remains substantial uncertainty over how the FDA will interpret the foregoing principles in practice when determining whether to clear an e-cigarette PMTA. To date, few PMTAs have been filed, and the only PMTAs that the FDA has cleared relate to snus products of another manufacturer. If the BAT Group is unable to obtain FDA clearance, or obtains FDA clearance on a delayed basis, of premarket applications for VUSE and other e-cigarette products, there could be an adverse effect on the results of operations, cash flows, and financial position of the BAT Group.

On September 12, 2018, the FDA sent letters to the manufacturers of the leading brands of e-cigarettes sold in the US, including RAI. In the letter, the FDA stated that it was “reevaluating its current compliance policy” with respect to Vuse and similar products, including its previous decision to extend the premarket review compliance date for electronic nicotine delivery systems (“ENDS”) to August 2022, owing to concerns about the significant increase in youth uptake of such products in the US. The FDA has requested that the relevant manufacturers, including RAI, take “prompt action” and provide the FDA with a detailed proposal to address the issue within 60 days of receipt of the letter.

It is not known whether or how the FDA will amend its current compliance policy with respect to ENDS.

Pending MRTP applications

On December 18, 2017, the CTP accepted for review modified risk tobacco product (“MRTP”) applications for six Camel Snus smokeless tobacco products. Beginning in 2018, the CTP undertook a review of these applications that has included facility inspections and additional questions posed to the company.

On September 13 and 14, 2018, the FDA, as required by statute, convened a meeting of the Tobacco Product Scientific Advisory Committee (“TPSAC”) to provide recommendations to the agency regarding certain questions that it had regarding the Camel Snus MRTP applications. While not binding on the agency, the TPSAC unanimously agreed that completely switching to Camel Snus reduced one’s risk for lung cancer and respiratory diseases . The Committee was split as to the impact on oral cancer and heart disease. Finally, TPSAC commented on other non-specific claims in the proposed advertising and made recommendations to the agency as to what should be included in a post marketing surveillance program .

The FDA will not consider TPSAC recommendations as it finishes its review of the applications. Under previously issued guidance, the FDA has stated an intention to issue a decision on MRTP applications within one year of acceptance for filing.

Regulations banning or materially restricting the use of menthol in tobacco products

As a result of the acquisition of RAI, BAT, through its subsidiaries, acquired RJR Tobacco Company’s Newport brand, and other menthol brands, which represent a substantial portion of RAI’s total consolidated net sales. The FDA may adopt regulations banning or severely restricting the use of menthol in tobacco products or the sale of menthol cigarettes. As part of its announcement on July 28, 2017, the FDA confirmed that it would issue an ANPRM to seek public comment on the role that flavors (including menthol) in tobacco products and e-cigarettes play in attracting youth and may play in helping some smokers switch to potentially less harmful forms of nicotine delivery. On March 21, 2018, the FDA duly published its ANPRM entitled “Regulation of Flavors in Tobacco Products” and invited interested parties to submit comments on, among other issues: the role of flavors in initiation and patterns of tobacco product and e-cigarette use, particularly among youth and young adults; and the role that flavors in non-combustible tobacco products may play in helping people quit combustible product use, quitting all tobacco use or in dual use. The closing date for comments was July 19, 2018.

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In addition to the potential regulation of menthol in cigarettes by the FDA, certain municipalities either have adopted, or are considering the adoption of, a ban on the sale of menthol cigarettes.

Advertising and marketing of tobacco products

The BAT Group is subject to significant limitations on the advertising and marketing of tobacco products in the United States. Additional such regulation could harm the value of the BAT Group’s existing brands and ability to launch new brands. In the United States, television and radio advertisements of cigarettes have been prohibited since 1971, and television and radio advertisements of smokeless tobacco products have been prohibited since 1986. Under the MSA, RJR Tobacco Company and SFNTC, as a subsequent participating manufacturer under the MSA, cannot use billboard advertising, cartoon characters, sponsorship of certain events, non-tobacco merchandise bearing their brand names and various other advertising and marketing techniques. The MSA also prohibits targeting of youth in advertising, promotion or marketing of tobacco products, including the smokeless tobacco products of RJR Tobacco Company. In addition, pursuant to the FDA Tobacco Act, the FDA has reissued regulations addressing advertising and marketing restrictions that were originally promulgated in 1996. Although these restrictions were intended to ensure that tobacco advertising was not aimed at young people, some of the restrictions also may limit the ability of the BAT Group to communicate with adult tobacco consumers in the United States.

Any additional regulations issued by the FDA or any additional U.S. federal, state or local laws could have a material adverse effect on the results of operations, cash flows and financial position of the BAT Group.

BAT, through its subsidiaries, has acquired RJR Tobacco Company’s Newport brand, the leading U.S. menthol cigarette brand, and any action by the FDA or any other governmental authority that could have the effect of banning or materially restricting the use of menthol in tobacco products could have a material adverse effect on sales of the Newport brand and the menthol styles of other brands of RAI’s operating subsidiaries, which could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

As a result of the acquisition of RAI, BAT, through its subsidiaries, acquired RJR Tobacco Company’s Newport brand, the leading U.S. menthol cigarette brand, the sales of which, together with the other menthol brands of RAI’s operating subsidiaries, represent a substantial portion of RAI’s total net sales. In 2013, the FDA issued its preliminary scientific evaluation regarding menthol cigarettes, concluding that menthol cigarettes adversely affect initiation, addiction and cessation compared to non-menthol cigarettes. In 2013, the FDA also issued an ANPRM, seeking comments on various issues relating to the potential regulation of menthol cigarettes. More recently, on July 28, 2017, the FDA confirmed that it would issue an ANPRM to seek public comment on the role that flavors (including menthol) in tobacco products play in attracting youth and may play in helping some smokers switch to potentially less harmful forms of nicotine delivery. On March 21, 2018, the FDA duly published its ANPRM entitled “Regulation of Flavors in Tobacco Products” and invited interested parties to submit comments by July 19, 2018.

Although it is not possible to predict whether or when the FDA will take actions, if the FDA or any other governmental authority were to adopt regulations banning or severely restricting the use of menthol in tobacco products or the sale of menthol cigarettes, those regulations could have a material adverse effect on sales of the Newport brand and the menthol styles of other brands of RAI’s operating subsidiaries, which could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

The BAT Group’s inability to obtain price increases may adversely affect its sales and growth.

Annual manufacturers’ price increases are among the key drivers in increasing market profitability. However, the BAT Group may not be able to obtain such price increases as a result of increased regulation, which may reduce its ability to build brand equity and enhance its value proposition to its adult tobacco consumers; stretched consumer affordability arising from deteriorating economic

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conditions and rising prices; sharp increases or changes in excise structures; and competitor pricing activities. As a result, the BAT Group may be unable to achieve its strategic growth metrics, have fewer funds to invest in growth opportunities, and be faced with quicker reductions in sales volumes than anticipated due to accelerated market decline. In addition, down-trading (switching to a cheaper brand) and illicit trade may increase. These in turn may impact the BAT Group’s business, results of operations and financial conditions.

The BAT Group’s business may be significantly impacted by constantly changing tax rates from around the world as well as unfavorable rulings and significant financial penalties in relation to tax disputes.

The BAT Group operates in over 200 markets and pays tax in accordance with the tax legislation of those markets. Tax laws and tax rates around the world frequently change on a prospective or retroactive basis and these changes may have a significant impact on the taxes the BAT Group must pay and may impact its net profits, which could be material.

Further, taking into account the frequent changes to tax regulations, it is possible that the BAT Group may be subject to claims for breach of such regulations, including for late or incorrect filings or for misinterpretation of rules. The BAT Group is party to tax disputes in a number of jurisdictions, including Brazil, South Africa, The Netherlands and Bangladesh. For example, in Brazil, the tax authority is seeking to reassess the profits of overseas subsidiaries to corporate income tax and social contribution tax. The reassessments are for the years 2004 until and including 2012 for a total amount of BRL1,436 million (£320 million) to cover tax, interest and penalties. In South Africa, debt financing is being challenged across the periods from 2006 to 2010 for a total amount of ZAR2.01 billion (£120 million) covering both tax and interest. In The Netherlands, the Dutch tax authority has issued assessments for the years 2003 through to 2014 in the sum of € 978 million (£865 million) to cover tax, interest and penalties. The assessments relate to a number of intra-group transactions.

In Bangladesh, the tax authority issued a retrospective notice of imposition and realization of VAT and supplementary duty on low price category brands from the National Board of Revenue for approximately £160 million.

The BAT Group may face significant financial and potential legal penalties, including the payment of fines and interest in the event of an unfavorable ruling by a tax authority in a disputed area. The impact could affect the BAT Group’s profit and dividend and cause a disruption and loss of focus on the business due to the diversion of management time.

The BAT Group’s business is vulnerable to the effects of a tough trading environment, market size reduction, consumer down-trading and declining consumption of legitimate tobacco products.

The BAT Group competes primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising and price. The BAT Group is subject to highly competitive conditions in all aspects of its business. The competitive environment and the BAT Group’s competitive position can be significantly influenced by the prevailing economic climate, consumers’ disposable income, regulation, competitors’ introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices, governmental action to increase minimum wages, employment costs, interest rates and increase in raw material costs. Furthermore, the BAT Group is subject to substantial payment obligations under the State Settlement Agreements, which adversely affect the ability of the BAT Group to compete in the United States with manufacturers of deep-discount cigarettes that are not subject to such substantial obligations.

In tough competitive environments, where the price burden on adult tobacco consumers is high, the BAT Group’s ability to raise prices could be limited. In addition, the BAT Group may be vulnerable to market size reduction, customer down-trading (including to fine cut), illicit trade and competitors

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aggressively taking market share through price repositioning or price wars, which generally has the impact of reducing the overall profit pool of the market and therefore the BAT Group’s profits, as well as lead to a decline in the sales volumes of the BAT Group, erosion of its portfolio mix and reduction of funds available to it for investment in growth opportunities.

The BAT Group’s business is further impacted by the continued decline in consumption of tax-paid cigarettes in many of the BAT Group’s key markets. The BAT Group estimates there has been a 3.5% fall in the overall industry volume between 2016 and 2017. This decline is due to multiple factors, including the increase in excise taxes and changes in the regulatory environment leading to continued above-inflation price rises, the continuing difficult economic environment in many countries impacting consumers’ disposable incomes, and the increase in the trade of illicit tobacco products. Any future substantial decline in the demand for legitimate tobacco products could have an adverse effect on the BAT Group’s business, results of operations and financial conditions.

The BAT Group’s exposure to risks related to the U.S. cigarette market has increased, which could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

Following the acquisition of RAI in July 2017, the BAT Group has an increased exposure to the U.S. cigarette market, and the commercial risks related thereto. The U.S. cigarette market is declining and is expected to continue to decline.

The U.S. cigarette consumption has declined for a variety of factors, including, for example, price increases, restrictions on advertising and promotions, smoking prevention campaigns, increases in regulation and excise taxes, health concerns, a decline in the social acceptability of smoking, increased pressure from anti-tobacco groups, and migration to smokeless products. Any such decline or the transition of adult tobacco consumers away from premium cigarette brands in the U.S. could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

In addition, the BAT Group’s U.S. subsidiaries are dependent on premium cigarette brands, such as Newport. The premium segment accounted for approximately 26% of the BAT Group’s cigarette and THP volumes in 2017. As a result, the BAT Group is susceptible to consumer price sensitivities and adverse financial or economic conditions that could increase the number of consumers switching to a lower-priced brand.

As a result of increased exposure to the U.S. cigarette market, the BAT Group’s exposure to risks such as the inability to keep up with competitor actions, and the inability to raise prices to compensate for declines in sales volumes and increases in excise taxes will also increase.

The BAT Group is exposed to foreign exchange rate risk.

The BAT Group’s reporting currency is pound sterling. The BAT Group is exposed to changes in currency rates on the translation of the net assets of overseas subsidiaries into the BAT Group’s reporting currency. The BAT Group is also exposed to currency changes from the translation of profits earned in overseas subsidiaries; these exposures are not normally hedged. Exposures also arise from the foreign currency denominated trading transactions undertaken by subsidiaries and dividend flows. These exposures are continuously monitored and where not offset by opposing flows, are hedged according to internal policies. However, hedging of certain currencies might not be possible due to exchange controls, limited currency availability or prohibitive costs. Volatility and/or increased costs in the BAT Group’s business due to transactional foreign exchange rate exposures may adversely affect its financial performance. Significant fluctuations in foreign currency exchange rates could have an adverse impact on the BAT Group’s results of operations and financial conditions.

During periods of exchange rate volatility, the impact on the BAT Group’s results can be significant. Fluctuations in the foreign exchange rate of key currencies against pound sterling may result in volatility in the BAT Group’s reported earnings per share, cash flow and balance sheet. Furthermore, the dividend paid by the BAT Group may be impacted if the payout ratio is not adjusted. Differences in translation between earnings and net debt may also affect key ratios used by credit rating agencies.

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The BAT Group may be required to incur significant costs to address breaches of or liabilities arising under, health and safety and environmental laws of the jurisdictions in which it operates.

If the BAT Group fails to maintain adequate safety standards or to comply with the health and safety laws and regulations to which it is subject, this could result in serious injury, ill health, disability or loss of life to employees, which could in turn lead to substantial fines, penalties and criminal or civil legal liability and the risk of prosecution from enforcement bodies. This could have a negative impact on the BAT Group’s reputation and also result in high staff turnover or difficulties in recruitment if the BAT Group is perceived to have a poor environmental, health and safety record. It could further adversely affect its operations and financial condition and the value of its assets.

From time to time, the BAT Group, or third party suppliers to the BAT Group, have accidents in the workplace which, on occasion, can result in the fatality of an employee, a contractor working on their behalf or a member of the public.

Failure to minimize the impact on the natural environment and the local communities in which the BAT Group conducts its business activities or failure to comply with environmental laws and regulations and operational standards to which the BAT Group is subject could result in an adverse impact on the natural environment where the BAT Group operates and could cause business disruption, reputational damage, consequential losses, the obligation to install or upgrade costly pollution control equipment, potentially significant remedial costs and damages, fines, or civil or criminal legal liability.

The BAT Group is exposed to funding and liquidity, interest rate and counterparty risks.

Funding and liquidity risks expose the BAT Group to shortages of cash and cash equivalents needed in its operations and for refinancing its existing debt. The BAT Group cannot be certain that it will have access to bank financing or to the debt and equity capital markets at all times. Some markets in which the BAT Group operates are subject to currency controls and other limitations on currency convertibility which can affect the ability to pay for imports as well as impede dividend remittances and similar payments, and access to cash balances. Inability to fund the business under the BAT Group’s current capital structure or failure to access funding and foreign exchange may have an adverse effect on the BAT Group’s funding and liquidity position, the BAT Group’s credit rating or its ability to finance strategic opportunities, which would in turn result in increased funding costs for the BAT Group or require the BAT Group to issue equity or seek new sources of capital. The BAT Group may also suffer reputational damage due to its perceived failure to manage the financial risk profile of the business, which may result in an erosion of shareholder value reflected in an underperforming share price.

The BAT Group is subject to restrictive covenants under some of its credit facilities. These covenants could affect the way in which the BAT Group conducts its business, and failure to comply with these covenants could lead to an acceleration of its debt, which may have an adverse impact on its business, results of operations and financial conditions.

In connection with the acquisition of RAI, the BAT Group incurred substantial levels of debt. As of June 30, 2018, BAT’s consolidated net debt was £45.7 billion, including £940 million in respect of the purchase price adjustment relating to the acquisition of RAI. This increased level of debt could have the effect, among other things, of reducing the BAT Group’s flexibility to respond to changing business and economic conditions, reducing funds available for the BAT Group’s investments in research and development and capital expenditures, share repurchases and other activities and may create competitive disadvantages for the BAT Group relative to other companies with lower debt levels and will impose greater demands on the BAT Group’s cash resources to service its debt.

The BAT Group’s credit rating impacts the cost and availability of future borrowings and, accordingly, BAT’s cost of capital. The BAT Group’s credit rating reflects each credit rating organization’s opinion of the BAT Group’s financial strength, operating performance and ability to meet debt obligations. Following announcement of the acquisition of RAI, Standard & Poor’s Credit Market Services Europe

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Limited (“Standard & Poor’s”) downgraded the long-term rating of the BAT Group from A- to BBB+ and reaffirmed the A-2 short-term rating and Moody’s Investors Service Ltd (“Moody’s”) downgraded the long-term rating of the BAT Group from A3 to Baa2 and reaffirmed the P-2 short-term rating. The reduction in the BAT Group’s credit rating by Standard & Poor’s and Moody’s and any further reduction may limit BAT’s ability to borrow at interest rates and terms consistent with the interest rates and terms that have been available to BAT prior to the downgrade. If the BAT Group’s credit rating is reduced further, BAT may not be able to sell additional debt securities or borrow money in the amounts, at the times or at interest rates or upon the more favorable terms and conditions that might be available if the BAT Group’s current credit rating is maintained. Any impairment of BAT’s ability to obtain future financing on favorable terms could have an adverse effect on BAT’s ability to refinance existing debt.

The BAT Group maintains both floating and fixed rate debt. Where appropriate, it uses derivatives, primarily interest rate swaps, to vary the fixed to floating mix. Changes in currency values and interest rates could have an adverse impact on the BAT Group’s financial condition or operations. The BAT Group is exposed to changes in interest rates on current floating rate debt and future refinanced debt. The current economic environment related to the removal of extraordinary monetary policies, such as low rates and quantitative easing, increases the likelihood of higher interest rates in the future.

Cash deposits and other financial instruments give rise to credit risk on the amounts due from counterparties. The failure of any counterparty to meet the BAT Group’s payment obligations or performance undertakings to it or the deterioration in the financial condition of one or more of its counterparties could have an adverse effect on the BAT Group’s financial condition or operations. In addition, the failure of a transactional banking counterparty could cause disruption to the BAT Group’s operations.

The BAT Group may be unsuccessful in launching innovative products that offer adult tobacco consumers meaningful value-added differentiation.

The BAT Group focuses its research and development activities on both creating new products, including next generation products, and processes and maintaining and improving the quality of its existing products. In a competitive market, the BAT Group believes that innovation is key to growth. The BAT Group considers that one of its key challenges in the medium- and long-term is to provide adult tobacco consumers with high-quality products that take into account their changing preferences and expectations, while complying with evolving regulation. The inability to develop and roll-out innovations or consumer relevant products, including any failure to predict changes in adult tobacco consumer and societal behavior and expectations and fill gaps in the product portfolio, as well as the risk of poor product quality or the BAT Group’s inability to timely develop and bring products to market could lead to missed opportunities, under- or over-supply, loss of competitive advantage, unrecoverable costs and/or the erosion of its consumer base or brand equity. The BAT Group’s potential failure to predict changes in consumer behavior, to install or contract sufficient manufacturing capacity to meet such new or increased demand or to take appropriate pricing decisions, could have an adverse effect on the BAT Group’s operations and results. Moreover, additional product regulation could further reduce the ability to launch or use innovations, as well as differentiate tobacco products as a result of increased restrictions, such as on ingredients and design. In addition, restrictions on packaging and labeling, as well as restrictions on promotion and advertising, could impact the BAT Group’s ability to communicate permitted innovations and product differences to adult tobacco consumers, leading to unsuccessful product launches. The occurrence of any of the above described risks could have an adverse effect on the BAT Group’s business, financial condition and results of operations.

The BAT Group may be unsuccessful in its attempts to successfully develop and commercialize consumer-appealing next generation products.

The BAT Group devotes considerable resources to the research and development of a next generation of vapor products and non-combustible tobacco products, some of which may have the potential to

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reduce the risks of smoking-related disease. Given the challenges of achieving adult tobacco consumer, regulatory and scientific acceptance of these products, there is a risk that these investments may incur significant costs without achieving financial success. If the BAT Group does not succeed, but the BAT Group’s competitors do, or if the BAT Group’s competitors can roll out products faster or cheaper, the BAT Group may be at a competitive disadvantage. The BAT Group may be unable to develop and roll-out consumer relevant products, including the risk of suppliers not delivering materials or failing to meet quality assurance standards. Failure to accurately forecast demands could lead to undersupply or to write-offs, causing financial loss. Lack of experience in a new industry as well as less leverage with suppliers could lead to margin erosion. Furthermore, the regulatory environment impacting non-combustible tobacco products, vapor products and other non-tobacco nicotine products, including classification of products for regulatory and excise purposes, is still developing and it cannot be predicted whether regulations will permit the marketing of such next generation products in any given market in the future. Categorization as medicines, for example, and restrictions on advertising could stifle innovation, increase complexity and cost and significantly undermine the commercial viability of these products. Alternatively, categorization of any next generation products as tobacco products could result in the application of onerous regulation, which could also stifle uptake. Furthermore, as third-party intellectual property rights are not always identifiable, it is possible that the BAT Group may be subject to claims for infringement of such third-party rights, which could result in interim injunctions, product recall and payment of damages. The BAT Group’s ability to generate future sales is dependent on a number of factors, many of which are beyond its control, including the pricing of competing products, overall demand for its products, changes in adult tobacco consumer preferences, market competition and government regulation. The occurrence of any of the above described risks could have an adverse effect on the BAT Group’s business, financial condition and results of operations.

Failure to uphold high standards of corporate behavior could subject the BAT Group to potential liability under sanctions, anti-corruption and other laws and regulations.

The BAT Group expects its employees to uphold a high standard of corporate behavior and is subject to various anti-corruption laws and regulations (“Anti-Corruptions Laws”) that generally prohibit its employees, vendors and agents from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. In addition, national and international sanction regimes may affect jurisdictions where the BAT Group operates or third parties with whom it may have commercial relationships, which could lead to supply chain or payment chain disruption and forced market exits. Failure of the BAT Group to comply with Anti-Corruption Laws or sanctions or to deploy and maintain robust internal processes and policies could result in significant fines and penalties, criminal sanctions against the BAT Group and its officers and employees, prohibitions or other limitations on the conduct of the BAT Group’s business, and damage to the BAT Group’s reputation.

Taking into account the significant number of regulations, including sanctions that may apply to the BAT Group’s businesses across the world, the BAT Group may be subject to claims for breach of such regulations or for failure to uphold standards of corporate behavior from time to time. Even when proven untrue, there are often financial costs, time demands and reputational impacts associated with investigating and defending against such claims, in particular, considering the speed and spread of any accusations through social media.

The BAT Group is investigating, through external legal advisers, allegations of misconduct and is liaising with the UK Serious Fraud Office (“SFO”) and other relevant authorities. It was announced in August 2017 that the SFO had opened an investigation in relation to the BAT Group, its subsidiaries and associated persons. The BAT Group is cooperating with the SFO’s investigation. The outcomes of these matters will be decided by the relevant authorities or, if necessary, the courts. It is too early to predict the outcomes, but these could include the prosecution of individuals and/or of a BAT Group company or companies. Accordingly, the potential for fines, penalties or other consequences cannot

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currently be assessed. As the investigation is ongoing, it is not yet possible to identify the timescale in which these matters might be resolved.

In 2016, the BAT Group began a project, which continued in 2017, to review and further strengthen all aspects of the BAT Group’s global compliance procedures. Any actions taken by government authorities or findings of courts in relation to these matters may result in the adverse consequences identified above for the BAT Group.

Reliance on digital and information technology means that a significant disruption, malicious manipulation or cyber-attack could affect the BAT Group’s communications and operations.

The BAT Group increasingly relies on information technology systems for its internal communications, controls, reporting and relations with customers and suppliers. Some of these information systems are managed by third-party service providers. A significant disruption due to computer viruses, cyber threats, malicious intrusions, unintended or malicious behavior by employees, contractors or service providers, the lack of infrastructure or application resilience, slow or insufficient disaster recovery service levels or the installation of new systems could affect the BAT Group’s communications and operations. Any data, including confidential, personal or other sensitive information stored or transported by IT systems, could be corrupted, lost or disclosed, causing reputational, competitive or operational damage, fraudulent abuse, malicious manipulation or legal liability and result in significant remediation and other costs to the BAT Group. Restoring or recreating such information could be costly, difficult or even impossible. Further, the General Data Protection Regulation (Regulation (EU) 2016/679), which came into effect in Europe in May 2018, created a range of new compliance obligations, and increased financial penalties for noncompliance significantly.

Loss of key personnel or inability to attract and retain the best global talent could have a negative impact on the BAT Group’s operations.

The BAT Group relies on a number of highly experienced employees with detailed knowledge of tobacco and other business-related issues. Unanticipated losses of key employees or the inability to identify, attract, develop and retain qualified personnel in the future could adversely affect the BAT Group’s business operations.

In addition, the tobacco industry competes for talent with consumer products and other companies that enjoy greater societal acceptance than a cigarette company. As a result, the BAT Group may be unable to attract and retain the best global talent.

Failure to successfully design, implement and sustain an integrated operating model or to deliver costs savings may reduce profitability.

The BAT Group aims to improve profitability and productivity through supply chain improvements and the implementation of an integrated operating model, including standardization of processes and shared back-office services. The failure to successfully design, implement and sustain the integrated operating model and organizational structure could lead to the failure to realize anticipated benefits, increased costs, disruption to operations, decreased trading performance and reduced market share, which in turn could further reduce profitability and funds available for investment in long-term growth opportunities.

The BAT Group may be unable to achieve growth through successful mergers, acquisitions and joint ventures.

The BAT Group’s growth strategy includes a combination of organic growth as well as mergers, acquisitions and joint ventures. The BAT Group may be unable to acquire attractive businesses on favorable terms and may inappropriately value or otherwise fail to capitalize on growth opportunities. The BAT Group may not be able to deliver strategic objectives and revenue improvements from business combinations, successfully integrate the businesses that it acquires or establishes or obtain

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the appropriate regulatory approvals for such business combinations. Risks from integration of businesses also include the risk that the integration may divert the BAT Group’s focus and resources from its other strategic goals. Additionally, the BAT Group could be exposed to financial, legal or reputational risks if it fails to appropriately consider any compliance or anti-trust aspects of a transaction. Any of the foregoing risks could result in increased costs, decreased revenues or a loss of opportunities and have a material adverse effect on the BAT Group’s business, results of operations and financial conditions, and in the case of a breach of compliance or anti-trust regulation, could lead to fines or potentially criminal sanctions.

In addition, the BAT Group may become liable for claims arising in respect of conduct prior to the merger or acquisition of the businesses in the event that it is deemed to be a successor to the liabilities of the acquired company. An adverse judgment against the BAT Group may adversely affect its business. In particular, it is noted that:

The indemnification obligations referred to above are uncapped except with respect to breaches of representations or warranties, or pre-closing covenants (capped indemnifications for pre-closing covenants is in respect of the agreement with ITG Brands, LLC only). Accordingly, these indemnification obligations could be substantial and could adversely affect the BAT Group’s results of operations, cash flows and financial position.

The BAT Group may be adversely affected by its leading market position in certain markets.

According to the BAT Group’s internal estimates, the BAT Group is a market leader in more than 55 countries by volume and is one of a small number of tobacco companies in certain other markets in which it operates. As a result, the BAT Group may be subject to investigation for alleged abuse of its position in markets in which it has significant market share or for alleged collusion with other market participants, which could result in adverse regulatory action by the authorities, including monetary fines and negative publicity.

Contamination of the BAT Group’s products could adversely impact sales volume, market share and profitability.

The BAT Group’s market position may be affected through the contamination of its products, either by accident or deliberate malicious intent during the supply chain or manufacturing process or may otherwise fail to comply with the BAT Group’s quality standards. In these instances, significant costs may be incurred in recalling products from the market or temporarily ceasing production. In addition, adult tobacco consumers may lose confidence in the specific brand affected by the contamination, resulting in a loss of sales volume which may take a long time to recover or may not fully recover, or the BAT Group could be subject to legal action. During this time, the BAT Group’s competitors may substantially increase their market share, which would be difficult and costly to regain. Contamination of the BAT Group’s products may have an adverse effect on the BAT Group’s business, results of operations or financial condition.

The BAT Group may be adversely affected by the performance of its associates.

Although the BAT Group owns an approximate 30% interest in ITC, the BAT Group’s associate company in India, it does not have control over ITC. The BAT Group’s ownership interest in ITC means the BAT Group may be affected by its business and financial performance, as it is subject to tobacco-related industry and business risk factors similar to those the BAT Group faces. Any issue with the

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business and financial performance of ITC may have an adverse impact on the business, financial condition and results of operations of the BAT Group.

The BAT Group’s licenses to use certain brands and trademarks may be terminated or not renewed.

Some of the brands and trademarks under which the BAT Group’s products are sold are licensed to it for a fixed period of time in respect of specified markets, such as the right to use the Camel, Winston and Salem brands and trademarks in various markets in Latin America. In the event that the license to use any of such brands and trademarks is terminated or is not renewed after the end of the term of the relevant license, the BAT Group will no longer have the right to use, and to sell products under, such brand(s) and trademark(s) in the relevant markets and this could have an adverse effect on its business, results of operations and financial condition.

The BAT Group is exposed to intellectual property rights infringements as a result of limitations in judicial protection and/or inadequate enforceability.

The BAT Group relies on trademarks, patents, registered designs, copyrights and trade secrets. The brand names under which the BAT Group’s products are sold are key assets of its business. Investments over a period of time have led to many of the BAT Group’s brands having significant brand equity and a global appeal to adult tobacco consumers, essential to delivering sustainable profit growth into the future. The protection and maintenance of the reputation of these brands is important to the BAT Group’s success. In some of the markets in which the BAT Group operates, the risk of intellectual property rights infringement remains high as a result of limitations in judicial protection and/or inadequate enforceability. Any substantial erosion in the value of the BAT Group’s brands could have a material adverse effect on the BAT Group’s business, results of operations and financial condition. The BAT Group’s strategy or its execution may not maintain the value in any of its product brands. In addition, as third party rights are not always identifiable, it is possible that the BAT Group may be subject to claims for infringement of third party intellectual property rights, which could result in interim injunctions, product recall and payment of damages. Failure to obtain or maintain adequate protection of intellectual property rights for any reason may adversely affect the BAT Group’s business, results of operation and financial conditions.

The BAT Group is exposed to availability and price volatility in tobacco leaf and other raw materials.

Raw materials and other inputs, such as leaf, wood pulp and energy, used in the BAT Group’s businesses are commodities that are subject to price volatility caused by numerous factors, including weather conditions, growing conditions, climate change, local planting decisions, political influence, market fluctuations and changes in agricultural regulations. The BAT Group purchases more than 500,000 tons of packed leaf each year. The BAT Group’s results of operations will, therefore, be exposed to fluctuations in the availability, quality and price of tobacco leaf and other commodities required in the manufacture of cigarettes and next generation products.

Tobacco production in certain countries is also subject to a variety of controls, including regulation affecting farming and production control programs, as well as competition for land use from other agriculture products. The BAT Group’s access to raw materials may be adversely affected by a significant event occurring in one or more major leaf growing areas. Climate instability and diseases causing crop failure may have a negative impact on the BAT Group’s business, which may include decreased quantity and/or quality of leaf, increased prices, reallocation of growing areas and factories or supply-chain disruptions. Commodity price, quality and quantity changes beyond the BAT Group’s control could affect its profitability and business. Such changes may result in unexpected increases in raw materials and packaging costs for the BAT Group’s products. The BAT Group may not be able to increase its prices to offset these increased costs without suffering reduced sales volume and income, or be able to meet increased adult tobacco consumer demand for certain types of tobacco or products.

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The BAT Group has operations in geographic areas where full insurance coverage against damage resulting from natural disasters may not be obtainable or obtainable on commercially reasonable terms, or coverage may be subject to other limitations. The BAT Group may be unable to recover any damages covered by its insurance or obtain certain types of insurance in the future.

The BAT Group may lose market share and profit due to the loss of production capacity or key suppliers, distribution interruption, commodity risk, problems with labor relations, or a major fire, violent weather conditions or other disasters.

There are some product categories for which the BAT Group does not have spare production capacity or where substitution between different production plants is very difficult. A major fire, violent weather conditions or other disasters that affect manufacturing and other facilities of the BAT Group’s operating subsidiaries, or of their suppliers and vendors, could have a material adverse effect on the operations of the BAT Group’s operating subsidiaries. For example, RJR Tobacco Company’s cigarette manufacturing is conducted primarily at a single facility, and SFNTC’s cigarette manufacturing is conducted at a single facility. The BAT Group may lose market share and profit in the event of loss of or insufficient production capacity needed to supply its products or meet increased demand. The BAT Group has an increasingly global approach to managing its supply chain. Severe disruption to any aspect of the BAT Group’s supply chain or suppliers’ operations or deterioration in the financial condition of a trading partner could have an adverse impact on the BAT Group’s ability to produce and deliver products meeting customer demands. For example, in the U.S. and within the next generation product area, the BAT Group relies on a limited number of suppliers for raw materials or other components. If a supplier fails to meet any of the BAT Group’s operating subsidiaries’ demands, any such operating subsidiary may fail to operate effectively and may fail to meet shipment demand, which could have an adverse effect on the results of operations, cash flows and financial conditions of the BAT Group. A continuing industry consolidation among distributors and suppliers could lead to reduced efficiency, higher costs and concentrated risk of supply chain interruptions, contract disputes and systems and logistics failures. In certain markets, distribution of the BAT Group’s products is through third party monopoly channels, and is often licensed by governments. The BAT Group may be unable to renew these third party supplier and distribution agreements on satisfactory terms for numerous reasons, including government regulations. Loss of distribution may adversely affect the BAT Group’s sales volume, market share and profits. The loss of these customers, or a significant decline in their purchases, could have an adverse effect on the results of operations, cash flows and financial position of the BAT Group.

Additionally, there can be no assurance that any deterioration in labor or union relations, or any disputes or work stoppages or other labor related developments (including problems experienced during any consultation procedures or programs or the introduction of new labor regulations in countries where the BAT Group operates), will not increase the costs and upset the BAT Group’s ability to supply products, which would adversely affect the BAT Group’s business, financial condition and results of operations. This is particularly relevant in jurisdictions where the BAT Group’s manufacturing facilities are more concentrated, such as in the United States.

In addition, the BAT Group may not be able to establish or maintain relationships, on favorable commercial terms, with vendors willing to produce alternative products, or components or raw materials used in such products, resulting in additional expenditures for the BAT Group.

The BAT Group has net liabilities under retirement benefit schemes of the BAT Group which may increase in the future due to a number of factors.

The BAT Group operates approximately 190 retirement benefit arrangements worldwide. These arrangements have been developed in accordance with local practices in the markets concerned. The majority of the BAT Group’s scheme members belong to defined benefit schemes, most of which are funded externally, although the BAT Group operates an increasing number of defined contribution schemes. The contributions to the BAT Group’s defined benefit schemes and their valuations are

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determined in accordance with the advice of independent, professionally qualified actuaries. The present total value of funded scheme liabilities as at December 31, 2017 was £11,868 million (2016: £7,155 million), while unfunded scheme liabilities amounted to £1,157 million (2016: £476 million). The schemes’ assets increased from £7,278 million in 2016 to £12,350 million in 2017. After excluding unrecognized scheme surpluses of £23 million (2016: £18 million), the overall net liability for all pension and healthcare schemes in BAT Group subsidiaries amounted to £698 million at the end of 2017, compared to £371 million at the end of 2016.

Changes in asset returns, salary increases, inflation, long-term interest rates, life expectancies, population trends and other actuarial assumptions could have an adverse impact on the BAT Group’s financial condition and operations, hence adversely affect its credit rating and ability to raise funds.

The BAT Group’s business may be negatively affected by the economic conditions in the EU.

The BAT Group’s businesses and performance are influenced by local and global economic conditions and perceptions of those conditions and future economic prospects. In recent years, the global markets and economic conditions have been negatively impacted by market perceptions regarding the ability of certain EU member states to service their sovereign debt obligations, together with the risk of contagion to other, more stable, countries. The large sovereign debts and/or fiscal deficits of a number of European countries have raised concerns regarding the financial condition of financial institutions, insurers and other corporations (1) located in these countries; (2) that have direct or indirect exposure to these countries; and/or (3) whose banks, counterparties, custodians, customers, service providers, sources of funding and/or suppliers have direct or indirect exposure to these countries.

The default, or a significant decline in the credit rating, of one or more sovereigns or financial institutions, as well as the breakup of or exit from the EU and/or eurozone by a member state, could cause severe stress in the financial system generally and on the euro and other European currencies, could disrupt the banking system generally and adversely affect the markets in which the BAT Group operates and the businesses and economic condition and prospects of the BAT Group’s counterparties, customers, suppliers or creditors, directly or indirectly, in ways which are difficult to predict. In addition, the consequences of the United Kingdom’s exit from the EU are uncertain, but could cause disruption to the BAT Group’s supply chain, lead to increased foreign exchange and interest rate volatility and changes to tax structures (including customs tariffs) and could adversely impact the BAT Group’s ability to obtain funding.

These risks, alone or in combination with regulatory changes, including devaluation of local currencies and increased inflation, or actions of market participants, may increase the BAT Group’s exposure to foreign exchange rate risks and cause a loss of competitiveness from increased production cost and lower revenue, increased customer down-trading, significant write-downs of stock and a growth in illicit trade, which may adversely impact the BAT Group’s business, results of operations and financial conditions.

BAT may fail to successfully integrate RAI into its business, and the BAT Group may fail to realize the expected synergies and other benefits of the acquisition of RAI and the combined businesses may not perform as expected.

BAT and RAI and their respective subsidiaries and affiliates have operated independently until the completion of the acquisition of RAI in July 2017, and there can be no assurances that their businesses can be integrated successfully.

The success of the acquisition of RAI will depend, in part, on BAT’s ability to successfully integrate RAI into its business and the ability of the BAT Group to realize the expected synergies and other benefits from combining the businesses of the historical BAT Group and RAI Group. There is also no assurance that the costs to integrate and achieve the synergies will not be higher than anticipated. The BAT Group’s ability to successfully combine and integrate the businesses of the historical BAT Group and

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RAI Group and the BAT Group’s ability to realize these anticipated benefits and cost savings is subject to certain risks, including the following:

In addition, the BAT Group will be required to devote significant management attention and resources to integrating the business practices and operations of the historical BAT Group and RAI Group, which may result in diversion of the attention of each group’s management and employees from ongoing operations, the lack of personnel or other resources to pursue other potential business opportunities and the disruption of, or the loss of momentum in, each group’s ongoing businesses.

If the BAT Group is not able to successfully combine the businesses of the historical BAT Group and RAI Group within the anticipated timeframe, or at all, the expected synergies and other benefits of the acquisition of RAI may not be realized fully or at all or may take longer to realize than expected and the combined businesses may not perform as expected. Accordingly, the contemplated benefits of the acquisition of RAI may not be realized fully, or at all, or may take longer to realize than expected.

The Unaudited Pro Forma Financial Information and the actual results of operations, cash flows and financial position after the merger may differ materially.

The Unaudited Pro Forma Financial Information is not necessarily indicative of the combined financial position or results of operations that would have been realized had the RAI acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the BAT Group will experience. The unaudited pro forma adjustments are based upon the best available information and certain assumptions that BAT believes to be reasonable. The Unaudited Pro Forma Financial Information does not reflect any adjustment for liabilities or related costs of any integration and similar activities, or benefits, including potential synergies that may be derived in future periods, from the RAI acquisition. See “ BAT Unaudited Pro Forma Condensed Combined Financial Information ”.

Holders will have a direct claim based on the Exchange Notes against the Issuer and based on the Guarantees against the Guarantors, but will not have a direct claim based on the Exchange Notes or the Guarantees against any operating subsidiaries. The right of the holders to receive payments under the Exchange Notes and the Guarantees will be structurally subordinated to all liabilities of the operating subsidiaries and associated companies. These liabilities include debt that some of our subsidiaries have incurred under bank facilities or debt securities. In the event of a bankruptcy, liquidation, reorganization or similar proceeding relating to a subsidiary, the right of holders to participate in a distribution of the assets of such subsidiary will rank behind such subsidiary’s and associated companies’ creditors (including trade creditors) and preferred stockholders (if any), except to the extent that BAT, RAI, BATHTN, the Issuer, BATIF or BATNF have direct claims against such subsidiary.

Any Guarantees provided by certain Subsidiary Guarantors will be automatically released in certain circumstances.

The Indenture provides that a Guarantee provided by a Subsidiary Guarantor (including RAI), other than BATIF and the Dutch Guarantors, will automatically be released under certain circumstances without consent of the holders of the Exchange Notes or the Trustee. The Guarantee of such Subsidiary Guarantor will be terminated and be of no further force or effect in the event that (1) its guarantee of all then outstanding notes issued under the EMTN Programme (as defined in the “ Description of the Exchange Notes and the Guarantees ”) is released or (2) at substantially the same time its Guarantee of the Exchange Notes is terminated, the Subsidiary Guarantor is released from all obligations in respect of indebtedness for borrowed money for which such Subsidiary Guarantor is an obligor (as a guarantor or borrower). For purposes of this paragraph, the amount of a Subsidiary Guarantor’s indebtedness for borrowed money shall not include (A) the Exchange Notes issued pursuant to the Indenture, (B) any other debt the terms of which permit the termination of such Subsidiary Guarantor’s guarantee of such debt under similar circumstances, as long as such Subsidiary Guarantor’s obligations in respect of such other debt are terminated at substantially the same time as its guarantee of the Exchange Notes, (C) any debt that is being refinanced at substantially the same time that the guarantee of the Exchange Notes is being released, provided that any obligations of the relevant Subsidiary Guarantor in respect of the debt that is incurred in the refinancing shall be included in the calculation of the relevant Subsidiary Guarantor’s indebtedness for borrowed money and (D) for the avoidance of doubt, any debt in respect of which such Subsidiary Guarantor is an obligor (as a guarantor or borrower) (i) between or among the Parent Guarantor and any subsidiary or subsidiaries thereof or (ii) between or among any subsidiaries of the Parent Guarantor. See “ Description of the Exchange Notes and the Guarantees—Guarantees—Release ”.

If the Guarantee by a Subsidiary Guarantor is released, the Issuer and the Parent Guarantor are not required to replace such Guarantee, and the Exchange Notes will have the benefit of fewer subsidiary guarantees for the remaining maturity of the Exchange Notes.

RAI is the only Subsidiary Guarantor as of the date hereof whose Guarantee may be released by this provision. The guarantee release provisions described here will apply to future Subsidiary Guarantors.

The Exchange Notes will initially be held in book-entry form and therefore you must rely on the procedures of relevant clearing systems to exercise any rights and remedies.

Unless and until Exchange Notes in definitive registered form, or definitive registered Exchange Notes, are issued in exchange for book-entry interests, owners of book-entry interests will not be considered owners or holders of notes. DTC, or its nominee, will be the registered holder of the Global Notes for the benefit of its participants including Euroclear and Clearstream, Luxembourg. After payment to the registered holder, we will have no responsibility or liability for the payment of interest, principal or other amounts to the owners of book-entry interests. Accordingly, if you own a book-entry interest, you must rely on the procedures of DTC, Euroclear and/or Clearstream, Luxembourg, and if you are not a participant in DTC, Euroclear and/or Clearstream, Luxembourg, on the procedures of the participants

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through which you own your interest, to exercise any rights and obligations of a holder under the Indenture. See “ Book Entry, Delivery and Form ”.

Unlike the holders of Exchange Notes themselves, owners of book-entry interests will not have any direct rights to act upon our solicitations for consents, requests for waivers or other actions from holders of the Exchange Notes. Instead, if you own a book-entry interest, you will be permitted to act only to the extent you have received appropriate proxies to do so from DTC, Euroclear and/or Clearstream, Luxembourg or, if applicable, from a participant. There can be no assurance that procedures implemented for the granting of such proxies will be sufficient to enable you to vote on any matters on a timely basis.

Similarly, upon the occurrence of an event of default under either Indenture, unless and until definitive registered notes are issued in respect of all book-entry interests, if you own a book-entry interest, you will be restricted to acting through DTC, Euroclear and/or Clearstream, Luxembourg. The procedures to be implemented through DTC, Euroclear and/or Clearstream, Luxembourg may not be adequate to ensure the timely exercise of rights under the Exchange Notes. See “ Book Entry, Delivery and Form of Securities ”.

A holder’s actual yield on the Exchange Notes may be reduced from the stated yield by transaction costs.

When Exchange Notes are purchased or sold, several types of incidental costs (including transaction fees and commissions) are incurred in addition to the current prices of the security. These incidental costs may significantly reduce or even exclude the profit potential of the Exchange Notes. For instance, credit institutions as a rule charge their clients for their own commissions which are either fixed minimum commissions or pro-rata commissions depending on the order value. To the extent that additional domestic or foreign parties are involved in the execution of an order, including but not limited to domestic dealers or brokers in foreign markets, holders must take into account that they may also be charged for the brokerage fees, commissions and other fees and expenses of such parties.

A holder’s effective yield on the Exchange Notes may be diminished by the tax impact on that holder of its investment in the Exchange Notes.

Payments of interest on the Exchange Notes, or profits realized by the holder upon the sale or repayment of the Exchange Notes, may be subject to taxation in its home jurisdiction or in other jurisdictions in which it is required to pay taxes. However, the tax impact on an individual holder may differ from the situation described for holders generally. See “ Material Tax Considerations ”.

The introduction of a conditional withholding tax may increase the amounts the Dutch Guarantors may become obligated to pay under their Guarantees.

On October 10, 2017, the new Dutch government released its policy statement ( Regeerakkoord 2017-2021 “Vertrouwen in de toekomst” ). The policy statement does not include concrete legislative proposals, but instead sets out a large number of policy intentions of the new Dutch government. In the policy statement it was announced that The Netherlands will introduce a new withholding tax on interest payments paid to low-tax jurisdictions.

In a letter dated February 23, 2018 to the Dutch Parliament, the Dutch Under-Minister of Finance published more details about the proposed introduction of withholding tax on interest payments. The letter states that the interest withholding tax would apply to interest paid by a Dutch entity within a group to entities that are resident (i) in a jurisdiction with a low statutory rate or (ii) in a jurisdiction included in the EU list of non-cooperative jurisdictions.

In addition, the letter states that measures will be taken to counteract “abusive situations” ( misbruiksituaties ). According to the letter abusive situations include a situation where a payment of interest is not made directly to a low-tax or non-cooperative jurisdiction, but where such interest indirectly reaches such jurisdiction by means of an artificial construction.

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In his letter, the Dutch Under-Minister of Finance announced that it is intended for the withholding tax on interest payments to be effective from 2021 and that a legislative proposal will be submitted to the Dutch parliament in 2019. This was reiterated by the Dutch Under-Minister of Finance in one of the legislative proposals published on budget day 2018 ( Prinsjesdag 2018 ).

The exact scope of the proposed legislation is not yet certain. Therefore, it cannot be excluded that the envisaged interest withholding tax could have a wider application and, as such, it could potentially be applicable to payments by the Dutch Guarantors under the Guarantees. If payments by the Dutch Guarantors under the Guarantees become subject to Dutch withholding tax under the envisaged legislation, the relevant Dutch Guarantor may be required to pay Additional Amounts (see “ Description of the Exchange Notes and the Guarantees ”), which may give rise to an event whereby the Issuer may be entitled to redeem the Exchange Notes (see “ Description of the Exchange Notes and the Guarantees — Redemption for tax reasons ”).

Floating Rate Exchange Notes can be a volatile investment and the potential phasing out of LIBOR after 2021 may adversely affect the value of the Floating Rate Exchange Notes.

The interest of the holders of each series of Exchange Notes may not be consistent with those of the holders of the other series. For example, the Floating Rate Exchange Notes will bear interest at a floating rate and will have other features that will differ from the other series of Exchange Notes offered hereby. As a result of these differences, the interests of holders of the Floating Rate Exchange Notes and the interests of the other holders could conflict. A holder of a Floating Rate Note carries the risk of fluctuating interest rate levels and uncertain interest earnings. Interest rate fluctuations make it impossible to determine the yield of Floating Rate Exchange Notes in advance. Investors in Floating Rate Exchange Notes should bear in mind that neither the current nor the historical level of the relevant floating interest rate is an indication of the future development of such floating interest rate during the term of any Floating Rate Note.

On July 27, 2017, the UK Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). It is not possible to predict the effect of the FCA Announcement, any changes in the methods pursuant to which the LIBOR rates are determined and any other reforms to LIBOR, including to the rules promulgated by the FCA in relation thereto, that will be enacted in the UK and elsewhere, which may adversely affect the trading market for LIBOR based securities, including the Floating Rate Exchange Notes, or result in the phasing out of LIBOR as a reference rate for securities. The interest in respect of the 2022 Floating Rate Notes, which mature on August 15, 2022, will be determined in accordance with the Indenture. See “ Description of the Exchange Notes and the Guarantees—Principal, Maturity and Interest—Interest—Floating Rate Exchange Notes ”. In addition, any changes announced by the FCA (including the FCA Announcement), ICE Benchmark Administration Limited as independent administrator of LIBOR or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which the LIBOR rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the level of interest payments and the value of the Floating Rate Exchange Notes may be affected. Further, uncertainty as to the extent and manner in which the UK government’s recommendations following its review of LIBOR in September 2012 will continue to be adopted and the timing of such changes may adversely affect the current trading market for LIBOR based securities and the value of the Floating Rate Exchange Notes.

The Exchange Notes and Guarantees are unsecured obligations of the Issuer and the Guarantors, respectively, and are subordinated to secured obligations on insolvency.

Holders of secured obligations of the Issuer will have claims that are prior to the claims of holders of the Exchange Notes to the extent of the value of the assets securing those other obligations. The Exchange Notes and the Guarantees are effectively subordinated to secured indebtedness to the extent of the value of the assets securing those other obligations. In the event of any distribution of assets or payment in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other

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bankruptcy proceeding, the assets securing the claims of secured creditors will be available to satisfy the claims of those creditors, if any, before they are available to unsecured creditors, including the holders of the Exchange Notes. In any of the foregoing events, there is no assurance to holders of the Exchange Notes that there will be sufficient assets to pay amounts due on the Exchange Notes. As a result, holders of the Exchange Notes may receive less, ratably, than holders of secured obligations.

The trading market for debt securities may be volatile and may be adversely impacted by many events.

The market for debt securities is influenced by economic and market conditions, interest rates, currency exchange rates, and inflation rates in the European Union and other industrialized countries and areas. There can be no assurance that events in the eurozone or elsewhere will not cause market volatility, or that such volatility will not adversely affect the price of the Exchange Notes or that economic and market conditions will not have any other adverse effect.

Exchange rate risks and exchange controls may adversely impact currency conversions of principal and interest paid on the Exchange Notes.

The Issuer will pay principal and interest on the Exchange Notes in U.S. dollars (the “Specified Currency”). This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease the Investor’s Currency equivalent yield on the Exchange Notes, the Investor’s Currency equivalent value of the principal payable on the Exchange Notes and the Investor’s Currency equivalent market value of the Exchange Notes.

Credit ratings may not reflect all risks, are not recommendations to buy or hold securities and may be subject to revision, suspension or withdrawal at any time.

One or more independent credit rating agencies may assign credit ratings to the Exchange Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above and other factors that may affect the value of the Exchange Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.

We may be able to incur substantially more debt in the future.

We may be able to incur substantial additional indebtedness in the future, including in connection with future acquisitions, some of which may be secured by some or all of our assets. The terms of the Exchange Notes will not limit the amount of indebtedness we may incur. Any such incurrence of additional indebtedness could exacerbate the related risks that we now face.

Risks Relating to the Exchange Offer

Our board of directors has not made a recommendation as to whether you should tender your Unregistered Notes in exchange for Exchange Notes in the Exchange Offer, and we have not obtained a third-party determination that the Exchange Offer is fair to holders of our Unregistered Notes.

Our board of directors has not made, and will not make, any recommendation as to whether holders of Unregistered Notes should tender their Unregistered Notes in exchange for Exchange Notes pursuant to the Exchange Offer. We have not retained, and do not intend to retain, any unaffiliated representative to act solely on behalf of the holders of the Unregistered Notes for purposes of

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negotiating the terms of this Exchange Offer, or preparing a report or making any recommendation concerning the fairness of this Exchange Offer. Therefore, if you tender your Unregistered Notes, you may not receive more than or as much value as if you chose to keep them. Holders of Unregistered Notes must make their own independent decisions regarding their participation in the Exchange Offer.

Late deliveries of Unregistered Notes and other required documents could prevent you from exchanging your Unregistered Notes.

Holders are responsible for complying with all procedures of the Exchange Offer. The issuance of Exchange Notes in exchange for Unregistered Notes will occur only upon completion of the procedures described in “ The Exchange Offer—Procedures For Tendering Unregistered Notes ”. Therefore, holders of Unregistered Notes who wish to exchange them for Exchange Notes should allow sufficient time for timely completion of the exchange procedure. Neither we nor the exchange agent are obligated to extend the Exchange Offer or notify you of any failure to follow the proper procedure or waive any defect if you fail to follow the proper procedure.

If you do not properly tender your Unregistered Notes, you will continue to hold Unregistered Notes and your ability to transfer Unregistered Notes will continue to be subject to transfer restrictions, which may adversely affect their market price.

If you do not properly tender your Unregistered Notes for Exchange Notes in the Exchange Offer, you will continue to be subject to restrictions on the transfer of your Unregistered Notes. In general, the Unregistered Notes may not be offered or sold unless they are registered under the Securities Act, as well as applicable state securities laws, or exempt from registration thereunder. Except as required by the Registration Rights Agreement, we do not intend to register resales of the Unregistered Notes under the Securities Act. You should refer to “ The Exchange Offer—Procedures For Tendering Unregistered Notes ” for information about how to tender your Unregistered Notes. The tender of Unregistered Notes under the Exchange Offer will reduce the outstanding amount of each series of the Unregistered Notes, which may have an adverse effect upon, and increase the volatility of, the market prices of the Unregistered Notes due to a reduction in liquidity.

The Exchange Offer will result in reduced liquidity for any Unregistered Notes that are not exchanged.

To the extent the Exchange Offer is successful, the trading market for the Unregistered Notes that are not tendered and exchanged will become very limited or cease to exist altogether due to the reduction in the principal amount of Unregistered Notes outstanding after the consummation of the Exchange Offer, which might adversely affect the liquidity and market price of such Unregistered Notes. The Unregistered Notes may trade at a significant discount depending on prevailing interest rates, the market for Unregistered Notes with similar credit features, our performance and other factors. Furthermore, the prices at which any such trading occurs in the Unregistered Notes could be extremely volatile. Holders of Unregistered Notes not tendered and exchanged may attempt to obtain quotations for their Unregistered Notes from their brokers; however, there can be no assurance that an active market in the Unregistered Notes will exist or be maintained following consummation of the Exchange Offer and no assurance can be given as to the prices at which the Unregistered Notes may trade.

Consummation of the Exchange Offer may not occur.

The Exchange Offer is subject to the satisfaction of certain conditions. See “ The Exchange Offer—Conditions to the Exchange Offer. ” Even if the Exchange Offer is completed, it may not be completed on the schedule described in this prospectus. Accordingly, holders participating in the Exchange Offer may have to wait longer than expected to receive their Exchange Notes, during which time such holders will not be able to effect transfers of their Unregistered Notes tendered in the Exchange Offer.

Until we announce whether we have accepted valid tenders of Unregistered Notes for exchange pursuant to the Exchange Offer, no assurance can be given that the Exchange Offer will be completed

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because, subject to applicable law and as provided in this prospectus, we may, in our discretion, extend, re-open, amend, waive any condition of or terminate any or all of the Exchange Offer, subject to applicable law, at any time until then.

If you are a broker-dealer, your ability to transfer the Exchange Notes may be restricted.

A broker-dealer that purchased Unregistered Notes for its own account as part of market-making or trading activities must comply with the prospectus delivery requirements of the Securities Act when it sells the Exchange Notes. Our obligation to make this prospectus available to broker-dealers is limited. Consequently, we cannot guarantee that a proper prospectus will be available to broker-dealers wishing to resell their Exchange Notes.

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