American depositary receipts (ADRs) (tax basis)

Please see below an extract from a letter sent to former American Brands, Inc. (now known as Fortune Brands, Inc.), shareholders (on the register at 30th May 1997) on 2nd June 1997.

Tax basis allocation and holding period

To determine your US federal income tax basis in your Fortune Brands common shares and your newly-received Gallaher ADSs or Gallaher ordinary shares, you must allocate the tax basis in your American Brands common shares immediately before the distribution. The tax basis in your American Brands common shares before the distribution generally is equal to the cost of such shares, including commissions. If you acquired those shares at different times and at different costs, you will need to make separate basis calculations for each group of shares. Please consult your tax advisor to determine the tax basis in American Brands common shares to be allocated.

Based upon the average ($49.0625) of the high trading price ($49.375) and low trading price ($48.75) for American Brands common shares and the average ($18.0625) of the high trading price ($18.50) and low trading price ($17.625) for Gallaher ADSs on May 30, 1997, as reported on the New York Stock Exchange Composite Tape, (1) 36.82% ($18.0625/$49.0625) of your tax basis should be allocated to your newly-received Gallaher ADSs or your newly-received Gallaher ordinary shares and (2) the balance, 63.18%, should be allocated to your Fortune Brands common shares.

Your holding period for US federal income tax purposes for the newly-received Gallaher ADSs or Gallaher ordinary shares is the same as your holding period for your American Brands common shares with respect to which the Gallaher ADSs or Gallaher ordinary shares were received, unless you fall within a special category of holder such as a dealer or trader who did not hold the American Brands common shares as capital assets on 30 May, 1997.

Note: At demerger, one Gallaher ADS was issued for one American Brands common share. Each Gallaher ADS represents four Gallaher ordinary shares.

All enquiries regarding ADS holder accounts and payment of dividends should be directed to The Bank of New York, the ADR depositary bank for the Gallaher Group ADR programme, by telephoning toll free: 1-888 269 2377.

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