Renewal Annual Information Form

Home , Canadian Classics, Form (cigarette)

For the period ended March 31, 2006

June 16, 2006

TABLE OF CONTENTS

Page

A. FORWARD-LOOKING STATEMENTS ...... 3 B. CORPORATE STRUCTURE AND INTERCORPORATE RELATIONSHIPS...... 3 C. GENERAL DEVELOPMENT OF THE BUSINESS...... 4 D. DESCRIPTION OF THE BUSINESS...... 5 THE CANADIAN TOBACCO PRODUCTS INDUSTRY ...... 5 Shipments...... 6 Market Share...... 8 Taxation ...... 9 Regulatory Environment...... 11 ROTHMANS, BENSON & HEDGES INC...... 13 Products ...... 14 Sales and Marketing...... 16 Leaf Procurement...... 17 Manufacturing...... 17 Properties ...... 18 Competition ...... 18 Human Resources ...... 18 Directors and Officers...... 19 RBH Shareholders Agreement...... 20 Legal Proceedings...... 20 Risk Factors ...... 23 E. DIVIDENDS...... 28 F. DESCRIPTION OF CAPITAL STRUCTURE ...... 28 GENERAL DESCRIPTION OF SHARE CAPITAL ...... 28 Common Shares...... 28 First Preferred Shares...... 28 SHARE OPTION PLAN ...... 29 SHARE PURCHASE PLAN ...... 30 SHAREHOLDER RIGHTS PLAN ...... 30 G. MARKET FOR SECURITIES ...... 37 H. DIRECTORS AND OFFICERS...... 38 I. AUDIT COMMITTEE INFORMATION ...... 40 Audit Committee Charter...... 40 Composition of the Audit Committee...... 40 Relevant Education and Experience ...... 40 Pre-Approval Policies and Procedures...... 41 External Auditor Service Fees (By Category) ...... 42 J. INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ...... 42 K. TRANSFER AGENTS AND REGISTRARS ...... 42 L. INTERESTS OF EXPERTS...... 43 M. ADDITIONAL INFORMATION...... 43 Schedule “A” – Audit Committee Charter

Unless otherwise stated, all financial information contained herein is as of March 31, 2006, and all dollar amounts are references to Canadian dollars.

A. FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Information Form constitute “forward-looking statements” and express views as to future events, circumstances and trends relating to RBH’s business and the Company. Words such as “plans”, “intends”, “outlook”, “expects”, “anticipates”, “estimates”, “believes”, “should” and similar expressions may identify forward-looking statements. Forward-looking statements are based on management’s current expectations and assumptions and entail various risks and uncertainties. There is no assurance that any forward-looking statement will materialize. Actual results may differ materially from these expectations and forward-looking statements, if known and unknown risks or uncertainties affect RBH’s business or the Company, or if management’s expectations or assumptions prove to be inaccurate. Unless otherwise indicated, forward-looking statements describe expectations as of June 16, 2006.

Factors that could cause the Company’s actual results to differ materially from the forward-looking statements contained herein include, but are not limited to: government claims and potential claims; product liability claims; increases in the levels of contraband and counterfeit products in the market; competition; price category pressure on overall cigarette margins and changes in market share for RBH’s products; declining consumer consumption and dependence on price increases; fluctuating wholesaler and consumer purchasing patterns; changes in government taxation policy; changes in legislation and regulation; new product standards; and dependence on the domestic tobacco market.

The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether the result of new information, future events or otherwise. Additional information concerning risks and uncertainties affecting RBH’s business and the Company and other factors that could cause financial results to fluctuate is set forth below under “Risk Factors” and is contained in the Company’s filings with Canadian securities regulatory authorities, including the Company’s Annual MD&A (in particular under “Risks and Uncertainties”) available on SEDAR at www.sedar.com or on the Company’s website at www.rothmansinc.ca.

B. CORPORATE STRUCTURE AND INTERCORPORATE RELATIONSHIPS

Rothmans Inc. was incorporated as Rothmans of Pall Mall Canada Limited under the laws of Canada by letters patent dated May 8, 1956 and was continued under the Canada Business Corporations Act (“CBCA”) on July 24, 1979. Effective September 30, 1985, the corporate name was changed from Rothmans of Pall Mall Canada Limited to Rothmans Inc. Rothmans Inc. was amalgamated under the CBCA on February 11, 2000 (the “Amalgamation”) with Rothmans Partnership in Industry Canada Limited (“RPII”) and Rothmans of Canada Limited (“ROC”), each of which was an indirect wholly- owned subsidiary of British American Tobacco p.l.c. (“BAT”), with the amalgamated corporation continuing as Rothmans Inc. (hereinafter referred to as the “Company” or “Rothmans”). Neither RPII or ROC had any material assets or liabilities (other than their interest in Rothmans Inc.) immediately prior to the Amalgamation. The Amalgamation resulted in the subdivision of the outstanding common shares of the Company (“Common Shares”) on a six-for-one basis.

The articles of the Company were amended effective October 7, 2002 to remove the class of second preferred shares which the Company was authorized to issue, to permit the Board of Directors to appoint additional directors between annual meetings, to remove certain borrowing provisions that were considered unnecessary, and to allow the registered office of the Company to be situated at any place within the Province of Ontario. The articles of the Company were then restated effective November 13, 2002. A copy of the Company’s articles and by-laws is available on SEDAR at www.sedar.com.

On February 3, 2005, the Company’s Board of Directors declared a two-for-one stock split to be effected by way of a stock dividend, doubling the number of the Company’s outstanding common shares (the “Stock Split”). Shareholders of record at the close of business on March 4, 2005 received one additional common share for each common share held on such date. All references to numbers of common shares and common share prices herein (except where otherwise indicated) have been adjusted to reflect the Stock Split.

Rothmans is a holding company which participates in the Canadian tobacco products industry through its 60% interest in Rothmans, Benson & Hedges Inc. (“RBH”). RBH was formed under the CBCA on December 19, 1986 by articles of amalgamation amalgamating Rothmans of Pall Mall Limited, a wholly- owned subsidiary of the Company, and Benson & Hedges (Canada) Inc. which was then a wholly-owned indirect subsidiary of Philip Morris Companies Inc. which has since changed its name to Altria Group, Inc. (“Altria”). The Company does not have any other direct subsidiaries. FTR Holding S.A. of Switzerland, an affiliate of Altria, owns the remaining 40% of RBH. RBH does not have any material subsidiaries.

The following diagram illustrates the shareholdings of the Company and RBH:

Altria Group Inc. (Formerly Philip Morris Companies Inc.)

Indirectly 100% Public Philip Morris International Inc. (“PMI”) 100%

100% Rothmans Inc. FTR Holding S.A.

40% 60%

Rothmans, Benson & Hedges Inc.

The address of the Company’s and RBH’s head and registered offices is 1500 Don Mills Road, Toronto, Ontario, M3B 3L1. As at March 31, 2006, the Company had four employees.

C. GENERAL DEVELOPMENT OF THE BUSINESS

Rothmans participates in the Canadian tobacco products industry through its ownership interest in RBH and accordingly, except as otherwise stated, all information and discussion contained herein under the headings “General Development of the Business” and “Description of the Business” relates to the business carried on by RBH.

RBH is the second largest manufacturer of tobacco products in Canada, manufacturing and distributing a range of cigarettes and fine cut tobacco products for the Canadian domestic market and, to a limited extent, contract manufacturing for export markets. RBH also distributes, but does not manufacture, imported fine cut, imported pipe tobacco, mini-cigar and non-tobacco products. RBH’s sales (net of excise duties and taxes) for the fiscal year ended March 31, 2006 were $652.3 million, compared to $636.8 million in fiscal 2005 and $620.1 million in fiscal 2004. RBH’s three major premium cigarette brand families, Benson & Hedges, Craven A, and Rothmans, represented sales (net of excise duties and taxes) of $203.5 million (31.2% of total sales) in fiscal 2006 with a combined market share in the

premium cigarette category of 11.3% during the twelve months ended March 31, 2006. RBH’s cigarette price category brand families, Number 7, Canadian Classics and Mark Ten, represented sales (net of excise duties and taxes) of $249.2 million (38.2% of total sales) in fiscal 2006 with a combined market share in the cigarette price category of 44.4% during the twelve months ended March 31, 2006. RBH operates manufacturing plants in Quebec City, Quebec, and Brampton, Ontario, and employed 745 individuals at the end of fiscal 2006.

For a review of financial information concerning the Company over the five fiscal years ended March 31, 2006, please refer to the “Five Year Financial Review” included on page 71 of the 2006 Annual Report, which page is incorporated herein by reference.

Since the formation of RBH in 1986, the Canadian tobacco products industry has undergone significant changes, primarily as a result of government legislation restricting tobacco product advertising and promotion. The Tobacco Products Control Act (“TPCA”), federal legislation enacted in 1989, introduced limitations and prohibitions on tobacco product advertising and promotion and mandated the display of prescribed health warnings on tobacco product packaging. A legal challenge of that legislation by the major Canadian tobacco manufacturers ultimately succeeded in 1995 when the Supreme Court of Canada ruled many provisions of the TPCA to be unconstitutional. Despite agreement by the three major Canadian tobacco manufacturers to adopt a regime of self-regulation following the successful challenge of the TPCA, the federal government enacted the Tobacco Act in 1997 which essentially replaced the provisions of the TPCA which had been struck down with similar restrictions on promotion and advertising. Those and other provisions of the Tobacco Act were challenged on constitutional grounds by the major Canadian tobacco manufacturers including RBH. In December 2002, the Quebec Superior Court dismissed the constitutional challenge of this legislation by the three major manufacturers. The manufacturers’ appeal of this decision was heard by the Quebec Court of Appeal in December 2004 and in August 2005 the Quebec Court of Appeal upheld the validity of most of the legislation. The federal government sought leave to appeal to the Supreme Court of Canada with respect to those sections of the legislation which had been struck down by the Court of Appeal, and the Supreme Court of Canada has agreed to hear the appeal, as well as the cross appeal of the manufacturers. Further legislation enacted over the past ten years by provincial and municipal governments has imposed significant additional restrictions on the sale, promotion and display of tobacco products.

The current regulatory environment severely limits the opportunities for RBH to compete for increases in market share and adds significant costs to RBH’s operations in order to comply with legislative requirements. Although it is expected that these restrictions will continue and become more onerous in the future unless legal challenges of government legislation are successful, management of RBH is committed to its focus on opportunities in the tobacco industry and continuing RBH’s financial performance.

D. DESCRIPTION OF THE BUSINESS

THE CANADIAN TOBACCO PRODUCTS INDUSTRY

In Canada, the market for tobacco products includes two principal products: finished or tailor-made cigarettes and fine cut tobaccos. The category of finished cigarettes includes both “premium cigarettes”, which refers to tailor-made cigarettes sold at premium retail prices, and cigarettes in the “cigarette price category”, which refers to cigarettes sold at less-than-premium prices. The fine cut tobacco product category (loose tobacco and pre-portioned tobacco sticks) and the cigarette price category together are referred to as the “price category” as they provide tobacco consumers with a lower-cost alternative to premium cigarette brands. Cigarettes in the price category retail for approximately $1.00 - $2.00 less per pack than premium cigarettes. The Canadian tobacco market is composed principally of consumers who choose between tax-paid premium cigarettes, price category cigarettes, fine cut tobacco offerings and

untaxed or partially taxed contraband tobacco products. There is also a smaller category of consumers who choose tax-paid pipe tobacco, cigars and specialty products. Sales of pipe tobacco and cigars are estimated by management of RBH to represent approximately 1% of total sales volumes by Canadian tobacco product manufacturers. Based upon Statistics Canada data, the Company estimates that there are approximately five million adult smokers in Canada and that net sales by all tobacco product manufacturers in Canada during the twelve months ended March 31, 2006 were approximately $2.7 billion. In addition to legal tax-paid products sold by the tobacco industry, contraband products appear to be having an increasing impact on the Canadian tobacco marketplace.

As used herein, “the three major manufacturers” or the “three majors” refer to RBH, Imperial Tobacco Canada Limited (“ITL”) and JTI-Macdonald Corp. (“JTI”), which are the three major Canadian tobacco product manufacturers. Certain information referred to herein regarding sales volumes by the three major manufacturers is compiled through the Canadian Tobacco Manufacturers Council (“CTMC”), the members of which are RBH, ITL and JTI. References to “reported industry” are based on information reported by Statistics Canada and RBH estimates and includes, in addition to the information reported by the three majors, information reported by smaller regional manufacturers.

Shipments

Based upon Statistics Canada data, approximately 95.0% of domestic sales of tobacco products in Canada during the twelve months ended March 31, 2006 were made by the three major manufacturers. The remaining 5.0% of domestic industry shipments represent primarily sales of cigarettes in the cigarette price category by smaller regional Canadian manufacturers. Viewing the overall Canadian tobacco market as being comprised of premium and price categories with the price category being further sub- divided between price category cigarettes and fine cut products, shipments by the entire Canadian domestic tobacco industry over the last three years can be summarized as set out below, based on data reported by Statistics Canada:

Canadian Domestic Tobacco Shipments (billions of sticks and equivalents)

Twelve months ended March 31 2006 2005 2004 Three Reported Three Reported Three Reported RBH Majors Industry RBH Majors Industry RBH Majors Industry Premium cigarettes ...... 2.8 18.0 18.0 3.3 21.3 21.3 4.3 29.3 29.3 Price category Cigarettes...... 6.3 12.3 14.2 5.4 10.7 13.0 2.6 4.1 6.6 Fine cut ...... 2.1 3.5 3.6 2.8 4.6 4.6 3.3 5.8 5.8 Total price category..... 8.4 15.8 17.7 8.2 15.3 17.6 5.9 9.9 12.4 Total...... 11.2 33.8 35.8 11.5 36.6 38.9 10.2 39.2 41.7

*This table includes information relating to domestic shipments only (i.e. excluding duty-free and export sales). Reported industry export and duty-free shipments for the twelve month periods ended March 31 were: premium cigarettes – 0.5 billion sticks in 2006, 0.5 billion sticks in 2005, and 0.6 billion sticks in 2004; price category cigarettes – 3.8 billion sticks in 2006, 2.7 billion sticks in 2005, and 1.7 billion sticks in 2004. There have also been indications of sales of contraband products in the Canadian market, which by their nature would be unreported and thus not estimable for inclusion in this table.

Based upon industry data, shipments of tobacco products by the three major Canadian manufacturers (including duty-free and export sales) decreased from 53.5 billion units (cigarette sticks and equivalents) during the twelve months ended March 31, 1997 to 34.5 billion units during the twelve months ended March 31, 2006, representing an average annual decline of 4.8%. Also based upon industry data, total cigarette shipments by the three major Canadian manufacturers (including duty-free and export sales) decreased from 47.7 billion sticks during the twelve months ended March 31, 1997 to 30.9 billion sticks during the twelve months ended March 31, 2006, representing an average annual decline of 4.7%.

Total domestic shipments of tobacco products by all Canadian manufacturers, as reported by Statistics Canada, declined from 47.8 billion units (cigarette sticks and equivalents) during the twelve months ended March 31, 2002 to 35.8 billion units in the twelve months ended March 31, 2006. During the twelve months ended March 31, 2006 these shipments declined by 8.1% compared to the 38.9 billion units shipped in the domestic market in the twelve months ended March 31,2005.

During the past five years, domestic shipments of premium cigarettes by all Canadian manufacturers, as reported by Statistics Canada, have declined from 40.5 billion units during the twelve months ended March 31, 2002, representing 84.7% of total reported domestic shipments, to 18.0 billion units in the twelve months ended March 31, 2006, representing 50.4% of total reported domestic shipments. Volumes in the price category increased during this period from 7.3 billion units in the twelve months ended March 31, 2002, representing 15.3% of total reported domestic shipments, to 17.7 billion units in the twelve months ended March 31, 2006, representing 49.6% of total reported domestic shipments of all tobacco products, in each case as reported by Statistics Canada.

Based upon Statistics Canada data, during the twelve months ended March 31, 2006, cigarette products represented 91.1% of total shipments of cigarettes and fine cut products by all Canadian manufacturers (including duty-free and export sales) and fine cut products accounted for 8.9%. During the twelve months ended March 31, 2005 and March 31, 2004, cigarette shipments accounted for 88.8% and 86.7%, respectively, of total shipments by all Canadian manufacturers (including duty-free and export sales) and fine cut products represented 11.2% and 13.3%, respectively.

The cigarette price category has increased significantly in the past three years, driven primarily by rapidly increasing consumer prices largely due to significant and rapid tobacco tax increases. Based upon Statistics Canada data, during the twelve months ended March 31, 2006, price category cigarette shipments represented 44.9% of total shipments of tobacco products by all Canadian manufacturers (including duty-free and export sales). During the twelve months ended March 31, 2005 and March 31, 2004, price category cigarette shipments accounted for 37.2% and 18.7%, respectively, of total tobacco product shipments by Canadian manufacturers (including duty-free and export sales).

Based upon Statistics Canada data, price category cigarette shipments represented 49.3%, 41.9% and 21.5% of total shipments of cigarette products by all Canadian manufacturers (including duty-free and export sales) during the twelve months ended March 31, 2006, March 31, 2005 and March 31, 2004, respectively.

Market Share

Based on data reported by Statistics Canada, the approximate market shares of the three major Canadian manufacturers and the other smaller regional manufacturers, collectively, within the Canadian domestic tobacco market for the twelve months ended March 31 in each of the years 2006, 2005 and 2004 are summarized below:

Canadian Domestic Tobacco Market Share (% of total domestic market)

Twelve months ended March 31 2006 2005 2004 RBH ITL JTI Other RBH ITL JTI Other RBH ITL JTI Other Premium cigarettes ...... 7.9 34.6 7.9 - 8.5 37.8 8.3 10.2 50.8 9.4 - Price category Cigarettes...... 17.6 14.3 2.3 5.4 13.9 12.0 1.7 5.9 6.2 2.9 0.7 5.9 Fine cut ...... 5.8 2.7 1.4 0.1 7.1 3.1 1.6 0.1 8.0 3.7 2.1 0.1 Total price category..... 23.4 17.0 3.7 5.5 21.0 15.1 3.3 6.0 14.2 6.6 2.8 6.0 Total...... 31.3 51.6 11.6 5.5 29.5 52.9 11.6 6.0 24.4 57.4 12.2 6.0

*This table includes information relating to domestic market share only (i.e. excluding duty-free and export sales). There have also been indications of sales of contraband products in the Canadian market, which by their nature would be unreported and thus not estimable for inclusion in this table.

The ten highest selling premium cigarette brand families accounted for over 96% of domestic premium cigarette shipments by Canadian manufacturers in fiscal 2006, as follows:

Premium Cigarette Category

Share of Premium Cigarette Market for the twelve months Brand Manufacturer ended March 31, 2006* DuMaurier ITL 37.9% Player’s ITL 28.7% Export ‘A’ JTI 14.2% Benson & Hedges RBH 4.6% Craven A RBH 3.5% Rothmans RBH 3.1% Belmont RBH 1.6% Belvedere RBH 1.1% Cameo ITL 0.9% Viscount RBH 0.8%

*Based upon data compiled through the CTMC.

In the price cigarette category, the domestic market share of each of the manufacturers within that category during fiscal 2006 was as follows:

Cigarette Price Category

Share of Price Cigarette Market for the twelve months ended March 31, Manufacturer 2006* RBH 44.4% ITL 36.1% JTI 5.9% Others 13.6%

*Based upon Statistics Canada data and data compiled through the CTMC.

In the fine cut tobacco category, the domestic market share of the principal products within that category during fiscal 2006, was as follows:

Fine Cut Category

Share of Fine Cut Market for the twelve months ended March 31, Brand Manufacturer 2006* Player’s Lt. Spec. Cut 90% (100 g) ITL 6.6% Number 7 65% (200 g) RBH 5.4% Export ‘A’ 100% (105 g) JTI 3.8% Number 7 65% (50 g) RBH 3.1% Player’s Lt. Insta Kit (120 g) ITL 2.8% Player’s Lt. Spec. Cut 90% (40 g) ITL 2.7% Belvedere 95% (90 g) RBH 2.7% Number 7 Lts. 65% (200 g) RBH 2.5% Mark Ten Presto Pak Reg.25 (124 g) RBH 2.3% Export ‘A’ Med. 100% (105 g) JTI 2.2%

*Based upon Statistics Canada data and data compiled through the CTMC.

Taxation

Tobacco products manufactured and sold in Canada are subject to significant sales and excise taxes and duties levied at the federal and provincial levels. Currently, these taxes can exceed eighty percent of the retail selling price of a pack of cigarettes sold in Canada, depending upon the category of the cigarettes being sold and the jurisdiction of sale. Taxes on tobacco products raise substantial revenues for the federal and provincial governments, estimated in excess of $8 billion annually. Significant increases in tobacco product taxation rates can be expected to lead to significant increases in the size of the non-tax paid or partially taxed tobacco product market. This is a common phenomenon in many foreign markets today and was experienced in Canada during the early 1990s until February 1994, when a tax rollback at the federal level and in certain provinces was instituted in order to address international smuggling of tobacco products into Canada. Tobacco taxes increased moderately from that time until April 1, 2001,

when the federal and provincial governments started increasing tobacco taxes substantially. Tax rates on tobacco products have now been raised to unprecedented levels in all jurisdictions. For example, combined federal and provincial taxes on cigarettes have more than doubled in several provinces during the last five years, and in British Columbia a carton of premium cigarettes currently retails for approximately $84. These recent tax increases have resulted in a shift in the buying patterns of many Canadian smokers from premium to price category cigarettes and to non-tax paid or partially taxed tobacco products.

The recent tax increases in Canada are a major cause of concern to tobacco manufacturers, growers, wholesalers and retailers as recent evidence suggests that the high tax environment in Canada has led to a resurgence of contraband activities. For example, Canadian federal authorities have seized a number of shipments of counterfeit cigarettes emanating from China and there have been reports of tobacco products being manufactured without required health warnings and being sold in Canada without payment of tax. As well, truck hijackings, armed robbery and theft experienced in the past is recurring. As the supply of tobacco products shifts away from legal channels, constructive efforts to restrict under-age access to tobacco products will be rendered ineffective. The extent of contraband products which are being sold in Canada is not known. However, evidence suggests that the presence of contraband product in the domestic market has substantially increased in recent years. The Canada Revenue Agency (the “CRA”) confirmed in a Discussion Paper released in 2005 that “significant taxation of tobacco products and the potential for profit act as powerful incentives for contraband activity which results in substantial revenue losses at both the federal and provincial levels, and undermines government health initiatives, which form part of the basis for high excise duties and provincial taxes on tobacco products.” The CRA also noted that “Canada is clearly a target for offshore contraband tobacco products.” See “Rothmans, Benson & Hedges Inc. – Risk Factors – Increases in the Levels of Contraband and Counterfeit Products”.

FEDERAL AND PROVINCIAL TOBACCO TAX INCREASES BY PROVINCE SINCE APRIL 1, 2001

60.00 Increase During Fiscal Year ended March 31, 2006

50.00 Increase During Fiscal Year ended March 31, 2005 40.00 Increase During Fiscal Year ended March 31, 2004 30.00 Increase During Fiscal Year ended March 31, 2003

$ PER 200 CIGARETTES 200 $ PER 20.00 Increase During Fiscal Year ended March 31, 2002 10.00 Total Federal and Provincial Tobacco Tax as at April 1, - 2001 ta k. io c .I. r s r E fld. B.C. e ta N.B. N.S. N lb Sa n uebe P. A O Q Manitoba PROVINCE

In general, there are four product categories for purposes of tobacco taxes: cigarettes, manufactured fine cut tobacco, tobacco sticks and specialty products. Cigarette and tobacco stick products are taxed on a per-stick basis while taxes on manufactured fine cut tobacco are levied on a per-gram basis. Most provinces currently tax tobacco stick and fine cut products at a per stick/gram rate equivalent to

cigarettes. The federal government has, however, maintained a tax policy which differentiates rates for the three major product categories with proportionally lower rates of tax applicable to tobacco sticks and fine cut. However, combined federal/provincial tax differentials between the three major product categories have been considerably narrowed in recent years. Relatively lower tax rates on fine cut products help to address tax regressivity concerns and provide a legal alternative for price sensitive smokers. Consumer demand for fine cut and pre-portioned tobacco stick products is highly dependent upon the lower rates of tobacco excise duties imposed on these products compared to cigarettes. Accordingly, any changes in government taxation policy which reduces the differences in taxation rates between tobacco product categories can be expected to adversely affect demand for fine cut and pre- portioned tobacco stick products and could lead to increased contraband activity. See “Rothmans, Benson & Hedges Inc. – Risk Factors – Changes in Government Taxation Policy”.

Since February 1994, Canadian tobacco manufacturers, including RBH, have been subject to a federal surtax imposed on corporate profits. The surtax was imposed at the time of the tobacco tax rollback and was originally legislated as a temporary tax for three years. In November 1999, the surtax was extended indefinitely and on April 6, 2001 the surtax rate was increased. As a result, RBH’s effective income tax rate, as at March 31, 2006, is higher by approximately 6.1 percent, than would be the case without the surtax.

On April 6, 2001, the federal government introduced legislation affecting export and duty free sales. Under the previous system, exports intended for foreign duty paid markets were exempt from export taxes up to a specified limit of 1.5% of prior year production. Export taxes applicable on quantities exceeding this limit were recoverable upon providing evidence that the foreign federal tobacco taxes were paid. Sales to Canadian and foreign duty free stores were not subject to the export tax. Under the current structure, recoverable taxes are imposed on exports intended for foreign duty paid markets up to a limit of 1.5% of production. Exports exceeding this limit are subject to non-recoverable taxes, which effectively restrict sales by Canadian manufacturers to export markets to the 1.5% limitation. With respect to sales to domestic and foreign duty free stores, non-recoverable duties are imposed which effectively raise the cost of tobacco products within these outlets. Both the export tax and the taxes imposed on sales to duty free outlets were raised from $10.00 per carton of cigarettes to $11.50, effective November 2, 2001. The rates were further increased to $15.00, effective June 18, 2002. As a result, total export and duty free sales now represent only 1.0% of RBH’s total sales volumes.

Regulatory Environment

Canada is one of the most regulated environments in the world for the marketing and sale of tobacco products. Restrictive legislation governing virtually all aspects of tobacco product sales and promotion has been imposed by federal, provincial and municipal governmental authorities in Canada. Furthermore, legislation and regulations restricting or prohibiting smoking in the workplace and other environments are in place in many jurisdictions across Canada.

The Tobacco Act (Canada) prohibits the direct or indirect promotion of tobacco products and bans sponsorships by tobacco product manufacturers. It also mandates the display of health warnings and information concerning constituents of the product on tobacco product packaging and requires prescribed information concerning tobacco products and their ingredients and emissions to be reported to Health Canada.

Legislation also regulates the display of tobacco products by retailers and requires tobacco retailers to post prescribed signage relating to tobacco products. Legislation enacted in Saskatchewan in 2002 prohibits the display of tobacco products and any advertising or promotion of tobacco products in any location, including retail stores, to which persons under the age of 18 have access. RBH challenged the validity of the Saskatchewan legislation on constitutional grounds, however, in January 2005 the Supreme Court of Canada ruled that the legislation did not conflict with the federal legislation. Similar legislation banning the display of tobacco products has been enacted in Manitoba and Prince Edward Island. Legislation enacted in Quebec prohibits the sale of tobacco products in such places as the grounds and buildings of colleges and universities, buildings intended mainly for the presentation of sports, recreational, cultural or artistic activities and pubs, taverns and bars. In Ontario, legislation has been enacted which restricts the manner in which tobacco products may be displayed at locations where the product is sold. Effective May 1, 2008, the display of tobacco products in Quebec and Ontario will be prohibited.

Legislation enacted in British Columbia, Newfoundland and Labrador, Nova Scotia and Ontario purports to allow the provincial government in its own right to bring an action against tobacco product manufacturers for recovery of health care costs that allegedly have been, or will be, incurred by the province in respect of alleged smoking-related illnesses. New Brunswick and Manitoba have both introduced bills modeled on the legislation in British Columbia. RBH and other tobacco product manufacturers challenged the validity of the British Columbia legislation on constitutional grounds. In June 2003, the Supreme Court of British Columbia ruled that the provincial legislation was unconstitutional. The Province’s appeal of this decision was heard in November of 2003 and in May 2004, the British Columbia Court of Appeal, overturning the lower court decision, ruled that the legislation was constitutionally valid. RBH and other tobacco product manufacturers appealed this decision to the Supreme Court of Canada which dismissed the appeal in September 2005. The action in British Columbia is now proceeding. In Newfoundland and Labrador, the government initiated a reference to the Newfoundland Court of Appeal asking that Court to examine the constitutional validity of the Newfoundland legislation, however the provincial government announced in 2005 that it was withdrawing its reference case and would await the decision of the Supreme Court of Canada in the British Columbia action. At this time, no action has been commenced. See “Rothmans, Benson & Hedges Inc. – Risk Factors – Government Claims and Potential Claims”.

The federal Tobacco Act was enacted in April 1997. This followed a successful challenge (decided in 1995 by the Supreme Court of Canada) by the major Canadian manufacturers of the constitutional validity of many provisions of predecessor legislation, the Tobacco Products Control Act (Canada), enacted in 1989. The major Canadian tobacco manufacturers challenged the constitutional validity of the Tobacco Act. In December 2002, the Quebec Superior Court dismissed the constitutional challenge of this legislation by the three major manufacturers. The manufacturers’ appeal of this decision was heard by the Quebec Court of Appeal in December 2004 and in August 2005 the Quebec Court of Appeal upheld the validity of most of the legislation. The federal government sought leave to appeal to the Supreme Court of Canada with respect to those sections of the legislation which had been struck down by the Court of Appeal, and the Supreme Court of Canada granted leave to hear the appeal, as well as the cross appeal of the manufacturers. A hearing is scheduled for February 2007.

The Tobacco Products Information Regulations implemented under the Tobacco Act in 2001 require that tobacco product packages display sixteen different health warnings occupying 50% of the principal display surface of most tobacco product packages. These regulations also require tobacco product manufacturers to display additional information concerning the constituents and emissions from tobacco products on the sides of most tobacco product packages and to display prescribed health information messages on the inside of the packages or on a leaflet included in the package. The Tobacco Reporting Regulations, implemented under the Tobacco Act in 2001, require tobacco product manufacturers to provide detailed reports to Health Canada regarding the components and constituents of tobacco products

and their emissions, sales and distribution of tobacco products and tobacco product accessories and research activities undertaken with respect to tobacco products. See “Rothmans, Benson & Hedges Inc. – Risk Factors – Changes in Legislation and Regulation”. The constitutional validity of these regulations is also being challenged as part of the constitutional proceedings brought by the major Canadian manufacturers in respect of the Tobacco Act.

As of October 1, 2005, new regulations enacted under the Tobacco Act require all cigarettes manufactured in or imported into Canada to meet new reduced ignition propensity performance standards. Amendments to the Tobacco Reporting Regulations require tobacco product manufacturers to perform annual testing on cigarette brands against the new ignition propensity standards and require manufacturers to submit the results of these tests to Health Canada on an annual basis. See “Rothmans, Benson & Hedges Inc. – Risk Factors – New Product Standards”.

Health Canada is working on proposed regulations which would prohibit the use of “light” and “mild” descriptors, or variations of those terms, in connection with tobacco products and accessories. It is also working on regulations which would require the current toxic emissions statement on tobacco product packaging to be replaced by other information. A survey with respect to the costs of these proposed regulations was circulated to industry stakeholders in March, 2006. There is also an ongoing regulatory investigation by the Competition Bureau relating to the use of the terms “light” and “mild” as descriptors on tobacco products.

In 2004, Health Canada published a consultation document which solicited comments on a proposal for new health-related information on tobacco product labels. Among other things, 48 new health warnings were proposed for tobacco packaging as well as new health information messages.

ROTHMANS, BENSON & HEDGES INC.

RBH’s sales (net of excise duties and taxes) for the fiscal year ended March 31, 2006 were $652.3 million, compared to $636.8 million in fiscal 2005 and $620.1 million in fiscal 2004. These increases in net sales have been achieved, notwithstanding declining industry volumes, primarily as a result of the continued growth in the cigarette price category and increases in RBH’s wholesale selling prices, which more than offset volume declines in premium cigarettes and fine cut shipments.

RBH’s total shipments of tobacco products (including duty-free and export sales) were 11.3 billion units (cigarette sticks and equivalents) during the fiscal year ended March 31, 2006 compared to 11.6 billion units in fiscal 2005, and 10.3 billion units in fiscal 2004.

Based on industry data and data reported by Statistics Canada, RBH’s approximate market share within the Canadian domestic premium cigarette and price category markets and on a composite market basis for the twelve months ended March 31 in each of the years 2006, 2005 and 2004 is summarized below:

RBH Market Share (% of category)

Twelve months ended March 31 2006 2005 2004 Three Reported Three Reported Three Reported Majors Industry Majors Industry Majors Industry Premium cigarettes ...... 15.6 15.6 15.5 15.5 14.6 14.6 Price category ...... 53.2 47.4 53.3 46.3 60.1 47.9 Composite...... 33.2 31.3 31.4 29.5 26.0 24.4

*This table includes information relating to domestic market share only (i.e. excluding duty-free and export sales).

Products

RBH’s products are distributed and sold under a number of brand names in varying styles and formats in order to satisfy consumer preferences. Styles and formats include king size, regular and 100mm length cigarettes; 20’s and 25’s cigarette packs; pre-portioned tobacco sticks; and, varying sizes of conventional and expanded fine cut tobacco tubs and pouches. RBH’s ten largest brand families, Number 7, Canadian Classics, Benson & Hedges, Craven A, Rothmans, Mark Ten, Belvedere, Belmont Milds, Viscount and Dunhill, accounted for more than 92% of RBH’s total net sales of tobacco products during the fiscal year ended March 31, 2006.

RBH’s three major premium cigarette brand families, Benson & Hedges, Craven A and Rothmans, represented net sales of $84.0 million, $63.6 million and $55.9 million respectively in fiscal 2006 and $92.4 million, $75.6 million and $64.4 million respectively in fiscal 2005. Sales of these brands accounted for 22.7% of RBH’s cigarette product sales in fiscal 2006 compared to 28.5% in fiscal 2005. This decline was mainly due to the continued growth of the price category.

RBH’s cigarette price category brand families, Number 7, Canadian Classics and Mark Ten, represented net sales of $165.2 million, $62.7 million and $21.2 million, respectively, in fiscal 2006. Net sales for Number 7, Canadian Classics and Mark Ten were $150.6 million, $27.2 million and $11.3 million, respectively, in fiscal 2005. Sales of these brands accounted for 68.6% of RBH’s cigarette product sales in fiscal 2006 compared to 61.4% in fiscal 2005.

Fine cut products accounted for 12.4% of RBH’s net sales and 18.6% of total shipments during the fiscal year ended March 31, 2006 and 15.3% of net sales and 24.1% of total shipments in fiscal 2005. Net sales of pipe tobacco and mini-cigar products represented 5.1% of RBH’s net sales during fiscal 2006. Sales of other products including raw tobacco, cigarette tubes, lighters and matches represented approximately 1% of annual net sales during fiscal 2006.

Products contract manufactured for export markets included in the above amounts accounted for 0.4% of total shipments in fiscal 2006 and 0.4% in fiscal 2005. With the introduction of new export taxes in April 2001, export sales by the three major Canadian manufacturers to foreign duty-paid customers are effectively limited to 1.5% of prior year production.

The principal brand families and market share by category for RBH’s cigarette and fine cut tobacco products (based upon total domestic shipments by all Canadian manufacturers in each category) for each of the past three fiscal years are as follows:

RBH Principal Brand Families - Market Share (%)

Fiscal years ended March 31

Premium Cigarettes 2006 2005 2004 Benson & Hedges 4.6 4.5 3.9 Craven A 3.5 3.7 3.6 Rothmans 3.1 3.2 3.0 Belmont 1.6 1.2 0.7 Belvedere 1.1 1.2 1.2 Viscount 0.8 0.8 0.9 Dunhill * 0.6 0.6 0.5 Gauloises * 0.2 0.2 - Accord 0.1 0.1 0.1 Price Cigarettes 2006 2005 2004 Number 7 23.5 29.5 38.5 Canadian Classics 16.0 8.8 0.9 Mark Ten 4.9 3.3 - Fine Cut 2006 2005 2004 Number 7 30.5 30.4 28.7 Belvedere 15.7 16.5 14.4 Mark Ten 5.6 6.7 8.4 Canadian Classics 3.3 0.4 - Black Cat 3.1 4.3 4.1 Craven A 0.7 0.6 0.9 Drum* 0.2 - -

* Sold under licence.

All of RBH’s cigarette products described above are sold in Canada under trade-marks which are proprietary to RBH other than the Dunhill brand family which is manufactured and sold under a licence agreement with a subsidiary of BAT and Gauloises and Gitanes products which are manufactured and sold under a licence agreement with Société Nationale d’Exploitation Industrielle des Tabacs et Alumettes. All such licences are in effect for a term exceeding five years, subject to specific rights of early termination.

RBH’s sales of fine cut products include a number of pre-portioned fine cut stick products sold under the Custom Cut and Presto Pak trade-marks.

RBH also distributes imported pipe tobaccos, fine cut tobaccos and mini-cigars under distribution arrangements with the foreign manufacturers of these products. These products are sold under the Captain Black, Sail, Erinmore, Drum and Amphora trade-marks.

In February 2003, RBH introduced Number 7 cigarettes into the price category in Ontario, Quebec and the Maritimes. The introduction of Number 7 in this category was undertaken by RBH in response to growth in the cigarette price category, principally due to significant tax increases by both the federal and provincial governments. Prior to RBH’s introduction of Number 7, none of the three major manufacturers had products offered in the cigarette price category. In the last quarter of fiscal 2004, RBH repositioned its Canadian Classics brand into the cigarette price category and in May 2004, RBH launched its Mark Ten brand into the cigarette price category. The two other major Canadian manufacturers have also launched entries into the cigarette price category.

During fiscal 2005, RBH expanded its offerings in the high-yield loose tobacco market by launching various “100% More” products under a variety of trade-marks. These products followed the successful launch of Canadian Classics “100% More” high yield loose tobacco products in February 2005. In fiscal 2006 RBH implemented a product rationalization strategy that streamlined product offerings in the high yield loose tobacco market across Canada.

Sales and Marketing

RBH sells its products directly to all major Canadian tobacco wholesalers, with approximately 78% of its sales volume during fiscal 2006 being to the ten largest Canadian wholesalers. RBH’s three largest customers accounted for approximately 44% of annual sales, and the five largest customers together accounted for approximately 61% of sales during fiscal 2006.

During fiscal 2006, RBH continued to maintain a tiered wholesale pricing structure for cigarette products, with higher wholesale prices for king size and 100 millimetre products than for manufactured regular length cigarettes. This pricing structure reflects the relatively higher cost inherent in longer cigarettes.

Although most of RBH’s sales of tobacco products are currently made at the wholesale level, the efforts of the RBH national sales force are directed in large part to increasing brand awareness and developing strong relationships with the retail channel. RBH’s marketing activities are focused solely on ensuring that its tobacco products are available to adult smokers for purchase in retail locations. As at March 31, 2006, tobacco products were made available to consumers at approximately 33,000 retail outlets across Canada, although slightly more than 22,000 retailers accounted for 91% of domestic market sales of tobacco products. Compared to its competitors, RBH maintains a large portfolio of stock keeping units for which RBH endeavours to maintain effective product exposure within this expansive retail network. RBH’s initiatives with retailers include retail store visits, monitoring of retail inventory levels and product freshness as well as assistance with product displays where permitted in the retail environment. Through contractual merchandising arrangements with certain retailers, RBH acquires merchandising rights in retail stores in order to ensure consistency and prominence in the presentation of RBH tobacco products over those of its competitors. Competition for retail shelf space is, however, intense. Sponsorships by RBH of music and other events were discontinued in October 2003, as a result of the provisions of the Tobacco Act (Canada). With regulatory restrictions on tobacco products in the bar environment, RBH recently discontinued its bar program.

RBH is a contract manufacturer for affiliates of PMI, which hold the rights to the Rothmans brand for the U.S. Under Canadian law these exports are restricted to less than 1.5% of RBH’s Canadian cigarette sales.

Leaf Procurement

During fiscal 2006, RBH purchased over 85% of its total tobacco leaf requirements in Canada through the Ontario Flue-Cured Tobacco Growers’ Marketing Board.

Tobacco grown in Ontario is sold by growers in accordance with the quotas held by the growers and is required to be marketed through the provincial marketing board.

Under agreements entered into between four domestic tobacco manufacturers and the marketing board in respect of the 2005 growing season, the marketing board agreed in advance to deliver and the manufacturers agreed to purchase, at a guaranteed average price per pound, certain guaranteed quantities of tobacco produced by growers in Ontario. Such prices and quantities were determined as a result of negotiation between four domestic tobacco manufacturers and the marketing board. The grant of tobacco quotas, the cultivation of tobacco and its sale, including the activities of the marketing boards, are regulated by applicable provincial legislation.

RBH purchased the remainder of its total tobacco leaf requirements in fiscal 2006 from international leaf dealers.

Manufacturing

RBH operates manufacturing plants in Quebec City, Quebec, and Brampton, Ontario. The principal raw materials in the manufacture of cigarettes and fine cut tobacco products are tobacco leaf and wrapping and filter materials. Tobacco leaf represents RBH’s single most significant annual cost at more than $65 million in fiscal 2006.

Quebec City

RBH carries out its cigarette manufacturing and final manufacturing of its fine cut products at its plant in Quebec City, Quebec. This 360,000 square foot facility, originally established in 1899, is fully modernized and contains state-of-the-art cigarette production equipment. The plant is ISO9002 certified. RBH’s production capacities vary for cigarette products according to the type and length of cigarette and packaging formats being produced, and for fine cut products according to the size of the package or container in which the fine cut product is to be sold. Over the past two years, capital expenditures have been made by RBH for plant and equipment upgrades to facilitate the production of various cigarette and packaging formats in response to shifts in consumer buying patterns and for the purpose of new product introductions.

Brampton

At its Brampton, Ontario plant, RBH produces expanded tobacco for cigarette and fine cut products. Originally designed as an integrated cigarette manufacturing facility, the Brampton plant is now restricted to leaf tobacco processing with all finished product manufacturing consolidated at the Quebec City facility. Expanded tobacco is produced under agreement with an affiliate of PMI on a royalty-free basis.

Storage and Distribution

Tobacco leaf processing and storage operations, as well as the initial processing and conditioning of tobacco leaf, are carried out by a third party processor in Simcoe, Ontario. Cigarettes and other finished tobacco products are stored in public warehouses in Halifax, St. John’s, Calgary, Quebec City, Toronto and Vancouver. Products are distributed from these public warehouses through common carriers.

Properties

RBH owns two manufacturing facilities in Canada (see “Manufacturing” above). In addition, RBH leases offices in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Nova Scotia, including its head office facility in Toronto, Ontario. RBH’s tobacco purchasing office is located in leased premises in Delhi, Ontario.

RBH monitors compliance with all applicable laws relating to the environment and is not aware of any violations of such laws at any of its owned or leased locations, including laws regulating pollution control, waste treatment and disposal or the storage and use of hazardous substances.

Competition

The Canadian domestic tobacco market is highly competitive among three principal industry participants, RBH, ITL and JTI and, more recently due to the growth in the price category in Canada, with several smaller manufacturers of non-premium cigarette brands. Due to extensive government constraints, RBH’s ability to effectively compete for additional market share of its products is severely restricted. (See “The Canadian Tobacco Products Industry – Regulatory Environment”). Competitive activity is generally limited to building brand recognition among adult smokers, although opportunities to increase brand awareness are severely restricted or prohibited. As a result, opportunities to increase market share have increasingly focussed in the past two years on the cigarette price category which addresses consumer preference for lower-priced tobacco products, particularly as tobacco taxation rates have increased in recent years.

Human Resources

As at March 31, 2006, RBH had 745 full time and part-time employees. Of these, 291 are unionized employees represented by the Bakery, Confectionery, Tobacco and Grain Millers International Union and are governed by four collective agreements as set out below:

Location Expiry of Collective Agreement Subject Québec City plant March 19, 2010 259 hourly workers Montreal sales office September 30, 2010 5 office employees Brampton plant April 11, 2010 16 plant employees Brampton office & laboratory April 11, 2010 11 employees

Directors and Officers

The following table sets forth the name, municipality of residence, positions with RBH and principal occupation of each of the directors and officers of RBH as of the date hereof:

Name and Municipality of Residence Position Held with RBH Principal Occupation John R. Barnett Director, President and Chief Officer of RBH Toronto, Ontario Executive Officer Robert J. Carew Executive Vice President, Regulatory Officer of RBH Toronto, Ontario and Legal Affairs Warren Finlay Vice President, Operations, Leaf and Officer of RBH Toronto, Ontario Research and Development Ron Funk Vice President, Corporate Affairs Officer of RBH Toronto, Ontario Vice President, Competitive Improvement Michael E. Frater Vice President, Finance and Officer of RBH Toronto, Ontario Administration Derek Guile Vice President, Sales and Marketing Officer of RBH Mississauga, Ontario Faryl Hausman Vice President, Litigation and Officer of RBH Toronto, Ontario Regulatory Affairs Vice President, Human Resources Leonard Hruszowy Vice President, Tobacco Products Officer of RBH Toronto, Ontario Division Rhonda Yarin Vice President, General Counsel Officer of RBH Toronto, Ontario Dean Blain Secretary Partner of Gowling Lafleur Henderson Toronto, Ontario LLP Brenda J. Moher Assistant Secretary Officer of RBH Toronto, Ontario Pierre Gravelle Director CEO, Centre for the Financial Services Toronto, Ontario OmbudsNetwork Richard McCoy Director Corporate Director Toronto, Ontario Frank T. Toscano Director Sr. Vice President Planning and New York, N.Y. Business Development, Latin America and Canada Region, Philip Morris International Inc. Miroslaw Zielinski Director President, Latin America and Canada New York, N.Y. Region, Philip Morris International Inc.

RBH Shareholders Agreement

The Company is party to a shareholders agreement dated December 19, 1986, as amended (the “Shareholders Agreement”), with FTR Holding S.A. (“FTR”), an affiliate of PMI, which governs certain aspects of the management and operation of RBH. The Shareholders Agreement provides that the RBH board of directors is to consist of five directors, three of whom are to be nominees of the Company and two of whom are to be nominees of FTR. The board of directors has full authority and responsibility for the management of RBH, including the appointment of officers, provided however that certain significant matters, including entering into non-tobacco businesses and certain acquisitions and other major transactions, require the approval of both shareholders.

The Shareholders Agreement includes non-compete covenants and restrictions on transfers of shares of RBH to third parties, unless certain procedures in respect of rights of first refusal are followed. The Shareholders Agreement also requires certain approvals to be obtained from PMI prior to any changes being implemented by RBH with respect to the packaging or design of the Benson & Hedges brand.

Legal Proceedings

In February 2005, the Québec Superior Court authorized two claims brought by plaintiffs resident in the Province of Québec to proceed as class actions against RBH, Imperial Tobacco Limited and JTI- Macdonald Corp. The Court consolidated the two actions; one representing a class consisting of certain persons residing in Québec who allegedly are or have been addicted to the nicotine contained in cigarettes manufactured by the respondents which is seeking $17.8 billion in damages, the other representing certain persons who have allegedly suffered certain diseases as a result of smoking cigarettes manufactured by the respondents, as well as the legal heirs of deceased persons included in the group, which is seeking $5 billion in damages. The claims include allegations of failure to warn, addiction, nicotine manipulation, advertising directed at young people, false advertising and inadequate warnings. The claimants are seeking on behalf of themselves and each class member general and exemplary damages to be assessed and the establishment of a fund with the object of limiting cigarette consumption, supporting medical research into tobacco linked illnesses and reimbursing the Province of Québec for certain health care costs incurred by it in treating these illnesses. Statements of claim were filed by the plaintiffs and oral examinations of the plaintiffs have commenced. Although the precise scope of these class actions remains unclear, such actions will involve a large number of people, possibly ranging in the millions.

In January 2002, representatives of the Royal Canadian Mounted Police (“RCMP”) conducted a search of RBH’s business premises in connection with an investigation into RBH’s business records and sales of products exported from Canada in the period 1989-1996. Illegal smuggling of tobacco products into Canada occurred during the late 1980s and early 1990s co-incident with the imposition by the federal and provincial governments of significant new taxes and duties on tobacco products. Such taxes and duties were, however, not imposed on tobacco products exported out of Canada. In February 1994, in an effort to curb the high level of smuggling of tobacco products into Canada, the federal and certain provincial governments reduced taxes to earlier levels. Exports of tobacco products by the major Canadian tobacco manufacturers increased significantly from 1991 to 1994. Although no action has been commenced and

no charges laid against the Company or RBH or any of its present or former employees, officers or directors, the RCMP and the federal and provincial governments may be considering commencing actions or laying charges alleging smuggling of tobacco products. In February 2003, the RCMP filed criminal charges against another Canadian tobacco products manufacturer and related parties alleging violations of the Criminal Code (Canada) in connection with the sale and export of tobacco products during the early 1990s. In January 2006, a former executive of this company pled guilty to charges of defrauding the federal government of tax revenue and was sentenced to eight months house arrest in return for providing evidence against that other company and certain of its executives. A preliminary hearing with respect to the other defendants is expected to be concluded during 2006. In August 2003, the Government of Canada initiated a civil lawsuit and in August 2004 the Minister of Revenue for the Province of Québec initiated tax reassessment proceedings against this manufacturer and related parties seeking to recover taxes allegedly owing in connection with the sale of such exported products. In September 2004, this manufacturer was granted protection from creditors under the Companies’ Creditors Arrangement Act (Canada) and a stay of the civil proceedings brought by the Government of Canada and the Minister of Revenue for the Province of Québec. In November 2004, representatives of the RCMP conducted a search of the largest Canadian tobacco products manufacturer as part of its investigations into sales of tobacco products exported from Canada. The former federal Minister of Justice previously stated that if the Government of Canada believes that it has sufficient evidence to move against any company, it will do so.

In January 2001, the Province of British Columbia initiated a lawsuit in the Supreme Court of British Columbia against RBH, the Company and numerous other Canadian and international tobacco companies and various tobacco trade associations seeking unspecified damages in an amount to cover the costs that allegedly have been, or will be, incurred by the Government of British Columbia in providing health care benefits to British Columbia residents who have allegedly suffered smoking-related illnesses. The action was brought pursuant to the Tobacco Damages and Health Care Costs Recovery Act (British Columbia), which purports to facilitate individuals and the provincial government in suing tobacco manufacturers. This legislation was enacted in January 2001, following a successful challenge (decided in March 2000 by the Supreme Court of British Columbia) by a number of tobacco manufacturers of similar predecessor legislation enacted in 1998. RBH and other tobacco product manufacturers challenged the constitutional validity of the new legislation, however, in May 2004, the British Columbia Court of Appeal, overturning a lower court decision, ruled that the legislation was constitutionally valid. RBH and other tobacco product manufacturers appealed this decision to the Supreme Court of Canada. The appeal was heard in June 2005 and was dismissed by the Supreme Court of Canada in September 2005. The action is now proceeding.

In October 2002, the Province of Newfoundland and Labrador commenced a reference case in the Newfoundland Court of Appeal seeking a determination as to whether the Tobacco Health Care Costs Recovery Act (Newfoundland) enacted in 2002 (but yet to be proclaimed in force) is constitutional. This legislation purports to allow the provincial government to bring an action against tobacco product manufacturers for recovery of health care costs that allegedly have been or will be incurred by the Province in respect of alleged smoking-related illnesses. The Province also announced that it had retained a U.S. law firm to assist the Province in bringing a claim against tobacco product manufacturers for recovery of these health care costs. The Province later announced that it was withdrawing its reference case and would await the decision of the Supreme Court of Canada in the British Columbia action before proceeding with its claim. At this time, no action has been commenced.

In December 2005, Nova Scotia passed the Tobacco Damages and Health Care Costs Recovery Act (Nova Scotia). The legislation, which is modeled on the British Columbia legislation, purports to allow the provincial government to bring an action against tobacco product manufacturers for the recovery of health care costs that allegedly have been or will be incurred by the Province in respect of alleged tobacco related diseases. No action has been commenced under this legislation.

In December 2005, the New Brunswick government introduced the Tobacco Damages and Health Care Costs Recovery Act (New Brunswick). The Bill, which is also modeled on the British Columbia legislation, purports to allow the Province to bring an action against tobacco product manufacturers for the recovery of health care costs that allegedly have been or will be incurred by the Province in respect of alleged tobacco related diseases. The Bill has received second reading.

In March 2006, the Manitoba government introduced proposed health care costs recovery legislation similar to that of British Columbia, Newfoundland and Labrador, Nova Scotia and New Brunswick.

RBH and other tobacco manufacturers are also the subject of a regulatory investigation by the Competition Bureau relating to the use of the terms “light” and “mild” and other similar descriptors on tobacco product packaging.

In May 1997, a statement of claim was issued against RBH and Imperial Tobacco Limited by a single plaintiff, Mirjana Spasic, in the Ontario Superior Court of Justice claiming damages in the amount of $1,000,000, reimbursement for moneys expended on the purchase of the defendants’ cigarette products and aggravated, punitive and exemplary damages. The claim was based upon allegations of negligent and intentional acts, spoliation, negligent misrepresentation, deceit, conspiracy, product liability and breaches of express and implied warranty. This action is proceeding. RBH has filed its Statement of Defence and will continue to defend the case.

In January 1995, an action was commenced in the Ontario Superior Court of Justice against RBH, Imperial Tobacco Limited and JTI-Macdonald Corp. by originally three and later four individual plaintiffs who are seeking to certify the action as a class action. The plaintiffs claimed, on their own behalf and on behalf of each potential class member, damages in the amount of $1,000,000 in addition to aggravated, punitive and exemplary damages and a mandatory order for the creation and funding of nicotine addiction rehabilitation centres for those allegedly addicted to nicotine. In February, 2004, the Ontario Superior Court of Justice dismissed the plaintiffs’ motion seeking to certify the proceeding as a class action. The Court ruled that certification of this action was not appropriate because it did not meet the requirements of the Class Proceedings Act (Ontario) for a number of reasons.

These claims remain at an early stage and involve complicated and novel questions of law that may take several years to resolve. The Company and RBH believe that they have good defences to these claims and intend to vigorously defend themselves. The outcome of litigation is however uncertain and these claims could be decided unfavourably against RBH and the Company. The Company and RBH may also decide to enter into settlement discussions regarding these claims if they believe it is in their best interests. Based on the stage of these proceedings, the Company is unable to meaningfully estimate the amount or range of loss, if any, that might result from these claims. Although the precise scope of the class actions remains unclear, such actions will involve a large number of people, possibly ranging in the millions. If successful, these claims, either individually or in the aggregate, could involve significant damages, which would have a significant adverse effect on the financial condition of the Company, and the Company and RBH may not have the resources to satisfy such claims. See “Rothmans, Benson & Hedges Inc. – Risk Factors – Government Claims and Potential Claims” and “Product Liability Claims”.

In addition to these claims and investigations, the Company monitors other legal proceedings and claims affecting the industry in Canada and which are ongoing or have occurred in other jurisdictions. In Canada, these proceedings include an action against another Canadian tobacco product manufacturer for damages alleging that a tobacco product caused a fire resulting in injury and/or death of the plaintiffs and that the defendant was negligent in failing to sell a fire-safe cigarette and class action suits alleging that the use of the terms “light” and “mild” and other similar descriptors constitute deceptive and misleading representations and unfair trade practices. The Company is also monitoring a claim for damages brought in Ontario small claims court which was originally dismissed but is now under appeal and a claim brought

in Ontario based on the payment of plaintiff’s counsel by way of contingency fees. Developments in recent years in the Provinces of Ontario and Québec may affect the manner in which claims are brought against Canadian tobacco manufacturers in the future. In Québec, changes to the Civil Code allow certification of class action proceedings without the requirement for supporting affidavit evidence to be submitted by the plaintiffs, as was previously necessary. In Ontario, an Ontario Court of Appeal decision effectively ruled that appropriate contingency fee arrangements may now be permissible for all types of legal actions. Previously, contingency fees were only permitted for class action proceedings. These changes in Ontario and Québec do not, however, affect the merits of any claim that may be brought against RBH.

In other jurisdictions, including the U.S. and the European Union, proceedings involving tobacco product manufacturers include product liability claims relating to smoking and health, personal injury claims caused by environmental tobacco smoke, class action suits alleging that the use of descriptors such as “lights” and “ultra lights” constitute deceptive and unfair trade practices, claims and investigations relating to allegations of illegal exports and imports of tobacco products and of unlawful pricing activities, a co-operation agreement relating to anti-contraband and anti-counterfeit efforts and settlements of health care recovery litigation. Settlement agreements reached in the other jurisdictions on these types of issues have involved significant monetary payments being made by tobacco product manufacturers in those jurisdictions over an extended period of up to 20 years. To date, no such settlement agreements have been entered into in Canada. Should tobacco product manufacturers in Canada enter into arrangements or agreements of a similar nature in respect of any claims, proceedings or investigations currently outstanding or those that may be brought in the future, significant monetary payments to third parties including government authorities in Canada may be required which could adversely affect the financial condition and earnings of such companies, including RBH and the Company should they be a party to such arrangements.

Risk Factors

Government Claims and Potential Claims

Each of the Provinces of British Columbia, Newfoundland and Labrador and Nova Scotia has enacted legislation allowing it to commence an action, in its own right, to recover from a tobacco products manufacturer health care costs that have been, or will be, incurred by such province in treating smoking related illnesses. The Province of British Columbia has instituted a claim for compensation under this legislation. The Provinces of New Brunswick and Manitoba have introduced similar legislation. Other provinces may also be considering enacting similar legislation. Claims made under any such legislation could, if successful, involve significant damages, which could have a significant adverse effect on the financial condition of the Company, and the Company and RBH may not have the resources to satisfy such claims. Other provinces and the Government of Canada are reported to be considering whether to proceed with actions against tobacco manufacturers to recover health care costs. See “Rothmans, Benson & Hedges Inc. – Legal Proceedings”.

In February 2003, the Government of Canada filed criminal charges against another Canadian tobacco product manufacturer and related parties alleging violations of the Criminal Code (Canada) in connection with the sale and export of tobacco products during the early 1990’s. In August 2003, the Government of Canada initiated a civil lawsuit and in August 2004 the Minister of Revenue for the Province of Québec initiated tax reassessment proceedings against this other manufacturer and related parties seeking to recover taxes allegedly owing in connection with the sale of such exported products. In September 2004, this manufacturer was granted protection from creditors under the Companies’ Creditors Arrangement Act (Canada) and a stay of the civil proceedings brought by the Government of Canada and the Minister of Revenue for the Province of Quebec. In November 2004 representatives of the RCMP also conducted

a search of the largest Canadian tobacco products manufacturer as part of its investigation into sales of tobacco products exported from Canada.

RBH is currently the subject to an ongoing investigation by the RCMP relating to its business records and sales of products exported from Canada in the period 1989-1996. Although no action has been commenced against the Company or RBH and the Company believes that RBH’s operations were properly conducted at all times, the Company cannot predict the outcome of any such investigation or whether additional investigations may be commenced, and it is possible that RBH’s business could be materially affected by an unfavourable outcome of current or future investigations. The former federal Minister of Justice previously stated that if the Government of Canada believes that it has sufficient evidence to move against any company it will do so. See “Rothmans, Benson & Hedges Inc. – Legal Proceedings”.

RBH and the other tobacco manufacturers are also the subject of a regulatory investigation by the Competition Bureau relating to the use of the terms “light” and “mild” and other similar descriptors.

It is not possible to predict the outcome of legal claims, pending and future, against the Company or RBH. Legal proceedings are subject to many uncertainties and it is possible that there will be adverse developments in the claims and investigations pending against the Company and RBH and that these and any potential future cases could be decided unfavourably or settled. In certain circumstances, defendants in litigation proceedings may be required to post a bond while an unfavourable trial decision is under appeal. The amount of such a bond may be significant and beyond the financial resources of the defendant. An unfavourable outcome or settlement of pending legal proceedings or investigations against RBH or other tobacco product manufacturers could encourage the commencement of additional litigation, claims or investigations involving RBH or the Company. There has also been a number of adverse legislative, regulatory, political and other developments concerning cigarette smoking and the tobacco industry that have received widespread media attention. These circumstances may negatively affect the outcome of pending proceedings and investigations and may prompt the commencement of additional similar proceedings and investigations. These claims or future claims, either individually or in the aggregate, if successful, could involve significant damages, which would have a significant adverse effect on the operations, cash flow and financial condition of the Company, and RBH and the Company may not have the resources to satisfy such claims. Should any of these claims or investigations or future claims or investigations be settled, significant monetary payments may be required which could adversely affect the financial condition and earnings of RBH and the Company. See “Rothmans, Benson & Hedges Inc. – Legal Proceedings”.

Product Liability Claims

Various legal actions, proceedings and claims arising out of the sale, distribution, manufacture, development, advertising and marketing of tobacco products are pending, have been threatened or may be instituted against the Company and RBH. Since 1995, there has been an increase in the number of these claims, which include government actions for recovery of health care costs allegedly incurred in respect of smoking-related illnesses. Certain of these legal actions have been authorized by the Court to proceed as a class action and punitive damages are specifically pleaded in a number of cases in addition to compensatory and other damages. These claims remain at an early stage and involve complicated and novel questions of law that may take several years to resolve. The Company and RBH believe that they have good defences to these claims and intend to vigorously defend themselves. Based on the stage of these proceedings, the Company is unable to meaningfully estimate the amount or range of loss, if any, that might result from these claims. Although the precise scope of the class actions remains unclear, such actions will involve a large number of people, possibly ranging in the millions.

It is not possible to predict the outcome of legal claims, pending and future, against the Company or RBH. Legal proceedings are subject to many uncertainties and it is possible that there will be adverse developments in the claims pending against the Company and RBH and that these and any potential future cases could be decided unfavourably or settled. In certain circumstances, defendants in litigation proceedings may be required to post a bond while an unfavourable trial decision is under appeal. The amount of such a bond may be significant and beyond the financial resources of the defendant. An unfavourable outcome or settlement of pending legal proceedings against RBH or other tobacco product manufacturers could encourage the commencement of additional litigation or claims involving RBH or the Company. There has also been a number of adverse legislative, regulatory, political and other developments concerning cigarette smoking and the tobacco industry that have received widespread media attention. These circumstances may negatively affect the outcome of pending proceedings and may prompt the commencement of additional similar proceedings. These claims or future claims, either individually or in the aggregate, if successful, could involve significant damages, which would have a significant adverse effect on the operations, cash flow and financial condition of the Company, and RBH and the Company may not have the resources to satisfy such claims. Should any of these claims or future claims be settled, significant monetary payments may be required which could adversely affect the financial condition and earnings of RBH and the Company. See “Rothmans, Benson & Hedges Inc. – Legal Proceedings”.

Increases in the Levels of Contraband and Counterfeit Products

Evidence suggests that the presence of contraband product in the domestic market has substantially increased in recent years. Increased availability of contraband and counterfeit products may increase or accelerate the shift in consumer buying patterns away from tax-paid tobacco products to non-tax paid or partially taxed tobacco products. This could result in an adverse effect on sales volumes and on RBH’s profitability, cash flows and financial condition. See “The Canadian Tobacco Products Industry – Taxation”.

Competition

The tobacco industry is highly competitive. Certain of RBH’s competitors in the tobacco manufacturing industry have substantially greater financial resources than RBH or may have an inherently greater ability to operate on a lower-cost basis or implement production efficiencies. As a result, those competitors may be able to compete more aggressively than RBH, particularly in respect of retail merchandising arrangements and product selling margins. During the third quarter of fiscal 2006, ITL announced the move of their Canadian production facilities to Mexico resulting in the planned closure of their Canadian production facilities. This move appears consistent with BAT’s stated strategy of rationalizing its worldwide production facilities to improve efficiencies. Subsequent to the year end, ITL also announced that beginning in late August 2006, it will be changing its distribution process to permit direct sales and distribution of its products to retail outlets. Although it is currently too early to determine the impact of these initiatives, should these initiatives provide ITL with even greater financial resources than RBH to aggressively compete in the market, RBH’s competitive position may be adversely affected.

The combined effect of significant tax increases implemented by federal and provincial governments together with manufacturers’ price increases have resulted in substantial increases in the retail price of tobacco products, particularly premium cigarettes. Over the past five years, RBH’s premium brands have encountered significant increased competition from lower-priced cigarette products. Additional competition has also resulted from diversion into the domestic market of cigarettes intended for sale outside Canada, the sale of counterfeit cigarettes by third parties and the sale of non-tax paid contraband product. As a result, the market share of premium cigarettes has decreased significantly, putting pressure on overall selling margins of the three major manufacturers. If these competitive factors continue, sales of premium cigarettes, the most profitable category, may continue to shift to the cigarette price category.

The impact on the sales and earnings of RBH will be dependent upon consumer buying patterns with respect to products offered in the cigarette price category by RBH and competing manufacturers. Steps that RBH has taken or may take with respect to the cigarette price category may not continue to be successful. All of these factors could result in lower overall sales and margins for RBH and could have a significant adverse effect on the operations, cash flow and financial condition of RBH.

Price Category Pressure on Overall Cigarette Margins

Total price category cigarette shipments by RBH and the industry increased significantly during the past three years and, as of March 31, 2006, accounted for approximately 44.9% of total shipments of tobacco products by all Canadian manufacturers. This shift in sales of premium cigarettes to the cigarette price category has, and is expected to continue to, put pressure on overall selling margins for cigarette products. RBH is experiencing lower overall margins as a result of increased sales of price category cigarettes and lower sales volume in the premium category. In addition, any market restrictions on RBH implementing price increases for its premium cigarettes and any competitive measures that RBH may take such as reducing the price difference between its premium and price category cigarette products, could reduce the overall profitability of RBH’s premium brands. Reduced overall cigarette margins could have a significant adverse effect on the cash flow and financial condition of the Company and RBH.

Declining Consumer Consumption and Dependence on Price Increases

Total cigarette shipments by the three major Canadian tobacco manufacturers during the twelve months ended March 31, 2006 decreased by approximately 35.3% compared to the twelve months ended March 31, 1997. Total cigarette shipments by RBH declined by approximately 1.2% during the twelve months ended March 31, 2006 compared to the twelve months ended March 31, 1997. The Canadian federal and provincial governments continue to implement and enhance anti-tobacco campaigns which may compound the long-term industry, and RBH, decline trends. If these trends continue and RBH is unable to capture market share from its competitors or implement sufficient wholesale selling price increases, RBH’s sales volumes, operating income and cash flow will be adversely affected.

RBH’s net sales have increased over the past ten fiscal years, notwithstanding declining industry volumes and RBH’s declining premium cigarette market share, primarily as a result of increases in RBH’s wholesale selling prices. There can be no assurance that RBH will be able to continue to implement wholesale selling price increases for its products at the same rate as in the past, or at all, in any future fiscal period. In such event, RBH’s net sales, cash flow and earnings would be adversely affected should industry volumes and RBH’s premium cigarette market share continue to decline.

Fluctuating Wholesaler and Consumer Purchasing Patterns

RBH has experienced fluctuations in the buying patterns of its wholesale customers as a result of tax and manufacturers’ wholesale price increases. For example, in the past, higher-than-normal wholesale purchases have occurred at particular times, in part, due to rumours of provincial tobacco tax increases. In addition, other factors such as the impact of the Canadian climate on adult smoking behaviour combined with indoor and workplace smoking bans and restrictions may result in seasonal fluctuations in consumption patterns leading to seasonal variations in wholesale customer purchases. Swings in wholesaler purchasing patterns motivated by the timing of tax and price increases, seasonality and other factors are anticipated to continue to have a significant effect on quarter-to-quarter comparisons of earnings and results in the future.

Changes in Government Taxation Policy

During the past several years the federal and provincial governments have increased excise taxes imposed on the manufacture and sale of tobacco products by a substantial amount. In addition, recent changes in provincial taxation policies have resulted in fine cut and pre-portioned tobacco stick products being taxed at levels similar to cigarettes. These recent and any future tax increases and changes in taxation policies may make RBH’s products less attractive to consumers and combined with other factors, may increase or accelerate the shift in consumer buying patterns away from premium cigarettes to the cigarette price category, reducing RBH’s overall profitability and having an adverse effect on RBH’s operations, cash flows and financial condition.

Changes in Legislation and Regulation

Restrictive legislation and regulations enacted by all levels of government have proliferated in recent years. This legislation limits RBH’s ability to compete for market share as well as adds significant costs to RBH’s operations in terms of both increased expenses and reduced operating efficiencies. See “The Canadian Tobacco Products Industry – Regulatory Environment”. If RBH is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be offset through increased selling prices for its products, RBH’s sales and operating results will be adversely affected.

New Product Standards

New government regulations, which became effective in October 2005, establish fire safety standards for tobacco products and require tobacco products sold in Canada to meet specified reduced ignition propensity standards. Compliance with these and other new standards that may be enacted in the future will result in additional costs and expenses which depending on the nature and timing of these regulations may adversely affect RBH’s results of operations and financial condition.

New product technologies continue to be of importance due to political, social and legal focus on the health effects of tobacco products. Tobacco product manufacturers continue to seek ways to develop and to commercialize new product technologies, which continue to offer adult smokers products that meet their taste expectations. While RBH is endeavouring, where possible, to ensure that new product developments and new technologies for tobacco products will be available to it, there can be no guarantee that RBH will be successful in these efforts. Should one or more of its competitors acquire such technologies which are not available to RBH, it may be at a competitive disadvantage and its sales and results of operations may be adversely affected.

Dependence on the Domestic Tobacco Market

The Company’s sole interest is its 60% interest in the tobacco manufacturing and distribution business carried on by RBH. The Canadian tobacco business has experienced declining cigarette and fine cut sales volumes over the past ten years and is subject to extensive and increasing litigation and regulation. If the Canadian tobacco product market continues to decline, the Company does not have any other business interests to offset these effects. This trend could have a material adverse effect on the Company’s financial position, cash flow and results of operations.

E. DIVIDENDS

The Company currently pays regular quarterly dividends of $0.30 per Common Share. In fiscal 2006, dividends totalling $182.7 million were paid (2005 - $70.9 million; 2004 - $54.6 million). On February 3, 2005, the Company’s Board of Directors declared a two-for-one stock split to be effected by way of a stock dividend, doubling the number of the Company’s outstanding common shares (the “Stock Split”). On May 19, 2005, a special dividend of $1.50 per share was declared, payable on June 17, 2005 to shareholders of record as of June 3, 2005. Over the past 10 years, surplus funds have been returned to shareholders from time to time through special dividends of $2.50 per share ($5.00 per share pre-Stock Split) in fiscal 2003, $1.415 per share ($2.83 per share pre-Stock Split) in fiscal 1999, $0.665 per share ($1.33 per share per-Stock Split) in fiscal 1996 and $1.50 per share ($3.00 per share pre-Stock Split) in fiscal 1994. The amount and timing of future dividend payments on the Common Shares will be determined from time to time by the Board of Directors of the Company in its discretion having regard to prevailing economic conditions, investment opportunities, the financial condition of the Company and its cash requirements.

F. DESCRIPTION OF CAPITAL STRUCTURE

GENERAL DESCRIPTION OF SHARE CAPITAL

The Company’s authorized capital consists of an unlimited number of Common Shares and 300,000 First Preferred Shares issuable in series (“First Preferred Shares”). As of May 31, 2006, 68,015,608 Common Shares and no First Preferred Shares are issued and outstanding. The material provisions of the Common Shares and First Preferred Shares are summarized below.

Common Shares

The holders of the Common Shares are entitled to one vote per share at all meetings of shareholders of the Company, except meetings at which only holders of another specified class of shares are entitled to vote. Each Common Share entitles the holder thereof to receive dividends declared on the Common Shares and to receive, subject to the prior rights of the holders of the First Preferred Shares or any other class or series of shares of the Company which ranks prior to the Common Shares, the remaining property of the Company in the event of the liquidation, dissolution or winding-up of the Company.

First Preferred Shares

The First Preferred Shares are issuable in one or more series. Subject to the Company’s articles, the Board is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attaching to each series of First Preferred Shares. The First Preferred Shares rank prior to the Common Shares and any other class of shares of the Company ranking junior to the First Preferred Shares with respect to the payment of dividends and the return of capital on dissolution. Except with respect to matters as to which the holders of First Preferred Shares are entitled by law to vote as a class, the holders of First Preferred Shares are not entitled to vote at meetings of shareholders of the Company unless, with respect to any series of First Preferred Shares, the payment of dividends is in arrears, in which case the holders of First Preferred Shares shall be entitled to one vote per share and shall be entitled as a class to elect a certain number of directors of the Company.

SHARE OPTION PLAN

The Company has adopted a share option plan (the “Option Plan”). Under the Option Plan, options to purchase Common Shares (“Options”) may be granted at the discretion of the Board to employees and officers of the Company and designated affiliates of the Company, including RBH (the “Optionees”). Directors who are not officers or employees of the Company or RBH are not eligible to receive grants of Options under the Option Plan. Under the Option Plan, the Board may delegate the administration thereof to a compensation committee of the Board.

The maximum number of Common Shares reserved for issue under the Option Plan is set at 3,400,000 Common Shares (adjusted to reflect the Stock Split) and may be increased subject to the approval of shareholders. As of May 31, 2006, the number of Common Shares issued and which may be issued under grants made under the Option Plan is 3,218,200, which represents 4.7% of the outstanding Common Shares as of May 31, 2006. As of May 31, 2006, the remaining number of Common Shares issuable under the Option Plan is 181,800, which represents 0.3% of the outstanding Common Shares as of May 31, 2006. The number of Common Shares issued under the Option Plan since its inception is 1,887,400, which represents 2.8% of the outstanding Common Shares as of May 31, 2006.

Given the limited number of Common Shares available for issuance under the Option Plan, the annual grant of options as part of the Company’s executive compensation program was discontinued effective fiscal 2006 .

Under the terms of the Option Plan, the aggregate number of Common Shares reserved for issuance at any time upon the exercise of Common Shares granted to insiders shall not exceed 10% of the total number of Common Shares then outstanding. The aggregate number of Common Shares reserved for issuance to any one person upon the exercise of Options shall not exceed 5% of the total number of Common Shares then outstanding. The maximum number of Common Shares issuable to insiders pursuant to the Option Plan and any other share compensation arrangement, within a one-year period, shall not exceed 10% of the total number of Common Shares then outstanding. The maximum number of Common Shares issuable to any one insider and such insider’s associates pursuant to the Option Plan and any other share compensation arrangement, within a one-year period, shall not exceed 5% of the total number of Common Shares then outstanding.

In accordance with the terms of the Option Plan, the exercise price per Common Share cannot be less than the closing price of the Common Shares on the Toronto Stock Exchange on the last trading day prior to the grant. Upon exercise of an Option, the Company will, in certain circumstances, pay to the Optionee an amount equal to the aggregate of all special dividends (being dividends in excess of the regular dividends payable on the Common Shares as determined by the Board from time to time) paid by the Company at any time following the date of grant of such Option until the date of exercise.

Each Option may have a term of not more than ten years and will be exercisable, unless otherwise determined at the time that any Option is granted, in one-third increments as the trading price of the Common Shares increases to amounts 10%, 20% and 30%, respectively, above the amount which is equal to the Option exercise price less the amount of any special dividends on the Common Shares since the date of grant of the Option. This vesting mechanism is intended to align the vesting of Options with the performance of the Common Shares and in turn, the performance of the Company.

Subject to the term of an Option: (i) any vested Options held by an Optionee at death are exercisable by the surviving optionee for a period of 24 months after the date of death and any unvested Options shall continue to vest for such period; (ii) any vested Options held by an Optionee upon normal retirement or approved early retirement are exercisable for a period of five years following retirement and any unvested Options shall continue to vest for such period; and (iii) any vested Options held by an Optionee upon

termination for any other reason are exercisable for a period of up to 90 days and any unvested Options shall terminate immediately, subject to any employment agreement or any other agreement regarding termination or change in control.

No rights under the Option Plan and no Option awarded pursuant to the provisions of the Option Plan are assignable or transferable by any Optionee other than pursuant to a will or by the laws of descent and distribution.

The Board may from time to time in its absolute discretion amend, modify and change the provisions of the Option Plan or any Options granted pursuant to the Option Plan, provided that any amendment, modification or change to the provisions of the Option Plan or any Options granted pursuant to the Option Plan which would: (i) materially increase any Options granted pursuant to the Option Plan; (ii) increase the number of Common Shares, other than in certain specified circumstances, which may be issued pursuant to the Plan; or (iii) materially modify the requirements as to eligibility for participation in the Option Plan, shall only be effective upon such amendment, modification or change being approved by shareholders. Any amendment, modification or change of any provision of the Option Plan or any Options granted pursuant to the Option Plan shall be subject to approval, if required, by the regulatory authorities. The Option Plan was approved, ratified and confirmed by the shareholders of the Company at the annual and special meeting of the shareholders held on July 20, 2000.

SHARE PURCHASE PLAN

The Company has established an employee share purchase plan (the “Purchase Plan”) for the benefit of permanent full-time and part-time employees of the Company and affiliates of the Company, including Rothmans, Benson & Hedges Inc. Under the Purchase Plan, each such employee is entitled to purchase Common Shares through payroll deductions by contributing up to 5% of his or her basic annual salary before deductions to the Purchase Plan each year. Under the Purchase Plan, Common Shares are purchased on the open market by the plan administrator. The Company contributes an amount equal to 35% of the employee’s contribution to a maximum of $1,500 per year and pays brokerage and administration charges in connection with the purchase of Common Shares under the Purchase Plan.

SHAREHOLDER RIGHTS PLAN

At the annual and special meeting of shareholders held on July 29, 2003, shareholders approved a new shareholder rights plan (the “Rights Plan”) and the Company entered into a new shareholder rights plan agreement dated July 29, 2003, between the Company and CIBC Mellon Trust Company. The Rights Plan took effect upon the expiry of the previous shareholder rights plan. The Rights Plan will remain in force until the termination of the annual meeting of the shareholders in the year 2006, unless earlier terminated pursuant to the Rights Plan. A summary of the terms of the Rights Plan is set out below. A copy of the Rights Plan is available on SEDAR at www.sedar.com.

At the meeting of shareholders to be held on July 25, 2006, shareholders will be asked to approve a new shareholder rights plan. The new shareholder rights plan would take effect upon the expiry of the Rights Plan and would remain in force until the termination of the annual meeting of shareholders in the year 2009. The material terms of the proposed new shareholder rights plan are the same as the terms of the Rights Plan.

Issuance of Rights

One Right will be issued by the Company in respect of each common share of the Company outstanding as at the effective date of the Rights Plan and in respect of each common share of the Company issued thereafter prior to the earlier of the Separation Time and the Expiration Time. Each Right entitles the

registered holder thereof to purchase from the Company one common share at the exercise price of $100, subject to adjustment and certain anti-dilution provisions (the “Exercise Price”). Notwithstanding any other provision of the Rights Plan, any Rights held by the Company or any of its subsidiaries shall be void. The Rights are not exercisable until the Separation Time. If a Flip-In Event occurs, each Right will entitle the registered holder to receive, upon payment of the Exercise Price, common shares of the Company having an aggregate market price equal to twice the Exercise Price.

Trading of Rights

Until the Separation Time (or the earlier termination or expiration of the Rights), the Rights will be evidenced by the associated common shares and will be transferable only together with the associated common shares. From and after the Separation Time, separate certificates evidencing the Rights (“Rights Certificates”), together with a disclosure statement prepared by the Company describing the Rights, will be mailed to holders of record of common shares of the Company (other than an Acquiring Person) as of the Separation Time. Rights Certificates will also be issued in respect of common shares issued prior to the Expiration Time to each holder (other than an Acquiring Person) converting, after the Separation Time, securities (“Convertible Securities”) convertible into or exchangeable for common shares of the Company. The Rights will be transferable separately from the common shares after the Separation Time.

Separation Time

The Separation Time is the close of business on the tenth Business Day after the earlier of: (i) the “Stock Acquisition Date”, which is generally the first date of public announcement of facts indicating that a person has become an Acquiring Person; (ii) the date of the commencement of, or first public announcement of the intent of any person (other than the Company or any subsidiary of the Company) to commence, a Take-over Bid (other than a Permitted Bid or a Competing Permitted Bid); and (iii) the date a Permitted Bid or Competing Permitted Bid ceases to be such. In any case, the Separation Time can be such later date as may from time to time be determined by the Board of Directors. If a Take-over Bid expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, it shall be deemed never to have occurred for the purposes of the Rights Plan.

Acquiring Person

In general, an Acquiring Person is a person who is the Beneficial Owner of 20% or more of the outstanding common shares of the Company. Excluded from the definition of ‘‘Acquiring Person’’ are the Company and its subsidiaries and any person who becomes the Beneficial Owner of 20% or more of the outstanding common shares as a result of one or more or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Convertible Security Acquisition and a Pro Rata Acquisition. The definitions of “Voting Share Reduction”, “Permitted Bid Acquisition”, “Exempt Acquisition”, “Convertible Security Acquisition” and “Pro Rata Acquisition” are set out in the Rights Plan. However, in general:

(A) a “Voting Share Reduction” means an acquisition or redemption by the Company of common shares; (B) a “Permitted Bid Acquisition” means an acquisition of common shares of the Company made pursuant to a Permitted Bid or a Competing Permitted Bid; (C) an “Exempt Acquisition” includes an acquisition of common shares or Convertible Securities of the Company (a) in respect of which the Board of Directors has waived the application of the Rights Plan, (b) which was made prior to the date of the Rights Plan, (c) which was made pursuant to a dividend reinvestment plan of the Company, (d) which was made pursuant to the receipt or exercise of rights issued by the Company to all the

holders of common shares (other than holders resident in a jurisdiction where such distribution is restricted or impractical as a result of applicable law) to subscribe for or purchase common shares or Convertible Securities under certain circumstances, (e) which was made pursuant to a distribution of common shares or Convertible Securities made pursuant to a prospectus under certain circumstances, or (f) which was made pursuant to a distribution by the Company of common shares or Convertible Securities by way of a private placement or upon the exercise by an individual employee of stock options granted under a stock option plan of the Company or rights to purchase securities granted under a share purchase plan of the Company under certain circumstances; (D) a “Convertible Security Acquisition” means an acquisition of common shares upon the exercise of Convertible Securities received by such person pursuant to a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition; (E) a “Pro Rata Acquisition” means an acquisition of common shares or Convertible Securities as a result of a stock dividend, a stock split or other similar event, acquired on the same pro rata basis as all other holders of common shares, provided that if a person thereafter becomes the Beneficial Owner of more than an additional 1.0% of the number of common shares outstanding (other than pursuant to Voting Share Reductions, Permitted Bid Acquisitions, Exempt Acquisitions, Convertible Security Acquisitions or Pro Rata Acquisitions) then as of the date of any such acquisition such person shall become an ‘‘Acquiring Person’’.

Also excluded from the definition of “Acquiring Person” are underwriters or members of a banking or selling group acting in connection with a distribution of securities, a person in its capacity as an Investment Manager, a Manager, Trust Company, Administrator, Statutory Body, Crown agent or agency or Plan (provided that such person is not making or proposing to make a Take-over Bid).

Beneficial Ownership

In general, a person is deemed to Beneficially Own common shares of the Company actually held by others in circumstances where those holdings are or should be grouped together for purposes of the Rights Plan. Included are holdings by the person’s Affiliates (generally, a person that controls, is controlled by, or under common control with another person) and Associates (generally, relatives sharing the same residence). Also included are securities which the person or any of the person’s Affiliates or Associates has the right to acquire within 60 days (other than customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities to the public or a private placement, and other than pledges of securities in the ordinary course of business).

A person is also deemed to “Beneficially Own” any securities that are Beneficially Owned (as described above) by any other person with which the person is acting jointly or in concert.

The definition of “Beneficial Ownership” contains several exclusions whereby a person is not considered to ‘‘Beneficially Own’’ a security. There are exemptions from the deemed “Beneficial Ownership” provisions for institutional shareholders acting in the ordinary course of business. These exemptions apply to (i) an investment manager (“Investment Manager”) which holds securities in the ordinary course of business in the performance of its duties for the account of any other person (a “Client”); (ii) a manager or trustee (“Manager”) of a mutual fund (“Mutual Fund”) that is registered or qualified to issue its securities to investors under the securities laws of any province of Canada or the laws of the United States or a Mutual Fund; (iii) a licensed trust company (“Trust Company”) acting as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent persons (each an “Estate Account”) or in relation to other accounts (each an “Other Account”) and which holds such security in the

ordinary course of its duties for such accounts; (iv) the administrator or the trustee (an “Administrator”) of one or more pension funds or plans (a “Plan”) registered under applicable law or a Plan itself; (v) a person established by statute (the “Statutory Body”), and its ordinary business or activity includes the management of investment funds for employee benefit plans, pension plans or insurance plans of various public bodies, or (vi) a Crown agent or agency. The foregoing exemptions only apply so long as the Investment Manager, Manager, Trust Company, Administrator, Plan, Statutory Body or Crown agent or agency is not then making or has not then announced a current intention to make a Take-over Bid, other than an Offer to Acquire common shares or other securities pursuant to a distribution by the Company or by means of ordinary market transactions.

Finally, a person will not be deemed to “Beneficially Own” a security because (i) the person is a Client of the same Investment Manager, a Mutual Fund managed by the same Manager, an Estate Account or an Other Account of the same Trust Company, or Plan with the same Administrator, as another person or Plan on whose account the Investment Manager, Manager, Trust Company or Administrator, as the case may be, holds such security; or (ii) the person is a Client of an Investment Manager, Manager, Estate Account, Other Account or Plan, and the security is owned at law or in equity by the Investment Manager, Manager, Trust Company or Administrator, as the case may be.

Permitted Lock-up

Securities subject to a lock-up agreement in favour of a person are deemed to be Beneficially Owned by that person, unless the lock-up agreement is a “Permitted Lock-Up Agreement” for purposes of the Rights Plan. A “Permitted Lock-up Agreement” is an agreement between a person and one or more holders of common shares or Convertible Securities (each a “Locked-up Person”) (the terms of which are publicly disclosed and a copy of which is made available to the public (including the Company) not later than the date the Lock-up Bid (as defined below) is publicly announced or if the Lock-up Bid is made prior to the date on which the agreement has been entered into, forthwith and in any event not later than the date following the date of such agreement) pursuant to which each Locked-up Person agrees to deposit or tender common shares or Convertible Securities (or both) to a Take-over Bid (the “Lock-up Bid”) made by the person or any of such person’s Affiliates or Associates or any other person with whom any of them is acting jointly or in concert provided that:

(i) the agreement permits any Locked-up Person to terminate its obligation to deposit or tender to or not to withdraw common shares or Convertible Securities (or both) from the Lock-up Bid in order to tender or deposit such securities to any Take-over Bid or support another transaction if:

(A) the price or value per common share or Convertible Security offered under such other Take-over Bid or transaction (A) is higher than the price or value per common share or Convertible Security offered under the Lock-up bid or (B) exceeds by as much as or more than a specified amount (the “Specified Amount”) the price or value per common share or Convertible Security offered under the Lock-up Bid, provided that such Specified Amount is not greater than 7% of the price or value per common share or Convertible Security offered under the Lock-up Bid; or (B) the number of common shares or Convertible Securities to be purchased under the other Take-over Bid or transaction exceeds by as much as or more than a specified number (the “Specified Number”) the number of common shares or Convertible Securities that the Offeror has offered to purchase under the Lock-up Bid at a price or value per common share or Convertible Security that is not less than the price or value per common share or Convertible Security offered under the Lock-up Bid, provided that the Specified Number is not greater than 7% of the number of common shares or Convertible Securities offered under the Lock-up Bid;

and, for greater clarity, the agreement may contain a right of first refusal or require a period of delay to give the person who made the Lock-up Bid an opportunity to match a higher price in another Take-over Bid or transaction or other similar limitation on a Locked-up Person’s right to withdraw common shares or Convertible Securities (or both) from the agreement, so long as the limitation does not preclude the exercise by the Locked-up Person of the right to withdraw common shares or Convertible Securities (or both) during the period of the other Take-over Bid or transaction; and

(ii) the agreement does not provide for “break-up” fees, “top-up” fees, penalties, expenses or other amounts that exceed in the aggregate the greater of:

(A) the cash equivalent of 2.5% of the price or value payable under the Lock-up Bid to a Locked-up Person; and (B) 50% of the amount by which the price or value payable under another Take-over Bid or transaction to a Locked-up Person exceeds the price or value of the consideration that such Locked-up Person would have received under the Lock-up Bid,

to be payable by a Locked-up Person pursuant to the agreement in the event a Locked-up Person fails to deposit or tender common shares or Convertible Securities (or both) to the Lock-up Bid, withdraws common shares or Convertible Securities (or both) previously tendered thereto or supports another transaction.

Flip-In Event

A Flip-In Event occurs when any person becomes an Acquiring Person. In the event that, prior to the Expiration Time, a Flip-In Event which has not been waived by the Board of Directors occurs (see ‘‘Redemption, Waiver and Termination’’), each Right (except for Rights Beneficially Owned or which may thereafter be Beneficially Owned by an Acquiring Person or a transferee of such a person, which Rights will become null and void) shall constitute the right to purchase from the Company, upon exercise thereof in accordance with the terms of the Rights Plan, that number of common shares having an aggregate Market Price on the date of the Flip-In Event equal to twice the Exercise Price, for the Exercise Price (such Right being subject to anti-dilution adjustments). For example, if at the time of the Flip-In Event the Exercise Price is $100 and the Market Price of the common shares is $50, the holder of each Right would be entitled to purchase common shares having an aggregate Market Price of $200 (that is, 4 common shares) for $100 (that is, a 50% discount from the Market Price).

Permitted Bid and Competing Permitted Bid

A Permitted Bid is a Take-over Bid made by way of a Take-over Bid circular and which complies with the following additional provisions:

(i) the Take-over Bid is made to all holders of record of common shares, other than the Offeror;

(ii) the Take-over Bid contains irrevocable and unqualified conditions that:

(A) no common shares shall be taken up or paid for pursuant to the Take-over Bid prior to the close of business on a date which is not less than 60 days following the date of the Take- over Bid; (B) more than 50% of the outstanding common shares held by Independent Shareholders must be deposited to the Take-over Bid and not withdrawn as at the date of first take-up or payment for common shares;

(C) unless the Take-over Bid is withdrawn, common shares may be deposited pursuant to the Take-over Bid at any time prior to the close of business on the date of first take-up or payment for common shares; (D) all common shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; and (E) in the event that more than 50% of the then outstanding common shares held by Independent Shareholders have been deposited to the Take-over Bid and not withdrawn as at the date of first take-up or payment for common shares under the Take-over Bid, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of common shares for not less than 10 Business Days from the date of such public announcement.

A Competing Permitted Bid is a Take-over Bid that is made after a Permitted Bid has been made but prior to its expiry and that satisfies all the requirements of a Permitted Bid as described above, except that a Competing Permitted Bid is not required to remain open for 60 days so long as it is open until the later of (i) the 60th day after the date on which the earliest Permitted Bid or Competing Bid that is in existence was made and (ii) 35 days (or such other minimum period of days as may be prescribed by applicable law in Ontario) after the date of the Take-over Bid constituting the Competing Permitted Bid.

Redemption, Waiver and Termination

(i) Redemption of Rights on Approval of Holders of Common Shares and Rights. The Board of Directors may, after having obtained the prior approval of the Independent Shareholders, at any time prior to the occurrence of a Flip-In Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.001 per Right, appropriately adjusted for anti- dilution as provided in the Rights Plan (the ‘‘Redemption Price’’).

(ii) Waiver of Inadvertent Acquisition. The Board of Directors may waive the application of the Rights Plan in respect of the occurrence of any Flip-In Event if (i) the Board of Directors has determined that a person became an Acquiring Person under the Rights Plan by inadvertence and without any intent or knowledge that it would become an Acquiring Person; and (ii) the Acquiring Person has reduced its Beneficial Ownership of common shares such that at the time of waiver the person is no longer an Acquiring Person.

(iii) Deemed Redemption. In the event that a person who has made a Permitted Bid or a Competing Permitted Bid in respect of which the Board of Directors has waived or has deemed to have waived the application of the Rights Plan consummates the acquisition of the common shares, the Board of Directors shall be deemed to have elected to redeem the Rights for the Redemption Price.

(iv) Discretionary Waiver with Mandatory Waiver of Concurrent Bids. The Board of Directors may, prior to the occurrence of the relevant Flip-In Event as to which the Rights Plan has not been waived under this clause, upon prior written notice to the Rights Agent, waive the application of the Rights Plan to a Flip-In Event that may occur by reason of a Take-over Bid made by means of a Take-over Bid circular to all holders of record of common shares. However, if the Board of Directors waives the application of the Rights Plan under this provision, the Board of Directors shall be deemed to have waived the application of the Rights Plan in respect of any other Flip-In Event occurring by reason of a Take-over Bid made prior to the expiry of a bid for which a waiver is, or is deemed to have been, granted.

(v) Discretionary Waiver respecting Acquisition not by Take-over Bid Circular. The Board of Directors may, with the prior consent of the Independent Shareholders, determine, at any time prior to the occurrence of a Flip-In Event as to which the application of the Rights Plan has not been waived, if such Flip-In Event would occur by reason of an acquisition of common shares otherwise than pursuant to a Take-over Bid made by means of a Take-over Bid circular to holders of common shares and otherwise than by inadvertence when such inadvertent Acquiring Person has then reduced its holdings to below 20%, to waive the application of the Rights Plan to such Flip-In Event. However, if the Board of Directors waives the application of the Rights Plan, the Board of Directors shall extend the Separation Time to a date subsequent to and not more than 10 Business Days following the meeting of shareholders called to approve such a waiver.

(vi) Redemption of Rights on Withdrawal or Termination of Bid. Where a Take-over Bid that is not a Permitted Bid or Competing Permitted Bid is withdrawn or otherwise terminated after the Separation Time and prior to the occurrence of a Flip-In Event, the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price. Upon the Rights being so redeemed, all of the provisions of the Rights Plan shall continue to apply as if the Separation Time had not occurred and Rights Certificates had not been mailed, and the Separation Time shall be deemed not to have occurred.

If the Board of Directors is deemed to have elected or elects to redeem the Rights as described above, the right to exercise the Rights will thereupon, without further action and without notice, terminate and the only right thereafter of the holders of Rights is to receive the Redemption Price. Within 10 Business Days of any such election or deemed election to redeem the Rights, the Company will notify the holders of the common shares or, after the Separation Time, the holders of the Rights.

Anti-Dilution Adjustments

The Exercise Price of a Right, the number and kind of shares subject to purchase upon exercise of a Right, and the number of Rights outstanding, will be adjusted in certain events, including:

(i) if there is a dividend payable in common shares or Convertible Securities (other than pursuant to any optional stock dividend program or dividend reinvestment plan or a dividend payable on common shares in lieu of a regular periodic cash dividend) on the common shares, or a subdivision or consolidation of the common shares, or an issuance of common shares or Convertible Securities in respect of, in lieu of or in exchange for common shares in a reclassification, amalgamation, merger, statutory arrangement or consolidation; or

(ii) if the Company fixes a record date for the distribution to all holders of common shares of certain rights or warrants to acquire common shares or Convertible Securities, or for the making of a distribution to all holders of common shares of evidences of indebtedness or assets (other than regular periodic cash dividends or a dividend payable in common shares) or rights or warrants.

Supplements and Amendments

The Company may make amendments to correct any clerical or typographical error or which are necessary to maintain the validity of the Rights Plan as a result of any change in any applicable legislation, rules or regulation. Any changes made to maintain the validity of the Rights Plan shall be subject to subsequent confirmation by the holders of the common shares or, after the Separation Time, the holders of the Rights.

Subject to the above exceptions, after the Meeting, any amendment, variation or deletion of or from the Rights Plan and the Rights, is subject to the prior approval of the Independent Shareholders, or, after the Separation Time, the holders of the Rights.

Expiration

The Rights Plan will remain in force until the earlier of the Termination Time (the time at which the right to exercise the Rights shall terminate pursuant to the Rights Plan) and the termination of the annual meeting of the shareholders in the year 2006.

G. MARKET FOR SECURITIES

The Common Shares of the Company are listed and posted for trading on the Toronto Stock Exchange. The ticker symbol is ROC. The following table sets forth the closing price range and trading volume of the Common Shares for the periods indicated.

TSX High Low Volume (Cdn$) (Cdn$) 2005 April 25.40 23.74 2,227,285 May 26.99 24.05 5,826,398 June 26.00 22.50 3,147,587 July 26.35 23.25 2,117,471 August 25.94 24.45 1,847,189 September 26.27 20.45 5,225,186 October 24.70 21.50 3,089,175 November 26.00 23.76 4,322,894 December 24.62 21.72 4,298,865 2006 January 25.00 23.25 2,672,879 February 24.24 21.27 3,871,426 March 21.90 20.00 4,574,708

H. DIRECTORS AND OFFICERS

The following table sets forth the name, province or state, and country of residence, positions and offices with the Company and principal occupation of each of the directors and executive officers of the Company as at the date hereof:

Name and Municipality of Residence Positions Held with the Company Principal Occupation John R. Barnett, C.A. Director since 1999 and President and President and Chief Executive Officer of Toronto, Ontario Chief Executive Officer RBH Douglas G. Bassett, O.C., Director since 1997 Chairman and President of Windward O. Ont., LL.D., D.Litt.1, 2, 3 Investments, a private investment Toronto, Ontario company Dean Blain, B.Eng., LL.B. Secretary Partner of Gowling Lafleur Henderson Toronto, Ontario LLP, a law firm John E. Caldwell, B.Comm, C.A. 1, 2, 3 Director since 2004 President & Chief Executive Officer of Toronto, Ontario SMTC Corporation, an electronics manufacturing company Robert J. Carew, B. Comm., LL.B., Director since 1991 and Executive Vice Executive Vice President, Regulatory and LL.M. President Legal Affairs of RBH Toronto, Ontario Pierre Des Marais II O.C.1, 2,3 Director since 1987 President of Gestion PDM Inc., a Saint-Faustin, Quebec management company Michael E. Frater, C.A., P.Eng. Vice President Finance and Vice President Finance and Toronto, Ontario Chief Financial Officer Administration of RBH The Hon. Paule Gauthier, P.C., O.C., Director since 1998 Partner of Desjardins Ducharme L.L.P., O.Q., Q.C. 1, 2, 3 ATTORNEYS, a law firm Quebec City, Quebec Pierre Gravelle, B.A., B.Ph., Director since 1998 CEO, Centre for the Financial Services LL.L., Q.C.1, 2, 3 OmbudsNetwork and consultant, Pierre Toronto, Ontario Gravelle and Associates, consultants Joe Heffernan, B.Sc., M.Sc., P.Eng. Director since 1989 and Chairman of Corporate Director Toronto, Ontario the Board Richard H. McCoy, B. Comm., Director since 2000 Corporate Director M.B.A.1,2,3 Toronto, Ontario Brenda J. Moher Assistant Secretary Assistant Secretary of RBH Toronto, Ontario

(1) Member of the Audit Committee. (2) Member of the Corporate Governance and Nominating Committee. (3) Member of the Pension and Compensation Committee.

The Company does not have an executive committee.

Directors of the Company hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

Each of the foregoing directors and officers has been engaged in his or her present principal occupation or a similar position with his or her present employer or its predecessors or affiliates for the past five years except for:

• Mr. John Caldwell who, prior to October 2002, was a consultant to GEAC Computer Corporation (a computer software company) and prior to December 2001 was President and Chief Executive Officer of GEAC.

• Mr. Richard McCoy who, prior to October 2003, was Vice Chairman of TD Securities Inc., an investment dealer.

• Mr. Michael Frater who, prior to November 1, 2005, was Director Finance of RBH.

Mr. Barnett was, until September 2003, a director of Mosaic Group Inc., a company that, in December 2002, obtained a court order under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) to initiate the restructuring of its debt obligations and capital structure. Certain of its U.S. subsidiaries also commenced proceedings for reorganization under Chapter 11 of the United States Bankruptcy Code.

Mr. Bassett was, from June 2003 until November 2003, a director of Hollinger Inc. In connection therewith, since May 18, 2004 (the date on which that company’s annual financial statements were due to be filed with the Ontario Securities Commission), Mr. Bassett has been subject to a cease trade order (with respect to trading in securities of that company) applicable to all persons who were directors, officers or insiders of the company after September 30, 2003 (the end of the period covered by the last financial statements filed by the company).

Mr. Caldwell was also a director of Mosaic Group Inc. until September 2003. Mr. Caldwell was a director of Stelco Inc. until March 31, 2006. In January 2004 Stelco Inc. obtained a court order under the CCAA to initiate the restructuring of its debt obligations and capital structure. Concurrently, Stelco Inc. made a petition for recognition of the CCAA order and ancillary relief under section 304 of the U.S. Bankruptcy Act. On March 31, 2006, Stelco Inc. implemented its CCCA plan and emerged from CCCA protection. Mr. Caldwell is also a director of ATI Technologies Inc., a company that, in March 2005, entered into a settlement agreement with the Ontario Securities Commission (“OSC”) relating to allegations that in 2000 the company did not make timely disclosure of a shortfall in earnings and made a misleading statement to staff of the OSC. Under the terms of the settlement agreement, the company was reprimanded, agreed to pay $900,000 in costs and settlement payments and provided written confirmation of its current corporate governance practices. Mr. Caldwell joined the board of directors of ATI Technologies Inc. in 2003.

Mr. Carew was, until November 2003, a director of Eagle Precision Technologies Inc., a company that implemented a plan of compromise and arrangement under the CCAA in 2000.

As at May 31, 2006, the directors and executive officers of the Company, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 391,905 Common Shares of the Company.

I. AUDIT COMMITTEE INFORMATION

The following information is provided in accordance with Form 52-110F1 under the Canadian Securities Administrators’ Multilateral Instrument 52-110 – Audit Committees (“MI 52-110”).

Audit Committee Charter

The Audit Committee Charter is attached as Schedule “A” to this Annual Information Form.

Composition of the Audit Committee

In fiscal 2006, the Audit Committee was composed of the following six directors: Pierre Des Marais II (Chairman), Douglas G. Bassett, John E. Caldwell, The Hon. Paule Gauthier, Pierre Gravelle, and Richard H. McCoy. Each director is considered “independent” and “financially literate” (as such terms are defined in MI 52-110).

Relevant Education and Experience

Each member of the Audit Committee is financially literate, i.e., has the ability to read and understand financial statements. Collectively, the Audit Committee has the education and experience to fulfill the responsibilities outlined in the Audit Committee Charter. The education and current and past experience of each Audit Committee member that is relevant to the performance of his or her responsibilities as an Audit Committee member is summarized below:

Name Education and Experience (Past and Present) Pierre Des Marais II h President and CEO of Unimedia Inc. (Chairman) h Chairman of the Executive Committee of the Montreal Urban Community. h President and CEO of Canadair Inc. h President and CEO of Carling O’Keefe Ltd. h Director of crown corporations (such as CN, C.D.I.C. and Air Canada) and public corporations (such as the Royal Bank of Canada, St. Lawrence Cement Inc., Continental Bank of Canada, Manu-Vie, Cognicase Inc., Imperial Oil Limited, La Senza Corporation and Sleeman Breweries Limited) and member of the audit committee of certain of those corporations.

Douglas G. Bassett h President and CEO of Baton Broadcasting Inc. (a public company). h Director of several public corporations (such as CIBC and Retirement Residences REIT) and member of the audit committee of those corporations.

John E. Caldwell h Bachelor of Commerce degree and Chartered Accountant. h Chief executive positions with SMTC Corporation, GEAC Computer Corporation Limited and CAE Inc. h Chief Financial Officer positions at CAE Inc. and Carling O’Keefe Breweries of Canada Limited. h Public accounting experience with PricewaterhouseCoopers LLP. h Director of several public corporations (such as ATI Technologies Inc., Cognos Inc., Faro Technologies, SMTC Corporation and Stelco Inc.) and chair of the audit committees of certain of those corporations.

Name Education and Experience (Past and Present) The Hon. Paule Gauthier h Commercial/corporate lawyer for 30 years, including involvement in numerous business transactions. h Director of several public corporations (such as Royal Bank of Canada, Metro Inc. and TransCanada Corporation) and member of the audit committee of certain of those corporations.

Pierre Gravelle h Deputy Minister of National Revenue. h CEO of the Centre for the Financial Services OmbudsNetwork. h President and CEO of Symcor Services Inc. (an administrative services company established by Bank of Montreal, Royal Bank of Canada and TD Bank). h Associate Secretary of the Treasury Board of Canada.

Richard H. McCoy h Bachelor of Commerce degree and a Master of Business Administration degree. h Vice-Chairman of TD Securities Inc. h Over 35 years in the investment industry with a focus on corporate finance and investment banking.

Pre-Approval Policies and Procedures

The Board, upon the recommendation of the Audit Committee, has adopted a written policy on auditor independence (the “Policy”). Except in very limited circumstances, all audit and permitted non-audit services are required to be pre-approved by the Audit Committee or the Chair of the Audit Committee. The Policy prohibits the auditors from providing the following types of non-audit services:

• bookkeeping or other services related to the accounting records or financial statements of the Company and its subsidiary entities;

• financial information systems design and implementation;

• appraisal or valuation services, fairness opinion, or contribution-in-kind reports;

• actuarial services;

• internal audit outsourcing services;

• management functions or human resources;

• broker or dealer, investment advisor or investment banking services on behalf of the Company or its subsidiary entities; and

• legal services and expert services unrelated to the audit.

The Policy permits the auditors to provide other types of non-audit services, including tax services, but only if approved in advance by the Audit Committee or the Chair of the Audit Committee, subject to limited exceptions. The Policy also addresses issues relating to the disclosure of fees paid to the auditors, the rotation of audit partners, communication between the Audit Committee and the auditors, and the hiring of individuals previously employed by the auditors. Pursuant to the Policy, the audit partner at PricewaterhouseCoopers LLP rotated for the financial year ended March 31, 2006.

External Auditor Service Fees (By Category)

For the years ended March 31, 2006 and 2005, PricewaterhouseCoopers LLP and its affiliates earned fees from the Company and RBH as detailed below:

March 31, 2006 March 31, 2005 ($’000) ($’000) Audit fees 336 298 Audit-related fees 38 156 Tax fees 31 16 All other fees - Total fees 405 470

The “Audit-related fees” noted above were paid to PricewaterhouseCoopers LLP in fiscal 2006 and 2005 in connection with the audit of royalties payable by RBH on sales of certain of its brands and the audit of RBH’s pension funds. In fiscal 2005, these fees included amounts paid to PricewaterhouseCoopers LLP in connection with the private placement by RBH of $150 million of Senior Unsecured Bonds, the Company’s Share Option Plan and matters related to the implementation of RBH’s SAP system and controls documentation. “Tax fees” related to tax advice and tax planning services. The Audit Committee has approved these services and is of the view that these audit-related and tax services are compatible with maintaining the independence of PricewaterhouseCoopers LLP as the Company’s auditors.

J. INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

On December 21, 2004, RBH placed $97 million 5.552% Series A senior unsecured bonds due December 21, 2011 with five purchasers. BMO Nesbitt Burns Inc. and Scotia Capital Inc. acted as agents for this private placement. On January 13, 2005, RBH placed a further $53 million 5.552% Series A senior unsecured bonds due December 21, 2011 with Jarislowsky Fraser Limited on the same basis. At such time, Jarislowsky Fraser Limited beneficially owned or exercised control or direction over more than 10 percent of the common shares of the Company and continues to do so as of the date hereof. The proceeds of the bond offering were used by RBH to repay its existing term credit facility in the principal amount of $150 million which had been advanced to RBH pursuant to a term credit agreement dated as of September 27, 2001 among RBH, Bank of Montreal and certain other lenders. Further information relating to the bond offering is contained in the notes to the financial statements for the year ended March 31, 2005 which are available on SEDAR at www.sedar.com.

K. TRANSFER AGENTS AND REGISTRARS

The transfer agent and registrar for the Common Shares is CIBC Mellon Trust Company, 320 Bay Street, P.O. Box 1, Toronto, Ontario, Canada M5H 4A6. The registers for the Common Shares are located in Toronto, Montreal, Halifax, Winnipeg, Calgary and Vancouver.

L. INTERESTS OF EXPERTS

The Company’s auditors are PricewaterhouseCoopers LLP.

M. ADDITIONAL INFORMATION

Additional information with respect to the Company, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans is contained in the Company’s management information circular dated June 16, 2006 (the “Information Circular”).

Additional financial information is provided in the Company’s consolidated financial statements and the notes thereon included at pages 54 to 70 of the 2006 Annual Report and in the Company’s MD&A included at pages 18 to 49 of the 2006 Annual Report.

Copies of the Company’s 2006 Annual Report, Information Circular and of this Annual Information Form may be obtained upon request from the Assistant Secretary of the Company, from the Company’s website at www.Rothmansinc.ca or from SEDAR at www.sedar.com .

Schedule “A”

ROTHMANS INC. AUDIT COMMITTEE CHARTER ______

The Board of Directors (the “Board”) of Rothmans Inc. (the “Company”) has established the Audit Committee (the “Committee”) for the purpose of overseeing the accounting and financial reporting processes of the Company and the audit of its financial statements. The Board has adopted this Audit Committee Charter, which sets out the Committee’s mandate and responsibilities, in order to provide parameters within which the Committee shall operate to assist the Board in its supervision of the management of the business and affairs of the Company and its monitoring of the Company’s investment in Rothmans, Benson & Hedges Inc. (“RBH”). In carrying out its responsibilities, the Board recognizes that it may be necessary for the Committee, where appropriate, to liaise with the board of directors of RBH and to receive reports from management of RBH concerning financial aspects of the business carried on by RBH. This Charter is based upon these principles while recognizing the authority of the board of directors of RBH to supervise the management of the business and affairs of RBH.

1. MANDATE

1.1 General Mandate

The mandate of the Committee is to assist the Board in meeting its financial oversight responsibilities. It is the Committee’s role to foster communication between the Board and the external auditors, enhance the independence of the external auditors, increase the credibility and objectivity of financial reports and strengthen the role of the Board by facilitating in-depth discussions among directors, management and the Company’s external and internal auditors. It is the Committee’s function to manage, on behalf of the shareholders, the relationship between the Company and its external auditors. In particular, the Committee oversees the work of the external auditors engaged for the purpose of issuing an auditor’s report and recommends to the Board the nomination and compensation of the external auditors.

1.2 Authority

With a view to fulfilling its mandate and responsibilities, the Committee has, to the extent it deems necessary or desirable, the authority to:

(a) delegate any of its responsibilities to individual members or a subcommittee;

(b) investigate any matter related to the Company’s accounting, auditing, internal control or financial reporting practices, with full access to all Company books, records, facilities and personnel;

(d) require the external and internal auditors to perform supplemental reviews or audits; and

(e) engage independent counsel and other advisors to assist it in carrying out its responsibilities and to set and pay the compensation for any such advisors employed at the Company’s expense.

1.3 Reliance on Information and Standard of Care

Members of the Committee, absent actual or suspected knowledge to the contrary (which shall be reported to the Board), shall be entitled to rely on the integrity and accuracy of all information provided and all representations and reports made to the Committee. In addition, members of the Committee shall be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this

Charter is intended, or may be construed, to impose a standard of care or diligence that is in any way more onerous or extensive than the standard to which all Board members are subject.

2. GOVERNANCE AND PROCEDURAL MATTERS

2.1 Composition of the Committee

The Committee shall consist of no fewer than three directors and shall be appointed annually by the Board. All of the members of the Committee shall be “independent” and “financially literate” (as such terms are defined, from time to time, under securities laws and stock exchange regulations applicable to audit committees). Any vacancy on the Committee from time to time may be filled only by resolution of the Board. Each member of the Committee shall hold office until the close of the next annual meeting of shareholders of the Company or until the member ceases to be a director, resigns or is removed from office or replaced by the Board, whichever first occurs.

2.2 Meetings of the Committee

The Committee shall meet as often as is necessary to discharge its duties effectively, and shall meet at least once in each fiscal quarter. A meeting of the Committee may be called by any member thereof or the external auditors of the Company. Notice of the time and place or manner of participation for every meeting of the Committee shall be sent to each member of the Committee, the Chairman of the Board and the external auditors of the Company, in accordance with the general by-law of the Company. If all of the members consent (such consent may be given at any time), a member may participate in a meeting of the Committee by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, and such member shall be deemed to be present at the meeting.

2.3 General Procedures

The procedure of the Committee shall be governed by the provisions of the Canada Business Corporations Act, the articles of the Company and the general by-law of the Company which govern proceedings of the Board, so far as the same can apply to proceedings of the Committee.

2.4 Conduct of Business by the Committee

No business shall be transacted by the Committee except at a meeting at which at least 50% of the members of the Committee are present or by way of a resolution signed by all of the members of the Committee. The Committee shall invite members of management to participate as appropriate in Committee meetings. At each meeting of the Committee, the members of the Committee shall be entitled to meet privately without management or the external auditors present. In addition, at least once quarterly, the Committee shall be entitled to meet with the Chief Financial Officer, the external auditors and the internal auditors to discuss any matters that the Committee believes should be discussed with or reviewed by the Committee. The Chairman of the Board (if such person is not a member of management) and the external auditors shall have the right to attend all meetings of the Committee but shall not be thereby entitled to any voting rights with respect to any business transacted by the Committee.

2.5 Chair of the Committee

The Board shall designate one of the directors appointed to the Committee as the Chair of the Committee. The Chair shall be responsible for leadership of the Committee, including presiding over meetings and making regular reports to the Board and overseeing scheduling and preparation of agendas for meetings of the Committee. The Chair will also regularly liaise with the Chief Executive Officer, Chief Financial Officer, the lead partner of the Company’s external auditors and the internal auditors and shall communicate the Committee’s expectations with respect to the nature, timing and extent of its information needs. In the absence of the appointed Chair of the Committee from any meeting, the members of the Committee shall elect a chair from those in attendance to act as chair of the meeting.

2.6 Secretary of the Committee

The Committee shall appoint a Secretary of the Committee who shall be responsible for keeping records of all proceedings and transactions of the Committee and preparing and circulating minutes thereof in a timely manner. In the absence of the Secretary of the Committee from any meeting, another member shall so act.

3. RESPONSIBILITIES

3.1 Overall Responsibilities

The Committee shall have the general responsibility for overseeing and monitoring the financial aspects of the Company’s business and operations. In addition, in order to assist the Board in monitoring the Company’s investment in RBH, the Committee shall also monitor the financial aspects of the business of RBH and review the relevant internal financial controls and risk management systems maintained by RBH. The overall responsibilities of the Committee shall include:

(a) assisting the directors of the Company with meeting their responsibilities with respect to financial matters, including the financial reporting obligations of the Company;

(b) assessing the integrity of the Company’s internal controls, financial disclosure and financial risk management activities;

(c) reviewing the nature and scope of the internal and external audits and risk management programs applicable to the Company and its investment in RBH;

(d) actively maintaining communications between the Committee and the external auditors in order to discuss and review specific issues as appropriate;

(e) reviewing the independence of the external auditors of the Company;

(f) periodically reviewing and reporting to the Board as to internal financial control and management information systems and concerning any significant observations of internal and external auditors regarding such systems;

(g) reviewing and reporting to the Board with respect to all financial statements (including interim financial statements) prepared by management of the Company and reviewing and reporting to the Board with respect to the financial statements and other financial information of RBH and any other subsidiaries of the Company and any internal or external auditor recommendations regarding such subsidiaries;

(h) reviewing and making recommendations to the Board with respect to the appropriate dividend policy for the Company and as to the declaration and payment of dividends to shareholders of the Company;

(i) reviewing and reporting to the Board as to the key financial aspects of the business carried on by RBH and the Company’s investment in RBH; and

(j) at least once annually, reporting to the Board with an assessment as to the Company’s performance with respect to financial matters including the financial aspects of the Company’s investment in RBH and recommending procedures and changes, if any, to be implemented in order to remedy any deficiencies which are identified by the Committee.

3.2 Limitations on Responsibilities

The responsibilities of the Committee shall be limited to overseeing, reviewing and monitoring the matters contemplated in this Charter and making recommendations and reporting to the Board thereon. It is not the responsibility of the Committee to plan or conduct audits, to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles or to conduct other types

of auditing or accounting reviews or similar procedures or investigations. The responsibilities of the external auditors, internal auditors and management are outlined in sections 3.4, 3.5 and 3.6, respectively.

3.3 Selection and Oversight of External Auditors

With a view to preserving the independence of the external auditors, the responsibilities of the Committee shall include:

(a) evaluating the performance of the external auditors and making recommendations to the Board regarding the external auditors to be nominated for appointment by shareholders of the Company;

(b) reviewing and making recommendations to the Board regarding the terms of any engagement of the external auditors proposed by management and the compensation of the external auditors, including the proposed fees for the conduct of the annual audit;

(c) reviewing matters relating to the independence of the external auditors, including considering auditor independence standards adopted by applicable auditing and regulatory bodies and establishing policies and procedures relating to the pre-approval and engagement of the Company’s external auditors to provide non- audit services to the Company and its subsidiary entities;

(d) requiring the external auditors to report directly to the Committee and being directly responsible for overseeing the work of the external auditors engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditors regarding financial reporting and reviewing all other reportable events, including unresolved issues and consultations;

(e) reviewing and discussing with the external auditors all reports which external auditors are required to provide to an audit committee or the board of directors of a company under rules, policies or practices of professional or regulatory bodies applicable to auditors of public corporations in Canada and any other reports which the Committee may require;

(f) reviewing and making recommendations to the Board regarding any change in the external auditors, including reviewing the reasons for the change, any significant issues related to the change and the qualifications of the proposed external auditors and, when there is to be a change of external auditors, reviewing the information required to be disclosed in respect of the change under applicable securities laws and the planned steps for an orderly transition; and

(g) reviewing and approving the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company.

3.4 Oversight of External Audit Matters

The external auditors are accountable to the Committee and the Board as representatives of the Company’s shareholders. The external auditors are responsible for planning and carrying out the audit of the Company’s annual financial statements in accordance with generally accepted auditing principles. The external auditors shall have unrestricted access to the Committee. In connection with external audit matters of the Company, the responsibilities of the Committee shall include:

(a) reviewing the external audit plan with the external auditors and management and making recommendations as to the scope and extent and manner in which the external audit will be conducted and, where applicable, reviewing reports from the external auditors on the progress of the external audit;

(b) reviewing with management and the external auditors any significant risks and uncertainties and key estimates and judgments of management that may be material to financial reporting;

(c) questioning management and the external auditors regarding any significant financial reporting issues discussed during the fiscal period and the method of resolution and assessing any significant resolved and any unresolved issues between the external auditors and management;

(d) reviewing any problems experienced by the external auditors in performing the external audit, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management;

(e) reviewing and discussing with management and the external auditors the audited annual financial statements (and the report of the external auditors thereon) and the unaudited interim financial statements, to gain reasonable assurance that the statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company and are in accordance with generally accepted accounting principles, obtaining an explanation from management regarding all significant variances between comparative reporting periods and reporting to the Board with a recommendation as to the approval of such statements;

(f) reviewing the post-audit or management letter containing the recommendations of the external auditors, and management’s response thereto and monitoring any necessary or subsequent follow-up on any identified issues; and

(g) reviewing any evaluation of internal controls by the external auditors in conjunction with the external audit and management’s response thereto.

3.5 Oversight of Internal Audit Matters

The internal auditors are responsible for, among other things, reviewing the adequacy and effectiveness of the system of internal controls. The internal auditors shall have unrestricted access to the Committee. In connection with internal audit matters of the Company, the responsibilities of the Committee shall include:

(a) reviewing any internal audit plans with the internal auditors and making recommendations as to the scope and extent and manner in which such internal audits will be conducted;

(b) reviewing with the internal auditors their reports on internal audits and management’s response thereto, monitoring any necessary or subsequent follow-up on any identified issues and reviewing any problems experienced by the internal auditors in performing such internal audits; and

(c) at least once annually, evaluating the internal audit function, including the terms of reference, activities, organizational structure, qualifications and effectiveness of the internal auditors.

3.6 Oversight of Internal Financial Matters

Management is responsible for the preparation, presentation and integrity of the Company’s financial statements. Management is also responsible for maintaining appropriate accounting and financial reporting principles and policies, systems of risk assessment, internal controls and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, recorded and reported. Management is also responsible for the reliability of financial reporting and compliance with applicable accounting standards, laws and regulations. In connection with internal financial matters relevant to the Company and its investment in RBH, the responsibilities of the Committee shall include:

(a) reviewing the appointment and ongoing performance of the Chief Financial Officer and any other key financial executives involved in the financial reporting process;

(b) reviewing the reports of the Chief Financial Officer at each meeting of the Committee on matters relevant to the financial affairs of the Company;

(c) reviewing management proposals and recommendations regarding annual budgets, long-term financial plans and commitments, corporate borrowings, capital expenditures, the issuance and/or repurchase of common shares of the Company and any other significant financial transactions which are not in the ordinary course and making recommendations to the Board thereon;

(d) reviewing the principal financial control risks of the Company and its investment in RBH and making recommendations with respect to control systems to manage and monitor these risks;

(e) reviewing the adequacy and effectiveness of the Company’s internal accounting and financial controls and the recommendations of management, the external auditors and the internal auditors for the improvement of such controls;

(f) reviewing any material weaknesses in the internal control environment, including with respect to computerized information system controls and security;

(g) reviewing any reports of management, the internal auditors or the external auditors regarding any significant deviations, indications or detection of fraud and monitoring any necessary or subsequent follow- up on any such matters;

(h) reviewing and assessing management’s procedures to comply with applicable legislation for deductions and remittances and related matters;

(i) reviewing all policies and practices of the Company respecting cash management and significant treasury strategies or policies;

(j) reviewing the status of significant tax audits or re-assessments; and

(k) reviewing with management the Company’s tolerance for financial risks, management’s assessment of the significant financial risks facing the Company, the Company’s policies and any proposed changes thereto for managing those financial risks and management’s plans, processes and programs to manage and control such risks.

3.7 Oversight and Review of Accounting Principles and Practices

In connection with overseeing and reviewing accounting principles and practices, the responsibilities of the Committee shall include reviewing and discussing with management, the external auditors and the internal auditors:

(a) the quality, appropriateness and acceptability of the Company’s accounting principles and practices and key estimates and judgments used in its financial reporting and the application of particular accounting principles and disclosure practices by management to new transactions or events;

(b) any material change to the Company’s auditing and accounting principles and practices as recommended by management, the external auditors or the internal auditors or which may result from proposed changes to applicable generally accepted accounting principles;

(c) the effect of regulatory and accounting initiatives on the Company’s financial statements and other financial disclosures and any industry-specific standards in accounting policies and practices;

(d) any reserves, accruals, provisions, estimates or management programs and policies that may have a significant effect upon the financial statements of the Company;

(e) the use of special purpose entities and the business purpose and economic effect of off balance sheet transactions, arrangements, obligations, guarantees and other relationships of the Company and their impact on the reported financial results of the Company;

(f) any legal matter, claim or contingency that could have a significant impact on the financial statements, the Company’s financial compliance policies and any material reports, inquiries or other correspondence received from regulators or governmental agencies regarding financial matters and the manner in which any such legal matter, claim or contingency has been disclosed in the Company’s financial statements; and

(g) the use of any “pro forma” or “adjusted” information not in accordance with generally accepted accounting principles.

3.8 Oversight of Financial Disclosure

In connection with the financial disclosure obligations of the Company, the responsibilities of the Committee shall include:

(a) reviewing and making recommendations to the Board regarding the Company’s annual audited and interim unaudited financial statements, annual and interim MD&A and annual and interim earnings press releases before the Company publicly discloses this information;

(b) reviewing and making recommendations to the Board regarding all other public disclosure of financial information extracted or derived from the Company’s financial statements before release to the public, including such information in a prospectus, a quarterly report, the annual report and the annual information form;

(c) reviewing and approving the Company’s disclosure of this Charter and any information regarding the Committee and its activities, when required, in the Company’s annual information form, management information circular and/or annual report; and

(d) reviewing the Company’s compliance with financial disclosure obligations.

3.9 Oversight and Monitoring of Financial and Other Business Conduct

In connection with overseeing and monitoring financial and other business conduct, the responsibilities of the Committee shall include:

(a) establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters;

(b) establishing procedures for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and

(c) reviewing periodically with the external and internal auditors and management these procedures and any complaints or concerns received and monitoring any necessary or subsequent follow-up on any identified issues.

3.10 Other Matters

Other responsibilities of the Committee shall include:

(a) reporting to the Board, at the earliest opportunity following any meeting of the Committee on all proceedings and deliberations of the Committee;

(b) at least annually, reviewing and assessing the adequacy of this Charter and making recommendations to the Board regarding any changes to this Charter and evaluating the Committee’s performance with reference to this Charter; and

(c) performing such other duties and exercising such powers as may from time to time be assigned or delegated to the Committee by the Board.