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                                                                    EXHIBIT 10.7



June 6, 2003





Mr. Richard H. Bogan
3171 Allerton Lake Drive
Winston-Salem, NC  27106

Dear Richard:

Upon notification by R. J. Reynolds Tobacco Holdings, Inc., your employer, that
your active employment is coming to an end, this letter constitutes the entire
agreement by and among R. J. REYNOLDS TOBACCO HOLDINGS, INC., R. J. REYNOLDS
TOBACCO COMPANY (collectively the "Company"), its successors, affiliates and/or
assigns, and you regarding the termination of your employment relationship with
the Company and is in full and final satisfaction of all the Company's
obligations to you under your Letter Agreement dated June 12, 2002, as amended.
No benefits or payments other than those expressly provided herein shall be paid
or payable. Except as otherwise defined herein, capitalized terms herein shall
be defined as in the Letter Agreement. Except as otherwise specifically provided
herein, the benefits provided herein and the payments made and to be made
hereunder through your Separation Date are to be provided or made without regard
as to whether or not you become employed by another employer unaffiliated with
the Company and without regard to your death or Permanent Disability. The
severance-related compensation and/or benefits as described in this letter,
represent the Company's entire severance obligation to you and are in lieu of
any such compensation and/or benefits to which you would otherwise have been
entitled under the Company's Salary and Benefit Continuation Program (the
"SBC"). If there is any conflict or ambiguity with any prior agreement or
program, the provisions of this Agreement will control.

Please read the rest of this letter carefully. Then sign the copy of this Letter
of Agreement where indicated on the last page and return it to me.

1.      a.    You will continue as a regular full-time employee through June 30,
              2003. If you voluntarily quit or are terminated by the Company for
              violation of Company rules, policies, guides or standards of
              conduct before that date, you will not receive the benefits
              described below.

        b.    The date of your termination from active employment is June 30,
              2003 (your "Termination Date"). Your Compensation Continuance
              commences July 1, 2003, and continues through June 30, 2006, which
              will be your official



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Richard H. Bogan
Page 2



              "Separation Date" for Company records. "Compensation Continuance"
              is a paid leave of absence and is calculated as follows:

                  Current Annual Rate of Base Salary        $515,000
                  Annual Performance Unit Plan Target       $386,000
                                                            --------
                  Total Cash Compensation                   $901,000

                  2/3 of Subtotal Paid for 3 years          $600,666.67 per year

              Based on the foregoing, Compensation Continuance will be paid
              monthly at the rate of $50,055.56 for the period of Compensation
              Continuance and will be subject to deductions for income tax
              withholding, FICA, employee benefit plan contributions and other
              authorized deductions.

       c.     Compensation Continuance is provided in order to preserve the
              Company's access to you although you will be relieved of all your
              normal duties and responsibilities. You agree that you will
              personally provide reasonable assistance and cooperation in
              locating or obtaining information concerning the Company (past or
              present) about which you are knowledgeable.

       d.     You acknowledge that as of June 30, 2003, your active employment
              with the Company will end irrevocably and will not be resumed
              again at any time in the future except upon mutual agreement of
              the parties hereto.

       e.     During Compensation Continuance, if you become employed by an
              employer not affiliated with the Company, Compensation Continuance
              will continue. You will continue to be eligible to participate in
              the Company's Capital Investment Plan. However, other benefits
              under the Employee Benefits Programs shall be appropriately
              terminated, coordinated, or offset to the extent provided for by
              the other employer.

2.     If you die during Compensation Continuance, any Compensation Continuance
       amounts that would have been paid to you had you lived until your
       Separation Date will be paid in a lump sum to your estate.

3.     As of your Termination Date, no further vacation will accrue. Unused 2003
       vacation plus vacation for 2004, accrued in 2003, will be paid in a lump
       sum at the end of Compensation Continuance and is not includable for any
       benefit plan calculations.

4.     During Compensation  Continuance,  you may continue to participate in the
       employee benefit programs in which you  participated as of your
       Termination  Date except as otherwise  provided in this Letter of
       Agreement or by the terms of the



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Richard H. Bogan
Page 3



       individual program. You may participate as though you were an active
       employee, subject to the continuation of applicable payroll deductions.
       Such participation will be subject to the terms, provisions and
       conditions of such programs, including the Company's right to amend,
       modify or terminate the programs. Employee Benefit Programs do not
       include the Annual Performance Unit Plan ("APU") or the Long-Term
       Incentive Plan ("LTIP"), the disposition of which is detailed in other
       provisions of this Agreement.

       The following is a summary of benefit continuation:

       Your participation in the R. J. Reynolds Omnibus Welfare Benefits Plan
       and Insurance Plans ("Welfare Plan") and Flexible Perquisite Program,
       except for the Short- and Long-Term Disability Plans, will continue until
       the end of Compensation Continuance, provided you make any required Plan
       contributions in the manner specified by the Company and subject to the
       terms and conditions of such plans, including the Company's right to
       amend, modify, or terminate such plans. If, as a result of the foregoing
       sentence you are carried into a new Welfare Plan year, you will be
       required to reenroll in the same manner as active employees. Should you
       become employed by an employer not affiliated with the Company, health
       care coverage provided by your new employer will be coordinated with
       health care benefits provided by the Company.

       Your participation in the group medical, dental and life insurance plans
       in which you now participate will continue during Compensation
       Continuance subject to the terms, provisions and conditions of such
       plans, including the Company's right to amend, modify or terminate the
       Plans. Coverage under applicable welfare plans will be based on your
       annual base pay in effect as of your last day of active employment (June
       30, 2003). If you elect COBRA (Consolidated Omnibus Budget Reconciliation
       Act of 1985) continuation coverage following your Separation Date,
       medical and/or dental coverage may continue for up to 18 months at a
       monthly premium equal to 102% of actual plan cost. You will receive an
       election form for this COBRA continuation coverage shortly after your
       Separation Date.

       During Compensation Continuance, you will continue to accrue service and
       benefits under all Company-sponsored retirement plans in which you
       currently participate. For benefits based on an Average Final
       Compensation calculation, your compensation will be deemed to be full pay
       (i.e., annual rate of base salary and APU for the period of Compensation
       Continuance.)

       During Compensation Continuance, you may continue to make contributions
       to the R. J. Reynolds Capital Investment Plan, and you retain all other
       rights under the Plan, including the right to transfer investments
       between funds, change your contribution amount, and to request
       withdrawals. However, no loan applications will be approved during
       Compensation Continuance. Following your Separation



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Richard H. Bogan
Page 4


       Date, you may elect to have your account balance distributed to you in
       accordance with the terms of the Plan.

       In accordance with the terms of your Letter Agreement dated June 12,
       2002, you have been credited with an additional 12 years of service for
       purposes of the R. J. Reynolds Supplemental Executive Retirement Plan
       ("SERP"). Following your Separation Date, you will be eligible for a
       benefit from the SERP, an estimate of which is attached. Appropriate
       application forms will be sent to you following your Separation Date.

5.     During Compensation Continuance, you will continue to be eligible to
       receive the benefits of the Flexible Perquisite Program, except business
       travel insurance, subject to the Company's right to amend, modify, or
       terminate the Program. No new car or lease will be provided during
       Compensation Continuance.

6.     You will be paid an award under the Annual Performance Unit Plan for your
       months of active employment during the 2003 plan year based on the target
       award for the plan year and adjusted for actual financial performance of
       the Company. This award will be paid to you at the same time as other
       Plan participants, cannot be deferred, and is the last APU award to be
       made to you. Payment of any such award will be subject to appropriate
       taxes and a CIP contribution, if applicable. In addition, as a
       participant in APU, you will be paid your target APU over the period of
       Compensation Continuance as set forth in Paragraph 1 above. This was
       determined by dividing your APU target amount by the number of pay
       periods in a year and including such amount in the subtotal in
       determining each Compensation Continuance payment. Thus, there will be no
       lump sum APU award payment for the period of Compensation Continuance.

7.     Prior to your Termination Date, you are expected to submit expense
       reports for all outstanding travel, entertainment and other business
       expenses. If any expense report(s) reflect any amounts owing to the
       Company, such expense will be deducted from Compensation Continuance
       payments as necessary. In addition, prior to your last day of active
       employment, you must return all Company equipment such as cellular
       telephones or personal computers, or the value of such equipment, as
       determined by the Company, shall be deducted from the calculation of your
       Compensation Continuance.

8.     The estimated value of your other compensation is summarized as follows:
<TABLE>
<CAPTION>
       Compensation                      Estimated/Target Value
       ------------                      ----------------------
       <S>                  <C>                  <C>              <C>
       2002 Grant           3,582 Shares Restricted Stock         Prorate 11,558 X 340/1,097 (days) = 3,582
                                                                            Vest on 6/30/2003

                            $373,632 (Target)                     Prorate 750,000 X 546/1,096 - scored & paid 2/2005
                                                                            Score = 0% to 150%

       Retention Bonus      $116,666.67                           Prorate $350,000 X 1/3 = $116,666.67
                                                                            To be paid 7/1/2003
</TABLE>

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Richard H. Bogan
Page 5



 9.    If you are an active participant in the Tuition Refund Plan on your
       Termination Date and all of the requirements of the Plan are fulfilled,
       you will continue to be eligible for tuition aid reimbursement during
       Compensation Continuance for courses completed during Compensation
       Continuance.

10.    If otherwise eligible, you may continue to participate or newly enroll in
       the MedSave Retiree Savings Plan during Compensation Continuance. Upon
       your Separation Date, no further contributions will be permitted;
       however, your account(s) including any applicable Company match will be
       maintained with continued interest growth. Distribution of your
       account(s) will be processed in accordance with program rules for active
       employees.

11.    You shall be covered by the same liability and indemnification programs
       afforded to other officers for acts that occurred while you were an
       officer of the Company and/or its affiliates.

12.    You shall maintain the terms and conditions of this Agreement in
       confidence. In addition, you will not without prior written consent of
       the Company, use, divulge, disclose or make accessible to any other
       person, firm, partnership or corporation or other entity any confidential
       information pertaining to the businesses of R.J. Reynolds Holdings, Inc.,
       R. J. Reynolds Tobacco Company or any of their affiliates, except (i)
       while employed by the Company in the business of and for the benefit of
       the Company or (ii) when required to do so by a court of competent
       jurisdiction by any governmental agency having supervisory authority over
       the business of the Company, or by any administrative body or legislative
       body (including a committee thereof) with jurisdiction to order you to
       divulge, disclose or make accessible such information. For purposes of
       this Agreement, "Confidential Information" shall mean non-public
       information concerning R.J. Reynolds Holdings, Inc., R. J. Reynolds
       Tobacco Company or any of their affiliate companies' data, strategic
       business plans, product development data (or other proprietary product
       data), customer lists, marketing plans and other proprietary information,
       except for specific items which have become publicly available
       information (other than such items which you know have become publicly
       available through a breach of fiduciary duty or any confidentiality
       agreement.)

       a.    You will personally provide reasonable assistance and cooperation
             to the Company in activities related to the prosecution or defense
             of any pending or future lawsuits or claims involving the Company.

       b.    You will promptly notify the Company if you receive any requests
             from anyone other than an employee or agent of the Company for
             information regarding the Company which could reasonably be
             construed as being proprietary, nonpublic or confidential or if you
             become aware of any potential claim or proposed litigation against
             the Company.

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Richard H. Bogan
Page 6



       c.    You will refrain from providing any information related to any
             claim or potential litigation against the Company to any
             non-Company representatives without either the Company's written
             permission or being required to provide information pursuant to
             legal process.

       d.    If required by law to provide sworn testimony regarding any
             Company-related matter, you will consult with and have
             Company-designated legal counsel present for such testimony. The
             Company will be responsible for the costs of such designated
             counsel and you will bear no cost for it.

       e.    If you are required by law to provide sworn testimony regarding any
             Company-related matter and if you require legal counsel to
             represent and protect your interest (in addition to the
             Company-designated legal counsel provided for under subparagraph D
             herein), the Company will reimburse you for any legal expenses
             (including, but not limited to, the costs of any attorney
             reasonably acceptable to you and the Company, which acceptance by
             the Company shall not be unreasonably withheld) and other
             out-of-pocket expenses you may incur in relation to such testimony.

       f.    You will cooperate with the Company's attorneys to assist their
             efforts, especially on matters you have been privy to, holding all
             privileged attorney-client matters in strictest confidence unless
             ordered to do otherwise by a court of competent jurisdiction or a
             committee of the Congress of the United States or of a state
             legislature. You understand that you will be reimbursed for
             travel, food, lodging or similar out-of-pocket expenses incurred
             at the Company's request in discharging any of your obligations
             under this Agreement.

       g.    Nothing in sentences a-f of the above paragraph is intended to
             apply to governmental or judicial investigations, including but
             not limited to an investigation by any agency or department of the
             federal or state government, any hearing before a committee of the
             Congress of the United States or of a state legislature, any
             investigation or proceeding by or of a special prosecutor, or any
             proceeding brought before a grand jury; provided, however, the
             Company will reimburse you for legal expenses including, but not
             limited to, the cost of any attorney reasonably acceptable to the
             Company and other out-of-pocket expenses if you are compelled to
             appear in a governmental or judicial investigation.

13.    Except as otherwise stated herein, no benefits (other than those provided
       by a Tax-qualified Plan or Trust) or promise hereunder shall be secured
       by any specific assets of the Company. The payments under this Agreement
       shall not be assigned by you or anticipated in any way and any such
       attempted assignment will be void.

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Richard H. Bogan
Page 7


14.    You agree not to apply for unemployment insurance attributable to your
       period of Compensation Continuance.

15.    IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS
       AGREEMENT, YOU VOLUNTARILY, KNOWINGLY AND WILLINGLY RELEASE AND FOREVER
       DISCHARGE THE COMPANY, ITS PARENTS, SUBSIDIARIES AND AFFILIATES, TOGETHER
       WITH THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND
       AGENTS, AND EACH OF THEIR PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM ANY
       AND ALL CHARGES, COMPLAINTS, CLAIMS, PROMISES, AGREEMENTS, CONTROVERSIES,
       CAUSES OF ACTION AND DEMANDS OF ANY NATURE WHATSOEVER WHICH AGAINST THEM
       YOU OR YOUR EXECUTORS, ADMINISTRATORS, SUCCESSORS OR ASSIGNS EVER HAD,
       NOW HAVE OR HEREAFTER CAN, SHALL OR MAY HAVE BY REASON OF ANY MATTER,
       CAUSE OR THING WHATSOEVER ARISING TO THE TIME YOU SIGN THIS AGREEMENT.
       YOU FURTHER AGREE THAT YOU WILL NOT SEEK OR BE ENTITLED TO ANY AWARD OF
       EQUITABLE OR MONETARY RELIEF IN ANY PROCEEDING OF ANY NATURE BROUGHT ON
       YOUR BEHALF ARISING OUT OF ANY OF THE MATTERS RELEASED BY THIS PARAGRAPH.
       THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO ANY RIGHTS OR CLAIMS
       RELATING IN ANY WAY TO YOUR EMPLOYMENT RELATIONSHIP WITH THE COMPANY, OR
       THE TERMINATION THEREOF, OR UNDER ANY STATUTE, INCLUDING THE AGE
       DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT, THE
       AMERICANS WITH DISABILITIES ACT, OR ANY OTHER FEDERAL, STATE OR LOCAL
       LAW.

16.    By signing this Agreement, you represent that you have not commenced any
       proceeding against the Company in any forum (administrative or judicial)
       concerning your employment or the termination thereof. You further
       acknowledge that you were given sufficient notice under the Worker
       Adjustment and Retraining Notification Act (the "WARN Act") and that the
       termination of your employment does not give rise to any claim or right
       to notice, or pay or benefits in lieu of notice under the WARN Act. In
       the event any WARN act issue does exist or arises in the future, you
       agree and acknowledge that the payments and benefits set forth in this
       Agreement shall be applied to any pay or benefits in lieu of notice
       required by the WARN Act, provided that any such offset shall not impair
       or affect the validity of any provision of this Agreement, including the
       release set forth in paragraph 15.

17.    In consideration of the additional consideration referenced in this
       Agreement, you covenant and agree that during the period of Compensation
       Continuance (i) you will not directly or indirectly (whether as owner,
       partner, consultant, employee, or otherwise) engage in any of the "major"
       businesses in which R. J. Reynolds Tobacco Holdings, Inc., R. J. Reynolds
       Tobacco Company or any of their affiliates are engaged and (ii) you will
       not, on your own behalf or on behalf of any person, firm or company,
       directly or indirectly, for a period of 12 months following your
       termination, offer employment to any person who was, at the time of your


<PAGE>

Richard H. Bogan
Page 8



       termination, employed by R. J. Reynolds Tobacco Holdings, Inc., R. J.
       Reynolds Tobacco Company, or any other affiliates.

18.    "Major businesses" for this purpose are the major business segments of
       R.J. Reynolds Tobacco Holdings, Inc., R. J. Reynolds Tobacco Company or
       any of their affiliates dealing in the manufacture, sale or marketing of
       tobacco and smoking products or products deemed to be in competition with
       smoking products, including but not limited to those developed, marketed
       or intended to be used as part of smoking cessation programs, or as
       tobacco or smoking substitutes. You and the Company agree that this
       covenant not to compete is a reasonable covenant under the circumstances
       and further agree that if, in the opinion of any court of competent
       jurisdiction, such restraint is not reasonable in any respect, such court
       shall have the right, power and authority to excise or modify such
       provision or provisions of this covenant as to the court shall appear not
       reasonable and to enforce the remainder of the covenant as so amended.

19.    The Company advises you that you may wish to consult with an attorney of
       your choosing prior to signing this Agreement. You understand and agree
       that you have the right and have been given the opportunity to review
       this Agreement, specifically the release in paragraph 15, with an
       attorney of your choice should you so desire. You have entered into this
       Agreement freely, knowingly and voluntarily. After a Change of Control
       (as defined under the LTIP), the Company shall pay to you as incurred all
       legal and accounting fees and expenses incurred by you in seeking to
       obtain or enforce any right or benefit provided by this Agreement or any
       other compensation-related plan, agreement or arrangement of the Company
       unless your claim is found by a tribunal of competent jurisdiction to
       have been frivolous.

20.    You will be reimbursed for travel, food, lodging or similar out-of-pocket
       expense incurred at the Company's request in discharging any of your
       obligations under this Agreement. If the Company reasonably determines
       that you have violated any of your obligations under this Agreement, then
       the Company may, at its option, terminate the Compensation Continuance
       and any other benefits hereunder; and the Company may demand the return
       of all Compensation Continuance payments already made and you hereby
       agree to return such payments upon such demand. If after such demand you
       fail to return said payments, the Company has the right to commence
       judicial proceedings against you to recover any and all of its attorney's
       fees and costs. The Executive Vice President - Human Resources or the
       designated representative thereof shall have exclusive authority to
       interpret this Agreement. The decision of the Executive Vice President -
       Human Resources with respect to any question arising as to the amount,
       term, form, and time of payment of benefits under this Agreement or any
       other matter concerning this Agreement shall be final, conclusive and
       binding on both you and the Company.

<PAGE>

Richard H. Bogan
Page 9


21.    This Agreement may not be amended except in writing signed by you and the
       Company, and no amendments or modifications are contemplated at this
       time. This Agreement shall not be construed to provide any rights to
       anyone other than you and the Company.

22.    If you have any questions about this Agreement, contact Ann A. Johnston
       or Stephen P. Karr in the Human Resources Department.

23.    You have at least twenty-one (21) days to consider the terms of this
       Agreement, although you may sign and return it sooner if you wish. This
       Agreement may be revoked by you for a period of seven (7) consecutive
       calendar days after you have signed and dated it, and after such seven
       (7) days it becomes final.

24.    This Agreement shall be construed, interpreted and governed in accordance
       with the laws of the State of North Carolina and the United States of
       America without reference to rules relating to conflicts of law.

Please indicate your acceptance of the terms of this Agreement by signing this
letter and returning it to me.

                                           Sincerely,

                                           R. J. REYNOLDS TOBACCO HOLDINGS, INC.


                                           /s/ Ann A. Johnston
                                           -------------------------------------
                                           Ann A. Johnston
                                           Executive Vice President
                                           Human Resources



Understood and agreed:


      /s/ Richard H. Bogan
---------------------------------
          Richard H. Bogan


Date:         7/1/03
     ----------------------------