Document:

exv10w2

Exhibit 10.2

REYNOLDS AMERICAN INC.

LONG-TERM INCENTIVE PROGRAM

 

PERFORMANCE SHARE AGREEMENT

 

DATE OF GRANT: March 1, 2011

     1. Grant. Pursuant to the provisions of the Reynolds American Inc. 2009 Omnibus
Incentive Compensation Plan (the “Plan”), Reynolds American Inc. (the “Company”) on the date set
forth above, has granted to

<insert name> (the “Grantee”),

subject to the terms and conditions which follow and the terms and conditions of the Plan, an
initial grant (the “Target Number”) of

<insert number> Performance Shares.

A copy of the Plan has been provided to the Grantee and is made part of this Performance Share
Agreement (this “Agreement”) with the same force and effect as if set forth in this Agreement
itself. All capitalized terms used in this Agreement shall have the meaning set forth in the Plan,
unless otherwise defined in this Agreement.

     2. Value. Each Performance Share shall be equal in value to one share of common
stock, par value $0.0001 per share, of the Company or any security or other consideration into
which such share may be changed by reason of any transaction or event of the type referred to in
Section 11 of the Plan (each, a “Share”).

     3. Scoring. (a) Subject to the terms and conditions of this Agreement, the
Performance Shares shall have a three-year performance period, consisting of the Company’s fiscal
years 2011, 2012 and 2013 (the “Performance Period”), after which the number of Performance Shares
earned (the “Earned Number”) will be determined as provided below, and when vested, will be paid in
Shares.

          (b) If the Company fails to pay to its shareholders cumulative dividends of at least $6.36
per Share (the “Dividend Threshold”) for the Performance Period (which would exclude the dividend
paid on January 3, 2011, but would include the dividend paid on January 2, 2014), then the Target
Number shall be reduced by an amount equal to three times the percentage of the dividend
underpayment for the Performance Period, up to a maximum Target Number reduction of 50% (the
“Revised Target Number”).

          (c) At the end of the Performance Period, after determining if the Dividend Threshold has
been met, the Earned Number shall be determined by multiplying the Target Number, or Revised Target
Number if the Dividend Threshold has not been met, by the average

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score for the Company under the Reynolds American Inc. Annual Incentive Award Program (such
program, and any successor plan or program thereto, “AIAP”) for fiscal years 2011, 2012 and 2013;
provided, however, that such three-year average score shall in no event be greater than 150%;
and provided, further, that the value of the Earned Number of Performance
Shares that vest as provided in Section 4 of this Agreement, and are paid as provided in Section 5
of this Agreement, shall not exceed any maximum limits set by the Board of Directors pursuant to
its resolutions adopted on February 16, 2011, or otherwise contained in the Plan.

          (d) Notwithstanding anything in Section 3 of this Agreement to the contrary, in the event of a
Change of Control prior to the end of the Performance Period, the Earned Number shall be equal to
the product of (i) the Target Number and (ii) the average of the following: (x) the score for the
Company under the AIAP for each fiscal year of the Performance Period ending prior to the date of
such Change of Control, and (y) a score of 100% for each fiscal year of the Performance Period
ending after the date of such Change of Control (the “Change of Control Earned Number”).

     4. Vesting. (a) Subject to the terms and conditions of this Agreement, the Earned
Number of Performance Shares shall vest on March 1, 2014 (the “Normal Vesting Date”) if the Grantee
remains employed by the Company or a subsidiary of the Company on such date.

          (b) Notwithstanding anything in Section 4(a) of this Agreement to the contrary, in the event
of (i) the Grantee’s Retirement (as such term is defined below) or (ii) the Grantee’s involuntary
Termination of Employment without Cause (as such terms are defined in Section 6 of this Agreement),
in either case, prior to the end of the Performance Period, the number of Performance Shares that
will vest on the Normal Vesting Date shall be equal to the product of (x) the Earned Number and (y)
a fraction, the numerator of which shall be the number of days between the Date of Grant and the
date of the Grantee’s Retirement or Termination of Employment without Cause, as applicable, and the
denominator of which shall be the number of days between the Date of Grant and the Normal Vesting
Date, and the remaining Performance Shares will be forfeited and cancelled on the Normal Vesting
Date. For purposes of this Agreement, the term “Retirement” shall mean an employee’s voluntary
Termination on or after his or her 65th birthday, on or after his or her 55th
birthday with 10 or more years of service with the Company or a subsidiary of the Company, or on or
after his or her 50th birthday with 20 or more years of service with the Company or a
subsidiary of the Company.

          (c) Notwithstanding anything in Section 4(a) of this Agreement to the contrary, in the event
of (i) the Grantee’s death or (ii) the Grantee’s Permanent Disability (as such term is defined in
the Company’s Long-Term Disability Plan), the number of Performance Shares that will vest on the
date of the Grantee’s death or Permanent Disability, as applicable, shall be equal to the product
of (x) the Target Number and (y) a fraction, the numerator of which shall be the number of days
between the Date of Grant and the date of the Grantee’s death or Permanent Disability, as
applicable, and the denominator of which shall be the number of days between the Date of Grant and
the Normal Vesting Date, and the remaining Performance Shares will be forfeited and cancelled on
the date of the Grantee’s death or Permanent Disability, as applicable.

          (d) Notwithstanding anything in Section 4(a) of this Agreement to the contrary, in the event
of a Change of Control, the number of Performance Shares that will vest on the date of such Change
of Control shall be equal to the product of (i) the higher of (x) the Target Number and (y) the
Change of Control Earned Number, and (ii) a fraction, the numerator of which shall

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be the number of days between the Date of Grant and the date of the Change of Control, and the
denominator of which shall be the number of days between the Date of Grant and the Normal Vesting
Date, and the remaining Performance Shares will be forfeited and cancelled on the date of such
Change of Control.

          (e) Notwithstanding anything in Section 4 of this Agreement to the contrary, in the event of
the Grantee’s voluntary Termination of Employment (other than at Retirement) or Termination of
Employment for Cause (as such terms are defined in Section 6 of this Agreement), the Performance
Shares shall be immediately forfeited and cancelled.

     5. Payment. (a) Payment of vested Performance Shares shall be made only in Shares.
At the Company’s sole discretion, such Shares may be issued in certificated or book-entry form.

          (b) Except as set forth in Section 5(c) of this Agreement, or except under such other
circumstances as the Compensation and Leadership Development Committee of the Company’s Board of
Directors (the “Compensation Committee”) deems appropriate for participants other than a “Covered
Employee” within the meaning of Section 162(m) of the Internal Revenue Code, no payment of vested
Performance Shares shall be made to the Grantee prior to the end of the Performance Period. Except
as otherwise provided by this Agreement, payment of vested Performance Shares shall be made as soon
as practicable following the Normal Vesting Date, and in any event no later than March 15, 2015.

          (c) In the event of a Change of Control, the Grantee’s death or the Grantee’s Permanent
Disability, the payment of vested Performance Shares shall be paid as soon as practicable after
such event occurs, and in any case no later than March 15 after the end of the year in which such
event occurs.

          (d) In the event of the death of a Grantee, any payment to which such Grantee is entitled
under this Agreement shall be made to the beneficiary designated by the Grantee to receive the
proceeds of any noncontributory group life insurance coverage provided for the Grantee by the
Company or a subsidiary of the Company (“Group Life Insurance Coverage”). If no designation of
beneficiary has been made by a Grantee under the Group Life Insurance Coverage, distribution upon
such Grantee’s death shall be made in accordance with the provisions of the Group Life Insurance
Coverage. If a Grantee is no longer an employee of the Company at the time of death or no longer
has any Group Life Insurance Coverage, distribution upon such Grantee’s death shall be made to the
Grantee’s estate.

     6. Termination of Employment. (a) For purposes of this Agreement, the term
“Termination of Employment” shall mean termination from active employment with the Company or a
subsidiary of the Company; it does not mean the termination of pay and benefits at the end of a
period of salary continuation (or other form of severance pay or pay in lieu of salary).

          (b) For purposes of this Agreement, if the Grantee has an employment or severance agreement
or is covered under a severance plan of the Company or one of its subsidiaries, employment shall be
deemed to have been terminated for “Cause” only as such term is defined in such employment or
severance agreement or such severance plan. For purposes of this Agreement, if the Grantee does
not have an employment or severance agreement or is not covered under a severance plan of the
Company or one of its subsidiaries that defines the term

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“Cause,” the Grantee’s employment shall be deemed to have been terminated for “Cause” if the
Termination of Employment results from the Grantee’s: (i) criminal conduct; (ii) deliberate and
continual refusal to substantially perform his or her employment duties; (iii) deliberate and
continual refusal to act in accordance with any specific lawful instructions of an authorized
officer or employee more senior than the Grantee or a majority of the Board of Directors of the
Company; (iv) deliberate misconduct which could be materially damaging to the Company or any of its
business operations without a reasonable good faith belief by the Grantee that such conduct was in
the best interests of the Company, (v) material violation of the Company’s Code of Conduct or any
policy of the Company; or (vi) material breach of any noncompetition, non-disclosure of
confidential information or commitment to provide assistance agreement or obligation to the
Company. A Termination of Employment shall not be deemed for Cause hereunder unless the chief
human resources officer of the Company shall confirm that any such Termination of Employment is for
Cause; provided, however, that the chief executive officer of the Company shall be
required to confirm that a Termination of Employment of the chief human resources officer of the
Company is for Cause. Any voluntary Termination of Employment by the Grantee in anticipation of an
involuntary Termination of Employment for Cause shall be deemed to be a Termination of Employment
for Cause.

     7. Dividend Equivalent Payment. At the time of the payment of the vested Performance
Shares, the Grantee shall receive a cash dividend equivalent payment in an amount equal to the
product of (a) the Earned Number and (b) the aggregate amount of dividends per share declared and
paid to the Company’s shareholders on Shares during the period from the Date of Grant through the
date of the payment of the Performance Shares, without interest (the “Actual Dividends Paid”);
provided, however, that in the event of the Grantee’s death or Permanent Disability
or in the event of a Change of Control, the amount of the dividend equivalent payment to the
Grantee shall be equal to the product of (i) the Target Number (in the case of death or Permanent
Disability) or the Change of Control Earned Number (in the case of a Change of Control), and (ii)
the Actual Dividends Paid. Notwithstanding anything in Section 7 of this Agreement to the
contrary, to the extent the payment of the vested Performance Shares occurs after both the date a
dividend has been declared by the Company and the record date for such dividend, but prior
to the dividend payment date related thereto, the amount of the Actual Dividend Paid also shall
include such dividend. In the case of a dividend payment to be paid in property, the dividend
payment shall be deemed to be the fair market value of the property at the time of distribution of
the dividend payment to the Grantee, as determined by the Compensation Committee.

     8. Rights as a Shareholder. The Grantee shall not be, nor have any of the rights or
privileges of, a shareholder of the Company with respect to the Performance Shares unless and
until, and to the extent, the Performance Shares vest and Shares have been paid to the Grantee in
accordance with Section 5 of this Agreement.

     9. Transferability. Other than as specifically provided in this Agreement with regard
to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall
not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge; and any attempt to do so shall be void. No such benefit shall, prior to
receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Grantee.

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     10. No Right to Employment. Neither the execution and delivery of this Agreement nor
the granting of the Performance Shares evidenced by this Agreement shall constitute any agreement
or understanding, express or implied, on the part of the Company or its subsidiaries to employ the
Grantee for any specific period or in any specific capacity or shall prevent the Company or its
subsidiaries from terminating the Grantee’s employment at any time with or without Cause.

     11. Application of Laws. The granting of Performance Shares under this Agreement
shall be subject to all applicable laws, rules and regulations and to such approvals of any
governmental agencies as may be required.

     12. Notices. Any notices required to be given hereunder to the Company shall be
addressed to the Corporate Secretary, Reynolds American Inc., Post Office Box 2990, Winston-Salem,
NC 27102-2990, and any notice required to be given hereunder to the Grantee shall be sent to the
Grantee’s address as shown on the records of the Company.

     13. Taxes. Any taxes required by federal, state or local laws to be withheld by the
Company in respect of the grant of Performance Shares or payment of vested Performance Shares
hereunder shall be paid to the Company by the Grantee by the time such taxes are required to be
paid or deposited by the Company. The Grantee hereby authorizes the necessary withholding of
Performance Shares by the Company to satisfy the minimum statutory tax withholding amount prior to
delivery of the vested Performance Shares.

     14. Administration and Interpretation. In consideration of the grant of Performance
Shares hereunder, the Grantee specifically agrees that the Compensation Committee shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and Agreement as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations and determinations
made by the Compensation Committee shall be final, conclusive, and binding upon the Grantee, the
Company and all other interested persons. No member of the Compensation Committee shall be
personally liable for any action, determination or interpretation made in good faith with respect
to the Plan or this Agreement. The Compensation Committee may delegate its interpretive authority
as permitted by the provisions of the Plan.

     15. Compliance with Section 409A of the Code. This Agreement is intended to comply
with Section 409A of the Internal Revenue Code of 1986, as amended, and shall be construed and
interpreted in accordance with such intent.

     16. Amendment. This Agreement is subject to the Plan, a copy of which has been
provided to the Grantee. The Board of Directors and the Compensation Committee, as applicable, may
amend the Plan, and the Compensation Committee may amend this Agreement, at any time in any way,
except that, other than for adjustments under Section 15 hereof and as otherwise provided by the
Plan, any amendment of the Plan or this Agreement that would impair the Grantee’s rights under this
Agreement may not be made without the Grantee’s written consent.

     17. Litigation Assistance. (a) In addition to any other obligations of the Grantee
under law or any other agreement with the Company or any of its subsidiaries, in consideration of
the grant of Performance Shares hereunder, the Grantee specifically agrees that during the

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continuation of his or her employment by the Company or any of its subsidiaries and during the
one-year period commencing upon his or her Termination of Employment, for any reason, the Grantee:

               (i) will personally provide, at the Company’s cost, reasonable assistance and cooperation
to the Company and its subsidiaries in activities related to the prosecution or defense of any
pending or future lawsuits or claims involving the Company or any of its subsidiaries;

               (ii) will promptly notify the Company upon receipt of any requests from anyone other than an
employee or agent of the Company for information regarding the Company or any of it its
subsidiaries, or if the Grantee becomes aware of any potential claim or proposed litigation against
the Company or any of its subsidiaries;

               (iii) will refrain from providing any information related to any claim or potential
litigation against the Company or any of its subsidiaries to any non-Company representatives
without either the Company’s written permission or being required to provide information pursuant
to legal process;

               (iv) will not disclose or misuse any confidential information or material concerning the
Company or any of its subsidiaries; and

               (v) will not engage in any activity detrimental to the interests of the Company or any of
its subsidiaries, including, without limitation, an act of dishonesty, moral turpitude or other
misconduct that has or could have a detrimental impact on the business or reputation of the Company
or any of its subsidiaries.

     (b) In further consideration of the grant of Performance Shares hereunder, the Grantee
specifically agrees that if required by law to provide sworn testimony regarding any
Company-related matter: the Grantee 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); the Grantee will limit his or her testimony to items about which the Grantee has
knowledge rather than speculation, unless otherwise directed by legal process; and the Grantee will
cooperate with the Company’s attorneys to assist their efforts, especially on matters the Grantee
has been privy to, holding all privileged attorney-client matters in strictest confidence.

     18. Noncompetition Agreement. (a) In addition to any other obligations of the
Grantee under law or any other agreement with the Company or any of its subsidiaries, in
consideration of the grant of Performance Shares hereunder, the Grantee specifically agrees that
during the continuation of his or her employment by the Company or any of its subsidiaries and
during the one-year period commencing upon his or her Termination of Employment, for any reason,
the Grantee will not:

          (i) be employed or retained as an employee or independent contractor in a sales-related
capacity, marketing role, strategic planning role, financial role or product research and
development role for any Competitive Business in the Territory;

          (ii) be employed by or consult with any Competitive Business in the Territory in any sort
of position or capacity related to the services the Grantee performed while an employee of the
Company or any of its subsidiaries;

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          (iii) act as an officer or director of any Competitive Business in the Territory; or

          (iv) directly or indirectly, solicit, offer employment or hire any employee (other than
secretarial and clerical personnel) who was employed by the Company or any of its subsidiaries, at
the time of the Grantee’s Termination of Employment or who was employed by the Company or any of
its subsidiaries during the 90-day period preceding such date, to become employed by any person,
firm, entity or corporation, or approach any such person for any of the foregoing reasons.

     (b) For purposes of Section 18 of this Agreement, the terms set forth below have the following
definitions:

          (i) “Business” means the business of manufacturing, distributing, advertising, promoting,
marketing or selling any of the following products: (A) any cigarette, cigar, little cigar,
“roll-your-own” tobacco, smokeless or smoke-free tobacco product (including, without limitation,
moist snuff, dry snuff, snus, loose leaf, plug and twist tobacco and any other smokeless or
smoke-free tobacco, including dissolvable products, that may be invented); (B) any nicotine
replacement therapy products, including nicotine gum, mouth spray and pouches; and (C) any other
product that the Company or any of its subsidiaries invent, develop and/or market.

          (ii) “Competitive Business” means any corporation, limited liability company, partnership,
person, firm, organization, entity, enterprise, business or activity that competes with the
Business; and

          (iii) “Territory” means (A) the United States of America, its territories, commonwealths
and possessions (including, without limitation, duty-free stores or outlets located anywhere in any
of the foregoing places); (B) U.S. military installations located anywhere in the world; and (C)
any other location in which the Company conducts the Business.

     (c) Notwithstanding anything to the contrary contained in this Agreement, Section 18 of this
Agreement will not prohibit a Grantee from engaging in the authorized practice of law, whether for
a firm, corporation or otherwise, in any jurisdiction that prohibits agreements restricting the
right of an individual to engage in such practice. A Grantee, however, will continue to be bound
by any and all applicable professional and ethical rules of conduct that govern the use for
disclosure of confidential information obtained during the course of any representation of the
Company or any of its subsidiaries. This Agreement does, however, prohibit a Grantee from engaging
in any of the activities outlined in Section 18(a) of this Agreement in a non-legal, business role.

     (d) The Grantee agrees that any breach of the covenants contained in Section 18 of this
Agreement would irreparably injure the Company and that its remedies at law would be inadequate.
Accordingly, in the event of any breach or threatened breach of Section 18 of this Agreement, the
Company shall be entitled to an injunction (and/or other equitable relief), restraining such breach
or threatened breach, and to the reimbursement of court costs, attorneys’ fees and other costs and
expenses incurred in connection with enforcing this Agreement. The existence of any claim or cause
of action on the part of the Grantee against the Company or any of its subsidiaries shall not
constitute a defense to the enforcement of these provisions. The

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rights and remedies hereunder provided to the Company shall be cumulative and shall be in addition
to any other rights or remedies available at law, in equity or under this Agreement.

     (e) If any of the provisions of Section 18 of this Agreement are determined by a court of law
to be excessively broad, whether as to geographical area, time, scope or otherwise, such provision
shall be reduced to whatever extent is reasonable and shall be enforced as so modified. Any
provisions of Section 18 of this Agreement not so modified shall remain in full force and effect.

     19. Recoupment Provisions. (a) Subject to the clawback provisions of the
Sarbanes-Oxley Act of 2002, the Compensation Committee may, in its sole discretion, direct that the
Company recoup, and upon demand by the Company the Grantee agrees to return to the Company, all or
a portion of any Shares paid to the Grantee hereunder computed using financial information or
performance metrics later found to be materially inaccurate. The number of Shares to be recovered
shall be equal to the excess of the number of Shares paid out over the number of Shares that would
have been paid out had such financial information or performance metric been fairly stated at the
time the payout was made.

     (b) The Compensation Committee may direct recoupment of Shares pursuant to Section 19(a) of
this Agreement whether or not it directs recoupment of related AIAP payouts. The Compensation
Committee also may amend a yearly AIAP payout percent for purposes of recoupment of Shares under
this Agreement without directing recoupment of related AIAP payouts.

     (c) If the Company reasonably determines that the Grantee has materially violated any of the
Grantee’s obligations under Sections 17 or 18 of this Agreement, then effective the date on which
such violation began, (i) any Performance Shares that have not yet vested and been paid to the
Grantee under this Agreement shall be forfeited and cancelled, and (ii) the Company may, in its
sole discretion, recoup any and all of the Shares previously paid to the Grantee under this
Agreement.

     (d) If after a demand for recoupment of Shares under Section 19 of this Agreement, the Grantee
fails to return such Shares to the Company, the Grantee acknowledges that the Company (or the
Company through the actions of any of its subsidiaries employing the Grantee, if applicable) has
the right to effect the recovery of the then current value of such Shares and the amount of its
court costs, attorneys’ fees and other costs and expenses incurred in connection with enforcing
this Agreement by (i) deducting (subject to applicable law and the terms and conditions of the
Plan) from any amounts the Company (and if applicable, any subsidiary of the Company employing the
Grantee) owes to the Grantee (including, but not limited to, wages or other compensation), (ii)
withholding payment of future increases in compensation (including the payment of any discretionary
bonus amount) or grants of compensatory awards that otherwise would have been made in accordance
with the Company’s or any of its subsidiaries’ otherwise applicable compensation practices, or
(iii) any combination of the foregoing. The right of recoupment set forth in the preceding
sentence shall not be the exclusive remedy of the Company, and the Company may exercise each and
every other remedy available to it under applicable law.

     20. Qualified Performance-Based Awards. If the Grantee is a Covered Employee, the
grant of Performance Shares evidenced by this Agreement shall be considered a Qualified

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Performance-Based Award. In furtherance thereof, and notwithstanding anything in this
Agreement or the Plan to the contrary, the Earned Number of Performance Shares that such Grantee
may earn for the Performance Period pursuant to the grant evidenced by this Agreement (the “Earned
Shares”) shall be determined by the Compensation Committee based on, and must have a value (the
“Earned Shares Value”) that in no event exceeds a value equal to, the percentage of the Company’s
cumulative Cash Net Income (as defined below) for the Performance Period previously established by
the Board of Directors of the Company in resolutions adopted on February 16, 2011 to apply with
respect to the Grantee for the Performance Period (the “Award Pool Value”). Notwithstanding the
prior sentence, the Compensation Committee shall have the power and authority, in its sole and
absolute exercise of negative discretion, to reduce the Earned Shares such that the Earned Shares
Value will be less than the Award Pool Value, which reduction may be made by taking into account
the factors described above under Section 3 of this Agreement or any other criteria the
Compensation Committee deems appropriate. The reductions in Earned Shares Value, if any, shall not
result in any increases in the value of performance shares earned by any other awardee. For
purposes of this Agreement, the term “Cash Net Income” shall mean the Company’s net income from
continuing operations in the consolidated statement of income adjusted for the impact of non-cash
items, such as depreciation, amortization, unrealized gains and losses, intangible asset
impairments and other non-cash gains/losses included in net income (as reported in the Company’s
annual report for 2011, 2012 and 2013, respectively).

     21. GOVERNING LAWS. THE LAWS OF THE STATE OF NORTH CAROLINA SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT, REGARDLESS OF THE LAW THAT
MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS. ANY CONTROVERSY OR DISPUTE ARISING OUT OF
OR RELATED TO THIS AGREEMENT SHALL BE SETTLED EXCLUSIVELY IN THE COURTS (FEDERAL AND STATE)
SITUATED IN THE STATE OF NORTH CAROLINA, FORSYTH COUNTY. THE GRANTEE CONSENTS TO PERSONAL
JURISDICTION IN THE STATE OF NORTH CAROLINA AND IN THE COURTS THEREOF FOR THE ENFORCEMENT OF THIS
AGREEMENT, AND WAIVES ANY RIGHTS THE GRANTEE OTHERWISE MAY HAVE UNDER THE LAWS OF ANY JURISDICTION
TO OBJECT ON ANY BASIS TO JURISDICTION OR VENUE WITHIN THE STATE OF NORTH CAROLINA TO ENFORCE THIS
AGREEMENT.

     IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed
this Agreement as of the Date of Grant first above written.

	 	 	 	 	 
	 	REYNOLDS AMERICAN INC.

 	 
	 	By:  	
	 
	 	 	Authorized Signature 	 

	 	 	 	 	 
	
 	 	 
	Grantee’s Signature
 	 	 
	  	 	 	 
	Print Name: 	  	 	 	 
	 	 	 	 
	 

9exv10w1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

     This INDEMNIFICATION AGREEMENT (this “Agreement”) is made as of this       day of      , 20     , by and
between Farmers National Banc Corp, an Ohio corporation (the “Corporation”), and      , a director,
officer, employee, agent, or representative (as hereinafter defined) of the Corporation (the
“Indemnitee”).

     WHEREAS, the Corporation and the Indemnitee are each aware of the exposure to litigation
officers, directors, employees, agents, and representatives of the Corporation have as they
exercise their duties to the Corporation,

     WHEREAS, the Corporation and the Indemnitee are also aware of conditions in the insurance
industry that have affected and may continue to affect the Corporation’s ability to obtain
appropriate liability insurance on an economically acceptable basis,

     WHEREAS, the Corporation desires to continue to benefit from the services of highly qualified,
experienced, and otherwise competent persons such as the Indemnitee, and

     WHEREAS, the Indemnitee desires to serve or to continue to serve the Corporation as a
director, officer, employee, or agent or as a director, officer, employee, agent, or trustee of
another corporation, joint venture, trust, or other enterprise in which the Corporation has a
direct or indirect ownership interest, for so long as the Corporation continues to provide, on an
acceptable basis, adequate and reliable indemnification against liabilities and expenses that may
be incurred by the Indemnitee.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree
as follows.

     1. INDEMNIFICATION. Subject to the exclusions contained in section 9 of this Agreement, the
Corporation shall indemnify the Indemnitee for the Indemnitee’s activities as a director, officer,
employee, or agent of the Corporation or as a person who is serving or has served at the request of
the Corporation (“representative”) as a director, officer, employee, agent, or trustee of another
corporation, joint venture, trust, or other enterprise, domestic or foreign, in which the
Corporation has a direct or indirect ownership interest (an “affiliated entity”) against expenses
(including, without limitation, attorneys’ and experts’ fees, judgments, fines, and amounts paid or
payable in settlement) actually and reasonably incurred (“Expenses”) in any claim against
Indemnitee that is the subject of any threatened, pending, or completed action, suit, or other type
of proceeding, whether civil, criminal, administrative, investigative, or otherwise and whether
formal or informal (a “Proceeding”), to which Indemnitee was, is, or is threatened to be made a
party by reason of facts that include Indemnitee’s being or having been such a director, officer,
employee, agent, or representative, to the extent of the highest and most advantageous to the
Indemnitee, as determined by the Indemnitee, of one or any combination of the following —

	 	(a)	 	indemnification provided by the Corporation’s Articles of Incorporation
(“Articles”) or Regulations, or the Articles of Incorporation or Bylaws or
Regulations of an affiliated entity of which the Indemnitee serves as a
representative, in each case as in effect on the date hereof,

 

 

	 	(b)	 	indemnification provided by the Corporation’s Articles or Regulations, or the
Articles of Incorporation or Bylaws or Regulations of an affiliated entity of which the
Indemnitee serves as a representative, in each case as in effect when Expenses are
incurred by the Indemnitee,

	 	(c)	 	indemnification allowable under Ohio law in effect at the date hereof or as
amended to increase the scope of indemnification,

	 	(d)	 	indemnification allowable under the law of the jurisdiction under which the
Corporation exists when Expenses are incurred by the Indemnitee,

	 	(e)	 	indemnification available under any liability insurance obtained by the
Corporation in effect when a claim is made against Indemnitee,

	 	(f)	 	indemnification available under any liability insurance obtained by the
Corporation in effect when Expenses are incurred by the Indemnitee, and

	 	(g)	 	such other indemnification benefits as are or may be otherwise available to
Indemnitee.

     A combination of two or more of the indemnification benefits provided by (a) through (g) shall
be available to the extent that the Applicable Document (as hereafter defined) does not require
that the benefits provided therein be exclusive of other benefits. The document or law providing
for the indemnification benefits listed in items (a) through (g) above is called the “Applicable
Document” in this Agreement. The Corporation hereby undertakes to use its best efforts to assist
Indemnitee in all proper and legal ways to obtain the indemnification benefits selected by
Indemnitee under item (a) through (g) above.

     For purposes of this Agreement, references to “other enterprises” shall include employee
benefit plans for employees of the Corporation or of any affiliated entity, without regard to
ownership of such plans; references to “fines” shall include any excise taxes assessed on the
Indemnitee with respect to any employee benefit plan; references to “serving at the request of the
Corporation” shall include any service as a director, officer, employee, or agent of the
Corporation that imposes duties on or involves services by the Indemnitee with respect to an
employee benefit plan, its participants, or beneficiaries; references to the masculine shall
include the feminine; references to the singular shall include the plural and vice versa; and if
the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in the
best interests of the participants and beneficiaries of an employee benefit plan, the Indemnitee
shall be deemed to have acted in a manner consistent with the standards required for
indemnification by the Corporation under the Applicable Documents.

     2. INSURANCE. The Corporation shall maintain liability insurance for so long as Indemnitee’s
services are covered hereunder, provided and to the extent that such insurance is available on a
basis acceptable to the Corporation. However, the Corporation agrees that the provisions hereof
shall remain in effect regardless of whether liability or other insurance

 

 

coverage is at any time obtained or retained by the Corporation. But payments made to
Indemnitee under an insurance policy obtained or retained by the Corporation shall reduce the
obligation of the Corporation to make payments hereunder by the amount of the payments made under
any such insurance policy.

     3. PAYMENT OF EXPENSES. At Indemnitee’s request, after receipt of written notice under section
5 hereof and an undertaking in the form of Exhibit A attached hereto by or on behalf of Indemnitee
to repay such amounts so paid on Indemnitee’s behalf if it shall ultimately be determined under the
Applicable Document that Indemnitee is not entitled to be indemnified by the Corporation for such
Expenses, the Corporation shall pay the Expenses as and when incurred by Indemnitee. That portion
of Expenses representing attorneys’ fees and other costs incurred in defending any proceeding shall
be paid by the Corporation within 30 days after the Corporation receives the request and reasonable
documentation evidencing the amount and nature of the Expenses, subject to the Corporation also
having received such a notice and undertaking.

     4. ADDITIONAL RIGHTS. The indemnification provided in this Agreement shall not be exclusive of
any other indemnification or right to which Indemnitee may be entitled and shall continue after
Indemnitee has ceased to occupy a position as an officer, director, employee, agent, or
representative as described in section 1 above with respect to Proceedings relating to or arising
out of Indemnitee’s acts or omissions during the Indemnitee’s service in such position. The
indemnification benefits provided to Indemnitee under this Agreement for the Indemnitee’s service
as a representative of an affiliated entity shall be payable if and only if and only to the extent
that reimbursement to Indemnitee by the affiliated entity with which Indemnitee has served as a
representative, whether pursuant to agreement, applicable law, articles of incorporation or
association, bylaws or regulations of the entity, or insurance maintained by such affiliated
entity, is insufficient to compensate Indemnitee for Expenses actually incurred and otherwise
payable by the Corporation under this Agreement. Any payments in fact made to or on behalf of the
Indemnitee directly or indirectly by the affiliated entity with which Indemnitee served as a
representative shall reduce the obligation of the Corporation hereunder.

     5. NOTICE TO CORPORATION. Indemnitee shall provide to the Corporation prompt written notice of
any Proceeding brought, threatened, asserted, or commenced against Indemnitee for which Indemnitee
may assert a right to indemnification hereunder; provided, however, that failure to provide notice
shall not in any way limit Indemnitee’s rights under this Agreement.

     6. COOPERATION IN DEFENSE AND SETTLEMENT. Indemnitee shall not make any admission or effect
any settlement without the Corporation’s written consent unless Indemnitee shall have determined to
undertake the Indemnitee’s own defense in such matter and has waived the benefits of this
Agreement. The Corporation shall not settle any Proceeding to which Indemnitee is a party in a
manner that would impose any Expense on Indemnitee without the Indemnitee’s written consent.
Neither Indemnitee nor the Corporation shall unreasonably withhold consent to the proposed
settlement. Indemnitee and the Corporation shall cooperate to the extent reasonably possible with
each other and with the Corporation’s insurers in attempts to defend or settle such Proceeding.

 

 

     7. ASSUMPTION OF DEFENSE. Except as otherwise provided below, the Corporation jointly with any
other indemnifying party similarly notified may assume Indemnitee’s defense in any Proceeding, with
counsel mutually satisfactory to Indemnitee and the Corporation. After notice from the Corporation
to Indemnitee of the Corporation’s election to assume such defense, the Corporation shall not be
liable to Indemnitee under this Agreement for Expenses subsequently incurred by Indemnitee in the
defense thereof, other than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ counsel in such Proceeding, but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the defense thereof
shall be at Indemnitee’s expense unless:

	 	(a)	 	the employment of counsel by Indemnitee is authorized by the Corporation,

	 	(b)	 	counsel employed by the Corporation initially is unacceptable or later becomes
unacceptable to Indemnitee and such unacceptability is reasonable under then existing
circumstances,

	 	(c)	 	Indemnitee reasonably concludes that there is a conflict of interest between
Indemnitee and the Corporation (or another party being represented jointly with the
Corporation) in the conduct of the defense of such Proceeding, or

	 	(d)	 	the Corporation does not employ counsel promptly to assume the defense of the
Proceeding,

in each of which cases the fees and expenses of counsel shall be at the expense of the Corporation
and subject to payment pursuant to this Agreement. The Corporation shall not be entitled to assume
the defense of Indemnitee in any Proceeding brought by or on behalf of the Corporation or as to
which Indemnitee shall have made either of the conclusions provided for in clauses (b) or (c)
above.

     8. ENFORCEMENT. If a dispute or controversy arises under this Agreement between Indemnitee and
the Corporation about whether the Indemnitee is entitled to indemnification for any Proceeding or
for Expenses incurred, then for each such dispute or controversy the Indemnitee may seek to enforce
the Agreement through legal action or, at Indemnitee’s sole option and written request, through
arbitration. If the Indemnitee requests arbitration, the dispute or controversy shall be submitted
by the parties to binding arbitration in Mahoning County, Ohio before a single arbitrator agreeable
to both parties; provided, however, that indemnification for any claim, issue, or matter in a
Proceeding brought against Indemnitee by or in the right of the Corporation and as to which
Indemnitee is adjudged liable for negligence or misconduct in the performance of the Indemnitee’s
duty to the Corporation shall be submitted to arbitration only to the extent permitted under the
Applicable Document and applicable law then in effect. If the parties cannot agree on a designated
arbitrator within 15 days after arbitration is requested in writing by the Indemnitee, the
arbitration shall proceed in Mahoning County, Ohio before an arbitrator appointed by the American
Arbitration Association. In either case, the arbitration proceeding shall commence promptly under
the rules then in effect of that Association. And the arbitrator agreed to by the parties or
appointed by that Association shall be an attorney other than an attorney who has been or is
associated with a firm having associated with it an attorney who has been retained by or performed
services for the Corporation or

 

 

Indemnitee at any time during the five years preceding commencement of arbitration. The award
shall be rendered in such form that judgment may be entered thereon in any court having
jurisdiction thereof. The prevailing party shall be entitled to prompt reimbursement of any costs
and expenses (including, without limitation, reasonable attorneys’ fees) incurred in connection
with such legal action or arbitration; provided, however, that the Indemnitee shall not be required
to reimburse the Corporation unless the arbitrator or court resolving the dispute determines that
Indemnitee acted in bad faith in bringing the action or arbitration.

     9. EXCLUSIONS. Regardless of the scope of indemnification available to Indemnitees from time
to time under any Applicable Document, no indemnification, reimbursement, or payment shall be
required of the Corporation hereunder for —

	 	(a)	 	any claim or any part thereof for which Indemnitee is determined by a court of
competent jurisdiction, from which no appeal is or can be taken, by clear and
convincing evidence, to have acted with deliberate intent to cause injury to the
Corporation or with reckless disregard for the best interests of the Corporation,

	 	(b)	 	any claim or any part thereof arising out of acts or omissions for which
applicable law prohibits elimination of liability,

	 	(c)	 	any claim or any part thereof arising under section 16(b) of the Securities
Exchange Act of 1934 for which Indemnitee is obligated to pay any penalty, fine,
settlement, or judgment,

	 	(d)	 	any obligation of Indemnitee based upon or attributable to the Indemnitee
gaining in fact any improper personal benefit, gain, profit, or advantage, or

	 	(e)	 	any proceeding initiated by Indemnitee without the consent or authorization of
the Corporation’s board of directors, provided that this exclusion shall not apply to
any claims brought by Indemnitee (x) to enforce the Indemnitee’s rights under this
Agreement or (y) in any Proceeding initiated by another person or entity, regardless of
whether the claims were brought by Indemnitee against a person or entity who was
otherwise a party to such proceeding.

     Nothing in this section 9 shall eliminate or diminish the Corporation’s obligations to advance
that portion of Indemnitee’s Expenses representing attorneys’ fees and other costs incurred in
defending any proceeding under section 3 of this Agreement.

     Furthermore, despite anything to the contrary in this Agreement, nothing in this Agreement
requires indemnification, reimbursement, or payment by the Corporation, and the Indemnitee shall
not be entitled to demand indemnification, reimbursement, or payment under this Agreement, if and
to the extent indemnification, reimbursement, or payment constitutes a “prohibited indemnification
payment” within the meaning of Federal Deposit Insurance Corporation Rule 359.1(l)(1) [12 CFR
359.1(l)(1)].

     10. EXTRAORDINARY TRANSACTIONS. The Corporation covenants and agrees that if a merger,
consolidation, or reorganization occurs in which the Corporation is not the surviving entity, if
there is a sale of all or substantially all of the assets of the Corporation, or

 

 

if there is a liquidation of the Corporation (each such event being hereinafter referred to as
an “extraordinary transaction”), the Corporation shall —

	 	(a)	 	have the obligations of the Corporation under this Agreement expressly assumed
by the survivor, purchaser, or successor, as the case may be, in such extraordinary
transaction, or

	 	(b)	 	otherwise adequately provide for the satisfaction of the Corporation’s
obligations under this Agreement in a manner acceptable to the Indemnitee.

     11. NO PERSONAL LIABILITY. Indemnitee agrees that neither the directors nor any officer,
employee, representative, or agent of the Corporation shall be personally liable for the
satisfaction of the Corporation’s obligations under this Agreement, and Indemnitee shall look
solely to the assets of the Corporation for satisfaction of any claims hereunder.

     12. SEVERABILITY. If any provision, phrase, or other portion of this Agreement is determined
by any court of competent jurisdiction to be invalid, illegal, or unenforceable, in whole or in
part, and such determination becomes final, such provision, phrase, or other portion shall be
deemed to be severed or limited, but only to the extent required to render the remaining provisions
and portions of the Agreement enforceable, and the Agreement as thus amended shall be enforced to
give effect to the intention of the parties insofar as that is possible.

     13. SUBROGATION. If any payments are made under this Agreement, the Corporation shall be
subrogated to the extent thereof to all rights to indemnification or reimbursement against any
insurer or other entity or person that are vested in the Indemnitee, who shall execute all
instruments and take all other actions as shall be reasonably necessary for the Corporation to
enforce such rights.

     14. GOVERNING LAW. The parties hereto agree that this Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Ohio.

     15. NOTICES. All notices, requests, demands and other communications hereunder shall be in
writing and shall be considered to have been duly given if delivered by hand or mailed, certified
or registered mail, return receipt requested, with postage prepaid, to the following addresses or
to such other address as either party may designate by like notice. If to the Corporation, notice
shall be given to the board of directors, Farmers National Banc Corp, 20 South Broad Street,
Canfield, Ohio 44406, or to such other or additional person or persons as the Corporation shall
have designated to the Indemnitee in writing. If to the Indemnitee, notice shall be given to the
Indemnitee at the address of the Indemnitee appearing on the Corporation’s records, or to such
other or additional person or persons as the Indemnitee shall have designated to the Corporation in
writing.

     16. TERMINATION. This Agreement may be terminated by either party upon not less than 60 days’
prior written notice delivered to the other party, but such termination shall not diminish the
obligations of the Corporation hereunder for the Indemnitee’s activities before the effective date
of termination.

 

 

     17. AMENDMENTS AND BINDING EFFECT. This Agreement and the rights and duties of Indemnitee and
the Corporation hereunder may not be amended, modified, or terminated except by written instrument
signed and delivered by the parties hereto. This Agreement is binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors, administrators, successors,
and assigns.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	FARMERS NATIONAL BANC CORP

 	 
	 	By:  	   
 	 
	 	Its:  	   
 	 
	 	 	 	 
	 
	 	INDEMNITEE

 	 
	 	  	   
 	 
	 	 	 	 
	 	 	 	 
	 

 

 

Exhibit 1

FORM OF UNDERTAKING

     This UNDERTAKING is entered into by       (“Indemnitee”) in accordance with an Indemnification
Agreement dated as of      , 20      (the “Indemnification Agreement”), by and between Farmers
National Banc Corp, an Ohio corporation (the “Corporation”), and Indemnitee.

RECITALS:

     A. Under the Indemnification Agreement, the Corporation has agreed to pay Expenses (within the
meaning of the Indemnification Agreement) as and when incurred by Indemnitee for any claim against
Indemnitee that is the subject of any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, or investigative, to which Indemnitee was, is, or is
threatened to be made a party by reason of facts that include Indemnitee’s being or having been a
director, officer, or representative (within the meaning of the Indemnification Agreement) of the
Corporation,

     B. Such a claim has arisen against Indemnitee and Indemnitee has notified the Corporation
thereof in accordance with the terms of section 5 of the Indemnification Agreement (hereinafter the
“Proceeding”), and

     C. Indemnitee believes that Indemnitee should prevail in the Proceeding, and it is in the
interest of both Indemnitee and the Corporation to defend against the claims against Indemnitee
thereunder.

     NOW, THEREFORE, Indemnitee hereby agrees that in consideration of the Corporation’s advance
payment of Indemnitee’s Expenses incurred before final disposition of the Proceeding, Indemnitee
hereby undertakes to reimburse the Corporation for any and all expenses paid by the Corporation on
behalf of Indemnitee before final disposition of the Proceeding if the Indemnitee is determined
under the Applicable Document (within the meaning of the Indemnification Agreement) to be required
to repay such amounts to the Corporation under the Indemnification Agreement and applicable law,
provided that if Indemnitee is entitled under the Applicable Document to indemnification for some
or a portion of such Expenses, Indemnitee’s obligation to reimburse the Corporation shall only be
for those Expenses for which Indemnitee is determined to be required to repay such amounts to the
Corporation. Such reimbursement or arrangements for reimbursement by Indemnitee shall be
consummated within 90 days after a determination that Indemnitee is required to repay such amounts
to the Corporation under the Indemnification Agreement and applicable law.

     Further, the Indemnitee agrees to reasonably cooperate with the Corporation concerning such
proceeding.

     IN WITNESS WHEREOF, the undersigned has executed this undertaking this       day of                     , 20     .

	 	 	 	 	 
	 	 	 
	 	  	                                                     
 	 
	 	 	Indemnitee

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