Document:

Ex-10.24.1

 

Exhibit 10.24.1

FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT

     This FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (hereinafter, the “Amendment”) is entered into
as of December 20, 2004 among Ryan’s Restaurant Group, Inc. (formerly known as Ryan’s Family Steak
Houses, Inc.), a South Carolina corporation (the “Company”) and the Purchasers.

     WHEREAS, the Company issued and sold One Hundred Million Dollars ($100,000,000) in aggregate
principal amount of its 4.65% Senior Notes due July 25, 2013 (as they may be amended, restated or
otherwise modified from time to time, the “Notes”) pursuant to the Note Purchase Agreement dated as
of July 25, 2003, between the Company and the purchasers identified on Schedule A thereto, (the
"Note Agreement”).

     WHEREAS, the register for the registration and transfer of the Notes indicates that the
Persons named in Annex 1 hereto are currently the holders of the entire outstanding principal
amount of the Notes.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     1. Amendments. The Note Agreement is hereby amended in the following respects:

     (a) Each reference to “Ryan’s Family Steak Houses, Inc.” is hereby deleted and replaced
with a reference to “Ryan’s Restaurant Group, Inc.”

     (b) Section 10.5 of the Note Agreement is hereby amended and restated in its entirety
to read as follows:

     "10.5. Restricted Payments and Restricted Investments.

     (a) The Company will not, and will not permit any of its Subsidiaries to,
declare, make or incur any liability to declare or make any Restricted Payment or
any Restricted Investment unless, immediately prior, and immediately after giving
effect, to the making of such Restricted Payment or Restricted Investment, no
Default or Event of Default would exist and, with respect to Restricted Payments,
immediately after giving effect to such action, the aggregate amount of such
Restricted Payments of the Company and its Subsidiaries declared or made during the
period commencing on September 30, 2004, and ending on the date such Restricted
Payment is declared or made, inclusive, would not exceed the sum of:

     (1) $22,295,500, plus

     (2) 50% of Net Income for such period (or minus 100% of Net Income for
such period if Net Income for such period is a loss), plus

     (3) the aggregate amount of net proceeds arising from sales of the
Company’s Capital Stock during such period, plus

     (4) the Carryforward Restricted Payment Basket, minus

 

 

     (5) the amount of the aggregate Unused Restricted Payment Allowance
allocated to the Carryforward Capital Expenditure Basket as provided in
subsection (b) below.

     (b) Within 90 days after the end of each fiscal year of the Company, commencing
with 90 days after the end of fiscal year 2004, after or with delivery of the
audited annual financial statements in respect of the immediately preceding fiscal
year of the Company, the Company shall notify the Noteholders of (i) the Unused
Restricted Payment Allowance for such immediately preceding fiscal year and (ii)
whether or not the Company will allocate any portion of such Unused Restricted
Payment Allowance to the Carryforward Capital Expenditure Basket, whereupon the
Carryforward Capital Expenditure Basket shall be immediately increased by the
amounts allocated thereto. Notwithstanding the foregoing, the Carryforward Capital
Expenditure Basket may not be increased in any fiscal year by more than
$10,000,000.”

     (c) Section 10.13 of the Note Agreement is hereby amended and restated in its entirety
to read as follows:

     "10.13. Capital Expenditures.

     (a) The Company will not permit Capital Expenditures in any fiscal year,
commencing with the fiscal year ending December 29, 2004, to exceed the sum of (i)
the amount set forth below for the relevant fiscal year set forth below (the
“Initial Capital Expenditure Basket”) plus (ii) the amount of net cash proceeds
received in such fiscal year from the sale of stores in accordance with Section 10.9
plus (iii) the Carryforward Capital Expenditure Basket:

	 	 	 	 	 
	Fiscal year	 	Amount	 
	2004
	 	$	90,000,000	 
	2005
	 	$	94,000,000	 
	2006
	 	$	98,000,000	 
	2007
	 	$	102,000,000	 
	2008
	 	$	106,000,000	 
	2009
	 	$	110,000,000	 
	2010
	 	$	114,000,000	 
	2011
	 	$	119,000,000	 
	2012
	 	$	124,000,000	 
	2013
	 	$	129,000,000	 

     (b) The term “Unused Capital Expenditure Allowance” means, for any fiscal year,
the amount by which the Initial Capital Expenditure Basket for such fiscal year
exceeds the aggregate amount of Capital Expenditures actually made by the Company
and its Subsidiaries during such fiscal year. The term “Carryforward Capital
Expenditure Basket” shall mean the aggregate, if any, of (i) all Unused Capital
Expenditure Allowance allocated by the Company pursuant to subsection (c) below for
Capital Expenditures in future fiscal years and (ii) the Unused Restricted Payment
Allowance allocated by the Company pursuant to Section 10.5(b) for Capital
Expenditures in future fiscal years; notwithstanding the foregoing, the Carryforward
Capital Expenditure Basket may not be increased in any fiscal year by more than
$10,000,000. The term “Carryforward Restricted Payment Basket” shall mean the

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portion, if any, of all Unused Capital Expenditure Allowance allocated by the
Company pursuant to subsection (c) below for permitted Restricted Payments in future
fiscal years.

     (c) Within 90 days after the end of each fiscal year of the Company, commencing
with 90 days after the end of fiscal year 2004, after or with delivery of the
audited annual financial statements in respect of the immediately preceding fiscal
year of the Company, the Company shall notify the Noteholders of (i) the Unused
Capital Expenditure Allowance for such immediately preceding fiscal year and (ii)
the Company’s allocation of such Unused Capital Expenditure Allowance in whole or in
part to the Carryforward Capital Expenditure Basket and/or the Carryforward
Restricted Payment Basket, whereupon the Carryforward Capital Expenditure Basket and
Carryforward Restricted Payment Basket shall be immediately increased by the amounts
allocated thereto. If the Company fails to deliver such notice to the Noteholders
in the time required, the Unused Capital Expenditure Allowance shall be allocated
first to the Carryforward Restricted Payment Basket and then to the Carryforward
Capital Expenditure Basket. Notwithstanding the foregoing, (x) the Carryforward
Capital Expenditure Basket may not be increased in any fiscal year by more than
$10,000,000, (y) the Carryforward Restricted Payment Basket may not be increased in
any fiscal year by more than $25,000,000, and (z) no increase in the Carryforward
Restricted Payment Basket shall be permitted if the aggregate amount of Capital
Expenditures made in the immediately preceding fiscal year was less than
$40,000,000.”

     (d) Section 10.6(c) of the Note Agreement is hereby amended and restated in its
entirety to read as follows:

     (c) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens (other than Liens arising under
Section 412 of the Code or ERISA), in each case incurred in the ordinary course of
business for sums not yet due or the payment of which is not at the time required by
Section 9.4;

     (e) The definitions of “Credit Documents”, “Debt” and “Funded Debt” appearing in
Schedule B of the Note Agreement are hereby amended and restated in their entirety to read
as follows:

     “Credit Documents” means, collectively, that certain Credit Agreement dated as
of December 20, 2004 by and among the Company and Fire Mountain as borrowers,
certain of the Company’s Subsidiaries as guarantors, the Lenders (as defined
therein) from time to time party thereto, and Bank of America, N.A., as
Administrative Agent, together with all documents and agreements executed and
delivered by the Company or any Subsidiary in connection therewith and (except as
otherwise provided herein) all amendments, restatements, extensions, renewals,
refinancings and substitutions thereof, in whole or in part.

     “Debt” means, with respect to any Person, without duplication,

     (a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;

     (b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including, without limitation, all liabilities
created or arising under

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any conditional sale or other title retention agreement with respect to
any such property);

     (c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;

     (d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);

     (e) the outstanding principal amount of any Securitization Transaction,
after taking into account reserve accounts and making appropriate
adjustments as determined by the Required Holders in their reasonable
judgment; and

     (f) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (e) hereof.

Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (d) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.

     “Funded Debt” means, without duplication, the sum of:

     (a) all outstanding Indebtedness (other than (i) Hedging Agreements and
(ii) Indebtedness owing from one Obligor to another Obligor) of the Obligors
and their Subsidiaries for borrowed money;

     (b) all purchase money Indebtedness of the Obligors and their
Subsidiaries;

     (c) the principal portion of all obligations of the Obligors and their
Subsidiaries under Capital Leases;

     (d) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker’s
acceptances created for the account of an Obligor or its Subsidiaries (it
being understood that, to the extent an undrawn letter of credit supports
another obligation consisting of Indebtedness, in calculating aggregate
Indebtedness only such other obligation shall be included);

     (e) all Guaranties of the Obligors and their Subsidiaries with respect
to Funded Debt of another Person;

     (f) all Funded Debt of another entity secured by a Lien on any property
of the Obligors and their Subsidiaries whether or not such Funded Debt has
been assumed by an Obligor or any of its Subsidiaries;

     (g) all Funded Debt of any partnership or unincorporated joint venture
to the extent an Obligor or one of its Subsidiaries is legally obligated or

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has a reasonable expectation of being liable with respect thereto, net
of any assets of such partnership or joint venture;

     (h) the principal balance outstanding under any synthetic lease, tax
retention operating lease, off-balance sheet loan or similar off-balance
sheet financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease in
accordance with GAAP; and

     (i) the outstanding principal amount of any Securitization Transaction,
after taking into account reserve accounts and making appropriate
adjustments as determined by the Required Holders in their reasonable
judgment.”

     (f) The following definitions are hereby added to Schedule B of the Note Agreement in
its proper alphabetical order to read as follows:

     ”Fire Mountain” means Fire Mountain Restaurants, Inc. a Delaware corporation
formerly known as Ryan’s Family Steak Houses East, Inc., together with any successor
or assign thereof.

     ”Securitization Transaction” means any financing transaction or series of
financing transactions (including factoring arrangements) pursuant to which the
Company or any Subsidiary may sell, convey or otherwise transfer, or grant a
security interest in, accounts, payments, receivables, rights to future lease
payments or residuals or similar rights to payment to a special purpose subsidiary
or affiliate of the Company.

     ”Unused Restricted Payment Allowance” means, for any fiscal year, the amount by
which the amount of Restricted Payments the Company was permitted to make as of the
end of such fiscal year in accordance with Section 10.5(a) exceeds the amount of
actual Restricted Payments made by the Company as of the end of such fiscal year.”

     2. Waiver of any Default Relating to Name Change. Any default or event of default
under the Note Agreement relating to the Company’s failure to give notice to any lender, agent or
holder with respect to the Note Agreement, the Credit Facility or the 2000 Note Agreements of the
Company’s name change from “Ryan’s Family Steak Houses, Inc.” to “Ryan’s Restaurant Group, Inc.” or
of the name change of the Company’s subsidiary from “Ryan’s Family Steak Houses East, Inc.” to
“Fire Mountain Restaurants, Inc.” (any such default, the “Existing Event of Default”) is hereby
waived. The Company acknowledges and agrees that the foregoing waiver relates solely to the
Existing Event of Default and shall in no way be deemed or construed as a waiver by the holders of
the Notes of any other Default or Event of Default under the Note Agreement or any other Financing
Document now existing or occurring subsequent to the date of this Amendment. The holders of Notes
expressly reserve the full extent of their rights under the Note Agreement, the other Financing
Documents and applicable law in respect of any Default or Event of Default existing on the date
hereof and not specified herein as the Existing Event of Default.

     3. Conditions Precedent. The effectiveness of this Amendment is conditioned on:

     (a) Receipt by the Company of duly executed counterparts of this Amendment from the
Required Holders;

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     (b) Delivery to the Required Holders of documentation certified by the applicable
governmental authority evidencing the Company’s name change from “Ryan’s Family Steak
Houses, Inc.” to “Ryan’s Restaurant Group, Inc.”

     (c) Delivery to the Required Holders of the consent and reaffirmation attached hereto,
duly executed by each Guarantor; and

     (d) Delivery to the Required Holders of a duly executed copy, including exhibits and
any schedules related thereto, of the Credit Documents (as defined by the Note Agreement as
amended hereby), together with such other documents, instruments, approvals or opinions as
the Required Holders may reasonably request.

     4. Representations and Warranties. To induce you to enter into this Amendment and to
consent to the Amendment, the Company represents and warrants as follows:

     (a) The execution, delivery and performance by the Company of this Amendment (i) are
within the Company’s power and authority; (ii) have been duly authorized by all necessary
corporate action; (iii) are not in contravention of any provision of the Company’s
certificate of incorporation agreement or other organizational documents; (iv) do not
violate any law or regulation, or any order or decree of any governmental authority; (v) do
not violate, contravene or conflict with contractual provisions of, or cause an event of
default under, any indenture, loan agreement, mortgage, deed of trust, contract or other
agreement or instrument to which it is a party or by which it may be bound, the violation of
which would have or be reasonably expected to have a Material Adverse Effect; (vi) do not
result in the creation or imposition of any Lien upon any of the property of the Company or
any of its Subsidiaries; and (vii) do not require the consent or approval of any
governmental authority or any other person;

     (b) This Amendment has been duly executed and delivered for the benefit of or on behalf
of the Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except as the enforceability
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors’ rights and remedies in general;

     (c) There are no pending or threatened actions, suits or proceedings affecting the
Company or any of its Subsidiaries or the properties of the Company or any of its
Subsidiaries before any court, governmental agency or arbitrator, that would reasonably be
expected, if adversely determined, to have a Material Adverse Effect or to affect the
legality, validity or enforceability of the Note Agreement, as amended by this Amendment;
and

     (d) After giving effect to this Amendment, the representations and warranties of the
Company contained in the Note Agreement and in the other Financing Documents are true and
correct in all material respects, except that disclosure schedules have not been updated
from those previously provided to the holders of the Notes, and no Default or Event of
Default under the Note Agreement has occurred and is continuing as of the date hereof or
would be caused hereby.

     5. Reference to and Effect on the Note Agreement.

     (a) Defined terms used herein and not otherwise defined herein shall have the meaning
assigned to such terms in the Note Agreement.

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     (b) Except as expressly provided in this Amendment, the Note Agreement shall remain
unchanged and in full force and effect, except that each reference in the Note Agreement,
and in any agreements, certificates and notices simultaneously herewith or hereafter
executed under or pursuant to the Note Agreement, as amended hereby, to the “Note
Agreement”, “this Agreement”, “hereof”, “herein” and similar terms referring to the Note
Agreement, shall be deemed to refer to the Note Agreement as amended by this Amendment.

     (c) The execution, deliver and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of any holder
of a Note under the Note Agreement or the Notes, nor constitute a waiver of any provision of
any of the foregoing.

     6. Costs and Expenses. The Company agrees to pay on demand all costs and expenses
(including, without limitation, reasonable fees and expenses of counsel) incurred by the Purchasers
or any other permitted holder of a Note in connection with this Amendment and the transactions
contemplated hereby. The Company further agrees to pay on demand all costs and expense, if any,
incurred by the Purchasers or any other permitted holder of a Note in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment,
including, without limitation, fees and expenses of counsel in connection with the enforcement of
rights under this paragraph 6.

     7. No Default or Claims. To induce the Purchasers to enter into this Amendment, the
Company hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the
terms hereof, there exists (i) no Default or Event of Default, (ii) no right of offset, recoupment,
defense, counterclaim, claim or objection in favor of the Company arising out of or with respect to
any of the Notes or other obligations of the Company owed to any holder of a Note, and (iii) each
Purchaser has acted in good faith and has conducted its relationships with the Company in a
commercially reasonable manner in connection with the negotiations, execution and delivery of this
Amendment and in all respects in connection with the Note Agreement, the Company hereby waiving and
releasing any such claims to the contrary that may exist as of the date of this Amendment.

     8. Counterparts. This Amendment may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one instrument. Each
counterpart may consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.

     9. Governing Law. This Amendment shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New York excluding
choice-of-law principles of the law of such state that would require the application of the laws of
a jurisdiction other than New York.

[Remainder of page intentionally left blank; next page is signature page.]

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     Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and
delivered as of the date first above written.

	 	 	 	 	 
	

	 	RYAN’S RESTAURANT GROUP, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	

	 	Name: Fred T. Grant, Jr.

Title: Senior Vice President – FinanceEx-10.1

 

Exhibit 10.1

Performance Units

Three-Year Vest

REYNOLDS AMERICAN INC.

LONG-TERM INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT

DATE OF GRANT: MARCH 2, 2005

W I T N E S S E T H:

     1. Grant. Pursuant to the provisions of the Long-Term Incentive Plan
(collectively, the “Plan”), Reynolds American Inc. (the “Company”) on the above date has granted to

«FirstName» «LastName» (the “Grantee”),

subject to the terms and conditions which follow and the terms and conditions of the Plan, a target
of

«Number» Performance Units.

A copy of the Plan is attached and made a part of this Agreement with the same effect as if set
forth in the Agreement itself. The initial grant value of each Performance Unit shall be $1.00
(the “Initial Grant Value”). All capitalized terms used in this Agreement shall have the meaning
set forth in the Plan, unless the context requires a different meaning.

     2. Vesting. (a) The Performance Units shall have a three-year
performance period, consisting of the Company’s fiscal years 2005, 2006 and 2007 (the “Performance Period”), at
the end of which the Performance Units will be valued and paid, if they vest, or cancelled, if they
do not vest. For the Performance Units to vest, the Company must pay to its shareholders a
dividend of at least $0.95 per share in each fiscal quarter during the period commencing on the
Date of Grant and ending on December 31, 2007 (the “Threshold Requirement”), unless the Company’s
Board of Directors specifically approves the noncancellation of the Performance Units upon the
declaration of a quarterly dividend of less than $0.95 per share. In the event the Company fails
to pay its shareholders a dividend of at least $0.95 per share in any fiscal quarter during the
period from the Date of Grant and ending on December 31, 2007, and the Company’s Board of Directors
does not approve the noncancellation of the Performance Units, the Performance Units shall be
cancelled.

     (b) Notwithstanding anything in Section 2(a) to the contrary, in the event of (i) the
Grantee’s death, (ii) the Grantee’s Permanent Disability (as defined in the Company’s Long-Term
Disability Plan), (iii) the Grantee’s Retirement (as such term is defined below), or (iv) the
Grantee’s involuntary Termination of Employment without Cause (as such terms are defined in Section
5 of this Agreement), the number of Performance Units which shall vest, if not previously cancelled
due to the Company’s failure to meet the Threshold Requirement,

1

 

shall be equal to product of (x) the original number of Performance Units granted to the Grantee
under this Agreement and (y) a fraction, the numerator of which shall be the number of whole or
partial months between January 1, 2005 and the date of the Grantee’s Termination of Employment, and
the denominator of which shall be 36. Such prorated award shall be paid as soon as practicable
following the close of the Company’s books at the end of the Performance Period, and in any event
no later than March 15, 2008, and each Performance Unit shall have a Payment Value as defined in
Section 3 of this Agreement. For purposes of this Agreement, the term “Retirement” shall mean an
employee’s voluntary Termination of Employment on or after his or her 65th birthday, or
on or after his or her 55th birthday with 10 or more years of service with the Company
or a subsidiary of the Company.

     (c) Notwithstanding anything in Section 2(a) to the contrary, in the event of a Change of
Control (as defined in the Plan), the number of Performance Units which shall vest, if not
previously cancelled due to the Company’s failure to meet the Threshold Requirement, shall be equal
to the product of (i) the original number of Performance Units granted to the Grantee under this
Agreement and (ii) a fraction, the numerator of which shall be the number of whole or partial
months in the Performance Period before the date of the Change of Control, and the denominator of
which shall be 36. Such prorated award shall be paid as soon as practicable after the Change of
Control, and in any event no later than March 15 after the end of the year in which the Change of
Control occurs. The value of each Performance Unit shall be equal to the greater of (x) the
Initial Grant Value or (y) the Initial Grant Value multiplied by the average of the total weighted
Annual Incentive Award Plan (“AIAP”) scores for each of the years 2005, 2006 and 2007 completed
prior to the Change of Control.

     (d) Upon the Grantee’s voluntary Termination of Employment or Termination of Employment for
Cause (as such terms are defined in Section 5 of this Agreement) prior to the end of a Performance
Period, all of the Grantee’s Performance Units shall be cancelled, except to the extent that at the
time of Termination of Employment, the Grantee has an employment or termination agreement with the
Company or one of its subsidiaries which includes non-cancellation of some or all of the
Performance Units.

     3. Valuation of Performance Units. At the end of the Performance Period,
if the Threshold Requirement is met or otherwise waived by the Company’s Board of Directors, the value of
each Performance Unit shall be determined by multiplying the Initial Grant Value by the average of
the total weighted AIAP scores for each of 2005, 2006 and 2007 (the “Payment Value”).

     4. Payment. (a) Payment of Performance Units shall be made only in cash.
Except with respect to a Change of Control as described in Section 2(c) of this Agreement, or
except under such other circumstances as the Compensation Committee of the Company’s Board of
Directors (the “Compensation Committee”) deems appropriate, no payment 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 Units shall be made in the amount of the Payment Value as soon as
practicable following the close of the Company books at the end of the Performance Period, and in
any event no later than March 15, 2008.

     (b) In the event of the death of a Grantee, any payment to which such Grantee is entitled
under the Plan 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 the Grantee has not designated
such beneficiary, or desires to designate a different beneficiary,

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the Grantee may file with the Company a written designation of a beneficiary under the Plan,
which designation may be changed or revoked only by the Grantee, in writing. If no designation of
beneficiary has been made by a Grantee under the Group Life Insurance Coverage or filed with the
Company under the Plan, 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, no longer has any Group Life Insurance Coverage and has not filed a
designation of beneficiary with the Company under the Plan, distribution upon such Grantee’s death
shall be made to the Grantee’s estate.

     5. 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,
employment shall be deemed to have been terminated for “Cause” only as such term is defined in the
employment or severance agreement. For purposes of this Agreement, if the Grantee does not have an
employment or severance agreement that defines the term “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 perform employment
duties on substantially a full time basis; (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; or (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. 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.

     6. 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.

     7. No Right to Employment. Neither the execution and delivery of this
Agreement nor the granting of the Performance Units 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.

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     8. Application of Laws. The granting of Performance Units 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.

     9. Notices. Any notices required to be given hereunder to the Company
shall be addressed to The 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.

     10. Taxes. Any taxes required by federal, state or local laws to be
withheld by the Company in respect of the grant of Performance Units or payment of the Payment Value 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 by the Company
to satisfy such tax withholding obligations prior to delivery of the Payment Value.

     11. Administration and Interpretation. In consideration of the grant of
Performance Units hereunder, the Grantee specifically agrees that the Compensation Committee shall
have the exclusive 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 interpretation 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 the Agreement. The Compensation Committee may delegate its interpretive
authority to an officer or officers of the Company.

     12. Compliance with Section 409A of the Code. To the extent applicable, it
is intended that this Agreement and the Plan comply with the provisions of Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), so that the income inclusion provisions of
Section 409A(a)(1) do not apply to the Grantee. This Agreement and the Plan shall be administered
in a manner consistent with this intent, and any provision of this Agreement that would cause the
Agreement to fail to satisfy Section 409A of the Code shall have no force and effect until amended
to comply with Section 409A of the Code (which amendment may be retroactive to the extent permitted
by Section 409A of the Code and may be made by the Company without the consent of the Grantee). In
particular, to the extent the Grantee’s right to receive payment becomes nonforfeitable pursuant to
Section 2(b) or (c) and the event causing the Grantee’s right to become nonforfeitable either is
the Grantee’s Retirement or an event that does not constitute a permitted distribution event under
Section 409A(a)(2) of the Code, then notwithstanding anything to the contrary in Section 4 above,
payment will be made on the earlier of (a) the Grantee’s “separation from service” with the Company
(determined in accordance with Section 409A); provided, however, that in the case
the Grantee is a “specified employee” (within the meaning of Section 409A), the Grantee’s date of
payment shall be made on the date which is 6 months after the date of the Grantee’s separation from
service with the Company or (b) the Grantee’s death.

4

 

     13. Amendment. This Agreement is subject to the Plan, a copy of which is
attached. The Board of Directors may amend the Plan and the Compensation Committee may amend this
Agreement at any time and in any way, except that, other than for adjustments under Section 12
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.

     14. Obligations of Grantee. (a) In consideration of the grant of
Performance Units hereunder, the Grantee, while both actively employed and in the event of Grantee’s
Termination of Employment for any reason, specifically agrees that within the term of this grant or
within one year following the payment of any amounts pursuant to the grant, if later: (i) the
Grantee 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; (ii) the Grantee 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 if the
Grantee becomes aware of any potential claim or proposed litigation against the Company; (iii) the
Grantee 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; (iv) the Grantee
will not disclose or misuse any confidential information or material concerning the Company; and
(v) the Grantee will not engage in any activity contrary or harmful to the interests of the
Company. In further consideration of the grant of Performance Units 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 confine his 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.

     (b) If the Company reasonably determines that the Grantee has materially violated any of the
Grantee’s obligations under this Agreement, then this Grant shall terminate, effective the date on
which such violation began (unless otherwise terminated sooner), and the Company may demand the
return of any amount paid to the Grantee hereunder and the Grantee hereby agrees to return such
amounts upon such demand. If after such demand the Grantee fails to return such amounts, the
Grantee acknowledges that the Company has the right to deduct from any amounts the Company owes to
the Grantee (including, but not limited to, wages or other compensation), or to commence judicial
proceedings against the Grantee, to recover such amounts and any and all of its attorney’s fees and
costs.

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     15. GOVERNING LAW. 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.

     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	 	 
	Grantee’s Taxpayer Identification Number:	 	 
	 

	 	 
	Grantee’s Home Address:	 	 
	 

	 	 
	 

	 	 
	 

	 	 

6

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