Document:

Amended and Restated Executive Severance Agreement

 Exhibit 10.20.2 
  
 

 
  
 MCDATA CORPORATION

  
 [FORM OF 6 MONTH, 9 MONTH AND 1 YEAR] 
  
 AMENDED AND RESTATED 
  
 EXECUTIVE SEVERANCE AGREEMENT 
  
 This Amended and Restated Executive Severance Agreement (the
“Agreement”) is made by and between McDATA Corporation (the “Company”), and you (as indicated on the signature page). This Agreement is effective as of September 8, 2004 (the
“Effective Date”). For purposes of this Agreement, the “Company” shall include any parent, subsidiary or affiliate of McDATA and the successors of any of them, unless otherwise specifically noted. 
  
 WHEREAS, the Company has historically offered certain executives two
types of severance agreements. For limited protection in situations involving certain terminations after a change of control of the Company, the Company has entered into Change of Control Severance Agreements with certain executives since 1997 (the
“Change of Control Severance Agreements”). For limited protection in situations involving certain terminations unrelated to a change of control of the Company, the Company has entered into Executive Severance Agreements with
certain executives since 2004 (“Executive Severance Agreements”) (collectively, the Change of Control Severance Agreements and the Executive Severance Agreements will be referred to herein as the
“Prior Severance Agreements”). In an effort to limit ambiguity and to prevent conflicts between the two agreements, the Company has decided to offer an amended and restated Severance Agreement (herein referred to as the
Agreement) to address all situations related to executive severance. 
  
 WHEREAS, This Agreement is intended to strongly encourage you to remain with the Company by providing you with certain severance benefits in the event that your employment with the Company terminates under certain circumstances. This
Agreement is also intended to provide you with enhanced financial security in recognition of your past and future service to the Company. 
  
 WHEREAS, By entering into this Agreement, you and the Company agree that this Agreement replaces and supercedes, in their entirety, the Prior
Severance Agreements that relate to you. 
  
 WHEREAS, The
benefit period under this Agreement shall be [6 months, 9 months and 1 year] (the “Benefit Period”). 
  
 NOW THEREFORE, you and Company agree as follows: 
  
 1. Eligibility for Single Trigger Severance Benefits. You will be entitled to the Single Trigger Severance Benefits described in Section 2 only if
both: (a) either (1) the Company 

 terminates your employment for a reason other than Cause, death or Disability, or (2) you
voluntarily terminate your employment with the Company for Good Reason, and (b) you (1) sign and deliver to the Company a Release of Claims satisfactory to the Company, (2) do not subsequently revoke your signature on the Release of
Claims, and (3) materially comply with all of the terms of this Agreement, including (but not limited to) Sections 8-11 of this Agreement. Notwithstanding the preceding, you are not eligible for the Single Trigger Severance Benefits described in
Section 2 of this agreement if you are eligible for the Change Of Control Double Trigger Severance Benefits provided for in Section 4 of this Agreement. 
  
 2. Single Trigger Severance Benefits. If you meet the eligibility requirements described in Section 1 (but not those described in Section 3), you
will receive the following. 
  
 a. Cash Payments. You will
receive salary continuation payments equal to the [6 months, 9 months or one year] of your base salary and [6 months, 9 months or one year] target bonus in effect immediately prior to the date of your termination of employment or
notice of termination for Good Reason (the “Termination Date”) payable over a period of [6 months, 9 months or one year] following the Termination Date. The salary continuation payments with respect to your [6
months, 9 months or one year] base salary will be paid in accordance with the Company’s standard payroll practices and the severance pay with respect to your target bonus will be paid at the same time as bonuses are (or would have been)
scheduled to be paid (generally within 6 weeks after a fiscal quarter end) to the Company’s other senior executives. Base salary and target bonus for the year shall be based on those amounts documented in the compensation records for the
Company. The target bonus amount is typically designated as a percentage of base salary and shall be payable regardless of corporate or individual attainment. Unless the Company agrees in writing otherwise, no lump sum payment will be made. The
payments will commence within fifteen (15) days after the Release of Claims becomes effective and no longer is subject to revocation. The payments will be subject to normal withholding of federal, state and local taxes. However, you will not be
eligible for voluntary withholding related to pension benefits (such as 401(k)) or welfare benefits (such as healthcare premiums or flexible spending plans). The Company, at its sole and absolute discretion, may but is not obligated to pay any
Single Trigger Severance Benefits in a lump sum amount. 
  
 b.
Option Exercisability. You will have up to [6 months, 9 months or one year] following the Termination Date to exercise your stock options granted to you, but in each case only to the extent that such option is vested on the
Termination Date and only to the extent such option has not or will not otherwise expire sooner according to the original term of the option. Any options that are unvested on the Termination Date will be forfeited on that date. With regard to
your Executive Performance Incentive Bonus (“EPIB”) restricted Class B stock shares, you will be entitled to those shares that by their own terms become unrestricted within [6 months, 9 months or one year] following the
Termination Date. 
  
 c. Other Benefits. The Company
will provide you with continuation of your current health, dental and vision benefits coverage for up to [6 months, 9 months or one year] following the Termination Date or until you become eligible for group insurance benefits from another
employer, whichever comes first, but only if you elect continuation coverage under the Consolidated 
  

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 Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), within the time period
prescribed pursuant to COBRA. For the duration of the one-year coverage period, the Company will pay the COBRA premiums otherwise payable by you (for coverage for yourself and your eligible dependents). After the [6 months, 9 months or one
year] coverage period, you will be responsible for the payment of any COBRA premiums. The Company will not reimburse you for any taxable income imputed to you because the Company has paid your COBRA premiums (or those of your eligible
dependents). Please note that the Company may, from time to time, change benefit levels for employees generally. Accordingly, your COBRA benefits and rate may change hereunder to the same extent. 
  
 d. Accrued Wages and Paid-Time Off; Expenses. The Company will pay
you: (1) any unpaid base salary due for periods prior to the Termination Date, (2) all of your accrued and unused vacation and paid-time off/paid-days off (if payable in cash as set forth under the Company’s then current policies) (collectively
referred to as “Vacation and PTO-PDO”) through the Termination Date, (3) following your submission of proper expense reports, the total unreimbursed amount of all expenses incurred by you in your duties of
employment with the Company that are reimbursable in accordance with the Company’s then-existing policies and (4) any other benefits due to you through the Termination Date under the Company’s formal employee benefit plans (for example,
the Company’s “401(k)” plan). If legally permissible, the 401(k) matching funds made by the Company shall also be fully vested. These payments will be made promptly upon your employment termination and within the period of time
mandated by law. 
  
 e. Payment of Remaining Executive
Financial and Tax Assistance Program. The Company will pay you in cash any amounts remaining for the current year of your annual executive financial and tax assistance program if you are a participant of such program. The financial and tax
assistance program is limited to one percent (1%) of your base salary. 
  
 3. Eligibility for Change of Control Double Trigger Severance Benefits. You will be entitled to the payments and benefits described in Section 4 only if both:(a) within twelve (12) months following a Change of Control, you are
either (1) terminated by the Company for any reason other than for Cause, or (2) you are Constructive Terminated by the Company, and (b) you (1) sign and deliver to the Company a Release of Claims satisfactory to the Company,
(2) do not subsequently revoke your signature on the Release of Claims, and (3) materially comply with all of the terms of this Agreement, including (but not limited to) Sections 8-11 of this Agreement. 
  
 The Company, at its sole and absolute discretion, reserves the right to
convert severance payments under Section 3 and 4 to a retention payment structure irrespective of termination so long as your rights hereunder are not adversely affected. 
  
 4. Change of Control Double Trigger Severance Benefits. If you meet the eligibility requirements described in Section
3, you will receive the following benefits. 
  
 a. Cash
Payments. You will receive severance pay equal to [two (2), three (3) or four (4)] times your Average Quarterly Compensation plus your [6 months, 9 months or one year] target bonus in effect immediately prior to the date of your
termination of employment or 
  

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 notice of Constructive Termination (the “Termination Date”), net of any necessary taxes or
deductions, payable in a lump sum. Base salary and target bonus for the year shall be based on those amounts documented in the compensation records for the Company. The target bonus amount is typically designated as a percentage of base salary and
shall be payable regardless of corporate or individual attainment. 
  
 b. Acceleration of Options. All of your unvested stock options shall automatically be accelerated and vested upon the Termination Date and all options may be exercised within [6 months, 9 months or one year] of the Termination Date,
unless the options have or will expire on their own terms sooner. Additionally, certain of your Class B restricted shares will become unrestricted in the event of a change of control of the Company to the extent provided by the terms of the
Executive Performance Incentive Bonus (EPIB) Plan and/or the Stock Bonus Agreement. 
  
 c. Other Benefits. The Company will provide you with continuation of your current health, dental and vision benefits coverage for up to [6 months, 9 months or one year] following Termination Date or
until you become eligible for group insurance benefits from another employer, whichever comes first, but only if you elect continuation coverage under COBRA, within the time period prescribed pursuant to COBRA. For the duration of the one-year
coverage period, the Company will pay the COBRA premiums otherwise payable by you (for coverage for yourself and your eligible dependents). After the [6 months, 9 months or one year] coverage period, you will be responsible for the payment of
any COBRA premiums. The Company will not reimburse you for any taxable income imputed to you because the Company has paid your COBRA premiums (or those of your eligible dependents). Please note that the Company may, from time to time, change benefit
levels for employees generally. Accordingly, your COBRA benefits and rate may change hereunder to the same extent. 
  
 d. Accrued Wages and Paid-Time Off; Expenses. The Company will pay you: (1) any unpaid base salary due for periods prior to the Termination Date,
(2) all of your accrued and unused Vacation and PTO/PDO through the Termination Date, (3) following your submission of proper expense reports, the total unreimbursed amount of all expenses incurred by you in your duties of employment with the
Company that are reimbursable in accordance with the Company’s then-existing policies and (4) any other benefits due to you through the Termination Date under the Company’s formal employee benefit plans (for example, the Company’s
“401(k)” plan). If legally permissible, the 401(k) matching funds made by the Company shall also be fully vested. These payments will be made promptly upon your employment termination and within the period of time mandated by law or as
provided in the applicable plan document. 
  
 e. Attorney
Fees. In the event of an arbitration between you and Company concerning your right to the Double Trigger Change Of Control Benefits provided for in this Section 4 of this Agreement, Company will pay your reasonable legal fees and expenses, but
only up to a combined maximum of $10,000, regardless of the outcome, unless you initiated the arbitration in bad faith. This benefit is not available under Section 1 and 2 of the Agreement. This provision does not limit your right to legal
fees and expenses as a prevailing party to the extent already provided for by statute. 
  

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 f. Payment of Remaining Executive Financial and Tax Assistance Program. The Company will pay you
in cash any amounts remaining for the current year of your annual executive financial and tax assistance program if you are a participant of such program. The financial and tax assistance program is limited to one percent (1%) of your base salary.

  
 5. Other Terminations of Employment. If your employment
with the Company is terminated by the Company for Cause, death or Disability, or if you voluntarily terminate your employment other than for Good Reason (as contemplated only by Section 1) or Constructive Discharge
(after a Change of Control as contemplated only by Section 3), as the case may be, you will not be entitled to receive any of the payments or benefits described in this Agreement. However, you may be eligible for other benefits under other Company
benefit plans or policies that may exist on the Termination Date. In addition, the Company will pay you: (1) any unpaid base salary due for periods prior to the Termination Date, (2) all of your accrued and unused Vacation and PTO/PDO through the
Termination Date, (3) following your submission of proper expense reports, the total unreimbursed amount of all expenses incurred by you in your duties of employment with the Company that are reimbursable in accordance with the Company’s
then-existing policies and (4) any other benefits due to you through the Termination Date under the Company’s formal employee benefit plans (for example, the Company’s “401(k)” plan). These payments will be made promptly upon
your employment termination and within the period of time mandated by law or as provided in the applicable plan document. 
  
 6. Definition of Terms. The following terms used to in this Agreement shall have the following meanings for purposes of this Agreement only:

  
 a. “Affiliate” shall mean any person,
corporation or other entity controlling, controlled by or under common control with another person, corporation, or other entity. 
  
 b. “Average Quarterly Compensation” shall mean your average quarterly compensation for the full eight complete fiscal quarters
preceding the date of your Termination Date, computed as the sum of the following for such eight quarters, divided by eight (or such lesser full fiscal quarters if you have been employed less than eight full fiscal quarters): 
  

	 	i.	Your base salary at the rate(s) in effect for such quarters; and 

  

	 	ii.	If you were a sales executive, your commissions that you were entitled to be paid with respect to your performance of services during such period under the terms of any applicable
commission plans (regardless of when paid). 

  
 Average Quarterly Compensation will not include any bonus amounts, income or gain upon exercise of stock options, or upon sale of stock, nor will it include the value of any benefits. The intent of this definition is to average base salary
and commissions (if applicable) earned over 8 or less quarters (as applicable). 
  

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 c. “Cause” shall mean: (i) dishonesty which is not the result of an inadvertent
or innocent mistake by you with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by you that materially injures the reputation, business or business relationships of the Company or any of its
subsidiaries or any of their respective officers, directors or executives; (iii) any conduct which would be sufficient to criminally charge you with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or other executives; (iv) willful or prolonged absence from work
by you (other than by reason of disability or pursuant to a leave law or leave policy of the Company) or failure, neglect or refusal by you to perform your duties and responsibilities without the same being corrected upon thirty (30) days prior
written notice; (v) if you materially violate any term of this Agreement or the Company’s employment policies and procedures (including but not limited to the Company’s policies with respect to sexual harassment and discrimination) and
such action or failure is not remedied within thirty (30) days of written notice; or (vi) if you violate any Agreement, policy or procedure a second time following a notice from the Company, even if the first violation was remedied. 
  
 d. “Constructive Termination” Solely with respect to
Section 3 and 4, shall mean: (i) if the Company materially violates any term of this Agreement and such violation is not remedied within thirty (30) days after written notice of such violation by you, or (ii) if, after a Change of Control of the
Company: (A) the Company moves your primary work site more than 35 miles from the Company’s current location in Broomfield, Colorado; or (B) the Company materially reduces your job responsibilities (or reporting relationship) or materially
reduces your compensation and benefits and such action is not remedied within thirty (30) days after written notice is given by you. In the case of (ii)(A), you must give written notice to the Company within thirty (30) days of the date the Company
notifies you of the change in primary work site that you has elected to treat such action as a Constructive Termination. In the case of (ii)(B), you must give notice that you consider a change of responsibilities or a change in compensation to
constitute a Constructive Termination within 30 days of receiving notice of such change in responsibilities or compensation. If you give such timely notice that you consider a change of responsibilities or change in compensation to constitute a
Constructive Termination, and if the Company does not address the matter by taking such actions as may be necessary to avoid such change being deemed a Constructive Termination within thirty (30) days after your notice, you must elect whether to
treat such change as a Constructive Termination within thirty (30) days thereafter. 
  
 e. “Change of Control” shall mean one or a series of related transactions resulting in (i) the consummation of a sale, transfer or other disposition of all or substantially all of the assets of
the Company (determined on a consolidated basis) after the date of this Agreement to any person other than the Company or any of its direct or indirect subsidiaries or Affiliates, (ii) any transfer of voting power with respect to the Company’s
capital stock after the date of this Agreement (whether effected by agreement among stockholders, irrevocable proxy, voting trust, issuance or transfer of capital stock, merger, consolidation or other reorganization or means, including a
reorganization under bankruptcy or insolvency laws) if, as a result of such transfer, a person or group (as defined in 
  

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 Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and related regulations) who are not stockholders of
the Company as of the date of this Agreement, become beneficial owners of shares of capital stock possessing voting power sufficient to elect a majority of the Board of Directors of the Corporation, (iii) a change of control under any of the equity
plans of the Company; or (iv) a change of control as determined by the Board of Directors of the Company. 
  
 f. “Confidential Information” shall mean any and all information (a) which Company generally keeps confidential, (b) which Company
derives actual or potential economic value from such matter or thing being not generally known to other persons or entities who might obtain economic value from its disclosure or use, or (c) which gives Company an opportunity to obtain an advantage
over its competitors who do not know or use the same. Confidential Information includes all such information regardless of whether kept in a document, electronic storage medium, or in the your memory. Confidential Information includes, but is not
limited to, financial, marketing, sales, pricing, customer, customer purchase, supplier, vendor, manufacturing, product, product design, strategic planning, and privileged information. 
  
 g. “Disability” means your being unable to perform the principal functions of your duties due to a
physical or mental impairment, but only if such inability has lasted or is reasonably expected to last for at least six months. The Company will determine whether a Disability exists based on evidence provided by one or more physicians selected by
the Company and reasonably acceptable to you. 
  
 h.
“Good Reason” Solely with respect to Section 1, means without your written consent (1) a material reduction of your duties, authority or responsibilities, relative to your duties, authority or responsibilities as in effect
immediately prior to such reduction, or the assignment to you of such reduced duties, authority or responsibilities; or (2) a material reduction by the Company of your base compensation as in effect immediately prior to such reduction (unless
similar reductions apply to substantially all of the Company’s other senior executives or to the employees); provided however, that “Good Reason” shall not exist if the CEO reassigns you to another Vice President level
position and no material reduction in your base compensation occurs. 
  
 i. “Inventions” shall mean and include all procedures, systems, machines, methods, processes, uses, apparatuses, compositions of matter, designs configurations or computer programs of any kind, discovered, conceived,
reduced to practice, developed, made, or produced during your employment with Company, or any improvements to them, and shall not be limited to the meaning of “Invention” under the United States patent laws. 
  
 j. “Release of Claims” means a written waiver by you
(in a form specified by the Company) of all employment-related obligations of the Company and all claims and causes of action against the Company. 
  

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 k. “Termination Date”. Except where termination is effective upon notice, the
Termination Date is the date of actual termination, not the date notice of termination is given. 
  
 l. “Trade Secrets” may include confidential information, and means, without limitation, information, including data, a formula,
pattern, compilation, program, device, method, figure, or process that derives actual or potential independent economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure; and is
the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 
  
 7. Non-disparagement, Return of Property; Employee Agreement. 
  
 a. You agree that the terms of severance under this Agreement is acceptable to you and that you shall not malign, defame, blame or otherwise disparage the
Company or its directors, officers or employees, either publicly or privately regarding the past or future business or personal affairs of the Company or its directors, officers or employees. 
  
 b. You agree that upon your Termination Date, you shall immediately return to
the Company all property belonging to Company that is in your possession, custody or control, including but not limited to confidential information and trade secrets of the Company. Property of the Company includes, but is not limited to, your
laptop computer, cell phone, PDA, Company credit cards, fax machines, all Company electronic records, customer records, product records etc. 
  
 c. You agree to comply with all restrictions contained in your Employee Agreement, EPIB Restricted Stock Bonus Agreement, and any other related agreement
that you signed excluding the Prior Severance Agreements. 
  
 d.
At-Will Employment. The Company and you acknowledge that your employment is and will continue to be at-will, as defined under applicable law. 
  
 8. Agreement Not To Disclose Confidential Information Or Trade Secrets. Confidential Information and Trade Secrets (defined above) are, and at all
times shall remain, the sole property of Company. Unless Company gives you prior express written permission, during your employment and thereafter, you shall not use for your own benefit, or divulge to any competitor, supplier or customer or any
other person, firm, corporation, or other entity, the Confidential Information or Trade Secrets which you may obtain, learn about, develop, or be entrusted with as a result of your employment by Company. You shall not inappropriately seek or accept
any Confidential Information or Trade Secrets from any former, present, or future employee of Company. Following your termination for any reason, you shall not reverse engineer or derive independently any Trade 
  

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 Secret or Confidential Information of Company. You also agree to respect the privacy of other employees, customers, and
other individuals during your employment and thereafter by maintaining the confidentiality of any nonpublic personal information about identifiable individuals of which you become aware in the course of your employment with Company. 
  
 9. Non-Solicitation of Employees. You agree that for a period of
two years (unless you are eligible for Change of Control Double Trigger Severance Benefits – in which case it will be for a period of only one year) following the Termination Date, you will not either directly or indirectly solicit,
hire, induce, recruit or encourage any of the Company’s employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for yourself or any other
person or entity. Any payments hereunder are specifically conditioned upon your compliance with this section. 
  
 10. Intellectual Property Rights. You agree to disclose promptly to Company any and all Inventions conceived or developed by you during your
employment with Company, either alone or jointly with others, which relate to or result from the actual or anticipated business, work, research, investigations, products, or services of Company, or which result, to any extent, from use of
Company’s premises or property, whether or not such Inventions are patentable and whether or not such Inventions are reduced to practice. You acknowledge and agrees that Company is the sole owner of any and all property rights in all such
Inventions. You assign to Company, without further consideration, your entire right, title, and interest (throughout the United States and in all foreign countries) in all such Inventions. You agree both during and after the termination of your
employment with Company, to execute any documents necessary to effectuate the purposes of this provision. 
  
 a. This provision does not apply to any Invention that you developed entirely on your own time without using Company’s equipment, supplies,
facilities or Trade Secrets, except for those Inventions that either: (a) relate, at the time of conception or reduction to practice, to Company’s business or actual or demonstrably anticipated research or development of Company; or (b) result
from any work performed by you for Company. 
  
 b. [For California
employees only.] This section of the Agreement shall be construed in accordance with California Labor Code Section 2870, a copy of which is provided in Exhibit A attached hereto. 
  
 11. Non-Solicitation Of Certain Customers And Agreement Not To Compete. You acknowledge that in performing your
responsibilities for Company, you will or have been given access to trade secrets and other confidential information belonging to the Company that deserves protection. You agree that during your employment with Company and for two years
(unless you are eligible for Change of Control Double Trigger Severance Benefits– in which case it will be for a period of only one year) thereafter, you will not directly or indirectly do any of the following: 
  
 a. Solicit any customer with whom you (or anyone on your behalf) had contact
in the two years prior to the termination of your employment, to purchase products that compete with any products you sold or attempted to sell on behalf of the Company in the two years prior to the termination of your employment; 
  

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 b. Engage in any activity (whether as employee, owner, sole proprietor, partner, director, member,
consultant, agent, founder, or co-venturer) or otherwise participate or invest in any business activity anywhere in the world that is directly competitive with the products or services of the Company (except that it will not be a violation of this
Section for you to own as a passive investment not more than one percent of any class of publicly traded securities of any entity). For purposes of this Agreement, companies that provide products or services that directly compete with Company’s
products or services are Broadcom, Brocade, Cisco’s division that is directly competitive with the Company, CNT, Emulex, Qlogic, and the successors or related entities of any of them. This covenant not to compete does not extend to divisions of
companies that are not competitive with the Company. Further, if any of the listed competitors acquires the Company (or is acquired by the Company), such continued employment by the successor or division will not be deemed to violate this Agreement.

  
 The provisions of this paragraph (including its subparts) will apply
regardless of the reasons for your resignation from Company or the termination of your employment by Company, and will apply even if you are not entitled to benefits under Section 2 or Section 4 of this Agreement. However, if you live and work in
California at the time you sign this Agreement you are exempt from the terms of the restrictive covenants set forth in this Section 11 of this Agreement. 
  
 12. Reasonable Restrictions. You agree that the restrictions contained in this Agreement are needed to protect reasonable business interests of
Company and are reasonable as to time and geographic scope because of the nature of Company’s business and the locations of its business and of its competitors. 
  
 13. Remedies For Breach Of Certain Provisions. You agree that any breach of any of the provisions contained in
paragraphs 8-11 of this Agreement will result in irreparable and continuing damage to Company for which there will be no adequate remedy at law. In addition to relieving Company of any salary continuation, severance and other obligations, and in
addition to causing an immediate forfeiture of any stock options granted contemporaneously with the signing of this agreement or afterwards, including vested stock options, and notwithstanding any arbitration agreements between you and Company,
Company shall be entitled to injunctive relief and/or decree for specific performance and such other and further relief as may be proper (including monetary damages if applicable) in any court of competent jurisdiction, subject to the provisions of
paragraphs 14 and 15, below. Each party shall bear its own costs and attorneys’ fees in any such court proceedings; however Section 4(e) above does provide for certain assistance by the Company for attorneys fees and expenses. 
  
 14. Choice Of Law. Company has its principal place of business in
Broomfield County, Colorado. Company has operations throughout the world. You acknowledge that, as an employee of Company, your performance under this Agreement will involve significant contacts with the state of Colorado, and will affect
Company’s operations in Broomfield County, Colorado. This Agreement shall be governed by the internal laws of the state of Colorado, without regard to its conflict of law provisions. 
  

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 15. Jurisdiction And Venue. Notwithstanding any arbitration agreements between you and Company,
you and Company irrevocably consent to personal jurisdiction in the state courts of Colorado, as well as the United States District Court for the District of Colorado, for any matter arising out of or associated with any of the provisions contained
in paragraphs 8-11 of this Agreement, including but not limited to any action seeking to enforce any of the provisions contained in paragraphs 8-11 of this Agreement. You and Company further agree that venue for any action arising out of or
associated with any of the provisions contained in paragraphs 8-11of this Agreement (including but not limited to common law claims or claims under the Uniform Trade Secrets Act or claims under the Computer Fraud and Abuse Act or any similar
statutes) shall lie exclusively in the state courts of Colorado covering Broomfield County and in the United Stated District Court for the District of Colorado, regardless of where you reside or performs duties for Company. 
  
 16. Certain Reductions in Payments.  
  
 a. Section 280G. Anything in this Agreement to the contrary
notwithstanding, in the event that any payment, distribution or other benefit provided by the Company to or for the benefit of you (whether paid or payable or provided or to be provided pursuant to the terms of this Agreement or otherwise) (a
“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this Section, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then, in accordance with this Section, such Payments shall be reduced to the maximum amount that would result in no portion of the Payments being subject to the Excise Tax, but only if and to the extent that
such a reduction would result in your receipt of Payments that are greater than the net amount you would receive (after application of the Excise Tax) if no reduction is made. The amount of required reduction, if any, shall be the smallest
amount so that the Executive’s net proceeds with respect to the Payments (after taking into account payment of any Excise Tax and all federal, state and local income, employment or other taxes) shall be maximized. If, notwithstanding any
reduction described in this Section (or in the absence of any such reduction), the IRS determines that a Payment is subject to the Excise Tax (or subject to a different amount of the Excise Tax than determined by the Company or you), then Subsection
(c) shall apply. If the Excise Tax is not eliminated pursuant to this Section, you shall pay the Excise Tax. 
  
 b. Determination by Company’s Independent Auditors. All determinations required to be made under this Section shall be made by the
Company’s independent auditors, which necessary information shall not be unreasonably withheld by or the Company. Such auditors shall provide detailed supporting calculations both to the Company and you. Any such reasonable determination by the
Company’s independent auditors shall be binding upon the Company and you. You shall determine which and how much of the Payments, including without limitation any option acceleration benefits provide under this Agreement or any option
(“Option Benefits”), as the case may be, shall be eliminated or reduced consistent with the requirements of this Section, provided that, if you do not make such determination within ten (10) business days of the
receipt of the 
  

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 calculations made by the Company’s independent auditors, the Company shall elect which and how much of the Option
Benefits or other Payments, as the case may be, shall be eliminated or reduced consistent with the requirements of this Section, and then the Company shall notify you promptly of such election. Within five (5) business days thereafter, the Company
shall pay to or distribute to or for the benefit of you such amounts as are then due to you under this Agreement. 
  
 c. Option Benefits. As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the
Company’s independent auditors hereunder, it is possible that Option Benefits or other Payments, as the case may be, will have been made by the Company which should not have been made (“Overpayment”) or that additional
Option Benefits or other Payments, as the case may be, which will not have been made by the Company could have been made (“Underpayment”), in each case, consistent with the calculations required to be made hereunder. In the
event that the Company’s independent auditors, based upon the assertion of a deficiency by the IRS against you or the Company which the Company’s independent auditors believe has a high probability of success, determine that an Overpayment
has been made, any such Overpayment paid or distributed by the Company to or for your benefit shall be treated for all purposes as a loan ab initio to you (after your departure) which you shall repay to the Company within thirty (30) days of receipt
by you of written notice from the Company setting forth the amount of the Overpayment; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by you to the Company if and to the extent such
deemed loan and payment would not either reduce the amount on which you are is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Company’s independent auditors, based upon
controlling precedent or other substantial authority, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of you together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code 
  
 17.
Assignment. This Agreement will be binding upon and become of advantage to (a) your heirs, executors and legal representatives upon your death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted
for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of the Company. None of your rights to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other disposition of your right to compensation or other benefits will be null and void. 
  
 18. Notices.  
  
 a. General. All notices, requests, demands and other communications called for by this Agreement will be in writing and will be deemed given (1) on
the date of delivery if delivered personally, (2) one day after being sent by a well established commercial overnight service, or (3) ten days after being mailed by registered or certified mail, return receipt requested, prepaid and 
  

 -12- 

 addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may
later designate in writing:  
  
 If to the Company:

  
 McDATA Corporation 
 380 Interlocken Crescent 
 Broomfield,
Colorado 80012 
 Attn: Thomas O. McGimpsey, Esq. 
  
 If to you: 
  
 at your last residential address known by the Company. 
  
 b. Notice of Termination. Any termination by the Company for Cause or by you for Good Reason or Constructive Termination must be communicated by a
notice of termination to the other party. The notice will indicate the specific termination provision in this Agreement relied upon, will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the
provision so indicated, and will specify the date of your employment termination (which will not be more than 30 days after the giving of such notice). Any failure on your part to include in the notice any fact or circumstance that contributes to a
showing of Good Reason or Constructive Termination will not waive any of your rights under this Agreement or prevent you from asserting that fact or circumstance in enforcing this Agreement. 
  
 19. Severability. Each of the provisions of this Agreement shall be
construed and interpreted in such a manner as to be effective and valid under applicable law. If a court or arbitrator determines that any provisions of this Agreement are unenforceable as written, then those provisions shall be reformed to the
extent necessary to make them valid and enforceable. If any provision of this Agreement or the application of any provision of this Agreement to any party or circumstance shall nevertheless be prohibited by, or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition without invalidating the remainder of such provision, any other provision of this Agreement, or the application of such provision to other parties or circumstances. However,
should a court invalidate any of the provisions of sections 8-11 of this Agreement, sections 1-4 of this Agreement shall become deemed void ab initio. 
  
 20. Entire Agreement. This Agreement and the agreements evidencing any Company stock options and other equity compensation awards (if any) granted
to you represent the entire agreement and understanding between the Company and you concerning your severance arrangements with the Company or any of its subsidiaries, and supersedes and replaces any and all prior agreements and understandings
concerning your severance arrangements with the Company. The Prior Severance Agreements are hereby terminated upon your delivery of this Agreement signed by you. 
  

 -13- 

 21. Arbitration. 
  
 a. General. In consideration of your service to the Company, its promise to arbitrate all employment related disputes
and your receipt of the compensation, pay raises and other benefits paid to you by the Company, at present and in the future, you agree that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer,
director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from your service to the Company under this Agreement or otherwise or the termination of your service with the
Company, including any breach of this Agreement (other than an action for injunctive relief brought by either party), shall be subject to binding arbitration in Broomfield, Colorado under the Arbitration Rules set forth under the rules and
regulations of the American Arbitration Association (the “Rules”) and pursuant to Colorado law. Disputes which you agree to arbitrate, and thereby agree to waive any right to a trial by jury, include any statutory claims under state or
federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Colorado
Fair Employment and Housing Act, the Colorado Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. You further understand that this Agreement to arbitrate also applies to any disputes that the Company
may have with you. 
  
 b. Procedure. You agree that any
arbitration will be administered by the American Arbitration Association (“AAA”) and that a neutral arbitrator will be selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. The arbitration
proceedings will allow for discovery according to the rules set forth in the National Rules for the Resolution of Employment Disputes or Colorado Code of Civil Procedure. You agree that the arbitrator shall have the power to decide any
motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. You agree that the arbitrator shall issue a written decision on the
merits. You also agree that the arbitrator shall have the power to award any remedies, including attorneys’ fees and costs, available under applicable law. You understand the Company will pay for any administrative or hearing fees charged by
the arbitrator or AAA except that the Company shall pay the first $4,000 of any filing fees associated with any arbitration you initiate. You agree that the arbitrator shall administer and conduct any arbitration in a manner consistent with the
Rules and that to the extent that the AAA’s National Rules for the Resolution of Employment Disputes conflict with the Rules, the Rules shall take precedence. 
  
 c. Remedy. Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute
between you and the Company. Accordingly, except as provided for by the Rules, neither you nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted. 
  
 d. Availability of Injunctive Relief. In addition to the right under
the Rules to petition the court for provisional relief, you agree that any party may also petition the court for injunctive relief. In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs
and attorneys’ fees. 
  

 -14- 

 e. Administrative Relief. You understand that this Agreement does not prohibit you from pursuing
an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers’ compensation board. This Agreement does, however,
preclude you from pursuing court action regarding any such claim. 
  
 f. Voluntary Nature of Agreement. You acknowledge and agree that you are executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. You further acknowledge and agree that you have
carefully read this Agreement and that you have asked any questions needed for you to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that you are waiving your right to a jury trial.
Finally, you agree that you have been provided an opportunity to seek the advice of an attorney of your choice before signing this Agreement. 
  
 22. No Oral Modification, Cancellation or Discharge. This Agreement may be changed or terminated only in writing (signed by you and an authorized
officer of the Company). 
  
 23. No Waiver. No delay on the
part of any party in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any party of any right or remedy shall preclude an additional or further exercise thereof or the exercise of any other
right or remedy. 
  
 24. Withholding. The Company is
authorized to withhold, or cause to be withheld, from any payment or benefit under this Agreement the full amount of any applicable withholding taxes. 
  
 25. Acknowledgment. You acknowledge that you have had the opportunity to discuss this matter with and obtain advice from your private attorney,
have had sufficient time to, and have carefully read and fully understand all the provisions of this Agreement, and are knowingly and voluntarily entering into this Agreement. 
  
 IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below: 
  

					
	EXECUTIVE	  	 
		
	  

	  	 Date: September 8, 2004
  

	 Name:
	 	  

	  	 
	 Title:
	 	  

	  	 

  

 -15- 

					
	MCDATA CORPORATION	  	 
		
	  

	  	 Date: September 8, 2004
  

	 Name:
	 	  

	  	 
	 Title:
	 	  

	  	 

  

 -16- 

 Exhibit A 
  
 California Labor Code § 2870. Application of provision that employee shall assign or offer to assign rights in invention to employer.

  
 (a) Any provision in an employment agreement which provides
that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s
equipment, supplies, facilities, or trade secret information except for those inventions that either: 
  
 (1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated
research or development of the employer; or 
  
 (2) Result from
any work performed by the employee for the employer. 
  
 (b) To
the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is
unenforceable. 
  

 -17-EX-10.1

Exhibit 10.1

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004,

As Amended November 30, 2004

1

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004,

As Amended November 30, 2004

INDEX

	 	 	 	 	 
	Section Page

1.Purpose 
	 	 	2	 
	2.Definitions 
	 	 	2	 
	3.Eligibility 
	 	 	2	 
	4.Performance Objectives 
	 	 	2	 
	5.Determination of Target Awards 
	 	 	3	 
	6.Determination of Cash Awards 
	 	 	3	 
	7.Determination of Cash Awards for SBC Program Participants 
	 	 	4	 
	8.Deferral 
	 	 	6	 
	9.Tax Withholding 
	 	 	8	 
	10.Adjustments, Amendment or Termination 
	 	 	8	 
	11.Adoption/Withdrawal by Operating Companies 
	 	 	9	 
	12.Miscellaneous 
	 	 	10	 
	13.Effective Date 
	 	 	11	 
	Exhibit A: Definitions 
	 	 	A-1	 

2

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004

As Amended November 30, 2004

1. Purpose

The Reynolds American Inc. Annual Incentive Award Plan is established to link corporate and
business priorities with individual and group performance objectives for the management
employees of RAI and its affiliated companies. The Plan is an amendment, restatement and
continuation of the R.J. Reynolds Tobacco Holdings, Inc. Annual Incentive Award Plan.

2. Definitions

Capitalized terms have the meanings set forth in Exhibit A.

3. Eligibility

To be eligible to participate in the Plan and receive an award, an employee must:

	 	(a)	 	except as otherwise provided in Section 6, be employed by a Company or one of
its subsidiaries for at least three months during the year at a salary grade approved
for participation in the Plan by the Chief Executive Officer;

	 	(b)	 	not be a participant in a sales incentive plan or any other bonus plan
designated by the Committee; and

	 	(c)	 	except as otherwise provided herein, be actively employed by a Company or one
of its subsidiaries on the last day of the year.

4. Performance Objectives

	 	(a)	 	Subject to the approval of the Committee, the Chief Executive Officer of each
Company will establish specific objectives (the “Performance Objectives”) for each
Company for each year. Subject to the approval of the Chief Executive Officer of RAI,
the Chief Executive Officers of the Operating Companies also may establish Performance
Objectives for some or all of their respective subsidiaries. Performance Objectives
may be based on any financial, operational or other criteria, such as market share.

	 	(b)	 	Each participant and the manager to whom the Participant reports (the
“Reviewing Manager”) may have specific individual performance objectives (the “Personal
Program Objectives”) for each year in which Personal Program Objectives determine, in
whole or in part, the Participant’s Cash Award. The next higher level of management
will review the Personal Program Objectives to ensure that they contribute to the
Performance Objectives established by the Chief Executive Officer. In addition,
subject to the approval of the Chief Executive Officer of RAI, the Chief Executive
Officers of the Operating Companies may establish specific Company focus areas (the
“Company Focus Areas”) for some or all of their respective subsidiaries in place of
Personal Program Objectives for each year in which Company Focus Areas determine, in
whole or in part, the Participant’s Cash Award.

	 	(c)	 	Each of the Performance Objectives and Personal Program Objectives/Company
Focus Areas will be weighted for the purpose of determining awards under the Plan.
Different weights may be assigned to the objectives for different Participants and
Companies. However, the aggregate weights for the Performance Objectives and Personal
Program Objectives/Company Focus Areas will each range from 1-100% and together total
100%.

	 	(d)	 	Performance Objectives and Personal Program Objectives/Company Focus Areas may
be reviewed and revised during the year pursuant to the procedures used for their
adoption. The Chief Human Resources Officer may change the weighting of any objective
for any Participant.

5. Determination of Target Awards

Each Participant’s target award for each year equals the product of (a) the Participant’s
highest annual rate of base salary in effect for three months or more during the year,
multiplied by (b) the Participant’s highest target award level for which he was eligible for
three months or more during the year. Each Participant’s target award level is expressed as
a percentage of base pay and falls within a range of target award levels set for the
Participant’s salary grade. The Committee will periodically review and may modify the range
of target award levels for each salary grade. Subject to the approval of the Chief Human
Resources Officer, Reviewing Managers will periodically review and may modify specific
target award levels for individual Participants.

6. Determination of Cash Awards

	 	(a)	 	Promptly after the end of each year, the Chief Executive Officer of RAI will
review the performance of each Company with the Committee. Subject to the approval of
the Committee, the Chief Executive Officers of the Operating Companies may give a
rating to each Performance Objective for the year (a “Performance Rating”) ranging from
1-150% for each Performance Objective.

	 	(b)	 	The Reviewing Manager will review the performance of each Participant promptly
after the end of each year in which Personal Program Objectives determine, in whole or
in part, the Participant’s Cash Award. The Reviewing Manager will give the Participant
a rating (a “Personal Program Rating”) for each of his or her Personal Program
Objectives for the year, which may range from 1-150%. The Chief Executive Officers of
the Operating Companies will review the Company performance for specific Company Focus
Areas promptly after the end of each year in which Company Focus Areas determine, in
whole or in part, each Participant’s Cash Award. Subject to the approval of the
Committee, the Chief Executive Officers of the Operating Companies may give a rating to
each Company Focus Area (a “Company Focus Area Rating”) ranging from 1-150%.

	 	(c)	 	The amount of each Cash Award is determined by multiplying the Participant’s
Performance Ratings and Personal Program Ratings/Company Focus Area Ratings by the
respective weights assigned to the corresponding Performance Objectives and Personal
Program Objectives/Company Focus Areas pursuant to Section 4(c). The sum of the
resulting percentages is then multiplied by the target award for the Participant
established pursuant to Section 5. If a Participant is transferred during the year to
a position with different Performance Objectives, the Performance Ratings applicable to
the Participant will be determined by applying the applicable Performance Ratings on a
pro-rata basis, based on the months of employment during the year in each position.

	 	(d)	 	When a Participant becomes eligible to participate in the Plan after the start
of the year, the Participant’s Cash Award will be prorated for the number of months of
eligibility during the year. In the event a Participant is on a leave of absence
during the year, the Participant’s Cash Award may be prorated, based on the number of
full or partial months of active employment at the discretion of the Chief Human
Resources Officer.

	 	(e)	 	If a Participant’s employment is interrupted by the Participant’s death,
Disability or Retirement at any time during the year, the Participant will receive a
Cash Award equal to his or her target award, prorated for the number of full or partial
months of employment during the year, as soon as practicable after such death,
Disability or Retirement. The prorating will give the Participant a full month’s
credit for any partial month of work or short-term disability.

	 	(f)	 	If a Participant loses eligibility under the Plan as the result of a transfer
to a position within the Companies not eligible for participation in the Plan, the
Participant will receive a Cash Award equal to his or her actual award determined in
accordance with Section 6(c), prorated for the number of full and partial months as an
eligible employee under the Plan. If the Participant’s employment has been for a
period of less than three months, the Participant’s Cash Award shall be determined
under this Plan at the base salary in effect on the date before the Participant loses
eligibility under the Plan.

	 	(g)	 	After obtaining approval from the Committee and satisfying its requirements,
the Companies will pay the Cash Award as soon as practicable after the end of the year
(or at such other time as determined by the Committee), except as provided in the event
of death, Disability or Retirement pursuant to Section 6(e).

7. Determination of Cash Awards for SBC Program Participants

	 	(a)	 	If a Participant’s employment terminates pursuant to the SBC Program at any
time during the year, the Participant will receive a Cash Award for the year of
termination of active employment equal to his or her actual award determined in
accordance with Section 6(c), prorated for the number of full or partial months as an
active employee. In addition, the SBC Program may provide the Participant with credit
for some or all of the period of salary continuation and, if so, will establish
criteria to determine the Performance Ratings for the Participant during this period.
Payment of the resulting Cash Awards, if any, will be governed by the terms of the SBC
Program.

	 	(b)	 	If an employee returns from the SBC Program to active employment for the
Companies, where such employee received credit under the Plan in accordance with
Section 7(a) for some or all of the period of salary continuation pursuant to the SBC
Program, but the employee’s active employment for the Companies does not satisfy the
eligibility requirements of Section 3, the employee will receive a Cash Award equal to
his or her target award, prorated for the period he or she received salary continuation
pursuant to the SBC Program and was eligible for credit under the Plan. A Cash Award
to be made pursuant to this Section 7(b) will be paid to the employee as soon as
practicable following his or her return to active service.

	 	(c)	 	If an employee returns from the SBC Program to active employment for the
Companies, where such employee received credit under the Plan in accordance with
Section 7(a) for some or all of the period of salary continuation pursuant to the SBC
Program and he or she continues to satisfy the eligibility requirements of Section 3,
the Participant will receive (i) a Cash Award equal to his or her target award,
prorated for the period he or she received salary continuation pursuant to the SBC
Program and was eligible for credit under the Plan, and (ii) a Cash Award equal to his
or her actual award determined in accordance with Section 6(c), prorated for the number
of full or partial months as an active employee. Payment of the Participant’s Cash
Award pursuant to Section 7(c)(i) will be paid as soon as practicable following his or
her return to active service. Payment of the Participant’s Cash Award pursuant to
Section 7(c)(ii) will be paid as provided in Section 6(g).

	 	(d)	 	If an employee has his or her SBC interrupted (short-term) and he or she
received credit under the Plan in accordance with Section 7(a) for some or all of the
period of salary continuation pursuant to the SBC Program, but the employee’s active
employment for the Companies does not satisfy the eligibility requirements of Section
3, he or she will receive a Cash Award equal to his or her target award, prorated for
the period he or she received salary continuation pursuant to the SBC Program and was
eligible for credit under the Plan, to be paid at the end of the employee’s SBC period.

	 	(e)	 	If an employee has his or her SBC interrupted (short-term) and he or she
returns to active employment for the Companies, where such employee received credit
under the Plan in accordance with Section 7(a) for some or all of the period of salary
continuation pursuant to the SBC Program and he or she continues to satisfy the
eligibility requirements of Section 3, the Participant will receive (i) a Cash Award
equal to his or her target award, prorated for the period he or she received salary
continuation pursuant to the SBC Program and was eligible for credit under the Plan,
and (ii) a Cash Award equal to his or her actual award determined in accordance with
Section 6(c), prorated for the number of full or partial months as an active employee.
Payment of the Participant’s Cash Award pursuant to Section 7(e)(i) will be paid at the
end of the employee’s SBC period. Payment of the Participant’s Cash Award pursuant to
Section 7(e)(ii) will be paid as provided in Section 6(g).

8. Deferral

	 	(a)	 	As of the last day of each year prior to 2004, each Participant who is on a
United States payroll may elect to defer payment of the Cash Award for that year. An
election to defer will be pursuant to procedures established by the Committee and will
be in writing, signed by the Participant and delivered to the Company by December 15 of
the year preceding payment. The election will be irrevocable and will specify the
percentage of the Cash Awards (from 5% to 100%) which will be paid (i) as soon as
practicable after the year in which the Participant’s Retirement, Disability or other
termination of employment occurs or, if earlier, (ii) in January of any designated
future year. If the Participant’s employment with the Companies and their subsidiaries
terminates before the designated year, the award will be paid in January of the year
following termination. If a Participant is eligible for CIP and elects to defer the
proceeds of Cash Awards, the Company will contribute an additional 3% to the amount
deferred on account of the 3% Company match that the Participant would have received
under CIP if the Participant had not deferred the Cash Award.

	 	(b)	 	Each Participant will specify, on the notice electing deferred payment pursuant
to Section 8(a), whether the Cash Award will be deferred by cash credit, Common Stock
credit, or a combination of the two. If a Participant elects to defer payment pursuant
to Section 8(a) and fails to choose a mode of deferral, the Participant’s deferral will
be by means of a cash credit. Cash credits and stock credits will be recorded in
accounts established in each Participant’s name on the books of the Participant’s
Company. At the direction of RAI, any Participant’s accounts may be consolidated on
the books of RAI or any of its subsidiaries.

	 	(i)	 	If the deferral is wholly or partly a cash credit, the
Participant’s cash credit account will be credited, as of the date(s) that
payment of the Cash Awards would otherwise have been made, with the dollar
amount of the portion of the Cash Awards deferred by means of a cash credit.
In addition, the Participant’s cash credit account will be credited as of the
last day of each calendar quarter with an interest equivalent in an amount
determined by applying to the current balance in the account an interest rate
equal to the average prime rate of JPMorgan Chase & Co. or its successor during
the preceding quarter. Interest will be credited for the actual number of days
in the quarter using a 365-day year.

	 	(ii)	 	If the deferral is wholly or partly a Common Stock credit, the
Participant’s Common Stock credit account will be credited, as of the date(s)
that payment of the Cash Awards would otherwise have been made, with the Common
Stock equivalent of the number of shares of Common Stock (including fractions
of a share) that could have been purchased with the portion of the Cash Awards
deferred by means of a Common Stock credit at the Closing Price on the date
that payment of the Cash Awards would otherwise have been made. As of the date
any dividend is paid to shareholders of Common Stock, the Participant’s Common
Stock credit account will also be credited with an additional Common Stock
equivalent equal to the number of shares of Common Stock (including fractions
of a share) that could have been purchased at the Closing Price on such date
with the dividend paid on the number of shares of Common Stock to which the
Participant’s Common Stock credit account is then equivalent. If dividends are
paid in property, the dividend will be deemed to be the fair market value of
the property at the time of distribution of the dividend, as determined by the
Committee.

	 	(c)	 	Payment of deferred Cash Awards will be made in a single cash payment as soon
as practicable in January of the appropriate year. If and to the extent that the
deferral is by means of the Common Stock credit account the value of the payment will
be based on the Closing Price of Common Stock on the last trading day of the year prior
to payment. Notwithstanding the foregoing, if a Participant elects in writing before
December 15 of the year his employment terminates due to Retirement or Disability,
payment will be made in substantially equal annual installments (not to exceed ten)
commencing in January following the Retirement or Disability. Notwithstanding any
election under Section 8(a) to defer Cash Awards by means of a Common Stock credit, the
Common Stock credit account of a Participant who elects to receive installment payments
will be converted into a cash credit account as of January 1 of the year in which such
installment payments commence. Any election by a Participant under this Section 8(c)
will be irrevocable after December 15 of the year prior to commencement of payment.

	 	(d)	 	At the one-time election of a Participant made in writing to the Committee, all
or any designated portion of the Common Stock credit account may be converted to, and
such Participant will be credited with, a cash credit account as of the first business
day of the calendar quarter following the quarter in which the election is made. The
amount credited to the cash credit account will be determined by multiplying the number
of shares of Common Stock to which the Participant’s Common Stock credit account is
then equivalent and as to which such election has been made by the Closing Price on the
last business day of the calendar quarter in which the election is made. Any Common
Stock credits attributable to dividends paid on Common Stock during the calendar
quarter in which the election is made will be credited before making the conversion.
Such election may be made by a Participant at any time prior to the end of the calendar
year in which termination of employment occurs. An election by a Participant under
this Section 8(d) will be irrevocable.

	 	(e)	 	If the number of outstanding shares of Common Stock is increased as the result
of any stock dividend, subdivision or reclassification of shares, the number of shares
of Common Stock to which each Participant’s Common Stock credit account is equivalent
will be increased in proportion to the increase in the number of outstanding shares of
Common Stock. If the number of outstanding shares of Common Stock is decreased as the
result of any combination or reclassification of shares, the number of shares of Common
Stock to which each Participant’s Common Stock credit account is equivalent will be
decreased in proportion to the decrease in the number of outstanding shares of Common
Stock. In the event the Company is consolidated with or merged into any other
corporation and holders of the Company’s Common Stock receive common shares of the
resulting or surviving corporation, each Participant’s Common Stock credit account, in
place of the shares then credited thereto, will be credited with a stock equivalent
determined by multiplying the number of common shares of stock given in exchange for a
share of Common Stock upon such consolidation or merger, by the number of shares of
Common Stock to which the Participant’s account is then equivalent. If in such a
consolidation or merger, holders of the Company’s Common Stock receive any
consideration other than common shares of the resulting or surviving corporation, the
Committee will determine the appropriate change in Participants’ accounts. In the
event of an extraordinary dividend, including any spin-off, the Committee will make
appropriate adjustments to each Participant’s Common Stock credit account.

	 	(f)	 	If a Participant dies, whether before or after termination of employment, any
cash credit account and Common Stock credit account to which he or she is entitled,
including any award approved after the Participant’s death as to which an election to
defer was made and any remaining installment payments, will be distributed in cash, as
soon as practicable (unless the Committee otherwise provides) to the Participant’s
beneficiaries pursuant to Section 12(i).

9. Tax Withholding

Each Participant’s employer will deduct any taxes required to be withheld by federal, state,
local or foreign governments from payments and distributions under the Plan.

10. Adjustments, Amendments or Termination

	 	(a)	 	The Committee may make appropriate and equitable adjustments in the Performance
Ratings, Personal Program Ratings/Company Focus Areas Ratings and the number, terms and
conditions of any Cash Awards if it determines that conditions warrant such adjustment.
Such conditions may include, without limitation, changes in the economy, laws,
regulations and generally accepted accounting principles, as well as corporate events
such as a merger, consolidation, recapitalization, reclassification, stock split, stock
dividend, spin-off, change of control or other event. Any adjustment made by the
Committee shall be final and binding upon the Companies and the Participants.

	 	(b)	 	The Committee may amend, suspend or terminate the Plan at will and at any time,
but it will not take any action that would materially adversely affect the rights of
Participants with respect to deferral accounts.

11. Adoption/Withdrawal by Operating Companies

	 	(a)	 	Adoption of Plan. Any entity may, with the consent of the Committee, adopt the
Plan and thereby become an Operating Company hereunder by executing an instrument
evidencing such adoption and filing a copy thereof with the Committee. By this
adoption of the Plan, Operating Companies (other than RAI) shall be deemed to consent
to actions taken by RAI in entering into any arrangements for the purpose of providing
benefits under the Plan, and to authorize RAI and/or the Committee on behalf of RAI to
take any actions within the authority of RAI under the terms of the Plan.

	 	(b)	 	Withdrawal/Effect of Termination. Notwithstanding the foregoing, in the case
of any Operating Company that adopts the Plan and thereafter (i) ceases to exist or
(ii) withdraws or is eliminated from the Plan, it shall not thereafter be considered an
Operating Company thereunder and the employees of such Operating Company shall no
longer be eligible to participate in the Plan. Any Operating Company (other than RAI)
which adopts the Plan may elect separately to withdraw from the Plan and such
withdrawal shall constitute a termination of the Plan as to it; provided, however, that
such terminating Operating Company shall continue to be an Operating Company for the
purposes hereof as to Participants to whom it owes obligations hereunder, unless RAI or
the Committee directs otherwise.

	 	(c)	 	Expenses. The expenses of administering the Plan will be paid by RAI, unless
RAI, in its sole and absolute discretion, directs the Operating Companies to pay some
or all of the expenses.

(d) Liability for Payment/Transfers of Employment.

	 	(i)	 	Subject to the provisions of subsections (ii) and (iii) hereof,
each Operating Company shall be solely liable for and shall reimburse RAI for
the Operating Company’s appropriate share of any funding necessary to provide
benefits to its employees who are Participants under this Plan;

	 	(ii)	 	Notwithstanding the foregoing, upon a transfer of employment
among Operating Companies, any liability for the payment of a Cash Award to or
on behalf of a Participant shall be transferred from the prior Operating
Company to the new Operating Company. The last Operating Company of the
Participant shall be responsible for the payment of any Cash Award payable
hereunder after the Participant’s termination of employment, whether liability
for such payment accrued before or after the Participant’s transfer of
employment to such Operating Company; and

	 	(iii)	 	Notwithstanding the foregoing, in the event that RAI is unable
or refuses to satisfy its obligation hereunder with respect to the payment of
any Cash Award to or on behalf of its Participants, each of the Operating
Companies (unless it is insolvent), other than RAI, shall guarantee and be
jointly and severally liable for a portion of such Cash Award under the Plan,
allocated based on a fraction, the numerator of which is equal to the number of
Participants in the Plan who are current or former employees of the Operating
Company and the denominator of which is the total number of Participants in the
Plan, excluding current or former RAI employees (as in effect on the date of
the determination).

12. Miscellaneous

	 	(a)	 	Except as determined by the Committee, no person will have any right to receive
an award.

	 	(b)	 	The Committee has the power to interpret the Plan and, together with the
officers of the Companies, has complete discretion in making determinations and taking
action pursuant to the Plan. All interpretations, determinations and actions by the
Committee will be final, conclusive and binding on all parties. Subject to the
preceding sentence, the Chief Executive Officer of RAI will administer the Plan and
will resolve all administrative questions and interpretations. The Committee and the
Chief Executive Officer of RAI may delegate their authority to anyone. In such event,
references in the Plan to the Committee or to the Chief Executive Officer of RAI will
refer to their delegates when appropriate.

	 	(c)	 	The Companies, their Boards of Directors, the Committee, the officers and the
other employees of RAI and its subsidiaries will not be liable for any action taken in
good faith in interpreting and administering the Plan.

	 	(d)	 	For purposes of the Plan, a Participant on leave of absence approved by a
Company or a subsidiary of a Company will be considered an employee. Except as
otherwise provided herein, a Participant on salary continuation under an SBC Program or
agreement of severance will not be considered an employee but will be deemed to be
terminated on his or her last day of active employment. A Participant absent due to
short-term disability on the last day of a year is deemed to be actively employed if
such Participant was actively employed at any time during the year.

	 	(e)	 	Nothing herein creates a vested right. The Cash Awards and the interest,
dividends and other expenses on Cash Awards deferred under Section 8 are not funded
and, except to the extent provided in Section 11(d)(iii), are paid from the general
assets of the Company from which the Participant terminated employment. Nothing herein
shall be construed to require the Companies to maintain any fund or segregate any
amount for the benefit of any Participant and no Participant or other person shall have
any claim against, right to, or security or other interest in, any fund, account or
asset of any Company from which he or she terminated employment. Other benefits
referred to herein may be funded or unfunded as provided for in the individual plans.

	 	(f)	 	The Plan does not create or confer on any Participant any right to employment,
and the employment of any Participant may be terminated by the Participant or the
Participant’s employer without regard to the effect that termination might have on the
Participant with respect to the Plan.

	 	(g)	 	Participants may not transfer, pledge or encumber any benefit under the Plan
prior to its receipt in cash. Except as required by law, creditors may not attach or
seize any such benefit.

	 	(h)	 	The Plan will be governed by and subject to the laws of the State of North
Carolina.

	 	(i)	 	In the event of the death of a Participant, any distribution to which such
Participant is entitled under the Plan shall be made to the beneficiary designated by
the Participant to receive the proceeds of any noncontributory group life insurance
coverage provided for the Participant by the Participant’s Company (“Group Life
Insurance Coverage”). If the Participant has not designated such beneficiary, or
desires to designate a different beneficiary, the Participant may file with the Chief
Human Resources Officer a written designation of a beneficiary under the Plan, which
designation may be changed or revoked only by the Participant, in writing. If no
designation of beneficiary has been made by a Participant under the Group Life
Insurance Coverage or filed with the Chief Human Resources Officer under the Plan,
distribution upon such Participant’s death shall be made in accordance with the
provisions of the Group Life Insurance Coverage. If a Participant is no longer an
employee of a Company or one of its subsidiaries at the time of death, no longer has
any Group Life Insurance Coverage and has not filed a designation of beneficiary with
the Chief Human Resources Officer under the Plan, distribution upon such Participant’s
death shall be made to the Participant’s estate.

	 	(j)	 	A Company may supersede some or all of the terms of the Plan with respect to
individual Participants pursuant to an employment, termination or similar agreement.
In case of conflict, the agreement will control.

13. Effective Date

The Plan is effective as of July 30, 2004.

3

EXHIBIT A

Definitions

(a) “Board of Directors” The Board of Directors of RAI.

(b) “Cash Award” Annual cash payments made to Participants pursuant to the Plan.

	 	(c)	 	“Chief Executive Officer” For employees of RAI and the chief executive
officers of the Operating Companies, the chief executive officer of RAI. For the other
employees of each Operating Company and its subsidiaries, the chief executive officer
of the Operating Company primarily responsible for their performance.

	 	(d)	 	“Chief Human Resources Officer” For employees of RAI and the executive
officers of the Operating Companies, the chief human resources officer of RAI. For the
other employees of each Operating Company and its subsidiaries, the chief personnel
officer of the Operating Company primarily responsible for their performance.

	 	(e)	 	“CIP” The Reynolds American Capital Investment Plan, or comparable
Company-sponsored 401(k) plan in which employees participate, or any successor thereof.

	 	(f)	 	“Closing Price” The closing sale price of the Common Stock as shown on the New
York Stock Exchange consolidated tape and reported in the Wall Street Journal.

(g) “Committee” The Compensation Committee of the Board of Directors.

(h) “Common Stock” The Common Stock of RAI.

(i) “Companies” RAI and the Operating Companies.

(j) “Company Focus Areas” As defined in Section 4(b) of the Plan.

(k) “Company Focus Areas Rating” As defined in Section 6(b) of the Plan.

	 	(l)	 	“Disability” Being totally and permanently disabled as defined in the
Long-Term Disability Plan of the Operating Company employing the participant.

(m) “Group Life Insurance Coverage” As defined in Section 12(i) of the Plan.

	 	(n)	 	“Operating Companies” R. J. Reynolds Tobacco Company, Santa Fe Natural Tobacco
Company, Inc., R. J. Reynolds Global Products, Inc. (and related international
businesses), Lane Limited and any future operating companies acquired by Reynolds
American Inc. that become wholly-owned direct or indirect subsidiaries of Reynolds
American Inc.

	 	(o)	 	“Participant” For any year, an employee who is eligible for or who has
deferred receipt of an award under the Plan. An eligible employee is a Participant
only with respect to the Company for which he works most directly.

(p) “Performance Objectives” As defined in Section 4(a) of the Plan.

(q) “Performance Rating” As defined in Section 6(a) of the Plan.

(r) “Personal Program Objectives” As defined in Section 4(b) of the Plan.

(s) “Personal Program Rating” As defined in Section 6(b) of the Plan.

(t) “Plan” Reynolds American Inc. Annual Incentive Award Plan.

(u) “RAI” Reynolds American Inc.

(v) “Retirement” Retirement with eligibility for retiree medical benefits.

(w) “Reviewing Manager” As defined in Section 4(b) of the Plan.

	 	(x)	 	“SBC” or “SBC Program” A salary and benefits continuation or other program
maintained by a Company for the purpose of providing severance-type benefits to
employees whose employment is involuntarily terminated.

4

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