Document:

exv10w1

 

Exhibit 10.1

REYNOLDS AMERICAN INC.

OUTSIDE DIRECTORS’ COMPENSATION SUMMARY

1.      Fees/Expense Reimbursement

	 	 	 	 	 	 	 
	•	 	Fees:
	 	—
	 	Board Retainer fee of $57,000 per year.
	 

	 	 	 	—
	 	Lead Director Retainer fee of $20,000 per year.
	 

	 	 	 	—
	 	Chairperson Retainer fees of $20,000 per year for the audit
committee chair, $10,000 per year for the compensation
committee chair, and $10,000 per year for the corporate
governance and nominating committee chair.
	 

	 	 	 	—
	 	Committee Meeting Attendance fees per meeting of $1,500 for
audit committee, $1,350 for compensation committee, $1,250 for
corporate governance and nominating committee, and $1,250 for
any special committee meeting.
	 

	 	 	 	—
	 	Board Meeting Attendance fees of $1,250 per meeting.

	 	•	 	All fees payable quarterly in arrears, but may be deferred in 25%
increments in cash and/or in deferred stock units until termination of active
directorship or until a selected year in the future.
	 
	 	•	 	To be tax effective, an irrevocable deferral election must be made in
the year prior to the year fees would otherwise be payable.
	 
	 	•	 	Expenses: Directors are reimbursed for actual expenses incurred in
connection with attendance at Board meetings, including transportation and
lodging expenses.

2.      Deferred Stock Units

	 	•	 	Upon election to the Board, an Outside Director receives an initial
grant of 3,500 deferred stock units or, at the director’s election, 3,500
shares of RAI common stock.
	 
	 	•	 	Annual grant of 1,000 deferred stock units, immediately vested; granted
annually at the time of the Annual Meeting; Director can elect to receive
non-deferred award of 1,000 shares of RAI common stock in lieu of deferred
stock units.
	 
	 	•	 	Quarterly grant of deferred stock units on the last day of each
calendar quarter. Number of deferred stock units equal to $10,000 divided by
the average of the closing price of a share of RAI common stock (as reported on
the NYSE) for each business day during the last month of such calendar quarter.
	 
	 	•	 	Initial and annual deferred stock units paid in cash or RAI common
stock, and quarterly deferred units paid in cash only, following termination of
active directorship per Director’s election in either a lump sum or in up to
ten annual installments.

3.      Life Insurance

	 	•	 	Option to receive up to $100,000 non-contributory coverage while an
active Director. Imputed income will be calculated based on your end-of-year
age and coverage amount.

4.      Excess Liability Insurance

	 	•	 	Eligible to receive $10,000,000 in Excess Liability coverage. No cash
payment required; the fair market value will be imputed income to you each
year. Policy requires that you have at least $300,000 underlying liability
limit under your Homeowner’s or other personal liability policy. Obligated to
pay for claims up to $300,000 not covered by this policy.

5.      Business Travel Accident Insurance

	 	•	 	$500,000 non-contributory coverage while an active
Director.

6.      Matching Grants

	 	•	 	1:1 for Educational/Arts/Cultural/Charitable Organizations – combined $10,000
maximum.

7.      Director Education Programs

	 	•	 	Directors may attend one outside director education program per year at RAI’s
expense.
	 
	 	•	 	Directors are reimbursed for actual expenses incurred in connection with attendance
at director education programs, including transportation and lodging expenses.exv10w2

 

Exhibit 10.2

 

 

 

 

 

 

 

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004,

As Amended and Restated as of January 1, 2006

 

 

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004,

As Amended and Restated as of January 1, 2006

INDEX

 

	 	 	 	 	 	 	 
	Section	 	 	 	Page
	 
	1.

	 	Purpose
	 	 	2	 
	2.

	 	Definitions
	 	 	2	 
	3.

	 	Eligibility
	 	 	2	 
	4.

	 	Company Performance Objectives
	 	 	2	 
	5.

	 	Determination of Target Awards
	 	 	3	 
	6.

	 	Determination of Employee Performance Rating Multipliers
	 	 	3	 
	7.

	 	Determination of Cash Awards
	 	 	3	 
	8.

	 	Determination of Cash Awards for SBC Program Participants
	 	 	4	 
	9.

	 	Deferral
	 	 	6	 
	10.

	 	Tax Withholding
	 	 	8	 
	11.

	 	Adjustments, Amendment or Termination
	 	 	8	 
	12.

	 	Adoption/Withdrawal by Participating Companies
	 	 	8	 
	13.

	 	Miscellaneous
	 	 	10	 
	14.

	 	Effective Date
	 	 	11	 
	Exhibit A: Definitions
	 	 	A-1	 

 

 

REYNOLDS AMERICAN INC.

ANNUAL INCENTIVE AWARD PLAN

Effective July 30, 2004

As Amended and Restated as of January 1, 2006

	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 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 7, be employed by a Participating
Company for at least three months during the year; and
	 
	 	(b)	 	except as otherwise provided herein, be actively employed by a Participating
Company on the last day of the year.

	4.	 	Company Performance Objectives

	 	(a)	 	Subject to the approval of the Committee, the Chief Executive Officer of each
Participating Company may establish specific objectives (the “Company Performance
Objectives”) for each Participating Company for each year. Subject to the approval of
the Chief Executive Officer of RAI, the Chief Executive Officers of the Participating
Companies also may establish Company Performance Objectives for some or all of their
respective subsidiaries. Company Performance Objectives may be based on any financial,
operational or other criteria, such as market share.
	 
	 	(b)	 	Each of the Company Performance Objectives will be weighted for the purpose of
determining awards under the Plan. Different weights may be assigned to the objectives
for different Participants and Participating Companies. However, the aggregate weights
for the Company Performance Objectives will each range from 1-100% and together total
100%.
	 
	 	(c)	 	Company Performance Objectives 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.

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	5.	 	Determination of Target Awards

	 	(a)	 	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. The Chief Executive Officer may modify the specific
target award level for the Chief Human Resources Officer.
	 
	 	(b)	 	Each Participant’s target award for each year equals the product of (i) the
Participant’s highest annual rate of Base Pay in effect for three months or more during
the year, multiplied by (ii) the Participant’s highest target award level for which he
was eligible for three months or more during the year; provided, that if the product of
(i) and (ii) is less than $1,000, the Participant’s target award will be $1,000.

	6.	 	Determination of Employee Performance Rating Multipliers
	 
	 	 	Each Participant’s Employee Performance Rating Multiplier will be determined by his
performance rating under each Participating Company’s Performance Management Center (PMC)
process, as set forth in the following table; provided, that the Employee Performance Rating
Multiplier shall never be greater than 1.0 for Participants above the vice president level:

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Employee Performance	 	 	Employee Performance	 
	 	 	 	 	Rating Multiplier	 	 	Rating Multiplier	 
	 	PMC	 	 	If Company Performance	 	 	If Company Performance	 
	 	Performance Rating	 	 	Rating is 100% or greater	 	 	Rating is less than 100%	 
	 	Exceeds
	 	 	1.5
	 	 	1.0	 
	 	High Achieves
	 	 	1.2
	 	 	1.0	 
	 	Achieves
	 	 	1.0
	 	 	1.0	 
	 	Almost Achieves
	 	 	0.5
	 	 	0.5	 
	 	Fails to Meet
	 	 	0
	 	 	0	 
	 

	7.	 	Determination of Cash Awards

	 	(a)	 	Promptly after the end of each year, the Chief Executive Officer of RAI will
review the performance of each Participating Company with the Committee. Subject to
the approval of the Committee, the Chief Executive Officers of the Participating
Companies may give a rating to each Company Performance

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	 	 	 	Objective for the year (a “Company Performance Rating”) ranging from 0-200% for each
Company Performance Objective.
	 
	 	(b)	 	The amount of each Cash Award is determined by the following formula:

	 	(i)	 	the product of the Company Performance Ratings multiplied by
the respective weights assigned to the corresponding Company Performance
Objectives pursuant to Section 4(c)
	 
	 	 	 	multiplied by
	 
	 	(ii)	 	the target award for the Participant established pursuant to
Section 5
	 
	 	 	 	multiplied by
	 
	 	(iii)	 	the Employee Performance Rating Multiplier established
pursuant to Section 6.

	 	(c)	 	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.
	 
	 	(d)	 	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.
	 
	 	(e)	 	If a Participant loses eligibility under the Plan as the result of a transfer
to a non-Participating Company, the Participant will receive a Cash Award equal to his
or her actual award determined in accordance with Section 7(b), 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 Pay in effect
on the date before the Participant loses eligibility under the Plan.
	 
	 	(f)	 	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,
but in any event no later than March 15 or as otherwise required by Section 409A of the
Internal Revenue Code of 1986, as amended, except as provided in the event of death,
Disability or Retirement pursuant to Section 7(d).

	8.	 	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

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	 	 	 	termination of active employment equal to his or her actual award determined in
accordance with Section 7(b), 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 Company 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 a
Participating Company, where such employee received credit under the Plan in accordance
with Section 8(a) for some or all of the period of salary continuation pursuant to the
SBC Program, but the employee’s active employment for the Participating 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 8(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 a
Participating Company, where such employee received credit under the Plan in accordance
with Section 8(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 7(b), prorated for the number
of full or partial months as an active employee. Payment of the Participant’s Cash
Award pursuant to Section 8(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 8(c)(ii) will be paid as provided in Section 7(f).
	 
	 	(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 8(a) for some or all of the
period of salary continuation pursuant to the SBC Program, but the employee’s active
employment for Participating 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 a Participating Company, where such employee received
credit under the Plan in accordance with Section 8(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

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	 	 	 	eligible for credit under the Plan, and (ii) a Cash Award equal to his or her actual
award determined in accordance with Section 7(b), prorated for the number of full or
partial months as an active employee. Payment of the Participant’s Cash Award
pursuant to Section 8(e)(i) will be paid at the end of the employee’s SBC period.
Payment of the Participant’s Cash Award pursuant to Section 8(e)(ii) will be paid as
provided in Section 7(f).

	9.	 	Deferral

	 	(a)	 	As of the last day of each year prior to 2004, each Participant who was on a
U.S. dollar payroll could elect to defer payment of the Cash Award for that year. An
election to defer was made pursuant to procedures established by the Committee and was
made in writing, signed by the Participant and delivered to a Participating Company by
December 15 of the year preceding payment. The election was irrevocable and specified
the percentage of the Cash Awards (from 5% to 100%) to 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 all Participating Companies
terminates before the designated year, the award will be paid in January of the year
following termination. If a Participant was eligible for CIP and elected to defer the
proceeds of Cash Awards, the Participant’s Participating Company contributed 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 specified, on the notice electing deferred payment pursuant to
Section 9(a), whether the Cash Award was deferred by cash credit, Common Stock credit,
or a combination of the two. If a Participant elected to defer payment pursuant to
Section 9(a) and failed to choose a mode of deferral, the Participant’s deferral was
made by means of a cash credit. Cash credits and stock credits are recorded in
accounts established in each Participant’s name on the books of the Participant’s
Participating 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

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	 	 	 	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 also will 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 9(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 9(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 9(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

7

 

	 	 	 	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 RAI is consolidated with or
merged into any other corporation and holders of 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 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 13(i).

	10.	 	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.
	 
	11.	 	Adjustments, Amendments or Termination

	 	(a)	 	The Committee may make appropriate and equitable adjustments in the Company
Performance 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 Participating 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.

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	12.	 	Adoption/Withdrawal by Participating Companies

	 	(a)	 	Adoption of Plan. Any entity may, with the consent of the Committee, adopt the
Plan and thereby become a Participating Company hereunder by executing an instrument
evidencing such adoption and filing a copy thereof with the Committee. By this
adoption of the Plan, Participating 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 Participating 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 a
Participating Company thereunder and the employees of such Participating Company shall
no longer be eligible to participate in the Plan. Any Participating 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 Participating Company shall continue to be a Participating 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 other Participating 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 Participating Company shall be solely liable for and shall reimburse RAI
for the Participating 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 Participating Companies, any liability for the payment of a Cash Award to
or on behalf of a Participant shall be transferred from the prior Participating
Company to the new Participating Company. The last Participating 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 Participating 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 Participating
Companies (unless it is insolvent), other than RAI, shall guarantee and be

9

 

	 	 	 	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 Participating 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).

	13.	 	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 Participating 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
Participating 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 9 are not funded
and, except to the extent provided in Section 12(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 Participating 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 Participating 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.

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	 	(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 Participating 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 Participating Company 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.

	14.	 	Effective Date
	 
	 	 	The Plan is effective as of July 30, 2004. The Plan as set forth herein reflects amendments
effective November 30, 2004, February 2, 2005, and January 1, 2006.

11

 

EXHIBIT A

Definitions

	(a)	 	“Base Pay” shall mean an amount or rate of compensation for a specified
position of employment excluding any other payments or allowances, such as shift
differential, overtime, merit or general increase lump sums or bonus payments.
	 
	(b)	 	“Board of Directors” shall mean the Board of Directors of RAI.
	 
	(c)	 	“Cash Award” shall mean annual cash payments made to Participants pursuant to
the Plan.
	 
	(d)	 	“Chief Executive Officer” shall mean, for employees of RAI and the chief
executive officers of the other Participating Companies, the chief executive officer of
RAI. For the other employees of each Participating Company other than RAI, “Chief
Executive Officer” shall mean the chief executive officer of the Participating Company
primarily responsible for their performance.
	 
	(e)	 	“Chief Human Resources Officer” shall mean, for employees of RAI and the
executive officers of the other Participating Companies, the chief human resources
officer of RAI. For the other employees of each Participating Company other than RAI,
“Chief Human Resources Officer” shall mean the chief human resources officer of the
Participating Company primarily responsible for their performance.
	 
	(f)	 	“CIP” shall mean the Reynolds American Capital Investment Plan, or comparable
Participating Company-sponsored 401(k) plan in which employees participate, or any
successor thereof.
	 
	(g)	 	“Closing Price” shall mean 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.
	 
	(h)	 	“Committee” shall mean the Compensation Committee of the Board of Directors.
	 
	(i)	 	“Common Stock” shall mean the Common Stock of RAI.
	 
	(j)	 	“Company Performance Objectives” shall have the meaning set forth in Section
4(a) of the Plan.
	 
	(k)	 	“Company Performance Rating” shall have the meaning set forth in Section 7(a)
of the Plan.
	 
	(l)	 	“Disability” shall mean being totally and permanently disabled as defined in
the Long-Term Disability Plan of the Participating Company employing the participant.

A-1

 

 

	(m)	 	“Employee Performance Rating Multiplier” shall have the meaning set forth in
Section 6 of the Plan.
	 
	(n)	 	“Group Life Insurance Coverage” shall have the meaning set forth in Section
13(i) of the Plan.
	 
	(o)	 	“Participant” shall mean, 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 Participating Company for which he works most directly.
“Participant” shall also mean the heir or estate of a deceased Participant.
	 
	(p)	 	“Participating Companies” shall mean RAI, R. J. Reynolds Tobacco Company, FHS,
Inc., R. J. Reynolds Global Products, Inc. and any other affiliates of RAI that adopt
the Plan pursuant to Section 12(a).
	 
	(q)	 	“Plan” shall mean the Reynolds American Inc. Annual Incentive Award Plan.
	 
	(r)	 	“RAI” shall mean Reynolds American Inc. and its successor companies.
	 
	(s)	 	“Retirement” shall mean a Participant’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 Participating Companies.
	 
	(t)	 	“Reviewing Manager” shall mean the manager to whom a Participant reports.
	 
	(u)	 	“SBC” or “SBC Program” shall mean a salary and benefits continuation or other
program maintained by a Participating Company for the purpose of providing
severance-type benefits to employees whose employment is involuntarily terminated.

A-2

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