Document:

EX-10.3

 

Exhibit 10.3

DEFERRED COMPENSATION PLAN FOR

DIRECTORS OF

REYNOLDS AMERICAN INC.

(Amended and Restated Effective February 2, 2005)

ARTICLE I

     1.1 NAME AND PURPOSE. The name of this plan is the “Deferred Compensation Plan for Directors
of Reynolds American Inc.” (the “Plan”). The Plan is an amendment, restatement and continuation of
the Deferred Compensation Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. The purpose
of this Plan is to provide non-employee Directors of the Company with increased flexibility in
timing the receipt of board service fees and to assist the Company in attracting and retaining
qualified individuals to serve as Directors.

     1.2 DEFINITIONS. Whenever used in the Plan, the following terms shall have the meaning set
forth below:

	 	(a)  	“Closing Price” means the closing price of the Company’s Common Stock as
reported in THE WALL STREET JOURNAL.
	 
	 	(b)  	“Code” means the Internal Revenue Code of 1986, as amended.
	 
	 	(c)  	“Common Stock” means the Common Stock, par value $0.0001 per share, of Reynolds
American Inc.
	 
	 	(d)  	“Company” means Reynolds American Inc.
	 
	 	(e)  	“Compensation” means all remuneration paid to a Director for service as a
Director other than reimbursement for expenses and shall include, but not be limited
to, Board of Directors retainer fees, Board of Directors committee chairmanship and/or
committee attendance fees, and any fees for attendance at Board of Directors meetings.
	 
	 	(f)  	“Director” means any individual serving on the Board of Directors of the
Company who is not an employee of the Company or any of its subsidiaries.
	 
	 	(g)  	“Participant” means a Director who has filed an election to participate under
Section 3.1 with regard to any Plan Year.
	 
	 	(h)  	“Plan Administrator” means the Corporate Governance and Nominating Committee of
the Board of Directors of the Company.
	 
	 	(i)  	“Plan Year” means the calendar year except the first Plan Year is the period
July 30, 2004 through December 31, 2004.

 

 

ARTICLE II

     2.1 PARTICIPATION IN THE PLAN. Any individual who is a Director as defined in Section 1.2(f)
may participate in the Plan.

ARTICLE III

     3.1 ELECTION TO PARTICIPATE. Each Director may elect annually to have payment of all or any
increment of twenty-five percent (25%) of his or her Compensation for that Plan Year deferred. An
election to defer may provide that the Compensation deferred will be paid in January of a specified
year in the future or in January following the end of the Plan Year during which the Participant
ceased to be a Director.

     No election to defer under this Plan may be made after December 31 of the year preceding the
Plan Year during which Compensation would otherwise be paid or, if later, within thirty (30) days
after the date a Director becomes a Director. An election to defer any Compensation shall be in
writing and shall be delivered to the Plan Administrator. An election to defer shall be
irrevocable by the Director and shall be effective only for the Plan Year immediately following the
date on which it was filed. In the absence of a written election to defer filed by a Director with
the Plan Administrator, any Compensation will be paid directly to the Director.

     3.2 MODE OF DEFERRAL. Payment of a Participant’s Compensation may be deferred in twenty-five
percent (25%) increments by means of a cash credit, a stock credit or a combination of the two as
the Participant shall elect in writing at the same time as the election provided for in Section
3.1. If a Participant fails to make an election as to mode of deferral, he or she shall be deemed
to have elected deferral by means of a cash credit. Cash credits and stock credits shall be
recorded in accounts established in Participants’ names on the books of the Company.

	 	(a)  	CASH CREDITS. If the deferral is wholly or partly by means of a cash credit,
the Participant’s cash credit account shall be credited, as of the last day of the
calendar quarter, with the dollar amount of Compensation deferred during the quarter.
As of the last day of each calendar quarter, the Participant’s cash credit account
shall also be credited with interest equivalent in an amount determined by applying to
the balance in the account as of the first day of the quarter (less any distributions
during the quarter) an interest rate for such quarter which, when annualized, shall be
the prime rate of JPMorgan Chase & Co. as of the first business day of the quarter.
Interest shall be calculated on the actual number of days in the quarter based upon a
360-day year.
	 
	 	(b)  	STOCK CREDITS. If the deferral is wholly or partly by means of a stock credit,
the Participant’s stock credit account shall be credited, as of the last day of the
calendar quarter, with a Common Stock equivalent equal to the number of shares of
Common Stock (including fractions of a share) that could have been purchased at the
average of the Closing Price on each business day during the last month of the calendar
quarter with the amount of the Compensation deferred during the

 

 

quarter. As of the date any dividend is paid to shareholders of Common Stock, the
Participant’s stock credit account shall 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
stock credit account is then equivalent. In case of dividends paid in property, the
dividend shall be deemed to be the fair market value of the property at the time of
distribution of the dividend, as determined by the Plan Administrator.

	 	(c)  	A Participant may elect in writing that all or any designated portion of his
stock credit account or his cash credit account be changed to, and such Participant
shall instead be credited with, the other type of account as of the first day of the
month following the month in which the election is received by the Plan Administrator.
For this purpose, the value of a participant’s stock credit account will be determined
using the average of the Closing Price on each business day during the month preceding
the effective date of the election. Notwithstanding the foregoing, any election to
transfer between accounts may be made no more frequently than once in any six (6) month
period and no such election may be made unless the transfer would be an exempt
transaction for purposes of Section 16(b) of the Securities Exchange Act of 1934.

     3.3 DISTRIBUTION OF CREDITS.

	 	(a)  	For all Compensation deferred under this Plan prior to December 31, 2004, the
distribution of a Participant’s stock credit account or cash credit account will be
made as follows:

(i) Unless as otherwise elected in Section 3.3(a)(ii), payment of a Participant’s
deferred stock units shall be made in one (1) lump sum as soon as practicable in the
year in which the Participant had elected to receive payment.

(ii) At the election of the Participant made in writing and delivered to the Plan
Administrator at any time on or before December 1 of the year prior to the year in
which the Participant had elected to receive payment, distribution of all of his or
her account shall be made in any number of annual installments not exceeding ten
(10). Any such election, unless made irrevocable by its terms, may be changed by
written notice to the Plan Administrator at any time prior to December 1 of the Plan
Year prior to the year in which the Participant had elected to receive payment.

	 	(b)  	For all Compensation deferred under this Plan after December 31, 2004, the
distribution of a Participant’s stock credit account or cash credit account will be
made as follows:

(i) According to the election by each Participant on an annual election form
provided by the Company to the Participant in December of the year preceding

 

 

the grant of any award under this Plan in the next Plan Year, payment of a
Participant’s stock credit account or cash credit account will be made either in a
lump sum or in any number of annual installments not exceeding ten (10), both upon a
date or dates certain or commencing in the January following the termination of
service as a Director.

(ii) Elections pursuant to Section 3.3(b)(i) are not irrevocable; provided, however,
any subsequent election that changes the timing or form of a Participant’s previous
distribution election must comply with Section 409A of the Code, including
requirements that such selection (A) may not be effective until twelve (12) months
after the date the election is made, (B) any subsequent elections relating to
payments scheduled for a particular date or dates must be made at lease twelve (12)
months prior to the date of the first scheduled payment, and (C) all subsequent
elections for distributions, other than those triggered by disability, death or an
unforeseeable emergency, must delay distribution by at least five (5) years from the
original distribution date.

	 	(c)  	Distribution of a Participant’s cash credit and stock credit accounts shall be
made in cash. For this purpose, the value of a Participant’s stock credit account
shall be determined by multiplying the number of shares of Common Stock attributable to
the payment by the average of the Closing Price on each business day in the month of
December immediately prior to the Plan Year in which the payment is to be paid.

     3.4 ADJUSTMENT. If at any time the number of outstanding shares of Common Stock shall be
changed or 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 stock credit account is
equivalent shall be changed or increased in the same proportion as the outstanding number of shares
of Common Stock is changed or increased, or if the number of outstanding shares of Common Stock
shall at any time be decreased as the result of any combination or reclassification of shares, the
number of shares of Common Stock to which each Participant’s stock credit account is equivalent
shall be decreased in the same proportion as the outstanding number of shares of Common Stock is
decreased. In the event the Company shall at any time be 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, there shall be credited to each Participant’s stock credit account, in
place of the shares then credited thereto, 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 shall
receive any consideration other than common shares of the resulting or surviving corporation, the
Plan Administrator, in its sole discretion, shall determine the appropriate change in Participants’
accounts.

     3.5 INSTALLMENT AMOUNT. In the event a Participant has elected to receive distribution of his
or her accounts in more than one installment, the amount of each installment shall be determined
either (a) by multiplying the current balance (denominated in cash units for

 

 

the portion elected to be deferred as cash credits and denominated in stock units for the
portion elected to be deferred in stock credits) in the accounts as determined under Section 3.2,
by a fraction, the numerator of which is one, and the denominator of which is the number of
installments yet to be paid or (b) by any other method acceptable to the Plan Administrator.

     3.6 DISTRIBUTION UPON DEATH. In the event of the death of a Participant, whether before or
after ceasing to serve as a Director, any cash credit account and stock credit account to which he
or she was entitled, shall be converted to cash and distributed in one (1) lump-sum to such person
or persons or the survivors thereof, including corporations, unincorporated associations or trusts,
as the Participant may have designated. All such designations shall be made in writing signed by
the Participant and delivered to the Plan Administrator. A Participant may from time to time
revoke or change any such designation by written notice to the Plan Administrator. If there is no
unrevoked designation on file with the Plan Administrator at the time of the Participant’s death,
or if the person or persons designated therein shall have all predeceased the Participant or
otherwise ceased to exist, such distributions shall be made in accordance with the Participant’s
will or in the absence of a will, to the administrator of the Participant’s estate. Any
distribution under this Section 3.6 shall be made as soon as practicable following the end of the
fiscal quarter in which the Plan Administrator is notified of the Participant’s death. In this
case, a Participant’s stock credit account shall be converted to cash by multiplying the number of
whole and fractional shares of Common Stock to which the Participant’s stock credit account is
equivalent by the average of the Closing Price of Common Stock on each business day during the last
month of the calendar quarter prior to the date of death.

     3.7 WITHHOLDING TAXES. The Company shall deduct from all distributions under the Plan any
taxes required to be withheld by federal, state, or local governments.

ARTICLE IV

     4.1 PLAN ADMINISTRATOR. The Plan Administrator shall have full power and authority to
administer the Plan including the power to promulgate forms to be used with regard to the Plan, the
power to promulgate rules of Plan administration, the power to settle any disputes as to rights or
benefits arising from the Plan, and the power to make such decisions or take such action as the
Plan Administrator, in its sole discretion, deems necessary or advisable to aid in the proper
maintenance of the Plan.

ARTICLE V

     5.1 FUNDING. No promise hereunder shall be secured by any specific assets of the Company, nor
shall any assets of the Company be designated as attributable or allocated to the satisfaction of
such promises. Nothing herein creates a vested right. Cash credit and stock credit accounts are
not funded and are paid from the general assets of the Company from which the Participant
terminated service as a Director. Nothing herein shall be construed to require the Company 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 the Company.

 

 

ARTICLE VI

     6.1 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the
Participant, be in any manner liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the Participant.

ARTICLE VII

     7.1 DELEGATION OF ADMINISTRATIVE DUTIES. Administrative duties imposed by this Plan may be
delegated by the Plan Administrator or the individual charged with such duties.

     7.2 GOVERNING LAW. All questions arising in respect of the Plan, including those pertaining
to its validity, interpretation and administration, shall be governed, controlled and determined in
accordance with the applicable provisions of federal law and, to the extent not preempted by
federal law, the laws of the State of North Carolina.

     7.3 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Plan Administrator at any time
may terminate and in any respect, amend or modify the Plan.

     7.4 COMPLIANCE WITH SECTION 409A OF THE CODE. The Plan is intended to comply with Section
409A of the Code and shall be construed and interpreted in accordance with such intent.EX-10.4

 

Exhibit 10.4

REYNOLDS AMERICAN INC.

LONG-TERM INCENTIVE PLAN

(Amended and Restated Effective February 2, 2005)

1. Purpose of Plan

     The Reynolds American Inc. Long-Term Incentive Plan (the “Plan”) is an amendment, restatement
and continuation of the R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term Incentive Plan. The
Plan became effective June 14, 1999 and is designed:

	 	(a)  	     to promote the long-term financial interests and growth of Reynolds American
Inc. and its Subsidiaries (collectively, the “Corporation”) by attracting and retaining
management personnel with the training, experience and ability to enable them to make a
substantial contribution to the success of the Corporation’s business;
	 
	 	(b)  	     to motivate management personnel by means of growth-related incentives to
achieve long range goals; and
	 
	 	(c)  	     to further the identity of interests of Participants with those of the
stockholders of Reynolds American through opportunities for increased stock, or
stock-based, ownership in Reynolds American.

2. Definitions

     As used in the Plan, the following words shall have the following meanings:

	 	(a)  	     “Affiliate” of any person shall mean another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person;
	 
	 	(b)  	     “Base Value” means not less than the Fair Market Value on the date a Stock
Appreciation Right is granted, or, in the case of a Stock Appreciation Right granted
retroactively in tandem with (or in replacement of) an outstanding Option, not less
than the exercise price of such Option;
	 
	 	(c)  	     “BAT” shall mean, collectively, British American Tobacco, p.l.c., a public
limited company incorporated under the laws of England and Wales, and its Affiliates;
	 
	 	(d)  	     “Board of Directors” means the Board of Directors of Reynolds American;
	 
	 	(e)  	     “Code” means the Internal Revenue Code of 1986, as amended;

 

 

	 	(f)  	     “Committee” means the Compensation Committee of the Board of Directors;
	 
	 	(g)  	     “Common Stock” or “Share” means common stock, par value $0.0001 per share, of
Reynolds American which may be authorized but unissued, or issued and reacquired;
	 
	 	(h)  	     “Effective Date” shall have the meaning set forth in Section 14;
	 
	 	(i)  	     “Exchange Act” means the Securities Exchange Act of 1934, as amended;
	 
	 	(j)  	     “Fair Market Value” means such value of a Share as reported for stock exchange
transactions and/or determined in accordance with any applicable resolutions or
regulations of the Committee in effect at the relevant time;
	 
	 	(k)  	     “Grant Agreement” means an agreement between Reynolds American and a
Participant that sets forth the terms, conditions and limitations applicable to a
Grant;
	 
	 	(l)  	     “Grant” means an award made to a Participant pursuant to the Plan and described
in Section 5, including, without limitation, an award of an Incentive Stock Option,
Other Stock Option, Stock Appreciation Right, Restricted Stock, Performance Units or
Performance Shares or any combination of the foregoing;
	 
	 	(m)  	     “Incentive Stock Options” shall have the meaning set forth in Section 5(a);
	 
	 	(n)  	     “Other Stock Options” shall have the meaning set forth in Section 5(b);
	 
	 	(o)  	     “Options” shall mean Incentive Stock Options and Other Stock Options;
	 
	 	(p)  	     “Participant” means any employee, or other person having a unique relationship
with Reynolds American or one of its Subsidiaries, to whom one or more Grants have been
made and such Grants have not all been forfeited or terminated under the Plan;
provided, however, that a Participant who is elected or appointed as a
non-employee director of the Corporation may not receive any Grant during the term of
his or her service as a non-employee director of the Corporation;
	 
	 	(q)  	     “Performance Units” shall have the meaning set forth in Section 5(e);
	 
	 	(r)  	     “Performance Shares” shall have the meaning set forth in Section 5(f);
	 
	 	(s)  	     “Restricted Stock” shall have the meaning set forth in Section 5(d);
	 
	 	(t)  	     “Reynolds American” means Reynolds American Inc. and any successors thereto;
	 
	 	(u)  	     “RJR” means R.J. Reynolds Tobacco Holdings, Inc.

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	 	(v)  	     “Stock Appreciation Rights” shall have the meaning set forth in Section 5(c);
and
	 
	 	(w)  	     “Subsidiary” means any corporation or other entity in which Reynolds American
has a significant equity or other interest as determined by the Committee.

3. Administration of Plan

	 	(a)  	     The Plan shall be administered by the Committee or, in lieu of the Committee,
the Board of Directors. The Committee may adopt its own rules of procedure and act
either by vote at a telephonic or other meeting or by unanimous written consent in lieu
of a meeting. The Committee shall have the power and authority to administer, construe
and interpret the Plan, to make rules for carrying it out and to make changes in such
rules. Any such interpretations, rules and administration shall be consistent with the
basic purposes of the Plan.
	 
	 	(b)  	     The Committee may delegate its duties under the Plan to the Chief Executive
Officer, to other senior officers of the Corporation, or to the Chairman of the Board
of Directors, acting as a committee established by the Committee, subject to such
conditions and limitations as the Committee shall prescribe; provided,
however, that only the Committee may designate and make Grants to Participants
who are subject to Section 16 of the Exchange Act.
	 
	 	(c)  	     The Committee may employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Committee, Reynolds American and the officers and
directors of Reynolds American shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding upon all
Participants, Reynolds American and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or interpretation
made in good faith with respect to the Plan or the Grants, and all members of the
Committee shall be fully protected by Reynolds American with respect to any such
action, determination or interpretation.

4. Eligibility

     The Committee may from time to time make Grants under the Plan to such employees, or other
persons having a unique relationship with Reynolds American or any of its Subsidiaries, and in such
form and having such terms, conditions and limitations as the Committee may determine. No Grants
may be made under this Plan to non-employee directors of Reynolds American or any of its
Subsidiaries. Grants may be granted singly, in combination or in tandem. The terms, conditions
and limitations of each Grant under the Plan shall be set forth in a Grant Agreement, in a form
approved by the Committee, consistent, however, with the terms of the Plan; provided,
however, such Grant Agreement shall contain provisions dealing with the treatment of Grants
in the event of the termination, death or disability of a Participant, and may

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also include provisions concerning the treatment of Grants in the event of a change of control
of Reynolds American.

5. Grants

     From time to time, the Committee will determine the forms and amounts of Grants for
Participants. Such Grants may take the following forms in the Committee’s sole discretion:

	 	(a)  	      Incentive Stock Options - These are stock options within the meaning of Section
422 of the Code to purchase Common Stock. In addition to other restrictions contained
in the Plan, an option granted under this Section 5(a), (i) may not be exercised more
than 10 years after the date it is granted, (ii) may not have an option price less than
the Fair Market Value of Common Stock on the date the option is granted, (iii) must
otherwise comply with Section 422 of the Code, and (iv) must be designated as an
“Incentive Stock Option” by the Committee. The maximum aggregate Fair Market Value of
Common Stock (determined at the time of each Grant) with respect to which any
Participant may first exercise Incentive Stock Options under this Plan and any
Incentive Stock Options granted to the Participant for such year under any plans of
Reynolds American or any Subsidiary in any calendar year is $100,000. Payment of the
option price shall be made in cash or in shares of Common Stock, or a combination
thereof, in accordance with the terms of the Plan, the Grant Agreement and any
applicable guidelines of the Committee in effect at the time.
	 
	 	(b)  	      Other Stock Options - These are options to purchase Common Stock which are not
designated by the Committee as “Incentive Stock Options.” At the time of the Grant, the
Committee shall determine, and shall have contained in the Grant Agreement or other
Plan rules, the option exercise period, the option price and such other conditions,
restrictions or factors on the grant or exercise of the option as the Committee deems
appropriate. In addition to other restrictions contained in the Plan, an option
granted under this Section 5(b), (i) may not be exercised more than fifteen (15) years
after the date it is granted and (ii) may not have an option exercise price less than
the Fair Market Value of Common Stock on the date the option is granted. Payment of
the option price shall be made in cash or in shares of Common Stock, or a combination
thereof, in accordance with the terms of the Plan and of any applicable guidelines of
the Committee in effect at the time. The requirement of payment in cash will be deemed
satisfied if the Participant has made arrangements satisfactory to the Corporation with
a duly registered broker-dealer that is a member of the National Association of
Securities Dealers, Inc. to sell on the date of exercise a sufficient number of shares
of Common Stock being purchased so that the net proceeds of the sale transaction will
at least equal the full exercise price and pursuant to which the broker-dealer
undertakes to deliver the full exercise price to the Corporation not later than the
later of (A) the settlement date of the sale transaction and (B) the date on which the
Corporation delivers to the broker-dealer the shares of Common Stock being purchased
pursuant to the exercise of such option. This method is known as the “broker-dealer
exercise method” and is subject to the terms and conditions set

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	 	   	forth herein, in the Grant Agreement and in guidelines established by the Committee.

	 	(c)  	       Stock Appreciation Rights - These are rights that on exercise entitle the
holder to receive the excess of (i) the Fair Market Value of a share of Common Stock on
the date of exercise over (ii) the Base Value multiplied by (iii) the number of rights
exercised in cash, stock or a combination thereof as determined by the Committee.
Stock Appreciation Rights granted under the Plan may, but need not, be granted in
conjunction with an Option under Sections 5(a) or 5(b). The Committee, in the Grant
Agreement or by other Plan rules, may impose such conditions, restrictions or factors
on the exercise of Stock Appreciation Rights as it deems appropriate, and may
terminate, amend, or suspend such Stock Appreciation Rights at any time, subject to
Section 9. No Stock Appreciation Right granted under this Plan may be exercised more
than fifteen (15) years after the date it is granted.
	 
	 	(d)  	       Restricted Stock - Restricted Stock is a Grant of Common Stock or stock units
equivalent to Common Stock subject to such conditions, restrictions or factors as the
Committee shall determine. Any rights to dividends or dividend equivalents accruing
due to a grant of Restricted Stock shall also be determined by the Committee. Grants
of Restricted Stock shall be subject to a normal minimum vesting schedule of three (3)
years. The number of shares of Restricted Stock and the restrictions or conditions on
such shares, as the Committee may determine, shall be set forth in the Grant Agreement
or by other Plan rules, and the certificate for the Restricted Stock shall bear
evidence of the restrictions or conditions.
	 
	 	(e)  	       Performance Units - These are rights, denominated in cash or cash units, to
receive, at a specified future date, payment in cash or Common Stock of an amount equal
to all or a portion of the value of a unit granted by the Committee. At the time of
the Grant, in the Grant Agreement or by other Plan rules, the Committee must determine
the Base Value of the unit, the performance factors applicable to the determination of
the ultimate payment value of the unit as set forth in Section 7 and the period over
which performance will be measured.
	 
	 	(f)  	       Performance Shares - These are rights granted in the form of Common Stock or
stock units equivalent to Common Stock to receive, at a specified future date, payment
in cash or Common Stock, as determined by the Committee, of an amount equal to all or a
portion of the Fair Market Value at which the Common Stock is traded on the last day of
the specified performance period of a specified number of shares of Common Stock based
on performance during the period. At the time of the Grant, the Committee, in the
Grant Agreement or by Plan rules, will determine the factors which will govern the
portion of the Grants so payable as set forth in Section 7 and the period over which
performance will be measured.

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6. Limitations and Conditions

	 	(a)  	       The number of shares of Common Stock available for Grants under this Plan shall
be eight (8) million shares of the authorized Common Stock, plus 5,772,814 shares of
Common Stock that cover grants under the RJR Nabisco Holdings Corp. 1990 Long Term
Incentive Plan that were converted into options to acquire RJR stock or restricted shares of RJR common stock. The maximum number of shares of Common Stock subject to
Grants of Options and Stock Appreciation Rights to any one Participant in any calendar
year shall not exceed two (2) million shares of Common Stock for each type of Grant,
plus any amount of shares of Common Stock that were available within this limit for
such type of Grant for any prior year such limitation was in effect and which were not
covered by Options or Stock Appreciation Rights granted to such Participant during such
year. No more than three (3) million shares of Common Stock may be granted as
Incentive Stock Options. The maximum payment that any one Participant may be paid in
respect of any Grant of Performance Units granted for any specified performance period
shall not exceed $10 million. The maximum payment that any one Participant may receive
in respect of any Grant of Performance Shares granted for any specified performance
period shall not exceed 500,000 shares of Common Stock or the cash equivalent thereof.
The aggregate maximum number of shares of Common Stock to which Restricted Stock
granted may relate shall not exceed three (3) million shares of Common Stock. Shares
of Common Stock related to Grants that are withheld, forfeited, terminated, cancelled,
expire unexercised, settled in cash in lieu of stock, received in full or partial
payment of any exercise price or in such manner that all or some of the shares of
Common Stock covered by a Grant are not issued to a Participant, shall immediately
become available for Grants. A Grant may contain the right to receive dividends or
dividend equivalent payments which may be paid either currently, credited to a
Participant or deemed invested in shares of Common Stock or share units of Common
Stock. Any such crediting of dividends or dividend equivalents or reinvestment in shares of Common Stock may be subject to such conditions, restrictions and
contingencies as the Committee shall establish, including the reinvestment of such
credited amounts in Common Stock equivalents. Subject to the overall limitation on the
number of shares of Common Stock that may be delivered under this Plan, the Committee
may use available shares of Common Stock as the form of payment for compensation,
grants or rights earned or due under any other compensation plans or arrangements of
Reynolds American, including the plan of any entity acquired by Reynolds American.
	 
	 	(b)  	       At the time a Grant is made or amended or the terms or conditions of a Grant
are changed, the Committee may provide for limitations or conditions on such Grant.
Reynolds American may adopt other compensation programs, plans or arrangements as it
deems appropriate.
	 
	 	(c)  	       Nothing contained herein shall affect the right of the Corporation to terminate
any Participant’s employment at any time or for any reason.

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	 	(d)  	       No benefit under the Plan shall, prior to receipt thereof by the Participant,
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the Participant.
	 
	 	(e)  	       Except to the extent otherwise provided in any other retirement or benefit
plan, any Grant under this Plan shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of Reynolds American or
its Subsidiaries and shall not affect any benefits under any other benefit plan of any
kind or subsequently in effect under which the availability or amount of benefits is
related to level of compensation.
	 
	 	(f)  	       This Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee
Retirement Income Security Act of 1974, as amended. This Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or funds. The
Plan shall not establish any fiduciary relationship between Reynolds American and any
Participant or beneficiary of a Participant. To the extent any person holds any
obligation of Reynolds American by virtue of an award granted under this Plan, such
obligation shall merely constitute a general unsecured liability of Reynolds American
and accordingly shall not confer upon such person any right, title or interest in any
assets of Reynolds American.
	 
	 	(g)  	       Unless the Committee determines otherwise, no benefit or promise under the Plan
shall be secured by any specific assets of Reynolds American or any of its
Subsidiaries, nor shall any assets of Reynolds American or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of Reynolds American’s
obligations under the Plan.

7. Performance Factors

     The performance factors, if any, selected by the Committee in respect of any Grant shall be
based on any one or more of the following: price of Common Stock or the stock of any affiliate,
shareholder return, level of dividend return, return on equity, return on investment, return on
capital, return on invested capital, economic profit, economic value added, net income, cash net
income, free cash flow, earnings per share, cash earnings per share, operating company contribution
or market share. These factors shall have a minimum performance standard below which no amount
will be paid (to the extent not waived by the Committee or except as otherwise provided in a Grant
Agreement) and may have a maximum performance standard above which no additional payments will be
made. The applicable performance period shall not exceed ten (10) years.

8. Adjustments

	 	(a)  	       In the event of any stock split, spin-off, stock dividend, extraordinary cash
dividend, stock combination or reclassification, recapitalization or merger, change in
control, or similar event, the Committee may adjust appropriately the number or kind of shares subject to the Plan and available for or covered by Grants, share prices related
to outstanding Grants and the other applicable limitations of Section

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	 	   	6(a), and make such other revisions to outstanding Grants and the Plan as it deems
are equitably required.
	 
	 	(b)  	In the event of a Change of Control, except as otherwise set forth in the terms
of a Grant:

	 	(i)  	       Options granted pursuant to Sections 5(a) or 5(b) hereof shall
become fully vested and exercisable; provided, however, that
the Committee may make a cash payment to Participants (A) in cancellation of
such Options as provided in the applicable Grant Agreements or any amendments
or deemed amendments thereto entered into by Reynolds American and the
Participant in such amount as shall be provided in such Grant Agreements or
amendments or (B) in lieu of the delivery of shares of Common Stock upon
exercise, equal to the product of (x) and (y), where (x) is the excess of the
Fair Market Value on the date of exercise over the exercise price, and (y) is
the number of shares of Common Stock subject to the Options being exercised;
	 
	 	(ii)  	       Stock Appreciation Rights shall become fully vested and
exercisable;
	 
	 	(iii)  	       Restricted Stock shall have all restrictions removed;
	 
	 	(iv)  	       Performance Units whose performance period ends after the date
of the Change of Control shall become vested as to a percentage of Performance
Units granted equal to the number of months (including partial months) in the
performance period before the date of the Change of Control, divided by the
total number of months in the performance period. The value of the Performance
Units shall be equal to the greater of the target value of the Performance
Units or the value derived from the actual performance as of the date of the
Change of Control;
	 
	 	(v)  	       Performance Shares whose performance period ends after the date
of the Change of Control shall become vested pro rata as to the number of
Performance Shares granted equal to the number of months (including partial
months) in the performance period before the date of Change of Control, divided
by the total number of months in the performance period. The prorated number
of Performance Shares derived from the preceding calculation shall be further
adjusted by applying the higher of target or actual performance to the date of
Change of Control; and
	 
	 	(vi)  	       The Committee shall have authority to establish or to revise
the terms of any such Grant or any other Grant as it, in its discretion, deems
appropriate; provided, however, that the Committee may not make
revisions that are adverse to the Participant without the Participant’s consent
unless such revision is provided for or contemplated in the terms of the Grant.

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	 	(c)  	For purposes of the Plan, a “Change of Control” shall mean the first to occur
of the following events:

	 	(i)  	       an individual, corporation, partnership, group, associate or
other entity or “person”, as such term is defined in Section 14(d) of the
Exchange Act, other than any employee benefit plans sponsored by Reynolds
American, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of thirty percent (30%) or more of
the combined voting power of Reynolds American’s outstanding securities
ordinarily having the right to vote at elections of directors;
provided, however, that the acquisition of Reynolds American
securities by BAT pursuant to the Business Combination Agreement, dated as of
October 27, 2003, between RJR and Brown & Williamson Tobacco Corporation
(“B&W”), as thereafter amended (the “BCA”) or as expressly permitted by the
Governance Agreement, dated as of July 30, 2004, among British American
Tobacco, p.l.c., B&W and Reynolds American (the “Governance Agreement”), shall
not be considered a Change of Control for purposes of this subsection (i);
	 
	 	(ii)  	       individuals who constitute the Board of Directors (or who have
been designated as directors in accordance with Section 1.09 of the BCA) on
July 30, 2004 (the “Incumbent Board”) cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to such date whose election, or nomination for election by Reynolds
American’s stockholders, was (1) approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of Reynolds American in which such person is
named as a nominee of Reynolds American for director) or (2) made in accordance
with Section 2.01 of the Governance Agreement, but excluding for this purpose
any such individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity or
person other than Reynolds American’s Board, shall be, for purposes of this
paragraph (ii), considered as though such person were a member of the Incumbent
Board; and
	 
	 	(iii)  	       the approval by the stockholders of Reynolds American of a
plan or agreement providing (A) for a merger or consolidation of Reynolds
American other than with a wholly owned Subsidiary and other than a merger or
consolidation that would result in the voting securities of Reynolds American
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of Reynolds American

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	 	  	or such surviving entity outstanding immediately after such merger or
consolidation, or (B) for a sale, exchange or other disposition of all or
substantially all of the assets of Reynolds American, other than any such
transaction where the transferee of all or substantially all of the assets
of Reynolds American is a wholly owned Subsidiary or an entity more than
fifty percent (50%) of the combined voting power of the voting securities of
which is represented by voting securities of Reynolds American outstanding
immediately prior to the transaction (either remaining outstanding or by
being converted into voting securities of the transferee entity). If any of
the events enumerated in this paragraph (iii) occur, Reynolds American’s
Board shall determine the effective date of the Change of Control resulting
therefrom for purposes of this Plan and the Grants hereunder.

9. Amendment and Termination

     Except as otherwise required by law or as provided under the New York Stock Exchange Rules,
the Committee shall have the authority to make such amendments to any terms and conditions
applicable to outstanding Grants as are consistent with this Plan, provided that, except for
adjustments under Sections 8(a) and 10 hereof, no such action shall modify such Grant in a manner
adverse to the Participant without the Participant’s consent except as such modification is
provided for or contemplated in the terms of the Grant. Except as provided in Section 8(a), the
exercise price of any outstanding Option or Stock Appreciation Right may not be adjusted or
amended, whether through amendment, cancellation or replacement, unless such adjustment or
amendment is properly approved by Reynolds American’s shareholders. Likewise, the share and
payment limitations set forth in Section 6(a) cannot be increased, and the minimum Option or Stock
Appreciation Right grant price limitations set forth in Sections 5(a), 5(b) and 5(c) cannot be
reduced, in either case without proper stockholder approval. Subject to the foregoing and except
as otherwise required by law or as provided in the New York Stock Exchange Rules, the Corporation’s
Board of Directors may amend, suspend or terminate this Plan as it deems necessary and appropriate
to better achieve the Plan’s purpose.

10. Compliance with Section 409A of the Code

     The Plan is intended to comply with Section 409A of the Code and shall be construed and
interpreted in accordance with such intent.

11. Foreign Options and Rights

	 	(a)  	       The Committee may make Grants to employees who are subject to the tax laws of
nations other than the United States, which Grants may have terms and conditions that
differ from the terms thereof as provided elsewhere in the Plan for the purpose of
complying with the foreign tax laws. Grants of stock options may have terms and
conditions that differ from Incentive Stock Options and Other Stock Options for the
purpose of complying with the foreign tax laws.

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	 	(b)  	       The terms and conditions of stock options granted under Section 11(a) may
differ from the terms and conditions which the Plan would require to be imposed upon
Incentive Stock Options and Other Stock Options if the Committee determines that the
Grants are desirable to promote the purposes of the Plan.

12. Withholding Taxes

     The Corporation shall have the right to deduct from any payment or settlement made under the
Plan any federal, state or local income or other taxes required by law to be withheld with respect
to such payment.

13. Distribution upon Death

     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 Corporation (“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
Corporation 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 Corporation 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 the Corporation at the
time of death, no longer has any Group Life Insurance Coverage and has not filed a designation of
beneficiary with the Corporation under the Plan, distribution upon such Participant’s death shall
be made to the Participant’s estate.

14. Effective Date and Termination Dates

     The Plan was adopted by Reynolds American on July 30, 2004 and amended and restated effective
February 2, 2005. The Plan originally became effective on and as of June 14, 1999 (the “Effective
Date”), and shall terminate ten (10) years later, subject to earlier termination by the Board of
Directors pursuant to Section 9. The terms of Grants made on or before the expiration of the Plan
shall extend beyond such expiration. Grants shall be governed by the terms of the Plan as in
effect on the date such Grant was made, except as may be necessary to comply with Section 409A of
the Code.

15. Governing Law

     All questions arising in respect of the Plan, including those pertaining to its validity,
interpretation and administration, shall be governed, controlled and determined in accordance with
the applicable provisions of federal law and, to the extent not preempted by federal law, the laws
of the State of North Carolina.

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