Document:

EX-10.1

 

Exhibit 10.1

DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT

     This Director and Officer Indemnification Agreement, dated as of July 30, 2004, as
amended on February 2, 2005 (this “Agreement”), is made by and between Reynolds American Inc., a
North Carolina corporation (the “Company”), and the person whose name is set forth on the signature
page hereto under the caption “Indemnitee” (“Indemnitee”).

RECITALS:

     A. Section 55-8-01 of the North Carolina Business Corporation Act (“NCBCA”) provides that the
business and affairs of a North Carolina corporation shall be managed by or under the direction of
its board of directors.

     B. Pursuant to Section 55-8-41 of the NCBCA, significant authority with respect to the
management of the Company may be delegated to the officers of the Company.

     C. By virtue of the managerial prerogatives vested in the directors and officers of a North
Carolina corporation, directors and officers act as fiduciaries of the corporation and its
shareholders.

     D. It is critically important to the Company and its shareholders that the Company be able to
attract and retain the most capable persons reasonably available to serve as directors and officers
of the Company.

     E. In recognition of the need for corporations to be able to induce capable and responsible
persons to accept positions in corporate management, Sections 55-8-50, 55-8-52 and 55-8-57 of the
NCBCA authorizes (and, in some instances, requires) corporations to indemnify their directors and
officers, and further authorizes corporations to purchase and maintain insurance for the benefit of
their directors, officers, employees and agents.

     F. The number of lawsuits challenging the judgment and actions of directors and officers of
North Carolina corporations, the costs of defending those lawsuits and the threat to directors’ and
officers’ personal assets have all materially increased over the past several years, chilling the
willingness of capable persons to undertake the responsibilities imposed on corporate directors and
officers.

     G. Recent federal legislation and rules adopted by the Securities and Exchange Commission and
the national securities exchanges have imposed additional disclosure and corporate governance
obligations on directors and officers of public companies and have exposed such directors and
officers to new and substantially broadened civil liabilities.

     H. These legislative and regulatory initiatives have also exposed directors and officers of
public companies to a greater risk of criminal proceedings, with attendant defense costs and
potential criminal fines and penalties.

 

 

     I. Under North Carolina law, a director’s or officer’s right to be reimbursed for the costs of
defense of certain actions, whether such claims are asserted under state or federal law, does not
depend upon the merits of the claims asserted against the director or officer and is separate and
distinct from any right to indemnification the director or officer may be able to establish, and
indemnification of the director and officer against criminal fines and penalties is permitted if
the director or officer has satisfied the applicable standard of conduct.

     J. Indemnitee is or will be a director or officer of the Company and possibly one or more of
its subsidiaries and his/her willingness to serve in such capacity is predicated, in substantial
part, upon the Company’s willingness to indemnify him/her in accordance with the principles
reflected above, to the fullest extent permitted by the laws of the State of North Carolina.

     K. Therefore, in recognition of the need to provide Indemnitee with the maximum legally
permitted protection against personal liability, in order to procure Indemnitee’s continued service
as a director or officer of the Company and to enhance Indemnitee’s ability to serve the Company in
an effective manner, and in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment to the Company’s
articles of incorporation or bylaws (collectively, the “Constituent Documents”), any change in the
composition of the Company’s Board of Directors (the “Board”), or any Change in Control or Business
Combination), the Company wishes to provide in this Agreement for the indemnification of and the
advancement of Expenses to Indemnitee as set forth in this Agreement and for the continued coverage
of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

     L. In light of the considerations referred to in the preceding recitals, it is the Company’s
intention and desire that the provisions of this Agreement be construed liberally to provide
protections to the Indemnitee to the fullest extent now available by law or hereafter not
prohibited by law as set forth in this Agreement.

     NOW, THEREFORE, the parties hereby agree as follows:

     1. Certain Definitions. In addition to terms defined elsewhere herein, the
following terms have the following meanings when used in this Agreement with initial capital
letters:

          (a) “Change in Control” means the occurrence after July 30, 2004 of any of the
following events:

               (i) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)

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(“Beneficial Ownership”) of 30% or more of the combined voting power of the then-outstanding
Voting Shares of the Company; provided, however, that:

                    (A) for purposes of this Section 1(a)(i), the following acquisitions (“Exempt
Transactions”) will not constitute a Change in Control: (1) any acquisition of Voting Shares of the
Company directly from the Company that is approved by at least 3/4 of the members of the Board
(rounded up to the nearest whole number) then in office; (2) any acquisition of Voting Shares of
the Company by the Company or any Subsidiary; (3) any acquisition of Voting Shares of the Company
by any employee benefit plan (or related trust) sponsored or maintained by the Company or any
Subsidiary; (4) any acquisition of Voting Shares of the Company by any Person pursuant to a
Business Combination that complies with clauses (A), (B) and (C) of Section 1(a)(iii) below, and
(5) any acquisition of Voting Shares of the Company that is expressly permitted pursuant to the
Governance Agreement, dated as of July 30, 2004, by and among British American Tobacco p.l.c.,
Brown & Williamson Tobacco Corporation and the Company (the “Governance Agreement”);

                    (B) if any Person acquires Beneficial Ownership of 30% or more of the combined
voting power of the then-outstanding Voting Shares of the Company as a result of a transaction
described in clause (A)(1) of Section 1(a)(i) and such Person thereafter becomes the Beneficial
Owner of any additional shares of Voting Shares of the Company representing 1% or more of the
combined voting power of the then-outstanding Voting Shares of the Company, other than in an Exempt
Transaction or other than as a result of a stock dividend, stock split or similar transaction
effected by the Company in which all holders of Voting Shares are treated equally, such subsequent
acquisition shall be deemed to constitute a Change in Control;

                    (C) a Change in Control will not be deemed to have occurred if a Person acquires
Beneficial Ownership of 30% or more of the Voting Shares of the Company as a result of a reduction
in the number of shares of Voting Shares of the Company outstanding unless and until such Person
thereafter becomes the Beneficial Owner of any additional shares of Voting Shares of the Company
representing 1% or more of the combined voting power of the then-outstanding Voting Shares of the
Company, other than in an Exempt Transaction or other than as a result of a stock dividend, stock
split or similar transaction effected by the Company in which all holders of Voting Shares are
treated equally; and

                    (D) if at least 3/4 of the members of the Board (rounded up to the nearest whole
number) then in office determines in good faith that a Person has acquired Beneficial Ownership of
30% or more of the combined voting power of the then-outstanding Voting Shares of the Company (or
an additional 1% or more of the combined voting power of the then-outstanding Voting Shares of the
Company in the circumstances described in Section 1(a)(i)(B) or 1(a)(i)(C)) inadvertently, and (1)
such Person divests as promptly as practicable a sufficient number of shares so that such Person
Beneficially Owns less than 30% of the combined voting power of the then-outstanding Voting Shares
of the

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Company (or such additional 1% or more of the combined voting power of the then-outstanding
Voting Shares of the Company in the circumstances described in Section 1(a)(i)(B) or 1(a)(i)(C))
and (2) during the period beginning 365 days prior to such acquisition of shares, such Person shall
not have proposed any individual as a nominee to be elected as a Director (other than in accordance
with the terms of any agreement between the Company and such Person that was entered into in
connection with a transaction that had been approved by the Board in the manner described in clause
(A)(1) of Section 1(a)(i)), then no Change in Control shall have occurred as a result of such
Person’s acquisition; or

               (ii) the Incumbent Directors cease to constitute a majority of the Directors then in
office; or

               (iii) the consummation of a reorganization, merger or consolidation, or sale or
other disposition of all or substantially all of the assets of the Company or the acquisition of
assets of another corporation, or other transaction (each, a “Business Combination”), unless, in
each case, immediately following such Business Combination (A) all or substantially all of the
Persons who were the Beneficial Owners of Voting Shares of the Company immediately prior to such
Business Combination Beneficially Own, directly or indirectly, more than 55% of the combined voting
power of the then-outstanding shares of Voting Shares of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company’s assets either directly or through one or
more subsidiaries), (B) no Person (other than the Company, such entity resulting from such Business
Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company,
any Subsidiary, any Person who acquired Beneficial Ownership of 30% or more of the combined voting
power of the then-outstanding Voting Shares of the Company prior to the consummation of such
Business Combination, or such entity resulting from such Business Combination) Beneficially Owns
30% or more of the combined voting power of the then outstanding shares of Voting Shares of the
entity resulting from such Business Combination, and (C) a majority of the members of the Board of
Directors of the entity resulting from such Business Combination were Incumbent Directors at the
time of the execution of the initial agreement or of the action of the Board providing for such
Business Combination;

               (iv) approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company, except pursuant to a Business Combination that complies with clauses
(A), (B) and (C) of Section 1(a)(iii); or

               (v) there occurs any other event of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is
then subject to such reporting requirement.

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               (vi) For purposes of this Section 1(a) and as used elsewhere in this Agreement, the
following terms will have the following meanings when used herein with initial capital letters:

                    (A) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

                    (B) “Incumbent Directors” means the individuals who, as of July 30, 2004, are
directors of the Company (or who have been designated as directors in accordance with Section 1.09
of the Business Combination Agreement, dated as of October 27, 2003, between R.J. Reynolds Tobacco
Holdings, Inc. and Brown & Williamson Tobacco Corporation, as amended), together with any
individual becoming a director subsequent to July 30, 2004 (including other Incumbent Directors who
first became directors after July 30, 2004) whose election, nomination for election by the
Company’s shareholders or appointment was (i) approved by a vote of at least two-thirds of the then
Incumbent Directors on the Board or a duly authorized directorate committee (either by a specific
vote or by approval of the proxy statement of the Company in which such person is named as a
nominee for director, without objection to such nomination) or (ii) made in accordance with Section
2.01 of the Governance Agreement; provided, however, that an individual will not be an Incumbent
Director if such individual’s election or appointment to the Board occurs as a result of an actual
or threatened election contest (as described in Rule 14a-12(c) of the Exchange Act) with respect to
the election or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.

                    (C) “Subsidiary” means an entity in which the Company directly or indirectly
Beneficially Owns 50% or more of the combined voting power of the then-outstanding Voting Shares.

                    (D) “Voting Shares” means securities entitled to vote generally in the election of
directors (or similar governing bodies).

          (b) “Claim” means (i) any threatened, asserted, pending or completed claim, demand,
action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or
other, and whether made pursuant to federal, state or other law, and (ii) any inquiry or
investigation, whether threatened, asserted, pending or completed, by the Company or any other
Person, including without limitation any federal, state or other governmental entity, that
Indemnitee determines might lead to the institution of any such claim, demand, action, suit or
proceeding. For the avoidance of doubt, the Company intends indemnity to be provided hereunder in
respect of acts or failure to act prior to, on or after July 30, 2004 and to apply to any act or
failure to act, or claim related thereto, in whole or in part prior to, on or after July 30, 2004.

          (c) “Controlled Affiliate” means any corporation, limited liability company,
partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is

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directly or indirectly controlled by the Company. For purposes of this definition, “control”
means the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through the ownership of Voting Shares,
through other voting rights, by contract or otherwise; provided, however, that direct or indirect
Beneficial Ownership of capital stock or other interests in an entity or enterprise entitling the
holder to cast 30% or more of the total number of votes generally entitled to be cast in the
election of directors (or persons performing comparable functions) of such entity or enterprise
will be deemed to constitute control for purposes of this definition.

          (d) “Disinterested Director” means a director of the Company who is not and was not
a party to the Claim in respect of which indemnification is sought by Indemnitee.

          (e) “Expenses” means any and all reasonable fees, costs and expenses (including
attorneys’ and experts fees) paid or payable in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to investigate, defend, be a
witness in or participate in (including on appeal), any Claim.

          (f) “Indemnifiable Claim” means any Claim based upon, arising out of or resulting
from (i) any actual, alleged or suspected act or failure to act by Indemnitee in his or her
capacity as a director, officer, employee or agent of the Company or as a director, officer,
employee, member, manager, trustee or agent of any other corporation, limited liability company,
partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to
which Indemnitee is or was serving at the request of the Company as a director, officer, employee,
member, manager, trustee or agent, including, without limitation, any Controlled Affiliate of the
Company, (ii) any actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity of the Company or
any other entity or enterprise, whether or not for profit, as to which Indemnitee is or was
serving at the request of the Company as a director, officer, employee, member, manager, trustee or
agent, including, without limitation, any Controlled Affiliate of the Company, or (iii)
Indemnitee’s status as a current or former director, officer, employee or agent of the Company or
as a current or former director, officer, employee, member, manager, trustee or agent of the
Company or any other entity or enterprise, whether or not for profit, as to which Indemnitee is or
was serving at the request of the Company as a director, officer, employee, member, manager,
trustee or agent, including, without limitation, any Controlled Affiliate of the Company or any
actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation
or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the
actual request of the Company, for purposes of this Agreement, Indemnitee will be deemed to be
serving or to have served at the request of the Company as a director, officer, employee, member,
manager, trustee or agent of another entity or enterprise if Indemnitee is or was serving as a
director, officer, employee, member, manager, trustee or agent of such entity or enterprise and (i)
such entity or enterprise is or at the time of such service was a Controlled

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Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee
benefit plan (or related trust) sponsored or maintained by the Company or a Controlled
Affiliate, or (iii) the Company or a Controlled Affiliate (by action of the Board, any committee
thereof or the Company’s Chief Executive Officer (“CEO”) (other than as the CEO himself or herself)
caused or authorized Indemnitee to be nominated, elected, appointed, designated, employed, engaged
or selected to serve in such capacity.

          (g) “Indemnifiable Losses” means any and all Losses relating to, arising out of or
resulting from any Indemnifiable Claim.

          (h) “Independent Counsel” means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither presently is, nor in the past three years has
been, retained to represent: (i) the Company (or any Subsidiary), a Controlled Affiliate or
Indemnitee in any matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under similar
indemnification agreements) or (ii) any other named (or, as to a threatened matter, reasonably
likely to be named) party to the Indemnifiable Claim giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term “Independent Counsel” will not include any
person who, under the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement.

          (i) “Losses” means any and all Expenses, damages, losses, liabilities, judgments,
fines, penalties (whether civil, criminal or other) and amounts paid or payable in settlement (if
such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld), and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement, including without limitation all
interest, assessments and other charges paid or payable in connection with or in respect of any of
the foregoing.

     2. Indemnification Obligation. Subject only to Section 7 and to the proviso in this
Section, the Company will indemnify, defend and hold harmless Indemnitee, to the fullest extent
permitted or required by the laws of the State of North Carolina in effect on July 30, 2004 or as
such laws may from time to time hereafter be amended to increase the scope of such permitted
indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses; provided,
however, that (i) except as provided in Sections 4 and 20, Indemnitee will not be entitled to
indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company (other than by defense, counterclaim
or crossclaim) unless the Company has joined in or consented to the initiation of such Claim and
(ii) Indemnitee will not be entitled to indemnification pursuant to this Agreement to the extent
that any Indemnifiable Loss is determined in a final judicial determination (as to which all rights
of appeal therefrom have been exhausted or lapsed) to have resulted from knowing misconduct by such
Person from which such Person derived a direct improper personal benefit (clause (i) and (ii) shall
be

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referred to herein together as the “Indemnification Limitations”). The Company
acknowledges that the foregoing obligation may be substantially broader than that now provided
by applicable law and the Company’s Constituent Documents and intends that it be interpreted
consistently with this Section and the recitals to this Agreement. Indemnitee agrees not to assert
any right to indemnification under the Company’s Constituent Documents in respect of any Loss for
which indemnification would not be available pursuant to this Section 2.

     3. Advancement of Expenses. Indemnitee will have the right to advancement by the
Company, prior to the final disposition of any Indemnifiable Claim, of any and all Expenses
relating to, arising out of or resulting from any Indemnifiable Claim paid or incurred by
Indemnitee or which Indemnitee determines are reasonably likely to be paid or incurred by
Indemnitee. Without limiting the generality or effect of any other provision hereof, Indemnitee’s
right to such advancement is not subject to the satisfaction of any standard of conduct. Without
limiting the generality or effect of the foregoing, within five business days after any request by
Indemnitee, the Company will, in accordance with such request (but without duplication), (a) pay
such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to
pay such Expenses or (c) reimburse Indemnitee for such Expenses; provided, however, that Indemnitee
will repay, without interest, any amounts actually advanced to Indemnitee that, at the final
disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid
or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such
Indemnifiable Claim or in excess of the indemnification to which Indemnitee is entitled. In
connection with any such payment, advancement or reimbursement, Indemnitee will, if requested by
the Company, execute and deliver to the Company an undertaking, which need not be secured and must
be accepted without reference to Indemnitee’s ability to repay the Expenses, by or on behalf of the
Indemnitee, to repay any amounts paid, advanced or reimbursed by the Company referred to in the
preceding sentence.

     4. Indemnification for Additional Expenses. Without limiting the generality or
effect of the foregoing, the Company will indemnify and hold harmless Indemnitee against and, if
requested by Indemnitee, will reimburse Indemnitee for, or advance to Indemnitee, within five
business days of such request, any and all Expenses paid or incurred by Indemnitee or which
Indemnitee determines are reasonably likely to be paid or incurred by Indemnitee in connection with
any Claim made, instituted or conducted by Indemnitee for (a) indemnification or reimbursement or
advance payment of Expenses by the Company under any provision of this Agreement, or under any
other agreement or provision of the Constituent Documents now or hereafter in effect relating to
Indemnifiable Claims, and/or (b) recovery under any directors’ and officers’ liability insurance
policies maintained by the Company, regardless in each case of whether Indemnitee ultimately is
determined to be entitled to such indemnification, reimbursement, advance or insurance recovery, as
the case may be; provided, however, that Indemnitee must return, without interest, any such advance
of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to
which the advance related.

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     5. Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not
for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.

     6. Procedure for Notification. To obtain indemnification under this Agreement in
respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee must submit to the Company a
written request therefor, including a brief description (based upon information then available to
Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss, not later than 30 days after receipt
by Indemnitee of notice of such Indemnifiable Claim or Indemnifiable Loss, as applicable. If, at
the time of the receipt of such request, the Company has directors’ and officers’ liability
insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is
potentially available, the Company shall give prompt written notice of such Indemnifiable Claim or
Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the
applicable policies. The Company will provide to Indemnitee a copy of such notice delivered to the
applicable insurers, and copies of all subsequent correspondence between the Company and such
insurers regarding the Indemnifiable Claim or Indemnifiable Loss, in each case substantially
concurrently with the delivery or receipt thereof by the Company. The failure by Indemnitee to
timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss will not relieve the
Company from any liability hereunder unless, and only to the extent that, the Company did not
otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and such failure results in
forfeiture by the Company of substantial defenses, rights or insurance coverage.

     7. Determination of Right to Indemnification. (a) To the extent that (i)
Indemnitee is successful on the merits or otherwise in defense of any Indemnifiable Claim or any
portion thereof or in defense of any issue or matter therein, including, without limitation,
dismissal without prejudice, or (ii) the court orders indemnification in accordance with Section
55-8-54 of the NCBCA, Indemnitee will be indemnified against all Indemnifiable Losses relating to,
arising out of or resulting from such Indemnifiable Claim in accordance with Section 2 and no
Standard of Conduct Determination will be required. Without limiting the generality or effect of
the foregoing, any Claim that is settled in whole or in part or withdrawn will be deemed to be
covered by this Section 7(a) unless the indemnification would be inconsistent with any condition
with respect to indemnification expressly imposed by the court in approving the settlement.

          (b) To the extent that the provisions of Section 7(a) are inapplicable to an
Indemnifiable Claim that has been finally disposed of, except as otherwise provided in this
Agreement, Indemnitee’s right to indemnification against Indemnifiable Losses relating to, arising
out of or resulting from such Indemnifiable Claim under this Agreement shall be subject to a
determination that Indemnitee has satisfied the standard of conduct set forth in Section 55-8-57 (a
“Standard of Conduct Determination”). The Standard of Conduct Determination will be made as
follows: (i) if a Change in Control has not occurred, or if a

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Change in Control has occurred but Indemnitee has requested that the Standard of Conduct
Determination be made pursuant to this clause (i), (A) by a majority vote of the Disinterested
Directors constituting a quorum of the Board, (B) by a majority vote of a committee of
Disinterested Directors designated by a majority vote of all Disinterested Directors, (C) if a
quorum of the Board consisting of Disinterested Directors is not obtainable or a committee of
Disinterested Directors cannot be constituted under clause (i)(B), by Independent Counsel, upon
giving a written opinion addressed to the Board, a copy of which must be delivered to Indemnitee or
(D) by action of the Company’s shareholders (provided that shares owned by or voted under the
control of directors in a personal capacity who are at the time parties to the proceeding may not
be voted on such determination); and (ii) if a Change in Control has occurred and Indemnitee has
not requested that the Standard of Conduct Determination be made pursuant to clause (i), by
Independent Counsel, upon giving a written opinion addressed to the Board, a copy of which must be
delivered to Indemnitee. Upon reasonable advance request, Indemnitee will cooperate with
reasonable requests of the individual or firm making such Standard of Conduct Determination,
including by providing to such Person documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination without incurring any unreimbursed cost in connection therewith.
The Company will indemnify and hold harmless Indemnitee against and, if requested by Indemnitee,
will reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request,
any and all costs and expenses (including attorneys’ and experts’ fees and expenses) incurred by
Indemnitee in so cooperating with the Person making such Standard of Conduct Determination.

          (c) The Company will use commercially reasonable efforts to cause any Standard of
Conduct Determination required under Section 7(b) to be made as promptly as practicable. If (i)
the Persons empowered or selected under Section 7 to make the Standard of Conduct Determination do
not make a determination (x) within 30 calendar days after the later of (A) receipt by the Company
of written notice from Indemnitee advising the Company of the final disposition of the applicable
Indemnifiable Claim (the date of such receipt being the “Notification Date”) and (B) the selection
of an Independent Counsel, if such determination is to be made upon the written opinion of
Independent Counsel, that is permitted under the provisions of Section 7(e) to make such
determination or (y) if such determination is to be made by the Company’s shareholders, within 180
calendar days after the Notification Date, and (ii) Indemnitee has fulfilled his/her obligations
set forth in the third sentence of Section 7(b), then Indemnitee will be deemed to have satisfied
the applicable standard of conduct; provided that such applicable period may be extended for a
reasonable time, not to exceed an additional 30 calendar days, if the Person making such
determination in good faith requires such additional time for the obtaining or evaluation of
documentation and/or information relating thereto.

          (d) If (i) Indemnitee is entitled to indemnification hereunder against any
Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether Indemnitee

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has satisfied any applicable standard of conduct under North Carolina law is a legally
required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable
Losses or (iii) Indemnitee has been determined or deemed pursuant to Section 7(b) or (c) to have
satisfied any applicable standard of conduct under North Carolina law which is a legally required
condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses,
then the Company will pay to Indemnitee, within five business days after the later of (x) the
Notification Date in respect of the Indemnifiable Claim or portion thereof to which such
Indemnifiable Losses are related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted and (y) the earliest date on which the applicable criterion specified
in clause (i), (ii) or (iii) above have been satisfied, an amount equal to the amount of such
Indemnifiable Losses.

          (e) If a Standard of Conduct Determination is required to be, but has not been, made
upon the written opinion of Independent Counsel pursuant to Section 7(b)(i), the Independent
Counsel will be selected by the Board or a committee of the Board and approved by the Indemnitee
(which approval shall not be unreasonably withheld or delayed). If a Standard of Conduct
Determination is required to be, or to have been, made upon the written opinion of Independent
Counsel pursuant to Section 7(b)(ii), the Independent Counsel will be selected by Indemnitee and
approved by the Board (which approval shall not be unreasonably withheld or delayed). In either
case, Indemnitee or the Company, as applicable, may, within five business days after receiving
written notice of selection from the other, deliver to the other a written objection to such
selection; provided, however, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not satisfy the criteria set forth in the definition of
“Independent Counsel” in Section 1(h), and the objection must set forth with particularity the
factual basis of such assertion. Absent a proper and timely objection, the Person so selected will
act as Independent Counsel. If such written objection is properly and timely made and
substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless
and until such objection is withdrawn or a court has determined that such objection is without
merit and (ii) the non-objecting party may, at its option, select an alternative Independent
Counsel and give written notice to the other party advising such other party of the identity of the
alternative Independent Counsel so selected, in which case the provisions of the two immediately
preceding sentences and clause (i) of this sentence will apply to such subsequent selection and
notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence will
apply to successive alternative selections. If no Independent Counsel that is permitted under the
foregoing provisions of this Section 7(e) to issue the opinion regarding the Standard of Conduct
Determination has been selected within 30 calendar days after the Company gives its initial notice
pursuant to the first sentence of this Section 7(e), or Indemnitee gives its initial notice
pursuant to the second sentence of this Section 7(e), as the case may be, either the Company or
Indemnitee may petition a North Carolina court for resolution of any objection which has been made
by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person or firm selected by the Court or by such other
person as the Court may designate, and the person or firm with respect to whom all objections are
so resolved or the

11

 

person or firm so appointed will act as Independent Counsel. In all events, the Company will
pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with
the Independent Counsel’s determination pursuant to Section 7(b). Notwithstanding any other
provision of this Agreement, the Company shall not be required to pay Expenses of more than one
Independent Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Counsel shall be the Independent Counsel for any or all other indemnitees unless (i)
the Company otherwise determines or (ii) any Indemnitee shall provide a written opinion of counsel
setting forth in detail a reasonable objection to such Independent Counsel representing other
indemnitees.

     8. Presumption of Entitlement. Notwithstanding any other provision hereof, in
making any Standard of Conduct Determination, the Person making such determination must presume
that Indemnitee has satisfied the applicable standard of conduct, and the Person may overcome such
presumption only by its adducing clear and convincing evidence to the contrary that Indemnitee is
not so entitled. Any Standard of Conduct Determination that is adverse to Indemnitee may be
challenged by the Indemnitee in the Superior Court of the State of North Carolina. No
determination by the Company (including by its directors, shareholders or any Independent Counsel)
that Indemnitee has not satisfied any applicable standard of conduct will be a defense to any Claim
by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company
hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.

     9. No Negative Presumption. For purposes of this Agreement, the termination of any
Claim by judgment, order, settlement (whether with or without court approval) or conviction, or
upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did
not meet any applicable standard of conduct or that indemnification hereunder is otherwise not
permitted. In addition, it is the parties’ intention that if Indemnitee commences legal
proceedings to secure a judicial determination that Indemnitee should be indemnified under this
Agreement or applicable law, the question of Indemnitee’s right to indemnification shall be for the
court to decide, and neither the failure of any Person to have made a Standard of Conduct
Determination, nor an actual Standard of Conduct Determination, shall be a defense to Indemnitee’s
claim or create a presumption that Indemnitee has not met any particular standard of conduct or did
not have any particular belief.

     10. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any
other rights Indemnitee may have under any other contract to which the Company is a party or policy
of insurance or otherwise (collectively, “Other Indemnity Provisions”); provided, however, in no
event will Indemnitee be entitled to indemnity hereunder to the extent that he/she has been
actually indemnified under any Other Indemnity Provision (but the existence of such Other Indemnity
Provisions will not affect any right hereunder). The Company may not adopt any amendment to any of
the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee’s
right to indemnification under this Agreement or the Other Indemnity Provisions. The
Indemnification Limitations will

12

 

not affect any rights Indemnitee may have under any policy of insurance or any rights to
indemnification from any third party.

     11. Liability Insurance and Funding. For the duration of Indemnitee’s service as a
director and/or officer of the Company, and for a period ending on the sixth anniversary of the
date Indemnitee is no longer a director or officer of the Company (the “Coverage Period”), the
Company will use commercially reasonable efforts (taking into account the scope and amount of
coverage available relative to the cost thereof) to cause to be maintained in effect policies of
directors’ and officers’ liability insurance providing coverage for directors and/or officers of
the Company that is at least substantially comparable in scope and amount to that provided by the
Company’s (or its predecessor’s) current policies of directors’ and officers’ liability insurance.
Upon request, the Company will provide Indemnitee or his or her counsel with a copy of all
directors’ and officers’ liability insurance applications, binders, policies, declarations,
endorsements and other related materials, and will provide Indemnitee with a reasonable opportunity
to review and comment on the same. Without limiting the generality or effect of the two
immediately preceding sentences, during the Coverage Period, the Company will not discontinue or
significantly reduce the scope or amount of coverage from one policy period to the next (i) if a
Change in Control has not occurred, without the prior written consent of a majority of the Covered
Directors (as defined below) in each such Person’s sole discretion, or (ii) if a Change in Control
has occurred, without the prior written consent of each Covered Person in each such Person’s sole
discretion. In all policies of directors’ and officers’ liability insurance obtained by the
Company, Indemnitee will be named as an insured in such a manner as to provide Indemnitee the same
rights and benefits, subject to the same limitations, as are accorded to the Company’s directors
and officers most favorably insured by such policy. Notwithstanding the foregoing, (x) the Company
may, but will not be required to, create a trust fund, grant a security interest or use other
means, including without limitation a letter of credit, to ensure the payment of such amounts as
may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this
Agreement and (y) in renewing or seeking to renew any insurance hereunder, the Company will not be
required to expend more than two times the premium amount for the policy period (equitably adjusted
if necessary to reflect differences in policy periods) five years prior to the then-existing policy
period of the Company, if any, provided, however, that the Company uses commercially reasonable
efforts to obtain and maintain a policy or policies of insurance with coverage having features as
similar as reasonably practical to those described above. “Covered Director” means any Person who
was a director of the Company on or after July 30, 2004 who is a party to an agreement (other than
the Constituent Documents or any agreement or policy of directors’ and officers’ liability
insurance) that entitles such Person to receive the benefits of this Section 11, whether in the
form of this Section 11 or otherwise, and whose Coverage Period has not yet lapsed. “Covered
Person” means any Person who was a director or officer of the Company on or after July 30, 2004 who
is a party to an agreement (other than the Constituent Documents or any agreement or policy of
directors’ and officers’ liability insurance) that entitles such Person to receive the benefits of
this Section 11,

13

 

whether in the form of this Section 11 or otherwise, and whose Coverage Period has not yet
lapsed.

     12. Subrogation. In the event of payment under this Agreement, the Company will be
subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee
against other Persons (other than Indemnitee’s successors), including any entity or enterprise
referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f). Indemnitee
will execute all papers reasonably required to evidence such rights (all of Indemnitee’s reasonable
Expenses, including attorneys’ fees and charges, related thereto to be reimbursed by or, at the
option of Indemnitee, advanced by the Company).

     13. No Duplication of Payments. The Company will not be liable under this Agreement
to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee
has otherwise already actually received payment (net of Expenses incurred in connection therewith)
under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise
(including from any entity or enterprise referred to in clause (i) of the definition of
“Indemnifiable Claim” in Section 1(f)) in respect of such Indemnifiable Losses otherwise
indemnifiable hereunder.

     14. Defense of Claims. The Company will be entitled to participate in the defense
of any Indemnifiable Claim or to assume the defense thereof with counsel reasonably satisfactory to
the Indemnitee; provided, however, that if Indemnitee determines, after consultation with counsel
selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee
would present such counsel with an actual or potential conflict, (b) the named parties in any such
Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee and
Indemnitee concludes that there may be one or more legal defenses available to him or her that are
different from or in addition to those available to the Company, (c) any such representation by
such counsel would be precluded under the applicable standards of professional conduct then
prevailing, then Indemnitee will be entitled to retain separate counsel (but not more than one law
firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim for all
indemnitees in Indemnitee’s circumstances) at the Company’s expense or (d) Indemnitee reasonably
determines that it has defenses or claims that are unique, separate or distinct from the defenses
or claims of other Persons against whom the Claim has been made or might reasonably be expected to
be made. The Company will not be liable to Indemnitee under this Agreement for any amounts paid in
settlement of any threatened or pending Indemnifiable Claim effected without the Company’s prior
written consent. The Company will not, without the prior written consent of the Indemnitee, effect
any settlement of any threatened or pending Indemnifiable Claim which the Indemnitee is or could
have been a party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any claims that are the
subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee will unreasonably
withhold its consent to any proposed settlement; provided that Indemnitee may

14

 

withhold consent to any settlement that does not provide a complete and unconditional release
of Indemnitee.

     15. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the Company, by agreement in
form and substance satisfactory to Indemnitee and his/her counsel, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement will be binding upon and inure to
the benefit of the Company and any successor to the Company, including, without limitation, any
person acquiring directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor
will thereafter be deemed the “Company” for purposes of this Agreement), but will not otherwise be
assignable or delegatable by the Company.

          (b) This Agreement will inure to the benefit of and be enforceable by the
Indemnitee’s spouse, personal or legal representatives, executors, administrators, heirs,
distributees, legatees and other successors.

          (c) This Agreement is personal in nature and neither of the parties hereto will,
without the consent of the other, assign or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 15(a) and 15(b). Without limiting the
generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder will not be
assignable, whether by pledge, creation of a security interest or otherwise, other than by a
transfer by the Indemnitee’s will or by the laws of descent and distribution, and, in the event of
any attempted assignment or transfer contrary to this Section 15(c), the Company will have no
liability to pay any amount so attempted to be assigned or transferred.

     16. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or permitted to be given
hereunder must be in writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or one
business day after having been sent for next-day delivery by a nationally recognized overnight
courier service, addressed to the Company (to the attention of the General Counsel of the Company)
and to Indemnitee at the applicable address shown on the signature page hereto, or to such other
address as any party may have furnished to the other in writing and in accordance herewith, except
that notices of changes of address will be effective only upon receipt.

     17. Governing Law. The validity, interpretation, construction and performance of
this Agreement will be governed by and construed in accordance with the substantive laws of the
State of North Carolina, without giving effect to the principles of conflict of laws of such State.
The Company and Indemnitee each hereby irrevocably consent to the

15

 

jurisdiction of the Superior Court of the State of North Carolina for all purposes in
connection with any action or proceeding which arises out of or relates to this Agreement, waive
all procedural objections to suit in that jurisdiction, including without limitation objections as
to venue or inconvenience, agree that service in any such action may be made by notice given in
accordance with Section 16.

     18. Validity. If any provision of this Agreement or the application of any
provision hereof to any Person or circumstance is held invalid, unenforceable or otherwise illegal,
the remainder of this Agreement and the application of such provision to any other person or
circumstance will not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal will be reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative body declines to
reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as
contemplated by the immediately preceding sentence, the parties thereto will take all such action
as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of
the original provisions of this Agreement as fully as possible without being invalid, unenforceable
or otherwise illegal. Notwithstanding the foregoing, both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit the Company from
indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required to undertake with the
Securities and Exchange Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company’s right under public policy to indemnify
Indemnitee.

     19. Miscellaneous. No provision of this Agreement may be waived, modified or
discharged unless such waiver, modification or discharge is agreed to in writing signed by
Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the
other party hereto or compliance with any condition or provision of this Agreement to be performed
by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter hereof have been made by either party that
are not set forth expressly in this Agreement.

     20. Legal Fees and Expenses. It is the intent of the Company that Indemnitee not be
required to incur legal fees and or other Expenses associated with the interpretation, enforcement
or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost
and expense thereof would substantially detract from the benefits intended to be extended to
Indemnitee hereunder. Accordingly, without limiting the generality or effect of any other
provision hereof, if it should appear to Indemnitee that the Company has failed to comply with any
of its obligations under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the
benefits provided or

16

 

intended to be provided to Indemnitee hereunder, the Company irrevocably authorizes the
Indemnitee from time to time to retain counsel of Indemnitee’s choice, at the expense of the
Company as hereafter provided, to advise and represent Indemnitee in connection with any such
interpretation, enforcement or defense, including without limitation the initiation or defense of
any litigation or other legal action, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and such counsel, to the fullest
extent allowed by law, the Company irrevocably consents to Indemnitee’s entering into an
attorney-client relationship with such counsel, and in that connection the Company and Indemnitee
agree that a confidential relationship will exist between Indemnitee and such counsel. Without
limiting the generality or effect of any other provision hereof, and without regard to whether
Indemnitee prevails, in whole or in part, in connection with any of the foregoing, the Company will
pay and be solely financially responsible for any and all attorneys’ and related fees and expenses
incurred by Indemnitee in connection with any of the foregoing.

     21. Claims Under Section 16(b). Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify
Indemnitee for expenses and payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
provided, however, that notwithstanding any limitation set forth in this Section 21 regarding the
Company’s obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to
receive the advancement of Expenses hereunder with respect to any such Claim unless and until a
court having jurisdiction over the Claim shall have made a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated
such statute.

     22. Certain Interpretive Matters. Unless the context of this Agreement otherwise
requires, (i) “it” or “its” or words of any gender include each other gender, (ii) words using the
singular or plural number also include the plural or singular number, respectively, (iii) the terms
“hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement, (iv)
the term “Section” refers to the specified Section of this Agreement, (v) the terms “include,”
“includes” and “including” will be deemed to be followed by the words “without limitation” (whether
or not so expressed), and (vi) the word “or” is disjunctive but not exclusive. Whenever this
Agreement refers to a number of days, such number will refer to calendar days unless business days
are specified and whenever action must be taken (including the giving of notice or the delivery of
documents) under this Agreement during a certain period of time or by a particular date that ends
or occurs on a non-business day, then such period or date will be extended until the immediately
following business day. As used herein, “business day” means any day other than Saturday, Sunday
or a United States federal holiday.

     23. Entire Agreement. Subject to Section 10, this Agreement, the Constituent
Documents and the Other Indemnity Provisions constitute the entire agreement and

17

 

supersede all prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter of this Agreement. Any prior agreements or
understandings between the parties hereto with respect to indemnification are hereby terminated and
of no further force or effect.

     24. Counterparts. This Agreement may be executed in one or more counterparts, each
of which will be deemed to be an original but all of which together will constitute one and the
same agreement.

[Signatures Appear On Following Page]

18

 

     IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized
representative to execute this Agreement as of the date first above written.

	 	 	 	 	 	 	 	 	 
	 	 	REYNOLDS AMERICAN INC.
	 
	 	 	 	 	 	 	 	 
	

	 	By:	 	 	 	 	 	 
	 	 	 	 	

	

	 	 	 	Name:

Title:
	 	McDara P. Folan, III

Senior Vice President, Deputy General

Counsel and Secretary	 	 

	 	 	 	 	 
	

	 	INDEMNITEE	 	 
	 
	 	 	 	 
	 	 	

	 
	 	 	 	 
	

	 	Print Name:	 	 
	

	 	 	 	

19EX-10.2

 

Exhibit 10.2

EQUITY INCENTIVE AWARD PLAN FOR

DIRECTORS OF REYNOLDS AMERICAN INC.

(Amended and Restated Effective February 2, 2005)

     Reynolds American Inc., a North Carolina corporation, hereby adopts this Equity Incentive
Award Plan for Directors of Reynolds American Inc. (amended and restated effective February 2,
2005). The Plan is an amendment, restatement and continuation of the Amended and Restated Equity
Incentive Award Plan for Directors of R.J. Reynolds Tobacco Holdings, Inc. and Subsidiaries. The
purposes of this Plan are as follows:

     (1) To further the growth, development and financial success of the Company by providing
additional incentives to its Directors by assisting them to become owners of capital stock of the
Company and thus to benefit directly from its growth, development and financial success.

     (2) To enable the Company to obtain and retain the services of the type of Directors
considered essential to the long-term success of the Company by providing and offering them an
opportunity to become owners of capital stock of the Company.

ARTICLE I

DEFINITIONS

Section 1.1 —  General

     Whenever the following terms are used in this Plan they shall have the meaning specified below
unless the context clearly indicates to the contrary.

Section 1.2 —  Affiliate

     “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.

Section 1.3 —  BAT

     “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.

Section 1.4 —  Board

     “Board” shall mean the Board of Directors of the Company.

Section 1.5 —  Code

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

 

Section 1.6 —  Committee

     “Committee” shall mean the Corporate Governance and Nominating Committee of the Board.

Section 1.7 —  Common Stock

     “Common Stock” shall mean the common stock, par value $0.0001 per share, of the Company.

Section 1.8 —  Company

     “Company” shall mean Reynolds American Inc., a North Carolina corporation.

Section 1.9 —  Director

     “Director” shall mean a member of the Board.

Section 1.10 —  Eligible Director

     “Eligible Director” shall mean a Director who has never been an employee or officer of the
Company, any Subsidiary, BAT or any of their Affiliates; provided, however, that the Non-Executive
Chairman shall be an Eligible Director.

Section 1.11 —  Grant

     “Grant” shall mean an award made to a Participant pursuant to the Plan.

Section 1.12 —  Non-Executive Chairman

     “Non-Executive Chairman” shall mean the Non-Executive Chairman of the Board.

Section 1.13 —  Option

     “Option” shall mean an option granted under the Plan to purchase Common Stock.

Section 1.14 —  Option Price

     “Option Price” shall have the meaning given in Section 4.2.

Section 1.15 —  Optionee

     “Optionee” shall mean a Director to whom an Option is granted under the Plan.

Section 1.16 —  Participant

     “Participant” shall mean a Director to whom a Grant has been made.

- 2 -

 

Section 1.17 —  Plan

     “Plan” shall mean the Equity Incentive Award Plan for Directors of Reynolds American Inc.

Section 1.18 —  Secretary

     “Secretary” shall mean the Secretary of the Company.

Section 1.19 —  Stock Award

     “Stock Award” shall mean the annual award, either in the form of deferred stock units or
shares of Common Stock, made pursuant to Article VI.

Section 1.20 —  Subsidiary

     “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with
the Company if each of the corporations, or if each group of commonly controlled corporations,
other than the last corporation in an unbroken chain then owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the other corporations
in such chain.

ARTICLE II

SHARES SUBJECT TO PLAN

Section 2.1 —  Shares Subject to Plan

     The shares of stock subject to Grant shall be shares of Common Stock. The aggregate number of
shares of Common Stock which are available for Grants under the Plan shall not exceed 500,000.
Shares of Common Stock related to Grants that are forfeited, terminated, canceled, expire
unexercised, settled in cash in lieu of stock 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.

ARTICLE III

GRANTING OF OPTIONS

Section 3.1 —  Eligibility

     Any Eligible Director shall be eligible to be granted Options as set forth in this Article
III.

Section 3.2 —  Granting of Options to Directors

     Options may be granted at any time and solely in the discretion of the Committee to each
Eligible Director elected to serve on the Board. Such Options shall be subject to the terms and
conditions set forth in Article IV.

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ARTICLE IV

TERMS OF OPTIONS FOR DIRECTORS

Section 4.1 —  Option Agreement

     A grant of Options to Eligible Directors shall be evidenced by a Stock Option Agreement, which
shall be executed by the Optionee and an authorized officer of the Company and which shall
incorporate the terms and conditions of this Article IV and such other terms and conditions as the
Committee shall determine, consistent with the Plan.

Section 4.2 —  Option Price

     The exercise price of each share of Common Stock subject to an Option granted pursuant to
Section 3.2 shall be the final closing price of a share of Common Stock (as reported on the New
York Stock Exchange consolidated tape) on the date of grant.

Section 4.3 —  Commencement of Exercisability

     Options granted pursuant to Section 3.2 shall not be exercisable prior to six (6) months after
the date of grant, and thereafter shall be exercisable in full, subject to applicable securities
regulations.

Section 4.4 —  Expiration of Option

     The Option shall expire and may not be exercised to any extent after the expiration of ten
(10) years from the date the Option was granted.

ARTICLE V

EXERCISE OF OPTIONS

Section 5.1 —  Persons Eligible to Exercise

     During the lifetime of the Optionee, only he or his guardian may exercise an Option granted to
him, or any portion thereof. After the death of the Optionee, any exercisable portion of an Option
may, prior to the time when such portion becomes unexercisable under Section 4.4, be exercised by
his personal representative or by any person empowered to do so under the deceased Optionee’s will
or under the then applicable laws of descent and distribution.

Section 5.2 —  Partial Exercise

     At any time and from time to time prior to the time when any exercisable Option or exercisable
portion thereof expires or becomes unexercisable under Section 4.4, such Option or portion thereof
may be exercised in whole or in part; provided, however, that the Company shall not
be required to issue fractional shares.

- 4 -

 

Section 5.3 —  Manner of Exercise

     An exercisable Option, or any exercisable portion thereof, may be exercised solely by
delivering to the Secretary or his office all of the following prior to the time when such Option
or such portion becomes unexercisable:

     (a) Notice in writing signed by the Optionee or other person then entitled to exercise such
Option or portion thereof, stating that such Option or portion thereof is exercised;

     (b) Full payment of the Option Price shall be made in cash, by check or a combination thereof,
for the shares of Common Stock with respect to which such Option or portion thereof is thereby
exercised, together with payment of any federal income or other tax required to be withheld by the
Company with respect to such shares of Common Stock, 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
will be deemed satisfied if the Participant has made arrangements satisfactory to the Company 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 Company
not later than the later of (i) the settlement date of the sale transaction and (ii) the date on
which the Company 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 forth herein, in the Option grant agreement and in
guidelines established by the Committee;

     (c) Such representations and documents as the Committee reasonably deems necessary or
advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as
amended and any other federal, state or foreign securities laws or regulations. The Committee may,
in its absolute discretion, also take whatever additional actions it deems appropriate to effect
such compliance, including, without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and

     (d) In the event that the Option or portion thereof shall be exercised pursuant to Section 5.1
by any person or persons other than the Optionee, appropriate proof of the right of such person or
persons to exercise the Option or portion thereof.

Section 5.4 —  Rights as Stockholders

     The holders of Options shall not be, nor have any of the rights or privileges of, stockholders
of the Company in respect of any shares of Common Stock purchasable upon the exercise of any part
of an Option unless and until certificates representing such shares of Common Stock have been
issued by the Company to such holders.

Section 5.5 —  Transfer Restrictions

     The Committee, in its absolute discretion, may impose such restrictions on the transferability
of the shares of Common Stock purchasable upon the exercise of an Option as it

- 5 -

 

deems appropriate, and any such restriction shall be set forth in the respective Stock Option
Agreement and may be referred to on the certificates evidencing such shares of Common Stock.

ARTICLE VI

STOCK AWARDS

Section 6.1 —  Granting of Initial Stock Award to Directors

     (a) Each Eligible Director who is elected to serve on the Board shall receive an initial Stock
Award as of the date of such Director’s initial election to serve on the Board (an “Initial Stock
Award”). Such Initial Stock Award shall be granted only once to each Eligible Director as soon as
practicable following the Director’s initial election to serve on the Board and shall be subject to
the terms and conditions set forth in this Article VI. Notwithstanding this Section 6.1(a), in the
event of the appointment of an existing Director who is or was an employee of the Company to the
position of Non-Executive Chairman and such Director has not yet received an Initial Stock Award,
the Non-Executive Chairman shall receive an Initial Stock Award upon his or her appointment to the
position of Non-Executive Chairman.

     (b) Except as provided in Section 6.1(c) below, the Initial Stock Award shall be made in the
form of deferred stock units, as described in Section 6.4. Each Eligible Director shall receive an
Initial Stock Award of 3,500 deferred stock units.

     (c) Notwithstanding the foregoing, commencing with the Initial Stock Award for 2004, an
Eligible Director may elect to receive the Initial Stock Award in the form of 3,500 shares of
Common Stock. The election to receive shares of Common Stock must be made in writing within thirty
(30) days after the date a Director becomes a Director. An election to receive shares of Common
Stock shall be irrevocable by the Director.

Section 6.2 —  Granting of Annual Stock Awards

     (a) Each Eligible Director shall receive an annual Stock Award as of the date of the Company’s
annual meeting of stockholders or the one (1) year anniversary of the preceding year’s annual
meeting of stockholders, if no meeting has been scheduled for such subsequent year, provided that
the Director serves on the Board immediately following such date (an “Annual Stock Award”). The
Annual Stock Award for 2005 shall be made as of July 30, 2005 or, if later, the date of the
Director’s election or re-election to serve on the Board.

     (b) Except as provided in Section 6.2(c) below, the Annual Stock Award shall be made in the
form of deferred stock units, as described in Section 6.4. Each Eligible Director, other than the
Non-Executive Chairman, shall receive an Annual Stock Award of 1,000 deferred stock units. The
Non-Executive Chairman shall receive an Annual Stock Award of 2,000 deferred stock units.

     (c) Notwithstanding the foregoing, commencing with the Annual Stock Award for 2005, an
Eligible Director or the Non-Executive Chairman may elect to receive the Annual Stock Award in the
form of 1,000 or 2,000 shares of Common Stock, respectively. The election to receive shares of
Common Stock must be made in writing by December 31 of the year preceding the year during which the
Annual Stock Award would otherwise be granted or, if later, within

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thirty (30) days after the date a Director becomes a Director. An election to receive shares
of Common Stock shall be irrevocable by the Director and shall be effective only for the year
immediately following the date on which it was filed.

Section 6.3 —  Grant of Quarterly Stock Awards

     (a) Each Eligible Director shall receive a quarterly Stock Award on the last day of each
calendar quarter, provided that the Director has served on the Board at any time during such
calendar quarter (a “Quarterly Stock Award”).

     (b) The Quarterly Stock Award shall be made in the form of deferred stock units, as described
in Section 6.4. The number of deferred stock units to be credited to each Eligible Director’s
account, other than the Non-Executive Chairman’s account, on the last day of each calendar quarter
shall be determined pursuant to the following formula: $10,000 divided by the average of the
closing price of a share of Common Stock (as reported on the New York Stock Exchange (“NYSE”)
consolidated tape for each business day during the last month of such calendar quarter). The
number of deferred stock units to be credited to the Non-Executive Chairman’s account on the last
day of each calendar quarter shall be determined pursuant to the following formula: $20,000
divided by the average of the closing price of a share of Common Stock (as reported on the NYSE
consolidated tape for each business day during the last month of such calendar quarter). In the
event an Eligible Director has served on the Board or in the position of Non-Executive Chairman for
less than an entire quarter, the number of deferred stock units to be credited to his or her
account on the last day of such quarter shall be prorated based on the actual number of days of his
or her service on the Board during the quarter.

Section 6.4 —  Deferred Stock Units

     Each deferred stock unit shall be equal in value to one (1) share of Common Stock. As of the
date any dividend is paid to shareholders of Common Stock, the Director shall be credited with
additional deferred stock units equal to the number of shares of Common Stock (including fractions
of a share) that could have been purchased at the closing price of Common Stock on such date with
the dividend paid on the number of shares of Common Stock to which the Director’s deferred stock
units are 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 Committee.

Section 6.5 —  Distribution of Deferred Stock Units

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

     (i) Unless as otherwise elected in Section 6.5(a)(ii), payment of a Participant’s
deferred stock units shall be made in one (1) lump sum as soon as practicable following the
end of the year in which the Participant ceases to be a Director.

     (ii) At the election of the Participant made in writing and delivered to the Committee
at any time on or before December 1 of the year of termination of the Participant’s service
as a Director, distribution of all of his or her deferred stock units,

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commencing as soon as practicable following the end of the year in which the
Participant ceases to be a Director, 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 Committee at any time prior to December 1 of the year of a
Participant’s termination of service as a Director.

     (b) For all Grants made under this Plan after December 31, 2004, the distribution of a
Participant’s deferred stock units 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 deferred stock units 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 6.5(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 election (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 deferred stock units received in connection with such
Participant’s Quarterly Stock Awards shall be made only in cash. Distribution of a Participant’s
deferred stock units received in connection with such Participant’s Initial Stock Award and Annual
Stock Awards shall be made in cash or stock, at the election of the Participant made in writing and
delivered to the Committee at any time on or before December 1 of the year of termination of the
Participant’s service as a Director. If distribution is made in cash, the amount of distribution
shall be determined by multiplying the number of deferred stock units attributable to the
installment by the average of the closing price in Common Stock on each business day in the month
of December immediately prior to the year in which the installment is to be paid. If distribution
is made in stock, any fractional shares of stock shall be paid in cash equal to the value of the
fractional share multiplied by the closing price of the Common Stock on the last business day
immediately preceding the date of distribution.

Section 6.6 —  Installment Amount

     In the event a Participant has elected to receive distribution of his or her deferred stock
units in more than one (1) installment, the amount of each installment shall be determined by
multiplying the current number of deferred stock units by a fraction, the numerator of which is one
(1), and the denominator of which is the number of installments yet to be paid.

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Section 6.7 —  Distribution upon Death

     In the event of the death of a Participant, whether before or after ceasing to serve as a
Director, any deferred stock units to which he or she was entitled, shall be converted to cash and
distributed in a 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
Committee. A Participant may from time to time revoke or change any such designation by written
notice to the Committee. If there is no unrevoked designation on file with the Committee 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 6.7 shall be made as soon as practicable
following the end of the fiscal quarter in which the Committee is notified of the Participant’s
death. In this case, a Participant’s deferred stock units shall be converted to cash by
multiplying the number of whole and fractional shares of Common Stock to which the Participant’s
deferred stock units are 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.

Section 6.8 —  Withholding Taxes

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

Section 6.9 —  Terms and Conditions

     All Stock Awards shall be subject to the terms and conditions of this Article VI and such
other terms and conditions as the Committee shall determine, consistent with the Plan.

ARTICLE VII

ADMINISTRATION

Section 7.1 —  Plan Administrator

     The Plan shall be administered by the Committee.

Section 7.2 —  Duties and Powers of Committee

     It shall be the duty of the Committee to conduct the general administration of the Plan in
accordance with its provisions. The Committee shall have the power to interpret the Plan and the
Grants and to adopt such rules for the administration, interpretation, and application of the Plan
as are consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules shall be consistent with the basic purpose of the Plan to make Grants.
In its absolute discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan. The Committee may act either by vote at a
telephonic or other meeting or by unanimous written consent in lieu of a meeting.

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Section 7.3 —  Compensation; Professional Assistance; Good Faith Actions

     Members of the Committee shall not receive compensation for their services as members in
connection with the administration of the Plan, but all expenses and liabilities they incur in
connection with the administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company, the Directors and the officers of the Company 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, the Company 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 the Company
with respect to any such action, determination or interpretation.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 8.1 —  Amendment, Suspension or Termination of the Plan

     The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board. Except as expressly permitted by the terms of the
Plan, neither the amendment, suspension nor termination of the Plan shall, without the consent of
the Participant alter or impair any rights or obligations under any Grant theretofore granted. No
Grant may be made during any period of suspension nor after termination of the Plan.

Section 8.2 —  Effect of Plan Upon Other Options and Compensation Plans

     Nothing in this Plan shall be construed to limit the right of the Company or any of its
Subsidiaries (a) to establish any other forms of incentives or compensation for Directors of the
Company or any of its Subsidiaries or (b) to grant or assume options other than under this Plan in
connection with any proper corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease, merger, consolidation
or otherwise, of the business, stock or assets of any corporation, firm, association or other
entity.

Section 8.3
—  Adjustments

     (a) In the event of any change in the outstanding Common Stock by reason of a stock split,
spin-off, stock dividend, stock combination or reclassification, recapitalization or merger, change
of control, or similar event, the Committee may adjust appropriately the number of shares of Common
Stock subject to the Plan and available for or covered by Grants and share prices related to
outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably
required. Any such adjustment made by the Committee shall be final and binding upon all
Participants, the Company and all other interested persons.

     (b) In the event of a Change of Control (as defined in paragraph 8.3(c) hereof):

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     (i) Options granted pursuant to Article III hereof shall become fully vested and
exercisable;provided, however, that the Committee may elect to make a cash
payment to Participants in cancellation of such Options in such amount as the Committee in
its sole discretion shall determine, which amount shall not be less than the product of (x)
and (y), where (x) is the excess of the fair market value of Common Stock on the date of
exercise over the exercise price, and (y) is the number of shares of Common Stock subject to
the Options being canceled.

     (ii) Subject to Section 8.4, deferred stock units granted pursuant to Article VI hereof
shall be distributed to Participants in a single lump sum.

     (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 Securities Exchange Act of 1934
(the “Exchange Act”), other than the Company or any employee benefit plans sponsored by the
Company, 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 the Company’s outstanding securities ordinarily having the right to vote at elections of
directors; provided, however, that the acquisition of Company securities by
BAT pursuant to the Business Combination Agreement, dated as of October 27, 2003, between
R.J. Reynolds Tobacco Holdings, Inc. (“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 the
Company (the “Governance Agreement”), shall not be considered a Change of Control for
purposes of this subsection (i).

     (ii) individuals who constitute the Board (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 the Company’s
shareholders, 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 the Company in which such person is named as a nominee of the Company 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 the Board, shall be,
for purposes of this paragraph (ii), considered as though such person were a member of the
Incumbent Board;

     (iii) the approval by the shareholders of the Company of a plan or agreement providing
(1) for a merger or consolidation of the Company other than with a wholly-owned Subsidiary
and other than a merger or consolidation that would result in the voting

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securities of the Company 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 the Company or such surviving entity outstanding immediately after such merger
or consolidation, or (2) for a sale, exchange or other disposition of all or substantially
all of the assets of the Company, other than any such transaction where the transferee of
all or substantially all of the assets of the Company 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 the Company 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,
the Board shall determine the effective date of the Change of Control resulting therefrom
for purposes of the Plan or the Grants hereunder.

Section 8.4 —  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.

Section 8.5 —  Titles

     Titles are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of the Plan.

Section 8.6 —  Pronouns

     The masculine pronoun shall include the feminine and neutral and the singular shall include
the plural, where the context so indicates.

Section 8.7 —  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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