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SCHEDULE 14A
(RULE 14A-101)14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[RJ REYNOLDS LOGO]RJRTH LOGO
March 14, 200015, 2001
Dear Stockholder:
You are cordially invited to attend the 20002001 annual meeting of stockholders
of R.J. Reynolds Tobacco Holdings, Inc. The meeting will be held at 9:00 a.m.
(local(Eastern time), on Wednesday, April 19, 200025, 2001 at The M.C.M. C. Benton, Jr. Convention
& Civic Center, 301 West Fifth Street, Winston-Salem, North Carolina.
At this year's annual meeting, you will be asked to elect three Class III
directors, approve the R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term
Incentive Plan, ratify the appointment of KPMG LLP as independent auditors for RJR's
20002001 fiscal year and consider twoone stockholder proposals,proposal, if presented by their proponents.its
proponent. Your Board of Directors unanimously recommends a vote FOR the Class
III directors nominated for election by the Board, FOR approval of our 1999
Long-Term Incentive Plan, FOR ratification of the
appointment of KPMG LLP as independent auditors and AGAINST all other proposals.the stockholder
proposal. Accordingly, please give careful attention to these proxy materials.
It is important that your shares be represented and voted at the annual
meeting regardless of the size of your holdings. Whether or not you plan to
attend the annual meeting, you may vote your shares via a toll-free telephone
number or the Internet, or you may complete, sign, date and return the
accompanying proxy card in the enclosed envelope. Instructions regarding all
three methods of voting are contained on the proxy card.
Attendance at the annual meeting will be limited to stockholders as of
March 3, 20002, 2001 and to guests of RJR. Admittance tickets will be required. If you
are a stockholder and plan to attend, you MUST request an admittance ticket by
writing to the Office of the Secretary, R.J. Reynolds Tobacco Holdings, Inc., P.O.P.
O. Box 2866, 401 North Main Street, Winston-Salem, North Carolina 27102-2866. If
your shares are not registered in your own name, evidence of your stock
ownership as of March 3, 20002, 2001 must accompany your letter. You can obtain this
evidence from your bank or brokerage firm, typically in the form of your most
recent monthly statement. An admittance ticket will be held in your name at the
registration desk, not mailed to you in advance of the meeting.
We anticipate that a large number of stockholders will attend the meeting.
Seating is limited, so we suggest you arrive early. The auditorium will open at
8:30 a.m.
If you have any questions or need assistance in voting your shares, please
contact our proxy solicitors, MacKenzie Partners, Inc. at (212) 929-5500
(collect) or (800) 322-2885 (toll free).
Thank you for your support and continued interest in RJR.
Sincerely,
/s/ Andrew J. Schindler
Andrew J. Schindler
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE YOUR SHARES VIA A TOLL-FREE
TELEPHONE NUMBER OR THE INTERNET OR BY COMPLETING, SIGNING, DATING AND RETURNING
THE ACCOMPANYING PROXY CARD WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING. INSTRUCTIONS ARE CONTAINED ON THE PROXY CARD.
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R.J. REYNOLDS TOBACCO HOLDINGS, INC.
P. O. BOX 2866
401 NORTH MAIN STREET
WINSTON-SALEM, NORTH CAROLINA 27102-2866
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 19, 200025, 2001
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March 14, 200015, 2001
To our Stockholders:
The 20002001 annual meeting of stockholders of R.J. Reynolds Tobacco Holdings,
Inc. (which we refer to in this notice as "RJR") will be held at 9:00 a.m.
(local(Eastern time), on Wednesday, April 19, 200025, 2001 at The M.C.M. C. Benton, Jr. Convention
& Civic Center, 301 West Fifth Street, Winston-Salem, North Carolina, for the
following purposes:
(1) Toto elect three Class III directors to serve until the 20032004 annual
meeting of stockholders;
(2) To approve the R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term
Incentive Plan;
(3) Toto ratify the appointment of KPMG LLP as independent auditors for RJR's
20002001 fiscal year;
(4) To(3) to act on twoone stockholder proposals,proposal, if presented by their proponents;its proponent; and
(5) To(4) to transact any other business as may be properly brought before the
meeting or any adjournment or postponement thereof.
Only holders of record of RJR's common stock as of the close of business on
March 3, 20002, 2001 are entitled to notice of and to vote at the 20002001 annual meeting
of stockholders of RJR. You may examine a list of the stockholders for any
purpose germane to the meeting during ordinary business hours during the 10-day
period preceding the date of the meeting at the officesRJR's principal place of Womble Carlyle Sandridge & Rice, BB&T Financial
Center, 200 West Secondbusiness,
401 North Main Street, Suite 1600, Winston-Salem, North Carolina.
Whether or not you plan to attend the meeting, we urge you to vote your
shares via a toll-free telephone number or the Internet or by completing,
signing, dating and mailing the enclosed proxy card in the envelope provided.
Instructions regarding all three methods of voting are contained on the proxy
card.
By Order of the Board of Directors
/s/ McDara P. Folan, III
McDara P. Folan, III
Secretary
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R.J. REYNOLDS TOBACCO HOLDINGS, INC.
P. O. BOX 2866
401 NORTH MAIN STREET
WINSTON-SALEM, NORTH CAROLINA 27102-2866
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PROXY STATEMENT
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TABLE OF CONTENTS
PAGE
----
Information about the Annual Meeting and Voting...................... 2
Date, time and place of meeting............................. 2
Stockholders entitled to vote............................... 2
Voting your proxy........................................... 23
Revoking your proxy......................................... 3
Voting in person............................................ 4
Appointing your own proxy................................... 4
Quorum requirement.......................................... 4
Vote necessary to approve proposals......................... 4
Further assistance.......................................... 5
Item 1: Election of Class I Directors................................II Directors............................... 5
Biographies of our nominees for election as Class III
directors................................................... 5
directors...................................................
Biographies of our Class III directors (terms expiring in
2003)....................................................... 6
2001).......................................................
Biographies of our Class III directors (terms expiring in
6
2002)....................................................... 7
Meetings and Committees of the Board of Directors........... 7
Compensation Committee interlocks and insider
participation............................................... 8
participation...............................................
Director compensation....................................... 8
Stock Ownership...................................................... 10
Stock ownership of management............................... 10
Stock ownership of principal stockholders................... 11
Section 16(a) beneficial ownership reporting compliance..... 11
Executive Compensation and Transactions with Management.............. 12
Summary..................................................... 12
Compensation Committee Reportreport on Executive Compensation.....executive compensation..... 12
Summary Compensation Table.................................. 1615
Long-term incentive compensation............................ 17
Retirement plans............................................ 19
Funding of retirement benefits.............................. 20
Agreements with executive officers.......................... 2221
Performance graph........................................... 2523
Transactions with directors and executive officers.......... 2523
Item 2: Approval of the R.J. Reynolds Tobacco Holdings, Inc. 1999
Long-Term Incentive Plan........................................... 26
Grants...................................................... 26
Eligibility................................................. 26
Administration of the 1999 LTIP............................. 26
Shares available for grants................................. 26
Amendment and termination of the 1999 LTIP.................. 27
Change of control........................................... 27
Term of the 1999 LTIP....................................... 27
United States federal income tax matters.................... 27
Item 3: Ratification of Appointment of Independent Auditors.......... 2924
Audit Committee report...................................... 24
Audit fees.................................................. 24
Financial information systems design and implementation
fees........................................................ 24
All other fees.............................................. 24
Ratification of appointment of independent auditors......... 25
Stockholder Proposals................................................ 2925
Item 4:3: Stockholder Proposal on Tobacco Advertising and Youth........ 30Director Compensation................ 25
Item 5: Stockholder Proposal on Youth Access to Tobacco Products..... 31
Item 6:4: Other Matters................................................ 3226
Cost and Method of Proxy Solicitation................................ 3327
Appendix A: Charter and Powers of the Audit Committee of the Board of
Directors.......................................................... A-1
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
The Board of Directors of R.J. Reynolds Tobacco Holdings, Inc. (which we
refer to in this proxy statement as "RJR") is soliciting your proxy to vote at
our 20002001 annual meeting of stockholders (or any adjournment or postponement of
the meeting). This proxy statement summarizes the information you need to know
to vote at the meeting.
We began mailing this proxy statement and the enclosed proxy card on or
about March 14, 200015, 2001 to all stockholders entitled to vote. We also mailed the
RJR 19992000 Annual Report, which includes our financial statements, along with this
proxy statement.
IfRules of the Securities and Exchange Commission (which we refer to in this
proxy statement as the "SEC") generally require RJR to furnish an annual report
to its stockholders at least 20 days before its annual meeting. However, if you
are a stockholder of record, have the same address as another stockholder of
record and do not hold shares in nominee name, you may wish to authorize us to
discontinue sending more than one annual report to the same address. You can
eliminate such duplicate mailings by request through telephone or Internet
voting or by marking the appropriate box on the proxy card for any account for
which you do not wish to receive annual reports. You will, however, continue to
receive proxy statements and proxy cards to vote the shares for all of your
accounts.
DATE, TIME AND PLACE OF MEETING
The date, time and place of our 20002001 annual meeting is set forth below:
Date: Wednesday, April 19, 2000Date: Wednesday, April 25, 2001
Time: 9:00 a.m. (Eastern time)
Place: The M. C. Benton, Jr. Convention & Civic Center
301 West Fifth Street
Winston-Salem, North Carolina
Attendance at our annual meeting will be limited to stockholders as of
March 3, 20002, 2001 and to guests of RJR. Admittance tickets will be required. If you
are a stockholder and plan to attend, you MUST request an admittance ticket by
writing to the Office of the Secretary, R.J. Reynolds Tobacco Holdings, Inc., P.
O. Box 2866, 401 North Main Street, Winston-Salem, North Carolina 27102-2866. If
your shares are not registered in your own name, evidence of your stock
ownership must accompany your letter. You can obtain this evidence from your
bank or brokerage firm, typically in the form of your most recent monthly
statement. An admittance ticket will be held in your name at the registration
desk, not mailed to you in advance of the meeting.
We anticipate that a large number of stockholders will attend the meeting.
Seating is limited, so we suggest you arrive early. The auditorium will open at
8:30 a.m.
If you have a disability, we can provide reasonable assistance to help you
participate in the meeting. If you plan to attend the meeting and require
assistance, please write or call the Secretary of RJR at least one week before
our meeting at P. O. Box 2866, 401 North Main Street, Winston-Salem, North
Carolina 27102-2866; telephone number (336) 741-5162.
STOCKHOLDERS ENTITLED TO VOTE
Stockholders who owned RJR common stock at the close of business on the
record date, March 3, 2000,2, 2001, are entitled to vote. As of this record date,
103,907,335102,191,268 shares of RJR common stock were outstanding (exclusive of 6,394,11911,299,567
shares held in RJR's treasury). Each share of RJR common stock is entitled to
one vote.
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VOTING YOUR PROXY
Stockholders canYou may vote in person at the annual meeting or by proxy. We urge you to
vote your shares by proxy even if you plan to attend the annual meeting. You can
always change your vote at the meeting.
There are three ways to vote by proxy:
- By telephone -- You can vote by telephone by calling 1-877-779-8683(800) 650-1345
(toll free) on a touch-tone telephone and following the instructions
on the proxy card;
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6card. Stockholders residing outside the United States,
Canada and Puerto Rico should call (402) 572-4997;
- By Internet -- You can vote by Internet by logging onto the
Internet, going to the web site http://proxy.shareholder.com/rjr and
following the instructions on the proxy card;your computer screen; or
- By mail -- You can vote by mail by completing, signing and dating
the enclosed proxy card and returning it promptly in the
accompanying envelope, which is postage-paid if mailed in the United
States.
If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted. Telephone and Internet voting also
will be offered to stockholders owning stock through certain banks and brokers.
If you participate in the R. J. Reynolds Capital Investment Plan (which we
refer to in this proxy statement as the "CIP") or in the Savings and Investment
Plan for Employees of R.J.R. J. Reynolds Tobacco Company in Puerto Rico or the
Nabisco/Life Savers Puerto Rico Capital Accumulation Plan (which we refer to in
this proxy statement as the "Puerto Rico Plans"), your proxy card will serve as
voting instructions for the trustee of the CIP or the custodian of the Puerto
Rico Plans for shares of RJR common stock allocated to your account under the
CIP or Puerto Rico Plans. Shares for which no instructions are received will be
voted by the trustee of the CIP and the custodian of the Puerto Rico Plans in
the same proportion as the shares for which directions are received by each of
them.
The enclosed proxy card indicates the number of shares you own. If you vote
by proxy, one of the individuals named on the card (your proxy) will vote your
shares as you have directed. You may specify whether your shares should be voted
for all, some or none of the nominees for election as Class III directors and
whether your shares should be voted for or against, or whether you abstain from
voting with respect to, each of the other proposals. If you sign the proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board in the following manner:
- "For" the election of all three nominees for Class III director (as
described on pages 5 to 9 of this proxy statement),
- "For" the approval of the R.J. Reynolds Tobacco Holdings, Inc. 1999
Long-Term Incentive Plan (the "1999 LTIP" as described on pages 26
to 28 of this proxy statement),
- "For" the ratification of the appointment of KPMG LLP as independent
auditors for 20002001 (as described on page 29pages 24 to 25 of this proxy
statement), and
- "Against" each of the two stockholder proposalsproposal to be presented at the annual
meeting (as described on pages 3025 to 3226 of this proxy statement).
If any other matter is presented at the meeting, your proxy will vote in
accordance with his or her best judgment. At the time this proxy statement went
to press, we knew of no other matters to be acted upon at the meeting.
Your vote is important. Whether or not you plan to attend the annual
meeting, we urge you to vote your shares via the toll-free number or the
Internet or by completing, signing, dating and mailing the enclosed proxy card
in the accompanying envelope. Voting by proxy will not affect your right to
attend the meeting and vote.
REVOKING YOUR PROXY
You may revoke or change your proxy by:
- sending in another signed proxy card with a later date,
- notifying our Secretary in writing before the meeting that you have
revoked your proxy, or
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- voting in person at the meeting or through Internet or telephone voting.
Your latest telephone or Internet vote is the one that is counted.
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VOTING IN PERSON
If you plan to attend the meeting and vote in person, we will give you a
ballot when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must obtain from your broker, bank or nominee
a legal proxy assigning to you the right to vote your shares. The legal proxy
must accompany your ballot to vote your shares in person.
APPOINTING YOUR OWN PROXY
If you want to give your proxy to someone other than the individuals named
as proxies on the proxy card, you may cross out the name of those individuals
and insert the name of the individual you are authorizing to vote. Either you or
that authorized individual must present the proxy card at the meeting.
QUORUM REQUIREMENT
A quorum of stockholders is necessary to hold a valid meeting. The holders
of record, present in person or by proxy at the meeting, of a majority of the
shares issued and outstanding and entitled to vote constitute a quorum.
Abstentions and broker "non-votes" are counted as present for establishing a
quorum. A broker non-vote occurs on an item when a broker is not permitted to
vote on that item absent instruction from the beneficial owner of the shares and
no instruction is given.
VOTE NECESSARY TO APPROVE PROPOSALS
ITEM VOTE NECESSARY*
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Item 1: Election of Class III Directors Directors are elected by a plurality vote of
shares present at the meeting in person or by
proxy, meaning that the director nominee with
the most affirmative votes for a particular
slot is elected for that slot. Only the
number of votes "for" affect the outcome.
Withheld votes and abstentions have no effect
on the vote.
Item 2: Approval of the 1999 LTIP Approval requires the affirmative vote of a
majority of the shares entitled to vote and
present at the meeting in person or by proxy.
Abstentions are counted and have the effect
of a vote against the proposal.
Item 3: Ratification of appointment of Approval requires the affirmative vote of a
independent auditors majority of the shares entitled to vote and
present at the meeting in person or by proxy.
Abstentions are counted and have the effect
of a vote against the proposal.
Items 4 and 5:Item 3: Stockholder proposalsproposal Approval requires the affirmative vote of a
majority of the shares entitled to vote and
present at the meeting in person or by proxy.
Abstentions are counted and have the effect
of a vote against the proposal.
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* Under New York Stock Exchange rules, if your broker holds your shares in its
name, your broker is permitted to vote your shares on Items 1 2 and 32 even if it
does not receive voting instructions from you. Your broker may not vote your
shares on Items 4 and 5Item 3 absent instructions from you. Without
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instructions, a broker non-vote will occur on Items 4 and 5Item 3 but will have no effect
on the vote.
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FURTHER ASSISTANCE
If you have any questions or need further assistance in voting your shares,
please contact:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (COLLECT)
OR
(800) 322-2885 (TOLL FREE)
ITEM 1: ELECTION OF CLASS III DIRECTORS
Our Board of Directors is divided into three classes serving staggered
terms of three years. The Class I directors have a term ending on the date of
the 20002003 annual meeting, the Class II directors have a term ending on the date
of the 2001 annual meeting, and the Class III directors have a term ending on
the date of the 2002 annual meeting. Pursuant to RJR's Certificate of
Incorporation, each class is to consist, as nearly as may reasonably be
possible, of one-third of the total number of directors constituting the Board
of Directors. Currently, each class is composed of three directors.
Your Board of Directors has nominated three individuals for election as
Class III directors at the 20002001 annual meeting. Each nominee currently is serving
as one of our directors. If you re-elect them, they will hold office until the
20032004 annual meeting or until their successors have been elected and qualified.
Your proxy will vote for each of the nominees unless you specifically
withhold authority to vote for a particular nominee. If any nominee is unable to
serve, your proxy may vote for another nominee proposed by the Board, or the
Board may reduce the number of directors to be elected.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES
AS CLASS III DIRECTORS.
BIOGRAPHIES OF OUR NOMINEES FOR ELECTION AS CLASS II DIRECTORS
A. D. FRAZIER, JR. Director since June 14, 1999 Age: 56
Mr. Frazier has been a Global Partner of AMVESCAP PLC, the world's largest
quoted fund manager and the parent company of INVESCO, Inc., since November
1996. He served as President and Chief Executive Officer of INVESCO, Inc., an
investment manager, from April 1997 to December 2000, and was Executive Vice
President from November 1996 to April 1997. From March 1991 until November 1996,
Mr. Frazier was Chief Operating Officer of the Atlanta Committee for the Olympic
Games. Mr. Frazier is a member of the boards of directors of AMVESCAP PLC,
Magellan Health Services, Inc., Apache Corporation and Rock-Tenn Company. He is
also a member of the Georgia Board of Corrections.
JOHN G. MEDLIN, JR. Director since June 14, 1999 Age: 67
Mr. Medlin is Chairman Emeritus of Wachovia Corporation, a bank holding company,
and served as its Chairman from 1988 to April 1998, its Chief Executive Officer
from 1977 until December 1993, and a director from 1974 until April 2000. Mr.
Medlin is a member of the boards of directors of BellSouth Corporation,
Burlington Industries, Inc., Media General, Inc. and USAirways Group, Inc. Mr.
Medlin was a member of the board of directors of RJR Nabisco, Inc. (now known as
R.J. Reynolds Tobacco Holdings, Inc.) from 1983 until 1989, and he was a member
of the board of directors of Nabisco Group Holdings Corp., the former parent of
RJR, from 1989 to 1998.
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NANA MENSAH Director since June 14, 1999 Age: 48
Mr. Mensah has been the Chairman and Chief Executive Officer of 'XPORTS, Inc., a
privately held company that exports agricultural products, pharmaceuticals and
construction materials to foreign markets, since October 2000, and was a
management consultant from October 1999 to September 2000. Previously, he served
as President and Chief Operating Officer of Long John Silver's Restaurants,
Inc., the world's largest chain of seafood quick service restaurants, from 1997
until it was sold under his auspices in October 1999. From 1994 until 1997, he
served as Senior Vice President, Operations and Concept Development of PepsiCo
Restaurants International, the international holding company, at that time, for
KFC, Pizza Hut and Taco Bell. Mr. Mensah also serves on the Board of Advisors of
the College of Human Environmental Sciences for the University of Kentucky.
BIOGRAPHIES OF OUR CLASS I DIRECTORS (TERMS EXPIRING IN 2003)
MARY K. BUSH Director since July 28, 1999 Age: 5152
Ms. Bush has been President of Bush & Company, an internationalInternational, Inc., a provider of advice on
financial advisory firm,strategies and business development to commercial, industrial and
financial companies, since its founding in 1991. Bush International, Inc. also
advises governments, internationally, on financial market matters. Prior to
establishing Bush International, Inc., Ms. Bush held several positions in
financial institutions and served two Presidents of the United States as
Alternative Executive Director of the International Monetary Fund and Managing
Director of the Federal Housing Finance Board, the oversight body for the
Federal Home Loan Banks. Ms. Bush also is a member of the boards of directors of
Mortgage Guaranty Insurance Corporation, Building One ServicesBrady Corporation and Texaco, Inc., a
trustee of the Pioneer Funds and a member of the Advisory Board of Washington
Mutual Investors Fund.
JOHN T. CHAIN, JR. Director since June 14, 1999 Age: 6566
General (Retired) Chain has been the Chairman of Thomas Group, Inc., an
international management consulting firm, since May 1998 and has been a member
of the board of directors of Thomas Group, Inc. since May 1995. He also serves
as the President of Quarterdeck Equity Partners, Inc., an investor in the
aerospace industry. He served as Special Assistant to the Chairman of Burlington
Northern Santa Fe Corporation, a major U.S. freight railroad, from November 1995
to March 1996, and as an Executive Vice President of Burlington Northern from
1991 to November 1995. For more than five years prior to that time, he served as
a General (Commander-in-Chief, the Strategic Air Command) in the United States
Air Force. General Chain is a member of the boards of directors of Nabisco Group
Holdings Corp., Nabisco Holdings Corp., Nabisco, Inc., Northrup
Grumman Corporation, Kemper Insurance and Thomas Group, Inc. He also was a
member of the board of directors of RJR Nabisco, Inc. (now known as R.J.
Reynolds Tobacco Holdings, Inc.) from 1994 until June 14, 1999.
5
91999, and he was a
member of the board of directors of Nabisco Group Holdings Corp., the former
parent of RJR, from 1994 to December 2000.
THOMAS C. WAJNERT Director since June 14, 1999 Age: 5657
Mr. Wajnert has been Chairman and Chief Executive Officer of SEISMIQ, Inc., a
provider of advanced technology to the commercial finance and leasing industry,
since its founding in April 2000. Mr. Wajnert also has been the Chairman of, and
a significant investor in, EPIX Holdings, Inc., a professional employer
organization, since March 1998. Mr. Wajnert is a significant investor in EPIX
Holdings, Inc.,1998, where he also served as Chief Executive Officer
from March 1998 to April 1999. Previously, Mr. Wajnert was Chairman of the board
of directors from January 1992 until December 1997, and Chief Executive Officer
from November 1984 until December 1997, of AT&T Capital Corporation, a
commercial finance and leasing company. Mr. Wajnert serves on the boards of
directors of JLG Industries, Inc., UPS Capital Corporation, SEISMIQ, Inc. and
EPIX Holdings, Inc.
BIOGRAPHIES OF OUR CLASS II DIRECTORS (TERMS EXPIRING IN 2001)
A. D. FRAZIER, JR. Director since June 14, 1999 Age: 55
Mr. Frazier has been President and Chief Executive Officer of INVESCO, Inc., an
investment manager, since April 1997 and was Executive Vice President from
November 1996 to April 1997. From March 1991 until November 1996, Mr. Frazier
was Chief Operating Officer of the Atlanta Committee for the Olympic Games. Mr.
Frazier is a member of the boards of directors of AMNESCAP, PLC (the parent
company of INVESCO, Inc.), Magellan Health Services, Inc., Apache Corporation
and Rock-Tenn Company. He is also a member of the Georgia Board of Corrections.
JOHN G. MEDLIN, JR. Director since June 14, 1999 Age: 66
Mr. Medlin is Chairman Emeritus of Wachovia Corporation, a bank holding company,
and served as its Chairman from 1988 to April 1998 and its Chief Executive
Officer from 1977 until December 1993. Mr. Medlin is a member of the boards of
directors of BellSouth Corporation, Burlington Industries, Inc., Media General,
Inc., USAirways Group, Inc. and Wachovia Corporation. Mr. Medlin was a member of
the board of directors of RJR Nabisco, Inc. (now known as R.J. Reynolds Tobacco
Holdings, Inc.) from 1983 until 1989, and he was a member of the board of
directors of Nabisco Group Holdings Corp., the former parent of RJR, from 1989
to 1998.
NANA MENSAH Director since June 14, 1999 Age: 47
Mr. Mensah has been a management consultant since October 1999. Previously, he
served as President and Chief Operating Officer of Long John Silver's
Restaurants, Inc., the world's largest chain of seafood quick service
restaurants, from 1997 until October 1999 and as Senior Vice President,
Operations and Concept Development of PepsiCo Restaurants International, the
holding company for KFC, Pizza Hut and Taco Bell, from 1994 until 1997.6
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BIOGRAPHIES OF OUR CLASS III DIRECTORS (TERMS EXPIRING IN 2002)
DENISE ILITCH Director since June 14, 1999 Age: 4445
Ms. Ilitch has been the President of Ilitch Holdings, Inc., a privately held
company that oversees the management and operations of Little Caesar
Enterprises, Olympia Entertainment, Olympia Development, the Detroit Red Wings
hockey team and the Detroit Tigers baseball team, since June 2000, and served as
Executive Vice President of Ilitch Holdings, Inc. from March 1999 to May 2000.
Since 1997, Ms. Ilitch also has been the Vice Chairwoman of Little Caesar
Enterprises, Inc., one of the top three international pizza chains since 1997 andwhich
operates restaurants on five continents, where she has served in a
varietybeen part of corporate positions with Little Caesarthe senior
management team for more than 20 years. Since
1996, she also has served asyears, and the President of Olympia
Development, L.L.C., the
Ilitch family's real estate and entertainmentwhere she directs development companyefforts in downtown Detroit. In addition, she is Executive Vice PresidentMs.
Ilitch serves on the board of Ilitch Ventures, Inc.,
a privately held company created in 1999 that owns and manages the Ilitch
family's business interests in the food and entertainment industries (Little
Caesar Enterprises, Olympia Entertainment, Olympia Development,directors for the Detroit Branch of the NAACP, is
a Detroit Red Wings Alternate Governor for the National Hockey League and is a
representative of ownership of the Detroit Tigers and Olympia Specialty Foods). Ms. Ilitchmember of Major League
Baseball. She also has been President and owner of her own marketing firm,
Bright Lites, Inc.
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ANDREW J. SCHINDLER Director since June 14, 1999 Age: 5556
Mr. Schindler has served as President and Chief Executive Officer of R. J.
Reynolds Tobacco Company (which we refer to in this proxy statement as "RJR
Tobacco") since 1995 and of RJR since June 14, 1999. He has served as a director
of RJR Tobacco since 1989, and as Chairman of the Board of RJR and RJR Tobacco
since July 2, 1999. Mr. Schindler joined RJR in 1974. He became Senior Vice
President -- Operations of RJR Tobacco in June 1989 and was elected Executive
Vice President -- Operations of RJR Tobacco in 1991. In May of 1994, Mr.
Schindler became President and Chief Operating Officer of RJR Tobacco. He is a
member of the North Carolina Advisory Board of Wachovia Bank, N.A., the North
Carolina School of the Arts Foundation Board, the Wake
Forest University Baptist Medical Center Board of Visitors, the board of
trustees of the R. J. Reynolds Foundation and the Boardboards of Directorsdirectors of
Winston-Salem Business, Inc. and the Winston-Salem Alliance. He is Vice Chairman
of !dealliance (formerly, the North Carolina Emerging Technology Alliance.Alliance).
JOSEPH P. VIVIANO Director since June 14, 1999 Age: 6162
Mr. Viviano has served as the Vice Chairman of Hershey Foods Corporation, a
chocolate and confectionery manufacturer, sincefrom January 1999.1999 until his retirement
in April 2000. Previously, Mr. Viviano had been President and Chief Operating
Officer of Hershey Foods Corporation from 1994 through 1998. He is a member of
the boards of directors of Hershey Foods Corporation, Chesapeake Corporation,
Huffy Corporation and Harsco Corporation.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business and affairs of RJR are managed under the direction of its
Board of Directors. Since the date of the spin-off distribution by Nabisco Group
Holdings Corp. (which we refer to in this proxy statement as "NGH") of all the
outstanding shares of RJR common stock to the stockholders of NGH on June 14,
1999 (which we refer to in this proxy statement as the "Spinoff") until December
31, 1999,During 2000, there were sixnine meetings of the Board of
Directors of RJR. Each director attended at least 75 percent of the meetings of
the Board and committees of which he or she was a member.
The standing committees of the Board are the Audit Committee, the
Compensation Committee and the Corporate Governance and Nominating Committee.
Audit Committee
The Audit Committee (1) reviews the adequacy of RJR's internal system of
accounting controls, (2) confers with the independent auditors and the internal
auditors concerning their examinationexaminations of the books and records of RJR and its
subsidiaries, (3) reviews actions taken to ensure compliance with RJR's
Standards of Business Conduct, (4) recommends to the Board the appointment of
independent auditors and (5) considers other appropriate matters regarding the
financial affairs of RJR and its subsidiaries. The
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Audit Committee met threefive times during 1999.2000. The current members of the Audit
Committee are Thomas C. Wajnert (Chairman)(Chair), Mary K. Bush, A. D. Frazier, Jr., and
Denise Ilitch and Nana
Mensah.Ilitch.
Compensation Committee
The Compensation Committee (1) makes recommendations to the Board with
respect to compensation and grants of restricted stock, stock options and other
long-term incentives to management employees, (2) administers plans and programs
relating to employee benefits, incentives and compensation, (3) initiates and
oversees annually the evaluation of the performance of the Chief Executive
Officer and (4) reviews and reports to the Board of Directors on succession
planning for RJR's Chief Executive Officer and other top executive management
positions. The Compensation Committee met threefive times in 1999.2000. The current
members of the Compensation Committee are General John T. Chain, Jr. (Chairman)(Chair),
John G. Medlin, Jr., Nana Mensah and Joseph P. Viviano and Thomas C. Wajnert.
7
11Viviano.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee (1) reviews the
qualifications of candidates for nomination to the Board of Directors, (2)
recommends to the Board nominees for election as directors, (3) reviews annually
the compensation of the Board in relation to comparable companies and recommends
any changes needed to maintain appropriate and competitive Board compensation,
(4) evaluates and recommends the processes and practices through which the Board
conducts its business, (5) reviews and evaluates annually the assignment of the
various oversight responsibilities and activities of the Board committees, (6)
reviews RJR's corporate governance policies and considers the adequacy of such
policies in response to stockholder concerns and (6)(7) initiates and oversees
annually an appraisal of the performance of the Board in meeting its corporate
governance responsibilities. The Corporate Governance and Nominating Committee
met one timetwice in 1999.2000. The current members of the Corporate Governance and
Nominating Committee are John G. Medlin, Jr. (Chairman)(Chair), Mary K. Bush, General John
T. Chain, Jr., A. D. Frazier, Jr., Denise Ilitch and Joseph P. Viviano.Thomas C. Wajnert.
The Corporate Governance and Nominating Committee will consider suggestions
for Board nominees made by stockholders. A stockholder may recommend a person
for nomination to the Board at the 20012002 annual meeting of stockholders by
providing notice and the other required information described in the Company's
By-Laws, in writing, to the Office of the Secretary, R.J. Reynolds Tobacco
Holdings, Inc., P. O. Box 2866, 401 North Main Street, Winston-Salem, North
Carolina 27102-2866, for receipt between November 19, 200025, 2001 and December 20,
2000.26,
2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of General Chain and Messrs. Medlin,
Mensah Viviano and Wajnert.Viviano. During 1999,2000, there were no Compensation Committee interlocks
or insider participation.
DIRECTOR COMPENSATION
We provide the following compensation to our non-employeeoutside directors for their
service as directors:
Annual retainers and fees
- Each non-employeeoutside director receives an annual retainer of $50,000. In
addition, each non-employeeoutside director who is a committee chair receives an
annual retainer of $5,000.
- Non-employeeOutside directors receive an attendance fee of $1,250 for each Board or
committee meeting attended, including designated days during which the
Board or a committee of the Board conducts RJR's business.
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- We also reimburse directors for actual expenses incurred in connection
with attendance at Board and committee meetings, including transportation
and lodging expenses.
Deferred Compensation Plan
Under our Deferred Compensation Plan for Directors of RJR, non-employeeoutside
directors may defer payment of their compensation for services as Board or
committee members until termination of service as a director or until a selected
year in the future. Participating directors may elect to direct RJR to credit
deferred amounts in 25 percent increments to a cash account, a stock account or
a combination of both. The Plan provides that amounts deferred to the cash
account earn interest at the prime rate as set by Morgan Guaranty Trust Company
of New York, and amounts deferred to the stock account mirror the performance
of, and receive dividend equivalents based on, RJR common stock. Participating
directors are entitled to receive cash distribution of the balance in their
accounts in full on the deferral date or in up to 10 annual installments
commencing on the deferral date.
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Equity awards
Upon becoming a director, each non-employeeoutside director receives under the Equity
Incentive Award Plan for Directors of RJR and Subsidiaries (which we refer to in
this proxy statement as the "EIAP") an option to purchase 10,000 shares of RJR
common stock. The options have an exercise price equal to the fair market value
of RJR common stock on the date of grant. The options are not exercisable for
six months following the date of grant, but thereafter are exercisable for 10
years from the date of grant.
Under this provision of the
EIAP, each of the non-employee directors (other than Ms. Bush) received a stock
option to purchase 10,000 shares of RJR common stock at an exercise price of
$32.4375 on June 15, 1999, and Ms. Bush received a stock option to purchase
10,000 shares of RJR common stock at an exercise price of $27.50 on July 28,
1999.
In addition, onOn the date of his or her election to the Board of Directors and on the
date of each annual meeting of stockholders thereafter, each
non-employee director receives under the EIAP:
(1) an annual grant of stock options determined underEIAP, each
outside director also receives a formula
described in the EIAP, and
(2) an annual grant of 1,000 deferred common stock units.
The annually granted stock options have a 10-year term and vest over three
years, 33 percent onunits,
unless the first and second anniversaries of the date of grant and
34 percent on the third anniversary. Under this provision of the EIAP, each of
the non-employee directors (other than Ms. Bush) received a stock optiondirector elects to purchase 1,400receive instead 1,000 shares of RJR common stock.
In addition, under the EIAP, each eligible director receives a quarterly grant
of deferred common stock at an exerciseunits on the last day of each calendar quarter,
determined by the following formula: $10,000 divided by the average closing
price of $32.4375 on
June 15, 1999, and Ms. Bush received a stock option to purchase 1,700 sharesshare of RJR common stock at an exercise pricefor each business day during the last month
of $27.50 on July 28, 1999.such calendar quarter. If a director has served for less than the entire
quarter, the number of units are pro-rated.
The deferred common stock units bear dividends at the same rate as RJR
common stock, but the dividends are paid in the form of additional deferred
common stock units. TheA director will receive payment of his or her deferred
common stock units as soon as practicable following his or her last year of
service on the Board of Directors. At the election of the director, the payment
of annual grants may be made in cash or in RJR common stock. Distribution of the
deferred common stock units received in connection with a quarterly award will
be made only in cash. Distributions may be made in one lump sum or in up to 10
annual installments. Cash payments generally are convertible intobased on the average closing
price of RJR common stock or cash upon
terminationduring December of a director's service.the year preceding payment.
RJR does not compensate any director who is an employee of RJR or any of
its subsidiaries in his or her capacity as a director.
Other benefits
RJR offers non-employeeoutside directors life insurance having a death benefit up to
$100,000, a matching grants program and supplemental insurance programs.
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STOCK OWNERSHIP
STOCK OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of RJR common stock
beneficially owned as of March 3, 2000,2, 2001, by each director, each executive officer
named in the Summary Compensation Table appearing on page 1615 of this proxy
statement, and all directors and executive officers as a group, based on
information provided by these individuals. In general, "beneficial ownership"
includes those shares a director or executive officer has the power to vote, or
the power to transfer, and stock options that are exercisable currently or
become exercisable within 60 days. Except as described in the footnotes to the
table, each person has sole investment and voting power over the shares for
which he or she is shown as beneficial owner.
PERCENT OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED(1)
- ------------------------ ------------------ ------------------
Lynn J. Beasley........................................... 104,853(2)117,865(2)(3) *
Charles A. Blixt.......................................... 97,743(2)110,755(2)(3) *
Mary K. Bush.............................................. 10,000(2)10,561(2)(4) *
John T. Chain, Jr. ....................................... 10,666(2)12,220(2)(4) *
A. D. Frazier, Jr......................................... 10,000(2)13,336(2)(4) *
Denise Ilitch............................................. 11,400(2)11,862(2)(4) *
Kenneth J. Lapiejko....................................... 97,086(2)110,098(2)(3) *
James V. Maguire.......................................... 86,396(2)93,706(2)(3) *
John G. Medlin, Jr........................................ 12,288(2)12,750(2)(4) *
Nana Mensah............................................... 10,000(2)10,462(2)(4) *
Andrew J. Schindler....................................... 358,899(2)417,225(2)(3) *
Joseph P. Viviano......................................... 15,000(2)15,462(2)(4) *
Thomas C. Wajnert......................................... 20,000(2)20,462(2)(4) *
All directors and executive officers as a group (18
persons)................................................ 1,072,772(2)1,191,680(2)(3)(4) 1.0%1.2%
- -------------------------
* Less than one percent.
(1) For purposes of computing the percentage of outstanding shares held by each
person named in the table, any security that such person has the right to
acquire within 60 days is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes shares of RJR common stock not currently owned, but issuable upon
exercise of stock options that are exercisable as of March 3, 20002, 2001 or become
exercisable within 60 days thereafter, in the following amounts: (a) 10,00010,462
shares for each of Ms. Bush and Ms. Ilitch, General Chain, and Messrs. Frazier, Medlin,
Mensah, Viviano and Wajnert; (b) 10,561 for Ms. Bush; (c) 32,855 shares for
Ms. Beasley; (c)(d) 27,112 shares for Mr. Blixt; (d)(e) 28,354 shares for Mr.
Lapiejko; (e)(f) 30,526 shares for Mr. Maguire; (f) 190,300(g) 210,997 shares for Mr.
Schindler; and (g) 491,432(h) 504,696 shares for all directors and executive officers
as a group.
(3) The number of shares beneficially owned includes shares of RJR common stock
granted under RJR's 1999 LTIP which remain subject to certain restrictions
as to continued employment and transfer as provided in the 1999 LTIP, in the
following amounts: (a) 70,79883,810 shares for Ms. Beasley; (b) 69,13182,143 shares for
Mr. Blixt; (c) 68,46581,477 shares for Mr. Lapiejko; (d) 55,44362,672 shares for Mr.
Maguire; (e) 165,108197,237 shares for Mr. Schindler; and (f) 550,768646,865 shares for
all directors and executive officers as a group.
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(4) The number of shares of RJR common stock beneficially owned does not include
1,073the following deferred common stock units, which are RJR common stock
equivalents received as equity incentives by the directors under the EIAP.EIAP or
credited to the directors under the Deferred Compensation Plan for Directors
of RJR: (a) 3,137 units for each of Ms. Bush, Ms. Ilitch, General Chain and
Messrs. Medlin, Mensah and Wajnert; (b) 2,069 units for Mr. Frazier; and (c)
5,792 units for Mr. Viviano.
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STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS
We have been notified by the persons in the following table that they are
beneficial owners (as defined by the rules of the Securities and Exchange
Commission) of more than five percent of our common stock as of December 31,
1999.2000. According to the Schedule 13G13G/A filed by each owner with the SEC, these
shares were acquired in the ordinary course of business, were not acquired for
the purpose of, and do not have the effect of, change or influence of control
over us and were not acquired in connection with or as a party to any
transaction having such purpose or effect.
PERCENT OF
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(4)BENEFICIALLY OWNED SHARES OWNED(4)
- ------------------------------------ ------------------ ---------------
Capital Research and Management Company..................... 15,021,770(1)14,328,330(1) 14.1%
333 South Hope Street
Los Angeles, CA 90071
FMR Corp. .................................................. 12,124,833(2) 11.3%14,632,290(2) 14.4%
82 Devonshire Street
Boston, MA 02109
Ross Financial Corporation.................................. 15,189,603(3) 14.2%14,827,503(3) 14.6%
P. O. Box 31363-SMB
Grand Cayman, Cayman Islands, B.W.I.
- -------------------------
(1) Capital Research and Management Company, a parent company, and/or its
subsidiaries,acting as investment advisor to
various investment companies, held no voting power and sole dispositive
power over all of these shares, and The Income Fund of America, Inc., an
investment company advised by Capital Research and Management Company and
beneficial owner of 5,200,000 of these shares, held sole voting power over
5,200,000 of these shares, based on itstheir joint Schedule 13G13G/A filed with
the SEC on February 10, 2000.9, 2001.
(2) FMR Corp., a parent holding company, and/or its subsidiaries, held sole
voting power over 52,2335,610 of these shares and sole dispositive power over all
of these shares, based on its Schedule 13G13G/A filed with the SEC on February
14, 2000.2001.
(3) Ross Financial Corporation held sole voting power and sole dispositive power
over all of these shares, based on its Schedule 13G13G/A filed with the SEC on
February 16, 2000.January 22, 2001.
(4) As of December 31, 1999, 106,902,7672000, 101,264,826 shares of RJR common stock were
outstanding (exclusive of 2,728,63011,299,092 shares held in RJR's treasury).
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who own more than 10 percent of our common
stock ("reporting persons") to file initial statements of beneficial ownership
(Form 3) and statements of changes in beneficial ownership (Forms 4 or 5) of RJR
common stock with the SEC and the New York Stock Exchange. These reporting
persons are required by SEC regulation to furnish us with copies of all Forms 3,
4 and 5 they file with the SEC and NYSE.
Based solely on our review of the copies of the forms that we have
received, and on written representations from certain reporting persons that no
additional forms were required, we believe that all of our reporting persons
other than Ms. Ilitch, complied with these filing requirements for transactions which occurred during 1999. Ms. Ilitch failed to timely file a Form 4 to report
three transactions which occurred on November 16, 1999: her acquisition of 1,000
shares of RJR common stock for her own account and her acquisition of 200 shares
as custodian for each of Brooke Lites and Savannah Lites. Ms. Ilitch reported
these transactions late on her Form 5 filed with the SEC and NYSE on January 12,
2000.
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EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT
SUMMARY
The following pages describe the components of the total compensation of
the Chief Executive Officer and the four other most highly compensated executive
officers (as defined under SEC rules) of RJR at the end of the last completed
fiscal year.
The bonuses shown for 1998 and 1997 represent amounts that the Compensation
Committee of the board of directors of NGHNabisco Group Holdings Corp. (which we
refer to in this proxy statement as "NGH") (which owned all of the stock of RJR
prior to the Spinoff)spin-off distribution by NGH of all of the outstanding shares of
RJR common stock to the stockholders of NGH on June 14, 1999 (which we refer to
in this proxy statement as the "Spinoff")) and its entire board approved for
each named executive officer based on the performance of RJR Tobacco for the
applicable year. The bonuses shown for 2000 and 1999 represent amounts that the
Compensation Committee of the Board of Directors of RJR and the entire RJR Board
approved for each named executive officer based on the performance of RJR and
its subsidiaries for 2000 and 1999.
The long-term compensation shown in the Summary Compensation Table for
periods prior to the Spinoff on June 14, 1999, was provided under NGH's 1990
Long-Term Incentive Plan (which we refer to in this proxy statement as the "NGH
LTIP"). The long-term compensation shown in the Summary Compensation Table for
periods after the Spinoff was provided under RJR's 1999 LTIP,Long-Term Incentive Plan
(which we refer to in this proxy statement as the "1999 LTIP"), which was
modeled after the NGH LTIP. Both the NGH LTIP and the 1999 LTIP provide for
various types of awards, such as stock options, restricted stock, performance
cost awards and performance appreciation rights, as described below.
This proxy statement also describes below the future compensation that the
named executive officers may receive under RJR's retirement plans or,and, following
termination of employment under various circumstances, under individual
agreements.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Pursuant to the proxy rules adopted by the SEC designed to enhance
disclosure of public companies' policies toward executive compensation, the
Compensation Committee of RJR's Board of Directors submits the following report:
This report is submitted to the stockholders by the Compensation Committee
(which we refer to in this report as the(the "Committee") of the Board of Directors and reflects the executive
compensation policies and practices of RJR and its subsidiaries during 1999.2000. The
Committee is responsible for executive compensation and oversees the
administration of RJR's executive compensation programs and plans. The Committee
reports regularly to the Board of Directors, and the Board is periodically asked
to approve or ratify Committee actions. On June 14, 1999, Nabisco Group Holdings Corp. distributed allDuring 2000, the Committee consisted of
directors who were not employees of the outstanding RJR common stock to NGH common stockholders in a spin-off
transaction. Prior to the Spinoff, the oversight and administrationCompany or any of RJR's
executive compensation programs and plans were the responsibilities of the
Compensation Committee of the NGH Board of Directors. On July 2, 1999, at its
first post-Spinoff meeting, the newly constituted RJR Board of Directors formed
its own Compensation Committee to oversee and administer RJR's executive
compensation programs and plans.
The Committee is chaired by General Chain, who also was Chairman of the NGH
Compensation Committee prior to the Spinoff. The other members of the RJR
Committee include Messrs. Medlin, Mensah, Viviano and Wajnert. None of the
Committee members are employees of RJR or its subsidiaries, and
who, therefore, none
of them arewere not eligible to participate in any of RJR'sthe Company's
executive compensation programs andor plans.
Executive Compensation Principles and Policies
In determining the amounts, composition and terms and conditions of the
compensation for executive officers of RJR in 1999,2000, the Committee was guided by
two principles: (1) compensation opportunities must enable RJR to attract and
retain individuals with the high caliber of talent and skills critical to
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16 RJR's
success, and (2) a substantial portion of each executive officer's compensation
must be tied to quantifiable measures of RJR's financial performance and/or
stock price performance. These principles are reflected in the actions discussed
below relating to salaries, annual incentives and long-term incentives.
The12
16
As noted in last year's report, the federal tax code limits the ability of
publicly traded companies to secure an income tax deduction for compensation
paid to highly compensated individuals. Although the Committee has taken, and
intends to continue taking, actions to limit the impact of this law, the
Committee believes that the tax deduction is only one of several considerations
in setting compensation and that the tax deduction limitations should not be
permitted to compromise RJR's ability to design and maintain executive
compensation arrangements that will attract the executive talent required to
compete successfully. Accordingly, achieving the desired flexibility in the
design and delivery of compensation may occasionally result in some compensation
that is not deductible for federal income tax purposes.
Major Compensation Components
The compensation program for executive officers is composed of base salary,
annual and long-term performance-based incentive compensation and benefits. In
determining appropriate compensation plans and levels, the Committee relies on
outside consultants who report directly to the Committee and whoto provide survey and
other data regarding compensation practices of companies that are representative
of the size and type of company with which RJR competes in the marketplace for
executive talent. This is generally a broader and more diverse group of
companies, with which RJR competes for executive talent, than used for the peer
company index in the Performance Graph mandated by the Securities and Exchange
Commission, which appears on page 25.23 of this proxy statement. The base salary
and targeted incentive compensation levels of comparitor companies are used byamong
several factors the Committee uses in determining appropriate base salary and
targeted incentive compensation levels of executive officers of RJR, as
described below.
Annual Compensation
The annual compensation for each of the named executive officers is
composed of salary and an annual targeted bonus opportunity. In general,
executive officers' salaries are targeted to reflect the median of competitive
practices, as reflected in survey data used by the Committee for comparison
purposes. Annual compensation levels (salaries plus an annual target bonus
opportunity) are generally set to reflectbetween the 50th and 75th percentile of the
compensation practices of comparitor companies. A senior executive will receive
an increase in salary and/or annual target bonus opportunity only when
performance warrants or the Committee determines that either a change in the
individual's responsibilities or market conditions warrant such an action. Primarily in conjunction with the
Spinoff of RJR and RJR's becoming a public company, each ofOf
the named executive officers, only Mr. Lapiejko received a salary increases and increases in their annual targeted bonus
opportunitiesincrease
during 1999 to reflect additional responsibilities.2000.
The bonus amounts shown in the Summary Compensation Table, exceptsummary compensation table for Mr.
Schindler's bonus,the top five
highest paid executives were based on performance ratings for the financial
performance of RJR andentirely on ratings for achievements in marketplaceof RJR's financial and
market share performance restructuring activities, strategy development and accomplishment of the Spinoff
during 1999. Mr. Schindler's bonus was based only on performance ratings for the
financial performance of RJR.2000. The measure of financial performance was
a
combination of operating earnings and free cash flow.net income. For 1999,2000, the annual bonus program provided a maximum bonus
opportunity of 150 percent of the target bonus opportunity.
Long-TermLong-term Compensation
The NGH Compensation Committee historically relied onutilizes a mix of various forms of stock-based and multi-year
incentive opportunities to motivate executives to maintain a longer-term
perspective.
The RJR Compensation Committee
intends to continue this approach.
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17
In 1999, RJR's regular2000, long-term grants were made in the form of Performance Appreciation Rightsrestricted stock and
performance units. The initial dollar value of each recipient's total grant,
which measure the appreciation of underlying
Performance Notes. Performance Notes are phantom units whose value may increase
each year based on the attainmentwas competitively determined, was split into two parts. Fifty percent of
the specified objectives associated with
that year's annual bonus opportunity. The amountinitial grant value was converted into restricted shares of compensation that will be
earned by an executive will depend solely on the increase inCompany's
common stock after the value of the
underlying Performance Notes.
In determining the sizedividends projected to be paid over three years
was subtracted. The other 50 percent of the regular 1999 long-term grants,total initial grant value was
converted into performance units, with each performance unit having a stated
value of $1.00. The restriction period for the Committee
referenced the 75th percentile of combined stock options and other long-term
incentive opportunities at comparitor public companies. In making these grants,
the Committee did not take into account whether an executive has exercised or
continues to hold previously granted, but currently exercisable, stock options
or Performance Appreciation Rights.
So as to both further motivate and enhance the probability of retaining the
named executive officers following the Spinoff, the NGH Compensation Committee
granted the named executive officers, effective on the date of the Spinoff,
special grantsshares of restricted stock in tandem with stock options. Eachis
three years, and the performance period for the performance units is three
years. Both awards vest after three years if the Company pays to its
stockholders a dividend of at least $0.775 per share per quarter for each of the
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13
17
quarters of the restriction/performance period (the "threshold performance
requirement"), unless the Board of Directors approves vesting of all or part of
the grant when a lower dividend is paid for one or more quarters during the
restriction/performance period. Otherwise, the grants do not vest and are
forfeited. At the end of the restriction/performance period, if the threshold
performance requirement is met, the original number of shares of restricted
stock has four tandem stock options with an exercise price equaland performance units will be multiplied by the average of the total
weighted annual bonus program scores for the financial and market share
components of the annual bonus opportunity for each year of the three-year
restriction/performance period to determine the final award levels. (See
footnote 4 to the stock priceSummary Compensation Table on pages 15 to 16 of this proxy
statement and the effective dateLong-Term Incentive Plans -- Awards in Last Fiscal Year Table
on page 18 of this proxy statement for a more detailed description of the
Spinoff. These tandem awards vest
50 percent at the end of three years, 25 percent after four yearsrestricted stock and 25 percent
after five years. Before vesting, recipients of the grants chooseperformance units referred to receive
either the vesting shares of stock or the options granted in tandem with each
share. The grant recipient forfeits the award not selected. The options expire
in 10 years if not exercised. Mr. Schindler received one of these special grants
in 1999, as described below. The RJR Compensation Committee granted similar
awards to other executive officers.
In May 1998, the NGH Compensation Committee established a trust and funded
a cash retention program for certain executives of RJR. Under the cash retention
program, if an executive remains employed for three years, he or she will
receive a designated amount based on a multiple of base salary and target bonus.
The cash retention amount may partially vest during the three-year period if the
executive is involuntarily terminated under certain circumstances. During 1999,
Mr. Schindler received a retention bonus under this program, as described below,
along with two other executive officers.here.)
Chief Executive Officer's Compensation
Mr. Schindler's compensation for 19992000 was determined bybased on his performance and was significantly impacted by the
change in his role from PresidentCompany's financial and Chief
Executive Officer of R.J. Reynolds Tobacco Company as an operating company of
RJR Nabisco, Inc., to Chairman, President and Chief Executive Officer of R.J.
Reynolds Tobacco Holdings, Inc. as a publicly traded company.
Immediately prior to the Spinoff, the Board of Directors of NGH approved
changes inmarket share performance.
During 2000, Mr. Schindler's compensation to become effective on the date of the
Spinoff. These changes were intended to be consistent with his new role and the
Committee's targeted compensation levels relative to the compensation practices
of comparitor public companies.
From January 1 through June 14, 1999, Mr. Schindler had an annual base
salary of $625,000 and an annual target bonus opportunity of $438,000. Effective
with the Spinoff on June 15, Mr. Schindler's annual base salary was increased to
$900,000 and his annual target bonus opportunity was raised to $900,000 to
reflect his new responsibilities.
The$900,000. At year-end, the
Committee approved a bonus of $1,146,600$1,250,000 for Mr. Schindlerhim for 1999the year based solely on
the basis of the
performance ratings for the Company's financial performance of RJR and in
recognition of the significant change in Mr. Schindler's responsibilities at the
time of the Spinoff.market share performance.
Under the programlong-term compensation structure described above, Mr. Schindler's regular 1999 long-term
incentive grant was 400,000 Performance Appreciation Rights.
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18
At the time of the Spinoff, Mr. Schindler
was the recipientawarded a 2000 grant that had an initial grant value of one of the
special grants of restricted stock in tandem with stock options described above.
Mr. Schindler's$3,600,000. This
initial grant consisted of 85,000value was converted to 68,441 shares of restricted stock in tandem
with 340,000 stock options. If Mr. Schindler is involuntarily terminated without
cause, his restricted stock(based on
a $17 per share closing market price on the February 2, 2000 grant date and
stock option grants will vest 50 percent if the
termination is within the first three yearsprojected dividends based on $0.775 per share per quarter for each of 2000, 2001
and 100 percent upon a later
termination. The grant will fully vest upon a termination following a change of
control.
Also at the time of the Spinoff,2002) and 1,800,000 performance units.
On June 15, 1999, Mr. Schindler was granted a special retention bonus of
$3,600,000 under thea cash retention program described above.established in 1998. This special
retention grant will vest 50 percent at the end of three years, 25 percent after
four years and 25 percent after five years. The first 50 percent payment to be
paid after three years was funded on June 15, 1999, in a special trust
established for the purpose of holding retention trust described above.bonus funds until they become
payable. The 25 percent payment to be paid at the end of the fourth year is to bewas
funded through the trust on June 15, 2000. The 25 percent payment to be paid at
the end of the fifth year is to be funded through the trust on June 15, 2001.
According to the provisions of the program and the trust, unpaid payments may
partially vest if Mr. Schindler is involuntarily terminated under certain
circumstances.
Summary
The Committee believes that the executive compensation program must
continually provide compensation potential of such significance that individuals
of exceptional talent and skills are motivated to join and remain with RJR and
to perform in an exceptional manner. By ensuring that such persons are managing
RJR's operations, the long-term interests of stockholders will be best served.
The actions taken by the Committee during 1999, both pre-and post-Spinoff,2000 were consistent with this focus
and the principles outlined above.
Respectfully submitted,
John T. Chain, Jr. (Chairman)(Chair)
John G. Medlin, Jr.
Nana Mensah
Joseph P. Viviano
Thomas C. Wajnert
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1918
SUMMARY COMPENSATION TABLE
The following table shows the annual and long-term compensation paid or
accrued by RJR and its subsidiaries to our Chief Executive Officer and our other
four most highly compensated executive officers for the years ending December
31, 2000, 1999 1998 and 1997.1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
SECURITIES
AGGREGATE RESTRICTED UNDERLYING LONG-TERM ALL
BASE OTHER ANNUAL STOCK OPTIONS INCENTIVE OTHER
SALARY BONUS COMPENSATION AWARDS AWARDED PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($) ($)(6)(7)
- --------------------------- ---- --------- --------- ------------ ---------- ----------- --------- ------------
Andrew J. Schindler........... 2000 900,000 1,250,000 77,365 1,163,497(4) -- 803,239 63,971
Chairman of the Board, 1999 775,000 1,146,600 74,697 2,757,188(4) 340,000(4)2,757,188(5) 340,000(5) 684,733 36,390
Chairman of the Board,President and Chief 1998 616,667 438,000 72,376 1,192,188(5)1,192,188(6) -- -- 33,241
President and Chief 1997 575,000 403,000 69,799 -- -- 3,000,000 31,200
Executive Officer
Charles A. Blixt.............. 2000 475,000 495,000 62,315 523,566(4) -- 335,557 26,609
Executive Vice President, 1999 409,152 443,000 60,193 1,135,313(4) 140,000(4)1,135,313(5) 140,000(5) 211,131 18,035
Executive Vice President,General Counsel and 1998 320,000 292,000 58,478 340,625(5)340,625(6) -- 255,000 14,610
General Counsel and 1997 302,500 167,000 48,925 -- -- 345,000 14,745
Assistant Secretary
Lynn J. Beasley............... 2000 475,000 495,000 62,426 523,566(4) -- 344,833 28,384
Executive Vice President -- 1999 405,758 443,000 62,610 1,135,313(4) 140,000(4)1,135,313(5) 140,000(5) 221,171 17,753
Marketing, RJR Tobacco 1998 310,000 263,500 57,812 510,938(6) -- 156,000 13,260
Kenneth J. Lapiejko........... 2000 391,667 417,000 63,644 523,566(4) -- 210,291 21,733
Executive Vice President 1999 322,902 305,000 58,797 1,135,313(5) 140,000(5) 184,362 14,397
and Chief Financial Officer 1998 285,000 157,000 53,041 272,500(6) -- 255,000 12,450
James V. Maguire.............. 2000 325,000 293,000 55,871 290,870(4) -- 245,361 54,519
Executive Vice President -- 1998 310,000 263,500 57,812 510,938(5) -- 156,000 13,260
Marketing, RJR Tobacco 1997 248,408 132,000 50,699 -- -- 525,000 5,642
Kenneth J. Lapiejko........... 1999 322,902 305,000 58,797 1,135,313(4) 140,000(4) 184,362 14,397
Executive Vice President 1998 285,000 157,000 53,041 272,500(5) -- 255,000 12,450
and Chief Financial Officer 1997 243,833 130,000 51,123 -- -- 525,000 11,665
James V. Maguire.............. 1999 306,015 263,000 53,684 1,135,313(4) 140,000(4)1,135,313(5) 140,000(5) 197,747 13,310
Executive Vice President --Sales, RJR Tobacco 1998 270,833 151,000 48,949 340,625(5)340,625(6) -- 278,421 12,665
Sales, RJR Tobacco 1997 246,167 138,000 50,334 -- -- 825,000 11,735
- -------------------------
(1) Except as noted below, the bonus amounts shown for all of the named
executive officers reflect annual cash bonus payments that were based on the
performance of RJR and its subsidiaries during 2000 and 1999 and on the
performance of RJR Tobacco during 1998 and 1997.1998. The 1998 bonus amount shown for Mr.
Blixt includes a $100,000 special bonus, and the 1998 bonus shown for Ms.
Beasley includes a $77,500 special bonus.
(2) The amounts shown in the table include amounts attributed to the named
executive officers' participation in the executive perquisite program of RJR
and its subsidiaries, which provided them with supplemental insurance, a
leased automobile and an annual allowance in the following amounts during
1999:2000: Mr. Schindler -- $51,729;$54,750; Mr. Blixt -- $44,375;$47,500; Ms.
Beasley -- $44,375;$47,500; Mr. Lapiejko -- $41,250$47,500 and Mr. Maguire -- $36,875.$40,000.
(3) In connection with the Spinoff, holders of restricted shares of NGH common
stock received a distribution of one-third of a share of restricted RJR
common stock for every restricted share of NGH common stock held by them. The December 31, 1999 values of restricted shares of NGH common stock held
by each of the named executive officers are as follows: Mr. Schindler
(35,000 shares with a value of $371,875), Mr. Blixt (10,000 shares with a
value of $106,250), Ms. Beasley (15,000 shares with a value of $159,375),
Mr. Lapiejko (8,000 shares with a value of $85,000) and Mr. Maguire (10,000
shares with a value of $106,250). The December 31, 19992000 values of restricted shares of RJR common stock held
by each of the named executive officers are as follows: Mr. Schindler
(96,667(165,108 shares with a value of $1,703,750)$8,049,015), Mr. Blixt (38,333(69,131 shares with a
value of $675,625)$3,370,136), Ms. Beasley (40,000(70,798 shares with a value of
$705,000)$3,451,403), Mr. Lapiejko (37,667(68,465 shares with a value of $663,875)$3,337,669) and Mr.
Maguire (38,333(55,443 shares with a value of $675,625)$2,702,846). Dividends are paid on
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the restricted shares of NGH common stock and RJR common stock to the same extent as for
unrestricted shares.
(4) These restricted shares of RJR common stock were awarded under the 1999
LTIP, and are scheduled to vest on the later of February 2, 2003, or the
date the RJR Annual Incentive Award Plan (which we refer to in this proxy
statement as the "AIAP") score for 2002 is determined. For these restricted
shares to vest, RJR must pay to its stockholders a dividend per share of RJR
common stock of at least $0.775 per quarter for each of the 12 quarters from
January 1, 2000 through December 31, 2002, unless the Board of Directors
specifically approves the vesting of the grant when a lower dividend is paid
to stockholders for one or more quarters during the performance period
(referred to in the restricted stock agreement as the "threshold performance
requirement"). On the vesting date, if the threshold performance requirement
has been met, the original number of restricted shares will be
15
19
multiplied by the average of the total weighted AIAP percentage scores for
the financial and market share components of the AIAP for each of 2000, 2001
and 2002, resulting in a revised number of shares. If the revised number is
greater than the original number of restricted shares, all of the restricted
shares will vest and RJR will issue an additional number of unrestricted
shares of RJR common stock to the named executive officer equal to the
difference between the revised number and the original number. If the
revised number is less than the original number, the named executive officer
will forfeit the number of shares equal to the difference between the
original number of restricted shares and the revised number, and the
remaining restricted shares will vest.
These restricted shares will vest pro rata upon the named executive
officer's termination of employment without cause (as such term is defined
in the restricted stock agreement), and all of these restricted shares will
be fully vested upon the named executive officer's death, permanent
disability or retirement (subject to approval by the Chief Executive
Officer) or a change of control of RJR (as such term is defined in the
restricted stock agreement). Upon the named executive officer's voluntary
termination of employment or termination of employment for cause, the named
executive officer will forfeit all of his or her awarded shares of RJR
common stock still subject to the restrictions.
(5) These grants are part of the grants of restricted shares of RJR common stock
made in tandem with grants of RJR stock options approved by the RJR Board of
Directors effective June 15, 1999, the first day of regular way trading
after the Spinoff. Each share of restricted stock has four tandem stock
options with an exercise price of $32.4375 (the stock price on the date of
grant) and an expiration date of June 15, 2009. These tandem awards vest 50
percent at the end of three years, 25 percent after four years and 25
percent after five years. BeforeOn each vesting date, each of the named executive
officers chooses towill receive either the vesting shares of RJR common stock unless he or
she has previously elected to forfeit such shares and receive the options
granted in tandem with the vesting shares. The named executive officer
forfeits the award not selected.
The awards made to the named executive officers are as follows:
TANDEM GRANTS
---------------------------
NAME RESTRICTED SHARES OPTIONS
- ---- ----------------- -------
Mr. Schindler............................................... 85,000 340,000
Mr. Blixt................................................... 35,000 140,000
Ms. Beasley................................................. 35,000 140,000
Mr. Lapiejko................................................ 35,000 140,000
Mr. Maguire................................................. 35,000 140,000
If Mr. Schindler is involuntarily terminated without cause, his tandem
grants will vest 50 percent if the termination is within the first three
years and 100 percent upon a later termination. The grants made to the
other named executive officers will vest pro rata upon a termination
without cause. All grants will be fully vested upon a named executive
officer's death, permanent disability, retirement (subject to approval by
the Chief Executive Officer) or termination without cause following a
change of control.
(5) All of the(6) The named executive officers were granted the following number of restricted
shares of NGH common stock on February 6, 1998. These1998: Mr. Schindler -- 35,000
shares; Mr. Blixt -- 10,000 shares; Ms. Beasley -- 15,000 shares; Mr.
Lapiejko -- 8,000 shares and Mr. Maguire -- 10,000 shares. In connection
with the Spinoff, holders of restricted shares of NGH common stock andreceived
a distribution of one-third of a share of restricted RJR common stock for
every restricted share of NGH common stock held by them. The restricted
shares of NGH common stock, originally scheduled to vest five years from the
date of grant, were cashed out at $30 per share, the same price all other
holders of NGH common stock received, pursuant to the terms of the
acquisition of NGH by RJR on December 11, 2000. The related shares of RJR
common stock received as a result of the Spinoff areremain scheduled to vest
five years from the date of grant, which is February 6, 2003. The grants
will vest pro rata upon a named executive officer's termination without
cause. All grants will be
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20
fully vested upon a named executive officer's death, permanent disability,
retirement (subject to approval by the Chief Executive Officer) or
termination without cause following a change of control.
(6)(7) The amounts shown in the table reflect a retention bonus of $36,000 paid to
Mr. Maguire under the Special Incentive Plan (Retention) instituted for
selected RJR Tobacco sales department employees and the following RJR
contributions made on behalf of the named executive officers under RJR's
qualified and non-qualified defined contribution plans during 1999:2000:
RJR MATCHING CONTRIBUTION RJR CONTRIBUTION
NAME (QUALIFIED PLAN)($) (NON-QUALIFIED PLAN)($)
- ---- ------------------------- -----------------------
Mr. Schindler............................... 4,400 31,990$4,400 $59,571
Mr. Blixt................................... 4,800 13,23523,809
Ms. Beasley................................. 4,800 12,95323,584
Mr. Lapiejko................................ 4,800 9,59716,933
Mr. Maguire................................. 4,400 8,91014,119
LONG-TERM INCENTIVE COMPENSATION
RJR maintains the 1999 LTIP, and NGH maintained the NGH LTIP, to provide
executives with long-term performance-based incentive compensation. Prior to the
Spinoff, NGH issued stock options, restricted stock and other performance-based
awards under the NGH LTIP to the named executive officers and to other key
employees. Similarly, after the Spinoff, RJR issued stock options, restricted
stock 17
21
and other performance-based awards under the 1999 LTIP to the named
executive officers and to other key employees.
The following table identifiesprovides information relating to the grantsexercise of
employee stock options to purchase shares of RJR common stock toby the named executive officers during 1999 pursuant to the 1999 LTIP. All of the stock options
identified in the following table have exercise prices equal to the per share
fair market value of RJR common stock on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
-------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS IN FISCAL BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) YEAR (%) ($/SH) DATE ($) (2)
- ---- ----------- ---------- ----------- ---------- -------------
Andrew J. Schindler...................... 340,000 11 32.4375 6/15/09 2,757,188
Charles A. Blixt......................... 140,000 5 32.4375 6/15/09 1,135,313
Lynn J. Beasley.......................... 140,000 5 32.4375 6/15/09 1,135,313
Kenneth J. Lapiejko...................... 140,000 5 32.4375 6/15/09 1,135,313
James V. Maguire......................... 140,000 5 32.4375 6/15/09 1,135,313
- -------------------------
(1) These grants are part of the grants of restricted shares of RJR common stock
made in tandem with grants of RJR stock options approved by the RJR Board of
Directors effective June 15, 1999, the first day of regular way trading
after the Spinoff. The terms of the restricted stock/stock option tandem
grants are described in footnote (4) to the Summary Compensation Table.
(2) The grant date present values shown in the table are the values of the
grants of restricted shares of RJR common stock made in tandem with these
grants of RJR stock options effective June 15, 1999,fiscal year 2000
and described in
footnote (4) to the Summary Compensation Table. The grant date present
values were determined by multiplying the number of restricted shares of RJR
common stock received in tandem with these stock options by $32.4375, the
per share fair market value of RJR common stock on the date of grant. The
actual value, if any, that an executive officer may realize from his or her
stock options (assuming that they are exercised) will depend solely on any
gain in stock price over the exercise price when the shares are sold.
NGH conditioned numerous stock options granted in prior years to Mr.
Schindler under the NGH LTIP on his purchase of NGH common stock. In connection
with the purchase of NGH common stock under the NGH LTIP, NGH made a secured
loan to Mr. Schindler in the amount of the purchase price for the purchased
shares, plus an additional amount to pay taxes, if any, due on any taxable
income recognized in connection with those purchases. In February 1998, Mr.
Schindler sold the shares of NGH common stock that were used to secure the
outstanding indebtedness of $343,276 and used the proceeds to repay all but
$2,651 of the indebtedness. In connection with a prior understanding under which
Mr. Schindler had earlier refrained from selling the shares, NGH forgave the
shortfall.
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The following table provides information relating to the number and value of shares of RJR common stock and NGH common stock
subject to stock options held by the named executive officers as of December 31,
1999.2000. In connection with the Spinoff, options held by employees of RJR and its
subsidiaries were equitably adjusted into options covering NGH shares and
options covering RJR shares in a manner intended to preserve the aggregate
benefits under the original options. None of the named executive officers exercised anyAll outstanding NGH stock options orwere
cashed out pursuant to the terms of the acquisition of NGH by RJR stock options during 1999.on December
11, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONSIN-
OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS
YEAR-END (#)(1) AT FISCAL YEAR-END MONEY OPTIONS AT FISCAL
(#)(1) YEAR-END ($)(2)
---------------------------- ----------------------------SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME TYPE ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---- --------------- ------------ ----------- ------------- ----------- -------------
Andrew J. Schindler...............Schindler... RJR 169,603 381,394(3) -- --190,300 360,697 3,600,117 5,857,620
NGH 225,140 62,271 -- --317,411 5,455,771 -0- -0- (4) (4)
Charles A. Blixt..................Blixt...... RJR (3) -- 27,112 140,000 -- --528,147 2,283,750
NGH 40,784 -- -- --724,634 -0- -0- (4) (4)
Lynn J. Beasley...................Beasley....... RJR (3) -- 32,855 140,000 -- --686,653 2,283,750
NGH 49,425 -- -- --903,962 -0- -0- (4) (4)
Kenneth J. Lapiejko...............Lapiejko... RJR (3) -- 28,354 140,000 -- --563,030 2,283,750
NGH 42,653 -- -- --761,676 -0- -0- (4) (4)
James V. Maguire..................Maguire...... RJR (3) -- 30,526 140,000 -- --601,553 2,283,750
NGH 45,922 -- -- --819,110 -0- -0- (4) (4)
- -------------------------
(1) The unexercisable RJR stock options include the grants of RJR stock options
made in tandem with the grants of restricted shares of RJR common stock made
effective June 15, 1999, and described in footnote (4)(5) to the Summary
Compensation Table and in the Option Grants in Last Fiscal Year Table.
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21
(2) The dollar values of the RJR stock options are calculated by determining the
difference between the fair market valuesvalue of the shares of RJR common stock
underlying the options and NGH common stock, as
applicable, were below the applicable option exercise prices asprice of such options at December
31, 1999.
19
232000.
(3) Named executive officer did not exercise any RJR stock options during 2000.
(4) Named executive officer no longer holds any NGH stock options as a result of
the cash-out of all NGH stock options pursuant to the terms of the
acquisition of NGH by RJR on December 11, 2000.
The regular annual 19992000 long-term incentive grants for all of the named
executive officers were made in the form of restricted shares of RJR common
stock, as described in footnote (4) to the Summary Compensation Table, and
performance appreciation rights,units, the value of which are appreciation rightsis based on the financial and market share
performance of RJR and its subsidiaries over a five-year period (and which we refer to in this proxy
statement as "PARs").three-year period. The following
table identifies the PARsperformance units that were granted to the named executive
officers on February 5, 1999,2, 2000, and the minimum,threshold, target and maximum values of
the PARsperformance units upon their maturation in 2004.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NON-
NUMBER OF OR OTHER STOCKNON-STOCK PRICE-BASED PLANS(1)
SHARES, UNITS PERIOD UNTIL ---------------------------------------------------------------------
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) OR PAYOUT ($) ($) ($)
- ---- ------------- ------------ ---------- ---------- ------------------- --------- ---------
Andrew J. Schindler..................... 400,000Schindler...................... 1,800,000 12/31/03 2,033,200 3,204,000 4,140,00002 -0- 1,800,000 2,700,000
Charles A. Blixt........................ 170,000Blixt......................... 810,000 12/31/03 864,110 1,361,700 1,759,50002 -0- 810,000 1,215,000
Lynn J. Beasley......................... 180,000Beasley.......................... 810,000 12/31/03 914,940 1,441,800 1,863,00002 -0- 810,000 1,215,000
Kenneth J. Lapiejko..................... 100,000Lapiejko...................... 810,000 12/31/03 508,300 801,000 1,035,00002 -0- 810,000 1,215,000
James V. Maguire........................ 120,000Maguire......................... 450,000 12/31/03 609,960 961,200 1,242,00002 -0- 450,000 675,000
- -------------------------
(1) The PARsperformance units have a three-year performance period, consisting of
RJR's fiscal years 2000, 2001 and 2002. At the end of the performance
period, the performance units will be valued and paid, if they vest, or
cancelled, if they do not vest. For the performance units to vest, RJR must
pay to its stockholders a dividend per share of RJR common stock of at least
$0.775 per quarter for each of the 12 quarters from January 1, 2000 through
December 31, 2002, unless the Board of Directors specifically approves the
vesting of the performance units when a lower dividend is paid to
stockholders for one or more quarters during the performance period
(referred to in the performance units agreement as the "threshold
performance requirement"). At the end of the vesting period, if the
threshold performance requirement has been met, the value of each
performance unit will be multiplied by the average of the total weighted RJR
Annual Incentive Award Plan percentage scores for the financial and market
share components of the AIAP for each of 2000, 2001 and 2002. Payment of
performance units will be made only in cash.
In the event of a named executive officer's death, permanent disability,
retirement or termination of employment without cause (as such term is
defined in the performance units agreement) or a change of five years fromcontrol of RJR
(as such term is defined in the performance units agreement) prior to
December 31, 2002, the number of performance units which will vest, if not
previously cancelled due to RJR's failure to meet the threshold performance
requirement, will be equal to the product of (a) the original number of
performance units granted to the named executive officer, and (b) a
fraction, the numerator of which will be the number of whole or partial
months between January 1, 2000 and the date of grantthe named executive officer's
termination of employment, and vest over
three yearsthe denominator of which will be 36. Except
in accordance with the following schedule: 33 percent onevent of a change of control of RJR, the value of a performance unit
will equal $1. In the event of a change of control of RJR, the value of each
performance unit will be equal to the greater of (i) $1, or (ii) $1
multiplied by the average of the total weighted AIAP percentage scores for
the financial and market share components of the AIAP for each of the firstyears
2000, 2001 and second2002 completed prior to the change of control. Upon a named
executive officer's voluntary termination of employment or termination of
employment for cause prior to December 31, following the date2002, all of grant and 34 percent
on the third December 31 following the date of grant. The December 31, 1999
value of each PAR was $5.083, which is the minimum value of each PAR as a
result of the Spinoff.his or her
performance units will be cancelled.
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RETIREMENT PLANS
The named executive officers participate in noncontributory defined benefit
retirement plans maintained by RJR. Mr. Schindler also participates in a
Supplemental Executive Retirement Plan, which we refer to in this proxy
statement as the "SERP." Benefits under the SERP are payable only after a
participant's retirement at a specified retirement age or earlier retirement or
termination in various circumstances.
20
24
The following table shows the estimated annual benefits payable to Mr.
Schindler upon retirement under the SERP, as described in the preceding
paragraph. The retirement benefits shown are computed before being offset for
Social Security and are based upon retirement at age 60 and the payment of a
single-life annuity to Mr. Schindler.
ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS OF SERVICE(1)
AVERAGE FINAL COMPENSATION(1) 20 OR MORE
- ----------------------------- -------------------
$1,200,000.................................................. $600,000
1,300,000.................................................. 650,000
1,400,000.................................................. 700,000
1,500,000.................................................. 750,000
1,600,000.................................................. 800,000
1,700,000..................................................$1,700,000.................................................. $ 850,000
1,800,000.................................................. 900,000
1,900,000.................................................. 950,000
2,000,000.................................................. 1,000,000
2,100,000.................................................. 1,050,000
2,200,000.................................................. 1,100,000
- -------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under Sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 36 consecutive months that yield the highest average
compensation during the participant's last 60 months of service. Mr.
Schindler's Average Final Compensation as of December 31, 19992000 was
$1,346,673,$1,764,953, and he is expected to have more than 20 years of credited
service at age 60.
We have determined the retirement benefits for Mr. Blixt and Ms. Beasley by
the formula under a noncontributory defined benefit plan maintained by RJR that
has no Social Security offset. The following table shows the estimated annual
single life annuity payable at age 65 under the plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS OF SERVICE(1)
----------------------------------------------------------------------
AVERAGE FINAL COMPENSATION (1) 30 35 40 OR MORE
- ------------------------------ -------- -------- ------------
$300,000.................................................... $113,474 $121,630 $128,155
400,000.................................................... 152,078 162,952 171,652
500,000.................................................... 190,682 204,275 215,149
600,000.................................................... 229,286 245,597 258,646
700,000.................................................... 267,889 286,919 302,143
800,000.................................................... 306,493 328,242 345,641$ 500,000............................................... $190,538 $204,131 $215,005
600,000............................................... 229,141 245,453 258,502
700,000............................................... 267,745 286,775 301,999
800,000............................................... 306,349 328,098 345,496
900,000............................................... 344,953 369,420 388,994
1,000,000............................................... 383,556 410,742 432,491
- -------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under Sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 36 consecutive months that yield the highest average
compensation during the participant's last 60 months of service. Average
Final Compensation as of December 31, 19992000 was $623,089$802,041 for Mr. Blixt and
$584,428$792,698 for Ms. Beasley. Estimated years of credited service, rounded to
the nearest year, at age 65 is 32 years for Mr. Blixt and 40 years for Ms.
Beasley.
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2523
We have determined the retirement benefits for Messrs. Lapiejko and Maguire
by the formula under a noncontributory defined benefit plan maintained by RJR
that is subject to a Social Security offset. The following table shows the
estimated annual single life annuity payable at age 65 under the plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS OF SERVICE(1)
------------------------------------------------------------------
AVERAGE FINAL COMPENSATION(1) 30 35 40 OR MORE
- ----------------------------- -------- -------- ----------
$300,000.................................................... $153,631 $179,236 $204,841
400,000.................................................... 206,131 240,486 274,841
500,000.................................................... 258,631 301,736 344,841
600,000.................................................... 311,131 362,986 414,841$400,000................................................... $205,853 $240,162 $274,470
500,000................................................... 258,353 301,412 344,470
600,000................................................... 310,853 362,662 414,470
700,000................................................... 363,353 423,912 484,470
- -------------------------
(1) For purposes of determining retirement benefits under this table, "Average
Final Compensation" consists of the annualized sum of base salary, bonus in
the year earned and pre-tax contributions to plans maintained under Sections
401(k) and 125 of the Internal Revenue Code, and is determined by
considering the 60 consecutive months that yield the highest average
compensation during the participant's last 120 months of service. Average
Final Compensation as of December 31, 19992000 was $432,367$535,970 for Mr. Lapiejko and
$425,694$484,356 for Mr. Maguire. Estimated years of credited service, rounded to
the nearest year, at age 65 is 36 years for Mr. Lapiejko and 40 years for
Mr. Maguire.
FUNDING OF RETIREMENT BENEFITS
In the summer of 2000, RJR offered to its current and retired employees who
had earned non-qualified pension benefits a one-time opportunity to elect to
have at least 75 percent of their total earned qualified and non-qualified
pension benefits funded over a three-year period. Under this program, eligible
participants could elect to continue to have all of their non-qualified pension
benefit payments made in the form(s) and at the time(s) specified under the
current non-qualified pension plan provisions. Alternatively, eligible
participants could elect to have a specified portion of their non-qualified
pension benefits funded, which for electing active employees will result in
their non-qualified pension benefits being paid at an earlier time than required
under current non-qualified pension plan provisions. Under this program,
participants who are active employees will receive such benefits out of funds
already set aside in a retention trust established on May 13, 1998. Participants
who are already retirees will receive such benefits directly from RJR. The
remaining 25 percent of each participant's total earned pension benefits not
funded under this program will continue to be paid in the form(s) and at the
time(s) specified under the current non-qualified pension plan provisions.
With respect to participants who are active employees and have elected the
alternative funded payment option, RJR calculated their funding levels based on
the qualified and non-qualified pension benefits they had earned as of January
31, 2000. For those participants whose total earned pension benefits funding
level was less than 50 percent at that time, an amount (payable in 2003) was
designated in the trust to increase their funding level to 50 percent. For those
participants whose total earned pension benefits funding level was less than 65
percent as of January 31, 2001, an additional amount (payable in 2004) will be
designated in the trust to increase their funding level to 65 percent. Finally,
for those participants whose total earned pension benefits funding level is less
than 75 percent as of January 31, 2002, an additional amount (payable in 2005)
will be designated in the trust to increase their funding level to 75 percent.
The designated amounts for 2000 have been, and the designated amounts for 2001
and 2002 will be, targeted to be comparable on an after-tax basis to each
participant's earned non-qualified pension benefits funded at that time.
In the event a participant who was an active employee at the time of his or
her election to participate in the funding program voluntarily terminates his or
her employment (including retirement), the participant will forfeit any right to
any further payments from the trust, and such payments will be paid
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24
directly by RJR. If a participant's employment is terminated because of his or
her death or permanent disability, the participant (or his or her estate) will
receive all of his or her remaining designated payments from the trust as soon
as practicable thereafter. If a participant's employment is involuntarily
terminated, the participant may be entitled to receive a pro rata portion of his
or her remaining payments from the trust, and the remainder of such payments
will be paid directly by RJR. However, if the termination without cause occurs
following a change of control of RJR (as such term is defined in the trust
document), the participant will receive all of his or her remaining payments
from the trust. Any earned non-qualified pension benefits not provided from the
trust will continue to be paid in the form(s) and at the time(s) specified under
current non-qualified pension plan provisions.
AGREEMENTS WITH EXECUTIVE OFFICERS
In October 1988, RJR entered into an agreement with Mr. Schindler, which
was amended in December 1988 and June 1999 and supplemented in December 1995,
providing (as amended and supplemented) that if Mr. Schindler's employment is
terminated other than for "cause" or, within 24 months following a "change of
control," for "good reason," he will be entitled to an amount equal to three
times his annual salary and target bonus, payable over three years. In addition,
he is entitled to receive retirement credits, welfare benefits and other
perquisites for the same three-year period. Mr. Schindler also participates in
the SERP.
"Cause" includes, generally, criminal conduct, deliberate refusal to
perform employment duties or deliberate misconduct materially damaging to RJR. A
"change of control" includes specified acquisitions of 30 percent or more of the
combined voting power of RJR securities, various changes in the composition of
the RJR Board of Directors, selected mergers or consolidations of RJR or the
disposition of substantially all of the assets of RJR. "Good reason" includes a
material reduction in duties, reduction in pay, grade or bonus opportunity,
reduction in compensation programs or benefits, relocation or material breach of
the arrangement by RJR.
If a "parachute" excise tax would be imposed on any payments to Mr.
Schindler, Mr. Schindler also would be entitled to tax reimbursement payments.
In addition, upon a change of control, restrictions on restricted stock held by
Mr. Schindler will lapse and all his outstanding stock options under the 1999
LTIP and the NGH LTIP, and any predecessor plans, will vest and be cashed-outcashed out at the higher ofan amount equal to the difference between
the option price and the market price or
the value of the options using a specified Black-Scholes methodology.price. In addition, upon termination of
employment following a change of control, Mr. Schindler's annual incentive
awards and performance units would vest pro rata and be paid in a lump sum, and
his PARsperformance appreciation rights would vest and be paid in a lump sum.
RJR has entered into severance agreements with its other executive
officers, including Ms. Beasley and Messrs. Blixt, Lapiejko and Maguire, which,
in each case, provide that if the executive's employment is involuntarily
terminated other than for "cause" or if the executive terminates his or her
employment for "good reason," he or she will receive two years base salary plus
bonus, payable over three years, benefit 22
26
continuation for three years, and if in
effect, coverage under the executive perquisite plan for three years. "Cause"
includes criminal dishonesty, deliberate misconduct, and deliberate and
continual refusal to perform employment duties or to act in accordance with
instructions of the RJR Board of Directors. "Good reason" includes a substantial
reduction in the executive's responsibilities, a more than 20%20 percent reduction
in the executive's salary and annual bonus opportunity and relocation.
Compensation continuance is based on the highest annual rate of salary in effect
during the 12 months immediately before termination and the current target
incentive award opportunity for the calendar year in which employment
terminates.
RJR also has entered into change of control agreements with Mr.its other
executive officers, including Ms. Beasley and Messrs. Blixt, Lapiejko and
Ms. Beasley.Maguire. These agreements provide that, if there is a change of control of RJR,
Mr. Blixt and Ms. Beasley arethe executive is entitled to tax reimbursement payments if a "parachute" excise
tax is imposed, reimbursement payments for legal and accounting fees as a result
of termination, and severance as if termination were by RJR without cause or by
the executive with "good reason." Following a change
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25
of control, "good reason" includes a material reduction in the executive's
duties, position and reporting relationship, a reduction in pay grade or bonus
opportunity, RJR's failure to continue in effect any compensation plan in which
the executive participated at the time of the change of control, any action by
RJR which directly or indirectly materially reduces benefits under its
retirement or savings plan or fringe benefits, termination without written
notice by RJR and relocation.
On May 13, 1998, RJR established an irrevocable trust and funded a
Retention Incentive Program for certain executive officers of RJR and its
subsidiaries, including the named executive officers. Under this Program, the
named executive officers will be paid the following amounts on May 14, 2001 if
they remain employed by RJR or one of its subsidiaries on the payment date:
NAME RETENTION PAYMENT
- ---- -----------------
Mr. Schindler........................ $2,521,000
Mr. Blixt............................ 1,215,000
Ms. Beasley.......................... 1,177,000
Mr. Lapiejko......................... 1,048,000
Mr. Maguire.......................... 1,011,500
These payments were fully funded in the trust created above on May 13,
1998.
According to the terms of the Program and related trust, the following
rules apply if a named executive officer's employment terminates prior to May
14, 2001:
- If a named executive officer voluntarily terminates employment (including
retirement) or if his or her employment is terminated for "cause" (as
defined in the named executive officer's employment or severance
agreement), then he or she will forfeit any right to payment under the
Program.
- If a named executive officer's employment is terminated because of his or
her death or permanent disability, he or she (or their estate) will
receive the entire payment as soon as practicable thereafter.
- If a named executive officer's employment is involuntarily terminated by
RJR or one of its subsidiaries without "cause," he or she will receive a
pro rata payment as soon as practicable thereafter based on theirhis or her
period of employment during the three-year period. However, if his or her
termination without cause occurs following a change of control (as
defined in the 1999 LTIP), he or she will receive theirthe entire payment.
In connection with the Spinoff, effective June 15, 1999, Mr. Schindler was
granted an additional special retention award of $3,600,000 under the Retention
Incentive Program.Program as described in the Compensation Committee report on page 14
of this proxy statement. Mr. Schindler's special retention grant will vest 50
percent at the end of three years, 25 percent after four years and 25 percent
after five years. The first 50 percent payment to be paid after three years was
funded through the trust described above on June 15, 1999, in
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27and the trust described above. The 25 percent
payment to be paid at the end of the fourth year is to bewas funded through the trust on
June 15, 2000. The 25 percent payment to be paid at the end of the fifth year is
to be funded through the trust on June 15, 2001.
According to the terms of the Program and related trust, the following
rules apply if Mr. Schindler's employment terminates prior to June 15, 2001:
- If Mr. Schindler voluntarily terminates employment (including retirement)
or if his employment is terminated for "cause" (as defined in his
employment agreement), he will forfeit all rights to any unpaid payments.
- If Mr. Schindler's employment is terminated because of his death or
permanent disability, he (or his estate) will receive the entire amount
of any unpaid payments.
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26
- If Mr. Schindler's employment is involuntarily terminated without "cause"
before June 15, 2002, he will be paid $1,800,000, and if his employment
is involuntarily terminated without "cause" on or after June 15, 2002,
but before June 15, 2004, he will be paid $3,600,000 less the amount of
any payments that he previously received from the trust.
- If Mr. Schindler's employment is involuntarily terminated following a
change of control (as defined in the 1999 LTIP), he will be paid
$3,600,000 less the amount of any payments that he previously received
from the trust.
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PERFORMANCE GRAPH
The following graph shows changes over the period from June 15, 1999, the
first day of regular way trading after the Spinoff, through December 31, 1999,2000,
in the value of $100 invested in (1) RJR common stock; (2) the Standard & Poor's
500 Index; and (3) the Standard & Poor's Tobacco Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
FROM JUNE 15, 1999 TO DECEMBER 31, 1999*2000*
AMONG RJR COMMON STOCK, S&P 500 INDEX AND
S&P TOBACCO INDEX
6/15/99 12/31/99
------- --------RJR S&P 500 INDEX S&P TOBACCO INDEX
--- ------------- -----------------
RJR
6/15/99 100 100 100
12/31/99 57.94 S&P 500 Index 100 113.68 S&P Tobacco Index 100 63.87
12/31/00 152.49 103.33 126.23
- -------------------------
* Assumes that $100 was invested on June 15, 1999 in RJR common stock or on May
31, 1999 in each index, and that all dividends on RJR common stock and on each
stock included in each index were reinvested.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The Packaging Division of RJR Tobacco provides packaging services to
Hershey Foods Corporation, which paid approximately $2.7$1.1 million to RJR Tobacco
for these services in 1999.2000. Mr. Viviano is thea retired Vice Chairman of Hershey
Foods Corporation.
In connection with the Spinoff of RJR from NGH, RJR, NGH and Nabisco
Holdings Corp. entered into a tax sharing agreement and a distribution
agreement, whereby the parties agreed to allocate among themselves certain tax,
pension and benefit funding and certain other liabilities of the parties and
their subsidiaries. General Chain is a member of the board of directors of NGH,
Nabisco Holdings Corp. and Nabisco, Inc.
2523
2927
ITEM 2: APPROVAL OF THE R.J. REYNOLDS TOBACCO HOLDINGS, INC.
1999 LONG-TERM INCENTIVE PLAN
Under the terms of our R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term
Incentive Plan, we may grant incentive awards (which we refer to in this proxy
statement as "Grants") to our key employees or to other persons having a unique
relationship to us or one of our subsidiaries. Our 1999 LTIP was initially
adopted and approved by Nabisco Group Holdings Corp., as our sole stockholder,
on May 12, 1999. Our 1999 LTIP is being submitted for stockholder approval for
purposes of compliance with Section 162(m) of the Internal Revenue Code of 1986,
as amended (which we refer to in this proxy statement as the "Code"). The
principal features of the 1999 LTIP are summarized below, but the following
summary is qualified by reference to the 1999 LTIP itself, a copy of which is
attached to this proxy statement as Exhibit A.
GRANTS
Grants may be granted singly, in combination or in tandem and may take the
form of "incentive stock options" under Section 422 of the Code, other stock
options, stock appreciation rights, restricted stock, dividend equivalent
rights, performance units, performance shares or other stock-based grants or any
combination thereof.
ELIGIBILITY
Grants may be awarded to our employees and employees of our subsidiaries or
other persons having a unique relationship with us or any of our subsidiaries.
No Grants may be made under our 1999 LTIP to our non-employee directors.
ADMINISTRATION OF THE 1999 LTIP
Our Compensation Committee administers the 1999 LTIP in accordance with its
provisions. The Compensation Committee has the power and authority to
administer, construe and interpret our 1999 LTIP, 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 our 1999 LTIP.
The Compensation Committee has authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with the
1999 LTIP, provided that, except for anti-dilution or other equitable
adjustments, no Grant may be modified in a manner adverse to a plan participant
without the participant's consent, except as provided for or contemplated in the
Grant's terms.
SHARES AVAILABLE FOR GRANTS
The total number of shares of RJR common stock available for Grants under
the 1999 LTIP is 8,000,000 shares, plus shares issuable under NGH awards that in
connection with the distribution of RJR common stock to stockholders of NGH were
converted into options to acquire RJR common stock or restricted shares of RJR
common stock. Shares of RJR common stock related to Grants that are forfeited,
terminated, cancelled, expire unexercised, settled in cash in lieu of stock or
in such manner that all or some of the shares of RJR common stock covered by a
Grant are not issued to a participant, will immediately become available for
other Grants.
In the event of any change in our outstanding common stock by reason of a
corporate transaction, the Compensation Committee may adjust appropriately the
number of shares of our common stock subject to the 1999 LTIP and available for
or covered by Grants and prices per share of RJR common stock related to
outstanding Grants and make such other revisions to outstanding Grants as it
deems are equitably required.
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30
The maximum number of shares of RJR common stock subject to Grants of stock
options and stock appreciation rights made to any one participant in any
calendar year may not exceed 2,000,000 shares for each type of Grant, plus any
shares that were available and unused within this limit for any prior year
during which the limitation was in effect. No more than 3,000,000 shares of RJR
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 may
not exceed $10,000,000. The maximum payment that any one participant may receive
in respect of any Grant of performance shares will not exceed 500,000 shares of
RJR common stock or its cash equivalent. No more than 3,000,000 shares of RJR
common stock (in the aggregate) may be granted as restricted stock or
performance shares.
The Compensation Committee may make Grants to key employees as identified
by the Compensation Committee 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 provided elsewhere in the 1999 LTIP for the purpose of complying
with the foreign tax laws.
AMENDMENT AND TERMINATION OF THE 1999 LTIP
The Board of Directors may amend, suspend or terminate the 1999 LTIP,
except that no such action, other than an action under the adjustment provisions
of the 1999 LTIP, may be taken which would, without stockholder approval,
increase the share or payment limitations described above, decrease the price of
outstanding options or stock appreciation rights, or reduce the minimum grant
price limitations applicable to options and stock appreciation rights.
CHANGE OF CONTROL
In the event of a change of control (as defined in the 1999 LTIP), except
as otherwise set forth in the terms of a Grant:
- options and stock appreciation rights will become fully vested and
exercisable; provided, however, that the Compensation Committee may provide for
a cash payment to participants;
- restricted stock will have all restrictions removed;
- performance units and performance shares will become vested on a pro rata
basis, and their valuation may be based on target values; and
- the Compensation Committee will have authority to establish or to revise
the terms of any Grant, in its discretion, but may not make revisions that are
adverse to the participant without the participant's consent.
TERM OF THE 1999 LTIP
Unless earlier terminated by the Board of Directors, the 1999 LTIP will
terminate on June 13, 2009.
UNITED STATES FEDERAL INCOME TAX MATTERS
The following is a brief summary of the U.S. federal income tax rules
currently applicable to Grants under the 1999 LTIP. The tax consequences
described below are stated in general terms only.
Incentive Stock Options. The Grant of an incentive stock option will have
no immediate tax consequences to a participant or to us. The exercise of an
incentive stock option by the payment of cash to us generally will have no
immediate tax consequences to a participant (except to the extent it is an
adjustment in computing alternative minimum taxable income) or to us. If a
participant holds the shares acquired pursuant to the exercise of an incentive
stock option for the required holding period, the participant generally will
realize long-term capital gain or long-term capital loss upon a subsequent sale
of
27
31
the shares in the amount of the difference between the amount realized upon the
sale and the purchase price of the shares (i.e., the exercise price). In such a
case, no deduction will be allowable to us in connection with the Grant or
exercise of the incentive stock option or the sale of shares of our common stock
acquired pursuant to such exercise. If, however, a participant disposes of the
shares prior to the expiration of the required holding period (a "disqualifying
disposition"), the participant will recognize ordinary income (and we will be
entitled to a deduction) equal to the excess of the fair market value of the
shares of RJR common stock on the date of exercise (the proceeds of the
disposition, if less) over the exercise price. Special rules apply in the event
all or a portion of the exercise price is paid in the form of stock.
Other (nonqualified) stock options. The Grant of a nonqualified stock
option will have no immediate tax consequences to the participant or to us. Upon
the exercise of a nonqualified stock option, a participant will recognize
ordinary income (and we will be entitled to a deduction) in an amount equal to
the excess of the fair market value of the shares of RJR common stock on the
date of the exercise of the option over the exercise price. A participant's tax
basis in the shares will be the exercise price plus the amount of ordinary
income recognized by the participant, and the holding period will commence on
the date the shares are transferred. Special rules apply in the event all or a
portion of the exercise price is paid in the form of stock. Upon a subsequent
sale of shares of RJR common stock acquired pursuant to the exercise of a
nonqualified stock option, any difference between a participant's tax basis in
the shares and the amount realized on the sale is treated as long-term or
short-term capital gain or loss, depending on the holding period of the shares.
Ordinary income recognized by virtue of the exercise of nonqualified stock
options is subject to applicable withholding as required by law.
Restricted Stock. The Grant of restricted stock will not result in taxable
income to a participant or a deduction for us in the year of Grant, unless the
participant makes the election referred to below. The value of restricted stock
will be taxable to a participant in the year in which the restrictions lapse. A
participant may elect to treat as income in the year of Grant the fair market
value of the restricted stock on the date of grant by making the election within
30 days after the date of such Grant. If such an election were made, the
participant would not be allowed to deduct at a later date the amount included
as taxable income if the participant should forfeit the shares of restricted
stock to us. We generally will be entitled to a federal income tax deduction
equal to the amount of ordinary income recognized by a participant in the year
such income is recognized. Prior to the lapse of restrictions, dividends paid on
the shares subject to such restrictions will be taxable to a participant as
additional compensation in the year received free of restrictions, and we will
be allowed a corresponding federal income tax deduction (unless the participant
elects to include the fair market value of the restricted stock in taxable
income in the year of Grant as described above).
Other Grants Under the Plan. When a participant receives a payment with
respect to a Grant under the 1999 LTIP other than as described in the preceding
paragraphs, the amount of cash and the fair market value of the shares of RJR
common stock received, net of any amount paid by the participant, will be
ordinary income to the participant (and we will be entitled to a deduction).
On March 8, 2000, the closing market price of a share of RJR common stock
was $17.50.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE R.J.
REYNOLDS TOBACCO HOLDINGS, INC. 1999 LONG-TERM INCENTIVE PLAN.
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32
ITEM 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On February 2, 2000,AUDIT COMMITTEE REPORT
Pursuant to rules adopted by the SEC designed to improve disclosures
related to the functioning of corporate audit committees and to enhance the
reliability and credibility of financial statements of public companies, the
Audit Committee of RJR's Board of Directors recommendedsubmits the following report:
The Board of Directors of RJR adopted a changewritten Audit Committee Charter, a
copy of which is included as Appendix A to this proxy statement. All members of
the Audit Committee are independent as defined in Section 303.01(B)(2)(a) and
(3) of the New York Stock Exchange's listing standards.
The Audit Committee has reviewed and discussed the audited financial
statements for fiscal year 2000 with management and has discussed with the
independent auditors the matters required to be discussed by SAS No. 61,
"Codification of Statements on Auditing Standards, Communication with Audit
Committees."
The Audit Committee has received written disclosures from the independent
auditors required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," and discussed with the recommendation was
approvedindependent auditors
the auditors' independence. The Audit Committee has considered whether the
provision of non-audit services by the independent auditors is compatible with
maintaining the auditors' independence.
Based on review and discussions of the audited financial statements for
fiscal year 2000 with management and discussions with the independent auditors,
the Audit Committee recommended to the Board of Directors.
On February 2, 2000, we engaged KPMG LLP as our independent auditors to
examine and report on RJR'sDirectors that the audited
financial statements at andfor fiscal year 2000 be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, subject to ratification of that engagementas filed with the
Securities and Exchange Commission.
Respectfully submitted,
Thomas C. Wajnert (Chair)
Mary K. Bush
A.D. Frazier
Denise Ilitch
AUDIT FEES
The aggregate fees billed for professional services rendered by our
stockholders at the 2000 annual meeting. During the two most recent fiscal years
and through February 2, 2000, we have not consulted with KPMG on items which (1)
were, or should have been, subject to Statement on Auditing Standards 50,
Reports on the Application of Accounting Principles, or (2) concerned a
disagreement or reportable event with our former auditors, as described in the
SEC's Regulation S-K, Item 304(a)(2).
On February 2, 2000, we informed Deloitte & Touche LLP that the firm will
be dismissed as our independent auditors upon completion of the December 31,
1999 audit. In connection with its audits
for the two most recent years and
through February 2, 2000, there have been no disagreements with Deloitte &
Touche on any matteraudit of accounting principles or practices, financial statement
disclosure, audit scope or procedures that, if not resolved to the satisfaction
of Deloitte & Touche, would require disclosure. From January 1, 1998 through
February 2, 2000, there have been no reportable events, as defined in the SEC's
Regulation S-K, Item 304(a)(1)(v). The reports of Deloitte & Touche on theour financial statements for the past two years contained no adverse opinion or
disclaimeryear ended December 31, 2000,
and the reviews of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. On February 7, 2000, we requested that
Deloitte & Touche furnish us with a letter addressed to the SEC stating whether
Deloitte & Touche agreed with these statements. A copy of Deloitte & Touche's
letter was filed as Exhibit 16 to the Current Reportcondensed financial statements included in our Quarterly
Reports on Form 8-K, dated February
2,10-Q for the year ended December 31, 2000, and filed withwere $1,885,380.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees billed for information technology services rendered by
KPMG LLP during the SEC on February 7,year ended December 31, 2000, were $0.
ALL OTHER FEES
The aggregate fees billed for all non-audit services, exclusive of the fees
disclosed above relating to information technology services but including fees
for tax-related services, rendered by KPMG LLP during the year ended December
31, 2000, were $822,559.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
We have appointed KPMG LLP, independent public accountants, to audit the
financial statements of RJR for the fiscal year ending December 31, 2001. We are
submitting this selection to you for your ratification. KPMG audited RJR's
financial statements for the year ended December 31, 2000. Representatives of Deloitte & Touche and
KPMG are expected to be present at the annual meeting to make a statement, if
they desire, and to answer your questions.
If the stockholders do not ratify the appointment of KPMG, the Board of
Directors will reconsider its appointment.
YOUR BOARD OF DIRECTORS CONSIDERS KPMG LLP TO BE WELL QUALIFIED AND
RECOMMENDS A VOTE FOR RATIFICATION OF KPMG'S APPOINTMENT AS OUR INDEPENDENT
AUDITORS FOR FISCAL YEAR 2000.2001.
STOCKHOLDER PROPOSALS
CertainOne of our stockholders havehas submitted the two proposalsproposal described under Items 4 and 5.Item 3.
We will furnish the names, addressesname, address and claimed share ownership positionsposition of the
proponentsproponent of these proposalsthis proposal promptly upon written or oral request directed to the
Secretary of RJR. The following proposals haveproposal has been carefully considered by our
Board of Directors, which has concluded that theirits adoption would not be in the
best interests of RJR or its stockholders. For the reasons stated after eachthe
proposal and its supporting statement, your Board of Directors recommends a vote
AGAINST each of these proposals.this proposal.
Proposals of stockholders intended to be included in RJR's 20012002 annual
meeting proxy statement and form of proxy must be received by the Secretary of
RJR no later than November 14, 200015, 2001 at our principal executive offices: R.J.
Reynolds Tobacco Holdings, Inc., P. O. Box 2866, 401 North Main Street,
Winston-Salem, North Carolina 27102-2866. Other stockholder proposals intended
to be presented at our 20012002 annual meeting of stockholders, but not submitted
for inclusion in our 20012002 annual meeting proxy statement, must be received in
writing at the same address, together with other required information described
in our By-Laws, between November 19, 200025, 2001 and December 20, 2000.26, 2001. Stockholder
proposals not notified to us by December 20, 200026, 2001 will be considered untimely
and, if presented at the 20012002 annual meeting of stockholders, management proxies
may exercise their discretionary voting authority with respect to these
proposals.
Board nominations are subject to other requirements described on page 8 of
this proxy statement under the heading "Corporate Governance and Nominating
Committee."
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ITEM 4:3: STOCKHOLDER PROPOSAL ON TOBACCO ADVERTISING AND YOUTH
Two stockholders haveDIRECTOR COMPENSATION
A stockholder has submitted the following proposal, which will be voted
upon at our annual meeting if presented by its proponents:
"WHEREAS, our Company insists its tobacco ads and ad campaigns are not
geared to underage youth;
"However, an internal company memo stated -- as early as 1976:
'Evidence is now available to indicate that the 14-to-18-year-old group is
an increasing segmentproponent:
"The shareholders of the smoking population. RJRT must soon establish a
successful new brand in this market if our position in the industry is to
[be] maintained over the long run.'
"In 1988 RJR launched the "Joe Camel' campaign. Within a short time
its success became clear. At least one study showed youth smoking Camels
increased from .05% to 33% in the five years after its launch.
"A 1996 University of British Columbia study found that teenagers are
three times as likely as adults to respond to cigarette ads and, on
average, whenever a cigarette brand increased its advertising budget by
10%, its share of the adult smoking market grew only 3%, but its share of
teen smokers grew 9%.
"Cigarettes are the most heavily advertised product in the U.S.A.
However, unlike adults, whose consumption patterns do not reflect
advertising dollars, the three-most advertised cigarettes in the U.S. are
the three used most by underage youth.
"Further evidence presented in the New England Journal of Medicine,
American Journal of Public Health, the Journal of Pediatrics, and
elsewhere, had demonstrated that tobacco advertising plays a significant
role in stimulating illegal consumption of tobacco by minors.
"Such data seems to undermine the stated stance of our company that it
is not advertising in ways that influence young people to use our products.
This leaves some shareholders confused as to how to be sure they are not
invested in a company whose activities may possibly be illegal at the worst
and immoral at the least.
"RESOLVED: ShareholdersR. J. Reynolds Tobacco request the Board of Directors
take the necessary steps to implementamend the following,
orcompany's governing instruments to adopt
the following:
"Beginning on the 2001 R. J. Reynolds fiscal year all members of the Board
of Director's total compensation will be solely in shares of R. J. Reynolds
Tobacco common stock each year. A significant portion of these shares shall be
held and not sold until their terms as a similar policy for our Company: That, within six monthsdirector is up. No other compensation
of this annual
meeting, before any promotional, marketing, and/or advertising campaign
presently running is allowed to continue or is inaugurated in the future,
it mustkind will be submitted to independent and certifiable testing to ensure that
it is not equally or more appealing to the 12-to-17-age group than groups
18 and over.paid."
The proponents haveproponent has submitted the following statement in support of this
proposal:
"The net proceeds (cash) from the purchase of Nabisco Holdings should be
given to the shareholders as a special dividend.
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"We suggest that,shareholders have suffered in creating this approach to testing, that the testing entity be independentprice of our shares. I say if nothing
else, let the companyboard of directors suffer too. Let's practice democracy and share
the tobacco industry. Its
task will be to determine the effectiveness of the advertising campaignrisks, pay them in making a positive impression on two age groups: those under 18 and those
spread evenly between 18 and 45. If the test results on the young focus
group show the campaign is equal to or exceeds the effectiveness on the
older group, the (proposed) campaign shall be terminated.
"Ads by our main competitor supposedly meant to challenge minors not
to smoke have not been proven effective. Therefore, we need independent
data showing our company does not advertise in ways that impact underage
minors. If you agree, please vote 'yes' for this resolution.stock."
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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RJR Tobacco hasagrees that a numbersubstantial portion of policiesits directors' compensation should
be paid in equity-based awards to better ensure that the directors' interests
are aligned with the interests of RJR's stockholders. However, we believe that
equity-based awards should not be the sole form of the directors' compensation.
Instead, it is our opinion that an equitable and practicescompetitive compensation
package for directors combines equity-based compensation and cash compensation.
Under its Charter and Responsibilities, the Corporate Governance and
Nominating Committee of the Board of Directors is charged with reviewing
annually the compensation of RJR's directors in placerelation to assurecomparable companies
and recommending any changes needed to maintain appropriate and competitive
directors' compensation. In early 2000, the Committee engaged Towers Perrin, a
compensation consulting firm, to assist in a review of the compensation of RJR's
directors relative to the compensation of directors of comparable companies.
Based on this review, the Committee proposed several adjustments to the
directors' compensation, which were subsequently adopted by RJR's Board of
Directors in April 2000. As a result of these adjustments, at the current value
of RJR's common stock, RJR's directors' compensation currently is split
approximately 60 percent in equity-based awards and 40 percent in cash. In early
2001, the Committee, again with the assistance of Towers Perrin, conducted
another review of the compensation of RJR's directors relative to the
compensation of directors of comparable companies, and confirmed that the
compensation of RJR's directors remains appropriate and competitive with its
advertisingpeer group. Please refer to pages 8 to 9 of this proxy statement for a
discussion of the compensation currently provided to RJR's outside directors.
RJR's belief in the importance of equity-based compensation also is
directedreflected in the Deferred Compensation Plan for Directors of RJR. Under our
Deferred Compensation Plan, outside directors may defer payment of their cash
compensation for services as Board or committee members in 25 percent increments
to adulta cash account, a stock account or a combination of both. Amounts deferred to
the stock account mirror the performance of, and not underage smokers. These policies
prohibit any advertising research involving subjects underreceive dividend equivalents
based on, RJR common stock. Accordingly, through the age of 21, even
thoughDeferred Compensation Plan,
outside directors are provided the legal ageopportunity to purchase cigarettes in virtually every state is 18. Inincrease their research about proposed new advertising, consistent with good qualitative
research practices, RJR Tobacco's researchers assess whether the proposed
marketing materials appeal to smokers over the age of 21. In addition, models
appearing in RJR Tobacco's advertising must be at least age 25, and must appear
to be at least 25 years of age. RJR Tobacco does not advertise in publications
directed primarily at those under the age of 21.
RJR Tobacco's policies permit it to develop marketing materials which it
believes will motivate (1) those 21 years of age or older who already smoke
brands manufactured by its competitors to purchase RJR Tobacco's brands more
often or to switch to one of them entirely, and (2) those 21 years of age or
older who already smoke one of RJR Tobacco's brands to continue to choose that
brandequity-based
compensation if they continueso desire. Please refer to choose to smoke.page 9 of the proxy statement
for a discussion of the Deferred Compensation Plan.
RJR does not believe that any
"independent" certificationit is appropriate or desirable to require that
your directors be compensated entirely in shares of RJR Tobacco's advertising target agecommon stock, as this
stockholder proposal would give
more accurate or credible results orrequire. To attract and retain highly qualified
individuals to serve as directors, RJR must retain the flexibility to adopt
director compensation programs that such certificationare competitive both as to amount and to
form and method of payment. Given the inflexibility that this stockholder
proposal would satisfy
criticsimpose on RJR's ability to design appropriate and competitive
compensation programs for its directors, we believe that this proposal is
contrary to the best interests of cigarette advertising.RJR and its stockholders.
THEREFORE, YOUR BOARD OF DIRECTORS URGES STOCKHOLDERSYOU TO VOTE AGAINST THIS PROPOSAL.
ITEM 5: STOCKHOLDER PROPOSAL ON YOUTH ACCESS TO TOBACCO PRODUCTS
Two stockholders have submitted the following proposal, which will be voted
upon at our annual meeting if presented by its proponents:
"WHEREAS, while our Company insists it's concerned about teen tobacco use,
it spends millions of dollars annually in placement fees and other incentives to
retailers ensuring that its tobacco products are easily available to consumers
at retail outlets such as convenience stores, grocery stores and even drug
stores. Consequently, these products are easily accessible to all consumers,
including pilferers.
"The average convenience store can easily make $10,000 yearly in placement
fees. A November 18, 1997 report from the Iowa Attorney General's office showed
one retailer receiving more than $500,000 per year in such payments and another
more than $850,000.
"Our company has distributed materials to retailers promoting self-service
merchandising regardless of the self-produced data proving an increase in
pilferage when such displays are used.
"Because of contractual arrangements, our tobacco products are often
located where they are easily pilfered. The Food Marketing Institute lists
tobacco products as the most heavily shoplifted item in the nation, reporting in
its 1997 Security and Loss Prevention study (uncovering data from 11,816 outlets
nationwide), that tobacco products account for 41% of items shoplifted.
"According to the 1997-1998 Retail Theft Report (RTTR), juveniles represent
a disproportionate percentage of shoplifters relative to their U.S. population
representation. Over one-third of shoplifters covered in the RTTR were
teenagers.
"According to a 1998 report of the American Lung Association of Colorado,
when tobacco products were moved out of consumers' reach in one Colorado
experiment, 'shrinkage' reduced from an average of 300 packs of cigarettes
monthly to 4 packs.
"Retailers reportedly have been threatened and/or sanctioned with
non-payment of placement fees when they attempted to move self-serve displays to
avoid easy access to teens and others.
"According to the American Lung Association of Colorado: 'In the absence of
changes in the way retailers merchandise tobacco in stores throughout the
country, youth possession ordinances, and even regularly requesting photo ID for
purchase, will fail to reduce use of tobacco by children.'
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"RESOLVED: the Board create a committee of outside directors to investigate
policies and procedures regarding placement of our tobacco products in retail
outlets and report to shareholders recommendations aimed at ensuring our tobacco
products be placed outside immediate access or where they cannot be stolen."
The proponents have submitted the following statement in support of this
proposal:
"While our Company says it has no control over what retailers do with our
tobacco products it can decide what it will do if they're not placed out of easy
reach. According to the American Lung Association of Colorado: 'The tobacco
displays/placement fees arrangement is a consumer scam aimed at children. It
facilitates early nicotine addiction and lures unsuspecting youth into becoming
the next generation of tobacco consumers. Possession laws increase the allure of
tobacco to children, and deflect attention (from) the need for retailers to
assume responsibility for how they handle this product.' The proponents of this
resolution believe our Company, through the products' placement provisions it
contractually makes with retailers and oversees, shares that responsibility. To
protect young people from tobacco use before they are mature enough to make this
decision and understand its serious risks and consequences, please vote 'yes'
for this resolution."
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The placement of tobacco products in retail stores is a business decision
rightfully made by individual retail store owners, consistent with state and
local laws. Several state and local governments have adopted legislation
regulating the placement of tobacco products in retail stores. Others have
considered such legislation and have chosen not to act. RJR disagrees that it
should take unilateral action where state and local governments have decided not
to act, because to do so would usurp legislative prerogative, limit consumer
awareness and choice, and place RJR Tobacco at a competitive disadvantage.
Requiring the placement of cigarettes in areas that are not accessible to
adult consumers, such as behind the counter, will result in limited visible
space for the product category. Such limited shelf space will necessarily mean
that visible display will be limited to only a few products. The limitation in
visible shelf and display space limits the consumer's awareness of the choices
available and makes it impossible for new or repositioned products and
less-established brands to compete effectively. Thus, this proposal could have a
negative impact on certain of RJR Tobacco's brands, in particular. New products
that have attributes desirable to the adult smoker may never become known to the
consumer. Self-service displays allow the adult smoker to gather more
information about the product and to make a more informed decision.
RJR agrees that it is important to reduce the incidence of youth smoking.
RJR disagrees, however, with the proponents' view that banning self-service
displays of tobacco products will be an effective tool in reducing the incidence
of youth smoking. Further, it strains credulity to assume or believe that
retailers have no financial incentive to prevent the shoplifting of their
tobacco products. Accordingly, your Board believes that the adoption of this
proposal is neither appropriate nor in the best interests of our Company or its
stockholders.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
ITEM 6:4: OTHER MATTERS
We do not know of any matters to be acted upon at the meeting other than
those discussed in this proxy statement. If any other matter is presented, the
individuals named as proxies will vote on the matter in their best judgement.
3226
3630
COST AND METHOD OF PROXY SOLICITATION
We are soliciting this proxy on behalf of your Board of Directors and will
bear the solicitation expenses. We are making this solicitation by mail, but our
directors, officers and employees also may solicit by telephone, telecopy or in
person. We will pay for the cost of these solicitations, but these individuals
will receive no additional compensation for their solicitation services. We have
retained MacKenzie Partners, Inc. for an estimated fee of $15,000, plus
reasonable out-of-pocket expenses, to assist in the solicitation. We will
reimburse brokers, brokerage houses and other institutions, nominees and
fiduciaries, if they request, for their expenses in forwarding proxy materials
to beneficial owners.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CONTACT MACKENZIE PARTNERS, INC. AT (212) 929-5500 (COLLECT) OR (800) 322-2885
(TOLL FREE).
By Order of the Board of Directors
/s/ McDara P. Folan, III
McDara P. Folan, III
Secretary
Winston-Salem, North Carolina
March 14, 2000
3315, 2001
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EXHIBIT31
APPENDIX A
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
1999 LONG-TERM INCENTIVE PLAN
1. PURPOSECHARTER AND POWERS OF PLAN
TheTHE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
On November 29, 2000, the Board of Directors of R.J. Reynolds Tobacco
Holdings, Inc. 1999 Long-Term Incentive Plan (the
"Plan") is effective June 14, 1999adopted the following resolutions redefining the charter, powers
and is designed:
(a) to promoteduties of its Audit Committee:
RESOLVED, that the long-termprior resolutions defining the duties of the Audit
Committee of the Board of Directors are hereby superseded by the following
resolutions:
RESOLVED, that the charter and powers of the Audit Committee shall be:
(1) overseeing that management has maintained the reliability and integrity of
the accounting policies and financial interestsreporting and growthdisclosure practices of
R.J. Reynolds Tobacco Holdings, Inc. and its subsidiaries (collectively,(for purposes of
these resolutions, hereinafter collectively referred to as the "Corporation""Company");
(2) overseeing that management has established and maintained processes to
assure that an adequate system of internal control is functioning within
the Company;
(3) overseeing that management has established and maintained processes to
assure compliance by attractingthe Company with all applicable laws, regulations and
retaining management personnel withCompany policy; and
(4) overseeing the training, experienceindependence and ability to enable them to make a substantial
contribution to the successperformance of the Corporation's business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals;Company's independent
accountants and (c) to furtherinternal audit department.
FURTHER RESOLVED, that the identity of interests of Participants with those of
the stockholders of the Corporation through opportunities for increased
stock, or stock-based, ownership in the Corporation.
2. DEFINITIONS
As used in the Plan, the following wordsAudit Committee shall have the following
meanings:
(a) "Base Value" means not less thanspecific powers and duties:
(1) holding such regular meetings as may be necessary and such special meetings
as may be called by the Fair Market Value onChairman of the date
a Stock Appreciation Right is granted,Audit Committee or inat the caserequest
of a Stock
Appreciation Right granted retroactively in tandem with (or in replacement
of)the independent accountants or the General Auditor;
(2) creating an outstanding stock option, not less thanagenda for the exercise priceensuing year;
(3) reviewing the performance of such
option;
(b) "Board of Directors" meansthe independent accountants and making
recommendations to the Board of Directors regarding the appointment or
termination of RJR;
(c) "Code" means the Internal Revenueindependent accountants;
(4) reviewing the performance of the internal audit department;
(5) conferring with the independent accountants and the internal auditors
concerning the scope of their examinations of the books and records of the
Company and its subsidiaries; reviewing and approving the independent
accountants' annual engagement letter, reviewing and approving the
Company's internal audit charter, annual audit plans and budgets; directing
the special attention of the auditors to specific matters or areas deemed
by the Audit Committee or the auditors to be of special significance; and
authorizing the auditors to perform such supplemental reviews or audits as
the Audit Committee may deem desirable;
(6) reviewing with management, the independent accountants and internal
auditors significant risks and exposures, audit activities and significant
audit findings;
(7) reviewing the range and cost of audit and non-audit services performed by
the independent accountants;
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32
(8) reviewing the Company's audited annual financial statements with management
and discussing with the independent accountants the matters required by
SAS61 including the nature and extent of any significant changes in
accounting principles or the application therein and the accountants'
judgments about the quality, as well as the acceptability, of the Company's
accounting principles and financial disclosures;
(9) being provided the opportunity to discuss with management, the General
Auditor and the independent accountants, the quarterly earnings
announcement prior to its release (if practicable), the Company's interim
financial statements to be included in the Quarterly Report on Form 10-Q
prior to its filing, and the results of the review of the interim financial
statements by the independent accountants. The Chairman may represent the
full Committee at such discussions;
(10) reviewing through discussions with management, independent accountants and
internal auditors, the adequacy of the Company's system of internal
controls;
(11) obtaining from the independent accountants and internal auditors their
recommendations regarding internal controls and other matters relating to
the accounting procedures and the books and records of the Company and its
subsidiaries and reviewing the correction of controls deemed to be
deficient;
(12) providing an independent, direct communication between the Board of
Directors, internal auditors and independent accountants, including meeting
in executive sessions with the independent accountants and the General
Auditor to discuss any matters that the Committee or the independent
accountants or General Auditor believe should be discussed;
(13) reviewing the adequacy of internal controls and procedures related to
executive travel and entertainment, including use of Company-owned
aircraft;
(14) reviewing with appropriate Company personnel the actions taken to ensure
compliance with the Company's Code of 1986,Conduct and the results of
confirmations and violations of such Code;
(15) reviewing with appropriate Company personnel the programs and policies of
the Company designed to ensure compliance with applicable laws and
regulations and monitoring the results of these compliance efforts;
(16) reviewing with appropriate Company personnel the procedures established by
the Company that monitor the compliance by the Company with its loan and
indenture covenants and restrictions;
(17) reporting through its Chairman to the Board of Directors following the
meetings of the Audit Committee;
(18) maintaining minutes or other records of meetings and activities of the
Audit Committee;
(19) reviewing the powers of the Audit Committee annually and reporting and
making recommendations to the Board of Directors on these responsibilities;
(20) conducting or authorizing investigations into any matters within the Audit
Committee's scope of responsibilities. The Audit Committee shall be
empowered to retain independent counsel, accountants or others to assist in
the conduct of any such investigation;
(21) reviewing with the independent accountants their annual written statement
delineating all relationships between the accountants and the Company,
assessing any disclosed relationships and taking action thereon as
amended;
(d) "Committee" meansappropriate; and
(22) considering such other matters in relation to the Compensationfinancial affairs of the
Company and its accounts, and in relation to the internal and external
audit of the Company as the Audit Committee may, in its discretion,
determine to be advisable; provided, however, that review of legal matters
with the
A-2
33
Company's General Counsel, including matters that could have a significant
impact on the organization's financial statements, is the responsibility of
the full Board of Directors.
FURTHER RESOLVED, that the Audit Committee shall consist solely of members
of the Board of Directors;
(e) "Common Stock"Directors who have never been employees of the Company or "Share" means common stockany of
RJR which mayits subsidiaries. The Board shall determine the membership of the Audit
Committee, in its discretion, but the Audit Committee shall always have at least
three member directors. Each member shall be authorized but unissued,free from any relationship that, in
the opinion of the Board, would interfere with the exercise of his or issued and reacquired;
(f) "Effective Date" shall haveher
independent judgment as a member of the meaning set forth in Section 12;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(h) "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 regulationsAudit Committee. All members of the
Committee in effect at the
relevant time;
(i) "Grant Agreement" means an agreement between RJR and a Participant
that sets forth the terms, conditions and limitations applicable to a
Grant;
(j) "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;
(k) "Incentive Stock Options" shall have the meaning set forth in
Section 5(a);
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38
(l) "Other Stock Options" shall have the meaning set forth in Section
5(b);
(m) "Options" shall mean Incentive Stock Optionsworking familiarity with basic finance and Other Stock
Options;
(n) "Participant" means any employee, or other person having a unique
relationship with RJR oraccounting
practices, and at least 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, a non-employee director of
RJR or one of its Subsidiaries may not be a Participant;
(o) "Performance Units" shall have the meaning set forth in Section
5(e);
(p) "Performance Shares" shall have the meaning set forth in Section
5(f);
(q) "Restricted Stock" shall have the meaning set forth in Section
5(d);
(r) "RJR" means R.J. Reynolds Tobacco Holdings, Inc. and any
successors thereto;
(s) "Stock Appreciation Rights" shall have the meaning set forth in
Section 5(c); and
(t) "Subsidiary" means any corporation or other entity in which RJR
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 the action of a majority of the Committee, taken at a
meeting or taken without a meeting by a writing signed by such majority,
shall constitute action by the Committee. 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 to the Chief Executive Officer and to
other senior officers of the Corporation its duties under the Plan, subject
to such conditions and limitations as the Committee shall prescribe, except
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, RJR and the officers
and directors of RJR 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, RJR and all other interested persons. No member of the Committee shall be personally liablehave accounting or
related financial management expertise.
The Audit Committee is responsible 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
RJR 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 RJR 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 RJR 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 beduties set forth in a Grant Agreement, in a form
approvedthis charter but
is not responsible for either the preparation of the financial statements or the
auditing of the financial statements. Management has the responsibility for
preparing the financial statements and implementing internal controls and the
independent accountants have the responsibility for auditing the financial
statements. The review of the financial statements by the Audit Committee consistent, however, with the termsis not
of the Plan;
provided, however, such Grant Agreement shall contain provisions dealing withsame nature and not for the treatment of
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39
Grants insame purpose as the event of the termination, death or disability of a Participant,
and may also include provisions concerning the treatment of Grants in the event
of a change of control of RJR.
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 Code Section 422, and (iv) must be designated as an
"Incentive Stock Option"audit performed by the
Committee. The maximum aggregate Fair
Market Value of Common Stock (determined atindependent accountants. In carrying out its responsibilities, the time of each Grant) with
respectAudit
Committee believes its policies and procedures should remain flexible in order
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 RJR 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 or restrictions 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 15 years after
the date it is granted and (ii) except for options granted in connection
with equitable adjustments made to RJR Nabisco Holdings Corp. options upon
the distribution of Common Stock by RJR Nabisco Holdings Corp. to its
stockholders, 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. Payment of
the option price may also be made by tender of an amount equal to the full
exercise price which has been borrowed from RJR or one of its Subsidiaries
if the Participant also authorizes the concurrent sale of the exercised
Common Stock by a broker (through an arrangement established by RJR, or one
of its Subsidiaries, for Participants) and repays the borrowing, all in
accordance with any applicable guidelines of 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 or
restrictions on the exercise of Stock Appreciation Rights as it deems
appropriate, and may terminate, amend, or suspend such Stock Appreciation
Rights at any time. No Stock Appreciation Right granted under this Plan may
be exercised more than 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 and
restrictions as the Committee shall determine. Any rights to dividends or
dividend equivalents accruing duebest react 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 3 years. The number of shares of
Restricted Stock and the restrictions or
3changing environment.
A-3
40
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 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.
6. LIMITATIONS AND CONDITIONS
(a) The number of shares available for Grants under this Plan shall be
8 million shares of the authorized Common Stock as of the Effective Date.
The maximum number of Shares subject to Grants of Options and Stock
Appreciation Rights to any one Participant in any calendar year shall not
exceed 2 million shares for each type of Grant, plus any amount of shares
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 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 3 million shares. Shares related
to Grants that are 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 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 or share units of Common
Stock. Any such crediting of dividends or dividend equivalents or
reinvestment in Shares 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 RJR, including
the plan of any entity acquired by RJR.
(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. RJR 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.
4
41
(d) Deferrals of Grant payouts may be provided for, at the sole
discretion of the Committee, in the Grant Agreements.
(e) 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.
(f) 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 RJR 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.
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 RJR and any Participant or beneficiary of a
Participant. To the extent any person holds any obligation of RJR by virtue
of an award granted under this Plan, such obligation shall merely
constitute a general unsecured liability of RJR and accordingly shall not
confer upon such person any right, title or interest in any assets of RJR.
(g) Unless the Committee determines otherwise, no benefit or promise
under the Plan shall be secured by any specific assets of RJR or any of its
Subsidiaries, nor shall any assets of RJR or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of RJR's
obligations under the Plan.
7. PERFORMANCE FACTORS
The performance factors selected by the Committee in respect of Performance
Units and Performance Shares shall be based on any one or more of the following:
price of Common Stock or the stock of any affiliate, shareholder 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 and may have a maximum performance
standard above which no additional payments will be made. The applicable
performance period shall not exceed 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 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 RJR 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 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 subject to the stock options being exercised;
5
42
(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.
(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
RJR, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 30% or more of the
combined voting power of RJR's outstanding securities ordinarily having
the right to vote at elections of directors;
(ii) individuals who constitute the Board of Directors on June 14,
1999 (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
RJR's stockholders, was 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 RJR in which such person is
named as a nominee of RJR for director), 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 RJR'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 RJR of a plan or
agreement providing (A) for a merger or consolidation of RJR other than
with a wholly owned subsidiary and other than a merger or consolidation
that would result in the voting securities of RJR outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of RJR 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 RJR. If any of the events enumerated in this paragraph (iii) occur,
RJR's Board shall
6
43
determine the effective date of the Change of Control resulting
therefrom for purposes of this Plan and the Grants hereunder.
9. AMENDMENT AND TERMINATION
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 Section 8(a) 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 RJR'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, RJR'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. 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.
(b) The terms and conditions of stock options granted under Section
10(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.
11. 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.
12. EFFECTIVE DATE AND TERMINATION DATES
The Plan was adopted by RJR (and approved by its shareholder) on May 12,
1999. The Plan shall be effective on and as of June 14, 1999, and shall
terminate 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 made under
the Plan prior to the Effective Date shall be governed by the terms of the Plan
as in effect on the date such Grant was made.
7
4434
YOUR VOTE IS IMPORTANT!
1. Whether or notWe urge you to vote your shares by proxy even if you plan to attend the 2001
annual meeting, you maymeeting. You can always change your vote your
shares by proxy.at the meeting.
There are three ways to vote by proxy:
- BY TELEPHONE. You can vote by telephone by calling 1-877-779-8683(800) 650-1345 (toll
free) on a touch-tone telephone and following the instructions on the proxy
card;card. Stockholders residing outside the United States, Canada and Puerto
Rico should call (402) 572-4997;
- BY INTERNET. You can vote by Internet by logging onto the Internet, and
going
to the web site http://www.eproxyvote.com/proxy.shareholder.com/rjr and following the
instructions on theyour computer screen; or
- BY MAIL. You can vote by mail by completing, signing and dating the
enclosed proxy card and returning it promptly in the accompanying envelope,
which is postage-paid if mailed in the United States.
2. If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow for your shares to be voted. Telephone and Internet voting also will
be offered to stockholders owning stock through certain banks and brokers.
3. If you have any questions or need assistance in voting your shares, please
contact:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (COLLECT)
OR
(800) 322-2885 (TOLL FREE)
4535
To: Participants in the R. J. Reynolds Capital Investment
Plan
Participants in the Savings and Investment Plan for
Employees of R. J. Reynolds Tobacco Company in
Puerto Rico
Participants in the Nabisco/Life Savers Puerto Rico
Capital Accumulation Plan
Shares of common stock of R.J. Reynolds Tobacco
Holdings, Inc. will be voted as you direct if this card is
completed by you and received by The Bank of New York on or
before April 23, 2001. The Bank of New York is responsible for
tabulating the returns. Shares for which no directions are
received will be voted in the same proportion as the shares
for which directions are received.
YOUR VOTE IS IMPORTANT!
Please complete, sign, date and return this proxy card in the enclosed
envelope or vote by telephone or Internet as soon as possible!
If you have any questions or need assistance in voting your shares,
please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (collect)
or
(800) 322-2885 (toll free)
* DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET *
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
P R O X Y
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 19, 2000.25, 2001.
The undersigned hereby appoints Andrew J. Schindler, Charles A. Blixt
and McDara P. Folan, III, and each of them (with full power of
substitution), as proxies of the undersigned to vote all shares of the
common stock of R.J. Reynolds Tobacco Holdings, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on April 19, 200025, 2001 at 9:00 a.m., and at any
adjournments or postponements thereof, as designated on the reverse
side of this proxy card, and in their discretion, the proxies are
authorized to vote upon such other business as may properly come before
the Annual Meeting.
The undersigned also provides directions to Wachovia Bank,Citibank, N.A., as Trustee
under the R. J. Reynolds Capital Investment Plan (OCIPO)("CIP"), and to
Vanguard Group, Inc., as Custodian under the Savings and Investment
Plan for Employees of R. J. Reynolds Tobacco Company in Puerto Rico and
the Nabisco/Life Savers Puerto Rico Capital Accumulation Plan (the
OPuerto"Puerto Rico PlansO)Plans"), to vote shares of the common stock of R.J.
Reynolds Tobacco Holdings, Inc. allocated, respectively, to accounts
of the undersigned under the CIP or the Puerto Rico Plans, and which
are entitled to be voted at the Annual Meeting, and at any adjournments
or postponements thereof, as designated on the reverse side of this
proxy card, and to vote all such shares on such other business as may
properly come before the Annual Meeting.
Election of Class III Directors. Nominees: (01) Mary K. Bush,A. D. Frazier,
Jr., (02) John T. Chain,G. Medlin, Jr. and (03) Thomas C. WajnertNana Mensah
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
P.O. BOX 11009
NEW YORK, N.Y. 10203-0009
Change of address:
-----------------------------
- -------------------------------------------------------------------------------------------
--------------------------------------------------------------
(If you have written in the above space, please mark the
corresponding box on the reverse side SEE REVERSE
of this card.)
SIDE
================================================================================
Fold and Detach Here
- --------------------------------------------------------------------------------
To: Participants in the R. J. Reynolds Capital Investment Plan
Participants in the Savings and Investment Plan for Employees of R. J.
Reynolds Tobacco Company in Puerto Rico
Participants in the Nabisco/Life Savers Puerto Rico Capital Accumulation
Plan
Shares of common stock of R.J. Reynolds Tobacco Holdings, Inc. will be voted as
you direct if this card is completed by you and received by First Chicago Trust
Company of New York on or before April 14, 2000. First Chicago is responsible
for tabulating the returns. Shares for which no directions are received will be
voted in the same proportion as the shares for which directions are received.
- --------------------------------------------------------------------------------(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE.)
36
YOU CAN VOTE YOUR VOTE IS IMPORTANT!
Please complete, sign, date and return this proxy card in the enclosed envelope
or vote by telephone or Internet as soon as possible!
If you have any questions or need assistance in voting your shares, please
contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (collect)
or
(800) 322-2885 (toll free)
46
[X] Please mark your
votes as in this
example.
Shares for which no directions are received will be voted by the proxies FOR
Items 1, 2 and 3 and AGAINST Items 4 and 5, and by Wachovia, as Trustee, and
Vanguard, as Custodian, in the same proportion as the shares for which
directions are received by Wachovia and Vanguard, respectively.
The Board of Directors recommends a vote FOR Items 1, 2, and 3.
FOR WITHHELD
1. Election of
Class I Directors [ ] [ ]
(see reverse side)
For, except withheld from the following nominee(s):
- ---------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of KPMG LLP
as Independent Auditors [ ] [ ] [ ]
3. Approval of 1999 Long-
Term Incentive Plan [ ] [ ] [ ]
The Board of Directors recommends a vote AGAINST Items 4 and 5.
FOR AGAINST ABSTAIN
4. Stockholder proposal on
tobacco advertising and youth [ ] [ ] [ ]
5. Stockholder proposal on youth
access to tobacco products [ ] [ ] [ ]
SPECIAL ACTION
Mark this box if change of [ ]
address on reverse side
Mark this box if you want to [ ]
discontinue the annual report
mailing for this account
SIGNATURE (S) DATE TITLE
-------------------------------- ------------ -------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, trustee, guardian, or for a corporation,
please give your title. Please sign and date here, detach and return in the
enclosed envelope or vote by telephone or Internet.
================================================================================
Fold and Detach Here
You can vote your shares by telephone or Internet!
Quick * Easy * Immediate * AvailableSHARES BY TELEPHONE OR INTERNET!
QUICK (*) EASY (*) IMMEDIATE (*) AVAILABLE 24 hours a day,HOURS, 7 days a week.DAYS A WEEK.
We encourage you to take advantage of the convenient ways to vote your shares.
If voting by proxy, you may vote by mail, or choose one of the two methods
described below.
TO VOTE BY TELEPHONE Call toll free (800) 650-1345 on a touch tone
telephone. Stockholders residing outside the United
States, Canada and Puerto Rico should call (402)
572-4997. Telephone voting will be available until
5:00 p.m., Eastern time, on April 24, 2001.
Enter the Control Number located in the box below,
just above the perforation.
Follow the recorded instructions.
TO VOTE BY INTERNET Log on to the Internet and go to the web site
http://proxy.shareholder.com/rjr. Internet voting
will be available until 5:00 p.m., Eastern time, on
April 24, 2001.
Follow the instructions on your computer screen.
Your telephone or Internet vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned yourthe proxy card.
To
vote by telephone or Internet, please follow these easy steps:
TOIF YOU VOTE BY TELEPHONE Call toll free 1-877-PRX-VOTE (1-877-779-8683) on a
touch-tone telephone. Stockholders residing outside
the United States, Canada and Puerto Rico should call
1-201-536-8073. Telephone voting will be available
until midnight, Eastern time, on April 18, 2000.
Enter the Control Number located in the box above,
just below the perforation.
Follow the recorded instructions.
TO VOTEOR INTERNET, DO NOT
MAIL BACK THE PROXY CARD.
CONTROL NUMBER
FOR TELEPHONE/INTERNET VOTING
PLEASE DETACH HERE
* YOU MUST DETACH THIS PORTION OF THE PROXY CARD *
BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE
* DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET Log onto the Internet and go to the web site
http://www.eproxyvote.com/rjr. Internet voting will
be available until midnight, Eastern time, on April
18, 2000.
Follow the instructions on the screen.
If you vote by telephone or Internet, do not mail back the proxy card.
THANK YOU*
SHARES FOR VOTING!
WHICH NO DIRECTIONS ARE RECEIVED WILL BE VOTED BY THE PROXIES FOR
ITEMS 1 AND 2 AND AGAINST ITEM 3, AND BY CITIBANK, AS TRUSTEE, AND VANGUARD, AS
CUSTODIAN, IN THE SAME PROPORTION AS THE SHARES FOR WHICH DIRECTIONS ARE
RECEIVED BY CITIBANK AND VANGUARD, RESPECTIVELY.
1. Election of Class II FOR all nominees WITHHOLD AUTHORITY to vote (*)EXCEPTIONS [ ]
Directors listed below [ ] for all nominees listed below [ ]
Nominees: (01) A. D. Frazier, Jr., (02) John G. Medlin, Jr. and (03) Nana Mensah
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
(*) Exceptions
------------------------------------------------------------------
2. Ratification of KPMG LLP as Independent Auditors 3. Stockholder proposal on director compensation
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark this box if change of Mark this box if you wish to
address on reverse side. [ ] discontinue the annual report [ ]
mailing for this account.
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, trustee, guardian, or
for a corporation, please give your title.
Please sign and date here, detach and return
in the enclosed envelope or vote by
telephone or Internet.
Date , 2001
--------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature
Votes must be indicated [X]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY [X] in black or blue ink.
USING THE ENCLOSED ENVELOPE.
3503