UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantx
Check the appropriate box:
Reynolds American Inc.
Payment of Filing Fee (Check the appropriate box):
(1) Title of each class of securities to which transaction applies:
(1) Amount Previously Paid:
Sincerely, | |
Andrew J. Schindler | |
Chairman |
(1) | to elect four Class I directors to serve until the 2008 annual meeting of shareholders; | |
(2) | to approve the Reynolds American Inc. Long-Term Incentive Plan; | |
(3) | to ratify the appointment of KPMG LLP as independent auditors for RAI’s 2005 fiscal year; | |
(4) | to act on three shareholder proposals, if presented by their proponents; and | |
(5) | to transact any other business as may be properly brought before the meeting or any adjournment or postponement thereof. |
By Order of the Board of Directors, | |
McDara P. Folan, III | |
Secretary |
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The Board of Directors | 7 | |||||
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Security Ownership of Certain Beneficial Owners and Management | 23 | |||||
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Executive Compensation | 26 | |||||
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Audit Matters | 44 | |||||
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Shareholder Proposals | 47 | |||||
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Certain Relationships and Related Transactions | 53 | |||||
Other | 55 | |||||
Appendix A: Reynolds American Inc. Audit Committee Charter | ||||||
Appendix B: Reynolds American Inc. Long-Term Incentive Plan |
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Date: | Friday, May 6, 2005 | |
Time: | 9:00 a.m. (Eastern time) | |
Place: | RJR Plaza Building Auditorium RAI Corporate Offices 401 North Main Street Winston-Salem, North Carolina 27102 |
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• | forthe election of all nominees as Class I directors, | |
• | forthe approval of the LTIP, | |
• | forthe ratification of the selection of KPMG LLP as our independent auditors for the Company’s 2005 fiscal year, | |
• | againstthe three shareholder proposals described on pages 47 to 53 of this proxy statement, and | |
• | for or againstany other matters that come before the annual meeting, as the proxy holders deem advisable. |
• | By telephone — You can vote by telephone by calling (800) 690-6903 (toll-free) on a touch-tone telephone and following the instructions on the proxy card, |
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• | By Internet — You can vote by Internet by logging onto the Internet, going to the web sitewww.proxyvote.com and following the instructions on 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. |
• | 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 | |
• | 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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Item | Vote Necessary* | |
• Item 1: Election of Class I Directors | Directors are elected by a “plurality” vote of shares cast at the meeting, meaning that the director nominee with the most votes for a particular slot is elected for that slot. Director nominees do not need a majority to be elected. | |
• Item 2: Approval of the LTIP | Approval requires the affirmative vote of a majority of the shares cast at the meeting. | |
• Item 3: Ratification of appointment of independent auditors | Approval requires the affirmative vote of a majority of the shares cast at the meeting. | |
• Items 4-6: Shareholder proposals | Approval requires the affirmative vote of a majority of the shares cast at the meeting. |
* | Under rules of the New York Stock Exchange (the “NYSE”), if you hold your shares in street name, then your broker is permitted to vote your shares on Items 1 and 3 even if it does not receive voting instructions from you. Under NYSE rules, your broker may not vote your shares on Item 2 and Items 4 through 6 without instructions from you. Without your voting instructions, a broker non-vote will occur on Item 2 and Items 4 through 6. Abstentions, shares that are withheld as to voting with respect to nominees for director and broker non-votes will not be counted as a vote cast in favor of or against a proposal. |
• | as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company, | |
• | in case of a contested proxy solicitation, | |
• | if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management, or | |
• | to allow the independent inspectors of election to certify the results of the vote. |
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Class I Directors (terms expiring in 2008) |
Name | Age | Business Experience | ||
Betsy S. Atkins | 50 | Ms. Atkins has been the Chief Executive Officer of Baja Ventures, an independent venture capital firm focused on the technology and life sciences industry, since 1994. Previously, Ms. Atkins served as Chairman and Chief Executive Officer of NCI, Inc., a functional food/ nutraceutical company from 1991 through 1993. Ms. Atkins was a co-founder of Ascend Communications, Inc. in 1989 and a member of its Board of Directors, and served as its Worldwide Sales, Marketing and International Senior Vice President prior to its acquisition by Lucent Technologies in 1999. Ms. Atkins commenced serving on the Board of RAI as of July 30, 2004. Ms. Atkins also serves on the board of directors of Polycom, Inc., UTStarcom, Inc., McDATA Corporation and Paychex, Inc., as well as a number of private companies. Ms. Atkins also is a Presidential-appointee to the Pension Benefit Guaranty Corporation advisory committee and a Governor-appointed member of the Florida International University Board of Trustees. | ||
E.V. (Rick) Goings | 59 | Mr. Goings has been Chairman and Chief Executive Officer of Tupperware Corporation, a worldwide direct-selling consumer products company, since October 1997, and served as its President and Chief Operating Officer from November 1992 until October 1997. Prior to joining Tupperware, Mr. Goings served at Avon Products Inc., a leading direct seller of beauty and related products, from 1985 to November 1992, where he held a number of senior management positions: in Europe as President of Avon Germany, in the Pacific Rim as Group Vice President and Senior Operating Officer, and ultimately in the United States as President of Avon USA. Mr. Goings commenced serving on the Board of RAI as of July 30, 2004, and served on the board of directors of R.J. Reynolds Tobacco Holdings, Inc., a wholly owned subsidiary of RAI and formerly a publicly traded company (“RJR”), from June 2002 to July 2004. Mr. Goings also is a member of the boards of directors of Tupperware Corporation, Circuit City Stores, Inc., Rollins College and SunTrust Bank, Central Florida N.A., and is the former National Chairman, and current Chairman-Elect, of the Board of Governors for the Boys and Girls Clubs of America. |
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Name | Age | Business Experience | ||
Nana Mensah | 52 | Mr. Mensah has been the Chairman and Chief Executive Officer of ’XPORTS, Inc., a privately held company that exports food packaging and food processing equipment and pharmaceuticals to foreign markets, since January 2005, and previously served in those same positions from April 2003 until July 2003 and from October 2000 until December 2002. He had served as the Chief Operating Officer — Domestic of Church’s Chicken, a division of AFC Enterprises, Inc. and one of the world’s largest quick-service restaurant chains, from August 2003 to December 2004. Mr. Mensah was President, U.S. Tax Services of H&R Block Inc., a tax, mortgage and financial services company, from January 2003 until March 2003. He also was a management consultant from October 1999 to September 2000. Previously, Mr. Mensah 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 commenced serving on the Board of RAI as of July 30, 2004, and served on the board of directors of RJR from June 1999 to July 2004. Mr. Mensah is the Co-Chair of the Board of Advisors of the College of Human Environmental Sciences for the University of Kentucky, and is a Distinguished Fellow at Georgetown College in Kentucky. He also is a member of the boards of trustees of the Lexington Philharmonic Society, God’s Pantry and the Children’s Miracle Network. |
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Name | Age | Business Experience | ||
Robert S. (Steve) Miller, Jr. | 63 | Mr. Miller has been Chairman of the Board of Federal-Mogul Corporation, an auto parts supplier, since January 2004, and was interim Chief Executive Officer of Federal-Mogul from July 2004 to March 2005. Previously, he served in a number of corporate restructuring situations. Mr. Miller was Chairman and Chief Executive Officer of Bethlehem Steel Corporation, a global steel manufacturer, from September 2001 until December 2003, and served as Chairman of Federal-Mogul from September 2000 until October 2001 and as Chief Executive Officer from September 2000 until January 2001. From February 2000 until September 2000, Mr. Miller served as a special advisor to Aetna, Inc., a health insurer, and from November 1999 until February 2000, he served as President and a director of Reliance Group Holdings, Inc., a property and casualty insurance company. Mr. Miller served as President and Chief Executive Officer of Waste Management, Inc., a waste transporter, from August 1999 until November 1999 and as non-executive Chairman of the Board of Waste Management from July 1998 until May 1999. Mr. Miller commenced serving on the Board of RAI as of July 30, 2004, and served on the board of directors of RJR from July 2003 to July 2004. Mr. Miller also is a member of the boards of directors of Federal-Mogul Corporation, United Air Lines, Inc., Symantec Corporation and Waste Management, Inc. |
Class II Directors (terms expiring in 2006) |
Antonio Monteiro de Castro | 59 | Mr. Monteiro de Castro has been the Chief Operating Officer of BAT, the world’s second largest publicly traded tobacco group, since January 2004 and has served as a director of BAT since March 2002. He joined BAT in 1996 as the Regional Director for Latin America and the Caribbean. Previously, Mr. Monteiro de Castro served as Vice President of Souza Cruz SA, the Brazilian subsidiary of BAT, beginning in 1989. He became President and CEO of Souza Cruz SA, in 1991 and served in such capacity until 1995. Mr. Monteiro de Castro commenced serving on the Board of RAI as of July 30, 2004. He also is President of the Administrative Council, Souza Cruz SA, a member of the board of directors of British American Racing (Holdings) and a member of the board of the Getulio Vargas Foundation. |
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Name | Age | Business Experience | ||
H.G.L. (Hugo) Powell | 60 | Mr. Powell retired in 2002 from Interbrew S.A., an international brewer that in 2004 became part of Interbrew AmBev, where he served as Chief Executive Officer since 1999. During Mr. Powell’s tenure as Chief Executive Officer, he led Interbrew through a crucial period in its expansion and evolution, including the completion of 33 acquisitions. Between 1984 and 1999, Mr. Powell held various operational positions within John Labatt Ltd. and Interbrew, including Chief Executive Officer of Interbrew Americas since 1995. Mr. Powell commenced serving on the Board of RAI as of July 30, 2004. | ||
Joseph P. Viviano | 66 | Mr. Viviano served as the Vice Chairman of Hershey Foods Corporation, a chocolate and confectionery manufacturer, from January 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. Mr. Viviano commenced serving on the Board of RAI as of July 30, 2004, and served on the board of directors of RJR from June 1999 to July 2004. He also is a member of the boards of directors of Chesapeake Corporation, Huffy Corporation, Harsco Corporation and RPM International Inc. | ||
Thomas C. Wajnert | 61 | Mr. Wajnert has been Managing Director of Fairview Advisors, LLC, a merchant bank, since January 2002. He was Chairman and Chief Executive Officer of SEISMIQ, Inc., a provider of advanced technology to the commercial finance and leasing industry, from its founding in April 2000 until December 2001. Mr. Wajnert also was the Chairman of, and a significant investor in, EPIX Holdings, Inc., a professional employer organization, from March 1998 until November 2003, where he also served as Chief Executive Officer from March 1998 to April 1999. Previously, Mr. Wajnert was Chairman of the Board 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. He was self-employed from December 1997 to March 1998. Mr. Wajnert commenced serving on the Board of RAI as of July 30, 2004, and served on the board of directors of RJR from June 1999 to July 2004. Mr. Wajnert also serves on the boards of directors of JLG Industries, Inc. and NYFIX, Inc. |
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Class III Directors (terms expiring in 2007) |
Name | Age | Business Experience | ||
John T. Chain, Jr. | 70 | 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 served as the President of Quarterdeck Equity Partners, Inc., an investor in the aerospace industry, from January 1996 to January 2003. He also 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 commenced serving on the Board of RAI as of July 30, 2004, and served on the boards of directors of RJR from June 1999 to July 2004, RJR Nabisco, Inc. (now known as RJR) from 1994 to June 1999, and of Nabisco Group Holdings Corp. (the former parent of RJR) from 1994 to December 2000. General Chain also is a member of the boards of directors of ConAgra Foods, Inc., Northrop Grumman Corporation, Kemper Insurance and Thomas Group, Inc. | ||
Susan M. Ivey | 46 | Ms. Ivey has been President and Chief Executive Officer of RAI since January 2004 and, since July 2004, Chairman and Chief Executive Officer of R. J. Reynolds Tobacco Company, a wholly owned operating subsidiary of RAI (“RJR Tobacco”). She served as President and Chief Executive Officer of B&W from 2001 to 2004. Ms. Ivey also served as a director of B&W from 2000 to 2004 and Chairman of the Board of B&W from January 2003 to 2004. Ms. Ivey joined B&W in 1981 as a trade marketing representative. After holding a number of trade and brand positions, she accepted an international assignment with BAT in 1990. While overseas, Ms. Ivey held a number of positions, including Director of Marketing in China and Head of International Brands at BAT. She returned to B&W in 1999 as Vice President of Marketing and subsequently became Senior Vice President of Marketing, a position which she held until her appointment in 2001 as President and Chief Executive Officer of B&W. Ms. Ivey commenced serving on the Board of RAI as of January 2004. She also is a member of the board of directors of Bellarmine University, and is a member of The Committee of 200, an international organization of female chief executive officers, entrepreneurs and business leaders. |
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Name | Age | Business Experience | ||
Andrew J. Schindler | 60 | Mr. Schindler has served as Non-Executive Chairman of RAI since February 2005. Mr. Schindler served as the Executive Chairman of RAI from January 2004 to January 2005, when he retired as an employee of RAI. He also served as Chief Executive Officer of RJR Tobacco from 1995 to July 2004, and as President and Chief Executive Officer of RJR from 1999 to July 2004. Mr. Schindler served as a director of RJR Tobacco from 1989 to July 2004, and as Chairman of the Board of RJR and RJR Tobacco from 1999 to July 2004. Mr. Schindler joined RJR in 1974. He became Senior Vice President — Operations of RJR Tobacco in 1989 and was elected Executive Vice President — Operations of RJR Tobacco in 1991. Mr. Schindler served as Chief Operating Officer of RJR Tobacco from 1994 until 1995 and as its President from 1994 until January 2002. He achieved the rank of captain in the U.S. Army, where he held command and staff positions in the United States and Vietnam. Mr. Schindler serves on the board of directors of Arvinmeritor, Inc., and is a member of the Wake Forest University board of trustees and the boards of directors of Winston-Salem Business, Inc. and Idealliance, formerly the North Carolina Emerging Technology Alliance. He also currently serves as Chairman of the Winston-Salem Alliance. | ||
Neil R. Withington | 48 | Mr. Withington has been Director, Legal and Security, and Group General Counsel of BAT, the world’s second largest publicly traded tobacco group, since August 2000. Mr. Withington joined BAT in 1993 as a Senior Lawyer and served in that capacity until 1995. He was named as the Assistant General Counsel and Head of Product Liability Litigation Group of BAT in 1996. Mr. Withington then served as the Deputy General Counsel of BAT from 1998 until 2000. |
Nominator | Nominee | |
B&W | B&W has the right to designate for nomination five directors, at least three of whom are required to be independent directors and two of whom may be executive officers of BAT or any of its subsidiaries. | |
Governance Committee | The Governance Committee will recommend to the Board for nomination: | |
• the chief executive officer of RAI or an equivalent senior executive officer, and | ||
• the remaining directors, each of whom is required to be an independent director, except that Mr. Schindler may be re-nominated for election without regard to his independence. |
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If B&W’s ownership interest in RAI as of a specified date is: | B&W will have the right to designate: | |
• less than 32% but greater than or equal to 27% | • two independent directors, and | |
• two directors who may be executive officers of BAT or any of its subsidiaries. | ||
• less than 27% but greater than or equal to 22% | • two independent directors, and | |
• one director who may be an executive officer of BAT or any of its subsidiaries. | ||
• less than 22% but greater than or equal to 15% | • one independent director, and | |
• one director who may be an executive officer of BAT or any of its subsidiaries. | ||
• less than 15% | • no directors. |
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• | The director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer, of the Company, | |
• | The director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $100,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), | |
• | (a) The director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (b) the director is a current employee of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (d) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time, | |
• | The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee, or | |
• | The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1,000,000, or two percent of such other company’s consolidated gross revenues. |
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Audit Committee |
• | overseeing that management has maintained the reliability and integrity of the Company’s accounting policies, financial reporting and disclosure practices and financial statements, | |
• | overseeing that management has established and maintained processes to assure that an adequate system of internal control is functioning within the Company, | |
• | overseeing that management has established and maintained processes to assure compliance by the Company with all applicable laws, regulations and Company policies, | |
• | overseeing the integrity of the Company’s financial statements and the Company’s compliance with legal and regulatory requirements, and | |
• | overseeing the qualifications, independence and performance of the Company’s independent auditors and internal audit department. |
Compensation Committee; Compensation Committee Interlocks and Insider Participation |
• | approves, or makes recommendations to the Board with respect to, compensation and grants of restricted stock, performance shares, performance units and other long-term incentives to management employees, | |
• | administers plans and programs relating to employee benefits, incentives and compensation, | |
• | initiates and oversees annually the evaluation of the performance of the Chief Executive Officer, and | |
• | reviews and reports to the Board on succession planning for RAI’s Chief Executive Officer and other top executive management positions. |
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Governance Committee; Director Nomination Process |
• | reviews the qualifications of candidates for nomination to the Board and its committees, | |
• | recommends to the Board nominees for election as directors, | |
• | reviews periodically the compensation of the Board in relation to comparable companies and recommends any changes needed to maintain appropriate and competitive Board compensation, | |
• | evaluates and recommends the processes and practices through which the Board conducts its business, | |
• | reviews and evaluates annually the assignment of the various oversight responsibilities and activities of the Board committees, | |
• | reviews RAI’s corporate governance policies and considers the adequacy of such policies in response to shareholder concerns, and | |
• | initiates and oversees annually an appraisal of the performance of the Board in meeting its corporate governance responsibilities. |
• | professional third party search firms, which provide candidate names, biographies and background information, | |
• | the Governance Committee’s, the Board’s and management’s networks of contacts, and | |
• | shareholder recommendations. |
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• | extent of experience in business, finance or management, | |
• | overall judgment to advise and direct RAI and its operating subsidiaries in meeting their responsibilities to shareholders, customers, employees and the public, and | |
• | the interplay of a candidate’s experience with the experience of the other Board members and the extent to which the candidate would be a desirable addition to the Board and any of its committees. |
• | a majority of the Board must be independent within the meaning of the Governance Guidelines and the NYSE listing standards, | |
• | the Executive Chairman, if there is one, and the Chief Executive Officer normally will be the only management directors, | |
• | a Board member, other than a non-independent designee of B&W pursuant to the Governance Agreement, who ceases to be active in his or her principal business or profession, or experiences other changed circumstances that could diminish his or her effectiveness as a Board member, is expected to offer his or her resignation to the Board, which will determine whether such member should continue to serve as a director, and | |
• | the Board expects that no director will be nominated for election or re-election to the Board following his or her 70th birthday. |
• | the candidate’s name, age, business address and, if known, residence address, | |
• | the candidate’s principal occupation or employment, | |
• | the number of shares of RAI common stock owned by the candidate, | |
• | the written consent of the candidate to be named in the proxy statement as a nominee, if applicable, and to serve as a director if elected, and | |
• | a description of all arrangements or understandings between the shareholder, the candidate and any other person or persons (naming such person or persons), pursuant to which the recommendation is being made by the shareholder. |
• | whether the Governance Committee currently is looking to fill a new position created by an expansion of the number of directors, or a vacancy that may exist on the Board, | |
• | whether nomination of a particular candidate would be consistent with the Governance Agreement, |
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• | whether the current composition of the Board is consistent with the criteria described in the Governance Guidelines, | |
• | whether the candidate submitted possesses the requisite qualifications that generally are the basis for selection for candidates to the Board, as described in the Governance Guidelines and as described on page 18 above, and | |
• | whether the candidate would be considered independent under the Governance Guidelines and the NYSE listing standards. |
Board Meetings |
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Annual Retainers and Meeting Fees |
• | Each Outside Director receives an annual retainer of $57,000, except that the Non-Executive Chairman receives an annual retainer of $114,000. In addition, each Outside Director who is a committee chair receives a supplemental annual retainer as follows: Audit Committee chair — $10,000; Compensation Committee chair — $7,500; and Governance Committee chair — $5,000. | |
• | Outside Directors receive an attendance fee of $1,250 for each Board meeting attended, except that the Non-Executive Chairman receives an attendance fee of $2,500 for each Board meeting attended. In addition, members of each Board committee (all of whom are Outside Directors) receive an attendance fee for each committee meeting attended as follows: Audit Committee — $1,500; Compensation Committee — $1,350; and Governance Committee — $1,250. |
Deferred Compensation Plan |
Equity Awards |
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Other Benefits |
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Payment to BAT for Services of Certain Board Designees |
• | shares of RAI common stock beneficially owned by the director, | |
• | deferred stock units or shares of RAI common stock granted to the director under the EIAP, and | |
• | deferred stock units received by the director as deferred compensation under the Deferred Compensation Plan. |
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Amount and Nature of | |||||||||
Name and Address of Beneficial Owner | Beneficial Ownership | Percent of Class(4) | |||||||
British American Tobacco p.l.c. | 61,952,762 | (1) | 42.04 | ||||||
Globe House 4 Temple Place London, WC2R 2PG | |||||||||
Brown & Williamson Holdings, Inc. | 61,952,762 | (1) | 42.04 | ||||||
103 Foulk Road, Suite 117 Wilmington, Delaware 19803 | |||||||||
Capital Research and Management Company | 12,283,270 | (2) | 8.33 | ||||||
333 South Hope Street Los Angeles, California 90071 | |||||||||
AMVESCAP PLC | 9,314,156 | (3) | 6.32 | ||||||
11 Devonshire Square London, England EC2M 4YR | |||||||||
INVESCO Asset Management Limited | 9,290,737 | (3) | 6.30 | ||||||
30 Finsbury Square London, England EC2A 1AG |
(1) | According to a Schedule 13G filed with the SEC on February 9, 2005, Brown & Williamson Holdings, Inc. and British American Tobacco p.l.c. held sole dispositive and sole voting power over these shares as of December 31, 2004. According to such Schedule 13G, Brown & Williamson Holdings, Inc. is the record and beneficial owner of these shares, and British American Tobacco p.l.c. is the beneficial owner of such shares by virtue of its indirect ownership of all of the equity and voting power of Brown & Williamson Holdings, Inc. |
(2) | According to a Schedule 13G/ A filed jointly by Capital Research and Management Company and The Investment Company of America with the SEC on February 14, 2005, Capital Research and Management Company, acting as an investment advisor to various investment companies, held sole dispositive power, but no voting power, over these shares as of December 31, 2004. Capital Research and Management Company also disclaimed beneficial ownership of the above shares in such filing. The Investment Company of America, an investment company advised by Capital Research and Management Company, is the beneficial owner of, and held sole voting power over, 4,461,666 of these shares. |
(3) | According to a Schedule 13G filed by AMVESCAP PLC, a holding company, on behalf of itself and its investment advisory subsidiaries, INVESCO Asset Management Limited and INVESCO Institutional (N.A.), Inc., with the SEC on February 15, 2005, INVESCO Asset Management Limited and INVESCO Institutional (N.A.), Inc. held sole voting and dispositive power over 9,290,737 and 23,419 of these shares, respectively, as of December 31, 2004. |
(4) | Information in this column is based on 147,380,799 shares of RAI common stock outstanding on March 8, 2005, the record date for the 2005 annual meeting. |
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Amount and Nature of | ||||||||
Name of Beneficial Owner | Beneficial Ownership | Percent of Class(5) | ||||||
Betsy S. Atkins(1) | 0 | * | ||||||
Lynn J. Beasley(2) | 24,157 | * | ||||||
Charles A. Blixt(2) | 14,289 | * | ||||||
John T. Chain, Jr.(1) | 1,979 | * | ||||||
E.V. (Rick) Goings(1)(3) | 13,500 | * | ||||||
Susan M. Ivey(2) | 1,450 | * | ||||||
Nana Mensah(1)(3) | 7,410 | * | ||||||
Robert S. (Steve) Miller, Jr.(1)(3) | 11,000 | * | ||||||
Antonio Monteiro de Castro | 0 | * | ||||||
Dianne M. Neal(2) | 6,256 | * | ||||||
H.G.L. (Hugo) Powell(1) | 0 | * | ||||||
Andrew J. Schindler(1) | 74,841 | * | ||||||
Joseph P. Viviano(1) | 4,000 | * | ||||||
Thomas C. Wajnert(1) | 5,000 | * | ||||||
Neil R. Withington | 0 | * | ||||||
All directors, director nominees and executive officers as a group (consisting of 23 persons)(4) | 219,817 | * |
* | Less than 1 percent |
(1) | The shares beneficially owned do not include the following deferred common stock units, which are RAI common stock equivalents awarded under the EIAP or credited under the Deferred Compensation Plan: (a) 3,814 units for each of Ms. Atkins, General Chain, and Messrs. Miller, Powell, Viviano and Wajnert; (b) 4,792 units for Mr. Goings; (c) 222 units for Mr. Mensah; and (d) 3,500 units for Mr. Schindler. Messrs. Monteiro de Castro and Withington do not participate in either the EIAP or the Deferred Compensation Plan. |
(2) | The shares beneficially owned do not include the following performance shares, granted under the LTIP, which are paid to the LTIP participant in cash upon vesting, but the value of which is derived from the value of RAI common stock: (a) 57,325 performance shares for Ms. Ivey; (b) 34,098 performance shares for Ms. Beasley; (c) 23,491 performance shares for Mr. Blixt; and (d) 19,347 performance shares for Ms. Neal. |
(3) | The shares beneficially owned include the following shares subject to outstanding options: (a) 10,000 held by Mr. Goings; (b) 1,400 held by Mr. Mensah; and (c) 10,000 held by Mr. Miller. |
(4) | The shares beneficially owned by all directors, director nominees and executive officers as a group: (a) do not include an aggregate of 216,376 performance shares, granted to executive officers under the LTIP, and which are paid to LTIP participants in cash upon vesting, but the value of which is derived from the value of RAI common stock; (b) do not include an aggregate of 31,396 deferred common stock units awarded to directors under the EIAP or credited to directors under the Deferred Compensation Plan; and (c) include an aggregate of 41,400 shares subject to outstanding options. |
(5) | The information in this column is based on 147,380,799 shares of RAI common stock outstanding on March 8, 2005, the record date for the 2005 annual meeting. 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 held by such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. |
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• | sell or transfer RAI common stock if, to B&W’s knowledge, the acquiring party would beneficially own seven and one-half percent or more of the voting power of all of RAI’s voting stock after giving effect to such sale or transfer, or | |
• | in any six-month period, and except in response to certain tender or exchange offers, sell or transfer RAI common stock representing more than five percent of the voting power of all of RAI’s voting stock without first obtaining the consent of a majority of the independent members of RAI’s Board not designated by B&W (excluding Mr. Schindler). |
25
Executive Compensation Principles and Policies |
26
Major Compensation Components |
Annual Compensation |
27
Long-Term Compensation |
Chief Executive Officer’s Compensation |
Summary |
Respectfully submitted, | |
Joseph P. Viviano (Chair) | |
Betsy S. Atkins | |
John T. Chain, Jr. | |
E.V. (Rick) Goings |
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Annual Compensation | Long-Term Compensation | ||||||||||||||||||||||||||||||||
Restricted | Securities | ||||||||||||||||||||||||||||||||
Other Annual | Stock | Underlying | LTIP | All Other | |||||||||||||||||||||||||||||
Bonus | Compensation | Awards | Options/SARs | Payouts | Compensation | ||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary($) | ($)(4) | ($)(5) | ($)(6) | (#) | ($)(7) | ($)(8) | |||||||||||||||||||||||||
Susan M. Ivey, | 2004 | 411,253 | 476,000 | 237,031 | 0 | 0 | 0 | 10,000 | |||||||||||||||||||||||||
President and Chief | |||||||||||||||||||||||||||||||||
Executive Officer(2) | |||||||||||||||||||||||||||||||||
Andrew J. Schindler, | 2004 | 1,108,500 | 1,566,000 | 84,963 | 0 | 0 | 4,871,533 | 10,981,799 | |||||||||||||||||||||||||
Non-Executive | 2003 | 1,076,250 | 1,285,000 | 82,954 | 1,637,472 | 0 | 1,678,600 | 4,541,637 | |||||||||||||||||||||||||
Chairman(3) | 2002 | 1,041,667 | 250,000 | 80,938 | 1,731,043 | 0 | 714,000 | 1,865,690 | |||||||||||||||||||||||||
Lynn J. Beasley, | 2004 | 789,250 | 948,000 | 76,230 | 0 | 0 | 2,318,676 | 482,217 | |||||||||||||||||||||||||
President and Chief | 2003 | 758,333 | 778,000 | 66,044 | 874,360 | 0 | 755,370 | 168,183 | |||||||||||||||||||||||||
Operating Officer, | 2002 | 700,000 | 142,000 | 65,092 | 865,522 | 0 | 321,300 | 97,097 | |||||||||||||||||||||||||
RJR Tobacco | |||||||||||||||||||||||||||||||||
Charles A. Blixt, | 2004 | 543,750 | 576,000 | 73,858 | 0 | 0 | 1,896,930 | 539,412 | |||||||||||||||||||||||||
Executive Vice | 2003 | 527,917 | 473,000 | 65,735 | 613,182 | 0 | 755,030 | 311,914 | |||||||||||||||||||||||||
President, General | 2002 | 512,500 | 92,000 | 65,227 | 667,716 | 0 | 303,450 | 28,305 | |||||||||||||||||||||||||
Counsel and | |||||||||||||||||||||||||||||||||
Assistant Secretary | |||||||||||||||||||||||||||||||||
Dianne M. Neal, | 2004 | 425,833 | 452,000 | 74,125 | 0 | 0 | 545,952 | 46,736 | |||||||||||||||||||||||||
Executive Vice | 2003 | 308,150 | 356,000 | 45,562 | 454,230 | 0 | 88,243 | 9,905 | |||||||||||||||||||||||||
President and Chief | 2002 | 208,333 | 22,000 | 28,490 | 86,547 | 0 | 58,191 | 9,340 | |||||||||||||||||||||||||
Financial Officer |
(1) | The amounts shown in this table reflect (a) for all Named Executive Officers, compensation paid or accrued by RAI and its subsidiaries, including RJR Tobacco, for the period from July 30, 2004 to December 31, 2004, and (b) for all Named Executive Officers other than Ms. Ivey, compensation paid or accrued by RJR and its subsidiaries, including RJR Tobacco, for that period prior to July 30, 2004 covered by the table. |
(2) | Ms. Ivey commenced earning compensation as President and Chief Executive Officer of RAI effective as of July 30, 2004, the date upon which the Business Combination was consummated. During the period of the 2004 fiscal year preceding such date, and during the 2003 and 2002 fiscal years, Ms. Ivey was compensated by B&W and/or its affiliates. |
(3) | Mr. Schindler served as Executive Chairman from July 2004 until January 2005, and retired as an employee of RAI effective on January 31, 2005. He assumed the position of Non-Executive Chairman on February 2, 2005. Under RAI’s Bylaws, the Non-Executive Chairman is not an officer or employee of RAI. The compensation Mr. Schindler receives as the Non-Executive Chairman is described above under the heading “The Board of Directors — Director Compensation.” |
(4) | The amounts in this column represent amounts paid upon the vesting of one-year performance units granted pursuant to the LTIP. The vesting date value of each such performance unit was determined by the Board’s Compensation Committee in the first quarter of 2005, based upon corporate performance measures established by the Board on the date of grant. |
(5) | The total amount shown in this column for each Named Executive Officer includes the following payments made in lieu of such persons’ participation in the Company’s former executive perquisites |
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program: Ms. Ivey — $26,330; Mr. Schindler — $79,000; Ms. Beasley — $70,200; Mr. Blixt — $70,200; and Ms. Neal — $70,200. The amount shown in this column for Ms. Ivey also includes a payment of $180,112, pursuant to the Company’s relocation program, in connection with her move from Kentucky to North Carolina. |
(6) | The amount shown in this column for each Named Executive Officer is equal to the number of restricted shares of RJR common stock granted by RJR under the LTIP to such officer multiplied by the per share closing price of RJR common stock on the date of grant. None of the Named Executive Officers held any restricted shares of RAI common stock as of the last day of the 2004 fiscal year. |
Generally, the restricted shares of RJR common stock granted in the 2003 and 2002 fiscal years had been scheduled to vest during the 2006 and 2005 fiscal years, respectively, subject to the payment by RJR to its shareholders of a minimum quarterly dividend, unless the Board waived such dividend payment as a condition to vesting. With respect to the restricted shares of RJR common stock granted in the 2002 fiscal year, the actual number of shares to be distributed upon vesting also was subject to change based upon corporate performance over a three-year period. In addition, the restricted shares of RJR common stock granted in both fiscal 2003 and 2002 would vest fully prior to their originally scheduled vesting date upon the occurrence of certain events, including a change of control of RJR. The Business Combination constituted a change of control of RJR within the meaning of the LTIP and, as a result, all restricted shares of RJR common stock outstanding as of July 30, 2004, the date upon which the Business Combination was consummated, immediately vested as of such date and were converted into an equal number of unrestricted shares of RAI common stock. | |
(7) | The amounts shown in this column for the 2004 fiscal year represent payments made with respect to performance units that had been granted: |
• | in fiscal 2001 and vested in January 2004, and | |
• | in fiscal 2002 and 2003 and vested on a pro rata basis upon the consummation of the Business Combination, with the unvested portion of the performance units being forfeited. |
(8) | The components of the amounts shown in this column for the 2004 fiscal year consist of: |
• | contributions made by RAI to the Named Executive Officers under the Company’s qualified and non-qualified defined contribution plans as follows: |
RAI Matching Contribution | RAI Contribution | |||||||
Name | (qualified plan)($) | (non-qualified plan)($) | ||||||
Ms. Ivey | 0 | 10,000 | ||||||
Mr. Schindler | 6,150 | 68,439 | ||||||
Ms. Beasley | 6,150 | 42,850 | ||||||
Mr. Blixt | 6,150 | 25,718 | ||||||
Ms. Neal | 6,150 | 18,335 |
• | a change of control payment to Mr. Schindler of $7,196,700 in connection with the consummation of the Business Combination, | |
• | payment to Mr. Schindler of a retention bonus in the amount of $900,000, pursuant to a cash retention grant provided to Mr. Schindler on August 17, 1999, and | |
• | payment of non-qualified pension benefits from a retention trust, pursuant to the funding of a retirement benefits program, as described under “— Funding of Retirement Benefits” below, as follows: Mr. Schindler — $2,810,509; Ms. Beasley — $433,216; Mr. Blixt — $507,543; and Ms. Neal — $22,250. |
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Number of Securities | ||||||||||||||||||||||||
Underlying Unexercised | Value of Unexercised In- | |||||||||||||||||||||||
Options/SARs at Fiscal | the-Money Options/SARs | |||||||||||||||||||||||
Year-End (#)(3) | at Fiscal Year-End ($)(3) | |||||||||||||||||||||||
Shares Acquired | Value | |||||||||||||||||||||||
Name | on Exercise (#) | Realized ($)(2) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Susan M. Ivey | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Andrew J. Schindler | 465,997 | 18,495,467 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Lynn J. Beasley | 35,000 | 1,398,687 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Charles A. Blixt | 70,000 | 2,363,375 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Dianne M. Neal | 24,000 | 1,077,600 | -0- | -0- | -0- | -0- |
(1) | There were no exercises of SARs, or stock appreciation rights, during the 2004 fiscal year, nor were there any SARs outstanding at the end of the year. |
(2) | Certain of the options shown in the above table were exercised prior to the consummation of the Business Combination and, therefore, represented options to acquire shares of RJR common stock. The value in this column represents the product of the number of options exercised and the excess of the market value of the underlying shares of RAI common stock or RJR common stock, as the case may be, on the date of exercise over the option exercise price. |
(3) | On December 31, 2004, none of the Named Executive Officers held any options to acquire shares of RAI common stock or any SARs with respect to RAI common stock. |
Estimated Future Payouts | ||||||||||||||||||||
Performance | Under Non-Stock | |||||||||||||||||||
Number of | or Other | Price-Based Plans | ||||||||||||||||||
Shares, Units | Period Until | |||||||||||||||||||
or Other | Maturation | Threshold | Target | Maximum | ||||||||||||||||
Name | Rights (#) | or Payout(1) | (#) | (#) | (#) | |||||||||||||||
Susan M. Ivey | 36,118 | 8/31/07 | -0- | 36,118 | 36,118 | |||||||||||||||
Andrew J. Schindler(2) | 40,232 | 8/31/07 | -0- | 40,232 | 40,232 | |||||||||||||||
Lynn J. Beasley | 21,484 | 8/31/07 | -0- | 21,484 | 21,484 | |||||||||||||||
Charles A. Blixt | 14,801 | 8/31/07 | -0- | 14,801 | 14,801 | |||||||||||||||
Dianne M. Neal | 12,190 | 8/31/07 | -0- | 12,190 | 12,190 |
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(1) | The performance shares, which were granted to the Named Executive Officers under the LTIP on August 31, 2004, will vest in substantially equal one-third increments on August 31 in each of 2005, 2006 and 2007, provided RAI pays to its shareholders a quarterly dividend of at least $.95 per share (the “Minimum Dividend”) during the three-year period ending August 31, 2007, except that, as noted below, Mr. Schindler’s performance shares vested on a pro rata basis upon his retirement as an officer and employee of the Company on January 31, 2005. If RAI fails to pay the Minimum Dividend in any fiscal quarter during such three-year period, then any unvested performance shares will be forfeited and cancelled, but the Company’s payment of any already vested performance shares will be retained by the Named Executive Officer. Notwithstanding the foregoing, if RAI fails to pay the Minimum Dividend, then the Board may, in its discretion, approve the non-cancellation of any unvested performance shares, in which case such shares otherwise will vest upon the dates set forth above. Upon the vesting date of performance shares, a Named Executive Officer will be entitled to a cash payment in an amount equal to the product of the number of shares vesting and the per share closing price of RAI common stock on the vesting date. Prior to the vesting of his or her performance shares, a Named Executive Officer will receive dividends with respect to his or her outstanding unvested shares to the same extent that any dividends generally are paid by the Company on outstanding shares of RAI common stock (except that if the Company pays a dividend in the form of property, rather than in cash, then the Company will pay, in lieu of such property dividend, the cash equivalent of such property). |
In the event of a Named Executive Officer’s death or permanent disability, or a change of control of RAI, any outstanding unvested performance shares will immediately vest. In the event of a Named Executive Officer’s involuntary termination of employment without cause or retirement, any outstanding unvested performance shares will immediately vest in part and the remaining shares will be forfeited and cancelled; the number of shares that will vest will be equal to (a) the product of (i) the original number of performance shares granted to the Named Executive Officer, and (ii) a fraction, the numerator of which will be the number of whole or partial months between August 31, 2004 and the date of the Named Executive Officer’s termination of employment, and the denominator of which will be 36,minus (b) the number of previously vested performance shares. Upon a Named Executive Officer’s voluntary termination of employment or termination of employment for cause, all of his or her performance shares will be cancelled. | |
(2) | In accordance with the pro rata vesting provisions described in the second paragraph of the preceding footnote, of the total amount of performance shares reflected in the table, Mr. Schindler vested in 5,654 performance shares and forfeited the remaining 34,578 performance shares upon his retirement as an employee of RAI on January 31, 2005. |
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Years of Service | ||||
Average Final Compensation | 23 | |||
$1,500,000 | $ | 598,567 | ||
1,750,000 | 699,444 | |||
2,000,000 | 800,321 | |||
2,250,000 | 901,198 | |||
2,500,000 | 1,002,075 | |||
2,750,000 | 1,102,952 |
(1) | For purposes of determining retirement benefits under this table, “Average Final Compensation” consists of a participant’s final salary rate multiplied by a bonus factor equal to one plus the average rating under B&W’s Performance Incentive Plan for the three years preceding the Business Combination. Ms. Ivey’s retirement benefits under the Legacy Plan will be based upon her 23 years of service with B&W, and will not take into account any of her service with RAI. Average Final Compensation as of December 31, 2004, under the Legacy Plan was $1,708,330 for Ms. Ivey. Notwithstanding the foregoing, Ms. Ivey’s annual benefits determined pursuant to this table will be reduced by benefits, to be paid to Ms. Ivey by BAT and B&W and not RAI, in an aggregate annual amount estimated to be $451,110. |
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Years of Service | ||||||||||||||||||||||||
Average Final Compensation | 15 | 20 | 25 | 30 | 35 | 40 or more | ||||||||||||||||||
$ 500,000 | $ | 83,662 | $ | 106,372 | $ | 125,077 | $ | 139,583 | $ | 150,082 | $ | 158,482 | ||||||||||||
600,000 | 100,714 | 128,044 | 150,529 | 167,974 | 180,574 | 190,654 | ||||||||||||||||||
700,000 | 117,766 | 149,716 | 175,980 | 196,365 | 211,065 | 222,825 | ||||||||||||||||||
800,000 | 134,817 | 171,387 | 201,432 | 224,757 | 241,557 | 254,996 | ||||||||||||||||||
900,000 | 151,869 | 193,059 | 226,883 | 253,148 | 272,048 | 287,168 | ||||||||||||||||||
1,000,000 | 168,921 | 214,730 | 252,335 | 281,540 | 302,539 | 319,339 | ||||||||||||||||||
1,250,000 | 211,550 | 268,909 | 315,964 | 352,518 | 378,768 | 399,767 | ||||||||||||||||||
1,500,000 | 254,179 | 323,088 | 379,592 | 423,497 | 454,996 | 480,196 | ||||||||||||||||||
1,750,000 | 296,808 | 377,267 | 443,221 | 494,475 | 531,225 | 560,624 | ||||||||||||||||||
2,000,000 | 339,437 | 431,446 | 506,850 | 565,454 | 607,453 | 641,053 | ||||||||||||||||||
2,250,000 | 382,066 | 485,625 | 570,479 | 636,433 | 683,682 | 721,481 | ||||||||||||||||||
2,500,000 | 424,695 | 539,804 | 634,107 | 707,411 | 759,910 | 801,909 | ||||||||||||||||||
2,750,000 | 467,325 | 593,983 | 697,736 | 778,390 | 836,139 | 882,338 |
(1) | For purposes of determining retirement benefits under the table, “Average Final Compensation” includes 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 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, 2004 was $2,423,153 for Ms. Ivey, $1,371,861 for Ms. Beasley, $908,388 for Mr. Blixt and $590,772 for Ms. Neal. Estimated years of credited service, rounded to the nearest year, at age 65 is 19 years for Ms. Ivey (with Ms. Ivey’s service with B&W prior to the Business Combination being excluded), 40 years for Ms. Beasley, 32 years for Mr. Blixt and 36 years for Ms. Neal. |
34
Agreements with Susan M. Ivey |
35
• | receive a grant under the LTIP with an aggregate value of $4,000,000 at the date of grant, which grant was made during the first quarter of the 2005 fiscal year, | |
• | receive an annual supplemental payment of $79,000 (with such payment for fiscal 2004 being prorated based upon her service with RAI during such year), in lieu of participation in the Company’s former executive perquisites program, | |
• | receive, commencing upon her retirement and continuing during her lifetime, reimbursement of tax preparation and financial planning expenses in an annual amount up to $12,000 (plus reimbursement for taxes due as a result of such expense reimbursement), and | |
• | vest in the noncontributory B&W Salaried Health Care Plan (in lieu of receiving any retiree health benefits under RAI’s contributory plan), provided she remains employed with RAI or a successor company until the age of 50. |
Other Severance Agreements |
36
7/30/04(1) | 12/31/04 | |||||||
RAI | $ | 100 | $ | 108.49 | ||||
S&P 500 Index | $ | 100 | $ | 107.21 | ||||
S&P Tobacco Index | $ | 100 | $ | 129.88 |
(1) | Assumes that $100 was invested in RAI common stock on August 2, 2004 (the first day of trading of RAI common stock), or in each index on July 30, 2004, and that in each case all dividends were reinvested. |
37
Administration |
Grants |
• | Incentive Stock Options — These are options to purchase shares of RAI common stock that are granted pursuant to the provisions of Section 422 of the Code. Generally, incentive stock options may not be exercised more than ten years after the date they are granted and may not have an exercise price less than the fair market value of RAI common stock on the date they are granted. Payment of the exercise price may be made in cash, shares of RAI common stock or any combination thereof, as determined by the Compensation Committee. |
38
• | Non-Qualified Stock Options — These are options to purchase shares of RAI common stock, but the terms of which do not meet the Code’s requirements for incentive stock options. Such options may not be exercised more than 15 years after the date they are granted and may not have an exercise price less than the fair market value of RAI common stock on the date they are granted. Payment of the exercise price may be made in cash, shares of RAI common stock or any combination thereof, as determined by the Compensation Committee. | |
• | Stock Appreciation Rights — These are rights to receive cash, shares of RAI common stock or a combination thereof in an amount equal to the appreciation of shares of RAI common stock subsequent to the date the stock appreciation rights are granted. Stock appreciation rights cannot be exercised following 15 years from the date of grant. | |
• | Restricted Stock — These are shares of RAI common stock or units equivalent to RAI common stock that are subject to such restrictions, factors or conditions as the Compensation Committee may determine. Grants of restricted stock will be subject to a normal minimum vesting schedule of three years. | |
• | Performance Units — These are rights to receive cash payments or shares of RAI common stock at a specified future date in an amount equal to all or a portion of the value of a unit granted by the Compensation Committee based upon the performance of the Company, or one or more of its subsidiaries, during a performance period. At the time of grant, the Compensation Committee will establish the base value of the performance unit, the performance factors which will determine the ultimate payment value of the unit and the duration of the performance period, which may not exceed ten years. | |
• | Performance Shares — These are rights, granted in the form of shares of RAI common stock or units equivalent to shares of RAI common stock, to receive at a future date, a cash payment or shares of RAI common stock, in an amount equal to all or a portion of the fair market value of a specified number of shares of RAI common stock at the end of a specified performance period, based on performance during the period. At the time of grant, the Compensation Committee will establish the applicable performance factors and the duration of the performance period, which may not exceed ten years. |
Eligibility |
39
Shares Available for Grants |
Limitations on Grants |
Performance Factors |
40
Amendment and Termination |
Adjustments; Change of Control |
• | adjust appropriately the number or kind of shares subject to the LTIP and available for or covered by Grants, the prices per share of RAI common stock related to outstanding Grants and the limitations set forth under “— Limitations on Grants” above, and | |
• | make such other revisions to the LTIP and outstanding Grants as it deems are equitably required. |
• | 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 with respect to options, | |
• | restricted stock will have all restrictions removed, | |
• | performance units and performance shares whose performance period ends after the change of control will become vested on a pro rata basis, and their valuation will be based on the higher of the target value and the value derived from the actual performance as of or to the date of change of control, as the case may be, 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 |
United States Federal Income Tax Matters |
41
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Equity Compensation Plan Information |
Equity Compensation Plan Information | |||||||||||||
Number of Securities | |||||||||||||
Number of Securities to be | Weighted-Average | Remaining Available for | |||||||||||
Issued Upon Exercise of | Exercise Price of | Future Issuance Under | |||||||||||
Outstanding Options, | Outstanding Options, | Equity Compensation | |||||||||||
Plan Category | Warrants and Rights | Warrants and Rights ($) | Plans(3) | ||||||||||
Equity compensation plans approved by security holders(1) | 480,211 | 28.34 | 5,101,289 | ||||||||||
Equity compensation plans not approved by security holders(2) | 32,800 | 45.23 | 344,208 | ||||||||||
Total | 513,011 | 29.42 | 5,445,497 | ||||||||||
(1) | Includes the LTIP which, as noted above, represents an amendment, restatement and continuation of the R.J. Reynolds Holdings, Inc. 1999 Long-Term Incentive Plan approved by RJR shareholders in 2000. |
(2) | The only outstanding equity compensation plan included in this category is the EIAP, which was approved in 1999 by RJR’s then sole shareholder. The material terms of the EIAP are described above under “The Board of Directors — Director Compensation.” |
(3) | The figures in this column exclude the number of securities reflected in the first column of this table. |
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Respectfully submitted, | |
Thomas C. Wajnert (Chair) | |
Nana Mensah | |
Robert S. (Steve) Miller, Jr. | |
H.G.L. (Hugo) Powell |
44
Amount of Fees(1) | |||||||||
2004 | 2003 | ||||||||
Audit Fees | $ | 5,585,497 | $ | 2,615,022 | |||||
Audit — Related Fees | 432,704 | 957,415 | |||||||
Tax Fees | 91,475 | 139,987 | |||||||
All Other Fees | 845,903 | — | |||||||
Total Fees | $ | 6,955,579 | $ | 3,712,424 |
(1) | The fees for the 2004 fiscal year represent fees billed to RJR and RAI, and the fees for the 2003 fiscal year represent fees billed to RJR. |
Audit Fees |
45
Audit-Related Fees |
Tax Fees |
All Other Fees |
46
47
48
49
• | The web sites are age-restricted sites that cannot be accessed without registering for and receiving a unique personal identification number and password. To obtain a personal identification number and password, an individual must complete both an age certification and be verified as being a smoker of legal age. Verification of a certified age is obtained by RJR Tobacco by reference to data compiled by independent third parties for purposes other than the sale of cigarettes, or presentation of state-issued proof of age by the individual. This process is described in more detail below. | |
• | The web sites prominently display the Surgeon General’s warning on all pages and states that the web site is solely for adult smokers of legal age. | |
• | RJR Tobacco has registered the sites as age-restricted sites with certain filtering services (i.e., “Net Nanny,” “Cybersitter,” “Surf Watch,” and “Cyber Patrol”) to aid the use of filtering software to prevent minors from receiving age-restricted materials. | |
• | To reinforce the seriousness of the certification, the age certification form includes a warning that providing false information in order to purchase cigarettes may constitute a violation of law. |
50
51
52
53
54
By Order of the Board of Directors, |
McDara P. Folan, III | |
Secretary |
55
(1) | overseeing that management has maintained the reliability and integrity of the accounting policies, financial reporting and disclosure practices and financial statements of RAI and its subsidiaries (sometimes collectively referred to as the “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 the Company with all applicable laws, regulations and Company policies; | |
(4) | overseeing (a) the integrity of the Company’s financial statements and (b) the Company’s compliance with legal and regulatory requirements; and | |
(5) | overseeing the qualifications, independence and performance of the Company’s independent auditors and internal audit department. |
(1) | Each Audit Committee member shall meet the independence criteria of (a) the rules of the New York Stock Exchange, Inc. (“NYSE”), as such requirements are interpreted by the Board of Directors in its business judgment and as set forth in RAI’s Corporate Governance Guidelines, and (b) Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the Securities and Exchange Commission (“SEC”), including Rule 10A-3 of the Exchange Act, and the NYSE. | |
(2) | Each Audit Committee member shall be financially literate or shall become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. Additionally, at least one member of the Audit Committee shall have accounting or related financial management expertise sufficient to meet the criteria of a financial expert within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. The Board of Directors shall determine, in its business judgment and upon the recommendation of the Corporate Governance and Nominating Committee of the Board of Directors of RAI, whether a member is financially literate and whether at least one member has the requisite accounting or financial management expertise and meets the financial expert criteria of Section 407 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. The designation or identification of a person as an Audit Committee |
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financial expert shall not (a) impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board of Directors in the absence of such designation or identification, or (b) affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors. | ||
(3) | Each Audit Committee member shall receive as compensation from RAI only those forms of compensation as are not prohibited by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the SEC and the NYSE. Permitted compensation includes director’s fees, which includes all forms of compensation paid to directors of RAI for service as a director or member of a committee of the Board of Directors. | |
(4) | Each Audit Committee member shall serve on no more than three audit committees of public companies (including RAI). |
(1) | hold such regular meetings as may be necessary and such special meetings as may be called by the Chair of the Audit Committee or at the request of the independent auditors or the General Auditor; | |
(2) | create an agenda for the work of the Audit Committee for the ensuing year; | |
(3) | retain and terminate the Company’s independent auditors (subject, if applicable, to shareholder ratification); |
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(4) | approve all audit engagement fees, terms and services; approve any non-audit engagements with the Company’s independent auditors; and review and approve the independent auditors’ annual engagement letter. The Audit Committee is to exercise this authority in a manner consistent with Sections 201, 202, and 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing standards promulgated thereunder by the SEC and the NYSE. The Audit Committee may delegate the authority to grant any pre-approvals required by such Sections to one or more members of the Audit Committee as it designates, subject to the delegated member or members reporting any such pre-approvals to the Audit Committee at its next scheduled meeting; | |
(5) | at least annually, obtain and review a report by the independent auditors describing (a) the audit firm’s internal quality-control procedures, and (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; | |
(6) | at least annually, review and discuss the information provided by management and the independent auditors relating to the independence of such audit firm, including, among other things, information related to the non-audit services provided and expected to be provided by the independent auditors, and present findings regarding such independence to the Board of Directors. The Audit Committee is responsible for (a) ensuring that the independent auditors submit at least annually to the Audit Committee a formal written statement delineating all relationships between the independent auditors and the Company consistent with applicable independence standards, (b) actively engaging in a dialogue with the independent auditors with respect to any disclosed relationship or services that may impact their objectivity and independence, and (c) taking appropriate action in response to the independent auditors’ report to satisfy itself of their independence. In connection with the Audit Committee’s evaluation of the independent auditors’ independence, the Audit Committee shall also review and evaluate the lead and reviewing partners of the independent auditors and take such steps as may be required by law with respect to the identification and regular rotation of the audit partners serving on the Company’s audit engagement team; | |
(7) | set RAI’s hiring policies for employees or former employees of the independent auditors, which include the restrictions set forth in Section 206 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC; | |
(8) | provide direct oversight of the internal audit department; review and approve the Company’s internal audit charter, annual audit plans and budgets, including the adequacy of staffing; and review the performance of the internal audit department; | |
(9) | confer with the independent auditors and the internal auditors concerning the scope of their examinations of the books and records of the Company; direct 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 authorize the auditors to perform such supplemental reviews or audits as the Audit Committee may deem desirable; |
(10) | review and discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit (including the nature and extent of any significant changes in accounting principles or the application thereof, the independent auditors’ judgments about the quality and the acceptability of the Company’s accounting principles and financial disclosures), as well as any audit problems or difficulties and management’s response, including (a) any restriction on audit scope or on access to requested information, (b) any disagreements with management, (c) significant issues discussed with the independent auditors’ national office, (d) any accounting adjustments that were noted by the independent auditors but were determined by management to be immaterial, and (e) all |
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material written communications between the independent auditors and management of the Company (such as management or internal control letters or schedules of unadjusted differences). The Audit Committee is to decide all unresolved disagreements between management and the independent auditors regarding financial reporting; | ||
(11) | review and discuss with management, the internal auditors and the independent auditors policies with respect to risk assessment and risk management to assess and manage the Company’s exposure to risk. The Audit Committee should discuss the Company’s major risk exposures and the steps management has taken to maintain and control these exposures; | |
(12) | meet to review and discuss with management, the internal auditors and the independent auditors the annual audited and quarterly financial statements of the Company, including (a) reviewing the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (b) the disclosure regarding internal controls and other matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC; | |
(13) | review and discuss with management, the internal auditors and the independent auditors earnings and other financial press releases (including any use of “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies (which review may occur after issuance and may be done generally as a review of the types of information to be disclosed and the form of presentation to be made). The Chair of the Audit Committee, or his or her designee, may represent the full Audit Committee at such discussions; | |
(14) | review through discussions with management, the internal auditors and the independent auditors the adequacy of the Company’s system of internal controls, which shall include (a) the disclosures regarding internal controls and matters required by Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated by the SEC and (b) a review with the independent auditors of their opinion on the effectiveness of management’s assessment of internal controls over financial reporting and the independent auditor’s analysis of matters requiring modification to management’s certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; | |
(15) | obtain from the independent auditors and the internal auditors their recommendations regarding internal controls and other matters relating to the accounting procedures and the books and records of the Company and review the correction of controls deemed to be deficient; | |
(16) | provide an independent, direct communication between the Board of Directors, management, the internal auditors and the independent auditors, including meeting in separate executive sessions with management, the internal auditors and the independent auditors to discuss any matters that the Audit Committee, management, the internal auditors or the independent auditors believe should be discussed; | |
(17) | review the adequacy of internal controls and procedures related to executive travel and entertainment, including use of Company-owned aircraft; | |
(18) | review and discuss with the independent auditors (a) the report of their annual audit, or proposed report of their annual audit, (b) the accompanying management letter, if any, (c) the reports of their reviews of the Company’s interim financial statements conducted in accordance with Statement on Auditing Standards No. 100, and (d) the reports of the results of such other examinations outside of the course of the independent auditors’ normal audit procedures that the independent auditors may from time to time undertake. The foregoing shall include the reports required by Section 204 of the Sarbanes-Oxley Act of 2002 and any rules |
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promulgated thereunder by the SEC and, as appropriate, a review of (i) major issues regarding (A) accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and (B) the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (ii) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (iii) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company; | ||
(19) | obtain assurance from the independent auditors that in the course of conducting their annual audit, there have been no acts detected or that have otherwise come to the attention of the audit firm that require disclosure to the Audit Committee under Section 10A(b) of the Exchange Act; | |
(20) | periodically obtain reports from management, the internal auditors and the independent auditors concerning the actions to ensure compliance with the Company’sCode of Conductand the results of confirmations and violations of theCode. The Committee shall also assist the Board of Directors in reviewing and, when appropriate, granting any request for a waiver of theCode; | |
(21) | review 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; | |
(22) | review 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; | |
(23) | establish procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters as required by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the SEC and the NYSE; and (c) the confidential receipt, retention, and consideration of any report of evidence of a material violation within the meaning of Rule 205 of the Rules of Practice of the SEC (“Material Violations”); | |
(24) | consider such other matters in relation to the financial 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; | |
(25) | report through its Chair to the Board of Directors following the meetings of the Audit Committee. Such report should include a review of any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors, and the performance of the internal audit function; | |
(26) | review affiliate or related party transactions; and | |
(27) | maintain minutes or other records of meetings and activities of the Audit Committee. |
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(a) | to promote the long-term financial interests and growth of Reynolds American Inc. and its Subsidiaries (collectively, the “Corporation”) by attracting and retaining management personnel with the training, experience and ability to enable them to make a substantial contribution to the success of the Corporation’s business; | |
(b) | to motivate management personnel by means of growth-related incentives to achieve long range goals; and | |
(c) | to further the identity of interests of Participants with those of the stockholders of Reynolds American through opportunities for increased stock, or stock-based, ownership in Reynolds American. |
(a) | “Affiliate” of any person shall mean another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; | |
(b) | “Base Value” means not less than the Fair Market Value on the date a Stock Appreciation Right is granted, or, in the case of a Stock Appreciation Right granted retroactively in tandem with (or in replacement of) an outstanding Option, not less than the exercise price of such Option; | |
(c) | “BAT” shall mean, collectively, British American Tobacco, p.l.c., a public limited company incorporated under the laws of England and Wales, and its Affiliates; | |
(d) | “Board of Directors” means the Board of Directors of Reynolds American; | |
(e) | “Code” means the Internal Revenue Code of 1986, as amended; | |
(f) | “Committee” means the Compensation Committee of the Board of Directors; | |
(g) | “Common Stock” or “Share” means common stock, par value $0.0001 per share, of Reynolds American which may be authorized but unissued, or issued and reacquired; | |
(h) | “Effective Date” shall have the meaning set forth in Section 14; | |
(i) | “Exchange Act” means the Securities Exchange Act of 1934, as amended; | |
(j) | “Fair Market Value” means such value of a Share as reported for stock exchange transactions and/or determined in accordance with any applicable resolutions or regulations of the Committee in effect at the relevant time; |
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(k) | “Grant Agreement” means an agreement between Reynolds American and a Participant that sets forth the terms, conditions and limitations applicable to a Grant; | |
(l) | “Grant” means an award made to a Participant pursuant to the Plan and described in Section 5, including, without limitation, an award of an Incentive Stock Option, Other Stock Option, Stock Appreciation Right, Restricted Stock, Performance Units or Performance Shares or any combination of the foregoing; | |
(m) | “Incentive Stock Options” shall have the meaning set forth in Section 5(a); | |
(n) | “Other Stock Options” shall have the meaning set forth in Section 5(b); | |
(o) | “Options” shall mean Incentive Stock Options and Other Stock Options; | |
(p) | “Participant” means any employee, or other person having a unique relationship with Reynolds American or one of its Subsidiaries, to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan; provided, however, that a Participant who is elected or appointed as a non-employee director of the Corporation may not receive any Grant during the term of his or her service as a non-employee director of the Corporation; | |
(q) | “Performance Units” shall have the meaning set forth in Section 5(e); | |
(r) | “Performance Shares” shall have the meaning set forth in Section 5(f); | |
(s) | “Restricted Stock” shall have the meaning set forth in Section 5(d); | |
(t) | “Reynolds American” means Reynolds American Inc. and any successors thereto; | |
(u) | “RJR” means R.J. Reynolds Tobacco Holdings, Inc. | |
(v) | “Stock Appreciation Rights” shall have the meaning set forth in Section 5(c); and | |
(w) | “Subsidiary” means any corporation or other entity in which Reynolds American has a significant equity or other interest as determined by the Committee. |
(a) | The Plan shall be administered by the Committee or, in lieu of the Committee, the Board of Directors. The Committee may adopt its own rules of procedure and act either by vote at a telephonic or other meeting or by unanimous written consent in lieu of a meeting. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules. Any such interpretations, rules and administration shall be consistent with the basic purposes of the Plan. | |
(b) | The Committee may delegate its duties under the Plan to the Chief Executive Officer, to other senior officers of the Corporation, or to the Chairman of the Board of Directors, acting as a committee established by the Committee, subject to such conditions and limitations as the Committee shall prescribe; provided, however, that only the Committee may designate and make Grants to Participants who are subject to Section 16 of the Exchange Act. | |
(c) | The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, Reynolds American and the officers and directors of Reynolds American shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Participants, Reynolds American and all other interested persons. No member of the Committee shall be personally liable for any action, determination or |
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interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee shall be fully protected by Reynolds American with respect to any such action, determination or interpretation. |
(a) | Incentive Stock Options — These are stock options within the meaning of Section 422 of the Code to purchase Common Stock. In addition to other restrictions contained in the Plan, an option granted under this Section 5(a), (i) may not be exercised more than 10 years after the date it is granted, (ii) may not have an option price less than the Fair Market Value of Common Stock on the date the option is granted, (iii) must otherwise comply with Section 422 of the Code, and (iv) must be designated as an “Incentive Stock Option” by the Committee. The maximum aggregate Fair Market Value of Common Stock (determined at the time of each Grant) with respect to which any Participant may first exercise Incentive Stock Options under this Plan and any Incentive Stock Options granted to the Participant for such year under any plans of Reynolds American or any Subsidiary in any calendar year is $100,000. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan, the Grant Agreement and any applicable guidelines of the Committee in effect at the time. | |
(b) | Other Stock Options — These are options to purchase Common Stock which are not designated by the Committee as “Incentive Stock Options.” At the time of the Grant, the Committee shall determine, and shall have contained in the Grant Agreement or other Plan rules, the option exercise period, the option price and such other conditions, restrictions or factors on the grant or exercise of the option as the Committee deems appropriate. In addition to other restrictions contained in the Plan, an option granted under this Section 5(b), (i) may not be exercised more than fifteen (15) years after the date it is granted and (ii) may not have an option exercise price less than the Fair Market Value of Common Stock on the date the option is granted. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan and of any applicable guidelines of the Committee in effect at the time. The requirement of payment in cash will be deemed satisfied if the Participant has made arrangements satisfactory to the Corporation with a duly registered broker-dealer that is a member of the National Association of Securities Dealers, Inc. to sell on the date of exercise a sufficient number of shares of Common Stock being purchased so that the net proceeds of the sale transaction will at least equal the full exercise price and pursuant to which the broker-dealer undertakes to deliver the full exercise price to the Corporation not later than the later of (A) the settlement date of the sale transaction and |
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(B) the date on which the Corporation delivers to the broker-dealer the shares of Common Stock being purchased pursuant to the exercise of such option. This method is known as the “broker-dealer exercise method” and is subject to the terms and conditions set forth herein, in the Grant Agreement and in guidelines established by the Committee. | ||
(c) | Stock Appreciation Rights — These are rights that on exercise entitle the holder to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Base Value multiplied by (iii) the number of rights exercised in cash, stock or a combination thereof as determined by the Committee. Stock Appreciation Rights granted under the Plan may, but need not, be granted in conjunction with an Option under Sections 5(a) or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may impose such conditions, restrictions or factors on the exercise of Stock Appreciation Rights as it deems appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights at any time, subject to Section 9. No Stock Appreciation Right granted under this Plan may be exercised more than fifteen (15) years after the date it is granted. | |
(d) | Restricted Stock — Restricted Stock is a Grant of Common Stock or stock units equivalent to Common Stock subject to such conditions, restrictions or factors as the Committee shall determine. Any rights to dividends or dividend equivalents accruing due to a grant of Restricted Stock shall also be determined by the Committee. Grants of Restricted Stock shall be subject to a normal minimum vesting schedule of three (3) years. The number of shares of Restricted Stock and the restrictions or conditions on such shares, as the Committee may determine, shall be set forth in the Grant Agreement or by other Plan rules, and the certificate for the Restricted Stock shall bear evidence of the restrictions or conditions. | |
(e) | Performance Units — These are rights, denominated in cash or cash units, to receive, at a specified future date, payment in cash or Common Stock of an amount equal to all or a portion of the value of a unit granted by the Committee. At the time of the Grant, in the Grant Agreement or by other Plan rules, the Committee must determine the base value of the unit, the performance factors applicable to the determination of the ultimate payment value of the unit as set forth in Section 7 and the period over which performance will be measured. | |
(f) | Performance Shares — These are rights granted in the form of Common Stock or stock units equivalent to Common Stock to receive, at a specified future date, payment in cash or Common Stock, as determined by the Committee, of an amount equal to all or a portion of the Fair Market Value at which the Common Stock is traded on the last day of the specified performance period of a specified number of shares of Common Stock based on performance during the period. At the time of the Grant, the Committee, in the Grant Agreement or by Plan rules, will determine the factors which will govern the portion of the Grants so payable as set forth in Section 7 and the period over which performance will be measured. |
(a) | The number of shares of Common Stock available for Grants under this Plan shall be eight (8) million shares of the authorized Common Stock, plus 5,772,814 shares of Common Stock that cover grants under the RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan that were converted into options to acquire RJR stock or restricted shares of RJR common stock. The maximum number of shares of Common Stock subject to Grants of Options and Stock Appreciation Rights to any one Participant in any calendar year shall not exceed two (2) million shares of Common Stock for each type of Grant, plus any amount of shares of Common Stock that were available within this limit for such type of Grant for any prior year such limitation was in effect and which were not covered by Options or Stock Appreciation Rights granted to such Participant during such year. No more than three (3) million shares of Common Stock may be granted as Incentive Stock Options. The maximum payment that any one Participant may be |
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paid in respect of any Grant of Performance Units granted for any specified performance period shall not exceed $10 million. The maximum payment that any one Participant may receive in respect of any Grant of Performance Shares granted for any specified performance period shall not exceed 500,000 shares of Common Stock or the cash equivalent thereof. The aggregate maximum number of shares of Common Stock to which Restricted Stock granted may relate shall not exceed three (3) million shares of Common Stock. Shares of Common Stock related to Grants that are withheld, forfeited, terminated, cancelled, expire unexercised, settled in cash in lieu of stock, received in full or partial payment of any exercise price or in such manner that all or some of the shares of Common Stock covered by a Grant are not issued to a Participant, shall immediately become available for Grants. A Grant may contain the right to receive dividends or dividend equivalent payments which may be paid either currently, credited to a Participant or deemed invested in shares of Common Stock or share units of Common Stock. Any such crediting of dividends or dividend equivalents or reinvestment in shares of Common Stock may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Common Stock equivalents. Subject to the overall limitation on the number of shares of Common Stock that may be delivered under this Plan, the Committee may use available shares of Common Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of Reynolds American, including the plan of any entity acquired by Reynolds American. | ||
(b) | At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. Reynolds American may adopt other compensation programs, plans or arrangements as it deems appropriate. | |
(c) | Nothing contained herein shall affect the right of the Corporation to terminate any Participant’s employment at any time or for any reason. | |
(d) | No benefit under the Plan shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. | |
(e) | Except to the extent otherwise provided in any other retirement or benefit plan, any Grant under this Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of Reynolds American or its Subsidiaries and shall not affect any benefits under any other benefit plan of any kind or subsequently in effect under which the availability or amount of benefits is related to level of compensation. | |
(f) | This Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended. This Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between Reynolds American and any Participant or beneficiary of a Participant. To the extent any person holds any obligation of Reynolds American by virtue of an award granted under this Plan, such obligation shall merely constitute a general unsecured liability of Reynolds American and accordingly shall not confer upon such person any right, title or interest in any assets of Reynolds American. | |
(g) | Unless the Committee determines otherwise, no benefit or promise under the Plan shall be secured by any specific assets of Reynolds American or any of its Subsidiaries, nor shall any assets of Reynolds American or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of Reynolds American’s obligations under the Plan. |
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(a) | The performance factors, if any, selected by the Committee in respect of any Grant shall be based on any one or more of the following: price of Common Stock or the stock of any affiliate, shareholder return, level of dividend return, return on equity, return on investment, return on capital, return on invested capital, economic profit, economic value added, net income, cash net income, free cash flow, earnings per share, cash earnings per share, operating company contribution or market share. These factors shall have a minimum performance standard below which no amount will be paid (to the extent not waived by the Committee or except as otherwise provided in a Grant Agreement) and may have a maximum performance standard above which no additional payments will be made. The applicable performance period shall not exceed ten (10) years. | |
(b) | In addition to any performance factors established pursuant to section 7(a), the Committee may, in its sole discretion, assign individual performance objectives in respect of any Grant made hereunder to a Participant who at the time of such Grant is not a “covered employee” for purposes of section 162(m) of the Code. |
(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 Reynolds American and the Participant in such amount as shall be provided in such Grant Agreements or amendments or (B) in lieu of the delivery of shares of Common Stock upon exercise, equal to the product of (x) and (y), where (x) is the excess of the Fair Market Value on the date of exercise over the exercise price, and (y) is the number of shares of Common Stock subject to the Options being exercised; | |
(ii) | Stock Appreciation Rights shall become fully vested and exercisable; | |
(iii) | Restricted Stock shall have all restrictions removed; | |
(iv) | Performance Units whose performance period ends after the date of the Change of Control shall become vested as to a percentage of Performance Units granted equal to the number of months (including partial months) in the performance period before the date of the Change of Control, divided by the total number of months in the performance period. The value of the Performance Units shall be equal to the greater of the target value of the Performance Units or the value derived from the actual performance as of the date of the Change of Control; |
(v) | Performance Shares whose performance period ends after the date of the Change of Control shall become vested pro rata as to the number of Performance Shares granted equal to the number of months (including partial months) in the performance period before the date of Change of Control, divided by the total number of months in the |
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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 Reynolds American, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of thirty percent (30%) or more of the combined voting power of Reynolds American’s outstanding securities ordinarily having the right to vote at elections of directors; provided, however, that the acquisition of Reynolds American securities by BAT pursuant to the Business Combination Agreement, dated as of October 27, 2003, between RJR and Brown & Williamson Tobacco Corporation (“B&W”), as thereafter amended (the “BCA”) or as expressly permitted by the Governance Agreement, dated as of July 30, 2004, among British American Tobacco, p.l.c., B&W and Reynolds American (the “Governance Agreement”), shall not be considered a Change of Control for purposes of this subsection (i); | |
(ii) | individuals who constitute the Board of Directors (or who have been designated as directors in accordance with Section 1.09 of the BCA) on July 30, 2004 (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such date whose election, or nomination for election by Reynolds American’s stockholders, was (1) approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Reynolds American in which such person is named as a nominee of Reynolds American for director) or (2) made in accordance with Section 2.01 of the Governance Agreement, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or person other than Reynolds American’s Board, shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; and | |
(iii) | the approval by the stockholders of Reynolds American of a plan or agreement providing (A) for a merger or consolidation of Reynolds American other than with a wholly owned Subsidiary and other than a merger or consolidation that would result in the voting securities of Reynolds American outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of Reynolds American or such surviving entity outstanding immediately after such merger or consolidation, or (B) for a sale, exchange or other disposition of all or substantially all of the assets of Reynolds American, other than any such transaction where the transferee of all or substantially all of the assets of |
B-7
Reynolds American is a wholly owned Subsidiary or an entity more than fifty percent (50%) of the combined voting power of the voting securities of which is represented by voting securities of Reynolds American outstanding immediately prior to the transaction (either remaining outstanding or by being converted into voting securities of the transferee entity). If any of the events enumerated in this paragraph (iii) occur, Reynolds American’s Board shall determine the effective date of the Change of Control resulting therefrom for purposes of this Plan and the Grants hereunder. |
(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 11(a) may differ from the terms and conditions which the Plan would require to be imposed upon Incentive Stock Options and Other Stock Options if the Committee determines that the Grants are desirable to promote the purposes of the Plan. |
B-8
B-9
• | By telephone. You can vote by telephone by calling 1-800-690-6903 (toll-free) on a touch-tone telephone and following the instructions on the proxy card, | |
• | By Internet. You can vote by Internet by logging onto the Internet, going to the web sitewww.proxyvote.com and following the instructions on 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. |
YOUR VOTE IS IMPORTANT!
Please complete, sign and date your proxy card and return this proxy card in the enclosed envelope or vote by telephone or Internet as soon as possible!
To: | Shareholders of Reynolds American Inc. Participants in the Reynolds American Capital Investment Plan Participants in the Savings and Investment Plan for Employees of R. J. Reynolds Tobacco in Puerto Rico |
Shares of common stock of Reynolds American Inc. will be voted as you direct if this card is completed by you and received by ADP on or before May 5, 2005 (May 3, 2005 for CIP or SIP participants). ADP is responsible for tabulating the returns.
If you have any questions or need assistance in voting your shares, please contact:
Reynolds American Inc.
Shareholder Services
401 North Main Street
Winston-Salem, NC 27102
(866) 210-9976 (toll-free)
— DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET —
REYNOLDS AMERICAN INC.
PROXY
This proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Shareholders to be held on May 6, 2005.
The undersigned shareholder of Reynolds American Inc. hereby appoints Susan M. Ivey, Charles A. Blixt and McDara P. Folan, III, and each of them (with full power of substitution and resubstitution), as proxies of the undersigned, to vote all shares of the common stock of Reynolds American Inc. that the undersigned may be entitled to vote at the Annual Meeting of Shareholders to be held on May 6, 2005, at 9:00 a.m. (local time) in the RJR Plaza Building Auditorium, 401 North Main Street, Winston-Salem, North Carolina, 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 instructions to Citibank, N.A., as Trustee under the Reynolds American Capital Investment Plan (the “CIP”), and to Vanguard Group, Inc., as Custodian under the Savings and Investment Plan for Employees of R. J. Reynolds Tobacco in Puerto Rico (the “SIP”), to vote shares of the common stock of Reynolds American Inc. allocated, respectively, to accounts of the undersigned under the CIP or the SIP, 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.
Change of address: | ||||
REYNOLDS AMERICAN INC. | ||||
P.O. BOX 11009 | ||||
NEW YORK, NY 10203-0009 | ||||
(If you have written in the above space, please mark the corresponding box on the reverse side of this card.) |
(Continued and to be signed and dated on reverse side.)
C/O ADP/ICS 51 MERCEDES WAY EDGEWOOD, NY 11717 | You have the option to submit your proxy by the Internet, telephone or mail. Your vote does not count until we receive it. VOTE BY INTERNET –www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 5, 2005 (May 3, 2005 for CIP or SIP participants). Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | |
VOTE BY PHONE – 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on May 5, 2005 (May 3, 2005 for CIP or SIP participants). Have your proxy card in hand when you call and follow the simple instructions provided to you. | ||
VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Reynolds American Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. | ||
Your telephone or Internet vote authorizes the named proxies to vote the shares in the same manner as if you marked, signed and returned the proxy card. | ||
If you vote by telephone or Internet, do not mail back the proxy card. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
Election Of Directors | ||||||||||
1. | Election of Class I Directors | For All | Withhold All | For All Except | To withhold authority to vote, mark “For All Except” and write the nominee’s number on the line below. | |||||
Nominees: | ||||||||||
(01) Betsy S. Atkins, (02) E.V. (Rick) Goings, (03) Nana Mensah, (04) Robert S. (Steve) Miller, Jr. | o | o | o |
For | Against | Abstain | ||||||
Vote On Proposals | ||||||||
2. | Approval of the Reynolds American Inc. Long-Term Incentive Plan | o | o | o | ||||
3. | Ratification of KPMG LLP as Independent Auditors | o | o | o | ||||
4. | Shareholder proposal on FDA regulation and phase-out of conventional cigarettes | o | o | o | ||||
5. | Shareholder proposal on cigarette advertising on the Internet | o | o | o | ||||
6. | Shareholder proposal on New York “fire-safe” standards | o | o | o |
Shares for which an executed proxy is received, but no instruction is given will be voted by the proxies FOR Items 1, 2 and 3 and AGAINST Items 4, 5 and 6, and by Citibank, as Trustee under the CIP, and Vanguard, as Custodian under the SIP, in the same proportion as the shares for which instructions are received by Citibank and Vanguard, respectively.
NOTE: Please make sure that you complete, sign and date your proxy card.Please sign exactly as your name(s) appear on the account. When signing as a fiduciary, please give your full title as such. Each joint owner should sign personally. Corporate proxies should be signed in full corporate name by an authorized officer.
Mark this box if change of address is noted on reverse side | o |
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |