Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
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:
Table of Contents
![(REYNOLDS AMERICAN LOGO)](https://capedge.com/proxy/DEF 14A/0000950144-07-002876/g05912dg0591200.gif)
![-s- Susan M. Ivey](https://capedge.com/proxy/DEF 14A/0000950144-07-002876/g05912dg0591201.gif)
Table of Contents
401 North Main Street
P.O. Box 2990
Winston-Salem, North Carolina27102-2990
To be Held On Friday, May 11, 2007
(1) | to elect three Class III directors to serve until the 2010 annual meeting of shareholders and one Class I director to serve until the 2008 annual meeting of shareholders; | |
(2) | to approve an amendment to RAI’s amended and restated articles of incorporation increasing the number of authorized shares of RAI’s common stock, par value $.0001 per share, from 400,000,000 to 800,000,000; |
(4) | to transact any other business as may be properly brought before the meeting or any adjournment or postponement thereof. |
![-s- McDara P. Folan, III](https://capedge.com/proxy/DEF 14A/0000950144-07-002876/g05912dg0591206.gif)
Table of Contents
401 North Main Street
P.O. Box 2990
Winston-Salem, North Carolina27102-2990
Page | ||||
1 | ||||
1 | ||||
1 | ||||
1 | ||||
2 | ||||
2 | ||||
2 | ||||
2 | ||||
2 | ||||
3 | ||||
3 | ||||
3 | ||||
3 | ||||
3 | ||||
4 | ||||
4 | ||||
4 | ||||
4 | ||||
4 | ||||
5 | ||||
5 | ||||
6 | ||||
6 | ||||
7 | ||||
7 | ||||
8 | ||||
12 | ||||
14 | ||||
14 | ||||
15 |
i
Table of Contents
Page | ||||
16 | ||||
18 | ||||
20 | ||||
21 | ||||
21 | ||||
22 | ||||
23 | ||||
23 | ||||
24 | ||||
25 | ||||
25 | ||||
25 | ||||
26 | ||||
26 | ||||
26 | ||||
26 | ||||
27 | ||||
28 | ||||
29 | ||||
29 | ||||
30 | ||||
30 | ||||
31 | ||||
31 | ||||
32 | ||||
36 | ||||
36 | ||||
38 | ||||
40 | ||||
40 | ||||
40 | ||||
41 | ||||
41 | ||||
41 | ||||
42 | ||||
44 | ||||
44 | ||||
47 | ||||
49 | ||||
50 | ||||
50 | ||||
53 | ||||
53 |
ii
Table of Contents
Page | ||||
59 | ||||
61 | ||||
61 | ||||
61 | ||||
62 | ||||
62 | ||||
62 | ||||
63 | ||||
63 | ||||
63 | ||||
64 | ||||
64 | ||||
64 | ||||
65 | ||||
67 |
iii
Table of Contents
Date: | Friday, May 11, 2007 | |
Time: | 9:00 a.m. (Eastern Time) | |
Place: | Reynolds American Plaza Building Auditorium RAI Corporate Offices 401 North Main Street Winston-Salem, North Carolina |
1
Table of Contents
• | forthe election of all director nominees, | |
• | forthe approval of an amendment to the Articles of Incorporation increasing the number of authorized shares of RAI common stock from 400,000,000 to 800,000,000, | |
• | forthe ratification of the selection of KPMG LLP as our independent auditors for our 2007 fiscal year, 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, | |
• | 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 |
2
Table of Contents
• | 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. |
3
Table of Contents
Item | Vote Necessary* | |
• Item 1: Election of 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 amendment to the Articles of Incorporation | 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. |
* | Under rules of the New York Stock Exchange, referred to as the NYSE, if you hold your shares in street name, then your broker is permitted to vote your shares on Items 1, 2 and 3 even if it does not receive voting instructions from you. 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 RAI, | |
• | 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. |
4
Table of Contents
5
Table of Contents
6
Table of Contents
7
Table of Contents
Name | Age | Business Experience | ||||
Martin D. Feinstein | 58 | Mr. Feinstein was the Chairman of Farmers Group, Inc. and Farmers New World Life Insurance Company from 1997 to July 2005 and served as the Chief Executive Officer of Farmers Group, Inc. from 1997 to April 2005 and as President and Chief Operating Officer of Farmers Group, Inc. from 1995 to 1996. He retired from Farmers Group, Inc. in July 2005. Prior to 1995, Mr. Feinstein held various management positions with Farmers Group, Inc., including Senior Vice President — Property/Casualty Operations, Senior Vice President — Chief Information Officer and Senior Vice President — Chief Marketing Officer from 1980 to 1994. Farmers Group, Inc. is a holding company of Farmers New World Life Insurance Company. Farmers Group, Inc. was an indirect, wholly owned subsidiary of B.A.T. Industries p.l.c., an affiliate of BAT, from 1988 to 1998. Mr. Feinstein was a member of the board of directors of B.A.T. Industries p.l.c. from January 1997 to September 1998, and was a member of the Group Management Board of Zurich Financial Services from 1998 to April 2005. Mr. Feinstein commenced serving on the Board of RAI as of November 30, 2005. He also is a member of the board of directors of Clear Technology. |
8
Table of Contents
Name | Age | Business Experience | ||||
Susan M. Ivey | 48 | Ms. Ivey has been President and Chief Executive Officer of RAI since January 2004, and was elected the Chairman of the Board of RAI effective January 1, 2006, and, since July 2004, has been Chairman of the Board of R. J. Reynolds Tobacco Company, a wholly owned operating subsidiary of RAI, referred to as RJR Tobacco. From July 2004 to December 2006, she also served as Chief Executive Officer of 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 that 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 the Forsyth County United Way and the Winston-Salem YWCA, a member of the board of trustees of the University of Florida Foundation and Wake Forest University and is a member of The Business Council, a national organization of chief executive officers. | ||||
Neil R. Withington | 50 | 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. Mr. Withington commenced serving on the Board of RAI as of July 30, 2004. |
9
Table of Contents
Name | Age | Business Experience | ||||
John T. Chain, Jr. | 72 | 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 was appointed its Lead Director as of January 1, 2006, 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. |
Betsy S. Atkins | 52 | 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 Executive 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., Chico’s FAS Inc. and SunPower Corporation, as well as a number of private companies. Ms. Atkins also was a Presidential-appointee to the Pension Benefit Guaranty Corporation advisory committee and is a Governor-appointed member of the Florida International University Board of Trustees. |
10
Table of Contents
Name | Age | Business Experience | ||||
Nana Mensah | 54 | 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, when it was sold to a private equity firm. 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. Mr. Mensah worked for PepsiCo from 1990 to 1994, and for PepsiCo Restaurants International from 1994 to 1997, in a variety of senior executive positions. 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 a Distinguished Fellow at Georgetown College in Kentucky. He also is a member of the boards of trustees of the Lexington Philharmonic Society, the Children’s Miracle Network and the Kentucky Children’s Hospital. |
Antonio Monteiro de Castro | 61 | 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 and a member of the board of the Getulio Vargas Foundation. |
11
Table of Contents
Name | Age | Business Experience | ||||
H.G.L. (Hugo) Powell | 62 | Mr. Powell retired in 2002 from Interbrew S.A., an international brewer that in 2004 became part of InBev S.A., 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 | 68 | 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, Harsco Corporation and RPM International Inc. | ||||
Thomas C. Wajnert | 63 | Mr. Wajnert has been self-employed since July 2006, providing advisory services, including acting as a Senior Advisor to Bear Stearns Merchant Banking. From January 2002 to June 2006, he had been Managing Director of Fairview Advisors, LLC, a merchant bank he co-founded. Mr. Wajnert retired as Chairman of the Board and Chief Executive Officer of AT&T Capital Corporation, a commercial finance and leasing company, where he was employed from November 1984 until December 1997. He was self-employed and participated in several private equity transactions in the technology and human resources outsourcing areas from December 1997 to December 2001. 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 NYFIX, Inc., United Dominion Realty Trust, Inc. and Churchill Financial Corp., and is Non-Executive Chairman of FGIC, Inc., a privately held financial guarantee insurance company. |
12
Table of Contents
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. |
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. |
13
Table of Contents
• | The director is, or has been within the last three years, an employee of RAI, or an immediate family member is, or has been within the last three years, an executive officer, of RAI, | |
• | The director has received, or has an immediate family member who has received, during any12-month period within the last three years, more than $100,000 in direct compensation from RAI, 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), | |
• | (1) The director or an immediate family member is a current partner of a firm that is RAI’s internal or external auditor; (2) the director is a current employee of such a firm; (3) 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 (4) 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 RAI’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 RAI’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, RAI 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. |
14
Table of Contents
• | overseeing that management has maintained the reliability and integrity of RAI’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 RAI, | |
• | overseeing that management has established and maintained processes to assure compliance by RAI with all applicable laws, regulations and RAI policies, | |
• | overseeing that management has established and maintained processes to ensure adequate enterprise risk management, | |
• | overseeing the integrity of RAI’s financial statements and RAI’s compliance with legal and regulatory requirements, and | |
• | overseeing the qualifications, independence and performance of RAI’s independent auditors and internal audit department. |
15
Table of Contents
• | 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, and |
• | approves, or makes recommendations to the Board with respect to, the base salary and annual incentives payable to all of RAI’s executive officers, including the Chief Executive Officer. |
16
Table of Contents
• | a former officer of an issuer serving as a member of that issuer’s compensation committee, and |
• | an executive officer of an issuer serving as a director of another entity, one of whose executive officers serves on that issuer’s compensation committee. During 2006, there were no compensation committee interlocks or insider participation at RAI. |
17
Table of Contents
• | reviews the qualifications of candidates for nomination to the Board and its committees, | |
• | recommends to the Board nominees for election as directors, | |
• | may nominate an independent director to serve as a lead director under the circumstances described below under “— Lead Director,” | |
• | 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 and reports to the Board on succession planning for RAI’s Chief Executive Officer and other top executive management positions, | |
• | 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, the Board Committees, the Lead Director and, in conjunction with the Lead Director, the individual directors in meeting their respective 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. |
• | 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 |
18
Table of Contents
• | 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 of the Board, 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, | |
• | 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 above, and |
19
Table of Contents
• | whether the candidate would be considered independent under the Governance Guidelines and the NYSE listing standards. |
• | presiding over executive sessions of the non-management directors and the independent directors, | |
• | calling meetings of the non-management directors and the independent directors as he or she deems necessary, | |
• | facilitating communications and serving as a liaison between the non-management directors and the Chairman of the Board and Chief Executive Officer, though each director is free to communicate directly with the Chairman of the Board and Chief Executive Officer, | |
• | consulting with the Chairman of the Board, the Chief Executive Officer and the Secretary on the agenda for Board meetings and on the need for special meetings of the Board, | |
• | together with the Chair of the Governance Committee, communicating to the Chief Executive Officer the results of the evaluation of his or her performance, |
• | in conjunction with the Governance Committee, overseeing the evaluation process of individual directors, |
• | meeting with any director who is not adequately performing his or her duties as a member of the Board or any Board committee, and | |
• | otherwise consulting with the Chairman of the Board on matters relating to management effectiveness and Board performance. |
20
Table of Contents
21
Table of Contents
Change in | ||||||||||||||||||||
Pension Value | ||||||||||||||||||||
and Nonqualified | ||||||||||||||||||||
Deferred | ||||||||||||||||||||
Fees Earned or | Stock Awards | Compensation | All Other | |||||||||||||||||
Name | Paid in Cash ($)(3) | ($)(4)(5) | Earnings ($)(6) | Compensation ($)(7) | Total ($) | |||||||||||||||
Betsy S. Atkins | 85,300 | 341,442 | 0 | 1,260 | 428,002 | |||||||||||||||
John T. Chain, Jr. | 125,300 | 359,322 | 0 | 11,516 | 496,138 | |||||||||||||||
Martin D. Feinstein | 85,600 | 300,204 | 0 | 1,388 | 387,192 | |||||||||||||||
E.V. (Rick) Goings(2) | 77,800 | 370,183 | 3,570 | 18,775 | 470,328 | |||||||||||||||
Nana Mensah | 84,500 | 181,107 | 0 | 2,388 | 267,995 | |||||||||||||||
H.G.L. (Hugo) Powell | 99,500 | 359,322 | 1,886 | 11,260 | 471,968 | |||||||||||||||
Joseph P. Viviano | 95,200 | 359,322 | 5,407 | 11,388 | 471,317 | |||||||||||||||
Thomas C. Wajnert | 116,750 | 359,322 | 0 | 8,910 | 484,982 |
(1) | As an employee director, Ms. Ivey receives no compensation for her service on the Board. See “Executive Compensation” below for information regarding the compensation that she receives in her capacity as RAI’s Chief Executive Officer and President. RAI does not pay any compensation directly to Messrs. Monteiro de Castro and Withington for serving as directors. See “— Payment to BAT for Services of Certain Board Designees” below for information regarding the compensation RAI pays BAT for the Board service of such persons. |
(2) | Mr. Goings resigned from the Board effective February 6, 2007. | |
(3) | The amounts in this column represent Board and Board committee retainers paid for service in 2006, fees paid for Board and Board committee meetings attended in 2006 and, in the case of General Chain, the supplemental retainer paid for service as Lead Director. Amounts are shown in this column notwithstanding a director’s election to defer his or her retainers and meeting fees pursuant to the plan described below under “— Deferred Compensation Plan.” For additional information regarding director meeting fees and retainers, see “— Annual Retainers and Meetings Fees” below. | |
(4) | The amounts shown in this column represent the amount recognized as compensation expense in 2006 (pursuant to Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment,” referred to as FAS 123(R)) by RAI for financial statement reporting purposes with respect to awards made during 2006, and in previous years, under the Equity Incentive Award Plan for Directors of Reynolds American Inc., referred to as the EIAP. The amounts shown in this column do not equal the value that any director actually received during 2006 with respect to his or her EIAP awards. Certain Outside Directors have elected to receive RAI common stock, in lieu of RAI common stock equivalents (which also are referred to as deferred stock units), with respect to their initialand/or annual awards under the EIAP. Under FAS 123(R), the amount of compensation expense recognized for RAI common stock awarded under the EIAP is less than the compensation expense recognized for deferred stock units awarded under the EIAP. The assumptions upon which the amounts in this column are based are set forth in note 16 to the consolidated financial statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, filed with the SEC on February 27, 2007. No Outside Director forfeited any stock awards during 2006. | |
The amounts in this column do not include any dividends paid on shares of RAI common stock issued under the EIAP, or dividend equivalents earned on deferred stock units awarded under the EIAP or credited under the Amended and Restated Deferred Compensation Plan for Directors of Reynolds American Inc., referred to as the DCP. See “— Equity Awards” below for a discussion of the material terms of the EIAP and DCP. The amount of dividend equivalents earned or credited on directors’ deferred stock units, |
22
Table of Contents
and charged to expense, in 2006 was as follows — Ms. Atkins: $43,447; General Chain: $46,448; Mr. Feinstein: $25,695; Mr. Goings: $69,010; Mr. Mensah: $5,197; Mr. Powell: $46,448; Mr. Viviano: $46,448; and Mr. Wajnert: $46,448. | ||
(5) | The grant date fair value, as determined in accordance with FAS 123(R), of the stock awards made to each Outside Director in 2006 under the EIAP was $152,260. The aggregate number of outstanding stock awards (representing deferred stock units awarded under the EIAP or credited under the DCP) and stock options held by the Outside Directors as of December 31, 2006 are set forth below: |
Name | Units (#) | Options (#) | ||||||
Betsy S. Atkins | 12,098 | 0 | ||||||
John T. Chain, Jr. | 16,322 | 0 | ||||||
Martin D. Feinstein | 10,144 | 0 | ||||||
E.V. (Rick) Goings | 19,410 | 20,000 | ||||||
Nana Mensah | 2,167 | 0 | ||||||
H.G.L. (Hugo) Powell | 15,851 | 0 | ||||||
Joseph P. Viviano | 15,223 | 0 | ||||||
Thomas C. Wajnert | 14,144 | 0 |
(6) | The amounts in this column reflect the interest earned on the cash accounts of the Outside Directors who participate in the DCP to the extent such interest is considered “above-market” within the meaning of applicable SEC rules. | |
(7) | The amounts in this column include the value of matching gifts made on behalf of General Chain and Messrs. Goings, Viviano, Powell and Mensah pursuant to the program described below under “Other Benefits — Matching Grants Program;” the value ascribed to personal flights taken by Messrs. Goings and Wajnert, or their respective guests, on aircraft owned or leased by RJR Tobacco (with such value based on the aggregate incremental cost to RJR Tobacco); and the cost of premiums paid by RAI for certain excess liability insurance provided to the Outside Directors, as described below under “Other Benefits — Insurance Benefits.” |
• | For 2006, each Outside Director received an annual retainer of $57,000. Effective January 1, 2007, the Board increased the amount of the annual retainer to $60,000. | |
• | The Lead Director, if one is elected, receives a supplemental annual retainer of $20,000. | |
• | Each Outside Director who is a Chair of one of the standing committees of the Board receives a supplemental annual retainer as follows — Audit Committee Chair: $20,000; Compensation Committee Chair: $10,000; and Governance Committee Chair: $10,000. | |
• | For 2006, each Outside Director received an attendance fee of $1,250 for each Board meeting attended. In addition, in 2006, members of each Board committee (all of whom are Outside Directors) received an attendance fee for each committee meeting attended as follows — Audit Committee: $1,500; Compensation Committee: $1,350; Governance Committee: $1,250; and special committee: $1,250. Effective January 1, 2007, the Board increased the amount of the per meeting attendance fee for meetings of the Board and all Board committees to $1,500. In addition, each director who is not a member of the existing special committee, but who attends a meeting of this committee receives the same meeting fee as committee members. |
23
Table of Contents
24
Table of Contents
• | 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 DCP. |
25
Table of Contents
Amount and Nature of | ||||||||
Name and Address of Beneficial Owner | Beneficial Ownership | Percent of Class(5) | ||||||
British American Tobacco p.l.c | 123,905,524 | (1) | 41.86 | |||||
Globe House 4 Temple Place London, WC2R 2PG | ||||||||
Brown & Williamson Holdings, Inc. | 123,905,524 | (1) | 41.86 | |||||
103 Foulk Road, Suite 117 Wilmington, Delaware 19803 | ||||||||
AMVESCAP PLC | 23,056,974 | (2) | 7.79 | |||||
11 Devonshire Square London, England EC2M 4YR | ||||||||
Capital Research and Management Company | 23,030,610 | (3) | 7.78 | |||||
333 South Hope Street Los Angeles, California 90071 | ||||||||
INVESCO Asset Management Limited | 22,726,288 | (4) | 7.68 | |||||
30 Finsbury Square London, England EC2A 1AG |
(1) | Based upon a Schedule 13G filed with the SEC on February 9, 2005, and upon information furnished to RAI by Brown & Williamson Holdings, Inc. on February 7, 2007, and by British American Tobacco p.l.c. on March 5, 2007, (a) Brown & Williamson Holdings, Inc. and British American Tobacco p.l.c. hold sole |
26
Table of Contents
dispositive and sole voting power over these shares and (b) 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 by AMVESCAP PLC, a holding company, on behalf of itself and certain investment advisory subsidiaries, with the SEC on February 14, 2007, AIM Advisors, Inc., AIM Capital Management, Inc., Atlantic Trust Company, N.A., INVESCO Asset Management (Japan) Limited, INVESCO Asset Management Limited, INVESCO Management S.A., INVESCO Institutional (N.A.), Inc. and PowerShares Capital Management LLC held, with respect to these shares, sole voting and dispositive power over 84,764 shares; 4,308 shares; 585 shares; 114,206 shares; 22,726,288 shares; 750 shares; 16,290 shares; and 109,789 shares, respectively, as of December 31, 2006. |
(3) | According to a Schedule 13G/A filed by Capital Research and Management Company with the SEC on February 12, 2007, Capital Research and Management Company, acting as an investment advisor to various investment companies, held sole dispositive power over these shares, and sole voting power over 7,850,280 of these shares, as of December 31, 2006. |
(4) | See footnote 2 for additional information. |
(5) | Information in this column is based on 295,997,158 shares of RAI common stock outstanding on March 14, 2007, the record date for the 2007 annual meeting. |
Amount and Nature of | ||||||||
Name of Beneficial Owner | Beneficial Ownership | Percent of Class(7) | ||||||
Betsy S. Atkins(1) | 0 | * | ||||||
Lynn J. Beasley(2)(3)(4) | 23,634 | * | ||||||
Charles A. Blixt(5) | 4,376 | * | ||||||
John T. Chain, Jr.(1) | 3,958 | * | ||||||
Jeffrey A. Eckmann(3)(4) | 24,769 | * | ||||||
Martin D. Feinstein(1) | 0 | * | ||||||
Susan M. Ivey(3)(4) | 101,409 | * | ||||||
Nana Mensah(1) | 5,820 | * | ||||||
Antonio Monteiro de Castro | 0 | * | ||||||
Dianne M. Neal(3)(4) | 35,527 | * | ||||||
Tommy J. Payne(3)(4) | 27,657 | * | ||||||
H.G.L. (Hugo) Powell(1) | 7,600 | * | ||||||
Joseph P. Viviano(1) | 8,000 | * | ||||||
Thomas C. Wajnert(1) | 6,500 | * | ||||||
Neil R. Withington | 0 | * | ||||||
All directors, director nominees and executive officers as a group (consisting of 21 persons)(6) | 311,252 | * |
27
Table of Contents
* | 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 DCP: (a) 12,235 units for Ms. Atkins; (b) 16,502 units for General Chain; (c) 10,258 units for Mr. Feinstein; (d) 2,190 units for Mr. Mensah; (e) 16,027 units for Mr. Powell; (f) 15,396 units for Mr. Viviano; and (g) 14,304 units for Mr. Wajnert. Messrs. Monteiro de Castro and Withington do not participate in either the EIAP or DCP. | |
(2) | Ms. Beasley retired as President and Chief Operating Officer of RJR Tobacco effective as of December 31, 2006. Since that date, Ms. Beasley has remained employed by RJR Tobacco; her employment with RJR Tobacco is scheduled to end on March 31, 2007. | |
(3) | The shares beneficially owned do not include the following performance shares, granted under the Reynolds American Inc. Long-Term Incentive Plan, referred to as 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) 66,252 performance shares for Ms. Ivey; (b) 39,407 performance shares for Ms. Beasley; (c) 22,359 performance shares for Ms. Neal; (d) 22,359 performance shares for Mr. Eckmann; and (e) 11,600 performance shares for Mr. Payne. | |
(4) | The shares beneficially owned include the following shares of restricted stock granted under the LTIP, which shares are subject to prohibitions against transfer, but carry voting and dividend rights, prior to vesting: (a) 91,714 shares of restricted stock for Ms. Ivey; (b) 23,634 shares of restricted stock for Ms. Beasley; (c) 23,017 shares of restricted stock for Ms. Neal; (d) 22,369 shares of restricted stock for Mr. Eckmann; and (e) 13,219 shares of restricted stock for Mr. Payne. |
(5) | Mr. Blixt’s employment with RAI ended on August 31, 2006. |
(6) | The shares beneficially owned by all directors, director nominees and executive officers as a group: (a) do not include an aggregate of 222,659 performance shares granted to executive officers under the LTIP, which shares 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 86,914 deferred common stock units awarded to directors under the EIAP or credited to directors under the DCP; (c) include an aggregate of 233,652 shares of restricted stock granted to executive officers under the LTIP, which shares are subject to prohibitions against transfer, but carry voting and dividend rights, prior to vesting; and (d) include 1,306 shares (as to which beneficial ownership is disclaimed) held by the spouse of an executive officer. |
(7) | The information in this column is based on 295,997,158 shares of RAI common stock outstanding on March 14, 2007, the record date for the 2007 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. |
28
Table of Contents
• | 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. |
29
Table of Contents
Altria Group, Inc. | Hershey Company | |
Anheuser-Busch Companies, Inc. | Hormel Foods Corporation | |
Avery Dennison Corporation | Kellogg Company | |
Avon Products, Inc. | Kimberly-Clark Corporation | |
Lorillard, Inc. | Land O’Lakes | |
Campbell Soup Company | Levi Strauss & Co. | |
Clorox Company | L’Oreal USA, Inc. | |
Colgate-Palmolive Company | Miller Brewing Company | |
ConAgra Foods, Inc. | Molson Coors Brewing Company | |
Diageo North America, Inc. | Nestle Purina PetCare Company | |
Eastman Kodak Company | Nestle USA | |
Fortune Brands, Inc. | S.C. Johnson Consumer Products | |
General Mills, Inc. | Sherwin-Williams Company | |
H. J. Heinz Company | Unilever United States, Inc. | |
Hallmark Cards, Inc. |
30
Table of Contents
31
Table of Contents
32
Table of Contents
Target Incentive as % | ||||
Executive | of Base Salary(1) | |||
Susan M. Ivey | 125 | % | ||
Dianne M. Neal | 75 | % | ||
Lynn J. Beasley | 85 | % | ||
Jeffrey A. Eckmann | 75 | % | ||
Tommy J. Payne | 65 | % | ||
Charles A. Blixt | 75 | % |
(1) | The dollar amount of the 2006 annual incentive paid to each named executive officer is set forth in the “Non-Equity Incentive Plan Compensation” column of the 2006 Summary Compensation Table below. Mr. Blixt received a pro rata portion of his annual cash incentive based upon the period of time in which he was employed during 2006. |
• | target bonus percentage, | |
• | annual base salary, and | |
• | a score based upon the performance of RAIand/or RJR Tobacco against designated performance metrics. |
• | RAI net income in the case of those named executive officers employed by RAI, and RJR Tobacco operating income in the case of Ms. Beasley, the only named executive officer employed by RJR Tobacco, and | |
• | the market share of certain RJR Tobacco cigarette brands or brand categories. |
33
Table of Contents
Performance Metric | ||||||||
Weighting (%) | ||||||||
RAI | RJR Tobacco | |||||||
Performance Metric(1) | Employees(2) | Employees(3) | ||||||
RAI Net Income | 50 | — | ||||||
RJR Tobacco Operating Income | — | 50 | ||||||
Camel Market Share | 20 | 20 | ||||||
Kool Market Share | 15 | 15 | ||||||
Selective Support Brand Market Share | 7.5 | 7.5 | ||||||
RJR Tobacco Total Market Share | 7.5 | 7.5 |
(1) | This table does not include the actual market share targets, given the competitively sensitive nature of such information. The RAI net income target was $1.211 billion, and the RJR Tobacco operating income target was $1.724 billion. The RJR Tobacco operating income target excludes certain corporate allocations reflected in RJR Tobacco’s operating income that is reported in the consolidated financial statements of RAI filed with the SEC, which statements are determined in accordance with accounting principles generally accepted in the United States, referred to as GAAP. The GAAP equivalent of the foregoing RJR Tobacco operating income target is $1.7 billion. | |
(2) | The performance metric weighting in this column is used to calculate bonus amounts payable to all RAI employees, including the named executive officers employed by RAI — Mmes. Ivey and Neal, and Messrs. Eckmann, Payne and Blixt. | |
(3) | The performance metric weighting in this column is used to calculate bonus amounts payable to all RJR Tobacco employees, including Ms. Beasley, the only named executive officer employed by RJR Tobacco. |
34
Table of Contents
Performance Metric Weighting (%) | Final (Weighted) Score | |||||||||||||||||||||
RJR | Initial | RJR | ||||||||||||||||||||
RAI | Tobacco | Score | RAI | Tobacco | ||||||||||||||||||
Performance Metric | Employees | Employees | (%) | Employees | Employees | |||||||||||||||||
RAI Net Income | 50 | — | 144.9 | .7245 | — | |||||||||||||||||
RJR Tobacco Operating Income | — | 50 | 132.9 | — | .6645 | |||||||||||||||||
Camel Market Share | 20 | 20 | 200 | .4 | .4 | |||||||||||||||||
Kool Market Share | 15 | 15 | 120 | .18 | .18 | |||||||||||||||||
Selective Support Brand Market Share | 7.5 | 7.5 | 200 | .15 | .15 | |||||||||||||||||
RJR Tobacco Total Market Share | 7.5 | 7.5 | 150 | .1125 | .1125 | |||||||||||||||||
1.567 | 1.507 | Overall Score | ||||||||||||||||||||
35
Table of Contents
Performance Metric Weighting (%) | ||||||||
RAI | RJR Tobacco | |||||||
Performance Metric(1) | Employees | Employees | ||||||
RAI Net Income | 50 | — | ||||||
RJR Tobacco Operating Income | — | 50 | ||||||
Camel Market Share | 15 | 20 | ||||||
Kool Market Share | 10 | 15 | ||||||
Pall Mall Box Market Share | 5 | 7.5 | ||||||
RJR Tobacco Total Market Share | 5 | 7.5 | ||||||
Conwood Moist Snuff Market Share | 10 | — | ||||||
Natural American Spirit Shipment Volume | 5 | — |
(1) | This table does not include the actual operating income, market share and shipment volume targets, given the competitively sensitive nature of such information. The RAI net income target was established within the range of EPS guidance publicly announced by RAI in February 2007. At such time, RAI forecasted its 2007 EPS to be between $4.25 and $4.45. Such EPS range equates to 2007 net income for RAI of between $1.256 billion and $1.315 billion. |
36
Table of Contents
LTIP Target as Multiple of Base Salary | ||||||||||||
Executive | 2006 | 2007 | 2008 | |||||||||
Susan M. Ivey | 5X | 6X | 6X | |||||||||
Dianne M. Neal | 3X | 2.75X | 2.5X | |||||||||
Lynn J. Beasley(1) | 3X | — | — | |||||||||
Jeffrey A. Eckmann | 3X | 2.75X | 2.5X | |||||||||
Tommy J. Payne | 2.5X | 2.25X | 2X | |||||||||
Charles A. Blixt(2) | — | — | — |
(1) | Ms. Beasley received an LTIP grant in 2006, but is retiring at the end of the first quarter of 2007 and, therefore, will not receive any further LTIP grants. | |
(2) | No LTIP grant was made to Mr. Blixt in 2006 given RAI’s announcement in January 2006 that he would be leaving RAI once his successor had been appointed. |
37
Table of Contents
38
Table of Contents
39
Table of Contents
40
Table of Contents
Betsy S. Atkins
John T. Chain, Jr.
41
Table of Contents
Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||||||||||||
Salary | Bonus | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($)(3) | ($)(4) | ($)(5) | ($)(6) | ($)(7) | ($) | ||||||||||||||||||||||||||||
Susan M. Ivey | 2006 | 1,135,000 | 0 | 3,604,102 | 2,223,000 | 1,000,923 | 206,897 | 8,169,922 | ||||||||||||||||||||||||||||
Chairman of the Board, Chief Executive Officer and President | ||||||||||||||||||||||||||||||||||||
Dianne M. Neal | 2006 | 532,675 | 0 | 1,155,807 | 631,000 | 357,827 | 180,180 | 2,857,489 | ||||||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Lynn J. Beasley | 2006 | 854,000 | 0 | 1,992,271 | 1,105,000 | 424,115 | 286,423 | 4,661,809 | ||||||||||||||||||||||||||||
President and Chief Operating Officer, RJR Tobacco(1) | ||||||||||||||||||||||||||||||||||||
Jeffrey A. Eckmann | 2006 | 512,675 | 125,000 | 1,755,463 | 705,000 | 1,681,259 | 189,861 | 4,969,258 | ||||||||||||||||||||||||||||
RAI Group President | ||||||||||||||||||||||||||||||||||||
Tommy J. Payne | 2006 | 369,475 | 0 | 615,402 | 379,308 | 151,779 | 126,623 | 1,642,587 | ||||||||||||||||||||||||||||
Executive Vice President — Public Affairs | ||||||||||||||||||||||||||||||||||||
Charles A. Blixt | 2006 | 382,825 | 350,000 | 453,015 | 456,000 | 212,894 | 410,440 | 2,265,174 | ||||||||||||||||||||||||||||
Executive Vice President, General Counsel and Assistant Secretary(2) |
(1) | Ms. Beasley retired as President and Chief Operating Officer of RJR Tobacco as of the close of business on December 31, 2006. Since such date, she has remained employed with RJR Tobacco on a transition basis, earning the same base salary and participating in the same employee benefit programs as she did immediately prior to January 1, 2007. Her transitional employment is scheduled to end on March 31, 2007. See “Compensation Discussion and Analysis — Severance Agreements” above for information regarding Ms. Beasley’s severance arrangement with RAI. |
(2) | Mr. Blixt’s employment with RAI terminated as of August 31, 2006. In connection with his termination, Mr. Blixt forfeited 9,769 performance shares and 8,696 performances shares that had been granted to him in 2004 and 2005, respectively. See footnotes 3 and 4 to the Outstanding Equity Awards at 2006 Fiscal Year-End table below for a description of the terms governing such awards. For information regarding the payments and benefits to which Mr. Blixt is entitled in connection with his termination of employment, see “— Termination and Change of Control Payments” below. |
(3) | The amounts shown in this column reflect retention bonuses paid to Messrs. Eckmann and Blixt. See “Compensation Discussion and Analysis — Other Compensation Policies — Special Incentives” above for additional information about these bonuses. |
42
Table of Contents
(4) | The amounts shown in this column represent the amount of compensation expense RAI recorded in its 2006 financial statements (pursuant to FAS 123(R)) for the stock-based LTIP awards that have been made to each named executive officer during 2006 and in previous years. The assumptions upon which these amounts are based are set forth in note 16 to the consolidated financial statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, filed with the SEC on February 27, 2007. The amounts shown in this column do not equal the actual value that any named executive officer received during 2006 with respect to his or her LTIP awards. For the value that the named executive officers actually received in 2006 in connection with the vesting of certain performance shares, see the 2006 Option Exercises and Stock Vested table below. None of the named executive officers vested in any shares of restricted stock during 2006; vesting of these shares is contingent upon meeting performance criteria established by the Compensation Committee. Subject otherwise to the terms of the grant documentation and of any person’s employment agreement, the outstanding, unvested performance shares and restricted RAl common stock held by the named executive officers will be cancelled if the minimum dividend condition is not satisfied (or waived). If the foregoing condition is satisfied or waived, the actual value any named executive officer will receive upon vesting may differ significantly from the amounts shown in this column. |
The value of dividends or dividend equivalents on executives’ LTIP awards is not included in this table. The dividend equivalents charged to expense during 2006 with respect to the executives’ performance shares were as follows — Ms. Ivey: $211,991; Ms. Neal: $71,544; Ms. Beasley: $126,093; Mr. Eckmann: $71,544; Mr. Payne: $37,118; and Mr. Blixt: $46,148. |
(5) | The amounts in this column represent amounts paid in the first quarter of 2007 (a) upon the vesting of one-year performance units granted in February 2006, pursuant to the LTIP or (b) in the case of Mr. Payne, in connection with his participation in the AIAP. For information regarding the foregoing annual incentives, see “Compensation Discussion and Analysis — Annual Compensation — Annual Incentives” above, and for further information regarding the one-year performance units, see also footnote 2 to the 2006 Grants of Plan-Based Awards table below. | |
(6) | The amounts in this column for each named executive officer represent the total change in the actuarial present value of the executive’s accumulated benefit under all defined benefit plans, including supplemental plans, from December 31, 2005 to December 31, 2006. For additional information regarding the defined benefit plans in which the named executive officers participate, see the 2006 Pension Benefits table below. | |
(7) | The amounts shown in this column include, among other items: |
(a) | contributions made by RAI to the named executive officers under RAI’s qualified defined contribution plans, and amounts credited by RAI to the accounts of the named executive officers in RAI’s non-qualified excess benefit plans (with such excess benefit plans described in greater detail in the footnotes to the 2006 Non-Qualified Deferred Compensation table below), as follows: |
Qualified Plan | Non-Qualified Plan | |||||||
Contribution | Credit | |||||||
Name | ($) | ($) | ||||||
Ms. Ivey | 6,600 | 74,490 | ||||||
Ms. Neal | 21,999 | 84,467 | ||||||
Ms. Beasley | 24,199 | 186,009 | ||||||
Mr. Eckmann | 6,600 | 24,410 | ||||||
Mr. Payne | 21,999 | 47,447 | ||||||
Mr. Blixt | 24,200 | 87,540 |
(b) | the perquisites described below: |
• | a payment of $79,000 to Ms. Ivey, a payment of $70,200 to each of Mmes. Neal and Beasley and Messrs. Eckmann and Blixt, and a payment of $54,300 to Mr. Payne, in each case in lieu of such person’s participation in RAI’s former executive perquisites program, |
43
Table of Contents
• | the cost of premiums paid by RAI for certain excess liability insurance covering each of the named executive officers (and a related taxgross-up amount), | |
• | complimentary tobacco products, manufactured by RAI’s operating subsidiaries, provided to Mmes. Ivey, Neal and Beasley and Mr. Payne, and |
• | the value ascribed to personal flights taken by Mmes. Ivey and Beasley and Mr. Eckmann, or their respective guest, on aircraft owned or leased by RJR Tobacco (with such value based upon the aggregate incremental cost to RJR Tobacco); |
(c) | in the case of Mr. Eckmann, a tax reimbursement payment of $60,048 associated with his extension bonus included in the “Bonus” column in the above table; | |
(d) | in the case of Ms. Ivey and Mr. Eckmann, the change in the value of the accrued post-retirement health benefit from December 31, 2005 to December 31, 2006 as follows — Ms. Ivey: $21,289; and Mr. Eckmann: $23,318; and | |
(e) | in the case of Mr. Blixt, severance payments in the amount of $226,022 to which he will be entitled in connection with his termination of employment with RAI on August 31, 2006. The foregoing amount represents the value of Mr. Blixt’s severance payments (determined in accordance with RAI’s standard form of severance agreement described above under “Compensation Discussion and Analysis — Severance Agreements”) attributable to the period from September 1 to December 31, 2006, but such amount does not include additional severance payments to which he is entitled, subject otherwise to the terms of his agreement with RAI. Mr. Blixt did not receive any severance payments in 2006; instead, the commencement of his severance payments was deferred until March 2007 due to the operation of Section 409A of the Code. For additional information regarding Mr. Blixt’s severance benefits, see “— Termination and Change of Control Payments” below. |
Estimated Future Payouts Under Non-Equity | Estimated Future Payouts Under Equity | |||||||||||||||||||||||||||||||||||||||
Incentive Plan Awards | Incentive Plan Awards(5) | |||||||||||||||||||||||||||||||||||||||
Grant Date | ||||||||||||||||||||||||||||||||||||||||
Board or | Fair Value of | |||||||||||||||||||||||||||||||||||||||
Committee | Award | Stock and | ||||||||||||||||||||||||||||||||||||||
Approval | Amount in | Threshold | Target | Maximum | Threshold | Target | Maximum | Option | ||||||||||||||||||||||||||||||||
Name | Grant Date | Date | Units (#) | ($) | ($) | ($) | (#) | (#) | (#) | Awards ($)(6) | ||||||||||||||||||||||||||||||
Susan M. Ivey | 3/6/2006 | 2/1/2006 | 0 | — | — | — | — | 53,944 | — | 2,837,454 | ||||||||||||||||||||||||||||||
3/6/2006 | 2/1/2006 | 2,837,500 | (1) | — | 2,837,500 | 5,675,000 | — | — | — | — | ||||||||||||||||||||||||||||||
2/9/2006 | 2/9/2006 | 1,419 | (2) | — | 1,419,000 | 2,838,000 | — | — | — | — | ||||||||||||||||||||||||||||||
Dianne M. Neal | 3/6/2006 | 2/1/2006 | 0 | — | — | — | — | 14,828 | — | 779,953 | ||||||||||||||||||||||||||||||
3/6/2006 | 2/1/2006 | 780,000 | (1) | — | 780,000 | 1,560,000 | — | — | — | — | ||||||||||||||||||||||||||||||
2/9/2006 | 2/9/2006 | 403 | (2) | — | 403,000 | 806,000 | — | — | — | — | ||||||||||||||||||||||||||||||
Lynn J. Beasley | 3/6/2006 | 2/1/2006 | 0 | — | — | — | — | 23,634 | — | 1,243,148 | ||||||||||||||||||||||||||||||
3/6/2006 | 2/1/2006 | 1,243,200 | (1) | — | 1,243,200 | 2,486,400 | — | — | — | — | ||||||||||||||||||||||||||||||
2/9/2006 | 2/9/2006 | 733 | (2) | — | 733,000 | 1,466,000 | — | — | — | — | ||||||||||||||||||||||||||||||
Jeffrey A. Eckmann | 3/6/2006 | 2/1/2006 | 0 | — | — | — | — | 13,218 | — | 695,267 | ||||||||||||||||||||||||||||||
3/6/2006 | 2/1/2006 | 695,250 | (1) | — | 695,250 | 1,390,500 | — | — | — | — | ||||||||||||||||||||||||||||||
2/9/2006 | 2/9/2006 | 403 | (2) | — | 403,000 | 806,000 | — | — | — | — | ||||||||||||||||||||||||||||||
10/1/2006 | 9/29/06 | 47 | (3) | — | 47,000 | 94,000 | — | — | — | — | ||||||||||||||||||||||||||||||
Tommy J. Payne | 3/6/2006 | 2/1/2006 | 0 | — | — | — | — | 8,572 | — | 450,887 | ||||||||||||||||||||||||||||||
3/6/2006 | 2/1/2006 | 450,900 | (1)(4) | — | 450,900 | 901,800 | — | — | — | — | ||||||||||||||||||||||||||||||
Charles A. Blixt | 2/9/2006 | 2/9/2006 | 436 | (2) | — | 436,000 | 872,000 | — | — | — | — |
44
Table of Contents
(1) | These awards represent performance units granted under the LTIP. The performance units, each of which has an initial value of $1.00, will vest upon the conclusion of the three-year performance period ending December 31, 2008, provided RAI pays to its shareholders a quarterly dividend of at least $.625 per share during the performance period. If RAI fails to pay the minimum dividend in any fiscal quarter during the performance period, then the performance units will be cancelled, unless RAI’s Board otherwise approves the non-cancellation of such units. Upon vesting, each grantee will receive a cash payment equal to the product of $1.00, the number of vested units and the average of the total weighted scores for each year of the performance period under the AIAP. Such payment will be made as soon as practicable after the end of the performance period under the AIAP. |
In the event of a grantee’s death, permanent disability, and (other than in the case of Mr. Eckmann) retirement or involuntary termination of employment without cause, any outstanding performance units will vest on a pro rata basis, with payment of such units to be made after the performance period. Notwithstanding the foregoing, in the event of a change of control of RAI, any outstanding performance units will vest on a pro rata basis and will be paid as soon as practicable after the change of control. Upon vesting after a change of control, each grantee will receive a cash payment equal to the product of (1) the greater of (a) $1.00 and (b) $1.00 multiplied by the average of the total weighted AIAP scores for each year of the performance period completed prior to the change of control and (2) the number of vested units. In the event of a grantee’s voluntary termination of employment (other than in the case of Mr. Eckmann) or termination of employment for cause, such grantee’s outstanding performance units will be cancelled. The vesting provisions described in this paragraph are subject to the terms of any employment contract between RAI and the grantee. As described above under “Compensation Discussion and Analysis — Severance Agreements,” pursuant to his amended employment offer letter, Mr. Eckmann will vest fully in any outstanding LTIP awards (other than any one-year performance units) upon his termination of employment with RAI other than for cause; the payment of these performance units, however, will be made after the completion of the performance period ending December 31, 2008. |
(2) | These awards represent performance units, each of which has an initial value of $1,000, granted under the LTIP to Mmes. Ivey, Neal and Beasley and Messrs. Eckmann and Blixt in lieu of their participation in the AIAP. The ultimate value of such awards is based upon the performance metrics described under “Compensation Discussion and Analysis — Annual Compensation — Annual Incentives” above. The payment with respect to each executive’s award was made, in accordance with its terms, in the first quarter of 2007. The amounts shown with respect to these awards in the “Target” and “Maximum” columns represent hypothetical payouts; the actual payments made by RAI relating to these performance units are reflected in the “Non-Equity Incentive Plan Compensation” column in the 2006 Summary Compensation Table above. RAI’s actual payment to Mr. Blixt was a pro rata amount, based upon his eight months of employment with RAI during 2006, of the total 436 performance units granted to him. Similarly, the hypothetical “Target” and “Maximum” amounts shown for Mr. Blixt in the above table are based upon the total 436 performance units granted to him. |
(3) | This award represents performance units, having the same terms as those described in the preceding footnote, granted to Mr. Eckmann in connection with his promotion to RAI Group President. | |
(4) | Unlike the other named executive officers, Mr. Payne received his annual incentive benefit for 2006 pursuant to the AIAP, and not in the form of performance units, described in footnote 2, granted to the other named executive officers pursuant to the LTIP. The performance metrics used to determine Mr. Payne’s benefit under the AIAP, however, were the same performance metrics used to determine the value of the performance units granted to the other named executive officers who are, or were, employed by RAI. The payment Mr. Payne received under the AIAP, in the first quarter of 2007, with respect to 2006 performance is reflected in the “Non-Equity Incentive Plan Compensation” column in the 2006 Summary Compensation Table above. See “Compensation Discussion and Analysis — Annual Compensation — Annual Incentives” above for further information regarding the annual incentive benefit. | |
(5) | These awards represent shares of restricted RAI common stock, as adjusted for the Stock Split, awarded under the LTIP. These shares will vest on March 6, 2009, provided RAI pays to its shareholders a quarterly |
45
Table of Contents
dividend of at least $.625 per share during the three-year period ending on December 31, 2008. If RAI fails to pay the minimum dividend in any fiscal quarter during such period, then the restricted stock will be cancelled, unless RAI’s Board otherwise approves the non-cancellation of the restricted stock. Prior to the vesting of the restricted stock, a grantee will receive dividends with respect to his or her outstanding unvested restricted stock to the same extent that any dividends generally are paid by RAI on outstanding shares of RAI’s common stock. Prior to the vesting of the restricted stock, each grantee will be prohibited from selling, pledging or otherwise transferring, but will have voting rights with respect to, the restricted stock. Upon vesting, the restrictions will lapse and the restricted stock will become freely transferable by the grantee, subject to any restrictions arising under applicable federal or state securities laws. |
In the event of a grantee’s death or permanent disability, or a change of control of RAI, any outstanding unvested restricted stock will immediately vest. Except in the case of Mr. Eckmann, in the event of a grantee’s involuntary termination of employment without cause or retirement, any outstanding unvested restricted stock will vest pro rata. In the event of a grantee’s voluntary termination of employment (other than in the case of Mr. Eckmann) or termination of employment for cause, such grantee’s outstanding restricted stock will be cancelled. The vesting provisions described in this paragraph will be subject to the terms of any employment contract between RAI and the grantee. As described above under “Compensation Discussion and Analysis — Severance Agreements,” pursuant to his amended employment offer letter, Mr. Eckmann will vest fully in any outstanding LTIP award (other than any one-year performance units) upon his termination of employment with RAI other than for cause. |
(6) | The amounts in this column represent the product of $52.60 (the closing price of RAI common stock on March 6, 2006, the grant date of the restricted stock described in the preceding footnote) and the number of shares of such restricted stock awarded to the executive. |
46
Table of Contents
Stock Awards | ||||||||
Equity Incentive Plan Awards: | Equity Incentive Plan Awards: | |||||||
Number of Unearned | Market or Payout Value of | |||||||
Shares, Units or Other Rights | Unearned Shares, Units or Other Rights | |||||||
that have not Vested | that have not Vested | |||||||
Name | (#)(1) | ($)(6) | ||||||
Susan M. Ivey | 53,944 | (2) | 3,531,714 | |||||
42,414 | (3) | 2,776,845 | ||||||
23,838 | (4) | 1,560,674 | ||||||
Dianne M. Neal | 14,828 | (2) | 970,789 | |||||
14,314 | (3) | 937,138 | ||||||
8,045 | (4) | 526,706 | ||||||
Lynn J. Beasley | 23,634 | (2) | 1,547,318 | |||||
25,228 | (3) | 1,651,677 | ||||||
14,179 | (4) | 928,299 | ||||||
Jeffrey A. Eckmann | 13,218 | (2) | 865,382 | |||||
14,314 | (3) | 937,138 | ||||||
8,045 | (4) | 526,706 | ||||||
Tommy J. Payne | 8,572 | (2) | 561,209 | |||||
7,426 | (3) | 486,180 | ||||||
4,174 | (4) | 273,272 | ||||||
Charles A. Blixt | 0 | (5) | 0 | (5) |
(1) | All share amounts in this column have been adjusted to reflect the Stock Split. | |
(2) | These amounts represent shares of restricted RAI common stock granted on March 6, 2006, pursuant to the LTIP. The material terms governing such awards are described in footnote 5 to the 2006 Grants of Plan-Based Awards table above. | |
(3) | These amounts represent performance shares granted on March 2, 2005, pursuant to the LTIP. The performance shares will vest on March 2, 2008, provided RAI pays to its shareholders a quarterly dividend of at least $.475 per share during the three-year period ending December 31, 2007. Such minimum dividend, which has been adjusted to reflect the Stock Split, is equal to the per share amount of the last dividend paid by RAI prior to the grant of these performance shares. 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. 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 date 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, except that such payment will be deferred for six months to the extent required for the income inclusion provisions of Section 409A of the Code not to apply to the executive. 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 RAI on outstanding shares of RAI common stock (except that if RAI pays a dividend in the form of property, rather than in cash, then RAI will pay, in lieu of such property dividend, the cash equivalent of such property). |
47
Table of Contents
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. Other than in the case of Mr. Eckmann, 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 the product of (a) the original number of performance shares granted to the named executive officer, and (b) a fraction, the numerator of which will be the number of whole or partial months between March 2, 2005, and the date of the named executive officer’s termination of employment, and the denominator of which will be 36. Upon a named executive officer’s voluntary termination of employment (other than at retirement), except in the case of Mr. Eckmann, or termination of employment for cause, all of his or her performance shares will be cancelled. Notwithstanding the foregoing, pursuant to Mr. Eckmann’s employment offer letter, as amended, he will vest in full in his outstanding performance shares, if any, on the last day of his active employment, unless he is terminated for cause. | ||
(4) | These amounts represent the remaining one-third of the performance shares granted, pursuant to the LTIP, on August 31, 2004. These performance shares will vest on August 31, 2007, provided RAI pays to its shareholders a quarterly dividend of at least $.475 per share (as adjusted for the Stock Split) during the three-year period ending August 31, 2007. One-third of the original grant of performance shares vested on August 31 in each of 2005 and 2006, with the vesting of such tranches having been conditioned on RAI’s payment of a quarterly dividend of at least $.475 per share. If RAI fails to pay the minimum dividend in any fiscal quarter during the remainder of the three-year vesting period, then the unvested performance shares will be forfeited and cancelled, but RAI’s payment of 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 date 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 RAI on outstanding shares of RAI common stock (except that if RAI pays a dividend in the form of property, rather than in cash, then RAI 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. Other than in the case of Mr. Eckmann, 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 (other than in the case of Mr. Eckmann) or termination of employment for cause, all of his or her performance shares will be cancelled. Notwithstanding the foregoing, pursuant to Mr. Eckmann’s employment offer letter, as amended, he will vest in full in his outstanding performance shares, if any, on the last day of his active employment, unless he is terminated for cause. | ||
(5) | Mr. Blixt vested, in part, in his then outstanding equity incentive plan awards, and forfeited the remainder of such awards, in connection with his termination of employment on August 31, 2006. See the 2006 Option Exercises and Stock Vested table below, and “— Termination and Change of Control Payments” below, for additional information. | |
(6) | The amounts shown in this column represent the product of $65.47, the per share closing price of RAI common stock on December 29, 2006 (the last trading day of 2006), and the number of unvested shares of restricted stock or performance shares, as the case may be, held by the executive on December 31, 2006. |
48
Table of Contents
Stock Awards | ||||||||
Number of Shares Acquired | Value Realized | |||||||
Name | on Vesting (#)(2) | on Vesting ($)(3) | ||||||
Susan M. Ivey | 23,838 | 1,551,139 | ||||||
Dianne M. Neal | 8,045 | 523,488 | ||||||
Lynn J. Beasley | 14,179 | 922,628 | ||||||
Jeffrey A. Eckmann | 8,045 | 523,488 | ||||||
Tommy J. Payne | 4,174 | 271,602 | ||||||
Charles A. Blixt | 18,453 | 1,200,737 |
(1) | None of the named executive officers beneficially owned at any time during 2006 any options to acquire shares of RAI common stock. None of the named executive officers vested in any shares of restricted RAI common stock during 2006. |
(2) | The amounts in this column represent the number of performance shares, as adjusted for the Stock Split, that the named executive officers vested in during 2006. The vesting of the performance shares entitled each named executive officer to receive a cash payment equal to the number of vested shares multiplied by the per share closing price of RAI common stock on the vesting date; no actual shares of RAI common stock were delivered upon the vesting of the performance shares. For all the named executive officers, the amounts shown in this column represent the number of performance shares that had been granted on August 31, 2004, and vested on August 31, 2006, except that, as described below, Mr. Blixt also vested in other performance shares in connection with his termination of employment. The terms of the 2004 performance share grant are described in greater detail in footnote 4 to the Outstanding Equity Awards at 2006 Fiscal Year-End table above. In the case of Mr. Blixt, the amounts shown in this column also include 8,684 performance shares which vested on August 31, 2006 in connection with his termination of employment on such date; such vested shares represent the pro rata portion of the 2005 performance share grant to which he was entitled upon his termination of employment. See footnote 3 to the Outstanding Equity Awards at 2006 Fiscal Year-End table for additional information regarding the terms of the 2005 performance share grant. |
(3) | These amounts represent the cash payments made to the named executive officers upon the vesting of the performance shares as described in the preceding footnote. |
49
Table of Contents
Number of Years of | Present Value of | Payments During | ||||||||||||
Credited Service | Accumulated | Last Fiscal Year | ||||||||||||
Name | Plan Name | (#)(2) | Benefit ($)(3) | ($) | ||||||||||
Susan M. Ivey | Reynolds American Retirement Plan(4) | 2.333 | 50,879 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 2.333 | 861,490 | 0 | |||||||||||
Retirement Plan for Salaried Employees of Brown & Williamson Tobacco Corporation and Certain Affiliates(6) | 18.100 | 570,505 | 0 | |||||||||||
Supplemental Pension Plan for Executives of Brown & Williamson Tobacco Corporation(7) | 23.100 | 2,817,926 | 0 | |||||||||||
Dianne M. Neal | Reynolds American Retirement Plan(4) | 18.360 | 269,427 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 18.360 | 1,311,379 | 0 | |||||||||||
Lynn J. Beasley | Reynolds American Retirement Plan(4) | 24.455 | 352,919 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 24.455 | 2,935,997 | 0 | |||||||||||
Jeffrey A. Eckmann | Reynolds American Retirement Plan(4) | 2.333 | 56,326 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 2.333 | 283,986 | 0 | |||||||||||
Retirement Plan for Salaried Employees of Brown & Williamson Tobacco Corporation and Certain Affiliates(6) | 22.300 | 994,087 | 0 | |||||||||||
Supplemental Pension Plan for Executives of Brown and Williamson Tobacco Corporation(7) | 24.300 | 2,319,608 | 0 | |||||||||||
Contractual Benefit(8) | 26.500 | 469,437 | 0 | |||||||||||
Tommy J. Payne | Reynolds American Retirement Plan(4) | 18.503 | 304,061 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 18.503 | 680,458 | 0 |
50
Table of Contents
Number of Years of | Present Value of | Payments During | ||||||||||||
Credited Service | Accumulated | Last Fiscal Year | ||||||||||||
Name | Plan Name | (#)(2) | Benefit ($)(3) | ($) | ||||||||||
Charles A. Blixt | Reynolds American Retirement Plan(4) | 21.840 | 417,277 | 0 | ||||||||||
Reynolds American Additional Benefits Plan(5) | 21.840 | 1,465,988 | 0 |
(1) | RAI has maintained two defined benefit plans — the Reynolds American Retirement Plan, a tax-qualified pension equity plan, referred to as the PEP, and the non-qualified Additional Benefits Plan, referred to as the ABP — in which all of the named executive officers participate. In addition, Ms. Ivey and Mr. Eckmann have accrued benefits for service with B&W before the Business Combination under two additional defined benefit plans, the obligations of which were assumed by RAI in connection with the Business Combination — the Retirement Plan for Salaried Employees of Brown & Williamson Tobacco Corporation and Certain Affiliates, referred to as the Legacy Plan, and the Supplemental Pension Plan for Executives of Brown & Williamson Tobacco Corporation, referred to as the B&W Supplemental Plan. | |
(2) | The number of years of credited service is shown as of December 31, 2006. Ms. Ivey’s and Mr. Eckmann’s years of credited service for purposes of the PEP and the ABP represent their service with RAI after the Business Combination, and their service for purposes of the Legacy Plan and the B&W Supplemental Plan represent their service with B&W before the Business Combination. In addition, pursuant to contracts incorporated by reference into the B&W Supplemental Plan, Ms. Ivey and Mr. Eckmann were granted 5 and 2 additional years of service credit, respectively, for purposes of the B&W Supplemental Plan. This grant of additional service increased the present value of the accumulated benefit under the B&W Supplemental Plan by $1,374,333 for Ms. Ivey and $426,771 for Mr. Eckmann. |
(3) | The present value of accumulated benefit is shown as of December 31, 2006. The calculation of the present value of accumulated benefits assumes a discount rate of 6.10% (the rate used by RAI in determining the accumulated pension obligations for financial reporting purposes) and post-commencement mortality based on the 1994 Group Annuity Mortality Table, projected 10 years by Scale AA to 2004, for males and females. Benefit values of the PEP and the ABP are based on immediate payment at January 1, 2007, as these plans have no special provisions for unreduced benefits. Benefit values for the Legacy Plan and the B&W Supplemental Plan are based on payment at age 60, the age at which unreduced benefits could commence. |
(4) | The PEP provides a lump sum benefit that is a multiple of final average earnings payable after termination of employment at any age. The multiple is the sum of the participant’s core earned percentages (ranging from 4% to 13% per year depending on age) and excess earned percentages (ranging from 0% to 4% per year depending on age) while covered by the PEP. A participant’s lump sum benefit is equal to his or her total final average earnings multiplied by his or her total core percentage, plus his or her final average earnings in excess of Social Security covered compensation multiplied by his or her total excess |
51
Table of Contents
percentage. For purposes of the PEP, final average earnings is the annualized sum of base salary and bonus in the year earned, and is determined by considering the 36 consecutive months that yield the highest average during the participant’s last 60 months of service. Each year’s compensation for the PEP is limited by the compensation limits under the Code. |
(5) | The ABP provides a benefit equal to the benefit that would be paid under the PEP if the limits on compensation and benefits under the Code did not apply and if certain extraordinary items of income that are excluded from compensation under the PEP were included. This benefit is reduced by the PEP benefit and is paid upon termination of employment in monthly annuity payments. Lump sum payments above $10,000 are not available. The ABP is a non-qualified unfunded plan designed to allow participants in the plan to receive a pension benefit equal to the benefit that would have been paid under the PEP had the PEP not been subject to the limits on compensation and benefits under the Code and had the compensation thereunder been recognized under the PEP. All benefits under the ABP are payable out of the general corporate assets of RAI. |
(6) | The Legacy Plan provides monthly benefits equal to the product of a participant’s years of pensionable service (to a maximum of 38 years) multiplied by his or her pensionable salary, divided by 57 and reduced by a proportionate amount of the participant’s Social Security benefit. A participant’s pensionable salary is the average of the participant’s base rate of pay in effect for the36-month period immediately before his or her termination of employment. Ms. Ivey’s and Mr. Eckmann’s service with RAI is not considered pensionable service, but their base rate of pay with RAI is taken into account in determining their pensionable salary. |
(7) | The B&W Supplemental Plan is a non-qualified pension plan that provides a benefit equal to the benefit that would have been paid under the Legacy Plan had the Legacy Plan included bonuses and deferred compensation in pensionable salary, included additional service in pensionable service for Ms. Ivey and Mr. Eckmann, and not been subject to the limits on compensation under the Code, reduced by the actuarial value of the benefit payable under the Legacy Plan. For purposes of this plan, for the period after the Business Combination, a participant’s bonus is deemed to be an amount equal to the participant’s salary rate multiplied by the average rating under B&W’s Performance Incentive Plan for the three years preceding the Business Combination. Benefits are payable in a lump sum upon termination of employment from the general assets of RAI. | |
(8) | Pursuant to an agreement between RAI and Mr. Eckmann, Mr. Eckmann is entitled to receive additional benefits in an amount equal to the difference between what he will receive from the PEP, ABP, the Legacy Plan and the B&W Supplemental Plan, as shown in the “Present Value of Accumulated Benefit” column with respect to him, and the amount he would have received under the Legacy Plan and the B&W Supplemental Plan based on his combined service with RAI and B&W. In addition, he will receive a taxgross-up payment related to the taxes on such amount and the amount payable under the B&W Supplemental Plan. The estimated amount of this taxgross-up payment, which is not reflected in the “Present Value of Accumulated Benefit” column, is $960,773. |
52
Table of Contents
Aggregate | ||||||||||||||||||||
Executive | Registrant | Withdrawals/ | ||||||||||||||||||
Contributions | Contributions | Aggregate Earnings | Distributions | Aggregate Balance | ||||||||||||||||
Name | in Last FY($) | in Last FY($)(2) | in Last FY($)(3) | ($)(4) | at Last FYE($)(5) | |||||||||||||||
Susan M. Ivey | 0 | 74,490 | 2,259 | 76,749 | 0 | |||||||||||||||
Dianne M. Neal | 0 | 84,467 | 2,313 | 85,109 | 2,129 | |||||||||||||||
Lynn J. Beasley | 0 | 186,009 | 14,632 | 191,476 | 196,644 | |||||||||||||||
Jeffrey A. Eckmann | 0 | 24,410 | 646 | 25,057 | 0 | |||||||||||||||
Tommy J. Payne | 0 | 47,447 | 1,772 | 48,606 | 13,155 | |||||||||||||||
Charles A. Blixt | 0 | 87,540 | 2,934 | 90,475 | 0 |
(1) | RAI maintains two non-qualified excess benefit plans for those employees, including the named executive officers, whose benefits under RAI’s tax-qualified 401(k) plan are limited by virtue of certain provisions of the Code. All information in this table reflects activity under such plans. Pursuant to these non-qualified plans, RAI credits to each named executive officer’s account an amount, referred to as the principal amount, equal to the amount RAI would have contributed to such executive’s account in the tax-qualified 401(k) plan, but for the Code’s limitations. In addition, RAI credits the principal amount with interest at the same rate as is earned by a certain interest income fund offered under RAI’s tax-qualified 401(k) plan. Unlike with respect to the tax-qualified 401(k) plan, RAI does not contribute any funds to the non-qualified excess benefit plans, but instead credits amounts by book entry to participants’ accounts. |
(2) | The amounts in this column represent the principal amounts credited during 2006 and also are included in the “All Other Compensation” column of the 2006 Summary Compensation Table above. | |
(3) | The amounts in this column represent the aggregate interest credited during 2006 on each named executive officer’s account in the non-qualified excess benefit plans. | |
(4) | These amounts, which were paid to the respective named executive officers during the first quarter of 2007, represent the sum of the principal amounts and interest credited during 2006. | |
(5) | These amounts represent the balance in each named executive officer’s account in the non-qualified excess benefit plans as of December 31, 2006, after taking into account the payment, described in the preceding footnote, made with respect to each executive’s account. |
53
Table of Contents
54
Table of Contents
Qualifying | Termination | |||||||||||||||||||||||||
Involuntary | Termination | due to | ||||||||||||||||||||||||
Voluntary | Termination | Termination | on Change of | Death or | Change of | |||||||||||||||||||||
Termination | not for Cause | for Cause | Control | Disability | Control | |||||||||||||||||||||
Name | Benefits and Payments | ($) | ($)(1) | ($)(1) | ($)(2)(3) | ($) | ($)(3)(4) | |||||||||||||||||||
Susan M. Ivey | ||||||||||||||||||||||||||
Cash Severance(5) | 0 | 7,245,144 | 0 | 7,245,144 | 0 | 0 | ||||||||||||||||||||
Performance Shares(6) | 0 | 2,208,172 | 0 | 4,337,519 | 4,337,519 | 4,337,519 | ||||||||||||||||||||
Restricted Stock(6) | 0 | 969,087 | 0 | 3,531,714 | 3,531,714 | 3,531,714 | ||||||||||||||||||||
Performance Units(7) | 0 | 2,683,045 | 0 | 3,525,438 | 2,683,045 | 3,525,438 | ||||||||||||||||||||
Incremental Pension Benefit(8) | 0 | 3,658,205 | 0 | 3,658,205 | 0 | (9) | 0 | |||||||||||||||||||
Insurance Benefits(10) | 0 | 20,577 | 0 | 20,577 | 0 | 0 | ||||||||||||||||||||
Health-Care Benefits(11) | 0 | 206,849 | 0 | 206,849 | 0 | 0 | ||||||||||||||||||||
280G TaxGross-up(12) | 0 | 0 | 0 | 10,008,087 | 0 | 0 | ||||||||||||||||||||
Dianne M. Neal | ||||||||||||||||||||||||||
Cash Severance(5) | 0 | 1,915,232 | 0 | 1,915,232 | 0 | 0 | ||||||||||||||||||||
Performance Shares(6) | 0 | 745,245 | 0 | 1,463,844 | 1,463,844 | 1,463,844 | ||||||||||||||||||||
Restricted Stock(6) | 0 | 266,397 | 0 | 970,789 | 970,789 | 970,789 | ||||||||||||||||||||
Performance Units(7) | 0 | 843,392 | 0 | 1,097,124 | 843,392 | 1,097,124 | ||||||||||||||||||||
Incremental Pension Benefit(8) | 0 | 701,220 | 0 | 701,220 | 0 | 0 | ||||||||||||||||||||
Insurance Benefits(10) | 0 | 46,453 | 0 | 46,453 | 0 | 0 | ||||||||||||||||||||
280G TaxGross-up(12) | 0 | 0 | 0 | 2,722,654 | 0 | 0 | ||||||||||||||||||||
Lynn J. Beasley | ||||||||||||||||||||||||||
Cash Severance(5) | 0 | 3,118,947 | 0 | 3,118,947 | 0 | 0 | ||||||||||||||||||||
Performance Shares(6) | 0 | 1,313,459 | 0 | 2,579,976 | 2,579,976 | 2,579,976 | ||||||||||||||||||||
Restricted Stock(6) | 0 | 424,573 | 0 | 1,547,318 | 1,547,318 | 1,547,318 | ||||||||||||||||||||
Performance Units(7) | 0 | 1,418,290 | 0 | 1,816,357 | 1,418,290 | 1,816,357 | ||||||||||||||||||||
Incremental Pension Benefit(8) | 0 | 1,058,224 | 0 | 1,058,224 | 0 | 0 | ||||||||||||||||||||
Insurance Benefits(10) | 0 | 27,003 | 0 | 27,003 | 0 | 0 | ||||||||||||||||||||
280G TaxGross-up(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Jeffrey A. Eckmann | ||||||||||||||||||||||||||
Cash Severance(5) | 2,117,893 | 2,117,893 | 0 | 2,117,893 | 2,117,893 | 0 | ||||||||||||||||||||
Retention Bonus(13) | 0 | 157,895 | 0 | 1,000,000 | 1,000,000 | 0 | ||||||||||||||||||||
Performance Shares(6) | 1,463,844 | 1,463,844 | 0 | 1,463,844 | 1,463,844 | 1,463,844 | ||||||||||||||||||||
Restricted Stock(6) | 865,382 | 865,382 | 0 | 865,382 | 865,382 | 865,382 | ||||||||||||||||||||
Performance Units(7) | 1,586,035 | 1,586,035 | 0 | 2,124,570 | 1,586,035 | 1,052,897 | ||||||||||||||||||||
Incremental Pension Benefit(8) | 2,133,759 | 2,133,759 | 0 | 2,133,759 | 2,133,759 | (9) | 0 | |||||||||||||||||||
Insurance Benefits(10) | 32,409 | 32,409 | 0 | 32,409 | 0 | 0 | ||||||||||||||||||||
Health-Care Benefits(11) | 342,671 | 342,671 | 390,495 | 342,671 | 192,025 | (14) | 0 | |||||||||||||||||||
280G TaxGross-up(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Tommy J. Payne | ||||||||||||||||||||||||||
Cash Severance(5) | 0 | 1,275,322 | 0 | 1,275,322 | 0 | 0 | ||||||||||||||||||||
Performance Shares(6) | 0 | 386,666 | 0 | 759,452 | 759,452 | 759,452 | ||||||||||||||||||||
Restricted Stock(6) | 0 | 154,051 | 0 | 561,209 | 561,209 | 561,209 | ||||||||||||||||||||
Performance Units(7) | 0 | 453,732 | 0 | 593,327 | 453,732 | 593,327 | ||||||||||||||||||||
Incremental Pension Benefit(8) | 0 | 369,332 | 0 | 369,332 | 0 | 0 | ||||||||||||||||||||
Insurance Benefits(10) | 0 | 16,665 | 0 | 16,665 | 0 | 0 | ||||||||||||||||||||
280G TaxGross-up(12) | 0 | 0 | 0 | 0 | 0 | 0 |
55
Table of Contents
Qualifying | Termination | |||||||||||||||||||||||||
Involuntary | Termination | due to | ||||||||||||||||||||||||
Voluntary | Termination | Termination | on Change of | Death or | Change of | |||||||||||||||||||||
Termination | not for Cause | for Cause | Control | Disability | Control | |||||||||||||||||||||
Name | Benefits and Payments | ($) | ($)(1) | ($)(1) | ($)(2)(3) | ($) | ($)(3)(4) | |||||||||||||||||||
Charles A. Blixt | ||||||||||||||||||||||||||
Cash Severance(15) | — | 2,125,094 | — | — | — | — | ||||||||||||||||||||
Performance Shares(16) | — | 565,068 | — | — | — | — | ||||||||||||||||||||
Performance Units(17) | — | 577,038 | — | — | — | — | ||||||||||||||||||||
Incremental Pension Benefit(8) | — | 562,387 | — | — | — | — | ||||||||||||||||||||
Insurance Benefits(18) | — | 19,363 | — | — | — | — |
(1) | See “— Compensation Discussion and Analysis — Severance Agreements” above for the definition of termination for “cause,” for purposes of RAI’s standard severance agreement. | |
(2) | The amounts in this column are based on the assumption that on December 29, 2006 (a) a change of control of RAI occurred and (b) after such change of control, either RAI terminated the executive’s employment without cause or the executive terminated his or her employment for good reason (a termination described in this clause (b) is referred to as a qualifying termination). See “— Compensation Discussion and Analysis — Severance Agreements” above for the definition of “good reason” termination. | |
(3) | A “change of control” of RAI is defined, for purposes of RAI’s standard severance agreement, to mean the first to occur of the following: (a) the acquisition by a person of 30% or more of the voting power of RAI’s securities ordinarily having the right to vote for the election of directors, except that BAT’s acquisition of RAI’s common stock pursuant to the Business Combination or as permitted by the Governance Agreement will not be deemed to be a change of control; (b) the failure of the persons who constituted RAI’s Board of Directors on July 30, 2004 (or the failure of individuals elected or nominated either by a supermajority of such persons or pursuant to certain provisions of the Governance Agreement) to be a majority of the Board; and (c) the approval by RAI’s shareholders of certain extraordinary transactions involving RAI, including certain merger transactions or certain sales of all or substantially all of RAI’s assets. | |
(4) | The amounts in this column are based on the assumption that a change of control of RAI occurred on December 29, 2006, but that the executive’s employment continued after such date. | |
(5) | These amounts represent the present value, discounted to December 31, 2006, at the rate of 5.892% per annum, of the following amounts that would be payable upon the occurrence of the events set forth in the table pursuant to RAI’s standard severance agreement (as described above under “— Compensation Discussion and Analysis — Severance Agreements”): (a) three years of annual base salary and three years of target annual incentive in the case of Ms. Ivey, and two years of annual base salary and two years of target annual incentive in the case of the other named executive officers, payable in installments as follows — six months of annual base salary and six months of target annual incentive, payable in a single lump sum on July 1, 2007, and the balance of the base salary and target annual incentive amounts payable in 30 equal monthly installments thereafter; (b) six months of interest on the lump sum payment described in the preceding clause, at the rate of 8.25% per annum, the assumed average prime rate of interest during the first six months of 2007, with such interest payable on July 1, 2007; and (c) three years of such person’s respective annual perquisite payments (as described in footnote 7 to the 2006 Summary Compensation Table above), with such amounts payable in three equal installments (in July 2007, and in January of each of 2008 and 2009) (the three-year period over which the executive will receive the foregoing payments is referred to as the severance period). As indicated in the preceding sentence, the amounts in these rows are based on the assumption that the commencement of payments under the severance agreement will be deferred for a period of six months. An executive officer, however, may elect to receive such payments immediately upon termination of employment in which case he or she will be responsible for satisfying any interest and taxes arising from such immediate payment, including interest and taxes arising under Section 409A of the Code. The interest payment described in clause (b) above is intended to compensate an executive who defers the commencement of severance |
56
Table of Contents
payments. The 5.892% discount rate referenced in the first line of this footnote is the discount rate prescribed, pursuant to regulations under the Code, for use in determining whether an “excess parachute payment” exists. Except as otherwise noted, we have used this same discount rate in calculating present values shown in this table. |
The payment of the amounts described in this footnote, and of the benefits described in footnote 10, are subject to the named executive officer complying with certain non-compete and confidentiality obligations owing to RAI and its subsidiaries, and cooperating with RAI and its subsidiaries in the prosecution or defense of any litigation. In addition, if the named executive officer refuses to execute a release of claims against RAI, then the named executive officer will not be entitled to receive the payments and benefits described in this footnote and in footnote 10; in such event, the executive will be entitled to a lesser benefit under RAI’s Salary and Benefits Continuation Program. Under such program, the period during which a person receives severance benefits is based upon years of service, with such period in no event exceeding 18 months. |
(6) | The values in these rows represent the product of $65.47, the per share closing price of RAI common stock on December 29, 2006, and the number of performance shares or shares of restricted stock, as the case may be, that would vest upon the occurrence of the particular events identified in the table. Upon an executive’s involuntary termination without cause, he or she would vest immediately in a pro rata amount of his or her outstanding performance shares and restricted stock, except that Mr. Eckmann would vest in all of his outstanding performance shares and restricted stock. Upon an executive’s qualifying termination on or after a change of control, or an executive’s death or disability, or upon a change of control in the absence of the executive’s termination of employment, the executive would vest immediately in all of his or her outstanding performance shares and restricted stock. The value of the performance shares shown in the table is based on those performance shares granted on March 2, 2005, and August 31, 2004, that had not yet vested prior to December 29, 2006, and the value of the restricted stock shown in the table is based on those shares of restricted stock granted on March 6, 2006, that had not yet vested prior to December 29, 2006. For additional information on such performance shares and restricted stock, see the Outstanding Equity Awards at 2006 Fiscal Year-End table above and the 2006 Grants of Plan-Based Awards table above, respectively. | |
(7) | These amounts represent the present value, discounted to December 31, 2006, of the performance units in which the executive would vest, if the employment of the executive had terminated on December 29, 2006, under the circumstances set forth in the table; such vested performance units are a pro rata amount of the total number of performance units granted on March 6, 2006 and March 2, 2005. The terms governing the performance units granted on March 6, 2006 are summarized in footnote 1 to the 2006 Grants of Plan-Based Awards table above. The terms governing the performance units granted on March 2, 2005, are the same as the terms governing the performance units granted on March 6, 2006, except that the three-year performance period applicable to the 2005 performance units ends on December 31, 2007, and the minimum quarterly dividend payment that is a condition to vesting is $.475 per share (whereas the three-year performance period applicable to the 2006 performance units ends on December 31, 2008, and the minimum quarterly dividend payment that is a vesting condition for such units is $.625 per share). |
The value of the performance units shown in the table if the named executive officer’s employment had terminated on December 29, 2006, due to involuntary termination without cause, death or disability, is based on (a) the actual AIAP scores for that part of the relevant performance period that ended on December 31, 2006 (namely, the actual AIAP scores for 2005 and 2006 in the case of the 2005 performance units, and the actual AIAP score for 2006 in the case of the 2006 performance units) and (b) the assumption that the AIAP score for each year of the relevant performance period after 2006 (namely, 2007 in the case of the 2005 performance units, and 2007 and 2008 in the case of the 2006 performance units) would be equal to the target AIAP score, or 100. The value of the performance units shown in the table if a change of control of RAI had occurred on December 29, 2006 (irrespective of whether an executive’s employment continued thereafter or ended on such date due to a qualifying termination), is based on the actual AIAP scores for that part of the relevant performance period that ended on December 31, 2006. |
57
Table of Contents
(8) | These amounts represent the present value, discounted to December 31, 2006, at a rate of 6.10% per annum (the rate used by RAI in determining the accumulated pension obligations for financial reporting purposes), of the incremental benefit under RAI’s qualified and non-qualified pension plans resulting from the additional service and age credit the named executive officers will accrue during the severance period and the treatment of salary and annual incentives as if they were paid at 100% versus two-thirds, where applicable. In addition to the amounts in this row, each named executive officer would receive in these circumstances his or her accumulated pension benefit; the present value of such accumulated benefit is set forth in the 2006 Pension Benefits table above. |
(9) | Each of Ms. Ivey and Mr. Eckmann would be entitled to an unreduced pension benefit under a certain RAI retirement plan, the obligations of which, with respect to such executives and other former B&W employees, were assumed by RAI in connection with the Business Combination. The value of such benefit is not included in this table because all participants in such plan are entitled to such an unreduced benefit upon termination of employment due to disability. | |
(10) | The insurance benefits represent the present value, discounted to December 31, 2006, at a rate of 6.10% per annum, of (a) the premiums which would be paid by RAI on behalf of each named executive officer during the severance period for health care, excess liability and life insurance and (b) a tax-reimbursement amount associated with the excess liability insurance premium payment. | |
(11) | These amounts represent the present value, discounted to December 31, 2006, of the health-care benefits that (a) would commence immediately after the severance period in the event of involuntary termination not for cause or qualifying termination on change of control (in the case of Ms. Ivey and Mr. Eckmann), or in the event of voluntary termination (in the case of Mr. Eckmann) and (b) would commence immediately after voluntary termination in the case of Mr. Eckmann. Mr. Eckmann was already vested in his retiree health benefit as of December 29, 2006. Ms. Ivey was not yet vested in her retiree health benefit as of such date. The health-care benefits for Ms. Ivey and Mr. Eckmann are reflected in this table because they will receive such benefits pursuant to a former B&W plan which RAI assumed in the Business Combination; the benefits provided under such plan are more generous than the health-care benefits provided under the RAI sponsored plan in which the other named executive officers participate and which is generally available to salaried employees of RAI and its operating subsidiaries. The amounts in this row are based upon the same assumptions (including a discount rate of 6.10%) used by RAI in determining post-retirement health-care expense in its 2006 financial statements in accordance with GAAP. | |
(12) | This amount represents RAI’s payment, as soon as practicable after the hypothetical change of control, of (a) the excise tax that would be imposed on the executive by virtue of the executive’s receipt of an “excess parachute payment” within the meaning of Section 280G of the Code and (b) a taxgross-up amount relating to the payment of such tax. | |
(13) | These amounts represent the value of a retention bonus payable to Mr. Eckmann in certain circumstances. Provided Mr. Eckmann remains employed with RAI through April 30, 2008, RAI will pay him a retention bonus of $1,000,000 in May 2008. Pursuant to the terms of a retention trust governing such bonus arrangement, if prior to April 30, 2008, Mr. Eckmann’s employment (a) were involuntarily terminated by RAI without cause, as defined therein, then Mr. Eckmann would receive a pro rata portion of the retention bonus, provided, however, that if such termination occurred after a change of control, as defined therein, Mr. Eckmann would receive the full amount of the retention bonus, (b) were terminated as a result of death or permanent disability, then Mr. Eckmann or his estate, as the case may be, would receive the full amount of the retention bonus following such event and (c) were terminated for any other reason, then Mr. Eckmann would forfeit his right to receive any part of the retention bonus. | |
(14) | The health-care benefit shown for Mr. Eckmann in the column “Termination due to Death or Disability” represents the present value of the survivor health-care coverage in the event of his death. | |
(15) | This amount represents the following payments to which Mr. Blixt is entitled under RAI’s standard severance agreement: (a) two years of annual base salary and two years of target annual incentive, payable in installments as follows — six months of annual base salary, six months of target annual incentive and one year’s annual perquisite payment, which was paid in a single lump sum on or about March 1, 2007, and the present value (discounted to March 1, 2007) of the remaining 18 months of annual base salary and |
58
Table of Contents
18 months of target annual incentive, payable in 30 equal monthly installments commencing on March 30, 2007; (b) six months of interest, at the rate of 8.25% per annum, on the lump sum payment described in the preceding clause, which interest payment was made on or about March 1, 2007; and (c) the present value (discounted to March 1, 2007) of two years annual perquisite payments (as described in footnote 7 to the 2006 Summary Compensation Table above), with such amount to be payable in two equal annual installments (in January of each of 2008 and 2009). The payment to Mr. Blixt of the amounts described in this footnote and of the benefits described in footnote 18 are subject to the same conditions as set forth in the last paragraph of footnote 5. |
(16) | This amount represents the product of $65.07, the per share closing price of RAI common stock on August 31, 2006 (the date of Mr. Blixt’s termination of employment), and 8,684, the pro rata portion of the 2005 performance share grant to which Mr. Blixt was entitled in connection with his termination of employment on such date; such amount was paid to Mr. Blixt in September 2006. See footnote 3 to the Outstanding Equity Awards at 2006 Fiscal Year-End table above for additional information regarding the terms of the 2005 performance share grant. The amount in this row does not include other performance shares in which Mr. Blixt vested on August 31, 2006; such other performance shares were scheduled to vest on such date in accordance with their original vesting schedule, irrespective of Mr. Blixt’s termination of employment on such date. See the Option Exercises and Stock Vested table above for additional information on the total number of performance shares Mr. Blixt vested in during 2006. Mr. Blixt forfeited a total of 18,465 performance shares upon his termination of employment. |
(17) | The amount in this row is the present value (discounted to December 31, 2006) of the pro rata portion of the performance units (granted on March 2, 2005) in which Mr. Blixt contingently vested upon his termination of employment and which will be paid to him in the first quarter of 2008, provided RAI pays the minimum quarterly dividend that also is a condition to vesting. Such value is based upon the actual AIAP scores for 2005 and 2006, and the assumption that the AIAP score for 2007 will be the target score, or 100. | |
(18) | The insurance benefits represent the present value (discounted to August 31, 2006, at a rate of 5.892% per annum) of (a) the insurance premiums which will be paid by RAI on behalf of Mr. Blixt during the severance period for health care, excess liability and life insurance and (b) a tax reimbursement amount associated with the excess liability insurance premium payment. |
59
Table of Contents
60
Table of Contents
Martin D. Feinstein
Nana Mensah
H.G.L. (Hugo) Powell
61
Table of Contents
Amount of Fees | ||||||||
2006 | 2005 | |||||||
Audit Fees | $ | 6,385,029 | $ | 4,865,252 | ||||
Audit-Related Fees | 1,153,675 | 559,079 | ||||||
Tax Fees | 144,009 | 85,593 | ||||||
All Other Fees | — | 16,169 | ||||||
Total Fees | $ | 7,682,713 | $ | 5,526,093 |
62
Table of Contents
63
Table of Contents
64
Table of Contents
Related Person: | Dollar Amount of Transaction: | Approval Required by: | ||
• Transactions in which an RAI director, executive officer or an immediate family member of either of the foregoing has an interest | • Less than or equal to $25,000 • Greater than $25,000 | • Chief Executive Officer or Chief Financial Officer • Audit Committee | ||
• Transactions in which BAT, or an affiliate thereof, has an interest | • Less than $1 million • Greater than or equal to $1 million and less than $20 million • Greater than or equal to $20 million | • Chief Executive Officer, Chief Financial Officer or RAI Group President • Audit Committee • independent directors (excluding any independent directors who have been designated by B&W) | ||
• Transactions in which any related person other than those listed above has an interest | • Less than $1 million • Greater than or equal to $1 million and less than $20 million • Greater than or equal to $20 million | • Chief Executive Officer, Chief Financial Officer or RAI Group President • Audit Committee • Board of Directors |
65
Table of Contents
66
Table of Contents
![(-s- MCDARA P FOLAN, III SI)](https://capedge.com/proxy/DEF 14A/0000950144-07-002876/g05912dg0591202.gif)
67
Table of Contents
• | By telephone. You can vote by telephone by calling1-800-690-6903 (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. |
Shareholder Services
P.O. Box 2990
Winston-Salem, NC27102-2990
(866) 210-9976 (toll-free)
Table of Contents
![(REYNOLDSAMERICAN LOGO)](https://capedge.com/proxy/DEF 14A/0000950144-07-002876/g05912dg0591203.gif)
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 10, 2007 (May 8, 2007 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.
If you would like to reduce the costs incurred by Reynolds American Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on May 10, 2007 (May 8, 2007 for CIP or SIP participants). Have your proxy card in hand when you call and then follow the simple instructions provided to you.
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.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS. | ||||
KEEP THIS PORTION FOR YOUR RECORDS | ||||
DETACH AND RETURN THIS PORTION ONLY |
To withhold authority to vote, mark “For All | ||||||||
1. Election of Directors | For | Withhold | For All | Except” and write the nominee’s number on the | ||||
All | All | Except | line below. | |||||
Nominees for Class III: | ||||||||
(01) Martin D. Feinstein, (02) Susan M. Ivey, (03) Neil R. Withington Nominee for Class I: (04) John T. Chain, Jr. | o | o | o | |||||
For | Against | Abstain | ||||||||
2. | Approval of an amendment to the articles of incorporation increasing the number of authorized shares of common stock from 400,000,000 to 800,000,000 | o | o | o | ||||||
3. | Ratification of KPMG LLP as Independent Auditors | o | o | o | ||||||
Mark this box if change of address is noted on reverse side. | o | |||||||||
Note: Please make sure that you complete, sign and date your proxy card. Please sign exactly as your name(s) appear on your 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. | ||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date |
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 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. | ||||||||||
Signature (Joint Owners) | Date |
Table of Contents
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 |
Shareholder Services
401 North Main Street
Winston-Salem, NC 27102
PROXY
This proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Shareholders to be held on May 11, 2007.
The undersigned shareholder of Reynolds American Inc. hereby appoints Susan M. Ivey, E. Julia (Judy) Lambeth 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 11, 2007 at 9:00 a.m. (local time) in the Reynolds American 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: | ||||||
(If you have written in the above space, please mark the corresponding box on the reverse side of this card.) |