Exhibit 10.18
REYNOLDS AMERICAN INC.
LONG-TERM INCENTIVE PLAN
Originally Effective June 14, 1999
1. Purpose of Plan
The Reynolds American Inc. Long-Term Incentive Plan (the "Plan") is an
amendment, restatement and continuation of the R.J. Reynolds Tobacco Holdings,
Inc. 1999 Long-Term Incentive Plan. The Plan became effective June 14, 1999 and
is designed:
(a) to promote the long-term financial interests and growth of
Reynolds American Inc. and its Subsidiaries (collectively, the
"Corporation") by attracting and retaining management personnel with
the training, experience and ability to enable them to make a
substantial contribution to the success of the Corporation's
business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the identity of interests of Participants with
those of the stockholders of Reynolds American through opportunities
for increased stock, or stock-based, ownership in Reynolds American.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Affiliate" of any person shall mean another person that
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such
first person;
(b) "Base Value" means not less than the Fair Market Value on the
date a Stock Appreciation Right is granted, or, in the case of a
Stock Appreciation Right granted retroactively in tandem with (or in
replacement of) an outstanding Option, not less than the exercise
price of such Option;
(c) "BAT" shall mean, collectively, British American Tobacco,
p.l.c., a public limited company incorporated under the laws of
England and Wales, and its Affiliates;
(d) "Board of Directors" means the Board of Directors of Reynolds
American;
(e) "Code" means the Internal Revenue Code of 1986, as amended;
(f) "Committee" means the Compensation Committee of the Board of
Directors;
(g) "Common Stock" or "Share" means common stock, par value
$0.0001 per share, of Reynolds American which may be authorized but
unissued, or issued and reacquired;
(h) "Effective Date" shall have the meaning set forth in Section
13;
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(j) "Fair Market Value" means such value of a Share as reported
for stock exchange transactions and/or determined in accordance with
any applicable resolutions or regulations of the Committee in effect
at the relevant time;
(k) "Grant Agreement" means an agreement between Reynolds American
and a Participant that sets forth the terms, conditions and
limitations applicable to a Grant;
(l) "Grant" means an award made to a Participant pursuant to the
Plan and described in Section 5, including, without limitation, an
award of an Incentive Stock Option, Other Stock Option, Stock
Appreciation Right, Restricted Stock, Performance Units or
Performance Shares or any combination of the foregoing;
(m) "Incentive Stock Options" shall have the meaning set forth in
Section 5(a);
(n) "Other Stock Options" shall have the meaning set forth in
Section 5(b);
(o) "Options" shall mean Incentive Stock Options and Other Stock
Options;
(p) "Participant" means any employee, or other person having a
unique relationship with Reynolds American or one of its
Subsidiaries, to whom one or more Grants have been made and such
Grants have not all been forfeited or terminated under the Plan;
provided, however, a non-employee director of Reynolds American or
one of its Subsidiaries may not be a Participant;
(q) "Performance Units" shall have the meaning set forth in
Section 5(e);
(r) "Performance Shares" shall have the meaning set forth in
Section 5(f);
(s) "Restricted Stock" shall have the meaning set forth in Section
5(d);
(t) "Reynolds American" means Reynolds American Inc. and any
successors thereto;
(u) "Stock Appreciation Rights" shall have the meaning set forth
in Section 5(c); and
(v) "Subsidiary" means any corporation or other entity in which
Reynolds American has a significant equity or other interest as
determined by the Committee.
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3. Administration of Plan
(a) The Plan shall be administered by the Committee or, in lieu of
the Committee, the Board of Directors. The Committee may adopt its
own rules of procedure, and the action of a majority of the
Committee, taken at a meeting or taken without a meeting by a
writing signed by such majority, shall constitute action by the
Committee. The Committee shall have the power and authority to
administer, construe and interpret the Plan, to make rules for
carrying it out and to make changes in such rules. Any such
interpretations, rules and administration shall be consistent with
the basic purposes of the Plan.
(b) The Committee may delegate its duties under the Plan to the
Chief Executive Officer, to other senior officers of the
Corporation, or to the Chairman of the Board of Directors, acting as
a committee established by the Committee, subject to such conditions
and limitations as the Committee shall prescribe; provided, however,
that only the Committee may designate and make Grants to
Participants who are subject to Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, Reynolds
American and the officers and directors of Reynolds American shall
be entitled to rely upon the advice, opinions or valuations of any
such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final
and binding upon all Participants, Reynolds American and all other
interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Grants, and all members of the
Committee shall be fully protected by Reynolds American with respect
to any such action, determination or interpretation.
4. Eligibility
The Committee may from time to time make Grants under the Plan to such
employees, or other persons having a unique relationship with Reynolds American
or any of its Subsidiaries, and in such form and having such terms, conditions
and limitations as the Committee may determine. No Grants may be made under this
Plan to non-employee directors of Reynolds American or any of its Subsidiaries.
Grants may be granted singly, in combination or in tandem. The terms, conditions
and limitations of each Grant under the Plan shall be set forth in a Grant
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan; provided, however, such Grant Agreement shall contain
provisions dealing with the treatment of Grants in the event of the termination,
death or disability of a Participant, and may also include provisions concerning
the treatment of Grants in the event of a change of control of Reynolds
American.
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5. Grants
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the
meaning of Section 422 of the Code to purchase Common Stock. In
addition to other restrictions contained in the Plan, an option
granted under this Section 5(a), (i) may not be exercised more than
10 years after the date it is granted, (ii) may not have an option
price less than the Fair Market Value of Common Stock on the date
the option is granted, (iii) must otherwise comply with Code Section
422, and (iv) must be designated as an "Incentive Stock Option" by
the Committee. The maximum aggregate Fair Market Value of Common
Stock (determined at the time of each Grant) with respect to which
any Participant may first exercise Incentive Stock Options under
this Plan and any Incentive Stock Options granted to the Participant
for such year under any plans of Reynolds American or any Subsidiary
in any calendar year is $100,000. Payment of the option price shall
be made in cash or in shares of Common Stock, or a combination
thereof, in accordance with the terms of the Plan, the Grant
Agreement and any applicable guidelines of the Committee in effect
at the time.
(b) Other Stock Options - These are options to purchase Common
Stock which are not designated by the Committee as "Incentive Stock
Options." At the time of the Grant, the Committee shall determine,
and shall have contained in the Grant Agreement or other Plan rules,
the option exercise period, the option price and such other
conditions or restrictions on the grant or exercise of the option as
the Committee deems appropriate. In addition to other restrictions
contained in the Plan, an option granted under this Section 5(b),
(i) may not be exercised more than fifteen (15) years after the date
it is granted and (ii) may not have an option exercise price less
than the Fair Market Value of Common Stock on the date the option is
granted. Payment of the option price shall be made in cash or in
shares of Common Stock, or a combination thereof, in accordance with
the terms of the Plan and of any applicable guidelines of the
Committee in effect at the time. The requirement of payment in cash
will be deemed satisfied if the Participant has made arrangements
satisfactory to the Company with a duly registered broker-dealer
that is a member of the National Association of Securities Dealers,
Inc. to sell on the date of exercise a sufficient number of shares
of Common Stock being purchased so that the net proceeds of the sale
transaction will at least equal the full exercise price and pursuant
to which the broker-dealer undertakes to deliver the full exercise
price to the Company not later than the later of (A) the settlement
date of the sale transaction and (B) the date on which the Company
delivers to the broker-dealer the shares of Common Stock being
purchased pursuant to the exercise of such option. This method is
known as the "broker-dealer exercise method" and is subject to the
terms and conditions set forth herein, in the Grant Agreement and in
guidelines established by the Committee.
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(c) Stock Appreciation Rights - These are rights that on exercise
entitle the holder to receive the excess of (i) the Fair Market
Value of a share of Common Stock on the date of exercise over (ii)
the Base Value multiplied by (iii) the number of rights exercised in
cash, stock or a combination thereof as determined by the Committee.
Stock Appreciation Rights granted under the Plan may, but need not,
be granted in conjunction with an Option under Sections 5(a) or
5(b). The Committee, in the Grant Agreement or by other Plan rules,
may impose such conditions or restrictions on the exercise of Stock
Appreciation Rights as it deems appropriate, and may terminate,
amend, or suspend such Stock Appreciation Rights at any time. No
Stock Appreciation Right granted under this Plan may be exercised
more than fifteen (15) years after the date it is granted.
(d) Restricted Stock - Restricted Stock is a Grant of Common Stock
or stock units equivalent to Common Stock subject to such conditions
and restrictions as the Committee shall determine. Any rights to
dividends or dividend equivalents accruing due to a grant of
Restricted Stock shall also be determined by the Committee. Grants
of Restricted Stock shall be subject to a normal minimum vesting
schedule of three (3) years. The number of shares of Restricted
Stock and the restrictions or conditions on such shares, as the
Committee may determine, shall be set forth in the Grant Agreement
or by other Plan rules, and the certificate for the Restricted Stock
shall bear evidence of the restrictions or conditions.
(e) Performance Units - These are rights, denominated in cash or
cash units, to receive, at a specified future date, payment in cash
or Common Stock of an amount equal to all or a portion of the value
of a unit granted by the Committee. At the time of the Grant, in the
Grant Agreement or by other Plan rules, the Committee must determine
the base value of the unit, the performance factors applicable to
the determination of the ultimate payment value of the unit as set
forth in Section 7 and the period over which performance will be
measured.
(f) Performance Shares - These are rights granted in the form of
Common Stock or stock units equivalent to Common Stock to receive,
at a specified future date, payment in cash or Common Stock, as
determined by the Committee, of an amount equal to all or a portion
of the Fair Market Value at which the Common Stock is traded on the
last day of the specified performance period of a specified number
of shares of Common Stock based on performance during the period. At
the time of the Grant, the Committee, in the Grant Agreement or by
Plan rules, will determine the factors which will govern the portion
of the Grants so payable as set forth in Section 7 and the period
over which performance will be measured.
6. Limitations and Conditions
(a) The number of shares available for Grants under this Plan
shall be eight (8) million shares of the authorized Common Stock as
of the Effective Date. The maximum number of Shares subject to
Grants of Options and Stock Appreciation Rights to any one
Participant in any calendar year shall not exceed two (2) million
shares for each type of Grant, plus any amount of shares that were
available
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within this limit for such type of Grant for any prior year such
limitation was in effect and which were not covered by Options or
Stock Appreciation Rights granted to such Participant during such
year. No more than three (3) million shares of Common Stock may be
granted as Incentive Stock Options. The maximum payment that any one
Participant may be paid in respect of any Grant of Performance Units
granted for any specified performance period shall not exceed $10
million. The maximum payment that any one Participant may receive in
respect of any Grant of Performance Shares granted for any specified
performance period shall not exceed 500,000 shares of Common Stock
or the cash equivalent thereof. The aggregate maximum number of
shares of Common Stock to which Restricted Stock granted may relate
shall not exceed three (3) million shares. Shares related to Grants
that are forfeited, terminated, cancelled, expire unexercised,
settled in cash in lieu of stock, received in full or partial
payment of any exercise price or in such manner that all or some of
the Shares covered by a Grant are not issued to a Participant, shall
immediately become available for Grants. A Grant may contain the
right to receive dividends or dividend equivalent payments which may
be paid either currently, credited to a Participant or deemed
invested in shares or share units of Common Stock. Any such
crediting of dividends or dividend equivalents or reinvestment in
Shares may be subject to such conditions, restrictions and
contingencies as the Committee shall establish, including the
reinvestment of such credited amounts in Common Stock equivalents.
Subject to the overall limitation on the number of shares of Common
Stock that may be delivered under this Plan, the Committee may use
available shares of Common Stock as the form of payment for
compensation, grants or rights earned or due under any other
compensation plans or arrangements of Reynolds American, including
the plan of any entity acquired by Reynolds American.
(b) At the time a Grant is made or amended or the terms or
conditions of a Grant are changed, the Committee may provide for
limitations or conditions on such Grant. Reynolds American may adopt
other compensation programs, plans or arrangements as it deems
appropriate.
(c) Nothing contained herein shall affect the right of the
Corporation to terminate any Participant's employment at any time or
for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole
discretion of the Committee, in the Grant Agreements.
(e) No benefit under the Plan shall, prior to receipt thereof by
the Participant, be in any manner liable for or subject to the
debts, contracts, liabilities, engagements, or torts of the
Participant.
(f) Except to the extent otherwise provided in any other
retirement or benefit plan, any Grant under this Plan shall not be
deemed compensation for purposes of computing benefits or
contributions under any retirement plan of Reynolds American or its
Subsidiaries and shall not affect any benefits under any other
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benefit plan of any kind or subsequently in effect under which the
availability or amount of benefits is related to level of
compensation.
This Plan is not a "Retirement Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended. This
Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not
establish any fiduciary relationship between Reynolds American and
any Participant or beneficiary of a Participant. To the extent any
person holds any obligation of Reynolds American by virtue of an
award granted under this Plan, such obligation shall merely
constitute a general unsecured liability of Reynolds American and
accordingly shall not confer upon such person any right, title or
interest in any assets of Reynolds American.
(g) Unless the Committee determines otherwise, no benefit or
promise under the Plan shall be secured by any specific assets of
Reynolds American or any of its Subsidiaries, nor shall any assets
of Reynolds American or any of its Subsidiaries be designated as
attributable or allocated to the satisfaction of Reynolds American's
obligations under the Plan.
7. Performance Factors
The performance factors selected by the Committee in respect of
Performance Units and Performance Shares shall be based on any one or more of
the following: price of Common Stock or the stock of any affiliate, shareholder
return, return on equity, return on investment, return on capital, return on
invested capital, economic profit, economic value added, net income, cash net
income, free cash flow, earnings per share, cash earnings per share, operating
company contribution or market share. These factors shall have a minimum
performance standard below which no amount will be paid and may have a maximum
performance standard above which no additional payments will be made. The
applicable performance period shall not exceed 10 years.
8. Adjustments
(a) In the event of any stock split, spin-off, stock dividend,
extraordinary cash dividend, stock combination or reclassification,
recapitalization or merger, change in control, or similar event, the
Committee may adjust appropriately the number or kind of shares
subject to the Plan and available for or covered by Grants, share
prices related to outstanding Grants and the other applicable
limitations of Section 6(a), and make such other revisions to
outstanding Grants and the Plan as it deems are equitably required.
(b) In the event of a Change of Control, except as otherwise set
forth in the terms of a Grant:
(i) Options granted pursuant to Sections 5(a) or 5(b) hereof
shall become fully vested and exercisable; provided, however,
that the Committee may make a cash payment to Participants (A)
in cancellation of such Options as provided in the applicable
Grant Agreements or any amendments or deemed amendments
thereto entered into by Reynolds
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American and the Participant in such amount as shall be
provided in such Grant Agreements or amendments or (B) in lieu
of the delivery of shares upon exercise, equal to the product
of (x) and (y), where (x) is the excess of the Fair Market
Value on the date of exercise over the exercise price, and (y)
is the number of Shares subject to the Options being
exercised;
(ii) Stock Appreciation Rights shall become fully vested and
exercisable;
(iii) Restricted Stock shall have all restrictions removed;
(iv) Performance Units whose performance period ends after
the date of the Change of Control shall become vested as to a
percentage of Performance Units granted equal to the number of
months (including partial months) in the performance period
before the date of the Change of Control, divided by the total
number of months in the performance period. The value of the
Performance Units shall be equal to the greater of the target
value of the Performance Units or the value derived from the
actual performance as of the date of the Change of Control;
(v) Performance Shares whose performance period ends after
the date of the Change of Control shall become vested pro rata
as to the number of Performance Shares granted equal to the
number of months (including partial months) in the performance
period before the date of Change of Control, divided by the
total number of months in the performance period. The prorated
number of Performance Shares derived from the preceding
calculation shall be further adjusted by applying the higher
of target or actual performance to the date of Change of
Control; and
(vi) The Committee shall have authority to establish or to
revise the terms of any such Grant or any other Grant as it,
in its discretion, deems appropriate; provided, however, that
the Committee may not make revisions that are adverse to the
Participant without the Participant's consent unless such
revision is provided for or contemplated in the terms of the
Grant.
(c) For purposes of the Plan, a "Change of Control" shall mean the
first to occur of the following events:
(i) an individual, corporation, partnership, group,
associate or other entity or "person", as such term is defined
in Section 14(d) of the Exchange Act, other than any employee
benefit plans sponsored by Reynolds American, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of thirty percent (30%)
or more of the combined voting power of Reynolds American's
outstanding securities ordinarily having the right to vote at
elections of directors; provided, however, that the
acquisition of Reynolds
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American securities by BAT pursuant to the Business
Combination Agreement, dated as of October 27, 2003, between
R.J. Reynolds Tobacco Holdings, Inc. ("RJR") and Brown &
Williamson Tobacco Corporation ("B&W"), as thereafter amended
(the "BCA") or as expressly permitted by the Governance
Agreement, dated as of July 30, 2004, among British American
Tobacco, p.l.c., B&W and Reynolds American (the "Governance
Agreement"), shall not be considered a Change of Control for
purposes of this subsection (i);
(ii) individuals who constitute the Board of Directors (or
who have been designated as directors in accordance with
Section 1.09 of the BCA) on July 30, 2004 (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
subsequent to such date whose election, or nomination for
election by Reynolds American's stockholders, was (1) approved
by a vote of at least three-quarters of the directors
comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of Reynolds American in
which such person is named as a nominee of Reynolds American
for director) or (2) made in accordance with Section 2.01 of
the Governance Agreement, but excluding for this purpose any
such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of an individual, corporation, partnership, group, associate
or other entity or person other than Reynolds American's
Board, shall be, for purposes of this paragraph (ii),
considered as though such person were a member of the
Incumbent Board; and
(iii) the approval by the stockholders of Reynolds American of
a plan or agreement providing (A) for a merger or
consolidation of Reynolds American other than with a wholly
owned Subsidiary and other than a merger or consolidation that
would result in the voting securities of Reynolds American
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting
securities of Reynolds American or such surviving entity
outstanding immediately after such merger or consolidation, or
(B) for a sale, exchange or other disposition of all or
substantially all of the assets of Reynolds American, other
than any such transaction where the transferee of all or
substantially all of the assets of Reynolds American is a
wholly owned Subsidiary or an entity more than fifty percent
(50%) of the combined voting power of the voting securities of
which is represented by voting securities of Reynolds American
outstanding immediately prior to the transaction (either
remaining outstanding or by being converted into voting
securities of the transferee entity). If any of the events
enumerated in this paragraph (iii) occur,
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Reynolds American's Board shall determine the effective date
of the Change of Control resulting therefrom for purposes of
this Plan and the Grants hereunder.
9. Amendment and Termination
Except as otherwise required by law or as provided under the New York
Stock Exchange Rules, the Committee shall have the authority to make such
amendments to any terms and conditions applicable to outstanding Grants as are
consistent with this Plan, provided that, except for adjustments under Paragraph
8(a) hereof, no such action shall modify such Grant in a manner adverse to the
Participant without the Participant's consent except as such modification is
provided for or contemplated in the terms of the Grant. Except as provided in
Section 8(a), the exercise price of any outstanding Option or Stock Appreciation
Right may not be adjusted or amended, whether through amendment, cancellation or
replacement, unless such adjustment or amendment is properly approved by
Reynolds American's shareholders. Likewise, the share and payment limitations
set forth in Section 6(a) cannot be increased, and the minimum Option or Stock
Appreciation Right grant price limitations set forth in Sections 5(a), 5(b) and
5(c) cannot be reduced, in either case without proper stockholder approval.
Subject to the foregoing and except as otherwise required by law or as provided
in the New York Stock Exchange Rules, the Company's Board of Directors may
amend, suspend or terminate this Plan as it deems necessary and appropriate to
better achieve the Plan's purpose.
10. Foreign Options and Rights
(a) The Committee may make Grants to employees who are subject to
the tax laws of nations other than the United States, which Grants
may have terms and conditions that differ from the terms thereof as
provided elsewhere in the Plan for the purpose of complying with the
foreign tax laws. Grants of stock options may have terms and
conditions that differ from Incentive Stock Options and Other Stock
Options for the purpose of complying with the foreign tax laws.
(b) The terms and conditions of stock options granted under
Section 10(a) may differ from the terms and conditions which the
Plan would require to be imposed upon Incentive Stock Options and
Other Stock Options if the Committee determines that the Grants are
desirable to promote the purposes of the Plan.
11. Withholding Taxes
The Corporation shall have the right to deduct from any payment or
settlement made under the Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such payment.
12. Distribution upon Death
In the event of the death of a Participant, any distribution to which such
Participant is entitled under the Plan shall be made to the beneficiary
designated by the Participant to receive the proceeds of any noncontributory
group life insurance coverage provided for the Participant by the Corporation
("Group Life Insurance Coverage"). If the Participant has not designated
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such beneficiary, or desires to designate a different beneficiary, the
Participant may file with the Corporation a written designation of a beneficiary
under the Plan, which designation may be changed or revoked only by the
Participant, in writing. If no designation of beneficiary has been made by a
Participant under the Group Life Insurance Coverage or filed with the
Corporation under the Plan, distribution upon such Participant's death shall be
made in accordance with the provisions of the Group Life Insurance Coverage. If
a Participant is no longer an employee of the Corporation at the time of death,
no longer has any Group Life Insurance Coverage and has not filed a designation
of beneficiary with the Corporation under the Plan, distribution upon such
Participant's death shall be made to the Participant's estate.
13. Effective Date and Termination Dates
The Plan was adopted by Reynolds American on July 30, 2004. The Plan
became effective on and as of June 14, 1999, and shall terminate ten (10) years
later, subject to earlier termination by the Board of Directors pursuant to
Section 9. The terms of Grants made on or before the expiration of the Plan
shall extend beyond such expiration. Grants made under the Plan prior to the
Effective Date shall be governed by the terms of the Plan as in effect on the
date such Grant was made.
14. Governing Law
This Plan shall be governed by the laws of the State of North Carolina.
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