ITEM 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
At a meeting held on May 5, 2016, the outside directors (as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended) on the Board of Directors, referred to as the Board, of Reynolds American Inc., referred to as RAI, based upon a recommendation from the Compensation and Leadership
Development Committee of the Board, referred to as the Compensation Committee, approved (1) the performance period of May 1, 2016 through April 30, 2017, referred to as the 2016 annual incentive performance period, for the 2016 annual
incentive award to be made to Susan M. Cameron, RAIs President and Chief Executive Officer, under the Reynolds American Inc. Amended and Restated 2009 Omnibus Incentive Compensation Plan, referred to as the Omnibus Plan, and (2) the
performance formula for determining the award pool for Ms. Camerons annual incentive award under the Omnibus Plan for such one-year performance period. Under the formula, the award pool for the annual incentive award for Ms. Cameron
will be 1.0% of RAIs cash net income for the period from April 1, 2016 through March 31, 2017. For purposes of determining the award pool referenced above, cash net income is defined as net income from continuing operations in the
consolidated statement of income adjusted for the impact of non-cash items, such as depreciation, amortization, unrealized gains and losses, intangible asset impairments and other non-cash gains/losses included in net income, as reported in
RAIs quarterly and annual reports for the period from April 1, 2016 to March 31, 2017.
On May 5, 2016, upon
recommendation of the Compensation Committee, the outside directors on the Board approved a target annual incentive award value for Ms. Cameron equal to 160% of her base salary as of May 1, 2016, for her 2016 annual incentive award under
the Omnibus Plan. The maximum amount of Ms. Camerons 2016 annual incentive award is limited to the percentage of RAIs cash net income approved as the annual incentive award pool for Ms. Cameron by the outside directors on the
Board, as described above, and the shareholder approved award limitations set forth in the Omnibus Plan. The Compensation Committee may reduce the amount of Ms. Camerons 2016 annual incentive award under such formula using negative
discretion guided by its consideration of the performance of RAI and its operating companies against the underlying performance metrics for the 2016 annual incentive performance period and her achievement against other performance goals established
by the Compensation Committee. Generally, such award is eligible to vest on the earlier of (1) April 30, 2017, and (2) the date the Board determines her assignment is complete and she ceases to be employed by RAI. The payment of the
award will be made in cash as soon as practicable after the end of the 2016 annual incentive performance period based on actual performance, and in any event not later than March 15, 2018. In addition, Ms. Camerons annual incentive
award may be paid out partially or fully upon certain other events, such as her death, disability, involuntary termination of employment without cause, or a change of control of RAI.
On May 5, 2016, upon recommendation of the Compensation Committee, the outside directors on the Board also approved (1) the one-year
performance period of May 1, 2016 through April 30, 2017, referred to as the 2016 stock-based incentive performance period, for Ms. Camerons 2016 performance share awards granted under the Omnibus Plan, and (2) the
performance formula for determining the award pool of performance shares under the Omnibus Plan for such performance period for Ms. Cameron. Under the formula, the award pool of performance shares for Ms. Cameron will be 5.0% of RAIs
cumulative cash net income for the period from April 1, 2016 through March 31, 2017. For purposes of determining such award pool, cash net income is defined as set forth above. The maximum amount of performance shares and associated
dividend equivalent payment that Ms. Cameron may receive at the end of the 2016 stock-based incentive performance period for the 2016 performance share grant is limited to the award pool for the performance shares determined by the formula
based on RAIs cash net income approved for Ms. Cameron by the outside directors on the Board, as described above, and the shareholder approved award limitations set forth in the Omnibus Plan. The Compensation Committee may reduce the
amount of the 2016 award for Ms. Cameron under such formula using negative discretion guided by its consideration of the performance of RAI and its subsidiaries over the 2016 stock-based incentive performance period and her achievement against
other performance goals established by the Compensation Committee.
On May 5, 2016, upon recommendation of the Compensation
Committee, the Board approved a stock-based incentive grant under the Omnibus Plan to Ms. Cameron for the 2016 stock-based incentive performance period. The 2016 stock-based incentive grant to Ms. Cameron consisted of 164,841 performance
shares (based on her target stock-based incentive opportunity of 6.25 times her base salary as of May 1, 2016, divided by the average closing price of a share of RAI common stock for the 20 trading days prior to the grant date). The number of
performance shares Ms. Cameron actually will receive, if any, will be determined at the end of the 2016 stock-based incentive performance period based first on the maximum payout limitation provided by the performance share award pool generated
under the pre-established cash net income formula described above. Then the Compensation Committee may use negative discretion to reduce the number of performance shares actually earned by Ms. Cameron guided by its consideration of the
performance of RAI and its subsidiaries over the 2016 stock-based incentive performance period against the 2016 underlying annual performance metrics, her progress on succession planning goals and her achievement against other performance goals
established by the Compensation Committee, but no higher than 200% of target. In addition, if RAI fails to pay cumulative dividends of at least $1.68 per share (an amount equal to the $0.42 per share quarterly dividend declared by RAIs Board
at its May 5, 2016 meeting times the number of quarters in the performance period) for the 2016 stock-based incentive performance period, then the number of performance shares earned will be reduced by an amount equal to three times the
percentage of the dividend underpayment for the performance period, up to a maximum performance share reduction of 50%.
Subject to the foregoing, the performance shares generally will vest on the earlier of:
(1) May 1, 2017, and (2) the date the Board determines her assignment is complete and she ceases to be employed by RAI. The performance shares will be paid in the form of shares of RAI common stock as soon as practicable after the end
of the 2016 stock-based incentive performance period based on actual performance, and in any event not later than March 15, 2018. At the time of the payment of any vested performance shares, Ms. Cameron will receive a single cash dividend
equivalent payment equal to the aggregate amount of the dividends per share declared and paid to RAI shareholders on RAI common stock during the period from the beginning of the 2016 stock-based incentive performance period through the payment of
the performance shares, multiplied by the number of performance shares actually earned by Ms. Cameron after the performance adjustments. In addition, the performance shares may be paid out partially or fully upon certain other events, such as
Ms. Camerons death, disability, involuntary termination of employment without cause, or a change of control of RAI.
On
May 5, 2016, upon the recommendation of the Compensation Committee, the Board also approved certain amendments to the Reynolds American Inc. Executive Severance Plan, as amended and restated, referred to as the ESP. Such amendments consist of
(1) updates to the participating companies set forth on Appendix A thereto, (2) revisions to the plan administration language to allow future updates to Appendix A to be made by RAIs Employee Benefits Committee, and
(3) certain other non-material changes for clarification and consistency. A copy of the amended and restated ESP is attached to this Current Report on Form 8-K as Exhibit 10.1.
Item 2: Amendment to Articles of Incorporation to Declassify the Board of Directors.
By the vote reflected below, RAIs shareholders approved the amendment to RAIs Amended and Restated Articles of Incorporation
declassifying the Board of Directors:
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For
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Against
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Abstentions
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Broker Non-Votes
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1,226,950,637
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2,528,087
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1,393,463
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96,318,496
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Item 3: Amendment to Articles of Incorporation to Increase the Number of Authorized Shares of RAI Common Stock.
By the vote reflected below, RAIs shareholders approved the amendment to RAIs Amended and Restated Articles of
Incorporation increasing the number of authorized number of shares of RAI common stock from 1,600,000,000 to 3,200,000,000:
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For
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Against
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Abstentions
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1,235,039,764
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88,745,748
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3,405,171
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Item 4: Advisory Vote to Approve the Compensation of Named Executive Officers.
By the vote reflected below, RAIs shareholders approved, on an advisory basis, the compensation of RAIs named executive officers:
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For
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Against
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Abstentions
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Broker Non-Votes
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1,146,856,982
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80,063,504
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3,951,701
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96,318,496
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Item 5: Ratification of the Appointment of KPMG LLP as Independent Registered Public Accounting Firm.
By the vote reflected below, RAIs shareholders ratified the appointment of KPMG LLP as RAIs independent registered public
accounting firm for 2016:
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For
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Against
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Abstentions
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1,317,801,324
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7,856,913
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1,532,446
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Item 6: Shareholder Proposal on Adoption of Payout Policy Preference for Share Repurchases.
By the vote reflected below, RAIs shareholders defeated the shareholder proposal on Adoption of Payout Policy Preference for Share
Repurchases:
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For
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Against
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Abstentions
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Broker Non-Votes
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11,571,725
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1,216,135,356
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3,165,106
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96,318,496
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Item 7: Shareholder Proposal on Mediation of Alleged Human Rights Violations.
By the vote reflected below, RAIs shareholders defeated the shareholder proposal on Mediation of Alleged Human Rights Violations:
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For
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Against
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Abstentions
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Broker Non-Votes
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35,269,171
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1,121,086,887
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74,516,129
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96,318,496
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