UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 4, 2016
Reynolds American Inc.
(Exact Name of Registrant as Specified in its Charter)
| North Carolina | 1-32258 | 20-0546644 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
401 North Main Street,
Winston-Salem, NC 27101
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 336-741-2000
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
At its February 4, 2016 meeting, the Board of Directors, referred to as the Board, of Reynolds American Inc., referred to as RAI, accepted the previously announced resignation of John Daly, effective immediately prior to the Board’s meeting on that date. Mr. Daly has served as a Class II Director on the Board since December 2010, as one of the five board members designated by Brown & Williamson Holdings, Inc., referred to as B&W, a subsidiary of British American Tobacco p.l.c., referred to as BAT, under the terms of the governance agreement, dated as of July 30, 2004, as amended, among RAI, B&W and BAT, referred to as the governance agreement.
Additionally, on February 4, 2016, the Board elected Jerome Abelman, a designee of B&W under the terms of the governance agreement, to succeed Mr. Daly and serve on the Board as a Class II Director, effective upon Mr. Daly’s resignation on February 4, 2016 immediately prior to the Board’s meeting on that date. Mr. Abelman is Director, Legal & External Affairs and General Counsel at BAT.
Under the terms of the governance agreement, B&W has the right, based on the current ownership of BAT and its subsidiaries of approximately 42% of RAI’s common stock, to designate five people for nomination to the Board; following the February 4, 2016 election of Mr. Abelman as a Director, the Board is comprised of 13 Directors. In addition to Mr. Abelman, the other current RAI Directors who have been designated by B&W pursuant to the governance agreement are: Ronald S. Rolfe (a Class I Director), Robert Lerwill (a Class II Director), Martin D. Feinstein (a Class III Director) and Ricardo Oberlander (a Class III Director). Each class of RAI Directors serves a staggered three-year term, with the term of the Class I, Class II and Class III Directors ending generally on the date of the RAI annual shareholders’ meeting held in 2017, 2018 and 2016, respectively. Similar to Mr. Lerwill’s initial term as a Class II Director, Mr. Abelman’s initial term as a Class II Director also is scheduled to expire on the date of RAI’s 2016 annual shareholders’ meeting because, under the law of North Carolina (the state in which RAI is incorporated), the term of a director elected to fill a vacancy will expire at the next shareholders’ meeting at which directors are elected (notwithstanding that the term of the other Directors in that same class is not yet scheduled to expire).
In consideration for the Board service of Mr. Abelman, age 52, who is a full-time employee of a BAT subsidiary, RAI will pay BAT the amount of $474,220 per year; that amount is in lieu of any other compensation (other than the reimbursement of certain expenses) to which Mr. Abelman otherwise would be entitled in his capacity as a member of the Board. Mr. Abelman has entered into an indemnification agreement with RAI, the same indemnification agreement which RAI offers to all of its executive officers and directors. The form of such indemnification agreement was filed as Exhibit 10.1 to RAI’s Current Report on Form 8-K dated February 1, 2005. A copy of the press release announcing the foregoing is attached to this Current Report on Form 8-K as Exhibit 99.1.
At its meeting held on February 4, 2016, the independent members of the Board, based upon a recommendation from the Compensation and Leadership Development Committee of the Board, referred to as the Compensation Committee, also approved (1) the performance period of January 1, 2016 through December 31, 2016 for the 2016 annual incentive awards to be made under the Reynolds American Inc. Amended and Restated 2009 Omnibus Incentive Compensation Plan, referred to as the Omnibus Plan, for certain executive officers, and (2) the performance formula for determining the award pool for the annual incentive awards under the Omnibus Plan for such one-year performance period for each of these executive officers. Under the formula, the award pool for the annual incentive awards for each of the following executive officers will be determined based on the following percentages of RAI’s cash net income for the performance period: Debra A. Crew, 0.25%; Andrew D. Gilchrist, 0.25%; and Martin L. Holton III, 0.25%. Thomas R. Adams, another named executive officer listed in RAI’s 2015 definitive proxy statement, retired as Executive Vice President of RAI on September 30, 2015. The Board did not approve any such annual incentive award performance period or formula (or the target award values or grants described below) at this meeting for Susan M. Cameron, RAI’s President and Chief Executive Officer, because her annual incentive and stock-based incentive target values and award grants were approved in May 2015 and are based on different performance periods. For purposes of determining the award pools 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 RAI’s 2016 audited financial statements contained in its Annual Report on Form 10-K for the fiscal year ending December 31, 2016.
On February 4, 2016, upon recommendation of the Compensation Committee, the Board also approved the following target award values, expressed as a percentage of each executive officer’s base salary as of April 1, 2016, for the 2016 annual incentive awards under the Omnibus Plan for the following executive officers: Ms. Crew, 120%; Mr. Gilchrist, 105%; and Mr. Holton, 100%. As indicated above, Mr. Adams retired from RAI on September 30, 2015. The maximum amount of the 2016 annual incentive award for each of the listed executive officers is limited to the percentage of RAI’s cash net income approved as the annual incentive award pool for such executive officer by the non-employee directors of 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 annual incentive award for each of such listed executive officers under such formula using negative discretion after consideration of the 2016 performance of RAI and its operating companies. Generally, such awards are eligible to vest on December 31, 2016, and the payment of awards will be made in cash on or prior to March 15th of the next year. In addition, the annual incentive awards may be paid out partially or fully upon certain other events, such as the listed executive officer’s death, disability, retirement, involuntary termination of employment without cause, or a change of control of RAI.
On February 4, 2016, upon recommendation of the Compensation Committee, the Board also approved (1) the three-year performance period of January 1, 2016 through December 31, 2018 for the 2016 performance share awards granted under the Omnibus Plan for certain executive officers, and (2) the performance formula for determining the award pool of performance shares under the Omnibus Plan for such three-year performance period for each of these executive officers. Under the formula, the award pool of performance shares for each of the following executive officers will be determined based on the following percentages of RAI’s cumulative cash net income for the three-year performance period: Ms. Crew, 0.40%; Mr. Gilchrist, 0.40%; and Mr. Holton, 0.40%. As indicated above, Mr. Adams retired from RAI on September 30, 2015. For purposes of determining such award pools, cash net income is defined as set forth above, except as reported in RAI’s Annual Reports on Form 10-K for the 2016, 2017 and 2018 fiscal years, respectively. The maximum amount of performance shares and associated dividend equivalent payments that any of the listed executive officers may receive at the end of the three-year performance period for the 2016 performance share grant is limited to the award pool for the performance shares determined by the formula based on RAI’s cash net income approved for such executive officer by the non-employee directors of 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 each of the listed officers under such formula using negative discretion after consideration of the performance of RAI and its operating companies over the three-year performance period.
On February 4, 2016, upon recommendation of the Compensation Committee, the Board also approved long-term incentive grants under the Omnibus Plan, to be effective on March 1, 2016, to Ms. Crew and Messrs. Gilchrist and Holton for the January 1, 2016 to December 31, 2018 performance period. For the reasons stated above, Mr. Adams did not receive a 2016 long-term incentive grant. The 2016 long-term incentive grants under the Omnibus Plan to such executive officers will be entirely in the form of performance shares. The number of performance shares such executive officers actually will receive, if any, will be determined at the end of the three-year performance period based first on the maximum payout limitation provided by the performance share award pools 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 such executive officers to an amount consistent with the average of RAI’s scores under the annual incentive award program for each of the three years of the performance period, but no higher than 150% of target. In addition, if RAI fails to pay cumulative dividends of at least an amount equal to the per share quarterly dividend paid for the first quarter of the performance period times 12 quarterly dividends for the three-year performance period ending December 31, 2018, 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 three-year performance period, up to a maximum performance share reduction of 50%.
Subject to the foregoing, the performance shares generally will vest on March 1, 2019, and will be paid in the form of shares of RAI common stock on or prior to March 15, 2020. At the time the performance shares vest, each of such listed executive officers 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 three-year performance period through the payment of the performance shares, multiplied by the number of performance shares actually earned by such executive officer after the performance adjustments. In addition, the performance shares may be paid out partially or fully upon certain other events, such as the listed executive officer’s death, disability, retirement, involuntary termination of employment without cause, or a change of control of RAI.
Although the target value of the performance shares Ms. Crew and Messrs. Gilchrist and Holton will receive on March 1, 2016 is known as of the date of this report, the actual number of performance shares each of them will be granted on March 1, 2016 will not be determinable until such date. For each of these executive officers, the number of performance shares granted will be equal to the target long-term incentive opportunity (expressed as a multiple of base salary as of March 1, 2016) for such executive officer set forth below, divided by the average closing price of a share of RAI common stock for the 20 trading days prior to the March 1, 2016 grant date: Ms. Crew, 3.0X; Mr. Gilchrist, 3.25X; and Mr. Holton, 2.5X. The grant date fair value of the performance shares granted to each such executive officer will equal the product of the per share closing price of RAI common stock on the grant date multiplied by the number of performance shares granted to each executive officer.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following is filed as an Exhibit to this Current Report on Form 8-K.
| Number |
Exhibit | |
| 99.1 | Press Release of Reynolds American Inc., dated February 4, 2016. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| REYNOLDS AMERICAN INC. | ||||||||
| By: | /s/ McDara P. Folan, III | |||||||
| Name: | McDara P. Folan, III | |||||||
| Title: | Senior Vice President, Deputy General Counsel and Secretary | |||||||
Date: February 5, 2016
INDEX TO EXHIBITS
| Number |
Exhibit | |
| 99.1 | Press Release of Reynolds American Inc., dated February 4, 2016. | |