8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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): April 13, 2010

Reynolds American Inc.

(Exact Name of Registrant as Specified in its Charter)

North Carolina	1-32258	20-0546644
(State or Other Jurisdiction of	(Commission File Number)	(IRS Employer
Incorporation)		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 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.):

     ¨ 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 (17 CFR 240.14d-2(b))

     ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

     As Reynolds American Inc., referred to as RAI, previously disclosed in its Form 10-K filed with the Commission on February 19, 2010, by purchase agreement dated May 12, 1999, R.J. Reynolds Tobacco Holdings, Inc., a wholly owned subsidiary of RAI, referred to as RJR and R.J. Reynolds Tobacco Company, an indirect subsidiary of RAI, referred to as RJR Tobacco, sold the international tobacco business to Japan Tobacco Inc., referred to as JTI. RJR and RJR Tobacco retained, among others, certain liabilities relating to the activities of Northern Brands International, Inc., a now inactive, indirect subsidiary of RAI, referred to as NBI, including those relating to a 1998 guilty plea entered in the U.S. District Court for the Northern District of New York, as well as an investigation conducted by the Royal Canadian Mounted Police, for possible violations of Canadian law related to the activities that led to the NBI guilty plea.

     On September 18, 2003, RJR Tobacco and certain of its affiliates were served with a Statement of Claim filed in August 2003 by the Attorney General of Canada in the Superior Court of Justice, Ontario, Canada. Also named as defendants were JTI and a number of its affiliates. The Statement of Claim sought to recover taxes and duties allegedly not paid as a result of cigarette smuggling and related activities. As filed, the Attorney General’s Statement of Claim sought to recover Cdn $1.5 billion in compensatory damages and Cdn $50 million in punitive damages, as well as equitable and other forms of relief. Subsequently, in a related judicial proceeding, the Attorney General asserted that the total amount of the recovery he was seeking was Cdn $4.3 billion.

     In August 2004, JTI-Macdonald Corp., referred to as JTI-MC, initiated a Companies’ Creditor Arrangement Act Proceeding, referred to as the CCAA Proceeding, seeking protection from creditors following the entry of an ex parte judgment against it in the amount of Cdn $1.36 billion obtained by the Quebec Ministry of Revenue, referred to as the MRQ, for claimed unpaid taxes, duties, penalties and interest. The MRQ’s claim was based, in relevant part, on alleged tobacco product smuggling activities engaged in by JTI-MC during the period 1990 through 1998. Subsequently, in the CCAA Proceeding, the Canadian federal government and several other provincial governments submitted similar claims against JTI-MC for unpaid taxes, duties, penalties and interest bringing the total amount of those claims to almost Cdn $10 billion. In the CCAA Proceeding, the Canadian federal government and some of the provinces also suggested that they could make the same tax and related claims against RJR and certain of its subsidiaries, including RJR Tobacco.

     In a separate matter, it had been charged by the Canadian governments that between February 18, 1993 and December 31, 1996, in the provinces of Ontario and Québec, and elsewhere in Canada, NBI unlawfully conspired to aid persons to sell and be in possession of tobacco manufactured in Canada and elsewhere that had not been packaged and stamped in conformity with the Canadian Excise Act, R.S.C. (1985) c. E-14 and its amendments and the ministerial regulations, in violation of Section 465(1)(c) of the Canadian Criminal Code.

     As described in more detail below, RJR Tobacco and NBI have each entered into separate agreements with the Canadian governments resolving the claims and charges against them, respectively.

Comprehensive Agreement

     Effective April 13, 2010, RJR Tobacco entered into a Comprehensive Agreement with the Canadian federal, provincial and territorial governments resolving a variety of civil claims related to cigarette smuggling in Canada during the 1980s and 1990s. The Comprehensive Agreement covers all

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civil claims related to the movement of contraband tobacco products in Canada during the period 1985 through 1999 that the governments have asserted or could have asserted against RJR Tobacco and its affiliates. The Company has paid the governments a total of Cdn $325 million to bring this complex, lengthy and costly litigation to an end. Should RJR Tobacco or its affiliates decide in the future to sell tobacco products in Canada, they have also agreed to adopt packaging, marking and other measures that will assist the Canadian governments in their efforts to combat the movement of contraband tobacco products in Canada.

     The foregoing summary of the Comprehensive Agreement is qualified in its entirety by the full text of the agreement, a copy of which is attached to this Report as Exhibit 10.1.

Statement of Facts and Plea Agreement

     On April 13, 2010, NBI entered into a plea agreement with the Ministry of the Attorney General of Ontario. Under the terms of this agreement, NBI pled guilty to a one count violation of the Canadian Criminal Code for conspiring to aid other persons to sell and be in possession of tobacco products that were not packaged and stamped in conformity with the Canadian Excise Act during the period February 18, 1993 through December 31, 1996. The Judge of the Ontario Court of Justice accepted the plea by NBI and required it to pay a fine of Cdn $75 million. By this plea, the criminal charges that were originally commenced against NBI and certain of its affiliates in 2003 and any other charges that could be commenced against NBI and its affiliates by the Canadian governments relating to contraband tobacco activities have now come to an end.

     The foregoing summary of the plea agreement is qualified in its entirety by the full text of the Agreed Statement of Facts, a copy of which is attached to this Report as Exhibit 10.2.

Item 8.01 Other Events.

Contemporaneous Plea Agreement and Settlement with JTI

     At the same time as the settlement agreements described above, the Canadian governments also pursued separately a resolution of similar claims and charges that they had asserted against JTI and its affiliates. As a result, on April 13, 2010, JTI-MC entered a plea of guilty to a one count violation of the Canadian Excise Act and was required to pay a fine of Cdn $150 million. On the same day, JTI-MC also entered into a separate comprehensive agreement with the Canadian federal, provincial and territorial governments resolving all civil claims that they had already filed or could have filed against JTI-MC and its affiliates regarding the movement of contraband tobacco in Canada during the period 1985 through 1999. Under this comprehensive agreement, JTI-MC has agreed to put in place tobacco compliance measures — involving procedures for dealing with customers, product packaging and marking, record keeping and reporting requirements — designed to assist the Canadian governments in their efforts to combat the movement of contraband tobacco products in Canada.

Settlement Agreement and Mutual Release

     The separate, contemporaneous resolution of those matters with the Canadian governments by RJR Tobacco, RJR and their affiliates, on the one hand, and JTI-MC and its affiliates, on the other, has permitted the companies to reach an agreement among themselves as to the matters covered by their separate agreements referenced above as well as on the continued defense and possible resolution of other related claims. In that connection, RJR Tobacco, RJR and JTI entered into a Settlement Agreement and Mutual Release dated as of April 13, 2010, referred to as the SA-MR. Under the terms of the SA-MR, among other things, (a) RJR Tobacco has agreed to give up its reservation of rights with respect to all moneys already advanced to JTI for certain attorneys fees, expenses and costs in the criminal proceedings

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and to pay for any additional fees, expenses and costs of like kind incurred in those proceedings up to a specified date; (b) JTI has paid for all Canadian Goods and Services Taxes incurred to date and in the future in connection with the foregoing attorney services already provided or to be provided in the criminal proceedings; (c) the parties have agreed to split evenly the payment of certain other attorneys fees already incurred in connection with the Canadian matters; and (d) the parties have resolved other issues related to the preceding matters.

Press Release

     On April 13, 2010, RJR Tobacco issued a press release related to the matters set forth herein. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

     (d)     Exhibits.

     The following exhibits are furnished herewith:

Exhibit
Number	Description
10.1	Comprehensive Agreement, dated as of April 13, 2010, among R.J. Reynolds Tobacco Company and Her Majesty the Queen in Right of Canada and the Provinces and Territories listed on the signature pages attached thereto
10.2	Agreed Statement of Facts, dated as of April 13, 2010, between Her Majesty the Queen and Northern Brands International, Inc.
99.1	Press Release of R.J. Reynolds Tobacco Company, dated as of April 13, 2010

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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: April 16, 2010

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EXHIBIT INDEX

Exhibit
Number	Description
10.1	Comprehensive Agreement, dated as of April 13, 2010, among R.J. Reynolds Tobacco Company and Her Majesty the Queen in Right of Canada and the Provinces and Territories listed on the signature pages attached thereto
10.2	Agreed Statement of Facts, dated as of April 13, 2010, between Her Majesty the Queen and Northern Brands International, Inc.
99.1	Press Release of R.J. Reynolds Tobacco Company, dated as of April 13, 2010

EX-10.1

Exhibit 10.1

R.J. REYNOLDS TOBACCO COMPANY

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HER MAJESTY THE QUEEN IN RIGHT OF CANADA

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THE PROVINCES AND TERRITORIES LISTED ON THE SIGNATURE PAGES ATTACHED HERETO

COMPREHENSIVE AGREEMENT

as of April 13, 2010

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This Agreement made as of the 13 day of April, 2010

BETWEEN:

R. J. Reynolds Tobacco Company (“RJR”)

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Her Majesty the Queen in Right of Canada as represented by the Minister of Revenue and the Minister of Justice (“Canada”)

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Each Province and Territory listed on the signature pages attached hereto (the “Provinces and Territories”)

RECITAL

In consideration of the mutual covenants herein and other valuable consideration the receipt and sufficiency of which is hereby acknowledged, and without any admission of liability herein, the Parties agree to settle and finally resolve all Released Claims against the Released Entities pursuant to the terms of this Agreement.

DEFINITIONS

1. The following definitions apply in this Agreement:

“Affiliate” means, with respect to any Entity, any other Entity directly or indirectly (including through intervening Affiliates) controlling, controlled by, or under common control with, such other Entity and includes, for greater certainty, future Affiliates and after-acquired Affiliates. For the purposes of this definition, “control”, when used with respect to any Entity, includes but is not limited to the power to choose a majority of the Board of Directors and the terms “controlling” and “controlled” have meanings correlative to the foregoing. For avoidance of doubt, “Affiliate” shall not include the CTMC.

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“Claim Over” means any Released Claim which the Releasing Entities may bring against any Entity, other than a Released Entity.

“CTMC” means the Canadian Tobacco Manufacturers’ Council.

“Entity” means an individual, corporation, partnership, limited liability company, association or organization and includes Governments.

“Governments” means Canada and the Provinces and Territories.

“Parties” means RJR and the Governments.

“Payment” means the amount payable in Canadian dollars pursuant to paragraph 5 of this Agreement.

“Released Claims” means (excepting only the obligations under this Agreement); all manner of civil, administrative and regulatory proceedings, actions, causes of action, suits, duties, debts, dues, accounts, bonds, covenants, contracts, complaints, claims, charges, and demands of whatsoever nature for damages, liabilities, monies, losses, indemnity, restitution, disgorgement, forfeiture, punitive damages, penalties, fines, interest, taxes, assessments, duties, remittances, costs, legal fees and disbursements, expenses, interest in loss, or injuries howsoever arising, known or unknown, to the extent provided herein, including without limitation any claims arising at common law or in equity, or under any federal, provincial or territorial statute or regulation and including all civil claims that may be allowable to the Releasing Entities within criminal or other proceedings in the form of restitution, disgorgement, forfeiture, punitive damages, penalties, fines or interest or otherwise, which hereto may have been or may hereafter arise in any way relating to, arising out of or in connection with:

(a) any exportation, transhipment or shipment out of Canada, smuggling, importation, re-importation or transhipment into Canada or any of the provinces and territories thereof of tobacco products manufactured, distributed or sold by the Released Entities (including aiding or participating in such activities), smuggling or any conduct in any way relating to smuggling, contraband tobacco products, the exportation, importation, re-importation, transhipment or shipment of tobacco

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	products manufactured, distributed or sold by Released Entities that were otherwise contraband, during the Relevant Period;
(b)	any failure by the Released Entities to pay taxes, duties, excise, customs or excise taxes or duties or other amounts payable on account of smuggled and/or re-imported and/or transhipped (including inter-provincial transhipments) and/or otherwise contraband tobacco products manufactured, distributed, sold by the Released Entities and/or sold, delivered or consumed in Canada, or any expenditures relating to enforcing or recovering any such tax, duty, excise or other amounts alleged to be payable, or any failure to file a return, form, account or any other required documentation in respect of such amounts (including aiding or participating in such activities) in relation to the Relevant Period; and,
(c)	any after-the-fact conduct including any oral or written statements, representations or omissions related to the matters referred to in (a) and/or (b) whether during the Relevant Period or afterward or during the negotiation of this Agreement;
(d)	for avoidance of doubt, Released Claims shall not include any claims:

(i)

whether already commenced or that may be commenced, related to the recovery of alleged health care costs, or otherwise, unless such claims arise from (a), (b) or (c) above. This Agreement does not limit the ability of a Releasing Entity to claim, in any health care cost recovery litigation, damages on an aggregated basis based on the actual incidence of smoking. For greater certainty, this Agreement does not limit the Releasing Entities’ ability to introduce and rely on evidence of smoking incidence, even if such incidence may arise out of or be related to (a), (b) or (c) above, and a Released Entity shall not raise as a defence or lead any evidence that the actual incidence of smoking or the health care costs caused or contributed to by smoking should be reduced by reason of (a), (b) or (c) above;

(ii)

against the CTMC.

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“Released Entities” means RJR, the Entities listed on Schedule A, and each of their respective current and former Affiliates, and each and any of their respective direct and indirect subsidiaries, divisions, predecessors, successors and assigns, as well as with respect to all of the foregoing, each and all of their respective current and former officers, directors, agents, servants and employees, including external legal counsel, heirs, executors and assigns. For avoidance of doubt, “Released Entities” shall not include the CTMC.

“Releasing Entities” means Her Majesty the Queen in Right of Canada and in Right of each of the Provinces and on behalf of the Territories listed on the signature pages hereto, and includes for greater certainty the Canada Revenue Agency and the Canada Border Services Agency.

“Relevant Period” means the period between January 1, 1985 and December 31, 1999, inclusive.

REPRESENTATIONS AND WARRANTIES

2. RJR represents and warrants that:

(a)	the terms of this Agreement are fair and reasonable;
(b)	the execution of this Agreement has been expressly authorized by its Board of Directors;
(c)	it has obtained any and all approvals or authorizations required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder, and for this Agreement to be binding upon it; and,
(d)	this Agreement has been duly executed and delivered by it and constitutes a legally binding obligation of it enforceable against it in accordance with its terms.

3. Each of the Governments warrants and represents that:

(a) the terms of this Agreement are in the public interest and are fair and reasonable;

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(b)	it has obtained any and all approvals or authorizations required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder, and for this Agreement to be binding upon it;
(c)	this Agreement has been duly executed and delivered by the Government and constitutes a legally binding obligation of that Government as a Releasing Entity that is enforceable against it in accordance with its terms; and,
(d)	it has not assigned to any Entity any interest, in whole or in part, in the Released Claims.

4. Each of the Parties acknowledges that these representations and warranties are intended to be and will be relied upon and shall survive this Agreement and the Payment and continue in full force and effect for the benefit of the Releasing Entities and of the Released Entities.

PAYMENT AND TAX EFFECT OF SETTLEMENT

5. In consideration of the agreements, undertakings and obligations of the Releasing Entities under this Agreement, and otherwise subject to the terms of this Agreement, RJR shall pay to Canada, for Canada and on behalf of and as agent for the Provinces and Territories, as civil restitution, the sum of Cdn. $325 million.

6. This Agreement will become effective on the date that copies executed by RJR and each of the Governments are exchanged and RJR makes payment to Canada.

7. RJR agrees and acknowledges, on behalf of itself and all Released Entities and Affiliates, that in the event any such person is required to file an income tax return in any Canadian jurisdiction, the Payment under this Agreement shall not be tax deductible in any Canadian jurisdiction to it or any of the Released Entities or Affiliates. RJR further represents, warrants and confirms, on behalf of itself and the Released Entities and Affiliates, that this determination is firm and binding as of the date of this Agreement, that it waives any rights of objection or appeal with respect to the tax deductibility of the Payment in any Canadian jurisdiction and that no government in any Canadian jurisdiction (or the Canada Revenue

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Agency) has offered or provided any assurances, rulings or agreements with respect to income taxes, which income taxes shall be calculated and remitted in the ordinary course in the event any such person is required to file an income tax return in any Canadian jurisdiction.

TOBACCO COMPLIANCE MEASURES PROTOCOL

8. RJR, on behalf of itself and its Affiliates, acknowledges that, as of the date of this Agreement, JTI-Macdonald Corp. (“JTI-MC”) has entered into a Tobacco Compliance Measures Protocol. RJR agrees and undertakes that in the event that it or any Affiliate carries on business in any Canadian jurisdiction within ten (10) years from the date of execution of this Agreement, such entity shall, and RJR shall cause such entity to, enter into a tobacco compliance measures protocol acceptable to Canada after which Canada shall confer with the Provinces and Territories.

RELEASE

9. The Releasing Entities hereby, without any further action on the part of such Releasing Entities, absolutely and unconditionally fully release and forever discharge the Released Entities from the Released Claims. Without in any way limiting the generality of the foregoing, the Releasing Entities further agree that:

(a)	in the event that a proceeding, claim, action, suit or complaint with respect to a Released Claim is brought by a Releasing Entity against a Released Entity, this release may be pleaded as a complete defence and reply, and may be relied upon in such a proceeding as a complete estoppel to dismiss the said proceeding; and,
(b)	in the event of (a), the Releasing Entity that initiated the proceeding shall be liable for all reasonable costs, legal fees, disbursements and expenses incurred by the Released Entity as a result of such proceeding.

10. The Releasing Entities agree that they will not, in any Claim Over, attempt to recover on a judgment or enforce a judgment for any quantum of liability of any Released Entity, including on a joint or several basis.

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11. If any Releasing Entity makes any Claim Over, and any Released Entity (a “Claimed Over Released Entity”) is added to or required to respond to such Claim Over as a party thereto (for avoidance of doubt including as a third or subsequent party thereto), the Releasing Entity asserting the Claim Over (the “Claiming Over Releasing Entity”) will be liable to all such Claimed Over Released Entities for all reasonable costs, legal fees, disbursements and expenses incurred, and for all damages, costs, penalties, fines or interest awarded, as a result of the Claim Over, on a full indemnity scale.

12. The Released Entities shall not incur any quantum of liability to the Releasing Entities in any manner whatsoever for the conduct or omission of the CTMC or any other member thereof during the Relevant Period relating to the Released Claims.

13. RJR, on its own behalf and on behalf of its Affiliates and the Released Entities, hereby and without any further action on the part of any of them, absolutely and unconditionally fully release and forever discharge the Releasing Entities including the Governments, and for the avoidance of doubt including crown-controlled corporations and crown agencies and each of them, together with ministers, employees, agents, and the heirs, executors, successors and assigns of each as applicable, from any and all actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands which RJR, its Affiliates and the Released Entities or any of them ever had, now have, or may hereafter have against any Releasing Entity or Government in any way relating to, arising out of or in connection with the Released Claims (excepting only the obligations under this Agreement) including but not limited to the investigation, prosecution, enforcement and/or collection by any Government of the applicable taxes, duties and/or tariffs relating to the Released Claims during the Relevant Period and further agree that if they make any Claim Over paragraphs 10 and 11 herein shall apply mutatis mutandis. This release shall not be operative in any proceeding in which a Released Claim is made (or a Claim Over results in a Released Claim being made) against RJR, its Affiliates or the Released Entities, by a Releasing Entity or by an Entity claiming through or on behalf of a Releasing Entity, including the Governments and for avoidance of doubt such Governments’ crown-controlled corporations or crown agencies.

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USE OF AGREEMENT

14. The Parties acknowledge that this Agreement once executed may be public.

15. The Releasing Entities shall be estopped from relying upon this Agreement, any plea made, any statement of fact submitted or any conviction recorded in any criminal proceeding related hereto in any civil, administrative or regulatory proceeding whatsoever as evidence against any Released Entity of any liability or violation of any law.

16. The Releasing Entities acknowledge and agree that nothing contained in this Agreement, or any plea made, any statement of fact submitted or any conviction recorded in any related contemporaneous criminal proceeding shall constitute an admission by any Released Entity that it has committed a “tobacco related wrong” or a “wrong committed by a tobacco product manufacturer” within the meaning of any provincial or federal legislation, including without limitation, legislation providing for recovery of health care benefits or costs as such legislation may now or in the future read.

17. No application for or renewal of a licence, right or permit under tobacco control or taxation legislation shall be denied and no such existing licence, right or permit shall be suspended or cancelled by reason of the entering into of this Agreement, or by any plea made, any statement of fact submitted or any conviction recorded in any criminal proceeding related hereto.

18. In the event that any of the Releasing Entities or Released Entities or their representatives are subpoenaed or otherwise compelled by law to give evidence with respect to this Agreement or the Released Claims, such Releasing Entity or Released Entity shall provide notice forthwith to all other Parties.

COSTS

19. Each Party shall bear its own legal and other costs to date, including the costs of proceedings, disputes, negotiations, and inspections incurred which relate to the subject matter of the Agreement, as well as any costs incidental to the negotiation and execution of this Agreement.

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INVALIDITY/SEVERABILITY AND LEGALITY

20. If any provision of this Agreement shall be held to be illegal or unenforceable, whether in whole or in part, the validity and enforceability of the remainder of the Agreement, or its validity and enforceability_, as against other Parties, shall not be affected save and except that the Parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the greatest extent possible, the intent and purpose of such void or unenforceable provision.

COUNTERPARTS

21. This Agreement may be executed in counterparts and such counterparts, taken together, shall be deemed to constitute one and the same instrument. Signatures delivered by facsimile or electronic mail, with originals to follow shall be deemed to be originals and accepted as such.

SUCCESSION AND ASSIGNMENT

22. This Agreement shall be binding upon and shall enure for the benefit of the Releasing Entities and the Released Entities and their respective legal representatives, successors and assigns.

MODIFICATION, WAIVER AND PERFORMANCE

23. This Agreement may be modified, waived or amended only by a written agreement executed by authorized representatives of each of the Parties.

24. RJR acknowledges the separate but concurrent settlement agreement entered into as of the date hereof between JTI-MC and the Governments and the terms thereof including the obligations of JTI-MC.

25. The Parties agree to take such further acts and steps, and execute and deliver such further documents, as may be reasonably required to implement and/or give effect to this Agreement and its terms.

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26. RJR covenants and agrees that RJR and its Affiliates will not conduct its business and operations in a manner so as to deliberately frustrate the objectives and performance of this Agreement.

GOVERNING LAW AND OFFICIAL LANGUAGES

27. This Agreement shall be governed by and interpreted in accordance with the laws of Ontario and the laws of Canada applicable therein.

28. Both versions of this Agreement in the official languages are equally binding, enforceable and authentic.

ARBITRATION AND DISPUTE RESOLUTION

29. It is the intention of the Parties to settle consensually, by negotiation or agreement, any disputes with respect to performance, procedure and management arising out of this Agreement.

30. Any notice of a dispute shall be delivered by RJR or Canada (as the case may be) to the other in writing and shall be dealt with in the first instance for Canada by the Director General, Excise and GST/HST Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency and for RJR by the General Counsel or equivalent who shall promptly discuss and attempt to resolve the dispute.

31. Any dispute between the Parties to this Agreement arising out of or relating to this Agreement or any breach, clarification, or enforcement of any provision of this Agreement or any conduct contemplated herein, that remains unresolved 90 days after the date of the notice of dispute, may be referred to arbitration in accordance with the Commercial Arbitration Code (the “Code”), being a schedule to the Commercial Arbitration Act R.S.C. 1985, c. 17 (2^nd Supp.). Arbitrations shall be with a sole arbitrator. The Parties will select a mutually agreeable arbitrator within 30 days of the delivery of the notice of dispute who shall serve as arbitrator in respect of any disputes hereunder, unless and until he or she becomes unable or unfit to act as arbitrator (in which case the Parties shall immediately appoint a successor arbitrator within 30 days). If the Parties are unable to agree on the arbitrator, he or she shall be appointed, upon request of a Party, by the court or other authority specified in article 6 of the Code.

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32. The arbitrator shall have all of the jurisdiction of a Superior Court judge of the Province of Ontario to grant both legal and equitable remedies. The arbitrator may abridge any time limit herein for the referral of the dispute to arbitration, in his or her discretion, in the event of urgency.

33. The arbitration proceedings shall be conducted in Ottawa, unless otherwise agreed by the Parties to the dispute. Consistent with relevant law, and any applicable law governing disclosure obligations, the arbitration proceedings shall be confidential to the extent possible, and the Parties shall not disclose the nature or scope of the proceedings, or any information obtained in or arising out of the proceedings, to any third party. No amicus curiae or “friend of the court” briefs may be filed in the proceedings. RJR expressly agrees and undertakes on behalf of itself and all Affiliates that it shall not, in any proceeding, submit, argue, consent or agree that the Revenue Rule has any applicability to this Agreement or any obligations thereunder including the enforcement thereof, or that any Payment due is in respect of taxes owing to the Government of any Canadian jurisdiction or is for any other reason unenforceable. The arbitrator shall provide the rules of the proceedings and shall issue a written opinion stating the reasons for the relief granted. The Parties agree that the orders, decisions, and awards of the arbitrator shall be exclusively enforceable in the Federal Court, as a judgment of that Court, and any action to compel arbitration shall be commenced in the Federal Court.

CONFIDENTIAL NATURE OF DISCUSSIONS

34. The Parties agree that all discussions and negotiations related to or associated with this Agreement have been conducted on a strictly confidential basis and that the Parties have agreed that, prior to this Agreement becoming effective, no public disclosure of the existence of such negotiations or discussions be made.

NOTICE

35. All notices under this Agreement shall be made as follows:

(a)	to RJR at:
	R.J. Reynolds Tobacco Company 401 North Main Street

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	Winston-Salem North Carolina 27101 U.S.A.
	Attention: General Counsel Facsimile No. 336.741.0671
	with a copy (which shall not constitute notice to RJR) to:
	McCarthy Tétrault LLP Toronto Dominion Bank Tower 66 Wellington Street West Suite 5300 P.O. Box 48 Toronto, ON M5K 1E6
	Attention: W. Niels Ortved Facsimile No. 416.868.0673
(b)	to Canada at:
	Office of the Assistant Commissioner. — Assistant Commissioner Sous-Commissaire, Legislative Policy & Regulatory Affairs Branch -
	Direction générale de la politique législative et des affaires Réglementaires Canada Revenue Agency — Agence du revenu du Canada 320 Queen Street Ottawa, Ontario K1A 1G1 Facsimile #: 613-957-2067
	With copies (which shall not constitute notice to Canada or the Governments) to:
	Assistant Deputy Attorney General The Department of Justice, Tax Law Branch 234 Wellington Street, East Tower, 8th Floor Ottawa, Ontario K1A OH8

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EXECUTION

IN WITNESS WHEREOF this Agreement has been executed by the authorized representatives with effect from the date that copies executed by RJR and each of the Governments are exchanged and RJR makes payment to Canada.

R.J. Reynolds Tobacco Company
Per:	/s/ Daniel M. Delen
Name:	Daniel M. Delen
Title:	Chairman, President and Chief Executive Officer
Per:	/s/ Martin L. Holton III
Name:	Martin L. Holton III
Title:	Senior Vice President — General Counsel and Secretary

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HER MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTED BY THE MINISTER OF NATIONAL REVENUE
Per:	/s/ Keith Ashfield
Name:	The Honourable Keith Ashfield, P.C.
Title:	Minister of National Revenue

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HER MAJESTY THE QUEEN IN RIGHT OF CANADA AS REPRESENTED BY THE MINISTER OF JUSTICE
Per:	/s/ Rob Nicholson
Name:	The Honourable Rob Nicholson, C.P., Q.C.
Title:	Minister of Justice

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The Deputy Attorney General of Quebec and the Deputy Minister of Revenue of Quebec hereby execute this Comprehensive Agreement on behalf of the Gouvernement du Québec;

This Agreement constitutes a valid and binding agreement of the Gouvernement du Québec enforceable in accordance with its terms.

The Gouvernement du Québec
Per:	/s/ Michael Bouchard
Name:	Michael Bouchard
Title:	Deputy Attorney General of Québec
Per:	/s/ Francois T. Tremblay
Name:	Francois T. Tremblay
Title:	Assistant Deputy Minister of Revenue Designated to act in the stead of the Deputy Minister of Revenue of Québec

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The Attorney General of the Province of Ontario hereby executes this Comprehensive Agreement on behalf of the Province of Ontario;

This Agreement constitutes a valid and binding agreement of the Province of Ontario and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE ATTORNEY GENERAL OF ONTARIO
Per:	/s/ Chris Bentley
	Name:	Chris Bentley
	Title:	Attorney General of Ontario

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The Minister of Justice of the Province of Nova Scotia hereby executes this Comprehensive Agreement on behalf of the Province of Nova Scotia;

This Agreement constitutes a valid and binding agreement of the Province of Nova Scotia and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF NOVA SCOTIA AS REPRESENTED BY THE ATTORNEY GENERAL OF NOVA SCOTIA
Per:	/s/ Ross Landry
	Name:	Ross Landry
	Title:	Minister of Justice

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The Minister of Finance of the Province of New Brunswick hereby executes this Comprehensive Agreement on behalf of the Province of New Brunswick;

This Agreement constitutes a valid and binding agreement of the Province of New Brunswick and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF NEW BRUNSWICK AS REPRESENTED BY THE MINISTER OF FINANCE
Per:	/s/ Greg Byrne
	Name:	Greg Byrne, Q.C.
	Title:	Minister of Finance

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The Minister of Finance of the Province of Manitoba hereby executes this Comprehensive Agreement on behalf of the Province of Manitoba;

This Agreement constitutes a valid and binding agreement of the Province of Manitoba and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF MANITOBA AS REPRESENTED BY THE MINISTER OF FINANCE
Per:	/s/ Rosann Wowchuk
	Name:	Rosann Wowchuk
	Title:	Minister of Finance

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The Deputy Attorney General of the Province of British Columbia hereby executes this Comprehensive Agreement on behalf of the Province of British Columbia;

This Agreement constitutes a valid and binding agreement of the Province of British Columbia and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF BRITISH COLUMBIA
Per:	/s/ David Loukidelis
	Name:	David Loukidelis
	Title:	Deputy Attorney General

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The Attorney General of the Province of Prince Edward Island hereby executes this Comprehensive Agreement on behalf of the Province of Prince Edward Island;

This Agreement constitutes a valid and binding agreement of the Province of Prince Edward Island and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF PRINCE EDWARD ISLAND AS REPRESENTED BY THE ATTORNEY GENERAL FOR PRINCE EDWARD ISLAND
Per:	/s/ Shauna Sullivan Curley
	Name:	Shauna Sullivan Curley, Q.C.
	Title:	Deputy Attorney General, Office of the Attorney General and Public Safety

- 24 -

The Minister of Finance of the Province of Saskatchewan hereby executes this Comprehensive Agreement on behalf of the Province of Saskatchewan;

This Agreement constitutes a valid and binding agreement of the Province of Saskatchewan and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF SASKATCHEWAN AS REPRESENTED BY THE MINISTER OF FINANCE
Per:	/s/ Rod Gantefoer
	Name:	Rod Gantefoer
	Title:	Minister of Finance

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The Minister of Finance and Enterprise of the Province of Alberta hereby executes this Comprehensive Agreement on behalf of the Province of Alberta;

This Agreement constitutes a valid and binding agreement of the Province of Alberta and is enforceable in accordance with its terms.

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ALBERTA AS REPRESENTED BY THE MINISTER OF FINANCE AND ENTERPRISE
Per:	/s/ Tim Wiles
	Name:	Tim Wiles
	Title:	Deputy Minister

- 26 -

The Minister of Justice and Attorney General, the Minister of Finance and the Minister for Intergovernmental Affairs of the Province of Newfoundland and Labrador hereby executes this Comprehensive Agreement on behalf of the Province of Newfoundland and Labrador.

HER MAJESTY IN RIGHT OF NEWFOUNDLAND AND LABRADOR AS REPRESENTED BY THE MINISTER OF JUSTICE AND ATTORNEY GENERAL
Per:	/s/ Felix Collins
Name:	Felix Collins
Title:	Minister of Justice
HER MAJESTY IN RIGHT OF NEWFOUNDLAND AND LABRADOR AS REPRESENTED BY THE MINISTER OF FINANCE
Per:	/s/ Thomas W. Marshall
Name:	Thomas W. Marshall, Q.C.
Title:	Minister of Finance
HER MAJESTY IN RIGHT OF NEWFOUNDLAND AND LABRADOR AS REPRESENTED BY THE MINISTER FOR INTERGOVERNMENTAL AFFAIRS
Per:	/s/ Dave Denine
Name:	Dave Denine
Title:	Minister of Intergovernmental Affairs

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The Minister of Finance of the Government of the Northwest Territories hereby executes this Comprehensive Agreement on behalf of the Government of the Northwest Territories;

This Agreement constitutes a valid and binding agreement of the Government of the Northwest Territories and is enforceable in accordance with its terms.

THE GOVERNMENT OF THE NORTHWEST TERRITORIES
Per:	/s/ J. Michael Miltenberger
	Name:	J. Michael Miltenberger
	Title:	Minister of Finance

- 28 -

The Minister of Finance of the Government of Yukon hereby executes this Comprehensive Agreement on behalf of the Government of Yukon;

This Agreement constitutes a valid and binding agreement of the Government of Yukon and is enforceable in accordance with its terms.

THE GOVERNMENT OF YUKON
Per:	/s/ Dennis Fentie
	Name:	Dennis Fentie
	Title:	Minister of Finance

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The Minister of Finance of the Government of Nunavut hereby executes this Comprehensive Agreement on behalf of the Government of Nunavut;

This Agreement constitutes a valid and binding agreement of the Government of Nunavut and is enforceable in accordance with its terms.

THE GOVERNMENT OF NUNAVUT
Per:	/s/ Keith Peterson
	Name:	Keith Peterson
	Title:	Minister of Finance

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SCHEDULE A

RELEASED ENTITIES

R. J. Reynolds Tobacco Holdings, Inc.

R.J. Reynolds Tobacco Co.

R.J. Reynolds Tobacco International, Inc.

Northern Brands International, Inc.

EX-10.2

Exhibit 10.2

ONTARIO COURT OF JUSTICE

B E T W E E N:

HER MAJESTY THE QUEEN

- and -

NORTHERN BRANDS INTERNATIONAL, INC.

AGREED STATEMENT OF FACTS
Containing admissions made pursuant to
s.655 of the Criminal Code

A.	The Accused
	Northern Brands International, Inc.
1.	Northern Brands International, Inc. (“NB1”) was incorporated in the State of Delaware on December 10, 1992, with its head office located in Winston-Salem, North Carolina. NBI was a direct subsidiary of another Delaware corporation, RJR Nabisco Inc. (“RJR Nabisco”), now known as RJ Reynolds Tobacco Holdings, Inc., and an affiliate of RJ Reynolds Tobacco Company (“RJRT”). Prior to 1999 and throughout the material time, defined for the purposes of this Agreement as from February 18, 1993 to December 31, 1996, inclusive, NBI was a U.S. recipient of tobacco products of a federally-incorporated Canadian corporation, RJR Macdonald Inc. (RJR-Ml”), now continued under the name of JTI-Macdonald Corp (“JTI-MC”). For the purposes of these admissions, JTI-MC will be referred to by the corporate name employed during the material time, RJR-MI.
B.	General Background

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1.	During the relevant period RJR-Ml was one of three major Canadian tobacco manufacturers. The other manufacturers were Imperial Tobacco Limited and Rothmans, Benson & Hedges. Of these, RJR-Ml had the smallest overall total production and market share.
2.	Canadian and American tobacco products do not taste alike. Canadian cigarettes and fine cut tobacco are produced from “Virginia” tobacco leaves, whereas U.S. cigarettes and fine cut tobacco are made from a blend of burley and air cured tobacco. Generally, Canadian smokers prefer the Virginia blend of tobacco used in Canadian cigarettes and U.S. smokers prefer the American tobacco blend. Historically, most Canadian cigarettes exported from Canada to the United States were purchased and consumed by Canadians travelling or residing in the United States.
3.	Federal excise taxes and duties are payable on tobacco products manufactured, sold and consumed in Canada. The provinces of Ontario and Quebec impose taxes payable by the purchaser of tobacco products within each province. In the late 1980s and into the early 1990s, the Canadian federal and provincial governments raised tobacco taxes and duties significantly in a declared effort to curtail the consumption of tobacco products in Canada. As a result, the price of tobacco products sold in Canada increased substantially.
4.	The price of tobacco products manufactured in Canada, but exported for sale outside of Canada, was not affected by these increases in taxes and duties. The taxes and duties did not apply to these products and they could be exported on a “tax exempt” basis. Consequently, a significant price differential developed between the price of Canadian tobacco products sold domestically and those exported to and sold in the United States.

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5.	As the price of cigarettes in Canada continued to increase during this period, increasing numbers of Canadians taking advantage of the escalating price differential were regularly crossing the border into the United States to purchase Canadian tobacco products. Canadians who purchased exported tobacco products did not always declare their purchases at the border upon their return to Canada, or returned with quantities in excess of their personal duty-free allowances.
6.	In addition, there had always been those who purchased Canadian tobacco products in the United States and smuggled them across the Canada-U.S. border to sell in Canada without payment of applicable Canadian duties and taxes. The increasing difference in price between these two markets stimulated a growth in the contraband market of tobacco. Almost the entire contraband market for tobacco products involved areas straddling the Canadian-American border in the provinces of Ontario and Quebec.
7.	It was common knowledge to RJR-Ml and many others that the majority of the Canadian tobacco products exported to and sold in the United States were smuggled back into the provinces of Ontario and Quebec without the payment of applicable duties and taxes to be sold and consumed by persons in those provinces.
C.	Facts Relating to the Offence Committed by NBI
1.	Between the 18th day of February, 1993, and the 31st day of December, 1996, NBI conspired to aid persons to sell and to be in possession of tobacco products manufactured in Canada and elsewhere that were not packaged and were not stamped in conformity with the Excise Act and its amendments and the ministerial regulations, contrary to s. 465(1)(c) of the Criminal Code.

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2.	NBI was incorporated on December 10, 1992, with the knowledge and approval of Mr. Lang, the President and Chief Executive Officer of RJR-Ml. At that time, NBI was created at the instance of RJR-MI for the purpose of transacting all future U.S. sales of Canadian products manufactured by RJR-MI.. NBI’s executives were managed by senior RJR-MI executives. Mr. Lang was also a directing mind of NBI. Shortly after NBI’s incorporation, beginning in February, 1993, with the knowledge and approval of Mr. Lang, NBI agreed with others that employees of RJR-MI and NBI should coordinate the transfer of RJR-Ml tobacco products manufactured in Montreal and elsewhere into distribution channels so that they could be transported by smugglers into Canada for sale in the underground market. These RJR-Ml products were not packaged and not stamped in conformity with the Excise Act. Once operational, NBI became responsible for the management of all of RJR-MI’s accounts connected to product which was smuggled into Canada.
3.	NBI accepts responsibility for its actions in the above described events and further admits that NBI breached section 465(l)(c) of the Criminal Code by entering into a criminal conspiracy, the object of which was to aid others to sell or be in possession of RJR-MI tobacco products manufactured in Canada and elsewhere that were not packaged and were not stamped in conformity with the Excise Act and its amendments and the ministerial regulations.
D.	Proposed Payments
1.	In order to settle and to finally resolve all civil claims being asserted by the federal, provincial and territorial governments (the “Governments”) relating to the above-described conduct, JTI-MC and RJRT have each agreed to separate civil settlements (“the Comprehensive Agreements”) requiring, among other measures, payment as civil restitution

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	in the amount of $325,000,000 by RJRT to the Governments, and the implementation and performance by JTI-MC of a stringent Tobacco Compliance Measures Protocol designed to assist the Governments in their efforts to combat the smuggling of tobacco products.
2.	For the purpose of sentence, the Crown and NBI agree that its commission of the offence of conspiracy contrary to s. 465(1)(c) of the Criminal Code warrants the imposition of a fine in the amount of $75,000,000.
3.	In light of the foregoing, the Crown and NBI agree that the proposed fine of $75,000,000 is appropriate in view of the facts before the Court as set out in Sections A, B and C and the agreement of NBI to plead guilty to the charge under s.465.(l)(c) of the Criminal Code.

W. Niels Ortved
Barrister and Solicitor
Counsel for Northern Brands International, Inc.

April 13, 2010

ONTARIO COURT OF JUSTICE

B E T W E E N:

HER MAJESTY THE QUEEN

- and -

NORTHERN BRANDS INTERNATIONAL, INC.

AGREED STATEMENT OF FACTS
Containing admissions made pursuant to
s.655 of the Criminal Code

MINISTRY OF THE ATTORNEY GENERAL
Crown Law Office – Criminal
10th Floor
720 Bay Street
Toronto, Ontario
M5G 2K1

W. Graeme Cameron
(416) 326-4401
Graeme.Cameron@Ontario.ca

EX-99.1

Exhibit 99.1

	R.J. Reynolds Tobacco Company
	P.O. Box 2959
	Winston-Salem, NC 27102

Contact:	David Howard	RJRT 2010-02
	(336) 741-3489

R.J. Reynolds Tobacco Company resolves Canadian government contraband claims

Winston-Salem, N.C. – April 13, 2010 – R.J. Reynolds Tobacco Company has entered into a comprehensive settlement agreement with the Canadian federal, provincial and territorial governments to resolve all of the governments’ civil claims related to cigarette smuggling in Canada during the 1980s and 1990s.

As part of the civil settlement, R.J. Reynolds has agreed to pay the governments $325 million Canadian. Additionally, should R.J. Reynolds decide to sell tobacco products in Canada in the future, the company has agreed to adopt packaging, marking and other measures that will assist the Canadian governments in their efforts to combat the movement of contraband tobacco products in Canada.

“We are pleased to reach a resolution of this matter after more than ten years of litigation both in the United States and in Canada,” says Martin L. Holton III – senior vice president and general counsel for R.J. Reynolds. “This settlement enables us to eliminate the continuing expense, inconvenience and distraction to our core business, and the uncertainties inherent in continuing to litigate complex matters of this nature.”

R.J. Reynolds does not conduct business in the Canadian tobacco market. R.J. Reynolds and its parent company, R.J. Reynolds Tobacco Holdings, Inc., sold its international businesses, including RJR-Macdonald, Inc., its former Canadian affiliate, to Japan Tobacco Inc. in 1999.

In a separate matter, Northern Brands International, Inc., a subsidiary of R.J. Reynolds Tobacco Holdings, Inc., has entered into a plea agreement with the Ministry of the Attorney General of Ontario. As a result of its plea to one count of conspiracy to aid others in the sale and possession of contraband cigarettes in the early 1990s, Northern Brands is required to pay a fine of $75 million Canadian. Northern Brands was created in 1992 for the purpose of transacting all sales of RJR-Macdonald tobacco products in the United States. Northern Brands ceased being an operating company in 1997.

Web Disclosure

RAI’s Web site, www.ReynoldsAmerican.com, is the primary source of publicly disclosed news about RAI and its operating companies. We use the Web site as our primary means of distributing quarterly earnings and other company news. We encourage investors and others to register at www.ReynoldsAmerican.com to receive alerts when news about the company has been posted.

R.J. Reynolds Tobacco Company, an indirect subsidiary of Reynolds American Inc. (NYSE: RAI), is the second-largest tobacco company in the United States, manufacturing about one of every three cigarettes sold in the country. The company’s brands include five of the 10 best-selling U.S. cigarette brands: Camel, Pall Mall, Winston, Kool and Doral. For more information, visit www.RJRT.com.

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