8-K

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)      October 7, 2004

Reynolds American Inc.

(Exact Name of Registrant as Specified in its Charter)

North Carolina	1-32258	20-0546644
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

401 North Main Street,
Winston-Salem, NC 27102-2990
(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):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o 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.

     On October 7, 2004, the board of directors of Reynolds American Inc., referred to as RAI, approved a special severance benefits and change of control protections agreement for Susan M. Ivey, Chief Executive Officer and President of RAI. The agreement provides that if Ms. Ivey’s employment is involuntarily terminated other than for “cause” or if Ms. Ivey terminates her employment for “good reason,” she will receive three years base salary and target bonus (as in effect at the time of termination of her employment), payable over three years, and full employee benefits coverage for three years. “Cause” includes criminal dishonesty, deliberate misconduct and deliberate and continual refusal to perform employment duties or to act in accordance with instructions of the RAI board of directors. “Good reason” includes a substantial reduction in Ms. Ivey’s responsibilities, a more than 20 percent reduction in her salary and annual bonus opportunity and her relocation.

     Ms. Ivey’s agreement further provides that, if there is a change of control of RAI, she is entitled to tax reimbursement payments if a “parachute” excise tax is imposed, reimbursement payments for legal and accounting fees as a result of her termination of employment, and severance as if her termination of employment were by RAI without cause or by Ms. Ivey with “good reason.” Following a change of control, “good reason” includes a material reduction in Ms. Ivey’s duties, position and reporting relationship, a reduction in her pay grade or bonus opportunity, RAI’s failure to continue in effect any compensation plan in which she participated at the change of control, any action by RAI that directly or indirectly materially reduces her benefits under its retirement or savings plan or her fringe benefits, termination of Ms. Ivey’s employment without written notice by RAI and her relocation.

     On October 7, 2004, the RAI board of directors also granted Ms. Ivey 333 performance units under the Reynolds American Inc. Long-Term Incentive Plan, pursuant to a Performance Unit Agreement dated October 7, 2004, between RAI and Ms. Ivey. In addition, the RAI board of directors approved Amendment No. 1 to the Performance Unit Agreement dated October 7, 2004, between RAI and certain executive officers of RAI, amending the Performance Unit Agreement dated February 4, 2004, between RAI and such executive officers, to reflect the impact of the combination transactions with Brown & Williamson Tobacco Corporation.

     Copies of Ms. Ivey’s special severance benefit and change of control protections agreement, Ms. Ivey’s Performance Unit Agreement and the form of Amendment No. 1 to the Performance Unit Agreement are attached as Exhibits 10.1, 10.2 and 10.3, respectively, to this report.

ITEM 9.01      Financial Statements and Exhibits.

(c). Exhibits.

Exhibit
Number	Description
10.1	Letter Agreement regarding Severance Benefits and Change of Control Protections dated October 7, 2004, between Reynolds American Inc. and Susan M. Ivey.

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Exhibit
Number	Description
10.2	Performance Unit Agreement dated October 7, 2004, between Reynolds American Inc. and Susan M. Ivey.
10.3	Form of Amendment No. 1 to Performance Unit Agreement dated October 7, 2004, between Reynolds American Inc. and the grantee named therein.

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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: October 13, 2004

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INDEX TO EXHIBITS

Number	Exhibit
10.1	Letter Agreement regarding Severance Benefits and Change of Control Protections dated October 7, 2004, between Reynolds American Inc. and Susan M. Ivey.
10.2	Performance Unit Agreement dated October 7, 2004, between Reynolds American Inc. and Susan M. Ivey.
10.3	Form of Amendment No. 1 to Performance Unit Agreement dated October 7, 2004, between Reynolds American Inc. and the grantee named therein.

EX-10.1

Exhibit 10.1

October 7, 2004

Susan M. Ivey

Re:      Special Severance Benefits and Change of Control Protections

     As consideration for your entering into the Non-Competition, Non-Disclosure of Confidential Information and Commitment to Provide Assistance Agreement, attached hereto and made a part of this document, you shall be eligible for special severance and certain change of control protections from Reynolds American Inc. (the “Company”), the terms and conditions of which are set forth below.

1.	Special Severance Benefits.
(a)	If, during the course of your employment with the Company or one of its affiliates, your employment is involuntarily terminated for any reason other than Cause (as defined in the Reynolds American Inc. Long Term Incentive Plan (LTIP)) you will receive three years’ pay (defined as base pay and target bonus at the time of the termination of your employment), payable over three years, and full employee benefits coverage for three years, and if you participate in an executive perquisite plan at the time of your termination of employment, coverage under the executive perquisite plan according to its terms and conditions for three years. These special severance benefits replace any compensation or benefits under the Reynolds American Inc. Salary and Benefits Continuation Program (the “SBC”). It is intended that you will not receive any less pay or benefits than the SBC obligation would provide, and the rules that determine eligibility for payment under the SBC apply to this program.
(b)	Involuntary termination of your employment without Cause shall be deemed to have occurred if you voluntarily terminate your employment after the occurrence of one or more of the following events: (i) the total amount of your base salary and targeted awards under the LTIP and the Company’s Annual Incentive Award Plan (the “AIAP”), or successor plans, is at any time reduced by more than 20% without your consent; provided, however, that nothing herein shall be construed to guarantee your target award if performance is below target, or, (ii) your responsibilities are substantially reduced in importance without your consent, or (iii) you are at any time required as a condition of continued employment to become based at any office or location more than the minimum number of miles required by the Internal Revenue Service for you to claim a moving expense deduction, from your then current place of employment without your consent, except for travel reasonably required in the performance of your responsibilities. Unless you provide written notification of your non-consent to any of the events described in (i), (ii) or (iii) above within 90 days after the occurrence of any such event, you shall be deemed to have consented to the occurrence of such event or events and no deemed involuntary termination shall occur. If you provide written notice of your non-consent to any of the events described in (i), (ii) or (iii) above within 90 days after the occurrence of any such events, your employment by the Company or one of its affiliates shall

	be deemed to have been involuntarily terminated 90 days after receipt of such written notice by the Company or one of its affiliates.
(c)	For the purpose of calculating benefits under the Company’s non-qualified defined benefit pension plans, you will be deemed to be paid throughout the three-year special severance pay period at a rate equal to your base pay and target bonus immediately prior to the involuntary termination of your employment. For purposes of life insurance and disability, benefits will be based on your base pay in effect immediately prior to the involuntary termination of your employment.
2.	Change of Control. In the event of a Change of Control of the Company (as such Change of Control is defined in the LTIP), or any succession plan, the following shall occur:
(a)	The Company shall hold you harmless from any golden parachute tax imposed by any federal, state or local taxing authority as a result of any payments made by the Company or any of its affiliates. In the event that it is determined that any payment or distribution by the Company or any of its affiliates to or for you (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then you shall be entitled to receive from the Company or any of its affiliates an additional payment (an “Excise Tax Adjustment Payment”) in an amount such that after payment by you of all applicable federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, you retain an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments. You agree to cooperate fully with the Company and its affiliates in any protester appeal by the Company or any of its affiliates in the event of the imposition of any golden parachute tax.
(b)	If your employment is terminated without Cause following such Change of Control, the Company or any of its affiliates shall pay to you as incurred all legal and accounting fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, in seeking to obtain or enforce any right or benefit provided by any compensation-related plan, agreement or arrangement of the Company or any of its affiliates), unless your claim is found by an arbitral tribunal of competent jurisdiction to have been frivolous.
(c)	During the 24-month period following a Change of Control, you shall be entitled to terminate your employment for Good Reason and receive the severance benefits set forth in Section 1 of this agreement as if you had been involuntarily terminated by the Company or any of its affiliates without Cause. For purposes of this agreement, “Good Reason” shall mean, without your express written consent, any of the following events occurring after a Change of Control:

(i)	a material reduction in your duties, a material diminution in your position or a material adverse change in your reporting relationship from those in effect immediately prior to the Change of Control;
(ii)	a reduction in your pay grade or bonus opportunity as in effect immediately prior to the Change of Control or as the same may thereafter be increased from time to time during the term of this agreement;

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(iii)	the failure to continue in effect any compensation plan in which you participate at the time of the Change of Control, including but not limited to the Company’s LTIP and AIAP, or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing you with substantially similar benefits) has been made with respect to such plan in connection with the Change of Control, or the failure to continue your participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control;
(iv)	the taking of any action which would directly or indirectly materially reduce any of the benefits to be provided to you under the retirement or savings plans of the Company or any of its affiliates (unless such reduction is required by law) or deprive you of any material fringe benefit enjoyed by you at the time of the Change of Control, or the failure to provide you with the number of paid vacation days to which you are entitled on the basis of your employer’s practice with respect to you as in effect at the time of the Change of Control;
(v)	any material breach by the Company or its affiliates of any provision of this agreement or any other of your contractual arrangements with the Company or its affiliates; or
(vi)	requiring you to be become based at any office or location more than the minimum number of miles required by the Internal Revenue Code for you to claim a moving expense deduction, from the office or location at which you were based immediately prior to such Change of Control, except for travel reasonably required in the performance of your responsibilities.

3.	Miscellaneous
(a)	In further consideration for these special severance and change of control benefits, and should an involuntary termination of your employment ever occur, the Company will expect your cooperation in transitioning your responsibilities, and will ask you, prior to the payment of any benefits, to sign a letter containing a release of claims and a reaffirmation of the attached Non-Competition, Non-Disclosure of Confidential Information and Commitment to Provide Assistance Agreement.
(b)	You acknowledge and agree that nothing contained in this agreement obligates the Company or any one of its affiliates (i) to employ you for any specific term or (ii) to grant you any short-term or long-term incentive awards under the plans and programs of the Company or any of its affiliates.
(c)	This agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without regard to the conflicts of law rules of such state.

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     Please indicate your acceptance of the terms of this agreement by signing this agreement below and returning it to me. A copy will be provided to you.

	REYNOLDS AMERICAN INC.
	By:	/s/ Ann A. Johnston
		Ann A. Johnston
		Executive Vice President
		Human Resources
Accepted and agreed to as of this 7th day
of           October      , 2004
/s/ Susan M. Ivey
Employee Name

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NON-COMPETITION, CONFIDENTIALITY,
AND COMMITMENT TO PROVIDE ASSISTANCE AGREEMENT

     This Agreement (the “Agreement”) is made and entered into as of the date set forth on the signature page hereto, between Reynolds American Inc., a North Carolina corporation, together with its divisions, subsidiaries and affiliates, and with an address of 401 North Main Street, Winston-Salem, North Carolina 27102-2990 (the “Company”), and the party designated as “Employee” on the signature page hereto (“Employee”).

     Recognizing that the success of the Company’s business depends to a considerable extent on the continuing good will of the Company, as well as the protection of patents, inventions, discoveries and information held or used by the Company, and recognizing that Employee may contribute to and/or have access to such matters, and in consideration for your retention by the Company [and the Company making certain severance and change of control protection benefits available to Employee,] the Company and Employee hereby agree as follows:

1. (a) Employee will keep in strict confidence, and will not, directly or indirectly, at any time during or after Employee’s employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing Employee’s duties of employment, use any trade secrets or confidential business and technical information of the Company or its customers or vendors, without limitation as to when or how Employee may have acquired such information. Such confidential information shall include, without limitation, the Company’s unique selling, manufacturing and servicing methods and business techniques, strategic business plans, product development or other proprietary product data, training, service and business manuals, promotional and marketing materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information and other business information. Employee specifically acknowledges that all such confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or memory of Employee and whether compiled by the Company and/or Employee, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by Employee during his or her employment with the Company (except in the course of performing his or her duties and obligations hereunder) or after the termination of his or her employment shall constitute a misappropriation of the Company’s trade secrets.

     (b) Employee agrees that upon termination of Employee’s employment with the Company, for any reason, Employee shall return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to any items of information referred to in this Section

1. In the event that such items are not so returned, the Company will have the right to withhold any severance and change of control protection benefits to Employee.

2. At any time during or after the termination of Employee’s employment, Employee will not directly or indirectly attempt to disrupt, damage, impair or interfere with the Company’s business by raiding any of the Company’s employees or soliciting any of them to resign from their employment with the Company, or by disrupting the relationship between the Company and any of its consultants, agents, representatives or vendors. Employee acknowledges that this covenant is necessary to enable the Company to maintain a stable workforce and remain in business.

3. Employee acknowledges and agrees that, in the performance of Employee’s duties of employment, Employee will be brought into frequent contact with trade secrets and confidential information of the Company, and that this information has been developed by the Company through substantial expenditures of time, effort and money and constitutes valuable and unique property of the Company. Employee further understands and agrees that the foregoing makes it necessary for the protection of the business of the Company that Employee not compete with the Company during his or her employment and not compete with the Company for a reasonable period thereafter, as further provided in this Agreement.

4. While employed by the Company, Employee will not compete with the Company anywhere in the world. In accordance with this restriction, but without limiting its terms, while employed by the Company, Employee will not:

     (a) enter into or engage in any business that competes with the business of the Company;

     (b) solicit customers, business, patronage or orders for, or sell, any products or services in competition with, or for any business that competes with, the business of the Company;

     (c) divert, entice, or take away any customers, business, patronage or orders of the Company or attempt to do so; or

     (d) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business that competes with the business of the Company.

5. For a period of two years following the termination of Employee’s employment, Employee will not:

     (a) enter into or engage in any business that competes with the Company’s business within the Restricted Territory (as defined below);

     (b) solicit customers, business, patronage or orders for, or sell, any products and services in competition with, or for any business, wherever located, that competes with, the Company’s business within the Restricted Territory;

     (c) divert, entice or otherwise take away any customers, business, patronage or orders of the Company within the Restricted Territory, or attempt to do so; or

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     (d) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business that competes with the Company’s business within the Restricted Territory.

“Restricted Territory” shall be defined as and limited to (A) the United States of America and its territories and possessions; and (B) all of the specific customer accounts, whether within or outside of the Restricted Territory, with which Employee had any contact or for which Employee had any responsibility (either direct or supervisory) at the time of termination of his or her employment and at any time during the two-year period prior to such termination.

6. For the purposes of Sections 4 and 5, inclusive, but without limitation thereof, Employee will be in violation thereof if the Employee engages in any or all of the activities set forth therein directly as an individual on the Employee’s own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a stockholder of any corporation in which Employee or the Employee’s spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than 5% of the outstanding stock.

7. For the purposes of this Agreement, the Company shall include any and all direct and indirect subsidiary, parent, affiliated, or related companies of the Company for which Employee worked or had responsibility at the time of termination of his or her employment and at any time during the two-year period prior to such termination.

8. If it shall be judicially determined that Employee has violated any of Employee’s obligations under Section 5, then the period applicable to each obligation that Employee shall have been determined to have violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred.

9. Employee acknowledges that Employee’s obligations under this Agreement are reasonable in the context of the nature of the Company’s business and the competitive injuries likely to be sustained by the Company if Employee were to violate such obligations.

10. (a) Employee will provide reasonable assistance and cooperation to the Company in activities related to the prosecution or defense of any pending or future lawsuits or claims involving the Company.

     (b) Employee will promptly notify the Company if Employee receives any requests from anyone other than an employee or agent of the Company for information regarding the Company which could reasonably be construed as being proprietary, non-public or confidential or if Employee becomes aware of any potential claim or proposed litigation against the Company.

     (c) Employee will refrain from providing any information related to any claim or potential litigation against the Company to any non-Company representatives without the Company’s written permission or being required to provide information pursuant to a legal process.

     (d) If required by law to provide sworn testimony regarding any matter related to the Company, Employee will consult with and have legal counsel designated by the Company present for such testimony. The Company will be responsible for the costs of such designated counsel, and Employee will bear no cost for same.

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     (e) If Employee is required by law to provide sworn testimony regarding any matter related to the Company, and if Employee requires legal counsel to represent and protect Employee’s interests (in addition to the Company’s designated legal counsel provided herein), the Company will reimburse Employee for any reasonable legal expenses (including, but not limited to, the costs of any attorney mutually acceptable to Employee and the Company, which acceptance by the Company shall not be unreasonably withheld) and other reasonable out-of-pocket expenses Employee may incur in relation to such testimony.

     (f) Employee will cooperate with the Company’s attorneys to assist in their efforts, especially on matters Employee has been privy to, holding all privileged attorney-client matters in strictest confidence unless ordered to do otherwise by a court of competent jurisdiction or a committee of the Congress of the United States or of a state legislature. Employee understands that he or she will be reimbursed for travel, food, lodging or similar out-of-pocket expense reasonably incurred at the request of the Company in discharging any of Employee’s legal obligations under this Section 10.

11. Employee acknowledges and agrees that the remedy at law available to the Company for breach of any of Employee’s obligations under this Agreement would be inadequate. Employee therefore agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision contained in this Agreement or refrain from making any severance or change of control protection benefits available to Employee, without the necessity of proof of actual damage.

12. No modification, waiver, amendment or addition to any of the terms of this Agreement shall be effective unless set forth in a writing signed by Employee and the Company. The failure of the Company to enforce any provision of this Agreement shall not be construed to be a waiver of such provision or of the right of the Company thereafter to enforce each and every provision hereof.

13. This Agreement is not assignable by either party without the prior written consent of the other, except that the Company may assign it to any assignee of or successor to substantially all of the business or assets of the Company or any direct or indirect subsidiary thereof.

     IN WITNESS WHEREOF, Employee, having read and fully understood each of the foregoing provisions, and the Company, have executed this Agreement as of the date set forth below.

	REYNOLDS AMERICAN INC.
/s/ Susan M. Ivey	By:	/s/ Ann A. Johnston
EMPLOYEE (Signature)		(Signature)
Susan M. Ivey		Executive Vice President Human Resources
(Print name)		(Title)

Date: October 7, 2004

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EX-10.2

Exhibit 10.2
Performance Unit
One-Year Vest

REYNOLDS AMERICAN INC.
LONG-TERM INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT

DATE OF GRANT: OCTOBER 7, 2004

W I T N E S S E T H:

     1. Grant. Pursuant to the provisions of the Long-Term Incentive Plan (collectively, the “Plan”), Reynolds American Inc. (the “Company”) on the above date has granted to

Susan M. Ivey (the “Grantee”),

subject to the terms and conditions which follow and the terms and conditions of the Plan, a target of

333 Performance Units.

A copy of the Plan is attached and made a part of this Agreement with the same effect as if set forth in the Agreement itself. All capitalized terms used in this Agreement shall have the meaning set forth in the Plan, unless otherwise indicated.

     2. Valuation of Performance Units. Each Performance Unit shall have an initial value of $1,000 (the “Initial Grant Value”). The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) shall value each Performance Unit at the end of 2004 using the performance measures set forth in the grid attached as Exhibit A, but the Compensation Committee shall have the discretion to reduce the resulting valuation (the “Payment Value”). The Grantee agrees that the Performance Units granted hereunder are in lieu of an award under the Company’s Annual Incentive Award Plan for 2004.

     3. Vesting. (a) The Performance Units shall vest on December 31, 2004, or if earlier, upon the Grantee’s death, Permanent Disability (as defined in the Company’s Long Term Disability Plan), or retirement under a retirement plan of the Company or a subsidiary of the Company.

     (b) Notwithstanding anything in Section 3(a) to the contrary, in the event of the Grantee’s involuntary Termination of Employment without Cause (as such terms are defined in Section 5 of this Agreement), the number of Performance Units which shall vest shall be equal to the product of (i) the original number of Performance Units granted to the Grantee under this Agreement and (ii) a fraction, the numerator of which shall be

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the number of whole or partial months between September 1, 2004 and the date of the Grantee’s Termination of Employment, and the denominator of which shall be 4.

     (c) Upon the Grantee’s voluntary Termination of Employment or Termination of Employment for Cause (as such terms are defined in Section 5 of this Agreement) prior to the end of a Performance Period, all of the Grantee’s Performance Units shall be cancelled, except to the extent that at the time of Termination of Employment, the Grantee has an employment or termination agreement with the Company or one of its subsidiaries which includes non-cancellation of some or all of the Performance Units.

     4. Payment. (a) Payment of Performance Units shall be made only in Cash. Except under such other circumstances as the Compensation Committee deems appropriate, no payment shall be made to the Grantee prior to the end of 2004. Payment of Performance Units shall be made in the amount of the Payment Value as soon as practicable following the close of the Company books at the end of 2004.

     (b) In the event of the death of a Grantee, any payment to which such Grantee is entitled under the Plan shall be made to the beneficiary designated by the Grantee to receive the proceeds of any noncontributory group life insurance coverage provided for the Grantee by the Company or a subsidiary of the Company (“Group Life Insurance Coverage”). If the Grantee has not designated such beneficiary, or desires to designate a different beneficiary, the Grantee may file with the Company a written designation of a beneficiary under the Plan, which designation may be changed or revoked only by the Grantee, in writing. If no designation of beneficiary has been made by a Grantee under the Group Life Insurance Coverage or filed with the Company under the Plan, distribution upon such Grantee’s death shall be made in accordance with the provisions of the Group Life Insurance Coverage. If a Grantee is no longer an employee of the Company at the time of death, no longer has any Group Life Insurance Coverage and has not filed a designation of beneficiary with the Company under the Plan, distribution upon such Grantee’s death shall be made to the Grantee’s estate.

     5. Termination of Employment. (a) For purposes of this Agreement, the term “Termination of Employment” shall mean termination from active employment with the Company or a subsidiary of the Company; it does not mean the termination of pay and benefits at the end of a period of salary continuation (or other form of severance pay or pay in lieu of salary).

     (b) For purposes of this Agreement, if the Grantee has an employment or severance agreement, employment shall be deemed to have been terminated for “Cause” only as such term is defined in the employment or severance agreement. For purposes of this Agreement, if the Grantee does not have an employment or severance agreement that defines the term “Cause,” the Grantee’s employment shall be deemed to have been terminated for “Cause” if the Termination of Employment results from the Grantee’s: (i) criminal conduct; (ii) deliberate and continual refusal to perform employment duties on substantially a full time basis; (iii) deliberate and continual refusal to act in accordance with any specific lawful instructions of an authorized officer or employee more senior than the Grantee; or (iv) deliberate misconduct which could be materially damaging to the Company or any of its business operations without a reasonable good faith belief by the Grantee that such conduct was in the best interests of the Company. A Termination of Employment shall not be deemed for Cause hereunder unless the senior human

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resources executive of the Company shall confirm that any such Termination of Employment is for Cause. Any voluntary Termination of Employment by the Grantee in anticipation of an involuntary Termination of Employment for Cause shall be deemed to be a Termination of Employment for Cause.

     6. Transferability. Other than as specifically provided in this Agreement with regard to the death of the Grantee, this Agreement and any benefit provided or accruing hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or change; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Grantee, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Grantee.

     7. No Right to Employment. Neither the execution and delivery of this Agreement nor the granting of the Performance Units evidenced by this Agreement shall constitute any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ the Grantee for any specific period or in any specific capacity or shall prevent the Company or its subsidiaries from terminating the Grantee’s employment at any time with or without Cause.

     8. Change in Corporate Structure. In the event of any stock split, spin-off, stock dividend, extraordinary cash dividend, stock combination or reclassification, recapitalization or merger, Change of Control (as defined in the Plan) or similar event, the Compensation Committee shall make such revisions to this Agreement as it deems are equitably required. Any adjustment or revision made by the Compensation Committee shall be final and binding on the Grantee, the Company and all other interested persons; provided, however, that the Compensation Committee may not make any such adjustments or revisions that are adverse to the Grantee without the Grantee’s written consent.

     9. Application of Laws. The granting of Performance Units under this Agreement shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

     10. Notices. Any notices required to be given hereunder to the Company shall be addressed to The Secretary, Reynolds American Inc., Post Office Box 2990, Winston-Salem, NC 27102-2990, and any notice required to be given hereunder to the Grantee shall be sent to the Grantee’s address as shown on the records of the Company.

     11. Taxes. Any taxes required by federal, state or local laws to be withheld by the Company in respect of the grant of Performance Units or payment of the Payment Value hereunder shall be paid to the Company by the Grantee by the time such taxes are required to be paid or deposited by the Company. The Grantee hereby authorizes the necessary withholding by the Company to satisfy such tax withholding obligations prior to delivery of the Payment Value.

     12. Administration and Interpretation. In consideration of the grant of Performance Units hereunder, the Grantee specifically agrees that the Compensation Committee shall have the exclusive power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan and Agreement as are consistent therewith and to interpret or revoke any such rules. All

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actions taken and all interpretation and determinations made by the Compensation Committee shall be final, conclusive, and binding upon the Grantee, the Company and all other interested persons. No member of the Compensation Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Agreement. The Compensation Committee may delegate its interpretive authority to an officer or officers of the Company.

     13. Amendment. This Agreement is subject to the Plan, a copy of which is attached. The Board of Directors may amend the Plan and the Compensation Committee may amend this Agreement at any time and in any way, except that any amendment of the Plan or this Agreement that would impair the Grantee’s rights under this Agreement may not be made without the Grantee’s written consent.

     14. Obligations of Grantee. (a) In consideration of the grant of Performance Units hereunder, the Grantee, while both actively employed and in the event of Grantee’s Termination of Employment for any reason, specifically agrees that within the term of this grant or within one year following the payment of any amounts pursuant to the grant, if later: (i) the Grantee will personally provide reasonable assistance and cooperation to the Company in activities related to the prosecution or defense of any pending or future lawsuits or claims involving the Company; (ii) the Grantee will promptly notify the Company upon receipt of any requests from anyone other than an employee or agent of the Company for information regarding the Company, or if the Grantee becomes aware of any potential claim or proposed litigation against the Company; (iii) the Grantee will refrain from providing any information related to any claim or potential litigation against the Company to any non-Company representatives without either the Company’s written permission or being required to provide information pursuant to legal process; (iv) the Grantee will not disclose or misuse any confidential information or material concerning the Company; and (v) the Grantee will not engage in any activity contrary or harmful to the interests of the Company. In further consideration of the grant of Performance Units hereunder, the Grantee specifically agrees that if required by law to provide sworn testimony regarding any Company-related matter: the Grantee will consult with and have Company designated legal counsel present for such testimony (the Company will be responsible for the costs of such designated counsel); the Grantee will confine her testimony to items about which the Grantee has knowledge rather than speculation, unless otherwise directed by legal process; and the Grantee will cooperate with the Company’s attorneys to assist their efforts, especially on matters the Grantee has been privy to, holding all privileged attorney-client matters in strictest confidence.

     (b) If the Company reasonably determines that the Grantee has materially violated any of the Grantee’s obligations under this Agreement, then this Grant shall terminate, effective the date on which such violation began (unless otherwise terminated sooner), and the Company may demand the return of any amount paid to the Grantee hereunder and the Grantee hereby agrees to return such amounts upon such demand. If after such demand the Grantee fails to return such amounts, the Grantee acknowledges that the Company has the right to deduct from any amounts the Company owes to the Grantee (including, but not limited to, wages or other compensation), or to commence judicial proceedings against the Grantee, to recover such amounts and any and all of its attorney’s fees and costs.

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     15. GOVERNING LAW. THE LAWS OF THE STATE OF NORTH CAROLINA SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS.

     IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Agreement as of the Date of Grant first above written.

	REYNOLDS AMERICAN INC.
	By:	/s/ Ann A. Johnston
		Authorized Signatory
/s/ Susan M. IveyGrantee
Grantee’s Taxpayer Identification Number:
Grantee’s Home Address:

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EX-10.3

Exhibit 10.3

AMENDMENT NO. 1 TO PERFORMANCE UNIT AGREEMENT

     THIS AMENDMENT NO. 1 TO THE PERFORMANCE UNIT AGREEMENT (this “Amendment No. 1”) is entered into as of the 7th day of October 2004, by and between the undersigned Grantee and Reynolds American Inc.

     WHEREAS, the Grantee received a grant of Performance Units pursuant to a Performance Unit Agreement dated February 4, 2004 (the “Agreement”); and

     WHEREAS, the Agreement provided that the value of each Performance Unit would be valued using the performance measures set forth in the grid attached as “Exhibit A” to the Agreement; and

     WHEREAS, R.J. Reynolds Tobacco Holdings, Inc. and Brown & Williamson Tobacco Corporation entered into certain business combination transactions (the “Transactions”) effective as of July 30, 2004, which resulted in the formation of a new public company, Reynolds American Inc. (the “Company”); and

     WHEREAS, the Company is now the sponsor of the Reynolds American Inc. Long-Term Incentive Plan; and

     WHEREAS, the Company desires to amend Exhibit A to reflect the impact of the Transactions on the valuation of the Performance Units.

     NOW, THEREFORE, in consideration of the foregoing premises, the parties to the Agreement mutually agree to amend the Agreement as follows:

     1. The Agreement is amended by deleting in its entirety the grid attached thereto as Exhibit A, and inserting therefor two grids, Exhibit A-1 and Exhibit A-2. Exhibit A-1 shall set forth the performance measures to be used to value each Performance Unit during the seven-month period beginning January 1, 2004 and ending July 31, 2004, and Exhibit A-2 shall set forth the performance measures to be used to value each Performance Unit during the five-month period beginning August 1, 2004 and ending December 31, 2004.

     2. Except as amended by Section 1 of this Amendment No. 1, all other terms and conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Grantee have executed this Amendment No. 1 as of the date first above written.

	REYNOLDS AMERICAN INC.
	By:	/s/ Ann A. Johnston
		Authorized Signatory
Name, Grantee