[Virginia GASP]       2005 Reynolds American shareholder meeting

    The 2005 Reynolds American (formerly RJR) shareholder meeting was held on May 6th in Winston-Salem, North Carolina, USA, from 9:00 - 10:00 am. 

    In a historic move, the meeting was smoke-free.  As people filed into the auditorium, ushers at the door took their tickets and said, "The meeting is smoke-free; please do not light up."

    Andrew Schindler called the meeting to order at 9:00 am.  He announced that the meeting would be smoke-free at the request of shareholders and guests. 

    The prelude to the smoke-free meeting was as follows:
Past Reynolds meetings, both in the city convention center and in recent years at the Reynolds corporate headquarters, were extremely smoky, with throat choking smoke that left some with headaches, earaches, and unknown carcinogen intake.  The corporate headquarters has a "No Smoking Room" on a separate level from the auditorium, where one can watch the proceedings, but cannot speak to the meeting.

At 8 am, Anne Morrow Donley, concerned for her health, came to the headquarters with a respirator.  She spoke with the guard who was assigned to the activists and said that she had the respirator, and that it seemed that either the meeting would need to be smoke-free, or she would need to wear the respirator, which would not remove all toxins, but would help keep out the particulate matter at least.  The guard said that she should wear the respirator if that would be comfortable for her.

A little later, the guard returned to say that they were working to see if they could use a wireless mike from the No Smoking Room.  Still later, someone came by to say that this did not work, and they were checking to see if they could use the wireless mike from the hallway outside the auditorium.  Another person came by to write down which activist would be speaking and seconding and asking questions, so they could know how to direct the microphone outside the meeting room.  Still later, representatives of the company returned to state that it had been decided that it would be simplest to make the meeting smoke-free.  Seth Moskowitz, Public Relations, then asked Ms. Donley if he could "check in" the respirator at the desk, and she agreed.  The activists were told to go to the auditorium, because it was close to 9 am, and the doors would be locked at 9 am, so no one else could enter the meeting.

As the activists filed into the meeting, along with other shareholders, the ushers were looking at the tickets, and saying to each person, "This meeting is smoke-free.  Please do not light up.  This meeting is smoke-free.  Please do not light up."

As the Rev. Michael Crosby later noted to a reporter from The Winston-Salem Journal, "When the company does the right thing, no one objects."  Although the reporter stated that he was "stunned" when he heard that the meeting was smoke-free, something happened between his filing of the story and the published version -- there was no mention that the meeting was smoke-free.

Business presentation:
Reynolds American Inc., quoting from page 3 of their Securities and Exchange Commission report, "was created to facilitate the transactions to combine the U.S. assets, liabilities and operations of Brown & Williamson Tobacco Corporation, now known as Brown & Williamson Holdings, Inc., refered to as B&W, an indirect, wholly owned subsidiary of British American Tobacco p.l.c., referred to as BAT, with R.J. Reynolds Tobacco Company, a wholly owned operating subsidiary of R.J. Reynolds Tobacco Holdings, Inc., referred to as RJR."

 Reynolds American now holds products from RJ Reynolds, Santa Fe Natural Tobacco, Lane Limited (cigarettes, cigars, pipe tobacco), and RJ Reynolds Global Products.

Susan Ivey, CEO and president of Reynolds American, and Chairman and CEO of R.J. Reynolds, presented a glowing review of the mergers of several companies.  She said they would, "Relentlessly and responsibly pursue earnings growth."  She predicted increased market share, and painted a picture of the new company becoming "an American success story."

Three shareholder proposals were presented.  All resolutions must go through a rigorous process with the federal Securities and Exchange Commission and the corporation itself before they can be accepted as part of the meeting's order of business and printed in the shareholder booklets.

Reynolds American does not permit more than two people to speak to a resolution.  One person presents, or proposes, the resolution.  The next person seconds the motion.  Both people have only two minutes each to state their support of the resolution.

The board of Reynolds American opposed all three resolutions, and all three resolutions were defeated.

Shareholder proposal on FDA regulation and phase-out of conventional cigarettes.
From the shareholder booklet, presentation by proponents:
...   The proponents of this resolution believe, given the above overall cautions. it is definitely immoral and may be legally negligent to market our existing smoking products (which kill large numbers of our customers and lead to serious illness in many more, and may also constitute our existing products unreasonably dangerous withing the meaning of product liability laws and doctrine), when we know how to make other smoking products that (1) are acceptable to our existing customers and (2) promise likely to harm fewer of them.

RESOLVED:  That Reynolds American voluntarily submit Eclipse and Eclipse-like products to the FDA [US Food and Drug Administration] for approval as a drug delivery system of the drug nicotine.  If FDA approves Eclipse as a reduced risk product, that we develop a plan to phase out the sale of our conventional cigarettes within three years and market only Eclipse or similar products.

The Rev. Michael Crosby, Capuchin Franciscan, spoke for the resolution.  He began his remarks by referring to the speech of Susan Ivey, and her capsule picture of the future of Reynolds American as "an American success story."  Rev. Crosby noted that "if each year 390,000+ Americans are dying from tobacco related illnesses, then judging by the market share of this company, the company's success story is built on the deaths of at least 115,000 Americans each year.  The cheer leading is based on these deaths, and in the long term, this has got to be remembered.  There was not one mention of this in Susan Ivey's speech. ... This is a conscience issue.  Everybody is responsible for what is going on."

As he stated this, the room was intensely quiet -- the proverbial "you could have heard a pin drop" applied here.

Anne Morrow Donley seconded the resolution.  She first thanked Reynolds American for making the meeting smoke-free, saying this would help everyone in the room.  Regarding the resolution, she mentioned that,  "Tanzania is experimenting with genetically modified tobacco which has no nicotine content.  This would reduce the addictive elements of tobacco products.  I don't know if Reynolds American will be pursuing this as part of its responsible company action.  If the FDA regulates the amount of nicotine content, this would be an important consideration."

Shareholder proposal on cigarette advertising on the internet.
Whereas:  Our company is using Internet sites to market our brands ... These sites contain music, graphic visuals, instructions on gambling and other features which the proponents of this resolution believe have great appeal to children.  ...

RESOLVED:  That, within six months of the 2005 shareholders meeting, our company either submit all its Internet advertising to an independent panel of academics and other experts to make sure it is fulfilling the letter and spirit of the law regarding such advertising or terminate all of our advertising and marketing on the Internet.

Anne Morrow Donley, speaking on behalf of the St. Louis Region of the Americas Sisters of Mercy, moved acceptance of the the resolution.
"Your statements in the shareholder booklet opposing this resolution overlook several important things.  You focus attention on web sites you have formed for advertising cigarettes, and call them age-restricted sites.

Next you say that you require proof of age, and require a password, and warn that providing false information is a violation of the law.  But you cannot see the person on the internet when you are making a transaction.

The reality is that it is a trivial matter for kids to get a password that someone else has used -- they trade these on the net all the time.  Numerous passwords have been put out for the XXX sites (pornography).  Age restricted sites are the most desired thing for many kids.  Your use of the age restricted format is just one more way of re-enforcing that this is something kids should aspire to -- something to show they are adults.

There is also cigarette advertising on internet video games, the X-Box.  Kids have reported playing a Chronicles of Riddick game in which you have to use cigarettes as money, to exchange them to "unlock cool things."

Those who have researched the subject have noted that some of the Salem ads are patterned very closely after ads used for X-Box.  This is linking the company's ads too closely to children.

Some nations, such as Australia, have recently discovered internet sites advertising various cigarette brands even without age restrictions.  It is possible that some of this company's brands are being sold through that site as well.

The internet knows no borders.  It travels around the world, not just the USA.

Finally, regarding the independent panel, you say, "it is the work of the courts to render judgment when asked to do so -- not a group of professors."  This reveals an unwillingness to have that "open and frank discussion" such as you advertised some years ago.  A group of academics might very well end up saving the company millions of dollars in court cases, and save the shareholder investments as well.  This does not seem to be careful fiscal management.

I would urge the shareholders not to wait until the Courts are faced with this problem, but to act now by supporting this modest resolution which would protect both young people, and the shareholder investments.

The Rev. Michael Crosby seconded the resolution. 

Shareholder proposal on New York "Fire-Safe" standards.
On June 28, 2004, a New York state law compelled major tobacco companies to replace their cigarettes with new "fire-safe" versions designed to extinguish themselves more quickly than conventional cigarettes.  The Wall Street Journal noted that this legislation might create an environment wherein "cigarette companies could become more vulnerable to cigarette-fire lawsuits filed in other states" if they did not enact similar laws (06/23/04).

[A] letter from a representative of the filers of this resolution [asked] for the same standard to apply beyond New York to the rest of the United States.  In response, Reynolds American questioned the science behind the New York legislation.  It argued:  "We believe that identifying New York cigarettes as 'fire-safe' may instill a false sense of security of consumers' and that, because of a lack of adequate paper, that 'even if we concluded that it would be beneficial to market New York-compliant cigarettes in other markets, we cannot obtain enough of the banded paper to do so.'  Given this questionable response, the shareholders feel compelled to file this resolution.

RESOLVED:  That the Reynolds American Board commit the Company within six months of the annual meeting to voluntarily establish New York's cigarette fire safety regulatory criteria as the standard for all the cigarettes that are produced for sale in the United States, Puerto Rico and all U.S. protectorates.

The proponents have submitted the following statement in support of this proposal:

Nationally, cigarette fires are the leading cause of fire death.  They claim approximately 1,000 lives in the U.S. annually.  Ten years ago, the direct costs of cigarette-ignited fire death, injuries and property damage was estimated to be $4 billion, with health care costs exceeding $100 million.

We have the technology to drastically reduce such deaths.  We already make a product which ... if used as directed causes death.  To be complicit in more deaths due to an unwillingness to change our technology makes us complicit in their deaths.

Sister Regina McKillip , Sinsinawa Dominican, moved acceptance of the resolution.
Mr. Chairman, Board of Directors, and Shareholders:

"I am Sr. Regina McKillip, a Sinsinawa Dominican Sister representing the proponents of Shareholder resolution # 6 regarding New York “Fire-Safe” Standards.

Cigarettes and lighted tobacco products are the leading cause of fire deaths and the third leading cause of fire-related injuries in the United States.  In 2001, 31, 200 cigarette-induced fires occurred, responsible for 830 civilian lives lost as well as firefighter fatalities, 1, 770 persons injured and $386 M in direct property damage.  Other costs include health care, lost productivity, and the use of fire and emergency services

In June 2004, a New York state law required major tobacco companies to replace their cigarettes with new “fires-safe” versions designed to extinguish themselves more quickly than the conventional cigarettes.

Legislation requiring less fire-prone cigarettes has been introduced in over a dozen states since 1979. And in New York, it finally passed! Legislation was introduced in the U.S. Congress last year that would prescribe first safety standards for cigarettes that are substantively the same as the standards set forth by the state of New York.

The tobacco industry has for decades opposed the passage of state and federal requirements for cigarette fire safety standards, arguing that the cigarettes would be technically not feasible to develop, they would increase toxicity and would not be acceptable to consumers. They also have denied the effectiveness of the proposed standards to reduce fires.

In addressing these concerns, I will be referring to a study done by the Harvard School of Public Health and the American Legacy Foundation published in January 2005.

Regarding the feasibility to develop a fire-safe cigarette, we know we have the technology to do this.  It has been done. This has been achieved through paper banding, that is the application of ultra-thin paper bands to the traditional cigarette paper. Of the five brands this study looked at, the average parentage of full-length burns was 10% for the New York cigarette brands tested compared to 99.8% for California and Massachusetts brands. Thus indicating the New York brands are less likely to ignite fires than the same brands sold in other states.

Regarding the toxicity…there has been a slight increase in the toxicity of cigarette smoke. However, that has to be balanced against the 900 to 1,000 lives lost annually to fires caused by careless smoking. And there is no evidence that these increases affect the already highly toxic nature of cigarette smoke.

Reduced ignition propensity cigarettes has had no effect on consumer purchases of cigarettes in New York, indicating that the New York reduced ignition propensity cigarettes are acceptable to consumers.

Based on 3 of the 4 reasons stated by the tobacco industry for opposing this…their concerns are unfounded.

Regarding the effectiveness of the RIP cigarettes to prevent fires…there is insufficient data. The co-author of the study, Greg Connolly has said that it could take up to 3 years to collect valid information on this.

Therefore the study concludes that there is no valid reason why cigarette manufactures should not sell RIP cigarettes nationwide. And we concur with their conclusion with regards to our company…we find no valid reason why our company should not sell RIP cigarettes nationwide.

Our company stated in the proxy statement that careless behavior and mishandling of cigarettes cause fires, and the most effective way to reduce these losses is through educational efforts. We do not disagree with this. However, we believe the company does have a responsibility to do all it can to provide a safe product. And a successful technique is not available. We already know that smoking kills in other ways than fire. Why not make the changes that are now available to us to help prevent more deaths?

We also have to think about the legal ramifications for our company. Legal experts have stated that having two distinct classes of cigarettes could expose their makers to huge legal risks.

Because it can be done, because it will not negatively affect the sale of cigarettes, because it may cause a legal risks to our company, and because we want our company to do all it can to prevent more deaths from cigarette smoking, we encourage adoption of our proposal to establish New York cigarette fire safety regulatory criteria as the standard for all the cigarettes that are produced for sale in the US, Puerto Rico and all US protectorates."

The Rev. Michael Crosby, Capuchin Franciscan, seconded the resolution.  He stated that the cigarette fires are the leading cause of fire deaths.  "Mr. Schindler, in 1997, your vacation home was destroyed and surrounding homes were damaged to the tune of $1 million in damages, all because of a cigarette fire.  If the company had agreed to establish self-extinguishing cigarettes as the norm, this damage might not have occurred.

I have heard, and I don't know if it's true, that your main competitor is supporting state by state regulations, rather than a federal regulation, and that you are opposing regulations.

Mr. Schindler did not comment on either point, and did not deny either point.

Question and Answer time.
The Rev. Michael Crosby stated that on May 3rd, 2005, the U.S. Supreme Court breathed new life into the European Union's lawsuit on smuggling.  Our province raised the issue a couple of times in the past.  My question is, if you could give a little history on this, regarding Canada and so on.  The company has merged with other companies.  What is the responsibility of the new corporation on this issue, and is money being put into escrow for defense against lawsuits on smuggling?

Susan Ivey referred the question to Andrew Schindler.  Andrew Schindler said that the company has accrued money to pay for any defense necessary.  He then referred the question to Charles Blixt, attorney, who said that the Wall Street Journal had misrepresented the situation, and that any lawsuits brought against the company would be dismissed, and he did not think it would be a problem.

Sister Regina McKillip, noting that there is only one woman on the board of directors, asked why there are not more women on the board.

Susan Ivey said that they are proud of their diversity, and are seeking proper diversity, and will continue to look at the situation.

Anne Morrow Donley asked what provisions have been made for funds to pay for liability if executives of the company are indicted in court?  Is the TI [Tobacco International] providing backing for this liability?  And what provisions are made in case a court determines there to be criminal liability?

Susan Ivey handed the question to Andrew Schindler who turned the question to Charles Blixt who said he did not think there would be any problem.  The lawsuits, he said, are against Reynolds International, which is owned by Japan now, and there will be no problem.

Media -- The Winston-Salem Journal was the only media present at the meeting.
EXCERPTS from The Winston Salem Journal, May 7, 2005, headlined, American Way:  Chief executive is optimistic about outlook for new company at shareholders meeting; writer, Brian Louis.

Susan Ivey, the chief executive of Reynolds American Inc., made her debut in front of shareholders yesterday, telling them that the future looks good for the company.

“Our goal is clear,” Ivey told about 100 stockholders at the annual meeting, which was held in the auditorium of the RJR Plaza Building in downtown Winston-Salem. “We will build a winning company and enhance shareholder value by establishing a world-class, high-performance organization that relentlessly, and responsibly, pursues and achieves sustainable earnings growth.”

The low-key meeting lasted about an hour, and shareholders included employees and company officials. Reynolds American was created last year as part of R.J. Reynolds Tobacco Co.’s merger with Brown & Williamson Tobacco Corp, and Ivey was named chief executive.

Andrew Schindler, Reynolds American’s non-executive chairman and the former chief executive of Reynolds Tobacco’s former publicly traded parent company, R.J. Reynolds Tobacco Holdings Inc., presided over the shareholders meeting.

The first Reynolds American shareholders meeting was similar to past Reynolds Holdings shareholders meetings, including the presence of anti-smoking activists. Three activists were at the meeting, and they spoke in support of three shareholder proposals. They were the only ones who asked questions.

Before speaking in support of one of the proposals, the Rev. Michael Crosby of the Interfaith Center on Corporate Responsibility, asked the audience to remember the thousands of people who die from smoking-related illnesses every year.

The shareholder proposals, which the company’s board recommended that shareholders vote against, were soundly defeated.

One of the proposals asked the company to obtain Food and Drug Administration approval of Reynolds Tobacco’s Eclipse brand cigarette that the company claims may pose less risk of cancer, chronic bronchitis and possibly emphysema, compared with other cigarettes.

In other business, shareholders re-elected four board members to serve until 2008: Betsy Atkins, the chief executive of Baja Ventures, a venture-capital firm; E.V. Goings, the chairman and chief executive of Tupperware Corp.; Nana Mensah, the chairman and chief executive of ‘XPORTS Inc.; and Robert S. Miller Jr., the chairman of Federal-Mogul Corp.

Shareholders also ratified the appointment of KPMG LLP as the company’s auditor and approved Reynolds American’s long-term incentive program. About 950 managers are eligible to receive grants under the plan.

[Virginia GASP]  Updated 13 May 2005