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Published: 2008-03-26

1987 Long Term Incentive Plan - Philip Morris Cos. Inc.



                                THE PHILIP MORRIS
                          1987 LONG TERM INCENTIVE PLAN

SECTION 1. Purpose; Definitions.

The purpose of the Plan is to enable key employees of the Company, its
subsidiaries and affiliates to participate in the Company's future by offering
them long term performance-based incentives and proprietary interests in the
Company. The Plan also provides a means through which the Company can attract
and retain key employees of merit.

For purposes of the Plan, the following are defined as set forth below:

      a. 'Board' means the Board of Directors of the Company.

      b. 'Code' means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.

      c. 'Commission' means the Securities and Exchange Commission or any
successor agency.

      d. 'Committee' means the Committee referred to in Section 2.

      e. 'Company' means Philip Morris Companies Inc., a corporation organized
under the laws of the Commonwealth of Virginia, or any successor corporation.

      f. 'Deferred Stock' means an award made pursuant to Section 8.

      g. 'Disability' means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.

      h. 'Disinterested Person' shall have the meaning set forth in Rule
16b-3(d)(3), as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.

      i. 'Early Retirement' means retirement, with the consent for purposes of
the Plan of the Vice President-Administration and Human Resources of the Company
or such other officer as may be designated by the Committee, from active
employment with the Company, a subsidiary or affiliate pursuant to the early
retirement provisions of the applicable pension plan of such employer.


                                       1

      j. 'Exchange Act' means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.

      k. 'Fair Market Value' means, except as provided in Section 5(k) and
6(b)(ii), the mean, as of any given date, between the highest and lowest
reported sales prices of the Stock on the New York Stock Exchange or, if no such
sale of Stock occurs on the New York Stock Exchange on such date, the fair
market value of the Stock as determined by the Committee in good faith.

      l. 'Incentive Stock Option' means any Stock Option intended to be and
designated as an 'incentive stock option' within the meaning of Section 422A of
the Code.

      m. 'Long Term Performance Award' or 'Long Term Award' means an award under
Section 10.

      n. 'Non-Qualified Stock Option' means any Stock Option that is not an
Incentive Stock Option.

      o. 'Normal Retirement' means retirement from active employment with the
Company, a subsidiary or affiliate at or after age 65.

      p. 'Plan' means The Philip Morris 1987 Long Term Incentive Plan, as set
forth herein and as hereinafter amended from time to time.

      q. 'Restricted Stock' means an award under Section 7.

      r. 'Retirement' means Normal or Early Retirement.

      s. 'Rule 16b-3' means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.

      t. 'Stock' means the Common Stock, $1 par value, of the Company.

      u. 'Stock Appreciation Right' means a right granted under Section 6.

      v. 'Stock Option' or 'Option' means an option granted under Section 5.

      w. 'Stock Purchase Right' means a purchase right granted under Section 9.

In addition, the terms 'Change in Control', 'Potential Change in Control' and
'Change in Control Price' have the meanings set forth in Sections 11(b), (c) and
(d), respectively.


                                       2

SECTION 2. Administration.

The Plan shall be administered by the Compensation Committee of the Board or
such other committee of the Board, composed of not less than three Disinterested
Persons, who shall be appointed by the Board and who shall serve at the pleasure
of the Board. If at any time no Committee shall be in office, the functions of
the Committee specified in the Plan shall be exercised by the Board.

The Committee shall have plenary authority to grant to eligible employees,
pursuant to the terms of the Plan, Stock Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Purchase Rights and Long Term
Performance Awards.

In particular, the Committee shall have the authority, subject to the terms of
the Plan:

      (a) to select the officers and other key employees to whom Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights and Long Term Performance Awards may from time to time be granted;

      (b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Stock Purchase Rights, Long Term Performance Awards or any
combination thereof are to be granted hereunder;

      (c) to determine the number of shares to be covered by each award granted
hereunder;

      (d) to determine the terms and conditions of any award granted hereunder
(including, but not limited to, the share price, any restriction or limitation
and any vesting acceleration or forfeiture waiver regarding any Stock Option or
other award and the shares of Stock relating thereto, based on such factors as
the Committee shall determine);

      (e) to adjust the performance goals and measurements applicable to
performance-based awards pursuant to the terms of the Plan;

      (f) to determine under what circumstances a Stock Option may be settled in
cash, Deferred Stock or Restricted Stock under Section 5(k);

      (g) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an award shall be deferred; and

      (h) to determine the terms and conditions of Stock Purchase Rights, the
Stock purchased by exercising such Rights and any loans to be made by the
Company with respect thereto.

The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to


                                       3

interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreement relating thereto) and to otherwise supervise the
administration of the Plan.

The Committee may act only by a majority of its members then in office, except
that the members thereof may authorize any one or more of their number or any
officer of the Company to execute and deliver documents on behalf of the
Committee.

Any determination made by the Committee pursuant to the provisions of the Plan
with respect to any award shall be made in its sole discretion at the time of
the grant of the award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee pursuant to
the provisions of the Plan shall be final and binding on all persons, including
the Company and Plan participants.

SECTION 3. Stock Subject to Plan.

The total number of shares of Stock reserved and available for distribution
pursuant to Stock Options or other awards under the Plan shall be 8,000,000
shares. Such shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares.

Subject to Section 6(b)(iv), if any shares of Stock that have been optioned
cease to be subject to a Stock Option, if any shares of Stock that are subject
to any Restricted or Deferred Stock award, Stock Purchase Right or Long Term
Performance Award are forfeited or if any Stock Option or other award otherwise
terminates without a payment being made to the participant in the form of Stock,
such shares shall again be available for distribution in connection with awards
under the Plan.

In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split or other change in corporate structure affecting the
Stock, such substitution or adjustments shall be made in the aggregate number of
shares reserved for issuance under the Plan, in the number and option price of
shares subject to outstanding Stock Options, in the number and purchase price of
shares subject to outstanding Stock Purchase Rights and in the number of shares
subject to other outstanding awards granted under the Plan as may be determined
to be appropriately by the Board, in its sole discretion; provided, however,
that the number of shares subject to any award shall always be a whole number.
Such adjusted option price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation Right associated with
any Stock Option.

SECTION 4. Eligibility.

Officers and other key employees of the Company, its subsidiaries and affiliates
(but excluding members of the Committee and any person who serves only as a
director) who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries or affiliates are
eligible to be granted awards under the Plan.


                                       4

SECTION 5. Stock Options.

Stock Options may be granted alone or in addition to other awards granted under
the Plan and may be of two types: Incentive Stock Options and Non-Qualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.

The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights). Incentive Stock Options may be
granted only to employees of the Company and its subsidiaries (within the
meaning of Section 425(f) of the Code). To the extent that any Stock Option does
not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.

Stock Options shall be evidenced by option agreements, the terms and provisions
of which may differ. An option agreement shall indicate on its face whether it
is an agreement for Incentive Stock Options or Non-Qualified Stock Options. The
grant of a Stock Option shall occur on the date the Committee by resolution
selects an employee as a participant in any grant of Stock Options, determines
the number of Stock Options to be granted to such employee and specifies the
terms and provisions of the option agreement. The Company shall notify a
participant of any grant of Stock Options, and a written option agreement or
agreements shall be duly executed and delivered by the Company.

Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422A of the Code or, without the consent of
the optionee affected, to disqualify any Incentive Stock Option under such
Section 422A.

Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:

      (a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be equal to the Fair Market Value of the Stock at time of
grant or such higher price as shall be determined by the Committee at grant.

      (b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than 10 years
after the date the Option is granted, and no Non-Qualified Stock Option shall be
exercisable more than 10 years and one day after the date the Option is granted.

      (c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee; provided, however, that, except as provided in Sections 5(f), (g),
(h) and 11, unless otherwise determined by the


                                       5

Committee, no Stock Option shall be exercisable prior to the first anniversary
date of the granting of the Stock Option. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part, based on such
factors as the Committee may determine.

      (d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the option
period by giving written notice of exercise to the Company specifying the number
of shares to be purchased.

Such notice shall be accompanied by payment in full of the purchase price by
certified or bank check or such other instrument as the Company may accept. As
determined by the Committee, payment in full or in part may also be made in the
form of unrestricted Stock already owned by the optionee or, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the Stock Option is exercised); provided, however, that,
in the case of an Incentive Stock Option, the right to make a payment in the
form of already owned shares may be authorized only at the time the Stock Option
is granted.

If payment of the option exercised price of a Non-Qualified Stock Option is made
in whole or in part in the form of Restricted Stock or Deferred Stock, such
Restricted Stock or Deferred Stock (and any replacement shares relating thereto)
shall remain (or be) restricted or deferred, as the case may be, in accordance
with the original terms of the Restricted Stock award or Deferred Stock award in
question, and any additional Stock received upon the exercise shall be subject
to the same forfeiture restrictions or deferral limitations, unless otherwise
determined by the Committee.

No shares of Stock shall be issued until full payment therefor has been made.
Subject to any forfeiture restrictions or deferral limitations that may apply if
a Stock Option is exercised using Restricted Stock or Deferred Stock, an
optionee shall have all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive dividends, with respect to
shares subject to the Stock Option when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 14(a).

      (e) Non-transferability of Options. No Stock Option shall be transferable
by the optionee other than by will or by the laws of descent and distribution,
and all Stock Options shall be exercisable, during the optionee's lifetime, only
by the optionee or by the guardian or legal representative of the optionee, it
being understood that the terms 'holder' and 'optionee' include the guardian and
legal representative of the optionee named in the option agreement and any
person to whom an option is transferred by will or the laws of descent and
distribution.

      (f) Termination by Death. Subject to Section 5(j), if any optionee's
employment terminates by reason of death, any Stock Option held by such optionee
may thereafter be exercised, to the extent then exercisable or on such
accelerated basis as the Committee may


                                       6

determine, for a period of one year (or such other period as the Committee may
specify) from the date of such death or until the expiration of the stated term
of such Stock Option, whichever period is the shorter.

      (g) Termination by Reason of Disability. Subject to Section 5(j), if an
optionee's employment terminates by reason of Disability, any Stock Option held
by such optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or on such accelerated basis as the
Committee may determine, for a period of three years (or such shorter period as
the Committee may specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such three-year period (or such shorter period), any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-year (or such shorter) period, continue to be exercisable to the extent to
which it was exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422A of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.

      (h) Termination by Reason of Retirement. Subject to Section 5(j), if an
optionee's employment terminates by reason of Retirement, any Stock Option held
by such optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of such Retirement or on such accelerated basis as
the Committee may determine, for a period of three years (or such shorter period
as the Committee may specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such three-year (or such shorter) period any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422A of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.

      (i) Other Termination. Unless otherwise determined by the Committee, if an
optionee's employment terminates for any reason other than death, Disability or
Retirement, the Stock Option shall thereupon terminate, except that such Stock
Option, to the extent then exercisable, may be exercised for the lesser of three
months or the balance of such Stock Option's term if the optionee is
involuntarily terminated by the Company, a subsidiary or affiliate without
cause.

      (j) Incentive Stock Option Limitations. To the extent required for
'incentive stock option' status under Section 422A of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Stock with respect
to which Incentive Stock Options granted after


                                       7

1986 are exercisable for the first time by the optionee during any calendar year
under the Plan and any other stock option plan of any subsidiary or parent
corporation (within the meaning of Section 425 of the Code) after 1986 shall not
exceed $100,000.

The Committee is authorized to provide at grant that, to the extent permitted
under Section 422A of the Code, if a participant's employment with the Company
and its subsidiaries is terminated by reason of death, Disability or Retirement
and the portion of any Incentive Stock Option that is otherwise exercisable
during the post-termination period specified under Sections 5(f), (g) or (h),
applied without regard to this Section 5(j), is greater than the portion of such
option that is exercisable as an 'incentive stock option' during such
post-termination period under Section 422A, such post-termination period shall
automatically be extended (but not beyond the original option term) to the
extent necessary to permit the optionee to exercise such Incentive Stock Option
(either as an Incentive Stock Option or, if exercised after the expiration
periods that apply for the purposes of Section 422A, as a Non-Qualified Stock
Option). The Committee is also authorized to provide at grant for a similar
extension of the post-termination exercise period in the event of a Change in
Control or a Potential Change in Control.

Notwithstanding the foregoing, except with respect to Incentive Stock Options
granted prior to October 25, 1989, if an optionee's employment terminates at or
after a Change in Control (as defined in Section 11(b)), other than by reason of
death, Disability or Retirement, any Stock Option held by such optionee shall be
exercisable for the lesser of (x) six months and one day, and (y) the balance of
such Stock Option's term pursuant to Section 5(b).

      (k) Cashing Out of Option; Settlement of Spread Value in Deferred or
Restricted Stock. On receipt of written notice to exercise, the Committee may
elect to cash out all or part of the portion of any Stock Option to be exercised
by paying the optionee an amount, in cash or Stock, equal to the excess of the
Fair Market Value of the Stock over the option price (the 'Spread Value') on the
effective date of such cash out.

Cash outs relating to options held by the optionees who are actually or
potentially subject to Section 16(b) of the Exchange Act shall comply with the
'window period' provisions of Rule 16b-3, to the extent applicable, and, in the
case of cash outs, of Non-Qualified Stock Options held by such optionees, the
Committee may determine Fair Market Value under the pricing rule set forth in
Section 6(b)(ii)(B).

In addition, if the option agreement so provides at grant or is amended after
grant and prior to exercise to so provide (with the optionee's consent), the
Committee may require that all or part of the shares to be issued with respect
to the Spread Value payable in the event of a cash out of an unexercised Stock
Option or the Spread Value portion of an exercised Stock Option take the form of
Deferred or Restricted Stock, which shall be valued on the date of exercise on
the basis of the Fair Market Value of such Deferred or Restricted Stock,
determined without regard to the deferral limitations or forfeiture restrictions
involved.


                                       8

Notwithstanding any other provision of this Plan, upon a Change in Control (as
defined in Section 11(b)) other than a Change in Control specified in clause (i)
of Section 11(b) arising as a result of beneficial ownership (as defined
therein) by the Participant of Outstanding Company Common Stock or Outstanding
Company Voting Securities (as such terms are defined below), in the case of
Stock Options other than (x) Stock Options held by an officer or director of the
Company (within the meaning of Section 16 of the Exchange Act) which were
granted less than six months prior to the Change in Control and (y) Incentive
Stock Options granted prior to October 25, 1989, during the 60-day period from
and after a Change in Control (the 'Exercise Period'), unless the Committee
shall determine otherwise at the time of grant, an optionee shall have the
right, in lieu of the payment of the exercise price of the shares of Stock being
purchased under the Stock Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Stock Option to the
Company and to receive in cash, within 30 days of such notice, an amount equal
to the amount by which the 'Change in Control Price' (as defined in Section
11(c)) per share of common stock on the date of such election shall exceed the
exercise price per share of Stock under the Stock Option multiplied by the
number of shares of common stock granted under the Stock Option as to which the
right granted under this Section 5(k) shall have been exercised.

SECTION 6. Stock Appreciation Rights.

      (a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option.

A Stock Appreciation Right or applicable portion thereof granted with respect to
a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise determined by the Committee at the time of grant, a Stock Appreciation
Right granted with respect to less than the full number of shares covered by a
related Stock Option shall not be reduced until the number of shares covered by
an exercise or termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.

A Stock Appreciation Right may be exercised by an optionee in accordance with
Section 6(b) by surrendering the applicable portion of the related Stock Option
in accordance with procedures established by the Committee. Upon such exercise
and surrender, the optionee shall be entitled to receive an amount determined in
the manner prescribed in Section 6(b). Stock Options which have been so
surrendered shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.

      (b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:


                                       9

            (i) Stock Appreciation Rights shall be exercisable only at such time
      or times and to the extent that the Stock Options to which they relate are
      exercisable in accordance with the provisions of Section 5 and this
      Section 6; provided, however, that a Stock Appreciation Right shall not be
      exercisable during the first six months of its terms by an optionee who is
      actually or potentially subject to Section 16(b) of the Exchange Act,
      except that this limitation shall not apply in the event of death or
      Disability of the optionee prior to the expiration of the six-month
      period.

            (ii) Upon the exercise of a Stock Appreciation Right, an optionee
      shall be entitled to receive an amount in cash, shares of Stock or both
      equal in value to the excess of the Fair Market Value of one share of
      Stock over the option price per share specified in the related Stock
      Option multiplied by the number of shares in respect of which the Stock
      Appreciation Right shall have been exercised, with the Committee having
      the right to determine the form of payment.

In the case of Stock Appreciation Rights relating to Stock Options held by
optionees who are actually or potentially subject to Section 16(b) of the
Exchange Act, the Committee:

                  (A) may require that such Stock Appreciation Rights be
            exercised only in accordance with the applicable 'window period'
            provisions of Rule 16b-3; and

                  (B) in the case of Stock Appreciation Rights relating to
            Non-Qualified Stock Options, may provide that the amount to be paid
            upon exercise of such Stock Appreciation Rights during a Rule 16b-3
            'window period' shall be based on the highest mean sales price of
            the Stock on the New York Stock Exchange on any day during such
            'window period'.

            (iii) Stock Appreciation Rights shall be transferable only when and
      to the extent that the underlying Stock Option would be transferable under
      Section 5(e).

            (iv) Upon the exercise of a Stock Appreciation Right, the Stock
      Option or part thereof to which such Stock Appreciation Right is related
      shall be deemed to have been exercised for the purpose of the limitation
      set forth in Section 3 on the number of shares of Stock to be issued under
      the Plan, but only to the extent of the number of shares issued under the
      Stock Appreciation Right at the time of exercise based on the value of the
      Stock Appreciation Right at such time.

            (v) The Committee may provide, at the time of grant, that a Stock
      Appreciation Right can be exercised only in the event of a Change in
      Control or a Potential Change in Control, subject to such terms and
      conditions as the Committee may specify at grant.

            (vi) The Committee may also provide that, in the event of a Change
      in Control or a Potential Change in Control, the amount to be paid upon
      the exercise of a Stock


                                       10

      Appreciation Right shall be based on the Change in Control Price, subject
      to such terms and conditions as the Committee may specify at grant.

SECTION 7. Restricted Stock.

      (a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees to whom and the time or times at which
grants of Restricted Stock will be made, the number of shares to be awarded, the
time or times within which such awards may be subject to forfeiture and any
other terms and conditions of the awards, in addition to those contained in
Section 7(c).

The Committee may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors or criteria as the Committee
shall determine.

The provisions of Restricted Stock awards need not be the same with respect to
each recipient.

      (b) Awards and Certificates. Each participant receiving a Restricted Stock
award shall be issued a certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such participant and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:

      'The transferability of this certificate and the shares of stock
      represented hereby are subject to the terms and conditions (including
      forfeiture) of The Philip Morris 1987 Long Term Incentive Plan and a
      Restricted Stock Agreement. Copies of such Plan and Agreement are on file
      at the offices of Philip Morris Companies Inc., 120 Park Avenue, New York,
      New York 10017.'

The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Restricted Stock award, the participant shall have
delivered a stock power, endorsed in blank, relating to the Stock covered by
such award.

      (c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:

            (i) Subject to the provisions of the Plan and the Restricted Stock
      Agreement referred to in Section 7(c)(vi), during a period set by the
      Committee, commencing with the date of such award (the 'Restriction
      Period'), the participant shall not be permitted to sell, assign,
      transfer, pledge or otherwise encumber shares of Restricted Stock. Within
      these limits, the Committee may provide for the lapse of such restrictions
      in installments and may accelerate or waive such restrictions, in whole or
      in part, based on service, performance and such other factors or criteria
      as the Committee may determine.


                                       11

            (ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
      the participant shall have, with respect to the shares of Restricted
      Stock, all of the rights of a stockholder of the Company, including the
      right to vote the shares and the right to receive any cash dividends.
      Unless otherwise determined by the Committee, cash dividends shall be
      automatically deferred and reinvested in additional Restricted Stock and
      dividends payable in Stock shall be paid in the form of Restricted Stock.

            (iii) Except to the extent otherwise provided in the applicable
      Restricted Stock Agreement and Sections 7(c)(i) and (iv), upon termination
      of a participant's employment for any reason during the Restriction
      Period, all shares still subject to restriction shall be forfeited by the
      participant.

            (iv) In the event of hardship or other special circumstances of a
      participant whose employment is involuntarily terminated (other than for
      cause), the Committee may waive in whole or in part any or all remaining
      restrictions with respect to such participant's shares of Restricted
      Stock.

            (v) If and when the Restriction Period expires without a prior
      forfeiture of the Restricted Stock subject to such Restriction Period,
      unlegended certificates for such shares shall be delivered to the
      participant.

            (vi) Each award shall be confirmed by, and be subject to the terms
      of, a Restricted Stock Agreement.

SECTION 8. Deferred Stock.

      (a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees to whom and the time or times at which Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any participant, the duration of the period (the 'Deferral Period') during
which, and the conditions under which, receipt of the Stock will be deferred and
any other terms and conditions of the award, in addition to those contained in
Section 8(b).

The Committee may condition the grant of Deferred Stock upon the attainment of
specified performance goals or such other factors or criteria as the Committee
shall determine.

The provisions of Deferred Stock awards need not be the same with respect to
each recipient.

      (b) Terms and Conditions. Deferred Stock awards shall be subject to the
following terms and conditions:

            (i) Subject to the provisions of the Plan and the Deferred Stock
      Agreement referred to in Section 8(b)(vii), Deferred Stock awards may not
      be sold, assigned, transferred, pledged or otherwise encumbered during the
      Deferral Period. At the


                                       12

      expiration of the Deferral Period (or Elective Deferral Period as defined
      in Section 8(b)(vi), where applicable), share certificates shall be
      delivered to the participant for the shares covered by the Deferred Stock
      award.

            (ii) Unless otherwise determined by the Committee, amounts equal to
      any dividends declared during the Deferral Period with respect to the
      number of shares covered by a Deferred Stock award will be awarded,
      automatically deferred and deemed to be reinvested in additional Deferred
      Stock.

            (iii) Except to the extent otherwise provided in the applicable
      Deferred Stock Agreement and Sections 8(b)(iv) and (v), upon termination
      of a participant's employment for any reason during the Deferral Period,
      the rights to the shares still covered by the Deferred Stock award shall
      be forfeited.

            (iv) Based on service, performance and such other factors or
      criteria as the Committee may determine, the Committee may provide for the
      lapse of deferral limitations in installments and may accelerate the
      vesting of all or any part of any Deferred Stock award and waive the
      deferral limitations for all or any part of such award.

            (v) In the event of hardship or other special circumstances of a
      participant whose employment is involuntarily terminated (other than for
      cause), the Committee may waive in whole or in part any or all remaining
      deferral limitations with respect to any or all of such participant's
      Deferred Stock.

            (vi) A participant may elect to further defer receipt of the
      Deferred Stock payable under an award (or an installment of an award) for
      a specified period or until a specified event (the 'Elective Deferral
      Period'), subject in each case to the Committee's approval and to such
      terms as are determined by the Committee. Subject to any exceptions
      adopted by the Committee, such election must generally be made at least 12
      months prior to completion of the Deferral Period for the award (or for
      such installment of an award).

            (vii) Each award shall be confirmed by, and be subject to the terms
      of, a Deferred Stock Agreement.

SECTION 9. Stock Purchase Rights.

      (a) Awards and Administration. The Committee may grant Stock Purchase
Rights which shall enable the recipients to purchase Stock:

            (i) at its Fair Market Value on the date of grant;

            (ii) at 50% of such Fair Market Value on such date; or


                                       13

            (iii) at an amount equal to the par value of such Stock on such
      date.

The Committee may impose such terms and conditions as it shall determine on such
Stock Purchase Rights or the exercise thereof and may also provide for deferral
limitations or forfeiture restrictions with respect to the Stock purchased.

Each Stock Purchase Right award shall be confirmed by, and be subject to the
terms of, a Stock Purchase Rights Agreement. The terms of such awards need not
be the same with respect to each participant.

      (b) Stock Exercisability. Stock Purchase Rights shall be exercisable for
such period after grant as is determined by the Committee, not to exceed 30
days. However, the Committee may provide that Stock Purchase Rights granted to
persons who are actually or potentially subject to Section 16(b) of the Exchange
Act shall not become exercisable until six months and one day after the grant
date and shall then be exercisable for 10 trading days at the purchase price
specified by the Committee in accordance with Section 9(a).

      (c) Loans. If the Committee so determines, the Company shall make or
arrange for a loan to an employee with respect to the exercise of Stock Purchase
Rights. The Committee shall have full authority to decide whether such a loan
should be made and to determine the amount, term and other provisions of any
such loan, including the interest rate to be charged, whether the loan is to be
with or without recourse against the borrower, the security, if any, therefor,
the terms on which the loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no loan hereunder shall have a term
(including extensions) exceeding 10 years in duration or be in an amount
exceeding 90% of the total purchase price paid by the borrower.

SECTION 10. Long Term Performance Awards.

      (a) Awards and Administration. Long Term Performance Awards may be awarded
either alone or in addition to other awards granted under the Plan. The
Committee shall determine the nature, length and starting date of the
performance period (the 'Performance Period') for each Long Term Performance
Award, which shall be at least two years (subject to Section 11), and shall
determine the performance objectives to be used in valuing Long Term Performance
Awards and determining the extent to which such Long Term Performance Awards
have been earned. Performance objectives may vary from participant to
participant and between groups of participants and shall be based upon such
Company, business unit or individual performance factors or criteria as the
Committee may deem appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may overlap and participants may
participate simultaneously with respect to Long Term Performance Awards that are
subject to different Performance Periods and different performance factors and
criteria. Long Term Performance Awards shall be confirmed by, and be subject to
the terms of, a Long Term Performance Award Agreement. The terms of such awards
need not be the same with respect to each participant.


                                       14

At the beginning of each Performance Period, the Committee shall determine for
each Long Term Performance Award subject to such Performance Period the range of
dollar values or number of shares of Stock (including Deferred or Restricted
Stock) to be awarded to the participant at the end of the Performance Period if
and to the extent that the relevant measures of performance for such Long Term
Performance Award are met. Such dollar values or number of shares of Stock may
be fixed or may vary in accordance with such performance or other criteria as
may be determined by the Committee.

      (b) Maximum Aggregate Amount Payable for Any Performance Period. The
aggregate amount of Long Term Performance Awards payable in cash with respect to
any Performance Period (determined without regard to any interest or earnings
equivalent credited with respect to deferred Awards) cannot exceed the maximum
aggregate amount that could have been credited to the Reserve under the Philip
Morris Companies Inc. Incentive Compensation Plan during the period commencing
January 1, 1986 and ending on the last day of such Performance Period (the
'Calculation Period') less the sum of the amount payable out of such Reserve
with respect to the Calculation Period and the amount of Long Term Performance
Awards paid in cash with respect to any prior Performance Period.

      (c) Adjustment of Awards. The Committee may adjust the performance goals
and measurements applicable to Long Term Performance Awards to take into account
changes in law and accounting and tax rules and to make such adjustments as the
Committee deems necessary or appropriate to reflect the inclusion or exclusion
of the impact of extraordinary or unusual items, events or circumstances in
order to avoid windfalls or hardships.

      (d) Termination of Employment. Subject to Section 11 and unless otherwise
provided in the applicable Long Term Performance Award Agreement, if a
participant terminates employment during a Performance Period because of death,
Disability or Retirement, such participant shall be entitled to a payment with
respect to each outstanding Long Term Performance Award at the end of the
applicable Performance Period:

            (i) based, to the extent relevant under the terms of the award, upon
      the participant's performance for the portion of such Performance Period
      ending on the date of termination and the performance of the Company or
      any applicable business unit for the entire Performance Period and

            (ii) prorated for the portion of the Performance Period during which
      the participant was employed by the Company, a subsidiary or affiliate,

all as determined by the Committee. The Committee may provide for an earlier
payment in settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate.

Subject to Section 11 and except as otherwise provided in the applicable Long
Term Performance Award Agreement, if a participant terminates employment during
a Performance


                                       15

Period for any other reason, then such participant shall not be entitled to any
payment with respect to the Long Term Performance Awards subject to such
Performance Period, unless the Committee shall otherwise determine.

      (e) Form of Payment. The earned portion of a Long Term Performance Award
may be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee. Payment shall be made in the
form of cash or whole shares of Stock, including Restricted Stock or Deferred
Stock, or a combination thereof, either in a lump sum payment or in annual
installments, all as the Committee shall determine. If and to the extent a Long
Term Performance Award is payable in Stock and the full amount thereof is not
paid in Stock, then the shares of Stock representing the portion of the value of
the Long Term Performance Award not paid in Stock shall again become available
for award under the Plan.

SECTION 11. Change in Control Provisions.

      (a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control (as defined in Section 11(b)):

            (i) Any Stock Appreciation Rights and Stock Options outstanding as
      of the date such Change in Control is determined to have occurred and not
      then exercisable and vested shall become fully exercisable and vested to
      the full extent of the original grant; provided, however, that, in the
      case of the holder of Stock Appreciation Rights who is actually subject to
      Section 16(b) of the Exchange Act, such Stock Appreciation Rights shall
      have been outstanding for at least six months at the date such Change in
      Control is determined to have occurred.

            (ii) The restrictions and deferral limitations applicable to any
      Restricted Stock, Deferred Stock and Stock Purchase Rights shall lapse,
      and such Restricted Stock and Deferred Stock shall become free of all
      restrictions and fully vested to the full extent of the original grant.

            (iii) Subject to the rights of participants pursuant to Section
      5(k), the value of all outstanding Stock Options, Restricted Stock,
      Deferred Stock and Stock Purchase Rights shall, unless otherwise
      determined by the Committee at or after grant, be cashed out on the basis
      of the 'Change in Control Price', as defined in Section 11(c), as of the
      date such Change of Control is determined to have occurred or such other
      date as the Committee may determine prior to the Change in Control.

            (iv) Any Long Term Performance Awards relating to Performance
      Periods prior to the Performance Period in which the Change in Control
      occurs which are outstanding but not vested shall become immediately
      vested and payable in cash to participants. In addition, subject to the
      provisions of Section 10(b) of the Plan, with respect to the Performance
      Period in which the Change in Control occurs (the 'Change in Control
      Period'), each participant in the Long Term Performance Award Plan, other
      than a


                                       16

      participant who is a party to an employment agreement with the Company
      which is effective upon the Change in Control, shall be entitled to a pro
      rata Long Term Performance Award in cash equal to the product of (x) such
      participant's maximum award opportunity for the Change in Control Period,
      and (y) a fraction, the numerator of which is the number of full or
      partial months which have elapsed since the beginning of such Period on
      the date on which the Change in Control occurs, and the denominator of
      which is the total number of months in such Period.

      (b) Definition of Change in Control. For purposes of the Plan, a 'Change
in Control' shall mean the happening of any of the following events:

            (i) The acquisition by any individual, entity or group (within the
      meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
      1934, as amended (the 'Exchange Act')) (a 'Person') of beneficial
      ownership (within the meaning of Rule 13d-3 promulgated under the
      Exchange Act) of 20% or more of either (A) the then outstanding shares of
      Stock of the Company (the 'Outstanding Company Common Stock') or (B) the
      combined voting power of the then outstanding voting securities of the
      Company entitled to vote generally in the election of directors (the
      'Outstanding Company Voting Securities'); provided, however, that the
      following acquisitions shall not constitute a Change in Control: (A) any
      acquisition directly from the Company, (B) any acquisition by the Company,
      (C) any acquisition by any employee benefit plan (or related trust)
      sponsored or maintained by the Company or any corporation controlled by
      the Company or (D) any acquisition by any corporation pursuant to a
      transaction described in clauses (A), (B) and (C) of paragraph (iii) of
      this subsection (b) of this Section 11; or

            (ii) Individuals who, as of the date hereof, constitute the Board
      (the 'Incumbent Board') cease for any reason to constitute at least a
      majority of the Board; provided, however, that any individual becoming a
      director subsequent to the date hereof whose election, or nomination for
      election by the Company's shareholders, was approved by a vote of at least
      a majority of the directors then comprising the Incumbent Board shall be
      considered as though such individual were a member of the Incumbent Board,
      but excluding, for this purpose, any such individual whose initial
      assumption of office occurs as a result of an actual or threatened
      election contest with respect to the election or removal of directors or
      other actual or threatened solicitation of proxies or consents by or on
      behalf of a Person other than the Board; or

            (iii) Approval by the shareholders of the Company of a
      reorganization, merger, share exchange or consolidation (a 'Business
      Combination'), in each case, unless, following such Business Combination,
      (A) all or substantially all of the individuals and entities who were the
      beneficial owners, respectively, of the Outstanding Company Common Stock
      and Outstanding Company Voting Securities immediately prior to such
      Business Combination beneficially own, directly or indirectly, more than
      80% of, respectively, the then outstanding shares of common stock and the
      combined voting


                                       17

      power of the then outstanding voting securities entitled to vote generally
      in the election of directors, as the case may be, of the corporation
      resulting from such Business Combination (including, without limitation, a
      corporation which as a result of such transaction owns the Company through
      one or more subsidiaries) in substantially the same proportions as their
      ownership, immediately prior to such Business Combination of the
      Outstanding Company Common Stock and Outstanding Company Voting
      Securities, as the case may be, (B) no Person (excluding any employee
      benefit plan (or related trust) of the Company or such corporation
      resulting from such Business Combination) beneficially owns, directly or
      indirectly, 20% or more of, respectively, the then outstanding shares of
      common stock of the corporation resulting from such Business Combination
      or the combined voting power of the then outstanding voting securities of
      such corporation except to the extent that such ownership existed prior to
      the Business Combination and (C) at least a majority of the members of the
      board of directors of the corporation resulting from such Business
      Combination were members of the Incumbent Board at the time of the
      execution of the initial agreement, or of the action of the Board,
      providing for such Business Combination; or

            (iv) Approval by the shareholders of the Company of (A) a complete
      liquidation or dissolution of the Company or (B) the sale or other
      disposition of all or substantially all of the assets of the Company,
      other than to a corporation, with respect to which following such sale or
      other disposition, (1) more than 80% of, respectively, the then
      outstanding shares of common stock of such corporation and the combined
      voting power of the then outstanding voting securities of such corporation
      entitled to vote generally in the election of directors is then
      beneficially owned, directly or indirectly, by all or substantially all of
      the individuals and entities who were the beneficial owners, respectively,
      of the Outstanding Company Common Stock and Outstanding Company Voting
      Securities immediately prior to such sale or other disposition in
      substantially the same proportion as their ownership, immediately prior to
      such sale or other disposition, of the Outstanding Company Common Stock
      and Outstanding Company Voting Securities, as the case may be, (2) less
      than 20% of, respectively, the then outstanding shares of common stock of
      such corporation and the combined voting power of the then outstanding
      voting securities of such corporation entitled to vote generally in the
      election of directors is then beneficially owned, directly or indirectly,
      by any Person (excluding any employee benefit plan (or related trust) of
      the Company or such corporation), except to the extent that such Person
      owned 20% or more of the Outstanding Company Common Stock or Outstanding
      Company Voting Securities prior to the sale or disposition and (3) at
      least a majority of the members of the board of directors of such
      corporation were members of the Incumbent Board at the time of the
      execution of the initial agreement, or of the action of the Board,
      providing for such sale or other disposition of assets of the Company or
      were elected, appointed or nominated by the Board.

      (c) Change in Control Price. For purposes of the Plan, 'Change in Control
Price' means the highest price per share paid in any transaction reported on the
New York Stock Exchange Composite Index or paid or offered in any bona fide
transaction related to a potential


                                       18

or actual change in control of the Company at any time during the preceding
60-day period as determined by the Committee, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, such price shall be based only on transactions reported for the
date on which the Committee decides to cash out such options.

SECTION 12. Amendments and Termination.

The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award, Deferred Stock Award, Stock Purchase Right or Long Term
Performance Award theretofore granted without the optionee's or recipient's
consent or which, without the approval of the Company's stockholders, would:

      (a) except as expressly provided in the Plan, increase the total number of
shares reserved for the purpose of the Plan;

      (b) except as expressly provided in the Plan, decrease the option price of
(i) any Stock Option to less than the Fair Market Value on the date of grant or
(ii) change the minimum price terms of Section 9(a);

      (c) change the class of employees eligible to participate in the Plan; or

      (d) extend the maximum option period under Section 5(b) or the maximum
exercise period under Section 9(b).

The Committee may amend the terms of any Stock Option or other award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without the holder's consent. The Committee may also
substitute new Stock Options for previously granted Stock Options, including
previously granted Stock Options having higher option prices.

Subject to the above provisions, the Board shall have the authority to amend the
Plan to take into account changes in law and tax and accounting rules, as well
as other developments.

SECTION 13. Unfunded Status of Plan.

It is presently intended that the Plan constitute an 'unfunded' plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the 'unfunded' status of the Plan.


                                       19

SECTION 14. General Provisions.

      (a) The Committee may require each person purchasing shares pursuant to a
Stock Option or a Stock Purchase Right to represent to and agree with the
Company in writing that the optionee or participant is acquiring the shares
without a view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.

All certificates for shares of Stock or other securities delivered under the
Plan shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed and any applicable Federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

      (b) Nothing contained in this Plan shall prevent the Company, a subsidiary
or affiliate from adopting other or additional compensation arrangements for its
employees.

      (c) The adoption of the Plan shall not confer upon any employee any right
to continued employment nor shall it interfere in any way with the right of the
Company, a subsidiary or affiliate to terminate the employment of any employee
at any time.

      (d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Company, withholding obligations may be settled with Stock, including Stock that
is part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company, its subsidiaries and affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant.

      (e) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.

      (f) The reinvestment of dividends in additional Deferred or Restricted
Stock at the time of any dividend payment shall only be permissible if
sufficient shares of Stock are available under Section 3 for such reinvestment
(taking into account then outstanding Stock Options, Stock Purchase Rights and
other Plan awards).


                                       20

      (g) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid.

      (h) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of New York.

SECTION 15. Effective Date of Plan.

The Plan shall be effective on the date it is approved by the stockholders of
the Company.

SECTION 16. Term of Plan.

No Stock Option, Stock Appreciation Right, Restricted Stock Award, Deferred
Stock Award, Stock Purchase Right or Long Term Performance Award shall be
granted on or after the fifth anniversary of the effective date of the Plan, but
awards granted prior to such fifth anniversary (including, without limitation,
Long Term Performance Awards for Performance Periods commencing prior to such
fifth anniversary) may extend beyond that date.


                                       21