Long-Term Disability Benefit Equalization Plan - Philip Morris Cos. Inc.


                                    PHILIP MORRIS
                    LONG-TERM DISABILITY BENEFIT EQUALIZATION PLAN




                              Effective January 1, 1989

                   (As amended and in effect as of January 1, 1996)


                                  TABLE OF CONTENTS

                                                                     Page No.
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PHILIP MORRIS LONG-TERM DISABILITY BENEFIT 
    EQUALIZATION PLAN - Preamble.....................................     1

    ARTICLE I........................................................     2
         DEFINITIONS.................................................     2
              (a)  Committee.........................................     2
              (b)  Compensation Limitation...........................     2
              (c)  Disability Benefit Equalization Allowance or 
                   Allowance.........................................     2
              (d)  Long-Term Disability Plan.........................     2
              (e)  Plan..............................................     2
              (f)  Retirement Allowance..............................     2

    ARTICLE II.......................................................     3
         DISABILITY BENEFIT EQUALIZATION ALLOWANCES..................     3
              A.   Disability Benefit Equalization Allowances 
                   payable under this Plan...........................     3
              B.   Commencement and termination of Disability 
                   Benefit Equalization Allowances...................     3

    ARTICLE III......................................................     4
         FUNDS FROM WHICH ALLOWANCES ARE PAYABLE.....................     4

    ARTICLE IV.......................................................     5
         THE CORPORATE EMPLOYEE BENEFIT COMMITTEE AND ITS 
              DELEGATEES.............................................     5

    ARTICLE V........................................................     6
         AMENDMENT AND DISCONTINUANCE OF THE PLAN....................     6

    ARTICLE VI.......................................................     7
         CHANGE IN CONTROL PROVISIONS................................     7
              A.   In the event of a Change of Control...............     7
              B.   Definition of Change of Control...................     7


                                 PHILIP MORRIS
                LONG-TERM DISABILITY BENEFIT EQUALIZATION PLAN


         The Philip Morris Long-Term Disability Benefit Equalization Plan as 
hereinafter set forth shall govern the rights of an Employee or Disabled 
Employee who is eligible for benefits on or after January 1, 1996 under the 
Long-Term Disability Plan and whose benefits under the Long-Term Disability 
Plan are or will in the future be limited by reason of Section 505 of the 
Internal Revenue Code of 1986, as amended from time to time.

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                                   ARTICLE I

                                  DEFINITIONS

         The following terms as used herein shall have the meanings set forth 
below.  All capitalized terms not defined below shall have the same meaning 
as in the Long-Term Disability Plan.

    (a)  'Committee' shall mean the Corporate Employee Benefit Committee of 
         Philip Morris Companies Inc. charged with the administration of the 
         Plan as from time to time constituted.

    (b)  'Compensation Limitation' shall mean the limitation of Section 
         505(b)(7) of the Code on the annual compensation of an Employee 
         which may be taken into account under the Long-Term Disability Plan. 

    (c)  'Disability Benefit Equalization Allowance' or 'Allowance' shall 
         mean the amount payable under the Plan to a former Employee in equal 
         monthly payments during a twelve (12) month period. 

    (d)  'Long-Term Disability Plan' shall mean the Philip Morris Long-Term 
         Disability Plan, effective February 1, 1974, as amended from time 
         to time.

    (e)  'Plan' shall mean the Philip Morris Long-Term Disability Benefit 
         Equalization Plan described herein and in any amendments hereto. 

    (f)  'Retirement Allowance' shall mean the total amount payable under the 
         Retirement Plan and Benefit Equalization Plan during a twelve (12) 
         month period to a former Employee for life.  Any benefit payable to 
         the Employee in any other form shall be converted to a Retirement 
         Allowance in such manner as the Administrator deems fair and 
         equitable. 

                                       2

                                  ARTICLE II

                  DISABILITY BENEFIT EQUALIZATION ALLOWANCES

A.  Disability Benefit Equalization Allowances payable under this Plan shall be
    as follows:

         (1)  The Disability Benefit Equalization Allowance payable to a 
Disabled Employee who is eligible for a Disability Allowance under Article 
II, A(1)(b) or A(1)(c)(i) of the Long-Term Disability Plan shall equal the 
amount by which a Disability Allowance under such provisions of the Long-Term 
Disability Plan, if computed without regard to the Compensation Limitation, 
exceeds the amount of the Disability Allowance actually payable to the 
Disabled Employee under the Long-Term Disability Plan.

         (2)  The Disability Benefit Equalization Allowance payable to a 
Disabled Employee who is eligible for a Disability Allowance under any other 
provision of the Long-Term Disability Plan shall be computed in the same 
manner as under the applicable provision of the Long-Term Disability Plan, 
provided, however, that (a) in computing such Disability Benefit Equalization 
Allowance under Article II, A(1)(c)(ii) of the Long-Term Disability Plan, the 
Retirement Allowance referred to in said Article II, A(1)(c)(ii) shall be 
computed without regard to the Compensation Limitation with respect to the 
compensation (as such term is defined in the Retirement Plan) of the Disabled 
Employee, (b) in computing such Disability Benefit Equalization Allowance 
under Article II, A(2)(c)(i) or (ii) of the Long-Term Disability Plan, the 
Retirement Allowance referred to in said Article II, A(2)(c)(i) and (ii) such 
Disabled Employee would have received shall be computed based on the 
assumptions set forth in said Article II, A(2)(c)(i) or (ii), but without 
regard to the Compensation Limitation and (c) the Disabled Employee's Pension 
Offset computed under Article I(v)(i)(A) and I(v)(ii)(A) of the Long-Term 
Disability Plan shall only be determined with respect to any Retirement 
Allowance payable under the Benefit Equalization Plan.  The amount of the 
Disability Benefit Equalization Allowance shall be reduced by the amount of 
the Disability Allowance actually payable to the Disabled Employee under the 
Long-Term Disability Plan.

B.  Commencement and termination of Disability Benefit Equalization Allowances:

         A Disability Benefit Equalization Allowance payable to a Disabled 
Employee shall commence and terminate simultaneously with, and be paid in 
accordance with the terms of the Long-Term Disability Plan.  An application 
for a Disability Allowance under the Long-Term Disability Plan shall be 
deemed an application for payment of a Disability Benefit Equalization 
Allowance under this Plan.

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                                  ARTICLE III

                    FUNDS FROM WHICH ALLOWANCES ARE PAYABLE

         The Company's obligations under this Plan shall not be funded. 
Payments of Allowances shall be made out of the general funds of the Company.

                                       4


                                  ARTICLE IV

          THE CORPORATE EMPLOYEE BENEFIT COMMITTEE AND ITS DELEGATEES

         The general administration of the Plan shall be vested in the 
Committee and the Administrator.

         All powers, rights, duties and responsibilities assigned to the 
Committee and the Administrator under the Long-Term Disability Plan 
applicable to this Plan shall be the powers, rights, duties and 
responsibilities of the Committee and the Administrator under the terms of 
this Plan.

                                       5


                                   ARTICLE V

                   AMENDMENT AND DISCONTINUANCE OF THE PLAN

         The Board may, by resolution, from time to time, and at any time, 
amend the Plan; provided, however, that authority to amend the Plan is 
delegated to the following committees or individuals where approval of the 
Plan amendment or amendments by the shareholders of Philip Morris Companies 
Inc. is not required:  (1) to the Committee, if the amendment (or amendments) 
will not increase the annual cost of the Plan by $10,000,000, (2) to a 
management committee for employee benefits, if the amendment (or amendments) 
will not increase the annual cost of the Plan by $4,000,000, and (3) to the 
Administrator, if the amendment (or amendments) will not increase the annual 
cost of the Plan by $500,000. 

         Any amendment to the Plan may effect a substantial change in the 
Plan, and may include (but shall not be limited to) any change deemed by the 
Philip Morris Companies Inc. to be necessary or desirable to obtain tax 
benefits under any existing or future laws or rules or regulations 
thereunder; provided, however, that no such amendment shall deprive any 
Disabled Employee of the Disability Benefit Equalization Allowance accrued to 
the time of such amendment.

         The Plan may be discontinued at any time by the Board; provided, 
however, that such discontinuance shall not deprive any Disabled Employee of 
his Disability Benefit Equalization Allowance accrued to the time of such 
discontinuance.

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                                  ARTICLE VI

                         CHANGE IN CONTROL PROVISIONS

A.  In the event of a Change of Control, each Disabled Employee (including, 
for purposes of this Article VI, an Employee who incurs a disability prior to 
the Change in Control during the periods specified in Article II, A(1)(a) of 
the Long-Term Disability Plan, irrespective of his eligibility at the time of 
the Change in Control for disability benefits under the Social Security Act; 
provided, however, such Disabled Employee subsequently becomes eligible for 
disability benefits under the Social Security Act or becomes eligible for a 
Disability Allowance pursuant to Article II, A(1)(i) of the Long-Term 
Disability Plan, shall, upon the Change of Control, be entitled to a lump sum 
in cash, payable within 30 days of the Change of Control, equal to the 
actuarial equivalent of his Disability Benefit Equalization Allowance, 
determined using actuarial assumptions no less favorable than those used 
under the Philip Morris Salaried Employees' Retirement Plan immediately prior 
to the Change of Control.

B.  Definition of Change of Control

    'Change of Control' shall mean the happening of any of the following 
events: 

         (1)  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, and 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 (i) the then outstanding shares of 
    common stock of Philip Morris Companies Inc. (the 'Outstanding Company 
    Common Stock') or (ii) the combined voting power of the then outstanding 
    voting securities of Philip Morris Companies Inc. 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 of Control: (i) any acquisition directly from 
    Philip Morris Companies Inc., (ii) any acquisition by Philip Morris 
    Companies Inc., (iii) any acquisition by any employee benefit plan (or 
    related trust) sponsored or maintained by Philip Morris Companies Inc. or 
    any corporation controlled by Philip Morris Companies Inc. or (iv) any 
    acquisition by any corporation pursuant to a transaction described in 
    clauses (i), (ii) and (iii) of paragraph (3) of this Section B; or 

         (2)  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 shareholders of Philip Morris Companies Inc., was 
    approved by a vote of at least a majority of the  

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    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 

         (3)  Approval by the shareholders of Philip Morris Companies Inc. of 
    a reorganization, merger, share exchange or consolidation (a 'Business 
    Combination'), in each case, unless, following such Business Combination, 
    (i) 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 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 Philip Morris Companies Inc. 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, (ii) no Person 
    (excluding any employee benefit plan (or related trust) of Philip Morris 
    Companies Inc. 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 (iii) 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 

         (4)  Approval by the shareholders of Philip Morris Companies Inc. of 
    (i) a complete liquidation or dissolution of Philip Morris Companies Inc. 
    or (ii) the sale or other disposition of all or substantially all of the 
    assets of Philip Morris Companies Inc., other than to a corporation, with 
    respect to which following such sale or other disposition, (A) 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 

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    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, (B) 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 Philip 
    Morris Companies Inc. 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 (C) 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 Philip Morris 
    Companies Inc. or were elected, appointed or nominated by the Board. 

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