Exhibit 10.2

EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

ALTRIA GROUP, INC.

AND

PHILIP MORRIS INTERNATIONAL INC.

DATED AS OF MARCH 28, 2008

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TABLE OF CONTENTS

 

         Page

ARTICLE I

  DEFINITIONS    1

1.1

  General    1

1.2

  References to Time    9

ARTICLE II

  GENERAL PRINCIPLES    9

2.1

  Altria Group Employees    9

2.2

  PMI Group Employees    10

ARTICLE III

  PMI Group Plans    10

3.1

  PMI Group Plans    10

ARTICLE IV

  EMPLOYEE TRANSFERS    13

4.1

  PMI Transferees    13

4.2

  Altria Transferees    14

4.3

  Payments    15

ARTICLE V

  EQUITY COMPENSATION    15

5.1

  Altria Options    15

5.2

  Kraft SARs Issued by Altria    17

5.3

  Restricted Stock and pre-January 31, 2007 Deferred Stock    17

5.4

  Deferred Stock    18

5.5

  Existing Kraft Equity Compensation    19

5.6

  Payments Previously Made By PMI    20

5.7

  Other    20

ARTICLE VI

  PROFIT-SHARING PLANS    23

6.1

  Maintenance of Stock Investment Options    23

ARTICLE VII

  ALTRIA STOCK PURCHASE PLAN    24

7.1

  Termination of Participation    24

ARTICLE VIII

  GENERAL AND ADMINISTRATIVE    24

8.1

  Sharing of Participant Information    24

8.2

  No Third-Party Beneficiaries    24

8.3

  Audit Rights with Respect to Information Provided    25

8.4

  Fiduciary Matters    25

8.5

  Collective Bargaining    25

8.6

  Consent of Third Parties    26

ARTICLE IX

  INDEMNIFICATION    26

9.1

  Indemnification    26

ARTICLE X

  MISCELLANEOUS    26

10.1

  Relationship of Parties    26

10.2

  Affiliates    26

 

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10.3

  Employee Communications    26

10.4

  Incorporation of Distribution Agreement Provisions    26

10.5

  Governing Law    27

10.6

  References    27

 

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EMPLOYEE MATTERS AGREEMENT

THIS EMPLOYEE MATTERS AGREEMENT, dated as of March 28, 2008 (as amended and
supplemented pursuant to the terms hereof, this “Agreement”), is entered into by
and between Altria Group, Inc., a Virginia corporation (“Altria”), and Philip
Morris International Inc., a Virginia corporation (“PMI”).

WITNESSETH:

WHEREAS, Altria and PMI have entered into a Distribution Agreement, dated as of
January 30, 2008 (the “Distribution Agreement”), providing for, among other
things, the distribution by Altria of its entire ownership interest in PMI
through a pro-rata distribution of all of the outstanding shares of PMI Common
Stock owned by Altria on the Distribution Date to the holders of Altria Common
Stock pursuant to the terms and subject to the conditions of the Distribution
Agreement (the “Distribution”); and

WHEREAS, Altria and PMI wish to set forth their agreement as to certain matters
regarding the treatment of, and the compensation and employee benefits provided
to, employees and former employees of the Altria Group and the PMI Group (as
hereinafter defined).

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:

ARTICLE I

DEFINITIONS

1.1 General. As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

Adjusted Altria Option: an Altria Option as adjusted pursuant to Section 5.1
hereof.

Affiliate: with respect to any specified Person, a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person; provided, however, that for
purposes of this Agreement, no member of either Group and no officer or director
of any member of either Group shall be deemed to be an Affiliate of any member
of the other Group.

Altria: as defined in the preamble to this Agreement.

Altria Benefit Liabilities: as defined in Section 2.1 hereof.

Altria Common Stock: the common stock, par value $0.33  1 /3 per share, of
Altria.

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Altria Deferred Stock: a deferred stock obligation relating to Altria Common
Stock granted by Altria before the Distribution Date under an Altria Performance
Incentive Plan.

Altria Group: Altria and the Subsidiaries of Altria other than members of the
PMI Group.

Altria Group Employee: any individual, excluding a PMI Transferee, who (i), as
of the close of business on the Distribution Date, is either employed by, or on
a leave of absence (as defined by the personnel policies of the Altria Group)
from, a member of the Altria Group; (ii) is a Former Altria Group Employee; or
(iii) is or becomes an Altria Transferee.

Altria Group Plans:

(i) the Altria Pension Plans;

(ii) the Altria Profit-Sharing Plans;

(iii) the Altria Welfare and Other Plans; and

(iv) the Altria Performance Incentive Plans.

Altria Option: an option to acquire Altria Common Stock granted by Altria under
an Altria Performance Incentive Plan before the Distribution Date.

Altria Participating Company: any company of the Altria Group whose eligible
employees participate in the Altria Pension Plans and Altria Profit-Sharing
Plans.

Altria Pension Plan: any of the Retirement Plan for Salaried Employees, the
Retirement Plan for Hourly Employees, the Benefit Equalization Plan, the
Supplemental Management Employees’ Retirement Plan, the Retirement Plan for
Employees of Philip Morris de Puerto Rico and any other qualified or
non-qualified defined benefit plan or program that is identified by Altria
before the Distribution Date as providing retirement income to Altria Group
Employees, all as in effect as of the time relevant to the applicable provisions
of this Agreement.

Altria Performance Incentive Plans: any of the 1992 Incentive Compensation and
Stock Option Plan, the 1997 Performance Incentive Plan, the 2000 Performance
Incentive Plan or the 2005 Performance Incentive Plan, or any stock-based or
other incentive plan for Altria Group Employees that is identified by Altria
before the Distribution Date, all as in effect as of the time relevant to the
applicable provisions of this Agreement.

Altria Post-Adjustment Price: the Altria Pre-Adjustment Price multiplied by a
fraction, the numerator of which is the closing price of Altria Common Stock on
the NYSE on the Distribution Date (as traded on the “when issued” market) and
the denominator of which is the sum of the numerator plus the closing price of
PMI Common Stock on the NYSE on the Distribution Date (as traded on the “when
issued” market).

 

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Altria Pre-Adjustment Price: the closing price of Altria Common Stock on the
NYSE on the Distribution Date (as traded on the “regular way” market).

Altria Profit-Sharing Plan: any of the Deferred Profit-Sharing Plan for Salaried
Employees, the Deferred Profit-Sharing Plan for Tobacco Workers, the Deferred
Profit-Sharing Plan for Craft Employees, the Benefit Equalization Plan, the
Supplemental Management Employees’ Retirement Plan, the Savings Plan for
Employees of Philip Morris de Puerto Rico and any other qualified or
non-qualified defined contribution plan or program for Altria Group Employees
that is identified by Altria before the Distribution Date, all as in effect as
of the time relevant to the applicable provisions of this Agreement.

Altria Restricted Stock: restricted Altria Common Stock granted by Altria before
the Distribution Date under an Altria Performance Incentive Plan.

Altria Stock Investment Option: the investment option offered under the
following Altria Profit-Sharing Plans: the Deferred Profit-Sharing Plan for
Salaried Employees, the Deferred Profit-Sharing Plan for Tobacco Workers, the
Deferred Profit-Sharing Plan for Craft Employees; and the investment option
offered under the PMI Deferred Profit-Sharing Plan whose value in each case is
based on the value of Altria Common Stock.

Altria Stock Purchase Plan: the Plan sponsored by Altria and administered by
Computershare Trust Company, N.A., that allows eligible employees of Altria and
its subsidiaries to purchase shares of Altria Common Stock through automatic
payroll deductions, additional cash contributions and dividend reinvestment
without incurring any brokerage commissions or other costs.

Altria Transferee: any employee of a member of the PMI Group who will transfer
employment to a member of the Altria Group on or after the Distribution Date,
but on or prior to December 31, 2008.

Altria Welfare and Other Plans: any plan, fund or program that provides health,
medical, surgical, hospital or dental care, severance, survivor income,
long-term disability, cafeteria, flexible benefits or other welfare benefits or
benefits in the event of sickness, accident or disability, or death benefits to
Altria Group Employees, all as in effect as of the time relevant to the
applicable provisions of this Agreement.

Arbitration Act: the United States Arbitration Act, 9 U.S.C. §§ 1-16, as the
same may be amended from time to time.

Auditing Party: as defined in Section 8.3(a) hereof.

Business Day: any day other than a Saturday, a Sunday or a day on which banking
institutions located in the Commonwealth of Virginia or the State of New York
are authorized or obligated by law or executive order to close.

Code: the Internal Revenue Code of 1986, as amended.

Distribution: as defined in the recitals to this Agreement.

Distribution Agreement: as defined in the recitals to this Agreement.

 

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Distribution Date: the date on which the Distribution becomes effective.

Equity Compensation: Altria Options, Adjusted Altria Options, PMI Options, Kraft
SARs, Altria Restricted Stock, PMI Restricted Stock, Altria Deferred Stock and
PMI Deferred Stock.

ERISA: Employee Retirement Income Security Act of 1974, as amended.

Existing Kraft Deferred Stock: a deferred stock obligation relating to Kraft
Class A Common Stock granted by Kraft as of or before March 30, 2007 under a
Kraft Performance Incentive Plan.

Existing Kraft Options: an option to acquire Kraft Class A Common Stock, granted
by Kraft as of or before March 30, 2007 under a Kraft Performance Incentive
Plan.

Existing Kraft Restricted Stock: restricted Kraft Class A Common Stock granted
by Kraft as of or before March 30, 2007 under a Kraft Performance Incentive
Plan.

Fair Value: in the case of PMI Options and Adjusted Altria Options, the
anticipated value of the options, determined using the Modified Black-Scholes
option pricing model used by Altria in the preparation of its most recent annual
or quarterly financial reporting prepared before the Distribution Date with such
modifications as may be determined before the Distribution Date by Altria.

In the case of Existing Kraft Options, the Fair Value shall be the Fair Value
used for such options pursuant to the Employee Matters Agreement By and Between
Altria Group, Inc. and Kraft Foods Inc.

Former Altria Group Employee: any individual who: (i) before the Distribution
Date has retired from or otherwise separated from service from a member of the
Altria Group and has not been re-employed by a member of the PMI Group before
the Distribution Date; or (ii) has transferred from a member of the Altria Group
or Former Altria Group that was an Altria Participating Company to a member of
the Former Altria Group that was not an Altria Participating Company and
thereafter separated from service from a member of the Former Altria Group and
has not been re-employed by a member of the PMI Group before the Distribution
Date; and, in all cases participates in, receives, or is entitled to receive,
benefits under, any Altria Group Plan; provided, however, that a Former Altria
Group Employee shall not include a PMI Group Transferee.

Former Altria Group: shall mean the Altria Group as in existence on and prior to
March 30, 2007 and shall include Altria and the then Subsidiaries of Altria
other than members of the PMI Group.

Former PMI Group Employee: any individual who: (i) before the Distribution Date
has retired from or otherwise separated from service from a member of the PMI
Group and has not been re-employed by a member of the Altria Group before the
Distribution Date; or (ii) has transferred from a member of the PMI Group to a
member

 

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of the Former Altria Group that was not an Altria Participating Company and
thereafter is separated from service from a member of the Former Altria Group
that was not an Altria Participating Company and has not been re-employed by a
member of the Altria Group before the Distribution Date; and, in each such case,
participates in, receives or is entitled to receive, benefits under, any PMI
Group Plan; or (iii) was employed by a PMI Participating Company, died before
the Distribution Date while so employed and whose spouse and/or child are in
receipt of a survivor income benefit allowance from the Survivor Income Benefit
Plan for Salaried Employees on the Distribution Date; or (iv) was employed by a
PMI Participating Company, suffered a disability (as defined in the Long-Term
Disability Plan for Salaried Employees) before the Distribution Date while so
employed and is in receipt of a disability allowance from the Long-Term
Disability Plan for Salaried Employees on the Distribution Date; provided,
however, that a Former PMI Group Employee shall not include an Altria
Transferee.

Governmental Authority: any federal, state, local, foreign or international
court, government, department, commission, board, bureau or agency, authority
(including, but not limited to, any central bank or taxing authority) or
instrumentality (including, but not limited to, any court, tribunal or grand
jury) exercising executive, prosecutorial, legislative, judicial, regulatory or
administrative functions of or pertaining to government or any other regulatory,
administrative or governmental authority, including the NYSE or any other
exchange on which Altria or PMI Common Stock may be listed.

Group: the Altria Group or the PMI Group, as the context requires.

Information: all records, books, contracts, instruments, computer data and other
data and information.

Intrinsic Value: with respect to the relevant options, the product of (i) the
number of such options and (ii) the difference between the exercise price of
such options and, for Altria Options, the Altria Pre-Adjustment Price, for
Adjusted Altria Options, the Altria Post-Adjustment Price, and for PMI Options,
the PMI Price, as applicable.

Kraft: Kraft Foods Inc., a Virginia corporation.

Kraft Class A Common Stock: the Class A common stock, no par value, of Kraft.

Kraft Group: Kraft and the Kraft Subsidiaries.

Kraft Price: the closing price of Kraft Class A Common Stock on the NYSE on the
Distribution Date.

Kraft Performance Incentive Plan: the 2001 Kraft Foods Inc. Performance
Incentive Plan or the Kraft Foods Inc. 2005 Performance Incentive Plan.

Kraft SAR: a cash-settled stock appreciation right based on the value of Kraft
Class A Common Stock resulting from an option to acquire Kraft Class A Common
Stock originally granted by Altria as of June 12, 2001.

 

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Kraft Stock Investment Option: the investment option offered under the PMI
Deferred Profit-Sharing Plan whose value is based on the value of Kraft Class A
Common Stock.

Kraft Subsidiaries: all of the Subsidiaries of Kraft as of March 30, 2007.

Law: any federal, state or local statute, ordinance, regulation, code, license,
permit, authorization, approval, consent, common law, legal doctrine, order,
judgment, decree, injunction or requirement of any Governmental Authority or any
order or award of any arbitrator, now or hereafter in effect.

Liabilities: any and all claims, debts, liabilities, assessments, guarantees,
assurances, commitments, obligations, fines, excise taxes, penalties, damages
(whether compensatory, punitive, consequential, multiple or other), losses,
disgorgements and obligations, of any kind, character or description (whether
absolute, contingent, matured, not matured, liquidated, unliquidated, accrued,
known, unknown, direct, indirect, derivative or otherwise) whenever arising,
including, but not limited to, those arising under or in connection with any
Law, and those arising under any contract, guarantee, commitment or undertaking,
whether sought to be imposed by any Governmental Authority or arbitrator,
whether based in contract, tort, implied or express warranty, strict liability,
criminal or civil statute, or otherwise, and including all costs, expenses and
interest relating thereto (including, but not limited to, all expenses of
investigation, all attorneys’ fees and all out-of-pocket expenses in connection
with any action or threatened action).

Losses: with respect to any Person, all losses, Liabilities, damages, claims,
demands, judgments or settlements of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated, including
all costs and expenses (legal, accounting or otherwise as such costs are
incurred) relating thereto, including punitive damages and criminal fines and
penalties, but excluding damages in respect of actual or alleged lost profits,
suffered by such Person, regardless of whether any such losses, Liabilities,
damages, claims, demands, judgments, settlements, costs, expenses, fines and
penalties relate to or arise out of such Person’s own alleged or actual
negligent, grossly negligent, reckless or intentional misconduct or the capacity
in which such Person was acting.

Non-parties: as defined in Section 8.3(b) hereof.

Non-PMI Group: the Altria Group, the Kraft Group, and SABMiller.

NYSE: the New York Stock Exchange, Inc.

Option Conversion Ratio: the ratio of the pre-adjustment exercise price of the
applicable Altria Options to the Altria Pre-Adjustment Price.

Permissible Offset: with respect to an Altria Pension Plan, any benefit earned
under a PMI Pension Plan (including, for this purpose, any defined benefit plan
or program that provides retirement income for PMI Group Employees, regardless
of

 

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whether such PMI Group Employee is a U.S. payroll-based PMI Group Employee) that
may be used to offset a benefit earned under an Altria Pension Plan, but only if
such benefit is attributable to a period of service used to determine the amount
of his or her benefit under the Altria Pension Plan; and with respect to a PMI
Pension Plan, any benefit earned under an Altria Pension Plan that may be used
to offset a benefit earned under a PMI Pension Plan, but only if such benefit is
attributable to a period of service used to determine the amount of his benefit
under the PMI Pension Plan.

Person: an individual, a committee, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, or a government or any department or agency thereof.

Personal Data: as defined in Section 8.1 hereof.

PMI: as defined in the preamble to this Agreement.

PMI Benefit Liabilities: as defined in Section 2.2 hereof.

PMI Common Stock: the common stock, no par value, of PMI.

PMI Deferred Stock: a deferred stock obligation relating to PMI Common Stock
granted by PMI as of the Distribution Date under a PMI Performance Incentive
Plan pursuant to Section 5.3(a) and Section 5.4(a) hereof.

PMI Group: PMI and the PMI Subsidiaries; provided, however, that solely for the
purpose of determining whether a former employee of the PMI Group is a Former
PMI Group Employee, PMI Group shall include PM Duty Free, Inc.

PMI Group Employee: any individual, excluding an Altria Transferee, who (i), as
of the close of business on the Distribution Date, is either employed by, or on
leave of absence (as defined by the personnel policies of the PMI Group) from, a
member of the PMI Group; (ii) is a Former PMI Group Employee; or (iii) is or
becomes a PMI Transferee.

PMI Group Plans:

(i) the PMI Pension Plans;

(ii) the PMI Profit-Sharing Plans;

(iii) the PMI Welfare and Other Plans; and

(iv) the PMI Performance Incentive Plans.

PMI Option: an option to acquire PMI Common Stock granted by PMI as of the
Distribution Date under the PMI Performance Incentive Plan in partial
substitution for the Altria Options.

 

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PMI Participating Company: any company of the PMI Group whose eligible employees
participated in the Altria Pension Plans and Altria Profit-Sharing Plans prior
to January 1, 2008.

PMI Pension Plans: any of PMI Retirement Plan, the PMI Benefit Equalization
Plan, the PMI Supplemental Management Plan for Salaried Employees, and any other
qualified or non-qualified defined benefit plan or program that provides
retirement income for U.S. payroll-based PMI Group Employees that is identified
by PMI no later than the Distribution Date, all as in effect as of the time
relevant to the applicable provisions of this Agreement.

PMI Performance Incentive Plans: the PMI 2008 Performance Incentive Plan, or any
other stock-based or other incentive plan for PMI Group Employees that is
identified by PMI before the Distribution Date, all as in effect as of the time
relevant to the applicable provisions of this Agreement.

PMI Price: the Altria Pre-Adjustment Price multiplied by a fraction, the
numerator of which is the closing price of PMI Common Stock on the NYSE on the
Distribution Date (as traded on the “when issued” market) and the denominator of
which is the sum of the numerator plus the closing price of Altria Common Stock
on the NYSE on the Distribution Date (as traded on the “when issued” market).

PMI Profit-Sharing Plans: any of the PMI Deferred Profit-Sharing Plan, the PMI
Benefit Equalization Plan, the PMI Supplemental Management Plan for Salaried
Employees, the Philip Morris Products Inc. 401(k) Savings Plan and any other
qualified or non-qualified defined contribution plan or program that provides
retirement income for U.S. payroll-based PMI Group Employees that is identified
by PMI before the Distribution Date, all as in effect as of the time relevant to
the applicable provisions of this Agreement.

PMI Restricted Stock: restricted PMI Common Stock distributed as of the
Distribution Date and subject to terms and conditions pursuant to Section 5.3(b)
hereof.

PMI Stock Investment Option: the investment option to be offered under the
following Altria Profit-Sharing Plans: the Deferred Profit-Sharing Plan for
Salaried Employees, the Deferred Profit-Sharing Plan for Tobacco Workers, the
Deferred Profit-Sharing Plan for Craft Employees and the investment option to be
offered under the PMI Deferred Profit-Sharing Plan whose value in each case is
based on the value of PMI Common Stock.

PMI Subsidiaries: all of the Subsidiaries of PMI.

PMI Transferee: any employee of a member of the Altria Group who will transfer
employment to a member of the PMI Group on or after the Distribution Date, but
on or prior to December 31, 2008.

PMI Welfare and Other Plans: any plan, fund or program that provides health,
medical, surgical, hospital or dental care, severance, survivor income,
long-term

 

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disability, cafeteria, flexible benefits or other welfare benefits or benefits
in the event of sickness, accident or disability, or death benefits to PMI Group
Employees, all as in effect as of the time relevant to the applicable provisions
of this Agreement.

Record Date: the close of business on the date to be determined by Altria’s
Board of Directors as the record date for determining the holders of Altria
Common Stock entitled to receive shares of PMI Common Stock pursuant to the
Distribution.

SEC: the United States Securities and Exchange Commission.

Securities Act: the Securities Act of 1933, as amended, or any successor
statute.

Securities Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor statute.

Subsidiary: with respect to any specified Person, any corporation or other legal
entity of which such Person or any of its Subsidiaries controls or owns,
directly or indirectly, more than 50% of the stock or other equity interest
entitled to vote on the election of members to the board of directors or similar
governing body; provided, however, that for purposes of this Agreement, (1) the
PMI Subsidiaries shall be deemed to be Subsidiaries of PMI; and (2) no member of
the PMI Group shall be deemed to be a Subsidiary of any member of the Altria
Group.

1.2 References to Time. All references in this Agreement to times of the day
shall be to Richmond, Virginia time, except as otherwise specifically provided
herein.

ARTICLE II

GENERAL PRINCIPLES

2.1 Altria Group Employees.

(a) Obligations. Except as specifically provided in this Agreement, to the
exclusion of the PMI Group, the appropriate member of the Altria Group shall
continue to be responsible for and pay, perform and discharge each and every of
the employment, compensation and employee benefits Liabilities relating to the
Altria Group Employees and Former PMI Group Employees described in clauses
(iii) and (iv) of the definition of Former PMI Group Employees that arise from
employment with the Altria Group, the Former Altria Group and the PMI Group
before the Distribution Date and that arise with respect to Altria Group
Employees from employment with the Altria Group on or after the Distribution
Date, including each and every Liability arising under an Altria Group Plan or
assumed pursuant to the terms of this Agreement (collectively, the “Altria
Benefit Liabilities”); provided, however, that nothing shall preclude any Altria
Pension Plan to reduce or eliminate any such Altria Benefit Liability by a
Permissible Offset.

(b) Reimbursement. As soon as practicable following the Distribution Date, PMI
shall reimburse Altria in an amount equal to the present value of the

 

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Altria Benefit Liabilities retained by Altria with respect to Former PMI Group
Employees described in clauses (iii) and (iv) of the definition of Former PMI
Group Employees.

(c) Crediting Service. As of the Distribution Date, the service used to
determine the eligibility for, the vested portion of and the amount of, any
benefit under any Altria Group Plan of each Altria Group Employee shall not be
less than the service that such Altria Group Employee earned with the Altria
Group, the Former Altria Group and the PMI Group with respect to such Altria
Group Plan to such date.

2.2 PMI Group Employees.

(a) Obligations. Except as specifically provided in this Agreement, to the
exclusion of the Altria Group, the appropriate member of the PMI Group shall
continue to be responsible for and pay, perform and discharge each and every of
the employment, compensation and employee benefits Liabilities relating to PMI
Group Employees (other than Former PMI Group Employees described in clauses
(iii) and (iv) of the definition of Former PMI Group Employees) that arise from
employment with the PMI Group, the Altria Group and the Former Altria Group
before the Distribution Date and that arise with respect to PMI Group Employees
from employment with the PMI Group on or after the Distribution Date, including
each and every Liability arising under a PMI Group Plan or assumed pursuant to
the terms of this Agreement (collectively, the “PMI Benefit Liabilities”);
provided, however, that nothing shall preclude any PMI Pension Plan to reduce or
eliminate any such PMI Benefit Liability by a Permissible Offset.

(b) Crediting of Service. As of the Distribution Date, the service used to
determine the eligibility for, the vested portion of and the amount of, any
benefit under any PMI Group Plan (including, for purposes of this subparagraph
(b), any PMI Group employee benefit plan that provides retirement income,
regardless of whether it covers only U.S. payroll-based PMI Group Employees) of
each PMI Group Employee (including, for purposes of this subparagraph (b), any
PMI Group employee, regardless of whether such employee is a U.S. payroll-based
PMI Group Employee) shall not be less than the service that such PMI Group
Employee earned with the Altria Group, the Former Altria Group and the PMI Group
with respect to such PMI Group Plan to such date.

ARTICLE III

PMI GROUP PLANS

3.1 PMI Group Plans. The following principles shall apply.

(a) PMI Pension Plans. A member of the PMI Group has previously adopted and
established the PMI Pension Plans for the benefit of eligible PMI Group
Employees. PMI shall timely take all actions necessary to obtain a favorable
determination letter from the Internal Revenue Service that the PMI

 

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Retirement Plan is qualified under Section 401(a) of the Code and the related
trust forms part of a qualified plan and is therefore exempt from tax under
Section 501(a) of the Code.

(b) Transfer of Assets.

(i) Prior Asset Transfer. At or about the time of the establishment of the PMI
Retirement Plan by a member of the PMI Group, Altria caused the trust under the
Retirement Plan for Salaried Employees to make a direct transfer of assets to
the trust established under the PMI Retirement Plan. The value of the assets
transferred and to be transferred from the Retirement Plan for Salaried
Employees to the trust under the PMI Retirement Plan was and will be the amount
required to be transferred pursuant to Section 414(l) of the Code. Such amount
was determined by the actuary for the Retirement Plan for Salaried Employees and
the PMI Retirement Plan. Any amount required to be transferred pursuant to this
section shall be adjusted for (i) allocable gains and/or losses of the trust
under the Retirement Plan for Salaried Employees, (ii) benefit payments on
behalf of the PMI Retirement Plan, and (iii) allocable expenses.

(ii) Subsequent Asset Transfer.

(A) As soon as practicable after December 31, 2008, or such earlier date that
may be agreed upon by the Altria Group and the PMI Group, but in no event
earlier than 30 days following the filing of Form 5310-A with the Internal
Revenue Service, if required, Altria agrees to cause the trust under the
Retirement Plan for Salaried Employees to make a direct transfer (or transfers)
of assets to the trust established under the PMI Retirement Plan in an amount
determined by the actuary for the Retirement Plan for Salaried Employees and
agreed to by the actuary for the PMI Retirement Plan, equal to the amount
required to be transferred pursuant to Section 414(l) of the Code with respect
to those PMI Group Employees who were participants in the Retirement Plan for
Salaried Employees and for whom assets were not transferred pursuant to clause
(i) hereof. The value of the assets to be transferred from the trust under the
Retirement Plan for Salaried Employees to the trust under the PMI Retirement
Plan will be determined in accordance with Section 414(l) of the Code without
regard to Section 414(l)(2) of the Code. The PMI Group similarly agrees to cause
the trust under the Philip Morris International Retirement Plan to make a direct
transfer (or transfers) of assets to the trust established under the Retirement
Plan for Salaried Employees in an amount determined by the actuary for the
Philip Morris International Retirement Plan and agreed to by the actuary for the
Retirement Plan for Salaried Employees, equal to the amount required to be
transferred pursuant to Section 414(l) of the Code with respect to those Altria
Transferees who were participants in the Philip Morris International Retirement
Plan and who transferred after the Distribution Date.

(B) Altria and PMI shall reasonably cooperate with each other in order to
facilitate the foregoing provisions of this clause (ii).

 

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(c) Credit for Service with the Altria Group. The PMI Pension Plans shall
provide that each PMI Group Employee (regardless of the date of employment with
the PMI Group) shall be credited with eligibility and vesting service that is
not less than the eligibility and vesting service that the PMI Group Employee
had earned under the comparable or equivalent Altria Group Pension Plan.

(d) Credit under all other PMI Group Plans. No later than as of the Distribution
Date, each PMI Group Plan shall provide that each PMI Group Employee (regardless
of the date of employment with the PMI Group) shall be credited with eligibility
and vesting service that is not less than the eligibility and vesting service
that the PMI Group Employee had earned under the comparable or equivalent Altria
Group Plan.

(e) PMI Profit-Sharing Plans.

(i) Creation and Qualification of Plans. PMI has previously adopted and
established the PMI Profit-Sharing Plans with respect to eligible PMI Group
Employees. PMI shall take all actions necessary to timely obtain a favorable
determination letter from the Internal Revenue Service that the PMI Deferred
Profit-Sharing Plan is qualified under Section 401(a) of the Code and the
related trust forms part of a qualified plan and is therefore exempt from tax
under Section 501(a) of the Code.

(f) Transfer of Assets.

(i) Prior Asset Transfer. Contemporaneously with the establishment of the PMI
Profit-Sharing Plan, Altria caused the Deferred Profit-Sharing Plan for Salaried
Employees to make a direct transfer of assets from such plan to the trust
established under the PMI Deferred Profit-Sharing Plan. The value of the assets
transferred from the trust under the Deferred Profit-Sharing Plan for Salaried
Employees to the trust under the PMI Deferred Profit-Sharing Plan was determined
in accordance with Section 414(l) of the Code, to be equal to the value of the
accounts of the then identified PMI Group Employees.

(ii) Subsequent Asset Transfer.

(A) On or before April 30, 2008, but in no event earlier than 30 days following
the filing of Form 5310-A with the Internal Revenue Service, if required, Altria
agrees to cause the trust under the Deferred Profit-Sharing Plan for Salaried
Employees to make a direct transfer (or transfers) of assets to the trust
established under the PMI Deferred Profit-Sharing Plan in an amount equal to the
accounts of the PMI Group Employees for whom assets were not transferred
pursuant to clause (i) hereof, except that Altria shall not cause the transfer
of assets with respect to PMI Transferees who

 

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have transferred to a member of the PMI Group after the Distribution Date, such
assets to be retained in the trust under the Deferred Profit-Sharing Plan for
Salaried Employees pending further direction from the PMI Transferee. The value
of the assets to be transferred will be determined in accordance with
Section 414(l) of the Code.

(B) Altria and PMI shall reasonably cooperate with each other in order to
facilitate the foregoing provisions of clause (ii).

(g) PMI Welfare and Other Benefits. PMI Group Employees shall be entitled to
participate in the PMI Welfare and Other Plans in accordance with the Altria
Group practices in effect as of the Distribution Date, provided, however, that
nothing herein shall preclude PMI Group Employees from continuing to participate
in Altria Group Welfare and Other Plans for the calendar year of the
Distribution if mutually agreed to by PMI and Altria.

(h) PMI Directors’ Plans. PMI has adopted the PMI Deferred Fee Plan for
Non-Employee Directors and the PMI Stock Compensation Plan for Non-Employee
Directors effective as of January 29, 2008. Effective as of the Distribution
Date, PMI shall assume, under the PMI directors’ plans, the liability for
deferred amounts under the Altria Group, Inc. Deferred Fee Plan for Non-Employee
Directors, the Altria Group, Inc. Stock Compensation Plan for Non-Employee
Directors, and the Altria Group, Inc. Unit Plan for Incumbent Non-Employee
Directors with respect to each individual who is a member of the Board of
Directors of Altria in 2008 before the Distribution Date and who is a member of
the Board of Directors of PMI on the Distribution Date. As soon as practicable
following the Distribution Date, Altria shall pay to PMI an amount equal to such
liability determined as of the close of business on the Distribution Date.

ARTICLE IV

EMPLOYEE TRANSFERS

4.1 PMI Transferees. The following principles shall apply to any PMI Transferee.
Except as specifically noted in this Agreement as otherwise agreed in writing by
the parties, each PMI Transferee will become, or continue to be, eligible upon
transfer for the rights and benefits of similarly situated PMI Group Employees.

(a) Amendments. No member of the PMI Group shall cause any amendments to be made
to the PMI Group Plans or any policies regarding the PMI Group Plans (other than
amendments to provide for Permissible Offsets) to be implemented that have the
direct or indirect effect of treating the PMI Transferees less favorably than
the other PMI Group Employees similarly situated in seniority and job
responsibilities.

(b) Profit-Sharing Plans.

(i) Participation. As soon as administratively practicable following the date on
which the PMI Transferee transfers, the PMI Transferee shall be eligible to
commence participation in the appropriate PMI Profit-Sharing Plan. Any service
requirements contained in such PMI Profit-Sharing Plan with respect to
eligibility to participate generally or eligibility to share in any employer
contributions thereunder shall be waived for the PMI Transferee.

(c) Company Contribution for PMI Transferee. If any PMI Transferee is
transferred to the PMI Group after the Distribution Date but on or prior to
December 31st of the calendar year in which the Distribution Date occurs and
would otherwise be eligible for a company contribution (within the meaning of
the Deferred Profit-Sharing Plan for Salaried Employees) under the Deferred
Profit-Sharing Plan for Salaried Employees for that calendar year, the
appropriate member of the Altria Group will contribute (or credit, as
applicable) to each such PMI Transferee’s account in the Altria

 

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Profit-Sharing Plans the pro-rated amount of any employer contribution to which
the PMI Transferee is entitled based on his compensation (as defined in the
Deferred Profit-Sharing Plan for Salaried Employees) received from an Altria
Participating Company through the date of transfer and irrespective of whether
such PMI Transferee is employed by the PMI Group on the last day of the calendar
year in which he or she transferred. Any PMI Transferee who has an outstanding
loan from the Deferred Profit-Sharing Plan for Salaried Employees as of the date
of transfer to PMI may continue to repay such loan in accordance with the terms
of such Deferred Profit-Sharing Plan for Salaried Employees.

4.2 Altria Transferees. The following principles shall apply to any Altria
Transferee. Except as specifically noted in this Agreement as otherwise agreed
in writing by the parties, each Altria Transferee will become, or continue to
be, eligible upon transfer for the rights and benefits of similarly situated
Altria Group Employees.

(a) Amendments. No member of the Altria Group shall cause any amendments to be
made to the Altria Group Plans or any policies regarding the Altria Group Plans
(other than amendments to provide for Permissible Offsets) to be implemented
that have the direct or indirect effect of treating the Altria Transferees less
favorably than the other Altria Group Employees similarly situated in seniority
and job responsibilities.

(b) Profit-Sharing Plan.

(i) Participation. As soon as administratively practicable following the date on
which the Altria Transferee transfers, the Altria Transferee shall be eligible
to commence participation in the appropriate Altria Profit-Sharing Plan. Any
service requirements contained in such Altria Profit-Sharing Plan with respect
to eligibility to participate generally to share in any employer contributions
thereunder shall be waived for the Altria Transferee.

(c) Company Contribution for Altria Transferee. If any Altria Transferee is
transferred to the Altria Group after the Distribution Date but on or prior to
December 31st of the calendar year in which the Distribution Date occurs and
would otherwise be eligible for a company contribution (within the meaning of
the PMI Deferred Profit-Sharing Plan) under the PMI Deferred Profit-Sharing Plan
for that calendar year, the appropriate member of the PMI Group will contribute
(or credit, as applicable) to each such Altria Transferee’s account in the PMI
Profit-Sharing Plans the pro-rated amount of any employer contribution to which
the Altria Transferee is entitled based on his compensation (as defined in the
PMI Deferred Profit-Sharing Plan) received from a Participating Company (as
defined in the PMI Deferred Profit-Sharing Plan) through the date of transfer
and irrespective of whether such Altria Transferee is employed by the Altria
Group on the last day of the calendar year in which he transferred. Any Altria
Transferee who has an outstanding loan from the PMI Deferred Profit-Sharing Plan
as of the date of transfer to the Altria Group may continue to repay such loan
in accordance with the terms of such PMI Deferred Profit-Sharing Plan.

 

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4.3 Payments. As soon as practicable following the Distribution Date, Altria
shall pay to PMI an amount representing the excess of the reasonably estimated
present values of (a), with respect to certain employees of the Altria Group
scheduled to transfer to the PMI Group, (i) liabilities accrued for financial
reporting purposes for post-retirement medical and life insurance benefits and
certain other agreed post-employment benefits as of December 31, 2007, (ii)
defined benefit obligations under Altria’s Benefit Equalization Plan and
Altria’s Supplemental Management Employees’ Retirement Plan as of December 31,
2007 (less relevant offsets for amounts previously paid pursuant to the Altria
Secular Trust Program and the Altria Executive Trust Arrangement) plus (iii)
those target payments that would reasonably be anticipated to be earned,
assuming continued payment of target payments, during such employees’ service
with PMI no later than December 31, 2012 that are in lieu of the increase in the
value of benefits with respect to service before January 1, 2008 to which the
transferees would have become entitled (assuming continued employment) as a
result of attaining early retirement eligibility, had they been covered by
Altria’s Benefit Equalization Plan and Altria’s Supplemental Management
Employees’ Retirement Plan, over (b) the results of similar calculations for
post-retirement medical, life insurance and other post-employment benefit
liabilities, defined benefit obligations and anticipated target payments to be
paid by Altria with respect to an employee of the PMI Group who transferred to
the Altria Group in anticipation of the Distribution and any other mutually
agreed employees of the PMI Group scheduled to transfer to the Altria Group.

ARTICLE V

EQUITY COMPENSATION

5.1 Altria Options.

(a) Adjustment Methodology. Each Altria Option shall be adjusted in the manner
described below, effective as of the time of the Distribution, so that each
Altria Option holder shall hold Adjusted Altria Options and PMI Options in lieu
of the Altria Options previously held. The following procedure shall be applied
to each grant of Altria Options with the same grant date and exercise price held
by each Altria Option holder. For the avoidance of doubt, the term “exercise
price” refers to the amount payable by an option holder in order to acquire
shares pursuant to a stock option award.

(i) The Adjusted Altria Options shall have an exercise price equal to the Altria
Post-Adjustment Price multiplied by the Option Conversion Ratio. The number of
Adjusted Altria Options shall equal the number of Altria Options.

(ii) The PMI Options shall have an exercise price equal to the PMI Price
multiplied by the Option Conversion Ratio. The number of PMI Options shall equal
the number of Altria Options. If the resulting aggregate Intrinsic Value of the
Adjusted Altria Options and PMI Options is less than the Intrinsic Value of the
Altria Options, then the difference shall be paid to the option holder in cash
as soon as practicable following the Distribution Date. If the resulting
aggregate Intrinsic Value of the Adjusted Altria Options and PMI Options is
greater than the Intrinsic Value of the Altria Options, then the number of PMI
Options shall be reduced until the aggregate Intrinsic Value of the Adjusted
Altria

 

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Options and PMI Options is less than or equal to the Intrinsic Value of the
Altria Options, and any difference shall be paid to the option holder in cash as
soon as practicable following the Distribution Date. Notwithstanding the
foregoing, if the Intrinsic Value of the Altria Options is negative, only the
first two sentences of this Section 5.1(a)(ii) shall be applied. The cash
payment described above shall be made by Altria to individuals who are Non-PMI
Group employees on the Distribution Date (or individuals no longer performing
services for the Non-PMI Group or the PMI Group but whose last employment was
with the Non-PMI Group), and by PMI to individuals who are PMI Group employees
on the Distribution Date (or individuals no longer performing services for the
Non-PMI Group or the PMI Group but whose last employment was with the PMI
Group).

(iii) The calculation described in the preceding sentence shall be applied using
the rounding conventions determined by Altria to carry out the purpose of this
Section 5.1.

(b) Issuing Entity and Settlement. Altria will adjust the exercise price of the
Altria Options to become Adjusted Altria Options pursuant to the Altria
Performance Incentive Plan. After the Distribution Date, Adjusted Altria
Options, regardless of by whom held, shall be settled by Altria pursuant to the
Altria Performance Incentive Plan. PMI will issue the PMI Options pursuant to
the PMI Performance Incentive Plan. After the Distribution Date, PMI Options,
regardless of by whom held, shall be settled by PMI pursuant to the PMI
Performance Incentive Plan.

(c) Option Agreement Terms. The Adjusted Altria Options and the PMI Options
shall have terms that are substantially identical to the terms of the Altria
Options, provided, however, that (i) the Adjusted Altria Options shall provide
that individuals who are employees of the PMI Group on the Distribution Date or
who are PMI Transferees shall continue while employed by the PMI Group to be
treated as employees of an Altria Affiliate solely for purposes of determining
the exercise period under the option agreements; (ii) the PMI Options shall
provide that individuals who are employees of the Non-PMI Group on the
Distribution Date or who are Altria Transferees shall continue while employed by
the Non-PMI Group to be treated as employees of a PMI Affiliate solely for
purposes of determining the exercise period under the option agreements; and
(iii) the PMI Options shall refer to both PMI and members of the Non-PMI Group
as appropriate to effectuate the intent of this Section 5.1 including references
to the Non-PMI Group disability and retirement plans.

(d) Consideration. As soon as practicable following the Distribution Date,
Altria shall pay to PMI the Fair Value of the PMI Options held by individuals
who are Non-PMI Group employees on the Distribution Date (or individuals no
longer performing services for the Non-PMI Group or the PMI Group but whose last
employment was with the Non-PMI Group) and PMI shall pay to Altria the Fair
Value of the Adjusted Altria Options held by individuals who are PMI Group
employees on the Distribution Date (or individuals no longer performing services
for the Non-PMI Group or the PMI Group but whose last employment was with the
PMI Group). The parties shall settle the obligations of the preceding sentence
in cash on a net basis such that the party required to pay the greater amount to
the other shall pay the difference between the two amounts to the other.

 

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5.2 Kraft SARs Issued by Altria. Upon the Distribution Date, PMI shall assume
the liability for Kraft SARs held by individuals who are employees of the PMI
Group on the Distribution Date (or individuals no longer performing services for
the Non-PMI Group or the PMI Group but whose last employment was with the PMI
Group). PMI shall settle such Kraft SARs upon exercise and assume all other
obligations under such Kraft SARs. Altria and PMI shall amend such Kraft SARs
effective as of the Distribution Date to replace references to Altria with
references to PMI and otherwise as appropriate to effectuate the intent of this
Section 5.2.

5.3 Restricted Stock and pre-January 31, 2007 Deferred Stock.

(a) Adjustment. Pursuant to the Distribution, each holder of Altria Restricted
Stock will receive from Altria as of the time of the Distribution shares of PMI
Common Stock in the same manner and based on the same ratio as other
shareholders of Altria Common Stock. Such PMI Common Stock shall be subject to
the same vesting requirements and dates and other terms and conditions as the
Altria Restricted Stock to which it relates (including the right to receive all
dividends or other distributions paid on PMI Common Stock). Effective at the
time of the Distribution, each holder of Altria Deferred Stock that was granted
before January 31, 2007 shall receive a number of PMI Deferred Stock shares
based on the same ratio as shareholders of Altria Common Stock. Such PMI
Deferred Stock shall be subject to the provisions of Section 5.4(b) through
Section 5.4(e).

(b) Restricted Stock Agreement Terms. The PMI Restricted Stock shall have the
same terms as the Altria Restricted Stock; provided, however, that (i) the
Altria Restricted Stock shall provide that individuals who are employees of the
PMI Group on the Distribution Date or who are PMI Transferees shall continue to
be treated while so employed as employees of an Altria Affiliate for purposes of
continued vesting in the restricted stock; (ii) the PMI Restricted Stock shall
provide that individuals who are employees of the Non-PMI Group on the
Distribution Date or who are Altria Transferees shall continue to be treated
while so employed as employees of a PMI Affiliate for purposes of continued
vesting in the restricted stock; and (iii) the PMI Restricted Stock shall refer
to both PMI and members of the Non-PMI Group as appropriate to effectuate the
intent of this Section 5.3.

(c) Forfeiture of PMI Stock and Consideration. If a holder of PMI Restricted
Stock forfeits such stock under the terms of the PMI Restricted Stock, the
forfeited stock shall be returned to PMI, not Altria. In consideration of the
anticipated receipt of such forfeitures, PMI shall pay in cash to Altria as soon
as practicable following the Distribution Date the anticipated value of
forfeitures attributable to PMI Restricted Stock held by individuals who are
Non-PMI Group employees on the Distribution Date. In addition, PMI shall pay in
cash to Altria as soon as practicable following the Distribution Date the value
of the Altria Restricted Stock held by the PMI Group employees on the

 

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Distribution Date. The anticipated value of the PMI Restricted Stock that may be
forfeited by holders and returned to PMI shall be determined using the PMI Price
and the forfeiture assumption used for Statement of Financial Accounting
Standards 123(R) purposes in Altria’s most recent quarterly or annual financial
reporting prepared before the Distribution Date for forfeitures of Altria
Restricted Stock. The value of the Altria Restricted Stock shall be equal to the
Altria Pre-Adjustment Price of the underlying Altria shares, reduced by assumed
forfeitures based on the assumptions used for Statement of Financial Accounting
Standards 123(R) purposes in Altria’s most recent quarterly or annual financial
reporting prepared before the Distribution Date for forfeitures of Altria
Restricted Stock.

5.4 Deferred Stock.

(a) Adjustment. Effective at the time of the Distribution, each holder of Altria
Deferred Stock that was granted on or after January 31, 2007 and before
January 30, 2008 shall receive a number of PMI Deferred Stock shares based on
the same ratio as holders of Altria Common Stock. Effective at the time of the
Distribution, each holder of Altria Deferred Stock that was granted on or after
January 30, 2008 shall receive (i) in the case of a holder who is an employee of
the Non-PMI Group on the Distribution Date, additional Altria Deferred Stock,
such that following the Distribution Date the holder will have the number of
shares of Altria Deferred Stock equal to the number of shares of Altria Deferred
Stock held before the Distribution multiplied by the ratio of the Altria
Pre-Adjustment Price to the Altria Post-Adjustment Price; and (ii) in the case
of a holder who is a PMI Group Employee on the Distribution Date, PMI Deferred
Stock in substitution for such holder’s Altria Deferred Stock, such that
following the Distribution Date the holder will have the number of shares of PMI
Deferred Stock equal to the number of shares of Altria Deferred Stock held
before the Distribution multiplied by the ratio of the Altria Pre-Adjustment
Price to the PMI Price. Any fractional shares of Altria or PMI Deferred Stock
resulting from the adjustment in the preceding sentence shall be paid to the
holder in cash as soon as practicable following the Distribution Date; provided,
however, that with respect to any individual holding Deferred Stock that is
subject to Code Section 409A, any fractional shares of Altria or PMI Deferred
Stock shall instead be rounded up to a whole share of Altria or PMI Deferred
Stock. The cash payment described above shall be made by Altria to individuals
who are Non-PMI Group employees on the Distribution Date, and by PMI to
individuals who are PMI Group employees on the Distribution Date.

(b) Issuing Entity and Settlement. After the Distribution Date, Altria shall be
responsible for any cash payments in lieu of dividends required pursuant to the
terms of the Altria Deferred Stock, and such Altria Deferred Stock, regardless
of by whom held, shall be settled by Altria pursuant to the Altria Performance
Incentive Plan. PMI will issue PMI Deferred Stock pursuant to the PMI
Performance Incentive Plan. After the Distribution Date, PMI shall be
responsible for any cash payments in lieu of dividends required pursuant to the
terms of the PMI Deferred Stock, and such deferred stock, regardless of by whom
held, shall be settled by PMI pursuant to the PMI Performance Incentive Plan.

 

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(c) Deferred Stock Agreement Terms. The PMI Deferred Stock shall have the same
terms as the Altria Deferred Stock, provided, however, that (i) the Altria
Deferred Stock shall provide that individuals who are employees of the PMI Group
on the Distribution Date or who are PMI Transferees shall continue to be treated
while so employed as employees of an Altria Affiliate for purposes of continued
vesting in the deferred stock; (ii) the PMI Deferred Stock shall provide that
individuals who are employees of the Non-PMI Group on the Distribution Date or
who are Altria Transferees shall continue to be treated while so employed as
employees of a PMI Affiliate for purposes of continued vesting in the deferred
stock; and (iii) the PMI Deferred Stock shall refer to both PMI and members of
the Non-PMI Group as appropriate to effectuate the intent of this Section 5.4.

(d) Consideration. As soon as practicable following the Distribution Date,
Altria shall pay to PMI the value of the PMI Deferred Stock held by individuals
who are Non-PMI Group employees on the Distribution Date and PMI shall pay to
Altria the value of the Altria Deferred Stock held by individuals who are PMI
Group employees on the Distribution Date. The parties shall settle the
obligations of the preceding sentence in cash on a net basis such that the party
required to pay the greater amount to the other shall pay the difference between
the two amounts to the other. For purposes of this Section 5.4(d), the value of
the Altria Deferred Stock or PMI Deferred Stock shall be determined based on the
Altria Post-Adjustment Price and the PMI Price, respectively, reduced by assumed
forfeitures based on the assumptions used for Statement of Financial Accounting
Standards 123(R) purposes in Altria’s most recent quarterly or annual financial
reporting prepared before the Distribution Date for forfeitures of Altria
Deferred Stock.

(e) Taxes. Altria shall reimburse any Altria Group employee, and PMI shall
reimburse any PMI Group employee, who becomes liable for income taxes with
respect to Altria or PMI Deferred Stock earlier or in an amount greater than
would have been the case absent the implementation of Section 5.3(a) or
Section 5.4(a) in an amount equal to the excess of (i) any income taxes to which
such employee becomes liable over (ii) the present value of such income taxes
had such income taxes been paid at such time as the Altria or PMI Deferred Stock
would otherwise have been subject to income taxes, assuming, for purposes of
determining present value, the same value for Deferred Stock used for purposes
of clause (i) of this sentence and a discount rate equal to the weighted average
discount rate used for Altria’s domestic pension plans at December 31, 2007,
which was 6.2%. Any such reimbursement shall be further adjusted to hold the
employee harmless from all additional taxes on the reimbursement payment itself.
The amounts payable pursuant to this Section 5.4(e) shall be calculated using
reasonable assumptions (in addition to those specified above) as may be
determined by the third-party accounting firm or firms selected by the party
responsible for the reimbursement.

5.5 Existing Kraft Equity Compensation.

(a) Consideration. As soon as practicable following the Distribution Date, PMI
shall pay to Altria the Fair Value of the Existing Kraft Options held by
individuals who are PMI Group employees on the Distribution Date (or individuals
no longer

 

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performing services for the Non-PMI Group or the PMI Group, but whose last
employment was with PMI Group). As soon as practicable following the
Distribution Date, PMI shall also pay to Altria the value of Existing Kraft
Restricted Stock and the Existing Kraft Deferred Stock held by individuals who
are PMI Group employees on the Distribution Date (or individuals no longer
performing services for the Non-PMI Group or the PMI Group but whose last
employment was with the PMI Group). The value of the Existing Kraft Restricted
Stock and Existing Kraft Deferred Stock shall be determined based on a Kraft
stock price of $31.66, and reduced by assumed forfeitures based on the
assumptions used for purposes of Section 4.4(d) of the Employees Matters
Agreement by and between Altria Group, Inc. and Kraft with respect to Kraft
Deferred Stock held by Altria Group Employees.

(b) Employment Treatment. Equity compensation issued by Kraft before the
Distribution Date shall provide that individuals who are PMI Group Employees on
the Distribution Date shall continue while employed by the PMI Group to be
treated as employees of a member of the Kraft Group for purposes of determining
the exercise period of Existing Kraft Options and continued vesting in Existing
Kraft Restricted Stock and Deferred Stock.

5.6 Payments Previously Made By PMI. Any payments to be made by PMI to Altria
under this Article V with respect to Equity Compensation shall be reduced by
payments previously made by PMI to Altria with respect to such Equity
Compensation in the normal course of business before the Distribution Date.

5.7 Other.

(a) Administration and Withholding.

(i) Altria and PMI agree that UBS Financial Services Inc. shall be the
administrator and recordkeeper for the Adjusted Altria Options, PMI Options,
Kraft SARs, Altria Restricted Stock, PMI Restricted Stock, Altria Deferred Stock
and PMI Deferred Stock for the life of the options, restricted stock and
deferred stock, unless the parties mutually agree otherwise.

(ii) Altria will be responsible for all payroll taxes, withholding and reporting
with respect to Equity Compensation of Altria Group employees (or individuals no
longer performing services for the Non-PMI Group or PMI Group but whose last
employment was with the Altria Group). PMI will be responsible for all payroll
taxes, withholding and reporting with respect to Equity Compensation of PMI
Group employees (or individuals no longer performing services for the Non-PMI
Group or the PMI Group but whose last employment was with the PMI Group). Altria
and PMI agree to designate the other party as an agent for withholding pursuant
to IRS Revenue Procedure 70-6 and to accept such designation to effectuate the
intent of this Section 5.7(a).

(iii) Upon the exercise of an Adjusted Altria Option or PMI Option held by
Altria Group or PMI Group employees (or individuals no longer

 

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performing services for the Non-PMI Group or PMI Group but whose last employment
was with the Altria Group or PMI Group), the exercise price shall be remitted in
cash by the option administrator to the issuer of the option (Altria or PMI, as
applicable) and the applicable withholding shall be remitted in cash by the
option administrator to the entity (Altria or PMI, as applicable) responsible
for payroll taxes, withholding and reporting with respect to the option. Upon
vesting or payment, as applicable, of Altria and PMI Restricted Stock, Altria
and PMI Deferred Stock and Kraft SARs held by Altria Group or PMI Group
employees (or individuals no longer performing services for the Non-PMI Group or
PMI Group but whose last employment was with the Altria Group or PMI Group), the
applicable withholding shall be remitted in cash by the administrator to the
entity (Altria or PMI, as applicable) responsible for payroll taxes, withholding
and reporting with respect to the Restricted or Deferred Stock or Kraft SARs. To
the extent necessary to provide the withholding amount in cash to the entity
responsible for payroll taxes, withholding, and reporting, the issuer of the
applicable Equity Compensation shall provide the withholding amount in cash.

(iv) With respect to dividends on PMI Restricted Stock or dividend equivalents
on PMI Deferred Stock payable by PMI to an Altria Group employee, PMI shall make
such payments to Altria, and Altria, as an agent for PMI, shall make such
payments to its employees and former employees and shall be responsible for
payroll taxes, withholding and reporting in accordance with this Section 5.7(a).
With respect to dividends on Altria Restricted Stock or dividend equivalents on
Altria Deferred Stock payable by Altria to a PMI Group employee, Altria shall
make such payments to PMI, and PMI, as an agent for Altria, shall make such
payments to its employees and former employees and shall be responsible for
payroll taxes, withholding and reporting in accordance with this Section 5.7(a).

(v) PMI will cooperate with Kraft to establish appropriate procedures consistent
with this Section 5.7(a) for tax withholding, remitting withholding taxes,
payroll taxes, dividends, dividend equivalents, fractional shares and exercise
prices to the appropriate party, and tax reporting, including, to the extent
necessary, withholding agency designations pursuant to IRS Revenue Procedure
70-6, with respect to (A) PMI Options, PMI Restricted Stock and PMI Deferred
Stock of employees of the Kraft Group (or individuals no longer performing
services for the Kraft Group, the Non-PMI Group or the PMI Group but whose last
employment was with the Kraft Group) and (B) Existing Kraft Options, Existing
Kraft Restricted Stock and Existing Kraft Deferred Stock of PMI Group employees
(or individuals no longer performing services for the Kraft Group, the Non-PMI
Group or the PMI Group but whose last employment was with the PMI Group).

(vi) If, after the Distribution Date, Altria or PMI identify an administrative
error in the individuals identified as holding Equity Compensation, the amount
of Equity Compensation so held, the vesting level of such Equity Compensation,
or any other similar error, Altria and PMI shall mutually cooperate

 

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in taking such actions as are necessary or appropriate to place, as nearly as
reasonable practicable, the individual and Altria and PMI in the position in
which they would have been had the error not occurred.

(b) Scheduled Transfers. For purposes of this Article V only, if an individual
is, by mutual agreement between the parties, scheduled to transfer employment
shortly after the Distribution Date between the PMI Group and the Altria Group,
such individual shall be treated as employed on the Distribution Date by the
entity to which he or she is scheduled to transfer.

(c) Tax Deductions. With respect to the Equity Compensation held by individuals
who are Altria Group employees at the time the Equity Compensation becomes
taxable and individuals who are not employees of the PMI Group or Non-PMI Group
at such time but were last employees of the Altria Group, Altria shall claim any
federal, state and/or local tax deductions after the Distribution Date, and PMI
shall not claim such deductions. With respect to the Equity Compensation held by
individuals who are employees of the PMI Group at the time the Equity
Compensation becomes taxable and individuals who are not employees of the PMI
Group or Non-PMI Group at such time but were last employees of the PMI Group,
PMI shall claim any federal, state and/or local tax deductions after the
Distribution Date, and Altria shall not claim such deductions. If either Altria
or PMI determines in its reasonable judgment that there is a substantial
likelihood that a tax deduction that was assigned to Altria or PMI pursuant to
this Section 5.7(c) will instead be available only to the other party (whether
as a result of a determination by the Internal Revenue Service, a change in the
Code or the regulations or guidance thereunder, or otherwise), it will notify
the other party and both parties will negotiate in good faith to resolve the
issue in accordance with the following principle: the party entitled to the
deduction shall pay to the other party an amount that places the other party in
a financial position equivalent to the financial position the party would have
been in had the party received the deduction as intended under this
Section 5.7(c). Such amount shall be paid within 90 days of filing the last tax
return necessary to make the determination described in the preceding sentence.

(d) Intended Results; Tax Benefit. If Altria determines in its reasonable
judgment that any action required under this Article IV will not achieve the
intended tax, accounting and legal results, including, without limitation, the
intended results under Code Section 409A and Statement of Financial Accounting
Standards 123(R), then at the request of Altria, PMI and Altria shall mutually
cooperate in taking such actions as are necessary or appropriate to achieve such
results, or most nearly achieve such results if the originally-intended results
are not fully attainable.

(e) Registration. PMI shall register the PMI Common Stock relating to the PMI
Options and PMI Deferred Stock and make any necessary filings with the
appropriate Governmental Authorities as required under U.S. and foreign
securities Laws.

 

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ARTICLE VI

PROFIT-SHARING PLANS

6.1 Maintenance of Stock Investment Options.

(a) PMI Deferred Profit-Sharing Plan. The PMI Deferred Profit-Sharing Plan will
be amended as of the Distribution Date:

(i) to provide that no new amounts may be contributed to the Altria Stock
Investment Option whether through employee contribution, employer contribution,
dividend payment or intra-plan transfers. PMI further will cause the Altria
Stock Investment Option in the PMI Deferred Profit-Sharing Plan to be maintained
until the fiduciary for the PMI Deferred Profit-Sharing Plan in determines that
the maintenance of such Altria Stock Investment Option is no longer consistent
with ERISA.

(ii) to provide that the Kraft Stock Investment Option in the PMI Deferred
Profit-Sharing Plan will be maintained until the fiduciary for the Plan
determines that the maintenance of such Kraft Stock Investment Option is no
longer consistent with ERISA.

(iii) (A) to create a PMI Stock Investment Option; (B) to enable the PMI Stock
Investment Option to receive shares of PMI Common Stock to be distributed in the
Distribution on behalf of PMI Deferred Profit-Sharing Plan participants; (C) to
provide that, following the Distribution, new purchases of PMI Common Stock via
an investment in the PMI Stock Investment Option will be permitted, whether
through employee contribution, employer contribution, reinvestment of dividends
on shares of PMI Common Stock or intra-plan transfer; and (D) to permit eligible
employees to have any dividends on shares of PMI Common Stock paid to the
eligible employee in accordance with Section 404(k) of the Code or paid to the
PMI Deferred Profit-Sharing Plan and reinvested in PMI Common Stock. PMI further
will cause the PMI Stock Investment Option in the PMI Deferred Profit-Sharing
Plan to be maintained until the fiduciary for the Plan determines that the
maintenance of such PMI Stock Investment Option is no longer consistent with
ERISA.

(b) Altria Profit-Sharing Plans. Each of the Altria Profit-Sharing Plans that
offer Altria Stock in the Altria Stock Investment Option as of the Distribution
Date will be amended as of the Distribution Date: (A) to create a PMI Stock
Investment Option; (B) to enable the PMI Stock Investment Option to receive
shares of PMI Common Stock to be distributed in the Distribution on behalf of
Altria Profit-Sharing Plan participants; and (C) to provide that, following the
Distribution, no new amounts may be contributed to a PMI Stock Investment Option
whether through employee contribution, employer contribution, dividend payment
or intra-plan transfer. Altria further will cause the PMI Stock Investment
Option in each of the Altria Profit-Sharing Plans that offer Altria Stock in the
Altria Stock Investment Option as of the Distribution Date to be maintained
until the fiduciary for the Altria Profit-Sharing Plan determines that the
maintenance of such PMI Stock Investment Option is no longer consistent with
ERISA.

 

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ARTICLE VII

ALTRIA STOCK PURCHASE PLAN

7.1 Termination of Participation. As of the Distribution Date, the PMI Group
Employees shall cease to be eligible to participate in the Altria Stock Purchase
Plan, in accordance with the terms of such plan.

ARTICLE VIII

GENERAL AND ADMINISTRATIVE

8.1 Sharing of Participant Information. Altria and PMI shall share, Altria shall
cause each applicable member of the Altria Group to share, and PMI shall cause
each applicable member of the PMI Group to share, with each other and their
respective agents and vendors (without obtaining releases), all participant
information necessary for the efficient and accurate administration of each of
the Altria Group Plans and the PMI Group Plans, as well as the performance of
their respective obligations under this Agreement. Altria and PMI and their
respective authorized agents shall, subject to applicable Laws on
confidentiality, data protection and labor, be given reasonable and timely
access to, and may make copies of, all information relating to the subjects of
this Agreement in the custody of the other party, to the extent necessary for
such administration. All participant information shall be provided in a manner
and medium that is compatible with the data processing systems of Altria as in
effect as of the Distribution Date, unless otherwise agreed to by Altria and
PMI. Altria and PMI shall ensure that they each have in place appropriate
technical and organizational security measures to protect the personal data of
the transferring participants (“Personal Data”). Each of Altria and PMI shall
comply fully with its obligations under applicable Laws as controller of any
Personal Data and shall do all such things as may be necessary to discharge such
obligations.

8.2 No Third-Party Beneficiaries. No provision of this Agreement or the
Distribution Agreement shall be construed to create any right, or accelerate
entitlement, to any compensation or benefit whatsoever on the part of any Person
(other than parties thereto and their respective successors and permitted
assigns), including any PMI Transferee, any Altria Transferee or other future,
present, or former employee of Altria, a member of the Altria Group, PMI or a
member of the PMI Group under any Altria Group Plan or PMI Group Plan or
otherwise. Without limiting the generality of the foregoing: (i) except as
expressly provided in this Agreement, nothing in this Agreement shall preclude
PMI or any member of the PMI Group, at any time after the Distribution Date,
from amending, merging, modifying, terminating, eliminating, reducing or
otherwise altering in any respect any PMI Group Plan, any benefit under any plan
or any trust, insurance policy or funding vehicle related to any PMI Group Plan;
and (ii) except as expressly provided in this Agreement, nothing in this
Agreement shall preclude Altria or any member of the Altria Group, at any time
after the Distribution modifying, terminating, eliminating, reducing or
otherwise altering in any respect any Altria Group

 

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Plan, any benefit under any plan or any trust, insurance policy or funding
vehicle related to any Altria Group Plan. In no event shall any provision of
this Agreement be deemed to amend any Altria Group Plan or PMI Group Plan.

8.3 Audit Rights with Respect to Information Provided.

(a) Each of Altria and PMI, and their duly authorized representatives, shall
have the right to conduct audits with respect to all information provided to it
by the other party. The party conducting the audit (the “Auditing Party”) shall
have the sole discretion to determine the procedures and guidelines for
conducting audits and the selection of audit representatives under this
Section 8.3(a). The Auditing Party shall have the right to make copies of any
records at its expense, subject to the confidentiality provisions set forth in
the Distribution Agreement, which are incorporated by reference herein. The
party being audited shall provide the Auditing Party’s representatives with
reasonable access during normal business hours to its operations, computer
systems and paper and electronic files, and provide workspace to its
representatives. After any audit is completed, the party being audited shall
have the right to review a draft of the audit findings and to comment on those
findings in writing within five business days after receiving such draft.

(b) The Auditing Party’s audit rights under this Section 8.3(b) shall include
the right to audit, or participate in an audit facilitated by the party being
audited, any Subsidiaries and Affiliates of the party being audited and any
benefit providers and third parties with whom the party being audited has a
relationship, or agents of such party, to the extent any such persons are
affected by or addressed in this Agreement (collectively, the “Non-parties”).
The party being audited shall, upon written request from the Auditing Party,
provide an individual (at the Auditing Party’s expense) to supervise any audit
of a Non-party. The Auditing Party shall be responsible for supplying, at the
Auditing Party’s expense, additional personnel sufficient to complete the audit
in a reasonably timely manner. The responsibility of the party being audited
shall be limited to providing, at the Auditing Party’s expense, a single
individual at each audited site for purposes of facilitating the audit.

8.4 Fiduciary Matters. Altria and PMI each acknowledge that actions required to
be taken pursuant to this Agreement may be subject to fiduciary duties or
standards of conduct under ERISA or other applicable law, and no party shall be
deemed to be in violation of this Agreement if it fails to comply with any
provisions hereof based upon its good faith determination that to do so would
violate such a fiduciary duty or standard. Each party shall be responsible for
taking such actions as are deemed necessary and appropriate to comply with its
own fiduciary responsibilities.

8.5 Collective Bargaining. To the extent any provision of this Agreement is
contrary to the provisions of any collective bargaining agreement to which
Altria or PMI or their respective Affiliates is a party, the terms of such
collective bargaining agreement shall prevail. Should any provisions of this
Agreement be deemed to relate to a topic determined by an appropriate authority
to be a mandatory subject of collective bargaining, Altria or PMI may be
obligated to bargain with the union representing affected employees concerning
those subjects.

 

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8.6 Consent of Third Parties. If any provision of this Agreement is dependent on
the consent of any third party (such as a vendor or a union) and such consent is
withheld, Altria and PMI shall use their reasonable best efforts to implement
the applicable provisions of this Agreement to the full extent practicable. If
any provision of this Agreement cannot be implemented due to the failure of such
third party to consent, Altria and PMI shall negotiate in good faith to
implement the provision in a mutually satisfactory manner. The phrase
“reasonable best efforts” as used herein shall not be construed to require the
incurrence of any non-routine or unreasonable expense or Liability or the waiver
of any right.

ARTICLE IX

INDEMNIFICATION

9.1 Indemnification. All Liabilities retained or assumed by or allocated to
Altria or the Altria Group pursuant to this Agreement shall be deemed to be
Altria Group Liabilities for purposes of Article III of the Distribution
Agreement, and all Liabilities retained or assumed by or allocated to PMI or the
PMI Group pursuant to this Agreement shall be deemed to be PMI Group Liabilities
for the purposes of Article III of the Distribution Agreement.

ARTICLE X

MISCELLANEOUS

10.1 Relationship of Parties. Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between or among the parties,
it being understood and agreed that no provision contained herein, and no act of
the parties, shall be deemed to create any relationship between the parties
other than the relationship set forth herein.

10.2 Affiliates. Each of Altria and PMI shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
in this Agreement to be performed by a member of the Altria Group or a member of
the PMI Group.

10.3 Employee Communications. PMI will coordinate with Altria all written and
electronic communications to the PMI Group employees regarding the terms of this
Employee Matters Agreement to assure that all such communications are uniform,
consistent and accurate.

10.4 Incorporation of Distribution Agreement Provisions. The following
provisions of the Distribution Agreement are hereby incorporated herein by
reference, and unless otherwise expressly specified herein, such provisions
shall apply as if fully set forth herein (references in this Section 10.4 to an
“Article” or “Section” shall mean Articles or Sections of the Distribution
Agreement, and, except as expressly set forth below, references in the material
incorporated herein by reference shall be references to

 

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the Distribution Agreement): Article III (relating to Mutual Releases and
Indemnification); Article IV (relating to certain Additional Covenants); Article
V (relating to Access to Information); Article VI (relating to Dispute
Resolution); and Article IX (relating to Miscellaneous).

10.5 Governing Law. To the extent not preempted by applicable federal law, this
Agreement shall be governed by, construed and interpreted in accordance with the
laws of the Commonwealth of Virginia (other than the laws regarding the choice
of laws and conflict of laws as to all matters), including matters of validity,
construction, effect, performance and remedies provided, however, that the
Arbitration Act shall govern the matter described in Article IX.

10.6 References. Except as provided in Section 10.4 hereof, all references to
Sections, Articles or Schedules contained herein mean Sections, Articles or
Schedules of or to this Agreement, as the case may be, unless otherwise stated.

 

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IN WITNESS WHEREOF, the parties have caused this Employee Matters Agreement to
be duly executed as of the day and year first above written.

 

ALTRIA GROUP, INC. By:  

/s/ LOUIS C. CAMILLERI

Name:   Louis C. Camilleri Title:   Chairman and Chief Executive Officer PHILIP
MORRIS INTERNATIONAL INC. By:  

/s/ ANDRÉ CALANTZOPOULOS

Name:   André Calantzopoulos Title:   President and Chief Executive Officer

 

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