Document:

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                                                                   Exhibit 10.24

                           THIRD AMENDED AND RESTATED

                    REVOLVING CREDIT AND TERM LOAN AGREEMENT

      This THIRD AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
is made as of the ___ day of July, 2004, by and among PHOENIX FOOTWEAR GROUP,
INC., a corporation formed under the laws of the State of Delaware ("Borrower")
and MANUFACTURERS AND TRADERS TRUST COMPANY, a bank formed under the laws of the
State of New York ("Bank").

                                    RECITALS:

      A. Borrower and Bank are parties to a Second Amended and Restated
Revolving Credit and Term Loan Agreement dated October 30, 2003 (the "Prior
Agreement"), pursuant to which Bank has made loans to Borrower for the purposes
described therein.

      B. Borrower has requested that the Prior Agreement be amended in its
entirety to, among other things:

      (i)   provide a revolving credit facility in the maximum principal amount
            of $18,000,000 at all times;

      (ii)  continue the three existing term loan facilities in the original
            principal amounts of $1,500,000, $3,000,000, and $3,000,000, with
            current outstanding principal amounts of [$1,325,000], $1,500,000,
            and $2,550,000 respectively;

      (iii) provide an additional term loan facility in the principal amount of
            $10,000,000; and

      (iv)  make certain changes to the terms and conditions of the Prior
            Agreement.

      NOW, THEREFORE, Borrower and the Bank hereby agree that the Prior
Agreement (including all Schedules and Exhibits thereto) is hereby amended and
restated in its entirety as follows:

                                   ARTICLE I -
                                   DEFINITIONS

            1.1 The following terms shall have the following meanings unless
otherwise expressly stated herein:

            "Affiliate" means any entity which directly or indirectly, or
through one or more intermediaries, Controls or is Controlled By or is Under
Common Control with Borrower.

            "Agreement" means this Third Amended and Restated Revolving Credit
and Term Loan Agreement, as further amended, modified or restated from time to
time.

            "Altama" means Altama Delta Corporation.
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            "Altama Acquisition Agreement" means the Stock Purchase Agreement
dated as of ___________, 2004 by and among W. Whitlow Wyatt, Altama, and
Borrower.

            "Altama Business" means the combat boot and related products
business operated by Borrower and its Subsidiaries.

            "Altama PR" means Altama Delta (Puerto Rico) Corporation.

            "Average Borrowed Funds to EBITDA Ratio" means as of the applicable
measurement date, the Average Borrowed Funds as of such date divided by EBITDA
for the twelve (12) Fiscal Month period ended as of such date.

            "Average Borrowed Funds" means as of the last day of any Fiscal
Quarter, the average of the aggregate amounts of Borrowed Funds of the Borrower
as of such day, and as of the last day of each of the eleven (11) immediately
preceding Fiscal Months.

            "Authorized Person" means James Riedman, Richard White, Kenneth
Wolf, or Douglas Langston, each of whom are authorized by the Borrower to
request Loans and Letters of Credit, and any additional person who the Borrower
notifies the Bank of in writing is authorized to do the same.

            "Bank" means Manufacturers and Traders Trust Company.

            "Borrowed Funds" means, as of the measurement date, without
duplication, on a consolidated basis, Borrower's and its Subsidiaries' (1)
indebtedness or liability for borrowed money, including Obligations under the
Loan Documents; (2) obligations evidenced by bonds, debentures, notes, or other
similar instruments; (3) obligations for the deferred purchase price of property
or services (excluding trade obligations); (4) obligations as lessee under
capital leases; (5) current liabilities in respect of unfunded vested benefits
under Plans covered by ERISA; (6) obligations under letters of credit (other
than the Earn-Out Letter of Credit); (7) obligations under acceptance
facilities; (8) all guaranties, endorsements (other than for collection or
deposit in the ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any person
or entity, or otherwise to assure a creditor against loss; (9) obligations
secured by any Liens, whether or not the obligations have been assumed; (10) all
purchase money mortgages, outstanding under asset securitization vehicles,
conditional sales contracts and similar title retention debt instruments; and
(11) the Contingent Earn-Out Amounts.

            "Borrower" means Phoenix Footwear Group, Inc. and its successors,
legal representatives and assigns.

            "Borrower's 401(k) Plan" means the Borrower's defined contribution
401(k) savings plan.

            "Borrowing Base" means the sum of the following:

                  (a) 80% of the Eligible Accounts of Borrower and Guarantors;

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                  (b) plus 50% of the Eligible Inventories of Borrower and its
Subsidiaries that are used in their business with a $3,500,000 inventory cap for
Borrower, $1,500,000 inventory cap for the Trask Business, $1,500,000 inventory
cap for the Royal Business, and $3,000,000 inventory cap for the Altama
Business;

                  (c) less a Term Loan Reserve equal to $1,700,000.00, which
$1,700,000.00 amount will be reduced on a dollar-for-dollar basis as quarterly
payments on the Second Term Loan are made; and

                  (d) less Letter of Credit Obligations.

            The Bank reserves the right in its sole discretion to modify the
Borrowing Base or make changes in the definitions of Eligible Accounts or
Eligible Inventories, or to delete certain accounts or inventories from the
Borrowing Base in the event of a material adverse change in any of the
collateral for the Revolving Credit or its collectibility, or in the event the
Bank reasonably concludes that there are circumstances or conditions which
materially affect the value of the collateral.

            "Borrowing Base Report" means a report described in Section 8.1 of
this Agreement.

            "Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks in New York are authorized or required to close
under the laws of such State and, if the applicable day relates to LIBOR Loan,
LIBOR Interest Period, or notice with respect to a LIBOR Loan, a day on which
dealings in Dollar deposits are also carried on in the London interbank market
and banks are open for business in London.

            "Cash Flow" means for the applicable period EBITDA minus (i) taxes
paid, minus (ii) Unfinanced Capital Expenditures, minus (iii) interest expense,
minus (iv) dividends paid in accordance with Section 9.5 all determined in
accordance with GAAP.

            "Cash Flow Coverage Ratio" means as of the applicable measurement
date, Cash Flow for the four (4) Fiscal Quarters then ended, divided by the sum
of all Scheduled Principal Payments due during the four (4) Fiscal Quarters
immediately following such date.

            "Change in Control" means (a) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any person or group (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), of shares representing more than twenty-five percent (25%) of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of Borrower by any person, excluding however the acquisition of
shares by any person who is a shareholder of Borrower on the date hereof,

            "Closing Date" means the first date on which the conditions set
forth in Section 7.1 have been satisfied and the Bank has made a Loan hereunder.

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            "Commitment" means the obligation of the Bank to make Revolving
Credit Loans to the Borrower and issue Letters of Credit for the account of the
Borrower pursuant to the provisions of Section 2.1 and 4.1, respectively.

            "Contingent Earn-Out Amount(s)" means, (i) from July 1, 2004,
through June 30, 2005, $2,500,000 with respect to contingent earn-out
obligations under the Royal Acquisition Agreement, and (ii) from October 3, 2004
through October 1, 2005, $2,000,000 with respect to contingent earn-out
obligations under the Altama Acquisition Agreement.

            "Controls" (including the terms "Controlled By" or "Under Common
Control') means, but not be limited to, the ownership of ten percent (10%) or
more of the outstanding shares of capital stock of any corporation having voting
power for the election of directors, whether or not at the same time stock of
any other class or classes has or might have voting power by reason of the
happening of any contingency, or ownership of ten percent (10%) or more of any
interest in any partnership, limited liability company or any other entity or
any other interest by reason of which a controlling influence over the affairs
of the entity may be exercised.

            "Current Assets" means current assets of the Borrower on a
consolidated basis determined in accordance with GAAP.

            "Current Liabilities" means (a) current liabilities of the Borrower
on a consolidated basis determined in accordance with GAAP; plus (b) the
outstanding principal balance under the Revolving Credit Note.

            "Current Ratio" means Current Assets compared to Current
Liabilities.

            "Dating Accounts" means trade accounts receivable due sixty (60) to
one hundred twenty (120) days from the date of invoice.

            "Earn-Out Letter of Credit" has the meaning given to it in the Royal
Acquisition Agreement.

            "EBITDA" means, for the applicable period, Net Income plus interest
expense, taxes, depreciation and amortization of intangible assets, plus the
value of all stock allocated to the accounts of plan participants pursuant to
Borrower's 401(k) Plan, all on a consolidated basis and determined in accordance
with GAAP on a consistent basis.

            "Eligible Accounts" means:

                  (a) Dating Accounts which are less than thirty-one (31) days
after due date, plus

                  (b) for trade accounts receivable from payors whose accounts
are less than ninety (90) days beyond date of invoice, all accounts receivable,
plus

                  (c) for trade accounts receivable from payors whose accounts
are in whole or in part more than ninety (90) days beyond date of invoice, the
portion of the accounts receivable less than ninety (90) days beyond date of
invoice provided that at least fifty percent

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(50%) of the outstanding amount from the payor is less than ninety (90) days
beyond date of invoice, minus

                  (d) contra accounts receivable, minus

                  (e) Affiliate accounts receivable, minus

                  (f) foreign accounts receivable (unless backed by irrevocable
letters of credit, confirmed by a U.S. bank, and acceptable to the Bank in its
sole discretion, and duly assigned to the Bank), minus

                  (g) employee accounts receivable, minus

                  (h) bill and hold accounts receivable (i.e., accounts relating
to goods not yet shipped but invoiced) except for bill and hold U.S. government
receivables related to the Altama Business, minus

                  (i) uncollectible accounts receivable, accounts minus

                  (j) receivable arising from progressive billings (i.e.,
accounts receivable from billings for work performed on a partially completed
contract), minus

                  (k) accounts receivable arising from guaranteed sales with buy
back provisions (i.e., sales in which Borrower is obligated to repurchase
inventory or merchandise sold to customers), minus

                  (l) accounts receivable from the United States of America or
agency or department thereof (unless assignment and notice thereof is effected
in accordance with the Assignment of Claims Act), and minus

                  (m) accounts receivable from businesses reasonably believed by
the Bank to be at risk of defaulting on accounts including, without limitation,
accounts receivable from insolvent payors.

In the event that total accounts receivable from any payor except the U.S.
government represent more than twenty percent (20%) of the total accounts
receivable of Borrower and its Subsidiaries, on a consolidated basis, the Bank
reserves the right in its sole discretion to delete from Eligible Accounts that
portion of such accounts receivable. Eligible Accounts must be trade accounts
receivable that arise from goods sold or delivered or services rendered in the
Borrower's or any Subsidiary's ordinary course of business as it exists on the
date of this Agreement and must be subject to the first priority security
interest of the Bank and to no other security interest or lien. Eligible
Accounts must be valid and legally enforceable obligations of the account debtor
and not subject to credit, allowance, defense, offset, counterclaim or
adjustment, except discounts for prompt payment.

            "Eligible Inventories" means all first quality finished goods
inventories owned by Borrower or any Subsidiary, and all first quality raw
materials inventories owned by Altama, valued at the lower of cost (on a FIFO
basis) or market, minus such reserves as Borrower or a

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Subsidiary has historically established including but not limited to (i)
shrinkage reserves, (ii) markdown reserves, (iii) reserves which restore
standard costs to actual costs and (iv) customer deposits on contracts. Eligible
Inventories do not include:

                  (a) perishable or non-saleable inventories,

                  (b) inventory on consignment to or from Borrower or any
Subsidiary,

                  (c) inventory subject to an Eligible Account,

                  (d) inventory subject to a Lien other than a Permitted Lien,

                  (e) inventory to which any customer has rights, interests or
claims superior to the Bank's perfected, first priority security interest
therein, whether by operation of agreement, law or otherwise,

                  (f) inventory not located on Borrower's or its Subsidiary's
premises within the United States or Puerto Rico, except for inventory held
pursuant to warehousing and distribution arrangements with Wilson Logistics
provided that Wilson Logistics has acknowledged the security interest of the
Bank in form satisfactory to the Bank and the Bank has a perfected first
priority security interest in such inventory,

                  (g) goods-in-transit,

                  (h) inventory arising outside of the Borrower's or its
Subsidiary's ordinary course of business,

                  (i) inventory not at all times subject to the perfected, first
priority security interest of the Bank and no other security interest or lien,
and

                  (j) inventory subject to a licensing agreement with third
parties, except for the licensing agreements listed on Schedule 1.1 hereto,
unless the Bank shall have received consents, acknowledgements, or other
assurances satisfactory to the Bank from such third parties as may be deemed
necessary or desirable to facilitate the Bank's realization upon such inventory.

Eligible Inventories must conform in all respects to warranties contained in
this Agreement and the Loan Documents. The calculation of Eligible Inventories
must be satisfactory to the Bank in its sole discretion.

            "Environment" means any water, including, but not limited to,
surface water and ground water or water vapor: any land, including land surface
or subsurface; stream sediments; air; fish; wildlife; plants; and all other
natural resources or environmental media.

            "Environmental Laws" means all present and future federal, state and
local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances, regulations, codes and rules relating to
the protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling,

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production or disposal of Hazardous Substances and the regulations, rules,
ordinances, bylaws, policies, guidelines, procedures, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.

            "Environmental Permits" means all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of the Improvements and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production or
disposal of Hazardous Substances.

            "Environmental Report" means written reports, if any, prepared for
the Bank by an environmental consulting or environmental engineering firm.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

            "ERISA Affiliate" means any trade or business (whether incorporated
or unincorporated) which together with the Borrower is treated as a single
employer under Section 4 14(b), (c), (m) or (o) of the Internal Revenue Code.

            "Eurocurrency Reserve Requirement" means, for any Interest Period
for a LIBOR Loan, the daily average of the stated maximum rate (expressed as a
decimal) at which reserves (including any marginal, supplemental, or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion dollars against "Eurocurrency Liabilities" (as
such term is used in Regulation D) but without benefit or credit of proration,
exemptions, or offsets that might otherwise be available from time to time under
Regulation D. Without limiting the effect of the foregoing, the Eurocurrency
Reserve Requirement shall reflect any other reserves required to be maintained
against (1) any category of liabilities that includes deposits by reference to
which the LIBOR Interest Rate for LIBOR Loans is to be determined; or (2) any
category of extension of credit or other assets that include LIBOR Loans.

            "Event of Default" means the occurrence of any event described in
Section 12.1.

            "Excess Cash Flow" means, for the applicable period, Net Income plus
income tax expense as recorded in Borrower's consolidated financial statements
less income taxes actually paid plus depreciation and amortization, calculated
according to GAAP, less Unfinanced Capital Expenditures, less the aggregate of
regularly scheduled principal payments of Indebtedness actually paid.

            "Financial Statements" means Borrower's audited financial statements
for the Fiscal Year ending December 27, 2003.

            "First Term Loan" means the $1,500,000.00 remaining outstanding
balance term loan made by the Bank and reflected in Section 3.1 hereof.

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            "First Term Note" means the $1,500,000.00 Amended and Restated First
Term Note (which amended and restated the $2,250,000.00 Amended and Restated
Term Note dated October 20, 2003, issued by Borrower to Bank), as such note may
be amended, modified or restated from time to time.

            "Fiscal Month" means a period of four or five weeks having 7 days in
each week ending on a Saturday and that constitutes Borrower's monthly
accounting period.

            "Fiscal Quarter" means any of the quarterly accounting periods of
Borrower ending on the last Saturday of March, June, September and on the
Saturday closest to December 31st each year.

            "Fiscal Year" means the annual accounting period of Borrower ending
on the Saturday closest to December 31st of each year.

            "Fourth Term Loan" means the $10,000,000.00 term loan made by the
Bank and reflected in Section 3.1 hereof.

            "Fourth Term Note" means the $10,000,000.00 Fourth Term Note to be
executed and delivered pursuant to Section 3.3 of this Agreement, as such note
may be amended, modified or restated from time to time

            "GAAP" and "Generally Accepted Accounting Principles" means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession in the
United States of America, which are applicable to the circumstances as of the
date of determination.

            "Guarantors" means Penobscot, Trask, Royal, Altama, Altama PR, and
each Subsidiary which becomes a Guarantor pursuant to Section 8.13.

            "Guaranties" means, collectively, the continuing guaranties executed
and delivered to Bank by each Guarantor which guaranty payment of the
Obligations, as amended, modified or restated from time to time, and "Guaranty"
means any of the Guaranties.

            "Hazardous Substances" means, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and any other
material defined as a hazardous substance in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
9601, et. seq.; the Hazardous Materials Transportation Act, as amended, 49
U.S.C. Sections 1801, et. seq.; the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Sections 6901, et. seq.; Articles 15 and 27 of the New York
State Environmental Conservation Law or any other federal, state, or local law,
regulation, rule, ordinance, by-law, policy, guideline, procedure,
interpretation, decision, order, or directive, whether existing as of the date
hereof, previously enforced or subsequently enacted.

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            "Improvements" means any and all real property and improvements
owned or used by Borrower or any of its Subsidiaries.

            "Indebtedness" means, without duplication and whether now existing
or hereafter incurred, (a) all obligations (including, without limitation,
contingent obligations) for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations (including, without limitation,
contingent obligations) evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations (including, without limitation, contingent
obligations) upon which interest charges are customarily paid, (d) all
obligations (including, without limitation, contingent obligations) under
conditional sale or other title retention agreements relating to property
acquired, (e) all obligations in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired, whether or
not the Indebtedness secured thereby has been assumed, (g) all guarantees of
indebtedness of other persons, (h) all capital lease obligations (including,
without limitation, contingent obligations), (i) all obligations (including,
without limitation, contingent obligations) as an account party in respect of
letters of credit (including but not limited to all reimbursement obligations
with respect to Letters of Credit), and letters of guaranty, (j) all obligations
(including, without limitation, contingent obligations) in respect of bankers'
acceptances, and all net obligations (but not any net asset value) with respect
to Rate Management Transactions. The Indebtedness shall include the Indebtedness
of any other person (including any partnership in which such person is a general
partner) to the extent such person is liable therefore as a result of such
person's ownership interest in or other relationship with such person, except to
the extent the terms of such Indebtedness provide that such person is not liable
therefore.

            "Interest Period" means with respect to any LIBOR Loan, the period
commencing on the date such Loan is made, converted or renewed, as applicable,
and ending, as a Borrower may select, on the numerically corresponding day in
the first, second, third, or sixth calendar month thereafter, subject however,
to the following limitations:

                  (a) Each Interest Period that commences on the last Business
Day of the calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month;

                  (b) No Interest Period may extend beyond the Termination Date;
and

                  (c) If an Interest Period would end on a day that is not a
Business Day, such Interest Period shall be extended to the next Business Day
unless, such Business Day would fall in the next calendar month, in which event
such Interest Period shall end on the immediately preceding Business Day.

            "Letters of Credit" means the Letters of Credit described in Section
4.1 of this Agreement.

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            "Letter of Credit Obligations" means the sum of the face amount of
all outstanding Letters of Credit and all unpaid reimbursement obligations under
the Reimbursement Agreement.

            "LIBOR Interest Rate" means, for each LIBOR Loan, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) determined by the
Bank to be equal to the quotient of (1) the London lnterbank Offered Rate for
such LIBOR Loan for such Interest Period divided by (2) one minus the
Eurocurrency Reserve Requirement for such Interest Period.

            "LIBOR Loan" means any Loan when and to the extent that the interest
rate for such Loan is determined by reference to the LIBOR Interest Rate.

            "Lien" means any mortgage, pledge, security interest, encumbrance,
lien, assignment or charge of any kind or description and shall include, without
limitation, any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof including any
lease or similar arrangement with a public authority executed in connection with
the issuance of industrial development revenue bonds or pollution control
revenue bonds, and the filing of or agreement to give any financing statement
under the Uniform Commercial Code (or comparable law) of any jurisdiction naming
the owner of the asset to which such lien applies as a debtor (other than a
filing which does not evidence an outstanding secured obligation, or a
commitment to make advances or to incur any other obligation of any kind).

            "Loan(s)" means, collectively, the Revolving Credit Loans and the
Term Loans, or the Revolving Credit Loans or the Term Loans, as the context
requires.

            "Loan Documents" means the Agreement, the Notes, the Security
Documents, the Reimbursement Agreement, and all other agreements, documents and
certificates executed with or in favor of the Bank in connection with the
Agreement or any amendment to the Agreement or to any other Loan Document.

            "London Interbank Offered Rate" applicable to any Interest Period
for a LIBOR Loan means the rate per annum (rounded upward, if necessary, to the
nearest 1/100th of 1%) fixed by the British Bankers Association for United
States dollar deposits for a period and in an amount comparable to the Interest
Period and the principal amount of such LIBOR Loan, at approximately 11:00 a.m.
London time as determined by the Bank from any broker, quoting service or
commonly available source utilized by the Bank.

            "Mortgage" means the Mortgage, Lease Assignment and Security
Agreement executed and delivered to Bank by Penobscot and dated as of March 30,
2000.

            "Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA as to which the Company, any Subsidiary or any ERISA
Affiliate is obligated to make, has made, or will be obligated to make
contributions on behalf of participants who are or were employed by any of them.

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            "Net Income" means for the applicable period, the net earnings of
the Borrower and its Subsidiaries on a consolidated basis, determined in
accordance with GAAP on a consistent basis, but excluding:

                  (a) any gain or loss arising from the sale of capital assets;

                  (b) any gain arising from any write-up of assets;

                  (c) net earnings or losses of any Subsidiary of Borrower
accrued prior to the date it became a Subsidiary;

                  (d) net earnings or losses of any corporation, substantially
all the assets of which have been acquired in any manner by Borrower, realized
by such corporation prior to the date of such acquisition;

                  (e) net earnings or losses of any business entity in which
Borrower has an ownership interest, except any such net earnings which have
actually been received by Borrower in the form of cash distributions and except
the net earnings or losses of any business entity which has guaranteed all of
the Borrower's Indebtedness to the Bank and any of the Bank's affiliates;

                  (f) any portion of the net earnings of any Subsidiary of
Borrower which for any reason is unavailable for payment of dividends to
Borrower;

                  (g) the net earnings or losses of any person to which any
assets of Borrower shall have been sold, transferred or disposed of, or into
which Borrower shall have merged, or been a party to any consolidation or other
form of reorganization, prior to the date of such transaction;

                  (h) any gain arising from the acquisition of any securities of
Borrower;

                  (i) any gain or loss arising from extraordinary items; and

                  (j) the 2003 Non-Recurring Expenses and Charges.

            "Non-Premium Event" means a reduction of the Commitment or
prepayment of the Term Loans as a result of or through use of funds generated by
internal cash flow, asset dispositions, sales of equity or equity-linked debt
instruments (including the sale of Borrower).

            "Notes" means, collectively, the Revolving Credit Note and the Term
Notes, and "Note" means any of the Notes.

            "Obligations" shall include all of the Borrower's obligations
related to the Agreement of any kind or nature, arising now or in the future,
including, without limitation, obligations under the Revolving Credit Note, the
Term Notes, and the Reimbursement Agreements.

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            "PBGC" means the Pension Benefit Guarantee Corporation and any
successor thereto.

            "Penobscot" means Penobscot Shoe Company.

            "Permitted Liens" means the Liens set forth on Schedule 1.2 and the
following liens:

                  (a) liens imposed by any governmental authority for taxes,
assessments or charges not yet due or which are being contested in good faith
and by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Borrower subject to such lien in accordance with
GAAP on a consistent basis;

                  (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like liens arising in the ordinary course of business which
are not overdue for a period of more than thirty (30) days, or which are being
contested in good faith and by appropriate proceedings;

                  (c) pledges or deposits under workers' compensation,
unemployment insurance and other social security legislation; and

                  (d) deposits to secure the performance of bids, trade
contracts (other than borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business.

            "Plan" means any employee benefit plan, program, arrangement,
practice or contract, maintained by or on behalf of a Borrower or an ERISA
Affiliate, which provides benefits or compensation to or on behalf of employees
or former employees, whether formal or informal, whether or not written,
including but not limited to the following types of plans:

                  (a) Executive Arrangements - any bonus, incentive
compensation, stock option, deferred compensation, commission, severance,
"golden parachute", "rabbi trust", or other executive compensation plan,
program, contract, arrangement or practice;

                  (b) ERISA Plans - any "employee benefit plan" as defined in
ERISA, including, but not limited to, any defined benefit pension plan, profit
sharing plan, money purchase pension plan, savings or thrift plan, stock bonus
plan, employee stock ownership plan, Multiemployer Plan, or any plan, fund,
program, arrangement or practice providing for medical (including
post-retirement medical), hospitalization, accident, sickness, disability, or
life insurance benefits; and

                  (c) Other Employee Fringe Benefits - any stock purchase,
vacation, scholarship, day care, prepaid legal services, severance pay or other
fringe benefit plan, program, arrangement, contract or practice.

            "Prepayment Premium" means a payment to the Bank of 3 percent (3%)
of the principal amount of any prepayment of any Term Loan by the Borrower,
other than by reason of

                                       12
<PAGE>
a Non-Premium Event, during the period ending at the close of business of the
day immediately prior to the Termination Date.

            "Prime Loan" means any Loan when and to the extent that the interest
rate for such Loan is determined by reference to the Prime Rate.

            "Prime Rate" means the rate of interest announced by the Bank from
time to time at its Principal Office as its prime commercial lending rate, which
rate is not intended to be the lowest rate of interest charged by Bank to its
borrowers.

            "Principal Office" means the Bank's office at 255 East Avenue,
Rochester, New York 14604.

            "Quarterly Covenant Compliance Sheet" means the covenant compliance
sheet delivered on a quarterly basis by Borrower to Bank in the form of Exhibit
A attached hereto.

            "Rate Management Transaction" means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into by
Borrower or its Subsidiaries which is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.

            "Reduction Fee" means a payment to the Bank of 3 percent (3%) of the
principal amount of any reduction of the Commitment by the Borrower during the
period ending at the close of business of the day immediately prior to the
Termination Date, other than by reason of a Non-Premium Event or the occurrence
of the Termination Date.

            "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.

            "Reimbursement Agreements" means, collectively, the Reimbursement
Agreements executed and delivered pursuant to Section 4.3 of this Agreement, as
amended, modified or restated from time to time.

            "Reimbursement Obligations" shall have the meaning assigned to such
term in Section 4.3.

            "Release" has the same meaning as given to that term in Section
101(22) of the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601(22), and the regulations
promulgated thereunder.

            "Revolving Credit Facility" means the revolving credit facility
established pursuant to Section 2.1 of this Agreement.

                                       13
<PAGE>
            "Revolving Credit Loan" means a loan made by the Bank to Borrower
under the Revolving Credit Facility.

            "Revolving Credit Note" means the $18,000,000 Amended and Restated
Revolving Credit Note (which amends and restates the $18,000,000.00 Amended and
Restated Revolving Credit Note dated October 30, 2003, executed by Borrower in
favor of Bank), as such note may be amended, modified or restated from time to
time.

            "Royal" means Royal Robbins, Inc.

            "Royal Acquisition Agreement" means the Stock Purchase Agreement
dated as of October 2, 2003 by and among Dan J and Denise L, Costa, as trustees
of the Dan J. and Denise L. Costa 1997 Family Trust and Douglas Vient as trustee
of the Kelsie L. Costa Trust and the Daniel S. Costa Trust, Royal and Borrower.

            "Royal Business" means the outsdoor leisure sportswear and related
products business operated by Borrower and its Subsidiaries.

            "Scheduled Principal Payments" means (i) all regularly scheduled
principal payments (not including Excess Cash Flow mandatory prepayments) on the
Term Loans, without credit or reduction for any prepayments, and (ii) principal
payments due with respect to other Indebtedness (including among others
capitalized lease payments), but not including Contingent Earn-Out Payments.

            "Second Term Loan" means the $2,550,000.00 outstanding principal
balance term loan made by the Bank and reflected in Section 3.2 hereof.

            "Second Term Note" means the $2,550,000 Amended and Restated Second
Term Note (which amends and restates the $3,000,000 LIBOR Amended and Restated
Term Note dated October 30, 2003, issued by Borrower to Bank), as such note may
be amended, modified or restated from time to time.

            "Security Agreements" means the General Security Agreements listed
on Schedule 1.3.

            "Security Documents" means those documents set forth on Schedule
1.3.

            "Subsidiary" means any corporation, limited liability company or
other entity, the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements in accordance with GAAP
(including among others consolidated subsidiaries of consolidated subsidiaries).

            "Termination Date" means June 30, 2006.

            "Term Loans" means, collectively, the First Term Loan, the Second
Term Loan, the Third Term Loan, and the Fourth Term Loan, and "Term Loan" means
any of the Term Loans.

                                       14
<PAGE>
            "Term Notes" means, collectively, the First Term Note, the Second
Term Note, the Third Term Note, and the Fourth Term Note and "Term Note"
means any of the Term Notes,

            "Third Term Loan" means the [$1,325,000] outstanding principal
balance term loan made by the Bank pursuant to Article III hereof.

            "Third Term Note" means the Amended and Restated Third Term Note
evidencing the Third Term Loan (which amends and restates the $1,500,000 Term
Note dated October 30, 2003, issued by Borrower to Bank), as such note may be
amended, modified or restated from time to time.

            "Trademark Security Agreements" means the Trademark Collateral
Security and Pledge Agreement listed on Schedule 1.3, and any similar document
delivered by any Subsidiary of Borrower, and, as amended, modified or restated
from time to time.

            "Trask" means H.S. Trask & Co.

            "Trask Business" means the men's casual boot and footwear business
conducted by Borrower and its Subsidiaries.

            "Unfinanced Capital Expenditures" means all capital expenditures
other than (i) capital expenditures financed by the Bank (but excluding for this
definition any capital expenditures financed with the proceeds of a Revolving
Credit Loan), and (ii) capital expenditures financed with Indebtedness (other
than the Loans) permitted under this Agreement or Indebtedness to which the Bank
consents in writing.

            "2003 Non-Recurring Expenses and Charges" means those one-time
nonrecurring expenses and charges detailed in a letter from Borrower to Bank
dated as of October 30, 2003.

                                  ARTICLE II -
                            REVOLVING CREDIT FACILITY

            2.1 Commitment. The Bank agrees, subject to Section 2.2 and the
other terms and conditions hereinafter set forth, to make Revolving Credit Loans
to the Borrower from time to time during the period from the date of this
Agreement up to but not including the Termination Date in an aggregate principal
amount not to exceed at any time outstanding the amount of $18,000,000, as such
amount may be reduced pursuant to Section 2.3.

      Each Revolving Credit Loan which shall not utilize the Commitment in full
shall be in an amount not less than Fifty Thousand Dollars ($50,000), provided
that each LIBOR Loan shall be in an amount not less than Five Hundred Thousand
Dollars ($500,000). During the period from the Closing Date to the Termination
Date and within the limits of the Commitment and subject to Section 2.2, the
Borrower may borrow, prepay pursuant to Section 2.8, and reborrow under this
Section 2.1. On such terms and conditions, the Revolving Credit Loans may be
outstanding as Prime Loans or LIBOR Loans. Each type of Revolving Credit Loan
shall be made and maintained at the Bank's Principal Office.

                                       15
<PAGE>
            2.2 Borrowing Base. Notwithstanding the provisions of Section 2.1,
the aggregate principal amount of all outstanding Revolving Credit Loans and all
Letter of Credit Obligations shall not exceed the lesser of the Borrowing Base
and the Commitment. At any time that the aggregate principal amount of all
outstanding Revolving Credit Loans and all Letter of Credit Obligations exceeds
the lesser of the Borrowing Base and the Commitment, the Borrower shall
immediate prepay the Revolving Credit Loans pursuant to Section 2.8 hereof.

            2.3 Reduction of Commitment. The Borrower shall have the right, upon
at least three (3) Business Days' notice to the Bank, to terminate in whole or
reduce in part the unused portion of the Commitment on the following terms and
conditions;

            (a) each partial reduction in the Commitment shall be in the amount
of at least One Million Dollars ($1,000,000);

            (b) unless financed from a Non-Premium Event, a reduction in the
Commitment requires concurrent payment to Bank of a Reduction Fee.

            (c) no reduction in the Commitment shall be permitted if, after
giving effect thereto, and to any prepayment made therewith, the outstanding and
unpaid principal amount of the Revolving Credit Loans and the Letter of Credit
Obligations shall exceed the lesser of Commitment or the Borrowing Base; and

            (d) the Commitment, once reduced or terminated, may not be
reinstated.

            2.4 Notice and Manner of Borrowing. Borrower agrees to give the Bank
notice of any Revolving Credit Loan under this Agreement, at least one (1)
Business Day before each Prime Loan, and at least three (3) Business Days before
each LIBOR Loan, specifying: (a) the date of such Loan; (b) the amount of such
Loan; (c) the type of Loan; and (d) in the case of a LIBOR Loan, the duration of
the Interest Period applicable thereto. Not later than 3:00 P.M. (eastern
standard time) on the date of such Revolving Credit Loan and upon fulfillment of
the applicable conditions set forth in Article VII, the Bank will make such
Revolving Credit Loan available to the Borrower in immediately available funds
by crediting the amount thereof to the Borrower's account with the Bank.

      All notice given under this Section 2.4 shall be irrevocable and shall be
given not later than 11:00 A.M. (eastern standard time) on the day which is not
less than the number of Business Days specified above for such notice.

            2.5 Conversions and Renewals. Borrower may elect from time to time
to convert all or a part of one type of Loan into another type of Loan or to
renew all or part of a Loan by giving the Bank notice at least one (1) Business
Day before conversion into a Prime Loan and at least three (3) Business Days
before the conversion into or renewal of a LIBOR Loan, specifying: (a) the
renewal or conversion date; (b) the amount of the Loan to be converted or
renewed; (c) in the case of conversions, the type of Loan to be converted into;
and (d) in the case of renewals of or a conversion into LIBOR Loans, the
duration of the Interest Period applicable thereto; provided that LIBOR Loans
can be converted only on the last day of the Interest Period for such Loan. All
notices given under this Section 2.5 shall be irrevocable and shall be given not
later than 11:00A.M. (eastern standard time) on the day which is not less than

                                       16
<PAGE>
the number of Business Days specified above for such notice. If the Borrower
shall fail to give the Bank the notice as specified above for the renewal or
conversion of a LIBOR Loan prior to the end of the Interest Period with respect
thereto, such LIBOR Loan shall automatically be converted into a Prime Loan on
the last day of the Interest-Period for such Loan. The Borrower may not have
more than five (5) LIBOR elections in effect at any one time with respect to
Revolving Credit Loans.

            2.6 Interest. Borrower shall pay interest to the Bank on the
outstanding and unpaid principal amount of the Revolving Credit Loans made under
this Agreement at a rate per annum of LIBOR plus 250 basis points or Prime plus
..25% through December 31, 2004, and thereafter, at a rate per annum selected by
Borrower, at the appropriate level, from the two Revolver columns of the pricing
grid attached as Exhibit B to this Agreement. Any change in the interest rate
resulting from a change in the Prime Rate shall be effective as of the opening
of business on the day on which such change in the Prime Rate becomes effective.
Interest on each Loan shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. Interest on the Loans shall be paid in
immediately available funds to the Bank at its Principal Office, in the case of
Prime Loans on the first day of each month and in the case of LIBOR Loans, on
the last day of the Interest Period with respect thereto. All accrued and unpaid
interest shall be due and payable on the Termination Date.

            2.7 Revolving Credit Note. Borrower's obligation to repay the
Revolving Credit Loan shall be evidenced by the Revolving Credit Note in
substantially the form of Exhibit D to this Agreement, with blanks appropriately
completed. All Revolving Credit Loans shall be repaid on the Termination Date.

            2.8 Prepayments. Borrower may prepay the Revolving Credit Note in
whole or in part with accrued interest to the date of such prepayment on the
amount prepaid, but without premium or penalty, provided that (a) each partial
payment shall be in a principal amount of not less then Fifty Thousand Dollars
($50,000); and (b) LIBOR Loans may be prepaid only on the last day of the
Interest Period for such Loans. In addition, at any time that the Borrower
becomes aware or receive notice (oral or written) that the outstanding principal
amount of all Revolving Credit Loans exceeds the Borrowing Base, Borrower shall
immediately prepay the Revolving Credit Loans by the amount necessary to comply
with the provisions of Section 2.2.

            2.9 Method of Payment. Borrower shall make each payment under this
Agreement and under the Note not later than 12:00 P.M. (eastern standard time)
on the date when due in lawful money of the United States to the Bank at its
Principal Office in immediately available funds. Borrower hereby authorizes the
Bank, if and to the extent payment is not made when due under this Agreement or
under the Note, to change from time to time against any account of Borrower with
the Bank any amount as due. Whenever any payment to be made under this Agreement
or under the Note shall be stated to be due on a day other than a Business Day,
such payments shall be made on the next succeeding Business Day, and such
extension of time shall be included in the computation of the payment of
interest and the commitment fee, as the case may be, except, in the case of a
LIBOR Loan, if the result of such extension would be to extend such payment into
another calendar month, such payment shall be made on the immediately preceding
Business Day.

                                       17
<PAGE>
            2.10 Use of Proceeds. The proceeds of the Revolving Credit Loans
hereunder shall be used to finance the working capital requirements of the
Borrower and may also be used to finance the costs of Borrower's acquisition of
Altama (including payments of the purchase price, amounts payable under or
pursuant to the Altama Acquisition Agreement, and Indebtedness of Altama
existing prior to its acquisition by Borrower). Borrower will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any person for
the purpose of purchasing or carrying any such margin stock, or for any purpose
which violates, or is inconsistent with, Regulation X of such Board of
Governors.

            2.11 Illegality. Notwithstanding any other provision in this
Agreement, if the Bank determines that any applicable law, rule, or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive (whether or not having the force of law) of
any such authority, central bank, or comparable agency shall make it unlawful or
impossible for the Bank to maintain or fund LIBOR Loans, then upon notice to the
Borrower, the outstanding principal amount of all LIBOR Loans, together with
interest accrued thereon, and any other amounts payable to the Bank under this
Agreement shall be repaid (a) immediately upon demand of the Bank if such change
or compliance with such request, in the judgment of the Bank, requires immediate
repayment, or (b) at the expiration of the last Interest Period to expire before
the effective date of any such change or request.

            2.12 Disaster. Notwithstanding anything to the contrary herein, if
the Bank determines (which determination shall be conclusive) that:

            (a) Quotations of interest rates for the relevant deposits referred
to in the definition of LIBOR Interest Rate are not being provided in the
relevant amounts or for the relative maturities for purposes of determining the
rate of interest on a LIBOR Loan as provided in this Agreement; or

            (b) The relevant rates of interest referred to in the definition of
LIBOR Interest Rate upon the basis of which the rate for any such type of Loan
is to be determined do not accurately cover the cost to the Bank of making or
maintaining LIBOR Loans; then the Bank shall forthwith give notice thereof to
the Borrower, whereupon (a) the obligation of the Bank to make LIBOR Loans shall
be suspended until the Bank notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, and (b) the Borrower shall repay in
full the then outstanding principal amount of each LIBOR Loan together with
accrued interest thereon, on the last day of the then current Interest Period
applicable to such Loan.

            2.13 Increased Cost. From time to time upon notice to the Borrower
from the Bank the Borrower shall pay to the Bank such amounts as the Bank may
determine to be necessary to compensate the Bank for any costs incurred by the
Bank which the Bank determines are attributable to its making or maintaining any
LIBOR Loans hereunder or its obligation to make any such Loans hereunder, or any
reduction in any amount receivable by the Bank under this Agreement or the Note
in respect of any such Loans or such obligation (such increases in

                                       18
<PAGE>
costs and reductions in amounts receivable being herein called "Additional
Costs"), resulting from any change after the date of this Agreement in U.S.
federal, state, municipal, or foreign laws or regulations (including Regulation
D), or the adoption or making after such date of any interpretations,
directives, or requirements applying to a class of banks including the Bank of
or under U.S. federal, state, municipal, or foreign laws or regulations (whether
or not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof ("Regulatory
Change"), which: (a) changes the basis of taxation of any amounts payable to the
Bank under this Agreement or the Note in respect of any such Loans (other than
taxes imposed on the overall net income of the Bank for any of such Loans by the
jurisdiction where the Principal Office is located); or (b) imposes or modifies
any reserve, special deposit, compulsory loan, or similar requirements relating
to any extensions or credit or other assets of, or any deposits with or other
liabilities of, the Bank (including any of such Loans or any deposits referred
to in the definition of LIBOR Interest Rate); or (c) imposes any other condition
affecting this Agreement or the Note (or any such extensions of credit or
liabilities). The Bank will notify the Borrower of any event occurring after the
date of this Agreement which will entitle the Bank to compensation pursuant to
this Section 2.13 as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation, but in no event will Borrower be
liable for Additional Costs arising from any Regulatory Change which occurred
more than six (6) months before the date of such notice.

      Determinations by the Bank for purposes of this Section 2.13 of the effect
of any Regulatory Change on its costs of making or maintaining Loans or on
amounts receivable by it in respect of Loans, and of the additional amounts
required compensate any the Bank in respect of any Additional Costs, shall be
conclusive, provided that such determinations are made on a reasonable basis.

            2.14 Risk-Based Capital. In the event that the Bank determines that
with respect to any LIBOR Loans hereunder (a) compliance with any judicial,
administrative, or other governmental interpretation of any law or regulation or
(b) compliance by the Bank or any corporation controlling the Bank with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) has the effect of requiring an increase
in the amount of capital required or expected to be maintained by the Bank or
any corporation the Bank, and the Bank determines that such increase is based
upon its obligations hereunder, and other similar obligations, the Borrower
shall pay to the Bank, such additional amount as shall be certified by the Bank
to be the amount allocable to the Bank's obligations to the Borrower hereunder.
The Bank will notify the Borrower of any event occurring after the date of this
Agreement that will entitle the Bank to compensation pursuant to this Section
2.14 as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, but in no event will the Borrower be
liable for any compensation hereunder based on any event which occurred more
than six (6) months before the date of such notice.

      Determinations by the Bank for purposes of this Section 2.14 of the effect
of any increase in the amount of capital required to be maintained by the Bank
and of the amount allocable to the Bank's obligations to the Borrower hereunder
shall be conclusive, provided that such determinations are made on a reasonable
basis.

                                       19
<PAGE>
            2.15 Funding Loss Indemnification. Upon notice to Borrower from the
Bank, Borrower shall pay to the Bank such amount or amounts as shall be
sufficient (in the reasonable opinion of the Bank) to compensate it for any
loss, cost, or expense incurred as a result of:

            (a) Any payment of a LIBOR Loan on a date other than the last day of
the Interest Period for such Loan including, but not limited to acceleration of
the Loans; or

            (b) Any failure by Borrower to borrow or convert a LIBOR Loan on the
date for borrowing or conversion specified in the relevant notice under Section
2.4 or 2.5, as the case maybe.

            2.16 Unused Commitment Fee. Borrower agrees to pay to the Bank a fee
on the average unused portion of the Commitment at the rate per annum of .25%
through December 31, 2004, and thereafter at the rate per annum, at the
appropriate level, from the pricing grid attached as Exhibit B to this
Agreement. Such fee shall be payable quarterly and the Bank is hereby authorized
to charge Borrower's account with Bank for the amount of such fee. The Bank will
send Borrower an invoice setting forth the amount of such fee and the basis upon
which it was calculated.

                                  ARTICLE III -
                       AMOUNT AND TERMS OF THE TERM LOANS

            3.1 First Term Loan

            (a) First Term Loan. The Bank has made and continues to make
hereunder a loan (the "First Term Loan") to Borrower in the outstanding
principal amount as of the Closing Date of One Million Five Hundred Thousand
Dollars ($1,500,000).

            (b) First Term Note. Borrower's obligation to repay the First Term
Loan is evidenced by its $2,250,000 Amended and Restated Term Note dated October
30, 2003 (the "First Term Note"). Borrower acknowledges that the First Term Note
remains in full force and effect and that the terms incorporated by reference
therein are the terms of this Agreement as they have been and in the future may
be further amended.

            (c) Principal Payments on First Term Loan. Borrower has agreed to
pay the principal amount of the First Term Loan in three consecutive annual
installments each in the amount of $750,000, commencing May 1, 2004, and each
subsequent payment being made on the anniversary thereof. Notwithstanding the
foregoing, the entire unpaid principal amount of the First Term Loan shall be
due and payable on May 1, 2006.

            3.2 Second Term Loan

            (a) Second Term Loan. The Bank has made and continues to make
hereunder a loan (the "Second Term Loan") to Borrower, in the outstanding
principal amount as of the Closing Date of Two Million Five Hundred Fifty
Thousand Dollars ($2,550,000).

            (b) Second Term Note. Borrower's obligation to repay the Second Term
Loan is evidenced by its $3,000,000 Amended and Restated Term Note dated October
30, 2003 (the

                                       20
<PAGE>
"Second Term Note"). Borrower acknowledges that the Second Term Note remains in
full force and effect and that the terms incorporated by reference therein are
the terms of this Agreement as they have been and in the future may be further
amended.

            (c) Principal Payments on Second Term Loan. Borrower has agreed to
pay the principal amount of the Second Term Loan in twenty consecutive quarterly
installments each in the amount of $150,000, commencing November 1, 2003, and
the entire unpaid principal amount of the Second Term Loan shall be due and
payable on August 1, 2008.

            3.3 Third Term Loan

            (a) Third Term Loan. The Bank has made and continues to make
hereunder a loan (the "Third Term Loan") to Borrower, in the outstanding
principal amount as of the Closing Date of [One Million Three Hundred
Twenty-Five Thousand Dollars ($1,325,000)].

            (b) Third Term Note. Borrower's obligation to repay the Third Term
Loan is evidenced by its $1,500,000 Term Note dated October 30, 2003 (the "Third
Term Note"). Borrower acknowledges that the Third Term Note remains in full
force and effect and that the terms incorporated by reference therein are the
terms of this Agreement as they have been and in the future may be further
amended.

            (c) Principal Payments on Third Term Loan. Borrower has agreed to
pay the principal amount of the Third Term Loan in sixty consecutive monthly
installments each in the amount of $25,000, commencing December 1, 2003, and the
entire unpaid principal amount of the Third Term Loan shall be due and payable
on November 1, 2008.

            3.4 Fourth Term Loan

            (a) Fourth Term Loan. The Bank agrees on the terms and conditions
hereinafter set forth, to make a loan (the "Fourth Term Loan") to Borrower, in
the principal amount of Ten Million Dollars ($10,000,000.00).

            (b) Fourth Term Note. Borrower's obligation to repay the Fourth Term
Loan shall be evidenced by its promissory note in substantially the form of
Exhibit C to this Agreement, with blanks appropriately completed.

            (c) Principal Payments on Fourth Term Loan. Borrower agrees to pay
the principal amount of the Fourth Term Loan in consecutive monthly installments
each in the amount of $166,667, commencing August 1, 2004, and the entire unpaid
principal amount of the Fourth Term Loan shall be due and payable on July 1,
2009.

            3.5 Interest. Borrower shall pay interest to the Bank on the
outstanding principal amount of the Term Loans at a rate per annum of LIBOR plus
275 basis points or Prime plus .375% through December 31, 2004, and thereafter,
at a rate per annum selected by Borrower, at the appropriate level, from the two
Term columns of the pricing grid attached as Exhibit B to this Agreement. Any
change in the interest rate resulting from a change in the Prime Rate shall be
effective as of the opening of business on the day on which such change in the
Prime Rate becomes effective. Interest on the Term Loans shall be calculated on
the basis of

                                       21
<PAGE>
a year of 360 days for the actual number of days elapsed. Interest on the Term
Loans shall be paid in immediately available funds to the Bank at its Principal
Office, in the case of Prime Loans on the first day of each month and the case
of LIBOR Loans, on the last day of the Interest Period with respect thereto.

            3.6 Method of Payment. Borrower shall make each payment under this
Agreement and under the Term Notes not later than 11:00 A.M. (eastern standard
time) on the date when due in lawful money of the United States to the Bank at
its Principal Office in immediately available funds. Borrower hereby authorizes
the Bank, if and to the extent payment is not made when due under this Agreement
and under the Term Notes, to charge from time to time against any account of
Borrower with the Bank any amount so due. Whenever any payment to be made under
this Agreement or under the Term Notes shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest.

            3.7 Use of Proceeds. The proceeds of the Fourth Term Loan shall be
used by Borrower to fund the acquisition of Altama. Borrower will not, directly
or indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any person for
the purpose of purchasing or carrying any such margin stock, or for any purpose
which violates, or is inconsistent with, Regulation X of such Board of
Governors.

            3.8 Prepayment.

            (a) Excess Cash Flow Recapture Mandatory Prepayment. On or before
the one-hundredth (100th) day after the end of each of its Fiscal Years, the
Borrower shall prepay the Fourth Term Loan in an amount equal to fifty percent
(50%) of Excess Cash Flow for such Fiscal Year just ended, up to a maximum of
$1,500,000, if the ratio of Average Borrowed Funds to EBITDA as of the last day
of such Fiscal Year is greater than 2.00:1.00. Such mandatory prepayments shall
be applied to unpaid principal of the Fourth Term Loan in inverse order of the
dates on which payments are due thereunder.

            (b) Prepayment Premium. Unless financed from a Non-Premium Event, a
prepayment, in whole or in part, of any of the Term Loans requires concurrent
payment to Bank of a Prepayment Premium.

            3.9 Applicable Provisions. Sections 2.5, 2.11, 2.12, 2.13, 2.14, and
2,15 also shall apply to the Term Loans.

                                  ARTICLE IV -
                          LETTERS OF CREDIT SUBFACILITY

            4.1 Letter of Credit Subfacility. Subject to the terms and
conditions of this Agreement and provided the Borrower complies with all
application requirements of the Bank for issuing letters of credit, prior to the
Termination Date, the Bank agrees to issue and extend standby and commercial
letters of credit (individually, a "Letter of Credit") for the account of
Borrower: provided, however, that (a) no Letter of Credit (other than the
Earn-Out Letter of

                                       22
<PAGE>
Credit) shall have an expiration date that is later than the earlier of one year
after the date of issuance thereof or the Termination Date (provided that a
Letter of Credit may provide that it is extendable for consecutive one year
periods if such period does not end after the Termination Date); (b) Borrower
shall not request that the Bank issue any Letter of Credit, if, after giving
effect to such issuance, the sum of the aggregate Letter of Credit Obligations
plus the aggregate outstanding principal amount of all outstanding Revolving
Credit Loans would exceed the Commitment; and (c) Borrower shall not request
that the Bank issue any Letter of Credit if after giving effect to such
issuance, the aggregate Letter of Credit Obligations would exceed $6,000,000.

            4.2 Fees. The Borrower will pay to the Bank on the date of issuance
of each standby Letter of Credit and on each anniversary date thereafter if such
Letter of Credit is renewed, a Letter of Credit fee equal to one and one-half
percent (1.5%) of the aggregate face amount of such Letter of Credit. The
Borrower will pay to the Bank on the date of issuance of each commercial Letter
of Credit and on each anniversary date thereafter if such Letter of Credit is
renewed, a Letter of Credit fee equal to one-quarter percent (1/4%) of the
aggregate face amount of such Letter of Credit. In addition, the Borrower shall
pay to the Bank all other fees customarily charged by the Bank in connection
with the issuance of the Letter of Credit.

            4.3 Reimbursement. Prior to issuance of each Letter of Credit, the
Borrower will execute a Letter of Credit Reimbursement Agreement (each a
"Reimbursement Agreement") in form and substance satisfactory to Bank,
documenting its Obligations with respect to the Letters of Credit (such
Obligations being the Borrower's "Reimbursement Obligations"). To the extent of
any conflict between the terms of this Agreement and the Reimbursement Agreement
or any letter of credit application, the terms of this Agreement shall control.

                                   ARTICLE V -
                           CERTAIN GENERAL PROVISIONS

            5.1 Administrative Expenses. Borrower shall pay any reasonable fees,
expenses and disbursements, including reasonable legal fees, of the Bank related
to this Agreement, the Obligations, the perfection of any collateral security
required hereunder, and the transactions contemplated by this Agreement. Such
payments shall be due at Closing.

            5.2 Collection Costs. At the request of the Bank, Borrower shall
promptly pay any expenses, reasonable attorney's fees, costs, or disbursements
in connection with administration of the Obligations or collection of any of the
Obligations or enforcement of any of the Bank's rights hereunder or under any
Note, Security Document, Reimbursement Agreement, or other agreement related
hereto. This obligation shall survive the payment of any notes executed
hereunder. The Bank may apply any payments of any nature received by it first to
the payment of Obligations under this Section 5.2, notwithstanding any
conflicting provision contained in this Agreement or any other agreement with
the Borrower.

            5.3 Default Interest Rate. Upon the occurrence of an Event of
Default, notwithstanding anything else herein, the rate of interest on each of
the Obligations shall be automatically increased to a rate at all times equal to
three percent (3%) above the rate of interest which would be in effect absent
such failure of compliance, such increased rate to remain in

                                       23
<PAGE>
effect through and including the satisfaction and payment in full of all of the
Obligations and the termination of the Commitment, or written waiver of such
Event of Default by the Bank.

            5.4 Late Payment Fees. Payments of principal and/or interest not
made in full before the date five (5) days after the date due shall be subject
to a processing charge of five percent (5%) of the payment due.

            5.5 Prepayments Upon Default. If by reason of an Event of Default
the Bank elects to declare the Obligations to be immediately due and payable
and/or to reduce or terminate the Commitment, then the Prepayment Premium and
the Reduction Fee shall become due and payable in the same manner as though the
Borrower had reduced, or terminated the Commitment, as applicable.

            5.6 Payment of Fees. Borrower hereby authorizes the Bank to withdraw
an amount equal to the fees which are due and payable hereunder from any of its
accounts with the Bank if not paid on the due date for such fees. The Bank shall
give the Borrower notice of any such withdrawals, provided, however, that
failure by the Bank to give the Borrower notice shall not prevent the Bank from
making any such withdrawals under this Section 5.6.

            5.7 Voluntary Prepayments. Borrower may prepay the Loans in whole or
in part with accrued interest to the date of such prepayment on the amount
prepaid, provided that each partial prepayment shall be in a principal amount of
not less than $50,000 further provided that LIBOR Loans may only be prepaid on
the last day of an Interest Period. Voluntary prepayments of the Term Loans
shall be applied to the principal installments in the inverse order of their
maturities.

            5.8 Taxes Payable by Borrower. If under applicable law any Tax is
required to be withheld or deducted by the Borrower from, or is otherwise
payable by the Borrower in connection with, any payment to the Bank under the
Loan Documents, the Borrower shall (a) make such withholdings or deductions as
are required by applicable law, (b) pay the full amount withheld or deducted to
the relevant taxation authority or other authority in accordance with applicable
law, and (c) pay to the Bank such additional amounts as may be necessary so that
the net amount received by the Bank with respect to such payment, after
withholding or deducting all Taxes required to be withheld or deducted by the
Borrower, is equal to the full amount payable under the Loan Documents. For
purposes of this Section 5.8, "Tax" means any federal, state or foreign tax
(including any withholding tax), assessment or other governmental charge
(including penalties and interest) upon a Person or upon its assets, revenues,
income or profits.

                                  ARTICLE VI -
                           REPRESENTATIONS OF BORROWER

      The Borrower represents and warrants to the Bank as follows:

            6.1 Organization and Power. Borrower and each of its Subsidiaries is
duly organized, validly existing and in good standing under the laws of its
state of incorporation and is duly qualified to transact business and in good
standing in all other states and jurisdictions in which it is required to
qualify or in which failure to qualify could have a material adverse impact on
its business. The jurisdictions of formation and qualification for the Borrower
and each of its

                                       24
<PAGE>
Subsidiaries are described in Schedule 6.1. Borrower and each of its
Subsidiaries has full power and authority to own its properties, to carry on its
business as now being conducted, to execute, deliver and perform the Agreement
and all related documents and instruments, and to consummate the transactions
contemplated hereby.

            6.2 Proceedings of Borrower. All necessary action on the part of the
Borrower and each of its Subsidiaries relating to authorization of the execution
and delivery of this Agreement and all related documents and instruments, and
the performance of the Obligations of the Borrower, and each of its
Subsidiaries, hereunder and thereunder has been taken. This Agreement and all
related documents and instruments constitute legal, valid and binding
obligations of Borrower and its Subsidiaries, as applicable, enforceable in
accordance with their respective terms. The execution and delivery by the
Borrower of this Agreement and all related documents and agreements, and the
performance by the Borrower and its Subsidiaries of their respective obligations
under this Agreement, the Security Documents and all related documents and
agreements will not violate any provision of law or Borrower's or its
Subsidiaries' Certificates of Incorporation or By-Laws. The execution, delivery
and performance of this Agreement, the Security Documents and all related
documents and agreements, and the consummation of the transactions contemplated
hereby will not violate, be in conflict with, result in a breach of, or
constitute a default under any agreement to which Borrower or its Subsidiaries
is a party or by which any of its properties is bound, or any order, writ,
injunction, or decree of any court or governmental instrumentality, and will not
result in the creation or imposition of any lien, charge or encumbrance upon any
of its properties, and do not require the consent or approval of any
governmental authority.

            6.3 Capitalization. All of the outstanding shares and other equity
interests of Borrower are duly authorized, validly issued and fully paid. All of
the outstanding shares and other equity interests of each of Borrower's
Subsidiaries are owned by Borrower or a Subsidiary of Borrower.

            6.4 Litigation. Except as set forth on Schedule 6.4, as of the date
hereof there is no action, suit or proceeding at law or in equity by or before
any court or any federal, state, municipal or other governmental department,
commission, board, bureau, instrumentality or other agency, domestic or foreign,
pending or, to the knowledge of Borrower or its Subsidiaries, threatened against
or affecting Borrower or its Subsidiaries that brings into question the
legality, validity or enforceability of this Agreement or the transactions
contemplated hereby or that, if adversely determined, is not adequately covered
by insurance and would have a material adverse effect on the financial
condition, performance, business, operations or prospects of the Borrower and
its Subsidiaries, taken as a whole.

            6.5 Financial Statements. The audited balance sheets of Borrower as
of the Fiscal Year ended December 27, 2003, and the related statements of
operation, stockholders equity and cash flows (including supporting footnote
disclosures) for the fiscal years then ended, with the opinion of Deloitte &
Touche, LLP, all heretofore furnished to the Bank, have been prepared in
accordance with GAAP consistently applied throughout the periods indicated are
all true and correct in all material respects and present fairly the financial
condition at the date of said financial statements and the results of operations
for the fiscal period then ending. Borrower as of such date did not have any
significant liabilities, contingent or otherwise, including

                                       25
<PAGE>
liabilities for taxes or any unusual forward or long-term commitments which were
not disclosed by or reserved against in the financial statements referred to
above or in the notes thereto, and at the present time there are no material
unrealized or anticipated losses from any unfavorable commitments of Borrower or
any of its Subsidiaries. All such financial statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved.

            6.6 Material Adverse Changes. Since March 27, 2004 there has been no
material adverse change in the operations, business, property, assets or
condition, financial or otherwise of the Borrower and its Subsidiaries, taken as
a whole.

            6.7 Taxes. Borrower and its Subsidiaries have filed or caused to be
filed when due all federal tax returns or extensions and all state and local tax
returns or extensions that are required to be filed, and have paid or caused to
be paid all taxes as shown on said returns or any assessment received. Neither
Borrower's, nor its Subsidiaries, tax returns are being audited on the date of
this Agreement and neither Borrower, nor its Subsidiaries, have been notified of
any intention by any taxing authority to conduct such an audit.

            6.8 Properties; Liens. Borrower and its Subsidiaries have good and
marketable title to all of their properties and assets, including without
limitation, the properties and assets reflected in the Financial Statements free
and clear of all Liens, except for Permitted Liens. Borrower and its
Subsidiaries have undisturbed peaceable possession under all leases under which
they are operating, none of which contain unusual or burdensome provisions that
may materially affect the operations of the Borrower or its Subsidiaries, and
all such leases are in full force and effect.

            6.9 Indebtedness. Except for Permitted Indebtedness (as defined in
Section 9.1), the Borrower and its Subsidiaries have no outstanding
Indebtedness.

            6.10 Franchises; Permits. Borrower and its Subsidiaries possesses
all franchises, permits, licenses and other authority as are necessary to enable
Borrower and its Subsidiaries to conduct their business as now being conducted.
Borrower and its Subsidiaries are not in default under any such franchise,
permit, license or authority such that it would have a material adverse change
in the operations of business, property, assets, condition, financial or
otherwise of the Borrower and its Subsidiaries, taken as a whole.

            6.11 Margin Securities. No proceeds of the Obligations have been or
will be used for the purpose of purchasing or carrying Margin Securities as
defined in Regulation U of the Federal Reserve Board.

            6.12 Compliance With Law. Borrower and its Subsidiaries are not in
violation of any laws, ordinances, governmental rules, requirements, or
regulations, or any order, writ, injunction or decree of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, to which it is subject which
violation could reasonably be expected to materially adversely affect the
condition (financial or otherwise) of the Borrower or its Subsidiaries. Borrower
and its Subsidiaries have obtained and are in compliance with all licenses,
permits, franchises, and governmental

                                       26
<PAGE>
authorizations necessary for the ownership of their properties and the conduct
of their business, for which failure to comply could reasonably be expected to
materially adversely affect the operations, business, property, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole.

            6.13 Patents; Trademarks; and Authorizations. Borrower and its
Subsidiaries own, possess or have licenses for all of the patents, trademarks,
service marks, trade names, copyrights, licenses, authorizations, and all rights
with respect to the foregoing (collectively, the "Intellectual Property"),
necessary to the conduct of their business as now conducted. A complete list of
all such Intellectual Property with respect to which registrations have been
issued by the U.S. Patent and Trademark Office the U.S. Copyright Office, or any
comparable foregoing governmental authority is set forth on the Schedule 6.13.
Except as disclosed in Schedule 6.4, to the knowledge of Borrower, no product,
process, method, substance, part or other material presently contemplated to be
sold by or employed by Borrower or its Subsidiaries in connection with its
business infringes or may infringe any patent, trademark, service mark, trade
name, copyright, license or other right owned by any other person. Except as
disclosed in Schedule 6.4, there is no pending or threatened claim or litigation
against or affecting Borrower or its Subsidiaries contesting its right to sell
or use any such product, process, method, substance, part or other material.
There is not pending or proposed any patent, invention, device application or
principle or any statute, law, rule, regulation, standard or code which would
prevent, inhibit or render obsolete the production or sale of any products of,
or substantially reduce the projected revenues of or otherwise have a materially
adverse effect on the financial condition, performance or prospects of the
Borrower and its Subsidiaries, taken as a whole, or the business, assets,
property or operations of the Borrower or its Subsidiaries, taken as a whole.

            6.14 Contracts and Agreements. Borrower and its Subsidiaries are not
parties to any contractor agreement that materially adversely affects its
business, property, assets, or condition financial or otherwise, and Borrower
and its Subsidiaries are in compliance in all material respects with all
material contracts and agreements to which they are a party.

            6.15 Subsidiaries and Affiliates. Except for Trask, Penobscot,
Royal, and Altama, which are each wholly-owned Subsidiaries of Borrower, and
Subsidiaries permitted by Section 9.10 below, Borrower has no Subsidiaries or
Affiliates.

            6.16 ERISA. Except as set forth on the Schedule 6.16:

            (a) Identification of Plans. (i) Neither Borrower, nor any ERISA
Affiliate, maintains or contributes to, or has maintained or contributed to, any
Plan that is an ERISA Plan, and (ii) Borrower and its ERISA Affiliates do not
maintain or contribute to, or have not maintained or contributed to, any Plan
that is an Executive Arrangement;

            (b) Compliance. Each Plan has at all times been maintained, by its
terms and in operation, in accordance with all applicable laws, except such
noncompliance (when taken as a whole) that will not have a material adverse
effect on the financial condition, performance or prospects of the Borrower and
its Subsidiaries, taken as a whole or the business or operations of the Borrower
and its Subsidiaries, taken as a whole;

                                       27
<PAGE>
            (c) Liabilities. Neither Borrower, nor any ERISA Affiliate, is
currently, and has not been obligated in the last six (6) years to make
contributions (directly or indirectly) to a Multiemployer Plan, and is not
currently subject to any liability (including withdrawal liability), tax or
penalty whatsoever to any person whomsoever with respect to any Plan including,
but not limited to, any tax, penalty or liability arising under Title I or Title
IV or ERISA or Chapter 43 of the Internal Revenue Code, except such liabilities
(when taken as a whole) as will not have a materially adverse effect on
financial condition, performance or prospects of the Borrower and its
Subsidiaries, taken as a whole or the business or operations of the Borrower and
its Subsidiaries, taken as a whole; and

            (d) Funding. The Borrower and each ERISA Affiliate have made full
and timely payment of all amounts (i) required to be contributed under the terms
of each Plan and applicable law and (ii) required to be paid as expenses of each
Plan. No Plan has an "amount of unfunded benefit liabilities" (as defined in
Section 4001(a)(18) of ERISA).

            6.17 Disclosure. Neither this Agreement, any Loan Document nor any
other document, certificate or statement furnished to the Bank by or on behalf
of Borrower or any Subsidiary in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading, if, in
either case, such fact is material to an understanding of the financial
condition, performance or prospects of Borrower and its Subsidiaries, taken as a
whole or their business or operations, taken as a whole, or the ability of
Borrower or its Subsidiaries to fulfill their obligations under this Agreement
or by any Loan Documents to which they are a party.

                                  ARTICLE VII -
                              CONDITIONS OF LENDING

            7.1 Initial Revolving Credit Loans and Letter of Credit. The
following conditions must be satisfied before the Bank shall have any obligation
to make the initial Revolving Credit Loan and the Fourth Term Loan under this
Agreement:

            (a) Performance. Borrower shall have performed and complied with all
agreements and conditions required to be performed or complied with by it prior
to or at the time the first Revolving Credit Loan and Fourth Term Loan is made.

            (b) Opinion of Counsel. Borrower and its Subsidiaries shall have
delivered a favorable opinion of their counsel, in form and substance
satisfactory to the Bank.

            (c) Documents to be Delivered. Borrower shall have executed and
delivered or have caused to be executed and delivered to the Bank all Loan
Documents, together with a confirmation of certain Security Documents in form
and substance satisfactory to Bank, and all Loan Documents shall be in full
force and effect.

            (d) Certified Resolutions. Borrower and Guarantors shall have
delivered a certificate of their respective corporate secretaries certifying (i)
resolutions duly adopted by their Boards of Directors authorizing the execution,
delivery and performance of the Loan Documents to which each is a party and the
consummation of the transactions contemplated hereby and thereby, as applicable,
which resolutions shall remain in full force and effect so long as any of

                                       28
<PAGE>
the Obligations are outstanding or the Commitment has not been terminated, (ii)
the Certificate of Incorporation and By-Laws and (iii) the incumbency of the
officers authorized to execute, deliver and perform this Agreement or the Loan
Documents, as applicable.

            (e) Fees and Taxes. Borrower shall have paid all filing fees, taxes,
and assessments related to the borrowings and the perfection of any interests in
collateral security required hereunder.

            (f) Insurance. Borrower shall have delivered evidence satisfactory
to the Bank of the existence of insurance required hereby.

            (g) Other Documents and Agreements. On or before the date of this
Agreement, the Borrower shall have executed and/or delivered such other
documents, instruments, and agreements as the Bank and its legal counsel may
reasonably require in connection with the transactions contemplated hereby.

            (h) Certificates of Good Standing; Searches. Borrower, Altama, and
Altama PR shall have delivered to the Bank (a) certificates of good standing
from appropriate state officials to the effect that the Borrower, Altama, and
Altama PR are in good standing in the state of their incorporation as well as in
all other states in which qualification is necessary to carry on their
businesses as presently conducted and (b) UCC, judgment, bankruptcy and tax
searches against the Borrower, Altama, and Altama PR in all jurisdictions deemed
necessary by the Bank, all of which shall be satisfactory to the Bank in all
respects.

            (i) Altama Acquisition Agreement. The Altama Acquisition Agreement
shall have been executed and delivered setting forth the terms of the Altama
acquisition that are satisfactory to Bank, and the transaction contemplated
thereby shall have been closed. If such closing occurs on the date of this
Agreement, the closing shall be deemed to have preceded the execution of this
Agreement and Altama and Altama PR shall be deemed to be Subsidiaries of the
Borrower at the time of execution of and for purposes of this Agreement.

            (j) Equity Capital. The Borrower shall have received at least
$22,000,000 in proceeds (net of expenses and underwriting discounts) in
connection with its 2004 Registration Statement on Form S-2.

            (k) Projected Financial Covenants Compliance. The Bank shall have
received evidence satisfactory to the Bank of Borrower's projected compliance
with the Financial Covenants.

            (l) No Material Adverse Change. On the date of this Agreement, there
shall have been no change since March 27, 2004 which has had or could reasonably
be expected to have a material adverse effect on the business, assets,
liabilities, operations or financial condition of Borrower and its Subsidiaries,
taken as a whole.

            (m) Solvency Certificates. The Bank shall have received reasonably
satisfactory certificates from the Chief Financial Officer of the Borrower,
Altama, and Altama PR as to the financial condition and solvency of each of the
Borrower, Altama, and Altama PR.

                                       29
<PAGE>
            (n) Consents and Approvals. The Bank shall have received evidence of
receipt of all governmental, shareholder and other, if any, consents and
approvals necessary in connection with the related financings and other
transactions contemplated under this Agreement, except where the failure to
obtain such consents or approvals would not, individually or in the aggregate,
have a material adverse effect on the business, assets, liabilities, operations
or financial condition of the Borrower and its Subsidiaries, taken as a whole.

            (o) Litigation. The Bank shall have been informed of any suit,
investigation or proceeding pending in any court or before any arbitrator or
governmental authority that would reasonably be expected to have a material
adverse effect on the Borrower and its Subsidiaries, taken as a whole, or on
their ability to perform their respective obligations under this Agreement.

            (p) Minimum Borrowing Capacity. The Bank shall have received
evidence of a minimum borrowing capacity of the Borrower of $2,000,000 on the
Closing Date.

            (q) Landlord Waivers. The Bank shall have received a waiver in form
and substance satisfactory to Bank from each landlord of premises on which the
Bank's collateral is located and that is not owned by Borrower or its
Subsidiaries with the sole exception of a waiver from the landlord of the
premises occupied by Royal on the Closing Date located in Modesto, California.

            7.2 Subsequent Loans and Letters of Credit. The obligation of the
Bank to make any Revolving Credit Loan or issue any Letters of Credit shall at
all times be subject to the following continuing conditions:

            (a) Representations and Warranties. The representations and
warranties of the Borrower and its Subsidiaries contained herein shall be true
and correct in all material respects as of the date of making of each such
advance (except those which are specific as to a date certain, and except for
Section 6.6 which shall be true and correct in all material respects on the date
of this Agreement), with the same effect as if made on and as of such date.

            (b) No Defaults. There shall exist no condition or event that
constitutes (or that, with the giving of notice or the passage of time or both,
would constitute) an Event of Default at the time each advance is to be made or
the Letter of Credit is to be issued.

            7.3 Notice of Borrowing Representation. Each Notice of Borrowing
given by a Borrower in accordance with Section 2.4 hereof and the acceptance by
Borrower of the proceeds of a Revolving Credit Loan shall constitute a
representation and warranty by the Borrower, made as of the time of the making
of such Revolving Credit Loan, that the conditions specified in Sections 7.1
(solely with respect to the initial Revolving Credit Loan and Letter of Credit
issuances) and 7.2 (with respect to all other Revolving Credit Loans or Letter
of Credit issuances) have been fulfilled as of such time.

                                       30
<PAGE>
                                 ARTICLE VIII -
                        AFFIRMATIVE COVENANTS OF BORROWER

      So long as any Obligations to the Bank shall be outstanding or this
Agreement remains in effect, unless the Bank otherwise consents in writing, the
Borrower shall:

            8.1 Financial Statements; Other Information.

            (a) Furnish to the Bank as soon as available, but in no event later
than ninety (90) days after the close of each Fiscal Year in which this
Agreement remains in effect, copies of annual financial statements of the
Borrower in reasonable detail satisfactory to the Bank prepared in accordance
with GAAP on a consistent basis audited by and with an unqualified opinion from
an independent certified public accountant satisfactory to the Bank. Said
financial statements shall include at least a consolidated and consolidating
balance sheet and consolidated and consolidating statements of operations,
stockholder's equity and cash flow, and shall be accompanied by a schedule
showing computation of financial covenants and a copy of any management letter
prepared by such accountants. Such financial statements shall be accompanied by
a certificate of the Chief Financial Officer of Borrower to the effect that no
Event of Default has occurred and no condition exists which with the passage of
time or the giving of notice would constitute an Event of Default.

            (b) Furnish to the Bank unaudited financial statements not more than
thirty (30) days after the close of each month. Said statements shall be in
reasonable detail satisfactory to the Bank, shall be prepared in accordance with
GAAP, shall include at least a consolidated and consolidating balance sheet and
a consolidated and consolidating statements of operations, stockholder's equity
and cash flow, and shall be accompanied by a schedule showing computation of
financial covenants. Said financial statements shall be certified to be true and
correct to the best knowledge of the Chief Financial Officer of Borrower. Such
financial statements shall be accompanied by a certificate of the Chief
Financial Officer of Borrower to the effect that no Event of Default has
occurred and no condition exists which with the passage of time or the giving of
notice would constitute an Event of Default.

            (c) Provide to the Bank interim financial statements, if any,
prepared by the Borrower's or its Subsidiaries' independent accountants.

            (d) Provide to the Bank Borrowing Base Reports together with
accounts receivable agings and inventory reports and any changes to the Dating
Account List, on or before the twentieth (20th) day of each calendar month and
more often in the event the Bank so requests. Borrowing Base Reports must be in
the form of Exhibit E attached hereto.

            (e) Permit the Bank, at its option, to perform full field audits of
the Borrower's or its Subsidiaries' accounts receivable and inventories at the
Borrower's expense no more than twice during each calendar year. The Bank
reserves the right, in its sole discretion and the Banks expense (unless there
is an Event of Default, in which case it will be at the Borrower's expense), to
perform field audits of the Borrower's or its Subsidiaries' accounts receivable
and inventories more than two (2) times per year, but not more than four (4)
times per

                                       31
<PAGE>
year, provided that there shall be no limitation on the number of times the Bank
may perform full field audits during the continuance of an Event of Default.

            (f) Permit the Bank to request accounts receivable verifications
from the Borrower's or its Subsidiaries' customers, but prior to an Event of
Default no more than twice per calendar year. These requests will be done under
an assumed name and P.O. Box address or its equivalent.

            (g) Furnish to the Bank such additional information, reports, or
financial statements as the Bank may, from time to time, reasonably request,
including, without limitation, lists of vendors and suppliers and information
necessary to monitor Revolving Credit borrowings.

            (h) Permit any person designated by the Bank to inspect the
property, assets and books of the Borrower or its Subsidiaries at reasonable
times and, prior to an Event of Default, upon reasonable notice, and shall
discuss its affairs, finances and accounts at reasonable times with the Bank
from time to time as often as may be reasonably requested.

            (i) Report immediately to the Bank in writing upon becoming aware of
any noncompliance with any covenant in this Agreement, including without
limitation becoming aware of any noncompliance with Article X in advance of the
date on which the corresponding quarterly financial statements are due to be
delivered to the Bank.

            8.2 SEC Reports. Furnish to the Bank, as applicable, copies of all
proxy statements, financial statements and reports which Borrower sends to its
stockholders, and copies of all regular, periodic and special reports, and all
statements which Borrower files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefore, or with any
national securities exchange.

            8.3 Taxes. Pay and discharge all taxes, assessments, levies and
governmental charges upon the Borrower or its Subsidiaries, their income and
property, prior to the date on which penalties are attached thereto; provided,
however, that the Borrower or its Subsidiaries may in good faith contest any
such taxes, assessments, levies or charges so long as such contest is diligently
pursued and no lien or execution exists or is levied against any of the
Borrower's or its Subsidiaries' assets related to the contested items.

            8.4 Insurance. Maintain or cause to be maintained insurance, of
kinds and in amounts satisfactory to the Bank, with responsible insurance
companies on all of its and its Subsidiaries' real and personal properties in
such amounts and against such risks as are prudent, including, but not limited
to, full-risk extended coverage hazard insurance to the full insurable value of
real property (co-insurance not being permitted without the prior written
consent of the Bank), all-risk coverage for personal property, business
interruption or loss of rents coverage, worker's compensation insurance, and
comprehensive general liability and products liability insurance. The Borrower
and its Subsidiaries also shall maintain flood insurance covering any real
properties located in flood zones. The Borrower and its Subsidiaries shall
provide to the Bank, no less often than annually and upon its request, a
detailed list and evidence satisfactory to the Bank of their insurance carriers
and coverage and shall obtain such additional insurance as

                                       32
<PAGE>
the Bank may reasonably request. Hazard insurance policies for personalty and
liability insurance policies shall name the Bank as additional insured, as its
interests may appear, and all policies shall provide for at least thirty (30)
days prior notice of cancellation to the Bank.

            8.5 Maintenance of Business Assets. At all times maintain, preserve,
protect, and keep its and its Subsidiaries' assets in good repair, working
order, and condition and, from time to time, make all needful and proper
repairs, renewals, replacements, betterments and improvements thereto, so that
the business of the Borrower and its Subsidiaries may be properly and
advantageously conducted at all times and the value of the Bank's collateral
shall be preserved.

            8.6 Maintenance of Real Estate. At all times maintain, preserve and
protect all of its and its Subsidiaries' real estate (including all real estate
subject to mortgages in favor of the Bank) pursuant to commercially reasonable
standards and, from time to time, make needful and proper repairs so that the
value of the Bank's collateral shall be preserved.

            8.7 Material Changes, Judgments. Notify the Bank immediately of any
material adverse change in the financial condition of the Borrower or its
Subsidiaries and of the filing of any suits, judgments or liens which, if
adversely determined, could reasonably be expected to have a material adverse
effect on the financial condition, performance or prospects of the Borrower and
its Subsidiaries, taken as a whole, or the business or operations of the
Borrower and its Subsidiaries, taken as a whole.

            8.8 ERISA Compliance. Comply in all material respects with the
provisions of ERISA and regulations and interpretations related thereto with
respect to all of its and its Subsidiaries' Plans.

            8.9 Franchises;Permits;Laws. Preserve and keep in full force and
effect its existence and all franchises, permits, licenses and other authority
as are necessary to enable it and its Subsidiaries to conduct each of their
business as being conducted on the date of this Agreement and comply in all
material respects with all laws, regulations and requirements now in effect or
hereafter promulgated by any properly constituted governmental authority having
jurisdiction over it.

            8.10 Payments. Make all payments as and when required by this
Agreement and the notes and other agreements related hereto or to the
Obligations.

            8.11 Deposits;Bank Services. Maintain at the Bank all of its and its
Subsidiaries' primary depository accounts, with exceptions permitted for
accounts maintained for convenience in other geographical locations for the
temporary deposit of receipts.

            8.12 Amendments. Give the Bank written notice of an amendment or
modification to its and its Subsidiaries' Certificates of Incorporation or
By-Laws other governing documents or agreements.

            8.13 Additional Guarantors. Borrower shall notify the Bank of the
acquisition or creation of any new Subsidiary and cause each Subsidiary created
or acquired after the Closing Date to execute and deliver to the Bank a
continuing guaranty and a general security

                                       33
<PAGE>
agreement, in form and substance satisfactory to Bank, together with legal
opinions in form and substance satisfactory to the Bank opining to the
authorization, validity and enforceability of such Guaranty, and to such other
matters at the Bank may reasonably request.

            8.14 Further Assurances. Cooperate with the Bank and execute such
further instruments and documents as the Bank shall reasonably request to carry
out the transactions contemplated by this Agreement and the other Loan
Documents.

                                  ARTICLE IX -
                         NEGATIVE COVENANTS OF BORROWER

      So long as any Obligations shall be outstanding, or this Agreement shall
remain in effect, unless the Bank otherwise consents in writing, the Borrower
shall not, directly or indirectly, jointly or severally:

            9.1 Indebtedness, Mortgages and Liens. Create, incur, assume or
allow to exist, voluntarily or involuntarily, or permit any Subsidiary to
create, incur, assume or allow to exist, voluntarily or involuntarily, any
Indebtedness, excluding only (a) Indebtedness to and interests held by the Bank
and/or its Affiliates, (b) Indebtedness reflected in the Financial Statements
and in Borrower's unaudited financial statements as of and for the three Fiscal
Month period ended March, 2004, (c) Indebtedness incurred since June 28, 2003,
in the ordinary course of business, (d) Indebtedness described in Schedule 9.1
attached hereto and made a part hereof, which may not be renewed, extended,
amended or modified, (e) Permitted Liens, (f) Indebtedness and interests to
which the Bank consents in writing, (g) Indebtedness of Borrower to any
Subsidiary or of any Subsidiary to Borrower, (h) amounts payable under or
related to the Royal Acquisition Agreement, and (i) amounts payable under or
related to the Altama Acquisition Agreement (collectively, "Permitted
Indebtedness").

            9.2 Loans and Investments. Make any loan or advance to, or any
investment in, any person, firm, joint venture, corporation or other entity
whatsoever, or permit any Subsidiaries to do so, except for loans or advances
to, and investments in, Borrower or any Subsidiary and short-term investments in
certificates of deposit of financial institutions and similar investments made
in the ordinary course of business.

            9.3 Mergers, Sales and Acquisitions;Change in Ownership Interests.
Exclusive of the Altama acquisition, enter into any merger or consolidation, or
acquire all or substantially all the stock or other ownership interests or
assets of any person, firm, joint venture, corporation, or other entity, or
sell, lease, transfer, or otherwise dispose of any its assets, or permit any
Subsidiaries to do so, except, for (a) non-material assets in the ordinary
course of business, and (b) the merger of Borrower into any Subsidiary or of any
Subsidiary into Borrower (but not reflecting any acquisition of a new
Subsidiary).

            9.4 Amendments. Allow the amendment or modification of its
Certificate of Incorporation, By-Laws or other governing documents and
agreements in any material respect without the prior written consent of the
Bank.

            9.5 Dividends, Distributions and Stock Repurchases. Make any cash or
property dividends or distributions with respect to any of its shareholder or
ownership interests,

                                       34
<PAGE>
or apply any of its property or assets to the purchase, redemption or other
retirement of, or set apart any sum for the payment of any cash dividends on or
distributions with respect to, or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of capital or
otherwise in respect of, any shareholder or ownership interests in Borrower
unless after giving effect to any such transaction Borrower shall be in
compliance with all the covenants in this Agreement. Notwithstanding the
foregoing, (i) Borrower's Subsidiaries may pay dividends from a subsidiary to
its parent corporation, and (ii) Borrower may declare and pay cash dividends on
its outstanding capital stock after December 31, 2005 provided that both (a) no
Default or Event of Default hereunder has occurred and is continuing, or would
result from the payment of such dividends, and (b) Borrower's Average Borrowed
Funds to EBITDA Ratio, on a consolidated basis, is no greater than 2.0 to 1.0.

            9.6 Material Changes. Permit any material change to be made in the
character of the business of Borrower and its Subsidiaries, or in the nature of
their operations as carried on at the date hereof.

            9.7 Compensation. Compensate or permit its Subsidiaries to
compensate any person or entity, including, without limitation, salaries,
bonuses, consulting fees, or otherwise, in excess of amounts reasonably related
to services rendered to Borrower or its Subsidiaries.

            9.8 Judgments. Allow to exist any judgments against Borrower or its
Subsidiaries in excess of $100,000 which are not fully covered by insurance or
for which an appeal or other proceeding for the review thereof shall not have
been taken and for which a stay of execution pending such appeal shall not have
been obtained.

            9.9 Margin Securities. Allow any proceeds of the Obligations to be
used for the purpose of carrying any Margin Securities as defined in Regulation
U of the Board of Governors of the Federal Reserve.

            9.10 Subsidiaries. Form, or permit to be formed, any Subsidiary
unless such Subsidiary guarantees all Obligations to the Bank, which guarantee
must be secured by all of its assets pursuant to a guaranty and a security
agreement in form and substance acceptable to the Bank in its sole discretion.

                                   ARTICLE X -
                               FINANCIAL COVENANTS

      So long as any Obligations to the Bank shall be outstanding or this
Agreement remains in effect, unless the Bank otherwise consents in writing, the
Borrower shall:

            10.1 Average Borrowed Funds to EBITDA. Maintain an Average Borrowed
Funds to EBITDA Ratio, on a consolidated basis, no greater than 3.00 to 1.0
measured at the end of each Fiscal Quarter.

            10.2 Minimum Current Ratio. Maintain a minimum Current Ratio, on a
consolidated basis, equal to or greater than 1.35 to 1.0 measured at the end of
each Fiscal Quarter.

                                       35
<PAGE>
            10.3 Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage Ratio,
on a consolidated basis, equal to or greater than (i) 1.15 on September 30,
2004, (ii) 1.2 to 1 .0 from October 1, 2004, until the Termination Date, and
(ii) an amount set by the Bank thereafter, each measured at the end of each
Fiscal Quarter.

            10.4 Net Income. Not have Net Income, on a consolidated basis, for
any consecutive two (2) Fiscal Quarters in the same calendar year of less than
zero.

            10.5 Quarterly Covenant Compliance Sheet. Provide the Quarterly
Covenant Compliance Sheet to the Bank within thirty (30) days after the close of
each of its Fiscal Quarters.

                                  ARTICLE XI -
                     ENVIRONMENTAL MATTERS; INDEMNIFICATION

            11.1 Environmental Representations. Borrower represents and warrants
that:

            (a) Neither the Improvements nor any property adjacent to the
Improvements is being or has been used for the storage, treatment, generation,
transportation, processing, handling, production or disposal of any Hazardous
Substance or as a landfill or other waste disposal site or for the storage of
petroleum or petroleum based products except in compliance with all
Environmental Laws.

            (b) Underground storage tanks are not and have not been located on
the Improvements except in compliance with all Environmental Laws

            (c) The soil, subsoil, bedrock, surface water and groundwater of the
Improvements are free of any Hazardous Substances, except as permitted by
Environmental Laws.

            (d) There has been no Release, nor is there the threat of a Release
of any Hazardous Substance on, at or from the Improvements or any property
adjacent to or within the immediate vicinity of the Improvements which through
soil, subsoil, bedrock, surface water or groundwater migration could come to be
located on the Improvements, and the Borrower and its Subsidiaries have not
received any form of notice or inquiry from any federal, state or local
governmental agency or authority, any operator, tenant, subtenant, licensee or
occupant of the Improvements or any property adjacent to or within the immediate
vicinity of the Improvements or any other person with regard to a Release or the
threat of a Release of any Hazardous Substance on, at or from the Improvements
or any property adjacent to the Improvements.

            (e) All Environmental Permits relating to the Borrower and its
Subsidiaries and the Improvements have been obtained and are in full force and
effect.

            (f) No event has occurred with respect to the Improvements which,
with the passage of time or the giving of notice, or both, would constitute a
violation of any applicable Environmental Law or non-compliance with any
Environmental Permit.

                                       36
<PAGE>
            (g) There are no agreements, consent orders, decrees, judgments,
license or permit conditions or other orders or directives of any federal, state
or local court, governmental agency or authority relating to the past, present
or future ownership, use, operation, sale, transfer or conveyance of the
Improvements which require any change in the present condition of the
Improvements or any work, repairs, construction, containment, clean up,
investigations, studies, removal or other remedial action or capital
expenditures with respect to the Improvements.

            (h) There are no actions, suits, claims or proceedings, pending or
threatened, which could cause the incurrence of expenses or costs of any name or
description or which seek money damages, injunctive relief, remedial action or
any other remedy that arise out of, relate to or result from (i) a violation or
alleged violation of any applicable Environmental Law or noncompliance or
alleged non-compliance with any Environmental Permit, (ii) the presence of any
Hazardous Substance or a Release or the threat of a Release of any Hazardous
Substance on, at or from the Improvements or any property adjacent to or within
the immediate vicinity of the Improvements or (iii) human exposure to any
Hazardous Substance, noises, vibrations or nuisances of whatever kind to the
extent the same arise from the condition of the Improvements or the ownership,
use, operation, sale, transfer or conveyance thereof.

            11.2 Environmental Covenants. Borrower covenants and agrees with the
Bank that, until the Obligations have been fully satisfied and paid and the
Commitment has been terminated, the Borrower shall:

            (a) Comply with, and shall cause its Subsidiaries, all operators,
tenants, subtenants, licensees and occupants of the Improvements to comply with
all applicable Environmental Laws and shall obtain and comply with, and shall
cause all operators, tenants, subtenants, licensees and occupants of the
Improvements to obtain and comply with, all Environmental Permits.

            (b) Not cause or permit any change to be made in the present or
intended use of the Improvements which would (i) violate any applicable
Environmental Law, (ii) constitute non-compliance with any Environmental Permit
or (iii) materially increase the risk of a Release of any Hazardous Substance.

            (c) Promptly provide the Bank with a copy of all notifications which
it gives or receives with respect to any past or present Release or the threat
of a Release of any Hazardous Substance on, at or from the improvements or any
property adjacent to the Improvements.

            (d) Undertake and complete all investigations, studies, sampling and
testing and all removal and other remedial actions required by law to contain,
remove and clean up all Hazardous Substances that are determined to be present
at the Improvements in accordance with all applicable Environmental Laws and all
Environmental Permits.

            (e) At all times upon prior notice, allow the Bank and its officers,
employees, agents, representatives, contractors and subcontractors access to the
Improvements for the purposes of ascertaining site conditions, including, but
not limited to, subsurface conditions.

                                       37
<PAGE>
            (f) Deliver promptly to the Bank: (i) copies of any documents
received from the United States Environmental Protection Agency, or any state,
county or municipal environmental or health agency concerning a Borrower's or
its Subsidiaries' operations or the Improvements; and (ii) copies of any
documents submitted by Borrower or its Subsidiaries to the United States
Environmental Protection Agency or any state, county or municipal environmental
or health agency concerning its operations or the Improvements.

            (g) If at any time the Bank obtains any reasonable evidence or
information which suggests that a material potential environmental problem may
exist at the improvements, the Bank may require that a kill or supplemental
environmental inspection and audit report with respect to the Improvements of a
scope and level of detail satisfactory to the Bank be prepared by an
environmental engineer or other qualified person acceptable to the Bank at the
Borrower's expense. Such audit may include a physical inspection of the
Improvements, a visual inspection of any property adjacent to or within the
immediate vicinity of the Improvements, personnel interviews and a review of all
Environmental Permits. If the Bank requires, such inspection shall also include
a records search and/or subsurface testing for the presence of Hazardous
Substances in the soil, subsoil, bedrock, surface water and/or groundwater. If
such audit report indicates the presence of any Hazardous Substance or a Release
or the threat of a Release of any Hazardous Substance on, at or from the
Improvements, the Borrower and its Subsidiaries shall promptly undertake and
diligently pursue to completion all necessary, appropriate and legally
authorized investigative, containment, removal, clean up and other remedial
actions, using methods recommended by the engineer or other person who prepared
said audit report and acceptable to the appropriate federal, state and local
agencies or authorities.

            11.3 Indemnity. Borrower agrees to indemnify, defend and hold
harmless the Bank from and against any and all liabilities, claims, damages,
penalties, expenditures, losses or charges, including, but not limited to, all
costs of investigation, monitoring, legal representation, remedial response,
removal, restoration or permit acquisition of any kind whatsoever, which may now
or in the future be undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by the Bank (or any other person or entity affiliated with the Bank or
representing or acting for the Bank or at the Bank's behest, or with a claim on
the Bank or to whom the Bank has liability or responsibility of any sort related
to this Section 11.3) relating to, resulting from or arising out of (a) the use
of the Improvements for the storage, treatment, generation, transportation,
processing, handling, production or disposal of any Hazardous Substance or as a
landfill or other waste disposal site, (b) the presence of any Hazardous
Substance or a Release or the threat of a Release of any Hazardous Substance on,
at or from the Improvements, (c) the failure to promptly undertake and
diligently pursue to completion all necessary, appropriate and legally
authorized investigative, containment, removal, clean up and other remedial
actions with respect to a Release or the threat of a Release of any Hazardous
Substance on, at or from the Improvements, (d) human exposure to any Hazardous
Substance, noises, vibrations or nuisances of whatever kind to the extent the
same arise from the condition of the Improvements or the ownership, use,
operation, sale, transfer or conveyance thereof, (e) a violation of any
applicable Environmental Law, (f) non-compliance with any Environmental Permit
or (g) a material misrepresentation or inaccuracy in any representation or
warranty or a material breach of or failure to perform any covenant made by
Borrower in this Agreement. Such costs or other liabilities incurred by the Bank
or other entity described in this Section 11.3 shall be deemed to include,
without limitation,

                                       38
<PAGE>
any sums which the Bank deems it necessary or desirable to expend to protect its
security interests and liens.

            11.4 No Limitation. The liability of the Borrower under this Article
XI shall in no way be limited, abridged, impaired or otherwise affected by (a)
any amendment or modification of this Agreement or any other document relating
to the Obligations by or for the benefit of the Borrower, its Subsidiaries or
any subsequent owner of the Improvements except for an amendment or modification
which expressly refers to this Article XI, (b) any extensions of time for
payment or performance required by this Agreement or any other document relating
to the Obligations, (c) the release of Borrower, any Subsidiary or any other
person from the performance or observance of any of the agreements, covenants,
terms or conditions contained in this Agreement or any other document relating
to the Obligations by operation of law, the Bank's voluntary act or otherwise,
(d) the invalidity or unenforceability of any of the terms or provisions of this
Agreement or any other document relating to the Obligations, (e) any exculpatory
provision contained in this Agreement or any other document relating to the
Obligations limiting the Bank's recourse, to property encumbered by any mortgage
or to any other security or limiting the Bank's rights to a deficiency judgment
against the Borrower, (f) any applicable statute of limitations, (g) any
investigation or inquiry conducted by or on behalf of the Bank or any
information which the Bank may have or obtain with respect to the environmental
or ecological condition of the Improvements, (h) the sale, assignment or
foreclosure of any interest in collateral for the Obligations, (i) the sale,
transfer or conveyance of all or part of the Improvements, (j) the dissolution
and liquidation of Borrower, (k) the death or legal incapacity of any
individual, (l) the release or discharge, in whole or in part, of Borrower in
any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceeding, or (m) any other circumstances
which might otherwise constitute a legal or equitable release or discharge of
Borrower, in whole or in part.

            11.5 Survival. Notwithstanding anything to the contrary contained
herein, the liability and obligations of the Borrower under Section 11.3 shall
survive the discharge, satisfaction or assignment of this Agreement by the Bank
and the payment in full of all of the Obligations.

            11.6 Investigations. If Borrower defaults on any of its Obligations
pursuant to this Agreement or any other Loan Document, the Bank or its designee
shall have the right, upon reasonable notice to the Borrower, to enter upon the
Improvements and conduct such tests, investigation and sampling, including, but
not limited to, installation of monitoring wells, as shall be reasonably
necessary for the Bank to determine whether any disposal of Hazardous Substances
has occurred on, at or near the Improvements. The costs of all such tests,
investigations and samplings shall be considered as additional indebtedness
secured by all collateral for the Obligations and shall become immediately due
and payable without notice and with interest thereon at the highest rate then
borne by any of the Obligations.

            11.7 No Warranty Regarding Information. Borrower agrees that the
Bank shall not be liable in any way for the completeness or accuracy of any
Environmental Report or the information contained therein. The Borrower further
agrees that the Bank has no duty to warn the Borrower, its Subsidiaries or any
other person or entity about any actual or potential

                                       39
<PAGE>
environmental contamination or other problem that may have become apparent or
will become apparent to the Bank.

                                  ARTICLE XII -
                                    DEFAULTS

            12.1 Defaults. The following events (hereinafter called "Events of
Default") shall constitute defaults under this Agreement

            (a) Nonpayment. Failure of Borrower to make any payment of any type
under the terms of this Agreement, any of the Notes, or of any of the agreements
contemplated hereunder (including without limitation, the Reimbursement
Agreement), within ten (10) days after the same becomes due and payable, except
that there shall be no ten (10) day grace period for the Borrower's obligation
to reduce the principal balance of the Revolving Credit Facility if the
outstanding principal balance of the Revolving Credit Facility exceeds the
Commitment or the Borrowing Base under Sections 2.1 and 2.2 of this Agreement.

            (b) Performance. Failure of Borrower or any Subsidiary to observe or
perform, as applicable, (i) any of the financial covenants in Article X of this
Agreement or (ii) any other condition, covenant or term of this Agreement, any
Loan Document or any related agreements and documents which is not cured within
thirty (30) days after notice of such failure is sent by the Bank, and provided
that during such thirty (30) day period Borrower and any affected Subsidiary is
diligently and in good faith curing such failure.

            (c) Other Obligations. Failure of Borrower or any Subsidiary to
observe or perform any other condition, covenant any other agreement or
instrument with the Bank, M&T Real Estate or any other subsidiary or affiliate
of the Bank after any applicable cure or grace period related thereto, or
default by Borrower under any agreement or instrument involving borrowed money
or the like, or any other agreement with any third person or entity, which is
not terminable on thirty (30) days or less notice or provides for payment of
consideration of more than $100,000 by any party thereafter, but excluding from
the operation of this Subsection (c) of this Section 12.1 the payment or
acceleration of the due date of Contingent Earn-Out Amounts due under (i) the
Royal Acquisition Agreement which are capable of being paid with additional
Revolving Credit Loans available under the Revolving Credit Facility, the
Earn-Out Letter of Credit or committed third party equity or equity-like
financing, and (ii) the Altama Acquisition Agreement which are capable of being
paid with additional Revolving Credit Loans available under the Revolving Credit
Facility or committed third party equity or equity-like financing.

            (d) Representations. Failure of any representation or warranty made
by Borrower or any Subsidiary in connection with the execution and performance
of any Loan Document or any certificate of officers pursuant thereto, to be
truthful, accurate or correct in all material respects.

            (e) Financial Difficulties. Financial difficulties of Borrower or
any Subsidiary as evidenced by:

                  (i) any admission in writing of inability to pay debts as they
become due; or

                                       40
<PAGE>
                  (ii) immediately upon the filing of a voluntary, or sixty (60)
days after a filing of an involuntary, petition in bankruptcy, or under any
chapters of the Bankruptcy Code, or under any federal or state statute providing
for the relief of debtors; or

                  (iii) making an assignment for the benefit of creditors; or

                  (iv) consenting to the appointment of a trustee or receiver
for all or a major part of any of its property; or

                  (v) the entry of a court order appointing a receiver or a
trustee for all or a major part of its property which is not bonded, discharged
or stayed within sixty (60) days; or

                  (vi) the occurrence of any event, action, or transaction that
could give rise to a lien or encumbrance on the assets of Borrower or any
Subsidiary as a result of application of relevant provisions of ERISA.

            (f) The occurrence of a Change in Control.

            (g) Security Documents. Borrower or any Subsidiary and/or any
Guarantors, as signatory under any of the Security Documents, shall cause at any
time or if for any reason the Security Documents to: (i) cease to create a valid
and perfected security interest or lien in and to the property purported to be
subject to the same for any reason other than the failure of the secured parties
thereunder to continue any UCC-I Financing Statement, or (ii) cease to be in
full force and effect or shall be declared null and void, or (iii) the validity
or enforceability of any Security Document shall be contested by any party
thereto or any party thereto shall deny it has any further liability or
obligations to the secured parties thereunder.

            (h) ERISA. Any event occurs or condition exists which, with notice
or lapse of time or both, would make any Plan of Borrower, and Subsidiary or any
Guarantor subject to termination under subsections (1), (2) and (3) of Section
4042(a) of ERISA, or Borrower, any Subsidiary, any Guarantor or any of their
respective plan administrators shall have received notice from the PBGC
indicating that it has made a determination that any Plan of Borrower, any
Subsidiary or any Guarantor is subject to termination under Section 4042(a)(4)
of ERISA, or Borrower, any Subsidiary or any Guarantor is subject to employer's
liability under Section 4062, 4063, or 4064 of ERISA, in each case under ERISA
as now or hereafter amended.

            12.2 Remedies. If any one or more Events of Default listed in
Section 12.l(e)(i)-(vi) occur, (a) the Commitment and any further commitments or
obligations of the Bank shall be deemed to be automatically and without need for
further action terminated, and (b) all Obligations of the Borrower to the Bank,
automatically and without need for further action, shall become forthwith due
and payable without presentment, demand, protest, or other notice of any kind,
all of which are hereby expressly waived. If any one or more Events of Default
other than those listed in Section 12.l(e)(i)-(vi) occur, the Bank may, at its
option, take either or both of the following actions at the same or different
times: (i) terminate the Commitment and any further commitments or obligations
of the Bank, and (ii) declare all Obligations of the Borrower to the Bank,
automatically and without need for further action, to be forthwith due and
payable

                                       41
<PAGE>
without presentment, demand, protest, or other notice of any kind, all of which
are hereby expressly waived.

      In case any such Events of Default shall occur, the Bank shall be entitled
to recover judgment against the Borrower for all Obligations of the Borrower to
the Bank either before, or after, or during the pendency of any proceedings for
the enforcement, of any Security Document and, in the event of realization of
any funds from any security or guarantee and application thereof to the payment
of the Obligations due, the Bank shall be entitled to enforce payment of and
recover judgment for all amounts remaining due and unpaid on such Obligations.

      The Bank shall be entitled to exercise any other legal or equitable right
which it may have, and may proceed to protect and enforce its rights by any
other appropriate proceedings, including action for the specific performance of
any covenant or agreement contained in this Agreement and other agreements held
by the Bank.

                                 ARTICLE XIII -
                                  MISCELLANEOUS

            13.1 Waiver. No delay or failure of the Bank to exercise any right,
remedy, power or privilege hereunder shall impair the same or be construed to be
a waiver of the same or of any Event of Default or an acquiescence therein. No
single or partial exercise of any right, remedy, power or privilege shall
preclude other or further exercise thereof by the Bank, All rights, remedies,
powers, and privileges herein conferred upon the Bank shall be deemed cumulative
and not exclusive of any others available.

            13.2 Survival of Representations. All representations and warranties
contained herein shall survive the execution and delivery of this Agreement and
the execution and delivery of other agreements hereunder.

            13.3 Additional Security;Setoff. The Bank shall have a security
interest in and right of setoff with respect to all deposits or other sums
credited by or due from the Bank to Borrower and a security interest in all
securities or other property of Borrower in the Bank's possession for
safekeeping or otherwise. The Bank's security interest shall secure payment of
the Obligations. In the event of any Event of Default under this Agreement,
regardless of the adequacy of collateral, without any demand or notice, except
as required by applicable law, the Bank may apply or setoff such deposits or
other sums and may sell or dispose of any or all of such securities or other
property and may exercise any and all rights it may have under the New York
Uniform Commercial Code, as in effect from time to time. The rights of the Bank
under this Agreement are in addition to, and not exclusive of, any other rights
it may have with respect to such deposits, sums, securities, or other property
under other agreements or applicable principles of law. The Bank shall have no
duty to take steps to preserve rights against prior parties as to such
securities or other property.

            13.4 Notices. Any notice or demand upon any party hereto shall be
deemed to have been sufficiently given or served for all purposes hereof when
delivered in person or by nationally recognized overnight courier with receipt
requested, or two (2) business days after it is mailed certified mail postage
prepaid, return receipt requested, addressed as follows:

                                       42
<PAGE>
      If to Bank:       Manufacturers and Traders Trust Company
                        One M&T Place
                        Buffalo, New York
                        Attention:  Gail Reese, Collateral and Documentation
                                    Dept.

      and

                        Manufacturers and Traders Trust Company
                        M&T Place
                        255 East Avenue
                        Rochester, New York 14692
                        Attention:  Kevin R. Wilmot, Assistant Vice President

      If to Borrower:   Phoenix Footwear Group, Inc.
                        5759 Fleet Street
                        Suite 220
                        Carlsbad, California 92008

                        Attention:  Kenneth Wolf, Chief Financial Officer

Any party may change, by notice in writing to the other parties, the address to
which notices to it shall be sent.

            13.5 Entire Agreement. This Agreement and the Loan Documents embody
the entire agreement and understanding among the parties and supersede all prior
agreements and understandings relating to the subject mailer hereof. This
Agreement shall not be changed or amended without the written agreement of all
parties hereto. This Agreement embodies all commitments to lend between the Bank
and the Borrower and supersedes any prior commitments. No handwritten
modifications or deletions in this Agreement or in any Loan Document shall be
effective unless initialed by a duly authorized representative of the Bank and
the Borrower and/or any other party thereto. This provision shall not apply to
handwritten insertions to complete blanks in the Agreement and/or the Loan
Documents.

            13.6 Parties in Interest. All the terms and provisions of this
Agreement shall inure to the benefit of and be binding upon and be enforceable
by the parties and their respective successors and assigns and shall inure to
the benefit of and be enforceable by any holder of notes executed hereunder.
Upon any transfer of any Obligation or any interest therein the Bank may deliver
or otherwise transfer or assign to the holder any collateral or guarantees for
the Obligation, which holder shall thereupon have all the rights of the Bank.

            13.7 Business Days. Whenever any payment is due, or obligation is to
be performed hereunder of a Saturday, Sunday, or banking holiday in the State of
New York, such payment may be made or obligation performed on the next
succeeding business day. Such extension of time shall, in such case, be included
in the computation of any interest or fees.

            13.8 Severability. In the event that anyone or more of the
provisions contained in this Agreement or any other Loan Document shall, for any
reason, be held invalid, illegal or

                                       43
<PAGE>
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or such other Loan
Document.

            13.9 Governing Law. This Agreement and the Loan Documents, together
with all of the rights and obligations of the parties hereto, shall be
construed, governed and enforced in accordance with the laws of the State of New
York, without giving effect to the principles of conflict of laws thereof.

            13.10 Participations. The Bank shall have the right to sell or
repurchase participations in the Obligations without giving prior notice to the
Borrower, so long as the Bank retains servicing responsibility with respect to
this Agreement and the transactions contemplated hereby.

            13.11 Electronic Communications. Borrowing base and compliance
certificates submitted to the Bank electronically by a representative of the
Borrower shall be deemed to have been submitted and signed by the representative
sending the electronic communication.

            13.12 Jurisdiction. Borrower hereby irrevocably and unconditionally
consents to jurisdiction and service of process, which may be effected by
certified mail, in the Supreme Court of the State of New York sifting in Monroe
County, or of the United States District Court for the Western District of New
York. Borrower hereby irrevocably and unconditionally waives any objection it
may have to the laying of venue of any such action, suit or proceeding in any
such court referred to in this Section 13.12. Borrower hereby irrevocably waives
the defense of an inconvenient forum to the maintenance of any such action, suit
or proceeding in any such court.

            13.13 Waiver of Trial by Jury. Borrower waives trial by jury of any
claims or proceedings with respect to this Agreement, the Loan Documents, the
Obligations and all matters related hereto to the fullest extent allowed by law.

      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.

MANUFACTURERS AND TRADERS TRUST COMPANY

By:     _______________________________
Name:   Kevin Wilmot
Title:  Assistant Vice President

PHOENIX FOOTWEAR GROUP, INC.

By:     _______________________________
Name:   James Riedman
Title:  Chairman

                                       44EXHIBIT 10.01

       ANTI-CONTRABAND AND ANTI-COUNTERFEIT AGREEMENT AND GENERAL RELEASE

                                   dated as of

                                  July 9, 2004

                                      among

                        PHILIP MORRIS INTERNATIONAL INC.,
                          PHILIP MORRIS PRODUCTS INC.,
                        PHILIP MORRIS DUTY FREE INC., and
                         PHILIP MORRIS WORLD TRADE SARL

                             THE EUROPEAN COMMUNITY
                     REPRESENTED BY THE EUROPEAN COMMISSION

                                       AND

                           EACH MEMBER STATE LISTED ON
                           THE SIGNATURE PAGES HERETO

<PAGE>

                                    ARTICLE 1
                                   DEFINITIONS

Section 1.01.  Definitions..................................................3

                                    ARTICLE 2
         PHILIP MORRIS INTERNATIONAL'S SALES AND DISTRIBUTION PRACTICES

Section 2.01.  EC Compliance Procedures....................................11
Section 2.02.  Certification of Compliance with EC
                 Compliance Protocols......................................11

                                    ARTICLE 3
                ANTI-CONTRABAND AND ANTI-COUNTERFEIT INITIATIVES

Section 3.01.  Anti-Contraband and Anti-Counterfeit Initiatives............13
Section 3.02.  Support for Anti-Contraband and
                 Anti-Counterfeit Initiatives..............................13

                                    ARTICLE 4
                ANTI-CONTRABAND AND ANTI-COUNTERFEIT COOPERATION

Section 4.01.  Contraband and Counterfeit Seizures.........................14

                                    ARTICLE 5
                              TRACKING AND TRACING

Section 5.01.  Tracking and Tracing Protocols..............................22
Section 5.02.  Certification of Compliance with Tracking
                 and Tracing Protocols.....................................23

                                    ARTICLE 6
                               REVIEW OF AGREEMENT

Section 6.01.  Annual Meetings.............................................23

                                    ARTICLE 7
                    FULFILLMENT OF OBLIGATIONS AND OBJECTIVES

Section 7.01.  Promotion of Public Policy..................................23
Section 7.02.  Respect for Obligations.....................................23
Section 7.03.  Agreement Consistent with EC and Applicable National Laws...24
Section 7.04.  The Parties' Intentions.....................................24

                                    ARTICLE 8
                         REPRESENTATIONS AND WARRANTIES

Section 8.01.  Mutual Representations......................................24

<PAGE>

                                    ARTICLE 9
                         RELEASE AND DISMISSAL OF CLAIMS

Section 9.01.  Release.....................................................25
Section 9.02.  Dismissal Of Claims.........................................26

                                   ARTICLE 10
                                     SETOFF

Section 10.01.  Right of Setoff............................................26
Section 10.02.  No Other Effect............................................29

                                   ARTICLE 11
                                   TERMINATION

Section 11.01.  Termination................................................30
Section 11.02.  Subsequent Agreement.......................................31

                                   ARTICLE 12
                               DISPUTE RESOLUTION

Section 12.01.  The Role of the European Court of First Instance
                  and the European Court of Justice........................31
Section 12.02.  Dispute Resolution for Claims Brought
                  Under the Terms of the Agreement.........................34

                                   ARTICLE 13
                                  MISCELLANEOUS

Section 13.01 .  Notices...................................................35
Section 13.02 .  Waivers...................................................35
Section 13.03 .  Expenses..................................................35
Section 13.04 .  Nature of Payments........................................35
Section 13.05 .  Successors and Assigns....................................35
Section 13.06 .  Legality and Severability.................................36
Section 13.07 .  Counterparts; Effectiveness; Third Party
                   Beneficiaries...........................................36
Section 13.08 .  Entire Agreement..........................................36
Section 13.09 .  Captions..................................................37
Section 13.10 .  Designated EC Representative..............................37
Section 13.11 .  Amendments................................................37
Section 13.12 .  Authorship................................................37
Section 13.13 .  Use of Information Provided by Philip Morris
                   International...........................................37
Section 13.14 .  Equal Treatment Provision.................................37
Section 13.15 .  Additional Participating Member States....................38
Section 13.16 .  Use of the Agreement......................................38

                                       ii
<PAGE>

                        Attachments, Exhibits & Schedules

Appendix A        Fiscal Compliance Policy
Appendix B        EC Compliance Protocols
Appendix C        Philip Morris International's Monetary Contributions
Appendix D        Tracking and Tracing Protocols
Appendix E        Schedule of Applicable Taxes and Duties
Appendix F        Factors for Establishing Counterfeit Philip Morris Cigarettes
Appendix G        List of Designated States
Appendix H        Form of Dismissals
Appendix I        List of Philip Morris Trademarks
Appendix J        List of Arbitrators
Appendix K        Amendments to the Baseline Amount and Article 4

                                      iii
<PAGE>

                      ANTI-CONTRABAND AND ANTI-COUNTERFEIT
                          AGREEMENT AND GENERAL RELEASE

     This Anti-Contraband and Anti-Counterfeit Agreement and General Release
dated as of July 9, 2004, (this "Agreement") is made by and among the European
Community (the "EC") represented by the European Commission, the Member States
of the EC that have executed a copy of this Agreement and become parties hereto
(the "Participating Member States", and together with the EC, "the Relevant
Administrations") and Philip Morris International Inc., Philip Morris Products
Inc., Philip Morris Duty Free Inc. and Philip Morris World Trade SARL
(collectively with the Relevant Administrations, "the Parties").

                              W I T N E S S E T H :

     (1) WHEREAS, the smuggling of Cigarettes, both authentic and counterfeit,
results in great economic loss and causes other various harms to the Relevant
Administrations;

     (2) WHEREAS, the Relevant Administrations are fully committed to combat the
illegal introduction of both authentic and counterfeit Cigarettes into the
Territory of the Member States;

     (3) WHEREAS, Philip Morris International is committed to take commercially
reasonable steps as a manufacturer of Cigarettes to promote the Parties' joint
objective that Philip Morris Cigarettes be sold, distributed, stored, and
shipped in accordance with all applicable fiscal and legal requirements, and, in
particular, sold at retail in accordance with all applicable tax and duty laws
in the intended retail market;

     (4) WHEREAS, while the smuggling of certain authentic brands of Cigarettes
other than Philip Morris brands continues in significant quantities, for the
last few years the incidence of bulk quantities of Contraband Philip Morris
Cigarettes in the Member States has been greatly reduced, and during the same
time period, there has been an increase in Cigarette counterfeiting activity
such that currently, there is a growing threat to the Relevant Administrations'
finances from the illegal importation and introduction of Counterfeit Philip
Morris Cigarettes;

     (5) WHEREAS, the Member States and Philip Morris International have a
mutual interest in (1) eliminating the illegal importation, distribution and
sale of Cigarettes and any related illegal activity, (2) ensuring the collection
of applicable taxes and duties on Cigarettes sold or distributed in the
Territory of the Member States, including, without limitation, those that will
be remitted wholly or in part to the EC by the Member States, (3) protecting
lawful competition in the sale of Cigarettes, (4) protecting the Trademark
rights of legitimate Cigarette

<PAGE>

manufacturers, and (5) preventing citizens of the Member States from being
misled about the source and quality of the Cigarettes they purchase; and whereas
the EC has an interest in the foregoing insofar as they affect the interests of
the EC and the achievement of the EC's objectives;

     (6) WHEREAS, by virtue of Article 3 and Article 23 of the EC Treaty, the EC
is competent for matters relating to customs duties on the import and export of
goods in Member States, and by virtue of Part 5, Title II of the EC Treaty, the
European Commission is obligated to ensure the orderly collection of the EC's
own resources;

     (7) WHEREAS, combating fraud and other illegal activities affecting the
financial interests of the EC, including those resulting from the illegal
Cigarette trade within the Territory of the Member States, is an obligation of
the EC and Member States under Article 280 of the EC Treaty;

     (8) WHEREAS, pursuant to Article 10 of the EC Treaty, the Member States
shall take all appropriate measures, whether general or particular, to ensure
fulfillment of the obligations arising out of the EC Treaty or resulting from
action taken by the institutions of the EC and shall facilitate achievement of
the objectives of the EC's tasks;

     (9) WHEREAS, the EC and Member States, each within their respective
competences and subject to budgetary constraints, intend to continue and improve
their efforts to combat the smuggling of authentic and Counterfeit Cigarettes
and the illegal importation and introduction of said Cigarettes into the
Territory of the Member States;

     (10) WHEREAS, it is in the best interest of Philip Morris International for
there to be an end to the illegal importation of Contraband and Counterfeit
Cigarettes into the Territory of the Member States and the counterfeiting of
Philip Morris Cigarettes;

     (11) WHEREAS, Philip Morris International agrees to provide all reasonable
assistance, both direct and indirect, as set forth herein, to the EC and the
Member States in the fight against Contraband and Counterfeit Cigarettes,
including in part, monetary payments;

     (12) WHEREAS, the EC and certain Member States commenced a civil action in
the United States District Court for the Eastern District of New York, entitled
European Community, et al. v. RJR Nabisco, et al., under Civil Action No.
01-CV-5188 (NGG), asserting various claims for damages, costs and equitable
relief, based in part on alleged sales of Philip Morris Cigarettes in the
Territory of the Member States in violation of applicable laws (such action, the
"Civil Action");

                                       2
<PAGE>

    (13) WHEREAS, the Civil Action has been dismissed by the United States
District Court (as to some of the claims with prejudice and as to others without
prejudice) and is currently the subject of an appeal (such appeal, together with
the Civil Action, the "Litigation");

     (14) WHEREAS, pursuant to the mutual rights and obligations in this
Agreement, the Parties agree that it is in the public interest, will further
advance their objectives, and will facilitate the achievement of their goals to
swiftly resolve, finally and fully, in an amicable and cooperative manner
without any admission of liability, all matters between the Parties that relate
to the alleged conduct, acts or omissions that were asserted or could have been
asserted in the Litigation and any alleged Losses (as hereinafter defined)
caused by such conduct, acts, or omissions;

     (15) WHEREAS, the Parties acknowledge and agree to take all appropriate
measures (1) to ensure fulfillment of their obligations under this Agreement,
(2) to facilitate the achievement of the objectives of the Agreement, and (3) to
abstain from any measures that could jeopardize the attainment of the objectives
of this Agreement;

     NOW, THEREFORE, in consideration of the mutual obligations described
herein, the sufficiency of which is hereby acknowledged, the Parties, acting by
and through their authorized agents, hereby memorialize and agree as follows:

                                    Article 1
                                   DEFINITIONS

     Section 1.01. Definitions.

     The following terms, as used herein, have the following meanings:

     "Affiliate" means, with respect to any Person, any other legally related
Person directly controlling, controlled by, or under common control with, such
other Person. For purposes of this definition, "control", when used with respect
to any Person, means the power to choose the Board of Directors and/or establish
the policies of such Person, whether through the ownership of voting securities
or contract, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

     "Agreement" shall have the meaning ascribed to it in the preamble of this
Agreement.

                                       3
<PAGE>

     "Anti-Contraband and Anti-Counterfeit Initiatives" shall have the meaning
ascribed to it in Section 3.01 of this Agreement.

     "Applicant" shall have the meaning ascribed to it in the EC Compliance
Protocols, attached as Appendix B to this Agreement.

     "Approved Contractor" means a Contractor approved by Philip Morris
International in accordance with the EC Compliance Protocols, attached as
Appendix B to this Agreement.

     "Arbitrator(s)" shall have the meaning ascribed to it in Section 12.02(a)
of this Agreement.

     "Audit Order" shall have the meaning ascribed to it in Section 2.02(d) of
this Agreement.

     "Baseline Amount" means 90 million Cigarettes, which is half of the total
combined Contraband Philip Morris Cigarettes seized by the Member States who
were Member States on January 1, 2004, during the calendar years ended December
31, 2001, and December 31, 2002, but does not include seizures of less than five
Master Cases of Philip Morris Cigarettes. The Baseline Amount may be amended
pursuant to Section 4.01(s) and (t) of this Agreement.

     "Blocked Contractor" means a former Approved Contractor who is no longer
authorized by Philip Morris International to conduct business relating to the
sale, distribution, storage, or shipment of Philip Morris Cigarettes in or
through the Territory of the Member States or any Designated State.

     "Carton" or "Bundle" or "Outer" means a package containing 10 Packs of
Cigarettes (approximately 200 Cigarettes total) and includes all input materials
used in the assembly of such container such as cardboard, plastic wrap and tear
tapes.

     "Certification of Compliance" shall have the meaning ascribed to it in
Section 2.02(a) of this Agreement.

     "Cigarette" means any product that contains tobacco and is intended to be
burned or heated under ordinary conditions of use and includes, without
limitation, any "roll-your-own" tobacco which, because of its appearance, type,
packaging, or labeling is suitable for use and likely to be offered to, or
purchased by, consumers as tobacco for making cigarettes. For the purposes of
this Agreement, 0.0325 ounces of "roll-your-own" tobacco shall be considered the
equivalent of one individual Cigarette.

     "Civil Action" shall have the meaning ascribed to it in the recitals of
this Agreement.

                                       4
<PAGE>

     "Compliance Order" shall have the meaning ascribed to it in Section 2.02(d)
of this Agreement.

     "Contraband Cigarettes" means Cigarettes that have been imported into,
distributed in, or sold in, the Territory of a Member State, or were en route to
the Territory of a Member State for sale in that Member State, in violation of
the applicable tax, duty or other fiscal laws of that Member State or the EC,
but, for purposes of this Agreement, shall exclude Counterfeit Cigarettes.

     "Contraband Philip Morris Cigarettes" means Philip Morris Cigarettes that
have been imported into, distributed in, or sold in, the Territory of a Member
State, or were en route to the Territory of a Member State for sale in that
Member State, in violation of the applicable tax, duty or other fiscal laws of
that Member State or the EC, but, for purposes of this Agreement, shall exclude
Counterfeit Philip Morris Cigarettes.

     "Contractor" means a First Purchaser or any warehouser, shipper or freight
forwarder engaged by Philip Morris International in connection with the storage
or shipment of Philip Morris Cigarettes in or through the Territory of the
Member States or a Designated State.

     "Counterfeit Cigarettes" means Cigarettes bearing a Trademark of a
Cigarette manufacturer that are manufactured by a third party without the
consent of that Cigarette manufacturer, but shall in no event include (i)
Cigarettes manufactured by the Trademark holder or any affiliate thereof,
regardless of the actual or intended market of distribution, (ii) Cigarettes
bearing a Trademark of a Cigarette manufacturer using tobacco either produced by
or sold by that Cigarette manufacturer, or (iii) Cigarettes bearing a Trademark
of a Cigarette manufacturer that are packaged in genuine packaging of that
Cigarette Manufacturer, including genuine cartons and packs of that Cigarette
manufacturer.

     "Counterfeit Philip Morris Cigarettes" means Cigarettes bearing a Philip
Morris Trademark that are manufactured by a third party without the consent of
Philip Morris, but shall in no event include (i) Cigarettes manufactured by
Philip Morris or any affiliate thereof, regardless of the actual or intended
market of distribution, (ii) Cigarettes bearing a Trademark of Philip Morris
using tobacco either produced by or sold by Philip Morris, or (iii) Cigarettes
bearing a Trademark of Philip Morris that are packaged in genuine Philip Morris
packaging, including genuine Philip Morris cartons and packs.

     "Designated State" means any state listed in the Designated State List
attached as Appendix G, which may be amended in accordance with the procedure
therein.

                                       5
<PAGE>

     "Due Diligence" means a reasonable state-of-the-art investigation conducted
by Philip Morris International before the commencement of a business
relationship with a Person relating to the sale, distribution, storage, or
shipment of Philip Morris Cigarettes in or through the Territory of the Member
States or any Designated State, as described in the EC Compliance Protocols,
attached as Appendix B to this Agreement.

     "Due Diligence Information" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "EC" shall have the meaning ascribed to it in the preamble of this
Agreement.

     "EC Compliance Protocols" shall have the meaning ascribed to it in Section
2.01 of this Agreement.

     "EC Treaty" shall have the meaning ascribed to it in Section 7.03 of this
Agreement.

     "Execution Date" means the later of (i) the date on which the signatures to
this Agreement of all the Relevant Administrations who are Plaintiffs in the
Litigation have been delivered to Philip Morris International; or (ii) the date
on which the signature to this Agreement of Philip Morris International has been
delivered to the EC.

     "Expiration Date" means the 12th anniversary of the Execution Date.

     "First Purchaser" means any Person, other than an Affiliate of Philip
Morris International, to whom Philip Morris International directly sells a
quantity of Philip Morris Cigarettes in excess of 2,500 Master Cases annually
for sale, distribution or consumption within or into the Territory of one or
more of the Member States or any Designated State, and such Person's Affiliates.

     "Fiscal Compliance Coordinator" shall have the meaning ascribed to it in
the EC Compliance Protocols, attached as Appendix B to this Agreement.

     "Fiscal Compliance Policy" shall have the meaning ascribed to it in Section
2.01 of this Agreement.

     "Follow-up Due Diligence" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "Future Cooperation Agreement" shall have the meaning ascribed to it in
Section 13.14 of this Agreement.

                                       6
<PAGE>

     "Identification Markings" means codes and markings on Philip Morris
Cigarette packaging placed on that packaging by Philip Morris International or
its authorized agents, which correspond to information regarding those
Cigarettes as set forth in the Tracking and Tracing Protocols, attached as
Appendix D to this Agreement.

     "Initial Participating Member States" means the Participating Member States
that have executed a copy of the Agreement on or prior to the Execution Date.

     "Intended Market of Retail Sale" means the market which Philip Morris
International intends as the market of either domestic retail or duty-free
retail sale for Philip Morris Cigarettes when Philip Morris International sells
such Cigarettes to a First Purchaser.

     "International Compliance Policy" shall have the meaning ascribed to it in
the EC Compliance Protocols, attached as Appendix B to this Agreement.

     "Litigation" shall have the meaning ascribed to it in recitals (12) and
(13) of this Agreement.

     "Losses" means the monetary and non-monetary losses and other injuries
alleged to have been sustained as a result of the sale, distribution, storage,
or shipment of Contraband Philip Morris Cigarettes before the Execution Date, or
for Subsequent Participating Member States, their respective Signature Dates,
including any and all monetary and non-monetary losses and injuries claimed or
described by the EC and the Member States in paragraphs 39 through 40 of the
Complaint dated August 3, 2001, filed in the Case entitled European Community,
et al. v. RJR Nabisco, et al., case number 01-CV-5188 (NGG) .

     "Market of Interest" shall have the meaning ascribed to it in Protocol 6 of
Appendix D to this Agreement.

     "Master Case" means a case containing 10,000 Cigarettes.

     "Member States" means States that are members of the European Union.

     "Money Laundering" means conduct in violation of 18 U.S.C. ss.ss. 1956 or
1957 or the comparable provisions under the laws of the EC or the Member States.

     "New Member State" means any Member State which, having submitted to the
Council of the European Union an application for membership of the European
Union and said application having been granted and the State having acceded to
the Treaty on European Union, has joined the European Union after January 1,
2004.

                                       7
<PAGE>

     "Non-Participating Member States" means the Member States that are not a
Party to this Agreement.

     "Notice of Interest" shall have the meaning ascribed to it in Protocol 6
Appendix D to of this Agreement.

     "OLAF" means the Anti-Fraud Office of the European Commission or any
successor thereof.

     "Pack" means a small package containing approximately 20 cigarettes and
includes all input materials used in the assembly of such container such as
cardboard, aluminum foil or metallized papers, plastic wrappings, tax stamps,
and tear tapes.

     "Participating Member States" shall have the meaning ascribed to it in the
Preamble of this Agreement.

     "Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.

     "Philip Morris Cigarettes" means Cigarettes manufactured by Philip Morris
or any of its Affiliates that manufacture Cigarettes, or Cigarettes manufactured
by licensees and bearing Philip Morris Trademarks as set forth in Appendix I.

     "Philip Morris" means Altria Group, Inc., f/k/a Philip Morris Companies
Inc., and all of its current and former Affiliates, direct and indirect
subsidiaries along with their direct and indirect subsidiaries, and/or any
successors thereto, as well as all current and former employees, directors,
officers, and servants, including outside attorneys.

     "Philip Morris International" means Philip Morris International Inc. and
its controlled subsidiaries, including without limitation Philip Morris Products
Inc., Philip Morris Duty Free Inc. and Philip Morris World Trade SARL.

     "Released Claims" shall have the meaning ascribed to it in Section 9.01(b)
of this Agreement.

     "Released Persons" shall have the meaning ascribed to it in Section 9.01(a)
of this Agreement.

     "Releasing Persons" shall have the meaning ascribed to it in Section
9.01(a) of this Agreement.

                                       8
<PAGE>

     "Relevant Administrations" shall have the meaning ascribed to it in the
Preamble of this Agreement.

     "Relevant Law" shall have the meaning ascribed to it in Section 13.06(a) of
this Agreement.

     "Reporting System" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "Representatives of the Relevant Administrations" means OLAF or other
authorized representatives duly designated by the Relevant Administrations.

     "Request for Termination" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "Retail Demand" means the estimated demand for Philip Morris Cigarettes in
a particular market to be sold at retail in that market in accordance with all
applicable tax, duty or other fiscal laws.

     "Sales Plan" shall have the meaning ascribed to it in the EC Compliance
Protocols, attached as Appendix B to this Agreement.

     "seizure" means a seizure from a single individual or entity (or in certain
specific instances, multiple individuals or entities if shown to be acting in
concert with one another), in a single location (or in certain specific
instances, multiple locations in close proximity if shown to be part of the same
scheme), at a single point in time, (or in certain specific instances, multiple
points in time in close proximity if shown to be part of the same scheme).

     "Signature Date" means, for each Initial Participating Member State the
Execution Date and for each Subsequent Participating Member State, the date on
which that Participating Member State executed a copy of the Agreement.

     "Sold by a Retailer" means (i) the sale of Cigarettes by an authorized
retailer to a customer in which all applicable Member State excise and VAT taxes
on the retail price in the location of sale have been paid or accounted for in
the sale price, or (ii) sales to a customer that has ordered 50 packs of
Cigarettes or less through the use of the Internet or other means whereby the
seller is not in the physical presence of the customer when the sale is made.

     "Statement of Non-Compliance" shall have the meaning ascribed to it in
Section 2.02(b) of this Agreement.

     "Subsequent Participating Member States" means the Participating Member
States that have executed a copy of the Agreement after the Execution Date.

                                       9
<PAGE>

     "Subsequent Purchaser" means any Person and such Person's Affiliates, other
than an Affiliate of Philip Morris, who acquires more than 1,000 Master Cases of
Philip Morris Cigarettes annually from sources other than Philip Morris
International.

     "Sufficient Evidence" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "Supplemental Payments" means the payments by Philip Morris International
that are to be made, without regard to fault, in accordance with Section 4.01(f)
and 4.01(g) of this Agreement, to compensate the Relevant Administrations for
their lost taxes and duties and other costs, as well as to provide a source of
additional funding for anti-contraband enforcement, in the event of a seizure of
Contraband Philip Morris Cigarettes.

     "Territory of the Member States" means the customs territory of the EC, as
defined in Article 3 of Council Regulation (EEC) No. 2913/92 establishing the
Community Customs Code, including, for the avoidance of doubt, the free zones,
free ports and duty-free areas physically situated therein as well as the Aland
Islands.

     "Territory of a Non-Participating Member State" means the territory of a
Non-Participating Member State, as defined in Article 3 of Council Regulation
(EEC) No. 2913/92 establishing the Community Customs Code, including, for the
avoidance of doubt, the free zones, free ports and duty-free areas physically
situated therein.

     "Territory of a Participating Member State" means the territory of a
Participating Member State, as defined in Article 3 of Council Regulation (EEC)
No. 2913/92 establishing the Community Customs Code, including, for the
avoidance of doubt, the free zones, free ports and duty-free areas physically
situated therein, as well as the Aland Islands.

     "Tracking and Tracing Protocols" shall have the meaning ascribed to it in
Section 5.01 of this Agreement, and are attached as Appendix D to this
Agreement.

     "Termination Order" shall have the meaning ascribed to it in the EC
Compliance Protocols, attached as Appendix B to this Agreement.

     "Trademark" means a brand name (alone or in conjunction with any other
word), logo, symbol, or any other indicia of product identification.

                                       10
<PAGE>

     "Vice President for Compliance Systems" shall have the meaning ascribed to
it in the EC Compliance Protocols, attached as Appendix B to this Agreement.

     "World Wide Duty Free" means the worldwide market in which Philip Morris
Cigarettes are sold by Philip Morris International for resale to retail
consumers entitled to purchase free of domestic taxation.

                                   Article 2
         PHILIP MORRIS INTERNATIONAL'S SALES AND DISTRIBUTION PRACTICES

     Section 2.01. EC Compliance Procedures.

     Philip Morris International has already undertaken as a matter of company
policy to comply with the principles set forth in the Philip Morris Companies
Inc. Policy Statement on Compliance with Fiscal, Trade and Anti-Money Laundering
Laws dated September 13, 1999 (the "Fiscal Compliance Policy"), a copy of which
is attached as Appendix A to this Agreement. In addition to the provisions in
Appendix A, Philip Morris International agrees to adopt, implement, and be bound
by protocols, approved with the EC, regarding the sale, distribution, storage,
and shipment of Philip Morris Cigarettes in and through the Territory of the
Member States or any Designated State (the "EC Compliance Protocols"), which are
attached as Appendix B to this Agreement.

     Section 2.02. Certification of Compliance with EC Compliance Protocols.

     (a) Each year, on the anniversary of the Execution Date, Philip Morris
International shall provide the Relevant Administrations with a report, signed
by the Vice President for Compliance Systems, describing Philip Morris
International's fulfillment of the requirements of (i) the EC Compliance
Protocols, which are set forth in Appendix B of this Agreement, and (ii) the
Tracking and Tracing Protocols, which are set forth in Article 5 and Appendix D
of this Agreement (the "Certification of Compliance").

     (b) If, after receipt of any Certification of Compliance, OLAF reasonably
concludes that Philip Morris International is failing to perform its obligations
under the EC Compliance Protocols or the Tracking and Tracing Protocols, it may,
but by no later than 60 days after OLAF has received the Certification of
Compliance, provide Philip Morris International with a statement clearly
describing the areas where OLAF reasonably believes that Philip Morris
International is failing to perform its obligations under the EC Compliance
Protocols or the Tracking and Tracing Protocols, OLAF's reasons for that belief,
and what measures OLAF believes Philip Morris International must take in order

                                       11
<PAGE>

to perform its obligations under the EC Compliance Protocols (the "Statement of
Non-Compliance").

     (c) OLAF may also provide Philip Morris International with a Statement of
Non-Compliance at any other time it reasonably believes that Philip Morris
International is significantly failing to adhere to the EC Compliance Protocols
or the Tracking and Tracing Protocols and such failure could likely result in a
significant increase in the volume of Contraband Philip Morris Cigarettes.

     (d) Within 30 days of receiving a Statement of Non-Compliance, under
subsections (b) or (c) above, Philip Morris International must provide OLAF with
a written response. Thereafter, authorized representatives of Philip Morris
International and the European Commission shall meet and confer and attempt to
resolve in good faith any dispute relating to the Statement of Non-Compliance.
If the dispute has not been resolved within 60 days of Philip Morris
International receiving a Statement of Non-Compliance, the European Commission
may bring the dispute before the Arbitrator in accordance with Section 12.02 of
this Agreement and may seek an order from the Arbitrator requiring Philip Morris
International to bring itself into compliance with the EC Compliance Protocols
or the Tracking and Tracing Protocols, as the case may be, (a "Compliance
Order") and/or an order requiring Philip Morris International to permit OLAF to
conduct an audit of Philip Morris International in order to determine what
Compliance Orders may be required (an "Audit Order").

     (e) An Audit Order issued under this Section shall specifically require
Philip Morris International to do the following and only the following:

          (i) if OLAF seeks entry into premises, allow OLAF entry to any of its
     business premises or business premises of its Affiliates, for the sole
     purpose of observing business operations, provided that OLAF provides
     Philip Morris International with reasonable notice of where and when it
     seeks to do so; and

          (ii) if OLAF seeks to review documents, Philip Morris International
     shall provide OLAF with specified business records created after the
     Execution Date, that OLAF reasonably believes will assist in its
     anti-contraband and anti-counterfeit efforts.

     (f) In any proceeding brought under Section 2.02(d), the Arbitrator may
issue a Compliance Order or an Audit Order to Philip Morris International only
when it has been proven by the greater weight of the evidence that (i) Philip
Morris International has materially failed to adhere to the EC Compliance
Protocols and/or the Tracking and Tracing Protocols, (ii) such failure was

                                       12
<PAGE>

identified by OLAF in its Statement of Non-Compliance, and (iii) such failure
has not been adequately remedied by the time of the arbitration hearing.

                                   Article 3
                ANTI-CONTRABAND AND ANTI-COUNTERFEIT INITIATIVES

     Section 3.01. Anti-Contraband and Anti-Counterfeit Initiatives.

     (a) It is the policy of the EC and the Member States to vigorously combat
the introduction, sale and distribution of Contraband Cigarettes and Counterfeit
Cigarettes within or through the Territory of the Member States. Subject to
budgetary constraints, the EC intends to intensify efforts to curb the
introduction, sale and distribution of Contraband Cigarettes and Counterfeit
Cigarettes; apply appropriate equipment for monitoring and tracking the
introduction, sale, distribution, storage, and shipment of Contraband Cigarettes
and Counterfeit Cigarettes; and continue to train law-enforcement personnel in
how best to detect and seize Contraband Cigarettes and Counterfeit Cigarettes.

     Section 3.02. Support for Anti-Contraband and Anti-Counterfeit
Initiatives.

     (a) Recognizing that it is in the best interest of Philip Morris
International for there to be an end to the illegal importation and introduction
of Contraband Cigarettes and Counterfeit Cigarettes into the Territory of the
Member States and an end to the counterfeiting of Philip Morris Cigarettes,
Philip Morris International agrees to provide reasonable assistance, both direct
and indirect, to the EC and the Member States in the fight against Contraband
Cigarettes and Counterfeit Cigarettes, as set forth in Section 4.01, Appendix B,
Appendix C, and Appendix D. The monetary payments under this Agreement may serve
as a source of additional funding for anti-contraband and anti-counterfeit
initiatives.

     (b) Subject to Article 10 of this Agreement, for any dispute relating to a
payment that has been or will be provided by Philip Morris International in
accordance with this Section 3.02 or Appendix C (Philip Morris International's
Monetary Contributions), the Parties involved in the dispute shall meet and
confer in an attempt to resolve the dispute in good faith. If the dispute has
not been resolved within 60 days of a Party receiving formal notice of such a
dispute, any Party involved in the dispute may refer the dispute to the
Arbitrator(s) in accordance with Section 12.02 of this Agreement.

                                       13
<PAGE>

                                    Article 4
                ANTI-CONTRABAND AND ANTI-COUNTERFEIT COOPERATION

     Section 4.01 . Contraband and Counterfeit Seizures.

     Subject to the limitations in subsections (k)-(u) below, for seizures of
Cigarettes bearing Philip Morris Trademarks by the Member States after the
Execution Date, the Parties agree to the following procedures:

     (a) Within 30 days after notification to OLAF of a seizure by a Member
State of five Master Cases or more of Cigarettes bearing Philip Morris
Trademarks, OLAF may provide Philip Morris International with a notice of
seizure, which shall include:

          (i) the date, time and location of the seizure;

          (ii) the brand of seized Cigarettes indicated on the packaging and, if
     available, any indication of the Intended Market of Retail Sale;

          (iii) the quantity of seized Cigarettes;

          (iv) any Identification Markings that appear on the Master Cases or
     cartons of the seized Cigarettes; and

          (v) as to seizures made by the Member States outside the Territory of
     the Member States, the basis of the seizing Member State's belief that the
     Cigarettes seized were destined for introduction into the Territory of the
     Member States.

     (b) Philip Morris International shall be permitted to inspect the seized
Cigarettes in the condition they were in at the time of seizure within 30 days
after transmittal of the notice of seizure described in subsection (a) above,
and to select random samples of the seized Cigarettes for examination. The
seizing authority may also select samples which Philip Morris International must
examine.

     (c) Within 30 days after the inspection of the seized Cigarettes described
in subsection (b) above, Philip Morris International shall provide a written
response to OLAF stating whether the Cigarettes are Philip Morris Cigarettes or
Counterfeit Philip Morris Cigarettes.

     (d) Subject to the limitations in subsections (k)-(u) below, where notice
of seizure described in subsection (a) above has been delivered reasonably in
accordance with the requirements of subsection (a) above, if the Cigarettes are
determined by Philip Morris International to be Counterfeit Philip Morris
Cigarettes, its response shall include documentation and examination results
demonstrating that conclusion. The determination as to whether Cigarettes are

                                       14
<PAGE>

Counterfeit Philip Morris Cigarettes or Philip Morris Cigarettes shall involve a
consideration of the factors set forth in Appendix F to this Agreement, which
shall be amended by agreement between the Parties as new technologies and
techniques are developed.

     (e) Subject to the limitations in subsections (k)-(u) below, where notice
of seizure described in subsection (a) above has been delivered reasonably in
accordance with the requirements of subsection (a) above, if the seized
Cigarettes are Contraband Philip Morris Cigarettes manufactured after January 1,
2004, Philip Morris International's response shall include as much information
as is available to it concerning:

          (i) the place of manufacture of the seized Cigarettes;

          (ii) the date of manufacture of the seized Cigarettes;

          (iii) the country of intended destination for the seized Cigarettes;

          (iv) any intervening warehousing and shipping;

          (v) the identity of the First Purchaser of the seized Cigarettes;

          (vi) the identity of any known Subsequent Purchaser of the seized
     Cigarettes;

          (vii) invoices to the First Purchaser that relate to the seized
     Cigarettes; and

          (viii) payment records from the First Purchaser for any Cigarettes
     seized.

     (f) Subject to the limitations in subsections (k)-(u) below, where notice
of seizure described in subsection (a) above has been delivered reasonably in
accordance with the requirements of subsection (a) above, for seizures of
Contraband Philip Morris Cigarettes by an Initial Participating Member State
after the Execution Date or by a Subsequent Participating Member State after its
Signature Date, the response of Philip Morris International shall also include a
Supplemental Payment calculated as follows:

          (i) Philip Morris International shall make a Supplemental Payment to
     compensate the EC and the Participating Member State by which the
     Cigarettes were seized for their lost taxes and duties and other costs, in
     an amount equal to 100% of the taxes and duties that would have been
     assessed had the seized Contraband Philip Morris Cigarettes been legally
     distributed for retail sale in the Participating Member State by

                                       15
<PAGE>

     which the Cigarettes were seized as set forth in Appendix E, which shall be
     updated by the Relevant Administrations upon notice to Philip Morris
     International as applicable taxes and duties change, less any amount of
     taxes and duties already paid to the EC or any Member State(s) in relation
     to those Contraband Philip Morris Cigarettes; and

          (ii) If the Contraband Philip Morris Cigarettes seized, when added to
     the number of Contraband Philip Morris Cigarettes already seized in the
     same calendar year in the Member States that were Member States on January
     1, 2004, results in a total number that exceeds the Baseline Amount, Philip
     Morris International's Supplemental Payment shall include an additional
     amount equal to four times the amount under subsection (f)(i), which shall
     compensate the EC and the Participating Member State by which the
     Cigarettes were seized for any costs not compensated by the amount under
     subsection (f)(i) and which may provide the EC and the Participating Member
     State by which the Cigarettes were seized with a source of additional
     funding for anti-contraband and anti-counterfeit efforts.

     (g) Subject to the limitations in subsections (k)-(u) below, where notice
of seizure described in subsection (a) above has been delivered reasonably in
accordance with the requirements of subsection (a) above, for seizures of
Contraband Philip Morris Cigarettes after the Execution Date by a
Non-Participating Member State, the response of Philip Morris International
shall also include a Supplemental Payment calculated as follows:

          (i) Philip Morris International shall make a Supplemental Payment to
     compensate the EC for any lost taxes and duties and other costs, in an
     amount equal to 100% of the taxes and duties that would have been remitted
     to the EC in respect of such seized Contraband Philip Morris Cigarettes had
     such Cigarettes been legally distributed for retail sale in the
     Non-Participating Member State by which the Cigarettes were seized as set
     forth in Appendix E, less the EC's share of any amount of taxes and duties
     already paid to the EC or any Member State(s) in relation to those
     Contraband Philip Morris Cigarettes, and

          (ii) If the Contraband Philip Morris Cigarettes seized, when added to
     the number of Contraband Philip Morris Cigarettes already seized in the
     same calendar year in the Member States that were Member States on January
     1, 2004, results in a total number that exceeds the Baseline Amount, Philip
     Morris International's Supplemental Payment shall include an additional
     amount equal to four times the amount under subsection (g)(i), which shall
     compensate the EC for any costs not compensated by the amount under
     subsection (g)(i) and which may

                                       16
<PAGE>

     provide the EC with a source of additional funding for anti-contraband and
     anti-counterfeit efforts.

     (h) For the Supplemental Payments to be made pursuant to subsections (f)
and (g) above, it shall not be incumbent on the Relevant Administrations to
establish fault on the part of Philip Morris International and such payments, if
due, shall be made even though Philip Morris International shall have complied
in all respects with its obligations under this Agreement relating to
anti-contraband efforts and initiatives.

     (i) The Parties recognize and understand that the mere fact of seizure of
Contraband Philip Morris Cigarettes at any point in the distribution chain does
not, in and of itself, automatically implicate Philip Morris International, or
the First Purchaser to whom the seized Philip Morris Cigarettes were originally
sold, as a violator of any applicable tax or duty laws.

     (j) OLAF or any Participating Member State may sample and test seized
Cigarettes at any time. If OLAF disputes the determination made by Philip Morris
International as to whether the seized goods are Counterfeit Philip Morris
Cigarettes or Contraband Philip Morris Cigarettes, OLAF shall reply in writing
to Philip Morris International detailing the basis for the dispute within 60
days after receiving the response referred to in Section 4.01(c), and thereafter
Philip Morris International and OLAF shall meet and confer and attempt to
resolve the dispute in good faith. If the dispute cannot be resolved within 30
days of Philip Morris International receiving OLAF's reply, the samples in
dispute shall be submitted to an independent laboratory or facility for
examination to determine whether the Cigarettes are Counterfeit Philip Morris
Cigarettes or Contraband Philip Morris Cigarettes in accordance with the factors
set forth in Appendix F to this Agreement. The determination of the selected
independent laboratory or facility as to whether the Cigarettes are Contraband
Philip Morris Cigarettes or Counterfeit Philip Morris Cigarettes shall be final
and binding on the Parties. The costs of the laboratory or facility's services
shall be paid by the non-prevailing Party. The independent laboratory or
facility shall be designated by mutual agreement of the Parties on the Execution
Date. If a dispute arises with respect to the selection of the independent
laboratory or facility, such dispute shall be settled by the Arbitrator in
accordance with Section 12.02 of the Agreement.

     (k) Notwithstanding any other provision in this Section 4.01 to the
contrary, Philip Morris International shall have no obligation to make
Supplemental Payments pursuant to subsections (f) and (g) above, and Contraband
Philip Morris Cigarettes shall not be included in the calculations to determine
the amount of any Supplemental Payment described in subsections (f) and (g)
above, where:

                                       17
<PAGE>

          (i) the notice of seizure described in subsection (a) above has not
     been delivered reasonably in accordance with the requirements of subsection
     (a) above;

          (ii) Philip Morris International has not been permitted to inspect the
     seized Cigarettes in substantial accordance with the requirements of
     subsection (b) above, or the seizing authority has determined that the
     seized Cigarettes are not Contraband Philip Morris Cigarettes as evidenced
     by the release of the seized Cigarettes;

          (iii) the total volume of Contraband Philip Morris Cigarettes seized
     in the particular seizure was less than five Master Cases of cigarettes
     after exclusion of any amount excluded by the seizing authority or a court
     pursuant to Article 8 of Directive 92/12 by virtue of having been acquired
     in another Member State for "own use" and transported by the purchaser;

          (iv) the Contraband Philip Morris Cigarettes were manufactured prior
     to January 1, 2004;

          (v) the Contraband Philip Morris Cigarettes were stolen by a third
     party and Philip Morris International can reasonably demonstrate that such
     theft has occurred;

          (vi) the Contraband Philip Morris Cigarettes were seized by a Member
     State outside of the Territory of the Member States and the greater weight
     of the evidence demonstrates that the Cigarettes seized were not destined
     for introduction into the Territory of the Member States; or

          (vii) the Contraband Philip Morris Cigarettes were seized by a Member
     State and Philip Morris International can reasonably demonstrate that such
     Contraband Philip Morris Cigarettes were sold, distributed, stored, and
     shipped in accordance with all applicable fiscal and legal requirements of
     the EC and a Member State, or were Sold by a Retailer.

     (l) For any dispute relating to (i) application of the provisions in
subsection (k) above, (ii) the amount, if any, of a payment to be made under
subsections (f) and (g) above, or (iii) the determination of the appropriate
Member State by which the Cigarettes were seized, the Parties involved in the
dispute shall meet and confer in an attempt to resolve the dispute in good
faith. If the dispute has not been resolved within 60 days of a Party receiving
formal notice of such a dispute, any Party involved in the dispute may refer the
dispute to the Arbitrator for settlement in accordance with the provisions of
Section 12.02 of this Agreement.

                                       18
<PAGE>

     (m) If a Member State or the EC accepts a Supplemental Payment in regard to
a particular seizure of Philip Morris Cigarettes and later collects duties or
taxes or the monetary equivalent from Philip Morris in regard to that particular
seizure, the Member State or the EC shall promptly refund to Philip Morris
International the amount of the Supplemental Payment that had been paid equal to
the duty and taxes or the monetary equivalent collected or paid as well as any
corresponding portion of the amounts, if any, paid under subsections (f)(ii) or
(g)(ii).

     (n) If a Member State or the EC accepts a Supplemental Payment in regard to
a particular seizure of Philip Morris Cigarettes and it is later found that
duties and taxes or the monetary equivalent had already been paid with regard to
that particular seizure, the Member State or the EC shall promptly refund to
Philip Morris International the amount of the Supplemental Payment that had been
paid equal to the duty and taxes or the monetary equivalent collected or paid as
well as any corresponding portion of the amounts paid, if any, under subsections
(f)(ii) or (g)(ii).

     (o) Notwithstanding any other provision in this Agreement, other than
subsections (p), (t), and (u) below, for seizures of Contraband Philip Morris
Cigarettes in a New Member State,

          (i) in the first year following that New Member State's accession to
     the European Union, no Supplemental Payment shall be payable by Philip
     Morris International and any such seizures shall not be counted against the
     Baseline Amount for the purpose of any other calculation under subsections
     (f) or (g) above.

          (ii) Notwithstanding subsections (iii) and (iv) below, after
     adjustment of the Baseline Amount in accordance with subsection (s) below,
     Supplemental Payments shall be payable by Philip Morris International under
     subsections (f)(i), and/or (f)(ii) in the case of a Subsequent
     Participating Member State as applicable, or, (g)(i), and/or (g)(ii) in the
     case of a Non-Participating Member State as applicable, and such seizures
     shall be counted against the Baseline Amount for the purpose of any other
     calculation under subsections (f) or (g) above, beginning in the year
     following the year in which the incidence of Contraband Cigarettes and
     Counterfeit Cigarettes in that New Member State is determined to be less
     than 2% of the total market for Cigarettes in that New Member State.

          (iii) in each of the second, third, fourth and fifth years following
     that New Member State's accession to the European Union, in the event that
     a New Member State does not satisfy subsection (ii) above, a Supplemental
     Payment shall be payable by Philip Morris International

                                       19
<PAGE>

     only under subsections (f)(i) in the case of a Subsequent Participating
     Member State as applicable and/or (g)(i) in the case of a Non-Participating
     Member State as applicable, and only if in that year:

               (A) the incidence of Contraband Cigarettes and Counterfeit
          Cigarettes in that New Member State is determined to be:

                    (1) 12% or less (for the second year following accession);

                    (2) 10% or less (for the third year following accession);

                    (3) 7% or less (for the fourth year following accession);

                    (4) 5% or less (for the fifth year following accession);

          of the total market for Cigarettes in that New Member State; or

               (B) the incidence of Contraband Cigarettes and Counterfeit
          Cigarettes in that New Member State is determined to be more than the
          thresholds set forth in subsection (A) above, but the incidence of
          Contraband Philip Morris Cigarettes divided by the total incidence of
          Contraband Cigarettes and Counterfeit Cigarettes in that New Member
          State, expressed as a percentage, is greater than 70% of (x) the total
          tax-paid retail sales of Philip Morris Cigarettes divided by (y) the
          total tax-paid retail Cigarette sales in that New Member State,
          expressed as a percentage.

          (iv) from the sixth year following a New Member State's accession to
     the European Union, Supplemental Payments shall be payable by Philip Morris
     International and any such seizures shall be counted against the Baseline
     Amount for the purpose of any other calculation under subsections (f) or
     (g) above, only if the incidence of Contraband Cigarettes and Counterfeit
     Cigarettes as a percentage of the total market for Cigarettes in that New
     Member State has been determined to be less than or equal to the incidence
     of Contraband and Counterfeit Cigarettes in the Initial Participating
     Member States as a percentage of the total market for Cigarettes in the
     Initial Participating Member States, in the fifth year following the New
     Member State's accession as determined pursuant to subsection (q).

                                       20
<PAGE>

     (p) In addition to the limitations on Supplemental Payments set forth in
subsection (o) above, for the first five years following a New Member State's
accession to European Union, if Contraband Philip Morris Cigarettes are seized
in a New Member State and the amount of those Contraband Philip Morris
Cigarettes when added to the number of Contraband Philip Morris Cigarettes
already seized in the same calendar year in all the New Member States that
joined the European Union in the same year as the seizing New Member State,
results in a total number that exceeds the Baseline Amount as of January 1,
2004, Philip Morris International shall have no obligation to make Supplemental
Payments for that seizure. In relation to any New Member State that joins the
European Union after January 1, 2007, the Parties shall agree on a method for
determining how this subsection (p) shall operate.

     (q) For the purposes of subsections (o) and (p) above, the incidence of
Contraband Cigarettes and Counterfeit Cigarettes in any New Member State and in
the Initial Participating Member States in accordance with subsection (o)(iv)
above shall be determined by a methodology agreed to by the Parties.

     (r) If a Member State or any subdivision thereof sells or resells, or
authorizes the sale or resale of, seized Contraband Philip Morris Cigarettes no
Supplemental Payment is due in relation to such Cigarettes and, if paid, any
such Supplemental Payment shall be refunded.

     (s) If a New Member State, upon or after accession to the European Union,
joins the Agreement and becomes eligible for Supplemental Payments under
subsection (f)(ii), Philip Morris International and the European Commission
shall, with regard to the factors set forth in Appendix K, meet and confer as to
when and how the Baseline Amount shall be amended or recalculated. If no
agreement is reached, the Arbitrator, pursuant to Section 12.02 of this
Agreement, shall determine the appropriate amendment to, or recalculation of,
the Baseline Amount, with due regard to the factors set forth in Appendix K. No
payments shall be made under subsection (f)(ii), however, until an amended
Baseline Amount shall have been established.

     (t) If at any time, a Party asserts that there is a serious persisting
problem concerning Contraband Cigarettes or Counterfeit Cigarettes entering into
a New Member State, which could bring about serious imbalances in the
application of the Agreement, Philip Morris International and the EC shall meet
and discuss as soon as reasonably possible any appropriate measures to ensure
the continued functioning of the Agreement, including, if necessary, amendment
or suspension of Philip Morris International's obligations under Article 4 as to
that New Member State. If no agreement is reached, the Arbitrator, pursuant to
Section 12.02 of this Agreement, shall determine the appropriate amendment or
relief, with due regard to the factors set forth in Appendix K.

                                       21
<PAGE>

     (u) If at any time, a Party asserts that there is a serious persisting
problem concerning seizures of Contraband Philip Morris Cigarettes in a
Participating Member State who was a Member State on January 1, 2004, which
could bring about serious imbalances in the application of the Agreement, Philip
Morris International and the European Community shall meet and discuss as soon
as reasonably possible any appropriate measures to insure the continuing
functioning of the Agreement, including, if necessary, amendment of Philip
Morris International's obligations under Article 4 as to that Member State. If
no agreement is reached, the Arbitrator, pursuant to Section 12.02 of this
Agreement, shall determine the appropriate amendment or relief, with due regard
to the factors set forth in Appendix K.

     For purposes of this Section, it shall be presumed that a serious
persisting problem exists if Philip Morris International can reasonably
demonstrate that:

          (i) For a substantial period of time, seizures in a Member State
     significantly exceed the seizures by that Member State in 2003 so as to
     materially deviate from the expectations of the Parties, and

          (ii) More than fifty percent of the seized Cigarettes for which
     Supplemental Payments are made are Cigarettes which were sold at retail and
     the applicable taxes on the retail price of the Cigarettes were paid in
     either a New Member State of the European Community or a non-Member State
     outside the European Community.

If the increase in the incidence of Contraband Philip Morris Cigarettes in the
aforesaid Member State is substantially attributable to a failure on the part of
Philip Morris International to adhere to the terms of this Agreement, and/or its
failure to sell Cigarettes into a market consistent with legitimate Retail
Demand in that market, amendment of Article 4 obligations is not appropriate.

                                   Article 5
                              TRACKING AND TRACING

     Section 5.01. Tracking and Tracing Protocols.

     Consistent with its Fiscal Compliance Policy and applicable packaging laws,
Philip Morris International agrees to adopt, implement, maintain and be bound by
the commercially reasonable practices and procedures with respect to the
tracking and tracing of shipments of Philip Morris Cigarettes after the
Execution Date as set forth in the "Tracking and Tracing Protocols" attached as
Appendix D.

                                       22
<PAGE>

     Section 5.02. Certification of Compliance with Tracking and Tracing
Protocols.

     (a) Each year, on the anniversary of the Execution Date, Philip Morris
International shall provide the Relevant Administrations with a report, signed
by the Vice President for Compliance Systems, describing Philip Morris
International's compliance with the requirements of the Tracking and Tracing
Protocols. Such certification shall be part of the annual Certification of
Compliance and shall be governed by the procedures set forth in Section 2.02 of
this Agreement.

                                   Article 6
                               REVIEW OF AGREEMENT

     Section 6.01. Annual Meetings.

     At least once per year, the authorized representatives of Philip Morris
International and the European Commission shall meet to confer and assess the
functioning of the Agreement and its Protocols. At that meeting, Philip Morris
International and the European Commission may each present any suggestions they
may have to improve the functioning of the Agreement. Subject to Relevant Law,
the European Commission and Philip Morris International may communicate to each
other concerns relating to any Party's activities in connection with their
commitments and obligations under the Agreement.

                                   Article 7
                    FULFILLMENT OF OBLIGATIONS AND OBJECTIVES

     Section 7.01. Promotion of Public Policy.

     The Parties to this Agreement hereby acknowledge and agree that this
Agreement is designed to provide meaningful assistance to the Participating
Member States and the EC in curtailing the smuggling and illegal distribution of
Cigarettes into and within the Territory of the Member States.

     Section 7.02. Respect for Obligations.

     The Parties hereby acknowledge and agree to take all appropriate measures:
(1) to ensure fulfillment of their obligations under this Agreement, (2) to
facilitate the achievement of the objectives of the Agreement, and (3) to
abstain from any measures that would jeopardize the attainment of the objectives
of this Agreement.

                                       23
<PAGE>

     Section 7.03. Agreement Consistent with EC and Applicable National Laws.

     The Parties to this Agreement hereby acknowledge and agree that compliance
with the terms of this Agreement is consistent with EC and applicable national
laws, and with the provisions of the Treaty Establishing the European Community
(the "EC Treaty"), and will contribute to achieving the objectives of the EC
Treaty.

     Section 7.04. The Parties' Intentions.

     The mutual intention of the Parties is that this Agreement will swiftly,
finally and fully resolve in an amicable and cooperative manner, without any
admission of liability, all matters in which or in respect of which the
following persons seek or might seek redress for alleged Losses: (i) the
Parties; (ii) the political subdivisions of the Participating Member States;
(iii) instrumentalities and agencies of (i) and (ii); and (iv) successors and
assignees of all of the foregoing (collectively "Resolved Matters"). The
Parties' mutual intention is that all Parties and Released Persons be relieved
of the threat of claims, actions, suits, assessments, or proceedings in any
forum against them that seeks redress for any Resolved Matters.

                                   Article 8
                         REPRESENTATIONS AND WARRANTIES

     Section 8.01. Mutual Representations.

     (a) Each of the Relevant Administrations hereby represents and warrants to
Philip Morris International, and Philip Morris International hereby represents
and warrants to each of the Relevant Administrations that:

          (i) the execution, delivery and performance of this Agreement by such
     Party is within its governmental or corporate powers, as the case may be,
     and has been duly authorized by all necessary action on its part;

          (ii) the Person executing this Agreement on behalf of such Party has
     the full right and authority to do so; and

          (iii) this Agreement constitutes a valid and binding agreement of such
     Party, enforceable in accordance with its terms.

                                       24
<PAGE>

                                   Article 9
                         RELEASE AND DISMISSAL OF CLAIMS

     Section 9.01 . Release.

     (a) The provisions of Sections 9.01(a), (b), and (c) shall inure to the
benefit of Philip Morris (the "Released Persons") and, consistent with Relevant
Law, be binding upon each of (i) the Relevant Administrations; (ii) their
respective political subdivisions; (iii) instrumentalities and agencies of (i)
and (ii); and (iv) successors and assignees of all of the foregoing
(collectively, the "Releasing Persons"). The release provided for in this
Section 9.01 shall cover companies acquired by or merged into Philip Morris
subsequent to the Execution Date, but only if the company's aggregate EC market
share was not in excess of 2% in 2002.

     (b) On the Signature Date of the Agreement for each Releasing Person, such
Releasing Person agrees to and shall, without any further action on the part of
such Releasing Person, absolutely and unconditionally fully release and forever
discharge the Released Persons, to the fullest extent permitted by law, from any
and all civil claims, charges, demands, damages, subpoenas, discovery requests,
actions, suits, causes of action, liabilities, costs, expenses and attorneys'
fees, including without limitation, all civil claims that may be allowable to
the Releasing Persons within criminal proceedings in the form of restitution,
disgorgement, forfeiture, punitive damages, or otherwise, for conduct prior to
the Signature Date wherever arising and of whatever nature, whether known or
unknown, suspected or unsuspected, accrued or unaccrued, asserted or unasserted,
foreseen or unforeseen, with respect to, that result from, arise out of, or
relate to the allegations, or the alleged acts (or omissions) forming the basis
of the allegations, that were raised or asserted, or could have been raised or
asserted, in the Litigation (collectively, the "Released Claims"), regardless of
the legal theory or purported basis of legal duty or liability on which such
Released Claims are, or could be, raised or asserted.

     (c) The provisions of Sections 9.01(a), (b), and (c) (as well as the other
provisions of this Agreement) are a result of a compromise of disputed claims
and defenses, and Released Persons shall not be deemed to have admitted any of
the allegations asserted in the Litigation.

     (d) On the Execution Date of the Agreement, each Released Person agrees to
and shall, without any further action on the part of such Released Person,
absolutely and unconditionally fully release and forever discharge the Releasing
Persons and their attorneys, to the fullest extent permitted by law, from any
and all civil claims, charges, demands, actions, suits, causes of action,
liabilities, costs, expenses, fees, and attorneys' fees, including without
limitation, all civil claims for compensation or monetary damages sought in
civil

                                       25
<PAGE>

proceedings in the form of restitution, disgorgement, forfeiture, punitive
damages, or otherwise for conduct prior to the Execution Date wherever arising
and of whatever nature, whether known or unknown, suspected or unsuspected,
accrued or unaccrued, asserted or unasserted, foreseen or unforeseen, that
result from, arise out of or relate to the Litigation, regardless of the legal
theory or purported basis of legal duty or liability on which such claims are,
or could be, asserted.

     Section 9.02. Dismissal Of Claims.

     The Parties shall promptly seek and obtain dismissal with prejudice and
without costs of all pending actions and/or appeals, as they relate to Philip
Morris, and to the extent that they are related to the matters at issue in the
Litigation, including any proceeding by Philip Morris International before the
European Court of First Instance or the European Court of Justice. The Parties
shall jointly submit a form of a Stipulation of Dismissal with Prejudice and
without costs to the relevant court or courts which will be substantially in the
form annexed as Appendix H to this Agreement.

                                   Article 10
                                     SETOFF

     Section 10.01. Right of Setoff

     (a) In addition to its rights and obligations under Article 7 and the
releases set forth in Article 9 of this Agreement, Philip Morris International
shall have the right to set off against any and all amounts otherwise due and
payable to the Relevant Administrations under this Agreement, the amount of any
damage, loss, liability, tax, custom duty, expense or non-criminal penalty
actually incurred, payable or suffered by Philip Morris with respect to,
resulting from, or arising out of, actions, suits, or proceedings, other than
the Litigation (whether civil proceedings, administrative proceedings, tax
proceedings, or civil claims made within criminal proceedings) brought against
Philip Morris by (i) the EC, (ii) any Member State, (iii) the political
subdivisions of any Member State; (iv) instrumentalities and agencies of (i),
(ii), and (iii); and (v) successors and assignees of all of the foregoing, which
seek redress as a result of the sale, distribution, storage, or shipment of
Contraband Philip Morris Cigarettes before the Execution Date or, for Subsequent
Participating Member States, their respective Signature Dates.

     (b) Upon any Party learning of (i) the existence of any actual claim,
action, suit, or proceeding, or (ii) any threatened claim that would require
disclosure under Financial Accounting Standard Board Statement No. 5, that may
result in Philip Morris International having a right to setoff under this
Section

                                       26
<PAGE>

10.01, that Party shall provide each other Party, to the fullest extent
permitted by law, with prompt notice of the existence of such claim, action,
suit, or proceeding.

     (c) Upon learning of the existence of (i) any actual claim, action, suit,
or proceeding, or (ii) any threatened claim that would require disclosure under
Financial Accounting Standard Board Statement No. 5, that may result in Philip
Morris International having a right to setoff under this Section 10.01, Philip
Morris International may, upon giving the EC 30 days notice, begin paying any
funds which are due to the Relevant Administrations under this Agreement into an
interest-bearing escrow account, up to the amount claimed, or if no specific
amount is claimed, the amount at issue, in such actions or proceedings, rather
than paying such funds directly to the Relevant Administrations. Payment of
funds into escrow by Philip Morris International pursuant to this subsection (c)
above shall not be deemed a breach of this Agreement.

     (d) In each instance where Philip Morris International pays funds into
escrow as set forth in Section 10.01(c), Philip Morris International and the EC
shall make a good faith effort to agree as to whether utilization of the escrow
account provided for in subsection (c) above is appropriate. If they have not
agreed within 60 days after notice was provided pursuant to subsection (b)
above, the EC shall have the right to make application to the Arbitrator(s), as
described below in Section 12.02, to challenge the applicability of subsection
(c) above. In order for such a challenge to be upheld by the Arbitrator(s), the
EC must demonstrate that Philip Morris International does not have a reasonable
basis to support its belief that it is incurring, or may incur, damage, loss,
liability or expense that may be eligible for setoff pursuant to subsection (a)
above. If the Arbitrator(s) determines that Philip Morris International does not
have a reasonable basis to place the aforesaid funds into the escrow account,
the Arbitrator(s) shall order that such funds together with accrued interest be
released from the escrow account within 30 days and paid to the Relevant
Administrations pursuant to this Agreement.

     (e) Before exercising any right to setoff pursuant to subsection (a) above
either by ceasing to make payments due to the Relevant Administrations or by
claiming amounts held in escrow, Philip Morris International shall provide at
least 30 days notice to the European Commission of its intention to do so. Upon
receipt of such notice, Philip Morris International and the European Commission
shall immediately make a good faith effort to agree as to whether setoff is
appropriate and, if so, what the amount of the setoff should be. If Philip
Morris International and the European Commission have not agreed within 60 days
of notice being received by the European Commission, either Party may make an
application to the Arbitrator in accordance with Section 12.02 to determine
whether a right of setoff exists pursuant to this Section 10.01. In order to
establish any right of setoff, Philip Morris International must demonstrate by
the greater weight of the evidence that (i) Philip Morris has incurred or
suffered

                                       27
<PAGE>

damage, loss, liability or expense that is eligible for setoff pursuant
to subsection (a) above; and (ii) the amount so incurred or suffered. This
subsection (e) does not in any way affect the rights of Philip Morris
International to pay funds into escrow in accordance with subsection (c) above.
Upon a ruling by the Arbitrator(s) that Philip Morris International has failed
to establish a right of setoff, all funds owed to the Relevant Administrations
under the terms of the Agreement that were the subject of dispute together with
accrued interest, shall promptly be paid over to the Relevant Administrations.
Upon a ruling by the Arbitrator(s) that Philip Morris International has
established a right of setoff, Philip Morris International shall be entitled to
recover such funds from escrow and/or set off against future payments in
accordance with the Arbitrator's(s') ruling.

     (f) Claims in Excess of Amount Available for Setoff. If a claim, action,
suit, proceeding, assessment or demand has been made that would, if successful,
entitle Philip Morris International to exercise its right to setoff under
Article 10 and either (1) the amount of the claim, action, suit, proceeding,
assessment or demand is likely to exceed the total amount available for setoff
or escrow under Article 10, or (2) the claim, action, suit, proceeding,
assessment or demand has been brought within two years of the Execution Date and
the amount of the claim, action, suit, proceeding, assessment or demand is
likely to exceed (euro) 200 million; and, despite the good-faith and expeditious
efforts of Philip Morris to defeat the claim action, suit, proceeding,
assessment or demand, including invoking the releases provided for by this
Agreement if applicable:

          (i) the claim action, suit, proceeding, assessment or demand has not
     been dismissed, withdrawn, or reduced below the applicable threshold in (1)
     or (2) above, within one year after the court or tribunal has received full
     and complete arguments from the parties to the dispute as to whether the
     claim, action, suit, proceeding, assessment or demand should be dismissed
     because its assertion contravenes the provisions of this Agreement or
     otherwise, or

          (ii) the claim, action, suit, proceeding, assessment or demand has
     been sustained by the court or tribunal after considering arguments by
     Philip Morris International that the claim, action, suit, proceeding,
     assessment or demand should be dismissed because its assertion contravenes
     the provisions of this Agreement or otherwise, and

          (iii) Philip Morris can demonstrate that, as a result of the ongoing
     claim, burdens have been imposed on it or it is otherwise prejudiced by
     virtue of such claim.

               then (A) as to any such claim, action, suit, proceeding,
          assessment or demand that is within the scope of Article 9, Philip

                                       28
<PAGE>

          Morris International shall be discharged of its obligations to pay any
          amounts payable (i) under Appendix C to the Member State that brought
          the action, suit, proceeding, assessment or demand, (ii) under Article
          4 of this Agreement to that Member State, and (iii) to the EC for its
          share of any Supplemental Payment for seizures by that Member State.
          In the event that the aforesaid claim, action, suit, proceeding,
          assessment, or demand is eventually dismissed or otherwise resolved
          for an amount below the applicable threshold set forth in (1) and (2)
          above, Philip Morris International's obligations to the Member State
          under Appendix C and to the Member State and the EC under Article 4
          shall resume prospectively; and

               (B) as to any such claim, action, suit, proceeding, assessment or
          demand that is not within the scope of Article 9, Philip Morris
          International shall be discharged of its obligations to pay (i) 50% of
          the amounts payable to all the Relevant Administrations under Appendix
          C, (ii) amounts payable under Article 4 of the Agreement to the Member
          State that brought the claim, action, suit, proceeding, assessment or
          demand, as well that Member State's share of any payments payable
          under Appendix C of this Agreement; and (iii) amounts payable to the
          EC for its share of any Supplemental Payments for any seizures by that
          Member State. In the event that the aforesaid claim, action, suit,
          proceeding, assessment or demand is eventually dismissed or otherwise
          resolved for an amount below the applicable threshold set forth in (1)
          and (2) above, Philip Morris International's obligations to the
          Relevant Administrations under Appendix C and to the Member State and
          the EC under Article 4 shall resume prospectively.

          (iv) For the purposes of subsections (A) and (B) above, the term
     "Member State" that brought the action, suit, proceeding, assessment or
     demand shall include (i) the Member State; (ii) the political subdivisions
     of that Member State; (iii) instrumentalities or agencies of (i) or (ii);
     and (iv) successors and assignees of all of the foregoing.

          Section 10.02. No Other Effect.

     Subject to Article 11, nothing in this article shall reduce or otherwise
affect the other duties of Released Persons to any Releasing Person or the
requirements of Relevant Law, nor shall it reduce or otherwise affect the duty
of the participating Released Person's obligations under this Agreement, which
shall continue in full force and effect during and after any dispute resolution
proceedings.

                                       29
<PAGE>

                                   Article 11
                                   TERMINATION

     Section 11.01. Termination.

     (a) This Agreement shall terminate upon the Expiration Date unless
terminated earlier by subsections (b) through (g) of this Section.

     (b) The Parties agree that pursuant to this Agreement each Party and all
Released Persons shall have adequate remedies to protect them against any claims
or demands which are (i) asserted against them in contravention of Article 9, or
(ii) subject to setoff under the provisions of Article 10. Accordingly, a Party
shall have the right to terminate this Agreement if, despite their good-faith
efforts, the Parties are unable to agree upon substitute provisions,
adjustments, or modifications to the Agreement so as to restore those remedies.
A Party shall have the right to terminate this Agreement under the circumstances
and in the manner set forth in subsections (c) through (g), inclusive, below.

     (c) A Party shall have the right to terminate this Agreement if:

          (i) A claim, action, suit, proceeding, assessment or demand that
     would, if successful, entitle Philip Morris International to exercise its
     right to setoff under Article 10 has been made by a Participating Member
     State in which the sales of Philip Morris Cigarettes are equivalent to or
     are more than 10 percent of the Philip Morris Cigarettes sold in the
     Territory of the Member States as of January 1, 2004, and a court in that
     Participating Member State, or the European Court of Justice, has issued a
     final and unappealable judgment that invalidates or renders unenforceable a
     material provision of Article 9 or Article 10, or there is a legislative,
     executive or administrative action with the same effect in that
     Participating Member State; or

          (ii) Claims, actions, suits, proceedings, assessments or demands that
     would, if successful, entitle Philip Morris International to exercise its
     right to setoff under Article 10 have been made by Participating Member
     States in which collectively the sales of Philip Morris Cigarettes are
     equivalent to or are more than 10 percent of the Philip Morris Cigarettes
     sold in the Territory of the Member States as of January 1, 2004, and the
     European Court of Justice has, or courts in those Participating Member
     States have, issued final and unappealable judgments that invalidate or
     render unenforceable a material provision of Article 9 or Article 10, or
     there are legislative, executive, or administrative actions with the same
     effect in those Participating Member States.

                                       30
<PAGE>

     (d) For the purposes of subsection (c) above, the term "Participating
Member State" shall include (i) the Participating Member State; (ii) the
political subdivisions of that Participating Member State; (iii)
instrumentalities or agencies of (i) or (ii); and (iv) successors and assignees
of all of the foregoing.

     (e) A Party that seeks to terminate the Agreement must first submit a
notice of termination to the other Parties, setting out the basis for
termination. Such termination shall become effective 120 days from receipt of
notice unless another Party challenges the notice of termination pursuant to
Section 12.02 of this Agreement.

     (f) In the event that an arbitration proceeding is invoked pursuant to
subsection (e) above, if the Arbitrator(s) determines that there is a basis for
termination, the Agreement shall terminate in its entirety unless the
precipitating cause of the termination is clearly confined in its application to
a particular Member State or particular Member States, in which case, the
Arbitrator(s) shall determine the scope of the termination in the absence of an
agreement by the remaining Parties.

     (g) If the Agreement is terminated before the Expiration Date in accordance
with the provisions set forth above in subsection (c), a new agreement shall
take its place without any further action being necessary by the Parties, such
agreement remaining in effect until the Expiration Date, consisting of (1) the
Parties' rights and obligations under Articles 7, 9 and 12 of this Agreement,
(2) the Parties' rights and obligations in effect on the date of termination of
the Agreement under Article 2 and Appendix B of this Agreement, and (3) the
Parties' rights and obligations in effect on the date of termination of the
Agreement under Article 5 and Appendix D of this Agreement. All other provisions
of the Agreement shall be terminated.

     Section 11.02. Subsequent Agreement.

     It is the intention of the Parties, if feasible, to extend the duration of
this Agreement beyond the Expiration Date. Accordingly, beginning no later than
two years prior to the Expiration Date, if this Agreement has not been
terminated earlier in accordance with its terms, the representatives of the
Parties shall meet and attempt in good faith to reach another agreement between
the Parties covering the same subject matter addressed herein.

                                   Article 12
                               DISPUTE RESOLUTION

     Section 12.01. The Role of the European Court of First Instance and the
European Court of Justice.

                                       31
<PAGE>

     (a) Arbitration Clause for Articles 7 and 9. In the absence of prior
agreement, any claim, action, suit, proceeding or dispute between the Parties,
between a Party and a Released Person or a Releasing Person, or between a
Released Person and a Releasing Person, arising out of or relating to any
breach, clarification or enforcement of Article 7 or 9 of this Agreement
relating to the sale, distribution, storage or shipment of Contraband Cigarettes
before the Execution Date or, for Subsequent Participating Member States, their
respective Signature Dates, shall be brought exclusively before the European
Court of First Instance pursuant to Article 238 of the EC Treaty. Each of the
Parties hereby agrees, on its behalf and on behalf of the Released Persons or
the Releasing Persons (as the case may be), that this Section 12.01 constitutes
and is intended to be an arbitration clause for the purposes of Article 238 of
the EC Treaty, and irrevocably consents to the jurisdiction of the European
Court of First Instance in relation to any such dispute, and irrevocably waives,
to the fullest extent permitted by law, any objection that it may now or
hereafter have to the reference of such dispute to the European Court of First
Instance or that any such dispute has been brought in an inconvenient forum.
Process in any proceeding brought before the European Court of First Instance
pursuant to Article 238 of the EC Treaty may be served on any Party anywhere in
the world, whether within or without the jurisdiction of the European Court of
First Instance. The applicable law to interpret this Agreement shall be the law
of the State of New York, without giving effect to choice of law or conflict of
law doctrine. The European Court of First Instance shall in its determination of
any dispute concerning this Agreement, have regard to, inter alia, its own case
law, and that of the European Court of Justice, on the interpretation of the EC
Treaty and EC Law.

     (b) Referral of matters to the European Court of First Instance or the
European Court of Justice. In the event that a claim, suit, action, assessment,
proceeding or demand (in this Section 12.01(b) hereinafter, "claim") is brought
against Philip Morris relating to the sale, distribution, storage, or shipment
of Contraband Cigarettes before the Execution Date before any court or tribunal
of the Member States (including the courts and tribunals of political
subdivisions of the Member States) the Parties agree to follow the following
procedures:

          (i) the European Commission may be given notice of the claim by Philip
     Morris International;

          (ii) As soon as reasonably possible after receiving notice of the
     claim, the European Commission agrees to: (a) consider whether the claim is
     within the scope of the Arbitration clause of Section 12.01(a) of this
     Agreement; (b) if it considers this to be the case, prepare a statement of
     position in admissible form that the claim concerns, in whole or in part, a
     matter covered by and subject to this Agreement and to the Arbitration
     clause in Section 12.01(a) and that the Agreement provides that disputes
     regarding the application of Articles 7 and 9 of this Agreement to such

                                       32
<PAGE>

     claims should be brought exclusively before the Court of First Instance
     pursuant to Article 238 of the EC Treaty, the Agreement provides that if
     such claims are brought before any court or tribunal of the Member States
     (including a court or tribunal of the political subdivisions of the Member
     States), such proceeding should be suspended and referred or transferred to
     the European Court of First Instance pursuant to Article 238 of the EC
     Treaty, and the Agreement provides that to the extent that any Party is
     prevented from so transferring, all questions concerning the interpretation
     of any provision of Community Law that is necessary to enable such court to
     give judgment, be referred to the European Court of Justice under Article
     234 of the EC Treaty and (c) provide said statement of position to all
     relevant Parties for use by any Party in a motion filed pursuant to Section
     12.01(a) and, submit it to the competent authority of the Relevant Member
     State with a request that it be submitted to the appropriate court;

          (iii) If the European Commission concludes that a claim, is not a
     matter covered by and subject to this Agreement or is not one to which the
     Arbitration clause of Section 12.01(a) applies, and any Party disagrees
     with that conclusion, or the European Commission does not render the
     aforesaid statement of position within sixty (60) days of the notice set
     forth herein, any Party may demand Arbitration pursuant to Section 12.02 of
     this Agreement. If the Arbitrators rule that the claim is within the scope
     of the Arbitration clause of Section 12.01(a), the European Commission
     agrees to (a) prepare a statement in admissible form that states that (i)
     the Arbitrator(s) have ruled that the claim is within the scope of the
     Arbitration clause of Section 12.01(a) of this Agreement, and (ii) the
     Agreement provides that disputes regarding the application of Articles 7
     and 9 of this Agreement to such claims should be brought exclusively before
     the Court of First Instance pursuant to Article 238 of the EC Treaty, the
     Agreement provides that if such disputes are brought before any court or
     tribunal of the Member States (including a court or tribunal of the
     political subdivisions of the Member States), such proceeding should be
     suspended and referred or transferred to the European Court of First
     Instance pursuant to Article 238 of the EC Treaty, and the Agreement
     provides that to the extent that any Party is prevented from so
     transferring, all questions concerning the interpretation of any provision
     of Community Law that is necessary to enable such court to give judgment,
     be referred to the European Court of Justice under Article 234 of the EC
     Treaty, and (b) provide said statement to all relevant Parties for use by
     any Party in a motion filed pursuant to Section 12.01(a) and, submit it to
     the competent authority of the Relevant Member State with a request that it
     be submitted to the appropriate court;

          (iv) Subject to Relevant Law, the Participating Member States, as well
     as their political subdivisions, instrumentalities, agencies,

                                       33
<PAGE>

     successors and assigns, agree that they will not oppose a motion filed
     pursuant to Section 12.01(a).

          Section 12.02. Dispute Resolution for Claims Brought Under the Terms
     of the Agreement.

          (a) Arbitration Clause. Subject to Section 12.01, any dispute between
     the Parties arising out of or relating to this Agreement or any breach,
     clarification or enforcement of any provision of this Agreement or any
     conduct contemplated herein shall be brought exclusively before, and
     decided pursuant to the UNCITRAL Rules by the arbitrator who is at the top
     of the list attached to this Agreement as Appendix J (the "Arbitrator"). If
     the Arbitrator is unable to hear the Parties' dispute within 60 days of
     reference, upon demand by any Party to the dispute, the
     next-highest-listed-arbitrator in Appendix J shall be deemed to be the
     Arbitrator for the purposes of that dispute. Should the Arbitrator be
     permanently unable to hear the Parties' disputes, the next-highest-listed
     arbitrator in Appendix J shall be deemed to be the Arbitrator for the
     purposes of the Agreement. The Parties may add to, remove from, or reorder
     the list of arbitrators in Appendix J at any time by mutual agreement in
     writing.

          (b) The arbitration proceedings shall be conducted in the English
     language in Brussels, unless otherwise agreed by the Parties to the
     dispute. Consistent with Relevant Law, and any applicable law governing
     Philip Morris' disclosure obligations the arbitration proceedings shall be
     confidential to the extent possible, and the Parties shall not disclose the
     nature or scope of the proceedings, or any information obtained in or
     arising out of the proceedings, to any third party. No amicus curiae or
     "friend of the court" briefs may be filed in the proceedings. The
     Arbitrator(s) shall provide the rules of the proceedings and shall issue a
     written opinion stating the reasons for the relief granted. The arbitration
     proceedings, and the enforcement of any arbitral order or award, or an
     action to compel arbitration, shall be governed by the substantive laws of
     the State of New York without regard to choice of law doctrine. The Parties
     agree that the orders, decisions, and awards of the Arbitrator(s) shall be
     exclusively enforceable in the New York State Supreme Court (New York
     County), and any action to compel arbitration shall be commenced in New
     York State Supreme Court (New York County). The Party seeking to compel
     arbitration, or to enforce the orders, decisions, and awards of the
     Arbitrator(s), shall, at the time of the commencement of the action or
     proceeding, request assignment of the action or proceeding to the
     Commercial Division, Supreme Court of the State of New York (New York
     County). The final judgment of the New York State Supreme Court may be
     enforced by any Party in any court possessing personal and subject matter
     jurisdiction.

                                       34
<PAGE>

          (c) Notwithstanding the foregoing, for any dispute between the Parties
     involving Article 3, Section 4.01(t) and (u), Article 11, Section 12.01(b),
     and any dispute involving Article 10 where the amount in dispute exceeds 20
     percent of the "Base Payment" in Appendix C, any Party shall, upon request,
     have the right to have the dispute settled by a three-person arbitration
     panel with the Arbitrator acting as chairperson and one arbitrator to be
     selected by the Philip Morris International Party or Parties to the dispute
     and one arbitrator to be selected by the Relevant Administration Party or
     Parties to the dispute.

                                   Article 13
                                  MISCELLANEOUS

     Section 13.01. Notices.

     All notices, requests and other communications to any Party hereunder shall
be in writing (including facsimile transmission) and shall be given to the
Director of OLAF and the General Counsel of Philip Morris International.

     Section 13.02. Waivers.

     No provision of this Agreement may be waived unless such waiver is in
writing and is signed by the Party against whom the waiver is to be effective.

     Section 13.03. Expenses.

     All costs and expenses incurred in connection with this Agreement or the
Litigation shall be paid by the Party incurring such cost or expense.

     Section 13.04. Nature of Payments.

     The Parties agree that no part of any of the payments made pursuant to this
Agreement is being paid as (or in settlement of actual or potential claims for)
fines or penalties, civil or criminal, or enhanced, multiple or punitive damage
awards. Nor does any part of such payments represent the cost of a tangible or
intangible asset or other future benefit.

     Section 13.05. Successors and Assigns.

     Except as provided for in Section 9.01(a) of this Agreement, the provisions
of this Agreement, including the obligations set forth herein, shall be binding
upon and inure to the benefit of the Parties hereto and their respective
successors and assigns.

                                       35
<PAGE>

     Section 13.06. Legality and Severability.

     (a) All obligations under this Agreement are subject to the relevant laws,
statutes, ordinances, rules, regulations or other provisions having the force or
effect of law of the EC and/or any Member State, which are in effect in each
Member State as of its Signature Date, or are enacted or amended by the EC or a
Member State after its Signature Date ("Relevant Law"), and without prejudice to
the rights of the Parties under Article 11, the Parties agree that to the extent
that any obligation of any Party under this Agreement would violate Relevant
Law, the Party shall be excused from performing such obligation only to the
extent that performance would violate such law and shall not incur any liability
as a result thereof.

     (b) Without prejudice to the rights of the Parties under Article 11, in the
event that any provision of this Agreement, or the application thereof, becomes
or is declared by a court or tribunal of competent jurisdiction to be illegal,
void or unenforceable, or there is a legislative, executive or administrative
action with the same effect in a Participating Member State, the remainder of
this Agreement shall continue in full force and effect and the application of
such provision to other Persons or circumstances shall be interpreted so as to
reasonably effectuate the intent of the Parties hereto. The Parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
intent and purpose of such void or unenforceable provision.

     Section 13.07. Counterparts; Effectiveness; Third Party Beneficiaries.

     This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective on
the Execution Date. No provision of this Agreement is intended to confer upon
any Person other than the Parties and the Persons identified in Article 9 any
rights or remedies hereunder.

     Section 13.08. Entire Agreement.

     This Agreement, including the Appendixes, constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior drafts of this Agreement and any prior understandings reached between the
Parties during negotiation of this Agreement, whether oral or written.
Notwithstanding the foregoing, each of the Parties may rely upon express
representations made in any letter from another Party or their counsel provided
at or near the Execution Date or any Signature Date relating to the Agreement.

                                      36
<PAGE>

     Section 13.09. Captions.

     The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.

     Section 13.10. Designated EC Representative.

     The EC hereby appoints the Director of OLAF as its designated
representative for communications with Philip Morris International relating to
the administration of this Agreement. The designated representative is hereby
given authority by the EC to act on its behalf for the purposes of this
Agreement, including without limitation, giving and receiving notices and
inquiries, and reviewing and approving any documentation or protocols required
to be reviewed or approved under this Agreement.

     Section 13.11. Amendments.

     Any provision of this Agreement may be amended but only if such amendment
is in writing and is signed by each Party to this Agreement.

     Section 13.12. Authorship.

     No one Party or group of Parties shall be considered to have been the
author of this Agreement.

     Section 13.13. Use of Information Provided by Philip Morris International.

     Any information provided to the Relevant Administrations or OLAF pursuant
to the Agreement shall be used only for the purposes of promoting the Parties'
joint objective of combating Cigarette smuggling, Cigarette counterfeiting and
any related Money Laundering. In no case shall any such information be used or
provided to third parties for any other purpose without prior written consent by
Philip Morris International, unless the Relevant Administration is compelled to
disclose the information by judicial or administrative process or by other
requirements of law.

     Section 13.14. Equal Treatment Provision.

     If, at any time during the operation of this Agreement, the EC enters into
an agreement with another Cigarette manufacturer relating to the same
subject-matter as this Agreement ("Future Cooperation Agreement") on terms
(after due consideration of relevant differences in volume of Cigarettes or
other appropriate factors) more favorable to such Cigarette manufacturer than
the terms of this Agreement, then Philip Morris International may request of the
EC that it receive treatment under this Agreement at least as relatively
favorable as the overall terms

                                       37
<PAGE>

provided to the other Cigarette manufacturer. The EC will act in good faith to
consider any such request and may grant such a request if it is consistent with
the intent of this Agreement.

     Section 13.15. Additional Participating Member States.

     Any Member State may become a Participating Member State by executing a
copy of this Agreement in the appropriate form and delivering a counterpart
thereof to Philip Morris International and the other Parties thereto.

     Section 13.16. Use of the Agreement.

     This Agreement may be admitted into evidence, without the consent of the
Parties (i) in any proceeding for the purposes of enforcing the terms hereof, or
(ii) if the contemplated use of said document would not be contrary to the
intent of this Agreement, in support of any claim or defense any Party may wish
to raise in any proceeding brought against it. Otherwise, the Agreement may not
be admitted into evidence in any proceeding without the consent of the Parties.

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first written above.

                                       38
<PAGE>

                                         Philip Morris International Inc.,
                                         Philip Morris Products Inc.,
                                         Philip Morris Duty Free Inc., and
                                         Philip Morris World Trade SARL

                                         By:

                                         -------------------------------------
                                         Andre Calantzopoulos

<PAGE>

                               European Community

The European Commission hereby executes this Agreement on behalf of the European
Community and has the full right and authority to do so;

The execution and performance of this Agreement by the European Commission is
within its powers and has been duly authorized by all necessary action on its
part;

This Agreement constitutes a valid and binding Agreement of the European
Community and is enforceable in accordance with its terms.

------------------------------              -----------------------------
Michel Petite                               Franz-Hermann Bruner
Director General                            Director General
Legal Service                               European Anti-Fraud Office
European Commission                         European Commission

Date:
     ------------------------

<PAGE>

                               Kingdom of Belgium

The Minister of Finance of the Kingdom of Belgium hereby executes this Agreement
on behalf of the Kingdom of Belgium and has the full right and authority to do
so;

The execution and performance of this Agreement by the Ministry of Finance
of the Kingdom of Belgium is within its governmental powers and has been duly
authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Kingdom of
Belgium and is enforceable in accordance with its terms.

Minister of Finance of the
Kingdom of Belgium
                  --------------------------

Date:
     -----------------------

<PAGE>

                               Republic of Finland

The Minister of Finance of the Republic of Finland hereby executes this
Agreement on behalf of the Republic of Finland and has the full right and
authority to do so;

The execution and performance of this Agreement by the Ministry of Finance of
the Republic of Finland is within its governmental powers and has been duly
authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Republic of
Finland and is enforceable in accordance with its terms.

Minister of Finance of the
Republic of Finland
                    ---------------------------------

                       Date:
                            ------------------------

<PAGE>

                                 French Republic

The Ministry of the Economy, Finance and Industry of the French Republic hereby
executes this Agreement on behalf of the French Republic and has the full right
and authority to do so;

The execution and performance of this Agreement by the Ministry of the Economy,
Finance and Industry of the French Republic is within its governmental powers
and has been duly authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the French
Republic and is enforceable in accordance with its terms.

On behalf of the
Minister of Economy,
Finance and Industry
of the French Republic
                      --------------------------------

Date:
     -----------------------

<PAGE>

                           Federal Republic of Germany

The Ministry of Finance of the Federal Republic of Germany hereby executes this
Agreement on behalf of the Federal Republic of Germany and has the full right
and authority to do so;

The execution and performance of this Agreement by the Ministry of Finance of
the Federal Republic of Germany is within its governmental powers and has been
duly authorised by all necessary action on its part.

This Agreement constitutes a valid and binding Agreement of the Federal Republic
of Germany and is enforceable in accordance with its terms.

On behalf of the Ministry of Finance
of the Federal Republic of Germany
                                  ----------------------------

Date:
     ----------------------

<PAGE>

                               Republic of Greece

The Minister of the Economy and Finance of the Republic of Greece hereby
executes this Agreement on behalf of the Republic of Greece and has the full
right and authority to do so;

The execution and performance of this Agreement by the Ministry of the Economy
and Finance of the Republic of Greece is within its governmental powers and has
been duly authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Republic of
Greece and is enforceable in accordance with its terms.

Minister of the Economy and Finance
for the Republic of Greece
                           ----------------------------

Date:
     ----------------------

<PAGE>

                                Italian Republic

The Minister of Economy and Finance of the Italian Republic hereby executes this
Agreement on behalf of the Italian Republic and has the full right and authority
to do so;

The execution and performance of this Agreement by the Ministry of Economy and
Finance of the Italian Republic is within its governmental powers and has been
duly authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Italian Republic
and is enforceable in accordance with its terms.

Minister of Economy and Finance
of the Italian Republic
                       ----------------------------------

Date:
     ----------------------

<PAGE>

                            Grand-Duchy of Luxembourg

The Minister of Finance of the Grand-Duchy of Luxembourg hereby executes this
Agreement on behalf of the Grand-Duchy of Luxembourg and has the full right and
authority to do so;

The execution and performance of this Agreement by the Ministry of Finance of
the Grand-Duchy of Luxembourg, is within its governmental and administrative
powers and has been duly authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Grand-Duchy of
Luxembourg and is enforceable in accordance with its terms.

Minister of Finance of the
Grand-Duchy of Luxembourg
                         --------------------------------

Date:
     ----------------------

<PAGE>

                           Kingdom of the Netherlands

The Minister of Finance of the Kingdom of the Netherlands hereby executes this
Agreement on behalf of the Kingdom of the Netherlands and has the full right and
authority to do so;

The execution and performance of this Agreement by the Ministry of Finance of
the Kingdom of the Netherlands is within its governmental powers and has been
duly authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Kingdom of the
Netherlands and is enforceable in accordance with its terms.

Minister of Finance of the
Kingdom of the Netherlands,
                           ----------------------------------

Date:
     ----------------------

<PAGE>

                               Portuguese Republic

The Minister of State and Finance of the Portuguese Republic hereby executes
this Agreement on behalf of the Portuguese Republic and has the full right and
authority to do so;

The execution and performance of this Agreement by the Ministry of Finance of
the Portuguese Republic is within its governmental powers and has been duly
authorised by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Portuguese
Republic and is enforceable in accordance with its terms.

Minister of State and Finance
of the Portuguese Republic
                          -----------------------------------

Date:
     ----------------------

<PAGE>

                                Kingdom of Spain

The Minister of the Economy and Finance of the Kingdom of Spain hereby executes
this Agreement on behalf of the Kingdom of Spain and has the full right and
authority to do so;

The execution and performance of this Agreement by the Minister of the Economy
and Finance of the Kingdom of Spain is within its governmental powers and has
been duly authorized by all necessary action on its part;

This Agreement constitutes a valid and binding Agreement of the Kingdom of Spain
and is enforceable in accordance with its terms.

Minister of the Economy and Finance
of the Kingdom of Spain

---------------------------------

Date:
     ----------------------------

<PAGE>

     Altria Group, Inc., f/k/a Philip Morris Companies Inc., hereby warrants
     that should any of its direct or indirect subsidiaries that are not already
     Parties to this Agreement undertake to sell, distribute, ship or store
     Cigarettes within or through the Territory of the Member States, or any
     Designated State, whether directly or indirectly, Altria Group shall ensure
     that such subsidiaries adhere to the terms of this Agreement. Altria Group,
     Inc. also warrants that neither it, nor any of its direct or indirect
     subsidiaries, shall take any action to avoid or limit the obligations of
     Philip Morris International created by this Agreement. Altria Group, Inc.
     hereby declares that it has the authority to make the warranties herein
     concerning its said subsidiaries.

                                             Altria Group, Inc.

                                       By:

                                       ----------------------------------

<PAGE>

                                   APPENDIX A

PHILIP MORRIS COMPANIES INC.

POLICY STATEMENT ON COMPLIANCE WITH FISCAL, TRADE AND ANTI-MONEY LAUNDERING LAWS

I.   Introduction

Compliance is a key business objective for each and every one of us and goes
hand in hand with the Company's financial and other goals. How we conduct our
business is as important as the financial results we achieve, and no one should
act on the false assumption that business targets are more important than legal
and ethical standards. Our business goals must be achieved within the law and
without jeopardy to our reputation for integrity or how the public perceives the
Company.

Accordingly, Philip Morris Companies Inc. is issuing this policy statement to
all of its operating companies (collectively, "the Company") in order to
standardize procedures related to fiscal, trade and anti-money laundering laws
that apply to the sale of the Company's food, beer and tobacco products.
Included within this policy statement are measures designed to guard against the
diversion of our products into illegal trade channels and against our products
being used by criminals to "launder" the proceeds of crime. This policy
therefore, concerns those laws and regulations that govern:

(i)  the payment of import duties, value added tax, excise taxes and other
     imposts applicable to our products;

(ii) the handling of payments which we receive from our customers;

(iii) currency reporting and recordkeeping requirements; and

(iv) trade restrictions or prohibitions.

It also includes important "know your customer" guidelines to help us meet our
goal of only doing business with firms that share our high standards of
integrity and business practices. Procedures for reporting suspicious activities
in this area are also set out below. Antitrust and competition laws are covered
by separate policies and compliance programs. As discussed below, this policy
statement reaffirms the Company's commitment to compliance with the laws that
apply to its business as well as the primary responsibility of the operating
companies to implement and continually improve their compliance programs. This
policy statement applies to all domestic and international operating companies
which engage in the sale,

<PAGE>

distribution or licensing of any of the Company's products or which collect
payments for such products (although the application of certain laws, for
example, anti-money laundering laws and regulations, may vary among operating
companies).

II.  Compliance Programs

Each operating company shall implement a compliance program to give effect to
this policy statement ("Compliance Program"). In developing its Compliance
Program, each operating company's management, working with their legal counsel,
should identify the fiscal, trade and anti-money laundering laws which are
relevant to their businesses; ensure that all appropriate personnel (including
employees in sales, credit, treasury and accounting and other employees who have
contact with customers and other independent contractors) are aware of these
laws as well as Company policy; and implement procedures including appropriate
education and training programs, designed to prevent and detect violations of
the law or Company policy.

The Legal Department of each operating company shall advise its operating
company on the development of a suitable Compliance Program, provide guidance as
to its implementation and monitor adherence to the Compliance Program. For these
purposes, the General Counsel of each operating company shall designate one or
more members of the operating company's Legal Department to act as compliance
coordinators.

III. General Standard of Conduct

As stated in the Business Conduct Policy, the Company expects a high standard of
conduct and personal integrity of all employees. The Business Conduct Policy
also states:

"Conduct that is unlawful or that violates Company policies and procedures will
not be condoned under any circumstances. This includes conduct that occurs in a
country which does not enforce a restriction or a prohibition in its own law or
in which the violation is not subject to public criticism or censure."

Further, the fact that a competitor or other company may appear to be engaged in
an illegal activity apparently without incurring any penalties does not justify
or mean that we can be involved in the same type of activity or condone the
involvement of our customers or anyone associated with the Company. The
operating companies' Compliance Programs should reflect these principles and
standards of conduct.

                                       2
<PAGE>

IV. Types of Laws and Procedures to be Covered

Each operating company's Compliance Program should identify the applicable laws
that govern the sales of its products, taking account of jurisdictional and
other issues. At a minimum, however, Compliance Programs should cover the
following substantive areas of law and procedures where relevant:

     A.   Customs and Fiscal Laws and Regulations

     As a general rule, importation of the Company's products is subject to
     various customs and fiscal laws and regulations. In particular, physical
     importation of products into a country must usually comply with either:

     (i)  the regulations that specify the import duties, value added tax,
          excise tax, and the like that may be payable in relation to our
          products; or

     (ii) the tax, bonding, or other similar regulations that govern "tax or
          duty free" shipments.

     Shipments of or trade in products in violation of these types of laws is
     usually known as contraband, smuggling or tax evasion. Government agencies
     and law enforcement bodies around the world are increasingly concerned by
     the incidence of contraband as well as its reported relation in certain
     countries to money laundering. The Company's policy in this context is
     clear: we will not condone, facilitate, or support contraband or money
     laundering and we will cooperate with governments in their efforts in
     prevent illegal trade in the products that we manufacture.

     B.   Receipt of Payments

     Criminals often transact business with the cash proceeds of crime or with
     negotiable instruments that are the equivalent of cash (e.g., money orders
     and travelers checks) and that have been purchased with the cash proceeds
     of crime. Criminal schemes also may involve payments by third parties which
     may be non-existent or "front" persons or payment in the currency of a
     country other than the country in which business is transacted. Under the
     laws of the United States and other countries, in certain circumstances,
     dealing in criminal proceeds can itself be considered criminal conduct.

     In confirmation of our long-standing practices in this area, the operating
     companies' Compliance Programs which implement this policy statement should
     include the following requirements:

                                       3
<PAGE>

     (i)  acceptable forms of payment are: (a) wire transfer or check, in both
          cases from a bank account in the customer's name, (b) cashier's check
          or bank draft, in both cases issued by a bank in the country in which
          the customer is located and (c) cash, but only where the nature and
          scale of a customer's business (e.g., a small retail outlet) are such
          that it is not commercially feasible under local conditions for a
          customer to use the forms of payment specified in (a) or (b);

     (ii) all payments must be made in the same currency as the invoice;

     (iii) third party payments are unacceptable;

     (iv) any overpayments must be carefully scrutinized; any request to make an
          overpayment or that a refund be sent to a third party must be approved
          by the Chief Financial Officer and Chief Executive Officer of the
          operating company or their designees; and

     (v)  payments for each invoice or group of invoices due should be made by a
          single instrument.

     Procedures of individual operating companies may allow for exceptions to
     these five requirements to be made on a case-by-case basis but such
     exceptions must be approved by the Chief Financial Officer and Chief
     Executive Officer of the operating company or their designees. If
     exceptions are permitted, the procedures must provide that they should be
     granted only in exceptional circumstances and require documentation of the
     reasons for granting any exception.

     Moreover, each Compliance Program should include reasonable procedures to
     identify payments that do not comply with this policy statement or that
     merit further inquiry. Because unacceptable or suspicious payments may be
     indicative of illegal activity, it is essential that in such cases
     inquiries be made to determine the legitimacy of the customer and the
     transaction, including the reason for the payment.

     C.   Currency Reporting and Recordkeeping

     For fiscal control or crime prevention purposes, the United States and many
     other countries have instituted various currency or other transaction
     reporting and recordkeeping requirements relating to domestic and/or
     international transactions. Many of these requirements are applicable only
     to financial institutions and financial services businesses, but others
     apply to businesses

                                       4
<PAGE>

     generally. In general, they require customers to provide identification and
     other information when conducting a transaction involving currency or cash
     equivalents over a certain threshold amount (e.g., US$10,000). Each
     operating company should take steps to ensure that all such requirements
     continue to be observed.

     D.   Trade Restrictions or Prohibitions

     The United Nations and European Union, Switzerland, the United States, and
     a number of other jurisdictions periodically impose various export and
     trade controls that restrict or prohibit dealings with certain countries,
     entities and individuals. Trade restrictions take many forms and can
     include:

     (i)  a ban on exports to a sanctioned country;

     (ii) a ban on imports from or dealings in property originating in a
          sanctioned country;

     (iii) a ban on travel to or from a sanctioned country;

     (iv) a ban on new investments in a sanctioned country; or

     (v)  a ban on financial transactions and dealings involving a sanctioned
          country or designated individuals and entities.

     The reach of these types of laws varies, but as a general rule they may
     restrict the activities of citizens or residents of the sanctioning
     jurisdiction, including companies that are incorporated under the laws of
     the sanctioning jurisdiction, with regard to the governments, financial
     institutions, firms or individuals resident in or officially identified
     with the sanctioned country. At present, trade restrictions that are
     relevant to consumer products companies (i.e., as opposed to restrictions
     dealing with military or other technology) are in force against a number of
     countries including the following: Afghanistan, Cuba, Iran, Iraq, Libya,
     Myanmar (Burma), North Korea, Sudan and Yugoslavia (Serbia). Each
     Compliance Program should be designed to ensure that the operating company
     complies with any trade controls or sanctions that may apply to its
     activities.

V.   Know Your Customer Guidelines

In addition to covering applicable substantive laws, each operating company's
Compliance Program should include guidelines related to selecting and working
with its customers. The following sections highlight certain key elements that
should be included as part of such guidelines, which serve to reinforce Company
policy and compliance efforts.

                                       5
<PAGE>

The Company wants to do business only with firms that share our standards of
integrity and honorable business practices. Otherwise, we face the possibility
that even an arms'-length association with third parties who violate the law
might harm our reputation or place the Company or its employees in legal
difficulty. For these and other reasons, managers should carefully assess the
integrity of potential customers before entering into nay business relationship.

     A.   Customer Selection

     In particular, before approving any new customer for any significant volume
     of our products, managers should obtain sufficient information about the
     customer and the customer's business to satisfy themselves that it is: (i)
     an existing legal entity; (ii) creditworthy; and (iii) a reputable
     enterprise engaged in a legitimate business. All such checks should be
     documented and repeated periodically, including in the event of any change
     in control of the customer. The frequency and extent of such checks will
     vary according to factors such as the nature and extent of the
     relationship, the level of purchases and the geographic areas where that
     customer does business. If there are any suspicious circumstances present
     or inconsistencies in information additional due diligence should be
     undertaken. In any event, however, each operating company's Compliance
     Program should require sufficient due diligence to confirm the bona fides
     of customers.

     All new customers should be advised of the Company's compliance
     expectations. Thereafter, Compliance Programs should provide for periodic
     reminders of Compliance policy.

     Finally, each operating company should establish a procedure for
     maintaining appropriate customer records which may include the following
     materials:

     (i)   a customer approval form detailing the products which the customer is
           authorized to purchase and the market of intended destination (to be
           signed by a designated operating company officer);

     (ii)  a policy letter regarding fiscal and trade law compliance (to be sent
           periodically to remind our customers of our policy);

     (iii) due diligence checks (e.g., company search report, details of owners
           and principal officers, bank references and other creditworthiness
           checks); and

                                       6
<PAGE>

     (iv)  any inquiries from and responses to government agencies regarding the
           customer or its business.

     B.   Sales Only to Approved Customers

     Company policy is to restrict product sales to approved customers
     commensurate with the legitimate market demand therefore. Accordingly,
     there should be no sales to anyone other than approved customers.
     Affiliates of approved customers are not themselves approved customers. Any
     request to the Company by an existing customer for the supply of our
     products to a third party should be handled as a request for new customer
     approval.

     C.   Continued Awareness and Monitoring

     On an ongoing basis, managers should maintain a high degree of awareness of
     our customers' business practices and be alert to the possibility of
     detrimental changes in a customer's business practices, as well as signs of
     questionable conduct including suspicious transactions. For example, if a
     press report alleges that a customer or a customer's customer is involved
     in contraband trade or if a customer's orders suddenly increase
     dramatically without any clear justification based on market conditions,
     further inquiries may be appropriate. Any indications of possible
     violations of this policy statement should be reported in accordance with
     Section VII.

     D.   Dealings With Customers

     The Company respects the commercial freedom of its customers and recognizes
     that antitrust and competition laws may restrict the extent to which
     control can be exercised over resale prices or other conditions under which
     our customers resell our products. Consistent with these and other
     principles, and in accordance with the Business Conduct Policy, employees
     should neither own a substantial interest in a customer or organization
     seeking to become a customer unless approved in writing by the Responsible
     Officer (as defined in the Business Conduct Policy), nor become involved in
     directing or managing a customer's business affairs.

     Moreover, in no circumstances should an employee assist any person in any
     conduct involving our products that violates fiscal, trade or anti-money
     laundering laws and/or regulations, including evasion of applicable taxes
     or import duties. Nor should any employee facilitate or participate in any
     activity that subverts this policy, including, for example, by agreeing to
     interpose an existing or new customer to act as an intermediary purchaser
     which will

                                       7
<PAGE>

     resell our products to another firm that has not been approved as a
     customer.

     We expect our customers to comply with all applicable laws when they resell
     our products; and we expect that our customers will, in turn, in keeping
     with applicable laws, seek to ensure that their customers resell our
     products in their market of intended destination. We reserve the right to
     stop supplying products to any customer shown to have been involved in
     contraband sales or distribution of our products. We expect our customers
     to do the same in relation to their own customers.

     E.   Licensees and Contract Manufacturers

     We must also continue to exercise careful judgment in selecting those we
     allow to use our name or any of our trademarks, including licensees and
     contract manufacturers and carry out appropriate due diligence checks to
     confirm that such entities are reputable. Just as we should remain alert to
     possible changes in a customer's business practices, we must also be aware
     of the behavior of our licensees and other business associates.

VI.  Government Inquiries

From time to time, the Company may be served with legal process or receive
written or oral requests for information from law enforcement or other
government agencies for records or information about customers or business
associates who may be under investigation or who may be associated with a third
party that is under investigation. As set out in the Philip Morris Companies
Inc. Legal Guide for Employees, it is Company policy to cooperate fully in these
inquires within the confines of applicable privacy and other laws and to respond
to each lawful request in a timely fashion. Any employee who receives such a
request should follow the procedures of the Legal Guide, including immediate
reference to the Legal Department for review.

In keeping with out long-standing policy of supporting government actions
against illegal trading in our products, we are asked from time to time to
assist in tracing the country and date of manufacture of a particular product
and our customer for that product based on markings and other records. Each
operating company should have marking systems which, with related documentation,
will allow us to assist governments with their attempts to identify purchasers
of our products, and the dates and locations of production. Also, any employee
who becomes aware of any attempt to tamper with our products or the packaging of
our products or any attempt to falsify invoices or other import documents should
promptly report this to the Legal Department.

                                       8
<PAGE>

VII. Reporting of Suspected Wrongdoing

Any indications of possible violations of this policy statement or the
Compliance Programs or of suspicious activity by customers should be reported
promptly to the Legal Department of the relevant operating company for
appropriate action. Actions which may be appropriate include monitoring a
customer's activity, a possible management decision to suspend or sever the
business relationship in accordance with Company policy and/or a determination
of whether to report the activity to the appropriate government authorities. The
Legal Department of each operating company shall implement a procedure to ensure
that the identify of any person reporting violations of this policy statement or
its Compliance Program or any suspicious activity by customers will be kept
confidential if the reporter of that information so requests.

VIII. Violations

Consistent with the Business Conduct Policy and Legal Guide, any employee who
fails to comply with this policy statement or the Compliance Programs and
policies that have been and will be promulgated by the operating companies may
be subject to disciplinary action, which may include termination and loss of
employment-related benefits. Any suspected violations of fiscal, trade or
anti-money laundering laws by customers, licensees or contract manufacturers
should be reported in accordance with the procedures set out above.

Finally, employees are urged to consider the spirit of this policy statement and
to act accordingly. It is vital that we maintain our commitment both to
observing and abiding by the laws governing our business and to the protection
of our good name and reputation. Any questions regarding this policy statement
should be referred to the Legal Department.

September 13, 1999

                                       9
<PAGE>

                      APPENDIX B -- EC COMPLIANCE PROTOCOLS

                                   PROTOCOL 1
           GENERAL STATEMENT OF ANTI-MONEY LAUNDERING / ANTI-SMUGGLING
                              COMPLIANCE PROTOCOLS

     1.01. Definitions. Except as otherwise defined herein, the terms used in
these EC Compliance Protocols are as defined in Article 1 of the Anti-Contraband
and Anti-Counterfeit Agreement and General Release.

     1.02. Commitment of Philip Morris International.

     (a) Consistent with these Protocols, Philip Morris International reiterates
its ongoing commitment and obligation to comply with all applicable laws,
including those of the EC and the Member States, governing its conduct relating
to:

          (i) the payment of import duties, value added tax, excise tax and
     other imposts applicable to Cigarettes manufactured or sold by Philip
     Morris International;

          (ii) the handling of payments which are received from customers,
     licensees, and other obligors in respect of Philip Morris Cigarettes;

          (iii) currency reporting and record-keeping requirements; and

          (iv) trade restrictions or prohibitions.

     (b) Conduct that is unlawful or that violates Philip Morris International's
policies and procedures will not be condoned under any circumstances. This
includes conduct that occurs in a country that does not enforce a restriction or
prohibition in its own law or in which the violation is not subject to public
criticism or censure.

     (c) After detecting any violation of these Protocols, Philip Morris
International shall make all commercially reasonable efforts to prevent and/or
penalize further similar conduct.

     (d) The fact that a competitor or other company may appear to be engaged in
an illegal activity without incurring any penalties does not mean that Philip
Morris International can be involved in such illegal activity or condone the
involvement of its customers or anyone associated with Philip Morris
International in such illegal activity.

<PAGE>

     1.03. Scope and Purpose of the EC Compliance Protocols.

     (a) These EC Compliance Protocols are designed to promote the Parties'
joint objective that Philip Morris Cigarettes be sold, distributed, stored, and
shipped in accordance with all applicable fiscal and legal requirements, and, in
particular, sold at retail in accordance with all applicable tax and duty laws
in the Intended Market of Retail Sale.

     (b) These Protocols are designed to achieve the Parties' joint objective of
meaningful cooperation, in particular between Philip Morris International and
OLAF, in eliminating the sales of smuggled and/or counterfeit Cigarettes as well
as any associated Money Laundering. Furthermore, these Protocols are designed to
further the Parties' joint objectives (i) that Philip Morris International
terminate sales of Cigarettes to persons, corporations and/or distributors that
have been found to be unlawfully or knowingly engaged in the distribution of
smuggled products or Money Laundering, (ii) that the Relevant Administrations
are in a better position to investigate and prosecute such persons, and to
prevent and detect such frauds, and (iii) that Philip Morris International be
provided active and effective support for its efforts to deter any act or
practice that favors or facilitates the use of its Cigarettes in smuggling or as
a vehicle to launder illegal proceeds. The information provided by Philip Morris
International to the Relevant Administrations and OLAF pursuant to these
Protocols will contribute to the vigorous pursuit of persons suspected of
illegally smuggling Cigarettes, counterfeiting and Money Laundering throughout
the world.

                                   PROTOCOL 2
                               KNOW YOUR CUSTOMER

     2.01. Conducting Business with Approved Contractors. Beginning 180 days
after the Execution Date, for the sale, distribution, storage, or shipment of
Cigarettes in excess of 2,500 Master Cases of Philip Morris Cigarettes per year
within or into the Territory of one or more of the Member States or any
Designated State, Philip Morris International shall conduct business only with
Approved Contractors.

     2.02. Market Demand. Philip Morris International shall sell and distribute
Cigarettes in amounts that are commensurate with the Retail Demand in the
Intended Market of Retail Sale, and Philip Morris International will refuse to
sell Philip Morris Cigarettes in volumes exceeding that amount.

                                       2
<PAGE>

     2.03. Due Diligence.

     (a) Philip Morris International shall undertake Due Diligence with respect
to all of its Contractors, or Persons reasonably likely to be engaged by Philip
Morris International as Contractors (together "Applicants"), in order to satisfy
itself that such Persons are able and committed to honor the objectives and
practices set forth in these EC Compliance Protocols and therefore are eligible
to become Approved Contractors.

     (b) As part of its Due Diligence, a representative of Philip Morris
International shall:

          (i)   meet with a representative of each Applicant;

          (ii)  visit the Applicant's principal place of operations;

          (iii) obtain Due Diligence Information from each Applicant or other
     sources;

          (iv)  assess and verify each Applicant's ability and commitment to
     comply with the objectives and procedures of the EC Compliance Protocols to
     the extent applicable to it;

          (v)   assess and verify each Applicant's ability and commitment to
     implement its own Know-Your-Customer procedures consistent with these
     Protocols and for each Applicant to require the same of its wholesale
     cigarette customers, if any; and

          (vi)  create a report detailing the result of the Due Diligence.

     (c) "Due Diligence Information" means the following information, to the
extent that it is reasonably available:

          (i)   where the Applicant is an individual, information regarding his
     or her identity, including but not limited to, full name, business
     registration number (if any), date and place of birth, and applicable tax
     registration numbers and a copy of their official identification and/or
     passport;

          (ii)  where the Applicant is a corporation or other entity,
     information regarding its identity, including but not limited to, full
     name, business registration number, date and place of incorporation,
     corporate capital, applicable tax registration numbers, copies of its
     articles of incorporation or equivalent documents, its corporate
     Affiliates, the names of its officers and directors, and the name of any
     designated representatives, including but not limited to the
     representatives' complete names, and copies of their official
     identification and/or passports;

                                       3
<PAGE>

          (iii) where the Applicant is seeking to become a First Purchaser, a
     description of the intended use and Intended Market of Retail Sale of the
     Cigarettes to be purchased from Philip Morris International. This "Sales
     Plan" shall be required to be updated as needed and will include complete
     identification as practicable of the Subsequent Purchasers to whom the
     Cigarettes will be sold;

          (iv)  documentation regarding the number of persons employed by the
     Applicant at the date of the request for information;

          (v)   documentation regarding any criminal offenses, or charges filed
     by governmental agencies, against the Applicant or any of its managers,
     directors, and/or legal representatives; and

          (vi)  complete identification of the bank accounts through which the
     payments for the Cigarettes sold to the Applicant shall be made, including
     but not limited to the complete name and address of the bank, the complete
     name and address of the account holder, and all information concerning the
     identification of the account. In addition to the foregoing information, if
     the bank account to be used to pay Philip Morris International belongs to
     an Affiliate of the Applicant, full disclosure of the precise relationship
     between the Affiliate and the Applicant (or subsequently, the Approved
     Contractor) shall be required to be made to Philip Morris International
     prior to the acceptance of any payment from such an Affiliate. This
     information shall be required to be updated, as needed, by the Applicant if
     the Applicant becomes an Approved Contractor.

     (d) If, following its Due Diligence, Philip Morris International is not
satisfied that an Applicant is able and committed to honor the objectives and
practices set forth in these EC Compliance Protocols, Philip Morris
International shall refuse to conduct business with that Applicant.

     (e) If, following its Due Diligence, Philip Morris International is
satisfied that an Applicant is able and committed to effectively implement the
objectives and practices set forth in these EC Compliance Protocols, Philip
Morris International will record that fact and that Applicant shall be
considered an "Approved Contractor."

     (f) Philip Morris International shall maintain a list of all Approved
Contractors, which shall be updated every 6 months.

     (g) "Follow-up Due Diligence" shall be undertaken at least annually for
each Approved Contractor, and shall also be undertaken in cases where Philip
Morris International has been notified by the Approved Contractor of a change in

                                       4
<PAGE>

ownership and/or control of the Approved Contractor. Philip Morris International
will require Approved Contractors to promptly notify it of any material change
in their ownership or control.

     (h) The following shall constitute Follow-up Due Diligence for Approved
Contractors by Philip Morris International:

          (i)   reiterating to Approved Contractors their obligations under
     these Protocols, and monitoring their continued compliance therewith;

          (ii)  for Approved Contractors who are First Purchasers, reiterating
     that these Protocols require that they may only purchase Philip Morris
     Cigarettes for sale or distribution in amounts that are commensurate with
     the Retail Demand in the Intended Market of Retail Sale and that Philip
     Morris International will refuse to sell them Philip Morris Cigarettes in
     volumes exceeding that amount;

          (iii) reiterating to Approved Contractors Philip Morris
     International's commitment to cooperate with the Relevant Administrations,
     including OLAF;

          (iv)  answering questions Approved Contractors may have regarding
     these EC Compliance Protocols; and

          (v)  providing Approved Contractors with any changes to the EC
     Compliance Protocols that may affect their obligations.

     (i) If, after completing Follow-up Due Diligence, Philip Morris
International is no longer satisfied that an Approved Contractor is able and
committed to honor the objectives and practices set forth in these EC Compliance
Protocols, Philip Morris International shall refuse to continue conducting
business with that entity and that entity shall cease to be an Approved
Contractor.

     2.04. Approved Contractor Records. Philip Morris International shall
maintain files containing its records of Approved Contractors for five years
after creation. These records shall include the following:

     (a) Commercial documents relating to the Approved Contractor of a material
nature to this Agreement, including for example invoices, correspondence of a
material nature to and from said Approved Contractor, internal correspondence of
a material nature relating thereto, documentation concerning the reasons any
exception has been granted under Protocol 5.01(b), below, contracts, credit
analysis, cargo manifests, declarations to any relevant authorities, transport
documents, and other shipping documents.

                                       5
<PAGE>

     (b) documents obtained by Philip Morris International as part of Approved
Contractors' Due Diligence Information;

     (c) any inquiries from and responses to government agencies regarding the
Approved Contractor or its business; and

     (d) all records relating to payments made by First Purchasers for Philip
Morris Cigarettes.

                                   PROTOCOL 3
                          APPROVED CONTRACTOR RELATIONS

     3.01 . Contracts with Approved Contractors. To the extent permitted by
applicable law, Philip Morris International undertakes to make commercially
reasonable efforts to enter into contractual arrangements with Approved
Contractors within 12 months of the Execution Date that will provide for the
following, as applicable:

     (a) Delivery Terms. Delivery terms applicable to sales of Philip Morris
Cigarettes will be specified on the invoice to the First Purchaser using
terminology set out in Incoterms 2000. Passage of risk will transfer to the
First Purchaser in accordance with the applicable Incoterm. For any Philip
Morris Cigarettes that the First Purchaser purchases FCA Antwerp or similar
basis, the First Purchaser shall be required to agree to resell the Philip
Morris Cigarettes using a CIF, CIP, DDU or comparable delivery term to the
Intended Market of Retail Sale, or in the alternative to take other measures
that are designed to ensure delivery of the Philip Morris Cigarettes to their
Intended Market of Retail Sale. Under no circumstances may the First Purchaser
take any action directly or indirectly to interfere with the transportation of
the Philip Morris Cigarettes to the delivery point specified in the invoice or
to the Intended Market of Retail Sale without the specific prior approval of
Philip Morris International.

     (b) Packaging. The First Purchaser shall be required to agree that it will
take no action directly or indirectly to alter, remove, or deface any
Identification Markings or any other aspects of the Philip Morris Cigarettes'
packaging.

     (c) Legal Compliance. The First Purchaser shall be required to agree to
transport and/or resell the Philip Morris Cigarettes in full compliance with all
applicable laws and regulations, including without limitation (a) any laws or
regulations governing the shipment of the Philip Morris Cigarettes in bond or
under duty suspension and (b) any fiscal or other laws or regulations governing
the importation and resale of the Philip Morris Cigarettes, and (c) any
applicable

                                       6
<PAGE>

laws designed to combat the laundering of illegal proceeds. The First Purchaser
shall be required to agree to take no action to promote or facilitate the resale
of the Philip Morris Cigarettes by the First Purchaser's customers or Subsequent
Purchasers in violation of any fiscal, labeling, trade, or other laws or in a
way which would otherwise contravene the First Purchaser's obligations under its
terms and conditions of sale. The First Purchaser shall be required to agree not
to resell the Philip Morris Cigarettes to any Person or entity whom it knows or
has reason to believe to be engaged in any illegal trade. Philip Morris
International shall require the First Purchaser to acknowledge and accept that
Philip Morris International reserves the right to suspend or terminate any and
all commercial relationships with the First Purchaser, and in particular to
suspend any sales and/or shipments of Philip Morris Cigarettes to the First
Purchaser, if the First Purchaser violates its terms and conditions of sale,
including, without limitation, those relating to delivery and/or packaging, or
is otherwise shown to have unlawfully or knowingly engaged in any illegal trade.

     (d) Cooperation with Governments. Philip Morris International shall require
the Approved Contractor to acknowledge and accept in writing that Philip Morris
International intends to cooperate with governmental inquiries into any illegal
importation, movement, or sale of Philip Morris Cigarettes. Towards this end,
Philip Morris International shall make commercially reasonable efforts to ensure
the availability of data and documents to the Relevant Administrations as
provided for under the Agreement and these Appendices thereto. The First
Purchaser shall be required to agree in writing to expressly authorize Philip
Morris International to disclose the terms and conditions of any sale of Philip
Morris Cigarettes to the First Purchaser in response to a valid and specific
governmental inquiry in that regard.

     3.02 . Investigations by the Relevant Administrations. Philip Morris
International shall strongly encourage its First Purchasers to cooperate with
the Relevant Administrations for the purposes of investigating Cigarette
smuggling and/or the laundering of proceeds arising out of the illegal trade in
Cigarettes.

                                   PROTOCOL 4
            TERMINATION OF FIRST PURCHASERS AND SUBSEQUENT PURCHASERS

     4.01. Termination of Business Relationships with Approved Contractors.

     (a) Philip Morris International shall terminate business relations with,
including the supply of Philip Morris Cigarettes to, any Approved Contractor
upon OLAF providing Philip Morris International with, or Philip Morris
International otherwise coming into possession of, Sufficient Evidence that such
Approved Contractor has, following the Execution Date, unlawfully or knowingly

                                       7
<PAGE>

engaged in the sale, distribution, storage, or shipment of Contraband Cigarettes
or any related Money Laundering. Thereafter, such Approved Contractor shall be a
Blocked Contractor.

     (b) For the purposes of this Protocol and the Agreement as a whole, only
the following will constitute "Sufficient Evidence":

          (i)   a criminal conviction in any official court or tribunal for any
     offense relating to the sale, distribution, storage, or shipment of
     Contraband Cigarettes, or any related Money Laundering; or

          (ii)  a finding by any official court or tribunal in any civil case of
     involvement in the sale, distribution, storage, or shipment of Contraband
     Cigarettes, or any related Money Laundering.

     (c) In the event that OLAF provides Philip Morris International with, or
Philip Morris International otherwise comes into possession of, Sufficient
Evidence that a Subsequent Purchaser has, following the Execution Date,
unlawfully or knowingly engaged in the sale, distribution, storage, or shipment
of Contraband Cigarettes, Philip Morris International will request the First
Purchaser of Philip Morris Cigarettes that sells Philip Morris Cigarettes to
such Subsequent Purchaser to cease supplying Philip Morris Cigarettes to such
Subsequent Purchaser, if such Subsequent Purchaser is a direct customer of the
First Purchaser. In the event that the First Purchaser refuses to honor such
request, Philip Morris International will cease supplying Philip Morris
Cigarettes to such First Purchaser, who will thereafter be a Blocked Contractor.
If such Subsequent Purchaser is not a direct customer of a First Purchaser, then
Philip Morris International shall request that the First Purchaser make such
commercially reasonable efforts as may be required to terminate its direct
and/or indirect supply of Philip Morris Cigarettes to such Subsequent Purchaser.
In the event that the First Purchaser refuses to take such steps to terminate
its direct and/or indirect supply of Philip Morris Cigarettes to such Subsequent
Purchaser, Philip Morris International will cease supplying Philip Morris
Cigarettes to such First Purchaser, who will thereafter be a Blocked Contractor.

     (d) Philip Morris International shall maintain a list of Blocked
Contractors. Unless otherwise agreed to by Philip Morris International and OLAF,
a Blocked Contractor shall remain so designated for 5 years after the
termination of Philip Morris International's business relationship with such
Blocked Contractor and no such Blocked Contractor will be permitted to conduct
business with Philip Morris International or any Affiliates thereof, directly or
indirectly, relating to the purchase, distribution, shipment, or storage of
Philip Morris Cigarettes during that time. After the expiration of the 5-year
period, a Blocked Contractor may reapply to become an Approved Contractor and,
at that time, will be subject to the applicable Due Diligence requirements.

                                       8
<PAGE>

     4.02. Request for Termination of Business Relationships with Approved
Contractors.

     (a) If OLAF believes that an Approved Contractor or Subsequent Purchaser
has, following the Execution Date, unlawfully or knowingly engaged in the sale,
distribution, storage, or shipment of Contraband Cigarettes or Counterfeit
Cigarettes or any related Money Laundering, but does not possess Sufficient
Evidence to support its belief, OLAF may present its evidence to Philip Morris
International as part of a request that Philip Morris International terminate
the supply of Philip Morris Cigarettes to the Approved Contractor or Subsequent
Purchaser (the "Request for Termination").

     (b) Within 45 days of receiving a Request for Termination, Philip Morris
International shall provide a response to OLAF reflecting its determination. In
the event that Philip Morris International disagrees with OLAF's conclusions and
rejects the Request for Termination, it shall provide the reasons for that
decision. If in that event OLAF, after considering Philip Morris International's
response, remains of the view that the supply of Philip Morris Cigarettes to the
Approved Contractor and/or Subsequent Purchaser should be terminated, OLAF and
Philip Morris International shall meet and confer in good faith and attempt to
resolve the dispute. If the dispute has not been resolved within 30 days of the
meet and confer, OLAF may bring the dispute before the Arbitrators in accordance
with Article 12.02 of the Agreement and may seek an order from the Arbitrators
requiring Philip Morris International to terminate its business relationship
with the Approved Contractor in question (the "Termination Order"), or, if the
Person that is the subject of the Request for Termination is a Subsequent
Purchaser, that Philip Morris proceed under Protocol 4.01(c) above as if
Sufficient Evidence existed concerning such Subsequent Purchaser.

     (c) In any arbitration proceedings brought under Protocol 4.02 hereof, the
Arbitrators may issue a Termination Order to Philip Morris International only
where it has been proven by the greater weight of the evidence that:

          (i)   the Approved Contractor or Subsequent Purchaser in question has,
     following the Execution Date, unlawfully or knowingly engaged in the sale,
     distribution, storage, or shipment of Contraband Cigarettes or Counterfeit
     Cigarettes or any related Money Laundering;

          (ii)  five separate seizures of at least 4 million Cigarettes each
     have been made of Philip Morris Cigarettes sold to, handled by, or
     channeled through the Approved Contractor or Subsequent Purchaser in
     question within the previous 12 months, (with a time span from the date of
     the first seizure to the fifth seizure of at least 45 days), and such
     person

                                       9
<PAGE>

     has refused to cooperate with lawful requests to do so made by the Relevant
     Administration(s) in relation to such seizures;

          (iii) any number of seizures have been made of Contraband Philip
     Morris Cigarettes sold to, handled by, or channeled through the First
     Purchaser or Subsequent Purchaser in the preceding 12 month period which
     have totaled more than 25 million Cigarettes, and such person has refused
     to cooperate with lawful requests to do so made by the Relevant
     Administration(s) in relation to such seizures; or,

          (iv)  beginning one year after the Execution Date, any number of
     seizures have been made of Contraband Philip Morris Cigarettes sold to,
     handled by, or channeled through an Approved Contractor (other than a First
     Purchaser) in the preceding 12 month period which have totaled more than
     500 million Cigarettes, and such person has refused to cooperate with
     lawful requests to do so made by the Relevant Administration(s) in relation
     to such seizures.

                                   PROTOCOL 5
                    ACCOUNTABILITY OF PAYMENTS FOR CIGARETTES

          5.01. Acceptable Forms of Payment.

     (a) Philip Morris International shall adhere to its anti-money laundering
policies, which are designed to ensure that it receives payment for Philip
Morris Cigarettes solely from legal sources. The policies developed by Philip
Morris International to track and monitor all payments made for Cigarettes sold
and/or distributed by Philip Morris International shall include measures
designed to prevent the use of the proceeds of any illegal activity, in any form
whatsoever, as payment for Cigarettes. Specifically, as those policies relate to
transactions with Approved Contractors relating to the sale, storage or
distribution of Philip Morris Cigarettes:

          (i)   acceptable forms of payment shall be limited to:

               (A) wire transfers or checks, in both cases from a bank account
          in the name of the Person or Affiliate of such Person with whom Philip
          Morris International is transacting,

               (B) cashier's checks or bank drafts, in both cases issued by a
          bank in the country in which the Person with whom Philip Morris
          International is transacting is located; and,

                                       10
<PAGE>

               (C) cash, but only where the nature and scale of the business of
          the Person with whom Philip Morris International is transacting (e.g.,
          a small retail outlet) are such that it is not commercially feasible
          under local conditions for that Person to use the forms of payment
          specified in (A) or (B);

          (ii)  all payments must be made in the same currency and in the same
     amount as the invoice;

          (iii) all payments for Philip Morris Cigarettes must be made by the
     invoiced customer or an Affiliate of that customer disclosed to Philip
     Morris International in accordance with Protocol 2.03(c)(vi);

          (iv)  payments for each invoice or group of invoices due shall be made
     by a single instrument; and,

          (v)   payment must be made from an account designated by the Approved
     Contractor during the Due Diligence process, under Protocol 2.03(c)(vi),
     above.

     (b) Exceptions to the five requirements set forth above in Protocol 5.01(a)
may be made on a case-by-case basis. Such exceptions must be approved by the
Chief Financial Officer of Philip Morris International, and the reasons for
granting any exception shall be documented.

                                   PROTOCOL 6
                            DISCLOSURE OF INFORMATION

     6.01. Responding to Inquiries. Within 45 days of a written request by
OLAF, Philip Morris International shall provide OLAF with the following:

          (i)  the list of Approved Contractors and Blocked Contractors as of
     the date of the request;

          (ii)  sales volumes to Approved Contractors after January 1, 2004;

          (iii) reasonable estimates of the annual Retail Demand for any
     domestic or duty free market in the Member States or any Designated State
     for any time period after January 1, 2004 and any domestic or duty free
     market if there have been 3 seizures in the Member States of more than 5
     Master Cases Contraband Philip Morris Cigarettes within the previous 12
     months that had such domestic market as the Intended Market of Retail Sale;
     and

                                       11
<PAGE>

          (iv)  information relating to the storage and shipment of Philip
     Morris Cigarettes for any market of retail or duty free sale after
     January 1, 2004.

     6.02. Provision of Information. Subject to applicable data protection and
secrecy laws, within 45 days of a specific written request by OLAF, Philip
Morris International shall provide to OLAF, Due Diligence Information and
Approved Contractor records created after January 1, 2004 relating to activity
occurring after that date.

     6.03 . Fast Track Provision of Information. In the event that OLAF or the
Relevant Administrations make a seizure of Contraband Philip Morris Cigarettes,
and OLAF seeks information regarding other Philip Morris Cigarettes that may be
in transit, Philip Morris International agrees to make commercially reasonable
efforts to promptly (i.e. as soon as possible during the next business day)
provide, at OLAF's request, the information listed in 3.03(a) of the Tracking
and Tracing Protocols, to the extent available, for all shipments of Philip
Morris Cigarettes to the same First Purchaser associated with the seized
Contraband Philip Morris Cigarettes for a period encompassing three months prior
to and three months subsequent to the date of shipment of the seized Contraband
Philip Morris Cigarettes.

                                   PROTOCOL 7
          CREATION OF A PHILIP MORRIS INTERNATIONAL COMPLIANCE OFFICER

     7.01. The Compliance Officer.

     (a) Philip Morris International shall create an internal position of
Director for Anti-Contraband and Anti-Money Laundering Compliance (the "Vice
President for Compliance Systems"), who shall report directly to senior
management of Philip Morris International.

     (b) The Vice President for Compliance Systems shall have the authority and
be responsible for:

          (i)   reviewing Philip Morris International's practices relating to
     the sale, distribution, storage, and shipment of Philip Morris Cigarettes;

          (ii)  undertaking and executing any and all of the commitments made
     under this Agreement by Philip Morris International;

          (iii) overseeing compliance by Philip Morris International with Philip
     Morris International's Fiscal Compliance Policy and the Agreement;

                                       12
<PAGE>

          (iv)  developing the education and training programs for employees
     relating to the sale, distribution, storage and shipment of Philip Morris
     Cigarettes in accordance with Philip Morris International's Fiscal
     Compliance Policy and the Agreement, which are provided for in Protocol 11;
     and

          (v)   serving, directly and/or through appropriate staff, as a contact
     point for communication between Philip Morris International and the EC, the
     Participating Member States and OLAF.

                                   PROTOCOL 8
         SHIPMENT TO WAREHOUSES FOR SALE AT LATER DATE AND EARLY WARNING
                               SYSTEM NOTIFICATION

     8.01 . Information on Cigarettes in Customs Warehouses. Philip Morris
International shall, upon receiving a request from OLAF, inform OLAF of
quantities of Philip Morris Cigarettes kept in stock as of the date of the
request, in tax and customs warehouses, in the possession, custody or control of
Philip Morris International in the Territory of the Member States or any
Designated State, under the regime of transit or duty suspension.

     8.02 . Early Warning System Notification. With respect to all Philip Morris
Cigarettes manufactured in the Territory of the Member States for export outside
the Territory of the Member States, and/or subject to duty-suspended movement in
transit in the Territory of the Member States, Philip Morris International
agrees to notify customs authorities in the country of departure (electronically
where the appropriate infrastructure exists) at the time of departure from
Philip Morris International. The notification shall include:

          (i)   the date of the shipment from the last point of Philip Morris
     International's physical custody of the Philip Morris Cigarettes;

          (ii)  details concerning the Philip Morris Cigarettes shipped (brand,
     amount, warehouse);

          (iii) the intended shipping destination;

          (iv)  the identity of the Person to whom the Cigarettes are being
     shipped;

          (v)   the mode of transportation, including the identity of the
     transporter;

                                       13
<PAGE>

          (vi)  the expected date of arrival of the shipment at the intended
     shipping destination; and,

          (vii) the Intended Market of Retail Sale.

                                   PROTOCOL 9
                             DELEGATION OF AUTHORITY

     9.01. Delegation of Authority. Substantial discretionary authority
relating to the sale, distribution, storage, and shipment of Philip Morris
Cigarettes, or the establishment of policies and business practices relating
thereto, shall be delegated by Philip Morris International only to Philip Morris
International employees that Philip Morris International reasonably believes,
after the exercise of due diligence, have demonstrated the ability and
commitment to act in full compliance with the terms and principles of these
Protocols.

                                  PROTOCOL 10
                               PERFORMANCE REVIEWS

     10.01. Performance Reviews. Performance reviews, compensation, and
promotions of Philip Morris International's employees whose activities relate to
the sale, distribution, storage, and shipment of Philip Morris Cigarettes shall
take into account such employees' performance in connection with these
Protocols.

                                  PROTOCOL 11
                                TRAINING PROGRAMS

     11.01 . Training Programs. Philip Morris International shall design
training programs for its employees whose activities involve the sale,
distribution, storage, and/or shipment of Philip Morris Cigarettes, or the
establishment of policies and business practices relating thereto. The
curriculum for such training programs shall be notified to OLAF. These employees
shall, at least once a year, either conduct or participate in training programs
designed to educate and inform Philip Morris International's employees about
their compliance obligations under these Protocols, with supplemental training
to be required if necessary, at the discretion of the Vice President for
Compliance Systems. At least once a year, a representative of OLAF shall
participate in the training for Philip Morris International employees as part of
the training programs described in this Protocol.

                                       14
<PAGE>

                                  PROTOCOL 12
                         MONITORING AND AUDITING SYSTEMS

     12.01. Development of Monitoring and Auditing Systems. In conjunction with
the Law Department and the Finance Department of Philip Morris International,
the Vice President for Compliance Systems will develop Anti-Contraband and
Anti-Counterfeit Monitoring and Auditing Systems. Fiscal Compliance Coordinators
will be designated for each region, who will be responsible for implementing
these systems in their business units.

                                  PROTOCOL 13
                        REPORTING OF SUSPICIOUS ACTIVITY

     13.01. Reporting Requirements. Philip Morris International agrees to
require that if an employee of Philip Morris International suspects that there
has been a violation of these Protocols by another employee or by an Approved
Contractor, the employee must promptly report the activity to one of the
following Persons: his or her supervisor, the department head, a Fiscal
Compliance Coordinator, the Vice President for Compliance Systems, or the Law
Department of Philip Morris International. To the extent permitted by law, the
identity of the reporting employee will be kept confidential, if requested by
the individual. Philip Morris International shall establish the means so that
these reports may be made anonymously.

     13.02. Reporting System. The Vice President for Compliance Systems shall
create, in conjunction with the Law Department and the Finance Department of
Philip Morris International, a Reporting System. Such Reporting System will
allow employees of Philip Morris International to anonymously report, by any
means including email, regular mail, or telephone:

     (a) any suspicious transactions, including, but not limited to, any
suspected involvement of Philip Morris International employees or Approved
Contractors in:

          (v)   the illegal sale, distribution, storage, or shipment of
     Contraband Philip Morris Cigarettes;

          (vi)  any related illegal activity; or

          (vii) transactions that do not correspond to ordinary commercial
     practices and render Philip Morris Cigarettes vulnerable to diversion into
     smuggling channels; or

                                       15
<PAGE>

     (b) any transaction between Philip Morris International and an Approved
Contractor that is made or attempted in cash, cash equivalents, bearer or
third-party instruments, when the amount of the transaction exceeds Ten Thousand
Dollars ($10,000.00) and the Philip Morris International employee cannot verify
that the transaction has been reported, or when the Philip Morris International
employee has reason to believe or to suspect that a series of transactions has
been structured so as not to trigger the reporting requirement when the
transactions are considered individually, but when taken as a whole would
trigger the reporting requirement.

     13.03. The Fiscal Compliance Coordinator. The Fiscal Compliance
Coordinator for each region must be notified promptly of any report of activity
that may violate these Protocols in his or her region. In conjunction with the
Law Department, the Fiscal Compliance Coordinator will review the reported
activity and determine whether further action is warranted. If it is determined
that an employee of Philip Morris International has violated these Protocols,
the Fiscal Compliance Coordinator and the Law Department shall consult with the
management of the relevant business unit involved regarding any disciplinary or
other action to be taken.

     13.04. Cooperation of Philip Morris International Employees. Philip Morris
International shall encourage its employees and/or agents to make themselves
available to OLAF for interviews and for the purposes of giving sworn
statements, as reasonably requested and required by OLAF, relating to matters
which are covered by this Agreement that arose after the Execution Date.

                                  PROTOCOL 14
                            DISTRIBUTION OF PROTOCOLS

     14.01. Distribution of Protocols. These Protocols shall be made available
to all Philip Morris International employees on Philip Morris International's
internal website. Also available at the internal website shall be:

          (i)   easy to understand memoranda explaining the requirements of
     these Protocols;

          (ii)  frequently asked questions and answers relating to these
     Protocols; and

          (iii) a link to the Reporting System established pursuant to Protocol
     13.02.

     14.02. Philip Morris International Compliance Policy. No later than 6
months after the Execution Date, Philip Morris International shall revise its

                                       16
<PAGE>

written policies which address the sale, distribution, storage, and shipment of
Cigarettes within or into the Territory of the Member States or any Designated
States, and consolidate these policies into one document (the "International
Compliance Policy"). As new situations arise, Philip Morris International shall
make changes and modifications as necessary to the International Compliance
Policy, and shall inform OLAF thereof. In the event of any inconsistency between
the International Compliance Policy and these Protocols, the latter shall
prevail.

     14.03. The International Compliance Policy shall be made available to all
Philip Morris International employees on Philip Morris International's internal
website. Also available at the internal website shall be:

          (i)   frequently asked questions and answers relating to the
     International Compliance Policy; and

          (ii)  a link to the Reporting System.

                                      17
<PAGE>

                                   APPENDIX C

     Philip Morris International (PMI) agrees to make payments to the Relevant
Administrations in accordance with the provisions below:

     1. An amount equal to One Hundred Million Dollars ($100,000,000) shall be
deemed to be the "Base Payment."

     2. Within sixty (60) days of the Execution Date, PMI shall make a lump-sum
payment in the amount of 250% of the Base Payment.

     3. On the first anniversary of the Execution Date, PMI shall make a payment
equal to 150% of (x) the Base Payment multiplied by (y) the 2004 Adjusted Index
Percentage.

     4. On the second anniversary of the Execution Date, PMI shall make a
payment equal to 100% of (x) the Base Payment multiplied by (y) the 2005
Adjusted Index Percentage.

     5. On each of the third through twelfth anniversaries of the Execution
Date, PMI shall make a payment equal to 75% of (x) the Base Payment multiplied
by (y) the Adjusted Index Percentage for the previous year.

     6. The Adjusted Index Percentage in respect of any given year shall be
calculated using the formula set forth in paragraphs 7 through 10 below.

     7. In respect of any year in which a payment is to be made, the "Numerator"
shall be the percentage share of the volume of total cigarette sales in the
preceding year in the domestic markets of the states that were Member States of
the European Union on January 1st, 2004, represented by entity(ies), including
PMI and its Affiliates, that are, at

                                       1
<PAGE>

the time of payment, party to this Agreement or an anti-contraband /
anti-counterfeit agreement substantially similar to this Agreement, provided,
however, that if there are other entities that have entered into such similar
agreements, the volumes taken into account for determining the percentage share
of the volume of total cigarette sales in the preceding year in the domestic
markets of the states that were Member States of the European Union on January
1st, 2004, shall be limited to only those of PMI and its Affiliates, and not of
any other entities that have entered into such similar agreements, if the
Adjusted Index Percentage calculated on PMI volume alone would be less than the
2004 Adjusted Index Percentage. The "Denominator" shall be the percentage share
of the volume of total cigarette sales in the year 2004 by PMI and its
Affiliates in the domestic markets of the states that were Member States of the
European Union on January 1st, 2004. An anti-contraband / anti-counterfeit
agreement shall not be deemed substantially similar to the Agreement unless it
has at least three of the following four elements, (i) annual anti-contraband
and anti-counterfeit payments of the type specified in this Appendix C; (ii)
Supplemental Payments of the type specified in Section 4.01 of this Agreement;
(iii) EC Compliance Protocols of the type specified in Appendix B to this
Agreement; and (iv) Tracking and Tracing Protocols of the type specified in
Appendix D to this Agreement.

     8. The Index Percentage for any given year is the Numerator divided by the
Denominator, expressed as a percentage.

     9. The Adjusted Index Percentage for any given year is derived from the
Index Percentage for that year using the following formula:

                                       2
<PAGE>

         Index Percentage                   Adjusted Index Percentage

         0- up to but not including 5%               0%
         5- up to but not including 15%              12%
         15- up to but not including 25%             24%
         25- up to but not including 35%             36%
         35- up to but not including 45%             68%
         45- up to but not including 55%             84%
         55- up to but not including 65%             92%
         65- up to but not including 75%             96%
         75- up to but not including 85%             98%
         85- up to but not including 95%             99%
         95- up to but not including 115%            100%
         115- up to but not including 140%           101%
         140- up to but not including 170%           102%
         170- up to but not including 200%           103%
         200%+                                       104%

     In any year in which a payment is to be made and the Adjusted Index
Percentage as calculated above is equal to or more than 100%, then for the
purposes of determining the relevant payment, the Adjusted Index Percentage
shall be deemed to be equal (a) to 99% if PMI's latest full calendar year volume
of total cigarette sales in the domestic markets of the states that were Member
States of the European Union on January 1st, 2004 is less than 90% of the same
figure for 2004 yet equal to or greater than 80% of the same figure for 2004; or
(b) to 98% if PMI's latest full calendar year

                                       3
<PAGE>

volume of total cigarette sales in the domestic markets of the states that were
Member States of the European Union on January 1st, 2004 is less than 80% of the
same figure for 2004.

10. In the event of an acquisition or divestiture by PMI or any of its
Affiliates subsequent to the Execution Date, the Denominator shall be adjusted
in each year following the year of acquisition or divestiture to reflect what
the Denominator would have been had either (i) the acquired company(s) been
owned by PMI in 2004; or (ii) the divested company(s) had not been owned by PMI
in 2004.

11. The payments in paragraphs (2)-(5) will each be made by a single electronic
wire transfer into an account in the name of the European Community and
maintained for such purpose at Commerzbank Belgium S.A., a bank duly
incorporated under the laws of one of the Member States.

12. If, within thirty days of the date on which a payment is due pursuant to
this Appendix, a claim is asserted which PMI believes in good faith may entitle
it to setoff or escrow pursuant to Article 10 of this Agreement, PMI may delay
payment of the amount claimed, without any penalty, for up to 30 days so as to
comply with the provisions of Section 10.01(c).

13. In the event that, at any time following the fifth anniversary of the
Execution Date, PMI's financial condition shall have substantially deteriorated,
as to give the Relevant Administrations reasonable and substantial doubt as to
PMI's ability to make the payments due on the sixth through twelfth
anniversaries of the Execution Date, the Relevant Administrations shall so
notify PMI, and PMI thereafter shall obtain a bank guarantee or other equivalent
security in favor of the Relevant Administrations for said

                                       4
<PAGE>

payments. However, PMI shall not be obligated to obtain a bank guarantee or the
equivalent security if it is commercially impracticable to obtain such bank
guarantee or security.

                                       5
<PAGE>

                   APPENDIX D - TRACKING AND TRACING PROTOCOLS

                                   PROTOCOL 1
                    GENERAL STATEMENT OF TRACKING AND TRACING

     1.01. Scope and Purpose of Protocols.

     (a) Philip Morris International recognizes that giving the Relevant
Administrations the effective and timely ability to track and trace sales of
Philip Morris Cigarettes is an important component of its commitment to fight
the trade in Contraband Philip Morris Cigarettes. Philip Morris International is
committed to a continuous process of dialogue and cooperation with the Relevant
Administrations to evaluate and address the trade in Contraband Philip Morris
Cigarettes, and to making commercially reasonable efforts to implement product
tracking and tracing measures that target, and are reasonably likely to provide
the Relevant Administrations with substantial additional assistance in their
efforts to combat, the trade in Contraband Philip Morris Cigarettes.

     (b) These Tracking and Tracing Protocols set forth the basic tracking and
tracing procedures that the Parties believe are appropriate in light of existing
market conditions and the current state of Tracking and Tracing technologies,
and describe additional steps which the Parties have identified in order to
combat Contraband Philip Morris Cigarettes during the term of the Agreement.
These provisions, however, do not apply to products which are sold and
distributed for any market in promotional packaging so long as the total volume
of the Cigarettes using that promotional packaging for any market does not
exceed 300 million Cigarettes in any given year. Notwithstanding the immediately
preceding, if the total volume of promotional packaging in the Member States and
the Designated States in any given year exempted from the applicability of the
Tracking and Tracing Protocols by the preceding sentence exceeds one billion
Cigarettes, the European Commission and Philip Morris International shall meet
and confer to reassess the applicability of these Tracking and Tracing Protocols
to promotional packaging, and, unless otherwise agreed at or following that meet
and confer, thereafter, these provisions shall apply to any amount of
promotional packaging in the Member States and the Designated States in any
given year that exceeds one billion Cigarettes and involves a promotional
packaging that itself exceeds twenty million cigarettes.

     1.02. Definitions. Except as otherwise stated herein, the terms used in
these Protocols are as defined in Article 1 of the Anti-Contraband and
Anti-Counterfeit Agreement and General Release (the "Agreement").

     1.03. Conflict with Other Laws. Nothing in these Protocols shall require
Philip Morris International to act in a way that violates applicable law.

<PAGE>

                                   PROTOCOL 2
                        PACK & CARTON MARKING AND CODING

     2.01. Labeling for Intended Market of Retail Sale.

     (a) The Parties agree that Philip Morris International shall make
commercially reasonable efforts to mark Packs and/or Cartons of Philip Morris
Cigarettes with markings, codes or other information which permit a
determination of the Intended Market of Retail Sale when such Packs or Cartons
have those markets identified in Exhibit A-1 as the Intended Market of Retail
Sale.

     (b) In the event that Philip Morris International begins selling in a new
market not covered by Protocols 2.01(a) or 2.02, Philip Morris International
shall notify the Representatives of the Relevant Administrations as to the
markings that Philip Morris International shall undertake to apply. Such
markings shall meet the requirements contained in Protocol 2.03, below, and
2.01(a), above, and such new market shall be added to the Exhibits of this
Appendix, if applicable.

     (c) On the Execution Date, Philip Morris shall provide OLAF with 20 copies
of a manual designed to allow for the determination of the Intended Market of
Retail Sale for all Philip Morris Product marked in accordance with Protocol
2.01(a), above. Philip Morris shall update such manuals and Exhibits A-1 and A-2
as needed.

     2.02. Intended Market of Retail Sale: Exceptions.

     (a) The Parties further agree that, as an exception to Protocol 2.01, Packs
or Cartons that have as their Intended Market of Retail Sale those markets
identified in Exhibit A-2 shall bear the labeling identified in Exhibit A-2, and
that no additional, market-specific markings or other labeling shall be required
by this Agreement in respect of identifying the Intended Market of Retail Sale.

     (b) Philip Morris International may change the labeling of Packs or Cartons
subject to the terms of 2.02(a) at any time so long as the new markings, codes
or other information would permit a determination of the Intended Market of
Retail Sale of such Packs or Cartons. Philip Morris International shall provide
notice of such new labeling to Representatives of the Relevant Administrations
prior to the introduction of any Philip Morris Cigarettes bearing such new
labeling into the retail channel in the Intended Market of Retail Sale, and
immediately upon Philip Morris International becoming aware that any Philip
Morris Cigarettes bearing such new labeling are otherwise no longer under the
control of Philip Morris International.

     2.03. Pack and Carton Marking. In addition to the markings required by
Protocol 2.01 and with the exception of the facilities and brands set forth in

                                       2
<PAGE>

Exhibit A-3 as of the Execution Date and the exception of Protocol 2.05, Philip
Morris International shall mark all Packs or Cartons with embossed codes or
other markings to allow for the complete identification of:

     (a) the date of manufacture of the product,

     (b) the manufacturing facility at which the product was manufactured,

     (c) the machine of manufacture, and

     (d) the production shift during which the product was manufactured.

     2.04 . Annual Review. On an annual basis, Philip Morris International and
the Representatives of the Relevant Administrations shall meet to determine
what, if any, additional or improved markings, labeling, codes or scanning shall
be required in general, or which, if any, requirements shall be changed on a
market-by-market basis. Philip Morris International shall provide the
Representatives of the Relevant Administrations with updates, if any, to
Exhibits A-1 and A-2. Philip Morris International agrees to make commercially
reasonable efforts to implement such agreed changes within a reasonable period
of time, and to notify OLAF of the schedule for implementation thereof. Any such
agreement shall be made based on a number of factors, including but not limited
to changes in market dynamics, developments in Tracking and Tracing technology,
changes in national or local labeling requirements, and, if applicable,
increases in Contraband Philip Morris Cigarettes in general or which had as the
Intended Market of Retail Sale the market in question.

     2.05 . New Manufacturing Facilities. In the event that Philip Morris
International acquires new manufacturing facilities which would be subject to
Protocol 2.03, Philip Morris International shall make commercially reasonable
efforts to implement the requirements of Protocol 2.03 no later than 12 months
after the acquisition.

                                   PROTOCOL 3
                        MASTER CASE LABELING AND SCANNING

     3.01. Master Case Labeling

     (a) To the extent required by the schedule attached as Exhibit B and the
terms of Protocol 3.01(b), and 3.01(c), herein below, Philip Morris
International and/or its Contractors shall mark Master Cases with unique,
machine scannable barcode labels prior to selling those Master Cases to a First
Purchaser. The labels shall contain both the barcode and a human readable
translation (i.e., spelled out in letters and numbers) of the barcode and shall
be affixed to Master Cases with "non-peelable" adhesive. The labels shall permit
Philip Morris International to

                                       3
<PAGE>

link the code to product information, including the date of manufacture of the
product, the manufacturing facility at which the product was manufactured, the
machine of manufacture, the production shift during which the product was
manufactured, and, when scanned pursuant to Protocol 3.02, the identification of
the First Purchaser and other information, including, but not limited to, that
information identified in Protocol 3.03.

     (b) In the event that the First Purchaser is the sole First Purchaser of
Philip Morris International for the Intended Market of Retail Sale and that
market has Pack or Carton markings satisfying Protocol 2.01, then Philip Morris
International and/or its Contractors need not mark Master Cases sold to that
First Purchaser for that market with unique barcode labels. Markets meeting
these conditions are set forth in Exhibit C-I to these Tracking and Tracing
Protocols.

     (c) During the term of the Agreement, Philip Morris International shall
maintain an ongoing program of research and development concerning methods and
technologies for improving the security of Master Case marking. Philip Morris
International shall provide a yearly report to the Representatives of the
Relevant Administrations concerning new technologies for Master Case markings.
In the event that as a result of such research and development, Philip Morris
International identifies suitable technologies for the improvement or
replacement of machine scannable barcode labels with other Master Case marking
technologies that permit unique identification of Master Cases for the purpose
of tracking sales to First Purchasers, Philip Morris International may update
its Master Case Labeling with such technologies, ensuring that at all times
Master Cases required by these Tracking and Tracing Protocols to be marked to
permit their unique identification are so marked in accordance with this
Protocol 3.01, or are marked so as to provide equivalent tracking and tracing
capability.

     3.02. Master Case Scanning.

     (a) To the extent required by the schedule attached as Exhibit C and
subject to the exception set forth in Protocol 3.02(b), Philip Morris
International and/or its Contractors shall scan Master Cases sold to First
Purchasers in order to record the information reflected in the barcode labels
applied pursuant to Protocol 3.01, and to link that information in a database
with the information described below in Protocol 3.03(a).

     (b) Notwithstanding subsection (a), in the event that the First Purchaser
is the sole First Purchaser of Philip Morris International for the Intended
Market of Retail Sale, and that market has Pack or Carton markings satisfying
Protocol 2.01, then Philip Morris International and/or its Contractors need not
physically scan Master Cases sold to that First Purchaser for that market.
Markets meeting these conditions are set forth in Exhibit C-I to these Tracking
and Tracing Protocols.

                                       4
<PAGE>

     3.03. Database.

     (a) Philip Morris International shall make commercially reasonable efforts
to maintain First Purchaser Databases ("First Purchaser Databases") searchable
by customer order or Master Case barcode number for all markets in which it has
implemented Master Case labeling and scanning pursuant to the requirements of
Protocols 3.01 and 3.02. For all shipments of Philip Morris Cigarettes where
Master Case Barcode Labels are scanned pursuant to Protocol 3.02(a) and where
the product shipped is produced 30 days or more after the Execution Date, the
information contained in the First Purchaser Databases shall include:

          (i)   First Purchaser name and order number,

          (ii)  shipment date,

          (iii) destination of shipment,

          (iv)  point of departure from the final Philip Morris International
     factory or warehouse,

          (v)   the consignee to whom the product was shipped, and

          (vi)  the Intended Market of Retail Sale;

provided however that in no event shall the First Purchaser Databases be
required to include any of the foregoing information with respect to shipments
of product produced less than 30 days after the Execution Date.

     (b) With respect to all shipments encompassed by Protocol 3.03(a), Philip
Morris International shall maintain any additional records necessary to identify
the sales price and the Intended Market of Retail Sale, including, but not
limited to, the sales invoice, for at least five years.

     (c) Electronic records created in the First Purchaser Databases pursuant to
Protocol 3.03(a) shall be kept for at least five years.

     (d) OLAF and Philip Morris International shall meet annually in accordance
with Protocol 2.04 to discuss new technologies relating to the First Purchaser
Databases in order to determine whether it is appropriate to expand upon the
information listed in subsection (a) above, or otherwise make changes to the
First Purchaser Databases.

     (e) Within 3 months of the implementation of First Purchaser Databases in a
market pursuant to Protocol 3.03(a) and the schedule set forth in Exhibit
C(II)--(III) to these Tracking and Tracing Protocols, Philip Morris
International

                                       5
<PAGE>

shall provide the Relevant Administrations through their duly designated
authorized representatives and law enforcement authorities with automated
Query-Only Access ("Query-Only Access") privileges to the data in the First
Purchaser Databases necessary for them to determine from complete barcode level
information, the information in clauses (i) through (vi) of Protocol 3.03(a).
Philip Morris International shall make commercially reasonable efforts to
provide said automated Query-Only Access 24 hours a day, seven days a week.
Philip Morris International may except nights and weekends from this schedule as
needed for the purposes of systems maintenance and updating information. Philip
Morris International shall make commercially reasonable efforts to address any
technical difficulties that may arise.

     (f) In the event that Philip Morris International cannot provide the
Relevant Administrations with automated Query-Only Access to its First Purchaser
Databases as provided for by Protocol 3.03(e) due to good faith technical
difficulties, the Relevant Administrations or their duly authorized
representatives may request, via fax, telephone, or any other means, that Philip
Morris International provide First Purchaser Database information to OLAF.
Philip Morris International shall comply with such a request by sending OLAF a
fax or other electronic communication containing the requested First Purchaser
Database information by the close of the next business day at the latest.

     (g) The Parties agree that the information contained in the First Purchaser
Databases is highly sensitive and confidential business information.
Accordingly, such information (1) shall be used by the Relevant Administrations
solely for the purposes specified in this Agreement, and for no other purpose,
and (2) subject to the exceptions set forth in this Protocol 3.03(g), shall be
kept secret and confidential and shall not be disclosed to third parties, except
as required by law. Without limiting the generality of the foregoing, the
Parties agree that access to and use of this information shall be governed by
the following terms:

          (i)   OLAF, on behalf of the Relevant Administrations, shall designate
     up to 5 specific services, agencies and/or departments of each of the
     Relevant Administrations who shall each have up to 5 authorized members
     ("Database Designees") who shall have automated Query-Only Access to the
     First Purchaser Databases. Only Database Designees shall have active,
     password protected access to the First Purchaser Databases on behalf of the
     Relevant Administrations. If, for operational reasons, a designated
     service, agency or department of the Relevant Administrations requires more
     than 5 Database Designees, OLAF will request additional access and
     passwords from Philip Morris International for that designated service,
     agency or department, and such request shall not be unreasonably refused.
     OLAF shall provide Philip Morris International upon request, with a list of
     the services, agencies and departments of the Relevant Administrations
     whose personnel have been designated as Database

                                       6
<PAGE>

     Designees, and the number of Database Designees in each service, agency or
     department.

          (ii)  The Database Designees shall query and search the First
     Purchaser Databases solely for the purpose of law enforcement inquiries
     related to the Parties' mutual goal of combating the trade in Contraband
     Philip Morris Cigarettes.

          (iii) Prior to making any query, the Database Designee shall verify
     that administratively reasonable steps have been taken to ensure that the
     Master Case barcode label to be queried is genuine. For the purposes of
     making such verification, the Database Designee may query the First
     Purchaser Databases only after representing that the barcode label to be
     queried was obtained as part of a single seizure of three or more Master
     Cases.

          (iv)  The Database Designees shall not attempt to copy or download the
     First Purchaser Databases, such as customer lists, or utilize the database
     for any purpose other than that set out in this Agreement.

          (v)   The Database Designees shall protect the confidentiality of any
     information obtained from the First Purchaser Databases.

          (vi)  The Database Designees shall not disclose to any unauthorized
     personnel any passwords or other security features designed to protect the
     First Purchaser Databases.

          (vii) The Database Designees shall not share information obtained from
     the First Purchaser Databases with any third parties or entities except
     with duly authorized law enforcement authorities who are actually engaged
     in inquiries related to the seizures which led to the specific query, who
     have an actual need to know such information, and who shall use such
     information only in connection with the relevant ongoing inquiries.

         (viii) In the event that the Relevant Administrations need to make
     public information obtained from the First Purchaser Databases as part of a
     criminal proceeding, or are otherwise legally required to disclose such
     information, the Relevant Administrations shall notify Philip Morris
     International prior to such disclosure to the extent permitted by law and
     make a good faith attempt to provide Philip Morris International an
     opportunity to seek a protective order or other appropriate remedy.

          (ix)  In the event that the Relevant Administrations seek to disclose
     information obtained from the First Purchaser Databases under circumstances
     not covered by Protocols 3.03(g)(vii) and (g)(viii) above,

                                       7
<PAGE>

     they may only do so with the written consent of Philip Morris
     International, which shall not be unreasonably withheld.

     (h) The Parties agree that OLAF is responsible for making all reasonable
efforts to train and inform the Database Designees about the handling and
importance of the secrecy and confidentiality of the passwords, security
features and information contained in the First Purchaser Databases. The Parties
further agree that, in the case of a knowing and willful breach of Protocol
3.03(g) by any Database Designee or duly authorized law enforcement authorities,
or other agent or representatives who receive information pursuant to Protocol
3.03(g), other than a person acquiring the data through compulsory legal
process, Philip Morris International may setoff any demonstrable and significant
loss or damage to it resulting from any claims made against Philip Morris
International as a result of damages sustained as a direct result of the
unauthorized use of passwords, security features or information contained in the
First Purchaser Databases from any Appendix C payments owed to the Relevant
Administrations as provided for in Section 4.01 of the Agreement. The Parties
agree that the mere fact that information provided to the Relevant
Administrations has been made public shall not, in and of itself, constitute
conclusive evidence of a breach of Protocol 3.03(g). Any dispute as to (i)
whether the breach was knowing and willful, (ii) whether Philip Morris
International has suffered demonstrable loss or damage resulting from the
unauthorized use of passwords, security features or information contained in the
First Purchaser Databases, (iii) whether such a loss is significant or de
minimis, or (iv) the amount of such loss or damage, shall be settled by the
Arbitrators in accordance with Section 12.02 of the Agreement.

                                   PROTOCOL 4
                      SECOND AND SUBSEQUENT LAYER TRACKING

     4.01. Purpose of Second or Subsequent Layer Tracking. Philip Morris
International and the Relevant Administrations recognize that in certain
circumstances effective tracking and tracing to prevent the trade of Contraband
Philip Morris Cigarettes can be enhanced when First Purchasers of Philip Morris
International maintain databases that are similar to First Purchaser Databases
regarding their customers ("Second Layer Tracking") and/or their customers'
customers ("Subsequent Layer Tracking"). For this purpose, Philip Morris
International has developed Second Layer Tracking Kits which include a laptop
computer, a scanner, and a database application ("Second Layer Tracking Kits").

     4.02 . Deployment of Second and Subsequent Layer Tracking. Philip Morris
International agrees and undertakes to make Second Layer Tracking Kits
reasonably available to any First Purchaser or Subsequent Purchaser where (i)
Philip Morris International and OLAF agree to do so pursuant to Protocol 6.01(f)

                                       8
<PAGE>

of these Tracking and Tracing Protocols; (ii) Philip Morris International is
required to do so by the Arbitrators pursuant to Protocol 6.01(g) of these
Tracking and Tracing Protocols; or (iii) a First Purchaser or a Subsequent
Purchaser requests Second Layer Tracking Kits so that it may carry out a
voluntary Second or Subsequent Layer Tracking program consistent with this
Protocol.

     4.03. Training by Philip Morris International. Philip Morris International
shall make commercially reasonable efforts to appropriately train all recipients
of Second Layer Tracking Kits. Such training shall cover the appropriate use of
the Second Layer Tracking Kits under these Protocols. However, due to the fact
that Second and Subsequent Layer Tracking involve data being provided by persons
who are not employed by Philip Morris International, the Parties agree that
Second or Subsequent Layer Tracking data entered into the Database by third
parties shall not be a basis for any allegation by the Relevant Administrations
of breach or non-compliance with the requirements of the Agreement or these
Appendices thereto.

     4.04. Access to Second Layer Tracking Information. Philip Morris
International agrees and undertakes that participants in any Second or
Subsequent Layer Tracking shall be required to provide any Second or Subsequent
Layer Tracking information collected by the participant to Philip Morris
International. To the extent Philip Morris International receives such
information, it shall maintain the information in the same manner as the First
Purchaser Database. The Relevant Administrations shall be afforded access to any
such Second or Subsequent Layer Tracking information in the same manner and
subject to the same rules and conditions as the First Purchaser Database as
provided for in Protocol 3 of these Tracking and Tracing Protocols.

     4.05. Information on Second and Subsequent Layer Tracking Developments.
Philip Morris International agrees to provide OLAF at its written request with
quarterly reports on developments in Second or Subsequent Layer tracking. Such
updates shall include lists of participating First and Subsequent Purchasers,
details on the kits provided, and information and discussion on any issues that
may have arisen during the preceding period.

                                   PROTOCOL 5
                NEW MASTER CASE CODING AND SCANNING TECHNOLOGIES

     5.01. Research and Development. Philip Morris International and the
Relevant Administrations recognize that research, development and implementation
or enhancement, as appropriate, of new tracking and tracing technologies is an
important component of ensuring the continued effectiveness of Philip Morris
International's tracking and tracing initiatives.

                                       9
<PAGE>

     5.02. Research of New Master Case Labeling and Scanning Technologies. As
set forth in Protocol 3.01(c), Philip Morris International shall maintain an
ongoing program researching alternative or enhanced methods for marking Master
Cases with machine scannable or human readable (i.e., spelled out in letters and
numbers) codes, and shall meet with representatives of the Relevant
Administrations on an annual basis, in accordance with Protocol 2.04 to
determine if, how and when any new technology should be implemented.

                                   PROTOCOL 6
                               ADDITIONAL MEASURES

     6.01. Notice of Interest

     (a) If, during any 12 month period after the Execution Date, OLAF learns of
at least 7 seizures, each totaling at least 4 million Contraband Philip Morris
Cigarettes, that have a particular market as the Intended Market of Retail Sale
(the "Market of Interest"), it may provide Philip Morris International with
information regarding these incidents (a "Notice of Interest"). A Notice of
Interest shall provide historical data for seizures of Philip Morris Cigarettes
that have the Market of Interest as the Intended Market of Retail Sale,
including the number of seizures of such Philip Morris Cigarettes for the
previous twelve months, and for each such seizure OLAF shall make best efforts
to provide:

          (i)   the date and location of the seizure;

          (ii)  the brand of seized Cigarettes indicated on the packaging;

          (iii) the amount of seized Cigarettes;

          (iv)  any Identification Markings that appear on the Master Cases or
     Cartons of seized cigarettes;

           (v)  a brief statement outlining the basis for OLAF's belief that the
     seized Cigarettes are Contraband Philip Morris Cigarettes as opposed to
     Counterfeit Philip Morris Cigarettes; and

          (vi)  if available, samples of the seized Cigarettes (to the extent
     possible), in the condition they were in at the time of seizure, unless
     Philip Morris International has already inspected the seizure under Article
     4.01(b) of the Agreement.

     (b) Promptly upon receiving a Notice of Interest, Philip Morris
International shall conduct an internal review in order to determine whether, on
the basis of the information available to it, it is possible to determine
whether there has been trade in Contraband Philip Morris Cigarettes that have
the Market

                                       10
<PAGE>

of Interest as the Intended Market of Retail Sale as outlined in the Notice of
Interest provided to Philip Morris International by OLAF under Protocol 6.01(a)
above, and, if so, the cause and source of such trade, and what measures should
be taken to address that trade.

     (c) If OLAF has provided Philip Morris International with samples of the
seized Cigarettes, Philip Morris International shall, as part of the internal
review described in subsection (b) above, examine the samples in order to
determine, in accordance with the factors set forth in Appendix F to this
Agreement, whether the seized Cigarettes are Counterfeit Philip Morris
Cigarettes or Philip Morris Cigarettes.

     (d) Within 60 days of receiving a Notice of Interest, Philip Morris
International shall provide a written response to OLAF detailing the findings of
its internal review and, if necessary, the steps it has taken, or will be
taking, to address the issues raised in the Notice of Interest. The response
shall include the findings as to whether the Cigarettes seized are Philip Morris
Cigarettes or Counterfeit Philip Morris Cigarettes and, if Counterfeit Philip
Morris Cigarettes, examination results demonstrating that conclusion. Any
dispute as to whether the Cigarettes are Counterfeit Philip Morris Cigarettes
shall be settled in accordance with Section 4.01(j) of the Agreement.

     (e) If OLAF takes issue with the response of Philip Morris International,
it may request in writing that Philip Morris International undertake one or more
of the following measures:

          (i)   make commercially reasonable efforts to implement Second or
     Subsequent Layer Tracking for selected First Purchasers of Philip Morris
     Cigarettes that have the Market of Interest as the Intended Market of
     Retail Sale;

          (ii) request that the First Purchaser who sells to a Subsequent
     Purchaser whose products have been the subject of at least two of the
     seizures that gave rise to the Notice of Interest, request that such
     Subsequent Purchaser implement Second or Subsequent Layer Tracking, if such
     Subsequent Purchaser is a direct customer of the First Purchaser. In the
     event that the First Purchaser refuses to honor such request, Philip Morris
     International will cease supplying Philip Morris Cigarettes to such First
     Purchaser, who will thereafter be a Blocked Contractor. If such Subsequent
     Purchaser is not a direct customer of a First Purchaser, then Philip Morris
     International shall request that the First Purchaser make commercially
     reasonable efforts to require that such Subsequent Purchaser implement
     Second or Subsequent Layer Tracking. In the event that the First Purchaser
     refuses to take such steps, Philip Morris International will

                                       11
<PAGE>

     cease supplying Philip Morris Cigarettes to such First Purchaser, who will
     thereafter be a Blocked Contractor.

          (iii) implement new Master Case coding technologies, or accelerate the
     schedule for implementation of the labeling and scanning requirements, such
     that such implementation occurs as soon as practicable, for relevant sales
     of Philip Morris Cigarettes that have the Market of Interest as the
     Intended Market of Retail Sale or for relevant First Purchasers of Philip
     Morris Cigarettes that have the Market of Interest as the Intended Market
     of Retail Sale; or

          (iv)  remove the Market of Interest from Exhibits C-1 and A-2 (if
     applicable), add the Market of Interest to the Exhibits, as appropriate,
     and otherwise make such Market of Interest subject to Pack Marking, Master
     Case Labeling and Master Case Scanning, according to Protocols 2.01(a),
     3.01(a) and 3.02(a), as appropriate, for a period of five years.

     (f) Within 30 days of Philip Morris International receiving a written
request from OLAF under subsection (e) above, Philip Morris International and
OLAF shall meet and confer in good faith in order to determine whether any of
the measures set forth in subsection (e) above should be implemented. If the
dispute has not been resolved within 60 days of Philip Morris International
receiving OLAF's written request, such dispute shall be settled by the
Arbitrators in accordance with Section 12.02 of the Agreement.

     (g) In any proceeding brought under Protocol 6.01(f) of these Tracking and
Tracing Protocols, the Arbitrators may require Philip Morris International to
implement one or more of the measures set forth in subsection (e) above only
where it has been proven by the greater weight of the evidence that:

          (i)   in the 12 month period referred to in the Notice of Interest,
     there have been at least 7 seizures each totaling at least 4 million
     Contraband Philip Morris Cigarettes, that have the Market of Interest as
     the Intended Market of Retail Sale;

          (ii)  measures that Philip Morris International has adopted for Philip
     Morris Cigarettes that have the Market of Interest as the Intended Market
     of Retail Sale are insufficient to combat the trade in Contraband Philip
     Morris Cigarettes that have the Market of Interest as the Intended Market
     of Retail Sale;

          (iii) the measure(s) to be implemented from subsection (e) above are
     achievable through commercially reasonable efforts and are an effective
     response to the trade in Contraband Philip Morris Cigarettes that have the
     Market of Interest as the Intended Market of Retail Sale;

                                       12
<PAGE>

          (iv)  the implementation of the measure(s) from subsection (e) above
     are reasonably likely to materially reduce the amount, or materially
     improve the prevention or detection, of Contraband Philip Morris Cigarettes
     that have the Market of Interest as the Intended Market of Retail Sale; and

          (v)   where the measure to be implemented from subsection (e) above is
     a new Master Case coding technology, it has been demonstrated that it is,
     or would be, effective and its implementation is reasonably targeted at the
     elimination, prevention or detection of Contraband Philip Morris Cigarettes
     that have the Market of Interest as the Intended Market of Retail Sale.

     (h) Nothing in this Protocol 6 shall preclude Philip Morris International
from adopting (either unilaterally or at the request of OLAF or the Relevant
Administrations) the measures set forth in subsection (e) for Cigarettes with a
particular Intended Market of Retail Sale.

                                   PROTOCOL 7
              NEW CARTON AND PACK CODING AND SCANNING TECHNOLOGIES

     7.01. Research of Carton and/or Pack Coding Technologies.

     (a) Philip Morris International shall maintain an ongoing program of
researching, developing, enhancing and implementing technologies for marking
Cartons and/or Packs with unique scannable codes.

     (b) During the term of the Agreement, Philip Morris International shall
maintain an ongoing program of research and development concerning methods and
technologies for improving Carton and Pack Coding technologies. Philip Morris
International shall provide a yearly report to the Representatives of the
Relevant Administrations concerning new technologies for Carton and/or Pack
coding.

     7.02. Implementation of Carton and/or Pack Coding Technologies. In
recognition of the principles of the Agreement, once Carton and/or Pack Coding
technologies are commercially feasible, Philip Morris International agrees and
undertakes to implement Carton and/or Pack Coding technologies in accordance
with the conditions set forth below. Philip Morris International shall make
commercially reasonable efforts to make modifications to the First Purchaser
Database and Second and Subsequent Layer Tracking databases to include notation
of Carton codes, as appropriate and technically feasible.

                                       13
<PAGE>

     (a) Philip Morris International shall implement Carton and/or Pack Coding
technologies for Philip Morris Cigarettes that have a market listed under Tier I
Markets in Exhibit D of these Tracking and Tracing protocols as the Intended
Market of Retail Sale, if:

          (i)   the implementation of Carton and/or Pack Coding for Philip
     Morris Cigarettes that have that Tier I market as the Intended Market of
     Retail Sale is achievable through commercially reasonable efforts;

          (ii)  the effectiveness of the Carton and/or Pack Coding technology
     has been demonstrated to be appropriate for industrial application; and

          (iii) the implementation of Carton and/or Pack Coding is reasonably
     likely to significantly reduce the amount of Contraband Philip Morris
     Cigarettes that have that Tier I market as the Intended Market of Retail
     Sale.

     (b) Philip Morris International shall implement Carton and/or Pack Coding
technologies for Philip Morris Cigarettes that have a market listed under Tier
II Markets in Exhibit D of these Tracking and Tracing protocols as the Intended
Market of Retail Sale, if:

          (i)   in the previous year, there have been at least 7 seizures, each
     totaling at least 4 million Contraband Philip Morris Cigarettes, that have
     that Tier II market as the Intended Market of Retail Sale;

          (ii)  measures that Philip Morris International has adopted for Philip
     Morris Cigarettes that have that Tier II market as the Intended Market of
     Retail Sale are insufficient to combat the trade in Contraband Philip
     Morris Cigarettes that have that Tier II market as the Intended Market of
     Retail Sale;

          (iii) the implementation of Carton and/or Pack Coding is reasonably
     targeted at the elimination, prevention and/or detection of Contraband
     Philip Morris Cigarettes that have that Tier II market as the Intended
     Market of Retail Sale;

          (iv)  the implementation of Carton and/or Pack Coding is achievable
     through commercially reasonable efforts and is an effective response for
     Philip Morris Cigarettes that have that Tier II market as the Intended
     Market of Retail Sale;

                                       14
<PAGE>

          (v)   the effectiveness of the Carton and/or Pack Coding technology
     has been demonstrated to be appropriate for industrial application; and

          (vi) the implementation of Carton and/or Pack Coding is reasonably
     likely to significantly reduce the amount of Contraband Philip Morris
     Cigarettes that have that Tier II market as the Intended Market of Retail
     Sale.

     (c) Beginning 180 days after the Execution Date, OLAF may provide written
notice to Philip Morris International that either the criteria of subsection (a)
have been met for Philip Morris Cigarettes that have a particular Tier I market
as defined in Exhibit D as the Intended Market of Retail Sale, or the criteria
of subsection (b) have been met for Philip Morris Cigarettes that have a
particular Tier II market as defined in Exhibit D as the Intended Market of
Retail Sale, and request that Philip Morris International implement Carton
and/or Pack Coding for those Philip Morris Cigarettes. If Philip Morris
International disagrees with OLAF's written request, Philip Morris International
and OLAF shall meet and confer in good faith within 30 days of Philip Morris
International receiving such a request from OLAF in order to determine whether
the criteria of subsection (a) or (b) above have been met and whether Carton
and/or Pack Coding should be implemented for Philip Morris Cigarettes that have
the market in question as the Intended Market of Retail Sale. If the dispute
cannot be resolved within 60 days of Philip Morris International receiving
OLAF's written request, such dispute shall be settled by the Arbitrators in
accordance with Section 12.02 of the Agreement and by application of the
criteria set forth in subsections (a) or (b) above as applicable.

     (d) Nothing in this Protocol 7 shall preclude Philip Morris International
from adopting (either unilaterally or at the request of OLAF or the Relevant
Administrations) measures set forth in subsections (a) or (b), above, for
Cigarettes with a particular Intended Market of Retail Sale.

                                      15
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                   EXHIBIT A-1
                      MARKETS WITH MARKET-SPECIFIC LABELING

     I. In accordance with Section 2.01(a), Philip Morris International shall
make commercially reasonable efforts to mark Packs or Cartons of Philip Morris
Cigarettes that have one of the following domestic markets as the Intended
Market of Retail Sale with markings, codes or other information which permit a
determination that such domestic market is the Intended Market of Retail Sale:

         1.                           *
         2.                           *
         3.                           *
         4.                           *
         5.                           *
         6.                           *
         7.                           *
         8.                           Austria
         9.                           *
         10.                          *
         11.                          Belgium
         12.                          *
         13.                          *
         14.                          *
         15.                          *
         16.                          *
         17.                          *
         18.                          *
         19.                          *
         20.                          *
         21.                          *
         22.                          *
         23.                          *
         24.                          *
         25.                          *
         26.                          *
         27.                          *
         28.                          Cyprus
         29.                          Czech Republic
         30.                          *
         31.                          Denmark
         32.                          *
         33.                          *
         34.                          *

                                       1
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         35.                          *
         36.                          *
         37.                          *
         38.                          *
         39.                          Estonia
         40.                          Finland
         41.                          France and Monaco
         42.                          *
         43.                          *
         44.                          *
         45.                          Germany
         46.                          Greece
         47.                          *
         48.                          *
         49.                          *
         50.                          *
         51.                          *
         52.                          Hungary
         53.                          *
         54.                          *
         55.                          *
         56.                          Ireland
         57.                          *
         58.                          Italy
         59.                          *
         60.                          *
         61.                          *
         62.                          *
         63.                          *
         64.                          *
         65.                          *
         66.                          *
         67.                          *
         68.                          Latvia
         69.                          *
         70.                          *
         71.                          Lithuania
         72.                          Luxembourg
         73.                          *
         74.                          *
         75.                          *
         76.                          *
         77.                          *

                                       2
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         78.                          *
         79.                          Malta
         80.                          *
         81.                          *
         82.                          *
         83.                          *
         84.                          *
         85.                          *
         86.                          *
         87.                          *
         88.                          *
         89.                          Netherlands
         90.                          *
         91.                          *
         92.                          *
         93.                          *
         94.                          *
         95.                          *
         96.                          *
         97.                          *
         98.                          *
         99.                          *
         100.                         *
         101.                         Poland
         102.                         Portugal
         103.                         *
         104.                         *
         105.                         *
         106.                         *
         107.                         *
         108.                         *
         109.                         *
         110.                         *
         111.                         *
         112.                         Slovakia
         113.                         Slovenia
         114.                         *
         115.                         Spain
         116.                         Sweden
         117.                         *
         118.                         *
         119.                         *
         120.                         *

                                       3
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         121.                         *
         122.                         *
         123.                         *
         124.                         *
         125.                         *
         126.                         *
         127.                         United Kingdom
         128.                         *
         129.                         *
         130.                         *
         131.                         *
         132.                         *

                                   EXHIBIT A-2

                    MARKETS WITHOUT MARKET-SPECIFIC LABELING

     I. As described below, the following domestic markets share common labeling
at the Pack and Carton level, so that Packs and Cartons from those domestic
markets do not have unique labeling and shall bear the labeling indicated:

   ------ -------------------------------------- -------------------------------
                         Market                                Labeling
   ------ -------------------------------------- -------------------------------
   1.     *                                      *
   ------ -------------------------------------- -------------------------------
   2.     *                                      *
   ------ -------------------------------------- -------------------------------
   3.     *                                      *
   ------ -------------------------------------- -------------------------------
   4.     *                                      *
   ------ -------------------------------------- -------------------------------
   5.     *                                      *
   ------ -------------------------------------- -------------------------------
   6.     *                                      *
   ------ -------------------------------------- -------------------------------
   7.     *                                      *

   ------ -------------------------------------- -------------------------------
   8.     *                                      *
   ------ -------------------------------------- -------------------------------

                                4
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

   ------ -------------------------------------- -------------------------------
   9.     *                                      *
   ------ -------------------------------------- -------------------------------
   10.    *                                      *
   ------ -------------------------------------- -------------------------------
   11.    *                                      *
   ------ -------------------------------------- -------------------------------
   12.    *                                      *
   ------ -------------------------------------- -------------------------------
   13.    *                                      *
   ------ -------------------------------------- -------------------------------
   14.    *                                      *
   ------ -------------------------------------- -------------------------------
   15.    *                                      *
   ------ -------------------------------------- -------------------------------
   16.    *                                      *
   ------ -------------------------------------- -------------------------------
   17.    *                                      *

   ------ -------------------------------------- -------------------------------
   18.    *                                      *
   ------ -------------------------------------- -------------------------------
   19.    *                                      *

   ------ -------------------------------------- -------------------------------
   20.    *                                      *
   ------ -------------------------------------- -------------------------------
   21.    *                                      *
   ------ -------------------------------------- -------------------------------
   22.    *                                      *
   ------ -------------------------------------- -------------------------------
   23.    *                                      *
   ------ -------------------------------------- -------------------------------
   24.    *                                      *

   ------ -------------------------------------- -------------------------------
   25.    *                                      *
   ------ -------------------------------------- -------------------------------
   26.    *                                      *
   ------ -------------------------------------- -------------------------------
   27.    *                                      *
   ------ -------------------------------------- -------------------------------

                                5
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

   ------ -------------------------------------- -------------------------------
   28.    *                                      *

   ------ -------------------------------------- -------------------------------
   29.    *                                      *
   ------ -------------------------------------- -------------------------------
   30.    *                                      *
   ------ -------------------------------------- -------------------------------
   31.    *                                      *
   ------ -------------------------------------- -------------------------------
   32.    *                                      *
   ------ -------------------------------------- -------------------------------
   33.    *                                      *
   ------ -------------------------------------- -------------------------------
   34.    *                                      *
   ------ -------------------------------------- -------------------------------
   35.    *                                      *
   ------ -------------------------------------- -------------------------------
   36.    *                                      *
   ------ -------------------------------------- -------------------------------
   37.    *                                      *

   ------ -------------------------------------- -------------------------------
   38.    *                                      *
   ------ -------------------------------------- -------------------------------
   39.    *                                      *
   ------ -------------------------------------- -------------------------------
   40.    *                                      *
   ------ -------------------------------------- -------------------------------
   41.    *                                      *
   ------ -------------------------------------- -------------------------------
   42.    *                                      *
   ------ -------------------------------------- -------------------------------
   43.    *                                      *
   ------ -------------------------------------- -------------------------------
   44.    *                                      *
   ------ -------------------------------------- -------------------------------

     II. Philip Morris International need not place market-specific labeling on
Packs or Cartons which have the domestic markets listed in Exhibit A-2(I) as the
Intended Market of Retail Sale.

                                       6
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                   EXHIBIT A-3

            MANUFACTURING CENTERS WITH LIMITED PACK AND CARTON CODING

     I. As described below, the following Manufacturing Centers have only
limited Pack and Carton Coding, and are thus excluded from the requirements of
Protocol 2.03 for the products identified below:

----- ----------------------- ---------------------- --------------------------
      Manufacturing Center    Product Manufactured   Coding Limitation
----- ----------------------- ---------------------- --------------------------
1.    *                       *                      Production system is not
                                                     shift based; therefore
                                                     there is no shift
                                                     information.
----- ----------------------- ---------------------- --------------------------
2.    *                       *                      No Coding

----- ----------------------- ---------------------- --------------------------
3.    *                       *                      Coding contains factory,
                                                     machine number and
                                                     week of manufacture
----- ----------------------- ---------------------- --------------------------
4.    *                       *                      Machine No. missing

----- ----------------------- ---------------------- --------------------------
5.    *                       *                      No Coding

----- ----------------------- ---------------------- --------------------------

                                   EXHIBIT A-4

              DOMESTIC MARKETS IN WHICH PHILIP MORRIS INTERNATIONAL
                              DOES NOT DO BUSINESS

     I. As described below, Philip Morris International does not sell product
with the following domestic markets as the Intended Market of Retail Sale as of
the Execution Date:

         1.          *
         2.          *

                                       7
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         3.          *
         4.          *
         5.          *
         6.          *
         7.          *
         8.          *
         9.          *
         10.         *
         11.         *
         12.         *
         13.         *
         14.         *
         15.         *
         16.         *
         17.         *
         18.         *
         19.         *
         20.         *
         21.         *
         22.         *
         23.         *
         24.         *
         25.         *
         26.         *
         27.         *
         28.         *
         29.         *
         30.         *
         31.         *

     II. In the event that Philip Morris International begins selling product
with one of the domestic markets listed in Exhibit A-4(I) as the Intended Market
of Retail Sale, Philip Morris International shall follow the procedures set
forth in Protocol 2.01(b).

                                   EXHIBIT A-5

             PROCEDURES FOR LABELING DUTY-FREE PACKS AND/OR CARTONS

     I. For World Wide Duty Free, * of the Execution Date, Philip Morris
International shall make commercially reasonable efforts to mark

                                       8
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

     Packs and/or Cartons of Philip Morris Cigarettes with markings, codes or
     other information which permit a determination of the country or region in
     which Philip Morris International intends such Cigarettes to be sold
     duty-free, in accordance with the following:

                  A.

                                            *

                  B.

                                            *

                  C.

                                            *

     D. Nothing in the foregoing shall preclude Philip Morris International from
adopting unique markings, codes, or other information for markets where the
annual sales of Philip Morris Cigarettes to be sold to duty-free consumers are
below the thresholds described above.

                                       9
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                    EXHIBIT B

           SCHEDULE FOR IMPLEMENTATION OF MASTER CASE BARCODE LABELING

     I. Philip Morris International shall make commercially reasonable efforts
to apply barcode labels within thirty days of the Execution Date to all Master
Cases of Cigarettes manufactured by Philip Morris International at its own
facilities for sale by Philip Morris International with Intended Market of
Retail Sale in the following domestic markets:

         1.  Austria
         2.  Belgium
         3.  Denmark
         4.  Finland
         5.  France
         6.  Germany
         7.  Greece, *

         8.  Ireland
         9.  Italy
         10. Luxembourg
         11. Netherlands
         12. Portugal
         13. Spain
         14. Sweden
         15. United Kingdom

     II. Philip Morris International shall make commercially reasonable efforts
to apply barcode labels within 12 months of the Execution Date to all Master
Cases of Cigarettes manufactured by Philip Morris International at its own
facilities for sale by Philip Morris International with an Intended Market of
Retail Sale in   *   markets worldwide         *          and in the following
domestic markets:

         1.         *
         2.         *
         3.         *
         4.         *
         5.         *
         6.         *
         7.         *
         8.         *
         9.         *

                                       10
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         10.        *
         11.        *
         12.        *
         13.        *
         14.        *
         15.        *
         16.        *
         17.        *
         18.        *
         19.        *
         20.        *
         21.        *
         22.        *
         23.        *
         24.        *
         25.        *
         26.        *
         27.        *
         28.        *
         29.        *
         30.        *
         31.        *
         32.        *
         33.        *
         34.        *
         35.        *
         36.        *
         37.        *
         38.        *
         39.        *
         40.        *
         41.        *
         42.        *
         43.        *
         44.        *
         45.        *
         46.        *
         47.        *
         48.        *
         49.        *
         50.        *
         51.        *
         52.        *

                                       11
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

         53.        *
         54.        *
         55.        *
         56.        *

     III. Philip Morris International shall make commercially reasonable efforts
to apply barcode labels within * of the Execution Date to all Master Cases of
Cigarettes manufactured by Philip Morris International for sale by Philip Morris
International worldwide.

     IV. Recognizing the particular nature of the relationship between Philip
Morris International and Third Party Manufacturers, the Parties agree that
Philip Morris International shall make commercially reasonable efforts to
implement Master Case barcode labeling within * of the Execution Date for
products such Third Party Manufacturers manufacture for Philip Morris
International.

                                       12
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                    EXHIBIT C

        SCHEDULE FOR IMPLEMENTATION OF MASTER CASE BARCODE LABEL SCANNING

     I. Single First Purchaser Markets

     A. For Philip Morris Cigarettes which have the following markets as the
Intended Market of Retail Sale, Philip Morris International sells to a single
First Purchaser and marks the product with Pack or Carton markings satisfying
Protocol 2.01:

        1.                *
        2.                *
        3.                *
        4.                *
        5.                *
        6.                *
        7.                *
        8.                *
        9.                *
        10.               *
        11.               *
        12.               *
        13.               *
        14.               *
        15.               *
        16.               *
        17.               *
        18.               *
        19.               *
        20.               *
        21.               *
        22.               *
        23.               *
        24.               *
        25.               *
        26.               *
        27.               *
        28.               *

                                       13
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

        29.               *
        30.               *
        31.               *
        32.               *
        33.               *
        34.               *
        35.               *
        36.               *
        37.               *
        38.               *
        39.               *
        40.               *
        41.               *
        42.               *
        43.               *
        44.               *
        45.               *
        46.               *
        47.               *
        48.               *
        49.               *
        50.               *
        51.               *
        52.               *
        53.               *
        54.               *
        55.               *
        56.               *
        57.               *
        58.               *
        59.               *
        60.               *

     B. Pursuant to Section 3.02(b), Philip Morris International and/or its
Contractors need not scan Master Cases sold to the First Purchaser for the
markets set forth in Exhibit C(I)(A), which shall be updated as needed.

     II. Implementation in Tier I Markets

                                       14
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

     A. Unless altered by agreement of the Parties at a meeting of Philip Morris
International and the Representatives of the Relevant Administrations, "Tier I
Markets" shall be defined as         *      * , and the following Philip Morris
International markets:

        1           *
        2           *
        3           *
        4           *
        5           *
        6           *
        7           *
        8           *
        9           *
        10          *
        11          *
        12          *
        13          *
        14

     B. Philip Morris International shall make commercially reasonable efforts
to bring all Tier I Markets into compliance with the requirements of Protocol
3.02(a) and (b) within     *    of the Execution Date.

     III. Implementation in Tier II Markets

     A. Unless altered by agreement of the Parties at a meeting of Philip Morris
International and the Representatives of the Relevant Administrations, "Tier II
Markets" shall be defined as the following Philip Morris International markets:

                                       15
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

        1.                   *
        2.                   *
        3.                   *
        4.                   *
        5.                   *
        6.                   *
        7.                   *
        8.                   *
        9.                   *
        10.                  *
        11.                  *
        12.                  *
        13.                  *
        14.                  *
        15.                  *
        16.                  *
        17.                  *
        18.                  *
        19.                  *
        20.                  *
        21.                  *
        22.                  *
        23.                  *
        24.                  *
        25.                  *
        26.                  *
        27.                  *
        28.                  *
        29.                  *
        30.                  *

     B. With the exception of markets with third party manufacturers, Philip
Morris International shall make commercially reasonable efforts to bring all
Tier II Markets into compliance with the requirements of Protocol 3.02(a) and
(b) within * of the Execution Date.

     C. Recognizing the particular nature of the relationship between Philip
Morris International and Third Party Manufacturers, the Parties agree that
Philip Morris International shall make commercially reasonable efforts

                                       16
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

to bring all Tier II Markets into compliance with the requirements of Protocol
3.02(a) and (b) within * of the Execution Date for products such Third Party
Manufacturers manufacture for Philip Morris International.

     IV. Non-compliance with Protocol 3.02(a) and (b) Due to Distribution or
Other Changes:

     (a) In the event that Philip Morris International effects a change in the
manner of distribution, an acquisition, a sourcing change, or other business
transaction which will have the effect of rendering a market (or markets)
compliant with the requirements of Protocol 3.02(a) and (b) no longer compliant
therewith, or will have the effect of rendering a market exempt from such
requirements no longer exempt, Philip Morris International shall so notify the
Representatives of the Relevant Administrations within 30 days of such change.
In the event that such market (or markets) is within the Territory of a Member
State or a Designated State, Philip Morris International shall make commercially
reasonable efforts to bring such market back into compliance with the
requirements of Protocol 3.02(a) and (b) within 2 years of such change.

     (b) Similarly, in the event that Philip Morris International effects a
change in the manner of distribution, an acquisition, a sourcing change, or
other business transaction which will have the effect of making a particular
market (or markets) no longer required to be compliant with the requirements of
Protocol 3.02(a) and (b), then, Philip Morris International shall so notify the
Representatives of the Relevant Administrations and may henceforth treat such
market as exempt from or no longer required to be compliant with such
requirements, as the case may be.

                                       17
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                    EXHIBIT D

    MARKET GROUPINGS FOR NEW PACK AND CARTON CODING AND SCANNING TECHNOLOGIES

     I. Tier I Markets

     A. Tier I Markets Defined. With the exception of any market that has a sole
First Purchaser of Philip Morris International for such market and that market
has Pack or Carton markings satisfying Protocol 2.01, and subject to the time
limit set for third party manufacturers in Exhibit D(I)(B), the following
domestic markets are defined as Tier I Markets for the purposes of Protocol 7:

           -------- -----------------------------------------------------
           1.       Austria
           -------- -----------------------------------------------------
           2.       Belgium
           -------- -----------------------------------------------------
           3.       Cyprus
           -------- -----------------------------------------------------
           4.       Czech Republic
           -------- -----------------------------------------------------
           5.       Denmark
           -------- -----------------------------------------------------
           6.       Estonia
           -------- -----------------------------------------------------
           7.       Finland
           -------- -----------------------------------------------------
           8.       France
           -------- -----------------------------------------------------
           9.       Germany
           -------- -----------------------------------------------------
           10.      Greece
           -------- -----------------------------------------------------
           11.      Hungary
           -------- -----------------------------------------------------
           12.      Ireland
           -------- -----------------------------------------------------
           13.      Italy
           -------- -----------------------------------------------------
           14.      Latvia
           -------- -----------------------------------------------------
           15.      Lithuania
           -------- -----------------------------------------------------
           16.      Luxembourg
           -------- -----------------------------------------------------
           17.      Malta
           -------- -----------------------------------------------------
           18.      Netherlands
           -------- -----------------------------------------------------
           19.      Poland
           -------- -----------------------------------------------------
           20.      Portugal
           -------- -----------------------------------------------------
           21.      Slovakia
           -------- -----------------------------------------------------
           22.      Slovenia
           -------- -----------------------------------------------------
           23.      Spain
           -------- -----------------------------------------------------
           24.      Sweden
           -------- -----------------------------------------------------
           25.      United Kingdom
           -------- -----------------------------------------------------

     B. Recognizing the particular nature of the relationship between Philip
Morris International and Third Party Manufacturers, the Parties agree that, in
determining commercial reasonableness, the time frame for

                                       18
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

implementation of any obligations in Tier I markets imposed pursuant to Protocol
7 shall, in the case of products manufactured for Philip Morris International by
Third Party Manufacturers, be extended for      *      beyond that otherwise
applicable in the case of products manufactured by Philip Morris International.

     II. Tier II Markets

     A. Tier II Markets Defined. With the exception of any market that has a
sole First Purchaser of Philip Morris International for such a market and that
market has Pack or Carton markings satisfying Protocol 2.01, and subject to the
time limit set for third party manufacturers in Exhibit D(I)(B), the following
domestic markets are defined as Tier II Markets for the purposes of Protocol 7:

         ---------- -------------------------------------------------------
         1.         *
         ---------- -------------------------------------------------------
         2.         *
         ---------- -------------------------------------------------------
         3.         *
         ---------- -------------------------------------------------------
         4.         *
         ---------- -------------------------------------------------------
         5.         *
         ---------- -------------------------------------------------------
         6.         *
         ---------- -------------------------------------------------------
         7.         *
         ---------- -------------------------------------------------------
         8.         *
         ---------- -------------------------------------------------------
         9.         *
         ---------- -------------------------------------------------------
         10.        *
         ---------- -------------------------------------------------------
         11.        *
         ---------- -------------------------------------------------------
         12.        *
         ---------- -------------------------------------------------------
         13.        *
         ---------- -------------------------------------------------------
         14.        *
         ---------- -------------------------------------------------------
         15.        *
         ---------- -------------------------------------------------------
         16.        *
         ---------- -------------------------------------------------------
         17.        *
         ---------- -------------------------------------------------------
         18.        *
         ---------- -------------------------------------------------------
         19.        *
         ---------- -------------------------------------------------------
         20.        *
         ---------- -------------------------------------------------------
         21.        *
         ---------- -------------------------------------------------------
         22.        *
         ---------- -------------------------------------------------------

     B. Recognizing the particular nature of the relationship between Philip
Morris International and Third Party Manufacturers, the Parties agree that, in
determining commercial reasonableness, the time frame for implementation of any
obligations in Tier II markets imposed pursuant to Protocol 7 shall, in the case
of products manufactured for Philip Morris International by Third Party
Manufacturers, be extended for    *    beyond

                                       19
<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

that otherwise applicable in the case of products manufactured by Philip Morris
International.

                                       20
<PAGE>

                                   APPENDIX E
                                   ----------

<TABLE>
                   ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------
                       AT          BE           DE         DK          EL          ES          FI         FR          IE
------------------ ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------
      VAT              20%         21%          16%        25%         18%         16%        22%        19.6%        19%
------------------ ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------
<S>                    <C>         <C>           <C>       <C>         <C>        <C>          <C>         <C>        <C>
SPECIFIC EXCISE    21.38(euro) 18.7474(euro) 61.7(euro) 81.7(euro) 4.2699(euro) 3.91(euro) 15.13(euro) 7.41(euro) 124.94(euro)
                      per           per         per         per        per         per        per         per         per
                    thousand    thousand      thousand    thousand   thousand    thousand   thousand    thousand   thousand
-----------------  ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------
   AD VALOREM         42%        45.84         24.23%      21.22%     53.86%       54%         50%       55.19%      18.46%
     EXCISE
-----------------  ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------
  CUSTOMS DUTY       57.6%       57.6%         57.6%      57.6%       57.6%       57.6%       57.6%      57.6%       57.6%
-----------------  ----------- ------------- ---------- ---------- ------------ ---------- ----------- ---------- ------------

                    ---------- ------------- ----------- ----------- ----------- ------------
                        IT         LU            NL         PT           SE           UK
------------------  ---------- ------------- ----------- ----------- ----------- ------------
      VAT               20%        12%           19%        19%          25%         17.5%
------------------  ---------- ------------- ----------- ----------- ----------- ------------
SPECIFIC EXCISE     3.86(euro) 11.8914(euro) 53.27(euro) 40.69(euro) 21.96(euro) 154.34(euro)
                       per         per           per        per          per         per
                     thousand   thousand      thousand    thousand     thousand    thousand
-----------------   ---------- ------------- ----------- ----------- ----------- ------------
   AD VALOREM         54.26%     46.84%        20.51%       23%         39.2%       22%
     EXCISE
-----------------   ---------- ------------- ----------- ----------- ----------- ------------
  CUSTOMS DUTY        57.6%      57.6%         57.6%        57.6%       57.6%       57.6%
-----------------   ---------- ------------- ----------- ----------- ----------- ------------
</TABLE>

1. Method to be used for calculation.

For purposes of Supplemental Payments under Art. 4 of the Agreement, the minimum
retail sales price to the public, all taxes included, shall be calculated on any
Philip Morris Cigarettes seized, and the taxes and duties owed under Art. 4 of
the Agreement, if any, shall be calculated on the basis of those that would have
been due had the product been sold at that minimum sales price to the public, in
the Member State of seizure.

The method of calculation of customs duties, excise taxes and V.A.T., as
applicable, for each Member State or the EC shall be the method normally
employed by that Member State or by the EC.

The Parties may agree upon formulas or electronic spreadsheets that implement
the above method.

2. Arbitration

If, on occasion of receipt by a Member State of a Supplemental Payment,
disagreement arises as to the results of these calculations, the relevant
Parties shall meet and confer within 5 days of receipt of the Supplemental
Payment by the Member State, in a good faith attempt to resolve these
differences. If agreement cannot be reached within 10 days thereafter, then the
relevant Parties shall each have recourse to Arbitration under Art. 12.02 of the
Agreement to determine the amounts to be paid under Art. 4 of the Agreement in
that instance.

3. Amendments

The above table and markups shall be updated as modifications are made to the
underlying tax rates, upon any New Member State acceding to the EC or becoming a
party to the Agreement, or at any time as otherwise agreed in writing by the
Parties.

<PAGE>

                                   APPENDIX F

          FACTORS FOR ESTABLISHING COUNTERFEIT PHILIP MORRIS CIGARETTES

For the purpose of Section 4.01(j) of the Agreement, in determining whether
Cigarettes bearing Philip Morris Trademarks are Counterfeit Philip Morris
Cigarettes, the following factors shall be considered and compared with indicia
of genuine Philip Morris Cigarettes as provided by Philip Morris International
and updated from time to time:

     o    the look, shape, color, and size of the packaging;

     o    the materials used in the packaging;

     o    the size, font, color, language and content of the text appearing on
          the packaging;

     o    the markings, codes, and stamps appearing on the packaging;

     o    the look, shape, color, and size of the Cigarettes;

     o    the markings on the Cigarettes;

     o    the materials used in the Cigarettes paper and filter;

     o    the nature and quality of the tobacco; and

     o    all the ingredients of the Cigarettes.

<PAGE>

       *Material omitted pursuant to a request for confidential treatment
       Material filed separately with the Securities Exchange Commission

                                   APPENDIX G
                            List of Designated States

*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*                             *
*
*
*

                  Procedure for Amending Designated States List

OLAF may seek to amend the list of Designated States by adding a State to, or
deleting a State from, the list of Designated States, based upon a reasonable
belief that the addition or deletion of a State from that list is consistent
with the purpose and intent of this Agreement. OLAF shall notify Philip Morris
International of any proposed change to the list. If Philip Morris International
objects to the proposed change, Philip Morris International shall state its
objection in writing within 30 days of receiving the notice. Philip Morris
International and OLAF shall meet and confer within 60 days of Philip Morris
International sending its objection in an attempt to reach agreement on any
changes to the list of Designated States. If Philip Morris International and
OLAF cannot reach agreement, either of them may seek arbitration pursuant to
article 12.02 of this Agreement.

If a State is added to the list of Designated States by agreement between Philip
Morris International and OLAF, Philip Morris International shall have one year
from the date a State is added to the Designated States list in which to comply
with all its obligations pursuant to this Agreement and the Appendices thereto
in connection with that Designated State. If a State is added to the list of
Designated States by the Arbitrator, Philip Morris International shall make
commercially reasonable efforts to comply with its obligations pursuant to this
Agreement and the Appendices in connection with that Designated State within 30
days of the Arbitrator's order to that effect.

<PAGE>

                                 JONES DAY
Luc G. Houben*               LOUIZALAAN 480 BUS 7        Howard M. Liebman
Thierry Buytaeri            AVENUE LOUISE 480. BTE 7     Member of the District
Bernard Amory               B-1050 BURSSELS, BELGIUM     of Columbia Bar
Alexandra Verheyden*
Mirailia Buydens**

            TELEPHONE: 32.(0)2.645.14.11 FACSIMILE: 32.(0)2.645.14.45

   Advocten-Avocats
   Members of the Bussels Bar
 * Members of the New York Bar
** Member of the Paris Bar

The Registrar
Court of Justice of the European Communities,
L-2925 Luxembourg

Subject:        Joined Cases C-131/03 P and C-146/03 P, RJ Reynolds et al
                ---------------------------------------------------------
                and Philip Morris International v. Commission
                ---------------------------------------------

Dear Sir:

     We hereby wish to inform you that our client Philip Morris International,
the appellant in the Case C-146/03 P, has decided to withdraw from the present
proceedings.

     We look forward to receiving the Order by the President of the Court that
this case has been removed from the Register.

Repectfully submitted,

Eric Morgen de Rivery

 ATLANTA  BRUSSELS  CHICAGO  CLEVELAND  COLUMBUS  DALLAS  FRANKFURT  HONG KONG
                    HOUSTON  IRVINE  LONDON  LOS ANGELES  MADRID
  MENLO PARK  MILAN  MUMBAI  MUNICH  NEW DELHI  NEW YORK  PARIS  PITSBURGH
               SHANGHAI  SINGAPORE  SYDNEY  TAPPEI  TOKYO  WASHINGTON
                                *ASSOCIATE FIRM

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----
AFGHANISTAN                              BOND STREET
AFGHANISTAN                              L&M
AFGHANISTAN                              MARLBORO
AFGHANISTAN                              Parliament
ALBANIA                                  ASSOS
ALBANIA                                  BOND STREET
ALBANIA                                  L&M
ALBANIA                                  MARLBORO
ALBANIA                                  VIRGINIA SLIMS
Algeria                                  L&M
Algeria                                  MARLBORO
ANDORRA                                  CHESTERFIELD
ANDORRA                                  L&M
ANDORRA                                  LARK
ANDORRA                                  MARLBORO
ANDORRA                                  PHILIP MORRIS
ANDORRA                                  SG
ANGOLA                                   MARLBORO
ARGENTINA                                BENSON & HEDGES
ARGENTINA                                CHESTERFIELD
ARGENTINA                                COLORADO
ARGENTINA                                FREEPORT
ARGENTINA                                IMPARCIALES
ARGENTINA                                L&M
ARGENTINA                                LE MANS
ARGENTINA                                MARLBORO
ARGENTINA                                PARLIAMENT
ARGENTINA                                PARTICULARES
ARGENTINA                                PHILIP MORRIS
ARGENTINA                                VIRGINIA SLIMS
ARGENTINA                                WILTON
ARMENIA                                  ASSOS
ARMENIA                                  BOND STREET
ARMENIA                                  CHESTERFIELD
ARMENIA                                  L&M
ARMENIA                                  MARLBORO
ARMENIA                                  PARLIAMENT
ARMENIA                                  RED & WHITE
ARUBA                                    MARLBORO
ARUBA                                    NEVADA
ARUBA                                    RICHMOND
AUSTRALIA                                ALBANY
AUSTRALIA                                ALPINE
AUSTRALIA                                CHESTERFIELD
AUSTRALIA                                FORTUNE
AUSTRALIA                                LANGHAM VINTAGE
AUSTRALIA                                LONGBEACH
AUSTRALIA                                MARLBORO
AUSTRALIA                                PETER JACKSON

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

AUSTRALIA                                SUPER
AUSTRALIA                                VISCOUNT
AUSTRIA                                  BASIC
AUSTRIA                                  CHESTERFIELD
AUSTRIA                                  EVE
AUSTRIA                                  MARLBORO
AUSTRIA                                  MURATTI
AUSTRIA                                  PHILIP MORRIS
AZERBAIJAN                               CONGRESS
AZERBAIJAN                               L&M
AZERBAIJAN                               MARLBORO
AZERBAIJAN                               PARLIAMENT
AZORES                                   L&M
AZORES                                   MARLBORO
AZORES                                   PORTUGUES
AZORES                                   RITZ
AZORES                                   SG
AZORES                                   SURF
BAHRAIN                                  L&M
BAHRAIN                                  MARLBORO
BAHRAIN                                  MERIT
BAHRAIN                                  PARLIAMENT
BAHRAIN                                  PHILIP MORRIS
BAHRAIN                                  RED & WHITE
BELARUS                                  BOND STREET
BELARUS                                  L&M
BELARUS                                  MARLBORO
BELARUS                                  PARLIAMENT
BELGIUM                                  ARMADA
BELGIUM                                  Basic
BELGIUM                                  CHESTERFIELD
BELGIUM                                  L&M
BELGIUM                                  MARLBORO
BELGIUM                                  MERIT
BELGIUM                                  MURATTI
BELGIUM                                  NORTH POLE
BELGIUM                                  PHILIP MORRIS
BELGIUM                                  VISA
BELGIUM                                  WELTA
BELGIUM                                  XXL
BENIN                                    BOND STREET
BENIN                                    MARLBORO
BENIN                                    VISA
BOLIVIA                                  BIG BEN
BOLIVIA                                  Chesterfield
BOLIVIA                                  COLORADO
BOLIVIA                                  L&M
BOLIVIA                                  MARLBORO
BOSNIA & HERZEGOVINA                     BEST
BOSNIA & HERZEGOVINA                     CLASSIC

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

BOSNIA & HERZEGOVINA                     DRINA
BOSNIA & HERZEGOVINA                     MARLBORO
BOSNIA & HERZEGOVINA                     MOND
BOSNIA & HERZEGOVINA                     MORAVA
BOSNIA & HERZEGOVINA                     VEK
BRAZIL                                   BENSON & HEDGES
BRAZIL                                   CF
BRAZIL                                   CHANCELLOR
BRAZIL                                   DALLAS
BRAZIL                                   GALAXY
BRAZIL                                   L&M
BRAZIL                                   LARK
BRAZIL                                   LUXOR
BRAZIL                                   MARLBORO
BRAZIL                                   MUSTANG
BRAZIL                                   PALACE
BRAZIL                                   PARLIAMENT
BRAZIL                                   SHELTON
BRAZIL                                   Super
BRUNEI                                   ALPINE
BRUNEI                                   L&M
BRUNEI                                   MARLBORO
BRUNEI                                   VIRGINIA SLIMS
BULGARIA                                 MARLBORO
BURKINA FASO                             BOND STREET
BURKINA FASO                             MARLBORO
CAMBODIA                                 L&M
CAMBODIA                                 LONGBEACH
CAMBODIA                                 MARLBORO
CAMEROON                                 BOND STREET
CAMEROON                                 MARLBORO
CANARY ISLANDS                           CHESTERFIELD
CANARY ISLANDS                           L&M
CANARY ISLANDS                           LARK
CANARY ISLANDS                           MARLBORO
CANARY ISLANDS                           MERIT
CANARY ISLANDS                           PHILIP MORRIS
CAPE VERDE                               MARLBORO
CAPE VERDE                               SG
CARIBBEAN                                CHESTERFIELD
CARIBBEAN                                MARLBORO
CARIBBEAN                                MERIT
CARIBBEAN                                PARLIAMENT
CARIBBEAN                                PHILIP MORRIS
CARIBBEAN                                VIRGINIA SLIMS
CHANNEL ISLANDS                          MARLBORO
CHILE                                    BOND STREET
CHILE                                    L&M
CHILE                                    MARLBORO
CHILE                                    MLB

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

CHILE                                    PHILIP MORRIS
CHRISTMAS ISLANDS                        ALPINE
CHRISTMAS ISLANDS                        LONGBEACH
CHRISTMAS ISLANDS                        MARLBORO
CHRISTMAS ISLANDS                        PETER JACKSON
COCOS (KEELING) ISLAND                   ALPINE
COCOS (KEELING) ISLAND                   LONGBEACH
COCOS (KEELING) ISLAND                   MARLBORO
COCOS (KEELING) ISLAND                   PETER JACKSON
COLOMBIA                                 L&M
COLOMBIA                                 MARLBORO
CONGO                                    BOND STREET
CONGO                                    MARLBORO
COOK ISLAND                              LONGBEACH
COOK ISLAND                              MARLBORO
CORSICA                                  CHESTERFIELD
CORSICA                                  L&M
CORSICA                                  MARLBORO
CORSICA                                  MERIT
CORSICA                                  MURATTI
CORSICA                                  PHILIP MORRIS
COSTA RICA                               Bond Street
COSTA RICA                               DERBY
COSTA RICA                               L & M
COSTA RICA                               MARLBORO
COSTA RICA                               Parliament
CROATIA                                  MARLBORO
CZECH REPUBLIC                           ARTA
CZECH REPUBLIC                           BAKARA
CZECH REPUBLIC                           BOND STREET
CZECH REPUBLIC                           Brand X
CZECH REPUBLIC                           CHESTERFIELD
CZECH REPUBLIC                           CLASSIC
CZECH REPUBLIC                           L&M
CZECH REPUBLIC                           MARLBORO
CZECH REPUBLIC                           PETRA
CZECH REPUBLIC                           PHILIP MORRIS
CZECH REPUBLIC                           RED & WHITE
CZECH REPUBLIC                           START
DEM. REP. OF CONGO DOM                   MARLBORO
DENMARK                                  CHESTERFIELD
DENMARK                                  MARLBORO
DENMARK                                  PHILIP MORRIS
DENMARK                                  SKJOL
DF Australia DF                          MARLBORO
DF Belgium DF                            ARMADA
DF Belgium DF                            WELTA
DF New Zealand DF                        MARLBORO
DF URUGUAY DF                            CASINO
DF URUGUAY DF                            FIESTA

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

DF URUGUAY DF                            MARLBORO
DF URUGUAY DF                            PHILIP MORRIS
DF VENEZUELA DUTY FREE                   ASTOR
DF VENEZUELA DUTY FREE                   MARLBORO
DJIBOUTI                                 MARLBORO
DOMINICAN REPUBLIC DOM.                  DELTA
DOMINICAN REPUBLIC DOM.                  LIDER
DOMINICAN REPUBLIC DOM.                  MARLBORO
DOMINICAN REPUBLIC DOM.                  NACIONAL
DR                                       New Brand  F.F.
EAST TIMOR                               ALPINE
EAST TIMOR                               MARLBORO
EAST TIMOR                               PETER JACKSON
ECUADOR                                  BELMONT
ECUADOR                                  L&M
ECUADOR                                  FULL EED
ECUADOR                                  LARK
ECUADOR                                  LIDER
ECUADOR                                  MARLBORO
ECUADOR                                  PARLIAMENT
EGYPT                                    L&M
EGYPT                                    BOND STREET
EGYPT                                    MARLBORO
EGYPT                                    MERIT
EL SALVADOR                              DIPLOMAT
EL SALVADOR                              LIDER
EL SALVADOR                              MARLBORO
EQUATORIAL GUINEA DOM.                   BOND STREET
EQUATORIAL GUINEA DOM.                   MARLBORO
ESTONIA                                  BOND STREET
ESTONIA                                  L&M
ESTONIA                                  MARLBORO
ESTONIA                                  NEXT
ESTONIA                                  PHILIP MORRIS
ESTONIA                                  RED & WHITE
ETHIOPIA                                 MARLBORO
FEDERAL REP YUGOSLAVIA                   L&M
FEDERAL REP YUGOSLAVIA                   MARLBORO
FIJI                                     ALPINE
FIJI                                     MARLBORO
FIJI                                     LONGBEACH
FINLAND                                  BELMONT
FINLAND                                  CHESTERFIELD
FINLAND                                  L&M
FINLAND                                  MARLBORO
FINLAND                                  MULTIFILTER
FRANCE                                   ARMADA
FRANCE                                   BASIC
FRANCE                                   CHESTERFIELD
FRANCE                                   L&M

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

FRANCE                                   MARLBORO
FRANCE                                   MERIT
FRANCE                                   MURATTI
FRANCE                                   PHILIP MORRIS
FRANCE                                   SG
FRENCH POLYNESIA                         CHESTERFIELD
FRENCH POLYNESIA                         L&M
FRENCH POLYNESIA                         MARLBORO
FRENCH POLYNESIA                         LARK
FRENCH POLYNESIA                         PHILIP MORRIS
GABON                                    MARLBORO
GAMBIA                                   BOND STREET
GAMBIA                                   MARLBORO
GEORGIA                                  BOND STREET AMERICAN
GEORGIA                                  CHESTERFIELD
GEORGIA                                  CONGRESS
GEORGIA                                  L&M
GEORGIA                                  MARLBORO
GEORGIA                                  PARLIAMENT
GERMANY                                  BASIC
GERMANY                                  CHESTERFIELD
GERMANY                                  EVE
GERMANY                                  F 6
GERMANY                                  JUWEL
GERMANY                                  KARO
GERMANY                                  L&M
GERMANY                                  MARLBORO
GERMANY                                  MERIT
GERMANY                                  MULTIFILTER
GERMANY                                  NEXT
GERMANY                                  PARLIAMENT
GERMANY                                  PHILIP MORRIS
GERMANY                                  PM Supreme
GREECE                                   ASSOS
GREECE                                   CHESTERFIELD
GREECE                                   Marlboro
GREECE                                   L&M
GREECE                                   MERIT
GREECE                                   MURATTI
GREECE                                   Old Navy
GREECE                                   PHILIP MORRIS
GREECE                                   President One
GREEK CYPRUS                             ASSOS
GREEK CYPRUS                             L&M
GREEK CYPRUS                             MARLBORO
GREEK CYPRUS                             PHILIP MORRIS
GREENLAND                                MARLBORO
GUATEMALA                                L & M
GUATEMALA                                DIPLOMAT
GUATEMALA                                LIDER

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

GUATEMALA                                MARLBORO
GUATEMALA                                RUBIOS
GUINEA                                   ASSOS
GUINEA                                   MARLBORO
GUINEA BISSAU                            MARLBORO
GUINEA BISSAU                            VISA
HONDURAS                                 Lider
HONDURAS                                 L&M
HONDURAS                                 MARLBORO
HONG KONG                                BOND STREET
HONG KONG                                GOOD COMPANION
HONG KONG                                MARLBORO
HONG KONG                                Next
HONG KONG                                PHILIP MORRIS
HONG KONG                                SARATOGA
HONG KONG                                VIRGINIA SLIMS
HONG KONG                                VSL Ultra Lts
HUNGARY                                  Bond Street
HUNGARY                                  EVE
HUNGARY                                  HELIKON
HUNGARY                                  L&M
HUNGARY                                  MARLBORO
HUNGARY                                  MULTIFILTER
HUNGARY                                  PHILIP MORRIS
ICELAND                                  L&M
ICELAND                                  MARLBORO
ICELAND                                  VIRGINIA SLIMS
INDIA                                    MARLBORO
INDONESIA                                LONGBEACH
INDONESIA                                MARLBORO
INDONESIA                                VIRGINIA SLIMS
Iraq                                     BOND STREET  AMERICAN
Iraq                                     L&M
Iraq                                     MARLBORO
IRELAND                                  MARLBORO
IRELAND                                  Marlboro
IRELAND                                  Marlboro
IRELAND                                  To be determined
ISRAEL                                   ASSOS
ISRAEL                                   BOND STREET  AMERICAN
ISRAEL                                   EVE
ISRAEL                                   L&M
ISRAEL                                   MARLBORO
ISRAEL                                   NEXT
ISRAEL                                   PARLIAMENT
ISRAEL                                   UNDEFINED  [.]
ITALY                                    CHESTERFIELD
ITALY                                    DIANA
ITALY                                    L&M
ITALY                                    LARK

<PAGE>

ITALY                                    MARLBORO
ITALY                                    MERCEDES
ITALY                                    MERIT
ITALY                                    MULTIFILTER
ITALY                                    MURATTI
ITALY                                    NORTH POLE
ITALY                                    PHILIP MORRIS
ITALY                                    PHILIP MORRIS SIGNATURE
IVORY COAST                              BOND STREET
IVORY COAST                              MARLBORO
JAPAN                                    L&M
JAPAN                                    LARK
JAPAN                                    MARLBORO
JAPAN                                    MERIT
JAPAN                                    NEXT
JAPAN                                    OASIS
JAPAN                                    PARLIAMENT
JAPAN                                    PHILIP MORRIS
JAPAN                                    PM
JAPAN                                    VIRGINIA SLIMS
JAPAN                                    VS
JORDAN                                   L&M
JORDAN                                   MARLBORO
JORDAN                                   PARLIAMENT
KAZAKHSTAN                               APOLLO SOYUZ
KAZAKHSTAN                               ASTRA
KAZAKHSTAN                               BENSON & HEDGES
KAZAKHSTAN                               BOND STREET
KAZAKHSTAN                               CAMBRIDGE
KAZAKHSTAN                               CONGRESS
KAZAKHSTAN                               KAZAKHSTAN
KAZAKHSTAN                               L&M
KAZAKHSTAN                               MARLBORO
KAZAKHSTAN                               MEDEO
KAZAKHSTAN                               NEXT
KAZAKHSTAN                               OPTIMA
KAZAKHSTAN                               PARLIAMENT
KAZAKHSTAN                               POLYOT
KAZAKHSTAN                               PRIMA
KAZAKHSTAN                               UNDEFINED
KAZAKHSTAN                               VIRGINIA SLIMS
KIRGHIZSTAN                              APOLLO SOYUZ
KIRGHIZSTAN                              BOND STREET
KIRGHIZSTAN                              CONGRESS FULL FLAVOR
KIRGHIZSTAN                              L&M
KIRGHIZSTAN                              MARLBORO
KIRGHIZSTAN                              PARLIAMENT
KIRIBATI                                 ALPINE
KIRIBATI                                 LONGBEACH
KIRIBATI                                 MARLBORO

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

KIRIBATI                                 PETER JACKSON
KOREA                                    ELAN SS 100
KOREA                                    L&M
KOREA                                    LARK
KOREA                                    MARLBORO
KOREA                                    PARLIAMENT
KOREA                                    PHILIP MORRIS
KOREA                                    VIRGINIA SLIMS
KOSOVO                                   MARLBORO
KUWAIT                                   L&M
KUWAIT                                   MARLBORO
KUWAIT                                   MERIT
KUWAIT                                   PARLIAMENT
KUWAIT                                   PHILIP MORRIS
KUWAIT                                   RED & WHITE INTERNATIONAL 100 BOX
LAOS                                     L&M
LAOS                                     MARLBORO
LATVIA                                   BOND STREET
LATVIA                                   CHESTERFIELD
LATVIA                                   KLAIPEDA
LATVIA                                   L&M
LATVIA                                   MARLBORO
LATVIA                                   PARLIAMENT
LATVIA                                   PHILIP MORRIS
LATVIA                                   RED & WHITE
LEBANON                                  BOND STREET
LEBANON                                  CHESTERFIELD
LEBANON                                  MARLBORO
LEBANON                                  MERIT
LIBERIA                                  BOND STREET
LIBERIA                                  MARLBORO
LITHUANIA                                ASTRA
LITHUANIA                                BOND STREET
LITHUANIA                                KASTITYS
LITHUANIA                                KAUNAS
LITHUANIA                                KLAIPEDA
LITHUANIA                                L&M
LITHUANIA                                MARLBORO
LITHUANIA                                PARLIAMENT
LITHUANIA                                PHILIP MORRIS
LITHUANIA                                PRIMA
LITHUANIA                                RED & WHITE
LUXEMBOURG                               ARMADA
LUXEMBOURG                               Basic
LUXEMBOURG                               CHESTERFIELD
LUXEMBOURG                               L&M
LUXEMBOURG                               MARLBORO
LUXEMBOURG                               MERIT
LUXEMBOURG                               MURATTI
LUXEMBOURG                               PHILIP MORRIS

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

LUXEMBOURG                               VISA
MACAU                                    BOND STREET
MACAU                                    CHESTERFIELD
MACAU                                    GOOD COMPANION
MACAU                                    MARLBORO
MACAU                                    VIRGINIA SLIMS
MACAU                                    VSL
MACEDONIA                                MARLBORO
MADEIRA                                  CHESTERFIELD
MADEIRA                                  L&M
MADEIRA                                  MARLBORO
MADEIRA                                  PORTUGUES
MADEIRA                                  SG
Malagasy                                 MARLBORO
MALAYSIA                                 L&M
MALAYSIA                                 MARLBORO
MALDIVES                                 GOOD COMPANION
MALDIVES                                 MARLBORO
MALTA                                    MARLBORO
MAURITANIA                               CONGRESS
MAURITANIA                               L&M
MAURITANIA                               MARLBORO
MAYOTTE                                  CHESTERFIELD ORIGINALS
MAYOTTE                                  MARLBORO
MEXICO                                   BENSON & HEDGES
MEXICO                                   Faros
MEXICO                                   L&M
MEXICO                                   Lider
MEXICO                                   MARLBORO
MEXICO                                   PARLIAMENT
MEXICO                                   Virginia Slims
MICRONESIA OUTER ISL. DOM                BENSON & HEDGES
MICRONESIA OUTER ISL. DOM                CAMBRIDGE
MICRONESIA OUTER ISL. DOM                MARLBORO
MOLDOVA                                  BOND STREET
MOLDOVA                                  L&M
MOLDOVA                                  MARLBORO
MOLDOVA                                  PARLIAMENT
MOLDOVA                                  RED & WHITE
MONGOLIA                                 BOND STREET
MONGOLIA                                 CONGRESS
MONGOLIA                                 L&M
MONGOLIA                                 MARLBORO
MONGOLIA                                 PARLIAMENT
MOROCCO                                  MARLBORO
Namibia                                  MARLBORO
NAURU                                    ALPINE
NAURU                                    LONGBEACH
NAURU                                    MARLBORO
NAURU                                    PETER JACKSON

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

NEPAL                                    L&M
NEPAL                                    MARLBORO
NETHERLANDS                              CHESTERFIELD
NETHERLANDS                              L&M
NETHERLANDS                              MARLBORO
NETHERLANDS                              OTHER BRANDS
NETHERLANDS                              PHILIP MORRIS
NETHERLANDS                              RUNNER
NEW CALEDONIA                            MARLBORO
NEW CALEDONIA                            LONGBEACH
NEW ZEALAND                              ALPINE
NEW ZEALAND                              MARLBORO
NEW ZEALAND                              LONGBEACH
NEW ZEALAND                              MERIT
NICARAGUA                                L&M
NICARAGUA                                LIDER
NICARAGUA                                MARLBORO
NIGER                                    BOND STREET
NIGER                                    MARLBORO
NIGER                                    VISA
Nigeria                                  BOND STREET
Nigeria                                  MARLBORO
NORFOLK ISLANDS                          ALPINE
NORFOLK ISLANDS                          LONGBEACH
NORFOLK ISLANDS                          MARLBORO
NORFOLK ISLANDS                          PETER JACKSON
NORWAY                                   L&M
NORWAY                                   MARLBORO
NORWAY                                   MERIT
OMAN                                     L&M
OMAN                                     MARLBORO
OMAN                                     MERIT
OMAN                                     NEXT
OMAN                                     RED & WHITE
PAA                                      BOND STREET AMERICAN
PALESTINE                                L&M
PALESTINE                                MARLBORO
PALESTINE                                PARLIAMENT
PANAMA                                   Bond Street
PANAMA                                   L&M
PANAMA                                   MARLBORO
PANAMA                                   MENTOLADOS
PARAGUAY                                 BENSON & HEDGES
PARAGUAY                                 CHESTERFIELD
PARAGUAY                                 MARLBORO
PARAGUAY                                 PHILIP MORRIS
PERU                                     L&M
PERU                                     MARLBORO
PERU                                     PARLIAMENT
PHILIPPINES                              BOWLING GOLD

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

PHILIPPINES                              MARLBORO
PHILIPPINES                              L&M
PHILIPPINES                              MILLER
PHILIPPINES                              PHILIP MORRIS
PHILIPPINES                              STORK INTERNATIONAL
PHILIPPINES                              STORK
POLAND                                   BOND STREET
POLAND                                   CARMEN
POLAND                                   CARO
POLAND                                   CHESTERFIELD
POLAND                                   FAJRANT
POLAND                                   KLUBOWE
POLAND                                   L&M
POLAND                                   Parliament
POLAND                                   MARLBORO
POLAND                                   VIRGINIA SLIMS
POLAND                                   ZEFIR
PORTUGAL                                 AGUIA
PORTUGAL                                 CHESTERFIELD
PORTUGAL                                 DETRO
PORTUGAL                                 DETROIT
PORTUGAL                                 KENTUCKY
PORTUGAL                                 L&M
PORTUGAL                                 MARLBORO
PORTUGAL                                 PM Signature
PORTUGAL                                 PORTUGUES
PORTUGAL                                 RITZ
PORTUGAL                                 SG
PORTUGAL                                 SURF
PRC                                      MARLBORO
QATAR                                    L&M
QATAR                                    MARLBORO
QATAR                                    MERIT
QATAR                                    NEXT
QATAR                                    RED & WHITE
REUNION                                  BASIC
REUNION                                  BOND STREET
REUNION                                  CHESTERFIELD
REUNION                                  MARLBORO
REUNION                                  PHILIP MORRIS
ROMANIA                                  ASSOS
ROMANIA                                  BOND STREET
ROMANIA                                  CALLATIS
ROMANIA                                  CHESTERFIELD
ROMANIA                                  L&M
ROMANIA                                  Mid Price Brand
ROMANIA                                  MARLBORO
ROMANIA                                  PARLIAMENT
ROMANIA                                  PRESIDENT
ROMANIA                                  Virginia Super Slims

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

ROMANIA                                  RED & WHITE
ROMANIA                                  ZET
RUSSIA                                   APOLLO SOYUZ
RUSSIA                                   BOND STREET
RUSSIA                                   CHESTERFIELD
RUSSIA                                   L&M
RUSSIA                                   MARLBORO
RUSSIA                                   MURATTI
RUSSIA                                   NEXT
RUSSIA                                   OPTIMA
RUSSIA                                   PARLIAMENT
RUSSIA                                   VIRGINIA SLIMS
Salvador                                 L&M
SAN MARINO                               CHESTERFIELD
SAN MARINO                               DIANA
SAN MARINO                               MARLBORO
SAN MARINO                               MERIT
SAN MARINO                               MULTIFILTER
SAN MARINO                               MURATTI
SAN MARINO                               PHILIP MORRIS
SAUDI ARABIA                             L&M
SAUDI ARABIA                             MARLBORO
SAUDI ARABIA                             MERIT
SAUDI ARABIA                             PHILIP MORRIS
SAUDI ARABIA                             RED & WHITE
SAUDI ARABIA                             VISA
SENEGAL                                  MARLBORO
SERBIA & MONTENEGRO                      ASSOS
SERBIA & MONTENEGRO                      BEST
SERBIA & MONTENEGRO                      CLASSIC
SERBIA & MONTENEGRO                      DRINA
SERBIA & MONTENEGRO                      EVE
SERBIA & MONTENEGRO                      L&M
SERBIA & MONTENEGRO                      MARLBORO
SERBIA & MONTENEGRO                      MOND
SERBIA & MONTENEGRO                      MORAVA
SERBIA & MONTENEGRO                      VEK
SIERRA LEONE                             ASSOS
SIERRA LEONE                             BOND STREET
SIERRA LEONE                             MARLBORO
SINGAPORE                                L&M
SINGAPORE                                MARLBORO
SINGAPORE                                RAFFLES
SINGAPORE                                VIRGINIA SLIMS
SINGAPORE                                VSL
SLOVAK REPUBLIC                          ARTA
SLOVAK REPUBLIC                          BOND STREET
SLOVAK REPUBLIC                          CHESTERFIELD
SLOVAK REPUBLIC                          L&M
SLOVAK REPUBLIC                          Petra

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

SLOVAK REPUBLIC                          MARLBORO
SLOVAK REPUBLIC                          RED & WHITE
SLOVAK REPUBLIC                          START
SLOVENIA                                 BOND STREET
SLOVENIA                                 CHESTERFIELD
SLOVENIA                                 DIANA
SLOVENIA                                 EVE
SLOVENIA                                 L&M
SLOVENIA                                 MARLBORO
SLOVENIA                                 MERIT
SLOVENIA                                 MULTIFILTER
SLOVENIA                                 MURATTI
SLOVENIA                                 PHILIP MORRIS
SOUTH AFRICA                             CHESTERFIELD
SOUTH AFRICA                             MARLBORO
SOUTH AFRICA                             MERIT
Spain                                    L&M
Spain                                    Next
SPAIN MAINLAND                           CHESTERFIELD
SPAIN MAINLAND                           L&M
SPAIN MAINLAND                           LARK
SPAIN MAINLAND                           MARLBORO
SPAIN MAINLAND                           MERIT
SPAIN MAINLAND                           PHILIP MORRIS
SWEDEN                                   BASIC
SWEDEN                                   BOND
SWEDEN                                   CHESTERFIELD
SWEDEN                                   L&M
SWEDEN                                   MARLBORO
SWITZERLAND                              Brunette
SWITZERLAND                              ARLETTE
SWITZERLAND                              CHESTERFIELD
SWITZERLAND                              L&M
SWITZERLAND                              FLINT
SWITZERLAND                              MARLBORO
SWITZERLAND                              MERIT
SWITZERLAND                              MURATTI
SWITZERLAND                              MULTIFILTER
SWITZERLAND                              NORTH POLE
SWITZERLAND                              OTHER BRANDS
SWITZERLAND                              PHILIP MORRIS
SYRIA                                    MARLBORO
SYRIA                                    MERIT
TADJIKISTAN                              BOND STREET
TADJIKISTAN                              L&M
TADJIKISTAN                              MARLBORO
TAIWAN                                   L&M
TAIWAN                                   MARLBORO
TAIWAN                                   LARK
TAIWAN                                   PARLIAMENT

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

TAIWAN                                   SARATOGA
TAIWAN                                   VIRGINIA SLIMS
THAILAND                                 MARLBORO
THAILAND                                 L&M
The Netherlands                          BLEND
The Netherlands                          L&M
TOGO                                     BOND STREET
TOGO                                     MARLBORO
TOGO                                     VISA
TONGA                                    ALPINE
TONGA                                    MARLBORO
TUNISIA                                  MARLBORO
TUNISIA                                  MERIT
TURKEY                                   BOGAZICI
TURKEY                                   CHESTERFIELD
TURKEY                                   L&M
TURKEY                                   LARK
TURKEY                                   MARLBORO
TURKEY                                   MURATTI
TURKEY                                   PARLIAMENT
TURKEY                                   TURKU
TURKISH CYPRUS                           CHESTERFIELD
TURKISH CYPRUS                           EVE
TURKISH CYPRUS                           L&M
TURKISH CYPRUS                           MARLBORO
TURKISH CYPRUS                           MURATTI
TURKISH CYPRUS                           PARLIAMENT
TURKISH CYPRUS                           PHILIP MORRIS
TURKISH CYPRUS                           RED & WHITE
TURKMENISTAN                             BOND STREET
TURKMENISTAN                             CONGRESS
TURKMENISTAN                             L&M
TURKMENISTAN                             MARLBORO
TURKMENISTAN                             PARLIAMENT
UAE                                      PARLIAMENT
UAE                                      NEXT
UK                                       BASIC
UKRAINE                                  APOLLO SOYUZ
UKRAINE                                  ASTRA
UKRAINE                                  BOND STREET
UKRAINE                                  CHESTERFIELD
UKRAINE                                  KOSMOS
UKRAINE                                  L&M
UKRAINE                                  MARLBORO
UKRAINE                                  NEXT
UKRAINE                                  OPTIMA
UKRAINE                                  PARLIAMENT
UKRAINE                                  VATRA
UKRAINE                                  VIRGINIA SLIMS
UNITED ARAB EMIRATES                     L&M

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

UNITED ARAB EMIRATES                     MARLBORO
UNITED ARAB EMIRATES                     MERIT
UNITED ARAB EMIRATES                     PHILIP MORRIS
UNITED ARAB EMIRATES                     RED & WHITE
UNITED KINGDOM                           CHESTERFIELD
UNITED KINGDOM                           MARLBORO
UNITED KINGDOM                           RAFFLES
URUGUAY                                  CASINO
URUGUAY                                  FIESTA
URUGUAY                                  L&M
URUGUAY                                  GALAXY
URUGUAY                                  MARLBORO
URUGUAY                                  MASTER
URUGUAY                                  PHILIP MORRIS
URUGUAY                                  PREMIER
VANUATU                                  ALPINE
VANUATU                                  LONGBEACH
VANUATU                                  MARLBORO
VANUATU                                  PETER JACKSON
VENEZUELA                                ASTOR
VENEZUELA                                Bond
VENEZUELA                                FORTUNA
VENEZUELA                                L&M
VENEZUELA                                LIDO
VENEZUELA                                MARLBORO
VIETNAM                                  MARLBORO
WEST SAMOA                               MARLBORO
WWDF                                     ALPINE
WWDF                                     ARLETTE
WWDF                                     ASSOS
WWDF                                     BELMONT
WWDF                                     BENSON & HEDGES
WWDF                                     BOND STREET
WWDF                                     BRUNETTE
WWDF                                     CHESTERFIELD
WWDF                                     DIANA
WWDF                                     EVE
WWDF                                     F 6
WWDF                                     FLINT
WWDF                                     L&M
WWDF                                     LARK
WWDF                                     LONGBEACH
WWDF                                     MARLBORO
WWDF                                     MERCEDES
WWDF                                     MERIT
WWDF                                     MULTIFILTER
WWDF                                     MURATTI
WWDF                                     NEXT
WWDF                                     NORTH POLE
WWDF                                     PARLIAMENT

<PAGE>

                                   APPENDIX I

Country (Market)                            Brand
----------------                            -----

WWDF                                     PETER JACKSON
WWDF                                     PHILIP MORRIS
WWDF                                     PLAYER'S
WWDF                                     ROTHMANS
WWDF                                     SG
WWDF                                     VIRGINIA SLIMS
YEMEN                                    MARLBORO

<PAGE>

                        APPENDIX J - LIST OF ARBITRATORS

1.       Walter van Gerven
         Cermarsinstraat 42
         B-3012 Wilsele
         Belgium

2.       Hans Van Houtte
         Institute for International Trade Law
         Faculty of Law
         B-3000 Leuven
         Belgium

<PAGE>

                                   APPENDIX K
                                   ----------

Amending the Baseline Amount
----------------------------

     The Parties established the Baseline Amount as a reasonable estimate of the
annual quantity of seizures of Contraband Philip Morris Cigarettes they might
expect in the Territory of the Member States as of January 1, 2004. The Parties
recognize, however, that as New Member States join the European Union, as
Non-Participating Member States wish to become Participating Member States, and
as circumstances change with respect to the movement and pricing of Cigarettes
in the Member States, the Baseline Amount may require adjustment so that it
continues to comport with the reasonable expectations of the Parties. In
determining whether to adjust the Baseline Amount, and if so, by what amount,
the following shall be considered:

1)   The size of the Philip Morris Cigarette market(s) in the New Member States
     whose seizures of Contraband Philip Morris Cigarettes are likely to result
     in Supplemental Payments in the following calendar year but whose incidence
     of Contraband Philip Morris Cigarettes is not already factored into the
     Baseline Amount, as well as the incidence of Contraband Philip Morris
     Cigarettes in such New Member States. In determining the size of the market
     for Philip Morris Cigarettes and the incidence of Contraband Philip Morris
     Cigarettes in the New Member States, the Parties shall take account of and
     rely on:

     a)   Historical seizure data;

     b)   Available studies and reports of the industry;

     c)   Philip Morris International data and reports;

     d)   Reliable published information;

     e)   Joint studies, if any, conducted by the European Community and Philip
          Morris International concerning contraband and counterfeit volumes,
          contraband and counterfeit flows, cigarette sales, cigarette seizures,
          or other matters reasonably relevant to this Agreement;

     f)   Reports generated by independent third-party companies retained by
          Philip Morris International, in accordance with methodology agreed to
          by the Parties, whose business involves in whole or in part the
          monitoring of Cigarette sales and distribution; and

     g)   Available data published by the European Community and the Member
          States;

2)   The incidence of Contraband Cigarettes and Counterfeit Cigarettes in the
     New Member State(s) and the incidence of Contraband and Counterfeit
     Cigarettes manufactured by entities other than Philip Morris International,
     as measured by one or more independent companies retained by Philip Morris
     International; and

3)   The situation concerning the maintenance and protection of the European
     Community's Customs border as published in official reports and other
     reliable sources.

<PAGE>

Amending Supplemental Payment Obligations
-----------------------------------------

     The Supplemental Payment regime set forth in Article 4 of the Agreement
reinforces Philip Morris International's commitment to take commercially
reasonable steps as a manufacturer of Cigarettes to promote the Parties' joint
objective that Philip Morris Cigarettes be sold, distributed, stored, and
shipped in accordance with all applicable fiscal and legal requirements, and, in
particular, sold at retail in accordance with all applicable tax and duty laws
in the intended retail market, and in quantities consistent with legitimate
Retail Demand in such intended market. The Parties recognize that there are
factors within the control and factors outside the control of Philip Morris
International and that the Supplemental Payment regime was designed with
reference to a reasonable estimate of the annual quantity of seizures of
Contraband Philip Morris Cigarettes they might expect in the Territory of the
Member States as of January 1, 2004, in light of the substantial efforts of the
Parties in their ongoing fight against the illegal trade in Cigarettes.

     The Parties also recognize, however, that as New Member States join the
European Union, as Non-Participating Member States wish to become Participating
Member States, and as circumstances change with respect to the movement and
pricing of Cigarettes in the Member States, problems could arise that might
bring about serious imbalances in the application of the obligations of Philip
Morris International under Article 4 of the Agreement, requiring their possible
amendment so that they continue to comport with the reasonable expectations of
the Parties that the provisions of Article 4 will serve as an incentive for
Philip Morris International to address factors within its control and to comply
with its obligations under this Agreement, but not as a mechanism to increase
Philip Morris International's obligations by virtue of factors outside the
control of Philip Morris International.

     In determining whether to amend the provisions of, and the obligations of
Philip Morris International under, Article 4, the Parties shall consider whether
there has been a significant increase in the incidence of Contraband Philip
Morris Cigarettes in any Member State whose seizures of Contraband Philip Morris
Cigarettes are likely to result in Supplemental Payments in the following
calendar year. If there has been a significant increase in such incidence
substantially caused by external factors, as evidenced by the fact that a
substantial portion of the seizures of Philip Morris Contraband Cigarettes are
Cigarettes for which applicable taxes on the retail price have been paid in a
non-Member State, the Parties shall either amend, or provide Philip Morris
International with appropriate relief from the obligations under Article 4.
However, amendment of, or relief from, Supplemental Payment obligations is only
appropriate where (i) the significant increase in the incidence of Contraband
Philip Morris Cigarettes in that Member State is not substantially attributable
to a failure on the part of Philip Morris International to adhere to the terms
of this Agreement, and (ii) Philip Morris International can reasonably
demonstrate that its sales to a pertinent Intended Market of Retail Sale are
consistent with reasonable estimates of legitimate Retail Demand in such
Intended Market of Retail Sale, and such market seems to account for a
meaningful proportion of the increase in such incidence as described above.

                                       2

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