Document:

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                                                                    Exhibit 10.3
                                                                    ------------

                             TAX SHARING AGREEMENT

     This Tax Sharing Agreement (the "Agreement") dated as of April 11, 2001 is
between Philip Morris Companies Inc., a Virginia corporation ("Companies"), and
Kraft Foods Inc., a Virginia corporation ("Kraft") (sometimes referred to herein
individually as "Party", or together, as "Parties").

     WHEREAS, Companies is the common parent corporation of an affiliated group
of corporations (the "Companies Consolidated Return Group") within the meaning
of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the
"Code"); and

     WHEREAS, Kraft is a member of the affiliated group of corporations with
respect to which Companies is the common parent corporation;

     WHEREAS, the Companies Consolidated Return Group has filed and intends to
file consolidated income tax returns permitted by Section 1501 of the Code and
similar laws of other jurisdictions;

     WHEREAS, Companies and Kraft desire to agree upon a method of determining
the financial consequences to each Party resulting from the filing of
consolidated or combined income tax returns;

     WHEREAS, Kraft desires to be indemnified by Companies with respect to
certain tax liabilities and Companies is willing to so indemnify Kraft; and

     WHEREAS, Companies desires to be indemnified by Kraft with respect to
certain tax liabilities, and Kraft is willing to so indemnify Companies;

     NOW, THEREFORE in consideration of the premises and mutual covenants herein
contained, the Parties hereby agree as follows:

1.   Definitions.  For the purposes of this Agreement, the terms set forth below
     -----------
shall have the following meanings.

               "Combined State Tax" means, with respect to each state or local
                ------------------
taxing jurisdiction, any income or franchise tax payable to such state or local
taxing jurisdiction in which a member of the Kraft Group, as defined below,
files tax returns with a member of a Companies Consolidated Return Group that is
not also a member of the Kraft Group on a consolidated, combined or unitary
basis for purposes of such income or franchise tax.

               "Federal Income Tax" means any tax imposed under Subtitle A of
                ------------------
the Code.
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               "Final Determination" shall mean (i) with respect to Federal
                -------------------
Income Taxes, a "determination" as defined in Section 1313(a) of the Code or
execution of an Internal Revenue Service Form 870-AD and, with respect to taxes
other than Federal Income Taxes, any final determination of liability in respect
of a tax that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations); or (ii) the payment of tax by
any member of the Companies Consolidated Return Group with respect to any item
disallowed or adjusted by a Taxing Authority (as hereinafter defined), provided
that Companies determines that no action should be taken to recoup such payment.

               "Kraft Combined State Tax Liability" shall mean, with respect to
                ----------------------------------
any taxable year, an amount of Combined State Taxes, including any interest,
penalties and other additions to such taxes for such taxable year, other than
those attributable to Companies's negligence, determined by taking the total
separately computed state income or franchise tax liabilities of the Kraft Group
over the total separately computed state income or franchise tax liabilities of
the Companies Consolidated Return Group multiplied by the combined state income
or franchise tax liability of the Companies Consolidated Return Group.

               "Kraft Current Federal Income Tax Provision" shall mean, with
                ------------------------------------------
respect to any financial statement year, the sum of the Kraft Group's current
federal income tax provision determined in accordance with U.S. Generally
Accepted Accounting Principles ("GAAP"), recorded on the Kraft Group's books and
records and reported in the Kraft Group's published financial statements.

               "Kraft Federal Income Tax Liability" shall mean, with respect to
                ----------------------------------
any taxable year, the sum of the Kraft Group's Federal Income Tax liability and
any interest, penalties and other additions to such taxes for such taxable year,
other than those attributable to Companies's negligence (as determined under the
applicable principles of agency law rather than Code Section 6662), computed as
if the Kraft Group were not and never were part of the Companies Consolidated
Return Group, but rather were a separate affiliated group of corporations filing
a consolidated United States Federal Income Tax return pursuant to Section 1501
of the Code (provided, however, that transactions with members of the PM
Companies Non-Food Group, as defined below, shall be reflected according to the
provisions of the consolidated return regulations promulgated under the Code
governing intercompany transactions). Such computation shall be made: (A)
without regard to the income, deductions (including net operating loss and
capital loss deductions) and credits in any year of any member of the Companies
Consolidated Return Group that is not a member of the Kraft Group, (B) by taking
account of any Tax Asset of the Kraft Group in accordance with Section 2(c)
hereof, (C) with regard to net operating loss and capital loss carryforwards and
carrybacks and minimum tax credits from earlier years of the Kraft Group, (D) as
though the highest rate of tax specified in Section 11(b) of the Code were the
only rate set forth in that subsection, and (E) reflecting the positions,
elections and accounting methods and periods used with respect to the Kraft
Group in preparing the Companies consolidated Federal Income Tax return.

               "Kraft Group" shall mean Kraft and any direct or indirect
                -----------
corporate subsidiaries of Kraft that would be eligible, from time to time, to
join with Kraft, with respect to

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Federal Income Taxes, in the filing of a consolidated United States Federal
Income Tax return and, with respect to Combined State Taxes, in the filing of a
consolidated, combined or unitary income or franchise tax return if Kraft were
not a member of the Companies Consolidated Return Group.

               "Kraft Group Tax" means (i) Kraft Federal Income Tax Liability;
                ---------------
(ii) Kraft Combined State Tax Liability; (iii) any other tax imposed on any
member of the Kraft Group with respect to any taxable year, or, with respect to
any taxable year, any other tax imposed on any direct or indirect subsidiary or
affiliate of Kraft that is not a member of the Kraft Group, including any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license, withholding
on amounts paid to or by any member of the Kraft Group, payroll, employment,
excise, severance, stamp, capital stock, occupation, property, real property
gains, environmental or windfall profit tax, premium, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Taxing Authority responsible for the imposition of any such tax
(United States or non-United States); and (iv) liability of any member of the
Kraft Group for the payment of any amounts of the type described in (i), (ii) or
(iii) as a result of any express or implied obligation to indemnify any other
person.

               "Kraft Pro Forma Combined State Return" means, for each state in
                -------------------------------------
which a combined state income tax return may be filed, either a formal combined
state income tax return, or, in the alternative, a schedule on which the Kraft
Combined State Tax Liability is reflected.

               "Kraft Pro Forma Federal Return" means either a formal Form 1120,
                ------------------------------
or, in the alternative, a schedule on which the Kraft Federal Income Tax
Liability is reflected.

               "PM Companies Non-Food Group" means Companies and any direct or
                ---------------------------
indirect corporate subsidiaries or affiliates of Companies other than the Kraft
Group.

               "PM Companies Non-Food Group Tax" means (i) the Federal Income
                -------------------------------
Tax liability of the Companies Consolidated Return Group less the Kraft Federal
Income Tax Liability; (ii) the Companies Combined State Tax liability less the
Kraft Combined State Tax Liability; (iii) any other tax imposed on any member of
the PM Companies Non-Food Group, including any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding on amounts paid to or by any
member of the PM Companies Non-Food Group, payroll, employment, excise,
severance, stamp, capital stock, occupation, property, real property gains,
environmental or windfall profit tax, premium, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Taxing Authority responsible for the imposition of any such tax
(United States or non-United States); and (iv) liability of any member of the PM
Companies Non-Food Group for the payment of any amounts of the type described in
(i), (ii) or (iii) as a result of any express or implied obligation to indemnify
any other person.

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               "Tax Asset" means any federal or state net operating loss, net
                ---------
capital loss, general business credit, foreign tax credit, charitable deduction,
or any other loss, credit, deduction, or tax attribute which could reduce any
tax (including, without limitation, deductions, credits, alternative minimum net
operating loss carryforwards related to alternative minimum taxes or additions
to the basis of property).

               "Taxing Authority" means any governmental authority (whether
                ----------------
United States or non-United States, and including, without limitation, any
state, municipality, political subdivision or governmental agency) responsible
for the imposition of any tax.

2.   Tax Sharing.
     -----------

     (a)  General.  As specifically provided for in Sections 2(b) through 2(e)
          -------
of this Agreement, for each financial statement year of the Companies
Consolidated Return Group ending after the effective date of this Agreement,
during which income, loss or credits against tax of the Kraft Group are
includible in the United States consolidated Federal Income Tax return of the
Companies Consolidated Return Group, Kraft shall pay to Companies an amount
equal to the sum of the Kraft Federal Income Tax Liability for such taxable year
as shown on a Kraft Pro Forma Federal Return plus a net amount reasonably
determined by Companies to cover Kraft Federal Income Tax Liabilities
attributable to current or prior years that is not otherwise reflected in the
Kraft Pro Forma Federal Returns for such years. For each taxable year of the
Companies Consolidated Return Group, ending after the effective date of this
Agreement, during which income, loss or credits against tax of the Kraft Group
are includible in a Combined State Tax Return of Companies Consolidated Return
Group, Kraft shall pay to Companies an amount equal to the Kraft Combined State
Tax Liability for such taxable year as shown on a Kraft Pro Forma Combined State
Return.

     (b)  Payment of Taxes.
          ----------------

          (i)  Quarterly Payments.  Not later than fifteen days after the end of
               ------------------
each quarter, or in the case of the last quarter of Kraft's financial statement
year, immediately prior to the closing of the books for such financial
statement, Kraft shall identify the Kraft Current Federal Income Tax Provision
for such quarter, determined in accordance with United States GAAP, on its books
and immediately thereafter transfer such amount, by way of an intercompany
transfer, to the books of Companies.

          (ii) Preparation and Delivery of Estimated Pro Formas.  On the date
               ------------------------------------------------
that is five business days prior to the due date for the Companies Consolidated
Return Group's consolidated Federal Income Tax return, Companies shall deliver
to Kraft a Kraft Pro Forma Federal Return reflecting the Kraft Federal Income
Tax Liability on an estimated basis. On the date that is five business days
prior to the due date for each Combined State Tax return, Companies shall
deliver to Kraft a Kraft Pro Forma Combined State Return (together with the
Kraft Pro Forma Federal Return, the "Kraft Pro Forma Returns") reflecting the
relevant Kraft Combined State Tax Liability on an estimated basis. Companies's
preparation and delivery of the Kraft Pro Forma Federal Return shall include
related schedules and returns, including, but not limited to, preparation of
Form 1118 or in the alternative, a schedule reflecting what is on

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Form 1118, for purposes of computing any separate foreign tax credit limitation
under Section 904(d) of the Code.

          (iii)  Preparation and Delivery of Final Pro Formas.  On or before
                 --------------------------------------------
November 1 following the end of the taxable year of any year for which payments
are to be made under this Agreement, Companies shall deliver to Kraft a Kraft
Pro Forma Federal Return reflecting the Kraft Federal Income Tax Liability.  On
or before December 15 following the end of the taxable year of any year for
which payments are to be made under this Agreement, Companies shall deliver to
Kraft a Kraft Pro Forma Combined State Return reflecting the relevant Kraft
Combined State Tax Liability.  As with the estimated Kraft Pro Forma Federal
Return delivered by Companies under Section 2(b)(ii) of this Agreement,
Companies's preparation and delivery of the Kraft Pro Forma Federal Return
hereunder shall include related schedules and returns, including, but not
limited to, preparation of Form 1118 or in the alternative, a schedule
reflecting what is on Form 1118, for purposes of computing any separate foreign
tax credit limitation under Section 904(d) of the Code.

          (iv)   Reconciliation of Payments.  On or before November 1 following
                 --------------------------
the end of the taxable year of any year for which payments are to be made under
this Agreement, Kraft shall pay to Companies, or Companies shall pay to Kraft,
as appropriate, an amount equal to the difference, if any, between: (x) the
Kraft Federal Income Tax Liability reflected on the Kraft Pro Forma Federal
Return for such year, plus a net amount reasonably determined by Companies to
cover Kraft Federal Income Tax Liabilities attributable to current or prior
taxable years that is not otherwise reflected in the Kraft Pro Forma Federal
Return for such years; and (y) the aggregate amount of the quarterly payments of
the Kraft Current Federal Income Tax Provision for such year made pursuant to
Section 2(b)(i) of this Agreement.  On or before December 15 following the end
of the taxable year of any year for which payments are to be made under this
Agreement, Kraft shall pay to Companies the Kraft Combined State Tax Liability
as reflected on the Kraft Pro Forma Combined State Return.

     (c)  Use of Tax Assets.  If a Kraft Pro Forma Return reflects a Tax Asset
          -----------------
that may under applicable law be used to reduce a Federal Income Tax or Combined
State Tax liability of the PM Companies Non-Food Group for any taxable period,
Companies shall pay to Kraft an amount equal to the actual tax saving produced
by such Tax Asset at the time such saving is realized by the PM Companies Non-
Food Group.  The amount of any such tax saving for any taxable period shall be
the amount of the reduction in taxes payable to a Taxing Authority with respect
to such tax period as compared to the taxes that would have been payable to a
Taxing Authority by the PM Companies Non-Food Group with respect to such tax
period in the absence of such Tax Asset.

     (d)  Treatment of Adjustments.  Except as provided in Section 3(a) below,
          ------------------------
if any adjustment (including any adjustment affecting the use of a Tax Asset,
but not including any adjustment resulting in a refund under Section 4 below) is
made in a tax return of the Companies Consolidated Return Group, after the
filing thereof, in which income or loss of the Kraft Group is included, then at
the time of a Final Determination of the adjustment, Kraft shall pay to
Companies or Companies shall pay to Kraft (or Companies shall apply against
amounts due from Kraft under Section 2(b)(iv) of this Agreement), as the case
may be: (i) the difference between

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(x) all net payments actually made under Section 2 with respect to the taxable
year covered by such tax return, and (y) all payments that would have been made
under Section 2 taking such adjustment into account, together with any penalties
actually paid, plus (ii) interest on such difference for each day, beginning on
the due date of such return without regard to extensions and ending on the date
of Final Determination, calculated at the rate determined, in the case of a
payment by Kraft, under Section 6621(a)(2) of the Code as modified by Section
6621(c) of the Code and, in the case of a payment by Companies, at the
intercompany rate utilized between Companies and Kraft from the date(s) of
payment determined on the basis of the most recent payments and ending on the
date of Final Determination.

     (e)  Preparation of Returns.  So long as the Companies Consolidated Return
          ----------------------
Group elects to file consolidated Federal Income Tax returns as permitted by
Section 1501 of the Code or any Combined State Tax return, Companies shall
prepare and file such returns and any other returns, documents or statements
required to be filed with the Internal Revenue Service with respect to the
determination of the Federal Income Tax liability of the Companies Consolidated
Return Group and with the appropriate Taxing Authorities with respect to the
determination of the Combined State Tax liability of the Companies Consolidated
Return Group.  With respect to such return preparation, Companies shall not
discriminate among any members of the Companies Consolidated Return Group.
Companies shall have the right with respect to any consolidated Federal Income
Tax returns or Combined State Tax returns that it has filed or will file to
determine (i) the manner in which such returns, documents or statements shall be
prepared and filed, including, without limitation, the manner in which any item
of income, gain, loss, deduction or credit shall be reported; (ii) whether any
extensions should be requested; and (iii) the elections that will be made by any
member of the Companies Consolidated Return Group.  Companies shall not take any
unreasonable position in preparing the Kraft Pro Forma Returns; however, any
dispute with respect to the filing of such consolidated Federal Income Tax
return or Combined State Tax return shall be resolved pursuant to Section 7 of
this Agreement.  In addition, Companies shall have the right to (i) contest,
compromise, or settle any adjustment or deficiency proposed, asserted or
assessed as a result of any audit of any consolidated or combined return filed
by the Companies Consolidated Return Group; (ii) file, prosecute, compromise or
settle any claim for refund; and (iii) determine whether any refunds to which
the Companies Consolidated Return Group may be entitled shall be received by way
of refund or credited against the tax liability of the Companies Consolidated
Return Group; provided, however, that Companies shall be obligated to act in
good faith with regard to all members of the Companies Consolidated Return Group
included in the applicable returns.  Each member of the Kraft Group hereby
irrevocably appoints Companies as its agent and attorney-in-fact to take any
action (including the execution of documents) Companies may deem necessary or
appropriate to implement this Section 2(e).

3.   Indemnification.
     ---------------

     (a)  Companies will indemnify the Kraft Group against and hold it harmless
from (i) any adjustments by a Taxing Authority to any and all Kraft Federal
Income Taxes to the extent of the amounts previously transferred from Kraft to
Companies with respect to any Kraft Federal Income Tax Liability; (ii) any
adjustments by a Taxing Authority to any and all PM Companies Non-Food Group
Taxes; and (iii) all liabilities, costs, expenses (including, without
limitation,

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<PAGE>

reasonable expenses of investigation and attorney's fees and expenses), losses,
damages, assessments, settlements or judgments arising out of or incident to the
imposition, assessment or assertion of any Federal Income Tax described in (i)
or (ii).

     (b)  To the extent not already provided for in Section 2(d) hereof, Kraft
will indemnify Companies against and hold it harmless from (i) any adjustments
by a Taxing Authority to any and all Kraft Group Taxes, other than amounts for
Kraft Federal Income Taxes to the extent of the amounts previously transferred
from Kraft to Companies; and (ii) all liabilities, costs, expenses (including,
without limitation, reasonable expenses of investigation and attorney's fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any Tax described in
(i).

4.   Refunds.
     -------

     (a)  If, with respect to any tax indemnifiable by Kraft pursuant to Section
3(b) of this Agreement, Companies receives a refund, offset or credit, Companies
shall promptly remit to Kraft the amount of such refund, offset or credit,
together with any interest received thereon.

     (b)  If, with respect to any tax indemnifiable by Companies pursuant to
Section 3(a) of this Agreement, Kraft receives a refund, offset or credit, Kraft
shall promptly remit to Companies the amount of such refund, offset or credit,
together with any interest received thereon.

     (c)  Companies or Kraft, as the case may be, will be entitled to a payment
equal to any refunds, offsets or credits only after the party which has received
an offset, credit or refund has actually secured the cash benefit of such
refund, offset or credit. For purposes of this Section 4(c), the Party entitled
to a refund, offset or credit shall be considered to use any other losses,
deductions, amortization, exclusions from income, offsets, credits, other
allowances or any carryforwards or carrybacks of such items prior to securing
the benefit of such refund, offset or credit. No indemnification payment due
pursuant to Section 3 of this Agreement will be reduced by any amount
attributable to a refund, offset or credit unless and until the cash benefit of
such refund, offset or credit has been actually secured in accordance with this
Section 4(c).

5.   Term.  This Agreement shall expire in the event that the Kraft Group is no
     ----
longer eligible to join with the Companies Consolidated Return Group in the
filing of a consolidated Federal Income Tax return; provided, however, that all
rights and obligations arising hereunder shall survive until they are fully
effectuated or performed unless superseded by mutual agreement of the Parties.

6.   Successors.  This agreement shall be binding on and inure to the benefit of
     ----------
any successor, by merger, acquisition of assets or otherwise, to any of the
Parties hereto (including but not limited to any successor of Companies and
Kraft succeeding to the tax attributes of such party under Section 381 of the
Code), to the same extent as if such successor had been an original party
hereto.

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<PAGE>

7.   Dispute Resolution.  If the Parties hereto are unable to resolve any
     ------------------
disagreement or dispute relating to this Agreement, including the interpretation
or application thereof, within 20 days, Companies shall resolve such
disagreement or dispute.  Any such resolution shall be binding on the Parties to
this Agreement without further recourse.

8.   Authorization, etc.  Each of the Parties hereto hereby represents and
     ------------------
warrants that it has the power and authority to execute, deliver and perform
this Agreement; that this Agreement has been duly authorized by all necessary
corporate action on the part of such Party; that this Agreement constitutes a
legal, valid and binding obligation of each such Party; and that the execution,
delivery and performance of this Agreement by such Party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such Party.

9.   Section Captions.  Section captions used in this Agreement are for
     ----------------
convenience and underline reference only and shall not affect the construction
of this Agreement.

10.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
     -------------
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA WITHOUT GIVING EFFECT
TO LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW.

11.  Counterparts.  This Agreement may be executed in any number of
     ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.

12.  Waivers and Amendments.  This Agreement shall not be waived, amended or
     ----------------------
otherwise modified except in writing, duly executed by all of the Parties
hereto.

13.  Effective Date.  This Agreement shall be effective as of January 1, 2001.
     --------------

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<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this agreement to
be executed by a duly authorized officer as of the date first above written.

                                        PHILIP MORRIS COMPANIES INC.

                                        By: /s/ Bruce S. Brown
                                            -----------------------

                                        Name:  Bruce S. Brown

                                        Title: Vice President, Taxes

                                        KRAFT FOODS INC.

                                        By: /s/ James P. Dollive
                                            -----------------------

                                        Name:  James P. Dollive

                                        Title: Chief Financial Officer

                                       9<PAGE>

                                                                 Exhibit 10.4
                                                                 ------------

                               KRAFT FOODS INC.

                        2001 PERFORMANCE INCENTIVE PLAN

Section 1.  Purpose; Definitions.

The purpose of the Plan is to support the Company's ongoing efforts to develop
and retain world-class leaders and to provide the Company with the ability to
provide incentives more directly linked to the profitability of the Company's
businesses and increases in shareholder value.

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

   a.       "Annual Incentive Award" means an Incentive Award made pursuant to
   Section 5(a)(v) with a Performance Cycle of one year or less.

   b.       "Awards" mean grants under the Plan of Incentive Awards, Stock
   Options, Stock Appreciation Rights, Restricted Stock or Other Stock-
   Based Awards.

   c.       "Board" means the Board of Directors of the Company.

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

   e.       "Commission" means the Securities and Exchange Commission or any
   successor agency.

   f.       "Committee" means the Compensation Committee of the Board or a
   subcommittee thereof, any successor thereto or such other committee or
   subcommittee as may be designated by the Board to administer the Plan.

   g.       "Common Stock" or "Stock" means the Class A Common Stock of the
   Company.

   h.       "Company" means Kraft Foods Inc., a corporation organized under the
   laws of the Commonwealth of Virginia, or any successor thereto.

   i.       "Economic Value Added" means net after-tax operating profit less the
   cost of capital.

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

   k.       "Exercise Period" means the 60-day period from and after a Change in
   Control.

   l.       "Fair Market Value" means, as of any given date, the mean between
   the highest and lowest reported sales prices of the Common Stock on the New
   York Stock Exchange-Composite Transactions or, if no such sale of Common
   Stock is reported on such date, the
<PAGE>

   fair market value of the Stock as determined by the Committee in good faith;
   provided, however, that the Committee may in its discretion designate the
   actual sales price as Fair Market Value in the case of dispositions of Common
   Stock under the Plan.

   m.       "Incentive Award" means any Award that is either an Annual Incentive
   Award or a Long-Term Incentive Award.

   n.       "Incentive Stock Option" means any Stock Option that complies with
   Section 422 (or any amended or successor provision) of the Code.

   o.       "Long-Term Incentive Award" means an Incentive Award made pursuant
   to Section 5(a)(v) with a Performance Cycle of more than one year.

   p.       "Nonqualified Stock Option" means any Stock Option that is not an
   Incentive Stock Option.

   q.       "Other Stock-Based Award" means an Award made pursuant to Section
   5(a)(iii).

   r.       "Performance Cycle" means the period selected by the Committee
   during which the performance of the Company or any subsidiary, affiliate or
   unit thereof or any individual is measured for the purpose of determining the
   extent to which an Award subject to Performance Goals has been earned.

   s.       "Performance Goals" mean the objectives for the Company or any
   subsidiary or affiliate or any unit thereof or any individual that may be
   established by the Committee for a Performance Cycle with respect to any
   performance-based Awards contingently awarded under the Plan. Performance
   Goals may be provided in absolute terms, or in relation to the Company's peer
   group. The Company's peer group will be determined by the Committee, in its
   sole discretion. The Performance Goals for Awards that are intended to
   constitute "performance-based" compensation within the meaning of Section
   162(m) (or any amended or successor provision) of the Code shall be based on
   one or more of the following criteria: earnings per share, total shareholder
   return, return on equity, return on capital, net income, cash flow, operating
   income or Economic Value Added.

   t.       "Plan" means this Kraft Foods Inc. 2001 Performance Incentive Plan,
   as amended from time to time.

   u.       "Restricted Period" means the period during which an Award may not
   be sold, assigned, transferred, pledged or otherwise encumbered.

   v.       "Restricted Stock" means an Award of shares of Common Stock pursuant
   to Section 5(a)(iv).

                                       2
<PAGE>

    w.      "Spread Value" means, with respect to a share of Common Stock
    subject to an Award, an amount equal to the excess of the Fair Market Value,
    on the date such value is determined, over the Award's exercise or grant
    price, if any.

    x.      "Stock Appreciation Right" or "SAR" means a right granted pursuant
    to Section 5(a)(ii).

    y.      "Stock Option" means an Incentive Stock Option or a Nonqualified
    Stock Option granted pursuant to Section 5(a)(i).

In addition, the terms "Business Combination," "Change in Control," "Change in
Control Price," "Incumbent Board," "Outstanding Company Stock," "Outstanding
Company Voting Securities" and "Person" have the meanings set forth in Section
6.

Section 2.  Administration.

The Plan shall be administered by the Committee, which shall have the power to
interpret the Plan and to adopt such rules and guidelines for carrying out the
Plan as it may deem appropriate. The Committee shall have the authority to adopt
such modifications, procedures and subplans as may be necessary or desirable to
comply with the laws, regulations, compensation practices and tax and accounting
principles of the countries in which the Company, a subsidiary or an affiliate
may operate to assure the viability of the benefits of Awards made to
individuals employed in such countries and to meet the objectives of the Plan.

Subject to the terms of the Plan, the Committee shall have the authority to
determine those employees eligible to receive Awards and the amount, type and
terms of each Award and to establish and administer any Performance Goals
applicable to such Awards. The Committee may delegate its authority and power
under the Plan to one or more officers of the Company, subject to guidelines
prescribed by the Committee, but only with respect to participants who are not
subject to either Section 16 (or any amended or successor provision) of the
Exchange Act or Section 162(m) (or any amended or successor provision) of the
Code.

Any determination made by the Committee or by one or more officers pursuant to
delegated authority in accordance with the provisions of the Plan with respect
to any Award shall be made in the sole discretion of the Committee or such
delegate, and all decisions made by the Committee or any appropriately
designated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.

Section 3.  Eligibility.

Salaried employees of the Company, its subsidiaries and affiliates who are
responsible for or contribute to the management, growth and profitability of the
business of the Company, its subsidiaries or its affiliates, are eligible to be
granted Awards under the Plan; provided that employees of Philip Morris
                               -------- ----
Companies Inc. and its subsidiaries other than the Company and the Company's
subsidiaries are not eligible to be granted Awards under the Plan.

                                       3
<PAGE>

Section 4.  Common Stock Subject to the Plan.

The total number of shares of Common Stock reserved and available for
distribution pursuant to the Plan shall be 75,000,000 shares. If any Award under
the Plan is exercised or cashed out or terminates or expires or is forfeited
without a payment being made to the participant in the form of Common Stock, the
shares subject to such Award, if any, shall again be available for distribution
in connection with Awards under the Plan; provided, however, that any shares
which are available again for Awards under the Plan also shall count against the
limit described in Section 5(b)(i). Any shares of Common Stock that are used by
a participant as full or partial payment of withholding or other taxes or as
payment for the exercise or conversion price of an Award under the Plan shall be
available for distribution in connection with Awards under the Plan.

In the event of any merger, share exchange, reorganization, consolidation,
recapitalization, reclassification, distribution, stock dividend, stock split,
reverse stock split, split-up, spin-off, issuance of rights or warrants or other
similar transaction or event affecting the Common Stock after adoption of the
Plan by the Board, the Board is authorized, to the extent it deems appropriate,
to make substitutions or adjustments in the aggregate number and kind of shares
of Common Stock reserved for issuance under the Plan, in the number, kind and
price of shares of Common Stock subject to outstanding Awards and in the Award
limits set forth in Section 5 (or to make provision for cash payments to the
holders of Awards).

The Committee may make an Award in substitution for incentive awards, stock
awards, stock options or similar awards held by an individual who becomes an
employee of the Company, a subsidiary or an affiliate in connection with a
transaction described in the second paragraph of this Section 4. Notwithstanding
any provision of the Plan (other than the limitation set forth in the first
paragraph of this Section 4), the terms of such substituted Awards shall be as
the Committee, in its discretion, determines is appropriate.

Section 5.  Awards.

(a)    General.  The types of Awards that may be granted under the Plan are set
forth below. Awards may be granted singly, in combination or in tandem with
other Awards.

       (i)    Stock Options. A Stock Option represents the right to purchase a
       share of Stock at a predetermined grant price. Stock Options granted
       under the Plan may be in the form of Incentive Stock Options or
       Nonqualified Stock Options, as specified in the Award agreement but no
       Stock Option designated as an Incentive Stock Option shall be invalid in
       the event that it fails to qualify as an Incentive Stock Option. The term
       of each Stock Option shall be set forth in the Award agreement, but no
       Stock Option shall be exercisable more than ten years after the grant
       date. The grant price per share of Common Stock purchasable under a Stock
       Option shall not be less than 100% of the Fair Market Value on the date
       of grant. Subject to the applicable Award agreement, Stock Options may be
       exercised, in whole or in part, by giving written notice of exercise
       specifying the number of shares to be purchased. Such notice shall be
       accompanied by payment in full of the purchase price by certified or bank
       check or such other instrument as the Company may

                                       4
<PAGE>

         accept (including a copy of instructions to a broker or bank acceptable
         to the Company to deliver promptly to the Company an amount of sale or
         loan proceeds sufficient to pay the purchase price). As determined by
         the Committee, payment in full or in part may also be made in the form
         of Common Stock already owned by the optionee valued at Fair Market
         Value on the day preceding the date of exercise; provided, however,
         that such Common Stock shall not have been acquired by the optionee
         within the preceding six months.

         (ii)   Stock Appreciation Rights. An SAR represents the right to
         receive a payment, in cash, shares of Common Stock, or both (as
         determined by the Committee), with a value equal to the Spread Value on
         the date the SAR is exercised. The grant price of an SAR shall be set
         forth in the applicable Award agreement and shall not be less than 100%
         of the Fair Market Value on the date of grant. Subject to the terms of
         the applicable Award agreement, an SAR shall be exercisable, in whole
         or in part, by giving written notice of exercise.

         (iii)  Other Stock-Based Awards. Other Stock-Based Awards are Awards,
         other than Stock Options, SARs or Restricted Stock, that are
         denominated in, valued in whole or in part by reference to, or
         otherwise based on or related to, Common Stock. The grant, purchase,
         exercise, exchange or conversion of Other Stock-Based Awards granted
         under this subsection (iii) shall be on such terms and conditions and
         by such methods as shall be specified by the Committee. Where the value
         of an Other Stock-Based Award is based on the Spread Value, the grant
         price for such an Award will not be less than 100% of the Fair Market
         Value on the date of grant.

         (iv)   Restricted Stock. Shares of Restricted Stock are shares of
         Common Stock that are awarded to a participant and that during the
         Restricted Period may be forfeitable to the Company upon such
         conditions as may be set forth in the applicable Award agreement.
         Restricted Stock may not be sold, assigned, transferred, pledged or
         otherwise encumbered during the Restricted Period. Except as provided
         in the applicable Award agreement, a participant shall have with
         respect to such Restricted Stock all the rights of a holder of Common
         Stock during the Restricted Period.

         (v)    Incentive Awards. Incentive Awards are performance-based Awards
         that are expressed in U.S. currency or Common Stock or any combination
         thereof. Incentive Awards shall either be Annual Incentive Awards or
         Long-Term Incentive Awards.

(b)      Maximum Awards. Subject to the exercise of the Board's authority
pursuant to Section 4:

         (i)    The total number of shares of Common Stock subject to Stock
         Options and Stock Appreciation Rights awarded during any calendar year
         to any participant shall not exceed 7,500,000 shares.

                                       5
<PAGE>

         (ii)   The total amount of any Annual Incentive Award awarded to any
         participant with respect to any Performance Cycle shall not exceed
         $7,500,000.

         (iii)  The total amount of any Long-Term Incentive Award awarded to any
         Participant with respect to any Performance Cycle shall not exceed
         150,000 shares of Common Stock multiplied by the number of years in the
         Performance Cycle or, in the case of awards expressed in currency,
         $4,500,000 multiplied by the number of years in the Performance Cycle.

         (iv)   An amount not in excess of 18,800,000 shares of Common Stock may
         be issued pursuant to Restricted Stock Awards, Other Stock-Based
         Awards, and Incentive Awards, except that Other Stock-Based Awards with
         values based on Spread Values shall not be included in this limitation.

(c)      Performance-Based Awards. Any Awards granted pursuant to the Plan may
be in the form of performance-based Awards through the application of
Performance Goals and Performance Cycles.

Section 6.      Change in Control Provisions.

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

         (i)    All Stock Options and Stock Appreciation Rights outstanding as
         of the date such Change in Control occurs shall become fully vested and
         exercisable.

         (ii)   The restrictions and other conditions applicable to any
         Restricted Stock or Other Stock-Based Awards, including vesting
         requirements, shall lapse, and such Awards shall become free of all
         restrictions and fully vested.

         (iii)  The value of all outstanding Stock Options, Stock Appreciation
         Rights, Restricted Stock and Other Stock-Based Awards shall, unless
         otherwise determined by the Committee at or after grant, be cashed out
         on the basis of the "Change in Control Price," as defined in Section
         6(c), as of the date such Change in Control occurs or such other date
         as the Committee may determine prior to the Change in Control.

         (iv)   Any Incentive Awards relating to Performance Cycles prior to the
         Performance Cycle in which the Change in Control occurs that have been
         earned but not paid shall become immediately payable in cash. In
         addition, each participant who has been awarded an Incentive Award
         shall be deemed to have earned a pro rata Incentive Award equal to the
         product of (A) such participant's maximum award opportunity for such
         Performance Cycle, and (B) a fraction, the numerator of which is the
         number of full or partial months that have elapsed since the beginning
         of such Performance Cycle to the date on which the Change in Control
         occurs, and the denominator of which is the total number of months in
         such Performance Cycle.

                                       6
<PAGE>

(b)      Definition of Change in Control. A "Change in Control" means the
happening of any of the following events:

         (i)    Approval by the shareholders of the Company of a reorganization,
         merger, share exchange or consolidation (a "Business Combination"),
         unless in each case following such Business Combination, (A) all or
         substantially all of the individuals and entities who were the
         beneficial owners of the then outstanding voting securities of the
         Company entitled to vote generally in the election of directors (the
         "Outstanding Company Voting Securities") immediately prior to such
         Business Combination beneficially own (within the meaning of Rule 13d-3
         promulgated under the Exchange Act), directly or indirectly, more than
         50% of, respectively, the outstanding shares of common stock and the
         combined voting power of the then outstanding voting securities
         entitled to vote generally in the election of directors of the
         corporation resulting from such Business Combination (including,
         without limitation, a corporation that as a result of such transaction
         owns the Company through one or more subsidiaries) in substantially the
         same proportions as their ownership, immediately prior to such Business
         Combination of the Outstanding Company Voting Securities, (B) no
         individual, entity or group (within the meaning of Section 13(d)(3) or
         14(d)(2) of the Exchange Act (a "Person") (excluding Philip Morris
         Companies Inc., any employee benefit plan (or related trust) sponsored
         or maintained by the Company, Philip Morris Companies Inc. or such
         corporation resulting from such Business Combination) beneficially
         owns, directly or indirectly, 20% or more of, respectively, the
         outstanding shares of common stock and the combined voting power of the
         then outstanding voting securities of such corporation except to the
         extent that such Person owned 20% or more of the Outstanding Company
         Voting Securities prior to the Business Combination and (C) at least a
         majority of the members of the board of directors of the corporation
         resulting from such Business Combination were members of the Incumbent
         Board at the time of the execution of the initial agreement, or of the
         action of the Board, providing for such Business Combination; or

         (ii)   Approval by the shareholders of the Company of (A) a complete
         liquidation or dissolution of the Company or (B) the sale or other
         disposition of all or substantially all of the assets of the Company,
         other than to a corporation with respect to which, following such sale
         or other disposition, (1) more than 50% of, respectively, the
         outstanding shares of common stock and the combined voting power of the
         then outstanding voting securities of such corporation entitled to vote
         generally in the election of directors is then beneficially owned,
         directly or indirectly, by all or substantially all of the individuals
         and entities who were the beneficial owners of the Outstanding Company
         Voting Securities immediately prior to such sale or other disposition
         in substantially the same proportion as their ownership, immediately
         prior to such sale or other disposition, of the Outstanding Company
         Voting Securities, as the case may be, (2) less than 20% of,
         respectively, the outstanding shares of common stock and the combined
         voting power of the then outstanding voting securities of such
         corporation entitled to vote generally in the election of directors is
         then beneficially owned, directly or indirectly, by any Person
         (excluding Philip Morris Companies Inc., any employee benefit plan (or
         related trust) sponsored or maintained by the Company, Philip Morris
         Companies Inc. or such corporation), except to the extent that such
         Person owned 20% or more of the Outstanding Company Voting Securities
         prior to the sale or

                                       7
<PAGE>

         disposition and (3) at least a majority of the members of the board of
         directors of such corporation were members of the Incumbent Board at
         the time of the execution of the initial agreement, or of the action of
         the Board, providing for such sale or other disposition of assets of
         the Company; or

         (iii)  The sale or other disposition for fair value of securities of
         the Company by Philip Morris Companies Inc. if, after such sale or
         other disposition for value Philip Morris Companies Inc. holds less
         than 50% of the combined voting power of the Outstanding Company Voting
         Securities; or

         (iv)   If Philip Morris Companies Inc. holds less than 50% of the
         combined voting power of the Outstanding Company Voting Securities by
         virtue of a transaction that does not constitute a Change in Control
         within the meaning of paragraph (iii) above, the acquisition by any
         Person of beneficial ownership of 20% or more of the Outstanding
         Company Voting Securities; provided, however, that the following
         acquisitions shall not constitute a Change in Control: (1) any
         acquisition by such Person directly from the Company, (2) any
         acquisition by the Company, (3) any acquisition by any employee benefit
         plan (or related trust) sponsored or maintained by the Company, Philip
         Morris Companies Inc. or any entity controlled by the Company or (4)
         any acquisition by any corporation pursuant to a transaction described
         in clauses (A), (B) and (C) of paragraph (i) of this Section 6(b); or

         (v)    If Philip Morris Companies Inc. holds less than 50% of the
         combined voting power of the Outstanding Company Voting Securities by
         virtue of a transaction that does not constitute a Change in Control
         within the meaning of paragraph (iii) above, the individuals who
         constitute the Incumbent Board cease for any reason to constitute at
         least a majority of the Board.

(c)      Change in Control Price. "Change in Control Price" means the highest
price per share paid in any transaction reported on the New York Stock Exchange-
Composite Transactions or paid or offered in any bona fide transaction related
to a potential or actual change in control of the Company at any time during the
preceding 60-day period as determined by the Committee, except that, in the case
of Incentive Stock Options, such price shall be based only on transactions
reported for the date on which such Incentive Stock Options are cashed out.

(d)      Incumbent Board. "Incumbent Board" means the members of the Board as of
the effective date of the Plan. Notwithstanding the preceding sentence, any
individual who becomes a member of the Board after such effective date whose
election, or nomination for election by the shareholders of the Company, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such member were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.

                                       8
<PAGE>

(e)      Notwithstanding any other provision of the Plan, upon a Change in
Control, unless the Committee shall determine otherwise at grant, an Award
recipient shall have the right, by giving notice to the Company within the
Exercise Period, to elect to surrender all or part of the Stock Option, SAR,
Restricted Stock or Other Stock-Based Award to the Company and to receive in
cash, within 30 days of such notice, an amount equal to the amount by which the
"Change in Control Price" on the date of such notice shall exceed the exercise
or grant price under such Award, multiplied by the number of shares of Stock as
to which the right granted under this Section 6 shall have been exercised.

Section 7.  Plan Amendment and Termination.

The Board may amend or terminate the Plan at any time, provided that no such
amendment shall be made without shareholder approval if such approval is
required under applicable law, or if such amendment would: (i) decrease the
grant or exercise price of any Stock Option, SAR or Other Stock-Based Award to
less than the Fair Market Value on the date of grant; or (ii) increase the total
number of shares of Common Stock that may be distributed under the Plan. Except
as may be necessary to comply with a change in the laws, regulations or
accounting principles of a foreign country applicable to participants subject to
the laws of such foreign country, the Committee may not cancel any option and
substitute therefor a new option with a lower option price. Except as set forth
in any Award agreement, no amendment or termination of the Plan may materially
and adversely affect any outstanding Award under the Plan without the Award
recipient's consent.

Section 8.  Payments and Payment Deferrals.

Payment of Awards may be in the form of cash, Stock, other Awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee, either at the time of grant or by
subsequent amendment, may require or permit deferral of the payment of Awards
under such rules and procedures as it may establish. It also may provide that
deferred settlements include the payment or crediting of interest or other
earnings on the deferred amounts, or the payment or crediting of dividend
equivalents where the deferred amounts are denominated in Common Stock
equivalents.

Section 9.  Dividends and Dividend Equivalents.

The Committee may provide that any Awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's Plan account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares of Common Stock or Common Stock equivalents.

Section 10. Transferability.

Unless otherwise required by law, Awards shall not be transferable or assignable
other than by will or the laws of descent and distribution.

                                       9
<PAGE>

Section 11.  Award Agreements.

Each Award under the Plan shall be evidenced by a written agreement (which need
not be signed by the recipient unless otherwise specified by the Committee) that
sets forth the terms, conditions and limitations for each Award. Such terms may
include, but are not limited to, the term of the Award, vesting and forfeiture
provisions, and the provisions applicable in the event the recipient's
employment terminates. The Committee may amend an Award agreement, provided that
no such amendment may materially and adversely affect an Award without the Award
recipient's consent.

Section 12.  Unfunded Status Plan.

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

Section 13.  General Provisions.

(a)     The Committee may require each person acquiring shares of Common Stock
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend that the Committee deems
appropriate to reflect any restrictions on transfer.

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

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

(c)     Neither the adoption of the Plan nor the granting of Awards under the
Plan shall confer upon any employee any right to continued employment nor shall
they interfere in any way with the right of the Company, a subsidiary or an
affiliate to terminate the employment of any employee at any time.

(d)     No later than the date as of which an amount first becomes includible in
the gross income of the participant for income tax purposes with respect to any
Award under the Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any Federal,
state, local or foreign taxes of any kind which are required by law or
applicable regulation to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations arising from an
Award may be settled with

                                      10
<PAGE>

Common Stock, including Common Stock that is part of, or is received upon
exercise or conversion of, the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company, its subsidiaries and its
affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant. The Committee may
establish such procedures as it deems appropriate, including the making of
irrevocable elections, for the settling of withholding obligations with Common
Stock.

(e)     The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.

(f)     If any provision of the Plan is held invalid or unenforceable, the
invalidity or unenforceability shall not affect the remaining parts of the Plan,
and the Plan shall be enforced and construed as if such provision had not been
included.

(g)     The Plan shall be effective on __________ ____, 2001. Except as
otherwise provided by the Board, no Awards shall be made after __________ ____,
______, provided that any awards granted prior to that date may extend beyond
it.

                                      11

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