Document:

<PAGE>

                                                       Exhibit 10.1
                                                       ------------

                              CORPORATE AGREEMENT

                                by and between

                               KRAFT FOODS INC.

                                      and

                         PHILIP MORRIS COMPANIES INC.

                                 June 12, 2001
<PAGE>

                               TABLE OF CONTENTS

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ARTICLE I DEFINITIONS.............................................................................................1
         1.1. Definitions.........................................................................................1
         1.2. Internal References.................................................................................6

ARTICLE II KRAFT BOARD REPRESENTATION.............................................................................6
         2.1. General.............................................................................................6
         2.2. Philip Morris Designees.............................................................................6
         2.3. Additional Members of Kraft Board...................................................................6
         2.4. Efforts of Kraft....................................................................................7
         2.5. Chairman of Kraft Board.............................................................................7

ARTICLE III CERTAIN COVENANTS AND AGREEMENTS......................................................................7
         3.1. No Violations.......................................................................................7
         3.2. Access to Information...............................................................................8
         3.3. Intercompany Transactions...........................................................................8
         3.4. Actions Requiring Consent...........................................................................8

ARTICLE IV CORPORATE OPPORTUNITIES AND CONFLICTS OF INTEREST......................................................9
         4.1. General.............................................................................................9
         4.2. Business Activities.................................................................................9
         4.3. Corporate Opportunities.............................................................................9
         4.4. Philip Morris Entities and Kraft Entities..........................................................10
         4.5. Notice.............................................................................................10

ARTICLE V INDEMNIFICATION........................................................................................10
         5.1. Kraft Indemnification of the Philip Morris Entities for Certain Liabilities........................10
         5.2. Philip Morris Indemnification of Kraft Entities....................................................11
         5.3. Third-Party Rights; Tax Benefits...................................................................11
         5.4. Notice and Payment of Claims.......................................................................11
         5.5. Notice and Defense of Third-Party Claims...........................................................12
         5.6. Contribution.......................................................................................13

ARTICLE VI OPTION................................................................................................13
         6.1. Option.............................................................................................13
         6.2. Notice.............................................................................................14
         6.3. Option Exercise and Payment........................................................................14
         6.4. Effect of Failure to Exercise......................................................................14
         6.5. Termination of Option..............................................................................14

ARTICLE VII REGISTRATION RIGHTS..................................................................................15
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ARTICLE VIII TERM................................................................................................15

ARTICLE IX MISCELLANEOUS.........................................................................................15
         9.1. Limitation of Liability............................................................................15
         9.2. Subsidiaries.......................................................................................15
         9.3. Amendments.........................................................................................15
         9.4. Severability.......................................................................................15
         9.5. Notices............................................................................................16
         9.6. Further Assurances.................................................................................16
         9.7. Counterparts.......................................................................................16
         9.8. Governing Law......................................................................................16
         9.9. Entire Agreement...................................................................................17
         9.10. Successors........................................................................................17
         9.11. Specific Performance..............................................................................17

APPENDIX I  - REGISTRATION RIGHTS AGREEMENT......................................................................A1
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                                      ii
<PAGE>

                              CORPORATE AGREEMENT

                  THIS CORPORATE AGREEMENT ("Agreement") is entered into as of
June 12, 2001, by and between KRAFT FOODS INC., a Virginia corporation
("Kraft"), and PHILIP MORRIS COMPANIES INC., a Virginia corporation ("Philip
Morris").

                                   RECITALS

                  A.   Philip Morris owns all of the issued and outstanding
Class B Common Stock, no par value per share ("Class B Common Stock"), of Kraft
and owns 275,000,000 shares of Class A Common Stock, no par value per share
("Class A Common Stock"), of Kraft, and Kraft is a member of Philip Morris'
"affiliated group" of corporations (the "Philip Morris Group") for federal
income tax purposes.

                  B.   The parties are contemplating that Kraft will issue
shares of Class A Common Stock in an initial public offering (the "Initial
Public Offering") registered under the Securities Act of 1933, as amended.

                  C.   The parties desire to enter into this Agreement to
set forth their agreement regarding: (i) the composition of the Kraft Board of
Directors; (ii) certain covenants and agreements regarding the conduct of
Kraft's business; (iii) treatment of potential corporate opportunities and
conflicts of interest between the parties; (iv) Philip Morris' rights to
purchase additional shares of Class A Common Stock upon certain issuances of
Kraft securities to any person to permit Philip Morris to maintain its
percentage ownership interest in Kraft; and (v) certain registration rights with
respect to Class A Common Stock.

                                  AGREEMENTS

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Kraft and Philip
Morris, for themselves and their successors and assigns, hereby agree as
follows:

                                   ARTICLE I
                                  DEFINITIONS

         1.1.     Definitions.
                  -----------

         As used in this Agreement, the following terms will have the following
meanings, applicable both to the singular and the plural forms of the terms
described:

         "Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding of any nature (whether criminal, civil,
legislative, administrative, regulatory, prosecutorial or otherwise) by or
before any arbitrator or Governmental Entity.
<PAGE>

         "Affiliate" means, with respect to a given Person, any Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct the
vote of a majority of the votes that may be cast in the election of directors
(or other Persons acting in similar capacities) of such Person or otherwise to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.

         "Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.

         "Applicable Stock" means at any time the (i) shares of Common Stock
owned by the Philip Morris Entities that were owned on the date hereof, plus
(ii) shares of Class A Common Stock purchased by the Philip Morris Entities
pursuant to Article VI of this Agreement, plus (iii) shares of Common Stock
            ----------
that were issued to Philip Morris Entities in respect of shares described in
either clause (i) or clause (ii) in any reclassification, share combination,
share subdivision, share dividend, share exchange, merger, consolidation or
similar transaction or event.

         "Class A Common Stock" has the meaning ascribed thereto in the recitals
to this Agreement.

         "Class B Common Stock" has the meaning ascribed thereto in the recitals
to this Agreement.

         "Common Stock" means the Class B Common Stock, the Class A Common Stock
and any other class of Kraft's capital stock representing the right to vote
generally for the election of directors and, for so long as Kraft continues to
be a subsidiary corporation includable in a consolidated federal income tax
return of the Philip Morris Group, any other security of Kraft treated as stock
for purposes of Section 1504(a) of the Internal Revenue Code of 1986, as
amended.

          "Finally Determined" means, with respect to any Action, threatened
Action or other matter, that the outcome or resolution of that Action,
threatened Action or matter has either (i) been decided by an arbitrator or
Governmental Entity of competent jurisdiction by judgment, order, award or other
ruling or (ii) has been settled or voluntarily dismissed and, in the case of
each of clauses (i) and (ii), the claimants' rights to maintain that Action,
threatened Action or other matter have been finally adjudicated, waived,
discharged or extinguished, and that judgment, order, ruling, award, settlement
or dismissal (whether mandatory or voluntary, but if voluntary that dismissal
must be final, binding and with prejudice as to all claims specifically pleaded
in that Action) is subject to no further appeal, vacatur proceeding or
discretionary review.

                                       2
<PAGE>

         "Governmental Entity" means any government or any state, department or
other political subdivision thereof, or any governmental body, agency, authority
(including, but not limited to, any central bank or taxing authority) or
instrumentality (including, but not limited to, any court, tribunal or grand
jury) exercising executive, prosecutorial, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

         "Indemnified Party" has the meaning ascribed thereto in Section 5.4.
                                                                 -----------

         "Indemnifying Party" has the meaning ascribed thereto in Section 5.4.
                                                                  -----------

         "Information" has the meaning ascribed thereto in Section 3.2(a).
                                                           --------------

         "Initial Public Offering" has the meaning ascribed thereto in the
recitals to this Agreement.

         "Initial Public Offering Date" means the date of completion of the
initial sale of Class A Common Stock in the Initial Public Offering.

         "Issuance Event" has the meaning ascribed thereto in Section 6.2.
                                                              -----------

         "Issuance Event Date" has the meaning ascribed thereto in Section 6.2.
                                                                   -----------

         "Kraft" has the meaning ascribed thereto in the preamble hereto.

         "Kraft Articles" means the articles of incorporation of Kraft, as
amended.

         "Kraft Board" means the Board of Directors of Kraft.

         "Kraft Bylaws" means the amended and restated bylaws of Kraft.

         "Kraft Entities" means Kraft and its Subsidiaries; and "Kraft Entity"
shall mean any of the Kraft Entities.

         "Kraft Entity Liabilities" means, except as otherwise specifically
provided in any Transaction Document, all Liabilities, whether arising before,
at or after the Initial Public Offering Date, (i) of or in any way relating, in
whole or in part, to any Kraft Entity or (ii) arising from the conduct of, in
connection with or in any way relating to, in whole or in part, the businesses
and operations of the Kraft Entities or the ownership or use of assets or
property in connection therewith. Notwithstanding the foregoing, "Kraft Entity
Liabilities" shall exclude (i) all Liabilities for Taxes of the Kraft Entities
(because the Tax Sharing Agreement will govern those Liabilities); (ii) all
Liabilities of the Kraft Entities pursuant to the Services Agreement (because
the Services Agreement will govern those Liabilities); (iii) all Liabilities of
the Kraft Entities pursuant to the Registration Rights Agreement (because the
Registration Rights Agreement will govern those Liabilities); and (iv) all
Liabilities directly, indirectly or derivatively based on, arising out of or in
any way relating to, in whole or in part, the businesses and operations of the
Philip Morris Entities or the ownership or use of assets or property in
connection therewith.

                                       3
<PAGE>

          "Kraft Indemnitee" has the meaning ascribed thereto in Section 5.2(a).
                                                                 --------------

          "Liabilities" means any and all claims, debts, liabilities,
assessments, fines, penalties, damages, losses, disgorgements and obligations,
of any kind, character or description (whether absolute, contingent, matured,
not matured, liquidated, unliquidated, accrued, known, unknown, direct,
indirect, derivative or otherwise) whenever arising, including, but not limited
to, all costs and expenses relating thereto (including, but not limited to, all
expenses of investigation, all attorneys' fees and all out-of-pocket expenses in
connection with any Action or threatened Action).

         "Market Price" of any shares of Class A Common Stock on any date means
(i) the last sale price of such shares on such date on the New York Stock
Exchange, Inc. or, if such shares are not listed thereon, on the principal
national securities exchange or automated interdealer quotation system on which
such shares are traded or (ii) if such sale price is unavailable or such shares
are not so traded, the value of such shares on such date determined in
accordance with agreed-upon procedures reasonably satisfactory to Philip Morris
and Kraft.

         "Option" has the meaning ascribed thereto in Section 6.1(a).
                                                      --------------

         "Option Notice" has the meaning ascribed thereto in Section 6.2.
                                                             -----------

         "Ownership Percentage" means, at any time, the fraction, expressed as a
percentage and rounded to the nearest thousandth of a percent, whose numerator
is the number of shares of the Applicable Stock and whose denominator is the
number of outstanding shares of Common Stock of Kraft; provided, however, that
any shares of Common Stock issued by Kraft in violation of its obligations under
Article VI of this Agreement shall not be deemed outstanding for the purpose
----------
of determining the Ownership Percentage.

         "Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof) or other entity.

         "Philip Morris" has the meaning ascribed thereto in the preamble
hereto.

         "Philip Morris Board" means the Board of Directors of Philip Morris.

         "Philip Morris Designee" has the meaning ascribed thereto in Section
                                                                      -------
2.1(b).
------

         "Philip Morris Entities" means Philip Morris and Subsidiaries of Philip
Morris (other than Subsidiaries that constitute Kraft Entities); and "Philip
Morris Entity" shall mean any of the Philip Morris Entities.

         "Philip Morris Entity Liabilities" means, except as otherwise
specifically provided in any Transaction Document, all Liabilities, whether
arising before, at or after the Initial Public Offering Date, (i) of or in any
way relating, in whole or in part, to any Philip Morris Entity or (ii) arising
from the conduct of, in connection with or in any way relating to, in whole or
in part, the businesses and operations of the Philip Morris Entities or the
ownership or use of assets or

                                       4
<PAGE>

property in connection therewith. Notwithstanding the foregoing, "Philip Morris
Entity Liabilities" shall exclude (i) all Liabilities for Taxes of the Philip
Morris Entities (because the Tax Sharing Agreement will govern those
Liabilities); (ii) all Liabilities of the Philip Morris Entities pursuant to the
Services Agreement (because the Services Agreement will govern those
Liabilities); and (iii) all Liabilities of the Philip Morris Entities pursuant
to the Registration Rights Agreement (because the Registration Rights Agreement
will govern those Liabilities).

         "Philip Morris Group" has the meaning ascribed thereto in the recitals
to this Agreement.

         "Philip Morris Indemnitee" has the meaning ascribed thereto in Section
                                                                        -------
5.1.
---
         "Philip Morris Ownership Reduction" means any decrease at any time in
the Ownership Percentage to less than 50%.

         "Registration Rights Agreement" means the Registration Rights
Agreement, in the form attached hereto as Appendix I, to be dated as of the date
                                          ----------
hereof, between Kraft and Philip Morris.

         "Representative" shall mean, with respect to any Person, each of such
Person's directors, officers, employees, representatives, attorneys,
accountants, advisors and agents, and each of the heirs, executors and assigns
of any of the foregoing.

          "SEC" means the United States Securities and Exchange Commission.

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

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

         "Services Agreement" means the Services Agreement to be dated as of the
date hereof between Kraft and Philip Morris Management Corp., a New York
corporation.

         "Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which the power to direct
the vote of the majority of the votes that may be cast in the election of
directors (or other Persons acting in similar capacities) is held or controlled,
directly or indirectly, by such Person or by one or more of the Subsidiaries of
such Person or by a combination thereof. "Subsidiary," when used with respect to
Philip Morris or Kraft, shall also include any other entity affiliated with
Philip Morris or Kraft, as the case may be, that Philip Morris and Kraft may
hereafter agree in writing shall be treated as a "Subsidiary" for the purposes
of this Agreement.

         "Tax" has the meaning assigned to that term in the Tax Sharing
Agreement.

         "Tax Sharing Agreement" means the Tax Sharing Agreement to be dated as
of the date hereof between Kraft and Philip Morris.

         "Third-Party Claim" has the meaning ascribed thereto in Section 5.5.
                                                                 ------------

                                       5
<PAGE>

          "Transaction Documents" means this Agreement, the Tax Sharing
Agreement, the Registration Rights Agreement, the Services Agreement, and the
exhibits and schedules to those agreements.

          1.2.     Internal References.
                   -------------------

                   Unless the context indicates otherwise, references to
Articles, Sections and paragraphs shall refer to the corresponding articles,
sections and paragraphs in this Agreement and references to the parties shall
mean the parties to this Agreement.

                                  ARTICLE II
                          KRAFT BOARD REPRESENTATION

          2.1.     General.
                   -------

                   The provisions of this Article II contemplate that there will
                                          ----------
be nine members of the Kraft Board. If the number of members of the Kraft Board
is greater or lesser than nine, the parties shall amend this Article II to
                                                             ----------
maintain its purpose.

          2.2.     Philip Morris Designees.
                   -----------------------

                   (a) Philip Morris shall have the right to designate for
nomination by the Kraft Board (or any nominating committee thereof) to the Kraft
Board three of the members of the Kraft Board. Notwithstanding anything to the
contrary set forth herein, Kraft's obligations to Philip Morris with respect to
the election or appointment of Philip Morris designated members shall be limited
to the obligations set forth under subsection (b) and Section 2.5 below.
                                                      -----------

                   (b) Kraft shall exercise all authority under applicable law
and shall use its best efforts to cause three persons designated by Philip
Morris to be elected to the Kraft Board. Commencing with the annual meeting of
shareholders of Kraft to be held in 2002 and prior to each annual meeting of
shareholders of Kraft thereafter, Philip Morris shall be entitled to present to
the Kraft Board, or any nominating committee thereof, three designees of Philip
Morris (each, a "Philip Morris Designee") (or such other number of Philip Morris
Designees as would result in Philip Morris having the appropriate number of
Philip Morris Designees on the Kraft Board as determined pursuant to Section 2.1
above) for election to the Kraft Board at each annual meeting of shareholders of
Kraft. In the event that any Philip Morris Designee elected to the Kraft Board
shall cease to serve as a director for any reason, the vacancy resulting
therefrom shall be filled by the Kraft Board with a substitute Philip Morris
Designee.

                2.3.     Additional Members of Kraft Board.
                         ---------------------------------

                         Four of the individuals designated for nomination by
the Kraft Board (or any nominating committee thereof) to the Kraft Board shall
be unaffiliated with either Philip Morris or Kraft (the "Additional Board
Nominees"). Notwithstanding anything to the contrary set forth herein, Kraft's
obligations to Philip Morris with respect to the election or appointment of the
Additional Board Nominees shall be limited to the obligations set forth under
this Section 2.3 and Section 2.5 below. In the event that any Additional Board
                     -----------
Nominee elected to the Kraft

                                       6
<PAGE>

Board shall cease to serve as a director for any reason, the vacancy resulting
therefrom shall be filled by the Kraft Board with a substitute Additional Board
Nominee.

                2.4.     Efforts of Kraft.
                         ----------------

                         Kraft shall at all such times exercise all authority
under applicable law and use its best efforts to cause all Philip Morris
Designees and Additional Board Nominees to be nominated as Kraft Board members
by the nominating committee of the Kraft Board, if there is such a committee.
Kraft shall cause each Philip Morris Designee and Additional Board Nominee for
election to the Kraft Board to be included in the slate of designees recommended
by the Kraft Board to Kraft's shareholders for election as directors at each
annual meeting of the shareholders of Kraft (or at any special meeting held for
the election of directors) and shall use its best efforts to cause the election
of each such Philip Morris Designee and Additional Board Nominee, including
soliciting proxies in favor of the election of such persons.

                2.5.     Chairman of Kraft Board.
                         -----------------------

                         Philip Morris shall have the right to designate the
chairman of the Kraft Board. Kraft shall exercise all authority under applicable
law and shall use its best efforts to cause the person designated by Philip
Morris to be elected as chairman of the Kraft Board.

                                  ARTICLE III
                       CERTAIN COVENANTS AND AGREEMENTS

                3.1.     No Violations.
                         -------------

                         (a) Kraft covenants and agrees that it will not take
any action or enter into any commitment or agreement that may reasonably be
anticipated to result, with or without notice and with or without lapse of time
or otherwise, in a contravention or event of default by any Philip Morris Entity
of: (i) any provisions of applicable law or regulation; (ii) any provision of
Philip Morris' articles of incorporation or bylaws; (iii) any credit agreement
or other material instrument binding upon Philip Morris in effect as of the date
of this Agreement; or (iv) any judgment, order or decree of any Governmental
Entity having jurisdiction over Philip Morris or any of its assets.

                         (b) Philip Morris covenants and agrees that it will not
take any action or enter into any commitment or agreement that may reasonably be
anticipated to result, with or without notice and with or without lapse of time
or otherwise, in a contravention or event of default by any Kraft Entity of: (i)
any provisions of applicable law or regulation; (ii) any provision of the Kraft
Articles or of the Kraft Bylaws; (iii) any credit agreement or other material
instrument binding upon Kraft in effect as of the date of this Agreement; or
(iv) any judgment, order or decree of any Governmental Entity having
jurisdiction over Kraft or any of its assets.

                         (c) Kraft and Philip Morris agree to provide to the
other any information and documentation requested by the other for the purpose
of evaluating and ensuring compliance with Sections 3.1(a) and 3.1(b) hereof.
                                           ---------------     ------

                                       7
<PAGE>

                         (d) Notwithstanding the foregoing Sections 3.1(a),
                                                           ---------------
3.1(b) and 3.1(c), nothing in this Agreement is intended to limit or restrict in
------     ------
any way Philip Morris' rights as a shareholder of Kraft.

                 3.2.    Access to Information.
                         ---------------------

                         (a) Kraft, subject to compliance by its Subsidiaries
and all of its designated Representatives with the provisions of this Section
                                                                      -------
3.2, shall afford to Philip Morris and its authorized accountants, counsel and
---
other designated Representatives reasonable access and duplicating rights (with
copying costs to be borne by Philip Morris) during normal business hours to all
books and records and documents, communications, items and matters
(collectively, "Information") within the knowledge, possession or control of
Kraft or any Kraft Entity relating to their respective businesses insofar as
such access is (i) reasonably required by Philip Morris or any Philip Morris
Entity, as the case may be, for the purpose of performing their respective
obligations under this Agreement or any other agreement between the parties, and
(ii) permitted by law (and shall use reasonable efforts to cause Persons or
firms possessing relevant Information to give similar access).

                         (b) Except as required by law, regulation or legal or
judicial process, Philip Morris agrees that neither it nor any Philip Morris
Entity nor any of their respective directors, officers or employees will,
without the prior written consent of Kraft, disclose to any Person any material,
non-public information concerning the business or affairs of Kraft acquired from
any director, officer or employee of Kraft (including any director, officer or
employee of Kraft who is also a director, officer or employee of Philip Morris).

         3.3.     Intercompany Transactions.
                  -------------------------

                  All material intercompany transactions between Kraft and
Philip Morris after the date hereof, including any material amendments to this
Agreement, the Services Agreement, the Tax Sharing Agreement or any other
agreement between Kraft and Philip Morris, will be subject to the approval of
the Audit Committee of the Kraft Board.

         3.4.     Actions Requiring Consent.
                  -------------------------

                  (a)      Kraft must obtain Philip Morris' written consent
before:

                           (i)   entering into any agreement or arrangement that
binds or purports to bind Philip Morris or any of the other Philip Morris
Entities, or contains provisions that trigger a default or require a material
payment when Philip Morris exercises any of its rights: (A) under this
Agreement; or (B) to convert the shares of Class B Common Stock into Class A
Common Stock in accordance with the terms of the Kraft Articles;

                           (ii)  declaring any extraordinary dividend or making
any other extraordinary distribution to the holders of the Common Stock; or

                           (iii) issuing any Common Stock or securities
convertible into or exercisable for Common Stock except for Class A Common Stock
issued or granted to
                                       8
<PAGE>

employees of the Kraft Entities pursuant to the terms of any stock option or
other executive or employee benefit or compensation plan.

                  (b) Philip Morris may assign all or any portion of its rights
under this Section 3.4 to any transferee of shares of Common Stock previously
           -----------
held by Philip Morris; provided, that such transferee may exercise these rights
only to the extent that and so long as such transferee owns or has the right to
acquire more than 50% of the then outstanding Common Stock.

                                  ARTICLE IV
               CORPORATE OPPORTUNITIES AND CONFLICTS OF INTEREST

         4.1.     General.
                  -------

                  The provisions of this Article IV are set forth to regulate
and define the conduct of certain affairs each party and their respective
officers and directors, and the powers, rights, duties and liabilities of each
party and their respective directors and shareholders in connection therewith.

         4.2.     Business Activities.
                  -------------------

                  (a) Philip Morris shall have no duty to refrain from: (i)
engaging in the same or similar activities or lines of business as Kraft; (ii)
doing business with any customer of Kraft; and (iii) employing or engaging any
officer or employee of Kraft, and no officer or director thereof (except as
provided in Section 4.3) shall be liable to Kraft or its shareholders for breach
            -----------
of any fiduciary duty by reason of any such activities of Philip Morris.

                  (b) Kraft shall have no duty to refrain from: (i) engaging in
the same or similar activities or lines of business as Philip Morris; (ii) doing
business with any customer of Philip Morris; and (iii) employing or engaging any
officer or employee of Philip Morris, and no officer or director thereof (except
as provided in Section 4.3) shall be liable to Philip Morris or its shareholders
               -----------
for breach of any fiduciary duty by reason of any such activities of Kraft.

         4.3.     Corporate Opportunities.
                  -----------------------

                  (a) In the event that a director or officer of Kraft who is
also a director or officer of Philip Morris acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both Kraft and
Philip Morris, such director or officer of Kraft shall have fully satisfied and
fulfilled the fiduciary duty of such director or officer to Kraft and its
shareholders with respect to such corporate opportunity, if such director or
officer acts in a manner consistent with the following policy:

                           (i) If any officer or director of Kraft who also
serves as an officer or director of Philip Morris becomes aware of a potential
transaction related primarily to the food and beverage industry, other than
beer, that may represent a corporate opportunity for both Kraft and Philip
Morris, such officer or director has no duty to present that opportunity to
Philip Morris; and Kraft will have the sole right to pursue the transaction if
the Kraft Board so determines.

                                       9
<PAGE>

                           (ii) If any officer or director of Kraft who also
serves as an officer or director of Philip Morris becomes aware of any other
potential transaction that may represent a corporate opportunity for both Kraft
and Philip Morris, such officer or director will have a duty to present that
opportunity to Philip Morris; and Philip Morris will have the sole right to
pursue the transaction if the Philip Morris Board so determines.

                  (b) If any officer or director of Kraft who does not serve as
an officer or director of Philip Morris becomes aware of a potential transaction
that may represent a corporate opportunity for both Kraft and Philip Morris,
neither Kraft nor such officer or director has a duty to present that
opportunity to Philip Morris; and Kraft may pursue the transaction if the Kraft
Board so determines.

                  (c) If any officer or director of Philip Morris who does not
serve as an officer or director of Kraft becomes aware of a potential
transaction that may represent a corporate opportunity for both Philip Morris
and Kraft, neither Philip Morris nor such officer or director has a duty to
present that opportunity to Kraft; and Philip Morris may pursue the transaction
if the Philip Morris Board so determines.

         4.4.     Philip Morris Entities and Kraft Entities.
                  -----------------------------------------

                  For purposes of this Article IV only, the term "Kraft" shall
                                       ----------
include any Kraft Entity and the term "Philip Morris" shall include any Philip
Morris Entity.        4.5.     Notice.
                ------

                Any Person purchasing or otherwise acquiring any interest in
shares of the Common Stock shall be deemed to have notice of and to have
consented to the provisions of this Article IV.
                                    ----------

                                   ARTICLE V
                                INDEMNIFICATION

       5.1.     Kraft Indemnification of the Philip Morris Entities for Certain
                ---------------------------------------------------------------
Liabilities.
-----------

                (a) Subject to Section 5.3, on and after the Initial Public
                               -----------
Offering Date, Kraft shall indemnify and hold harmless each Philip Morris Entity
and its respective directors, officers and employees (each, a "Philip Morris
Indemnitee") from and against any and all Liabilities incurred or suffered by
any Philip Morris Indemnitee arising out of (i) any and all Kraft Entity
Liabilities and (ii) the breach by any Kraft Entity of any obligation under this
Agreement.

                (b) Subject to Section 5.3, Kraft shall indemnify and hold
                               -----------
harmless each Philip Morris Indemnitee from and against any and all Liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in any document filed with the SEC by any Philip Morris Entity
pursuant to the Securities Act or the Securities Exchange Act, or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
those Liabilities are caused by any such

                                      10
<PAGE>

untrue statement or omission or alleged untrue statement or omission based upon
information that is either furnished to any Philip Morris Indemnitee by any
Kraft Entity or incorporated by reference by any Philip Morris Indemnitee from
any filings made by any Kraft Entity with the SEC under the Securities Act or
the Securities Exchange Act, if that statement or omission was made or occurred
after the Initial Public Offering Date.

       5.2.     Philip Morris Indemnification of Kraft Entities.
                -----------------------------------------------

                (a) Subject to Section 5.3, on and after the Initial Public
                               -----------
Offering Date, Philip Morris shall indemnify and hold harmless each Kraft Entity
and their respective directors, officers and employees (each, a "Kraft
Indemnitee") from and against any and all Liabilities incurred or suffered by
any Kraft Indemnitee arising out of (i) any and all Philip Morris Entity
Liabilities and (ii) the breach by any Philip Morris Entity of any obligation
under this Agreement.

                (b) Subject to Section 5.3, Philip Morris shall indemnify and
                               -----------
hold harmless each Kraft Indemnitee from and against any and all Liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in any document filed with the SEC by any Kraft Entity pursuant to the
Securities Act or the Securities Exchange Act, or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
those Liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information that is either furnished
to any Kraft Indemnitee by any Philip Morris Entity or incorporated by reference
by any Kraft Indemnitee from any filings made by any Philip Morris Entity with
the SEC under the Securities Act or the Securities Exchange Act, if that
statement or omission was made or occurred after the Initial Public Offering
Date.

         5.3.     Third-Party Rights; Tax Benefits.
                  --------------------------------

                  Any indemnification pursuant to Section 5.1 or Section 5.2
                                                  -----------    -----------
shall be paid net of any tax benefit to the Indemnified Party attributable to
the relevant payment. It is expressly agreed that no insurer or any other third
party shall be (i) entitled to a benefit (as a third-party beneficiary or
otherwise) that it would not be entitled to receive in the absence of Section
                                                                      -------
5.1 or Section 5.2, (ii) relieved of the responsibility to pay any claims to
---    -----------
which it is obligated or (iii) entitled to any subrogation rights with respect
to any obligation under Section 5.1 or Section 5.2.
                        -----------    -----------

         5.4.     Notice and Payment of Claims.
                  ----------------------------

                  If any Philip Morris Indemnitee or Kraft Indemnitee (the
"Indemnified Party") determines that it is or may be entitled to indemnification
by any party (the "Indemnifying Party") under Article V of this Agreement (other
                                              ---------
than in connection with any Action subject to Section 5.5), the Indemnified
                                              -----------
Party shall deliver to the Indemnifying Party a written notice specifying, to
the extent reasonably practicable, the basis for its claim for indemnification
and the amount for which the Indemnified Party reasonably believes it is
entitled to be indemnified. Within 30 days after receipt of that notice, the
Indemnifying Party shall pay the Indemnified Party that amount in cash or other
immediately available funds unless the Indemnifying Party

                                      11
<PAGE>

objects to the claim for indemnification or the amount of the claim. If the
Indemnifying Party does not give the Indemnified Party written notice objecting
to that indemnity claim and setting forth the grounds for the objection(s)
within that 30-day period, the Indemnifying Party shall be deemed to have
acknowledged its liability for that claim and the Indemnified Party may exercise
any and all of its rights under applicable law to collect that amount. If there
is a timely objection by the Indemnifying Party, the Indemnifying Party shall
pay to the Indemnified Party in cash the amount, if any, that is Finally
Determined to be required to be paid by the Indemnifying Party in respect of
that indemnity claim within 15 days after that indemnity claim has been so
Finally Determined.

         5.5.     Notice and Defense of Third-Party Claims.
                  ----------------------------------------

                  Promptly after the earlier of receipt of (i) notice that a
third party has commenced an Action against or otherwise involving any
Indemnified Party or (ii) information from a third party alleging the existence
of a claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought under Article V of this Agreement (a "Third-Party
                                    ---------
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
of the Third-Party Claim. The failure of the Indemnified Party to give notice as
provided in this Section 5.5 shall not relieve the Indemnifying Party of its
                 -----------
obligations under this Agreement, except to the extent that the Indemnifying
Party is prejudiced by the failure to give notice. Within 30 days after receipt
of that notice, the Indemnifying Party may (i) at its option, elect to assume
and control the defense of that Third-Party Claim at its sole cost and expense
by giving written notice to that effect to the Indemnified Party, or (ii)
object to the claim for indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 5.5; provided,
                                                         -----------
that if the Indemnifying Party does not within that 30-day period give the
Indemnified Party written notice objecting to that indemnification claim and
setting forth the grounds for the objection(s), the Indemnifying Party shall be
deemed to have acknowledged its liability for that indemnification claim. If the
Indemnifying Party has acknowledged liability and elected to assume the defense
of a Third-Party Claim, (x) the defense shall be conducted by counsel retained
by the Indemnifying Party and reasonably satisfactory to the Indemnified Party,
provided that the Indemnified Party shall have the right to participate in those
proceedings and to be represented by counsel of its own choosing at the
Indemnified Party's sole cost and expense; and (y) the Indemnifying Party may
settle or compromise the Third-Party Claim without the prior written consent of
the Indemnified Party so long as any settlement or compromise of the Third-Party
Claim includes an unconditional release of the Indemnified Party from all claims
that are the subject of that Third-Party Claim; provided, that the Indemnifying
Party may not agree to any such settlement or compromise pursuant to which any
remedy or relief, other than monetary damages for which the Indemnifying Party
shall be responsible under this Agreement, shall be applied to or against the
Indemnified Party, without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. If the Indemnifying Party does
not assume the defense of a Third-Party Claim for which it has acknowledged
liability for indemnification hereunder, the Indemnified Party will act in good
faith with respect to that Third-Party Claim and may require the Indemnifying
Party to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket expenses
incurred in investigating and defending against that Third-Party Claim and the
Indemnifying Party shall be bound by the result obtained with respect to that
claim by the
                                      12
<PAGE>

Indemnified Party; provided, that the Indemnifying Party shall not be liable for
any settlement or compromise of any Third-Party Claim effected without its
consent, which consent shall not be unreasonably withheld. The Indemnifying
Party shall pay to the Indemnified Party in cash the amount, if any, for which
the Indemnified Party is entitled to be indemnified under this Agreement within
15 days after that Third-Party Claim has been Finally Determined.

         5.6.     Contribution.
                  ------------

                  If for any reason the indemnification provided for in
Section 5.1 or 5.2 is unavailable to any Indemnified Party, or insufficient to
-----------    ---
hold it harmless, then the Indemnifying Party shall contribute to the amount
paid or payable by that Indemnified Party as a result of those Liabilities in
that proportion as is appropriate to reflect the relative fault of the
Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand, in connection with those statements or omissions, which relative fault
shall be determined by reference to the Philip Morris Entity or Kraft Entity to
which those actions, conduct, statements or omissions are primarily related, as
well as any other relevant equitable considerations.

                                  ARTICLE VI
                                    OPTION

         6.1.     Option.
                  ------

                  (a) Kraft hereby grants to Philip Morris, on the terms and
conditions set forth herein, a continuing right (the "Option") to purchase from
Kraft, at the times set forth herein, such number of shares of Class A Common
Stock as is necessary to allow the Philip Morris Entities to maintain the
Ownership Percentage. The Option shall be assignable, in whole or in part and
from time to time, by Philip Morris to any Philip Morris Entity. The exercise
price for each share of Class A Common Stock purchased pursuant to an exercise
of the Option shall be: (i) in the event of the issuance by Kraft of Class A
Common Stock in exchange for cash consideration, the per share price paid to
Kraft for shares of the Class A Common Stock issued by Kraft in the related
Issuance Event; and (ii) in the event of: (A) the issuance by Kraft of Common
Stock other than Class A Common Stock or (B) the issuance by Kraft of Class A
Common Stock for consideration other than cash, the per share Market Price of
Class A Common Stock at the Issuance Event Date of such issuance.

                  (b) The provisions of Section 6.1(a) hereof notwithstanding,
                                        --------------
the Option granted pursuant to Section 6.1(a) shall not apply and shall not be
                               --------------
exercisable in connection with the issuance by Kraft of any shares of Common
Stock in connection with the Initial Public Offering, including the full
exercise of all underwriters' over-allotment options granted in connection
therewith or pursuant to any stock option or other executive or employee benefit
or compensation plan maintained by Kraft.

                                      13
<PAGE>

         6.2.     Notice.
                  ------

                  At least 20 business days prior to the issuance of any shares
of Common Stock (other than in connection with the Initial Public Offering,
including the full exercise of all underwriters' over-allotment options granted
in connection therewith, and other than issuances of Common Stock to any Philip
Morris Entity) or the first date on which any event could occur that, in the
absence of a full or partial exercise of the Option, would result in a reduction
in the Ownership Percentage, Kraft will notify Philip Morris in writing (an
"Option Notice") of any plans it has to issue such shares or the date on which
such event could first occur. Each Option Notice must specify the date on which
Kraft intends to issue such additional shares of Common Stock or on which such
event could first occur (such issuance or event being referred to herein as an
"Issuance Event" and the date of such issuance or event as an "Issuance Event
Date"), the number of shares Kraft intends to issue or may issue and the other
terms and conditions of such Issuance Event.

         6.3.     Option Exercise and Payment.
                  ---------------------------

                  The Option may be exercised by Philip Morris (or any Philip
Morris Entity to which all or any part of the Option has been assigned) for a
number of shares equal to or less than the number of shares that are necessary
for the Philip Morris Entities to maintain, in the aggregate, the then-current
Ownership Percentage. The Option may be exercised at any time after receipt of
an applicable Option Notice and prior to the applicable Issuance Event Date by
the delivery to Kraft of a written notice to such effect specifying (i) the
number of shares of Class A Common Stock to be purchased by Philip Morris, or
any of the Philip Morris Entities and (ii) a determination of the exercise price
for such shares. Upon any such exercise of the Option, Kraft will, prior to the
applicable Issuance Event Date, deliver to Philip Morris (or any Philip Morris
Entity designated by Philip Morris), against payment therefor, certificates
(issued in the name of Philip Morris or its permitted assignee hereunder or as
directed by Philip Morris) representing the shares of Class A Common Stock being
purchased upon such exercise. Payment for such shares shall be made by wire
transfer or intrabank transfer of immediately-available funds to such account as
shall be specified by Kraft, for the full purchase price for such shares.

         6.4.     Effect of Failure to Exercise.
                  -----------------------------

                  Except as provided in Section 6.5, any failure by Philip
                                        -----------
Morris to exercise the Option, or any exercise for less than all shares
purchasable under the Option, in connection with any particular Issuance Event
shall not affect Philip Morris' right to exercise the Option in connection with
any subsequent Issuance Event; provided, however, that the Ownership Percentage
following such Issuance Event in connection with which Philip Morris so failed
to exercise such Option in full or in part shall be recalculated as set forth in
Section 1.1.
-----------

         6.5.     Termination of Option.
                  ---------------------

                  The Option, or any part thereof assigned to any Philip Morris
Entity other than Philip Morris, shall terminate in the event that the Person to
whom the Option, or such part thereof, has been transferred, ceases to be a
Philip Morris Entity for any reason whatsoever.

                                      14
<PAGE>

                                  ARTICLE VII
                              REGISTRATION RIGHTS

                  Philip Morris and Kraft shall enter into the Registration
Rights Agreement in the form as set forth on the attached Appendix I, which will
                                                          ----------
govern the registration rights of Philip Morris and certain other holders of the
Common Stock.

                                 ARTICLE VIII
                                     TERM

                  This Agreement shall remain in effect until the Ownership
Percentage is less than 50%; provided, however, that: (i) the provisions of
Section 3.4 and Article VII shall remain in effect until terminated in
-----------     -----------
accordance with their terms; and (ii) the provisions of Article V shall survive
any termination of this Agreement.                      ---------

                                  ARTICLE IX
                                 MISCELLANEOUS

         9.1.     Limitation of Liability.
                  -----------------------

                  Neither Philip Morris nor Kraft shall be liable to the other
for any special, indirect, incidental or consequential damages of the other
arising in connection with this Agreement.          9.2.     Subsidiaries.
                  ------------

                  Philip Morris agrees and acknowledges that Philip Morris shall
be responsible for the performance by each Philip Morris Entity of the
obligations hereunder applicable to such Philip Morris Entity. Kraft agrees and
acknowledges that Kraft shall be responsible for the performance by each Kraft
Entity of the obligations hereunder applicable to such Kraft Entity.

         9.3.     Amendments.
                  ----------

                  This Agreement may not be amended or terminated orally, but
only by a writing duly executed by or on behalf of the parties hereto. Subject
to the approval requirements provided for in Section 3.3, any such amendment
                                             -----------
shall be validly and sufficiently authorized for purposes of this Agreement if
it is signed on behalf of Philip Morris and Kraft by any of their respective
presidents or vice presidents.

         9.4.     Severability.
                  ------------

                  If any provision of this Agreement or the application of any
such provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid, illegal or unenforceable to any extent,
the remainder of this Agreement or such provision of the application of such
provision to such party or circumstances, other than those to which it is so
determined to be invalid, illegal or unenforceable, shall remain in full force
and effect to the

                                      15
<PAGE>

fullest extent permitted by law and shall not be affected thereby, unless such a
construction would be unreasonable.

         9.5.     Notices.
                  -------

                  All notices and other communications required or permitted
hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (a) in person, (b) by registered or certified mail,
postage prepaid, return receipt requested or (c) by facsimile or other generally
accepted means of electronic transmission (provided that a copy of any notice
delivered pursuant to this clause (c) shall also be sent pursuant to clause
(b)), addressed as follows:

        (a)       if to Kraft, to:
                  Kraft Foods Inc.
                  Three Lakes Drive
                  Northfield, Illinois  60093
                  Attention:  General Counsel
                  With a copy to:  Corporate Secretary

        (b)       if to Philip Morris, to:
                  Philip Morris Companies Inc.
                  120 Park Avenue
                  New York, New York 10017
                  Attention:  General Counsel
                  With a copy to:  Corporate Secretary

or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.

        9.6.      Further Assurances.
                  ------------------

                  Philip Morris and Kraft shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such instruments
and take such other action as may be necessary or advisable to carry out their
obligations under this Agreement and under any exhibit, document or other
instrument delivered pursuant hereto.

        9.7.      Counterparts.
                  ------------

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

        9.8.      Governing Law.
                  -------------

                  This Agreement and the transactions contemplated hereby shall
be construed in accordance with, and governed by, the laws of the Commonwealth
of Virginia.

                                      16
<PAGE>

        9.9.     Entire Agreement.
                 ----------------

                 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof.

        9.10.    Successors.
                 ----------

                 Except as specifically provided in this Agreement, the parties
hereto may not assign any of their rights or obligations under this Agreement.
This Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and permitted assigns. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
other person or entity any benefits, rights or remedies, including any
shareholder of any party hereto.

                                      17
<PAGE>

         9.11.    Specific Performance.
                  --------------------

                  The parties hereto acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, it is agreed that they shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or any state thereof, in addition to any other
remedy to which they may be entitled at law or equity.

                                      18
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.

                        PHILIP MORRIS COMPANIES INC.

                        By: ______________________________
                        Name:
                        Title:

                        KRAFT FOODS INC.

                        By: ______________________________
                        Name:
                        Title:

                                      19<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-
<PAGE>

   Composite Transactions or, if no such sale of Common Stock is reported on
   such date, the 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

                                       4
<PAGE>
         payment in full of the purchase price by certified or bank check or
         such other instrument as the Company may 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

                                       7
<PAGE>
         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 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

                                       8
<PAGE>

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.

(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.

                                       9
<PAGE>
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.

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.

                                      10
<PAGE>
(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

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 upon approval by Philip Morris Companies
Inc. in its capacity as the Company's sole shareholder. Except as otherwise
provided by the Board, no Awards shall be made after June 11, 2006, provided
that any awards granted prior to that date may extend beyond it.

                                      11

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