Compensation Committee Matters

(Continued)

- Policy Regarding the Adjustment or Recovery of Compensation

- Treatment of Compensation and Benefit Programs At Completion of the Spin-Off of PMI

- Treatment of Compensation and Benefit Programs At Completion of the Spin-Off of Kraft

Policy Regarding the Adjustment or Recovery of Compensation

We have adopted a policy providing for the adjustment or recovery of compensation in certain circumstances. If the Board of Directors or an appropriate Committee of the Board determines that, as a result of a restatement of our financial statements, an executive has received more compensation than would have been paid absent the incorrect financial statements, the Board or its Committee, in its discretion, shall take such action as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, in appropriate cases, requiring partial or full reimbursement of any bonus or other incentive compensation paid to the executive, causing the partial or full cancellation of restricted stock or deferred stock awards and outstanding stock options, adjusting the future compensation of such executive, and dismissing or taking legal action against the executive, in each case as the Board or its Committee determines to be in the best interests of us and our stockholders. The Board has designated the Compensation Committee to implement this policy.

Treatment of Compensation and Benefit Programs At Completion of the Spin-Off of PMI

At completion of the spin-off of PMI, we entered into an Employee Matters Agreement with PMI addressing a number of compensation and benefits matters relating to our and PMI’s employees. In general, prior to the spin-off, PMI’s U.S.-based employees participated in our retirement, health and welfare, and other employee benefit plans. Employees in other jurisdictions were covered by plans that PMI maintained either independently or jointly with us. Following the spin-off, PMI’s U.S.-based employees generally participate in similar plans and arrangements that PMI has established and will maintain. Generally, liabilities for benefits under our retirement plans in which PMI employees participated were assumed by PMI, to the extent such benefits were not already liabilities of PMI. Effective as of the date of the spin-off, we and PMI each retain responsibility for our respective employees and compensation plans. In addition, pursuant to the Employee Matters Agreement, we and PMI generally protect employees transferring between us and PMI before the end of 2008 from any adverse economic impact of such transfer on their benefits. Following the spin-off, the holder of each outstanding option to purchase our stock received the following stock options with an aggregate intrinsic value (the difference between the exercise price of the options and the fair market value of the underlying stock) equal to the intrinsic value of the stock option immediately prior to the spin-off:

• a new PMI stock option (issued by PMI) to acquire a number of shares of PMI common stock; and
• an adjusted Altria stock option (issued by us) for the same number of shares of Altria common stock at a reduced exercise price.

Holders of our restricted or deferred stock awarded prior to January 30, 2008 retained their existing awards and received an equal amount of PMI restricted or deferred stock. The PMI restricted or deferred stock received in the spin-off is subject to the same forfeiture conditions and terms and conditions as the underlying Altria restricted or deferred stock. Recipients of our deferred stock awarded on January 30, 2008, who continue to be employed by us after the spin-off, received additional shares of our deferred stock to preserve the value of their award. Recipients of our deferred stock awarded on January 30, 2008, who were employed by PMI after the spin-off, received substitute shares of PMI deferred stock to preserve the value of their award.

We and PMI cross-reimbursed each other following the PMI spin-off for the “fair value” of options issued to employees of the other party, for the expected value of deferred stock granted to employees of the other party, and for certain other anticipated costs related to equity compensation as well as retirement plans and payments in lieu of retirement plan coverage. Fair value with regard to stock options was determined using Black-Scholes calculations.

Treatment of Compensation and Benefit Programs At Completion of the Spin-Off of Kraft

At the completion of the spin-off of Kraft, we and Kraft entered into an Employee Matters Agreement, pursuant to which, each retained responsibility for our respective employees and compensation plans.

As of the date of the spin-off, the holder of each outstanding option to purchase our stock received the following stock options with an aggregate intrinsic value (the difference between the exercise price of the options and the fair market value of the underlying stock) equal to the intrinsic value of the original stock option:

• a new Kraft stock option (issued by Kraft under its plan) to acquire a number of shares of Kraft Class A common stock based on the spin-off ratio; and
• an adjusted Altria stock option (issued by Altria) for the same number of shares of Altria common stock at a reduced exercise price.

The exercise price for the new Kraft option and the adjusted Altria option was determined based on the closing market prices of Altria and Kraft on the Kraft Distribution Date. We and Kraft cross-reimbursed each other following the spin-off for the “fair value” of options issued to employees of the other party. Fair value was determined using Black-Scholes calculations.

Altria employees who held our restricted or deferred stock awarded prior to January 31, 2007 received restricted or deferred shares of Kraft Class A common stock in accordance with the spin-off ratio. The Kraft shares distributed were subject to the same terms and restrictions as the underlying Altria restricted or deferred stock. Any such Kraft shares that were subsequently forfeited by holders of restricted stock were returned to Kraft. Accordingly, shortly after the spin-off, Kraft made a one-time payment to us based on the present rate of anticipated forfeitures. As with stock options, we and Kraft cross-reimbursed each other for the estimated value of deferred stock and certain other securities issued or to be issued to employees of the other party. Each holder of deferred stock awarded on January 31, 2007 received additional shares of Altria deferred stock based on the ratio of the pre-adjustment fair market value of Altria stock to the post-adjustment fair market value of Altria stock on the Kraft Distribution Date. Any Kraft employees who held Altria deferred stock awarded on January 31, 2007 received deferred shares of Kraft Class A common stock in accordance with the spin-off ratio.