Philip Morris International Spin-off (Completed)
Stock-Based Plans

For Employees or Former Employees with Altria Stock Options

Altria's objective was to treat you in a manner comparable to shareholders and to ensure that the intrinsic value of your Altria stock options immediately after the Adjustment was the same as it was immediately before the Adjustment, i.e. the amount you would have received if you had exercised your options and immediately sold the acquired shares would have been the same, both immediately before and after the Adjustment.

Keep in mind there was a suspension in exercise activity that prevented you from exercising your Altria stock options for a period of time before and after the Adjustment.

To help explain what your stock option holdings now look like and how they were calculated, the column on the left, below, shows the treatment of your stock option holdings before the Spin-off and the column on the right shows the treatment of your holdings after the Spin-off.

Altria Stock Options Before and After the Spin-off Number of Stock Options Grant Price Intrinsic Value Example About the Cash Payment

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Altria Stock Options  Before the Spin-off		Altria and PMI Stock  Options After the Spin-off
Number of Stock Options For each outstanding option grant, you currently hold a certain number of Altria stock options. Because they were granted prior to the Spin-off, your current Altria option holdings include the value of the PMI stock owned by Altria.		Number of Stock Options For each outstanding option grant, you will hold: The same number of Altria stock options (at a new grant price -see below), plus An equal number of PMI stock options.
Grant Price The grant price for each grant of Altria stock options was set at the time you received it.		Grant Price Because of the new (lower) price of Altria stock, revised grant prices will be determined to ensure that the Exercise Price Ratios are consistent both before and after the Adjustment.  The Exercise Price Ratio is the ratio between the pre-Adjustment grant price and fair market value of Altria stock. The Exercise Price Ratio will be applied to the post-Adjustment prices of Altria and PMI stock to obtain the new grant prices. For example, if the Altria stock price is $78 before the Adjustment and your grant price is $31.20 (adjusted for the Kraft Spin-off), the Exercise Price Ratio is 40%; that ratio will be maintained when the post-Adjustment grant prices for Altria and PMI options are set.
Intrinsic Value Your option holdings have intrinsic value if the fair market value of Altria stock is higher than your grant price.  For example, if your grant price is $31.20, and the fair market value is $78, you may exercise your options and realize a gain of $46.80 per option before transaction fees and taxes are considered.		Intrinsic Value The intrinsic value of each option grant will be the same as before the Adjustment; however, it will now have up to three components (Altria stock options, PMI stock options and, in most cases, a small cash payment). See the example below for a detailed look at how the pieces of the intrinsic value will be determined.

Example

In this example, let's take a look at how the Spin-off will affect Robert's stock option holdings. As the example demonstrates, the intrinsic value of Robert's stock options immediately after the Adjustment is the same as it was immediately before.

Note:  The values shown below are for illustrative purposes only and are not intended to reflect the price of Altria or PMI stock on the Distribution Date.

Altria Stock Options  Before the Spin-off		Altria and PMI Stock   Options After the Spin-off
Assumptions Altria options = 1,000 Fair market value of Altria stock = $78 per share Altria grant price = $31.20 per share		Assumptions Post-Adjustment price of Altria stock = $26 per share Post-Adjustment price of PMI stock = $52 per share
Number of PMI Stock Options Not applicable		Number of PMI Stock Options Robert will receive one PMI stock option for each outstanding Altria stock option. Note: Due to U.S. tax law requirements that apply to stock option adjustments in corporate transactions such as this, rounding may result in the intrinsic value of approximately one PMI stock option in cash rather than in the form of an option.
Grant Prices The Exercise Price Ratio is equal to the ratio between the pre-Adjustment grant price of each Altria stock option and the pre-Adjustment fair market value of Altria stock: $31.20 (grant price) / $78 (fair market value) = 40% Exercise Price Ratio Note: Each outstanding option grant will have a different Exercise Price Ratio based on its grant price (adjusted for the Kraft Spin-off on March 30, 2007).		Grant Prices The Exercise Price Ratio (calculated in the column on the left) of 40% will be used to establish the new grant prices: Adjusted Altria grant price: $26 (post-Adjustment price) x 40% (Exercise Price Ratio) = $10.40 (post-Adjustment grant price for existing Altria options) PMI grant price: $52 (post-Adjustment price) x 40% (Exercise Price Ratio) = $20.80 (grant price for new PMI options)
Intrinsic Value If Robert exercised his Altria options and sold his stock immediately prior to the Adjustment, the intrinsic value would be: $46.80 (fair market value of $78 - grant price of $31.20) x 1,000 (Altria options) TOTAL INTRINSIC VALUE = $46,800		Intrinsic Value If Robert exercised his post-Adjustment Altria and PMI options and sold his stock immediately after the Adjustment, the intrinsic value would be: $15.60 (post-Adjustment price of Altria of $26 - new Altria grant price $10.40) x 1,000 (Altria options) = $15,600 plus $31.20 (post-Adjustment price of PMI of $52 - PMI grant price $20.80) x 1,000 (PMI options) = $31,200 TOTAL INTRINSIC VALUE =  $46,800 Note: For the purposes of this illustration, it is assumed that all of the PMI options will be delivered in the form of an option rather than the intrinsic value of approximately one PMI option being delivered in cash.

Option Modeler

Model the impact on your own Altria stock option portfolio using the assumptions in this illustration. Make sure to have a copy of your portfolio of outstanding Altria stock options in front of you. This can be obtained by logging on to the UBS One Source Web site, www.ubs.com/onesource/mo, prior to the suspension of exercise activity.

About the Cash Payment

Due to required rounding of the grant price, it may be necessary to provide the approximate intrinsic value of one PMI stock option in cash rather than as a stock option for each of your outstanding stock option grants. In such an event, in addition to your Altria stock options and PMI stock options, you will receive a small cash payment through your local payroll shortly after the Spin-off so that the full intrinsic value of your grant is replicated. This also applies to former employees. You are not obligated to exercise your options in order to receive this small cash payment and there are no other elections that you can make relative to this payment; you cannot defer it, automatically reinvest it or refuse to receive it. This payment will generally be slightly less than the intrinsic value of a single PMI option for each outstanding grant. If you have multiple grants outstanding, your cash payments will be aggregated. In most jurisdictions, this payment will be taxable at the time payment is made.

If an option grant is out-of-the-money on the Distribution Date, there will be no cash payment to account for the rounding since the intrinsic value of that option is less than zero. The option holder will, however, receive adjusted Altria and PMI stock options as described in the example above, both of which will also be out-of-the-money on the Distribution Date.

Notes:

At the moment of the Adjustment, the intrinsic value was maintained. Nevertheless, after the Adjustment, the shares of Altria and PMI are now trading independently, and the value of your PMI and Altria options will fluctuate to reflect the stock price movement of the two independent companies.

Other terms and conditions (e.g., vesting schedule, expiration date) related to your stock option grant remain unchanged unless you are notified otherwise. Refer to the "Stock Option Owner's Guide" that was provided to you when your stock options were granted for more information. After the Spin-off, a stock option agreement containing the terms and conditions of your new PMI stock options will be available on the UBS One Source Web site, www.ubs.com/onesource/pm (available after the Distribution Date), and, for active employees, on the ALCS and PMI intranet sites. These terms and conditions will be based on those in effect for your Altria stock options.  

Glossary

Contact Information

Altria Contacts
www.ubs.com/
onesource/mo
Tel: 1-800-315-5250
(U.S. only)
Tel: 1-201-352-2316
(Outside U.S.)

Philip Morris International Contacts
www.ubs.com/
onesource/pm
Tel: 1-877-762-8827
(U.S. only)
Tel: 1-201-272-7741
(Outside U.S.)