SOIP and LTIP Prior to 1998
Prior to 1998, SOIP options were granted to middle management employees and were exercisable after 1 year. LTIP options were granted to senior management employees and were generally exercisable after 4 years. Both SOIP and LTIP options have 10 year terms. Certain LTIP options could be exchanged by employees for a specified number of performance share units (PSUs) within 60 days of the grant date. The value of a PSU was fixed at the stock price at the grant date and the PSU was payable 4 years from the grant date, contingent upon attainment of prescribed performance goals. At year-end 1998, 1997 and 1996, there were 84,000, 801,000 and 763,000 PSUs outstanding, respectively. Payment of PSUs is made in cash and/or stock as approved by the Compensation Committee of our Board of Directors. Amounts expensed in continuing operations for PSUs were $1 million in 1998 and $4 million in both 1997 and 1996.

SOIP and LTIP in 1998
Beginning in 1998, all executive (including middle management) awards are made under the LTIP. Under the LTIP, an executive receives an award based on a multiple of base salary. Two-thirds of the award consists of stock options with an exercise price equal to the stock price at the date of the award. These options become exercisable at the end of 3 years and have a 10 year term.

At the executive's discretion at the date of the award, the remaining one-third of the award will be granted in stock options at the end of 3 years or paid in cash at the end of 3 years. The number of options granted or the cash payment, if any, will depend on the attainment of prescribed performance goals over the 3 year period. If the executive chooses stock options, they are granted with an exercise price equal to the stock price at the date of the grant, vest immediately and have a 10 year term. If the executive chooses a cash payment, one dollar of cash will be received for every four dollars of the award. Amounts expensed for expected cash payments were $7 million in 1998. At year-end 1998, 162 million shares were available for grants under the LTIP.

Stock option activity:

(Options in thousands)			1998				1997				1996
			Options	Weighted Average Exercise Price			Options	Weighted Average Exercise Price			Options	Weighted Average Exercise Price
Outstanding at			.
beginning of year			146,329	.	$	18.95	177,217		$	20.22	160,662		$	16.10
	Granted		34,906	.	36.33		3,457	31.54			51,305	31.19
	Exercised		(28,076	)	15.31		(25,504	)	15.77		(22,687	)	14.19
Surrendered			.
for PSUs			(24	)	37.46		(15	)	37.68		(431	)	29.91
	Forfeited		(6,144	)	28.83		(7,819	)	24.89		(11,632	)	23.13
	Spin-off related:		.
		Conversion to	.
		TRICON	.
		options (a)	-	.	-		(13,267	)	25.75		-	-
		PepsiCo modifi-	.
		cation (b)	-	.	-		12,260	-			-	-
					.
Outstanding at end			.
of year			146,991	.	23.28		146,329	18.95			177,217	20.22
Exercisable at			.
end of year			82,692	.	16.74		81,447	15.39			80,482	14.92
Weighted average			.
fair value of options			.
granted during			.
the year			$			9.82	$			10.55	$			8.89
(a) Effective on the date of the TRICON spin-off, unvested PepsiCo capital stock options held by TRICON employees were converted to TRICON stock options. (b) Immediately following the spin-off, the number of options were increased and exercise prices were decreased (the "modification") to preserve the economic value of those options that existed just prior to the spin-off for the holders of PepsiCo capital stock options.

Stock options outstanding and exercisable at December 26, 1998:

					Options Outstanding					Options Exercisable
Range of Exercise Price					Options	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options	Weighted Average Exercise Price
$	4.25	to	$	9.84	11,469	1.39	yrs.	$	7.43	11,449	$	7.45
$	11.12	to	$	23.78	69,021	4.49	16.87			63,449	16.70
$	26.04	to	$	41.50	66,501	8.27	32.80			7,794	30.53
					146,991	5.85	23.28			82,692	16.74

Pro forma income and pro forma income per share, as if we had recorded compensation expense based on fair value for stock-based awards:

		1998		1997		1996
Reported		.
Income		.
	Continuing operations	$	1,993	$	1,491	$	942
	Discontinued operations	-		651		207
	Net income	$	1,993	$	2,142	$	1,149
Income per share		.
	Continuing operations	$	1.31	$	0.95	$	0.59
	Discontinued operations	-		0.41		0.13
	Net income	$	1.31	$	1.36	$	0.72
Pro Forma		.
Income		.
	Continuing operations	$	1,888	$	1,390	$	893
	Discontinued operations	-		635		188
	Net income	$	1,888	$	2,025	$	1,081
Income per share		.
	Continuing operations	$	1.24	$	0.89	$	0.55
	Discontinued operations	-		0.40		0.12
	Net income	$	1.24	$	1.29	$	0.67

Without the effect of pro forma costs related to the modification of outstanding options arising from the TRICON spin-off, pro forma income from continuing operations is $1,899 million or $1.25 per share in 1998 and $1,436 million or $0.92 per share in 1997.

The pro forma amounts disclosed above are not fully representative of the effects of stock-based awards because, except for the impact resulting from the Tricon modification, the amounts exclude the pro forma cost related to the unvested stock options granted before 1995.

The fair value of the options granted (including the modification) is estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:

	1998	1997	1996
Risk free interest rate	4.7%	5.8%	6.0%
Expected life	5 years	3 years	6 years
Expected volatility	23%	20%	20%
Expected dividend yield	1.14%	1.32%	1.5%