Exhibit 10(i)


 


As Amended and Restated Effective November 21, 2002


As Amended and Restated Effective September 12, 2002


Amended and Restated Effective July 18, 2002


Amended and
Restated September 4, 2001


Section 2
definition of Fair Market Value Amended December 8, 1999


Amended and
Restated January 20, 1998


Reflects
5-for-2 stock split dated July 14, 1997


2-for-1
stock split dated January 20, 1998 and


Mergers & acquisitions through September 1, 1997


COMPAQ COMPUTER CORPORATION


1989 EQUITY INCENTIVE PLAN


 


SECTION 1.           Purpose.  The purposes of the Compaq Computer
Corporation 1989 Equity Incentive Plan are to encourage eligible employees of
the Company, Compaq and Affiliates, to acquire a proprietary and vested
interest in the growth and performance of the Company, to generate an increased
incentive to contribute to the Company’s future success and prosperity, thus
enhancing the value of the Company for the benefit of its stockholders, and to
enhance the ability of the Company, Compaq and Affiliates to attract and retain
talented and highly competent individuals upon whom, in large measure, the
sustained progress, growth, and profitability of the Company depend.


SECTION 2.           Definitions.  As used in the Plan, the following terms
shall have the meanings set forth below:


“Affiliate”
shall mean (a) any Person that directly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Company or
Compaq, or (b) any entity in which the Company or Compaq has a significant
equity interest, as determined by the Committee.


“Award”
shall mean any option, stock appreciation right, restricted stock award, or any
other right, interest, or option relating to Shares granted pursuant to the
provisions of the Plan.


“Award
Notice” shall mean any written notice, agreement, or other instrument or
document evidencing any Award granted by the Company and delivered to the
Participant, and shall be subject to the terms and conditions of the Plan.


“Board”
shall mean the Board of Directors of the Company.


“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time.


“Committee”
shall mean a committee or committees of the Board designated by the Board to
administer the Plan.


“Common
Stock” shall mean the common stock, $.01 par value, of the Company.


“Compaq”
shall mean Compaq Computer Corporation, together with any successor thereto.


“Company”
shall mean any successor or parent company of Compaq.


“Employee” shall mean any employee of the
Company, Compaq or of any Affiliate, but shall exclude any individual who are
classified by the Company as (a) leased from or otherwise employed by a third
party; (b) independent contractors; (c) intermittent or temporary, even if any
such classification is changed 


 


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retroactively
as a result of an audit, litigation or otherwise; or (d) on or after May 3,
2002, either a member of the Board or a covered officer as defined in Section
162(m) of the Code at the time of grant.


“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.


“Fair
Market Value” shall mean the fair market value of the property or other item
being valued, as determined by the Committee in its sole discretion.  On or after May 3, 2002 and unless otherwise
determined by the Committee or its designate, the fair market value shall mean
the average of the highest and lowest quoted sales prices for such Shares as of
such date (or if no sales were reported on such date, the average on the last
preceding day a sale was made) as quoted on the stock exchange or a national
market system, with the highest trading volume, as reported in such source as
the Committee shall determine.


“Incentive
Stock Option” shall mean an Option granted under Section 6 hereof that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.


“Nonqualified
Stock Option” shall mean an Option granted under Section 6 hereof that is not
intended to be an Incentive Stock Option.


“Option”
shall mean any right granted to a Participant allowing such Participant to
purchase Shares at such price or prices and during such period or periods as
the Committee shall determine.


“Participant”
shall mean an Employee who is selected by the Committee to receive an Award
under the Plan.


“Person”
shall mean any natural person, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, or government or
political subdivision thereof or other entity.


“Plan”
shall mean this Compaq Computer Corporation 1989 Equity Incentive Plan, as
amended from time to time.


“Restricted
Stock” shall mean any share of capital stock of the Company issued with the
restriction that the holder may not sell, transfer, pledge, or assign such
share and with such other restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any restriction on the
right to vote such shares and the right to receive any cash dividends), which
restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.


“Restricted
Stock Award” shall mean an Award of Restricted Stock under Section 8 hereof.


“Shares”
shall mean the Common Stock and such other securities of the Company as the
Committee may from time to time determine.


“Stock
Appreciation Right” shall mean any right granted to a Participant pursuant to
Section 7 hereof to receive, upon exercise by the Participant, the excess of
(a) the Fair Market Value of one Share on the date of exercise or, if the
Committee shall so determine in the case of any such right other than one
related to any Incentive Stock Option, at any time during a specified period
before the date of exercise over (b) the grant price of the right as specified
by the Committee, in its sole discretion, on the date of grant.  The grant price of a right granted to an
individual subject to Section 16 of the Exchange Act shall not be less than 50%
of the Fair Market Value of one Share on the date of grant.  Any payment by the Company in respect of
such right may be made in cash, Shares, other property, or any combination
thereof, as the Committee, in its sole discretion, shall determine.


“Substitute Awards” shall mean Awards granted
in assumption of, or in substitution for, outstanding awards previously granted
by a company acquired by the Company or Compaq or with which the Company or
Compaq combines.


 


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“Tandem”
shall mean Tandem Computers Incorporated.


“Tandem
Substitute Options” shall mean any Options issued under the Plan pursuant to
that certain Agreement and Plan of Merger dated as of June 22, 1997 among
Tandem, Compaq and Compaq-Project, Inc.


SECTION 3.           Administration.  The Plan shall be administered by the
Committee.  The Committee shall have
full power and authority, subject to such orders or resolutions not
inconsistent with the provisions of the Plan as may from time to time be
adopted by the Board, to:  (a) select
the Employees of the Company, Compaq and Affiliates to whom Awards may from
time to time be granted hereunder; (b) determine the type or types of Awards to
be granted to each Participant hereunder; (c) determine the number of Shares to
be covered by, or with respect to, which payments, rights, or other matters are
to be calculated in connection with, each Award granted hereunder; (d)
determine the terms and conditions, not inconsistent with the provisions of the
Plan, of any Award granted hereunder; (e) determine whether, to what extent,
and under what circumstances Awards may be settled in cash, shares, other
securities, other Awards or other property, or canceled, forfeited or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited or suspended; (f) determine whether, to what extent, and under what
circumstances Shares and other amounts payable with respect to an Award under
this Plan shall be deferred either automatically or at the election of the
Participant; (g) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under the Plan; (h) establish such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; (i) adopt rules, procedures, and sub-plans
to the Plan relating to the operation and administration of the Plan, as the
Committee deems desirable to accommodate tax and other laws, regulations and
practices in foreign jurisdictions; (j) approve forms of Notice for use under
the Plan; (k) authorize substitution under the Plan of any or all outstanding
Nonqualified Stock Options or outstanding stock appreciation rights held by
service providers of an entity acquired by the Company; and (l) make any other
determination and take any other action that the Committee deems necessary or
desirable for administration of the Plan and any Award granted hereunder.  Unless otherwise expressly provided in the
Plan, all designations, determinations, interpretations, and other decisions of
the Committee may be made at any time and shall be final, conclusive, and
binding upon all persons, including the Company, Compaq, any Participant, any
holder or beneficiary of any Award, any stockholder, and any Employee.


Delegation of Authority for the Day-to-Day
Administration of the Plan. 
Except to the extent prohibited by applicable law
or applicable rules of a stock exchange, the Board or any of its committees as
shall be administering the Plan may delegate to one or more individuals the
day-to-day administration of the Plan and any of the functions assigned to it
in this Plan. The delegation may be revoked at any time.


SECTION 4.           Shares Subject to the Plan.


(a)                                  Total Number.  Subject to adjustment as provided in this
Section, the total number of Shares available for grant under the Plan shall be
268,033,504 Shares.


(b)                                 Reduction of
Shares Available.


(i)                                     The grant of an
Option or Restricted Stock Award will reduce the Shares available for grant by
the number of Shares subject to such Award.


(ii)                                  The grant of
Stock Appreciation Rights related to an Option will reduce the number of Shares
available for grant only to the extent that the number of Stock Appreciation
Rights granted exceeds the number of Shares subject to the related Option.


(iii)                               The grant of
Stock Appreciation Rights not related to an Option will reduce the number of
Shares available for grant by the number of Stock Appreciation Rights granted.


 


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(iv)                              Any Shares
issued by the Company through the assumption or substitution of outstanding grants
from an acquired company shall not reduce the Shares available for grants under
the Plan.


(c)                                  Increase of
Shares Available.


(i)                                     The lapse,
cancellation, or other termination of an Option that has not been fully
exercised shall increase the available Shares by the number of Shares that have
not been issued upon exercise of such Option; provided that in the event the
cancellation of an Option is due to the exercise of Stock Appreciation Rights
related to such Option, the cancellation of such Option shall only increase the
Shares available by the excess, if any, of the number of Shares subject to such
Option over the number of Stock Appreciation Rights exercised.


(ii)                                  The lapse,
cancellation, or other termination of Stock Appreciation Rights that have not
been exercised shall increase the available Shares by the number of Stock
Appreciation Rights so lapsed, canceled, or terminated; provided that in the
event the cancellation of Stock Appreciation Rights is due to the exercise of
an Option related to such Stock Appreciation Rights, the lapse, cancellation,
or termination of such Stock Appreciation Rights shall only increase the Shares
available by the excess, if any, of the number of Stock Appreciation Rights so
lapsed, canceled, or terminated over the number of Shares for which such Option
is exercised.


(iii)                               Any Restricted
Shares forfeited by a Participant shall increase the available Shares by the
number of Shares so forfeited.


(iv)                              In the event
that any withholding tax liabilities arising from such Award are satisfied by
the withholding of Shares by the Company, the number of Shares available for
Awards under the Plan shall be increased by the number of Shares so surrendered
or withheld.


(d)                                 Other
Adjustments.  The total
number of shares of Common Stock available for Awards under the Plan or which
may be allocated to any one Participant, the number of shares of Common Stock
subject to outstanding Options, the exercise price for such Options, the number
of outstanding Stock Appreciation Rights, the base value of such rights, and
the number of outstanding shares of Restricted Stock shall be appropriately
adjusted by the Committee for any increase or decrease in the number of
outstanding Shares resulting from a stock dividend, subdivision, or combination
of Shares or reclassification, as may be necessary to maintain the
proportionate interest of the Award holder. 
In the event of a merger or consolidation of the Company or a tender
offer for shares of Common Stock, the Committee may make such adjustments with respect
to Awards under the Plan and take such other action as it deems necessary or
appropriate to reflect or in anticipation of such merger, consolidation, or
tender offer including, without limitation, the substitution of new Awards, the
termination or adjustment of outstanding Awards, the acceleration of Awards, or
the removal of restrictions on outstanding Awards.  The payment to the Participant of an amount in cash equal to the
excess, if any, of the Fair Market Value of the number of shares subject to any
Award over the aggregate grant price thereof, in consideration of the
cancellation thereof pursuant to this Section 4(d), shall extinguish any rights
of the Participant in connection with such Award.


SECTION 5.           Eligibility.  Any Employee (excluding any member of the
Committee) shall be eligible to be selected as a Participant.  Prior to May 3, 2002 any officer or
employee-director of Compaq or any Affiliate shall be eligible to be designated
as a Participant.


SECTION 6.           Stock
Options.  Subject to the provisions
of the Plan, the Committee shall have sole and complete authority to determine
the Employees to whom Options shall be granted, the number of Shares to be
covered by each Option, and the conditions and limitations applicable to the
exercise of the Option. Options may be granted hereunder to Participants either
alone or in addition to other Awards granted under the Plan.  The Company shall deliver an Award Notice to
each Participant receiving an Option. 
Any such 


 


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Option shall be subject to
the following terms and conditions and to such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall deem
desirable:


(a)                                  Option Price.  The purchase price per Share purchasable
under an Option (other than Substitute Awards) shall be determined by the
Committee in its sole discretion and set forth in the applicable Award Notice;
provided that such purchase price at the time of grant shall not be less than
(i) prior to May 3, 2002 (A) 100% of the Fair Market Value of the Share on the
date of the grant of the Option in the case of any Incentive Stock Option, or
(B) 50% of such Fair Market Value in the case of any Nonqualified Stock Option
granted to an individual subject to Section 16 of the Exchange Act; and (ii) on
or after May 3, 2002, not less than the Fair Market Value of the underlying
shares.  The Committee shall determine
the appropriate option price for Substitute Awards based on the terms and
conditions of the transaction related to such Awards.


(b)                                 Option Period.  The term of each Option shall be fixed by
the Committee in its sole discretion and set forth in the applicable Award
Notice; provided that no Option shall be exercisable after the expiration of ten
years from the date the Option is granted.


(c)                                  Exercisability.  Options shall be exercisable at such time or
times as determined by the Committee in its sole discretion and set forth in
the applicable Award Notice.  The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the applicable securities laws,
as it may deem necessary or advisable.


(d)                                 Method of
Exercise.  Any Option
may be exercised by the Participant in whole or in part at such time or times
and by such methods as the Committee may specify.  Unless otherwise specified in the applicable grant and Award
Notice, the Participant may make payment (i) in cash or by certified check,
bank draft, or postal or express money order payable to the order of the
Company, (ii) with the consent of the Board (or the Committee, if established
by the Board), in whole or in part in Common Stock owned by the Participant
(which are not the subject of any pledge or other security interest), valued at
Fair Market Value, (iii) if and to the extent permitted by the Company, by
surrendering all or part of that Option or any other Option, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company, or (v) by a combination of the foregoing,; provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any such
Shares so tendered to Compaq the Company as of the date of such tender is at
least equal to such option cost.


(e)                                  Incentive Stock
Options.  In accordance with rules and
procedures established by the Committee, the aggregate Fair Market Value
(determined as of the time of grant) of the Shares with respect to which
Incentive Stock Options held by any Participant become exercisable for the
first time by such Participant during any calendar year under the Plan (and
under any other benefit plans of the Company or of any parent or subsidiary
corporation of the Company) shall not exceed $100,000 or, if different, the
maximum limitation in effect at the time of grant under Section 422A of the
Code, or any successor provision, and any regulations promulgated
thereunder.  The terms of any Incentive
Stock Option granted hereunder shall comply in all respects with the provisions
of Section 422A of the Code, or any successor provision, and any regulations
promulgated thereunder.  On or after May
3, 2002, no Incentive Stock Options shall be substituted under this Plan.


(f)                                    Form of
Settlement.  In its
sole discretion, the Committee may provide, at the time of grant, that the
Shares to be issued upon an Option’s exercise shall be in the form of
Restricted Stock or other similar securities.


(g)                                 Certificates.  Upon the Company’s determination that an
Option has been validly exercised as to any of the Shares, the Secretary of the
Company shall issue certificates in the Participant’s name for such
Shares.  However, the Company shall not
be liable to the Participant for damages relating to any delays in issuing the
certificates to him, any loss of the certificates, or any mistakes or errors in
the issuance of the certificates or in the certificates themselves.


 


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SECTION 7.           Stock Appreciation Rights.


(a)                                  Prior to May 3,
2002, Stock Appreciation Rights may be granted hereunder to Participants either
alone or in addition to other Awards granted under the Plan and may, but need
not, relate to a specific Option granted under Section 6.  The provisions of Stock Appreciation Rights
need not be the same with respect to each recipient.  Any Stock Appreciation Right related to a Nonqualified Stock
Option may be granted at the same time such Option is granted or at any time
thereafter before exercise or expiration of such Option.  Any Stock Appreciation Right related to an
Incentive Stock Option must be granted at the same time such Option is
granted.  In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right Award or
applicable portion thereof shall terminate and no longer be exercisable upon
the termination or exercise of the related Option, except that a Stock
Appreciation Right Award granted with respect to fewer than the full number of
Shares covered by a related Option shall not be reduced until the number of
Shares issued upon exercise or canceled upon termination of the related Option
exceeds the number of shares not covered by the Stock Appreciation Right
Award.  Any Option related to any Stock
Appreciation Right shall no longer be exercisable to the extent the related Stock
Appreciation Right has been exercised. 
No Stock Appreciation Right unrelated to any Option shall be exercisable
after the expiration of ten years from the date such Award is granted.  The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.  The Company shall deliver
an Award Notice to each Participant receiving a Stock Appreciation Right.


(b)                                 On or after May
3, 2002, no Stock Appreciation Rights shall be granted under this Plan.


SECTION 8.           Restricted Stock.


(a)                                  For Restricted
Stock grants prior to May 3, 2002:


(i)                                     Issuance.  Restricted Stock Awards may be issued
hereunder to Participants, for no cash consideration or for such nominal
consideration as may be required by applicable law, either alone or in addition
to other Awards granted under the Plan. 
The provisions of Restricted Stock Awards need not be the same with
respect to each recipient.  The Company
shall deliver an Award Notice to each Participant receiving a Restricted Stock
Award.


(ii)                                  Registration.  Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of Restricted Stock awarded under the Plan, such
certificate shall be registered in the name of the Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.  Promptly
after the lapse of restrictions with respect to any shares of Restricted Stock,
the lapse of such restrictions shall be evidenced in such manner as the
Committee shall deem appropriate.


(b)                                 On or after May
3, 2002, no Restricted Stock shall be granted under this Plan.


SECTION 9.           Termination
or Suspension of Employment.  The following provisions shall apply in the event of the
Participant’s termination of employment unless the Company shall have provided
otherwise either at the time of grant of the Award or thereafter.


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(a)                                  Nonqualified Stock Options and Stock Appreciation Rights.


(i)                                     Termination of
Employment:


 


(A)                              For
Nonqualified Stock Options and Stock Appreciation Rights granted prior to May
3, 2002 and if the Participant’s employment with the Company, Compaq or an
Affiliate is terminated for any reason other than death, disability, or
retirement, the Participant’s right to exercise any Nonqualified Stock Option
or Stock Appreciation Right shall terminate, and such Option or Stock
Appreciation Right shall expire, on the earlier of (a) the first anniversary of
such termination of employment or (b) the date such Option or Stock Appreciation
Right would have expired had it not been for the termination of employment;
provided, however, that if, within one year following a Change in Control, the
Participant’s employment is terminated in a Qualifying Termination (as defined
in subparagraph (iv) below), the Participant shall have the right to exercise
any outstanding Option or Stock Appreciation Right until the earlier of (i) the
third anniversary of such termination of employment (in the case of Options or
Stock Appreciation Rights granted prior to September 1, 2001) or the first
anniversary of the effective date of such Qualifying Termination (in the case
of Options or Stock Appreciation Rights granted on or after September 1, 2001
and prior to the Change in Control) or (ii) the date such Option or Stock
Appreciation Right would have expired had it not been for such termination of
employment.  The Participant shall have
the right to exercise such Option or Stock Appreciation Right prior to such
expiration to the extent it was exercisable at the date of such termination of
employment and shall not have been exercised.


(B)                                For Options
granted on or after May 3, 2002 and if a Participant ceases to be an Employee
of the Company, Compaq or an Affiliate for any reason other than death,
permanent and total disability, or retirement, the Participant’s right to
exercise any vested or unvested Option shall terminate, and such Option shall
expire.


 


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(ii)                                  Death,
Disability or Retirement.


 


(A)                              For Nonqualified
Stock Options and Stock Appreciation Rights granted prior to May 3, 2002 and if
the Participant’s employment with the Company, Compaq or an Affiliate is
terminated by reason of death, disability, or retirement, the Participant or
his successor (if employment is terminated by death) shall have the right to
exercise any Nonqualified Stock Option or Stock Appreciation Right to the
extent it was exercisable at the date of such termination of employment and
shall not have been exercised, but in no event shall such option be exercisable
later than the date the Option would have expired had it not been for the
termination of such employment.


(B)                                For Options
granted on or after May 3, 2002 and if a Participant’s employment with the
Company, Compaq or an Affiliate is terminated by total and permanent
disability, or retirement, all unvested Options shall immediately vest and the
Participant shall have the right to exercise any Option within three years of
the date of such disability or retirement, but in no event shall such option be
exercisable later than the date the Option would have expired had it not been
for the termination of such employment.


(C)                                For Options
granted on or after May 3, 2002 and if a Participant’s employment with the
Company, Compaq or an Affiliate is terminated by death, all unvested Options
shall immediately vest and, subject to applicable laws and subparagraph (h)
below, the Participant’s designated beneficiaries or successors shall have the
right to exercise the Option within one year of the date of the death of
Participant whether the Participant was an Employee, retired or disabled, but
in no event shall such option be exercisable later than the date the Option
would have expired had it not been for Participant’s death.


(iii)                               Notwithstanding
the foregoing, the Committee may, in its discretion, provide (A) that an Option
granted to a Participant may terminate at a date earlier than that set forth
above, and (B) that an Option granted to a Participant may terminate at a date
later than that set forth above, provided such date shall not be beyond the
date the Option would have expired had it not been for the termination of the
Participant’s employment.


(iv)                              For purposes of
subparagraph (a)(i)(A) above, the term “Qualifying Termination” shall have the
meaning ascribed to such term in the Participant’s individual employment or
severance agreement with the Compaq or its Affiliates.  If the Participant is not a party to an
individual employment or severance agreement with the Compaq or its Affiliates,
the term “Qualifying Termination” shall have the meaning ascribed to the term
“Qualified Termination” in the Compaq Computer Corporation employee severance
plan, as may be amended from time to time, in which such Participant is
eligible to participate.


(b)                                 Incentive Stock Options.  Except as otherwise determined by the Committee at the time of
grant, if the Participant’s employment with the Company is terminated for any
reason, the Participant shall have the right to exercise any Incentive Stock
Option and any related Stock Appreciation Right during the 90 days after such
termination of employment to the extent it was exercisable at the date of such
termination, but in no event later than the date the Option would have expired
had it not been for the termination of such employment.  If the Participant does not exercise such
Option or related Stock Appreciation Right to the full extent permitted by the
preceding sentence, the remaining exercisable portion of such Option
automatically will be deemed a Nonqualified Stock Option, and such Option and
the related Stock Appreciation Right will be exercisable during the period set
forth in Section 9(a) of the Plan, provided that in the event that employment
is terminated because of death or the Participant dies in such 90-day period
the Option will continue to be an Incentive Stock Option to the extent provided
by Section 421 or Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder.


 


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(c)                                  Restricted Stock. Except as otherwise determined by the
Committee at the time of grant, upon termination of employment for any reason
during the restriction period, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant and reacquired by the Company
at the price (if any) paid by the Participant for such Restricted Stock;
provided that in the event of a Participant’s retirement, permanent disability,
or death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Company, waive, in whole or in part, any or all remaining restrictions with
respect to such Participant’s shares of Restricted Stock.


(d)                                 Disability and Retirement.  The term “disability” means total and permanent disability.  The meaning of the terms “total and
permanent disability” and “retirement” shall be determined by the Committee.


(e)                                  Acceleration of Exercisability.  Nothing contained herein shall in any way limit the authority of
the Committee in its sole discretion to cause any outstanding Option or Stock
Appreciation Right to become immediately exercisable when it finds that such
acceleration would be in the best interests of the Company.


(f)                                    Leave Without Pay.  No
Award may be exercised during any leave of absence other than an approved
personal or medical leave with an employment guarantee upon return. An Award
shall continue to vest during any authorized leave of absence and such Award
may be exercised to the extent vested upon the Participant’s return to active
employment status, in accordance with the terms thereof, to the extent
permitted by local law.


(g)                                 Beneficiary Designation.


(i)                                     A Participant
may file a written designation of a beneficiary who is to receive the
Participant’s rights pursuant to Participant’s Award or the Participant may
include his or her Awards in an omnibus beneficiary designation for all
benefits under the Plan. To the extent that the Participant has completed a
designation of beneficiary while employed with the Company, Compaq or an
Affiliate such beneficiary designation shall remain in effect with respect to
any Award hereunder until changed by the Participant.


(ii)                                  Such
designation of beneficiary may be changed by the Participant at any time by
written notice. In the event of the death of an Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant’s death, the Company shall allow the executor or administrator
of the estate of the Participant to exercise the Award, or if no such executor
or administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may allow the spouse or one or more dependents or
relatives of the Participant to exercise the Award.


SECTION 10.         Change
in Control.


(a)                                  Immediate Vesting.  For
Awards granted prior to May 3, 2002 and notwithstanding any other provision of
the Plan to the contrary, (i) all Awards granted prior to September 1, 2001 shall
vest and become immediately exercisable or payable, or have all restrictions
lifted as may apply to the type of Award upon a Change in Control and (ii) all
Awards granted on or after September 1, 2001 shall vest and become immediately
exercisable or payable, or have all restrictions lifted as may apply to the
type of Award, upon a Qualifying Termination (as defined in Section 9(a)(iv))
within one year following a Change in Control.


(b)                                 Change in Control.  A
“Change in Control” shall be deemed to have occurred if:  (i) Prior to May 3, 2002, (A) any “person”
as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other
than Compaq, any trustee or other fiduciary holding securities under any
employee benefit plan of Compaq, or any company owned, directly or indirectly,
by the stockholders of Compaq in 


 


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substantially
the same proportions as their ownership of Stock of Compaq), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Compaq representing 30% or more of the combined
voting power of Compaq’s then outstanding securities;  (B) during any period of two consecutive years (not including any
period prior to the adoption of the Plan), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with Compaq to effect
a transaction described in clause (A), (B), or (C) of this Section 10(b)(i))
whose election by the Board or nomination for election by Compaq’s stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so approved,  cease for any reason to constitute at least
a majority of the Board;  (C)  the stockholders of Compaq approve a merger
or consolidation of Compaq with any other corporation, other than a merger or
consolidation which would result in the voting securities of Compaq outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
Compaq or such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected to
implement a recapitalization of Compaq (or similar transaction) in which no
person acquires more than 30% of the combined voting power of Compaq’s then
outstanding securities shall not constitute a Change in Control of Compaq;
or  (D) the stockholders of Compaq
approve a plan of complete liquidation of Compaq or an agreement for the sale
or disposition by Compaq of all or substantially all of Compaq’s assets.  For purposes of (1) Awards granted on or
after September 1, 2001, (2) applying the provision of Section 10(a)(i) to
Awards (other than Options and Stock Appreciation Rights) granted prior to
September 1, 2001, and (3) applying the provisions of Section 9(a)(i)(A) and
the sixth paragraph of Appendix A to all Options and Stock Appreciation Rights
under the Plan, whenever granted, the definition of Change in Control set forth
in this subsection shall be revised by substituting the phrase “a merger or
consolidation of Compaq with any other corporation is consummated” for the
phrase “the stockholders of Compaq approve a merger or consolidation of Compaq
with any other corporation” in clause (C) of this subsection, and (ii) On or
after May 3, 2002, the Board in its sole discretion determines that a change in
control has occurred.


(c)                                  For Options
granted on or after May 3, 2002 and in the event there is a Change of Control
of the Company, as determined by the Board, the Board may in its discretion
provide for (i) the assumption or substitution of, or adjustments to, each
outstanding Award; (ii) the acceleration of the vesting of Awards and termination
of any restriction on Awards; and (iii) the cancellation of Awards for a cash
payment to the Participants.


(d)                                 For Options
granted on or after May 3, 2002 and in the event of the proposed dissolution or
liquidation of the Company, the Committee shall notify each Participant as soon
as practicable prior to the effective date of such proposed transaction. The
Committee in its discretion may provide for an Award to be fully vested and
exercisable until ten (10) days prior to such transaction. In addition, the
Committee may provide that any restrictions on any Award shall lapse prior to
the transaction, provided the proposed dissolution or liquidation takes place
at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Award will terminate immediately prior to the
consummation of such proposed transaction.


SECTION 11.         Amendments
and Termination.


(a)                                  The Board may
amend, alter, or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made that would impair the rights of a Participant
under an Award theretofore granted, without the Participant’s consent, or that
without the approval of the stockholders would:


 


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(i)                                     Prior to May 3,
2002 and except as is provided in Section 4(c) of the Plan, increase the total
number of Shares reserved for the purpose of the Plan; or change the employees
or class of employees eligible to participate in the Plan; and


(ii)                                  On or after May
3, 2002, be necessary to comply with any tax or regulatory requirement for
which the Board deems it necessary or desirable to qualify or comply.


(b)                                 Prior to May 3,
2002, the Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights
of any Participant without his consent. 
The Committee may also substitute new Awards for previously granted
Awards, including without limitation previously granted Options and Stock
Appreciation Rights having higher option prices.   On or after May 3, 2002, the Committee may waive any conditions
or rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Award theretofore granted, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation, or termination that would adversely affect the
rights of any Participant or any holder or beneficiary of any Award theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder, or beneficiary.


(c)                                  Employee Status Change to Part-Time.  Prior to May 3, 2002 and at such time as a full-time employee
becomes a part-time employee of the Company, on the next vesting date following
such status change, all Awards previously granted to such employee will be
automatically amended to reflect the vesting of all such Awards to be reduced
by one-half with respect to any portion of the Awards not yet vested.


(d)                                 Buyout
Provisions.  At any
time, the Committee may, but shall not be
required to, authorize the Company to offer to buy out for a payment in cash or
Shares an Award previously granted based on such terms and conditions as the
Committee shall establish and communicate to the Participant in connection with
such offer.


SECTION 12.         General
Provisions.


(a)                                  Nontransferability.  No Award shall be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant, except by will or the
laws of descent and distribution, provided, however, that an Award granted
prior to May 3, 2002 may be transferable, to the extent set forth in the
applicable Award Notice and in accordance with procedures adopted by the
Committee, (i) if such Award Notice provisions do not disqualify such Award for
exemption under Rule 16b-3 or (ii) if such Award is not intended to qualify for
exemption under such rule.


(b)                                 No Claims.  No
Employee or Participant shall have any claim to be granted any Award under the
Plan and there is no obligation for uniformity of treatment of Employees,
Participants or holders or beneficiaries of Awards under the Plan.  The terms and conditions of Awards need not
be the same with respect to each recipient.


(c)                                  Notices.  Any notice
necessary under this Plan or any Award hereunder shall be addressed to the
Company in care of its Secretary at the principal executive office of the
Company in Palo Alto, California and to the Participant at the address
appearing in the personnel records of the Company for such Participant or to either
party at such other address as either party hereto may hereafter designate in
writing to the other.  Any such notice
shall be deemed effective upon receipt thereof by the addressee.


(d)                                 Unusual Events.  The
Committee shall be authorized to make adjustments in the terms and conditions
of Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations,
or accounting principles.  The Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable
to carry it into effect.  In 


 


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the
event the Company shall assume outstanding employee benefit awards or the right
or obligation to make such future awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem
appropriate.


(e)                                  Compliance Requirements.  All certificates for Shares delivered under the Plan pursuant to
any Award 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 Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable federal or state
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.  The Company shall not be required to issue
or deliver any Shares under the Plan prior (i) to the completion of any
registration or qualification of such Shares under any federal or state law, or
under any ruling or regulation of any governmental body or national securities
exchange that the Committee in its sole discretion shall deem to be necessary
or appropriate and (ii) to the Participant’s entering into such written
representations, warranties, and agreements as the Company may reasonably
request in order to comply with applicable securities laws or with this Plan.


(f)                                    Dividends.  Subject to
the provisions of this Plan, the recipient of an Award may, if so determined by
the Committee at the time of grant, be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents,
with respect to the number of shares covered by the Award, as determined at the
time of the Award by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have been reinvested
in additional Shares or otherwise reinvested.


(g)                                 No Other Consideration.  Prior to May 3, 2002 and except as otherwise required in any
applicable grant and Award Notice or by the terms of the Plan, recipients of
Awards under the Plan shall not be required to make any payment or provide
consideration other than the rendering of services.


(h)                                 Withholding.  The
Company, Compaq or any Affiliate shall be authorized to withhold from any Award
granted or payment due under the Plan the amount of withholding taxes due in
respect of an Award or payment hereunder and to take such other action as may
be necessary in the opinion of the Company to satisfy any of its obligations
with respect to the payment of such taxes. A Participant may satisfy
withholding tax obligations by electing to have the Company withhold from the
Shares to be issued upon exercise of an Award that number of Shares having a Fair
Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by a Participant to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Committee may deem necessary or advisable. 
The Committee may provide for additional cash payments to holders of
Awards to defray or offset any tax arising from the grant, vesting, exercise,
or payments of any Award.


(i)                                     Other Plans.  Nothing
contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to stockholder approval, if such
approval is required by applicable law, or the rules of any stock exchange on
which the Common Stock is then listed; and such arrangements may be either
generally applicable or applicable only in specific cases.


(j)                                     Governing Law.  The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan and any Award hereunder shall be determined in accordance
with the laws of the State of Delaware and applicable federal law.


(k)                                  Conformity With Law.  If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended in such jurisdiction to conform to
applicable laws or if it cannot be construed or deemed amended 


 


12

















 


without,
in the determination of the Committee, materially altering the intent of the
Plan, it shall be stricken and the remainder of the Plan shall remain in full
force and effect.


(l)                                     Delegation.  Subject to
the terms of the Plan and applicable law, the Committee may delegate to one or
more officers or managers of the Company, Compaq or any Affiliate, or to a
committee of such officers or managers, the authority, subject to such terms
and limitations as the Committee shall determine, to grant Awards to, or to
cancel, modify or waive rights with respect to, or to alter, discontinue,
suspend, or terminate Awards held by, Employees.


(m)                               Award Notice.  Each Award
hereunder shall be evidenced by an Award Notice that shall be delivered to the
Participant and shall specify the terms and conditions of the Award and any
rules applicable thereto.


(n)                                 No Right to Employment.  The grant of an Award shall not be construed as giving a Participant
the right to be retained in the employ of the Company, Compaq or any
Affiliate.  Further, the Company, Compaq
or an Affiliate may at any time dismiss a Participant from employment, free
from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Notice.


(o)                                 No Rights as Stockholder.  Subject to the provisions of the applicable Award, no Participant
or holder or beneficiary of any Award shall have any rights as a stockholder
with respect to any Shares to be distributed under the Plan until he or she has
become the holder of such Shares.


(p)                                 Other Laws.  The
Committee may refuse to issue or transfer any Shares or other consideration
under an Award if, acting in its sole discretion, it determines that the
issuance or transfer of such Shares or such other consideration might violate
any applicable law or regulation or entitle the Company or Compaq to recover
the same under Section 16(b) of the Exchange Act, and any payment tendered to
the Company or Compaq by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder, or beneficiary. 
Without limiting the generality of the foregoing, no Award granted
hereunder shall be construed as an offer to sell securities of the Company or
Compaq, and no such offer shall be outstanding, unless and until the Committee
in its sole discretion has determined that any such offer, if made, would be in
compliance with all applicable requirements of the U.S. federal securities laws
and any other laws to which such offer, if made, would be subject.


(q)                                 No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Company, Compaq or any Affiliate and a Participant or any other
Person.  To the extent that any Person
acquires a right to receive payments from the Company, Compaq or any Affiliate
pursuant to an Award, such right shall be no greater than the right of any
unsecured general creditor of the Company, Compaq or any Affiliate


(r)                                    No Fractional Shares.  No fractional Shares shall be issued or delivered pursuant to the
Plan or any Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in lieu of any
fractional Shares or whether such fractional Shares or any rights thereto shall
be canceled, terminated, or otherwise eliminated.


(s)                                  Headings.  Headings
are given to the sections and subsections of the Plan solely as a convenience
to facilitate reference.  Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.


SECTION 13.         Effective Date of Plan.  The Plan shall be effective as of January 18, 1989 (the
“Effective Date”), subject to approval by the Company’s stockholders within one
year thereafter. Awards may be granted at any time after the Effective Date and
prior to termination of the Plan by the Board, except that no Incentive Stock
Option shall be granted pursuant to the Plan after 10 years from the Effective
Date, but any 


 


13

















 


Award theretofore granted
may extend beyond that date.  The Plan
will expire when no Shares are available for issuance.


SECTION 14.         Tandem Substitute Options.  Tandem Substitute Options shall be governed by the terms of the
Plan and the related option conversion notice, except that, notwithstanding any
provision of the Plan or option conversion notice to the contrary, the terms
and conditions set forth on Appendix A hereto shall govern such options to the
extent set forth on such Appendix.


 


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APPENDIX
A FOR TANDEM SUBSTITUTE OPTIONS


The
term “Options” as used in this Appendix A means Tandem Substitute Options.


Exercisability:
Generally, Options may be exercised beginning six months from the vesting date
or, with respect to certain Options, beginning six months from the original
grant date.  Optionees are not entitled
to exercise Options if employment with the Company is terminated prior to six
months from the vesting date or, with respect to certain Options, prior to six
months from the original grant date.  The
original grant date and the vesting date are set forth on the related option
conversion notice.


Vesting:
Vesting stops when the optionee’s employment with the Company, Compaq or an
Affiliate terminates.  The vesting
schedule for each Option is as set forth on the related Option Conversion
Notice.


Death:  If an optionee dies while an employee of the
Company, Compaq or an Affiliate, Options become fully vested regardless of
length of service and expire one year after the date of death.


Disability:  If an optionee’s employment terminates
because of permanent disability, Options (i) become 20% vested, if more than
the percentage actually vested on the termination date and (ii) expire 90 days
after the termination date.


Termination:  If employment with the Company, Compaq or an
Affiliate ends for any reason other than death or permanent disability, Options
expire on the 30th day after the termination date; provided, however, that if,
within one year following a Change in Control, the optionee’s employment is terminated
in a Qualifying Termination (as defined in Section 9(a)(v) of the Plan), the
optionee shall have the right to exercise any outstanding Option until the
earlier of (A) the third anniversary of such termination of employment or (B)
the date such Option would have expired had it not been for such termination of
employment.


Leave
of Absence:  Vesting during an approved
leave of absence is governed by the applicable leave of absence policy in
effect at the time an optionee goes on leave.


Unvested
Shares:  Six months after the original
grant date (as set forth on the related option conversion notice), optionees
can purchase unvested option shares. 
Unvested option shares may not be sold or otherwise transferred until
they become vested.  The Company may buy
back unvested shares at the price paid by the optionee for such shares upon
optionee’s termination from the Company, Compaq or an Affiliate (except
death).  In such event, the Company must
give notice to the optionee within 60 days after the termination date,
provided, however, that upon termination due to permanent disability, the
Company must provide notice within 60 days after the last date upon which the
optionee’s option is exercisable. 
Optionees must deliver the number of shares requested in such notice to
the Company within 60 days after receipt of such notice, with the stock
certificates fully endorsed or accompanied by a duly executed stock power.  Certificates for unvested shares shall
contain a legend referring to the Company’s right to repurchase.  As the optionee’s vesting percentage
increases, the optionee may request, at reasonable intervals, that the Company
exchange those legended certificates for shares which have vested for
certificates for shares without legends. 
No certificates shall be issued for partial shares.


Form
of Payment:  A notice of exercise must
include payment of the option price for the shares being purchased.  Payment may be made by:  (i) cashier’s check or a money order, (ii)
irrevocable directions on a Company approved form to a securities broker
approved by the Company to sell the shares and deliver all or a portion of the
sale proceeds to the Company in payment of the option price, or (iii)
certificates for Common Stock, along with any forms needed to transfer the shares
to the Company.  The fair market value
of the shares, on the effective date of the Option exercise will be applied to
the Option price.


Transfers: 
Options cannot be assigned or transferred, except by will or the laws of
descent and distribution.


 


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Individual Provisions:  To the extent that an optionee’s option
agreement with Tandem provides terms and conditions contrary to those set forth
above, notwithstanding any other provision in the Plan, the option conversion
notice or this Appendix A to the contrary, the terms and conditions of such
option agreement shall govern the related Tandem Substitute Option (except with
respect to the vesting schedule, trading restrictions and notice of exercise,
in which case the terms and conditions contained in the related option
conversion notice shall govern).


 


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