Document:

Exhibit 10.1

 

Summary of
the Amended and Restated

Hewlett-Packard
Company 2004 Stock Incentive Plan(1)

 

The principal features of the Amended Plan are summarized below. The
following summary of the Amended Plan does not purport to be a complete
description of all of the provisions of the Amended Plan. It is qualified in
its entirety by reference to the complete text of the Amended Plan, which has
been filed with the SEC as Annex A to this proxy statement. Any HP
stockholder who wishes to obtain a copy of the Amended Plan may do so upon
written request to the Secretary at HP’s principal executive offices.

 

General.  The purpose of the Amended Plan is to
encourage ownership in HP by key personnel whose long-term employment is
considered essential to HP’s continued progress, thereby aligning participants’
and stockholders’ interests. Stock options and stock awards, including stock
units, and cash awards may be granted under the Amended Plan. Options granted
under the Amended Plan may be either “incentive stock options,” as defined in Section 422
of the Code, or non-statutory stock options.

 

Administration.  The Amended Plan may be administered by the
Board, a committee appointed by the Board or its delegate (as applicable, the “Administrator”).

 

Eligibility.  Awards may be granted under the Amended Plan
to employees of HP and its affiliates and to non-employee directors. Incentive
stock options may be granted only to employees of HP or its subsidiaries. There
are approximately 304,000 employees and ten non-employee directors eligible to
receive awards under the Amended Plan. The Administrator, in its discretion,
selects the employees to whom awards may be granted, the time or times at which
such awards are granted, and the terms of such awards.

 

Section 162(m) Limitations.  Section 162(m) of the Code
generally disallows a tax deduction to public companies for compensation in
excess of $1 million paid to the chief executive officer and the three
other most highly compensated officers. Certain performance-based compensation
is specifically exempt from the deduction limit if it otherwise meets the
requirements of Section 162(m). One of the requirements for equity
compensation plans is that there must be a limit to the number of shares
granted to any one individual under the plan. Accordingly, the Amended Plan
provides that no employee may be granted more than 1,500,000 shares in any
calendar year, except that an employee may be granted awards covering up to an
additional 1,500,000 shares in connection with his or her initial employment
with HP. The maximum amount payable pursuant to that portion of a cash award
granted under the Amended Plan for any fiscal year to any employee that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code is $15,000,000. Stockholder approval of
this proposal will constitute stockholder approval of these limitations for Section 162(m) purposes.

 

(1) The
contents of this document appear on pages 29-33 of HP’s definitive proxy
statement on Schedule 14A filed with the Securities and Exchange Commission on January 27,
2010 and are incorporated by reference into HP’s Current Report on Form 8-K
to which this document is attached as Exhibit 10.1.

 

1

 

Terms and Conditions of Options.  Each option is evidenced by a stock option
agreement between HP and the optionee and is subject to the following
additional terms and conditions.

 

Exercise Price.  The Administrator determines the exercise
price of options at the time the options are granted. The exercise price of a
stock option may not be less than 100% of the fair market value of the common
stock on the date such option is granted, although certain replacement options
with lower exercise prices may be granted to service providers of entities
acquired by HP. The fair market value of the common stock is determined as the
closing quoted sales price for the common stock on the date the option is
granted (or if no sales were reported that day, the last preceding day a sale
occurred). On January 25, 2010, the closing price of HP common stock on
the NYSE was $50.06 per share. No option may be repriced to reduce the exercise
price of such option without stockholder approval (except in connection with a
change in HP’s capitalization).

 

Exercise of Option; Form of
Consideration.  The
Administrator determines when options become exercisable and in its discretion
may accelerate the vesting of any outstanding option. The method of payment for
shares issued upon exercise of an option is specified in each option agreement
or by the Administrator at the time of exercise of the option. The Amended Plan
permits payment to be made by cash, check, wire transfer, other shares of
common stock of HP (with some restrictions), broker assisted cashless
exercises, any other form of consideration permitted by applicable law, or any
combination thereof.

 

Term of Option.  The term of an option may be no more than ten
years from the date of grant or 101/2 years in certain jurisdictions
outside of the United States. No option may be exercised after the expiration
of its term.

 

Termination of Employment.  If an optionee’s employment terminates for
any reason, then all options held by the optionee under the Amended Plan
generally will terminate immediately upon the optionee’s termination unless
determined otherwise by the Plan Administrator.

 

Other Provisions.  The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the Amended Plan, as may
be determined by the Administrator.

 

Terms and Conditions of Stock Awards.  Each stock award agreement will contain
provisions regarding (1) the number of shares subject to such stock award
or a formula for determining such number, (2) the purchase price of the
shares, if any, and the means of payment for the shares, (3) the
performance criteria, if any, and level of achievement versus these criteria
that will determine the number of shares granted, issued, retainable and
vested, as applicable, (4) such terms and conditions on the grant,
issuance, vesting and forfeiture of the shares, as applicable, as may be
determined from time to time by the Administrator, (5) restrictions on the
transferability of the stock award, and (6) such further terms and
conditions, in each case not inconsistent with the Amended Plan, as may be
determined from time to time by the Administrator.

 

2

 

Termination of Employment.  In the case of stock awards, including stock
units, unless the Administrator determines otherwise, the restricted stock or
restricted stock unit agreement will provide that the unvested stock or stock
units will be forfeited upon the awardee’s termination of employment for any
reason.

 

Vesting.  The vesting of a stock award may be subject
to performance criteria, continued service of the awardee, or both.

 

Non-Employee Director Awards.  Non-employee directors are eligible only for
annual retainer awards and are not eligible for any other type of award that is
authorized under the Amended Plan. Annual retainer awards paid in the form of
equity are granted in the form of non-statutory stock options or restricted
stock units. The non-employee directors can elect to receive the annual equity
retainer and the annual cash retainer in the form of stock options or
restricted stock units, provided that such election is made within 25 days
after the annual meeting at which they are elected. If no election is made
within this period, the annual equity retainer will be in the form of
restricted stock units and the annual cash retainer will be paid in cash. The
awards are granted automatically one month after the beginning of the director’s
year of service. The exercise price of director stock options cannot be less
that 100% of the fair market value of a share of HP common stock on the grant
date.

 

The number of shares subject to non-statutory stock option awards
granted to non-employee directors is determined as follows:

 

	
  Amount of annual
  retainer to be paid as options

  	
   

  	
    ×  Multiplier
  (as defined below) 

  	
   

  	
    =  Number
  of shares 

  
	
  Fair
  market value of a share of HP common stock on the grant date

  	
   

  	
   

  

 

The
Administrator determines the Multiplier prior to the grant date using a
modified Black-Scholes option valuation method that takes into account the
following factors: (1) the fair market value of HP common stock on the
date the Multiplier is determined; (2) the average length of time that HP
stock options are held by optionees prior to exercise; (3) the risk-free
rate of return based on the term determined in (2) and on the interest
rates of U.S. government securities; (4) the annual dividend yield for HP
common stock; and (5) the volatility of HP common stock over the ten-year
period preceding the date that the Multiplier is determined.

 

The number of shares subject to restricted stock unit awards granted to
non-employee directors is determined as follows:

 

	
  Amount of annual
  retainer to be paid as restricted stock units

  	
   

  	
    =  Number
  of shares

  	
   

  	
   

  
	
  Fair
  market value of a share of HP common stock on the grant date

  	
   

  	
   

  	
   

  

 

3

 

Cash Awards.  Each cash award agreement will contain
provisions regarding (1) the target and maximum amount payable to the
awardee as a cash award, (2) the performance criteria and level of
achievement versus the criteria that will determine the amount of such payment,
(3) the period as to which performance shall be measured for establishing
the amount of any payment, (4) the timing of any payment earned by virtue
of performance, (5) restrictions on the alienation or transfer of the cash
award prior to actual payment, (6) forfeiture provisions, and (7) such
further terms and conditions, in each case not inconsistent with the Amended
Plan, as may be determined from time to time by the Administrator. The maximum
amount payable as a cash award that is settled for cash may be a multiple of
the target amount payable, but the maximum amount payable pursuant to that
portion of a cash award granted under the Amended Plan for any fiscal year to
any awardee that is intended to satisfy the requirement for “performance-based
compensation” under Section 162(m) of the Code shall not exceed
$15,000,000.

 

Nontransferability.  Unless otherwise determined by the
Administrator, awards granted under the Amended Plan are not transferable other
than by will or the laws of descent and distribution, and options may be
exercised during the optionee’s lifetime only by the optionee. The
Administrator will have the sole discretion to permit the transfer of an award.

 

Qualifying Performance Criteria.  Qualifying Performance Criteria means any one
of more of the performance criteria listed below, either individually,
alternatively or in combination, applied to either HP as a whole or to a
business unit, affiliate or business segment, either individually,
alternatively or in any combination, and measured either annually or
cumulatively over a period of years, on an absolute basis, or relative to a
pre-established target, to previous years’ results or to a designated
comparison group, in each case as specified by the Administrator in the award
agreement. The performance criteria may be (1) cash flow or cash
conversion cycle, (2) earnings (including gross margin, earnings before
interest and taxes, earnings before taxes, and net earnings), (3) earnings
per share, (4) growth in earnings or earnings per share, cash flow,
revenue, gross margin, operating expense or operating expense as a percentage
of revenue, (5) stock price, (6) return on equity or average
stockholders’ equity, (7) total stockholder return, (8) return on
capital, (9) return on assets or net assets, (10) return on
investment, (11) revenue, (12) income or net income,
(13) operating income or net operating income, (14) operating profit,
net operating profit, or controllable operating profit, (15) operating
margin or operating expense or operating expense as a percentage of revenue,
(16) return on operating revenue, (17) market share or customer
indicators, (18) contract awards or backlog, (19) overhead or other
expense reduction, (20) growth in stockholder value relative to the moving
average of the S&P 500 Index or HP’s peer group index,
(21) credit rating, (22) strategic plan development and
implementation, attainment of research and development milestones or new
product invention or innovation, (23) succession plan development and
implementation, (24) improvement in productivity or workforce diversity,
(25) attainment of objective operating goals and employee metrics,
(26) economic value added, and (27) such other similar criteria as
may be determined by the Administrator.

 

4

 

To the extent consistent with Section 162(m) of the Code, the
Administrator may appropriately adjust any evaluation of performance under a
Qualifying Performance Criteria to exclude any of the following events that
occurs during a performance period: (A) asset write-downs; (B) litigation
or claim judgments or settlements; (C) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results; (D) accruals for reorganization and restructuring programs; and (E) any
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management’s discussion and analysis of financial
condition and results of operations appearing in HP’s annual report to
shareholders for the applicable year.

 

Adjustments Upon Changes in Capitalization,
Dissolution, Merger or Sale of Assets.  Subject to any required action by HP’s stockholders,
(1) the number and kind of shares available for issuance under the Amended
Plan and/or covered by each outstanding award, (2) the price per share
subject to each outstanding award and (3) the share limitations set forth
in Section 3 of the Amended Plan will be proportionately adjusted for any
increase or decrease in the number or kind of issued shares resulting from a
stock split, reverse stock split, dividend or other distribution (whether in
the form of cash, shares, other securities or property (other than regular cash
dividends)) combination or reclassification of HP’s stock, or any other
increase or decrease in the number of issued shares of HP’s stock effected
without receipt of consideration by HP; provided, however, that conversion of
any convertible securities of HP shall not be deemed to have been “effected
without receipt of consideration.” Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided in the Amended Plan, no issuance by HP
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of common stock subject to an
award.

 

In the event of a liquidation or dissolution, any unexercised options
or stock awards will terminate. The Administrator, in its discretion, may
provide that each optionee shall have the right to exercise all of the optionee’s
options, including those not otherwise exercisable, until the date ten days
prior to the consummation of the liquidation or dissolution and be fully vested
in any stock awards.

 

In the event of a change of control of HP, as defined in the Amended
Plan and determined by the Board, the Board, in its discretion, may provide for
the assumption, substitution or adjustment of each outstanding award,
accelerate the vesting of options and terminate any restrictions on stock
awards or cash awards, or cancel awards for a cash payment to the awardee.

 

Amendment and Termination of the Plan.  The Administrator may amend, alter, suspend
or terminate the Amended Plan or any award agreement, or any part thereof, at
any time and for any reason. However, HP will obtain stockholder approval for
any amendment to the Amended Plan to the extent required by applicable laws or
stock exchange rules. In addition, without limiting the foregoing, unless
approved by HP stockholders, no such amendment shall be made that would: (1) increase
the maximum number of shares for which awards may be granted under the Amended
Plan, other than 

 

5

 

an
increase pursuant to a change in HP’s capitalization, (2) reduce the
minimum exercise price for options granted under the Amended Plan, (3) reduce
the exercise price of outstanding options, or (4) materially expand the
class of persons eligible to receive awards under the Amended Plan. No such
action by the Administrator or stockholders may alter or impair any award
previously granted under the Amended Plan without the written consent of the
awardee. Unless terminated earlier, the Amended Plan shall terminate on March 16,
2020.

 

6Exhibit 10.2

 

AMENDED
AND RESTATED

HEWLETT-PACKARD
COMPANY 2004 STOCK INCENTIVE PLAN

 

1.                                      Purposes of the Plan.

 

The purpose of
this Plan is to encourage ownership in the Company by key personnel whose
long-term employment is considered essential to the Company’s continued
progress and, thereby, encourage recipients to act in the shareholders’
interest and share in the Company’s success.

 

2.                                      Definitions.

 

As used herein,
the following definitions shall apply:

 

(a)                                 “Administrator” means the Board, any Committees or such
delegates as shall be administering the Plan in accordance with Section 4
of the Plan.

 

(b)                                 “Affiliate” means any entity that is directly or
indirectly controlled by the Company or any entity in which the Company has a
significant ownership interest as determined by the Administrator provided that
the entity is one with respect to which Common Stock will qualify as “service
recipient stock” under Code Section 409A.

 

(c)                                  “Annual Equity Retainer” shall mean the amount which a
Non-Employee Director will be entitled to receive in the form of equity for
serving as a director in a relevant Director Plan Year, but shall not include
reimbursement for expenses, fees associated with service on any committee of
the Board, any cash compensation or fees with respect to any other services to
be provided to HP.

 

(d)                                  “Applicable Laws” means the requirements relating to the
administration of stock option plans under U.S. federal and state laws, any
stock exchange or quotation system on which the Company has listed or submitted
for quotation the Common Stock to the extent provided under the terms of the
Company’s agreement with such exchange or quotation system and, with respect to
Awards subject to the laws of any foreign jurisdiction where Awards are, or
will be, granted under the Plan, the laws of such jurisdiction.

 

(e)                                  “Award” means a Cash Award, Stock Award, or
Option granted in accordance with the terms of the Plan.

 

(f)                                   “Awardee” means an individual who has been granted
an Award under the Plan.

 

(g)                                  “Award Agreement” means a Cash Award Agreement, Stock Award
Agreement and/or Option Agreement, which may be in written or electronic
format, in such form and with such terms as may be specified by the
Administrator, evidencing the terms and conditions of an individual Award. Each
Award Agreement is subject to the terms and conditions of the Plan. An Award
Agreement may be in the form of either (i) an agreement to be either
executed by both the Awardee and the Company or offered and accepted
electronically as the Administrator shall determine or (ii) certificates,
notices or similar instruments as approved by the Administrator.

 

(h)                                 “Board” means the Board of Directors of the
Company.

 

(i)                                     “Cash Award” means a bonus opportunity awarded under Section 12
pursuant to which a Participant may become entitled to receive an amount based
on the satisfaction of such performance criteria as are specified in the
agreement or other documents evidencing the Award (the “Cash Award Agreement”).

 

1

 

(j)                                    “Change in Control” means any of the following, unless the
Administrator provides otherwise:

 

i.                                          any merger or consolidation (other than a
merger or consolidation in which 50% of the voting power of the voting
securities of the surviving entity is controlled by the shareholders of the
Company immediately prior to the transaction) in which the Company shall not be
the surviving entity (or survives only as a subsidiary of another entity whose
shareholders did not own all or substantially all of the Common Stock in
substantially the same proportions as immediately prior to such transaction),

 

ii.                                       the sale of all or substantially all of
the Company’s assets to any other person or entity (other than a wholly-owned
subsidiary),

 

iii.                                    the acquisition of beneficial ownership
of a controlling interest (including, without limitation, power to vote) the
outstanding shares of Common Stock by any person or entity (including a “group”
as defined by or under Section 13(d)(3) of the Exchange Act),

 

iv.                                   the dissolution or liquidation of the
Company, or

 

v.                                      a contested election of Directors, as a
result of which or in connection with which the persons who were Directors
before such election or their nominees cease to constitute a majority of the
Board.

 

(k)                                 “Code” means the United States Internal Revenue
Code of 1986, as amended, and the regulations promulgated thereunder.

 

(l)                                     “Committee” means a committee of Directors appointed
by the Board in accordance with Section 4 of the Plan.  The HR and Compensation Committee of the
Board shall be deemed a “Committee” for purposes of the Plan.

 

(m)                             “Common Stock” means the common stock of the Company.

 

(n)                                 “Company” means Hewlett-Packard Company, a Delaware
corporation, or its successor.

 

(o)                                 “Conversion Award” has the meaning set forth in Section 4(b)(xii) of
the Plan.

 

(p)                                 “Director” means a member of the Board who is not a
Non-Employee Director.

 

(q)                                 “Director Option” shall mean any option granted under Section 13
of the Plan.

 

(r)                                     “Director Plan Year” shall mean the year beginning the day
after HP’s annual meeting and ending on the day of HP’s next annual meeting, as
the case may be, for any relevant year.

 

(s)                                    “Employee” means a regular, active employee of the
Company or any Affiliate, including an Officer and/or Director. The
Administrator shall determine whether or not the chairman of the Board
qualifies as an “Employee.” Within the limitations of Applicable Law, the
Administrator shall have the discretion to determine the effect upon an Award
and upon an individual’s status as an Employee in the case of (i) any
individual who is classified by the Company or its Affiliate as leased from or
otherwise employed by a third party or as intermittent or temporary, even if
any such classification is changed retroactively as a result of an audit,
litigation or otherwise, (ii) any leave of absence approved by the Company
or an Affiliate, (iii) any transfer between locations of employment with
the Company or an Affiliate or between the Company and any Affiliate or between
any Affiliates, (iv) any change in the Awardee’s status from an employee
to a consultant or Director, and (v) at the request of the Company or an
Affiliate an employee becomes employed by any partnership, joint venture or
corporation not meeting the requirements of an Affiliate in which the Company
or an Affiliate is a party.

 

(t)                                    “Exchange Act” means the United States Securities
Exchange Act of 1934, as amended.

 

2

 

(u)                                 “Fair Market Value” means, unless the Administrator
determines otherwise, as of any date, the closing sales price for such Common
Stock as of such date (or if no sales were reported on such date, the closing
sales price on the last preceding day on which a sale was made), as reported in
such source as the Administrator shall determine.

 

(v)                                 “Grant Date” means the date upon which an Award is
granted to an Awardee pursuant to this Plan or such later date as specified in
advance by the Administrator.

 

(w)                               “Incentive Stock Option” means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

 

(x)                                 “Non-Employee Director” shall mean each member of the Board who
is not an employee of HP or any of its Subsidiaries or Affiliates and who is
eligible only for Awards granted pursuant to Section 13 of the Plan.

 

(y)                                  “Nonstatutory Stock
Option” means an
Option not intended to qualify as an Incentive Stock Option.

 

(z)                                  “Officer” means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

 

(aa)                          “Option” means a right granted under Section 8
to purchase a number of Shares or Stock Units at such exercise price, at such
times, and on such other terms and conditions as are specified in the agreement
or other documents evidencing the Award (the “Option
Agreement”). Both Options intended to qualify as Incentive Stock
Options and Nonstatutory Stock Options may be granted under the Plan.

 

(bb)                          “Participant”
means an individual who has been granted an Award or any person (including any
estate) to whom an Award has been assigned or transferred as permitted
hereunder.

 

(cc)                            “Plan” means this Amended and Restated
Hewlett-Packard Company 2004 Stock Incentive Plan.

 

(dd)                          “Qualifying Performance
Criteria” shall
have the meaning set forth in Section 14(b) of the Plan.

 

(ee)                         “Share” means a share of the Common Stock, as
adjusted in accordance with Section 15 of the Plan.

 

(ff)                              “Stock Award” means an award or issuance of Shares or
Stock Units made under Section 11 of the Plan, the grant, issuance,
retention, vesting and/or transferability of which is subject during specified
periods of time to such conditions (including continued employment or
performance conditions) and terms as are expressed in the agreement or other
documents evidencing the Award (the “Stock
Award Agreement”).

 

(gg)                            “Stock Unit” means a bookkeeping entry representing an
amount equivalent to the fair market value of one Share, payable in cash,
property or Shares. Stock Units represent an unfunded and unsecured obligation
of the Company, except as otherwise provided for by the Administrator.

 

(hh)                          “Subsidiary” means any company (other than the
Company) in an unbroken chain of companies beginning with the Company, provided
each company in the unbroken chain (other than the Company) owns, at the time
of determination, stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other companies in such chain.

 

3

 

(ii)                                  “Termination of
Employment” shall
mean ceasing to be an Employee. However, for Incentive Stock Option purposes,
Termination of Employment will occur when the Awardee ceases to be an employee
(as determined in accordance with Section 3401(c) of the Code and the
regulations promulgated thereunder) of the Company or one of its Subsidiaries.
The Administrator shall determine whether any corporate transaction, such as a
sale or spin-off of a division or business unit, or a joint venture, shall be
deemed to result in a Termination of Employment.

 

(jj)                                 “Total and Permanent
Disability” shall
have the meaning set forth in Section 22(e)(3) of the Code.

 

3.                                      Stock Subject to the
Plan.

 

(a)                                 Aggregate Limits. 
Subject to the provisions of Section 15 of the Plan, the aggregate
number of Shares subject to Awards granted under the Plan is 245,000,000
Shares. The Shares subject to the Plan may be either Shares reacquired by the
Company, including Shares purchased in the open market, or authorized but
unissued Shares.

 

(b)                                 Issuance of Shares. 
For purposes of Section 3(a), the aggregate number of Shares issued
under the Plan at any time shall equal only the number of Shares actually
issued upon exercise or settlement of an Award. 
If any Shares subject to an Award granted under the Plan are forfeited
or such Award is settled in cash or otherwise terminates without the delivery
of such Shares, the Shares subject to such Award, to the extent of any such
forfeiture, settlement or termination, shall again be available for grant under
the Plan.  Notwithstanding the foregoing,
Shares subject to an Award under the Plan may not again be made available for
issuance under the Plan if such Shares are: (i) Shares delivered to or
withheld by the Company to pay the exercise price of an Option, (ii) Shares
delivered to or withheld by the Company to pay the withholding taxes related to
an Award, or (iii) Shares repurchased by the Company on the open market
with the proceeds of an Award paid to the Company by or on behalf of the Participant.

 

(c)                                   Code Section 162(m) and
422 Limits.  Subject to the provisions of Section 15
of the Plan, the aggregate number of Shares subject to Awards granted under
this Plan during any calendar year to any one Awardee shall not exceed
1,500,000, except that in connection with his or her initial service, an
Awardee may be granted Awards covering up to an additional 1,500,000 Shares.
Subject to the provisions of Section 15 of the Plan, the aggregate number
of Shares that may be subject to all Incentive Stock Options granted under the
Plan is 245,000,000 Shares. Notwithstanding anything to the contrary in the
Plan, the limitations set forth in this Section 3(c) shall be subject
to adjustment under Section 15(a) of the Plan only to the extent that
such adjustment will not affect the status of any Award intended to qualify as “performance
based compensation” under Code Section 162(m) or the ability to grant
or the qualification of Incentive Stock Options under the Plan.

 

4.                                      Administration Of The
Plan.

 

(a)                                 Procedure.

 

i.                                          Multiple Administrative
Bodies. The Plan
shall be administered by the Board, one or more Committees and/or their
delegates.

 

ii.                                       Section 162. To the extent that the Administrator
determines it to be desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code,
Awards to “covered employees” within the meaning of Section 162(m) of
the Code or Employees that the Committee determines may be “covered employees”
in the future shall be made by a Committee of two or more “outside directors”
within the meaning of Section 162(m) of the Code.

 

4

 

iii.                                    Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3 promulgated under the
Exchange Act (“Rule 16b-3”), Awards to Officers and Directors shall be
made by the entire Board or a Committee of two or more “non-employee directors”
within the meaning of Rule 16b-3.

 

iv.                                   Other Administration. The Board or a Committee may delegate to
an authorized officer or officers of the Company the power to approve Awards to
persons eligible to receive Awards under the Plan who are not (A) subject
to Section 16 of the Exchange Act or (B) at the time of such
approval, “covered employees” under Section 162(m) of the Code.

 

v.                                      Delegation of Authority
for the Day-to-Day Administration of the Plan. Except to the extent prohibited by Applicable Law, the
Administrator 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. Such
delegation may be revoked at any time.

 

(b)                                 Powers of the
Administrator.  Subject to the provisions of the Plan and, in
the case of a Committee or delegates acting as the Administrator, subject to
the specific duties delegated to such Committee or delegates, the Administrator
shall have the authority, in its discretion:

 

i.                                          to select the Awardees to whom Awards are
to be granted hereunder;

 

ii.                                       to determine the number of shares of
Common Stock to be covered by each Award granted hereunder;

 

iii.                                    to determine the type of Award to be
granted to the selected Awardees and to approve forms of Award Agreements for
use under the Plan;

 

iv.                                   to determine the terms and conditions,
not inconsistent with the terms of the Plan, of any Award granted hereunder.
Such terms and conditions include, but are not limited to, the exercise and/or
purchase price, the time or times when an Award may be exercised (which may or
may not be based on performance criteria), the vesting schedule, any vesting
and/or exercisability acceleration or waiver of forfeiture restrictions, the
acceptable forms of consideration, the term, and any restriction or limitation
regarding any Award or the Shares relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine and may
be established at the time an Award is granted or thereafter;

 

v.                                      to suspend the right to exercise Awards
during any blackout period that is necessary or desirable to comply with the
requirements of Applicable Laws and/or to extend the Award exercise period for
an equal period of time in a manner consistent with Applicable Law;

 

vi.                                   to correct defects in the Plan and supply
omissions and to correct administrative errors;

 

vii.                                to construe and interpret the terms of
the Plan (including sub-plans and Plan addenda) and Awards granted pursuant to
the Plan;

 

viii.                             to adopt rules and procedures relating to the
operation and administration of the Plan to accommodate the specific
requirements of local laws and procedures. Without limiting the generality of
the foregoing, the Administrator is specifically authorized (A) to adopt
the rules and procedures regarding the conversion of local currency,
withholding procedures and handling of stock certificates which vary with local
requirements and (B) to adopt sub-plans and Plan addenda as the
Administrator deems desirable, to accommodate foreign laws, regulations and
practice;

 

5

 

ix.                                   to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating
to sub-plans and Plan addenda;

 

x.                                      to modify or amend each Award, including,
but not limited to, the acceleration of vesting and/or exercisability,
provided, however, that any such amendment is subject to Section 16 of the
Plan and may not materially impair any outstanding Award unless agreed to in
writing by the Participant;

 

xi.                                   to allow Participants to satisfy
withholding tax amounts by electing to have the Company withhold from the
Shares to be issued upon exercise of an Option or vesting or settlement of a
Stock Award that number of Shares having a value equal to the amount required
to be withheld. The value of the Shares to be withheld shall be determined in
such manner and on such date that the Administrator shall determine or, in the
absence of provision otherwise, 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 Administrator may provide;

 

xii.                                to authorize conversion or substitution
under the Plan of any or all stock options, stock appreciation rights or other
stock awards held by service providers of an entity acquired by the Company
(the “Conversion Awards”). Any conversion or substitution shall be effective as
of the close of the merger or acquisition. The Conversion Awards may be
Nonstatutory Stock Options or Incentive Stock Options, as determined by the
Administrator, with respect to options granted by the acquired entity;
provided, however, that with respect to the conversion of stock appreciation
rights in the acquired entity, the Conversion Awards shall be Nonstatutory
Stock Options. Unless otherwise determined by the Administrator at the time of
conversion or substitution, all Conversion Awards shall have the same terms and
conditions as Awards generally granted by the Company under the Plan;

 

xiii.                             to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Award previously
granted by the Administrator;

 

xiv.                            to impose such restrictions, conditions
or limitations as it determines appropriate as to the timing and manner of any
resales by a Participant or other subsequent transfers by the Participant of
any Shares issued as a result of or under an Award, including without
limitation, (A) restrictions under an insider trading policy and (B) restrictions
as to the use of a specified brokerage firm for such resales or other
transfers;

 

xv.                               to provide, either at the time an Award
is granted or by subsequent action, that an Award shall contain as a term
thereof, a right, either in tandem with the other rights under the Award or as
an alternative thereto, of the Participant to receive, without payment to the
Company, a number of Shares, cash or a combination thereof, the amount of which
is determined by reference to the value of the Award; and

 

xvi.                            to make all other determinations deemed
necessary or advisable for administering the Plan and any Award granted
hereunder.

 

(c)                                  Effect of Administrator’s
Decision.  All decisions, determinations and
interpretations by the Administrator regarding the Plan, any rules and
regulations under the Plan and the terms and conditions of any Award granted
hereunder, shall be final and binding on all Participants. The Administrator
shall consider such factors as it deems relevant, in its sole and absolute
discretion, to making such decisions, determinations and interpretations
including, without limitation, the recommendations or advice of any officer or
other employee of the Company and such attorneys, consultants and accountants
as it may select.

 

6

 

5.                                      Eligibility.

 

Awards may be
granted to Directors and/or Employees; provided that Non-Employee Directors are
eligible only for awards granted under Section 13 of the Plan.

 

6.                                      Term of Plan.

 

The Plan shall
become effective upon its approval by shareholders of the Company. It shall
continue in effect for a term of ten (10) years from the later of the date
the Plan or any amendment to add shares to the Plan is approved by shareholders
of the Company unless terminated earlier under Section 16 of the Plan.

 

7.                                      Term of Award.

 

The term of each
Award shall be determined by the Administrator and stated in the Award
Agreement. In the case of an Option, the term shall be ten (10) years from
the Grant Date or such shorter term as may be provided in the Award Agreement;
provided that the term may be ten and one-half (10 1/2) years in the case of Options granted to Awardees in
certain jurisdictions outside the United States as determined by the
Administrator.

 

8.                                      Options.

 

The Administrator
may grant an Option or provide for the grant of an Option, either from time to
time in the discretion of the Administrator or automatically upon the
occurrence of specified events, including, without limitation, the achievement
of performance goals, the satisfaction of an event or condition within the
control of the Awardee or within the control of others.

 

(a)                                 Option Agreement. 
Each Option Agreement shall contain provisions regarding (i) the
number of Shares that may be issued upon exercise of the Option, (ii) the
type of Option, (iii) the exercise price of the Shares and the means of
payment for the Shares, (iv) the term of the Option, (v) such terms
and conditions on the vesting and/or exercisability of an Option as may be
determined from time to time by the Administrator, (vi) restrictions on
the transfer of the Option and forfeiture provisions and (vii) such
further terms and conditions, in each case not inconsistent with this Plan as
may be determined from time to time by the Administrator.

 

(b)                                 Exercise Price. 
The per share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be determined by the Administrator, subject to the
following:

 

i.                                          The per Share exercise price of an Option
shall be no less than 100% of the Fair Market Value per Share on the Grant
Date.

 

ii.                                       Notwithstanding the foregoing, at the
Administrator’s discretion, Conversion Awards may be granted in substitution
and/or conversion of options or stock appreciation rights of an acquired
entity, with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of such substitution and/or conversion if such
exercise price is based on a formula set forth in the terms of such
options/stock appreciation rights or in the terms of the agreement providing
for such acquisition.

 

(c)                                  No Option Repricings. 
Other than in connection with a change in the Company’s capitalization
(as described in Section 15(a) of the Plan), the exercise price of an
Option may not be reduced without shareholder approval (including canceling
previously awarded Options in exchange for cash, other Awards or Options with
an exercise price that is less than the exercise price of the original Option).

 

(d)                                 Vesting Period and
Exercise Dates.  Options granted under this Plan shall vest
and/or be exercisable at such time and in such installments during the period
prior to the expiration of the Option’s term as determined by the
Administrator. The Administrator shall have the right to make the timing of the
ability to exercise any Option granted under this Plan subject to continued
employment, the passage of time and/or such

 

7

 

performance
requirements as deemed appropriate by the Administrator. At any time after the
grant of an Option, the Administrator may reduce or eliminate any restrictions
surrounding any Participant’s right to exercise all or part of the Option.

 

(e)                                  Form of
Consideration.  The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment, either through the terms of the Option Agreement or at the time of
exercise of an Option. Acceptable forms of consideration may include:

 

i.                                          cash;

 

ii.                                       check or wire transfer (denominated in
U.S. Dollars);

 

iii.                                    subject to any conditions or limitations
established by the Administrator, other Shares which have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;

 

iv.                                   subject to any conditions or limitations
established by the Administrator, withholding of Shares deliverable upon
exercise, which have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised;

 

v.                                      consideration received by the Company
under a broker-assisted sale and remittance program acceptable to the
Administrator;

 

vi.                                   such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws;
or

 

vii.                                any combination of the foregoing methods
of payment.

 

9.                                      Incentive Stock Option
Limitations/Terms.

 

(a)                                 Eligibility. 
Only employees (as determined in accordance with Section 3401(c) of
the Code and the regulations promulgated thereunder) of the Company or any of
its Subsidiaries may be granted Incentive Stock Options.

 

(b)                                 $100,000 Limitation. 
Notwithstanding the designation “Incentive Stock Option” in an Option
Agreement, if and to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Awardee during any calendar year (under all plans of the
Company and any of its Subsidiaries) exceeds U.S. $100,000, such Options shall
be treated as Nonstatutory Stock Options. For purposes of this Section 9(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
Grant Date.

 

(c)                                  Effect of Termination
of Employment on Incentive Stock Options.  Unless
otherwise provided for by the Administrator, upon an Awardee’s Termination of
Employment, any outstanding Incentive Stock Option granted to such Awardee,
whether vested or unvested, to the extent not theretofore exercised, shall
terminate immediately upon the Awardee’s Termination of Employment.

 

(d)                                 Leave of Absence. 
For purposes of Incentive Stock Options, no leave of absence may exceed
ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company or a Subsidiary is not so guaranteed, an
Awardee’s employment with the Company shall be deemed terminated on the
ninety-first (91st) day of such leave for Incentive Stock
Option purposes and any Incentive Stock Option

 

8

 

granted to the
Awardee shall cease to be treated as an Incentive Stock Option and shall
terminate upon the expiration of the three month period following the date the
employment relationship is deemed terminated.

 

(e)                                  Transferability. 
The Option Agreement must provide that an Incentive Stock Option cannot
be transferable by the Awardee otherwise than by will or the laws of descent
and distribution, and, during the lifetime of such Awardee, must not be
exercisable by any other person. If the terms of an Incentive Stock Option are
amended to permit transferability, the Option will be treated for tax purposes
as a Nonstatutory Stock Option.

 

(f)                                   Other Terms. 
Option Agreements evidencing Incentive Stock Options shall contain such
other terms and conditions as may be necessary to qualify, to the extent
determined desirable by the Administrator, with the applicable provisions of Section 422
of the Code.

 

10.                               Exercise of Option.

 

(a)                                 Procedure for Exercise;
Rights as a Shareholder.

 

i.                                          Any Option granted hereunder shall be
exercisable according to the terms of the Plan and at such times and under such
conditions as determined by the Administrator and set forth in the respective
Award Agreement. Unless the Administrator provides otherwise: (A) no
Option may be exercised during any leave of absence other than an approved
personal or medical leave with an employment guarantee upon return; and (B) an
Option shall continue to vest during any authorized leave of absence and such
Option may be exercised to the extent vested and exercisable upon the Awardee’s
return to active employment status.

 

ii.                                       An Option shall be deemed exercised when
the Company receives (A) written or electronic notice of exercise (in
accordance with the Award Agreement) from the person entitled to exercise the
Option; (B) full payment for the Shares with respect to which the related
Option is exercised; and (C) with respect to Nonstatutory Stock Options,
payment of all applicable withholding taxes.

 

iii.                                    Shares issued upon exercise of an Option
shall be issued in the name of the Participant or, if requested by the
Participant, in the name of the Participant and his or her spouse. Unless
provided otherwise by the Administrator or pursuant to this Plan, until the
Shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares subject to an Option, notwithstanding the exercise of the
Option.

 

iv.                                   The Company shall issue (or cause to be
issued) such Shares as soon as administratively practicable after the Option is
exercised. An Option may not be exercised for a fraction of a Share.

 

(b)                                 Effect of Termination
of Employment on Nonstatutory Stock Options.  Unless
otherwise provided for by the Administrator, upon an Awardee’s Termination of
Employment, any outstanding Nonstatutory Stock Option granted to such Awardee,
whether vested or unvested, to the extent not theretofore exercised, shall
terminate immediately upon the Awardee’s Termination of Employment.

 

11.                               Stock Awards.

 

(a)                                 Stock Award Agreement. 
Each Stock Award Agreement shall contain provisions regarding (i) the
number of Shares subject to such Stock Award or a formula for determining such
number, (ii) the purchase price of the Shares, if any, and the means of
payment for the Shares, (iii) the performance criteria, if any, and level
of achievement versus these criteria that shall determine the number of Shares
granted, issued, retainable and/or vested, (iv) such terms and conditions
on the grant, issuance, vesting and/or forfeiture of the

 

9

 

Shares as may be
determined from time to time by the Administrator, (v) restrictions on the
transferability of the Stock Award and (vi) such further terms and
conditions in each case not inconsistent with this Plan as may be determined
from time to time by the Administrator.

 

(b)                                 Restrictions and
Performance Criteria.  The grant, issuance, retention
and/or vesting of each Stock Award may be subject to such performance criteria
and level of achievement versus these criteria as the Administrator shall
determine, which criteria may be based on financial performance, personal
performance evaluations and/or completion of service by the Awardee.
Notwithstanding anything to the contrary herein, the performance criteria for
any Stock Award that is intended to satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code shall be established
by the Administrator based on one or more Qualifying Performance Criteria
selected by the Administrator and specified in writing not later than ninety
(90) days after the commencement of the period of service to which the
performance goals relates, provided that the outcome is substantially uncertain
at that time.

 

(c)                                  Forfeiture. 
Unless otherwise provided for by the Administrator, upon the Awardee’s
Termination of Employment, the Stock Award and the Shares subject thereto shall
be forfeited, provided that to the extent that the Awardee purchased any
Shares, the Company shall have a right to repurchase the unvested Shares at the
original price paid by the Awardee.

 

(d)                                 Rights as a
Shareholder.  Unless otherwise provided by the
Administrator, the Participant shall have the rights equivalent to those of a
shareholder and shall be a shareholder only after Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) to the Participant. Unless otherwise
provided by the Administrator, a Participant holding Stock Units shall be
entitled to receive dividend payments as if he or she was an actual
shareholder.

 

12.                               Cash Awards.

 

Each Cash Award
will confer upon the Awardee the opportunity to earn a future payment tied to
the level of achievement with respect to one or more performance criteria
established for a performance period of not less than one (1) year.

 

(a)                                 Cash Award. 
Each Cash Award shall contain provisions regarding (i) the target
and maximum amount payable to the Awardee as a Cash Award, (ii) the
performance criteria and level of achievement versus these criteria which shall
determine the amount of such payment, (iii) the period as to which
performance shall be measured for establishing the amount of any payment, (iv) the
timing of any payment earned by virtue of performance, (v) restrictions on
the alienation or transfer of the Cash Award prior to actual payment, (vi) forfeiture
provisions, and (vii) such further terms and conditions, in each case not
inconsistent with the Plan, as may be determined from time to time by the
Administrator. The maximum amount payable as a Cash Award that is settled for
cash may be a multiple of the target amount payable, but the maximum amount
payable pursuant to that portion of a Cash Award granted under this Plan for
any fiscal year to any Awardee that is intended to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code
shall not exceed U.S. $15,000,000.

 

(b)                                 Performance Criteria. 
The Administrator shall establish the performance criteria and level of
achievement versus these criteria which shall determine the target and the
minimum and maximum amount payable under a Cash Award, which criteria may be
based on financial performance and/or personal performance evaluations. The
Administrator may specify the percentage of the target Cash Award that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code. Notwithstanding anything to the contrary
herein, the performance criteria for any portion of a Cash Award that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code shall be a measure established by the
Administrator based on one or more Qualifying Performance Criteria selected by
the Administrator and specified in writing not later than ninety (90) days
after the commencement of the period of service to which the performance goals
relates, provided that the outcome is substantially uncertain at that time.

 

10

 

(c)           Timing and Form of Payment. 
The Administrator shall determine the timing of payment of any Cash
Award. The Administrator may provide for or, subject to such terms and
conditions as the Administrator may specify, may permit an Awardee to elect (in
a manner consistent with Section 409A of the Code) for the payment of any Cash
Award to be deferred to a specified date or event. The Administrator may
specify the form of payment of Cash Awards, which may be cash or other
property, or may provide for an Awardee to have the option for his or her Cash
Award, or such portion thereof as the Administrator may specify, to be paid in
whole or in part in cash or other property.

 

(d)           Termination of Employment. 
Unless otherwise provided for by the Administrator, upon the Awardee’s
Termination of Employment, any Cash Awards issued hereunder shall be forfeited.

 

13.                               Non-Employee Director Awards.

 

(a)           Eligibility.  Each member
of the Board who is a Non-Employee Director and who is providing service to HP
as a member of the Board at the beginning of the Director Plan Year shall be
eligible to receive an Annual Equity Retainer (as defined in Section 2 above)
under the Plan.

 

Any
member of the Board who enters service after the beginning of the Director Plan
Year (as defined in Section 2 above) may be eligible to receive a prorated
Annual Equity Retainer under the Plan as the Board or the Committee determines
in its discretion.

 

(b)           Terms
and Conditions.

 

(i)            Compensation Alternatives. Within (A) twenty-five (25) days after
the beginning of the Director Plan Year, or (B) if the Non-Employee Director
elects to participate in the Hewlett-Packard Company 2005 Executive Deferred
Compensation Plan (the “EDCP”) then in the calendar year preceding the first
day of the Director Plan Year, each Non-Employee Director may elect to receive
his Annual Equity Retainer in the form of restricted stock units (a “Director
RSU Award”) and or in the form of an option to purchase shares of Common Stock
(a “Director Option Award”).  If any
Non-Employee Director fails to make such an election, then he shall be deemed
to have elected a Director RSU Award for the value of his Annual Equity
Retainer. Any such election, or any modification or termination of such an
election, shall be filed with HP on a form prescribed by HP for this
purpose.  If a Non-Employee Director does
not elect to participate in the EDCP and does not select his or her means of
payment within the prescribed time, then such Non-Employee Director shall not
be permitted to participate in the EDCP for the applicable Director Plan Year.

 

(ii)           Director RSU Award.

 

A.           Date of Grant.
The Director RSU Award shall be granted automatically one month after the
beginning of each Director Plan Year (or, if such date is not a business day,
on the next succeeding business day) (the “Director Grant Date”).

 

B.           Number of Shares Subject to a Director RSU Award. The total number of shares of Common
Stock included in each Director RSU Award shall be determined by dividing the
amount of the Annual Equity Retainer that is to be paid in RSUs by the Fair
Market Value of a share of Common Stock on the Director Grant Date. It shall be
rounded up to the largest number of whole shares.

 

C.           Vesting Period for Director RSU
Award. If the Committee does not expressly exercise its
discretion to change the vesting of the Director RSU Award for a Director Plan
Year, then the vesting of such Director RSU Award shall be the same as the last
Director Plan Year in which the Committee exercised its discretion to set the
vesting terms.  Unless deferred under the
EDCP, Shares subject to Director RSU Awards shall be delivered promptly upon
satisfaction of the vesting conditions, but 

 

11

 

no later than March 15 of the calendar year following the
calendar year in which the vesting conditions are satisfied.

 

(iii)          Director Option Award. Subject to Section
13(b)(i) above, each Non-Employee Director may specify the amount of his Annual
Equity Retainer to be received in the form of a Nonstatutory Stock Option. Each
Director Option Award granted under this Plan shall comply with and be subject
to the terms of the Plan and the following terms and conditions including such
additional terms and conditions as may be determined by the Board or Committee:

 

A.           Date of Grant.
The Director Option Award shall be granted automatically on the Director Grant
Date.

 

B.           Number of Shares Subject to
Director Option Award. The number of shares to be
subject to any Director Option Award shall be an amount necessary to make such
option equal in value, using a modified Black-Scholes option valuation model,
to that portion of the Annual Equity Retainer that the Non-Employee Director
elected to receive in the form of an option. The value of the option will be
calculated by assuming that the value of an option to purchase one share of
Common Stock equals the product of (i) a fraction determined by dividing 1 by
the Multiplier, as defined below, and (ii) the Fair Market Value of a share of
Common Stock on the Director Grant Date.

 

The
number of shares represented by a Director Option Award shall be determined by
multiplying the number of shares determined above by a multiplier determined
using a modified Black-Scholes option valuation method (the “Multiplier”). The
Board or the Committee shall determine the Multiplier prior to the beginning of
the Director Plan Year by considering the following factors: (i) the Fair
Market Value of the Common Stock on the date the Multiplier is determined; (ii)
the average length of time that Company stock options are held by optionees
prior to exercise; (iii) the risk-free rate of return based on the term
determined in (ii) above and U.S. government securities rates; (iv) the annual
dividend yield for the Common Stock; and (v) the volatility of the Common Stock
over the previous ten-year period. The number of shares to be subject to the
option shall be rounded up to the largest number of whole shares determined as
follows:

 

	
   

  	
  Amount of Annual
  Equity Retainer to be paid as options

   

  	
    x Multiplier  = 
  Number of Shares

  
	
   

  	
   

  Fair Market
  Value on the Director Grant Date

  

 

C.             Price of Options.
The exercise price of the Director Option Award will be the Fair Market Value
of the Common Stock on the Director Grant Date.

 

D.             Period of Director Option Award.
The Committee shall have the discretion to determine the exercisability of
Shares subject to the Director Option Award. 
If the Committee does not expressly exercise its discretion to change
the exercisability of the Director Option Award for a Director Plan Year, then
the exercisability of such options shall be the same as the last Director Plan
Year in which the Committee expressly exercised its discretion to determine the
exercisability of Shares subject to the Director Option Award.

 

(iv)          Termination.  Any Non-Employee Director who terminates service prior
to the end of the Director Plan Year may have his Annual Retainer prorated,
including a forfeiture of options, restricted stock units or cash payment, if
any, as the Board or the Committee determines in its discretion.

 

14.                                 Other Provisions Applicable to
Awards.

 

(a)           Non-Transferability of Awards. 
Unless determined otherwise by the Administrator, an Award may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by beneficiary designation, will or by the laws of descent or
distribution. The Administrator may make an Award transferable to an Awardee’s “family
member” (as such term is defined in Section 1(a)(5) of the

 

12

 

General
Instructions to Form S-8 under the Securities Act of 1933, as amended), to
trusts solely for the benefit of such family members and to partnerships in
which such family members and/or trusts are the only partners. If the Administrator
makes an Award transferable, either at the time of grant or thereafter, such
Award shall contain such additional terms and conditions as the Administrator
deems appropriate, and any transferee shall be deemed to be bound by such terms
upon acceptance of such transfer.

 

(b)           Qualifying Performance Criteria. 
For purposes of this Plan, the term “Qualifying Performance Criteria”
shall mean any one or more of the following performance criteria, either
individually, alternatively or in any combination, applied to either the
Company as a whole or to a business unit, Affiliate or business segment, either
individually, alternatively or in any combination, and measured either annually
or cumulatively over a period of years, on an absolute basis or relative to a pre-established
target, to previous years’ results or to a designated comparison group, in each
case as specified by the Committee in the Award: (i) cash flow or cash
conversion cycle; (ii) earnings (including gross margin, earnings before
interest and taxes, earnings before taxes, and net earnings); (iii) earnings
per share; (iv) growth in earnings or earnings per share, cash flow, revenue,
gross margin, operating expense or operating expense as a percentage of
revenue; (v) stock price; (vi) return on equity or average shareholder equity; (vii)
total shareholder return; (viii) return on capital; (ix) return on assets or
net assets; (x) return on investment; (xi) revenue; (xii) income or net income;
(xiii) operating income or net operating income; (xiv) operating profit, net
operating profit or controllable operating profit; (xv) operating margin or
operating expense or operating expense as a percentage of revenue; (xvi) return
on operating revenue; (xvii) market share or customer indicators; (xviii) contract
awards or backlog; (xix) overhead or other expense reduction; (xx) growth in
shareholder value relative to the moving average of the S&P 500 Index or a
peer group index; (xxi) credit rating; (xxii) strategic plan development and
implementation, attainment of research and development milestones or new
product invention or innovation; (xxiii) succession plan development and
implementation; (xxiv) improvement in productivity or workforce diversity;
(xxv) attainment of objective operating goals and employee metrics; (xxvi)
economic value added; and (xxvii) any other similar criteria. To the extent
consistent with Section 162(m) of the Code, the Committee may appropriately
adjust any evaluation of performance under a Qualifying Performance Criteria to
exclude any of the following events that occurs during a performance period: (A)
asset write-downs; (B) litigation or claim judgments or settlements; (C) the
effect of changes in tax law, accounting principles or other such laws or
provisions affecting reported results; (D) accruals for reorganization and
restructuring programs; and (E) any extraordinary non-recurring items as
described in Accounting Principles Board Opinion No. 30 and/or in management’s
discussion and analysis of financial condition and results of operations
appearing in the Company’s annual report to shareholders for the applicable
year.

 

(c)           Certification. 
Prior to the payment of any compensation under an Award intended to
qualify as “performance-based compensation” under Section 162(m) of the Code,
the Committee shall certify the extent to which any Qualifying Performance
Criteria and any other material terms under such Award have been satisfied
(other than in cases where such relate solely to the increase in the value of
the Common Stock).

 

(d)           Discretionary Adjustments Pursuant
to Section 162(m).  Notwithstanding satisfaction of any
completion of any Qualifying Performance Criteria, to the extent specified at
the time of grant of an Award to “covered employees” within the meaning of Section
162(m) of the Code, the number of Shares, Options or other benefits granted,
issued, retainable and/or vested under an Award on account of satisfaction of
such Qualifying Performance Criteria may be reduced by the Committee on the
basis of such further considerations as the Committee in its sole discretion
shall determine.

 

15.                               Adjustments upon Changes in
Capitalization, Dissolution, Merger or Asset Sale.

 

(a)           Changes in Capitalization. 
Subject to any required action by the shareholders of the Company, (i) the
number and kind of Shares available for issuance under the Plan and/or covered
by each outstanding Award, (ii) the price per Share subject to each such
outstanding Award; and (iii) the Share limitations set forth in Section 3 of
the Plan, shall be proportionately adjusted for any increase or decrease in the
number or kind of issued shares resulting from a stock split, reverse stock
split, dividend or other

 

13

 

distribution
(whether in the form of cash, Shares, other securities or other property (other
than regular, cash dividends)), combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been “effected without receipt of consideration.”
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Award.

 

(b)           Dissolution or Liquidation. 
In the event of the proposed dissolution or liquidation of the Company,
the Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Administrator in its
discretion may provide for an Option to be fully vested and exercisable until
ten (10) days prior to such transaction. In addition, the Administrator 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.

 

(c)           Change in Control. 
In the event there is a Change in Control of the Company, as determined
by the Board or a Committee, the Board or Committee may, in its discretion, (i)
provide for the assumption or substitution of, or adjustment to, each
outstanding Award; (ii) accelerate the vesting of Awards and terminate any
restrictions on Awards; and (iii) provide for the cancellation of Awards for a
cash payment to the Participant.

 

16.                               Amendment and Termination of the
Plan.

 

(a)           Amendment and Termination. 
The Administrator may amend, alter or discontinue the Plan or any Award
Agreement, but any such amendment shall be subject to approval of the
shareholders of the Company in the manner and to the extent required by
Applicable Law. In addition, without limiting the foregoing, unless approved by
the shareholders of the Company, no such amendment shall be made that would:

 

i.              increase the maximum number of Shares for
which Awards may be granted under the Plan, other than an increase pursuant to Section
15 of the Plan;

 

ii.             reduce the minimum exercise price for
Options granted under the Plan;

 

iii.            reduce the exercise price of outstanding
Options; or

 

iv.            materially expand the class of persons
eligible to receive Awards under the Plan.

 

(b)           Effect of Amendment or Termination. 
No amendment, suspension or termination of the Plan shall impair the
rights of any Award, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed by the
Participant and the Company. Termination of the Plan shall not affect the
Administrator’s ability to exercise the powers granted to it hereunder with
respect to Awards granted under the Plan prior to the date of such termination.

 

(c)           Effect of the Plan on Other
Arrangements.  Neither the adoption of the Plan by the Board
or a Committee nor the submission of the Plan to the shareholders of the
Company for approval shall be construed as creating any limitations on the
power of the Board or any Committee to adopt such other incentive arrangements
as it or they may deem desirable, including, without limitation, the granting
of restricted stock or stock options otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.

 

14

 

17.                               Designation of Beneficiary.

 

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

 

(b)           Such designation of beneficiary may be
changed by the Awardee at any time by written notice. In the event of the death
of an Awardee and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Awardee’s death, the Company shall allow
the executor or administrator of the estate of the Awardee 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 Awardee to exercise the Award to
the extent permissible under Applicable Law.

 

18.                               No Right to Awards or to Employment.

 

No person shall
have any claim or right to be granted an Award and the grant of any Award shall
not be construed as giving an Awardee the right to continue in the employ of the
Company or its Affiliates. Further, the Company and its Affiliates expressly
reserve the right, at any time, to dismiss any Employee or Awardee at any time
without liability or any claim under the Plan, except as provided herein or in
any Award Agreement entered into hereunder.

 

19.                               Legal Compliance.

 

Shares shall not
be issued pursuant to the exercise of an Option or Stock Award unless the
exercise of such Option or Stock Award and the issuance and delivery of such
Shares shall comply with Applicable Laws and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

 

20.                               Inability to Obtain Authority.

 

To the extent the
Company is unable to or the Administrator deems it infeasible to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, the Company shall be relieved of any liability with
respect to the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

 

21.                               Reservation of Shares.

 

The Company,
during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the
Plan.

 

22.                               Notice.

 

Any written notice
to the Company required by any provisions of this Plan shall be addressed to
the Secretary of the Company and shall be effective when received.

 

23.                               Governing Law; Interpretation of Plan
and Awards.

 

(a)           This Plan and all determinations made and
actions taken pursuant hereto shall be governed by the substantive laws, but
not the choice of law rules, of the state of Delaware.

 

15

 

(b)           In the event that any provision of the
Plan or any Award granted under the Plan is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, such provision
shall be reformed, if possible, to the extent necessary to render it legal,
valid and enforceable, or otherwise deleted, and the remainder of the terms of
the Plan and/or Award shall not be affected except to the extent necessary to
reform or delete such illegal, invalid or unenforceable provision.

 

(c)           The headings preceding the text of the
sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of the Plan, nor shall they affect its meaning, construction
or effect.

 

(d)           The terms of the Plan and any Award shall
inure to the benefit of and be binding upon the parties hereto and their
respective permitted heirs, beneficiaries, successors and assigns.

 

(e)           All questions arising under the Plan or
under any Award shall be decided by the Administrator in its total and absolute
discretion. In the event the Participant believes that a decision by the
Administrator with respect to such person was arbitrary or capricious, the
Participant may request arbitration with respect to such decision. The review
by the arbitrator shall be limited to determining whether the Administrator’s
decision was arbitrary or capricious. This arbitration shall be the sole and
exclusive review permitted of the Administrator’s decision, and the Awardee
shall as a condition to the receipt of an Award be deemed to explicitly waive
any right to judicial review.

 

(f)            Notice of demand for arbitration shall be
made in writing to the Administrator within thirty (30) days after the
applicable decision by the Administrator. The arbitrator shall be selected from
amongst those members of the Board who are neither Administrators nor
Employees. If there are no such members of the Board, the arbitrator shall be
selected by the Board. The arbitrator shall be an individual who is an attorney
licensed to practice law in the State of Delaware. Such arbitrator shall be
neutral within the meaning of the Commercial Rules of Dispute Resolution of the
American Arbitration Association; provided, however, that the arbitration shall
not be administered by the American Arbitration Association. Any challenge to the
neutrality of the arbitrator shall be resolved by the arbitrator whose decision
shall be final and conclusive. The arbitration shall be administered and
conducted by the arbitrator pursuant to the Commercial Rules of Dispute
Resolution of the American Arbitration Association. The decision of the
arbitrator on the issue(s) presented for arbitration shall be final and
conclusive and may be enforced in any court of competent jurisdiction.

 

24.                               Limitation on Liability.

 

The Company and
any Affiliate which is in existence or hereafter comes into existence shall not
be liable to a Participant, an Employee, an Awardee or any other persons as to:

 

(a)           The Non-Issuance of Shares. 
The non-issuance or sale of Shares as to which the Company has been
unable to obtain from any regulatory body having jurisdiction the authority
deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and

 

(b)           Tax Consequences. 
Any tax consequence expected, but not realized, by any Participant,
Employee, Awardee or other person due to the receipt, exercise or settlement of
any Option or other Award granted hereunder.

 

25.                               Unfunded Plan.

 

Insofar as it
provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Awardees who are granted Stock Awards under
this Plan, any such accounts will be used merely as a bookkeeping convenience.
The Company shall not be required to segregate any assets which may at any time
be represented by Awards, nor shall this Plan be construed as providing for
such segregation, nor shall the Company or the Administrator be deemed to be a
trustee of stock or cash to be awarded under the Plan. Any liability of the
Company to any Participant with respect to an Award shall be based solely upon
any contractual obligations which may be created by the Plan; no such
obligation of the Company shall be deemed to be secured by any pledge or other encumbrance
on any property of the Company. Neither the Company nor the Administrator shall
be required to give any security or bond for the performance of any obligation
which may be created by this Plan.

 

16

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