Document:

Exhibit
10(e)

 

HEWLETT-PACKARD
COMPANY

 

1985
INCENTIVE COMPENSATION PLAN

 

 

PART 1.  PLAN ADMINISTRATION AND ELIGIBILITY

 

1.             PURPOSE

 

                The purpose of
this 1985 Incentive Compensation Plan (the “Plan”) of Hewlett-Packard Company
(the “Company”) is to encourage ownership in the Company by key personnel whose
long-term employment is considered essential to the Company’s continued
progress and thus to provide them with a further incentive to continue in the
employ of the Company or its subsidiaries. 
(The Company and all such subsidiaries are collectively referred to
hereinafter as the “Participating Companies.”)

 

II.            ADMINISTRATION

 

                The Board of
Directors (the “Board”) of the Company or any committee (the “Committee”) of
the Board that will satisfy Rule 16b-3 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and any regulations promulgated thereunder, as
from time to time in effect, including any successor rule (“Rule 16b-3”), shall
supervise and administer the Plan.  The
Committee shall consist solely of two or more non-employee directors of the
Company, who shall be appointed by the Board. 
A member of the Board shall be deemed to be a “non-employee director”
only if he satisfies such requirements as the Securities and Exchange Commission
may establish for non-employee directors under Rule 16b-3.  Members of the Board receive no additional
compensation for their services in connection with the administration of the
Plan.

 

                The Committee or
the Board shall from time to time designate the key employees of the
Participating Companies who shall be granted stock options, stock or cash
awards under the Plan and the amount and nature of the award granted to each
such employee.

 

                The Board or the
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan.  All questions of
interpretation of the Plan or of any shares issued under it shall be determined
by the Board or the Committee and such determination shall be final and binding
upon all persons having an interest in the Plan.  Any or all powers and discretion vested in the Board or the
Committee under this Plan may be exercised by any subcommittee so authorized by
the Board or the Committee and satisfying the requirements of Rule 16b-3 for
employees subject to Section 16 of the Exchange Act.  In addition, the Board or the Committee may delegate to the
Executive Committee of the Board of Directors the power to approve stock
options and stock awards to employees not subject to Section 16 of the Exchange
Act.

 

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 

 

 

 

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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.

 

III.           PARTICIPATION IN
THE PLAN

 

                Key employees of
the Company, including officers (with the exception of Messrs. David Packard
and William R. Hewlett), and directors of the Company who are also employed by
a Participating Company shall be eligible to participate in the Plan.

 

IV.           STOCK SUBJECT TO THE
PLAN

 

                The maximum number
of shares which may be optioned or awarded under the Plan shall be Ninety Six
Million (96,000,000) shares of the Company’s $0.0l par value Common Stock.  If a class of Preferred Stock is created and
authorized by the Company’s Certificate of Incorporation with amendment,
Preferred Stock may be used in lieu of Common Stock for awarded Plan
grants.  The limitation on the number of
shares which may be optioned or awarded under the Plan shall be subject under
the Plan shall be subject to adjustment as provided in Section XX of the Plan.

 

                The grant of a
stock award not pursuant to an option under the Plan (“Stock Award”) shall be
subject to such restrictions as the Committee shall determine to be
appropriate, including but not limited to restrictions on resale, repurchase
provisions, special vesting requirements or forfeiture provisions.

 

                If any outstanding
option under the Plan for any reason expires or is terminated without having
been exercised in full, or if any Stock Awards are forfeited, the forfeited
shares or shares allocable to the unexercised portion of such option shall
again become available for grant pursuant to the Plan.

 

                Upon the grant of
a Stock Award or the exercise of an option, the Company may issue new shares or
reissue shares previously repurchased by or on behalf of the Company.  If shares are to be repurchased and
reissued, the Company shall determine, on or before the last day of each fiscal
quarter, the amount, if any, of the Company’s Common Stock to be purchased by a
broker or other independent agent designated by the Company (the “Broker”) in
the following quarter for delivery under the Plan.  Stock so purchased by the Broker shall be restored to the status
of authorized but unissued shares.  The
amounts of stock to be purchased may be all or less than all of the projected
requirements of the Plan.  It is not the
intent of the Company that purchases by the Broker exceed actual Plan
requirements for the quarter.  In such
an event, however, excess shares would be carried over to help satisfy Plan
requirements in the following quarter. 
To the extent that the amounts purchased by the Broker do not meet
actual Plan requirements, the Company shall issue original shares.  The Broker shall be free to purchase such
stock at such times, at such prices and in such amounts as the Broker deems
appropriate, whether through brokers or by purchase from securities dealers,
both on and off the 

 

 

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national exchanges, or by private sale or otherwise; provided that the
Broker shall purchase the full number of shares required by the Company to be
purchased for that quarter, and that such purchases shall be consistent with
such conditions as may be prescribed from time to time by law or by the
Securities and Exchange Commission (“SEC”) in any rule or regulation or in any
exemptive order or no-action letter issued by the SEC to the Company or the
Broker with respect to the making of such purchases, or otherwise.  As commitments for such purchases are made
by the Broker, the Company shall, upon written consent of the Broker, deliver
to the Broker the funds necessary to consummate such purchases and pay any
brokerage and related incidental charges. 
All amounts transferred to the Broker by the Company shall be promptly
invested in the Company’s Common Stock, in no event later than 30 days after
delivery of such funds by the Company.

 

 

PART 2.  OPTIONS AND STOCK APPRECIATION RIGHTS

 

V.            INCENTIVE STOCK
OPTIONS

 

                Any option granted
under the Plan may be designated by the Committee as a non-statutory option or
as an incentive stock option (“ISO”) entitled to special tax treatment under
Section 422A of the Internal Revenue Code of 1954, as amended to date and as
may be amended from time to time (the “Code”).

 

                No option intended
to qualify as an ISO may be granted under the Plan if such grant, together with
any applicable prior grants, would exceed any maximum established under the
Code for ISOs that may be granted to a single employee.  Should it be determined that any ISO granted
under the Plan exceeds such maximum, the ISO shall be null and void to the
extent, but only to the extent, of such excess.  Section 422A(b)(8) of the Code presently provides that the aggregate
fair market value (determined as of the time the ISO is granted) of the stock
for which any employee may be granted ISOs in any calendar year under all
incentive stock option plans of the Company shall not exceed $100,000 plus any
unused limit carryover (as defined in the Code) to such year.

 

                Nothing in this
section shall be deemed to prevent the grant of options in excess of the
maximum established by the Code where such excess amount is treated as a
non-statutory option not entitled to special tax treatment under Section 422A
of the Code.

 

VI.           TERMS, CONDITIONS
AND FORM OF OPTIONS

 

                Each option
granted under this Plan shall be authorized by action of the Committee and
shall be evidenced by a written agreement in such form as the Committee shall
from time to time approve, which agreements shall comply with and be subject to
the following terms and conditions:

 

                A.            OPTIONS NON-TRANSFERABLE.  Each option granted under the Plan by its
terms shall not be transferable by the optionee otherwise than by will, or by
the 

 

 

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laws of descent and distribution, and shall be exercised during the
lifetime of the optionee only by him. 
No option or interest therein may be transferred, assigned, pledged or
hypothecated by the optionee during his lifetime, whether by operation of law
or otherwise, or be made subject to execution, attachment or similar process.

 

                B.            PERIOD OF OPTION.  No option may be exercised before the first
anniversary of the date upon which it was granted, nor may it be exercised as
to more than one-fourth of the number of shares covered thereby before the
second anniversary of such date, nor as to more than one-half of the number of
shares covered thereby before the third anniversary of such date; provided,
however, that any option granted pursuant to the Plan shall become exercisable
in full upon the retirement of the optionee because of age or total and
permanent disability or upon the death of the optionee.  No option shall be exercisable after the
expiration of ten (10) years from the date upon which such option is
granted.  Each option shall be subject
to termination before its date of expiration as hereinafter provided.

 

                C.            EXERCISE OF OPTIONS.  Options may be exercised only by written
notice to the Company at its head office accompanied by payment in cash of the
full consideration for the shares as to which they are exercised.  In addition, if and to the extent authorized
by the Committee, optionees may make all or any portion of any payment due to
the Company upon exercise of an option by delivery of any property (including
securities of the Company) other than cash, so long as such property
constitutes valid consideration for the stock under applicable law.

 

                No option may be
exercised while the optionee is on any leave of absence from the Company other
than an approved Medical Leave.  Options
will continue to vest during any authorized leave of absence, and may be
exercised to the extent permitted by Section VI(B) upon the optionee’s return
to an active employment status.  No ISO
shall be exercisable while there is outstanding (within the meaning of Section
422A(c)(7) of the Code) any ISO (within the meaning of Section 422A(b) of the
Code) which was granted, before the granting of such ISO, to the holder of such
ISO permitting the purchase of stock of the Company, or of any corporation
which (at the time of the granting of such ISO) is a parent or subsidiary
corporation of the Company, or of a predecessor corporation of any such
corporations.

 

                D.            TERMINATION OF OPTIONS.  All rights of an employee in an option, to
the extent that it has not been exercised, shall terminate upon the termination
of his employment for any reason other than the death of the employee or
retirement because of age or total and permanent disability and in case of such
retirement three (3) months from the date thereof.  In the event of the death of the employee, the option shall
terminate upon failure of his designated representative to exercise the option
in accordance with the time period provided in subsection “E” below.  Notwithstanding the foregoing, 1.) If an
employee who is not a Section 16 officer terminates because of a divestiture by
the Company, any option granted pursuant to the Plan shall become exercisable in
full and the employee may exercise any such option which has not already been
exercised until the earlier of: (i) three months from the closing date of the
divestiture, or such longer date, if any, which the Committee may authorize, or
(ii) the expiration of the option.  2.) 

 

 

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If any employee who is not a Section 16 officer terminates as a result
of participation in a Company voluntary severance program approved by the
Executive Committee, any option granted pursuant to the Plan shall become exercisable
in full, and the employee may exercise any such option which has not already
been exercised until the earlier of (i) three months from the employee’s
termination date, or (ii) the expiration of the option.

 

                E.             EXERCISE BY REPRESENTATIVE FOLLOWING
DEATH OF EMPLOYEE.  The employee, by
written notice to the Company, may designate one or more persons (and from time
to time change such designation) including his legal representative, who, by
reason of his death, shall acquire the right to exercise all or a portion of
the option.  If the person or persons so
designated wish to exercise any portion of the option, they must do so within
one (1) year after the death of the employee or retired employee, as the case
may be.  All rights of the representative(s)
in the option shall terminate upon failure to exercise the option within the
time period set forth in this subsection E. 
Any exercise by a representative shall be subject to the provisions of
this Plan.

 

VII.          MODIFICATION,
EXTENSION AND RENEWAL OF OPTIONS

 

                The Company’s
Board of Directors and the Committee shall each have the power to modify,
extend or renew outstanding options and authorize the grant of new options in
substitution therefor, provided that any such action may not have the effect of
altering or impairing any rights or obligations of any option previously
granted without the consent of the optionee.

 

                The Board of
Directors and the Committee shall have the power to lower the exercise price of
an outstanding option not intended to qualify as an ISO under the Code;
provided, however, that the exercise price per share may not be reduced below
the fair market value of a share of Common Stock of the Company on the date the
action is taken to reduce the exercise price. 
Such fair market value shall be deemed to be the mean of the highest and
lowest quoted selling prices for such shares on that date as reported on The
New York Stock Exchange Composite Tape.

 

VIII.        OPTION PRICE

 

                The option price
per share for the shares covered by each option shall be not less than one
hundred percent (100%) of the fair market value of a share of Common Stock of
the Company on the date the option is granted. 
Such fair market value shall be deemed to be the mean of the highest and
lowest quoted selling prices for such shares on that date as reported on The
New York Stock Exchange Composite Tape.

 

IX.           LOANS FOR EXERCISE
OF OPTIONS

 

                Any option
agreement under this Plan entered into with an employee may, but need not,
provide that the Company shall lend to the employee who holds the option the
funds for any exercise of his option. 
Such loans shall be at a rate of interest adequate to 

 

 

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avoid imputation of income under Sections 483 and 7872 of the Code and
shall be for a term not to exceed fifteen (15) months from the date of exercise
of the related option, and shall be subject to such other terms and conditions
as shall be set forth in the option agreement, which terms and conditions shall
be determined by the Committee at the time of the grant of the option.  No such loan shall be secured directly or
indirectly by any margin security (as that term is from time to time defined in
the applicable Regulations of the Federal Reserve Board).

 

X.            STOCK APPRECIATION
RIGHTS

 

                This section shall
apply to employees who hold options heretofore or hereafter granted under the
Plan (“Options”) and who are or may hereafter be subject to Section 16 of the
Securities Exchange Act of 1934.  The Committee
may, but shall not be required to, grant to such employees stock appreciation
rights as herein provided with respect to not more than the number of shares
from time to time subject to the Options held by such employees. The stock
appreciation rights shall be integral parts of the respective Options and shall
have no existence apart therefrom.

 

                A stock
appreciation right shall be the right of the holder thereof to elect to
surrender part or all of any Option which is wholly exercisable, or of any
exercisable portion of an Option which is partially exercisable, and receive in
exchange therefor cash or shares (valued at current fair market value) or a
combination thereof.  Such cash or
shares or combination shall have an aggregate value (“Appreciation”) equal to
the excess of the current fair market value of one (1) share over the Option
price of one (1) share specified in such Option multiplied by the number of
shares subject to such Option or the portion thereof which is surrendered.  The current fair market value of a share
shall be the mean of the highest and lowest quoted selling prices for shares as
reported on The New York Stock Exchange Composite Tape on the day on which a
stock appreciation right is exercised, or if no sale was made on such date,
then on the next preceding day on which such a sale was made.  No fractional share shall be issued on the
exercise of a stock appreciation right, and settlement therefor shall be made
in cash.

 

                Each stock
appreciation right granted under this Plan shall be subject to the following
terms and conditions: (1) each stock appreciation right shall be evidenced by a
written agreement between the Company and the holder in such form as the
Committee shall authorize; (2) each stock appreciation right granted under the
Plan by its terms shall not be transferable by the holder otherwise than by
will or by the law of descent and distribution, and shall be exercised during
the lifetime of the holder only by him. 
No stock appreciation right or interest therein may be transferred,
assigned, pledged or hypothecated by the holder during his lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process; (3) all rights of an employee in a stock appreciation right,
to the extent that it has not been exercised, shall terminate upon the death of
the employee or the termination of his employment for any reason other than
retirement because of age or total and permanent disability, and in case of
such retirement three (3) months from the date thereof; provided, however, that
the employee, by written notice to the Company, may designate one or more
persons (and 

 

 

6

 

from time to time change such designation), including his legal
representative, who, by reason of his death, shall acquire the right to
exercise all or a portion of the rights accrued under the stock appreciation
right as of the date of his death.  If
the person or persons so designated wish to exercise any portion of the stock
appreciation right, they must do so within one (1) year after the death of the
employee or retired employee, as the case may be, and such exercise shall be
subject to the provisions of this Plan; (4) the life of stock appreciation
rights shall be coterminous with the life of the Options.

 

                The holder of a
stock appreciation right may exercise the same by (1) filing with the Secretary
of the Company a written election, which election shall be delivered by the
Secretary to the Committee, specifying (a) the Option or portion thereof to be
surrendered, (b) the percentage of the Appreciation which he desires to receive
in cash, if any; and (2) surrendering such Option for cancellation or partial
cancellation, as the case may be; provided, however, that any election which
specifies that the holder of a stock appreciation right desires to receive any
portion of the Appreciation in cash shall be of no force or effect unless and
until the Committee shall have consented to such election.

 

                No stock
appreciation right or related Option may be exercised during the first six
months of its term, except in the event of death or total and permanent
disability of the holder occurs prior to the expiration of this six-month
period.

 

                The Committee
shall have the sole discretion to consent to approve or disapprove, in whole or
in part, any election to receive any portion of the Appreciation in cash.

 

                Upon exercise of a
stock appreciation right, the number of shares reserved for issuance under the
Plan shall be reduced by the number of shares covered by the Option, or the
portion thereof, which is surrendered in connection with such exercise.

 

                Nothing in the
Plan shall be construed to give any eligible employee any right to be granted a
stock appreciation right.  Neither the
Plan nor the granting of a stock appreciation right nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will employ the holder of a
stock appreciation right for any period of time or in any position or at any
particular rate of compensation.  The
holder of a stock appreciation right shall have no rights as a stockholder with
respect to the shares covered by his stock appreciation right until the date of
issuance to him of a stock certificate therefor, and, except as otherwise
specifically provided in the stock option agreement for the Options, no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.

 

 

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PART 3.  STOCK AND CASH AWARDS

 

XI.           STOCK AND CASH AWARD
DETERMINATION

 

                The Committee may
grant an eligible employee Stock Awards or awards of cash (“Cash Awards”) at
such times and in such amounts as the Committee may designate which in its
opinion fully reflect the performance level and potential of such
employee.  The Committee shall designate
whether such awards are payable in Common Stock, cash, or a combination
thereof.  Such awards shall be made in
accordance with such guidelines as the Committee may from time to time
adopt.  Stock and Cash Awards shall be
independent of any grant of an option under this Plan, and shall be made
subject to such restrictions as the Committee may determine to be appropriate.

 

XII.         PAYMENT OF STOCK OR
CASH AWARDS

 

                A.            No employee shall have the right to
receive payment of any Stock or Cash Award until notified of the amount of such
award, in writing, by the Committee or its authorized delegate.

 

                B.            Payment of cash awards shall be made
in a lump sum or in annual installments over such period as the Committee may
designate, which period shall not exceed five years, provided that the
Committee may from time to time designate minimum installment amounts.

 

                C.            After an award of Common Stock subject
to restrictions (“Restricted Stock”), certificates for such shares will be
deposited in escrow with the Company’s Secretary.  The Employee shall retain all rights in the Restricted Stock
while it is held in escrow including but not limited to voting rights and the
right to receive dividends, except that the Employee shall not have the right
to transfer or assign such shares until all restrictions pertaining to such
shares are terminated at which time the applicable stock certificates shall be
released from escrow and delivered to the employee by the Company’s Secretary.

 

                D.            The Committee may permit, on such
terms as it deems appropriate, use of Restricted Stock as partial or full
payment upon exercise of a stock option under a Company Incentive Stock Option
Plan or this Plan.  In the event shares
of Restricted Stock are so tendered as consideration for the exercise of an
option, a number of the shares issued upon the exercise of said option, equal
to the number of shares of Restricted Stock used as consideration therefor,
shall be subject to the same Restrictions as the Restricted Stock so submitted
plus any additional Restrictions that may be imposed by the Committee.

 

XIII.        TERMINATION OF
RESTRICTIONS ON STOCK AWARDS

 

                The Committee will
establish the period or periods after which the Restrictions on Restricted
Stock will lapse.

 

                The Committee may
in its discretion permit an employee to elect to receive in lieu of shares of
Restricted Stock, at the expiration of the restrictions, a cash payment equal
to the fair market value of the Restricted Stock on the date restrictions
lapse.  Fair market 

 

 

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value shall be the mean of the high and low prices of such stock on The
New York Stock Exchange Composite Tape on the date in question, or if no sales
of such stock were made on that date, the mean of the high and low prices of
such stock on the next preceding day on which sales were made.

 

XIV.        DEATH OR TOTAL AND PERMANENT DISABILITY
OF A PARTICIPATING EMPLOYEE HOLDING RESTRICTED STOCK

 

                By written notice
to the Company, an employee who has received a grant of Restricted Stock may
designate one or more persons (and from time to time change such designation)
who, by reason of his death, shall acquire the right to receive any vested but
unpaid awards held by the employee at the time of his death.  Such awards shall be paid to the designated
representative at such time and in such manner as if the employee were living.

 

                In the event of
total and permanent disability of an employee who has participated in the Plan,
any unpaid but vested award shall be paid to the employee if legally competent
or to a committee or other legally designated guardian or representative if the
employee is legally incompetent.

 

                After the death or
total and permanent disability of an employee, the Committee may in its sole
discretion at any time terminate Restrictions upon stock awarded to the
employee.  A request to the Committee
for the termination of Restrictions or the acceleration of payments not yet due
may be made by the employee’s beneficiary or representative, or by a totally
and permanently disabled employee.

 

                If at the time of
the employee’s death, there is no effective beneficiary designation as to all
or some portion of the awards hereunder, such awards or such portion thereof
shall be paid to or on the order of the legal representative of the employee’s
estate.  In the event of uncertainty as
to the interpretation or effect of any notice of designation, the Committee’s
decision with respect thereto shall be conclusive.

 

XV.         RESTRICTIONS AND
FORFEITURE OF STOCK AWARDS

 

                The Company’s
obligation to deliver stock certificates held in escrow is subject to the
condition that the employee remain an active employee of the Company or be under
contract to provide services to the Company as provided in Section XVI hereof
for the entire deferral and/or restriction period, including mandatory and
optional deferrals.  If the employee
fails to meet this condition, the employee’s right to any such unpaid amounts
or undelivered stock certificates shall be forfeited.  This provision may be waived by the Committee in exceptional
circumstances.

 

 

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XVI.        RETIREMENT OF EMPLOYEE
HOLDING STOCK AWARD

 

                If the employee
retires due to age, the Company’s obligation to make any payment due thereafter
under the Stock Award feature of the Plan is subject to the condition that for
the entire period of deferral or restriction, including mandatory and optional
deferrals:

 

                A.            The employee shall render as an
independent contractor and not as an employee, such advisory or consultative
services to the Company as shall be reasonably requested by the Board or the
Executive Committee of the Board in writing from time to time, consistent with
the state of the retired employee’s health and any employment or other
activities in which such employee may be engaged.  For purposes of this Plan, the employee shall not be required to
devote a major portion of time to such services and shall be entitled to
reimbursement for any reasonable out-of-pocket expenses incurred in connection
with the performance of such services;

 

                B.            The employee shall not render
services for any organization or engage directly or indirectly in any business
which, in the opinion of the Committee, competes with, or is in conflict with
the interest of, the Company.  The
employee shall be free, however, to purchase as an investment or otherwise,
stock or other securities of such organizations so long as they are listed upon
a recognized securities exchange or traded over-the-counter, or so long as such
investment does not represent a substantial investment to the employee or a
significant (greater than 10%) interest in the particular organization.  For the purposes of this subparagraph, a
company (other than a subsidiary) which engages in the business of producing,
leasing or selling products or providing services of the type now or at any
time hereafter made or provided by the Company, shall be deemed to compete with
the Company;

 

                C.            The employee shall not, without
prior written authorization from the Company, disclose to anyone outside the
Company, or use in other than the Company’s business, any confidential
information or material relating to the business of the Company, either during
or after employment with the Company; and

 

                D.            The employee shall disclose promptly
and assign to the Company all right, title and interest in any invention or
idea, patentable or not, made or conceived by the employee during employment by
the Company, relating in any manner to the actual or anticipated business,
research or development work of the Company and shall do anything reasonably
necessary to enable the Company to secure a patent where appropriate in the
United States and in foreign countries.

 

 

PART 4.  GENERAL PROVISIONS

 

XVII.       ASSIGNMENTS

 

                The rights and
benefits under this Plan may not be assigned except for the designation of a
beneficiary as provided in Sections VI and XIV.

 

 

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XVIII.   TIME FOR GRANTING
OPTIONS OR STOCK AWARDS

 

                All options for
shares and Stock Awards subject to this Plan shall be granted, if at all, not
later than ten (10) years after the adoption of this Plan by the Company’s
Board of Directors.

 

 

XIX.     LIMITATION OF RIGHTS

 

                A.            NO RIGHT TO AN OPTION OR STOCK
AWARD.  Nothing in the Plan shall be
construed to give any personnel of the Participating Companies any right to be
granted an option or Stock or Cash Award.

 

                B.            NO EMPLOYMENT RIGHT.  Neither the Plan, nor the granting of an
option or Stock or Cash Award nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that any of the Participating Companies will employ a grantee for any
period of time or in any position, or at any particular rate of compensation.

 

                C.            NO STOCKHOLDERS’ RIGHTS FOR
OPTIONS.  An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefore, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.

 

XX.      CHANGES IN PRESENT
STOCK

 

                In the event of
any merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, or other change in the corporate structure or capitalization
affecting the Company’s present Common Stock, appropriate adjustment shall be
made by the Board of Directors in the number (including the aggregate numbers
specified in Section IV) and kind of shares which are or may become subject to
options and stock awards granted or to be granted hereunder, and in the option
price of shares which are subject to options granted hereunder.

 

XXI.        EFFECTIVE DATE OF THE
PLAN

 

                The Plan shall
take effect on the date of adoption by the Board of Directors of the Company,
subject to approval by the shareholders of the Company at a meeting held within
twelve (12) months after the date of such adoption.  Options and Stock or Cash Awards may be granted under the Plan at
any time after the adoption of the Plan by the Board of Directors of the
Company and prior to the termination of this Plan.

 

XXII.      AMENDMENT OF THE PLAN

 

                The Board or the
Committee may suspend or discontinue the Plan or revise or amend it in any
respect whatsoever; provided, however, that the Company may seek 

 

11

 

stockholder approval of an amendment if determined to be required by or
advisable by any law or regulation, including without limitation, any
regulations of the Securities and Exchange Commission or the Internal Revenue
Service, the rules of any stock exchange on which the Company’s stock is listed
or other applicable law or regulation.

 

XXIII.   NOTICE

 

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

 

XXIV.     COMPANY BENEFIT PLANS

 

                Nothing contained
in this Plan shall prevent the employee prior to death, or the employee’s
dependents or beneficiaries after the employee’s death, from receiving, in
addition to any awards provided for under this Plan and any salary, any
payments under a Company retirement plan or which may be otherwise payable or
distributable to such employee, or to the employee’s dependents or
beneficiaries under any other plan or policy of the Company or otherwise.

 

XXV.      UNFUNDED PLAN

 

                Insofar as it
provides for awards of Stock or cash, this Plan shall be unfunded.  Although bookkeeping accounts may be
established with respect to employees who are granted awards of Stock under
this Plan, any such accounts will be used merely as a bookkeeping convenience.  Except for the holding of Restricted Stock
in escrow pursuant to Section XII C, the Company shall not be required to
segregate any assets which may at any time be represented by awards of Stock or
cash, nor shall this Plan be construed as providing for such segregation, nor
shall the Company nor the Board nor the Committee be deemed to be a trustee of
Stock or cash to be awarded under the Plan. 
Any liability of the Company to any employee with respect to an award of
Stock or cash under this Plan 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 Board nor the Committee shall be required to give any security
or bond for the performance of any obligation which may be created by this
Plan.

 

XXVI.    GOVERNING LAW

 

                This Plan and all
determinations made and actions taken pursuant hereto shall be governed by the
law of the State of California and construed accordingly.

 

 

12

 

XXVII.   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 option, stock appreciation right, Stock Award or Restricted Stock
previously granted based on such terms and conditions as the Committee shall
establish and communicate to the holder of such option, stock appreciation
right, Stock Award or Restricted Stock in connection with such offer.

 

 

	
  11/30/84

  	
  Adopted by the Board of Directors

  
	
  2/26/85

  	
  Approved by the Stockholders

  
	
  1/18/90

  	
  Part 3, Section XIII amended by the Executive
  Compensation and Stock Option Committee

  
	
  7/17/91

  	
  Part 1, Section II amended by the Executive Compensation
  and Stock Option Committee

  
	
  4/13/95

  	
  Payment date for two for one stock split (record
  date 3/24/95)

  
	
  7/15/96

  	
  Payment date for two for one stock split (record
  date 6/21/96)

  
	
  11/21/96

  	
  Part 1, Section II, Part 2, Section X and Part 4,
  Section XXII amended by the Compensation Committee

  
	
  5/15/97

  	
  Part 2, Section VI D amended by the Compensation
  Committee

  
	
  5/20/98

  	
  The Company reincorporated in the State of Delaware

  
	
  10/27/00

  	
  Payment date for two for one stock split in the form
  of a stock dividend (record date 9/27/00)

  
	
  9/12/02

  	
  Part 4, Section XXVII added and plan restated by HR
  & Compensation Committee

  
	
  11/21/02

  	
  Part 1, Section II added new paragraph and plan
  restated by HR & Compensation Committee

  

 

 

13Exhibit
10(f)

 

 

As Amended
and Restated Effective November 21, 2002

As Amended
and Restated Effective September 12, 2002

As Amended
and Restated Effective July 18, 2002

As Amended
Effective May 3, 2002

As Amended
Effective September 4, 2001

 Adopted January 25, 2001

 

 

COMPAQ COMPUTER CORPORATION

 

2001 STOCK OPTION PLAN

 

SECTION 1.           Purpose.  The Compaq Computer Corporation 2001 Stock
Option Plan has been established to promote the interests of the Company and
its stockholders by (a) attracting and retaining exceptional employees of the
Company, Compaq and Affiliates, as defined below; (b) motivating such employees
and directors by means of performance-related incentives to achieve long-range
performance goals; and (c) enabling such employees and directors to participate
in the long-term growth and financial success of the Company.

 

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

 

“Affiliate” shall mean (a) any entity that,
directly or indirectly, is controlled by the Company or Compaq and (b) any
entity in which the Company or Compaq has a significant equity interest, in
either case as determined by the Committee.

 

“Award” shall mean any option or stock
appreciation right granted pursuant to the Plan.

 

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

 

“Change in Control” shall be deemed to have
occurred if:  (a) Prior to May 3, 2002,
(i) 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 Compaq employee benefit plan, or any entity owned,
directly or indirectly, by Compaq stockholders in substantially the same
proportions as their ownership of Compaq voting securities), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time), directly
or indirectly, of Compaq securities representing 30% or more of the combined
voting power of Compaq’s then outstanding securities; (ii) 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 of
Directors, 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 (i), (iii), or (iv) of this paragraph) 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; (iii) a merger or consolidation of
Compaq with any other corporation, other than a merger or consolidation that
results in Compaq voting securities 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 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; or (iv) Compaq stockholders approve a plan of
complete liquidation of Compaq or an agreement for the sale or disposition by
Compaq of all or substantially all of 

 

 

1

 

Compaq’s assets.  If any of the events enumerated in clauses (i) through (iv)
occur, the Board shall determine the effective date of the Change in Control
resulting therefrom, for purposes of the Plan. 
For purposes of (1) Awards granted on or after September 1, 2001 and (2)
applying the proviso of Section 7(a)(i) to all Options and Stock Appreciation
Rights under the Plan, whenever granted, the definition of “Change in Control”
set forth above shall be revised by adding the phrase “there is consummated” at
the beginning of clause (iii) above, and (b) On or after May 3, 2002, the Board
in its sole discretion determines that a change in control has occurred.

 

“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 and
prior to May 3, 2002, the committee must be composed of persons who (i) to the
extent necessary to comply with Rule 16b-3 are “Non-Employee Directors” within
the meaning of Rule 16b-3 and (ii) to the extent any Award granted hereunder is
intended to qualify as performance-based compensation under Section 162(m) of
the Code, constitute “outside directors” within the meaning of Section 162(m)
of the Code and the regulations thereunder.

 

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

 

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

 

“Eligible Director” shall mean each director
of Compaq who is not an employee of Compaq or any of Compaq’s subsidiaries (as
defined in Section 424(f) of the Code).

 

“Employee” shall mean an 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 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.

 

“Executive Officer” shall mean, at any time,
an individual who is an executive officer of Compaq within the meaning of Exchange
Act Rule 3b-7 as promulgated and interpreted by the SEC under the Exchange Act,
or any successor rule or regulation thereto as in effect from time to time, or
who is an officer of Compaq within the meaning of Exchange Act Rule 16a-1(f) as
promulgated and interpreted by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.

 

“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 a right
to purchase Shares that is intended to meet the requirements of Section 422 of
the Code or any successor provision thereto.

 

“Non-Qualified Stock Option” shall mean a
right to purchase Shares that is granted under Section 5 of the Plan and that
is not intended to be an Incentive Stock Option.

 

“Notice” shall mean any written notice,
contract, or other instrument or document evidencing any Award, which may, but
need not, be executed or acknowledged by a Participant, and shall be subject to
the terms and conditions of the Plan.

 

 

2

 

“Option” shall mean, prior to May 3, 2002, a
Non-Qualified Stock Option or Incentive Stock Option and, on or after May 3,
2002, a Non-Qualified Stock Option.

 

“Participant” shall mean, prior to May 3,
2002, any Employee or director selected to receive an Award under the Plan and,
on or after May 3, 2002, any Employee selected to receive an Award under the
Plan.

 

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

 

“Plan” shall mean this Compaq Computer
Corporation 2001 Stock Option Plan, as amended from time to time.

 

“Rule 16b-3” shall mean Rule 16b-3 as
promulgated and interpreted by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.

 

“SEC” shall mean the Securities and Exchange
Commission or any successor thereto and shall include the staff thereof.

 

“Shares” shall mean shares of the common
stock, $.0l par value, of the Company or such other securities of the Company
as may be designated by the Committee from time to time.

 

“Stock Appreciation Right” shall mean any
right granted under Section 6 of the Plan.

 

“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.

 

SECTION 3.           Administration.

 

(a)                                  Authority of
Committee.  The
Committee shall administer the Plan. 
Subject to the terms of the Plan and applicable law, the Committee shall
have full power and authority to: (i) designate Employee Participants; (ii)
determine the type or types of Awards to be granted to an eligible Employee;
(iii) 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,
Awards to Employees; (iv) determine the terms and conditions of any Award to
Employees; (v) determine whether, to what extent, and under what circumstances
Awards may be settled or exercised 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; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Awards, other property, and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or Notice relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; (ix) 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; (x) approve forms of Notice for use under the Plan; (xi)
authorize substitution under the Plan of any or all outstanding Non-Qualified
Stock Options or outstanding stock appreciation rights held by service
providers of an entity acquired by the Company; and (xii) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan and any Award granted hereunder.

 

(b)                                 Committee and
Board Discretion Binding. 
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee or
the Board, may be made at 

 

 

3

 

any time, and shall be final, conclusive, and
binding upon all Persons, including the Company, Compaq, any Affiliate, any
Participant, any holder or beneficiary of any Award, any stockholder, any
Employee, and any Director.

 

(c)                                  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 Available for Awards.

 

(a)                                  Shares
Available.  Subject to
adjustment as provided in Section 4(b), the number of Shares with respect to
which Awards may be granted under the Plan shall be 80 million.  If, after the effective date of the Plan,
any Shares covered by an Award granted under the Plan or to which such Award
relates, are forfeited, or if such an Award is settled for cash or otherwise
terminates or is canceled without the delivery of Shares, then the Shares
covered by such Award, or to which such Award relates, or the number of Shares
otherwise counted against the aggregate number of Shares with respect to which
Awards may be granted, to the extent of any such settlement, forfeiture, termination
or cancellation, shall again become Shares with respect to which Awards may be
granted.  In the event that any Option
or other Award granted hereunder is exercised through the delivery of Shares or
in the event that withholding tax liabilities arising from such Award are
satisfied by the withholding of Shares, the number of Shares available for
Awards under the Plan shall be increased by the number of Shares so surrendered
or withheld.

 

(b)                                 Adjustments.  In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and
kind of other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any outstanding Award, or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, that such adjustments shall be made by
the Board with respect to Awards to Eligible Directors.

 

(c)                                  Substitute
Awards.  Any Shares underlying
Substitute Awards shall not be counted against the Shares available for Awards
under the Plan.

 

(d)                                 Sources of
Shares Deliverable Under Awards.  Any Shares delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued Shares or, prior to May 3, 2002, of
treasury Shares.

 

SECTION 5.           Employee Stock Options.

 

(a)                                  Eligibility and
Limits on Awards.  Any
Employee shall be eligible to be designated 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.  Prior to May 3, 2002
and subject to adjustment as provided in 

 

 

4

 

Section 4(b), no Executive Officer may
receive Awards under the Plan in any calendar year that relate to more than
1,500,000 Shares.  Prior to May 3, 2002,
the limits on Awards to any Executive Officer under this Plan shall be reduced
by any other Award in the same calendar year to such officer under any other
Compaq equity incentive plan.  In order
to satisfy regulatory and legal requirements, the Committee may grant Awards to
a trust or other legal entity on behalf of otherwise eligible Employees.

 

(b)                                 Grant.  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.  On or after May 3, 2002, no
Incentive Stock Options shall be granted or substituted under this Plan.

 

(c)                                  Exercise Price.  The exercise price for Options (other than
Substitute Awards) granted under the Plan shall be not less than the Fair
Market Value of the underlying Shares at the time of grant.  Neither the Board nor the Committee may
lower the exercise price of outstanding options issued under the Plan.  The Committee shall determine the
appropriate exercise prices for Substitute Awards based on the terms and
conditions of the transaction related to such Awards.

 

(d)                                 Exercise.  Each Employee Option shall be exercisable at
such times and subject to such terms and conditions as the Committee may, in
its sole discretion, specify in the applicable Notice or thereafter.  The Committee and the Board may impose such
conditions with respect to the exercise of options, including without
limitation, any relating to the application of any securities laws, as it may
deem necessary or advisable.

 

(e)                                  Payment.  No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option cost therefor is
received by the Company.  Such payment
may be made (i) in cash, or its equivalent, (ii) if and to the extent permitted
by the Committee, by exchanging Shares owned by the optionee (which are not the
subject of any pledge or other security interest), (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 the Company as of the
date of such tender is at least equal to such option cost.

 

SECTION 6.           Stock Appreciation Rights.

 

(a)                                  Grant.

 

(i)                                     Prior to May 3,
2002, the grant of Stock Appreciation Rights shall be limited to Employees in
those locations in which the law, including exchange control regulations and
taxation, unduly restricts the grant of Options.  Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by
each Stock Appreciation Right Award, and the conditions and limitations
applicable to the exercise thereof. 
Stock Appreciation Rights shall have a grant price equal to the Fair
Market Value of the related Shares on the day of the Award, and if granted to
Executive Officers, shall not be exercisable earlier than six months after
grant.

 

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

 

(b)                                 Exercise and
Payment.  A Stock Appreciation Right
shall entitle the Participant to receive an amount equal to the excess of the
Fair Market Value of a Share on the date of exercise of the Stock Appreciation
Right over the grant price thereof.  The
Committee shall determine whether a Stock Appreciation Right shall be settled
in cash, Shares or a combination of cash and Shares.

 

 

5

 

(c)                                  Other Terms and
Conditions.  Subject to
the terms of the Plan, the Committee shall determine, at or after the grant of
a Stock Appreciation Right, the term, methods of exercise, methods and form of
settlement, and any other terms and conditions of any Stock Appreciation Right.  Any such determination by the Committee may
be changed by the Committee from time to time and may govern the exercise of
Stock Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter.  The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.

 

SECTION 7.           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 the grant of the Award or thereafter.

 

(a)                                  Termination of
Employment.

 

(i)                                     For Awards
granted prior to May 3, 2002 and if a Participant’s employment with the Company,
Compaq or an Affiliate is terminated for any reason other than death, permanent
and total 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 (f) below), the Participant
shall have the right to exercise any outstanding Option or Stock Appreciation
Right until the earlier of (a) 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
(b) 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.

 

(ii)                                  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.

 

(b)                                 Death,
Disability or Retirement.

 

(i)                                     For Awards
granted prior to May 3, 2002 and if a Participant’s employment with the
Company, Compaq or an Affiliate is terminated by death, total and permanent 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.  The meaning of the terms “total and
permanent disability” and “retirement” shall be determined by the Committee.

 

(ii)                                  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, 

 

 

6

 

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.  The meaning of the terms
“total and permanent disability” and “retirement” shall be determined by the
Committee.

 

(iii)                               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 (g)
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.

 

(c)                                  Acceleration
and Extension of Exercisability.  Notwithstanding the foregoing, the Committee may, in its
discretion, provide (i) that an Option granted to an Employee Participant may
terminate at a date earlier than that set forth above, (ii) that an Option
granted to an Employee 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, and (iii) that an Option or Stock Appreciation Right may become
immediately exercisable when it finds that such acceleration would be in the
best interests of the Company.

 

(d)                                 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.

 

(e)                                  Definition of
Qualifying Termination.  For
purposes of subparagraph (a)(i) above, the term “Qualifying Termination” shall
have the meaning ascribed to such term in the Participant’s individual
employment or severance agreement with Compaq or its Affiliate.  If the Participant is not a party to an
individual employment or severance agreement with Compaq or its Affiliate, 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.

 

(f)                                    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.

 

 

7

 

SECTION 8.           Change in Control.

 

(a)                                  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 and no outstanding Stock Appreciation Rights may
be terminated, amended, or suspended upon or after 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 7(f)) within one year following a Change in Control.

 

(b)                                 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.

 

(c)                                  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 9.           Amendment and Termination.

 

(a)                                  Amendments to
the Plan.  The Board
may amend, alter, suspend, discontinue, or terminate the Plan or any portion
thereof at any time; provided that no such amendment, alteration, suspension,
discontinuation or termination shall be made without stockholder approval if
such approval is necessary to comply with any tax or regulatory requirement,
including for these purposes any approval requirement that is a prerequisite
for exemptive relief from Section 16(b) of the Exchange Act, for which or with
which the Board deems it necessary or desirable to qualify or comply. The
Committee also may amend the Plan in such manner as may be necessary so as to have
the Plan conform with local rules and regulations in any jurisdiction outside
the United States.

 

(b)                                 Amendments to
Awards.  The Committee may waive any
conditions or rights under, amend any terms of, suspend, or terminate, any
Award, prospectively or retroactively; provided that (i) any waiver, amendment,
suspension, or termination that would adversely affect the rights of any
Participant or any holder or beneficiary of any outstanding Award shall not to
that extent be effective without the consent of the affected Participant,
holder, or beneficiary, and (ii) in accordance with Section 5(c) of this Plan
no amendment shall lower the exercise price of outstanding options issued under
the Plan.

 

(c)                                  Adjustment of
Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.  The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the Company,
Compaq, any Affiliate, or the financial statements of the Company, Compaq or
any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority would
be inconsistent with the Plan’s meeting the requirements of Section 162(m) of
the Code, as from time to time amended.

 

 

8

 

(d)                                 Cancellation.  Any provision of this Plan or any Notice to
the contrary notwithstanding, the Committee may cause any Award granted
hereunder to be canceled in consideration of an alternative Award or cash
payment made to the holder of such canceled Award equal in value to the Fair
Market Value of such canceled Award as of the effective date of such
cancellation.

 

(e)                                  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, on the next vesting date following such status change, the vesting
schedule for all Awards previously granted to such employee and not yet vested
will be automatically amended to reduce the number of shares vesting each month
by one-half during the time that such employee is working on a part-time basis;
provided, however, that any Shares that remain unvested three months prior to
the expiration of the term of such Award shall vest as of such date three
months prior to the expiration of such term.

 

(f)                                    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 10.         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 Notice and in accordance with procedures
adopted by the Committee.

 

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

 

(c)                                  Share
Certificates.  All
certificates for Shares or other securities of the Company, Compaq or any
Affiliate delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and any applicable Federal or state laws, and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.

 

(d)                                 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 other than Executive Officers.

 

(e)                                  Withholding.  A Participant may be required to pay to the
Company, Compaq or any Affiliate and the Company, Compaq or any Affiliate shall
have the right and is hereby authorized to withhold from any Award, from any
payment due or transfer made under any Award or under the Plan or from any
compensation or other amount owing to a Participant the amount (in cash,
Shares, other securities, other Awards or other property) of any applicable
withholding taxes in respect of an Award, its exercise, or any payment or
transfer under an Award or under the Plan and to take such other action as may
be necessary in the opinion of the Committee to satisfy all obligations for 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 

 

 

9

 

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.

 

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

 

(g)                                 No Limit on
Other Compensation Arrangements.  Nothing contained in the Plan shall prevent the Company, Compaq
or any Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of options,
restricted stock, Shares and other types of Awards provided for hereunder
(subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.

 

(h)                                 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 Notice.

 

(i)                                     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.

 

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

 

(k)                                  Severability.  Notwithstanding any other provision or
section of the Plan, if any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws (but only to such extent necessary to
comply with such laws), or if it cannot be construed or deemed amended without,
in the determination of the Committee, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award shall remain
in full force and effect.

 

(l)                                     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.

 

(m)                               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 

 

 

10

 

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.

 

(n)                                 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.

 

(o)                                 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 11.         Term of the Plan.

 

(a)                                  Effective Date.  The Plan shall be effective on April 26,
2001.

 

(b)                                 Expiration Date.  Unless otherwise expressly provided in the
Plan or in an applicable Notice, any Award granted hereunder may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, continue after the authority for grant of new
Awards hereunder has been exhausted.

 

 

11

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