Document:

Q2 2001 10Q DOC

                                                                  Exhibit 10.3

UNANIMOUS WRITTEN CONSENT

OF

THE NOMINATING AND COMPENSATION COMMITTEE

OF

DEL MONTE FOODS COMPANY

A Delaware Corporation

 

The undersigned being all the members of the duly authorized
Nominating and Compensation Committee (the "Compensation Committee") of the
Board of Directors (the "Board") of Del Monte Foods Company, a Delaware
corporation (the "Corporation"), do hereby approve, adopt and consent to the
following resolutions as the action of the Compensation Committee without the
formality of a meeting. It is the intent of the undersigned that this consent be
executed in lieu of a meeting of the Compensation Committee, and that it shall
be filed with the minutes of proceedings of the Compensation Committee.

RESOLUTIONS

WHEREAS, the Board has authorized the officers of the
Corporation to explore the possibility of entering into a stockholder value-
enhancing transaction (a "Sale"), including a sale, merger or other
consolidation of the Corporation by or with another company ("Acquiror");

WHEREAS, in connection with a potential Sale, the
Corporation seeks to enhance stockholder value by incentivizing certain key
employees to remain with the Corporation through the transition process and the
consummation of a Sale;

WHEREAS, to reward the officers for enhancing the
value of the Corporation and to provide incentives for them to remain employed
by the Corporation, the Corporation is creating an incentive compensation pool
(the "Incentive Compensation Pool") to be allocated among certain key employees
(the amount of which would be determined by reference to the incentive formula
set forth on Schedule A hereto), payable in cash after consummation of a
Sale as described herein (the "Retention Plan");

WHEREAS, the members of the Compensation Committee
have been presented with and have reviewed certain materials regarding the
Retention Plan and have engaged in discussions among themselves and with various
advisors regarding fiduciary and other issues raised by the Retention Plan; 

WHEREAS, the Compensation Committee has concluded that
the Retention Plan is an appropriate tool for retaining and incentivizing the
employees critical to the Corporation through a successful Sale; and

WHEREAS, the Compensation Committee has determined it
to be in the best interests of the Corporation to: (i) adopt and approve the
Retention Plan as described herein; (ii) adopt and approve the specific
allocation of the Incentive Compensation Pool as set forth on Schedule B
hereto among the key employees identified thereon (the "Key Employees"); and
(iii) authorize certain officers of the Corporation on its behalf to enter into
retention agreements with the Key Employees or to amend existing employment
agreements with the Key Employees to reflect these resolutions, as deemed
necessary or desirable by such officers.

ADOPTION AND APPROVAL OF RETENTION PLAN TO GRANT
BONUSES TO CERTAIN EMPLOYEES OF THE CORPORATION

NOW, THEREFORE, BE IT RESOLVED, that the Retention
Plan is hereby adopted and approved in all respects, including the following
guidelines:

	The total amount of the Incentive Compensation Pool shall be calculated with
reference to the aggregate price per share at which a Sale is consummated as set
forth on Schedule B hereto; 
	The bonuses shall be payable if, and only if, the Sale results in a "Change
of Control" of the Corporation as defined on Schedule C hereto (a "Change
of Control"); 
	If a Change of Control occurs, each Key Employee's bonus shall be payable in
cash five (5) business days after the Change of Control occurs, provided the Key
Employee is still employed by the Corporation as of the time of the Change of
Control; and 
	The Corporation will make Gross Up Payments (as defined on Schedule D
hereto) to a Key Employee substantially on the terms described in
Schedule D in the event it is determined (substantially pursuant to the
provisions set forth in Schedule D) that payments to such Key Employee
under the Retention Plan are subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or any
successor provision or any comparable provision of state or local income tax
law.

ADOPTION AND APPROVAL OF ALLOCATIONS OF BONUSES AMONG EMPLOYEES OF THE
CORPORATION

RESOLVED FURTHER, that the specific allocation of
percentages of the Incentive Compensation Pool among the Key Employees as set
forth on Schedule B hereto is hereby approved and adopted in all
respects.

AUTHORIZATION TO ENTER INTO RETENTION AGREEMENTS OR AMEND EMPLOYMENT
AGREEMENTS 

RESOLVED FURTHER, that the Chief Executive Officer
and the Chief Financial Officer of the Corporation be, and each of them acting
alone hereby is, authorized, directed and empowered on behalf of the Corporation
and in its name to enter into retention agreements with the Key Employees or
amend existing employment agreements with the Key Employees to reflect these
resolutions, as deemed necessary or desirable by such officer, such approval to
be conclusively evidenced by the execution and delivery of any such document by
such officer of the Corporation.

GENERAL

RESOLVED FURTHER, that the officers of the
Corporation be, and each of them acting alone hereby is, authorized, directed
and empowered on behalf of the Corporation and in its name to take or cause to
be taken all actions and to execute and deliver all such instruments which the
officers of the Corporation, or any one or more of them, approve as necessary or
desirable in connection with the foregoing resolutions, such approval to be
conclusively evidenced by the taking of any such action or the execution and
delivery of any such instrument by an officer of the Corporation.

RESOLVED FURTHER, that any specific resolutions that
may be required to have been adopted by the Compensation Committee in connection
with the actions contemplated by the foregoing resolutions be, and they hereby
are, adopted, and the Secretary or any Assistant Secretary of the Corporation
be, and each of them acting alone hereby is, authorized to certify as to the
adoption of any and all such resolutions and attach such resolutions hereto.

RESOLVED FURTHER, that all actions heretofore taken by
any officer, director or other employee of the Corporation in connection with or
otherwise in contemplation of the transactions contemplated by any of the
foregoing resolutions be, and they hereby are, ratified, confirmed and approved
in all respects.

 

IN WITNESS WHEREOF, the undersigned, being all of the
members of the Compensation Committee, have caused this consent to be executed
and adopted effective as of the 24th day of October, 2000.

 

_/s/ Denise M. O'Leary__________

Denise O'Leary

_/s/ William S. Price, III__________

William S. Price, III

_/s/ Jeffrey A. Shaw_____________

Jeffrey A. Shaw

 

SCHEDULE A

Sale Incentive Formula for Incentive Compensation Pool

 

XXX

 

OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT

FULL TEXT FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

SCHEDULE B

Allocation of Incentive Compensation Pool among Key
Employees

 

 

XXX

 

OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT

FULL TEXT FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

SCHEDULE C

Change of Control Definition

 

"Change of Control" shall mean the occurrence of one or more
of the following events:

(1) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Corporation to any individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint venture,
or a governmental agency or political subdivision thereof (a "Person") or group
of related Persons for purposes of Section 13(d) of the Securities Exchange Act
of 1934, as amended (a "Group"), together with any Affiliates (as defined below)
thereof other than to TPG Partners, L.P. ("TPG") or its Affiliates;

(2) the approval by the holders of any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, including each class of common stock and
preferred stock, of the Corporation ("Capital Stock") of any plan or proposal
for the liquidation or dissolution of the Corporation;

(3) (i) any Person or Group (other than TPG or its
Affiliates) shall become the owner, directly or indirectly, beneficially or of
record, of shares representing more than 40% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock (the "Voting
Stock") of the Corporation and (ii) TPG and its Affiliates shall beneficially
own, directly or indirectly, in the aggregate a lesser percentage of the Voting
Stock of the Corporation than such other Person or Group;

(4) the replacement of a majority of the Board over a two-
year period from the directors who constituted the Board at the beginning of
such period, and such replacement shall not have been approved by a vote of at
least a majority of the Board then still in office who either were members of
such Board at the beginning of such period or whose election as a member of such
Board was previously approved or who were nominated by, or designees of TPG or
its Affiliates (any such individual who was a director at the beginning of such
period or is so approved, nominated or designated being referred to herein as an
"Incumbent Director"); provided, however, that no individual shall be considered
an Incumbent Director if the individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or

(5) a merger or consolidation involving the Corporation in
which the Corporation is not the surviving corporation, or a merger or
consolidation involving the Corporation in which the Corporation is the
surviving corporation but the holders of shares of common stock of the
Corporation receive securities of another corporation and/or other property,
including cash, or any other similar transaction.

"Affiliate" shall mean, with respect to any specified Person,
any other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person.

The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" or "controlled" have meanings
correlative of the foregoing.

SCHEDULE D

Gross Up Payments

a)In the event it is determined (pursuant to clause
(b) below) or finally determined (as defined in clause (c)(iii) below)
that any payment, distribution, transfer, benefit or other event with respect to
the Corporation or its predecessors, successors, direct or indirect subsidiaries
or affiliates (or any predecessor, successor or affiliate of any of them, and
including any benefit plan of any of them), to or for the benefit of the Key
Employee or the Key Employee's dependents, heirs or beneficiaries (whether such
payment, distribution, transfer, benefit or other event occurs pursuant to the
terms of the Retention Plan or otherwise, but determined without regard to any
additional payments required under this Schedule D) (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
and any successor provision or any comparable provision of state or local income
tax law (collectively, "Section 4999"), or any interest, penalty or
addition to tax is or was incurred by the Key Employee with respect to such
excise tax (such excise tax, together with any such interest, penalty or
addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within ten (10) days after such determination or final determination, as
the case may be, the Corporation shall pay to the Key Employee an additional
cash payment (hereinafter referred to as the "Gross-Up Payment") in an amount
such that after payment by the Key Employee of all taxes, interest, penalties
and additions to tax imposed with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), the Key Employee retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon such Payment or Payments and the Gross-Up Payment.
This provision is intended to put the Key Employee in the same position as the
Key Employee would have been had no Excise Tax been imposed upon or incurred as
a result of any Payment.

(b)Except as provided in clause (c) below, the
determination that a Payment is subject to an Excise Tax shall be made in
writing by a certified public accounting firm selected by the Key Employee
("Key Employee's Accountant"). Such determination shall include the amount of
the Gross-Up Payment and detailed computations thereof, including any
assumptions used in such computations (the written determination of the Key
Employee's Accountant, hereinafter, the "Key Employee's Determination"). The Key
Employee's Determination shall be reviewed on behalf of the Corporation by a
certified public accounting firm selected by the Corporation (the "Corporation's
Accountant"). The Corporation shall notify the Key Employee within ten (10)
business days after receipt of the Key Employee's Determination of any
disagreement or dispute therewith, and failure to so notify within that period
shall be considered an agreement by the Corporation with the Key Employee's
Determination, and any agreement by the Corporation with the Key Employee's
Determination shall obligate the Corporation to make payment as provided in
clause (a) above within ten (10) days from the expiration of such ten (10)
business-day period. In the event of an objection by the Corporation to the Key
Employee's Determination, any amount not in dispute shall be paid within ten
(10) days following the ten (10) business-day period referred to herein, and
with respect to the amount in dispute the Key Employee's Accountant and the
Corporation's Accountant shall jointly select a third nationally recognized
certified public accounting firm to resolve the dispute and the decision of such
third firm shall be final, binding and conclusive upon the Key Employee and the
Corporation. In such a case, the third accounting firm's findings shall be
deemed the binding determination with respect to the amount in dispute,
obligating the Corporation to make any payment as a result thereof within ten
(10) days following the receipt of such third accounting firm's determination.
All fees and expenses of each of the accounting firms referred to in this
Schedule D shall be borne solely by the Corporation.

(c)The rights of a Key Employee under this Schedule
D shall be contingent on the agreement by the Key Employee to the provisions
set forth in this clause (c):

(i)The Key Employee shall notify the Corporation in
writing of any claim by the Internal Revenue Service (or any successor thereof)
or any state or local taxing authority (individually or collectively, the
"Taxing Authority") that, if successful, would require the payment by the
Corporation of a Gross-Up Payment. Such notification shall be given as soon as
practicable and shall apprise the Corporation of the nature of such claim and
the date on which such claim is requested to be paid. The Key Employee shall not
pay such claim prior to the expiration of the fifteen (15)-day period following
the date on which the Key Employee gives such notice to the Corporation (or such
shorter period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Corporation
notifies the Key Employee in writing prior to the expiration of such fifteen
(15)-day period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of the Key Employee its ability to make the payments to
the Key Employee that may ultimately be required under this section before
assuming responsibility for the claim), the Key Employee shall:
(A)give the Corporation any information reasonably
requested by the Corporation relating to such claim;

(B)take such action in connection with contesting such
claim as the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney selected by the Corporation that is reasonably
acceptable to the Key Employee;

(C)cooperate with the Corporation in good faith in order
effectively to contest such claim; and

(D)permit the Corporation to participate in any
proceedings relating to such claim; provided, however, that the Corporation
shall bear and pay directly all attorneys fees, costs and expenses (including
additional interest, penalties and additions to tax) incurred in connection with
such contest and shall indemnify and hold harmless the Key Employee, on an
after-tax basis, for all taxes (including, without limitation, income and excise
taxes), interest, penalties and additions to tax imposed in relation to such
claim and in relation to the payment of such costs and expenses or
indemnification. Without limitation on the foregoing provisions of this
Schedule D, and to the extent its actions do not unreasonably interfere
with or prejudice the Key Employee's disputes with the Taxing Authority as to
other issues, the Corporation shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the Taxing
Authority in respect of such claim and may, at its sole option, either direct
the Key Employee to pay the tax, interest or penalties claimed and sue for a
refund or contest the claim in any permissible manner, and the Key Employee
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs the Key Employee to pay such claim and sue for a refund, the
Corporation shall advance an amount equal to such payment to the Key Employee,
on an interest-free basis, and shall indemnify and hold harmless the Key
Employee, on an after-tax basis, from all taxes (including, without limitation,
income and excise taxes), interest, penalties and additions to tax imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and, provided, further, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties or additions to
tax for the taxable year of the Key Employee with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount; and, provided, further, that any settlement of any claim shall be
reasonably acceptable to the Key Employee and the Corporation's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Key Employee shall be entitled to settle or
contest, as the case may be, any other issue.

(ii)If, after receipt by the Key Employee of an amount
advanced by the Corporation pursuant to clause (c)(i), the Key Employee receives
any refund with respect to such claim, the Key Employee shall (subject to the
Corporation's complying with the requirements of Schedule D) promptly pay
to the Corporation an amount equal to such refund (together with any interest
paid or credited thereon after taxes applicable thereto), net of any taxes
(including without limitation any income or excise taxes), interest, penalties
or additions to tax and any other costs incurred by the Key Employee in
connection with such advance, after giving effect to such repayment. If, after
the receipt by the Key Employee of an amount advanced by the Corporation
pursuant to clause (c)(i), it is finally determined that the Key Employee is not
entitled to any refund with respect to such claim, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall be treated as a Gross-Up Payment and shall offset, to the extent thereof,
the amount of any Gross-Up Payment otherwise required to be paid.

(iii)For purposes of this Schedule D, whether the
Excise Tax is applicable to a Payment shall be deemed to be "finally determined"
upon the earliest of: (A) the expiration of the 15-day period referred to
in clause (c)(i) above if the Corporation has not notified the Key Employee
that it intends to contest the underlying claim, (B) the expiration of any
period following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is executed by
the Key Employee and the Taxing Authority (which agreement may be executed only
in compliance with this Schedule D), (D) the receipt by the Key
Employee of notice from the Corporation that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Corporation does not,
within 15 days following receipt of a written inquiry from the Key Employee,
affirmatively indicate in writing to the Key Employee that the Corporation
intends to continue to pursue such contest).

(d)As a result of uncertainty in the application of
Section 4999 that may exist at the time of any determination that a Gross-
Up Payment is due, it may be possible that in making the calculations required
to be made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with respect
to a Gross-Up Payment) that properly should be made ("Underpayment"), or that a
Gross-Up Payment not properly needed to be made should be made ("Overpayment").
The determination of any Underpayment shall be made using the procedures set
forth in clause (b) above and shall be paid to the Key Employee as an
additional Gross-Up Payment. The Corporation shall be entitled to use procedures
similar to those available to the Key Employee in clause (b) to determine
the amount of any Overpayment (provided that the Corporation shall bear all
costs of the accountants as provided in clause (b)). In the event of a
determination that an Overpayment was made, any such Overpayment shall be
treated for all purposes as a loan to the Key Employee with interest at the
applicable Federal rate provided for in Section 1274(d) of the Code;
provided, however, that the amount to be repaid by the Key Employee to the
Corporation shall be subject to reduction to the extent necessary to put the Key
Employee in the same after-tax position as if such Overpayment were never
made.EXHIBIT 10.32

PERSONAL & CONFIDENTIAL

October 20, 2000

Mr. Michael D. Capellas
[Street Address]
[City], [State]  [Zip]

Dear Michael:

On behalf of all of your fellow members of the Board of Directors, I want to
congratulate you on being selected to serve as Chairman of the Board and to
thank you for your outstanding contributions over the past months as Chief
Executive Officer. We believe that your vision and continuing leadership will
take Compaq to new heights as we tackle the numerous challenges that face our
industry. The terms and conditions set forth in this employment agreement (the
"Agreement"), which supersedes the agreement you entered into with Compaq on
July 22, 1999 (the "1999 Agreement"), are intended to provide you with the
financial security to focus on continued success as a leader of Compaq and to
compensate you for the additional responsibilities you have assumed as Chairman.

TERM OF AGREEMENT: This Agreement shall be effective for an initial three-year
term, beginning October 1, 2000 and ending on September 30, 2003, and will be
automatically renewed thereafter on an annual basis for successive one-year
terms unless the Board of Directors of Compaq Computer Corporation or any
successor entity (the "Board of Directors" or the "Board") provides you with
written notice that the Agreement will not be renewed ("Notice of Non-Renewal")
no later than 120 days prior to the expiration of the then-current term.

DUTIES AND RESPONSIBILITIES: During the term of this Agreement, you will serve
as Chairman of the Board and Chief Executive Officer of Compaq Computer
Corporation ("Compaq" or the "Company"), with all the duties and
responsibilities commensurate with those roles. All other employees of Compaq
will report to you or your designee. You agree to dedicate your full
professional skills, time, and energies to your responsibilities to Compaq and
understand and agree that this will not permit you to engage in other business
activities.

BASE SALARY: During the term of this Agreement, your base salary, stated on an
annual basis, shall not be less than $1,600,000; provided that if the Board
approves an increase in your base salary during the term of this Agreement, your
base salary shall not thereafter be reduced below that increased level during
the remaining term of this Agreement.
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 2 of 16

ANNUAL CASH INCENTIVE OPPORTUNITY: During the term of this Agreement, you will
continue to be eligible to participate in the annual bonus plan, or any
successor plan, available to executive officers on the same terms as other
executive officers of the Company. Under the current program, you will have the
opportunity to earn a target annual bonus of two times your base salary.

STOCK OPTIONS/OTHER LONG-TERM INCENTIVE OPPORTUNITIES: During the term of this
Agreement, you will have the opportunity to receive stock options and other
long-term incentives on the same basis as other executive officers of Compaq.
The value, on an annual basis, of your total target long-term incentive
opportunities (including stock options and other forms of long-term incentives)
will be seven to ten times your base salary, using a Black-Scholes method of
valuation.

SPECIAL BONUS: Upon execution of this Agreement, Compaq will pay to you a
special one-time lump sum bonus of $850,000, less applicable tax withholding.

SPECIAL 1999 STOCK OPTION GRANT: The special one-time Stock Option grant for one
million shares as provided for in the 1999 Agreement (the "Special 1999 Stock
Option Grant") shall continue to be governed by the original terms of any
applicable grant notice and the Compaq Computer Corporation 1998 Stock Option
Plan.

RESTRICTED STOCK:

2000 GRANT: On October 13, 2000, Compaq granted you an additional 970,000 shares
of restricted stock under the 1989 Equity Incentive Plan (the "2000 Restricted
Stock"). The 2000 Restricted Stock shall vest as follows:

170,000 shares will vest thirty days from the date of the grant; provided,
however, that you agree not to sell, exchange, offer as security, grant an
option on or otherwise dispose of or encumber those shares, except to defray
associated taxes, for a period of one year from the date they vest. Another
300,000 shares will vest in increments of 100,000 shares each on November 1,
2001, on November 1, 2002, and on November 1, 2003, provided that you remain
continuously employed by Compaq through the applicable vesting date.

500,000 shares will vest only upon attainment of certain performance objectives,
as described below:

During your employment by Compaq, 250,000 shares of the 2000 Restricted Stock
will vest in the quantities listed below the first time between October 1, 2000
and November 1, 2004 that the average closing price of Compaq's stock on
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 3 of 16

the New York Stock Exchange (or other nationally recognized stock exchange on
which it is listed at the time) for any period of 15 consecutive trading days
equals or exceeds each of the performance targets listed below:

            QUANTITY                PERFORMANCE TARGET
            --------                ------------------
            50,000                  $35 per share
            50,000                  $40 per share
            50,000                  $45 per share
            50,000                  $50 per share
            50,000                  $55 per share

If, however, these targets have not been met by November 1, 2004, you will no
longer be eligible to vest in any portion of these 250,000 shares which has not
previously vested.

250,000 shares of the 2000 Restricted Stock shall vest based on growth of
Compaq's earnings per share excluding investment gains and losses ("EPS") when
compared to average EPS growth for International Business Machines, Dell
Computer Corporation, and Hewlett-Packard or any successor entities (the "Index
Companies"). Specifically, these 250,000 shares shall vest over three
performance periods of four quarters each (4th calendar quarter 2000 through 3rd
calendar quarter 2001, 4th calendar quarter 2001 through 3rd calendar quarter
2002, and 4th calendar quarter 2002 through 3rd quarter 2003), using the fiscal
quarters for each company that most closely correspond to the time period
covered by the relevant performance period. You will have the opportunity to
vest in up to 83,333 shares based on relative EPS growth during each performance
period as follows:

   -  If Compaq's EPS growth over the performance period is equal to the average
      EPS growth of the Index Companies for the performance period, you will
      vest in 50,000 shares.

   -  If Compaq's EPS growth over the performance period is equal to or greater
      than 1.1 times the average EPS growth of the Index Companies for that
      performance period, you will vest in 83,333 shares of the 2000 Restricted
      Stock for that performance period.

   -  Compaq will use linear interpolation to determine the number of shares in
      which you will vest should Compaq's EPS growth over a performance period
      fall between 1 and 1.1 times the average EPS growth of the Index Companies
      for that performance period.

   -  If Compaq's EPS growth for any performance period does not equal or exceed
      the average EPS growth of the Index Companies for that performance period,
      you will not vest in any shares for that performance period.
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 4 of 16

However, should any of the 83,333 shares available for vesting in the first
performance period remain unvested after the conclusion of that performance
period, you will have the opportunity to vest in any such remaining shares based
on cumulative EPS growth over the first and second performance periods as
follows:

   -  If Compaq's cumulative EPS growth is equal to the cumulative average EPS
      growth for the Index Companies, you will vest in 60% of any such remaining
      shares.

   -  If Compaq's cumulative EPS growth is equal to or greater than 1.1 times
      the cumulative average EPS growth for the Index Companies, you will vest
      in 100% of any such remaining shares.

   -  If Compaq's cumulative EPS growth is between 1 and 1.1 times the
      cumulative average EPS growth of the Index Companies, linear interpolation
      will be used to determine the number of remaining shares in which you will
      vest.

The same approach will be used should any of the 83,333 shares from the first
performance period remain unvested at the conclusion of the second performance
period, based on cumulative EPS growth over all three performance periods.
Again, you will vest in 60-100% of those shares, depending on relative
cumulative EPS growth, in accordance with the schedule described above.

Similarly, should any of the 83,333 shares from the second performance period
remain unvested at the conclusion of the second performance period, you will
vest in 60-100% of those remaining shares based on cumulative EPS for the second
and third performance periods, using the schedule described above to determine
the precise number of those remaining shares in which you will then vest.

Any shares which remain unvested at the conclusion of the third performance
period will be forfeited.

1999 GRANT: The 200,000 shares of restricted stock granted pursuant to Article
5.4 of the 1999 Agreement (the "1999 Restricted Stock") shall continue to be
governed by the terms and conditions of the 1989 Equity Incentive Plan. Vesting
of the 1999 Restricted Stock shall be in accordance with its original terms,
which, restated, are as follows:

As a special performance incentive, the 1999 Restricted Stock shall vest in the
quantities listed below the first time after July 22, 1999 and during your
employment with Compaq that the closing price of Compaq's stock on the New
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 5 of 16

York Stock Exchange (or other nationally recognized stock exchange on which it
is listed at the time) equals or exceeds each performance target listed below
for thirty consecutive trading days:

      QUANTITY                      PERFORMANCE TARGET
      --------                      ------------------
       50,000 shares                $35.00 per share
       50,000 shares                $40.00 per share
      100,000 shares                $50.00 per share

Except to the extent that the 1999 Restricted Stock vests in accordance with the
above schedule or you separate from employment prior to July 22, 2004 (in which
event, your rights as to the 1999 Restricted Stock, if any, will be governed by
the termination provisions set forth below), the 1999 Restricted Stock shall
become fully vested on July 22, 2004.

Compaq shall adjust the quantities and performance targets for the 1999
Restricted Stock and the 2000 Restricted Stock, as set forth above, to reflect
any stock dividend, subdivision, or combination of shares or reclassification
that occurs in the manner contemplated by the 1989 Equity Incentive Plan or any
successor to such Plan. Dividends on all unvested shares shall inure to the
benefit of Compaq.

PRIOR LOAN TO PURCHASE SHARES: Under the 1999 Agreement, you received a loan to
purchase additional shares of Compaq stock (the "1999 Loan"). Provided that you
remain in the continuous employ of Compaq, Compaq will forgive 1/3 of the
then-outstanding balance of the 1999 Loan on November 1, 2001, 1/2 of the
then-outstanding balance of that loan on November 1, 2002, and the remaining
balance on November 1, 2003. Compaq is releasing its security interest in the
shares of Compaq stock currently securing the 1999 Loan.

TAX ASSISTANCE: Compaq will loan you $2,500,000 on a full recourse basis to
assist you in defraying taxes associated with certain aspects of this Agreement
(the "Tax Assistance Loan"). The Tax Assistance Loan will be secured by 125,000
shares of Compaq common stock currently owned by you. The proceeds of any sale
of those shares prior to repayment of the Tax Assistance Loan shall be used to
retire any outstanding balance on the Tax Assistance Loan. The Tax Assistance
Loan will bear interest at a fixed rate which will be the minimum rate required
under Section 7872 of the Internal Revenue Code of 1986, as amended, in order
that the loan is not considered a below market interest loan. Principal and
interest on the loan will be due and payable on the earlier of the fifth
anniversary of this Agreement or, if you separate from employment under
circumstances that do not constitute a Qualifying Termination,
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 6 of 16

as defined below, 120 days after the termination of your employment with Compaq.

BENEFITS AND PERQUISITES: You will continue to be eligible to participate in
such benefit plans, and for such perquisites, as Compaq offers other executive
officers of the Company, including but not limited to insurance for directors
and officers liability, subject to the terms of the governing plans and
programs.

SEPARATION FROM EMPLOYMENT: Your employment with Compaq is at-will. Under
certain circumstances, however, you will be entitled to severance benefits
should you separate from employment during the term of this Agreement. The
following provisions govern your compensation and benefits should you separate
from employment during the term of this Agreement:

QUALIFYING TERMINATION:

Should you incur a Qualifying Termination (as defined below) you will be
eligible for the following payments and benefits, provided that you remain in
compliance with your obligations under the terms of this Agreement, including,
but not limited to the provisions regarding non-competition, non-solicitation,
and non-disparagement, and the Release (as defined below). Should you fail to
comply with your obligations under this Agreement or the Release, Compaq may, in
addition to any other available remedies, cease making any payment or benefit
provided for herein.

SEPARATION PAYMENT: A separation payment equivalent, before applicable
deductions, to three times the sum of your base salary and your target annual
bonus, both as in effect at the time of your separation from employment (the
"Separation Payment"). The Separation Payment shall be paid as follows: 25% of
the Separation Payment shall be paid to you within ten business days of your
execution of the Release, with the remaining 75% to be paid in equal
installments, without interest, commencing on Compaq's second regularly
scheduled payroll following your execution of the Release and ending with
Compaq's regularly scheduled payroll twenty-four months later (the "Separation
Pay Period"). In the event of a change in payroll practice during the Separation
Pay Period, Compaq may adjust the amounts of such installments as necessary to
ensure that the total amount paid is equal to the Separation Payment, as defined
above.

PRORATED ANNUAL INCENTIVE: A prorated annual incentive calculated by multiplying
the target annual bonus for which you are otherwise eligible times a fraction,
the numerator of which is the number of full calendar months during which you
were employed in the applicable measurement period and the denominator of which
is
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 7 of 16

the total number of full calendar months in the applicable measurement period
(the "Prorated Annual Incentive"). The Prorated Annual Incentive shall be
subject to applicable deductions and will be paid at the same time such payments
are made to other participants in Compaq's annual incentive program.

STOCK OPTIONS: You will continue to vest in any unvested stock options as if you
had remained employed by Compaq for the duration of the Separation Pay Period.
You will have until the earlier of (a) the expiration of the term of the option
or (b) the twelve-month anniversary of the payment of the final Separation
Payment installment to exercise any options that are or become vested.

1999 RESTRICTED STOCK: Upon the expiration of a 180-day period following your
separation date, you will vest in a prorated number of the original shares of
the 1999 Restricted Stock grant based on the following formula: (N/60 x 200,000)
- Y, where N equals the number of whole calendar months from July 22, 1999 to
the end of the year in which you separate from employment (to a maximum of 60)
and Y equals the number of shares of the 1999 Restricted Stock that have vested
as a result of achievement of the performance targets set forth above in
connection with the 1999 Restricted Stock. The 200,000 in the formula shall be
adjusted to the same extent that the original number of shares of 1999
Restricted Stock is adjusted under the 1989 Equity Incentive Plan, or any
successor to such Plan, due to a stock dividend, subdivision, or combination of
shares or a reclassification.

2000 RESTRICTED STOCK: On the date the Release becomes effective and
irrevocable, you will vest in any outstanding shares of the 470,000 shares of
the 2000 Restricted Stock granted pursuant to this agreement that were scheduled
to vest over time. You will not be entitled to continue to vest in any portion
of the 2000 Restricted Stock which was scheduled to vest only upon achievement
of the performance factors set forth above. Notwithstanding the immediately
preceding sentence, (1) if you have a Qualifying Termination as a result of
receipt of a Notice of Non-Renewal during the initial three-year term, you will
be treated as having been employed through September 30, 2003 for purposes of
vesting in the performance-based 2000 Restricted Stock and (2) if you have a
Qualifying Termination as a result of receipt of a Notice of Non-Renewal after
the initial three-year term, you will be treated as having been employed through
November 1 immediately following the end of the then-current term for purposes
of vesting in the performance-based 2000 Restricted Stock.

1999 LOAN: Compaq will forgive in full any outstanding balance of the 1999 Loan
upon a Qualifying Termination.
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 8 of 16

TAX ASSISTANCE LOAN: Repayment of the Tax Assistance Loan provided for under
this Agreement will not be accelerated in the event of a Qualifying Termination.

SUPPLEMENTAL PAYMENT: A special one-time lump sum payment to you of $100,000
(the "Supplemental Payment"), payable on the ninety day anniversary of Compaq's
receipt of the executed Release. The Supplemental Payment shall be subject to
applicable deductions and shall be in lieu of any payment by Compaq to you for
tax preparation services, security system monitoring, accounting or legal fees
necessitated by the termination of your employment, secretarial services,
outplacement services, or any other similar purposes.

HEALTH BENEFIT CONTINUATION: Continuation of certain health benefits under COBRA
for you and your eligible dependents following your separation from employment.
Compaq will make any necessary payments or adjustments so that you will have the
opportunity to continue those COBRA-covered benefits at the employee premium
rate for six months following your separation. Thereafter, you will have the
opportunity, as determined by the provisions of COBRA, to continue such coverage
at the COBRA premium rate.

DEFINITION OF A QUALIFYING TERMINATION: For purposes of this Agreement, a
Qualifying Termination shall mean any of the following:

      (1)   Involuntary termination of your employment without Cause. For
            purposes of this Agreement, Cause shall mean a good faith
            determination by the Board of Directors, after consultation with
            outside legal counsel, that you have committed an act or omission
            that is materially contrary to the best interests of Compaq or that
            you have materially breached any of the terms and conditions of this
            Agreement. You will not, however, be deemed to have been
            involuntarily terminated for Cause unless and until you are
            presented with a resolution of the Board of Directors, approved by
            at least 3/4 of the entire membership of the Board after providing
            you with reasonable notice and opportunity to be heard, with
            counsel, before the Board, finding that you have engaged in conduct
            which would constitute Cause under this Agreement.

      (2)   Resignation within 90 days of the occurrence of a Good Reason,
            which, for purposes of this Agreement, shall mean: (a) involuntary
            removal from the position of Chief Executive Officer, (b)
            involuntary removal from, or failure to be elected, Chairman of the
            Board, (c) assignment, by the Board, of duties inconsistent with the
            position of Chief Executive Officer, (d) receipt of a Notice of
            Non-Renewal, or (e) the Board's approval of a material reduction in
            target compensation
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 9 of 16

            opportunities that is not part of an across-the-board reduction for
            all executive officers of the Company. Notwithstanding the
            foregoing, you will not be eligible for a Separation Payment unless
            you provide the Board of Directors with 60 days written notice of
            your intent to resign for Good Reason, containing details regarding
            the grounds for your resignation, and allow the Board of Directors
            to take action to remove or correct the Good Reason within 30 days.
            If the Board of Directors fails to take action to remove or correct
            the Good Reason within 30 days of receiving notice of same, your
            resignation for Good Reason shall become effective.

      (3)   Involuntary termination of your employment by the Company for any
            reason within 180 days of a Change in Control, as defined in Exhibit
            A.

You will not be deemed to have incurred a Qualifying Termination unless you
execute, within 30 days of your separation, a release of claims substantially
similar to the form attached as Exhibit B hereto (the "Release"). Under no
circumstances shall your resignation or termination from employment as a result
of Disability (as defined below) or death constitute a Qualifying Termination.

SEPARATION DUE TO DEATH OR DISABILITY: In the event of separation from
employment as a result of Disability or death and contingent upon your, or, in
the event of your death, your estate's, execution of a Release, you, or in the
event of your death, your estate, will receive (1) a one-time lump sum Special
Separation Payment equivalent, before applicable deductions, to 1.5 times the
sum of your base salary and your target annual bonus, both as determined as of
the date of your separation from employment, and (2) a Prorated Annual
Incentive, as defined above, payable at the same time annual incentives are paid
to other participants. Both the Special Separation Payment and the Prorated
Annual Incentive shall be subject to applicable deductions. Compaq will also
forgive any remaining balance on the 1999 Loan, and repayment of the Tax
Assistance Loan will not be accelerated. All other compensation and benefits
shall be determined by the terms of the governing plan or program. For purposes
of the Agreement, Disability shall mean your inability to perform the essential
functions of your position as Chief Executive Officer, or to perform your duties
as Chairman of the Board, as a result of illness or injury for a period of six
consecutive months.

INVOLUNTARY TERMINATION FOR CAUSE/RESIGNATION WITHOUT GOOD REASON: If you are
involuntarily terminated for Cause or resign your employment for any reason
other than a Good Reason, you will not be entitled to any severance payment
under this Agreement. Compaq will have no other obligations under this
Agreement, and all compensation and benefits will be determined by the terms of
the governing plan or program.
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 10 of 16

EXCISE TAX GROSS-UP: In the event of a Change in Control, Compaq, at its sole
expense, shall cause its independent auditors promptly to review all payments,
distributions and benefits that have been made to or provided to, and are to be
made to or provided to, you under this Agreement, and any other agreement and
plan benefiting you, to determine the applicability of Section 4999 of the
United States Internal Revenue Code of 1986, as amended (the "Code"). If
Compaq's independent auditors determine that any such payments, distributions or
benefits are subject to excise taxes as provided under Section 4999 of the Code
(the "Excise Tax"), then such payment, distributions, or benefits (the "Original
Payment(s)") shall be increased by an amount (the "Gross-up Amount") such that,
after the Company withholds all taxes due, including any excise and employment
taxes imposed on the Gross-up Amount, you will retain a net amount equal to the
Original Payment(s) less income and employment taxes, if any, imposed on the
Original Payment(s). To facilitate the calculation of the applicable excise tax,
you agree to provide Compaq's auditors with copies of your Forms W-2 for the tax
years they deem necessary for their use in determining the application of
Section 4999 and calculating any amounts payable under this provision. Compaq's
auditors will perform the calculations in conformance with the foregoing
provisions and provide you with a copy of their calculation. The intent of the
parties is that Compaq shall be solely responsible for, and shall pay, any
Excise Tax on the Original Payment(s) and Gross-up Amount and any income and
employment taxes (including, without limitation, penalties and interest) imposed
on any Gross-up Amount. If no determination by Compaq's auditors is made prior
to the time you are required to file a tax return reflecting any portion of the
Original Payment(s), you will be entitled to receive a Gross-up Amount
calculated on the basis of the Original Payment(s) you report in such tax
return, within 30 days of the filing of such tax return. You agree that, for the
purposes of the foregoing sentence, you are not required to file a tax return
until you have obtained the maximum number and length of filing extensions
available. If any tax authority finally determines that a greater Excise Tax
should be imposed upon the Original Payment(s) than is determined by Compaq's
independent auditors or reflected in your tax returns, you shall be entitled to
receive the full Gross-up Amount calculated on the basis of the additional
amount of Excise Tax determined to be payable by such tax authority (including
related penalties and interest) from Compaq within 30 days of such determination
as long as you have taken all reasonable actions to minimize any such amounts.
If any tax authority finally determines the Excise Tax to be less than the
amount taken into account hereunder in calculating the Gross-up Amount, you
shall repay to Compaq, within 30 days of your receipt of a refund resulting from
that determination, the portion of the Gross-up Amount attributable to such
reduction (plus the refunded portion of Gross-up Amount attributable to the
Excise Tax and federal, state and local income and employment taxes
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 11 of 16

imposed on the Gross-up Amount being repaid, less any additional income tax
resulting from such refund).

COVENANTS: In your role with Compaq (which, for purposes of these Covenants
includes Compaq Computer Corporation, its subsidiaries, affiliates, related
entities, and successors), you will have access to confidential and proprietary
information, and your access to such information is intrinsic to, and essential
to the success of, your employment by the Company. In consideration of your
access to such information, your continuing employment with the Company, and the
payments and benefits provided for under this Agreement, you agree to the
following Covenants, which you agree are reasonable and necessary for the
protection of Compaq's legitimate business interests, including, but not limited
to, good will and information which is confidential and proprietary to Compaq.

CONFIDENTIAL INFORMATION/INTELLECTUAL PROPERTY: You agree that you will not, at
any time during or after your employment by Compaq, make any unauthorized use or
disclosure of Confidential Information (as defined below) or Intellectual
Property (as defined below), including confidential information or intellectual
property of third parties to which you had access as a result of your
employment. Nothing in this Agreement shall prohibit you from complying with a
court order to produce information, but you agree to provide Compaq notice,
immediately upon becoming aware of such requirement, of any subpoena, order, or
other mandate to produce information which may be Confidential Information and
to cooperate fully with Compaq in obtaining such protection as Compaq deems
appropriate.

During your employment by Compaq, you agree to promptly disclose in writing to
Compaq any Intellectual Property, whether originated, conceived, created, made,
developed or invented in whole or in part by you, and maintain adequate and
current records thereof. You assign, transfer, and convey to Compaq, or its
designees or successors, your entire right, title and interest in any
Intellectual Property that you originate, conceive, create, make, develop or
invent, whether as sole inventor, creator, developer or originator or as a joint
inventor, creator, developer or originator with others, whether made within or
without the usual working hours or upon the premises of Compaq or elsewhere,
during your employment.

If, subsequent to separation from Compaq, you perform an act at Compaq's request
or direction, or provide assistance to Compaq, as described in this paragraph,
then Compaq shall compensate you for your time at a rate of one thousand dollars
per day. Either during or subsequent to your employment, upon the request and at
the expense of Compaq, but for no consideration in addition to that due to you
pursuant to your employment with Compaq and this Agreement, you shall execute,
acknowledge, and deliver to Compaq or its designee any
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 12 of 16

instruments that in the judgment of Compaq may be necessary or desirable to
secure or maintain for the benefit of Compaq or its designee adequate patent,
copyright, and other property rights with respect to Intellectual Property
within the scope of this Agreement, including, but not limited to: (a) domestic
and foreign patent and copyright applications, (b) any other applications for
securing, protecting, or registering property rights, and (c) powers of
attorney, assignments, oaths, affirmations, supplemental oaths and sworn
statements. You shall also assist Compaq or its designee, as required, to draft
such instruments, to obtain such rights, and to enforce such rights, provided
that such assistance will not unreasonably interfere with your other endeavors.

For purposes of this Agreement, "Confidential Information" means any
confidential or private information, not generally known to the public, related
to the business or operations (past, present or future) of Compaq. You agree
that Confidential Information encompasses a broad scope of information that
includes, without limitation: business plans and strategies; information
regarding the identities, skills, qualities, competencies, characteristics,
expertise, or experience of the directors, officers, or employees of Compaq;
information regarding the compensation practices of, or payments made to or by,
Compaq; the contents of communications, oral or written, with, by or between
directors, officers, employees, or agents of Compaq; statements of fact or
opinion or mixed statements of fact and opinion if such statements are based on
information or events to which you had access as a result of your employment by
Compaq; and similar information related to third parties to whom Compaq owes a
duty of confidentiality or privacy.

Intellectual Property includes, without limitation, any and all information,
ideas, concepts, improvements, discoveries, designs, inventions, trade secrets,
know-how, manufacturing processes, product formulae, design specifications,
writings and other works of authorship, computer programs, and business methods,
whether patentable or not, which are originated by, conceived by, created by,
made by, developed by, invented by, learned by, or disclosed to you,
individually or in conjunction with others, during your employment by Compaq
(whether during business hours or otherwise and whether on Compaq's premises or
otherwise) which relate to Compaq's business, products, or services (including,
without limitation, all such information relating to corporate opportunities,
research, financial and sales data, pricing and trading terms, evaluations,
opinions, interpretations, acquisition prospects, the identity of customers or
their requirements, the identity of key contacts with in the customer's
organizations or within the organization of acquisition prospects, or marketing
and merchandising techniques, prospective names, and marks). The term
"Intellectual Property" also includes all rights provided by the law of any
jurisdiction throughout the world with respect to such information, ideas,
concepts, improvements,
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 13 of 16

discoveries, designs, inventions, trade secrets, know-how, manufacturing
processes, product formulae, design specifications, writings and other works of
authorship, computer programs, and business methods, including, without
limitation, the right to maintain the same as confidential information, the
right to first publication, the right to obtain patents and industrial rights
thereon, all rights of copyright, all trademark rights, and the right to protect
the same against acts of unfair competition.

NON-COMPETITION AND NO SOLICITATION: During your employment with Compaq and,
should your employment terminate for any reason (whether voluntary or
involuntary), for the greater of (a) a period of 24 months following your
separation or (b) any Separation Pay Period, you agree that you will not,
directly or indirectly, on your own behalf or on the behalf of others, in any
geographic area or market where Compaq is conducting, or has, during the
previous twelve months conducted, any business:

      (1)   Engage in any business competitive with the business conducted by
            Compaq at the time of your separation or set forth in any
            then-existing business plan that you have approved and with respect
            to which significant steps toward implementation have been taken at
            the time of your separation;

      (2)   Render advice or services to, or otherwise assist, any other person,
            association, or entity who is engaged, directly or indirectly, in
            any business competitive with the business conducted by Compaq at
            the time of your separation or set forth in any then-existing
            business plan that you have approved and with respect to which
            significant steps toward implementation have been taken at the time
            of your separation; or

      (3)   Solicit, influence, or induce, or attempt to solicit, influence, or
            induce, any employee of Compaq to terminate his or her employment
            with Compaq, or recruit, hire or assist in the recruitment or hiring
            of any such employee by any person, association, or entity not
            affiliated with Compaq.

You understand that these restrictions may limit your ability to engage in
certain businesses anywhere in the world during the period provided for above,
but you also acknowledge and agree that you will receive sufficiently high
remuneration and other benefits under this Agreement to justify such
restriction.

NON-DISPARAGEMENT: During your employment with Compaq and, should your
employment terminate for any reason (whether voluntary or involuntary), for the
greater of (a) a period of 24 months following your separation or (b) any
Separation Pay Period, you agree that you will not make any comment or take any
action which disparages, defames, or places in a negative light Compaq or
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 14 of 16

its past and present officers, directors, and employees. Compaq agrees that
during this same period, its officers and directors shall refrain from making
any comment or taking any action to disparage, defame, or place you in a
negative public light.

REMEDIES: You acknowledge that money damages would not be sufficient remedy for
any breach of the foregoing Covenants and that Compaq shall be entitled to
specific performance and injunctive relief to enforce these Covenants or to
remedy a breach or threatened breach of these Covenants. Such remedies shall not
be deemed the exclusive remedies for a breach of these Covenants, but shall be
in addition to all remedies available at law or in equity to Compaq, including,
without limitation, the recovery of damages from you and any agent acting on
your behalf in connection with such breach.

ARBITRATION: Except for claims by Compaq arising out of your alleged breach of
obligations under the Covenants section of this Agreement, all disputes arising
out of or relating to this Agreement or to your employment or the termination
thereof, will be resolved by final and binding arbitration in Houston, Texas,
under the Federal Arbitration Act in accordance with the Employment Dispute
Resolution Rules then in effect with the American Arbitration Association. This
paragraph shall apply both during and after termination of the employment
relationship. Either party shall have the right to enforce this agreement to
arbitrate in either federal or state court.

All proceedings and documents prepared in connection with any arbitration under
this Agreement shall be Confidential Information and, unless otherwise required
by law, the contents or subject matter thereof shall not be disclosed to any
person other than the parties to the proceedings, their counsel, witnesses and
experts, the arbitrator, and, if court enforcement of an arbitration award is
sought, the court and court staff hearing such matter.

Should a dispute under this Agreement be submitted to arbitration and you
prevail in that arbitration, you will be entitled to recover your reasonable
expenses you incurred in connection with that arbitration, including but not
limited to attorneys' fees and arbitrators' fees, from Compaq. Should Compaq
prevail, each party shall pay its own costs.

CONTROLLING LAW: Except where otherwise provided for herein, this Agreement
shall be governed in all respects by the laws of the State of Texas, excluding
any conflict-of-law rule or principle that might refer the construction of the
Agreement to the laws of another State or country.

NOTICES: Any notices under this agreement that are required to be given to the
Company shall be addressed to Corporate Secretary, Compaq Computer
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 15 of 16

Corporation, 20555 SH 249, Houston, Texas 77070-2698, and any notices required
to be given to you shall be sent to your address as shown in the Company's
records.

SEPARABILITY AND CONSTRUCTION: If any provision of this Agreement is determined
to be invalid, unenforceable, or unlawful by an arbitrator or a court of
competent jurisdiction, the other provisions of this Agreement shall remain in
full force and effect, and the provisions that are determined to be invalid,
unenforceable, or unlawful will either be limited so that they will remain in
effect to the extent permissible by law or such arbitrator or court will
substitute, to the extent enforceable, provisions similar thereto or other
provision so as to provide, to the fullest extent allowed by law, the benefits
intended by this Agreement.

WAIVER OF BREACH: No failure by any party to give notice of any breach of, or to
require compliance with, any condition or provision of this Agreement shall be
deemed a waiver or relinquishment or that party's rights, and no waiver or
relinquishment of rights by any party at any one or more times will be deemed to
be a waiver or relinquishment of such right or power at any other time or times.

ENTIRE AGREEMENT: Except as provided in written Compaq policies dealing with
issues such as securities trading, business ethics, governmental affairs and
political contributions, delegation of authority, compliance with law, conflicts
of interest, and the like, this Agreement, together with the plan documents,
option grant notice, restricted stock award and loan instruments described
herein, as amended from time to time, shall constitute the entire understanding
relating to the services to be performed for Compaq, and, except as to any
agreements as to indemnification, including the August 3, 1998 Indemnity
Agreement, any previous employment or other agreements, whether written or oral,
between you and Compaq shall be deemed to be revoked and canceled for all
purposes as of the date of this Agreement.

MODIFICATION IN WRITING: No addition to, or modification of, this Agreement
shall be effective, unless it is in writing and signed by both you and an
authorized representative of Compaq.

ASSUMPTION OF OBLIGATIONS: Compaq agrees that it shall not enter into any
merger, reorganization, sale of substantially all its assets or other similar
agreement or transaction without specifically providing that any successor
entity shall assume the Compaq's obligations under this Agreement. You agree
that Compaq may assign its rights under this Agreement to a successor entity
provided that such assignment shall not offset, reduce, or diminish any rights
that shall accrue to you as a result of any Change in Control that may thereby
occur. Except as set forth in this paragraph, neither Compaq nor you shall
assign their rights under this Agreement without the written consent of the
other party.
<PAGE>
Mr. Michael D. Capellas
October 20, 2000
Page 16 of 16

Michael, I hope that this Agreement, as is intended, provides you with the level
of security and incentive that will allow you to continue to lead Compaq to the
best of your abilities. Please sign below and return an executed original to
indicate your acceptance of these terms. Again, congratulations on being named
Chairman.

Effective October 1, 2000, amended and restated December 13, 2000.

Sincerely,

/s/ Lawrence T. Babbio, Jr.

Lawrence T. Babbio, Jr.
Chairman - Human Resources Committee of
the Board of Directors

c:    Judith Craven
      Kenneth Lay
      Yvonne Jackson

/s/ Michael D. Capellas
--------------------------
Michael D. Capellas

    December 13, 2000
--------------------------
Date
<PAGE>
      Exhibit A to Employment Agreement Between Michael Capellas and Compaq
                              Computer Corporation

                         DEFINITION OF CHANGE IN CONTROL

A "Change in Control" shall be deemed to have occurred if: (i) any "person" as
such term is used in Sections 13(d) and 14(d) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") other than Compaq Computer Corporation
("the Company"), any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years (not including any period prior to October
20, 2000), individuals who at the beginning of such period constitute the Board
of Directors of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this definition)
whose election by the Board of Directors or nomination for election by the
Company'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 of
Directors; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 30% of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in Control
of the Company; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
<PAGE>
                        Exhibit B to Employment Agreement
                       Between Michael Capellas and Compaq

                                RELEASE OF CLAIMS

I acknowledge that I have had twenty-one days to decide whether to execute this
Release of Claims (" Release") and that I have been advised in writing to
consult an attorney before executing this Release. I acknowledge that I have
seven days from the date I execute this Release to revoke my signature. I
understand that if I choose to revoke this Release I must deliver my written
revocation to Compaq before the end of the seven-day period.

      Excepts as to rights provided me in the Employment Agreement, I, FOR
MYSELF, MY HEIRS, SUCCESSORS, AND ASSIGNS DO HEREBY SETTLE, WAIVE, AND RELEASE
COMPAQ COMPUTER CORPORATION ("COMPAQ") AND ANY OF ITS PAST AND PRESENT OFFICERS,
OWNERS, STOCKHOLDERS, PARTNERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS,
PREDECESSORS, ASSIGNS, REPRESENTATIVES, ATTORNEYS, DIVISIONS, SUBSIDIARIES, OR
AFFILIATES FROM ANY AND ALL CLAIMS, CHARGES, COMPLAINTS, RIGHTS, DEMANDS,
ACTIONS, AND CAUSES OF ACTION OF ANY KIND OR CHARACTER, IN CONTRACT, TORT, OR
OTHERWISE, BASED ON ACTIONS OR OMISSIONS OCCURRING IN THE PAST AND/OR PRESENT,
AND REGARDLESS OF WHETHER KNOWN OR UNKNOWN TO ME AT THIS TIME, INCLUDING THOSE
NOT SPECIFICALLY MENTIONED IN THIS RELEASE. AMONG THE RIGHTS, CLAIMS, AND CAUSES
OF ACTION WHICH I GIVE UP UNDER THIS RELEASE ARE THOSE ARISING IN CONNECTION
WITH MY EMPLOYMENT AND THE TERMINATION OF MY EMPLOYMENT, INCLUDING RIGHTS OR
CLAIMS UNDER FEDERAL, STATE AND LOCAL FAIR EMPLOYMENT PRACTICE OR DISCRIMINATION
LAWS (INCLUDING THE VARIOUS CIVIL RIGHTS ACTS, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT, THE EQUAL PAY ACT, AND THE TEXAS COMMISSION ON HUMAN RIGHTS
ACT), LAWS PERTAINING TO BREACH OF EMPLOYMENT CONTRACT, WRONGFUL TERMINATION OR
OTHER WRONGFUL TREATMENT, AND ANY OTHER LAWS OR RIGHTS RELATING TO MY EMPLOYMENT
WITH COMPAQ AND THE TERMINATION OF THAT EMPLOYMENT. I ACKNOWLEDGE THAT I AM
AWARE OF MY RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AND THAT I AM
KNOWINGLY AND VOLUNTARILY WAIVING AND RELEASING ANY CLAIM OF AGE DISCRIMINATION
WHICH I MAY HAVE UNDER THAT STATUTE AS PART OF THIS RELEASE. THIS AGREEMENT DOES
NOT WAIVE OR RELEASE ANY RIGHTS, CLAIMS, OR CAUSES OF ACTION THAT MAY ARISE FROM
ACTS OR OMISSIONS OCCURRING AFTER THE DATE I EXECUTE THIS RELEASE. I AGREE NOT
TO BRING OR JOIN ANY LAWSUIT OR FILE ANY CLAIM AGAINST COMPAQ IN ANY COURT
RELATING TO MY EMPLOYMENT OR THE TERMINATION OF MY EMPLOYMENT.

_________________________           Date: ________________________
Michael D. Capellas

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