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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý | |||
Filed by a Party other than the Registranto | |||
Check the appropriate box: | |||
o | Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
ý | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to §240.14a-12 | ||
HEWLETT-PACKARD COMPANY | |||
(Name of Registrant as Specified In Its Charter) | |||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: | |||
Chairman of the Board Léo Apotheker President and Chief Executive Officer | Hewlett-Packard Company 3000 Hanover Street Palo Alto, CA 94304 www.hp.com |
To our Stockholders:
I amWe are pleased to invite you to attend the annual meeting of stockholders of Hewlett-Packard Company to be held on March 17, 201023, 2011 at 22:00 p.m., local time, at the Computer History Museum, 1401 N. Shoreline Boulevard, Mountain View, California.Sheraton National Hotel, 900 South Orme Street, Arlington, Virginia.
Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
This year, we are pleased to be again using the U.S. Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our stockholders a notice instead of a paper copy of this proxy statement and our 20092010 Annual Report. The notice contains instructions on how to access those documents over the Internet. The notice also contains instructions on how each of those stockholders can receive a paper copy of our proxy materials, including this proxy statement, our 20092010 Annual Report and a form of proxy card or voting instruction card. All stockholders who do not receive a notice, including stockholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. Continuing to employ this distribution process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.
Your vote is important. Whether or notRegardless of whether you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote by proxy over the Internet or by telephone, or, if you received paper copies of the proxy materials by mail, you can also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the annual meeting regardless of whether you attend in person.
Thank you for your ongoing support of, and continued interest in, Hewlett-Packard Company.
Sincerely,
Mark V. HurdChairman, Chief Executive Officerand President
Raymond J. Lane Chairman of the Board | Léo Apotheker President and Chief Executive Officer |
20102011 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS | 1 | ||||
QUESTIONS AND ANSWERS | 2 | ||||
Proxy Materials | 2 | ||||
Voting Information | 4 | ||||
Annual Meeting Information | |||||
Stockholder Proposals, Director Nominations and Related Bylaw Provisions | 10 | ||||
Further Questions | 11 | ||||
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS | 12 | ||||
Board Leadership Structure | 12 | ||||
Board Structure and Committee Composition | 12 | ||||
| 16 | ||||
| 17 | ||||
Executive Sessions | |||||
Director Nominees | |||||
Board Policy Regarding Voting for Directors | |||||
Communications with the Board | |||||
DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES | |||||
PROPOSALS TO BE VOTED ON | |||||
PROPOSAL NO. 1 Election of Directors | |||||
PROPOSAL NO. 2 Ratification of Independent Registered Public Accounting Firm | |||||
PROPOSAL NO. 3 | |||||
PROPOSAL NO. 4 | |||||
PROPOSAL NO. 5 Approval of the Hewlett-Packard Company 2011 Employee Stock Purchase Plan | 35 | ||||
PROPOSAL NO. 6 Approval of an Amendment to the Hewlett-Packard Company 2005 Pay-for-Results Plan to Extend the Term of the Plan | 38 | ||||
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |||||
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | |||||
TRANSACTIONS WITH RELATED PERSONS | |||||
EXECUTIVE COMPENSATION | |||||
Compensation Discussion and Analysis | |||||
HR and Compensation Committee Report on Executive Compensation | |||||
Summary Compensation Table | |||||
Grants of Plan-Based Awards in Fiscal | |||||
Outstanding Equity Awards at | |||||
Option Exercises and Stock Vested in Fiscal | |||||
Fiscal | |||||
Fiscal | |||||
Potential Payments Upon Termination or Change in Control | |||||
EQUITY COMPENSATION PLAN INFORMATION | |||||
PRINCIPAL ACCOUNTANT FEES AND SERVICES | |||||
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS |
HEWLETT-PACKARD COMPANY
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date | 2:00 p.m., local time, on Wednesday, March | |||
Place | ||||
Items of Business | (1) | To elect directors | ||
(2) | To ratify the appointment of the independent registered public accounting firm for the fiscal year ending October 31, | |||
(3) | To | |||
(4) | To | |||
(5) | To approve the Hewlett-Packard Company 2011 Employee Stock Purchase Plan | |||
(6) | To approve an amendment to the Hewlett-Packard Company 2005 Pay-for-Results Plan to extend the term of the plan | |||
(7) | To consider such other business as may properly come before the meeting | |||
Adjournments and Postponements | Any action on the items of business described above may be considered at the annual meeting at the time and on the date specified above or at any time and date to which the annual meeting may be properly adjourned or postponed. | |||
Record Date | You are entitled to vote only if you were an HP stockholder as of the close of business on January | |||
Meeting Admission | You are entitled to attend the annual meeting only if you were an HP stockholder as of the close of business on January | |||
The annual meeting will begin promptly at 2:00 p.m., local time. Check-in will begin at 12:30 p.m., local time, and you should allow ample time for the check-in procedures. | ||||
Voting | Your vote is very important. Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote your shares via a toll-free telephone number or over the Internet. If you received a paper copy of a proxy or voting instruction card by mail, you may submit your proxy or voting instruction card for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card in the pre-addressed envelope provided. For specific instructions on how to vote your shares, please refer to the section entitledQuestions and Answers—Voting Informationbeginning on page 4 of this proxy statement. |
By order of the Board of Directors, | ||
MICHAEL J. HOLSTON Executive Vice President, General Counsel and Secretary |
This notice of annual meeting and proxy statement and form of proxy are being distributed and made available
on or about January 27, 2010.February 1, 2011.
1. Why am I receiving these materials?
The Hewlett-Packard Company Board of Directors (the "Board") has made these materials available to you over the Internet or delivered paper copies of these materials to you by mail in connection with HP's annual meeting of stockholders, which will take place on Wednesday, March 17, 2010.23, 2011. As a stockholder, you are invited to attend the annual meeting and are entitled to and requested to vote on the items of business described in this proxy statement. This proxy statement includes information that we are required to provide to you under the rules of the U.S. Securities and Exchange Commission and that is designed to assist you in voting your shares.
2. What is included in the proxy materials?
The proxy materials include:
If you received a paper copy of these materials by mail, the proxy materials also include a proxy card or a voting instruction card for the annual meeting.
3. What information is contained in this proxy statement?
The information in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, HP'sthe Board and Board committees, the compensation of HP's directors and certain executive officers for fiscal 20092010 and other required information.
4. Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials?
This year, we are pleased to be again using the U.S. Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our stockholders a notice about the Internet availability of the proxy materials instead of a paper copy of the proxy materials. All stockholders receiving the notice will have the ability to access the proxy materials over the Internet and request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the notice. In addition, the notice contains instructions on how you may request to access proxy materials in printed form by mail or electronically on an ongoing basis.
5. Why didn't I receive a notice in the mail about the Internet availability of the proxy materials?
We are providing some of our stockholders, including stockholders who have previously requested to receive paper copies of the proxy materials and some of our stockholders who are living outside of the United States, with paper copies of the proxy materials instead of a notice about the Internet availability of the proxy materials.
In addition, we are providing notice of the availability of the proxy materials by e-mail to those stockholders who have previously elected delivery of the proxy materials electronically. Those stockholders should have received an e-mail containing a link to the website where those materials are available and a link to the proxy voting website.
6. How can I access the proxy materials over the Internet?
Your notice about the Internet availability of the proxy materials, proxy card or voting instruction card will contain instructions on how to:
Our proxy materials are also available on our website at www.hp.com/investor/stockholdermeeting2010.stockholdermeeting2011.
Your notice of Internet availability of proxy materials, proxy card or voting instruction card will contain instructions on how you may request to access proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of printing and distributing our proxy materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials by e-mail will remain in effect until you terminate it.
7. How may I obtain a paper copy of the proxy materials?
Stockholders receiving a notice about the Internet availability of the proxy materials will find instructions about how to obtain a paper copy of the proxy materials on their notice. Stockholders receiving notice of the availability of the proxy materials by e-mail will find instructions about how to obtain a paper copy of the proxy materials as part of that e-mail. All stockholders who do not receive a notice or an e-mail will receive a paper copy of the proxy materials by mail.
8. I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?
If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided contrary instructions. If you wish to receive a separate set of proxy materials now, please request the additional copy by contacting Innisfree M&A Incorporated ("Innisfree") at:
(877) 750-5838 (U.S. and Canada)
(412) 232-3651 (International)
E-mail: info@innisfreema.com
A separate set of proxy materials will be sent promptly following receipt of your request.
If you are a stockholder of record and wish to receive a separate set of proxy materials in the future, please call Computershare Trust Company, N.A. ("Computershare") at:
(800) 286-5977 (U.S. and Canada)(312) 360-5138 (International)contact HP's transfer agent. See Question 27 below.
If you are the beneficial owner of shares held through a broker, trustee or other nominee and you wish to receive a separate set of proxy materials in the future, please call Broadridge Financial Solutions, Inc. at:
(800) 542-1061
All stockholders also may write to us at the address below to request a separate copy of these materials:
Hewlett-Packard Company
Attn: Investor Relations
3000 Hanover Street
Palo Alto, California 94304
9. What should I do if I receive more than one notice or e-mail about the Internet availability of the proxy materials or more than one paper copy of the proxy materials?
You may receive more than one notice, more than one e-mail or more than one paper copy of the proxy materials, including multiple paper copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you may receive more than one notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must complete, sign, date and return each proxy card and voting instruction card that you receive and vote over the Internet the shares represented by each notice and e-mail that you receive (unless you have requested and received a proxy card or voting instruction card for the shares represented by one or more of those notices or e-mails).
10. How may I obtain a copy of HP's 20092010 Form 10-K and other financial information?
Stockholders may request a free copy of our 20092010 Annual Report, which includes our 20092010 Form 10-K, from:
Hewlett-Packard Company
Attn: Investor Relations
3000 Hanover Street
Palo Alto, California 94304
(866) 438-4771 (U.S. and Canada) or (202) 315-4211 (International)869-5335
www.hp.com/investor/informationrequest
Alternatively, stockholders can access the 20092010 Annual Report, which includes our 20092010 Form 10-K and other financial information, on HP's Investor Relations website at:
www.hp.com/investor/home
HP also will furnish any exhibit to the 20092010 Form 10-K if specifically requested.
11. What items of business will be voted on at the annual meeting?
The items of business scheduled to be voted on at the annual meeting are:
We also will consider any other business that properly comes before the annual meeting. See Question 23 below.
12. How does the Board recommend that I vote?
Our Board recommends that you vote your shares FOR each of the nominees for election to the Board, FOR the ratification of the appointment of HP's independent registered public accounting firm, FOR the approval of the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan, andcompensation of HP's named executive officers, FOR the proposal to conductapproval of an annual advisory vote on executive compensation.compensation, FOR the approval of the Hewlett-Packard Company 2011 Employee Stock Purchase Plan, and FOR the approval of an amendment to the Hewlett-Packard Company 2005 Pay-for-Results Plan to extend the term of the plan.
13. What is the difference between holding shares as a stockholder of record and as a beneficial owner?
Most HP stockholders hold their shares through a broker, trustee or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
14. What shares can I vote?
Each holder of shares of HP common stock issued and outstanding as of the close of business on January 19, 2010,24, 2011, the record date for the annual meeting, is entitled to cast one vote per share on all items being voted upon at the annual meeting. You may vote all shares owned by you as of this time, including (1) shares held directly in your name as the stockholder of record, including shares purchased through HP's Dividend Reinvestment Plan and HP's employee stock purchase plans and shares held through HP's Direct Registration Service, and (2) shares held for you as the beneficial owner through a broker, trustee or other nominee. On the record date, HP had approximately 2,354,084,9112,174,546,309 shares of common stock issued and outstanding.
15. How can I vote my shares in person at the annual meeting?
Shares held in your name as the stockholder of record may be voted in person at the annual meeting. Shares for which you are the beneficial owner but not the stockholder of record may be voted in person at the annual meeting only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the annual meeting, we recommend that you also vote by proxy as described below so that your vote will be counted if you later decide not to attend the meeting.
16. How can I vote my shares without attending the annual meeting?
Whether you hold shares directly as the stockholder of record or through a broker, trustee or other nominee as the beneficial owner, you may direct how your shares are voted without attending the annual meeting. There are three ways to vote by proxy:
17. What is the deadline for voting my shares?
If you hold shares as the stockholder of record, or through the Hewlett-Packard Company 2000 Employee Stock Purchase Plan (the "Share Ownership Plan"), your vote by proxy must be received before the polls close at the annual meeting.
If you hold shares in the Hewlett-Packard Company 401(k) Plan (the "HP 401(k) Plan"), your voting instructions must be received by 11:59 p.m., Eastern time, on March 14, 201020, 2011 for the trustee to vote your shares.
If you are the beneficial owner of shares held through a broker, trustee or other nominee, please follow the voting instructions provided by your broker, trustee or nominee.
18. May I change my vote?
You may change your vote at any time prior to the vote at the annual meeting, except that any change to your voting instructions for the HP 401(k) Plan must be provided by 11:59 p.m., Eastern time, on March 14, 201020, 2011 as described above. If you are the stockholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to the Corporate Secretary at the address below in Question 30 prior to your shares being voted, or by attending the annual meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically make that request. For shares you hold beneficially in the name of a broker, trustee or other nominee, you may change your vote by submitting new voting instructions to your broker, trustee or nominee, or, if
you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.
19. Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed, either within HP or to third parties, except: (1) as necessary to meet applicable legal requirements,requirements; (2) to allow for the tabulation of votes and certification of the vote,vote; and (3) to facilitate a successful proxy solicitation. Occasionally, stockholders provide on their proxy card written comments, which are then forwarded to HP management.
20. How are votes counted?
In the election of directors, you may vote "FOR," "AGAINST" or "ABSTAIN" with respect to each of the nominees. If you elect to abstain in the election of directors, the abstention will not impact the election of directors. In tabulating the voting results for the election of directors, only "FOR" and "AGAINST" votes are counted. You also may cumulate your votes as described in Question 22.
With respect to Proposal No. 4, the advisory vote on the frequency of holding future advisory votes on executive compensation, you may vote "1 YEAR," "2 YEARS," "3 YEARS" or "ABSTAIN." If you abstain from voting on Proposal No. 4, the abstention will not have an effect on the outcome of the vote.
For the other items of business, you may vote "FOR," "AGAINST" or "ABSTAIN." If you elect to abstain, the abstention will have the same effect as an "AGAINST" vote.
If you are the beneficial owner of shares held in the name of a broker, trustee or other nominee and do not provide that broker, trustee or other nominee with voting instructions, your shares may constitute "broker non-votes." Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting results for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained. Abstentions have the same effect as votes against the matter except in the election of directors, as described above.
If you provide specific instructions with regard to certain items, your shares will be voted as you instruct on such items. If you vote by proxy card or voting instruction card and sign the card without giving specific instructions, your shares will be voted in accordance with the recommendations of the Board (FOR all of HP's nominees to the Board, FOR ratification of the appointment of HP's independent registered public accounting firm, FOR the approval of the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan, andcompensation of HP's named executive officers, FOR the proposal to conductapproval of an annual advisory vote on executive compensation)compensation, FOR the Hewlett-Packard Company 2011 Employee Stock Purchase Plan and FOR the approval of an amendment to the Hewlett-Packard Company 2005 Pay-for-Results Plan to extend the term of the plan).
For any shares you hold in the HP 401(k) Plan, if your voting instructions are not received by 11:59 p.m., Eastern time, on March 14, 2010,20, 2011, your shares will be voted in proportion to the way the shares held by the other HP 401(k) Plan participants are voted, except as may be otherwise required by law.
21. What is the voting requirement to approve each of the proposals?
In the election of directors, each director will be elected by the vote of the majority of votes cast with respect to that director nominee. A majority of votes cast means that the number of votes cast for a nominee's election must exceed the number of votes cast against such nominee's election. Each nominee receiving more votes for his or her election than votes against his or her election will be elected. Approval of each of the other proposals requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on that proposal at the annual meeting, except that with respect to the approval of the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan, the total votes cast on the proposal must represent more than 50% of all shares entitled to vote on the proposal.
If you are the beneficial owner of shares held in the name of a broker, trustee or other nominee and do not provide that broker, trustee or other nominee with voting instructions, your shares may constitute "broker non-votes." Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting results for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained.
Abstentions have the same effect as votes against the matter except in the election of directors, as described above.meeting.
22. Is cumulative voting permitted for the election of directors?
In the election of directors, you may elect to cumulate your vote. Cumulative voting will allow you to allocate among the director nominees, as you see fit, the total number of votes equal to the number of director positions to be filled multiplied by the number of shares you hold. For example, if you own 100 shares of stock and there are eleven13 directors to be elected at the annual meeting, you may allocate 11001,300 "FOR" votes (eleven(13 times 100) among as few or as many of the eleven13 nominees to be voted on at the annual meeting as you choose. You may not cumulate your votes against a nominee.
If you are a stockholder of record and choose to cumulate your votes, you will need to submit a proxy card or, if you vote in person at the annual meeting, submit a ballot and make an explicit statement of your intent to cumulate your votes, either by so indicating in writing on the proxy card or by indicating in writing on your ballot when voting at the annual meeting. If you hold shares beneficially through a broker, trustee or other nominee and wish to cumulate votes, you should contact your broker, trustee or nominee.
If you vote by proxy card or voting instruction card and sign your card with no further instructions, Mark V. Hurd,Léo Apotheker, Michael J. Holston and Paul T. Porrini, as proxy holders, may cumulate and cast your votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that none of your votes will be cast for any nominee as to whom you vote against or abstain from voting.
Cumulative voting applies only to the election of directors. For all other matters, each share of common stock outstanding as of the close of business on January 19, 2010, the record date for the annual meeting, is entitled to one vote.
23. What happens if additional matters are presented at the annual meeting?
Other than the foursix items of business described in this proxy statement, we are not aware of any other business to be acted upon at the annual meeting. If you grant a proxy, the persons named as proxy holders, Mark V. Hurd,Léo Apotheker, Michael J. Holston and Paul T. Porrini, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board.
24. Who will serve as inspector of elections?
The inspector of elections will be a representative from an independent firm, IVS Associates, Inc.
25. Who will bear the cost of soliciting votes for the annual meeting?
HP is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing the notices and these proxy materials and soliciting votes. In addition to the mailing of the notices and these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We also have hired Innisfree to assist us in the distribution of proxy materials and the solicitation of votes described above. We will pay
Innisfree a base fee of $20,000 plus customary costs and expenses for these services. HP has agreed to indemnify Innisfree against certain liabilities arising out of or in connection with its agreement. We also will reimburse brokerage houses and other custodians, nominees and fiduciaries for forwarding proxy and solicitation materials to stockholders.
26. Where can I find the voting results of the annual meeting?
We intend to announce preliminary voting results at the annual meeting and publish final results in a Current Report on Form 8-K to be filed with the SEC within four business days of the annual meeting.
27. What if I have questions for HP's transfer agent?
Please contact HP's transfer agent, at the phone number or address listed below, with questions concerning stock certificates, dividend checks, transfer of ownership or other matters pertaining to your stock account.
Please note that on February 12, 2011, Wells Fargo Bank, N.A. will begin providing transfer agent services to HP, and Computershare Trust Company, N.A. will cease serving as HP's transfer agent. For questions relating to transactions executed or other events occurring prior to February 12, 2011, please contact Computershare as follows:
Computershare Trust Company, N.A.
Shareholder Services
250 Royall Street
Canton, Massachusetts 02021
(800) 286-5977 (U.S. and Canada)
(312) 360-5138 (International)
For questions relating to transactions executed or other events occurring on or after February 12, 2011, please contact Wells Fargo as follows:
Wells Fargo Bank, N.A.
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
(800) 286-5977 (U.S. and Canada)
(651) 450-4064 (International)
A dividend reinvestment and stock purchase program is also available through Computershare.HP's transfer agent. For information about this program, please contact Computershare at the following address or the phone number listed above:HP's transfer agent as follows:
Computershare Trust Company, N.A.Dividend Reinvestment Services250 Royall Street
For inquiries prior to February 12, 2011: | For inquiries on or after February 12, 2011: | |
Computershare Trust Company, N.A. | Wells Fargo Bank, N.A. | |
Dividend Reinvestment Services | Shareowner Services | |
250 Royall Street | 161 North Concord Exchange | |
Canton, Massachusetts 02021 | South St. Paul, MN 55075 | |
(800) 286-5977 (U.S. and Canada) | (800) 286-5977 (U.S. and Canada) | |
(312) 360-5138 (International) | (651) 450-4064 (International) |
28. How can I attend the annual meeting?
You are entitled to attend the annual meeting only if you were an HP stockholder or joint holder as of the close of business on January 19, 201024, 2011 or if you hold a valid proxy for the annual meeting. You must present photo identification for admittance. If you are a stockholder of record or hold your shares through the HP 401(k) Plan or the Share Ownership Plan, your name will be verified against the list of stockholders of record or plan participants on the record date prior to your admission to the annual meeting. If you are not a stockholder of record but hold shares through a broker, trustee or nominee, you must provide proof of beneficial ownership on the record date, such as your most recent account statement prior to January 19, 201024, 2011 or other similar evidence of ownership.If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the annual meeting.
The meeting will begin promptly at 2:00 p.m., local time. Check-in will begin at 12:30 p.m., local time, and you should allow ample time for the check-in procedures.
29. How many shares must be present or represented to conduct business at the annual meeting?
The quorum requirement for holding the annual meeting and transacting business is that holders of a majority of shares of HP common stock entitled to vote must be present in person or represented by proxy. Both abstentions and broker non-votes described previously in Question 21 are counted for the purpose of determining the presence of a quorum.
Stockholder Proposals, Director Nominations and Related Bylaw Provisions
30. What is the deadline to propose actions for consideration at next year's annual meeting of stockholders?
You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in HP's proxy statement for the annual meeting next year, the Corporate Secretary must receive the written proposal at our principal executive offices no later than September 29, 2010.October 4, 2011. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsoredcompany sponsored proxy materials. Proposals should be addressed to:
Corporate Secretary
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Fax: (650) 857-4837
For a stockholder proposal that is not intended to be included in HP's proxy statement under Rule 14a-8, the stockholder must provide the information required by HP's Bylaws and give timely notice to the Corporate Secretary in accordance with HP's Bylaws, which, in general, require that the notice be received by the Corporate Secretary:
If the date of the stockholder meeting is moved more than 30 days before or 60 days after the anniversary of the HP annual meeting for the prior year, then notice of a stockholder proposal that is not intended to be included in HP's proxy statement under Rule 14a-8 must be received no earlier than
the close of business 120 days prior to the meeting and not later than the close of business on the later of the following two dates:
31. How may I recommend or nominate individuals to serve as directors?
You may propose director candidates for consideration by the Board's Nominating and Governance Committee. Any such recommendations should include the nominee's name and qualifications for Board membership and should be directed to the Corporate Secretary at the address of our principal executive offices set forth in Question 30 above.
In addition, HP's Bylaws permit stockholders to nominate directors for election at an annual stockholder meeting. To nominate a director, the stockholder must deliver the information required by HP's Bylaws and a statement by the nominee acknowledging that he or she will owe a fiduciary obligation to HP and its stockholders.Bylaws.
32. What is the deadline to propose or nominate individuals to serve as directors?
A stockholder may send a proposed director candidate's name and information to the Board at any time. Generally, such proposed candidates are considered at the first or second Board meeting prior to the issuance of the proxy statement for HP's annual meeting.
To nominate an individual for election at an annual stockholder meeting, the stockholder must give timely notice to the Corporate Secretary in accordance with HP's Bylaws, which, in general, require
that the notice be received by the Corporate Secretary between the close of business on November 17, 201023, 2011 and the close of business on December 17, 2010,26, 2011, unless the annual meeting is moved by more than 30 days before or 60 days after the anniversary of the prior year's annual meeting, in which case the deadline will be as described in Question 30.
33. How may I obtain a copy of HP's Bylaw provisions regarding stockholder proposals and director nominations?
You may contact the Corporate Secretary at our principal executive offices for a copy of the relevant Bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. HP's Bylaws also are available on HP's website at www.hp.com/hpinfo/investor/bylaws.
34. Who can help answer my questions?
If you have any questions about the annual meeting or how to vote or revoke your proxy, you should contact HP's proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Stockholders: (877) 750-5838 (U.S. and Canada)
(412) 232-3651 (International)
Banks and brokers (call collect):
(212) 750-5833
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
HP is committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining HP's integrity in the marketplace. HP maintains a code of business conduct and ethics for directors, officers (including HP's principal executive officer, principal financial officer and principal accounting officer) and employees, known as our Standards of Business Conduct. HP also has adopted Corporate Governance Guidelines, which, in conjunction with the Certificate of Incorporation, Bylaws and Board committee charters, form the framework for the governance of HP. All of these documents are available at www.hp.com/investor/corpgovernance/highlights. HP will post on this web sitewebsite any amendments to the Standards of Business Conduct or waivers of the Standards of Business Conduct for directors and executive officers. Stockholders may request free printed copies of the Standards of Business Conduct, the Corporate Governance Guidelines and the Board committee charters from:
Hewlett-Packard Company
Attention: Investor Relations
3000 Hanover Street
Palo Alto, California 94304
(866) GET-HPQ1 or (866) 438-4771869-5335
www.hp.com/investor/home
The Board is currently led by a non-executive Chairman, Raymond J. Lane, who is an independent director. While the position of Chairman and Chief Executive Officer may be held by the same person, as discussed below, the Board's current preferred governance structure is to have an independent director serve as Chairman. The Board recognizes that there is no single, generally accepted approach to providing Board leadership, and the Board's leadership structure may vary in the future as circumstances warrant. In cases where the Board determines it is in the best interests of HP's stockholders to combine the positions of Chairman and CEO, the independent directors will designate a lead independent director.
The Chairman oversees the planning of the annual Board calendar, and, with the CEO, in consultation with the other directors, schedules and sets the agenda for meetings of the Board and leads the discussion at such meetings. The Chairman also presides at executive sessions, serves as a liaison between the CEO and the independent directors, sees that directors receive appropriate and timely information, assists the Chairmen of the Board committees in preparing agendas for the respective committee meetings, chairs HP's annual meetings of stockholders, is available in appropriate circumstances to speak on behalf of the Board, and performs such other functions and responsibilities as set forth in HP's Corporate Governance Guidelines or as requested by the Board from time to time. The Chairman also encourages direct dialogue between all directors and management and provides leadership to the Board in its oversight function.
Board Structure and Committee Composition
As of the date of this proxy statement, ourthe Board has eleven17 directors and the following six standing committees: (1) Audit,Audit; (2) Finance and Investment,Investment; (3) HR and Compensation,Compensation; (4) Nominating and Governance,Governance; (5) Public Policy,Policy; and (6) Technology. The current committee membership, the number of meetings during the last fiscal year and the function of each of the standing committees are described below. Each of the standing committees operates under a written charter adopted by the Board. All of the committee charters are available on HP's website at www.hp.com/investor/board_charters. The
Board and each of the committees has the authority to retain, and terminate and receive appropriate funding from HP for outside advisors as the Board and each committee deems necessary.
During fiscal 2009,2010, the Board held ten meetings.34 meetings, including 17 executive sessions. Each director serving during fiscal 20092010 attended at least 75% of the aggregate of all Board and applicable standing committee meetings held during the period that he or she served as a director.
Directors are encouraged to attend annual meetings of HP stockholders. AllNine of the eleven then-current directors attended the last annual meeting of stockholders.
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Director | Audit | Finance and Investment | HR and Compensation | Nominating and Governance | Public Policy | Technology | ||||||
Non-Employee Directors: | ||||||||||||
Marc L. Andreessen(1) | Member | Chair | ||||||||||
Lawrence T. Babbio, Jr. | Member | Chair | Member | |||||||||
Sari M. Baldauf | Member | Member | Member | |||||||||
Rajiv L. Gupta(2) | Member | Member | Member | |||||||||
John H. Hammergren | Chair | Member | ||||||||||
Joel Z. Hyatt | Member | Member | Chair | |||||||||
John R. Joyce | Member | Member | ||||||||||
Robert L. Ryan | Chair | Member | Member | |||||||||
Lucille S. Salhany | Member | Member | Chair | |||||||||
G. Kennedy Thompson | Member | Member | Member | |||||||||
Employee Director | ||||||||||||
Mark V. Hurd | ||||||||||||
Number of Meetings in Fiscal 2009 | 13 | 8 | 9 | 5 | 0(3) | 6 |
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Director | Audit | Finance and Investment | HR and Compensation | Nominating and Governance | Public Policy | Technology | ||||||
Non-Employee Directors: | ||||||||||||
Marc L. Andreessen | Chair | |||||||||||
Lawrence T. Babbio, Jr. | Member | Chair | Member | |||||||||
Sari M. Baldauf | Member | Member | Member | |||||||||
Shumeet Banerji(1) | ||||||||||||
Rajiv L. Gupta | Member | Member | Member | |||||||||
John H. Hammergren | Chair | Member | ||||||||||
Joel Z. Hyatt(2) | Member | Member | Chair | |||||||||
John R. Joyce(2) | Member | Member | ||||||||||
Raymond J. Lane(3) | ||||||||||||
Gary M. Reiner(1) | ||||||||||||
Patricia F. Russo(1) | ||||||||||||
Robert L. Ryan(2) | Chair | Member | Member | |||||||||
Lucille S. Salhany(2) | Member | Member | Chair | |||||||||
Dominique Senequier(1) | ||||||||||||
G. Kennedy Thompson | Member | Member | Member | |||||||||
Margaret C. Whitman(1) | ||||||||||||
Employee Director: | ||||||||||||
Léo Apotheker(3) | ||||||||||||
Number of Meetings in Fiscal 2010 | 14 | 18 | 11 | 7 | 4 | 7 |
Audit Committee
HP has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Audit Committee assists the Board in fulfilling its responsibilities for generally overseeing HP's financial reporting processes and the audit of HP's financial statements, including the integrity of HP's financial statements, HP's compliance with legal and regulatory requirements, the qualifications and independence of the independent registered public accounting firm and any relationships or services between the firm and HP or individuals in financial reporting oversight roles at HP which may bear on the firm's independence, the performance of HP's internal audit function and the independent registered public accounting firm, and risk assessment and risk management. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement;
annually reviews its charter and performance; appoints, evaluates and determines the compensation of the independent registered public accounting firm; sets clear hiring policies for employees or former employees of the independent registered public accounting firm and monitors compliance therewith; reviews and approves the scope of the annual audit, the audit fee and the financial statements; reviews HP's disclosure controls and procedures, internal controls, information security policies, internal audit function, and corporate policies with respect to financial information and earnings guidance; reviews regulatory and accounting initiatives and off-balance sheet structures; oversees HP's compliance programs with respect to legal and regulatory requirements; oversees investigations into complaints concerning financial matters; and reviews other risks that may have a significant impact on HP's financial statements. The Audit Committee works closely with management as well as the independent registered public accounting firm.
The Board determined that each of Mr. Ryan, chair of the Audit Committee, and Audit Committee members Ms. Baldauf, Mr. Joyce, Ms. Salhany and Mr. Thompson is independent within the meaning of the New York Stock Exchange ("NYSE") standards of independence for directors and audit committee members and satisfied the NYSE financial literacy requirements. The Board also
determined that each of Mr. Ryan, Ms. Baldauf, Mr. Joyce and Mr. Thompson is an "audit committee financial expert" as defined by SEC rules.
The report of the Audit Committee is included on page 75.77.
Finance and Investment Committee
The Finance and Investment Committee provides oversight to the finance and investment functions of HP. The Finance and Investment Committee reviews or oversees significant treasury matters such as capital structure, derivative policy, global liquidity, fixed income investments,investment policy, borrowings, currency exposure, dividend policy, share issuances and repurchases, and capital spending; oversees HP's loans and loan guarantees of third-party debt and obligations; reviews HP Financial Services' capitalization and operations, including residual and credit management, risk concentration, and return on invested capital; and reviews the activities of HP's Investor Relations department. The Finance and Investment Committee also assists the Board in evaluating investment, acquisition, outsourcingenterprise services, joint venture and divestiture transactions in which HP engages as part of its business strategy from time to time,time; reports to the Board and makes recommendations to the Board as to scope, direction, quality, investment levels and execution of such transactions; evaluates and revises HP's approval policies with respect to such transactions,transactions; oversees HP's integration planning and execution and the financial results of such transactions after integration; evaluates the execution, financial results and integration of HP's completed transactions; and oversees and approves HP's strategic alliances.
HR and Compensation Committee
The HR and Compensation Committee discharges the Board's responsibilities relating to the compensation of HP's executives and directors; reviews and approves the Compensation Discussion and Analysis required by the SEC for inclusion in the annual proxy statement;statement and takes other related actions; provides general oversight of HP's total rewards compensation structure; reviews and provides guidance on HP's human resources programs; and retains, and approves the terms of the retention of and oversees the activities of the committee's compensation consultants and other compensation experts. Other specific duties and responsibilities of the HR and Compensation Committee include reviewing senior management selection and overseeing succession planning, including reviewing the leadership development process; reviewing and approving objectives relevant to executive officer compensation, evaluating performance and determining the compensation of executive officers in accordance with those objectives; approving severance arrangements and other applicable agreements for executive officers; overseeing HP's equity and incentive compensation plans; overseeing non-equity based benefit plans and approving any changes to such plans involving a material financial commitment by HP;
monitoring workforce management programs; establishing compensation policies and practices for service on the Board and its committees, including annually reviewing the appropriate level of director compensation and recommending to the Board any changes to that compensation; developing stock ownership guidelines for directors and executive officers and monitoring compliance with such guidelines; and annually evaluating its performance and its charter.
The HR and Compensation Committee may create a subcommittee consisting of one or more of its members and may delegate any of its duties and responsibilities to such subcommittee, unless otherwise prohibited by applicable laws or listing standards. In addition, the HR and Compensation Committee may delegate any of its duties and responsibilities, including the administration of equity incentive or employee benefit plans, to one or more of its members, to one or more other directors, or to one or more other persons, unless otherwise prohibited by applicable laws or listing standards.
Nominating and Governance Committee
The Nominating and Governance Committee identifies and recommends candidates to be nominated for election as directors at HP's annual meeting, consistent with criteria approved by the
Board; develops and regularly reviews corporate governance principles, including HP's Corporate Governance Guidelines and related policies, for approval by the Board; oversees the organization of the Board to discharge the Board's duties and responsibilities properly and efficiently; and sees that proper attention is given and effective responses are made to stockholder concerns regarding corporate governance matters. Other specific duties and responsibilities of the Nominating and Governance Committee include: annually assessing the size and composition of the Board in consultation with the Chairman, including developing and reviewing director qualifications for approval by the Board; identifying and recruiting new directors and considering candidates proposed by stockholders; recommending assignments of directors to committees to ensure that committee membership complies with applicable laws and listing standards; conducting a preliminary review of director independence and financial literacy and expertise of Audit Committee members; and overseeing director orientation and continuing education. The Nominating and Governance Committee also reviews proposed changes to HP's Certificate of Incorporation, Bylaws, and Board committee charters;charters and Corporate Governance Guidelines and related policies; assesses and makes recommendations regarding stockholder rights plans or other stockholder protections, as appropriate; establishes policies and procedures for the review and approval of related person transactions and conflicts of interest, including the review and approval of all potential "related person transactions" as defined under SEC rules; reviews and approves the designation of any employee directors or executive officers for purposes of Section 16 of the Exchange Act (the "Section 16 officers") standing for election for outside for-profit boards of directors; reviews stockholder proposals in conjunction with the Chairman of the BoardCEO and recommends Board responses; working with the Chairman, oversees the self-evaluation of the Board and its committees; oversees the annual evaluation of the CEO conducted by the lead independent director, in conjunction withChairman and the HR and Compensation Committee, with input from all Board members; oversees the HR and Compensation Committee's evaluation of senior management; and reviews requests for indemnification under HP's Bylaws.
Public Policy Committee
The Public Policy Committee assists the Board in fulfilling its responsibilities for generally overseeing HP's policies and processes relating to HP's public policy, government affairs and global citizenship activities. In so doing, the Public Policy Committee may identify, evaluate and monitor the social, political and environmental trends, issues, concerns, legislative proposals and regulatory developments, domestic and foreign, which could significantly affect the business and affairs of HP, including relating to its performance, customers, stockholders and employees. In addition, from time to time, the Public Policy Committee may report and make recommendations to the Board relating to activities, policies and programs with respect to matters of local, national and international public
policy affecting HP's business, including trade policy and major legislative and regulatory developments; relations with regulators, governmental agencies, public interest groups, other stakeholders and countries in which HP does business; HP's policies with respect to corporate social responsibility and global corporate citizenship; and general guidelines for charitable and political contributions, volunteerism and pro bono outreach to community service and charitable organizations and activities. The Public Policy Committee also oversees HP's policies relating to, and the manner in which HP conducts, its government affairs activities.
Technology Committee
The Technology Committee assesses HP's technology development strategies and the scope and quality of HP's intellectual property. The Technology Committee makes recommendations to the Board as to scope, direction, quality, investment levels and execution of HP's technology strategies; oversees the execution of technology strategies formulated by management; provides guidance on technology as it may pertain to, among other things, market entry and exit, investments, mergers, acquisitions and divestitures, new business divisions and spin-offs, research and development investments, and key competitor and partnership strategies; and reviews and makes recommendations on proposed
investment, acquisition, joint venture and divestiture transactions with a value of at least $200 million that involve technology prior to any review by other Board Committees or the Board pursuant to HP's M&A approval policies.
The Board, with the assistance of the Audit Committee and other Board committees as discussed below, reviews and oversees our enterprise risk management ("ERM") program, which is an enterprise-wide program designed to enable effective and efficient identification and management of critical enterprise risks and to facilitate the incorporation of risk considerations into decision making. The ERM program was established to clearly define risk management roles and responsibilities, bring together senior management to discuss risk, promote visibility and constructive dialogue around risk at the senior management and Board levels, and facilitate and drive appropriate risk response strategies. Under the ERM program, management develops a holistic portfolio of HP enterprise risks by facilitating business and function risk assessments, performing targeted risk assessments, and incorporating information regarding specific categories of risk gathered from various internal HP organizations. Management then develops risk response plans for risks categorized as needing management focus and response and monitors other identified risk focus areas. Management provides regular reports on the risk portfolio and risk response and monitoring efforts to senior management and to the Audit Committee.
The Audit Committee oversees management's implementation of the ERM program, including reviewing HP's enterprise risk portfolio and evaluating management's approach to addressing identified risks. While the Audit Committee has primary oversight responsibility for the risk assessment and management process, various other committees of the Board also have responsibility for oversight of risk management. For example, the HR and Compensation Committee considers the risks associated with our compensation policies and practices as discussed below. In addition, the Finance and Investment Committee is responsible for overseeing financial risks. Further, the Nominating and Governance Committee oversees risks associated with HP's governance structure and processes. The Board is kept informed of its committees' risk oversight and related activities primarily through reports of the committee Chairmen to the full Board. In addition, the Audit Committee escalates issues relating to risk oversight to the full Board as appropriate to provide that the Board is appropriately informed of developments that could affect HP's risk profile or other aspects of HP's business. The Board also considers specific risk topics in connection with strategic planning and other matters.
Compensation Risk Assessment
From time to time, HP and the HR and Compensation Committee have reviewed the potential risks associated with the structure and design of its various compensation plans. During fiscal 2010, HP undertook a more comprehensive review of its material compensation plans and programs for all employees and determined that none of its compensation policies and practices is reasonably likely to have a material adverse effect on the company. In conducting this assessment, HP inventoried its material plans and programs, with particular emphasis on incentive compensation plans, including sales compensation, and presented a summary of its findings to the HR and Compensation Committee. Overall, HP believes that its programs generally contain a balance of fixed and variable features, as well as complementary metrics, reasonable goals and linear payout curves, all of which operate to mitigate risk and reduce the likelihood of employees engaging in excessive risk-taking behavior with respect to the compensation-related aspects of their jobs. In addition, the material plans and programs operate within a strong governance and review structure that serves and supports risk mitigation.
HP's Corporate Governance Guidelines provide that a substantial majority of the Board will consist of independent directors and that the Board can include no more than three directors who are not independent directors. These standards are available on our web sitewebsite at www.hp.com/investor/director_standards. TheseHP's director independence standards reflect the NYSE corporate governance listing standards. In addition, each member of the Audit Committee meets the heightened independence standards required for audit committee members under the applicable listing standards.
Under HP's Corporate Governance Guidelines, a director will not be considered independent in the following circumstances:
or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues.
For these purposes, an "immediate family member" includes a person's spouse, parents, step-parents, children, step-children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than tenants or employees) who shares the director's home.
In determining independence, the Board reviews whether directors have any material relationship with HP. An independent director must not have any material relationship with HP, either directly or as a partner, stockholder or officer of an organization that has a relationship with HP, or any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In assessing the materiality of a director's relationship to HP, the Board considers the issues from the director's standpoint and from the perspective of the persons or organizations with which the director has an affiliation and is guided by the standards set forth above.
In making its independence determinations, the Board considered transactions occurring since the beginning of 2007 between HP and entities associated with the independent directors or their immediate family members. The Board's independence determinations included reviewing the following transactions:
As a result of this review, the Board has determined that each current non-employee director and each of the non-employee director nominees standing for election, including Mr. Andreessen, Mr. Babbio, Ms. Baldauf, Mr. Banerji, Mr. Gupta, Mr. Hammergren, Mr. Hyatt, Mr. Joyce, Mr. Lane, Mr. Reiner, Ms. Russo, Mr. Ryan, Ms. Senequier, Ms. Salhany, and Mr. Thompson and Ms. Whitman, and
each of the members of each standing Board committee, has no material relationship with HP (either directly or as a partner, stockholder or officer of an organization that has a relationship with HP) and is independent within the meaning of HP's director independence standards. Mr. HurdApotheker is not independent because of his status as President and Chief Executive Officer and President of HP.
HP's Corporate Governance Guidelines provide that the independent directors will designate a lead independent director when the positions of Chairman and CEO are held by the same person. The lead independent director generally will serve for a term of up to two years in length, and no director generally will serve as lead independent director for more than two consecutive terms. In addition, only directors who are serving as the chair of the Audit Committee or the HR and Compensation Committee at the time of appointment to their initial term as lead independent director generally are eligible to be designated as lead independent director.
The lead independent director, together with the Chairman, schedules and sets the agenda for meetings of the Board, and the lead independent director chairs Board meetings when the Chairman is not present. The lead independent director also schedules, sets the agenda for and chairs executive sessions. In addition, the lead independent director serves as a liaison between the Chairman and the
other independent directors, coordinates information sent to the Board, recommends changes to improve the Board, the committees and individual director effectiveness, works jointly with the chair of the HR and Compensation Committee to coordinate the annual performance evaluation of the CEO, and performs such other functions and responsibilities as provided in HP's Corporate Governance Guidelines and as requested by the Board from time to time.
Mr. Ryan has served as lead independent director since September 2008.
Executive sessions of independent directors are held at least three times a year. During fiscal 2009,2010, the independent directors met in executive session six17 times. TheThose sessions were scheduled and chaired by the lead independent director. Beginning in fiscal 2011, the sessions are scheduled and chaired by the lead independent director.Chairman. Any independent director may request that an additional executive session be scheduled.
Stockholder Recommendations
The policy of the Nominating and Governance Committee is to consider properly submitted stockholder recommendations of candidates for membership on the Board as described below under "Identifying and Evaluating Candidates for Directors." In evaluating such recommendations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth below under "Director"Proposals to be Voted on—Election of Directors—Director Nominee Experience and Qualifications." Any stockholder recommendations proposed for consideration by the Nominating and Governance Committee should include the candidate's name and qualifications for Board membership and should be addressed to:
Corporate Secretary
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Fax: (650) 857-4837
Stockholder Nominations
In addition, HP's Bylaws permit stockholders to nominate directors for consideration at an annual stockholder meeting and to solicit proxies in favor of such nominees. For a description of the process for nominating directors in accordance with HP's Bylaws, see "Questions and Answers—Stockholder Proposals, Director Nominations and Related Bylaw Provisions—How may I recommend or nominate individuals to serve as directors?"
Director Qualifications
HP's Corporate Governance Guidelines contain Board membership criteria that apply to nominees recommended for a position on the Board. Under these criteria, members of the Board should have the highest professional and personal ethics and values, consistent with longstanding HP values and standards. They should have broad experience at the policy-making level in business, government, education, technology or public service. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all stockholders of HP.
Identifying and Evaluating Candidates for Directors
The Nominating and Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee, with the input of the Chairman, regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, stockholders or other persons. Identified candidates are evaluated at regular or special meetings of the Nominating and Governance Committee and may be considered at any point during the year. As described above, the Nominating and Governance Committee considers properly submitted stockholder recommendations for candidates for the Board to be included in HP's proxy statement. Following verification of the stockholder status of people proposing candidates, recommendations are considered together by the Nominating and Governance Committee at a regularly scheduled meeting, which is generally the first or second meeting prior to the
issuance of the proxy statement for HP's annual meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms and other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.
HP engages a professional search firm on an ongoing basis to identify and assist the Nominating and Governance Committee in identifying, evaluating and conducting due diligence on potential director nominees. On September 17, 2009,Two of the seven directors who joined the Board electedsince the last annual meeting of stockholders, Mr. Andreessen as a director effective immediately.Apotheker and Mr. Andreessen wasLane, were identified by the professional search firm. The other five directors, Mr. Banerji, Mr. Reiner, Ms. Russo, Ms. Senequier and Ms. Whitman, were identified by an ad hoc committee of directors consisting of the Chief Executive Officer and three non-employee directors, which was formed in November 2010 to assist in the identification of new director candidates and to facilitate the process of evaluating those candidates as potential directors.
Board Policy Regarding Voting for Directors
HP has implemented a majority vote standard in the election of directors. In addition, HP has adopted a policy whereby any incumbent director nominee who receives a greater number of votes "against" his or her election than votes "for" such election will tender his or her resignation for consideration by the Nominating and Governance Committee. The Nominating and Governance Committee will recommend to the Board the action to be taken with respect to such offer of resignation.
Individuals may communicate with the Board by contacting:
Secretary to the Board of Directors
3000 Hanover Street, MS 1050
Palo Alto, California 94304
e-mail: bod@hp.com
All directors have access to this correspondence. In accordance with instructions from the Board, the Secretary to the Board reviews all correspondence, organizes the communications for review by the Board and posts communications to the full Board or individual directors, as appropriate. HP's independent directors have requested that certain items that are unrelated to the Board's duties, such as spam, junk mail, mass mailings, solicitations, resumes and job inquiries, not be posted.
Communications that are intended specifically for the lead independent director,Chairman, the independent directors or non-management directors should be sent to the e-mail address or street address noted above, to the attention of the lead independent director.Chairman.
DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES
Employee directors do not receive any separate compensation for their Board activities. Non-employeeIn fiscal 2010, non-employee directors receivereceived the compensation described below.
Each non-employee director isserving during fiscal 2010 was entitled to receive an annual cash retainer of $100,000 but maycould elect to receive an equivalent amount of securities in lieu of the cash retainer. Each non-employee director was also is entitled to receive an annual equity retainer. Priorretainer of $150,000, which was increased to $175,000 effective in March 2009, the amount of the annual2010. The equity retainer was $175,000 to beis paid at the election of the director either entirely in restricted stock units or half in restricted stock units and half in stock options. Effective in March 2009, the amount of the annual equity retainer was reduced to $150,000, and non-employee directors began receiving restricted stock units rather than restricted stock. Under special circumstances, the securities portion of the annual retainer may be paid in cash, but no such exceptions were made during fiscal 2009.2010. The restricted stock andnumber of shares subject to the restricted stock unit awards areis determined based on the fair market value of HP common stock on the grant date, and the number of shares subject to the stock options areoption awards is determined based on a Black-Scholes option valuation model. Non-employee directors are entitled to receive cash dividends on shares of unvested restricted stock and dividend equivalent units with respect to unvested restricted stock units. The restricted stock, restricted stock units and stock options generally vest after one year from the date of grant. Non-employee directors may elect to defer any portion of their annual retainer.
In addition to the annual retainer, non-employee directors who serveserved as chairs of standing committees receiveduring fiscal 2010 received a retainer for such service in the amount of $20,000 for the chair of the Audit Committee, $15,000 for the chair of the AuditHR and Compensation Committee, and $10,000 for the chair of the other Board committees. In addition, the director who served as lead independent director receivesduring fiscal 2010 received an additional retainer of $75,000 per year. Each non-employee director also receivesreceived $2,000 for eachdesignated Board meetingmeetings attended in excess of six per year and $2,000 for each committee meeting attended in excess of six per year.
Non-employee directors are reimbursed for their expenses in connection with attending Board meetings (including expenses related to spouses when spouses are invited to attend Board events), and non-employee directors may use the company aircraft for travel to and from HP events. Each non-employee director also is eligible to contribute up to $100,000 worth of HP products each year to a school or qualified charity by paying 25% of the list price of those products, with HP contributing the remaining cost.
On September 30, 2010, the Board elected Mr. Lane to serve as a director of HP and designated Mr. Lane as non-executive Chairman of the Board effective November 1, 2010, the first day of HP's 2011 fiscal year. In connection therewith, the Board approved an equity retainer that was awarded to Mr. Lane following the end of fiscal 2010 consisting of 45,000 restricted stock units, one-third of which will vest on the first anniversary of the date of grant and two-thirds of which will vest on the third anniversary of the date of grant, with any unvested units to be forfeited in the event that Mr. Lane's service as non-executive Chairman terminates prior to the full vesting of the award. No other compensation will be paid to Mr. Lane for his service on the Board from November 1, 2010 until the annual meeting. If Mr. Lane is re-elected to the Board at that meeting, his compensation for service as a director and as non-executive Chairman thereafter will be established as part of the Board's regular annual review of director compensation.
Fiscal 20092010 Non-Employee Director Compensation
The following table provides information on compensation for non-employee directors who served during fiscal 2009:2010:
Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | Option Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | Option Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc L. Andreessen | 1,250 | 30,752 | — | — | 32,002 | 36,000 | 389,633 | — | 8,677 | 434,310 | ||||||||||||||||||||||
Lawrence T. Babbio, Jr. | 140,000 | 82,790 | 82,783 | — | 305,573 | 203,333 | 87,540 | 87,250 | — | 378,123 | ||||||||||||||||||||||
Sari M. Baldauf | 116,084 | 214,614 | — | — | 330,698 | 168,000 | 87,540 | 87,250 | — | 342,790 | ||||||||||||||||||||||
Rajiv L. Gupta | 83,167 | 48,532 | 48,529 | 26,179 | 206,407 | 156,000 | 175,027 | — | 29,926 | 360,953 | ||||||||||||||||||||||
John H. Hammergren | 38,000 | 200,330 | 67,434 | 33,811 | 339,575 | 82,000 | 137,533 | 137,094 | 29,981 | 386,608 | ||||||||||||||||||||||
Joel Z. Hyatt | 30,000 | 267,755 | — | — | 297,755 | 90,667 | 275,012 | — | 19,723 | 385,402 | ||||||||||||||||||||||
John R. Joyce | 124,000 | 165,579 | — | — | 289,579 | 146,000 | 175,027 | — | — | 321,027 | ||||||||||||||||||||||
Robert L. Ryan | 230,000 | 165,579 | — | 34,918 | 430,497 | 255,333 | 175,027 | — | 28,389 | 458,749 | ||||||||||||||||||||||
Lucille S. Salhany | 154,000 | 82,790 | 82,783 | 10,847 | 330,420 | 184,000 | 87,540 | 87,250 | 16,113 | 374,903 | ||||||||||||||||||||||
G. Kennedy Thompson | 34,000 | 200,330 | 67,434 | — | 301,764 | 96,000 | 275,012 | — | — | 371,012 | ||||||||||||||||||||||
Richard A. Hackborn(6) | 50,666 | 85,840 | — | — | 136,506 |
Additional Information about Fees Earned or Paid in Cash in Fiscal 20092010
The following table provides additional information about fees earned or paid in cash to non-employee directors in fiscal 2009:2010:
Name | Annual Retainers(1)(2) ($) | Committee Chair/Lead Independent Director Fees(3) ($) | Additional Meeting Fees(4) ($) | Total ($) | Annual Retainers(1)(2) ($) | Committee Chair/Lead Independent Director Fees(3) ($) | Additional Meeting Fees(4) ($) | Total ($) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc L. Andreessen | — | 1,250 | — | 1,250 | — | 10,000 | 26,000 | 36,000 | ||||||||||||||||||
Lawrence T. Babbio, Jr. | 100,000 | 10,000 | 30,000 | 140,000 | 100,000 | 13,333 | 90,000 | 203,333 | ||||||||||||||||||
Sari M. Baldauf | 66,667 | 5,417 | 44,000 | 116,084 | 100,000 | — | 68,000 | 168,000 | ||||||||||||||||||
Rajiv L. Gupta | 79,167 | — | 4,000 | 83,167 | 100,000 | — | 56,000 | 156,000 | ||||||||||||||||||
John H. Hammergren | — | 10,000 | 28,000 | 38,000 | — | 10,000 | 72,000 | 82,000 | ||||||||||||||||||
Joel Z. Hyatt | — | — | 30,000 | 30,000 | — | 6,667 | 84,000 | 90,667 | ||||||||||||||||||
John R. Joyce | 100,000 | — | 24,000 | 124,000 | 100,000 | — | 46,000 | 146,000 | ||||||||||||||||||
Robert L. Ryan | 100,000 | 90,000 | 40,000 | 230,000 | 100,000 | 93,333 | 62,000 | 255,333 | ||||||||||||||||||
Lucille S. Salhany | 100,000 | 10,000 | 44,000 | 154,000 | 100,000 | 10,000 | 74,000 | 184,000 | ||||||||||||||||||
G. Kennedy Thompson | — | — | 34,000 | 34,000 | — | — | 96,000 | 96,000 | ||||||||||||||||||
Richard A. Hackborn(9) | 33,333 | 3,333 | 14,000 | 50,666 |
Additional Information about Non-Employee Director Equity Awards
The following table provides additional information about non-employee director equity awards, including the stock awards and option awards made to non-employee directors during fiscal 2009,2010, the grant date fair value of each of those awards and the number of stock awards and option awards outstanding as of the end of fiscal 2009:2010:
Name | Stock Awards Granted During Fiscal 2009 (#) | Option Awards Granted During Fiscal 2009 (#) | Grant Date Fair Value of Stock and Option Awards Granted During Fiscal 2009(1) ($) | Stock Awards Outstanding at Fiscal Year End(2) (#) | Option Awards Outstanding at Fiscal Year End (#) | Stock Awards Granted During Fiscal 2010 (#) | Option Awards Granted During Fiscal 2010 (#) | Grant Date Fair Value of Stock and Option Awards Granted During Fiscal 2010(1) ($) | Stock Awards Outstanding at Fiscal Year End(2) (#) | Option Awards Outstanding at Fiscal Year End (#) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc L. Andreessen | — | — | — | — | — | 7,507 | — | 389,633 | 7,544 | — | ||||||||||||||||||||||
Lawrence T. Babbio, Jr. | 2,163 | 5,463 | 150,020 | 2,171 | 80,808 | 1,632 | 5,976 | 174,790 | 1,639 | 69,919 | ||||||||||||||||||||||
Sari M. Baldauf | 4,326 | — | 150,026 | 4,342 | 12,732 | 1,632 | 5,976 | 174,790 | 1,639 | 18,708 | ||||||||||||||||||||||
Rajiv L. Gupta | 2,469 | 6,177 | 171,900 | 2,477 | 6,177 | 3,263 | — | 175,027 | 3,276 | 6,177 | ||||||||||||||||||||||
John H. Hammergren | 7,209 | — | 250,008 | 7,236 | 36,390 | 2,564 | 9,390 | 274,627 | 2,574 | 45,780 | ||||||||||||||||||||||
Joel Z. Hyatt | 7,209 | — | 250,008 | 7,236 | — | 5,127 | — | 275,012 | 5,147 | — | ||||||||||||||||||||||
John R. Joyce | 4,326 | — | 150,026 | 4,342 | — | 3,263 | — | 175,027 | 3,276 | — | ||||||||||||||||||||||
Robert L. Ryan | 4,326 | — | 150,026 | 4,342 | — | 3,263 | — | 175,027 | 3,276 | — | ||||||||||||||||||||||
Lucille S. Salhany | 2,163 | 5,463 | 150,020 | 2,171 | 70,150 | 1,632 | 5,976 | 174,790 | 1,639 | 42,605 | ||||||||||||||||||||||
G. Kennedy Thompson | 7,209 | — | 250,008 | 7,236 | 8,364 | 5,127 | — | 275,012 | 5,147 | 8,364 | ||||||||||||||||||||||
Richard A. Hackborn(5) | — | — | — | — | — |
Non-Employee Director Stock Ownership Guidelines
Under HP's stock ownership guidelines, non-employee directors are required to accumulate within five years of election to the Board shares of HP common stock equal in value to at least five times the amount of their annual cash retainer. Shares counted toward these guidelines include any shares held by the director directly or indirectly, including thedeferred vested portion of restricted stock awards and deferred shares.awards.
All non-employee directors with more than five years of service have met HP's stock ownership guidelines. See "Common Stock Ownership of Certain Beneficial Owners and Management."
ThereHP's Bylaws fix the current number of directors at 17. Directors Joel Z. Hyatt, John R. Joyce, Robert L. Ryan and Lucille S. Salhany are elevennot nominees for election at the meeting. On the recommendation of the Nominating and Governance Committee, the Board has nominated the 13 persons named below for election as directors this year, each to serve for a one-year term or until the director's successor is elected and qualified. The Board has also reduced the number of directors to 13 effective immediately prior to the commencement of the meeting.
Director Nominee Experience and Qualifications
The Board annually reviews the appropriate skills and characteristics required of directors in the context of the current composition of the Board, our operating requirements and the long-term interests of our stockholders. The Board this year.believes that its members should possess a variety of skills, professional experience, and backgrounds in order to effectively oversee our business. In addition, the Board believes that each director should possess certain attributes, as reflected in the Board's membership criteria described below.
HP's Corporate Governance Guidelines contain the current Board membership criteria that apply to nominees recommended for a position on the Board. Under those criteria, members of the Board should have the highest professional and personal ethics and values, consistent with longstanding HP values and standards. They should have broad experience at the policy-making level in business, government, education, technology or public service. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all stockholders of HP. Although the Board uses these and other criteria as appropriate to evaluate potential nominees, it has no stated minimum criteria for nominees.
The Board believes that all the nominees named below are highly qualified and have the skills and experience required for effective service on the Board. The nominees' individual biographies below contain information about their experience, qualifications and skills that led the Board to nominate them.
All of the nominees have indicated to HP that they will be available to serve as directors. In the event that any nominee should become unavailable, the proxy holders, Léo Apotheker, Michael J. Holston and Paul T. Porrini, will vote for a nominee or nominees designated by the Board.
All of the nominees except Marc L. AndreessenMr. Apotheker, Mr. Banerji, Mr. Lane, Mr. Reiner, Ms. Russo, Ms. Senequier and Ms. Whitman have served as directors since the last annual meeting. Mr. Andreessen wasApotheker and Mr. Lane were elected by the Board to serve as a directordirectors effective September 17, 2009.
HP's Bylaws fixNovember 1, 2010, and Mr. Banerji, Mr. Reiner, Ms. Russo, Ms. Senequier and Ms. Whitman were elected by the current number of directors at eleven. Each director is elected annuallyBoard to serve until the next annual meeting or until his or her successor is elected.as directors effective January 21, 2011.
There are no family relationships among our executive officers and directors.
Our Board recommends a vote FOR the election to the Board of the each of the following nominees.
Marc L. Andreessen Director since 2009 Age 39 | Mr. Andreessen is co-founder and a general partner of Andreessen Horowitz, a venture capital firm founded in July 2009, and co-founder and Chairman of Ning, Inc., an online platform founded in 2004 for people to create their own social networks. From 1999 to July 2007, Mr. Andreessen served as Chairman of Opsware, Inc., a software company that he co-founded. From March 1999 to September 1999, Mr. Andreessen served as Chief Technology Officer of America Online, Inc., a software company. Mr. Andreessen co-founded Netscape Communications Corporation, a software company, and served in various positions, including Chief Technology Officer and Executive Vice President of Products from 1994 to 1999. Mr. Andreessen also is a director of eBay Inc. and several private companies. | |
Mr. Andreessen brings to the Board extensive experience as an Internet entrepreneur. Mr. Andreessen also is a recognized industry expert and visionary in the IT industry. In addition, he has extensive leadership, consumer industry and technical expertise through his positions at Netscape, America Online and Opsware and his service on the boards of public and private technology companies. He has also gained valuable experience serving on the boards of both public and private companies. | ||
Léo Apotheker Director since 2010 Age 57 | Mr. Apotheker has served as HP's President and Chief Executive Officer and as a member of the Board since November 2010. Mr. Apotheker served as Chief Executive Officer of SAP AG, a software company, from June 2009 until February 2010 after having served as co-Chief Executive Officer of SAP from April 2008 to May 2009. Previously, Mr. Apotheker served as worldwide Chairman of Customer Solutions and Operations for SAP from 2002 until April 2008. Mr. Apotheker occupied various other positions at SAP since joining the company in 1995, including Chairman of SAP EMEA from 1999 to 2002; Chairman of SAP for the South-West Europe Region from 1997 to 1999; and CEO of SAP France and SAP Belgium from 1995 to 1997. Mr. Apotheker also is Vice Chairman of the supervisory board of Schneider Electric SA. | |
Mr. Apotheker brings to the Board significant expertise in global business and technology and extensive management and operating experience. During his more than 20 years at SAP, he was a driving force in making it the largest business software applications company in the world. During his tenure at SAP, Mr. Apotheker also transformed research and development and technology platforms, expanded business models and customer segments, and developed a strong track record of driving technological innovation, building customer relationships and managing world-class teams. In addition, because of his vast international experience, Mr. Apotheker is able to provide valuable leadership as HP continues to expand globally, particularly in high-growth emerging markets. |
Lawrence T. Babbio, Jr. Director since 2002 Age 66 | Mr. Babbio has served as a Senior Advisor to Warburg Pincus, a private equity firm, since June 2007. Previously, Mr. Babbio served as Vice Chairman and President of Verizon Communications, Inc., a telecommunications company, from 2000 until his retirement in April 2007. Mr. Babbio also served as Vice Chairman of Bell Atlantic Corporation, a telecommunications company, from 1995 until the formation of Verizon through the merger of Bell Atlantic and GTE Corporation, another telecommunications company, in 2000; as Executive Vice President and Chief Operating Officer of Bell Atlantic from 1994 to 1995; and Chairman, Chief Executive Officer and President of Bell Atlantic Enterprises International, Inc. from 1991 to 1994. | |
Mr. Babbio brings to the Board strong business skills and experience, executive leadership expertise, and extensive knowledge of financial and operational matters, having spent more than 40 years in the telecommunications industry. Mr. Babbio also brings to the Board recent experience in venture capital investing with a focus on the technology, media and telecommunications industries. | ||
Sari M. Baldauf Director since 2006 Age 55 | Ms. Baldauf served as Executive Vice President and General Manager of the Networks business group of Nokia Corporation, a communications company, from 1998 until February 2005. She previously held various positions at Nokia since joining the company in 1983, including Executive Vice President of Nokia, Asia-Pacific from 1997 to 1998 and President of Nokia Cellular Systems from 1988 to 1996. Ms. Baldauf also was a member of the Executive Board of Nokia from 1994 until January 2005. Ms. Baldauf also is a director of Daimler AG and three companies headquartered in Finland. | |
Ms. Baldauf brings to the Board valuable business and leadership experience, including extensive operational and management experience at Nokia, a technology-driven company. In addition, Ms. Baldauf's knowledge of global business from both a consumer and an enterprise market perspective and her experience in large, emerging markets such as China and India have provided her with insight regarding building operations in diverse cultural environments as well as the importance of innovation. Ms. Baldauf also has a high level of understanding of the board's role and responsibilities based on her service on other public company boards. In addition, because of her service on the boards of several other international companies, Ms. Baldauf is able to provide insight regarding operating and governing a business in a diverse range of geographies. |
Shumeet Banerji Director since 2011 Age 51 | Mr. Banerji has served as Chief Executive Officer of Booz & Company, a consulting company, since July 2008. Previously, Mr. Banerji served in multiple roles at Booz Allen Hamilton, a consulting company and predecessor to Booz & Company, while based in offices in North America, Asia and Europe, including President of the Worldwide Commercial Business from February 2008 to July 2008, Managing Director, Europe from February 2007 to February 2008 and Managing Director, United Kingdom from 2003 to March 2007. Earlier in his career, he was a member of the faculty at the University of Chicago Graduate School of Business. | |
Mr. Banerji brings to the Board a robust understanding of the issues facing companies and governments in both mature and emerging markets around the world through his nearly two decades of work with Booz & Company. In particular, Mr. Banerji brings valuable experience in addressing issues ranging from corporate strategy, organizational structure, governance, transformational change, operational performance improvement and merger integration. | ||
Rajiv L. Gupta Director since 2009 Age 65 | Mr. Gupta has served as Chairman of Avantor Performance Materials, a manufacturer of chemistries and materials, since August 2010 and as Senior Advisor to New Mountain Capital, LLC, a private equity firm, since July 2009. Previously, Mr. Gupta served as Chairman and Chief Executive Officer of Rohm and Haas Company, a worldwide producer of specialty materials, from 1999 to April 2009. Mr. Gupta occupied various other positions at Rohm and Haas since joining the company in 1971, including Vice-Chairman from 1998 to 1999; Director of the Electronic Materials business from 1996 to 1999; and Vice-President and Regional Director of the Asia-Pacific Region from 1993 to 1998. Mr. Gupta also is a director of Tyco International Ltd., The Vanguard Group and several private companies. | |
Mr. Gupta brings to the Board extensive experience in executive leadership at a large global company, international management experience, and venture capital investment experience. From his nearly ten years as Chairman and Chief Executive Officer of Rohm and Haas, Mr. Gupta has a strong operational and strategic background with significant experience in manufacturing and sales. He also brings public company governance experience as a member or chair of boards and board committees of other public and private companies. | ||
John H. Hammergren Director since 2005 Age 51 | Mr. Hammergren has served as Chairman of McKesson Corporation, a healthcare services and information technology company, since 2002 and as President and Chief Executive Officer of McKesson since 2001. Mr. Hammergren joined McKesson in 1996 and held a number of management positions before becoming President and Chief Executive Officer. Mr. Hammergren also is a director of Nadro, S.A. de C.V. (Mexico). |
Mr. Hammergren brings to the Board nearly 30 years of business and leadership experience in the healthcare industry. As a Chairman and Chief Executive Officer of a large global company, Mr. Hammergren brings a wealth of complex management, worldwide operational and financial expertise. He also brings in-depth knowledge of the opportunities and challenges facing global companies. | ||
Raymond J. Lane Director since 2010 Age 63 | Mr. Lane has served as HP's non-executive Chairman since November 2010. Mr. Lane has served as Managing Partner of Kleiner Perkins Caufield & Byers, a private equity firm, since 2000. Prior to joining Kleiner Perkins, Mr. Lane was President and Chief Operating Officer and a director of Oracle Corporation, a software company. Before joining Oracle in 1992, Mr. Lane was a senior partner of Booz Allen Hamilton, a consulting company. Prior to Booz Allen Hamilton, Mr. Lane served as a division vice president with Electronic Data Systems Corporation, an IT services company that HP acquired in August 2008. Mr. Lane also is a director of Quest Software, Inc. and several private companies. | |
Mr. Lane brings to the Board significant experience as an early-stage venture capital investor, principally in the information technology industry, through his position as Managing Partner of Kleiner Perkins. In addition, having served as President and Chief Operating Officer of Oracle, Mr. Lane has experience in worldwide operations, management and the development of corporate strategy. He has also gained valuable experience serving in board leadership roles for many public and private companies. | ||
Gary M. Reiner Director since 2011 Age 56 | Mr. Reiner has served as Special Advisor at General Atlantic, a private equity firm, since September 2010. Previously, Mr. Reiner served as the Senior Vice President and Chief Information Officer at General Electric Company, a technology, media and financial services company, from 1996 until March 2010. Mr. Reiner previously held other executive positions with GE since joining the company in 1991. Earlier in his career, Mr. Reiner was a partner at Boston Consulting Group where he focused on strategic and process issues for technology businesses. | |
Mr. Reiner brings to the Board deep insight into how IT can help global companies succeed through his many years of experience as Chief Information Officer at GE. From his other positions at GE and his prior experience with Boston Consulting Group, he also brings decades of experience driving corporate strategy, information technology and best practices across complex organizations. In addition, Mr. Reiner brings recent experience in private equity investing focusing on the IT industry. | ||
Patricia F. Russo Director since 2011 Age 58 | Ms. Russo served as Chief Executive Officer of Alcatel-Lucent, a communications company, from December 2006 to September 2008. Previously, she served as Chairman of Lucent Technologies Inc., a communications company, from 2003 to November 2006 and Chief Executive Officer and President of Lucent from 2002 to November 2006. Ms. Russo also is a director of General Motors Company, Merck & Co., Inc. and Alcoa Inc. |
Ms. Russo brings to the Board extensive global business experience, a broad understanding of the technology industry, strong management skills and operational expertise through her positions with Alcatel-Lucent and Lucent Technologies. In those positions, she dealt with a wide range of issues including mergers and acquisitions and business restructurings as she led Lucent's recovery through a severe industry downturn and later a merger with Alcatel. Ms. Russo also brings public company governance experience as a member of boards and board committees of other public companies. | ||
Dominique Senequier Director since 2011 Age 57 | Ms. Senequier has served as Chairman and Chief Executive Officer of AXA Private Equity, a private equity firm, since founding the firm and joining AXA Investment Managers in 1996. Earlier in her career, she worked at the Commission Française des Assurances and at the French insurance group GAN. Ms. Senequier also is an observer of the supervisory board of Schneider Electric SA. | |
Ms. Senequier brings to the Board broad international perspective, strong financial acumen and a keen focus on long-term performance through her experience as Chairman and Chief Executive Officer of AXA Private Equity. She also brings extensive experience in investing in the IT industry. In addition, Ms. Senequier brings international public company governance experience as a member of the Schneider Electric supervisory board. | ||
G. Kennedy Thompson Director since 2006 Age 60 | Mr. Thompson has served as Senior Advisor to Aquiline Capital Partners LLC, a private equity firm, since May 2009. Previously, Mr. Thompson served as Chairman of Wachovia Corporation, a financial services company, from 2003 until June 2008. Mr. Thompson also served as Chief Executive Officer of Wachovia, formerly First Union Corporation, from 2000 until June 2008 and as President from 1999 until June 2008. Previously, Mr. Thompson served as Chairman of First Union for a portion of 2001; Vice Chairman of First Union from 1998 to 1999; and Executive Vice President of First Union from 1996 to 1998. | |
Mr. Thompson brings to the Board broad business skills and experience, executive leadership expertise, organizational and operational management skills, and knowledge of complex global business and financial matters, having served as Chairman, Chief Executive Officer and President of a global financial services company. Mr. Thompson also brings to the Board recent experience in venture capital investing focusing on the financial services industry. |
Margaret C. Whitman Director since 2011 Age 54 | Ms. Whitman served as President and Chief Executive Officer of eBay Inc., an ecommerce and payments company, from 1998 to March 2008. Prior to joining eBay, Ms. Whitman held executive-level positions at Hasbro Inc., a toy company, FTD, Inc., a floral products company, The Stride Rite Corporation, a footwear company, The Walt Disney Company, an entertainment company, and Bain & Company, a consulting company. She also served as a director of The Procter & Gamble Company from 2003 to 2008 and DreamWorks Animation SKG, Inc. from 2005 to 2008, having resigned from both boards of directors in preparation for her 2010 California gubernatorial bid. | |
Ms. Whitman brings to the Board unique experience in developing transformative business models, building global brands and driving sustained growth and expansion through her ten years as President and Chief Executive Officer of eBay. From her previous executive positions with other large public companies, she also brings strong operational and strategic expertise. In addition, Ms. Whitman brings public company governance experience having previously served as a member of boards and board committees of other public companies. |
Vote Required
Each director nominee who receives more "FOR" votes than "AGAINST" votes representing shares of HP common stock present in person or represented by proxy and entitled to be voted at the annual meeting will be elected.
If you sign your proxy or voting instruction card but do not give instructions with respect to voting for directors, your shares will be voted for the eleven13 persons recommended by the Board. If you wish to give specific instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting instruction card.
You may cumulate your votes in favor of one or more directors.of the director nominees. If you wish to cumulate your votes, you will need to indicate explicitly your intent to cumulate your votes among the eleven13 persons who will be voted upon at the annual meeting. See "Questions and Answers—Voting Information—Is cumulative voting permitted for the election of directors?" for further information about how to cumulate your votes. Mark V. Hurd,Léo Apotheker, Michael J. Holston and Paul T. Porrini, as proxy holders, reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that a stockholder's votes will not be cast for a nominee as to whom such stockholder instructs that such votes be cast "AGAINST" or "ABSTAIN."
All of the nominees have indicated to HP that they will be available to serve as directors. In the event that any nominee should become unavailable, however, the proxy holders, Mr. Hurd, Mr. Holston and Mr. Porrini, will vote for a nominee or nominees designated by the Board.
If an incumbent director nominee receives a greater number of votes against his or her election than votes for such election, he or she is required to tender his or her resignation for consideration by the Nominating and Governance Committee in accordance with Section V of HP's Corporate Governance Guidelines and as described under "Corporate Governance Principles and Board Matters—Board Policy Regarding Voting for Directors."
Our Board recommends a vote FOR the election to the Board of the each of the following nominees.
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Ernst & Young LLP as the independent registered public accounting firm to audit HP's consolidated financial statements for the fiscal year ending October 31, 2010.2011. During fiscal 2009,2010, Ernst & Young LLP served as HP's independent registered public accounting firm and also provided certain tax and other audit-related services. See "Principal Accountant Fees and Services" on page 74.76. Representatives of Ernst & Young LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement.
Vote Required
Ratification of the appointment of Ernst & Young LLP as HP's independent registered public accounting firm for the 20102011 fiscal year requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted at the meeting. If the appointment is not ratified, the Board will consider whether it should select another independent registered public accounting firm.
Recommendation of the Board of Directors
Our Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as HP's independent registered public accounting firm for the 20102011 fiscal year. If the appointment is not ratified, the Board will consider whether it should select another independent registered public accounting firm.
APPROVAL OF THE AMENDED AND RESTATED 2004 STOCK INCENTIVE PLANADVISORY VOTE ON EXECUTIVE COMPENSATION
SubjectThe recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") enables HP stockholders to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules.
HP has a "pay-for-performance" philosophy that forms the foundation of all decisions regarding compensation of HP's named executive officers. This compensation philosophy, and the program structure approved by the HR and Compensation Committee, is central to HP's ability to attract, retain and motivate individuals who can achieve superior financial results. This approach, which has been used consistently over the years, has resulted in HP's ability to attract and retain the executive talent necessary to guide HP during a period of tremendous growth and transformation. Please refer to "Executive Compensation—Compensation Discussion and Analysis—Executive Summary" for an overview of the compensation of HP's named executive officers.
We are asking for stockholder approval of the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules, which disclosures include the disclosures under "Executive Compensation—Compensation Discussion and Analysis," the compensation tables and the narrative discussion following the compensation tables. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the policies and practices described in this proxy statement.
This vote is advisory and therefore not binding on HP, the HR and Compensation Committee of the Board, or the Board. The Board and the HR and Compensation Committee value the opinions of HP stockholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this proxy statement, we will consider those stockholders' concerns, and the HR and Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Vote Required
The affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting is required for advisory approval of this proposal.
Recommendation of the Board of Directors
Our Board recommends a vote FOR the approval of the compensation of HP's named executive officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.
ADVISORY VOTE ON THE FREQUENCY OF HOLDING FUTURE ADVISORY VOTES
ON EXECUTIVE COMPENSATION
The Dodd-Frank Act also enables HP stockholders to vote, on an advisory or non-binding basis, on how frequently they would like to cast an advisory vote on the compensation of HP's named executive officers. By voting on this proposal, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every one, two, or three years.
After careful consideration of the frequency alternatives, the Board believes that conducting advisory vote on executive compensation on an annual basis is appropriate for HP and its stockholders at this time.
Vote Required
The affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting is required for advisory approval of this proposal. The Board will carefully consider the outcome of the vote when making future decisions regarding the frequency of advisory votes on executive compensation. However, because this vote is advisory and not binding, the Board may decide that it is in the best interests of HP and its stockholders to hold an advisory vote more or less frequently than the alternative that has approved an Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan (the "Amended Plan"). The Hewlett-Packard Company 2004 Stock Incentive Plan (the "Original Plan") was originally approvedbeen selected by stockholders on March 17, 2004. The Amended Plan providesour stockholders.
Recommendation of the Board of Directors
Our Board recommends a vote for the following changes toapproval of an ANNUAL advisory vote on the Original Plan:
APPROVAL OF THE HEWLETT-PACKARD COMPANY
2011 EMPLOYEE STOCK PURCHASE PLAN
On November 17, 2010, the HR and establishesCompensation Committee of the terms for awards to non-employee directors;
issuance thereunder. The 2011 ESPP will be effective May 1, 2011, subject to HP stockholder approval within 12 months of Board is askingapproval.
HP stockholders are being asked to approve the Amended Plan so that HP may use2011 ESPP and the sharesBoard's reservation of the Amended Plan to assist HP in achieving its goals of increasing profitability and stockholder value, while also receiving a federal income tax deduction for certain compensation paidshares under the Amended Plan under Section 162(m)2011 ESPP for the purpose of the Internal Revenue Code, as amended (the "Code"), and for qualifying such shares for special tax treatment under Section 422423 of the Code.
SummaryInternal Revenue Code of Amendments
Additional shares available for issuance.1986, as amended (the "Code"). The Amended2011 ESPP is intended to replace HP's 2000 Employee Stock Purchase Plan authorizes(also known as the issuance"Share Ownership Plan" or "SOP"), which expired on November 1, 2010. At the time of an additional 65,000,000 shares. If stockholders approve the Amended Plan, the maximum aggregate number of shares available for issuance under the Amended Plan would be 245,000,000expiration, approximately 30,426,564 shares of which 98,917,550 shares remained available for future awards as of October 31, 2009, assuming that all outstanding performance-based restricted unit awards pay out at the target amount. The additional shares are intended to satisfy HP's equity award needs for the next five years.
As of October 31, 2009, the maximum aggregate number of shares available for future grants under all HPcommon stock plans, including assumed plans, was 177,760,041. Of those shares, 24,267,156 shares were reserved for issuance under a plan that expired in November 2009; 82,449,004 shares are no longer available for future grants under assumed plans that were retired in November 2009; 33,034,340 shares are reserved for issuance under HP's current employee stock purchase plan; 2,725,611 shares are reserved for issuance under HP's legacy employee stock purchase plan, a plan under which employee stock purchases are no longer made; and 1,366,380 shares are reserved for issuance under HP's Service Anniversary Stock Plan, a plan under which awards are no longer granted. Taking into account these adjustments, 33,917,550 shares were available for future grants as of October 31, 2009.
As of October 31, 2009, there were outstanding options to purchase a total of 233,214,162 shares and outstanding stock appreciation rights (SARs) to purchase a total of 256,912 shares granted under all of HP's stock plans, including assumed plans. If exercised, the outstanding SAR awards are expected to settle in cash rather than shares such that the exercise of those awards would not reduce the number of shares available for issuance under the Amended Plan or increase the total number of shares
outstanding. The weighted average exercise price of these options is $33.05 and the weighted average remaining term is 2.6 years.
As of October 31, 2009, there were 31,584,583 shares underlying granted but unvested stock awards under all of HP's stock plans, including assumed plans, which includes 1,771,142 unvested shares of restricted stock, 5,089,948 shares underlying unvested restricted stock units, and 24,723,493 shares underlying unvested performance-based restricted units based on performance and market conditions as of that date.SOP.
Shares underlying forfeited awards are available for future awards. Shares subject to an award that is forfeited or settled in cash are available for future awards under the Amended Plan. Shares that are used to cover the exercise price of options or to cover tax withholding obligations and shares repurchased on the open market will not be available for grants under the Amended Plan. Under the terms of the Original Plan, shares subject to awards that are canceled, expire or are forfeited are not available for future grants.
Non-employee director eligibility and terms of director awards. The Amended Plan is now the only HP plan which provides for equity awards to non-employee directors. The non-employee directors are eligible only for awards granted automatically as payment of their annual retainer for service on the Board; they are not eligible for discretionary awards under the Amended Plan. The provisions of the Amended Plan regarding non-employee director awards are based on the terms of the Hewlett-Packard Company 1997 Director Plan, which has expired. Under the Amended Plan, the terms of the awards granted to non-employee directors will be the same as those under the 1997 Director Plan except that restricted stock unit awards will be granted instead of restricted stock awards. The number of shares subject to restricted stock units granted under the Amended Plan will be determined in the same manner as restricted stock awards were determined under the 1997 Director Plan so that the value of awards granted to non-employee directors will not be affected by the change to restricted stock units.
No discounted stock options. The Original Plan permits awards of discounted stock options (options granted with an exercise price less than the fair market value of a share of HP common stock on the date of grant). Discounted options may not be granted under the Amended Plan.
No special provisions for termination of employment. The Original Plan contains provisions addressing the impact of a termination of employment on outstanding equity awards under various circumstances. Under the Amended Plan, awards are forfeited upon termination of employment unless the plan administrator determines otherwise.
Additional performance criteria. The performance criteria in the Amended Plan have been expanded to include the performance criteria under the Hewlett-Packard Company 2005 Pay-for-Results Plan. The additional criteria are: cash conversion cycle; growth in cash flow, revenue, gross margin, operating expense or operating expense as a percentage of revenue; net operating profit; controllable operating profit; operating expense or operating expense as a percentage of revenue; customer indicators; attainment of research and development milestones or new product invention or innovation; succession plan development and implementation; improvement on productivity; attainment of objective operating goals and employee metrics; and economic value added. All of the performance criteria provided for under the Original Plan remain in the Amended Plan.
Expiration date of the Amended Plan. The Original Plan is scheduled to expire on March 16, 2014. Stockholder approval of the Amended Plan will extend the plan expiration date to March 16, 2020.
Summary of the Amended Plan
2011 ESPP
The principal features of the Amended Plan2011 ESPP are summarized below. The following summary of the Amended Plan2011 ESPP does not purport to be a complete description of all of the provisions of the Amended Plan.2011 ESPP. It is qualified in its entirety by reference to the complete text of the Amended Plan,2011 ESPP, which has
been filed with the SEC as Annex A to this proxy statement. Any HP stockholder who wishes to obtain a copy of the Amended Plan2011 ESPP may do so upon written request to the Secretary at HP's principal executive offices.
General. The purpose of the Amended Plan2011 ESPP is to encourage ownership inprovide employees of HP by key personnel whose long-term employment is considered essentialand its designated subsidiaries and affiliates with an opportunity to HP's continued progress, thereby aligning participants'purchase HP common stock and, stockholders' interests. Stock options and stock awards, including stock units, and cash awards may be granted undertherefore, to have an additional incentive to contribute to the Amended Plan. Options granted under the Amended Plan may be either "incentive stock options," as defined in Section 422prosperity of the Code, or non-statutory stock options.HP.
Administration. The Amended Plan may be2011 ESPP is administered by the Board, a committee (the "Administrative Committee") appointed by the Board. The Administrative Committee has full power to interpret the 2011 ESPP, and the decisions of the Board or its delegate (as applicable,and the "Administrator").Administrative Committee are final and binding upon all participants.
Eligibility. Awards may be granted under the Amended Plan to employees of HP and its affiliates and to non-employee directors. Incentive stock options may be granted only to employeesAny employee of HP or its subsidiaries. There are approximately 304,000 employeesany HP subsidiary or affiliate designated by the Administrative Committee who is regularly employed for at least 20 hours per week and ten non-employee directorsmore than five months in a calendar year on an Entry Date (as defined below) is eligible to receive awards underparticipate in the Amended Plan. The Administrator,2011 ESPP during the Offering Period (as defined below) beginning on that Entry Date, subject to administrative rules established by the Administrative Committee. However, no employee is eligible to participate in its discretion, selects the 2011 ESPP to the extent that, immediately after the grant, that employee would have owned 5% of either the voting power or the value of HP's common stock, and no employee's rights to purchase HP's common stock pursuant to the 2011 ESPP may accrue at a rate that exceeds $25,000 per calendar year. Eligible employees become participants in the 2011 ESPP by filing with HP an enrollment agreement authorizing payroll deductions on a date set by the Administrative Committee prior to whom awards may be granted, the time or times at which such awards are granted, andapplicable Entry Date. As of October 31, 2010, approximately 250,000 HP employees, including 12 executive officers, were eligible to participate in the terms of such awards.2011 ESPP.
Section 162(m) Limitations.Participation in an Offering. Section 162(m)The 2011 ESPP is implemented by offering periods lasting for six months (an "Offering Period"). If stockholders approve the 2011 ESPP, the first six-month Offering Period will begin on May 1, 2011. Common stock is purchased under the 2011 ESPP every six months on the last trading day of each Offering Period (a "Purchase Date"), unless the participant becomes ineligible, withdraws or terminates employment earlier. The Entry Date is the first trading day of the Code generally disallows a tax deduction to public companies for compensationOffering Period. To participate in excess of $1 million paidthe 2011 ESPP, each eligible employee must authorize contributions pursuant to the chief executive officer2011 ESPP, which will generally be collected through payroll deductions. Such payroll
deductions may not exceed 10% of a participant's eligible compensation and are also subject to the three other most highly compensated officers. Certain performance-based compensationlimitations discussed above. A participant may increase or decrease his or her rate of contribution through payroll deductions at any time, but at no time may such rate of contribution exceed 10%. Each participant who has elected to participate is specifically exempt fromautomatically granted an option to purchase shares of common stock on his or her Entry Date. The option expires at the deduction limit if it otherwise meets the requirements of Section 162(m). Oneend of the requirements for equity compensation plansOffering Period, upon termination of employment, or if the employee becomes ineligible, whichever is that there must be a limitearlier, but is exercised at the end of each Offering Period to the extent of the contributions accumulated during such Offering Period. The number of shares granted to any one individual under the plan. Accordingly, the Amended Plan provides that no employee may be granted more than 1,500,000 sharespurchased by an employee in any calendar year, except that an employee may be granted awards covering up to an additional 1,500,000 shares in connection with his or her initial employment with HP. The maximum amount payable pursuant to that portion of a cash award granted under the Amended Plan for any fiscal year to any employee that is intended to satisfy the requirements for "performance-based compensation" under Section 162(m) of the Code is $15,000,000. Stockholder approval of this proposal will constitute stockholder approval of these limitations for Section 162(m) purposes.
Terms and Conditions of Options. Each option is evidenced by a stock option agreement between HP and the optionee and isOffering Period, subject to the following additional terms and conditions.limitations discussed above, may not exceed 5,000 shares of common stock.
Exercise Price.Purchase Price; Shares Purchased. The Administrator determinesShares of common stock may be purchased under the exercise2011 ESPP at a price of options at the time the options are granted. The exercise price of a stock option may not be less than 100%95% of the fair market value of the common stock on the date such optionlast trading day of the Offering Period; however, the Administrative Committee has the discretion to adjust the purchase price in the future so long as it is granted, although certain replacement options with lower exercise prices may be granted to service providersnot less than 85% of entities acquired by HP. Thethe fair market value of the common stock is determined as the closing quoted sales price for the common stock on the datelast trading day of the option is granted (or if no sales were reported that day, the last preceding day a sale occurred).Offering Period. On January 25,December 31, 2010, the closing price per share of HP common stock on the NYSE was $50.06 per share. No option may be repriced to reduce the exercise price$42.10. The number of such option without stockholder approval (except in connection withwhole shares of HP common stock a change in HP's capitalization).
Exercise of Option; Form of Consideration. The Administrator determines when options become exercisable and in its discretion may accelerate the vesting of any outstanding option. The method of payment for shares issued upon exercise of an option is specifiedparticipant purchases in each option agreement orOffering Period is determined by dividing the total amount of the participant's contributions during that Offering Period by the Administrator atpurchase price, subject to the time of exercise of the option. The Amended Plan permits payment to be made by cash, check, wire transfer, other shares of common stock of HP (with some restrictions), broker assisted cashless exercises, any other form of consideration permitted by applicable law, or any combination thereof.
Term of Option. The term of an option may be no more than ten years from the date of grant or 101/2 years in certain jurisdictions outside of the United States. No option may be exercised after the expiration of its term.5,000 share limit.
Termination of Employment. If an optionee'sTermination of a participant's employment terminates for any reason, then all options held byincluding death, immediately cancels his or her option and participation in the optionee under2011 ESPP. In such event, the Amended Plan generallycontributions credited to the participant's account will terminate immediately upon the optionee's termination unless determined otherwise by the Plan Administrator.
Other Provisions. The stock option agreement may contain other terms, provisions and conditions not inconsistent with the Amended Plan, as may be determined by the Administrator.
Terms and Conditions of Stock Awards. Each stock award agreement will contain provisions regarding (1) the number of shares subjectreturned without interest to such stock awardhim or a formula for determining such number, (2) the purchase price of the shares, if any, and the means of payment for the shares, (3) the performance criteria, if any, and level of achievement versus these criteria that will determine the number of shares granted, issued, retainable and vested, as applicable, (4) such terms and conditions on the grant, issuance, vesting and forfeiture of the shares, as applicable, as may be determined from time to time by the Administrator, (5) restrictions on the transferability of the stock award, and (6) such further terms and conditions,her or, in each case not inconsistent with the Amended Plan, as may be determined from time to time by the Administrator.
Termination of Employment. In the case of stock awards, including stock units, unless the Administrator determines otherwise, the restricted stock or restricted stock unit agreement will provide that the unvested stock or stock units will be forfeited upon the awardee's termination of employment for any reason.
Vesting. The vesting of a stock award may be subject to performance criteria, continued service of the awardee, or both.
Non-Employee Director Awards. Non-employee directors are eligible only for annual retainer awards and are not eligible for any other type of award that is authorized under the Amended Plan. Annual retainer awards paid in the form of equity are granted in the form of non-statutory stock options or restricted stock units. The non-employee directors can elect to receive the annual equity retainer and the annual cash retainer in the form of stock options or restricted stock units, provided that such election is made within 25 days after the annual meeting at which they are elected. If no election is made within this period, the annual equity retainer will be in the form of restricted stock units and the annual cash retainer will be paid in cash. The awards are granted automatically one month after the beginning of the director's year of service. The exercise price of director stock options cannot be less that 100% of the fair market value of a share of HP common stock on the grant date.
The number of shares subject to non-statutory stock option awards granted to non-employee directors is determined as follows:
The Administrator determines the Multiplier priordeath, to the grant date using a modified Black-Scholes option valuation method that takes into account the following factors: (1) the fair market value of HP common stock on the date the Multiplier is determined; (2) the average length of time that HP stock options are held by optionees priorperson or persons entitled to exercise; (3) the risk-free rate of return based on the term determined in (2) and on the interest rates of U.S. government securities; (4) the annual dividend yield for HP common stock; and (5) the volatility of HP common stock over the ten-year period preceding the date that the Multiplier is determined.
Table of Contentsthose contributions.
The number of shares subject to restricted stock unit awards granted to non-employee directors is determined as follows:
Cash Awards. Each cash award agreement will contain provisions regarding (1) the target and maximum amount payable to the awardee as a cash award, (2) the performance criteria and level of achievement versus the criteria that will determine the amount of such payment, (3) the period as to which performance shall be measured for establishing the amount of any payment, (4) the timing of any payment earned by virtue of performance, (5) restrictions on the alienation or transfer of the cash award prior to actual payment, (6) forfeiture provisions, and (7) such further terms and conditions, in each case not inconsistent with the Amended Plan, as may be determined from time to time by the Administrator. The maximum amount payable as a cash award that is settled for cash may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of a cash award granted under the Amended Plan for any fiscal year to any awardee that is intended to satisfy the requirement for "performance-based compensation" under Section 162(m) of the Code shall not exceed $15,000,000.
Nontransferability. Unless otherwise determined by the Administrator, awards granted under the Amended Plan are not transferable other than by will or the laws of descent and distribution, and options may be exercised during the optionee's lifetime only by the optionee. The Administrator will have the sole discretion to permit the transfer of an award.
Qualifying Performance Criteria. Qualifying Performance Criteria means any one of more of the performance criteria listed below, either individually, alternatively or in combination, applied to either HP as a whole or to a business unit, affiliate or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis, or relative to a pre-established target, to previous years' results or to a designated comparison group, in each case as specified by the Administrator in the award agreement. The performance criteria may be (1) cash flow or cash conversion cycle, (2) earnings (including gross margin, earnings before interest and taxes, earnings before taxes, and net earnings), (3) earnings per share, (4) growth in earnings or earnings per share, cash flow, revenue, gross margin, operating expense or operating expense as a percentage of revenue, (5) stock price, (6) return on equity or average stockholders' equity, (7) total stockholder return, (8) return on capital, (9) return on assets or net assets, (10) return on investment, (11) revenue, (12) income or net income, (13) operating income or net operating income, (14) operating profit, net operating profit, or controllable operating profit, (15) operating margin or operating expense or operating expense as a percentage of revenue, (16) return on operating revenue, (17) market share or customer indicators, (18) contract awards or backlog, (19) overhead or other expense reduction, (20) growth in stockholder value relative to the moving average of the S&P 500 Index or HP's peer group index, (21) credit rating, (22) strategic plan development and implementation, attainment of research and development milestones or new product invention or innovation, (23) succession plan development and implementation, (24) improvement in productivity or workforce diversity, (25) attainment of objective operating goals and employee metrics, (26) economic value added, and (27) such other similar criteria as may be determined by the Administrator.
To the extent consistent with Section 162(m) of the Code, the Administrator may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (A) asset write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; and (E) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30
and/or in management's discussion and analysis of financial condition and results of operations appearing in HP's annual report to shareholders for the applicable year.
Adjustments Uponupon Changes in Capitalization, Dissolution, Merger or Sale of Assets. Subject toIn the event that HP common stock is changed by reason of any required action bystock split, stock dividend, combination, recapitalization or other similar changes in HP's stockholders, (1)capital structure effected without the receipt of consideration, appropriate proportional adjustments may be made in the number and kind of shares available for issuance underof stock subject to the Amended Plan and/or covered by each outstanding award, (2)2011 ESPP, the number of shares of stock to be purchased pursuant to an option and the price per share subject to each outstanding award and (3) the share limitations set forth in Section 3 of the Amended Plancommon stock covered by an option. Any such adjustment will be proportionately adjusted for any increase or decrease in the number or kind of issued shares resulting from a stock split, reverse stock split, dividend or other distribution (whether in the form of cash, shares, other securities or property (other than regular cash dividends)) combination or reclassification of HP's stock, or any other increase or decrease in the number of issued shares of HP's stock effected without receipt of consideration by HP; provided, however, that conversion of any convertible securities of HP shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator,Board, whose determination in that respect shall be final, bindingconclusive and conclusive. Except as expressly provided in the Amended Plan, no issuance by HP of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of common stock subject to an award.
binding. In the event of a liquidationproposed sale of all or dissolution, any unexercised options or stock awards will terminate. The Administrator, in its discretion, may provide that each optionee shall have the right to exercisesubstantially all of the optionee's options, including those not otherwise exercisable, until the date ten days prior to the consummation of the liquidation or dissolution and be fully vested in any stock awards.
In the event of a change of controlassets of HP as defined inor the Amended Plan and determinedmerger or consolidation of HP with another company, the Board may determine that each option will be assumed by, or an equivalent option substituted by, the Board,successor company or its affiliates, that the Board, in its discretion, may provide for the assumption, substitutionPurchase Date will be accelerated, or adjustment of eachthat all outstanding award, accelerate the vesting of options will terminate and terminate any restrictions on stock awards or cash awards, or cancel awards for a cash payment to the awardee.accumulated payroll deductions will be refunded.
Amendment and Termination of the Plan. The AdministratorBoard may terminate or amend alter, suspend or terminate the Amended Plan or any award agreement, or any part thereof,2011 ESPP at any time, and for any reason. However, HP will obtain stockholder approval for any amendment to the Amended Plan to the extent required by applicable laws or stock exchange rules. In addition, without limiting the foregoing, unless approved by HP stockholders, no such amendment shall be madeexcept that would: (1)it may not increase the maximum number of shares for which awards may be granted undersubject to the Amended Plan,2011 ESPP other than an increase pursuant to a changeas described in HP's capitalization, (2) reduce the minimum exercise price for options granted under the Amended Plan, (3) reduce the exercise price of outstanding options, or (4) materially expand the class of persons eligible to receive awards under the Amended Plan. No such action2011 ESPP. The 2011 ESPP will continue until May 1, 2021, unless otherwise terminated by the Administrator or stockholdersBoard.
Withdrawal. Generally, a participant may alter or impair any award previously granted underwithdraw from the Amended Plan without2011 ESPP during an Offering Period prior to the written consent ofchange enrollment deadline established by the awardee. Unless terminated earlier,Administrative Committee. The Administrative Committee may establish rules limiting the Amended Plan shall terminate on March 16, 2020.frequency with which participants may withdraw and re-enroll in the plan and may establish a waiting period for participants wishing to re-enroll.
New Plan Benefits. Because benefits under the Amended Plan2011 ESPP will depend on the Administrator's actionsemployees' elections to participate and the fair market value of HP common stock at various future dates, it is not possible to determine the benefits that will be received by directors, executive officers and other employees if the Amended Plan2011 ESPP is approved by the stockholders.
U.S. Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock option does Non-employee directors are not recognize taxable income ateligible to participate in the time the option is granted or upon its exercise, although the exercise is an adjustment item for alternative minimum tax purposes and may subject the optionee to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, the optionee will recognize long-term capital gain or loss equal to the2011 ESPP.
difference betweenU.S. Federal Income Tax Consequences
If HP stockholders approve this proposal, the sale price2011 ESPP, and the exercise price.right of participants to make purchases thereunder, should qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the 2011 ESPP are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the holding periodsshares are not satisfied, then: (1) ifsold or otherwise disposed of more than two years from the sale price exceedsapplicable Entry Date and more than one year from the exercise price,date of transfer of the optioneeshares to the participant, then the participant generally will recognize capital gainordinary income measured as the lesser of (i) the excess of the amount received upon such sale or disposition over the purchase price, or (ii) an amount equal to 5% of the fair market value of the shares as of the Entry Date. Any additional gain should be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income generally measured as the excess if any, of the sale price over the fair market value of the shares on the date of exercise and will recognize ordinary income equal to the difference, if any, between the lesser of the sale price or the fair market value of the shares on the exercise date and the exercise price; or (2) if the sale price is less than the exercise price, the optionee will recognize a capital loss equal to the difference between the exercise price and the sale price. Unless limited by Section 162(m) of the Code, HP is entitled to a deduction in the same amount as and at the time the optionee recognizes ordinary income.
Non-Statutory Stock Options. An optionee does not recognize any taxable income at the time a non-statutory stock option is granted. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the sharesare purchased over the exercisepurchase price. Any taxable income recognized in connection with an option exercise by an employee of HP is subject to tax withholding by HP. Unless limited by Section 162(m) of the Code, HP is entitled to a deduction in the same amount as and at the time the optionee recognizes ordinary income. Upon aadditional gain or loss on such sale or disposition of such shares by the optionee, any difference between the sale price and the exercise price, to the extent not recognized as taxable income as provided above, is treated aswill be long-term or short-term capital gain or loss, depending on the holding period.
Stock Awards. Stock awards will generally be taxed in the same manner as non-statutory stock options. However, a restricted stock award HP is subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code to the extent the award will be forfeited in the event that the employee ceases to provide services to HP. As a result of this substantial risk of forfeiture, the employee will not recognize ordinary income at the time of award. Instead, the employee will recognize ordinary income on the dates when the stock is no longer subject to a substantial risk of forfeiture, or when the stock becomes transferable, if earlier. The employee's ordinary income is measured as the difference between the amount paid for the stock, if any, and the fair market value of the stock on the date the stock is no longer subject to forfeiture.
The employee may accelerate his or her recognition of ordinary income, if any, and begin his or her capital gains holding period by timely filing (i.e., within thirty days of the award) an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the amount paid for the stock, if any, and the fair market value of the stock on the date of the grant of the award, and the capital gain holding period commences on such date. The ordinary income recognized by an employee will be subject to tax withholding by HP. Unless limited by Section 162(m) of the Code, HP is entitled to a deduction infor amounts taxed as ordinary income or capital gain to a participant except to the same amount as and atextent ordinary income is recognized by participants upon a sale or disposition of shares prior to the time the employee recognizes ordinary income.
Stock Units and Performance-Based Units. A grantee does not recognize any taxable income at the time a stock unit is granted. Generally, restricted stock units, including performance-based units, will be subject to income taxation based upon the fair market valueexpiration of the shares underlying the units on each date shares are delivered or made available at the vesting date. The ordinary income recognized by an employee will be subjectholding period(s) described above. In all other cases, no deduction is allowed to tax withholding by HP. Unless limited by Section 162(m) of the Code, HP is entitled to a deduction in the same amount as and at the time the employee recognizes ordinary income.
Cash Awards. Upon receipt of cash, the recipient will have taxable ordinary income, in the year of receipt, equal to the cash received. Any cash received will be subject to tax withholding by HP. Unless limited by Section 162(m) of the Code, HP will be entitled to a tax deduction in the amount and at the time the recipient recognizes compensation income.
The foregoing is only a summary of the effect of U.S. federal income taxation upon awardeesparticipants and HP with respect to the grant and exercise of awards under the Amended Plan2011 ESPP based on the U.S. federalFederal income tax laws in effect as of the date of this proxy statement. It is not intended to be
exhaustive and does not discuss the tax consequences arising in the context of the employee's death or the income tax laws of any municipality, state or foreign country in which the employee's income or gain may be taxable or the gift, estate, excise (including application of Code Section 409A), or any tax law other than U.S. federal income tax law. Because individual circumstances may vary, HP advises all recipients to consult their own tax advisor concerning the tax implications of awards granted under the Amended Plan.
Equity Compensation Plan Information
For additional information about our equity compensation plans, please see the section titled "Equity Compensation Plan Information" on page 72.
Approval of the Amended Plan requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting, provided that the total votes cast on the proposal represents more than 50% of all shares entitled to vote on the proposal.
Recommendation of the Board of Directors
Our Board recommends a vote FOR the approval of the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan.
PROPOSAL TO CONDUCT AN ANNUAL ADVISORY VOTE ON EXECUTIVE COMPENSATION
The HP Board is providing HP stockholders with the opportunity to advise the Board as to whether HP should conduct an advisory vote with respect to its executive compensation policies and procedures at each annual meeting of stockholders beginning with HP's 2011 annual meeting of stockholders. If this proposal is approved, HP stockholders would vote at each HP annual meeting of stockholders on the compensation policies and procedures as describedparticipation in the "Compensation Discussion and Analysis" section of the proxy statement for that meeting. The annual advisory vote would be non-binding, but the Board and the HR and Compensation Committee would take into account the outcome of the vote when making future decisions about its executive compensation policies and procedures.2011 ESPP.
Vote Required
Approval of this proposalthe 2011 ESPP requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting.
Recommendation of the Board of Directors
Our Board recommends a vote FOR the approval of the Hewlett-Packard Company 2011 Employee Stock Purchase Plan.
APPROVAL OF AN AMENDMENT TO THE HEWLETT-PACKARD COMPANY
2005 PAY-FOR-RESULTS PLAN TO EXTEND THE TERM OF THE PLAN
The Hewlett-Packard Company 2005 Pay-for-Results Plan (the "PfR Plan") was approved by stockholders in March of 2006. The PfR Plan provides a non-exclusive framework that can satisfy the standards of Section 162(m) of the Code. Under the PfR Plan, the HR and Compensation Committee of the Board (the "Committee") may designate performance measures and a bonus formula with respect to a performance period for each PfR Plan participant. Utilizing those criteria and other factors that the Committee determines appropriate, the Committee uses the PfR Plan to reward accomplishments achieved or recognized during the performance period. The Board believes that the PfR Plan benefits stockholders because it creates a strong incentive for executives to meet or exceed specified financial goals. Stockholders are being asked to approve an amendment to the PfR Plan to remove the expiration date so that the PfR Plan will continue until terminated by the Committee and to fulfill the requirements to qualify the amounts paid pursuant to the PfR Plan for a United States federal income tax deduction by HP. Other than the removal of the plan expiration, all terms of the PfR Plan remain unchanged.
The Board believes that it is in the best interest of HP and its stockholders to provide for a stockholder-approved plan under which bonuses qualify for deductibility by HP for United States federal income tax purposes, to the maximum extent permitted. Accordingly, the PfR Plan is structured such that payments under it can qualify as "performance-based" compensation within the meaning of Section 162(m) of the Code. In general, Section 162(m) of the Code places a limit of $1 million on the deductibility for federal income tax purposes of the compensation paid to "covered employees," generally defined as the four highest-paid officers employed by the company on the last day of its taxable year other than the chief financial officer. However, compensation that qualifies as "performance-based" under Section 162(m) is not subject to the $1 million limitation. One of the requirements of "performance-based" compensation for purposes of Section 162(m) of the Code is that the material terms of the performance goal under which compensation may be paid be disclosed to, and approved by, the company's stockholders every five years. Therefore, we are seeking stockholder approval of the material terms of the PfR Plan which permit continued qualification under Section 162(m). For purposes of Section 162(m), the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the PfR Plan is discussed below, and stockholder approval of the amendment to the PfR Plan will be deemed to constitute approval of each of these aspects of the PfR Plan for purposes of the approval requirements of Section 162(m) of the Code.
Summary of the PfR Plan
The principal features of the PfR Plan are summarized below. The following summary of the PfR Plan does not purport to be a complete description of all of the provisions of the PfR Plan. It is qualified in its entirety by reference to the complete text of the PfR Plan, which has been filed with the SEC as Annex B to this proxy statement. Any HP stockholder who wishes to obtain a copy of the PfR Plan may do so upon written request to the Secretary at HP's principal executive offices.
Administration. The Committee has complete authority to: (i) select from the eligible participants the individuals to whom awards under the PfR Plan may from time to time be paid, (ii) determine the performance periods and performance goals upon which payment of awards under the PfR Plan will be based, and (iii) make any other determination and take any other action that the Committee deems necessary or desirable to discharge its duties under the PfR Plan. The Committee may delegate various functions to a "Plan Committee" to act on certain compensation and benefits matters. The Plan Committee will have the responsibility for general administration and interpretation of the PfR Plan,
except to the extent inconsistent with Section 162(m) of the Code. The Plan Committee is composed of HP's Executive Vice President of Human Resources, General Counsel, Controller and Treasurer. The Plan Committee may further delegate its administrative tasks to other HP employees as it deems appropriate.
Participation and Eligibility. Each Section 16 officer is eligible to participate in the PfR Plan. HP's non-employee directors are not entitled to participate in the PfR Plan. As of December 31, 2010, HP had 12 Section 16 officers who were eligible to participate in the PfR Plan in fiscal 2011.
If a person ceases to be a Section 16 officer or becomes a Section 16 officer during a performance period, such participant may receive a prorated bonus under the PfR Plan.
A participant generally will forfeit any bonus for a performance period during which such participant is involuntarily terminated by HP or terminates his or her employment with HP for any reason, although the Committee may determine that the forfeiture does not apply in cases of termination due to death, workforce reduction, disability, retirement or in connection with certain mutual separation agreements, but only to the extent that the applicable performance goals are met. Adjustments may also be made if a participant is on a leave of absence approved by HP or is on non-pay status.
Awards under the PfR Plan are subject to repayment in the event of a significant restatement of financial results. In the event of such a restatement, the Board will review all bonuses that were paid to Section 16 officers on the basis of having met or exceeded specific performance targets for performance periods beginning after December 31, 2005 for the restatement period. If such bonuses would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup all such bonuses paid to Section 16 officers whose fraud or misconduct resulted in such restatement.
PfR Plan Operation. Within the earlier of (i) 90 days after commencement of a performance period, or (ii) the expiration of 25% of the performance period, the Committee will designate or approve:
When the Committee establishes a bonus program, the Committee first determines the length of the performance period in which a bonus program applies. The Committee also determines the performance measures, and associated weighting and targeted goals, for the applicable performance period. For the 2011 fiscal year performance period, the Committee selected non-GAAP net profit (before bonus) to determine overall plan funding. For individual participants, the Committee will make bonus awards based on performance measures that include business-owned net profit and revenue, as well as achievement against certain strategic objectives, customer satisfaction and employee development metrics.
Business Criteria and Maximum Amount of Compensation Payable under the PfR Plan. The performance measures for any performance period will be any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either HP as a whole or to a region, business unit, affiliate or business segment, either individually, alternatively or in any combination, and measured either on an absolute basis or relative to a pre-established target, to a previous period's results or to a designated comparison group, in each case as specified by the Committee: (i) cash flow (including operating cash flow or free cash flow), (ii) revenue (on an absolute basis or adjusted for currency effects), (iii) gross margin, (iv) operating expenses or operating expenses as a percentage of revenue, (v) earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings, and may be determined in accordance with United States Generally Accepted Accounting Principles ("GAAP") or adjusted to exclude any or all non-GAAP items), (vi) earnings per share (on a GAAP or non-GAAP basis), (vii) growth in any of the foregoing measures, (viii) stock price, (ix) return on equity or average stockholders' equity, (x) total stockholder return, (xi) growth in stockholder value relative to the moving average of the S&P 500 Index or another index, (xii) return on capital, (xiii) return on assets or net assets, (xiv) return on investment, (xv) economic value added, (xvi) operating profit, controllable operating profit, or net operating profit, (xvii) operating margin, (xviii) cash conversion cycle, (xix) market share, (xx) contract awards or backlog, (xxi) overhead or other expense reduction, (xxii) credit rating, (xxiii) strategic plan development and implementation, (xxiv) succession plan development and implementation, (xxv) improvement in workforce diversity, (xxvi) customer indicators, (xxvii) new product invention or innovation, (xxviii) attainment of research and development milestones, (xxix) improvements in productivity, (xxx) attainment of objective operating goals and (xxxi) employee metrics.
The PfR Plan further provides that the Committee may appropriately adjust any evaluation of performance under a performance measure to exclude any of the following events that occurs during a performance period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of non-GAAP earnings as reflected in any HP press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D) litigation or claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items.
The maximum bonus that any one participant may be paid under the PfR Plan in any one fiscal year is $10 million.
Committee Certification and Determination of Awards. After the conclusion of each performance period, the Committee will determine and certify the extent to which the targeted goals for the performance measures applicable to the performance period were achieved. The Committee will also certify the bonus amount for each participant for the performance period based upon bonus formula for such participant as previously established by the Committee. The Committee has the authority to reduce or eliminate to zero the amount of any bonus payable under the PfR Plan to any participant; however, the Committee cannot increase the bonus amounts payable under the PfR Plan in excess of the maximum that a participant would receive based on the bonus formula established for the participant at the beginning of the performance period.
Non-Exclusivity. Nothing contained in the PfR Plan prevents the Board from adopting other or additional compensation arrangements that provide for bonuses or other forms of compensation for HP's officers or other employees regardless of stockholders approval of the PfR Plan. Such other arrangements may or may not qualify for deductibility under Section 162(m) of the Code and may be either applicable only for specific officers or employees, or may be generally applicable. However, for payments under the PfR to qualify as performance-based compensation under Section 162(m), any such other or additional compensation arrangements may not be designed to provide PfR Plan participants
all or part of the compensation they would receive under the PfR Plan regardless of whether the performance goal is attained.
Amendment and Termination of the PfR Plan. The Committee may amend, suspend or terminate the PfR Plan at any time as it may deem proper and in the best interests of HP; provided that no amendment, suspension or termination may be made that would increase the amount of compensation payable pursuant to a bonus awarded under the PfR Plan or cause amounts payable under the PfR Plan to fail to qualify as performance-based compensation under Section 162(m) of the Code. Administrative changes or changes required by law may be made by the Plan Committee. To the extent required under applicable law, amendments to the PfR Plan will be subject to stockholder approval.
New Plan Benefits. Information about the range of possible amounts that could have been paid under the PfR Plan for fiscal 2010 is set forth in the "Grants of Plan-Based Awards in Fiscal 2010" table under "Executive Compensation."
U.S. Federal Income Tax Consequences
All amounts paid pursuant to the PfR Plan constitute taxable income to the employee when received. If a participant elects to defer a portion of the bonus, the participant may be entitled to defer the recognition of income. Generally, and subject to Section 162(m) of the Code, HP will be entitled to a federal income tax deduction when amounts paid under the PfR Plan are included in employee income. Subject to stockholder approval of the PfR Plan, the failure of any aspect of the PfR Plan to satisfy Section 162(m) shall not void any action taken by the Committee under the PfR Plan.
As stated above, the PfR Plan is being submitted for stockholders approval at the annual meeting so that payments under the PfR Plan can qualify for deductibility by HP under Section 162(m) of the Code. However, stockholder approval of the PfR Plan is only one of several requirements under Section 162(m) of the Code that must be satisfied for amounts payable under the PfR Plan to qualify for the "performance-based" compensation exemption under Section 162(m) of the Code, and submission of the PfR Plan to stockholder approval should not be viewed as a guarantee that all amounts paid under the PfR Plan will in practice be deductible by HP.
The foregoing is only a summary of the effect of U.S. federal income taxation upon participants and HP with respect to amounts paid pursuant to the PfR Plan. It is not intended to be exhaustive and it does not discuss the tax consequences arising in the context of the employee's death or the income tax laws of any municipality, state or foreign country in which the employee's income or gain may be taxable. Because individual circumstances may vary, HP advises all recipients to consult their own tax advisor concerning the tax implications of participation in the PfR Plan.
Vote Required
Approval of the amendment to the PfR Plan requires the affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote on this proposal to conduct anat the annual advisorymeeting.
Recommendation of the Board of Directors
Our Board recommends a vote on executive compensation.FOR the approval of the amendment of the Hewlett-Packard Company 2005 Pay-for-Results Plan.
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 20092010 concerning beneficial ownership by:
The information provided in the table is based on HP's records, information filed with the SEC and information provided to HP, except where otherwise noted.
The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity or individual has sole or shared voting power or investment power and also any shares that the entity or individual has the right to acquire as of March 1, 20102011 (60 days after December 31, 2009)2010) through the exercise of any stock options, through the vesting of restricted stock units ("RSUs") payable in shares, or upon the exercise of other rights. Beneficial ownership excludes options or other rights vesting after March 1, 20102011 and any RSUs vesting on or before March 1, 20102011 that may be payable in cash or shares at HP's election. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table.
Name of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | |||||
---|---|---|---|---|---|---|---|
State Street Bank and Trust Company(1) | 127,144,496 | 5.4 | % | ||||
Marc L. Andreessen | 0 | * | |||||
Lawrence T. Babbio, Jr.(2) | 112,181 | * | |||||
Sari M. Baldauf(3) | 26,862 | * | |||||
Rajiv L. Gupta(4) | 1,020 | * | |||||
John H. Hammergren(5) | 43,588 | * | |||||
Joel Z. Hyatt(6) | 9,725 | * | |||||
John R. Joyce | 6,416 | * | |||||
Robert L. Ryan(7) | 16,152 | * | |||||
Lucille S. Salhany(8) | 81,384 | * | |||||
G. Kennedy Thompson(9) | 17,724 | * | |||||
Mark V. Hurd(10) | 1,432,627 | * | |||||
Catherine A. Lesjak(11) | 155,523 | * | |||||
R. Todd Bradley(12) | 414,167 | * | |||||
Ann M. Livermore(13) | 2,749,322 | * | |||||
Vyomesh I. Joshi(14) | 2,048,075 | * | |||||
All current executive officers and directors as a group (22 persons)(15) | 9,107,143 | * |
Name of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | |||||
---|---|---|---|---|---|---|---|
Blackrock, Inc.(1) | 149,051,919 | 6.9 | % | ||||
Marc L. Andreessen | 2,397 | * | |||||
Léo Apotheker | 159,550 | * | |||||
Lawrence T. Babbio, Jr.(2) | 102,957 | * | |||||
Sari M. Baldauf(3) | 31,314 | * | |||||
Shumeet Banerji | 0 | ||||||
Rajiv L. Gupta(4) | 15,461 | * | |||||
John H. Hammergren(5) | 50,847 | * | |||||
Joel Z. Hyatt(6) | 16,985 | * | |||||
John R. Joyce(7) | 10,772 | * | |||||
Raymond J. Lane | 0 | ||||||
Gary M. Reiner | 0 | ||||||
Patricia F. Russo | 0 | ||||||
Robert L. Ryan(8) | 20,532 | * | |||||
Lucille S. Salhany(9) | 73,370 | * | |||||
Dominique Senequier | 0 | ||||||
G. Kennedy Thompson(10) | 24,984 | * | |||||
Margaret C. Whitman(11) | 66 | * | |||||
Catherine A. Lesjak(12) | 185,869 | * | |||||
R. Todd Bradley(13) | 386,995 | * | |||||
Ann M. Livermore(14) | 1,908,231 | * | |||||
Vyomesh I. Joshi(15) | 1,780,640 | * | |||||
All current executive officers and directors as a group (28 persons)(16) | 6,721,165 | * |
Schedule 13G contained information as of February 17, 2009January 29, 2010 and may not reflect current holdings of HP common stock. The address for StateBlackrock, Inc. is 40 East 52nd Street, Bank and Trust Company is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors, executive officers and holders of more than 10% of HP common stock to file reports with the SEC regarding their ownership and changes in ownership of our securities. HP believes that, during fiscal 2009,2010, its directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements. In making these statements, HP has relied upon an examination of the copies of Forms 3, 4, and 5, and amendments thereto, and the written representations of its directors, executive officers and 10% stockholders.
TRANSACTIONS WITH RELATED PERSONS
Related Person Transaction Policies and Procedures
HP has adopted a written policy for approval of transactions between HP and its directors, director nominees, executive officers, beneficial owners of more than 5% of HP's common stock, and their respective immediate family members where the amount involved in the transaction exceeds or is expected to exceed $100,000 in a single calendar year.
The policy provides that the Nominating and Governance Committee reviews certain transactions subject to the policy and decides whether or not to approve or ratify those transactions. In doing so, the Nominating and Governance Committee determines whether the transaction is in the best interests of HP. In making that determination, the Nominating and Governance Committee takes into account, among other factors it deems appropriate:
The Nominating and Governance Committee has delegated authority to the chair of the Nominating and Governance Committee to pre-approve or ratify transactions where the aggregate amount involved is expected to be less than $1 million. A summary of any new transactions pre-approved by the chair is provided to the full Nominating and Governance Committee for its review in connection withat each of the committee's regularly scheduled meetings.
The Nominating and Governance Committee has adopted standing pre-approvals under the policy for limited transactions with related persons. Pre-approved transactions include:
A summary of new transactions covered by the standing pre-approvals described in paragraphs 3 and 4 above is provided to the Nominating and Governance Committee for its review in connection with each of the committee's regularly scheduled meetings.
Fiscal 20092010 Related Person Transactions
Christopher Rittenmeyer,HP enters into commercial transactions with many entities for which its executive officers or directors serve as directors and/or executive officers in the sonordinary course of Ronald Rittenmeyer,its business. All of those transactions were pre-approved transactions as defined above except for transactions with Current Media LLC, McKesson Corporation, Ning, Inc. and Silver Lake. In fiscal 2010, Mr. Hyatt was Vice Chairman of Current Media, Mr. Hammergren was Chairman and Chief Executive Officer of McKesson, and Mr. Andreessen was Chairman of Ning. In addition, Mr. Joyce was a former executive officermanaging director of HP, was employed by HP duringSilver Lake for a portion of fiscal 2009. He was paid2010. HP considers these transactions to be arm's-length and does not believe that any of Mr. Hyatt, Mr. Hammergren, Mr. Andreessen and Mr. Joyce has a base salarymaterial direct or indirect interest in any of $233,100, participated in HP's equity award and benefit programs and received an award of 10,690 performance-based restricted units during that period. He also received cash payments totaling $859,787 in fiscal 2009 pursuant to an agreement with HP relating to the termination of his employment.such commercial transactions.
Kimberly M. Bocian, the spouse of Peter J. Bocian, an executive officer of HP, was employed by HP during a portion of fiscal 2009.2010. She was paid a base salary of $151,136$209,000 and received bonuses totaling $77,954$147,750 with respect to her employment with HP during that period.fiscal 2010. Ms. Bocian also participated in HP's equity award and benefit programs in fiscal 20092010 and received an award of 5,000 stock options1,000 performance-based restricted units during that period.fiscal 2010.
Compensation Discussion and Analysis
IntroductionExecutive Summary
As one of the world's largestleading technology company, Hewlett-Packard requires uniquely talented executives who are able to manage the company in a way that creates both short- and long-term value for stockholders. HP'scompanies, Hewlett-Packard's mission is to invent technologies and deliver services that drive business value, create social benefit and improve the lives of customers—with a focus on positively impacting the greatest number of people possible.
The To fulfill this mission, the HR and Compensation Committee (the "Committee") of the Board of Directors (the "Committee""Board") believes that HP must recruit and retain executive talent from among the degree to which HP fulfills its missionmost capable and highest performing executives within any industry. Because the labor market for this type of executive talent is highly dependent upon the long-term retention and effective motivation of its executives. As such,limited, the Committee spends a significant amount of time understanding the market for executive talent and the economic factors that affect HP, and HP's short- and long-term performance within this context.
Compensation and benefits for employees at all levels of HP, including for the named executive officers listed in the Summary Compensation Table on page 62 (the "NEOs"), are determined in the context of HP's Total Rewards Program. The Total Rewards Program includes base pay, annual variable pay, long-term incentive pay, benefits and perquisites. Overall, the Total Rewards Program aims to foster a high-performance culture at all levels and to provide an opportunity for employees to earn significant rewards if HP achieves strong financial results.
HP's "pay-for-performance" philosophy forms the foundation of all of the Committee's decisions regarding compensation. Like most companies, HP uses a combination of fixed and variable compensation programs to reward and incentivize strong performance, and to align the interests of HP's executives with its stockholders. This compensation philosophy, and the program structure approved by the Committee, is central to HP's ability to attract, retain and motivate individuals who can achieve the superior financial results that HP stockholders expect.
Each year the Committee, along with HP management, establishes performance targets for short- and long-term incentive plans that require the achievement of significant financial results. At the end of each year, the Committee determines compensation by assessing performance against these financial targets, as well as in light of HP's performance relative to its peers on other financial and non-financial factors and unusual or extraordinary events. While the Committee believes that financial performance should be the most significant driver of compensation, other factors that drive long-term value for stockholders are also taken into account by the Committee, including improvements in market share, successful product launches, achievement of strategic objectives and customer satisfaction. Ultimately, the amount of compensation awarded to HP's executives is determined based on HP's performance and what the Committee believes is in the best interests of stockholders. These decisions are supported by strong corporate governance practicesThis approach has been used consistently over the years and transparency—areas where HP has long been a leader.
Like most companies, HP uses a combination of fixed and variable compensation programs to help align the interests of HP's executives with its stockholders. HP's "pay-for-performance" philosophy forms the foundation of all of the Committee's decisions regarding compensation. Underlying these decisions is also the Committee's belief that the labor market for the type of executive talent HP requires is limited and that HP's executives are among the most capable, highest performing executives available regardless of the industry. This compensation philosophy is central toresulted in HP's ability to attract and retain the motivated anda talented individuals who have driven superior financial results for HP and its stockholders.
Each year the Committee, along with HP management, establishes aggressive targets that require the achievement of significant financial performance. At the end of each year, the Committee determines compensation by assessing performance against financial targets, relative peer performance and other non-financial goals. This approach has been consistently used over time and has helped to ensure stability within HP's executive leadership throughteam throughout a period of tremendous growth and transformationtransformation.
Performance during fiscal 2010, and for the three year period ending with fiscal 2010, was consistently solid and demonstrated improved earnings and operational discipline year-over-year throughout a period of significant financial turmoil. Under the compensation structure established in 2008, the Committee believes that the payouts made in fiscal 2010 reflect an ever-changing economic environment.appropriate level of compensation for a talented team of HP executives.
Other aspects of our compensation program are intended to further align our executives' interest with stockholders. These include:
The following pages of this Compensation Discussion and Analysis (this "CD&A") include the following:
The compensation tables appear immediately following this CD&A.
HP's Total Rewards Program
Compensation and benefits for employees at all levels of HP, including for the named executive officers listed in the Summary Compensation Table on page 55 (the "NEOs"),NEOs, are determined in the context of HP's Total Rewards Program. The Total Rewards Program includes base pay, annual variable pay, long-term incentive pay, benefits and perquisites. Overall, the Total Rewards Program aims to foster a high-performance culture at all levels and to provide an opportunity for employees to earn significant rewards ifwhen HP achieves strong financial results.
While the elements of the Total Rewards Program are intended to motivate and encourage employees at all levels of HP to drive performance, and achieve superior results for stockholders, there is a different emphasis on certain elements of the Total Rewards Program based on an employee's position and ability to impact HP's financial results. Within the Total Rewards Program, the percentage of performance-based pay, or at-risk pay, increases with job responsibility. Among HP's peer group companies, HP executives have a higher percentage of performance-based pay, which generally means smaller bonuses and lower overall compensation in years of low performance and higher bonuses and long-term incentive payouts in years of exceptional performance, reflective of the performance achieved.
Executive Officer Compensation Within Total Rewards
As one of the world's largestleading technology companycompanies with multiple business units of significant size and complexity, the Committee generally targets the total compensation of HP's executive officers to be at or near the 75th percentile of pay for comparable positions at its peer group companies. The Committee believes this level of pay is necessary to provide appropriate retention and incentives to HP's executive officers and that it is appropriate given HP's size and complexity. It also generally corresponds to HP's percentile ranking of revenue within its peer group companies. In the case of
NEOs who head significant business segments, the Committee has determined that in certain cases, setting and paying target compensation at or above this range, up to approximately the 90th percentile, is justified due to the fact that thesesome business segments are of a similar size or even exceed the total size of manyseveral of HP's peer group companies.
At the NEO level, there is the greatest emphasis on linking pay to performance so as to align the interests of the NEOs directly with those of stockholders. Accordingly, compensation is structured so that approximately 80% to 90% of NEO target compensation is performance-basedperformance based depending upon HP's financial results, with the remaining 10% to 20% comprising base pay and benefits. The Committee believes that this percentage of performance-based pay is appropriate for application to the NEOs.
Within the portion of pay representing performance-based pay, approximately 15%10% to 35%30% is tied to achievement of annual incentive goals and 65%70% to 85%90% is tied to achievement of financial goals over a longer period of time. This mix of short- and long-term incentives provides sufficient rewards in the short-term to motivate near-term performance, while at the same time providing significant incentives to keep HP's executives focused on longer-term corporate goals that drive stockholder value. This also
mitigates the risk of NEOs focusing solely on short-term or solely on long-term goals. It is also consistent with the practice of HP's peer group companies.
HP's incentive compensation programs are also designed to provide payments based on a combination of both individual business unit and aggregate HP financial results. This type of program design motivates business units across HP's varied portfolio to work together to achieve greater returns for stockholders. Under this compensation structure, when business segment or company results do not meet expectations, the total compensation of HP's NEOs may be below target market position in comparison to HP's peer group companies. Similarly, when superior results are achieved, the NEOs may receive significant above-market rewards. Furthermore, in any one year, because HP is comprised of a number of independent business units, NEOs in high-performing business units may receive significantly more compensation than NEOs in business units that did not perform as well.
Oversight and Authority Over Executive Compensation
Role of the HR and Compensation Committee and its Advisors
The Committee oversees and provides strategic direction to management regarding HP's Total Rewards Program generally. It makes recommendations regarding the CEO's compensation to the independent members of the Board, and it approves the compensation of the remaining Section 16 officers. Each Committee member is an independent non-employee director with significant experience in managing employee-related issues and making executive compensation decisions. The Committee employs its own independent compensation consultant, Fredericas well as its own independent counsel.
During fiscal 2010, the Committee selected a new independent compensation consultant, Compensation Advisory Partners LLC ("CAP"), to replace Frederick W. Cook & Co., Inc. ("Cook"), as well as its ownThe Committee's independent counsel, Sonnenschein, Nath & Rosenthal, LLP.LLP, remained the same, although the firm was renamed SNR Denton US LLP following its combination with another firm.
CookCAP provides analyses and recommendations that inform the Committee's decisions, but it does not decide or approve any compensation actions. During fiscal 2009, Cook advised the Committee chair on setting agenda items for Committee meetings; developed criteria used to identify peer companies for executive compensation and performance comparisons; evaluateddecisions; evaluates market data and competitive position benchmarking compiled by management's consultants; provides updates on market trends and reviewedthe regulatory environment as it relates to executive compensation; and reviews various proposals presented to the Committee by management.management related to executive compensation. The Committee's independent counsel advises on legal matters that come before the Committee, including proxy statements and Committee resolutions and employment matters involving Section 16 officers.resolutions. Neither CookCAP nor the independent counsel performs other services for HP, and neither will do so without the prior consent of the Committee chair.
The Committee met nine11 times in fiscal 2009,2010, including six8 times in executive session. The Committee's independent advisors participated in allmost of the Committee's meetings and, when requested by the Committee chair, in the preparatory meetings and the executive sessions. HP's CEO attended some of the Committee's meetings but none of its executive sessions.
Role of Management and the Chief Executive Officer in Setting Executive Compensation
On an annual basis, management considers market competitiveness, business results, experience and individual performance in evaluating NEO compensation. The Executive Vice President, Human Resources and other members of HP's Human Resources department, together with members of the Finance and Legal departments, work with the CEO to design and develop compensation programs, to recommend changes to existing plans and programs applicable to NEOs and other senior executives, to recommend financial and other targets to be achieved under those programs, to prepare analyses of financial data, peer comparisons and other briefing materials to assist the Committee in making its decisions, and, ultimately, to implement the decisions of the Committee.
The Executive Vice President, Human Resources has engaged Mercer LLC as management's compensation consultant. Mercer provides information and analyses that inform management's recommendations. During fiscal 2009,2010, Mercer gathered market and performance data on HP's peer group companies and analyzed the compensation of HP's Section 16 officers against that data. Mercer provides other consulting services to HP as well.
The CEO isPrior to his resignation, Mr. Hurd was actively engaged in setting compensation for other executives through a variety of means, including recommending for Committee approval the financial performance goals and the annual variable pay amounts for his executive team. He worksworked closely with other members of executive management in analyzing relevant market data to determine base salary and annual target bonus opportunities for senior management and to develop targets for the short- and long-term incentive plans. Financialplan. Ms. Lesjak, while serving as interim CEO, met with the Committee and made recommendations regarding, among other things, annual bonus awards for the Section 16 officers, other than herself, for fiscal 2010. Since assuming office, Mr. Apotheker has been active in reviewing compensation program designs, as well as in proposing new metrics and targets are set to drive both annual performance and long-term value creation for stockholders. The CEO is subject to the same financial performance goals as the other NEOs, all of which are approved by the Committee.2011 executive compensation programs.
Use of Comparative Compensation Data
Each year, the Committee reviews the compensation of HP's Section 16 officers and compares it to that of HP's peer group companies. This process starts with the selection of an appropriate group of peer companies for comparison purposes. InSince 2008, the Committee adoptedhas used a "rules-based""rules based" method for determining the executive compensation peer group, and refined this approachwith certain adjustments made from time to time based on external market factors (for example, in fiscal 2009, by reducing the market capitalization level primarilylevels were reduced to reflect changesgeneral market trends, but those levels were restored in the economy.2010 when markets recovered).
Under this approach, the peer group companies are determined using six screening levels: (1) current market capitalization greater than $25 billion (up from $17 billion (down from $25 billion in 2008)fiscal 2009); (2) revenue in excess of $10$15 billion for technology companies (up from $10 billion in fiscal 2009) and $50 billion for companies in other industries; (3) inclusion in the S&P 500 Index, the Dow Jones 30 Index and/or the Dow Jones Global Titans Index; (4) inclusion in industry-specificindustry specific categories of information technology, industrials, materials, telecommunications services, consumer discretionary and consumer staples; (5) the global scope and complexity of the company's business; and (6) in the case of companies used for comparison of CEO pay, a lack of anomalous pay practices (typically companies with a founder as CEO). The Committee believes that use of this methodology producescontinues to produce the appropriate peer group for comparison, as well as a group that is large and diverse enough so that the addition or elimination of any one company does not alter the overall analysis.
Under this six-level screening approach, the peer group used by the Committee during fiscal 20092010 for executive compensation comparison purposes included all16 of the 20 companies included in the prior year's peer group, as well as onetwo new company.companies. In addition, one company was retained in the peer group for year-over-year consistency, even though that company'sits market capitalization did not exceed
the $17$25 billion threshold at the time that the peer group was determined. The full list of companies is as follows:
Company Name | Revenue ($ in billions)* | |
---|---|---|
| ||
General Electric | ||
| ||
Hewlett-Packard Company | ||
AT&T | 123.02 | |
Ford Motor Company. | 118.31 | |
Verizon | 107.81 | |
IBM | ||
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Procter & Gamble | ||
Boeing | 68.28 | |
Apple | 65.23 | |
Microsoft | 62.48 | |
Johnson & Johnson | ||
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United Technologies | ||
| ||
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| ||
| ||
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Cisco Systems | ||
Intel | 35.13 | |
Oracle | ||
EMC | ||
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Following its determination of the executive compensation peer group, management presents the Committee with its analysis of executive officer pay. This analysis is then discussed and reviewed by the Committee with its independent advisors. The Committee finds comparative data useful in setting and adjusting executive compensation. In general, the aim is to set target compensation levels at or near the 75th percentile and, in certain situations, at or near the 90th percentile, with an opportunity to earn greater rewards for the achievement of superior business results.
Analysis of HP's Process for Setting and Awarding Executive Compensation
A broad range of facts and circumstances is considered in setting executive compensation. Among the factors considered for HP's executives generally, and for the NEOs in particular, are business results, market competitiveness, internal equity, past practice, experience and individual performance. The weight given each factor may differ from year to year and may differ among individual NEOs in any given year. For example, when HP recruits externally, market competitiveness and experience as well as the circumstances unique to a particular candidate may weigh more heavily in the compensation analysis. In contrast, when determining year-over-year compensation for current NEOs, business results, peer company metrics, and internal equity generally factor more heavily in the analysis.
Because such a large percentage of NEO pay is performance-based,performance based, the Committee spends significant time determining the appropriate financial targets for HP's short- and long-term incentive pay plans. In general, management makes the initial recommendation for the financial targets, and these recommendations are reviewed and discussed by the Committee and its independent advisors. The major factor used in setting targets for the current fiscal year are business results from the most recently-completedrecently completed fiscal year; other factors taken into account may include the general business
climate, and global market conditions, as well as conditions or goals specific to a particular business segment.segment, strategic initiatives and succession planning goals. Targets are set by the Committee during HP'swithin the first 90 days of the fiscal quarter, typically at either its November or January meetings.year.
Following the close of the fiscal year, the Committee reviews actual financial results against the targets approvedset by the Committee under HP's incentive compensation plans for that year, and payouts under the plans are generally determined based onby reference to performance against the targets as set.established financial targets. The total incentive compensation payments approved by the Committee may be more or less than the amounts determined solely by performance against targets due to a range of other factors, such as the quality of earnings, the number and size of strategic acquisitions, andimprovement in market share, the economic conditions in which the performance was delivered. Based ondelivered, and unusual or extraordinary events. In reviewing fiscal 2010 performance at its November meeting, the Committee reviewed the financial results and recommendations as presented by management, the Committee reviewsCFO and the CEO, reviewed the individual performance of the NEOs (other than the CEO) as reported by the CFO and the CEO, and determinesdetermined their incentive compensation for that fiscal year.
In fiscal 2009, HP achieved solid financial results in a very challenging global economic environment. This performance was driven by the significant transformation HP has undergone in recent years, which resulted in a broader portfolio of products and services and a significantly improved cost structure. These changes not only contributed to HP's solid 2009 performance, but also positioned the company well for the future. For fiscal 2009, HP delivered revenue of $114.6 billion and GAAP diluted earnings per share of $3.14. Total shareholder return during fiscal 2009 was 25% compared to 10% for the S&P 500 during that period.
In evaluating the performance of the CEO and recommending his compensation to the independent members of the Board, the Committee takes into account corporate financial performance, as well as performance on a range of non-financial factors, including accomplishment of strategic goals, workforce development and diversity, succession planning, and his working relationship with the Board. Overall, the Committee and the Board believe that, under the CEO's leadership in fiscal 2009, HP achieved solid financial results in a difficult economic environment and that he also continued to demonstrate significant achievement on a broad range of non-financial goals, including the integration of acquired companies, talent management and succession planning.
In setting incentive compensation for NEOs, the Committee generally does not consider the effect of past changes in stock price, or expected payouts or earnings under other plans. In addition, incentive compensation decisions are made without regard to length of service or prior awards. For example, NEOs with longer service at HP or who are eligible for retirement do not receive greater or lesser awards, or larger or smaller target amounts, in a given year than do NEOs with shorter service.
Analysis of Elements of Executive Compensation
Under HP's Total Rewards Program, executive compensation consists of the following elements: base pay, annual incentive pay, long-term incentive pay, benefits and perquisites.
Base Pay
Consistent with HP's philosophy of tying pay to performance, HP executives receive a relatively small percentage of their overall targeted compensation in the form of base pay. Consistent with the practice of HP's peer group companies, the NEOs are paid an amount in the form of base pay sufficient to attract qualified executive talent and maintain a stable management team. The Committee aims to have executive base salaries be at or near the market median for comparable positions and to comprise 10% to 20% of their overall compensation, which is also consistent with the practice of HP's peer companies.
In Februaryfiscal 2009, HP announcedimplemented base pay reductions for all employees at graduated rates based on job level, where and as(where permitted by local law. These reductions werelaw) as part of several cost savingscost-savings initiatives. As of July 1, 2010, the Committee restored base pay for all the NEOs to their pre-reduced levels and provided additional increases to the NEOs other than the then-current CEO (Ms. Lesjak) to bring them up to then-current market rates. No other adjustments to NEO base pay were made during fiscal 2010. In connection with an overall review of Section 16 officer compensation at the beginning of fiscal 2011, the Committee increased Ms. Lesjak's base salary to $825,000 effective November 1, 2010 in recognition of her past performance and expected future contributions to the company.
initiatives implemented in fiscal 2009 to reduce costs and create a more variable cost structure in light of the challenging economic environment. As part of these changes, Mr. Hurd's base pay was reduced by 20%, and the base pay of the remaining NEOs was reduced by 15%. The base pay reductions were effective on March 16, 2009 in the United States.
As discussed below under "Annual Incentive Pay," in November 2009 the Committee approved discretionary cash awards to each NEO, all or a portion of which were equal to the amount of the base pay reduction incurred by the NEO during fiscal 2009. All other employees who incurred a base pay reduction in fiscal 2009 also received discretionary cash awards equal to the base pay reductions they incurred.
Annual Incentive Pay
The NEOs are eligible to receive annual incentive pay under the Hewlett-Packard Company 2005 Pay-for-Results Plan ("the PfR Plan"). In the discretion of the Committee, (or, in the case of the CEO, in the discretion of the independent Board members), HP executives may receive additional annual incentive pay outside the PfR Plan. Annual incentive pay under the PfR Plan is awarded based on achievement against the key financial metrics of revenue and net profit, each of which is equally weighted under the plan for performance from threshold to target. For performance above target, additional funding is driven by performance on net profit. These metrics address both "top line" (revenue) and "bottom line" (net profit) corporate financial goals.goals, both of which we believe are critical to driving long-term value.
The combination of these two metrics limits the ability of an executive to be rewarded for taking excessive risk on behalf of HP by, for example, seeking revenue-enhancing opportunities at the expense of profitability, since performance is required on both metrics to achieve payout under the PfR Plan.
At the beginning of each fiscal year, PfR Plan revenue and net profit targets are set for each of HP's business units. For PfR Plan participants in most business units, including Messrs.Mr. Bradley, andMr. Joshi and Ms. Livermore, payouts are determined based 50% on the performance of their respective business units and 50% on HP's overall performance. For PfR participants in corporate functions (e.g., finance, human resources), including Mr. Hurdthe CEO and Ms. Lesjak,CFO, payouts under the plan are made based 100% on HP's overall performance. HP's overall performance, which is determined by aggregating the performance of all eight business units.
The targeted short-term bonus percentages for the NEOs infor fiscal 2009 have2010 remained unchanged since fiscal 2007, with the CEO's target at 200% of base pay, for Mr. Hurd and at 125% of base pay for the remaining NEOs.
The fiscal 20092010 targets were recommended by management and set by the Committee at its meeting in January 2009, at a time when the full extent of the economic downturn that had begun in the fall of 2008 was not known.November 2009. As in prior years, the 20092010 targets were set primarily based on expected improvement over prior year achievements.
At its November 20092010 meeting, the Committee reviewed and certified HP's annual performance against the targets under the PfR Plan for fiscal 2009. All2010. Most business units achieved financial performance above threshold, but below target based on theirwith some performing above target. In fiscal 2009 revenue. Net profit was above threshold but below target2010, HP achieved solid financial results in some business units (including the Personal Systems Group headed by Mr. Bradleya recovering global economic environment, delivering revenue of $126 billion and some segments within the HP Enterprise Business headed by Ms. Livermore) and above target in other business units (including the Imaging and Printing Group headed by Mr. Joshi and one segment within the HP Enterprise Business headed by Ms. Livermore). These levelsGAAP diluted earnings per share of achievement resulted in the PfR Plan payouts to the NEOs identified in footnote (5) to the Summary Compensation Table, with variations among the NEOs determined based on differences in business unit performance against these financial metrics. The fact that targets were set aggressively for fiscal 2009 was demonstrated by the fact that most business units did not meet their fiscal 2009 targets, although all business units achieved at least threshold performance levels.$3.69. In addition, for fiscal 2008,over the past three years, HP's performance was below
target in one business unit, at or slightly above target in some business units, and well above target in other business units. For fiscal 2007, performance was above target in all business units, reflecting superior performance across the company. For the five fiscal years preceding fiscal 2007, annual incentive payments under the PfR Plan in some years were minimal, including no payments for some79th percentile of the then-NEOspeer group with respect to revenue growth and at the 68th percentile of the peer group with respect to EPS growth. Against the S&P 500, HP's performance on revenue was at the 74th percentile and at the 85th percentile on EPS growth over the same three-year period. This level of consistent performance formed the basis of the Committee's fiscal 2010 compensation decisions. In addition, the Committee also considered that the aggregate amount approved to pay fiscal 2010 bonuses for all HP employees was lower as a percentage of pre-tax earnings (before bonus) than bonuses paid in somefiscal 2009. As a result, a larger proportion of those years.the earnings delivered benefited stockholders than compared to last fiscal year.
In addition to approving PfR Plan awards, the Committee approved discretionary cash awards to the NEOs based on their achievementthe quality of solidtheir financial performance in fiscal 20092010 and their contributions to business results, which the Committee believed were not fully rewarded through the payouts under the PfR Plan, especially given that the performance and contributions were delivered in such a difficult economic environment.Plan. These awards are included in the "Bonus" column of the Summary Compensation Table on page 55.Table. In making this determination, the Committee considered HP's solid and consistent performance relative to its competitors and the S&P 500. Compared500, over both a one-year and three-year period. In making these awards, the Committee gave considerable weight to its peers, HP performedHP's three-year performance due to the fact that in periods of significant market volatility (as has been the case over the past three years), companies that perform poorly in one year, followed by a year of recovery, often appear, on a relative basis, to have had exceptional one-year performance, when in fact, their financial performance is simply recovering to
prior-year levels. This was the case with several companies in HP's peer group, where in some cases companies in the 81st percentile based on growthtop ranks were simply re-gaining ground lost in earnings per shareprior years. By comparison, HP's performance over this period, and produced total shareholder return ("TSR")its financial position at the end of this period, has improved substantially from where it was three years ago, which cannot be said for all others in the 70th percentile on a one-year basispeer group. The Committee also took into account the significant disruption caused by the departure of Mr. Hurd and in the 87th percentile based on the compound annual rate of return for the three-year period from November 2006 through October 2009. In addition, the Committee considered the difficulty of achieving the fiscal 2009 targets set under the PfR Plan, the fact that the targets were set at a time whensubsequent decline in the full effectvalue of the economic downturn was not known,HP shares, which affected HP's Total Shareholder Return ("TSR") and the challenging economic environment in which the performance was delivered. The Committee also considered that the aggregate amount being made available to fund bonuses for all HP employees with respect to fiscal 2009 performance, including the discretionary portion awardednumber of shares released to the NEOs was approximately equal as a percentagefollowing the end of pre-tax earningsthe three-year performance period applicable to the amount used to fund bonuses paid with respect to fiscal 2008 performance. The Committee further considered that, as discussed under "Base Pay" above,PRU grants, was unrelated to the NEOs as well as many other HP employees experienced base pay reductionsperformance of the NEOs. Furthermore, in fiscal 2009, anddetermining the Committee determined to allocate all or a portionamounts of the discretionary cash awards, granted toparticularly in the case of Ms. Lesjak, the Committee took into account the exceptional service of the NEOs and those other HP employees in recognition ofduring the cost savings generated by those base pay reductions and the resulting impact on HP's fiscal 2009 financial results.period following Mr. Hurd's departure.
With respect to the variations among NEOs, the Committee took into consideration the relative contributions of each to the overall performance and other quantitative and qualitative factors, including changesyear-over-year growth in revenue, margin and market share, changes in margins,as well as operational discipline demonstrated in management of channel and the progress made towards completing the integration of the businesses acquired as part of HP's acquisition of Electronic Data Systems Corporation ("EDS") in August 2008.owned inventory. These factors resulted in higher discretionary bonuses for certain NEOs, as well as increased discretionary funding of bonuses for other eligible employees in these business units, rewarding the solid financial performance delivered during a challenging economic period.in those units.
Long-Term Incentive Pay
In general, HP aims to set a total long-term incentive compensation target amount for its senior executives to be at or near the 75th percentile of the long-term incentives paid by its peer group companies. In the case of the NEOs who head significant business segments, the Committee also compares compensation data for these positions against the pay for CEOs of smaller companies, as the size and complexity of certain of those business segments exceed theare similar in size and complexity of manyto several of HP's peer group companies. Thus, the peer group long-term target incentives for the NEOs who head these significant business segments are determined based on a blend of peer positions with similar titles at peer group companies and CEO positions among the smaller peer companies, using the 75th percentile for peer-company positions and the median for CEO positions at smaller companies as competitive reference points.
TheAt the beginning of fiscal 2010, the Committee established a total long-term incentive target amount for each NEO in fiscal 2009. Approximately 80% ofNEO. Of that amount, 80% was awarded in the form of performance-based restricted units, with the remaining amount20% awarded in the form of restricted stock units with time-based vesting. This same mix of performance-based and time-based awards has been granted by the Committee for the past several years and reflects HP's primary emphasis on performance-
performance driven compensation, with the time-based awards providing a measure of retention value, which is also an important component of the overall executive compensation arrangement.
Performance-Based Restricted Units
In 2007, the Committee approved a new long-term incentive program (the "PRU Program"Performance-based restricted units ("PRUs") for HP executives, including the NEOs, for awards beginningwere first awarded to eligible employees in fiscal 2008. Under this program, restricted stock units, referred to as "performance-based restricted units" ("PRUs"), are awarded to eligible employees. Implementation of this program represented an important step taken by HP to drive a high-performance culture. It was also consistent with the direction being taken by some of HP's peer group companies. Fiscal 20092010 was the secondthird year that long-term incentive awards were granted to the NEOs under the PRU Program.
Under the PRU Program, a target number of PRUs is awarded at the beginning of eachwith respect to a three-year performance period. The number of shares of HP common stock released at the end of the performance period will range from zero to two times the target number depending on performance during the period. The performance metrics of the PRU Program are (a) annual targets based on cash flow from operations as a percentage of revenue based on a goal set for each of the three years, and (b) an overall "modifier" based on HP's TSR relative to the S&P 500 over the three-year
performance period. In determining cash flow from operations as a percentage of revenue for purposes of assessingDepending on performance the Committee has the discretion to make adjustments to cash flow from operations as a percentage of revenue calculated on a GAAP basis to exclude certain events that occur during a performance period, including asset write-downs; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs; and other extraordinary non-recurring items. TSR is calculated quarterly during the three-year period, usingparticipants may receive shares at the quarterly average performanceend of the S&P 500.period ranging from zero to two times the units awarded.
The metric of "cash flow from operations as a percentage of revenue" washas been used under the prior HP Long-Term Performance Cash Program (the "LTPC Program"),for more than five years as a financial metric in HP's long-term incentive programs, and HP believes that it continues to be a key metric that both drives and demonstrates improved financial performance within the company. It is also a complementary metric to the revenue and net profit metrics used under the PfR Plan. Furthermore, the use of a cash flow metric in a long-term incentive plan prevents executives from being rewarded for taking excessive risk in any particular year because payouts under the plan are based on rolling three-year performance periods. In determining achievement on this metric for purposes of certifying performance, the Committee has the discretion to make adjustments to cash flow, as permitted under the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan (the "2004 Plan"), for items such as asset write-downs, litigation claims or settlements, the effect of changes in tax laws or accounting principles, and similar types of extraordinary events. These adjustments may be different from adjustments taken or described in the company's financial statements for GAAP reporting purposes.
The TSR modifiermetric is intendedbased on HP's stock performance relative to ensure that there are no payouts or limitedthe S&P 500 over the three-year performance period. This metric operates to reduce payouts under the program if HP's stock performance is below the median TSR of S&P 500 companies for the three-year performance period. Where the annual cash flow goals have been metperiod, and where there has been strongit eliminates payouts entirely if HP's relative TSR performance overis in the three-year performance period, the PRU Program may provide substantial rewards to participants with respect to that performance period. However,bottom quartile. As a result, even if annual cash flow goals are achieved or exceeded in each of the three years of the performance period, there may be no or limited payouts if HP's stock performance is below that of the median TSR ofcompared to the S&P 500 companies. The use of the TSR metric also limits the ability of participants to be rewarded for short-term risk-taking.
Under the PRU Program, cash flow goals are set at the beginning of each fiscal year, and performance is reviewed at the end of that year. The percentage to be applied to each participant's target award ranges from zero to 150%, based upon the extent to which the annual performance goals are achieved. If HP does not achieve a threshold level of cash flow performance for the year, the amount earned for one-third of the award is zero. If HP achieves a threshold level of cash flow performance for the year, a percentage is applied to one-third of a participant's target award for the period to determine the number of units earned during that year. For example, if an NEO received an award of 90,00060,000 PRUs and cash flow goals were achieved at 150% in the first year, at 100% in the second year and at 75%90% in the third year, at the end of the three-year performance period, the
participant would have earned 97,500be credited with 68,000 PRUs ((30,00020,000 × 150%) + (30,000(20,000 × 100%) + (30,000(20,000 × 75%90%) = 97,500).68,000) before application of the TSR modifier described below.
At the end of the three-year performance period, the total units earned,credited, if any, are adjusted by applying a modifier based on HP's TSR (including reinvestment of dividends) relative to the TSR of S&P 500 companies for the three-year period. If HP's TSR is in the bottom quartile of the S&P 500, the modifier will be zero, and no shares will be released with respect to that three-year performance period. If HP's TSR is at the median of the S&P 500, the modifier will be 100%, and the number of shares released will equal the number of units credited earned during the period with respect to annual cash flow performance. If HP's TSR is at or above the 75th percentile of S&P 500 companies for the period, the maximum modifier of 133% will apply, and the number of shares released will equal 133% of the number of units earnedcredited during the period with respect to annual cash flow performance.period.
To achieve the maximum payout (200% of the initial PRU award), HP must achieve the maximum cash flow goals for each of the three years, and HP's TSR must meet or exceed the 75th percentile of the TSRs of S&P 500 companies for that period. Award values will reflect changes in stock price (both increases and decreases) over the three-year period because awards are denominated in stock units payable in shares.shares, which further aligns the value executives realize with that of other stockholders. For
example, if a participant was credited with 97,50068,000 PRUs at the end of the performance period and HP's TSR for that three-year period was at the 80th percentile of the S&P 500, a total of 129,67590,440 shares of HP common stock would be released to the participant for that period (97,500(68,000 × 133% = 129,675)90,440).
At its January 2009 meeting, theThe Committee set the PRU cash flow goals for fiscal 2009. Goals are2010 in the first 90 days of the fiscal year. As in prior fiscal years, goals were set based onprimarily to require that future performance exceed prior-year performance and because record cash-flow performance was achieved in fiscal 2008, achieving the goals for fiscal 2009 required significant achievement in an uncertain economic environment. As with the PfR targets set for 2009, these targets were set at a time when the full extent of the economic downturn that had begun in the fall of 2008 was not known.order to achieve above-target payout amounts.
At its November 20092010 meeting, the Committee reviewed HP's actual cash flow from operations as a percentage of revenue, and, taking into account certain permitted adjustments, certified that performance was achieved at 100.94%approximately 90% of target. Accordingly, PRU Program participants were credited with 100.94%approximately 90% of one-third of the units attributable to the second-yearthird year of the fiscal 2008 grant, (one-thirdthe second year of the total units granted in fiscal 2008),2009 grant and 100.94% of the units attributable to the first year of the fiscal 2009 grant (one-third2010 grant. HP's TSR performance over the three-year performance period of the fiscal 2008 grant was at the 40th percentile, which resulted in a TSR modifier of 86%. That percentage was applied to the units credited based on cash flow performance during the three-year period to determine the total units grantednumber of shares released under the fiscal 2008 grant. As a result, an executive who received a fiscal 2008 grant of 60,000 PRUs had 58,690 shares released to him in fiscal 2009).November 2010 with respect to the three-year performance period ending October 31, 2010.
Whether these or any units earned in subsequent yearscredited under the fiscal 2009 and 2010 grants will be paid out in shares at the end of any three-year performance period will depend on future cash flow results and HP's TSR during that period,those periods, neither of which is not determinable until the end of the period.
Long-Term Performance Cash Program
Before fiscal 2008, long-term incentive awards were made under the LTPC Program. The final LTPC Program grants for the period November 1, 2006 through October 31, 2009 paid out following the certification of results for fiscal 2009. Like the PRU Program, this was a three-year, performance-based program, with cash payouts tied to cash-flow and TSR performance.
For the three-year performance period ending October 31, 2009, the cash flow metric was achieved above threshold but below target for fiscal 2007, was achieved at maximum for fiscal 2008, and was slightly above target for fiscal 2009. HP's performance against the S&P 500 over the entire three-year performance period of November 1, 2006 through October 31, 2009 was at the 80th percentile. The Committee certified these results at its November 2009 meeting, which resulted in the payouts included in the Summary Compensation Table and detailed in footnote (5).
Table of Contentsthose periods.
Grants of Restricted Stock Units
As described above, a portion of an executive's target long-term incentive amount is delivered in the form of PRUs, withand the remaining value is awarded in grants of time-based restricted stock units. Grants of restricted stock units to the NEOs during fiscal 2009 were made under the HP 2000 Stock Plan. These awards have restrictions that lapse as to one-half of the number of units on the first and second anniversaries of the date of grant.
For more information on PRUs and grants of restricted stock units to the NEOs during fiscal 2009,2010, see "Executive Compensation—Grants of Plan-Based Awards in Fiscal 2009.2010."
Grants of Special Incremental Performance-Based CashUnit Awards for Fiscal 20092011 Through Fiscal 2013
At its May 2008July 2010 meeting, the Committee approved awards of special incremental performance-based cash incentive awardsunits (the "Incremental Awards") for Ms. LivermoreLesjak, Mr. Bradley and Mr. Bradley. In addition, the Committee recommendedcertain other Section 16 officers. The units subject to the independent members of the Board, and the independent members of the Board approved, a similarly-structured performance-based cash incentive award for Mr. Hurd. The awards were to become payable,will be earned, if at all, upon achievement againston the metricmetrics of cash flow from operations as a percentageEPS and relative TSR over the two- and three-year periods covered by the award. Under the terms of revenue duringthe awards, 40% of the units will be earned if HP meets its EPS goal for the two-year period covering fiscal 2009. The cash-flow goals under these awards were2011 and fiscal 2012 and if its relative TSR for the same period is at or above the 50th percentile; and the remaining 60% of the units will be earned if HP meets its EPS goal for fiscal 2013 and HP's relative TSR is at or above the 50th percentile for the entire three-year period of the award.
Under the Incremental Awards, 40% of the units are subject to performance during the first two-year period, and an EPS goal is set for each fiscal year during that period. At the end of that two-year period (referred to as "segment 1" below), if HP's relative TSR is at or above the goals50th percentile, units credited based on EPS performance are banked. The remaining 60% of the units are earned based on EPS achievement during the third year of the award and relative TSR over the entire three-year period of the award (referred to as "segment 2" below).
The chart below illustrates operation of the award, using an award of 20,000 units as an example.
Total Target Segment 1 Units: 8,000 (EPS Units: 6,000; TSR Units: 2,000) | Total Target Segment 2 Units: 12,000 (EPS Units: 9,000; TSR Units: 3,000) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Performance Levels | Units Banked for EPS Performance During Months 1 - 12 | Units Banked for EPS Performance During Months 13 - 24 | Units Banked for Relative TSR over initial 24-Month period | Units Banked for EPS During Months 25 - 36 | Units Banked for Relative TSR over 36-Month Period | Totals Units Released at End of 3-Year Period | |||||||||||||
Below 50th percentile | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
At 50th percentile (Min) | 1,500 | 1,500 | 1,000 | 4,500 | 1,500 | 10,000 | |||||||||||||
75th percentile (Target) | 3,000 | 3,000 | 2,000 | 9,000 | 3,000 | 20,000 | |||||||||||||
90th percentile (Max) | 6,000 | 6,000 | 4,000 | 18,000 | 6,000 | 40,000 |
Any units banked due to EPS performance during segment 1 or segment 2 will be cancelled if TSR performance is below the 50th percentile for that segment. However, units may be earned based on TSR performance during the period even if no units are earned or banked based on EPS performance during that segment.
For example, assume that during segment 1, EPS performance is achieved at the 75th and 90th percentiles with TSR at the 50th percentile. In this case, 10,000 units will be banked and earned for that period (3,000 + 6,000 + 1,000). During segment 2, if EPS performance is at the 75th percentile but TSR performance is below the 50th percentile, the 9,000 units banked based on EPS performance will be cancelled due to TSR performance below the 50th percentile. Under this scenario, a total of 10,000 units would have been earned, and the participant in this example would receive a release of 10,000 shares.
The fiscal 2011 targets were set by the Committee for fiscal 2009at its January 2011 meeting and will require achievement of significant financial performance underby HP during the PRU Program.
Based onperiod if any payout is to be received at all. These awards were granted by the Committee's certificationCommittee in consideration of the significant achievement againstby the target set for fiscal 2009 cash-flow under the LTPC Programrecipients and the PRU Program, payment under these special incentive awards was madetheir criticality to the designated NEOs inorganization over the amounts included in the Summary Compensation Table and detailed in footnote (5).next several years.
Benefits
HP does not provide its executives or the NEOs with special or supplemental pension or health benefits. HP's NEOs receive health and welfare benefits (including retiree medical benefits, if the eligibility conditions are met) under the same programs and subject to the same eligibility requirements that apply to HP employees generally.
Benefits under all U.S. pension plans were frozen effective December 31, 2007. No NEO or any other HP employee accrued a benefit under any HP U.S. defined benefit pension plan during fiscal 2009.2010.
The NEOs, along with other HP executives who earn base pay or an annual bonus in excess of certain federal tax law limits, are eligible to participate in the HP Executive Deferred Compensation Plan (the "EDCP"). This plan is maintained to permit executives to defer some of their compensation in order to defer taxation on such amounts. This is a standard benefit plan offered by most of HP's peer companies. It permits deferral of base pay in excess of the amount taken into account under the qualified HP 401(k) Plan and up to 95% of the annual incentive bonus payable under the PfR Plan. In addition, HP makes a matching contribution to the plan on a portion of base pay contributions in excess of IRSInternal Revenue Service ("IRS") limits, in the same percentage as those executives are eligible to receive under the HP 401(k) Plan. This permits these executives and all employees to receive a 401(k)-type matching contribution on a portion of base-pay deferrals in excess of Internal Revenue Service ("IRS")IRS limits. Amounts deferred or matched under the EDCP are credited with investment earnings based on investment options selected by the participant from among mutual and proprietary funds available to employees under the HP 401(k) Plan. No amounts earn above-market returns.
Consistent with its practice of not providing any special or supplemental executive benefit programs, including arrangements that would otherwise provide special benefits to the family of a deceased executive, in 2010 the Committee adopted a policy that, unless approved by HP's stockholders pursuant to an advisory vote, HP will not enter into a new plan, program or agreement or modify an existing plan, program or agreement with a Section 16 officer that provides for payments, grants or awards following the death of the officer in the form of unearned salary or unearned bonuses, accelerated vesting or the continuation in force of unvested equity grants, awards of ungranted equity, perquisites, and other payments or awards made in lieu of compensation, except to the extent that such payments, grants or awards are provided or made available to HP employees generally.
Perquisites
Consistent with the practices of many of its peer companies, HP provides a moderatesmall number of perquisites to its senior executives including the NEOs for the reasons described below.
HP's NEOs are eligibleprovided reimbursement of up to receive reimbursement$18,000 per year for a financial counseling. This benefit is providedcounseling services to a number of HP executives,assist them in addition to the NEOs, because it facilitates executives obtaining professional advice on managing the compensation they receive. ItThis reimbursement is also provided because it is common among the peer group companies.
Due to HP's global presence, HP maintains a certain number of corporate aircraft. Personal use of these aircraft by the CEO and his direct reports (members of the Executive Council, or "EC members",members," which includes all of the other NEOs) is permitted, subject to availability. The CEO may use HP aircraft for personal purposes in his own discretion and, at times, is advised to use HP aircraft for personal travel for security reasons. EC members may use HP aircraft for personal purposes, if available and approved by the CEO. The CEO and EC members are taxed on the value of this usage according to IRS rules. Effective February 28, 2009, the Committee terminated a prior policy which had provided for aThere is no tax gross-up on the income attributable to the CEO and other executives with respect to some personal usage of corporate aircraft.this value.
Mr. Hurd receives personal security while traveling, and, as provided under his employment contract, at his personal residence. Following a global risk-management review undertakencommissioned by an independent consultant at the request of the Audit Committee of the Board, security systems were installed at the personal residences of some of HP's other executives, including the NEOs. These protections are provided due to the range of security issues that may be encountered by key executives of any large, multinational corporation. Since these expenditures may be viewed as having a personal benefit to the NEOs, they are reported under "Other Annual Compensation" in the Summary Compensation Table.
Severance Plan for Executive Officers
HP's Section 16 officers (including all of the NEOs) are covered by a severance plan to provide a level of transition assistance in the event of an involuntary termination of employment and to keep executives focused on HP's business rather than their personal circumstances. Under the HP Severance Plan for Executive Officers, participants who incur an involuntary termination, not for cause, and who execute a full release of claims following such termination, are eligible to receive severance benefits in an amount determined as a multiple of base pay and the average of the actual annual bonuses paid under the PfR Plan in the preceding three years. In the case of the CEO, the benefit is calculated as two times the sum of base pay plus average annualized bonus paid during the preceding three years; in the case of the other NEOs, the multiplier is 1.5 instead of two. In all cases, this benefit will not exceed 2.99 times the sum of the executive's base pay plus target bonus as in effect immediately prior to the termination of employment.
Although the majority of compensation for HP executives is performance-based and largely contingent upon achievement of aggressive financial goals, the Committee continues to believe that the HP Severance Plan for Executive Officers provides important protection to the Section 16 officers and is appropriate for attraction and retention of executive talent. In addition, we find it more equitable to offer severance benefits based on a standard formula for the Section 16 officers because severance often serves as a bridge when employment is involuntarily terminated, and should therefore not be affected by other, longer-term accumulations. As a result, and consistent with the practice of the peer
companies, other compensation decisions are not generally based on the existence of this severance protection.
Benefits in the Event of a Change in Control
HP doesdid not have separate change-in-control agreements with its executives.NEOs in fiscal 2010. Under HP's equity plans, however, the Board has the discretion to accelerate vesting of all stock and stock option awards upon a change in control, but accelerated vesting is not automatic. This allows the Board to decide to
vest equity if it determines that accelerated vesting is appropriate under the facts and circumstances of a given transaction. This is a common equity plan feature at many of the peer group companies. As a result, the NEOs could become fully vested in their outstanding equity awards upon a change in control if the Board affirmatively acts to accelerate vesting.
In addition, while in fiscal 2010 none of the NEOs iswas covered by an agreement that iswas expressly tied to a change in control of HP, an involuntary termination of employment following a change in control of HP could qualify as "involuntary termination, not for cause" within the meaning of the HP Severance Plan for Executive Officers. This event would trigger the same level of benefits as though the termination occurred absent a change in control.
As discussed below, on December 15, 2010, HP entered into a letter agreement with Ms. Lesjak relating to her employment with HP. That letter agreement includes, among other things, certain protections for Ms. Lesjak in the event of a change in control of HP. The Committee believed that including those provisions was appropriate given the context of that agreement.
Separation Agreement with Mark V. Hurd
Mr. Hurd resigned as Chairman, President and Chief Executive Officer of HP and as a member of the Board effective August 6, 2010. In connection with Mr. Hurd's resignation, HP and Mr. Hurd entered into a Separation Agreement and Release (the "Separation Agreement") that provided Mr. Hurd would receive a cash severance benefit of $12,224,693 in full satisfaction of HP's obligations under the HP Severance Plan for Executive Officers, which amount did not exceed the limit of 2.99 times the sum of Mr. Hurd's current annual base salary plus annual target cash bonus established under the HP Severance Policy for Senior Executives. The Separation Agreement also provided for continued vesting of, and an extension of time to exercise, certain of Mr. Hurd's outstanding equity awards, as well as payment of COBRA premiums for continuing medical coverage. In connection with the settlement of litigation subsequently commenced by HP against Mr. Hurd, all of his outstanding equity awards were cancelled.
Employment Agreement with Léo Apotheker
On September 29, 2010, HP entered into a four-year employment agreement with Mr. Apotheker (the "Apotheker Agreement") pursuant to which he was appointed President and Chief Executive Officer of HP and a member of the Board effective November 1, 2010. Under the Apotheker Agreement, Mr. Apotheker will receive base pay of $1.2 million, which amount is fixed for his first two years of service but may be reduced during the subsequent two years under certain circumstances, and a target annual bonus of 200% of base pay. Mr. Apotheker was granted a long-term incentive award consisting of 76,000 shares of time-based restricted stock vesting in equal amounts annually over a two-year period, 304,000 PRUs for the two-year performance period extending from
November 1, 2010 through October 31, 2012, and an additional 304,000 PRUs for the three-year performance period extending from November 1, 2010 through October 31, 2013. Mr. Apotheker was also granted a sign-on equity award consisting of 80,000 shares of time-based restricted stock vesting in equal amounts annually over a two-year period and 120,000 PRUs for the three-year performance period extending from November 1, 2010 through October 31, 2013. The cash flow metric for the first year of each three-year PRU grant is deemed to be achieved at no less than target. In addition, on November 29, 2010, Mr. Apotheker received a cash signing bonus of $4 million, a pro rata portion of which he must re-pay if he resigns or is terminated for cause within 18 months, and an additional cash payment of $4.6 million as reimbursement for foregone non-competition payments from his former employer and to cover relocation expenses. Mr. Apotheker is eligible to participate in the standard employee benefits plans offered to employees in the United States and to receive perquisites offered to other senior executive officers.
The Apotheker Agreement was the result of arm's-length negotiation between representatives of Mr. Apotheker and members of the Board, which received advice and input from both its independent counsel and the independent consultant to the Committee. The Board believed that the salary, bonus and long-term compensation provided under the Apotheker Agreement were in the aggregate consistent with the compensation packages provided to CEOs in comparable positions. The Board also believed that the sign-on equity awards and cash payments were appropriate in recognition of, among other things, the compensation from his former employer being foregone by Mr. Apotheker as a result of entering into the Apotheker Agreement and the considerable expense he will incur in relocating his family to the United States.
Letter Agreement with Catherine A. Lesjak and Interim CEO Compensation
Following the resignation of Mr. Hurd, Ms. Lesjak was appointed as interim Chief Executive Officer of HP effective August 6, 2010. Prior to being appointed as interim CEO, Ms. Lesjak advised the Committee that she did not wish to be considered as a candidate for the vacant CEO position. The Committee subsequently began discussions with Ms. Lesjak about the terms of her employment because the Committee members believed that Ms. Lesjak's continued service as CFO was critical to providing stability and continuity to HP during the transition to a new CEO and that it was appropriate to provide Ms. Lesjak with certain additional benefits in the event that her employment was terminated under certain circumstances following that transition. As a result, on December 15, 2010, HP entered into a letter agreement with Ms. Lesjak (the "Lesjak Agreement") that (i) provides that she will continue to serve as HP's Executive Vice President and Chief Financial Officer throughout the three-year term of the agreement, (ii) maintains her base salary and target annual and long-term incentive awards at then-current levels, subject to reduction only in the event that similar reductions apply to substantially all other Executive Vice Presidents, and (iii) provides her with enhanced severance benefits in the event of a qualifying termination of her employment during the term of the agreement, subject to the limitations of the HP Severance Policy for Senior Executives described below under "Narrative to the Potential Payments upon Termination or Change in Control Table—HP Severance Policy for Senior Executives." In addition, in recognition of Ms. Lesjak's exceptional service as interim CEO, the Committee awarded her a bonus consisting of $1 million cash (paid as part of her fiscal 2010 annual bonus) and equity awards with an aggregate value of $2.6 million granted in addition to her regular fiscal 2011 long-term incentive award. While recognizing that these circumstances were unique and that no directly applicable benchmark data was therefore available, the structure and amount of the compensation provided to Ms. Lesjak in recognition of her service as interim CEO was reviewed by the Committee with its independent consultant, who, based on data gathered with respect to the compensation provided by other companies in connection with CEO transitions, determined that the compensation was appropriate, particularly in light of the length of Ms. Lesjak's service as interim CEO and HP's performance during that period.
Other Compensation-Related Matters
Succession Planning
Among the Committee's responsibilities as described in its charter is to oversee succession planning and leadership development. The Board plans for succession of the CEO and annually reviews senior management selection and succession planning that is undertaken by the Committee. As part of this process, the independent directors annually review the Committee's recommendation of candidates for senior management positions to see that qualified candidates are available for all positions and that development plans are being utilized to strengthen the skills and qualifications of the candidates. The criteria used when assessing the qualifications of potential CEO successors include, among others, strategic vision and leadership, operational excellence, financial management, executive officer leadership development, ability to motivate employees, and an ability to develop an effective working relationship with the Board.
Stock Ownership Guidelines
HP's stock ownership guidelines are designed to increase executives' equity stakes in HP and to align executives' interests more closely with those of stockholders. The guidelines provide that, within five years of joining HP, the CEO should attain an investment position in HP's stock equal to five times his base salary and all other Section 16 officers should attain an investment position equal to three times their base salary. Shares counted toward these guidelines include any shares held by the executive directly or through a broker; shares held through the HP 401(k) Plan; shares held as restricted stock; shares underlying restricted stock units; and shares underlying vested but unexercised stock options (50% of the in-the-money value of such options is used for this calculation). AllDuring fiscal 2010, all NEOs arewere in compliance with these guidelines.
Accounting and Tax Effects
The impact of accounting treatment is considered in developing and implementing HP's compensation programs generally, including the accounting treatment as it applies to amounts awarded or paid to HP's executives. In this regard, the fact that the accounting treatment aligns more closely with the amount of the payouts was among the factors considered in adopting the PRU Program, and in reducing the number of stock options awarded generally.
The impact of federal tax laws on HP's compensation programs is also considered, including the deductibility of compensation paid to the NEOs, as limited by Section 162(m) of the Internal Revenue Code (the "Code"). Most of HP's compensation programs are designed to qualify for deductibility under Section 162(m), but to preserve flexibility in administering compensation programs, not all amounts paid under all of HP's compensation programs qualify for deductibility. Mr. Hurd's base pay above $1 million is not deductible. In addition, in determining to award additional bonus amounts to the NEOs for fiscal 2009,2010, the Committee considered the fact that such amounts would not be deductible and would result in loss of the deductibility of amounts paid from the PfR Plan to "covered employees" within the meaning of Section 162(m). If stockholder approval is not received with respect to the performance metrics used for purposes of Section 162(m) of the Code, amounts awarded with respect to certain grants made under the HP 2004 Stock Incentive Plan may not be deductible.
Likewise, the impact of Section 409A of the Code is taken into account, and HP's executive plans and programs are, in general, designed to comply with the requirements of that section so as to avoid possible adverse tax consequences that may result from non-compliance.
Policy on Recovery of Bonus in Event of Financial Restatement
In 2006, the Board adopted a "clawback" policy that permits the Board to recover bonuses from senior executives whose fraud or misconduct resulted in a significant restatement of financial results. The policy allows for the recovery of bonuses from those senior executives whose fraud or misconduct
resulted in the restatement where the bonuses would have been lower absent the fraud or misconduct, to the extent permitted by applicable law.
Approval Process for Equity Grants
There were no grants of stock options to Section 16 officersthe NEOs during fiscal 2009.2010. Grants of restricted stock, restricted stock units and PRUs to Section 16 officers (other than the CEO) are approved by the Committee at a regularly-scheduledregularly scheduled meeting, or occasionally at a special meeting or by unanimous written consent. Grants to the CEO are approved by the independent members of the full Board. If approval is made at a meeting, the grant date of the award is generally the date of the meeting; if approval is by unanimous written consent, the grant date of the award is generally the day the last Committee member (or independent Board member, in the case of the CEO) signs the consent. The Committee may act in advance to approve equity grants for newly-hired Section 16 officers and other executives, in which case the grant effective date may be the first day of employment or a later, pre-established date.
Stock options for employees who are not Section 16 officers (or, in the case of employees outside the United States, non-U.S. stock appreciation rights or other comparable vehicle determined appropriate under local law) may be granted by the HP Plan Committee, pursuant to delegation by the Committee, subject to certain guidelines and an overall share limitation. The Plan Committee is chaired by HP's Executive Vice President of Human Resources, and its members include HP's General Counsel, the Treasurer and the Controller. Its members serve at the pleasure of the HR and Compensation Committee. The Plan Committee approves option grants to non-Section 16 employees on a monthly basis by unanimous written consent. The grant price is the fair market value of HP stock on the day that the last Plan Committee member signs the consent. "Fair market value" is defined as the closing price of HP stock on the NYSE.
HP has no practice of timing grants of stock options or restricted stock awards to coordinate with the release of material non-public information, and HP has not timed the release of material non-public information for the purpose of affecting the value of NEO compensation.
HR and Compensation Committee Report on Executive Compensation
The HR and Compensation Committee of the Board of Directors of Hewlett-Packard Company has reviewed and discussed with management this Compensation Discussion and Analysis. Based on this review and discussion, it has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Annual Report on Form 10-K of Hewlett-Packard Company filed for the fiscal year ended October 31, 2009.2010.
HR and Compensation Committee of the Board of Directors
Lawrence T. Babbio, Jr., Chair
Rajiv L. Gupta
John H. Hammergren
Joel Z. Hyatt
Lucille S. Salhany
Summary Compensation Table The following table sets forth information concerning the compensation of HP's chief executive officer, chief financial officer, and the three other most highly-paid executive officers (collectively, the "NEOs") for the fiscal years ended October 31, Catherine A. Lesjak(8) Vyomesh I. Joshi The following table provides additional information about the amounts that appear in the "All Other Compensation" column in the Summary Compensation Table above: Catherine A. Lesjak R. Todd Bradley Ann M. Livermore Vyomesh I. Joshi method. Mark V. Hurd Catherine A. Lesjak Ann M. Livermore R. Todd Bradley Vyomesh I. Joshi Narrative to the Summary Compensation Table The amounts reported in the Summary Compensation Table, The amounts reported in the column entitled "Non-Equity Incentive Plan Compensation" include amounts earned and paid in fiscal The following table provides information on awards granted under the PfR Plan for fiscal Mark V. Hurd PfR PRU RSU Catherine A. Lesjak Catherine A. Lesjak PfR PRU RSU PfR PRU RSU R. Todd Bradley PfR PRU RSU Ann M. Livermore Ann M. Livermore PfR PRU RSU R. Todd Bradley PfR PRU RSU PfR PRU RSU Vyomesh I. Joshi Vyomesh I. Joshi PfR PRU RSU PfR PRU RSU Mark V. Hurd(5) PfR PRU RSU The following table provides information on stock and option awards held by the NEOs as of October 31, R. Todd Bradley Mark V. Hurd(7) The following table provides information about options exercised and stock vested for the NEOs during the fiscal year ended October 31, Catherine A. Lesjak R. Todd Bradley Ann M. Livermore Vyomesh I. Joshi Mark V. Hurd Catherine A. Lesjak Ann M. Livermore R. Todd Bradley Vyomesh I. Joshi The following table provides information about the present value of accumulated pension benefits payable to each NEO (no payments were made to any NEO during fiscal Catherine A. Lesjak R. Todd Bradley CAPP Ann M. Livermore RP Vyomesh I. Joshi RP Mark V. Hurd CAPP Narrative to the Fiscal No NEO currently accrues a benefit under any qualified or non-qualified defined benefit pension plan, as HP ceased benefit accruals in Terms of the HP Retirement Plan Ms. Lesjak, Ms. Livermore and Mr. Joshi earned benefits under the RP and the EBP based on pay and service prior to 2008. The RP is a traditional defined benefit plan that provided a benefit based on years of service and the participant's "highest average pay rate," reduced by a portion of Social Security earnings. "Highest average pay rate" was determined based on the 20 consecutive fiscal quarters when pay was the highest. Pay for this purpose included base pay and Benefits not payable from the RP and the DPSP due to IRS limits are paid from the nonqualified EBP under which benefits are unfunded and unsecured. When an EBP participant terminates employment, At the time of distribution, amounts representing EBP benefits are paid from the EDCP in a lump sum or installment form, according to pre-existing elections made by those participants, except that participants with a small benefit or who have not qualified for retirement status (age 55 with at least 15 years of service) are paid their EBP benefit in January of the year following their termination, subject to any delay required by Section 409A of the Code. Terms of the HP Cash Account Pension Plan Prior to 2006, Mr. Prior to who have not taken a distribution receive interest credits, credited at the rate equal to the one-year rate for Treasury securities plus one percent; the "interest credit" rate is adjusted annually. Benefits under the CAPP may be taken in one of several different annuity forms or in a lump sum equal to the hypothetical account balance. HP does not sponsor any other supplemental pension plans or special retiree medical benefit The following table provides information about contributions, earnings and balances under the EDCP (there were no withdrawals or distributions to NEOs during fiscal Catherine A. Lesjak R. Todd Bradley Ann M. Livermore Vyomesh Joshi Narrative to the Fiscal HP sponsors the EDCP, a nonqualified deferred compensation plan that permits eligible U.S. employees to defer base pay in excess of the amount taken into account under the qualified HP 401(k) Plan and bonus amounts of up to 95% of the annual incentive bonus payable under the PfR Plan. In addition, a matching contribution is available under the plan to eligible employees. The matching contribution applies to base pay deferrals on compensation above the IRS limit that applies to the qualified HP 401(k) Plan up to a maximum of two times that compensation limit (for fiscal At the time participation is elected, employees must specify the amount of base pay and/or the percentage of bonus to be deferred, as well as the time and form of payment. If termination of employment occurs before retirement (defined as at least age 55 with 15 years of service), distribution is made in the form of a lump sum in January of the year following the year of termination, subject to any timing restriction otherwise applicable under Section 409A of the Code. At retirement, benefits are paid according to the distribution election made by the participant at the time of the deferral election and are subject to any timing restrictions applicable under Section 409A of the Code. No withdrawals are permitted during employment or prior to the previously elected distribution date, other than "hardship withdrawals" as permitted by applicable law. During fiscal Amounts deferred or credited under the EDCP are credited with hypothetical investment earnings based on participant investment elections made from among the investment options available under the HP 401(k) Plan. Accounts maintained for participants under the EDCP are not held in trust, and all such amounts are available to general creditors of HP. No amounts are credited with above-market earnings. The amounts in the following table assume that the NEOs terminated HP employment effective October 31, Mark V. Hurd Catherine A. Lesjak Catherine A. Lesjak R. Todd Bradley Ann M. Livermore R. Todd Bradley Vyomesh I. Joshi vested balances in the EDCP, all as detailed in the preceding tables. Total also does not include amounts an NEO HP Severance Plan for Executive Officers The HP Severance Plan for Executive Officers ("SPEO"), originally adopted by the Board in 2003, provides a severance benefit under certain circumstances to executives who were Section 16 officers of HP within 90 days of their termination employment. This plan provides for a lump-sum cash severance benefit upon a qualifying termination, calculated as a multiple of the sum of annual base salary and target cash bonus, as in effect immediately prior to the employment termination; the multiple is 2.0 for the position of CEO, 1.5 for executive vice presidents, and 1.0 for senior vice presidents and vice presidents. Payments under the SPEO are reduced by any cash severance benefit payable to the participant under any other HP plan, program or agreement. In addition, the cash benefit is subject to the "2.99 limit" of the HP Severance Policy for Senior Executives, described below. A participant will be deemed to have incurred a qualifying termination for purposes of this plan if he or she is involuntarily terminated without cause and executes a full release of claims in a form satisfactory to HP, promptly following termination. For purposes of the SPEO, "cause" means a participant's material neglect (other than as a result of illness or disability) of his or her duties or responsibilities to HP or conduct (including action or failure to act) that is not in the best interest of, or is injurious to, HP. Voluntary or "For Cause" Termination In general, an NEO who remained employed through October 31, amount earned for fiscal "Not for Cause" Termination A "not for cause" termination would qualify the NEO for the amounts described above under a "voluntary" In addition to the cash severance benefit payable under the SPEO, the NEO would be eligible to exercise vested stock options and receive distributions of vested, accrued benefits from HP deferred compensation and pension plans. The Committee may also exercise its discretion to Termination Following a Change in Control HP Severance Policy for Senior Executives Under the HP Severance Policy for Senior Executives adopted by the Board in July 2003 (the "HP Severance Policy"), HP will seek stockholder approval for future severance agreements, if any, with certain senior executives that provide specified benefits in an amount exceeding 2.99 times the sum of the executive's current annual base salary plus annual target cash bonus, in each case as in effect immediately prior to the time of such executive's termination. Individuals subject to this policy consist of the Section 16 officers designated by the Board. In implementing this policy, the Board may elect to seek stockholder approval after the material terms of the relevant severance agreement are agreed upon. For purposes of determining the amounts subject to the HP Severance Policy, benefits subject to the limit generally include cash separation payments that directly relate to extraordinary benefits that are not available to groups of employees other than the Section 16 officers upon termination of employment. For purposes of the HP Severance Policy, future severance agreements include any severance agreements or employment agreements containing severance provisions that HP may enter into after the adoption of the HP Severance Policy by the Board, as well as agreements renewing, modifying or extending such agreements. Future severance agreements do not include retirement plans, deferred compensation plans, early retirement plans, workforce restructuring plans, retention plans in connection with extraordinary transactions or similar plans or agreements entered into in connection with any of the foregoing, provided that such plans or agreements are applicable to one or more groups of employees in addition to the Section 16 officers. HP Upon retirement on or after age 55 with at least 15 years of service, HP employees in the United States receive full vesting of options granted under HP common stock plans with a three-year post-termination exercise period. Restricted stock and restricted stock units continue to vest in accordance with their normal vesting schedule, subject to certain post-employment restrictions. Awards under the PRU Program, if any, are paid on a prorated basis to participants at the end of the performance period based on actual results, and bonuses, if any, under the PfR Plan may be paid in prorated amounts in the discretion of HP sponsors two retiree medical programs in the United requirements. Of the NEOs, only Mr. Joshi will be eligible for this program following his termination of employment. The other U.S. retiree medical program sponsored by HP Separation Agreement with Mark V. Hurd As discussed under "Executive Compensation—Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Separation Agreement with Mark V. Hurd," Mr. Hurd resigned as Chairman, President and Chief Executive Officer of HP and as a member of the Board effective August 6, 2010. In connection with Mr. Hurd's resignation, HP and Mr. Hurd entered into a Separation Agreement and Release that provided Mr. Hurd would receive a cash severance benefit of $12,224,693 in full satisfaction of HP's obligations under the SPEO, which amount did not exceed the limit of 2.99 times the sum of Mr. Hurd's current annual base salary plus annual target cash bonus established under the HP Severance Policy. The agreement also provided for continued vesting of, and an extension of time to exercise, certain of Mr. Hurd's outstanding equity awards, as well as payment of COBRA premiums for continuing medical coverage. In connection with the settlement of litigation subsequently commenced by HP against Mr. Hurd, all of his outstanding equity awards were cancelled. The following table summarizes our equity compensation plan information as of October 31, Equity compensation plans approved by HP stockholders Equity compensation plans not approved by HP stockholders Totals The Audit Committee has appointed Ernst & Young LLP ("EY") as HP's independent registered public accounting firm for the fiscal year ending October 31, Fees Incurred by HP for Ernst & Young LLP The following table shows the fees paid or accrued by HP for audit and other services provided by EY for fiscal Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) All Other Fees(4) Total The Audit Committee has approved all of the fees above. The Audit Committee has delegated to the chair of the Audit Committee the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by HP's independent registered public accounting firm and associated fees up to a maximum for any one non-audit service of $250,000, provided that the chair shall report any decisions to pre-approve such audit-related or non-audit services and fees to the full Audit Committee at its next regular meeting. The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of HP's financial statements, HP's compliance with legal and regulatory requirements, the independent registered public accounting firm's qualifications and independence, the performance of HP's internal audit function and independent registered public accounting firm, and risk assessment and risk management. The Audit Committee manages HP's relationship with its independent registered public accounting firm (which reports directly to the Audit Committee). The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and receives appropriate funding, as determined by the Audit Committee, from HP for such advice and assistance. HP's management is primarily responsible for HP's internal control and financial reporting process. HP's independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of HP's consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles and the effectiveness of HP's internal control over financial reporting. The Audit Committee monitors HP's financial reporting process and reports to the Board on its findings. In this context, the Audit Committee hereby reports as follows: The undersigned members of the Audit Committee have submitted this Report to the Board of Directors. Check-in begins: 12:30 p.m., local time Meeting begins: 2:00 p.m., local time THANK YOU FOR YOUR INTEREST AND SUPPORT—YOUR VOTE IS IMPORTANT! Directions to the From From the West: From the West of the Capital Beltway: Parking: Metro Riders: Attendees traveling by Metro should take the Blue or Yellow line to the Pentagon City Metro Stop. 4AA3-2578ENW Annex A HEWLETT-PACKARD COMPANY 2011 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The purpose of this Plan is to provide an opportunity for Employees of Hewlett-Packard Company (the “Corporation”) and its Designated Affiliates to purchase Common Stock of the Corporation and thereby to have an additional incentive to contribute to the prosperity of the Corporation. It is the intention of the Corporation that the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended, although the Corporation makes no undertaking nor representation to maintain such qualification. In addition, this Plan document authorizes the grant of options under a non-423 Plan which do not qualify under Section 423 of the Code pursuant to rules, procedures or sub-plans adopted by the Board (or its designate) designed to achieve desired tax or other objectives. 2. DEFINITIONS. (a)“Affiliate” shall mean any (i) Subsidiary and (ii) any other entity other than the Corporation in an unbroken chain of entities beginning with the Corporation if, at the time of the granting of the option, each of the entities, other than the last entity in the (b)“Board” shall mean the Board of Directors of the Corporation. (c)“Code” shall mean the Internal Revenue Code of 1986, of the USA, as amended. Any reference to a section of the Code herein shall be a reference to any successor or amended section of the Code. (d)“Code Section 423 Plan” shall mean an employee stock purchase plan which is designed to meet the requirements set forth in Code Section 423. (e)“Committee” shall mean the committee appointed by the Board in accordance with Section 14 of the Plan. (f)“Common Stock” shall mean the Common Stock of the Corporation, or any stock into which such Common Stock may be converted. (g)“Compensation” shall mean an Employee’s base cash compensation, commissions and shift premiums paid on account of personal services rendered by the Employee to the Corporation or a Designated Affiliate, but shall exclude payments for overtime, incentive compensation, incentive payments and bonuses, with any modifications determined by the Committee. The Committee shall have the authority to determine and approve all forms of pay to be included in the definition of Compensation and may change the definition on a prospective basis. (h)“Contributions” shall mean the payroll deductions (to the extent permitted under applicable local law) and other additional payments that the Corporation may allow to be made by a Participant to fund the exercise of options granted pursuant to the Plan if payroll deductions are not permitted under applicable local law. (i)“Corporation” shall mean Hewlett-Packard Company, a Delaware corporation. (j)“Designated Affiliate” shall mean an Affiliate that has been designated by the Committee as eligible to participate in the Plan with respect to its Employees. In the event the Designated Affiliate is not a Subsidiary, it shall be designated for participation in the Non-423 Plan. (k)“Employee” shall mean an individual classified as an employee (within the meaning of Code Section 3401(c) and the regulations thereunder or as otherwise determined under applicable local law) by the Corporation or a Designated Affiliate on the (l)“Entry Date” shall mean the first Trading Day of the (m)“Fair Market Value” shall be the closing sales price for the Common Stock (or the closing bid, if no sales were reported) as quoted on the New York Stock Exchange on the date of determination if that date is a Trading Day, or if the date of determination is not a Trading Day, the last market Trading Day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable. (n)“Non-423 Plan” shall mean an employee stock purchase plan which does not meet the requirements set forth in Code Section 423. (o)“Offering Period” shall mean the period of six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1 and November 1, respectively. The duration and timing of Offering Periods may be changed or modified by the Committee. (p)“Participant” shall mean a participant in the Plan as described in Section 5 of the Plan. (q)“Plan” shall mean this Employee Stock Purchase Plan which includes: (i) a Code Section 423 Plan and (ii) a Non-423 Plan. (r)“Purchase Date” shall mean the last Trading Day of each Offering Period. (s)“Purchase Price” shall mean 95% of the Fair Market Value of a share of Common Stock on the Purchase Date; provided however, that the Purchase Price may be adjusted by the Committee pursuant to Section 7.4. (t)“Shareowner” shall mean a record holder of shares entitled to vote shares of Common Stock under the Corporation’s by-laws. (u)“Subsidiary” shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, as described in Code Section 424(f). (v)“Trading Day” shall mean a day on which U.S. national stock exchanges and the national market system are open for trading. 3. ELIGIBILITY. Any Employee regularly employed on a full-time or part-time (20 hours or more per week on a regular schedule) basis, or on any other basis as determined by the Corporation (if required under applicable local law) for purposes of the Non-423 Plan or any separate offering under the Code Section 423 Plan, by the Corporation or by any Designated Affiliate on an Entry Date shall be eligible to participate in the Plan with respect to the Offering Period commencing on such Entry Date, provided that the Committee may establish administrative rules requiring that employment commence some minimum period (e.g., one pay period) prior to an Entry Date to be eligible to participate with respect to the Offering Period beginning on that Entry Date. The Committee may also determine that a designated group of highly compensated Employees are ineligible to participate in the Plan so long as the excluded category fits within the definition of “highly compensated employee” in Code Section 414(q). No Employee may participate in the Plan if immediately after an option is granted the Employee owns or is considered to own (within the meaning of Code Section 424(d)) shares of stock, including stock which the Employee may purchase by conversion of convertible securities or under outstanding options granted by the Corporation, possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or of any of its Subsidiaries. All Employees who participate in the same offering under the Plan shall have the same rights and privileges under such offering, except for differences that may be needed to facilitate compliance with applicable local law, as determined by the Corporation and that are consistent with Code Section 423(b)(5); provided, however, that Employees participating in the Non-423 Plan by means of rules, procedures or sub-plans adopted pursuant to Section 15 need not have the same rights and privileges as Employees participating in the Code Section 423 Plan. The Board may impos e restrictions on eligibility and participation of Employees who are officers and directors to facilitate compliance with federal or state securities laws or foreign laws. 4. OFFERING PERIODS. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 1 and November 1 of each year, or on such other date as the Committee shall determine, and continuing thereafter for six (6) months or until terminated pursuant to Section 13 hereof. The Committee shall have the authority to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without Shareowner approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. 5. PARTICIPATION. 5.1An Employee who is eligible to participate in the Plan in accordance with Section 3 may become a Participant by completing and submitting, on a date prescribed by the Committee prior to an applicable Entry Date, a completed payroll deduction authorization or, if applicable local law prohibits payroll deductions for the purpose of the Plan, other authorization stating the amount of Contributions to the Plan expressed as any whole percentage up to ten percent (10%) of the eligible Employee’s Compensation and Plan enrollment form provided by the Corporation or by following an elect ronic or other enrollment process as prescribed by the Committee. Where applicable local law prohibits payroll deductions for the purpose of the Plan, the Corporation may permit a Participant to contribute amounts to the Plan through payment by cash, check or other means set forth in the Plan enrollment form prior to each Purchase Date of each Offering Period. An eligible Employee may authorize Contributions at the rate of any whole percentage of the Employee’s Compensation, not to exceed ten percent (10%) of the Employee’s Compensation. All payroll deductions may be held by the Corporation and commingled with its other corporate funds where administratively appropriate, except where applicable local law requires that Contributions to the Plan from Participants be segregated from the general corporate funds and/or deposited with an independent third party. No interest shall be paid or credited to the Participant with respect to such Contributions, unless required by local law. The Corpo ration shall maintain a separate bookkeeping account for each Participant under the Plan and the amount of each Participant’s Contributions shall be credited to such account. A Participant may not make any additional payments into such account. 5.2Under procedures established by the Committee, a Participant may withdraw from the Plan during an Offering Period, by completing and filing a new payroll deduction authorization or, if applicable local law prohibits payroll deductions for the purpose of the Plan, other Contribution authorization and Plan enrollment form with the Corporation or by following electronic or other procedures prescribed by the Committee, prior to the change enrollment deadline established by the Corporation. If a Participant withdraws from the Plan during an Offering Period, his or her accumulated Contributions will be refu nded to the Participant without interest. The Committee may establish rules limiting the frequency with which Participants may withdraw and re-enroll in the Plan and may impose a waiting period on Participants wishing to re-enroll following withdrawal. 5.3A Participant may change his or her rate of Contributions at any time by filing a new payroll deduction authorization or, if applicable local law prohibits payroll deductions for the purpose of the Plan, other authorization stating the amount of Contributions to the Plan expressed as any whole percentage up to ten percent (10%) of the eligible Employee’s Compensation and Plan enrollment form or by following electronic or other procedures prescribed by the Committee. If a Participant has not followed such procedures to change the rate of Contributions, the rate of Contributions shall continue at the originally elected rate throughout the Offering Period and future Offering Periods. In accordance with Section 423(b)(8) of the Code, the Committee may reduce a Participant’s Contributions to zero percent (0%) at any time during an Offering Period. 6. TERMINATION OF EMPLOYMENT. In the event any Participant terminates employment with the Corporation or any of its Designated Affiliates for any reason (including death) prior to the expiration of an Offering Period, the Participant’s participation in the Plan shall terminate and all amounts credited to the Participant’s account shall be paid to the Participant or, in the case of death, to the Participant’s heirs or estate, without interest. Whether a termination of employment has occurred shall be determined by the Committee. The Committee may also establish rules regarding when leaves of absence or changes of employment status will be considered to be a termination of employment, including rules regarding transfer of employment among Designated Affiliates, Affiliates and the Corporation, and the Committee may establish termination-of-employment procedures for this Plan that are independe nt of similar rules established under other benefit plans of the Corporation and its Affiliates. 7. OFFERING. 7.1Subject to adjustment as set forth in Section 10, the maximum number of shares of Common Stock that may be issued pursuant to the Plan shall be one hundred million (100,000,000). If, on a given Purchase Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Corporation shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. 7.2Each Offering Period shall be determined by the Committee. Unless otherwise determined by the Committee, the Plan will operate with successive six (6) month Offering Periods commencing at the beginning of each fiscal year half. The Committee shall have the power to change the duration of future Offering Periods, without Shareowner approval, and without regard to the expectations of any Participants. 7.3Each eligible Employee who has elected to participate as provided in Section 5.1 shall be granted an option to purchase that number of shares of Common Stock (not to exceed 5,000 shares, subject to adjustment under Section 10 of the Plan) which may be purchased with the Contributions accumulated on behalf of such Employee during each Offering Period at the Purchase Price specified in Section 7.4 below, subject to the additional limitation that no Employee shall be granted an option to purchase Common Stock under the Plan at a rate which exceeds U.S. twenty-five thousand dollars (U.S. $25,000) of the Fair Market Value of such Common Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. For purposes of the Plan, an option is “granted” on a Participant’s Entry Date. An option will expire upon the earlier to occur of (i) the termination of a Participant’s participation in the Plan; or (ii) the termination of an Offering Period. This section shall be interpreted so as to comply with Code Section 423(b)(8). 7.4The Purchase Price under each option shall be a percentage (not less than eighty-five percent (85%)) established by the Committee (“Designated Percentage”) of the Fair Market Value of the Common Stock on the Purchase Date on which the Common Stock is purchased. The Committee may change the Designated Percentage with respect to any future Offering Period, but not below eighty-five percent (85%), and the Committee may determine with respect to any prospective Offering Period that the option price shall be the Designated Percentage of the Fair Market Value of the Common Stock on the Purch ase Date. 7.5For purposes of the Code Section 423 Plan only, and unless the Committee otherwise determines, each Designated Affiliate shall be deemed to participate in a separate offering from the Corporation or any other Designated Affiliate, provided that the terms of participation within any such offering are the same for all Participants in such offering, as determined under Code Section 423. 8. PURCHASE OF STOCK. Upon the expiration of each Offering Period, a Participant’s option shall be exercised automatically for the purchase of that number of whole shares of Common Stock which the accumulated Contributions credited to the Participant’s account at that time shall purchase at the applicable Purchase Price. Notwithstanding the foregoing, the Corporation or its designee may make such provisions and take such action as it deems necessary or appropriate for the withholding of taxes and/or social insurance contributions which the Corporation or its Designated Affiliate is required or permitted by applicable law or regulation of any governmental authority to withhold. Each Participant, however, shall be responsible for payment of all individual tax and social insurance contribution liabilities arising under the Plan. 9. PAYMENT AND DELIVERY. As soon as practicable after the exercise of an option, the Corporation shall deliver to the Participant a record of the Common Stock purchased and the balance of any amount of Contributions credited to the Participant’s account not used for the purchase, except as specified below. The Committee may permit or require that shares be deposited directly with a broker designated by the Committee or to a designated agent of the Corporation, and the Committee may utilize electronic or automated methods of share transfer. The Committee may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares. The Corporation shall retain the amount of payroll deductions used to purchase Common Stock as full payment for the Common Stock and the Common Stock s hall then be fully paid and non-assessable. No Participant shall have any voting, dividend, or other Shareowner rights with respect to shares subject to any option granted under the Plan until the shares subject to the option have been purchased and delivered to the Participant as provided in this Section 9. 10. RECAPITALIZATION. If after the grant of an option, but prior to the purchase of Common Stock under the option, there is any increase or decrease in the number of outstanding shares of Common Stock because of a stock split, stock dividend, combination or recapitalization of shares subject to options, the number of shares to be purchased pursuant to an option, the price per share of Common Stock covered by an option and the maximum number of shares specified in Section 7.1 may be appropriately adjusted by the Board, and the Board shall take any further actions which, in the exercise of its discretion, may be necessary or appropriate under the circumstances. The Board’s determinations under this Section 10 shall be conclusive and binding on all parties. 11. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS. In the event of the proposed liquidation or dissolution of the Corporation, the Offering Period will terminate immediately prior to the consummation of such proposed transaction, unless otherwise provided by the Board in its sole discretion, and all outstanding options shall automatically terminate and the amounts of all payroll deductions will be refunded without interest (except as may be required by applicable local law, as determined by the Corporation) to the Participants. In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger or consolidation of the Corporation with or into another corporation, then in the sole discretion of the Board, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor corporation, (2) a date established by the Board on or before the date of consummation of such merger, consolidation or sale shall be treated as a Purchase Date, and all outstanding options shall be exercised on such date, or (3) all outstanding options shall terminate and the accumulated Contributions will be refunded without interest to the Participants. 12. TRANSFERABILITY. Options granted to Participants may not be voluntarily or involuntarily assigned, transferred, pledged, or otherwise disposed of in any way, and any attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interests under the Plan, other than as set forth in Section 22 and as permitted by the Code, such act shall be treated as an election by the Participant to discontinue participation in the Plan pursuant to Section 5.2. 13. AMENDMENT OR TERMINATION OF THE PLAN. 13.1The Plan shall continue until May 1, 2021 unless otherwise terminated in accordance with Section 13.2. 13.2The Board may, in its sole discretion, insofar as permitted by law, terminate or suspend the Plan, or revise or amend it in any respect whatsoever, except that, without approval of the Shareowners, no such revision or amendment shall increase the number of shares subject to the Plan, other than an adjustment under Section 10 of the Plan. 14. ADMINISTRATION. The Board shall appoint a Committee consisting of at least two members who will serve for such period of time as the Board may specify and whom the Board may remove at any time. The Committee will have the authority and responsibility for the day-to-day administration of the Plan, the authority and responsibility specifically provided in this Plan and any additional duty, responsibility and authority delegated to the Committee by the Board, which may include any of the functions assigned to the Board in this Plan. The Committee may delegate to one or more individuals the day-to-day administration of the Plan. The Committee shall have full power and authority to promulgate any rules and regulations which it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, to make factual determinations relevant to Plan entitlements and to take all action in connection with administration of the Plan as it deems necessary or advisable, consistent with the delegation from the Board. Decisions of the Board and the Committee shall be final and binding upon all participants. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting of the Committee duly held. The Corporation shall pay all expenses incurred in the administration of the Plan. No Board or Committee member shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder. 15. COMMITTEE RULES FOR FOREIGN JURISDICTIONS AND THE NON-423 PLAN. 15.1The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of Contributions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local legal requirements. 15.2The Committee may also adopt rules, procedures or sub-plans applicable to particular Affiliates or locations, which rules, procedures or sub-plans may be designed to be outside the scope of Code Section 423. The terms of such rules, procedures or sub-plans may take precedence over other provisions of this Plan, with the exception of Section 7.1, but unless otherwise expressly superseded by the terms of such rule, procedure or sub-plan, the provisions of this Plan shall govern the operation of the Plan. To the extent inconsistent with the requirements of Code Section 423, such rules, procedures or sub-plans shall be considered part of the Non-423 Plan, and the options granted thereunder shall not be considered to comply with Section 423. 16. SECURITIES LAWS REQUIREMENTS. The Corporation shall not be under any obligation to issue Common Stock upon the exercise of any option unless and until the Corporation has determined that: (i) it and the Participant have taken all actions required to register the Common Stock under the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder or to perfect an exemption from the registration requirements thereof; (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) all other applicable provisions of state, federal and applicable foreign law have been satisfied. 17. GOVERNMENTAL REGULATIONS. This Plan and the Corporation’s obligation to sell and deliver shares of its stock under the Plan shall be subject to the approval of any governmental authority required in connection with the Plan or the authorization, issuance, sale, or delivery of stock hereunder. 18. NO ENLARGEMENT OF EMPLOYEE RIGHTS. Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ or service of the Corporation or any Designated Affiliate or to interfere with the right of the Corporation or Designated Affiliate to discharge any Employee at any time. 19. GOVERNING LAW. This Plan shall be governed by the laws of the State of Delaware, U.S.A., without regard to that State’s choice of law rules. 20. EFFECTIVE DATE. This Plan shall be effective May 1, 2011, subject to approval of the Shareowners of the Corporation within 12 months before or after its adoption by the Board. 21. REPORTS. Individual accounts shall be maintained for each Participant in the Plan. Statements of account shall be given to Participants at least annually, which statements shall set forth the amounts of Contributions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 22. DESIGNATION OF BENEFICIARY FOR OWNED SHARES. With respect to shares of Common Stock purchased by the Participant pursuant to the Plan and held in an account maintained by the Corporation or its assignee on the Participant’s behalf, the Participant may be permitted to file a written designation of beneficiary. The Participant may change such designation of beneficiary at any time by written notice. Subject to applicable local legal requirements, in the event of a Participant’s death, the Corporation or its assignee shall deliver such shares of Common Stock to the designated beneficiary. Subject to applicable local law, in the event of the death of a Participant and in the absence of a beneficiary validly designated who is living at the time of such Participant’s death, the Corporation shall deliver such shares of Common Stock to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Corporation), the Corporation in its sole discretion, may deliver (or cause its assignee to deliver) such shares of Common Stock to the spouse, dependent or relative of the Participant, or if no spouse, dependent or relative is known to the Corporation, then to such other person as the Corporation may determine. Annex B HEWLETT-PACKARD COMPANY 2005 PAY-FOR-RESULTS PLAN 1.Purpose. The purpose of this Plan is to provide certain employees of HP and its subsidiaries with incentive compensation based upon the level of achievement of financial, business and other performance criteria. This Plan is intended to permit the payment of bonuses that may qualify as performance-based compensation under Code Section 162(m). 2.Definitions. (a)“Affiliate” means (i) any entity that, directly or indirectly, is controlled by HP and (ii) any entity in which HP has a significant equity interest. (b)“Board” means the Board of Directors of HP. (c)“Bonus” means a cash payment made pursuant to this Plan with respect to a particular Performance Period, determined pursuant to Section 7 below. (d)“Bonus Formula” means as to any Performance Period, the formula established by the Committee pursuant to Section 5 in order to determine the Bonus amounts, if any, to be paid to Participants based upon the level of achievement of targeted goals for the selected Performance Measures. The formula may differ from Participant to Participant or business group to business group. The Bonus Formula shall be of such a nature that an objective third party having knowledge of all the relevant facts could determine whether targeted goals for the Performance Measures have been achieved. (e)“Code” means the Internal Revenue Code of 1986, as amended. (f)“Committee” means the HR and Compensation Committee of the Board who shall qualify as “outside directors” within the meaning of Code Section 162(m). (g)“Fiscal Year” means the twelve-month period from November 1 through October 31. (h)“HP” means Hewlett-Packard Company, a Delaware corporation. (i)“Participant” means a Section 16 Officer. (j)“Performance-Based Compensation” means compensation that qualifies as “performance-based compensation” within the meaning of Code Section 162(m). (k)“Performance Measure” means any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either HP as a whole or to a business unit, Affiliate or business segment, either individually, alternatively or in any combination, and measured either on an absolute basis or relative to a pre-established target, to a previous period’s results or to a designated comparison group, in each case as specified by the Committee: cash flow (including operating cash flow or free cash flow), revenue (on an absolute basis or adjusted for currency effects), gross margin, operating expens es or operating expenses as a percentage of revenue, earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings, and may be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) or adjusted to exclude any or all non-GAAP items), earnings per share (on a GAAP or non-GAAP basis), growth in any of the foregoing measures, stock price, return on equity or average stockholders’ equity, total stockholder return, growth in stockholder value relative to the moving average of the S&P 500 Index or another index, return on capital, return on assets or net assets, return on investment, economic value added, operating profit, controllable operating profit, or net operating profit, operating margin, cash conversion cycle, market share, contract awards or backlog, overhead or other expense reduction, credit rating, strategic plan development and implementation, succession plan development and implementation, improvement in workforce diversity, customer indicators, new product invention or innovation, attainment of research and development milestones, improvements in productivity, attainment of objective operating goals and employee metrics. (l)“Performance Period” means any Fiscal Year or such other period as determined by the Committee. (m)“Plan” means this Hewlett-Packard Company 2005 Pay-for-Results Plan. (n)“Plan Committee” means the committee to which the Committee delegates certain authority to act on various HP compensation and benefit matters. (o)“Predetermination Date” means, for a Performance Period, (i) the earlier of 90 days after commencement of the Performance Period or the expiration of 25% of the Performance Period, provided that the achievement of targeted goals under the selected Performance Measures for the Performance Period is substantially uncertain at such time; or (ii) such other date on which a performance goal is considered to be pre-established pursuant to Code Section 162(m). (p)“Section 16 Officer” means an employee of HP or its Affiliates who is considered an officer of HP within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 3.Eligibility. The individuals eligible to participate in this Plan for a given Performance Period shall be Section 16 Officers. 4.Plan Administration. (a) The Committee shall be responsible for the requirements for qualifying compensation as Performance-Based Compensation. Subject to the limitations on Committee discretion imposed under Code Section 162(m), the Committee shall have such powers as may be necessary to discharge its duties hereunder. The Plan Committee shall be responsible for the general administration and interpretation of this Plan and for carrying out its provisions, including the authority to construe and interpret the terms of this Plan, determine the manner and time of payment of any Bonuses, prescribe forms and procedures for purposes of Plan participation and distribution of Bonuses and adopt rules, regulations and to take such actions as it deems necessary or desirable for the proper administration of this Plan. The Plan Committee may deleg ate its administrative tasks to HP employees or others as appropriate for proper administration of this Plan. (b) Any rule or decision by the Committee, Plan Committee or its delegate(s) that is not inconsistent with the provisions of this Plan shall be conclusive and binding on all persons, and shall be given the maximum deference permitted by law. 5.Bonuses. Prior to the Predetermination Date for a Performance Period, the Committee shall designate or approve in writing, the following: (a) Performance Period; (b) Positions or names of employees who will be Participants for the Performance Period; (c) Targeted goals for selected Performance Measures during the Performance Period; and (d) Applicable Bonus Formula for each Participant, which may be for an individual Participant or a group of Participants. 6.Determination of Amount of Bonus. (a) Calculation. After the end of each Performance Period, the Committee shall certify in writing (to the extent required under Code Section 162(m)) the extent to which the targeted goals for the Performance Measures applicable to each Participant for the Performance Period were achieved or exceeded. The Bonus for each Participant shall be determined by applying the Bonus Formula to the level of actual performance that has been certified by the Committee. Notwithstanding any contrary provision of this Plan, the Committee, in its sole discretion, may eliminate or reduce the Bonus payable to any Participant below that which otherwise would be payable under the Bonus Formula. The aggregate Bonus(es) payable to any Participant during any Fiscal Year shall not exceed U.S.$10 million. The Committee may appropriately adjust any evaluation of performance under a Performance Measure to exclude any of the following events that occurs during a Performance Period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of non-GAAP earnings as reflected in any HP press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D) litigation or claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items. (b) Right to Receive Payment. Each Bonus under this Plan shall be paid solely from general assets of HP and its Affiliates. This Plan is unfunded and unsecured; nothing in this Plan shall be construed to create a trust or to establish or evidence any Participant’s claim of any right to payment of a Bonus other than as an unsecured general creditor with respect to any payment to which he or she may be entitled. 7.Payment of Bonuses. (a) Timing of Distributions. HP and its Affiliates shall distribute amounts payable to Participants as soon as is administratively practicable following the determination and written certification of the Committee for a Performance Period, but in no event later than two and one-half months after the end of the calendar year in which the Performance Period ends, except to the extent a Participant has made a timely election to defer the payment of all or any portion of such Bonus under the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan or any other HP approved deferred compensation plan or arrangement. (b)Payment. The payment of a Bonus, if any (as determined by the Committee at the end of the Performance Period), with respect to a specific Performance Period requires that the employee be an active employee on HP’s or its Affiliate’s payroll on the last day of each applicable Performance Period, subject to the following: (i)Leave of Absence or Non-Pay Status. A Participant may receive a Bonus while on an approved leave of absence or non-pay status. Such Bonus shall be prorated in a manner that HP determines in it sole discretion. (ii)Disability, Workforce Restructuring, Voluntary Severance Incentive Program, Divestiture or Retirement. A Participant who terminates due to disability, participation in a workforce restructuring or voluntary severance incentive program, divestiture or retirement under HP’s retirement policies may receive a prorated Bonus; the method in which a Bonus is prorated shall be determined by HP in its sole discretion. (iii)Death. The estate of a Participant who dies prior to the end of a Performance Period or after the end of a Performance Period but prior to payment may receive a Bonus or prorated Bonus; the method in which a Bonus is prorated shall be determined by HP in its sole discretion. (c) Change in Status. A Participant who has a change in status that results in being ineligible to participate in this Plan or eligible in more than one variable pay plan, including this Plan, in a Performance Period may receive a prorated Bonus, if any (as determined by the Committee at the end of the Performance Period), under this Plan; the method in which a Bonus is prorated shall be determined by HP in its sole discretion. (d) Code Section 409A. To the extent that any Bonus under the Plan is subject to Code Section 409A, the terms and administration of such Bonus shall comply with the provisions of such Section, applicable IRS guidance and good faith reasonable interpretations thereof, and, to the extent necessary to achieve compliance, shall be modified, replaced, or terminated at the discretion of the Committee or Plan Committee. 8.Amendment and Termination. (a) The Committee may amend, modify, suspend or terminate this Plan, in whole or in part, at any time, including the adoption of amendments deemed necessary or desirable to correct any defect or to supply omitted data or to reconcile any inconsistency in this Plan or in any Bonus granted hereunder; provided, however, that no amendment, alteration, suspension or discontinuation shall be made which would (i) increase the amount of compensation payable pursuant to such Bonus, or (ii) cause compensation that is, or may become, payable hereunder to fail to qualify as Performance-Based Compensation. Notwithstanding the foregoing, the Plan Committee may any amend, modify, suspend or terminate this Plan if any such action is required by law. To the extent required under applicable law, including Code Section 162(m), Plan amendmen ts shall be subject to stockholder approval. At no time before the actual distribution of funds to Participants under this Plan shall any Participant accrue any vested interest or right whatsoever under this Plan except as otherwise stated in this Plan. (b) In the case of Participants employed outside the United States, HP or its Affiliate may vary the provisions of this Plan as deemed appropriate to conform with, as required by, or made desirable by, local laws, practices and procedures. 9.Withholding. Distributions pursuant to this Plan shall be subject to all applicable taxes and contributions required by law to be withheld in accordance with procedures established by HP. 10.No Additional Participant Rights. The selection of an individual for participation in this Plan shall not give such Participant any right to be retained in the employ of HP or any of its Affiliates, and the right of HP and any such Affiliate to dismiss such Participant or to terminate any arrangement pursuant to which any such Participant provides services to HP, with or without cause, is specifically reserved. No person shall have claim to a Bonus under this Plan, except as otherwise provided for herein, or to continued participation under this Plan. There is no obligation for uniformity of treatment of Participants under this Plan. The benefits provided for Participants under this Plan shall be in addition to and shall in no way preclude other forms of compensation to or in respect of such Participants. It is expressly agreed and understood that the employment of a Participant is terminable at the will of either party and, if such Participant is a party to an employment contract with HP or one of its Affiliates, in accordance with the terms and conditions of the Participant’s employment agreement. 11.Successors. All obligations of HP or its Affiliates under this Plan, with respect to awards granted hereunder, shall be binding on any successor to HP, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of HP. 12.Nonassignment. The rights of a Participant under this Plan shall not be assignable or transferable by the Participant except by will or the laws of descent and distribution. 13.Severability. If any portion of this Plan is deemed to be in conflict with local law, that portion of the Plan, and that portion only, will be deemed void under local law. All other provisions of the Plan will remain in effect. Furthermore, if any provision of this Plan would cause Bonuses not to constitute Performance-Based Compensation, that provision shall be severed from, and shall be deemed not to be a part of, the Plan, but the other provisions hereof shall remain in full force and effect. 14.Governing Law. This Plan shall be governed by the laws of the State of Delaware. ANNUAL MEETING OF STOCKHOLDERS WEDNESDAY, MARCH 2:00 P.M., LOCAL TIME PLEASE VOTE TODAY! YOU CAN VOTE BY INTERNET, TELEPHONE OR MAIL. SEE REVERSE SIDE OF THIS CARD FOR INSTRUCTIONS. Important Notice Regarding Internet Availability of Proxy Materials: The proxy materials for the Hewlett-Packard Company Annual Meeting of Stockholders, including the 2010 Annual Report and the proxy statement, are available over the Internet. To view the proxy materials, please have the reverse side of this notice available and visit www.eproxyaccess.com/hpq2011. Electronic Delivery of Future Proxy Materials: If you wish to receive all future proxy materials electronically by e-mail, please visit www.eproxyaccess.com/hpq2011 and follow the instructions there. TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDED ANNUAL MEETING OF STOCKHOLDERS — MARCH 23, 2011 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Léo Apotheker, Michael J. Holston and Paul T. Porrini, and each of them, as proxies for the undersigned, with full power of substitution, to act and to vote all shares of common stock of Hewlett-Packard Company held of record or in an applicable plan by the undersigned at the close of business on January 24, 2011, at the Annual Meeting of Stockholders to be held at the Sheraton National Hotel, 900 South Orme Street, Arlington, Virginia, at 2:00 p.m., local time, on Wednesday, March 23, 2011, or any postponement or adjournment thereof. In their discretion the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting of Stockholders or any postponement or adjournment thereof. This proxy, when properly executed and returned, will be voted in the manner directed herein by the undersigned stockholder. If this proxy is properly executed and returned but no direction is made, this proxy will be voted FOR all of the nominees for director in proposal 1, FOR proposals 2, 3, 5 and 6, and “1 YEAR” on proposal 4. Whether or not direction is made, this proxy, when properly executed, will be voted in the discretion of the proxy holders upon such other business as may properly come before the Annual Meeting of Stockholders or any adjournment or postponement thereof. The proxy holders reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable director nominees in their sole discretion. If the undersigned has a beneficial interest in shares held in a 401(k) plan sponsored by He wlett-Packard Company, voting instructions with respect to such plan shares must be provided by 11:59 p.m. Eastern time on March 20, 2011, in the manner described in the proxy statement. If voting instructions are not received by that time, such plan shares will be voted by the plan trustee as described in the proxy statement. The undersigned hereby revokes all proxies previously given by the undersigned to vote at the Annual Meeting of Stockholders or any adjournment or postponement thereof. PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS. YOUR VOTE IS IMPORTANT. Please take a moment now to vote your shares of Hewlett-Packard Company common stock for the upcoming Annual Meeting of Stockholders. PLEASE REVIEW THE AND VOTE TODAY IN ONE OF THREE WAYS: 1.Vote by OR 2.Vote by You may vote by telephone or Internet 24 hours a day, 7 days a week. Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card. OR 3.Vote by TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDED THE BOARD OF DIRECTORS RECOMMENDS A VOTE FORALL OF THE NOMINEES FOR DIRECTOR IN PROPOSAL 1, FOR PROPOSALS 2, 3, 5 AND 6, AND “1 YEAR” ON PROPOSAL 1. Election of directors: FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 01-M. L. Andreessen o o o 08-R. J. Lane o o o 2. Ratification of the appointment of the independent registered public accounting firm for the fiscal year ending October 31, 2011. o o o 02-L. Apotheker o o o 09-G. M. Reiner o o o 03-L. T. Babbio, Jr. o o o 10-P. F. Russo o o o 3. Advisory vote on executive compensation. o o o 04-S. M. Baldauf o o o 11-D. Senequier o o o 1 YEAR 2 YEARS 3 YEARS ABSTAIN 05-S. Banerji o o o 12-G. K. Thompson o o o 4. Advisory vote on the frequency of holding future advisory votes on executive compensation. o o o o 06-R. L. Gupta o o o 13-M. C. Whitman o o o FOR AGAINST ABSTAIN 07-J. H. Hammergren o o o 5. Approval of the Hewlett-Packard Company 2011 Employee Stock Purchase Plan. o o o 6. Approval of an amendment to the Hewlett-Packard Company 2005 Pay-for-Results Plan to extend the term of the plan. o o o oAddress change (make correction at left) Signature Title Date NOTE: Please sign exactly as your name or names appear hereon. For joint accounts each owner should sign. When signing as executor, administrator, attorney, trustee or guardian, etc., please print your full title. 2009,2010, October 31, 20082009 and October 31, 2007.2008. Year Salary(1)
($) Bonus(2)
($) Stock
Awards(3)
($) Option
Awards(4)
($) Non-Equity
Incentive
Plan
Compensation(5)
($) Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(6)
($) All Other
Compensation(7)
($) Total
($) Mark V. HurdChairman of the Board, Chief Executive Officer and President2009200820071,268,7501,450,0001,437,5001,180,3405,341,8821,386,00010,256,37012,943,6216,238,7952,520,9063,447,5423,724,91914,629,07418,590,00011,949,7891,8953,0872,386475,192596,410400,44130,332,52742,372,54225,139,830
Executive Vice President and Chief Financial Officer 2010
2009
20082007 610,000
589,063
625,000521,667 2,580,762
340,938
701,4083,514,884
4,298,102
3,328,251—
—
— 940,925 3,249,0092,199,6941,787,969545,9691,953,760 366,363 425,769571,605464,105(33,346479,528
)84,034
209,697
32,493 8,096,968 2,199,6948,209,0991,953,7601,718,950571,605(33,346433,307)209,69732,49330,1807,585,7755,531,3893,729,6016,607,566
R. Todd Bradley
Executive Vice President, Personal Systems Group
2010
2009
2008
748,000
743,125
820,000
1,655,355
337,857
907,415
5,021,292
4,701,215
6,228,712
—
—
—
1,465,145
5,767,373
13,222,059
373
727
1,184
187,666
248,378
269,843
9,077,831
11,798,675
21,449,213
Ann M. Livermore
Executive Vice President, HP Enterprise Business
2010
2009
20082007
748,000
743,125
820,000815,000
1,745,123
419,857
917,586—3,200,5243,049,7351,706,226 1,676,4502,302,5322,858,038
5,021,292
4,701,215
4,640,918
—
—
—
910,690
5,731,498
13,601,2169,633,299
953,734
1,468,639
(216,460470,053
)
81,202
184,313
68,130165,15113,424,40620,542,73915,647,767
9,460,041
13,248,647
19,831,390
R. Todd BradleyExecutive Vice President, Personal Systems Group200920082007743,125820,000796,250337,857907,415—3,759,5463,918,1982,316,9131,681,3231,895,7251,752,0985,767,37313,222,0592,267,3007271,184917248,378269,843556,60912,538,32921,034,4247,690,087
Executive Vice President, Imaging and Printing Group
2010
2009
20082007
748,000
743,125
820,000815,000
1,953,883
77,507
——4,147,8732,891,8881,839,807 1,050,1703,124,6172,780,603
3,765,932
3,134,250
3,662,918
—
—
—
1,568,930
3,937,173
15,197,8455,935,984
978,888
1,505,196
(311,000564,884
)
102,459
183,647
70,96372,35811,644,69121,794,31312,008,636
9,118,092
9,580,898
19,440,726
Mark V. Hurd(9)
Former Chairman of the Board, Chief Executive Officer and President
2010
2009
2008
1,121,944
1,268,750
1,450,000
—
1,180,340
5,341,882
9,883,455
11,909,924
16,543,791
—
—
—
—
14,629,074
18,590,000
969
1,895
3,087
12,857,376
475,192
596,410
23,863,744
29,465,175
42,525,170
Pay" and include the base pay reductions applied to the NEOs effective March 16, 2009.Pay."(or to the CEO by the independent members of the Board) taking into account performance during the applicable fiscal 2009 performance, all or a portion of which is an amount equal to the fiscal 2009 base pay reductions incurred by the NEOs and all other HP U.S. employees as part of HP's overall cost-saving initiatives announced in February 2009.year.Amounts shown reflect the expense recognized by HP for financial statement reporting purposesThe grant date fair value of all stock awards has been calculated in accordance with authoritativeapplicable financial accounting literature relatingstandards. In the case of time-based RSUs, the value is determined by multiplying the number of RSUs granted by the closing price of HP common stock on the grant date. In the case of PRUs, the accounting standards provide for the value to stock-based compensation awards and do not reflect eitherbe determined using only those tranches where the cash flow targets have been set as of the reporting date. As a result, the grant date fair market value of the grantPRUs is calculated using only the first two tranches of each grant; the third tranche is not included because its value is not yet probable of determination under applicable standards. If the PRUs were to be valued using the methodology applicable to the NEO or whethertime-based RSUs (number of units multiplied by the NEO actually realized a financial benefit from the award during fiscal 2009. For informationclosing price of HP common stock on the assumptions used to calculate the value of the awards, refer to Note 2 to HP's consolidated financial statements in its Annual Report on Form 10-K forgrant date), the fiscal year ended October 31, 2009,2010 PRU award grant date fair values would be reported as filed with the SEC on December 17, 2009 (the "2009 Form 10-K"). In accordance with SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.follows: Ms. Lesjak: $4,507,837; Mr. Bradley: $6,439,781; Ms. Livermore: $6,439,781; Mr. Joshi: $4,829,836; and Mr. Hurd: $12,695,783.2009. Amounts shown reflect the expense recognized by HP for financial statement reporting purposes with respect to stock options granted in prior fiscal years in accordance with authoritative accounting literature relating to stock-based compensation awards. For information on the assumptions used to calculate the value of the option awards, refer to Note 2 to HP's consolidated financial statements in the2010, 2009 Form 10-K. In accordance with SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.or 2008.three incentive compensation programs, the PfR Plan (amounts earned during the 2009applicable fiscal year but paid after the end of the fiscal year), the LTPC Program (amounts earned during the three-year period ended October 31, 2009 and paid shortly thereafter), and the special performance-based cash awards granted in fiscal 2008 to Messrs. Hurd and Bradley and Ms. Livermore and paid with respect to fiscal 2009 performance.The amounts earned during fiscal 2009 under the PfR Plan were as follows: Mr. Hurd, $1,873,400; Ms. Lesjak, $524,875; Ms. Livermore, $698,025; Mr. Bradley, $733,900 and Mr. Joshi, $922,500.The amounts paid under the LTPC Program for the three-year period ending October 31, 2009 were as follows: Mr. Hurd, $6,699,274; Ms. Lesjak, $1,674,819; Ms. Livermore, $3,014,673; Mr. Bradley, $3,014,673 and Mr. Joshi, $3,014,673.The amounts paid under the special performance-based cash awards with respect to fiscal 2009 performance were as follows: Mr. Hurd, $6,056,400; Ms. Livermore, $2,018,800; and Mr. Bradley, $2,018,800..2009.year. As described in more detail under "Narrative to the Fiscal 20092010 Pension Benefits Table" below, pension accruals have ceased for all NEOs, so the amounts reported for them do not reflect additional accruals but rather reflect the fact that each of them is one year closer to "normal retirement age" as defined under the terms of the HP Pension Plan as well as changes in other actuarial assumptions. The assumptions used in calculating the increasechange in pension benefits are described in footnote (2) to the Fiscal 20092010 Pension Benefits Table below. No HP plan provides for above-market earnings on deferred compensation amounts, so the amounts reported in this column do not reflect any such earnings.
Fiscal 2010 All Other Compensation Table Year 401(k)
Company
Match(1)
($) NQDC
Company
Match(2)
($) Relocation
Expenses(3)
($) Security
Services/
Systems(4)
($) Personal
Aircraft
Usage(5)
($) Miscellaneous(6)
($) Tax
Gross-
Up(7)
($) Total
AOC
($) 401(k)
Company
Match(1)
($) NQDC
Company
Match(2)
($) Relocation
Expenses(3)
($) Security
Services/
Systems(4)
($) Personal
Aircraft
Usage(5)
($) Severance
Payments
($) Miscellaneous(6)
($) Tax
Gross-
Up(7)
($) Total
AOC
($) 8,427 11,025 — 6,997 20,249 — 28,310 9,026 84,034 9,770 11,025 35,290 19,230 6,408 — 64,891 41,052 187,666 9,800 11,025 — 4,508 13,255 — 31,124 11,490 81,202 9,617 11,025 — 6,774 4,586 — 45,970 24,487 102,459 Mark V. Hurd 2009 14,167 13,800 29,260 176,879 175,776 36,282 29,028 475,192 9,562 11,025 — 362,899 158,816 12,224,693 53,762 36,619 12,857,376 2008 14,050 13,500 71,482 255,872 135,734 42,876 62,896 596,410 2007 13,200 13,200 111,082 125,825 52,906 38,228 46,000 400,441
Catherine A. Lesjak
2009
12,430
13,800
—
148,717
96
25,400
9,254
209,697
2008 13,618 — — — 13 18,468 394 32,493 2007 8,800 — — — 159 20,987 234 30,180
Ann M. Livermore
2009
13,720
—
—
126,706
7,845
26,000
10,042
184,313
2008 14,000 — — — 7,077 31,363 15,690 68,130 2007 8,800 — — — 112,463 29,440 14,448 165,151
R. Todd Bradley
2009
13,436
13,800
56,083
119,388
27,671
18,000
—
248,378
2008 13,667 13,500 75,544 — 128,284 31,486 7,362 269,843 2007 13,200 13,200 97,214 — 368,854 29,954 34,187 556,609
Vyomesh I. Joshi
2009
13,078
13,800
—
120,538
446
25,082
10,703
183,647
2008 13,658 — — — 10,791 31,883 14,631 70,963 2007 8,800 — — — 4,104 36,178 23,276 72,358 a 6% matching contributioncontributions made under the HP 401(k) Plan from November 1, 2008 through March 31, 2009. Effective April 1, 2009, the NEOs (and all other participants in the HP 401(k) Plan) became eligible to receive a discretionary matching contribution of up to a maximum of 4% of eligible earnings based upon company performance during each fiscal quarter.Plan.which provided a 6% matching contribution on base pay deferrals in excesswith respect to the 2009 calendar year of the qualified plan limit, up to two times such limit, from November 1, 2008 through March 31, 2009. As under the HP 401(k) Plan, the matching contribution under this Plan was reduced to a maximum of 4% and became discretionary effective April 1, 2009.plan.subsidies for which Mr. Hurd andsubsidy that Mr. Bradley arewas eligible to receive under the terms of their employment agreements and HP's relocation policy.that Mr. Hurd is eligible to receive under the terms of his employment agreement and that have been provided to the remaining NEOs as a result of a recent risk-management review.NEOs. Although security systems were installed at the request of the company, consistent with SEC guidance, the expense is reported here as a perquisite due to the fact that there is an incidental personal benefit.For Mr. Hurd, the value of the first 25 hours of personal usage (which usage may include his spouse and other guests) is added to his income. For travel from November 1, 2008 through February 28, 2009; Mr. Hurd received a tax gross-up on this amount; theA tax gross-up was discontinuedprovided for aircraft usage occurring after that date. The value of personal use by other NEOs and their guests is added to the income of the NEOs. When spousescertain travel with the NEOs to attend HP-sponsored events at HP's request, the cost of this travel is reimbursed to the NEO and, for travel from November 1, 2008 through February 28, 2009, the NEOs received a tax gross-up on that amount, after which date the tax gross-up was no longer provided. Tax gross-ups are reported separately in the "Tax Gross-Up" column of the table.past, but all aircraft-related gross-ups were discontinued effective March 1, 2009.
2007 amounts2010 amount for Mr. Hurd and Ms. Lesjak were $19,700 and $20,250, respectively.was $13,500. The remaining amounts represent primarily the aggregate incremental cost of lodging, travel, meals and other event-related expenses provided for family members accompanying the NEO to HP-sponsored events at HP's request. Amounts previously reported for fiscal 2008 and fiscal 2007 been adjusted to include additional amounts subsequently determined to be reportable. For group events where individual expense information is not available, the amounts reported represent an estimate of the aggregate incremental cost attributable to family members in attendance at such events.The amounts shown are detailed in the supplemental Tax Gross-Up Table below. Prior-year amounts have been adjusted to reflect additional reimbursements due under existing HP policy with respect to the prior-year expense adjustments identified in footnote (6) above. The following table provides additional information about the amounts that appear in the "Tax Gross-Up" column in the All Other Compensation Table above. Personal Aircraft
Usage Gross-Up(1)
($) Other
Gross-Ups(2)
($) Total
Gross-Ups
($) Mark V. Hurd 13,471 15,557 29,028 Catherine A. Lesjak 2,883 6,371 9,254 Ann M. Livermore 3,146 6,896 10,042 R. Todd Bradley — — — Vyomesh I. Joshi 4,600 6,103 10,703 (1)Under prior HP policy, the CEO was eligible to receive a tax gross-up for the first 25 hours of personal use of company aircraft, and other NEOs were eligible to receive tax gross-ups associated with personal use of company aircraft only for spousal travel with the NEO to attend HP-sponsored events at HP's request. This policy was terminated effective February 28, 2009, and tax gross-ups for personal use of company aircraft are no longer provided.(2)family meals and other event-related expenses when family members were requestedfor individuals accompanying the NEOs to attend HP-sponsored events. This HP reimbursement policy applies to all HP employees where family members or partners are requested to attend HP-sponsored events or the expenses are otherwise properly incurred with respect to family membersthose individuals (e.g., in connection with an employee relocation). In the case of Ms. Lesjak, the amount includesMr. Hurd, amounts also include a gross-up on airline club membership fees, which are reimbursed and grossed-upCOBRA premiums for taxes under a policy applicable to HP executives generally.continuing medical coverage paid on his behalf as required by his Separation Agreement.Alternative Summary Compensation Table The table below shows the Committee's view of the compensation that it awarded the NEOs in fiscal 2009 under the policies and programs described under "Compensation Discussion and Analysis" reflecting HP's strong emphasis on variable compensation and its pay-for-performance culture. Because such a high percentage of HP's NEO compensation is stock-based, and because applicable SEC rules require stock-based compensation to be reported based on what is expensed for financial statement purposes, this alternative table is provided as a guide to understanding the difference between the Committee's actions with respect to NEO awards in fiscal 2009 as described under "Compensation Discussion and Analysis" and the amounts required to be reported in the Summary Compensation Table. In addition, this alternative table presents long-term incentive compensation in a manner that focuses on the long-term incentive awards made based on fiscal 2009 performance. As shown below, a substantial portion of the amounts reported in the Summary Compensation Table for fiscal 2009 relates to stock-based compensation and other long-term incentive grants awarded in previous years. It should be noted that there is no assurance that the participants will actually receive the amounts attributable to these awards even in this alternative table, since the ultimate value of those awards will be affected,either positively or negatively, or even completely eliminated by factors such as total shareholder return at the end of the three-year period. Fiscal 2009
Compensation Earned Reconciliations to Fiscal 2009
Reported Compensation Salary
and
Annual
Bonus(1)
($) Portion of
LTI Grants Earned
in FY09(2)
($) Other
Compen-
sation(3)
($) Total
Compen-
sation
Earned
($) Salary
and
Annual
Bonus(1)
($) Other
Compen-
sation(3)
($) Prior
stock
option
grants
expensed
in FY09(4)
($) Prior
stock
grants
expensed
in FY09(5)
($) Prior-year
LTPC
Program
grants
paid
in FY09(6)
($) Portion
of 2009
LTI
grants
expensed
in FY09(7)
($) Total
in
Summary
Compen-
sation
Table
($)
LTPC
PRU Perf.
Cash 4,322,490 1,372,784 9,498,036 6,056,400 477,087 21,726,797 4,322,490 477,087 2,520,906 8,251,625 6,699,274 8,061,145 30,332,527 1,454,876 343,196 3,062,492 — 781,302 5,641,866 1,454,876 781,302 425,769 2,525,536 1,674,819 723,473 7,585,775 1,861,007 617,753 3,358,682 2,018,800 1,652,952 9,509,194 1,861,007 1,652,952 1,676,450 2,409,217 3,014,673 2,810,107 13,424,406 1,814,882 617,753 3,740,296 2,018,800 249,105 8,440,836 1,814,882 249,105 1,681,323 2,968,239 3,014,673 2,810,107 12,538,329 1,743,132 617,753 2,747,461 — 1,688,843 6,797,189 1,743,132 1,688,843 1,050,170 2,972,016 3,014,673 1,175,857 11,644,691 (1)Amounts shown represent base pay earned in fiscal 2009 plus cash bonuses paid with respect to fiscal 2009 performance.(2)Amounts shown equal the portions of certain long-term incentive awards granted from fiscal 2007 through fiscal 2009 that were earned in fiscal 2009. For example, for Mr. Hurd the amounts shown represent the sum of (i) the amount paid out under the LTPC Program grant awarded in fiscal 2007 that was earned with respect to cash flow performance in fiscal 2009, (ii) the portion of the fiscal 2008 and 2009 PRU awards that were earned with respect to cash flow performance in fiscal 2009, and (iii) the special performance-based cash award earned with respect to fiscal 2009 performance.(3)Amounts shown equal the sum of the amounts reported in the "Change in Pension Value" and "All Other Compensation" columns of the Summary Compensation Table.(4)Amounts shown equal the portions of stock option awards granted in prior years that were expensed in fiscal 2009. No NEO was awarded a stock option in fiscal 2009.(5)Amounts shown equal the portions of restricted stock grants awarded in prior years that were expensed in fiscal 2009.(6)Amounts shown equal the amount of cash received by the NEOs with respect to fiscal 2009 for grants made under the LTPC Program for the three-year period from November 1, 2006 through October 31, 2009.(7)Amounts shown equal the portion of the fiscal 2009 PRU awards and fiscal 2009 restricted stock unit awards expensed in fiscal 2009 plus, in the case of Messrs. Hurd and Bradley and Ms. Livermore, the portion of their special performance-based cash awards earned with respect to fiscal 2009 performance.includeincluding base pay, annual and long-term incentive amounts, benefits and perquisites, asare described more fully under "Compensation Discussion and Analysis."20102011 by all the NEOs under the PfR Plan for fiscal 2009 and amounts earned and paid in fiscal 2010 under the LTPC Program for the three-year period November 1, 2006 through October 31, 2009. This column also includes amounts earned and paid in fiscal 2010 by Messrs. Hurd and Bradley and Ms. Livermore under their special performance-based cash awards with respect to fiscal 2009 performance.2010. The narrative description of the otherremaining information in the Summary Compensation Table is provided in the narrative to the other compensation tables.Pay-for-Results Plan As described under "Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Annual Incentive Pay," the PfR Plan is HP's annual incentive compensation program that pays out if the performance metrics of revenue and net profit are met during the fiscal year. During its January 2009 meeting, the Committee approved target awards (expressed as a percentage of annual base salary) and performance metrics for fiscal 2009. Target awards for the NEOs for fiscal 2009are displayed below in the Grants of Plan-Based Awards in Fiscal Year 2009 table. In setting performance targets for the coming year, the Committee generally looks to the actual performance for the year just ended and establishes performance thresholds based on input from the CEO with respect to the business plan for the company. The CEO's recommendations with respect to targets take into account the expectations for contribution from each of the business units to the overall performance of the company, as well as the economic environment and market conditions. Following the close of the fiscal year, the Committee assessed and certified HP's performance against the revenue and net profit metrics established for the year and approved awards to the NEOs in the amounts detailed in the Summary Compensation Table.Discretionary Bonus Awards for Fiscal 2009 As described under "Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Annual Incentive Pay," at its November 2009 meeting, the Committee (and with respect to the CEO, the independent members of the Board), approved additional cash awards to the NEOs for fiscal 2009 performance that the Committee determined had not been adequately rewarded under the PfR Plan. In its deliberations, the Committee (and the Board, in the case of the CEO) considered HP's performance relative to its competitors and the S&P 500, the difficulty of achieving the targets, and the challenging economic environment in which the performance was delivered. The Committee also reviewed the fact that the aggregate bonus amount paid to the entire company in fiscal 2009 was approximately equal as a percentage of pre-tax earnings to the bonus paid in fiscal 2008, even with the discretionary portion taken into account. Based on this analysis, the Committee (and, with respect to the CEO, the independent members of the Board) determined to pay additional discretionary bonuses to the NEOs and the other Section 16 officers. All or a portion of the discretionary bonuses is equal to the amount of the base pay reductions incurred by the NEOs as part of the fiscal 2009 base pay reductions incurred by all HP U.S. employees, which, in the case of the CEO, was 20% of his base pay earned from March 16, 2009 through October 31, 2009, and, in the case of the other NEOs, was 15% of their base pay earned during that period. Other employees who incurred a base pay reduction in fiscal 2009 also received a discretionary bonus equal to the base pay reductions they incurred, and employees in some business units received additional discretionary amounts as well. The Committee and the independent members of the Board also considered in their deliberations that payment of these amounts to certain NEOs would adversely impact the deductibility of payments made under the PfR Plan with respect to such individuals.Long-Term Performance Cash Program Long-term incentive awards were made under the LTPC Program from 2003 to 2007, and the last of the awards made under the program paid out in fiscal 2010 with respect to the three-year period from fiscal 2007 through fiscal 2009. See "Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Long-Term Incentive Pay" for details regarding this program.Performance-based Restricted Unit Program As described under "Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Long-Term Incentive Pay," HP instituted a new long-term incentive program during fiscal 2008 under which eligible executives are granted PRUs that are released (if at all) in the form of HP shares at the end of a three-year performance period based on annual achievement of cash flow from operations as a percentage of revenue, modified by HP's TSR relative to the S&P 500 over that three-year period. PRU awards were granted in fiscal 2009 to the NEOs in the amounts indicated in the Grants of Plan-Based Awards Table below and have the potential to release two times the number of shares subject to those awards at the end of the three-year performance period. At its January 2009 meeting, the Committee set the fiscal 2009 cash flow target for the portions of the fiscal 2008 and fiscal 2009 PRU awards applicable to fiscal 2009 performance (i.e., the second one-third of the units awarded in fiscal 2008 and the first one-third of the units awarded in fiscal 2009). At its November 2009 meeting, the Committee reviewed the company's cash flow results for the period and certified that performance had been achieved at 100.94% of target. This resulted in participants being credited with 100.94% of one-third of the units of each of the fiscal 2008 and fiscal 2009 awards. Whether or not these or any other units credited under the PRU awards are released in the form of shares at the end of any three-year performance period will depend on HP's TSR performance over the full three-year period.Performance-based Cash Awards As described under "Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Long-Term Incentive Pay," in May of 2008, the Committee awarded special performance-based cash grants to Ms. Livermore and Mr. Bradley to provide them with an additional incentive to drive performance during fiscal 2009. A similar award was made to Mr. Hurd by the independent members of the Board. The awards were to become payable, if at all, upon achievement against the metric of cash flow from operations as a percentage of revenue during fiscal 2009. The cash flow metric that applied to these grants was the same metric that applied for fiscal 2009 to the LTPC Program and the PRU Program. At its November 2009 meeting, the Committee certified achievement on the cash flow metric at 100.94%, and payments were made on these awards in the amounts detailed in the Summary Compensation Table.
Grants of Plan-Based Awards in Fiscal 2009201020092010 and awards of PRUs granted under the HP 2004 Stock Incentive Plan and awards of restricted stock units ("RSUs") granted under the HP 2000 Stock Plan as part of fiscal 20092010 long-term incentive compensation: All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#) All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#) Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) Estimated Future Payouts
Under Equity
Incentive Plan Awards(2) Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) Estimated Future Payouts
Under Equity
Incentive Plan Awards(2) All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#) All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#) Grant
Date Threshold
($) Target
($) Maximum
($) Threshold
(#) Target
(#) Maximum
(#) Grant
Date Threshold
($) Target
($) Maximum
($) Threshold
(#) Target
(#) Maximum
(#) 11/1/2008 29,000 2,900,000 7,250,000 1/15/2009 58,190 290,950 581,900 4,047,637 1/15/2009 72,740 2,600,455 11/1/2008 8,125 812,500 2,031,250 1/15/2009 21,000 105,000 210,000 1,460,739 1/15/2009 26,250 938,438 11/1/2009 6,906 690,625 1,726,563 12/10/2009 17,981 89,905 179,810 2,387,937 12/10/2009 22,476 1,126,947 11/1/2009 8,713 871,250 2,178,125 12/10/2009 25,688 128,436 256,872 3,411,347 12/10/2009 32,109 1,609,945 11/1/2008 10,250 1,025,000 2,562,500 1/15/2009 22,970 114,850 229,700 1,597,770 1/15/2009 28,710 1,026,383 11/1/2008 10,250 1,025,000 2,562,500 1/15/2009 22,970 114,850 229,700 1,597,770 1/15/2009 28,710 1,026,383 11/1/2009 8,713 871,250 2,178,125 12/10/2009 25,688 128,436 256,872 3,411,347 12/10/2009 32,109 1,609,945 11/1/2008 10,250 1,025,000 2,562,500 1/15/2009 15,314 76,570 153,140 1,065,226 1/15/2009 19,140 684,255 11/1/2009 8,713 871,250 2,178,125 12/10/2009 19,266 96,327 192,654 2,558,511 12/10/2009 24,081 1,207,421 11/1/2009 23,200 2,320,000 5,800,000 12/11/2009 50,733 253,662 507,324 6,709,534 12/11/2009 63,415 3,173,921 20092010 awards under the PfR Plan.Calculated in accordance withSee footnote (3) to the authoritative accounting literature relatingSummary Compensation Table for a description of the method used to stock-based compensation awards. With respect to PRU awards, the amounts in this column representdetermine the grant date fair value of stock awards.the first year of the three-yearfiscal 2010 performance, period because performance against the cash flow metric has not been determined for the second and third years.all stock awards granted to him in fiscal 2010 were cancelled in connection with his separation from HP on August 6, 2010.
Outstanding Equity Awards at 20092010 Fiscal Year-End2009:2010: Option Awards Stock Awards Option Awards Stock Awards Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1) Option
Exercise
Price(2)
($) Option
Expiration
Date(3) Number of
Shares or
Units of
Stock That
Have Not
Vested(4)
(#) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(5)
($) Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have not
Vested(6)
(#) Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have not
Vested(5)
($) Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1) Option
Exercise
Price(2)
($) Option
Expiration
Date(3) Number of
Shares or
Units of
Stock That
Have Not
Vested(4)
(#) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(5)
($) Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested(6)
(#) Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested(5)
($) Mark V. Hurd 150,000 — 21.73 4/1/2013 164,526 7,808,404 647,359 30,723,658 200,000 — 21.73 4/1/2013 375,000 125,000 31.50 1/23/2014 150,000 150,000 42.27 1/18/2015 Catherine A. Lesjak 15,358 — 48.50 2/15/2010 ** 48,930 2,322,218 206,866 9,817,860 6,250 — 21.77 4/14/2013 35,924 1,510,963 188,907 7,945,428 200 — 59.58 6/5/2010 ** 35,000 — 31.50 1/23/2014 10,000 — 60.86 7/7/2010 ** 75,000 25,000 42.27 1/18/2015 10,000 — 45.65 * 7/7/2010 ** 5,000 — 30.09 2/26/2011 ** 10,000 — 22.02 3/18/2012 25,000 — 21.77 4/14/2013
15,000
—
23.77
6/14/2013
46,868
1,971,268
235,748
9,915,561 26,250 8,750 31.50 1/23/2014 75,000 — 31.50 1/23/2014 50,000 50,000 42.27 1/18/2015 150,000 50,000 42.27 1/18/2015 Ann M. Livermore 511,936 — 53.81 4/27/2010 ** 52,506 2,491,935 226,924 10,769,813
400,000
—
21.75
1/31/2012
**
46,868
1,971,268
235,748
9,915,561 200 — 59.58 6/5/2010 ** 500,000 — 22.02 3/18/2012 350,000 — 35.13 11/16/2010 ** 400,000 — 21.77 4/14/2013 400,000 — 21.75 1/31/2012 ** 500,000 — 22.02 3/18/2012 400,000 — 21.77 4/14/2013 255,000 85,000 31.50 1/23/2014 100,000 100,000 42.27 1/18/2015 R. Todd Bradley 100,000 — 23.77 6/14/2013 60,556 2,873,988 254,882 12,096,700 75,000 75,000 31.50 1/23/2014 340,000 — 31.50 1/23/2014 100,000 100,000 42.27 1/18/2015 150,000 50,000 42.27 1/18/2015 Vyomesh I. Joshi 200 — 59.58 6/5/2010 ** 42,876 2,034,895 188,524 8,947,349
100,000
—
33.63
1/18/2011
**
33,939
1,427,474
167,524
7,046,059 100,000 — 58.37 6/19/2010 ** 125,000 — 15.75 4/16/2011 170,000 — 35.13 11/16/2010 ** 300,000 — 22.02 3/18/2012 100,000 — 33.63 1/18/2011 ** 500,000 — 21.77 4/14/2013 125,000 — 15.75 4/16/2011 340,000 — 31.50 1/23/2014 300,000 — 22.02 3/18/2012 150,000 50,000 42.27 1/18/2015 500,000 — 21.77 4/14/2013 255,000 85,000 31.50 1/23/2014 100,000 100,000 42.27 1/18/2015
—
—
—
— generally the fair market value of HP common stock on the date of grant, except that the option award marked with an (*) was granted at a 25% discount and was subject to certain TSR performance criteria approved by the Committee. This discounted option vested before January 1, 2005, so no amounts were subject to Section 409A of the Code.grant.a (*"**)" have a ten-year term.2009.2010. The release dates and release amounts for all unvested stock awards are as follows:Mr. Hurd: January 15,Ms. Lesjak: December 10, 2010 (36,370(11,238 shares plus accrued dividend equivalent shares); January 18,15, 2011 (13,125 shares plus accrued dividend equivalent shares); December 10, 2011 (11,238 shares plus accrued dividend equivalent shares).(53,334(16,054 shares plus accrued dividend equivalent shares); April 30, 2010 (38,000 shares); and January 15, 2011 (36,370(14,355 shares plus accrued dividend equivalent shares); December 10, 2011 (16,055 shares plus accrued dividend equivalent shares).Lesjak: January, 15,Livermore: December 10, 2010 (13,125(16,054 shares plus accrued dividend equivalent shares); January 18, 2010 (11,667 shares); April 30, 2010 (10,850 shares); and January 15, 2011 (13,125 shares plus accrued dividend equivalent shares).•Ms. Livermore: January, 15, 2010 (14,355 shares plus accrued dividend equivalent shares); January 18, 2010 (11,667 shares); April 30, 2010 (11,950 shares); and January 15, 2011 (14,355 shares plus accrued dividend equivalent shares).•Mr. Bradley: January 15, 2010 (14,355 shares plus accrued dividend equivalent shares); January 18, 2010 (11,667 shares); May 15, 2010 (20,000 shares); and January 15,December 10, 2011 (14,355(16,055 shares plus accrued dividend equivalent shares).20102011 (9,570 shares plus accrued dividend equivalent shares); January 18, 2010 (11,667 shares); April 30, 2010 (11,950 shares); and January 15,December 10, 2011 (9,570(12,041 shares plus accrued dividend equivalent shares).$47.46$42.06 closing price of HP common stock on October 30, 2009,29, 2010, which was the last trading day of fiscal 2009.2010.20082009 and fiscal 2009,2010, adjusted for actual achievement during those periods on the annual metric of cash flow from operations as a percentage of revenue with respect to the portion of each award attributable to fiscal 20092010 performance. Performance on the annual cash flow metric was 150% of target for fiscal 2008 and was 100.94% of target for fiscal 2009.2009 and was 90.26% of target for fiscal 2010. The 150%100.94% multiplier applies to the first one-third of the PRUs granted for fiscal 2008;2009; the 100.94%90.26% multiplier applies to the second one-third of the PRUs granted for fiscal 20082009 and the first one-third of the PRUs granted for fiscal 2009;2010; the remaining units are reported at target and will be adjusted based on actual cash flow performance during the remaining portion of the applicable performance periods. Total PRUs credited at the conclusion of each three-year period will be adjusted by HP's performance on TSR as compared to the S&P 500, which will determine the number of shares, if any, released at the end of the period.
Option Exercises and Stock Vested in Fiscal 200920102009:2010: Option Awards Stock Awards Option Awards Stock Awards Number of
Shares Acquired
on Exercise
(#) Value Realized
on Exercise(1)
($) Number of
Shares Acquired
on Vesting
(#) Value Realized
on Vesting(2)
($) Number of
Shares Acquired
on Exercise
(#) Value Realized
on Exercise(1)
($) Number of
Shares Acquired
on Vesting
(#) Value Realized
on Vesting(2)
($) 59,108 1,061,126 120,644 5,541,997 160,000 3,986,550 162,920 7,370,845 764,536 6,846,519 131,493 6,032,232 170,000 2,709,785 126,671 5,779,221 100,000 2,176,600 141,333 5,011,128 850,000 12,469,600 127,987 6,696,478 43,000 979,761 42,517 1,745,245 423,396 5,548,568 43,617 1,551,423 84,750 1,164,041 48,334 1,702,374 133,158 1,254,675 43,617 1,551,423 whichfor restricted stock or restricted stock units and the release date for PRUs. Fair market value is defined asdetermined based on the closing market price of HP stock on the applicable date. In the case of the PRUs granted for the three-year period that date.ended on October 31, 2010, the value was not determinable and no shares could be released until the fiscal 2010 cash flow performance and the three-year TSR were certified by the Committee, which occurred after the fiscal year end.
Fiscal 20092010 Pension Benefits Table2009)2010):NamePlan Name(1)Number ofYears ofCreditedService(#)Present Value ofAccumulatedBenefit 10/31/09(2)($)Mark V. HurdCAPPCARP0.80.811,64639,332Catherine A. LesjakRPEBP21.321.3192,5761,337,772Ann M. LivermoreRPEBP25.425.4198,1593,752,841R. Todd BradleyCAPPCARP0.60.611,5997,971Vyomesh I. JoshiRPEBP27.227.2256,0684,700,230 Plan Name(1) Number of
Years of
Credited
Service
(#) Present Value of
Accumulated
Benefit
10/31/10(2)
($) RP 21.3 225,694 EBP 21.3 1,671,017
0.6
11,820 CARP 0.6 8,123
25.4
231,237 EBP 25.4 4,673,497
27.2
294,968 EBP 27.2 5,640,218
0.8
11,867 CARP 0.8 40,079 were previouslyhave been merged and are both part ofinto the HP Pension Plan. Even thoughPlan, although benefits continue to be determined under the benefits are frozen, due to the differences in underlying provisions for the CAPP and the RP, the benefits above are identified as "CAPP" or "RP" even though they are both paid from the HP Pension Plan.separate formulas.the authoritative pension accounting literatureAccounting Standards Codification (ASC) Topic 715-30 Defined Benefit Plans—Pension for 20092010 fiscal year end measurement (as of October 31, 2009)2010). The present value is based on a discount rate of 5.60% for the RP and 4.45% for the EBP, lump sum interest rates of 1.74% for the first 5 years, 4.75% for the next 15 years and 6.03% thereafter, and applicable mortality. As of October 31, 2009 (the prior measurement date), the ASC Topic 715-30 or, as known prior to the codification of the accounting standards, Statement of Financial Accounting Standard 87 assumptions included a discount rate of 5.91% for the RP and 5.33% for the EBP, lump sum interest rates of 2.73% for the first 5 years, 5.63% for the next 15 years and 6.07% thereafter, and applicable mortality. As of September 30, 2008 (the prior measurement date), those assumptions included a discount rate of 7.82%, a lump sum interest rate of 6.00%, and applicable mortality. Since there are no early retirement reductions in the CAPP or the CARP and thesethe account balances are vested, the CAPP and the CARP account balances are used as the present value of the accumulated benefit.20092010 Pension Benefits Tablebothall of its U.S. qualified defined benefit pension plans (and their non-qualified plan counterparts) in prior years. Benefits previously accrued by the NEOs under HP pension plans are payable to them following termination of employment.employment, subject to the terms of the applicable plan.bonus. Upbonus, subject to 30 years of HP service was taken into account in calculating benefits under the RP.applicable IRS limits. Benefits under the RP may be taken in one of several different annuity forms or in an actuarially equivalent lump sum. Benefits calculated under the RP are offset by the value of benefits earned under the HP Deferred Profit Sharing Plan (the "DPSP") before 1993. Together, the RP and the DPSP constitute a "floor-offset" arrangement for periods before 1993.an accountthe benefit liability is created for him or her in the amount not able to be paid from the RP and/or the DPSP due to IRS limits. The liability for this amount is then transferred to the EDCP, where an account is established for the participant. That account is thereafterthen credited with hypothetical investment earnings (gains or losses) based upon the investment election made by participants from among investment options similar to those offered under the HP 401(k) Plan. There is no formula that would result in above-market earnings or payment of a preferential interest rate on this benefit.HurdBradley and Mr. BradleyHurd earned benefits under the CAPP, which is a cash balance plan that provides pension benefits determined by reference to a hypothetical account balance.the cessation of all accruals under the CAPP,this plan being frozen, participants received "pay credits" equal to four percent of base pay credited quarterly to their accounts and "interest credits" credited daily. Currently, participantsParticipants in the CAPP with basePrior to 2006, Mr. Bradley and Mr. Hurd also received pay in excess of IRS limits also receivedand interest credits to a hypothetical account balance established for them under the CARP on base pay in excess of certain IRS limits at the same rates as had been credited under the CAPP. AmountsBenefits under the CARP are unfunded and unsecured. Upon termination of employment, a CARP participant is paid his or her account balance in the form of a lump sum in January of the year following termination, subject to any delay required by Section 409A of the Code.plans.Table of Contentsplans for executive officers.
Fiscal 20092010 Nonqualified Deferred Compensation Table2009)2010): Executive
Contributions
in Last FY(1) Registrant
Contributions
in Last FY(2) Aggregate
Earnings
in Last FY Aggregate
Balance at FYE
($) ($) ($) ($) Executive
Contributions
in Last FY(1)
($) Registrant
Contributions
in Last FY(2)
($) Aggregate
Earnings
in Last FY
($) Aggregate
Balance at FYE
($) 1,431,597 11,025 633,148 4,041,816 28,000 11,025 150,810 2,504,134 2,600 11,025 890,790 6,578,087 120,000 11,025 267,180 1,977,274 Mark V. Hurd 49,992 13,800 4,736 207,458 39,577 11,025 5,539 263,599 Catherine A. Lesjak 372,707 13,800 260,323 2,019,613 Ann M. Livermore 13,000 — 1,048,808 5,673,672 R. Todd Bradley 1,842,561 13,800 127,197 2,314,299 Vyomesh Joshi 120,000 13,800 261,335 1,579,069 From November 1, 2008 through March 31,The contributions reported here as "Registrant Contributions" were made in February 2010 with respect to calendar year 2009 participant base-pay deferrals. During fiscal 2010, the NEOs were eligible forto receive a 6%discretionary 4% matching contribution on base pay deferrals that exceeded the IRS limit that applies to the qualified HP 401(k) Plan up to a maximum of two times that limit. Effective April 1, 2009, the matching contribution was reduced to a maximum of 4% and made discretionary based on HP performance.20092010 Nonqualified Deferred Compensation Table2009,2010, on base pay from $245,000 to $490,000).2009,2010, the NEOs were eligible for a matching contribution on base-pay deferrals of 6% from November 1, 2008 through March 31, 2009 and a discretionary matching contribution of up to 4% thereafter. For calendar year 2009,, based on HP's financial performance during each fiscal quarter. Effective with restoration of the matching contribution if any, will be credited followingmade to the conclusion of the first quarter of fiscal 2010 and will be appliedHP 401(k) Plan on a weighted-averagenon-discretionary basis beginning February 1, 2011, matching contributions to fiscal 2009 contributions made since April 1, 2009.the EDCP will also revert to being non-discretionary.
Potential Payments Upon Termination or Change in Control2009.2010. The closing price of HP common stock was $47.46$42.06 on the last trading day before that date. These amounts are in addition to benefits generally available to U.S. employees upon termination of employment, such as distributions from the retirement plans and the HP 401(k) Plan and payment of accrued vacation. Of the NEOs, only Mr. Joshi is currently eligible for "retirement" status, which is generally defined in the United States as termination of employment on or after age 55 with at least 15 years of qualifying service. Long Term Incentive Programs(3) Long Term Incentive Programs(3) Termination
Scenario Total(1)
($) Severance(2)
($) Stock
Options
($) Restricted
Stock
($) PRU
Program
($) Termination
Scenario Total(1)
($) Severance(2)
($) Stock
Options
($) Restricted
Stock
($) PRU
Program
($) Voluntary/For Cause — — — — — Voluntary/For Cause — — — — — Disability 27,290,766 — 2,773,500 7,808,404 16,708,862 Disability 5,449,336 — — 1,497,378 3,951,958 Retirement — — — — — Retirement — — — — — Death 25,159,242 — 2,773,500 5,676,880 16,708,862 Death 5,025,792 — — 1,073,834 3,951,958 Not for Cause(4) 52,950,237 11,644,693 2,773,500 7,808,404 30,723,640 Not for Cause 13,558,247 4,115,454 — 1,497,378 7,945,415 Change in Control 52,950,237 11,644,693 2,773,500 7,808,404 30,723,640 Change in Control 13,558,247 4,115,454 — 1,497,378 7,945,415 Voluntary/For Cause — — — — — Voluntary/For Cause — — — — — Disability 7,843,418 — 399,150 2,322,218 5,122,050 Disability 6,657,789 — — 1,954,276 4,703,513 Retirement — — — — — Retirement — — — — — Death 7,134,318 — 399,150 1,613,118 5,122,050 Death 6,075,805 — — 1,372,292 4,703,513 Not for Cause 15,256,708 2,717,473 399,150 2,322,218 9,817,867 Not for Cause 16,422,670 4,552,836 — 1,954,276 9,915,558 Change in Control 15,256,708 2,717,473 399,150 2,322,218 9,817,867 Change in Control 16,422,670 4,552,836 — 1,954,276 9,915,558 Voluntary/For Cause — — — — — Voluntary/For Cause — — — — — Disability 9,992,205 — 1,875,600 2,491,935 5,624,670 Disability 6,657,789 — — 1,954,276 4,703,513 Retirement — — — — — Retirement — — — — — Death 9,220,078 — 1,875,600 1,719,808 5,624,670 Death 6,075,805 — — 1,372,292 4,703,513 Not for Cause 18,662,875 3,525,522 1,875,600 2,491,935 10,769,818 Not for Cause 16,100,474 4,230,640 — 1,954,276 9,915,558 Change in Control 18,662,875 3,525,522 1,875,600 2,491,935 10,769,818 Change in Control 16,100,474 4,230,640 — 1,954,276 9,915,558 Voluntary/For Cause — — — — — Disability 11,163,362 — 1,716,000 2,873,988 6,573,374 Retirement — — — — — Death 10,295,793 — 1,716,000 2,006,419 6,573,374 Not for Cause 20,583,420 3,896,736 1,716,000 2,873,988 12,096,696 Change in Control 20,583,420 3,896,736 1,716,000 2,873,988 12,096,696 Voluntary/For Cause 8,923,944 — 1,875,600 2,034,895 5,013,449 Voluntary/For Cause 4,686,553 — — 1,415,361 3,271,192 Disability 8,923,944 — 1,875,600 2,034,895 5,013,449 Disability 4,686,553 — — 1,415,361 3,271,192 Retirement 8,923,944 — 1,875,600 2,034,895 5,013,449 Retirement 4,686,553 — — 1,415,361 3,271,192 Death 8,351,766 — 1,875,600 1,462,717 5,013,449 Death 4,256,363 — — 985,171 3,271,192 Not for Cause 15,511,553 2,653,701 1,875,600 2,034,895 8,947,357 Not for Cause 12,516,655 4,055,232 — 1,415,361 7,046,062 Change in Control 15,511,553 2,653,701 1,875,600 2,034,895 8,947,357 Change in Control 12,516,655 4,055,232 — 1,415,361 7,046,062 2009,2010, including vested stock options, accrued retirement benefits, andwould bewas eligible to receive under the annual PfR Plan with respect to fiscal 20092010 performance or the final payout maderelease of shares under the LTPC Program effectivefiscal 2008 PRU grant for the performance period ended October 31, 2009. In the case of NEOs other than Mr. Hurd, this amount2010. These amounts could behave been reduced or eliminated by the Committee (prior to payment) for any reason. Mr. Hurd's employment agreement provides that, upon termination of his employment for any reason, he shall be paid the "earned and accrued annual incentive for any complete year as of his termination of employment."caseevent of a change in control, as well as in connection with individual employment terminations. The information reported in these threetwo columns assumes that the Board or the Committee would exercise discretion to accelerate vesting and release restrictions in both of these circumstances, exceptthat in the case of a "not for cause" termination of Mr. Hurd, the amounts reported reflect the minimum amounts required to be paid under the terms of his employment agreement.circumstances. From time to time, however, certain HP executives have received less than full acceleration of vesting on stock options, and no (or less than full) release of the vesting restrictions on stock and cash awards, so the amounts actually paid to an NEO upon a "not for cause" termination may be lower in some circumstances. In the case of Mr. Joshi, because he is "retirement eligible," his stock options will be fully vested upon termination, and he will have a three-year post-termination periodup to three years following his termination to exercise them;his vested stock options; any unreleased restricted stock or stock unit awards will continue to vest, subject to certain non-compete provisions;post-employment obligations; and any outstanding PRU awards will receive pro-rata vesting. In addition, in the case of Mr. Hurd, the Board could exercise its discretion to provide for full acceleration of his vested options and full release of restrictions on any restricted stock and cash awards so the amounts actually paid to him upon a "not for cause" termination could be higher. Pro-rata vesting of PRUs applies in the event of a termination due to retirement, death or disability for all grant recipients.(4)Under the terms of Mr. Hurd's employment agreement, a "not for cause" termination includes a substantial reduction in his duties as CEO without his consent and his failure to be re-elected to the Board during the term of his employment. In addition, upon Mr. Hurd's termination of employment for any reason, he is eligible to be indemnified to the maximum extent permitted under HP's Certificate of Incorporation and Bylaws.
Narrative to the Potential Payments upon Termination or Change in Control TableInTermination payments for the case of the NEOs other than Mr. Hurd, termination payments are generally governed by the terms of the HP Severance Plan for Executive Officers (the "SPEO") and discretionary terms within the PfR Plan and the HP stock plans. In the case of Mr. Hurd, termination payments are governed by the terms of his employment agreement, which references the SPEO. Of the NEOs, only Mr. Joshi qualified for termination based on "retirement" status as of the end of the fiscal year, which generally requires attainment of age 55 with at least 15 years of qualifying service.20092010 (the last day of the fiscal year) but voluntarily terminated employment immediately thereafter, or was terminated immediately thereafter as a "for cause" termination, would be eligible (1) to receive his or her annual incentive20092010 under the PfR Plan (subject to any downward adjustment or elimination by the Committee prior to actual payment, except in the case of Mr. Hurd)payment), (2) to exercise his or her vested stock options on or before the last day of employment, (3) to receive a distribution of vested amounts deferred or credited under the EDCP, and (4) to receive a distribution of his or her vested benefits under the HP 401(k) and pension plans. An NEO who terminated employment before the last day of the fiscal year, either voluntarily or as a "for cause" termination, would generally not be eligible to receive any amount under the PfR Plan with respect to the fiscal year in which the termination occurred, except that the Committee has the discretion to make payment of prorated bonus amounts to individuals on leave of absence or in non-pay status, as well as in connection with certain voluntary severance incentives, workforce reductions and similar programs. Under Mr. Hurd's employment agreement, he is entitled to be paid any earned and accrued bonus under the PfR Plan for any completed fiscal year as of his termination of employment.or "for cause" termination and also for benefits under the SPEO, if the NEO signs the required release of claims in favor of HP. The SPEO would provide a cash benefit to each NEO calculated as a multiple of the sum of base pay plus the average of the last three years' actual annual bonus payments; in the case of the CEO, the multiple is two, and for the other NEOs, the multiple is 1.5. In all cases, the cash benefit would be paid as a lump sum and would not exceed 2.99 times the sum of the NEO's base pay plus annual target bonus, unless approved by HP stockholders, consistent with the HP Severance Policy for Senior Executives, as currently in effect. Under the SPEO, a "not for cause" termination generally includes any termination that is not due to a material neglect of responsibilities to HP (other than as a result of illness or disability) or conduct that is not in the best interest of, or is injurious to, HP. In addition, Mr. Hurd's employment agreement provides that a "not for cause" termination includes a substantial reduction in his duties as CEO without his consent and his failure to be re-elected to the Board during the terms of his employment.accelerate vesting of stock options and to release restrictions on stock and cashequity-based awards in individual cases.No HP executive isDuring fiscal 2010, no NEO was covered by an agreement providingthat provided for special payments in the event of a change in control. In the event of a change in control of HP, however, the Board is authorized (but not required) to accelerate the vesting of stock options and to release restrictions on stock and cash awards issued under HP stock plans. For the purposes of this table, the amounts reported for each NEO in the rows marked "Change in Control" assume that the Board would exercise its discretion in this manner, resulting in fully accelerated vesting of stock options, and release of all restrictions on restricted stock and outstanding PRU awards. In addition, an executive terminated following a change in control would be eligible for benefits under the SPEO, as described above.Special Termination Provisions Applicable As described under "Executive Compensation—Compensation Discussion and Analysis—Analysis of Elements of Executive Compensation—Letter Agreement with Catherine A. Lesjak," on December 15, 2010, HP entered into a letter agreement with Ms. Lesjak relating to Mr. Hurd Under Mr. Hurd'sher employment with HP. That letter agreement includes, among other things, certain protections for Ms. Lesjak in the event of a termination by HP without cause, he would be eligible to receive benefits underchange in control of HP. The Committee believed that including those provisions was appropriate given the SPEO. In addition to the circumstancescontext of that qualify as a termination "not for cause" under the SPEO, Mr. Hurd would also be eligible for SPEO benefits if his duties as CEO were substantially reduced without his consent or if he were not re-elected to the Board during the term of his employment. Moreover, he would be eligible for prorated vesting on his awards of restricted stock and restricted stock units; vesting on other stock options would cease at time of termination.agreement.However, benefitsBenefits that have been earned or accrued, as well as prorated bonuses, accelerated stock or option vesting and other benefits that are consistent with HP practices applicable to employees other than the Section 16 officers, are not counted against the limit. Specifically, benefits subject to the HP Severance Policy include: (a) separation payments based on a multiplier of salary plus target bonus, or cash amounts payable for the uncompleted portion of employment agreements; (b) any gross-up payments made in connection with severance, retirement or similar payments, including any gross-up payments with respect to excess parachute payments under Section 280G of theCode, Code; (c) the value of any service period credited to a Section 16 officer in excess of the period of service actually provided by such Section 16 officer for purposes of any employee benefit plan; (d) the value of benefits and perquisites that are inconsistent with HP practices applicable to one or more groups of employees in addition to, or other than, the Section 16 officers ("Company Practices"); and (e) the value of any accelerated vesting of any stock options, stock appreciation rights, restricted stock or long-term cash incentives that is inconsistent with Company Practices. The following benefits are not subject to the HP Severance Policy, either because they have been previously earned or accrued by the employee or because they are consistent with Company Practices: (i) compensation and benefits earned, accrued, deferred or otherwise provided for employment services rendered on or prior to the date of termination of employment pursuant to bonus, retirement, deferred compensation or other benefit plans, e.g., 401(k) plan distributions, payments pursuant to retirement plans, distributions under deferred compensation plans or payments for accrued benefits such as unused vacation days, and any amounts earned with respect to such compensation and benefits in accordance with the terms of the applicable plan; (ii) payments of prorated portions of bonuses or prorated long-term incentive payments that are consistent with Company Practices; (iii) acceleration of the vesting of stock options, stock appreciation rights, restricted stock, restricted stock units or long-term cash incentives that is consistent with Company Practices; (iv) payments or benefits required to be provided by law; and (v) benefits and perquisites provided in accordance with the terms of any benefit plan, program or arrangement sponsored by HP or its affiliates that are consistent with Company Practices.Severance Plan for Executive Officers In October 2003, the Committee adopted a severance plan for executives who were Section 16 officers of HP within 90 days of their termination of HP employment. This plan provides for a lump-sum severance payment upon a qualifying termination that is a multiple of the sum of annual base salary and target cash bonus, as in effect prior to the employment termination. In July 2005, the Committee amended this plan to reduce the cash severance benefits payable to the CEO, executive vice presidents and senior vice presidents and to base payments upon a multiple of the sum of annual base salary and actual bonuses paid (averaged over the most recent three-year performance period) rather than a multiple of the sum of annual base salary and target cash bonuses. Under the amended plan, the multiple used is 2.0 for the position of CEO, 1.5 for executive vice presidents, and 1.0 for senior vice presidents and vice presidents. Any payments under the severance program will be reduced by any cash severance benefit payable to the participant under any other HP plan, program or agreement, including cash amounts payable for the uncompleted portion of employment agreements. A participant will be deemed to have incurred a qualifying termination for purposes of this plan if he or she is involuntarily terminated without cause (as defined below) and executes a full release of claims in a form satisfactory to HP, promptly following termination. For purposes of the plan, "cause" means a participant's material neglect (other than as a result of illness or disability) of his or her duties or responsibilities to HP or conduct (including action or failure to act) that is not in the best interest of, or is injurious to, HP. Notwithstanding the foregoing, the amount of severance benefits received by an executive under the plan will not exceed 2.99 times the sum of the executive's base salary plus target bonus as in effectimmediately prior to separation from employment, unless such benefits are approved by HP's stockholders pursuant to the HP Severance Policy.HP Retirement Arrangementsmanagement.management based on actual results. In accordance with Section 409A of the Code, certain amounts payable upon retirement of (or other termination by) the NEOs and other key employees will not be paid out for at least six months following termination of employment. Of the NEOs, only Mr. Joshi was eligible to retire as of October 31, 2009.2010.States. The first, the HP Pre-2003 Retiree Medical Plan, is a retiree medical program thatStates, one of which provides subsidized coverage for eligible participants with subsidies determined based uponon years of qualifying HP service. Eligibility for this program requires that participants have been employed by HP before January 1, 2003, and to have had 62 age-plus-service "points" asmet other age and service None of the other NEOs is eligible for this subsidized retiree medical plan.the HP Retiree Medical Plan, is a plan that provides U.S.eligible retirees with access to coverage at group rates only, with no direct subsidy provided by HP. In addition, certain activebeginning at age 45, eligible U.S. employees may participate in the HP Retirement Medical Savings Account Plan (the "RMSA"), under which participants are eligible to receive HP matching credits of $1,200 per year, beginning at age 45, up to a lifetime maximum of $12,000. These credits$12,000, which can be used to cover the cost of such retiree medical coverage (or other qualifying medical expenses) if the employee retires from HP on or after age 55 with at least 10 years of qualifying service. All of the NEOs other than Mr. Joshi could be eligible for the HP Retiree Medical Plan and the employer credits accumulated under the RMSA if they retire from HP on or after age 55 with at least 10 years of qualifying service.
EQUITY COMPENSATION PLAN INFORMATION2009. Information is included for equity compensation plans approved by HP stockholders and equity compensation plans not approved by HP stockholders. In general, the equity compensation plans not approved by HP stockholders consist of plans that HP has assumed in connection with acquisitions and continues to maintain primarily for the purpose of issuing stock in connection with outstanding awards granted prior to the acquisition.2010. Common shares to
be issued upon
exercise of
outstanding
options, warrants
and rights(1) Weighted-average
exercise price
of outstanding
options warrants
and rights(2) Common shares
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a)) Common shares to
be issued upon
exercise of
outstanding
options, warrants
and rights(1) Weighted-average
exercise price
of outstanding
options, warrants
and rights(2) Common shares
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (a) (b) (c) (a) (b) (c) 195,039,454 (3) $ 33.3889 95,311,037 (4) 130,095,753 (3) $ 28.8389 124,553,185 (4) 51,568,364 (5)(6)(7) $ 30.2753 82,449,004 (8) 0 $ 0 0 246,607,818 $ 32.7007 177,760,041 130,095,753 $ 28.8389 124,553,185 2009.2010. As of October 31, 2009,2010, individual awards of options and restricted stock units to purchase a total of 13,046,37342,408,497 shares were outstanding pursuant to awards assumed in connection with acquisitions and granted under such plans at a weighted-averageweighted average exercise price of $42.4991.$24.9673. Includes stock appreciation rights with respect to 84,419 shares of HP common stock assumed in connection with HP's acquisition of Compaq Computer Corporation. Also includes awards of PRUs representing 1,568,530 shares that may be issued under the Amended and Restated 2003 Incentive Plan of Electronic Data Systems Corporation. The terms of the PRU awards are summarized in footnote (3) to this table.19,266,95923,946,866 shares that may be issued under the 2004 Plan. Each PRU award reflects a target number of shares that may be issued to the award recipient. HP determines the actual number of shares the recipient receives at the end of a three-year performance period based on results achieved versus company performance goals and stockholder return relative to the market. The actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the targeted shares granted. As of October 31, 2009, thetarget number of shares underlying the awards of PRUs outstanding under the 2004 Plan had increased to 22,839,811 shares based on performance and market conditions existing as of that date.shares.33,917,55090,034,630 shares available for future issuance under the 2004 Plan, all of which may be issued as stock awards, (ii) 24,267,156 shares available for future issuance under the 2000 Plan, of which up to 12,819,630 shares may be issued as stock awards, (iii) 33,034,34030,426,564 shares available for future issuance under the ESPP, (iv)(iii) 2,725,611 shares available for future issuance under the Legacy ESPP, and (v)(iv) 1,366,380 shares available for future issuance under the HP Service Anniversary Award Plan. In November 2009,2010, the 2000 PlanESPP expired, and HP ceased making new awardsissuing shares under that plan.(5)HP assumed and, until November 2009, continued to issue awards in accordance with applicable NYSE listing standards under the following plans, which were not approved by HP stockholders but which were approved by stockholders of Compaq Computer Corporation ("Compaq"): the Compaq 1989 Equity Incentive Plan, the Compaq 1995 Equity Incentive Plan, the Compaq 1998 Stock Option Plan and the Compaq 2001 Stock Option Plan. HP also assumed and, until November 2009, continued to issue awards in accordance with applicable NYSE listing standards under the Amended and Restated 2003 Incentive Plan of EDS, which was not approved by HP stockholders but which was approved by EDS stockholders. All options and restricted stock units issued under these plans are reflected in this column and the weighted-average exercise price of the options is included in column (b).(6)Includes stock appreciation rights with respect to 256,912 shares of HP common stock assumed in connection with the Compaq acquisition.(7)Includes awards of PRUs representing 1,826,210 shares that may be issued under the EDS Amended and Restated 2003 Incentive Plan. The terms of each PRU award are summarized in footnote (3) to this table. As of October 31, 2009, the number of shares underlying the awards of PRUs outstanding under that plan had increased to 1,883,682 shares based on performance and market conditions existing as of that date.(8)Represents shares available as of October 31, 2009 for option grants under the plans assumed in connection with the Compaq acquisition and shares available as of October 31, 2009 for employee non-qualified stock options, stock awards, cash awards and performance awards under the plan assumed in connection with the EDS acquisition identified in footnote (6) to this table. In November 2009, HP ceased making new awards under those plans.
PRINCIPAL ACCOUNTANT FEES AND SERVICES2010.2011. Stockholders are being asked to ratify the appointment of EY at the annual meeting pursuant to Proposal No. 2. Representatives of EY are expected to be present at the annual meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.20092010 and 2008.2009. 2009 2008 2010 2009 In millions In millions $ 30.5 $ 29.6 $ 30.8 $ 30.5 13.8 9.9 14.9 13.8 9.3 9.0 6.1 9.3 0.2 0.1 0.0 0.2 $ 53.8 $ 48.6 $ 51.8 $ 53.8 tax compliance fees of $0.7 million,primarily tax advice and tax planning fees of $5.6 million and fees for expatriate tax services of $3.0 million. For fiscal 2008, tax fees included tax compliance fees of $1.1 million, tax advice and tax planning fees of $6.9 million, and fees for expatriate tax services of $1.0 million.For fiscal 2009, allAll other fees included primarily fees for advice relating to employee benefits matters. For fiscal 2008, all other fees consisted of fees for immigration tax services.
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORSbyunder the Statement on Auditing Standards No. 61, as amended (Codification of Statements on Auditing Standards, AU 380), asrules adopted by the Public Company Accounting Oversight Board ("PCAOB") in Rule 3200T.. required by PCAOB Ethics and Independence Rule 3526,Communication with Audit Committees Concerning Independence, and has discussed with the independent registered public accounting firm its independence.2009,2010, for filing with the Securities and Exchange Commission. AUDIT COMMITTEE Robert L. Ryan, Chair
Sari M. Baldauf
John R. Joyce
Lucille S. Salhany
G. Kennedy ThompsonAnnex AAMENDED AND RESTATEDHEWLETT-PACKARD COMPANY 2004 STOCK INCENTIVE PLAN1.Purposes of the Plan.The purpose of this Plan is to encourage ownership in the Company by key personnel whose long-term employment is considered essential to the Company’s continued progress and, thereby, encourage recipients to act in the shareholders’ interest and share in the Company’s success.2.Definitions.As used herein, the following definitions shall apply:(a)“Administrator” means the Board, any Committees or such delegates as shall be administering the Plan in accordance with Section 4 of the Plan.(b)“Affiliate” means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant ownership interest as determined by the Administrator provided that the entity is one with respect to which Common Stock will qualify as “service recipient stock” under Code Section 409A.(c)“Annual Equity Retainer” shall mean the amount which a Non-Employee Director will be entitled to receive in the form of equity for serving as a director in a relevant Director Plan Year, but shall not include reimbursement for expenses, fees associated with service on any committee of the Board, any cash compensation or fees with respect to any other services to be provided to HP.(d)“Applicable Laws” means the requirements relating to the administration of stock option plans under U.S. federal and state laws, any stock exchange or quotation system on which the Company has listed or submitted for quotation the Common Stock to the extent provided under the terms of the Company’s agreement with such exchange or quotation system and, with respect to Awards subject to the laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan, the laws of such jurisdiction.(e)“Award” means a Cash Award, Stock Award, or Option granted in accordance with the terms of the Plan.(f)“Awardee” means an individual who has been granted an Award under the Plan.(g)“Award Agreement” means a Cash Award Agreement, Stock Award Agreement and/or Option Agreement, which may be in written or electronic format, in such form and with such terms as may be specified by the Administrator, evidencing the terms and conditions of an individual Award. Each Award Agreement is subject to the terms and conditions of the Plan. An Award Agreement may be in the form of either (i) an agreement to be either executed by both the Awardee and the Company or offered and accepted electronically as the Administrator shall determine or (ii) certificates, notices or similar instruments as approved by the Administrator.(h)“Board” means the Board of Directors of the Company.(i)“Cash Award” means a bonus opportunity awarded under Section 12 pursuant to which a Participant may become entitled to receive an amount based on the satisfaction of such performance criteria as are specified in the agreement or other documents evidencing the Award (the “Cash Award Agreement”).(j)“Change in Control” means any of the following, unless the Administrator provides otherwise:i.any merger or consolidation (other than a merger or consolidation in which 50% of the voting power of the voting securities of the surviving entity is controlled by the shareholders of the Company immediately prior to the transaction) in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity whose shareholders did not own all or substantially all of the Common Stock in substantially the same proportions as immediately prior to such transaction),ii.the sale of all or substantially all of the Company’s assets to any other person or entity (other than a wholly-owned subsidiary),iii.the acquisition of beneficial ownership of a controlling interest (including, without limitation, power to vote) the outstanding shares of Common Stock by any person or entity (including a “group” as defined by or under Section 13(d)(3) of the Exchange Act),iv.the dissolution or liquidation of the Company, orv.a contested election of Directors, as a result of which or in connection with which the persons who were Directors before such election or their nominees cease to constitute a majority of the Board.(k)“Code” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.(l)“Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. The HR and Compensation Committee of the Board shall be deemed a “Committee” for purposes of the Plan.(m)“Common Stock” means the common stock of the Company.(n)“Company” means Hewlett-Packard Company, a Delaware corporation, or its successor.(o)“Conversion Award” has the meaning set forth in Section 4(b)(xii) of the Plan.(p)“Director” means a member of the Board who is not a Non-Employee Director.(q)“Director Option” shall mean any option granted under Section 13 of the Plan.(r)“Director Plan Year” shall mean the year beginning the day after HP’s annual meeting and ending on the day of HP’s next annual meeting, as the case may be, for any relevant year.(s)“Employee” means a regular, active employee of the Company or any Affiliate, including an Officer and/or Director. The Administrator shall determine whether or not the chairman of the Board qualifies as an “Employee.” Within the limitations of Applicable Law, the Administrator shall have the discretion to determine the effect upon an Award and upon an individual’s status as an Employee in the case of (i) any individual who is classified by the Company or its Affiliate as leased from or otherwise employed by a third party or as intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise, (ii) any leave of absence approved by the Company or an Affiliate, (iii) any transfer between locations of employment with the Company or an Affiliate or between the Company and any Affiliate or between any Affiliates, (iv) any change in the Awardee’s status from an employee to a consultant or Director, and (v) at the request of the Company or an Affiliate an employee becomes employed by any partnership, joint venture or corporation not meeting the requirements of an Affiliate in which the Company or an Affiliate is a party.(t)“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.(u)“Fair Market Value” means, unless the Administrator determines otherwise, as of any date, the closing sales price for such Common Stock as of such date (or if no sales were reported on such date, the closing sales price on the last preceding day on which a sale was made), as reported in such source as the Administrator shall determine.(v)“Grant Date” means the date upon which an Award is granted to an Awardee pursuant to this Plan or such later date as specified in advance by the Administrator.(w)“Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.(x)“Non-Employee Director” shall mean each member of the Board who is not an employee of HP or any of its Subsidiaries or Affiliates and who is eligible only for Awards granted pursuant to Section 13 of the Plan.(y)“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.(z)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.(aa)“Option” means a right granted under Section 8 to purchase a number of Shares or Stock Units at such exercise price, at such times, and on such other terms and conditions as are specified in the agreement or other documents evidencing the Award (the “Option Agreement”). Both Options intended to qualify as Incentive Stock Options and Nonstatutory Stock Options may be granted under the Plan.(bb)“Participant” means an individual who has been granted an Award or any person (including any estate) to whom an Award has been assigned or transferred as permitted hereunder.(cc)“Plan” means this Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan.(dd)“Qualifying Performance Criteria” shall have the meaning set forth in Section 14(b) of the Plan.(ee)“Share” means a share of the Common Stock, as adjusted in accordance with Section 15 of the Plan.(ff)“Stock Award” means an award or issuance of Shares or Stock Units made under Section 11 of the Plan, the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including continued employment or performance conditions) and terms as are expressed in the agreement or other documents evidencing the Award (the “Stock Award Agreement”).(gg)“Stock Unit” means a bookkeeping entry representing an amount equivalent to the fair market value of one Share, payable in cash, property or Shares. Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Administrator.(hh)“Subsidiary” means any company (other than the Company) in an unbroken chain of companies beginning with the Company, provided each company in the unbroken chain (other than the Company) owns, at the time of determination, stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other companies in such chain.(ii)“Termination of Employment” shall mean ceasing to be an Employee. However, for Incentive Stock Option purposes, Termination of Employment will occur when the Awardee ceases to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or one of its Subsidiaries. The Administrator shall determine whether any corporate transaction, such as a sale or spin-off of a division or business unit, or a joint venture, shall be deemed to result in a Termination of Employment.(jj)“Total and Permanent Disability” shall have the meaning set forth in Section 22(e)(3) of the Code.3.Stock Subject to the Plan.(a)Aggregate Limits. Subject to the provisions of Section 15 of the Plan, the aggregate number of Shares subject to Awards granted under the Plan is 245,000,000 Shares. The Shares subject to the Plan may be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares.(b)Issuance of Shares. For purposes of Section 3(a), the aggregate number of Shares issued under the Plan at any time shall equal only the number of Shares actually issued upon exercise or settlement of an Award. If any Shares subject to an Award granted under the Plan are forfeited or such Award is settled in cash or otherwise terminates without the delivery of such Shares, the Shares subject to such Award, to the extent of any such forfeiture, settlement or termination, shall again be available for grant under the Plan. Notwithstanding the foregoing, Shares subject to an Award under the Plan may not again be made available for issuance under the Plan if such Shares are: (i) Shares delivered to or withheld by the Company to pay the exercise price of an Option, (ii) Shares delivered to or withheld by the Company to pay the withholding taxes related to an Award, or (iii) Shares repurchased by the Company on the open market with the proceeds of an Award paid to the Company by or on behalf of the Participant.(c)Code Section 162(m) and 422 Limits. Subject to the provisions of Section 15 of the Plan, the aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Awardee shall not exceed 1,500,000, except that in connection with his or her initial service, an Awardee may be granted Awards covering up to an additional 1,500,000 Shares. Subject to the provisions of Section 15 of the Plan, the aggregate number of Shares that may be subject to all Incentive Stock Options granted under the Plan is 245,000,000 Shares. Notwithstanding anything to the contrary in the Plan, the limitations set forth in this Section 3(c) shall be subject to adjustment under Section 15(a) of the Plan only to the extent that such adjustment will not affect the status of any Award intended to qualify as “performance based compensation” under Code Section 162(m) or the ability to grant or the qualification of Incentive Stock Options under the Plan.4.Administration Of The Plan.(a)Procedure.i.Multiple Administrative Bodies. The Plan shall be administered by the Board, one or more Committees and/or their delegates.ii.Section 162. To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, Awards to “covered employees” within the meaning of Section 162(m) of the Code or Employees that the Committee determines may be “covered employees” in the future shall be made by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.iii.Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”), Awards to Officers and Directors shall be made by the entire Board or a Committee of two or more “non-employee directors” within the meaning of Rule 16b-3.iv.Other Administration. The Board or a Committee may delegate to an authorized officer or officers of the Company the power to approve Awards to persons eligible to receive Awards under the Plan who are not (A) subject to Section 16 of the Exchange Act or (B) at the time of such approval, “covered employees” under Section 162(m) of the Code.v.Delegation of Authority for the Day-to-Day Administration of the Plan. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. Such delegation may be revoked at any time.(b)Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee or delegates acting as the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator shall have the authority, in its discretion:i.to select the Awardees to whom Awards are to be granted hereunder;ii.to determine the number of shares of Common Stock to be covered by each Award granted hereunder;iii.to determine the type of Award to be granted to the selected Awardees and to approve forms of Award Agreements for use under the Plan;iv.to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise and/or purchase price, the time or times when an Award may be exercised (which may or may not be based on performance criteria), the vesting schedule, any vesting and/or exercisability acceleration or waiver of forfeiture restrictions, the acceptable forms of consideration, the term, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine and may be established at the time an Award is granted or thereafter;v.to suspend the right to exercise Awards during any blackout period that is necessary or desirable to comply with the requirements of Applicable Laws and/or to extend the Award exercise period for an equal period of time in a manner consistent with Applicable Law;vi.to correct defects in the Plan and supply omissions and to correct administrative errors;vii.to construe and interpret the terms of the Plan (including sub-plans and Plan addenda) and Awards granted pursuant to the Plan;viii.to adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized (A) to adopt the rules and procedures regarding the conversion of local currency, withholding procedures and handling of stock certificates which vary with local requirements and (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable, to accommodate foreign laws, regulations and practice;ix.to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans and Plan addenda;x.to modify or amend each Award, including, but not limited to, the acceleration of vesting and/or exercisability, provided, however, that any such amendment is subject to Section 16 of the Plan and may not materially impair any outstanding Award unless agreed to in writing by the Participant;xi.to allow Participants to satisfy withholding tax amounts by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or vesting or settlement of a Stock Award that number of Shares having a value equal to the amount required to be withheld. The value of the Shares to be withheld shall be determined in such manner and on such date that the Administrator shall determine or, in the absence of provision otherwise, on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may provide;xii.to authorize conversion or substitution under the Plan of any or all stock options, stock appreciation rights or other stock awards held by service providers of an entity acquired by the Company (the “Conversion Awards”). Any conversion or substitution shall be effective as of the close of the merger or acquisition. The Conversion Awards may be Nonstatutory Stock Options or Incentive Stock Options, as determined by the Administrator, with respect to options granted by the acquired entity; provided, however, that with respect to the conversion of stock appreciation rights in the acquired entity, the Conversion Awards shall be Nonstatutory Stock Options. Unless otherwise determined by the Administrator at the time of conversion or substitution, all Conversion Awards shall have the same terms and conditions as Awards generally granted by the Company under the Plan;xiii.to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;xiv.to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;xv.to provide, either at the time an Award is granted or by subsequent action, that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash or a combination thereof, the amount of which is determined by reference to the value of the Award; andxvi.to make all other determinations deemed necessary or advisable for administering the Plan and any Award granted hereunder.(c)Effect of Administrator’s Decision. All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder, shall be final and binding on all Participants. The Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select.5.Eligibility.Awards may be granted to Directors and/or Employees; provided that Non-Employee Directors are eligible only for awards granted under Section 13 of the Plan.6.Term of Plan.The Plan shall become effective upon its approval by shareholders of the Company. It shall continue in effect for a term of ten (10) years from the later of the date the Plan or any amendment to add shares to the Plan is approved by shareholders of the Company unless terminated earlier under Section 16 of the Plan.7.Term of Award.The term of each Award shall be determined by the Administrator and stated in the Award Agreement. In the case of an Option, the term shall be ten (10) years from the Grant Date or such shorter term as may be provided in the Award Agreement; provided that the term may be ten and one-half (10 1/2) years in the case of Options granted to Awardees in certain jurisdictions outside the United States as determined by the Administrator.8.Options.The Administrator may grant an Option or provide for the grant of an Option, either from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance goals, the satisfaction of an event or condition within the control of the Awardee or within the control of others.(a)Option Agreement. Each Option Agreement shall contain provisions regarding (i) the number of Shares that may be issued upon exercise of the Option, (ii) the type of Option, (iii) the exercise price of the Shares and the means of payment for the Shares, (iv) the term of the Option, (v) such terms and conditions on the vesting and/or exercisability of an Option as may be determined from time to time by the Administrator, (vi) restrictions on the transfer of the Option and forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with this Plan as may be determined from time to time by the Administrator.(b)Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:i.The per Share exercise price of an Option shall be no less than 100% of the Fair Market Value per Share on the Grant Date.ii.Notwithstanding the foregoing, at the Administrator’s discretion, Conversion Awards may be granted in substitution and/or conversion of options or stock appreciation rights of an acquired entity, with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of such substitution and/or conversion if such exercise price is based on a formula set forth in the terms of such options/stock appreciation rights or in the terms of the agreement providing for such acquisition.(c)No Option Repricings. Other than in connection with a change in the Company’s capitalization (as described in Section 15(a) of the Plan), the exercise price of an Option may not be reduced without shareholder approval (including canceling previously awarded Options in exchange for cash, other Awards or Options with an exercise price that is less than the exercise price of the original Option).(d)Vesting Period and Exercise Dates. Options granted under this Plan shall vest and/or be exercisable at such time and in such installments during the period prior to the expiration of the Option’s term as determined by the Administrator. The Administrator shall have the right to make the timing of the ability to exercise any Option granted under this Plan subject to continued employment, the passage of time and/or suchperformance requirements as deemed appropriate by the Administrator. At any time after the grant of an Option, the Administrator may reduce or eliminate any restrictions surrounding any Participant’s right to exercise all or part of the Option.(e)Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment, either through the terms of the Option Agreement or at the time of exercise of an Option. Acceptable forms of consideration may include:i.cash;ii.check or wire transfer (denominated in U.S. Dollars);iii.subject to any conditions or limitations established by the Administrator, other Shares which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;iv.subject to any conditions or limitations established by the Administrator, withholding of Shares deliverable upon exercise, which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;v.consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator;vi.such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; orvii.any combination of the foregoing methods of payment.9.Incentive Stock Option Limitations/Terms.(a)Eligibility. Only employees (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or any of its Subsidiaries may be granted Incentive Stock Options.(b)$100,000 Limitation. Notwithstanding the designation “Incentive Stock Option” in an Option Agreement, if and to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardee during any calendar year (under all plans of the Company and any of its Subsidiaries) exceeds U.S. $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 9(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the Grant Date.(c)Effect of Termination of Employment on Incentive Stock Options. Unless otherwise provided for by the Administrator, upon an Awardee’s Termination of Employment, any outstanding Incentive Stock Option granted to such Awardee, whether vested or unvested, to the extent not theretofore exercised, shall terminate immediately upon the Awardee’s Termination of Employment.(d)Leave of Absence. For purposes of Incentive Stock Options, no leave of absence may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Subsidiary is not so guaranteed, an Awardee’s employment with the Company shall be deemed terminated on the ninety-first (91st) day of such leave for Incentive Stock Option purposes and any Incentive Stock Optiongranted to the Awardee shall cease to be treated as an Incentive Stock Option and shall terminate upon the expiration of the three month period following the date the employment relationship is deemed terminated.(e)Transferability. The Option Agreement must provide that an Incentive Stock Option cannot be transferable by the Awardee otherwise than by will or the laws of descent and distribution, and, during the lifetime of such Awardee, must not be exercisable by any other person. If the terms of an Incentive Stock Option are amended to permit transferability, the Option will be treated for tax purposes as a Nonstatutory Stock Option.(f)Other Terms. Option Agreements evidencing Incentive Stock Options shall contain such other terms and conditions as may be necessary to qualify, to the extent determined desirable by the Administrator, with the applicable provisions of Section 422 of the Code.10.Exercise of Option.(a)Procedure for Exercise; Rights as a Shareholder.i.Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the respective Award Agreement. Unless the Administrator provides otherwise: (A) no Option may be exercised during any leave of absence other than an approved personal or medical leave with an employment guarantee upon return; and (B) an Option shall continue to vest during any authorized leave of absence and such Option may be exercised to the extent vested and exercisable upon the Awardee’s return to active employment status.ii.An Option shall be deemed exercised when the Company receives (A) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option; (B) full payment for the Shares with respect to which the related Option is exercised; and (C) with respect to Nonstatutory Stock Options, payment of all applicable withholding taxes.iii.Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Unless provided otherwise by the Administrator or pursuant to this Plan, until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option.iv.The Company shall issue (or cause to be issued) such Shares as soon as administratively practicable after the Option is exercised. An Option may not be exercised for a fraction of a Share.(b)Effect of Termination of Employment on Nonstatutory Stock Options. Unless otherwise provided for by the Administrator, upon an Awardee’s Termination of Employment, any outstanding Nonstatutory Stock Option granted to such Awardee, whether vested or unvested, to the extent not theretofore exercised, shall terminate immediately upon the Awardee’s Termination of Employment.11.Stock Awards.(a)Stock Award Agreement. Each Stock Award Agreement shall contain provisions regarding (i) the number of Shares subject to such Stock Award or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment for the Shares, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of theShares as may be determined from time to time by the Administrator, (v) restrictions on the transferability of the Stock Award and (vi) such further terms and conditions in each case not inconsistent with this Plan as may be determined from time to time by the Administrator.(b)Restrictions and Performance Criteria. The grant, issuance, retention and/or vesting of each Stock Award may be subject to such performance criteria and level of achievement versus these criteria as the Administrator shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Awardee. Notwithstanding anything to the contrary herein, the performance criteria for any Stock Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than ninety (90) days after the commencement of the period of service to which the performance goals relates, provided that the outcome is substantially uncertain at that time.(c)Forfeiture. Unless otherwise provided for by the Administrator, upon the Awardee’s Termination of Employment, the Stock Award and the Shares subject thereto shall be forfeited, provided that to the extent that the Awardee purchased any Shares, the Company shall have a right to repurchase the unvested Shares at the original price paid by the Awardee.(d)Rights as a Shareholder. Unless otherwise provided by the Administrator, the Participant shall have the rights equivalent to those of a shareholder and shall be a shareholder only after Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) to the Participant. Unless otherwise provided by the Administrator, a Participant holding Stock Units shall be entitled to receive dividend payments as if he or she was an actual shareholder.12.Cash Awards.Each Cash Award will confer upon the Awardee the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one (1) year.(a)Cash Award. Each Cash Award shall contain provisions regarding (i) the target and maximum amount payable to the Awardee as a Cash Award, (ii) the performance criteria and level of achievement versus these criteria which shall determine the amount of such payment, (iii) the period as to which performance shall be measured for establishing the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Cash Award prior to actual payment, (vi) forfeiture provisions, and (vii) such further terms and conditions, in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator. The maximum amount payable as a Cash Award that is settled for cash may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of a Cash Award granted under this Plan for any fiscal year to any Awardee that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall not exceed U.S. $15,000,000.(b)Performance Criteria. The Administrator shall establish the performance criteria and level of achievement versus these criteria which shall determine the target and the minimum and maximum amount payable under a Cash Award, which criteria may be based on financial performance and/or personal performance evaluations. The Administrator may specify the percentage of the target Cash Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of a Cash Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than ninety (90) days after the commencement of the period of service to which the performance goals relates, provided that the outcome is substantially uncertain at that time.(c)Timing and Form of Payment. The Administrator shall determine the timing of payment of any Cash Award. The Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit an Awardee to elect (in a manner consistent with Section 409A of the Code) for the payment of any Cash Award to be deferred to a specified date or event. The Administrator may specify the form of payment of Cash Awards, which may be cash or other property, or may provide for an Awardee to have the option for his or her Cash Award, or such portion thereof as the Administrator may specify, to be paid in whole or in part in cash or other property.(d)Termination of Employment. Unless otherwise provided for by the Administrator, upon the Awardee’s Termination of Employment, any Cash Awards issued hereunder shall be forfeited.13.Non-Employee Director Awards.(a)Eligibility. Each member of the Board who is a Non-Employee Director and who is providing service to HP as a member of the Board at the beginning of the Director Plan Year shall be eligible to receive an Annual Equity Retainer (as defined in Section 2 above) under the Plan.Any member of the Board who enters service after the beginning of the Director Plan Year (as defined in Section 2 above) may be eligible to receive a prorated Annual Equity Retainer under the Plan as the Board or the Committee determines in its discretion.(b)Terms and Conditions.(i)Compensation Alternatives. Within (A) twenty-five (25) days after the beginning of the Director Plan Year, or (B) if the Non-Employee Director elects to participate in the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan (the “EDCP”) then in the calendar year preceding the first day of the Director Plan Year, each Non-Employee Director may elect to receive his Annual Equity Retainer in the form of restricted stock units (a “Director RSU Award”) and or in the form of an option to purchase shares of Common Stock (a “Director Option Award”). If any Non-Employee Director fails to make such an election, then he shall be deemed to have elected a Director RSU Award for the value of his Annual Equity Retainer. Any such election, or any modification or termination of such an election, shall be filed with HP on a form prescribed by HP for this purpose. If a Non-Employee Director does not elect to participate in the EDCP and does not select his or her means of payment within the prescribed time, then such Non-Employee Director shall not be permitted to participate in the EDCP for the applicable Director Plan Year.(ii)Director RSU Award.A.Date of Grant. The Director RSU Award shall be granted automatically one month after the beginning of each Director Plan Year (or, if such date is not a business day, on the next succeeding business day) (the “Director Grant Date”).B.Number of Shares Subject to a Director RSU Award. The total number of shares of Common Stock included in each Director RSU Award shall be determined by dividing the amount of the Annual Equity Retainer that is to be paid in RSUs by the Fair Market Value of a share of Common Stock on the Director Grant Date. It shall be rounded up to the largest number of whole shares.C.Vesting Period for Director RSU Award. If the Committee does not expressly exercise its discretion to change the vesting of the Director RSU Award for a Director Plan Year, then the vesting of such Director RSU Award shall be the same as the last Director Plan Year in which the Committee exercised its discretion to set the vesting terms. Unless deferred under the EDCP, Shares subject to Director RSU Awards shall be delivered promptly upon satisfaction of the vesting conditions, butno later than March 15 of the calendar year following the calendar year in which the vesting conditions are satisfied.(iii)Director Option Award. Subject to Section 13(b)(i) above, each Non-Employee Director may specify the amount of his Annual Equity Retainer to be received in the form of a Nonstatutory Stock Option. Each Director Option Award granted under this Plan shall comply with and be subject to the terms of the Plan and the following terms and conditions including such additional terms and conditions as may be determined by the Board or Committee:A.Date of Grant. The Director Option Award shall be granted automatically on the Director Grant Date.B.Number of Shares Subject to Director Option Award. The number of shares to be subject to any Director Option Award shall be an amount necessary to make such option equal in value, using a modified Black-Scholes option valuation model, to that portion of the Annual Equity Retainer that the Non-Employee Director elected to receive in the form of an option. The value of the option will be calculated by assuming that the value of an option to purchase one share of Common Stock equals the product of (i) a fraction determined by dividing 1 by the Multiplier, as defined below, and (ii) the Fair Market Value of a share of Common Stock on the Director Grant Date.The number of shares represented by a Director Option Award shall be determined by multiplying the number of shares determined above by a multiplier determined using a modified Black-Scholes option valuation method (the “Multiplier”). The Board or the Committee shall determine the Multiplier prior to the beginning of the Director Plan Year by considering the following factors: (i) the Fair Market Value of the Common Stock on the date the Multiplier is determined; (ii) the average length of time that Company stock options are held by optionees prior to exercise; (iii) the risk-free rate of return based on the term determined in (ii) above and U.S. government securities rates; (iv) the annual dividend yield for the Common Stock; and (v) the volatility of the Common Stock over the previous ten-year period. The number of shares to be subject to the option shall be rounded up to the largest number of whole shares determined as follows:Amount of Annual Equity Retainer to be paid as options x Multiplier = Number of SharesFair Market Value on the Director Grant DateC.Price of Options. The exercise price of the Director Option Award will be the Fair Market Value of the Common Stock on the Director Grant Date.D.Period of Director Option Award. The Committee shall have the discretion to determine the exercisability of Shares subject to the Director Option Award. If the Committee does not expressly exercise its discretion to change the exercisability of the Director Option Award for a Director Plan Year, then the exercisability of such options shall be the same as the last Director Plan Year in which the Committee expressly exercised its discretion to determine the exercisability of Shares subject to the Director Option Award.(iv)Termination. Any Non-Employee Director who terminates service prior to the end of the Director Plan Year may have his Annual Retainer prorated, including a forfeiture of options, restricted stock units or cash payment, if any, as the Board or the Committee determines in its discretion.14.Other Provisions Applicable to Awards.(a)Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by beneficiary designation, will or by the laws of descent or distribution. The Administrator may make an Award transferable to an Awardee’s “family member” (as such term is defined in Section 1(a)(5) of theGeneral Instructions to Form S-8 under the Securities Act of 1933, as amended), to trusts solely for the benefit of such family members and to partnerships in which such family members and/or trusts are the only partners. If the Administrator makes an Award transferable, either at the time of grant or thereafter, such Award shall contain such additional terms and conditions as the Administrator deems appropriate, and any transferee shall be deemed to be bound by such terms upon acceptance of such transfer.(b)Qualifying Performance Criteria. For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, Affiliate or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the Award: (i) cash flow or cash conversion cycle; (ii) earnings (including gross margin, earnings before interest and taxes, earnings before taxes, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share, cash flow, revenue, gross margin, operating expense or operating expense as a percentage of revenue; (v) stock price; (vi) return on equity or average shareholder equity; (vii) total shareholder return; (viii) return on capital; (ix) return on assets or net assets; (x) return on investment; (xi) revenue; (xii) income or net income; (xiii) operating income or net operating income; (xiv) operating profit, net operating profit or controllable operating profit; (xv) operating margin or operating expense or operating expense as a percentage of revenue; (xvi) return on operating revenue; (xvii) market share or customer indicators; (xviii) contract awards or backlog; (xix) overhead or other expense reduction; (xx) growth in shareholder value relative to the moving average of the S&P 500 Index or a peer group index; (xxi) credit rating; (xxii) strategic plan development and implementation, attainment of research and development milestones or new product invention or innovation; (xxiii) succession plan development and implementation; (xxiv) improvement in productivity or workforce diversity; (xxv) attainment of objective operating goals and employee metrics; (xxvi) economic value added; and (xxvii) any other similar criteria. To the extent consistent with Section 162(m) of the Code, the Committee may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (A) asset write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; and (E) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year.(c)Certification. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee shall certify the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common Stock).(d)Discretionary Adjustments Pursuant to Section 162(m). Notwithstanding satisfaction of any completion of any Qualifying Performance Criteria, to the extent specified at the time of grant of an Award to “covered employees” within the meaning of Section 162(m) of the Code, the number of Shares, Options or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Qualifying Performance Criteria may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.15.Adjustments upon Changes in Capitalization, Dissolution, Merger or Asset Sale.(a)Changes in Capitalization. Subject to any required action by the shareholders of the Company, (i) the number and kind of Shares available for issuance under the Plan and/or covered by each outstanding Award, (ii) the price per Share subject to each such outstanding Award; and (iii) the Share limitations set forth in Section 3 of the Plan, shall be proportionately adjusted for any increase or decrease in the number or kind of issued shares resulting from a stock split, reverse stock split, dividend or otherdistribution (whether in the form of cash, Shares, other securities or other property (other than regular, cash dividends)), combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award.(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Option to be fully vested and exercisable until ten (10) days prior to such transaction. In addition, the Administrator may provide that any restrictions on any Award shall lapse prior to the transaction, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed transaction.(c)Change in Control. In the event there is a Change in Control of the Company, as determined by the Board or a Committee, the Board or Committee may, in its discretion, (i) provide for the assumption or substitution of, or adjustment to, each outstanding Award; (ii) accelerate the vesting of Awards and terminate any restrictions on Awards; and (iii) provide for the cancellation of Awards for a cash payment to the Participant.16.Amendment and Termination of the Plan.(a)Amendment and Termination. The Administrator may amend, alter or discontinue the Plan or any Award Agreement, but any such amendment shall be subject to approval of the shareholders of the Company in the manner and to the extent required by Applicable Law. In addition, without limiting the foregoing, unless approved by the shareholders of the Company, no such amendment shall be made that would:i.increase the maximum number of Shares for which Awards may be granted under the Plan, other than an increase pursuant to Section 15 of the Plan;ii.reduce the minimum exercise price for Options granted under the Plan;iii.reduce the exercise price of outstanding Options; oriv.materially expand the class of persons eligible to receive Awards under the Plan.(b)Effect of Amendment or Termination. No amendment, suspension or termination of the Plan shall impair the rights of any Award, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.(c)Effect of the Plan on Other Arrangements. Neither the adoption of the Plan by the Board or a Committee nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or any Committee to adopt such other incentive arrangements as it or they may deem desirable, including, without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.17.Designation of Beneficiary.(a)An Awardee may file a written designation of a beneficiary who is to receive the Awardee’s rights pursuant to Awardee’s Award or the Awardee may include his or her Awards in an omnibus beneficiary designation for all benefits under the Plan. To the extent that Awardee has completed a designation of beneficiary while employed with Hewlett-Packard Company, such beneficiary designation shall remain in effect with respect to any Award hereunder until changed by the Awardee to the extent enforceable under Applicable Law.(b)Such designation of beneficiary may be changed by the Awardee at any time by written notice. In the event of the death of an Awardee and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Awardee’s death, the Company shall allow the executor or administrator of the estate of the Awardee to exercise the Award, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may allow the spouse or one or more dependents or relatives of the Awardee to exercise the Award to the extent permissible under Applicable Law.18.No Right to Awards or to Employment.No person shall have any claim or right to be granted an Award and the grant of any Award shall not be construed as giving an Awardee the right to continue in the employ of the Company or its Affiliates. Further, the Company and its Affiliates expressly reserve the right, at any time, to dismiss any Employee or Awardee at any time without liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.19.Legal Compliance.Shares shall not be issued pursuant to the exercise of an Option or Stock Award unless the exercise of such Option or Stock Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.20.Inability to Obtain Authority.To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.21.Reservation of Shares.The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.22.Notice.Any written notice to the Company required by any provisions of this Plan shall be addressed to the Secretary of the Company and shall be effective when received.23.Governing Law; Interpretation of Plan and Awards.(a)This Plan and all determinations made and actions taken pursuant hereto shall be governed by the substantive laws, but not the choice of law rules, of the state of Delaware.(b)In the event that any provision of the Plan or any Award granted under the Plan is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of the terms of the Plan and/or Award shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.(c)The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of the Plan, nor shall they affect its meaning, construction or effect.(d)The terms of the Plan and any Award shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.(e)All questions arising under the Plan or under any Award shall be decided by the Administrator in its total and absolute discretion. In the event the Participant believes that a decision by the Administrator with respect to such person was arbitrary or capricious, the Participant may request arbitration with respect to such decision. The review by the arbitrator shall be limited to determining whether the Administrator’s decision was arbitrary or capricious. This arbitration shall be the sole and exclusive review permitted of the Administrator’s decision, and the Awardee shall as a condition to the receipt of an Award be deemed to explicitly waive any right to judicial review.(f)Notice of demand for arbitration shall be made in writing to the Administrator within thirty (30) days after the applicable decision by the Administrator. The arbitrator shall be selected from amongst those members of the Board who are neither Administrators nor Employees. If there are no such members of the Board, the arbitrator shall be selected by the Board. The arbitrator shall be an individual who is an attorney licensed to practice law in the State of Delaware. Such arbitrator shall be neutral within the meaning of the Commercial Rules of Dispute Resolution of the American Arbitration Association; provided, however, that the arbitration shall not be administered by the American Arbitration Association. Any challenge to the neutrality of the arbitrator shall be resolved by the arbitrator whose decision shall be final and conclusive. The arbitration shall be administered and conducted by the arbitrator pursuant to the Commercial Rules of Dispute Resolution of the American Arbitration Association. The decision of the arbitrator on the issue(s) presented for arbitration shall be final and conclusive and may be enforced in any court of competent jurisdiction.24.Limitation on Liability.The Company and any Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant, an Employee, an Awardee or any other persons as to:(a)The Non-Issuance of Shares. The non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and(b)Tax Consequences. Any tax consequence expected, but not realized, by any Participant, Employee, Awardee or other person due to the receipt, exercise or settlement of any Option or other Award granted hereunder.25.Unfunded Plan.Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Awardees who are granted Stock Awards under this Plan, any such accounts will be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation, nor shall the Company or the Administrator be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any Participant with respect to an Award shall be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any obligation which may be created by this Plan.
IMPORTANT INFORMATION CONCERNING THE HP ANNUAL MEETING 19, 2010,24, 2011, the record date for the annual meeting, are entitled to attend the annual meeting on March 17, 201023, 201119, 201024, 2011 or other evidence of ownership19, 201024, 2011Computer History Museum, 1401 N. Shoreline Boulevard, Mountain View, CaliforniaSheraton National Hotel, 900 South Orme Street, Arlington, VirginiaSan Francisco:•Take US-101 South toward San Jose.•Take Shoreline Boulevard exit.•Turn left onto Shoreline Boulevard.•Cross through intersection; Museum is on your right.From San Jose: •Take US-101 North toward San Francisco.•Take Shoreline Boulevard exit.•Turn right onto Shoreline Boulevard.•Cross through intersection; Museum is on your right.From Oakland:•Take I-880 South toward San Jose.•Merge onto CA-237 West toward Mountain View.•Merge onto US-101 North toward San Francisco.•Take Shoreline Boulevard exit.•Turn right onto Shoreline Boulevard.•Cross through intersection; Museum is on your right.From Saratoga via CA-85the North:Take CA-85 North towards San Francisco.Follow 95 South to 495 West (Silver Spring)Take Shoreline Boulevard exit.Follow 495 West to the George Washington ParkwayTurn right onto Shoreline Boulevard.Follow the George Washington Parkway for approximately 8 miles to the exit for 395 South and Route 27 (Lyndon B. Johnson) exitCrossStay to the right at the fork, heading towards 395 Southintersection; Museumtwo traffic lights; Sheraton National Hotel is on your right.right sideNote:From the South:ParkingFollow the signs to the parking garage, which is located underground and is accessible from the main entrance to the hotel. You will be provided with a complimentary parking pass at the HP registration desk.frontunbroken chain, owns or controls 50 percent or more of the total ownership interest in one of the other entities in such chain.sideCorporation’s or such Designated Affiliate’s payroll records during the relevant participation period. Employees shall not include individuals whose customary employment is for not more than five (5) months in any calendar year (except those Employees in such category the exclusion of whom is not permitted under applicable local law) or individuals classified as independent contracto rs.facility.Offering Period.4AA0-4294ENWHEWLETT-PACKARD HEWLETT-PACKARDCOMPANY17, 201023, 2011COMPUTER HISTORY MUSEUMSHERATON NATIONAL HOTEL1401 N. SHORELINE BOULEVARD,900 SOUTH ORME STREET,MOUNTAIN VIEW, CALIFORNIAARLINGTON, VIRGINIAImportant Notice Regarding Internet Availability of Proxy Materials: The proxy materials for the Hewlett-Packard Company Annual Meeting of Stockholders, including the 2009 Annual Report and the proxy statement, are available over the Internet. To view the proxy materials, please have the reverse side of this notice available and visit www.eproxyaccess.com/hpq2010.Electronic Delivery of Future Proxy Materials: If you wish to receive all future proxy materials electronically by e-mail, please visit www.eproxyaccess.com/hpq2010 and follow the instructions there.HEWLETT-PACKARD HEWLETT-PACKARDCOMPANYANNUAL MEETING OF STOCKHOLDERS—MARCH 17, 2010THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSThe undersigned hereby appoints Mark V. Hurd, Michael J. Holston and Paul T. Porrini, and each of them, as proxies for the undersigned, with full power of substitution, to act and to vote all shares of common stock of Hewlett-Packard Company held of record or in an applicable plan by the undersigned at the close of business on January 19, 2010, at the Annual Meeting of Stockholders to be held at the Computer History Museum, 1401 N. Shoreline Boulevard, Mountain View, California, at 2:00 p.m., local time, on Wednesday, March 17, 2010,This proxy, when properly executed and returned, will be voted in the manner directed herein by the undersigned stockholder. If this proxy is properly executed and returned but no direction is made, this proxy will be voted for all of the nominees for director in proposal 1 and for proposals 2, 3 and 4. Whether or not direction is made, this proxy, when properly executed, will be voted in the discretion of the proxy holders upon such other business as may properly come before the Annual Meeting of Stockholders or any adjournment or postponement thereof. The proxy holders reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable director nominees in their sole discretion. If the undersigned has a beneficial interest in shares held in a 401(k) plan sponsored by Hewlett-Packard Company, voting instructions with respect to such plan shares must be provided by 11:59 p.m. Eastern time on March 14, 2010, in the manner described in the proxy statement. If voting instructions are not received by that time, such plan shares will be voted by the plan trustee as described in the proxy statement. The undersigned hereby revokes all proxies previously given by the undersigned to vote at the Annual Meeting of Stockholders or any adjournment or postponement thereof.IMPORTANT–IMPORTANT — THIS PROXY CARD MUST BE SIGNED ON THE REVERSE SIDE.PROXYHEWLETT-PACKARD HEWLETT-PACKARDCOMPANY20102011 PROXY STATEMENT AND ACCOMPANYING MATERIALSTelephone—Telephone — Call toll-free in the U.S. or Canada at 1-866-209-1711, on a touch-tone telephone. If outside the U.S. or Canada, call 1-215-521-1340. Please follow the simple instructions.Internet—Internet — Access www.proxyvotenow.com/hpq2010,hpq2011, and follow the simple instructions.Mail—Mail — If you do not wish to vote by telephone or over the Internet, please complete, sign and date the proxy card, and return it in the envelope provided or mail it to Hewlett-Packard Company, c/o Innisfree M&A Incorporated, FDR Station, P.O. Box 5156, New York, NY 10150-5156. 1 AND FOR PROPOSAL 2, 3 AND 4.FORAGAINSTABSTAIN01-M. L. Andreessen02-L.T. Babbio, Jr.ooo03-S.M. Baldaufooo04-R.L. Guptaooo05-J.H. Hammergrenooo06-M.V. HurdoooFORAGAINSTABSTAIN07-J.Z. Hyattooo08-J.R. Joyceooo09-R.L. Ryanooo10-L.S. Salhanyooo11-G.K. ThompsonoooFORSignatureAGAINSTABSTAIN2.Proposal to ratify the appointment of the independent registered public accounting firm for the fiscal year ending October 31, 2010ooo3.Proposal to approve the Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Planooo4.Proposal to conduct an annual advisory vote on executive compensationooooAddress change(make correction at left)SignatureSignatureTitle