10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: October 31, 2002

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

Commission file number 1-4423

HEWLETT-PACKARD COMPANY
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	94-1081436 (I.R.S. Employer Identification No.)
3000 Hanover Street, Palo Alto, California (Address of principal executive offices)	94304 (Zip code)

Registrant's telephone number, including area code: (650) 857-1501

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share Preferred Share Purchase Rights	New York Stock Exchange, Inc. The Pacific Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:
None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        The aggregate market value of the registrant's common stock held by nonaffiliates as of January 17, 2003 was $54,962,398,994.

        The number of shares of HP common stock outstanding as of January 17, 2003 was 3,052,406,863 shares.

DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT DESCRIPTION	10-K PART
Portions of the Registrant's notice of annual meeting of shareowners and proxy statement to be filed pursuant to Regulation 14A within 120 days after Registrant's fiscal year end of October 31, 2002 are incorporated by reference into Part II, Item 5 and Part III of this Report.	II, ITEM 5 III

Forward-Looking Statements

        This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Hewlett-Packard Company and its consolidated subsidiaries ("HP") to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenue, synergies, accretion, margins, costs or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans; any statement concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by vendors, customers and partners; employee management issues; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions relating to pension costs; and other risks that are described herein and that are otherwise described from time to time in HP's Securities and Exchange Commission reports including but not limited to the items discussed in "Factors that Could Affect Future Results" set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report. HP assumes no obligation and does not intend to update these forward-looking statements.

PART I

ITEM 1. Business.

        HP was incorporated in 1947 under the laws of the State of California as the successor to a partnership founded in 1939 by William R. Hewlett and David Packard. Effective in May 1998, we changed our state of incorporation from California to Delaware.

        We are a leading global provider of products, technologies, solutions and services to consumers and businesses. Our offerings span information technology ("IT") infrastructure, personal computing and other access devices, global services and imaging and printing. Our products and services are available worldwide.

        We seek to be the category leader with respect to each of the specific product categories in which we compete and to expand actively into new and adjacent markets. Accordingly, in fiscal 2002 we focused on strengthening our market position and enhancing our portfolio of products in each of our segments and categories as described further below.

        At the same time that we focus on individual offerings, we seek to leverage the depth and breadth of our products and services, as well as our expertise in working with complementary technology providers, in order to provide integrated solutions that address new and emerging market demands and offer new customer experiences.

        Our business strategy currently revolves around the following four interrelated goals and priorities:

•

deliver to business customers the best return on information technology investments in the industry;



•

provide consumer customers with simple and rewarding experiences by making different technologies work better together;



•

build world class cost structures across our entire portfolio of businesses; and

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•

focus our innovation and research and development investments on those areas where we can make unique contributions and differentiation, while partnering with other top providers to enable complete IT solutions.

Acquisitions

Acquisition of Compaq Computer Corporation

        In order to further our strategy, in September 2001 we entered into an agreement to acquire Compaq Computer Corporation ("Compaq"), and in May 2002 we completed the acquisition. Among the general strategic benefits we sought from the acquisition were to:

•

enhance our competitive position in a number of important industries in order to improve both the breadth and depth of our product portfolio;



•

generate significant annual cost synergies and thereby improve our cost structure and related operating margins primarily in our Enterprise Systems Group ("ESG"), Personal Systems Group ("PSG") and HP Services ("HPS") businesses in an increasingly competitive environment;



•

improve and accelerate the development of our direct distribution capability;



•

improve our relationships with strategic partners;



•

strengthen our sales force and relationships with strategic customer bases; and



•

increase our installed customer base.

        With regard to the anticipated cost synergies from the Compaq acquisition, our aggregate targeted cost savings for the second half of fiscal 2002 were approximately $500 million. In fact, we achieved cost savings of approximately $650 million, approximately 30% over our target for the period. These savings made a significant contribution to results in PSG and ESG, as operating losses in both businesses decreased more than 50% from the third quarter to the fourth quarter.

Acquisition of Indigo, N.V.

        In March 2002, we completed our acquisition of Indigo, N.V. ("Indigo"), which strengthens our printer offerings by adding high performance digital color printing systems, to which we are bringing both our printing expertise and our expertise in enterprise computing in order to develop solutions that can store, manage and deliver rich content.

HP Products and Services; Segment Information

        As of October 31, 2002, our operations were organized into five business segments: the Imaging and Printing Group ("IPG"), PSG, ESG, HPS and HP Financial Services ("HPFS").

        The four principal reportable segments, IPG, PSG, ESG and HPS, described in this Form 10-K are based on our management organizational structure as of October 31, 2002. Separate segment reporting has also been included for HPFS, which is included in ESG's organizational structure, due to the distinct nature of this business. Future changes to this organizational structure may result in changes to our reportable segments.

        A summary of our net revenue, earnings from operations and inventory for our business segments is found in Note 18 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. A discussion of factors potentially affecting our operations is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That Could Affect Future Results," in Item 7, which is incorporated herein by reference.

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Imaging and Printing Group

        IPG provides home and business imaging and printing devices, digital imaging and publishing systems, printing supplies and consulting services. Home and business imaging and printing devices include color and monochrome printers for shared and personal use, multi-function laser and all-in-one inkjet devices, personal color copiers and faxes, wide- and large-format inkjet printers and digital presses. Digital imaging and publishing systems include scanners, photosmart printers, and digital photography products. Supplies include laser and inkjet printer cartridges and other related printing media. Consulting services are provided to customers to optimize the use of printing and imaging assets.

        Key goals of IPG during fiscal 2002 included continuing to solidify our position in the low-end printing market, driving and capitalizing on the shift from single-function printers to all-in-one devices and photo printers and continuing to innovate with regard to our printing technology. The result of this focus was the completion of a three-year investment of approximately $1.2 billion in manufacturing, research and development and marketing designed to lead the market with the lowest cost platform, accelerated time to market and improved margins. We began the introduction of our new product lines with a June 2002 launch of a new line of consumer products and a September 2002 launch of a new line of commercial products. At the end of fiscal 2002, these launches had garnered more than 50 industry press awards.

        Specific product developments in the various IPG categories are set forth below.

        Printer Hardware.    The digital press technology acquired from Indigo is now part of our printer hardware category. In addition, as part of our consumer and commercial product launches, we launched many new printing hardware devices. Among the new printing hardware products introduced were the following:

•

two new all-in-one devices, the PSC 2210 and PSC 2110, featuring printing, scanning and copying all from one compact, integrated product;



•

the Deskjet 5500 inkjet, with 4800 optimized dots per square inch (dpi) and a six-ink system;



•

the Deskjet 3420 and 3320 inkjet printers featuring a new low-cost platform to solidify our position in the sub-$100 category;



•

the LaserJet 4300 and 4200, midrange commercial printers that are designed to be faster and easier to use than their predecessor, the LaserJet 4100;



•

the DeskJet 450, a high-performance color printer designed for mobile professionals with a long-lasting lithium ion battery and flexible connectivity options;



•

the Color LaserJet 2500 printer, our lowest-priced color laser printer ever that features industry-leading size and weight;



•

the Business Inkjet 3000 printer, designed for small workgroups with laser-like speeds of up to 8 color pages per minute and offering economical, modular supplies management;



•

the Color LaserJet 5500 wide-format printer that supports a variety of standard and custom media sizes; and



•

the DesignJet 5500, a large-format printer delivering high-speed production printing modes and a driverless, Web-based printing path.

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        Imaging.    Key imaging product introductions during fiscal 2002 included the following:

•

the Photosmart 7550, 7350 and 7150 photo printers designed to work in conjunction with our enhanced Premium Plus Photo Papers to provide prints that exceed both the photo quality and image-permanence of traditionally processed photos;



•

the Photosmart 230 and 130 photo printers, compact 4x6-inch printers designed for portable, high-quality printing;



•

the Photosmart 850, 812, 720, 620, 320 and 120 digital cameras, offering a range of prices and functionalities; and



•

the Scanjet 5500, 4570, 3570, 3530, 3500 and 2300 scanners, offering varying performance to meet a variety of customer needs.

        Printing Supplies.    In fiscal 2002 we continued our innovation of printing supplies, including the introduction of new premium photo paper that surpasses the image-permanence of traditional silver halide processing. In addition, as part of our new product rollouts, we introduced new ink cartridges to work with the new inkjet platform in our new printing products.

Personal Systems Group

        PSG provides commercial personal computers ("PCs"), consumer PCs, workstations, a range of handheld computing devices, digital entertainment systems, calculators and other related accessories, software and services for commercial and consumer markets. Commercial PCs include the HP e-PC and Compaq Evo desktop series, as well as Evo notebook PCs. Home PCs include the HP Pavilion and Compaq Presario series of multi-media consumer desktop PCs and notebook PCs. Workstations are provided for UNIX®⁽¹⁾, Windows®⁽²⁾ and Linux-based systems. Handheld computing devices include the iPAQ series of products that run on Pocket PC software. Digital entertainment systems offer the DVD+RW drives as well as digital entertainment center products.

        During fiscal 2002, we focused on a number of operational areas within PSG. Among the primary focus areas were the following:

•

reducing operating costs and increasing profitability;



•

accelerating the development of our direct distribution capability, particularly in the commercial space;



•

re-engineering the economics of our indirect distribution channels;



•

achieving balanced leadership across individual product categories; and



•

continuing innovation and development of new products and new categories.

        During the fiscal year, due largely to execution of the Compaq integration and cost savings, we made significant progress against each of these goals. For example:

•

PSG significantly reduced its operating loss in the fourth quarter of fiscal 2002 as compared to the third quarter of fiscal 2002.



•

the acquisition of the direct distribution assets of Compaq significantly strengthened our capabilities in this area;



•

we improved our market position in commercial PCs and handheld devices through the addition of Compaq's products in those areas; and



•

we continued to innovate through new product categories such as the Media Center PC and the Tablet PC, as described below.

⁽¹⁾

UNIX® is a registered trademark of The Open Group.

⁽²⁾

Windows® is a registered trademark of Microsoft Corporation.

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        Key product developments and product roadmap decisions for the 2002 fiscal year are described below.

        Commercial PCs.    The acquisition of Compaq's commercial PC business allowed us to improve our position in this category significantly by increasing market share and by adding Compaq's direct distribution capability. In connection with product roadmap decisions following the Compaq acquisition, we chose to continue the Compaq Evo desktop series and made the decision to discontinue the HP Vectra desktop series. In addition, we chose to continue the Compaq Evo commercial notebook product line and to discontinue the Compaq Armada and HP Omnibook notebook product lines. We continued to innovate in the commercial PC space when, in November 2002, we introduced the new Compaq Tablet PC TC1000, combining the power of digital inking technologies in the Windows® XP Tablet PC Edition operating system with the broad capabilities customers expect from a full-function PC.

        Consumer PCs.    The acquisition of Compaq's consumer PC business allowed us to improve our position in this category significantly by increasing market share and adding Compaq to the strong Pavilion base. In connection with product roadmap decisions following the Compaq acquisition, we decided to continue both the HP Pavilion and the Compaq Presario multi-media consumer desktop and notebook PCs due to significant customer loyalty to the brands. This strategy enabled us to maximize both our combined installed base and shelf space in the retail channel. We continued to innovate in the consumer PC space when, in October 2002, we introduced the HP Media Center PC. The HP Media Center PC takes advantage of the new Windows® XP Media Center Edition of Microsoft Corporation ("Microsoft") that better integrates digital entertainment experiences—including live television, personal video recording with free electronic program guide, digital music, digital video, DVDs and digital photos—with the freedom of remote control access.

        Workstations.    During fiscal 2002, we introduced our first workstations based on the Itanium®⁽³⁾ Processor Family of Intel Corporation ("Intel"). Customers can now choose from three different platforms in our workstation offerings: Pentium 4/Intel Xeon, Intel Itanium® or Precision Architecture-Reduced Instruction Set Computing ("PA-RISC"). Workstation operating systems include UNIX®, Windows® and Linux. These products are intended for professional users who demand exceptional performance to run sophisticated applications, such as computer-aided design, digital content creation, geographic information systems, computer animation, software development and financial analysis. Following the Compaq acquisition, we decided to incorporate the strength of Compaq's Windows® NT workstations to our pre-existing product line.

        Product developments and product roadmap decisions in the workstation category included the addition of the following new products:

•

the mid-range HP Workstation xw5000 and entry-level personal HP Workstation xw4000 running on single Intel Pentium 4 processor-based systems;



•

the high-end HP Workstation xw8000 and technical mid-range HP Workstation xw6000 based on the latest Intel Xeon dual-processor chipset;



•

the mid-range HP workstation zx6000 and entry-level technical HP workstation zx2000 running on the single or dual Intel Itanium® 2 processor;



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the technical HP Workstation c3750 and HP Workstation j6750 based on PA-8700+ processors with HP-UX 11.0 and 11i 1.0; and



•

the Compaq Evo Mobile Workstation N800, designed for customers who need the power of a workstation and the freedom of mobility.

⁽³⁾

Itanium® is a registered trademark of Intel Corporation.

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        Handhelds.    Following the Compaq acquisition, we selected the Compaq iPAQ Pocket PC, renamed the HP iPAQ Pocket PC, as our smart handheld platform and decided to discontinue the HP Jornada product line. We intend to engineer the best of HP Jornada technology into the HP iPAQ Pocket PC platform. In November 2002 we introduced two new handhelds, the HP iPAQ Pocket PC h1910, our thinnest and lightest Pocket PC, and the HP iPAQ Pocket PC h5450, the industry's first handheld to integrate biometrics security, wireless local area network (LAN) access (802.11b) and Bluetooth wireless capability.

Enterprise Systems Group

        ESG provides business critical servers, industry standard servers, storage and software solutions. Business critical servers include RISC-based servers running on the HP-UX operating system, Itanium®-based servers running on HP-UX, Windows® and Linux and the HP AlphaServer product line running on both Tru64 UNIX® and Open VMS. The various server offerings range from low-end servers to high-end scalable servers, including the Superdome line. Additionally, we offer our NonStop fault-tolerant server products, which deliver high levels of availability, performance, scalability and manageability for business critical solutions. Industry standard servers offer primarily entry-level and mid-range ProLiant servers, which run on the Windows®, Linux and Novell Inc. operating systems. Storage provides entry-level, mid-range and enterprise array offerings, storage area networks ("SAN"), storage management software and virtualization technologies, as well as tape drives, tape libraries and optical archival storage. Software offerings include OpenView and other management and telecommunications software solutions designed primarily for large-scale systems and networks. These software solutions run on a variety of operating systems including Windows® and multiple versions of UNIX®.

        ESG's primary focus areas during fiscal 2002 were the following:

•

reducing operating costs and increasing profitability;



•

achieving balanced leadership across individual product categories; and



•

continuing innovation and development of new products and solutions.

        We made significant progress against these goals. For example:

•

ESG's operating loss declined significantly in the fourth quarter of fiscal 2002 as compared to the third quarter of fiscal 2002;



•

Compaq's strong positions in industry standard servers and storage added to our strengths in UNIX® servers and network management software, giving us industry leadership positions across enterprise categories;



•

we continued developing OpenView, our adaptive management software which we believe will be an important competitive software advantage as companies continue to focus on the challenges of managing heterogeneous environments and the new complexity of web services; and



•

we continued to develop new technologies, such as our Utility Data Center software and a new generation of Ultrium drives and blade server categories.

        Key product developments and product roadmap decisions for the 2002 fiscal year are described below.

        Business Critical Servers.    In connection with product roadmap decisions following the Compaq acquisition, we added Compaq's line of NonStop fault-tolerant servers and AlphaServer products to our business critical server offerings. We decided to support both the PA-RISC and AlphaServer platforms and to target new business opportunities with the PA-RISC server platform. In addition, we decided to integrate some of the advanced features of Tru64 UNIX® into HP-UX and use HP-UX as the long-term UNIX® platform, phasing out Tru64 over time.

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        Industry Standard Servers.    In connection with product roadmap decisions following the Compaq acquisition, we adopted Compaq's ProLiant server line, renamed HP Proliant, as our industry standard server platform, and phased out HP's Netserver line of products. We continued to offer the ProLiant blade server architecture for the data center and introduced the first multiprocessor blades for enterprise customers in fiscal 2002, strengthening our technology and market leadership. Also in fiscal 2002, we introduced the ProLiant Essentials server software portfolio designed to deliver greater control and return on investment to customers when building adaptive IT infrastructures. In addition, we achieved substantial operational efficiencies, with notable progress related to one-touch fulfillment, product delivery times and direct fulfillment capability.

        Storage.    In connection with product roadmap decisions following the Compaq acquisition, we adopted the Compaq StorageWorks brand (renamed HP StorageWorks) for enterprise storage hardware and solutions, maintained HP OpenView as the name for our storage software and adopted the Enterprise Network Storage Architecture (ENSA) name for our storage architecture. We renewed our relationship with Hitachi Data Systems relating to HP XP product offerings, and, due to the unique strengths of each, we chose to offer both HP StorageWorks XP and StorageWorks Enterprise Virtual Array ("EVA") high-end online storage offerings. We continued to offer HP VA and added the StorageWorks EMA modular arrays for both HP-UX and heterogeneous environments. We organized our network attached storage ("NAS") solutions by consolidating HP's and Compaq's products to offer entry-level, mid-range and enterprise level products, delivering on the convergence of NAS and SAN. We consolidated storage networking offerings of HP and Compaq into one product line with common firmware. We offer entry-level, server-based backup solutions as well as enterprise-level, automated tape libraries under the StorageWorks brand name. In the tape drive business, we offer both Super DLT as well as Ultrium tape storage drives that maximize a customer's choice of solutions to fit different environment requirements.

        Software.    In connection with product roadmap decisions following the Compaq acquisition, we adopted the HP OpenView name for all open systems management software and integrated Compaq's Telecommunications Management Information Platform (TeMIP) technology into the OpenView family. In addition, all Network and Service Provider products have been consolidated under the OpenCall product family. We continue to enhance this already strong portfolio with new solutions to address the continuing convergence of voice and data. Other significant developments during fiscal 2002 included continued development of our Utility Data Center software and our decision to stop investment in our own NetAction middleware product in favor of a focused partner strategy for providing both j2EE and, as described further below, .NET middleware stacks.

HP Services

        HPS provides a comprehensive, integrated portfolio of IT services including customer support, consulting and integration, and managed services. Customer support provides a range of services from standalone product support to high availability services for complex, global, networked, multi-vendor environments. Customer support also manages the delivery of warranty support through its own service organization, as well as through full-service resellers and independent service companies. Consulting and integration provides services to design, build and integrate IT infrastructure. Consulting and integration also provides cross-industry solutions in areas such as customer relationship management, supply chain, e-commerce, business portals, messaging and security, as well as industry-focused solutions for financial services, telecommunications, manufacturing and the public sector. Managed services offers a range of IT management services, both comprehensive and selective, including transformational infrastructure services, client computing managed services, managed web services and application services, as well as business continuity and recovery services. HPS teams with the leading software, networking and services companies to bring complete solutions to our customers.

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        HPS' primary focus areas during fiscal 2002 included:

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continuing to invest in customer support as it is a strategic competitive differentiator;


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realigning our consulting and integration business around focused practices and key partnerships;


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growing our managed services business; and


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achieving cost synergies and integration milestones.

        During the fiscal year, we made key progress against these goals. For example:

•

HPS grew its base of services professionals to approximately 65,000 with the acquisition of Compaq;


•

HPS delivered strong financial returns during fiscal 2002, due largely to the stability and profitability of our customer support business during that period; and


•

HPS had double-digit year-over-year revenue growth in its managed services business during the fourth quarter of fiscal 2002.

        Within the various categories of HPS, developments included the following:

        Customer Support.    Our leadership position was enhanced by combining the global services capabilities of HP and Compaq in supporting heterogeneous environments and providing mission-critical services for open, distributed IT environments. We have strong capabilities across the UNIX®, Linux and Microsoft environments. In addition, we expanded our combined ability to support our customers' entire computing environments—including products from HP and many other vendors—with the launch of our new Integrated Support offerings. By offering customers one contract and one point of accountability, we intend to reduce costs and improve service quality.

        Consulting and Integration.    During fiscal 2002, we tightened our focus on infrastructure and business technology solutions as well as on key vertical markets, including telecommunications, financial services, manufacturing and the public sector. Web services is also a key focus area for HPS. We created greater choice and flexibility for our customers by focusing on our partnerships with leading systems integrators in areas where HP does not have strong intellectual property. In addition, as the consulting and integration business was going through a period of transition and consolidation, we continued to experience significant cost improvements.

        Managed Services.    The acquisition of Compaq expanded our ability to deliver managed services, which was the fastest growing segment of the services market during fiscal 2002. In November 2002, we acquired full ownership of Intria-HP Corporation ("Intria"), a provider of IT services, which was jointly owned with Canadian Imperial Bank of Commerce ("CIBC"). In connection with our acquisition of Intria, we also entered into a multi-year contract to provide IT services to CIBC. This acquisition and outsourcing relationship with CIBC adds depth and capability to HPS, including expertise in managing complex, heterogeneous IT operating environments for customers in the financial services industry and others that demand high availability computing solutions.

Financial Services

        HPFS supports and enhances HP's global product and service solutions by providing a broad range of value-added financial service offerings that enable our customers worldwide to acquire complete IT solutions, including hardware, software and services. HPFS offerings include lease and loan financing and computing and printing utility offerings, as well as financial asset management services for large global and enterprise customers. HPFS also offers an array of specialized financial services to small and medium-sized businesses and educational and governmental customers. HPFS offers innovative, customized and flexible alternatives to balance unique customer cash flow, technology obsolescence and capacity needs.

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Sales and Marketing

        We continue to manage our business and report our financial results based on the principal business segments described above. The marketing and selling of our products and services, however, are organized separately according to customer and channel types.

        Management of HP's overall consumer-related sales and marketing activities resides in IPG. Accordingly, IPG manages channel relationships with approximately 20,000 third-party retail locations for imaging and printing products, as well as other consumer products including consumer PCs. In addition, IPG also manages direct consumer sales through hp.com and through hpshopping.com, a wholly-owned subsidiary that supports online sales.

        Management of commercial sales and marketing activities is divided by channel. Management of our direct sales force and pre-sales technical consultants resides in ESG, which leads direct enterprise sales for ESG products, as well as other commercial products including commercial PCs and printers. This direct sales force is tightly integrated with a separate HPS sales force, which we maintain due to the distinct nature of selling services, but link with our enterprise sales force due to the importance of cross-selling solutions. Management of commercial reseller channels, including retailers, dealers and original equipment manufacturers, resides in PSG, which oversees channel relationships for PSG products as well as other volume channel products including industry standard servers. PSG also manages our direct distribution activities for commercial products.

        On November 1, 2002, we introduced PartnerONE, our new partner program, which replaces some 40 previous programs and spans HP's entire product and services portfolio. The program addresses resellers, systems integrators, independent software vendors and service providers in both our consumer and our commercial channels.

        The PartnerONE program is designed to drive incremental revenue by aligning partners' payments from HP with their performance and initiative, as well as to reduce administration time and complexity. For example, partners can earn rebates from HP by providing unique solutions on HP hardware and winning competitive deals. The program also is intended to help HP's partners develop demand generation and Web-enabled marketing tools, such as those for creating direct mail and e-mail promotions.

International

        Our products and services are available worldwide. We believe this geographic diversity allows us to draw on business and technical expertise from a worldwide workforce, provides stability to our operations and revenue streams to offset geographic economic trends and offers us an opportunity to exploit new markets for maturing products. In addition, we believe that future growth is dependent in part on the ability of technology companies to develop products and sales models that are able to target developing countries. Moreover, we believe that our broad geographic presence and our e-Inclusion program, which is focused on developing products and business models that will bring technology to developing countries, will give us a solid base to build upon for such future growth.

        A summary of our domestic and international net revenue and net property, plant and equipment is set forth in Note 18 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. More than half of our overall net revenue comes from outside of the United States. A majority of our net revenue originating outside the United States was from customers other than foreign governments.

        For a discussion of risks attendant to HP's foreign operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That Could Affect Future Results—Due to the international nature of our business, political or economic changes or other constraints could harm our future revenue, costs and expenses and financial condition" in Item 7,

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"Quantitative and Qualitative Disclosure about Market Risk" in Item 7A and Note 8 to the Consolidated Financial Statements in Item 8, which are incorporated herein by reference.

Research and Development

        The process of developing new high-technology products and solutions is inherently complex, uncertain and costly, and requires, among other things, innovation and accurate anticipation of customers' changing needs and emerging technological trends. Without the introduction of new products, services and enhancements, our products and services are likely to become technologically obsolete over time, in which case revenue would be materially and adversely affected. New products and services, if and when introduced, may not achieve market acceptance. After the products and services are developed, we must quickly manufacture and deliver such products and services in sufficient volumes at acceptable costs to meet demand.

        Hewlett-Packard Laboratories, also known as HP Labs, together with the various research and development groups within the four principal business segments, are responsible for our total research and development efforts.

        Expenditures for research and development in fiscal 2002 were $3.3 billion, compared to $2.7 billion in fiscal 2001 and $2.6 billion in fiscal 2000. We anticipate that we will continue to have significant research and development expenditures in the future to provide a continuing flow of innovative, high-quality products and services to maintain and enhance our competitive position.

Patents

        Our general policy has been to seek patent protection for those inventions and improvements likely to be incorporated into our products and services or to give us a competitive advantage. As of October 31, 2002, our patent portfolio included over 17,000 patents, including over 1,400 patents received during the second half of fiscal 2002. While we believe that our patents and applications have value, in general no single patent is in itself essential to us as a whole or any of our principal business segments. In addition, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide significant competitive advantages.

Backlog

        We believe that backlog is not a meaningful indicator of future business prospects due to the large volume of products delivered from shelf or channel partner inventories, the shortening of product life cycles and the relative portion of net revenue related to our service and support business. Therefore, we believe that backlog information is not material to an understanding of our overall business.

Seasonality

        General economic conditions have an impact on our business and financial results. From time to time, the markets in which we sell our products experience weak economic conditions that may negatively affect sales. Although we do not consider our business to be highly seasonal, we do experience some seasonal trends in the sale of our products. For example, sales to governments (particularly sales to the U.S. government) are often stronger in the third calendar quarter, European sales are often weaker in the third calendar quarter, consumer sales are often stronger in the third and fourth calendar quarters, and customers may spend their remaining capital budget authorizations in the fourth calendar quarter prior to new budget constraints in the first calendar quarter of the following year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors that Could Affect Future Results—Our sales cycle makes planning and inventory management difficult and future financial results less predictable" in Item 7, which is incorporated herein by reference.

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Competition

        We encounter aggressive competition in all areas of our business activity. Our competitors are numerous, ranging from some of the world's largest corporations to many relatively small and highly specialized firms. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our reputation, the ease of use of our products, the availability of multiple software applications, our Internet infrastructure offerings, and our customer training, services and support are also important competitive factors.

        The markets for each of our business segments are characterized by vigorous competition among major corporations with long-established positions and a large number of new and rapidly growing firms. Product life cycles are short, and to remain competitive we must develop new products and services, periodically enhance our existing products and services and compete effectively on the basis of the factors listed above. In addition, we compete with many of our current and potential partners, including original equipment manufacturing ("OEM") partners who design, manufacture and often market their products under their own brand names. The successful management of these competitive partner relationships will continue to be critical to our future success. Moreover, we anticipate that we will have to continue to adjust prices on many of our products and services to stay competitive, and thus effectively manage financial returns with correspondingly reduced gross margins.

        On an overall basis we are among the largest U.S.-based companies offering our range of general-purpose computers and personal-information, imaging and printing products for industrial, scientific and business applications, and information technology services. We are the leader or among the leaders in each of our principal business segments.

        The competitive environments in which each segment operates are described below:

        Imaging and Printing Group.    The markets for printer hardware and associated supplies are highly competitive, especially with respect to pricing and the introduction of new products and features. IPG's key competitors in this segment include Lexmark International Group Inc., Xerox Corporation, Seiko Epson Corporation, Sony Corporation of America and Canon USA, Inc. We are the leading imaging and printing systems provider in the world for printer hardware, printing supplies and scanning devices. We believe that our brand recognition, reputation for quality, breadth of product offerings and large customer base are important competitive advantages. We and our competitors continue to develop and market new and innovative products at competitive prices and, at any given time, may set new market standards for quality, speed and function. In recent years, we and our principal competitors have regularly lowered prices on printer hardware to reach new customers and add customer value. If these pressures are not mitigated by cost and expense reductions, our ability to maintain or build market share profitably could be adversely affected. In addition, refill and remanufactured alternatives for our supplies are available from independent suppliers and, although generally offering lower print quality, may be offered at lower prices and put pressure on our supplies sales. Two important areas for our growth include new business opportunities in digital cameras and photo printers within our imaging business and digital presses in our digital publishing business. While we encounter competitors whose current market share is greater than ours, such as Sony in cameras and Heidelberger Druckmaschinen Aktiengesellschaft in publishing, we believe we will provide important new contributions in both the home and publishing environments by providing comprehensive solutions that include data management, storage, integrated system capabilities, security, authentication and ease-of-use.

        Personal Systems Group.    The areas in which PSG operates are intensely competitive and are characterized by rapid price reductions and inventory depreciation. Our primary competitor in the branded personal computers area is Dell Computer Corporation ("Dell"), with additional competition, particularly in niche markets, from companies such as Apple Computer Inc., International Business Machines Corporation ("IBM") and Gateway Inc. We also face competition from generically-branded or "white box" manufacturers.

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        Enterprise Systems Group.    The areas in which ESG operates are intensely competitive, characterized by rapid and ongoing technological innovation and price reductions. Our competitors are some of the largest, most successful companies in the world. They range from broad solutions providers such as IBM to more focused competitors such as EMC Corporation in storage, Dell in industry standard servers, and Sun Microsystems, Inc. in servers. Broad-based solutions providers benefit from their existing customer base and the breadth of their product offerings, while more focused competitors are able to concentrate their efforts on providing the most competitive product. We believe that our important competitive advantages in this segment include our broad range of server, storage and software products and our significant intellectual property portfolio and research and development capabilities, which will contribute to further enhancements of our product offerings.

        HP Services.    The principal areas in which HPS competes are customer support, consulting and integration and managed services. The support and consulting and integration markets have been under significant pressure as customers scrutinize their IT spending in response to the global economic downturn. However, the downturn also has contributed to increased use of managed services business as customers attempt to reduce their IT costs and focus their resources on their core businesses. Our key competitors in this segment include IBM Global Services and the services businesses of other technology products organizations, as well as EDS Corporation and other systems integration firms. Many of our competitors are able to offer a wide range of services through a global network of service providers, which may be larger than our own, and some of our competitors enjoy significant brand recognition. HPS teams with many services companies to extend our reach and augment our capabilities. Our competitive advantages include our global delivery organization, with a worldwide presence; our deep technical expertise; our diagnostic and IT management tools; and the flexibility and choice we offer our customers.

        HP Financial Services.    In our financing business, our competitors are captive financing companies, mainly IBM Global Financing, banks and financial institutions. We believe our competitive advantage in this business relative to banks and financial institutions is our ability to finance products, services and total solutions.

Manufacturing and Materials

        Our manufacturing operations consist of manufacturing finished products from components and subassemblies that we acquire from a wide range of vendors. In addition to our own manufacturing operations, we utilize a number of contract manufacturing ("CM") companies around the world to manufacture HP-designed products. The use of CM companies is intended to generate cost efficiencies and reduce time to market for certain HP-designed products. Some HP-branded products are manufactured by third-party OEMs. We purchase the products and resells them under the HP brand.

        We utilize two primary methods of fulfilling demand for products: building products to order ("BTO") and configuring products to order ("CTO"). BTO capabilities are employed to maximize manufacturing efficiencies by producing high volumes of basic product configurations. CTO permits configuration of units to the particular hardware and software customization requirements of certain customers. Both BTO and CTO are designed to generate cost efficiencies relating to just-in-time manufacturing, inventory management and distribution practices. Just-in-time manufacturing reduces inventory by manufacturing or taking delivery of the inventory from third-party suppliers immediately prior to the sale or distribution of products to our customers.

        We purchase materials, supplies and product subassemblies from a substantial number of vendors. For many of our products, we have existing alternate sources of supply, or such sources are readily available. However, we do rely on sole sources for laser printer engines and parts for products with short life cycles (although some of these sources have operations in multiple locations). We also have a dependency upon Intel as a supplier of processors and static random access memory (RAM) and Microsoft for various software products. However, we believe that disruptions with these suppliers would result in industry-wide dislocations and therefore would not disproportionately disadvantage us relative to our competitors. In addition, we have engaged manufacturers in Taiwan for the production

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of notebook computers. While these relationships and dependencies have not resulted in material disruptions in the past, natural disasters in Taiwan from time to time have caused temporary disruptions in communications and supplies, which did not have a material impact on our results of operations.

        Like other participants in the high technology industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support our requirements for periods averaging 90 to 120 days. From time to time, we have experienced significant price increases and limited availability of certain components that are not available from multiple sources. At times, we have been constrained by parts availability in meeting product orders, and future constraints could have an adverse effect on our operating results. If the supply of a key material component is delayed or halted for a significant period of time, production could be curtailed, potentially resulting in an adverse effect on our business. Frequently, we are able to obtain scarce components for somewhat higher prices on the open market, which may have an impact on gross margins but does not disrupt production. On occasion, we acquire component inventory in anticipation of supply constraints. A restoration of component availability and any resulting decline in component pricing more quickly than anticipated could have an adverse effect on our operating results.

Environment

        Certain of our operations involve the use of substances regulated under various federal, state and international laws governing the environment. It is our policy to apply strict standards for environmental protection to sites inside and outside the United States, even if not subject to regulations imposed by local governments. The liability for environmental remediation and other environmental costs is accrued when it is considered probable and the costs can be reasonably estimated. Environmental costs are presently not material to our operations or financial position.

Employees

        We had approximately 141,000 employees worldwide as of October 31, 2002.

        Information regarding our executive officers is set forth beginning on page 129, which information is incorporated herein by reference.

Available Information

        Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at www.hp.com, when such reports are available on the Securities and Exchange Commission website.

ITEM 2. Properties.

        Our principal executive offices are located at 3000 Hanover Street, Palo Alto, California 94304, USA. As of October 31, 2002, we owned or leased a total of approximately 72 million square feet of space worldwide. We believe that our existing properties are in good condition and suitable for the conduct of our business.

        Our plants are equipped with machinery, most of which is owned and is in part developed by us to meet the special requirements for our manufacturing processes. At the end of fiscal 2002, we were productively utilizing the vast majority of the space in our facilities, while actively disposing of space determined to be excess.

        We anticipate that most of the capital necessary for expansion will continue to be obtained from internally generated funds. Investment in new property, plant and equipment for continuing operations amounted to $1.7 billion in fiscal 2002, $1.5 billion in fiscal 2001 and $1.7 billion in fiscal 2000.

        As of October 31, 2002, our sales and support operations occupied approximately 20 million square feet, of which approximately 6 million square feet were located within the United States. We own 30% of the space used for sales and support activities and lease the remaining 70%.

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        Our manufacturing plants, research and development facilities and warehouse and administrative facilities occupied approximately 52 million square feet, of which approximately 35 million square feet were located within the United States. We own 62% of our manufacturing, research and development, warehouse and administrative space and lease the remaining 38%. None of the property we own is held subject to any material encumbrances.

        As indicated above, we have five business segments: IPG, PSG, ESG, HPS and HPFS. Because of the interrelation of these five segments, substantially all of the properties are used at least in part by each of these segments, and we retain the flexibility to use each of the properties in whole or in part for each of the segments.

        The locations of our headquarters of geographic operations at October 31, 2002 were as follows:

Headquarters of Geographic Operations

Americas	Europe, Middle East, Africa	Asia Pacific
Houston, Texas	Geneva, Switzerland	Hong Kong

         The locations of our major product development and manufacturing facilities and HP Labs at October 31, 2002 were as follows:

Product Development and Manufacturing

Americas	Europe, Middle East, Africa	Hewlett-Packard Laboratories
Cupertino, Mountain View, Palo Alto, Roseville, San Diego, Santa Clara, Sunnyvale and Woodland, California   Colorado Springs, Fort Collins and Greeley, Colorado    Boise, Idaho    Indianapolis, Indiana    Corvallis, Oregon    Omaha, Nebraska    Memphis and Nashville, Tennessee    Austin, Houston and Richardson, Texas    Chester, Richmond and Sandston, Virginia    Vancouver, Washington   Aguadilla, Puerto Rico   Sao Paulo, Brazil   Guadalajara, Mexico	Grenoble, France   Boeblingen and Herrenberg, Germany   Dublin, Ireland    Amsterdam, Amersfoort and Gorinchem, The Netherlands    Barcelona, Spain    Bristol and Erskine, United Kingdom    Rehovot, Israel    Asia Pacific    Melbourne, Australia   Shanghai, China   Bangalore, India   Singapore   Taiwan	Palo Alto, California   Littleton and Marlboro, Massachusetts    Nashua, New Hampshire    Grenoble, France    Bangalore, India    Haifa, Israel    Tokyo, Japan    Bristol, United Kingdom

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ITEM 3. Legal Proceedings.

Pending Litigation and Proceedings

        HP v. Cooper et al. is a lawsuit filed in United States District Court in the Northern District of California on or about March 23, 1998. The Cooper defendants claim that HP's LaserJet printers infringe U.S. patent 5,424,780, which allegedly covers portions of the resolution enhancement technology employed in these printers, and seek an injunction, monetary damages and attorneys' fees and costs. Based on an opinion from outside counsel, HP believes that its LaserJet printers do not infringe the patent. The U.S. Patent Office agreed to reexamine the patent based on prior art identified by the parties. Litigation was stayed pending the outcome of the U.S. Patent Office reexamination. The U.S. Patent Office issued a reexamination certificate in July 2002, and the stay of litigation was subsequently lifted. On November 5, 2002, the parties participated in a mediation. The Cooper defendants contend that the mediation resulted in a settlement of the lawsuit, and they have filed a motion to enforce the purported settlement. HP has opposed that motion, and a hearing is scheduled for January 24, 2003. On December 11, 2002, IP Innovation LLC and Technology Licensing Corporation filed an amended complaint in United States District Court in the Northern District of Illinois naming HP as a defendant. The amended complaint alleges that HP and the other defendants have willfully infringed the same patent at issue in the Cooper lawsuit. The amended complaint in the IP Innovation lawsuit seeks an injunction, monetary damages (including enhanced damages) and attorneys' fees and costs. HP has not yet responded to the amended complaint. The Cooper defendants have filed a motion to dismiss the Cooper lawsuit in light of the filing of the IP Innovation lawsuit. HP has opposed the Cooper defendants' motion to dismiss, and a hearing on the motion is also scheduled for January 24, 2003.

        Stevens v. HP is an unfair business practices consumer class action filed in state court in Riverside County, California on or about July 31, 2000. Consumer class action lawsuits have been filed, in coordination with the original plaintiffs, in 32 additional states. The various plaintiffs throughout the country claim to have purchased different models of HP inkjet printers over the past four years. The basic factual allegation of these actions is that when the affected consumer purchased HP printers they received half-full or "economy" ink cartridges instead of full cartridges. Plaintiffs claim that HP's advertising, packaging and marketing representations for the printers led the consumers to believe they would receive full cartridges. These actions seek injunctive relief, disgorgement of profits, compensatory damages, punitive damages and attorneys' fees under various state unfair business practices statutes and common law claims of fraud and negligent misrepresentation. HP recently obtained summary judgment against plaintiffs in the California action, which the plaintiffs are appealing. HP also obtained summary judgment in Kansas and Arizona. The matter has been certified as a class action in North Carolina state court, and a trial date has been set for June 9, 2003. The Ohio and New York litigation has been dismissed. In Connecticut, the trial court denied the plaintiffs' motion to certify a class action. In Oregon and Washington, the case has been dismissed without prejudice. The litigation is in various stages in other jurisdictions.

        Alvis v. HP is a nationwide defective product consumer class action filed in United States District Court in Jefferson County, Texas by a resident of eastern Texas in April 2001. In February 2000, a similar suit captioned LaPray v. Compaq was filed in United States District Court in Jefferson County, Texas against Compaq. In May 2000 Sprung v. HP and Compaq was filed in United States District Court in the 60th Judicial District of Colorado. These actions are part of a series of similar suits filed against several computer manufacturers. The basic allegation is that HP and Compaq sold computers containing floppy disk controllers that fail to alert the user to certain floppy disc controller errors. That failure is alleged to result in data loss or data corruption. The plaintiffs in Alvis and LaPray seek injunctive relief, declaratory relief, rescission and attorneys' fees. In July 2001, a nationwide class was certified in the LaPray case. Compaq has filed a petition for review by the Texas Supreme Court. The Texas Supreme Court has requested additional briefing. A class certification hearing in Alvis has been

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set for February 2003. The Sprung case was dismissed on May 31, 2002. In addition, HP and Compaq continue to provide information to the U.S. government and state attorneys general in California and Illinois in response to inquiries regarding floppy disk controllers in computers sold to government entities.

        On or about December 27, 2001, Cornell University and the Cornell Research Foundation, Inc. filed an action against HP in United States District Court in the Northern District of New York alleging that HP's PA-RISC 8000 family of microprocessors infringes a Cornell patent that describes a way of executing microprocessor instructions. This action seeks declaratory, injunctive and other relief. The court is expected to hold a hearing to construe the disputed claims terms in Cornell's patent in early 2003. After reviewing the pertinent materials, HP believes that its products do not infringe the patent. Furthermore, HP believes Cornell's patent is invalid.

        A number of purported stockholder class actions were brought in 1998 against Compaq and certain present and former directors and officers of Compaq, on behalf of all persons who purchased Compaq common stock from July 10, 1997 through March 6, 1998. These actions were consolidated under the title Berger v. Compaq Computer Corporation, et al. on December 23, 1998 in United States District Court in Texas. The consolidated amended complaint alleges that defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder by withholding information and making misleading statements about channel inventory, factoring of receivables and Compaq marketing programs in order to inflate the price of Compaq's common stock, and further alleges that a number of individual defendants sold Compaq common stock at those purportedly inflated prices. In July 2000, the case was certified as a class action, but this action was later vacated by the Fifth Circuit Court of Appeals. Compaq reached a mediated settlement with lead plaintiffs and their attorneys in the amount of approximately $29 million, of which approximately $28 million is covered by insurance. The parties presented this settlement to the District Court for approval in June 2002. The final hearing on the fairness of the settlement was held on November 1, 2002. On November 25, 2002, the District Court entered two orders. One order approved the settlement and granted a final judgment and dismissal with prejudice. The second order awarded fees and expenses to plaintiffs' counsel. On December 17, 2002 a notice of appeal of both orders was filed.

Digwamaji et al. v. Bank of America et al. is a purported class action lawsuit in which HP and numerous other multinational corporations have been named as defendants. It was filed on September 27, 2002 in United States District Court in the Southern District of New York on behalf of current and former South African citizens and their survivors who suffered violence and oppression under the apartheid regime. The lawsuit alleges that HP and other companies helped perpetuate, and profited from, the apartheid regime during the period from 1948-1994 by selling products and services to agencies of the South African government. Claims are based on the Alien Tort Claims Act, the Torture Protection Act, the Racketeer Influenced and Corrupt Organizations Act and a variety of other international laws and treaties relating to violations of human rights, war crimes and crimes against humanity. The complaint seeks, among other things, an accounting, the creation of a historic commission, compensatory damages in excess of $200 billion, punitive damages in excess of $200 billion, costs and attorneys' fees. This matter is in the early stages of litigation, and HP is preparing its response.

Intergraph Hardware Technologies Company v. HP, Dell & Gateway is a suit filed in United States District Court in the Eastern District of Texas on December 16, 2002. The suit accuses HP of infringement of three patents related to cache memory: 4,899,275, 4,933,835 and 5,091,846. Intergraph seeks damages (including enhanced damages), an injunction, prejudgment interest, costs and attorneys' fees. The complaint has not yet been served on HP.

        Two non-binding arbitration proceedings are ongoing in Germany before the arbitration board of the Patent and Trademark Office. The proceedings were brought by VerwertungsGesellschaft Wort, a

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collection agency representing certain copyright holders, against HP and relate to whether and to what extent copyright levies should be imposed upon certain products that enable the production of copies by private persons in accordance with copyright laws implemented in Germany. These proceedings were instituted in June 2001 and June 2002, respectively. In addition, HP may face similar proceedings in other European jurisdictions based on copyright laws implemented in those jurisdictions. The levies, if imposed, would be based upon the number of products sold in particular jurisdictions, and the per-product amounts of the levies vary. Products that are the subject of the claims in Germany include multi-function devices, personal computers and printers. Products at issue in other jurisdictions include: in Belgium, CD media and CD-writers; in Spain, CD media; in Greece, photocopiers and photocopying paper; and in Switzerland, CD media, DVD media and MP3 players. Other EU member countries that do not yet have levy schemes in place are expected to implement similar legislation. HP, other companies and various industry associations are opposing certain aspects of the levies.

        Kassin v. Agilent Technologies is a nationwide securities class action filed on November 26, 2001 in United States District Court in the Southern District of New York against Agilent Technologies, Inc. ("Agilent Technologies") and several banks and underwriters for conduct concerning the commission structure of Agilent Technologies' initial public offering ("IPO") in late 1999. A consolidated amended complaint was filed in April 2002 alleging that the defendant banks and underwriters offered Agilent Technologies IPO shares in exchange for excessive commissions and guarantees to buy more shares at an inflated price in the IPO aftermarket. This case is similar to numerous other cases filed in the United States District Court in the Southern District of New York concerning the IPO market of the late 1990s. By stipulation, the individual defendants have been dismissed from the case without prejudice. An omnibus motion to dismiss has been filed on behalf of issuer defendants. While HP is not named as a defendant in this action, HP includes the litigation in this report due to an indemnification agreement between HP and Agilent Technologies.

        HP was contacted informally by the San Francisco District Office of the Securities and Exchange Commission ("SEC") in March 2002 requesting the voluntary provision of documents and related information concerning HP's relationships and communications with Deutsche Bank and affiliated parties generally and communications regarding the solicitation of votes from Deutsche Bank and affiliated parties in connection with the Compaq acquisition. The SEC has advised HP that the inquiry should not be construed as an indication by the SEC or its staff that any violations of the law have occurred, nor should it be considered a reflection upon any person, entity or security. HP is fully cooperating with this inquiry.

        In April 2002 HP received a subpoena from the U.S. Attorney's Office for the Southern District of New York to produce information concerning the voting by each of Deutsche Bank and Northern Trust and their respective affiliated parties on the proposal to issue shares in connection with the Compaq acquisition. HP understands that this inquiry is in response to press accounts concerning the vote on the proposal at the HP special meeting of shareowners held on March 19, 2002. HP is fully cooperating with this inquiry.

        In May 2002 the European Commission of the European Union publicly stated that it was considering conducting an investigation into OEM activities concerning the sales of printers and supplies to consumers within the European Union. HP indicated that it would cooperate fully with any such investigation. Recently, HP was contacted by the European Commission requesting information on the printer and supplies markets. HP is fully cooperating with this inquiry.

        HP is involved in lawsuits, claims, investigations and proceedings, in addition to those identified above, consisting of patent, commercial, securities, employment and environmental matters, which arise in the ordinary course of business. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," HP makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

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These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, HP believes that it has valid defenses with respect to the legal matters pending against it, as well as adequate provisions for any probable and estimable losses. It is possible, nevertheless, that cash flows or results of operations could be affected in any particular period by the resolution of one or more of these contingencies.

Environmental

        HP is party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), known as "Superfund," or state laws similar to CERCLA. HP is also conducting environmental investigations or remediations at several current or former operating sites pursuant to administrative orders or consent agreements with state environmental agencies. Any liability from such proceedings, in the aggregate, is not expected to be material to the operations or financial position of HP.

ITEM 4. Submission of Matters to a Vote of Security Holders.

        Not applicable.

PART II

ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters.

        Information regarding the market prices of HP common stock and the markets for that stock may be found in the "Quarterly Summary" in Item 8 and the cover page of this Form 10-K, respectively, which are incorporated herein by reference. We have paid cash dividends each fiscal year since 1965. The current rate is $0.08 per share per quarter. As of December 31, 2002, there were approximately 160,800 shareowners of record. Additional information concerning dividends may be found in the following sections of this Form 10-K, which are incorporated herein by reference: "Selected Financial Data" in Item 6 and "Consolidated Statement of Cash Flows," "Consolidated Statement of Stockholders' Equity" and "Quarterly Summary" in Item 8.

Equity Compensation Plan Information

        Information regarding HP's equity compensation plans, including both stockholder approved plans and non-stockholder approved plans, is set forth in the section entitled "Executive Compensation—Equity Compensation Plan Information" in HP's Notice of Annual Meeting of Shareowners and Proxy Statement, to be filed within 120 days after Registrant's fiscal year end of October 31, 2002 (the "Notice and Proxy Statement"), which information is incorporated herein by reference.

Recent Sales of Unregistered Securities

        Following its acquisition of Indigo in March 2002 and prior to the end of fiscal 2002, HP issued an aggregate of 47,892 shares of unregistered HP common stock to six former employees of Indigo upon the exercise of certain options assumed in connection with the Indigo acquisition, for an aggregate purchase price of $226,580.04. The foregoing purchases and sales were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof on the basis that the transaction did not involve a public offering.

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ITEM 6. Selected Financial Data.

        The following selected financial data should be read in conjunction with our consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K in order to understand fully factors that may affect the comparability of the financial data presented below.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Selected Financial Data⁽¹⁾⁽²⁾

		For the following years ended October 31
		2002			2001		2000		1999		1998
		In millions, except per share amounts
Net revenue		$	56,588		$	45,226	$	48,870	$	42,371	$	39,330
(Loss) earnings from operations(3)			(1,012	)		1,439		4,025		3,818		3,456
Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle(4)(5)			(923	)		624		3,561		3,104		2,678
Net (loss) earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting principle:(4)(5)(6)
	Basic	$	(0.37	)	$	0.32	$	1.80	$	1.54	$	1.29
	Diluted		(0.37	)		0.32		1.73		1.49		1.26
Cash dividends declared per share(6)			0.32			0.32		0.32		0.32		0.30
At year-end:
	Total assets(1)	$	70,710		$	32,584	$	34,009	$	35,297	$	31,708
	Long-term debt		6,035			3,729		3,402		1,764		2,063

(1)

HP's consolidated financial statements and notes for all periods present the businesses of Agilent Technologies as a discontinued operation through the spin-off date of June 2, 2000. Accordingly, total assets include net assets of discontinued operations of $3,533 million at October 31, 1999 and $3,084 million at October 31, 1998. See further discussion in Notes to the Consolidated Financial Statements in Item 8. HP's consolidated financial statements include the results of Compaq from May 3, 2002, the Compaq acquisition date.

(2)

Certain reclassifications have been made to prior fiscal year balances in order to conform to the current fiscal year presentation.

(3)

(Loss) earnings from operations includes $1.8 billion of restructuring charges, $793 million of in-process research and development charges and $701 million of acquisition-related charges in fiscal 2002; $384 million of restructuring charges, $35 million of in-process research and development charges and $25 million of acquisition-related charges in fiscal 2001; and restructuring charges of $102 million in fiscal 2000 and $122 million in fiscal 1998.

(4)

Net (loss) earnings and net (loss) earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting principle include the items in Note (3) above and the following additional items before related tax effects: $106 million of net investment losses and a $14 million benefit from a litigation settlement in fiscal 2002; a $53 million net loss on divestiture, $455 million of net investment losses and $400 million from a litigation settlement in fiscal 2001; and $203 million of gains from divestitures and $41 million in net investment gains in fiscal 2000.

(5)

HP adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal 2001, retroactive to November 1, 2000. See further discussion in Note 1 to the Consolidated Financial Statements in Item 8.

(6)

All per-share amounts reflect the retroactive effects of the two-for-one stock split in the form of a stock dividend effective October 27, 2000.

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

        Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of HP's Board of Directors. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of its consolidated financial statements.

Business Combinations

        We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, as well as in-process research and development ("IPR&D"), based on their estimated fair values. We engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. The significant purchased intangible assets recorded by HP include customer contracts, developed and core technology and the Compaq trade name. The fair values assigned to the identified intangible assets are discussed in detail in Note 3 to the Consolidated Financial Statements in Item 8.

        Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, and acquired developed technologies and patents; expected costs to develop IPR&D into commercially viable products and estimating cash flows from projects when completed; Compaq brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in HP's product portfolio; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

        Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed, as more fully discussed in Note 11 to the Consolidated Financial Statements in Item 8. In addition, liabilities to restructure the pre-acquisition HP and pre-acquisition Compaq organizations, including the termination of employees, are subject to change as management continues its assessment of operations and executes

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the approved plan. For a description of valuation assumptions and estimates relating to the Compaq acquisition and certain other acquisitions, see Notes 3 and 4 to the Consolidated Financial Statements in Item 8.

Valuation of Long-Lived Assets Including Goodwill and Purchased Intangible Assets

        We review property, plant and equipment, goodwill and purchased intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our asset impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. This approach uses our estimates of future market growth, forecasted revenue and costs, expected periods the assets will be utilized and appropriate discount rates. Such evaluations of impairment of long-lived assets including goodwill and purchased intangible assets are an integral part of, but not limited to, our strategic reviews of our business and operations performed in conjunction with restructuring actions. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Deterioration of our business in a geographic region or within a business segment in the future could also lead to impairment adjustments as such issues are identified.

Revenue Recognition

        We enter into contracts to sell our products and services, and, while the majority of our sales agreements contain standard terms and conditions, there are agreements that contain multiple elements or non-standard terms and conditions. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including how the price should be allocated among the deliverable elements if there are multiple deliverables, whether undelivered elements are essential to the functionality of delivered elements, and when to recognize revenue. We recognize revenue for delivered elements only when the following criteria are satisfied: undelivered elements are not essential to the functionality of delivered elements, uncertainties regarding customer acceptance are resolved, no significant obligations remain, and the fair value of each undelivered element is known. Changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition, but would not change the total revenue recognized on the contract.

        We recognize revenue and profit as work progresses on long-term, fixed price consulting contracts using the percentage-of-completion method. When applying the percentage-of-completion method, we rely on estimates of total expected contract revenue and costs. We follow this method because reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made. Recognized revenue and profit are subject to revisions as the contract progresses to completion. Revisions to revenue and profit estimates are charged to income in the period in which the facts that give rise to the revision become known.

        We record estimated reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other volume-based incentives and expected returns. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Additionally, certain incentive programs require us to estimate the number of customers who will actually redeem the incentive based on historical experience.

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Allowance for Doubtful Accounts

        We evaluate the collectibility of our trade and financing receivables based on a combination of factors. We regularly analyze our significant customer accounts, and, when we become aware of a specific customer's inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.

Inventory

        Our inventory purchases and commitments are made in order to build inventory to meet future shipment schedules based on forecasted demand for our products. The business environment in which we operate is subject to rapid changes in technology and customer demand. We perform a detailed assessment of inventory by segment each period, which includes a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing and quality issues. Based on this analysis, we record adjustments to inventory for excess, obsolescence or impairment, when appropriate, to reflect inventory at net realizable value. Revisions to our inventory adjustments may be required if actual demand, component costs or product life cycles differ from our estimates.

Warranty Provision

        We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our estimated warranty obligation is affected by ongoing product failure rates, specific product class failures outside of our baseline experience, material usage and service delivery costs incurred in correcting a product failure. If actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. We evaluate our warranty obligations on a segment basis.

Retirement Benefits

        Our employee pension and other post-retirement benefit (i.e., health care and life insurance) costs and obligations are dependent on our assumptions used by actuaries in calculating such amounts. These assumptions include health care cost trend rates, salary growth, long-term return on plan assets, discount rates and other factors. Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The salary growth assumptions reflect our long-term actual experience and future and near-term outlook. Long-term return on plan assets is determined based on historical results of the portfolio and management's expectation of the current economic environment. We base the discount rate assumption on current investment yields on AA-rated corporate long-term bond yields. Our key assumptions are described in further detail in Note 15 to the Consolidated Financial Statements in Item 8. Actual results that differ from our assumptions are accumulated and amortized over the future working life of the plan participants. While we believe that the assumptions used are appropriate, significant

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differences in actual experience or significant changes in assumptions would affect our pension and other post-retirement benefits costs and obligations.

Investment in Debt and Equity Securities

        We monitor our investment portfolio for impairment on a periodic basis. Our investment portfolio includes equity and debt investments in publicly-traded and privately-held emerging technology companies. Many of these emerging technology companies are still in the start-up or development stage. Our investments in these companies are inherently risky because the technologies or products they have under development are typically in the early stages and may never become successful. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates; liquidation values; the values of recent rounds of financing; and quoted market prices of comparable public companies. In order to determine whether a decline in value is other than temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry; the company's relative competitive position within the industry; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Taxes on Earnings

        Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S. Earnings remittance amounts are planned based on the projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the U.S. and accordingly provide for the U.S. federal taxes due on these amounts. Material changes in our estimates of cash, working capital and long-term investment requirements could impact our effective tax rate.

        We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed.

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RESULTS OF OPERATIONS

Overview

Acquisition of Compaq Computer Corporation

        On May 3, 2002, we acquired all of the outstanding stock of Compaq, a leading global provider of information technology products, services and solutions for enterprise customers. As a result, the fluctuations in the operating results of HP and its segments in fiscal 2002 as compared to the historical fiscal 2001 and fiscal 2000 results are due generally to the acquisition of Compaq. The historical results section below presents a discussion of our consolidated operating results using the historical results of HP prepared in accordance with generally accepted accounting principles ("GAAP") for the years ended October 31, 2002, 2001 and 2000, including Compaq's results of operations from May 3, 2002 (the acquisition date). In order to provide additional information relating to our operating results, we also present a discussion of our consolidated operating results as if HP and Compaq had been a combined company in fiscal 2002 and fiscal 2001. We have included this additional information in order to provide further insight into our operating results, prior period trends and current position. This supplemental information is presented in a manner consistent with the disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," which are described in more detail in Note 3 to the Consolidated Financial Statements in Item 8. Due to different fiscal period-ends for HP and Compaq, Compaq's results for the prior quarters ended December 31, March 31, June 30 and September 30 have been combined with HP's results for the fiscal quarters ended January 31, April 30, July 31 and October 31.

        The discussion of operating results at the consolidated level is followed by a more detailed discussion of operating results by segment. The discussion of our segment operating results is presented on a historical basis for the years ended October 31, 2002, 2001 and 2000, including Compaq's results of operations from May 3, 2002 (the acquisition date). In order to provide additional information relating to our segment operating results, we also present a discussion of our segment operating results as if HP and Compaq had been a combined company in fiscal 2002 and fiscal 2001. This supplemental information is presented in a manner consistent with the supplemental disclosures included in consolidated operating results discussion. The combined company segment discussions also present certain product category fluctuations highlighted at the combined company consolidated level.

Spin-off of Agilent Technologies

        Our consolidated financial statements for all periods present the businesses of Agilent Technologies as a discontinued operation through the spin-off date of June 2, 2000. Unless otherwise indicated, the following discussion relates to HP's continuing operations.

Historical Results

        The following discussion compares the historical results of operations on a GAAP basis for the years ended October 31, 2002, 2001 and 2000. These results include Compaq's results of operations

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from May 3, 2002 (the acquisition date). Results of operations in dollars and as a percentage of net revenue were as follows:

For the following years ended October 31 Dollars in millions	2002					2001					2000
Net revenue	$	56,588		100.0	%	$	45,226		100.0	%	$	48,870	100.0	%
Gross margin(1)		15,009		26.5	%		11,731		25.9	%		13,824	28.3	%
Research and development		3,312		5.9	%		2,724		6.0	%		2,627	5.4	%
Selling, general and administrative		9,033		16.0	%		6,950		15.3	%		6,984	14.3	%
Restructuring charges		1,780		3.1	%		384		0.8	%		102	0.2	%
In-process research and development charges		793		1.4	%		35		0.1	%		—	—
Acquisition-related charges		701		1.2	%		25		0.1	%		—	—
Amortization of purchased intangible assets and goodwill		402		0.7	%		174		0.4	%		86	0.2	%
(Loss) earnings from operations		(1,012	)	(1.8	)%		1,439		3.2	%		4,025	8.2	%
Interest and other, net		52		0.1	%		171		0.4	%		356	0.8	%
Net (loss) gain on divestitures		—		—			(53	)	(0.1	)%		203	0.4	%
Net investment (losses) gains		(106	)	(0.2	)%		(455	)	(1.0	)%		41	0.1	%
Litigation settlements		14		—			(400	)	(0.9	)%		—	—
(Loss) earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes		(1,052	)	(1.9	)%		702		1.6	%		4,625	9.5	%
(Benefit from) provision for taxes		(129	)	(0.3	)%		78		0.2	%		1,064	2.2	%
Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		(923	)	(1.6	)%		624		1.4	%		3,561	7.3	%
Net earnings from discontinued operations		—		—			—		—			136	0.3	%
Extraordinary item—gain on early extinguishment of debt, net of taxes		20		—			56		0.1	%		—	—
Cumulative effect of change in accounting principle, net of taxes		—		—			(272	)	(0.6	)%		—	—
Net (loss) earnings	$	(903	)	(1.6	)%	$	408		0.9	%	$	3,697	7.6	%

⁽¹⁾

Gross margin is defined as total net revenue less cost of products, cost of services and financing interest.

Net Revenue

        Net revenue increased 25% in fiscal 2002 to $56.6 billion. U.S. revenue in fiscal 2002 increased 24% to $23.3 billion, while international revenue in fiscal 2002 grew 26% to $33.3 billion. Foreign currency fluctuations did not have a material impact on HP consolidated revenue growth in fiscal 2002 due to relatively stable exchange rates of the significant foreign currencies in which we generated revenue. The net revenue increase is attributable primarily to our acquisition of Compaq at the

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beginning of May 2002. Net revenue growth in IPG also contributed to the increase, particularly due to growth in printer supplies that resulted from a rise in volume due to the continued expansion of the printer hardware installed base. However, these effects were partially offset by a decline in sales volumes across many product categories due to the ongoing global economic downturn as well as a competitive environment, particularly in the PC and server businesses. In addition, we experienced a shift in sales mix to lower-priced products, particularly in printer hardware, industry standard servers and workstations. Sales volumes also declined due to a consolidation of product offerings as a result of post-acquisition product roadmap decisions in industry standard servers, commercial PCs, storage and personal appliances.

        In fiscal 2001, net revenue declined 7% to $45.2 billion. U.S. revenue in fiscal 2001 declined 13% to $18.8 billion, while international revenue in fiscal 2001 decreased 3% to $26.4 billion. On a foreign currency-adjusted basis, net revenue declined 3% year-over-year. The foreign currency effect in fiscal 2001 was due primarily to the weakening of the euro. The global economic downturn contributed significantly to the decline in both U.S. and international revenue in fiscal 2001, as sales volumes declined across many product categories. Revenue from printer hardware and PCs declined primarily as a result of decreases in volume. Printer hardware revenue also was affected by a shift in sales mix into the sub-$150 printer market. Business critical and industry standard servers also contributed slightly to the year-over-year decline. These decreases were partially offset by growth in printer supply revenue. In addition, ongoing competitive pricing pressures affected revenue performance in many of our product categories, particularly for commercial and consumer PCs and printer hardware.

Gross Margin

        Gross margin as a percentage of net revenue was 26.5% in fiscal 2002 compared to 25.9% in fiscal 2001. The 0.6 percentage point gross margin increase was the result primarily of a higher gross margin in IPG. Fiscal 2002 gross margin also was impacted positively by effective overall cost management and by cost reductions resulting from workforce reductions. In addition, although HP recorded inventory-related charges in fiscal 2002 that related primarily to product roadmap decisions associated with the acquisition of Compaq, these charges were $180 million lower than the inventory-related charges recorded in fiscal 2001. Partially offsetting the improvement in gross margin was lower gross margin in ESG, as well as a product mix shift, including the impact of the addition of Compaq products beginning in the third quarter of fiscal 2002. Further moderating the overall improvement in gross margin were declines in sales volumes across many product categories due to continued economic weakness and a competitive pricing environment.

        Gross margin as a percentage of net revenue was 25.9% in fiscal 2001 compared to 28.3% in fiscal 2000. The 2.4 percentage point decrease in the gross margin ratio in fiscal 2001 resulted primarily from declines in IPG, ESG and PSG, which declined 0.9, 0.5 and 0.4 percentage points, respectively, on a weighted basis. Overall, in fiscal 2001 gross margins were impacted negatively by a significant decline in sales volumes across many product categories resulting from the global economic downturn and increased inventory-related charges in response to this downturn. The increase of $336 million in inventory-related charges mainly impacted our Inkjet, digital imaging and personal appliances businesses. In addition, printer hardware and digital imaging were impacted unfavorably by a continuing shift to lower-priced products in response to customer demand, while the server and financing businesses also slightly contributed to the overall gross margin decrease. These gross margin declines were partially offset by an improved gross margin in printer supplies.

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Operating Expenses

        Research and Development

        Research and development expense as a percentage of net revenue was 5.9% in fiscal 2002 compared to 6.0% in fiscal 2001. Research and development expense increased 22% in fiscal 2002. The inclusion of Compaq since its acquisition in May 2002 accounted for substantially all of the increase in research and development expense. The remainder of the increase resulted from our continuing investment in printer hardware and supplies and digital imaging products, as well as higher company performance bonuses compared to fiscal 2001. The increase in expense was mitigated by our workforce reduction efforts and expense control measures.

        Research and development expense as a percentage of net revenue was 6.0% in fiscal 2001 compared to 5.4% in fiscal 2000. Research and development expense increased 4% in fiscal 2001. Continued investment in server products within ESG was partially offset by lower research and development spending in HPS and IPG as a result of focused spending in key areas and expense reductions in less strategic programs. In addition, company-wide actions taken by management throughout the year to control expenses, including the restructuring actions undertaken in fiscal 2001, moderated research and development expense growth in fiscal 2001.

        Selling, General and Administrative

        Selling, general and administrative expense as a percentage of net revenue was 16.0% in fiscal 2002 compared to 15.3% in fiscal 2001. Selling, general and administrative expense increased 30% in fiscal 2002 compared to the prior year. The inclusion of Compaq since its acquisition in May 2002 accounted for the majority of the increase in selling, general and administrative expense mitigated in part by declines resulting from our workforce reduction efforts and expense control measures. In addition, higher company performance bonuses in fiscal 2002 compared to fiscal 2001 contributed approximately 2 percentage points of the increase in expense, offset by a 1 percentage point decrease from lower bad debt expense.

        Selling, general and administrative expense as a percentage of net revenue was 15.3% in fiscal 2001 compared to 14.3% in fiscal 2000. Selling, general and administrative expense decreased less than 1% in fiscal 2001. Company-wide actions taken by management throughout the year to control expenses, including the restructuring actions undertaken in fiscal 2001, were partially offset by a $172 million increase in bad debt reserves and write-offs in our financing portfolio due to weakened economic conditions.

        Restructuring Charges

        In connection with the acquisition of Compaq, HP's management initiated and during the third and fourth quarters approved plans to restructure the operations of pre-acquisition HP to eliminate certain duplicative activities, focus on strategic product and customer bases, reduce cost structure and better align product and operating expenses with existing general economic conditions. Consequently, we recorded approximately $1.8 billion of costs associated with these restructuring plans in fiscal 2002. These costs were accounted for under Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity" and have been included as a charge to the results of operations for the year ended October 31, 2002. Management also approved plans to restructure the operations of pre-acquisition Compaq. In connection with these plans, we recorded approximately $960 million of restructuring costs for items similar to those described above for HP. These costs are accounted for under EITF Issue No. 95-3,

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"Recognition of Liabilities in Connection with Purchase Business Combinations." These costs were recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Compaq. Of the total expected $3 billion of annual cost synergies associated with the Compaq acquisition, which are anticipated to be fully realized in fiscal year 2004, approximately $2 billion of the savings are the result of these restructuring plans. These savings are expected to reduce product and service cost of sales resulting from combined procurement activities and operating expenses related to leveraging our labor and facilities costs.

        The fiscal 2002 charge of $1.8 billion to restructure the pre-acquisition HP organization consisted mainly of severance, early retirement costs and other employee benefits, non-inventory asset impairment charges, and other related restructuring activities. The severance, early retirement costs, and other employee benefits related to the planned early retirement or termination of 8,600 employees worldwide across many regions, business functions and job classes. As of October 31, 2002, approximately 6,400 employees were included in the workforce reduction program, had retired or had been terminated, and payments of approximately $255 million had been made. Benefits of approximately $215 million have been or will be paid through post-retirement and pension plans for retiring employees. Additionally, approximately $104 million of the charge is non-cash and relates primarily to net pension and post-retirement settlement and curtailment losses. We expect to pay the remaining balance of the severance accrual within fiscal 2003. The non-inventory asset impairment of $546 million for goodwill and purchased intangible assets was due primarily to product roadmap decisions made in conjunction with the Compaq acquisition that led to the elimination of substantially all of our middleware and storage virtualization offerings acquired in fiscal 2001. Other related restructuring charges consisted primarily of the cost of vacating duplicate facilities and the cost of exiting certain contractual obligations.

        As discussed in Note 18 to the Consolidated Financial Statements in Item 8, restructuring charges are not allocated to our segments. However, our restructuring plans and actions were undertaken to streamline our business operations, and, as such, of the total $2.7 billion of restructuring costs recorded in fiscal 2002, $1.2 billion, $510 million, $421 million and $76 million is attributable to actions taken in ESG, HPS, PSG and IPG, respectively. The remaining $497 million relates to actions taken in our shared services and infrastructure functions.

        In fiscal 2001, management approved restructuring actions to respond to the global economic downturn and to improve our cost structure by streamlining operations and prioritizing resources in strategic areas of our business infrastructure. We recorded a restructuring charge of $384 million in fiscal 2001 to reflect these actions. The fiscal 2001 charge consisted of severance and other employee benefits related to the termination of approximately 7,500 employees worldwide, across many regions, business functions and job classes, as well as costs related to the consolidation of excess facilities. We recorded additional restructuring charges of $21 million in fiscal 2002 to reflect adjustments to the expected severance cost of our fiscal 2001 restructuring plans. As of October 31, 2002, substantially all of these employees were terminated, and we had paid $394 million of the accrued costs.

        In fiscal 2000, management approved an enhanced early retirement ("EER") program designed to balance the workforce based on our long-term business strategy. We offered approximately 2,500 U.S. employees the opportunity to retire early and receive an enhanced payout, and approximately 1,300 employees accepted the offer. Accordingly, we recorded a restructuring charge of $71 million, consisting of $95 million of severance and $5 million of other employee benefits offset by $29 million of related pension and post-retirement settlement and curtailment gains. In addition to the EER program, we incurred $31 million of other restructuring charges during fiscal 2000 related to various site shutdowns

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resulting from strategic management decisions. All amounts relating to the EER program had been paid by October 31, 2001.

        In-Process Research and Development Charges

        In fiscal 2002, we recorded IPR&D charges of $735 million in connection with the acquisition of Compaq and $58 million in connection with the acquisition of Indigo. Projects that qualify as IPR&D represent those that have not yet reached technological feasibility and for which no future alternative uses existed. Technological feasibility is defined as being equivalent to a beta-phase working prototype in which there is no remaining risk relating to the development.

        In fiscal 2001, we recorded IPR&D charges of $35 million related primarily to our middleware and storage virtualization offerings that were acquired in that year.

        Acquisition-Related Charges

        We incurred acquisition-related charges of $701 million in fiscal 2002 and $25 million in fiscal 2001. The fiscal 2002 charge related to the acquisition of Compaq and consisted primarily of costs incurred for employee retention bonuses, advertising, proxy solicitation costs, consulting services and other professional fees. The fiscal 2001 charge included charges related primarily to the unsuccessful bid for the PricewaterhouseCoopers consulting business.

        Amortization of Purchased Intangible Assets and Goodwill

        Goodwill related to acquisitions that occurred prior to July 1, 2001 and purchased intangible assets are amortized over their estimated useful lives, generally two to ten years. Amortization expense was $402 million in fiscal 2002, $174 million in fiscal 2001 and $86 million in fiscal 2000. The increase in fiscal 2002 was due to purchased intangible assets from the Compaq and Indigo acquisitions. Goodwill related to acquisitions that occurred after June 30, 2001 is not amortized under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." Effective November 1, 2002, HP adopted the remaining portion of SFAS No. 142. Accordingly, goodwill will be reviewed for impairment at least annually.

Post-Retirement Benefit Costs

        Future effects of post-retirement benefit plans on our operating results depend on a number of factors, including our assumptions of health care cost trend rates, salary growth, long-term return on plan assets and discount rates. Changes to our assumptions as of October 31, 2002 include a decrease in the long-term rate of return on assets, a decrease in the discount rate, a decrease in the average rate of salary increases and an increase in health care cost trend rates. We expect the addition of pre-acquisition Compaq employees to our pension and post-retirement benefit plans on January 1, 2003, the difference between actual portfolio performance and historical assumptions, changes to assumptions at October 31, 2002 and the convergence of Compaq's existing plans to HP's accounting policies to result in an overall increase in our net periodic pension and post-retirement benefit costs of approximately $450 million in fiscal 2003.

Interest and Other, Net

        Interest and other, net decreased $119 million in fiscal 2002 from fiscal 2001 and decreased $185 million in fiscal 2001 from fiscal 2000. The decline in fiscal 2002 was attributable primarily to higher costs associated with our foreign currency forward contracts coupled with an increase in

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unhedged losses on foreign currency exposure on balance sheet remeasurement. The unhedged losses were the result primarily of the strengthening of the dollar against Latin American currencies. The fiscal 2002 decline also resulted, to a lesser extent, from decreased interest income due to lower interest rates on cash and investments offset in part by lower interest expense on debt. The fiscal 2001 decline was due primarily to a decrease in interest income resulting from lower interest rates on cash and investments and lower average cash and investment balances compared to fiscal 2000. Most of the remainder of the fiscal 2001 decline was due to an increase in interest expense as a result of higher average debt balances, partially offset by lower interest rates.

Net (Loss) Gain on Divestitures

        In fiscal 2001, we incurred a net loss on divestures of $53 million. The net loss consisted of a $131 million loss on the sale of our VeriFone, Inc. subsidiary, partially offset by a gain of $78 million on the sale to Ericsson of HP's remaining interest in the Ericsson-HP Technology joint venture. In fiscal 2000, we recorded a net gain on divestitures of $203 million, consisting of gains on the sale of non-strategic businesses, as well as the gain on the sale to Ericsson of a portion of HP's interest in the Ericsson-HP Technology joint venture.

Net Investment (Losses) Gains

        Due to the economic downturn, the declines in value of certain investments in emerging technology companies were determined to be other than temporary. Accordingly, we recorded net investment losses of $106 million in fiscal 2002 and $455 million in fiscal 2001 on our investments in both publicly-traded as well as privately-held emerging technology companies. The fiscal 2001 net investment losses consisted of a $471 million impairment loss offset by $16 million of realized gains on the sale of equity securities. In fiscal 2000, we recorded $41 million of net gains on investments, representing gains on sales of equity investments of $104 million, partially offset by impairment losses of $63 million.

        Our investment portfolio includes equity and debt investments in publicly-traded and privately-held emerging technology companies. Many of these emerging technology companies are still in the start-up or development stage. Our investments in these companies are inherently risky because the technologies or products they have under development are typically in the early stages and may never become successful. Depending on market conditions, we may incur additional charges on our investment portfolio in the future.

Litigation Settlements

        In July 2001, we signed a definitive agreement with Comdisco, Inc. ("Comdisco") to acquire substantially all of Comdisco's business continuity services business. The agreement was subject to the bankruptcy court sales process and related approvals. In November 2001, the bankruptcy court announced that we were not selected as the winning bidder to acquire Comdisco's business continuity services business. In the third quarter of fiscal 2002, we received $14 million in a settlement related to the termination of the definitive agreement.

        In June 2001, HP and Pitney Bowes Inc. ("Pitney Bowes") announced they had entered into agreements that resolved all pending patent litigation between the parties without admission of infringement and in connection therewith HP paid Pitney Bowes $400 million in cash in June 2001. For further discussion of this agreement, see Note 17 to the Consolidated Financial Statements in Item 8.

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(Benefit from) Provision for Taxes

        Our effective tax rate differs from the U.S. federal statutory rate of 35% generally due to tax rate benefits of certain earnings from operations in lower-tax jurisdictions throughout the world for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S. These benefits were partially offset in these years by non-deductible charges for amortization of goodwill, IPR&D and certain other acquisition-related charges. For a reconciliation of our effective tax rate to the federal statutory rate, see Note 11 to the Consolidated Financial Statements in Item 8.

        HP's effective tax benefit rate from continuing operations was 12% in fiscal 2002. HP's effective tax provision rates from continuing operations were 11% in fiscal 2001 and 23% in fiscal 2000. In addition to the impact of benefits from lower-tax jurisdictions, the effective tax benefit rate in fiscal 2002 was below the statutory rate because of the impact of non-deductible items, primarily IPR&D, goodwill and acquisition costs. The effective tax rates in fiscal 2001 and fiscal 2000 were below the statutory rate primarily because of the mix of earnings in lower-tax rate jurisdictions, partially offset by non-deductible goodwill and, in fiscal 2001, non-deductible acquisition-related costs and IPR&D.

Net Earnings from Discontinued Operations

        Net earnings from discontinued operations were $136 million for fiscal 2000. In the second quarter of fiscal 2000, the cumulative net earnings of Agilent Technologies since the July 31, 1999 measurement date began to exceed the total estimated net costs to effect the spin-off. Of the $136 million, net earnings of Agilent Technologies for the period from the July 31, 1999 measurement date through the June 2, 2000 spin-off date totaled $287 million (net of related tax expense of $174 million), and the net costs to effect the spin-off were $151 million (net of related tax benefit of $23 million).

Extraordinary Item

        In December 2000, the Board of Directors authorized a repurchase program for our zero-coupon subordinated convertible notes due in 2017. Under the repurchase program, we have repurchased the notes from time to time at varying prices. In fiscal 2002, we repurchased $257 million in face value of the notes with a book value of $158 million for an aggregate purchase price of $127 million, resulting in an extraordinary gain on the early extinguishment of debt of $20 million (net of related taxes of $11 million). In fiscal 2001, we repurchased $1.2 billion in face value of the notes with a book value of $729 million for an aggregate purchase price of $640 million, resulting in an extraordinary gain on the early extinguishment of debt of $56 million (net of related taxes of $33 million).

Cumulative Effect of Change in Accounting Principle

        HP adopted Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal 2001, retroactive to November 1, 2000. Accordingly, we restated our consolidated results of operations for the first three quarters of fiscal 2001, including a cumulative effect of change in accounting principle of $272 million, which was recorded as a reduction of net income as of the beginning of the first quarter of fiscal 2001.

Combined Company Results

        As previously described, the following discussion includes the combined results of operations of HP and Compaq as if the acquisition had occurred as of the beginning of fiscal 2001. Due to different

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historical fiscal period ends for HP and Compaq, the results for the year ended October 31, 2002 combine the results of HP for the year ended October 31, 2002 and the historical quarterly results of Compaq for the six-month period ended March 31, 2002 and for the period May 3, 2002 (the acquisition date) to October 31, 2002. The combined company results for the year ended October 31, 2001 combine the historical results of HP for the year ended October 31, 2001 and the historical quarterly results of Compaq for the twelve-month period ended September 30, 2001. Adjustments have been made to the combined results of operations primarily to reflect amortization of purchased intangible assets as if the acquisition had occurred at the beginning of the periods presented.

        Results of operations for the combined company, in dollars and as a percentage of net revenue, were as follows:

For the following years ended October 31 Dollars in millions	2002					2001
Net revenue	$	72,346		100.0	%	$	81,105		100.0	%
Gross margin		18,336		25.3	%		19,730		24.3	%
Research and development		3,890		5.4	%		4,115		5.1	%
Selling, general and administrative		11,455		15.7	%		12,709		15.6	%
Restructuring charges		1,780		2.5	%		1,040		1.3	%
In-process research and development charges		793		1.1	%		35		—
Acquisition-related charges		772		1.1	%		33		—
Amortization of purchased intangible assets and goodwill		664		0.9	%		698		0.9	%
(Loss) earnings from operations		(1,018	)	(1.4	)%		1,100		1.4	%
Interest and other, net		20		—			294		0.4	%
Net (loss) gain on divestitures		—		—			(53	)	(0.1	)%
Net investment (losses) gains		(100	)	(0.1	)%		(2,603	)	(3.2	)%
Litigation settlements		14		—			(400	)	(0.5	)%
(Loss) earnings before extraordinary item and cumulative effect of change in accounting principles and taxes		(1,084	)	(1.5	)%		(1,662	)	(2.0	)%
(Benefit from) provision for taxes		(136	)	(0.2	)%		(617	)	(0.7	)%
Net (loss) earnings before extraordinary item and cumulative effect of change in accounting principles		(948	)	(1.3	)%		(1,045	)	(1.3	)%
Extraordinary item—gain on early extinguishment of debt, net of taxes		20		—			56		0.1	%
Cumulative effect of changes in accounting principles, net of taxes		—		—			(492	)	(0.6	)%
Net (loss) earnings	$	(928	)	(1.3	)%	$	(1,481	)	(1.8	)%

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Net Revenue

        On a combined company basis, net revenue declined 11% in fiscal 2002 to $72.3 billion. U.S. revenue declined 8% in fiscal 2002 to $29.1 billion, while international revenue decreased 13% to $43.2 billion. Ongoing weakness in the global economy and a competitive environment contributed significantly to the decline in both U.S. and international revenue. Foreign currency fluctuations did not have a material impact on HP's consolidated combined company revenue in fiscal 2002 due to relatively stable exchange rates of the significant foreign currencies in which we generated revenue during the period.

        In fiscal 2002, combined company net revenue declined in each of our business segments, except IPG, compared to fiscal 2001. Net revenue decreased primarily in PSG, which declined 18%, and ESG, which declined 20%, while HPS declined 3% and HPFS declined 2%. These decreases were offset in small part by IPG, which increased 4%. In fiscal 2002, on a weighted basis, the PC business (both desktop and notebook PCs) accounted for 5 percentage points, servers (both industry standard servers and business critical servers) accounted for 4 percentage points, and consulting and integration, storage, personal appliances and printer hardware each accounted for 1 percentage point of the overall 11% net revenue decrease. These decreases were partially offset by a 2 percentage point increase, on a weighted basis, in printer supplies.

        Overall, combined company net revenue for fiscal 2002 was impacted negatively by a decline in sales volumes across many product categories due to the ongoing global economic downturn and a competitive environment. A shift in sales mix to lower-priced products, particularly for printer hardware, the PC business, industry standard servers and workstations, also contributed to the decrease in revenue. Additionally, the decline in revenue reflected a consolidation of product offerings as a result of post-acquisition product roadmap decisions in industry standard servers, commercial PCs, storage and personal appliances. These declines were mitigated in part by net revenue growth in printer supplies resulting from a rise in volume due to continued expansion of the printer hardware installed base.

Gross Margin

        Combined company gross margin as a percentage of combined company net revenue was 25.3% in fiscal 2002 compared to 24.3% in fiscal 2001. The increase in gross margin for fiscal 2002 was the result primarily of improved gross margins in IPG and, to a lesser extent, PSG. These improvements were partially offset by a gross margin decrease in ESG.

        Of the 1.0 percentage point increase in the combined company gross margin for fiscal 2002, on a weighted basis, IPG products accounted for 2 percentage points of the increase while PSG products accounted for 0.5 percentage points of the increase on a weighted basis. These improvements were partially offset by a 1.5 percentage point decrease, on a weighted basis, in the gross margin from ESG products. The gross margin improvement in IPG products was the result of manufacturing efficiencies and favorable currency impacts, primarily on yen-based component procurement contracts, as well as approximately $290 million lower inventory and fixed asset charges relative to fiscal 2001. The overall gross margin increase was also attributable to a mix shift toward printer supplies, which have gross margins that are higher than the company average. Gross margin improvement in PSG products resulted from strong demand for higher-margin retail notebook PCs. The gross margin deterioration in ESG products primarily reflected obsolescence and unabsorbed fixed costs for industry standard servers

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due to product roadmap decisions. Additionally, our server categories were impacted unfavorably by competitive pricing and a mix shift to low-end products.

Operating Expenses

Research and Development

        Combined company research and development expense as a percentage of combined company net revenue was 5.4% in fiscal 2002 compared to 5.1% in fiscal 2001. Research and development expense decreased by 5% in fiscal 2002. In fiscal 2002, research and development expense decreased in each of our business segments, except for IPG, which increased by 9%. This increase in research and development spending was a result of continued investment in printer hardware, supplies and digital imaging products. Overall, the decrease in research and development expense in fiscal 2002 was the result primarily of our workforce reduction efforts and expense control measures, moderated by higher company performance bonuses relative to fiscal 2001.

Selling, General and Administrative

        Combined company selling, general and administrative expense as a percentage of combined company net revenue was 15.7% in fiscal 2002 and 15.6% in fiscal 2001. Selling, general and administrative expense decreased by 10% in fiscal 2002. Overall, the decrease in selling, general and administrative expense in fiscal 2002 was attributable mainly to our workforce reduction efforts, expense control measures and lower bad debt expense, partially offset by higher company performance bonuses relative to fiscal 2001.

Restructuring Charges

        On a combined company basis, we recorded restructuring charges of $1.8 billion in fiscal 2002 and $1.0 billion in fiscal 2001. A discussion of the fiscal 2002 and fiscal 2001 charges recorded by HP is included in the historical results presentation above.

        In fiscal 2001, in addition to the charges recorded by HP, Compaq's management approved restructuring plans to realign its organization and reduce operating costs. Compaq implemented significant changes in its business model and supply chain operations. These actions were designed to simplify product offerings, derive greater internal operating efficiencies, lower order cycle time, reduce channel inventory and improve account and order management. Compaq also consolidated certain functions within its global business units and reduced administrative functions. Accordingly, Compaq planned to terminate approximately 8,500 employees worldwide in connection with the plans. Restructuring charges of $656 million were expensed in fiscal 2001. During December 2001, Compaq reversed excess reserves of $68 million for employee separation costs accrued in conjunction with the fiscal 2001 plans and expensed an additional charge of approximately the same amount for additional reductions of 1,400 employee positions as approved by management to help it better meet its objectives of realigning its organization and reducing operating costs. Employee separation benefits under each plan were similar and included severance, medical and other benefits. Employee separations under the fiscal 2001 plans were substantially completed by March 31, 2002.

In-Process Research and Development Charges

        As discussed above in the historical results presentation, in fiscal 2002, HP recorded IPR&D charges totaling $793 million in connection with the acquisitions of Compaq and Indigo. In fiscal 2001,

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HP recorded IPR&D charges of $35 million, related primarily to our middleware and storage virtualization product offering acquisitions.

Acquisition-Related Charges

        In connection with the Compaq acquisition, the combined company incurred acquisition-related charges of $772 million in fiscal 2002, which consisted primarily of costs incurred for employee retention bonuses, advertising, proxy solicitation costs, consulting services and other professional fees. Acquisition-related charges were $33 million in fiscal 2001 and related primarily to the unsuccessful bid for the PricewaterhouseCoopers consulting business and Compaq acquisition-related charges.

Amortization of Purchased Intangible Assets and Goodwill

        Goodwill related to acquisitions that occurred prior to July 1, 2001 and purchased intangible assets are amortized over their estimated useful lives, generally two to ten years. On a combined company basis, amortization expense was $664 million in fiscal 2002 and $698 million in fiscal 2001. Goodwill related to acquisitions that occurred after June 30, 2001 is not amortized in accordance with SFAS No. 142.

Post-Retirement Benefit Costs

        Future effects of post-retirement benefit plans on our operating results depend on a number of factors, including our assumptions of health care cost trend rates, salary growth, long-term return on plan assets and discount rates. Changes to our assumptions as of October 31, 2002 include a decrease in the long-term rate of return on assets, a decrease in the discount rate, a decrease in the average rate of salary increases and an increase in health care cost trend rates. We expect the addition of pre-acquisition Compaq employees to our pension and post-retirement benefit plans on January 1, 2003, the difference between actual portfolio performance and historical assumptions, changes to assumptions at October 31, 2002 and the convergence of Compaq's existing plans to HP's accounting policies to result in an overall increase in our net periodic pension and post-retirement benefit costs of approximately $400 million in fiscal 2003 on a combined company basis.

Interest and Other, Net

        On a combined company basis, interest and other, net decreased $274 million in fiscal 2002. In addition to the items discussed in the historical results above, interest and other, net declined an additional $155 million on a combined company basis primarily due to higher interest income earned in the prior year associated with Compaq's investment activities in fiscal 2001.

Net (Loss) Gain on Divestitures

        In fiscal 2001, on a combined company basis, we incurred a net loss on divestures of $53 million, as more fully discussed in the historical results presentation above.

Net Investment (Losses) Gains

        On a combined company basis, net investment losses were $100 million in fiscal 2002 and $2.6 billion in fiscal 2001. In addition to the items discussed in the historical results presentation above, the fiscal 2001 loss included $2.1 billion of impairment charges associated with Compaq's investments, including a $1.8 billion impairment in CMGI, Inc. that was judged to have experienced an other than temporary decline in value.

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Litigation Settlements

        In fiscal 2002 we recorded a litigation settlement gain of $14 million and, in fiscal 2001 we recorded a litigation settlement expense of $400 million, as more fully discussed above in the historical results presentation.

(Benefit from) Provision for Taxes

        On a combined company basis, HP's effective tax rate was a benefit of 13% in fiscal 2002 and 37% in fiscal 2001. HP's effective tax rate differed from the U.S. federal statutory rate of 35% in fiscal 2002 due to the impact of non-deductible items, primarily IPR&D, goodwill and acquisition-related costs.

Extraordinary Item

        The extraordinary item of $20 million in fiscal 2002 and $56 million in fiscal 2001 reflects the gain on the early extinguishment of debt under our repurchase program for our zero-coupon subordinated convertible notes due in 2017. This program is more fully described in the historical results discussion above.

Cumulative Effect of Changes in Accounting Principles

        As discussed above in the historical results presentation, fiscal 2001 includes a cumulative effect of change in accounting principle of $272 million in connection with HP's adoption of SAB 101 in the fourth quarter of fiscal 2001, retroactive to November 1, 2000.

        The remaining balance of the cumulative effect of change in accounting principles in fiscal 2002 was the result of Compaq's adoption in January 2001 of EITF Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products," which was issued by the EITF in November 2001. Compaq's adoption of EITF Issue No. 01-9 resulted in a change in method of accounting for certain sales incentive offerings. Historically, Compaq recognized certain incentives at the time an obligation was incurred, which generally occurred upon completion of qualifying sales transactions by Compaq's direct or indirect customers. EITF Issue No. 01-9 requires such discounts to be recognized at the later of the date the sales incentive is offered or the date at which the related revenue is recognized. The effects of adopting EITF Issue No. 01-9 have been included in the combined company results beginning January 1, 2001.

Segment Information

        Segment financial data for the years ended October 31, 2001 and 2000 has been restated to reflect changes in HP's organizational structure and allocation methodology that occurred in the first and third quarters of fiscal 2002. These changes included: the movement of the PC business and workstations from the Computing Systems segment to PSG; the movement of servers, storage and software from Computing Systems to ESG; and the movement of personal appliances from All Other to PSG. In addition, HPFS was moved from the IT Services segment to a separate reporting segment. The remaining businesses of IT Services became HPS. The acquisition of Compaq did not result in additional reporting segments. A detailed description of the products and services, as well as financial data, for each segment can be found in Note 18 to the Consolidated Financial Statements in Item 8. The four principal reportable segments disclosed in this document are based on HP's management organizational structure as of October 31, 2002. Separate segment reporting has also been included for HPFS, which is included in ESG's organizational structure, due to the distinct nature of this business.

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Future changes to this organizational structure may result in changes to the reportable segments disclosed.

Historical Results

        The historical results discussions below include the historical results of each of HP's segments in fiscal 2002, 2001 and 2000, including Compaq's results of operations from May 3, 2002 (the acquisition date). The fluctuations in the segment operating results of HP in fiscal 2002 as compared to fiscal 2001 were due generally to the acquisition of Compaq and, as such, are not discussed in detail. A supplementary discussion of operating results by segment in fiscal 2002 as compared to fiscal 2001 is provided in the discussion of combined company operating results presented after the historical results discussions.

Combined Company Results

        Consistent with the supplemental disclosures included in the consolidated operating results discussion, the combined company segment results discussions include the results of each of HP's segments in fiscal 2002 and fiscal 2001 as if the acquisition of Compaq had occurred at the beginning of fiscal 2001. As previously discussed, we have included this additional information in order to provide further insight into our segment operating results, prior period trends and current position. Due to different historical fiscal period-ends for HP and Compaq, the segment results for the year ended October 31, 2002 combine the results of HP for the year ended October 31, 2002 and the historical quarterly results of Compaq for the six-month period ended March 31, 2002 and for the period May 3, 2002 (the acquisition date) to October 31, 2002. The segment results for the year ended October 31, 2001 combine the historical results of HP for the year ended October 31, 2001 and the historical quarterly results of Compaq for the twelve-month period ended September 30, 2001.

Imaging and Printing Group—Historical Results

	Historical Results
For the following years ended October 31 Dollars in millions
	2002			2001			2000
Net revenue	$	20,324		$	19,426		$	20,346
Earnings from operations	$	3,249		$	1,869		$	2,523
Earnings from operations as a percentage of net revenue		16.0	%		9.6	%		12.4	%

        The acquisition of Compaq did not have a material impact on the results of IPG. A detailed discussion of IPG's fiscal 2002 results is presented below in the combined company discussion.

        IPG's net revenue declined 5% in fiscal 2001 compared to fiscal 2000. Of the overall 5% net revenue decrease in fiscal 2001, business and home printer hardware revenue represented 4.5 and 4.0 percentage points, respectively, of the decline on a weighted basis, partially offset by 3.5 percentage points of growth on a weighted basis in printer supplies. Overall, slowing markets across all product categories and geographic regions due to the economic downturn negatively impacted revenue in fiscal 2001.

        The decline in printer hardware net revenue in fiscal 2001 was attributable to a decrease in average selling prices driven by a continuing demand shift to lower-priced printer products, particularly into the sub-$150 printer hardware market, and a competitive pricing environment. The decline in printer hardware net revenue also reflected a drop in units due mainly to softening in both the

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consumer and business markets. Partially offsetting the decline in printer hardware revenue was growth in printer supplies. The revenue growth for printer supplies reflected a rise in volumes due to continued expansion of the printer hardware installed base and higher average selling prices. Revenue growth in printer supplies in fiscal 2001 was dampened by the economic downturn.

        Earnings from operations as a percentage of net revenue was 9.6% in fiscal 2001 compared to 12.4% in fiscal 2000. A decline in gross margin accounted for 2.1 percentage points of the 2.8 percentage point decrease in the earnings from operations ratio in fiscal 2001, while the remaining decline was due to an increase in operating expenses as a percentage of net revenue. The overall segment gross margin decline was due to gross margin decreases in printer hardware and digital imaging products. These gross margin decreases resulted mainly from the continued shift in sales mix to lower-priced products. Gross margins in these categories were further impacted unfavorably by an increase in inventory-related reserves and charges in our Inkjet and imaging businesses as well as charges related to the cancellation of planned production line expansion in our Inkjet business that occurred in response to weakened economic conditions. These incremental reserves and charges totaled $214 million in fiscal 2001. The gross margin declines in printer hardware and imaging were moderated primarily by lower component costs due to a weaker Japanese yen and by supplies, which typically have gross margins that exceed the segment average, becoming a larger portion of the segment's product mix. Although operating expenses decreased slightly in total, operating expenses as a percentage of net revenue for the segment increased compared to the prior year as the decrease in revenue exceeded the rate of decrease in operating expenses.

Imaging and Printing Group—Combined Company Results

	Combined Company Results
For the following years ended October 31 Dollars in millions
	2002			2001
Net revenue	$	20,326		$	19,470
Earnings from operations	$	3,248		$	1,876
Earnings from operations as a percentage of net revenue		16.0	%		9.6	%

        IPG's combined company net revenue grew 4% in fiscal 2002 compared to fiscal 2001. Of the overall 4% revenue increase in fiscal 2002, printer supplies represented 6.5 percentage points of growth on a weighted basis, partially offset by business and home printer hardware, which contributed 1.5 and 1.0 percentage points of revenue decline, respectively, on a weighted basis. Despite continued market weakness, the segment had revenue growth across all regions.

        Growth in printer supplies revenue in fiscal 2002 reflected higher volumes as a result of continued expansion of the printer hardware installed base. The revenue decline in business printer hardware was due mainly to the continued shift in demand to lower-priced products, particularly in the sub-$1,000 laser market. The revenue decrease in home printer hardware was attributable mainly to a decline in average selling prices driven by a continued shift in demand to lower-priced products, particularly in the sub-$100 home printer hardware market, moderated by increased sales of higher-priced all-in-one products and sales of newly-introduced products as part of the segment's "Big Bang" consumer launch.

        Combined company earnings from operations as a percentage of net revenue was 16.0% for fiscal 2002 compared to 9.6% in fiscal 2001. The 6.4 percentage point increase was due almost entirely to an improvement in gross margin. The increase in gross margin was driven by gross margin improvements in supplies and printer hardware. Manufacturing efficiencies and favorable currency impacts, primarily

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on yen-based component procurement contracts for supplies and business and home printer hardware, contributed the majority of the gross margin improvement on a weighted basis. The segment gross margin also was impacted favorably by supplies, which typically have gross margins that exceed the segment average, becoming a greater percentage of total segment revenue, and from a mix shift toward higher-margin, multi-function products within home printer hardware. Lower inventory and fixed asset write-downs compared to fiscal 2001 of approximately $290 million further contributed to the overall segment gross margin improvement.

Personal Systems Group—Historical Results

	Historical Results
For the following years ended October 31 Dollars in millions
	2002			2001			2000
Net revenue	$	14,733		$	10,117		$	12,008
(Loss) earnings from operations	$	(401	)	$	(412	)	$	335
(Loss) earnings from operations as a percentage of net revenue		(2.7	)%		(4.1	)%		2.8	%

        The fluctuations in PSG's operating results in fiscal 2002 as compared to fiscal 2001 were due substantially to the acquisition of Compaq. Although the acquisition of Compaq resulted in an increase in unit sales, average selling prices in fiscal 2002 were impacted unfavorably by the continued competitive pricing environment. The loss from operations as a percentage of net revenue improved due to an increase in gross margin as well as a decrease in operating expenses as a percentage of revenue. A supplementary discussion of PSG's fiscal 2002 results as compared to fiscal 2001 is presented below in the combined company discussion.

        PSG's net revenue declined 16% in fiscal 2001 compared to fiscal 2000. Of the overall 16% revenue decrease in fiscal 2001, commercial desktop PCs, consumer desktop PCs and personal appliances accounted for 7.0, 6.0 and 3.0 percentage points, respectively, of the decline on a weighted basis. In addition, a decline in revenue from workstations was offset by growth in retail notebook PCs. Overall, segment net revenue in fiscal 2001 was impacted unfavorably by the economic downturn resulting in slowing markets across most product categories and geographic regions.

        The decline in fiscal 2001 net revenue within the PC business resulted from revenue decreases in commercial and consumer desktop PCs, offset in part by growth in retail notebook PCs. In fiscal 2001, net revenue in the PC business was impacted negatively by declining average selling prices as a result of decreasing component costs, which are generally passed on to the customer, and a competitive pricing environment. The revenue decline in commercial desktop PCs reflected both a decrease in volumes and an ongoing decrease in average selling prices. Consumer desktop PC revenue decreased due to a decline in volumes and, to a lesser extent, a decrease in average selling prices. The decline in unit sales in both commercial and consumer desktop PCs reflected the effects of the economic slowdown in fiscal 2001. In addition, a continued shift toward mobile computing dampened growth in desktop PCs, while consumer PC revenue also was impacted unfavorably by market saturation that began late in fiscal 2000. Retail notebook PC revenue increased mainly as a result of higher unit sales largely as a result of the previously noted shift toward mobile computing; however, this growth was moderated by an ongoing decline in average selling prices. The decline in personal appliance revenue was driven by the CD-writer business that was impacted negatively by a decline in unit sales and, to a lesser extent, a decrease in average selling prices reflecting competitive pricing pressures and a mix shift to the low-end. Market saturation and competitive pricing pressures associated with the CD-writer business resulted in a decision to exit this business in the fourth quarter of fiscal 2001. Revenue from

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workstations decreased as a result of the decline in IT spending and a mix shift from UNIX® workstations to lower-priced industry standard machines.

        Loss from operations as a percentage of net revenue was 4.1% in fiscal 2001 compared to earnings from operations of 2.8% in fiscal 2000. An increase in operating expenses as a percentage of net revenue accounted for 3.5 percentage points of the 6.9 percentage point decrease in the earnings from operations ratio in fiscal 2001, while the remaining 3.4 percentage point net decrease was due to a decline in gross margin. The increase in operating expenses as a percentage of revenue was attributable mainly to investment in research and development activities, particularly in the personal appliances business. The gross margin decline for the segment reflected declines in commercial and consumer desktop PCs as well as personal appliances. The gross margin decline within the PC business accounted for approximately half of the segment gross margin decline on a weighted basis and resulted from the effects of the overall PC market slowdown. The personal appliance gross margin decrease accounted for the remainder of the overall segment gross margin deterioration and was due mainly to the decline in revenue discussed above, coupled with inventory reserve charges taken as a result of the market saturation of personal appliances, particularly CD-writers.

Personal Systems Group—Combined Company Results

	Combined Company Results
For the following years ended October 31 Dollars in millions
	2002			2001
Net revenue	$	21,962		$	26,800
Loss from operations	$	(532	)	$	(977	)
Loss from operations as a percentage of net revenue		(2.4	)%		(3.6	)%

        PSG's combined company net revenue declined 18% in fiscal 2002 compared to fiscal 2001. Of the overall 18% revenue decrease, consumer desktop PCs, commercial desktop PCs and commercial notebook PCs accounted for 7.0, 6.5 and 3.0 percentage points, respectively, of the decline on a weighted basis, while personal appliances and workstations accounted for 2.0 and 1.0 percentage points, respectively, of the decrease. The net revenue decline was offset slightly by revenue growth in retail notebook PCs of 1.5 percentage points on a weighted basis. Net revenue was impacted unfavorably by continued softened demand reflecting the ongoing economic downturn.

        The combined company net revenue decline within the PC business for fiscal 2002 reflected revenue decreases in consumer and commercial desktop PCs and commercial notebook PCs. The net revenue decline was moderated by growth in sales of retail notebook PCs. Net revenue in the PC business was impacted negatively by declining average selling prices resulting from a continued competitive pricing environment. The revenue decrease in consumer desktop PCs was fueled by a decline in unit sales and, to a lesser extent, a decrease in average selling prices. The decline in unit sales was due to weakened economic conditions across all regions. The revenue decline in commercial desktop PCs was the result of a decrease in average selling prices and, to a lesser extent, a decline in unit sales. The decrease in unit sales was attributable to a continued shift toward mobile computing, as well as the execution of post-acquisition product roadmap decisions, including the discontinuance of the HP Vectra line. The HP Vectra wind-down also unfavorably impacted average selling prices as incentives were offered to sell remaining inventory. The commercial notebook PC revenue decline was attributable to decreasing average selling prices. Retail notebook PC revenue growth reflected an increase in unit sales, resulting from the previously mentioned shift toward mobile computing,

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moderated by decreasing average selling prices. Personal appliance revenue declined due to our exit from the CD-writer business and transition into the DVD+RW market, as well as our product roadmap decision to cancel the Jornada handheld product line. The workstations revenue decline was driven by a decrease in average selling prices, reflecting a mix shift from UNIX® workstations to lower-priced Windows® NT workstations, partially offset by an increase in unit sales of Windows® NT workstations. The unfavorable effects of a transition into a new product line moderated the volume increase in Windows® NT workstations.

        The combined company loss from operations as a percentage of net revenue was 2.4% for fiscal 2002 compared to 3.6% for fiscal 2001. An improvement in gross margin represented 0.6 percentage points of the 1.2 percentage point decrease in the loss from operations ratio, while the remaining 0.6 percentage point decrease was the result of a decrease in operating expenses as a percentage of revenue. The gross margin improvement was driven by consumer PCs and personal appliances, partially offset by gross margin declines, primarily in commercial PCs. The gross margin improvement in consumer PCs contributed the majority of the overall segment gross margin increase on a weighted basis and resulted primarily from strong demand for retail notebook PCs, which typically have higher margins than desktops. The improvement in personal appliances also contributed to the gross margin improvement for the segment on a weighted basis and was attributable to lower inventory reserve charges compared to fiscal 2001. Moderating the overall segment gross margin improvement was a decline in the commercial PC gross margin. The gross margin decline in commercial PCs reflected declining average selling prices due to competitive pricing pressures, particularly on end-of-life product transitions. The decrease in the operating expense ratio was attributable to cost control measures and cost savings achieved by the workforce reductions initiated in fiscal 2001.

Enterprise Systems Group—Historical Results

	Historical Results
For the following years ended October 31 Dollars in millions
	2002			2001			2000
Net revenue	$	11,400		$	8,395		$	9,628
(Loss) earnings from operations	$	(968	)	$	(291	)	$	660
(Loss) earnings from operations as a percentage of net revenue		(8.5	)%		(3.5	)%		6.9	%

        The fluctuations in ESG's operating results in fiscal 2002 as compared to fiscal 2001 were due substantially to the acquisition of Compaq. Although unit sales increased due to the acquisition of Compaq, average selling prices were impacted unfavorably in fiscal 2002 by continued competitive pricing pressures and a continued mix shift to the low-end products. The increase in the loss from operations ratio was partly attributable to declines in gross margin due to pricing factors discussed earlier, coupled with inventory charges and unabsorbed fixed costs related to the Net Server line resulting from our product roadmap decisions. A supplementary discussion of ESG's fiscal 2002 results as compared to fiscal 2001 is presented below in the combined company discussion.

        ESG's net revenue declined 13% in fiscal 2001 compared to fiscal 2000. Of the overall 13% revenue decrease in fiscal 2001, on a weighted basis, business critical servers and industry standard servers accounted for 6.0 and 5.5 percentage points of the decline, while storage contributed 1.5 percentage points to the decrease. Overall segment net revenue in fiscal 2001 was impacted unfavorably by the economic downturn resulting in slowing markets across all product categories and geographic regions.

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        The decrease in business critical server net revenue in fiscal 2001 was due primarily to mid-range UNIX® servers, which were impacted negatively by the enterprise market slowdown and competitive pricing pressures. The business critical server revenue decline also resulted from a decrease in high-end UNIX® server revenue which reflected the slowdown in enterprise capital spending and the fact that Superdome did not begin shipping in volume until January 2001. The decline in high-end UNIX® server revenue in fiscal 2001 was entirely offset by growth in the low-end UNIX® server category. The revenue decline in industry standard servers was driven by a sales mix shift toward low-end products, ongoing competitive pricing pressures and delayed product launches in fiscal 2001. The storage revenue decline was attributable to the decline in IT spending.

        Loss from operations as a percentage of net revenue was 3.5% in fiscal 2001 compared to earnings from operations of 6.9% in fiscal 2000. An increase in operating expenses as a percentage of net revenue accounted for 8.6 percentage points of the 10.4 percentage point decrease in the earnings from operations ratio in fiscal 2001, while the remaining 1.8 percentage point decrease was due to a decline in gross margin. The increase in operating expenses as a percentage of net revenue was attributable to lower revenue coupled with an increase in operating expenses. The increase in operating expenses reflected significant hiring in the sales organizations in fiscal 2001 in anticipation of growth in key areas, particularly UNIX® servers, software and storage, which did not materialize due to weakened economic conditions. In addition, the segment invested in research and development activities, primarily for server products. Half of the segment gross margin decline was attributable to industry standard servers, while the remaining half was due to gross margin declines in storage and business critical servers. The server and storage gross margin declines were driven by lower volumes and competitive pricing pressures.

Enterprise Systems Group—Combined Company Results

	Combined Company Results
For the following years ended October 31 Dollars in millions
	2002			2001
Net revenue	$	16,449		$	20,486
(Loss) earnings from operations	$	(912	)	$	279
(Loss) earnings from operations as a percentage of net revenue		(5.5	)%		1.4	%

        ESG's combined company net revenue declined 20% in fiscal 2002 compared to fiscal 2001. Of the overall 20% revenue decrease in fiscal 2002, industry standard servers, business critical servers and storage accounted for 9.5, 6.5 and 3.0 percentage points, respectively, of the decline on a weighted basis, while software contributed the remaining 1.0 percentage point of the decrease. Overall segment revenue in fiscal 2002 was impacted unfavorably by weak demand in the enterprise market due to the continuing effects of the economic downturn, competitive pricing pressures, and cautious technology spending across all product categories and geographical regions.

        The combined company revenue decline in industry standard servers in fiscal 2002 resulted from a decrease in average selling prices and, to a lesser extent, a decline in volumes. The decrease in average selling prices was due to continued competitive pricing pressures and a continued mix shift to low-end products, as well as pricing incentives offered to accelerate installed base conversions to the Proliant server line due to post-acquisition product roadmap decisions. Weak economic conditions contributed to the decline in volumes. The decline in volumes was most pronounced in the retiring NetServer line, with Proliant volumes remaining strong. The revenue decrease in business critical servers for fiscal 2002

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was attributable to declines in all of the server categories, including AlphaServers, NonStop servers and UNIX® servers. The revenue decline across the business critical server products reflected the ongoing decline in enterprise capital spending, competitive pricing pressures and weak spending in the telecommunications and financial services industries. Storage revenue declined in fiscal 2002 due to continued weakness in IT spending and declines in UNIX® and industry standard servers, as well as product roadmap modifications in mid- and high-end arrays and tape libraries. Software revenue was impacted unfavorably by the continued decline of enterprise IT spending, weakness in the telecommunications markets, and the decision to exit selected middleware assets in the third quarter of fiscal 2002.

        The combined company loss from operations as a percentage of net revenue was 5.5% for fiscal 2002 compared to earnings from operations of 1.4% for fiscal 2001. An increase in operating expenses as a percentage of net revenue represented 3.9 percentage points of the 6.9 percentage point decrease in the earnings from operations ratio for fiscal 2002, while a decline in gross margin accounted for the remaining 3.0 percentage point decrease. Although operating expense dollars decreased in fiscal 2002, operating expenses as a percentage of net revenue for the segment increased as the decrease in revenue exceeded the rate of operating expense declines. The increase in the operating expense ratio was moderated by cost control measures and cost savings achieved by the workforce reduction initiated in fiscal 2001. The majority of the gross margin decline in fiscal 2002 was driven by gross margin decreases in industry standard servers and storage. The gross margin deterioration in industry standard servers and storage reflected lower volumes of higher-margin products and competitive pricing pressures. The gross margin decline in industry standard servers also was attributable to obsolescence and unabsorbed fixed costs associated with the wind-down of the NetServer line, as well as a mix shift toward low-end products, partially offset by a relative increase in direct fulfilled business, which has lower delivery costs.

HP Services—Historical Results

	Historical Results
For the following years ended October 31 Dollars in millions
	2002			2001			2000
Net revenue	$	9,095		$	6,124		$	5,730
Earnings from operations	$	1,022		$	647		$	578
Earnings from operations as a percentage of net revenue		11.2	%		10.6	%		10.1	%

        The fluctuations in HPS' operating results in fiscal 2002 as compared to fiscal 2001 were substantially due to the acquisition of Compaq. Despite the revenue growth attributable to Compaq, overall our consulting and integration and customer support businesses were impacted unfavorably by the global economic downturn and competitive pricing pressures in fiscal 2002; however, our managed services business benefited from the slowdown as customers reduced costs by outsourcing their IT infrastructure. Earnings from operations as a percentage of net revenue increased due to a shift in revenue mix away from the consulting and integration business, which typically has operating profit ratios lower than the segment average, along with expense control measures and workforce reduction initiatives. A supplementary discussion of HPS' fiscal 2002 results as compared to fiscal 2001 is presented below in the combined company discussion.

        HPS' net revenue increased 7% in fiscal 2001 compared to fiscal 2000. On a foreign currency adjusted basis, net revenue increased 13% in fiscal 2001 compared to the same period in fiscal 2000. Continued growth in customer support accounted for 3.0 percentage points of the segment's 7%

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revenue growth on a weighted basis, while growth in the consulting and integration business, which includes complementary third-party products delivered with sales of HP solutions, contributed 2.5 percentage points on a weighted basis to the overall segment increase. Managed services accounted for the remaining 1.5 percentage points of growth, on a weighted basis. Overall, the customer support and consulting and integration businesses net revenue growth in fiscal 2001 was moderated by the global economic downturn, while our managed services business benefited from the slowdown as companies strived to reduce costs by outsourcing their IT infrastructure.

        Customer support net revenue growth in fiscal 2001 was attributable primarily to sales of mission-critical and networking services, and to a lesser extent, strength in various other support services. Revenue growth in the consulting and integration business was fueled by an increased number of, as well as larger, engagements, reflecting strong demand from the financial services and telecommunications industries. Growth in this business also resulted from an increase in engagements for manufacturing businesses, as well as growth in other types of consulting services. Net revenue growth in managed services was attributable to larger comprehensive deals and increased business as companies reduced costs by outsourcing their IT functions.

        Earnings from operations as a percentage of net revenue was 10.6% in fiscal 2001 compared to 10.1% in fiscal 2000. The increase in the fiscal 2001 operating profit ratio was driven by improvements in managed services and the consulting and integration business, which collectively accounted for 1.0 percentage points of the segment operating profit ratio growth on a weighted basis. The segment operating profit improvement was moderated by operating profit ratio deterioration in customer support, which contributed 0.6 percentage points of operating profit decline on a weighted basis. The improvement in the managed services' operating profit ratio reflected increased process standardization and delivery efficiency, while the operating profit ratio increase in the consulting and integration business resulted from improved labor utilization and overall engagement cost management. The customer support operating profit ratio was impacted negatively by increased costs for support parts due to unfavorable currency effects and a mix shift toward lower-margin services.

HP Services—Combined Company Results

	Combined Company Results
For the following years ended October 31 Dollars in millions
	2002			2001
Net revenue	$	12,411		$	12,846
Earnings from operations	$	1,443		$	1,586
Earnings from operations as a percentage of net revenue		11.6	%		12.3	%

        HPS' combined company net revenue declined 3% in fiscal 2002 compared to fiscal 2001. Of the overall 3% net revenue decrease, the consulting and integration business, which includes complementary third-party products delivered with sales of HP solutions, accounted for 5.0 percentage points of the decline on a weighted basis, partially offset by the managed services and customer support businesses, which contributed 1.5 and 0.5 percentage points of growth, respectively, on a weighted basis. Overall, our consulting and integration and customer support businesses were impacted unfavorably by the global economic downturn and competitive pricing pressures in fiscal 2002; however, our managed services business benefited from the slowdown as customers reduced costs by outsourcing their IT infrastructure.

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        The combined company revenue decline in the consulting and integration business in fiscal 2002 was attributable to a decline in core consulting and integration services and a decrease in sales of complementary third-party products. The decline in consulting and integration revenue reflected weak demand and a slowdown in IT spending, particularly in the telecommunications industry, while the decrease in sales of complementary third-party products resulted from the tightened focus of this business on customer critical solutions. The growth in managed services revenue in fiscal 2002 was driven by the ongoing mix shift toward larger comprehensive deals and increased business as customers outsourced substantial portions of their IT infrastructure to HP. The growth in customer support revenue was attributable to solid demand for storage services, mission-critical services, network services and Windows®-environment services. Growth in customer support revenue was moderated by slower revenue growth in UNIX® server support, reflecting a decrease in UNIX® server revenue as a result of weak enterprise capital spending.

        Combined company earnings from operations as a percentage of net revenue was 11.6% in fiscal 2002 compared to 12.3% for fiscal 2001. The decline in the fiscal 2002 operating profit ratio was shared primarily by the consulting and integration and managed services businesses. The operating profit ratio decrease in the consulting and integration business resulted from weakened demand coupled with a decline in consultant utilization. The managed services operating profit decline was attributable to lengthened selling cycles and higher pre-sales costs due to a shift toward comprehensive outsourcing contracts. The overall segment operating profit ratio was further impacted negatively by engagement write-offs reflecting customer acceptance issues, deteriorating economic conditions and an increase in infrastructure and shared services costs due to a convergence to resource usage rates based on the number of professionals in the segment. Moderating the segment gross margin decline was a mix shift away from the consulting and integration business, which typically has operating profit ratios that are lower than the segment average, along with expense control measures and workforce reduction initiatives.

HP Financial Services—Historical Results

	Historical Results
For the following years ended October 31 Dollars in millions
	2002			2001			2000
Net revenue	$	1,707		$	1,454		$	1,411
(Loss) earnings from operations	$	(140	)	$	(179	)	$	85
(Loss) earnings from operations as a percentage of net revenue		(8.2	)%		(12.3	)%		6.0	%

        HPFS' net revenue includes interest on financing receivables, rental payments on operating leases and sales of equipment after the expiration of their lease terms. The fluctuations in HPFS' operating results in fiscal 2002 as compared to fiscal 2001 were due substantially to the acquisition of Compaq. Despite the revenue growth attributable to the acquisition of Compaq, lease originations declined in fiscal 2002 due mainly to the decline in IT spending worldwide, moderating the segment revenue growth. The loss from operations as a percentage of revenue declined due to lower bad debt charges in fiscal 2002. A supplementary discussion of HPFS' fiscal 2002 results as compared to fiscal 2001 is presented below in the combined company discussion.

        HPFS' net revenue increased 3% in fiscal 2001 compared to fiscal 2000. The increase in revenue was driven by a mix shift in the portfolio toward operating leases. Revenue in fiscal 2001 also was impacted favorably by higher earning assets along with an increase in sales of equipment after the expiration of their lease terms. The revenue increase was moderated by a decrease in lease originations

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in fiscal 2001, due mainly to the decline in IT spending as a result of the ongoing global economic downturn, as well as strengthened credit controls in response to this downturn.

        Loss from operations as a percentage of net revenue was 12.3% in fiscal 2001 compared to earnings from operations of 6.0% in fiscal 2000. The decline in the operating profit ratio was attributable mainly to an increase of $172 million in bad debt reserves and write-offs in response to weakened economic conditions and the mix shift toward operating leases, which have lower margins. The operating profit ratio was also impacted unfavorably by write-downs resulting from changes in residual value assumptions.

HP Financial Services—Combined Company Results

	Combined Company Results
For the following years ended October 31 Dollars in millions
	2002			2001
Net revenue	$	2,088		$	2,126
(Loss) from operations	$	(133	)	$	(164	)
(Loss) from operations as a percentage of net revenue		(6.4	)%		(7.7	)%

        HPFS' combined company net revenue includes interest on financing receivables, rental payments on operating leases and sales of equipment after the expiration of their lease terms. HPFS' net revenue declined 2% in fiscal 2002 compared to fiscal 2001. The decrease in revenue was driven by a decrease in lease originations during the year, due mainly to the decline in IT spending as a result of the ongoing global economic downturn and the related decrease in earning assets, as well as strengthened credit controls in response to this downturn. The revenue decrease was partially offset by an increase in revenue from equipment sales after the expiration of their lease terms and other mid-term and end-of-term portfolio activities.

        Combined company loss from operations as a percentage of net revenue was 6.4% in fiscal 2002 compared to 7.7% in fiscal 2001. Although bad debt write-offs and additions to the allowance were recorded in response to the ongoing global economic downturn in each of fiscal 2002 and fiscal 2001, these incremental charges were lower in fiscal 2002, resulting in the decrease in the loss from operations ratio in fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

        The information discussed below is presented based on HP's historical results, which include the results of Compaq for the period following the May 3, 2002 closing date of the acquisition.

        At October 31, 2002, we held cash, cash equivalents and short-term investments of $11.4 billion compared to $4.3 billion at October 31, 2001. During fiscal 2002, net cash flows from operating activities and borrowings were used mainly to fund repayments of borrowings, purchases of property, plant and equipment, payments of dividends, repurchases of our common stock and for acquisition-related expenditures.

        Cash flows from operating activities were $5.4 billion during fiscal 2002 compared to $2.6 billion for fiscal 2001 and $3.7 billion for fiscal 2000. The increase in cash flows from operations in fiscal 2002 resulted from higher earnings after adjusting for non-cash items such as depreciation and amortization, the non-cash portion of restructuring charges and IPR&D charges. The improvement in cash flows from operations also reflected the timing of payments on accounts payable, improved collections of our

47

trade and financing receivables and decreases in inventory. These improvements were partially offset by acquisition-related expenditures, including cash payments for restructuring charges and retention bonuses. The decrease in cash flows from operating activities in fiscal 2001 resulted primarily from a decline in net earnings and timing of payments on accounts payable, partially offset by a decline in receivables and a decrease in inventory.

        Cash flows from investing activities were $3.1 billion in fiscal 2002 compared to cash flows used in investing activities of $561 million in fiscal 2001 and $1.4 billion in fiscal 2000. The increase in cash flows from investing activities in fiscal 2002 was related primarily to the $3.6 billion of net cash acquired in the Compaq transaction. In addition, we recorded $879 million upon the dissolution of our equity method investment in Liquidity Management Corporation ("LMC"), when it became a wholly-owned subsidiary on November 1, 2001. Net capital expenditures were $1.3 billion in fiscal 2002, $1.1 billion in fiscal 2001 and $1.3 billion in fiscal 2000. Capital expenditures related primarily to financing assets and manufacturing investments across our businesses.

        At October 31, 2001, we held a 49.5% equity interest in LMC, which was accounted for under the equity method of accounting. The remaining 50.5% of equity interest was held by a third party investor. On November 1, 2001, LMC redeemed the outstanding equity of the third party investor, leaving us as the remaining shareholder of LMC. Accordingly, effective November 1, 2001, the assets, liabilities and results of operations of LMC have been included in our consolidated financial statements. At November 1, 2001, the assets of LMC consisted primarily of $879 million of cash and cash equivalents.

        Trade accounts receivable days sales outstanding were 42 at October 31, 2002 compared to 37 at October 31, 2001. The increase was due primarily to a change in the composition of our receivables balance resulting from the Compaq acquisition. For the most part, this change in composition was the result of fewer early payment incentives and longer payment terms in Compaq's sales agreements. Annualized inventory turns were 9.1 at October 31, 2002 compared to 6.2 at October 31, 2001. The improvement is partially the result of the acquisition of Compaq, which operated in businesses that require lower levels of inventories, as well as the result of active inventory management.

        We currently expect to fund expenditures for capital requirements as well as liquidity needs from a combination of available cash balances, internally-generated funds and financing arrangements. We invest excess cash in short- and long-term investments, depending on our projected cash needs for operations, capital expenditures and other business purposes. We also supplement our internally generated cash flow with a combination of short- and long-term borrowings. Short-term borrowings include issuances under our $4 billion commercial paper program established in December 2000 and under our $500 million euro commercial paper/certificate of deposit program established in May 2001. At January 17, 2003 we had approximately $1.2 billion of commercial paper outstanding. Short- and long-term net borrowings in fiscal 2002 used cash of $472 million, as payments on short- and long-term debt and repurchases of our zero-coupon subordinated convertible notes were partially offset by short-term and long-term debt issuances, including the issuance of $1.5 billion of Global Notes in June 2002 and the issuance of $1.0 billion of Global Notes in December 2001. Long-term debt totaling $472 million matured as scheduled in fiscal 2002. In fiscal 2001, short- and long-term net borrowings generated cash of $277 million, as short-term and long-term debt issuances, including the issuance of $636 million (based on the foreign exchange rate at the date of issuance) of Euro Medium-Term Notes in July 2001, were partially offset by repurchases of our zero-coupon subordinated convertible notes and payments on other long-term debt. Long-term debt totaling $290 million matured as scheduled in fiscal 2001.

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        We repurchase shares of our common stock under a systematic program to manage the dilution created by shares issued under employee stock plans and for other opportunistic share repurchases. This plan authorizes purchases in the open market or in private transactions. In fiscal 2002, 39,623,000 shares were repurchased for an aggregate price of $671 million. As of January 17, 2003, we had authorization for remaining future repurchases of approximately $800 million. In fiscal 2001, 45,036,000 shares were repurchased for an aggregate price of $1.2 billion and in fiscal 2000, 96,978,000 shares were repurchased for an aggregate price of $5.6 billion.

        As a result of our restructuring plans, we expect future cash expenditures of approximately $1.4 billion, primarily for employee severance and other related benefits. The total cash expenditures are expected to be funded primarily from existing cash balances and cash flows generated from operations. Cash expenditures related to our restructuring plans are expected to be substantially complete by the end of fiscal 2003.

        Global capital market developments resulted in negative returns on our retirement benefit plan assets and a decline in the discount rates used to estimate the liability. As a result, we were required to record an after-tax charge to equity in the amount of $379 million at October 31, 2002 related to the minimum pension liability. We currently anticipate a pension contribution of approximately $800 million in fiscal 2003.

Acquisition of Compaq

        In May 2002, in connection with our acquisition of Compaq, all of the outstanding debt of Compaq was consolidated into our financial results. The face value of the Compaq debt consisted of $1.7 billion of commercial paper; $275 million of unsecured 7.45% Medium-Term Notes, which matured on August 1, 2002; $300 million of unsecured 7.65% Medium-Term Notes, which mature on August 1, 2005; $300 million of unsecured 6.2% Medium-Term Notes, which mature on May 15, 2003; and $65 million of other debt (including debt issued by Digital Equipment Corporation), with interest rates ranging from 7.125% to 8.625%, which matures at various dates from March 15, 2004 through April 1, 2023. The outstanding Compaq debt has been assumed by HP. The entire balance of the Compaq commercial paper was paid off during the third quarter of fiscal 2002. The debt had an aggregate fair value of approximately $2.7 billion on the acquisition date. At January 17, 2003, the outstanding amount of the debt acquired in connection with the acquisition of Compaq was $642 million.

        As a result of the acquisition and associated credit rating changes, approximately $250 million of HP's debt due to CCF Charterhouse, now HSBC-CCF, became subject to a put option whereby the debt became repayable at the option of HSBC-CCF. On December 17, 2002, this put option was waived by HSBC-CCF and was renegotiated such that the debt becomes repayable at HSBC-CCF's election on September 29, 2003.

Borrowings

        In March 2002, we replaced our $1.0 billion committed borrowing facility, which was due to expire in April 2002, with two senior unsecured credit facilities totaling $4.0 billion in borrowing capacity, including a $2.7 billion 364-day facility and a $1.3 billion three-year facility (the "Credit Facilities"). Interest rates and other terms of borrowing under the Credit Facilities vary based on HP's external credit ratings. The Credit Facilities are generally available to support the issuance of commercial paper or for other corporate purposes. As of January 17, 2003, there were no borrowings outstanding under the Credit Facilities. We had approximately $1.2 billion of commercial paper outstanding under our programs at January 17, 2003.

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        In February 2002, we filed a shelf registration statement (the "2002 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2002 Shelf Registration Statement was declared effective in March 2002. In June 2002, we offered under the 2002 Shelf Registration Statement $1.0 billion of unsecured 5.5% Global Notes, which mature on July 1, 2007 unless previously redeemed. Also, in June 2002, HP offered under the 2002 Shelf Registration Statement $500 million of unsecured 6.5% Global Notes, which mature on July 1, 2012 unless previously redeemed. We may redeem some or all of either series of Global Notes at any time at redemption prices described in the prospectus supplement dated June 21, 2002. In December 2002, we filed a prospectus supplement to the 2002 Shelf Registration Statement, which allowed us to offer from time to time up to $1.5 billion of Medium-Term Notes, Series B, due nine months or more from the date of issue, in addition to the other types of securities described above. As of January 17, 2003, we had capacity remaining to issue approximately $1.5 billion of securities under the 2002 Shelf Registration Statement.

        HP has the ability to offer from time to time up to $3.0 billion of Medium-Term Notes under a Euro Medium-Term Note Programme filed with the Luxembourg Stock Exchange. These notes can be denominated in any currency including the euro. However, these notes have not been and will not be registered in the United States. In July 2001, 750 million euro (or $636 million based on the exchange rate on the date of issuance) of 5.25% Medium-Term Notes maturing on July 5, 2006 were issued under this program. As of January 17, 2003, we had capacity remaining to issue approximately $2.2 billion of Medium-Term Notes under the program.

        In February 2000, we filed a shelf registration statement (the "2000 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2000 Shelf Registration Statement was declared effective in March 2000. In June 2000, we offered under the 2000 Shelf Registration Statement $1.5 billion of unsecured 7.15% Global Notes, which mature on June 15, 2005 unless previously redeemed. HP may redeem some or all of the 7.15% Global Notes at any time at the redemption prices described in the prospectus supplement dated June 6, 2000. In May 2001, we filed a prospectus supplement to the 2000 Shelf Registration Statement, which allowed us to offer from time to time up to $1.5 billion of Medium-Term Notes, Series A, due nine months or more from the date of issue (the "Series A Medium-Term Note Program"), in addition to the other types of securities described above. In December 2001, we offered under the 2000 Shelf Registration Statement $1.0 billion of unsecured 5.75% Global Notes, which mature on December 15, 2006 unless previously redeemed. During fiscal 2001, we issued an aggregate of $210 million of Medium-Term Notes at variable rates maturing in 2003 and 2004 under the 2000 Shelf Registration Statement and Series A Medium-Term Note Program. These Medium-Term Notes had a weighted average interest rate of 2.13% during fiscal 2002. In December 2002, HP offered $200 million of 3.375% Series A Medium-Term Notes (the "3.375% Notes"), which mature on December 15, 2005, and $50 million of 4.25% Series A Medium-Term Notes (the "4.25% Notes") which mature on December 17, 2007. HP may redeem some or all of the 3.375% Notes or the 4.25% Notes at any time at the redemption prices described in the prospectus supplement dated June 6, 2000. We do not intend to issue additional securities under the 2000 Shelf Registration Statement.

        In October 1997, we issued $1.8 billion face value of zero-coupon subordinated convertible notes for proceeds of $968 million, and in November 1997 we issued an additional $200 million face value of the notes for proceeds of $108 million. The notes are due in 2017. The notes are convertible by the holders at the rate of 15.09 shares of HP's common stock for each $1,000 face value of the notes, payable in either cash or common stock at HP's election. At any time, we may redeem the notes at

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book value, payable in cash only. The notes are subordinated to all other existing and future senior indebtedness of HP. In December 2000, the Board of Directors authorized a repurchase program for the notes. Under the repurchase program, we have repurchased the notes from time to time at varying prices. In fiscal 2002, we repurchased $257 million in face value of the notes with a book value of $158 million for an aggregate purchase price of $127 million, resulting in an extraordinary gain on the early extinguishment of debt of $20 million (net of related taxes of $11 million). In fiscal 2001, we repurchased $1.2 billion in face value of the notes with a book value of $729 million for an aggregate purchase price of $640 million, resulting in an extraordinary gain on the early extinguishment of debt of $56 million (net of related taxes of $33 million). As of January 17, 2003, the notes had a remaining book value of $320 million.

        We also maintain various international lines of credit with a total capacity of $2.7 billion and various other short- and long-term borrowings from a number of financial institutions and institutional investors. There was approximately $375 million outstanding at January 17, 2003 under these borrowings. HP occasionally repurchases its debt prior to maturity based upon its assessment of current market conditions and financing alternatives.

        We do not have any rating downgrade triggers that would accelerate the maturity of a material amount of our debt, other than the HSBC-CCF debt described above. However, a downgrade in our credit rating would increase the cost of our credit facilities. For example, a downgrade in our credit rating could limit, or in the case of a significant downgrade, preclude our ability to issue commercial paper under our current programs. Should this occur, we would seek alternative sources of funding, including the issuance of notes under our existing shelf registration statements and our Euro Medium-Term Note Programme. In addition, we have the ability at our option to draw upon our senior unsecured credit facilities totaling $4.0 billion.

        The impact that our contractual obligations as of October 31, 2002 are expected to have on our liquidity and cash flow in future periods is as follows:

			Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		Over 5 Years
	(In millions)
Commercial paper(1)	$	537	$	537	$	—	$	—	$	—
Other borrowings(1)		484		484		—		—		—
Long-term debt(1)		6,679		743		2,109		2,802		1,025
Operating lease agreements(2)		2,118		493		683		420		522
Unconditional purchase obligations(3)		303		211		47		27		18
Other long-term obligations(4)		352		178		127		11		36
Contingent value rights(5)		237		—		237		—		—
Employee retention bonuses(6)		316		316		—		—		—
Total	$	11,026	$	2,962	$	3,203	$	3,260	$	1,601

(1)

Amounts represent the expected cash payments of our commercial paper, other borrowings and long-term debt and do not include any fair value adjustments or bond premiums or discounts.

(2)

Operating lease obligations include $354 million related to certain car leases, of which $118 million is included in the "Less Than 1 Year" balance and $236 million is included in the "1-3 Years" balance. The entire balance of the lease obligation would become due immediately upon cancellation.

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(3)

Includes $130 million related to contract cancellation fees. Management believes it is unlikely that the affected contracts will be cancelled prior to their expiration date.

(4)

Amounts relate primarily to various sponsorship and alliance agreements.

(5)

Represents the maximum amount payable in connection with the acquisition of Indigo described below and in Note 3 to the Consolidated Financial Statements in Item 8.

(6)

Represents remaining retention bonuses to be paid to employees in conjunction with the acquisition of Compaq.

        As part of our ongoing business, HP does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities ("SPEs"), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In connection with the Compaq acquisition, HP acquired Compaq's interest in an SPE that was established in March 2001 to securitize leases. Compaq made an immaterial equity investment in an SPE and transferred $15 million of leases that were securitized as a loan. The term of the arrangement was 33 months, of which 15 months are remaining at October 31, 2002. The remaining principal payments due under this arrangement total approximately $6 million.

        The impact that our contingent liabilities and commitments as of October 31, 2002 could have on our liquidity and cash flow in future periods is as follows:

			Amount of Commitment Expiration per Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		Over 5 Years
	(In millions)
Lines of credit extended to customers(1)	$	280	$	—	$	260	$	20	$	—
Funding commitments(2)		50		15		—		—		35
Guarantees		20		—		20		—		—
Other		13		—		13		—		—
Total	$	363	$	15	$	293	$	20	$	35

(1)

Represents lines of credit extended to customers of the financing business.

(2)

Relates to equity investments. Amounts are due upon capital calls.

Completed Acquisitions and Divestitures

        On May 3, 2002, we acquired all of the outstanding stock of Compaq, a leading global provider of information technology products, services and solutions for enterprise customers, in exchange for 0.6325 shares of HP common stock for each outstanding share of Compaq common stock and the assumption of options to purchase Compaq common stock based on the same ratio. In addition, HP assumed certain Compaq stock plans. The acquisition of Compaq is intended to enhance HP's combined competitive position in key industries, while strengthening its sales force and relationships with strategic customer bases. The acquisition is intended to enable HP to focus on strategic product and customer bases, achieve significant cost synergies and economies of scale and improve results of our combined ESG, PSG and HPS businesses. Furthermore, these intended cost savings offer strategic benefits by potentially reducing HP's cost structure in competitive businesses such as PCs. This transaction resulted in the issuance of approximately 1.1 billion shares of HP common stock and the assumption of options to purchase shares of Compaq common stock, which became options to purchase approximately

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200 million shares of HP common stock. The total consideration was approximately $24.2 billion, which included the fair value of HP common stock issued and Compaq options assumed, as well as direct transaction costs. The fair value of HP common stock was derived using an average market price per share of HP common stock of $20.92, which was based on an average of the closing prices for a range of trading days (August 30, August 31, September 4, and September 5, 2001) around the announcement date (September 3, 2001) of the acquisition. We have recorded approximately $14.5 billion of goodwill, $1.4 billion of a purchased intangible asset with an indefinite life and $3.5 billion of amortizable purchased intangible assets in conjunction with the acquisition based on an independent third-party valuation. The amortizable purchased intangible assets will be amortized over their estimated weighted average useful lives of approximately nine years for customer contracts and lists and distribution agreements and approximately six years for developed and core technology and patents. In addition, we recorded a pre-tax charge of approximately $735 million for IPR&D at the time of acquisition in the third quarter of fiscal 2002 because technological feasibility had not been established and no future alternative uses existed. In connection with the acquisition, management has reviewed the operations of the combined company and implemented several plans to restructure operations. In accordance with generally accepted accounting principles, costs totaling approximately $960 million that were accrued for severance, early retirement and other employee benefits related to pre-acquisition Compaq employees, costs of vacating some facilities (leased or owned) and contracts of pre-acquisition Compaq and other costs associated with exiting activities of pre-acquisition Compaq were included in the purchase price. Costs totaling approximately $1.8 billion that were accrued for severance, early retirement and other employee benefits of pre-acquisition HP employees, costs of vacating duplicative facilities (leased or owned) and contracts of pre-acquisition HP, non-inventory asset impairment charges and other costs associated with exiting activities of pre-acquisition HP were expensed in the third and fourth quarters of fiscal 2002 and are included in "Restructuring charges" in the accompanying Consolidated Statement of Earnings. Results of operations of Compaq have been included prospectively from the date of acquisition.

        On December 27, 2002, the Compaq Board of Directors approved and adopted an agreement and plan of liquidation, pursuant to which, on December 31, 2002, Compaq assigned, and HP assumed, substantially all of the assets and liabilities of Compaq and Compaq transferred all of its employees to HP. Additionally, HP and Compaq agreed to merge Compaq with and into HP as promptly and reasonably practicable following the liquidating distribution.

        On March 22, 2002, we acquired substantially all of the outstanding stock of Indigo not previously owned by HP in exchange for HP common stock and non-transferable contingent value rights ("CVRs") and the assumption of options to purchase Indigo common stock. This acquisition is intended to strengthen HP's printer offerings by adding high performance digital color printing systems. The total consideration for Indigo was $719 million, which included the fair value of HP common stock issued and Indigo options assumed, as well as direct transaction costs and the cost of an equity investment made by HP in Indigo in October 2000. Approximately 32 million shares of HP common stock and approximately 53 million CVRs were issued in connection with this transaction. We recorded approximately $499 million of goodwill and $153 million of amortizable purchased intangible assets in conjunction with the acquisition and the previous equity investment. The purchased intangible assets are being amortized over their estimated useful lives, which range from five to eight years. In addition, we recorded a pre-tax charge of approximately $58 million for IPR&D at the time of acquisition in the second quarter of fiscal 2002 because technological feasibility had not been established and no future alternative uses existed. Results of operations for Indigo have been included prospectively from the date of the acquisition.

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        The CVRs issued in conjunction with this acquisition entitle each holder to a one-time contingent cash payment of up to $4.50 per CVR, based on the achievement of certain cumulative revenue results over a three-year period. The liability related to the CVRs will be recorded as additional goodwill as payout thresholds are achieved. The future cash pay-out, if any, of the CVRs will be payable after a three-year period commencing on April 1, 2002.

        In January 2001, HP acquired all of the outstanding stock of Bluestone Software, Inc. ("Bluestone") in exchange for HP common stock and assumption of Bluestone options. In September 2001, HP acquired all of the outstanding stock of StorageApps Inc. ("StorageApps") in exchange for HP common stock and assumption of StorageApps options. The total consideration for Bluestone was $531 million, and the total consideration for StorageApps was $319 million, each of which included the fair value of HP common stock issued and options assumed, as well as direct transaction costs. Each of these transactions was accounted for under the purchase method, and accordingly the results of operations of the acquired companies are included in our consolidated results of operations prospectively from the date of acquisition. In fiscal 2002, we recorded an impairment charge of $546 million for goodwill and purchased intangible assets due primarily to product roadmap decisions made in conjunction with the Compaq acquisition that led to the elimination of substantially all of our middleware and storage vitualization offerings. See Note 3 to the Consolidated Financial Statements in Item 8 for additional information about all of these acquisitions.

        In fiscal 2001, the net proceeds from divestitures were $117 million resulting from the sale of our VeriFone, Inc. subsidiary and the sale to Ericsson of HP's remaining interest in the Ericsson-HP Technology joint venture. In fiscal 2000, the net proceeds from divestitures were $448 million resulting from the sale of non-strategic businesses, as well as the sale to Ericsson of part of HP's interest in the Ericsson-HP Technology joint venture.

Debt Ratios

        Our financing business is more dependent on the issuance of debt for the financing of its operations than our other businesses. Typically, a leasing business has higher leverage than an industrial or technology business given the lower risks of the leasing business assets. Although the vast majority of total outstanding debt was issued or assumed by HP and not by our finance subsidiary, one of the working capital needs of HP is to support intercompany loans to HPFS. Based on the leverage positions of other companies with financing businesses, we believe that it is appropriate to consider a portion of our external debt to be in support of our financing business. Accordingly, at October 31, 2002, we attribute approximately 77% of our total outstanding debt to this business. The analysis of the debt allocation and certain ratios are discussed below on both a financing and non-financing basis.

Financing business

	October 31
	2002		2001
	Dollars in millions
Assets(1)	$	7,247	$	5,010
Debt(2)	$	5,991	$	4,140
Equity	$	1,256	$	870
Debt/Equity		4.8x		4.8x

⁽¹⁾

Financing business assets include financing receivables and assets under operating leases.

⁽²⁾

Financing business debt includes allocated debt issued or assumed by HP that generates the financing interest expense on the Consolidated Statement of Earnings.

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Non-Financing business

	October 31
	2002		2001
	Dollars in millions
Assets	$	63,463	$	27,574
Debt(1)	$	1,837	$	1,311
Equity	$	35,006	$	13,083
Debt/Equity		0.1x		0.1x

⁽¹⁾

Non-financing business debt is our total debt issued or assumed by HP less the portion we have allocated to our financing business described in the financing business table above.

        Our non-financing businesses generate significant cash from ongoing operations and therefore generally do not require a significant amount of debt to finance their operations, although debt may be used to finance working capital needs if it is not tax-efficient to repatriate cash from other jurisdictions in a given period. Cash flows from operations are the primary source of funds for these businesses.

FACTORS THAT COULD AFFECT FUTURE RESULTS

        Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods.

The competitive pressures we face could harm our revenue, gross margins and prospects.

        We encounter aggressive competition from numerous and varied competitors in all areas of our business, and we compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution, customer service and support. If our products, services and support do not enable us to compete successfully based on any of those criteria, it could harm our operations, results and prospects. Further, we may have to continue to lower the prices of many of our products, services and support to stay competitive, while at the same time trying to maintain or improve revenue and gross margins. If we cannot proportionately decrease our cost structure in response to competitive price pressures, our gross margins and therefore our profitability could be adversely affected. In addition, if our pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our product offering decisions, including our product roadmap decisions in connection with the Compaq acquisition, we may lose market share in certain areas, which could adversely affect our revenue and prospects.

If we cannot continue to develop, manufacture and market innovative products and services that meet customer requirements for performance and reliability, we may lose market share and our revenue may suffer.

        The process of developing new high technology products and services and enhancing existing products and services is complex and uncertain, and any failure by us to anticipate customers' changing demands and emerging technological trends accurately and to develop or obtain appropriate intellectual property could significantly harm our results of operations. We must make long-term investments and commit significant resources before knowing whether our predictions will eventually result in products and services that the market will accept. After a product is developed, we must be able to manufacture sufficient volumes quickly and at low costs. To accomplish this, we must accurately forecast volumes,

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mix of products and configurations that meet customer requirements, and we may not succeed. Any delay in the development, production or marketing of a new product could result in our not being among the first to market, which could further harm our competitive position.

If we do not effectively manage our product and services transitions, our revenue may suffer.

        If we do not make an effective transition from existing products and services to future offerings, our revenue may be seriously harmed. Among the factors that make a smooth transition difficult are delays in development or manufacturing, variations in costs, delays in customer purchases in anticipation of new introductions and customer demand for the new offerings. Our revenue and gross margins also may suffer due to the timing of product or service introductions by our suppliers and competitors. This is especially challenging when a product has a short life cycle or a competitor introduces a new product just before our own product introduction. Furthermore, sales of our new products and services may replace sales of some of our current offerings, offsetting the benefit of even a successful introduction. There may also be overlaps in the current products and services of HP and portfolios acquired through mergers and acquisitions, including portfolios acquired in the acquisition of Compaq, that must be managed. Given the competitive nature of our industry, if we incur delays in new introductions or do not accurately estimate the market effects of new introductions, future demand for our products and services and our revenue may be seriously harmed.

Any failure by us to complete acquisitions and alliances successfully that enhance our strategic businesses and product lines and divest non-strategic businesses and product lines could harm our financial results, business and prospects.

        As part of our business strategy, we frequently engage in discussions with third parties regarding, and enter into agreements relating to, possible acquisitions, strategic alliances, joint ventures and divestitures in order to manage our product and technology portfolios and further our strategic objectives. In order to pursue this strategy successfully, we must identify suitable acquisition, alliance or divestiture candidates, complete these transactions, some of which may be large and complex, and integrate the acquired companies. Integration and other risks of acquisitions and strategic alliances can be more pronounced for larger and more complicated transactions, such as our acquisition of Compaq, or if multiple acquisitions are pursued simultaneously. However, if we fail to identify and complete these transactions, we may be required to expend resources to develop products and technology internally, we may be at a competitive disadvantage or we may be adversely affected by negative market perceptions, any of which may have a material effect on our revenue and selling, general and administrative expenses.

        Integration issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business. The challenges involved in integration include:

•

combining product offerings and preventing customers and distributors from deferring purchasing decisions or switching to other suppliers due to uncertainty about the direction of our product offerings and our willingness to support and service existing products, which could result in incurring additional obligations in order to address customer uncertainty;

•

demonstrating to customers and distributors that the transaction will not result in adverse changes in client service standards or business focus and helping customers conduct business easily;

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•

consolidating and rationalizing corporate IT infrastructure, including implementing information management and system processes that enable increased customer satisfaction, improved productivity, lower costs, more direct sales and improved inventory management;

•

consolidating administrative infrastructure, including IT systems, and manufacturing operations and maintaining adequate controls throughout the integration;

•

coordinating sales and marketing efforts to communicate our capabilities effectively;

•

coordinating and rationalizing research and development activities to enhance introduction of new products and technologies with reduced cost;

•

preserving distribution, marketing or other important relationships and resolving potential conflicts that may arise;

•

minimizing the diversion of management attention from ongoing business concerns;

•

persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees while implementing restructuring programs;

•

coordinating and combining operations, subsidiaries and affiliated entities, relationships and facilities, which may be subject to additional constraints imposed by local laws and regulations and also may result in contract terminations or renegotiations and labor and tax law implications; and

•

managing integration issues shortly after or pending the completion of other independent reorganizations.

        In May 2002, we completed our acquisition of Compaq, a leading provider of information technology products, services and solutions with operations worldwide and fiscal 2001 revenue of $33.6 billion, and we are in the process of integrating Compaq into our company. In addition to the Compaq transaction, we completed an exchange offer to acquire the outstanding shares of Indigo, a leading commercial and industrial printing systems company, in the second quarter of fiscal 2002. We evaluate and enter into other acquisition, alliance, joint venture and divestiture transactions on an ongoing basis. The number of pending transactions and the size and scope of the acquisition of Compaq increase both the scope and consequence of ongoing integration risks. We may not successfully address the integration challenges in a timely manner, or at all, and we may not fully realize all of the anticipated benefits or synergies of the Compaq acquisition (which are principally associated with restructurings, including workforce reductions, procurement synergies and other operational efficiencies) or of any other transaction to the extent, or in the timeframe, anticipated. Moreover, the timeframe for achieving benefits may be dependent partially upon the actions of employees, suppliers or other third parties.

        Even if an acquisition or alliance is successfully integrated or a business is successfully divested, we may not receive the expected benefits of the transaction. Managing acquisitions, alliances, joint ventures and divestitures requires varying levels of management resources, which may divert our attention from other business operations. These transactions also have resulted and in the future may result in significant costs and expenses and charges to earnings. In the case of the Compaq acquisition, these costs and expenses include those related to severance pay, early retirement costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, legal, accounting and financial advisory fees, and required payments to executive officers and key employees under plans adopted in connection with the transaction. Moreover, we have incurred and will incur additional depreciation and amortization

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expense over the useful lives of certain of the net tangible and intangible assets acquired in connection with the transaction, and, to the extent the value of goodwill or intangible assets with indefinite lives acquired in connection with the transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets. Also, any prior or future downgrades in our credit rating associated with an acquisition could adversely affect our ability to borrow and result in more restrictive borrowing terms, including increased borrowing costs, more restrictive covenants and the extension of less open credit. This in turn could affect our internal cost of capital estimates and therefore operational decisions. In addition, our effective tax rate on an ongoing basis is uncertain and could exceed our currently reported tax rate and the weighted average of the pre-acquisition tax rates of HP and Compaq. As a result of the foregoing, any completed, pending or future transactions may contribute to financial results that differ from the investment community's expectations in a given quarter.

Our revenue and selling, general and administrative expenses may suffer if we cannot continue to license or enforce the intellectual property rights on which our business depends or if third parties assert that we violate their intellectual property rights.

        Generally we rely upon patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and agreements with our employees, customers, partners and other parties, to establish and maintain our intellectual property rights in technology and products used in our operations. However, any of our intellectual property rights could be challenged, invalidated or circumvented, or our intellectual property rights may not provide competitive advantages, which could significantly harm our business. Also, because of the rapid pace of technological change in the information technology industry, much of our business and many of our products rely on key technologies developed by third parties, and we may not be able to obtain or to continue to obtain licenses and technologies from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses. Third parties also may claim that we are infringing upon their intellectual property rights. Even if we do not believe that our products or business activities are infringing upon third parties' intellectual property rights, the claims can be time-consuming and costly to defend and divert management's attention and resources away from our business. Claims of intellectual property infringement also might require us to enter into costly settlement or license agreements or pay significant damage awards. If we cannot or do not license the infringed technology at all or on reasonable terms or substitute similar technology from another source, our operations could suffer. In addition, it is possible that as a consequence of a merger or acquisition transaction some of our intellectual property rights may be licensed to a third party that had not been licensed prior to the transaction or that certain restrictions could be imposed on our business that had not been imposed prior to the transaction. Consequently, we may lose a competitive advantage with respect to these intellectual property rights or we may be required to enter into costly arrangements in order to terminate or limit these agreements.

The economic downturn could adversely affect our revenue, gross margins and expenses.

        Our revenue and gross margins depend significantly on the overall demand for computing and imaging products and services, particularly in the product and service segments in which we compete. Softening demand for our products and services caused by the ongoing economic downturn has resulted, and may result, in decreased revenue, earnings or growth rates and problems with our ability to manage inventory levels and realize customer receivables. The global economy has weakened and market conditions continue to be challenging. As a result, individuals and companies are delaying or

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reducing expenditures, including those for information technology. In addition, if our customers experience financial difficulties, we could suffer losses associated with the outstanding portion of accounts receivable, be exposed to the risks that lessees will be unable to make required lease payments and that leased equipment will be worth less upon its return to us than was estimated at lease inception. We have observed the effects of the global economic downturn in many areas of our business. The downturn has contributed to reported net revenue declines during fiscal 2001 and on a combined company basis in fiscal 2002. During the current downturn, we also have experienced gross margin declines in certain businesses, reflecting the effect of competitive pressures as well as inventory writedowns and charges associated with the cancellation of planned production line expansion. Our selling, general and administrative expenses have been impacted due in part to an increase in bad debt write-offs and additions to reserves in our receivables portfolio. The economic downturn also has led to restructuring actions and associated expenses. Further delays or reductions in information technology spending could have a material adverse effect on demand for our products and services and consequently our results of operations, prospects and stock price.

Terrorist acts and acts of war may seriously harm our business and revenue, costs and expenses and financial condition.

        Terrorist acts or acts of war (wherever located around the world) may cause damage or disruption to HP, our employees, facilities, partners, suppliers, distributors, resellers or customers, which could significantly impact our revenue, costs and expenses and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially harm our business and results of operations. The long-term effects on our business of the September 11, 2001 attacks are unknown. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot presently be predicted. In addition, as a major multi-national company with headquarters and significant operations located in the United States, we may be impacted by actions against the United States. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

If we fail to manage distribution of our products and services properly, or if our distributors' financial condition or operations weaken, our revenue, gross margins and profitability could be adversely affected.

        We use a variety of different distribution methods to sell our products and services, including third-party resellers and distributors and both retail and direct sales to both enterprise accounts and consumers. Since each distribution method has distinct risks and gross margins, the failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue and gross margins and therefore profitability. For example:

•

As we continue to increase our commitment to direct sales, we could risk alienating channel partners and adversely affecting our distribution model.

Since direct sales may compete with the sales made by third-party resellers and distributors, these third-party resellers and distributors may elect to use other suppliers that do not directly sell their own products. Because not all of our customers will prefer to or seek to purchase directly, any increase in our commitment to direct sales could alienate some of our channel partners. As a result, we may lose some of our customers who purchase from third-party resellers or distributors.

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•

Some of our wholesale and retail distributors may be unable to withstand changes in business conditions.

Some of our wholesale and retail distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including the ongoing economic downturn and industry consolidation. Revenue from indirect sales could suffer and we could experience disruptions in distribution if our distributors' financial condition or operations weaken.

•

Our inventory management will be complex as we continue to sell a significant mix of products through distributors.

We must manage inventory effectively, particularly with respect to sales to distributors. Distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. Distributors also may adjust their orders in response to the supply of our products and the products of our competitors that are available to the distributor and seasonal fluctuations in end-user demand. If we have excess inventory, we may have to reduce our prices and write down inventory, which in turn could result in lower gross margins.

We depend on third party suppliers, and our revenue and gross margins could be adversely affected if we fail to receive timely delivery of quality components or if we fail to manage inventory levels properly.

        Our manufacturing operations depend on our ability to anticipate our needs for components and products and our suppliers' ability to deliver quality components and products in time to meet critical manufacturing and distribution schedules. Given the wide variety of systems, products and services that we offer and the large number of our suppliers and contract manufacturers that are dispersed across the globe, problems could arise in planning production and managing inventory levels that could seriously harm us. Among the problems that could arise are component shortages, excess supply and risks related to fixed-price contracts that would require us to pay more than the open market price.

•

Supply shortages.  We occasionally may experience a short supply of certain component parts as a result of strong demand in the industry for those parts or problems experienced by suppliers. If shortages or delays persist, the price of these components may increase, we may be exposed to product quality issues or the components may not be available at all. We may not be able to secure enough components at reasonable prices or of acceptable quality to build new products in a timely manner in the quantities or configurations needed. Accordingly, our revenue and gross margins and market share could suffer until other sources can be developed.

•

Oversupply.  In order to secure components for the production of new products, at times we may make advance payments to suppliers, or we may enter into non-cancelable purchase commitments with vendors. If we fail to anticipate customer demand properly, a temporary oversupply of parts could result in excess or obsolete components, which could adversely affect our gross margins.

•

Long-term pricing commitments.  As a result of binding price or purchase commitments with vendors, we may be obligated to purchase components at prices that are higher than those available in the current market. In the event that we become committed to purchase components for prices in excess of the current market price, we may be at a disadvantage to competitors who have access to components at lower prices, and our gross margins could suffer.

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        All of these effects may be exacerbated as a result of our use of single source suppliers for certain components. We obtain a significant number of components from single sources due to technology, availability, price, quality or other considerations. In addition, new products that we introduce may initially utilize custom components obtained from only one source until we have evaluated whether there is a need for additional suppliers. The performance of such single source suppliers may affect the quality and quantity of supplies to HP.

Due to the international nature of our business, political or economic changes or other constraints could harm our future revenue, costs and expenses and financial condition.

        Sales outside the United States make up more than half of our revenue. Our future revenue, costs and expenses and financial condition could be adversely affected by a variety of international factors, including:

•

changes in a country's or region's political or economical conditions, including inflation, recession, currency and interest rate fluctuations;

•

longer accounts receivable cycles and financial instability among customers;

•

trade protection measures and local labor conditions;

•

overlap of different corporate structures;

•

unexpected changes in regulatory environment or requirements;

•

differing technology standards or customer requirements;

•

import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could affect our ability to obtain favorable terms for components or lead to penalties or restrictions;

•

difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner;

•

problems caused by the conversion of various European currencies to the euro and macroeconomic dislocations that may result; and

•

natural disasters.

        A portion of our product and component manufacturing, along with key suppliers, also are located outside of the United States and also could be disrupted by some of the international factors described above. In particular, along with most other PC vendors, we have engaged manufacturers in Taiwan for the production of notebook computers. In the past, Taiwan has suffered earthquakes and typhoons, resulting in temporary communications and supply disruptions. In addition, we procure components from Japan, which also suffers from earthquakes periodically. Moreover, our Indigo subsidiary has research and development and manufacturing operations located in Israel, which may be more subject to disruptions in light of ongoing regional instability.

Impairment of investment and financing portfolios could harm our net earnings.

        We have an investment portfolio that includes minority equity and debt investments and financing for the purchase of our products and services. In most cases, we do not attempt to reduce or eliminate our market exposure on these investments and may incur losses related to the impairment of these investments and therefore charges to net earnings. Some of our investments are in public and privately-held companies that are still in the start-up or development stage, which have inherent risks because the technologies or products they have under development are typically in the early stages and may never become successful. Furthermore, the values of our investments in publicly-traded companies are

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subject to significant market price volatility. Our investments in technology companies often are coupled with a strategic commercial relationship. Our commercial agreements with these companies may not be sufficient to allow us to obtain and integrate such products and services into our offerings or otherwise benefit from the relationship, and these companies may be subsequently acquired by third parties, including competitors. Moreover, due to the economic downturn and difficulties that may be faced by some of the companies to which we have supplied financing, our investment portfolio could be further impaired.

The success of our solutions model could be impacted by cost constraints and organizational transition, which could adversely affect revenue.

        We offer total information technology solutions to our customers, which requires us to maintain our vertical industry presence, enhance programs that enable our customers to purchase information technology as a utility, develop new solutions offerings and develop new employee skills. Our failure to do so could result in our offerings not being competitive and lead to a reduction in consumer demand for our products and services, which could adversely affect our revenue.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

        Our worldwide operations could be subject to natural disasters and other business disruptions, which could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters, a portion of our research and development activities, other critical business operations and some of our suppliers are located in California, near major earthquake faults. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults is unknown, but our revenue and financial condition and our costs and expenses could be significantly impacted in the event of a major earthquake. In addition, some areas, including California, have experienced, and may continue to experience, ongoing power shortages, which have resulted in "rolling blackouts." These blackouts could cause disruptions to our operations or the operations of our suppliers, distributors and resellers, or customers. We are predominantly self-insured for losses and interruptions caused by earthquakes, power outages, water shortages, floods and other natural disasters.

The revenue and profitability of our operations have historically varied.

        Our revenue and profit margins vary among our products, customer groups and geographic markets. Our revenue mix in future periods will be different than our current revenue mix. Overall profitability in any given period is dependent partially on the product, customer and geographic mix reflected in that period's net revenue. In particular, IPG and certain product categories such as supplies contribute significantly to our profitability. Actual trends, competitive pressures, regulatory considerations and other factors may result in fluctuation in revenue and cause us to adjust our operations, which could cause period-to-period fluctuations in our results of operations.

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Our sales cycle makes planning and inventory management difficult and future financial results less predictable.

        Like other technology companies, we generally sell more hardware products in the third month of each quarter than in the first and second months. This uneven sales pattern makes it difficult to predict near-term demand and quarterly results and places pressure on our inventory management and logistics systems. If predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed predicted demand, our ability to fulfill orders received in the last few weeks of each quarter may be limited, which could adversely affect quarterly revenue and earnings and increase the risk of unanticipated variations in quarterly results and financial condition. Other developments late in a quarter, such as a systems failure, component pricing movements or global logistics disruptions, could adversely impact inventory levels and results of operations in a manner that is disproportionate to the number of days in the quarter affected. In addition, we experience some seasonal trends in the sale of our products. For example, sales to governments (particularly sales to the U.S. government) are often stronger in the third calendar quarter, European sales are often weaker in the third calendar quarter, consumer sales are often stronger in the third and fourth calendar quarters, and customers may spend their remaining capital budget authorizations in the fourth calendar quarter prior to new budget constraints in the first calendar quarter of the following year. Many of the factors that create and affect seasonal trends are beyond our control.

In order to be successful, we must retain and motivate key employees, and failure to do so could seriously harm us.

        In order to be successful, we must retain and motivate executives and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers. Attracting and retaining skilled solutions providers in the IT support business and qualified sales representatives are also critical to our future. Experienced management and technical, marketing and support personnel in the information technology industry are in high demand, and competition for their talents is intense. This is particularly the case in Silicon Valley, where HP's headquarters and certain key research and development facilities are located. We also implemented retention programs in connection with the Compaq acquisition, and we cannot predict the effect on employee retention when these programs expire, generally in May 2003. The loss of key employees could have a significant impact on our operations and stock price. We also must continue to motivate employees and keep them focused on HP's strategies and goals, which may be particularly difficult due to morale challenges posed by workforce reductions, the acquisition of Compaq and the related proxy fight, and general uncertainty.

Any failure by us to execute planned cost reductions successfully could result in total costs and expenses that are greater than expected.

        Historically, we have undertaken restructuring plans to bring operational expenses to appropriate levels for each of our businesses, while simultaneously implementing extensive new company-wide expense-control programs. In connection with the Compaq acquisition, we have announced workforce reductions, including restructurings as well as reductions through early retirement programs, that are expected to involve, in the aggregate, more than 17,900 employees worldwide. In addition to previously announced workforce reductions, we may have additional workforce reductions in the future. Significant risks associated with these actions that may impair our ability to achieve anticipated cost

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reductions or that may otherwise harm our business include delays in implementation of anticipated reductions in force in highly regulated locations outside of the United States, particularly in Europe and Asia, redundancies among restructuring programs, and the failure to meet operational targets due to the loss of employees or decreases in employee morale.

HP's stock price has historically fluctuated and may continue to fluctuate.

        HP's stock price, like that of other technology companies, can be volatile. Some of the factors that can affect our stock price are:

•

the announcement of new products, services or technological innovations by us or our competitors;



•

quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or prospects or any of our segments;



•

changes in quarterly revenue or earnings estimates by the investment community; and



•

speculation in the press or investment community about our strategic position, financial condition, results of operations, business or significant transactions, including market assessments of the acquisition of Compaq and integration progress.

        General market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance also may affect the price of HP common stock. For these reasons, investors should not rely on recent trends to predict future stock prices, financial condition, or results of operations or cash flows. In addition, following periods of volatility in a company's securities, securities class action litigation against a company is sometimes instituted. This type of litigation could result in substantial costs and the diversion of management time and resources.

System security risks and systems integration issues could disrupt our internal operations or IT services provided to customers, which could harm our revenue and increase our expenses.

        Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our confidential information or that of third parties or create system disruptions. As a result, we could incur significant expenses in addressing problems created by security breaches of our own network. Moreover, we could lose existing or potential customers for IT outsourcing services or other IT solutions, or incur significant expenses in connection with our customers' system failures. The costs to eliminate computer viruses and alleviate other security problems could be significant. The efforts to address these problems could result in interruptions, delays or cessation of service. In addition, portions of our IT infrastructure may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems integration work.

Unforeseen environmental costs could impact our future net earnings.

        Some of our operations use substances regulated under various federal, state and international laws governing the environment. We could be subject to liability for remediation if we do not handle these substances in compliance with applicable laws, and we could face significant liabilities and be required to implement financial guarantees in connection with product take-back legislation. It is our policy to apply strict standards for environmental protection to sites inside and outside the United States, even when we are not subject to local government regulations. We record a liability for environmental remediation and other environmental costs when we consider the costs to be probable

64

and the amount of the costs can be reasonably estimated. We have not incurred environmental costs that are presently material.

Some anti-takeover provisions contained in our certificate of incorporation, bylaws and shareowner rights plan, as well as provisions of Delaware law, could impair a takeover attempt.

        We have provisions in our certificate of incorporation and bylaws, each of which could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our Board of Directors. These include provisions:

•

authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to its common stock;



•

limiting the liability of, and providing indemnification to, directors and officers;



•

limiting the ability of our shareowners to call special meetings;



•

requiring advance notice of shareowner proposals for business to be conducted at meetings of HP shareowners and for nominations of candidates for election to our Board of Directors;



•

controlling the procedures for conduct of Board and shareowner meetings and election and removal of directors; and



•

specifying that shareowners may take action only at a duly called annual or special meeting of shareowners.

        These provisions, alone or together, could deter or delay hostile takeovers, proxy contests and changes in control or management of HP. As a Delaware corporation, HP also is subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some shareowners from engaging in certain business combinations without approval of the holders of substantially all of HP's outstanding common stock.

        In 2001, HP issued Preferred Share Purchase Rights (the "Rights") pursuant to a Preferred Stock Rights Agreement, dated as of August 31, 2001 (the "Rights Agreement") between HP and Computershare Investor Services, LLC. The Rights were not intended to prevent a takeover of HP. However, the Rights may have had the effect of rendering more difficult or discouraging an acquisition of HP deemed undesirable by the HP Board of Directors. The Rights would have caused substantial dilution to a person or group that attempted to acquire HP on terms or in a manner not approved by our Board of Directors, except pursuant to an offer conditioned upon redemption of the Rights. Our Board of Directors approved the termination of the Rights and the Rights Agreement effective at the close of business on January 21, 2003.

        Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareowners to receive a premium for their shares of HP common stock and also could affect the price that some investors are willing to pay for HP common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

        In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting and changes the

65

criteria for recognition of intangible assets acquired in a business combination. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized; however, these assets must be reviewed at least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their respective useful lives. The standard also establishes specific guidance for testing for impairment of goodwill and intangible assets with indefinite useful lives. The non-amortization provisions of SFAS No. 142 were effective immediately for goodwill and intangible assets acquired after June 30, 2001. HP adopted the remaining provisions of SFAS No. 142 effective November 1, 2002. The adoption of SFAS No. 142 will not have a material impact on HP's amortization of goodwill and intangible assets as the majority of its goodwill and intangible assets affected by the adoption of SFAS No. 142 were written off in the restructuring charge recorded in the third quarter of fiscal 2002. Upon adoption of SFAS No. 142, HP is required to perform a transitional impairment test for all recorded goodwill within six months and, if necessary, determine the amount of an impairment loss by October 31, 2003. Management is currently in the process of evaluating the effect, if any, of the required impairment testing on HP's recorded goodwill. In addition, HP is required to perform a transitional impairment test for intangible assets with indefinite lives within three months after adoption. HP is in the process of completing an impairment test of its intangible asset with an indefinite useful life, the Compaq trade name, and does not expect to record an impairment charge in the first quarter of fiscal 2003.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. HP adopted SFAS No. 144 effective November 1, 2002 and does not expect the adoption to have a material effect on its results of operations or financial condition.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains or losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations in all prior periods presented. HP adopted SFAS No. 145 effective November 1, 2002 and will reclassify gains on early extinguishment of debt and related taxes previously recorded as an extraordinary item to interest and other, net and provision for taxes, respectively.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or restructuring activities previously covered by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an

66

activity or to a restructuring not be recognized until the liability is incurred. SFAS No. 146 will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity's product warranty liabilities. HP will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. The disclosure provisions of FIN 45 are effective for financial statements for the first quarter of HP's fiscal year 2003. HP is currently in the process of evaluating the potential impact that the adoption of FIN 45 will have on its consolidated financial position and results of operations.

        In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. HP is currently evaluating the effect that the adoption of EITF Issue No. 00-21 will have on its results of operations and financial condition.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for HP's fiscal year 2003. The interim disclosure requirements are effective for the second quarter of HP's fiscal year 2003. HP does not expect SFAS No. 148 to have a material effect on its results of operations or financial condition.

        In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. HP is currently evaluating the effect that the adoption of FIN 46 will have on its results of operations and financial condition.

67

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        In the normal course of business, we are exposed to foreign currency exchange rate, interest rate and equity price risks that could impact our results of operations. Our risk management strategy with respect to these three market risks includes the use of derivative financial instruments, including forwards, swaps and purchased options, to hedge certain of these exposures. Our objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. Derivative positions are used only to manage existing underlying exposures of HP. Accordingly, we do not enter into any trading or speculative positions with regard to derivative instruments.

Foreign currency exchange rate risk

        We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. dollar. We transact business in approximately 30 currencies worldwide, of which the most significant to our operations are the euro, the Japanese yen and the British pound. For most currencies we are a net receiver of foreign currencies and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to those foreign currencies in which we transact significant amounts of business. We have performed a sensitivity analysis as of October 31, 2002 and 2001, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar with all other variables held constant. The analysis covers all of our foreign exchange forward contracts offset by the underlying exposures. Options are excluded from the analysis. The foreign currency exchange rates used were based on market rates in effect at October 31, 2002 and 2001. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in a loss in the fair values of our foreign exchange derivative financial instruments, net of exposures, of $95 million at October 31, 2002 and $52 million at October 31, 2001.

Interest rate risk

        We are also exposed to interest rate risk related to our debt and investment portfolios and financing receivables. We have performed a sensitivity analysis as of October 31, 2002 and 2001, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of interest rates across the entire yield curve with all other variables held constant. The analysis covers our debt, investment instruments and financing receivables and is based on the actual maturities of debt and investments and approximate maturities for financing receivables. The discount rates used were based on the market interest rates in effect at October 31, 2002 and 2001. The sensitivity analysis indicated that a hypothetical 10% adverse movement in interest rates would result in a loss in the fair values of our debt and investment instruments and financing receivables of $40 million at October 31, 2002 and $14 million at October 31, 2001.

Equity price risk

        We are also exposed to equity price risk inherent in our portfolio of publicly-traded equity securities, which had an estimated fair value of $52 million at October 31, 2002 and $148 million at October 31, 2001. We monitor our equity investments on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and the decline in value is determined to be other-than temporary, the carrying value is reduced to its current fair value. Generally, we do not attempt to reduce or eliminate our market exposure on these equity securities. We do not hold our equity securities for trading or speculative purposes. A hypothetical 30% adverse change in the stock prices of our publicly-traded equity securities would result in a loss in the fair values of our marketable equity securities of $16 million at October 31, 2002 and $44 million at October 31, 2001.

        Actual gains and losses in the future may differ materially from the sensitivity analyses based on changes in the timing and amount of interest rate, foreign currency exchange rate and equity price movements and our actual exposures and hedges.

68

ITEM 8. Financial Statements and Supplementary Data.

TABLE OF CONTENTS

Report of Independent Auditors	70
Statement of Management Responsibility	71
Consolidated Statement of Earnings	72
Consolidated Balance Sheet	73
Consolidated Statement of Cash Flows	74
Consolidated Statement of Stockholders' Equity	75
Notes to Consolidated Financial Statements	76
Quarterly Summary	127

69

Report of Independent Auditors

To the Board of Directors and Stockholders of
Hewlett-Packard Company

        We have audited the accompanying consolidated balance sheets of Hewlett-Packard Company and subsidiaries as of October 31, 2002 and 2001, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended October 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hewlett-Packard Company and subsidiaries at October 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of depreciation for assets placed in service after May 1, 2002, and in 2001 the Company changed its method of accounting for revenue recognition.

	/s/  ERNST & YOUNG LLP
San Jose, California November 20, 2002, except for Note 19, as to which the date is December 17, 2002

70

Statement of Management Responsibility

        HP's management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information included in HP's 2002 Annual Report on Form 10-K. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, and reflect the effects of certain estimates and judgments made by management.

        HP's management maintains an effective system of internal control that is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management's authorization. The system is regularly monitored by direct management review and by internal auditors who conduct an extensive program of audits throughout HP. HP selects and trains qualified people who are provided with and expected to adhere to HP's Standards of Business Conduct. These standards, which set forth the highest principles of business ethics and conduct, are a key element of HP's control system.

        HP's consolidated financial statements as of and for each of the three years in the period ended October 31, 2002 have been audited by Ernst & Young LLP, independent auditors. Their audits were conducted in accordance with auditing standards generally accepted in the United States, and included a review of financial controls and tests of accounting records and procedures as they respectively considered necessary in the circumstances.

        The Audit Committee of the Board of Directors, which consists of outside directors, meets regularly with management, the internal auditors and the independent auditors to review accounting, reporting, auditing and internal control matters. The Audit Committee has direct and private access to both internal and external auditors.

/s/ Carleton S. Fiorina	/s/ Robert P. Wayman
Carleton S. Fiorina	Robert P. Wayman
Chairman and Chief Executive Officer	Executive Vice President and Chief Financial Officer

71

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Consolidated Statement of Earnings

For the following years ended October 31 In millions, except per share amounts			2002			2001			2000
Net revenue:
	Products		$	45,955		$	38,005		$	41,653
	Services			10,178			6,819			6,848
	Financing income			455			402			369
		Total net revenue		56,588			45,226			48,870
Costs and expenses:
	Cost of products			34,573			28,863			30,343
	Cost of services			6,817			4,396			4,470
	Financing interest			189			236			233
	Research and development			3,312			2,724			2,627
	Selling, general and administrative			9,033			6,950			6,984
	Restructuring charges			1,780			384			102
	In-process research and development charges			793			35			—
	Acquisition-related charges			701			25			—
	Amortization of purchased intangible assets and goodwill			402			174			86
		Total costs and expenses		57,600			43,787			44,845
(Loss) earnings from operations				(1,012	)		1,439			4,025
Interest and other, net				52			171			356
Net (loss) gain on divestitures				—			(53	)		203
Net investment (losses) gains				(106	)		(455	)		41
Litigation settlements				14			(400	)		—
		Total interest and other income, net		(40	)		(737	)		600
(Loss) earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes				(1,052	)		702			4,625
(Benefit from) provision for taxes				(129	)		78			1,064
Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle				(923	)		624			3,561
Net earnings from discontinued operations				—			—			136
Extraordinary item—gain on early extinguishment of debt, net of taxes				20			56			—
Cumulative effect of change in accounting principle, net of taxes				—			(272	)		—
Net (loss) earnings			$	(903	)	$	408		$	3,697
Basic net (loss) earnings per share:
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		$	(0.37	)	$	0.32		$	1.80
	Net earnings from discontinued operations			—			—			0.07
	Extraordinary item—gain on early extinguishment of debt, net of taxes			0.01			0.03			—
	Cumulative effect of change in accounting principle, net of taxes			—			(0.14	)		—
	Net (loss) earnings		$	(0.36	)	$	0.21		$	1.87
Diluted net (loss) earnings per share:
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		$	(0.37	)	$	0.32		$	1.73
	Net earnings from discontinued operations			—			—			0.07
	Extraordinary item—gain on early extinguishment of debt, net of taxes			0.01			0.03			—
	Cumulative effect of change in accounting principle, net of taxes			—			(0.14	)		—
	Net (loss) earnings		$	(0.36	)	$	0.21		$	1.80
Weighted average shares used to compute net (loss) earnings per share:
	Basic			2,499			1,936			1,979
	Diluted			2,499			1,974			2,077

The accompanying notes are an integral part of these consolidated financial statements.

72

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Consolidated Balance Sheet

October 31 In millions, except par value			2002			2001
ASSETS
Current assets:
	Cash and cash equivalents		$	11,192		$	4,197
	Short-term investments			237			139
	Accounts receivable, net of allowance for doubtful accounts of $495 and $275 as of October 31, 2002 and 2001, respectively			8,456			4,488
	Financing receivables, net of allowance for doubtful accounts of $184 and $68 as of October 31, 2002 and 2001, respectively			3,453			2,183
	Inventory			5,797			5,204
	Other current assets			6,940			5,094
		Total current assets		36,075			21,305
Property, plant and equipment, net of accumulated depreciation of $5,612 and $5,411 as of October 31, 2002 and 2001, respectively				6,924			4,397
Long-term financing receivables and other assets				7,760			6,126
Goodwill				15,089			667
Purchased intangible assets				4,862			89
Total assets			$	70,710		$	32,584
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Notes payable and short-term borrowings		$	1,793		$	1,722
	Accounts payable			7,012			3,791
	Employee compensation and benefits			2,012			1,477
	Taxes on earnings			1,529			1,818
	Deferred revenue			3,260			1,867
	Accrued restructuring			1,309			82
	Other accrued liabilities			7,395			3,207
		Total current liabilities		24,310			13,964
Long-term debt				6,035			3,729
Other liabilities				4,103			938
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.01 par value (300 shares authorized; none issued)			—			—
	Common stock, $0.01 par value (9,600 shares authorized; 3,044 and 1,939 shares issued and outstanding at October 31, 2002 and 2001, respectively)			30			19
	Additional paid-in capital			24,660			200
	Retained earnings			11,973			13,693
	Accumulated other comprehensive (loss) income			(401	)		41
		Total stockholders' equity		36,262			13,953
Total liabilities and stockholders' equity			$	70,710		$	32,584

The accompanying notes are an integral part of these consolidated financial statements.

73

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Consolidated Statement of Cash Flows

For the following years ended October 31 In millions					2002			2001			2000
Cash flows from operating activities:
	Net (loss) earnings, excluding net earnings from discontinued operations				$	(903	)	$	408		$	3,561
	Adjustments to reconcile net (loss) earnings from continuing operations to net cash provided by operating activities:
		Net investment losses (gains)				106			455			(41	)
		Losses (gains) from divestitures				—			53			(203	)
		Gain on early extinguishment of debt, net of taxes				(20	)		(56	)		—
		Cumulative effect of change in accounting principle, net of taxes				—			272			—
		Depreciation and amortization				2,119			1,369			1,241
		Provision for doubtful accounts—accounts and financing receivables				299			438			182
		Provision for inventory				359			539			203
		Restructuring charges				1,780			384			102
		Acquisition-related charges, including in-process research and development				1,494			60			—
		Tax benefit from employee stock plans				21			16			495
		Deferred taxes on earnings				(351	)		(970	)		(689	)
		Changes in assets and liabilities:
			Accounts and financing receivables			899			566			(1,384	)
			Inventory			765			557			(1,048	)
			Accounts payable			395			(1,249	)		1,544
			Taxes on earnings			(368	)		(195	)		175
			Other assets and liabilities			(1,289	)		(70	)		(379	)
			Other, net			138			(4	)		(49	)
				Net cash provided by operating activities		5,444			2,573			3,710
Cash flows from investing activities:
	Investment in property, plant and equipment					(1,710	)		(1,527	)		(1,737	)
	Proceeds from sale of property, plant and equipment					362			435			415
	Purchases of investments					(351	)		(434	)		(1,376	)
	Maturities and sales of investments					381			742			1,004
	Cash acquired through business acquisitions, net of acquisition costs					3,557			106			—
	Net proceeds from divestitures					—			117			448
	Dissolution of an equity investee					879			—			—
	Other, net					—			—			(130	)
				Net cash provided by (used in) investing activities		3,118			(561	)		(1,376	)
Cash flows from financing activities:
	(Decrease) increase in notes payable and short-term borrowings					(2,402	)		303			(1,297	)
	Issuance of long-term debt					2,529			904			1,936
	Payment of long-term debt					(472	)		(290	)		(474	)
	Repurchase of zero-coupon subordinated convertible notes					(127	)		(640	)		—
	Issuance of common stock under employee stock plans					377			354			748
	Repurchase of common stock					(671	)		(1,240	)		(5,570	)
	Dividends					(801	)		(621	)		(638	)
				Net cash used in financing activities		(1,567	)		(1,230	)		(5,295	)
Net cash provided by discontinued operations						—			—			965
Increase (decrease) in cash and cash equivalents						6,995			782			(1,996	)
Cash and cash equivalents at beginning of period						4,197			3,415			5,411
Cash and cash equivalents at end of period					$	11,192		$	4,197		$	3,415

The accompanying notes are an integral part of these consolidated financial statements.

74

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

			Common Stock
														Accumulated Other Comprehensive Income
In millions, except number of shares in thousands			Number of Shares		Par Value			Additional Paid-in Capital			Retained Earnings						Total
Balance October 31, 1999			2,009,138		$	20		$	—		$	18,275		$	—		$	18,295
	Net earnings		—			—			—			3,697			—			3,697
		Net unrealized gain on available-for-sale securities	—			—			—			—			93			93
	Comprehensive income																	3,790
	Issuance of common stock in connection with employee stock plans and other		35,152			—			741			—			—			741
	Repurchase of common stock		(96,978	)		(1	)		(2,571	)		(2,998	)		—			(5,570	)
	Tax benefit from employee stock plans		—			—			495			—			—			495
	Initial public offering and spin-off of Agilent Technologies		—			—			1,335			(4,239	)		—			(2,904	)
	Dividends		—			—			—			(638	)		—			(638	)
Balance October 31, 2000			1,947,312			19			—			14,097			93			14,209
	Net earnings		—			—			—			408			—			408
		Net unrealized loss on available-for-sale securities	—			—			—			—			(74	)		(74	)
		Net unrealized gain on derivative instruments	—			—			—			—			22			22
	Comprehensive income																	356
	Issuance of common stock in connection with business combinations		19,871			—			840			—			—			840
	Issuance of common stock in connection with employee stock plans and other		16,681			—			393			—			—			393
	Repurchase of common stock		(45,036	)		—			(1,049	)		(191	)		—			(1,240	)
	Tax benefit from employee stock plans		—			—			16			—			—			16
	Dividends		—			—			—			(621	)		—			(621	)
Balance October 31, 2001			1,938,828			19			200			13,693			41			13,953
	Net loss		—			—			—			(903	)		—			(903	)
		Net unrealized loss on available-for-sale securities	—			—			—			—			(9	)		(9	)
		Net unrealized loss on derivative instruments	—			—			—			—			(61	)		(61	)
		Additional minimum pension liability	—			—			—			—			(379	)		(379	)
		Cumulative translation adjustment	—			—			—			—			7			7
	Comprehensive loss																	(1,345	)
	Issuance of common stock in connection with business combinations		1,114,673			11			24,706			—			—			24,717
	Issuance of common stock in connection with employee stock plans and other		29,855			—			388			—			—			388
	Repurchase of common stock		(39,623	)		—			(655	)		(16	)		—			(671	)
	Tax benefit from employee stock plans		—			—			21			—			—			21
	Dividends		—			—			—			(801	)		—			(801	)
Balance October 31, 2002			3,043,733		$	30		$	24,660		$	11,973		$	(401	)	$	36,262

The accompanying notes are an integral part of these consolidated financial statements.

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

Acquisition of Compaq

        On May 3, 2002, Hewlett-Packard Company ("HP") acquired all of the outstanding stock of Compaq Computer Corporation ("Compaq"), a leading global provider of information technology products, services and solutions for enterprise customers. Accordingly, HP has included the results of Compaq from May 3, 2002, the acquisition date, in its consolidated results of operations. See Note 3 for further discussion of HP acquisition activities.

Principles of Consolidation

        The consolidated financial statements include the accounts of HP and its wholly-owned and controlled majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in HP's financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

        General

        HP adopted Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal 2001, retroactive to November 1, 2000. Accordingly, HP restated its consolidated results of operations for the first three quarters of fiscal 2001, including a cumulative effect of change in accounting principle of $272 million, net of related taxes of $108 million, which was recorded as a reduction of net income as of the beginning of the first quarter of fiscal 2001.

        Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured. The following policies apply to HP's major categories of revenue transactions.

        Products

        Product is considered delivered, and revenue is recognized when title and risk of loss have been transferred to the customer. Under the terms and conditions of the sale, this may occur either at the time of shipment or when product is delivered to the customer. Pre-acquisition Compaq businesses generally recognize revenue upon shipment, while pre-acquisition HP businesses generally recognize revenue when the product is delivered. HP is currently conforming the terms and conditions of its sales contracts to recognize revenue generally when the product is delivered. Revenue is deferred when undelivered products or services are essential to the functionality of delivered products, customer acceptance is uncertain, significant obligations remain, or the fair value of undelivered elements is unknown. Revenue is reduced for estimated customer returns, price protection, rebates and other offerings that occur under sales programs established by HP directly or with HP's distributors and resellers. The estimated cost of post-sale obligations, including basic product warranties, is accrued based on historical experience at the time revenue is recognized.

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        Product revenue consists mainly of revenue from the Imaging and Printing, Personal Systems and Enterprise Systems businesses, excluding the revenue generated from service-related solutions in these businesses, which is included in services revenue as discussed below. Product revenue also includes revenue from sales of hardware products after the expiration of their lease terms and the rental revenue from operating leases.

        Services

        Revenue from long-term fixed-price service contracts such as support or maintenance contracts, including extended warranty and outsourcing contracts, is recognized ratably over the contractual period. Revenue for time and material contracts is recognized as services are rendered. Revenue from long-term, fixed-price production contracts, such as consulting arrangements, is recognized over the contractual period on a percentage-of-completion basis. Amounts invoiced to customers in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. Revenue in excess of amounts invoiced on long-term, fixed-price contracts is recorded as unbilled receivables and is included in trade accounts receivable. Losses on fixed-price contracts are recognized in the period that the loss becomes evident.

        Services revenue consists mainly of revenue from the Services and Financing businesses, excluding revenue generated from sales of hardware products after the expiration of their lease terms, which is included in product revenue as discussed above. In addition, services revenue also includes revenue generated from service-related solutions in the Imaging and Printing, Personal Systems and Enterprise Systems businesses.

        Software

        Revenue from software consists of software licensing and post-contract customer support. Software revenue is allocated to the license and support elements using vendor specific objective evidence of fair value ("VSOE") or, in the absence of VSOE, the residual method. VSOE is generally determined based on the price charged when the element is sold separately. In the absence of VSOE of a delivered element, revenue is allocated first to the fair value of the undelivered elements and the residual revenue to the delivered elements. Revenue allocated to software licenses is recognized when the following four basic criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is probable. Revenue allocated to post-contract support is recognized ratably over the term of the support contract, assuming the four basic criteria are met.

        Financing

        Revenue from the sale of equipment under sales-type leases and direct-financing leases is recognized as product revenue at the inception of the lease. Associated financing interest income is earned on an accrual basis under an effective interest method. Revenue from operating leases is recognized as the rental payments become due.

        Revenue Arrangements that Include Multiple Elements

        Revenue for transactions that include multiple elements such as hardware, software, consulting, training, and support agreements is allocated to each element based on its relative fair value and recognized for each element when the revenue recognition criteria have been met for such element. Fair value is generally determined based on the price charged when the element is sold separately. In

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the absence of fair value of a delivered element, revenue is allocated first to the fair value of the undelivered elements and the residual revenue to the delivered elements. HP recognizes revenue for delivered elements only when the following criteria are satisfied: undelivered elements are not essential to the functionality of delivered elements, uncertainties regarding customer acceptance are resolved, and the fair value for all undelivered elements is known.

Shipping and Handling

        Costs related to shipping and handling are included in cost of sales for all periods presented.

Advertising

        Advertising costs are expensed as incurred and amounted to $1.4 billion in fiscal 2002, $1.1 billion in fiscal 2001 and $1.1 billion in fiscal 2000.

Taxes on Earnings

        Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. HP records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Cash and Cash Equivalents

        HP classifies investments as cash equivalents if the original maturity of an investment is three months or less from the purchase date.

Inventory

        Inventory is valued at the lower of cost or market, with cost computed on a first-in, first-out basis.

Property, Plant and Equipment

        Property, plant and equipment is stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Depreciation is provided using the straight-line or accelerated methods over the estimated useful lives of the assets. Estimated useful lives are 15 to 40 years for buildings and improvements and 3 to 10 years for machinery and equipment. Leasehold improvements are depreciated over the life of the lease or the asset, whichever is shorter. Leased equipment is depreciated over the initial term of the lease to the equipment's estimated residual value.

        Effective May 1, 2002, HP adopted the straight-line method of depreciation for all property, plant and equipment placed into service beginning May 1, 2002. Property, plant and equipment placed into service prior to May 1, 2002 continues to be depreciated using accelerated methods for buildings, improvements, machinery and equipment and the straight-line method for leasehold improvements and leased equipment. HP believes this change allocates the costs of new property more appropriately in its financial results by better allocating costs of new property over the useful lives of these assets. In addition, the new method more closely conforms to the prevalent practices in the industries in which

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HP operates. The effect of this change was not material to HP's earnings or financial position for the year ended October 31, 2002.

Goodwill and Purchased Intangible Assets

        Goodwill related to acquisitions prior to July 1, 2001 and purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, ranging from two to ten years. Goodwill and purchased intangible assets determined to have indefinite useful lives related to acquisitions after June 30, 2001 are not amortized. See "Recent Pronouncements" below for a discussion of the expected effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," on goodwill and purchased intangible assets.

Impairment of Long-Lived Assets

        Long-lived assets, such as property, plant and equipment, goodwill and purchased intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value.

        Effective November 1, 2002, in conjunction with the implementation of SFAS No. 142, all goodwill, including goodwill related to acquisitions prior to July 1, 2001, will no longer be amortized and potential impairment of goodwill and purchased intangible assets with indefinite useful lives will be evaluated using the specific guidance provided by SFAS No. 142. This impairment analysis will be performed at least annually. Also effective November 1, 2002, potential impairment of long-lived assets other than goodwill and purchased intangible assets with indefinite useful lives will be evaluated using the guidance provided by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The guidance provided by SFAS No. 144 is substantially the same as HP's current policy. See "Recent Pronouncements" below for a discussion of the expected effect of HP's adoption of SFAS No. 144.

Capitalized Software

        HP capitalizes certain internal and external costs incurred to acquire or create internal use software, principally related to software coding, designing system interfaces, and installation and testing of the software. Capitalized costs are amortized over three years.

Derivative Financial Instruments

        HP enters into derivative financial instrument contracts to hedge certain foreign exchange and interest rate exposures. On November 1, 2000, HP adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The cumulative effect of adopting SFAS No. 133 was not material to HP's consolidated financial statements. See Note 8 to the Consolidated Financial Statements for a full description of HP's hedging activities and related accounting policies.

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Investments

        HP's investments principally consist of time deposits, municipal securities, repurchase agreements and other debt securities, as well as equity securities of public and privately-held companies. Investments with maturities of less than one year are classified as short-term investments.

        Debt securities that HP has the ability and intent to hold until maturity are accounted for as held-to-maturity securities and are carried at amortized cost. The remainder of HP's debt securities and its equity investments in public companies are classified as available-for-sale securities and carried at fair value. For the majority of available-for-sale securities, unrealized gains and losses, net of taxes, are recorded in accumulated other comprehensive income. The remainder of available-for-sale securities are hedged and changes in fair value of these securities are recognized in earnings and offset by gains or losses on the related derivative instruments.

        Equity investments in privately-held companies are generally carried at cost. Equity investments in companies over which HP has the ability to exercise significant influence, but does not hold a controlling interest, are accounted for under the equity method and HP's proportionate share of income or losses is recorded in interest and other, net.

Concentrations of Credit Risk

        Financial instruments that potentially subject HP to significant concentrations of credit risk consist principally of cash, investments, accounts receivable, financing receivables, derivatives and certain other financial instruments.

        HP maintains cash and cash equivalents, short- and long-term investments, derivatives and certain other financial instruments with various financial institutions. These financial institutions are located in many different geographical regions, and HP policy is designed to limit exposure with any one institution. As part of its cash and risk management processes, HP performs periodic evaluations of the relative credit standing of the financial institutions. HP has not sustained material credit losses from instruments held at financial institutions.

        HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these parties. If the financial condition or operations of these distributors and resellers deteriorate substantially, HP's operating results could be adversely affected. The ten largest distributor and reseller receivable balances collectively represented 22% of total accounts receivable at October 31, 2002 and 28% at October 31, 2001. Credit risk with respect to other accounts receivable and financing receivables is generally diversified due to the large number of entities comprising HP's customer base and their dispersion across many different industries and geographical regions. HP performs ongoing credit evaluations of the financial condition of its third-party distributors, resellers and other customers and requires collateral, such as letters of credit and bank guarantees, in certain circumstances. HP generally has experienced longer accounts receivable cycles in its emerging markets, in particular Asia-Pacific and Latin America, when compared to its United States and European markets. In the event that accounts receivable cycles in these developing markets significantly deteriorate or one or more of HP's larger resellers in these regions fail, HP's operating results could be adversely affected.

        HP frequently utilizes forward exchange contracts to protect itself from the effects of foreign currency. In the event of a failure to honor one of these foreign currency forward exchange contracts

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by one of the banks with which HP has contracted, management believes any loss, which could be material, would be limited to the exchange rate differential from the time the contract was made until the time it was consummated.

Foreign Currency Translation

        HP uses the U.S. dollar predominately as its functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates, except for inventory, property, plant and equipment, other assets and deferred revenue, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the previously noted balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in net earnings. Certain foreign subsidiaries designate the local currency as their functional currency and related cumulative translation adjustments are included as a component of accumulated other comprehensive income.

Comprehensive Income

        Comprehensive income includes net earnings as well as additional other comprehensive income. HP's other comprehensive income consists of unrealized gains and losses on available-for-sale securities, unrealized gains and losses on derivative instruments, minimum pension liability and cumulative translation adjustments, all recorded net of tax.

Reclassifications

        Certain reclassifications have been made to prior year balances in order to conform to the current year presentation. The most significant reclassifications include amortization of purchased intangible assets and goodwill, which was included in cost of sales and selling, general and administration expense in the prior fiscal years, but has been reclassified to a separate line item in the accompanying Consolidated Statement of Earnings; acquisition-related charges, which were included in selling, general and administrative expenses in prior fiscal years but have been reclassified to a separate line item in the accompanying Consolidated Statement of Earnings; and the net assets related to goodwill and purchased intangible assets, which have been reflected in separate lines in the accompanying Consolidated Balance Sheet.

Recent Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting and changes the criteria for recognition of intangible assets acquired in a business combination. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized; however, these assets must be reviewed at least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their respective useful lives. The standard also establishes specific guidance for testing for impairment of goodwill and intangible assets with indefinite useful lives. The non-amortization provisions of SFAS No. 142 were effective immediately for goodwill and intangible

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assets acquired after June 30, 2001. HP adopted the remaining provisions of SFAS No. 142 effective November 1, 2002. The adoption of SFAS No. 142 will not have a material impact on HP's amortization of goodwill and intangible assets as the majority of HP's goodwill and intangible assets affected by the adoption of SFAS No. 142 were written off in the restructuring charge recorded in the third quarter of fiscal 2002. Upon adoption of SFAS No. 142, HP is required to perform a transitional impairment test for all recorded goodwill within six months and, if necessary, determine the amount of an impairment loss by October 31, 2003. Management is currently in the process of evaluating the effect, if any, of the required impairment testing on HP's recorded goodwill. In addition, HP is required to perform a transitional impairment test for intangible assets with indefinite lives within three months after adoption. HP is in the process of completing an impairment test of its intangible asset with an indefinite life, the Compaq trade name, and does not expect to record an impairment charge in the first quarter of fiscal 2003.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. HP adopted SFAS No. 144 effective November 1, 2002 and does not expect the adoption to have a material effect on its results of operations or financial condition.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains or losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations in all prior periods presented. HP adopted SFAS No. 145 effective November 1, 2002 and will reclassify gains on early extinguishment of debt and related taxes previously recorded as an extraordinary item to interest and other, net and provision for taxes, respectively.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or restructuring activities previously covered by Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be recognized until the liability is incurred. SFAS No. 146 will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of

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Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity's product warranty liabilities. HP will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. The disclosure provisions of FIN 45 are effective for financial statements for the first quarter of HP's fiscal year 2003. HP is currently in the process of evaluating the potential impact that the adoption of FIN 45 will have on its consolidated financial position and results of operations.

        In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. HP is currently evaluating the effect that the adoption of EITF Issue No. 00-21 will have on its results of operations and financial condition.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for HP's fiscal year 2003. The interim disclosure requirements are effective for the second quarter of HP's fiscal year 2003. HP does not expect SFAS No. 148 to have a material effect on its results of operations or financial condition.

        In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. HP is currently evaluating the effect that the adoption of FIN 46 will have on its results of operations and financial condition.

Note 2: Net (Loss) Earnings Per Share

        HP's basic (loss) earnings per share ("EPS") is calculated based on net (loss) earnings and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and the conversion of debt, if dilutive.

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        The reconciliation of the numerators and denominators of the basic and diluted EPS calculations was as follows for the years ended October 31, 2002, 2001 and 2000:

In millions, except per share data			2002			2001			2000
Numerator:
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		$	(923	)	$	624		$	3,561
	Adjustment for interest expense on zero-coupon subordinated convertible notes, net of income tax effect			—			16			31
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle, adjusted			(923	)		640			3,592
	Net earnings from discontinued operations			—			—			136
	Extraordinary item—gain on early extinguishment of debt, net of taxes			20			56			—
	Cumulative effect of change in accounting principle, net of taxes			—			(272	)		—
	Net (loss) earnings, adjusted		$	(903	)	$	424		$	3,728
Denominator:
	Weighted-average shares used to compute basic EPS			2,499			1,936			1,979
	Effect of dilutive securities:
		Dilutive options and other stock-based awards		—			20			72
		Zero-coupon subordinated convertible notes		—			18			26
	Dilutive potential common shares			—			38			98
	Weighted-average shares used to compute diluted EPS			2,499			1,974			2,077
Basic net (loss) earnings per share:
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		$	(0.37	)	$	0.32		$	1.80
	Net earnings from discontinued operations			—			—			0.07
	Extraordinary item—gain on early extinguishment of debt, net of taxes			0.01			0.03			—
	Cumulative effect of change in accounting principle, net of taxes			—			(0.14	)		—
	Net (loss) earnings		$	(0.36	)	$	0.21		$	1.87
Diluted net (loss) earnings per share:
	Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle		$	(0.37	)	$	0.32		$	1.73
	Net earnings from discontinued operations			—			—			0.07
	Extraordinary item—gain on early extinguishment of debt, net of taxes			0.01			0.03			—
	Cumulative effect of change in accounting principle, net of taxes			—			(0.14	)		—
	Net (loss) earnings		$	(0.36	)	$	0.21		$	1.80

        In fiscal 2002, 2001 and 2000, options to purchase 381,666,000, 147,583,000 and 37,666,000 shares of HP stock were excluded from the calculation of diluted net earnings per share because the exercise price of these options was greater than the average market price of the common shares for the respective fiscal years, and therefore the effect would have been antidilutive. Additionally, in fiscal 2002, diluted loss per share included only weighted-average shares outstanding as the inclusion of 18,282,000 additional potential common stock equivalents would have been antidilutive since HP incurred a net loss for the period.

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Note 3: Acquisitions and Divestitures

        In accordance with SFAS No. 141, HP allocates the purchase price of its acquisitions to the tangible assets, liabilities and intangible assets acquired, including in-process research and development ("IPR&D"), based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. The goodwill recorded as a result of these acquisitions is not expected to be deductible for tax purposes. The assignment of goodwill to reporting units for these acquisitions has not yet been completed. In accordance with SFAS No. 142, goodwill and purchased intangible assets with indefinite useful lives acquired after June 30, 2001 are not amortized but will be reviewed at least annually for impairment. Purchased intangible assets with finite lives are amortized on a straight-line basis over their respective useful lives.

Compaq

        On May 3, 2002, HP acquired all of the outstanding stock of Compaq, a leading global provider of information technology products, services and solutions for enterprise customers, in exchange for 0.6325 shares of HP common stock for each outstanding share of Compaq common stock and the assumption of options to purchase Compaq common stock based on the same ratio. In addition, HP assumed certain Compaq stock plans. The acquisition of Compaq is intended to enhance HP's combined competitive position in key industries, while strengthening its sales force and relationships with strategic customer bases. The acquisition is intended to enable HP to focus on strategic product and customer bases, achieve significant cost synergies and economies of scale and improve results of its combined Enterprise Systems, Personal Systems and Services businesses. Furthermore, these intended cost savings offer strategic benefits by potentially reducing HP's cost structure in competitive businesses such as personal computers ("PCs"). The exchange ratio in the acquisition was derived from estimates of future revenue and earnings of the combined company assuming completion of the acquisition, and by measuring the relative contributions of each of HP and Compaq to achieving these forecasted results, in addition to measuring the relative ownership of the combined company implied by their contributions. This transaction resulted in the issuance of approximately 1.1 billion shares of HP common stock with a fair value of approximately $22.7 billion, the assumption of options to purchase approximately 200 million shares of HP common stock with a Black-Scholes fair value of approximately $1.4 billion and estimated direct transaction costs of $79 million. The fair value of HP common stock was derived using an average market price per share of HP common stock of $20.92, which was based on an average of the closing prices for a range of trading days (August 30, August 31, September 4, and September 5, 2001) around the announcement date (September 3, 2001) of the acquisition.

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        Based on the independent valuation prepared using estimates and assumptions provided by management, the total purchase price of approximately $24.2 billion has been allocated as follows:

		In millions
Cash and cash equivalents		$	3,615
Accounts receivable			4,305
Financing receivables			1,241
Inventory			1,661
Current deferred tax assets			1,475
Other current assets			1,146
Property, plant and equipment			2,998
Long-term financing receivables and other assets			1,914
Amortizable intangible assets:
	Customer contracts and lists, distribution agreements		1,942
	Developed and core technology, patents		1,501
	Product trademarks		74
Intangible asset with an indefinite life			1,422
Goodwill			14,450
Accounts payable			(2,804	)
Short-and long-term debt			(2,704	)
Accrued restructuring			(960	)
Other current liabilities			(5,933	)
Other long-term liabilities			(1,908	)
In-process research and development			735
Total purchase price		$	24,170

Amortizable intangible assets

        Of the total purchase price, approximately $3.5 billion was allocated to amortizable intangible assets including customer contracts and developed and core technology.

        Customer contracts represent existing contracts that relate primarily to underlying customer relationships pertaining to the services provided by Compaq Global Services, including contractual customer service relationships, contractual managed services client relationships and contractual systems integration consulting client relationships. Customer lists and distribution agreements represent Compaq's relationships within the installed bases of Enterprise Systems and Personal Systems and agreements with Enterprise Systems' value-added resellers. HP is amortizing the fair value of these assets on a straight-line basis over a weighted average estimated useful life of approximately 9 years.

        Developed technology, which consists of products that have reached technological feasibility, includes products in most of Compaq's product lines, principally the Compaq Himalaya, Proliant, Enterprise Storage Array and AlphaServer products. Core technology and patents represent a combination of Compaq processes, patents and trade secrets developed through years of experience in design and development relating to clustering, fault tolerant systems, proprietary Alpha processor architecture and storage area networks. Compaq's technology and products are designed for hardware, software, solutions, fault tolerant business critical solutions, communication products, and desktop and portable personal computers. HP intends to leverage this proprietary knowledge to develop new technology and improved products and manufacturing processes. HP is amortizing the developed and

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core technology and patents on a straight-line basis over a weighted average estimated useful life of approximately 6 years.

Intangible asset with an indefinite life

        The estimated fair value of the intangible asset with an indefinite life was $1.4 billion, consisting of the estimated fair value allocated to the Compaq trade name. This intangible asset will not be amortized because it has an indefinite remaining useful life based on many factors and considerations, including the length of time that the Compaq name has been in use, the Compaq brand awareness and market position and the plans for continued use of the Compaq brand within a portion of HP's overall product portfolio.

In-process research & development

        Of the total purchase price, $735 million was allocated to IPR&D and was expensed in the third quarter of fiscal 2002. Projects that qualify as IPR&D represent those that have not yet reached technological feasibility and for which no future alternative uses existed. Technological feasibility is defined as being equivalent to a beta-phase working prototype in which there is no remaining risk relating to the development.

        The value assigned to IPR&D was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPR&D were based on estimates of the relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by Compaq and its competitors.

        The rates utilized to discount the net cash flows to their present values were based on Compaq's weighted average cost of capital. The weighted average cost of capital was adjusted to reflect the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, the percentage-of-completion of each project, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. Based on these factors, discount rates that range from 25% - 42% were deemed appropriate for valuing the IPR&D.

        The estimates used in valuing IPR&D were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates.

Deferred compensation

        In accordance with the terms of Compaq's equity-based plans, all of Compaq's outstanding options that were granted prior to September 1, 2001 vested upon Compaq shareowner approval of the acquisition. The intrinsic value of unvested Compaq options of approximately $70 million as of May 3, 2002, which relates to options granted subsequent to August 31, 2001, has been allocated to deferred compensation in the purchase price allocation. The deferred compensation is amortized over the remaining vesting period of the options, which was approximately 3.5 years at May 3, 2002. Options assumed in conjunction with the acquisition had exercise prices ranging from $2.63 - $75.31, with a weighted average exercise price of $33.29 and a weighted average remaining contractual life of 7.1 years. Approximately 165 million of the approximately 200 million options assumed are fully vested.

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Pro forma results

        The following unaudited pro forma financial information presents the combined results of operations of HP and Compaq as if the acquisition had occurred as of the beginning of the periods presented. Due to different historical fiscal period-ends for HP and Compaq, the results for the year ended October 31, 2002 combine the results of HP for the year ended October 31, 2002 and the results of Compaq for the six months ended March 31, 2002 and for the period May 3, 2002 (the acquisition date) to October 31, 2002. The results for the year ended October 31, 2001 combine the historical results of HP for the year ended October 31, 2001 and the historical results of Compaq for the twelve months ended September 30, 2001. Adjustments of $162 million for the year ended October 31, 2002 and $340 million for the year ended October 31, 2001 have been made to the combined results of operations, reflecting amortization of purchased intangible assets, net of tax, as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of HP that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of HP. Pro forma results were as follows for the fiscal years ended October 31, 2002 and 2001:

In millions, except per share data		2002			2001
Revenue		$	72,346		$	81,105
Loss before extraordinary item and cumulative effect of change in accounting principles			(948	)		(1,045	)
Net loss			(928	)		(1,481	)
Basic and diluted net loss per share:
	Loss before extraordinary item and cumulative effect of change in accounting principles	$	(0.31	)	$	(0.35	)
	Net loss	$	(0.30	)	$	(0.49	)

        The unaudited pro forma financial information above includes the following material, non-recurring charges: acquisition-related inventory writedowns of $147 million in fiscal 2002; litigation-related asset writedowns of $98 million in fiscal 2001; restructuring charges of $1.8 billion in fiscal 2002 and $1.0 billion in fiscal 2001; IPR&D charges of $793 million in fiscal 2002 and $35 million in fiscal 2001; acquisition-related charges of $772 million in fiscal 2002 and $33 million in fiscal 2001; net investment losses of $100 million in fiscal 2002 and $2.6 billion in fiscal 2001; net divestiture losses of $53 million fiscal 2001; and litigation settlements of a $14 million gain in fiscal 2002 and a $400 million loss in fiscal 2001.

Indigo

        On March 22, 2002, HP acquired substantially all of the outstanding stock of Indigo N.V. ("Indigo") not previously owned by HP in exchange for HP common stock and non-transferable contingent value rights ("CVRs") and the assumption of options to purchase Indigo common stock. This acquisition is intended to strengthen HP's printer offerings by adding high performance digital color printing systems. The total consideration for Indigo was $719 million, which included the fair value of HP common stock issued and Indigo options assumed, as well as direct transaction costs and the cost of an equity investment made by HP in Indigo in October 2000. Approximately 32 million

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shares of HP common stock and approximately 53 million CVRs were issued in connection with this transaction. HP recorded approximately $499 million of goodwill and $153 million of amortizable purchased intangible assets in conjunction with the acquisition and the previous equity investment. The purchased intangible assets are being amortized over their estimated useful lives, which range from five to eight years. In addition, HP recorded a pre-tax charge of approximately $58 million for IPR&D at the time of acquisition in the second quarter of fiscal 2002 because technological feasibility had not been established and no future alternative uses existed.

        The CVRs issued in conjunction with this acquisition entitle each holder to a one-time contingent cash payment of up to $4.50 per CVR, based on the achievement of certain cumulative revenue results over a three-year period. The liability related to the CVRs will be recorded as additional goodwill as payout thresholds are achieved. The future cash pay-out, if any, of the CVRs will be payable after a three-year period commencing on April 1, 2002.

Bluestone and StorageApps

        In January 2001, HP acquired all of the outstanding stock of Bluestone Software, Inc. ("Bluestone") in exchange for HP common stock and assumption of Bluestone options. In September 2001, HP acquired all of the outstanding stock of StorageApps Inc. ("StorageApps") in exchange for HP common stock and assumption of StorageApps options. The total consideration for Bluestone was $531 million, and the total consideration for StorageApps was $319 million, each of which included the fair value of HP common stock issued and options assumed, as well as direct transaction costs.

        The acquisitions were recorded under the purchase method of accounting, and accordingly the purchase prices were allocated to the tangible assets and liabilities and intangible assets acquired, including IPR&D, based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to intangible assets acquired were based on valuations prepared by an independent third party appraisal firm using estimates and assumptions provided by management. HP recorded approximately $338 million of goodwill and identified intangible assets in conjunction with the acquisition of Bluestone and approximately $296 million of goodwill and identified intangible assets in conjunction with the acquisition of StorageApps. In addition, HP recorded a pre-tax charge of approximately $19 million for IPR&D related to Bluestone and $15 million for IPR&D related to StorageApps at the time of the acquisitions because technological feasibility had not been established and no future alternative uses existed.

        As a result of product roadmap decisions in connection with the acquisition of Compaq, HP determined that substantially all of the remaining unamortized balances of goodwill and other intangible assets associated with Bluestone and StorageApps were impaired. Accordingly, these amounts were included in the restructuring charge recorded in the third quarter of fiscal 2002.

        Results of operations for each of the acquired companies are included prospectively from the date of acquisition. Pro forma results of operations reflecting the acquisitions of Indigo, Bluestone and StorageApps have not been presented because the results of operations of the acquired companies, either individually or collectively, are not material to HP's results of operations.

        HP also acquired other companies during fiscal 2002, 2001 and 2000 that were not significant to its financial position or results of operations. HP recorded approximately $1 million of IPR&D related to

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these acquisitions in fiscal 2001. Each of these acquisitions was recorded under the purchase method of accounting.

        The net book value of goodwill and purchased intangible assets was $20.0 billion at October 31, 2002, of which substantially all of the goodwill and $1.4 billion of the intangible assets are not subject to amortization in accordance with SFAS No. 142. The net book value of goodwill and purchased intangible assets was $756 million at October 31, 2001, of which $297 million is not subject to amortization. Accumulated amortization related to these assets was $1.7 billion at October 31, 2002, and $1.2 billion at October 31, 2001. Amortization expense for goodwill and purchased intangible assets was $402 million in fiscal 2002, $174 million in fiscal 2001 and $86 million in fiscal 2000.

Completed Divestitures

        In fiscal 2001, the net loss from divestitures was $53 million, consisting of a $131 million loss on the sale of the VeriFone, Inc. subsidiary, partially offset by a gain of $78 million on the sale of HP's remaining interest in the Ericsson-HP Technology joint venture to Ericsson.

        In fiscal 2000, the net gain from divestitures was $203 million, consisting of gains on the sale of non-strategic businesses as well as the gain from the sale to Ericsson of part of HP's interest in the Ericsson-HP joint venture.

Note 4: Restructuring Charges

        Prior to the close of the acquisition of Compaq, HP's management initiated and during the third and fourth quarters of fiscal 2002 approved plans to restructure the operations of both the pre-acquisition HP and pre-acquisition Compaq organizations ("restructuring plans"). The restructuring plans eliminated certain duplicative activities, focused on strategic product and customer bases, reduced HP's cost structure and better aligned product and operating expenses with existing general economic conditions. Consequently, HP recorded approximately $1.8 billion of costs associated with exiting the activities of pre-acquisition HP such as severance, early retirement costs, costs of vacating duplicative facilities (leased or owned), contract termination costs, asset impairment charges and other costs associated with exiting activities of HP. Pre-acquisition HP costs were accounted for under EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity" and have been included as a charge to the results of operations for the year ended October 31, 2002. HP recorded approximately $960 million of similar restructuring costs in connection with restructuring the pre-acquisition Compaq organization. Costs to restructure pre-acquisition Compaq were accounted for under EITF Issue No. 95-3, "Recognition of Liabilities in Connection with Purchase Business Combinations." These costs were recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Compaq. A portion of the restructuring liabilities is classified as a long-term liability in the accompanying balance sheet.

        The restructuring charges recorded in the third and fourth quarters were based on HP's restructuring plans that have been committed to by management. As discussed in Note 18, restructuring charges are not allocated to HP's segments. However, the restructuring plans and actions were undertaken to streamline HP's business operations and, as such, of the total $2.7 billion of restructuring costs recorded in fiscal 2002, $1.2 billion, $510 million, $421 million and $76 million is attributable to actions taken in the Enterprise Systems Group, HP Services, the Personal Systems

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Group and the Imaging and Printing Group, respectively. The remaining $497 million relates to actions taken in HP's shared services and infrastructure functions.

Acquisition-Related Restructuring Costs Expensed in Fiscal 2002

        The charge of $1.8 billion to restructure the pre-acquisition HP organization consisted mainly of severance, early retirement costs and other employee benefits, non-inventory asset impairment charges, and other related restructuring activities. The severance, early retirement costs, and other employee benefits related to the planned early retirement or termination of 8,600 employees worldwide across many regions, business functions and job classes. As of October 31, 2002, approximately 6,400 employees were included in the workforce reduction program, had retired or had been terminated, and payments of approximately $255 million had been made. Benefits of approximately $215 million have been or will be paid through post-retirement and pension plans for retiring employees. Additionally, approximately $104 million of the charge is non-cash and relates primarily to net pension and post-retirement settlement and curtailment losses. HP expects to pay the remaining balance of the severance accrual within fiscal 2003. The non-inventory asset impairment of $546 million for goodwill and purchased intangible assets was due primarily to product roadmap decisions made in conjunction with the Compaq acquisition that led to the elimination of substantially all of the middleware and storage virtualization offerings acquired in fiscal 2001. Other related restructuring charges consisted primarily of the cost of vacating duplicate facilities and the cost of exiting certain contractual obligations.

        The balance of the accrued restructuring charges recorded in conjunction with the restructuring of the pre-acquisition HP organization in fiscal 2002 was as follows at October 31, 2002:

		Employee Severance and Other Related Benefits			Non-Inventory Asset Impairments			Other Related Restructuring Activities			Total
		In millions
Restructuring costs		$	1,029		$	546		$	184		$	1,759
	Funded through pension and post-retirement plans		(215	)		—			—			(215	)
	Cash payments		(255	)		—			(32	)		(287	)
	Non-cash charges		(104	)		(546	)		—			(650	)
Balance at October 31, 2002		$	455		$	—		$	152		$	607

Acquisition-Related Restructuring Liability Capitalized in Fiscal 2002 as a Cost of Acquisition

        The restructuring plans also included approximately $960 million incurred in connection with restructuring pre-acquisition Compaq that was recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Compaq. This restructuring liability consisted primarily of severance, early retirement costs, other employee benefits, costs of vacating duplicate facilities and the cost of exiting certain contractual obligations. The severance and other employee benefits related to the planned early retirement and termination of 9,300 employees worldwide across many regions, business functions and job classes, as well as employee relocation costs. As of October 31, 2002, approximately 6,300 employees were included in HP's workforce reduction program, had retired or had been terminated, and HP had paid out approximately $266 million in

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associated costs. Additionally, approximately $52 million of the charge is non-cash and relates primarily to net pension and post-retirement settlement and curtailment losses. HP expects to pay the remaining balance of severance and other employee benefits accrual within fiscal 2003. Other related restructuring charges consisted primarily of the cost of vacating duplicate facilities and the cost of exiting certain contractual obligations.

        The balance of the accrued restructuring charges capitalized as a cost of acquisition in fiscal 2002 was as follows at October 31, 2002:

		Employee Severance and Other Related Benefits			Other Related Restructuring Activities			Total
		In millions
Restructuring costs		$	721		$	239		$	960
	Cash payments		(266	)		(11	)		(277	)
	Non-cash charges		(52	)		—			(52	)
Balance at October 31, 2002		$	403		$	228		$	631

Fiscal 2001 plans

        In fiscal 2001, HP's management approved restructuring actions to respond to the global economic downturn and to improve HP's cost structure by streamlining operations and prioritizing resources in strategic areas of HP's business infrastructure. HP recorded a restructuring charge of $384 million in fiscal 2001 to reflect these actions. The fiscal 2001 charge consisted of severance and other employee benefits related to the termination of approximately 7,500 employees worldwide, across many regions, business functions and job classes, as well as costs related to the consolidation of excess facilities. HP recorded additional restructuring charges of $21 million in fiscal 2002 to reflect adjustments to the expected severance cost of its fiscal 2001 restructuring plans. As of October 31, 2002, substantially all of these employees were terminated, and HP had paid $394 million of the accrued costs. Additionally, as part of the acquisition of Compaq, HP acquired the remaining obligations of Compaq's existing restructuring plans, which were initially recorded in Compaq's 2001 fiscal year. As of October 31, 2002 HP had paid out $47 million related to the acquired Compaq plan.

        The balance of the fiscal 2001 accrued restructuring charges recorded was as follows at October 31, 2002:

		Employee Severance and Other Related Benefits			Facilities Consolidation and Other			Total
		In millions
Balance, October 31, 2001		$	146		$	12		$	158
	Restructuring charges		16			5			21
	Remaining obligations of Compaq's restructuring plans		117			142			259
	Cash payments		(186	)		(40	)		(226	)
	Non-cash charges		(3	)		—			(3	)
Balance, October 31, 2002		$	90		$	119		$	209

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Fiscal 2000 early retirement program

        In fiscal 2000, HP's management approved an enhanced early retirement ("EER") program designed to balance the workforce based on HP's long-term business strategy. HP offered approximately 2,500 U.S. employees the opportunity to retire early and receive an enhanced payout, and approximately 1,300 employees accepted the offer. Accordingly, HP recorded a restructuring charge of $71 million, consisting of $95 million of severance and $5 million of other employee benefits offset by $29 million of related pension and post-retirement settlement and curtailment gains. In addition to the EER program, HP incurred $31 million of other restructuring charges during fiscal 2000 related to various site shutdowns resulting from strategic management decisions. All amounts related to the EER program had been paid by October 31, 2001.

Note 5: Net Investment (Losses) Gains

        HP's investment portfolio includes equity and debt investments in publicly-traded and privately-held emerging technology companies. Many of these emerging technology companies are still in the start-up or development stage. HP's investments in these companies are inherently risky because the technologies or products they have under development are typically in the early stages and may never become successful.

        HP monitors its investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates; liquidation values; the values of recent rounds of financing; and quoted market prices of comparable public companies. In order to determine whether a decline in value is other-than-temporary, HP evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry; the company's relative competitive position within the industry; and HP's intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

        Due to the economic downturn, the declines in value of certain investments in emerging technology companies were determined to be other-than-temporary. Accordingly, HP recorded net investment losses of $106 million on its investments in both publicly-traded and privately-held emerging technology companies in fiscal 2002. HP recorded net investment losses of $455 million and net investment gains of $41 million on its investments in fiscal 2001 and 2000, respectively. Depending on market conditions, HP may incur additional charges on this investment portfolio in the future.

Note 6: Discontinued Operations

        Effective July 31, 1999, HP completed its plan of disposition for Agilent Technologies Inc. ("Agilent Technologies") through a distribution of Agilent Technologies common stock to HP's stockholders in the form of a tax-free spin-off. Agilent Technologies was composed of HP's former Measurement Organization, which included the test-and-measurement, semiconductor products, chemical analysis and healthcare solutions businesses. HP's consolidated financial statements for all

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periods present Agilent Technologies as a discontinued business segment through the spin-off date of June 2, 2000.

        In November 1999, Agilent Technologies completed an initial public offering of approximately 16% of its common stock and distributed the net proceeds of approximately $2.1 billion to HP. HP distributed substantially all of its remaining interest in Agilent Technologies through a stock dividend to HP stockholders on June 2, 2000, resulting in a $4.2 billion reduction of retained earnings.

        Net earnings from discontinued operations for fiscal 2000 were $136 million. In the second quarter of fiscal 2000, the cumulative net earnings of Agilent Technologies since the July 31, 1999 measurement date began to exceed the total estimated net costs to effect the spin-off. Of the $136 million, net earnings of Agilent Technologies for the period from the July 31, 1999 measurement date through the June 2, 2000 spin-off date totaled $287 million (net of related tax expense of $174 million), and the net costs to effect the spin-off were $151 million (net of related tax benefit of $23 million).

Note 7: Balance Sheet Details

        The balance sheet details were as follows at October 31, 2002 and 2001:

Inventory

	2002		2001
	In millions
Finished goods	$	4,130	$	3,705
Purchased parts and fabricated assemblies		1,667		1,499
	$	5,797	$	5,204

Property, Plant and Equipment

	2002			2001
	In millions
Land	$	772		$	323
Buildings and leasehold improvements		4,787			3,732
Machinery and equipment		6,977			5,753
		12,536			9,808
Accumulated depreciation		(5,612	)		(5,411	)
	$	6,924		$	4,397

        Depreciation expense was $1.7 billion in fiscal 2002, $1.2 billion in fiscal 2001 and $1.2 billion in fiscal 2000.

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Long-Term Financing Receivables and Other Assets

	2002		2001
	In millions
Financing receivables	$	2,792	$	2,169
Investments		1,193		2,144
Deferred tax assets		2,210		880
Other		1,565		933
	$	7,760	$	6,126

Other Accrued Liabilities

	2002		2001
	In millions
Other accrued taxes	$	1,402	$	652
Accrued warranty		1,548		895
Other		4,445		1,660
	$	7,395	$	3,207

Note 8: Financial Instruments

Investments in Debt and Equity Securities

        Investments in held-to-maturity and available-for-sale debt and equity securities were as follows at October 31, 2002 and 2001:

		2002									2001
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
		In millions
Held-to-Maturity Securities (carried at amortized cost):
Time deposits		$	114	$	—	$	—		$	114	$	94	$	—	$	—		$	94
Other debt securities			62		—		—			62		72		—		—			72
			176		—		—			176		166		—		—			166
Available-for-Sale Securities (carried at fair value):
Debt securities:
	Municipal securities		132		—		—			132		168		2		(1	)		169
	U.S. government and agency securities		—		—		—			—		12		—		—			12
	Repurchase agreements		120		10		—			130		120		9		—			129
	Other debt securities		156		8		—			164		201		11		—			212
Total debt securities			408		18		—			426		501		22		(1	)		522
Equity securities in public companies			42		21		(11	)		52		129		29		(10	)		148
			450		39		(11	)		478		630		51		(11	)		670
		$	626	$	39	$	(11	)	$	654	$	796	$	51	$	(11	)	$	836

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        Other debt securities consist primarily of collateralized notes with banks and corporate debt securities.

        The fair values were estimated based on quoted market prices or pricing models using current market rates. These estimated fair values may not be representative of actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

        In connection with the adoption of SFAS No. 133 on November 1, 2000, HP elected to reclassify investments in debt securities with a net book value of $967 million from held-to-maturity to available-for-sale. The unrealized loss on these securities, net of taxes, was $5 million at the time of the reclassification and was recorded in accumulated other comprehensive income as part of the cumulative effect of adopting SFAS No. 133.

        Contractual maturities of held-to-maturity and available-for-sale debt securities at October 31, 2002 were as follows:

	Held-to-Maturity Securities				Available-for-Sale Debt Securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	In millions
Due in less than one year	$	112	$	112	$	125	$	125
Due in 1-5 years		64		64		273		291
Due in 5-10 years		—		—		—		—
Due after 10 years		—		—		10		10
	$	176	$	176	$	408	$	426

        Proceeds from sales of available-for-sale securities were $90 million in fiscal 2002, $17 million in fiscal 2001 and $100 million in fiscal 2000. The gross realized loss totaled $2 million in fiscal 2002, and gross realized gains were $16 million in fiscal 2001 and $94 million in fiscal 2000. The specific identification method is used to account for gains and losses on available-for-sale securities. A summary of the carrying values and balance sheet classification of all investments in debt and equity securities

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including held-to-maturity and available-for-sale securities disclosed above was as follows at October 31, 2002 and 2001:

		2002		2001
		In millions
Held-to-maturity debt securities		$	112	$	103
Available-for-sale debt securities			125		36
	Short-term investments		237		139
Held-to-maturity debt securities			64		63
Available-for-sale debt securities			301		486
Available-for-sale equity securities			52		148
Equity securities in privately-held companies and other investments			776		1,447
	Included in long-term financing receivables and other assets		1,193		2,144
Total investments		$	1,430	$	2,283

        At October 31, 2001, HP held a 49.5% equity interest in Liquidity Management Corporation ("LMC"), which was accounted for under the equity method of accounting. The remaining 50.5% of equity interest was held by a third party investor. On November 1, 2001, LMC redeemed the outstanding equity of the third party investor, leaving HP as the remaining shareholder of LMC. Accordingly, effective November 1, 2001, the assets, liabilities and results of operations of LMC have been included in HP's consolidated financial statements. At November 1, 2001, the assets of LMC consisted primarily of $879 million of cash and cash equivalents.

Derivative Financial Instruments

        HP is a global company which is exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of its business. As part of HP's risk management strategy, HP uses derivative instruments, including forwards, swaps and purchased options, to hedge certain foreign currency and interest rate exposures. HP's objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, respectively, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. Derivative positions are used only to manage underlying exposures of HP. Based upon the criteria established by SFAS No. 133, HP designates most of its derivatives as fair value hedges, cash flow hedges, or foreign currency hedges.

        HP enters into fair value hedges to reduce the exposure of its debt and investment portfolios to both interest rate risk and foreign currency exchange rate risk. HP issues long-term debt in either U.S. dollars or foreign currencies based on market conditions at the time of financing. Interest rate and foreign currency swaps are then typically used to modify the market risk exposures in connection with the debt to achieve primarily U.S. dollar LIBOR-based floating interest expense and to manage exposure to changes in foreign currency exchange rates. The swap transactions generally involve the exchange of fixed for floating interest payment obligations and, when the underlying debt is denominated in a foreign currency, exchange of the foreign currency principal and interest obligations for U.S. dollar-denominated amounts. Alternatively, HP may choose not to swap fixed debt to a floating rate or may terminate a previously executed swap if the fixed rate positions provide a more

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beneficial relationship between assets and liabilities. Similarly, HP may choose not to hedge the foreign currency risk associated with its foreign currency-denominated debt if this debt acts as a natural foreign exchange rate hedge for assets denominated in the same currency. In order to hedge the fair value of certain fixed-rate investments, HP periodically enters into interest rate swaps that convert fixed interest returns into variable interest returns. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item, is recognized in earnings in the current period. For interest rate swaps designated as fair value hedges, the critical terms of the interest rate swap and hedged item are generally designed to match up thereby satisfying the criteria for the short-cut method of accounting as defined by SFAS No. 133. Any ineffective portion of the hedge is reflected in interest income or expense for hedges of interest rate risk and in other income or expense for hedges of foreign currency risk. Hedge ineffectiveness for fair value hedges was not material in the years ended October 31, 2002 and 2001. In September 2002, HP sold an interest rate swap associated with its debt portfolio in response to movements in the interest rate market. This transaction resulted in a deferred gain of $185 million, which will be amortized over the remaining life of the corresponding debt as a reduction of interest expense.

        HP uses a combination of forwards and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted revenue and, to a lesser extent, cost of sales denominated in currencies other than the U.S. dollar. HP's cash flow hedges mature generally within six months. HP also uses forward contracts, which are designated as foreign currency hedges to hedge net investments in certain foreign subsidiaries whose functional currency is the local currency. For derivative instruments that are designated and qualify as cash flow hedges or foreign currency hedges, the effective portions of the gain or loss on the derivative instrument are initially recorded in accumulated other comprehensive income as a separate component of stockholders' equity and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in other income or expense immediately. The effective portion of cash flow and foreign currency hedges is reported in the same financial statement line item as the changes in value of the hedged item. For foreign currency option and forward contracts designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. As of October 31, 2002, no amounts were excluded from the assessment of hedge effectiveness. Hedge ineffectiveness for cash flow or foreign currency hedges was not material in the years ended October 31, 2002 and 2001. In addition, during fiscal 2002 and 2001 HP did not discontinue any cash flow hedges for which it was probable that a forecasted transaction would not occur.

        Other derivatives not designated as hedging instruments under SFAS No. 133 consist primarily of forwards used to hedge foreign currency balance sheet exposures and warrants in companies invested in as part of strategic relationships. For derivative instruments not designated as hedging instruments under SFAS No. 133, changes in the fair values are recognized in earnings in the period of change. The gains and losses on foreign currency forward contracts used to hedge balance sheet exposures are recognized in other income and expense in the same period as the remeasurement gain and loss of the related foreign currency denominated assets and liabilities and thus naturally offset these gains and losses. HP had net foreign currency exchange losses of $165 million, $72 million, and $50 million in fiscal 2002, 2001, and 2000, respectively.

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        HP estimates the fair values of derivatives based on quoted market prices or pricing models using current market rates, and records all derivatives on the balance sheet at fair value. The fair market value of derivative financial instruments and the respective SFAS 133 classification on the Consolidated Balance Sheet were as follows at October 31, 2002 and 2001:

	2002
	Other Current Assets		Long-term Financing Receivables and Other Assets		Other Accrued Liabilities			Other Liabilities			Total
	In millions
Fair value hedges	$	152	$	166	$	(14	)	$	—		$	304
Cash flow hedges		29		3		(66	)		(14	)		(48	)
Foreign currency hedges		—		—		(17	)		—			(17	)
Other derivatives		91		5		(228	)		(33	)		(165	)
Total	$	272	$	174	$	(325	)	$	(47	)	$	74

	2001
	Other Current Assets		Long-term Financing Receivables and Other Assets		Other Accrued Liabilities			Other Liabilities			Total
	In millions
Fair value hedges	$	17	$	385	$	(31	)	$	—		$	371
Cash flow hedges		82		12		(37	)		(3	)		54
Foreign currency hedges		—		—		—			—			—
Other derivatives		45		—		(69	)		(6	)		(30	)
Total	$	144	$	397	$	(137	)	$	(9	)	$	395

Fair Value of Other Financial Instruments

        For certain of HP's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, notes payable and short-term borrowings, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities. The estimated fair value of HP's short- and long-term debt was $7.7 billion at October 31, 2002, compared to a carrying value of $7.8 billion. The estimated fair value of the debt is based primarily on quoted market prices, as well as borrowing rates currently available to HP for bank loans with similar terms and maturities.

Note 9: Financing Receivables and Operating Leases

        Financing receivables represent sales-type, direct-financing, and operating leases resulting from the marketing of HP's, and complementary third-party, products. These receivables typically have terms from two to five years and are usually collateralized by a security interest in the underlying assets. The

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components of net financing receivables, which are included in financing receivables and long-term financing receivables and other assets, were as follows at October 31, 2002 and 2001:

		2002			2001
		In millions
Minimum lease payments receivables		$	6,636		$	4,574
Allowance for doubtful accounts			(304	)		(147	)
Unguaranteed residual value			523			418
Unearned income			(610	)		(493	)
	Financing receivables, net		6,245			4,352
Less current portion			(3,453	)		(2,183	)
Amounts due after one year, net		$	2,792		$	2,169

        Scheduled maturities of HP's minimum lease payments receivable at October 31, 2002 were $3.6 billion in fiscal 2003, $1.9 billion in fiscal 2004, $758 million in fiscal 2005, $236 million in fiscal 2006, $95 million in fiscal 2007 and $37 million thereafter. Actual cash collections may differ due primarily to customer early buy-outs and refinancings.

        Equipment leased to customers under operating leases was $1.8 billion at October 31, 2002 and $1.4 billion at October 31, 2001 and is included in machinery and equipment. Accumulated depreciation on equipment under lease was $782 million at October 31, 2002 and $752 million at October 31, 2001. Minimum future rentals on non-cancelable operating leases are $716 million in fiscal 2003, $354 million in fiscal 2004, $110 million in fiscal 2005, $14 million in fiscal 2006 and $2 million in fiscal 2007.

Note 10: Borrowings

        Notes payable and short-term borrowings and the related average interest rates were as follows at October 31, 2002 and 2001:

	2002				2001
	Amount		Average Interest Rate		Amount		Average Interest Rate
	Dollars in millions
Current portion of long-term debt	$	772	6.8	%	$	104	6.6	%
Notes payable to banks		484	3.3	%		666	3.5	%
Commercial paper		537	2.4	%		952	2.4	%
	$	1,793			$	1,722

        In March 2002, HP replaced its $1.0 billion committed borrowing facility, which was due to expire in April 2002, with two senior unsecured credit facilities totaling $4.0 billion in borrowing capacity, including a $2.7 billion 364-day facility and a $1.3 billion three-year facility (the "Credit Facilities"). Interest rates and other terms of borrowing under the Credit Facilities vary based on HP's external credit ratings. The Credit Facilities are generally available to support the issuance of commercial paper or for other corporate purposes. At October 31, 2002 and 2001, there were no borrowings outstanding under the Credit Facilities. HP has a $4.0 billion commercial paper program that was established in

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December 2000 and a $500 million euro commercial paper/certificate of deposit that was established in May 2001. The total amount outstanding under those programs was $537 million at October 31, 2002 and $952 million at October 31, 2001.

        Long-term debt and related maturities and interest rates were as follows at October 31, 2002 and 2001:

	2002			2001
	In millions
Medium-Term Notes due 2003-2005, at 6.20%-7.65%	$	624		$	—
HSBC-CCF Notes, due 2003 at 6.85%		250			250
U.S. dollar Global Notes, due 2005 at 7.15%		1,497			1,496
U.S. dollar Global Notes, due 2006 at 5.75%		995			—
U.S. dollar Global Notes, due 2007 at 5.5%		995			—
U.S. dollar Global Notes, due 2012 at 6.5%		498			—
Medium-Term Notes, due 2003-2004, at 1.85%-1.93%		210			210
Euro Medium-Term Notes, due 2006 at 5.25%		738			673
U.S. dollar zero-coupon subordinated convertible notes, due 2017 imputed at 3.13%		318			465
Notes payable, multiple currencies, due 2002-2023 at 2.30%-9.17%		255			318
Other		112			166
Fair value adjustment related to SFAS No. 133		315			255
Less current portion		(772	)		(104	)
	$	6,035		$	3,729

        In May 2002, in connection with HP's acquisition of Compaq, all of the outstanding debt of Compaq was consolidated into the financial results of HP. The face value of the Compaq debt consisted of $1.7 billion of commercial paper; $275 million of unsecured 7.45% Medium-Term Notes, which matured on August 1, 2002; $300 million of unsecured 7.65% Medium-Term Notes, which mature on August 1, 2005; $300 million of unsecured 6.2% Medium-Term Notes, which mature on May 15, 2003; and $65 million of other debt (including debt issued by Digital Equipment Corporation), with interest rates ranging from 7.125% to 8.625%, which matures at various dates from March 15, 2004 through April 1, 2023. The outstanding Compaq debt has been assumed by HP. The entire balance of the Compaq commercial paper was paid off during the third quarter of fiscal 2002. The debt had an aggregate fair value of approximately $2.7 billion on the acquisition date. At October 31, 2002, the outstanding amount of the debt acquired in connection with the acquisition of Compaq was $643 million.

        In February 2002, HP filed a shelf registration statement (the "2002 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2002 Shelf Registration Statement was declared effective in March 2002. In June 2002, HP offered under the 2002 Shelf Registration Statement $1.0 billion of unsecured 5.5% Global Notes, which mature on July 1, 2007 unless previously redeemed. Also, in June 2002, HP offered under the 2002 Shelf Registration Statement $500 million of unsecured 6.5% Global Notes, which mature on July 1, 2012 unless previously redeemed. HP may redeem some or all of either series of Global Notes at any time at redemption prices described in the prospectus supplement dated June 21, 2002. As of October 31, 2002, HP had capacity remaining to issue approximately $1.5 billion of securities under the 2002 Shelf Registration Statement.

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        HP has the ability to offer from time to time up to $3.0 billion of Medium-Term Notes under a Euro Medium-Term Note Programme filed with the Luxembourg Stock Exchange. These notes can be denominated in any currency including the euro. However, these notes have not been and will not be registered in the United States. In July 2001, 750 million euro (or $636 million based on the exchange rate on the date of issuance) of 5.25% Medium-Term Notes maturing on July 5, 2006 were issued under this program. As of October 31, 2002, HP had the remaining capacity to issue approximately $2.3 billion of Medium-Term Notes under the program.

        In February 2000, HP filed a shelf registration statement (the "2000 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2000 Shelf Registration Statement was declared effective in March 2000. In June 2000, HP offered under the 2000 Shelf Registration Statement $1.5 billion of unsecured 7.15% Global Notes, which mature on June 15, 2005 unless previously redeemed. HP may redeem some or all of the 7.15% Global Notes at any time at the redemption prices described in the prospectus supplement dated June 6, 2000. In May 2001, HP filed a prospectus supplement to the 2000 Shelf Registration Statement, which allowed HP to offer from time to time up to $1.5 billion of Medium-Term Notes, Series A, due nine months or more from the date of issue (the "Series A Medium-Term Note Program"), in addition to the other types of securities described above. In December 2001, HP offered under the 2000 Shelf Registration Statement $1.0 billion of unsecured 5.75% Global Notes, which mature on December 15, 2006 unless previously redeemed. During fiscal 2001, HP issued an aggregate of $210 million of Medium-Term Notes at variable rates maturing in 2003 and 2004 under the 2000 Shelf Registration Statement and Series A Medium-Term Note Program. These Medium-Term Notes had a weighted average interest rate of 2.13% and 3.53% during fiscal 2002 and 2001, respectively. At October 31, 2002, HP had capacity remaining to issue approximately $290 million of securities under the 2000 Shelf Registration Statement. See Note 19 for information regarding issuances under the 2000 Shelf Registration Statement subsequent to October 31, 2002.

        In October 1997, HP issued $1.8 billion face value of zero-coupon subordinated convertible notes for proceeds of $968 million, and in November 1997 HP issued an additional $200 million face value of the notes for proceeds of $108 million. The notes are due in 2017. The notes are convertible by the holders at the rate of 15.09 shares of HP's common stock for each $1,000 face value of the notes, payable in either cash or common stock at HP's election. At any time, HP may redeem the notes at book value, payable in cash only. The notes are subordinated to all other existing and future senior indebtedness of HP. In December 2000, the Board of Directors authorized a repurchase program for the notes. Under the repurchase program, HP has repurchased the notes from time to time at varying prices. In fiscal 2002, HP repurchased $257 million in face value of the notes with a book value of $158 million for an aggregate purchase price of $127 million, resulting in an extraordinary gain on the early extinguishment of debt of $20 million (net of related taxes of $11 million). In fiscal 2001, HP repurchased $1.2 billion in face value of the notes with a book value of $729 million for an aggregate purchase price of $640 million, resulting in an extraordinary gain on the early extinguishment of debt of $56 million (net of related taxes of $33 million). As of October 31, 2002, the notes had a remaining book value of $318 million.

        HP also maintains various international lines of credit with a total capacity of $2.7 billion and various other short- and long-term borrowings from a number of financial institutions and institutional investors. There were approximately $484 million and $666 million outstanding under these borrowings

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at October 31, 2002 and 2001, respectively. These borrowings had a weighted average interest rate of 3.3% and 3.5% at October 31, 2002 and 2001, respectively.

        Aggregate future maturities of the face value of the long-term debt outstanding at October 31, 2002 (excluding the fair value adjustment related to SFAS No. 133 of $315 million and discounts on debt issuances totaling $187 million) are $743 million in 2003, $302 million in 2004, $1.8 billion in 2005, $802 million in 2006, $2.0 billion in 2007 and $1.0 billion thereafter. HP occasionally repurchases its debt prior to maturity based on its assessment of current market conditions and financing alternatives.

Note 11: Taxes on Earnings

        The (benefit from) provision for taxes on earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes was as follows for the years ended October 31, 2002, 2001 and 2000:

		2002			2001			2000
		In millions
U.S. federal taxes:
	Current	$	(768	)	$	(178	)	$	740
	Deferred		(11	)		(1,038	)		(634	)
Non-U.S. taxes:
	Current		334			1,239			928
	Deferred		202			41			(19	)
State taxes			114			14			49
		$	(129	)	$	78		$	1,064

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        The significant components of deferred tax assets and deferred tax liabilities were as follows at October 31, 2002 and 2001:

	2002					2001
	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
	In millions
Loss carryforwards	$	1,204		$	—	$	525		$	—
Credit carryforwards		1,352			—		636			—
Unremitted earnings of foreign subsidiaries		—			2,044		—			874
Inventory		466			38		196			—
Fixed assets		300			8		158			7
Warranty		484			2		291			—
Employee and retiree benefits		1,355			273		472			160
Intracompany sales		1,805			—		2,248			—
Accounts receivable		303			6		231			—
Capitalized research and development		849			—		—			—
Purchased intangible assets		134			1,373		—			31
Restructuring		551			—		47			—
Equity investments		423			—		44			—
Other		821			142		265			90
Gross deferred tax assets and liabilities		10,047			3,886		5,113			1,162
Valuation allowance		(877	)		—		(74	)		—
Total deferred tax assets and liabilities	$	9,170		$	3,886	$	5,039		$	1,162

        The current portion of the deferred tax asset, which is included in other current assets, was $3.3 billion at October 31, 2002 and $3.1 billion at October 31, 2001.

        HP recorded gross deferred tax assets of $4.4 billion and gross deferred tax liabilities of $2.3 billion upon the acquisition of Compaq. The gross deferred tax assets are composed primarily of loss and tax credit carryforwards, capitalized research and development costs and other temporary differences. The gross deferred tax liabilities are composed primarily of provisions made on foreign earnings that are not intended to be indefinitely reinvested and timing differences related to purchased intangible assets. The gross deferred tax assets recorded were reduced by a valuation allowance of $774 million. If HP determines that it will realize the tax attributes related to Compaq in the future, the related decrease in the valuation allowance will reduce goodwill instead of the provision for taxes.

        At October 31, 2002, HP had federal net operating loss carryforwards of approximately $1.1 billion, which will expire in 2022. HP also had foreign net operating loss carryforwards totaling $1.3 billion, of which $513 million will expire between 2003 and 2012. The remainder of the foreign net operating loss carryforwards have an unlimited carryforward period. Total capital loss carryforwards of $1.1 billion will expire in 2006. Foreign tax credit carryforwards of approximately $767 million will expire between 2003 and 2007, with approximately $505 million expiring in 2006 and $242 million expiring in 2007. Alternative minimum tax credit carryforwards of approximately $305 million have an unlimited carryforward period. General business credit carryforwards of approximately $280 million will

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expire between 2003 and 2022, with approximately $142 million of this amount expiring between 2019 and 2022. All carryforwards expire as of October 31 of the year indicated.

        The gross deferred tax assets as of October 31, 2002 were reduced by valuation allowances of $877 million, principally on tax loss carryforwards and credit carryforwards, both primarily associated with the Compaq acquisition that management has determined are more likely than not to expire unused. The valuation allowance increased by $803 million in fiscal 2002 and $74 million in fiscal 2001.

        Tax benefits of $21 million in fiscal 2002, $16 million in fiscal 2001 and $495 million in fiscal 2000 associated with the exercise of employee stock options and other employee stock programs were allocated to stockholders' equity.

        The differences between the U.S. federal statutory income tax (benefit) rate and HP's effective tax (benefit) rate were as follows for the years ended October 31, 2002, 2001 and 2000:

	2002		2001		2000
U.S. federal statutory income tax rate	(35.0	)%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	6.6		1.4		0.7
Lower rates in other jurisdictions, net	(35.0	)	(43.0	)	(13.4	)
Goodwill	17.0		7.5		0.5
In-process research and development	26.4		1.8		—
Acquisition-related charges	6.9		2.0		—
Divestitures	(12.6	)	1.2		—
Research and development credit	(3.8	)	(2.9	)	(0.2	)
Valuation allowance	16.2		7.0		—
Other, net	1.0		1.1		0.4
	(12.3	)%	11.1	%	23.0	%

        The domestic and foreign components of (losses) earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes were as follows for the years ended October 31, 2002, 2001 and 2000:

	2002			2001			2000
	In millions
U.S	$	(3,686	)	$	(2,570	)	$	1,547
Non-U.S.		2,634			3,272			3,078
	$	(1,052	)	$	702		$	4,625

        HP has not provided for U.S. federal income and foreign withholding taxes on $14.5 billion of undistributed earnings from non-U.S. and Puerto Rican operations as of October 31, 2002 because such earnings are intended to be reinvested indefinitely. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resulting U.S. income tax liability. Where excess cash has accumulated in HP's non-U.S. subsidiaries and it is advantageous for business operations, tax or foreign exchange reasons, subsidiary earnings are remitted.

        As a result of certain employment actions and capital investments undertaken by HP, income from manufacturing activities in certain countries is subject to reduced tax rates, and in some cases is wholly

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exempt from taxes, for years through 2013. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $389 million ($0.16 per share) in fiscal 2002, $457 million ($0.24 per share) in fiscal 2001 and $969 million ($0.49 per share) in fiscal 2000.

        The Internal Revenue Service ("IRS") has completed its examination of the income tax returns of HP and Compaq for all years through 1995 and 1997, respectively. As of October 31, 2002, the IRS was in the process of examining HP's income tax returns for years 1996 through 2001 and Compaq's tax returns for years 1998 through 2000. HP believes that adequate accruals for HP and Compaq have been provided for all years.

Note 12: Stockholders' Equity

Authorized Common Stock

        In February 2001, HP stockholders approved an amendment of HP's Certificate of Incorporation to increase the number of authorized shares of common stock to 9.6 billion shares from 4.8 billion.

Authorized Preferred Stock and Preferred Share Purchase Rights Plan

        HP has 300,000,000 authorized shares of preferred stock. On August 31, 2001, HP classified 4,500,000 of these shares as Series A Participating Preferred Stock in conjunction with HP's adoption of a Preferred Stock Rights Agreement as of that date (the "Rights Agreement"). The HP Board of Directors approved the termination of the Preferred Share Purchase Rights (the "Rights") issued pursuant to the Rights Agreement and the Rights Agreement effective at the close of business on January 21, 2003. When in effect, the Rights Agreement provided for the issuance of one Right for each share of HP common stock held of record as of the close of business on September 17, 2001 or issued thereafter. Each Right conferred the right to purchase one one-thousandth of a share of HP's Series A Participating Preferred Stock at a purchase price of $180.00, subject to adjustment, under certain circumstances. Under certain conditions involving an acquisition or proposed acquisition by any person or group of 15% or more of HP's common stock, the Rights would have become exercisable.

        Upon exercise, the holder of the Right also would have had the right to receive HP common stock having a value equal to two times the purchase price. At any time after a person or group acquired 15% or more of HP's common stock, but less than 50% of the common stock, HP's Board of Directors could have exchanged the Rights, in whole or in part, at an exchange ratio of one common share per Right, as adjusted to reflect any stock split, stock dividend or similar transaction. The Board of Directors, under certain conditions, also could have redeemed the purchase Rights in whole, but not in part, at a price of $0.001 per Right. The Rights had no voting privileges and were attached to and automatically traded with HP common stock until the occurrence of specified triggering events.

Dividends

        The stockholders of HP common stock are entitled to receive dividends when and as declared by HP's Board of Directors. Dividends are paid quarterly. Dividends were $0.32 per share in each of fiscal 2002, 2001 and 2000.

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Acquisition of Compaq

        In connection with the acquisition of Compaq, HP assumed certain of Compaq's existing stock option plans. In July 2002, the HR and Compensation Committee of the Board of Directors amended the assumed plans to conform, in general, their terms to those of the HP stock option plans. The plans also were amended to exclude directors and certain officers from eligibility to receive option grants under the assumed plans and to restrict grants to only non-qualified options.

Agilent Technologies Spin-Off

        On June 2, 2000 (the "distribution date"), HP distributed substantially all of its remaining interest in Agilent Technologies through a stock dividend to HP stockholders of record as of the close of business on May 2, 2000. This distribution was made in the amount of 0.3814 share of Agilent Technologies common stock for each outstanding share of HP common stock. The decrease in the intrinsic value of HP's employee stock plans attributable to the distribution of Agilent Technologies was restored in accordance with the methodology set forth in EITF Issue No. 90-9, "Changes to Fixed Employee Stock Option Plans as a Result of Equity Restructuring." Accordingly, the number of HP employee options and shares of restricted stock not yet released (including unvested matching shares under the Employee Stock Purchase Plan ("ESPP")) outstanding on May 2, 2000 were increased and, in the case of options, the exercise prices were correspondingly decreased to reflect the decline in intrinsic value on the distribution date. Holders of options that were exercised and shares of restricted stock that were released prior to May 2, 2000 received shares of Agilent Technologies in connection with the spin-off.

Employee Stock Purchase Plan

        Effective November 1, 2000, HP adopted and HP's Board of Directors and stockholders approved a new employee stock purchase plan, the Hewlett-Packard Company 2000 Employee Stock Purchase Plan, also referred to as the 2000 ESPP Plan. This is a noncompensatory plan that qualifies under Section 423 of the Internal Revenue Code of 1986, as amended. Under the plan, any regular full-time or part-time employee may contribute up to 10% of base compensation (subject to certain income limits) to the semi-annual purchase of shares of HP's common stock. The purchase price is 85% of the fair market value at certain plan-defined dates. At October 31, 2002, approximately 139,000 employees were eligible to participate and approximately 67,000 employees were participants in the plan. In fiscal 2002, employee participants purchased 18,536,000 shares of HP common stock under the plan at a weighted-average price of $14 per share. In fiscal 2001, employee participants purchased 5,868,000 shares of HP common stock under the plan at a weighted-average price of $24 per share.

        As of October 31, 2000 employees no longer were permitted to make contributions to HP's prior ESPP. Under the prior ESPP, eligible employees could generally contribute up to 10% of their base compensation to the quarterly purchase of shares of HP's common stock. Employee contributions to purchase shares were partially matched with shares contributed by HP, which generally vested over two years. At October 31, 2002, there were no remaining unvested shares. HP contributed to employees 615,000 matching shares at a weighted-average price of $47 in fiscal 2001 related to shares purchased by employees for the last quarterly purchase period in fiscal 2000. HP contributed to employees, including persons who became employees of Agilent Technologies, 2,534,000 matching shares at a weighted-average price of $50 in fiscal 2000. On the distribution date, 569,000 shares of HP stock held

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by Agilent Technologies employees were forfeited. Agilent Technologies replaced the forfeited HP shares with shares of Agilent Technologies stock of equivalent value. Compensation expense recognized under the prior ESPP plan was $29 million in fiscal 2002, $74 million in fiscal 2001 and $89 million in fiscal 2000.

Incentive Compensation Plans

        HP has four principal stock option plans, adopted in 2000, 1995, 1990 and 1985, under which stock options are outstanding. All plans permit options granted to qualify as "incentive stock options" under the U.S. Internal Revenue Code. The exercise price of a stock option is generally equal to the fair market value of HP's common stock on the date the option is granted, and its term is generally ten years. Under the 2000 Stock Plan and the 1990 and 1995 Incentive Stock Plans, the HR and Compensation Committee of the Board of Directors, in certain cases, may choose to establish a discounted exercise price at no less than 75% of fair market value on the grant date. HP granted discounted options to purchase 679,000 shares in fiscal 2002, 4,177,000 shares in fiscal 2001 and 5,151,000 shares in fiscal 2000. Options generally vest at a rate of 25% per year over a period of four years from the date of grant, with the exception of discounted options. Discounted options generally may not be exercised until the third or fifth anniversary of the option grant date, at which time such options become fully vested. The cost of the discounted options, determined to be the difference between the exercise price of the option and the fair market value of HP's common stock on the date of the option grant, is expensed ratably over the option vesting period.

        Option activity was as follows for the years ended October 31, 2002, 2001 and 2000:

	2002				2001				2000
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
	Shares in thousands
Outstanding at beginning of year	217,441		$	35	163,125		$	36	115,582		$	24
Granted	66,438			21	65,628			29	85,412			51
Additional options granted to compensate for loss in intrinsic value due to Agilent Technologies spin-off	—			—	—			—	28,767			19
Assumed through acquisitions	202,028			33	5,415			26	—			—
Exercised	(9,208	)		7	(7,610	)		11	(34,496	)		13
Forfeited/Cancelled	(17,365	)		37	(9,117	)		41	(32,140	)		24
Outstanding at end of year	459,334			32	217,441			35	163,125			36
Exercisable at year-end	286,830		$	34	84,281		$	28	51,404		$	18

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        Information about options outstanding was as follows at October 31, 2002:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
	Shares in thousands
$0-$9.99	16,421	1.8	$	8	15,725	$	7
$10-$19.99	75,787	7.1	$	16	35,460	$	16
$20-$29.99	150,096	7.2	$	25	84,783	$	27
$30-$39.99	90,040	6.9	$	35	57,833	$	37
$40-$49.99	72,711	6.6	$	46	59,726	$	45
$50-$59.99	35,116	7.0	$	57	16,898	$	56
$60 and over	19,163	6.2	$	71	16,405	$	72
	459,334	6.8	$	32	286,830	$	34

        Under the 2000 Stock Plan, the 1990 and 1995 Incentive Stock Plans and the 1985 Incentive Compensation Plan, certain employees were granted cash or restricted stock awards. Cash and restricted stock awards are independent of option grants and are subject to restrictions considered appropriate by the HR and Compensation Committee. The majority of the shares of restricted stock outstanding at October 31, 2002 are subject to forfeiture if employment terminates prior to three years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same cash dividend and voting rights as other common stock and is considered to be currently issued and outstanding. The cost of the awards, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse. HP had 1,370,000 shares of restricted stock outstanding at October 31, 2002, 2,501,000 shares outstanding at October 31, 2001 and 6,079,000 shares outstanding at October 31, 2000.

        Shares available for option, ESPP and restricted stock grants were 248,557,000 at October 31, 2002, including 54,216,000 shares under the assumed Compaq plans, 283,080,000 at October 31, 2001 and 349,101,000 at October 31, 2000. All regular employees were considered eligible to receive stock options in fiscal 2002. There were approximately 127,000 employees holding options under one or more of the option plans as of October 31, 2002.

        Compensation expense recognized under incentive compensation plans was $84 million in fiscal 2002, $90 million in fiscal 2001 and $149 million in fiscal 2000.

        Information presented above regarding the incentive compensation plans includes activity related to Agilent Technologies employees through the distribution date, except as noted. Under the existing terms of the stock option plans, substantially all stock options held by Agilent Technologies employees were cancelled and replaced with Agilent Technologies stock options, or became fully vested on the distribution date. The fully vested options, if not exercised, expired within three months from the distribution date. Options to purchase a total of 25,543,000 shares of HP common stock held by Agilent Technologies employees were cancelled and replaced with options to purchase Agilent Technologies stock. On the distribution date, options to purchase 812,000 shares became fully vested, and of this amount, options to purchase 91,000 shares expired three months from that date. A total of 1,177,000 shares of HP restricted

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stock held by Agilent Technologies employees were forfeited and cancelled on or before the distribution date and were replaced with shares of Agilent Technologies stock of equivalent value.

Stock-Based Compensation Pro Forma Net Earnings Information

        HP applies the intrinsic-value-based method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. Accordingly, compensation expense is recognized only when options are granted with a discounted exercise price. Any resulting compensation expense is recognized ratably over the associated service period, which is generally the option vesting term.

        HP has determined pro forma net earnings and earnings per share information, as required by SFAS No. 123, "Accounting for Stock-Based Compensation," as if HP had accounted for employee stock options under SFAS No. 123's fair value method. The fair value of these options was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended October 31, 2002, 2001 and 2000:

	Stock Options						ESPP
	2002		2001		2000		2002		2001
Risk-free interest rate	4.84	%	5.10	%	6.88	%	1.94	%	3.97	%
Dividend yield	1.8	%	1.4	%	0.7	%	1.9	%	1.1	%
Volatility	39	%	39	%	34	%	54	%	54	%
Expected option life	7 years		7 years		7 years		6 months		6 months

        For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the four-year average vesting period of the options and the estimated fair value of the employee stock purchase grants is amortized at the end of each period. The weighted-average fair value of options granted during the year was $8.64 in fiscal 2002, $12.30 in fiscal 2001 and $24.40 in fiscal 2000. The weighted fair value of the employee stock purchase plan grants was $5.81 in fiscal 2002 and $9.88 in fiscal 2001.

        The pro forma effect on net earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle as if the fair value of stock-based compensation had been recognized as compensation expense on a straight-line basis over the vesting period of the grant was as follows for the years ended October 31, 2002, 2001 and 2000:

In millions, except per share amounts		2002			2001			2000
Net (loss) earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle:
	As reported	$	(923	)	$	624		$	3,561
	Pro forma	$	(1,699	)	$	(110	)	$	3,191
Diluted net (loss) earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting principle:
	As reported	$	(0.37	)	$	0.32		$	1.73
	Pro forma	$	(0.68	)	$	(0.06	)	$	1.54

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Shares Reserved

        HP had 713,477,000 shares of common stock reserved at October 31, 2002 and 507,328,000 shares reserved at October 31, 2001 for future issuance under employee benefit plans and employee stock plans. Additionally, HP had 21,494,000 shares reserved at October 31, 2002 and 21,495,000 shares reserved at October 31, 2001 for future issuances related to conversions of zero-coupon subordinated notes.

Stock Repurchase Program

        HP repurchases shares of its common stock under a systematic program to manage the dilution created by shares issued under employee stock plans and for other opportunistic share repurchases. This plan authorizes purchases in the open market or in private transactions. In fiscal 2002, 39,623,000 shares were repurchased for an aggregate price of $671 million. As of October 31, 2002, HP had authorization for remaining future repurchases of approximately $960 million. In fiscal 2001, 45,036,000 shares were repurchased for an aggregate price of $1.2 billion and in fiscal 2000, 96,978,000 shares were repurchased for the aggregate price of $5.6 billion.

Stock Split

        On August 16, 2000, HP's Board of Directors approved a two-for-one stock split in the form of a stock dividend. On October 27, 2000, HP distributed one additional share of HP common stock for every share of common stock outstanding to stockholders of record as of the close of business on September 27, 2000. The par value of HP's common stock after the split remained at $0.01 per share, and additional paid-in capital was reduced by the par value of the additional common shares issued. The rights of the holders of these securities were not otherwise modified. All shares, per-share and market price data related to HP's common shares outstanding and under employee stock plans reflect the retroactive effects of this stock split.

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Note 13: Comprehensive (Loss) Income

        The changes in the components of other comprehensive income, net of taxes, were as follows for the years ended October 31, 2002, 2001 and 2000:

		2002			2001			2000
		In millions
Net (loss) earnings		$	(903	)	$	408		$	3,697
Net unrealized (losses) gains on available-for-sale securities:
	Change in net unrealized (losses) gains on available-for-sale securities, net of tax benefit of $4 in 2002 and $34 in 2001 and taxes of $119 in 2000		(7	)		(58	)		187
	Net unrealized gains reclassified into earnings, net of tax benefit of $1 in 2002, $9 in 2001 and $60 in 2000		(2	)		(16	)		(94	)
			(9	)		(74	)		93
Net unrealized (losses) gains on derivative instruments:
	Change in net unrealized (losses) gains on derivative instruments, net of tax benefit of $19 in 2002 and taxes of $31 in 2001		(41	)		64			—
	Net unrealized gains reclassified into earnings, net of tax benefit of $12 in 2002 and $18 in 2001		(20	)		(42	)		—
			(61	)		22			—
Net change in cumulative translation adjustment			7			—			—
Additional minimum pension liability net of tax benefit of $191			(379	)		—			—
Comprehensive (loss) income		$	(1,345	)	$	356		$	3,790

        The components of accumulated other comprehensive (loss) income, net of taxes, were as follows at October 31, 2002 and 2001:

	2002			2001
	In millions
Net unrealized gains on available-for-sale securities	$	10		$	19
Net unrealized (losses) gains on derivative instruments		(39	)		22
Cumulative translation adjustments		7			—
Additional minimum pension liability		(379	)		—
Accumulated other comprehensive income	$	(401	)	$	41

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Note 14: Supplemental Cash Flow Information

        Supplemental cash flow information was as follows for the years ended October 31, 2002, 2001 and 2000:

			2002		2001			2000
			In millions
Cash paid for income taxes, net			$	139	$	1,159		$	1,063
Cash paid for interest			$	206	$	266		$	198
Non-cash transactions:
	Net issuances (forfeitures) of common stock for employee benefit plans:
		Restricted stock and other	$	4	$	(8	)	$	(96	)
		Employer matching contributions for 401(k) and employee stock purchase Plans	$	7	$	47		$	89
	Issuance of common stock and options assumed related to business acquisitions		$	24,717	$	840		$	—

Note 15: Retirement and Post-Retirement Benefit Plans

General

        Substantially all of HP's employees are covered under various defined benefit and defined contribution pension and deferred profit-sharing retirement plans. In addition, HP sponsors medical and life insurance plans that provide benefits to retired U.S. employees.

Acquisition of Compaq

        On May 3, 2002, the acquisition date of Compaq, HP assumed responsibility for pension and other post-retirement benefits for current and former pre-acquisition Compaq employees that had qualified under existing pension and other post-retirement plans (each a "Compaq Pension Plan"). On January 1, 2003, HP extended eligibility under existing pre-acquisition HP pension and other post-retirement benefit plans to substantially all pre-acquisition Compaq employees in the United States that were not eligible under a Compaq Pension Plan.

Agilent Technologies Spin-off

        On the June 2, 2000 spin-off date of Agilent Technologies, Agilent Technologies assumed responsibility for pension, deferred profit-sharing and other post-retirement benefits for current and former employees whose last work assignment prior to the distribution date was with businesses spun-off to Agilent Technologies. In the United States, the Hewlett-Packard Company Retirement Plan and Deferred Profit-Sharing Plan Master Trust was converted to the Group Trust for the Hewlett-Packard Company Deferred Profit-Sharing Plan and Retirement Plan and the Agilent Technologies, Inc. Deferred Profit-Sharing Plan and Retirement Plan (the "Group Trust"). Both the HP and Agilent Technologies Retirement Plans include post-retirement medical accounts. A pro-rata share of the assets of the Group Trust was assigned to the HP Retirement Plan and Deferred Profit-Sharing Trusts and the respective Agilent Technologies' Trusts. Outside the United States, generally, a pro-rata share of the HP pension assets, if any, was transferred or otherwise assigned to the Agilent Technologies entity in accordance with local law or practice. The pro-rata shares were in the same proportion as the projected benefit obligations for HP employees to the total projected benefit obligations of HP and Agilent Technologies as of April 30, 2000. For all periods presented, the assets and liabilities related to the retirement and post-retirement benefit plans of Agilent Technologies are included in net assets of discontinued operations in HP's accompanying Consolidated Balance Sheet through the spin-off date of

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June 2, 2000 and the related costs are included in net earnings of discontinued operations in HP's accompanying Consolidated Statement of Earnings through June 2, 2000. The information in this note for all periods excludes Agilent Technologies.

Retirement Plans

        HP sponsors a number of defined benefit, defined contribution and other post-retirement employee benefit plans. Benefits under the defined benefit pension plans are generally based on pay and years of service. Worldwide pension and post-retirement costs including defined benefit, defined contribution and other post-retirement plans were $1.0 billion in fiscal 2002, $392 million in fiscal 2001 and $442 million in fiscal 2000. Included in the worldwide pension and post-retirement costs were restructuring charges, consisting of net curtailment gains and losses, net settlement gains and losses and special termination benefits of $319 million, ($38 million) and $66 million in fiscal 2002, 2001 and 2000, respectively (see Note 4 to the Consolidated Financial Statements). For eligible service of U.S. employees through October 31, 1993, the benefit payable under the Retirement Plan is reduced by any amounts due to the employee under HP's frozen defined contribution Deferred Profit-Sharing Plan ("DPSP"), which has since been closed to new participants.

        The combined status of the U.S. defined benefit pension plans and DPSP was as follows at October 31, 2002 and 2001:

	2002		2001
	In millions
Fair value of plan assets	$	3,461	$	2,416
Retirement benefit obligation	$	5,170	$	3,185

        Global capital market developments resulted in negative returns on HP's retirement benefit plan assets and a decline in the discount rates used to estimate the liability. As a result, HP was required to record an additional minimum pension liability of $570 million ($379 million after tax) for plans where the accumulated benefit obligation exceeded the fair market value of the respective plan assets. The additional minimum pension liability was included in HP's accumulated other comprehensive loss.

Post-Retirement Benefit Plans

        In addition to providing pension benefits, HP sponsors post-retirement benefit plans providing medical and life insurance benefits to U.S. retired employees. Substantially all of HP's current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees. Once participating in the medical plan, retirees may choose from managed-care and indemnity options, with their contributions dependent on options chosen and length of service.

401(k) Plan

        U.S. employees may participate in the Tax Saving Capital Accumulation Plan ("TAXCAP"), which was established as a supplemental retirement program. Beginning February 1, 1998, enrollment in the TAXCAP is automatic for employees who meet eligibility requirements unless they decline participation. Under the TAXCAP program, HP matches contributions by employees up to a maximum of 4% of an employee's annual compensation. A portion of this matching contribution may be made in the form of HP common stock to the extent an employee elects HP stock as an investment option under the plan. Beginning on November 1, 2000, the maximum contribution under the TAXCAP is 20% of an employee's annual eligible compensation subject to certain IRS limitations. HP's expense related to TAXCAP was $120 million in fiscal 2002, $119 million in fiscal 2001 and $110 million in

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fiscal 2000. Through October 31, 2000, the maximum combined contribution to the ESPP and TAXCAP was 25% of an employee's annual eligible compensation, subject to certain regulatory and plan limitations. Effective May 3, 2002, HP assumed the sponsorship of the Compaq Computer Corporation 401k Investment Plan (the "Compaq 401(k) Plan"). HP matches contributions by employees up to a maximum of 6% of an employee's annual compensation. Similar to HP's pre-acquisition 401(k) plans, contributions are invested at the direction of the employee in various funds, including HP common stock. The amount charged to expense associated with the Compaq 401(k) Plan was $56 million.

Components of Net Pension and Post-Retirement Benefit Costs

        HP's net pension and post-retirement benefit costs were as follows for the years ended October 31, 2002, 2001 and 2000:

			U.S. Defined Benefit Plans									Non-U.S. Defined Benefit Plans									U.S. Post-Retirement Benefit Plans
			2002			2001			2000			2002			2001			2000			2002			2001			2000
			In millions
Service cost			$	220		$	198		$	161		$	108		$	93		$	77		$	26		$	18		$	18
Interest cost				188			96			74			118			91			74			52			27			24
Expected return on plan assets				(174	)		(105	)		(100	)		(157	)		(136	)		(107	)		(34	)		(47	)		(41	)
Amortization and deferrals:
	Actuarial (gain) loss			30			(14	)		(21	)		14			5			8			(6	)		(22	)		(20	)
	Transition (asset) obligation			—			—			(5	)		—			—			—			—			—			—
	Prior service cost (benefit)			3			3			3			1			2			2			(4	)		(4	)		(5	)
Net periodic benefit cost				267			178			112			84			55			54			34			(28	)		(24	)
	Curtailment (gain) loss			1			(22	)		(10	)		(8	)		(1	)		—			70			(31	)		(1	)
	Settlement (gain) loss			30			(1	)		(18	)		11			16			—			—			—			—
	Special termination benefit			194			—			95			—			1			—			21			—			—
		Net restructuring (gains) charges		225			(23	)		67			3			16			—			91			(31	)		(1	)
Net benefit cost			$	492		$	155		$	179		$	87		$	71		$	54		$	125		$	(59	)	$	(25	)

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        The funded status of the defined benefit and post-retirement benefit plans was as follows at October 31, 2002 and 2001:

		U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plans
		2002			2001			2002			2001			2002			2001
		In millions
Change in fair value of plan assets:
	Fair value—Beginning of year	$	881		$	1,200		$	1,528		$	1,562		$	381		$	522
	Addition of plan—Compaq		2,000			—			1,387			—			12			—
	Addition/deletion of plans		—			—			(49	)		—			—			—
	Actual return on plan assets		(453	)		(307	)		(638	)		(115	)		(60	)		(131	)
	Employer contributions		246			38			456			102			17			—
	Participants' contributions		—			—			34			23			13			5
	Benefits paid		(323	)		(50	)		(77	)		(44	)		(46	)		(15	)
	Restructuring impact		—			—			(16	)		(5	)		—			—
	Currency impact		—			—			149			5			—			—
	Fair value—End of year		2,351			881			2,774			1,528			317			381
Change in benefit obligation:
	Benefit obligation—Beginning of year		1,650			1,314			1,605			1,508			489			350
	Addition of plan—Compaq		2,247			—			1,701			—			481			—
	Addition/deletion of plans		—			—			(51	)		—			—			11
	Service cost		220			198			108			93			26			18
	Interest cost		188			96			118			91			52			27
	Participants' contributions		—			—			34			23			13			5
	Actuarial (gain) loss		(116	)		125			121			(22	)		357			123
	Benefits paid		(323	)		(50	)		(77	)		(44	)		(46	)		(15	)
	Plan amendments		—			—			1			(24	)		122			—
	Restructuring impact		194			(33	)		(35	)		(20	)		79			(30	)
	Currency impact		—			—			200			—			—			—
Benefit obligation—End of year			4,060			1,650			3,725			1,605			1,573			489
Plan assets (less than) in excess of benefit obligation			(1,709	)		(769	)		(951	)		(77	)		(1,256	)		(108	)
Unrecognized net experience loss (gain)			815			365			1,202			267			417			(26	)
Unrecognized prior service cost (benefit) related to plan changes			13			16			(5	)		(8	)		94			(34	)
Unrecognized net transition asset			—			—						(1	)		—			—
Net (accrued) prepaid amount recognized			(881	)		(388	)		246			181			(745	)		(168	)
Contributions after measurement date			100			—			17			—			—			—
Net amount recognized		$	(781	)	$	(388	)	$	263		$	181		$	(745	)	$	(168	)

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        The net amount recognized for HP's defined benefit and post-retirement benefit plans was as follows at October 31, 2002 and 2001:

		U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plans
		2002			2001			2002			2001			2002			2001
		In millions
	Prepaid benefit cost	$	—		$	—		$	736		$	195		$	—		$	—
	Other assets		—			—			6			—			—			—
	Accrued benefit liability		(1,236	)		(388	)		(594	)		(14	)		(745	)		(168	)
	Accumulated other comprehensive loss		455			—			115			—			—			—
Net amount recognized		$	(781	)	$	(388	)	$	263		$	181		$	(745	)	$	(168	)

        Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows at October 31, 2002 and 2001:

	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans
	2002		2001		2002		2001
	In millions
Aggregate fair value of plan assets	$	2,351	$	881	$	2,376	$	779
Aggregate projected benefit obligation	$	4,060	$	1,650	$	3,388	$	903

        Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows at October 31, 2002 and 2001:

	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans
	2002		2001		2002		2001
	In millions
Aggregate fair value of plan assets	$	2,351	$	—	$	1,016	$	—
Aggregate accumulated benefit obligation	$	3,257	$	—	$	1,538	$	—

        Plan assets consist primarily of listed stocks and bonds. It is HP's practice to fund the plans to the extent that contributions are tax-deductible.

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Assumptions

        The assumptions used to measure the benefit obligations and to compute the expected long-term return on assets for HP's defined benefit and post-retirement benefit plans were as follows for the years ended October 31, 2002, 2001 and 2000:

		2002	2001	2000
U.S. defined benefit plans:
	Discount rate	6.8%	7.0%	7.5%
	Average increase in compensation levels	4.5%	5.8%	6.5%
	Expected long-term return on assets	8.5%	9.0%	9.0%
Non-U.S. defined benefit plans:
	Discount rate	2.5 to 6.0%	2.5 to 6.5%	3.0 to 6.5%
	Average increase in compensation levels	3.0 to 4.5%	3.5 to 5.5%	3.5 to 5.5%
	Expected long-term return on assets	5.5 to 7.5%	6.5 to 8.5%	6.1 to 8.5%
U.S. post-retirement benefit plans:
	Discount rate	6.8%	7.0%	7.5%
	Expected long-term return on assets	8.5%	9.0%	9.0%
	Current medical cost trend rate	12.5%	7.8%	7.8%
	Ultimate medical cost trend rate	5.5%	5.5%	5.5%

        The rate of increase in medical costs was assumed to decrease gradually through 2010, and remain at that level thereafter. Assumed health care cost trend rates could have a significant effect on the amounts reported for health care plans. A 1.0 percentage point increase in the assumed health care cost trend rates would have increased the total service and interest cost components reported in fiscal 2002 by $19 million and would have increased the post-retirement benefit obligation reported in fiscal 2002 by $219 million. A 1.0 percentage point decrease in the assumed health care cost trend rates would have decreased the total service and interest cost components reported in fiscal 2002 by $14 million and would have decreased the post-retirement obligation reported in fiscal 2002 by $179 million.

Note 16: Commitments

        HP leases certain real and personal property under non-cancelable operating leases. Future annual minimum lease payments at October 31, 2002 were $493 million for fiscal 2003, $397 million for fiscal 2004, $286 million for fiscal 2005, $228 million for fiscal 2006, $192 million for fiscal 2007 and $522 million thereafter. These payments will be partially offset by sublease rental income commitments. Future minimum sublease rental income commitments at October 31, 2002 were $23 million for fiscal 2003, $14 million for fiscal 2004, $10 million per year in each of fiscal years 2005 through 2007 and $10 million thereafter. Certain leases require HP to pay property taxes, insurance and routine maintenance, and include escalation clauses. Rent expense was $566 million in fiscal 2002, $374 million in fiscal 2001 and $344 million in fiscal 2000. Sublease rental income was $17 million in fiscal 2002, $20 million in fiscal 2001 and $19 million in fiscal 2000.

Note 17: Litigation and Contingencies

Pending Litigation

HP v. Cooper et al. is a lawsuit filed in United States District Court in the Northern District of California on or about March 23, 1998. The Cooper defendants claim that HP's LaserJet printers infringe U.S. patent 5,424,780, which allegedly covers portions of the resolution enhancement

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technology employed in these printers, and seek an injunction, monetary damages and attorneys' fees and costs. Based on an opinion from outside counsel, HP believes that its LaserJet printers do not infringe the patent. The U.S. Patent Office agreed to reexamine the patent based on prior art identified by the parties. Litigation was stayed pending the outcome of the U.S. Patent Office reexamination. The U.S. Patent Office issued a reexamination certificate in July 2002, and the stay of litigation was subsequently lifted.

        Stevens v. HP is an unfair business practices consumer class action filed in state court in Riverside County, California on or about July 31, 2000. Consumer class action lawsuits have been filed, in coordination with the original plaintiffs, in 32 additional states. The various plaintiffs throughout the country claim to have purchased different models of HP inkjet printers over the past four years. The basic factual allegation of these actions is that when the affected consumer purchased HP printers they received half-full or "economy" ink cartridges instead of full cartridges. Plaintiffs claim that HP's advertising, packaging and marketing representations for the printers led the consumers to believe they would receive full cartridges. These actions seek injunctive relief, disgorgement of profits, compensatory damages, punitive damages and attorneys' fees under various state unfair business practices statutes and common law claims of fraud and negligent misrepresentation. HP recently obtained summary judgment against plaintiffs in the California action, which the plaintiffs are appealing. HP also received summary judgment in Kansas and Arizona. The matter has been certified as a class action in North Carolina state court, and a trial date has been set for June 9, 2003. The Ohio and New York litigation has been dismissed. In Connecticut, the trial court denied the plaintiffs' motion to certify a class action. In Oregon and Washington, the case has been dismissed without prejudice. The litigation is in various stages in other jurisdictions.

        Alvis v. HP is a nationwide defective product consumer class action filed in United States District Court in Jefferson County, Texas by a resident of eastern Texas in April 2001. In February 2000, a similar suit captioned LaPray v. Compaq was filed in United States District Court in Jefferson County, Texas against Compaq. In May 2000 Sprung v. HP and Compaq was filed in United States District Court in the 60th Judicial District of Colorado. These actions are part of a series of similar suits filed against several computer manufacturers. The basic allegation is that HP and Compaq sold computers containing floppy disk controllers that fail to alert the user to certain floppy disk controller errors. That failure is alleged to result in data loss or data corruption. The plaintiffs in Alvis and LaPray seek injunctive relief, declaratory relief, rescission and attorneys' fees. In July 2001, a nationwide class was certified in the LaPray case. Compaq has filed a petition for review by the Texas Supreme Court. The Texas Supreme Court requested additional briefing. A class certification hearing in Alvis has been set for February 2003. The Sprung case was dismissed on May 31, 2002. In addition, HP and Compaq continue to provide information to the U.S. government and state attorneys general in California and Illinois in response to inquiries regarding floppy disk controllers in computers sold to government entities.

        On or about December 27, 2001, Cornell University and the Cornell Research Foundation, Inc. filed an action against HP in United States District Court in the Northern District of New York alleging that HP's PA-RISC 8000 family of microprocessors infringes a Cornell patent that describes a way of executing microprocessor instructions. This action seeks declaratory, injunctive and other relief. The court is expected to hold a hearing to construe the disputed claims terms in Cornell's patent in early 2003. After reviewing the pertinent materials, HP believes that its products do not infringe the patent. Furthermore, HP believes Cornell's patent is invalid.

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        A number of purported stockholder class actions were brought in 1998 against Compaq and certain present and former directors and officers of Compaq, on behalf of all persons who purchased Compaq common stock from July 10, 1997 through March 6, 1998. These actions were consolidated under the title Berger v. Compaq Computer Corporation, et al. on December 23, 1998 in United States District Court in Texas. The consolidated amended complaint alleges that defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder by withholding information and making misleading statements about channel inventory, factoring of receivables and Compaq marketing programs in order to inflate the price of Compaq's common stock and further alleges that a number of individual defendants sold Compaq common stock at those purportedly inflated prices. In July 2000, the case was certified as a class action, but this action was later vacated by the Fifth Circuit Court of Appeals. Compaq reached a mediated settlement with lead plaintiffs and their attorneys in the amount of approximately $29 million, of which approximately $28 million is covered by insurance. The parties presented this settlement to the District Court for approval in June 2002. The final hearing on the fairness of the settlement was held on November 1, 2002. On November 25, 2002, the District Court entered two orders. One order approved the settlement and granted a final judgment and dismissed the lawsuit with prejudice. The second order awarded fees and expenses to plaintiffs' counsel.

Digwamaji et al. v. Bank of America et al. is a purported class action lawsuit in which HP and numerous other multinational corporations have been named as defendants. It was filed on September 27, 2002 in United States District Court in the Southern District of New York on behalf of current and former South African citizens and their survivors who suffered violence and oppression under the apartheid regime. The lawsuit alleges that HP and other companies helped perpetuate, and profited from, the apartheid regime during the period from 1948-1994 by selling products and services to agencies of the South African government. Claims are based on the Alien Tort Claims Act, the Torture Protection Act, the Racketeer Influenced and Corrupt Organizations Act and a variety of other international laws and treaties relating to violations of human rights, war crimes and crimes against humanity. The complaint seeks, among other things, an accounting, the creation of a historic commission, compensatory damages in excess of $200 billion, punitive damages in excess of $200 billion, costs and attorneys' fees. This matter is in the early stage of litigation and HP is preparing its response.

        Two non-binding arbitration proceedings are ongoing in Germany before the arbitration board of the Patent and Trademark Office. The proceedings were brought by VerwertungsGesellschaft Wort, a collection agency representing certain copyright holders, against HP and relate to whether and to what extent copyright levies should be imposed upon certain products that enable the production of copies by private persons in accordance with copyright laws implemented in Germany. These proceedings were instituted in June 2001 and June 2002, respectively. In addition, HP may face similar proceedings in other European jurisdictions based on copyright laws implemented in those jurisdictions. The levies, if imposed, would be based upon the number of products sold in particular jurisdictions, and the per-product amounts of the levies vary. Products that are the subject of the claims in Germany include multi-function devices, personal computers and printers. Products at issue in other jurisdictions include: in Belgium, CD media and CD-writers; in Spain, CD media; in Greece, photocopiers and photocopying paper; and in Switzerland, CD media, DVD media and MP3 players. Other EU member countries that do not yet have levy schemes in place are expected to implement similar legislation. HP, other companies and various industry associations are opposing certain aspects of the levies.

        Kassin v. Agilent Technologies is a nationwide securities class action filed on November 26, 2001 in United States District Court in the Southern District of New York against Agilent Technologies, Inc.

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and several banks and underwriters for conduct concerning the commission structure of Agilent Technologies' initial public offering ("IPO") in late 1999. A consolidated amended complaint was filed in April 2002 alleging that the defendant banks and underwriters offered Agilent Technologies IPO shares in exchange for excessive commissions and guarantees to buy more shares at an inflated price in the IPO aftermarket. This case is similar to numerous other cases filed in the United States District Court in the Southern District of New York concerning the IPO market of the late 1990s. By stipulation, the individual defendants have been dismissed from the case without prejudice. An omnibus motion to dismiss has been filed on behalf of issuer defendants. While HP is not named as a defendant in this action, HP includes the litigation in this report due to an indemnification agreement between HP and Agilent Technologies.

        HP was contacted informally by the San Francisco District Office of the U.S. Securities and Exchange Commission ("SEC") in March 2002 requesting the voluntary provision of documents and related information concerning HP's relationships and communications with Deutsche Bank and affiliated parties and communications regarding the solicitation of votes from Deutsche Bank and affiliated parties in connection with the Compaq acquisition. The SEC has advised HP that the inquiry should not be construed as an indication by the SEC or its staff that any violations of the law have occurred, nor should it be considered a reflection upon any person, entity or security. HP is cooperating fully with this inquiry.

        In April 2002 HP received a subpoena from the U.S. Attorney's Office for the Southern District of New York to produce information concerning the voting by each of Deutsche Bank and Northern Trust and their respective affiliated parties on the proposal to issue shares in connection with the Compaq acquisition. HP understands that this inquiry is in response to press accounts concerning the vote on the proposal at the HP special meeting of shareowners held on March 19, 2002. HP is fully cooperating with this inquiry.

        HP is involved in lawsuits, claims, investigations and proceedings, in addition to those identified above, consisting of patent, commercial, securities, employment and environmental matters, which arise in the ordinary course of business. In accordance with SFAS No. 5, "Accounting for Contingencies," HP makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, HP believes that it has valid defenses with respect to the legal matters pending against it as well as adequate provisions for any probable and estimable losses. It is possible, nevertheless, that cash flows or results of operations could be affected in any particular period by the resolution of one or more of these contingencies.

Litigation Settlement

        On June 4, 2001, HP and Pitney Bowes Inc. ("Pitney Bowes") announced they had entered into agreements that resolved all pending patent litigation between the parties without admission of infringement and in connection therewith HP paid Pitney Bowes $400 million in cash on June 7, 2001. In addition, the companies entered into a technology licensing agreement and expect to pursue business and commercial relationships. The litigation related to Pitney Bowes' claims that HP LaserJet printers infringed Pitney Bowes' character edge smoothing patent, and HP's claims that Pitney Bowes copiers, fax machines, document management software and a postal metering machine infringed HP's patents.

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Note 18: Segment Information

Description of Segments

        HP is a leading global provider of products, technologies, solutions and services to consumers and businesses. HP's offerings span information technology ("IT") infrastructure, personal computing and access devices, global services and imaging and printing.

        As of October 31, 2002, HP organized its operations into five business segments: the Imaging and Printing Group, the Personal Systems Group, the Enterprise Systems Group, HP Services and HP Financial Services. The segments were determined in accordance with how management views and evaluates HP's businesses. In the first quarter of fiscal 2002, HP made strategic changes to move: the PC business from Computing Systems to Personal Systems; servers, storage and software from Computing Systems to Enterprise Systems; personal appliances from All Other to Personal Systems; and HP Financial Services from IT Services to a separate reporting segment. In the third quarter of fiscal 2002, HP made another strategic change to move workstations from Computing Systems to Personal Systems. The remaining businesses of IT Services became HP Services. Segment financial data for the years ended October 31, 2001 and 2000 has been restated to reflect these organizational changes. The factors that management uses to identify HP's separate businesses include customer base, homogeneity of products, technology and delivery channels. A description of the types of products and services provided by each reportable segment is as follows:

•

Imaging and Printing Group provides home and business imaging and printing devices, digital imaging and publishing systems, printing supplies and consulting services. Home and business imaging and printing devices include color and monochrome printers for shared and personal use, multi-function laser and all-in-one inkjet devices, personal color copiers and faxes, wide- and large-format inkjet printers and digital presses. Digital imaging and publishing systems include scanners, photosmart printers, and digital photography products. Supplies include laser and inkjet printer cartridges and other related printing media. Consulting services are provided to customers to optimize the use of printing and imaging assets.


•

Personal Systems Group provides commercial personal computers ("PCs"), consumer PCs, workstations, a range of handheld computing devices, digital entertainment systems, calculators and other related accessories, software and services for commercial and consumer markets. Commercial PCs include the HP e-PC and Compaq Evo desktop series, as well as Evo notebook PCs. Home PCs include the HP Pavilion and Compaq Presario series of multi-media consumer desktop PCs and notebook PCs. Workstations are provided for UNIX®, Windows® and Linux-based systems. Handheld computing devices include the iPAQ series of products that run on Pocket PC software. Digital entertainment systems offer the DVD+RW drives as well as digital entertainment center products. Post-Compaq acquisition product roadmap decisions include discontinuance of the Vectra desktop series, the Armada and Omnibook notebook series and Jornada handheld products.


•

Enterprise Systems Group provides business critical servers, industry standard servers, storage and software solutions. Business critical servers include Reduced Instruction Set Computing (RISC)-based servers running on the HP-UX operating system, Itanium®-based servers running on HP-UX, Windows® and Linux and the HP AlphaServer product line running on both Tru64 UNIX® and Open VMS. The various server offerings range from low-end servers to high-end scalable servers, including the Superdome line. Additionally, HP offers its NonStop fault-tolerant server products, which deliver high levels of availability, performance, scalability and manageability for business critical solutions. Industry standard servers offer primarily entry-level and mid-range ProLiant servers, which run on the Windows®, Linux and Novell Inc. operating

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systems. Storage provides entry-level, mid-range and enterprise array offerings, storage area networks, storage management software and virtualization technologies, as well as tape drives, tape libraries and optical archival storage. Software offerings include OpenView and other management and telecommunications software solutions designed primarily for large-scale systems and networks. These software solutions run on a variety of operating systems including Windows® and multiple versions of UNIX®. Post-Compaq acquisition product roadmap decisions include discontinuance of the NetServer line.

•

HP Services provides a comprehensive, integrated portfolio of IT services including customer support, consulting and integration, and managed services. Customer support provides a range of services from standalone product support to high availability services for complex, global, networked, multi-vendor environments. Customer support also manages the delivery of warranty support through its own service organization, as well as through full-service resellers and independent service companies. Consulting and integration provides services to design, build and integrate IT infrastructure. Consulting and integration also provides cross-industry solutions in areas such as customer relationship management, supply chain, e-commerce, business portals, messaging and security, as well as industry-focused solutions for financial services, telecommunications, manufacturing and the public sector. Managed services offers a range of IT management services, both comprehensive and selective, including transformational infrastructure services, client computing managed services, managed web services and application services, as well as business continuity and recovery services. HP Services teams with the leading software, networking and services companies to bring complete solutions to HP's customers.


•

HP Financial Services supports and enhances HP's global product and services solutions by providing a broad range of value-added financial services offerings that enable HP's customers worldwide to acquire complete IT solutions, including hardware, software and services. HP Financial Services offerings include lease and loan financing and computing and printing utility offerings, as well as financial asset management services for large global and enterprise customers. HP Financial Services also offers an array of specialized financial services to small and medium-sized businesses and educational and governmental customers. HP Financial Services offers innovative, customized and flexible alternatives to balance unique customer cash flow, technology obsolescence and capacity needs.

        Prior to fiscal 2002, HP's immaterial operating segments were aggregated to form an "All Other" category as they did not meet the materiality threshold for a reportable segment. This category included primarily the VeriFone business prior to its divestiture in the third quarter of fiscal 2001.

        The four principal reportable segments disclosed in these consolidated financial statements are based on HP's management organizational structure as of October 31, 2002. Separate segment reporting has also been included for HP Financial Services, which is included in the Enterprise Systems Group's organizational structure, due to the distinct nature of this business. Future changes to this organizational structure may result in changes to the reportable segments disclosed.

Segment Revenue and Profit

        The accounting policies used to derive reportable segment results are generally the same as those described in Note 1 to the Consolidated Financial Statements. Intersegment net revenue and earnings from operations include transactions between segments that are intended to reflect an arm's length transfer at the best price available from comparable external customers and are primarily related to intercompany sales of products to HP Financial Services for leasing transactions.

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        A significant portion of each segment's expenses arise from shared services and infrastructure that HP has historically allocated to the segments in order to realize economies of scale and to use resources efficiently. These expenses include costs of centralized research and development, legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other corporate and infrastructure costs. In the first quarter of fiscal 2002, HP revised its allocation methodology for shared services and infrastructure. HP believes these allocation changes resulted in a better reflection of the utilization of services provided to or benefits received by the segments. Segment financial data for the years ended October 31, 2001 and 2000 has been restated to reflect these changes.

Segment Data

        The results of the reportable segments are derived directly from HP's management reporting system. The results are based on HP's method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including earnings from operations. These results are used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses, which are separately managed at the corporate level, are not allocated to segments. These unallocated costs include primarily acquisition-related charges, restructuring charges, charges for purchased IPR&D, amortization of purchased intangible assets and goodwill and the amount by which profit-dependent bonus expenses and certain employee-related benefit program costs differ from a targeted level recorded by the segments.

        Asset data is not reviewed by management at the segment level, with the exception of inventory, which is allocated to and directly managed by each segment. All of the products and services within the respective segments are generally considered similar in nature, and therefore a separate disclosure of similar classes of products and services below the segment level is not presented.

        Financial information for each reportable segment was as follows as of and for the fiscal years ended October 31, 2002, 2001 and 2000:

	Imaging and Printing Group		Personal Systems Group			Enterprise Systems Group			HP Services		HP Financial Services			All Other			Total
	In millions
2002:
Net revenue	$	20,324	$	14,733		$	11,400		$	9,095	$	1,707		$	—		$	57,259
Earnings (loss) from operations	$	3,249	$	(401	)	$	(968	)	$	1,022	$	(140	)	$	—		$	2,762
Inventory	$	3,136	$	843		$	1,188		$	629	$	13		$	(12	)	$	5,797
2001:
Net revenue	$	19,426	$	10,117		$	8,395		$	6,124	$	1,454		$	245		$	45,761
Earnings (loss) from operations	$	1,869	$	(412	)	$	(291	)	$	647	$	(179	)	$	(71	)	$	1,563
Inventory	$	3,433	$	602		$	843		$	342	$	6		$	(22	)	$	5,204
2000:
Net revenue	$	20,346	$	12,008		$	9,628		$	5,730	$	1,411		$	423		$	49,546
Earnings (loss) from operations	$	2,523	$	335		$	660		$	578	$	85		$	(113	)	$	4,068
Inventory	$	3,475	$	685		$	1,080		$	337	$	40		$	82		$	5,699

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        The reconciliation of segment information to HP consolidated totals was as follows for the years ended October 31, 2002, 2001 and 2000:

	2002			2001			2000
	In millions
Net revenue:
Total segments	$	57,259		$	45,761		$	49,546
Elimination of intersegment net revenue and other		(671	)		(535	)		(676	)
Total HP consolidated	$	56,588		$	45,226		$	48,870
(Loss) earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes:
Total segment earnings from operations	$	2,762		$	1,563		$	4,068
Acquisition-related inventory write-downs		(147	)		—			—
Corporate and unallocated costs, and eliminations		49			494			145
Restructuring charges		(1,780	)		(384	)		(102	)
In-process research and development charges		(793	)		(35	)		—
Acquisition-related charges		(701	)		(25	)		—
Amortization of purchased intangible assets and goodwill		(402	)		(174	)		(86	)
Interest and other, net		52			171			356
Net (losses) gains on divestitures		—			(53	)		203
Net investment (losses) gains		(106	)		(455	)		41
Litigation settlements		14			(400	)		—
Total HP consolidated	$	(1,052	)	$	702		$	4,625

Major Customers

        No single customer represented 10% or more of HP's total net revenue in any period presented.

Geographic Information

        Net revenue and net property, plant and equipment, classified by major geographic areas in which HP operates, were as follows as of and for the years ended October 31, 2002, 2001 and 2000:

	2002		2001		2000
	In millions
Net revenue:
U.S.	$	23,302	$	18,833	$	21,528
Non-U.S.		33,286		26,393		27,342
Total	$	56,588	$	45,226	$	48,870

	2002		2001		2000
	In millions
Net property, plant and equipment:
U.S.	$	4,158	$	2,102	$	2,256
Non-U.S.		2,766		2,295		2,244
Total	$	6,924	$	4,397	$	4,500

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        Net revenue by geographic area is based upon the sales location which predominately represents the customer location.

        No single country outside of the United States represented more than 10% of HP's total net revenue in any period presented. No single country outside of the United States represented more than 10% of HP's total net property, plant and equipment in any period presented, with the exception of Ireland and Singapore, which held 11% and 10% of these assets at October 31, 2001, respectively. HP's long-lived assets other than goodwill and purchased intangible assets, which are not allocated to specific geographic locations, are composed principally of net property, plant and equipment.

Note 19: Subsequent Events

        At October 31, 2002, HP held a 49% equity interest in Intria-HP Corporation ("Intria"), a provider of IT services, which was jointly owned with Canadian Imperial Bank of Commerce ("CIBC"). On November 1, 2002, HP acquired the remaining outstanding stock of Intria and other related IT assets from CIBC. In connection with the acquisition, HP also entered into a multi-year contract to provide IT services to CIBC. The acquisition was accounted for under the purchase method of accounting. Effective November 1, 2002, HP will include the assets, liabilities and results of operations in our consolidated financial statements.

        On December 11, 2002, HP offered under its 2000 Shelf Registration Statement, $200 million of 3.375% Series A Medium-Term Notes (the "3.375% Notes"), which mature on December 15, 2005 and $50 million of 4.25% Series A Medium-Term Notes (the "4.25% Notes"), which mature on December 17, 2007. HP may redeem some or all of the 3.375% Notes or the 4.25% Notes at any time at the redemption prices described in the prospectus supplement dated June 6, 2000.

        As a result of the Compaq acquisition and associated credit rating changes, approximately $250 million of HP's debt due to CCF Charterhouse, now HSBC-CCF, became subject to a put option whereby the debt became repayable at the option of HSBC-CCF. On December 17, 2002, this put option was waived by HSBC-CCF and was renegotiated so that the debt becomes repayable at HSBC-CCF's election on September 29, 2003.

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Quarterly Summary⁽¹⁾

(Unaudited)

For the following three-month periods ended In millions, except per share amounts		January 31		April 30		July 31			October 31
2002
Net revenue		$	11,383	$	10,621	$	16,536		$	18,048
Cost of sales			8,325		7,575		12,419			13,260
Earnings (loss) from operations			625		414		(2,476	)		425
Net earnings (loss) before extraordinary item			478		238		(2,029	)		390
Extraordinary item—gain on early extinguishment of debt, net of taxes			6		14		—			—
Net earnings (loss)			484		252		(2,029	)		390
Basic net earnings (loss) per share:(2)
	Net earnings (loss) before extraordinary item	$	0.25	$	0.12	$	(0.67	)	$	0.13
	Extraordinary item—gain on early extinguishment of debt, net of taxes		—		0.01		—			—
	Net earnings (loss)	$	0.25	$	0.13	$	(0.67	)	$	0.13
Diluted net earnings (loss) per share:(2)
	Net earnings (loss) before extraordinary item	$	0.25	$	0.12	$	(0.67	)	$	0.13
	Extraordinary item—gain on early extinguishment of debt, net of taxes		—		0.01		—			—
	Net earnings (loss)	$	0.25	$	0.13	$	(0.67	)	$	0.13
Cash dividends paid per share		$	0.08	$	0.08	$	0.08		$	0.08
Range of per share closing stock prices on the New York Stock Exchange ("NYSE"):
	Low	$	16.89	$	16.96	$	11.52		$	11.16
	High	$	23.53	$	22.04	$	20.50		$	15.80

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For the following three-month periods ended In millions, except per share amounts		January 31			April 30		July 31		October 31
2001
Net revenue		$	12,398		$	11,668	$	10,284	$	10,876
Cost of sales			9,060			8,738		7,620		8,077
Earnings from operations			770			343		204		122
Net earnings before extraordinary item and cumulative effect of change in accounting principle			390			35		115		84
Extraordinary item—gain on early extinguishment of debt, net of taxes			23			12		8		13
Cumulative effect of change in accounting principle, net of taxes(3)			(272	)		—		—		—
Net earnings			141			47		123		97
Basic net earnings per share:(2)
	Net earnings before extraordinary item and cumulative effect of change in accounting principle	$	0.20		$	0.02	$	0.06	$	0.04
	Extraordinary item—gain on early extinguishment of debt, net of taxes		0.01			—		—		0.01
	Cumulative effect of change in accounting principle, net of taxes(3)		(0.14	)		—		—		—
	Net earnings	$	0.07		$	0.02	$	0.06	$	0.05
Diluted net earnings per share:(2)
	Net earnings before extraordinary item and cumulative effect of change in accounting principle	$	0.20		$	0.02	$	0.06	$	0.04
	Extraordinary item—gain on early extinguishment of debt, net of taxes		0.01			—		—		0.01
	Cumulative effect of change in accounting principle, net of taxes(3)		(0.14	)		—		—		—
	Net earnings	$	0.07		$	0.02	$	0.06	$	0.05
Cash dividends paid per share		$	0.08		$	0.08	$	0.08	$	0.08
Range of per share closing stock prices on NYSE:
	Low	$	29.38		$	27.41	$	24.00	$	14.50
	High	$	47.44		$	36.86	$	30.90	$	25.91

Notes:

(1)

Certain reclassifications have been made to prior quarter balances in order to conform to the current presentation.

(2)

EPS for each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the fiscal year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal the EPS for the fiscal year.

(3)

HP adopted SAB No. 101, "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal 2001, retroactive to November 1, 2000.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

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PART III

ITEM 10. Directors and Executive Officers of the Registrant.

        Information regarding directors of HP who are standing for reelection is set forth under "Election of Directors" in HP's Notice of Annual Meeting of Shareowners and Proxy Statement to be filed within 120 days after HP's fiscal year end of October 31, 2002 (the "Notice and Proxy Statement"), which information is incorporated herein by reference.

        The names of the executive officers of HP and their ages, titles, and biographies as of the date hereof are set forth below.

Executive Officers:

Carleton S. Fiorina; age 48; Chairman and Chief Executive Officer.

        Ms. Fiorina serves as Chairman of the Board and Chief Executive Officer of HP. She became Chairman of the Board in September 2000 after serving as President, Chief Executive Officer and director since July 1999. Prior to joining HP, she spent nearly 20 years at AT&T Corp. and Lucent Technologies, Inc., where she served as Executive Vice President, Computer Operations for Lucent and oversaw the formation and spin-off of Lucent from AT&T. She also served as Lucent's President, Global Service Provider Business and President, Consumer Products. Ms. Fiorina is a member of the Board of Directors of Cisco Systems, Inc.

Ann O. Baskins; age 47; Senior Vice President, General Counsel and Secretary.

        Ms. Baskins was elected Senior Vice President in 2002 after serving as Vice President since November 1999. She has served as General Counsel responsible for worldwide legal matters since January 2000. Since 1999 she has also served as Corporate Secretary, and was elected Assistant Secretary from 1985 to 1999.

Peter Blackmore; age 55; Executive Vice President, Enterprise Systems Group.

        Mr. Blackmore was elected Executive Vice President, Enterprise Systems Group in 2002 in connection with the Compaq acquisition. Prior to the close of the transaction, Mr. Blackmore served as Executive Vice President, Worldwide Sales and Services of Compaq since 2000. Prior to that time, Mr. Blackmore served as Senior Vice President, Sales and Services earlier in 2000, and Senior Vice President, Sales and Marketing from 1999 to 2000. Mr. Blackmore joined Compaq in 1991 as Manager, Major Accounts Marketing, Europe, and served in a number of senior sales and marketing positions.

Susan D. Bowick; age 54; Executive Vice President, Human Resources and Workforce Development.

        Ms. Bowick was elected Executive Vice President in 2002 after serving as Vice President since November 1999. Between 1995 and 1997, she served as Business Personnel Manager for the Computer Organization. She was first appointed a Vice President in 1997.

Jeffrey J. Clarke; age 41; Executive Vice President, Supply Chain and Customer Operations.

        Mr. Clarke was elected Executive Vice President, Merger Integration in 2002 in conjunction with the Compaq acquisition. In December 2002, he was named Executive Vice President of Supply Chain and Customer Operations. During his 17-year career with Compaq and Digital Equipment Corporation, Mr. Clarke held key management positions including Senior Vice President, Finance and Administration and Chief Financial Officer, Vice President, Finance & Strategy, Worldwide Sales and Services and Vice President, Corporate Strategy and Finance.

129

Debra L. Dunn; age 46; Senior Vice President, Corporate Affairs.

        Ms. Dunn was elected Senior Vice President in 2002 after serving as Vice President since November 1999. She previously held the position of General Manager of the Executive Staff from 1998 to 1999. From 1996 to 1998 she was General Manager of HP's Video Communications Division.

Jon E. Flaxman; age 45; Senior Vice President and Controller.

        Mr. Flaxman was elected Senior Vice President in 2002 after serving as Vice President and Controller since July 2001. He was General Manager of Computer Logistics and Distribution from 1997 to 1998. From 1998 to December 2000, he was Vice President and Chief Financial Officer of the Enterprise Computing Business/Business Customer Organization, and from December 2000 to June 2001 he was Vice President of Infrastructure Reinvention. He was first appointed a Vice President in 1998.

Allison Johnson; age 41; Senior Vice President, Global Brand and Communications.

        Ms. Johnson was elected Senior Vice President in 2002. Ms. Johnson has served as Vice President, Brand and Communications at HP since January 2001. From January 2000 to January 2001, Ms. Johnson was Director, Brand and Communications at HP Enterprise Systems Division. From January 1999 to January 2000, she was Director, Corporate Communications at Netscape Communications Corp. From September 1997 to January 1999, Ms. Johnson was Director, Communications at IBM Corporation.

Vyomesh Joshi; age 48; Executive Vice President, Imaging and Printing Group.

        Mr. Joshi was elected Executive Vice President in 2002 after serving as Vice President since January 2001. He became President of Imaging and Printing Systems in February 2001. Mr. Joshi also is Chairman of Phogenix Imaging LLC, a joint venture between HP and Kodak. Since 1989, he has held various management positions in Imaging and Printing Systems. From 1997 to 1999, he was General Manager of the Home Business Division. From 1999 to 2000, he was Vice President and General Manager of Inkjet Systems.

Richard H. Lampman; age 57; Senior Vice President of Research and Director, HP Labs.

        Mr. Lampman was elected Senior Vice President in 2002. He has served as the director of HP Labs since 1999. From 1992 to 1999, he served as the director of HP Labs' worldwide Computer Research Center.

Ann M. Livermore; age 44; Executive Vice President, HP Services.

        Ms. Livermore was elected Executive Vice President in 2002 after serving as Vice President since 1995. She was named General Manager of Worldwide Customer Support Operations in 1996. She was named General Manager of the Enterprise Computing Solutions Organization in 1998 and was appointed President of Enterprise Computing in April 1999. In October 1999, she became President of the Business Customer Organization. In April 2001, she became President of HP Services. Ms. Livermore is a member of the Board of Directors of United Parcel Service, Inc. She is also on the board of visitors of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and the Board of Advisors at the Stanford Business School.

Harry W. (Webb) McKinney; age 57; Executive Vice President, Merger Integration and Organizational Effectiveness.

        Mr. McKinney was elected Executive Vice President in 2002 after serving as Vice President since April 2001. He leads HP's post-merger integration team. Prior to the Compaq acquisition, he served as President of the Business Customer Organization. In 1999, he was appointed a Vice President and

130

became the Vice President and General Manager of the PC business within the Computing Systems Organization. Mr. McKinney was General Manager of the Home Products Division from 1994 to 1998.

Robert V. Napier; age 56; Executive Vice President and Chief Information Officer.

        Mr. Napier was elected Executive Vice President in December 2002 after being elected Senior Vice President in connection with the Compaq acquisition. Mr. Napier oversees HP's worldwide management of information systems activities. Prior to joining HP, Mr. Napier served as Senior Vice President, Global Business Solutions and Chief Information Officer at Compaq since 2000. Mr. Napier joined Compaq in August 1999 as Senior Vice President, Information Management and Chief Information Officer. Prior to joining Compaq, he was Senior Vice President and Chief Information Officer of Mariner Post-Acute Network, a position he had held since 1998, and Chief Information Officer of Delphi Automotive Systems from 1997 to 1998.

Steve Pavlovich; age 53; Vice President, Investor Relations.

        Mr. Pavlovich was elected Vice President in 2002. Since 1993, Mr. Pavlovich has been the head of HP's investor relations department.

Shane V. Robison; age 49; Executive Vice President and Chief Technology and Strategy Officer.

        Mr. Robison was elected Senior Vice President in 2002 in connection with the Compaq acquisition. Prior to joining HP, Mr. Robison served as Senior Vice President, Technology and Chief Technology Officer at Compaq. Prior to joining Compaq, Mr. Robison was President of Internet Technology and Development at AT&T Labs, a position he had held since 1999. Prior to AT&T Labs, he was Executive Vice President, Research and Development and then President, Design Productivity Group, of Cadence Design Systems, Inc., from 1995 to 1999.

Lawrence J. Tomlinson; age 62; Senior Vice President and Treasurer.

        Mr. Tomlinson was elected Vice President in 1996 and Senior Vice President in 2002. He has served as Treasurer since 1993.

Robert P. Wayman; age 57; Executive Vice President and Chief Financial Officer.

        Mr. Wayman has served as Executive Vice President since December 1992 and Chief Financial Officer of HP since 1984. Mr. Wayman is a director of CNF Inc., Sybase Inc., and Portal Software, Inc. He also serves as a member of the Kellogg Advisory Board to the Northwestern University School of Business.

Michael J. Winkler; age 57; Executive Vice President and Chief Marketing Officer.

        Mr. Winkler was elected Executive Vice President in 2002 in connection with the Compaq acquisition. In December 2002, he became the Chief Marketing Officer responsible for the Global Brand and Communications, Global Alliances and Total Customer Experience teams. Prior to joining HP, Mr. Winkler served as Executive Vice President, Global Business Units of Compaq since 2000. Prior to that, Mr. Winkler was Senior Vice President and Group General Manager, Commercial Personal Computing Group, a position to which he was elected in 1996. Mr. Winkler is a director of Banda Corporation.

Duane E. Zitzner; age 55; Executive Vice President, Personal Systems Group.

        Mr. Zitzner was elected Executive Vice President in 2002 after serving as President of Computing Systems since April 1999. Mr. Zitzner was elected an HP Vice President and promoted to General Manager of the Personal Information Products Group in 1996. He became Vice President and General

131

Manager of the Personal Systems Group in 1997 when it became a group within HP's Computer Organization.

Michael D. Capellas; age 48; former President.

        Mr. Capellas served as President and a director of HP from the date of the Compaq acquisition in May 2002. On November 11, 2002, HP announced that Mr. Capellas would leave his post as President and as a director. Prior to joining HP, he served as Chairman and Chief Executive Officer of Compaq since 2000. In 1999 Mr. Capellas was appointed a director of Compaq and also served as President and Chief Executive Officer. Earlier in 1999, he served as Chief Operating Officer. Mr. Capellas joined Compaq in 1998 as Senior Vice President, Information Management and Chief Information Officer. Prior to joining Compaq, he was Senior Vice President and General Manager of the global energy business of Oracle Corporation from 1997 through 1998.

ITEM 11. Executive Compensation.

        Information regarding HP's compensation of its named executive officers is set forth under "Executive Compensation" in the Notice and Proxy Statement, which information is incorporated herein by reference. Information regarding HP's compensation of its directors is set forth under "Director Compensation and Stock Ownership Guidelines" in the Notice and Proxy Statement, which information is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management.

        Information regarding security ownership of certain beneficial owners and management is set forth under "Common Stock Ownership of Certain Beneficial Owners and Management" in the Notice and Proxy Statement, which information is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions.

        Information regarding certain relationships and related transactions is set forth under "Certain Relationships and Related Transactions" in the Notice and Proxy Statement, which information is incorporated herein by reference.

ITEM 14. Controls and Procedures.

        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, within 90 days of the filing date of this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission ("SEC") reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to HP, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared.

        In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

132

PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)

The following documents are filed as part of this report:



1.

All Financial Statements:

The following financial statements are filed as part of this report under Item 8—"Financial Statements and Supplementary Data."

Report of Independent Auditors	69
Statement of Management Responsibility	70
Consolidated Statement of Earnings	71
Consolidated Balance Sheet	72
Consolidated Statement of Cash Flows	73
Consolidated Statement of Stockholders' Equity	74
Notes to Consolidated Financial Statements	75
Quarterly Summary	127

2.

Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts for the three fiscal years ended October 31, 2002.

All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements and notes thereto in Item 8 above.

3.

Exhibits:

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. HP shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request.

Exhibit Number	Description
1	Not applicable.
2(a)	Master Separation and Distribution Agreement between Hewlett-Packard Company and Agilent Technologies, Inc. effective as of August 12, 1999, which appears as Exhibit 2 to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.
2(b)	Agreement and Plan of Reorganization by and among Hewlett-Packard Company, Heloise Merger Corporation and Compaq Computer Corporation dated as of September 4, 2001, which appears as Exhibit 2.1 to Registrant's Form 8-K dated August 31, 2001, which exhibit is incorporated herein by reference.
3(a)	Registrant's Certificate of Incorporation, which appears as Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1998, which exhibit is incorporated herein by reference.
3(b)	Registrant's Amendment to the Certificate of Incorporation, which appears as Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2001, which exhibit is incorporated herein by reference.
3(c)	Registrant's Amended and Restated By-Laws adopted November 22, 2002.

133

3(d)	Registrant's Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock, which appears as Exhibit 3.4 to Registrant's Form 8-A dated September 4, 2001, which exhibit is incorporated herein by reference.
4(a)	Indenture dated as of October 14, 1997 among Registrant and Chase Trust Company of California regarding Liquid Yield Option Notes due 2017 which appears as Exhibit 4.2 to Registrant's Registration Statement on Form S-3 (Registration No. 333-44113), which exhibit is incorporated herein by reference.
4(b)	Supplemental Indenture dated as of March 16, 2000 among Registrant and Chase Trust Company of California regarding Liquid Yield Option Notes due 2017, which appears as Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2000, which exhibit is incorporated herein by reference.
4(c)	Form of Registrant's 7.15% Global notes due June 15, 2005 and related Officers' Certificate, which appear as Exhibits 4.1 and 4.3 to Registrant's Form 8-K filed on June 15, 2000, which exhibits are incorporated herein by reference.
4(d)	Senior Indenture, which appears as Exhibit 4.1 to Registrant's Registration Statement on Form S-3 dated February 18, 2000, as amended by Amendment No. 1 thereto dated March 17, 2000 (Registration No. 333-30786), which exhibit is incorporated herein by reference.
4(e)	Form of Registrant's Fixed Rate Note and Floating Rate Note and related Officers' Certificate, which appear as Exhibits 4.1, 4.2 and 4.4 to Registrant's Form 8-K filed on May 24, 2001, which exhibits are incorporated herein by reference.
4(f)	Preferred Stock Rights Agreement, dated as of August 31, 2001, between Hewlett-Packard Company and Computershare Investor Services, LLC., which appears as Exhibit 4.1 to Registrant's Form 8-K dated August 31, 2001, which exhibit is incorporated herein by reference.
4(g)	Underwriting Agreement, dated December 3, 2001, between Hewlett-Packard Company and Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., as representatives of the several underwriters named therein, which appears as Exhibit 1.1 to Registrant's Form 8-K dated December 7, 2001, which exhibit is incorporated herein by reference.
4(h)	Form of 5.75% Global Note due December 15, 2006, and Officers' Certificate which appear as Exhibits 4.1 and 4.2 to Registrant's Form 8-K dated December 7, 2001, which exhibits are incorporated herein by reference.
4(i)	Form of 5.50% Global Note due July 1, 2007, and form of related Officers' Certificate which appear as Exhibits 4.1, and 4.3 to Registrant's Form 8-K dated June 26, 2002, which exhibits are incorporated herein by reference.
4(j)	Form of Registrant's 6.50% Global Note due July 1, 2012 and form of related Officers' Certificate, which appear as Exhibits 4.2 and 4.3 to Registrant's Form 8-K filed on June 26, 2002, which exhibits are incorporated herein by reference.
4(k)	Form of Registrant's Fixed Rate Note and form of Floating Rate Note which appear as Exhibits 4.1 and 4.2 to Registrant's Form 8-K dated December 11, 2002, which exhibits are incorporated herein by reference.
5-8	Not applicable.

134

9	None.
10(a)	Registrant's 2000 Stock Plan, amended and restated effective November 21, 2002.*
10(b)	Registrant's 1997 Director Stock Plan, amended and restated effective as of July 18, 2002, which appears as Exhibit 10(h) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2002, which exhibit is incorporated herein by reference.*
10(c)	Registrant's 1995 Incentive Stock Plan, amended and restated effective November 21, 2002.*
10(d)	Registrant's 1990 Incentive Stock Plan, amended and restated effective November 21, 2002.*
10(e)	Registrant's 1985 Incentive Compensation Plan, amended and restated effective November 21, 2002.*
10(f)	Compaq Computer Corporation 2001 Stock Option Plan, amended and restated effective November 21, 2002.*
10(g)	Compaq Computer Corporation 1998 Stock Option Plan, amended and restated effective November 21, 2002.*
10(h)	Compaq Computer Corporation 1995 Equity Incentive Plan, amended and restated effective November 21, 2002.*
10(i)	Compaq Computer Corporation 1989 Equity Incentive Plan, amended and restated effective November 21, 2002.*
10(j)	Form of Restricted Stock Grant Notice-1989 Equity Incentive Plan, which appears as Exhibit 10(ww) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(k)	Compaq Computer Corporation 1985 Stock Option Plan, amended and restated effective November 21, 2002.*
10(l)	Compaq Computer Corporation 1985 Executive and Key Employee Stock Option Plan, amended and restated effective November 21, 2002.*
10(m)	Compaq Computer Corporation 1985 Nonqualified Stock Option Plan, amended and restated effective November 21, 2002.*
10(n)	Compaq Computer Corporation Nonqualified Stock Option Plan for Non-Employee Directors, which appears as Exhibit 10.5 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*
10(o)	Amendment of Compaq Computer Corporation Non-Qualified Stock Option Plan for Non-Employee Directors, which appears as Exhibit 10.11 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*
10(p)	Compaq Computer Corporation 1998 Former Nonemployee Replacement Option Plan, which appears as Exhibit 10.9 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*

135

10(q)	StorageApps Inc. 2000 Stock Incentive Plan, amended and restated effective November 21, 2002.*
10(r)	Flexible Stock Incentive Plan of Indigo N.V., amended and restated effective November 21, 2002.*
10(s)	Indigo N.V. 1996 International Flexible Stock Incentive Plan, amended and restated November 21, 2002.*
10(t)	VeriFone, Inc. Amended and Restated 1992 Non-Employee Directors' Stock Option Plan which appears as Exhibit 99.1 to Registrant's Form S-8 filed on July 1, 1997, which exhibit is incorporated herein by reference.*
10(u)	VeriFone, Inc. Amended and Restated 1987 Supplemental Stock Option Plan, amended and restated effective November 21, 2002.*
10(v)	VeriFone, Inc. Amended and Restated Incentive Stock Option Plan and form of agreement which appears as Exhibit 99.2 to Registrant's Form S-8 filed on July 1, 1997, which exhibit is incorporated herein by reference.*
10(w)	1995 Convex Stock Option Conversion Plan, amended and restated effective November 21, 2002.*
10(x)	1993 Metrix Stock Option Conversion Plan, amended and restated effective November 21, 2002.*
10(y)	Registrant's 2000 Employee Stock Purchase Plan amended as of March 29, 2001, which appears as Exhibit 10(v) to Registrant's Form 10-K for the fiscal year ended October 31, 2001, which exhibit is incorporated herein by reference.*
10(z)	Registrant's 1998 Subsidiary Employee Stock Purchase Plan and the Subscription Agreement which appear as Appendices E and E-1 to Registrant's Proxy Statement dated January 12, 1998, respectively, which appendices are incorporated herein by reference.*
10(a)(a)	Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1999, which appears as Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(b)(b)	First Amendment to Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1999.*
10(c)(c)	Compaq Computer Corporation Cash Account Pension Restoration Plan.*
10(d)(d)	Compaq Computer Corporation 401(k) Investment Plan, which appears as Exhibit 4.1 to Registrant's Form S-8 Registration Statement (Registration No. 333-87742) dated May 7, 2002, which exhibit is incorporated herein by reference.*
10(e)(e)	Compaq Computer Corporation Deferred Compensation and Supplemental Savings Plan, which appears as Exhibit 4.2 to Registrant's Form S-8 Registration Statement (Registration No. 333-87742) dated May 7, 2002, which exhibit is incorporated herein by reference.*
10(f)(f)	Registrant's Balance Score Card Plan, amended and restated as of May 1, 2002.*

136

10(g)(g)	Registrant's Executive Deferred Compensation Plan, amended and restated effective October 1, 2002.*
10(h)(h)	Registrant's 2001 Executive Transition Program, which appears as Exhibit 10(z) to Registrant's Form 10-K for the fiscal year ended October 31, 2001, which exhibit is incorporated herein by reference.*
10(i)(i)	Employment Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(gg) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(j)(j)	Incentive Stock Plan Stock Option Agreement (Non-Qualified), dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(ii) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(k)(k)	Restricted Stock Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(jj) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(l)(l)	Restricted Stock Unit Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(kk) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(m)(m)	Form of Executive Severance Agreement, which appears as Exhibit 10(uu) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(n)(n)	Form of Executive Officers Severance Agreement, which appears as Exhibit 10(vv) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(o)(o)	Form of Indemnity Agreement between Compaq and its executive officers, which appears as Exhibit 10(xx) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(p)(p)	General Waiver and Release Agreement executed by Michael D. Capellas with attached Benefits Summary Upon Termination dated November 11, 2002.*
10(q)(q)	Registrant's Service Anniversary Stock Plan, amended and restated effective November 21, 2002.*
10(r)(r)	Registrant's Foreign Employees Stock Appreciation Rights Plan amended and restated November 21, 2002.*
10(s)(s)	Registrant's Employee Stock Purchase Plan amended and restated as of June 30, 2000.*
10(t)(t)	Registrant's 1987 Director Option Plan, which appears as Exhibit 4 to Registrant's Form S-8 filed on August 31, 1989 (Registration No. 33-30769), which exhibit is incorporated herein by reference.*

137

10(u)(u)	Stock Option Agreement for Registrant's 2000 Stock Plan, as amended, 1995 Incentive Stock Plan, as amended, Compaq 2001 Stock Option Plan, as amended, Compaq 1998 Stock Option Plan, as amended, Compaq 1995 Equity Incentive Plan, as amended and Compaq 1989 Equity Incentive Plan, as amended.*
10(v)(v)	Stock Option Agreement for Registrant's 1990 Incentive Stock Option Plan, as amended, which appears as Exhibit 10(e) to Registrant's Form 10-K filed for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(w)(w)	Stock Option Agreement for Registrant's 1985 Incentive Compensation Plan, as amended, which appears as Exhibit 10(b) to Registrant's Form 10-K filed for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(x)(x)	Common Stock Payment Agreement and Option Agreement for Registrant's 1997 Director Stock Plan, as amended.*
10(y)(y)	Stock Option Agreement for Registrant's 1987 Director Option Plan.*
10(z)(z)	Stock Option Agreement for Compaq 1985 Stock Option Plan, as amended.*
10(a)(1)	Stock Option Agreement for Compaq 1985 Nonqualified Stock Option Plan, as amended.*
11	Not applicable.
12	Statement of Computation of Ratios.
13-14	Not applicable.
15	None.
16-17	Not applicable.
18-20	None.
21	Subsidiaries of Registrant as of December 31, 2002.
22	None.
23	Consent of Independent Auditors.
24	Power of Attorney (see signature page) of this Annual Report on Form 10-K and incorporated herein by reference.
25-26	Not applicable.
99.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Indicates management contract or compensatory plan, contract or arrangement.

        Exhibit numbers may not correspond in all cases to those numbers in Item 601 of Regulation S-K because of special requirements applicable to EDGAR filers.

The registrant agrees to furnish to the Commission upon request a copy of any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.

138

(b)

Reports on Form 8-K

        On September 13, 2002, HP filed a report on Form 8-K, which reported under Items 5 and 7 the issuance of sworn statements of Carleton S. Fiorina, Chairman and Chief Executive Officer, and Robert P. Wayman, Executive Vice President and Chief Financial Officer in compliance with Order No. 4-460 (June 27, 2002) of the Commission, and the published Statement of the Commission Staff (July 29, 2002). Both statements were filed as exhibits.

        On November 14, 2002, HP filed a report on Form 8-K, which reported under Item 5 that on November 11, 2002 Michael D. Capellas resigned as President of HP and as a member of the HP Board of Directors to pursue other career opportunities. On November 13, 2002 the Board of Directors of HP met and accepted his resignation. In connection with Mr. Capellas' resignation, the Board approved amendments to HP's bylaws reducing the Board size to 11. The President position will not be filled. The operating executives of HP who previously reported to Mr. Capellas report directly to Carly Fiorina, HP Chairman and Chief Executive Officer.

        On November 20, 2002, HP filed a report on Form 8-K, which reported under Items 5 and 7 the issuance of a press release containing financial information for the fourth quarter of fiscal 2002 and outlook for the first quarter of fiscal 2003, which was filed as an exhibit.

        On December 11, 2002, HP filed a report on Form 8-K, which reported under Item 5 certain documents pertaining to the offering from time to time of up to $1,500,000,000 aggregate principal amount of HP's Medium-Term Notes Series B, due nine months or more from the date of issue. The report also filed the form of Fixed Rate Note, form of Floating Rate Note and the Agency Agreement, dated December 6, 2002, entered into between HP and Salomon Smith Barney Inc., Banc of America Securities LLC, BNP Paribas Securities Corp., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc., Goldman, Sachs & Co., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Scotia Capital (USA) Inc. and The Williams Capital Group, L.P.

        On January 21, 2003, HP filed a report on Form 8-K, which reported under Item 5 the issuance of a press release regarding an amendment to the Preferred Stock Rights Agreement, dated as of August 31, 2001 (the "Rights Agreement"), between HP and Computershare Investor Services, LLC, to accelerate the final expiration date of the Preferred Share Purchase Rights ("Rights") issued thereunder to the close of business on Tuesday, January 21, 2003, and to terminate the Rights Agreement upon the expiration of the Rights.

139

Schedule II

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts

		For the following years ended October 31
		2002			2001			2000
		In millions
Allowance for doubtful accounts—accounts receivable:
	Balance, beginning of period	$	275		$	171		$	214
	Amount acquired through acquisition		226			—			—
	Additions to allowance		90			206			122
	Deductions, net of recoveries		(96	)		(102	)		(165	)
	Balance, end of period	$	495		$	275		$	171
Allowance for doubtful accounts—financing receivables:
	Balance, beginning of period	$	147		$	69		$	47
	Amount acquired through acquisition		131			—			—
	Additions to allowance		209			232			60
	Deductions, net of recoveries		(183	)		(154	)		(38	)
	Balance, end of period	$	304		$	147		$	69

140

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: January 21, 2003	HEWLETT-PACKARD COMPANY
	By:	/s/  CHARLES N. CHARNAS Charles N. Charnas Vice President, Deputy General Counsel and Assistant Secretary

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ann O. Baskins and Charles N. Charnas, or either of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title(s)	Date
/s/  CARLETON S. FIORINA Carleton S. Fiorina	Chairman and Chief Executive Officer (Principal Executive Officer)	January 21, 2003
/s/  ROBERT P. WAYMAN Robert P. Wayman	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	January 21, 2003
/s/  JON E. FLAXMAN Jon E. Flaxman	Senior Vice President and Controller (Principal Accounting Officer)	January 21, 2003
/s/  LAWRENCE T. BABBIO, JR. Lawrence T. Babbio, Jr.	Director	January 21, 2003
/s/  PHILIP M. CONDIT Philip M. Condit	Director	January 21, 2003
/s/  PATRICIA C. DUNN Patricia C. Dunn	Director	January 21, 2003
/s/  SAM GINN Sam Ginn	Director	January 21, 2003
/s/  RICHARD A. HACKBORN Richard A. Hackborn	Director	January 21, 2003

141

/s/  GEORGE A. KEYWORTH II George A. Keyworth II	Director	January 21, 2003
/s/  ROBERT E. KNOWLING, JR. Robert E. Knowling, Jr.	Director	January 21, 2003
/s/  SANFORD M. LITVACK Sanford M. Litvack	Director	January 21, 2003
/s/  THOMAS J. PERKINS Thomas J. Perkins	Director	January 21, 2003
/s/  LUCILLE S. SALHANY Lucille S. Salhany	Director	January 21, 2003

142

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX

Exhibit Number	Description
1	Not applicable.
2(a)	Master Separation and Distribution Agreement between Hewlett-Packard Company and Agilent Technologies, Inc. effective as of August 12, 1999, which appears as Exhibit 2 to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.
2(b)	Agreement and Plan of Reorganization by and among Hewlett-Packard Company, Heloise Merger Corporation and Compaq Computer Corporation dated as of September 4, 2001, which appears as Exhibit 2.1 to Registrant's Form 8-K dated August 31, 2001, which exhibit is incorporated herein by reference.
3(a)	Registrant's Certificate of Incorporation, which appears as Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1998, which exhibit is incorporated herein by reference.
3(b)	Registrant's Amendment to the Certificate of Incorporation, which appears as Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2001, which exhibit is incorporated herein by reference.
3(c)	Registrant's Amended and Restated By-Laws adopted November 22, 2002.
3(d)	Registrant's Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock, which appears as Exhibit 3.4 to Registrant's Form 8-A dated September 4, 2001, which exhibit is incorporated herein by reference.
4(a)	Indenture dated as of October 14, 1997 among Registrant and Chase Trust Company of California regarding Liquid Yield Option Notes due 2017 which appears as Exhibit 4.2 to Registrant's Registration Statement on Form S-3 (Registration No. 333-44113), which exhibit is incorporated herein by reference.
4(b)	Supplemental Indenture dated as of March 16, 2000 among Registrant and Chase Trust Company of California regarding Liquid Yield Option Notes due 2017, which appears as Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2000, which exhibit is incorporated herein by reference.
4(c)	Form of Registrant's 7.15% Global notes due June 15, 2005 and related Officers' Certificate, which appear as Exhibits 4.1 and 4.3 to Registrant's Form 8-K filed on June 15, 2000, which exhibits are incorporated herein by reference.
4(d)	Senior Indenture, which appears as Exhibit 4.1 to Registrant's Registration Statement on Form S-3 dated February 18, 2000, as amended by Amendment No. 1 thereto dated March 17, 2000 (Registration No. 333-30786), which exhibit is incorporated herein by reference.
4(e)	Form of Registrant's Fixed Rate Note and Floating Rate Note and related Officers' Certificate, which appear as Exhibits 4.1, 4.2 and 4.4 to Registrant's Form 8-K filed on May 24, 2001, which exhibits are incorporated herein by reference.

143

4(f)	Preferred Stock Rights Agreement, dated as of August 31, 2001, between Hewlett-Packard Company and Computershare Investor Services, LLC., which appears as Exhibit 4.1 to Registrant's Form 8-K dated August 31, 2001, which exhibit is incorporated herein by reference.
4(g)	Underwriting Agreement, dated December 3, 2001, between Hewlett-Packard Company and Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., as representatives of the several underwriters named therein, which appears as Exhibit 1.1 to Registrant's Form 8-K dated December 7, 2001, which exhibit is incorporated herein by reference.
4(h)	Form of 5.75% Global Note due December 15, 2006, and Officers' Certificate which appear as Exhibits 4.1 and 4.2 to Registrant's Form 8-K dated December 7, 2001, which exhibits are incorporated herein by reference.
4(i)	Form of 5.50% Global Note due July 1, 2007, and form of related Officers' Certificate which appear as Exhibits 4.1, and 4.3 to Registrant's Form 8-K dated June 26, 2002, which exhibits are incorporated herein by reference.
4(j)	Form of Registrant's 6.50% Global Note due July 1, 2012 and form of related Officers' Certificate, which appear as Exhibits 4.2 and 4.3 to Registrant's Form 8-K filed on June 26, 2002, which exhibits are incorporated herein by reference.
4(k)	Form of Registrant's Fixed Rate Note and form of Floating Rate Note which appear as Exhibits 4.1 and 4.2 to Registrant's Form 8-K dated December 11, 2002, which exhibits are incorporated herein by reference.
5-8	Not applicable.
9	None.
10(a)	Registrant's 2000 Stock Plan, amended and restated effective November 21, 2002.*
10(b)	Registrant's 1997 Director Stock Plan, amended and restated effective as of July 18, 2002, which appears as Exhibit 10(h) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2002, which exhibit is incorporated herein by reference.*
10(c)	Registrant's 1995 Incentive Stock Plan, amended and restated effective November 21, 2002.*
10(d)	Registrant's 1990 Incentive Stock Plan, amended and restated effective November 21, 2002.*
10(e)	Registrant's 1985 Incentive Compensation Plan, amended and restated effective November 21, 2002.*
10(f)	Compaq Computer Corporation 2001 Stock Option Plan, amended and restated effective November 21, 2002.*
10(g)	Compaq Computer Corporation 1998 Stock Option Plan, amended and restated effective November 21, 2002.*
10(h)	Compaq Computer Corporation 1995 Equity Incentive Plan, amended and restated effective November 21, 2002.*

144

10(i)	Compaq Computer Corporation 1989 Equity Incentive Plan, amended and restated effective November 21, 2002.*
10(j)	Form of Restricted Stock Grant Notice-1989 Equity Incentive Plan, which appears as Exhibit 10(ww) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(k)	Compaq Computer Corporation 1985 Stock Option Plan, amended and restated effective November 21, 2002.*
10(l)	Compaq Computer Corporation 1985 Executive and Key Employee Stock Option Plan, amended and restated effective November 21, 2002.*
10(m)	Compaq Computer Corporation 1985 Nonqualified Stock Option Plan, amended and restated effective November 21, 2002.*
10(n)	Compaq Computer Corporation Nonqualified Stock Option Plan for Non-Employee Directors, which appears as Exhibit 10.5 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*
10(o)	Amendment of Compaq Computer Corporation Non-Qualified Stock Option Plan for Non-Employee Directors, which appears as Exhibit 10.11 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*
10(p)	Compaq Computer Corporation 1998 Former Nonemployee Replacement Option Plan, which appears as Exhibit 10.9 to Amendment No. 1 to Registrant's Form S-3 Registration Statement (Registration No. 333-86378) dated April 18, 2002, which exhibit is incorporated herein by reference.*
10(q)	StorageApps Inc. 2000 Stock Incentive Plan, amended and restated effective November 21, 2002.*
10(r)	Flexible Stock Incentive Plan of Indigo N.V., amended and restated effective November 21, 2002.*
10(s)	Indigo N.V. 1996 International Flexible Stock Incentive Plan, amended and restated November 21, 2002.*
10(t)	VeriFone, Inc. Amended and Restated 1992 Non-Employee Directors' Stock Option Plan which appears as Exhibit 99.1 to Registrant's Form S-8 filed on July 1, 1997, which exhibit is incorporated herein by reference.*
10(u)	VeriFone, Inc. Amended and Restated 1987 Supplemental Stock Option Plan, amended and restated effective November 21, 2002.*
10(v)	VeriFone, Inc. Amended and Restated Incentive Stock Option Plan and form of agreement which appears as Exhibit 99.2 to Registrant's Form S-8 filed on July 1, 1997, which exhibit is incorporated herein by reference.*
10(w)	1995 Convex Stock Option Conversion Plan, amended and restated effective November 21, 2002.*
10(x)	1993 Metrix Stock Option Conversion Plan, amended and restated effective November 21, 2002.*

145

10(y)	Registrant's 2000 Employee Stock Purchase Plan amended as of March 29, 2001, which appears as Exhibit 10(v) to Registrant's Form 10-K for the fiscal year ended October 31, 2001, which exhibit is incorporated herein by reference.*
10(z)	Registrant's 1998 Subsidiary Employee Stock Purchase Plan and the Subscription Agreement which appear as Appendices E and E-1 to Registrant's Proxy Statement dated January 12, 1998, respectively, which appendices are incorporated herein by reference.*
10(a)(a)	Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1999, which appears as Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(b)(b)	First Amendment to Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1999.*
10(c)(c)	Compaq Computer Corporation Cash Account Pension Restoration Plan.*
10(d)(d)	Compaq Computer Corporation 401(k) Investment Plan, which appears as Exhibit 4.1 to Registrant's Form S-8 Registration Statement (Registration No. 333-87742) dated May 7, 2002, which exhibit is incorporated herein by reference.*
10(e)(e)	Compaq Computer Corporation Deferred Compensation and Supplemental Savings Plan, which appears as Exhibit 4.2 to Registrant's Form S-8 Registration Statement (Registration No. 333-87742) dated May 7, 2002, which exhibit is incorporated herein by reference.*
10(f)(f)	Registrant's Balance Score Card Plan, amended and restated as of May 1, 2002.*
10(g)(g)	Registrant's Executive Deferred Compensation Plan, amended and restated effective October 1, 2002.*
10(h)(h)	Registrant's 2001 Executive Transition Program, which appears as Exhibit 10(z) to Registrant's Form 10-K for the fiscal year ended October 31, 2001, which exhibit is incorporated herein by reference.*
10(i)(i)	Employment Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(gg) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(j)(j)	Incentive Stock Plan Stock Option Agreement (Non-Qualified), dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(ii) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(k)(k)	Restricted Stock Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(jj) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*
10(l)(l)	Restricted Stock Unit Agreement, dated July 17, 1999, between Registrant and Carleton S. Fiorina which appears as Exhibit 10(kk) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which exhibit is incorporated herein by reference.*

146

10(m)(m)	Form of Executive Severance Agreement, which appears as Exhibit 10(uu) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(n)(n)	Form of Executive Officers Severance Agreement, which appears as Exhibit 10(vv) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(o)(o)	Form of Indemnity Agreement between Compaq and its executive officers, which appears as Exhibit 10(xx) to Registrant's Form 10-Q filed on June 13, 2002, which exhibit is incorporated herein by reference.*
10(p)(p)	General Waiver and Release Agreement executed by Michael D. Capellas with attached Benefits Summary Upon Termination dated November 11, 2002.*
10(q)(q)	Registrant's Service Anniversary Stock Plan, amended and restated effective November 21, 2002.*
10(r)(r)	Registrant's Foreign Employees Stock Appreciation Rights Plan amended and restated November 21, 2002.*
10(s)(s)	Registrant's Employee Stock Purchase Plan amended and restated as of June 30, 2000.*
10(t)(t)	Registrant's 1987 Director Option Plan, which appears as Exhibit 4 to Registrant's Form S-8 filed on August 31, 1989 (Registration No. 33-30769), which exhibit is incorporated herein by reference.*
10(u)(u)	Stock Option Agreement for Registrant's 2000 Stock Plan, as amended, 1995 Incentive Stock Plan, as amended, Compaq 2001 Stock Option Plan, as amended, Compaq 1998 Stock Option Plan, as amended, Compaq 1995 Equity Incentive Plan, as amended and Compaq 1989 Equity Incentive Plan, as amended.*
10(v)(v)	Stock Option Agreement for Registrant's 1990 Incentive Stock Option Plan, as amended, which appears as Exhibit 10(e) to Registrant's Form 10-K filed for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(w)(w)	Stock Option Agreement for Registrant's 1985 Incentive Compensation Plan, as amended, which appears as Exhibit 10(b) to Registrant's Form 10-K filed for the fiscal year ended October 31, 1999, which exhibit is incorporated herein by reference.*
10(x)(x)	Common Stock Payment Agreement and Option Agreement for Registrant's 1997 Director Stock Plan, as amended.*
10(y)(y)	Stock Option Agreement for Registrant's 1987 Director Option Plan.*
10(z)(z)	Stock Option Agreement for Compaq 1985 Stock Option Plan, as amended.*
10(a)(1)	Stock Option Agreement for Compaq 1985 Nonqualified Stock Option Plan, as amended.*
11	Not applicable.
12	Statement of Computation of Ratios.
13-14	Not applicable.
15	None.

147

16-17	Not applicable.
18-20	None.
21	Subsidiaries of Registrant as of December 31, 2002.
22	None.
23	Consent of Independent Auditors.
24	Power of Attorney (see signature page) of this Annual Report on Form 10-K and incorporated herein by reference.
25-26	Not applicable.
99.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Indicates management contract or compensatory plan, contract or arrangement.

        Exhibit numbers may not correspond in all cases to those numbers in Item 601 of Regulation S-K because of special requirements applicable to EDGAR filers.

The registrant agrees to furnish to the Commission upon request a copy of any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.

148

CERTIFICATION

        I, Carleton S. Fiorina, certify that:

1.

I have reviewed this annual report on Form 10-K of Hewlett-Packard Company;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 21, 2003 /s/  CARLETON S. FIORINA Carleton S. Fiorina
Chairman and Chief Executive Officer (Principal Executive Officer)

149

        I, Robert P. Wayman, certify that:

1.

I have reviewed this annual report on Form 10-K of Hewlett-Packard Company;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 21, 2003 /s/  ROBERT P. WAYMAN Robert P. Wayman,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

150

QuickLinks

PART I

ITEM 1. Business.

ITEM 2. Properties.
ITEM 3. Legal Proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.

PART II

ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters.
ITEM 6. Selected Financial Data.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

ITEM 8. Financial Statements and Supplementary Data.

TABLE OF CONTENTS
Report of Independent Auditors
Statement of Management Responsibility
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statement of Earnings
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Balance Sheet
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statement of Cash Flows
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Quarterly Summary⁽¹⁾ (Unaudited)

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

PART III

ITEM 10. Directors and Executive Officers of the Registrant.
ITEM 11. Executive Compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
ITEM 13. Certain Relationships and Related Transactions.
ITEM 14. Controls and Procedures.

PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Schedule II

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts
SIGNATURES
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES EXHIBIT INDEX
CERTIFICATION

EX-3.(C)

EXHIBIT 3(c)

AMENDED AND RESTATED

BYLAWS

OF

HEWLETT-PACKARD COMPANY
(A DELAWARE CORPORATION)

ARTICLE I

CORPORATE OFFICES

1.1           REGISTERED OFFICE.  The registered office of the corporation shall be fixed in the Certificate of Incorporation of the corporation.

1.2           OTHER OFFICES.  The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1           PLACE OF MEETINGS.  Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors.  In the absence of any such designation, stockholders’ meetings shall be held at the registered office of the corporation.

2.2           ANNUAL MEETING.

(a)           The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors.  At the meeting, directors shall be elected, and any other proper business may be transacted.

(b)           At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting.  To be properly brought before an annual meeting, business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors, or (iii) otherwise properly brought before the meeting by a stockholder of record at the time of giving notice provided for in these Bylaws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.2.  For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation.  To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation (A) not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s meeting, or (B) not less than the later of the close of business on

the forty-fifth (45th) day nor earlier than the close of business on the seventy-fifth (75th) day prior to the first anniversary of the date on which the corporation first sent or gave its proxy statement to stockholders for the preceding year’s annual meeting, whichever period described in clause (A) or (B) of this sentence first occurs; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after the anniversary date of the previous year’s meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundred twentieth (120th) day prior to such meeting and not later than the close of business on the later of (x) the ninetieth (90th) day prior to such meeting and (y) the tenth (10) day following the date on which public announcement of the date of such meeting is first made.  For purposes of this Section 2.2, a “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission.  In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder’s notice as described above.  A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (1) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (3) the class and number of shares of the corporation which are beneficially owned by the stockholder, (4) any material interest of the stockholder in such business, and (5) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”), in his capacity as a proponent to a stockholder proposal.  Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act.  In addition, with respect to a stockholder proposal, if the stockholder has provided the corporation a notice as described above, the stockholder must have delivered a proxy statement and form of proxy to holders of a sufficient number of shares to carry such proposal in order for such proposal to be properly presented.  Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b).  The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he or she should so determine, he or she shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(c)           Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors.  Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of record of the corporation at the time of giving notice provided for in these Bylaws, who is entitled to vote in the election of directors at the meeting and who complies with the notice procedures set forth in this paragraph (c).  Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.2.  Such stockholder’s notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director:

-2-

(A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 2.2; and (iii) a written statement executed by such nominee acknowledging that, as a director of such corporation, such person will owe a fiduciary duty, under the General Corporation Law of the State of Delaware, exclusively to the corporation and its stockholders.  In addition, if the stockholder has provided the corporation a notice as described above, the stockholder must have delivered a proxy statement and form of proxy to holders of a sufficient number of shares to elect such nominee in order for the proposal to be properly nominated.  At the request of the board of directors or the chairman of the board, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee.  No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c).  The chairman of the meeting shall, if the facts warrants, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he or she should so determine, he or she shall so declare at the meeting, and the defective nomination shall be disregarded.

2.3           SPECIAL MEETING.  A special meeting of the stockholders may be called at any time by the board of directors, or by any of the following persons with the concurrence of a majority of the board of directors: the chairman of the board of directors, the chairman of the executive committee, or the chief executive officer, but such special meetings may not be called by any other person or persons except as provided in Section 3.4 below.  Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.

2.4           ORGANIZATION.  Meetings of stockholders shall be presided over by the chairman of the board of directors, if any, or in his or her absence by a person designated by the board of directors, or, in the absence of a person so designated by the board of directors, by the chief financial officer, if any, or in his or her absence by the secretary, if any, or in his or her absence by a chairman chosen at the meeting by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote thereat.  The secretary, or in his or her absence, an assistant secretary, or, in the absence of the secretary and all assistant secretaries, a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.

The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient.  Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all

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such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot.  Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

2.5           NOTICE OF STOCKHOLDERS’ MEETINGS.  All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting.  The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action).  The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board of directors intends to present for election.  Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the board of directors upon public notice given prior to the date previously scheduled for such meeting of stockholders.

2.6           MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.  Notice of any meeting of stockholders shall be given either personally or by mail, telecopy, telegram or other electronic or wireless means.  Notices not personally delivered shall be sent postage or charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice.  Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telecopy, telegram or other electronic or wireless means.

An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice or report.

2.7           QUORUM.  The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or the Certificate of Incorporation.  If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders by the vote of the holders of a majority of the stock present in person or represented by proxy at the meeting, shall have power to adjourn the meeting from time to time in accordance with Section 2.8, each without notice other than announcement at the meeting, until a quorum is present

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or represented.  At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the Certificate of Incorporation or these Bylaws, a vote of a greater number or voting by classes is required, in which case such express provision shall govern and control the decision of the question.

If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

2.8           ADJOURNED MEETING; NOTICE.  Any meeting of stockholders, annual or special, whether or not a quorum is present, may be adjourned for any reason from time to time by either (i) the chairman of the meeting or (ii) the stockholders by the vote of the holders of a majority of the stock represented at the meeting, either in person or by proxy.  In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.7 of these Bylaws.

When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken.  However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than thirty (30) days from the date set for the original meeting, then notice of the adjourned meeting shall be given.  Notice of any such adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.5 and 2.6 of these Bylaws.  At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

2.9           VOTING.  The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners, and to voting trusts and other voting agreements).

Except as may be otherwise provided in the Certificate of Incorporation, by these Bylaws or required by law, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

Any stockholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares which the stockholder is entitled to vote.

2.10         VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.  The transactions of any meeting of stockholders, either annual or special, however called and noticed,

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and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy.

Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.  Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting.

2.11         ACTION BY WRITTEN CONSENT.  Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as to dividends or upon liquidation, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.

2.12         RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.  For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by applicable law.

If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting.

The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws.

2.13         PROXIES.  Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy, which may be in the form of a telegram, cablegram, or other means of electronic transmission, signed by the person and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period.  A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact.  A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.  A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in

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person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the secretary of the corporation.

A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.

2.14         INSPECTORS OF ELECTION.  Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment.  The number of inspectors shall be either one (1) or three (3).  If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

(a)           determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

(b)           receive votes, ballots or consents;

(c)           hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d)           count and tabulate all votes or consents;

(e)           determine when the polls shall close;

(f)            determine the result; and

(g)           do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical.  If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.  Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

ARTICLE III

DIRECTORS

3.1           POWERS.  Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and shall be exercised by or under the direction of the board of directors.  In addition to the powers and authorities these Bylaws expressly confer upon them, the

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board of directors may exercise all such powers of the corporation and do all such lawful acts and things as are not by the General Corporation Law of Delaware or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.

3.2           NUMBER AND TERM OF OFFICE.  The authorized number of directors shall be not less than eight (8) nor more than seventeen (17).  Within such limits, the exact number of directors shall be eleven (11).

3.3           ELECTION AND TERM OF OFFICE OF DIRECTORS.  Except as provided in Section 3.4 of these Bylaws, at each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the succeeding annual meeting of stockholders after their election, with each director to hold office until such director’s successor shall have been duly elected and qualified.

Directors need not be stockholders unless so required by the Certificate of Incorporation or by these Bylaws, wherein other qualifications for directors may be prescribed.  Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal.

Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, a plurality of the votes cast thereat shall elect directors.

3.4           RESIGNATION AND VACANCIES.  Any director may resign effective on giving written notice to the chairman of the board of directors, the secretary or the entire board of directors, unless the notice specifies a later time for that resignation to become effective.  If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.

Unless otherwise provided in the Certificate of Incorporation or by these Bylaws, vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the voting power of shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum).  Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified.

Unless otherwise provided in the Certificate of Incorporation or these Bylaws:

(i)    Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

(ii)   Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a

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majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

Any directors chosen pursuant to this Section 3.4 shall hold office for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been duly elected and qualified.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the then outstanding shares having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5           REMOVAL.  Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, if and so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board of directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors.

3.6           PLACE OF MEETINGS; MEETINGS BY TELEPHONE.  Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board of directors.  In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation.  Special meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.

Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.

3.7           REGULAR MEETINGS.  Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors.

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3.8           SPECIAL MEETINGS; NOTICE.  Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board of directors, the chairman of the executive committee, the chief executive officer, the secretary or a majority of the members of the board of directors then in office.

The person or persons authorized to call special meetings of the board of directors may fix the place and time of the meetings.  The secretary or any assistant secretary shall give notice of any special meeting to each director personally or by telephone to each director or sent by first-class mail, courier service or telegram, telecopy or other electronic or wireless means, postage or charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation or if the address is not readily ascertainable, notice shall be addressed to the director at the city or place in which the meetings of directors are regularly held.  If the notice is by mail, such notice shall be deposited in the United States mail at least four (4) days prior to the time set for such meeting.  If the notice is by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegram company or the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours prior to the time set for such meeting.  If the notice is by facsimile transmission or other electronic means, such notice shall be deemed adequately delivered when the notice is transmitted at least twenty-four (24) hours prior to the time set for such meeting.  If the notice is by telephone or by hand delivery, such notice shall be deemed adequately delivered when the notice is given at least twenty-four (24) hours prior to the time set for such meeting.  Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director.  If the meeting is to be held at the principal executive office of the corporation, the notice need not specify the purpose or the place of the meeting.  Moreover, a notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting.

3.9           QUORUM.  A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to fill vacancies in the board of directors as provided in Section 3.4 and to adjourn as provided in Section 3.11 of these Bylaws.  Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the Certificate of Incorporation and applicable law.

A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of enough directors to leave less than a quorum, upon resolution of at least a majority of the required quorum for that meeting prior to the loss of such quorum.

3.10         WAIVER OF NOTICE.  Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors.  The transactions of any meeting of the board of directors, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice.  All such waivers shall

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be filed with the corporate records or made part of the minutes of the meeting.  A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors.

3.11         ADJOURNMENT.  A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

3.12         NOTICE OF ADJOURNMENT.  Notice of the time and place of holding an adjourned meeting need not be given if announced unless the meeting is adjourned for more than twenty-four (24) hours.  If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.8 of these Bylaws, to the directors who were not present at the time of the adjournment.

3.13         BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.  Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board of directors individually or collectively consent in writing to that action.  Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors.  Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board of directors.

3.14         ORGANIZATION.  Meetings of the board of directors shall be presided over by the chairman of the board of directors, if any.  In his or her absence, a majority of the directors present at the meeting, assuming a quorum, shall designate a president pro tem of the meeting who, if any such person be present, shall be a chairman of a committee of the board of directors and who shall preside at the meeting.  The secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

3.15         FEES AND COMPENSATION OF DIRECTORS.  Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors.  This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

3.16         EXECUTIVE SESSION.  It is the intent of the board of directors that the members of the board of directors who are not employees of the corporation shall confer in executive session at least annually.  Such independent directors may confer in additional executive sessions from time to time throughout the year, as determined by a majority of such independent directors.

ARTICLE IV

COMMITTEES

4.1           COMMITTEES OF DIRECTORS.  The board of directors may designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board of directors.  The board of directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee.  Any

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committee, to the extent provided in the resolution of the board of directors, shall have all the authority of the board of directors, but no such committee shall have the power or authority to (i) approve or adopt or recommend to the stockholders any action or matter that requires the approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the corporation.

4.2           MEETINGS AND ACTION OF COMMITTEES.  Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee.  The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

4.3           EXECUTIVE COMMITTEE.  In the event that the board of directors appoints an executive committee, such executive committee, in all cases in which specific directions to the contrary shall not have been given by the board of directors, shall have and may exercise, during the intervals between the meetings of the board of directors, all the powers and authority of the board of directors in the management of the business and affairs of the corporation (except as provided in Section 4.1 hereof) in such manner as the executive committee may deem in the best interests of the corporation.

ARTICLE V

OFFICERS

5.1           OFFICERS.  The officers of the corporation shall consist of a chief executive officer, one or more vice presidents, a secretary and a chief financial officer who shall be elected by the board of directors and such other officers, including but not limited to a chairman of the board of directors, a chairman of the executive committee, a president and a treasurer, as the board of directors shall deem expedient, who shall be elected in such manner and hold their offices for such terms as the board of directors may prescribe.  Any two of such offices may be held by the same person.  The board of directors may designate one or more elected vice presidents as executive vice presidents or senior vice presidents.  The board of directors may from time to time designate the chief executive officer, president or any executive vice president as the chief operating officer of the corporation.

5.2           ELECTION OF OFFICERS.  In addition to officers elected by the board of directors in accordance with Sections 5.1 and 5.3, the corporation may have one or more appointed non-corporate vice presidents, who may not be executive officers for purposes of Section 16 of the 1934 Act (“non-corporate vice presidents”).  Such non-corporate vice presidents may be appointed by the

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board of directors, the chairman of the board of directors or the chief executive officer and shall have such duties as may be established by the board of directors, the chairman of the board of directors or the chief executive officer.  The board of directors may designate one or more appointed non-corporate vice presidents as executive vice presidents or senior vice presidents.  Non-corporate vice presidents appointed pursuant to this Section 5.2 may be removed in accordance with Section 5.4.

5.3           TERMS OF OFFICE AND COMPENSATION.  The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the board of directors and may be altered by said board of directors from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment.

5.4           REMOVAL; RESIGNATION OF OFFICERS AND VACANCIES.  Any officer of the corporation may be removed at the pleasure of the board of directors at any meeting or at the pleasure of any officer who may be granted such power by a resolution of the board of directors.  Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.  If any vacancy occurs in any office of the corporation, the board of directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified.

5.5           CHAIRMAN OF THE BOARD.  The chairman of the board of directors, if such an officer be elected, shall, if present, preside at meetings of the board of directors and stockholders; and may call meetings of the stockholders and also of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chairman of the board of directors may deem proper.  The chairman of the board of directors shall have the power to sign certificates for shares of stock of the corporation and shall exercise and perform such other duties as may from time to time be agreed to by the board of directors.  The chairman of the board of directors shall report to the board of directors.

5.6           INTENTIONALLY OMITTED.

5.7           CHAIRMAN OF EXECUTIVE COMMITTEE.  The chairman of the executive committee, if there be one, shall have the power to call meetings of the stockholders and also of the board of directors to be held subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chairman of the executive committee shall deem proper.  The chairman of the executive committee shall have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

5.8           CHIEF EXECUTIVE OFFICER.  The powers and duties of the chief executive officer are:

(a)           To have and provide general supervision, direction and control of the corporation’s business and its officers;

(b)           To call meetings of the board of directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the chief executive officer shall deem proper;

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(c)           To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing (“Contracts”) which have been authorized by the board of directors or which, in the judgment of the chief executive officer, should be executed on behalf of the corporation;

(d)           In the event that the chairman of the board has not otherwise signed certificates for shares of stock of the corporation, to sign such certificates;

(e)           To delegate the power to affix the signature of the corporation to Contracts to other officers of the corporation; and

(f)            To have such other powers and be subject to such other duties as the board of directors may from time to time prescribe.

In case of the disability or death of the chief executive officer, the board of directors shall meet promptly to confer the powers of the chief executive officer on another elected officer.  Until the board of directors takes such action, the chief financial officer shall exercise all the power and perform all the duties of the chief executive officer.

5.9           PRESIDENT.  Subject to the discretion of the board of directors to elect or not elect a president and to the supervisory powers of the chief executive officer in the event of such election, the president shall act in a general executive capacity and shall assist the chief executive officer in the administration and operation of the corporation’s business and general supervision of its policies and affairs. The president shall have the power to affix the signature of the corporation to all Contracts which have been authorized by the board of directors or the chief executive officer.  The president shall have such other powers and be subject to such other duties as the board of directors or the chairman of the board or the chief executive officer may from time to time prescribe.

5.10         VICE PRESIDENTS.  In case of the absence, disability or death of the chief executive officer and president, the elected vice president, or one of the elected vice presidents, shall exercise all the powers and perform all the duties of the president.  If there is more than one elected vice president, the order in which the elected vice presidents shall succeed to the powers and duties of the president shall be as fixed by the board of directors.  The elected vice president or elected vice presidents shall have such other powers and perform such other duties as may be granted or prescribed by the board of directors.

Vice presidents appointed pursuant to Section 5.2 shall have such powers and duties as may be fixed by the chairman of the board of directors, except that such appointed vice presidents may not exercise the powers and duties of the chief executive officer or president.

5.11         SECRETARY.  The powers and duties of the secretary are:

(a)           To keep a book of minutes at the principal office of the corporation, or such other place as the board of directors may order, of all meetings of its directors and stockholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at stockholders’ meetings and the proceedings thereof.

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(b)           To keep the seal of the corporation and affix the same to all instruments which may require it.

(c)           To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the stockholders and their addresses, the number of and classes of shares, and the number and date of cancellation of every certificate surrendered for cancellation.

(d)           To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents.

(e)           To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 8.5 hereof.

(f)            To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone.  In case of the absence, disability, refusal, or neglect of the secretary to make service or publication of any notices, then such notices may be served and/or published by the chief executive officer, the president or a vice president, or by any person thereunto authorized by any of them or by the board of directors or by the holders of a majority of the outstanding shares of the corporation.

(g)           Generally to do and perform all such duties as pertain to the office of secretary and as may be required by the board of directors.

5.12         CHIEF FINANCIAL OFFICER.  The powers and duties of the chief financial officer are:

(a)           To supervise the corporate-wide treasury functions and financial reporting to external bodies.

(b)           To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the chief financial officer’s discretion, to cause any or all thereof to be deposited for account of the corporation at such depositary as may be designated from time to time by the board of directors or the chairman of the board or the chief executive officer.

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(c)           To receive or cause to be received, and to give or cause to be given, receipts and acceptances for monies paid in for the account of the corporation.

(d)           To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the board of directors, the chairman of the board or the chief executive officer, taking proper vouchers for such disbursements.

(e)           To render to the chief executive officer and to the board of directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation.

(f)            Generally to do and perform all such duties as pertain to the office of chief financial officer and as may be required by the board of directors.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS

6.1           INDEMNIFICATION OF DIRECTORS AND OFFICERS.  Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or officer of the corporation (or any predecessor) or is or was serving at the request of the corporation (or any predecessor) as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise (or any predecessor of any of such entities), including service with respect to employee benefit plans maintained or sponsored by the corporation (or any predecessor), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit or his or her heirs, executors and administrators; provided, however, that except as provided in the third paragraph of this Bylaw, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors.  The right to indemnification conferred in this Bylaw shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the corporation within twenty (20) days after the receipt by the corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a

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director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Bylaw or otherwise.

To obtain indemnification under this Bylaw, a claimant shall submit to the corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification.  Upon written request by a claimant for indemnification pursuant to the preceding sentence, a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (i) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (ii) if no request is made by the claimant for a determination by Independent Counsel, (A) by the board of directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the board of directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the board of directors, a copy of which shall be delivered to the claimant, or (C) if a quorum of Disinterested Directors so directs, by the stockholders of the corporation.  In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the board of directors unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a “Change of Control” as defined below, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the board of directors.  If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within ten (10) days after such determination.

If a claim for the indemnification under this Bylaw is not paid in full by the corporation within thirty (30) days after a written claim pursuant to the preceding paragraph of this Bylaw has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation.  Neither the failure of the corporation (including its board of directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

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If a determination shall have been made pursuant to this Bylaw that the claimant is entitled to indemnification, the corporation shall be bound by such determination in any judicial proceeding commenced pursuant to the proceeding paragraph of this Bylaw.  The corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to the third paragraph of this Bylaw that the procedures and presumptions of this Bylaw are not valid, binding and enforceable and shall stipulate in such proceeding that the corporation is bound by all the provisions of this Bylaw.  The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Bylaw shall not be exclusive or any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise.  No repeal or modification of this Bylaw shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.

If any provision or provisions of this Bylaw shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Bylaw (including, without limitation, each portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (ii) to the fullest extent possible, the provisions of this Bylaw (including, without limitation, each such portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

For the purpose of this Bylaw, a “Change of Control” shall mean:

(1)           the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of either (i) the then outstanding shares of common stock of the corporation (the “Outstanding Corporation Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of this part (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the corporation or any acquisition from other stockholders where (A) such acquisition was approved in advance by the board of directors of the corporation, and (B) such acquisition would not constitute a Change of Control under part (1) of this definition, (ii) any acquisition by the corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the corporation or any corporation controlled by the corporation, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of part (1) of this definition; or

(2)           individuals who, as of the date hereof, constitute the board of directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such

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individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies of consents by or on behalf of a Person other than the board of directors; or

(3)           consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the corporation (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the corporation or all or substantially all of the corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the board of directors, providing for such Business Combination; or

(4)           approval by the stockholders of a complete liquidation or dissolution of the corporation.

For purposes of this Bylaw:

“Disinterested Director” shall mean a director of the corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.

“Independent Counsel” shall mean a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the corporation or the claimant in an action to determine the claimant’s rights under this Bylaw.

Any notice, request or other communication required or permitted to be given to the corporation under this Bylaw shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage or charges

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prepaid, return copy requested, to the secretary of the corporation and shall be effective only upon receipt by the secretary.

6.2           INDEMNIFICATION OF OTHERS.  The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation.  For purposes of this Section 6.2, an “employee” or “agent” of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.3           INSURANCE.  The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

6.4           EXPENSES.  The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise; provided, however, that the corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the corporation.

Notwithstanding the foregoing, unless otherwise determined pursuant to Section 6.5, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in

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a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

6.5           NON-EXCLUSIVITY OF RIGHTS.  The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.  The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the General Corporation Law of Delaware.

6.6           SURVIVAL OF RIGHTS.  The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

6.7           AMENDMENTS.  Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

ARTICLE VII

RECORDS AND REPORTS

7.1           MAINTENANCE AND INSPECTION OF RECORDS.  The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom.  A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder.  In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder.  The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

7.2           INSPECTION BY DIRECTORS.  Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director.  The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought.  The Court may summarily order the corporation to permit the director to inspect any and all books and

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records, the stock ledger, and the stock list and to make copies or extracts therefrom.  The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

7.3           REPRESENTATION OF SHARES OF OTHER CORPORATIONS.  The chief executive officer or any other officer of this corporation authorized by the board of directors or the chief executive officer is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation.  The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

ARTICLE VIII

GENERAL MATTERS

8.1           RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.  For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action.  In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by law.

If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.

8.2           CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.  From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.3           CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.  The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances.  Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

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8.4           FISCAL YEAR.  The fiscal year of this corporation shall begin on the first day of November of each year and end on the last day of October of the following year.

8.5           STOCK CERTIFICATES.  There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares.  Pursuant to the General Corporation Law of the State of Delaware, every holder of shares of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman of the board of directors, or the chief executive officer, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form.  Any or all of the signatures on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

8.6           SPECIAL DESIGNATION ON CERTIFICATES.  If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.7           LOST CERTIFICATES.  The corporation may issue a new share certificate or new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.  The board of directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate.

8.8           CONSTRUCTION; DEFINITIONS.  Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws.  Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

8.9           PROVISIONS ADDITIONAL TO PROVISIONS OF LAW.  All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as

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possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal.

8.10         PROVISIONS CONTRARY TO PROVISIONS OF LAW.  Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which upon being construed in the manner provided in Section 8.9 hereof, shall be contrary to or inconsistent with any applicable provisions of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these Bylaws, it being hereby declared that these Bylaws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

8.11         NOTICES.  Any reference in these Bylaws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

ARTICLE IX

AMENDMENTS

Subject to Section 6.7 hereof, the original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal bylaws upon the directors.  The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.  Notwithstanding the foregoing, amendment or deletion of all or any portion of Article II hereof, Section 3.2 hereof, Section 3.3 hereof, Section 3.4 hereof, Section 6.1 hereof or this Article IX by the stockholders of the corporation shall require the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the outstanding shares entitled to vote thereon.

Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place.  If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book.

Amended and restated effective November 22, 2002.

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EX-10.(A)

Exhibit 10(a)

HEWLETT–PACKARD COMPANY 2000 STOCK PLAN

1.  PURPOSES OF THE PLAN.

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

2.  DEFINITIONS.

As used herein, the following definitions shall apply:

(a)“Administrator” means the Board or any of its Committees 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.

(c)“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 Common Stock is listed or quoted and the applicable laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan.

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

(e)“Awardee” means the holder of an outstanding Award.

(f)“Award Agreement” means a written or electronic agreement between the Company and an Awardee evidencing the terms and conditions of an individual Award. The Award Agreement is subject to the terms and conditions of the Plan.

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

(h)“Cash Awards” means cash awards granted pursuant to Section 12 of the Plan.

(i)“Code” means the United States Internal Revenue Code of 1986, as amended.

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(j)“Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

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

(l)“Company” means Hewlett–Packard Company, a Delaware corporation.

(m)“Consultant” means any person, including an advisor, engaged by the Company or a Subsidiary to render services to such entity or any person who is an advisor, director or consultant of an Affiliate.

(n)“Director” means a member of the Board.

(o)“Employee” means a regular employee of the Company, any Subsidiary or any Affiliate, including Officers and Directors, who is treated as an employee in the personnel records of the Company or its Subsidiary for the relevant period, but shall exclude individuals who are classified by the Company or its Subsidiary as (A) leased from or otherwise employed by a third party; (B) independent contractors; or (C) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise. An Awardee shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or its Subsidiary or (ii) transfers between locations of the Company or between the Company, any Subsidiary, or any successor. Should an Awardee transfer from the Company to Agilent Technologies, Inc. prior to the Distribution Date (as defined in Section 1.20 of the Employees Matter Agreement between Agilent Technologies, Inc. and the Company), the Awardee will cease to be an Employee at the time of such transfer. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(p)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(q)“Fair Market Value” means, as of any date, the average of the highest and lowest quoted sales prices for such Common Stock as of such date (or if no sales were reported on such date, the average on the last preceding day a sale was made) as quoted on the stock exchange or a national market system, with the highest trading volume, as reported in such source as the Administrator shall determine.

(r)“Grant Date” means the date selected by the Administrator, from time to time, upon which Awards are granted to Participants pursuant to this Plan.

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

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

(u)“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.

(v)“Option” means a stock option granted pursuant to the Plan. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options.

(w)“Participant” means an Employee, Director or Consultant.

(x)“Plan” means this 2000 Stock Plan.

(y)“Restricted Stock” means shares of Common Stock acquired pursuant to a grant of a Stock Award under Section 11 of the Plan.

(z)“Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

(aa)“Stock Awards” means right to purchase or receive Common Stock pursuant to Section 11 of the Plan.

(bb)“Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.  STOCK SUBJECT TO THE PLAN.

Subject to the provisions of Section 14 and Section  6(d) of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is 250,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. Preferred stock may be issued in lieu of Common Stock for Awards.

If an Award expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto, if any, shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares of Restricted Stock that are either forfeited or repurchased by the Company at their original purchase price shall become available for future grant or sale under the Plan. Shares that are tendered, whether by physical delivery or by attestation, to the Company by the Awardee as full or partial payment of the exercise price of any Award or in payment of any applicable withholding for federal, state, city, local or foreign taxes incurred in connection with the exercise of any Award shall become available for future grant or sale under the Plan; provided, however, that the total number of Shares so tendered from which Incentive Stock Options may be granted shall not exceed 250,000,000.

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4.  ADMINISTRATION OF THE PLAN.

(a)           Procedure.

(i)Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Participants.

(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, the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

(iii)Rule 16–3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b–3 promulgated under the Exchange Act (“Rule 16b–3”), the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b–3.

(iv)Other Administration. The Board may delegate to the Executive Committee of the Board (the “Executive Committee”) the power to approve Awards to Participants 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 or applicable rules of a stock exchange, the Board or any of its committees as shall be administering the Plan may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. The delegation may be revoked at any time.

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

(i)to select the Participants to whom Awards may be granted hereunder;

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

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(iii)to approve forms of agreement 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 price, the time or times when an Award may be exercised (which may or may not be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, 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;

(v)to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

(vi)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, (B) to adopt sub–plans and Plan addenda as the Administrator deems desirable, to accommodate foreign tax laws, regulations and practice;

(vii)to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub–plans and Plan addenda;

(viii)to modify or amend each Award, including the discretionary authority to extend the post–termination exercisability period of Options longer than is otherwise provided for in the Plan, provided, however, that any such amendment is subject to Section 15(c) of the Plan and may not impair any outstanding Award unless agreed to in writing by the Awardee;

(ix)to allow Awardees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Awardee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

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

(xi)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;

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

(c)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Awardees.

5.  ELIGIBILITY.

Awards may be granted to Participants, provided, however, that Incentive Stock Options may be granted only to Employees of the Company or any Subsidiary.

6.  LIMITATIONS.

(a)Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, 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 Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), 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 time the Option with respect to such Shares is granted.

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(b)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 is not so guaranteed, on the 91st day of such leave an Awardee’s employment with the Company shall be deemed terminated for Incentive Stock Option purposes and any Incentive Stock Option held by the Awardee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three (3) months thereafter.

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

(d)The following limitations shall apply to grants of Awards:

(i)No Participant shall be granted, in any fiscal year of the Company, Options to purchase more than 10,000,000 Shares.

(ii)In connection with his or her initial service, a Participant may be granted Options to purchase up to an additional 10,000,000 Shares which shall not count against the limit set forth in subsection (i) above.

(iii)If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above.

(iv)The maximum aggregate number of Shares underlying Stock Awards that may be granted under this Plan is twenty million (20,000,000) Shares.

(v)The maximum aggregate number of Shares underlying Non–Statutory Stock Options with an exercise price of less than Fair Market Value on the Grant Date that may be granted under Section 9(a)(ii) of this Plan is thirty million (30,000,000) Shares.

(vi)The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 14.

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7.  TERM OF PLAN.

Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. 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 adopted by the Board unless terminated earlier under Section 15 of the Plan.

8.  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 10 ¹/₂ years in certain jurisdictions outside the United States as determined by the Administrator.

9.  OPTION EXERCISE PRICE AND CONSIDERATION.

(a)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)In the case of an Incentive Stock Option the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.

(ii)In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than seventy–five percent (75%) of the Fair Market Value per Share on the Grant Date. In the case of a Nonstatutory Stock Option intended to qualify as “performance–based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.

(iii)Notwithstanding the foregoing, at the Administrator’s discretion, Conversion Options (as defined in Section 4(b)(x)) may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the Grant Date and shall not be subject to the provisions of Section 6(d)(v) above.

(iv)Other than in connection with a change in the Company’s capitalization (as described in Section 14(a)), Options may not be repriced, replaced, regranted through cancellation or modified without shareowner approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price of such Incentive Stock Options or Nonstatutory Stock Options.

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(b)Vesting Period and Exercise Dates.  At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised.

(c)Form of Consideration.  The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the Grant Date. Acceptable forms of consideration may include:

(i)cash;

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

(iii)other Shares which (A) in the case of Shares acquired upon exercise of an Option, have been owned by the Awardee for more than six months on the date of surrender, and (B) 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)consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(v)any combination of the foregoing methods of payment; or

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

10.  EXERCISE OF OPTION.

(a)Procedure for Exercise; Rights as a Shareowner. 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. No Option may be exercised during any leave of absence other than an approved personal or medical leave with an employment guarantee upon return. An Option shall continue to vest during any authorized leave of absence and such Option may be exercised to the extent vested upon the Awardee’s return to active employment status. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option; (ii) full

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payment for the Shares with respect to which the related Option is exercised; and (iii) with respect to Nonstatutory Stock Options, payment of all applicable withholding taxes due upon such exercise.

Shares issued upon exercise of an Option shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. 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 shareowner shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b)Termination of Employment. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee, other than as a result of circumstances described in Sections 10(c), (d), (e) and (f) below, the Awardee’s Option, whether vested or unvested, shall terminate immediately upon the Awardee’s termination. On the date of the Awardee’s termination of employment, the Shares covered by the unvested portion of his or her Option shall revert to the Plan. If, prior to termination of employment, the Awardee does not exercise his or her vested Option, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c)Disability or Retirement of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee as a result of the Awardee’s total and permanent disability or retirement due to age, in accordance with the Company’s or its Subsidiaries’ retirement policy, all unvested Options shall immediately vest and the Awardee may exercise his or her Option within three (3) years of the date of such disability or retirement for a Nonstatutory Stock Option; within three (3) months of the date of such disability or retirement for an Incentive Stock Option; or if earlier, the expiration of the term of such Option. If the Awardee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d)Death of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee dies while an Employee, all unvested

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Options shall immediately vest and all Options may be exercised for one (1) year following the Awardee’s death. The Option may be exercised by the beneficiary designated by the Awardee (as provided in Section 16), the executor or administrator of the Awardee’s estate or, if none, by the person(s) entitled to exercise the Option under the Awardee’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(e)Voluntary Severance Incentive Program. If an Awardee ceases to be an Employee as a result of participation in the Company’s or its Subsidiaries’ voluntary severance incentive program approved by the Board or Executive Committee, all unvested Options shall immediately vest and all outstanding Options shall be exercisable for three (3) months following the Awardee’s termination (or such other period of time as provided for by the Administrator) or, if earlier, the expiration of the term of such Option. If, after termination, of Awardee’s employment the Awardee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(f)Divestiture. If an Employee ceases to be a Participant because of a divestiture of the Company, the Administrator may, in its sole discretion, make such Employee’s outstanding Options fully vested and exercisable and provide that such Options remain exercisable for a period of time to be determined by the Administrator. The determination of whether a divestiture will occur shall be made by the Administrator in its sole discretion. If, after the close of the divestiture, the Awardee does not exercise his or her Option within the time specified therein, the Option shall terminate and the shares covered by such Option shall revert to the Plan.

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

11.  STOCK AWARDS.

(a)General. Stock Awards may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan. After the Administrator determines that it will offer a Stock Award under the Plan, it shall advise the Awardee in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions related to the offer, including the number of Shares that the Awardee shall be entitled to receive or purchase, the price to be paid, if any, and, if applicable, the time within which the Awardee must accept such offer. The offer shall be accepted by execution

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of an Award Agreement in the form determined by the Administrator. The Administrator will require that all shares subject to a right of repurchase or forfeiture be held in escrow until such repurchase right or risk of forfeiture lapses.

(b)Forfeiture. Unless the Administrator determines otherwise, the Award Agreement shall provide for the forfeiture of the unvested Restricted Stock upon the Awardee ceasing to be an Employee except as provided below in Sections 11(c), (d) and (e). To the extent that the Awardee purchased the Restricted Stock, the Company shall have a right to repurchase the unvested Restricted Stock at the original price paid by the Awardee upon Awardee ceasing to be a Participant for any reason, except as provided below in Sections 11(c), (d) and (e).

(c)Disability or Retirement of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee as a result of the Awardee’s total and permanent disability or retirement due to age, in accordance with the Company’s or its Subsidiaries’ retirement policy, the Award shall continue to vest, provided the following conditions are met:

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

(ii)The Awardee shall not, without prior written authorization from the Company, use in other than the Company’s business, any confidential information or material relating to the business of the Company, either during or after employment with the Company;

(iii)The Awardee shall disclose promptly and assign to the Company all right, title and interest in any invention or idea, patentable or not, made or conceived by the Awardee during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company and shall

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do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in foreign countries; and

(iv)An Awardee retiring due to age shall render, as a Consultant and not as an Employee, such advisory or consultative services to the Company as shall be reasonably requested by the Board or the Executive Committee in writing from time to time, consistent with the state of the retired Awardee’s health and any employment or other activities in which such Awardee may be engaged. For purposes of this Plan, the Awardee shall not be required to devote a major portion of time to such services and shall be entitled to reimbursement for any reasonable out–of–pocket expenses incurred in connection with the performance of such services.

(d)Death of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee dies while an Employee, the Stock Award shall immediately vest and all forfeiture provisions and repurchase rights shall lapse as to a prorated number of shares determined by dividing the number of whole months since the Grant Date by the number of whole months between the Grant Date and the date that the Stock Award would have fully vested (as provided for in the Award Agreement). The vested portion of the Stock Award shall be delivered to the beneficiary designated by the Awardee (as provided in Section 16), the executor or administrator of the Awardee’s estate or, if none, by the person(s) entitled to receive the vested Stock Award under the Awardee’s will or the laws of descent or distribution.

(e)Voluntary Severance Incentive Program. If an Awardee ceases to be an Employee as a result of participation in the Company’s or its Subsidiaries’ voluntary severance incentive program approved by the Board or Executive Committee, the Stock Award shall immediately vest and all forfeiture provisions and repurchase rights shall lapse as to a prorated number of shares determined by dividing the number of whole years since the Grant Date by the number of whole years between the Grant Date and the date that the Stock Award would have fully vested (as provided for in the Award Agreement).

(f)Rights as a Shareowner. Unless otherwise provided for by the Administrator, once the Stock Award is accepted, the Awardee shall have the rights equivalent to those of a shareowner, and shall be a shareowner when his or her acceptance of the Stock Award is entered upon the records of the duly authorized transfer agent of the Company.

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12.  CASH AWARDS.

Cash Awards may be granted either alone, in addition to, or in tandem with other Awards granted under the Plan. After the Administrator determines that it will offer a Cash Award, it shall advise the Awardee in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions related to the Cash Award.

13.  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 and may be exercised, during the lifetime of the Awardee, only by the Awardee. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate.

14.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE.

(a)Changes in Capitalization. Subject to any required action by the shareowners of the Company, the number and kind of shares of Common Stock covered by each outstanding Award, and the number and kind of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number or kind of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, 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 Board, 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 Awardee 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

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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)Merger or Asset Sale. In the event there is a change of control of the Company, as determined by the Board, the Board may, in its discretion, (A) provide for the assumption or substitution of, or adjustment to, each outstanding Award; (B) accelerate the vesting of Options and terminate any restrictions on Cash Awards or Stock Awards; and (C) provide for the cancellation of Awards for a cash payment to the Awardee.

15.  AMENDMENT AND TERMINATION OF THE PLAN.

(a)Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b)Shareowner Approval. The Company shall obtain shareowner approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c)Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Award, unless mutually agreed otherwise between the Awardee and the Administrator, which agreement must be in writing and signed by the Awardee 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.

16.  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.

(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.

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17.  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.

18.  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.

19.  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.

20.  SHAREOWNER APPROVAL.

The Plan shall be subject to approval by the shareowners of the Company within twelve (12) months of the date the Plan is adopted. Such shareowner approval shall be obtained in the manner and to the degree required under Applicable Laws.

21.  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.

22.  GOVERNING LAW.

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.

23.  UNFUNDED PLAN.

Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are granted Awards of Shares under this Plan, any such accounts will be used merely as a bookkeeping convenience. Except for the holding of Restricted Stock in escrow pursuant to Section 11, 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 nor the Administrator be deemed to be a trustee of stock or cash to

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be awarded under the Plan. Any liability of the Company to any Awardee 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.

***

10/27/00     Two for one stock split in the form of a stock dividend

9/12/02       Section 10(g) amended and plan restated by HR & Compensation Committee

11/21/02     Section 4.(a)(v) added and plan restated by HR & Compensation Committee

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EX-10.(C)

Exhibit 10(c)

HEWLETT-PACKARD COMPANY

1995 INCENTIVE STOCK PLAN

PART 1. PLAN ADMINISTRATION AND ELIGIBILITY

I. PURPOSE

The purpose of this 1995 Incentive Stock Plan (the “Plan”) of Hewlett-Packard Company (“HP” or the “Company”) is to encourage ownership in the Company by key personnel whose long-term employment is considered essential to the Company’s continued progress and thus to provide them with a further incentive to continue in the employ of the Company or its subsidiaries or affiliates. (Each of the Company and all such subsidiaries and affiliates is referred to hereinafter as a “Participating Company.”)

II. ADMINISTRATION

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

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

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

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III. PARTICIPATION IN THE PLAN

Key employees of the Company, including officers, and directors of the Company, who are also employed by a Participating Company, shall be eligible to participate in the Plan.

IV. STOCK SUBJECT TO THE PLAN

The maximum number of shares that may be awarded under the Plan shall be 128,000,000 shares of the Company’s $0.01 par value Common Stock (“Common Stock”). If a class of Preferred Stock is created and authorized by the Company’s Amended Certificate of Incorporation, Preferred Stock may be used in lieu of Common Stock for Plan grants. The limitation on the number of shares that may be awarded under the Plan shall be subject to adjustment as provided in Section XXII of the Plan.

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

The Committee may authorize conversion, assumption or substitution under the Plan of any or all outstanding stock options or other stock-based awards (“Conversion Options”) held by employees of an entity (the “Acquired Company”) with whom HP or one of HP’s subsidiaries engages in an Acquisition.  For purposes of this paragraph, an “Acquisition” shall mean (1) a dissolution or liquidation of all or substantially all of the assets of the Acquired Company, (2) a purchase of assets from the Acquired Company, whether or not the purchased assets represent substantially all of the assets of the Acquired Company or one of its subsidiaries, (3) a reverse merger in which the Acquired Company is the surviving corporation but the shares of the Acquired Company’s voting stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (4) any other capital reorganization or purchase in which more than fifty percent (50%) of the shares of the Acquired Company entitled to vote are exchanged.  Any conversion, assumption or substitution will be effective on the closing date of the Acquisition.  The Conversion Options may be nonstatutory options or incentive stock options entitled to special tax treatment under Section 422 of the Code (“ISOs”). Notwithstanding any other provision of this Plan, the Committee may specify the Conversion Options’ terms and conditions, which may be different from those applicable to other options or awards granted under the Plan and may replicate the material terms and conditions of the Conversion Options.

The Committee may authorize the conversion under the Plan of any or all outstanding stock appreciation rights held by employees of a Participating Company.  Such converted options are referred to as “FSAR Conversion Options”, and shall be nonstatutory options.

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All FSAR Conversion Options shall have the same terms and conditions as options granted under the Plan.

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

PART 2. OPTIONS AND STOCK APPRECIATION RIGHTS

V. INCENTIVE STOCK OPTIONS

Any option granted under the Plan may be designated by the Committee as a non-statutory option or as an ISO.

No option intended to qualify as an ISO may be granted under the Plan if such grant, together with any applicable prior grants, would exceed any maximum established under the Internal Revenue Code for ISOs that may be granted to a single employee. Should it be determined that any ISO granted under the Plan exceeds such maximum, the ISO shall be null and void to the extent, but only to the extent, of such excess. Section 422(d)(1) of the Internal Revenue Code presently provides that with respect to options granted after December 31, 1986 the aggregate fair market value (determined as of the time the ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by an employee in any calendar year under all incentive stock option plans of the Company shall not exceed $100,000.

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

VI. TERMS, CONDITIONS AND FORM OF OPTIONS

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

    A. Options Non-transferable

      (1) General

Except as provided in subsection VI.A(2) below, each option granted under the Plan by its terms shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him. No option or interest therein may be transferred, assigned, pledged or

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hypothecated by the optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

      (2) Transferability to Certain Vehicles

The Committee, in its sole discretion, may establish, as  permitted by applicable law, rules and conditions under which an  optionee may transfer an option to those types of trusts or other  vehicles that the Committee may determine to be eligible for  transfer.

    B. Period of Option. The Committee may specify, at the time of grant, a vesting schedule of any option. If no vesting schedule is specified, no option may be exercised before the first anniversary of the date upon which it was granted, nor may it be exercised as to more than one-fourth of the number of shares covered thereby before the second anniversary of such date, nor as to more than one-half of the number of shares covered thereby before the third anniversary of such date, nor as to more than three-fourths of the number of shares covered thereby before the fourth anniversary of such date. Any option granted pursuant to the Plan shall become exercisable in full upon the retirement of the optionee because of age or total and permanent disability or upon the death of the optionee. Except as provided in this subsection B, no option shall be exercisable after the expiration of 10 years from the date upon which such option is granted.  However, the Committee may, at the time an option is granted to any employee who is not subject to Section 16 of the Exchange Act, specify a different term for the option up to a maximum term of 10.5 years.  Each option shall be subject to termination before its date of expiration as hereinafter provided.

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

The Committee may, but need not, permit the payment of required tax withholding due upon exercise of an option by the withholding of shares otherwise issuable upon exercise of the option. Option shares withheld in payment of such taxes shall be valued at the fair market value of the stock on the date of exercise. Fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such shares on the exercise date as reported on the New York Stock Exchange Composite Tape. The Committee may impose special restrictions on the use of option shares as payment for withholding taxes by individuals subject to Section 16 of the Exchange Act.

No option may be exercised while the optionee is on any leave of absence from the Company, other than an approved personal or medical leave having an employment guaranty. Options will continue to vest during any authorized leave of absence, and may

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be exercised to the extent permitted by subsection VI.B above upon the optionee’s return to an active employment status.

    D. Termination of Options

      (1) Termination of Employment

All rights of an employee in an option, to the extent that it has not been exercised, shall terminate upon the termination of his employment for any reason.

      (2) Retirement and Death

In the event of an employee’s retirement due to age or total and permanent disability, all rights of an employee in an option, to the extent that it has not been exercised, shall terminate three years from the date thereof with respect to nonstatutory options and three months from the retirement date with respect to ISOs or upon expiration of the option, whichever shall first occur. In the event of the death of the employee, the option shall terminate upon failure of his designated representative to exercise the option in accordance with the time period provided in subsection VI(E) below.

      (3) Leave of Absence

The Committee may, but shall not be required to, authorize the continuation of options held by employees who, at the Company’s request or with the Company’s consent, are terminating or taking a leave of absence from the Company to accept employment with not-for-profit or for-profit corporations, governmental agencies, industry associations or other organizations in connection with the Company’s investments or strategic alliances. Such approval must be obtained from the Committee prior to termination of employment in order to prevent the immediate termination of options. The Committee may, in its sole discretion, delegate its authority under this subsection to the Executive Committee.

      (4) Divestiture

If an employee terminates because of a divestiture by the Company, the Committee may, in its sole discretion, amend any option previously granted to such employee pursuant to the Plan such that the option becomes exercisable in full and/or permits the employee to exercise such option which has not already been exercised until the earlier of: (i) three months from the closing date of the divestiture, or such longer date, if any, which the Committee may authorize, or (ii) the expiration of the option. The Committee may, in its sole discretion, delegate its authority under this subsection to the Executive Committee.

      (5) Voluntary Severance Program

If an employee terminates as a result of participation in a  Participating Company voluntary severance program approved by the  Executive Committee, any option granted pursuant to the Plan shall become exercisable in full, and the employee may exercise any

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such option that has not already been exercised until the earlier of (i) three months from the employee’s termination date, or (ii) the expiration of the option.

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

VII. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS

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

The Committee shall have the power to lower the exercise price of an outstanding option not intended to qualify as an ISO under the Internal Revenue Code; provided, however, that the exercise price per share may not be reduced below 75% of the fair market value of a share of Common Stock on the date the action is taken to reduce the exercise price. Such fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such shares on that date as reported on The New York Stock Exchange Composite Tape.

VIII. OPTION PRICE

The option price per share for the shares covered by each nonstatutory option shall be not less than 75% of the fair market value of a share of Common Stock on the date the option is granted. The option price per share for ISOs shall be not less than the fair market value on the option grant date. Such fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such share on that date as reported on The New York Stock Exchange Composite Tape. The option price per share for Conversion Options shall be determined by the Committee at the time of the related merger or acquisition.

IX. LOANS FOR EXERCISE OF OPTIONS

Any option agreement under this Plan entered into with an employee may, but need not, provide that the Company shall lend to the employee who holds the option the funds for any exercise of his option. Any such loans made to individuals subject to Section 16 of the Exchange Act shall be at a rate of interest adequate to avoid imputation of income under Sections 483 and 7872 of the Internal Revenue Code and shall be for a term not to

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exceed 15 months from the date of exercise of the related option. Any loan by the Company to fund the exercise of an option shall be subject to such other terms and conditions as shall be set forth in the option agreement, which terms and conditions shall be determined by the Committee at the time of the grant of the option. Loans may or may not be secured by stock issued pursuant to such option exercises, at the Committee’s discretion.

X. STOCK APPRECIATION RIGHTS

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

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

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

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

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

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

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

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

B. ADDITIONAL RESTRICTIONS APPLICABLE TO SECTION 16 EMPLOYEES.  No stock appreciation right or related Option may be exercised during the first six months of its term, except in the event of death or total and permanent disability of the holder occurring prior to the expiration of this six-month period.

Stock appreciation rights granted to individuals subject to Section 16 of the Exchange Act must comply with any applicable provisions of Rule 16b-3.  These rights shall contain such additional conditions or restrictions as may be required under this rule (or

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any successor rule) to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

XI. INDIVIDUAL GRANT LIMITATION

  The Plan prohibits a single participant from receiving grants of options or stock appreciation rights during any single fiscal year of the Company for more than an aggregate of 1,200,000 shares of Common Stock (subject to adjustment as provided in Section XXII of the Plan). The amount of any payment of stock appreciation rights in cash shall be based upon the fair market value of Common Stock on the date of exercise. Fair market value shall be the mean of the high and low prices of such stock on The New York Stock Exchange Composite Tape on the date in question, or if no sales of such stock were made on that date, the mean of the high and low prices of such stock on the next preceding day on which sales were made.

PART 3. STOCK AND CASH AWARDS

XII. STOCK AND CASH AWARD DETERMINATION

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

XIII. PAYMENT OF STOCK OR CASH AWARDS

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

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

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

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certificates shall be released from escrow and delivered to the employee by the Company’s Secretary.

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

XIV. TERMINATION OF RESTRICTIONS ON STOCK AWARDS

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

The Committee may in its discretion permit an employee to elect to receive in lieu of shares of Restricted Stock, at the expiration of the restrictions, a cash payment equal to the fair market value of the Common Stock on the date the restrictions lapse. The Committee may also permit the employee to elect to pay required tax withholding due upon the lapse of restrictions with part of the shares due the employee at such time. The shares cancelled in payment of required tax withholding shall be valued at the fair market value of the Common Stock on the date the restrictions lapse. Fair market value shall be the mean of the high and low prices of such stock on The New York Stock Exchange Composite Tape on the date in question, or if no sales of such stock were made on that date, the mean of the high and low prices of such stock on the next preceding day on which sales were made.

XV. RESTRICTIONS AND FORFEITURE OF STOCK AWARDS

The Company’s obligation to deliver stock held in escrow is subject to the condition that the employee remain an employee of the Company on active or authorized leave status or be under contract to provide services to the Company as provided in Section XVII hereof for the entire deferral and/or restriction period, including mandatory and optional deferrals. If the employee fails to meet this condition, the employee’s right to any such unpaid amounts or undelivered stock shall be forfeited. This provision may be waived by the Committee in exceptional circumstances, including the employee serving at the Company’s request or with the Company’s consent as an employee of a not-for-profit or for-profit corporation, a governmental agency, industry association or other similar organization in connection with the Company’s investments or strategic alliances. Unless the Committee provides otherwise, in the event an employee holding restricted shares ceases to be on active pay status during the restricted period for a period of more than six months, the restricted period shall be extended by a period of time equal to the length of the period of inactive status.

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XVI. DEATH OF A PARTICIPATING EMPLOYEE HOLDING RESTRICTED STOCK

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

  B. In the event of the death of an employee holding unvested restricted shares, the employee’s designated representative shall be entitled to receive a prorated number of shares determined by dividing the number of whole years lapsed since the grant date by the number of years in the restricted period and multiplying this ratio by the number of shares subject to the restricted stock award. Remaining unvested shares shall be forfeited unless additional payments are specifically authorized by the Committee.

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

XVII. RETIREMENT OR DISABILITY OF EMPLOYEE HOLDING STOCK AWARD

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

At the time of grant of any Stock Award, the Committee may specify special conditions or terms covering the status of such Stock Award upon the retirement or total and permanent disability of the employee. If no provision is made, and if the employee retires due to age or is totally and permanently disabled but is still legally competent, the Company’s obligation to make any payment due thereafter under the Stock Award feature of the Plan is subject to the conditions that for the entire period of deferral or restriction, including mandatory and optional deferrals:

    A. An employee retiring due to age shall render as an independent contractor and not as an employee such advisory or consultative services to the Company as shall be reasonably requested by the Company’s Board of Directors (the “Board”) or the Executive Committee in writing from time to time, consistent with the state of the retired employee’s health and any employment or other activities in which such employee may be engaged. For purposes of this Plan, the employee shall not be required to devote a major portion of time to such services and shall be entitled to reimbursement for any

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reasonable out-of-pocket expenses incurred in connection with the performance of such services;

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

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

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

XVIII. PERFORMANCE-BASED RESTRICTED STOCK AWARDS.

  A. Award Agreement. The Committee, in its discretion, may grant performance-based restricted stock awards to an eligible employee or make vesting of performance-based restricted shares contingent upon the attainment of performance goals relating to: (1) earnings growth, (2) return on shareholders’ equity, (3) earnings per share, (4) return on assets, (5) revenue growth, (6)stock price, or (7) other business goals defined by the Committee, each as may be adjusted by extraordinary financial events, if applicable. Any such objectives and the period in which such objectives are to be met will be determined by the Committee at the time of grant and reflected in the written award agreement. The number or value of performance shares that will be paid out to a participant at the end of the performance period will depend on the extent to which the Company has met the objectives determined by the Committee.

  B. Payment of Performance-based Restricted Shares. Payment of earned performance-based restricted shares is made as soon as practicable after the Committee has determined that the performance goals have been met. The Committee, in its discretion, may pay earned performance-based restricted stock in the form of shares of Common Stock, cash

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or a combination thereof. Payment of performance-based restricted stock in cash results in the return of the shares to the Plan, and the shares subject to an award paid in cash will again be available for grant under the Plan. Unless otherwise established by the Committee in the applicable award agreement, upon a participant’s termination of employment, for any reason, all remaining unearned performance-based restricted shares shall be forfeited and returned to the Plan and shall again be available for award under the Plan. The Committee shall also set forth in the grant the number of performance-based restricted shares or the amount of payment to be made under a performance award if the performance goals are met or exceeded, including the fixing of a maximum payment (subject to subsection XVIII(D)).

  C. Nontransferability. A performance share award is nontransferable other than by will, the laws of descent and distribution or, if permitted by the Committee, beneficiary designation, and a participant’s rights under an award are exercisable during the participant’s lifetime only by the participant. The extent to which a participant’s rights under an award of performance-based restricted stock are exercisable, if at all, in the event of the total and permanent disability or death during a performance period of a participant shall be determined by the Committee at the time of grant.

  D. Maximum Payment. In any fiscal year, no individual may receive payment for performance-based restricted stock in excess of an aggregate of 1,200,000 shares of Common Stock, including stock options, stock appreciation rights and other Stock Awards granted under this Plan (subject to adjustment as provided in Section XXII of the Plan). The amount of any payment of performance-based restricted shares in cash shall be based upon the fair market value of the Common Stock on the date the restrictions lapse. Fair market value shall be the mean of the high and low prices of such stock on The New York Stock Exchange Composite Tape on the date in question, or if no sales of such stock were made on that date, the mean of the high and low prices of such stock on the next preceding day on which sales were made.

PART 4. GENERAL PROVISIONS

XIX. ASSIGNMENTS

The rights and benefits under this Plan may not be assigned except for the designation of a representative or beneficiary, as provided in Sections VI, X, XVI and XVIII.

XX. TIME FOR GRANTING OPTIONS OR STOCK AWARDS

All options for shares, stock appreciation rights and Stock Awards subject to this Plan shall be granted, if at all, not later than 10 years after the adoption of this Plan by the Board.

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XXI. LIMITATION OF RIGHTS

  A. No Right to an Option or Stock Award. Nothing in the Plan shall be construed to give any personnel of the Participating Companies any right to be granted an option, Stock Award or Cash Award.

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

  C. No Shareholder Rights for Options. An optionee shall have no rights as a shareholder with respect to the shares covered by his options until the date of the issuance to him of a stock certificate therefor, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued.

XXII. CHANGES IN PRESENT STOCK

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

XXIII. CHANGE IN CONTROL

In the event that the Company is merged into or acquired by another entity in a transaction involving a change in control, the Committee shall have complete authority and discretion, but not the obligation, to accelerate the vesting of outstanding stock options and the termination of restrictions on Stock Awards.

The Committee may also ask the Board to negotiate, as part of any agreement involving a sale or merger of the Company, a sale of substantially all the Company’s assets or similar transaction, terms providing protection for employees holding stock options or Stock Awards.

XXIV. EFFECTIVE DATE OF THE PLAN

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

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XXV. AMENDMENT OF THE PLAN

The Board or the Committee may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that the Company may seek shareholder approval of an amendment if determined to be required by or advisable by any law or regulation, including without limitation, any regulations of the Securities and Exchange Commission or the Internal Revenue Service, the rules of any stock exchange on which the Company’s stock is listed or other applicable law or regulation.

XXVI. NOTICE

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

XXVII. COMPANY BENEFIT PLANS

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

XXVIII. UNFUNDED PLAN

Insofar as it provides for awards of stock or cash, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to employees who are granted awards of stock under this Plan, any such accounts will be used merely as a bookkeeping convenience. Except for the holding of Restricted Stock in escrow pursuant to subsection XIII(C), the Company shall not be required to segregate any assets that may at any time be represented by awards of stock or cash, nor shall this Plan be construed as providing for such segregation, nor shall the Company nor the Board nor the Committee be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any employee with respect to an award of stock or cash under this Plan shall be based solely upon any contractual obligations that may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company.  Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.

XXIX. GOVERNING LAW

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

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XXX. BUYOUT PROVISIONS

At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or Common Stock an option, stock appreciation right, Stock Award or Restricted Stock previously granted based on such terms and conditions as the Committee shall establish and communicate to the holder in connection with such offer.

11/24/94	Adopted by the Compensation Committee
2/28/95	Approved by the Shareholders
4/17/95	Two for one stock split
7/16/96	Two for one stock split
11/21/96	Part 1, Section II, Part 2, Section X and Part 4, Section XXV amended by the Compensation Committee
7/17/97	Part 1, Section VI amended by the Compensation Committee
2/12/99	Part 2, Section VI(B) & (D) amended by the Compensation Committee
9/16/99	Part 1, Section VI amended by the Compensation Committee
6/30/00	Part 2, Section VI(C) & Part 3, Section XIV amended by the Compensation Committee
10/27/00	Two for one stock split in the form of a stock dividend
9/12/02	Part 4, Section XXX added and plan restated by HR & Compensation Committee
11/21/02	Part 1, Section II added new paragraph and plan restated by HR & Compensation Committee

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EX-10.(D)

Exhibit 10(d)

HEWLETT–PACKARD COMPANY

1990 INCENTIVE STOCK PLAN

PART 1.   PLAN ADMINISTRATION AND ELIGIBILITY

I. PURPOSE

The purpose of this 1990 Incentive Stock Plan (the “Plan”) of Hewlett–Packard Company (the “Company”) is to encourage ownership in the Company by key personnel whose long–term employment is considered essential to the Company’s continued progress and thus to provide them with a further incentive to continue in the employ of the Company or its subsidiaries or affiliates. (The Company and all such subsidiaries are collectively referred to hereinafter as the “Participating Companies.”)

II. ADMINISTRATION

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

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

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

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

III. PARTICIPATION IN THE PLAN

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

IV. STOCK SUBJECT TO THE PLAN

The maximum number of shares which may be optioned or awarded under the Plan shall be 128,000,000 shares of the Company’s $0.01 par value Common Stock. In any fiscal year, no individual may be granted stock awards or stock options exceeding 1,000,000 shares or five percent of all shares optioned or awarded that year, whichever is less.  If a class of Preferred Stock is created and authorized by the Company’s Certificate of Amendment to the Certificate of Incorporation, Preferred Stock may be used in lieu of Common Stock for Plan grants. The limitation on the number of shares which may be optioned or awarded under the Plan shall be subject to adjustment as provided in Section XX of the Plan.

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

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

PART 2.   OPTIONS AND STOCK APPRECIATION RIGHTS

V. INCENTIVE STOCK OPTIONS

Any option granted under the Plan may be designated by the Committee as a nonstatutory option or as an incentive stock option (“ISO”) entitled to special tax treatment under Section 422A of the Internal Revenue Code of 1986, as amended to date and as may be amended from time to time (the “Code”).

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No option intended to qualify as an ISO may be granted under the Plan if such grant, together with any applicable prior grants, would exceed any maximum established under the Code for ISOs that may be granted to a single employee. Should it be determined that any ISO granted under the Plan exceeds such maximum, the ISO shall be null and void to the extent, but only to the extent, of such excess. Section 422A(b)(7) of the Code presently provides that with respect to options granted after December 31, 1986 the aggregate fair market value (determined as of the time the ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by an employee in any calendar year under all incentive stock option plans of the Company shall not exceed $100,000.

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

VI. TERMS, CONDITIONS AND FORM OF OPTIONS

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

A. Options Non–Transferable. Each option granted under the Plan by its terms shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him. No option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

B. Period of Option. The Committee may specify, at the time of grant a vesting schedule for any option.  If no vesting schedule is specified, no option may be exercised before the first anniversary of the date upon which it was granted, nor may it be exercised as to more than one–fourth of the number of shares covered thereby before the second anniversary of such date, nor as to more than one–half of the number of shares covered thereby before the third anniversary of such date, nor as to more than three–fourths of the number of shares covered thereby before the fourth anniversary of such date.  Any option granted pursuant to the Plan shall become exercisable in full upon the retirement of the optionee because of age or total and permanent disability or upon the death of the optionee. Except as provided in this subsection B, no option shall be exercisable after the expiration of 10 years from the date upon which such option is granted. However, the Committee may, at the time an option is granted to any employee who is not subject to Section 16 of the Exchange Act, specify a different term for the option up to a maximum term of 10.5 years.  Each option shall be subject to termination before its date of expiration as hereinafter provided.

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

The Committee may permit the payment of required tax withholding due upon exercise of an option by the withholding of shares otherwise issuable upon exercise of the option. Option shares withheld in payment of such taxes shall be valued at the fair market value of the stock on the date of exercise. Fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such shares on the exercise date as reported on the New York Stock Exchange Composite Tape. The Committee may impose special restrictions on the use of option shares as payment for withholding taxes by individuals subject to Section 16(b) of the Exchange Act.

No option may be exercised while the optionee is on any leave of absence from the Company other than an approved medical leave. Options will continue to vest during any authorized leave of absence, and may be exercised to the extent permitted by subsection VI(B) above upon the optionee’s return to active employment status.

D. Termination of Options. All rights of an employee in an option, to the extent that it has not been exercised, shall terminate upon the termination of his employment for any reason other than the death of the employee or retirement because of age or total and permanent disability and in case of such retirement three years from the date thereof with respect to nonstatutory options and three months from the–retirement date with respect to ISOs. In the event of the death of the employee, the option shall terminate upon failure of his designated representative to exercise the option in accordance with the time period provided in subsection VI(E) below. The Committee may authorize the continuation of options held by terminating employees who, at the Company’s request or with the Company’s consent, are terminating to accept employment with not–for–profit corporations, governmental agencies or industry associations. Such approval must be obtained from the Committee prior to termination of employment in order to prevent termination of options.

(1)Divestiture.

Notwithstanding the foregoing, if an employee terminates because of a divestiture by the Company, the Committee may, in its sole discretion, amend any option previously granted to such employee pursuant to the Plan such that the option becomes exercisable in full and/or permits the employee to exercise such option which has not already been exercised until the earlier of: (i) three months from the closing date of the divestiture, or such longer date, if any which the committee may authorize, or (ii) the

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expiration of the option.  The Committee may, in its sole discretion, delegate its authority under this subsection to the Executive Committee.

(2)Voluntary Severance Program.

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

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

VII. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS

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

The Committee shall have the power to lower the exercise price of an outstanding option not intended to qualify as an ISO under the Code; provided, however, that the exercise price per share may not be reduced below 75% of the fair market value of a share of Common Stock of the Company on the date the action is taken to reduce the exercise price. Such fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such shares on that date as reported on The New York Stock Exchange Composite Tape.

VIII. OPTION PRICE

The option price per share for the shares covered by each nonstatutory option shall be not less than 75% of the fair market value of a share of Common Stock of the Company on the date the option is granted. The option price per share for ISOs shall be not less than the fair market value on the option grant date. Such fair market value shall be deemed to be the mean of the highest and lowest quoted selling prices for such share on that date as reported on The New York Stock Exchange Composite Tape.

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IX. LOANS FOR EXERCISE OF OPTIONS

          Any option agreement under this Plan entered into with an employee may, but need not, provide that the Company shall lend to the employee who holds the option the funds for any exercise of his option. Any such loans made to individuals subject to Section 16 of the Exchange Act shall be at a rate of interest adequate to avoid imputation of income under Sections 483 and 7872 of the Code and shall be for a term not to exceed 15 months from the date of exercise of the related option. Any loan by the Company to fund the exercise of an option shall be subject to such other terms and conditions as shall be set forth in the option agreement, which terms and conditions shall be determined by the Committee at the time of the grant of the option. Loans may or may not be secured by stock issued pursuant to such option exercises, at the Committee’s discretion.

X. STOCK APPRECIATION RIGHTS

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

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

Each stock appreciation right granted under this Plan shall be subject to the following terms and conditions: (1) each stock appreciation right shall be evidenced by a written agreement between the Company and the holder in such form as the Committee shall authorize; (2) each stock appreciation right granted under the Plan by its terms shall not be transferable by the holder otherwise than by will or by the law of descent and distribution, and shall be exercised during the lifetime of the holder only by him, and no stock appreciation right or interest therein may be transferred, assigned, pledged or hypothecated by the holder during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process; (3) all rights of an

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employee in a stock appreciation right, to the extent that it has not been exercised, shall terminate upon the death of the employee or the termination of his employment for any reason other than retirement because of age or total and permanent disability, and in case of such retirement three years from the date thereof with respect to nonstatutory Options and three months from the date thereof with respect to Options intended to qualify as ISOs; provided, however, that the employee, by written notice to the Company, may designate one or more persons (and from time to time change such designation), including his legal representative, who, by reason of his death, shall acquire the right to exercise all or a portion of the rights accrued under the stock appreciation right as of the date of his death. If the person or persons so designated wish to exercise any portion of the stock appreciation right, they must do so within one year after the death of the employee or retired employee, as the case may be, and such exercise shall be subject to the provisions of this Plan; and (4) the life of stock appreciation rights shall be coterminous with the life of the Options.

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

No stock appreciation right or related Option may be exercised during the first six months of its term, except in the event death or total and permanent disability of the holder occurs prior to the expiration of this six–month period. No election to receive any portion of the Appreciation in cash shall be filed with the Secretary and no stock appreciation right shall be exercised to receive any cash unless such election and exercise shall occur during the period (hereinafter referred to as the “Cash Window Period”) beginning on the third business day following the date of release for publication by the Company of a regular quarterly or annual statement of sales and earnings and ending on the twelfth business day following such date. The Committee may consent to the election of a holder to receive any portion of the Appreciation in cash at any time after such election has been made.

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

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

Nothing in the Plan shall be construed to give any eligible employee any right to be granted a stock appreciation right. Neither the Plan nor the granting of a stock

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appreciation right nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will employ the holder of a stock appreciation right for any period of time or in any position or at any particular rate of compensation. The holder of a stock appreciation right shall have no rights as a stockholder with respect to the shares covered by his stock appreciation right until the date of issuance to him of a stock certificate therefor, and, except as otherwise specifically provided in the stock option agreement for the Options, no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued.

PART 3.   STOCK AND CASH AWARDS

XI. STOCK AND CASH AWARD DETERMINATION

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

XII. PAYMENT OF STOCK OR CASH AWARDS

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

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

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

D. The Committee may permit, on such terms as it deems appropriate, use of Restricted Stock as partial or full payment upon exercise of a stock option under the

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Company’s incentive stock option or compensation plans or this Plan. In the event shares of Restricted Stock are so tendered as consideration for the exercise of an option, a number of the shares issued upon the exercise of said option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted plus any additional restrictions that may be imposed by the Committee.

XIII. TERMINATION OF RESTRICTIONS ON STOCK AWARDS

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

The Committee may in its discretion permit an employee to elect to receive in lieu of shares of Restricted Stock, at the expiration of the restrictions, a cash payment equal to the fair market value of the Company’s Common Stock on the date the restrictions lapse. The Committee may also permit the employee to elect to pay required tax withholding due upon the lapse of restrictions with part of the shares due the employee at such time. The shares cancelled in payment of required tax withholding shall be valued at the fair market value of the Company’s Common Stock on the date the restrictions lapse. Fair market value shall be the mean of the high and low prices of such stock on The New York Stock Exchange Composite Tape on the date in question, or if no sales of such stock were made on that date, the mean of the high and low prices of such stock on the next preceding day on which sales were made.

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

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

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

In the event of the death or total and permanent disability of an employee holding unvested restricted shares, the employee’s designated representative or the employee, as the case may be, shall be entitled to receive a prorated number of shares determined by dividing the number of years in the restricted period by the number of whole years lapsed since the grant date. Remaining unvested shares shall be forfeited unless additional payments are specifically authorized by the Committee.

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

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XV. RESTRICTIONS AND FORFEITURE OF STOCK AWARDS

The Company’s obligation to deliver stock held in escrow is subject to the condition that the employee remain an employee of the Company on active or authorized leave status or be under contract to provide services to the Company as provided in Section XVI hereof for the entire deferral and/or restriction period, including mandatory and optional deferrals. If the employee fails to meet this condition, the employee’s right to any such unpaid amounts or undelivered stock shall be forfeited. This provision may be waived by the Committee in exceptional circumstances. In the event an employee holding restricted shares ceases to be on active pay status during the restricted period for a period of more than six months, the restricted period shall be extended by a period of time equal to the length of the period of inactive status.

XVI. RETIREMENT OF EMPLOYEE HOLDING STOCK AWARD

At the time of grant of any Stock Award, the Committee may specify special conditions or terms covering the status of such Stock Award upon the retirement of the employee. If no provision is made, the following provisions shall govern if the employee retires due to age: the Company’s obligation to make any payment due thereafter under the Stock Award feature of the Plan is subject to the condition that for the entire period of deferral or restriction, including mandatory and optional deferrals:

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

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

C. The employee shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company’s business,

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any confidential information or material relating to the business of the Company, either during or after employment with the Company; and

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

PART 4.   GENERAL PROVISIONS

XVII. ASSIGNMENTS

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

XVIII. TIME FOR GRANTING OPTIONS OR STOCK AWARDS

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

XIX. LIMITATION OF RIGHTS

A. No Right to an Option or Stock Award.  Nothing in the Plan shall be construed to give any personnel of the Participating Companies any right to be granted an option or Stock or Cash Award.

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

C. No Shareholder Rights for Options.  An optionee shall have no rights as a shareholder with respect to the shares covered by his options until the date of the issuance to him of a stock certificate therefor, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued.

XX. CHANGES IN PRESENT STOCK

In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate structure or capitalization affecting the Company’s present Common Stock, appropriate adjustment shall be made by the

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Board of Directors in the number (including the aggregate numbers specified in Section IV) and kind of shares which are or may become subject to options and Stock Awards granted or to be granted hereunder, and in the option price of shares which are subject to options granted hereunder.

XXI. CHANGE IN CONTROL

In the event that the Company is merged into or acquired by another entity in a transaction involving a change in control, the Committee shall have complete authority and discretion, but not the obligation, to accelerate the vesting of outstanding stock options and the termination of restrictions on Stock Awards.

The Committee may also ask the Board of Directors to negotiate, as part of any agreement involving a sale or merger of the Company, a sale of substantially all the Company’s assets or similar transaction, terms providing protection for employees holding stock options or Stock Awards.

XXII. EFFECTIVE DATE OF THE PLAN

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

XXIII. AMENDMENT OF THE PLAN

The Board or the Committee may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that the Company may seek shareholder approval of an amendment if determined to be required by or advisable by any law or regulation, including without limitation, any regulations of the Securities and Exchange Commission or the Internal Revenue Service, the rules of any stock exchange on which the Company’s stock is listed or other applicable law or regulation.

XXIV. NOTICE

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

XXV. COMPANY BENEFITS PLANS

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

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employee, or to the employee’s dependents or beneficiaries under any other plan or policy of the Company or otherwise.

XXVI. UNFUNDED PLAN

Insofar as it provides for awards of stock or cash, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to employees who are granted awards of stock under this Plan, any such accounts will be used merely as a bookkeeping convenience. Except for the holding of Restricted Stock in escrow pursuant to subsection XII(C), the Company shall not be required to segregate any assets which may at any time be represented by awards of stock or cash, nor shall this Plan be construed as providing for such segregation, nor shall the Company nor the Board nor the Committee be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any employee with respect to an award of stock or cash under this Plan shall be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation which may be created by this Plan.

XXVII. GOVERNING LAW

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

XXVIII. BUYOUT PROVISIONS

At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or shares an option, stock appreciation right, Stock Award or Restricted Stock previously granted based on such terms and conditions as the Committee shall establish and communicate to the holder of such option, stock appreciation right, Stock Award or Restricted Stock in connection with such offer.

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9/21/89	Adopted by the Executive Compensation and Stock Option Committee
2/27/90	Approved by the Shareholders
7/17/91	Part 1, Section II amended by the Executive Compensation and Stock Option Committee
11/18/93	Section IV amended by the Executive Compensation and Stock Option Committee
4/13/95	Payment date for two for one stock split (record date 3/24/95)
7/15/96	Payment date for two for one stock split (record date 6/21/96)
11/21/96	Part 1, Section II, Part 2, Section X and Part 4, Section XXIII amended by the Compensation Committee

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5/15/97	Section VI D amended by the Compensation Committee
5/20/98	The Company reincorporated in the State of Delaware
2/12/99	Section VI B & D amended by the Compensation Committee
6/30/00	Section VI C and XIII amended by the Compensation Committee
10/27/00	Payment date for two for one stock split in the form of a stock dividend (record date 9/27/00)
9/12/02	Part 4, Section XXVIII added and plan restated by HR & Compensation Committee
11/21/02	Part 1, Section II added new paragraph and plan restated by HR & Compensation Committee

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EX-10.(E)

Exhibit 10(e)

HEWLETT-PACKARD COMPANY

1985 INCENTIVE COMPENSATION PLAN

PART 1.  PLAN ADMINISTRATION AND ELIGIBILITY

1.             PURPOSE

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

II.            ADMINISTRATION

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

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

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

Delegation of Authority for the Day-to-Day Administration of the Plan.  Except to the extent prohibited by applicable law or applicable rules of a stock exchange, the Board or

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any of its committees as shall be administering the Plan may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. The delegation may be revoked at any time.

III.           PARTICIPATION IN THE PLAN

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

IV.           STOCK SUBJECT TO THE PLAN

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

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

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

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

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

PART 2.  OPTIONS AND STOCK APPRECIATION RIGHTS

V.            INCENTIVE STOCK OPTIONS

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

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

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

VI.           TERMS, CONDITIONS AND FORM OF OPTIONS

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

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

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

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

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

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

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

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

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

VII.          MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS

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

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

VIII.        OPTION PRICE

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

IX.           LOANS FOR EXERCISE OF OPTIONS

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

5

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

X.            STOCK APPRECIATION RIGHTS

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

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

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

6

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

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

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

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

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

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

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PART 3.  STOCK AND CASH AWARDS

XI.           STOCK AND CASH AWARD DETERMINATION

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

XII.         PAYMENT OF STOCK OR CASH AWARDS

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

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

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

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

XIII.        TERMINATION OF RESTRICTIONS ON STOCK AWARDS

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

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

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

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

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

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

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

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

XV.         RESTRICTIONS AND FORFEITURE OF STOCK AWARDS

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

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XVI.        RETIREMENT OF EMPLOYEE HOLDING STOCK AWARD

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

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

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

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

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

PART 4.  GENERAL PROVISIONS

XVII.       ASSIGNMENTS

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

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XVIII.   TIME FOR GRANTING OPTIONS OR STOCK AWARDS

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

XIX.     LIMITATION OF RIGHTS

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

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

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

XX.      CHANGES IN PRESENT STOCK

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

XXI.        EFFECTIVE DATE OF THE PLAN

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

XXII.      AMENDMENT OF THE PLAN

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

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

XXIII.   NOTICE

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

XXIV.     COMPANY BENEFIT PLANS

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

XXV.      UNFUNDED PLAN

                Insofar as it provides for awards of Stock or cash, this Plan shall be unfunded.  Although bookkeeping accounts may be established with respect to employees who are granted awards of Stock under this Plan, any such accounts will be used merely as a bookkeeping convenience.  Except for the holding of Restricted Stock in escrow pursuant to Section XII C, the Company shall not be required to segregate any assets which may at any time be represented by awards of Stock or cash, nor shall this Plan be construed as providing for such segregation, nor shall the Company nor the Board nor the Committee be deemed to be a trustee of Stock or cash to be awarded under the Plan.  Any liability of the Company to any employee with respect to an award of Stock or cash under this Plan shall be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company.  Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation which may be created by this Plan.

XXVI.    GOVERNING LAW

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

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XXVII.   BUYOUT PROVISIONS

At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or shares an option, stock appreciation right, Stock Award or Restricted Stock previously granted based on such terms and conditions as the Committee shall establish and communicate to the holder of such option, stock appreciation right, Stock Award or Restricted Stock in connection with such offer.

11/30/84	Adopted by the Board of Directors
2/26/85	Approved by the Stockholders
1/18/90	Part 3, Section XIII amended by the Executive Compensation and Stock Option Committee
7/17/91	Part 1, Section II amended by the Executive Compensation and Stock Option Committee
4/13/95	Payment date for two for one stock split (record date 3/24/95)
7/15/96	Payment date for two for one stock split (record date 6/21/96)
11/21/96	Part 1, Section II, Part 2, Section X and Part 4, Section XXII amended by the Compensation Committee
5/15/97	Part 2, Section VI D amended by the Compensation Committee
5/20/98	The Company reincorporated in the State of Delaware
10/27/00	Payment date for two for one stock split in the form of a stock dividend (record date 9/27/00)
9/12/02	Part 4, Section XXVII added and plan restated by HR & Compensation Committee
11/21/02	Part 1, Section II added new paragraph and plan restated by HR & Compensation Committee

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EX-10.(F)

Exhibit 10(f)

As Amended and Restated Effective November 21, 2002

As Amended and Restated Effective September 12, 2002

As Amended and Restated Effective July 18, 2002

As Amended Effective May 3, 2002

As Amended Effective September 4, 2001

 Adopted January 25, 2001

COMPAQ COMPUTER CORPORATION

2001 STOCK OPTION PLAN

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

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

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

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

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

“Change in Control” shall be deemed to have occurred if:  (a) Prior to May 3, 2002, (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than Compaq, any trustee or other fiduciary holding securities under any Compaq employee benefit plan, or any entity owned, directly or indirectly, by Compaq stockholders in substantially the same proportions as their ownership of Compaq voting securities), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time), directly or indirectly, of Compaq securities representing 30% or more of the combined voting power of Compaq’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with Compaq to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by Compaq’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (iii) a merger or consolidation of Compaq with any other corporation, other than a merger or consolidation that results in Compaq voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of voting securities of Compaq or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of Compaq (or similar transaction) in which no person acquires more than 30% of the combined voting power of Compaq’s then outstanding securities shall not constitute a Change in Control; or (iv) Compaq stockholders approve a plan of complete liquidation of Compaq or an agreement for the sale or disposition by Compaq of all or substantially all of

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

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

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

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

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

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

“Employee” shall mean an employee of the Company, Compaq or of any Affiliate, but shall exclude any individual who are classified by the Company as (a) leased from or otherwise employed by a third party; (b) independent contractors; (c) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise; or (d) on or after May 3, 2002, either a member of the Board or a covered officer as defined in Section 162(m) of the Code at the time of grant.

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

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

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

“Incentive Stock Option” shall mean a right to purchase Shares that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

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

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

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

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

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

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

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

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

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

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

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

SECTION 3.           Administration.

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

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

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

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

SECTION 4.           Shares Available for Awards.

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

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

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

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

SECTION 5.           Employee Stock Options.

(a)Eligibility and Limits on Awards.  Any Employee shall be eligible to be designated a Participant.  Prior to May 3, 2002 any officer or employee-director of Compaq or any Affiliate shall be eligible to be designated as a Participant.  Prior to May 3, 2002 and subject to adjustment as provided in

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

(b)Grant.  Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Options shall be granted, the number of Shares to be covered by each Option, and the conditions and limitations applicable to the exercise of the Option.  On or after May 3, 2002, no Incentive Stock Options shall be granted or substituted under this Plan.

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

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

(e)Payment.  No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option cost therefor is received by the Company.  Such payment may be made (i) in cash, or its equivalent, (ii) if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), (iii) if and to the extent permitted by the Company, by surrendering all or part of that Option or any other Option, (iv) consideration received by the Company under a cashless exercise program implemented by the Company, or (v) by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such option cost.

SECTION 6.           Stock Appreciation Rights.

(a)Grant.

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

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

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

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

SECTION 7.           Termination or Suspension of Employment.  The following provisions shall apply in the event of the Participant’s termination of employment unless the Company shall have provided otherwise, either at the time of the grant of the Award or thereafter.

(a)Termination of Employment.

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

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

(b)Death, Disability or Retirement.

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

(ii)For Options granted on or after May 3, 2002 and if a Participant’s employment with the Company, Compaq or an Affiliate is terminated by total and permanent disability, or retirement, all unvested Options shall immediately vest and the Participant shall have the right to exercise any Option within three years of the date of such disability or retirement,

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but in no event shall such option be exercisable later than the date the Option would have expired had it not been for the termination of such employment.  The meaning of the terms “total and permanent disability” and “retirement” shall be determined by the Committee.

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

(c)Acceleration and Extension of Exercisability.  Notwithstanding the foregoing, the Committee may, in its discretion, provide (i) that an Option granted to an Employee Participant may terminate at a date earlier than that set forth above, (ii) that an Option granted to an Employee Participant may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant’s employment, and (iii) that an Option or Stock Appreciation Right may become immediately exercisable when it finds that such acceleration would be in the best interests of the Company.

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

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

(f)Beneficiary Designation.

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

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

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SECTION 8.           Change in Control.

(a)For Awards granted prior to May 3, 2002 and notwithstanding any other provision of the Plan to the contrary, (i) all Awards granted prior to September 1, 2001 shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award and no outstanding Stock Appreciation Rights may be terminated, amended, or suspended upon or after a Change in Control and (ii) all Awards granted on or after September 1, 2001 shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award, upon a Qualifying Termination (as defined in Section 7(f)) within one year following a Change in Control.

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

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

SECTION 9.           Amendment and Termination.

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

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

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

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

(e)Employee Status Change to Part-Time.  Prior to May 3, 2002 and at such time as a full-time Employee becomes a part-time Employee, on the next vesting date following such status change, the vesting schedule for all Awards previously granted to such employee and not yet vested will be automatically amended to reduce the number of shares vesting each month by one-half during the time that such employee is working on a part-time basis; provided, however, that any Shares that remain unvested three months prior to the expiration of the term of such Award shall vest as of such date three months prior to the expiration of such term.

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

SECTION 10.         General Provisions.

(a)Nontransferability.  No Award shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution; provided, however, that an Award granted prior to May 3, 2002 may be transferable, to the extent set forth in the applicable Notice and in accordance with procedures adopted by the Committee.

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

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

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

(e)Withholding.  A Participant may be required to pay to the Company, Compaq or any Affiliate and the Company, Compaq or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee to satisfy all obligations for the payment of such taxes.  A Participant may satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be

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withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Committee may deem necessary or advisable.  The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting, exercise, or payments of any Award.

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

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

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

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

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

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

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

(m)No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company, Compaq or any Affiliate and a Participant or any other Person.  To the extent that any Person acquires a right

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to receive payments from the Company, Compaq or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company, Compaq or any Affiliate.

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

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

SECTION 11.         Term of the Plan.

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

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

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EX-10.(G)

Exhibit 10(g)

As Amended and Restated Effective November 21, 2002

As Amended and Restated Effective September 12, 2002

Amended and Restated Effective July 18, 2002

Section 8 deleted Effective May 3, 2002

Amended and Restated Effective September 4, 2001

Section 2 “Fair Market Value” definition amended December 8, 1999

Sections 10(b) and (d) amended April 23, 1998

Approved by Stockholders and effective April 23, 1998

Adopted January 22, 1998

COMPAQ COMPUTER CORPORATION

1998 STOCK OPTION PLAN

SECTION 1.           Purpose.  The Compaq Computer Corporation 1998 Stock Option Plan has been established to promote the interests of the Company and its stockholders by (a) attracting and retaining exceptional employees and directors of the Company, Compaq and Affiliates, as defined below; (b) motivating such employees by means of performance-related incentives to achieve long-range performance goals; and (c) enabling such employees and directors to participate in the long-term growth and financial success of the Company.

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

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

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

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

“Change in Control” shall be deemed to have occurred if:  (a) Prior to May 3, 2002 (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than Compaq, any trustee or other fiduciary holding securities under any Compaq employee benefit plan, or any entity owned, directly or indirectly, by Compaq stockholders in substantially the same proportions as their ownership of Compaq voting securities), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time), directly or indirectly, of Compaq securities representing 30% or more of the combined voting power of Compaq’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with Compaq to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by Compaq’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of; (iii) Compaq stockholders approve a merger or consolidation of Compaq with any other corporation, other than a merger or consolidation that would result in Compaq voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of voting securities of Compaq or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of Compaq (or similar transaction) in which no person acquires more than 30% of the combined voting power of Compaq’s then outstanding securities shall not constitute a Change in Control; or (iv) Compaq

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

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

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

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

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

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

“Employee” shall mean an employee of the Company, Compaq or of any Affiliate, but shall exclude any individual who are classified by the Company as (a) leased from or otherwise employed by a third party; (b) independent contractors; (c) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise; or (d) on or after May 3, 2002, either a member of the Board or a covered officer as defined in Section 162(m) of the Code at the time of grant.

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

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

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

“Incentive Stock Option” shall mean a right to purchase Shares that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

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

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

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

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

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

“Plan” shall mean this Compaq Computer Corporation 1998 Stock Option Plan, as amended from time to time.

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

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

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

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

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

SECTION 3.           Administration.

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

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(b)Committee and Board Discretion Binding.  Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee or the Board, may be made at any time, and shall be final, conclusive, and binding upon all Persons, including the Company, Compaq, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder, any Employee, and any Director.

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

SECTION 4.           Shares Available for Awards.

(a)Shares Available.  Subject to adjustment as provided in Section 4(b), the number of Shares with respect to which Awards may be granted under the Plan shall be 100 million; provided, however, if Compaq or its wholly owned subsidiary merges with Digital Equipment Corporation the number of Shares with respect to which Awards may be granted under the Plan shall be increased by 50 million, to a total of 150 million shares.  If, after the effective date of the Plan, any Shares covered by an Award granted under the Plan or to which such Award relates, are forfeited, or if such an Award is settled for cash or otherwise terminates or is canceled without the delivery of Shares, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such settlement, forfeiture, termination or cancellation, shall again become Shares with respect to which Awards may be granted.  In the event that any Option or other Award granted hereunder is exercised through the delivery of Shares or in the event that withholding tax liabilities arising from such Award are satisfied by the withholding of Shares, the number of Shares available for Awards under the Plan shall be increased by the number of Shares so surrendered or withheld.

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

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

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

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SECTION 5.           Employee Stock Options.

(a)Eligibility and Limits on Awards.  Any Employee shall be eligible to be designated a Participant.  Prior to May 3, 2002 any officer or employee-director of Compaq or any Affiliate shall be eligible to be designated as a Participant.  Prior to May 3, 2002 and subject to adjustment as provided in Section 4(b), no Executive Officer may receive Awards under the Plan in any calendar year that relate to more than 1,500,000 Shares.  Prior to May 3, 2002, the limits on Awards to any Executive Officer under this Plan shall be reduced by any other Award in the same calendar year to such officer under any other Compaq equity incentive plan.

(b)Grant.  Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Options shall be granted, the number of Shares to be covered by each Option, and the conditions and limitations applicable to the exercise of the Option. On or after May 3, 2002, no Incentive Stock Options shall be granted or substituted under this Plan.

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

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

(e)Payment.  No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option cost therefor is received by the Company.  Such payment may be made (i) in cash, or its equivalent, (ii) if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), (iii) if and to the extent permitted by the Company, by surrendering all or part of that Option or any other Option, (iv) consideration received by the Company under a cashless exercise program implemented by the Company, or (v) by a combination of the foregoing; provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such option cost.

SECTION 6.           Stock Appreciation Rights.

(a)Grant.

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

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

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

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

SECTION 7.           Termination or Suspension of Employment.  The following provisions shall apply in the event of the Participant’s termination of employment unless the Company shall have provided otherwise, either at the time of the grant of the Award or thereafter.

(a)Termination of Employment.

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

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

(b)Death, Disability or Retirement.

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

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

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

(c)Acceleration and Extension of Exercisability.  Notwithstanding the foregoing, the Committee may, in its discretion, provide (i) that an Option granted to an Employee Participant may terminate at a date earlier than that set forth above, (ii) that an Option granted to an Employee Participant may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant’s employment, and (iii) that an Option or Stock Appreciation Right may become immediately exercisable when it finds that such acceleration would be in the best interests of the Company.

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

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

(f)Beneficiary Designation.

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

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

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SECTION 8.           Change in Control.

(a)For Awards granted prior to May 3, 2002 and notwithstanding any other provision of the Plan to the contrary, (a) all Awards granted prior to September 1, 2001 shall vest and become immediately exercisable or payable or have all restrictions lifted as may apply to the type of Award, and no outstanding Stock Appreciation Rights may be terminated, amended, or suspended upon or after a Change in Control and (b) all Awards granted on or after September 1, 2001 shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award, upon a Qualifying Termination (as defined in Section 7(f)) within one year following a Change in Control.

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

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

SECTION 9.           Amendment and Termination.

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

(b)Amendments to Awards.  The Committee may waive any conditions or rights under, amend any terms of, suspend, or terminate, any Award, prospectively or retroactively; provided that (i) any waiver, amendment, suspension, or termination that would adversely affect the rights of any Participant or any holder or beneficiary of any outstanding Award shall not to that extent be effective without the consent of the affected Participant, holder, or beneficiary, and (ii) in accordance with Section 6(b) of this Plan no amendment shall lower the exercise price of outstanding options issued under the Plan.

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

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

(e)Employee Status Change to Part-Time.  Prior to May 3, 2002 and at such time as a full-time Employee becomes a part-time Employee, on the next vesting date following such status change, the vesting schedule for all Awards previously granted to such employee and not yet vested will be automatically amended to reduce the number of shares vesting each month by one-half during the time that such employee is working on a part-time basis; provided, however, that any Shares that remain unvested three months prior to the expiration of the term of such Award shall vest as of such date three months prior to the expiration of such term.

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

SECTION 10.         General Provisions.

(a)Nontransferability.  No Award shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution; provided, however, that an Award granted prior to May 3, 2002 may be transferable, to the extent set forth in the applicable Notice and in accordance with procedures adopted by the Committee.

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

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

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

(e)Withholding.  A Participant may be required to pay to the Company, Compaq or any Affiliate and the Company, Compaq or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee to satisfy all obligations for the payment of such taxes.  A Participant may satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be

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withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Committee may deem necessary or advisable.  The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting, exercise, or payments of any Award.

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

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

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

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

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

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

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

(m)No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company, Compaq or any Affiliate and a Participant or any other Person.  To the extent that any Person acquires a right

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to receive payments from the Company, Compaq or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company, Compaq or any Affiliate.

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

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

SECTION 11.         Term of the Plan.

(a)Effective Date.  The Plan shall be effective on April 23, 1998.

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

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EX-10.(H)

Exhibit 10(h)

As Amended and Restated Effective November 21, 2002

As Amended and Restated Effective September 12, 2002

Amended and Restated Effective July 18, 2002

Amended and Restated September 4, 2001

Amended and Restated January 20, 1998

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

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

mergers & acquisitions through September 1, 1997

COMPAQ COMPUTER CORPORATION

1995 EQUITY INCENTIVE PLAN

SECTION 1.           Purpose.  The purposes of the Compaq Computer Corporation 1995 Equity Incentive Plan are to promote the interests of the Company and its stockholders by (a) attracting and retaining exceptional executive personnel and other key employees of the Company, Compaq and Affiliates, as defined below; (b) motivating such employees by means of performance-related incentives to achieve long-range performance goals; and (c) enabling such employees to participate in the long-term growth and financial success of the Company.

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

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

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

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

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

“Change in Control” shall be deemed to have occurred if:  (a) Prior to May 3, 2002 (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than Compaq, any trustee or other fiduciary holding securities under any employee benefit plan of Compaq, or any company owned, directly or indirectly, by the stockholders of Compaq in substantially the same proportions as their ownership of Stock of Compaq), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Compaq representing 30% or more of the combined voting power of Compaq’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board , and any new director (other than a director designated by a person who has entered into an agreement with Compaq to effect a transaction described in clause (i), (iii), or (iv) of this paragraph whose election by the Board or nomination for election by Compaq’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board ; (iii) the stockholders of Compaq approve a merger or consolidation of Compaq with any other corporation, other than a merger or consolidation that would result in the voting securities of Compaq outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of Compaq or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected

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to implement a recapitalization of Compaq (or similar transaction) in which no person acquires more than 30% of the combined voting power of Compaq’s then outstanding securities shall not constitute a Change in Control of Compaq; or (iv) the stockholders of Compaq approve a plan of complete liquidation of Compaq or an agreement for the sale or disposition by Compaq of all or substantially all of Compaq’s assets.  If any of the events enumerated in clauses (i) through (iv) occur, the Board shall determine the effective date of the Change in Control resulting therefrom, for purposes of the Plan.  For purposes of (1) applying Awards granted on or after September 1, 2001, (2) applying the provisions of Section 9(a) to Awards (other than Options and Stock Appreciation Rights) granted prior to September 1, 2001, and (3) applying the provision of Section 8(a)(i)(A) to all Options and Stock Appreciation Rights, whenever granted, the definition of Change in Control set forth in this paragraph shall be revised by substituting the phrase “a merger or consolidation of Compaq with any other corporation is consummated” for the phrase “the stockholders of Compaq approve a merger or consolidation of Compaq with any other corporation” in clause (iii) of the definition above, and (b) On or after May 3, 2002, the Board in its sole discretion determines that a change in control has occurred.

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

“Committee” shall mean a committee or committees of the Board designated by the Board to administer the Plan and prior to May 3, 2002, the committee must be composed of not less than the minimum number of persons from time to time required by Rule 16b-3, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a “Non-Employee Director “ within the meaning of Rule 16b-3.

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

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

“Employee” shall mean an employee of the Company, Compaq or of any Affiliate, but shall exclude any individual who are classified by the Company as (a) leased from or otherwise employed by a third party; (b) independent contractors; (c) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise; or (d) on or after May 3, 2002, either a member of the Board or a covered officer as defined in Section 162(m) of the Code at the time of grant.

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

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

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

“Incentive Stock Option” shall mean a right to purchase Shares that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

“Non-Qualified Stock Option” shall mean a right to purchase Shares that is granted under Section 6 of the Plan and that is not intended to be an Incentive Stock Option.

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

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

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

“Plan” shall mean this Compaq Computer Corporation 1995 Equity Incentive Plan, as amended from time to time.

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

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

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

“Stock Appreciation Right” shall mean any right granted under Section 7 of the Plan.

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

SECTION 3.           Administration.

(a)Authority of Committee.  The Plan shall be administered by the Committee.  Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to an eligible Employee; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (ix) adopt rules, procedures, and sub-plans to the Plan relating to the operation and administration of the Plan, as the Committee deems desirable to accommodate tax and other laws, regulations and practices in foreign jurisdictions; (x) approve forms of Notice for use under the Plan; (xi) authorize substitution under the Plan of any or all outstanding Non-Qualified Stock Options or outstanding stock appreciation rights held by service providers of an entity acquired by the Company; and (xii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan and any Award granted hereunder.

(b)Committee Discretion Binding.  Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, Compaq, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder and any Employee.

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

SECTION 4.           Shares Available for Awards.

(a)Shares Available.  Subject to adjustment as provided in Section 4(b), the number of Shares with respect to which Awards may be granted under the Plan shall be 65,682,498 million.  If, after the effective date of the Plan, any Shares covered by an Award granted under the Plan or by an award granted under any prior stock award plan of the Company or Compaq, or to which such an Award or award relates, are forfeited, or if such an Award or award is settled for cash or otherwise terminates or is canceled without the delivery of Shares, then the Shares covered by such Award or award, or to which such Award or award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such settlement, forfeiture, termination or cancellation, shall again become Shares with respect to which Awards may be granted. In the event that any Option or other Award granted hereunder or any award granted under any prior stock award plan of the Company or Compaq is exercised through the delivery of Shares or in the event that withholding tax liabilities arising from such Award or award are satisfied by the withholding of Shares, the number of Shares available for Awards under the Plan shall be increased by the number of Shares so surrendered or withheld.  Prior to May 3, 2002 and notwithstanding the foregoing and subject to adjustment as provided in Section 4(b), no Executive Officer of the Company may receive Awards under the Plan in any calendar year that relate to more than 2,500,000 Shares; provided, however, a new employee who begins service as Chief Executive Officer may receive Awards that relate to up to 5,000,000 Shares in the calendar year in which employment with the Company begins.

(b)Adjustments.  In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, in each case, that (A) with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code, as from time to time amended and (B) with respect to any Award no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan’s meeting the requirements of Section 162(m) of the Code, as from time to time amended.

(c)Substitute Awards.  Any Shares underlying Substitute Awards shall not, except in the case of Shares with respect to which Substitute Awards are granted to Employees who are officers or directors of the Company for purposes of Section 16 of the Exchange Act or any successor section thereto, be counted against the Shares available for Awards under the Plan.

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

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

SECTION 6.           Stock Options.

(a)Grant.  Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Options shall be granted, the number of Shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option.  Prior to May 3, 2002, the Committee shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of options; in the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. On or after May 3, 2002, no Incentive Stock Options shall be substituted under this Plan.

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

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

(d)Payment.  No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option cost therefor is received by the Company.  Such payment may be made (i) in cash, or its equivalent, (ii) if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), (iii) if and to the extent permitted by the Company, by surrendering all or part of that Option or any other Option, (iv) consideration received by the Company under a cashless exercise program implemented by the Company, or (v) by a combination of the foregoing; provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such option cost.

(e)Restoration Options.  Prior to May 3, 2002 and in the event that any Participant delivers Shares in payment of the exercise price of any Option granted hereunder in accordance with Section 6(d) or of any option granted under a prior stock award plan of the Company, or in the event that the withholding tax liability arising upon exercise of any such Option or option by a Participant is satisfied through the withholding by the Company of Shares otherwise deliverable upon exercise of the Option or option, the Committee shall have the authority to grant or provide for the automatic grant of a Restoration Option to such Participant.  The grant of a Restoration Option shall be subject to the satisfaction of such conditions or criteria as the Committee in its sole discretion shall establish from time to time.  A Restoration Option shall entitle the holder thereof to purchase a number of Shares equal to the number of such Shares so delivered or withheld upon exercise of the original Option or option.  A Restoration Option shall have a per share exercise price of not less than 100% of the per Share Fair Market Value on the date of grant of such Restoration Option and such other terms and conditions as the Committee in its sole discretion shall determine.

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SECTION 7.           Stock Appreciation Rights.

(a)Grant.

(i)Prior to May 3, 2002 and subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Stock Appreciation Rights shall be granted, the number of Shares to be covered by each Stock Appreciation Right Award, the grant price thereof and the conditions and limitations applicable to the exercise thereof.  Stock Appreciation Rights may be granted in tandem with another Award, in addition to another Award, or freestanding and unrelated to another Award.  Stock Appreciation Rights granted in tandem with or in addition to an Award may be granted either at the same time as the Award or at a later time.  Stock Appreciation Rights shall not be exercisable earlier than six months after grant, and shall have a grant price as determined by the Committee on the date of grant.

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

(b)Exercise and Payment.  A Stock Appreciation Right shall entitle the Participant to receive an amount equal to the excess of the Fair Market Value of a Share on the date of exercise of the Stock Appreciation Right over the grant price thereof, provided that the Committee may for administrative convenience determine that, with respect to any Stock Appreciation Right that is not related to an Incentive Stock Option and that can only be exercised for cash during limited periods of time in order to satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Shares is the highest.  Any such determination by the Committee may be changed by the Committee from time to time and may govern the exercise of Stock Appreciation Rights granted prior to such determination as well as Stock Appreciation Rights thereafter granted.  The Committee shall determine whether a Stock Appreciation Right shall be settled in cash, Shares or a combination of cash and Shares.

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

SECTION 8.           Termination or Suspension of Employment.  The following provisions shall apply in the event of the Participant’s termination of employment unless the Company shall have provided otherwise, either at the time of the grant of the Award or thereafter.

(a)Non-Qualified Stock Options and Stock Appreciation Rights.

(i)Termination of Employment.

(A)For Non-Qualified Stock Options and Stock Appreciation Rights granted prior to May 3, 2002 and if the Participant’s employment with the Company, Compaq or an Affiliate is terminated for any reason other than death, permanent and total disability, or retirement, the Participant’s right to exercise any Non-Qualified Stock Option or Stock Appreciation Right shall terminate, and such Option or Stock Appreciation Right shall expire, on the earlier of (a) the first anniversary of such termination of employment or (b) the date such Option or Stock

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

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

(ii)Death, Disability or Retirement.

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

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

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

(iii)Acceleration and Extension of Exercisability.  Notwithstanding the foregoing, the Committee may, in its discretion, provide (A) that an Option granted to a Participant may terminate at a date earlier than that set forth above, (B) that an Option granted to a

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Participant may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant’s employment, and (C) that an Option or Stock Appreciation Right may become immediately exercisable when it finds that such acceleration would be in the best interests of the Company.

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

(b)Incentive Stock Options.  Except as otherwise determined by the Committee at the time of grant, if the Participant’s employment with the Company is terminated for any reason, the Participant shall have the right to exercise any Incentive Stock Option and any related Stock Appreciation Right during the 90 days after such termination of employment to the extent it was exercisable at the date of such termination, but in no event later than the date the option would have expired had it not been for the termination of such employment.  If the Participant does not exercise such Incentive Stock Option or related Stock Appreciation Right to the full extent permitted by the preceding sentence, the remaining exercisable portion of such Incentive Stock Option automatically will be deemed a Non-Qualified Stock Option, and such Option and any related Stock Appreciation Right will be exercisable during the period set forth in Section 8(a) of the Plan, provided that in the event that employment is terminated because of death or the Participant dies in such 90-day period, the option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder.

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

(d)Beneficiary Designation.

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

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

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SECTION 9.           Change in Control.

(a)For Awards granted prior to May 3, 2002 and notwithstanding any other provision of the Plan to the contrary, (i) all Awards granted prior to September 1, 2001 shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award and no outstanding Stock Appreciation Right may be terminated, amended, or suspended upon or after a Change in Control and (ii) all Awards granted on or after September 1, 2001 shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award, upon a Qualifying Termination (as defined in Section 8(a)(iv) of the Plan) within one year following a Change in Control.

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

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

SECTION 10.         Amendment and Termination.

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

(b)Amendments to Awards.  The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation, or termination that would adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder, or beneficiary.

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

(d)Cancellation.  Any provision of this Plan or any Award Agreement to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in

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consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to the Fair Market Value of such canceled Award.

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

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

SECTION 11.         General Provisions.

(a)Nontransferability.  No Award shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution, provided, however, that an Award granted prior to May 3, 2002 may be transferable, to the extent set forth in the applicable Award Agreement and in accordance with procedures adopted by the Committee.

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

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

(d)Delegation.  Subject to the terms of the Plan and applicable law, the Committee may delegate to one or more officers or managers of the Company, Compaq or any Affiliate, or to a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend, or terminate Awards held by, Employees who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act, or any successor section thereto, or who are otherwise not subject to such Section.

(e)Withholding.  A Participant may be required to pay to the Company, Compaq or any Affiliate and the Company, Compaq or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee to satisfy all obligations for the payment of such taxes.  A Participant may satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Committee may deem

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necessary or advisable.  The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting, exercise, or payments of any Award.

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

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

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

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

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

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

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

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

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

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

SECTION 12.         Term of the Plan.

(a)Effective Date.  The Plan shall be effective as of January 22, 1997, subject to approval by the stockholders of the Company within one year thereafter.

(b)Expiration Date.  No Incentive Stock Option shall be granted under the Plan after January 22, 1997.  Unless otherwise expressly provided in the Plan or in an applicable Award Notice, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the authority for grant of new Awards hereunder has been exhausted.

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EX-10.(I)

Exhibit 10(i)

As Amended and Restated Effective November 21, 2002

As Amended and Restated Effective September 12, 2002

Amended and Restated Effective July 18, 2002

Amended and Restated September 4, 2001

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

Amended and Restated January 20, 1998

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

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

Mergers & acquisitions through September 1, 1997

COMPAQ COMPUTER CORPORATION

1989 EQUITY INCENTIVE PLAN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“Tandem” shall mean Tandem Computers Incorporated.

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

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

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

SECTION 4.           Shares Subject to the Plan.

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

(b)Reduction of Shares Available.

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

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

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

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

(c)Increase of Shares Available.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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SECTION 7.           Stock Appreciation Rights.

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

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

SECTION 8.           Restricted Stock.

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

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

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

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

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

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(a)Nonqualified Stock Options and Stock Appreciation Rights.

(i)Termination of Employment:

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

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

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(ii)Death, Disability or Retirement.

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

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

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

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

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

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

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

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

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

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

(g)Beneficiary Designation.

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

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

SECTION 10.         Change in Control.

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

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

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

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

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

SECTION 11.         Amendments and Termination.

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

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

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

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

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

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

SECTION 12.         General Provisions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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APPENDIX A FOR TANDEM SUBSTITUTE OPTIONS

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

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

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

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

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

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

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

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

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

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

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

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EX-10.(K)

Exhibit 10(k)

Amended and restated November 21, 2002

Amended and restated September 12, 2002

Amended September 4, 2001

Amended September 22, 1994

COMPAQ COMPUTER CORPORATION

1985 STOCK OPTION PLAN

ARTICLE I

Definitions

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

1.02“Code” shall mean the Internal Revenue Code of 1986, as amended.

1.03“Committee” shall mean the body comprised of the member or members of the Board appointed by the Board to administer the Plan.

1.04“Common Stock” means the Company’s $.01 par value common stock.

1.05“Company” shall mean Compaq Computer Corporation or any successor thereto.

1.06“Fair Market Value” shall mean the value of a share of Common Stock as determined by the Board. The Board shall determine the Fair Market Value as follows:

1If the Common Stock shall not then be listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the mean between the bid and asked quotations for such stock on the Date of Grant (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the Date of Grant, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding the Date of Grant; or

2If the Common Stock shall then be listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the reported closing price at which shares of the Common Stock were traded on such recognized securities exchange or system on the Date of Grant or, if the Common Stock was not traded on said date, upon the basis of the reported closing price on the date nearest preceding the Date of Grant.

1.07“Date of Grant” means the later of (i) the date on which the Board approves the grant of an Option or (ii) the date on which the Optionee is employed by the Company or a Subsidiary.

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1.08“Incentive Option” means an option to purchase Common Stock granted pursuant to the provisions of the Plan, including the provisions of Paragraphs 8.02, 8.03, 8.04, and 8.05 of the Plan.

1.09“Optionee” shall mean an employee of the Company to whom an Option has been granted under the Plan.

1.10“Plan” shall mean the Compaq Computer Corporation 1985 Stock Option Plan, the terms of which are set forth herein.

1.11“Incentive Stock Option Agreement” shall mean the any written notice, agreement, or other instrument or document evidencing an Incentive Option and under which the Optionee may purchase Common Stock pursuant to the terms of the Plan.

1.12“Subsidiary” or “Subsidiaries” shall mean any corporation which is a subsidiary corporation of the Company pursuant to Section 425(f) of the Code.

1.13“Successor” shall mean the legal representative of the estate of a deceased Optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by the reason of the death of any Optionee.

1.14“Nonqualified Option” shall mean an option to purchase Common Stock granted pursuant to the provisions of the Plan, but which is not subject to the provisions of Paragraphs 8.02 and 8.05 of the Plan.

1.15“Nonqualified Stock Option Agreement” shall mean any written notice, agreement, or other instrument or document evidencing a Nonqualified Option and under which the Optionee may purchase Common Stock pursuant to the terms of the Plan.

1.16“Option” shall refer to either or both Incentive Options and Nonqualified Options granted pursuant to the terms of the Plan.

ARTICLE II

Purpose

The purpose of the Plan is to advance the interests of the Company and its stockholders by offering to employees of the Company and its Subsidiaries the opportunity to acquire, or increase a proprietary interest in the Company by the grant to employees of Incentive Options entitled to the income tax benefits described in Section 422A of the Code under the terms set forth in the Plan and by the grant to employees of Nonqualified Options. By so doing, the Company seeks to motivate, obtain, and attract those highly competent individuals upon whose judgment, initiative, leadership, and continuing efforts the success of the Company depends.

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ARTICLE III

Effective Date of the Plan

The Plan shall become effective on the date of its adoption by a resolution of the Board. Within one year of such adoption, this Plan shall be submitted to the stockholders of the Company entitled to vote thereon; should a majority of the stockholders of the Company entitled to vote thereon fail to approve the Plan within such year, this Plan shall automatically terminate.

ARTICLE IV

Eligibility

Options may be granted only to officers and employees (including officers and employees who are also directors) of the Company or any of its Subsidiaries.

ARTICLE V

Administration of the Plan

The Plan shall be administered by the Board. The Board may, in its discretion, appoint a Committee to administer the Plan. The Committee shall consist of three or more disinterested directors, none of whom shall be eligible (or shall have been eligible for one year prior to appointment to the Committee) to be granted Options under the Plan. The Committee shall serve at the pleasure of the Board and shall exercise all powers of the Board granted herein, other than the power to amend the Plan.

The Board shall have the sole discretion and authority, subject to the provisions of the Plan, to determine the employees to whom and the time or times at which Options shall be granted, and the number of shares of the Common Stock which shall be subject to each Option. Subject to the express provisions of the Plan, the Board shall also have full and final authority to interpret the Plan, and to make all other determinations and to take all other actions it deems necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons. The majority of the members of the Board shall constitute a quorum and any action taken by a majority present at a meeting at which a quorum is present or any action taken without a meeting evidenced by writing executed by a majority of the Board shall constitute the action of the Board.

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

ARTICLE VI

Common Stock Subject to Options

Subject to the adjustments specified below, the aggregate number of shares of Common Stock that may be issued upon the exercise of all Options that may be granted under the Plan shall not exceed 19,800,000 shares of the Common Stock. Any shares subject to an Option which for

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any reason is surrendered, expires or is terminated unexercised as to such shares may again be subject to an Option under the Plan.

ARTICLE VII

Adjustments and Change in Control

7.01Adjustment.  The total number of shares of Common Stock available for Options under the Plan or which may be allocated to any one employee, the number of shares of Common Stock subject to outstanding Options and the exercise price for such Options shall be appropriately adjusted by the Board for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock dividend, subdivision or combination of shares or reclassification, as may be necessary to maintain the proportionate interest of the Option holder. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Board may make such adjustments with respect to Options under the Plan and take such other action as it deems necessary or appropriate to reflect or in anticipation of such merger, consolidation or tender offer including, without limitation, the substitution of new Options, the termination or adjustment of outstanding Options, and the acceleration of Options.

7.02Immediate Vesting.  Notwithstanding any other provision of the Plan to the contrary, upon a Change in Control, as defined below, all outstanding Awards shall vest, become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award; provided, however, that unless otherwise determined by the Committee at the time of award or thereafter, if it is determined that the Net After-Tax Amount to be realized by any optionee, taking into account the accelerated vesting provided for by this paragraph 7.02 as well as all other payments to be received by such optionee in connection with such Change in Control, would be higher if options did not vest in accordance with the foregoing paragraph 7.02, then and to such extent the options shall not vest. The determination of whether any such option should not vest shall be made by a nationally recognized accounting firm selected by the Company, which shall be instructed to consider that (i) stock options shall be vested in the order in which they were granted and within each grant in the order in which they would otherwise have vested and (ii) unless and to the extent any other plan, arrangement or contract of the Company pursuant to which any such payment is to be received provides to the contrary, such other payment shall be deemed to have occurred after any acceleration of options.

7.03Change in Control. A “Change in Control” shall be deemed to have occurred if: (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to January 18, 1989), individuals who at the beginning

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of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

7.04Net After-Tax Amount.  “Net After-Tax Amount” shall mean the net amount of compensation, assuming for this purpose only that all vested options are exercised upon such Change in Control, to be received (or deemed to have received) by such optionee in connection with such Change in Control under any option agreement and under any other plan, arrangement or contract of the company to which such optionee is a party, after giving effect to all income and excise taxes applicable to such payments.

ARTICLE VIII

Terms and conditions of Options

8.01Option Grant and Agreement.  Each Incentive Option and each Nonqualified Option granted prior to September 22, 1994 shall be evidenced by a written Incentive Stock Option Agreement or a written Nonqualified Stock Option Agreement, as applicable, dated as of the Date of Grant and executed by the Company and the Optionee, which Agreement shall set forth the applicable terms and conditions provided in this Article VIII and such other provisions which the Board, in its discretion, may deem appropriate. Each Incentive Option and each Nonqualified Option granted on or after September 22, 1994, shall be evidenced by a Stock Option Agreement in the form of a written notice to the Participant receiving an option, which notice shall set forth the applicable terms and conditions provided in this Article VIII and such other provisions which the Board, in its discretion may deem appropriate.

8.02Participation Limitation.  In accordance with rules and procedures established by the Committee, the aggregate Fair Market Value (determined as of the time of grant) of the stock subject to Incentive Stock Options as defined by Section 422A

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of the Code (“Section 422A”) held by any optionee that become exercisable for the first time by such optionee during any calendar year under the Plan (and under any other benefit plans of the Company or of any parent or subsidiary corporation of the Company) shall not exceed $100,000 or, if different the maximum limitation in effect at the time of grant under Section 422A or any successor provision, and any regulations promulgated thereunder. The terms of any Incentive Option granted hereunder shall comply in all respects with the provisions of Section 422A, or any successor provision, and any regulations promulgated thereunder.

8.03Option Price.  The per share Option price of the Common Stock subject to each Option shall be determined by the Board but the per share price shall not be less than the Fair Market Value of the Common Stock on the Date of Grant.

8.04Option Period.  Each Option granted must be granted within ten years from the date of the Plan’s adoption by the Board. The period of exercise of each Option shall be set forth in the applicable Option Agreement; provided that such period shall not exceed ten years from the Date of Grant.

8.05Ten Percent Shareholder Limitations.  In any case in which an Incentive Option is granted to an employee who, at the time the Incentive Option is granted, owns more that ten percent (10%) of the total combined voting power of all classes of stock of the Company, its parent or subsidiary, the per share Incentive Option price of the Common Stock subject to each Incentive Option shall be determined by the Board but the share price not be less than one hundred and ten percent of the Fair Market Value of the Common Stock on the Date of Grant; furthermore, the period for exercise, of each such Incentive Option shall not exceed five (5) years from the Date of Grant. For the purposes of the immediately preceding sentence, an employee shall be considered owning the shares of Common Stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants. In addition, the stock owned directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as owned proportionately by or for its shareholders, partners or beneficiaries.

8.06Exercise of Options.  Incentive Options and Nonqualified Options shall become exercisable in whole or in part and at such time or times as shall be set forth in the Incentive Stock Option Agreement or Nonqualified Stock Option Agreement, as applicable. Options shall be exercised by notice of intent to exercise the Option with respect to a specified number of whole shares delivered to the Company at its principal office, and payment in full to the Company in the amount of the option price for the number of shares of the Common Stock with respect to which the Option is then being exercised. The payment of the Option price shall be made in cash or, with the consent of the Board, in whole or in part in Common Stock valued at Fair Market Value which is owned by the Optionee.

8.07Non-Transferability of Options; Transfer upon Death of Optionee.  No Option shall be transferable or assignable by the Optionee, other than by will or the laws of descent and distribution. Each Option shall be exercisable during the Optionee’s lifetime, only by the Optionee.

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8.08Effect of Death or Other Termination of Employment.

(a)           If the Optionee’s employment with the Company is terminated for any reason other than death, disability, or retirement, the Optionee’s right to exercise any Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the first anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment; provided, however, that if, within one year following an occurrence of a Change in Control, the Optionee’s employment is terminated in a Qualifying Termination (as defined in paragraph (d) below), the Optionee shall have the right to exercise such Option until the earlier of (1) the third anniversary of such termination of employment or (2) the date such Option would have expired had it not been for such termination of employment.  For purposes of applying the immediately preceding proviso with respect to treatment of Options in the event of a Qualifying Termination, the definition of a Change in Control set forth in Section 7.03 of Article VII shall be revised by substituting the phrase “a merger or consolidation of the Company with any other corporation is consummated” for the phrase “the stockholders of the Company approve a merger or consolidation of the Company with any other corporation” in clause (iii) of said Section 7.03 of Article VII. The Optionee shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

(b)           If the Optionee’s employment with the Company is terminated by reason of death, disability, or retirement, the Optionee’s right to exercise any Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the third anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment. The Optionee (or his successor if his employment is terminated by death) shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

(c)           Notwithstanding the foregoing, the Board may in its discretion provide in an Option Agreement that such option shall terminate at a date earlier or later than that set forth above, provided such date shall not be beyond the earlier of (i) three years from the last day of Optionee’s employment or (ii) the date such Option would have expired had it not been for the termination of the Optionee’s employment.

(d)           The term “disability” as used in this paragraph means total and permanent disability. The terms “disability” and “retirement” shall be determined in accordance with applicable Company personnel policies as interpreted in the exercise of the Board’s discretion.  For purposes of subparagraph (a) above, the term “Qualifying Termination” shall have the meaning ascribed to such term in the Optionee’s individual employment or severance agreement with the Company or its Subsidiaries.  If the Optionee is not a party to an individual employment or severance agreement with the Company or its Subsidiaries, the term “Qualifying Termination” shall have the meaning ascribed to the term “Qualified Termination” in the Compaq Computer Corporation employee severance plan in which such Optionee is eligible to participate.

(e)           No transfer of an Option by an Optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice of the same and an authenticated copy of the will and/or such other evidence as the Board may deem necessary to establish the validity of the transfer and the acceptance of the transferee or transferees of the terms and conditions of such Option.

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(f)            In the event an Optionee holds an Incentive Stock Option, such option to the extent not exercised during the 90 days after termination of employment, automatically will be deemed a Nonqualified Stock Option and such Option will be exercisable during the remainder of the time set forth above; provided that in the event that employment is terminated because of death or the Optionee dies in such 90-day period, the Option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422A of the Code, or any successor provision, and any regulations promulgated thereunder.

8.09Leave Without Pay. Any time spent by a Participant in the status of “leave without pay” shall be disregarded for purposes of determining the extent to which an Option or any portion thereof has vested. The meaning of the term “leave without pay” shall be determined by the Committee and shall include but not be limited to periods during which the Participant is receiving payments under the Company’s Long-Term Disability Plan.

8.10Rights of Stockholder. Optionee or his Successor shall have no rights as a stockholder with respect to any shares subject to an Option until the certificates evidencing the shares purchased are properly delivered to such Optionee or his Successor.

8.11Buyout Provisions. At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or shares an Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee in connection with such offer.

ARTICLE IX

Restrictions on Issuing Shares

The exercise of each Option shall be subject to the condition that if at any time the Board shall determine in its discretion that the listing, registration or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body is necessary or desirable as a condition of or in connection with such exercise of delivery or purchase of shares pursuant to the Plan, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board.

In addition, the exercise of each Option shall be subject to the condition that, if required by the Board, Optionee shall give satisfactory assurance in writing, signed by Optionee, his successor or legal representative, as the case may be, that such shares are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (i) any sale of such shares by such Optionee made in accordance with the terms of a registration statement covering such sale, which has therefore been (or may hereafter be) filed and become effective under the Securities Act of 1933, as amended, and with respect to which no stop order suspending the effectiveness thereof has been issued, and (ii) any other sale of such shares with respect to which, in the opinion of counsel for the Company, such assurance is not required to be given in order to comply with the provisions of the Securities Act of 1933, as amended.

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ARTICLE X

Amendment, Suspension and Termination of the Plan

The Board shall have the right to amend, suspend or terminate the Plan at any time; provided, however, that no such action shall affect any Option granted without the consent of the Optionee or his Successor of the Option. In addition, unless duly approved by a majority of the holders of Common Stock entitled to vote thereon at a meeting (which may be the annual meeting), or the equivalent of said meeting, duly called and held for such purpose, no amendment or change shall be made in the Plan (a) increasing the total number of shares which may be issued under the Plan (except for adjustments for recapitalization, stock dividends and other changes in the corporate structure and except as contemplated in Article VII), (b) changing the minimum purchase price hereinbefore specified for the Common Stock subject to the Options, (c) changing the maximum period during which the Options may be exercised, (d) increasing the maximum number of shares for which Incentive Options may be granted to any one employee, or (e) extending the period during which Options may be granted under the Plan. It is contemplated that the Incentive Options issued pursuant to the Plan qualify as “Incentive Stock Options” within the meaning of Section 422A of the Code. Accordingly, the Board shall administer the Plan and make such amendments as to accomplish this purpose.

ARTICLE XI

Miscellaneous

11.01Employment. Nothing in the Plan, any Option granted pursuant to the Plan, or in any Incentive Stock Option Agreement or Nonqualified Stock Option Agreement shall confer upon any employee the right to continue in the employ of the Company or any Subsidiary.

11.02Other Compensation Plans. The adoption of the Plan shall not affect any other stock option, incentive or other compensation plans in effect for the Company or any Subsidiary or preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Subsidiary.

11.03Plan Binding on Successors. The Plan shall be binding on the successors and assigns of the Company.

11.04Use of Proceeds. The proceeds from the sale of Common Stock, pursuant to Options granted under the Plan, shall constitute general funds of the Company.

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EX-10.(L)

Exhibit 10(l)

Amended and restated November 21, 2002

Amended and restated September 12, 2002

Amended September 4, 2001

Amended November 23, 1994

Adjusted for Stock Splits in 1990, 1994 and 1997(2)

COMPAQ COMPUTER CORPORATION

1985 EXECUTIVE AND KEY EMPLOYEE STOCK OPTION PLAN

ARTICLE I

Definitions

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

1.02“Code” shall mean the Internal Revenue Code of 1986 as amended.

1.03“Committee” shall mean the body comprised of the member or members of the Board appointed by the Board to administer the Plan.

1.04“Common Stock” means the Company’s $.01 par value common stock.

1.05“Company” shall mean Compaq Computer Corporation or any successor thereto.

1.06“Fair Market Value” shall mean the value of a share of Common Stock as determined by the Board. The Board shall determine Fair Market Value as follows:

(i)If the Common Stock shall not then be listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the mean between the bid and asked quotations for such stock on the Date of Grant (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the Date of Grant, then upon the basis of the mean between the bid an asked quotations on the date nearest preceding the Date of Grant; or,

(ii)If the Common Stock shall then be listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the reported closing price at which shares of the Common Stock were traded on such recognized securities exchange or system on the Date of Grant or, if the Common Stock was not traded on said date, upon the basis of the reported closing price on the date nearest preceding the Date of Grant.

1.07“Date of Grant” means the later of (i) the date on which the Board approves the grant of an Option or (ii) the date on which the Optionee is employed by the Company or a Subsidiary.

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1.08“Incentive Option” means an option to purchase Common Stock granted pursuant to the provisions of the Plan, including the provisions of Paragraphs 8.02, 8.03, 8.04, and 8.05 of the Plan.

1.09“Optionee” shall mean an officer and key manager of the Company to whom an Option has been granted under the Plan.

1.10“Plan” shall mean the Compaq Computer Corporation1985 Executive and Key Employee Stock Option Plan, the terms of which are set forth herein.

1.11“Incentive Stock Option Agreement” shall mean any written notice, agreement or other instrument or document evidencing an Incentive Option and under which the Optionee may purchase Common Stock pursuant to the terms of the Plan.

1.12“Subsidiary” or “Subsidiaries” shall mean any corporation which is a subsidiary corporation of the Company pursuant to Section 425(f ) of the Code.

1.13“Successor” shall mean the legal representative of the estate of a deceased Optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by the reason of the death of any Optionee.

1.14“Nonqualified Option” shall mean an Option to purchase Common Stock granted pursuant to the provisions of the Plan, but which is not subject to the provisions of Paragraphs 8.02 and 8.05 of the Plan.

1.15“Nonqualified Stock Option Agreement” shall mean any written notice, agreement or other instrument or document evidencing a Nonqualified Option and under which the Optionee may purchase Common Stock pursuant to the terms of the Plan.

1.16“Option” shall refer to either or both Incentive Options and Nonqualified Options granted pursuant to the terms of the Plan.

ARTICLE II

Purpose

The purpose of the Plan is to advance the interests of the Company and its stockholders by offering to officers and key managers of the Company and its Subsidiaries the opportunity to acquire, or increase a proprietary interest in the Company by the grant to such persons of Incentive Options entitled to the income tax benefits described in Section 422A of the Code under the terms set forth in the Plan and by the grant to employees of Nonqualified Options. By so doing, the Company seeks to motivate, obtain, and attract those highly competent individuals upon whose judgment, initiative, leadership, and continuing efforts the success of the Company depends.

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ARTICLE III

Effective Date of the Plan

The Plan shall become effective on the date of its adoption by a resolution of the Board. Within one year of such adoption, this Plan shall be submitted to the stockholders of the Company entitled to vote thereon; should a majority of the stockholders of the Company entitled to vote thereon fail to approve the Plan within such year, this Plan shall automatically terminate.

ARTICLE IV

Eligibility

Options may be granted only to officers and key manager (including officers and employees who are also directors) of the Company or any of its Subsidiaries.

ARTICLE V

Administration of the Plan

The Plan shall be administered by the Board. The Board may, in its discretion, appoint a Committee to administer the Plan. The Committee shall consist of three or more disinterested directors, none of whom shall be eligible (or shall have been eligible for one year prior to appointment to the Committee) to be granted Options under the Plan. The Committee shall serve at the pleasure of the Board and shall exercise all powers of the Board granted herein, other than the power to amend the Plan.

The Board shall have the sole discretion and authority, subject to the provisions of the Plan, to determine the officers and key managers to whom and the time or times at which Options shall be granted, and the number of shares of the Common Stock which shall be subject to each Option.

Subject to the express provisions of the Plan, the Board shall also have full and final authority to interpret the Plan, and to make all other determinations and to take all other actions it deems necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons.

The majority of the members of the Board shall constitute a quorum and any action taken by a majority present at a meeting a which a quorum is present or any action taken without a meeting evidenced by writing executed by a majority of the Board shall constitute the action of the Board.

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

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ARTICLE VI

Common Stock Subject to Options

Subject to the adjustments specified below, the aggregate number of shares of Common Stock that may be issued upon the exercise of all Options that may be granted under the Plan shall not exceed 30,000,000 shares of the Common Stock. Any shares subject to an Option which for any reason is surrendered, expires or is terminated unexercised as to such shares may again be subject to an Option under the Plan.

ARTICLE VII

Adjustments and Change in Control

7.01Adjustment. The total number of shares of Common Stock available for Options under the Plan or which may be allocated to any one employee, the number of shares of Common Stock subject to outstanding Options and the exercise price for such Options shall be appropriately adjusted by the Board for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock dividend, subdivision or combination of shares or reclassification, as may be necessary to maintain the proportionate interest of the Option holder. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Board may make such adjustments with respect to Options under the Plan and take such other action as it deems necessary or appropriate to reflect or in anticipation of such merger, consolidation or tender offer including, without limitation, the substitution of new Options, the termination or adjustment of outstanding Options, and the acceleration of Options.

7.02Immediate Vesting. Notwithstanding any other provision of the Plan to the contrary, upon a Change in Control, as defined below, all outstanding Options shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award; provided, however, that unless otherwise determined by the Committee at the time of award or thereafter, if it is determined that the Net After-Tax Amount to be realized by any Optionee, taking into account the accelerated vesting provided for by this paragraph 7.02 as well as all other payments to be received by such Optionee in connection with such Change in Control, would be higher if Options did not vest in accordance with the foregoing paragraph 7.02, then and to such extent the Options shall not vest. The determination of whether any such Option should not vest shall be made by a nationally recognized accounting firm selected by the Company, which shall be instructed to consider that (i) stock options shall be vested in the order in which they were granted and within each grant in the order in which they would otherwise have vested and (ii) unless and to the extent any other plan, arrangement or contract of the Company pursuant to which any such payment is to be received provides to the contrary, such other payment shall be deemed to have occurred after any acceleration of Options.

7.03Change in Control. A “Change in Control” shall be deemed to have occurred if: (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders

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of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to January 18, 1989), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

7.04Net After-Tax Amount. “Net After-Tax Amount” shall mean the net amount of compensation, assuming for this purpose only that all vested Options are exercised upon such Change in Control, to be received (or deemed to have been received) by such Optionee in connection with such Change of Control under any option agreement and under any other plan, arrangement or contract of the company to which such Optionee is a party, after giving effect to all income and excise taxes applicable to such payments.

ARTICLE VIII

Terms and Conditions of Options

8.01Option Grant and Agreement. Each Incentive Option and each Nonqualified Option granted prior to November 23, 1994, shall be evidenced by a written Incentive Stock Option Agreement or a written Nonqualified Stock Option Agreement, as applicable, dated as of the Date of Grant and executed by the Company and the Optionee, which Agreement shall set forth the applicable terms and conditions provided in this Article VIII and such other provisions which the Board, in its discretion, may deem appropriate. Each Incentive Option and each Nonqualified Option granted on or after November 23, 1994, shall be evidenced by a Stock Option Agreement in the form of a written notice to the Participant

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receiving an Option, which shall set forth the applicable terms and conditions provided in this Article VIII and such other provisions which the Board, in its discretion may deem appropriate.

8.02Participation Limitation. In accordance with rules and procedures established by the Committee, the aggregate Fair Market Value (determined as of the time of grant) of the stock subject to Incentive Stock Options as defined by Section 422A of the Code (“Section 422A”) held by any Optionee that become exercisable for the first time by such Optionee during any calendar year under the Plan (and under any other benefit plans of the Company or of any parent or subsidiary corporation of the Company) shall not exceed $100,000 or, if different the maximum limitation in effect at the time of grant under Section 422A, or any successor provision, and any regulations promulgated thereunder. The terms of any Incentive Option granted hereunder shall comply in all respects with the provisions of Section 422A, or any successor provision, and any regulations promulgated thereunder.

8.03Option Price. The per share Option price of the Common Stock subject to each Option shall be determined by the Board but the per share price shall not be less than the Fair Market Value of the Common Stock on the Date of Grant.

8.04Option. Each Option granted must be granted within ten years from the date of the Plan’s adoption by the Board. The period of exercise of each Option shall be set forth in the applicable Option Agreement; provided that such period not exceed ten years from the Date of Grant.

8.05Ten Percent Shareholder Limitations. In any case in which an Incentive Option is granted to an employee who, at the time the Incentive Option is granted, owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its parent or subsidiary, the per share Incentive Option price of the Common Stock subject to each Incentive Option shall be determined by the Board but the per share price shall not be less than one hundred and ten percent of the Fair Market Value of the Common Stock on the Date of Grant; furthermore, the period for exercise, of each such Incentive Option shall not exceed five (5) years from the Date of Grant. For the purposes of the immediately preceding sentence, an employee shall be considered owning the shares of Common Stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants. In addition, the stock owned directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as owned proportionately by or for its shareholders, partners or beneficiaries.

8.06Exercise of Options. Incentive Options and Nonqualified Options shall become exercisable in whole or in part and at such time or times as shall be set forth in the Incentive Stock Option Agreement or Nonqualified Stock Option Agreement, as applicable. Options shall be exercised by notice of intent to exercise the Option with respect to a specified number of whole shares delivered to the Company at its principal office, and payment in

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full to the Company in the amount of the Option price for the number of shares of the Common Stock with respect to which the Option is then being exercised. The payment of the Option price shall be made in cash or, with the consent of the Board, in whole or in part in Common Stock valued at Fair Market Value which is owned by the Optionee.

8.07Non-Transferability of Options, Transfer upon Death of Optionee. No Option shall be transferable or assignable by the Optionee, other than by will or the laws of descent and distribution. Each Option shall be exercisable during the Optionee’s lifetime, only by the Optionee.

8.08Effect of Death or Other Termination of Employment.

(a)If the Optionee’s employment with the Company is terminated for any reason other than death, disability, or retirement, the Optionee’s right to exercise any Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the first anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment; provided, however, that if, within one year following an occurrence of a Change in Control, the Optionee’s employment is terminated in a Qualifying Termination (as defined in paragraph (d) below), the Optionee shall have the right to exercise such Option until the earlier of (1) the third anniversary of such termination of employment or (2) the date such Option would have expired had it not been for such termination of employment.   For purposes of applying the immediately preceding proviso with respect to treatment of Options in the event of a Qualifying Termination, the definition of a Change in Control set forth in Section 7.03 of Article VII shall be revised by substituting the phrase “a merger or consolidation of the Company with any other corporation is consummated” for the phrase “the stockholders of the Company approve a merger or consolidation of the Company with any other corporation” in clause (iii) of said Section 7.03. The Optionee shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

(b)If the Optionee’s employment with the Company is terminated by reason of death, disability, or retirement, the Optionee’s right to exercise any Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the third anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment. The Optionee (or his successor if his employment is terminated by death) shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

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(c)Notwithstanding the foregoing, the Board may in its discretion provide in an Option Agreement that such Option shall terminate at a date earlier or later than the date set forth above, provided such date shall not be beyond the earlier of (i) three years from the last day of Optionee’s employment or (ii) the date such Option would have expired had it not been for the termination of the Optionee’s employment.

(d)The term “disability” as used in this paragraph means total and permanent disability. The terms “disability” and “retirement” shall be determined in accordance with applicable Company personnel policies as interpreted in the exercise of the Board’s discretion.  For purposes of subparagraph (a) above, the term “Qualifying Termination” shall have the meaning ascribed to such term in the Optionee’s individual employment or severance agreement with the Company or its Subsidiaries.  If the Optionee is not a party to an individual employment or severance agreement with the Company or its Subsidiaries, the term “Qualifying Termination” shall have the meaning ascribed to the term “Qualified Termination” in the Compaq Computer Corporation employee severance plan in which such Optionee is eligible to participate.

(e)No transfer of an Option by an Optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice of the same and an authenticated copy of the will and/or such other evidence as the Board may deem necessary to establish the validity of the transfer and the acceptance of the transferee or transferees of the terms and conditions of such Option.

(f)In the event an Optionee holds an Incentive Stock Option, such Option to the extent not exercised during the 90 days after termination of employment, automatically will be deemed a Nonqualified Stock Option and such Option will be exercisable during the remainder of the time set forth above; provided that in the event that employment is terminated because of death or the Optionee dies in such 90-day period, the Option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422A of the Code, or any successor provision, and any regulations promulgated thereunder.

8.09Leave Without Pay. Any time spent by a Participant in the status of “leave without pay” shall be disregarded for purposes of determining the extent to which an Option or any portion thereof has vested. The meaning of the term “leave without pay” shall be determined by the Committee and shall include but not be limited to periods during which the Participant is receiving payments under the Company’s Long-Term Disability Plan.

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8.10Rights of Stockholder. Optionee or his successor shall have no rights as a stockholder with respect to any share subject to an Option until the certificates evidencing the share purchased are properly delivered to such Optionee or his Successor.

8.11Buyout Provision.  At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or shares an Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee in connection with such offer.

ARTICLE IX

Restrictions on Issuing Shares

The exercise of each Option shall be subject to the condition that if at any time the Board shall determine in its discretion that the listing, registration or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body is necessary or desirable as a condition of or in connection with such exercise of delivery or purchase of shares pursuant to the Plan, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board.

In addition, the exercise of each Option shall be subject to the condition that, if required by the Board, Optionee shall give satisfactory assurance in writing, signed by Optionee, his successor or legal representative, as the case may be, that such shares are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (i) any sale of such shares by such Optionee made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the Securities Ac of 1933, as amended, and with respect to which no stop order suspending the effectiveness thereof has been issued, and (ii) any other sale of such shares with respect to which, in the opinion of counsel for the Company, such assurance is not required to be given in order to comply with the provisions of the Securities Act of 1933 as amended.

ARTICLE X

Amendment, Suspension and Termination of the Plan

The Board shall have the right to amend, suspend or terminate the Plan at any time; provided, however, that no such action shall affect any Option granted without the consent of the Optionee or his Successor of the Option. In addition, unless duly approved by a majority of the holders of Common Stock entitled to vote thereon at a meeting (which may be the annual meeting), or the equivalent of said meeting, duly called and held for such purpose, no amendment or change shall be made in the Plan (a) increasing the total number of shares which may be issued under the Plan (except for adjustments for recapitalization, stock dividends and other changes in the corporate structure and except as contemplated in Article VII), (b) changing the minimum purchase price hereinbefore specified for the Common Stock subject to the Options, (c) changing the maximum period during which the Options may be exercised, (d) increasing the maximum number of shares for which Incentive Options may be granted to any one employee, or (e)

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extending the period during which Options may be granted under the Plan. It is contemplated that the Incentive Options issued pursuant to the Plan qualify as “Incentive Stock Options” within the meaning of Section 422A of the Code. Accordingly, the Board shall administer the Plan and make such amendments as to accomplish this purpose.

ARTICLE XI

Miscellaneous

11.01Employment. Nothing in the Plan, any Option granted pursuant to the Plan, or in any Incentive Stock Option Agreement or Nonqualified Stock Option Agreement shall confer upon any employee the right to continue in the employ of the Company or any Subsidiary.

11.02Other Compensation Plans. The adoption of the Plan shall not affect any other stock option, incentive or other compensation plans in effect for the Company or any Subsidiary or preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Subsidiary.

11.03Plan Binding on Successors. The Plan shall be binding on the successors and assigns of the Company.

11.04Use of Proceeds. The proceeds from the sale of Common Stock, pursuant to Options granted under the Plan, shall constitute general funds of the Company.

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EX-10.(M)

Exhibit 10(m)

Amended and restated November 21, 2002

Amended and restated September 12, 2002

Amended September 4, 2001

Amended November 23, 1994

Adjusted for Stock Splits in 1990, 1994 and 1997(2)

COMPAQ COMPUTER CORPORATION

1985 NONQUALIFIED STOCK OPTION PLAN

1.             Purpose of the Plan. The purpose of the COMPAQ COMPUTER CORPORATION 1985 Nonqualified Stock Option Plan (“Plan”) is to provide compensation in the form of ownership of the common stock, $.01 par value (“Common Stock”), of Compaq Computer Corporation, a Delaware corporation, or any successor thereto (“Company”), to certain selected employees of the Company and its subsidiaries.

2.             Administration of the Plan. The Board of Directors of the Company (“Board”) shall have full power and authority, subject to the provisions of the Plan, to designate participants and to interpret the provisions and supervise the administration of the Plan. All such decisions, selections and other actions shall be conclusively binding for all purposes and upon all persons. All decisions and selections made by the Board pursuant to the provisions of the Plan shall be made by a majority of its members. Any decision reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority at a meeting duly held. The Board may, in its discretion, appoint a Compensation Committee (“Committee”) to administer the Plan. If appointed, the Committee shall consist of at least three directors, none of whom is eligible to participate in the Plan or has been eligible to participate in the Plan for at least one year prior to his appointment. The Committee shall serve at the pleasure of the Board, and shall exercise all powers of the Board granted herein, other than the power to amend the Plan.

3.             Stock Reserved for the Plan. The shares subject to the Plan shall consist of 45,000,000 unissued shares of Common Stock or previously issued shares reacquired and held by the Company, and such amount of shares shall be and is hereby reserved for issuance pursuant to this Plan. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be canceled prior to its exercise in full, the shares theretofore subject to such option may again be made subject to an option under the Plan.

4.             (a)           Grant of Options. The Board shall, from time to time, determine and designate those persons who are to receive options under the Plan, the number of shares to be covered by such options and the terms thereof. For options granted prior to November 23, 1994, the Board shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement.

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Each Nonqualified Option granted on or after November 23, 1994, shall be evidenced by a Nonqualified Stock Option Agreement in the form of a written notice to the Participant receiving an option, which notice shall set forth the applicable terms and conditions provided in this Plan and such other provisions which the Board, in its discretion may deem appropriate. The capitalized term “Nonqualified Stock Option Agreement” as used herein shall mean any written notice, agreement, or other instrument or document evidencing a Nonqualified Option and under which the Optionee may purchase Common Stock pursuant to the terms of the Plan.

(b)           Eligibility.  Options may be granted only to officers and employees  (including  officers and employees who are also directors) of the Company or any of its Subsidiaries.

5.             Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Board, pursuant to Section 4(a), which shall be subject to the following express terms and conditions and to such other terms and conditions as the Board may deem appropriate.

(a)           Option Period. Each option agreement shall specify the period  for which the option thereunder is granted (which in no event shall exceed  ten years and one day from the date of grant) and shall provide that the  option shall expire at the end of such period.

(b)           Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be determined by the Board at the time the option is granted. In the case of any option granted to an individual subject to Section 16 of the Securities Exchange Act of 1934, such purchase price shall be not less than 50% of the fair market value of such shares on such date. The term “fair market value” as used in this paragraph shall mean the value of a share of Common Stock as determined by the Board. The Board shall value as follows:

(i)            If the Common Stock shall not then be listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the mean between the bid and asked quotations for such stock on the date of grant (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the date of grant, then upon the basis of the mean between the bid an asked quotations on the date nearest preceding the date of grant;

(ii)           If the Common Stock shall then be listed an traded upon a recognized securities exchange or in the NASDAQ National Market System, upon the basis of the reported closing price at which shares of the Common Stock were traded on such recognized securities exchange or system on the date of grant or, if the Common Stock was not traded on said date, upon the basis of the reported closing price on the date nearest preceding the date of grant.

(c)           Exercise Period. The Board may provide in any option agreement that an option may be exercised in whole immediately or is to be exercisable  in increments.

(d)           Procedure for Exercise. Options shall be exercised by notice of intent to exercise the options delivered to the Company at its principal office setting forth the number of whole shares with respect to which the option is to be exercised. Such notice shall be accompanied by cash or certified check, bank draft, postal or express money order payable to the order of the Company, or, with the consent of the Board, in whole or in part in Common Stock valued at Fair Market Value which is owned by optionee, for an amount equal to the option price of such shares, and specifying the address to which the certificates for such shares are to be mailed. As promptly as practicable after receipt of such written

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notification and payment, the Company shall deliver to the Optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the Optionee’s name; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the Optionee, at the address specified pursuant to this paragraph 5(d).

(e)           Effect of Termination and Leave Without Pay.

(i)          If the Optionee’s employment with the Company is terminated for any reason other than death, disability, or retirement, the Optionee’s right to exercise any Stock Option shall terminate, and such Option shall expire, on the earlier of (A) the first anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment; provided, however that if, within one year following an occurrence of a Change in Control, the Optionee’s employment is terminated in a Qualifying Termination (as defined in subparagraph (v) below), the Optionee shall have the right to exercise all outstanding Options until the earlier of (1) the third anniversary of such termination of employment or (2) the date such Options would have expired had it not been for such termination of employment.  For purposes of applying the immediately preceding proviso with respect to treatment of Options in the event of a Qualifying Termination, the definition of a Change in Control set forth in Section 9.(c) shall be revised by substituting the phrase “a merger or consolidation of the Company with any other corporation is consummated” for the phrase “the stockholders of the Company approve a merger or consolidation of the Company with any other corporation” in clause (iii) of said Section 9. (c). The Optionee shall have the right to exercise such Option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

(ii)         If the Optionee’s employment with the Company is terminated by reason of disability or retirement, the Optionee’s right to exercise any Stock Option shall terminate and such Option shall expire, on the earlier of (A) the third anniversary of such termination of employment or (B) the date such Option would have expired had it not been for the termination of employment. The Optionee shall have the right to exercise such option prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised.

(iii)        Notwithstanding the foregoing, the Board may in its discretion provide in any option agreement that such option shall terminate at a date earlier or later than that set forth above, provided such date shall not be beyond the earlier of (i) three years from the last day of Optionee’s employment or (ii) the date such option would have expired had it not been for the termination of the Optionee’s employment.

(iv)        In the event of the death of an Optionee under the Plan prior to termination of his employment, the options previously granted to him may be exercised (to the extent he would have been entitled to do so at the date of his death) at any time and from time to time prior to their expiration by the executor or administrator of his estate or by the person or persons to whom his rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration.

(v)         The term “disability” as used in this paragraph means total and permanent disability. The term “disability” and “retirement” shall be determined in accordance with applicable Company personnel policies as interpreted in the Board’s direction.  For purposes of subparagraph (i) above, the term “Qualifying Termination” shall have the meaning ascribed to such term in the Optionee’s individual employment or severance agreement with the Company or its Subsidiaries.  If the Optionee is not a party to an individual employment or severance agreement with the Company or its Subsidiaries, the term “Qualifying Termination” shall have the meaning ascribed to the term “Qualified

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Termination” in the Compaq Computer Corporation employee severance plan in which such Optionee is eligible to participate.

(vi)          No transfer of an option by an Optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice of the same and an authenticated copy of the will and/or such other evidence as the Board may deem necessary to establish the validity of the transfer and the acceptance of the transferee or transferees of the terms and conditions of such option.

(vii)         Leave Without Pay. Any time spent by a Participant in the status of “leave without pay” shall be disregarded for purposes of determining the extent to which an Option or any portion thereof has vested. The meaning of the term “leave without pay” shall be determined by the Committee and shall include but not be limited to periods during which the Participant is receiving payments under the Company’s Long-Term Disability Plan.

(f)            Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution. Each option shall be exercisable during the Optionee’s lifetime only by the Optionee.

(g)           No Rights as Stockholder. No Optionee shall have any rights as a stockholder with respect to shares covered by an option until the date of issuance of a stock certificate for such shares; except as provided in paragraph 9, no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate.

(h)           Investment Representation. Each option agreement shall contain an agreement that, upon demand by the Board for such a representation, the Optionee (or any person acting under paragraph 5(e) shall deliver to the Board at the time of any exercise of an option a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an option and prior to the expiration of the option period shall be a condition precedent to the right of the Optionee or such other person to purchase any shares.

(i)            Buyout Provisions.  At any time, the Committee may, but shall not be required to, offer to buy out for a payment in cash or shares an option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee at the time that such offer is made.

6.             Amendments or Termination.  The Board may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any participant under any option theretofore granted without his consent.

7.             Compliance with Other Laws and Regulations. The Plan, the grant and exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency or national securities exchange as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body or national securities exchange which the Company shall, in its sole discretion, determine to be necessary.

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8.             Effectiveness and Expiration of Plan. The Plan shall be effective on the date the Board adopts the Plan. The Plan shall expire ten years and one day after the effective date of the Plan and thereafter no option shall be granted pursuant the Plan.

9.             Adjustments and Change in Control.

(a)           Adjustment. The total number of shares of Common Stock available for options under the Plan or which may be allocated to any one employee, the number of shares of Common Stock subject to outstanding options and the exercise price for such options shall be appropriately adjusted by the Board for an increase or decrease in the number of outstanding shares of Common Stock resulting from a stock dividend, subdivision or combination of shares or reclassification, as may be necessary to maintain the proportionate interest of the option holder. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Board may make such adjustments with respect to options under the Plan and take such other action as it deems necessary or appropriate to reflect or in anticipation of such merger, consolidation or tender offer including, without limitation, the substitution of new options, the termination or adjustment of outstanding options, and the acceleration of options.

(b)           Immediate Vesting. Notwithstanding any other provision of the Plan to the contrary, upon a Change in Control, as defined below, all outstanding options shall vest and become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award; provided, however, that unless otherwise determined by the Committee at the time of award or thereafter, if it is determined that the Net After-Tax Amount to be realized by any optionee, taking into account the accelerated vesting provided for by this paragraph 9.(c) as well as all other payments to be received by such optionee in connection with such Change in Control, would be higher if options did not vest in accordance with the foregoing paragraph 9.(c), then and to such extent the options shall not vest. The determination of whether any such option should not vest shall be made by a nationally recognized accounting firm selected by the Company, which shall be instructed to consider that (i) stock options shall be vested in the order in which they were granted and within each grant in the order in which they would otherwise have vested and (ii) unless and to the extent any other plan, arrangement or contract of the Company pursuant to which any such payment is to be received provides to the contrary, such other payment shall be deemed to have occurred after any acceleration of options.

(c)           Change in Control. A “Change in Control” shall be deemed to have occurred if: (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, (the “Exchange Act”) (other than the Company, an trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to January 18, 1989), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i) , (iii) , or (iv) of this paragraph whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of the Company approve merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding

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or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(d)           Net After-Tax Amount. “Net After-Tax Amount” shall mean the net amount of compensation, assuming for this purpose only that all vested options are exercised upon such Change in Control, to be received (or deemed to have been received) by such optionee in connection with such Change of Control under any option agreement and under any other plan, arrangement or contract of the company to which such optionee is a party, after giving effect to all income and excise taxes applicable to such payments.

10.           Miscellaneous.

(a)           Employment. Nothing in the Plan, any Option granted pursuant to the Plan, or in any Incentive Stock Option Agreement or Nonqualified Stock Option Agreement shall confer upon any employee the right to continue in the employ of the Company or any Subsidiary.

(b)           Other Compensation Plans. The adoption of the Plan shall not affect any other stock option, incentive or other compensation plans in effect for the Company or any Subsidiary or preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Subsidiary.

(c)           Plan Binding on Successors. The Plan shall be binding on the successors and assigns of the Company.

(d)           Use of Proceeds. The proceeds from the sale of Common Stock, pursuant to Options granted under the Plan, shall constitute general funds of the Company.

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EX-10.(Q)

Exhibit 10(q)

STORAGEAPPS INC.

2000 STOCK INCENTIVE PLAN

(Amended and Restated as of November 21, 2002)

(Amended and Restated as of September 12, 2002)

(Amended and Restated as of March 31, 2001)

ARTICLE 1.          ESTABLISHMENT, PURPOSE, AND DURATION

1.1           Establishment of the Plan.  StorageApps Inc., formerly known as RAID Power Service, Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes a stock option and incentive award plan known as the “StorageApps Inc. 2000 Stock Incentive Plan,” formerly knows as the “RAID Power Service, Inc. 2000 Stock Incentive Plan” (the “Plan”), as set forth in this document.  The Plan permits the grant of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock, Stock Awards, Performance Share Awards and Stock Appreciation Rights.

The Plan shall become effective on the date it is approved by the Board of Directors (the “Effective Date”), subject to approval of the Plan by the Company’s shareholders within the 12-month period immediately thereafter, and shall remain in effect as provided in Section 1.3.

1.2           Purpose of the Plan.  The purpose of the Plan is to secure for the Company and its shareholders the benefits of the incentive inherent in stock ownership in the Company by employees, directors, and consultants or other persons who perform services for the Company, who are responsible for its future growth and continued success.  The Plan promotes the success and enhances the value of the Company by linking the personal interests of Participants (as defined below) to those of the Company’s shareholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants upon whose judgment, interest and special effort the successful conduct of its operation largely depends.

1.3           Duration of the Plan.  The Plan shall commence on the Effective Date, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 12, until the day prior to the tenth (10^th) anniversary of the Effective Date.

ARTICLE 2.          DEFINITIONS

                Whenever used in the Plan, the following terms shall have the meanings set forth below:

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(a)“Agreement” means an agreement entered into by each Participant and the Company, setting forth the terms and provisions applicable to Awards granted to Participants under this Plan.

(b)“Award” means, individually or collectively, a grant under this Plan of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock, Stock Awards, Performance Share Awards or Stock Appreciation Rights.

(c)“Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the Exchange Act.

(d)“Board” or “Board of Directors” means the Board of Directors of the Company.

(e)“Cause” means:  (i) a Participant’s commission of any act which, if prosecuted, would constitute a felony; (ii) a Participant’s engaging in willful misconduct or any conduct which is in reckless disregard of the Company’s business or materially injurious to the Company or its affiliates; (iii) a Participant’s material or habitual neglect of his duties to the Company; or (iv) a Participant’s failure to perform or observe any provision of an existing employment agreement with the Company, any Company policies of general application, from time to time, in effect, or any other substantial lawful obligation of his employment with the Company, and such failure has not been cured within two (2) weeks after written notice from the Company to the Participant.  The existence of “Cause” shall be determined by the Committee, in its sole discretion.

(f)“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor act thereto.

(g)“Committee” means the committee appointed to administer the Plan with respect to grants of Awards, as specified in Article 3, and to perform the functions set forth therein.

(h)“Common Stock” means the common stock of the Company, par value $.01 per share.

(i)“Company” means StorageApps, Inc., a Delaware corporation, or any successor thereto.

(j)“Corresponding SAR” means an SAR that is granted in relation to a particular Option and that can be exercised only upon the surrender to the Company, unexercised, of that portion of the Option to which the SAR relates.

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(k)“Director” means any individual who is a member of the Board of Directors of the Company.

(l)“Disability” shall have the meaning ascribed to such term in the Company’s long-term disability plan covering the Participant, or in the absence of such plan, a meaning consistent with Section 22(e)(3) of the Code.

(m)“Employee” means any employee of the Company or the Company’s Subsidiaries.  Directors who are not otherwise employed by the Company or the Company’s Subsidiaries are not considered Employees under this Plan.

(n)“Effective Date” shall have the meaning ascribed to such term in Section 1.1.

(o)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

(p)“Fair Market Value” shall be determined as follows:

(i)Publicly Traded.  If, on the relevant date, the Shares are traded on a national or regional securities exchange or on The Nasdaq Stock Market (“Nasdaq”) and closing sale prices for the Shares are customarily quoted, on the basis of the closing sale price on the principal securities exchange on which the Shares may then be traded or, if there is no such sale on the relevant date, then on the immediately preceding day on which a sale was reported;

(ii)Not Listed but Traded.  If, on the relevant date, the Shares are not listed on any securities exchange or traded on Nasdaq, but nevertheless are publicly traded and reported on Nasdaq without closing sale prices for the Shares being customarily quoted, on the basis of the mean between the closing bid and asked quotations in such other over-the-counter market as reported by Nasdaq; but, if there are no bid and asked quotations in the over-the-counter market as reported by Nasdaq on that date, then the mean between the closing bid and asked quotations in the over-the-counter market as reported by Nasdaq on the immediately preceding day such bid and asked prices were quoted; and

(iii)Not Traded.  If, on the relevant date, the Shares are not publicly traded as described in (i) or (ii), on the basis of the

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good faith determination of the Committee, based on all relevant facts and circumstances including any recent sales or purchases of the stock.

(q)“Incentive Stock Option” or “ISO” means an option to purchase Shares granted under the Plan which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.

(r)“Initial Value” means, with respect to a Corresponding SAR, the Option Price per share of the related Option, and with respect to an SAR granted independently of an Option, the Fair Market Value of one share of Common Stock on the date of grant.

(s)“Insider” shall mean an Employee who is, on the relevant date, an officer or a director, or a ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act or any successor provision, as “officer” and “director” are defined under Section 16 of the Exchange Act.

(t)“Named Executive Officer” means a Participant who, as of the date of vesting and/or payout of an Award is one of the group of “covered employees,” as defined in the regulations promulgated under Code Section 162(m), or any successor statute.

(u)“Nonqualified Stock Option” or “NQSO” means an option to purchase Shares granted under the Plan, and which is not intended to meet the requirements of Code Section 422.

(v)“Option” means an Incentive Stock Option or a Nonqualified Stock Option.

(w)“Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.

(x)“Participant” means an Employee, a Director, a consultant or other person who performs services for the Company or a Subsidiary, who has been determined by the Committee to contribute significantly to the profits or growth of the Company and who has been granted an Award under the Plan which is outstanding.

(y)“Performance Share Award” means an Award, which, in accordance with and subject to an Agreement, will entitle the Participant, or his estate or beneficiary in the event of the

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Participant’s death, to receive cash, Common Stock or a combination thereof.

(z)“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in 13(d) thereof.

(aa)“Retirement” shall mean retiring from employment with the Company or any Subsidiary on or after attaining age 65.

(bb)“Restricted Stock” means an Award of Common Stock granted in accordance with the terms of the Plan, and which is nontransferable and subject to a substantial risk of forfeiture. Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms hereof and the applicable Agreement, they become transferable and free of substantial risk of forfeiture.

(cc)“SAR” means a stock appreciation right that entitles the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Agreement. In the absence of such specification, the holder shall be entitled to receive in cash, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value on the date of exercise over the Initial Value. References to “SARs” include both Corresponding SARs and SARs granted independently of Options, unless the context requires otherwise.

(dd)“Shares” means the shares of Common Stock of the Company (including any new, additional or different stock or securities resulting from the changes described in Section 4.3).

(ee)“Stock Award” means a grant of Shares under the Plan that is not generally subject to restrictions and pursuant to which a certificate for the Shares is transferred to the Employee.

(ff)“Subsidiary” means any company during any period in which it is a “subsidiary corporation” (as that term is defined in Code Section 424(f)) with respect to the Company.

ARTICLE 3. ADMINISTRATION

3.1           The Committee.  The Plan shall be administered by the Board of Directors or by a Committee designated by the Board from its members, or by any other committee or subcommittee appointed by the Board that is granted authority to administer the Plan (the “Committee”). The members of the Committee shall be

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appointed from time to time by, and shall serve at the discretion of, the Board of Directors.

3.2           Authority of the Committee.  Subject to the provisions of the Plan, the Committee shall have full power to select the Employees, Directors, consultants and other persons who perform services for the Company or a Subsidiary, who are responsible for the future growth and success of the Company who shall participate in the Plan (who may change from year to year); determine the size and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan (including conditions on the exercisability of all or a part of an Option or SAR, restrictions on transferability and vesting provisions on Restricted Stock or Performance Share Awards and the duration of the Awards); construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 12) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan, including accelerating the time any Option or SAR may be exercised and establishing different terms and conditions relating to the effect of the termination of employment or other services to the Company. Further, the committee shall make all other determinations which may be necessary or advisable in the Committee’s opinion for the administration of the Plan. All expenses of administering this Plan shall be borne by the Company.

3.3           Decisions Binding.  All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all Persons, including the Company, the shareholders, Employees, Participants and their estates and beneficiaries.

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

ARTICLE 4.  SHARES SUBJECT TO THE PLAN

4.1           Number of Shares.  (a) Subject to adjustment as provided in Section 4.3, the aggregate number of Shares available for grants of Awards under the Plan shall not exceed (i) 30,000,000 plus (ii) the additional Shares described in (b) below, provided, however, that no more than 30,000,000 Shares of Common Stock may be issued hereunder pursuant to the exercise of ISOs.

(b)           As of January 1 of each year, commencing with the year 2001, the aggregate number of Shares that may be awarded under the Plan shall automatically increase by a number equal to the lesser of (i) 5% of the total number of Shares then outstanding or (ii) 5,000,000 Shares. The Shares may, in the discretion of the Company, be either authorized but unissued Shares or Shares held as treasury shares, including Shares purchased by the Company, whether on the market or otherwise. The following

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rules shall apply for purposes of the determination of the number of Shares available for grant under the Plan:

(1)The grant of an Option, SAR, Stock Award, Restricted Stock Award or Performance Share Award shall reduce the Shares available for grant under the Plan by the number of Shares subject to such Award.

(2)While an Option, SAR, Stock Award, Restricted Stock Award or Performance Share Award is outstanding, it shall be counted against the authorized pool of Shares, regardless of its vested status.

4.2           Lapsed Awards.  If any Award granted under this Plan is canceled, terminates, expires or lapses for any reason, or if Shares are withheld in payment of the Option Price or for withholding taxes, any Shares subject to such Award or that are withheld shall again be available for the grant of an Award under the Plan. However, in the event that prior to the Award’s cancellation, termination, expiration or lapse, the holder of the Award at any time received one or more “benefits of ownership” pursuant to such Award (as defined by the Securities and Exchange Commission, pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the Shares subject to such Award shall not again be made available for regrant under the Plan.

4.3           Adjustments In Authorized Shares.  In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as an merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number and the Committee shall make such adjustments as are necessary to insure Awards of whole Shares.

ARTICLE 5.  ELIGIBILITY AND PARTICIPATION

Any key Employee of the Company or any Subsidiary, including any such Employee who is also a director of the Company or any Subsidiary, any non-employee Director, and any consultant or other person who performs services of the Company or a Subsidiary, whose judgment, initiative and efforts contribute or may be expected to contribute materially to the successful performance of the Company or any Subsidiary shall be eligible to receive an Award under the Plan. In determining the individuals to whom such an Award shall be granted and the number of Shares which may be granted pursuant to that Award, the Committee shall take into account the duties of the respective individual, his or her present and potential contributions to the success of the Company or any Subsidiary, and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan.

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ARTICLE 6.  STOCK OPTIONS

6.1           Grant of Options.  Subject to the terms and provisions of the Plan, Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant. An Option may be granted with or without a Corresponding SAR. No Participant may be granted ISOs (under the Plan and all other incentive stock option plans of the Company and any Subsidiary) which are first exercisable in any calendar year for Common Stock having an aggregate Fair Market Value (determined as of the date an Option is granted) that exceeds $100,000. The preceding annual limit shall not apply to NQSOs. The Committee may grant a Participant ISOs, NQSOs or a combination thereof, and may vary such Awards among Participants; provided that only an Employee may be granted ISOs.

6.2           Agreement.  Each Option grant shall be evidenced by an Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains and such other provisions as the Committee shall determine. The Option Agreement shall further specify whether the Award is intended to be an ISO or an NQSO. Any portion of an Option that is not designated as an ISO or otherwise fails or is not qualified as an ISO (even if designated as an ISO) shall be a NQSO. If the Option is granted in connection with a Corresponding SAR, the Agreement shall also specify the terms that apply to the exercise of the Option and Corresponding SAR.

6.3           Option Price.  The Option Price for each grant of an ISO shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. In no event, however, shall any Participant who owns (within the meaning of Section 424(d) of the Code) stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company be eligible to receive an ISO at an Option Price less than one hundred ten percent (110%) of the Fair Market Value of a share on the date the ISO is granted. The Option Price for each grant of an NQSO shall be established by the Committee and, in its discretion, may be less than the Fair Market Value of a Share on the date the Option is granted.

6.4           Duration of Options.  Each Option shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no option shall be exercisable later than the tenth (10^th) anniversary date of its grant; provided, further, however, that any ISO granted to any Participant who at such time owns (within the meaning of Section 424(d) of the Code) stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, shall not be exercisable later than the fifth (5^th) anniversary date of its grant.

6.5           Exercise of Options.  Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, including conditions related to the employment of the Participant with the Company or any Subsidiary, which need not be the same for each grant or for each Participant. Each Option shall be exercisable for such

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number of Shares and at such time or times, including periodic installments, as may be determined by the Committee at the time of the grant. The Committee may provide in the Agreement for automatic accelerated vesting and other rights upon the occurrence of a Change in Control of the Company. Except as otherwise provided in the Agreement, the right to purchase Shares that are exercisable in periodic installments shall be cumulative so that when the right to purchase any Shares has accrued, such Shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The exercise or partial exercise of either an Option or its Corresponding SAR shall result in the termination of the other to the extent of the number of Shares with respect to which the Option or Corresponding SAR is exercised.

6.6           Payment.  Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full, either: (a) in cash, (b) cash equivalent approved by the Committee, (c) if approved by the Committee, by delivering (on a form prescribed by the Company) a full-recourse promissory note (however, the par value of the Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents), (d) if approved by the Committee, by tendering previously acquired Shares (or delivering a certification of ownership of such Shares) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for six months, if required for accounting purposes, and for the period required by law, if any, prior to their tender to satisfy the Option Price), or (e) by a combination of (a), (b), (c) and (d). The Committee also may allow cashless exercises as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restriction, or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Options(s), and may place appropriate legends on the certificates representing such Shares.

6.7           Limited Transferability.  If permitted by the Committee in the Agreement, a Participant may transfer an Option granted hereunder, including but not limited to, transfer to members of his or her Immediate Family (as defined below), to one or more trusts for the benefits of such Immediate Family members, or to one or more partnerships where such Immediate Family members are the only partners, if (i) the Participant does not receive any consideration in any form whatsoever for such transfer, (ii) such transfer is permitted under applicable lax laws, and (iii) the Participant is an Insider, such transfer is permitted under Rule 16b-3 of the Exchange Act as in effect from time to time. Any Option so transferred shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable to said Option immediately prior to the transfer thereof. Any reference in any such Agreement to the employment by or performance of services for the Company by the Participant shall continue to refer to the employment of, or performance by, the transferring Participant. For purposes hereof,

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“Immediate Family” shall mean the Participant and the Participant’s spouse, children and grandchildren. Any Option that is granted pursuant to any Agreement that did not initially expressly allow the transfer of said Option and that has not been amended to expressly permit such transfer, shall not be transferable by the Participant other than by will or by the laws of descent and distribution and such Option thus shall be exercisable in the Participant’s lifetime only by the Participant.

6.8           Shareholder Rights.  No Participant shall have any rights as a shareholder with respect to Shares subject to his Option until the issuance of such Shares to the Participant pursuant to the exercise of such Option.

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

ARTICLE 7.  STOCK APPRECIATION RIGHTS

7.1           Grants of SARs.  The Committee shall designate Participants to whom SARs are granted, and will specify the number of Shares of Common Stock subject to each grant. An SAR may be granted with or without a related Option. All SARs granted under this Plan shall be subject to an Agreement in accordance with the terms of this Plan. A payment to the Participant upon the exercise of a Corresponding SAR may not be more than the difference between the Fair Market Value of the Shares subject to the ISO on the date of grant and the Fair Market Value of the Shares on the date of exercise of the Corresponding SAR.

7.2           Duration of SARs.  The duration of an SAR shall be set forth in the Agreement as determined by the Committee. An SAR that is granted as a Corresponding SAR shall have the same duration as the Option to which it relates. An SAR shall terminate due to the Participant’s termination of employment at the same time as the date specified in Article 6 with respect to Options, regardless of whether the SAR was granted in connection with the grant of an Option.

7.3           Exercise of SAR.  An SAR may be exercised in whole at any time or in part from time to time and at such times and in compliance with such requirements as the Committee shall determine as set forth in the Agreement; provided, however, that a Corresponding SAR that is related to an Incentive Stock Option may be exercised only to the extent that the related Option is exercisable and only when the Fair Market Value of the Shares exceeds the Option Price of the related ISO. An SAR granted under this Plan may be exercised with respect to any number of whole shares less than the full number of shares for which the SAR could be exercised. A partial exercise of an SAR shall not affect the right to exercise the SAR from time to time in accordance with this Plan and the applicable Agreement with respect to the remaining shares subject to the SAR. The exercise of either an Option or Corresponding SAR shall result in the termination of the

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other to the extent of the number of Shares with respect to which the Option or its Corresponding SAR is exercised.

7.4           Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR.  At the Committee’s discretion, the amount payable as a result of the exercise of an SAR may be settled in cash, Common Stock, or a combination of cash and Common Stock. A fractional share shall not be deliverable upon the exercise of an SAR, but a cash payment shall be made in lieu thereof.

7.5           Nontransferability.  Each SAR granted under the Plan shall be nontransferable except by will or by the laws of descent and distribution. During the lifetime of the Participant to whom the SAR is granted, the SAR may be exercised only by the Participant. No right or interest of a Participant in any SAR shall be liable for, or subject to any lien, obligation or liability of such Participant. A Corresponding SAR shall be subject to the same restrictions on transfer as the ISO to which it relates. Notwithstanding the foregoing, if that Agreement so provides, a Participant may transfer an SAR (other than a Corresponding SAR that relates to an Incentive Stock Option) under the same rules and conditions as are set forth in Section 6.7.

7.6           Shareholder Rights.  No Participant shall have any rights as a shareholder with respect to Shares subject to an SAR until the issuance of Shares (if any) to the Participant pursuant to the exercise of such SAR.

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

ARTICLE 8.  RESTRICTED STOCK; STOCK AWARDS

8.1           Grants.  The Committee may from time to time in its discretion grant Restricted Stock and Stock Awards to Participants and may determine the number of Shares of Restricted Stock or Stock Awards to be granted. The Committee shall determine the terms and conditions of, and the amount of payment, if any, to be made by the Employee for such Shares or Restricted Stock. A grant of Restricted Stock may, in addition to other conditions, require the Participant to pay for such Shares of Restricted Stock, but the Committee may establish a price below Fair Market Value at which the Participant can purchase the Shares of Restricted Stock. Each grant of Restricted Stock shall be evidenced by an Agreement containing terms and conditions not inconsistent with the Plan as the Committee shall determine to be appropriate in its sole discretion.

8.2           Restricted Period; Lapse of Restrictions.  At the time a grant of Restricted Stock is made, the Committee shall establish a period or periods of time (the “Restricted Period”) applicable to such grant which, unless the Committee otherwise provides, shall not be less than one year. Subject to the other provisions of this Article 8, at the end of the Restricted Period all restrictions shall lapse and the Restricted Stock

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shall vest in the Participant. At the time a grant is made, the Committee may, in its discretion, prescribe conditions for the incremental lapse of restrictions during the Restricted Period and for the lapse or termination of restrictions upon the occurrence of other conditions in addition to or other than the expiration of the Restricted Period with respect to all or any portion of the Restricted Stock. Such conditions may, but need not, include the following:

(a)The death, Disability or Retirement of the Employee to whom Restricted Stock is granted, or

(b)The occurrence of a Change in Control (as defined in Section 11.1)

The Committee may also, in its discretion, shorten or terminate the Restricted Period, or waive any conditions for the lapse or termination of restrictions with respect to all or any portion of the Restricted Stock at any time after the date the grant is made.

8.3           Rights of Holder; Limitations Thereon.  Upon a grant of Restricted Stock, a stock certificate (or certificates) representing the number of Shares of Restricted Stock granted to the Participant shall be registered in the Participant’s name and shall be held in custody by the Company or a bank selected by the Committee for the Participant’s account. Following such registration, the Participant shall have the rights and privileges of a shareholder as to such Restricted Stock, including the right to receive dividends, if and when declared by the Board of Directors, and to vote such Restricted Stock, except that the right to receive cash dividends shall be the right to receive such dividends either in cash currently or by payment in Restricted Stock, as the Committee shall determine, and except further that, following restrictions shall apply:

(a)The Participant shall not be entitled to delivery of a certificate until the expiration or termination of the Restricted Period for the Shares represented by such certificate and the satisfaction of any and all other conditions prescribed by the Committee;

(b)None of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period and until the satisfaction of any and all other conditions prescribed by the Committee; and

(c)All of the Shares of Restricted Stock that have not vested shall be forfeited and all rights of the Participant to such Shares of Restricted Stock shall terminate without further obligation on the part of the Company, unless the Participant has remained an employee of (or non-Employee Director of or active consultant providing services to) the Company or any of its Subsidiaries, until the expiration or termination of the Restricted Period and the satisfaction of any and all other conditions prescribed by the Committee applicable to such Shares of Restricted Stock. Upon the

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forfeiture of any Shares of Restricted Stock, such forfeited Shares shall be transferred to the Company without further action by the Participant and shall, in accordance with Section 4.2, again be available for grant under the Plan. If the Participant paid any amount for the Shares of Restricted Stock that are forfeited, the Company shall pay the Participant the lesser of the Fair Market Value of the Shares on the date they are forfeited or the amount paid by the Participant.

With respect to any Shares received as a result of adjustments under Section 4.3 hereof and any Shares received with respect to cash dividends declared on Restricted Stock, the Participant shall have the same rights and privileges, and be subject to the same restrictions, as are set forth in this Article 8.

8.4           Delivery of Unrestricted Shares.  Upon the expiration or termination of the Restricted Period for any Shares of Restricted Stock and the satisfaction of any and all other conditions prescribed by the Committee, the restrictions applicable to such Shares of Restricted Stock shall lapse and a stock certificate for the number of Shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions except any that may be imposed by law, to the holder of the Restricted Stock. The Company shall not be required to deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value (determined as of the date the restrictions lapse) of such fractional Share to the holder thereof. Concurrently with the delivery of a certificate for Restricted Sock, the holder shall be required to pay an amount necessary to satisfy any applicable federal, state and local tax requirements as set out in Article 13 below.

8.5           Nonassignability of Restricted Stock.  Unless the Committee provides otherwise in the Agreement, no grant of, nor any right or interest of a Participant in or to, any Restricted Stock, or in any instrument evidencing any grant of Restricted Stock under the Plan, may be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution.

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

ARTICLE 9.  PERFORMANCE SHARE AWARDS

9.1           Award.  The Committee may designate Participants to whom Performance Share Awards will be granted from time to time for no consideration and specify the number of shares of Common Stock covered by the Award.

9.2           Earning the Award.  A Performance Stock Award, or portion thereof, will be earned, and the Participant will be entitled to receive Common Stock, a

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cash payment or a combination thereof, only upon the achievement by the Participant, the Company, or a Subsidiary of such performance objectives as the Committee, in its discretion, shall prescribe on the date of grant. To the extent required, the performance objectives applicable to awards to Named Executive Officers intended to qualify under Code Section 162(m) shall be selected from among the following measures: return on equity or assets, earning per share, total earnings, earnings growth, return on capital, profit before taxes, profit after taxes, economic value added and increase in Fair Market Value of the Shares. The determination as to whether such objectives have been achieved shall be made by the Committee, and such determination shall be conclusive; provided, however, that the period in which such performance is measured shall be at least one year.

The Committee may in determining whether performance targets have been met adjust the Company’s financial results to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, restructurings, reductions in force, currency fluctuations or changes in accounting, which are distortive of financial results (either on a segment or consolidated basis); provided, that for purposes of determining the Performance Share Awards of Named Executive Officers, the Committee shall exclude unusual items whose exclusion has the effect of increasing income or earnings if such items constitute “extraordinary items” under generally accepted accounting principles or are significant unusual items. In addition, the Committee will adjust its calculations to exclude the effect on financial results of changes in the Code or other tax laws, or the regulations relating thereto.

9.3           Payment.  In the discretion of the Committee, the amount payable when a Performance Share Award is earned may be settled in cash, by the grant of Common Stock or a combination of cash and Common Stock. The aggregate Fair Market Value of the Common Stock received by the Participant pursuant to a Performance Share Award, together with any cash paid to the Participant, shall be equal to the aggregate Fair Market Value, on the date the Performance Shares are earned, of the number of Shares of Common Stock equal to each Performance Share earned. A fractional Share will not be deliverable when a Performance Share Award is earned, but a cash payment will be made in lieu thereof.

9.4           Shareholder Rights.  No Participant shall have, as a result of receiving a Performance Share Award, any rights as a shareholder until and to the extent that the Performance Shares are earned and Common Stock is transferred to such Participant. If the Agreement so provides, a Participant may receive a cash payment equal to the dividends that would have been payable with respect to the number of Shares of Common Stock covered by the Award between (a) the date that the Performance Shares are awarded and (b) the date that a transfer of Common Stock to the Participant, cash settlement, or combination thereof is made pursuant to the Performance Share Award. A Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of a Performance Share Award or the right to receive Common Stock thereunder other than by will or the laws of descent and distribution. After a Performance Share Award is

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earned and paid in Common Stock, a Participant will have all the rights of a shareholder with respect to the Common Stock so awarded.

ARTICLE 10.  RIGHTS OF EMPLOYEES

10.1         Employment.  Nothing in the Plan shall interfere with or limit in any way the right of the Company or a Subsidiary to terminate any Participant’s employment by, or performance of services for, the Company at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or a Subsidiary. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) shall not be deemed a termination of employment.

10.2         Participation.  No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

ARTICLE 11.  CHANGE IN CONTROL

11.1         Definition.  For purposes of the Plan, a “Change in Control” means any of the following events:

(a)The acquisition (other than from the Company) by any Person of Beneficial Ownership of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that for purposes of this Section 11.1, Person shall not include any person who on the date hereof owns 25% or more of the Company’s outstanding securities, and a Change in Control shall not be deemed to occur solely because fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefits plans maintained by the Company or any of its subsidiaries, or (ii) any corporation, which, immediately prior to such acquisition, is owned directly or indirectly by the shareholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition.

(b)Approval by shareholders of the Company of (1) a merger or consolidation involving the Company if the shareholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the

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same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation, or (2) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company (other than in an initial public offering of the Company’s Common Stock.

(c)When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (c).

11.2         Certain Parachute Payments:  A payment that would otherwise constitute a “parachute payment” under Section 280G(b)(2) of the Code shall not, to the extent permitted by such Section 280G and the regulations thereunder, be considered a parachute payment if such payment is approved by a shareholder vote of more than 75% of the voting power of all outstanding Shares of the Company.

ARTICLE 12.  AMENDMENT, MODIFICATION AND TERMINATION

12.1         Amendment, Modification and Termination.  The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, that, unless approved by the holders of a majority of the total number of Shares of the Company represented and voted at a meeting at which a quorum is present, no amendment shall be made to the Plan if such amendment would (a) materially modify the eligibility requirements provided in Article 5; (b) increase the total number of Shares (except as provided in Section 4.3) which may be granted under the Plan; (c) extend the term of the Plan; or (d) amend the Plan in any other manner which the Board, in its discretion, determines should become effective only if approved by the shareholders even if such shareholder approval is not expressly required by the Plan or by law.

12.2         Awards Previously Granted.  No termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. The Committee shall, with the written consent of the Participant holding such Award, have the authority to cancel Awards outstanding and grant replacement Awards therefore.

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12.3       Compliance With Code Section 162(m).  At all times when the Committee determines that compliance with Code Section 162(m) is required or desired, all Awards granted under this Plan to Named Executive Officers shall comply with the requirements of Code Section 162(m). In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any Award or Awards under the Plan, the Committee may, subject to this Article 12, make any adjustments it deem appropriate.

ARTICLE 13.  WITHHOLDING

13.1       Tax Withholding.  The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising in connection with an Award under this Plan.

13.2       Share Withholding.  With respect to withholding required upon the exercise of Options, or upon any other taxable event arising as a result of Awards granted hereunder which are to be paid in the form of Shares, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant, and elections by Insiders shall additionally comply with all legal requirements applicable to Share transactions by such Participants.

ARTICLE 14.  INDEMNIFICATION

                Each person who is or shall have been a member of the Committee, or the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall be in addition to any other rights of indemnification to which such person may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

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ARTICLE 15.  SUCCESSORS

                All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, 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 and/or assets of the Company.

ARTICLE 16.  LEGAL CONSTRUCTION

16.1       Gender and Number.  Except when otherwise indicated by the context, any masculine term used herein shall also include the feminine; the plural shall include the singular and the singular shall include the plural.

16.2       Severability.  If any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

16.3       Requirements of Law.  The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

16.4       Regulatory Approvals and Listing.  The Company shall not be required to issue any certificate or certificates for Shares under the Plan prior to (i) obtaining any approval from any governmental agency which the Company shall, in its discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on any national securities exchange or Nasdaq on which the Company’s Shares may be listed, and (iii) the completion of any registration or other qualification of such Shares under any state or federal law or ruling or regulation of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable.

                Notwithstanding any other provision set forth in the Plan, if required by the then-current Section 16 of the Exchange Act, any “derivative security” or “equity security” offered pursuant to the Plan to any Insider may not be sold or transferred for at least six (6) months after the date of grant of such Award. The terms “equity security” and “derivative security” shall have the meanings ascribed to them in the then-current Rule 16(a) under the Exchange Act.

16.5         Securities Law Compliance.  With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

16.6         Governing Law.  To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.

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EX-10.(R)

Exhibit 10(r)

FLEXIBLE STOCK INCENTIVE PLAN OF INDIGO N.V.

1.             Establishment, Purpose, and Definitions.

a.There is hereby adopted the Flexible Stock Incentive Plan (the “Plan”) of Indigo N.V. (the “Company”).

b.The purpose of the Plan is to provide a means whereby eligible individuals (as defined in paragraph 4 below) can acquire Common Stock of the Company (the “Stock”).  The plan provides employees (including officers and directors who are employees) of the Company and of its Affiliates (as hereinafter defined) an opportunity to purchase shares of Stock pursuant to options.  The Plan also provides for the sale or bonus of Stock to eligible individuals in connection with the performance of services for the Company or its Affiliates.  Moreover, the Plan authorizes the grant of stock appreciation rights (“SARs”), either separately or in tandem with stock options, entitling holders to cash compensation measured by appreciation in the value of the Stock.  Options may be granted either on the basis of past or future services (“Service Options”) or on the basis of performance (“Performance Options”).  The Plan also allows for sub-plans with respect to the Company or an Affiliate, or with respect to citizens or residents of one or more countries, provided the sub-plan is no less restrictive than the Plan.

c.The term “Affiliates” as used in the Plan means parent or subsidiary corporations of the Company and of Indigo Ltd., a Bermuda company (“Indigo Ltd.”), including parents or subsidiaries which become such after adoption of the Plan.

2.             Administration of the Plan

a.The Plan shall be administered by the Supervisory Board of the Company (the “Board”).  The Board may delegate the responsibility for administering the Plan to a committee, under such terms and conditions as the Board shall determine (the “Committee”).  The Committee shall include representatives of a Managing Director of the Company and an officer or director of Indigo Ltd.. Members of the Committee shall serve at the pleasure of the Board.  The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine.  A majority of the Committee shall constitute a quorum and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee.  If the Board does not delegate administration of the Plan to the Committee, then each reference in this Plan to “the

1

Committee” shall be construed to refer to the Board.  No member of the Board or the Committee shall be liable to any person for any action, determination or inaction with respect to the Plan which is taken or made in good faith.

b.In the event that the Company becomes subject to the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), then, notwithstanding the provisions of Section 2(a) hereof, (i) the Committee shall consist of two or more members of the Board or such lesser number of members of the Board as permitted by Rule 16b-3 and (ii) none of the members of the Committee shall receive, while serving on the Committee, or during the one-year period preceding appointment to the Committee, a grant or award of equity securities under (a) the Plan or (b) any other plan of the Company or its Affiliates under which the participants are entitled to acquire Stock (including restricted Stock), stock options, stock bonuses, related rights or stock appreciation rights of the Company or any of its Affiliates, other than pursuant to transactions in any such other plan which do not disqualify a director from being a disinterested person under Rule 16b-3.  The limitations set forth in this Section 2(b) shall automatically incorporate any additional requirements that may in the future be necessary for the Plan to comply with Rule 16b-3.

c.The Committee shall determine which eligible individuals (as defined in paragraph 4, below) shall be granted options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares subject to such options.

d.The Committee may amend the terms of any outstanding option granted under this Plan, but any amendment which would adversely affect the optionee’s rights under an outstanding option shall not be made without the optionee’s written consent.  The Committee may, with the optionee’s written consent, cancel any outstanding stock option or accept any outstanding stock option in exchange for a new option.

e.The Committee shall also determine which eligible individuals (as defined in paragraph 4, below) shall be issued Stock or SARs under the Plan, the timing of such grants, the terms thereof (including any restrictions), and, the number of shares or SARs to be granted.  The Stock shall be issued for such consideration (if any) as the Committee deems appropriate. Stock issued subject to restrictions shall be evidenced by a written agreement (the “Restricted Stock Purchase Agreement” or the “Restricted Stock Bonus Agreement”).  The Committee may amend any Restricted Stock Purchase Agreement, but any amendment which would adversely affect the individual’s rights to the Stock shall not be made without his or her written consent.

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f.The Committee shall have the sole authority, in its absolute discretion to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan, to construe and interpret the Plan, the rules and the regulations, and the instruments evidencing options or Stock granted under the Plan, and to make all other determinations deemed necessary or advisable for the administration of the Plan.  All decisions, determinations, and interpretations of the Committee shall be binding on all participants.

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

3.                             Stock Subject to the Plan.

a.An aggregate of not more than 19,315 (386,300 after a proposed 20-to-1 stock split) shares of Stock shall be available for the grant of Stock Options or the issuance of Stock or SARs under the Plan, of which not more than 10,315 (206,300 after a proposed 20-to-1 stock split) may be for Service Options and Stock and stock appreciation rights granted on the basis of past or present service and not more than 9,000 (180,000 after a proposed 20-to-1 stock split) may be for Performance Options and Stock and stock appreciation rights granted on the basis of performance.  If an option is surrendered (except surrender for shares of Stock) or for any other reason ceases to be exercisable in whole or in part, the shares which were subject to such option but as to which the option had not been exercised shall continue to be available under the Plan.

b.If there is any change in the Stock subject to the Plan, the Stock subject to a Restricted Stock Purchase Agreement or Restricted Stock Bonus Agreement or an SAR Agreement, or the Stock subject to any option granted under the Plan, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of two percent), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Committee in order to preserve but not to increase the benefits to the individual, including adjustments to the aggregate number and kind of shares subject to the Plan, or to a Restricted Stock Purchase Agreement, Restricted Stock Bonus Agreement, or a SAR Agreement, and the number and kind of shares and the price per share subject to outstanding options.

4.             Eligible Individuals

Individuals who shall be eligible to have granted to them the options or Stock provided for by the Plan shall be such employees, including officers and directors who are employees of the Company or an Affiliate, as the Committee, in its discretion, shall designate from time to time.

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5.             The Option Price.

The exercise price of the Stock covered by each stock option shall be as determined by the Committee, provided that in no case shall the joint exercise price of any paired Company option and Indigo Ltd. option be less than 80% of the Common Stock Value at the time of issuance of such paired options (“Date of Grant”).  The “Common Stock Value” at any time shall be equal to the then current fair market value of the Company Common Stock and the Indigo Ltd. Common Stock, as determined by the Committee and agreed to by the Investor Representative, if any, appointed under section 3(g) of the Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among Spectrum Sciences B.V., Spectrum Sciences Ltd. and S-C Indigo CV and dated as of February 25, 1993 (the “Investor Representative”).  If the Committee and the Investor Representative are unable to agree on the fair market value, then the fair market value shall be determined by an independent valuation expert satisfactory to the Committee and the Investor Representative.  The fair market value as determined by such independent valuation expert shall be conclusive.  The exercise price of an option shall be subject to adjustment to the extent provided in paragraph 3(b) above.

6.             Terms and Conditions of Options.

a.Each option granted pursuant to the Plan will be evidenced by a written Stock Option Agreement executed by the Company and the person to whom such option is granted, the terms of which shall be determined by the Committee subject to the terms of the Plan.

b.The Committee shall determine the term of each option granted under the Plan; provided, however, that the term of an option shall not be for more than 10 years.

c.Upon termination of employment (regardless of whether or not termination is by the employee or employer or for cause), all unvested options shall lapse.  Upon termination of employment (regardless of whether or not termination is by the employee or employer or for cause) and at the option of the Company, (i) vested options may be repurchased by the Company if permitted by, and pursuant to the terms of, an applicable Stock Option Agreement and (ii) prior to the IPO, Stock may be purchased (in whole or in part) by the Company at a purchase price equal to the then fair market value (as determined by the Committee) of the Stock.

d.The Service Options will vest over a four-year period. Individuals who were employees of the Company prior to January 1, 1993, will be vested in a percentage of Service Options as of the Date of Grant based upon the

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number of full years of employment prior to the Date of Grant based upon the following schedule:

Number of Full Years	Percentage Vested on Date of Grant
Less than 5	25	%
5 to 9	40	%
10 to 14	50	%
15+	55	%

Service Options not vested on the Date of Grant will vest in equal amounts on the first three annual anniversaries of the Date of Grant for employees hired before January 1, 1993.  For employees hired on or after January 1, 1993, 25 % of Service  Options will vest in the first four annual anniversaries of the Date of Grant.  Notwithstanding the foregoing, the Committee may determine different vesting schedules in special circumstances.

Performance Options will vest over a period of years in relation to the achievement by the Company and its Affiliates of earnings targets to be determined by the Board, with partial vesting on a sliding scale as determined by the Board.  Notwithstanding the foregoing, all non-vested Performance Options shall vest eight years and eleven months following the Date of Grant.

e.The Stock Option Agreement may contain such other terms., provisions, and conditions as may be determined by the Committee (not inconsistent with this Plan).

7.             Terms and Conditions of Stock Purchase and Bonus

a.Each sale or grant of stock pursuant to the Plan will be evidenced by either a written Restricted Stock Purchase Agreement executed by the Company and the person to whom such stock is sold or a written Restricted Stock Bonus Agreement executed by the Company and the person to whom such stock is granted.

b.The Restricted Stock Purchase Agreement or Restricted Stock Bonus Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee (not inconsistent with this Plan), including not by way of limitation, restrictions on transfer, forfeiture provisions, repurchase provisions, and vesting provisions.

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8.Terms and Conditions of SARs.

The Committee may, under such terms and conditions as it deems appropriate, authorize the issuance of SARs evidenced by a written SAR agreement (which, in the case of tandem options, may be part of the option agreement to which the SAR relates) executed by the Company and the person to whom such SAR is granted.  The SAR agreement may contain such terms, provisions and conditions as may be determined by the Committee and which are not inconsistent with this Plan.

9.             Use of Proceeds.

Cash proceeds realized from the sale of Stock under the Plan or pursuant to options granted under the Plan shall constitute general funds of the Company.

10.          Amendment, Suspension, or Termination of the Plan.

a.The Board may at any time amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable legal requirements, including any applicable requirement that the Plan or an amendment to the Plan be approved by the shareholders, and provided further that, except as provided in paragraph 3(b), above, the Board shall in no event amend the Plan in the following respects without the consent of stockholders then sufficient to approve the Plan in the first instance:

(i.)To increase the maximum number of shares subject to stock options issued under the Plan; or

(ii.)To change the designation or class of persons eligible to receive stock options under the Plan.

b.No option may be granted under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension, or termination of the Plan shall, without the affected individual’s consent, alter or impair any rights or obligations under any option previously granted under the Plan.  The Plan shall terminate with respect to the grant of stock options on September 6, 2003, unless previously terminated by the Board pursuant to this paragraph 10.

11.          Assignability.

Each option granted pursuant to this Plan shall, during optionee’s lifetime, be exercisable only by him or her, and neither the option nor any right hereunder shall be transferable by optionee, by operation of law or otherwise, other than by

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will or the laws of descent and distribution.  Stock subject to a Restricted Stock Purchase Agreement or a Restricted Stock Bonus Agreement shall be transferable only as provided in such Agreement.

12.          Buyout Provisions.

At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or Stock an option previously granted based on such terms and conditions as the Committee shall establish and communicate to the optionee in connection with such offer.

***

9/12/02Section 12 added and plan restated by the HR & Compensation Committee

11/21/02Section 2.g. added and plan restated by the HR & Compensation Committee

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EX-10.(S)

Exhibit 10(s)

INDIGO N.V. 1996 INTERNATIONAL

FLEXIBLE STOCK INCENTIVE PLAN

1.Establishment, Purpose, and Definitions.

a.There is hereby adopted the 1996 International Flexible Stock Incentive Plan (the “Plan”) of Indigo N.V. (the “Company”).

b.The purpose of the Plan is to provide a means whereby eligible individuals (as defined in paragraph 4 below) can acquire Common Stock of the Company (the “Stock”). The Plan provides employees (including part-time and potential employees), officers and directors (including potential officers and directors), consultants and advisors (collectively, the “Eligible Individuals”) of the Company or of its Affiliates (as hereinafter defined) an opportunity to purchase shares of Stock pursuant to options (the “Options”). The Plan also provides for the sale or bonus of Stock to Eligible Individuals in connection with the performance of services for the Company or its Affiliates. Moreover, the Plan authorizes the grant of stock appreciation rights (“SARs”), either separately or in tandem with Options, entitling holders to cash compensation measured by appreciation in the value of the Stock. Options may be granted either on the basis of past or future services (“Service Options”) or on the basis of performance (“Performance Options”). The Plan also allows for sub-plans with respect to the Company or an Affiliate, or with respect to citizens or residents of one or more countries, provided the sub-plan is no less restrictive than the Plan.

c.The term “Affiliates”, as used in the Plan, means parent or subsidiary corporations of the Company, including parents or subsidiaries that become such after adoption of the Plan.

2.Administration of the Plan

a.The Plan shall be administered by the Supervisory Board of the Company (the “Board”). The Board may delegate the responsibility for administering the Plan to a committee (the “Committee”) under such terms and conditions as the Board shall determine.  Members of the Committee shall serve at the pleasure of the Board. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum, and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. If the Board does not delegate administration of the Plan to the Committee, then each reference in this Plan to “the Committee” shall be construed to refer to

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the Board. No member of the Board or the Committee shall be liable to any person for any action, determination or inaction with respect to the Plan that is taken or made in good faith.

b.In the event that the Company becomes subject to the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), then, notwithstanding the provisions of Section 2(a) hereof, (i) the Committee shall consist of two (2) or more members of the Board or such lesser number of members of the Board as permitted by Rule 16b-3 and (ii) none of the members of the Committee shall receive, while serving on the Committee, or during the one-year period preceding appointment to the Committee, a grant or award of equity securities under (a) the Plan or (b) any other plan of the Company or its Affiliates under which the participants are entitled to acquire Stock (including restricted Stock), Options, stock bonuses, related rights or stock appreciation rights of the Company or any of its Affiliates, other than pursuant to transactions in any such other plan which do not disqualify a director from being a disinterested person under Rule 16b-3. The limitations set forth in this Section 2(b) shall automatically incorporate any additional requirements that may, in the future, be necessary for the Plan to comply with Rule 16b-3.

c.The Committee shall determine and designate, in the manner described in paragraph 4 below, which Eligible Individuals (as defined in paragraph 1(b) above) shall be granted Options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares subject to such Options.

d.The Committee may amend the terms of any outstanding Option granted under this Plan, but any amendment that would adversely affect the Optionee’s rights under an outstanding Option shall not be made without the Optionee’s written consent. The Committee may, with the Optionee’s written consent, cancel any outstanding Option or accept any outstanding Option in exchange for a new Option.

e.The Committee shall also determine and designate, in the manner described in paragraph 4 below, which Eligible Individuals shall be issued Stock or SARs under the Plan, the timing of such issuance, the terms thereof (including any restrictions), and the number of Stock or SARs to be issued. The Stock shall be issued for such consideration (if any) as the Committee deems appropriate. Stock issued subject to restrictions shall be evidenced by a written agreement (the “Restricted Stock Purchase Agreement” or the “Restricted Stock Bonus Agreement”). The Committee may amend any Restricted Stock Purchase Agreement, but any amendment which would adversely affect the individual’s rights to the Stock shall not be made without his or her written consent.

f.In its administration of the Plan, The Committee shall have the sole authority, in its absolute discretion, (i) to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable, (ii) to construe and interpret the Plan, the rules and the regulations, and the instruments evidencing Options,

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Stock or SARs granted under the Plan, and  (iii) to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be binding on all participants.

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

3.Stock Subject to the Plan.

a.An aggregate of not more than 1,500,000 shares of Stock shall be available for the grant of Options, Stock or SARs under the Plan.  If an Option is surrendered (except if such surrender is for shares of Stock), or for any other reason ceases to be exercisable in whole or in part, the shares that were subject to such Option but as to which the Option had not been exercised shall continue to be available under the Plan.

b.If there is any change in the Stock subject to the Plan, the Stock subject to a Restricted Stock Purchase Agreement, Restricted Stock Bonus Agreement or an SAR Agreement, or the Stock subject to any Option granted under the Plan, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of two percent), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Committee in order to preserve but not to increase the benefits to the individual, including adjustments to the aggregate number and kind of shares subject to the Plan or to a Restricted Stock Purchase Agreement, Restricted Stock Bonus Agreement or  SAR Agreement, and to the number and kind of shares, and the price per share, subject to outstanding Options.

4.Eligible Individuals

Individuals who shall be eligible to have granted to them the Options, Stock or SARs provided for by the Plan shall be those Eligible Individuals (defined in Paragraph 1 (b) above) as the Committee, in its discretion, shall designate from time to time (the “Optionee/s”).

5.Exercise Price

The exercise price of each Option (the “Exercise Price”) shall be as determined by the Committee, provided that in no case shall the Exercise Price of any Option be less than 80% of the Common Stock Value on the date of issuance of such Option

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(“Date of Grant”). The “Common Stock Value” at any time shall be equal to the then current fair market value of the Stock, as determined by the Committee.  The Exercise Price shall be subject to adjustment to the extent provided in paragraphs 3(b) above and 15 below.

6.Terms and Conditions of Options.

a.Each Option granted pursuant to the Plan will be evidenced by a written Stock Option Agreement (“Option Agreement”) executed by the Company and the relevant Optionee,  the terms of which Agreement shall be determined by the Committee subject to the terms of the Plan.

b.The Committee shall determine the term of each Option granted under the Plan; provided, however, that in no event shall the term of an Option exceed ten (10) years.

c. Upon termination of employment or other contractual relationship between the Optionee and the Company/Affiliate for cause, all unexercised Options (whether or not vested) shall immediately lapse.  Upon termination of employment or other contractual relationship between the Optionee and the Company/Affiliate (regardless of whether or not termination is by the Optionee or the Company/Affiliate or for cause), all unvested Options shall lapse (unless otherwise determined by the Board or the Committee).  Upon termination of employment (regardless of whether or not termination is by the employee or employer or for cause), and at the option of the Company, vested Options may be repurchased by the Company if permitted by, and pursuant to the terms of, an applicable Option Agreement.

d.The Service Options will vest over a period of five (5) years, with 20% of the Service Options vesting on each of the first five anniversaries of the Date of Grant. Notwithstanding the foregoing, the Board or the Committee may determine different vesting schedules in special circumstances.

e.Commencing in respect of the first full calendar year after the Date of Grant, Performance Options will vest over a period of five (5) years in relation to the achievement by the Company and its Affiliates of earnings, shipment and/or other targets to be determined annually, in advance, by the Board, with partial vesting on a sliding scale, as determined by the Board. Notwithstanding the foregoing, (i) all non-vested Performance Options shall vest eight (8) years and eleven (11) months following the Date of Grant, and (ii) the Board or the Committee may determine different vesting schedules in special circumstances.

f.The Option Agreement may contain such other terms, provisions, and conditions as may be determined by the Board or the Committee, provided that the same are not inconsistent with this Plan.

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7.Terms and Conditions of Stock Purchase and Bonus

a.Each sale or grant of Stock pursuant to the Plan will be evidenced by either a written Restricted Stock Purchase Agreement executed by the Company and the person to whom such Stock is sold or a written Restricted Stock Bonus Agreement executed by the Company and the person to whom such Stock is granted.

b.The Restricted Stock Purchase Agreement or Restricted Stock Bonus Agreement may contain such other terms, provisions, and conditions as may be determined by the Board or the Committee (not inconsistent with this Plan), including, without limitation, restrictions on transfer, forfeiture provisions, repurchase provisions and vesting provisions.

8. Terms and Conditions of SARs.

The Committee may, under such terms and conditions as it deems appropriate, authorize the issuance of SARs evidenced by a written SAR Agreement (which, in the case of tandem options, may be part of the Option Agreement to which the SAR relates) executed by the Company and the person to whom such SAR is granted. The SAR Agreement may contain such terms, provisions and conditions as may be determined by the Committee and that are not inconsistent with this Plan.

9.Use of Proceeds.

Cash proceeds realized from the sale of Stock under the Plan or pursuant to Options granted under the Plan shall constitute general funds of the Company.

10.Amendment, Suspension, or Termination of the Plan.

a.The Board may, at any time, amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable legal requirements, including any applicable requirement that the Plan, or an amendment to the Plan, be approved by the shareholders, and provided further that, except as provided in paragraph 3 (b), above, the Board shall in no event amend the Plan in the following respects without the consent of stockholders then sufficient to approve the Plan in the first instance:

(i)To increase the maximum number of shares subject to Options issued under the Plan; or

(ii) To change the designation or class of persons eligible to receive Options under the Plan.

b.No Option may be granted under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension, or termination of the Plan shall, without the affected individual’s consent, alter or impair any rights or obligations under any Option previously granted under the Plan. The Plan

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shall terminate, with respect to the grant of Options, on December 18, 2005 (or with respect to The Netherlands sub-plan, December 18, 2000), unless previously terminated by the Board pursuant to this paragraph 10.

11.Assignability.

Each Option granted pursuant to this Plan shall, during Optionee’s lifetime, be exercisable only by him or her, and neither the Option nor any right hereunder shall be transferable by Optionee, by operation of law or otherwise, other than by will or the laws of descent and distribution. Stock subject to a Restricted Stock Purchase Agreement or a Restricted Stock Bonus Agreement shall be transferable only as provided in such Agreement.

12.Payment Upon Exercise of Options.

Payment of the Exercise Price upon exercise of any Option granted under this Plan shall be made in cash in such currency as the Committee shall specify in the applicable Option Agreement; provided, however, that the Committee, in its sole discretion, may permit an Optionee to pay the Exercise Price, in whole or in part, (a) with shares of Stock owned by the Optionee; (b) by delivery, on a form prescribed by the Committee, of an irrevocable direction to a securities broker approved by the Committee to sell shares and to deliver all or a portion of the proceeds to the Company in payment for the Stock; (c) by delivery of the Optionee’s promissory note with such recourse, interest, security, and redemption provisions as the Committee, in its discretion, determines appropriate; (d) by shares of stock issuable upon exercise of the Option; or (e) in any combination of the foregoing. Any Stock used to exercise Options shall be valued by the Committee at its fair market value on the date of the exercise of the Option.

13.Withholding Taxes.

No Option or Stock shall be granted or sold under the Plan to any participant, and no Option or SAR may be exercised, until the participant has made arrangements acceptable to the Committee for the satisfaction of any tax and social security withholding obligations, including without limitation obligations incident to the receipt of Stock under the Plan, the lapsing of restrictions applicable to such Stock, the failure to satisfy the conditions for treatment as Options under applicable tax law, or the receipt of cash payments. Upon the exercise of an Option and the sale of the underlying shares, and upon the lapsing of a restriction on Stock issued under the Plan, the Company, at its Option, may withhold a portion of the proceeds from the Optionee or require the Stockholder to surrender shares of the Company’s Stock (as the case may be) sufficient to satisfy any tax and social security withholding obligations.

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14.Restrictions on Transfer of Shares.

The Stock acquired pursuant to the Plan shall be subject to such restrictions, limitations and agreements regarding sale, assignment, encumbrances, or other transfer or disposal as the Board and/or Committee may, from time to time, deem advisable.

15.Re-Pricing, Cancellation and Re-Grant of Options

The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected Option holders, (a) the re-pricing of the Exercise Price of any or all outstanding Options under the Plan and/or (b) the cancellation of any or all outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of Stock but having an Exercise Price of not less than 80% of the Common Stock Value (as defined in paragraph 5 hereof) on the new Date of Grant.

16.Buyout Provisions.

At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or Stock an Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee in connection with such offer.

***

9/12/02Section 16 added and plan restated by HR & Compensation Committee

11/21/02Section 2.g. added and plan restated by HR & Compensation Committee

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EX-10.(U)

Exhibit 10(u)

VERIFONE, INC

AMENDED AND RESTATED

1987 SUPPLEMENTAL STOCK OPTION PLAN

Amended and restated by HR & Compensation Committee November 21, 2002

Amended and restated by HR & Compensation Committee September 12, 2002

Adopted by Board of Directors in May, 1987

Approved by the Stockholders on April 10, 1988

Amended by Board of Directors on April 30, 1990

Approved by the Stockholder on June 22, 1990

Amended by Board of Directors on February 13, 1992

Approved by the Stockholders on April 23, 1992

Amended by Board of Directors an March 15, 1995

Approved by the Stockholders on May 5, 1995

Amended by Board of Directors on January 18, 1996

Approved by the Stockholders an May 10, 1996

Amended by Board of Directors on January 23, 1997

1.             PURPOSE

(a)           The purpose of the Plan is to provide a means by which selected employees, directors and consultants of VeriFone, Inc. (the “Company”) and its Affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company.

(b)           The word “Affiliate” as used in the Plan means any parent corporation or subsidiary corporation of the company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue code of 1986, as amended from time to time (the “Code”).

(c)           The Company, by means of the Plan, seeks to retain the services of persons now employed by or serving as consultants or directors to the Company, to secure and retain the services of new employees/persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for the success of the Company.

(d)           The Company intends that the options issued under the Plan not be incentive stock options as that term is used in Section 422 of the Code.

2.             ADMINISTRATION

(a)           The Plan shall be administered by the Board of Directors (the “Board”) of the Company unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration,

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the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan.

(b)           The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i)            To determine from time to time which of the persons eligible under the Plan shall be granted options; when and how the option shall be granted; the provisions of each option granted (which need not be identical), including the time or times during the term of each option within which all or portions of such option may be exercised; and the number of shares for which an option shall be granted to each such person.

(ii)           To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(iii)          To amend the Plan or an Option as provided in paragraph 10.

(iv)          Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interest of the Company.

(c)           The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the “Committee”), all of the members of which Committee may be “non-employee directors,” as defined by the provisions of subparagraph 2(d), and may also be, in the discretion of the Board, outside directors as defined in Section 162(m) of the Code.  If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board and references to the Board herein shall be construed as references to the Committee.  The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.  Notwithstanding anything in this paragraph 2 to the contrary, the Board may delegate to a committee of one or more members of the Board the authority to grant options to eligible persons who (i) are not then subject to Section 16 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) are either (A) not persons expected to be subject to Section 162(m) of the code (Section 162(m)”) at the time of recognition of income from such Option or (B) not persons with respect to whom the Company desires to comply with Section 162(m).

(d)           The term “non-employee director,” as used in the Plan, shall mean a member of the Company’s Board of Directors who either (i) is not a current employee or officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any other capacity other than as a member of the Board (except for

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an amount as to which disclosure would not be required under Item 404(a) of Regulation 8-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

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

3.             SHARES SUBJECT TO THE PLAN

(a)           Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under either the Plan or the Company’s Amended and Restated Incentive Stock Option Plan shall not exceed in the aggregate Eight Million Five Hundred Fifteen Thousand (8,515,000) shares of the Company’s common stock.  The aggregate number of shares as to which options may be granted under the Plan shall be reduced to reflect the number of shares of the Company’s common stock which has been sold under, or may be sold pursuant to outstanding options granted under the Company’s Amended and Restated Incentive Stock Option Plan to the same extent as if such sales had been made or option had been granted pursuant to this plan.  If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan.

(b)           The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

(c)           Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, no employee shall be eligible, during any twelve (12) month period, to be granted options under the Plan to purchase in excess of 750,000 shares of common stock of the Company.  The total number of shares as to which options may be granted to an employee under this paragraph 3(c) shall be reduced to reflect the total number of shares as to which options have been granted, during the same twelve (12) month period, under the Company’s Amended and Restated Incentive Stock Option Plan.

4.             ELIGIBILITY

(a)           Options may be granted only to employees (including officers) of, directors of or consultants to the company or its Affiliates.

(b)           A director shall in no event be eligible for the benefits of the Plan unless and until such director is expressly declared eligible to participate in the Plan by action of the Board.

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5.             OPTION PROVISIONS

Each option shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions:

(a)           The term of any option shall not be greater than ten (10) years from the date it was granted. Notwithstanding the foregoing, an option may be granted with an exercise price lower than that set forth in the preceding sentence if such option is granted pursuant to assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

(b)           The exercise price of each option shall be not less the fair market value of the stock subject to the option on the date the option is granted.

(c)           The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of grant or exercise of the option (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any other form of legal consideration that may be acceptable to the Board or the Committee in their discretion.

                                In the case of any deferred payment arrangement, any interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.

(d)           An option shall only be transferable by the optionee upon such terms and conditions as are set forth in the option agreement for such option, as the Board or the Committee shall determine in its discretion. The person to whom an option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the person to whom the option is granted, shall thereafter be entitled to exercise the option.

(e)           The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The option may be subject to such other

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terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subparagraph 5(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised.

(f)            The company may require any optionee, or any person to whom an option is transferred under subparagraph 5(d), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the company who is knowledgeable and experienced in financial and business matters that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person’s own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require the holder of the option to provide such other representations, written assurances or information which the Company shall determine is necessary, desirable or appropriate to comply with applicable securities and other laws as a condition of granting an option to such person or permitting such person to exercise the option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including but not limited to, legends restricting the transfer of the stock.

(g)           An option shall terminate three (3) months after termination of the optionee’s service with the Company or an Affiliate whether as an employee, consultant or member of the Board (“Service”), unless (i) the termination of Service of the optionee is due to such person’s permanent and total disability, within the meaning of Section 422(e)(3) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year following such termination of Service; or (ii) the optionee dies while in the employ of the Company or an Affiliate, or within not more than three (3) months after termination of such Service, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee’s rights under such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifies either (a) that it shall terminate sooner than three (3) months after termination of the optionee’s Service, or (b) that it may be exercised more than three (3) months after termination of the optionee’s service with the Company or an Affiliate.  This subparagraph 5(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee’s Service.

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(h)           The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her Service with the Company or any Affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right in favor of the Company or to any other restriction the Board or the Committee determines to be appropriate.

(i)            To the extent provided in the terms of an Option Agreement, an optionee may satisfy any federal, state, or local tax withholding obligation relating to the exercise of such option by any of the following means or by a combination of such means:    (i) tendering a cash payment, (ii) authorizing the Company to withhold from the shares of common stock otherwise issuable to the optionee as a result of the exercise of the option or (iii) delivering to the company owned and unencumbered shares of the common stock of the Company.

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

6.             COVENANTS OF THE COMPANY

(a)           During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options.

(b)           The Company shall seek to obtain from each regulatory commission or agency having jurisdiction aver the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority is obtained.

7.             USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company.

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8.             MISCELLANEOUS

(a)           The Board or the Committee shall have the power to accelerate the time during which an option may be exercised or the time during which an option or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the provisions in the option stating the time during which it may be exercised or the time during which it will vest.

(b)           Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms.

(c)           Throughout the term of any option granted pursuant to the Plan, the Company shall make available to the holder of such option, not later than one hundred twenty (120) days after the close of each of the Company’s fiscal years during the option term, upon request, such financial and other information regarding the Company as comprises the annual report to the shareholders of the Company provided for in the bylaws of the Company.

(d)           Nothing in the Plan or any instrument executed or option granted pursuant thereto shall confer upon any eligible employee, consultant or optionee any right to continue in the employ of the Company or any Affiliate or shall affect the right of the Company or any Affiliate to terminate the employment of any eligible person or optionee with or without cause, or to terminate the relationship of any consultant subject to the terms of that consultant’s agreement with the Company or Affiliate to which such Consultant is providing services.

9.             ADJUSTMENTS UPON CHANGES IN STOCK

(a)           If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding options will be appropriately adjusted in the type of security and maximum number of shares subject to the Plan, the maximum number of shares subject to option that may be granted to any single person under subparagraph 3(c), and the type of security and number of shares and price per share of stock subject to outstanding options.  Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of anyconvertible securities of the Company shall not be treated as a “transaction not involving the receipt of consideration by the Company.”)

(b)           In the event of: (1) a dissolution or liquidation of the Company or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company’s common stock

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outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, at the sole discretion of the Board and to the extent permitted by applicable law: (i) any surviving corporation shall assume any options outstanding under the Plan or shall substitute similar options for those outstanding under the Plan, or (ii) the time during which such options may be exercised shall be accelerated and the option terminated if not exercised prior to such event, or (iii) such options shall continue in full force and effect.

10.          AMENDMENT OF THE PLAN AND OPTIONS

(a)           The Board at any time, andfrom time to time, may amend the Plan. However, except as provided in paragraph 9 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the vote of a majority of the outstanding shares of the Company entitled to vote, or by the written consent of the holders ofthe outstanding shares of the Company entitled to vote to the extent necessary under applicable laws to obtain incentive stock option treatment under Section 422 of the Code, within twelve (12) months before or after the adoption of the amendment, where the amendment will:

(i)            Increase the number of shares reserved for options under the Plan;

(ii)           Modify the requirements as to eligibility for participation in the Plan to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code; or

(iii)          Otherwise modify the Plan to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code.

(b)           The Board may, in its discretion, submit any other amendment to the Plan for stockholder approval.

(c)           Rights and obligations under any option granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom the option was granted.

(d)           The Board at any time, and from time to time, may amend the terms of any one or more options; provided, however, that the rights and obligations under any option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing.

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11.          TERMINATION OR SUSPENSION OF THE PLAN

(a)           The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on December 31, 2005. No options may be granted under the Plan while thePlan is suspended or after it is terminated.

(b)           Rights and obligations under any option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted.

12.          EFFECTIVE DATE OF PLAN

The Plan shall become effective as determined by the Board, but no options granted under the Plan shall be exercised unless and until the Plan has been approved by the vote or written consent of the holders of a majority of the outstanding shares of the Company entitled to vote.

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EX-10.(W)

Exhibit 10(w)

1995 CONVEX STOCK OPTION CONVERSION PLAN

PART 1. PLAN ADMINISTRATION AND ELIGIBILITY

I.                              Purpose

The purpose of this 1995 Convex Stock Option Conversion Plan (the “Plan”) is to comply with the Agreement and Plan of Merger, dated as of September 21, 1995 (the “Merger Agreement”), by and among Hewlett–Packard Company (the “Company”), Gemini Project Corporation, a wholly-owned subsidiary of the Company (“Subsidiary”), Convex Computer Corporation (“Convex”), pursuant to which Subsidiary was merged with and into Convex, with the result that Convex was the survivor of the merger and thereby became a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company agreed to convert all stock options outstanding as of the Effective Time (as defined in Section 1.02 of the Merger Agreement) (each, a “Convex Option”) which were granted under Convex’s 1983 Incentive Stock Option Plan and the 1991 Stock Option Plan (collectively, the “Convex Plans”) into options to purchase Common Stock of the Company (“Conversion Options”).

II.                            Administration

A Stock Option Committee (the “Committee”), consisting of three or more disinterested directors of the Company who are not participants in the Plan, shall supervise and administer the Plan. All questions of interpretation of the Plan shall be determined by the Committee and such determination shall be final and binding upon all persons having an interest in the Plan. Any or all powers and discretion vested in the Committee under this Plan may be exercised by any subcommittee so authorized by the Committee.

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

III.                           Participation in the Plan

Eligible participants in the Plan include only those persons who were Convex employees or consultants on the Effective Time or former Convex employees or consultants and who, on such date, held valid and outstanding options to purchase shares of Convex common stock under Convex Plans (the “Optionees”).

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IV.                           Stock Subject to the Plan

The maximum number of shares which may be optioned under the Plan shall be Three Hundred Twenty-Eight Thousand (328,000) shares of the Company’s $1 par value Common Stock (“Common Stock”).

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

PART 2. OPTIONS

V.                            Incentive Stock Options

Any Conversion Option granted under the Plan may be designated by the Committee as a non-statutory option or as an incentive stock option (“ISO”) entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended to date and as may be amended from time to time (the “Code”).

VI.                           Terms, Conditions and Form of Options

Each option converted under the Plan shall be evidenced by a written agreement in the form approved by the Committee (“Conversion Agreement”). The Conversion Agreement shall comply with and be subject to the following terms and conditions:

A.                 Options Non-Transferable.The Conversion Options issued under the Plan are nontransferable except by will or by the laws of descent and distribution, and may be exercised only by the Optionee during his or her lifetime, as set forth in the applicable Conversion Agreement issued pursuant to the Plan. The Plan authorizes an Optionee to designate a person to exercise a Conversion Option after the death of the Optionee.

B.                  Period of Option.  Each Conversion Option issued under the Plan became immediately exercisable in part or in full as of the Effective Time and may be exercised at any time prior to its expiration subject to the Repurchase Option in accordance with terms of the Employee’s Conversion Stock Option Agreement (the “Option Agreement).  No Conversion Option may be exercised to any extent by anyone after the date of expiration of the Conversion Option.

C.                  Exercise of Options.Conversion Options may be exercised by written notice to the Secretary of the Company, accompanied by payment in full of the option price of the shares purchased as well as any estimated U.S. Federal, state or local income or employment taxes which the Company is or will be required to withhold with respect to shares acquired by the Optionee upon exercise of a Conversion Option.  Amounts received in payment of option prices are retained by the Company.

The provisions regarding payment of the Option Price (as defined below) are substantially the same in the Conversion Agreement as were specified in the Optionee’s applicable Option Agreement: payment of the Option Price shall be by any of the

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following, or a combination of cash, check, or surrender of other shares of Common Stock of a value equal to the Option Price of the shares as to which the Conversion Option is being exercised.

D.                  Termination of Options.  A Conversion Option expires on the same date that the Optionee’s Convex stock option would have expired if it had not been converted. In most cases, Conversion Options will expire on the tenth (10th) anniversary of the Option Date (as defined below). The Optionee should refer to the Conversion Agreement which controls his or her Conversion Option for confirmation of the expiration date. The Option may be terminated prior to its expiration date in the event of the Optionee’s death, retirement, disability, resignation or termination of employment with the Company or a subsidiary.

E.                  Exercise by Representative Following Death of Employee.  If an Optionee dies while in the employ of the Company or a subsidiary, his or her Conversion Option may be exercised by the Optionee’s estate or legally designated beneficiary, to the same extent that the Optionee was entitled to exercise it on the date of his or her death, for six (6) months after the Optionee’s death.  After this period, the Conversion Option will terminate. However, the Conversion Option may only be exercised with respect to any shares which would not be subject to the Repurchase Option as defined in the Option Agreement on the date of the Optionee’s death; furthermore, the Conversion Option may not be exercised to any extent by anyone after its expiration date.

F.                  Buyout Provisions. At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or Common Stock a Conversion Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee in connection with such offer.

VII.                        Modification, Extension and Renewal of Options

The Committee shall have the power to modify, extend or renew outstanding options, provided that any such action may not have the effect of altering or impairing any rights or obligations of any option previously granted without the consent of the Optionees.

VIII.                        Number of Shares; Option Price

A.                 Number of Shares.A Conversion Option will be exercisable to purchase that number of whole shares of the Common Stock equal to the product of the number of shares of Convex common stock that were purchasable under the Convex Option immediately before the Effective Time, multiplied by the Conversion Number (as defined below), rounded down to the nearest whole number of shares of the Common Stock. No fractional shares of the Common Stock will be issued.

B.                  Option Price.The exercise price per share for the shares of the Common Stock under a Conversion Option (“Option Price”) is equal to the quotient obtained by

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dividing the exercise price per share of Convex common stock at which such Convex Option was exercisable immediately before the Effective Time by the Conversion Number (as defined below), rounded up to the nearest whole cent.

C.                  Conversion Number.The Conversion Number of 0.0593 is equal to the quotient obtained from dividing the merger consideration per share of $4.83 by $81.4125, the average closing price of the Common Stock on the New York Stock Exchange for the ten trading day period ending two trading days prior to the Effective Time.

PART 3. GENERAL PROVISIONS

IX.                           Assignments

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

X.                            Time for Granting Options

Options issued under the Plan are conversions of preexisting Convex stock options; consequently, they do not constitute newly granted options. The grant date (“Option Date”) of a Conversion Option is therefore the same as the grant date of the Convex stock option which was converted.

XI.                           Limitation of Rights

A.                 No Right to an Option. Nothing in the Plan shall be construed to give any personnel of Convex any right to be granted additional options after the Effective Time of the Merger.

B.                  No Employment Right. Neither the Plan nor the conversion of a Convex Option pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that Convex or the Company will employ an Optionee for any period of time or in any position, or at any particular rate of compensation.

C.                  No Shareholders’ Rights for Options.  An Optionee shall have no rights as a shareholder with respect to the shares covered by his or her options until the date of the issuance to him or her of a stock certificate therefor, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued.

XII.                         Changes in Present Stock

In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock split, or other change in the corporate structure or capitalization affecting the Company’s present Common Stock, appropriate adjustment shall be made by the Board of Directors in the number (including the aggregate numbers specified in Section

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IV) and kind of shares which are or may become subject to options converted hereunder, and in the option price of shares which are subject to options converted hereunder.

XIII.                        Change in Control

All previously unvested Conversion Options outstanding at the time of a change in control of the Company shall become vested in full or released from restrictions, as the Committee deems appropriate, upon such change in control, “Change in control” for purposes of this Section XIII shall mean the acquisition by an investor or group of investors of shares sufficient to elect a majority of directors of the Company under California law.

XIV.                        Effective Time of the Plan

The effective date of the Plan is December 20, 1995.

XV.                        Amendment of the Plan

The Committee may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that the Committee may seek shareholder approval of an amendment if determined to be required by or advisable under regulations of the Securities and Exchange Commission or the Internal Revenue Service, the rules of any stock exchange on which the Company’s stock is listed or other applicable law or regulations.

XVI.                        Notice

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

XVII.                     Company Benefit Plans

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

XVIII.                     Governing Law

This Plan and all determinations made and actions taken pursuant hereto shall be governed by the law of the State of California and construed accordingly. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as

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amended, and is not intended to qualify for special tax treatment under Section 401 (a) of the Code.

9/12/02Part 2, Section VI(F) added and plan restated by HR & Compensation Committee

11/21/02Part 1, Section II added new paragraph and plan restated by HR & Compensation Committee

6

EX-10.(X)

Exhibit 10(x)

1993 METRIX STOCK OPTION CONVERSION PLAN

PART 1.                PLAN ADMINISTRATION AND ELIGIBILITY

I.                              Purpose

The purpose of this 1993 Metrix Stock Option Conversion Plan (the “Plan”) is to comply with the Agreement and Plan of Merger, dated as of May 20, 1993 (the “Merger Agreement”), by and among Hewlett-Packard Company (the “Company”), Weaver Acquisition Corporation, a wholly owned subsidiary of the Company (“Newco”), Metrix Network Systems, Inc. (“Metrix”), Matthew L. Russell and Neeraj Sangal, pursuant to which Newco was merged with and into Metrix, with the result that Metrix was the survivor of the merger and thereby became a wholly-owned subsidiary of the Company.  Pursuant to the Merger Agreement, the Company agreed to convert all stock options outstanding as of May 27, 1993, (the “Effective Date”) which were granted under Metrix’s 1992 Stock Plan (the “Metrix Plan”) into options to purchase Common Stock of the Company (“Conversion Options”).

II.                            Administration

                A Stock Option Committee (the “Committee”), consisting of three or more disinterested directors of the Company who are not participants in the Plan, shall supervise and administer the Plan.  All questions of interpretation of the Plan shall be determined by the Committee and such determination shall be final and binding upon all persons having an interest in the Plan.  Any or all powers and discretion vested in the Committee under this Plan may be exercised by any subcommittee so authorized by the committee.

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

III.                           Participation in the Plan

Eligible participants in the Plan include only those persons who were Metrix employees on the Effective Date and who, on such date held valid and outstanding options to purchase shares of Metrix Common Stock under Metrix’s 1992 Stock Plan (the “Optionees”).

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IV.                           Stock Subject to the Plan

                The maximum number of shares which may be optioned under the Plan shall be Eight Thousand Seven Hundred Seventy-Two (8,772) shares of the Company’s $1 par value Common Stock.

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

PART 2.                OPTIONS

V.                            Incentive Stock Options

                Any Conversion Option granted under the Plan may be designated by the Committee as a non-statutory option or as an incentive stock option (“ISO”) entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended to date and as may be amended from time to time (the “Code”).

VI.                           Terms, Conditions and Form of Options

                Each option converted under the Plan shall be evidenced by a written agreement in the form approved by the Committee (“Conversion Agreement”).  The Conversion Agreement shall comply with and be subject to the following terms and conditions:

A.            Options Non-Transferable.  The Conversion Options issued under the Plan are nontransferable except by will or by the laws of descent and distribution, and may be exercised only by the Optionee during his lifetime, as set forth in the applicable Conversion Agreement issued pursuant to the Plan.  The Plan authorizes an Optionee to designate a person to exercise a Conversion Option after the death of the Optionee.

B.            Period of Option.  Each Conversion Option issued under the Plan became immediately exercisable in full as of the Effective Date and may be exercised at any time prior to its expiration.  No Conversion Option may be exercised to any extent by anyone after the date of expiration of the Conversion Option.

C.            Exercise of Options.  Conversion Options may be exercised by written notice to the Secretary of the Company, accompanied by payment in full of the option price of the shares purchased as well as any estimated U.S. Federal, state or local income or employment taxes which the Company is or will be required to withhold with respect to shares acquired by the Optionee upon exercise of an Option.  Amounts received in payment of option prices are retained by the Company.

The provisions regarding payment of the option price are the same in the Conversion Agreement as were specified in the Optionee’s applicable Metrix stock option agreement:  the option price must be paid in cash or by check or, at the discretion

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of the Committee (a) by delivery of the Optionee’s personal recourse notes bearing interest payable not less than annually at no less than one hundred percent (100%) of the lowest applicable federal rate, as defined in Section 1274(d) of the Code, or (b) any combination of cash, check or note.

D.            Termination of Options.  A Conversion Option expires on the same date that the Optionee’s Metrix stock option would have expired if it had not been converted.  In most cases, Conversion Options will expire on the tenth (10^th) anniversary of the Option Date.  The Optionee should refer to the Conversion Agreement which controls his Conversion Option for confirmation of the expiration date.  The Option may be terminated prior to its expiration date in the event of the Optionee’s death, retirement, disability, resignation or termination of employment with the Company or a subsidiary.

E.             Exercise by Representative Following Death of Employee.  If an Optionee dies while in the employ of the Company or a subsidiary, his Conversion Option may be exercised by the Optionee’s estate or legally designated beneficiary, to the same extent that the Optionee was entitled to exercise it on the date of his death, for one (1) year after the Optionee’s death.  After this period, the Conversion Option will terminate.  However, the Conversion Option may not be exercised with respect to any shares which were not vested shares on the date of the Optionee’s death; furthermore, the Conversion Option may not be exercised to any extent by anyone after its expiration date.

F.             Buyout Provisions. At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or shares a Conversion Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee in connection with such offer.

VII.                         Modification, Extension and Renewal of Options

                The Committee shall have the power to modify, extend or renew outstanding options, provided that any such action may not have the effect of altering or impairing any rights or obligations of any option previously granted without the consent of the Optionees.

VIII.                        Option Price

                The exercise price per share (“Option Price”) of the Company’s Common Stock under a Conversion Option was calculated by dividing $84.875 by a fraction, the numerator of which is $8,300,000 and the denominator of which is the 5,000,000 shares of Metrix Common Stock immediately prior to the Effective Date of the Merger, multiplied by the exercise price of the Metrix option immediately prior to the Effective Date of the Merger.

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PART 3.                GENERAL PROVISIONS

IX.                           Assignments

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

X.                            Time for Granting Options

                Options issued under the Plan are conversions of preexisting Metrix stock options; consequently, they do not constitute newly granted options.  The grant date (“Option Date”) of a Conversion Option is therefore the same as the grant date of the Metrix stock option which was converted.

XI.                           Limitation of Rights.

A.            No Right to an Option.  Nothing in the Plan shall be construed to give any personnel of Metrix any right to be granted additional options after the Effective Date of the Merger.

B.            No Employment Right.  Neither the Plan, nor the conversion of a Metrix Option pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that Metrix or the Company will employ an Optionee for any period of time or in any position, or at any particular rate of compensation.

C.            No Shareholders’ Rights for Options.  An Optionee shall have no rights as a shareholder with respect to the shares covered by his options until the date of the issuance to him of a stock certificate therefore, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued.

XII.                         Changes in Present Stock

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

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XIII.                        Change in Control

All previously unvested Conversion Options outstanding at the time of a change in control of the Company shall become vested in full or released from restrictions, as appropriate, upon such change in control.  “Change in control” for purposes of this section shall mean the acquisition by an investor or group of investors of shares sufficient to elect a majority of directors of the Company under California law.

XIV.                        Effective Date of the Plan

The effective date of the Plan is May 27, 1993.

XV.                         Amendment of the Plan

The Committee may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that the Committee may seek shareholder approval of an amendment if determined to be required by or advisable under regulations of the Securities and Exchange Commission or the Internal Revenue Service, the rules of any stock exchange on which the Company’s stock is listed or other applicable law or regulations.

XVI.                        Notice

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

XVII                       Company Benefit Plans

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

XVIII.                     Governing Law

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

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9/12/02Part 2, Section VI(F) added and plan restated by HR & Compensation Committee

11/21/02Part 1, Section II added new paragraph and plan restated by HR & Compensation Committee

6

EX-10.(B)(B)

Exhibit 10(b)(b)

FIRST AMENDMENT

TO THE

HEWLETT-PACKARD COMPANY

EXCESS BENEFIT RETIREMENT PLAN

The Hewlett-Packard Company Excess Benefit Retirement Plan (the “Plan”) is hereby amended as follows:

1.Effective November 1, 2000, Section 2(g) is amended to read:

(g)           “PFR Plan” means the Hewlett-Packard Company Executive Pay-for-Results Plan or the Hewlett-Packard Company Pay-for-Results Short-Term Bonus Plan, as applicable, as such plans may be amended from time to time.

2.Effective November 1, 2000, the last clause of Section 2(m) is amended to replace the term “Short-Term Bonus” with the term “bonus.”

3.Effective June 1, 2000, the first paragraph of Section 5(b) is amended to read:

(b)           Form and Time of Payment.  The Participant’s Virtual Retirement Benefit shall be converted to a lump sum benefit as of the date the Participant’s DPSPor RP benefit is to be paid, unless a later date is required to determine the Pay Rate of a Participant who is also a participant in the PFR Plan. The conversion shall be based on the same actuarial factors that would be used to convert an RP benefit from an annuity to a lump sum at the time of the conversion. Thereafter, net earnings shall be credited on the unpaid portion of such lump sum Virtual Retirement Benefit in accordance with (i) and (ii) below until it is paid out to the Participant under this Plan as set forth in this Section 5(b) :

(i) for periods through May 31, 2000, net earnings shall be credited as if the unpaid portion of the lump sum Virtual Retirement Benefit were a benefit invested in Fund B, and

(ii) for periods after May 31, 2000, the rate(s) of return and/or performance measure(s) to be used for purposes of crediting net earnings on the unpaid portion of the lump sum Virtual Retirement Benefit shall be determined by the Compensation Committee of the Board of Directors of the Company and communicated to Participants from time to time.

This First Amendment to the Plan is hereby adopted this 17th day of May, 2002.

	HEWLETT-PACKARD COMPANY
By:	/s/ PHILIP CONDIT
	Philip Condit, Chair
	Compensation Committee of the
	Board of Directors

EX-10.(C)(C)

Exhibit 10(c)(c)

COMPAQ COMPUTER CORPORATION

CASH ACCOUNT PENSION RESTORATION PLAN

(As effective March 1, 1996, and including First and Second Amendments thereto)

[formerly known as the Digital Equipment Corporation Cash Account Pension Restoration Plan; renamed, effective December 31, 1999,  by resolution of the Board of Directors of Digital Equipment Corporation]

DIGITAL EQUIPMENT CORPORATION

CASH ACCOUNT PENSION RESTORATION PLAN

(formerly known as the Digital Equipment Corporation Restoration Pension Plan)

As Amended and in Effect as of March 11 1996

TABLE OF CONTENTS

ARTICLE I — Introduction

Section 1.1  Definitions.  Certain capitalized words used in this document are defined in the glossary in Article 9. Other capitalized words used in this document have the meanings provided by the glossary of the Qualified Plan.

Section 1.2  Background and Purpose.  The Company maintains the Qualified Plan, which is a pension plan qualified under Section 401(a) of the Code. Section 415 of the Code limits the amount of benefits that may be paid from the Qualified Plan annually to or in respect of a participant. Section 401(a)(17) of the Code limits the amount of compensation that may be taken into account in determining benefits (including benefits based on the Qualified Plan Accounts). The purpose of this Plan is to provide deferred compensation and retirement income, subject to the conditions set forth in the Plan, to the Employees for whom benefits under the Qualified Plan are limited by Section 415 or 401(a)(17) of the Code. In general (and subject to the specific terms of the Plan), the benefit payable under thisPlan with respect to an Employee is equal in value to the amount by which that Employee’s benefit under the Qualified Plan is reduced because of the application of Section 415 of the Code and Section 401(a)(17) of the Code.

This Plan was adopted by the Company effective as of May 1, 1992, and was originally entitled the “Digital Equipment Corporation Restoration Pension Plan.” Effective as of March 1, 1996, the Plan is amended and restated, as provided in this document, to reflect certain amendments made to the Qualified Plan and to effect certain other changes. As part of this amendment and restatement, the name of the Plan is changed to the “Digital Equipment Corporation Cash Account Pension Restoration Plan.”

Section 1.3  Legal Status.  The Plan is not qualified under Section 401(a) of the Code. The Plan is intended to provide for the deferral of income to the termination of employment (or beyond) and to provide for retirement income, and to that extent, is a “pension plan” within the meaning of Section 3 of ERISA, which constitutes “a plan which is unfunded and is maintained for the purpose of providing deferred compensation to a select group of management or highly compensated employees” as described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA and 29 C.F.R. Section 2520.104–23.

Section 1.4  Effect of Amendment and Restatement.  The changes made by this amendment and restatement of the Plan apply only with respect to those Participants whose benefits under the Qualified Plan are determined by the amendment and restatement of the Qualified Plan that is generally effective as of March 1, 1996 and/or by subsequent amendments to the Qualified Plan. With respect to those Participants, the benefits payable under this amendment and restatement of the Plan are in lieu of (and not in addition to) benefits payable under the terms of the Plan previously in effect.

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Persons who were Participants under the Plan immediately prior to March 1, 1996 but whose benefits under the Qualified Plan are not determined by the amendment and restatement of the Plan generally effective as of March 1, 1996 (the “Pre-Restatement Participants”) will continue to be Participants under the Plan, to the extent provided by the terms of the Plan in effect prior to March 1, 1996 and applicable to them. The benefits (if any) payable under the Plan to or in respect of each Pre–Restatement Participant will be determined under the provisions of the Plan previously in effect and applicable by their terms to that Participant. Notwithstanding any other provision of this Plan, no Restoration Account will be established for any Pre-Restatement Participant.

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ARTICLE 2 – Participation

Section 2.1  Participation .  Each Employee who was a Participant under the Plan as of February 29, 1996 will continue to be a Participant.

In addition, an Employee will become a Participant if he or she is a “Member” under the Qualified Plan and either: (a) the amount of his or her Restoration Pay for a Plan Year (or, for the Plan Year ending June 30, 1996, the sum of his or her Restoration Pay plus his or her Qualified Plan Compensation) exceeds the Annual Section 401(a)(17) Limit; or (b) the benefit paid to or in respect of that Employee under the Qualified Plan is limited because of the Section 415 Limit. Such an Employee will become a Participant in this Plan when an amount is first credited to his or her Restoration Account in accordance with Article 3 or, if later, when an amount is first paid to him or her under Article 4.

An Employee who becomes a Participant will continue to be a Participant until the earliest of. (i) his or her death; (ii) the date that his or her Restoration Account is reduced to zero (0) in accordance with the terms of the Plan; or (iii) the date the last payment is made to him or her under the terms of the Plan.

Section 2.2  Establishment of Restoration Account.  The Company will establish a book account (the “Restoration Account”) under this Plan for each Participant (other than a Pre–Restatement Participant referred to in Section 1.4) as of the later of March 1, 1996 or the date he or she first becomes a Participant. The balance of the Restoration Account will thereafter be adjusted as provided in this Plan. The sole purpose of a Participant’s Restoration Account is to calculate the amount payable to or in respect of that Participant under this Plan.

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ARTICLE 3 – Credits and Adjustments to Restoration Accounts

Section 3.1  Opening Balance of Restoration Account.  As of March 1, 1996, the Restoration Account of each Participant for whom an Opening Balance is credited under the Qualified Plan will be credited with an amount equal to:

(a)the amount that would have been such Participant’s Opening Balance under the Qualified Plan (as determined under the provisions of Appendix G of the Qualified Plan applicable to such Participant) if the limitation on compensation set forth in Section 401(a)(17) had not been taken into account; minus

(b)           such Participant’s Opening Balance under the Qualified Plan.

Section 3.2  Restoration Pay Credits for Plan Years beginning after June 30, 1996. This Section applies to Plan Years beginning after June 30, 1996. As of each Pay Credit Date occurring after the date that a Participant’s Restoration Pay for the Plan Year first exceeds the Annual Section 401(a)(17) Limit, that Participant’s Restoration Account will be credited with a Restoration Pay Credit equal to:

(a)four percent (4%) of the Participant’s Credited Restoration Pay for the Plan Year which has been paid through that Pay Credit Date; minus

(b)the Restoration Pay Credits (if any) credited to the Participant’s Restoration Account under this Section as of each prior Pay Credit Date within that same Plan Year.

Section 3.2A  Restoration Pay Credits for Plan Year ending June 30, 1996.  This Section applies to the Plan Year ending June 30, 1996. As of each Pay Credit Date occurring on or after the first date that the sum of a Participant’s Restoration Pay plus his Qualified Plan Compensation exceeds $150,000, that Participant’s Restoration Account will be credited with a Restoration Pay Credit equal to:

(a)four percent (4%) of the Participant’s Credited Restoration Pay for the Plan  Year which has been paid through that Pay Credit Date; minus

(b)the Restoration Pay Credits (if any) credited to the Participant’s Restoration Account under this Section as of all prior Pay Credit Dates within that Plan Year.

Section 3.3  Special Adjustments to Restoration Accounts of Appendix F Participants.

(a)If an Appendix F Participant has a Termination after February 29, 1996 and before April 1, 2001 (or dies during that period prior to having a Termination), the Company will determine the following amounts as of the Pay Credit Date coincident with or next following that Termination (or death, if applicable):

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(i)the sum of the amounts standing to the credit of that Appendix F Participant’s Restoration Account and Qualified Plan Account; and

(ii)the value of that Appendix F Participant’s benefit under Section F.2 (B)  of the Qualified Plan,

(A)determined without taking into account the limitations of Sections 401(a)(17) or 415 of the Code, and

(B)expressed as a lump sum payment, based on the actuarial assumptions that would be used for that purpose under Appendix F.

As of that Pay Credit Date, the Participant’s Restoration Account shall be adjusted so that it is equal to the remainder of

(I)the greater of the amount determined under paragraph (a)(i) or (a)(ii) of this Section, minus

(II)the greater of

(x)the value of that Appendix F Participant’s benefit under Section F.2 (B) of the Qualified Plan (taking into account the limitations of Sections 401(a)(17) and 415 of the Code) expressed as a lump sum payment based on the actuarial assumptions that would be used for that purpose under Appendix F, and

(y)the balance of that Appendix F Participant’s Qualified Plan Account as of such Pay Credit Date.

(b)With respect to each Appendix F Participant who does not have a Termination or die prior to April 1, 2001, the Company will determine the following amounts as of March 31, 2001:

(i)the sum of the amounts standing to the credit of that Appendix F Participant’s Restoration Account and Qualified Plan Account; and

(ii)the value of that Appendix F Participant’s benefit under Section F.2(B) of the Qualified Plan,

(A)determined without taking into account the limitations of Sections 401(a)(17) and 415 of the Code; and

B)expressed as a lump sum payment, based on the actuarial assumptions that would be used for that purpose under Appendix F.

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As of March 31, 2001, the Appendix F Participant’s Restoration Account shall be adjusted so that it is equal to the remainder of

(I)the greater of the amount determined under paragraph (b)(i) or (b)(ii) of this Section, minus

(II)the greater of

(x)the value of that Appendix F Participant’s benefit under Section F.2 (B) of the Qualified Plan (taking into account the limitations of Sections 401(a)(17) and 415 of the Code) expressed as a lump sum payment based on the actuarial assumptions that would be used for that purpose under Appendix F, and 

(y)the balance of that Appendix F Participant’s Qualified Plan Account as of March 31, 2001.

Section 3.4  Special Credit to Restoration Accounts Based on Stock Award.  If in any Plan Year a Participant has both Credited Restoration Pay and Stock Award Income (as defined below), that Participant’s Restoration Account will be credited with an additional amount equal to four percent (4%) of the Stock Award Income. This additional amount will be credited as of the earlier of the last day of that Plan Year or the Payment Determination Date of that Participant (or his or her Beneficiary, as applicable). For purposes of this Section “Stock Award Income” means any amounts properly reportable as part of the Participant’s wages (on Internal Revenue Service Form W–2) as a result of vesting under restricted stock awards received by the Participant under the Company’s 1990 Equity Plan (and any successor thereto) and approved by the Compensation and Stock Option Committee of the Board of Directors of the Company on August 14, 1995.

Section 3.5  Interest Credits.  As of each day on or after March 1, 1996, each Restoration Account will be credited with an Interest Credit equal to the balance of the Restoration Account immediately before that credit is made, multiplied by the Interest Crediting Rate for the Plan Year in which that day falls.

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ARTICLE 4 – Payments

Section 4.1  Source of Payments.  Nothing in this Plan will be construed to create a trust or to obligate the Company or any other person to segregate a fund, to purchase an insurance contract, or in any other way to fund currently the future payment of any benefits hereunder, nor will anything in this Plan be construed to give any Participant or any other person rights to any specific assets of the Company or of any other person. Any amounts which become payable hereunder will be paid solely from the general assets of the Company (or, in the circumstances described in Article 6, solely from the general assets of the relevant Subsidiary), and no Participant or Beneficiary (or any other person) shall have any right, other than the right of an unsecured general creditor, against the Company (or the relevant Subsidiary) with respect to amounts payable hereunder. Nothing in this Plan constitutes a guaranty by the Company or any other entity or person that the assets of the Company (or the relevant Subsidiary) will be sufficient to make any payment hereunder.

Section 4.2 Vesting and Forfeiture.

(a)A Participant will be vested in his or her interest under this Plan (and entitled to payment under this Plan) only if he or she is “Vested” in his or her benefit under the Qualified Plan (as provided in Article 4 of the Qualified Plan).

(b)A Participant will forfeit his or her rights and interest under this Plan (and his or her Accounts will be reduced to zero (0)) if he or she forfeits his or her benefits under the Qualified Plan.

(c)Further, and notwithstanding subsection (a) of this Section or any other provision of this Plan, no payment will be made under this Plan to, or in respect of, a Participant (and that Participant will be considered to have forfeited all rights and interest under this Plan) if the Company determines, reasonably and in good faith, that Participant (i) committed fraud in respect of any matter involving the Company, (ii) breached any material contract with, or other material obligation to, the Company, (iii) misappropriated any asset of the Company, whether tangible or intangible, (iv) committed gross misconduct in connection with his or her employment with the Company, or (v) engaged in conduct that would constitute a felony or other serious crime adversely affecting the operation or the reputation of the Company. In that event, that Participant’s Accounts will be reduced to zero (0).

Section 4.3  Determination of Value of Payments to Participants.

(a)If a Participant receives payment under this Plan as a lump sum, that lump sum will have a dollar value equal to the balance of that Participant’s Restoration Account as of his or her Payment Determination Date.

(b)If a Participant receives payment under this Plan in the form of an Annuity, that Annuity will have an Actuarially Equivalent Value to the balance of the Participant’s Restoration Account as of his or her Payment Determination Date.

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(c)The following adjustments to the benefits payable to and in respect of Participants (other than Participants whose Restoration Accounts have been adjusted as provided in Section 3.3(a)) under subsection (a) and (b) of this Section will be made to account for the limitations on benefits under the Qualified Plan required by Section 415 of the Code, and increases in those limitations. If any benefit is paid under the Qualified Plan to or in respect of the Participant and that Qualified Plan payment must be reduced to comply with Section 415 of the Code, the amount of that reduction (i) will be credited to the Restoration Account of the Participant as of the date of the payment from the Qualified Plan or, (ii) if the Participant has no Restoration Account at that time, will be paid by the Company to the Participant (or the person entitled to payment of the benefit in respect of the Participant under the Qualified Plan) within a reasonable time thereafter.

Section 4.4  Timing and Forms of Payments to Participants Following Termination after February 28. 1997.  The provisions of this Section shall govern the timing and form of payments to a Participant if his or her Termination occurs after February 28, 1997.

(a)General Rules.  A Participant may elect to have his or her benefits under the Plan paid to him or her following his or her Termination as an Immediate Lump Sum, as a Deferred Lump Sum, or as an Annuity, subject to the conditions set forth in this Section. Such an election will be valid only if it is filed with and received by the Company (in a form and manner that is consistent with procedures prescribed by the Company) at least twelve (12) months prior to the Participant’s Termination. Once it has become valid, such an election shall be revoked only upon the date (if any) that a subsequently filed election of the same Participant becomes valid. On the first anniversary of the date it is received by the Company, that subsequent election will become valid, and will revoke and supersede any election of that Participant that had previously become valid, if that Participant has not had a Termination prior to that first anniversary.

(b)Immediate Lump Sum.  If, at the time of a Participant’s Termination, he or she has in effect a valid election for an Immediate Lump Sum payment, the amount standing to the credit of his or her Restoration Account will be determined within a reasonable time following that Termination (his or her “Payment Determination Date”) and will be paid to the Participant within a reasonable time thereafter.

(c)Deferred Lump Sum.  If, at the time of a Participant’s Termination he or she has in effect a valid election for a Deferred Lump Sum, the amount standing to the credit of his or her Restoration Account will be determined as of the first January 31 following the close of the calendar year in which that Termination occurs (his or her “Payment Determination Date”) and will be paid to the Participant within a reasonable time thereafter.

(d)Annuity Options.  A Participant’s election for payment in the form of an Annuity will be valid only if the generally applicable conditions described in subsection (a) above are satisfied and as of the end of the calendar quarter during which the Participant’s Termination occurs, the balance of his or her Restoration Account

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exceeds $100,000. If as of his or her Termination, a Participant has in effect an otherwise valid election of an Annuity form but the balance of his or her Restoration Account does not exceed $100,000 as of the end of the calendar quarter during which such Participant’s Termination occurs, such Participant’s benefit under the Plan will be paid as a Deferred Lump Sum as described in paragraph (c).

If a Participant is to be paid in the form of an Annuity, the amount standing to the credit of his Restoration Account will be determined as of a date within a reasonable time after his Termination (his or her “Payment Determination Date”), and payment will commence within a reasonable time thereafter. The Annuity payable will have the Actuarially Equivalent Value to the balance of the Participant’s Restoration Account determined as of his or her Payment Determination Date.

The forms of Annuity payment available under the Plan are as follows:

(i)Single Life Income Annuity. This form is an annuity providing monthly payments for the life of the Participant only, with the final payment made for the calendar month in which the Participant dies. No payment is made to a Beneficiary under this form.

(ii)Single Life Income Annuity with Full Cash Refund This form provides monthly annuity payments for the life of the Participant, with a final payment to the Participant made for the calendar month in which the Participant dies. If

(A)the sum of the payments made to the Participant during his or her life under this option, is less than 

(B)the balance of the Participant’s Restoration Account determined as of the Payment Determination Date,

the Plan will make a lump sum payment to the Beneficiary designated by the Participant (in his or her election of this optional form) as soon as practicable after the Participant’s death, equal to the difference between the amount described in paragraph (B) above minus the amount described in paragraph (A) above. The Company may, in its discretion, adopt procedures under which a Participant may designate a different Beneficiary for payment under this option, if the Beneficiary dies before the Participant. If there is no valid Beneficiary designation in effect with respect to the Participant at the time of his or her death, the amount (if any) otherwise payable to the Beneficiary of the Participant after the Participant’s death will instead be paid to all members (in equal shares) of the first class in which there are living members on the date of the Participant’s death, in the following order of priority: (I) the Participant’s spouse; (II) the Participant’s children; (III) the Participant’s parents; (IV) the Participant’s estate.

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(iii)Joint with Survivor Income Annuity. This optional form provides a monthly annuity for the life of the Participant (with the final paymentfor the calendar month of the Participant’s death) and, beginning with the calendar month following the month of the Participant’s death, a survivor income annuity for the life of the Beneficiary designated by the Participant in his or her election of this optional form. The amount of the monthly survivor annuity payment for the life of the Beneficiary will be fifty percent (50%), sixty–six and two thirds percent (66–2/3 %), or one hundred percent (100%) of the amount of the monthly payment made to the Participant during his or her life under the applicable option, as selected by the Participant in his or her election of this option. If the Beneficiary dies before the Participant dies, no survivor benefit is paid under this optional form. A Participant may not designate a different Beneficiary if the designated Beneficiary dies after the Payment Determination Date and before the Participant’s death.

(e)No Valid Election.  If at the time of a Participant’s Termination there is no valid election in effect under this Section, that Participant’s benefit will be paid as a Deferred Lump Sum, as described in paragraph (c).

Section 4.4A  Timing and Form of Payments to a Participant following Termination before March 1. 1997.  The provisions of this Section shall govern the timing and form of payments to a Participant if his or her Termination occurs before March 1, 1997.

(a)The benefit payable under this Plan to a Participant shall be paid in the same form under which that Participant’s Qualified Plan benefit is payable. The Participant’s valid election under the Qualified Plan of any optional form of payment of his or her benefit under the Qualified Plan shall also be applicable to the payment of benefits to the Participant under this Plan.

(b)Payment of the benefit to such a Participant under this Plan shall commence as of the same date payment of the Participant’s benefit under the Qualified Plan is to commence. Any valid election under the Qualified Plan by the Participant with respect to the commencement of the payment of his or her benefit under the Qualified Plan shall also be applicable to the commencement of the payment of his or her benefit under this Plan.

Section 4.5  Payments after a Participant’s Death.

(a)           If a Participant dies after payment to him or her under this Plan is made or commences, payment will be made to a Beneficiary of that Participant only if, and to the extent that, payment is to be made to a Beneficiary under the Annuity option applicable to that Participant.

(b)           If a Participant dies before payment to him or her under this Plan is paid or commences, the value of the Participant’s Restoration Account will be determined as of the January 31 next following the close of the calendar year in which the Participant dies (his or her

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“Payment Determination Date”) and paid to the Participant’s Beneficiary as a lump sum within a reasonable time thereafter. For purposes of this paragraph (b), a Participant’s Beneficiary is the person entitled to receive a death benefit in respect of that Participant under the Qualified Plan or, in the case of a Participant for whom no death benefits are payable under the Qualified Plan, the person who would have been entitled under the Qualified Plan to receive a death benefit in respect of that Participant (if one had been payable) if the Participant died with no valid beneficiary designation in effect at the time of his or her death.

Section. 4.6  No Adjustments after Payment is Determined.  Whenever the amount of a payment is to be determined under this Article (or any other provision of the Plan) as of a Payment Determination Date and paid after that date, that amount will be determined as of the close of business as of that Payment Determination Date and no adjustment will be made to the amount to be paid for the period following the date as of which the amount is determined.

Section 4.7  No Assignment or Alienation.  Except to the extent otherwise required by applicable law, amounts payable under this Plan will not be subject to alienation, assignment, garnishment, execution, or levy of any kind, and any attempt to cause any such amount to be so subjected shall be null, void, and of no effect and will not be recognized.

Section 4.8  Miscellaneous Payment Rules.

(a)If any person entitled to a payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor.

(b)All amounts to be paid hereunder may be paid in cash or cash equivalents (including, without limitation, a check drawn on a bank account of the Company).

(c)Notwithstanding any provision hereof, there may be deducted and withheld from any payment to be made hereunder such taxes (including, without limitation, local, state, or federal income taxes or employment taxes (such as FICA taxes) or other amounts which the Company reasonably determines should be deducted and withheld to comply with applicable laws, regulations, orders, or rulings of any court, agency, or other governmental organization.

(d)It is the responsibility of the Participants and the Beneficiaries to keep the Company informed of their current addresses. The Company will not be obligated to search for the whereabouts of any person and no payment will be required to be made under this Plan where the Company has not been informed of the current address of the Participant or Beneficiary to whom payment would otherwise be made. If the current address of a Participant or Beneficiary is not known by the Company at the time payment is to be made, the Company may in its sole

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discretion decide to make payment hereunder as if that person had died (in which case, the obligation to make such payment to such person shall be considered discharged) or decide to refrain from making any payment at that time.

(e)As of the date that a payment is made, or is begun to be made, to a Participant (or his or her Beneficiary) under this Plan, the Restoration Account of that Participant will be reduced to zero (0).

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ARTICLE 5 — Administration

Section 5.1  Plan Administration and Interpretation.  The Company will have complete control over the administration of the Plan, including authority to interpret the Plan and to determine, in its sole discretion, the rights and benefits and all claims, demands, and actions arising out of the provisions of the Plan of any Participant, Beneficiary, or other person having or claiming to have any interest under the Plan.  The Company’s interpretations of, and determinations under, the Plan shall be conclusive and binding on all parties.  The Company shall have the authority to establish such reasonable rules and procedures regarding the administration of the Plan as it deems necessary or appropriate.  The Company’s authority and responsibility with respect to the administration of the Plan may be exercised and discharged by the appropriate Employees of the Company or many be delegated by the Company to persons other than Employees.

In performing its functions under this Plan, the company may engage actuaries and other professionals, and may rely on their advice and conclusions in making its interpretations of, and determinations under, the Plan.

Section 5.2  Claims and Claims Review Procedure.  Claims for payment (and the denial, appeal, and review of claims) under this plan will be subject to such reasonable procedures as are established by the Company.

Section 5.3  Indemnification.  The Company shall indemnify and hold harmless each Employee who has responsibility in connection with the administration of the Plan from any and all claims, losses, damages, expenses (including reasonable counsel fees approved by the Company), and liability (including any reasonable amounts paid in settlement with the Company’s approval) arising from any act or omission (or alleged act or omission) by such Employee in connection with the administration of the Plan, except when the same is judicially determined to be due to the willful misconduct of such Employee.

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ARTICLE 6 – Special Rules for Participating Subsidiaries

Section 6.1  Different Source of Payments.  Except as otherwise specifically agreed to by the Company in writing, payments under this Plan from that portion of a Participant’s Account which is attributable to his or her employment with a Participating Subsidiary will be paid solely from the general assets of that Participating Subsidiary (and not from the assets of the Company). The portion of a Participant’s Restoration Account which is attributable to his or her employment with a Participating Subsidiary will be determined under a reasonable method established by the Company.

Section 6.2  Change in Subsidiary Status.  If an entity (a “Former Subsidiary”) that was at any time a Participating Subsidiary ceases to be a Subsidiary, the Participants who are employees of that Former Subsidiary at that time shall not be considered to have a Termination until their employment with the Former Subsidiary (and its affiliated companies, if any) terminates, unless the Company in its sole discretion determines that the Former Subsidiary’s ceasing to be a Subsidiary should be treated as a Termination under this Plan with respect to those Participants. Such a determination by the Company may, in the Company’s sole discretion, apply to all or any portion of the amounts standing to the credit of such Participants’ Restoration Accounts at that time. Any determination by the Company under this Section with respect to any Former Subsidiary will have no effect on the Company’s determination with respect to any other Former Subsidiary.

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ARTICLE 7 – Amendment and Termination

Section 7.1  Amendment or Termination.  The Company may amend or terminate the Plan under the procedures provided for in the vote of the Board of Directors of the Company dated August 25, 1994.

Section 7.2  Effect of Amendment or Termination.  Any amendment or termination shall be effective as of the date of the Company’s action to adopt the amendment or termination, unless the Company specifies another effective date occurring after the date of such action. No amendment or termination may reduce the amount then standing to the credit of any Participant’s Restoration Account or change the timing or form of distribution of any Participant’s Restoration Account balance, determined as of the date the amendment or termination is adopted, without the written consent of that Participant. However, any amendment or termination may (without limitation) change the method for determining amounts to be credited to Restoration Accounts (or eliminate such credits) for Plan Years ending after the effective date of the amendment or termination, or change the method of adjusting Restoration Accounts under Article 3 for periods after the effective date of the amendment.

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ARTICLE 8 –– Miscellaneous

Section 8.1  No Enlargement of Employee Rights.  No Participant or Beneficiary will have any right to a benefit under this Plan except in accordance with the terms of the Plan. Establishment of the Plan will not be construed to give any Participant the right to be retained in the service of the Company.

Section 8.2  Liability of the Company.  Subject to obligations of the Company (or the Participating Subsidiaries) to pay the amounts credited to the Participants’ Accounts, as and to the extent specifically provided in this Plan, and the indemnification provided by the Company under Section 5.3, neither the Company, the Participating Subsidiaries, nor any person acting in behalf of the Company (or the Participating Subsidiaries) shall be liable to any Participant or any other person for any act performed or the failure to perform any act with respect to the Plan.

Section 8.3  Corporate Successors The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or acquisition or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger, or consolidation only if and to the extent that the transferee, purchaser, or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser, or successor entity, the Plan will then terminate subject to the provisions of Section 7.2 hereof.

Section 8.4  Applicable Law and Construction.

(a)Except to the extent preempted by federal law, the provisions of the Plan shall be interpreted in accordance with the laws of the Commonwealth of Massachusetts.

 (b)The titles of Articles and Sections are for reference only. In the event of a conflict between a title and the content of an Article or Section, the content shall control. Whenever used, the masculine pronoun shall include the feminine pronoun and the singular number shall include the plural number unless the context of the Plan requires otherwise.

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ARTICLE 9 – Glossary

Whenever used in this Plan, the following terms shall have the following meanings, unless the context clearly requires a different meaning:

“Actuarially Equivalent Value” has the meaning provided in the Qualified Plan.

“Annual Section 401(a)(17) Limit,” for any Plan Year, means the annual limit on compensation that may be taken into account under the Qualified Plan as required by Section 401(a)(17) of the Code, for that Plan Year. The Annual Section 401(a)(17) Limit is determined without reference to any proration of the annual limit that may be required under Treasury Regulation § 1.401(a)(17).

“Annuity” means one of the forms of benefit payments described as Annuity options under Article 4.

“Appendix F Participant” means a Participant who is also an “Appendix F Member” within the meaning of the Qualified Plan.

“Beneficiary” means the person who is to receive benefits after a Participant’s death, as determined under the applicable rules of Article 4.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor code.

“Company” means Digital Equipment Corporation.

“Credited Restoration Pay” with respect to a Participant for a PlanYear beginning after June 30, 1996 means that portion of that Participant’s Restoration Pay for such Plan Year which exceeds the Annual Section 401 (a)(17) Limit applicable for that Plan Year. “Credited Restoration Pay” with respect to a Participant for the Plan Year ending June 30, 1996 means that portion of the Restoration Pay paid to such Participant for such Plan Year after the sum of that Participant’s Restoration Pay for such Plan Year and Qualified Plan Compensation - for such Plan Year equalsat least $150,000.

“Employee” means any person who is an employee of the Company or an employee of a Participating Subsidiary.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Interest Crediting Rate” has the meaning provided by the Qualified Plan.

“Opening Balance” the meaning provided in the Qualified Plan.

“Participant” means a person described in Section 2.1.

“Participating Subsidiary’’ means any Subsidiary which has adopted the Qualified Plan and which adopts this Plan with the permission of the Company.

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“PayCredit Date” has the meaning provided by the Qualified Plan. There are no Pay Credit Dates prior to March 31, 1996.

“Payment Determination Date” means the date as of which payment of benefits under this Plan is made or commences.

“Plan” means this Digital Equipment Corporation Cash Account Pension Restoration Plan, as set forth in this document, and as amended from time to time hereafter. Prior to this amendment and restatement, the Plan was named the “Digital Equipment Corporation Restoration Pension Plan.”

“Plan Year” means the twelve (12) consecutive month period beginning July 1 and ending on the next following June 30.

“Prior Benefit Formula” has the meaning provided in the Qualified Plan.

“Qualified Plan” means the Digital Equipment Corporation Cash Account Pension Plan, as amended from time to time.

“Qualified Plan Account” means the account maintained under the Qualified Plan for purposes of calculating benefits payable under the Qualified Plan.

“Qualified Plan Compensation” of a Participant means his or her “Compensation” within the meaning of the Qualified Plan for the period July 1, 1995 through February 29, 1996 which is taken into account for purposes of determining the benefits accrued by the Participant under the Prior Benefit Formula, as provided in Section 3.10 of the Qualified Plan and the other applicable provisions of the Qualified Plan.

“Qualified Plan Member” means an Eligible Employee who is a member under the Qualified Plan.

“Restoration Account” means the account so designated and established under Section 2.2 on behalf of a Participant.

“Restoration Pay” of a Participant means that Participant’s “Pay” as determined under the Qualified Plan (including, without limit, Sections 3.5 and 3.6A of the Qualified Plan), except that for purposes of this Plan a Participant’s Pay shall be determined without regard to the Annual Section 401(a)(17) Limit.

“Section 415 Limit” means the limit on benefits payable by a defined plan under Section 415 of the Code.

“Subsidiary” means any entity in which the Company owns (directly or indirectly) a greater than fifty percent (50%) voting interest or economic interest.

“Termination” means a Participant's termination of employment (for reasons other than death) with the Company and all Subsidiaries.

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DIGITAL EQUIPMENT CORPORATION

CASH ACCOUNT PENSION RESTORATION PLAN

First Amendment

A.            The Digital Equipment Corporation Cash Account Pension Restoration Plan (the “Plan”), as set forth in a document dated as of March 1, 1996, is hereby amended as follows:

1.             Article 3 is amended by adding at the end of said Article the new Sections 3.6 and 3.7, as follows:

“3.6.        Restoration Pay for Periods after December 31, 1998. Effective January 1, 1999, the Qualified Plan has been amended to provide that ‘Pay’ includes only such amounts of Pay, as specified therein, as are received by an Electing Employed Member (as defined in the Qualified Plan). Under this Plan, no amounts received by a Participant after December 31, 1998 may constitute ‘Restoration Pay’ unless the Participant is an Electing Employed Member under the Qualified Plan at the time such amounts are received. Accordingly, on and after January 1, 1999, ‘Restoration Pay’ of a Participant shall mean that Participant’s ‘Pay’ as determined under the Qualified Plan (including, without limitation, the requirement that such Pay be received while the Participant is an Electing Employed Member within the meaning of the Qualified Plan), except that for purposes of this Plan a Participant’s Pay shall be determined without regard to the Annual Section 401(a)(17) Limit.

3.7.          Additional Special Rules for Certain Appendix F Participants.  If an Appendix F Participant who is an ‘Eligible Employed Member,’ as defined in the Qualified Plan, elects option (II) set forth in Section F.8(A) of the Qualified Plan, such Appendix F Participant shall be treated for purposes of Section 3.3 of this Plan as if he or she had a Termination as of December 31, 1998. Such Appendix F Participant shall not be treated as having had a Termination for other purposes of the Plan until his or her actual Termination (as determined under the otherwise applicable Plan provisions).”

2.              The definition of “Restoration Pay” in Article 9 is amended by deleting said definition in its entirety and substituting in lieu thereof the following:

“‘Restoration Pay’ has the meaning provided in Section 3.6.”

B.             This Amendment is effective January 1, 1999.

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C.            The Plan is in all other respects hereby confirmed.

Executed this 18th day of December, 1998.

DIGITAL EQUIPMENT CORPORATION

By

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AMENDMENT

TO THE

COMPAQ COMPUTER CORPORATION

CASH ACCOUNT PENSION RESTORATION PLAN

The Compaq Computer Corporation Cash Account Pension Restoration Plan (the “Plan”) is hereby amended to provide that, any provision of the Plan to the contrary notwithstanding, no Pay Credits shall be credited to a Member with respect to the Member’s Pay for any period after December 31, 2002.

This Amendment is hereby adopted this 20th day of December 2002.

HEWLETT-PACKARD COMPANY

Susan Bowick, Senior Vice President

HP Human Resources

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EX-10.(F)(F)

Exhibit 10(f)(f)

HEWLETT-PACKARD COMPANY

BALANCED SCORE CARD PLAN

(Effective May 1, 2002)

1.             Purpose.  The purpose of the Hewlett-Packard Company Balanced Score Card Plan is to provide certain employees of Hewlett-Packard Company and its subsidiaries with incentive compensation based upon the level of achievement of financial, business and other performance criteria.

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

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

(b)           “AFM” shall mean the Company’s Accounting and Financial Manual, as posted from time to time on the Company’s internal web site.

(c)           “Board” shall mean the Board of Directors of the Company.

(d)           “Bonus” shall mean a cash payment, which may be an addition to Base Pay made pursuant to the Plan with respect to a particular Performance Period.  The amount of a Bonus may be less than, equal to, or greater than the Target Bonus; provided, however, that a Bonus shall not be greater than an amount equal to three hundred percent (300%) of the Target Bonus.

(e)           “Code” shall mean the Internal Revenue Code of 1986 and regulations promulgated thereunder, all as amended from time to time, and any successors thereto.

(f)            “Committee” shall mean the Committee, designated pursuant to Section 4 of the Plan.

(g)          “Company” shall mean Hewlett-Packard Company, a Delaware corporation.

(h)           “Covered Officer” shall mean at any date (i) any individual who with respect to the previous taxable year of the Company, was a “covered employee” of the Company within the meaning of Code section 162(m); provided, however that the term “Covered Officer” shall not include any such individual who is designated by the Committee, in its sole discretion, at the time of any Bonus or at any subsequent time, as reasonably expected not to be such a “covered employee” with respect to the then current taxable year of the Company, and (ii) any individual who is designated by the Committee, in its sole discretion, at the time of any Bonus or at any subsequent time, as reasonably expected to be such a “covered employee” with respect to the then current taxable year of the Company or with respect to the taxable year of the Company in which any applicable Bonus will be paid.

(i)            “Eligible Earnings” shall mean the annual base rate of cash compensation, excluding discretionary or contractual bonuses, actual commissions/bonus payments paid to commissioned employees pursuant to an incentive plan, Bonuses, Target

Bonuses, payments under the Hewlett-Packard Company Disability Plan and the Hewlett-Packard Company Supplemental Disability Plan, or any other additional compensation. Eligible earnings may be modified in accordance with local law or requirements.

(j)            “Fiscal Year” shall mean the twelve-month period from November 1 through October 31.

(k)           “Net Order Dollars” shall be as defined in the Company’s Corporate Marketing Policy, as posted on the Company’s internal web site at the start of the Performance Period.

(l)            “Net Profit Dollars” shall be as defined in the AFM at the start of the Performance Period.

(m)          “Net Profit Growth” shall be, with respect to any Performance Period, as defined by the Committee, in its sole discretion.

(n)           “Net Revenue Dollars” shall be as defined in the AFM at the start of the Performance Period.

(o)           “Participant” shall mean each salaried employee of the Company or its Affiliates in active service whose position is designated by the Committee as eligible for participation in the Plan; provided, however, that Participants must be selected prior to the Predetermination Date.

(p)           “Performance Measure” shall mean any measurable criteria using a Balanced Score Card approach tied to the Company’s success that the Committee may determine, including, but not limited to, Net Order Dollars, Net Profit Dollars, Net Profit Growth, Net Revenue Dollars, Revenue Growth, Total Shareholder Return Relative to Peer Index, individual performance, earnings per share, return on assets, return on equity, other Company and business unit financial objectives, customer satisfaction indicators, operational efficiency measures and employee metrics.

(q)           “Performance Period” shall mean a six-month period of time based upon the halves of the Company’s Fiscal Year, or such other time period as shall be determined by the Committee.

(r)            “Plan” shall mean the Hewlett-Packard Company Balanced Score Card Plan, as amended from time to time.

(s)           “Predetermination Date” shall mean (i) the earlier of: a date 45 days after commencement of the Performance Period, or a date not later than the expiration of 25% of the Performance Period; provided that the satisfaction of selected Performance Measures 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).

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(t)            “Revenue Growth” shall be, with respect to any Performance Period, as defined by the Committee, in its sole discretion.

(u)           “Target Bonus” shall mean a Bonus amount that may be paid if 100% of all the applicable Performance Measures are achieved at Target in the Performance Period.  The Target Bonus shall be equal to a fixed percentage of the Participant’s Base Pay for such Performance Period.  Such percentage shall be determined by the Committee prior to the Predetermination Date.

(v)           “Total Shareholder Return Relative to Peer Index” shall be, with respect to any Performance Period, as defined by the Committee, in its sole discretion.

3.             Eligibility.  Persons employed by the Company or any of its Affiliates during a Performance Period and in active service are eligible to be Participants under the Plan for such Performance Period (whether or not so employed or living at the date a Bonus is made) and may be considered by the Committee for a Bonus.  An individual is not rendered ineligible to be a Participant by reason of being a member of the Board.  Notwithstanding anything herein to the contrary, the Committee shall have sole discretion to designate or approve the Participants for any given Performance Period.

4.             Administration.

(a)           Unless otherwise designated by the Board, the HR & Compensation Committee of the Board shall be the Committee under the Plan.  A director may serve as a member or an alternate member of the Committee only during periods in which the director is an “outside director” as described in Code section 162(m).  The Committee shall have full power and authority to construe, interpret and administer the Plan.  It may issue rules and regulations for administration of the Plan and shall meet at such times and places as it may determine.  A majority of the members of the Committee shall constitute a quorum and all decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, its stockholders, employees and Participants.  In the case of Participants who are not Covered Officers, the Committee may empower certain person(s) or a committee to administer the Plan, to the extent specified by the Committee at the time of delegation, and subject to modification at any time thereafter, whose decisions shall similarly be final, conclusive and binding upon all parties.

(b)           The expenses of the administration of the Plan shall be borne by the Company.

5.             Term.  Subject to Section 10(g), the Plan shall be effective as of  May 1, 2002 and shall be applicable for future Fiscal Years of the Company unless amended or terminated by the Board or the Committee pursuant to Section 10(e).

6.             Bonuses. Prior to the Predetermination Date, the Committee or, if applicable, the Committee's delegate, shall designate or approve (a) the positions or employees who will be Participants for a Performance Period, (b) the minimum and maximum Bonuses and the Target Bonuses for the position or employee, (c) the applicable Performance Measures and combination of Performance Measures and percentages allocated to the applicable Performance Measures; and (d) the Performance Period.  All Performance Measures pertaining to a Covered Officer shall be of such a nature that an objective

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third party having knowledge of all the relevant facts could determine whether performance results with respect to such Performance Measures have been achieved.

7.             Determination of Amount of Bonus.

(a)           Calculation.   As soon as administratively practicable after the end of the relevant Performance Period, the Committee, or, in the case of a Bonus to a Participant who is not a Covered Officer, the person(s) or committee empowered by the Committee or the Board, shall determine the amount of the Bonus for each Participant by:

(i)            Determining the actual performance results for each Performance Measure;

(ii)           Determining the amount to which each Participant is entitled based on the percentage allocated by the Committee to each Performance Measure against the Target Bonus for each Participant; and

(iii)          Certifying by resolution duly adopted by the Committee (or by the person(s) or committee empowered by the Committee in the case of Participants who are not Covered Officers) the amount of the Bonus for each Participant so determined.

(b)           Adjustments to Bonuses.

(i)            In General.  In its sole discretion, the Committee or the Committee's delegate may, but is not required to, make an adjustment to a Participant's Bonus to take into account events or situations which: (A) have a financial impact relevant to the applicable Performance Period, (B) were not already taken into account in the Participant's Performance Measures for such period, and (C) which had a financial impact in the applicable Performance Period in excess of U.S. $50 million due to any of the following: (I) acquisitions and investments, (II) divestitures, (III) a major change in U.S. accounting principles, or (IV) a major reorganization within the Company. In its sole discretion, and without delegation, the Committee alone may approve any other adjustments to a Participant’s Bonus during a Performance Period.

(ii)           Reductions. In addition to a general Bonus adjustment addressed in Section 7(b)(i), the Committee may, in the exercise of its sole discretion and based on any factors the Committee deems appropriate, reduce or eliminate to zero the amount of a Bonus to a Participant otherwise calculated in accordance with the provisions of Section 7(a) prior to payment thereof.  The Committee shall make a determination of whether and to what extent to reduce Bonuses under the Plan for each Performance Period at such time or times following the close of the Performance Period as the Committee shall deem appropriate.  The reduction in the amount of a Bonus to a Participant for a Performance Period shall have no effect on the amount of the Bonus to any other Participant for such period.

(c)           No Adjustments for Covered Officers.  Notwithstanding the provisions of Section 7(b) above and for purposes of tax deductibility under Section 162(m) of the Code, any adjustments made in accordance with or for the purposes of Section 7(b) shall be disregarded for purposes of calculating the Bonus to any Covered Officer to the extent that such adjustments would have the effect of increasing such Bonus.

(d)           Maximum.Notwithstanding any other provision of this Plan, the maximum Bonus that may be paid to a Covered Officer under the Plan with respect to a particular Performance Period is $15 million.  To the extent the period of time defining a Performance Period is changed by the Committee, then the maximum Bonus that may be paid to a Covered Officer under the Plan is an amount that bears the same pro rata relationship to the new period of time as the above amount does to the current six-month Performance Period as set by the Committee.

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8.             Payment of Bonuses.

(a)           Payment of a Bonus to a Participant shall be made as soon as practicable after determination of the amount of the Bonus under Section 7 above, and after the Committee has certified in writing the amount to be paid, 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 Executive Deferred Compensation Plan or any other similar plan as the Committee determines in its discretion.

(b)           A participant will forfeit any Bonus for a Performance Period during which he or she is involuntarily terminated for cause or voluntarily terminates his or her employment with the Company for any reason except as otherwise provided in Section 8(c) below.

(c)           The payment of a Bonus with respect to a specific Performance Period requires that the employee be on the Company’s payroll as of the end of such Performance Period, subject to the following:

(i)            Non-Pay Status.  A Participant who continues to be on approved non-pay status through the end of the Performance Period will receive a bonus payment if return to work is within the maximum period approved by the Company for the non-pay status.  If the non-pay status results in a leave of absence or termination, guidelines governing those situations will apply.

(ii)           Leave of Absence.  A Participant will receive a bonus payment while on an approved leave of absence even if the leave began prior to the end of the Performance Period.  The Bonus will be based on the Participant’s actual Base Pay for the Performance Period.  While on an approved medical leave of absence, accrual of Base Pay will continue for as long as the employee is integrating disability benefits with flexible time off (FTO) hours, or sick or vacation hours.  Only the FTO or sick or vacation hours will be included in Base Pay.

(iii)          Work-Related Illness/Injury.  A Participant who cannot work due to a work-related injury/illness and who may be drawing Workers’ Compensation benefits will be placed on medical leave from the last day worked.  While on leave, a Participant will receive a bonus payment even if the leave began prior to the end of the Performance Period.

(iv)          Work Force Reduction.  If the reason for a Participant’s termination of employment prior to the end of a Performance Period is Work Force Reduction, any bonus will be prorated based upon the Participant’s Eligible Earnings for the Performance Period, unless otherwise determined due to local law.

(v)           Retirement.  If the reason for a Participant’s termination of employment prior to the end of a Performance Period is his or her retirement at the age and service-year level set by the Company or the local law requirements where the Participant is employed, any Bonus will be pro-rated based upon the employee’s time spent actively at work prior to his or her retirement date.

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(vi)          Death.  If a Participant dies prior to the end of a Performance Period or after the end of a Performance Period but prior to payment, any Bonus will be paid to the Participant’s estate and will be based on the Participant’s actual Base Pay for the Performance Period.

(d)           Payments of Bonuses to Participants who are on the payroll of Affiliates of the Company shall be paid directly by such entities.

9.             Changes in Status.

(a)           If prior to the end of a Performance Period a person is hired for a position previously designated by the Committee for participation under the Plan, that person will commence participation in the Plan on a pro-rated basis from the date of hire.  If an employee is promoted into such a position from a position that was eligible for participation in the Company Performance Bonus Plan, or the Pay-for-Results Short-Term Bonus Plan, he or she will be considered to have been a Participant in this Plan from the beginning of the Performance Period or, if later, from the date of hire. Notwithstanding the foregoing, this Section 9(a) shall not apply to a Covered Officer.

(b)           If a Participant transfers from one eligible position to another prior to the end of a Performance Period, any Bonus will be based on performance as it relates to the latest position.

(c)           If prior to the end of a Performance Period, a Participant transfers into a position that is not eligible for participation under the Plan, the employee will not receive a Bonus under the Plan.

10.          Miscellaneous.

(a)           No Assignment.  No portion of any Bonus under the Plan may be assigned or transferred otherwise than by will or the laws of descent and distribution prior to the payment thereof.

(b)           Tax Requirements.  All payments made pursuant to the Plan or deferred pursuant to Section 8(a) shall be subject to all applicable taxes or contributions required by federal, state or local law to be withheld, in accordance with the procedures to be established by the Committee.

(c)           No Additional Participant Rights.  The selection of an individual for participation in the Plan shall not give such Participant any right to be retained in the employ of the Company or any of its Affiliates, and the right of the Company and any such Affiliate to dismiss such Participant or to terminate any arrangement pursuant to which any such Participant provides services to the Company, with or without cause, is specifically reserved.  No person shall have claim to a Bonus under the Plan, except as otherwise provided for herein, or to continued participation under the Plan.  There is no obligation for uniformity of treatment of Participants under the Plan.  The benefits provided for Participants under the 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 is terminable at the will of either party and, if such Participant is a party to an employment contract with the Company or

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one of its Affiliates, in accordance with the terms and conditions of the Participant’s employment contract.

(d)           Liability.  The Board and the Committee shall be entitled to rely on the advice of counsel and other experts, including the independent auditors for the Company.  No member of the Board or of the Committee, any officers of the Company or its Affiliates or any of their designees shall be liable for any act or failure to act under the Plan, except in circumstances involving bad faith on the part of such member, officer or designee.

(e)           Amendment; Suspension; Termination.  The Board or Committee may, at any time and from time to time, amend, suspend or terminate the Plan or any part of the Plan as it may deem proper and in the best interests of the Company.  In the case of Participants employed outside the United States, the Board, the Committee or their designees may vary the provisions of the Plan as deemed appropriate to conform with local laws, practices and procedures.  In addition, the Executive Committee of the Board or any of the General Counsel, Secretary or Assistant Secretary of the Company is authorized to make certain minor or administrative changes required by or made desirable by government regulation.  Any modification of the Plan may affect present and future Participants and the amount of any Bonus hereunder.

(f)            Other Compensation Arrangements.  Nothing contained in the Plan shall prevent the Company or any Affiliate of the Company from adopting or continuing in effect other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases.

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

(h)           No Trust.  Neither the Plan nor any Bonus shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Participant.  To the extent that the Participant acquires a right to receive payments from the Company in respect of any Bonus, such right shall be no greater than the right of any unsecured general creditor of the Company.

(i)            Section 162(m). All payments under this Plan are designed to satisfy the special requirements for performance-based compensation set forth in Code section 162(m)(4)(C) of the Code, and the Plan shall be so construed.  Furthermore, if a provision of the Plan causes a payment to fail to satisfy these special requirements, it shall be deemed amended to satisfy the requirements to the extent permitted by law and subject to Committee approval.

(j)            Designation of Beneficiaries.  A Participant may, if the Committee permits, designate a beneficiary or beneficiaries to receive all or part of the Bonuses which may be paid to the Participant, or may be payable, after such Participant’s death.  A designation of beneficiary shall be made in accordance with procedures specified by the Company and may be replaced by a new designation or may be revoked by the Participant at any time.  In case of the Participant’s death, a Bonus with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries.  Any Bonus granted or payable to a Participant who is deceased and not subject to such a designation shall be distributed to the Participant’s estate.  If there shall be any question as to the legal right of any beneficiary to receive a Bonus under the Plan, the

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amount in question may be paid to the estate of the Participant, in which event the Company or its Affiliates shall have no further liability to anyone with respect to such amount.

(k)           Stockholder Approval.  Plan amendments shall require stockholder approval only if and to the extent required by applicable law or the applicable rules of any stock exchange.

(l)            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.

(m)          Savings Clause.  If any portion of this Plan as it relates to a Covered Officer is construed as failing to satisfy the provisions of Code section 162(m), then the Plan will be deemed amended to satisfy the requirements to the extent permitted by law and subject to Committee approval.

11.          Execution

IN WITNESS WHEREOF, the Company has caused this Plan to be adopted this                    day of June 2002, effective May 1, 2002.

HEWLETT-PACKARD COMPANY

/s/ PHILIP CONDIT

Philip M. Condit

Chair, HR and Compensation Committee

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EX-10.(G)(G)

Exhibit 10(g)(g)

Hewlett-Packard Company

Executive Deferred Compensation Plan

(Amended and Restated effective October 1, 2002)

Section 1.   Establishment and Purpose of Plan

                The Hewlett-Packard Company Executive Deferred Compensation Plan was adopted and established effective January 1, 1994, and has been amended from time to time.  The Plan provides deferred compensation for a select group of management or highly compensated employees asestablished in Title I of ERISA.  Effective October 1, 2002, the Plan is hereby amended and restated.

                The Plan isintended to be an unfunded and unsecured deferred compensation arrangement between the Participant and the Company, in which the Participant agrees to give up a portion of the Participant’s current compensation in exchange for the Company’s unfunded and unsecured promise to make a deferred payment at a future date, as specified in Section 6.  The Company retains the right, as provided in Section14, to amend or terminate the Plan at any time. Certain capitalized words used in the text of the Plan are defined in Section 21 in alphabetical order.

Section 2.  Participation in the Plan.

                All Eligible Employees are eligible to defer Base Pay or Bonuses under the Plan

Section 3. Timing and Amounts of Deferred Compensation

                Eligible Employees shall make elections to participate in the Plan, as follows:

                3.1           Base Pay Deferrals.

                                3.1.1        Timing of Base Pay Deferral.  With respect to a deferral of Base Pay, an election to participate must be made prior to December 16 of the calendar year preceding the calendar year with respect to which an election to defer Base Pay is made, in accordance with any procedures established by the Committee.

                                3.1.2        Amount of Base Pay Deferral.  Once an election is made by anEligible Employee, an annual whole dollar amount will be deferred from Base Pay, taken equally over the twenty-four (24) pay periods falling within the calendar year to which the election pertains.  The minimum amount of Base Pay which may be deferred is $6,000 per calendar year.  The maximum amount of Base Pay which may be deferred each calendar year is equal to the amount of Base Pay exceeding the amount defined in Code section 401(a)(17), as adjusted by the Secretary of the Treasury under Code section 415(d), in effect on January 1 of the calendar year to which the deferral election pertains.

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                3.2           Bonus Deferrals.

                                3.2.1        Timing of Bonus Deferral.  Participants must make an election to defer an H1 Bonus and/or H2 Bonus before December 16 of the calendar year ending within the fiscal year to which the H1 and H2 Bonuses pertain, in accordance with any procedures established by the Committee.  Participants must make an election to defer the Deferred Cash Bonus or any other Bonus that is neither an H1 Bonus nor an H2 Bonus in accordance with any procedures established by the Committee.  Notwithstanding the foregoing, an election to defer an H2 Bonus may be amended or revoked at any time prior to the commencement of the Performance Period to which the H2 Bonus relates, in accordance with any procedures established by the Committee.

                3.2.2        Amount of Bonus Deferral.   An Eligible Employee may defer any portion, up to 95%, of any Bonus to which he or she may become entitled, so long as the deferral amount is expressed in terms of a whole percentage point.  Once an election is made by anEligible Employee to defer a portion of a Bonus, the appropriate amount will be withheld from the Bonus when the amount of the Bonus has been certified by the Committee (with respect to a Bonus under the BSC Plan or PFR Plan), but not before the Bonus would otherwise have been paid to the Participant in cash under the plan from which the Bonus is payable.

                3.3           Effect of Taxes on Maximum Deferrals.  Notwithstanding any provision herein to the contrary, and to the extent consistent with the terms of the BSC Plan and PFR Plan, the Company may withhold Taxes from any cash payment made under such plans, owing as a result of any deferral or payment hereunder, as the Company deems appropriate in its sole discretion.  If, with respect to the pay period within which a deferral, payment or Bonus is made under this Plan or other plans from which a Bonus is payable, the Participant receives insufficient actual cash compensation to cover such Taxes, then the Company may withhold any remaining Taxes owing from the Participant’s subsequent cash compensation received, until such Tax obligation is satisfied, or otherwise make appropriate arrangements with the Participant for satisfaction of such obligation.

                3.4           Committee Discretion.  Notwithstanding anything in this Section 3 to the contrary, the Committee shall have the discretion to modify the availability and timing of a valid deferral election under this Section 3, in any manner it deems appropriate; provided, however, that any alteration with respect to a Covered Officer must be consistent with the requirements for deductibility of compensation under section 162(m) of the Code.

Section 4. Deferral Accounts.

                4.1           In General.  Amounts deferred pursuant to Section 3 shall be credited to a Deferral Account in the name of the Participant. Deferred Amounts arising from deferrals of Base Pay shall be credited to a Deferral Account at least quarterly.  Deferrals resulting from amounts credited to a Participant’s Deferral Account from the deferral of Bonuses shall be credited to a Deferral Account as soon as practicable after the Committee — as appropriate under, and in accordance with, the terms of the plan from which the Bonus is payable - has certified the amount of a Bonus, but not before the Bonus would otherwise have been paid to the Participant in cash.  The Participant’s rights in the Deferral Account shall be no greater than the rights of

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any other unsecured general creditor of the Company.  Deferred Amounts and Earnings thereon invested hereunder shall for all purposes be part of the general funds of the Company.  Any payout to a Participant of amounts credited to a Participant’s Deferral Account are not due, nor are such amounts ascertainable, until the Payout Commencement Date.

                4.2           Hewlett-Packard Company Officers Early Retirement Plan Deferrals.  A Deferral Account may be created or credited pursuant to the termination of the Hewlett-Packard Company Officers Early Retirement (OER) Plan, as restated effective October 31, 1999.  Except as otherwise provided in this Section 4.2, an OER Deferral shall be forfeited in full, if the Termination Date of a Rollover Participant for whom the OER Deferral was created or credited, occurs prior to April 1, 2001.  Notwithstanding the foregoing, the OER Deferral of a Rollover Participant shall not be forfeited due to his or her Termination Date occurring prior to April 1, 2001, if the Rollover Participant has attained the age of 58 on or before March 31, 1999.

Section 5.  Earnings on the Deferral Account.

                5.1           Crediting in General.  Amounts in a Participant’s Deferral Account will be credited at least quarterly with Earnings until such amounts are paid out to the Participant under this Plan as set forth in Section 6.   All Earnings attributable to the Deferral Account shall be added to the liability of and retained therein by the Company.  Any such addition to the liability shall be appropriately reflected on the books and records of the Company and identified as an addition to the total sum owing the Participant.  The Deferral Account of a Rollover Participant shall be credited with Earnings at the same time and accounted for in the same manner as the Deferral Account of a Participant (regardless of the Rollover Participant’s eligibility to participate in the Plan), pro-rated to reflect the date on which the deferral account from a Rollover Plan is transferred into the Plan.

                5.2           Hypothetical Investment Choice.  Except as otherwise provided in this Section 5.2, and subject to provisions of Section 4.1, the Committee may, in its discretion, offer Participants a choice among various hypothetical investments on which their Deferral Accounts may be credited.  Such a choice is nominal in nature, and grants Participants no real or beneficial interest in any specific fund or property.  Provision of a choice among hypothetical investment options grants the Participant no ability to affect the actual aggregate investments the Company may or may not make to cover its obligations under the Plan.  Any adjustments the Company may make in its actual investments for the Plan may only be instigated by the Company, and may or may not bear a resemblance to the Participants’ hypothetical investment choices on an account-by-account basis.  The timing, allowance and frequency of hypothetical investment choices, and a Participant’s ability to change how his or her Deferral Account is credited, is within the sole discretion of the Committee.

                5.3           OER Deferral Fund.  The balanced Fund, referenced in Section 21.16.3, with respect to which OER Deferrals are credited, is a frozen fund.  Participants will not have, among the hypothetical investment choices, the right to request that additional Deferral Account balances be credited in accordance with the deemed return on investment of this Fund.  However, Participants may choose to have any or all of the balance of a Deferral Account being credited in accordance with the deemed return on investment of this Fund, credited instead using

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any of the hypothetical investment choices referenced in Section 5.2.

Section 6.  Payout to the Participants.

                6.1           Termination After Retirement Date.  If a Participant’s Termination Date is on or after his or her Retirement Date and the Participant’s Deferral Account balance is no less than $15,000 on the Retirement Date, an election as to the form and commencement of benefit may be made in accordance with this Section 6.1.  An election under this section is only valid if made before the date which is at least twelve (12) months prior to the Participant’s Termination Date, and on or before the last day of the calendar year preceding the Termination Year.

                                6.1.1        Form of Payout.  A Participant making a valid election under this Section 6.1 may elect to receive either (a) a single lump sum payout by January 15 of the year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning with the January 15 following the Termination Year.

                                6.1.2        Commencement of Payout.  A Participant making a valid election under this Section 6.1 may elect to further defer the Payout Commencement Date, under either the single lump sum or the annual installment election addressed in Section 6.1.1, by an additional  one (1), two (2) or three (3) years beginning after the January 15 following the Termination Year.

                                6.1.3        Earnings on Deferral Accounts.  Whatever the form of payout under Section 6, and whatever the timing of the Payout Commencement Date, the Deferral Account of a Participant shall continue to be credited with Earnings until all amounts in such an account are paid out to the Participant.

                6.2           Default Form and Commencement of Payout.  If a Participant’s Termination Date is on or after his or her Retirement Date, a valid election under Section 6.1 is not made, and the Participant’s Deferral Account balance is no less than $15,000 on the Retirement Date, then the Participant shall receive his or her payout in annual installments over the fifteen (15) year period beginning with the January 15 following the Termination Year.  If, however, such Deferral Account balance is less than $15,000 on the Retirement Date, then the Participant shall receive a single lump sum payout as soon as practicable after the Retirement Date.

6.3           Death of Participant.  If a Participant dies and an election was made under Section 6.1, the Beneficiary shall be paid according to the election even though the election was not made twelve (12) months or more prior to the Participant’s death.  If the Participant dies and no election was made, and the Participant’s Deferral Account balance is no less than $15,000 on the date of death, then the Beneficiary will receive the payout in annual installments over the fifteen (15) year period beginning with the January 15 in the calendar year following the year of the Participant’s death. If, however, such Deferral Account balance is less than $15,000 on the date of death, then the Beneficiary shall receive a single lump sum payout as soon as practicable after the date of death.

                6.4           Termination Prior to Retirement Date.  If the Participant’s Termination Date

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precedes his or her Retirement Date, then the Participant will receive a single lump sum payout as soon as practicable after the Termination Date.

                6.5           Committee Discretion.  Notwithstanding anything in this Section 6 to the contrary, the Committee shall have the discretion to modify the availability and timing of a valid election under Section 6.1, and the timing, form and amount (e.g., payouts affected by a forfeiture under Section 4.2) of any payout, in any manner it deems appropriate; provided, however, that any alteration with respect to a Covered Officer must be consistent with the requirements for deductibility of compensation under section 162(m) of the Code.

Section 7.  Hardship Provision.

                7.1           Unforeseeable Emergencies.  Neither the Participant nor his or her Beneficiary is eligible to withdraw amounts credited to a Deferral Account prior to the time specified in Section 6.    However, such credited amounts may be subject to early withdrawal if an unforeseeable emergency occurs that is caused by an event beyond the Participant’s or Beneficiary’s control and would result in severe financial hardship to the individual if early withdrawal is not permitted.  A severe financial hardship exists only when all other reasonably available financial resources have been exhausted. The Committee shall have sole discretion to determine whether to approve any hardship withdrawal, which amount will be limited to the amount necessary to meet the emergency.    The Committee’s decision will be final and binding on all interested parties.

                7.2           Waiting Period.  If the Committee approves a hardship withdrawal, the Participant (1) may not defer Base Pay, as specified in Section 3, for the remainder of the calendar year within which the hardship withdrawal is received, or for the next succeeding calendar year, and (2) may not defer Bonuses, as specified in Section 3, for the remainder of the fiscal year in which the hardship withdrawal is received, or for the next succeeding fiscal year.

Section 8.  Other Access to Deferral Accounts.

                8.1           Unanticipated Needs.  Neither the Participant nor his or her Beneficiary is eligible to withdraw amounts credited to a Deferral Account prior to the time specified in Section 6. However, such credited amounts may be subject to early withdrawal if an unanticipated need for funds occurs, other than a need specified in Section 7; provided that the Participant permanently forfeits ten (10) percent of the amount to be withdrawn.  Additionally, withdrawals based on an unanticipated need for funds may be made no more than once each calendar year and the amount to be withdrawn must be at least $12,000.

                8.2           Waiting Period.  If the Participant withdraws amounts credited to a Deferral Account under this section, he or she (1) may not defer Base Pay, as specified in Section 3, for the remainder of the calendar year within which the withdrawal is received, or for the next succeeding calendar year, and (2) may not defer Bonuses, as specified in Section 3, for the remainder of the fiscal year in which the withdrawal is received, or for the next succeeding fiscal year.

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Section 9.  Designation of Beneficiary

                The Participant shall, by written notice to the Company,  (1) at the time of the first election designate a Beneficiary hereunder, and (2) shall have the right thereafter to change any Beneficiary previously designated by the Participant. In the case of a Participant’s death, payment due under this Plan shall be made to the designated Beneficiary or, in the absence of such designation, by will or the laws of descent and distribution in the state of residence of the Participant.

Section 10.  Change in Control

10.1         Discretion to Accelerate.  In the event of a proposed change in control of the Company, as defined below, the Committee shall have complete authority and discretion, but no obligation, to accelerate payments of both terminated and active Participants.

                10.2         Proposed Change in Control.  A “proposed change in control” shall mean (1) a tender offer by any person or entity, other than the Company or a Company subsidiary, to acquire securities representing 40 percent or more of the voting power of the Company or (2) the submission to the Company’s shareholders for approval of a transaction involving the sale of all or substantially all of the assets of the Company or a merger of the Company with or into another corporation.

                10.3         Request for Negotiation.  The Committee may also ask the Board of Directors to negotiate, as part of any agreement involving the sale or merger of the Company, or a sale of substantially all of the Company’s assets or a similar transaction, terms providing for protection of Participants and their interests in the Plan.

Section 11.  Limitation on Assignments

                Benefits under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishments by creditors of the Participant or the Participant’s Beneficiary and any attempt to do so shall be void.

Section 12.  Administration

                12.1         Administration by Committee.  The Plan shall be administered by the Committee.  No member of the Committee shall become a Participant of the Plan.   The Committee shall have the soleauthority to interpret the Plan, to establish and revise rules and regulations relating to the Plan and to make any other determinations that it believes necessary or advisable for the administration of the Plan.Decisions and determination by the Committee shall be final and binding upon all parties, including shareholders, Participants,Beneficiariesand other employees.  The Committee may delegate its administrative responsibilities as it deems appropriate.

                12.2         Books and Records.  Books and records maintained for the purpose of the Plan shall be maintained by the officers and employees of the Company at its expense and subject to supervision and control of the Committee.

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Section 13.  No Funding Obligation

                The Company is under no obligation to transfer amounts credited to the Participant’s Deferral Account to any trust or escrow account, and the Company is under no obligation to secure any amount credited to a Participant’s Deferral Account by any specific assets of the Company or any other asset in which the Company has an interest.  This Plan shall not be construed to require the Company to fund any of the benefits provided hereunder nor to establish a trust for such purpose  The Company may make such arrangements as it desires to provide for the payment of benefits, including, but not limited to, the establishment of a rabbi trust or such other equivalent arrangements as the Company may decide.  No such arrangement shall cause the Plan to be a funded plan within the meaning of Title I of ERISA, nor shall any such arrangement change the nature of the obligation of the Company nor the rights of the Participants under the Plan as provided in this document.  Neither the Participant nor his or her estate shall have any rights against the Company with respect to any portion of the Deferral Account except as a general unsecured creditor.  No Participant has an interest in his or her  Deferral Account until the Participant actually receives the deferred payment.

Section 14.   Amendment and Termination of the Plan.

                The Company, by action of the Committee, in its sole discretion may suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that amounts already allocated to the Deferral Accounts will continue to be owed to the Participants or Beneficiaries and will continue to accrue Earnings and continue to be a liability of the Company.  Any amendment or termination of the Plan will not affect the entitlement of any Participant or the Beneficiary of a Participant who terminates employment before the amendment or termination.  All benefits to which any Participant or Beneficiary may be entitled shall be determined under the Plan as in effect at the time the Participant terminates employment and shall not be affected by any subsequent change in the provisions of the Plan; provided, that the Company reserves the right to change the basis of return on investment of the Deferral Account with respect to any Participant or Beneficiary.  Participants or Beneficiaries will be given notice prior to the discontinuance of the Plan or reduction of any benefits provided by the Plan.

Section 15.  Tax Withholding.

                If the Company concludes that Tax is owing with respect to any deferral of income or payment hereunder, the Company shall withhold such amounts from any payments due the Participant, or otherwise make appropriate arrangements with the Participant or his or her Beneficiary for satisfaction of such obligation.

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Section 16.  Choice of Law.

                This Plan, and all rights under this Plan, shall be interpreted and construed in accordance with ERISA and, to the extent not preempted, the law of the State of Delaware, unless otherwise stated in the Plan.

Section 17.  Notice.

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

Section 18.  No Employment Rights.

                Nothing in the Plan, nor any action of the Company pursuant to the Plan, shall be deemed to give any person any right to remain in the employ of the Company or affect the right of the Company to terminate a person’s employment at any time, with or without cause.

Section 19. Rollovers from other Plans.

                19.1         Discretion to Accept.  The Committee shall have complete authority and discretion, but no obligation, to allow the Plan to create Deferral Accounts for Rollover Participants and credit such accounts with amounts to reflect the Rollover Participant’s deferral account in a Rollover Plan.  The amounts credited to such Deferral Accounts are fully subject to the provisions of this Plan.  Reference in the Plan to such a crediting as a “rollover” or “transfer” of assets from a Rollover Plan is nominal in nature, and confers no additional rights upon a Rollover Participant other than those specifically set forth in the Plan.

                19.2         Status of Rollover Participants.  A Rollover Participant and his or her Beneficiary are fully subject to the provisions of this Plan, except as otherwise expressly set forth herein.  A Rollover Participant who is not already a Participant in the Plan and is not otherwise eligible to participate in the Plan at the time of rollover, shall not be entitled to make any additional deferrals under the Plan unless and until he or she has becomes an Eligible Employee under the terms of the Plan.

                19.3         Payment to Rollover Participants.  If at the time of rollover or transfer, payments from a Rollover Participant’s account in a Rollover Plan have already commenced from a Rollover Plan, he or she shall continue to receive such payments in accordance with the form and timing of payment provisions of such plan.  If a Rollover Participant is not yet eligible to receive payments from the Rollover Plan at the time of the rollover or transfer, he or she is bound by the payout provisions of this Plan.

Section 20.  Code Section 162(m).

                With respect to Covered Employees, this Plan is designed to satisfy the special requirements for performance-based compensation set forth in Section 162(m)(4)(C) of the

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Code, and the Plan shall be so construed.  Furthermore, if a provision of the Plan as it relates to a Covered Officer causes a deferral or payment to fail to satisfy these special requirements, the Plan shall be deemed amended to satisfy the requirements to the extent permitted by law and subject to Committee approval.

Section 21.  Definitions.

21.1         Balanced Score Card Plan or BSC Plan refers to the Hewlett-Packard Company Balanced Score Card Plan, as amended from time to time, formerly known as the Hewlett-Packard Company Executive Pay-for-Results Plan.

                21.2         Base Pay means the annual base cash compensation, determined on October 1 preceding the calendar years within which deferrals are to be made, for employees on the U.S. payroll of the Company, excluding commissions, overtime pay, bonuses or Bonuses, shift differential, payments under the Hewlett-Packard Company Disability Plan, or any other additional compensation.

                21.3         Beneficiary means the person or persons designated by a Participant under Section 9 to receive any amounts payable under the Plan in the event of the Participant’s death.

                21.4         Bonus refers to an H1 Bonus, an H2 Bonus,  the Deferred Cash Bonus and any other bonus that the Committee may deem from time to time eligible to be deferred under this Plan.

                21.5         Code means the Internal Revenue Code of 1986, as amended from time to time.

                21.6         Committee means the HR and Compensation Committee of the Board of Directors of the Company, or its delegate.

                21.7         Company means Hewlett-Packard Company, a Delaware corporation, and any business entity within the Hewlett-Packard Company consolidated group.

                21.8         Company Performance Bonus Plan or CPB Plan refers to the Company’s Company Performance Bonus Plan, as amended from time to time.

                21.9         Covered Officer shall have the same meaning as set forth in the PFR Plan.

                21.10       Deferral Account means the account balance of a Participant in the Plan created from Deferred Amounts or from a credit to a Participant’s account from a Rollover Plan, and the Earnings thereon prior to payout to the Participant.

21.11       Deferred Amount means the amount the Participant elects to have deferred from Base Pay and/or a Bonus, pursuant to Section 3.

                21.12       Deferred Cash Bonus means the deferred cash bonus, which is a bonus arising from, and as defined in, the Merger Transition Deferred Cash Agreement entered into by and

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between the Eligible Employee and the Company in connection with the merger of the Company and Compaq Computer Corporation.

                21.13       Earnings refers to the deemed return on investment (or charge on investment loss) allocated to the Participant’s Deferral Account, based on the return of the Fund.

                21.14       Eligible Employee means an individual who is an active (i.e., not on paid or unpaid leave) and regular employee on the U.S. payroll of the Company on the first day of October preceding the calendar years within which deferrals are to be made, who has Base Payat such time equal to or in excess of the sum of (1) the amount defined in Code section 401(a)(17), which is in effect on January 1 of the calendar year to which the deferral election pertains, as adjusted by the Secretary of the Treasury under Code section 415(d), plus (2) $6,000; notwithstanding the foregoing, individuals who are classified by the Company as (A) leased from or otherwise employed by a third party, (B) independent contractors, or (C) intermittent or temporary, even if such classification is changed retroactively as a result of an audit, litigation or otherwise shall be excluded.

                21.15       ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.

21.16       Fund means-

21.16.1    With respect to Earnings credited to deferrals of Base Pay or Bonuses, those funds representing the investment returns of the hypothetical investment choices designated by the Committee from time to time, in accordance with the provisions of Section 5;

21.16.2    With respect to Earnings credited to the Deferral Account of a Covered Officer, the term Fund shall specifically refer to the Vanguard Institutional Index Fund, or such other fund as permitted in accordance with Section 5; and

21.16.3    With respect to an OER Deferral, the term Fund shall specifically refer to a fund the investments of which are comprised of a mix of debt and equity, as chosen in the sole discretion of the Committee, and as subject to the forfeiture provisions of Section 4.2.

                21.17       H1 Bonus means a Bonus arising from the Performance Period described by the first half of the Company’s fiscal year (November 1 through April 30), as defined in the BSC Plan, PFR Plan and the CPB Plan. The term “H1 Bonus” also relates to any other bonus payable to a Participant on the same cycle as the BSC Plan, PFR Plan and CPB Plan — i.e., with a Performance Period defined by the first half of the Company’s fiscal year (November 1 through April 30).

                21.18       H2 Bonus means a Bonus arising from the Performance Period described by the second half of the Company’s fiscal year (May 1 through October 31), as defined in the BSC

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Plan, PFR Plan and CPB Plan. The term “H2 Bonus” also relates to any other bonus payable to a Participant on the same cycle as the BSC Plan, PFR Plan and CPB Plan — i.e., with a Performance Period defined by the second half of the Company’s fiscal year (May 1 through October 31).

                21.19       OER Deferral means that portion of a Participant’s Deferral Account comprised of amounts deferred and credited to the account arising from the termination of the Hewlett Packard Company Officers Early Retirement Plan, as restated effective October 31, 1999, including any earnings thereon.

21.20       Participant means any individual who has benefits in a Deferral Account under the Plan or who is receiving or entitled to receive benefits under the Plan.  The term Participant also refers to a Rollover Participant, except where expressly provided otherwise.

                21.21       Pay-for-Results Short-Term Bonus Plan or “PFR” Plan refers to ““the Hewlett-Packard Company Pay-for-Results Short-Term Bonus Plan, as amended from time to time.

                21.22       Payout Commencement Date means the date on which the payout to a Participant of amounts credited to his or her Deferral Account first commence.

                21.23       Performance Measure shall have the same meaning as set forth in the PFR Plan.

                21.24       Performance Period shall have the same meaning as set forth in the PFR Plan.

                21.25       Plan means, unless preceded by (i) “BSC” in which case the term refers to the BSC Plan, (ii) “PFR” in which case the term refers to the PFR Plan, (iii) “CPB” or “Company Performance Bonus” in which case the term refers to the CPB Plan, or (iv) “Rollover” in which case the term refers to a Rollover Plan, the Hewlett-Packard Company Executive Deferred Compensation Plan, as adopted effective January 1, 1994, as amended and restated from time to time.

                21.26       Retirement Date means (1) the date on which a Participant has completed at least 15 years of service, as defined in the Retirement Plan, and has attained age 55; or (2) the Termination Date of a Participant who participated in the Hewlett-Packard Company 2002 Enhanced Early Retirement Program and who terminated employment during the period June 14, 2002 through August 31, 2002.  For purposes of Section 21.26(1) above, the Committee may, in its discretion, permit the years of service of a Rollover Participant to include the years of service with the employer for which a Rollover Participant worked immediately preceding employment with the Company.

                21.27       Retirement Plan means the Hewlett-Packard Company Retirement Plan, as amended from time to time.

                21.28       Rollover Participant means an individual with a Deferral Account in the Plan transferred from a Rollover Plan in accordance with the provisions of Section 19.  The term Rollover Participant may also refer to an individual who has previously been a Participant in the

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Plan, or an existing Participant at the time of transfer.

                21.29       Rollover Plan means either-

21.29.1    The nonqualified deferred compensation plan of a business entity acquired by the Company through acquisition of a majority of the voting interest in, or substantially all of the assets of, such entity; or,

21.29.2    Any plan or program of the Company, or any employing business entity within the Hewlett-Packard Company consolidated group, including but not limited to the Hewlett-Packard Company Officers Early Retirement Plan, pursuant to the termination of which a Deferral Account is created or added to for a Participant or Rollover Participant.

                21.30       Tax or Taxes means any federal, state, local, or any other governmental income tax, employment or payroll tax, excise tax, or any other tax or assessment owing with respect to amounts deferred, any Earnings thereon, and any payments made to Participants under the Plan.

                21.31       Termination Date means the date on which the Participant ceases to be an employee of the Company.

                21.32       Termination Year means the calendar year within which a Participant’s Termination Date falls.

Section 22.  Execution

IN WITNESS WHEREOF, the Company has caused this Plan to be duly amended and restated by the undersigned this          day of                                , 2002, effective October 1, 2002.

Hewlett-Packard Company

By:
	Philip M. Condit
	Chair, HR and Compensation Committee

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EX-10.(P)(P)

Exhibit 10(p)(p)

GENERAL WAIVER AND RELEASE AGREEMENT

I understand that my employment with Hewlett-Packard Company (HP) will end on December 1, 2002 and that I will be paid severance and other benefits as set forth in the attached Benefits Summary Upon Termination dated November 4, 2002 (“Summary”) only if I sign and do not revoke this General Waiver and Release Agreement (“Agreement”).  I understand and agree that the terms of the Summary are incorporated by reference in this Agreement and, except as specified in the Summary and this Agreement, are intended to supercede and extinguish any other obligation HP may have to pay me severance or other employee benefits upon termination, including but not limited to the separation payment, prorated annual incentive, stock options, restricted stock, loan continuation, supplemental payment and health benefit continuation provided for on a “Qualifying Termination” under the Employment Agreement dated October 20, 2000, as amended and restated December 13, 2000, and as amended December 2001 (the “Employment Agreement”), and any similar payments or benefits under other agreements or understandings, whether oral or written, made at any time prior to the date of this Agreement.

1.                     In exchange for HP’s payment of these severance and other benefits, I completely release and forever discharge HP, its past, present and future successors, officers, directors, agents, and employees, from all claims, damages (including but not limited to general, special, punitive, liquidated and compensatory damages) and causes of action of every kind, nature and character, known or unknown, in law or equity, fixed or contingent, which I may now have, or I ever had arising from or in any way connected with my employment relationship or the termination of my employment with HP.  This release includes, but is not limited to, all “wrongful discharge” claims, all claims relating to any contracts of employment express or implied, any covenant of good faith and fair dealing express or implied, any tort of any nature, any federal, state, or municipal institution statute or ordinance, any claims for employment discrimination, including sexual harassment, any claims under the Texas Commission on Human Rights Act, the Texas Payday Act, California Fair Employment and Housing Act, the California Labor Code, Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act (“ADEA”) the Older Workers Benefit Protection Act, 42 U.S.C. Section 1981, the Worker Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act (ERISA) and any other laws and regulations relating to employment, and any and all claims for attorney’s fees and costs.  I understand that this release does not apply to any claims arising under the ADEA after the effective date of this Agreement.

2.                     Other than those items of computer equipment which HP releases to me, I agree to return to HP all HP computers, peripherals, supplies, equipment, confidential and proprietary Information and other property.  I understand and agree that, as an express condition of receiving severance and other benefits, I will not disclose to others, or take or use for my own purposes or for the purposes of others, any Information owned or controlled by HP or any of its subsidiary or affiliated companies.  I agree that these restrictions shall also apply to all (i) Information in HP’s possession belonging to third parties, and (ii) Information conceived, originated, discovered or developed, in whole or in part, by me while an employee of HP.  As used herein, “Information” includes trade secrets and other confidential or proprietary business, technical, personnel or financial information, whether or not my work product, in written, graphic, oral or other tangible or intangible forms, including but not limited to specifications, samples, records, data, computer programs, drawings, diagrams, models,

customer names, business or marketing plans, studies, analyses, projections and reports, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and software systems and processes.  Any Information that is not readily available to the public shall be considered to be a trade secret and confidential property, even if it is not specifically marked as such, unless HP advises me otherwise in writing.  This paragraph shall not apply to any Information which becomes publicly available through no fault of my own or which HP in writing authorizes me to use or disclose.

In addition, I agree to abide by the terms of any confidentiality and/or proprietary information agreement that I have entered into with HP, the terms of which shall continue in full force and effect notwithstanding this Agreement.

Employee acknowledges and represents that, except as provided for herein, the Company has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee.

3.                     As a condition to the receipt of any severance payments, I agree that for a period of twelve months immediately following the termination of my employment with HP, I will not render advice or services or otherwise assist as an employee, independent contractor, or otherwise to or for IBM, Sun Microsystems, Dell Computer Corporation or EMC, which organizations, in the opinion of HP, compete with or are in conflict with the interests of HP.  The foregoing covenant shall cover my activities in every part of any geographic territory in which HP may conduct business during the term of such covenant as set forth above.  I agree that the covenants are reasonable, especially in light of the Company’s desire to protect its confidential information and trade secrets, and that I will not be precluded from gainful employment if I am obligated not to compete with the Company during the period and within the geographic scope described above.  I further acknowledge that my fulfillment of the obligations contained in this Agreement is necessary to preserve the value and goodwill of the Company.  I further acknowledge the time, geographic and scope limitations of my obligations under the covenants in this section shall be construed as a series of separate covenants, one for each city, county and state of any geographic area in which HP does business.  If, in any judicial proceeding, a court refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced.  In the event the provisions of this section are deemed to exceed the time, geographic or scope limitations permitted by Texas law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law.  I agree that HP would suffer an irreparable injury if I were to breach the covenants contained in this paragraph and that HP would by reason of such breach or threatened breach be entitled to injunctive relief in a court of appropriate jurisdiction and I hereby stipulate to the entering of such injunctive relief prohibiting me from engaging in such conduct.

4.                     If I am a California resident, I expressly waive Section 1542 of the California Civil Code, which provides:

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“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which if known by him must have materially affected his settlement with the debtor.”

If I am a resident of another state, I agree to waive the benefits of any statute similar in terms and effect to this provision.

5.                     I understand that if I am age 40 or older I have 21 days from the date I receive this Agreement to consider and sign this Agreement.  If I am under age 40, I understand that I have 10 days from the date I receive this Agreement to consider and sign it.  I also understand that if I am age 40 or older, I have seven days to revoke this Agreement after I sign it, and if I am under age 40, I have three days to revoke it.  I understand that any such revocation must be in writing and must be received by HP’s General Counsel no later than the last day of the applicable revocation period.  The effective date of this Agreement is the day after the revocation period ends.  I understand that I will not receive the benefits and privileges of this Agreement until the effective date.  Nothing in this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by federal law.

6.                     Notwithstanding any provision to the contrary, this Agreement shall not apply to release, waive, discharge or otherwise extinguish any existing obligations of HP (1) to continue to indemnify me if I am made a party or threatened to be made a party to any threatened, pending or completed proceeding by reason of my actions while serving with, or at the request of, HP or its predecessor entities, (2) to continue in effect any insurance coverages indemnifying or otherwise providing protections to me with respect to such actions provided such coverages or protections continue in effect for other active officers, (3) to remain solely responsible for any excise taxes under section 4999 of the Internal Revenue Code and any related income and employment taxes (including penalties and interest), and to hold me harmless with respect to any such amounts, as contemplated by the “Excise Tax Gross-Up” provisions of the Employment Agreement, and (4) to pay or reimburse promptly any legal fees incurred by me in seeking in good faith to enforce any continuing rights under the Employment Agreement or in connection with any section 4999 tax audit or proceeding as contemplated by the provisions for payment or reimbursement of such amounts under the Employment Agreement.  With respect to these matters, my agreements with HP and my agreements with Compaq Computer Corporation, which were assumed by HP, shall continue to apply.

7.                     In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision so long as the remaining provisions remain intelligible and continue to reflect the original intent of the Parties.

8.                     This Agreement shall be deemed to have been executed and delivered within the State of Texas, and it shall be construed, interpreted, governed, and enforced in accordance with the laws of the State of Texas, without regard to conflict of law principles.  To the extent that either party seeks injunctive relief in any court having jurisdiction for any claim relating to the alleged misuse or misappropriation of trade secrets or confidential or proprietary information, each party hereby

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consents to personal and exclusive jurisdiction and venue in the state and federal courts of the State of Texas.

9.                     This Agreement sets forth the entire agreement between me and HP concerning the termination of my employment and supercedes any other written or oral promises concerning the subject matter of this Agreement, with the exception of the Summary, and the Employment Agreement as amended herein and in the Summary.

I HAVE BEEN ADVISED TO DISCUSS ALL ASPECTS OF THIS AGREEMENT WITH AN ATTORNEY AND OTHER ADVISORS OF MY CHOICE.  I HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL THE PROVISIONS OF THIS AGREEMENT AND I VOLUNTARILY AGREE TO IT.

/s/ MICHAEL D. CAPELLAS

Name

December 1, 2002

Date

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Susan Bowick	Hewlett-Packard Company
Senior Vice President, Human Resources	3000 Hanover Street, ms 20AQ
Phone: (650) 857- 2520	Palo Alto, CA  94304
Fax: (650) 857- 2577	www.hp.com
To:  Michael Capellas	Date:  November 11, 2002
From: Susan Bowick	Subject:  Benefits Summary Upon Termination

Employee Name:	Michael D. Capellas
Employee #:	00029238
Birth date:	05/19/54	Age:	48 years, 6 months (as of 12/01/02)
Hire Date:	08/03/98	Years of Service:	4 years, 3 months (as of 12/01/02)
Termination Date:	12/01/02
Current Salary:	$1,600,000	Bonus at Target:	$3,200,000 (200%)

Michael, as per our recent conversations, I have summarized our agreement regarding the conditions of the qualifying termination of your employment.  The following terms as outlined in your employment contract dated October 20, 2000, as amended and restated December 13, 2000, and as amended December 2001, will apply:

•Termination Date: December 1, 2002

•Separation Payment: We will honor all the terms and conditions of your participation in the agreement including:

•Severance Payment: A severance payment equal to 3 times your target salary of $4,800,000 (base + bonus at target) less such tax as the company is obliged to deduct.  This amount will be paid in a single lump sum:  Total $14,400,000

•100% payout on December 1, 2002 (or as soon as practical)

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•Annual Incentive:  A pro-rated target annual incentive based on full months of service beginning May 3, 2002 (close of HP and Compaq merger) will be paid upon termination less such tax as the company is obliged to deduct.

•7/12 of $3,200,000 = $1,866,666.67

•100% payout on December 1, 2002 (or as soon as practical)

•Release and Waiver of Claims:  As a condition to receiving these payments, you must sign a general waiver and release agreement in the form attached hereto.

•Post-Employment Obligations: As a condition to receiving these Severance benefits, you agree to:

•Non-solicitation of HP employees for a 12 month period

•For a 12-month period following termination of employment with HP, you may not accept employment as an employee, independent contractor, consultant or otherwise with IBM, Sun Microsystems, Dell Computer Corporation or EMC because these companies either directly or indirectly, in the opinion of HP, compete with or are in conflict with the interests of HP.

•Mutual non-disparagement applies for 24 months

•Confidentiality provision applies at all times before and after qualifying termination.

•Equity:

•Stock Options: Upon termination, all your non-qualified options will be fully vested.  You will have the lesser of the expiration date or up to three years from your termination date to exercise the options.  HP will provide you with any amendments to the option agreements necessary to document the vesting or three year exercise period.

•Restricted Stock:  All shares were released after the close of the merger on May 3, 2002.

•Loans:

•$5 million share purchase loan was forgiven in full by the pre-merger Compaq Board

•$2,500,000 tax assistance loan will be repaid by you upon termination (December 1, 2002).  The total amount to be repaid including applicable interest is $2,813,772.03.

Calculated as follows:

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•$2,500,000 x 6.09% (IRS applicable federal rate for mid-term loan)     = $2,813,772.03 interest rate compounded annually through December 1, 2002.

•To expedite payment, this amount will be deducted from your separation payments.

•Supplemental Payment:  A lump sum payment of $100,000 subject to applicable tax deductions will be paid on the 90 day anniversary of the executed release and waiver.  This payment is in lieu of any payments from HP and Compaq for tax preparation services, security system monitoring, accounting, legal fees, secretarial services, outplacement services, career counseling or any other similar purposes.

•Excise Tax Gross-Up:  Upon termination, you are entitled to an additional payment to cover your excise tax liability.  The amount of your gross-up payment is $9,467,627.00.  The amount of taxes withheld from your gross-up payment is $8,259,747 resulting in a net payment to you of $1,207,880.  Please be aware that you will be required to pay this net payment as taxes when filing your 2002 income tax return.  HP will have a continuing obligation to hold you harmless if any taxing authority seeks additional tax payments (above this $1,207,880) from you with respect to this excise tax or related gross-up payments.

•Benefits: You will receive a payout of any accrued U.S. retirement benefits that are applicable, this includes: 401(k), deferred compensation, employee stock purchase plan and US Pension Benefits.  Please note that you may be able to roll over some of the U.S. retirement payouts and 401(k) into a qualified account to preserve favorable tax treatment.

•Computer Equipment:  You may keep your home office equipment (pc and printer) after termination.  All company information must be removed prior to termination date.

•Health:  HP will pay your full COBRA premium for yourself and eligible dependents for 24 months following your qualifying termination.

Michael, the above details the essential terms of the agreement between you and HP concerning termination of employment.  This agreement may be only amended in writing by you and by a duly authorized officer of HP.  There will be no other payments to you other than those specified above, except with respect to those matters addressed by paragraph 7 of the General Waiver and Release Agreement attached hereto.

Michael, please sign below to indicate your agreement with the terms and conditions set forth in this document.

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		Hewlett-Packard Company
/s/Michael Capellas		/s/ Susan Bowick
Michael Capellas		By: Susan Bowick
		Senior Vice President
		Human Resources
Date:	November 11, 2002	Date:	November 11, 2002

Attachment:  Michael Capellas outstanding Hewlett-Packard Company Options

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MICHAEL CAPELLAS

OUTSTANDING HEWLETT-PACKARD COMPANY OPTIONS

(reflecting December 1, 2002 Qualifying Termination under employment agreement)

Date of Grant	No. of Shares Subject to Option	Exercise Price		Expiration
8/31/1998	126,500	$	44.18	12/1/2005
4/18/1999	126,500	$	35.97	12/1/2005
6/24/1999	63,250	$	35.88	12/1/2005
7/22/1999	632,500	$	39.44	12/1/2005
12/8/1999	316,250	$	39.74	12/1/2005
12/13/2000	537,625	$	28.62	12/1/2005
12/13/2001	537,625	$	15.48	12/1/2005

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EX-10.(Q)(Q)

Exhibit 10(q)(q)

HEWLETT-PACKARD COMPANY

SERVICE ANNIVERSARY STOCK PLAN

The following constitutes the provisions of the Service Anniversary Stock Plan (“Plan”) of Hewlett-Packard Company (“Employer” or “Company”):

1.PURPOSE.  The Plan is designed to recognize the Company’s appreciation for long service to the Company by its employees.

2.APPLICABILITY TO PARTICIPATING SUBSIDIARIES.  A participating subsidiary is any subsidiary or affiliated corporation of Hewlett-Packard Company which shall be authorized to participate under the Plan by the Board of Directors of Hewlett-Packard Company.  In the event and so long as a subsidiary corporation of Hewlett-Packard Company is a participating subsidiary, the term “employees” as used in the Plan shall be deemed to include the employees of such subsidiary and the term “employer” shall be deemed to mean such subsidiary as to its participating employees.

3.ELIGIBILITY.  All full-time and regular part-time (20 hours or more per week on a regular schedule) employees who have completed increments of ten years of continued service to the Employer are eligible; provided, however, that David Packard of Hewlett-Packard Company shall not be eligible to participate.

4.STOCK AWARD.  After the completion of ten, twenty, thirty, forty, or fifty years of eligible service, an employee will be eligible to receive a stock award consisting of ten shares of Hewlett-Packard Company common stock.  Awards will be made in December each year, unless altered by the Board of Directors, with awards made to individuals who have attained the requisite service milestone or will attain such service milestone by April 30th of the following year.

5.CASH AWARDS IN LIEU OF STOCK.  For subsidiary corporations in countries where a stock award is illegal or impractical, a cash award equivalent to the fair market value of ten shares of stock may be paid in lieu of the stock award as determined to be appropriate by the Board of Directors.

6.TERMINATION OF EMPLOYMENT PRIOR TO STOCK AWARD.  Any otherwise eligible employee who terminates prior to the last work day of October will not receive any award.  An employee whose termination date is the last available work date of October or after, but prior to the date of the December awards, will receive the award provided that eligibility was established prior to actual termination.

7.DECEASED EMPLOYEES.  The beneficiary of a deceased employee will receive any stock service award scheduled for December provided that service eligibility was established prior to the employee’s death, and provided further that the employee was on active pay status on the last work day of October.

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

9.MODIFICATION AND TERMINATION.  Hewlett-Packard Company reserves the sole and exclusive right, either as to its employees and subsidiaries and affiliates, to terminate this Plan at any time in its entirety or to modify the Plan from time to time by resolution of its Board of Directors.

10.APPLICABLE LAW.  The interpretation, performance and enforcement of this Plan shall be governed by the laws of the State of California.

11/20/87	Adopted by the Board
2/23/88	Approved by the Shareholders
7/31/89	200,000 shares reserved and available
10/11/89	800,000 shares registered on S-8
02/25/92	500,000 shares reserved and approved by Shareholders
4/17/95	Two for one stock split
7/16/96	Two for one stock split
10/27/00	Two for one stock split in the form of a stock dividend
11/21/02	Section 8 amended and plan restated by HR & Compensation Committee

EX-10.(R)(R)

Exhibit 10(r)(r)

HEWLETT-PACKARD COMPANY FOREIGN EMPLOYEES STOCK APPRECIATION RIGHTS PLAN

(Amended & Restated November 21, 2002)

The following constitute the provisions of the Hewlett-Packard Company (“HP” or “Company”) Foreign Employees Stock Appreciation Rights Plan (the “Plan”):

1.DEFINITIONS: In this plan,

(a)“Employee Stock Option Plan” means any of the Company’s incentive stock option plans pursuant to which participating employees are offered and purchase shares of HP Common Stock, which have been registered under the Securities Act of 1933.

(b)“Foreign Subsidiary” means any corporation which is organized and exists under the laws of a country other than the United States of America and 1) whose accounts are consolidated with the accounts of the Company for reporting purposes; or 2) which is an affiliate of HP and designated by the Committee as a “foreign subsidiary” for purposes of this Plan.

(c)“Foreign national employee” means an employee of a foreign subsidiary who is a national of a country other than the United States of America.

(d)“Unfavorable foreign law” means any law or governmental regulation of a country other than the United States of America which has the effect of prohibiting, restricting or inhibiting the acquisition or ownership of HP stock by a foreign national employee, or requires the payment of currency premiums with respect to the purchase of HP stock with funds supplied by a foreign national employee and his employer.

(e)“Eligible foreign subsidiary” means a foreign subsidiary any of whose foreign national employees is subject to unfavorable foreign laws.

(f)“Employee” means a foreign national employee of an eligible foreign subsidiary.

(g)“Employer” means an eligible foreign subsidiary as to its employees.

(h)“Stock appreciation right” means a right granted pursuant to Section 5 of the Plan.

(i)“Committee” means the Human Resources and Compensation Committee of the Company.

(j)“Common shares” means Common Shares, US $0.01 par value, of the Company.

(k)“Fair market value” of Common Shares on any relevant date shall, for purposes of the Plan, be the mean of the highest and lowest quoted selling prices for the Common Shares as reported for New York Stock Exchange on the date on which determination of such fair market value is to be made, or if no Common Shares are traded on that date, then the reported closing price on the next preceding day on which trading was reported.

(l)“Discounted value” means the value fixed by the Committee with respect to any stock appreciation right, which value shall be used in place of fair market value and which may represent a discount of up to 25% off of fair market value on the date the stock appreciation right is granted.

(m)“Spread” means the excess of the fair market value (or discounted value, if applicable) of a Common Share on the date when a stock appreciation right granted pursuant to the Plan is exercised over the fair market value of a Common Share on the date when the stock appreciation right was granted under the Plan.

2.PURPOSE.
The purpose of the Plan is to provide a means whereby foreign national employees who are subject to unfavorable foreign laws may realize the benefits intended to have been provided by granting of stock options under the Company’s Employee Stock Option Plans. The Plan is designed to foster continued cordial employee relations.

3.PARTICIPATION IN THE PLAN.
Foreign national employees, excluding officers and directors of the Company, who are employed by an eligible foreign subsidiary, shall be eligible to participate in the Plan.

4.ADMINISTRATION.
The Committee shall supervise and administer the Plan. All questions of interpretation of the Plan or of any stock appreciation right issued under it shall be determined by the Committee and such determination shall be final and binding upon all persons.

The Committee shall have the authority, in its discretion to:  1) select the Employees to whom stock appreciation rights may be granted, 2) approve forms of agreement for use under the Plan, 3) determine the terms and conditions, not inconsistent with the terms of the Plan, 4) adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures, 5) prescribe, amend and rescind rules and regulations relating to the Plan, 6) authorize any person to execute on behalf of the Company any instrument required to effect the grant of a stock appreciation right previously granted by the Committee, and 7) make all other determinations deemed necessary or advisable for administering the Plan and any stock appreciation right granted hereunder.

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

5.DEFINITION AND VALUATION OF STOCK APPRECIATION RIGHTS.
Stock appreciation rights shall entitle the employee to receive from the Company upon exercise of the stock appreciation rights or portion thereof, an amount equal to 100% of the spread (as defined in Section 1 above) at the time of the exercise of the stock appreciation rights, multiplied by the number of stock appreciation

rights exercised.  Such amount may be paid by the Company in U.S. dollars or foreign currency equivalent.

6.TERMS, CONDITIONS AND FORMS OF STOCK APPRECIATION RIGHTS.
Each stock appreciation right granted under this Plan shall be authorized by the action of a) the Committee; or b) the Executive Committee of the HP Board of Directors, and shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which agreement shall comply with and be subject to the following terms and conditions:

(a)Stock Appreciation Rights are Non-Transferable. Each stock appreciation right granted under the Plan by its terms shall not be transferable by the holder otherwise than by will or by laws of descent and distribution, and shall be exercised during the lifetime of the Employees only by him. No stock appreciation right or interest therein may be transferred, assigned, pledged or hypothecated by the holder during its lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

(b)Terms of Stock Appreciation Right. Unless a different vesting schedule is specified by the Committee at the time a stock appreciation right is granted, no stock appreciation right may be exercised before the first anniversary of the date upon which it was granted, nor may it be exercised as to more than one-fourth the number of rights covered herein before the second anniversary of the date of grant, nor may it be exercised as to more than one-half the number of rights covered herein before the third anniversary of the date of grant, nor may it be exercised as to more than three-fourths the number of rights covered herein before the fourth anniversary of the date of grant. Stock appreciation rights will expire ten (10) years from the grant date unless sooner terminated or cancelled in accordance with the provisions of the Plan. In the event of the Employee’s death, all unexpired stock appreciation rights shall become immediately exercisable in full by the Employee’s beneficiary designated in accordance with Section 6 (d).

(c)Exercise of Stock Appreciation Rights. The holder of  a stock appreciation right may exercise the same by (1) filing with the Secretary of the Company a written election specifying the stock appreciation rights or portion thereof to be exercised and (2) surrendering such stock appreciation rights for cancellation or partial cancellation, as the case may be. The stock appreciation right shall be deemed to have been exercised on the date on which the holder completed all acts required of him by this paragraph to exercise the stock appreciation right.

(d)Termination of Stock Appreciation Rights. All rights of an employee in a stock appreciation right, to the extent that it has not been exercised, shall terminate upon the death of the Employee (except as herein after provided), or the termination of his employment for any reason other than retirement because of age or total and permanent disability, and in case of such retirement three (3) years from the date thereof or upon expiration of the stock appreciation right, whichever shall first occur; provided, however, that the employee by written notice to the Company, may designate one or more persons (and from time to time change such designation), including his legal representative, who, by reason of his death, shall acquire the right to exercise all or a portion of his stock appreciation rights. In the event that the Employee does not designate a beneficiary, the stock appreciation rights may be exercised in accordance with his will or, in the absence of a will, in accordance with applicable law governing intestate succession. The person or persons so designated or so empowered must exercise any portion of the stock appreciation rights, within one (1) year after the death of employee, and such exercise shall be subject to the provisions of this Plan.

(e)Conversion of Existing Option; Grant Date. The Committee may authorize the conversion of existing stock options held by an Employee into stock appreciation rights. Any such grant of stock appreciation rights shall be subject to the surrender for cancellation of said stock options. Stock appreciation rights granted in substitution for existing stock options shall be deemed to have the same grant date, term, and vesting as the cancelled stock option.

(f)Conversion of Existing Stock Appreciation Rights; Grant Date. The Committee may authorize the conversion of existing stock appreciation rights held by an Employee into stock options. Any such substitution of stock options for stock appreciation rights shall be subject to the surrender for cancellation of such stock appreciation rights. Stock options substituted for existing stock appreciation rights shall be deemed to have the same grant date, term, and vesting as the cancelled stock appreciation rights.  Such stock options will be governed by the respective Employee Stock Option Plan.

(g)Buyout Provisions. At any time, the Committee may, but shall not be required to, authorize the Company to offer to buy out for a payment in cash or Common Shares a stock appreciation right previously granted based on such terms and conditions as the Committee shall establish and communicate to the holder of such stock appreciation rights in connection with such offer.

7.LIMITATION OF RIGHTS.
Nothing in the Plan shall be construed to give any eligible employee any right to be granted a stock appreciation right. Neither the Plan nor the granting of a stock appreciation right nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Company or any foreign subsidiary will employ the holder of a stock appreciation right for any period of time or in any position or at any particular rate of compensation. The holder of stock appreciation right shall have no rights as a stockholder with respect to his stock appreciation right.

8.CHANGES IN PRESENT COMMON SHARES.
In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock splits or other change in the corporate structure or capitalization affecting the Company’s present Common Shares, appropriate adjustment shall be made by the Board of Directors of the Company in the number of stock appreciation rights granted hereunder and their valuation.

In the event there is a change of control of the Company, as determined by the Board of Directors of the Company, the Board of Directors of the Company may, in its discretion, 1) provide for the assumption or substitution of, or adjustment to, each outstanding stock appreciation right; 2) accelerate the vesting of such stock appreciation right; and 3) provide for the cancellation of stock appreciation rights for a cash payment.

9.AMENDMENT, SUSPENSION OR TERMINATION OF STOCK APPRECIATION RIGHTS.
The Committee may at any time amend, suspend or terminate the Plan and any stock appreciation rights theretofore granted under the Plan. In addition, stock appreciation rights shall terminate and may no longer be exercised upon any termination date specified by the Committee at the time of grant of such stock appreciation rights.

10.EFFECTIVE DATE OF THE PLAN.
The Plan shall take effect on the date of adoption by the Committee. Stock appreciation rights may be granted under the Plan at any time after the adoption of the Plan and prior to the termination of the Plan.

11.GENDER.
Wheresoever used in this Plan, the masculine gender shall be deemed to include the feminine.

EX-10.(S)(S)

Exhibit 10(s)(s)

HEWLETT-PACKARD COMPANY

EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated as of June 30, 2000)

The following constitute the provisions of the Employee Stock Purchase Plan (“Plan”) of Hewlett-Packard Company (hereinafter sometimes referred to as “Company” or “employer”):

1.Purpose.  The Plan is designed to foster continued cordial employee relations and to encourage maximum participation in Company stock ownership by its employees and employees of its subsidiaries.

2.Applicability of Participating Subsidiaries.  A participating subsidiary is any subsidiary or affiliated corporation of the Company which shall be authorized to participate under the Plan pursuant to a resolution of the Executive Committee or the Board of Directors of the Company and which shall elect to participate pursuant to a resolution of its own board of directors.  In the event and so long as a subsidiary corporation of the Company is a participating subsidiary, the term “employees” as used in the Plan shall be deemed to include the employees of such subsidiary and the term “employer” shall be deemed to mean such subsidiary corporation as to its participating employees.

3.Eligibility.  All regular full-time and regular part-time (20 hours or more per week on a regular schedule) employees are eligible to participate.  Eligible employees may commence participation (a) at the beginning of the first full payroll cycle after they become eligible, or (b) on the first day of any fiscal quarter following the quarter in which they become eligible; provided, however, that eligible employees of a participating subsidiary may also commence participation in the month following the date such subsidiary first commences participation, assuming they would otherwise be eligible to participate in the Plan. For purposes of this Plan, “employee” means a regular, active employee of the Company or a participating subsidiary who is treated as an employee in the personnel records of the Company, but shall exclude individuals classified by the Company as leased from or otherwise employed by a third party, as independent contractors, or as intermittent or temporary employees, even if any such classification is changed retroactively as a result of an audit, litigation or other event.  In the event any employee shall be in an inactive status for any period during a quarter, he shall not be eligible to make contributions to the Plan during the period of inactive status.  Such employees may continue participation to the extent they receive eligible earnings in any quarter.  Employees on a approved leave of absence or who are deemed to be on inactive pay status will not forfeit Company Shares (as defined below) issued pursuant to the Plan solely on the basis of employment status.  Rehired employees will be treated as new employees for the purpose of eligibility.

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4.Joining the Plan.  Any eligible employee’s participation in the Plan shall be effective after he has initiated his enrollment. Enrollment may be made through such media as the Company shall permit.  Participation in the Plan shall also be effective after an eligible employee completes, signs and returns to the Company an Employee Stock Purchase Plan Enrollment Agreement form indicating his acceptance and agreement to the Plan.  The enrollment procedures may vary by country.  Participation shall commence at such time following enrollment as described in Section 3 above.

5.Stock Purchase Price.The stock purchase price (“Purchase Price”) will be the lowest of the following:

(a)The average of the daily closing prices for the full quarter;

(b)The average of the daily closing prices for the last five (5) trading days of the quarter; or

(c)The closing price on the last trading day of the quarter.

All prices shall be based on prices as reported in The Wall Street Journal or such other source as the Company, in its discretion, shall determine.

6.Employee’s Contribution.  Except as provided in this Section, each employee may elect to make contributions under the Plan by payroll deduction of any amount up to, but not exceeding, 10% of his base earnings, exclusive of all bonuses, pay for overtime work, and other extra compensation.  Salesmen’s commissions and shift differential are considered eligible base earnings.  Certain legally-mandated bonuses paid to employees of participating subsidiaries may be included in eligible base earnings upon  approval of the Executive Committee or the Board of Directors.  Notwithstanding anything to the contrary contained herein, prior to the time that the Company distributes the shares of Agilent Technologies, Inc. (“Agilent”) held by the Company to the Company’s stockholders (the “Spin-off”), the payroll deductions under this Plan of an employee who is transferred from the Company to Agilent or one of its subsidiaries or affiliates shall be automatically transferred Agilent’s Employee Stock Purchase Plan (the “Agilent ESPP”), and such payroll deductions shall be treated for all purposes under the Agilent ESPP as if they had been originally made thereunder.  Similarly, prior to the Spin-off, the payroll deductions under the Agilent ESPP of an employee of Agilent or one of its subsidiaries or affiliates who is transferred to the Company shall be automatically transferred to this Plan, and such pay roll deductions shall be treated for all purposes under this Plan as if they had been originally made hereunder.

Any employee who, in a given calendar year, is unable to participate in the 401(K) program of the Company’s Tax Saving Capital Accumulation (“TAXCAP”) because the employee has reached the annual maximum salary deferral level or the annual maximum compensation level set forth in Section 402 or 401(a)(17), respectively, of the Internal Revenue Code of 1986 or successor statutes, shall be eligible to make contributions for the remainder of that calendar year of any amount up to but not

2

exceeding 10% of base earnings.  A participant of both TAXCAP and the Plan will be able to contribute up to 5% to the Plan when he also makes the maximum contribution to TAXCAP (pursuant to TAXCAP and the policies and procedures applicable thereto).  However, if a participant contributes more than 5% to the Plan, the total of his contributions to TAXCAP and the Plan cannot exceed 10% of base earnings.

The amount of each employee’s contribution shall be held by the employer in a special account, and such contributions, free and clear of any obligation to pay interest thereon, shall be credited to such employee’s individual account as soon as practical after each pay day.

7.Employer’s Contribution.  Subject to the participation requirements specified in Section 3, on the last day of each fiscal quarter (the Vesting Date), the balance of the employee’s account will be applied toward the purchase of the greatest even number of shares of Company common stock at the Purchase Price.  For every two shares of stock purchased by the employee (“Employee Shares”), the Company will contribute one additional share of stock (“Company Shares”).  The Company Shares will be subject to the restrictions described in Section 8.

8.Issuance of Stock.  Company Shares will be issued to each participating employee in accordance with Section 7.  Company Shares contributed to the employee’s account may not be sold or transferred by the employee until after the completion of a two-year period following the share acquisition quarter’s Vesting Date (the “Restriction Period”).  Company Shares issued in any quarter will be automatically forfeited by the employee in the event the employee terminates employment with the Company prior to the lapse of the Restriction Period for any reason other than as set forth in the third paragraph of Section 10.  With respect to an employee of Agilent at the time of the Spin-off (a) the Restriction Period applicable to any Employee Shares will automatically accelerate and lapse at the time of the Spin-off and such Employee Shares will be distributed as soon as administratively practicable after the Spin-off; and (b) such employee shall forfeit any Company Shares as to which the applicable Restriction Period has not lapsed at the time of the Spin-off and shall also forfeit any shares of Agilent common stock received pursuant to the Spin-off in connection with such forfeited Company Shares.

An employee of the Company at the time of the Spin-off shall forfeit any shares of Agilent common stock received pursuant to the Spin-off in connection with Company Shares of such employee.  The Company shall replace such forfeited Agilent shares with Company Shares of equivalent values as soon as administratively practicable following the Spin-off and such replacement Company Shares shall be subject to the same Restriction Periods as applicable to the Company Shares with respect to which the forfeited Agilent shares were issued.  The value of forfeited Agilent shares shall be as reasonably determined by the Company.

Participating international subsidiaries may elect to have Company Shares issued

3

with respect to Employee Shares purchased by employees of that subsidiary at the end of the Restriction Period rather than simultaneously with the issuance of Employee Shares.  Such issuance will be made only with respect to Employees, who at the termination of the Restricted Period, remain eligible.

9.Statement of Ownership.  Employee Shares and Company Shares issued to participants pursuant to the Plan will be held in book-entry form and each employee will receive a Statement of Ownership in lieu of a Stock Certificate.  The Statement of Ownership will show the Employee Shares and Company Shares credited to the employee’s book-entry account.  An Employee may elect to receive stock certificates for Employee Shares credited to the employee’s book entry account at any time.  Upon the lapse of each Restriction Period, an employee may elect to receive stock certificates for the Company Shares for which the Restriction Period has expired.

10.Termination of Participation.  The employee’s participation in the Plan will be terminated when the employee voluntarily elects to withdraw from the Plan.  In this event, all funds accrued in his account shall be promptly distributed to him and he shall not be eligible to participate in the Plan prior to the next succeeding quarter.  No funds may be withdrawn by an employee from his account except by termination of participation in the Plan.

Except as set forth in the next paragraph, the employee’s participation in the Plan will be terminated upon the employee’s termination of employment.  In this event, all funds accrued in his account shall be promptly distributed to him and he shall forfeit any Company Shares held in the book-entry account that are still subject to the Restriction Period.

In the event an employee participating in the Plan retires because of age, becomes totally and permanently disabled, dies, terminates employment pursuant to the Company’s Voluntary Severance Incentive program or transfers between foreign and domestic locations of the Company or its subsidiaries, any Company Shares held in the book-entry account will not be forfeited.  In such event, the Restriction Period for such shares will automatically accelerate and lapse as soon as administratively practicable.  In the event of a divestiture by the Company of a business or subsidiary, the Company may, in its absolute and sole discretion, provide that the Restriction Period applicable to the Company Shares of any affected employee shall accelerate and lapse.

11.Definition of “Quarter.”  The term “quarter” as used in the Plan shall mean a fiscal quarter based on the Company’s November 1 – October 31 fiscal year.

12.Administration of the Plan.  The Plan shall be administered by such officers or other employees of the employer as it may from time to time select, and the persons so selected shall be responsible for the administration of the Plan and the determination of eligibility status of employees.  Statements of account will be included in each participating employee’s payroll statement promptly following the Vesting Date, which sets forth the amounts of the respective contributions, stock purchased and remaining

4

cash balances, if any.  All costs and expenses incurred in administering the Plan shall be paid by the employer.  Notwithstanding anything to the contrary herein, the administrator 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 administrator may adopt rules and procedures regarding the handling of payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates, all of which may vary with local requirements.

13.Modifications and Termination.  The Company reserves the sole and exclusive right, either as to its employees or its subsidiaries or both, to terminate this Plan at any time in its entirety or modify the Plan from time to time by resolution of its Board of Directors.  The employer shall promptly give notice of any modification or termination of the Plan to its employees affected, and in the event of termination of the Plan as to any employee, shall promptly distribute to such employee the balance of his account.  In the event that this Plan is terminated in its entirety, the Restriction Period of all shares held in book-entry accounts on behalf of participating employees will automatically accelerate and lapse on the date of this Plan’s termination; provided, however, that merely ceasing to accept payroll deductions from employees shall not be deemed a termination of this Plan.

14.Assignability of Rights.  To the extent permitted by law, no rights of any employee under this Plan shall be assignable by him voluntarily, by operation of law, or otherwise than by will, or by the laws of descent and distribution.

15.Applicable Law.  The interpretation, performance and enforcement of this Plan shall be governed by the laws of the State of Delaware, without giving effect to that state’s choice of law rules.

16.Plan Term.  The Plan shall continue in effect until terminated pursuant to Section13.

IN WITNESS WHEREOF, the Company has caused this document to be executed by its duly authorized officer on this 30^th day of June, 2000.

HEWLETT-PACKARD COMPANY
By:	_________________________________
	Susan P. Orr
Title:	Chair of the Compensation Committee

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EX-10.(U)(U)

Exhibit 10(u)(u)

HEWLETT-PACKARD COMPANY

<PLAN>

STOCK OPTION AGREEMENT (NON-QUALIFIED)

THIS AGREEMENT, dated <GRANT DATE>  ("Grant Date") between HEWLETT-PACKARD COMPANY, a Delaware corporation ("Company"), and <EMPNO> <NAME> ("Employee"), is entered into as follows:

WITNESSETH:

        WHEREAS, the Company has established the <PLAN> ("Plan"), a copy of which can be found on the Stock Incentive Program Web Site at:  http://hrpay11.corp.hp.com/options/portal/stock/stok_opt.htmor by written or telephonic request to the Company Secretary, and which Plan is made a part hereof; and

WHEREAS, the HR and Compensation Committee of the Board of Directors of the Company or its delegate ("Committee") has determined that the Employee shall be granted an option under the Plan as hereinafter set forth;

        NOW THEREFORE, the parties hereby agree that the Company grants the Employee an option ("Option") to purchase <SHARES> shares of its $0.01 par value voting Common Stock upon the terms and conditions set forth herein.

1.This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof.

2.The Option price shall be  <PRICE>per share.

3.This Option is not transferable by the Employee otherwise than by will or the laws of descent and distribution, and is exercisable only by the Employee during his lifetime.  This Option may not be transferred, assigned, pledged or hypothecated by the Employee during his lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.

4.This Option may not be exercised before the first anniversary of the date hereof, nor may it be exercised as to more than one-fourth the number of shares covered herein before the second anniversary hereof, nor may it be exercised as to more than one-half of the number of shares covered herein before the third anniversary hereof, nor may it be exercised as to more than three-fourths the number of shares covered herein before the fourth anniversary hereof.  Notwithstanding the foregoing, this Option shall be exercisable in full upon the retirement of the Employee because of age or permanent and total disability, or upon his death.   (vest#2)

5.This Option will expire ten (10)  years from the Grant Date, unless sooner terminated or canceled in accordance with the provisions of the Plan.  This means that this Option must be exercised, if at all, on or before <EXPIRE DATE>.   The Employee shall be solely responsible for exercising this Option, if at all, prior to its expiration date.  The Company shall have no obligation to notify the Employee of this Option’s  expiration.

6.This Option may be exercised by delivering to the Secretary of the Company at its head office a written notice stating the number of shares as to which the Option is exercised; provided, however, that no such exercise shall be with respect to fewer than twenty-five (25) shares or the remaining shares covered by the Option if less than twenty-five.  The written notice must be accompanied by the payment of the full Option price of such shares.  Payment may be in cash or shares of the Company's Common Stock or a combination thereof to the extent permissible under applicable law; provided, however, that any payment in shares shall be in strict compliance with all procedural rules established by the Committee.

7.All rights of the Employee in this Option, to the extent that it has not been exercised, shall terminate upon the death of the Employee (except as hereinafter provided) or termination of his employment for any reason other than retirement because of age, in accordance with the Company’s retirement policy, or permanent and total disability, and in case of such retirement three (3) years from the date thereof; provided, however, that in the event of the Employee's death his legal representative or designated beneficiary shall have the right to exercise all or a portion of the Employee's rights under this Agreement within the time prescribed for exercise after the death of the Employee as provided herein.  The representative or designee must exercise the Option within one (1) year after the death of the Employee, and shall be bound by the provisions of the Plan.  In all cases, however, this Option will expire no later than the expiration date set forth in Paragraph 5.

8.The Employee shall remit to the Company payment for all applicable withholding taxes, and required social security contributions at the time the Employee exercises any portion of this Option.  To the extent that the

Employee’s payment is insufficient,  the Employee  authorizes the Company, its Affiliates and Subsidiaries, which are qualified to deduct tax at source, to deduct  all applicable withholding taxes and social security contributions from the Employee’s compensation.  The Employee agrees to pay any amounts that cannot be satisfied from wages or other cash compensation, to the extent permitted by law.  Alternatively, or in addition, if permissible under local law, Employee agrees that HP may (1) sell or arrange for the sale of shares of HP common stock acquired to meet the applicable withholding obligation, and (2) withhold in shares of HP common stock, provided that HP only withholds the amount of shares of HP common stock necessary to satisfy the minimum withholding amount.

9.By accepting the grant of this Option, the Employee acknowledges and agrees: (i) that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time; (ii) that the grant of this Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (iii) that all determinations with respect to any such future grants, including, but not limited to, the times when options shall be granted, the maximum number of shares subject to each option, the option price, and the time or times when each option shall be exercisable, will be at the sole discretion of the Company; (iv) that participation in the Plan is voluntary; (v) that the Employee’s participation in the Plan shall not create a right to further employment with the Employee’s employer and shall not interfere with the ability of the Employee’s employer to terminate the Employee’s employment relationship at any time with or without cause insofar as permitted by law;  (vi)  that the value of this Option is an extraordinary item of compensation which is outside the scope of the Employee's employment contract, if any; (vii) that this Option is not part of normal or expected compensation, and will not be included for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments insofar as permitted by law; (viii) that the vesting of any option ceases upon termination of employment for any reason except as may otherwise be explicitly provided in the Plan document or this Agreement; (ix)  that this Option has been granted to the Employee in the Employee’s status as an employee of his employer; and (x) that if the underlying stock does not increase in value, this Option will have no value.

10.The Company will assess its requirements regarding tax, social insurance and other payroll tax (“tax-related items”) withholding and reporting in connection with this Option, including the grant, vesting or exercise of this Option and the sale of shares acquired pursuant to such exercise.  These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s actions in this regard, the Employee acknowledges and agrees that the ultimate liability for any and all tax-related items is and remains the Employee’s responsibility and liability and that the Company (i) makes no representations nor undertakings regarding the treatment of any tax-related items in connection with any aspect of this Option, including the grant, vesting or exercise of this Option and the subsequent sale of shares acquired pursuant to such exercise; and (ii)  does not commit to structure the terms or the grant or any aspect of this Option to reduce or eliminate the Employee’s liability regarding tax-related items.

11.By accepting the grant of this Option, the Employee explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of personal data by and among, as applicable, the Company, its Subsidiaries, its Affiliates and certain third parties, for the exclusive purpose of implementing, administering and managing Employee’s participation in the Plan. The Employee understands that the Company, its Affiliates, its Subsidiaries and the Employee’s employer hold certain personal information about the Employee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, purchased, exercised, vested, unvested or outstanding in the Employee’s favor, that may be used for the purpose of implementing, managing and administering the Plan (“Data”). The Employee further understands that the Company and/or its Affiliates and/or its Subsidiaries will transfer Data amongst themselves or to third parties as necessary for the purpose of implementation, administration and management of the Employee’s participation in the Plan. The Employee understands that these recipients may be located in the European Economic Area, or elsewhere, such as the United States and that the recipient country may have different data privacy laws and protections than Employee’s country. The Employee authorizes them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Employee’s participation in the Plan, including any requisite transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of shares on behalf of the Employee, to a broker or other third party with whom the Employee may elect to deposit any shares of stock acquired pursuant to the Plan.  Employee understands that Data will be held only as long as is necessary to implement, administer and manage participation in the Plan. The Employee understands that he may, at any time, review Data, require any necessary amendments to it or refuse or withdraw the consents herein, in any case without cost, by contacting the Company in writing. The Employee understands that withdrawing consent may affect the Employee’s ability to participate in the Plan.  For more information on the consequences of

refusing to consent or withdrawing consent, Employee understands that he may contact an HP local human resources representative.

12.The Employee agrees to receive copies of the Plan, the Plan prospectus and other Plan information, including information prepared to comply with laws outside the United States, from the Stock Incentive Program Web Site referenced above and stockholder information, including copies of any annual report, proxy and Form 10K, from the investor relations section of the HP web site at www.hp.com.  The Employee acknowledges that  copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Company Secretary.

13.The Plan is incorporated herein by reference. The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Employee with respect to the subject matter hereof, and may not  be modified adversely to the Employee's interest except by means of a writing signed by the Company and the Employee.  This Agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware.

14.Neither the Plan nor this Agreement nor any provision under either shall be construed so as to grant the Employee any right to employment, and it is expressly agreed and understood that employment is terminable at the will of either party.

HEWLETT-PACKARD COMPANY
By
	Carleton S. Fiorina
	Chairman and CEO
By
	Ann O. Baskins
	Senior Vice President, General Counsel and Secretary

RETAIN THIS AGREEMENT FOR YOUR RECORDS

EX-10.(X)(X)

Exhibit 10(x)(x)

HEWLETT-PACKARD COMPANY

1997 DIRECTOR STOCK PLAN COMMON STOCK PAYMENT AGREEMENT

THIS AGREEMENT, dated DATE (“Payment Date”) between HEWLETT-PACKARD COMPANY,  a Delaware corporation (the “Company”), and NAME (the “Director”), a director of Company is entered into as follows:

WITNESSETH:

WHEREAS, the Company has established the Hewlett-Packard Company 1997 Director Stock Plan (the “Plan”), a copy of which is attached hereto as Exhibit “A” and made part hereof; and

WHEREAS, The Director has filed an election in accordance with the terms of the Plan to be granted a Common Stock Payment (as defined the Plan) under the Plan as hereinafter set forth below;

NOW THEREFORE, the parties hereby agree that in consideration of services rendered and to be rendered, the Company grants the Director a Common Stock Payment (the “Shares”) in the amount of # OF SHARESshares of its $0.01 par value voting Common Stock upon the terms and conditions set forth herein.

1.The Shares are granted under and pursuant to the Plan and are subject to each and all of the provisions thereof.

2.The Shares shall be deposited in certificate with the Company’s Secretary or book entry form in escrow until the six-month anniversary of the date of issuance.

3.The Shares may not be pledged, sold or otherwise assigned until all restrictions pertaining to such shares are terminated.

4.The Shares shall be released from escrow and any applicable restrictions shall terminate after the six-month anniversary of the issuance date.

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate the day and year first above written.

	HEWLETT-PACKARD COMPANY
	By
	Carleton S. Fiorina
	Chairman, President and Chief Executive Officer
	By
	Ann O. Baskins
	Vice President, General Counsel and Secretary
Signed
Name of Director

HEWLETT-PACKARD COMPANY

1997 DIRECTOR STOCK PLAN OPTION AGREEMENT

THIS AGREEMENT, dated DATE(“Grant Date”) between HEWLETT-PACKARD COMPANY, a Delaware corporation (the “Company”), and NAME (the “Director”), a director of Company is entered into as follows:

WITNESSETH:

WHEREAS, the Company has established the Hewlett-Packard Company 1997 Director Stock Plan (the “Plan”), a copy of which is attached hereto as Exhibit “A” and made a part hereof; and

WHEREAS, the Director has filed an election in accordance with the terms of the Plan to be granted an option under the Plan as hereinafter set forth below;

NOW THEREFORE, the parties hereby agree that in consideration of services rendered and to be rendered, the Company grants the Director an option (the “Option”) to purchase # OF SHARESshares of its $0.01 par value voting Common Stock upon the terms and conditions set forth herein.

1.This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof.

2.The Option price shall be $PRICE per share.

3.This Option is not transferable by the Director otherwise than by will or the laws of descent and distribution, and is exercisable only by the Director during his lifetime.  This Option may not be transferred, assigned, pledged, or hypothecated by the Director during his lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.

4.This Option may not be exercised before the first anniversary of the date hereof.

5.This Option will expire ten (10) years from the date hereof, unless sooner terminated or canceled in accordance with the provisions of the Plan.

6.This Option shall be exercised by delivering to the Secretary of the Company at its head office a written notice stating the number of shares as to which the Option is exercised.  The written notice must be accompanied by payment of the full Option price for such shares.

7.All rights of the Director in this Option, to the extent that it has not been exercised, shall terminate upon the death of the Director (except as hereinafter provided).  The Director may, by written notice to the Company, designate one or more persons, including his legal representative, who shall by reason of the Director’s death acquire the right to exercise all or a portion of the Director’s Option.  The person so designated must exercise this Option within the term of this Option set forth in paragraph 5.  The person designated to exercise this Option after the Director’s death shall be bound by the provisions of the Plan.

8.The Director hereby designates the following person(s) as the one(s) who may exercise this Option after his death as provided above:

Name:	Relationship:
Name:	Relationship:

The Director may change the above designation at his pleasure by filing with the Secretary of the Company a written notice of change.

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate the day and year first above written.

	HEWLETT-PACKARD COMPANY
	By
	Carleton S. Fiorina
	Chairman and Chief Executive Officer
	By
	Ann O. Baskins
	Senior Vice President, General Counsel and Secretary
Signed
Name of Director

EX-10.(Y)(Y)

Exhibit 10(y)(y)

HEWLETT-PACKARD COMPANY

DIRECTOR OPTION PLAN STOCK OPTION AGREEMENT

                THIS AGREEMENT, dated DATE between HEWLETT-PACKARD COMPANY, a California corporation (“Company”), and NAME (the “Director”), a director of Company is entered into as follows:

WITNESSETH:

WHEREAS, the Company has established the Hewlett-Packard Company 1987 Director Option Plan (the “Plan”) a copy of which is attached hereto as Exhibit “A” and made a part hereof; and

WHEREAS, the Director has filed an election in accordance with the terms of the Plan to be granted an option under the Plan as hereinafter set forth below;

NOW THEREFORE, the parties hereby agree that in consideration of services rendered and to be rendered, the Company grants the Director an option (the “Option”) to purchase # OF SHARES shares of its $1 par value voting Common Stock upon the terms and conditions set forth herein.

1.This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof.

2.The Option price shall be $PRICE per share.

3.This Option is not transferable by the Director otherwise than by will or the laws of descent and distribution, and is exercisable only by the Director during his lifetime.  This Option may not be transferred, assigned, pledged, or hypothecated by the Director during his lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.

4.This Option may not be exercised before the first anniversary of the date hereof.  Notwithstanding the foregoing this Option shall become exercisable in full upon the retirement of the Director because of age or permanent and total disability, or upon his death.

5.This Option will expire ten (10) years from the date hereof, unless sooner terminated or cancelled in accordance with the provisions of the Plan.

6.This Option shall be exercised by delivering to the Secretary of the Company at its head office a written notice stating the number of shares as to which the Option is exercised.  The written notice must be accompanied by payment of the full Option price for such shares.

7.All rights of the Director in this Option, to the extent that it has not been exercised, shall terminate upon the death of the Director (except as hereinafter provided).  The Director may, by written notice to the Company, designate one or more persons, including his legal representative, who shall by reason of the Director’s death acquire the right to exercise all or a portion of the Director’s Option.  The person so designated must exercise the Option within the term of the Option set forth in paragraph 5.  The person designated to exercise the Option after the Director’s death shall be bound by the provisions of the Plan.

8.The Director hereby designates the following person(s) as the one(s) who may exercise this Option after his death as provided above:

Name:	Relationship:
Name:	Relationship:

The Director may change the above designation at his pleasure by filing with the Secretary of the Company a written notice of change.

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate the day and year first above written.

	HEWLETT-PACKARD COMPANY
By
	Lew Platt, President
By
	D. Craig Nordlund
	Associate General Counsel
	and Secretary

EX-10.(Z)(Z)

Exhibit 10(z)(z)

1985 Stock Option Plan

Four Year Grant

COMPAQ COMPUTER CORPORATION

NONQUALIFIED STOCK OPTION AGREEMENT

                THIS AGREEMENT, made this ____ day of ____________, 19__, in Houston, Texas between COMPAQ COMPUTER CORPORATION, a Delaware corporation (hereinafter called the “Company”), and ________________________________ (hereinafter called “Optionee”):

R E C I T A L S:

                The Company has adopted the Compaq Computer Corporation 1985 Stock Option Plan (the “Plan”), which Plan is incorporated herein by reference and made a part of this Agreement.

                The Company has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the “Option”) to Optionee pursuant to the Plan and the terms set forth herein as an inducement to remain in the service of the Company and as an incentive for increased efforts during such service;

                NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:

                1.  Grant of the Option.  The Company hereby grants to Optionee the right and option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of _______ shares of the presently authorized but unissued Common Stock of the Company (hereinafter called the “Stock”).  The purchase price of the Stock subject to this Option shall be $_______ per share, which price is not less than the per share fair market value of such Stock as of the date hereof.

                2.  Exercise of Option.

                                (a)  Providing the conditions of subparagraphs (b), (c), (d), and (e) of this paragraph 2 have been satisfied, Optionee may exercise this Option to purchase a number of shares of Stock which shall not exceed the difference between A and B, where

                A =  the product of the number of shares subject to this Option multiplied by a

fraction, the numerator of which is the number of whole months which have elapsed since Optionee’s date of this Agreement (not to exceed 48) and the denominator of which is 48.

                B =  the number of shares of Stock previously acquired by Optionee’s partial exercise of this Option.

                                (b)  This Option may be exercised in whole or in part at any time during the period beginning on the date of this Agreement first written above and ending ten years from the date of this Agreement first above written, provided that Optionee may not exercise this option more often than twice during any calendar year.  The Option is not transferable or assignable by the Optionee other than by will or the laws of descent and distribution.  During the Optionee’s lifetime, this Option shall be exercisable only by the Optionee.

                                (c)  Options may be exercised in whole or in part with respect to whole shares only within the period permitted for exercise thereof, and shall be exercised by written notice of intent to exercise the Option with respect to a specified number of shares delivered to the Company at its principal office and payment in full to the Company at its principal office in the amount of the option price for the number of shares of the Common Stock with respect to which the Option is then being exercised.  The payment of the option price shall be made in cash or by certified check, bank draft, or postal or express money order payable to the order of the Company, or, with the consent of the Board (or the Committee, if established by the Board), in whole or in part in Common Stock valued at Fair Market Value which is owned by the Optionee.

                                (d)  This Option may not be exercised prior to the registration of the Stock with the Securities and Exchange Commission and any applicable state agencies.  However, this condition may be waived by the Board (or Committee, if any) if it determines that such registration is not necessary in order to legally issue shares of Stock to Optionee.

                                (e)  Upon the Company’s determination that the Option has been validly exercised as to any of the Stock, the Secretary of the Company shall issue certificates in the Optionee’s name for the number of shares set forth in his written notice.  However, the Company shall not be liable to the Optionee for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

                3.  Employment of Optionee.  Subject to the terms of any employment contract to the contrary, the Company shall have the right to terminate or change the terms of employment of Optionee at any time and for any reason whatsoever.

                4.  Notices.  Any notice required to be given under the terms of this Option Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company in Houston, Texas, and any notice to be given to Optionee shall be addressed to him at the address given by him beneath his signature hereto or such other address as either party hereto may hereafter designate in writing to the other.  Any such notice shall be deemed to have been duly given when addressed as aforesaid, registered or certified mail, and deposited (postage or registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States.

                5.  Disputes.  As a condition of the granting of the Option hereby, the Optionee and his heirs and successors agree that any dispute or disagreement which may arise hereunder shall be determined by the Board (or Committee, if any) in its sole discretion and judgment, and that any such determination and any interpretation by the Board (or Committee, if any) of the terms of this Option shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs and personal representatives.

                6.  Legend on Certificates.  The certificates representing the shares of Stock purchased by exercise of this Option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such shares.

                7.  Option Subject to Plan.  This Option is subject to the Plan.  The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference thereto.  In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.  All definitions of words and terms contained in the Plan shall be applicable to this Option.

                8.  Miscellaneous.

                                (a)  All decisions of the Board (or Committee, if any) upon any questions arising under the Plan or under this Option Agreement shall be conclusive.

                                (b)  Nothing herein contained shall affect Optionee’s right to participate in and receive benefits from and in accordance with the then current provisions of any

pension, insurance or other employee welfare plan or program of the Company.

                                (c)  Optionee agrees to make appropriate arrangements with the Company for satisfaction of any applicable federal, state or local income tax, withholding requirements or like requirements, including the payment to the Company at the time of exercise of the Option of all such taxes and requirements.

                                (d)  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company.

                                (e)  The interpretation, performance and enforcement of this Option Agreement shall be governed by the laws of the State of Delaware.

                IN WITNESS WHEREOF, the Company has, as of the date and place first above written, caused this Agreement to be executed on its behalf by its President or any Vice President, attested to by any Vice President, and Optionee has hereunto set his hand as of the date and place first above written, which date is the date of grant of this Option.

	COMPAQ COMPUTER CORPORATION
	By
	(Printed Name)
	President
	(Title)
	“COMPANY”
ATTEST:
	(Printed Name)
	“OPTIONEE”
	Address:

EX-10.(A)(1)

Exhibit 10(a)(1)

COMPAQ COMPUTER CORPORATION

1985 NONQUALIFIED STOCK OPTION AGREEMENT

This Stock Option Agreement is between COMPAQ COMPUTER CORPORATION, a Delaware corporation (the “Company”), and ________________________ (the “Options”).

W I T N E S S E T H:

WHEREAS, the Company has adopted the COMPAQ COMPUTER CORPORATION 1985 Nonqualified Stock Option Plan, which plan is incorporated herein by reference and made a part of this agreement;

WHEREAS, the Company has determined that it would be in the best interests of the Company, and its shareholders to grant the option provided for herein (the “Option”) to Optionee pursuant to the Plan and the terms set forth herein as an inducement to remain in the service of the Company and as an incentive for increased efforts during such service;

NOW THEREFORE, for and in consideration of these premises it is agreed as follows:

1.             Option.  Subject to the terms and conditions contained herein, the Company hereby grants to Optionee an option to purchase from the Company _________shares of the Company’s common stock, $.01 par value (“Common Stock”) at a price of _________ per share.

2.             Exercise of Option. 

(a)           Providing the conditions of subparagraphs (b), (c), (d), and (e) of this paragraph 2 have been satisfied, Optionee may exercise this Option to purchase a number of shares of Stock which shall not exceed the difference between A and B, where

A  = the product of the number of shares subject to this Option multiplied by a fraction, the numerator of which is the number of whole months which have elapsed since _____________________________ (not to exceed (48) and the demoninator of which is 48.

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B  =the number of shares of Stock previously acquired by Optionee’s partial exercise of this Option.

(b)           Optionee must have been a full time employee of the Company for a period of three (3) months prior to any exercise, in whole or part, of the Option.

(c)           This Option may be exercised in whole or in part at any time during the period beginning one year after Optionee’s date of employment and ending ten years from the date of this Agreement, provided that Optionee may not exercise this option more often than twice during any calendar year. The Option is not transferable or assignable by the Optionee other than by will or the laws of descent and distribution. The Option shall be exercisable by the Optionee only during his lifetime.

(d)           Options may be exercised in whole or in part with respect to whole shares only within the period permitted for exercise thereof, and shall be exercised by written notice of intent to exercise the Option with respect to a specified number of shares delivered to the Company at its principal office and payment in full to the Company at its principal office in the amount of the option price for the number of shares of the Common Stock with respect to which the Option is then being exercised. The payment of the option price shall be made in cash or, with the consent of the Committee, in whole or in part in Common Stock valued at Fair Market Value which is owned by the Optionee.

(e)           This Option may not be exercised prior to the registration of the Stock with the Securities and Exchange Commission and any applicable state agencies. However, this condition may be waived by the Committee if it determines that such registration is not necessary in order to legally issue shares of Stock to Optionee.

(f)            Upon the Company’s determination that the Option has been validly exercised as to any of the Stock, the Secretary of the Company shall issue or cause to be issued certificates in the Optionee’s name for the number of shares set forth in his written notice. However, the Company shall not be liable to the Optionee for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

3.             Employment of Optionee.  Subject to the terms of any employment contract to the contrary, the Company shall have the right to terminate or change the terms of employment of Optlonee at any time and for any reason whatsoever.

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4.             Death of Optionee.  Upon the death of optionee, all options hereunder exercisable at the date of such death shall be thereafter exercisable by Optionee’s executor or administrator, or the person or persons to whom his rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, until the termination of the option in accordance with this Agreement and the COMPAQ COMPUTER CORPORATION 1985 Nonqualified Stock Option Plan.  In no event may any option be exercised after the end of the Option Period.

5.             Transferability of Option.  This option shall not be transferable by Optionee otherwise than by Optionee’s will or by the laws of descent and distribution.  During the lifetime of Optionee, the option shall be exercisable only by him. Any heir or legatee of Optionee shall take rights herein granted subject to the terms and conditions hereof.  No such transfer of this Agreement to heirs or legatees of Optionee shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof.

6.             Stockholder Rights.  Optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Agreement until the date of issuance of a certificate for shares of Common Stock purchased pursuant to this Agreement.  Until such time, Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. Except as provided in paragraph 8 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which theOptionee shall have been issued share certificates, as provided hereinabove.

7.             Extraordinary   Corporate   Transactions.  New option rights may be substituted for the option rights granted hereunder or the Company’s duties as to options granted pursuant to this Agreement may be assumed, by a corporation other than the Company, or by a parent or subsidiary of the Company or such corporation, in connection with any merger, consolidation, acquisition, separation, reorganization, liquidation or like occurrence in which the Company is involved.  Notwithstanding the foregoing or the provisions of paragraph 8 hereof, in the event such corporation, or parent or subsidiary of the Company or such corporation, does not substitute new option rights for, and substantially equivalent to, the option rights granted hereunder, or assume the option rights granted hereunder, the option rights granted hereunder shall terminate and thereupon become null and void (i) upon dissolution or liquidation of the Company, or similar occurrence, (ii) upon any merger, consolidation, acquisition, separation, reorganization, or  similar occurrence,

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where the Company will not be a surviving entity or (iii) upon a transfer of substantially all of the assets of the Company or more than 60% of the outstanding Common Stock; provided, however, that the Optionee shall have the right immediately prior to or concurrently with such dissolution, liquidation, merger, consolidation, acquisition, separation, reorganization or similar occurrence, to exercise any unexpired option rights granted hereunder to the extent such option rights are then exercisable.

8.             Changes in Capital Structure.  The  existence  of outstanding options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation ofthe Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceedings, whether of a similar character or otherwise. Provided, however, that if the outstanding shares of Common Stock of the Company shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, or recapitalization, the number and kind of shares subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares without changing the aggregate option price.

                9.             Compliance with Securities Laws.  Upon the acquisition of any shares pursuant to the exercise of the option herein granted, Optionee (or any person acting under paragraph 5) will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement.

10.           Resolution of Disputes.  As a condition of the granting of the option hereby, the Optionee and his heirs and successors agree that any dispute or disagreement which may arise hereunder shall be determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs and personal representatives.

11.           Legend on Certificates.  The certificates representing the shares of Common Stock purchased by exercise of an option may be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable statutory, contractual or other restrictions on sale or transfer and the stock transfer records of the Company may reflect stop-transfer instructions with respect to such shares.

4

12.           Notices.  Every notice hereunder shall be in writing and shall be given by registered or certified mail. All notices of the exercise of any option hereunder shall be directed to COMPAQ Computer Corporation, 20555 FM 149, Houston, Texas 77070, Attention: President.  Any notice given by the Company to Optionee directed to him at his address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence, maturity or termination of any of Optionee’s rights hereunder and Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Optionee’s rights or privileges hereunder.

13.           Interpretation.  Whenever the term “Optionee” is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of paragraph 4 hereof, may be transferred, the word “Optionee” shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes.

14.           Other Restrictions.  Notwithstanding any of the other provisions hereof, Optionee agrees that he will not exercise the option(s) granted hereby, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the optlon(s) or the Issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or national securities exchange.

15.           Agreement Subject to Plan.  This Agreement is subject to the Plan.  The terms and provisions of the plan (including any subsequent amendments thereto) are hereby incorporated herein by reference thereto. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement.

IN WITNESS WHEREOF,  this Agreement has been executed as of the ________ day of ____________ 1986.

Attested By:	COMPAQ Computer Corporation
________________________	By:  _________________________
	Date: ________________________
	Optionee
	_____________________________

5

EX-12

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Exhibit 12

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Statement of Computation of Ratio of Earnings to Fixed Charges^(1),(3)

		For the following years ended October 31
		2002			2001			2000			1999			1998
		In millions, except ratios
Earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes		$	(1,052	)	$	702		$	4,625		$	4,194		$	3,694
Minority interest in the income of subsidiaries with fixed charges			7			10			4			14			4
Undistributed loss or (earnings) of equity method investees			46			(30	)		(52	)		6			7
Fixed charges from continuing operations:
	Interest expense and amortization of debt discount and premium on all indebtedness		255			285			257			202			235
	Interest included in rent		184			155			141			130			120
	Total fixed charges from continuing operations		439			440			398			332			355
Earnings before extraordinary item, cumulative effect of change in accounting principle, income taxes, minority interest, undistributed earnings or loss of equity investees and fixed charges		$	(560	)	$	1,122		$	4,975		$	4,546		$	4,060
Ratio of earnings to fixed charges(2)			—			2.6	x		12.5	x		13.7	x		11.4	x

(1)

The ratio of earnings to fixed charges was computed by dividing earnings (earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes, adjusted for fixed charges from continuing operations, minority interest in the income of subsidiaries with fixed charges and undistributed earnings or loss of equity method investees) by fixed charges from continuing operations for the periods indicated. Fixed charges from continuing operations include (i) interest expense and amortization of debt discount or premium on all indebtedness, and (ii) a reasonable approximation of the interest factor deemed to be included in rental expense.

(2)

In fiscal 2002, due to the loss from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes, earnings are inadequate to cover the fixed charges and result in a deficiency of $999 million.

(3)

In fiscal 2002, due to the combined loss from continuing operations before extraordinary item, cumulative effect of changes in accounting principles and taxes of HP and Compaq (as if the acquisition had occurred as of the beginning of fiscal 2002), a supplemental pro forma ratio on a combined basis has not been presented as it is not considered meaningful.

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Exhibit 12

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Statement of Computation of Ratio of Earnings to Fixed Charges^(1),(3)

EX-21

Exhibit 21

Subsidiaries of Hewlett-Packard Company

The registrant's principal subsidiaries and affiliates as of December 31, 2002, are listed below.

ARGENTINA

- Hewlett-Packard Argentina S.A.

AUSTRALIA

- Hewlett-Packard Australia Pty. Ltd.

- Compaq Computer Australia Pty. Ltd.

- Compaq Technologies (Australia) Proprietary Ltd.

AUSTRIA

- Hewlett-Packard Ges.m.b.H.

BELGIUM

- Hewlett-Packard Belgium BVBA/SPRL

- Hewlett-Packard Coordination Center C.V.B.A./S.C.R.L.

BRAZIL

- Hewlett-Packard Arrendamento Mercantil S.A.

- Hewlett-Packard Brasil Ltda

- Hewlett-Packard Commercial S.A.

- Compaq Financial Services Arrendamento Mercantil S.A.

BULGARIA

- Hewlett-Packard Bulgaria EooD

CANADA

- Hewlett-Packard (Canada) Co.

- Compaq Canada Corp.

CAYMAN ISLANDS

- Hewlett-Packard Caribe Ltd.

CHILE

- Hewlett-Packard Chile 2, Comercial Ltda

- Hewlett-Packard de Chile S.A.

CHINA

- China Hewlett-Packard Company Limited

- Shanghai Hewlett-Packard Co., Ltd.

- Compaq Computer (Shanghai) Co. Ltd.

COLOMBIA

- Hewlett-Packard Colombia Ltda.

CROATIA

- Hewlett-Packard d.o.o.

CZECH REPUBLIC

- Hewlett-Packard s.r.o.

- Compaq Computer s.r.o.

DENMARK

- Hewlett-Packard ApS

- Compaq Computer ApS

ECUADOR

- Hewlett-Packard Ecuador 1 S.R.L.

EGYPT

- Hewlett-Packard (Egypt) Ltd.

- Compaq Computer Egypt Ltd.

FINLAND

- Hewlett-Packard OY

- OY Compaq Computer AB

FRANCE

- Hewlett-Packard Centre de Competence, SAS

- Hewlett-Packard France SAS

GERMANY

- Hewlett-Packard EMEA GmbH

- Hewlett-Packard Erste B. GmbH

- Hewlett-Packard Europa Holding GmbH & Co. KG

- Hewlett-Packard GmbH

- Compaq Computer BDG GmbH

GREECE

- Compaq Computer EPE

HONG KONG

- Hewlett-Packard Asia Pacific Limited

- Hewlett-Packard Hong Kong Limited

- Compaq Computer Ltd.

HUNGARY

- Hewlett-Packard Magyarorszag Kft

INDIA

- Hewlett-Packard India Private Ltd.

- Compaq Computer (India) Private Ltd.

INDONESIA

- PT Hewlett-Packard Berca Servisindo

- PT Compaq Computer Indonesia

IRELAND

- Hewlett-Packard (Manufacturing) Ltd.

- Hewlett-Packard International Bank Ltd.

- Hewlett-Packard Ireland Ltd.

- Compaq Computer Ireland Ltd.

ISLE OF MAN

- Compaq Computer Isle of Man Ltd.

ISRAEL

- Hewlett-Packard Indigo Ltd.

ITALY

- Hewlett-Packard Italiana S.p.A.

- Hewlett-Packard Servizi Finanziari S.p.A.

- Compaq Computer S.r.l.

JAPAN

- Hewlett-Packard Japan, Ltd.

- Compaq Computer K.K.

KOREA

- Hewlett-Packard Korea Ltd.

LATVIA

- Hewlett-Packard SIA, Latvia

LITHUANIA

- UAB Hewlett-Packard

MADEIRA

- Inter Initia - Comercio Internacional E Servicos Ltda

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MALAYSIA

- Hewlett-Packard Sales (Malaysia) Sdn. Bhd.

- Compaq Computer Corporation Malaysia Sdn. Bhd.

MEXICO

- Hewlett-Packard Mexico, S. de R.L. de C.V.

- Compaq S. de R.L. de C.V.

MOROCCO

- Hewlett-Packard SARL

- Compaq Computer NWA SARL

NETHERLANDS

- Hewlett-Packard Europe B.V.

- Hewlett-Packard Indigo B.V.

- Hewlett-Packard Nederland B.V.

- Hewlett-Packard Products C.V.

- Compaq Computer B.V.

NEW ZEALAND

- Hewlett-Packard New Zealand

NIGERIA

- Hewlett-Packard Nigeria Ltd.

NORWAY

- Hewlett-Packard Norge AS

- Compaq Computer Norway AS

PERU

- Hewlett-Packard del Peru, S.A.

- Hewlett-Packard International 1 S.R.L.

PHILIPPINES

- Hewlett-Packard Philippines Corporation

- Compaq Computer Philippines, Inc.

POLAND

- Hewlett-Packard Polska Spool z o.o.

- Compaq Computer Spool z o.o.

PORTUGAL

- Hewlett-Packard Portugal Ltda

- Compaq Computer Portugal, Ltda

ROMANIA

- Hewlett-Packard (Romania) SRL

- Compaq Computer Romania SRL

RUSSIA

- Hewlett-Packard AO

- ZAO Compaq Computers

3

SINGAPORE

- Hewlett-Packard Far East Pte. Ltd.

- Hewlett-Packard International Pte. Ltd.

- Hewlett-Packard Singapore (Private) Limited

- Hewlett-Packard Singapore (Sales) Pte. Ltd.

- Compaq Computer Asia Pte. Ltd.

- W.W. Real Estate & Development Pte. Ltd.

SLOVAKIA

- Hewlett-Packard (Slovakia) s.r.o.

- Compaq Computer Slovakia s.r.o.

SLOVENIA

- Compaq Computer d.o.o.

SOUTH AFRICA

- Hewlett-Packard (South Africa) (Proprietary) Ltd.

- Compaq Computer (Proprietary) Ltd.

SPAIN

- Hewlett-Packard Espanola, S.L.

- Compaq Computer Espana S.L.

- Twinsoft SA

SWEDEN

- Hewlett-Packard Services Sverige AB

- Hewlett-Packard Sverige AB

- Compaq Computer AB

SWITZERLAND

- Hewlett-Packard (Schweiz) GmbH

- Hewlett-Packard International Sarl

- Compaq Computer (Schweiz) GmbH

TAIWAN

- Hewlett-Packard Taiwan Ltd.

- Compaq Computer Taiwan Ltd.

THAILAND

- Hewlett-Packard (Thailand) Ltd.

- Compaq Computer (Thailand) Ltd.

TURKEY

- Hewlett-Packard Bilgisayar ve Olcum Sistemleri AS

- Compaq Computer Ticaret A.S.

UNITED ARAB EMIRATES

-Hewlett-Packard Middle East FZ LLC

-Compaq Computer FZE

UNITED KINGDOM

-Hewlett-Packard Ltd.

-Compaq Computer Ltd.

-Compaq Computer Manufacturing Ltd.

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UNITED STATES

-Hewlett-Packard Development Company L.P.

-Hewlett-Packard Financial Services Company

-Hewlett-Packard Hellas, LLC

-Hewlett-Packard World Trade, Inc.

-HPDirect Inc.

- Compaq Computer Caribbean, Inc.

-Compaq Computer Corporation

-Compaq Latin America Corporation

-CPQ Holdings, LLC

-Digital Equipment China Ltd.

-Indigo America, Inc.

VENEZUELA

-Hewlett-Packard de Venezuela C.C.A.

VIETNAM

-Hewlett-Packard Vietnam Ltd.

-Compaq Computer Vietnam Ltd.

YUGOSLAVIA

-Hewlett-Packard d.o.o Beograd

5

EX-23

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Exhibit 23

Consent of Independent Auditors

        We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-30786, 333-83346 and 333-86378) and in the related Prospectuses, and the Registration Statements (Form S-8 Nos. 2-90239, 2-92331, 2-96361, 33-30769, 33-31496, 33-31500, 33-38579, 33-50699, 33-52291, 33-58447, 33-65179, 333-22947, 333-30459, 333-45231, 333-35836, 333-70232, 333-85136, 333-87742 and 333-87788) of Hewlett-Packard Company of our report dated November 20, 2002 (except for Note 19, as to which the date is December 17, 2002), with respect to the consolidated financial statements and schedule of Hewlett-Packard Company included in this Annual Report (Form 10-K) for the year ended October 31, 2002.

/s/ Ernst & Young LLP

San Jose, California
January 17, 2003

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Exhibit 23

Consent of Independent Auditors

EX-99.1

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Exhibit 99.1

CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, Carleton S. Fiorina, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Hewlett-Packard Company for the fiscal year ended October 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hewlett-Packard Company.

January 21, 2003	By:
		/s/  CARLETON S. FIORINA Carleton S. Fiorina Chairman and Chief Executive Officer

        I, Robert P. Wayman, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Hewlett-Packard Company for the fiscal year ended October 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hewlett-Packard Company.

January 21, 2003	By:
		/s/  ROBERT P. WAYMAN Robert P. Wayman Executive Vice President and Chief Financial Officer

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Exhibit 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002