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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
HEWLETT-PACKARD COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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------------------------------------------------- [LOGO]
- ---------- HEWLETT-PACKARD COMPANY
3000 Hanover Street
Palo Alto, California 94304
----------------------------------------------
LEWIS E. PLATT
Chairman, President and
Chief Executive Officer
</TABLE>
To our Stockholders:
I am pleased to invite you to attend the annual meeting of stockholders of
Hewlett-Packard Company to be held on Tuesday, February 23, 1999 at 2 o'clock in
the afternoon at the Flint Center for the Performing Arts located at 21250
Stevens Creek Boulevard, Cupertino, California.
Details regarding admission to the meeting and the business to be conducted are
more fully described in the accompanying Notice of Annual Meeting and Proxy
Statement.
If you are unable to attend the meeting in person, you may listen to audio
highlights which will be posted a few days after the meeting on our investor
relations Web site located at http://www.hp.com/go/financials.
Your vote is important. Whether or not you plan to attend the annual meeting, I
hope you will vote as soon as possible. This year you may vote over the
Internet, as well as by telephone or by mailing a traditional proxy card. Voting
over the Internet, by phone or by written proxy will ensure your representation
at the annual meeting if you do not attend in person. Please review the
instructions on the proxy card regarding each of these voting options.
Thank you for your ongoing support of and continued interest in Hewlett-Packard
Company.
Sincerely,
/s/ LEWIS E. PLATT
<PAGE>
1999 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
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NOTICE OF ANNUAL MEETING............................................................. 1
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING............... 2
WHY AM I RECEIVING THESE MATERIALS?................................................ 2
WHAT INFORMATION IS CONTAINED IN THESE MATERIALS?.................................. 2
WHAT PROPOSALS WILL BE VOTED ON AT THE MEETING?.................................... 2
WHAT IS HP'S VOTING RECOMMENDATION?................................................ 2
WHAT SHARES OWNED BY ME CAN BE VOTED?.............................................. 2
WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS A
BENEFICIAL OWNER?................................................................ 2
HOW CAN I VOTE MY SHARES IN PERSON AT THE MEETING?................................. 2
HOW CAN I VOTE MY SHARES WITHOUT ATTENDING THE MEETING?............................ 2
CAN I CHANGE MY VOTE?.............................................................. 3
HOW ARE VOTES COUNTED?............................................................. 3
WHAT IS THE VOTING REQUIREMENT TO APPROVE EACH OF THE PROPOSALS?................... 3
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION CARD?..... 3
HOW CAN I OBTAIN AN ADMISSION TICKET FOR THE MEETING?.............................. 3
WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?................................ 3
BOARD STRUCTURE AND COMPENSATION..................................................... 4
PROPOSALS TO BE VOTED ON............................................................. 6
PROPOSAL NO. 1--Election of Directors............................................ 6
PROPOSAL NO. 2--Ratification of Independent Accountants.......................... 8
PROPOSAL NO. 3--Approval of the Hewlett-Packard Company 1999 Variable Pay Plan... 9
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................... 11
Beneficial Ownership Table....................................................... 11
Section 16(a) Beneficial Ownership Reporting Compliance.......................... 15
EXECUTIVE COMPENSATION............................................................... 16
Summary Compensation Table....................................................... 16
Option Grants Table.............................................................. 20
Option Exercises and Year-End Option Values Table................................ 21
Estimated Annual Retirement Benefits Table Under Pension Plans................... 22
Estimated Annual Retirement Benefits Under Officers Early Retirement Plan........ 23
Report of the Compensation Committee............................................. 24
Stock Performance Graph.......................................................... 29
ADDITIONAL QUESTIONS AND INFORMATION REGARDING THE ANNUAL MEETING AND STOCKHOLDER
PROPOSALS.......................................................................... 30
WHAT HAPPENS IF ADDITIONAL PROPOSALS ARE PRESENTED AT THE MEETING?............. 30
WHAT CLASS OF SHARES ARE ENTITLED TO BE VOTED?................................. 30
WHAT IS THE QUORUM REQUIREMENT FOR THE MEETING?................................ 30
IS CUMULATIVE VOTING PERMITTED FOR THE ELECTION OF DIRECTORS?.................. 30
WHO WILL COUNT THE VOTE?....................................................... 30
IS MY VOTE CONFIDENTIAL?....................................................... 30
WHO WILL BEAR THE COST OF SOLICITING VOTES FOR THE MEETING?.................... 31
MAY I PROPOSE ACTIONS FOR CONSIDERATION AT NEXT YEAR'S ANNUAL MEETING OF
STOCKHOLDERS OR NOMINATE INDIVIDUALS TO SERVE AS DIRECTORS?................... 31
APPENDIX A--HEWLETT-PACKARD COMPANY 1999 VARIABLE PAY PLAN........................... A-1
</TABLE>
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HEWLETT-PACKARD COMPANY
3000 HANOVER STREET
PALO ALTO, CALIFORNIA 94304
(650) 857-1501
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME 2:00 p.m. on Tuesday, February 23, 1999
PLACE Flint Center for the Performing Arts
21250 Stevens Creek Boulevard
Cupertino, California
ITEMS OF BUSINESS (1) To elect directors
(2) To ratify the appointment of independent
accountants
(3) To approve the 1999 Variable Pay Plan
(4) To consider such other business as may properly
come before the meeting
RECORD DATE You are entitled to vote if you were a stockholder at
the close of business on Monday, December 28, 1998.
MEETING ADMISSION Two cut-out admission tickets are included on the back
cover of this proxy statement. Please contact the HP
Corporate Secretary at our Company headquarters if you
need additional tickets. The meeting will begin
promptly at 2 o'clock.
VOTING BY PROXY Please submit a proxy as soon as possible so that your
shares can be voted at the meeting in accordance with
your instructions. You may submit your proxy (1) over
the Internet, (2) by telephone, or (3) by mail. For
specific instructions, please refer to the QUESTIONS
AND ANSWERS beginning on page 2 of this proxy statement
and the instructions on the proxy card.
</TABLE>
By Order of the Board of Directors
/s/ D. CRAIG NORDLUND
D. CRAIG NORDLUND
Associate General Counsel and
Secretary
THIS PROXY STATEMENT AND ACCOMPANYING PROXY CARD ARE BEING DISTRIBUTED ON OR
ABOUT JANUARY 12, 1999.
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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
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Q: WHY AM I RECEIVING THESE MATERIALS?
A: The Board of Directors (the "Board") of
Hewlett-Packard Company (sometimes
referred to as the "Company" or "HP") is
providing these proxy materials for you in
connection with HP's annual meeting of
stockholders which will take place on
February 23, 1999. You are invited to
attend the meeting and are requested to
vote on the proposals described in this
proxy statement.
Q: WHAT INFORMATION IS CONTAINED IN THESE
MATERIALS?
A: The information included in this proxy
statement relate to the proposals to be
voted on at the meeting, the voting
process, the compensation of directors and
our most highly paid officers, and certain
other required information. Our 1998
Annual Report is also enclosed.
Q: WHAT PROPOSALS WILL BE VOTED ON AT THE
MEETING?
A: There are three proposals scheduled to be
voted on at the meeting:
- The election of directors
- The ratification of independent
accountants
- The approval of the 1999 Variable Pay
Plan
Q: WHAT IS HP'S VOTING RECOMMENDATION?
A: Our Board of Directors recommends that you
vote your shares "FOR" each of the
nominees to the Board and "FOR" each of
the other proposals.
Q: WHAT SHARES OWNED BY ME CAN BE VOTED?
A: All shares owned by you as of December 28,
1998, the RECORD DATE, may be voted by
you. These shares include those (1) held
directly in your name as the STOCKHOLDER
OF RECORD, including shares purchased
through HP's Dividend Reinvestment Plan
and HP's Employee Stock Purchase Plan and
(2) held for you as the BENEFICIAL OWNER
through a stockbroker, bank or other
nominee, including those shares purchased
through HP's 40l(k) plan, the TAX SAVING
CAPITAL ACCUMULATION PLAN ("TAXCAP").
Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING
SHARES AS A STOCKHOLDER OF RECORD AND AS A
BENEFICIAL OWNER?
A: Most HP stockholders hold their shares
through a stockbroker, bank or other
nominee rather than directly in their own
name. As summarized below, there are some
distinctions between shares held of record
and those owned beneficially.
STOCKHOLDER OF RECORD
If your shares are registered directly in
your name with HP's Transfer Agent, Harris
Trust and Savings Bank, you are
considered, with respect to those shares,
the STOCKHOLDER OF RECORD and these proxy
materials are being sent directly to you
by HP. As the STOCKHOLDER OF RECORD, you
have the right to grant your voting proxy
directly to HP or to vote in person at the
meeting. HP has enclosed a proxy card for
you to use.
BENEFICIAL OWNER
If your shares are held in a stock
brokerage account or by a bank or other
nominee, you are considered the BENEFICIAL
OWNER of shares held IN STREET NAME and
these proxy materials are being forwarded
to you by your broker or nominee who is
considered, with respect to those shares,
the STOCKHOLDER OF RECORD. As the
beneficial owner, you have the right to
direct your broker on how to vote and are
also invited to attend the meeting.
However, since you are not the STOCKHOLDER
OF RECORD, you may not vote these shares
in person at the meeting. Your broker or
nominee has enclosed a voting instruction
card for you to use.
Q: HOW CAN I VOTE MY SHARES IN PERSON AT THE
MEETING?
A: Shares held directly in your name as the
STOCKHOLDER OF RECORD may be voted in
person at the annual meeting. If you
choose to do so, please bring the enclosed
proxy card or proof of identification.
EVEN IF YOU PLAN TO ATTEND THE ANNUAL
MEETING, WE RECOMMEND THAT YOU ALSO SUBMIT
YOUR PROXY AS DESCRIBED BELOW SO THAT YOUR
VOTE WILL BE COUNTED IF YOU LATER DECIDE
NOT TO ATTEND THE MEETING.
Q: HOW CAN I VOTE MY SHARES WITHOUT ATTENDING
THE MEETING?
A: Whether you hold shares directly as the
stockholder of record or beneficially in
street name, you may direct your vote
without attending the meeting. You may
vote by granting a proxy or, for shares
held in street name, by submitting voting
instructions to your broker or nominee. In
most instances, you will be able to do
this over the Internet, by telephone or by
mail. Please refer to the summary
instructions below and those included
</TABLE>
2
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<TABLE>
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on your proxy card or, for shares held in
street name, the voting instruction card
included by your broker or nominee.
BY INTERNET--If you have Internet access,
you may submit your proxy from any
location in the world by following the
"Vote by Internet" instructions on the
proxy card.
BY TELEPHONE--If you live in the United
States or Canada, you may submit your
proxy by following the "Vote by Phone"
instructions on the proxy card.
BY MAIL--You may do this by signing your
proxy card or, for shares held in street
name, the voting instruction card included
by your broker or nominee and mailing it
in the enclosed, postage prepaid and
addressed envelope. If you provide
specific voting instructions, your shares
will be voted as you instruct. If you sign
but do not provide instructions, your
shares will be voted as described below in
"HOW ARE VOTES COUNTED?".
Q: CAN I CHANGE MY VOTE?
A: You may change your proxy instructions at
any time prior to the vote at the annual
meeting. For shares held directly in your
name, you may accomplish this by granting
a new proxy or by attending the annual
meeting and voting in person. Attendance
at the meeting will not cause your
previously granted proxy to be revoked
unless you specifically so request. For
shares held beneficially by you, you may
accomplish this by submitting new voting
instructions to your broker or nominee.
Q: HOW ARE VOTES COUNTED?
A: In the election of directors, you may vote
"FOR" all of the nominees or your vote may
be "WITHHELD" with respect to one or more
of the nominees. For the other proposals,
you may vote "FOR", "AGAINST" or
"ABSTAIN". If you "ABSTAIN", it has the
same effect as a vote "AGAINST". If you
sign your proxy card or broker voting
instruction card with no further
instructions, your shares will be voted in
accordance with the recommendations of the
Board, except that any shares you hold in
TAXCAP will be voted in proportion to the
way the other TAXCAP participants vote
their shares.
Q: WHAT IS THE VOTING REQUIREMENT TO APPROVE
EACH OF THE PROPOSALS?
A: In the election for directors, the 14
persons receiving the highest number of
"FOR" votes will be elected. All other
proposals require the affirmative "FOR"
vote of a majority of those shares present
and entitled to vote. If you are a
BENEFICIAL OWNER and do not provide the
STOCKHOLDER OF RECORD with voting
instructions, your shares may constitute
BROKER NON-VOTES, as described in "WHAT IS
THE QUORUM REQUIREMENT FOR THE MEETING?"
on page 30. In tabulating the voting
result for any particular proposal, shares
which constitute BROKER NON-VOTES are not
considered entitled to vote.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN
ONE PROXY OR VOTING INSTRUCTION CARD?
A: It means your shares are registered
differently or are in more than one
account. Please provide voting
instructions for all proxy and voting
instruction cards you receive.
Q: HOW CAN I OBTAIN AN ADMISSION TICKET FOR
THE MEETING?
A: Two cut-out admission tickets are included
on the back of this proxy statement. A
limited number of tickets are available
for additional joint owners. To request
additional tickets, please contact the HP
Corporate Secretary at our Company
headquarters. If you forget to bring an
admission ticket, you will be admitted to
the meeting only if you are listed as a
stockholder of record as of December 28,
1998 and bring proof of identification. If
you hold your shares through a stock
broker or other nominee and fail to bring
an admission ticket, you will need to
provide proof of ownership by bringing
either a copy of the voting instruction
card provided by your broker or a copy of
a brokerage statement showing your share
ownership as of December 28, 1998.
Q: WHERE CAN I FIND THE VOTING RESULTS OF THE
MEETING?
A: We will announce preliminary voting
results at the meeting and publish final
results in our quarterly report on Form
10-Q for the second quarter of fiscal
1999.
</TABLE>
ADDITIONAL Q&A INFORMATION REGARDING THE ANNUAL MEETING AND STOCKHOLDER
PROPOSALS MAY BE FOUND ON PAGES 30 THROUGH 31 BELOW.
3
<PAGE>
BOARD STRUCTURE AND COMPENSATION
Our Board has 14 directors and the following 5 committees: (1) Audit, (2)
Compensation, (3) Executive, (4) Finance and Investment and (5) Organization
Review and Nominating. The membership during fiscal 1998 and the function of
each committee are described below. During fiscal 1998, the Board held 7
meetings and each director attended at least 75% of all Board and applicable
committee meetings.(1)
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<CAPTION>
NAME OF DIRECTOR AUDIT COMPENSATION EXECUTIVE FINANCE AND INVESTMENT
<S> <C> <C> <C> <C>
NON-EMPLOYEE DIRECTORS:
Philip M. Condit X
Patricia C. Dunn X
Thomas E. Everhart X X
John B. Fery X
Jean-Paul G. Gimon X
Sam Ginn(2) X X
Richard A. Hackborn X X*
Walter B. Hewlett X
George A. Keyworth II X*
David Lawrence, M. D. X X
Susan Packard Orr X*
David Woodley Packard X
EMPLOYEE DIRECTORS:
Lewis E. Platt X*
Robert P. Wayman X X
Number of Meetings in Fiscal
1998 4 5 0 5
<CAPTION>
ORGANIZATION REVIEW AND
NAME OF DIRECTOR NOMINATING
<S> <C>
NON-EMPLOYEE DIRECTORS:
Philip M. Condit X
Patricia C. Dunn
Thomas E. Everhart
John B. Fery X*
Jean-Paul G. Gimon
Sam Ginn(2) X
Richard A. Hackborn
Walter B. Hewlett X
George A. Keyworth II X
David Lawrence, M. D.
Susan Packard Orr
David Woodley Packard X
EMPLOYEE DIRECTORS:
Lewis E. Platt X
Robert P. Wayman
Number of Meetings in Fiscal
1998 5
</TABLE>
X = Committee member; * = Chair
(1) Other than Patricia C. Dunn, who was elected to the Board on July 16, 1998,
all directors served on the Board for the entire fiscal 1998.
(2) Effective as of March 20, 1998, Mr. Ginn joined the Finance and Investment
Committee and resigned from the Organization Review and Nominating
Committee.
THE AUDIT COMMITTEE
The Audit Committee reviews our auditing, accounting, financial reporting and
internal control functions and makes recommendation to the Board for the
selection of independent accountants. In addition, the committee monitors our
compliance with certain defense industry initiatives and foreign trade
regulations as well as the non-audit services of our independent accountants. In
discharging its duties, the committee:
- reviews and approves the scope of the annual audit and the independent
accountant's fees;
- meets independently with our internal auditing staff, our independent
accountants and our senior management; and
- reviews the general scope of our accounting, financial reporting, annual
audit and internal audit program, matters relating to internal control
systems as well as the results of the annual audit.
COMPENSATION COMMITTEE
The Compensation Committee determines, approves and reports to the Board on all
elements of compensation for our elected officers including, TARGETED TOTAL CASH
COMPENSATION, VARIABLE PAY and LONG-TERM EQUITY BASED INCENTIVES, as described
below in pages 24 through 28 of this proxy statement.
4
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EXECUTIVE COMMITTEE
The Executive Committee meets or takes written action when the Board is not
otherwise meeting and has the same level of authority as the Board, except that
it cannot amend HP's Bylaws, recommend any action that requires the approval of
the stockholders or to take any other action not permitted to be delegated to a
committee under Delaware law.
FINANCE AND INVESTMENT COMMITTEE
The Finance and Investment Committee supervises the investment of all assets
held by HP's employee benefit plans and funds and it reviews the investment
results of HP's international subsidiaries' pension plans. It also establishes
and reviews policies regarding the investment of general corporate assets, HP's
capital structure, the issuance of debt, as well as the use of derivative
investments to manage currency and interest rate exposure. In addition, the
committee provides oversight and guidance to the Board regarding significant
financial matters, including the payment of dividends.
ORGANIZATION REVIEW AND NOMINATING COMMITTEE
The Organization Review and Nominating Committee proposes a slate of directors
for election by our stockholders at each annual meeting and candidates to fill
any vacancies on the Board. It is also responsible for approving management
succession plans and addressing Board organizational and governance issues.
DIRECTOR COMPENSATION ARRANGEMENTS AND STOCK OWNERSHIP GUIDELINES
The following table provides information on HP's compensation and
reimbursement practices during fiscal 1998 for non-employee directors as well as
the range of compensation paid to non-employee directors who served the entire
1998 fiscal year.(1) Directors who are employed by HP, Mr. Platt and Mr. Wayman,
do not receive any compensation for their Board activities.
<TABLE>
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COMPENSATION TABLE
FOR FISCAL 1998
Annual Director Retainer $45,000
Minimum Percentage of Annual Retainer to be Paid in HP Stock or Options 50%
Board Meeting Attendance Fees (per meeting) $1,500
Range of Board Meeting Attendance Fees Paid to Directors (for the year) $6,000--$10,500
Committee Meeting Attendance Fees (per meeting) $1,200
Range of Committee Meeting Attendance Fees Paid to Directors (for the
year) $6,000--$12,000
Additional Retainer for Committee Chair $3,000
Reimbursement for Expenses Attendant to Board Membership Yes
Range of Total Compensation Paid to Directors (for the year) $57,000--$67,500
</TABLE>
(1) All directors other than Patricia C. Dunn, who joined our Board on July 16,
1998, served the entire 1998 fiscal year.
Effective as of March 1, 1999, the Compensation Committee has approved the
following changes to the compensation program for non-employee directors: (1)
the Annual Director Retainer is increased to $100,000, (2) Board and Committee
Attendance Fees (which averaged an aggregate of $18,927 during fiscal 1998 for
each of the non-employee directors who served the full year) are eliminated, (3)
the Minimum Percentage of Annual Retainer to be Paid in HP Stock or Options is
increased, absent special circumstances, to 75%. In addition, the Compensation
Committee increased the stock ownership guidelines for directors. Under the new
guidelines, all directors are required to accumulate over time shares of HP
stock equal in value to at least twice the value of the Annual Director
Retainer.
5
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
There are 14 nominees for election to our Board this year. All of the
nominees have served as directors since the last annual meeting, except for
Patricia C. Dunn, who was elected a director by our Board on July 16, 1998 and
will stand for election as a director by our stockholders for the first time at
this year's annual meeting. Information regarding the business experience of
each nominee is provided below. All directors are elected annually to serve
until the next annual meeting and until their respective successors are elected.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION TO THE BOARD OF
EACH OF THE FOLLOWING NOMINEES.
<TABLE>
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PHILIP M. CONDIT Mr. Condit has been Chairman of The Boeing Company since February
Director since 1998 1997, its Chief Executive Officer since April 1996 and a member
Age 56 of its board since 1992. He served as President of The Boeing
Company from August 1992 until becoming its Chairman. From 1989
to 1992, he was Executive Vice President of Boeing Commercial
Airplane Group and General Manager of its 777 Division.
PATRICIA C. DUNN Ms. Dunn has been Chairman of Barclays Global Investors since
Director since 1998 1998 and its Co-Chief Executive Officer since 1995. Prior to
Age 45 becoming Chairman, Ms. Dunn served as Barclay's Co-Chairman since
1997. She has served in a variety of marketing, management and
executive roles since joining Barclays in 1976. From 1987 to
1995, she served as president and chief executive officer of the
Defined Benefit Group, and in 1995 was named managing director
and chief executive officer of the Group. Ms. Dunn is Chairman of
Barclays Global Investors, N.A. and Barclays Global Fund
Services.
THOMAS E. EVERHART Dr. Everhart served as President of the California Institute of
Director since 1991 Technology from 1987 until his retirement in 1997. He is a
Age 66 director of General Motors Corporation, Raytheon Company, Hughes
Electronics Corporation and Reveo, Inc. He is also a director of
the Corporation for National Research Initiatives, the Electric
Power Research Institute and a member of the Board of Trustees of
the California Institute of Technology.
JOHN B. FERY Mr. Fery served as Chairman of the Board and Chief Executive
Director since 1982 Officer of Boise Cascade Corporation from 1978 until his
Age 68 retirement as Chief Executive Officer in 1994 and as Chairman in
1995. He is a director of Albertson's Inc. and The Boeing
Company.
JEAN-PAUL G. GIMON Dr. Gimon served as the General Representative in North America
Director since 1993 with Credit Lyonnais S.A., a major global banking institution
Age 62 based in France, from 1984 until his retirement in 1996. He is
the son-in-law of HP co-founder William R. Hewlett and a
brother-in-law of director Walter B. Hewlett.
</TABLE>
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<TABLE>
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SAM GINN Mr. Ginn has been Chairman and Chief Executive Officer of
Director since 1996 AirTouch Communications since December 1993. He was Chairman and
Age 61 Chief Executive Officer of the Pacific Telesis Group from 1988
until December 1993. Mr. Ginn is a director of Transamerica
Corporation and Chevron Corporation.
RICHARD A. HACKBORN Mr. Hackborn served as HP's Executive Vice President, Computer
Director since 1992 Products Organization from 1990 until his retirement in 1993
Age 61 after a 33-year career with HP. He is a director of Microsoft
Corporation, the William and Flora Hewlett Foundation and the
Boise Art Museum.
WALTER B. HEWLETT Mr. Hewlett is an independent software developer involved with
Director since 1987 computer applications in the humanities. In 1994, Mr. Hewlett
Age 54 participated in the formation of Vermont Telephone Company of
Springfield, Vermont. He currently serves as Chairman of that
company. In 1984, Mr. Hewlett founded the Center for Computer
Assisted Research in the Humanities, for which he serves as
Director. Mr. Hewlett has been a trustee of The William and Flora
Hewlett Foundation since its founding in 1966 and currently
serves as its Chairman. In 1997, Mr. Hewlett was elected to the
Board of Overseers of Harvard University. He is the son of HP
co-founder William R. Hewlett and is a brother-in-law of director
Jean-Paul G. Gimon.
GEORGE A. KEYWORTH II Dr. Keyworth has been Chairman and Senior Fellow with The
Director since 1986 Progress & Freedom Foundation, a public policy research
Age 59 institute, since 1995. He had been a Distinguished Fellow of the
Hudson Institute from 1988 to 1995. He was Science Advisor to the
President and Director of the White House Office of Science and
Technology Policy from 1981 through 1985, and prior to that time
was Director of the Experimental Physics Division at the Los
Alamos Scientific Laboratory. Dr. Keyworth served as a member of
the President's Commission on Industrial Competitiveness from
1984 to 1985 and the National Commission on Superconductivity
from 1989 to 1990. He is a director of Encanto Networks, Inc.,
NovaWEB Technologies, Inc., Yourtel, Inc. and General Atomics.
Dr. Keyworth holds various honorary degrees and is an honorary
professor at Fudan University in Shanghai, People's Republic of
China.
DAVID M. LAWRENCE, M.D. Dr. Lawrence has been Chairman of the Board since 1992 and Chief
Director since 1995 Executive Officer since 1991 of Kaiser Foundation Health Plan,
Age 58 Inc. and Kaiser Foundation Hospitals. He held a number of
management positions with those organizations prior to assuming
his current positions, including Vice Chairman of the Board and
Chief Operating Officer. Dr. Lawrence is a director of Pacific
Gas and Electric Company and Raffles Medical Group, Inc.
</TABLE>
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<TABLE>
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SUSAN PACKARD ORR Ms. Orr has been President and owner of the Technology Resource
Director since 1993 Assistance Center, which provides computer consulting and
Age 52 software development services to non-profit organizations, since
1986. She was formerly an economist at the National Institutes of
Health and a senior programmer and project leader in Health
Computer Services at the University of Minnesota. Ms. Orr is
Chairman and a director of The David and Lucile Packard
Foundation and Vice President and director of The Packard
Humanities Institute. She is a sister of director David Woodley
Packard.
DAVID WOODLEY PACKARD Dr. Packard founded The Packard Humanities Institute for the
Director since 1987 development of technology to support basic research in the
Age 58 humanities in 1987. He founded the Ibycus Corporation, which sold
computer systems specially designed for work with ancient
languages, in 1984. Prior to founding Ibycus, Dr. Packard was a
professor of ancient Greek. He serves on the boards of other
non-profit organizations, including The David and Lucile Packard
Foundation. Dr. Packard is the brother of director Susan Packard
Orr.
LEWIS E. PLATT Mr. Platt has served as HP's President and Chief Executive
Director since 1992 Officer since November 1992 and as Chairman since September 1993.
Age 57 He was an Executive Vice President of HP from 1987 to 1992. Prior
to becoming President and CEO, Mr. Platt held a number of
management positions at HP, including managing the Computer
Systems Organization from 1990 to 1992. Mr. Platt is a director
of the David and Lucile Packard Foundation and serves on the
Wharton School Board of Overseers and the Cornell University
Council.
ROBERT P. WAYMAN Mr. Wayman has served as an HP Executive Vice President,
Director since 1993 responsible for finance and administration, since December 1992.
Age 53 He has held a number of financial management positions at HP and
was elected Vice President and Chief Financial Officer in 1984.
Mr. Wayman is a director of CNF Transportation, Inc. and Sybase
Inc. He also serves as a member of the Kellogg Advisory Board to
Northwestern University School of Business and is Chairman of the
Private Sector Council.
</TABLE>
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors has appointed
PricewaterhouseCoopers LLP as the Company's independent accountants to audit
HP's consolidated financial statements for the 1999 fiscal year. During fiscal
1998, PricewaterhouseCoopers LLP and its predecessor, Price Waterhouse LLP,
served as HP's independent accountants and provided certain tax and consulting
services. Representatives of PricewaterhouseCoopers LLP are expected to attend
the meeting where they will be available to respond to questions and, if they
desire, to make a statement.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS HP'S INDEPENDENT ACCOUNTANTS FOR
THE 1999 FISCAL YEAR. If the appointment is not ratified, our Board will select
other independent accountants.
8
<PAGE>
PROPOSAL NO. 3
APPROVAL OF THE HEWLETT-PACKARD COMPANY
1999 VARIABLE PAY PLAN
The Compensation Committee of the Board of Directors has adopted the
Hewlett-Packard Company 1999 Variable Pay Plan (the "1999 Variable Pay Plan" or
the "1999 Plan"). At the annual meeting, we are asking stockholders to approve
the 1999 Plan in order to qualify payments made to certain HP officers under the
1999 Plan as deductible for U.S. federal income tax purposes. The Board believes
that the 1999 Plan benefits stockholders by linking a portion of executive
compensation to performance and by qualifying amounts paid pursuant to the 1999
Plan for a U.S. federal income tax deduction.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
HEWLETT-PACKARD COMPANY 1999 VARIABLE PAY PLAN.
SUMMARY OF THE 1999 VARIABLE PAY PLAN
GENERAL
The 1999 Plan is designed to more directly link the annual cash compensation for
designated HP executives to business performance. Under the 1999 Plan, a portion
of the targeted total cash compensation ("TTCC") for each plan participant (a
"Plan Participant") is designated "at risk" variable pay which will only be paid
if certain pre-determined business performance metrics are achieved. If such
pre-determined business performance metrics are exceeded, additional cash
compensation may be awarded. The 1999 Plan will be administered in six-month
performance periods which coincide with each half of HP's fiscal year. The 1999
Plan supersedes the Variable Pay Plan adopted by the Compensation Committee in
November 1997 and approved by HP stockholders at last year's annual meeting.
ADMINISTRATION
The Compensation Committee of the Board of Directors (the "Committee") will
administer the 1999 Plan and has full power to interpret and administer the 1999
Plan. The Committee may empower a committee or person or persons to administer
the 1999 Plan with respect to participants other than "covered employees" as
that term is defined in Section 162(m) of the United States Internal Revenue
Code.
PARTICIPATION AND ELIGIBILITY
The Committee will designate the Plan Participants for each six-month
performance period. Persons employed by HP or one of its affiliates and in
active service during a performance period will be eligible to participate.
The Committee will determine 1999 Plan participation based on an employee's job
position. If a Plan Participant changes from one eligible position to another or
transfers into a position that is not eligible for participation under the 1999
Plan, any award will be prorated based on the Plan Participant's time in each
eligible position and his or her performance measured against the applicable
performance metrics. A Plan Participant will forfeit any award for a performance
period during which such participant is involuntarily terminated by HP for cause
or voluntarily terminates his or her employment with HP for reasons other than
death, permanent and total disability or retirement.
The Committee has designated 84 Plan Participants for the performance period
which began on November 1, 1998 and will end April 30, 1999.
PLAN OPERATION
As previously described, the 1999 Plan will be administered in six-month
performance periods which coincide with each half of HP's fiscal year. The
Committee will determine each Plan Participant's TTCC at the beginning of each
fiscal year.
9
<PAGE>
At the beginning of each performance period, the Committee will determine who
will participate in the 1999 Plan and for each Plan Participant:
- - The portion of TTCC that will be "at risk"
- - The relevant performance metrics
- - The percentages to be allocated to each performance metric
- - A table or matrix specifying the percentage of a cash award to be paid based
on the extent to which performance metrics are met
For each 6 month performance period, a Plan Participant may earn an award of up
to 3 times the "at risk" portion of TTCC or $4 million dollars, whichever is
less.
Following the end of each performance period, the Committee will compare the
actual performance results for each performance metric with the targeted results
and will determine the award to which each Plan Participant is entitled. If the
relevant performance metrics are not achieved, the Plan Participant may forfeit
some or all of the "at risk" portion of TTCC. If the relevant performance
metrics are exceeded, the Plan Participant may be eligible for an award in
excess of the "at risk" portion of TTCC.
In determining the amount of cash compensation paid pursuant to the 1999 Plan,
the Committee has the discretion to consider certain extraordinary events, such
as major accounting changes or unanticipated material acquisition activity,
which may affect the evaluated performance results.
With the exception of the Hewlett-Packard Company Executive Deferred
Compensation Plan, HP intends that any benefits payable or accruable to Plan
Participants under HP benefit programs will be based on such Plan Participant's
TTCC rather than on his or her actual total cash compensation.
FEDERAL INCOME TAX CONSIDERATIONS
All amounts paid pursuant to the 1999 Plan are taxable income to the employee
when paid. HP will be entitled to a federal income tax deduction for all amounts
paid under the 1999 Plan if it is approved by stockholders and meets the other
requirements of Section 162(m) of the United States Internal Revenue Code.
AMENDMENT AND TERMINATION OF THE PLAN
The Committee may amend, suspend or terminate the 1999 Plan at any time and for
any reason.
ESTIMATED AWARDS
The following table shows the range of awards payable under the 1999 Plan during
fiscal 1999 to (1) the HP officers named in the Summary Compensation Table(1),
(2) all current executive officer participants and (3) all non-executive officer
participants. The maximum award represents 3 times the "at risk" portion of
TTCC.
RANGE OF AWARDS FOR FISCAL 1999 UNDER THE 1999 VARIABLE PAY PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE ($)
NAME AND POSITION MINIMUM--MAXIMUM
<S> <C>
Lewis E. Platt $0--$4,800,000
Chairman, President and
Chief Executive Officer
Robert P. Wayman $0--$810,000
Executive Vice President
and Chief Financial Officer
Edward W. Barnholt $0--$627,750
Executive Vice President
Carolyn M. Ticknor $0--$506,250
Vice President
All current executive $0--$9,406,875
officers as a group
Non-executive officer $0--$11,566,526
employee group
</TABLE>
(1) Dr. Birnbaum has announced his retirement as of February 1999 and thus will
not be a participant in the 1999 Plan.
Other than Mr. Platt and Mr. Wayman, none of HP's current directors are eligible
to participate in the 1999 Plan.
INCORPORATION BY REFERENCE
The foregoing is only a summary of the 1999 Plan and is qualified in its
entirety by reference to its full text, a copy of which is attached hereto as
Appendix A.
10
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of December 28, 1998,
concerning:
- each beneficial owner of more than 5% of HP's common stock: The David and
Lucile Packard Foundation, William R. Hewlett, Walter B. Hewlett, Susan P.
Orr, David W. Packard, Nancy P. Burnett, Julie Packard, Lewis E. Platt and
Edwin E. van Bronkhorst;
- beneficial ownership by all other HP directors and HP executive officers
named in the Summary Compensation Table on page 16 (the "Named Officers");
and
- beneficial ownership by all HP directors and HP executive officers as a
group.
The table begins with ownership of the families of HP's founders and their
related entities: (1) the family of the late Mr. David Packard, its foundation
and charitable institutions, and (2) Mr. William R. Hewlett, certain members of
his family and the family foundation.
The number of shares beneficially owned by each entity, person, director or
executive officer is determined under rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has the sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire as of February 26, 1999 (60 days after the record date of December 28,
1998) through the exercise of any stock option or other right. Unless otherwise
indicated, each person has sole investment and voting power (or shares such
powers with his or her spouse) with respect to the shares set forth in the
following table.
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP(1)(2) CLASS
--------------------------- ----------
<S> <C> <C> <C>
THE DAVID AND LUCILE PACKARD FOUNDATION
(THE "PACKARD FOUNDATION"), the
directors of which are the four children
of Mr. David Packard, the first two of
whom are also HP directors: Dr. David W.
Packard, Ms. Susan P. Orr, Ms. Nancy P.
Burnett and Ms. Julie Packard (the
"Packard Children"); Mr. Lewis E. Platt,
HP director; and Mr. Edwin E. van
Bronkhorst.
P.O. Box 1330
Los Altos, CA 94023................... 125,590,628 12.4%
As directors of the Packard Foundation,
the Packard Children, Mr. Platt and Mr.
van Bronkhorst share voting and investment
power with each other and with the other
directors over the Packard Foundation
shares. Accordingly, the Packard Children,
Mr. Platt and Mr. van Bronkhorst are
considered beneficial owners of these
shares, but they disclaim any beneficial
interest in all shares held by the Packard
Foundation because they have no economic
interest in any of these shares.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP(1)(2) CLASS
--------------------------- ----------
<S> <C> <C> <C>
MONTEREY BAY AQUARIUM FOUNDATION (THE
"AQUARIUM FOUNDATION"), the directors of
which are the Packard Children.......... 180,174 *
As directors of the Aquarium Foundation,
the Packard Children share voting and
investment power with each other and with
the other directors over the Aquarium
Foundation shares. Accordingly, the
Packard Children are considered beneficial
owners of these shares, but they disclaim
any beneficial interest in all shares held
by the Aquarium Foundation because they
have no economic interest in any of these
shares.
SUSAN P. ORR, Director of the Packard
Foundation, the Aquarium Foundation and
HP...................................... 0 Direct (1)
2,719,958 Indirect(3)
DAVID WOODLEY PACKARD, Director of the
Packard Foundation, the Aquarium
Foundation and HP....................... 1,885,088 Direct (1)
1,062 Vested Options
664,180 Indirect(4)
NANCY P. BURNETT, Director of the Packard
Foundation and the Aquarium Foundation
1501 Page Mill Road
Palo Alto, CA 94304................... 2,319,828 Direct (1)
904,388 Indirect(5)
JULIE PACKARD, Director of the Packard
Foundation and the Aquarium Foundation
1501 Page Mill Road
Palo Alto, CA 94304................... 2,707,870 Direct (1)
560,488 Indirect(6)
WILLIAM R. HEWLETT, CERTAIN HEWLETT FAMILY
MEMBERS AND THEIR RELATED TRUSTS AND
CHARITABLE INSTITUTION:
THE WILLIAM R. HEWLETT REVOCABLE TRUST
DATED 2/3/95 (THE "HEWLETT TRUST"), the
co-trustees of which are Mr. William R.
Hewlett, Mr. Walter B. Hewlett and Mr.
Edwin E. van Bronkhorst.
1501 Page Mill Road
Palo Alto, CA 94304................... 60,903,396 6.0%
As co-trustees of the Hewlett Trust, Mr.
William R. Hewlett, Mr. Walter B. Hewlett
and Mr. Edwin E. van Bronkhorst share
voting and investment power over the
Hewlett Trust shares. Accordingly, each of
them is considered a beneficial owner of
these shares. However, Mr. Walter B.
Hewlett and Mr. van Bronkhorst disclaim
any beneficial interest in the Hewlett
Trust shares because they have no economic
interest in any of these shares.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP(1)(2) CLASS
--------------------------- ----------
<S> <C> <C> <C>
WILLIAM R. HEWLETT, CO-FOUNDER, DIRECTOR
EMERITUS
1501 Page Mill Rd.
Palo Alto, CA 94304..................... 1,763,232 Direct(7) (1)
1,143,910 Indirect(7)(8)
THE WILLIAM AND FLORA HEWLETT FOUNDATION
(THE "HEWLETT FOUNDATION"), the
directors of which are Mr. William R.
Hewlett; Mr. Walter B. Hewlett, son of
Mr. William R. Hewlett and HP director;
Ms. Eleanor H. Gimon, daughter of Mr.
William R. Hewlett and the wife of HP
director Dr. Jean-Paul G. Gimon; and Mr.
Richard A. Hackborn, HP director.
1501 Page Mill Road
Palo Alto, CA 94304................... 4,911,000 *
As directors of the Hewlett Foundation,
Mr. William R. Hewlett, Mr. Walter B.
Hewlett, Ms. Eleanor H. Gimon and Mr.
Richard A. Hackborn share voting and
investment power over the Hewlett
Foundation Shares and, accordingly, are
considered beneficial owners of these
shares, but they disclaim any beneficial
interest in all shares held by the Hewlett
Foundation because they have no economic
interest in any of these shares.
WALTER B. HEWLETT, Director of the Hewlett
Foundation and HP....................... 322,000 Direct (1)
2,124 Vested Options
16,460 Indirect(7)(9)
JEAN-PAUL G. GIMON, son-in-law of William
R. Hewlett and HP director.............. 200 Direct *
1,062 Vested Options
1,127,632 Indirect(10)
LEWIS E. PLATT, Director of the Packard
Foundation
and HP.................................. 303,204 Direct (1)
943,928 Vested Options
EDWIN E. VAN BRONKHORST, retired HP
director and officer, trustee of certain
Hewlett family trusts and director of
the Packard Foundation
1501 Page Mill Road
Palo Alto, CA 94304................... 88 Direct (1)
1,195,816 Indirect(7)(11)
ALL OTHER DIRECTORS AND NAMED OFFICERS NOT
LISTED ABOVE:
Edward W. Barnholt........................ 149,352 Direct *
252,788 Vested Options
5,042 Indirect(12)
Joel S. Birnbaum.......................... 72,698 Direct *
119,750 Vested Options
Philip M. Condit.......................... 776 Direct *
Patricia C. Dunn.......................... 3,000 Direct *
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP(1)(2) CLASS
--------------------------- ----------
<S> <C> <C> <C>
Thomas E. Everhart........................ 2,400 Direct *
6,580 Vested Options
John B. Fery.............................. 7,380 Direct *
8,646 Vested Options
Sam Ginn.................................. 1,796 Direct *
636 Vested Options
Richard A. Hackborn....................... 6,208 Direct *
George A. Keyworth II..................... 4,040 Direct *
1,062 Vested Options
1,000 Indirect(13)
David M. Lawrence......................... 1,452 Direct *
2,760 Vested Options
Carolyn M. Ticknor........................ 99,023 Direct *
22,750 Vested Options
1,600 Indirect(14)
Robert P. Wayman.......................... 133,704 Direct *
425,248 Vested Options
122 Indirect(15)
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (25 PERSONS)...................... 204,593,602 (16)(17) 20.2%
</TABLE>
- ------------------------
* Represent holdings of less than one percent.
(1) None of HP's officers, directors or persons listed in the foregoing table
beneficially owns more than 1% of HP's outstanding shares except for the
following persons who beneficially own the following percentages of HP's
outstanding shares: William R. Hewlett, 6.8%; Walter B. Hewlett, 6.8%;
Susan P. Orr, 12.7%; David Woodley Packard, 12.6%; Nancy P. Burnett, 12.7%;
Julie Packard, 12.7%; Lewis E. Platt, 12.5%; and Edwin E. van Bronkhorst,
18.8%. These percentages represent shared voting and investment power and
in many cases may cover the same shares. Accordingly, the ownership
percentages for each of the above individuals should not be combined to
determine the total voting power and investment power of the Hewlett and
Packard families. For these named individuals, the number of shares
indicated under the "Amount and Nature of Beneficial Ownership" column in
the table reflects all shares held directly or indirectly by them other
than any beneficial ownership interest, as described elsewhere in the
table, that they may have in the Packard Foundation, the Aquarium
Foundation, the Hewlett Trust or the Hewlett Foundation.
(2) "Vested Options" are options which may be exercised as of February 26,
1999.
(3) Includes 1,176 shares held by Ms. Orr's son, 14,216 shares held by Ms. Orr
as custodian for her daughter, 22,000 shares held by her husband, 2,133,058
shares held in the Susan P. Orr Trust, 32,324 shares held in a family trust
and 517,184 shares held in trusts for her children, of which trusts she is
a trustee. Ms. Orr disclaims any beneficial interest in all of these shares
other than those held in the Susan P. Orr Trust.
(4) Includes 95,976 shares held by Dr. Packard's wife, 18,696 shares held by
Dr. Packard as custodian for his daughter, 517,184 shares held in trust for
his children and 32,324 shares held in trust for his family of which trusts
he is trustee. Dr. Packard disclaims any beneficial interest in all of
these shares.
(5) Includes 30,424 shares held by Ms. Burnett's spouse, 28,128 shares held by
her son, 37,736 shares held by Ms. Burnett as custodian for her children,
32,324 shares held in a trust for her family, and 775,776 shares held in
trusts for her children, of which trusts she is trustee. Ms. Burnett
disclaims any beneficial interest in all of those shares.
14
<PAGE>
(6) Includes 10,980 shares held by Ms. Packard as custodian for her niece and
nephews, 32,324 shares held in trust for her family, and 517,184 shares
held in trusts for her children of which trusts she is trustee. Ms. Packard
disclaims any beneficial interest in all of those shares.
(7) Walter B. Hewlett and Edwin E. van Bronkhorst share voting and investment
power over the 1,763,232 shares which are owned directly by William R.
Hewlett and 1,140,320 shares held in a trust for William R. Hewlett's
grandchildren. Mr. Walter B. Hewlett and Mr. van Bronkhorst disclaim any
beneficial interest in all of those shares.
(8) Includes 3,590 shares held by Mr. William R. Hewlett's spouse and 1,140,320
shares held in a trust for Mr. Hewlett's grandchildren, of which trust Mr.
Hewlett is a co-trustee. Mr. Hewlett disclaims any beneficial interest in
all shares owned by the trust.
(9) Includes 14,330 shares held by Mr. Walter B. Hewlett as custodian for his
children, 850 shares held by his son and 1,280 shares held by his wife. Mr.
Hewlett disclaims any beneficial interest in all of these shares.
(10) Includes 1,127,632 shares held by Dr. Gimon's wife.
(11) Includes 922,384 shares held in a trust for Mary H. Jaffe, 227,432 shares
held in a trust for Eleanor H. Gimon and 46,000 shares held in a
charitable lead trust, of which trusts Mr. van Bronkhorst is a co-trustee.
Mr. van Bronkhorst disclaims any beneficial interest in all of the shares
held by those trusts. As a director of the Packard Foundation, Mr. van
Bronkhorst also shares voting and investment power with the other
directors over Packard Foundation shares, but he disclaims any beneficial
interest in those shares because he has no economic interest in such
shares.
(12) Includes 5,042 shares held by Mr. Barnholt as custodian for his children.
(13) Includes 1,000 shares held by Dr. Keyworth's wife.
(14) Includes 1,600 shares held by Ms. Ticknor as custodian for her son.
(15) Includes 112 shares held by Mr. Wayman as custodian for his daughter and
10 shares held by Mr. Wayman as custodian for his son.
(16) Includes an aggregate of 2,179,909 shares which the directors and
executive officers have the right to acquire as of February 26, 1999
through the exercise of options.
(17) Includes an aggregate of 132,949,344 shares held by directors and
executive officers in fiduciary capacities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers and holders of more than 10% of our common stock to file with
the Securities and Exchange Commission reports regarding their ownership and
changes in ownership of our stock. HP believes that during fiscal 1998, its
officers, directors and 10% stockholders complied with all Section 16(a) filing
requirements with the following exceptions (1) one late report filed by Lee S.
Ting, HP Vice President, with respect to a gift of shares to a charity and (2) a
late report filed by HP on behalf of Carolyn M. Ticknor, HP Vice President,
regarding three sales of shares held in custodial accounts for her children. In
making this statement, HP has relied upon the written representations of its
directors and officers.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation received by HP's Chief Executive
Officer and its four other most highly paid executive officers for the fiscal
year ending October 31, 1998 as well as their compensation for each of the
fiscal years ending October 31, 1997 and October 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION
AWARDS PAYOUTS
-------------------- ------------------------- ---------
(A) (B) (C) (D) (E) (F) (G) (H)
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1)(5) ($)(2) SARS (#)(3) ($)(4)(5) ($)(6)
- ----------------------------- ----------- --------- --------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis E. Platt .............. 1998 1,000,000 910,700 2,265,258 200,000 -2,360,925 6,499
Chairman, President and 1997 1,700,000 111,435 2,712,071 150,000 2,470,000 6,427
Chief Executive Officer, 1996 1,637,500 184,121 3,228,723 140,000 2,100,000 10,111
Chairman of the
Executive Committee
Robert P. Wayman ............ 1998 997,625 147,804 1,289,516 70,000 - 674,550 6,499
Executive Vice President, 1997 968,750 63,550 1,360,426 45,000 741,000 6,427
Chief Financial Officer 1996 843,750 95,097 938,945 40,000 1,050,000 10,583
and Director
Edward W. Barnholt .......... 1998 759,488 115,754 967,581 60,000 -539,640 6,499
Executive Vice President 1997 702,500 46,092 1,083,627 30,000 617,500 6,427
1996 595,000 66,362 746,219 30,000 525,000 6,083
Joel S. Birnbaum ............ 1998 661,500 36,591 401,847 35,000 -269,820 6,499
Senior Vice President 1997 623,750 40,912 554,384 20,000 494,000 6,427
1996 558,750 64,024 384,678 20,000 525,000 6,083
Carolyn M. Ticknor .......... 1998 629,250 34,612 1,185,025 15,000 0 6,291
Vice President 1997 538,750 35,364 654,834 20,000 0 6,427
1996 423,750 45,334 557,633 12,000 0 5,869
</TABLE>
16
<PAGE>
FOOTNOTES TO SUMMARY COMPENSATION TABLE
(1) The amounts shown in this column reflect payments under HP's Variable Pay
Plan established November 1, 1997 (the "1998 Variable Pay Plan") and HP's
cash profit-sharing plan. All HP officers subject to Section 16 of the
Securities Exchange Act of 1934 were eligible, at the discretion of the
Compensation Committee, to participate in the 1998 Variable Pay Plan. During
fiscal 1998, only Mr. Platt, Mr. Wayman and Mr. Barnholt participated in the
plan. The 1998 Variable Pay Plan was superseded by the 1999 Variable Pay
Plan as described on pages 9 through 10 of this proxy statement. The cash
profit-sharing plan is available to all employees of HP.
Under the cash profit-sharing plan, a portion of HP's earnings for each half
of its fiscal year is paid to employees. The amount paid is based upon HP's
performance as measured by return on assets and revenue growth.
The 1998 Variable Pay Plan permitted the Compensation Committee to designate
a portion of the annual cash compensation planned for certain executive
officers as variable pay. Under the 1998 Variable Pay Plan, the percentage
of the targeted variable amount to be paid was dependent upon the degree to
which performance metrics defined on an annual basis were met. In November
1997, the Compensation Committee established the performance metrics for
fiscal 1998, which metrics were based on the performance of HP's common
stock relative to the S&P High Technology Composite Index. In November 1998,
the Compensation Committee determined that the following variable
compensation representing 80% of the targeted variable compensation for the
following officers, had been earned: Mr. Platt $800,000, Mr. Wayman $88,000
and Mr. Barnholt, $68,800. The amounts attributable to the 1998 Variable Pay
Plan for fiscal 1998 are disclosed in the table above as Bonus. In fiscal
1997 and 1996, prior to the adoption of the 1998 Variable Pay Plan, all
annual cash compensation other than compensation paid under the
profit-sharing plan was reflected as Salary.
(2) The amounts disclosed in this column reflect, for fiscal 1998, 1997 and
1996, the dollar values of (a) HP common stock which HP contributed under
its Employee Stock Purchase Plan (the "Stock Purchase Plan") as a match for
every two shares purchased by the named executive officers and (b)
performance-based restricted shares of HP common stock which HP granted to
the named executive officers.
The Stock Purchase Plan is a broad-based plan which is available to all HP
employees. The matching shares vest two years after HP's contributions,
which occur on a rolling fiscal quarter basis, and are subject to forfeiture
during the two-year period in the event of termination or certain other
events. The named executive officers receive non-preferential dividends on
these restricted shares. In fiscal 1998, 1997 and 1996, HP, under its Stock
Purchase Plan, granted to Mr. Platt, Mr. Wayman, Mr. Barnholt, Dr. Birnbaum
and Ms. Ticknor restricted stock in the following share amounts having the
following dollar values as of the date of the grant, respectively: Mr.
Platt, 1,664 shares ($104,008), 1,473 shares ($87,071) and 1,759 shares
($80,823); Mr. Wayman, 873 shares ($54,516), 804 shares ($47,926) and 864
shares ($39,545); Mr. Barnholt, 664 shares ($41,331), 561 shares ($33,627)
and 587 shares ($26,699); Mr. Birnbaum, 507 shares ($31,347), 490 shares
($29,384) and 549 shares ($24,918); and Ms. Ticknor, 483 shares ($29,850),
411 shares ($24,834) and 399 shares ($17,993).
In fiscal 1998, 1997 and 1996, HP granted to Mr. Platt, Mr. Wayman, Mr.
Barnholt and Dr. Birnbaum performance-based restricted stock in the
following share amounts having the following dollar values as of the date of
the grant, respectively: Mr Platt, 35,000 shares ($2,161,250), 50,000 shares
($2,625,000) and 70,000 shares ($3,147,900); Mr. Wayman 20,000 shares
($1,235,000), 25,000 shares ($1,312,500) and 20,000 shares ($899,400); Mr.
Barnholt, 15,000 shares ($926,250), 20,000 shares ($1,050,000) and 16,000
shares ($719,520); and Dr. Birnbaum 6,000 shares ($370,500) 10,000 shares
($525,000) and 8,000 shares ($359,760). The performance-based restricted
stock will vest only to the extent that HP achieves stated performance goals
with respect to earnings per share and return on assets over a three-year
period ending October 31, 2000 and 1999 for the performance-based
17
<PAGE>
restricted stock granted in fiscal 1998 and 1997, respectively. Because the
stated performance goals for the three-year period ended October 31, 1998
were not met, 75% of the performance-based restricted stock granted in
fiscal 1996 was forfeited as further described in footnote 4 below.
In fiscal 1998, 1997 and 1996, HP granted to Ms. Ticknor restricted stock in
the following share amounts and with the following dollar values as of the
date of the grant, respectively: 8,500 shares ($524,875), 12,000 shares
($630,000), 12,000 shares ($539,640). In fiscal 1998, Ms. Ticknor was
granted 10,000 additional shares of restricted stock having a value of
$630,300. The restricted stock granted to Ms. Ticknor is not subject to
performance-based goals with respect to earnings per share and return on
assets.
At the end of fiscal 1998, the aggregate share amount and dollar value of
the restricted stock held by the named executive officers was as follows:
Mr. Platt 155,000 shares ($9,338,750), Mr. Wayman 65,000 shares
($3,916,250), Mr. Barnholt 51,000 shares ($3,072,750) Dr. Birnbaum 24,000
($1,446,000) and Ms. Ticknor 102,500 ($6,175,625). The aggregate share
amount and value includes those shares which were later forfeited in
November 1998 as described in footnote 4 below.
(3) Option numbers for fiscal 1996 have been restated to reflect the two-for-one
stock split which occurred in June 1996.
(4) In November 1998, the Compensation Committee reviewed the results for the
three-year performance period ended October 31, 1998 to determine to what
extent the performance objectives associated with performance-based
restricted stock granted in fiscal 1996 had been met. The Compensation
Committee determined that under the terms of each grant, Mr. Platt, Mr.
Wayman, Mr. Barnholt and Dr. Birnbaum were required to forfeit the following
shares constituting 75% of the performance-based restricted stock granted in
1996: Mr. Platt 52,500 shares, Mr. Wayman 15,000 shares, Mr. Barnholt 12,000
shares and Dr. Birnbaum 6,000 shares. The value of the forfeiture is
reflected in the table above as a negative LTIP pay-out in fiscal 1998 based
upon the value of HP stock as of the date of the grant in fiscal 1996.
In fiscal 1997 and 1996, HP granted to the named executive officers shares
of unrestricted stock in the following share amounts having the following
dollar values as of the date of the grant, respectively: Mr. Platt 40,000
shares ($2,470,000) and 40,000 shares ($2,100,000); Mr. Wayman 12,000 shares
($741,000) and 20,000 shares ($1,050,000); Mr. Barnholt 10,000 shares
($617,500) and 10,000 shares ($525,000); and Dr. Birnbaum 8,000 shares
($494,000) and 10,000 shares ($525,000). These grants were made pursuant to
the agreements under which the Compensation Committee in fiscal 1994 and
fiscal 1995 granted shares of performance-based restricted stock to each of
the above-named executive officers. Under the terms of those agreements, the
above-named executives became eligible for additional shares of unrestricted
stock because HP's performance, over each of the three year periods ending
October 31, 1996 and October 31, 1997, exceeded stated goals with respect to
earnings per share and return on assets.
(5) As noted above, HP provides performance-based compensation under the 1998
Variable Pay Plan, its cash profit-sharing plan, pursuant to the agreements
under which the Compensation Committee granted shares of restricted stock in
fiscal 1998, 1997 and 1996 and, beginning in fiscal 1999, the 1999 Variable
Pay Plan. The subsequent compensation payment or forfeiture, described above
as BONUS or LTIP PAYOUT, is reflected as compensation in the fiscal year for
which the relevant performance period is completed. Because the payment of
such performance-based compensation is subject to the review and final
action of the Compensation Committee which generally takes place at a
meeting in the fiscal year following the completion of the relevant
performance period, HP has in the past reflected such compensation in the
following fiscal year. In the future, HP intends to report the timing of
such performance-based compensation in the fiscal year for which the
relevant performance period is completed, as it has in this year's Summary
Compensation Table for fiscal 1998, 1997 and 1996.
18
<PAGE>
(6) The amounts disclosed in this column include:
(a) HP contributions under HP's Tax Saving Capital Accumulation Plan, a
defined contribution plan, in fiscal 1998 of $6,400 for each of Mr.
Platt, Mr. Wayman, Mr. Barnholt, Dr. Birnbaum, and $6,192 for Ms.
Ticknor; in fiscal 1997, of $6,333 for each of Mr. Platt, Mr. Wayman, Mr.
Barnholt, Dr. Birnbaum and Ms. Ticknor; and, in fiscal 1996, of $5,528
for Mr. Platt, $6,000 for each of Mr. Wayman and Mr. Barnholt, $5,908 for
Dr. Birnbaum and $5,786 for Ms. Ticknor.
(b) Payment by the Company of $99 in fiscal 1998, $94 in fiscal 1997 and $83
in fiscal 1996, for term life insurance on behalf of each of the named
executive officers.
(c) Aggregate fees for attendance at Board of Directors meetings in fiscal
1996 of $4,500 for each of Mr. Platt and Mr. Wayman. No fees were paid to
Mr. Platt or Mr. Wayman for attendance at Board of Directors meetings in
fiscal 1998 and 1997.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1998 to
each of the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- GRANT DATE
NUMBER OF % OF TOTAL VALUE
SECURITIES OPTIONS ------------------
UNDERLYING GRANTED TO EXERCISE MARKET GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE ON PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE GRANT DATE VALUE ($)(4)
- --------------------------- ----------- ----------------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Lewis E. Platt............. 200,000 1.9% $ 61.75 Nov. 2007 $ 61.75 $ 4,384,000
Robert P. Wayman........... 70,000 0.7% $ 61.75 Nov. 2007 $ 61.75 $ 1,534,400
Edward W. Barnholt......... 60,000 0.6% $ 61.75 Nov. 2007 $ 61.75 $ 1,315,200
Joel S. Birnbaum........... 35,000 0.3% $ 61.75 Nov. 2007 $ 61.75 $ 767,200
Carolyn M. Ticknor......... 15,000 0.1% $ 61.75 Nov. 2007 $ 61.75 $ 328,800
</TABLE>
- ------------------------
(1) The options granted in fiscal 1998 are exercisable 25% after the first year,
50% after the second year, 75% after the third year, and 100% after the
fourth year.
(2) HP granted options representing 10,648,000 shares to employees in fiscal
1998.
(3) The exercise price may be paid by delivery of already-owned shares and tax
withholding obligations related to exercise may be paid by offset of the
underlying shares, subject to certain conditions.
(4) HP used a modified Black-Scholes model of option valuation to determine
grant date present value. HP does not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option.
Calculations for the named officers are based on a seven-year option term,
which reflects HP's experience that its options, on average, are exercised
within seven years of grant. Other assumptions used for the valuations are:
interest rate of 5.38%; annual dividend yield of 1.0%; and volatility of
30%. The resulting values are reduced by 9% to reflect the Company's
experience with forfeitures.
20
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal 1998
by each of the named executive officers and the values of each of such officer's
unexercised options at October 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lewis E. Platt................ 16,000 $ 852,320 801,428 422,500 $ 32,926,490 $ 3,267,025
Robert P. Wayman.............. 20,000 $ 1,081,000 378,998 141,250 $ 16,527,021 $ 1,155,963
Edward W. Barnholt............ 20,000 $ 1,035,600 218,288 110,000 $ 9,113,541 $ 824,450
Joel S. Birnbaum.............. 24,000 $ 1,282,920 106,456 67,500 $ 4,091,378 $ 520,725
Carolyn M. Ticknor............ 24,800 $ 1,316,832 17,000 42,000 $ 216,330 $ 290,430
</TABLE>
- ------------------------
(1) The value of unexercised options is based upon the difference between the
exercise price and the average of the high and low market prices on October
30, 1998 of $59.91.
21
<PAGE>
PENSION PLANS
The following table shows the estimated annual benefits payable upon
retirement to HP employees in the United States under the Company's Deferred
Profit-Sharing Plan (the "Deferred Plan") and the Company's Retirement Plan (the
"Retirement Plan"), as well as the Company's Excess Benefit Retirement Plan (the
"Excess Benefit Plan").
ESTIMATED ANNUAL RETIREMENT BENEFITS(1)(2)
<TABLE>
<CAPTION>
HIGHEST
FIVE-YEAR 15 20 25 30
AVERAGE YEARS OF YEARS OF YEARS OF YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE
- ------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
4$00,000..... $ 87,207 $ 116,276 $ 145,345 $ 174,414
600,000..... 132,207 176,276 220,345 264,414
800,000..... 177,207 236,276 295,345 354,414
1,000,000... 222,207 296,276 370,345 444,414
1,200,000... 267,207 356,276 445,345 534,414
1,400,000... 312,207 416,276 520,345 624,414
1,600,000... 357,207 476,276 595,345 714,414
1,800,000... 402,207 536,276 670,345 804,414
2,000,000... 447,207 596,276 745,345 894,414
2,200,000... 492,207 656,276 820,345 984,414
2,400,000... 537,207 716,276 895,345 1,074,414
</TABLE>
- ------------------------
(1) Amounts exceeding $130,000 would be paid pursuant to the Excess Benefit
Plan.
(2) Effective November 1, 1997, no more than $160,000 (as adjusted from time to
time by the Internal Revenue Service) of cash compensation may be taken into
account in calculating benefits payable under the Retirement Plan.
The compensation covered by the plans whose benefits are summarized in the
table above equals base pay. The covered compensation for each of the executive
officers named in the Summary Compensation Table is the highest five-year
average of the amounts shown in the "Salary" column of that table. Effective
November 1, 1997, the compensation covered by the above referenced plans for any
HP officer who participates in the Company's 1998 Variable Pay Plan or the
Company's 1999 Variable Pay Plan shall be the "total targeted cash compensation"
as defined under each of such variable pay plans.
Officers named in the Summary Compensation Table have been credited with the
following years of service: Mr. Platt, 30 years; Mr. Wayman, 29 years; Mr.
Barnholt, 30 years; Dr. Birnbaum, 18 years; and Ms. Ticknor, 21 years.
Retirement benefits shown are payable at age 65 in the form of a single life
annuity to the employee and reflect the maximum offset allowance currently in
effect under Section 401(1) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), to compute the offset for such benefits under the
plans. For purposes of calculating the benefit, an employee may not be credited
with more than 30 years of service.
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<PAGE>
OFFICERS EARLY RETIREMENT PLAN(1)
The following table shows the fully vested estimated annual benefits payable
upon retirement to board-elected HP officers in the United States under the
Company's Officers Early Retirement Plan (the "Officers Plan"). Effective for
officers elected on or after November 1, 1993, an officer must work five years
after election as an officer to be fully vested under the Officers Plan unless
the Board approves a shorter period.
<TABLE>
<CAPTION>
15 20 25 30 35
FINAL YEARS OF YEARS OF YEARS OF YEARS OF YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE
- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
4$00,000..... $ 120,000 $ 140,000 $ 160,000 $ 180,000 $ 200,000
600,000..... 180,000 210,000 240,000 270,000 300,000
800,000..... 240,000 280,000 320,000 360,000 400,000
1,000,000... 300,000 350,000 400,000 450,000 500,000
1,200,000... 360,000 420,000 480,000 540,000 600,000
1,400,000... 420,000 490,000 560,000 630,000 700,000
1,600,000... 480,000 560,000 640,000 720,000 800,000
1,800,000... 540,000 630,000 720,000 810,000 900,000
2,000,000... 600,000 700,000 800,000 900,000 1,000,000
2,200,000... 660,000 770,000 880,000 990,000 1,100,000
2,400,000... 720,000 840,000 960,000 1,080,000 1,200,000
</TABLE>
- ------------------------
(1) Benefits start no earlier than age 60, unless earlier benefits are approved
by the Board, and end upon reaching age 65. Annual benefits shown in the
table assume retirement at age 60. Benefits which start before age 60 are
reduced.
Under the Officers Plan, officers may retire at age 60, or earlier if
approved by the Company's Board of Directors. In addition to standard retirement
benefits, a retiring officer receives under the Officers Plan a percentage of
his annual salary at retirement until age 65, at which time any benefits under
the Officers Plan terminate. The benefits are not subject to deduction for any
offset amounts other than Company-funded disability benefits. The percentage of
salary received by an officer retiring before age 65 is based on a formula that
includes age, date of election as an officer and years of service as factors.
The compensation covered by the Officers Plan is the retiring officer's base
rate of pay (the "Rate of Pay") averaged over the last four fiscal quarters of
active employment with the Company. The Rate of Pay for a retiring officer would
equal the rate used to determine the amount in the "Salary" column of the
Company's Summary Compensation Table. To the extent an HP officer covered under
the Officers Plan is a participant in the Company's 1998 Variable Pay Plan or
the Company's 1999 Variable Pay Plan, the compensation amounts used to determine
"final compensation" shall be the retiring officer's "total targeted cash
compensation" as defined in each of such variable pay plans averaged over the
last four fiscal quarters of active employment with the Company.
As of October 31, 1998, each of the named executive officers was credited
with the following years of service: Mr. Platt, 32 years; Mr. Wayman, 29 years;
Mr. Barnholt, 31 years; Dr. Birnbaum, 17 years; and Ms. Ticknor, 21 years.
23
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee, which is comprised of non-employee directors, is responsible for
approving and reporting to the Board on all elements of compensation for elected
corporate officers. The Committee has furnished the following report on
executive compensation.
COMPENSATION PHILOSOPHY
The goals of the executive compensation program are to align compensation with
business objectives and performance, and to enable HP to attract, retain and
reward executives whose contributions are critical to its long-term success. Our
compensation program for executive officers is based on the same four
compensation principles applicable worldwide to all employees:
- HP pays competitively
- HP pays for sustained performance
- HP strives for fairness in the administration of pay
- Employees should understand HP's job performance evaluation and
compensation administration processes
HP uses the following process to assess the performance of an employee:
- At the beginning of the performance cycle, the evaluating manager and the
employee set and agree upon objectives and key goals for the near-term and
the long-term.
- The evaluating manager provides the employee with ongoing feedback on
performance.
- At the end of the performance cycle, the manager evaluates the
accomplishment of objectives and key goals.
- The manager compares the employee's performance to the performance of
peers within HP and, for executive officers, to the performance of
external competitors.
- The evaluating manager communicates the comparative results to the
employee.
- The comparative results affect decisions on targeted total cash
compensation for such employee and, if applicable, stock incentives.
EXECUTIVE COMPENSATION PRACTICES
Each year, we survey the executive compensation practices of approximately fifty
companies (the "Surveyed Companies"), 50% of which are in the S&P High
Technology Composite Index (the "S&P High Tech Index") and the remaining 50% are
other "Fortune 100" companies which are included within the S&P 500 Index. Our
practice is to target total direct compensation levels for HP executives at the
50th percentile of total direct compensation for executives at the Surveyed
Companies. Total direct compensation includes Targeted Total Cash Compensation,
Variable Pay, Cash-Profit Sharing and Long-Term Equity-Based Incentive Awards,
as described below. Currently, at least 60% of an executive's total direct
compensation is delivered via long-term equity-based incentive awards. The
targeted total direct compensation for each executive officer is established
each year based on (1) a compensation range which corresponds to the executive's
job responsibilities and (2) the executive officer's overall individual
performance. Overall individual performance is measured against the following
factors:
- - long-term strategic goals,
- - short-term business goals,
- - profitability,
- - customer satisfaction,
- - new business creation,
- - the development of employees, and
- - the fostering of teamwork and other HP values.
In both setting goals and measuring an executive officer's performance against
those goals, HP considers the performance of its competitors and general
economic and market conditions. None of the factors included in our company's
strategic and business goals is assigned a specific weight. Instead, we
recognize that the relative importance of these factors may change in order to
better
24
<PAGE>
adapt HP's operations to specific business challenges and to changing economic
and marketplace conditions.
Historically, HP has employed a consistent methodology for determining
compensation across all levels of the organization. In fiscal 1998, we
introduced a variable pay program and adopted a Variable Pay Plan (the "1998
Variable Pay Plan") for certain HP executive officers. As described below, the
variable pay program places a portion of the executive's targeted total cash
compensation "at risk" and provides certain additional "upside" compensation
opportunities dependent on HP's actual performance. To date, the variable pay
program has been an experiment in performance-based cash compensation programs
for a small number of executive officers. As described on pages 9 through 10 of
this Proxy Statement, we have expanded the variable pay program to include a
larger group of HP's executives and managers and adopted a new plan (the "1999
Variable Pay Plan"). At the beginning of fiscal 1999, 84 of our top business,
sales and corporate managers were designated to participate in this expanded
program. The expansion of performance-based compensation does not reflect a
change in HP's overall compensation philosophy; however, it does reflect our
company's interest in exploring compensation delivery alternatives in order to
ensure the best alignment between performance and reward.
COMPONENTS OF EXECUTIVE COMPENSATION
The compensation program for executive officers consists of the following 4
components:
- - Targeted Total Cash Compensation ("TTCC")
- - Variable Pay
- - Cash Profit-Sharing
- - Equity-Based Compensation
- TARGETED TOTAL CASH COMPENSATION
TTCC represents that portion of annual cash compensation, other than cash
profit-sharing, which we target for executive officers to receive during
the fiscal year. For each executive officer, TTCC is established in
accordance with the executive compensation practices described above. The
executive's TTCC will be set above, at or below the midpoint of the
relevant compensation range depending on the executive's overall individual
performance. For executives who did not participate in the 1998 Variable
Pay Plan, TTCC represents the actual annual cash compensation, other than
cash profit-sharing, earned by such executive during fiscal 1998.
- VARIABLE PAY
During fiscal 1998, our CEO and Executive Vice Presidents participated in
the 1998 Variable Pay Plan. The 1998 Variable Pay Plan placed a portion of
the executive's TTCC "at risk" and provided certain additional "upside"
cash compensation opportunities dependent on HP's actual performance. Under
the terms of the 1998 Variable Pay Plan, a portion of the participating
executive's TTCC was designated as a variable pay component. The variable
pay component was equal to the greater of: (a) 10% of TTCC or (b) 100% of
every dollar of TTCC that exceeds $1 million. Depending upon the degree to
which pre-determined performance metrics are met or exceeded, we may award
the participating executive between 0% and 200% of the variable pay
component as cash compensation. For fiscal 1998, the performance metrics
established by us were based on the total shareholder return realized by
holding HP common stock (assuming the reinvestment of dividends) relative
to the total shareholder return of the S&P High Tech Index. In November
1998, we reviewed the Company's fiscal 1998 total shareholder return and,
based on the pre-established performance metric, determined that 80% of the
variable pay component had been earned by the 1998 Variable Pay Plan
participants. As a result, the actual annual cash compensation for
participants in the 1998 Variable Pay Plan was less than their TTCC for
fiscal 1998.
25
<PAGE>
- CASH PROFIT-SHARING
HP has a worldwide profit-sharing plan under which it distributes a portion
of HP's profits to all employees, including executive officers, who have
been employed continuously for at least six months. HP believes that all
employees share the responsibility of achieving profits. The same
profit-sharing percentage applies to each employee worldwide, with the
payment determined twice per year by applying this percentage to the
individual's TTCC. The profit sharing percentage is determined using a
formula which combines a percentage of HP's return on assets with a
percentage of its revenue growth in order to align profit-sharing with the
way we measure our company's performance.
- LONG-TERM, EQUITY-BASED INCENTIVE AWARDS
The long-term equity-based compensation program consists of stock options
and restricted stock grants. The purpose of this program is to provide
additional long-term incentives to our executives to maximize shareholder
value. We also recognize that a stock incentive program is a necessary
element of a competitive compensation package for the Company's executive
employees.
During fiscal 1998, we made stock option grants to each of the Company's
executive officers under HP's 1995 Incentive Stock Plan. Each grant allows
the officer to acquire, subject to the completion of a vesting period,
shares of HP's common stock at a fixed price per share (the market price on
the grant date) over a ten-year period. The option grant vests in periodic
installments over a four-year period, contingent upon the executive
officer's continued employment with HP. In determining the size of a stock
option award for an executive officer, our primary considerations are the
performance of the executive officer and the grant value of the award. The
performance of the executive officer is evaluated in accordance with the
above-described executive compensation practices. Based upon a review of
the cash and equity components of compensation from the Surveyed Companies,
we then determine what portion of total direct compensation should be
delivered to an executive officer in the form of stock options.
We also granted performance-based and time-based restricted stock pursuant
to HP's 1995 Incentive Stock Plan. Performance-based restricted stock will
vest only to the extent that HP achieves stated performance goals with
respect to earnings per share and return on assets over a three-year
period. In connection with the grant of such performance-based restricted
stock, our executives are also eligible for additional shares of
unrestricted stock if HP, over the relevant three-year period, exceeds
stated goals with respect to earnings per share and return on assets. In
order to serve as a retention incentive, time-based restricted stock will
vest only as long as the executive remains employed by HP.
CORPORATE TAX DEDUCTION ON COMPENSATION IN EXCESS OF $1 MILLION A YEAR
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to the company's Chief Executive Officer or any of the four other
most highly compensated executive officers. Certain performance-based
compensation, however, is specifically exempt from the deduction limit. HP's
1995 Incentive Stock Plan, 1998 Variable Pay Plan and, assuming stockholder
approval as described on pages 9 through 10 of this Proxy Statement, the 1999
Variable Pay Plan, have been structured so that any compensation paid pursuant
to such plans should not be subject to these deductibility limitations.
STOCK OWNERSHIP GUIDELINES
Stock ownership guidelines have been established
for executive officers to increase their equity stake
in HP and more closely align their interests with
26
<PAGE>
those of our shareholders. These guidelines provide that the CEO should attain
an investment position in HP's stock equal to five times his TTCC and all other
executive officers should attain an investment position equal to three times
their TTCC.
CEO COMPENSATION
Lewis E. Platt has been President and Chief Executive Officer ("CEO") of HP
since November 1, 1992 and Chairman of the Board since September 1993. We used
the same executive compensation practices described above to determine Mr.
Platt's fiscal 1998 compensation. In setting both the cash-based and
equity-based elements of Mr. Platt's compensation, we made an overall assessment
of Mr. Platt's leadership in achieving HP's near-term and long-term strategic,
operational and business goals. Mr. Platt's TTCC reflects a consideration of
both competitive forces and HP's performance. We have not assigned specific
weights to these categories.
COMPETITIVE FORCES
We surveyed the total direct compensation for chief executive officers of the
Surveyed Companies. When setting total direct CEO compensation, we believe that
it is especially relevant to review companies that are not a part of the S&P
High Tech Index because of the possibility that a company outside of one
industry may recruit a CEO from another industry. Based upon the Surveyed
Companies data, we determine a median around which we build a competitive range
of total direct compensation for the CEO. As a result of this review, we
concluded that Mr. Platt's TTCC was in the low end of the competitive market and
that his total direct compensation was competitive for CEOs running companies
comparable in size and complexity to HP.
COMPANY PERFORMANCE
We considered HP's financial and business results compared to other companies
within the high-technology industry, HP's financial performance relative to its
financial performance in prior periods, HP's progress in the promotion of women
and minorities, our employee survey scores relative to industry norms, the fact
that HP does not have a Chief Operating Officer ("COO") so that Mr. Platt
assumes the additional responsibilities of a COO, as well as Mr. Platt's
performance ranking and total direct compensation history.
RESULTS
At our November 1997 meeting, we reviewed Mr. Platt's salary and, following a
review of the above factors and the adoption of the 1998 Variable Pay Plan,
decided to increase Mr. Platt's TTCC for fiscal 1998 to $2,000,000 from his TTCC
in fiscal 1997 of $1,700,000. However, pursuant to the 1998 Variable Pay Plan,
we placed $1,000,000 of Mr. Platt's $2,000,000 TTCC "at risk". That is, Mr.
Platt would only receive the "at risk" portion of his TTCC upon attainment of
certain performance objectives. In addition, Mr. Platt would also, under the
terms of the 1998 Variable Pay Plan, be entitled to receive up to an additional
$1,000,000 beyond his TTCC in the event the performance objectives were
exceeded. During our November 1997 meeting, we established that the fiscal 1998
performance objectives under the 1998 Variable Pay Plan for Mr. Platt would be
based on the total shareholder return realized by holding HP's common stock
(assuming the reinvestment of dividends) relative to the total shareholder
return of the S&P High Tech Index. In November 1998, we reviewed HP's fiscal
1998 total shareholder return and, based on the pre-established metric,
determined that Mr. Platt had earned 80% of the at risk portion of his TTCC and
thus awarded Mr. Platt $800,000. Mr. Platt's actual annual cash compensation was
$200,000 lower than his TTCC for fiscal 1998.
CASH PROFIT SHARING
For fiscal 1998, Mr. Platt received compensation under our cash-profit sharing
program in the following amounts: $70,600 for HP's fiscal 1998 first-half
results and $40,100 for its fiscal 1998 second-half results.
STOCK OPTIONS; PERFORMANCE-BASED RESTRICTED STOCK
In determining Mr. Platt's stock incentive awards, we followed the same policy
described above for other executive officers.
27
<PAGE>
FISCAL 1998 GRANTS OF STOCK OPTIONS AND PERFORMANCE-BASED RESTRICTED STOCK
In November 1997, we granted Mr. Platt an option to purchase 200,000 shares of
HP common stock with an exercise price equal to the fair market value of HP
common stock on the date of grant. In granting the option to Mr. Platt, we
reviewed the option grant value pursuant to the guidelines described above under
"Long-Term, Equity-Based Incentive Awards", evaluated Mr. Platt's performance
against the performance criteria described above under "Company Performance" and
considered competitive data showing total direct compensation for Mr. Platt and
comparable chief executive officers. In November 1997, we also granted Mr. Platt
35,000 shares of performance-based restricted stock. Any entitlement to delivery
of shares after the three-year performance period ending October 31, 2000 will
depend on whether HP meets certain goals with respect to earnings per share and
return on assets. To the extent HP exceeds these goals, Mr. Platt may receive
additional shares of unrestricted stock. In determining this award, we
considered Mr. Platt's performance and the size of the grant as compared to the
size of grants to Mr. Platt's senior staff executives. Working within these
parameters, we made an assessment that an award of 35,000 performance-based
restricted shares to Mr. Platt was appropriate.
ACTIONS IN CONNECTION WITH 1995 AND 1996 GRANTS OF PERFORMANCE-BASED RESTRICTED
STOCK
NOVEMBER 1997 MEETING
In November 1997, we reviewed the results for the three-year performance period
ended October 31, 1997 to determine to what extent the performance objectives
associated with performance-based restricted stock granted in fiscal 1995 had
been met. We determined that under the terms of such grant, the 80,000 shares of
performance-based restricted stock granted to Mr. Platt had fully vested. The
amount of compensation delivered to Mr. Platt in connection with these 80,000
shares (such share number adjusted to reflect the two-for-one stock splits which
occurred in fiscal 1995 and fiscal 1996) was previously reported in fiscal 1995,
the fiscal year of the grant. We also determined that, under the terms of the
1995 grant agreement, Mr. Platt was entitled to 40,000 shares of additional
unrestricted stock because the performance objectives had been exceeded. The
value of the 40,000 shares of unrestricted stock was $2,470,000 based on the
price of HP's stock on the date we approved the award in November 1997. The
award of the 40,000 shares of additional unrestricted stock is reported in this
proxy statement as compensation for fiscal 1997, the fiscal year in which the
performance period was completed.
NOVEMBER 1998 MEETING
During November 1998, we reviewed the results for the three year performance
period ended October 31, 1998 to determine to what extent the performance
objectives associated with the performance-based restricted stock granted in
fiscal 1996 had been met. We determined that the performance objectives had not
been met and that, under the terms of such grant, Mr. Platt was required to
forfeit 52,500 shares (75%) of the 70,000 shares (such share numbers adjusted to
reflect the two-for-one stock split which occurred in fiscal 1996) of
performance-based restricted stock granted and originally reported in fiscal
1996. The value of the 52,500 forfeited shares was $2,360,925 based on the price
of HP's stock on the date we granted the restricted stock award in 1996 and
$3,107,475 based upon the price of HP's stock on the date we approved the
forfeiture in November 1998. The forfeiture is reported in this proxy statement
as negative compensation for fiscal 1998, the fiscal year in which the
performance period was completed.
COMPENSATION COMMITTEE
Susan P. Orr, Chair
Thomas E. Everhart
John B. Fery
Sam Ginn
David M. Lawrence
28
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below shows the five-year cumulative total shareholder return
assuming the investment of $100 on October 31, 1993 (and the reinvestment of
dividends thereafter) in each of HP common stock, the S&P 500 Index and the S&P
Technology Sector Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEWLETT-PACKARD COMPANY S & P 500 S & P TECHNOLOGY SECTOR
<S> <C> <C> <C>
Oct-93 $100.00 $100.00 $100.00
Oct-94 $134.69 $103.87 $121.38
Oct-95 $257.68 $131.33 $183.82
Oct-96 $247.83 $162.98 $222.40
Oct-97 $349.29 $215.32 $324.28
Oct-98 $345.03 $262.66 $430.47
</TABLE>
29
<PAGE>
ADDITIONAL QUESTIONS AND INFORMATION REGARDING
THE ANNUAL MEETING AND STOCKHOLDER PROPOSALS
<TABLE>
<C> <S>
Q: WHAT HAPPENS IF ADDITIONAL PROPOSALS
ARE PRESENTED AT THE MEETING?
A: Other than the 3 proposals described in
this proxy statement, we do not expect
any matters to be presented for a vote
at the annual meeting. If you grant a
proxy, the persons named as proxy
holders, Lewis E. Platt, HP's Chairman
and CEO, and D. Craig Nordlund, HP's
Associate General Counsel and
Secretary, will have the discretion to
vote your shares on any additional
matters properly presented for a vote
at the meeting. If for any unforeseen
reason any of our nominees is not
available as a candidate for director,
the persons named as proxy holders will
vote your proxy for such other
candidate or candidates as may be
nominated by the Board of Directors.
Q: WHAT CLASS OF SHARES ARE ENTITLED TO BE
VOTED?
A: Each share of our common stock
outstanding as of the close of business
on December 28, 1998, the RECORD DATE,
is entitled to one vote at the annual
meeting. On the RECORD DATE, we had
approximately 1,015,098,000 shares of
common stock issued and outstanding.
Q: WHAT IS THE QUORUM REQUIREMENT FOR THE
MEETING?
A: The quorum requirement for holding the
meeting and transacting business is a
majority of the outstanding shares
entitled to be voted. The shares may be
present in person or represented by
proxy at the meeting. Both abstentions
and broker non-votes are counted as
present for the purpose of determining
the presence of a quorum. Generally,
broker non-votes occur when shares held
by a broker for a beneficial owner are
not voted with respect to a particular
proposal because (1) the broker has not
received voting instructions from the
beneficial owner and (2) the broker
lacks discretionary voting power to
vote such shares.
Q: IS CUMULATIVE VOTING PERMITTED FOR THE
ELECTION OF DIRECTORS?
A: In the election of directors, you may
elect to cumulate your vote. Cumulative
voting will allow you to allocate, as
you see fit, the total number of votes
equal to the number of director
positions to be filled multiplied by
the number of shares held by you. Thus,
if you own 1 share of stock, you could
allocate 14 "FOR" votes (14 X 1) to as
few or as many persons you choose.
Cumulative voting only applies to the
election of directors. If you choose to
cumulate your votes, you will need to
make an explicit statement of your
intent to do so, either by so
indicating in writing on the proxy card
or by stating so when voting at the
annual meeting.
Q: WHO WILL COUNT THE VOTE?
A: A representative of Harris Trust and
Savings Bank, HP's transfer agent, will
tabulate the votes and act as the
inspector of election.
Q: IS MY VOTE CONFIDENTIAL?
A: Proxy instructions, ballots and voting
tabulations that identify individual
stockholders are handled in a manner
that protects your voting privacy. Your
vote will not be disclosed either
within HP or to third parties except
(1) as necessary to meet applicable
legal requirements, (2) to allow for
the tabulation of votes and
certification of the vote, or (3) to
facilitate a successful proxy
solicitation by our Board.
Occasionally, stockholders provide
written comments on their proxy card
which are then forwarded to HP
management.
</TABLE>
30
<PAGE>
<TABLE>
<C> <S>
Q: WHO WILL BEAR THE COST OF SOLICITING
VOTES FOR THE MEETING?
A: HP will pay the entire cost of
preparing, assembling, printing,
mailing and distributing these proxy
materials, except that certain expenses
for Internet access will be incurred by
you if you choose to access the proxy
materials and/or vote over the
Internet. In addition to the mailing of
these proxy materials, the solicitation
of proxies or votes may be made in
person, by telephone or by electronic
communication by our directors,
officers, and employees, who will not
receive any additional compensation for
such solicitation activities. We also
have hired Corporate Investor
Communications, Inc. ("CIC") to assist
us in the distribution of proxy
materials and the solicitation of
votes. We will pay CIC a fee of $12,000
plus expenses for these services. We
will also reimburse brokerage houses
and other custodians, nominees and
fiduciaries for their reasonable
out-of-pocket expenses for forwarding
proxy and solicitation materials to
stockholders.
Q: MAY I PROPOSE ACTIONS FOR CONSIDERATION
AT NEXT YEAR'S ANNUAL MEETING OF
STOCKHOLDERS OR NOMINATE INDIVIDUALS TO
SERVE AS DIRECTORS?
A: You may submit proposals for
consideration at future stockholder
meetings, including director
nominations.
STOCKHOLDER PROPOSALS: In order for a
stockholder proposal to be considered
for inclusion in HP's proxy statement
for next year's annual meeting, the
written proposal must be received by HP
no later than
September 14, 1999. Such proposals also
will need to comply with Securities and
Exchange Commission regulations
regarding the inclusion of stockholder
proposals in company sponsored proxy
materials. Similarly, in order for a
stockholder proposal to be raised from
the floor during next year's annual
meeting, written notice must be
received by HP no later than September
14, 1999 and shall contain such
information as required under our
Bylaws.
NOMINATION OF DIRECTOR CANDIDATES: You
may propose director candidates for
consideration by our Board's
Organization Review and Nominating
Committee. In addition, our Bylaws
permit stockholders to nominate
directors at a stockholder meeting. In
order to make a director nomination at
a stockholder meeting it is necessary
that you notify HP not fewer than 120
days in advance of the day specified in
our proxy statement for the prior
year's annual meeting of stockholders.
Thus, since January 12, is specified as
the mailing date in this year's proxy
statement, in order for any such
nomination notice to be timely for next
year's annual meeting, it must be
received by HP not later than September
14, 1999 (i.e., 120 days prior to
January 12). In addition, the notice
must meet all other requirements
contained in our Bylaws.
COPY OF BYLAW PROVISIONS: You may
contact the HP Corporate Secretary at
our Company headquarters for a copy of
the relevant Bylaw provisions regarding
the requirements for making stockholder
proposals and nominating director
candidates.
By Order of the Board of Directors
/s/ D. CRAIG NORDLUND
D. CRAIG NORDLUND
Associate General Counsel and Secretary
Dated: January 12, 1999
</TABLE>
31
<PAGE>
APPENDIX A
HEWLETT-PACKARD COMPANY 1999 VARIABLE PAY PLAN
1. PURPOSE. The purpose of the 1999 Hewlett-Packard Company Variable Pay
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) "AFM" shall mean the Company's Accounting and Financial Manual, as
posted from time to time on the Company's internal web site.
(b) "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.
(c) "AWARD" shall mean a cash payment, which may be in addition to Base
Salary, made pursuant to the Plan with respect to a particular
Performance Period. The amount of an Award may be less than, equal to, or
greater than the Target Award; PROVIDED, HOWEVER, that an Award shall not
be greater than an amount equal to three hundred percent (300%) of the
Target Award.
(d) "BASE SALARY" shall be the amount derived by subtracting the Target
Award from TTCC.
(e) "BOARD" shall mean the Board of Directors of the Company.
(f) "CODE" shall mean the Internal Revenue Code of 1986 and the regulations
promulgated thereunder, all as amended from time to time, and any
successors thereto.
(g) "COMMITTEE" shall mean the Committee designated pursuant to Section 4 of
the Plan.
(h) "COMPANY" shall mean Hewlett-Packard Company, a Delaware corporation.
(i) "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 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 Award 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 Award 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 Award
will be paid.
(j) "EVA DOLLARS" shall be as defined in the AFM at the start of the
Performance Period.
(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 REVENUE DOLLARS" shall be as defined in the AFM at the start of the
Performance Period.
(n) "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.
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(o) "PERCENT AT RISK" shall mean that percentage of a Participant's Target
Pay that the Committee determines by the Predetermination Date to be at
risk under the Plan.
(p) "PERFORMANCE MEASURE" shall mean any measurable criteria tied to the
Company's success that the Committee may determine, including EVA
Dollars, Net Order Dollars, Net Profit Dollars, Net Revenue Dollars,
individual performance, earnings per share, return on assets, return on
equity, other Company and business unit financial objectives, customer
satisfaction indicators and operational efficiency measures.
(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 1999 Variable Pay Plan as
amended from time to time.
(s) "PREDETERMINATION DATE" shall mean (i) 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 Section 162(m).
(t) "SECTION 162(M)" shall mean Section 162(m) of the Code.
(u) "TARGET AWARD" shall mean an Award level that may be paid if 100% of all
applicable Performance Measures are achieved in the Performance Period.
The Target Award added to Base Salary shall equal a Participant's TTCC
for such Performance Period.
(v) "TTCC" or "TARGET PAY" shall mean targeted total cash compensation for a
Participant, as determined by the Committee by the end of November, the
first month of the Company's fiscal year.
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 an Award is made) and may be considered by the
Committee for an Award. A Participant 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 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 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, 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. The Plan shall be effective as of November 1, 1998 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).
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6. AWARDS. Prior to the Predetermination Date, the Committee shall
designate or approve (i) the employees who will be Participants for a
Performance Period, (ii) the maximum Awards, the Target Awards, the Percent At
Risk and the applicable Performance Measures for each Participant, (iii) the
percentages allocated to each Participant for each Performance Measure, and (iv)
the Performance Period. Notwithstanding the foregoing, all Performance Measures
pertaining to any Covered Officer shall be of such a nature that an objective
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 AWARD.
(a) CALCULATION. Within 30 days after the end of the relevant Performance
Period, the Committee, or, in the case of an Award 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 Award 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 Award 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 value of the Award for
each Participant so determined.
(b) ADJUSTMENTS TO AWARDS. In its sole discretion, the Committee may, but is
not required to, make an adjustment to a Participant's Award to take into
account: (i) aggregate out-of-pocket purchase price amounts paid for all
acquisitions and investments that (A) closed in the applicable
Performance Period, (B) were not taken into account already in the
Participant's Performance Measures for such period, and (C) exceeded U.S.
$50 million, and (ii) the effect of any major change in U.S. accounting
principles in the applicable Performance Period.
(c) NO ADJUSTMENTS FOR COVERED OFFICERS. Notwithstanding the provisions of
Section 7(b) above, any adjustments made in accordance with or for the
purposes of Section 7(b) shall be disregarded for purposes of calculating
the Award to any Covered Officer to the extent that such adjustments
would have the effect of increasing such Award.
(d) COMMITTEE DISCRETION. In addition, 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 an Award 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 Awards 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 an Award to a Participant for a
Performance Period shall have no effect on the amount of the Award to any
other Participant for such period.
(e) MAXIMUM. Notwithstanding any other provision of this Plan, the maximum
Award that may be paid to a Covered Officer under the Plan with respect
to a particular Performance Period is $4 million. To the extent the
period of time defining a Performance Period is changed by the Committee,
then the maximum Award 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.
8. PAYMENT OF AWARDS.
(a) Payment of an Award to a Participant shall be made in a single, lump-sum
cash payment as soon as practicable after determination of the amount of
the Award under Section 7 above, except to
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the extent a Participant has made a timely election to defer the payment
of all or any part of such Award under the Hewlett-Packard Company
Executive Deferred Compensation Plan.
(b) The payment of an Award for the applicable Performance Period requires
that the employee be on the Company's payroll as of the end of such
Performance Period. The Committee may make exceptions to this requirement
in the case of retirement, death or disability, as determined by the
Committee in its sole discretion. No Award shall be paid unless and until
the Committee has certified in writing the amount to be paid under the
Plan to the Participant.
(c) Payments of Awards 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 during a Performance Period a person is promoted into a position
previously designated by the Committee for participation under the Plan,
that person will be able to commence participation in the Plan at the
beginning of the next Performance Period.
(b) If a Participant transfers from one eligible position to another during
a Performance Period, any Award will be prorated based on the performance
of the Participant in each position.
(c) If during a Performance Period a Participant transfers into a position
that is not eligible for participation under the Plan, any Award will be
prorated based upon the employee's time spent in the eligible position.
(d) A Participant will forfeit any Award for a Performance Period during
which a Participant is involuntarily terminated for cause or voluntarily
terminates his or her employment with the Company for reasons other than
death, permanent and total disability or retirement, at the age and
service-year level set by the Company or the local law requirements where
the Participant is employed.
10. MISCELLANEOUS.
(a) NO ASSIGNMENT. No portion of any Award 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 an Award 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 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
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<PAGE>
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 Award
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) STOCKHOLDER APPROVAL. At the Company's Annual Meeting of Stockholders in
February 1999, stockholders of the Company will be asked to approve the
Plan only to the extent necessary to allow the Company under Section
162(m) to preserve the tax deductibility of payments for
performance-based compensation made under the plan to Covered Officers.
Plan amendments shall require stockholder approval only to the extent
required by applicable law or the rules of any applicable stock exchange.
(h) 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.
(i) NO TRUST. 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 or any Participant. To the extent that the
Participant acquires a right to receive payments from the Company in
respect of any Award, such right shall be no greater than the right of
any unsecured general creditor of the Company.
(j) SECTION 162(M). All payments under this Plan are designed to satisfy the
special requirements for performance-based compensation set forth in
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.
(k) DESIGNATION OF BENEFICIARIES. A Participant may, if the Committee
permits, designate a beneficiary or beneficiaries to receive all or part
of the Award which may be made 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, an Award 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 Award 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 an Award
under the Plan, the 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.
(l) EFFECT ON COMPANY BENEFIT PLANS. With the exception of the
Hewlett-Packard Company Executive Deferred Compensation Plan, it is the
intent of the Company that Company benefits payable or
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accruable to Participants shall be unaffected by any difference between
TTCC established by the Committee prior to the Predetermination Date for
each Participant and actual total cash compensation. Accordingly,
benefits payable or accruable under Company benefit programs, to the
extent such benefits are based on earnings or compensation level, shall
be based on TTCC.
(m) EFFECT ON PRIOR PLAN. This Plan shall supersede the Hewlett-Packard
Company Variable Pay Plan adopted November 1, 1997 and approved by
stockholders of the Company on February 24, 1998.
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DIRECTIONS TO
THE FLINT CENTER
FROM SAN FRANCISCO:
Take 280 to 85 South towards [MAP]
Gilroy.
Exit at Stevens Creek Blvd.
(1st off-ramp).
Turn East (left) onto Stevens
Creek Blvd. (over freeway), then
turn right onto Mary Ave. (2nd
light).
Upon entering De Anza College
campus, bear right and follow
signs to parking.
At stop sign turn left.
Parking is available in the parking
structure on your right.
FROM SAN JOSE:
Take 280 to the De Anza Blvd. exit.
Turn South (left) onto De Anza Blvd. and proceed to Stevens Creek Blvd., turn
right onto Stevens Creek then left onto Mary Ave.
Upon entering De Anza College campus, bear right and follow signs to parking.
At stop sign turn left.
Parking is available in the parking structure on your right.
- ------------------------------------------------------------------------------
[LOGO] [LOGO]
Annual Meeting of Stockholders Annual Meeting of Stockholders
Flint Center for the Performing Arts Flint Center for the Performing Arts
21250 Stevens Creek Boulevard 21250 Stevens Creek Boulevard
Cupertino, California Cupertino, California
February 23, 1999 February 23, 1999
2:00 P.M. 2:00 P.M.
ADMIT ONE ADMIT ONE
[5968-3700EUS]
<PAGE>
[LOGO] HEWLETT-PACKARD COMPANY PROXY
ANNUAL MEETING OF STOCKHOLDERS--FEBRUARY 23, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lewis E. Platt and D. Craig Nordlund and each
of them as proxies for the undersigned, with full power of substitution, to
act and to vote all the shares of Common Stock of Hewlett-Packard Company
held of record by the undersigned on December 28, 1998, at the annual meeting
of stockholders to be held on Tuesday, February 23, 1999, or any adjournment
thereof.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
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Dear Stockholder:
On the reverse side of this card are instructions on how to vote your
shares for the election of directors and all other proposals by telephone or
over the Internet. Please consider voting by telephone or over the Internet.
Your vote is recorded as if you mailed in your proxy card. We believe voting
this way is convenient.
Thank you for your attention to these matters.
HEWLETT-PACKARD COMPANY
<PAGE>
HEWLETT-PACKARD COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /x/
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR 1-3.
1. ELECTION OF DIRECTORS--01-P.M. Condit, 02-P.C. Dunn, 03-T.E. Everhart,
04-J.B. Fery, 05-J.P.G. Gimon, 06-S. Ginn, 07-R.A. Hackborn, 08-W.B. Hewlett,
09-G.A. Keyworth II, 10-D.M. Lawrence, 11-S.P. Orr, 12-D.W. Packard,
13-L.E. Platt, and 14-R.P. Wayman
Withhold For All
For All Except
/ / / / / /
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(Except nominee(s) written above)
2. Proposal to ratify PricewaterhouseCoopers LLP as Independent Accountants.
For Against Abstain
/ / / / / /
3. Proposal to approve the Company's 1999 Variable Pay Plan.
For Against Abstain
/ / / / / /
In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ITEMS 1 THROUGH 3.
Dated: , 1999
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Signature
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Signature
Please sign exactly as your name or names appear above. For joint accounts,
each owner should sign. When signing as executor, administrator, attorney,
trustee or guardian, etc., please give your full title.
<PAGE>
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CONTROL NUMBER DETACH PROXY CARD HERE
X----------------X [LOGO]
X X
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NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
HEWLETT-PACKARD COMPANY encourages you to take advantage of the new and
convenient ways to vote your shares. If voting by proxy, this year you may
vote by mail, or choose one of the two methods described below. Your
telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, and returned your proxy card. To
vote by telephone or Internet, read the accompanying proxy statement and then
follow these easy steps:
TO VOTE BY PHONE Call toll free 1-888-776-5651 in the United States or
Canada any time on a touch tone telephone. There is
NO CHARGE to you for the call.
Enter the 6-digit CONTROL NUMBER located above.
Option #1: To vote as the Board of Directors
recommends on ALL proposals: Press 1
When asked, please confirm your vote by
pressing 1
Option #2: If you choose to vote on each proposal
separately, press 0 and follow the simple
recorded instructions.
TO VOTE BY INTERNET Go to the following website:
www.harrisbank.com/wproxy
Enter the information requested on your computer
screen, including your 6-digit CONTROL NUMBER located
above.
Follow the simple instructions on the screen.
If you vote by telephone or the Internet, DO NOT mail back the proxy card.
THANK YOU FOR VOTING!
