SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant To Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
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COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
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[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
COMPAQ COMPUTER CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<PAGE>
NOTICE
OF
1998 ANNUAL MEETING
OF
SHAREHOLDERS
AND
PROXY STATEMENT
Beneficial owners of stock held by banks, brokers
or investment plans (in "street name") will need
proof of ownership to be admitted to the meeting.
A recent brokerage statement or letter from your
broker or bank are examples of proof of ownership.
[Logo of Compaq Computer Corporation appears here]
<PAGE>
Compaq Computer Corporation 20555 SH 249
P. O. Box 692000 Houston, TX 77070-2698
Houston, TX 77269-2000 Tel 281-370-0670
[Logo of Compaq Computer Corporation appears here]
ECKHARD PFEIFFER
President and
Chief Executive Officer
March 6, 1998
Dear Shareholder:
Compaq Computer Corporation will hold its 1998 annual meeting of shareholders
at its Houston headquarters on Thursday, April 23, 1998. At the meeting,
shareholders will (i) elect ten Compaq directors for one-year terms and (ii)
vote to approve the 1998 Stock Option Plan. Detailed information about the
meeting is included in the attached proxy statement.
On behalf of the Board of Directors and employees of Compaq, I cordially
invite all shareholders to attend the annual meeting in person. Whether or
not you plan to attend the meeting, please take the time to vote. As
explained in the proxy statement, you may withdraw your proxy at any time
before it is actually voted at the meeting.
If you plan to attend the meeting in person, please remember to bring a form
of personal identification with you and, if you are acting as a proxy for
another stockholder, please bring written confirmation from the record owner
that you are acting as a proxy. If you will need special assistance at the
meeting, please contact Compaq Shareholder Services at 800-458-2449 or
281-514-1158.
Sincerely,
Eckhard Pfeiffer
<PAGE>
TABLE OF CONTENTS
Notice 1
Voting Procedures 2
Proposal 1: Election of Directors 2
Corporate Governance Committee Report 5
Proposal 2: Approval of the 1998 Stock Option Plan 7
Board Organization and Meetings 8
Directors' Compensation 9
Executive Officers 10
Stock Ownership 11
Executive Compensation 12
Human Resources Committee Report 14
Stock Performance Graph 17
Section 16(a) Beneficial Ownership Reporting Compliance 18
General Information 18
Exhibit A A-1
A copy of the Annual Report to Shareholders of Compaq Computer Corporation,
Which includes financial statements, is being mailed with this Proxy Statement.
You may receive an additional copy of the Annual Report to Shareholders at no
charge upon request directed to
Compaq Investor Relations,
P.O. Box 692000, Houston, Texas 77269-2000, telephone 800-433-2391.
Financial reports may also be accessed on our Web site at
www.compaq.com.
--------------
<PAGE>
[Logo of Compaq Computer Corporation appears here]
Annual Shareholders' Meeting
April 23, 1998
YOUR VOTE IS IMPORTANT
Notice
Compaq Computer Corporation will hold its 1998 Annual Meeting of Shareholders
at its Houston headquarters.
Thursday, April 23, 1998
10:00 A.M.
Conference Center, Building CCA5
Compaq Computer Corporation
20555 SH 249
Houston, Texas 77070
At the meeting, shareholders will (i) elect ten Compaq directors for one-year
terms and (ii) vote to approve the 1998 Stock Option Plan. You can vote four
different ways this year. You can vote by attending the meeting, by
telephone, by the Internet, or by proxy card. For specific voting
information, please see "Voting Procedures" on page 2.
Shareholders of record at the close of business on February 27, 1998, are
entitled to vote. On that day, approximately 1.5 billion shares of Compaq
common stock were outstanding. Each share entitles the holder to one vote.
The Board asks you to vote in favor of the director nominees and the 1998
Stock Option Plan. This Proxy Statement provides you with detailed
information about the election of directors and the option plan. We are also
using this Proxy Statement to tell you about the status of corporate
governance at Compaq and to discuss our compensation practices and philosophy.
We encourage you to read this Proxy Statement carefully. In addition, you may
obtain information about Compaq from the Annual Report to Shareholders
included with this mailing and from documents that we have filed with the
Securities and Exchange Commission.
This Notice and Proxy Statement is dated March 6, 1998 and was first mailed
to shareholders on March 9, 1998.
<PAGE>
Voting Procedures
Your vote is important. Because many shareholders cannot personally attend
the meeting, it is necessary that a large number be represented by proxy. As
described in more detail below, if you are a shareholder of record, you may
vote four ways: (1) by attending the meeting, (2) by using the toll-free
number listed on the proxy card, (3) by voting on the Internet at the address
listed on the proxy card, or (4) by marking, signing, dating and mailing your
proxy in the postage-paid envelope provided. You may revoke your proxy at any
time before it is actually voted at the Annual Meeting by (1) delivering a
written notice of revocation to the Secretary of Compaq, (2) submitting a
later-dated proxy, or (3) attending the meeting and withdrawing the proxy.
You may also be represented by another person present at the meeting by
executing a proxy designating such person to act on your behalf.
If you are a shareholder of record, you can save Compaq expense when voting
your shares either by calling the toll-free telephone number on the proxy card
or by voting on the Internet at the address on the proxy card. The telephone
and Internet voting procedures are designed to authenticate shareholders by
use of a control number. You can also give instructions for Compaq to
discontinue future duplicate Annual Report mailings for your account. The
telephone and Internet voting procedures described on the proxy card allow you
to vote your shares and to confirm that your instructions have been properly
recorded.
If your shares are held in the name of a bank or broker, you will be able to
vote by telephone or through the Internet by following the instructions on the
proxy form you receive from your bank or broker.
You have three choices when you vote for directors. You may (1) vote for all
the director nominees as a group, (2) withhold your vote for all of the
director nominees as a group, or (3) vote for all director nominees as a group
except those nominees you identify. If you sign, date and mail your proxy
card without indicating how you want to vote, your vote will be counted as a
vote in favor of the nominees and in favor of the 1998 Stock Option Plan. If
you do not call, vote on the Internet, return your card, or vote in person at
the meeting, you will not be counted as present for determining the existence
of a quorum. However, if your shares are held in street name, your broker may
vote your shares in the election of directors if you do not vote prior to the
meeting.
We encourage you to vote and to vote promptly. Voting promptly may save
Compaq the expense of a second mailing.
<PAGE>
Proposal 1
ELECTION OF DIRECTORS
The Election Of Directors
Compaq currently has eleven directors on its Board. Ten of the current
directors have been nominated for election this year and have agreed to serve
if elected. One of the current directors, George E.R. Kinnear II, is
retiring. Nine of the nominated directors were elected by the share-holders
last year and one of the directors was elected by the shareholders of Tandem
Computers Incorporated and was appointed a director of Compaq when Compaq
acquired Tandem. The ten persons who receive a plurality of the votes cast
will be elected and will serve as directors until the 1999 Annual Meeting
unless they die, resign or are removed before that meeting.
In January 1998, Compaq entered into an agreement to acquire Digital Equipment
Corporation. This acquisition is subject to certain regulatory approvals and
approval by Digital's shareholders. We anticipate that it will close during
the second quarter but after the Annual Meeting. Compaq's Board of Directors
has agreed upon the closing of the acquisition to appoint one additional
director designated by Digital's Board, subject to the approval of Compaq's
Board.
If a nominee becomes unavailable for election before the 1998 Annual Meeting,
the Board of Directors can name a substitute nominee and proxies will be voted
for such substitute nominees unless an instruction to the contrary is written
on the proxy card.
Compaq's Board of Directors has adopted corporate governance standards that
govern its selection of director candidates as well as the operation of the
Board. The report of the Corporate Governance Committee that follows
information about this year's nominees to the Board describes these standards
and reports on the status of corporate governance at Compaq.
<PAGE>
Information About Nominees
Information about the ten persons nominated as directors is provided below.
The shares represented by proxy cards returned to us will be voted FOR these
Persons unless you specify otherwise.
BENJAMIN M. ROSEN
Director since 1982
Benjamin M. Rosen, age 64, was appointed Chairman of the Board of Directors of
Compaq in 1983. Mr. Rosen is a director of Capstone Turbine Corp., a
privately-held technology company. He is also Vice Chairman of the Board of
Trustees of the California Institute of Technology.
ECKHARD PFEIFFER
Director since 1991
Eckhard Pfeiffer, age 56, was elected President and Chief Executive Officer
and appointed a director of Compaq in 1991. He joined Compaq in 1983 as Vice
President, Europe and was elected Senior Vice President, International
Operations in 1986, President, Europe and International Division in 1989, and
Executive Vice President and Chief Operating Officer in 1991. He is a
director of Bell Atlantic Corporation, General Motors Corporation and
Hughes Electronics Corporation. He also serves on the Deutsche Bank Advisory
Board.
LAWRENCE T. BABBIO, JR.
Director since 1995
Lawrence T. Babbio, Jr., age 53, has served as President and Chief Executive
Officer - Network Group and Chairman - Global Wireless Group of Bell Atlantic
Corporation since August 1997. In 1995, he was elected Vice Chairman of Bell
Atlantic. Mr. Babbio is also a director of Grupo Iusacell, S.A. de C.V.
ROBERT TED ENLOE, III
Director since 1986
Robert Ted Enloe, III, age 59, has served as managing partner of Balquita
Partners, Ltd., a real estate and securities investment partnership, since
1996. From 1975 to 1986 he served as President, and from 1992 to 1996 as
Chief Executive Officer, of Libert Investors. He was President of L&N
Housing Corp. from 1981 to 1992 and a director of that entity from 1981 to
1996. From 1975 to 1991 he served as President of Lomas Financial
Corporation, and as a director of that company from 1970 to 1991. Mr. Enloe
serves as a director of Leggett & Platt, Inc., Sixx Holdings, Inc. and Libert
Investors, Inc.
GEORGE H. HEILMEIER
Director since 1994
George H. Heilmeier, age 61, is Chairman Emeritus of Bell Communications
Research, Inc. ("Bellcore"). He served as Chairman and Chief Executive
Officer of Bellcore from 1991 to 1997. He was Senior Vice President and Chief
Technical Officer of Texas Instruments, Inc. from 1983 to 1991. He is a
member of the Defense Science Board, the President's National Security
Telecommunications Advisory Committee and the National Academy of Engineering.
Dr. Heilmeier is also a director of TRW, Inc., MITRE Corporation, Automatic
Data Processing Inc. and Perot Systems.
PETER N. LARSON
Director since 1993
Peter N. Larson, age 58, has served as Chairman and Chief Executive of
Brunswick Corporation since April 1995. Before joining Brunswick, he was an
executive officer of Johnson & Johnson where he served as Worldwide Chairman
of the Consumer and Personal Care Group, and was a member of the Executive
Committee and the Board of Directors. In addition to being a director of
Brunswick, Mr. Larson is also a director of CIGNA Corp. and Coty, Inc.
KENNETH L. LAY
Director since 1987
Kenneth L. Lay, age 55, has served as Chairman of the Board and Chief
Executive Officer of Enron Corp., a diversified energy company, since 1986.
In addition to Enron Corp., he is a director of Eli Lilly & Company, Trust
Company of the West, Enron Oil and Gas Company and EOTT Energy Corp., the
general partner of EOTT Energy Partners, L.P.
THOMAS J. PERKINS
Director since 1997
Thomas J. Perkins, age 66, served as Chairman of the Board of Directors of
Tandem Computers Incorporated from 1974 until 1997. He has been a General
Partner of Kleiner Perkins Caufield & Byers, a private investment partnership,
since 1972, and has served as either a general or limited partner of numerous
funds formed by Kleiner Perkins Caufield & Byers. He is also a director of
News Corporation and TriStrata Security.
KENNETH ROMAN
Director since 1991
Kenneth Roman, age 67, served as Chairman and Chief Executive Officer of The
Ogilvy Group from 1988 to 1989 (and from 1985 to 1989 as Chairman of Ogilvy &
Mather Worldwide). He was Executive Vice President of American Express from
1989 to 1991. Mr. Roman is a director of Brunswick Corporation, PennCorp
Financial Group, Inc. and Coty, Inc
LUCILLE S. SALHANY
Director since 1996
Lucille S. Salhany, age 51, serves as President and Chief Executive Officer of
J.H. Media Limited. She served as President and Chief Executive Officer of
United Paramount Network from September 1994 until September 1997. From
January 1993 to July 1994 she served as Chairman of FOX Broadcasting Company
and also was a member of the Board of Directors of Fox Inc. She joined FOX
Broadcasting Company as Chairperson of Twentieth Century Television in 1991.
Ms. Salhany serves on the executive committee of the UCLA School of Theater,
Film and Television, is a member of the Board of Directors of the Academy of
Television Arts and Sciences and Hollywood Supports, an entertainment industry
organization. She also serves on the Board of Emerson College, America Media
and the Boston Restaurant Association.
<PAGE>
Corporate Governance Committee Report
Compaq Computer Corporation has a long-standing commitment to building
long-term shareholder value with an emphasis on corporate governance. We were
pleased last year when the Board was recognized for excellence by the Wharton
School of the University of Pennsyl-vania, BusinessWeek and CEO Report.
From its beginning, the Board of Directors has consisted of independent
outside directors except for the Chief Executive Officer, who also has been a
member of the Board. All Board committees are composed exclusively of
independent directors. The roles of Chairman and Chief Executive Officer have
been and continue to be separate. Directors have been compensated largely in
equity securities to align their interests with those of Compaq's shareholders.
The Board annually reviews and updates its corporate governance standards,
which govern the selection of Board candidates, director compensation, annual
evaluation of the Board, a review of Chief Executive Officer succession
planning, and Board retirement policies. This year, the Board added
confidential voting to its standards, formally defined the term independent
director, and continued its practice of annually evaluating the Chief
Executive Officer's performance. The standards, as amended, follow:
1. The Board of Directors shall be limited to ten or fewer members except
during certain periods, such as director transitions and the integration of
acquisitions. The Chief Executive Officer shall be the only member who is an
executive officer except during a transition of the Chief Executive Officer.
The Board will seek a balance between independent directors coming from
business leadership positions and those who bring special expertise.
2. All Committee members will be independent directors. Committee chairs
will rotate periodically with the rotation schedule based on the special
expertise and operational knowledge required for each position.
3. The Board will meet periodically in executive session without the Chief
Executive Officer.
4. Board compensation will be paid in equity grants and an annual
retainer. No meeting fees will be paid for regularly scheduled Board meetings
or Committee meetings on those days. Retainers may alternatively be paid in
stock options at the election of the individual director. Non-employee
directors will maintain ownership of 10,000 shares of common stock within
three years after first election to the Board.
5. Independent directors will not be paid for consulting nor will Compaq
retain their firms for consulting or services without the approval of the full
Board.
6. Board members will continue to be nominated for re-election on an
annual basis. In addition:
- - Board members will evaluate the effectiveness of the full Board
annually.
- - Individual directors will be evaluated in depth by the Corporate
Governance Committee and Chief Executive Officer every three years.
- - Board members will retire at age 70.
- - Each director will be available for a significant time commitment, and a
director's acceptance of additional positions as a corporate director will be
subject to the Board's review. In general, each director will hold no more
than five directorships of unaffiliated for-profit corporations.
- - Directors will offer their resignation upon a change of position,
including retirement from the position on which their original nomination was
based.
7. The Corporate Governance Committee will maintain a director orientation
program for both new and continuing directors.
8. To encourage open and honest communication by the Company's
shareholders, confidential voting will be used for all matters to be voted
upon by shareholders except (i) as necessary to meet legal requirements, (ii)
when a shareholder requests disclosure of the shareholder's vote to
management, (iii) in a dispute regarding authenticity of proxies and ballots
and (iv) in the event of a proxy contest, if the other party soliciting
proxies does not agree to comply with the confidential voting policy.
In 1997, the Board and its Committees reviewed their internal operations and
made a number of changes, including modifying the agenda to make better use of
the directors' time and talents, increasing the frequency and length of
strategic business presentations, revising the format of materials delivered
prior to Board meetings to increase the time available for discussion at Board
meetings, engaging in periodic executive sessions without the Chief Executive
Officer at the end of Board meetings and scheduling discussions among
directors and the Chief Executive Officer before each Board meeting. The
Board continued its practice of holding Audit Committee meetings on the day
prior to Board meetings in the first month of each quarter to give the
Committee more time to focus on ensuring that the appropriate control
environment remains in place at Compaq. The Audit Committee reports to the
full Board on the matters that have been reviewed.
In the 1997 annual evaluation of Board effectiveness, each director completed
a Board evaluation questionnaire, focusing on Board information and expertise,
Board presentation formats, quality of materials furnished to the Board, Board
meetings and organization, and Board duties and organization. The responses
were reviewed by the Chair of the Corporate Governance Committee and the
Chairman of the Board, who reported the results to the Board at its January
1998 meeting. The Board received high ratings in all categories and the
Committee urged the Board to continue to reassess how it spends its time and
the appropriate balance between operational oversight and strategic focus.
Concurrently with the review of the Board's performance, the Corporate
Governance Committee reviewed compliance with specific standards established
for directors such as attendance and stock ownership. In 1997, for the first
time one of the members of Board reached the age of 70. In accordance with
our governance standards, George E.R. (Gus) Kinnear II will retire from the
Board on the day of the Annual Meeting. Although Gus' retirement means a
genuine loss to Compaq, we remain committed to our governance standards.
Following the evaluation of the Board, the Corporate Governance Committee
recommended the renomination of each of the directors other than Mr. Kinnear.
We plan to expand the Board to eleven members upon consummation of the
acquisition of Digital Equipment Corporation. We believe that a director
designated by Digital's Board will prove a valuable asset to Compaq,
particularly in the integration activities that will follow this acquisition.
Corporate Governance Committee
Kenneth Roman (Chair) Peter N. Larson
Lawrence T. Babbio, Jr. Kenneth L. Lay
Robert Ted Enloe, III Thomas J. Perkins
George H. Heilmeier Benjamin M. Rosen
George E. R. Kinnear II Lucille S. Salhany
<PAGE>
Proposal 2
APPROVAL OF THE 1998 STOCK OPTION PLAN
Compaq 1998 Stock Option Plan. In January 1998, Compaq's Board of Directors
adopted, subject to shareholder approval, the 1998 Stock Option Plan. If
approved by shareholders, the 1998 Plan will allow stock option grants and,
under certain circumstances, the grant of stock appreciation rights, to help
attract, retain and motivate key employees and non-employee directors. We
have summarized the 1998 Plan below and have attached a full copy of the Plan
as Exhibit A to this Proxy Statement.
Up to 150 million shares of Common Stock may be issued under the 1998 Plan.
The approval of one third, or 50 million of these shares, is contingent upon
Compaq's closing its proposed acquisition of Digital Equipment Corporation.
You may read additional information about the proposed merger on Compaq's
website at www.compaq.com and in Compaq's Annual Report. If the Digital
acquisition is not completed, then only 100 million shares may be issued under
the 1998 Plan. The Human Resources Committee may adjust this number for stock
dividends, stock splits, combinations of shares, or other changes in
outstanding Common Stock. Shares to be issued under the 1998 Plan may be
drawn from either authorized but previously unissued shares of Common Stock or
from treasury shares.
The Human Resources Committee of the Board of Directors will administer the
1998 Plan. The Board may appoint another Committee for administration if that
Committee consists of persons who meet the definition of a "non-employee
director" under Section 16 of the Securities Exchange Act of 1934. The Human
Resources Committee has the authority to grant stock options to any Compaq
employee, including executive officers, and subject to the limits in the Plan,
has the discretion to determine the number of shares to be granted. Subject
to adjustment as described in the 1998 Plan, in any year the Committee cannot
grant to an executive officer options for more than 1.5 million shares under
the 1998 Plan. This annual limit on awards to executive officers is reduced
by any grants to these officers under any other Compaq equity incentive plan.
Two types of stock option grants to non-employee directors will also be made
under the 1998 Plan. Upon initial appointment to the Board a new director will
receive a stock option grant for 31,250 shares and current directors will
receive annual grants of 25,000 shares upon re-election to the Board.
Director stock options are being added to the 1998 Plan in order to simplify
the approval of stock option plans by shareholders and to permit shareholders
to exercise more effective oversight of Compaq's equity programs. No grants
to directors under the 1998 Plan will be made so long as directors are
receiving similar grants under the current Director Plan. The Board reviews
the size of grants authorized for directors periodically and from time to time
has reduced the number of shares to ensure that grants remain at appropriate
levels in comparison to industry practices. The Board has no authority to
increase the number of shares being granted to directors other than by making
adjustments upon stock splits or recapitalizations.
The exercise price for all grants under the 1998 Plan shall be no lower than
the Dow Jones composite close for Compaq stock on the date of the grant. An
award notice will specify the terms and conditions of the grant. The 1998
Plan does not allow repricing of any outstanding option grants.
In certain international locations, local tax or exchange control regulations
make granting stock options impracticable. The 1998 Plan permits Compaq to
offer stock appreciation rights in these locations.
Upon a change of control, as defined in the 1998 Plan, all outstanding awards
will become immediately exercisable. Awards may be transferred to the extent
set forth in the notice evidencing the grant. Compaq currently permits
optionees to make a limited number of transfers solely for estate planning
purposes.
The Board may amend or terminate the 1998 Plan at any time but may not do so
without shareholder approval if the amendment increases the size of grants to
non-employee directors, increases the number of shares that may be granted
under the Plan, increases the permissible size of grants to executive
officers, lowers option exercise prices authorized under the Plan, or if
approval is required under any tax or regulatory requirement with which the
Board finds it necessary to comply. Awards may be made under the 1998 Plan
until there are no more shares available for grant except that no incentive
stock options may be granted after April 22, 2008.
No grants have been made under the 1998 Plan and the amount of any benefits
cannot be determined at this time. For comparison purposes, please refer to
the stock option awards under Compaq's existing stock option plans in 1997,
shown in Table III of this Proxy Statement. In addition to the grants shown
in that table, in 1997, 3.6 million stock options were granted to other
executive officers as a group and approximately 37 million were granted to all
other employees, including 5 million granted to Tandem employees upon
conversion of their Tandem stock options. The Company's only current plan
that provides for grants to non-employee directors is the Director Plan.
Grants under the Director Plan are described on page 9.
Participants generally have tax consequences associated with stock option
grants. In the U.S., no taxable income is recognized by the optionee at
the time a non-qualified stock option is granted. Generally, on the date of
exercise of a nonqualified stock option, ordinary income is recognized by the
optionee in an amount equal to the difference between the exercise price and
the fair market value of the shares on the date of exercise, and Compaq
receives a tax deduction for the same amount. The 1998 Plan has been designed
to meet the requirements in Section 162(m) of the Internal Revenue Code of
1986, as amended, which means that these amounts will be deductible for grants
to executive officers. Upon disposition of the shares acquired, an optionee
generally recognizes the appreciation or depreciation on the shares after the
date of exercise as either short-term or long-term capital gain or loss
depending on how long the shares have been held. Compaq has no current plans
to grant stock appreciation rights or incentive stock options to U.S.
employees and has not made such grants to date (other than the continuation of
incentive stock option status for options assumed in its merger with Tandem
Computers Incorporated).
Approval of the 1998 Plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented at the meeting. Broker
non-votes will not be treated as shares present or represented and entitled to
vote at the Annual Meeting. The Board of Directors believes that approval of
the Plan is in Compaq's best interests since it will facilitate Compaq's
ability to attract, motivate, and retain key employees and directors, while
aligning their interests with those of shareholders.
<PAGE>
Board Organization and Meetings
During 1997, the Board of Directors met 15 times and various committees of the
Board met a total of 14 times. Attendance at Board and committee meetings
averaged 95 percent. Each director attended more than 75 percent of the
meetings of the Board of Directors and the committees on which he or she
served. Compaq has a standing Audit Committee, Human Resources Committee and
Corporate Governance Committee.
The Audit Committee consists of four non-employee directors: Mr. Kinnear
(Chair) and Messrs. Babbio, Enloe and Perkins. We anticipate that Mr. Enloe
will become chair of this Committee following Mr. Kinnear's retirement and
another director will join this committee. The Audit Committee provides
independent and objective oversight of the Company's accounting functions and
internal controls and assures the objectivity of the Company's financial
statements. The function of the Audit Committee is described in more detail
in the Audit Committee Report to Shareholders in the Annual Report. This
Committee met four times in 1997.
The Human Resources Committee consists of nine non-employee directors: Mr.
Larson (Chair), Messrs. Enloe, Heilmeier, Kinnear, Lay, Perkins, Roman, Rosen
and Ms. Salhany. The primary purpose and this Committee's responsibilities are
described in the Human Resources Committee Report in this Proxy Statement.
This Committee met six times in 1997.
The Corporate Governance Committee consists of ten non-employee directors:
Mr. Roman (Chair), Messrs. Babbio, Enloe, Heilmeier, Kinnear, Larson, Lay,
Perkins, Rosen, and Ms. Salhany. The Corporate Governance Committee evaluates
and recommends director candidates and is further described in the Corporate
Governance Committee Report in this Proxy Statement. This Committee met four
times in 1997.
<PAGE>
Directors' Compensation
Board members who are not Compaq employees receive an annual retainer of
$35,000 ($55,000 for the Chairman). The Chairman of the Audit Committee
receives an additional retainer of $10,000 and the other Committee chairmen
receive an additional retainer of $5,000. Non-employee directors also receive
a fee of $1,000 for any Board or Committee meeting that is held on a day other
than the day of a regularly scheduled Board meeting. Directors are reimbursed
for travel and certain other expenses incurred in connection with their duties
as directors.
Compaq's stock option plan for non-employee directors authorizes grants of
stock options for up to 7,500,000 shares of Compaq stock. Three different
types of grants are made under this plan. Prior to April 1998 under the
Director Plan (i) each newly appointed director received an option to purchase
62,500 shares of Common Stock at an exercise price equal to the Dow Jones
composite close of the Common Stock on the date of the grant; (ii) each year
upon re-election to the Board each non-employee director received an option
grant to acquire 50,000 shares of Common Stock or, in the case of the director
named as Chairman of the Board, an option to acquire 62,500 shares of Common
Stock, with an exercise price equal to the Dow Jones composite close of the
Common Stock on the day of the grant; and (iii) prior to each annual meeting
each non-employee director could elect to receive all or a portion of the
following year's annual retainer in the form of a stock option grant, for
which the number of shares and the exercise price are based upon 50 percent of
the closing price of Common Stock on the day of the annual meeting.
In January 1998, the Board of Directors amended the Director Plan to reduce
the number of shares granted effective April 1998. As of April 1998, (i) each
newly-appointed director will receive an initial option grant of 31,250
shares; (ii) each non-employee director will receive an annual option grant of
25,000 shares upon re-election; (iii) the director named as Chairman of the
Board will receive an option to acquire an additional 6,250 shares; and (iv)
prior to each annual meeting each non-employee director may elect to receive
all or a portion of the following year's annual retainer in the form of a
stock option grant, for which the number of shares and the exercise price are
based upon 50 percent of the closing price of Common Stock on the day of the
annual meeting.
On April 24, 1997, Messrs. Babbio, Enloe, Heilmeier, Kinnear, Larson, Lay,
Roman and Ms. Salhany received an option grant for 50,000 shares and Mr. Rosen
received an option grant for 62,500 shares at a price of $16.03 per share
under the Director Plan.
As a result of the individual directors' elections to convert their cash
retainer to stock options, on April 24, 1997, the following directors received
options on the following number of shares: Mr. Babbio, 2,186 shares, Messrs.
Enloe and Lay, 4,370 shares, Mr. Kinnear, 5,616 shares, Messrs. Larson and
Roman, 4,996 shares, Mr. Rosen, 6,866 shares, and Ms. Salhany, 4,370 shares.
The exercise price of these options is $8.02 per share. Because Mr. Perkins
joined the Board as a result of the merger with Tandem, his Tandem stock
options automatically converted to Compaq stock options and he did not receive
a new director grant. Under the terms of Tandem's stock option plan for
non-employee directors, on January 28, 1997, Mr. Perkins received a grant that
converted to an option to acquire 3,150 shares of Compaq common stock at an
exercise price of $13.34 per share.
As part of the Company's charitable giving strategy, Compaq established a
directors' charitable donation program funded by life insurance. Upon the
death of a director who has served for at least three years, Compaq will
donate $1 million to charitable organizations recommended by the director.
Compaq will be reimbursed by life insurance proceeds. Individual directors
derive no financial benefit from this program since all charitable donations
are made by Compaq.
<PAGE>
Executive Officers
The Board elects executive officers annually at its first meeting following
the Annual Meeting. Certain information about Compaq's executive officers is
Set forth below. Information about Mr. Pfeiffer is included under
"Information About Nominees."
Andreas Barth, age 53, was elected Senior Vice President, Europe, Middle East
and Africa in 1991. He joined Compaq in 1988 as Managing Director of Compaq
Computer GmbH, Compaq's German subsidiary, was appointed Vice President,
Central Europe in 1990, and Vice President, Europe in 1991.
J. David Cabello, age 46, was elected Senior Vice President, General Counsel,
and Secretary in December 1996. He joined Compaq in 1987 as Patent Counsel,
and was appointed Vice President and Assistant General Counsel in 1995.
Hans W. Gutsch, age 54, was elected Senior Vice President, Human Resources and
Environment in November 1994. Mr. Gutsch joined Compaq in 1988 as Director,
Human Resources, Europe and was appointed Vice President, Human Resources,
Europe in 1992, and Vice President, Human Resources and Environment, Europe,
Middle East and Africa in 1993.
Michael D. Heil, age 50, was elected Senior Vice President, Worldwide Sales,
Marketing, Service and Support in January 1998. Prior to this position, he
served as Senior Vice President, Consumer Products Group since 1995. Prior to
his arrival at Compaq, he was President and General Manager of Los Angeles
Cellular Telephone Company.
Alan G. Lutz, age 52, was elected Senior Vice President, Communication
Products Group in November 1996. Prior to his arrival at the Company, he
served as Executive Vice President, Computer Systems Group, of Unisys
Corporation since May 1994. From 1993 to 1994 he served as President of
Kassandra Group. From 1987 to 1993 he worked at Northern Telecom LTD and
served in a number of positions, the most recent being Senior Vice President
and President, Public Networks.
Earl L. Mason, age 50, was elected Senior Vice President, Finance and Chief
Financial Officer in June 1996. Prior to his arrival at Compaq, he was
Senior Vice President of Inland Steel Industries, Inc. ("ISI") since 1995.
From 1994 to 1996, he served as Chief Financial Officer and President of
Inland International, Inc. He also served as Vice President of ISI from 1994
to 1995, and Vice President - Finance and Principal Financial Officer of ISI
from 1991 to 1994.
Gregory E. Petsch, age 47, was elected Senior Vice President, Manufacturing
and Quality in July 1993. He joined Compaq in 1983 as Director of
Manufacturing Control and was named Vice President, CPU Manufacturing in 1989
and Vice President, Manufacturing in 1991.
John T. Rose, age 52, was elected Senior Vice President, Enterprise Computing
Group, in July 1996. He joined Compaq as Senior Vice President, Desktop PC
Division in 1993. Prior to his arrival at Compaq, he was Vice President of
Digital Equipment Corporation's Personal Computing Systems Business, which he
established in 1985.
Rodney W. Schrock, age 38, was elected Vice President, Consumer Products
Group, in January 1998. He joined Compaq in 1987 as Director of Compaq
Systems Product Marketing and served as Director of Desktop Business and
Technology from 1993 until 1995. In 1995 he was named Vice President of the
Presario PC Division.
Robert W. Stearns, age 47, was elected Senior Vice President, Technology and
Corporate Development in January 1996. He joined Compaq as Vice President of
Corporate Development in 1993. Prior to his arrival at Compaq, he was
employed as a consultant focusing on high technology issues with McKinsey &
Co.
John W. White, age 59, was elected Vice President and Chief Information
Officer upon his joining Compaq in February 1994. Before joining Compaq, he
was Vice President of Texas Instruments, Inc., and President of its
Information Technology Group.
Michael J. Winkler, age 53, was elected Senior Vice President, PC Products
Group in November 1996. He joined Compaq in 1995 as Senior Vice President,
Portable PC Division. Prior to his arrival at Compaq, he was a Vice President
and General Manager of the Computer Systems Division of Toshiba America
Information Systems.
<PAGE>
Stock Ownership
The following table gives information about the ownership of Compaq stock as
of February 27, 1998, by the directors, the Chief Executive Officer, the four
most highly compensated other executive officers, and the executive officers
and directors as a group. There were no holders known to Compaq to own
beneficially five percent or more of its outstanding stock. Beneficial
ownership of securities is defined by the Securities and Exchange Commission
(the "SEC") to mean generally the power to vote or dispose of securities,
regardless of economic interest. Compaq had approximately 1.5 billion shares
of Common Stock outstanding as of February 27, 1998.
<TABLE>
<CAPTION>
<S>
NUMBER OF SHARES PERCENT OF
NAME OF OWNER OPTIONS (1) TOTAL (1) OUTSTANDING
- ----------------------------------------------- -------------------- ------------------- ------------
<C> <C> <C> <C>
Benjamin M. Rosen 69,658 6,159,478 *
Eckhard Pfeiffer 8,497,566 8,747,566 *
Lawrence T. Babbio, Jr. 180,896 200,896 *
Robert Ted Enloe, III 216,432 (2) 407,856 (2) *
George H. Heilmeier 272,000 286,500 *
George E.R. Kinnear II 242,852 322,852 *
Peter N. Larson 345,112 358,112 *
Kenneth L. Lay 199,370 (3) 753,154 (3)(4) *
Thomas J. Perkins 149,100 1,382,832 (5) *
Kenneth Roman 434,452 491,943 *
Lucille S. Salhany 165,370 179,370 *
Earl L. Mason 206,672 213,672 (6) *
Gregory E. Petsch 272,506 286,202 (7) *
Roel Pieper 130,319 130,319 *
John T. Rose 853,765 899,529 (8) *
All executive officers and directors as a group 16,251,017 (9) 24,888,251 (10) 1.61%
<FN>
* Less than 1%
______________
(1) Includes Compaq stock options that are exercisable or will become exercisable by April
28, 1998. All figures in this table reflect the Company's five-for-two stock split in
July 1997 and two-for-one stock split in January 1998.
(2) Includes Compaq stock options to purchase 181,424 shares held by limited partnership.
(3) Includes Compaq stock options to purchase 170,000 shares held by limited partnership.
(4) Includes 493,784 shares held by limited partnership.
(5) Includes 80,850 shares held in a retirement fund.
(6) Includes 7,000 shares held in a retirement fund.
(7) Includes 13,696 shares credited to the executive officer's account in Compaq's defined
contribution plan.
(8) Includes 4,035 shares credited to the executive officer's account in Compaq's defined
contribution plan and 11,729 shares credited to the executive officer's account in
Compaq's deferred compensation plan.
(9) Includes Compaq stock options to purchase 351,424 shares held by limited partnerships and
Compaq stock options to purchase 5,244 shares held by the spouse of an executive officer.
(10) Includes 493,784 shares held by limited partnership, 286,000 shares held in a trust,
87,850 shares held in retirement funds, 47,058 shares credited to the executive officers'
accounts in Compaq's defined contribution plan, 1,455 shares credited to the account of the
spouse of an executive officer in Compaq's defined contribution plan, and 11,729 shares
credited to an executive officer's account in Compaq's deferred compensation plan.
</TABLE>
Executive Compensation
Tables I through III give information about the cash compensation and stock
options awarded to Messrs. Pfeiffer, Mason, Petsch, Pieper and Rose. The
notes to these tables provide more specific information. Table IV describes
the anticipated retirement benefits to be received by Mr. Pfeiffer under the
defined benefit retirement plan of Compaq's German subsidiary. Compaq's
compensation policies are discussed in the Human Resources Committee Report
that begins on page 14.
TABLE I
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation
----------------------------------------------------------------
Securities
Other Annual Underlying All Other
Name Year Salary Bonus Compensation Options (2) Compensation
- ------- ---- ---------- --------------- ------------ ------------- --------------
<C> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer 1997 $1,250,000 $ 3,250,000 - 1,750,000 $1,500,000 (3)
President and Chief 1996 1,250,000 3,000,000 - 1,750,000 1,250,000 (3)
Executive Officer 1995 1,125,000 2,500,000 - 1,600,000 1,250,000 (3)
Earl L. Mason
Senior Vice President 1997 475,000 700,000 - 650,000 228,400 (4)
and Chief Financial Officer 1996 266,250 400,000 494,713 (5) 825,000 -
Gregory E. Petsch 1997 425,000 675,000 - 600,000 313,000 (4)
Senior Vice President 1996 380,000 575,000 - 500,000 285,300 (4)
Manufacturing and Quality 1995 350,000 525,000 - 500,000 271,000 (4)
Roel Pieper (6) 1997 500,000 1,286,869 (7) - 912,500 (8) -
John T. Rose 1997 450,000 700,000 - 650,000 338,983 (4)
Senior Vice President and 1996 380,000 625,000 - 500,000 233,500 (4)
Enterprise Computing Group 1995 350,000 450,000 44,037 (5) 500,000 179,375 (4)
<FN>
______________
(1) Includes cash compensation earned by executive officers, including amounts earned but deferred.
Other than the amounts shown under "Other Annual Compensation" for Messrs. Mason and Rose,
management believes that the value of any other benefits to any executive officer during 1995,
1996 and 1997 did not exceed $50,000 or fall within any other category requiring inclusion.
(2) All figures in this column reflect the Company's five-for-two stock split in July 1997 and
two-for-one stock split in January 1998.
(3) A deferred unfunded bonus, the payment of which is subject to conditions established by the Human
Resources Committee.
(4) Includes contributions to Compaq's defined contribution plan and/or deferred compensation and
supplemental savings plan for Messrs. Mason, Petsch, and Rose respectively in 1997, of $28,400,
$25,500, and $26,483, for Mr. Petsch and Mr. Rose respectively in 1996, contributions of $22,800
and $8,500, and for Mr. Petsch and Mr. Rose respectively in 1995, contributions of $21,000 and
$4,375 as well as deferred unfunded bonuses for Messrs. Mason, Petsch, and Rose respectively in
1997 equal to $200,000, $287,500, and $312,500, to Mr. Petsch and Mr. Rose respectively in 1996
equal to $262,500 and $225,000, and to Mr. Petsch and Mr. Rose respectively in 1995 equal to
$250,000 and $175,000, the payment of which is subject to conditions established by the Human
Resources Committee.
(5) Compaq paid these amounts as reimbursement for certain costs in connection with employment by
Compaq and relocation to Houston, Texas and for taxes in connection with such income.
(6) Mr. Pieper joined Compaq in September 1997 following the acquisition of Tandem Computers
Incorporated. He resigned in January 1998.
(7) When Compaq acquired Tandem, it assumed Tandem's obligations under its employment agreement with Mr.
Peiper, entered into in January 1996 (the "Pieper Agreement"). Under the Pieper Agreement, Mr.
Pieper was entitled to receive certain payments as a result of Compaq's acquisition of Tandem,
including these amounts as performance bonuses for the Tandem fiscal year ended September 30, 1997
and for the period October 1, 1997 through December 31, 1997. Mr. Pieper also was entitled to
continued employment for six months after the closing date at a base salary equal to twice his base
salary before the merger and a bonus equal to a full year's bonus under Tandem's incentive bonus plan.
Under the Pieper Agreement, Mr. Pieper is receiving additional payments of $4,239,264 in connection
with his termination of employment.
(8) Includes stock options granted by Tandem that were converted into Compaq options as a result of
the merger. Compaq granted Mr. Pieper 650,000 options.
</TABLE>
TABLE II
1997 OPTION EXERCISES
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
1997 Stock Option Options at in-the-Money Options
Excercises December 31, 1997 at December 31, 1997
-------------------------------------------------------------------------------------
Shares Value Realized Exercisable Unexercisable Exercisable Unexercisable
------- -------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer - $ - 7,880,054 4,719,946 $188,247,577 $54,220,172
Earl L. Mason 150,414 2,142,816 82,502 1,242,084 1,416,812 10,125,291
Gregory E. Petsch 521,512 9,438,528 75,834 1,488,736 1,511,942 16,321,421
Roel Pieper 626,366 15,809,232 241,074 1,350,790 2,462,537 8,968,935
John T. Rose 275,020 4,165,148 696,260 1,538,736 13,688,531 16,321,421
</TABLE>
TABLE III
1997 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
% of 1997
Employee Exercise/Base Assumed Assumed
Options Option Price per Expiration Rate Rate
Granted (2) Grants Share Date 5% 10%
---------------- --------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer 1,750,000 3.80% 36.66 9/24/07 $40,344,794 $102,238,275
Earl L. Mason 650,000 1.41 36.66 9/24/07 14,985,209 37,974,217
Gregory E. Petsch 600,000 1.30 36.66 9/24/07 13,832,501 35,053,123
Roel Pieper 650,000 1.41 34.25 8/28/07 14,000,749 35,480,699
262,500 (3) 0.57 11.79 4/28/07 1,946,367 4,932,426
John T. Rose 650,000 1.41 36.66 9/24/07 14,985,209 37,974,217
All shareholders:
approximately 1.5 billion
shares outstanding on
September 25, 1997 N/A N/A N/A N/A $35 billion $88 billion
Named officers' gain as % of
all shareholders' gain .29% .29%
<FN>
(1) The potential gain is calculated from the closing price of Common Stock on the date of grants to executive
officers. These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on
stock option exercises and Common Stock holdings are dependent on the future performance of the Common
Stock and overall market conditions.
(2) Option grants vest over 60 months from the date of grant and expire upon the earlier of one year after
termination of employment or ten years from the date of grant.
(3) Includes stock options granted by Tandem that were converted into 262,500 Compaq options as a result of the
merger. These options vest over 48 months.
</TABLE>
TABLE IV
GERMAN PENSION PLAN
<TABLE>
<CAPTION>
Annual Pension Benefits without Reductions
Final Average for Anticipated Social Security and Prior
Eckhard Pfeiffer Base Salary Employer Pension Benefits (1)
- -------------------------------------------------------------------------------------
Years of Service 15 20 25 30 35
- -------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 900,000 $352,174 $469,565 $540,000 $540,000 $540,000
1,000,000 391,304 521,739 600,000 600,000 600,000
1,100,000 430,435 573,913 660,000 660,000 660,000
1,200,000 469,565 626,087 720,000 720,000 720,000
1,300,000 508,696 678,261 780,000 780,000 780,000
<FN>
(1) Anticipated benefits at age 65 assuming the years of service with Compaq shown.
At December 31, 1997, Mr. Pfeiffer had 14 years of vested service. Benefits for
Mr. Pfeiffer are calculated based on a formula under which he receives benefits
equal to 60 percent of his average base salary over his final three years of
employment. Any benefit is offset by U.S. and German social security benefits,
pension payments from previous employers, and any amounts contributed by Compaq
on his behalf to the U.S. defined contribution plan.
</TABLE>
<PAGE>
Compaq's executive officers in the United States are eligible to participate
in Compaq's defined contribution plan and deferred compensation and
supplemental savings plan. Amounts contributed to the defined contribution
plan and deferred compensation and supplemental savings plan are included in
Table I.
In 1992, Compaq entered into an employment agreement with Mr. Pfeiffer (the
"CEO Agreement"). The CEO Agreement describes the terms of Mr. Pfeiffer's
employment, including his right to receive a severance payment equal to four
times his base salary (excluding bonuses) upon (i) termination of employment
without cause or (ii) his resignation following his removal as Chief Executive
Officer or a change of control of Compaq. In such events, Mr. Pfeiffer will
vest in all his outstanding stock options. Mr. Pfeiffer's right to receive
the severance payment and accelerated stock option vesting is subject to his
releasing any claims against Compaq and agreeing not to compete with Compaq or
solicit its employees for 24 months.
Compaq has severance arrangements with its other executive officers. Compaq
has agreed with each of these officers that upon (i) termination of employment
without cause or (ii) resignation following a material change in the officer's
duties, a change of control, disability, a reduction in pay greater than 25
percent, or Compaq's failure to renew the agreement, such officer would
receive a severance payment equal to eighteen months of base compensation.
Compaq's obligation to make such payment is subject to the officer's executing
a release and noncompetition and nonsolicitation agreement.
Compaq's stock option plans provide for full vesting of outstanding options in
the event there is a change of control of Compaq.
<PAGE>
Human Resources Committee Report
The Human Resources Committee of the Board of Directors, which is composed of
independent directors, ensures that Compaq's human resource and compensation
policies support and enhance its strategic objectives. The Committee reviews
and advises the Board about Compaq's human resource strategies, adopts the
policies that govern Compaq's compensation programs, administers Compaq's
equity plans, and sets the compensation of executive officers. The Committee
establishes compensation programs designed to attract, retain, and reward
executives who will lead Compaq in achieving its business goals in a highly
competitive and rapidly changing industry; ensures that Compaq fulfills its
ethical and legal responsibilities to employees; and ensures that management
compensation is reasonable in light of Compaq's objectives, performance, and
compensation for similar personnel at other companies. The compensation mix
for executive officers consists of base salaries, bonus, and stock option
awards. As a result, much of an officer's compensation depends on Compaq's
financial performance.
The Committee makes its compensation decisions based on an analysis of
Compaq's performance, an assessment of comparative compensation information,
and an evaluation of the performance of executive officers. Comparative
performance data in 1997 was based on a group of 13 large industry competitors
included in the S&P Computers (Hardware) Index. An external consulting firm
recommends the peer group after analyzing companies for similar product lines,
size, and financial structure. Performance in 1997 placed Compaq at about the
80th percentile in the peer group based on an evaluation of return on invested
capital and sales growth, which are highly correlated with long-term
shareholder value creation.
Comparative compensation data in 1997 was derived from an analysis of several
independent surveys of compensation practices by Compaq and external
consultants. Information from the computer and electronics industry segments
is used wherever available. Nearly all of the companies in the comparative
performance analysis are included in one or more of the surveys used to assess
comparative compensation practices. The Committee believes these sources
provide the correct information to evaluate the pay practices of the companies
with which Compaq competes to hire and retain executives.
Compaq targets executive base salary ranges at the 50th to 75th percentile of
relevant market data. The Committee annually establishes each executive
officer's base salary, including the Chief Executive Officer's, based on its
evaluation of the officer's performance and contribution in the previous year
and on competitive pay practices. The criteria used in the appraisal in 1997
varied based upon the officer's sphere of responsibility, but generally
focused on measures such as execution of long-term strategies, meeting
financial goals, sales growth in marketing and sales divisions, an assessment
of plans for existing and new products in product groups, expense control, and
asset management.
Each year, in accordance with the limits established under Compaq's Bonus
Incentive Plan, the Committee establishes a cash bonus fund based on Compaq's
performance relative to the industry peer group. In 1997, the Committee
evaluated comparative compensation data to determine the aggregate amount
required to pay bonuses that would result in average total cash compensation
to executives at the 80th percentile level, in line with Compaq's performance
in 1997. The Committee then determined the amount of the award for each
executive officer by reviewing comparative data for each executive officer's
position and evaluating this information in light of individual contribution
levels, succession plans, prospective future contributions, and retention
requirements. The Committee authorizes the Chief Executive Officer to
allocate the remainder of the bonus fund to key employees other than executive
officers based on competitive pay practices and individual performance and
contributions.
In establishing Mr. Pfeiffer's bonus, the Committee considered at length Mr.
Pfeiffer's performance in 1997, focusing on three aspects: operational and
financial results, strategic planning, and leadership. Mr. Pfeiffer's
direction of Compaq's operations in 1997 resulted in record-setting financial
performance, including an annual sales increase to $24.6 billion from $20.0
billion in 1996, an increase in earnings per share to $1.19 from $.87 in 1996
(adjusted for stock splits), and an improvement in gross margins to 27.6% by
the fourth quarter of 1997. Mr. Pfeiffer's development and implementation of
effective strategies to ensure Compaq's continued growth and financial success
led to continued significant steps in Compaq's transition from a PC company to
a computer company. In particular, the acquisition of Tandem Computers
Incorporated in expansion of the Company's enterprise computing business and
the continuation of the industry and financial community's confidence in Mr.
Pfeiffer's leadership fostered the increase in Compaq's stock price from
$14.80 at the end of 1996 to $28.25 at the end of 1997 (adjusted for stock
splits).
The Human Resources Committee and the Board of Directors believe that
management's ownership of a significant equity interest in Compaq is an
important incentive in building shareholder wealth and aligning the long-term
interests of management and shareholders. Stock options, therefore, are
granted by the Committee at option prices not less than the fair market value
of Compaq stock on the grant date and vest over 60 months; as a result, stock
options have no value unless the share price increases over the fair market
value on the date of grant. Option awards contribute to the retention of key
executives since executives realize the benefits of options only as they vest
based on tenure after the grant. The Committee uses competitive market data,
historical option grant practices, and the projected value of outstanding
unvested shares and proposed awards to determine an appropriate range of
awards for executive officers. The Committee established ranges for awards to
other key employees based upon rank and contribution and delegated to the
Chief Executive Officer the authority to make stock option awards to these
employees. The Human Resources Committee also monitors compliance with the
Executive Stock Ownership Policy that requires Mr. Pfeiffer to own 250,000
shares of Compaq stock and each of the other executive officers to own 48,000
shares. Each officer has until the later of September 1998 or five years from
election as an executive officer to comply with the ownership requirement.
Mr. Pfeiffer's stock ownership meets the requirement and all other executive
officers are making progress toward the ownership goals.
Compaq is subject to Internal Revenue Code Section 162(m), which could limit
the deductibility of certain compensation payments to its executive officers.
Compaq believes that any compensation realized in connection with the exercise
of stock options granted by Compaq is deductible as performance-based
compensation.
Compaq also believes that compensation paid under its Bonus Incentive Plan
qualifies as deductible under Section 162(m). Compaq generally intends to
comply with the requirements of Section 162(m); however, it also intends to
weigh the burdens of such compliance against the benefits to be obtained by
Compaq, and may pay compensation that is not fully deductible if it determines
that such payments are in Compaq's best interests.
Human Resources Committee
Peter N. Larson (Chair) Thomas J. Perkins
Robert Ted Enloe, III Kenneth Roman
George H. Heilmeier Benjamin M. Rosen
George E.R. Kinnear II Lucille S. Salhany
Kenneth L. Lay
<PAGE>
Stock Performance Graph
The following graph compares Compaq's cumulative total return to the S&P 500
and the S&P Computer (Hardware) Index over a five-year period, beginning
December 31, 1992, and ending December 31, 1997. The total shareholder return
assumes $100 invested at the beginning of the period in Compaq Common Stock,
the S&P 500, and the S&P Computer (Hardware) Index. It also assumes
reinvestment of all dividends. Past financial performance should not be
considered to be a reliable indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods.
TABLE V
Comparison of Five-Year Cumulative Total Return
(PERFORMANCE GRAPH APPEARS HERE)
<TABLE>
<CAPTION>
Comparison Of Five-Year Cumulative Total Return
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Compaq Computer Corporation 100 151.54 243.08 295.38 457.69 869.69
S&P Computer (Hardware) Index 100 103.79 134.04 178.38 238.84 349.61
S&P 500 Composite 100 110.08 111.53 153.45 188.68 251.63
</TABLE>
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Compaq's
directors, executive officers, and holders of more than 10% of Compaq's common
stock to file with the SEC initial reports of ownership and reports of changes
in ownership of Compaq's common stock. Compaq believes that during the fiscal
year ended December 31, 1997, its officers and directors complied with all
these filing requirements. In making this statement, Compaq has relied upon
the written representations of its directors and officers. Based on
shareholder filings, we do not believe any other shareholders are subject to
Section 16(a) filing requirements.
General Information
Price Waterhouse LLP, independent accountants, has served as Compaq's
independent accountants since 1982, the year of Compaq's incorporation, and
has been appointed to audit Compaq's consolidated financial statements for
1997. The Board has not proposed that any formal action be taken at the
meeting with respect to the employment of Price Waterhouse LLP because no
action is required. Representatives of Price Waterhouse LLP will attend the
Annual Meeting and be available to answer questions. Representatives of Price
Waterhouse LLP will have the opportunity to make a statement at the meeting if
they desire.
The expense of preparing, printing and mailing this Proxy Statement will be
paid by Compaq. To assist in the solicitation of proxies, Compaq has engaged
Corporate Investor Communications, Inc. ("CIC") at a fee of $17,500 plus
reimbursement of its out-of-pocket expenses. In addition to the use of the
mail, proxies may be solicited personally or by telephone by regular employees
of Compaq as well as by employees of CIC without additional compensation other
than reimbursement of out-of-pocket expenses. Compaq will reimburse banks,
brokers and other custodians, nominees, and fiduciaries for their costs in
sending the proxy materials to the beneficial owners of the Common Stock.
Proposals of shareholders that are intended to be presented at Compaq's 1999
Annual Meeting of Shareholders must be received by Compaq no later than
November 9, 1998, to be included in the Proxy Statement and proxy relating to
that meeting.
<PAGE>
EXHIBIT A
Adopted January 22, 1998, subject to shareholder approval
Compaq Computer Corporation
1998 Stock Option Plan
SECTION 1. Purpose. The Compaq Computer Corporation 1998 Stock Option
-------
Plan has been established to promote the interests of Compaq Computer
Corporation and its stockholders by (i) attracting and retaining exceptional
employees and directors of Compaq and its Affiliates, as defined below; (ii)
motivating such employees and directors by means of performance-related
incentives to achieve long-range performance goals; and (iii) enabling such
employees and directors to participate in the long-term growth and financial
success of Compaq.
SECTION 2. Definitions. As used in the Plan, the following terms shall
-----------
have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by Compaq and (ii) any entity in which Compaq has a significant
equity interest, in either case as determined by the Committee.
"Award" shall mean any Option or Stock Appreciation Right.
"Board" shall mean the Board of Directors of Compaq.
"Change in Control" shall be deemed to have occurred if: (i) any "person" as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
Compaq, any trustee or other fiduciary holding securities under any Compaq
employee benefit plan, or any entity owned, directly or indirectly, by Compaq
stockholders in substantially the same proportions as their ownership of
Compaq voting securities), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act, or any successor rule or regulation thereto
as in effect from time to time), directly or indirectly, of Compaq securities
representing 30% or more of the combined voting power of Compaq's then
outstanding securities; (ii) during any period of two consecutive years (not
including any period prior to the adoption of the Plan), individuals who at
the beginning of such period constitute the Board of Directors, and any new
director (other than a director designated by a person who has entered into an
agreement with Compaq to effect a transaction described in clause (i), (iii),
or (iv) of this paragraph) whose election by the Board of Directors or
nomination for election by Compaq's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) Compaq
stockholders approve a merger or consolidation of Compaq with any other
corporation, other than a merger or consolidation that would result in Compaq
voting securities outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of voting securities of Compaq or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization of Compaq (or
similar transaction) in which no person acquires more than 30% of the combined
voting power of Compaq's then outstanding securities shall not constitute a
Change in Control; or (iv) Compaq stockholders approve a plan of complete
liquidation of Compaq or an agreement for the sale or disposition by Compaq of
all or substantially all of Compaq's assets. If any of the events enumerated
in clauses (i) through (iv) occur, the Board shall determine the effective
date of the Change in Control resulting therefrom, for purposes of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan and composed of persons who (i) to the extent necessary to
comply with Rule 16b-3 are "Non-Employee Directors" within the meaning of Rule
16b-3 and (ii) to the extent any Award granted hereunder is intended to
qualify as performance-based compensation under Section 162(m) of the Code,
constitute "outside directors" within the meaning of Section 162(m) of the
Code and the regulations thereunder. Until otherwise determined by the Board,
the Human Resources Committee designated by the Board shall be the Committee
under the Plan.
"Compaq" shall mean Compaq Computer Corporation, together with any successor
thereto.
"Election Date" shall mean with respect to an Option hereunder the date of the
appointment, election, or re-election of the director that prompted the grant
of such Option.
"Eligible Director" shall mean each director of the Company who is not an
employee of the Company or any of the Company's subsidiaries (as defined in
Section 425(f) of the Code).
"Employee" shall mean an employee of Compaq or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Executive Officer" shall mean, at any time, an individual who is an executive
officer of Compaq within the meaning of Exchange Act Rule 3b-7 as promulgated
and interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time, or who is an officer of
Compaq within the meaning of Exchange Act Rule 16a-1(f) as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
"Fair Market Value" shall mean the fair market value of the property or other
item being valued, as determined by the Committee in its sole discretion, and
for purposes of determining the exercise price of an Award shall be equal to
the Dow Jones composite close for the Shares as reported on the Dow Jones news
retrieval system on the date of the Award (or on the most recent business day
if the date of an Award is a holiday).
"Incentive Stock Option" shall mean a right to purchase Shares from Compaq
that is intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
"Net After-Tax Amount" shall mean the net amount of compensation, assuming for
this purpose only that all vested Awards and other forms of compensation
subject to vesting upon such Change of Control are exercised upon such Change
in Control, to be received (or deemed to have been received) by such
Participant in connection with such Change of Control under any agreement and
under any other plan, arrangement or contract of Compaq to which such
Participant is a party, after giving effect to all income and excise taxes
applicable to such payments.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from Compaq
that is granted under Section 5 or Section 7 of the Plan and that is not
intended to be an Incentive Stock Option.
"Notice" shall mean any written notice, contract, or other instrument or
document evidencing any Award, which may, but need not, be executed or
acknowledged by a Participant.
"Option" shall mean a Non-Qualified Stock Option or Incentive Stock Option.
"Participant" shall mean any Employee or Director selected to receive an Award
under the Plan.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Plan" shall mean this Compaq Computer Corporation 1998 Stock Option Plan.
"Release Date" shall mean the third business day occurring after Compaq's
earnings release for the preceding fiscal period. In calculating the Release
Date, the day of an earnings release shall be counted if the earnings release
is made before the opening of trading on the New York Stock Exchange and shall
not be counted if such release is made after the opening of trading.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC
under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean shares of the common stock, $.0l par value, of Compaq or
such other securities of Compaq as may be designated by the Committee from
time to time.
"Stock Appreciation Right" shall mean any right granted under Section 6 of the
Plan.
"Substitute Awards" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired
by Compaq or with which Compaq combines.
"Window" shall mean a period of time beginning on a Release Date and ending at
the end of the second month of the fiscal quarter in which such Release Date
occurs.
SECTION 3. Administration.
--------------
(a) Authority of Committee. The Committee shall administer the Plan.
----------------------
Subject to the terms of the Plan and applicable law, the Committee shall have
full power and authority to: (i) designate Employee Participants; (ii)
determine the type or types of Awards to be granted to an eligible Employee;
(iii) determine the number of Shares to be covered by, or with respect to
which payments, rights, or other matters are to be calculated in connection
with, Awards to Employees; (iv) determine the terms and conditions of any
Award to Employees; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
Notice relating to, or Award made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee
deems necessary or desirable for the administration of the Plan.
(b) Committee and Board Discretion Binding. Unless otherwise expressly
--------------------------------------
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee or the Board, may be made at any time,
and shall be final, conclusive, and binding upon all Persons, including
Compaq, any Affiliate, any Participant, any holder or beneficiary of any
Award, any stockholder, any Employee, and any Director.
SECTION 4. Shares Available for Awards.
---------------------------
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
----------------
the number of Shares with respect to which Awards may be granted under the
Plan shall be 100 million; provided, however, if Compaq or its wholly owned
subsidiary merges with Digital Equipment Corporation the number of Shares with
respect to which Awards may be granted under the Plan shall be increased by 50
million, to a total of 150 million shares. If, after the effective date of
the Plan, any Shares covered by an Award granted under the Plan or to which
such Award relates, are forfeited, or if such an Award is settled for cash or
otherwise terminates or is canceled without the delivery of Shares, then the
Shares covered by such Award, or to which such Award relates, or the number of
Shares otherwise counted against the aggregate number of Shares with respect
to which Awards may be granted, to the extent of any such settlement,
forfeiture, termination or cancellation, shall again become Shares with
respect to which Awards may be granted. In the event that any Option or other
Award granted hereunder is exercised through the delivery of Shares or in the
event that withholding tax liabilities arising from such Award are satisfied
by the withholding of Shares by Compaq, the number of Shares available for
Awards under the Plan shall be increased by the number of Shares so
surrendered or withheld.
(b) Adjustments. In the event that the Committee determines that any
-----------
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of Compaq, issuance of
warrants or other rights to purchase Shares or other securities of Compaq, or
other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number of Shares or
other securities of Compaq (or number and kind of other securities or
property) with respect to which Awards may be granted, (ii) the number of
Shares or other securities of Compaq (or number and kind of other securities
or property) subject to outstanding Awards, and (iii) the grant or exercise
price with respect to any outstanding Award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
however, that such adjustments shall be made by the Board with respect to
Awards to Eligible Directors.
(c) Substitute Awards. Any Shares underlying Substitute Awards shall not
-----------------
be counted against the Shares available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares delivered
------------------------------------------
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Employee Stock Options.
----------------------
(a) Eligibility and Limits on Awards. Any Employee, including any officer
--------------------------------
or employee-director of the Company or any Affiliate, shall be eligible to be
designated a Participant. Subject to adjustment as provided in Section 4(b),
no Executive Officer may receive Awards under the Plan in any calendar year
that relate to more than 1,500,000 Shares. The limits on Awards to any
Executive Officer under this Plan shall be reduced by any other Award in the
same calendar year to such officer under any other Compaq equity incentive
plan.
(b) Grant. Subject to the provisions of the Plan, the Committee shall
-----
have sole and complete authority to determine the Employees to whom Options
shall be granted, the number of Shares to be covered by each Option, and the
conditions and limitations applicable to the exercise of the Option.
(c) Exercise Price. The exercise price for Options (other than Substitute
--------------
Awards) granted under the Plan shall be not less than the Fair Market Value of
the underlying Shares. Neither the Board nor the Committee may lower the
exercise price of outstanding options issued under the Plan. The Committee
shall determine the appropriate exercise prices for Substitute Awards based on
the terms and conditions of the transaction related to such Awards.
(d) Exercise. Each Employee Option shall be exercisable at such times and
--------
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Notice or thereafter; provided, however,
that no grant to an Executive Officer shall be exercisable until the earlier
of (i) six months after the date of grant or (ii) the Participant's ceasing to
be an Executive Officer. The Committee and the Board may impose such
conditions with respect to the exercise of options, including without
limitation, any relating to the application of federal or state securities
laws, as it may deem necessary or advisable.
(e) Payment. No Shares shall be delivered pursuant to any exercise of an
-------
Option until payment in full of the option price therefor is received by
Compaq. Such payment may be made (i) in cash, or its equivalent, (ii) if and
to the extent permitted by the Committee, by exchanging Shares owned by the
optionee (which are not the subject of any pledge or other security interest),
(iii) if and to the extent permitted by the Committee, by surrendering all or
part of that Option or any other Option, or (iv) by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents
and the Fair Market Value of any such Shares so tendered to Compaq as of the
date of such tender is at least equal to such option price.
<PAGE>
SECTION 6. Stock Appreciation Rights.
-------------------------
(a) Grant. The grant of Stock Appreciation Rights shall be limited to
------
Employees in those locations in which the law, including exchange control
regulations and taxation, unduly restricts the grant of Options. Subject to
the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Employees to whom Stock Appreciation Rights shall
be granted, the number of Shares to be covered by each Stock Appreciation
Right Award, and the conditions and limitations applicable to the exercise
thereof. Stock Appreciation Rights shall have a grant price equal to the Fair
Market Value of the related Shares on the day of the Award, and if granted to
Executive Officers, shall not be exercisable earlier than six months after
grant.
(b) Exercise and Payment. A Stock Appreciation Right shall entitle the
---------------------
Participant to receive an amount equal to the excess of the Fair Market Value
of a Share on the date of exercise of the Stock Appreciation Right over the
grant price thereof. The Committee shall determine whether a Stock
Appreciation Right shall be settled in cash, Shares or a combination of cash
and Shares.
(c) Other Terms and Conditions. Subject to the terms of the Plan, the
--------------------------
Committee shall determine, at or after the grant of a Stock Appreciation
Right, the term, methods of exercise, methods and form of settlement, and any
other terms and conditions of any Stock Appreciation Right. Any such
determination by the Committee may be changed by the Committee from time to
time and may govern the exercise of Stock Appreciation Rights granted or
exercised prior to such determination as well as Stock Appreciation Rights
granted or exercised thereafter. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.
SECTION 7. Termination or Suspension of Employment. The following
---------------------------------------
provisions shall apply in the event of the Participant's termination of
employment unless the Committee shall have provided otherwise, either at the
time of the grant of the Award or thereafter.
(a) Termination of Employment. If a Participant's employment with Compaq
-------------------------
or its Affiliates is terminated for any reason other than death, permanent and
total disability, or retirement, the Participant's right to exercise any
Nonqualified Stock Option or Stock Appreciation Right shall terminate, and
such Option or Stock Appreciation Right shall expire, on the earlier of (i)
the first anniversary of such termination of employment or (ii) the date such
Option or Stock Appreciation Right would have expired had it not been for the
termination of employment. The Participant shall have the right to exercise
such Option or Stock Appreciation Right prior to such expiration to the extent
it was exercisable at the date of such termination of employment and shall not
have been exercised.
(b) Death, Disability or Retirement. If a Participant's employment with
-------------------------------
Compaq or its Affiliates is terminated by death, permanent and total
disability, or retirement, the Participant or his successor (if employment is
terminated by death) shall have the right to exercise any Nonqualified Stock
Option or Stock Appreciation Right to the extent it was exercisable at the
date of such termination of employment and shall not have been exercised, but
in no event shall such option be exercisable later than the date the Option
would have expired had it not been for the termination of such employment.
The meaning of the terms "total and permanent disability" and "retirement"
shall be determined by the Committee.
(c) Acceleration and Extension of Exercisability. Notwithstanding the
--------------------------------------------
foregoing, the Committee may, in its discretion, provide (i) that an Option
granted to an Employee Participant may terminate at a date earlier than that
set forth above, (ii) that an Option granted to an Employee Participant not
subject to Section 16 of the Exchange Act may terminate at a date later than
that set forth above, provided such date shall not be beyond the date the
Option would have expired had it not been for the termination of the
Participant's employment, and (iii) that an Option or Stock Appreciation Right
may become immediately exercisable when it finds that such acceleration would
be in the best interests of Compaq.
(d) Leave Without Pay. In the event that an employee Participant takes a
-----------------
"leave without pay," all of such Participant's Awards or any portion thereof
shall, to the extent unvested immediately prior to such leave, cease to vest
during the period of such leave, and to the extent exercisable immediately
prior to such leave, shall remain exercisable during the period of such leave
in accordance with the terms thereof.
SECTION 8. Director Options.
-----------------
(a) Initial Grants. Each Eligible Director who is first elected or
--------------
appointed to the Board shall be granted one Option to acquire 31,250 Shares.
In the event that the Election Date occurs during the Window, such Option
shall be granted on the Election Date with respect to such Option. In the
event that such Eligible Director's election or appointment does not occur
during the Window, then such Option shall be granted on the next Release Date.
(b) Annual Options.
---------------
(i) Each Eligible Director who is reelected to the Board at an annual
meeting of the Company's stockholders and who has not received a grant under
Section 8(a) during the period since the most recent previous annual meeting
of the Company's stockholders shall be granted an Option to acquire 25,000
Shares on each Election Date on which he is reelected.
(ii) Each Eligible Director who is elected or re-elected Chairman of the
Board by the Board at its meeting following an annual meeting of the Company's
stockholders and who has not received a grant under Section 8(a) during the
period since the most recent annual meeting of Compaq's stockholders shall be
granted on each Election Date on which he is elected or reelected Chairman of
the Board an Option to acquire 6,250 Shares in addition to any applicable
Option granted under Section 8(b)(i).
(c) Terms and Conditions. Any Option granted under this Section 8 shall
- --------------------
be subject to the following terms and conditions:
(i) Any Options granted under this Section 8 shall be Non-Qualified Stock
Options and the exercise price shall be not less than the Fair Market Value of
the underlying Shares.
(ii) Each Option granted under this Section 8 shall be exercisable at such
times and subject to such terms and conditions as the Board may, in its sole
discretion, specify in the applicable Notice or thereafter; provided, however,
that no grant shall be exercisable for six months after the date of grant.
(iii) Notwithstanding the provisions of this Section 8, Options shall not
be granted under this Section 8 to any Eligible Director in any year in which
such director receives an initial grant or annual grant under the Compaq
Computer Corporation Non-Qualified Stock Option Plan for Non-Employee
Directors.
SECTION 9. Change in Control. Notwithstanding any other provision of the
-----------------
Plan to the contrary, upon a Change in Control all outstanding Awards shall
vest, become immediately exercisable or payable or have all restrictions
lifted as may apply to the type of Award and no outstanding Stock Appreciation
Right may be terminated, amended, or suspended upon or after a Change in
Control; provided, however, that unless otherwise determined by the Committee
at the time of award or thereafter, if it is determined that the Net After-Tax
Amount to be realized by any Participant, taking into account the accelerated
vesting provided for by this Section as well as all other payments to be
received by such Participant in connection with such Change in Control, would
be higher if Awards did not vest in accordance with this Section, then and to
such extent the Awards shall not vest. The determination of whether any such
Award should not vest shall be made by a nationally recognized accounting firm
selected by Compaq, which shall be instructed to consider that (a) Awards and
other forms of compensation subject to vesting upon a Change of Control shall
be vested in the order in which they were granted and within each grant in the
order in which they would otherwise have vested and (b) unless and to the
extent any other plan, arrangement or contract of Compaq pursuant to which any
such payment is to be received provides to the contrary, such other payment
shall be deemed to have occurred after any acceleration of Awards or other
forms of compensation subject to vesting upon a Change of Control.
<PAGE>
SECTION 10. Amendment and Termination.
-------------------------
(a) Amendments to the Plan. The Board may amend, alter, suspend,
----------------------
discontinue, or terminate the Plan or any portion thereof at any time;
provided that no such amendment, alteration, suspension, discontinuation or
termination shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for
these purposes any approval requirement that is a prerequisite for exemptive
relief from Section 16(b) of the Exchange Act, for which or with which the
Board deems it necessary or desirable to qualify or comply. The Committee also
may amend the Plan in such manner as may be necessary so as to have the Plan
conform with local rules and regulations in any jurisdiction outside the
United States.
(b) Amendments to Awards. The Committee may waive any conditions or
--------------------
rights under, amend any terms of, suspend, or terminate, any Award,
prospectively or retroactively; provided that any waiver, amendment,
suspension, or termination that would adversely affect the rights of any
Participant or any holder or beneficiary of any outstanding Award shall not to
that extent be effective without the consent of the affected Participant,
holder, or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
--------------------------------------------------------------
Nonrecurring Events. The Committee is hereby authorized to make adjustments
- -------------------
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4(b) hereof) affecting Compaq, any Affiliate,
or the financial statements of Compaq or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan; provided that no such adjustment shall be authorized
to the extent that such authority would be inconsistent with the Plan's
meeting the requirements of Section 162(m) of the Code, as from time to time
amended.
(d) Cancellation. Any provision of this Plan or any Notice to the
------------
contrary notwithstanding, the Committee may cause any Award granted hereunder
to be canceled in consideration of a cash payment or alternative Award made to
the holder of such canceled Award equal in value to the Fair Market Value of
such canceled Award as of the effective date of such cancellation.
(e) Employee Status Change to Part-Time. At such time as a full-time
-----------------------------------
Employee becomes a part-time Employee, on the next vesting date following such
status change, the vesting schedule for all Awards previously granted to such
employee and not yet vested will be automatically amended to reduce the number
of shares vesting each month by one-half during the time that such employee is
working on a part-time basis; provided, however, that any Shares that remain
unvested three months prior to the expiration of the term of such Award shall
vest as of such date three months prior to the expiration of such term.
SECTION 11. General Provisions.
------------------
(a) Nontransferability. No Award shall be assigned, alienated, pledged,
------------------
attached, sold or otherwise transferred or encumbered by a Participant, except
by will or the laws of descent and distribution; provided, however, that an
Award may be transferable, to the extent set forth in the applicable Notice
and in accordance with procedures adopted by the Committee.
(b) No Rights to Awards. No Employee, Participant or other Person shall
-------------------
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the
same with respect to each recipient.
(c) Share Certificates. All certificates for Shares or other securities
------------------
of Compaq or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such Shares or other securities are then listed,
and any applicable Federal or state laws, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(d) Delegation. Subject to the terms of the Plan and applicable law, the
----------
Committee may delegate to one or more officers or managers of Compaq or any
Affiliate, or to a committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to
grant Awards to, or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend, or terminate Awards held by, Employees other than
Executive Officers.
(e) Withholding. A participant may be required to pay to Compaq or any
-----------
Affiliate and Compaq or any Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made
under any Award or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Shares, other securities, other
Awards or other property) of any applicable withholding taxes in respect of an
Award, its exercise, or any payment or transfer under an Award or under the
Plan and to take such other action as may be necessary in the opinion of
Compaq to satisfy all obligations for the payment of such taxes. The
Committee may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting, exercise, or
payments of any Award.
(f) Notices. Each Award hereunder shall be evidenced by a Notice that
-------
shall be delivered to the Participant and shall specify the terms and
conditions of the Award and any rules applicable thereto.
(g) No Limit on Other Compensation Arrangements. Nothing contained in the
-------------------------------------------
Plan shall prevent Compaq or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for
the grant of options, restricted stock, Shares and other types of Awards
provided for hereunder (subject to stockholder approval if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(h) No Right to Employment. The grant of an Award shall not be construed
----------------------
as giving a Participant the right to be retained in the employ of Compaq or
any Affiliate. Further, Compaq or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Notice.
(i) No Rights as Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(j) Governing Law. The validity, construction, and effect of the Plan and
-------------
any rules and regulations relating to the Plan and any Notice shall be
determined in accordance with the laws of the State of Delaware.
(k) Severability. Notwithstanding any other provision or section of the
------------
Plan, if any provision of the Plan or any Award is or becomes or is deemed to
be invalid, illegal, or unenforceable in any jurisdiction or as to any Person
or Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws (but only to such extent necessary
to comply with such laws), or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(l) Other Laws. The Committee may refuse to issue or transfer any Shares
----------
or other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle Compaq
to recover the same under Section 16(b) of the Exchange Act, and any payment
tendered to Compaq by a Participant, other holder or beneficiary in connection
with the exercise of such Award shall be promptly refunded to the relevant
Participant, holder, or beneficiary. Without limiting the generality of the
foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of Compaq, and no such offer shall be outstanding, unless and until
the Committee in its sole discretion has determined that any such offer, if
made, would be in compliance with all applicable requirements of the U.S.
federal securities laws and any other laws to which such offer, if made, would
be subject.
(m) No Trust or Fund Created. Neither the Plan nor any Award shall create
------------------------
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between Compaq or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments
from Compaq or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of Compaq or any
Affiliate.
(n) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.
(o) Headings. Headings are given to the Sections and subsections of the
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Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 12. Term of the Plan.
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(a) Effective Date. The Plan shall be effective upon approval by the
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stockholders of Compaq.
(b) Expiration Date. No Incentive Stock Option shall be granted under the
---------------
Plan more than ten years after the effective date of the Plan. Unless
otherwise expressly provided in the Plan or in an applicable Notice, any Award
granted hereunder may, and the authority of the Board or the Committee to
amend, alter, adjust, suspend, discontinue, or terminate any such Award or to
waive any conditions or rights under any such Award shall, continue after the
authority for grant of new Awards hereunder has been exhausted.
<PAGE>
COMPAQ COMPUTER CORPORATION
Annual Meeting of Shareholders to be held April 23, 1998
10:00 A.M., Conference Center, Building CCA5
Compaq Computer Corporation
20555 State Highway 249, Houston, Texas
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Earl L. Mason and J. David Cabello, and
each of them, with full power of substitution, proxies of the undersigned to
vote all shares of Common Stock of Compaq Computer Corporation that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held April 23, 1998, and all adjournments thereof, with all the powers the
undersigned would possess if personally present, and particularly, without
limiting the generality of the foregoing, to vote and act on the following
matters and in their discretion upon such other business as may properly come
before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH DIRECTOR NOMINEE NAMED HEREIN
AND "FOR" THE APPROVAL OF THE 1998 STOCK OPTION PLAN.
Shareholders of record at the close of business on February 27, 1998,
will be entitled to vote at the Annual Meeting or any adjournments thereof.
(continued, and to be signed, on the reverse side)
<PAGE>
VOTE VIA TELEPHONE OR THE INTERNET - IT'S QUICK, EASY AND IMMEDIATE
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. Please note all votes cast via the telphone or the Internet must
be cast prior to 5 p.m., April 22, 1998.
TELEPHONE VOTING:
- - There is NO CHARGE For This Call. On a Touch Tone Telephone call
TOLL FREE 1-888-807-7699 - 24 HOURS PER DAY - 7 DAYS PER WEEK
- - You will be asked to enter a Control Number which is located above your
name and address below.
OPTION #1: To vote AS THE BOARD OF DIRECTORS RECOMMENDS, PRESS 1.
Your vote will be confirmed and cast as you directed. END OF CALL.
OPTION #2: If you choose to vote ON EACH PROPOSAL SEPARATELY, PRESS 2, You
will hear these instructions:
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD YOUR VOTE FROM
ALL nominees, press 2; To vote FOR EACH NOMINEE SEPARATELY, press 3.
Please listen to the instructions to cast your vote.
Proposal 2: To vote AS THE BOARD OF DIRECTORS RECOMMENDS, press 1; to vote
AGAINST, press 2; to ABSTAIN, press 3.
Your vote will be confirmed and cast as you directed. END OF CALL.
INTERNET VOTING:
- - As with all internet access, usage or server fees must be paid by the
user. Visit our Internet voting site at http://www.equiserve.com/proxy/ and
-------------------------------
follow the instructions on your screen. These instructions are similar to those
above for telephone voting.
If you vote via telephone or the Internet, it is not necessary to return your
proxy by mail. THANK YOU FOR VOTING.
The Board of Directors recommends a vote FOR the following Proposals:
---
1. To elect ten directors of the Company
Nominees: Benjamin M. Rosen, Eckhard Pfeiffer, Lawrence T. Babbio, Jr.,
Robert Ted Enloe, III, George H. Heilmeier, Peter N. Larson, Kenneth L. Lay,
Thomas J. Perkins, Kenneth Roman and Lucille S. Salhany
FOR ALL WITHHELD FROM ALL
NOMINEES NOMINEES
[ ] [ ]
[ ]
-----------------------------------
For all nominee(s) except as noted in the space above.
CONTROL NUMBER: ___________
2. To approve the 1998 Stock Option Plan, which provides for the issuance
of up to 150 million shares of the Company's Common Stock (50 million shares
of which are contingent upon the closing of the pending acquisition of
Digital).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR MARK HERE
ADDRESS CHANGE [ ] IF YOU PLAN [ ]
AND NOTE AT LEFT TO ATTEND
THE MEETING
Please sign as name appears. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If signer is a corporation, please sign with the full corporation
name by authorized officer or officers.
Signature: Date: Signature: Date:
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