SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
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COMPAQ COMPUTER CORPORATION
(Name of Registrant as Specified In Its Charter)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1 Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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1 Amount Previously Paid:
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<PAGE>
NOTICE
OF
1999 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.
[COMPAQ LOGO]
<PAGE>
[COMPAQ LOGO]
ECKHARD PFEIFFER
President and
Chief Executive Officer
March 5, 1999
Dear Shareholder:
Compaq Computer Corporation will hold its 1999 annual meeting of shareholders at
its Houston headquarters on Thursday, April 22, 1999. At the meeting,
shareholders will (i) elect twelve Compaq directors for one-year terms and (ii)
vote to approve the Compaq Employee Stock Purchase 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 Investor Relations at 800-433-2391.
Sincerely,
ECKHARD PFEIFFER
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<TABLE>
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TABLE OF CONTENTS
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Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting Procedures. . . . . . . . . . . . . . . . . . . . . . . . 2
Proposal 1: Election of Directors . . . . . . . . . . . . . . . 2
Corporate Governance Committee Report. . . . . . . . . . . . . . 4
Proposal 2: Approval of the Compaq Employee Stock Purchase Plan 6
Board Organization and Meetings. . . . . . . . . . . . . . . . . 8
Directors' Compensation. . . . . . . . . . . . . . . . . . . . . 9
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . 10
Stock Ownership. . . . . . . . . . . . . . . . . . . . . . . . . 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . 12
Human Resources Committee Report . . . . . . . . . . . . . . . . 15
Stock Performance Graph. . . . . . . . . . . . . . . . . . . . . 17
Section 16(a) Beneficial Ownership Reporting Compliance. . . . . 18
General Information. . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit A. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
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.
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<PAGE>
[COMPAQ LOGO]
ANNUAL SHAREHOLDERS' MEETING
APRIL 22, 1999
YOUR VOTE IS IMPORTANT
NOTICE
Compaq Computer Corporation will hold its 1999 Annual Meeting of Shareholders at
its Houston headquarters.
Thursday, April 22, 1999
10:00 A.M.
Conference Center, Building CCA5
Compaq Computer Corporation
20555 SH 249
Houston, Texas 77070
At the meeting, shareholders will (i) elect twelve Compaq directors for
one-year terms and (ii) vote to approve the Compaq Employee Stock Purchase 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 26, 1999 are
entitled to vote. On that day, approximately 1.7 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 Compaq
Employee Stock Purchase Plan. This Proxy Statement provides you with detailed
information about the election of directors and the Compaq Employee Stock
Purchase 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 5, 1999 and was first mailed
to shareholders on March 8, 1999.
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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 the Compaq Employee Stock Purchase 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.
PROPOSAL 1
ELECTION OF DIRECTORS
THE ELECTION OF DIRECTORS
Compaq currently has twelve directors on its Board. All twelve directors have
been nominated for election this year and have agreed to serve if elected. Each
of the directors was elected by the shareholders at the last Annual Meeting,
with the exception of Frank P. Doyle who was elected by the shareholders of
Digital Equipment Corporation and was appointed a director of Compaq following
Compaq's acquisition of Digital, and Dr. Judith L. Craven who joined the Board
in December 1998. The twelve persons who receive a plurality of the votes cast
will be elected and will serve as directors until the 2000 Annual Meeting unless
they die, resign or are removed before that meeting.
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If a nominee becomes unavailable for election before the 1999 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.
INFORMATION ABOUT NOMINEES
INFORMATION ABOUT THE TWELVE 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 65, was appointed Chairman of the Board of Directors of
Compaq in 1983. Mr. Rosen is a director of Capstone Turbine Corp. and Ask
Jeeves, Inc., privately-held technology companies. He is also Vice Chairman of
the Board of Trustees of the California Institute of Technology.
ECKHARD PFEIFFER
Director since 1991
Eckhard Pfeiffer, age 57, 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 54, has served as President and Chief Operating
Officer of Bell Atlantic Corporation since December 1998. In August 1997 he
was elected President and Chief Executive Officer - Network Group, and Chairman
- - Global Wireless Group of Bell Atlantic. In 1995, he was elected Vice
Chairman of Bell Atlantic. Mr. Babbio is also a director of Grupo Iusacell,
S.A. de C.V.
JUDITH L. CRAVEN
Director since 1998
Judith L. Craven, age 53, served as president of the United Way of the Texas
Gulf Coast from 1992 to 1998. Dr. Craven serves on the boards of directors at
A. H. Belo Corporation, Luby's Cafeterias, Inc., and Sysco Corporation.
FRANK P. DOYLE
Director since 1998
Frank P. Doyle, age 67, retired in 1995 as an Executive Vice President of
General Electric Company. Mr. Doyle had been an Executive Vice President of GE
and a member of its corporate executive office since 1992. He is a director of
the Paine Webber Group Inc., Roadway Express, Inc., and U.S. Office Products,
Inc. Mr. Doyle served as a director of Digital Equipment Corporation from 1995
until he joined the Compaq Board in June 1998.
ROBERT TED ENLOE, III
Director since 1986
Robert Ted Enloe, III, age 60, 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 Liberte Investors. He was President of L&N Housing Corp.
from 1981 to 1992 and a director of that entity from 1981 to 1996. Mr. Enloe
serves as a director of Leggett & Platt, Inc., Sixx Holdings Incorporated,
Liberte Investors, Inc., The Rubenstein Company, L.P., and First Sierra
Financial, Inc.
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GEORGE H. HEILMEIER
Director since 1994
George H. Heilmeier, age 62, 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, and the National Academy of Engineering. He is also a
director of TRW, Inc., MITRE Corporation, Automatic Data Processing Inc. and
Teletech Holdings.
PETER N. LARSON
Director since 1993
Peter N. Larson, age 59, 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 56, 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 67, 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 68, 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, Coty, Inc.,
Nelson Communications, and PennCorp Financial Group, Inc.
LUCILLE S. SALHANY
Director since 1996
Lucille S. Salhany, age 52, 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. Ms. Salhany is a
director of American Media, Avid Technology, and Boston Restaurant Associates.
CORPORATE GOVERNANCE COMMITTEE REPORT
Compaq Computer Corporation has a long-standing commitment to building long-term
shareholder value with an emphasis on corporate governance.
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.
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<PAGE>
The Board annually reviews and updates its corporate governance standards that
govern the selection of Board candidates, director compensation, Board
evaluation, executive succession planning, Board retirement policies, and
shareholder rights. This year the Board reviewed its standards in comparison to
the governance best practices identified by leading governance authorities and
determined that it had in place appropriate standards. The standards, as
amended, follow:
1. The Board of Directors shall be limited to twelve 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. Alternatively retainers may 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 Compaq'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 1998 the Corporate Governance Committee also evaluated shareholder rights
plans. It recommended that the Board clarify its support for shareholder
approval of shareholder rights plans. In response, the Board amended Compaq's
bylaws to provide that a shareholder rights plan adopted by the Board would be
immediately effective and subject to shareholder approval at the next annual
meeting.
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In the 1998 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 Chair of the
Corporate Governance Committee and the Chairman of the Board reviewed the
responses and reported the results to the Board at its December 1998 meeting.
As a result of the 1998 review, the Board decided to modify its agenda to
increase the focus on strategy. It also decided that the Human Resources
Committee should meet at times other than regular Board meeting days,
considering the complexity of HR issues and to expand time available for Board
business oversight. This change will be effective in April 1999. The Human
Resources Committee will report to the full Board on the matters that have been
reviewed.
<TABLE>
<CAPTION>
CORPORATE GOVERNANCE COMMITTEE
<S> <C>
Kenneth Roman (Chair) Peter N. Larson
Lawrence T. Babbio, Jr. Kenneth L. Lay
Judith L. Craven Thomas J. Perkins
Frank P. Doyle Benjamin M. Rosen
Robert T. Enloe, III Lucille S. Salhany
George H. Heilmeier
</TABLE>
PROPOSAL 2
APPROVAL OF THE COMPAQ EMPLOYEE STOCK PURCHASE PLAN
On January 28, 1999, the Board of Directors adopted the Compaq Computer
Corporation Employee Stock Purchase Plan. The Board believes that the Plan,
which is consistent with compensation practices in the technology industry, will
be an important employee recruitment and retention tool and will further align
the interests of employees with shareholders. If approved by shareholders, the
Plan will authorize the issuance and the purchase by employees of up to 25
million shares of Compaq Common Stock through payroll deductions. The following
summary of the Plan is qualified by reference to the Plan, a copy of which is
attached to this Proxy Statement as Exhibit A and incorporated herein by
reference. All capitalized or quoted terms have the meanings set forth in the
Plan.
ELIGIBILITY. Generally, all regularly employed Employees are eligible to
participate in the Plan, although Compaq may impose an eligibility period of up
to two years of employment before an Employee is eligible to participate and may
exclude part-time Employees. Compaq also may impose other eligibility
requirements consistent with section 423(b) of the U.S. Internal Revenue Code.
In certain international locations, local tax or exchange control regulations
make certain features of the Plan impracticable. The Plan authorizes the grant
of options and issuance of Common Stock to employees participating in a subplan,
which is not designed to qualify under Code Section 423, to achieve desired tax
or other objectives in particular locations outside the United States.
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ADMINISTRATION. The Plan will be administered by the Plan Committee, whose
members are appointed by the Board of Directors. The Committee is authorized to
establish rules for the administration of the Plan, to interpret the Plan and
supervise its administration, to make determinations about Plan entitlements, to
adopt sub-plans and to take other actions consistent with the delegation from
the Board.
PARTICIPATION. Employees will enroll in the Plan by completing a payroll
deduction form. The maximum payroll deduction allowed is generally 10% of an
Employee's Pay. Pay is an Employee's base cash pay, with any modifications
determined by the Committee. No Employee is allowed to buy more than $25,000 of
Common Stock in any year, based on the Fair Market Value at the beginning of
the Purchase Period in which the shares are purchased. An Employee may
discontinue participation in the Plan at any time. An Employee's eligibility to
participate in the Plan ends at termination of employment.
OFFERING. The Plan will be implemented by establishing Purchase Periods that
may be three-months, six-months or other periods as determined by the Committee.
The Plan will be implemented at different dates in different countries with the
initial Purchase Period in the first locations not anticipated to begin before
February of next year. The Plan will terminate April 21, 2009.
PURCHASE PRICE. Employees who choose to participate in the Plan will receive
an option to acquire Common Stock at a discount. Under the option, the purchase
price of Common Stock is the lower of: (i) a Designated Percentage (not less
than 85%) established by the Committee of the Fair Market Value of the Common
Stock on the first day of a Purchase Period, or (ii) the Designated Percentage
(not less than 85%) of the Fair Market Value on the last day of the Purchase
Period. The Fair Market Value will be the closing price on the New York Stock
Exchange.
PURCHASE OF STOCK. At the end of a Purchase Period, a Participant's option will
be exercised automatically to purchase the number of shares of Common Stock that
the Employee's accumulated payroll deductions will buy at the Purchase Price.
PAYMENT AND DELIVERY. On the exercise of an option on the Purchase Date, Compaq
will deliver to the Participant a record of the Common Stock purchased. The
Committee may require that shares be held on deposit with a particular broker or
agent.
RECAPITALIZATION. In the event any change is made in Compaq's capitalization,
such as a stock split or stock dividend, which results in an increase or
decrease in the number of outstanding shares of Common Stock without Compaq's
receipt of consideration, appropriate adjustments will be made to the shares
available in the Plan, the maximum number of shares and the price of the option.
TRANSFERABILITY. Options under the Plan cannot be voluntarily or involuntarily
assigned. The shares of Common Stock acquired under the Plan will be freely
transferable, except as otherwise determined by the Committee.
AMENDMENT AND TERMINATION. The Board of Directors may amend the Plan, except
that no amendment may, without the approval of shareholders: (i) increase the
number of shares authorized under the Plan, (ii) materially modify the
eligibility requirements for participation in the Plan, (iii) reduce the
Designated Percentage below 85%, or (iv) extend the term of the Plan beyond
April 21, 2009.
U.S. FEDERAL INCOME TAX CONSEQUENCES. Employees generally have tax consequences
associated with participation in the Plan. In the U.S., no taxable income will
be recognized by a Participant until the sale or other disposition of the shares
of Common Stock acquired under the Plan. At that time, a Participant generally
will recognize ordinary income and capital gains. When the shares are disposed
of by a Participant two years or more after the beginning of the Purchase Period
in which the shares were purchased, he or she will recognize ordinary income
equal to the lesser of (i) the excess of the Fair Market Value of the shares on
the purchase date over the Purchase Price (the "Discount") or (ii) the excess of
the Fair Market Value of the shares at disposition over the Purchase Price.
When shares are disposed of after less than two years (in what is known as a
"disqualifying disposition"), the Participant must recognize ordinary income in
the amount of the Discount, even if the disposition is a gift or is at a loss.
In the event of a Participant's death while owning shares acquired under the
Plan, ordinary income must be recognized in the year of death as though the
shares had been sold.
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In the cases discussed above (other than death), the amount of ordinary income
recognized by a Participant is added to the purchase price paid by the
Participant, and this amount becomes the tax basis for determining the amount of
the capital gain or loss from the disposition of the shares. Additional gain, if
any, will be short-term or long-term capital gain depending on whether the
holding period is 12 months or less, or more than 12 months.
Net capital gains from the disposition of capital stock held more than 12 months
are currently taxed at a maximum federal income tax rate of 20% and net capital
gains from the disposition of stock held not more than 12 months is taxed as
ordinary income (maximum rate of 39.6%). However, limitations on itemized
deductions and the phase-out of personal exemptions may result in effective
marginal tax rates higher than 20% for net capital gains and 39.6% for ordinary
income.
Compaq is entitled to tax deductions in the U.S. for shares issued under the
Plan only in the event of disqualifying dispositions. For disqualifying
dispositions in the U.S. Compaq is allowed a deduction to the extent of the
amount of ordinary income includable in gross income by such Participant for the
taxable year as a result of the premature disposition of the shares. The Plan
will not meet the requirements in Section 162(m) of the Internal Revenue Code of
1986, which means that there will be no deductions for disqualifying
dispositions by Compaq's Chief Executive Officer and four most highly paid other
executive officers.
Approval of the Plan requires the affirmative vote of the holders of a majority
of the shares of Common Stock represented at the Annual 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 employees, while aligning their interests with
those of shareholders.
BOARD ORGANIZATION AND MEETINGS
During 1998, the Board of Directors met 11 times and various committees of the
Board met a total of 19 times. Attendance at Board and committee meetings
averaged 96 percent. Each director attended more than 75% 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. Enloe (Chair) and Messrs. Babbio, Perkins, and Roman. The Audit
Committee provides independent and objective oversight of Compaq's accounting
functions and internal controls and ensures the objectivity of Compaq'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 eight times in 1998.
The Human Resources Committee currently consists of ten non-employee directors:
Mr. Larson (Chair), Dr. Craven, Messrs. Doyle, Enloe, Heilmeier, 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 seven times in 1998. Effective in April
1999, the Board plans to reduce the number of members of the Human Resources
Committee to four: Mr. Doyle (Chair), Dr. Craven, and Messrs. Heilmeier and
Rosen. For more discussion of the new structure of this Committee, see the
Corporate Governance Committee Report.
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The Corporate Governance Committee consists of eleven non-employee directors:
Mr. Roman (Chair), Mr. Babbio, Dr. Craven, Messrs. Doyle, Enloe, Heilmeier,
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. This Committee met four times in
1998.
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 chairs 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. In acknowledgement of the increasing time devoted to Committee
matters, effective in April 1999, directors serving on the Audit Committee will
receive a retainer of $10,000 and the Committee chair will receive an additional
retainer of $10,000; directors serving on the Human Resources Committee will
receive a retainer of $5,000 and the chair will receive an additional retainer
of $10,000. There will no longer be meeting fees for regularly scheduled
meetings.
Compaq's stock option plans for non-employee directors authorize four different
types of grants. First, each newly-appointed director receives an initial
option grant of 31,250 shares; second, each non-employee director who has been
serving more than a year receives an annual option grant of 25,000 shares upon
re-election; third, a non-employee director named as Chairman of the Board
annually receives an option to acquire an additional 6,250 shares; and finally,
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% of the closing price of Common Stock on the day of the Annual Meeting.
On April 23, 1998, each of the directors other than Dr. Craven and Mr. Doyle
received an option grant for 25,000 shares and Mr. Rosen received an additional
option grant for 6,250 shares at a price of $28.88 per share. Mr. Doyle and Dr.
Craven received initial stock option grants of 31,250 shares on July 17, 1998
and January 29, 1999 at a price of $33.94 and $47.63 per share, respectively.
In addition, as a result of Compaq's acquisition of Digital, on June 12, 1998,
Mr. Doyle's options to acquire Digital stock converted to options to acquire
31,816 shares of Compaq Common Stock at prices ranging from $16.22 to $28.57 per
share.
As a result of individual directors' elections to convert their cash retainer to
stock options, on April 23, 1998, the following directors received options on
the following number of shares: Mr. Babbio, 1,212 shares; Mr. Enloe, 3,116
shares; Messrs. Larson and Roman, 2,770 shares each; Messrs. Lay, Perkins, and
Ms. Salhany, 2,424 shares each; and Mr. Rosen, 3,809 shares. The exercise price
of these options is $14.44 per share.
As part of Compaq'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 Compaq makes all charitable donations.
9
<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 54, 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.
MICHAEL D. CAPELLAS, age 44, was elected Senior Vice President, Information
Management and Chief Information Officer in August 1998. He was previously
Senior Vice President and General Manager of Oracle's global energy sector. In
addition, he spent 18 years with Schlumberger Limited in a variety of management
positions, including serving as head of worldwide information services.
HANS W. GUTSCH, age 55, was elected Senior Vice President, Human Resources,
Organization 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 51, was elected Senior Vice President and General Manager,
Worldwide Sales, and Marketing in June 1998. Prior to this position he served
as Senior Vice President, and General Manager, Worldwide Sales, Marketing,
Service and Support from January 1998 and as Senior Vice President, Consumer
Products Group since January 1995. Prior to his arrival at Compaq, he was
President and General Manager of Los Angeles Cellular Telephone Company.
MICHAEL J. LARSON, age 45, was elected Vice President, and Group General
Manager, Consumer PC Group in January 1999. He joined Compaq in January 1996 as
Vice President, Sales and Marketing, Consumer Products. Prior to his arrival at
Compaq, he was employed at Toshiba America Consumer Products, Inc., where he
served as Senior Vice President of Sales, Operations, and Distribution from 1993
to 1995 and as Vice President of National Accounts/Special Markets from 1988 to
1993.
EARL L. MASON, age 51, was elected Senior Vice President and Chief Financial
Officer in June 1996. Prior to his arrival at Compaq, he was Senior Vice
President of Inland Steel Industries, Inc. since January 1995. From 1994 to
1996, he served as Chief Financial Officer and President of Inland
International, Inc.
ENRICO PESATORI, age 58, was elected Senior Vice President, Corporate Marketing
in June 1998. He joined Compaq in 1997 when Tandem Computers Incorporated was
acquired by Compaq. At the time of the acquisition, Mr. Pesatori served as
President of Tandem since 1996. Mr. Pesatori served as Vice President and
General Manager of Digital Equipment Corporation's Computer Systems Division
from 1993 to 1996.
JOHN J. RANDO, age 46, was elected Senior Vice President and General Manager,
Services in June 1998 at the time of Compaq's acquisition of Digital Equipment
Corporation. Prior to this he served as Senior Vice President and General
Manager, Digital Worldwide Services from 1996 to 1998, and as Vice President,
Digital Multi-vendor Customer Services from 1993 to 1996.
JOHN T. ROSE, age 53, was elected Senior Vice President, and Group General
Manager, Enterprise Computing 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 39, was elected President and Chief Executive Officer of
AltaVista Company, a wholly owned subsidiary of Compaq Computer Corporation in
January 1999. Prior to this position he served as Senior Vice President and
Group General Manager, Consumer Products since June 1998 and Vice President and
Group General Manager, Consumer Products from January 1998. He joined Compaq in
1987 and in 1995 he was named Vice President of the Presario PC Division.
10
<PAGE>
THOMAS C. SIEKMAN, age 57, was elected Senior Vice President, General Counsel &
Secretary in June 1998 at the time of Compaq's acquisition of Digital Equipment
Corporation. He was elected Vice President and General Counsel of Digital in
1993.
EDWARD M. STRAW, age 59, was elected Senior Vice President, Supply Chain
Management in 1998. Prior to his arrival at Compaq, he had served as President
of Ryder Integrated Logistics, Inc. since June 1997. Prior to Ryder, he spent
35 years in the U.S. Navy, where he rose to the rank of Vice Admiral and served
four years as director of the Defense Logistics Agency of the Department of
Defense.
WILLIAM D. STRECKER, age 54, was elected Senior Vice President, Technology and
Corporate Development in June 1998, at the time of Compaq's acquisition of
Digital Equipment Corporation. He had been an executive officer of Digital
since 1985, most recently serving as Vice President, Corporate Strategy and
Technology and Chief Technical Officer.
MICHAEL J. WINKLER, age 54, was elected Senior Vice President and Group General
Manager, Commercial PC 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.
STOCK OWNERSHIP
The following table gives information about the ownership of Compaq stock as of
February 26, 1999, 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
5% 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 1.7 billion shares of Common Stock outstanding as of
February 26, 1999.
11
<PAGE>
<TABLE>
<CAPTION>
STOCK OWNERSHIP
NUMBER OF SHARES PERCENT OF
NAME OF OWNER OPTIONS(1) TOTAL(1) OUTSTANDING
- ----------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Benjamin M. Rosen . . . . . . . . . . . . . . . 120,342 5,450,162 *
Eckhard Pfeiffer. . . . . . . . . . . . . . . . 10,059,647 10,309,647 *
Lawrence T. Babbio, Jr. . . . . . . . . . . . . 219,608 239,608 *
Judith L. Craven. . . . . . . . . . . . . . . . 0 0 *
Frank P. Doyle. . . . . . . . . . . . . . . . . 31,816 31,816 *
Robert Ted Enloe, III . . . . . . . . . . . . . 438,472 (2) 448,472 (2) *
George H. Heilmeier . . . . . . . . . . . . . . 309,500 324,000 *
Peter N. Larson . . . . . . . . . . . . . . . . 250,266 265,382 *
Kenneth L. Lay. . . . . . . . . . . . . . . . . 209,294 (3) 624,614 (3) *
Thomas J. Perkins . . . . . . . . . . . . . . . 160,874 1,147,756 (4) *
Kenneth Roman . . . . . . . . . . . . . . . . . 474,722 530,513 *
Lucille S. Salhany. . . . . . . . . . . . . . . 205,294 219,294 *
Earl L. Mason . . . . . . . . . . . . . . . . . 102,091 120,391 (5) *
Gregory E. Petsch . . . . . . . . . . . . . . . 257,503 296,080 (6) *
John J. Rando . . . . . . . . . . . . . . . . . 16,667 16,667 *
John T. Rose. . . . . . . . . . . . . . . . . . 1,128,769 1,201,544 (7) *
All executive officers and directors as a group 19,316,927 (8) 26,739,824 (9) 1.58
<FN>
* Less than 1%
______________
(1) Includes Compaq stock options that are exercisable or will become exercisable by April
27, 1999, other than Mr. Petsch's options which will vest through March 31, 1999 when he retires
from Compaq.
(2) Includes Compaq stock options to purchase 214,232 shares held by limited partnership.
(3) Includes Compaq stock options to purchase 140,000 shares held by limited partnership and
95,034 shares held by limited partnership.
(4) Includes 923,952 shares held by trusts.
(5) Includes 7,000 shares held in an individual retirement account.
(6) Includes 26,352 shares held in Compaq's 401(k) retirement plan and 12,225 shares
credited to Mr. Petsch's account in Compaq's deferred compensation plan.
(7) Includes 42,775 shares credited to the executive officer's account in Compaq's deferred
compensation plan.
(8) Includes Compaq stock options to purchase 354,232 shares held by limited partnerships.
(9) Includes Compaq stock options to purchase 354,232 shares held by limited
partnerships, 95,034 shares held by limited partnership, 923,952 shares held in a trust, 7,000
shares held in an individual retirement plan, 36,083 shares held in Compaq's 401(k) retirement
plan, and 70,150 shares credited to the executive officers' accounts in Compaq's deferred
compensation plans.
</TABLE>
EXECUTIVE COMPENSATION
Tables I through III give information about the cash compensation and stock
options awarded to Messrs. Pfeiffer, Mason, Petsch, Rando 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 15.
12
<PAGE>
<TABLE>
<CAPTION>
TABLE I
SUMMARY COMPENSATION
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION
-----------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION OPTIONS (2) COMPENSATION(3)
- --------------------------- ---- ---------- ------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer. . . . . . 1998 $1,479,167 $ 3,000,000 $ - 875,000 $ 1,625,000
President and Chief. . . . 1997 1,250,000 3,250,000 - 1,750,000 1,500,000
Executive Officer. . . . . 1996 1,250,000 3,000,000 - 1,750,000 1,250,000
Earl L. Mason . . . . . . . 1998 520,830 625,000 300,000 381,250 (4)
Senior Vice President and. 1997 475,000 700,000 - 650,000 228,400 (4)
Chief Financial Officer. . 1996 266,250 400,000 494,713 (5) 825,000 -
Gregory E. Petsch . . . . . 1998 475,420 600,000 - 300,000 366,024 (6)
Senior Vice President. . . 1997 425,000 675,000 - 600,000 313,000 (6)
Manufacturing and Quality. 1996 380,000 575,000 - 500,000 285,300 (6)
John J. Rando . . . . . . . 1998 276,710 955,000 (7) - 500,000 47,360( 8)
Senior Vice President
Services
John T. Rose. . . . . . . . 1998 518,750 625,000 - 300,000 381,125 (9)
Senior Vice President. . . 1997 450,000 700,000 - 650,000 338,983 (9)
Enterprise Computing Group 1996 380,000 625,000 - 500,000 233,500 (9)
<FN>
- -------------------
(1) Includes cash compensation earned by executive officers, including amounts earned but deferred.
Other than the amount shown under "Other Annual Compensation" for Mr. Mason, management believes that the
value of any other benefits to any executive officer during 1996, 1997, and 1998 did not exceed $50,000 or
fall within any other category requiring inclusion.
(2) All numbers in this column reflect Compaq's five-for-two stock split in July 1997 and two-for-one
stock split in January 1998.
(3) Unless specifically listed, amounts in this column consist of deferred unfunded bonuses, 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 (the "retirement plans") of $31,250 and $28,400 in 1998 and 1997 respectively.
(5) Compaq paid these amounts as reimbursement for certain costs in connection with employment by
Compaq and for taxes in connection with such income.
(6) Includes contributions to the retirement plans of $28,524, $25,500, and $22,800 in 1998, 1997, and
1996 respectively.
(7) Consists of $455,000 bonus paid in July 1998 for Digital's June 1998 fiscal year plus Mr. Rando's
$500,000 1998 Compaq bonus.
(8) Contributions to the Digital cash account pension plan, Digital defined contribution plan, and
associated restoration plans.
(9) Includes contributions to the retirement plans of $31,125, $26,483, and $8,500 in 1998, 1997, and
1996 respectively.
</TABLE>
<TABLE>
<CAPTION>
TABLE II
1998 OPTION EXERCISES
AND YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
1998 STOCK OPTION EXCERCISES DECEMBER 31, 1998 AT DECEMBER 31, 1998
--------- ----------------- ----------- ------------- ------------ --------------
SHARES VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ----------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer. - $ - 9,547,555 3,927,445 $339,978,863 $ 70,424,388
Earl L. Mason . . 165,000 3,774,149 245,008 1,214,578 3,419,127 18,992,235
Gregory E. Petsch 403,333 9,762,774 197,502 1,263,735 2,324,738 21,600,185
John J. Rando . . 579,153 6,292,183 58,948 450,000 769,160 6,273,000
John T. Rose. . . 159,996 4,852,242 1,073,765 1,301,235 30,606,565 21,800,435
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TABLE III
1998 STOCK OPTION GRANTS
GAINS BASED ON ASSUMED RATES
OF STOCK PRICE APPRECIATION FOR
1998 STOCK OPTION GRANTS OPTION TERM (1)
----------- ---------------- -------------- ---------- ------------ ------------
PERCENT OF 1998
OPTIONS EMPLOYEE EXERCISE/BASE ASSUMED ASSUMED
GRANTED (2) OPTION PRICE PER EXPIRATION RATE RATE
GRANTS SHARE DATE 5% 10%
----------- ---------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Eckhard Pfeiffer . . . . . . . . 875,000 2.33% $ 31.25 9/16/08 $17,196,337 $43,578,895
Earl L. Mason. . . . . . . . . . 300,000 .80% $ 31.25 9/16/08 5,895,887 14,941,336
Gregory E. Petsch. . . . . . . . 300,000 .80% $ 31.25 9/16/08 5,895,887 14,941,336
John J. Rando. . . . . . . . . . 500,000 1.33% $ 28.06 6/10/08 8,823,467 22,360,172
John T. Rose . . . . . . . . . . 300,000 .80% $ 31.25 9/16/08 5,895,887 14,941,336
All shareholders:
Approximately 1.6 billion
Shares outstanding on
September 17, 1998 . . . . . . . N/A N/A N/A N/A $33 billion $84 billion
Named officers' gain as % of all
shareholders' gain . . . . . . . .13 % . 13%
<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.
</TABLE>
<TABLE>
<CAPTION>
TABLE IV
GERMAN PENSION PLAN
FINAL AVERAGE ANNUAL PENSION BENEFITS WITHOUT REDUCTIONS
ECKHARD PFEIFFER BASE SALARY FOR ANTICIPATED SOCIAL SECURITY AND PRIOR EMPLOYER PENSION BENEFITS(1)
- ---------------- ------------- ---------------------------------------------------------------------
YEARS OF SERVICE 15 20 25 30 35
- ---------------- ------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
1,400,000 550,256 738,349 840,000 840,000 840,000
<FN>
(1) Anticipated benefits at age 65 assuming the years of service with Compaq
shown. At December 31, 1998, Mr. Pfeiffer had 15 years of vested service.
Benefits for Mr. Pfeiffer are calculated based on a formula under which he
receives benefits equal to 60% 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>
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.
14
<PAGE>
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.
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, oversees
executive succession planning, adopts the policies that govern Compaq's
compensation programs, administers Compaq's equity plans, and sets the
compensation of executive officers.
The Committee believes that succession planning plays a vital role in a healthy
corporate environment. In 1998 the Committee reviewed succession plans for each
of the executive officers to ascertain that appropriate progress is being made
to identify and develop successors for each of the executive officers, including
the Chief Executive Officer.
The Committee establishes compensation programs designed to attract, retain, and
reward employees 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 1998 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 1998 placed Compaq below the 50th
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. This performance level reflects the transition associated with
the acquisition and integration of Tandem Computers Incorporated and Digital
Equipment Corporation.
Comparative compensation data in 1998 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.
15
<PAGE>
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 1998
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, integration and
restructuring, and asset management.
Each year, in accordance with Compaq's Bonus Incentive Plan, the Committee
establishes a cash bonus fund based on Compaq performance. In 1998, 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 65th percentile level. The Committee
determined that this level of funding was appropriate in light of Compaq results
during 1998 and the significant management efforts required in the integration
of Digital Equipment Corporation. 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 bonus
funding pool for key employees other than executive officers and reviews ranges
of awards appropriate for different management levels based on competitive pay
practices. It then delegates to the Chief Executive Officer the authority to
designate bonus awards to employees other than executive officers based on
individual performance and contributions.
In establishing Mr. Pfeiffer's bonus, the Committee considered at length Mr.
Pfeiffer's performance in 1998, focusing on three aspects: operational and
financial results, strategic planning, and leadership. Mr. Pfeiffer's direction
of Compaq's operations in 1998 resulted in continued significant steps in
Compaq's transition from a PC company to a computer company. In particular, the
acquisition and integration of Digital Equipment Corporation in expansion of
Compaq's enterprise computing business and service offerings 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 $28.25
at the end of 1997 to $42.00 at the end of 1998 (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 level 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 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 either meet or are making satisfactory progress toward the
ownership goals.
16
<PAGE>
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.
<TABLE>
<CAPTION>
HUMAN RESOURCES COMMITTEE
<S> <C>
Peter N. Larson (Chair) Kenneth L. Lay
Judith L. Craven Thomas J. Perkins
Frank P. Doyle Kenneth Roman
Robert Ted Enloe, III Benjamin M. Rosen
George H. Heilmeier Lucille S. Salhany
</TABLE>
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, 1993, AND ENDING DECEMBER 31, 1998. 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>
<CAPTION>
TABLE V
[PERFORMANCE GRAPH APPEARS HERE}
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
1993 1994 1995 1996 1997 1998
----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Compaq Computer Corporation 100.0 160.41 194.92 302.03 573.91 855.00
S&P Computer (Hardware) Index 100.0 101.32 139.40 171.40 228.59 293.91
S&P 500 Composite 100.0 129.14 171.86 230.12 336.84 590.24
</TABLE>
17
<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, 1998, its officers and directors complied with all these
filing requirements except for one transaction by Benjamin R. Rosen that was
inadvertently omitted and later reported in an amended filing. In making this
statement, Compaq has relied upon the written representations of its directors
and executive officers. Based on shareholder filings, we do not believe any
other shareholders are subject to Section 16(a) filing requirements.
GENERAL INFORMATION
PricewaterhouseCoopers LLP, independent accountants, has served as Compaq's
independent accountants since 1982, the year of Compaq's incorporation, and was
appointed to audit Compaq's consolidated financial statements for 1998. The
Board has not proposed that any formal action be taken at the meeting with
respect to the employment of PricewaterhouseCoopers LLP because no action is
required. Representatives of PricewaterhouseCoopers LLP will attend the Annual
Meeting and be available to answer questions. Representatives of
PricewaterhouseCoopers 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 Communi-cations, Inc. ("CIC") at a fee of $18,000.00 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 2000
Annual Meeting of Shareholders must be received by Compaq no later than November
8, 1999, to be included in the Proxy Statement and proxy relating to that
meeting.
18
<PAGE>
EXHIBIT A
COMPAQ COMPUTER CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
-------
The purpose of this Plan is to provide an opportunity for Employees of
Compaq Computer Corporation and its Designated Subsidiaries, to purchase Common
Stock of Compaq and thereby to have an additional incentive to contribute to the
prosperity of Compaq. It is the intention of Compaq that the Plan qualify as an
"Employee Stock Purchase Plan" under section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), although Compaq makes no undertaking nor
representation to maintain such qualification. In addition, this Plan
authorizes the grant of options and issuance of Common Stock which do not
qualify under section 423 of the Code pursuant to sub-plans adopted by the
Committee designed to achieve desired tax or other objectives in particular
locations outside the United States.
2. DEFINITIONS.
-----------
(a) "BOARD" shall mean the Board of Directors of Compaq.
-----
(b) "CODE" shall mean the Internal Revenue Code of 1986, of the U.S.A.,
----
as amended.
(c) "COMMITTEE" shall mean the committee appointed by the Board in
---------
accordance with Section 12 of the Plan.
(d) "COMMON STOCK" shall mean the common stock of Compaq, par value
-------------
$.01, or any stock into which such Common Stock may be converted.
(e) "COMPAQ" shall mean Compaq Computer Corporation, a Delaware
------
corporation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
----------------------
designated by the Committee as eligible to participate in the Plan with respect
to its Employees.
(g) "EMPLOYEE" shall mean an individual classified as an employee by
--------
Compaq or a Designated Subsidiary on the payroll records of Compaq or the
Designated Subsidiary during the relevant participation period.
(h) "OFFERING DATE" shall mean the first business day of each Purchase
--------------
Period.
(i) "FAIR MARKET VALUE" shall mean the value of one share of Common
-------------------
Stock on the relevant date, determined as follows:
(1) If the shares are traded on an exchange (including the NASDAQ
National Market System), the reported "closing price" on the relevant date
(e.g., the Offering Date or Purchase Date) assuming it is a trading day;
otherwise on the next trading day;
(2) If the shares are traded over-the-counter with no reported
closing price, the mean between the lowest bid and the highest asked prices on
said System on the relevant date assuming it is a trading day; otherwise on the
next trading day; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(j) "PARTICIPANT" shall mean a participant in the Plan as described in
-----------
Section 4 of the Plan.
(k) "PAY" shall mean an Employee's base cash pay (excluding variable
---
cash payments unless otherwise determined by the Committee) paid on account of
personal services rendered by the Employee to Compaq or a Designated Subsidiary,
plus pre-tax contributions of the Employee which are part of deferred pay or
benefit plans maintained by Compaq or a Designated Subsidiary, with any
modifications determined by the Committee. The Committee shall have the
authority to determine and approve all forms of pay (such as commissions) to be
included in the definition of Pay and may change the definition on a prospective
basis.
(l) "PLAN" shall mean this Compaq Computer Corporation Employee Stock
----
Purchase Plan.
A-1
<PAGE>
(m) "PURCHASE DATE" shall mean the last business day of each Purchase
--------------
Period.
(n) "PURCHASE PERIOD" shall mean a three-month, six-month or other
----------------
period as determined by the Committee. The first period shall commence on the
Plan's first Offering Date, which shall be as soon as administratively
practicable after the Effective Date, and end on the Purchase Date.
(o) "SHAREHOLDER" shall mean a record holder of shares entitled to vote
-----------
shares of Common Stock under Compaq's bylaws.
(p) "SUBSIDIARY" shall mean any subsidiary corporation (other than
----------
Compaq) in an unbroken chain of corporations beginning with Compaq, as described
in Code section 424(f).
3. ELIGIBILITY.
-----------
Any Employee regularly employed on a full-time or part-time basis by Compaq
or by any Designated Subsidiary on an Offering Date shall be eligible to
participate in the Plan with respect to the Purchase Period commencing on such
Offering Date, provided that the Committee may establish administrative rules
requiring that employment commence some minimum period (e.g., one month's
employment) prior to an Offering Date for the Employee to be eligible to
participate with respect to the Purchase Period beginning on that Offering Date
and provided further that (1) the Committee may exclude part-time Employees from
participation pursuant to criteria and procedures established by the Committee
and (2) the Committee may impose an eligibility period on participation of up to
two years employment with Compaq and/or a Designated Subsidiary with respect to
participation on any prospective Offering Date. The Board also may determine
that a designated group of highly compensated Employees are ineligible to
participate in the Plan so long as the excluded category fits within the
definition of "highly compensated employee" in Code section 414(q). An Employee
shall be considered employed on a full-time basis unless his or her customary
employment is less than 20 hours per week or five months per year. No Employee
may participate in the Plan if immediately after an option is granted the
Employee owns or is considered to own (within the meaning of Code section
424(d)), shares of capital stock, including stock which the Employee may
purchase by conversion of convertible securities or under outstanding options
granted by Compaq, possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of Compaq or of any of its
Subsidiaries. All Employees who participate in the Plan shall have the same
rights and privileges under the Plan except for differences which may be
mandated by local law and which are consistent with Code section 423(b)(5);
provided, however, that Employees participating in a sub-plan adopted pursuant
to Section 13 which is not designed to qualify under Code section 423 need not
have the same rights and privileges as Employees participating in the Code
section 423 Plan. The Committee may impose restrictions on eligibility and
participation of Employees who are officers and directors to facilitate
compliance with federal or state securities laws or foreign laws.
4. PARTICIPATION AND WITHDRAWAL.
------------------------------
4.1 An Employee who is eligible to participate in the Plan in
accordance with Section 3 may become a Participant by filing, on a date
prescribed by the Committee prior to an applicable Offering Date, a completed
payroll deduction authorization and Plan enrollment form provided by Compaq or
by following an electronic or other enrollment process as prescribed by the
Committee. An eligible Employee may authorize payroll deductions at the rate of
any whole percentage of the Employee's Pay, not to exceed ten percent (10%) of
the Employee's Pay, or such greater percentage, as specified by the Committee,
as apply to a Purchase Period. The Committee may provide for a separate
election (of a different percentage) for a specified item or items of Pay,
including profit sharing payments, if any. All payroll deductions may be held
by Compaq and commingled with its other corporate funds. No interest shall be
paid or credited to the Participant with respect to such payroll deductions
except where required by local law as determined by the Committee. A separate
bookkeeping account for each Participant shall be maintained by Compaq under the
Plan and the amount of each Participant's payroll deductions shall be credited
to such account. A Participant may not make any additional payments into such
account. Unless otherwise specified by the Committee, payroll deductions made
with respect to employees paid in currencies other than U.S. dollars shall be
accumulated in local (non-U.S.) currency and converted to U.S. dollars as of the
Purchase Date.
4.2 Unless otherwise determined by the Committee, a Participant may
decrease his or her rate of payroll deductions at any time in accordance with
procedures prescribed by the Committee. A Participant may increase his or her
rate of payroll deductions only effective on the first payroll date following
the next Purchase Date by filing a new payroll deduction authorization and Plan
enrollment form or by following electronic or other procedures prescribed by the
Committee. If a Participant has not followed such procedures to change the rate
of payroll deductions, the rate of payroll deductions shall continue at the
originally elected rate throughout the Purchase Period and future Purchase
Periods (or any lower maximum rate then in effect).
A-2
<PAGE>
4.3 (a) Under procedures established by the Committee, a
Participant may discontinue participation in the Plan at any time during a
Purchase Period by completing and filing a new payroll deduction authorization
and Plan enrollment form with Compaq or by following electronic or other
procedures prescribed by the Committee. If a Participant has not followed such
procedures to discontinue the payroll deductions, the rate of payroll deductions
shall continue at the originally elected rate throughout the Purchase Period and
future Purchase Periods (or any lower maximum rate then in effect).
(b) If a Participant discontinues participation during a Purchase
Period, his or her accumulated payroll deductions will remain in the Plan for
purchase of shares as specified in Section 6 on the following Purchase Date, but
the Participant will not again participate until he or she re-enrolls in the
Plan. Alternatively, participants may request a cash distribution of monies
accumulated but not yet distributed by following such procedures, electronic or
otherwise, as specified by the Committee. The Committee may establish rules
limiting the frequency with which Participants may discontinue and resume
payroll deductions under the Plan and may impose a waiting period on
Participants wishing to resume payroll deductions following discontinuance. The
Committee also may change the rules regarding discontinuance of participation or
changes in participation in the Plan.
(c) In the event any Participant terminates employment with Compaq
or any Subsidiary for any reason (including death) prior to the expiration of a
Purchase Period, the Participant's participation in the Plan shall terminate and
all accumulated payroll deductions credited to the Participant's account shall
be paid to the Participant or the Participant's estate without interest (except
where required by local law). Whether a termination of employment has occurred
shall be determined by the Committee. The Committee also may establish rules
regarding when leaves of absence or change of employment status will be
considered to be a termination of employment, and the Committee may establish
termination of employment procedures for this Plan which are independent of
similar rules established under other benefit plans of Compaq and its
Subsidiaries. In the event of a Participant's death, any accumulated payroll
deductions will be paid, without interest, to the estate or legal representative
of the Participant.
5. OFFERING.
--------
5.1 The maximum number of shares of Common Stock which may be issued
pursuant to the Plan shall be 25,000,000 shares.
5.2 Each Purchase Period shall be determined by the Committee. Unless
otherwise determined by the Committee, the Plan will operate with successive
semi-annual Purchase Periods commencing as soon as administratively practicable
after the Effective Date, although the Committee may pilot the program with a
shorter initial Purchase Period. The Committee shall have the power to change
the duration of future Purchase Periods, without shareholder approval, and
without regard to the expectations of any Participants.
5.3 With respect to each Purchase Period, each eligible Employee who
has elected to participate as provided in Section 4.1 shall be granted an option
to purchase the number of shares of Common Stock which may be purchased with the
payroll deductions accumulated in an account maintained on behalf of such
Employee during each Purchase Period at the purchase price specified in Section
5.4 below, subject to the limitation contained in this Section 5.3.
Notwithstanding any other provision of the Plan to the contrary, no Employee
participating in the Code section 423 Plan shall be granted an option to
purchase Common Stock under the Plan and all employee stock purchase plans of
Compaq and its Subsidiaries at a rate which exceeds $25,000 of the Fair Market
Value of such Common Stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time. The
foregoing sentence shall be interpreted so as to comply with Code section
423(b)(8).
5.4 The option price under each option shall be the lower of: (i) a
percentage (not less than eighty-five percent (85%)) established by the
Committee ("Designated Percentage") of the Fair Market Value of the Common Stock
on the Offering Date on which an option is granted, or (ii) the Designated
Percentage of the Fair Market Value of the Common Stock on the Purchase Date.
The Committee may change the Designated Percentage with respect to any future
Purchase Period, but not below eighty-five percent (85%), and the Committee may
determine with respect to any prospective Purchase Period that the option price
shall be the Designated Percentage of the Fair Market Value of the Common Stock
on the Purchase Date.
A-3
<PAGE>
6. PURCHASE OF STOCK.
-------------------
Upon the expiration of each Purchase Period, a Participant's option shall
be exercised automatically for the purchase of that number of full and
fractional shares of Common Stock which the accumulated payroll deductions
credited to the Participant's account at that time shall purchase at the
applicable price specified in Section 5.4, subject to Section 5.3.
7. PAYMENT AND DELIVERY.
----------------------
Upon the exercise of an option on each Purchase Date, Compaq shall deliver
(by electronic or other means) to the Participant a record of the Common Stock
purchased, except as specified below. The Committee may permit or require that
shares be deposited directly with a broker designated by the Committee (or a
broker selected by the Committee) or to a designated agent of the Company, and
the Committee may utilize electronic or automated methods of share transfer.
The Committee may require that shares be retained with such broker or agent for
a designated period of time (and may restrict dispositions during that period)
and/or may establish other procedures to permit tracking of disqualifying
dispositions of such shares or to restrict transfer of such shares. The
Committee may require that shares purchased under the Plan shall automatically
participate in a dividend reinvestment plan or program maintained by Compaq.
Compaq shall retain the amount of payroll deductions used to purchase Common
Stock as full payment for the Common Stock and the Common Stock shall then be
fully paid and non-assessable. No Participant shall have any voting, dividend,
or other shareholder rights with respect to shares subject to any option granted
under the Plan until the shares subject to the option have been purchased and
delivered to the Participant as provided in Section 7.
8. RECAPITALIZATION.
----------------
8.1 If after the grant of an option, but prior to the purchase of
Common Stock under the option, there is any increase or decrease in the number
of outstanding shares of Common Stock because of a stock split, stock dividend,
combination or recapitalization of shares subject to options, the number of
shares to be purchased pursuant to an option, the share limit of Section 5.3 and
the maximum number of shares specified in Section 5.1 shall be proportionately
increased or decreased, the terms relating to the purchase price with respect to
the option shall be appropriately adjusted by the Board, and the Board shall
take any further actions which, in the exercise of its discretion, may be
necessary or appropriate under the circumstances.
8.2 The Board, if it so determines in the exercise of its sole
discretion, also may adjust the number of shares specified in Section 5.1, as
well as the price per share of Common Stock covered by each outstanding option
and the maximum number of shares subject to any individual option, in the event
Compaq effects one or more reorganizations, recapitalizations, spin-offs,
split-ups, rights offerings or reductions of shares of its outstanding Common
Stock.
8.3 The Board's determinations under this Section 8 shall be conclusive
and binding on all parties.
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.
-------------------------------------------------------
9.1 In the event of the proposed liquidation or dissolution of Compaq,
the Purchase Period then in progress will terminate immediately prior to the
consummation of such proposed liquidation or dissolution, unless otherwise
provided by the Board in its sole discretion, and all outstanding options shall
automatically terminate and the amounts of all payroll deductions will be
refunded without interest to the Participants.
9.2 In the event of a proposed sale of all or substantially all of the
assets of Compaq, or the merger or consolidation of Compaq with or into another
corporation, then in the sole discretion of the Board, (1) each option shall be
assumed or an equivalent option shall be substituted by the successor
corporation or parent or subsidiary of such successor corporation, (2) a date
established by the Board on or before the date of consummation of such merger,
consolidation or sale shall be treated as an Exercise Date, and all outstanding
options shall be deemed exercisable on such date or (3) all outstanding options
shall terminate and the accumulated payroll deductions shall be returned to the
Participants, without interest.
10. TRANSFERABILITY.
---------------
Options granted to Participants may not be voluntarily or involuntarily
assigned, transferred, pledged, or otherwise disposed of in any way other than
by will or the laws of descent and distribution, and any other attempted
assignment, transfer, pledge, or other disposition shall be null and void and
without effect. If a Participant in any manner attempts to transfer, assign or
otherwise encumber his or her rights or interest under the Plan, other than as
permitted by the Code, such act shall be treated as an election by the
Participant to discontinue participation in the Plan pursuant to Section 4.3.
A-4
<PAGE>
11. AMENDMENT OR TERMINATION OF THE PLAN.
-----------------------------------------
11.1 The Plan shall continue until April 21, 2009, unless previously
terminated in accordance with Section 11.2.
11.2 The Board may, in its sole discretion, insofar as permitted by
law, terminate or suspend the Plan, or revise or amend it in any respect
whatsoever, except that, without approval of the shareholders, no such revision
or amendment shall:
(a) materially increase the number of shares subject to the Plan,
other than an adjustment under Section 8 of the Plan;
(b) materially modify the requirements as to eligibility for
participation in the Plan, except as otherwise specified in this Plan;
(c) reduce the purchase price specified in Section 5.4, except as
specified in Section 8;
(d) extend the term of the Plan beyond the date specified in
Section 11.1; or
(e) amend this Section 11.2 to defeat its purpose.
12. ADMINISTRATION.
--------------
The Board shall appoint a Committee consisting of at least two members who
will serve for such period of time as the Board may specify and who may be
removed by the Board at any time. The Committee will have the authority and
responsibility for the day-to-day administration of the Plan, the authority and
responsibility specifically provided in this Plan and any additional duties,
responsibility and authority delegated to the Committee by the Board, which may
include any of the functions assigned to the Board in this Plan. The Committee
may delegate to one or more individuals the day-to-day administration of the
Plan. The Committee shall have full power and authority to promulgate any rules
and regulations which it deems necessary for the proper administration of the
Plan, to interpret the provisions and supervise the administration of the Plan,
to make factual determinations relevant to Plan entitlements, to adopt sub-plans
applicable to specified Subsidiaries or locations and to take all action in
connection with administration of the Plan as it deems necessary or advisable,
consistent with the delegation from the Board. Decisions of the Board and the
Committee shall be final and binding upon all participants. Any decision
reduced to writing and signed by a majority of the members of the Committee
shall be fully effective as if it had been made at a meeting of the Committee
duly held. Compaq shall pay all expenses incurred in the administration of the
Plan. No Board or Committee member shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
thereunder.
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
---------------------------------------------
13.1 The Committee may adopt rules or procedures relating to the
operation and administration of the Plan to accommodate the specific
requirements of local laws and procedures. Without limiting the generality of
the foregoing, the Committee is specifically authorized to adopt rules and
procedures regarding handling of payroll deductions, payment of interest,
conversion of local currency, payroll tax, withholding procedures and handling
of stock certificates which vary with local requirements.
13.2 The Committee may also adopt sub-plans applicable to particular
Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Code section 423. The rules of such sub-plans may take precedence over
other provisions of this Plan, with the exception of Section 5.1, but unless
otherwise superseded by the terms of such sub-plan, the provisions of this Plan
shall govern the operation of such sub-plan.
14. SECURITIES LAWS REQUIREMENTS.
------------------------------
Compaq shall not be under any obligation to issue Common Stock upon the
exercise of any option unless and until Compaq has determined that: (i) it and
the Participant have taken all actions required to register the Common Stock
under the Securities Act of 1933, or to perfect an exemption from the
registration requirements thereof; (ii) any applicable listing requirement of
any stock exchange on which the Common Stock is listed has been satisfied; and
(iii) all other applicable provisions of state, federal and applicable foreign
law have been satisfied.
A-5
<PAGE>
15. GOVERNMENTAL REGULATIONS.
-------------------------
This Plan and Compaq's obligation to sell and deliver shares of its stock
under the Plan shall be subject to the approval of any governmental authority
required in connection with the Plan or the authorization, issuance, sale, or
delivery of stock hereunder.
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
-------------------------------------
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of Compaq or any Designated Subsidiary or to
interfere with the right of Compaq or Designated Subsidiary to discharge any
Employee at any time.
17. GOVERNING LAW.
--------------
This Plan shall be governed by Texas law.
18. EFFECTIVE DATE.
---------------
This Plan shall be effective April 22, 1999, subject to approval of the
shareholders of Compaq within 12 months of its adoption by the Board of
Directors.
A-6
<PAGE>
COMPAQ COMPUTER CORPORATION
Annual Meeting of Shareholders to be held April 23, 1999
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 Thomas C. Siekman, 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 22,
1999, 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 COMPAQ EMPLOYEE STOCK PURCHASE PLAN.
Shareholders of record at the close of business on February 26, 1999, will be
entitled to vote at the Annual Meeting or any adjournments thereof.
---------------
-------------------------------------------------- | SEE REVERSE |
(Continued, and to be signed, on the reverse side) | SIDE |
---------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vote by Telephone Vote by Internet
It's fast, convenient , and immediate! It's fast, convenient, and your vote is
immediately confirmed and posted
Call Toll-Free on a Touch-Tone Phone In addition, after you vote, you will have the
1-877-PRX-VOTE (1-877-779-8683) opportunity to sign up to receive future
shareholders communications via the Internet
Follow these 4 easy steps: Follow these 4 easy steps:
1. Read the accompanying Proxy Statement\ 1. Read the accompanying Proxy Statement\
Prospectus and Proxy Card Prospectus and Proxy Card
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxyvote.com/cpq
3. Enter your 14-digit Control Number 3. Enter your 14-digit Control Number
located on your Proxy Card above your located on your Proxy Card above your
name. name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE (1-877-779-8683) anytime! Go to http://www.eproxyvote.com/cpq
Outside the continental U.S. call collect anytime!
on a Touch-tone Phone, 201-536-8073.
</TABLE>
Do not return your Proxy Card if you are voting by telephone or Internet
/X/ Please mark
votes as
in this example
<TABLE>
<CAPTION>
<S> <C>
The Board of Directors recommends a vote FOR the following Proposals:
---
1. To elect twelve directors of the Company FOR AGAINST ABSTAIN
NOMINESS: (01) Benjamin M. Rosen, (02) Eckhard Pfeiffer, 2. To approve the Compaq / / / / / /
(03) Lawrence T. Babbio, Jr., (04) Judith L. Craven, Employee Stock Purchase
(05) Frank P. Doyle, (06) Robert Ted Enloe, III, Plan which provides for the
(07) George H. Heilmeier, (08) Peter N. Larson, (09) Kenneth L. Lay, issuance of up to 25 million
(10) Thomas J. Perkins, (11) Kenneth Roman and shares of the Company's
(12) Lucille S. Salhany common stock
FOR / / WITHHELD / /
ALL FROM ALL
NOMINEES NOMINEES
/ /
--------------------------------------
For all nominess except as noted adove
MARK HERE IF YOU PLAN / /
TO ATTEND THE MEETING
MARK HERE FOR ADDRESS / /
CHANGE AND NOTE AT LEFT
Please sign as name appears. Joint owners should
each sign. When signing as attorney, executor,
administrator, trustee or quardian, please give full title
as such. If signer is a corporation, please sign with the
full corporation name by authorized officer or officerss.
</TABLE>
<PAGE>
