Hewlett-Packard (HPQ)

LTPC Program

        The LTPC Program, which the Committee approved in May 2003, is designed to drive value creation and operational results through its use of balance sheet and total stockholder return ("TSR") performance measures. A long-term incentive target amount is set for each participant in the LTPC Program. If periodic milestones relating to HP's cash flow from operations as a percentage of revenue are met, amounts are banked under the LTPC Program. At the end of the three-year performance period, a modifier approved at the beginning of the LTPC Program is applied to banked amounts held by then-current participants based on TSR relative to the TSR for the S&P 500 for the period. The TSR modifier is designed to limit payouts under the program if stockholders have not benefited during the period relative to overall S&P 500 performance. Conversely, where there has been a significant return to stockholders, LTCP Program participants may receive payouts at rates substantially above the market median at peer companies. In addition, the HR and Compensation Committee has the discretion to adjust awards in exceptional circumstances, including accelerating payouts or waiving forfeiture conditions.

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        For the three-year performance period ending April 2006, the cash flow metric was achieved at target during the first 12 months; threshold performance was not achieved for the second 12-month period, resulting in no amounts being banked for that period; and targets were achieved for the final two six-month periods (May 2005 through October 2005 and November 2005 through April 2006). For the total three-year program period, TSR was approximately the 71^st percentile of the S&P 500. Accordingly, the banked amounts were adjusted by applying a modifier based on HP's TSR relative to the TSR for the S&P 500, and a cash award was paid out for the three-year period ending April 30, 2006. Payouts to LTPC Program participants, including the named executive officers, were approved by the Committee at its May 2006 meeting. The amounts of such payouts to named executive officers in fiscal 2006 are reported in column (h) of the Summary Compensation Table beginning on page 34.

        Mr. Hurd's employment agreement provided for mid-plan entry into the LTPC Program's three-year cycles that began May 1, 2003 and May 1, 2004 and deemed the targets for his first full year of participation (May 1, 2005 through April 30, 2006) to have been met.

LTPC Program

        The LTPC Program, which the Committee approved in May 2003, is designed to drive value creation and operational results through its use of balance sheet and total stockholder return ("TSR") performance measures. Each participant in the LTPC Program receives a targeted long-term incentive amount. Periodic milestones³ relating to HP's cash flow from operations as a percentage of revenue must be met to receive a banked amount under the LTPC Program. At the end of the three-year performance period, a modifier approved at the beginning of the LTPC program will be applied to banked amounts held by then-current

²

United States Generally Accepted Accounting Principles.

³

Performance periods for the cash flow metric are generally one year, with six-month performance periods to permit alignment of the program with HP's fiscal year.

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participants based on TSR relative to the TSR for the S&P 500 for the period. Because HP failed to achieve the threshold level of performance for the cash flow as a percentage of total revenue metric for the May 2004-April 2005 performance period, no amounts were banked for participants, consistent with HP's pay-for-results philosophy. For the May 2005-October 2005 performance period, amounts were banked above target due to HP's achievement of cash flow goals. For a further description of the LTPC Program, see "Long-term Incentive Plans—Awards in Last Fiscal Year" on page 43.